HAWEL 10-Q Quarterly Report Sept. 30, 2021

HAWAIIAN ELECTRIC CO INC

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

he-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Exact Name of Registrant as Specified in Its Charter	Commission File Number	I.R.S. Employer Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.	1-8503	99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.	1-4955	99-0040500

State of Hawaii

(State or other jurisdiction of incorporation or organization)

Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900 , Honolulu , Hawaii 96813

Hawaiian Electric Company, Inc. – 1001 Bishop Street, Suite, 2500 , Honolulu , Hawaii 96813

(Address of principal executive offices and zip code)

Hawaiian Electric Industries, Inc. – ( 808 ) 543-5662

Hawaiian Electric Company, Inc. – ( 808 ) 543-7771

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)


Registrant	Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Hawaiian Electric Industries, Inc.	Common Stock, Without Par Value	HE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Hawaiian Electric Industries, Inc.

Yes

☒

☐

Hawaiian Electric Company, Inc.

Yes

☒

☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Hawaiian Electric Industries, Inc.

Yes

☒

☐

Hawaiian Electric Company, Inc.

Yes

☒

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Hawaiian Electric Industries, Inc.:

Hawaiian Electric Company, Inc.:

Large accelerated filer

☒

Smaller reporting company

☐

Large accelerated filer

☐

Smaller reporting company

☐

Accelerated filer

☐

Emerging growth company

☐

Accelerated filer

☐

Emerging growth company

☐

Non-accelerated filer

☐

Non-accelerated filer

☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Hawaiian Electric Industries, Inc.

☐

Hawaiian Electric Company, Inc.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Hawaiian Electric Industries, Inc.

Yes

☐

☒

Hawaiian Electric Company, Inc.

Yes

☐

☒

Securities registered pursuant to 12(b) of the Act:

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.


Class of Common Stock	Outstanding October 23, 2021
Hawaiian Electric Industries, Inc. (Without Par Value)	109,311,289	Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)	17,324,376	Shares (not publicly traded)

Hawaiian Electric Industries, Inc. (HEI) is the sole holder of Hawaiian Electric Company, Inc. (Hawaiian Electric) common stock.

This combined Form 10-Q is separately filed by HEI and Hawaiian Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to Hawaiian Electric is also attributed to HEI.

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended September 30, 2021

TABLE OF CONTENTS


Page No.
ii	Glossary of Terms
iv	Cautionary Note Regarding Forward-Looking Statements

	PART I. FINANCIAL INFORMATION
1	Item 1.	Financial Statements
		Hawaiian Electric Industries, Inc. and Subsidiaries
1		Condensed Consolidated Statements of Income (unaudited) - three and nine months ended September 30, 2021 and 202 0
2		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and nine months ended September 30, 2021 and 202 0
3		Condensed Consolidated Balance Sheets (unaudited) - September 30, 2021 and December 31, 202 0
4		Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) - three and nine months ended September 30, 2021 and 20 20
5		Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended September 30, 2021 and 202 0
		Hawaiian Electric Company, Inc. and Subsidiaries
7		Condensed Consolidated Statements of Income (unaudited) - three and nine months ended September 30, 2021 and 202 0
7		Condensed Consolidated Statements of Comprehensive Income (unaudited) - three and nine months ended September 30, 2021 and 20 20
8		Condensed Consolidated Balance Sheets (unaudited) - September 30, 2021 and December 31, 202 0
9		Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited) - three and nine months ended September 30, 2021 and 202 0
10		Condensed Consolidated Statements of Cash Flows (unaudited) - nine months ended September 30, 2021 and 20 20
10		Notes to Condensed Consolidated Financial Statements (unaudited)
60	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
60		HEI consolidated
66		Electric Utilities
81		Bank
90	Item 3.	Quantitative and Qualitative Disclosures About Market Risk
91	Item 4.	Controls and Procedures

	PART II.	OTHER INFORMATION
92	Item 1.	Legal Proceedings
92	Item 1A.	Risk Factors
92	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

93	Item 6.	Exhibits
94	Signatures

Hawaiian Electric Industries, Inc. and Subsidiaries

Hawaiian Electric Company, Inc. and Subsidiaries

Form 10-Q—Quarter ended September 30, 2021

GLOSSARY OF TERMS


Terms						Definitions
ACL						Allowance for credit losses, which is the current credit loss standard, requires recording the allowance based on the expected loss model
AES Hawaii						AES Hawaii, Inc.



AOCI						Accumulated other comprehensive income/(loss)
ARA						Annual revenue adjustment
ASB						American Savings Bank, F.S.B., a wholly owned subsidiary of ASB Hawaii, Inc.
ASB Hawaii						ASB Hawaii, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.

ASU						Accounting Standards Update
CARES Act						The Coronavirus Aid, Relief, and Economic Security Act enacted March 27, 2020
CBRE						Community-based renewable energy
Company						Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; Pacific Current, LLC and its subsidiaries (listed under Pacific Current); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
Consumer Advocate						Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
D&O						Decision and order from the PUC

Dodd-Frank Act						Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOH						Department of Health of the State of Hawaii
DRIP						HEI Dividend Reinvestment and Stock Purchase Plan

ECRC						Energy cost recovery clause
EIP						2010 Equity and Incentive Plan, as amended and restated
EPA						Environmental Protection Agency — federal
EPRM						Exceptional Project Recovery Mechanism
ERP/EAM						Enterprise Resource Planning/Enterprise Asset Management
EPS						Earnings per share
ESG						Environmental, Social & Governance
ESM						Earnings Sharing Mechanism
EVE						Economic value of equity
Exchange Act						Securities Exchange Act of 1934
FASB						Financial Accounting Standards Board
FDIC						Federal Deposit Insurance Corporation
federal						U.S. Government
FHLB						Federal Home Loan Bank
FHLMC						Federal Home Loan Mortgage Corporation
Fitch						Fitch Ratings, Inc.
FNMA						Federal National Mortgage Association
FRB						Federal Reserve Board
GAAP						Accounting principles generally accepted in the United States of America
GNMA						Government National Mortgage Association
Hamakua Energy						Hamakua Energy, LLC, an indirect subsidiary of HEI
Hawaii Electric Light						Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.

GLOSSARY OF TERMS, continued


Terms						Definitions
Hawaiian Electric						Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited and Renewable Hawaii, Inc. Uluwehiokama Biofuels Corp. was dissolved effective as of July 14, 2020
HEI						Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc., Pacific Current, LLC and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSP						Hawaiian Electric Industries Retirement Savings Plan
HELOC						Home equity line of credit
HPOWER						City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP						Independent power producer
Kalaeloa						Kalaeloa Partners, L.P.
kWh						Kilowatthour/s (as applicable)
LTIP						Long-term incentive plan
Maui Electric						Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
Mauo						Mauo, LLC, an indirect subsidiary of HEI
Moody’s						Moody’s Investors Service’s
MPIR						Major Project Interim Recovery

MW						Megawatt/s (as applicable)
MRP						Multi-year rate period
NII						Net interest income
NPBC						Net periodic benefit costs
NPPC						Net periodic pension costs
O&M						Other operation and maintenance
OCC						Office of the Comptroller of the Currency
OPEB						Postretirement benefits other than pensions
Pacific Current						Pacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings, LLC, Mauo, LLC, ‘Alenuihāhā Developments, LLC, Ka‘ie‘ie Waho Company, LLC and Ka ʻ aipua ʻ a LLC
PBR						Performance-based regulation
PGV						Puna Geothermal Venture
PIMs						Performance incentive mechanisms
PPA						Power purchase agreement
PPAC						Purchased power adjustment clause
PUC						Public Utilities Commission of the State of Hawaii
PV						Photovoltaic
RAM						Rate adjustment mechanism
RBA						Revenue balancing account
REIP						Renewable Energy Infrastructure Program
RFP						Request for proposals
ROACE						Return on average common equity
RORB						Return on rate base
RPS						Renewable portfolio standards
S&P						Standard & Poor’s
SEC						Securities and Exchange Commission
See						Means the referenced material is incorporated by reference
Tax Act						2017 Tax Cuts and Jobs Act (H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018)
TDR						Troubled debt restructuring

Utilities						Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIEs						Variable interest entities

iii

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking statements are not guarantees of future performance and actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:

• international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of future Federal government shutdowns, including the impact to our customers to pay their electric bills and/or bank loans and the impact on the state of Hawaii economy; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; the potential impacts of global and local developments (including global economic conditions and uncertainties, unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic or other crisis); the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; and pandemics;

• the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity and any recurrence of the COVID-19 pandemic due to new variants or insufficient vaccinations, the duration and scope of related government orders and restrictions, the impact on our employees, customers and suppliers, and the impact of the COVID-19 pandemic on the overall demand or ability to pay for the Company’s goods and services, all of which could be affected by the pace of distribution, administration, and efficacy of COVID-19 vaccines over the short- and long-term, as well as the proportion of the population vaccinated;

• ability to adequately address risks and capitalize on opportunities related to our environmental, social and governance (ESG) priority areas, which currently include decarbonization, economic health and affordability, reliability and resilience, secure digitalization, diversity, equity and inclusion, employee engagement, and climate-related risks and opportunities;

• citizen activism, including civil unrest, especially in times of severe economic depression and social divisiveness, which could negatively impact customers and employees, impair the ability of the Company and the Utilities to operate and maintain its facilities in an effective and safe manner, and citizen or stakeholder activism that could delay the construction, increase project costs or preclude the completion, of third-party or Utility projects that are required to meet electricity demand, reliability objectives and renewable portfolio standards (RPS) goals;

• the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling or budget funding, monetary policy, trade policy and tariffs, energy and environmental policy, and other policy and regulatory changes advanced or proposed by President Biden and his administration;

• weather, natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the increasing effects of climate change, such as more severe storms, flooding, droughts, heat waves, and rising sea levels) and wildfires, including their impact on the resilience and reliability and cost of the Company’s and Utilities’ operations and the economy;

• the timing, speed and extent of changes in interest rates and the shape of the yield curve, which could result in lower portfolio yields and net interest margin, or higher borrowing costs;

• the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the cost of such financings, if available;

• the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale, and the risks inherent in changes in the value of the Company’s pension liabilities, including changes driven by interest rates;

• changes in laws, regulations (including tax regulations), market conditions, interest rates and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;

• the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated, as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act;

• increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);

• the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet RPS goals; the impacts of implementation of the renewable energy proposals on future costs of electricity and potential penalties imposed by the PUC for delays in the commercial operations of renewable energy projects;

• the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC, the PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC;

• the ability of the Utilities to recover undepreciated cost of fossil fuel generating units, if they are retired before the end of their expected useful life;

• capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;

• fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost recovery clauses (ECRCs);

• the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;

• the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by the annual revenue adjustment (ARA);

• the ability of the Utilities to achieve performance incentive goals currently in place;

• the impact from the PUC’s implementation of performance-based ratemaking for the Utilities pursuant to Act 005, Session Laws 2018, including the potential addition of new performance incentive mechanisms (PIMs), third-party proposals adopted by the PUC in its implementation of performance-based regulation (PBR), and the implications of not achieving performance incentive goals;

• the impact of fuel price levels and volatility on customer satisfaction and political and regulatory support for the Utilities;

• the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;

• the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage;

• the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);

• the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;

• the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements and avoid or mitigate labor disputes and work stoppages;

• new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels, including use of digital currencies, which could include a central bank digital currency;

• cybersecurity risks and the potential for cyber incidents, including potential incidents at HEI, its third-party vendors, and its subsidiaries (including at ASB branches and electric utility plants) and incidents at data processing centers used, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general IT controls;

• failure to achieve remaining cost savings commitment related to the Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) project-related benefits and the management audit committed savings of $33 million over the 2021 to 2025 multi-year rate period (MRP);

• federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation and tax rates, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);

• developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;

• discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;

• decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);

• decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS);

• potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);

• the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);

• changes in accounting principles applicable to HEI and its subsidiaries, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting related to PBR or other regulatory changes, the effects of potentially required consolidation of variable interest entities (VIEs), or required finance lease or on-balance-sheet operating lease accounting for PPAs with IPPs;

• downgrades by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and their impact on results of financing efforts;

• faster than expected loan prepayments that can cause a decrease in net interest income and portfolio yields, an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;

• changes in ASB’s loan portfolio credit profile and asset quality and/or mix, which may increase or decrease the required level of provision for credit losses, allowance for credit losses (ACL) and charge-offs;

• changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;

• unanticipated changes from the expected discontinuance of LIBOR and the transition to an alternative reference rate, which may include adverse impacts to the Company’s cost of capital, loan portfolio and interest income on loans;

• the final outcome of tax positions taken by HEI and its subsidiaries;

• the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits), and the risks associated with the operation of transmission and distribution assets and power generation facilities, including public and employee safety issues, and assets causing or contributing to wildfires;

• the ability of the Company’s non-regulated subsidiary, Pacific Current, LLC (Pacific Current), to achieve its performance and growth objectives, which in turn could affect its ability to service its non-recourse debt;

• the Company’s reliance on third parties and the risk of their non-performance, which has increased due to the impact from the COVID-19 pandemic; and

• other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission.

Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB, Pacific Current and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)


	Three months ended September 30				Nine months ended September 30
(in thousands, except per share amounts)	2021		2020		2021		2020
Revenues
Electric utility	$	679,499	$	562,568	$	1,846,242	$	1,694,225
Bank	76,208		78,644		230,599		233,096
Other	1,197		215		3,266		237
Total revenues	756,904		641,427		2,080,107		1,927,558
Expenses
Electric utility	604,307		474,050		1,634,252		1,493,948
Bank	51,151		63,144		130,440		189,700
Other	4,130		4,672		18,212		13,091
Total expenses	659,588		541,866		1,782,904		1,696,739
Operating income (loss)
Electric utility	75,192		88,518		211,990		200,277
Bank	25,057		15,500		100,159		43,396
Other	( 2,933 )		( 4,457 )		( 14,946 )		( 12,854 )
Total operating income	97,316		99,561		297,203		230,819
Retirement defined benefits credit (expense)—other than service costs	1,058		( 1,102 )		4,709		( 2,970 )
Interest expense, net—other than on deposit liabilities and other bank borrowings	( 23,477 )		( 22,086 )		( 70,530 )		( 66,474 )
Allowance for borrowed funds used during construction	827		801		2,386		2,241
Allowance for equity funds used during construction	2,427		2,347		6,995		6,556
Gain on sale of investment securities, net	—		—		528		9,275
Income before income taxes	78,151		79,521		241,291		179,447
Income taxes	14,265		14,018		48,229		30,691
Net income	63,886		65,503		193,062		148,756
Preferred stock dividends of subsidiaries	471		471		1,417		1,417
Net income for common stock	$	63,415	$	65,032	$	191,645	$	147,339
Basic earnings per common share	$	0.58	$	0.60	$	1.75	$	1.35
Diluted earnings per common share	$	0.58	$	0.59	$	1.75	$	1.35

Weighted-average number of common shares outstanding	109,311		109,181		109,272		109,126
Net effect of potentially dilutive shares	264		155		316		261
Weighted-average shares assuming dilution	109,575		109,336		109,588		109,387

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)


	Three months ended September 30				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Net income for common stock	$	63,415	$	65,032	$	191,645	$	147,339
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 of $( 4,212 ), $ 360 , $( 14,614 ) and $ 7,836 , respectively	( 11,507 )		984		( 39,921 )		21,405
Reclassification adjustment for net realized gains included in net income, net of taxes of nil , nil , $( 142 ) and $( 599 ), respectively	—		—		( 387 )		( 1,638 )
Derivatives qualifying as cash flow hedges:
Unrealized interest rate hedging gains (losses) arising during the period, net of taxes of $ 48 , $( 51 ), $ 347 and $( 739 ), respectively	139		( 147 )		1,000		( 2,129 )
Reclassification adjustment for net realized losses included in net income, net of taxes of $ 3 , nil , $ 3 and nil , respectively	9		—		9		—
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $ 985 , $ 2,202 , $ 5,155 and $ 6,169 , respectively	2,853		6,324		14,871		17,720
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $( 971 ), $( 1,985 ), $( 5,002 ) and $( 5,563 ), respectively	( 2,799 )		( 5,721 )		( 14,421 )		( 16,038 )
Other comprehensive income (loss), net of taxes	( 11,305 )		1,440		( 38,849 )		19,320
Comprehensive income attributable to Hawaiian Electric Industries, Inc.	$	52,110	$	66,472	$	152,796	$	166,659

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)


(dollars in thousands)	September 30, 2021		December 31, 2020
Assets
Cash and cash equivalents	$	227,923	$	341,421
Restricted cash	9,412		17,558
Accounts receivable and unbilled revenues, net	331,752		281,216
Available-for-sale investment securities, at fair value	2,580,830		1,970,417
Held-to-maturity investment securities, at amortized cost	491,871		226,947
Stock in Federal Home Loan Bank, at cost	10,000		8,680
Loans held for investment, net	5,046,180		5,232,642
Loans held for sale, at lower of cost or fair value	53,998		28,275
Property, plant and equipment, net of accumulated depreciation of $ 3,040,153 and $ 2,903,144 at September 30, 2021 and December 31, 2020, respectively	5,335,130		5,265,735
Operating lease right-of-use assets	141,816		153,069
Regulatory assets	757,204		766,708
Other	691,857		629,149
Goodwill	82,190		82,190
Total assets	$	15,760,163	$	15,004,007
Liabilities and shareholders’ equity
Liabilities
Accounts payable	$	195,223	$	182,347
Interest and dividends payable	33,307		23,547
Deposit liabilities	7,976,538		7,386,957
Short-term borrowings—other than bank	92,246		129,379
Other bank borrowings	129,305		89,670
Long-term debt, net—other than bank	2,244,795		2,119,129
Deferred income taxes	378,139		395,089
Operating lease liabilities	155,608		160,432
Regulatory liabilities	975,512		959,786

Defined benefit pension and other postretirement benefit plans liability	543,285		567,438
Other	618,369		618,438
Total liabilities	13,342,327		12,632,212
Preferred stock of subsidiaries - not subject to mandatory redemption	34,293		34,293
Commitments and contingencies (Notes 3 and 4)
Shareholders’ equity
Preferred stock, no par value, authorized 10,000,000 shares; issued: none	—		—
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 109,311,289 shares and 109,181,124 shares at September 30, 2021 and December 31, 2020, respectively	1,683,090		1,678,368
Retained earnings	740,566		660,398
Accumulated other comprehensive loss, net of tax benefits	( 40,113 )		( 1,264 )
Total shareholders’ equity	2,383,543		2,337,502
Total liabilities and shareholders’ equity	$	15,760,163	$	15,004,007

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)


	Common stock			Retained		Accumulated other comprehensive
(in thousands)	Shares	Amount		Earnings		income (loss)		Total
Balance, December 31, 2020	109,181	$	1,678,368	$	660,398	$	( 1,264 )	$	2,337,502
Net income for common stock	—	—		64,358		—		64,358
Other comprehensive loss, net of tax benefits	—	—		—		( 44,016 )		( 44,016 )
Share-based expenses and other, net	100	605		—		—		605
Common stock dividends ( 34 ¢ per share)	—	—		( 37,156 )		—		( 37,156 )
Balance, March 31, 2021	109,281	1,678,973		687,600		( 45,280 )		2,321,293
Net income for common stock	—	—		63,872		—		63,872
Other comprehensive income, net of taxes	—	—		—		16,472		16,472
Share-based expenses and other, net	30	2,847		—		—		2,847
Common stock dividends ( 34 ¢ per share)	—	—		( 37,155 )		—		( 37,155 )
Balance, June 30, 2021	109,311	1,681,820		714,317		( 28,808 )		2,367,329
Net income for common stock	—	—		63,415		—		63,415
Other comprehensive loss, net of tax benefits	—	—		—		( 11,305 )		( 11,305 )
Share-based expenses and other, net	—	1,270		—		—		1,270
Common stock dividends ( 34 ¢ per share)	—	—		( 37,166 )		—		( 37,166 )
Balance, September 30, 2021	109,311	$	1,683,090	$	740,566	$	( 40,113 )	$	2,383,543
Balance, December 31, 2019	108,973	$	1,678,257	$	622,042	$	( 20,039 )	$	2,280,260
Impact of adoption of ASU No. 2016-13	—	—		( 15,372 )		—		( 15,372 )
Balance, January 1, 2020 after adoption of ASU No. 2016-13	108,973	1,678,257		606,670		( 20,039 )		2,264,888
Net income for common stock	—	—		33,420		—		33,420
Other comprehensive income, net of taxes	—	—		—		18,212		18,212
Share-based expenses and other, net	172	( 3,996 )		—		—		( 3,996 )
Common stock dividends ( 33 ¢ per share)	—	—		( 36,019 )		—		( 36,019 )
Balance, March 31, 2020	109,145	1,674,261		604,071		( 1,827 )		2,276,505
Net income for common stock	—	—		48,887		—		48,887
Other comprehensive loss, net of tax benefits	—	—		—		( 332 )		( 332 )
Share-based expenses and other, net	36	2,355		—		—		2,355
Common stock dividends ( 33 ¢ per share)	—	—		( 36,017 )		—		( 36,017 )
Balance, June 30, 2020	109,181	1,676,616		616,941		( 2,159 )		2,291,398
Net income for common stock	—	—		65,032		—		65,032
Other comprehensive income, net of taxes	—	—		—		1,440		1,440
Share-based expenses and other, net	—	1,391		—		—		1,391
Common stock dividends ( 33 ¢ per share)	—	—		( 36,030 )		—		( 36,030 )
Balance, September 30, 2020	109,181	$	1,678,007	$	645,943	$	( 719 )	$	2,323,231

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)


	Nine months ended September 30
(in thousands)	2021		2020
Cash flows from operating activities
Net income	$	193,062	$	148,756
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	184,389		178,674
Other amortization	24,511		39,580
Provision for credit losses	( 22,367 )		39,504
Loans originated, held for sale	( 281,744 )		( 380,864 )
Proceeds from sale of loans, held for sale	304,820		387,247
Gain on sale of investment securities, net	( 528 )		( 9,275 )
Gain on sale of loans, net	( 7,497 )		( 15,933 )
Deferred income taxes	( 13,473 )		( 14,464 )
Share-based compensation expense	6,727		5,449
Allowance for equity funds used during construction	( 6,995 )		( 6,556 )
Other	( 7,046 )		( 4,773 )
Changes in assets and liabilities
Decrease (increase) in accounts receivable and unbilled revenues, net	( 58,758 )		11,252
Decrease (increase) in fuel oil stock	( 42,612 )		31,899
Decrease (increase) in regulatory assets	( 4,952 )		10,012
Increase (decrease) in regulatory liabilities	8,806		( 15,755 )
Increase (decrease) in accounts, interest and dividends payable	36,850		( 20,794 )
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes	11,133		( 32,750 )
Decrease in defined benefit pension and other postretirement benefit plans liability	( 5,288 )		( 1,398 )
Change in other assets and liabilities	( 51,833 )		( 37,543 )
Net cash provided by operating activities	267,205		312,268
Cash flows from investing activities
Available-for-sale investment securities purchased	( 1,318,520 )		( 985,874 )
Principal repayments on available-for-sale investment securities	449,459		331,238
Proceeds from sale of available-for-sale investment securities	197,354		169,157
Purchases of held-to-maturity investment securities	( 314,327 )		( 28,602 )
Proceeds from repayments or maturities of held-to-maturity investment securities	49,074		34,740
Purchase of stock from Federal Home Loan Bank	( 32,980 )		( 24,006 )
Redemption of stock from Federal Home Loan Bank	31,660		21,520
Net decrease (increase) in loans held for investment	157,619		( 374,307 )
Proceeds from sale of residential loans	17,398		—
Capital expenditures	( 219,252 )		( 296,172 )
Proceeds from sale of low-income housing investments	—		6,725
Contributions to low income housing investments	( 12,402 )		( 3,951 )
Other	10,078		4,899
Net cash used in investing activities	( 984,839 )		( 1,144,633 )

(continued)

Hawaiian Electric Industries, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited) (continued)


	Nine months ended September 30
(in thousands)	2021		2020
Cash flows from financing activities
Net increase in deposit liabilities	589,581		766,235
Net increase (decrease) in short-term borrowings with original maturities of three months or less	27,755		( 112,710 )
Net increase in other bank borrowings with original maturities of three months or less	39,635		6,765
Proceeds from issuance of short-term debt	—		165,000
Repayment of short-term debt	( 65,000 )		( 100,000 )
Proceeds from issuance of other bank borrowings	—		30,000
Proceeds from issuance of long-term debt	206,988		365,146
Repayment of long-term debt	( 80,607 )		( 178,291 )
Withheld shares for employee taxes on vested share-based compensation	( 2,006 )		( 5,700 )
Common stock dividends	( 111,477 )		( 108,066 )
Preferred stock dividends of subsidiaries	( 1,417 )		( 1,417 )
Other	( 7,462 )		( 7,275 )
Net cash provided by financing activities	595,990		819,687
Net decrease in cash, cash equivalents and restricted cash	( 121,644 )		( 12,678 )
Cash, cash equivalents and restricted cash, beginning of period	358,979		227,685
Cash, cash equivalents and restricted cash, end of period	237,335		215,007
Less: Restricted cash	( 9,412 )		( 21,881 )
Cash and cash equivalents, end of period	$	227,923	$	193,126

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)


	Three months ended September 30				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Revenues	$	679,499	$	562,568	$	1,846,242	$	1,694,225
Expenses
Fuel oil	180,682		105,042		447,245		390,714
Purchased power	185,759		149,025		490,520		425,679
Other operation and maintenance	116,468		111,243		349,180		348,831
Depreciation	57,386		55,689		172,122		167,235
Taxes, other than income taxes	64,012		53,051		175,185		161,489
Total expenses	604,307		474,050		1,634,252		1,493,948
Operating income	75,192		88,518		211,990		200,277
Allowance for equity funds used during construction	2,427		2,347		6,995		6,556
Retirement defined benefits credit (expense)—other than service costs	877		( 432 )		2,918		( 1,195 )
Interest expense and other charges, net	( 18,148 )		( 16,836 )		( 54,126 )		( 50,768 )
Allowance for borrowed funds used during construction	827		801		2,386		2,241
Income before income taxes	61,175		74,398		170,163		157,111
Income taxes	10,335		13,835		33,066		29,316
Net income	50,840		60,563		137,097		127,795
Preferred stock dividends of subsidiaries	228		228		686		686
Net income attributable to Hawaiian Electric	50,612		60,335		136,411		127,109
Preferred stock dividends of Hawaiian Electric	270		270		810		810
Net income for common stock	$	50,342	$	60,065	$	135,601	$	126,299

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)


	Three months ended September 30				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Net income for common stock	$	50,342	$	60,065	$	135,601	$	126,299
Other comprehensive income, net of taxes:



Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $ 1,007 , $ 2,001 , $ 5,062 and $ 5,597 , respectively	2,905		5,769		14,596		16,137
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $( 971 ), $( 1,985 ), $( 5,002 ) and $( 5,563 ), respectively	( 2,799 )		( 5,721 )		( 14,421 )		( 16,038 )
Other comprehensive income, net of taxes	106		48		175		99
Comprehensive income attributable to Hawaiian Electric Company, Inc.	$	50,448	$	60,113	$	135,776	$	126,398

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)


(dollars in thousands, except par value)	September 30, 2021		December 31, 2020
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	51,610	$	51,611
Plant and equipment	7,669,720		7,509,343
Less accumulated depreciation	( 2,947,715 )		( 2,819,079 )
Construction in progress	221,518		188,342
Utility property, plant and equipment, net	4,995,133		4,930,217
Nonutility property, plant and equipment, less accumulated depreciation of $ 58 and $ 115 as of September 30, 2021 and December 31, 2020, respectively	6,950		6,953
Total property, plant and equipment, net	5,002,083		4,937,170
Current assets
Cash and cash equivalents	36,467		47,360
Restricted cash	6,313		15,966
Customer accounts receivable, net	174,237		147,832
Accrued unbilled revenues, net	129,079		101,036
Other accounts receivable, net	6,116		7,673
Fuel oil stock, at average cost	100,801		58,238
Materials and supplies, at average cost	72,997		67,344
Prepayments and other	53,961		44,083
Regulatory assets	56,224		30,435
Total current assets	636,195		519,967
Other long-term assets
Operating lease right-of-use assets	119,624		127,654
Regulatory assets	700,980		736,273
Other	144,026		136,309
Total other long-term assets	964,630		1,000,236
Total assets	$	6,602,908	$	6,457,373
Capitalization and liabilities
Capitalization
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,324,376 shares at September 30, 2021 and December 31, 2020)	$	115,515	$	115,515
Premium on capital stock	746,987		746,987
Retained earnings	1,334,161		1,282,335
Accumulated other comprehensive loss, net of tax benefits-retirement benefit plans	( 2,744 )		( 2,919 )
Common stock equity	2,193,919		2,141,918
Cumulative preferred stock — not subject to mandatory redemption	34,293		34,293
Long-term debt, net	1,676,223		1,561,302
Total capitalization	3,904,435		3,737,513
Commitments and contingencies (Note 3)
Current liabilities
Current portion of operating lease liabilities	64,894		64,730

Short-term borrowings from non-affiliates	—		49,979

Accounts payable	146,875		133,849
Interest and preferred dividends payable	28,610		20,350
Taxes accrued, including revenue taxes	196,368		192,524
Regulatory liabilities	32,261		37,301
Other	84,506		74,262
Total current liabilities	553,514		572,995
Deferred credits and other liabilities
Operating lease liabilities	67,802		69,494
Deferred income taxes	396,553		397,798
Regulatory liabilities	943,251		922,485
Unamortized tax credits	106,378		111,915
Defined benefit pension and other postretirement benefit plans liability	509,972		530,532
Other	121,003		114,641
Total deferred credits and other liabilities	2,144,959		2,146,865
Total capitalization and liabilities	$	6,602,908	$	6,457,373

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited)


	Common stock			Premium on capital		Retained		Accumulated other comprehensive
(in thousands)	Shares	Amount		stock		earnings		income (loss)		Total
Balance, December 31, 2020	17,324	$	115,515	$	746,987	$	1,282,335	$	( 2,919 )	$	2,141,918
Net income for common stock	—	—		—		43,358		—		43,358
Other comprehensive income, net of taxes	—	—		—		—		34		34
Common stock dividends	—	—		—		( 27,925 )		—		( 27,925 )

Balance, March 31, 2021	17,324	115,515		746,987		1,297,768		( 2,885 )		2,157,385
Net income for common stock	—	—		—		41,901		—		41,901
Other comprehensive income, net of taxes	—	—		—		—		35		35
Common stock dividends	—	—		—		( 27,925 )		—		( 27,925 )
Balance, June 30, 2021	17,324	115,515		746,987		1,311,744		( 2,850 )		2,171,396
Net income for common stock	—	—		—		50,342		—		50,342
Other comprehensive income, net of taxes	—	—		—		—		106		106
Common stock dividends	—	—		—		( 27,925 )		—		( 27,925 )
Balance, September 30, 2021	17,324	$	115,515	$	746,987	$	1,334,161	$	( 2,744 )	$	2,193,919
Balance, December 31, 2019	17,048	$	113,678	$	714,824	$	1,220,129	$	( 1,279 )	$	2,047,352
Net income for common stock	—	—		—		23,905		—		23,905
Other comprehensive income, net of taxes	—	—		—		—		26		26
Common stock dividends	—	—		—		( 26,784 )		—		( 26,784 )

Balance, March 31, 2020	17,048	113,678		714,824		1,217,250		( 1,253 )		2,044,499
Net income for common stock	—	—		—		42,329		—		42,329
Other comprehensive income, net of taxes	—	—		—		—		25		25
Common stock dividends	—	—		—		( 26,784 )		—		( 26,784 )

Balance, June 30, 2020	17,048	113,678		714,824		1,232,795		( 1,228 )		2,060,069
Net income for common stock	—	—		—		60,065		—		60,065
Other comprehensive income, net of taxes	—	—		—		—		48		48
Common stock dividends	—	—		—		( 26,784 )		—		( 26,784 )
Balance, September 30, 2020	17,048	$	113,678	$	714,824	$	1,266,076	$	( 1,180 )	$	2,093,398

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)


	Nine months ended September 30
(in thousands)	2021		2020
Cash flows from operating activities
Net income	$	137,097	$	127,795
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation of property, plant and equipment	172,122		167,235
Other amortization	17,058		24,929
Deferred income taxes	( 12,333 )		( 9,827 )

State refundable credit	( 7,955 )		( 7,589 )
Bad debt expense	1,303		1,401
Allowance for equity funds used during construction	( 6,995 )		( 6,556 )

Other	991		1,614
Changes in assets and liabilities
Decrease (increase) in accounts receivable	( 33,621 )		7,076
Decrease (increase) in accrued unbilled revenues	( 27,491 )		9,842
Decrease (increase) in fuel oil stock	( 42,563 )		31,494
Increase in materials and supplies	( 5,653 )		( 8,092 )
Decrease (increase) in regulatory assets	( 4,952 )		10,012
Increase (decrease) in regulatory liabilities	8,806		( 15,755 )
Increase (decrease) in accounts payable	27,210		( 34,874 )
Change in prepaid and accrued income taxes, tax credits and revenue taxes	2,934		( 34,768 )
Decrease in defined benefit pension and other postretirement benefit plans liability	( 3,902 )		( 3,064 )
Change in other assets and liabilities	( 23,800 )		( 15,918 )
Net cash provided by operating activities	198,256		244,955
Cash flows from investing activities
Capital expenditures	( 203,746 )		( 267,482 )
Other	6,157		7,295
Net cash used in investing activities	( 197,589 )		( 260,187 )
Cash flows from financing activities
Common stock dividends	( 83,775 )		( 80,352 )
Preferred stock dividends of Hawaiian Electric and subsidiaries	( 1,496 )		( 1,496 )
Proceeds from issuance of short-term debt	—		100,000
Repayment of short-term debt	( 50,000 )		( 100,000 )
Proceeds from issuance of long-term debt	115,000		255,000
Repayment of long-term debt	—		( 109,000 )
Net decrease in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less	—		( 38,987 )
Other	( 942 )		( 1,569 )
Net cash provided by (used in) financing activities	( 21,213 )		23,596
Net increase (decrease) in cash and cash equivalents	( 20,546 )		8,364
Cash, cash equivalents and restricted cash, beginning of period	63,326		41,894
Cash, cash equivalents and restricted cash, end of period	42,780		50,258
Less: Restricted cash	( 6,313 )		( 20,458 )
Cash and cash equivalents, end of period	$	36,467	$	29,800

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 · Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited condensed consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric’s Form 10-K for the year ended December 31, 2020.

In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of September 30, 2021 and December 31, 2020 and the results of their operations for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 2021 and 2020. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

Recent accounting pronouncements.

Income Taxes . In December 2019, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes specific exceptions to the general principles in Topic 740, improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP under certain situations. ASU No. 2019-12 is effective for public business entities for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the ASU as of January 1, 2021 with no material impact on its consolidated financial statements and related disclosures.

Leases . On July 19, 2021 FASB issued ASU No. 2021-05, “Leases (Topic 842): Lessors–Certain Leases with Variable Lease Payments.” The ASU allows lessors to treat sales-type leases with variable payments to be classified as operating leases if the sales-type lease treatment under Topic 842 would result in a selling loss at lease commencement (day-one loss). The Company early adopted ASU No. 2021-05 as of September 30, 2021 retrospectively to leases that commenced on or after the adoption of ASU No. 2016-02, “Leases (Topic 842)”. The adoption of ASU No. 2021-05 did not have a material impact on the Company’s consolidated financial statements and related disclosures.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 2 · Segment financial information


(in thousands)	Electric utility		Bank		Other		Total
Three months ended September 30, 2021
Revenues from external customers	$	679,482	$	76,208	$	1,214	$	756,904
Intersegment revenues (eliminations)	17		—		( 17 )		—
Revenues	$	679,499	$	76,208	$	1,197	$	756,904
Income (loss) before income taxes	$	61,175	$	25,241	$	( 8,265 )	$	78,151
Income taxes (benefit)	10,335		5,976		( 2,046 )		14,265
Net income (loss)	50,840		19,265		( 6,219 )		63,886
Preferred stock dividends of subsidiaries	498		—		( 27 )		471
Net income (loss) for common stock	$	50,342	$	19,265	$	( 6,192 )	$	63,415
Nine months ended September 30, 2021
Revenues from external customers	$	1,846,206	$	230,599	$	3,302	$	2,080,107
Intersegment revenues (eliminations)	36		—		( 36 )		—
Revenues	$	1,846,242	$	230,599	$	3,266	$	2,080,107
Income (loss) before income taxes	$	170,163	$	102,335	$	( 31,207 )	$	241,291
Income taxes (benefit)	33,066		23,230		( 8,067 )		48,229
Net income (loss)	137,097		79,105		( 23,140 )		193,062
Preferred stock dividends of subsidiaries	1,496		—		( 79 )		1,417
Net income (loss) for common stock	$	135,601	$	79,105	$	( 23,061 )	$	191,645
Total assets (at September 30, 2021)	$	6,602,908	$	9,010,419	$	146,836	$	15,760,163
Three months ended September 30, 2020
Revenues from external customers	$	562,559	$	78,644	$	224	$	641,427
Intersegment revenues (eliminations)	9		—		( 9 )		—
Revenues	$	562,568	$	78,644	$	215	$	641,427
Income (loss) before income taxes	$	74,398	$	15,027	$	( 9,904 )	$	79,521
Income taxes (benefit)	13,835		2,877		( 2,694 )		14,018
Net income (loss)	60,563		12,150		( 7,210 )		65,503
Preferred stock dividends of subsidiaries	498		—		( 27 )		471
Net income (loss) for common stock	$	60,065	$	12,150	$	( 7,183 )	$	65,032
Nine months ended September 30, 2020
Revenues from external customers	$	1,694,195	$	233,096	$	267	$	1,927,558
Intersegment revenues (eliminations)	30		—		( 30 )		—
Revenues	$	1,694,225	$	233,096	$	237	$	1,927,558
Income (loss) before income taxes	$	157,111	$	51,330	$	( 28,994 )	$	179,447
Income taxes (benefit)	29,316		9,405		( 8,030 )		30,691
Net income (loss)	127,795		41,925		( 20,964 )		148,756
Preferred stock dividends of subsidiaries	1,496		—		( 79 )		1,417
Net income (loss) for common stock	$	126,299	$	41,925	$	( 20,885 )	$	147,339
Total assets (at December 31, 2020)	$	6,457,373	$	8,396,533	$	150,101	$	15,004,007

Intercompany electricity sales of the Utilities to ASB and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by the Utilities and the profit on such sales is nominal.

Hamakua Energy, LLC’s (Hamakua Energy’s) sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 3 · Electric utility segment

Unconsolidated variable interest entities.

Power purchase agreements . As of September 30, 2021, the Utilities had five PPAs for firm capacity (including the Puna Geothermal Venture (PGV) PPA that went offline in May 2018 due to lava flow on Hawaii Island, but returned to service with firm capacity of 13 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter of 2021) and other PPAs with independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or power production facilities who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs.

Pursuant to the current accounting standards for VIEs, the Utilities are deemed to have a variable interest in Kalaeloa Partners, L.P. (Kalaeloa), AES Hawaii, Inc. (AES Hawaii) and Hamakua Energy by reason of the provisions of the PPA that the Utilities have with the three IPPs. However, management has concluded that the Utilities are not the primary beneficiary of Kalaeloa, AES Hawaii and Hamakua Energy because the Utilities do not have the power to direct the activities that most significantly impact the three IPPs’ economic performance nor the obligation to absorb their expected losses, if any, that could potentially be significant to the IPPs. Thus, the Utilities have not consolidated Kalaeloa, AES Hawaii and Hamakua Energy in its condensed consolidated financial statements. Hamakua Energy is an indirect subsidiary of Pacific Current and is consolidated in HEI’s condensed consolidated financial statements.

For the other PPAs with IPPs, the Utilities have concluded that the consolidation of the IPPs was not required because either the Utilities do not have variable interests in the IPPs due to the absence of an obligation in the PPAs for the Utilities to absorb any variability of the IPPs, or the IPP was considered a “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. The consolidation of any significant IPP could have a material effect on the unaudited condensed consolidated financial statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs to the IPP.

Commitments and contingencies.

Contingencies . The Utilities are subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, the Utilities cannot rule out the possibility that such outcomes could have a material effect on the results of operations or liquidity for a particular reporting period in the future.

Power purchase agreements . Purchases from all IPPs were as follows:


	Three months ended September 30			Nine months ended September 30
(in millions)		2021		2020		2021		2020
Kalaeloa		$	56	$	39	$	142	$	111
AES Hawaii		32		33		98		96
HPOWER		20		18		51		52
Hamakua Energy		15		12		38		36
Puna Geothermal Venture		9		—		20		—
Wind IPPs		38		30		95		83
Solar IPPs		12		17		40		45
Other IPPs 1		4		—		7		3
Total IPPs		$	186	$	149	$	491	$	426

1 Includes hydro power and other PPAs

Kalaeloa Partners, L.P. Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. Hawaiian Electric and Kalaeloa had been negotiating an extension to the PPA, and the PPA had automatically extended on a month-to-month basis as long as the parties were still negotiating in good faith. In October 2021, Hawaiian Electric and Kalaeloa signed the Amended and Restated Power Purchase Agreement for Firm Dispatchable Capacity and Energy (Amended and Restated PPA) to extend the PPA for an additional term of 10 years. Hawaiian Electric will be submitting an application for approval of the Amended and Restated PPA to the PUC.

AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amendment No. 2) for a period of 30 years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. Hawaiian

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Electric and AES Hawaii have been in dispute over an additional 9 MW of capacity. In February 2018, Hawaiian Electric reached agreement with AES Hawaii on an amendment to the PPA. However, in June 2018, the PUC issued an order suspending review of the amendment pending a Department of Health of the State of Hawaii ( DOH) decision on AES Hawaii’s request for approval of its Emission Reduction Plan and partnership with Hawaiian Electric. If approved by the PUC, the amendment will resolve AES Hawaii’s claims related to the additional capacity. Hawaiian Electric does not intend to extend the term of the PPA which will expire on September 1, 2022.

Hu Honua Bioenergy, LLC (Hu Honua). In May 2012, Hawaii Electric Light signed a PPA, which the PUC approved in December 2013, with Hu Honua for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a facility on the island of Hawaii. Under the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016. However, Hu Honua encountered construction and litigation delays, which resulted in an amended and restated PPA between Hawaii Electric Light and Hu Honua dated May 9, 2017. In July 2017, the PUC approved the amended and restated PPA, which becomes effective once the PUC’s order is final and non-appealable. In August 2017, the PUC’s approval was appealed by a third party. On May 10, 2019, the Hawaii Supreme Court issued a decision remanding the matter to the PUC for further proceedings consistent with the court’s decision which must include express consideration of greenhouse gas (GHG) emissions that would result from approving the PPA, whether the cost of energy under the PPA is reasonable in light of the potential for GHG emissions, and whether the terms of the PPA are prudent and in the public interest, in light of its potential hidden and long-term consequences. As a result, the PUC reopened the docket for further proceedings, including re-examining all of the issues in the proceedings. On July 9, 2020, the PUC issued an order denying Hawaii Electric Light’s request to waive the amended and restated PPA from the PUC’s competitive bidding requirements and therefore, dismissed the request for approval of the amended and restated PPA without prejudice to possible participation in any future competitive bidding process. On September 9, 2020, the PUC denied Hu Honua’s motion for reconsideration of the PUC’s order. Hu Honua filed its notice of appeal to the Hawaii Supreme Court of the PUC’s order denying Hu Honua’s motion for reconsideration. On May 24, 2021, the Hawaii Supreme Court vacated the PUC’s decision and remanded the matter back to the PUC for further proceedings. On June 30, 2021, the PUC issued an order reopening the docket consistent with the Hawaii Supreme Court’s order. A contested case hearing has been scheduled for January 2022.

Molokai New Energy Partners (MNEP). In July 2018, the PUC approved Maui Electric’s PPA with MNEP to purchase solar energy from a photovoltaic (PV) plus battery storage project. The 4.88 MW PV and 3 MW Battery Energy Storage System project was to deliver no more than 2.64 MW at any time to the Molokai system. On March 25, 2020, MNEP filed a complaint in the United Stated District Court for the District of Hawaii against Maui Electric claiming breach of contract. On June 3, 2020, Maui Electric provided Notice of Default and Termination of the PPA to MNEP terminating the PPA with an effective date of July 10, 2020. Thereafter, MNEP filed an amended Complaint to include claims relating to the termination and Hawaiian Electric filed its Answer to the Amended Complaint on September 11, 2020, disputing the facts presented by MNEP and all claims within the original and amended complaint. Currently, the discovery phase is ongoing.

Utility projects . Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits or community support can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, or if PUC-imposed caps on project costs are expected to be exceeded, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.

Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) implementation project. The ERP/EAM Implementation Project went live in October 2018. Hawaii Electric Light and Hawaiian Electric began to incorporate their portion of the deferred project costs in rate base and started the amortization over a 12 -year period in January 2020 and November 2020, respectively. The PUC required the benefit savings of the project to be passed on to customers.

In February 2019, the PUC approved a methodology for passing the future cost saving benefits of the new ERP/EAM system to customers developed by the Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification document on June 10, 2019, reflecting $ 150 million in future net O&M expense reductions and cost avoidance, and $ 96 million in capital cost reductions and tax savings over the 12-year service life. To the extent the reduction in O&M expense relates to amounts reflected in electric rates, the Utilities would reduce future rates for such amounts. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism. As of September 30, 2021, the Utilities’ regulatory liability was $ 9.9 million ($ 5.8 million for Hawaiian Electric, $ 1.6 million for Hawaii Electric Light and $ 2.5 million for Maui Electric) for the O&M expense savings that are being amortized or to be included in future rates. As part of the settlement agreement approved in the Hawaiian Electric 2020 test year rate case, the regulatory liability for Hawaiian Electric will be amortized over five years , beginning in November 2020, and the O&M benefits for Hawaiian Electric was considered flowed through to customers. As part of the PBR proceeding, the regulatory

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

liability as of December 31, 2020 of approximately $ 1.6 million and $ 2.3 million, respectively, for Hawaii Electric Light and Maui Electric was flowed to customers as part of the customer dividend in the annual revenue adjustment in 2021.

On July 7, 2021, the PUC issued an order modifying the reporting frequency of the Semi-Annual Enterprise System Benefits (SAESB) reports to an Annual Enterprise System Benefits (AESB) report on the achieved benefits savings. The most recent SAESB report was filed on February 26, 2021 for the period July 1 through December 31, 2020.

Environmental regulation . The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances.

Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.

Former Molokai Electric Company generation site . In 1989, Maui Electric acquired Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The federal Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the DOH and EPA, Maui Electric further investigated the Site and the Adjacent Parcel to determine the extent of impacts of polychlorinated biphenyls (PCBs), residual fuel oils and other subsurface contaminants. Maui Electric has a reserve balance of $ 2.7 million as of September 30, 2021, representing the probable and reasonably estimable undiscounted cost for remediation of the Site and the Adjacent Parcel; however, final costs of remediation will depend on the cleanup approach implemented.

Pearl Harbor sediment study . In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is a Potentially Responsible Party responsible for the costs of investigation and cleanup of PCB contamination in sediment in the area offshore of the Waiau Power Plant as part of the Pearl Harbor Superfund Site. Hawaiian Electric was also required by the EPA to assess potential sources and extent of PCB contamination onshore at Waiau Power Plant.

As of September 30, 2021, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $ 10.4 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore and offshore investigation and remediation. The final remediation costs will depend on the actual onshore and offshore cleanup costs.

Regulatory proceedings

Decoupling . Decoupling is a regulatory model that is intended to provide the Utilities with financial stability and facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. Prior to the implementation of the performance-based regulation framework (PBR Framework), the decoupling mechanism had the following major components: (1) monthly revenue balancing account (RBA) revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kWh sales, (2) rate adjustment mechanism (RAM) revenues for escalation in certain O&M expenses and rate base changes, (3) major project interim recovery (MPIR) adjustment mechanism, (4) performance incentive mechanisms (PIMs), and (5) an earnings sharing mechanism (ESM), which would provide for a reduction of revenues between rate cases in the event the utility exceeds the authorized rate-making return on average common equity (ROACE) allowed in its most recent rate case.

Performance-based regulation framework. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving the new PBR Framework. Under the PBR Framework, the Utilities’ decoupling will continue to be used with modifications, as described below. The existing cost recovery mechanisms will continue as currently implemented (e.g., the Energy Cost Recovery Clause (ECRC), Purchased Power Adjustment Clause (PPAC), Demand Side Management surcharge (DSM), Renewable Energy Infrastructure Program (REIP), Demand Response Adjustment Clause (DRAC), Pension and Other Post-Employment Benefits (OPEB) tracking mechanisms). In addition to annual revenues provided by the annual revenue adjustment (ARA), the Utilities may seek relief for extraordinary projects or programs through the Exceptional Project Recovery Mechanism (EPRM) (formerly known as the MPIR adjustment mechanism) and earn financial rewards for exemplary performance as provided through a portfolio of PIMs and Shared Savings Mechanisms (SSMs). The PBR Framework will incorporate a variety of other performance mechanisms, including Scorecards, Reported Metrics, and an expedited Pilot Process. The PBR Framework also contains a number of safeguards, including a symmetric ESM which protects the Utilities and customers from excessive earnings or losses, as measured by the Utilities’ achieved rate-making ROACE and a Re-Opener

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

mechanism, under which the PUC will open an examination, at its discretion, to determine if adjustments or modifications to specific PBR mechanisms are appropriate. The new PBR Framework became fully effective on June 1, 2021.

On September 17, 2021, the PUC issued an order including a proposed new set of potential PIMs to address these areas of PUC concern:

• Grid reliability,

• Timely retirement of fossil fuel generation units,

• Interconnection of large-scale renewable energy projects,

• Cost control for fossil fuel, purchased power, and other non-ARA costs, and

• Expedient utilization of grid services from demand-side resources

The order established a procedural schedule by which a PBR Working Group (consisting of parties from the docket in which the new PBR Framework was established) will comment upon and evaluate the potential new PIMs and potentially propose alternatives. The schedule included procedural steps for technical conferences, statements of position filings and an evidentiary hearing. The PUC has not stated when any new PIMs might become effective. On November 2, 2021, the PUC suspended the previous procedural schedule, pending review of schedule modifications.

Rate adjustment mechanism . The RAM is based on the lesser of: a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). All Utilities were limited to the RAM Cap in 2020. Under the PBR Framework, the ARA mechanism replaced the RAM, and became effective on June 1, 2021. The transition to the ARA includes the continuation of the 2020 RAM revenue adjustment.

Annual revenue adjustment mechanism . The PBR Framework established a five-year multi-year rate period during which there will be no general rate cases. Target revenues will be adjusted according to an index-driven ARA based on (i) an inflation factor, (ii) a predetermined X-factor to encompass productivity, which is set at zero, (iii) a Z-factor to account for exceptional circumstances not in the Utilities’ control and (iv) a customer dividend consisting of a negative adjustment of 0.22 % compounded annually and a flow through of the “pre-PBR” savings commitment from the management audit recommendations developed in a prior docket.

As a result of an Order issued by the PUC pursuant to a motion for partial reconsideration the customer dividend for “pre-PBR” savings commitment portion to be delivered to customers will be at a rate of $ 6.6 million per year from 2021 to 2025, and the Enterprise Resource Planning system benefits savings of $ 3.9 million, to be delivered to customers in 2021. The implementation of the ARA occurred on June 1, 2021.

Earnings sharing mechanism . A symmetrical ESM for achieved rate-making ROACE outside of a 300 basis points dead band above or below the current authorized ROACE of 9.5 % for each of the Utilities. There is a 50/50 sharing between customers and Utilities for the achieved rate-making ROACE falling within 150 basis points outside of the dead band in either direction, and a 90/10 sharing for any further difference. A reopening or review of the PBR terms will be triggered if the Utilities credit rating outlook indicates a potential credit downgrade below investment grade status, or if its achieved rate-making ROACE enters the outer most tier of the ESM.

Major project interim recovery . On April 27, 2017, the PUC issued an order that provided guidelines for interim recovery of revenues to support major projects placed in service between general rate cases.

Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $ 2.5 million), including, but not restricted to, renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case, and all costs that are allowed to be recovered through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital projects that are not recovered through the MPIR would be included in the RAM and be subject to the RAM Cap, until the next rate case when the Utilities would request recovery in base rates.

On May 26, 2021, the PUC approved 2021 MPIR amounts totaling $ 21.8 million, including revenue taxes, for the Schofield Generating Station ($ 17.6 million), West Loch PV Project ($ 3.3 million), and Grid Modernization Strategy (GMS) Phase 1 project ($ 0.9 million for all three utilities) for the accrual of revenues effective January 1, 2021, that included the 2021

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

return on project amount (based on approved amounts) in rate base, depreciation and incremental O&M expenses. Under the PBR framework, the Utilities began recovery of the annualized 2021 MPIR amounts effective June 1, 2021 through the RBA rate adjustment.

On September 27, 2021, the PUC issued an order rejecting the Utilities’ August 31, 2021 request to update target revenues resulting from the GMS Phase 1 Meter Data Management System (MDMS) deferred software go‑live and completion of implementation through July 2021, as it inappropriately relied on an automatic approval provision in Hawaii Administrative Rules. The PUC did not rule on the merits of the Utilities’ request and offered the Utilities to file an amended request as soon as practicable. On October 7, 2021, the Utilities filed an amended request, requesting PUC approval of RBA tariff sheets reflecting the change to target revenues associated with the GMS Phase 1 MDMS deferred software go-live and completion of implementation through July 2021.

Exceptional project recovery mechanism . Under the PBR Framework, the existing MPIR adjustment mechanism was renamed EPRM to include deferred and O&M expense projects and to permit the Utilities to include the full amount of approved costs in the EPRM for recovery in the first year the project goes into service, pro-rated for the portion of the year the project is in service. Any pending application for MPIR relief submitted by the Utilities prior to the PBR D&O will be grandfathered under the MPIR Guidelines. The Utilities may alternatively request that pending MPIR applications be reviewed under EPRM Guidelines. EPRM recovery will be in accordance with the EPRM Guidelines limited to the lesser of actual incurred project costs or PUC-approved amounts, net of savings. Currently, the Utilities are seeking EPRM recovery of eight projects with total project costs of $ 324 million, subject to PUC approval.

Pilot process . The PBR D&O approved a Pilot Process to foster innovation by establishing an expedited implementation process for pilots that test new technologies, programs, business models, and other arrangements. This is intended to support initiatives by the Utilities to test new programs and ideas quickly and elevate any successful pilots for consideration of full-scale implementation. The proposed pilots would be subject to PUC approval with a total annual cap of $ 10 million. The Pilot Process will feature the two primary activities: an initial “Workplan Development” phase, during which the Utilities identify and scope areas of interests, so as to inform the subsequent “Implementation” phase, during which the Utilities submit specific pilot proposals for expedited review by the PUC and implement the pilot upon approval. The PUC will issue an order, approving, denying, or modifying a proposed Pilot within 45 days of receiving notice of a specific pilot project.

On July 9, 2021, the PUC issued an order approving the Utilities’ proposed Pilot Process submitted in April 2021 with modifications, including a cost recovery process that generally allows the Utilities to defer and recover total annual expenditures of approved pilot projects in full over twelve months beginning June 1 of the year following implementation through the RBA rate adjustment, although the Utilities may determine on a case-by-case basis that a particular project’s deferred costs should be amortized over a period greater than twelve months. On July 28, 2021, the Utilities submitted the finalized Pilot Process to govern the review of the pilot project proposals in accordance with the July 9, 2021 order.

Performance incentive mechanisms . The PUC has established the following PIMs: (1) Service Quality performance incentives, (2) Phase 1 Request for proposal (RFP) PIM for procurement of low-cost renewable energy, (3) Phase 2 RFP PIMs for generation and generation plus storage project, and Grid Services and standalone storage.

• Service Quality performance incentives (ongoing). Service Quality performance incentives are measured on a calendar-year basis. The PIM tariff requires the performance targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels for each of the PIMs shall remain constant in interim periods, unless otherwise amended by order of the PUC.

• Service Reliability Performance measured by System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $ 6.8 million - for both indices in total for the three utilities).

• Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3 % above and below the target. The maximum penalty or reward is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or rewards of approximately $ 1.4 million - in total for the three utilities).

In December 2020, the Utilities accrued $ 0.9 million in estimated rewards for call center performance, net of service reliability penalties, for 2020. The net service quality performance rewards related to 2020 was reflected in the 2021

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

annual decoupling filing which was approved by the PUC on May 26, 2021, resulting in an increase to customer rates effective June 1, 2021.

• Phase 1 RFP PIM. Procurement of low-cost variable renewable resources through the RFP process in 2018 is measured by comparison of the procurement price to target prices. Half of the incentive was earned upon PUC approval of the PPAs. Based on the seven PPAs approved in 2019, the Utilities recognized $ 1.7 million in 2019 with the remaining award to be recognized in the year following the in-service date of the projects, which is estimated to occur from 2023 to 2024.

• Phase 2 RFP PIMs. The PUC order issued on October 9, 2019 establishes pricing thresholds, timelines to complete contracting, and other performance criteria for the performance incentive eligibility. The PIMs provide incentives only without penalties. The order requires contracts under the Grid Service RFP be filed for approval by May 2020 (subsequently extended to July 9, 2020), and by September 2020 under the Renewable RFPs, with a declining PIM for projects that are not filed by these deadlines. On July 9, 2020, the Utilities filed two Grid Service Purchase Agreements for the Grid Service RFP that potentially qualify for a demand response PIM, however, details of the incentive metrics will be determined by the PUC. On September 15, 2020, the Utilities filed eight power purchase agreements for the Phase 2 RFP. Of those eight , only one project qualified for a potential PIM incentive. On February 16, 2021, the Utilities filed one additional power purchase agreement that qualifies for the declining PIM, which was approved on September 15, 2021. The first allocation of incentives is earned upon PUC approval of the contact and the remaining PIM allocations begin after the project achieves commercial operations and are earned based on delivered energy for the prior year, through 2025. The Utilities accrued $ 0.1 million in incentives in September 2021. On December 31, 2020, the PUC approved the two Grid Services Purchase Agreements without further clarification regarding the demand response PIM. The Utility filed a letter in January 2021 with the PUC seeking guidance on the next steps to define the demand response incentive metric details.

• The PUC established the following two new PIMs in its PBR D&O, which were approved in an order issued on March 23, 2021 and became effective on June 1, 2021.

• Renewable portfolio standard (RPS)-A PIM that provides a financial reward for accelerating the achievement of RPS goals. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $ 20 /MWh in 2021 and 2022, $ 15 /MWh in 2023, and $ 10 /MWh for the remainder of the multi-year rate period (MRP). Penalties are already prescribed in the RPS as $ 20 /MWh for failing to meet RPS targets in 2030, 2040 and 2045. The evaluation period commenced on January 1, 2021.

• Grid Services Procurement PIM that provides financial rewards for grid services acquired in 2021 and 2022. The Utilities can earn a total maximum reward of $ 1.5 million over 2021 and 2022. The evaluation period commenced on January 1, 2021.

• The PUC also established the following three new PIMs in its PBR D&O, which were approved by the PUC on May 17, 2021 and became effective on June 1, 2021.

• Interconnection Approval PIM that provides financial rewards and penalties for interconnection times for distributed energy resources systems <100 kW in size. The Utilities can earn a total annual maximum reward of $ 3.0 million or a total annual maximum penalty of $ 0.9 million. The evaluation period commenced on January 1, 2021.

• Low-to-Moderate Income (LMI) Energy Efficiency PIM that provides financial reward for collaboration between the Utilities and the third-party Public Benefits Fee Administrator to deliver energy savings for low- and moderate-income customers. The Utilities can earn a total annual maximum reward of $ 2.0 million. The PIM will initially have a duration of three years and be subject to an annual review. The evaluation period is based on Hawaii Energy’s program year with the initial evaluation year being the period of July 1, 2021 through June 30, 2022.

• Advanced Metering Infrastructure Utilization PIM that provides financial rewards for leveraging grid modernization investments and engaging customers beyond what is already planned in the Phase 1 Grid Modernization program. The Utilities can earn a total annual maximum reward of $ 2.0 million. The PIM will initially have a duration of three years after which it will be re-evaluated. The evaluation period commenced on January 1, 2021.

Annual review cycle . PBR D&O established an annual review cycle for revenue adjustments under the PBR Framework, including the biannual submission of the revenue reports. The Utilities filed the fall revenue report on October 29,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

2021, which is subject to PUC approval. The filing reflected ARA revenues for 2022 to be collected from January 1 through December 31, 2022, as follows:


(in millions)	Hawaiian Electric		Hawaii Electric Light		Maui Electric		Total
2022 ARA revenues	$	19.8	$	4.9	$	4.8	$	29.5
Management Audit savings commitment	( 4.6 )		( 1.0 )		( 1.0 )		( 6.6 )
Net 2022 ARA revenues	$	15.2	$	3.9	$	3.8	$	22.9

The proposed net incremental amounts between the 2021 spring and fall revenue reports are as follows. The amounts are to be collected (refunded) from January 1 through December 31, 2022 under the RBA rate tariffs, which was proposed in the 2021 fall revenue report filing and is subject to PUC approval.


(in millions)	Hawaiian Electric		Hawaii Electric Light		Maui Electric		Total
Incremental RAM revenues and ARA revenues	$	41.7	$	8.9	$	10.9	$	61.5
Incremental accrued RBA balance through September 30, 2021 (and associated revenue taxes)	21.9		2.5		( 0.1 )		24.3
Incremental Performance Incentive Mechanisms (net)	—		—		0.1		0.1
Incremental MPIR/EPRM Revenue Adjustment	9.8		0.3		0.3		10.4



Net incremental amount to be collected under the RBA rate tariffs	$	73.4	$	11.7	$	11.1	$	96.2

Note: Columns may not foot due to rounding.

Most recent rate proceedings.

Hawaiian Electric 2020 test year rate case . On October 22, 2020, the PUC issued a final D&O approving the stipulated settlement agreement filed in the proceeding. As a result, there will be no increase in base electric rates established in the 2017 test year rate case. In the final D&O, the PUC approved the capital structure that consists of a 58 % total equity ratio, and an authorized ROACE of 9.5 % for the 2020 test year. The resulting return on rate base (RORB) is 7.37 %. The D&O approved the agreement to implement the overall lower depreciation rates approved in the last depreciation study proceeding, effective January 1, 2020. See “Annual revenue adjustment mechanism” under “Performance-based regulation framework” above, regarding the PUC’s decision on the treatment of Hawaiian Electric’s Management Audit savings commitment. Hawaiian Electric’s proposed RBA provision tariff and ECRC tariff submitted on November 6, 2020 were approved by the PUC on December 11, 2020 and took effect on January 1, 2021.

Hawaii Electric Light 2019 test year rate case . On July 28, 2020, the PUC issued a final D&O, approving the Stipulated Partial Settlement Letter in part and ordering final rates for the 2019 test year to remain at current effective rates such that there is a zero increase in rates. The PUC determined that an appropriate authorized ROACE for the 2019 test year is 9.5 %, approved a capital structure of 58 % total equity and approved as fair a 7.52 % RORB. In addition, the order, among others, (1) approved a 10 -year amortization period for the state investment tax credit; and (2) approved a modification to Hawaii Electric Light’s ECRC to incorporate a 98 %/ 2 % risk-sharing split between customers and Hawaii Electric Light with an annual maximum exposure cap of +/- $ 600,000 . The proposed final tariffs and PIM tariffs took effect on November 1, 2020, and the ECRC tariff took effect on January 1, 2021.

Regulatory assets for COVID-19 related costs. On May 4, 2020, the PUC issued an order, authorizing all utilities, including the Utilities, to establish regulatory assets to record costs resulting from the suspension of disconnections of service during the pendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the Utilities from charging late payment fees on past due payments. On June 30, 2020, the PUC issued an order approving the Utilities’ request made in April 2020 for deferral treatment of COVID-19 related costs through December 31, 2020. On October 1, 2021, the PUC approved the Utilities’ request to extend the deferral period to December 31, 2021. The Utilities are required to file quarterly reports to update the Utilities’ financial condition, report measures in place to assist their customers during the COVID-19 emergency situation, identify the planned deferred costs and details for the deferred costs, and identify funds received or benefits received that have resulted from the COVID-19 emergency period. The recovery of the regulatory assets would be determined in a subsequent proceeding and management believes the deferred costs are probable of recovery. In addition, starting in December 2020 and monthly moving forward until otherwise ordered by the PUC, the Utilities are required to file information on, among other things, number of customers, arrears balances, payment arrangements entered into, and available assistance used to assist customer bill payments. The monthly report is intended to assist the PUC in determining next

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

steps regarding appropriate regulatory measures. As of September 30, 2021, the Utilities recorded a total of $ 28.7 million in regulatory assets pursuant to the orders.

Collective bargaining agreement. As of September 30, 2021, approximately 47 % of the Utilities’ employees are members of the International Brotherhood of Electrical Workers, AFL-CIO, Local 1260. The current collective bargaining agreement with the union that was set to expire on October 31, 2021 was extended to January 3, 2022. The Utilities continue to renegotiate the contract with the union.

Condensed consolidating financial information. Condensed consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the three and nine month periods ended September 30, 2021 and 2020, and as of September 30, 2021 and December 31, 2020.

Hawaiian Electric unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric, and (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder. Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend, redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is unable to make such payments.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Revenues	$	478,046	100,313	101,141	—	( 1 )	$	679,499
Expenses
Fuel oil	126,909		21,104	32,669	—	—	180,682
Purchased power	136,688		31,159	17,912	—	—	185,759
Other operation and maintenance	75,191		19,964	21,313	—	—	116,468
Depreciation	38,912		10,050	8,424	—	—	57,386
Taxes, other than income taxes	45,239		9,333	9,440	—	—	64,012

Total expenses	422,939		91,610	89,758	—	—	604,307
Operating income	55,107		8,703	11,383	—	( 1 )	75,192
Allowance for equity funds used during construction	1,999		131	297	—	—	2,427
Equity in earnings of subsidiaries	12,028		—	—	—	( 12,028 )	—
Retirement defined benefits expense—other than service costs	741		166	( 30 )	—	—	877
Interest expense and other charges, net	( 12,943 )		( 2,590 )	( 2,616 )	—	1	( 18,148 )
Allowance for borrowed funds used during construction	676		44	107	—	—	827
Income before income taxes	57,608		6,454	9,141	—	( 12,028 )	61,175
Income taxes	6,996		1,433	1,906	—	—	10,335
Net income	50,612		5,021	7,235	—	( 12,028 )	50,840
Preferred stock dividends of subsidiaries	—		133	95	—	—	228
Net income attributable to Hawaiian Electric	50,612		4,888	7,140	—	( 12,028 )	50,612
Preferred stock dividends of Hawaiian Electric	270		—	—	—	—	270
Net income for common stock	$	50,342	4,888	7,140	—	( 12,028 )	$	50,342

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Net income for common stock	$	50,342	4,888	7,140	—	( 12,028 )	$	50,342
Other comprehensive income, net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	2,905		393	393	—	( 786 )	2,905
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	( 2,799 )		( 391 )	( 393 )	—	784	( 2,799 )
Other comprehensive income, net of taxes	106		2	—	—	( 2 )	106
Comprehensive income attributable to common shareholder	$	50,448	4,890	7,140	—	( 12,030 )	$	50,448

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended September 30, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Revenues	$	398,877	82,172	81,629	—	( 110 )	$	562,568
Expenses
Fuel oil	70,557		17,047	17,438	—	—	105,042
Purchased power	116,249		17,665	15,111	—	—	149,025
Other operation and maintenance	71,179		17,565	22,499	—	—	111,243
Depreciation	37,853		9,760	8,076	—	—	55,689
Taxes, other than income taxes	38,005		7,512	7,534	—	—	53,051

Total expenses	333,843		69,549	70,658	—	—	474,050
Operating income	65,034		12,623	10,971	—	( 110 )	88,518
Allowance for equity funds used during construction	1,902		208	237	—	—	2,347
Equity in earnings of subsidiaries	14,912		—	—	—	( 14,912 )	—
Retirement defined benefits expense—other than service costs	( 591 )		194	( 35 )	—	—	( 432 )
Interest expense and other charges, net	( 11,970 )		( 2,519 )	( 2,457 )	—	110	( 16,836 )
Allowance for borrowed funds used during construction	659		65	77	—	—	801
Income before income taxes	69,946		10,571	8,793	—	( 14,912 )	74,398
Income taxes	9,611		2,378	1,846			13,835
Net income	60,335		8,193	6,947	—	( 14,912 )	60,563
Preferred stock dividends of subsidiaries	—		133	95	—		228
Net income attributable to Hawaiian Electric	60,335		8,060	6,852	—	( 14,912 )	60,335
Preferred stock dividends of Hawaiian Electric	270		—	—	—	—	270
Net income for common stock	$	60,065	8,060	6,852	—	( 14,912 )	$	60,065

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended September 30, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Net income for common stock	$	60,065	8,060	6,852	—	( 14,912 )	$	60,065
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	5,769		885	770	—	( 1,655 )	5,769
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	( 5,721 )		( 887 )	( 767 )	—	1,654	( 5,721 )
Other comprehensive income (loss), net of taxes	48		( 2 )	3	—	( 1 )	48
Comprehensive income attributable to common shareholder	$	60,113	8,058	6,855	—	( 14,913 )	$	60,113

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Nine months ended September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Revenues	$	1,301,297	276,974	267,992	—	( 21 )	$	1,846,242
Expenses
Fuel oil	306,982		57,175	83,088	—	—	447,245
Purchased power	370,240		76,992	43,288	—	—	490,520
Other operation and maintenance	230,429		57,350	61,401	—	—	349,180
Depreciation	116,733		30,151	25,238	—	—	172,122
Taxes, other than income taxes	124,167		25,865	25,153	—	—	175,185

Total expenses	1,148,551		247,533	238,168	—	—	1,634,252
Operating income	152,746		29,441	29,824	—	( 21 )	211,990
Allowance for equity funds used during construction	5,677		403	915	—	—	6,995
Equity in earnings of subsidiaries	35,282		—	—	—	( 35,282 )	—
Retirement defined benefits expense—other than service costs	2,511		503	( 96 )	—	—	2,918
Interest expense and other charges, net	( 38,604 )		( 7,744 )	( 7,799 )	—	21	( 54,126 )
Allowance for borrowed funds used during construction	1,921		136	329	—	—	2,386
Income before income taxes	159,533		22,739	23,173	—	( 35,282 )	170,163
Income taxes	23,122		5,152	4,792	—	—	33,066
Net income	136,411		17,587	18,381	—	( 35,282 )	137,097
Preferred stock dividends of subsidiaries	—		400	286	—	—	686
Net income attributable to Hawaiian Electric	136,411		17,187	18,095	—	( 35,282 )	136,411
Preferred stock dividends of Hawaiian Electric	810		—	—	—	—	810
Net income for common stock	$	135,601	17,187	18,095	—	( 35,282 )	$	135,601

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Nine months ended September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Net income for common stock	$	135,601	17,187	18,095	—	( 35,282 )	$	135,601
Other comprehensive income, net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes	14,596		2,062	1,915	—	( 3,977 )	14,596
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	( 14,421 )		( 2,059 )	( 1,915 )	—	3,974	( 14,421 )
Other comprehensive income, net of taxes	175		3	—	—	( 3 )	175
Comprehensive income attributable to common shareholder	$	135,776	17,190	18,095	—	( 35,285 )	$	135,776

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Nine months ended September 30, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Revenues	$	1,200,677	249,970	244,043	—	( 465 )	$	1,694,225
Expenses
Fuel oil	268,382		55,733	66,599	—	—	390,714
Purchased power	333,146		53,032	39,501	—	—	425,679
Other operation and maintenance	231,090		54,250	63,491	—	—	348,831
Depreciation	113,724		29,281	24,230	—	—	167,235
Taxes, other than income taxes	115,179		23,324	22,986	—	—	161,489

Total expenses	1,061,521		215,620	216,807	—	—	1,493,948
Operating income	139,156		34,350	27,236	—	( 465 )	200,277
Allowance for equity funds used during construction	5,452		520	584	—	—	6,556
Equity in earnings of subsidiaries	37,492		—	—	—	( 37,492 )	—
Retirement defined benefits expense—other than service costs	( 1,683 )		581	( 93 )	—	—	( 1,195 )
Interest expense and other charges, net	( 36,471 )		( 7,536 )	( 7,226 )	—	465	( 50,768 )
Allowance for borrowed funds used during construction	1,887		163	191	—	—	2,241
Income before income taxes	145,833		28,078	20,692	—	( 37,492 )	157,111
Income taxes	18,724		6,372	4,220	—	—	29,316
Net income	127,109		21,706	16,472	—	( 37,492 )	127,795
Preferred stock dividends of subsidiaries	—		400	286	—	—	686
Net income attributable to Hawaiian Electric	127,109		21,306	16,186	—	( 37,492 )	127,109
Preferred stock dividends of Hawaiian Electric	810		—	—	—	—	810
Net income for common stock	$	126,299	21,306	16,186	—	( 37,492 )	$	126,299

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Nine months ended September 30, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Net income for common stock	$	126,299	21,306	16,186	—	( 37,492 )	$	126,299
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits	16,137		2,384	2,072	—	( 4,456 )	16,137
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes	( 16,038 )		( 2,382 )	( 2,072 )	—	4,454	( 16,038 )
Other comprehensive income, net of taxes	99		2	—	—	( 2 )	99
Comprehensive income attributable to common shareholder	$	126,398	21,308	16,186	—	( 37,494 )	$	126,398

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsi- diaries	Consoli- dating adjustments	Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	42,410	5,606	3,594	—	—	$	51,610
Plant and equipment	5,063,487		1,375,782	1,230,451	—	—	7,669,720
Less accumulated depreciation	( 1,766,707 )		( 619,003 )	( 562,005 )	—	—	( 2,947,715 )
Construction in progress	172,417		17,966	31,135	—	—	221,518
Utility property, plant and equipment, net	3,511,607		780,351	703,175	—	—	4,995,133
Nonutility property, plant and equipment, less accumulated depreciation	5,303		115	1,532	—	—	6,950
Total property, plant and equipment, net	3,516,910		780,466	704,707	—	—	5,002,083
Investment in wholly owned subsidiaries, at equity	639,900		—	—	—	( 639,900 )	—
Current assets
Cash and cash equivalents	25,981		3,788	6,621	77	—	36,467
Restricted cash	6,313		—	—	—	—	6,313
Advances to affiliates	700		—	—	—	( 700 )	—
Customer accounts receivable, net	118,776		29,371	26,090	—	—	174,237
Accrued unbilled revenues, net	93,949		17,660	17,470	—	—	129,079
Other accounts receivable, net	20,732		3,843	3,616	—	( 22,075 )	6,116
Fuel oil stock, at average cost	71,072		13,079	16,650	—	—	100,801
Materials and supplies, at average cost	43,094		10,107	19,796	—	—	72,997
Prepayments and other	41,706		5,232	7,023	—	—	53,961
Regulatory assets	47,004		2,966	6,254	—	—	56,224
Total current assets	469,327		86,046	103,520	77	( 22,775 )	636,195
Other long-term assets
Operating lease right-of-use assets	96,026		23,271	327	—	—	119,624
Regulatory assets	489,746		108,093	103,141	—	—	700,980
Other	112,298		19,008	18,448	—	( 5,728 )	144,026
Total other long-term assets	698,070		150,372	121,916	—	( 5,728 )	964,630
Total assets	$	5,324,207	1,016,884	930,143	77	( 668,403 )	$	6,602,908
Capitalization and liabilities
Capitalization
Common stock equity	$	2,193,919	323,691	316,132	77	( 639,900 )	$	2,193,919
Cumulative preferred stock—not subject to mandatory redemption	22,293		7,000	5,000	—	—	34,293
Long-term debt, net	1,176,477		246,360	253,386	—	—	1,676,223
Total capitalization	3,392,689		577,051	574,518	77	( 639,900 )	3,904,435
Current liabilities
Current portion of operating lease liabilities	61,505		3,354	35	—	—	64,894


Short-term borrowings from affiliate	—		700	—	—	( 700 )	—
Accounts payable	101,685		24,640	20,550	—	—	146,875
Interest and preferred dividends payable	20,390		3,750	4,471	—	( 1 )	28,610
Taxes accrued, including revenue taxes	136,016		31,338	29,014	—	—	196,368
Regulatory liabilities	21,257		4,164	6,840	—	—	32,261
Other	71,738		14,488	20,503	—	( 22,223 )	84,506
Total current liabilities	412,591		82,434	81,413	—	( 22,924 )	553,514
Deferred credits and other liabilities
Operating lease liabilities	47,585		19,917	300	—	—	67,802
Deferred income taxes	284,245		51,822	60,486	—	—	396,553
Regulatory liabilities	672,712		177,877	92,662	—	—	943,251
Unamortized tax credits	78,215		14,577	13,586	—	—	106,378
Defined benefit pension and other postretirement benefit plans liability	364,749		74,183	76,619	—	( 5,579 )	509,972
Other	71,421		19,023	30,559	—	—	121,003
Total deferred credits and other liabilities	1,518,927		357,399	274,212	—	( 5,579 )	2,144,959
Total capitalization and liabilities	$	5,324,207	1,016,884	930,143	77	( 668,403 )	$	6,602,908

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

December 31, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsi-diaries	Consoli- dating adjustments	Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land	$	42,411	5,606	3,594	—	—	$	51,611
Plant and equipment	4,960,470		1,352,885	1,195,988	—	—	7,509,343
Less accumulated depreciation	( 1,677,256 )		( 597,606 )	( 544,217 )	—	—	( 2,819,079 )
Construction in progress	143,616		13,043	31,683	—	—	188,342
Utility property, plant and equipment, net	3,469,241		773,928	687,048	—	—	4,930,217
Nonutility property, plant and equipment, less accumulated depreciation	5,306		115	1,532	—	—	6,953
Total property, plant and equipment, net	3,474,547		774,043	688,580	—	—	4,937,170
Investment in wholly owned subsidiaries, at equity	626,890		—	—	—	( 626,890 )	—
Current assets
Cash and cash equivalents	42,205		3,046	2,032	77	—	47,360
Restricted cash	15,966		—	—	—	—	15,966
Advances to affiliates	26,700		—	—	—	( 26,700 )	—
Customer accounts receivable, net	102,736		23,989	21,107	—	—	147,832
Accrued unbilled revenues, net	73,628		13,631	13,777	—	—	101,036
Other accounts receivable, net	17,984		3,028	2,856	—	( 16,195 )	7,673
Fuel oil stock, at average cost	38,777		8,471	10,990	—	—	58,238
Materials and supplies, at average cost	38,786		9,896	18,662	—	—	67,344
Prepayments and other	34,306		5,197	4,580	—	—	44,083
Regulatory assets	22,095		1,954	6,386	—	—	30,435
Total current assets	413,183		69,212	80,390	77	( 42,895 )	519,967
Other long-term assets
Operating lease right-of-use assets	125,858		1,443	353	—	—	127,654
Regulatory assets	513,192		114,461	108,620	—	—	736,273
Other	98,307		17,992	20,010	—	—	136,309
Total other long-term assets	737,357		133,896	128,983	—	—	1,000,236
Total assets	$	5,251,977	977,151	897,953	77	( 669,785 )	$	6,457,373
Capitalization and liabilities
Capitalization
Common stock equity	$	2,141,918	317,451	309,363	77	( 626,891 )	$	2,141,918
Cumulative preferred stock—not subject to mandatory redemption	22,293		7,000	5,000	—	—	34,293
Long-term debt, net	1,116,426		216,447	228,429	—	—	1,561,302
Total capitalization	3,280,637		540,898	542,792	77	( 626,891 )	3,737,513
Current liabilities
Current portion of operating lease liabilities	64,599		98	33	—	—	64,730

Short-term borrowings-non-affiliate	49,979		—	—	—	—	49,979
Short-term borrowings-affiliate	—		18,800	7,900	—	( 26,700 )	—
Accounts payable	97,102		19,570	17,177	—	—	133,849
Interest and preferred dividends payable	14,480		3,138	2,790	—	( 58 )	20,350
Taxes accrued, including revenue taxes	135,018		29,869	27,637	—	—	192,524
Regulatory liabilities	20,224		8,785	8,292	—	—	37,301
Other	57,926		13,851	18,621	—	( 16,136 )	74,262
Total current liabilities	439,328		94,111	82,450	—	( 42,894 )	572,995
Deferred credits and other liabilities
Operating lease liabilities	67,824		1,344	326	—	—	69,494
Deferred income taxes	282,685		54,108	61,005	—	—	397,798
Regulatory liabilities	656,270		173,938	92,277	—	—	922,485
Unamortized tax credits	82,563		15,363	13,989	—	—	111,915
Defined benefit pension and other postretirement benefit plans liability	373,112		77,679	79,741	—	—	530,532
Other	69,558		19,710	25,373	—	—	114,641
Total deferred credits and other liabilities	1,532,012		342,142	272,711	—	—	2,146,865
Total capitalization and liabilities	$	5,251,977	977,151	897,953	77	( 669,785 )	$	6,457,373

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Nine months ended September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Balance, December 31, 2020	$	2,141,918	317,451	309,363	77	( 626,891 )	$	2,141,918
Net income for common stock	135,601		17,187	18,095	—	( 35,282 )	135,601
Other comprehensive income, net of taxes	175		3	—	—	( 3 )	175
Common stock dividends	( 83,775 )		( 10,950 )	( 11,326 )	—	22,276	( 83,775 )


Balance, September 30, 2021	$	2,193,919	323,691	316,132	77	( 639,900 )	$	2,193,919

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Nine months ended September 30, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated
Balance, December 31, 2019	$	2,047,352	298,998	292,870	101	( 591,969 )	$	2,047,352
Net income for common stock	126,299		21,306	16,186	—	( 37,492 )	126,299
Other comprehensive income, net of taxes	99		2	—	—	( 2 )	99
Common stock dividends	( 80,352 )		( 12,240 )	( 10,788 )	—	23,028	( 80,352 )
Dissolution of subsidiary	—		—	—	( 24 )	24	—
Balance, September 30, 2020	$	2,093,398	308,066	298,268	77	( 606,411 )	$	2,093,398

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, 2021


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated























Net cash provided by operating activities	$	157,191	32,698	30,643	—	( 22,276 )	$	198,256
Cash flows from investing activities
Capital expenditures	( 137,916 )		( 33,511 )	( 32,319 )	—	—	( 203,746 )

Advances from affiliates	26,000		—	—	—	( 26,000 )	—
Other	4,136		1,121	900	—	—	6,157
Net cash used in investing activities	( 107,780 )		( 32,390 )	( 31,419 )	—	( 26,000 )	( 197,589 )
Cash flows from financing activities
Common stock dividends	( 83,775 )		( 10,950 )	( 11,326 )	—	22,276	( 83,775 )
Preferred stock dividends of Hawaiian Electric and subsidiaries	( 810 )		( 400 )	( 286 )	—	—	( 1,496 )

Repayment of short-term debt	( 50,000 )		—	—	—	—	( 50,000 )
Proceeds from issuance of long-term debt	60,000		30,000	25,000	—	—	115,000

Net decrease in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	—		( 18,100 )	( 7,900 )	—	26,000	—
Other	( 703 )		( 116 )	( 123 )	—	—	( 942 )
Net cash provided by (used in) financing activities	( 75,288 )		434	5,365	—	48,276	( 21,213 )
Net increase (decrease) in cash and cash equivalents	( 25,877 )		742	4,589	—	—	( 20,546 )
Cash, cash equivalents and restricted cash, beginning of period	58,171		3,046	2,032	77	—	63,326
Cash, cash equivalents and restricted cash, end of period	32,294		3,788	6,621	77	—	42,780
Less: Restricted cash	( 6,313 )		—	—	—	—	( 6,313 )
Cash and cash equivalents, end of period	$	25,981	3,788	6,621	77	—	$	36,467

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, 2020


(in thousands)	Hawaiian Electric		Hawaii Electric Light	Maui Electric	Other subsidiaries	Consolidating adjustments	Hawaiian Electric Consolidated























Net cash provided by operating activities	$	205,645	27,256	34,678	—	( 22,624 )	$	244,955
Cash flows from investing activities
Capital expenditures	( 180,088 )		( 48,750 )	( 38,644 )	—	—	( 267,482 )
Advances from (to) affiliates	( 800 )		8,000	—	—	( 7,200 )	—
Other	5,636		1,056	1,031	( 24 )	( 404 )	7,295
Net cash used in investing activities	( 175,252 )		( 39,694 )	( 37,613 )	( 24 )	( 7,604 )	( 260,187 )
Cash flows from financing activities
Common stock dividends	( 80,352 )		( 12,240 )	( 10,788 )	—	23,028	( 80,352 )
Preferred stock dividends of Hawaiian Electric and subsidiaries	( 810 )		( 400 )	( 286 )	—	—	( 1,496 )


Proceeds from issuance of short-term debt	100,000		—	—	—	—	100,000
Repayment of short-term debt	( 100,000 )		—	—	—	—	( 100,000 )
Proceeds from issuance of long-term debt	205,000		10,000	40,000	—	—	255,000
Repayment of long-term debt	( 95,000 )		( 14,000 )	—	—	—	( 109,000 )
Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less	( 46,987 )		26,500	( 25,700 )	—	7,200	( 38,987 )
Other	( 1,249 )		( 67 )	( 253 )	—	—	( 1,569 )
Net cash provided by (used in) financing activities	( 19,398 )		9,793	2,973	—	30,228	23,596
Net increase (decrease) in cash and cash equivalents	10,995		( 2,645 )	38	( 24 )	—	8,364
Cash, cash equivalents and restricted cash, beginning of period	32,988		7,008	1,797	101	—	41,894
Cash, cash equivalents and restricted cash, end of period	43,983		4,363	1,835	77	—	50,258
Less: Restricted cash	( 20,458 )		—	—	—	—	( 20,458 )
Cash and cash equivalents, end of period	$	23,525	4,363	1,835	77	—	$	29,800

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 4 · Bank segment

Selected financial information

American Savings Bank, F.S.B.

Statements of Income and Comprehensive Income Data


	Three months ended September 30				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Interest and dividend income
Interest and fees on loans	$	49,445	$	52,419	$	150,418	$	161,505
Interest and dividends on investment securities	11,996		7,221		31,709		22,939
Total interest and dividend income	61,441		59,640		182,127		184,444
Interest expense
Interest on deposit liabilities	1,176		2,287		3,919		8,945
Interest on other borrowings	5		61		55		449
Total interest expense	1,181		2,348		3,974		9,394
Net interest income	60,260		57,292		178,153		175,050
Provision for credit losses	( 1,725 )		13,970		( 22,367 )		39,504
Net interest income after provision for credit losses	61,985		43,322		200,520		135,546
Noninterest income
Fees from other financial services	4,800		4,233		15,337		11,906
Fee income on deposit liabilities	4,262		3,832		12,029		11,842
Fee income on other financial products	2,124		1,524		6,767		4,608
Bank-owned life insurance	2,026		1,965		6,211		4,432
Mortgage banking income	1,272		7,681		7,497		15,933
Gain on sale of investment securities, net	—		—		528		9,275
Other income, net	283		( 231 )		631		( 69 )
Total noninterest income	14,767		19,004		49,000		57,927
Noninterest expense
Compensation and employee benefits	30,888		26,431		86,595		77,287
Occupancy	5,157		5,693		15,226		16,402
Data processing	4,278		3,366		13,162		11,052
Services	2,272		2,624		7,609		7,907
Equipment	2,373		2,001		6,989		6,630
Office supplies, printing and postage	1,072		1,187		3,094		3,577
Marketing	995		727		2,308		1,908
FDIC insurance	808		714		2,412		1,567
Other expense 1	3,668		4,556		9,790		15,813
Total noninterest expense	51,511		47,299		147,185		142,143
Income before income taxes	25,241		15,027		102,335		51,330
Income taxes	5,976		2,877		23,230		9,405
Net income	19,265		12,150		79,105		41,925
Other comprehensive income (loss), net of taxes	( 11,684 )		1,393		( 40,439 )		20,960
Comprehensive income	$	7,581	$	13,543	$	38,666	$	62,885

1 The three- and nine-month periods ended September 30, 2021 include approximately $ 0.1 million and $ 0.5 million, respectively, of certain direct and incremental COVID-19 related costs. The three and nine-month periods ended September 30, 2020 include approximately $ 0.7 million and $ 4.5 million, respectively, of certain significant direct and incremental COVID-19 related costs. These costs for the first nine months of 2020, which have been recorded in Other expense , include $ 2.4 million of compensation expense and $ 1.7 million of enhanced cleaning and sanitation costs.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:


	Three months ended September 30,				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Interest and dividend income	$	61,441	$	59,640	$	182,127	$	184,444
Noninterest income	14,767		19,004		49,000		57,927
Less: Gain on sale of investment securities, net	—		—		528		9,275
*Revenues-Bank	76,208		78,644		230,599		233,096
Total interest expense	1,181		2,348		3,974		9,394
Provision for credit losses	( 1,725 )		13,970		( 22,367 )		39,504
Noninterest expense	51,511		47,299		147,185		142,143
Less: Retirement defined benefits expense (credit)—other than service costs	( 184 )		473		( 1,648 )		1,341
*Expenses-Bank	51,151		63,144		130,440		189,700
*Operating income-Bank	25,057		15,500		100,159		43,396
Add back: Retirement defined benefits expense (credit)—other than service costs	( 184 )		473		( 1,648 )		1,341
Add back: Gain on sale of investment securities, net	—		—		528		9,275
Income before income taxes	$	25,241	$	15,027	$	102,335	$	51,330

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

American Savings Bank, F.S.B.

Balance Sheets Data


(in thousands)	September 30, 2021				December 31, 2020
Assets
Cash and due from banks			$	109,942			$	178,422
Interest-bearing deposits			80,007				114,304
Cash and cash equivalents			189,949				292,726

Investment securities
Available-for-sale, at fair value			2,580,830				1,970,417
Held-to-maturity, at amortized cost (fair value of $ 484,654 and $ 229,963 , respectively)			491,871				226,947
Stock in Federal Home Loan Bank, at cost			10,000				8,680
Loans held for investment			5,122,124				5,333,843
Allowance for credit losses			( 75,944 )				( 101,201 )
Net loans			5,046,180				5,232,642
Loans held for sale, at lower of cost or fair value			53,998				28,275
Other			555,401				554,656
Goodwill			82,190				82,190
Total assets			$	9,010,419			$	8,396,533
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing			$	2,931,394			$	2,598,500
Deposit liabilities—interest-bearing			5,045,144				4,788,457
Other borrowings			129,305				89,670
Other			168,064				183,731
Total liabilities			8,273,907				7,660,358

Common stock			1				1
Additional paid-in capital			353,429				351,758
Retained earnings			408,575				369,470
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains (losses) on securities	$	( 20,322 )			$	19,986
Retirement benefit plans	( 5,171 )		( 25,493 )		( 5,040 )		14,946
Total shareholder’s equity			736,512				736,175
Total liabilities and shareholder’s equity			$	9,010,419			$	8,396,533

Other assets
Bank-owned life insurance			$	166,486			$	163,265
Premises and equipment, net			205,624				206,134
Accrued interest receivable			22,036				24,616
Mortgage-servicing rights			10,272				10,020
Low-income housing investments			84,728				83,435


Other			66,255				67,186
			$	555,401			$	554,656
Other liabilities
Accrued expenses			$	59,270			$	62,694
Federal and state income taxes payable			—				6,582
Cashier’s checks			37,451				38,011
Advance payments by borrowers			5,129				10,207
Other			66,214				66,237
			$	168,064			$	183,731

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

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 of $ 129.3 million and $ 89.7 million at September 30, 2021 and December 31, 2020, respectively.

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
September 30, 2021
Available-for-sale
U.S. Treasury and federal agency obligations	$	90,831	$	1,334	$	( 90 )	$	92,075	1	$	19,851	$	( 90 )	—	$	—	$	—
Mortgage-backed securities*	2,471,650		11,193		( 41,160 )		2,441,683		105	1,772,753		( 36,561 )		9	123,882		( 4,599 )
Corporate bonds	30,684		961		—		31,645		—	—		—		—	—		—
Mortgage revenue bonds	15,427		—		—		15,427		—	—		—		—	—		—
	$	2,608,592	$	13,488	$	( 41,250 )	$	2,580,830	106	$	1,792,604	$	( 36,651 )	9	$	123,882	$	( 4,599 )
Held-to-maturity
U.S. Treasury and Federal agency obligations	$	40,064	$	100	$	( 13 )	$	40,151	1	$	19,941	$	( 13 )	—	$	—	$	—
Mortgage-backed securities*	451,807		2,387		( 9,691 )		444,503		23	325,907		( 8,278 )		2	23,860		( 1,413 )
	$	491,871	$	2,487	$	( 9,704 )	$	484,654	24	$	345,848	$	( 8,291 )	2	$	23,860	$	( 1,413 )
December 31, 2020
Available-for-sale
U.S. Treasury and federal agency obligations	$	60,260	$	2,062	$	—	$	62,322	—	$	—	$	—	—	$	—	$	—
Mortgage-backed securities*	1,825,893		26,817		( 3,151 )		1,849,559		22	373,924		( 3,151 )		—	—		—
Corporate bonds	29,776		1,575		—		31,351		—	—		—		—	—		—
Mortgage revenue bonds	27,185		—		—		27,185		—	—		—		—	—		—
	$	1,943,114	$	30,454	$	( 3,151 )	$	1,970,417	22	$	373,924	$	( 3,151 )	—	$	—	$	—
Held-to-maturity
Mortgage-backed securities*	$	226,947	$	3,846	$	( 830 )	$	229,963	7	$	114,152	$	( 830 )	—	$	—	$	—
	$	226,947	$	3,846	$	( 830 )	$	229,963	7	$	114,152	$	( 830 )	—	$	—	$	—

* 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 September 30, 2021 and December 31, 2020, 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 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 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’s investment securities portfolio did not require an allowance for credit losses at September 30, 2021 and December 31, 2020.

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

The contractual maturities of investment securities were as follows:


September 30, 2021	Amortized cost		Fair value
(in thousands)
Available-for-sale
Due in one year or less	$	—	$	—
Due after one year through five years	76,247		78,071
Due after five years through ten years	45,268		45,649
Due after ten years	15,427		15,427
	136,942		139,147
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	2,471,650		2,441,683
Total available-for-sale securities	$	2,608,592	$	2,580,830
Held-to-maturity
Due in one year or less	$	—	$	—
Due after one year through five years	—		—
Due after five years through ten years	40,064		40,151
Due after ten years	—		—
	40,064		40,151
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	451,807		444,503
Total held-to-maturity securities	$	491,871	$	484,654

The proceeds, gross gains and losses from sales of available-for-sale securities were as follows:


	Three months ended September 30				Nine months ended September 30
	2021		2020		2021		2020
(in thousands)
Proceeds	$	—	$	—	$	197,354	$	169,157
Gross gains	—		—		975		9,312
Gross losses	—		—		447		37
Tax expense on realized gains	—		—		142		2,492

The components of loans were summarized as follows:


	September 30, 2021		December 31, 2020
(in thousands)
Real estate:
Residential 1-4 family	$	2,172,073	$	2,144,239
Commercial real estate	1,090,816		983,865
Home equity line of credit	851,416		963,578
Residential land	19,399		15,617
Commercial construction	109,716		121,424
Residential construction	9,170		11,022
Total real estate	4,252,590		4,239,745
Commercial	758,338		936,748
Consumer	122,656		168,733
Total loans	5,133,584		5,345,226
Less: Deferred fees and discounts	( 11,460 )		( 11,383 )
Allowance for credit losses	( 75,944 )		( 101,201 )
Total loans, net	$	5,046,180	$	5,232,642

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

property purchases, the loan-to-value ratio may not exceed 75 % of the lower of the appraised value or purchase price at origination.

Allowance for credit losses. The allowance for credit losses (balances and changes) by portfolio segment were as follows:


(in thousands)	Residential 1-4 family		Commercial real estate		Home equity line of credit		Residential land		Commercial construction		Residential construction		Commercial loans		Consumer loans		Total
Three months ended September 30, 2021
Allowance for credit losses:
Beginning balance	$	5,518	$	28,708	$	5,335	$	618	$	1,629	$	16	$	20,058	$	16,370	$	78,252
Charge-offs	( 47 )		—		( 5 )		—		—		—		( 266 )		( 1,597 )		( 1,915 )
Recoveries	5		—		7		35		—		—		417		1,118		1,582
Provision	522		( 2,750 )		441		( 19 )		104		( 3 )		( 758 )		488		( 1,975 )
Ending balance	$	5,998	$	25,958	$	5,778	$	634	$	1,733	$	13	$	19,451	$	16,379	$	75,944
Three months ended September 30, 2020
Allowance for credit losses:
Beginning balance	$	3,911	$	21,100	$	6,214	$	356	$	4,757	$	14	$	13,868	$	31,087	$	81,307
Charge-offs	—		—		—		—		—		—		( 1,727 )		( 3,881 )		( 5,608 )
Recoveries	12		—		50		12		—		—		211		1,005		1,290
Provision	( 286 )		11,049		( 390 )		178		1,282		( 3 )		5,840		( 3,200 )		14,470
Ending balance	$	3,637	$	32,149	$	5,874	$	546	$	6,039	$	11	$	18,192	$	25,011	$	91,459
Nine months ended September 30, 2021
Allowance for credit losses:
Beginning balance	$	4,600	$	35,607	$	6,813	$	609	$	4,149	$	11	$	25,462	$	23,950	$	101,201
Charge-offs	( 67 )		—		( 45 )		—		—		—		( 1,356 )		( 6,388 )		( 7,856 )
Recoveries	59		—		83		56		—		—		1,056		3,312		4,566
Provision	1,406		( 9,649 )		( 1,073 )		( 31 )		( 2,416 )		2		( 5,711 )		( 4,495 )		( 21,967 )
Ending balance	$	5,998	$	25,958	$	5,778	$	634	$	1,733	$	13	$	19,451	$	16,379	$	75,944



Nine months ended September 30, 2020
Allowance for credit losses:
Beginning balance, prior to adoption of ASU No. 2016-13	$	2,380	$	15,053	$	6,922	$	449	$	2,097	$	3	$	10,245	$	16,206	$	53,355
Impact of adopting ASU No. 2016-13	2,150		208		( 541 )		( 64 )		289		14		922		16,463		19,441
Charge-offs	( 7 )		—		—		( 351 )		—		—		( 2,795 )		( 16,466 )		( 19,619 )
Recoveries	67		—		56		26		—		—		503		2,426		3,078
Provision	( 953 )		16,888		( 563 )		486		3,653		( 6 )		9,317		6,382		35,204
Ending balance	$	3,637	$	32,149	$	5,874	$	546	$	6,039	$	11	$	18,192	$	25,011	$	91,459

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Allowance for loan commitments. The allowance for loan commitments by portfolio segment were as follows:


(in thousands)	Home equity line of credit		Commercial construction		Commercial loans		Total
Three months ended September 30, 2021
Allowance for loan commitments:
Beginning balance	$	400	$	2,400	$	850	$	3,650
Provision	—		300		( 50 )		250
Ending balance	$	400	$	2,700	$	800	$	3,900
Three months ended September 30, 2020
Allowance for loan commitments:
Beginning balance	$	300	$	7,500	$	300	$	8,100
Provision	—		( 800 )		300		( 500 )
Ending balance	$	300	$	6,700	$	600	$	7,600
Nine months ended September 30, 2021
Allowance for loan commitments:
Beginning balance	$	300	$	3,000	$	1,000	$	4,300
Provision	100		( 300 )		( 200 )		( 400 )
Ending balance	$	400	$	2,700	$	800	$	3,900
Nine months ended September 30, 2020
Allowance for loan commitments:
Beginning balance, prior to adoption of ASU No. 2016-13	$	392	$	931	$	418	$	1,741
Impact of adopting ASU No. 2016-13	( 92 )		1,745		( 94 )		1,559
Provision	—		4,024		276		4,300
Ending balance	$	300	$	6,700	$	600	$	7,600

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

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)	2021		2020		2019		2018		2017		Prior		Revolving		Converted to term loans		Total
September 30, 2021
Residential 1-4 family
Current	$	541,140	$	471,759	$	150,704	$	75,827	$	142,235	$	778,048	$	—	$	—	$	2,159,713
30-59 days past due	—		—		—		—		—		2,224		—		—		2,224
60-89 days past due	—		276		—		—		—		1,308		—		—		1,584
Greater than 89 days past due	—		—		3,949		424		—		4,179		—		—		8,552
	541,140		472,035		154,653		76,251		142,235		785,759		—		—		2,172,073
Home equity line of credit
Current	—		—		—		—		—		—		809,566		39,932		849,498
30-59 days past due	—		—		—		—		—		—		126		129		255
60-89 days past due	—		—		—		—		—		—		107		101		208
Greater than 89 days past due	—		—		—		—		—		—		1,029		426		1,455
	—		—		—		—		—		—		810,828		40,588		851,416
Residential land
Current	8,905		7,341		1,659		647		268		182		—		—		19,002
30-59 days past due	—		—		—		—		—		97		—		—		97
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		300		—		—		300
	8,905		7,341		1,659		647		268		579		—		—		19,399
Residential construction
Current	4,664		4,238		—		—		268		—		—		—		9,170
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	4,664		4,238		—		—		268		—		—		—		9,170
Consumer
Current	27,059		18,662		38,546		16,378		907		283		13,745		3,819		119,399
30-59 days past due	206		152		523		282		21		—		126		117		1,427
60-89 days past due	24		58		368		198		43		—		61		28		780
Greater than 89 days past due	29		140		396		158		44		—		149		134		1,050
	27,318		19,012		39,833		17,016		1,015		283		14,081		4,098		122,656
Commercial real estate
Pass	142,977		278,941		62,907		60,174		55,824		257,110		11,288		—		869,221
Special Mention	1,360		4,237		34,617		46,447		23,027		42,850		—		—		152,538
Substandard	—		—		14,021		1,872		1,838		51,326		—		—		69,057
Doubtful	—		—		—		—		—		—		—		—		—
	144,337		283,178		111,545		108,493		80,689		351,286		11,288		—		1,090,816
Commercial construction
Pass	11,225		39,137		25,913		11,342		—		—		22,099		—		109,716
Special Mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	11,225		39,137		25,913		11,342		—		—		22,099		—		109,716
Commercial
Pass	218,541		112,545		78,076		53,829		19,043		60,661		93,979		16,334		653,008
Special Mention	52		27,498		11,810		279		2,682		19,495		20,459		21		82,296
Substandard	427		214		4,273		1,824		5,318		3,188		5,845		1,945		23,034
Doubtful	—		—		—		—		—		—		—		—		—
	219,020		140,257		94,159		55,932		27,043		83,344		120,283		18,300		758,338
Total loans	$	956,609	$	965,198	$	427,762	$	269,681	$	251,518	$	1,221,251	$	978,579	$	62,986	$	5,133,584

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)


	Term Loans by Origination Year												Revolving Loans
(in thousands)	2020		2019		2018		2017		2016		Prior		Revolving		Converted to term loans		Total
December 31, 2020
Residential 1-4 family
Current	$	567,282	$	218,988	$	111,243	$	203,916	$	184,888	$	849,788	$	—	$	—	$	2,136,105
30-59 days past due	—		—		—		—		—		2,629		—		—		2,629
60-89 days past due	—		476		—		—		—		2,314		—		—		2,790
Greater than 89 days past due	—		—		—		353		—		2,362		—		—		2,715
	567,282		219,464		111,243		204,269		184,888		857,093		—		—		2,144,239
Home equity line of credit
Current	—		—		—		—		—		—		927,106		33,228		960,334
30-59 days past due	—		—		—		—		—		—		552		298		850
60-89 days past due	—		—		—		—		—		—		267		75		342
Greater than 89 days past due	—		—		—		—		—		—		1,463		589		2,052
	—		—		—		—		—		—		929,388		34,190		963,578
Residential land
Current	8,357		3,427		1,598		939		22		272		—		—		14,615
30-59 days past due	—		—		—		—		—		702		—		—		702
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		300		—		—		300
	8,357		3,427		1,598		939		22		1,274		—		—		15,617
Residential construction
Current	6,919		3,093		385		625		—		—		—		—		11,022
30-59 days past due	—		—		—		—		—		—		—		—		—
60-89 days past due	—		—		—		—		—		—		—		—		—
Greater than 89 days past due	—		—		—		—		—		—		—		—		—
	6,919		3,093		385		625		—		—		—		—		11,022
Consumer
Current	28,818		67,159		37,072		7,207		293		348		18,351		3,758		163,006
30-59 days past due	406		1,085		727		155		4		—		138		90		2,605
60-89 days past due	191		549		427		165		3		—		97		59		1,491
Greater than 89 days past due	131		532		409		119		7		—		262		171		1,631
	29,546		69,325		38,635		7,646		307		348		18,848		4,078		168,733
Commercial real estate
Pass	270,603		63,301		62,168		28,432		55,089		155,654		11,000		—		646,247
Special Mention	10,261		36,405		57,952		33,763		68,287		48,094		—		—		254,762
Substandard	—		14,720		4,181		1,892		4,423		57,640		—		—		82,856
Doubtful	—		—		—		—		—		—		—		—		—
	280,864		114,426		124,301		64,087		127,799		261,388		11,000		—		983,865
Commercial construction
Pass	14,480		31,965		26,990		—		5,562		—		22,517		—		101,514
Special Mention	1,910		—		—		18,000		—		—		—		—		19,910
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
	16,390		31,965		26,990		18,000		5,562		—		22,517		—		121,424
Commercial
Pass	392,088		117,791		75,533		29,211		12,520		35,770		74,520		11,004		748,437
Special Mention	37,836		23,087		1,920		6,990		30,264		13,250		31,362		11,218		155,927
Substandard	304		7,785		2,043		4,017		7,542		3,113		5,265		1,928		31,997
Doubtful	—		—		—		—		—		—		387		—		387
	430,228		148,663		79,496		40,218		50,326		52,133		111,534		24,150		936,748
Total loans	$	1,339,586	$	590,363	$	382,648	$	335,784	$	368,904	$	1,172,236	$	1,093,287	$	62,418	$	5,345,226

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Revolving loans converted to term loans during the nine months ended September 30, 2021 in the commercial, home equity line of credit and consumer portfolios were $ 1.6 million, $ 13.6 million and $ 1.9 million, respectively. Revolving loans converted to term loans during the nine months ended September 30, 2020 in the commercial, home equity line of credit and consumer portfolios were $ 13.8 million, $ 10.0 million and $ 2.0 million, respectively.

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		Amortized cost> 90 days and accruing
September 30, 2021
Real estate:
Residential 1-4 family	$	2,224	$	1,584	$	8,552	$	12,360	$	2,159,713	$	2,172,073	$	—
Commercial real estate	—		—		—		—		1,090,816		1,090,816		—
Home equity line of credit	255		208		1,455		1,918		849,498		851,416		—
Residential land	97		—		300		397		19,002		19,399		—
Commercial construction	—		—		—		—		109,716		109,716		—
Residential construction	—		—		—		—		9,170		9,170		—
Commercial	937		68		110		1,115		757,223		758,338		—
Consumer	1,427		780		1,050		3,257		119,399		122,656		—
Total loans	$	4,940	$	2,640	$	11,467	$	19,047	$	5,114,537	$	5,133,584	$	—
December 31, 2020
Real estate:
Residential 1-4 family	$	2,629	$	2,790	$	2,715	$	8,134	$	2,136,105	$	2,144,239	$	—
Commercial real estate	—		488		—		488		983,377		983,865		—
Home equity line of credit	850		342		2,052		3,244		960,334		963,578		—
Residential land	702		—		300		1,002		14,615		15,617		—
Commercial construction	—		—		—		—		121,424		121,424		—
Residential construction	—		—		—		—		11,022		11,022		—
Commercial	608		300		132		1,040		935,708		936,748		—
Consumer	2,605		1,491		1,631		5,727		163,006		168,733		—
Total loans	$	7,394	$	5,411	$	6,830	$	19,635	$	5,325,591	$	5,345,226	$	—

The credit risk profile based on nonaccrual loans were as follows:


(in thousands)	September 30, 2021						December 31, 2020
	With a Related ACL		Without a Related ACL		Total		With a Related ACL		Without a Related ACL		Total
Real estate:
Residential 1-4 family	$	13,307	$	7,997	$	21,304	$	8,991	$	2,835	$	11,826
Commercial real estate	15,062		1,251		16,313		15,847		2,875		18,722
Home equity line of credit	4,564		1,364		5,928		5,791		1,567		7,358
Residential land	97		300		397		108		300		408
Commercial construction	—		—		—		—		—		—
Residential construction	—		—		—		—		—		—
Commercial	1,573		2,080		3,653		1,819		3,328		5,147
Consumer	2,198		—		2,198		3,935		—		3,935
Total	$	36,801	$	12,992	$	49,793	$	36,491	$	10,905	$	47,396

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:


(in thousands)	September 30, 2021		December 31, 2020
Real estate:
Residential 1-4 family	$	7,545	$	7,932
Commercial real estate	3,136		3,281
Home equity line of credit	6,986		8,148
Residential land	985		1,555
Commercial construction	—		—
Residential construction	—		—
Commercial	7,251		6,108
Consumer	52		54
Total troubled debt restructured loans accruing interest	$	25,955	$	27,078

ASB did not recognize interest on nonaccrual loans for the three and nine months ended September 30, 2021 and 2020.

Troubled debt restructurings. A loan modification is deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider.

The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value of collateral less cost to sell. The financial impact of the estimated loss 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 credit losses.

Loan modifications that occurred during the three and nine months ended September 30, 2021 and 2020 were as follows:


Loans modified as a TDR	Three months ended September 30, 2021					Nine months ended September 30, 2021
(dollars in thousands)	Number of contracts	Outstanding recorded investment (as of period end) 1		Related allowance (as of period end)		Number of contracts	Outstanding recorded investment (as of period end) 1		Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family	1	$	442	$	81	16	$	10,363	$	309
Commercial real estate	—	—		—		—	—		—
Home equity line of credit	—	—		—		—	—		—
Residential land	1	247		11		3	802		37
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	1	2,386		212		7	2,678		242
Consumer	—	—		—		—	—		—
	3	$	3,075	$	304	26	$	13,843	$	588

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)


	Three months ended September 30, 2020					Nine months ended September 30, 2020
(dollars in thousands)	Number of contracts	Outstanding recorded investment (as of period end) 1		Related allowance (as of period end)		Number of contracts	Outstanding recorded investment (as of period end) 1		Related allowance (as of period end)
Troubled debt restructurings
Real estate:
Residential 1-4 family	—	$	—	$	—	1	$	146	$	7
Commercial real estate	—	—		—		2	16,149		4,019
Home equity line of credit	—	—		—		2	22		1
Residential land	—	—		—		2	228		15
Commercial construction	—	—		—		—	—		—
Residential construction	—	—		—		—	—		—
Commercial	2	52		45		5	207		180
Consumer	—	—		—		—	—		—
	2	$	52	$	45	12	$	16,752	$	4,222

1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed upon by period end are not included.

There were no loans modified in TDRs that experienced a payment default of 90 days or more during the third quarter and first nine months of 2021 and 2020.

If a loan modified in a TDR subsequently defaults, 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 nil at September 30, 2021 and December 31, 2020.

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes.

In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past due reporting and nonaccrual status and charge-offs.

Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with the FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. Lastly, during short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified.

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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Loans considered collateral-dependent were as follows:


	Amortized cost
(in thousands)	September 30, 2021		December 31, 2020		Collateral type
Real estate:
Residential 1-4 family	$	5,268	$	2,541	Residential real estate property
Commercial real estate	1,251		2,875		Commercial real estate property
Home equity line of credit	1,364		1,567		Residential real estate property
Residential land	300		300		Residential real estate property
Total real estate	8,183		7,283
Commercial	780		934		Business assets
Total	$	8,963	$	8,217

ASB had $ 3.4 million and $ 3.8 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2021 and December 31, 2020, 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 $ 38.3 million and $ 128.0 million for the three months ended September 30, 2021 and 2020, respectively, $ 304.8 million and $ 387.2 million for the nine months ended September 30, 2021 and 2020, respectively, and recognized gains on such sales of $ 1.3 million and $ 7.7 million for the three months ended September 30, 2021 and 2020, respectively, $ 7.5 million and $ 15.9 million for the nine months ended September 30, 2021 and 2020, respectively.

There were no repurchased mortgage loans for the three and nine months ended September 30, 2021 and 2020. The repurchase reserve, which represents ASB’s loss estimate related to mortgage loan repurchases, was $ 0.1 million as of September 30, 2021 and 2020.

Mortgage servicing fees, a component of other income, net, were $ 1.0 million and $ 0.9 million for the three months ended September 30, 2021 and 2020, respectively, and were $ 2.8 million and $ 2.5 million for the nine months ended September 30, 2021 and 2020, respectively.

Changes in the carrying value of MSRs were as follows:


(in thousands)	Gross carrying amount 1		Accumulated amortization		Valuation allowance		Net carrying amount
September 30, 2021	$	22,182	$	( 11,910 )	$	—	$	10,272
December 31, 2020	22,950		( 12,670 )		( 260 )		10,020

1 Reflects impact of loans paid in full

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Changes related to MSRs were as follows:


	Three months ended September 30,				Nine months ended September 30
(in thousands)	2021		2020		2021		2020
Mortgage servicing rights
Beginning balance	$	10,754	$	9,911	$	10,280	$	9,101
Amount capitalized	315		1,119		2,885		3,481
Amortization	( 797 )		( 1,095 )		( 2,893 )		( 2,647 )
Other-than-temporary impairment	—		—		—		—
Carrying amount before valuation allowance	10,272		9,935		10,272		9,935
Valuation allowance for mortgage servicing rights
Beginning balance	—		264		260		—
Provision	—		118		( 260 )		382
Other-than-temporary impairment	—		—		—		—
Ending balance	—		382		—		382
Net carrying value of mortgage servicing rights	$	10,272	$	9,553	$	10,272	$	9,553

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)	September 30, 2021			December 31, 2020
Unpaid principal balance	$	1,521,966		$	1,450,312
Weighted average note rate	3.42		%	3.68		%
Weighted average discount rate	9.25		%	9.25		%
Weighted average prepayment speed	11.7		%	17.7		%

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)	September 30, 2021		December 31, 2020
Prepayment rate:
25 basis points adverse rate change	$	( 1,045 )	$	( 738 )
50 basis points adverse rate change	( 2,209 )		( 1,445 )
Discount rate:
25 basis points adverse rate change	( 115 )		( 68 )
50 basis points adverse rate change	( 229 )		( 135 )

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 September 30, 2021 and December 31, 2020, ASB had no FHLB advances outstanding or federal funds purchased with the Federal Reserve Bank. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of September 30, 2021.

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 condensed consolidated balance sheets. 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 a conditional right of set-off in case of default by either party; however, ASB presents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

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 Sheets		Net amount of liabilities presented in the Balance Sheets
Repurchase agreements
September 30, 2021	$	129	$	—	$	129
December 31, 2020	90		—		90


	Gross amount not offset in the Balance Sheets
(in millions)	Net amount of liabilities presented in the Balance Sheets		Financial instruments		Cash collateral pledged
Commercial account holders



September 30, 2021	$	129	$	146	$	—




December 31, 2020	90		92		—

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. 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 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:


	September 30, 2021				December 31, 2020
(in thousands)	Notional amount		Fair value		Notional amount		Fair value
Interest rate lock commitments	$	22,289	$	308	$	120,980	$	4,536
Forward commitments	21,750		109		100,500		( 500 )

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:


Derivative Financial Instruments Not Designated as Hedging Instruments 1	September 30, 2021				December 31, 2020
(in thousands)	Asset derivatives		Liability derivatives		Asset derivatives		Liability derivatives
Interest rate lock commitments	$	308	$	—	$	4,536	$	—
Forward commitments	121		12		—		500
	$	429	$	12	$	4,536	$	500

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 September 30,				Nine months ended September 30
(in thousands)		2021		2020		2021		2020
Interest rate lock commitments	Mortgage banking income	$	( 63 )	$	2,930	$	( 4,228 )	$	4,974
Forward commitments	Mortgage banking income	150		44		609		( 201 )
		$	87	$	2,974	$	( 3,619 )	$	4,773

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $ 37.8 million and $ 41.0 million at September 30, 2021 and December 31, 2020, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of September 30, 2021, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 5 · Credit agreements and changes in long-term debt

On May 14, 2021, HEI and Hawaiian Electric (each a Company, and collectively the Companies) each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Amended Facilities) to amend and restate their respective previously existing revolving unsecured credit agreements. The HEI Facility was increased to $ 175 million from $ 150 million and its term was extended to May 14, 2026. The $ 200 million Hawaiian Electric Facility has an initial term that expires on May 13, 2022, but its term will extend to May 14, 2026 upon approval by the PUC during the initial term, which approval has been requested. In addition to extending the term, Hawaiian Electric also requested PUC approval to exercise its options of two one-year extensions of the commitment termination date and to increase its aggregate revolving commitment amount from $ 200 million to $ 275 million, should there be a need.

None of the facilities are collateralized. As of September 30, 2021 and December 31, 2020, no amounts were outstanding under the Credit Facilities.

The Credit Facilities will be maintained to support each company’s respective short-term commercial paper program, but may be drawn on to meet each company’s respective working capital needs and general corporate purposes.

Under the Amended Facilities, draws would generally bear interest, based on each Company’s respective current long-term credit ratings, at the “Adjusted LIBO Rate,” as defined in the Amended Facilities, plus 137.5 and 125.0 basis points for HEI and Hawaiian Electric, respectively, and incur annual fees on undrawn commitments, excluding swingline borrowings, of 20.0 and 17.5 basis points for HEI and Hawaiian Electric, respectively. The Amended Facilities also include provisions to accommodate a transition from the London Interbank Offered Rate (LIBOR) to an alternative reference rate, based on the secured overnight financing rate administered by the Federal Reserve Bank of New York, upon the phase out of LIBOR as a reference rate.

Additionally, the Amended Facilities contain provisions for pricing adjustments in the event of a long-term ratings change based on the respective Facility’s ratings-based pricing grid, which includes the ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service (Moody’s) and Standard & Poor’s (S&P). The Amended Facilities do not contain clauses that would affect access to the Amended Facilities by reason of a ratings downgrade, nor do they have broad “material adverse change” clauses. In addition, the Amended Facilities contain provisions for potential annual pricing adjustments to the Eurodollar or Alternate Base Rate margin on draws and fees on undrawn commitments of up to +/-5 basis points and +/-1 basis point, respectively, based on performance against certain sustainability-linked metrics. The sustainability-linked metrics include achievement of renewable portfolio standards in excess of statutory requirements and increasing cumulative penetration of installed MWs of photovoltaic systems on residential rooftops.

The Amended Facilities also include updated terms and conditions customary for facilities of this type and contain customary conditions that must be met in order to draw on them, including compliance with covenants (such as covenants preventing HEI’s and Hawaiian Electric’s respective subsidiaries from entering into agreements that restrict the ability of such subsidiaries to pay dividends to, or to repay borrowings from, HEI or Hawaiian Electric, as applicable; and a covenant in Hawaiian Electric’s facility restricting Hawaiian Electric’s ability, as well as the ability of any of its subsidiaries, to guarantee additional indebtedness of the subsidiaries if such additional debt would cause the subsidiary’s “Consolidated Subsidiary Funded Debt to Capitalization Ratio” (as defined in the Hawaiian Electric Facility) to exceed 65 %).

Under the HEI Facility, it is an event of default if HEI fails to maintain an unconsolidated “Capitalization Ratio” (funded debt) (as defined in the HEI Facility) of 50 % or less or if HEI no longer owns Hawaiian Electric or ASB. Under the Hawaiian Electric Facility, it is an event of default if Hawaiian Electric fails to maintain a “Consolidated Capitalization Ratio” (equity) (as defined in the Hawaiian Electric Facility) of at least 35 %, or if Hawaiian Electric is no longer owned by HEI.

Hawaiian Electric had a $ 75 million 364 -day revolving credit agreement, under which no amounts had been drawn. On April 19, 2021, the revolving credit agreement terminated and was not renewed.

HEI Private Placement. On September 29, 2021, HEI entered into a note purchase agreement (HEI NPA) under which HEI has authorized the issue and sale of $ 125 million of unsecured senior notes to be drawn in two tranches at a future date. As defined in the note purchase agreement, at its option, HEI may draw the notes on a delayed basis. The following table displays the required draw date of the HEI notes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

HEI Series 2021A

HEI Series 2021B

HEI Series 2021C

HEI Series 2022A

HEI Series 2022B

Aggregate principal amount

$ 30 million

$ 25 million

$ 20 million

$ 30 million

$ 20 million

Fixed coupon interest rate

2.48 %

2.78 %

3.74 %

2.98 %

3.94 %

Maturity date

12/29/2028

12/29/2031

12/29/2051

11/15/2032

11/15/2052

Final draw date

12/29/2021

11/15/2022

Proceeds from the notes are expected to be used for general corporate purposes, including investing in the Utilities’ equity to maintain a Utilities’ equity capitalization ratio of approximately 58 %, refinancing a portion of $ 150 million of maturing debt in November 2022, and to repay a portion of HEI commercial paper outstanding. Once drawn, interest on the notes is paid semiannually on June 15th and December 15th. The HEI note purchase agreements contain certain restrictive financial covenants that are substantially the same as the financial covenants contained in HEI’s senior credit facility, as amended. The HEI notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount, together with interest accrued to the date of prepayment plus a “Make-Whole Amount,” as defined in the agreements.

Mauo Term Debt. On September 3, 2021, Mauo entered into a $ 24 million credit agreement under which it has drawn an aggregate of $ 13 million under a series of notes. The proceeds were used to refinance a portion of a construction loan related to five solar-battery projects. The notes are non-recourse to Pacific Current and HEI, bear interest at LIBOR plus 1.7 %, mature in September 2034, and are collateralized by three solar-battery projects. In connection with the non-recourse notes drawn under the credit agreement, Mauo entered into interest rate swaps that effectively convert the rate on the floating rate notes to a fixed rate of 4.9 %.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 6 · Shareholders’ equity

Accumulated other comprehensive income/(loss) . Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:


	HEI Consolidated								Hawaiian Electric Consolidated
(in thousands)	Net unrealized gains (losses) on securities		Unrealized gains (losses) on derivatives		Retirement benefit plans		AOCI		AOCI-Retirement benefit plans
Balance, December 31, 2020	$	19,986	$	( 3,363 )	$	( 17,887 )	$	( 1,264 )	$	( 2,919 )
Current period other comprehensive income (loss)	( 40,308 )		1,009		450		( 38,849 )		175
Balance, September 30, 2021	$	( 20,322 )	$	( 2,354 )	$	( 17,437 )	$	( 40,113 )	$	( 2,744 )
Balance, December 31, 2019	$	2,481	$	( 1,613 )	$	( 20,907 )	$	( 20,039 )	$	( 1,279 )
Current period other comprehensive income (loss)	19,767		( 2,129 )		1,682		19,320		99
Balance, September 30, 2020	$	22,248	$	( 3,742 )	$	( 19,225 )	$	( 719 )	$	( 1,180 )

Reclassifications out of AOCI were as follows:


	Amount reclassified from AOCI								Affected line item in the Statements of Income / Balance Sheets
	Three months ended September 30				Nine months ended September 30
	2021		2020		2021		2020
(in thousands)
HEI consolidated
Net realized gains on securities included in net income	$	—	$	—	$	( 387 )	$	( 1,638 )	Gain on sale of investment securities, net


Net realized losses on derivatives qualifying as cash flow hedges	9		—		9		—		Interest expense
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost	2,853		6,324		14,871		17,720		See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets	( 2,799 )		( 5,721 )		( 14,421 )		( 16,038 )		See Note 8 for additional details
Total reclassifications	$	63	$	603	$	72	$	44
Hawaiian Electric consolidated


Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost	$	2,905	$	5,769	$	14,596	$	16,137	See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets	( 2,799 )		( 5,721 )		( 14,421 )		( 16,038 )		See Note 8 for additional details
Total reclassifications	$	106	$	48	$	175	$	99

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 7 · Revenues

Revenue from contracts with customers. The following tables disaggregate revenues by major source, timing of revenue recognition, and segment:


	Three months ended September 30, 2021								Nine months ended September 30, 2021
(in thousands)	Electric utility		Bank		Other		Total		Electric utility		Bank		Other		Total
Revenues from contracts with customers
Electric energy sales - residential	$	228,878	$	—	$	—	$	228,878	$	606,435	$	—	$	—	$	606,435
Electric energy sales - commercial	217,468		—		—		217,468		578,036		—		—		578,036
Electric energy sales - large light and power	229,129		—		—		229,129		607,480		—		—		607,480
Electric energy sales - other	2,779		—		—		2,779		7,470		—		—		7,470
Bank fees	—		11,186		—		11,186		—		34,133		—		34,133
Other sales	—		—		1,178		1,178		—		—		3,191		3,191
Total revenues from contracts with customers	678,254		11,186		1,178		690,618		1,799,421		34,133		3,191		1,836,745
Revenues from other sources
Regulatory revenue	$	( 5,717 )	$	—	$	—	$	( 5,717 )	$	25,566	$	—	$	—	$	25,566
Bank interest and dividend income	—		61,441		—		61,441		—		182,127		—		182,127
Other bank noninterest income	—		3,581		—		3,581		—		14,339		—		14,339
Other	6,962		—		19		6,981		21,255		—		75		21,330
Total revenues from other sources	1,245		65,022		19		66,286		46,821		196,466		75		243,362
Total revenues	$	679,499	$	76,208	$	1,197	$	756,904	$	1,846,242	$	230,599	$	3,266	$	2,080,107
Timing of revenue recognition
Services/goods transferred at a point in time	$	—	$	11,186	$	—	$	11,186	$	—	$	34,133	$	—	$	34,133
Services/goods transferred over time	678,254		—		1,178		679,432		1,799,421		—		3,191		1,802,612
Total revenues from contracts with customers	$	678,254	$	11,186	$	1,178	$	690,618	$	1,799,421	$	34,133	$	3,191	$	1,836,745


	Three months ended September 30, 2020								Nine months ended September 30, 2020
(in thousands)	Electric utility		Bank		Other		Total		Electric utility		Bank		Other		Total
Revenues from contracts with customers
Electric energy sales - residential	$	191,321	$	—	$	—	$	191,321	$	569,177	$	—	$	—	$	569,177
Electric energy sales - commercial	171,156		—		—		171,156		528,135		—		—		528,135
Electric energy sales - large light and power	176,200		—		—		176,200		568,887		—		—		568,887
Electric energy sales - other	1,935		—		—		1,935		7,172		—		—		7,172
Bank fees	—		9,589		—		9,589		—		28,356		—		28,356
Other sales	—		—		211		211		—		—		240		240
Total revenues from contracts with customers	540,612		9,589		211		550,412		1,673,371		28,356		240		1,701,967
Revenues from other sources
Regulatory revenue	15,457		—		—		15,457		2,979		—		—		2,979
Bank interest and dividend income	—		59,640		—		59,640		—		184,444		—		184,444
Other bank noninterest income	—		9,415		—		9,415		—		20,296		—		20,296
Other	6,499		—		4		6,503		17,875		—		( 3 )		17,872
Total revenues from other sources	21,956		69,055		4		91,015		20,854		204,740		( 3 )		225,591
Total revenues	$	562,568	$	78,644	$	215	$	641,427	$	1,694,225	$	233,096	$	237	$	1,927,558
Timing of revenue recognition
Services/goods transferred at a point in time	$	—	$	9,589	$	—	$	9,589	$	—	$	28,356	$	—	$	28,356
Services/goods transferred over time	540,612		—		211		540,823		1,673,371		—		240		1,673,611
Total revenues from contracts with customers	$	540,612	$	9,589	$	211	$	550,412	$	1,673,371	$	28,356	$	240	$	1,701,967

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

There are no material contract assets or liabilities associated with revenues from contracts with customers existing at December 31, 2020 or as of September 30, 2021. Accounts receivable and unbilled revenues related to contracts with customers represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are disclosed as accounts receivable and unbilled revenues, net on HEI’s condensed consolidated balance sheets and customer accounts receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s condensed consolidated balance sheets.

As of September 30, 2021, the Company had no material remaining performance obligations due to the nature of the Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to customers. For ASB, fees are recognized when a transaction is completed.

Note 8 · Retirement benefits

Defined benefit pension and other postretirement benefit plans information. For the first nine months of 2021, the Company contributed $ 39 million ($ 38 million by the Utilities) to its pension and other postretirement benefit plans, compared to $ 53 million ($ 52 million by the Utilities) in the first nine months of 2020. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in 2021 is $ 52 million ($ 51 million by the Utilities, $ 1 million by HEI and nil by ASB), compared to $ 71 million ($ 70 million by the Utilities, $ 1 million by HEI and nil by ASB) in 2020. In addition, the Company expects to pay directly $ 2 million ($ 1 million by the Utilities) of benefits in 2021, compared to $ 2 million ($ 1 million by the Utilities) paid in 2020.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

The components of net periodic pension costs (NPPC) and net periodic benefit costs (NPBC) for HEI consolidated and Hawaiian Electric consolidated were as follows:


	Three months ended September 30								Nine months ended September 30
	Pension benefits				Other benefits				Pension benefits				Other benefits
	2021		2020		2021		2020		2021		2020		2021		2020
(in thousands)
HEI consolidated
Service cost	$	20,102	$	18,341	$	711	$	641	$	61,031	$	55,066	$	2,121	$	1,903
Interest cost	18,896		20,660		1,459		1,842		56,497		60,987		4,597		5,553
Expected return on plan assets	( 33,022 )		( 28,422 )		( 3,252 )		( 3,023 )		( 99,157 )		( 85,353 )		( 9,717 )		( 9,100 )
Amortization of net prior period (gain)/cost	—		2		( 383 )		( 474 )		—		7		( 1,150 )		( 1,355 )
Amortization of net actuarial (gain)/losses 1	10,112		8,944		( 140 )		53		20,099		25,059		158		154
Net periodic pension/benefit cost (return)	16,088		19,525		( 1,605 )		( 961 )		38,470		55,766		( 3,991 )		( 2,845 )
Impact of PUC D&Os	4,292		4,976		1,483		835		20,972		17,499		3,629		2,389
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)	$	20,380	$	24,501	$	( 122 )	$	( 126 )	$	59,442	$	73,265	$	( 362 )	$	( 456 )
Hawaiian Electric consolidated
Service cost	$	19,610	$	17,921	$	704	$	635	$	59,597	$	53,703	$	2,101	$	1,886
Interest cost	17,614		19,183		1,398		1,764		52,676		56,613		4,406		5,327
Expected return on plan assets	( 31,318 )		( 26,815 )		( 3,202 )		( 2,986 )		( 94,053 )		( 80,527 )		( 9,566 )		( 8,966 )
Amortization of net prior period (gain)/cost	—		1		( 383 )		( 474 )		—		6		( 1,148 )		( 1,353 )
Amortization of net actuarial (gain)/losses 1	9,880		8,188		( 138 )		53		20,651		22,925		155		155
Net periodic pension/benefit cost (return)	15,786		18,478		( 1,621 )		( 1,008 )		38,871		52,720		( 4,052 )		( 2,951 )
Impact of PUC D&Os	4,292		4,976		1,483		835		20,972		17,499		3,629		2,389
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)	$	20,078	$	23,454	$	( 138 )	$	( 173 )	$	59,843	$	70,219	$	( 423 )	$	( 562 )

1 Nine months ended September 30, 2021 amounts include the one-time cumulative impact of the change in accounting principle for the plans’ fixed income securities from the calculated market-related value method to the fair value method, which was recorded in the first quarter of 2021.

HEI consolidated recorded retirement benefits expense of $ 35 million ($ 35 million by the Utilities) in the first nine months of 2021 and $ 46 million ($ 43 million by the Utilities) in the first nine months of 2020 and charged the remaining net periodic benefit cost primarily to electric utility plant.

Effective January 1, 2021, the Company adopted a change in accounting principle for the plans’ fixed income securities from the calculated market-related value method to the fair value method in the calculation of the expected return on plan assets component of NPPC and NPBC. The remaining plan assets continue to use the calculated market-related value methodology. The Company considers the fair value approach to be preferable for its fixed-income securities portfolio because it results in a current reflection of the changes in the value of plan assets in a way similar to the obligations it is intended to hedge. The Company evaluated the effect of this change in accounting principle and deemed it to be immaterial to the historical financial statements of the Company and Hawaiian Electric and, therefore, did not account for the change retrospectively and recorded the cumulative effects from the change in accounting principle in earnings for non-Utility businesses in the first quarter of 2021. Amounts related to the Utilities were reflected as adjustments to regulatory assets as appropriate, consistent with the expected regulatory treatment as described in the following paragraph.

The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, any actual costs determined in accordance with GAAP that are over/under

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over 5 years beginning with the respective utility’s next rate case.

Defined contribution plans information. For the first nine months of 2021 and 2020, the Company’s expenses for its defined contribution plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $ 4.9 million and $ 5.5 million, respectively, and cash contributions were $ 4.8 million and $ 6.0 million, respectively. For the first nine months of 2021 and 2020, the Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP were $ 2.3 million and $ 2.1 million, respectively.

Note 9 · Share-based compensation

Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares were added to the shares available for issuance under these programs.

As of September 30, 2021, approximately 2.9 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated 0.8 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).

Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. In June 2019, an additional 300,000 shares were made available for issuance under the 2011 Director Plan. As of September 30, 2021, there were 244,843 shares remaining available for future issuance under the 2011 Director Plan.

Share-based compensation expense and the related income tax benefit were as follows:


	Three months ended September 30				Nine months ended September 30
(in millions)	2021		2020		2021		2020
HEI consolidated
Share-based compensation expense 1	$	1.3	$	1.4	$	6.7	$	5.4
Income tax benefit	0.1		0.2		1.0		0.9
Hawaiian Electric consolidated
Share-based compensation expense 1	0.1		—		2.1		1.2
Income tax benefit	—		—		0.4		0.3

1 For the three and nine months ended September 30, 2021 and 2020, the Company has not capitalized any share-based compensation.

Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:


	Three months ended September 30				Nine months ended September 30
(dollars in millions)	2021		2020		2021		2020
Shares granted	—		—		29,320		36,100
Fair value	$	—	$	—	$	1.2	$	1.3
Income tax benefit	—		—		0.3		0.3

The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI common stock on the grant date.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:


	Three months ended September 30								Nine months ended September 30
	2021				2020				2021				2020
	Shares		(1)		Shares		(1)		Shares		(1)		Shares		(1)
Outstanding, beginning of period	229,775		$	38.02	204,357		$	40.65	193,939		$	40.89	207,641		$	35.36
Granted	1,432		45.09		—		—		133,924		34.49		78,595		47.99
Vested	( 343 )		37.83		—		—		( 79,623 )		38.51		( 77,719 )		34.19
Forfeited	( 1,074 )		38.52		—		—		( 18,450 )		39.92		( 4,160 )		35.81
Outstanding, end of period	229,790		$	38.06	204,357		$	40.65	229,790		$	38.06	204,357		$	40.65
Total weighted-average grant-date fair value of shares granted (in millions)	$	0.1			$	—			$	4.6			$	3.8

(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the nine months ended September 30, 2021 and 2020, total restricted stock units and related dividends that vested had a fair value of $ 3.0 million and $ 4.2 million, respectively, and the related tax benefits were $ 0.6 million and $ 0.7 million, respectively.

As of September 30, 2021, there was $ 6.4 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.2 years.

Long-term incentive plan payable in stock. The 2019-2021, 2020-2022 and 2021-2023 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0 % to 200 % of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the relevant three-year period. The other performance condition goals relate to EPS growth, return on average common equity (ROACE), renewable portfolio standards, Hawaiian Electric’s net income growth, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth and return on average invested capital.

LTIP linked to TSR . Information about HEI’s LTIP grants linked to TSR was as follows:


	Three months ended September 30								Nine months ended September 30
	2021				2020				2021				2020
	Shares		(1)		Shares		(1)		Shares		(1)		Shares		(1)
Outstanding, beginning of period	91,159		$	42.87	90,616		$	42.08	89,222		$	42.10	96,402		$	39.62
Granted	281		41.12		—		—		46,024		41.12		24,630		48.62
Vested (issued or unissued and cancelled)	—		—		—		—		( 32,355 )		38.20		( 29,409 )		39.51
Forfeited	( 466 )		42.49		—		—		( 11,917 )		43.07		( 1,007 )		41.72
Outstanding, end of period	90,974		$	42.86	90,616		$	42.08	90,974		$	42.86	90,616		$	42.08
Total weighted-average grant-date fair value of shares granted (in millions)	$	—			$	—			$	1.9			$	1.2

(1) Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.

The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and estimated future stock volatility of HEI and its peers over the remaining three-year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three-year historic stock volatility. A dividend assumption is not required for the Monte Carlo simulation because the grant payout includes dividend equivalents and projected returns include the value of reinvested dividends.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:


	2021		2020
Risk-free interest rate	0.19	%	1.39	%
Expected life in years	3		3
Expected volatility	29.9	%	13.1	%
Range of expected volatility for Peer Group	25.6 % to 102.9 %		13.6 % to 95.4 %
Grant date fair value (per share)	$ 41.12		$ 48.62

For the nine months ended September 30, 2021 and 2020, total vested LTIP awards linked to TSR and related dividends had a fair value of $ 0.8 million and $ 2.6 million, respectively, and the related tax benefits were $ 0.2 million and $ 0.4 million, respectively.

As of September 30, 2021, there was $ 1.8 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of 1.4 years.

LTIP awards linked to other performance conditions . Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:


	Three months ended September 30								Nine months ended September 30
	2021				2020				2021				2020
	Shares		(1)		Shares		(1)		Shares		(1)		Shares		(1)
Outstanding, beginning of period	316,005		$	38.38	297,523		$	40.37	220,715		$	41.03	403,768		$	35.15
Granted	1,125		41.12		—		—		184,102		34.37		98,522		48.10
Vested	—		—		—		—		( 43,155 )		34.12		( 135,804 )		33.48
Increase above target (cancelled)	( 22,354 )		37.81		( 21,807 )		34.11		( 21,077 )		38.18		( 86,739 )		34.12
Forfeited	( 1,865 )		36.77		—		—		( 47,674 )		38.74		( 4,031 )		39.67
Outstanding, end of period	292,911		$	38.45	275,716		$	40.86	292,911		$	38.45	275,716		$	40.86
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions)	$	—			$	—			$	6.3			$	4.7

(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the nine months ended September 30, 2021 and 2020, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $ 1.7 million and $ 7.6 million, respectively, and the related tax benefits were $ 0.4 million and $ 1.2 million, respectively.

As of September 30, 2021, there was $ 5.7 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 1.6 years.

Note 10 · Income taxes

The Company’s and the Utilities’ effective tax rates (combined federal and state income tax rates) were 20 % and 19 %, respectively, for the nine months ended September 30, 2021. These rates differed from the combined statutory rates, due primarily to the Utilities’ amortization of excess deferred income taxes related to the provision in the Tax Act that lowered the federal income tax rate from 35% to 21%, the tax benefits derived from the low income housing tax credit investments, the non-taxability of the bank-owned life insurance income and federal research and development tax credit claims. The Company’s and the Utilities’ effective tax rates were 17 % and 19 %, respectively, for the nine months ended September 30, 2020.

In August 2020, the Internal Revenue Service notified the Company that its 2017 and 2018 income tax returns would be examined. The Company was previously audited every year through 2011, at which time the IRS changed their internal policies regarding audit frequency. The Company has received several initial requests for general tax return information and has responded or is in the process of responding to such requests.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 11 · Cash flows


Nine months ended September 30	2021		2020
(in millions)
Supplemental disclosures of cash flow information
HEI consolidated
Interest paid to non-affiliates, net of amounts capitalized	$	61	$	64
Income taxes paid (including refundable credits)	34		23

Hawaiian Electric consolidated
Interest paid to non-affiliates	43		39
Income taxes paid (including refundable credits)	20		29

Supplemental disclosures of noncash activities
HEI consolidated
Property, plant and equipment
Estimated fair value of noncash contributions in aid of construction (investing)	5		9
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)	30		32
Reduction of long-term debt from funds previously transferred for repayment (financing)	—		82
Right-of-use assets obtained in exchange for operating lease obligations (investing)	44		22
Common stock issued (gross) for director and executive/management compensation (financing) 1	7		16

Obligations to fund low income housing investments (investing)	9		10
Loans transferred from held for investment to held for sale (investing)	62		—



Hawaiian Electric consolidated
Electric utility property, plant and equipment
Estimated fair value of noncash contributions in aid of construction (investing)	5		9
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)	27		28
Reduction of long-term debt from funds previously transferred for repayment (financing)	—		82
Right-of-use assets obtained in exchange for operating lease obligations (investing)	44		16

1 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld to satisfy statutory tax liabilities.

Note 12 · Fair value measurements

Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value:

Short-term borrowings—other than bank . The carrying amount of short-term borrowings approximated fair value because of the short maturity of these instruments.

Investment securities . The fair value of ASB’s investment securities is determined quarterly through pricing obtained from independent third-party pricing services or from brokers not affiliated with the trade. Non-binding broker quotes are infrequent and generally occur for new securities that are settled close to the month-end pricing date. The third-party pricing vendors ASB uses for pricing its securities are reputable firms that provide pricing services on a global basis and have processes in place to ensure quality and control. The third-party pricing services use a variety of methods to determine the fair value of securities that fall under Level 2 of ASB’s fair value measurement hierarchy. Among the considerations are quoted prices for similar securities in an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic prepayment speeds, and other observable market factors.

To enhance the robustness of the pricing process, ASB will on a quarterly basis compare its standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by ASB and a challenge to the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable characteristics of the security. In all cases, the fair value used will have been independently determined by a third-party pricing vendor or non-affiliated broker.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

The fair value of the mortgage revenue bonds is estimated using a discounted cash flow model to calculate the present value of future principal and interest payments and, therefore is classified within Level 3 of the valuation hierarchy.

Loans held for sale . Residential and commercial loans are carried at the lower of cost or market and are valued using market observable pricing inputs, which are derived from third party loan sales and, therefore, are classified within Level 2 of the valuation hierarchy.

Loans held for investment . Fair value of loans held for investment is derived using a discounted cash flow approach which includes an evaluation of the underlying loan characteristics. The valuation model uses loan characteristics which includes product type, maturity dates and the underlying interest rate of the portfolio. This information is input into the valuation models along with various forecast valuation assumptions including prepayment forecasts, to determine the discount rate. These assumptions are derived from internal and third party sources. Since the valuation is derived from model-based techniques, ASB includes loans held for investment within Level 3 of the valuation hierarchy.

Collateral dependent loans . Collateral dependent loans have been adjusted to fair value. When a loan is identified as collateral dependent, the Company measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little or no value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. If it is determined that the value of the collateral dependent loan is less than its recorded investment, the Company recognizes this impairment and adjusts the carrying value of the loan to fair value through the allowance for credit losses.

Real estate acquired in settlement of loans . Foreclosed assets are carried at fair value (less estimated costs to sell) and are generally based upon appraisals or independent market prices that are periodically updated subsequent to classification as real estate owned. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. ASB estimates the fair value of collateral-dependent loans and real estate owned using the sales comparison approach.

Mortgage servicing rights . MSRs are capitalized at fair value based on market data at the time of sale and accounted for in subsequent periods at the lower of amortized cost or fair value. MSRs are evaluated for impairment at each reporting date. ASB's MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type and note rate. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. 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. 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 consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. ASB compares the fair value of MSRs to an estimated value calculated by an independent third-party. The third-party relies on both published and unpublished sources of market related assumptions and its own experience and expertise to arrive at a value. ASB uses the third-party value only to assess the reasonableness of its own estimate. ASB includes MSRs within Level 3 of the valuation hierarchy.

Time deposits . The fair value of fixed-maturity certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for FHLB advances of similar remaining maturities. Deposit liabilities are classified in Level 2 of the valuation hierarchy.

Other borrowings . For advances and repurchase agreements, fair value is estimated using quantitative discounted cash flow models that require the use of interest rate inputs that are currently offered for advances and repurchase agreements of similar remaining maturities. The majority of market inputs are actively quoted and can be validated through external sources, including broker market transactions and third party pricing services.

Long-term debt—other than bank . Fair value of fixed-rate long-term debt—other than bank was obtained from third-party financial services providers based on the current rates offered for debt of the same or similar remaining maturities and from discounting the future cash flows using the current rates offered for debt of the same or similar risks, terms, and remaining maturities. The carrying amount of floating rate long-term debt—other than bank approximated fair value because of the short-term interest reset periods. Long-term debt—other than bank is classified in Level 2 of the valuation hierarchy.

Interest rate lock commitments (IRLCs) . The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. IRLCs are classified as Level 2 measurements.

Forward sales commitments . To be announced (TBA) mortgage-backed securities forward commitments are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are determined using quoted prices in the market place that are observable and are classified as Level 2 measurements.

The following table presents the carrying or notional amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments.


			Estimated fair value
(in thousands)	Carrying or notional amount		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
September 30, 2021
Financial assets
HEI consolidated

Available-for-sale investment securities	$	2,580,830	$	—	$	2,565,403	$	15,427	$	2,580,830
Held-to-maturity investment securities	491,871		—		484,654		—		484,654

Loans, net	5,100,178		—		54,537		5,167,221		5,221,758
Mortgage servicing rights	10,272		—		—		13,712		13,712

Derivative assets	53,789		121		494		—		615


Financial liabilities
HEI consolidated
Deposit liabilities	444,897		—		445,401		—		445,401
Short-term borrowings—other than bank	92,246		—		92,246		—		92,246
Other bank borrowings	129,305		—		129,304		—		129,304
Long-term debt, net—other than bank	2,244,795		—		2,588,972		—		2,588,972
Derivative liabilities	27,250		12		3,456		—		3,468
Hawaiian Electric consolidated
Short-term borrowings	—		—		—		—		—
Long-term debt, net	1,676,223		—		1,987,933		—		1,987,933


December 31, 2020
Financial assets
HEI consolidated

Available-for-sale investment securities	$	1,970,417	$	—	$	1,943,232	$	27,185	$	1,970,417
Held-to-maturity investment securities	226,947		—		229,963		—		229,963

Loans, net	5,260,917		—		28,354		5,410,976		5,439,330
Mortgage servicing rights	10,020		—		—		10,705		10,705

Derivative assets	120,980		—		4,536		—		4,536


Financial liabilities
HEI consolidated
Deposit liabilities	548,830		—		552,800		—		552,800
Short-term borrowings—other than bank	129,379		—		129,379		—		129,379
Other bank borrowings	89,670		—		89,669		—		89,669
Long-term debt, net—other than bank	2,119,129		—		2,487,790		—		2,487,790
Derivative liabilities	137,500		500		4,530		—		5,030
Hawaiian Electric consolidated
Short-term borrowings	49,979		—		49,979		—		49,979
Long-term debt, net	1,561,302		—		1,890,490		—		1,890,490

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Fair value measurements on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were as follows:


	September 30, 2021						December 31, 2020
	Fair value measurements using						Fair value measurements using
(in thousands)	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

Available-for-sale investment securities (bank segment)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	$	—	$	2,441,683	$	—	$	—	$	1,849,559	$	—
U.S. Treasury and federal agency obligations	—		92,075		—		—		62,322		—
Corporate bonds	—		31,645		—		—		31,351		—
Mortgage revenue bonds	—		—		15,427		—		—		27,185
	$	—	$	2,565,403	$	15,427	$	—	$	1,943,232	$	27,185
Derivative assets
Interest rate lock commitments (bank segment) 1	$	—	$	308	$	—	$	—	$	4,536	$	—
Forward commitments (bank segment) 1	121		—		—		—		—		—
Interest rate swap (Other segment) 2	—		186		—		—		—		—
	$	121	$	494	$	—	$	—	$	4,536	$	—
Derivative liabilities

Forward commitments (bank segment) 1	$	12	$	—	$	—	$	500	$	—	$	—

Interest rate swap (Other segment) 2	—		3,456		—		—		4,530		—
	$	12	$	3,456	$	—	$	500	$	4,530	$	—

1 Derivatives are carried at fair value in other assets or other liabilities in the balance sheets with changes in value included in mortgage banking income.

2 Derivatives are included in other assets and other liabilities in the balance sheets.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:


	Three months ended September 30				Nine months ended September 30
Mortgage revenue bonds	2021		2020		2021		2020
(in thousands)
Beginning balance	$	15,427	$	28,827	$	27,185	$	28,597
Principal payments received	—		( 1,642 )		( 11,758 )		( 1,642 )
Purchases	—		—		—		230
Unrealized gain (loss) included in other comprehensive income	—		—		—		—
Ending balance	$	15,427	$	27,185	$	15,427	$	27,185

Mortgage revenue bonds are issued by the Department of Budget and Finance of the State of Hawaii. The Company estimates the fair value by using a discounted cash flow model to calculate the present value of estimated future principal and interest payments. The unobservable input used in the fair value measurement is the weighted average discount rate. As of September 30, 2021, the weighted average discount rate was 2.06 %, which was derived by incorporating a credit spread over the one month LIBOR rate. Significant increases (decreases) in the weighted average discount rate could result in a significantly lower (higher) fair value measurement.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Fair value measurements on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. The carrying value of assets measured at fair value on a nonrecurring basis were as follows:


			Fair value measurements using
(in thousands)	Balance		Level 1		Level 2		Level 3
September 30, 2021
Loans	$	125	$	—	$	—	$	125


December 31, 2020
Loans	387		—		—		387
Mortgage servicing rights	3,001		—		—		3,001

For the nine months ended September 30, 2021 and 2020, there were no adjustments to fair value for ASB’s loans held for sale.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis:

Significant unobservable

input value (1)

($ in thousands)

Fair value

Valuation technique

Significant unobservable input

Range

Weighted
Average

September 30, 2021

Residential

125

Fair value of property or collateral

Appraised value less selling cost

N/A (2)

December 31, 2020

Commercial loan

387

Fair value of collateral

Appraised value less selling cost

N/A (2)

Mortgage servicing rights

3,001

Discounted cash flow

Prepayment speed

15 % - 22 %

Discount rate

9.3

(1) Represents percent of outstanding principal balance.

(2) N/A - Not applicable. There is one asset in each fair value measurement type.

Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value measurements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion updates “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HEI’s and Hawaiian Electric’s 2020 Form 10-K and should be read in conjunction with such discussion and the 2020 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI’s and Hawaiian Electric’s 2020 Form 10-K, as well as the quarterly (as of and for the nine months ended September 30, 2021) condensed consolidated financial statements and notes thereto included in this Form 10-Q.

HEI consolidated

Recent developments—COVID-19.

The economic recovery in Hawaii experienced a setback early in the third quarter as daily COVID-19 case counts rose and set a pandemic high of 900 cases (7-day average) in early September. As a result of the rising cases, a number of preventative policies were enacted by state, county and private entities. These measures included limiting group sizes for indoor and outdoor activities, mandatory vaccinations or adherence to regular testing protocols, and proof of vaccination or negative COVID-19 test for entry into certain indoor venues under the state’s Safe Access program. Additionally, the governor of the State of Hawaii made an announcement in late August, recommending that tourists postpone their visit to Hawaii.

Hawaii vaccinations have steadily increased with over 70% of the state’s population now fully vaccinated as of October 18, 2021. Due to increasing vaccination rates and the mitigation measures cited above, the 7-day average case count has steadily decreased, reaching 120 cases (7-day average) on October 18, 2021. On October 19, 2021, the governor of the State of Hawaii made an announcement encouraging fully vaccinated residents and non-residents to resume non-essential travel starting November 1, 2021.

While the case count trend has improved recently, tourism numbers have declined from the high levels experienced during the summer, due in part to the dampening effect of rising COVID-19 case counts across the U.S., but also due to seasonality where tourism numbers generally decline in the fall season.

Although the Hawaii economy experienced a temporary set back with the rise of the Delta variant, the Company expects that the Hawaii economy will continue to improve as tourism numbers increase for the balance of the year. In the third quarter of 2021, kWh sales remained below pre-pandemic levels, but were 4.4% higher than the same period in 2020 due to increased economic activity following the loosening of restrictions and an increase in tourism. While the level of kWh sales does not affect Utility revenues due to decoupling, it may increase or decrease the price per kWh paid by customers. See “Decoupling” in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling.

At the Bank, due to an i mprovement in the credit outlook in the third quarter of 2021, as reflected in upgrades in the commercial and commercial real estate loan portfolios and overall lower net charge offs, ASB recorded a $2 million negative provision for credit losses in the third quarter of 2021.

The Company remains focused on the continued safety and well-being of customers, employees, their families and the community. The Company’s mandatory work-from-home policy remains in effect through January 10, 2022 for certain employees and this policy has not impaired the Company’s ability to maintain effective internal controls over financial reporting. For personnel that cannot perform their work remotely, the Company has maintained safety protocols and policies to keep employees safe, while at the same time ensuring the reliability and resilience of its operations.

For further discussion of the impact of the COVID-19 pandemic on our subsidiaries see “Recent Developments—COVID-19” in the Electric Utility and Bank sections below. There has been no material impact on the “Other” segment and Pacific Current as a result of the COVID-19 pandemic as the primary businesses of Pacific Current are supported by PPAs that provide for contractual cash flows with credit-worthy counterparties.

For a discussion regarding the impact of the economic conditions caused by the pandemic on the Company’s liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources,” contained in each of the “HEI Consolidated,” “Electric utility” and “Bank” sections of this MD&A.

Environmental, Social & Governance.

At HEI, environmental, social and governance (ESG) principles and sustainability have long been fundamental values embedded within all aspects of the Company’s activities. With all of its operations isolated in the middle of the Pacific Ocean, the Company’s long-term health, and ability to deliver sustainable value for all stakeholders—including shareholders—is inextricably linked to the well-being of its employees, communities, economy, and environment. That is why the Company sees its mission of being a catalyst for a better Hawaii as advancing the Company’s long-term financial performance and

sustainability. The Company has focused on ensuring ESG considerations are appropriately integrated into its governance structures, strategies and risk management. This includes:

• Integration of Board oversight of important ESG matters into its existing governance structures and processes. This includes full Board review of ESG-related strategies, Audit & Risk Committee oversight of ESG risks, Compensation Committee responsibility for ESG-related compensation matters and Nominating & Corporate Governance Committee responsibility for human capital management and for ensuring an appropriate board governance framework is in place with respect to ESG.

• Robust ESG expertise among board members, including directors with direct experience in renewable energy, climate change policy and strategy, environmental management and sustainable investing.

• Expanded ESG goals as part of HEI and Utility executive incentive compensation.

• ESG considerations explicitly woven into strategic planning efforts and enterprise risk management processes.

The Company is committed to transparency and providing information to allow customers, community leaders, investors and other stakeholders understand how the Company’s strategies and operations advance ESG objectives and contribute to long-term value creation.

The Company issued its first ESG report in September 2020. The report encompassed ESG policies, principles and results reported during 2019 across the Company’s two primary operating subsidiaries, Hawaiian Electric and ASB, and was aligned with Sustainability Accounting Standards Board (SASB) guidance—using the electric utilities standard for Hawaiian Electric, and the commercial banks, commercial finance, and mortgage finance standards for ASB. On April 22, 2021, the Company issued its second ESG report. This report continues to include SASB disclosures for Hawaiian Electric and ASB and incorporates disclosures regarding risks and opportunities related to climate change, as well as associated risk management and governance processes, based on recommendations from the Task Force on Climate-related Financial Disclosures. It also outlines key impacts for the Company under two climate scenarios, including a scenario targeted to limit global temperature rise to 2 degrees Celsius or lower. The Company’s ESG reports can be found at www.hei.com/esg.

RESULTS OF OPERATIONS


	Three months ended September 30				%
(in thousands)	2021		2020		change	Primary reason(s)*
Revenues	$	756,904	$	641,427	18	Primarily increase for the electric utility segment
Operating income	97,316		99,561		(2)	Primarily decrease for electric utility segment due to higher operating expenses, partly offset by increase for bank segment
Net income for common stock	63,415		65,032		(2)	Primarily lower net income for electric utility segment, partly offset by higher net income at bank segment.


	Nine months ended September 30				%
(in thousands)	2021		2020		change	Primary reason(s)*
Revenues	$	2,080,107	$	1,927,558	8	Primarily increase for the electric utility segment
Operating income	297,203		230,819		29	Primarily increase for the electric utility and bank segments
Net income for common stock	191,645		147,339		30	Primarily higher net income at the electric utility and bank segments. See below for effective tax rate explanation.

* Also, see segment discussions which follow.

The Company’s effective tax rates for the third quarters of 2021 and 2020 were each 18%. The Company’s effective tax rates for the first nine months of 2021 and 2020 were 20% and 17%, respectively. The effective tax rates were higher for the nine months ended September 30, 2021 compared to the same period in 2020 due primarily to an increase in income before taxes in 2021, which reduces the rate impact of certain tax items, lower amortization in 2021 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate and a decrease in excess tax benefits related to vesting of share-based awards in 2021. These increases were partially offset by higher nontaxable bank owned life insurance and federal research and development tax credit claims in 2021.

Economic conditions.

Note: The statistical data in this section is from public third-party sources that management believes to be reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic Research Organization (UHERO), Department of Health of the State of Hawaii , U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local news media).

The CARES Act was passed by Congress and signed into law on March 27, 2020. The economic relief package totals more than $2 trillion and provides direct economic support to businesses and individuals. On December 27, 2020, the President signed into law the $900 billion economic stimulus package that provides, among others, direct payments to qualifying individuals, extended unemployment benefits, and additional small business aid. On March 11, 2021, the President signed into law the $1.9 trillion coronavirus relief package. The plan sent direct payments of up to $1,400 to most Americans. The bill extended a $300 per week unemployment insurance boost that ended September 6 and expanded the child tax credit for a year. It will also put nearly $20 billion into COVID-19 vaccinations, $25 billion into rental and utility assistance, and $350 billion into state, local and tribal relief. Hawaii has received a significant amount of funds through these various federal assistance programs that will help attenuate the impact to Hawaii’s economy.

The City and County of Honolulu had been operating under a tiered framework for reducing the spread of COVID-19 on Oahu. On September 20, 2021, the mayor of the County of Honolulu announced moving away from the tiered system and into a more flexible and responsive approach to Honolulu’s COVID-19 related restrictions called the Safe Oahu Response Plan (SORP). Under the SORP, the response plan will be guided by consideration of metrics that have previously guided the City’s response to the pandemic, including reported COVID-19 cases per day (which informs projected hospitalizations), COVID-19 case positivity rate, percentage of fully vaccinated people, healthcare system capacity (including hospitalizations, ICU beds, ventilators, staffing, etc.), all with consideration of the economic impact of restrictions imposed. However, the loosening and tightening of restrictions, which will be more flexible than provided for under the tiered framework, will be made in consultation with healthcare professionals, including the State of Hawaii Department of Health and consideration of current CDC guidelines.

See “Recent Developments—COVID-19” in the “Electric utility” and “Bank” sections below for further discussion of the economic impact caused by the pandemic.

Hawaii’s tourism industry, a significant driver of Hawaii’s economy, suffered dramatically with a 73.8% reduction in total visitor arrivals in 2020 compared with 2019. Starting October 15, 2020, the state launched its Safe Travels Program that allows travelers to avoid the mandatory 14-day quarantine if they test negative for COVID-19 within 72 hours of departure. Effective July 8, 2021, domestic visitors can now bypass the mandatory quarantine or COVID-19 test by providing proof of vaccination. Since the launch of the Safe Travels Program, the average daily passenger arrivals have steadily improved, but still remain below pre-pandemic levels. For the third quarter of 2021, average daily passenger counts were 1,268.5% higher than the comparable period in the prior year, but still 19.2% below 2019. A new 2021 year-to-date high of 35,555 daily visitor arrivals was achieved on August 1, 2021. On August 24th, due to increasing case numbers resulting from the Delta variant of COVID-19 and hospitals approaching maximum capacity, Governor Ige requested that tourists postpone their to travel to Hawaii and also implemented certain restrictions. As a result of seasonality and the measures taken above, the average daily passenger count in September 2021 trended lower to 19,871, compared to 27,972 in September 2019. The recovery in total passenger counts from the low levels in 2020 thus far has been driven by domestic travelers, with international travelers remaining at low levels due to higher restrictions for international travelers, depending on country of origin. In September 2021, domestic passenger counts were down 3.1% compared to 2019 pre-COVID-19 levels, while international passenger counts were down 94.6% compared to 2019 pre-COVID-19 levels.

Hawaii’s seasonally adjusted unemployment rate in September 2021 was 6.6%, which was substantially lower compared to the September 2020 rate of 14.8%. The national unemployment rate in September 2021 was 4.8% compared to 7.8% in September 2020. Hawaii’s unemployment rate is expected to continue to improve now that the job search requirement has been reinstated in order for claimants to receive unemployment benefits, restrictions on travel have been reduced significantly and increased vaccination rates should enable further reductions in business restrictions.

Hawaii real estate activity through September 2021, as indicated by Oahu’s home resale market, drove an increase in the median sales price of 8.7% for condominiums and 20.2% for single-family homes compared to the same period in 2020, with the median single-family home price reaching a record $1,050,000 in August and remained the same in September. The number of closed sales was up 63.3% for condominiums and up 24.2% for single-family residential homes for the first nine months of 2021 compared to the same period in 2020.

Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. The price of crude oil gradually increased during the 4th quarter of last year and the trend has continued during the first nine months of this year.

At its September 22, 2021 meeting, the Federal Open Market Committee (FOMC) decided to maintain the federal funds rate target range of 0%-0.25%. The FOMC plans to continue to maintain an accommodative stance of monetary policy to achieve maximum employment and inflation at the rate of 2 percent over the long run. The Federal Reserve stated that it will increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses.

The most recent forecast by UHERO, which was issued on September 24, 2021, forecasts full year 2021 real GDP growth of 3.5%, increase in total visitor arrivals of 142.9%, decrease in real personal income of -1.1%, and an unemployment rate of 8.3%. This forecast reflects improvement of Hawaii’s economy compared to the prior forecast as the U.S. visitor market outperforms expectations with visitor arrivals reaching an all-time high in July and accommodation occupancy rates reaching 80%. However, the economy experienced a downturn due to the Delta variant of COVID-19 causing record virus numbers and implementation of preventative policies that resulted in visitor arrivals falling sharply. The international market continues to be much slower to return and is anticipated to return in 2022 at half its pre-pandemic levels. A full economic recovery is still forecasted to be several years out.

Although the Company expects economic conditions to improve going forward, if economic conditions worsen from current levels or remain depressed for an extended period of time, it could have a material unfavorable impact on the Company’s net revenues or income from continuing operations in 2021.

“Other” segment.


	Three months ended September 30				Nine months ended September 30
(in thousands)	2021		2020		2021		2020		Primary reason(s)
Revenues	$	1,197	$	215	$	3,266	$	237	Increase in other sales at Pacific Current subsidiaries.
Operating loss	(2,933)		(4,457)		(14,946)		(12,854)		The third quarters of 2021 and 2020 include $1.3 million and $0.2 million, respectively, of operating income from Pacific Current 1 . Third quarter 2021 corporate expense was $0.4 million lower than the same period of 2020, primarily due to a decrease in administrative and general expenses. The first nine months of 2021 and 2020 include $2.6 million and $2.0 million, respectively, of operating income from Pacific Current 1 . Corporate expenses for the first nine months of 2021 was $2.7 million higher than the same period in 2020, primarily due to higher incentive compensation, higher charitable contribution expense related to an obligation to make matching contributions under a settlement agreement with the former President and Chief Executive Officer of the Bank and higher charitable donations, due to timing of contributions.
Net loss	(6,192)		(7,183)		(23,061)		(20,885)		The net loss for the third quarter of 2021 was lower than the net loss for the third quarter of 2020 and net loss for the first nine months of 2021 was higher than the net loss for the first nine months of 2020 due to the same factors cited for the change in operating loss.

1 Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.

The “other” business segment loss includes results of the stand-alone corporate operations of HEI (including eliminations of intercompany transactions) and ASB Hawaii, Inc. (ASB Hawaii), as well as the results of Pacific Current, a direct subsidiary of HEI focused on investing in clean energy and sustainable infrastructure projects; Pacific Current’s indirect subsidiary, Hamakua Energy, which owns a 60-MW combined cycle power plant that provides electricity to Hawaii Electric Light; Pacific Current’s subsidiaries, Mauo, LLC (Mauo), which owns solar-plus-storage projects totaling 8.6 MW on five University of Hawaii campuses, ‘Alenuihāhā Developments, LLC, which owns a collection of renewable energy assets, Ka‘ie‘ie Waho Company, LLC, which owns a 6 MW solar photovoltaic system that provides renewable energy to Kauai Island Utility Cooperative, and Ka‘aipua‘a, LLC, which is constructing a wastewater treatment and energy recovery facility on Hawaii island; as well as eliminations of intercompany transactions.

FINANCIAL CONDITION

Liquidity and capital resources. As of September 30, 2021, there was no balance on HEI’s revolving credit facility or Hawaiian Electric’s revolving credit facility and the available committed capacity under the facilities was $175 million and $200 million, respectively. On April 19, 2021, Hawaiian Electric’s $75 million 364-day revolving credit agreement terminated

and was not renewed. At the end of the quarter, HEI and Hawaiian Electric had approximately $92 million and nil of commercial paper outstanding, respectively. As of September 30, 2021, ASB’s unused FHLB borrowing capacity was approximately $2.0 billion and ASB had unpledged investment securities of $2.5 billion that were available to be used as collateral for additional borrowing capacity.

The Company expects that its liquidity will continue to be moderately impacted at the Utilities due to COVID-19. For the Utilities, the elevated level of unemployment in the state and the moratorium on customer disconnections (which ended on May 31, 2021) have resulted in higher accounts receivable balances and bad debt expense and may result in higher write-offs in the future. As of September 30, 2021, approximately $39 million of the Utilities’ accounts receivables were 30 days past due. Of the over 30 days past due amounts, approximately 64% were on payment plans. In addition, lower kWh sales generally result in delayed timing of cash flows, resulting in higher working capital requirements (see “Recent Developments — COVID-19” in the Electric utility section below). At this time, the delay in customer cash collections has not significantly affected the Company’s liquidity. The Company is prepared to address, if needed, the potential financing requirement related to the delayed timing of customer collections. At ASB, liquidity remains at satisfactory levels largely due to U.S. economic stimulus programs implemented as a result of COVID-19 that led to a substantial increase in customer deposits. ASB’s cash and cash equivalents was $190 million as of September 30, 2021, compared to $293 million as of December 31, 2020. ASB remains well above the “well capitalized” level under the FDIC Improvement Act prompt correction action capital category, and while the economic outlook has improved and is expected to continue to improve, there are still COVID-19 related business restrictions that remain in place that could create ongoing uncertainty regarding COVID-19’s impact on loan performance and the allowance for credit losses (see “Recent Developments — COVID-19” in the Bank section below).

On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Facilities), to amend and restate their respective previously existing unsecured revolving credit agreements. The HEI Facility was increased to $175 million from $150 million and its term was extended to May 14, 2026. The $200 million Hawaiian Electric Facility has an initial term that expires May 13, 2022, but its term will extend to May 14, 2026 upon approval by the PUC during the initial term, which approval is currently being requested.

On September 29, 2021, HEI executed a $125 million private placement utilizing a delayed draw feature, which allows HEI to draw $75 million and $50 million at any time on or before December 29, 2021 and November 15, 2022, respectively. Proceeds from the notes, when drawn, will ultimately be used to invest in the Utilities’ equity, refinance a portion of HEI’s $150 million long-term notes maturing in November 2022, and used for other general corporate purposes. The ability to draw at any time prior to the December 29, 2021 and November 15, 2022 dates will provide additional liquidity in the interim period. The notes bear interest at a weighted average rate of 3.10% and a weighted average maturity of 15.7 years. See “HEI Private Placement” in Note 5 of the Condensed Consolidated Financial Statements.

As of September 30, 2021 and December 31, 2020, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s committed lines of credit was approximately $283 million and $360 million, respectively.

The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, as well as bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements. However, the COVID-19 pandemic is an evolving situation, and the Company cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impact on the Company’s cost of capital and its ability to access additional capital, or the future impacts on the Company’s financial position, results of operations, and cash flows.

The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:


(dollars in millions)	September 30, 2021				December 31, 2020
Short-term borrowings—other than bank	$	92	2	%	$	129	3	%
Long-term debt, net—other than bank	2,245		47		2,119		46
Preferred stock of subsidiaries	34		1		34		1
Common stock equity	2,384		50		2,338		50
	$	4,755	100	%	$	4,620	100	%

HEI’s commercial paper borrowings and line of credit facility were as follows:


	Average balance		Balance
(in millions)	Nine months ended September 30, 2021		September 30, 2021		December 31, 2020
Commercial paper	$	53	$	92	$	65
Line of credit draws	—		—		—
Undrawn capacity under HEI’s line of credit facility			175		150

Note: This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s short-term commercial paper borrowings during the first nine months of 2021 was $102 million.

On March 17, 2021, S&P revised HEI’s outlook to stable from positive and affirmed the “BBB-” issuer credit rating and “A-3” short-term and commercial paper ratings. On April 20, 2021, Moody’s upgraded HEI’s short-term rating for commercial paper to “P-2” from “P-3” and revised the outlook to stable from positive. On June 25, 2021, Fitch affirmed HEI’s “BBB” long-term issuer default rating, “F3” short-term issuer default rating and stable outlook.

There were no new issuances of common stock through the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), HEIRSP or the ASB 401(k) Plan in the nine months ended September 30, 2021 and 2020 and HEI satisfied the share purchase requirements of the DRIP, HEIRSP and ASB 401(k) Plan through open market purchases of its common stock.

For the first nine months of 2021, net cash provided by operating activities of HEI consolidated was $267 million. Net cash used by investing activities for the same period was $985 million, primarily due to capital expenditures, ASB’s purchases of available-for-sale and held-to maturity investment securities, partly offset by ASB’s receipt of investment security repayments and maturities, proceeds from the sale of investment securities, net decrease in loans and sale of residential loans. Net cash provided by financing activities during this period was $596 million as a result of several factors, including net increases in ASB’s deposit liabilities and other bank borrowings, the issuances of long-term debt and net increases in short-term borrowings, partly offset by repayment of short-term and long-term debt and payment of common stock dividends. During the first nine months of 2021, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $84 million and $40 million, respectively.

Dividends. The payout ratios for the first nine months of 2021 and full year 2020 were 58% and 73%, respectively. On February 9, 2021, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.33 per share to $0.34 per share, starting with the dividend in the first quarter of 2021. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the Company, current and expected future economic conditions, including impacts from the COVID-19 pandemic, and capital investment alternatives.

MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES

In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.

In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.

For information about these material estimates and critical accounting policies, in addition to the critical policy discussed below, see pages 42 to 44, 58 to 59, and 72 to 74 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2020 Form 10-K.

Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.

Electric utility

Recent developments—COVID-19

See also Recent developments—COVID-19 in HEI’s MD&A.

In the third quarter of 2021, the State of Hawaii experienced a rapid rise in COVID-19 case counts primarily due to the Delta variant. As a result, additional preventative restrictions, such as limits to gathering sizes, were put in place to slow the spread of COVID-19. In September, the City and County of Honolulu launched the Safe Access program, which requires proof of the COVID-19 vaccine or a negative test, taken within the last 48 hours, to be shown in order to enter certain establishments, such as restaurants and bars. The governor of the State of Hawaii also made an announcement to encourage tourists to postpone their trips to later in the year. As a result of these measures and the requirement for employees of certain governmental agencies and private businesses to be vaccinated or regularly tested, case counts have trended down from the high in early September.

In the third quarter of 2021, the demand for electricity has increased from 2020 levels, however, sales remain below the kWh sales levels achieved for the same period in 2019. In the third quarter of 2021, kWh sales were up 4.4% compared with the same quarter in 2020, however, they were 9.2% below the same quarter in 2019. The Utilities expect kWh sales to continue to improve in the remainder of the year as COVID-19 vaccination levels increase, allowing government restrictions to be lifted.

While the Utilities’ electric energy revenues have not been significantly impacted due to the decoupling mechanism, which allows recovery of the difference between PUC approved target revenues and recorded adjusted revenues regardless of the level of kWh sales, the timing of customer collections would be delayed (or accelerated) if the level of kWh sales decreases below (or increases above) the estimated kWh sales. See “Decoupling” in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling. Annually, the Utilities submit a decoupling filing to the PUC, which requests recovery by the utility (or refund to customers) of the difference between recorded adjusted revenues and target revenues under the RBA. The difference is collected or refunded through an adjustment to customer rates in the following year based on estimated sales, starting on June 1st of that following year, which has an impact on the timing of the Utilities’ cash flow. Additionally, although the Utilities’ decoupling mechanism allows for collection under the RBA, the RBA balance accrues interest only at the short-term debt rate from the last rate case (2.5% for Hawaiian Electric, 3.75% for Hawaii Electric Light and 3.0% for Maui Electric). As of September 30, 2021 , the RBA balance was approximately $29.7 million, compared to $7.6 million as of December 31, 2020. The billed accounts receivable balance, net of allowance for doubtful accounts, of $174 million, as of September 30, 2021, is 17.9% higher than the billed accounts receivable balance as of December 31, 2020, and the past due accounts receivable balance has increased by $6.9 million or 14% since December 31, 2020 with a corresponding increase in the number of accounts past due by approximately 5% for the same period. The increase in accounts receivables was primarily driven by higher fuel prices, as well as lower cash receipts associated with the auto-enrollment of customers in payment plans, starting in July 2021 through mid-September 2021, under which the past due balances are recovered over a 12-month period. While the moratorium on customer disconnections ended on May 31, 2021, the Utilities initially focused its efforts on working with customers to enroll in payment plans and seek other bill assistance for customers through funding from non-profit organizations, as well as state and county relief programs. Starting in September 2021, the Utilities have begun the disconnection process for those customers that have not enrolled in payment plans or that have not adhered to their payment plans beginning with the largest and oldest amounts in arrears. At this time, the delay in customer cash collections has not significantly affected the Utilities’ liquidity. The Utilities are prepared to address, if needed, the financing requirement related to the delayed timing of cash flows collected under the decoupling mechanism through the RBA and the modest slowing or reduction in accounts receivable collections from customers. See “Financial Condition—Liquidity and capital resources” for additional information.

The Utilities provide an essential service to the State of Hawaii, and have continued to operate to protect the health and safety of employees and customers and to ensure system reliability, and have been following the Governor’s directive that the Utilities take necessary measures to ensure they can operate in the normal course. The Utilities have also implemented certain aspects of their business continuity plans, which includes the activation of its Incident Management Team to closely manage the response to the pandemic and have implemented practices related to employee and facilities hygiene in order to ensure the reliability and resilience of their operations.

In the second quarter of 2020, the PUC approved the deferral of certain COVID-19 related costs, such as higher bad debt expense, higher financing costs, non-collection of late payment fees, increased personal protective equipment costs, and sequestration costs for mission-critical employees. As of September 30, 2021 , these costs, which have been deferred and recorded as a regulatory asset, totaled approximately $28.7 million (see also discussion under Item 1A. “Risk Factors” and “Regulatory assets for COVID-19 related costs” in Note 3 of the Condensed Consolidated Financial Statements). The Utilities have approval to defer COVID-19 related costs through December 31, 2021. The Utilities will be seeking recovery

of the deferred costs in a separate proceeding. Looking forward, while the distribution and administration of the COVID-19 vaccine has allowed for fewer restrictions and a partial reopening of the Hawaii economy, a worsening of COVID-19 case counts or a prolonged period of current COVID-19 restrictions could adversely affect the ability of the Utilities’ contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations, or require modifications to existing contracts, which could adversely affect the Utilities’ business, increase expenses, and impact the Utilities’ ability to achieve their RPS goals. Additionally, while the state’s aggressive response to the pandemic has managed to control the spread of the coronavirus, the measures taken have had a severe economic impact on the state’s businesses and residents, which may influence the PUC’s actions regarding future rate increases. See “Item 1A. Risk Factors” in Part II for additional discussion of risks.

For a discussion regarding the impact of the economic conditions caused by the COVID-19 pandemic on the Utilities’ liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.”

RESULTS OF OPERATIONS


Three months ended September 30				Increase
2021		2020		(decrease)				(dollars in millions, except per barrel amounts)
$	679	$	563	$	117			Revenues. Net increase largely due to:
						$	83	net of higher fuel oil prices and lower kWh generated 1
						39		higher purchased power energy prices and higher kWh purchased 2
						2		lower ERP system implementation benefits to be passed on to the customers in future rates
						1		higher PPAC revenue 2
						(8)		decrease related solely to a change in the timing for revenue recognition within the year, which eliminates seasonality in recognizing target revenues and results in recognizing revenues evenly throughout the year with target revenues recognized on an annual basis remaining unchanged
181		105		76				Fuel oil expense 1 . Net increase largely due to higher fuel oil prices and lower fuel efficiency due to planned maintenance outages of certain generating units, partially offset by lower kWh generated
186		149		37				Purchased power expense 1, 2 . Increase largely due to higher purchased power energy prices and higher kWh purchased
116		111		5				Operation and maintenance expenses. Net increase largely due to:
						3		more generating facility overhauls and maintenance work performed
						1		higher outside service costs for Emergency Management System
						1		ERP system costs amortization, which started for Hawaiian Electric in November 2020
						1		higher medical premium costs due to a one-time credit in 2020
						(1)		lower labor expense
121		109		13				Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2021 for plant investments in 2020
75		89		(15)				Operating income. Decrease due to change in timing for revenue recognition within the year, higher operation and maintenance expenses, coupled with higher depreciation expense
61		74		(13)				Income before income taxes. Decrease due to change in timing for revenue recognition within the year, higher operation and maintenance expense, higher interest expense related to new long term debt issued in January 2021, coupled with higher depreciation expense, partially offset by lower pension non-service costs
50		60		(10)				Net income for common stock. Decrease due to change in timing for revenue within the year, coupled with higher operating expense. See below for effective tax rate explanation
2,191		2,099		92				Kilowatthour sales (millions) 3
$	86.77	$	49.71	$	37.06			Average fuel oil cost per barrel


Nine months ended September 30				Increase
2021		2020		(decrease)				(dollars in millions, except per barrel amounts)
$	1,846	$	1,694	$	152			Revenues. Net increase largely due to:
						$	64	higher purchased power energy prices and higher kWh purchased 2
						61		net of higher fuel oil prices and lower kWh generated 1
						12		higher revenues from 2020 RAM adjustments
						8		lower ERP system implementation benefits to be passed on to the customers in future rates
						6		higher PPAC revenue 2
						1		increase related solely to a change in the timing for revenue recognition within the year, which eliminates seasonality in recognizing target revenues and results in recognizing revenues evenly throughout the year with target revenues recognized on an annual basis remaining unchanged
447		391		57				Fuel oil expense 1 . Net increase largely due to higher fuel oil prices and lower fuel efficiency due to planned maintenance outages of certain generating units, partially offset by lower kWh generated
491		426		65				Purchased power expense 1 ,2 . Increase largely due to higher purchased power energy prices, higher kWh purchased and higher capacity and non-fuel O&M charges
349		349		—				Operation and maintenance expenses .
						4		more generating facility overhauls and maintenance work performed
						3		ERP system costs amortization, which started for Hawaiian Electric in November 2020
						1		expense due to decommissioning of combined heat and power unit on Lanai
						(4)		lower labor due to lower staffing and reduction in overtime
						(4)		lower pension service cost due to reset of pension cost included in rates as part of Hawaiian Electric final rate case decision
347		329		19				Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2021 for plant investment in 2020
212		200		12				Operating income. Increase due to higher RAM revenues, offset in part by higher depreciation expense
170		157		13				Income before income taxes. Increase higher RAM revenues and lower pension non-service costs, partially offset by higher interest expense related to new long term debt issued in May 2020 and January 2021 and higher depreciation expense
136		126		9				Net income for common stock. Increase due to higher RAM revenues and lower pension non-service costs, partially offset by higher operating expense.
6,126		5,979		147				Kilowatthour sales (millions) 3
$	74.93	$	64.70	$	10.23			Average fuel oil cost per barrel
470,013		466,943		3,070				Customer accounts (end of period)

1 The rate schedules of the electric utilities currently contain ECRCs through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.

2 The rate schedules of the electric utilities currently contain PPACs through which changes in purchased power expenses (except purchased energy costs) are passed on to customers.

3 kWh sales in 2021 were higher when compared to the same periods last year largely due to recovery from the initial impacts of the COVID-19 pandemic. An increase in visitor arrivals due to changes in the Safe Travels requirements allowing travelers to bypass the 10-day quarantine by taking a COVID-19 test or showing proof of vaccination for domestic travelers, led to a recovery in the tourism industry. However, in late August visitor arrivals fell when Governor Ige asked visitors not to visit Hawaii and implemented restrictions to combat rising COVID-19 case counts and hospitalizations due to a surge in the Delta variant. As restrictions ease, vaccination levels increase and more visitors arrive, sales are expected to slowly rebound but remain lower than pre-pandemic levels.

The Utilities’ effective tax rate for each of the third quarters of 2021 and 2020 was 17% and 19%, respectively. The Utilities’ effective tax rates for the first nine months of 2021 and 2020 were each 19%. The effective tax rate was lower for the third quarter of 2021 compared to the same period in 2020 due primarily to federal research and development tax credit claims in 2021, partially offset by lower amortization in 2021 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate.

Hawaiian Electric’s consolidated ROACE was 8.3% and 8.4% for the twelve months ended September 30, 2021 and September 30, 2020, respectively.

The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of September 30, 2021 amounted to $4.8 billion, of which approximately 26% related to generation PPE, 66% related to transmission and distribution PPE, and 8% related to other PPE. Approximately 9% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission.

See “Economic conditions” in the “HEI Consolidated” section above.

Executive overview and strategy. The Utilities provide electricity on all the principal islands in the state, other than Kauai, to approximately 95% of the state’s population and operate five separate grids. The Utilities’ mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a modern, resilient, flexible and dynamic electric grid that enables an optimal mix of distributed energy resources, such as private rooftop solar, demand response and grid-scale resources to enable the creation of smart, sustainable, resilient communities and achieve the statutory goal of 100% renewable energy by 2045.

Performance-based regulations. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving a new performance-based regulation framework (PBR Framework). See “Regulatory proceedings” under “Commitments and contingencies” in Note 3 of the Condensed Consolidated Financial Statements.

Transition to a decarbonized and sustainable energy future. The Utilities are fully committed to leading and enabling pathways to a decarbonized and sustainable energy future for Hawaii. The Utilities believe that a holistic approach to decarbonization is needed, and that such a strategy requires achieving the Utilities’ renewable energy commitments, facilitating and promoting beneficial electrification, and deploying carbon removal and offsets among other levers to reduce statewide emissions. Hawaii’s renewable portfolio standard law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by December 31, 2020, 2030, 2040 and 2045, respectively. Hawaii law has also established a target of sequestering more atmospheric carbon and greenhouse gases than emitted within the State by 2045.

The Utilities have made significant progress on the path to clean energy and have been successful in adding significant amounts of renewable energy resources to their electric systems and exceeded the 2015 RPS goal two years early. The Utilities’ RPS for 2020 was 34.5%, which exceeded the statutory goal of 30%. The Utilities will continue to actively procure additional renewable energy post-2020 and expect to meet or exceed the next statutory RPS goal of 40% in advance of the 2030 compliance year. (See “Developments in renewable energy efforts” below).

If the Utilities are not successful in meeting the RPS targets as mandated by law, the PUC could assess a penalty of $20 for every MWh that an electric utility is deficient. Based on the level of electricity sales in 2020, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $1.6 million. The PUC has the discretion to reduce the penalty due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target had been achieved, which in turn would be expected to subject the Utilities to limited commodity fossil fuel price exposure under a fuel cost risk-sharing mechanism. The fuel cost risk-sharing mechanism apportions 2% of the fuel cost risk to the utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.7 million.

The Utilities are fully aligned with, and supportive of, state policy to achieve a decarbonized future and have made significant progress in reducing emissions through renewable energy and electrification. This alignment with state policy is reflected in management compensation programs and the Utilities’ long-range plans, which include aspirational targets in order to catalyze action and accelerate the transition away from fossil fuels throughout its operations at a pace more rapid than dictated by current law. The long-range plans, including aspirational targets, serve as guiding principles in the Utilities’ continued transformation, and are updated regularly to adapt to changing technology, costs, and other factors. While there is no financial penalty for failure to achieve the Utilities’ long-range aspirational objectives, the Utilities recognize that there are environmental and social costs from the continued use of fossil fuels.

The State of Hawaii’s policy is supported by the regulatory framework and includes a number of mechanisms designed to maintain the Utilities’ financial stability during the transition toward the State’s decarbonized future. Under the sales decoupling mechanism, the Utilities are allowed to recover from customers, target test year revenues, independent of the level of kWh sales, which have generally declined (with the exception of 2019 and the first quarter of 2020), as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms reduce regulatory lag, such as the rate adjustment mechanism to provide revenues for escalation in

certain O&M expenses and rate base changes between rate cases, and the major project interim recovery mechanism, which allow the Utilities to recover and earn on certain approved major capital projects placed into service in between rate cases. Certain mechanisms were replaced or modified under the new PBR framework. See “Regulatory proceedings” under “Commitments and contingencies” and “Decoupling” in Note 3 of the Condensed Consolidated Financial Statements.

Integrated Grid Planning . Achieving high levels of renewable energy will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities filed their Integrated Grid Planning (IGP) Report with the PUC on March 1, 2018, which provides an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy pathways that incorporates customer and stakeholder input.

The IGP utilizes an inclusive and transparent Stakeholder Engagement model to provide an avenue for interested parties to engage with the Utilities and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical Advisory Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues and process steps in the IGP. In August 2021, the Utilities submitted their Revised Inputs and Assumptions to the PUC for review and approval. Once approved by the PUC, the next phase of the process which includes the development of long-range integrated grid plans and the acquisition of new resources, will begin.

Demand response programs . Pursuant to PUC orders, the Utilities are developing an integrated Demand Response (DR) Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will take the form of either rates or incentive-based programs that will compensate customers for their participation individually, or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets.

On June 9, 2021, the PUC issued an order providing guidance to the third Grid Service RFP filed on February 23, 2021. The proposed Grid Service RFP focused only on Oahu and is seeking 60MW of grid services with focus on capacity reduction similarly in response to the potential reserve shortfall from the AES coal plant retirement scheduled on September 1, 2022. The Utilities filed a final draft and received PUC approval to proceed on August 3, 2021. The Utilities subsequently issued an approved Grid Services RFP and the bids were due on October 13, 2021.

On June 8, 2021, the PUC approved the new program, Emergency Demand Response Program (EDRP), a battery storage incentive program to dispatch electricity between 6 p.m. to 8 p.m. daily from participating residential and commercial customers, to address the potential reserve shortfalls following the AES coal plant retirement. The PUC approved EDRP for 50MW on Oahu with an incentive budget not to exceed $34 million, which will be recovered via a surcharge cost recovery mechanism over a 10-year amortization. The Utilities’ implementation plan was approved by the PUC on June 30, 2021, and the Utilities subsequently filed the updated EDRP tariffs on July 1, 2021. As of September 30, 2021, the Utilities have received and approved the applications worth up to 0.77 MW.

Grid modernization . The overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater distributed energy resources and renewable energy integration. Under the Grid Modernization Strategy, the Utilities expect that new technology will help increase adoption of private rooftop solar and make use of rapidly evolving products, including storage and advanced inverters. The Utilities are implementing Phase 1 of their Grid Modernization Strategy, which received PUC approval on March 25, 2019. The estimated cost for this initial phase is approximately $86 million and is expected to be incurred over five years. As of September 30, 2021, approximately $30 million has been incurred to date under Phase 1. The Utilities have deployed over 30,000 advanced meters since the beginning of deployment.

The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of the second phase of their Grid Modernization Strategy implementation. However, on December 30, 2019, the PUC suspended the Utilities’ application for the Advanced Distribution Management System pending the Utilities’ filing of a supplemental application for the broad deployment of field devices. This supplement and update to the Grid Mod Phase 2 field devices application was filed on March 31, 2021. The estimated cost for the implementation over five years of the ADMS and field devices, which includes capital, deferred and O&M costs, is $105 million. A PUC order was issued on April 27, 2021, unsuspending and resuming consideration of the Phase 2 Application. The Utilities filed the reply statement of position on October 15, 2021, completing the discovery phase of the docket, with a PUC decision on the Phase 2 Application as the expected next and final step in the proceeding.

Community-based renewable energy . In December 2017, the PUC adopted a community-based renewable energy (CBRE) program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to

receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases.

The first phase, which commenced in July 2018, totals 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020.

The second phase, which commenced on April 9, 2020, allows up to 235 MW across all Hawaiian Electric service territories in two tranches for small (under 250 kW) and large system sizes to encourage a variety of system sizes. To provide opportunities for low- to moderate-income (LMI) customers to participate in the program, separate project proposals may be submitted specifically targeting LMI customers.

Eight RFPs were required by order: one each for Oahu, Maui, Hawaii Island, Molokai, and Lanai, and LMI-specific RFPs for Oahu, Maui, and Hawaii Island. Draft RFPs for the three LMI RFPs and the RFPs for Molokai, and Lanai were filed on July 9, 2020, along with a revised tariff and associated contract models. LMI projects do not have a size cap nor do they decrease the 235 MW capacity available to other projects. Proposed final drafts of the LMI RFPs, Molokai and Lanai RFPs tariff, and contracts were filed on September 8, 2020. Proposed final drafts of the remaining RFPs on Oahu, Maui and Hawaii Island were filed on December 1, 2020.

For Lanai, the Utilities proposed to combine the previously issued Variable Renewable Dispatchable Generation Paired with Energy Storage RFP and the CBRE RFP to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE Program on Lanai. See “Developments in renewable energy efforts–Requests for renewable proposals, expressions of interest, and information” for additional information.

The Utilities have been working on interconnection improvements and proposed several ways to potentially improve the time and cost of interconnection during the development of the CBRE Phase 2 tariff and RFPs. Additionally, the Utilities increased their focus and attention on this area and worked with the parties, including the CBRE Independent Observer, to make the interconnection process more transparent, predictable and standardized, including interconnection costs, timelines and requirements in order to reduce costs and accelerate schedules. In addition, the Utilities researched interconnection solutions in other jurisdictions, and worked with the parties to identify additional improvements. The Utilities solicited from the parties a list of recommended improvements, and consolidated and adopted nearly all the near-term and continuous improvement recommendations from the parties. The Utilities filed these recommendations and associated updates to the previously filed RFPs, tariff, and contracts on March 30, 2021.

On July 27, 2021 the PUC issued an order approving the RFPs for Oahu, Maui, Hawaii Island, and Lanai, as well as the LMI RFPs with certain modifications and ordered the Utilities to hold a community meeting for Molokai. On August 6, 2021, the Utilities filed a motion for clarification regarding the PUC’s July 27, 2021 order. On August 11, the Utilities held a community meeting regarding the Molokai RFP. On August 25, 2021, the Utilities filed their final versions of the Oahu, Maui, Hawaii Island, Lanai and LMI RFPs. On August 31, 2021, the Utilities filed the final draft of the Molokai RFP. On September 1, 2021, community members on Oahu submitted a letter to the PUC asking the PUC to pause CBRE to allow for more community input into the program. On September 3, 2021, the PUC issued a clarifying order in response to the Utilities’ motion for clarification and ordering a pause on CBRE for at least 45 days to allow for further time for community engagement and to allow for further revisions to the RFP documents requested by the PUC. The order issued on September 3, 2021 included language seeming to require the inclusion of projects under 250 kW for the island of Molokai. On September 13, 2021, the Utilities filed another motion for clarification regarding this requirement. On October 13, 2021, the PUC held a community meeting regarding CBRE for the island of Oahu. The PUC has indicated that it is also in the process of scheduling community meetings for Maui and Hawaii island. The PUC has not yet issued next steps pending the scheduling of these meetings.

For small CBRE projects less than 250 kW in size, the Utilities are planning to accept projects over a four-month period on a first come first served basis as soon as the PUC approves the Utilities’ final tariff and contracts, filed on September 8, 2020. The PUC reserved 30 MW as well as a small amount of unallocated capacity from Phase 1 for small projects in Phase 2 on Oahu, Maui and Hawaii Island. If applications exceed the program capacity for that island, then a reverse auction process called Competitive Credit Rate Procurement will be triggered to allocate project capacity and determine the credit rate. The Utilities have developed a CBRE Portal where customers can subscribe to a project once the Subscriber Organization has added their project to the portal.

Microgrid services tariff proceeding . In July 2018, the PUC opened a proceeding to investigate establishment of a microgrid services tariff, pursuant to Act 200 of 2018. There are currently five intervenors in the docket, although initially there were eight. In August 2019, the PUC issued an order, focusing for the remainder of the docket, to facilitate the ability of microgrids to disconnect from the grid and provide backup power to customers and critical energy uses during contingency events.

Two Working Groups were formed: (1) a Market Facilitation Working Group to recommend draft tariff language for the Microgrid Services Tariff; and (2) an Interconnection Standards Working Group to develop a new section of Rule 14H specific to interconnection and islanding/reconnection of microgrids. The Utilities filed a Draft Microgrid Services Tariff and updated language for various distributed energy resources Rules on March 30, 2020. Parties to the docket filed comments on and proposed revisions to the Draft Tariff on April 27, 2020.

On November 30, 2020, the PUC held a technical conference to present its proposed redlines to Utilities’ Draft Microgrid Services Tariff and related documents. On February 1, 2021, the Working Group filed its Draft Microgrid Tariff. Members of the Working Group separately filed their positions on areas of disagreements and later commented on other parties’ positions on areas of disagreements on February 10, 2021 and February 17, 2021, respectively.

On May 17, 2021, the PUC issued an order, directing the Utilities to submit the Microgrid Services Tariff and appendices consistent with the revisions provided by the PUC. Furthermore, the PUC stated it intends to issue a separate order to govern the next phase of the Microgrid Tariff proceeding. On May 27, 2021, the Utilities filed the Microgrid Service Tariff.

On September 21, 2021, the PUC provided guidance for Phase 2 of the Microgrid Tariff proceeding, and instructed Parties to recommend priority topics, along with supporting rationale to better inform the topics that will be discussed during this phase of the proceeding by October 21, 2021.

Regulated returns . As part of the PBR Framework’s annual review cycle, the Utilities track their rate-making ROACEs as calculated under the earnings sharing mechanism, which includes only items considered in establishing rates. At year-end, each utility’s rate-making ROACE is compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. The D&O in the PBR proceeding modified the earnings sharing mechanism to a symmetric arrangement. Effective with annual earnings for 2021, the earnings sharing will be triggered for achieved rate-making ROACE outside of a 300 basis points dead band above and below the current authorized rate-making ROACE of 9.5% for each of the Utilities. Earnings sharing credits or recoveries will be included in the biannual report (formally known as annual decoupling filing) to be filed with the PUC in the spring of the following year. Results for 2020, 2019 and 2018 did not trigger the earnings sharing mechanism for the Utilities.

Actual and PUC-allowed returns, as of September 30, 2021, were as follows:


%	Rate-making Return on rate base (RORB)*			ROACE**			Rate-making ROACE***
Twelve months ended September 30, 2021	Hawaiian Electric	Hawaii Electric Light	Maui Electric	Hawaiian Electric	Hawaii Electric Light	Maui Electric	Hawaiian Electric	Hawaii Electric Light	Maui Electric
Utility returns	7.40	6.34	6.24	8.77	7.40	7.14	9.65	7.85	7.75
PUC-allowed returns	7.37	7.52	7.43	9.50	9.50	9.50	9.50	9.50	9.50
Difference	0.03	(1.18)	(1.19)	(0.73)	(2.10)	(2.36)	0.15	(1.65)	(1.75)

* Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates.

** Recorded net income divided by average common equity.

*** ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation.

The factors contributing to the difference between PUC-allowed ROACEs and the ROACEs actually achieved include the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual RAM revenues on June 1 annually rather than on January 1, and return on capital additions since the last rate case in excess of indexed escalations.

Most recent rate proceedings. As of September 30, 2021, the status of ongoing rate case for each utility was as follows:


Test year (dollars in millions)	Date	Amount		% over rates in effect	ROACE (%)	RORB (%)	Rate base		Common equity %	Stipulated agreement reached with Consumer Advocate
Hawaiian Electric











2020 1
Request	8/21/19	$	77.6	4.1	10.50	7.97	$	2,477	57.15	Yes
Final Decision and Order	10/22/20	0.0		0.0	9.50	7.37	NA		57.15
Hawaii Electric Light













2019 2
Request	12/14/18	$	13.4	3.4	10.50	8.30	$	537	56.91	Yes
Interim Decision and Order	11/13/19	0.0		0.0	9.50	7.52	534		56.83
Final Decision and Order	7/28/20	0.0		0.0	9.50	7.52	534		56.83

Note: The “Request” date reflects the application filing date for the rate proceeding. The date of “Interim Decision and Order” or “Final Decision and Order” reflects the issuance date of the PUC order.

1 A final D&O issued on October 22, 2020 ordered final rates for the 2020 test year to remain at current effective rates, which provides for no increase to base rates. Hawaiian Electric’s proposed RBA provision tariff and ECRC tariff submitted on November 6, 2020 were approved by the PUC on December 11, 2020. The proposed RBA provision tariff and ECRC tariff took effect on January 1, 2021.

2 A final D&O issued on July 28, 2020 ordered final rates for the 2019 test year to remain at current effective rates, such that there is a zero increase in rates. The proposed final tariffs and PIM tariffs took effect on November 1, 2020, and the ECRC tariff became effective on January 1, 2021.

See also “Most recent rate proceedings” in Note 3 of the Condensed Consolidated Financial Statements.

On December 23, 2020, the PBR D&O was issued, establishing a new PBR Framework. The PBR Framework implemented a five-year multi-year rate period (MRP), during which there will be no general rate case applications. In the fourth year of the MRP, the PUC will comprehensively review the PBR Framework to determine if any modifications or revisions are appropriate.

Developments in renewable energy efforts . Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Condensed Consolidated Financial Statements and the following:

New renewable PPAs .

• In December 2014, the PUC approved a PPA for Renewable As-Available Energy dated October 3, 2013 between Hawaiian Electric and Na Pua Makani Power Partners, LLC (NPM) for a proposed 24-MW wind farm on Oahu. In August 2020, the project was energized and commissioning of all wind turbines was completed. However, the project was paused due to a conductor deficiency. Hawaiian Electric reconductored the 46kV circuit and in December 2020, the project reached commercial operation.

NPM received its Incidental Take Permit from the Department of Fish and Wildlife Service on September 7, 2018. Keep the North Shore Country (KNSC) has appealed this decision and the case has been transferred to the Hawaii Supreme Court. On June 17, 2020, KNSC filed a Motion for Stay Upon Appeal. On August 10, 2020, KNSC’s Motion for Stay Upon Appeal was denied. KNSC and Kahuku Community Association (KCA) have also petitioned to appeal NPM’s Conditional Use Permits. On August 6, 2020, the Zoning Board of Appeals (ZBA) granted NPM’s Motions to Dismiss the Appeal Petitions of KNSC and KCA. These appeals are still ongoing.

Life of the Land (LOL) filed a Motion for Relief to argue the PUC’s approval for NPM PPA was invalid and should be revised. Hawaiian Electric and the Consumer Advocate filed an opposition to this motion for relief. A hearing on the motion for relief was held on November 22, 2019. On April 16, 2020, the PUC issued an order denying LOL’s Motion for Relief. On April 27, 2020, LOL filed a Notice of Appeal of the PUC’s order with the Supreme Court of the State of Hawaii. In June 2021, the Supreme Court denied LOL’s appeal.

• On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power Purchase Agreement (ARPPA), subject to approval by the PUC. The ARPPA extends the term of the existing PPA by 25 years to 2052, expands the firm capacity of the facility to 46 MW and delinks the pricing for energy delivered from the facility from fossil fuel prices to reduce cost to customers. On March 31, 2021, the PUC suspended the docket pending the completion of a supplemental environmental review under the Hawaii Environmental Policy Act (HEPA). On April 12, 2021, Hawaii Electric Light filed a motion for reconsideration and clarification in the

proceeding. On June 4, 2021, the PUC lifted the docket suspension for the limited purpose of soliciting the Department of Land and Natural Resources (DLNR) and the County of Hawaii’s (County) position on the environment review. In June and July 2021, the DLNR and the County responded to the PUC indicating their respective agencies do not have discretionary approval over the project and are not in a position to conduct an environmental review under HEPA. On October 8, 2021, PGV sent a letter to the Office of Planning and Sustainable Development of the State of Hawaii (OPSD), requesting OPSD determine and designate an approving agency/accepting authority to process any environmental review under HEPA that may be required in connection with the repowering of PGV’s geothermal facility. On October 14, 2021, Hawaii Electric Light sent a letter to OPSD noting that Hawaii Electric Light is not opposed to PGV’s request to OPSD, but continues to assert that the PUC Order is incorrect in determining that the ARPPA is a “project” subject to HEPA and characterizing Hawaii Electric Light as the “applicant” for any anticipated HEPA review. Hawaii Electric Light further noted that it would be requesting the PUC to concurrently lift the suspension of the ARPPA approval docket in order to move the docket forward concurrently with the OPSD Request and any subsequent HEPA review.

Tariffed renewable resources .

• As of September 30, 2021, there were approximately 539 MW, 116 MW and 130 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of September 30, 2021, an estimated 32% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 19% of the Utilities’ total customers have solar systems.

• The Utilities began accepting energy from feed-in tariff projects in 2011. As of September 30, 2021, there were 43 MW, 3 MW and 4 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.

Biofuel sources .

• In July 2018, the PUC approved Hawaiian Electric’s three-year biodiesel supply contract with Pacific Biodiesel Technologies, LLC (PBT) to supply 2 million to 4 million gallons of biodiesel at Hawaiian Electric’s Schofield Generating Station and the Honolulu International Airport Emergency Power Facility (HIA Facility) and any other generating unit on Oahu, as necessary. The PBT contract became effective on November 1, 2018 and has been extended for one year through December 2022. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was extended through June 2023. On June 30, 2021, the Utilities issued an RFP for all fuels, including biodiesel, for supply commencing January 1, 2023.

• Hawaiian Electric has a contingency supply contract with REG Marketing & Logistics Group, LLC to also supply biodiesel to any generating unit on Oahu in the event PBT is not able to supply necessary quantities. This contingency contract has been extended to November 2022, and will continue with no volume purchase requirements.

Requests for renewable proposals, expressions of interest, and information .

• Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued RFPs for 220 MW of renewable generation on Oahu, 50 MW of renewable generation on Hawaii Island, and 60 MW of renewable generation on Maui. As of September 30, 2021, summarized information for a total of 8 PPAs is as follows:


Utilities	Number of contracts	Total photovoltaic size (MW)	BESS Size (MW/MWh)	Guaranteed commercial operation dates	Contract term (years)	Total projected annual payment (in millions)
Hawaiian Electric	4	139.5	139.5/558	7/31/22, 9/7/22, 9/30/22 & 8/31/23	20 & 25	$	30.9
Hawaii Electric Light	2	60	60/240	11/3/22 & 12/2/22	25	14.1
Maui Electric	2	75	75/300	4/28/23 & 10/27/23	25	17.6
Total	8	274.5	274.5/1,098			$	62.6

The Utilities have received PUC approvals to recover the total projected annual payment of $62.6 million for the eight PPAs through the PPAC to the extent such costs are not included in base rates.

• In continuation of their February 2018 request for proposal process, the Utilities issued their Stage 2 Renewable RFPs for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. Final awards for the renewable projects were made on May 8, 2020. Final awards for the grid services projects were made starting in January 2020. On Oahu, seven solar-plus-storage projects and one standalone storage project totaling approximately 281 MW of generation and 1.8 GWh of storage were selected. On Maui, three solar-plus-storage projects and one standalone storage project totaling approximately 100 MW of generation and 560 MWh of storage were selected. On Hawaii Island, two solar-plus-storage projects and one standalone storage project totaling approximately 72 MW of generation and 492 MWh of storage were selected. Two Utility Self-Build projects were among those selected; a 40-MW, 160-MWh standalone energy storage system on Maui and a 12-MW, 12-MWh storage system on Hawaii Island. Since selection, three renewable plus storage projects have voluntarily withdrawn from the process for various reasons, including change in circumstances for the developer and a misunderstanding of contract requirements. As of September 30, 2021, the Utilities have filed 10 PPAs, 2 grid services purchase agreements (GSPA) and 2 applications for commitments of funds for capital expenditures for approval of the utility self-build projects with the PUC. On October 25, 2021, one solar-plus-storage project on Hawaii Island was withdrawn by the developer.

A summary of the 9 PPAs that were filed with the PUC, is as follows:


Utilities	Number of contracts		Total photovoltaic size (MW)	BESS Size (MW/MWh)	Guaranteed commercial operation dates	Contract term (years)	Total projected annual payment (in millions)
Hawaiian Electric	5		232	232/1,055	5/17/23, 7/1/23, 10/30/23, 12/29/23 & 12/31/23	20 & 25	$	62.0
Hawaiian Electric	1	*	N/A	185/565	12/30/22	20	24.0
Maui Electric	3		100	100/400	4/30/23 & 12/31/23	25	28.2
Total	9		332	517/2,020			$	114.2

* See further discussion under “Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement” below.

As of September 30, 2021, the PUC approved six solar-plus-storage PPAs for a total of 297 MW, and one 185 MW standalone storage PPA. The total projected annual payment of $103 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates.

A summary of the GSPAs that were approved by PUC in December 2020 is as follows:


Utilities	Fast Frequency Response - 1 (MW)	Fast Frequency Response - 2 (MW)	Capacity - Load Build (MW)	Capacity - Load Reduction (MW)
Hawaiian Electric	—	26.7	14.5	19.4
Hawaii Electric Light	6.0	—	3.2	4.0
Maui Electric	6.1	—	1.9	4.7
Total	12.1	26.7	19.6	28.1

A summary of the utility self-build projects that are pending PUC approval is as follows:

Utilities

Number of contracts

BESS Size (MW/MWh)

Guaranteed commercial operation dates

Hawaii Electric Light

12/12

12/30/22

Maui Electric

40/160

4/28/23

Total

52/172

• On November 27, 2019, the Utilities issued RFPs for renewable generation paired with energy storage on the islands of Lanai and Molokai. The Utilities were seeking PV paired with storage or small wind (specified as 100 kW turbines or smaller) on Molokai and PV paired with storage on Lanai. The RFP on Lanai was postponed on January 14, 2020 to allow the Utility to re-evaluate the scope of the RFP in response to announced plans to remove two large resorts from the grid. Proposals for the Molokai RFP were received on February 14, 2020. In light of a PUC order issued on April 9, 2020 in the CBRE docket, the Utilities proposed in their July 9, 2020 filing to combine the previously issued and subsequently postponed Lanai RFP with the CBRE RFP described in the order to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE program on Lanai. On May 21, 2021, the PUC approved the proposed combined Lanai RFP. On October 15, 2020, the Utilities selected one project from the Molokai RFP for a total of 4.5 MW of solar and 24 MWh of storage. The developer, however, declined to accept the award. On August 25 and 31, 2021, the Utilities filed proposed final

drafts of the CBRE RFPs, which included three dedicated Low-to-Moderate-Income RFPs on Oahu, Maui and Hawaii, three Tranche 1 RFPs on Oahu, Maui and Hawaii, a Molokai CBRE RFP, and a combined Lanai Variable and CBRE RFP. Since this filing, the PUC has paused the CBRE RFP development to hear additional community feedback on the various islands.

• The PUC issued a letter to the Utilities requesting development with a Stage 3 RFP on Hawaii Island on January 21, 2021. Per the PUC’s subsequent April 20, 2020 letter, the Hawaii Island Grid Needs Assessment was filed on July 15, 2021 and the draft RFP, including model contracts for PV+BESS, wind+BESS, standalone storage, firm renewable generation, and distributed energy resources aggregators, was filed on October 15, 2021. The requirements in the Stage 3 RFP are guided by the results of the Grid Needs Assessment.

Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement .

• In February 2021, the PUC initiated a docket for the purposes of reviewing the status and interconnection progress of various utility-related renewable projects (i.e. Stage 1 and Stage 2 RFP PPAs and CBRE) and the Utilities’ transition plans for the expiration of the AES power purchase agreement, the retirement of the Kahului Power Plant, and other fossil fuel power plant transition plans, as needed. The Utilities filed initial status updates on the project timelines, steps needed for each of the renewable projects to achieve commercial operation and steps the Utilities are taking to address projected extensions of guaranteed commercial operation dates (GCOD) for renewable projects under development, which are due to a variety of factors, including those outside of the control of the Utilities. The PUC subsequently held status conferences on the Utilities’ updates. In April 2021, the PUC issued an Order directing the Utilities to establish regulatory liabilities for the difference between the on-peak avoided cost and the unit price included in the applications for approval of the renewable project PPAs, effective with the GCOD included in the applications (the earliest GCOD included in the applications is July 2021) or from the date of the Order for CBRE Phase 1 projects. The amount of regulatory liabilities to be recorded in future periods are not determinable at this time and would be affected by a number of factors, including the length of the GCOD extension period, the monthly on-peak avoided cost, as well as the factors described above. The Utilities filed a Motion for Reconsideration of the entire Order, or in the alternative to clarify that at most the PUC is directing the Utilities to track the information and not record the information at this time. The Utilities further requested a Stay of the Order pending resolution of the Motion. The Utilities maintain that extensions of GCODs are allowed under the PUC-approved contracts and that the Order has the unintended consequence of imposing penalties against the Utilities without due process. In May 2021, the PUC issued an order clarifying its Order and directed the Utilities to track costs to consumers caused by the perceived delay of renewable projects, and that the PUC does not intend to, at this time, impose any penalties on the Utilities. The full text of the Order, Motion for Reconsideration and request for a Stay of the Order, and clarification Order can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2021-0024).

• Also in April 2021, the PUC approved the Kapolei Energy Storage (KES) PPA (one of the PPAs as a result of the Stage 2 Renewable RFP process) (KES Decision and Order), subject to nine conditions, including the Utilities forgoing the second portion of the PIM rewards amounting up to $1.7 million for the Stage 1 RFP PPAs, removing grid constraints for the Utilities’ CBRE Phase 2 projects and for existing and new distributed energy programs, financial retirement of Hawaiian Electric generating units by specified dates and adjusting target revenues at the retirement dates for such retirements, and a requirement to charge the batteries in the project using significant levels of renewable energy generation. The financial retirement of the generating units described in the KES Decision and Order is contrary to the intent of Hawaii Revised Statutes §269-6(d), which encourages the recovery of stranded costs for the retirement of fossil fuel generation, and contrary to the regulatory compact under which in return for agreeing to commit capital necessary to allow utilities to meet their obligation to serve, utilities are assured recovery of their investment and a fair opportunity to earn a reasonable return on the capital prudently committed to the business. Hawaiian Electric filed a Motion for Reconsideration and Stay of the Decision and Order due to potentially significant financial and operational impacts. In May 2021, the PUC granted, in part, Hawaiian Electric’s Motion for Reconsideration and Stay. In this Order, the PUC addressed a number of Hawaiian Electric’s concerns, including removing the condition of the Utilities foregoing the PIM award from Stage 1 RFP projects, agreeing to address grid constraint concerns in respective DER and CBRE dockets and not in the KES docket, removing the minimum thresholds of charging energy coming from renewable energy generation and corresponding deadlines associated with these thresholds and modifying the condition on financial retirement of generating units. The PUC indicated the net book value of generating assets would be addressed at the time of retirement. The full text of the KES Decision and Order and the Motion for Reconsideration and Stay with respect thereto, and the Order granting, in part, Hawaiian Electric’s Motion for Reconsideration can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2020-0136).

Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see “Environmental regulation” in Note 3 of the Condensed Consolidated Financial Statements.

Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC (PAR Hawaii), for the Utilities’ low sulfur fuel oil (LSFO), high sulfur fuel oil (HSFO), No. 2 diesel, and ultra-low sulfur diesel (ULSD) requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. This contract is a requirement contract with no minimum purchases. If PAR Hawaii is unable to provide LSFO, HSFO, diesel and/or ULSD the contract allows the Utilities to purchase LSFO, HSFO, diesel and/or ULSD from another supplier. On June 30, 2021, the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. The costs incurred under the contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs.

On June 9, 2020, the Utilities and PAR Hawaii entered into a First Amendment to the fuel contract. The First Amendment amends only the LSFO pricing to create a two-tiered structure based on volume, with all tier-1 LSFO up to the tier-1 maximum to be purchased exclusively from PAR Hawaii at the established pricing, and purchases in excess of that volume (tier-2) either from PAR Hawaii at the established pricing, or from an alternative supplier. On August 4, 2020, the PUC approved the First Amendment, which has an effective date of July 15, 2020, on an interim basis. The PUC’s approval order allows the recovery of such costs associated with the First Amendment through the ECRC to the extent that the costs are not recovered in base rates. The PUC intends to review whether the First Amendment is reasonable and in the public interest in the final decision, but it will not subject the recovery of the costs between the interim decision and the final decision to retroactive disallowances.

Army privatization. On October 30, 2020, the PUC approved Hawaiian Electric’s 50-year contract with the U.S. Army to own, operate and maintain the electric distribution system serving the U.S. Army’s 12 installations on Oahu, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort Shafter, and Army housing areas. Hawaiian Electric will acquire the Army’s existing distribution system for a purchase price of $16.3 million and will pay the Army in the form of a monthly credit against the monthly utility services charge over the 50-year term of the contract.

Hawaiian Electric will take ownership and all responsibilities for operation and maintenance of the system in early 2022 for a 50-year term after a one-year transition period. Under the contract, Hawaiian Electric will make initial capital upgrades over the first six years of the contract and replacement of aging infrastructure over the 50-year term. In addition to its regular monthly electricity bill, the Army will pay Hawaiian Electric a monthly utility services charge to cover operations and maintenance expenses and provide recovery for capital upgrades, capital replacements, and the existing distribution system based on a rate of return determined by the PUC for regulated utility investments, as well as depreciation expense. A preliminary assessment estimated the capital needs of approximately $40 million in the first six years of the contract. The PUC requires Hawaiian Electric to file regular periodic reports on the activities and investments in fulfillment of the contract and will review the major projects planned on behalf of the Army. The annual impact on Hawaiian Electric’s earnings is not expected to be material and will depend on a number of factors, including the amount and timing of capital upgrades and capital replacement.

FINANCIAL CONDITION

Liquidity and capital resources. As of September 30, 2021, there was no outstanding balance on Hawaiian Electric’s revolving credit facility and no commercial paper borrowings by the Utilities.

On January 14, 2021, the Utilities received $115 million of proceeds using a delayed draw feature under a private placement executed on October 29, 2020. The proceeds were used to finance capital expenditures and reimburse funds used for the payment of capital expenditures.

The Utilities believe that their ability to generate cash, both internally from operations and externally from issuances of equity and debt securities, as well as bank borrowings, is adequate to maintain sufficient liquidity to fund their contractual obligations and commercial commitments, their forecasted capital expenditures and investments, their expected retirement benefit plan contributions and other cash requirements. However, the COVID-19 pandemic is an evolving situation, and the Utilities cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impacts on the Utilities’ ability, as well as the cost, to access additional capital, or the future impacts on the Utilities’ financial position, results of operations, and cash flows.

Hawaiian Electric’s consolidated capital structure was as follows:


(dollars in millions)	September 30, 2021				December 31, 2020
Short-term borrowings	$	—	—	%	$	50	1	%
Long-term debt, net	1,676		43		1,561		41
Preferred stock	34		1		34		1
Common stock equity	2,194		56		2,142		57
	$	3,904	100	%	$	3,787	100	%

Information about Hawaiian Electric’s commercial paper borrowings, borrowings from HEI and line of credit facility were as follows:


	Average balance		Balance
(in millions)	Nine months ended September 30, 2021		September 30, 2021		December 31, 2020
Short-term borrowings 1
Commercial paper	$	8	$	—	$	—
Borrowings from HEI	—		—		—
Line of credit draws	—		—		—
Undrawn capacity under line of credit facility/facilities	—		200		275

1 The maximum amount of external short-term borrowings by Hawaiian Electric during the first nine months of 2021 was approximately $50 million. As of September 30, 2021, Hawaii Electric Light and Maui Electric had short-term borrowings from Hawaiian Electric of $0.7 million and nil, respectively. In addition to the short-term borrowings above, on January 15, 2021, Hawaiian Electric paid off and terminated the $50 million term loan facility dated as of May 19, 2020.

Credit agreement . Hawaiian Electric has a $200 million line of credit facility with no amount outstanding at September 30, 2021. On June 25, 2021, Hawaiian Electric requested PUC approval of its third amended and restated revolving unsecured syndicated credit facility agreement, including approving extending its term to May 14, 2026 from May 13, 2022. See Note 5 of the Condensed Consolidated Financial Statements.

Credit ratings . On March 17, 2021, S&P upgraded Hawaiian Electric’s issuer credit rating to “BBB” from “BBB-”, upgraded the short-term and commercial paper ratings to “A-2” from “A-3” and revised the outlook to stable from positive. The rating upgrade was primarily based on Hawaiian Electric’s strong financial measures, strength of the cumulative value of the regulatory protections, and S&P’s assessment of its stand-alone credit profile as sufficient to rate Hawaiian Electric higher than HEI.

On April 20, 2021, Moody’s upgraded Hawaiian Electric’s senior unsecured rating and issuer rating to “Baa1” from “Baa2” and revised the outlook to stable from positive. The rating upgrade reflects Hawaiian Electric's considerable progress in adding renewable resources to its energy supply mix and the improving regulatory relationship with the PUC. On June 25, 2021, Fitch affirmed Hawaiian Electric’s “BBB+” long-term issuer default rating, “F2” short-term issuer default rating and stable outlook.

SPRBs . Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State of Hawaii (DBF) to finance (and refinance) capital improvement projects of Hawaiian Electric and its subsidiaries, but the sources of their repayment are the non-collateralized obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric’s guarantees of its subsidiaries’ obligations.

On May 24, 2019, the PUC approved the Utilities’ request to issue SPRBs in the amounts of up to $70 million, $2.5 million and $7.5 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2020, to finance the Utilities’ capital improvement programs. Pursuant to this approval, on October 10, 2019, the DBF issued, at par, Series 2019 SPRBs in the aggregate principal amount of $80 million with a maturity of October 1, 2049. As of September 30, 2021, Hawaiian Electric had $6.3 million of undrawn funds remaining with the trustee. Hawaii Electric Light and Maui Electric had no undrawn funds as of September 30, 2021.

On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval, prior to June 30, 2024, to finance the Utilities’ multi-project capital improvement programs (2019 Legislative Authorization).

On February 9, 2021, the PUC approved the Utilities’ request to issue SPRBs (up to $100 million, $35 million and $45 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively) through 2022, with the proceeds to be

used to finance the Utilities’ multi-project capital improvement programs. The PUC also approved the use of the expedited approval procedure to request the issuance and sale of the remaining/unused amount of SPRBs authorized by the 2019 Legislative Authorization (i.e., total not to exceed up to $400 million for Hawaiian Electric, up to $150 million for Hawaii Electric Light, and up to $150 million for Maui Electric) during the period January 1, 2023 through June 30, 2024.

Taxable debt . On January 31, 2019, the Utilities received PUC approval (January 2019 Approval) to issue the remaining authorized amounts under the PUC approval received in April 2018 (April 2018 Approval) in 2019 through 2020 (Hawaiian Electric up to $205 million and Hawaii Electric Light up to $15 million of taxable debt), as well as a supplemental increase to authorize the issuance of additional taxable debt to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures, and to refinance the Utilities’ 2004 junior subordinated deferrable interest debentures (QUIDS) prior to maturity. In addition, the January 2019 Approval authorized the Utilities to extend the period to issue additional taxable debt from December 31, 2021 to December 31, 2022. The new total “up to” amounts of taxable debt requested to be issued through December 31, 2022 are $410 million, $150 million and $130 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.

As of September 30, 2021, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $135 million, $85 million, and $45 million, respectively, of remaining taxable debt to issue prior to December 31, 2022. See summary table below.


(in millions)	Hawaiian Electric		Hawaii Electric Light		Maui Electric
Total “up to” amounts of taxable debt authorized through 2022	$	410	$	150	$	130
Less:
Taxable debt authorized and issued in 2018 under April 2018 Approval	75		15		10
Taxable debt issuance to refinance the 2004 QUIDS in 2019	30		10		10
Taxable debt issuance in May 2020	110		10		40
Taxable debt executed in October 2020, but issued on January 14, 2021	60		30		25
Remaining authorized amounts	$	135	$	85	$	45

On September 30, 2021, the Utilities requested PUC approval through the expedited approval process to issue taxable debt (Hawaiian Electric up to $30 million, Hawaii Electric Light up to $30 million and Maui Electric up to $35 million) prior to December 31, 2022.

Equity . In October 2018, the Utilities received PUC approval for the supplemental increase to issue and sell additional common stock in the amounts of up to $280 million for Hawaiian Electric and up to $100 million each for Hawaii Electric Light and Maui Electric, with the new total “up to” amounts of $430 million for Hawaiian Electric and $110 million each for Hawaii Electric Light and Maui Electric, and to extend the period authorized by the PUC to issue and sell common stock from December 31, 2021 to December 31, 2022. As of September 30, 2021, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $275.8 million, $102.5 million, and $87.8, respectively, of remaining common stock to issue prior to December 31, 2022. See summary table below.


(in millions)	Hawaiian Electric		Hawaii Electric Light		Maui Electric
Total “up to” amounts of common stock authorized to issue and sell through 2021	$	150.0	$	10.0	$	10.0
Supplemental increase authorized	280.0		100.0		100.0
Total “up to” amounts of common stock authorized to issue and sell through 2022	430.0		110.0		110.0
Common stock authorized and issued in 2017, 2018, 2019 and 2020	154.2		7.5		22.2
Remaining authorized amounts	$	275.8	$	102.5	$	87.8

Cash flows . The following table reflects the changes in cash flows for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020:


	Nine months ended September 30
(in thousands)	2021		2020		Change
Net cash provided by operating activities	$	198,256	$	244,955	$	(46,699)
Net cash used in investing activities	(197,589)		(260,187)		62,598
Net cash provided by (used in) financing activities	(21,213)		23,596		(44,809)

Net cash provided by operating activities. The decrease in net cash provided by operating activities was driven by lower cash receipts from customers due to the impact of the pandemic, and higher cash paid for fuel stock due to higher fuel oil prices and volume purchased, partially offset by lower cash paid for accounts payable due to timing.

Net cash used in investing activities. The decrease in net cash used in investing activities was primarily driven by a decrease in capital expenditures related to construction activities.

Net cash provided by financing activities. The decrease in net cash provided by financing activities was primarily driven by lower net cash from long-term and short-term debts.

Forecast capital expenditures . For the three-year period 2021 through 2023, the Utilities forecast up to $1.2 billion of net capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental regulations and/or unforeseen delays in permitting and timing of PUC decisions. Proceeds from the issuance of equity and long-term debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents are expected to provide the funds needed for the net capital expenditures, to pay down commercial paper or other short-term borrowings, as well as to fund any unanticipated expenditures not included in the 2021 to 2023 forecast (such as increases in the costs or acceleration of capital projects, or unanticipated capital expenditures that may be required by new environmental laws and regulations).

Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities.

Bank

Recent Developments—COVID-19

See also Recent developments—COVID-19 in HEI’s MD&A.

In the first half of 2021, economic conditions in Hawaii continued to improve following the rollout of stimulus programs and the loosening of business restrictions, both of which boosted economic activity. However, in the third quarter of 2021, COVID-19 case counts across the nation, and in Hawaii, rapidly increased. As a result of the rapid increase and the resulting stress placed on the healthcare system in Hawaii, additional restrictions were implemented, such as the Safe Access program on Oahu.

Interest rates across the curve remain at relatively low levels and the steepness of the yield curve flattened in the third quarter of 2021, which continues to negatively impact net interest margin as new loan origination rates remain below existing portfolio yields. In third quarter of 2021, the bank’s net interest margin was 2.90% compared to 2.98% and 3.12% for the quarters ended June 30, 2021 and September 30, 2020, respectively.

On a year-to-date basis, the investment securities portfolio increased approximately 40% as deposit growth of 8%, which included funds from stimulus programs that were provided to individuals and businesses, continued to outpace loan growth. The growth in the investment securities portfolio and fees from the PPP program contributed to higher interest income, partially offsetting the effect of lower loan portfolio balances and earning asset yields on a year-to-date basis.

In response to COVID-19, ASB made short-term loan modifications to borrowers who were generally payment current at the time of relief. As of September 30, 2021, approximately $1 million of loans remained in their active deferral period. Approximately $11 million of loans were not able to resume their contractual payments and were considered delinquent as of September 30, 2021.

ASB recorded a $2 million negative provision for credit losses that reduced the allowance for credit losses, reflecting upgrades in the commercial and commercial real estate loan portfolios and overall lower net charge offs. For the nine months ended September 30, 2021, the bank recorded a negative provision for credit losses of $22 million. The provision for credit losses in future quarters will be dependent on future economic conditions and changes to borrower credit quality at that time.

In 2020, ASB temporarily closed 15 of its 49 branches and reduced banking hours at the branches that remained open in an effort to reduce social gathering and protect employees and customers. The bank has since reopened seven of the branches that were temporarily closed and permanently closed eight branches. Three of the reopened branches are now digital branches, which provides digital solutions such as full-service ATMs and access to expert bankers through videoconferencing tools while allowing ASB to have a more efficient physical footprint . The reduction in ASB’s branch network should not have a significant impact to the bank’s customers as there are other branches nearby and other channels such as online and mobile banking. ASB continues to evaluate its branch network to determine whether further changes may be appropriate given its customers’ use of other banking channels.

ASB’s senior management team continually addresses the impacts to the operations and business of the bank as a result of the pandemic and meets regularly with ASB’s board of directors to keep them apprised of the impacts of the COVID-19 pandemic.

The CARES Act was signed into law on March 27, 2020. The CARES Act provided over $2 trillion in economic assistance for American workers, families, and small businesses, and job preservation for American industries. The PPP was established under the CARES Act and implemented by the United States Small Business Administration (SBA) to provide a direct incentive for small businesses to keep their workers on the payroll as a result of the COVID-19 crisis. The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020 and the Economic Aid Act was signed into law on December 27, 2020, which amended some of the prior rules and guidelines of the CARES Act. The Economic Aid Act established a second round of PPP, reopening the PPP for first-time borrowers and allowing for a second draw for businesses that meet more restrictive eligibility criteria to target businesses hardest hit by the pandemic. Loans issued through the PPP are 100% federally guaranteed and have a maturity of 2-5 years, depending on when the loan was made, at a fixed interest rate of 1%. Loan payments will be deferred until the earlier of (a) the date that the forgiven amount is remitted to the lender by the SBA; or (b) 10 months from the date the covered period ends. The SBA will forgive all loan amounts to a particular small business if such small business is compliant with the terms and conditions of the PPP. Small businesses generally have 24 weeks from disbursement of the loan to incur allowable expenses such as payroll costs, interest on mortgages, rent and utility expenses that would be covered by the loan forgiveness rules, with 60% of the loan forgiveness needing to be for payroll costs. Small businesses may receive partial forgiveness if they do not spend the entirety of their PPP loan on eligible expenses, or if less than 60% of the loan disbursement is spent on payroll costs. Employers had until December 31, 2020 to restore their workforce, or, for a PPP loan made after December 27, 2020, before the last day of the Covered Period. Lenders processed and approved the

PPP loans under delegated authority of the SBA. As an existing SBA certified lender, ASB worked with a number of small businesses, both customers and non-customers, to complete the loan application forms so that these businesses could participate in the program. During the first round of PPP, the Bank secured more than $370 million in PPP loans for approximately 4,100 small businesses that supported over 40,000 jobs; ASB received processing fees totaling approximately $13 million and started recognizing these fees over the life of the loans. During the second round of PPP, ASB secured more than $175 million for approximately 2,200 small businesses that supported more than 20,000 jobs; ASB received processing fees of approximately $9 million. The remaining PPP loans outstanding as of September 30, 2021 was $137 million.

Other provisions of the CARES Act provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes. See Note 4 of the Condensed Consolidated Financial Statements and “Economic conditions” in the “HEI Consolidated” section above.

ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.


	Three months ended September 30				Increase
(in millions)	2021		2020		(decrease)		Primary reason(s)
Interest and dividend income	$	61	$	60	$	1
							Average loan portfolio yields 4 basis points lower—impacted by the continued low interest rate environment as adjustable rate loans have repriced lower during the past year and new loan production yields continue to originate below their portfolio yields. PPP loan fees as a result of portfolio repayments partially offset the impact of low interest rate environment.
							Average loan portfolio balances decreased $251 million - commercial, home equity lines of credit and consumer loan portfolio balances decreased by $282 million, $186 million and $76 million, respectively. The decrease in the commercial loan portfolio was primarily due to the repayments of the PPP loan portfolio. The decrease in the home equity line of credit and consumer loan portfolios were due to ASB’s strategic decision to reduce production of these loans in the economic environment during the COVID-19 pandemic. Average commercial real estate loan portfolio balance increased $247 million due to demand for this loan type. Residential loan portfolio balance increased $40 million due to ASB’s decision to portfolio a larger portion of its residential loan production.
							Average investment securities portfolio balance increased $1.4 billion—excess liquidity from strong deposit growth invested in agency securities.
							Average investment securities yields 17 basis points lower—impacted by the continued low interest rate environment as new investment security purchase yields were lower than the investment security portfolio yields.
Noninterest income	15		19		(4)
							Lower mortgage banking income - lower residential loan sale volume due to ASB’s decision to portfolio a larger portion of the residential loan production and lower residential loan profit margin in 2021 compared to 2020.
							Higher customer fee income - lower fee income in 2020 was primarily due to ASB’s decision to waive overdraft and other deposit account fees to accommodate the hardships customers were experiencing during the COVID-19 pandemic.

Revenues	76		79		(3)		The decrease in revenues for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to lower noninterest income partly offset by higher interest income.
Interest expense	1		2		(1)
							Lower interest expense on deposits—lower term certificate balances due to runoff of government term certificates and lower deposit yields as a result of the continued low interest rate environment..
							Average core deposit balances increased $1 billion; average term certificate balances decreased $130 million.
							Average deposit yields decreased from 13 basis points to 6 basis points.
							Lower interest expense on other borrowings—primarily due to lower repurchase agreement yields as a result of the continued low interest rate environment.
Provision for credit losses	(2)		14		(16)


	Three months ended September 30		Increase
(in millions)	2021	2020	(decrease)	Primary reason(s)
				Negative provision for credit losses reflects credit upgrades in the commercial real estate and commercial loan portfolios.
				Negative provision for credit losses also due to a shift in mix - lower personal unsecured loan portfolio balances which had higher credit loss rates replaced with residential and commercial real estate loan portfolios with lower credit loss rates.
				Additional provision for credit losses for the retail loan portfolios based on the recent surge in COVID-19 infections and a delay in Hawaii’s economic recovery.
				Delinquency rates have increased—from 0.31% at September 30, 2020 to 0.37% at September 30, 2021 due to higher residential 1-4 family loan delinquencies, partly offset by lower personal unsecured and home equity lines of credit loan delinquencies.
				Net charge-off to average loans have decreased—from 0.32% at September 30, 2020 to 0.03% at September 30, 2021 due to lower personal unsecured loan portfolio net charge-offs.
Noninterest expense	52	47	5	Higher compensation and benefits expenses—increase in performance-based compensation.

Expenses	51	63	(12)	The decrease in expenses for the three months ended September 30, 2021 compared to the same period in 2020 was due to lower provision for credit losses and lower interest expense partly offset by higher noninterest expenses.
Operating income	25	16	9	The increase in operating income for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to higher interest income, lower provision for credit losses and lower interest expense, partly offset by lower noninterest income and higher noninterest expenses.

Net income	19	12	7	The increase in net income for the three months ended September 30, 2021 compared to the same period in 2020 was primarily due to higher operating income, partly offset by higher income tax expense.


	Nine months ended September 30				Increase
(in millions)	2021		2020		(decrease)		Primary reason(s)
Interest and dividend income	$	182	$	184	$	(2)
							Average loan portfolio yields 22 basis points lower—impacted by the continued low interest rate environment as adjustable rate loans have repriced lower during the past year and new loan production yields continue to originate below their portfolio yields. PPP loan fees as a result of portfolio repayments partially offset the impact of low interest rate environment.
							Average loan portfolio balances decreased $68 million - home equity lines of credit and consumer loan average loan portfolio balances decreased $183 million and $86 million, respectively - ASB’s strategic decision to reduce production of these loans in the economic environment during the COVID-19 pandemic. Commercial loan portfolio average balance decreased $22 million primarily due to repayments in the commercial markets loan portfolio. Commercial real estate loan portfolio average balance increased $225 million due to demand for this loan type.
							Average investment securities portfolio balance increased $1.3 billion—excess liquidity from strong deposit growth invested in agency securities.
							Average investment securities yields 51 basis points lower—impacted by the continued low interest rate environment as new investment security purchase yields were lower than the investment security portfolio yields.
Noninterest income	49		58		(9)
							Lower gain on sale of investment securities - in 2020, ASB sold all of its Visa Class B restricted shares and $160 million of investment securities with no similar sales in 2021.
							Lower mortgage banking income - lower residential loan sale volume due to ASB’s decision to portfolio a larger portion of the residential loan production and lower residential loan sale profit margin in 2021 compared to 2020.
							Higher customer fee income - lower fee income in 2020 was primarily due to ASB’s decision to waive overdraft and other deposit account fees to accommodate the hardships customers were experiencing during the COVID-19 pandemic.


	Nine months ended September 30		Increase
(in millions)	2021	2020	(decrease)	Primary reason(s)
Less: gain on sale of investment securities, net	(1)	(9)	8	Gain on sale of investment securities, net, which is included in Noninterest income above and in the Bank’s statements of income and comprehensive income in Note 4, is classified as gain on sale of investment securities, net in the condensed consolidated statements of income, and accordingly, is reflected after operating income as a separate line item and excluded from Revenues.
Revenues	230	233	(3)	The decrease in revenues for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to lower interest and noninterest income, partly offset by lower reclassification of gain on sale of investment securities.
Interest expense	4	9	(5)
				Lower interest expense on deposits—lower term certificate balances due to runoff of government term certificates and lower deposit yields as a result of the continued low interest rate environment.
				Average core deposit balances increased $1.2 billion; average term certificate balances decreased $202 million.
				Average deposit yields decreased from 18 basis points to 7 basis points.
				Lower interest expense on other borrowings—primarily due to lower repurchase agreement yields as a result of the continued low interest rate environment.
Provision for credit losses	(22)	40	(62)
				Negative provision for credit losses reflects improvement in economic outlook, strong credit results including lower net charge-offs and improved credit loss rates which included credit upgrades in the commercial real estate and commercial loan portfolios.
				Negative provision for credit losses also due to lower personal unsecured loan portfolio balances which had higher credit loss rates and improving net charge-off trends in the portfolio.
				2020 provision for credit losses included $23 million COVID-19 related reserves and loss reserves for $17 million for net charge-offs as well as other changes in loan portfolio composition and asset quality metrics.
				Delinquency rates have increased—from 0.31% at September 30, 2020 to 0.37% at September 30, 2021 due to higher residential 1-4 family loan delinquencies, partly offset by lower personal unsecured and home equity line of credit loan delinquencies.
				Net charge-off to average loans have decreased—from 0.41% at September 30, 2020 to 0.08% at September 30, 2021 due to lower personal unsecured loan portfolio net charge-offs.
Noninterest expense	147	142	5
				Higher compensation and benefits expenses—increase in incentive compensation payout for commission based employees, higher performance-based compensation and payment of the separation and release agreement with the former President and Chief Executive Officer.
				Current year noninterest expense benefited from a one-time credit adjustment for a change in accounting for the ASB retirement plan.
				Lower other expenses - 2020 expenses included higher direct and incremental COVID-19 related costs 1 to enhance cleaning and sanitation of ASB’s facilities as well as incremental compensation expense.
Expenses	129	191	(62)	The decrease in expenses for the nine months ended September 30, 2021 compared to the same period in 2020 was due to lower provision for credit losses and lower interest expense, partly offset by higher noninterest expenses.
Operating income	101	42	59	The increase in operating income for the nine months ended September 30, 2021 compared to the same period in 2020 was primarily due to lower provision for credit losses and lower interest expense, partly offset by lower interest and noninterest income and higher noninterest expenses.
Gain on sale of investment securities, net	1	9	(8)	The decrease in gain on sale of investment securities - primarily due to the sale of ASB’s Visa Class B restricted shares in 2020 with no similar sales in 2021.
Net income	79	42	37	Net income for the nine months ended September 30, 2021 was higher than the same period in 2020 due to higher operating income, partly offset by lower gain on sale of investment securities and higher income tax expense.

1 Higher operating expenses in 2020, which were considered direct and incremental COVID-19 related costs, included approximately $2.4 million of incremental compensation expense and $1.7 million of enhanced cleaning and sanitation costs.

ASB’s return on average assets, return on average equity and net interest margin were as follows:


	Three months ended September 30		Nine months ended September 30
(%)	2021	2020	2021	2020
Return on average assets	0.86	0.61	1.21	0.73
Return on average equity	10.26	6.75	14.31	7.95
Net interest margin	2.90	3.12	2.94	3.34


	Three months ended September 30
	2021					2020
(dollars in thousands)	Average balance		Interest income/ expense		Yield/ rate (%)	Average balance		Interest income/ expense		Yield/ rate (%)
Assets:
Interest-earning deposits	$	77,991	$	30	0.15	$	252,738	$	64	0.10
FHLB stock	10,002		76		3.01	9,891		83		3.31
Investment securities
Taxable	2,959,102		11,625		1.57	1,598,389		6,922		1.73
Non-taxable	63,823		336		2.10	27,917		193		2.70
Total investment securities	3,022,925		11,961		1.58	1,626,306		7,115		1.75
Loans
Residential 1-4 family	2,198,089		19,531		3.55	2,158,258		21,085		3.91
Commercial real estate	1,194,776		9,846		3.24	947,337		8,207		3.41
Home equity line of credit	866,755		6,791		3.11	1,052,607		8,201		3.10
Residential land	19,020		269		5.66	13,574		187		5.51
Commercial	773,548		8,988		4.62	1,055,190		8,119		3.06
Consumer	126,821		4,078		12.76	202,844		6,642		13.03
Total loans 1,2	5,179,009		49,503		3.80	5,429,810		52,441		3.84
Total interest-earning assets 3	8,289,927		61,570		2.96	7,318,745		59,703		3.25
Allowance for credit losses	(78,258)					(81,055)
Noninterest-earning assets	739,522					764,504
Total assets	$	8,951,191				$	8,002,194
Liabilities and shareholder’s equity:
Savings	$	3,129,166	$	204	0.03	$	2,715,445	$	424	0.06
Interest-bearing checking	1,240,159		61		0.02	1,130,053		92		0.03
Money market	202,073		31		0.06	165,330		86		0.21
Time certificates	466,343		880		0.75	596,601		1,685		1.12
Total interest-bearing deposits	5,037,741		1,176		0.09	4,607,429		2,287		0.20
Advances from Federal Home Loan Bank	54		—		0.30	30,283		27		0.36
Securities sold under agreements to repurchase and federal funds purchased	89,540		5		0.02	65,988		34		0.20
Total interest-bearing liabilities	5,127,335		1,181		0.09	4,703,700		2,348		0.20
Noninterest bearing liabilities:
Deposits	2,899,005					2,421,842
Other	173,842					156,687
Shareholder’s equity	751,009					719,965
Total liabilities and shareholder’s equity	$	8,951,191				$	8,002,194
Net interest income			$	60,389				$	57,355
Net interest margin (%) 4					2.90					3.12


	Nine months ended September 30
	2021					2020
(dollars in thousands)	Average balance		Interest income/ expense		Yield/ rate (%)	Average balance		Interest income/ expense		Yield/ rate (%)
Assets:
Interest-earning deposits	$	65,133	$	61	0.12	$	173,151	$	216	0.16
FHLB stock	10,398		251		3.23	9,639		236		3.27
Investment securities
Taxable	2,688,906		30,761		1.53	1,444,895		21,919		2.02
Non-taxable	49,520		805		2.16	28,463		719		3.32
Total investment securities	2,738,426		31,566		1.54	1,473,358		22,638		2.05
Loans
Residential 1-4 family	2,164,829		58,592		3.61	2,170,785		64,642		3.97
Commercial real estate	1,152,716		28,392		3.26	927,901		26,014		3.70
Home equity line of credit	898,304		21,118		3.14	1,080,914		25,894		3.20
Residential land	17,782		683		5.12	13,650		568		5.55
Commercial	892,181		28,179		4.21	914,431		22,535		3.28
Consumer	141,800		13,569		12.79	228,280		21,917		12.82
Total loans 1,2	5,267,612		150,533		3.81	5,335,961		161,570		4.03
Total interest-earning assets 3	8,081,569		182,411		3.01	6,992,109		184,660		3.52
Allowance for credit losses	(90,347)					(77,891)
Noninterest-earning assets	743,611					756,882
Total assets	$	8,734,833				$	7,671,100
Liabilities and shareholder’s equity:
Savings	$	3,029,335	$	594	0.03	$	2,554,376	$	1,583	0.08
Interest-bearing checking	1,214,136		178		0.02	1,091,944		415		0.05
Money market	191,092		99		0.07	157,689		425		0.36
Time certificates	500,278		3,048		0.81	702,030		6,522		1.24
Total interest-bearing deposits	4,934,841		3,919		0.11	4,506,039		8,945		0.26
Advances from Federal Home Loan Bank	20,474		42		0.27	25,918		138		0.71
Securities sold under agreements to repurchase and federal funds purchased	83,453		13		0.02	83,148		311		0.50
Total interest-bearing liabilities	5,038,768		3,974		0.11	4,615,105		9,394		0.27
Noninterest bearing liabilities:
Deposits	2,792,899					2,204,221
Other	166,285					148,547
Shareholder’s equity	736,881					703,227
Total liabilities and shareholder’s equity	$	8,734,833				$	7,671,100
Net interest income			$	178,437				$	175,266
Net interest margin (%) 4					2.94					3.34

1 Includes loans held for sale, at lower of cost or fair value.

2 Includes recognition of net deferred loan fees of $3.9 million and $1.5 million for the three months ended September 30, 2021 and 2020, respectively, and $11.3 million and $2.1 million for the nine months ended September 30, 2021 and 2020, respectively,

together with interest accrued prior to suspension of interest accrual on nonaccrual loans. Includes nonaccrual loans.

3 For the three and nine months ended September 30, 2021 and 2020, the taxable-equivalent basis adjustments made to the table above were not material.

4 Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.

Earning assets, costing liabilities, contingencies and other factors. Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets over a period of several years. In 2020, the Federal Open Market Committee lowered its federal funds rate target range to 0% - 0.25% in response to the financial crisis caused by the COVID-19 pandemic, which resulted in a decrease in ASB’s net interest income and net interest margin. A prolonged low interest rate environment may continue to negatively impact ASB’s net interest income and net interest margin.

Loans and mortgage-backed securities are ASB’s primary earning assets.

Loan portfolio . ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. See Note 4 of the Condensed Consolidated Financial Statements for the composition of ASB’s loans.

Home equity — key credit statistics . The HELOC portfolio makes up 17% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year period, after which time the HELOC outstanding balance converts to a fully amortizing variable-rate term loan with a 20-year amortization period. Borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully amortizing fixed-rate loan with level principal and interest payments. As of September 30, 2021, approximately 33% of the portfolio balances were amortizing loans under the Fixed Rate Loan Option. A HELOC loan is typically in a subordinate lien position to a borrower’s first mortgage loan, however, approximately 58% of ASB’s HELOC loan portfolio is in a first lien position.

Attention had been given by regulators and rating agencies to the potential for increased exposure to credit losses associated with HELOCs that were originated during the period of rapid home price appreciation between 2003 and 2007 as they have reached the end of their 10-year, interest-only payment periods. Once the interest only payment period has ended, payments are reset to include principal repayments along with interest. ASB does not have a large exposure to HELOCs originated between 2003 and 2007. Nearly all of ASB’s HELOC originations prior to 2008 consisted of amortizing equity lines that have structured principal payments during the draw period. These older equity lines represent 1% of the HELOC portfolio.

Loan portfolio risk elements . See Note 4 of the Condensed Consolidated Financial Statements.

Investment securities . ASB’s investment portfolio was comprised as follows:


	September 30, 2021				December 31, 2020
(dollars in thousands)	Balance		% of total		Balance		% of total
U.S. Treasury and federal agency obligations	$	132,139	4	%	$	62,322	3	%
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies	2,893,490		94		2,076,506		95
Corporate bonds	31,645		1		31,351		1
Mortgage revenue bonds	15,427		1		27,185		1
Total investment securities	$	3,072,701	100	%	$	2,197,364	100	%

Currently, ASB’s investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are also backed by the full faith of the U.S. government. The increase in the investment securities portfolio was primarily due to the purchase of securities with excess liquidity.

Deposits and other borrowings . Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. While deposits have increased by $590 million year-to-date, in part due to PPP loan proceeds and consumer economic impact payments from the CARES Act stimulus program, deposit retention and sustained growth will remain challenging in the current environment due to competition for deposits and the low level of short-term interest rates. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase and federal funds purchased continue to be additional sources of funds. As of September 30, 2021 ASB’s costing liabilities consisted of 98% deposits and 2% other borrowings compared to 99% deposits and 1% other borrowings as of December 31, 2020. The weighted average cost of deposits for the first nine months of 2021 and 2020 was 0.07% and 0.18%, respectively.

Federal Home Loan Bank of Des Moines . As of September 30, 2021 and December 31, 2020, ASB had no advances outstanding at the FHLB of Des Moines. As of September 30, 2021, the unused borrowing capacity with the FHLB of Des Moines was $2.0 billion. The FHLB of Des Moines continues to be an important source of liquidity for ASB.

Contingencies . ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.

Other factors . Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities.

As of September 30, 2021, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $20.3 million compared to an unrealized gain, net of taxes, of $20.0 million as of December 31, 2020. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.

During the first nine months of 2021, ASB recorded a negative provision for credit losses of $22.0 million in the allowance for credit losses primarily due to improvement in the economic outlook, strong credit results including lower net charge-offs and credit upgrades in commercial real estate and commercial loan portfolios and due to lower personal unsecured loan portfolio balances which had higher credit loss rates. During the first nine months of 2020, ASB recorded a provision for credit losses of $35.2 million in the allowance for credit losses primarily due to increased loss reserves for the consumer loan portfolio, increased loss rates for the commercial and commercial real estate portfolios and reserves for forecasted deterioration due to the COVID-19 pandemic.


	Nine months ended September 30						Year ended December 31, 2020
(in thousands)	2021			2020
Allowance for credit losses, beginning of period	$	101,201		$	53,355		$	53,355
Impact of adopting ASU No. 2016-13	—			19,441			19,441
Provision for credit losses	(21,967)			35,204			49,811
Less: net charge-offs	3,290			16,541			21,406
Allowance for credit losses, end of period	$	75,944		$	91,459		$	101,201
Ratio of net charge-offs during the period to average loans outstanding (annualized)	0.08		%	0.41		%	0.40		%

ASB maintains a reserve for credit losses that consists of two components, the allowance for credit losses and an allowance for loan commitments (unfunded reserve). The level of the reserve for unfunded loan commitments is adjusted by recording an expense or recovery in provision for credit losses. For the nine months ended September 30, 2021 and 2020, ASB recorded a recovery in the provision for credit losses for unfunded commitments of $0.4 million and a provision for credit losses for unfunded commitments of $4.3 million, respectively. As of September 30, 2021 and December 31, 2020, the reserve for unfunded loan commitments was $3.9 million and $4.3 million, respectively.

Legislation and regulation. ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.”

Changes to Community Bank Leverage Ratio . In April 2020, the federal bank regulatory agencies issued two interim final rules to implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank leverage ratio to 8 percent. The two rules modify the community bank leverage ratio framework so that:

• Beginning in the second quarter of 2020 and until the end of the year, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and

• Community banking organizations had until January 1, 2022 before the community bank leverage ratio requirement is re-established at greater than 9 percent.

Under the interim final rules, the community bank leverage ratio was 8 percent beginning in the second quarter of 2020 and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim final rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percent below the applicable community bank leverage ratio.

As of September 30, 2021, the bank was in compliance with all of the minimum capital requirements under OCC regulations, and was categorized as “well capitalized” under the regulatory framework for prompt corrective action. Beginning in the second quarter of 2020, ASB adopted the community bank leverage ratio framework, which allowed it to report only on the community bank leverage ratio, but does not change minimum capital requirements under OCC regulations. At March 31, 2021, ASB’s leverage ratio was below the 8.5 percent requirement to qualify for abbreviated reporting under the community bank leverage framework for 2021 and started reporting its risk-based capital ratios in the third quarter of 2021.

FINANCIAL CONDITION

Liquidity and capital resources.


(dollars in millions)	September 30, 2021		December 31, 2020		% change
Total assets	$	9,010	$	8,397	7
Investment securities	3,073		2,197		40
Loans held for investment, net	5,046		5,233		(4)
Deposit liabilities	7,977		7,387		8
Other bank borrowings	129		90		44

As of September 30, 2021, ASB was one of Hawaii’s largest financial institutions based on assets of $9.0 billion and deposits of $8.0 billion.

As of September 30, 2021, ASB’s unused FHLB borrowing capacity was approximately $2.0 billion. As of September 30, 2021, ASB had commitments to borrowers for loans and unused lines and letters of credit of $2.1 billion, of which, commitments to lend to borrowers whose loan terms have been modified in troubled debt restructurings were nil. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.

For the nine months ended September 30, 2021, net cash provided by ASB’s operating activities was $93 million. Net cash used during the same period by ASB’s investing activities was $780 million, primarily due to purchases of available-for-sale securities of $1.3 billion, purchases of held-to-maturity securities of $314 million, contributions to low income housing investments of $12 million, additions to premises and equipment of $9 million and a net increase in stock from the Federal Home Loan Bank of $1 million, partly offset by the receipt of investment security repayments and maturities of $499 million, proceeds from the sale of investment securities of $197 million, a net decrease in loans of $159 million, proceeds from the sale of residential loans of $17 million and proceeds from redemption of bank owned life insurance of $3 million. Net cash provided by financing activities during this period was $584 million, primarily due to increases in deposit liabilities of $590 million and a net increase in repurchase agreements of $40 million, partly offset by a net decrease in mortgage escrow deposits of $5 million and $40 million in common stock dividends to HEI (through ASB Hawaii).

For the nine months ended September 30, 2020, net cash provided by ASB’s operating activities was $75 million. Net cash used during the same period by ASB’s investing activities was $862 million, primarily due to purchases of available-for-sale securities of $986 million, a net increase in loans of $374 million, purchases of held-to maturity securities of $29 million, additions to premises and equipment of $9 million and contributions to low income housing investments of $4 million and a net increase in stock from the Federal Home Loan Bank of $2 million, partly offset by the receipt of investment security repayments and maturities of $366 million, proceeds from the sale of investment securities of $169 million and proceeds from the sale of low income housing investments of $7 million. Net cash provided by financing activities during this period was $770 million, primarily due to increases in deposit liabilities of $766 million and proceeds from FHLB advances of $56 million, partly offset by a net decrease in repurchase agreements of $19 million, a net decrease in mortgage escrow deposits of $5 million and $28 million in common stock dividends to HEI (through ASB Hawaii).

ASB believes that maintaining a satisfactory regulatory capital position provides a basis for public confidence, affords protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for growth. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of September 30, 2021, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 8.0% (5.0%), common equity Tier-1 ratio of 13.6% (6.5%), Tier-1 capital ratio of 13.6% (8.0%) and total capital ratio of 14.7% (10.0%). As of December 31, 2020, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 8.4% (5.0%), respectively. All dividends are subject to review by the OCC and FRB and receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to declare and pay to HEI (through ASB Hawaii).

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company considers interest-rate risk (a non-trading market risk) to be a significant market risk for ASB as it could potentially have material impacts on the Company’s results of operations, financial condition and liquidity. For additional quantitative and qualitative information about the Company’s market risks, see HEI’s and Hawaiian Electric’s Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of HEI’s 2020 Form 10-K (pages 74 to 76).

ASB’s interest-rate risk sensitivity measures as of September 30, 2021 and December 31, 2020 constitute “forward-looking statements” and were as follows:


Change in interest rates	Change in NII (gradual change in interest rates)				Change in EVE (instantaneous change in interest rates)
(basis points)	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
+300	5.6	%	7.0	%	15.1	%	31.4	%
+200	4.0		5.0		11.5		23.9
+100	2.3		2.7		6.9		14.0
-100	(2.3)		(1.9)		(14.4)		(25.2)

ASB’s net interest income (NII) sensitivity profile was less asset sensitive as of September 30, 2021 as compared to December 31, 2020, primarily driven by the increase in market rates, growth in the fixed rate portion of the HELOC and residential mortgage portfolios, and core deposit funded investment securities purchases. The increase in market rates decreased prepayment expectations in the bank’s fixed-rate mortgage and mortgage-backed investment portfolios, driving decreased asset sensitivity. In addition, the fixed rate portion of the HELOC portfolio grew, contributing to decreased asset sensitivity. Lastly, the deployment of strong core deposit growth into new fixed-rate investment purchases further contributed to decreased sensitivity.

Economic value of equity (EVE) sensitivity decreased as of September 30, 2021 compared to December 31, 2020 as the duration of assets lengthened. The steepening of the yield curve led to slower prepayment expectations and lengthened the duration of the fixed-rate mortgage and mortgage-backed investment portfolios.

The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance changes and pricing strategies, and should not be relied upon as indications of actual results. To the extent market conditions and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the simulation results. NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent management’s views of future market movements, the level of future earnings or the timing of any changes in earnings within the twelve month analysis horizon. The actual impact of changes in interest rates on NII will depend on the magnitude and speed with which rates change, actual changes in ASB’s balance sheet and management’s responses to the changes in interest rates.

Item 4. Controls and Procedures

HEI:

Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Hawaiian Electric:

Disclosure Controls and Procedures

Hawaiian Electric maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by Hawaiian Electric in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to Hawaiian Electric’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

An evaluation was performed under the supervision and with the participation of Hawaiian Electric’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Hawaiian Electric’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including Hawaiian Electric’s Chief Executive Officer and Chief Financial Officer, concluded that Hawaiian Electric’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting during the third quarter of 2021 that have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in HEI’s and Hawaiian Electric’s 2020 Form 10-K (see “Part I. Item 3. Legal Proceedings” and proceedings referred to therein) and this Form 10-Q (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 3 and 4 of the Condensed Consolidated Financial Statements) are incorporated by reference in this Item 1. With regard to any pending legal proceeding, alternative dispute resolution, such as mediation or settlement, may be pursued where appropriate, with such efforts typically maintained in confidence unless and until a resolution is achieved. Certain HEI subsidiaries (including Hawaiian Electric and its subsidiaries, ASB and Pacific Current and its subsidiaries) may also be involved in ordinary routine PUC proceedings, environmental proceedings and litigation incidental to their respective businesses.

Item 1A. Risk Factors

For information about Risk Factors, see pages 18 to 30 of HEI’s and Hawaiian Electric’s 2020 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and the Condensed Consolidated Financial Statements herein. Also, see “Cautionary Note Regarding Forward-Looking Statements” on pages iv through vi herein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) Purchases of HEI common shares were made on the open market during the third quarter of 2021 to satisfy the requirements of certain plans as follows:

ISSUER PURCHASES OF EQUITY SECURITIES


Period*	Total Number of Shares Purchased **	Average Price Paid per Share **	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 to 31, 2021	26,173	$42.87	—	NA
August 1 to 31, 2021	18,443	$43.91	—	NA
September 1 to 30, 2021	154,393	$42.87	—	NA

NA Not applicable.

* Trades (total number of shares purchased) are reflected in the month in which the order is placed.

**The purchases were made to satisfy the requirements of the DRIP, the HEIRSP and the ASB 401(k) Plan for shares purchased for cash or by the reinvestment of dividends by participants under those plans and none of the purchases were made under publicly announced repurchase plans or programs. Average prices per share are calculated exclusive of any commissions payable to the brokers making the purchases for the DRIP, the HEIRSP and the ASB 401(k) Plan. Of the “Total number of shares purchased,” 20,134 of the 26,173 shares, 14,468 of the 18,443 shares and 133,402 of the 154,393 shares were purchased for the DRIP; 5,208 of the 26,173 shares, 3,076 of the 18,443 shares and 17,329 of the 154,393 shares were purchased for the HEIRSP; and the remainder was purchased for the ASB 401(k) Plan. The repurchased shares were issued for the accounts of the participants under registration statements registering the shares issued under these plans.

Item 6. Exhibits



HEI Exhibit 4						Letter Amendment effective October 15, 2021 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company

HEI Exhibit 31.1						Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer)

HEI Exhibit 31.2						Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Gregory C. Hazelton (HEI Chief Financial Officer)

HEI Exhibit 32.1						HEI Certification Pursuant to 18 U.S.C. Section 1350

HEI Exhibit 101.INS						XBRL Instance Document - the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

HEI Exhibit 101.SCH						Inline XBRL Taxonomy Extension Schema Document

HEI Exhibit 101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

HEI Exhibit 101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

HEI Exhibit 101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

HEI Exhibit 101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

HEI Exhibit 104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


Hawaiian Electric Exhibit 31.3						Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Scott W. H. Seu (Hawaiian Electric Chief Executive Officer)

Hawaiian Electric Exhibit 31.4						Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer)

Hawaiian Electric Exhibit 32.2						Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof.

HAWAIIAN ELECTRIC INDUSTRIES, INC.

HAWAIIAN ELECTRIC COMPANY, INC.

(Registrant)

/s/ Constance H. Lau

/s/ Scott W. H. Seu

Constance H. Lau

Scott W. H. Seu

President and Chief Executive Officer

(Principal Executive Officer of HEI)

(Principal Executive Officer of Hawaiian Electric)

/s/ Gregory C. Hazelton

/s/ Tayne S. Y. Sekimura

Gregory C. Hazelton

Tayne S. Y. Sekimura

Executive Vice President

Senior Vice President,

and Chief Financial Officer

Chief Financial Officer and Treasurer

(Principal Financial Officer of HEI)

(Principal Financial Officer of Hawaiian Electric)

Date: November 5, 2021

TABLE OF CONTENTS

Part I - Financial Information Item 1. Financial Statements Note 1 Basis Of Presentation Note 3 Electric Utility Segment Note 4 Bank Segment Note 5 Credit Agreements and Changes in Long-term Debt Note 6 Shareholders Equity Note 7 Revenues Note 8 Retirement Benefits Note 9 Share-based Compensation Note 10 Income Taxes Note 12 Fair Value Measurements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 6. Exhibits

Exhibits

HEI Exhibit 4 Letter Amendment effective October 15, 2021 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company HEI Exhibit31.1 Certification Pursuant to Rule13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer) HEI Exhibit31.2 Certification Pursuant to Rule13a-14 promulgated under the Securities Exchange Act of 1934 of Gregory C. Hazelton (HEI Chief Financial Officer) HEI Exhibit32.1 HEI Certification Pursuant to 18U.S.C. Section1350 Hawaiian Electric Exhibit31.3 Certification Pursuant to Rule13a-14 promulgated under the Securities Exchange Act of 1934 of Scott W. H. Seu (Hawaiian Electric Chief Executive Officer) Hawaiian Electric Exhibit31.4 Certification Pursuant to Rule13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer) Hawaiian Electric Exhibit32.2 Hawaiian Electric Certification Pursuant to 18U.S.C. Section1350

HAWEL 10-Q Quarter ended Sept. 30, 2021

Exhibits