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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 JuneSeptember 30, 2022
OR
☐ 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 Bishop1099 Alakea Street, Suite 2500,2200, 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 applicable1001 Bishop Street, Suite 2500, Honolulu, Hawaii 96813 - Hawaiian Electric Company, Inc. (Hawaiian Electric)
(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 | ☒ | No | ☐ | | Hawaiian Electric Company, Inc. | Yes | ☒ | No | ☐ |
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 | ☒ | No | ☐ | | Hawaiian Electric Company, Inc. | Yes | ☒ | No | ☐ |
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 | ☐ | No | ☒ | | Hawaiian Electric Company, Inc. | Yes | ☐ | No | ☒ |
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 JulyOctober 25, 2022 |
| Hawaiian Electric Industries, Inc. (Without Par Value) | | 109,469,093109,470,439 | | Shares |
| Hawaiian Electric Company, Inc. ($6-2/3 Par Value) | | 17,753,533 | | 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 JuneSeptember 30, 2022
TABLE OF CONTENTS
Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended JuneSeptember 30, 2022
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. and Pacific Current, LLC and its subsidiaries (listed under Pacific Current). The Old Oahu Tug Service, Inc. was dissolved in March 2022. |
| Consumer Advocate | | Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii |
| CSSM | | Collective Shared Savings Mechanism |
| D&O | | Decision and order from the PUC |
| | |
| DER | | Distributed energy resources |
| | |
| 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 |
| EPS | | Earnings per share |
| | |
| | |
| 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 |
| GHG | | Greenhouse gas |
| GNMA | | Government National Mortgage Association |
| GSPA | | Grid Services Purchase Agreement |
| Hamakua Energy | | Hamakua Energy, LLC, an indirect subsidiary of Pacific Current |
| 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. |
| HEI | | Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc. and Pacific Current, LLC. The Old Oahu Tug Service, Inc. was dissolved in March 2022. |
| 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 |
| IRLCs | | Interest rate lock commitments |
| Kalaeloa | | Kalaeloa Partners, L.P. |
| kWh | | Kilowatthour/s (as applicable) |
| LMI | | Low-to-moderate income |
| LTIP | | Long-term incentive plan |
| Mahipapa | | Mahipapa, LLC, a subsidiary of Pacific Current |
| Maui Electric | | Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc. |
| Mauo | | Mauo, LLC, a subsidiary of Pacific Current |
| | |
| MPIR | | Major Project Interim Recovery |
| | |
| MRP | | Multi-year rate period |
| MSRs | | Mortgage servicing rights |
| MW | | Megawatt/s (as applicable) |
| 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, Alenuihaha Developments, LLC, Kaʻieʻie Waho Company, LLC, Kaʻaipuaʻa, LLC, Upena, LLC and Mahipapa, LLC |
| PBR | | Performance-based regulation |
| | |
| 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 | | Revenue adjustment mechanism |
| RBA | | Revenue balancing account |
| | |
| RFP | | Request for proposals |
| ROACE | | Return on average common equity |
| RORB | | Return on rate base |
| RPS | | Renewable portfolio standards |
| | |
| SBA | | Small Business Administration |
| SEC | | Securities and Exchange Commission |
| See | | Means the referenced material is incorporated by reference |
| | |
| SOFR | | Secured Overnight Financing Rate |
| TDR | | Troubled debt restructuring |
| | |
| Utilities | | Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited |
| VIEs | | Variable interest entities |
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’ ability 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 (such as the Russia-Ukraine war), 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 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 their 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, resilience and reliability objectives and renewable portfolio standards (RPS) and other climate-related 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 potential higher 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 and mortality improvements;
•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;
•increasing competition in the banking industry from traditional financial institutions as well as from non-traditional providers of financial services, including financial service subsidiaries of commercial and manufacturing companies (e.g., increased price competition for loans and deposits, or an outflow of deposits to alternative investments or platforms, which may have an adverse impact on ASB’s net interest margin and portfolio growth);
•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; supply-chain challenges; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet RPS and other climate-related 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 required to be 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;
•high and/or volatile fuel prices, which increases working capital requirements and customer bills, or delivery of adequate fuel by suppliers (including as a result of the Russia-Ukraine war), which could affect the reliability of utility operations, 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), annual revenue adjustment (ARA) 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 kilowatt-hour sales;
•the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by the ARA, while providing the customer dividend required by performance-based regulation (PBR);
•the ability of the Utilities to achieve performance incentive goals currently in place;
•the impact from the PUC’s implementation of PBR 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 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;
•unfavorable changes in economic conditions, such as sustained inflation, higher interest rates or recession, may negatively impact the ability of the Company’s customers to pay their utility bills or loan payments, reduce loan production, and increase operating costs of the Utilities or Bank that cannot be passed on to, or recovered, from customers;
•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 plantsplants), its third-party service providers, contractors and IPP-owned facilities)customers with whom they have shared data (IPPs, distributed energy resources (DER) aggregators and customers enrolled under DER programs) 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 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 pricing or “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 June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands, except per share amounts) | (in thousands, except per share amounts) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands, except per share amounts) | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | | | | | | | | | Revenues | | | | | | | | |
| Electric utility | Electric utility | | $ | 818,873 | | | $ | 601,879 | | | $ | 1,527,665 | | | $ | 1,166,743 | | Electric utility | | $ | 955,971 | | | $ | 679,499 | | | $ | 2,483,636 | | | $ | 1,846,242 | |
| Bank | Bank | | 75,324 | | | 77,260 | | | 150,439 | | | 154,391 | | Bank | | 81,411 | | | 76,208 | | | 231,850 | | | 230,599 | |
| Other | Other | | 1,410 | | | 1,118 | | | 2,571 | | | 2,069 | | Other | | 4,815 | | | 1,197 | | | 7,386 | | | 3,266 | |
| Total revenues | Total revenues | | 895,607 | | | 680,257 | | | 1,680,675 | | | 1,323,203 | | Total revenues | | 1,042,197 | | | 756,904 | | | 2,722,872 | | | 2,080,107 | |
| Expenses | Expenses | | | | | | | | | Expenses | | | | | | | | |
| Electric utility | Electric utility | | 747,719 | | | 534,195 | | | 1,382,916 | | | 1,029,945 | | Electric utility | | 876,922 | | | 604,307 | | | 2,259,838 | | | 1,634,252 | |
| Bank | Bank | | 53,401 | | | 37,454 | | | 98,486 | | | 79,289 | | Bank | | 54,311 | | | 51,151 | | | 152,797 | | | 130,440 | |
| Other | Other | | 7,819 | | | 6,752 | | | 13,329 | | | 14,082 | | Other | | 8,849 | | | 4,130 | | | 22,178 | | | 18,212 | |
| Total expenses | Total expenses | | 808,939 | | | 578,401 | | | 1,494,731 | | | 1,123,316 | | Total expenses | | 940,082 | | | 659,588 | | | 2,434,813 | | | 1,782,904 | |
| Operating income (loss) | Operating income (loss) | | | | | | | | | Operating income (loss) | | | | | | | | |
| Electric utility | Electric utility | | 71,154 | | | 67,684 | | | 144,749 | | | 136,798 | | Electric utility | | 79,049 | | | 75,192 | | | 223,798 | | | 211,990 | |
| Bank | Bank | | 21,923 | | | 39,806 | | | 51,953 | | | 75,102 | | Bank | | 27,100 | | | 25,057 | | | 79,053 | | | 100,159 | |
| Other | Other | | (6,409) | | | (5,634) | | | (10,758) | | | (12,013) | | Other | | (4,034) | | | (2,933) | | | (14,792) | | | (14,946) | |
| Total operating income | Total operating income | | 86,668 | | | 101,856 | | | 185,944 | | | 199,887 | | Total operating income | | 102,115 | | | 97,316 | | | 288,059 | | | 297,203 | |
| Retirement defined benefits credit—other than service costs | Retirement defined benefits credit—other than service costs | | 1,246 | | | 1,216 | | | 2,489 | | | 3,651 | | Retirement defined benefits credit—other than service costs | | 1,039 | | | 1,058 | | | 3,528 | | | 4,709 | |
| Interest expense, net—other than on deposit liabilities and other bank borrowings | Interest expense, net—other than on deposit liabilities and other bank borrowings | | (24,965) | | | (23,317) | | | (49,314) | | | (47,053) | | Interest expense, net—other than on deposit liabilities and other bank borrowings | | (26,626) | | | (23,477) | | | (75,940) | | | (70,530) | |
| Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | | 798 | | | 812 | | | 1,576 | | | 1,559 | | Allowance for borrowed funds used during construction | | 825 | | | 827 | | | 2,401 | | | 2,386 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | | 2,470 | | | 2,377 | | | 4,879 | | | 4,568 | | Allowance for equity funds used during construction | | 2,552 | | | 2,427 | | | 7,431 | | | 6,995 | |
| Gain on sales of investment securities, net and equity-method investment | Gain on sales of investment securities, net and equity-method investment | | — | | | — | | | 8,123 | | | 528 | | Gain on sales of investment securities, net and equity-method investment | | — | | | — | | | 8,123 | | | 528 | |
| Income before income taxes | Income before income taxes | | 66,217 | | | 82,944 | | | 153,697 | | | 163,140 | | Income before income taxes | | 79,905 | | | 78,151 | | | 233,602 | | | 241,291 | |
| Income taxes | Income taxes | | 13,203 | | | 18,599 | | | 31,043 | | | 33,964 | | Income taxes | | 17,352 | | | 14,265 | | | 48,395 | | | 48,229 | |
| Net income | Net income | | 53,014 | | | 64,345 | | | 122,654 | | | 129,176 | | Net income | | 62,553 | | | 63,886 | | | 185,207 | | | 193,062 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | 473 | | | 473 | | | 946 | | | 946 | | Preferred stock dividends of subsidiaries | | 471 | | | 471 | | | 1,417 | | | 1,417 | |
| Net income for common stock | Net income for common stock | | $ | 52,541 | | | $ | 63,872 | | | $ | 121,708 | | | $ | 128,230 | | Net income for common stock | | $ | 62,082 | | | $ | 63,415 | | | $ | 183,790 | | | $ | 191,645 | |
| Basic earnings per common share | Basic earnings per common share | | $ | 0.48 | | | $ | 0.58 | | | $ | 1.11 | | | $ | 1.17 | | Basic earnings per common share | | $ | 0.57 | | | $ | 0.58 | | | $ | 1.68 | | | $ | 1.75 | |
| Diluted earnings per common share | Diluted earnings per common share | | $ | 0.48 | | | $ | 0.58 | | | $ | 1.11 | | | $ | 1.17 | | Diluted earnings per common share | | $ | 0.57 | | | $ | 0.58 | | | $ | 1.68 | | | $ | 1.75 | |
| | Weighted-average number of common shares outstanding | Weighted-average number of common shares outstanding | | 109,432 | | | 109,282 | | | 109,397 | | | 109,252 | | Weighted-average number of common shares outstanding | | 109,470 | | | 109,311 | | | 109,421 | | | 109,272 | |
| Net effect of potentially dilutive shares | Net effect of potentially dilutive shares | | 230 | | | 233 | | | 317 | | | 305 | | Net effect of potentially dilutive shares | | 235 | | | 264 | | | 291 | | | 316 | |
| Weighted-average shares assuming dilution | Weighted-average shares assuming dilution | | 109,662 | | | 109,515 | | | 109,714 | | | 109,557 | | Weighted-average shares assuming dilution | | 109,705 | | | 109,575 | | | 109,712 | | | 109,588 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited) | | | | | Three months ended June 30 | | Six months ended June 30 | | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income for common stock | Net income for common stock | | $ | 52,541 | | | $ | 63,872 | | | $ | 121,708 | | | $ | 128,230 | | Net income for common stock | | $ | 62,082 | | | $ | 63,415 | | | $ | 183,790 | | | $ | 191,645 | |
| Other comprehensive income (loss), net of taxes: | Other comprehensive income (loss), net of taxes: | | | | | | | | | 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 $(32,529), $6,214, $(76,608) and $(10,402), respectively | | (88,857) | | | 16,976 | | | (209,264) | | | (28,414) | | |
| Net unrealized losses on available-for-sale investment securities: | | Net unrealized losses on available-for-sale investment securities: | | | | | | | | |
| Net unrealized losses on available-for-sale investment securities arising during the period, net of taxes of $(36,230), $(4,212), $(112,838) and $(14,614), respectively | | Net unrealized losses on available-for-sale investment securities arising during the period, net of taxes of $(36,230), $(4,212), $(112,838) and $(14,614), respectively | | (98,965) | | | (11,507) | | | (308,229) | | | (39,921) | |
| Reclassification adjustment for net realized gains included in net income, net of taxes of nil, nil, nil and $(142), respectively | Reclassification adjustment for net realized gains included in net income, net of taxes of nil, nil, nil and $(142), respectively | | — | | | — | | | — | | | (387) | | Reclassification adjustment for net realized gains included in net income, net of taxes of nil, nil, nil and $(142), respectively | | — | | | — | | | — | | | (387) | |
| Derivatives qualifying as cash flow hedges: | Derivatives qualifying as cash flow hedges: | | | | | | | | | Derivatives qualifying as cash flow hedges: | | | | | | | | |
| Unrealized interest rate hedging gains (losses) arising during the period, net of taxes of $273, $(243), $1,319 and $299, respectively | | 786 | | | (701) | | | 3,803 | | | 861 | | |
| Reclassification adjustment for net realized losses included in net income, net of taxes of $18, nil, $37 and nil, respectively | | 53 | | | — | | | 108 | | | — | | |
| Unrealized interest rate hedging gains arising during the period, net of taxes of $901, $48, $2,220 and $347, respectively | | Unrealized interest rate hedging gains arising during the period, net of taxes of $901, $48, $2,220 and $347, respectively | | 2,597 | | | 139 | | | 6,400 | | | 1,000 | |
| Reclassification adjustment for net realized losses included in net income, net of taxes of $19, $3, $56 and $3, respectively | | Reclassification adjustment for net realized losses included in net income, net of taxes of $19, $3, $56 and $3, respectively | | 53 | | | 9 | | | 161 | | | 9 | |
| Retirement benefit plans: | Retirement benefit plans: | | | | | | | | | 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 $44, $2,086, $1,606 and $4,170, respectively | | 122 | | | 6,008 | | | 4,623 | | | 12,018 | | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $19, $(2,016), $(1,481) and $(4,031), respectively | | 56 | | | (5,811) | | | (4,269) | | | (11,622) | | |
| Other comprehensive income (loss), net of taxes | | (87,840) | | | 16,472 | | | (204,999) | | | (27,544) | | |
| Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,943, $985, $3,549 and $5,155, respectively | | Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,943, $985, $3,549 and $5,155, respectively | | 5,606 | | | 2,853 | | | 10,229 | | | 14,871 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,839), $(971), $(3,320) and $(5,002), respectively | | Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,839), $(971), $(3,320) and $(5,002), respectively | | (5,303) | | | (2,799) | | | (9,572) | | | (14,421) | |
| Other comprehensive loss, net of taxes | | Other comprehensive loss, net of taxes | | (96,012) | | | (11,305) | | | (301,011) | | | (38,849) | |
| Comprehensive income (loss) attributable to Hawaiian Electric Industries, Inc. | Comprehensive income (loss) attributable to Hawaiian Electric Industries, Inc. | | $ | (35,299) | | | $ | 80,344 | | | $ | (83,291) | | | $ | 100,686 | | Comprehensive income (loss) attributable to Hawaiian Electric Industries, Inc. | | $ | (33,930) | | | $ | 52,110 | | | $ | (117,221) | | | $ | 152,796 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) | | (dollars in thousands) | (dollars in thousands) | | June 30, 2022 | | December 31, 2021 | (dollars in thousands) | | September 30, 2022 | | December 31, 2021 |
| Assets | Assets | | | | | Assets | | | | |
| Cash and cash equivalents | Cash and cash equivalents | | $ | 159,672 | | | $ | 305,551 | | Cash and cash equivalents | | $ | 175,280 | | | $ | 305,551 | |
| Restricted cash | Restricted cash | | 5,386 | | | 5,911 | | Restricted cash | | 3,898 | | | 5,911 | |
| Accounts receivable and unbilled revenues, net | Accounts receivable and unbilled revenues, net | | 457,470 | | | 344,213 | | Accounts receivable and unbilled revenues, net | | 519,774 | | | 344,213 | |
| Available-for-sale investment securities, at fair value | Available-for-sale investment securities, at fair value | | 2,444,267 | | | 2,574,618 | | Available-for-sale investment securities, at fair value | | 2,232,336 | | | 2,574,618 | |
| Held-to-maturity investment securities, at amortized cost | Held-to-maturity investment securities, at amortized cost | | 513,767 | | | 522,270 | | Held-to-maturity investment securities, at amortized cost | | 510,879 | | | 522,270 | |
| Stock in Federal Home Loan Bank, at cost | Stock in Federal Home Loan Bank, at cost | | 13,200 | | | 10,000 | | Stock in Federal Home Loan Bank, at cost | | 15,000 | | | 10,000 | |
| Loans held for investment, net | Loans held for investment, net | | 5,357,539 | | | 5,139,984 | | Loans held for investment, net | | 5,616,984 | | | 5,139,984 | |
| Loans held for sale, at lower of cost or fair value | Loans held for sale, at lower of cost or fair value | | 3,738 | | | 10,404 | | Loans held for sale, at lower of cost or fair value | | 3,101 | | | 10,404 | |
| Property, plant and equipment, net of accumulated depreciation of $3,122,324 and $3,028,130 at June 30, 2022 and December 31, 2021, respectively | | 5,429,420 | | | 5,392,068 | | |
| Property, plant and equipment, net of accumulated depreciation of $3,168,879 and $3,028,130 at September 30, 2022 and December 31, 2021, respectively | | Property, plant and equipment, net of accumulated depreciation of $3,168,879 and $3,028,130 at September 30, 2022 and December 31, 2021, respectively | | 5,599,937 | | | 5,392,068 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | | 120,600 | | | 122,416 | | Operating lease right-of-use assets | | 121,302 | | | 122,416 | |
| | Regulatory assets | Regulatory assets | | 530,900 | | | 565,543 | | Regulatory assets | | 497,188 | | | 565,543 | |
| Other | Other | | 883,594 | | | 747,469 | | Other | | 886,999 | | | 747,469 | |
| Goodwill | Goodwill | | 82,190 | | | 82,190 | | Goodwill | | 82,190 | | | 82,190 | |
| Total assets | Total assets | | $ | 16,001,743 | | | $ | 15,822,637 | | Total assets | | $ | 16,264,868 | | | $ | 15,822,637 | |
| Liabilities and shareholders’ equity | Liabilities and shareholders’ equity | | | | | Liabilities and shareholders’ equity | | | | |
| Liabilities | Liabilities | | | | | Liabilities | | | | |
| Accounts payable | Accounts payable | | $ | 244,239 | | | $ | 205,544 | | Accounts payable | | $ | 213,587 | | | $ | 205,544 | |
| Interest and dividends payable | Interest and dividends payable | | 20,661 | | | 19,889 | | Interest and dividends payable | | 36,158 | | | 19,889 | |
| Deposit liabilities | Deposit liabilities | | 8,253,536 | | | 8,172,212 | | Deposit liabilities | | 8,258,885 | | | 8,172,212 | |
| Short-term borrowings—other than bank | Short-term borrowings—other than bank | | 124,017 | | | 53,998 | | Short-term borrowings—other than bank | | 171,125 | | | 53,998 | |
| Other bank borrowings | Other bank borrowings | | 241,610 | | | 88,305 | | Other bank borrowings | | 409,040 | | | 88,305 | |
| Long-term debt, net—other than bank | Long-term debt, net—other than bank | | 2,374,500 | | | 2,321,937 | | Long-term debt, net—other than bank | | 2,430,326 | | | 2,321,937 | |
| Deferred income taxes | Deferred income taxes | | 302,346 | | | 384,760 | | Deferred income taxes | | 263,929 | | | 384,760 | |
| Operating lease liabilities | Operating lease liabilities | | 136,445 | | | 136,760 | | Operating lease liabilities | | 130,914 | | | 136,760 | |
| Finance lease liabilities | | Finance lease liabilities | | 49,202 | | | — | |
| Regulatory liabilities | Regulatory liabilities | | 1,008,075 | | | 996,768 | | Regulatory liabilities | | 1,030,376 | | | 996,768 | |
| | Defined benefit pension and other postretirement benefit plans liability | Defined benefit pension and other postretirement benefit plans liability | | 341,535 | | | 348,072 | | Defined benefit pension and other postretirement benefit plans liability | | 333,664 | | | 348,072 | |
| Other | Other | | 686,982 | | | 669,215 | | Other | | 740,447 | | | 669,215 | |
| Total liabilities | Total liabilities | | 13,733,946 | | | 13,397,460 | | Total liabilities | | 14,067,653 | | | 13,397,460 | |
| Preferred stock of subsidiaries - not subject to mandatory redemption | Preferred stock of subsidiaries - not subject to mandatory redemption | | 34,293 | | | 34,293 | | Preferred stock of subsidiaries - not subject to mandatory redemption | | 34,293 | | | 34,293 | |
| Commitments and contingencies (Notes 3 and 4) | Commitments and contingencies (Notes 3 and 4) | | 0 | | 0 | Commitments and contingencies (Notes 3 and 4) | |
| Shareholders’ equity | Shareholders’ equity | | | | | Shareholders’ equity | | | | |
| Preferred stock, no par value, authorized 10,000,000 shares; issued: none | Preferred stock, no par value, authorized 10,000,000 shares; issued: none | | — | | | — | | 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: 109,466,829 shares and 109,311,785 shares at June 30, 2022 and December 31, 2021, respectively | | 1,688,009 | | | 1,685,496 | | |
| Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 109,470,325 shares and 109,311,785 shares at September 30, 2022 and December 31, 2021, respectively | | Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 109,470,325 shares and 109,311,785 shares at September 30, 2022 and December 31, 2021, respectively | | 1,689,672 | | | 1,685,496 | |
| Retained earnings | Retained earnings | | 803,027 | | | 757,921 | | Retained earnings | | 826,794 | | | 757,921 | |
| Accumulated other comprehensive loss, net of tax benefits | Accumulated other comprehensive loss, net of tax benefits | | (257,532) | | | (52,533) | | Accumulated other comprehensive loss, net of tax benefits | | (353,544) | | | (52,533) | |
| Total shareholders’ equity | Total shareholders’ equity | | 2,233,504 | | | 2,390,884 | | Total shareholders’ equity | | 2,162,922 | | | 2,390,884 | |
| Total liabilities and shareholders’ equity | Total liabilities and shareholders’ equity | | $ | 16,001,743 | | | $ | 15,822,637 | | Total liabilities and shareholders’ equity | | $ | 16,264,868 | | | $ | 15,822,637 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited) | | | | | Common stock | | Retained | | Accumulated
other
comprehensive | | | | | Common stock | | Retained | | Accumulated
other
comprehensive | | |
| (in thousands) | (in thousands) | | Shares | | Amount | | Earnings | | income (loss) | | Total | (in thousands) | | Shares | | Amount | | Earnings | | income (loss) | | Total |
| Balance, December 31, 2021 | Balance, December 31, 2021 | | 109,312 | | | $ | 1,685,496 | | | $ | 757,921 | | | $ | (52,533) | | | $ | 2,390,884 | | Balance, December 31, 2021 | | 109,312 | | | $ | 1,685,496 | | | $ | 757,921 | | | $ | (52,533) | | | $ | 2,390,884 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | 69,167 | | | — | | | 69,167 | | Net income for common stock | | — | | | — | | | 69,167 | | | — | | | 69,167 | |
| Other comprehensive loss, net of tax benefits | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (117,159) | | | (117,159) | | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (117,159) | | | (117,159) | |
| Share-based expenses and other, net | Share-based expenses and other, net | | 119 | | | (949) | | | — | | | — | | | (949) | | Share-based expenses and other, net | | 119 | | | (949) | | | — | | | — | | | (949) | |
| Common stock dividends (35¢ per share) | Common stock dividends (35¢ per share) | | — | | | — | | | (38,301) | | | — | | | (38,301) | | Common stock dividends (35¢ per share) | | — | | | — | | | (38,301) | | | — | | | (38,301) | |
| Balance, March 31, 2022 | Balance, March 31, 2022 | | 109,431 | | | 1,684,547 | | | 788,787 | | | (169,692) | | | 2,303,642 | | Balance, March 31, 2022 | | 109,431 | | | 1,684,547 | | | 788,787 | | | (169,692) | | | 2,303,642 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | 52,541 | | | — | | | 52,541 | | Net income for common stock | | — | | | — | | | 52,541 | | | — | | | 52,541 | |
| Other comprehensive loss, net of tax benefits | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (87,840) | | | (87,840) | | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (87,840) | | | (87,840) | |
| Share-based expenses and other, net | Share-based expenses and other, net | | 36 | | | 3,462 | | | — | | | — | | | 3,462 | | Share-based expenses and other, net | | 36 | | | 3,462 | | | — | | | — | | | 3,462 | |
| Common stock dividends (35¢ per share) | Common stock dividends (35¢ per share) | | — | | | — | | | (38,301) | | | — | | | (38,301) | | Common stock dividends (35¢ per share) | | — | | | — | | | (38,301) | | | — | | | (38,301) | |
| Balance, June 30, 2022 | Balance, June 30, 2022 | | 109,467 | | | $ | 1,688,009 | | | $ | 803,027 | | | $ | (257,532) | | | $ | 2,233,504 | | Balance, June 30, 2022 | | 109,467 | | | 1,688,009 | | | 803,027 | | | (257,532) | | | 2,233,504 | |
| | Net income for common stock | | Net income for common stock | | — | | | — | | | 62,082 | | | — | | | 62,082 | |
| Other comprehensive loss, net of tax benefits | | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (96,012) | | | (96,012) | |
| Share-based expenses and other, net | | Share-based expenses and other, net | | 3 | | | 1,663 | | | — | | | — | | | 1,663 | |
| Common stock dividends (35¢ per share) | | Common stock dividends (35¢ per share) | | — | | | — | | | (38,315) | | | — | | | (38,315) | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | 109,470 | | | $ | 1,689,672 | | | $ | 826,794 | | | $ | (353,544) | | | $ | 2,162,922 | |
| Balance, December 31, 2020 | Balance, December 31, 2020 | | 109,181 | | | $ | 1,678,368 | | | $ | 660,398 | | | $ | (1,264) | | | $ | 2,337,502 | | Balance, December 31, 2020 | | 109,181 | | | $ | 1,678,368 | | | $ | 660,398 | | | $ | (1,264) | | | $ | 2,337,502 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | 64,358 | | | — | | | 64,358 | | Net income for common stock | | — | | | — | | | 64,358 | | | — | | | 64,358 | |
| Other comprehensive loss, net of tax benefits | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (44,016) | | | (44,016) | | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (44,016) | | | (44,016) | |
| Share-based expenses and other, net | Share-based expenses and other, net | | 100 | | | 605 | | | — | | | — | | | 605 | | Share-based expenses and other, net | | 100 | | | 605 | | | — | | | — | | | 605 | |
| Common stock dividends (34¢ per share) | Common stock dividends (34¢ per share) | | — | | | — | | | (37,156) | | | — | | | (37,156) | | Common stock dividends (34¢ per share) | | — | | | — | | | (37,156) | | | — | | | (37,156) | |
| Balance, March 31, 2021 | Balance, March 31, 2021 | | 109,281 | | | 1,678,973 | | | 687,600 | | | (45,280) | | | 2,321,293 | | Balance, March 31, 2021 | | 109,281 | | | 1,678,973 | | | 687,600 | | | (45,280) | | | 2,321,293 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | 63,872 | | | — | | | 63,872 | | Net income for common stock | | — | | | — | | | 63,872 | | | — | | | 63,872 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | — | | | — | | | — | | | 16,472 | | | 16,472 | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | 16,472 | | | 16,472 | |
| Share-based expenses and other, net | Share-based expenses and other, net | | 30 | | | 2,847 | | | — | | | — | | | 2,847 | | Share-based expenses and other, net | | 30 | | | 2,847 | | | — | | | — | | | 2,847 | |
| Common stock dividends (34¢ per share) | Common stock dividends (34¢ per share) | | — | | | — | | | (37,155) | | | — | | | (37,155) | | Common stock dividends (34¢ per share) | | — | | | — | | | (37,155) | | | — | | | (37,155) | |
| Balance, June 30, 2021 | Balance, June 30, 2021 | | 109,311 | | | $ | 1,681,820 | | | $ | 714,317 | | | $ | (28,808) | | | $ | 2,367,329 | | Balance, June 30, 2021 | | 109,311 | | | 1,681,820 | | | 714,317 | | | (28,808) | | | 2,367,329 | |
| | Net income for common stock | | Net income for common stock | | — | | | — | | | 63,415 | | | — | | | 63,415 | |
| Other comprehensive loss, net of tax benefits | | Other comprehensive loss, net of tax benefits | | — | | | — | | | — | | | (11,305) | | | (11,305) | |
| Share-based expenses and other, net | | Share-based expenses and other, net | | — | | | 1,270 | | | — | | | — | | | 1,270 | |
| Common stock dividends (34¢ per share) | | Common stock dividends (34¢ per share) | | — | | | — | | | (37,166) | | | — | | | (37,166) | |
| Balance, September 30, 2021 | | Balance, September 30, 2021 | | 109,311 | | | $ | 1,683,090 | | | $ | 740,566 | | | $ | (40,113) | | | $ | 2,383,543 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited) | | | Six months ended June 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 |
| Cash flows from operating activities | Cash flows from operating activities | | | | | Cash flows from operating activities | | | | |
| Net income | Net income | | $ | 122,654 | | | $ | 129,176 | | Net income | | $ | 185,207 | | | $ | 193,062 | |
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | | |
| Depreciation of property, plant and equipment | Depreciation of property, plant and equipment | | 126,112 | | | 122,921 | | Depreciation of property, plant and equipment | | 190,075 | | | 184,389 | |
| Other amortization | Other amortization | | 19,134 | | | 17,896 | | Other amortization | | 28,916 | | | 24,511 | |
| Provision for credit losses | Provision for credit losses | | (506) | | | (20,642) | | Provision for credit losses | | (692) | | | (22,367) | |
| Loans originated, held for sale | Loans originated, held for sale | | (108,695) | | | (239,761) | | Loans originated, held for sale | | (120,195) | | | (281,744) | |
| Proceeds from sale of loans, held for sale | Proceeds from sale of loans, held for sale | | 114,299 | | | 266,497 | | Proceeds from sale of loans, held for sale | | 126,357 | | | 304,820 | |
| Gain on sales of investment securities, net and equity-method investment | Gain on sales of investment securities, net and equity-method investment | | (8,123) | | | (528) | | Gain on sales of investment securities, net and equity-method investment | | (8,123) | | | (528) | |
| Gain on sale of loans, net | Gain on sale of loans, net | | (1,449) | | | (6,225) | | Gain on sale of loans, net | | (1,630) | | | (7,497) | |
| Deferred income taxes | Deferred income taxes | | (14,683) | | | (7,355) | | Deferred income taxes | | (21,631) | | | (13,473) | |
| Share-based compensation expense | Share-based compensation expense | | 5,593 | | | 5,454 | | Share-based compensation expense | | 7,337 | | | 6,727 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | | (4,879) | | | (4,568) | | Allowance for equity funds used during construction | | (7,431) | | | (6,995) | |
| Other | Other | | (3,858) | | | (5,037) | | Other | | (5,392) | | | (7,046) | |
| Changes in assets and liabilities | Changes in assets and liabilities | | | | | Changes in assets and liabilities | | | | |
| Increase in accounts receivable and unbilled revenues, net | Increase in accounts receivable and unbilled revenues, net | | (101,641) | | | (41,884) | | Increase in accounts receivable and unbilled revenues, net | | (159,619) | | | (58,758) | |
| Increase in fuel oil stock | Increase in fuel oil stock | | (119,890) | | | (43,681) | | Increase in fuel oil stock | | (127,413) | | | (42,612) | |
| Decrease (increase) in regulatory assets | Decrease (increase) in regulatory assets | | 12,956 | | | (17,731) | | Decrease (increase) in regulatory assets | | 34,278 | | | (4,952) | |
| Increase in regulatory liabilities | Increase in regulatory liabilities | | 11,288 | | | 5,824 | | Increase in regulatory liabilities | | 29,294 | | | 8,806 | |
| Increase in accounts, interest and dividends payable | Increase in accounts, interest and dividends payable | | 62,115 | | | 2,683 | | Increase in accounts, interest and dividends payable | | 39,009 | | | 36,850 | |
| Change in prepaid and accrued income taxes, tax credits and utility revenue taxes | Change in prepaid and accrued income taxes, tax credits and utility revenue taxes | | 22,173 | | | (1,818) | | Change in prepaid and accrued income taxes, tax credits and utility revenue taxes | | 73,279 | | | 11,133 | |
| Decrease in defined benefit pension and other postretirement benefit plans liability | Decrease in defined benefit pension and other postretirement benefit plans liability | | (2,698) | | | (3,834) | | Decrease in defined benefit pension and other postretirement benefit plans liability | | (4,228) | | | (5,288) | |
| Change in other assets and liabilities | Change in other assets and liabilities | | (55,260) | | | (39,800) | | Change in other assets and liabilities | | (44,411) | | | (51,833) | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 74,642 | | | 117,587 | | Net cash provided by operating activities | | 212,987 | | | 267,205 | |
| Cash flows from investing activities | Cash flows from investing activities | | | | | Cash flows from investing activities | | | | |
| Available-for-sale investment securities purchased | Available-for-sale investment securities purchased | | (366,177) | | | (1,101,289) | | Available-for-sale investment securities purchased | | (366,177) | | | (1,318,520) | |
| Principal repayments on available-for-sale investment securities | Principal repayments on available-for-sale investment securities | | 209,094 | | | 320,597 | | Principal repayments on available-for-sale investment securities | | 285,519 | | | 449,459 | |
| Proceeds from sale of available-for-sale investment securities | Proceeds from sale of available-for-sale investment securities | | — | | | 197,354 | | Proceeds from sale of available-for-sale investment securities | | — | | | 197,354 | |
| Purchases of held-to-maturity investment securities | Purchases of held-to-maturity investment securities | | — | | | (187,172) | | Purchases of held-to-maturity investment securities | | — | | | (314,327) | |
| Proceeds from repayments or maturities of held-to-maturity investment securities | Proceeds from repayments or maturities of held-to-maturity investment securities | | 7,932 | | | 38,401 | | Proceeds from repayments or maturities of held-to-maturity investment securities | | 10,433 | | | 49,074 | |
| Purchase of stock from Federal Home Loan Bank | Purchase of stock from Federal Home Loan Bank | | (18,720) | | | (32,780) | | Purchase of stock from Federal Home Loan Bank | | (93,000) | | | (32,980) | |
| Redemption of stock from Federal Home Loan Bank | Redemption of stock from Federal Home Loan Bank | | 15,520 | | | 31,460 | | Redemption of stock from Federal Home Loan Bank | | 88,000 | | | 31,660 | |
| Net decrease (increase) in loans held for investment | Net decrease (increase) in loans held for investment | | (212,744) | | | 91,686 | | Net decrease (increase) in loans held for investment | | (395,185) | | | 157,619 | |
| Proceeds from sale of residential loans | Proceeds from sale of residential loans | | — | | | 17,398 | | Proceeds from sale of residential loans | | — | | | 17,398 | |
| | Purchase of loans held for investment | | Purchase of loans held for investment | | (77,274) | | | — | |
| Capital expenditures | Capital expenditures | | (147,749) | | | (148,414) | | Capital expenditures | | (236,278) | | | (219,252) | |
| | Contributions to low income housing investments | Contributions to low income housing investments | | — | | | (6,478) | | Contributions to low income housing investments | | (740) | | | (12,402) | |
| Acquisition of business | | Acquisition of business | | (25,706) | | | — | |
| Other | Other | | 15,813 | | | 7,805 | | Other | | 15,646 | | | 10,078 | |
| Net cash used in investing activities | Net cash used in investing activities | | (497,031) | | | (771,432) | | Net cash used in investing activities | | (794,762) | | | (984,839) | |
(continued)
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited) (continued)
| | | Six months ended June 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 |
| Cash flows from financing activities | Cash flows from financing activities | | | | | Cash flows from financing activities | | | | |
| Net increase in deposit liabilities | Net increase in deposit liabilities | | 81,324 | | | 486,473 | | Net increase in deposit liabilities | | 86,673 | | | 589,581 | |
| Net increase in short-term borrowings with original maturities of three months or less | Net increase in short-term borrowings with original maturities of three months or less | | 70,019 | | | 31,257 | | Net increase in short-term borrowings with original maturities of three months or less | | 117,127 | | | 27,755 | |
| Net increase in other bank borrowings with original maturities of three months or less | Net increase in other bank borrowings with original maturities of three months or less | | 153,305 | | | 39,995 | | Net increase in other bank borrowings with original maturities of three months or less | | 320,735 | | | 39,635 | |
| | Repayment of short-term debt | Repayment of short-term debt | | — | | | (65,000) | | Repayment of short-term debt | | — | | | (65,000) | |
| | Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | | 67,312 | | | 191,487 | | Proceeds from issuance of long-term debt | | 67,312 | | | 206,988 | |
| Repayment of long-term debt | Repayment of long-term debt | | (15,030) | | | (51,989) | | Repayment of long-term debt | | (16,752) | | | (80,607) | |
| Withheld shares for employee taxes on vested share-based compensation | Withheld shares for employee taxes on vested share-based compensation | | (3,079) | | | (2,002) | | Withheld shares for employee taxes on vested share-based compensation | | (3,158) | | | (2,006) | |
| Common stock dividends | Common stock dividends | | (76,602) | | | (74,311) | | Common stock dividends | | (114,917) | | | (111,477) | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | (946) | | | (946) | | Preferred stock dividends of subsidiaries | | (1,417) | | | (1,417) | |
| Other | Other | | (318) | | | (2,037) | | Other | | (6,112) | | | (7,462) | |
| Net cash provided by financing activities | Net cash provided by financing activities | | 275,985 | | | 552,927 | | Net cash provided by financing activities | | 449,491 | | | 595,990 | |
| Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | | (146,404) | | | (100,918) | | Net decrease in cash, cash equivalents and restricted cash | | (132,284) | | | (121,644) | |
| Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | | 311,462 | | | 358,979 | | Cash, cash equivalents and restricted cash, beginning of period | | 311,462 | | | 358,979 | |
| Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | | 165,058 | | | 258,061 | | Cash, cash equivalents and restricted cash, end of period | | 179,178 | | | 237,335 | |
| Less: Restricted cash | Less: Restricted cash | | (5,386) | | | (10,618) | | Less: Restricted cash | | (3,898) | | | (9,412) | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 159,672 | | | $ | 247,443 | | Cash and cash equivalents, end of period | | $ | 175,280 | | | $ | 227,923 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited) | | | Three months ended June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Revenues | Revenues | | $ | 818,873 | | | $ | 601,879 | | | $ | 1,527,665 | | | $ | 1,166,743 | | Revenues | | $ | 955,971 | | | $ | 679,499 | | | $ | 2,483,636 | | | $ | 1,846,242 | |
| Expenses | Expenses | | | | | | | | | Expenses | | | | | | | | |
| Fuel oil | Fuel oil | | 269,655 | | | 139,136 | | | 490,941 | | | 266,563 | | Fuel oil | | 383,602 | | | 180,682 | | | 874,543 | | | 447,245 | |
| Purchased power | Purchased power | | 218,085 | | | 162,465 | | | 381,618 | | | 304,761 | | Purchased power | | 225,209 | | | 185,759 | | | 606,827 | | | 490,520 | |
| Other operation and maintenance | Other operation and maintenance | | 124,892 | | | 118,142 | | | 250,149 | | | 232,712 | | Other operation and maintenance | | 121,110 | | | 116,468 | | | 371,259 | | | 349,180 | |
| Depreciation | Depreciation | | 58,739 | | | 57,381 | | | 117,210 | | | 114,736 | | Depreciation | | 58,711 | | | 57,386 | | | 175,921 | | | 172,122 | |
| Taxes, other than income taxes | Taxes, other than income taxes | | 76,348 | | | 57,071 | | | 142,998 | | | 111,173 | | Taxes, other than income taxes | | 88,290 | | | 64,012 | | | 231,288 | | | 175,185 | |
| Total expenses | Total expenses | | 747,719 | | | 534,195 | | | 1,382,916 | | | 1,029,945 | | Total expenses | | 876,922 | | | 604,307 | | | 2,259,838 | | | 1,634,252 | |
| Operating income | Operating income | | 71,154 | | | 67,684 | | | 144,749 | | | 136,798 | | Operating income | | 79,049 | | | 75,192 | | | 223,798 | | | 211,990 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | | 2,470 | | | 2,377 | | | 4,879 | | | 4,568 | | Allowance for equity funds used during construction | | 2,552 | | | 2,427 | | | 7,431 | | | 6,995 | |
| Retirement defined benefits credit —other than service costs | Retirement defined benefits credit —other than service costs | | 991 | | | 1,020 | | | 1,981 | | | 2,041 | | Retirement defined benefits credit —other than service costs | | 895 | | | 877 | | | 2,876 | | | 2,918 | |
| Interest expense and other charges, net | Interest expense and other charges, net | | (18,800) | | | (17,995) | | | (37,126) | | | (35,978) | | Interest expense and other charges, net | | (19,609) | | | (18,148) | | | (56,735) | | | (54,126) | |
| Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | | 798 | | | 812 | | | 1,576 | | | 1,559 | | Allowance for borrowed funds used during construction | | 825 | | | 827 | | | 2,401 | | | 2,386 | |
| Income before income taxes | Income before income taxes | | 56,613 | | | 53,898 | | | 116,059 | | | 108,988 | | Income before income taxes | | 63,712 | | | 61,175 | | | 179,771 | | | 170,163 | |
| Income taxes | Income taxes | | 11,979 | | | 11,498 | | | 24,517 | | | 22,731 | | Income taxes | | 13,450 | | | 10,335 | | | 37,967 | | | 33,066 | |
| Net income | Net income | | 44,634 | | | 42,400 | | | 91,542 | | | 86,257 | | Net income | | 50,262 | | | 50,840 | | | 141,804 | | | 137,097 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | 229 | | | 229 | | | 458 | | | 458 | | Preferred stock dividends of subsidiaries | | 228 | | | 228 | | | 686 | | | 686 | |
| Net income attributable to Hawaiian Electric | Net income attributable to Hawaiian Electric | | 44,405 | | | 42,171 | | | 91,084 | | | 85,799 | | Net income attributable to Hawaiian Electric | | 50,034 | | | 50,612 | | | 141,118 | | | 136,411 | |
| Preferred stock dividends of Hawaiian Electric | Preferred stock dividends of Hawaiian Electric | | 270 | | | 270 | | | 540 | | | 540 | | Preferred stock dividends of Hawaiian Electric | | 270 | | | 270 | | | 810 | | | 810 | |
| Net income for common stock | Net income for common stock | | $ | 44,135 | | | $ | 41,901 | | | $ | 90,544 | | | $ | 85,259 | | Net income for common stock | | $ | 49,764 | | | $ | 50,342 | | | $ | 140,308 | | | $ | 135,601 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 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 June 30 | | Six months ended June 30 | | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Net income for common stock | Net income for common stock | | $ | 44,135 | | | $ | 41,901 | | | $ | 90,544 | | | $ | 85,259 | | Net income for common stock | | $ | 49,764 | | | $ | 50,342 | | | $ | 140,308 | | | $ | 135,601 | |
| Other comprehensive income, net of taxes: | Other comprehensive income, net of taxes: | | | | | | | | | Other comprehensive income, net of taxes: | | | | | | | | |
| | Retirement benefit plans: | Retirement benefit plans: | | | | | | | | | 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 $(2), $2,028, $1,516 and $4,055, respectively | | (5) | | | 5,846 | | | 4,371 | | | 11,691 | | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $19, $(2,016), $(1,481) and $(4,031), respectively | | 56 | | | (5,811) | | | (4,269) | | | (11,622) | | |
| Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,877, $1,007, $3,393 and $5,062, respectively | | Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,877, $1,007, $3,393 and $5,062, respectively | | 5,411 | | | 2,905 | | | 9,782 | | | 14,596 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,839), $(971), $(3,320) and $(5,002), respectively | | Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,839), $(971), $(3,320) and $(5,002), respectively | | (5,303) | | | (2,799) | | | (9,572) | | | (14,421) | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | 51 | | | 35 | | | 102 | | | 69 | | Other comprehensive income, net of taxes | | 108 | | | 106 | | | 210 | | | 175 | |
| Comprehensive income attributable to Hawaiian Electric Company, Inc. | Comprehensive income attributable to Hawaiian Electric Company, Inc. | | $ | 44,186 | | | $ | 41,936 | | | $ | 90,646 | | | $ | 85,328 | | Comprehensive income attributable to Hawaiian Electric Company, Inc. | | $ | 49,872 | | | $ | 50,448 | | | $ | 140,518 | | | $ | 135,776 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) | | (dollars in thousands, except par value) | (dollars in thousands, except par value) | | June 30, 2022 | | December 31, 2021 | (dollars in thousands, except par value) | | September 30, 2022 | | December 31, 2021 |
| Assets | Assets | | | | | Assets | | | | |
| Property, plant and equipment | Property, plant and equipment | | Property, plant and equipment | |
| Utility property, plant and equipment | Utility property, plant and equipment | | | | | Utility property, plant and equipment | | | | |
| Land | Land | | $ | 52,060 | | | $ | 51,937 | | Land | | $ | 52,060 | | | $ | 51,937 | |
| Plant and equipment | Plant and equipment | | 7,840,615 | | | 7,735,983 | | Plant and equipment | | 7,890,926 | | | 7,735,983 | |
| Right-of-use assets - finance lease | | Right-of-use assets - finance lease | | 48,371 | | | — | |
| Less accumulated depreciation | Less accumulated depreciation | | (3,026,295) | | | (2,940,517) | | Less accumulated depreciation | | (3,067,642) | | | (2,940,517) | |
| Construction in progress | Construction in progress | | 226,679 | | | 204,569 | | Construction in progress | | 257,582 | | | 204,569 | |
| Utility property, plant and equipment, net | Utility property, plant and equipment, net | | 5,093,059 | | | 5,051,972 | | Utility property, plant and equipment, net | | 5,181,297 | | | 5,051,972 | |
| Nonutility property, plant and equipment, less accumulated depreciation of $61 and $59 as of June 30, 2022 and December 31, 2021, respectively | | 6,947 | | | 6,949 | | |
| Nonutility property, plant and equipment, less accumulated depreciation of $62 and $59 as of September 30, 2022 and December 31, 2021, respectively | | Nonutility property, plant and equipment, less accumulated depreciation of $62 and $59 as of September 30, 2022 and December 31, 2021, respectively | | 6,946 | | | 6,949 | |
| Total property, plant and equipment, net | Total property, plant and equipment, net | | 5,100,006 | | | 5,058,921 | | Total property, plant and equipment, net | | 5,188,243 | | | 5,058,921 | |
| Current assets | Current assets | | | | | Current assets | | | | |
| Cash and cash equivalents | Cash and cash equivalents | | 15,503 | | | 52,169 | | Cash and cash equivalents | | 21,304 | | | 52,169 | |
| Restricted cash | Restricted cash | | 1,129 | | | 3,089 | | Restricted cash | | — | | | 3,089 | |
| Customer accounts receivable, net | Customer accounts receivable, net | | 247,270 | | | 186,859 | | Customer accounts receivable, net | | 258,972 | | | 186,859 | |
| Accrued unbilled revenues, net | Accrued unbilled revenues, net | | 178,876 | | | 129,155 | | Accrued unbilled revenues, net | | 220,420 | | | 129,155 | |
| Other accounts receivable, net | Other accounts receivable, net | | 10,388 | | | 7,267 | | Other accounts receivable, net | | 15,492 | | | 7,267 | |
| Fuel oil stock, at average cost | Fuel oil stock, at average cost | | 223,787 | | | 104,078 | | Fuel oil stock, at average cost | | 229,725 | | | 104,078 | |
| Materials and supplies, at average cost | Materials and supplies, at average cost | | 74,581 | | | 71,877 | | Materials and supplies, at average cost | | 77,579 | | | 71,877 | |
| Prepayments and other | Prepayments and other | | 36,540 | | | 46,031 | | Prepayments and other | | 45,798 | | | 46,031 | |
| Regulatory assets | Regulatory assets | | 73,578 | | | 66,664 | | Regulatory assets | | 55,906 | | | 66,664 | |
| Total current assets | Total current assets | | 861,652 | | | 667,189 | | Total current assets | | 925,196 | | | 667,189 | |
| Other long-term assets | Other long-term assets | | | | | Other long-term assets | | | | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | | 99,690 | | | 101,470 | | Operating lease right-of-use assets | | 93,709 | | | 101,470 | |
| Regulatory assets | Regulatory assets | | 457,322 | | | 498,879 | | Regulatory assets | | 441,282 | | | 498,879 | |
| Other | Other | | 168,326 | | | 165,166 | | Other | | 158,116 | | | 165,166 | |
| Total other long-term assets | Total other long-term assets | | 725,338 | | | 765,515 | | Total other long-term assets | | 693,107 | | | 765,515 | |
| Total assets | Total assets | | $ | 6,686,996 | | | $ | 6,491,625 | | Total assets | | $ | 6,806,546 | | | $ | 6,491,625 | |
| Capitalization and liabilities | | | | | |
| Capitalization | | | | | |
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,753,533 shares at June 30, 2022 and December 31, 2021) | | $ | 118,376 | | | $ | 118,376 | | |
| Premium on capital stock | | 798,526 | | | 798,526 | | |
| Retained earnings | | 1,375,871 | | | 1,348,277 | | |
| Accumulated other comprehensive loss, net of tax benefits-retirement benefit plans | | (3,178) | | | (3,280) | | |
| Common stock equity | | 2,289,595 | | | 2,261,899 | | |
| Cumulative preferred stock — not subject to mandatory redemption | | 34,293 | | | 34,293 | | |
| Long-term debt, net | | 1,684,520 | | | 1,624,427 | | |
| Total capitalization | | 4,008,408 | | | 3,920,619 | | |
| Commitments and contingencies (Note 3) | | 0 | | 0 | |
| Current liabilities | | | | | |
| Current portion of operating lease liabilities | | 27,976 | | | 49,368 | | |
| Current portion of long-term debt, net | | 51,988 | | | 51,975 | | |
| Short-term borrowings from non-affiliates | | 54,987 | | | — | | |
| | Accounts payable | | 199,156 | | | 160,007 | | |
| Interest and preferred dividends payable | | 17,796 | | | 17,325 | | |
| Taxes accrued, including revenue taxes | | 211,999 | | | 208,280 | | |
| Regulatory liabilities | | 22,633 | | | 29,760 | | |
| Other | | 80,624 | | | 71,569 | | |
| Total current liabilities | | 667,159 | | | 588,284 | | |
| Deferred credits and other liabilities | | | | | |
| Operating lease liabilities | | 86,111 | | | 65,780 | | |
| Deferred income taxes | | 400,110 | | | 408,634 | | |
| Regulatory liabilities | | 985,442 | | | 967,008 | | |
| Unamortized tax credits | | 100,112 | | | 103,945 | | |
| Defined benefit pension and other postretirement benefit plans liability | | 315,475 | | | 321,780 | | |
| Other | | 124,179 | | | 115,575 | | |
| Total deferred credits and other liabilities | | 2,011,429 | | | 1,982,722 | | |
| Total capitalization and liabilities | | $ | 6,686,996 | | | $ | 6,491,625 | | |
|
(continued)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) (continued)
| | | | | | | | | | | | | | |
| (dollars in thousands, except par value) | | September 30, 2022 | | December 31, 2021 |
| Capitalization and liabilities | | | | |
| Capitalization | | | | |
| Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,753,533 shares at September 30, 2022 and December 31, 2021) | | $ | 118,376 | | | $ | 118,376 | |
| Premium on capital stock | | 798,526 | | | 798,526 | |
| Retained earnings | | 1,394,160 | | | 1,348,277 | |
| Accumulated other comprehensive loss, net of tax benefits-retirement benefit plans | | (3,070) | | | (3,280) | |
| Common stock equity | | 2,307,992 | | | 2,261,899 | |
| Cumulative preferred stock — not subject to mandatory redemption | | 34,293 | | | 34,293 | |
| Long-term debt, net | | 1,684,699 | | | 1,624,427 | |
| Total capitalization | | 4,026,984 | | | 3,920,619 | |
| Commitments and contingencies (Note 3) | | | | |
| Current liabilities | | | | |
| Current portion of operating lease liabilities | | 18,572 | | | 49,368 | |
| Current portion of long-term debt, net | | 51,995 | | | 51,975 | |
| Short-term borrowings from non-affiliates | | 97,450 | | | — | |
| | | | |
| Accounts payable | | 165,461 | | | 160,007 | |
| Interest and preferred dividends payable | | 29,164 | | | 17,325 | |
| Taxes accrued, including revenue taxes | | 256,343 | | | 208,280 | |
| Regulatory liabilities | | 29,318 | | | 29,760 | |
| Other | | 79,788 | | | 71,569 | |
| Total current liabilities | | 728,091 | | | 588,284 | |
| Deferred credits and other liabilities | | | | |
| Operating lease liabilities | | 83,311 | | | 65,780 | |
| Finance lease liabilities | | 46,468 | | | — | |
| Deferred income taxes | | 392,176 | | | 408,634 | |
| Regulatory liabilities | | 1,001,058 | | | 967,008 | |
| Unamortized tax credits | | 98,001 | | | 103,945 | |
| Defined benefit pension and other postretirement benefit plans liability | | 308,133 | | | 321,780 | |
| Other | | 122,324 | | | 115,575 | |
| Total deferred credits and other liabilities | | 2,051,471 | | | 1,982,722 | |
| Total capitalization and liabilities | | $ | 6,806,546 | | | $ | 6,491,625 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 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 | | | | | Common stock | | Premium
on
capital | | Retained | | Accumulated
other
comprehensive | | |
| (in thousands) | (in thousands) | | Shares | | Amount | | stock | | earnings | | income (loss) | | Total | (in thousands) | | Shares | | Amount | | stock | | earnings | | income (loss) | | Total |
| Balance, December 31, 2021 | Balance, December 31, 2021 | | 17,753 | | | $ | 118,376 | | | $ | 798,526 | | | $ | 1,348,277 | | | $ | (3,280) | | | $ | 2,261,899 | | Balance, December 31, 2021 | | 17,753 | | | $ | 118,376 | | | $ | 798,526 | | | $ | 1,348,277 | | | $ | (3,280) | | | $ | 2,261,899 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | — | | | 46,409 | | | — | | | 46,409 | | Net income for common stock | | — | | | — | | | — | | | 46,409 | | | — | | | 46,409 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 51 | | | 51 | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 51 | | | 51 | |
| Common stock dividends | Common stock dividends | | — | | | — | | | — | | | (31,475) | | | — | | | (31,475) | | Common stock dividends | | — | | | — | | | — | | | (31,475) | | | — | | | (31,475) | |
| | Balance, March 31, 2022 | Balance, March 31, 2022 | | 17,753 | | | 118,376 | | | 798,526 | | | 1,363,211 | | | (3,229) | | | 2,276,884 | | Balance, March 31, 2022 | | 17,753 | | | 118,376 | | | 798,526 | | | 1,363,211 | | | (3,229) | | | 2,276,884 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | — | | | 44,135 | | | — | | | 44,135 | | Net income for common stock | | — | | | — | | | — | | | 44,135 | | | — | | | 44,135 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 51 | | | 51 | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 51 | | | 51 | |
| Common stock dividends | Common stock dividends | | — | | | — | | | — | | | (31,475) | | | — | | | (31,475) | | Common stock dividends | | — | | | — | | | — | | | (31,475) | | | — | | | (31,475) | |
| Balance, June 30, 2022 | Balance, June 30, 2022 | | 17,753 | | | $ | 118,376 | | | $ | 798,526 | | | $ | 1,375,871 | | | $ | (3,178) | | | $ | 2,289,595 | | Balance, June 30, 2022 | | 17,753 | | | 118,376 | | | 798,526 | | | 1,375,871 | | | (3,178) | | | 2,289,595 | |
| | Net income for common stock | | Net income for common stock | | — | | | — | | | — | | | 49,764 | | | — | | | 49,764 | |
| Other comprehensive income, net of taxes | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 108 | | | 108 | |
| Common stock dividends | | Common stock dividends | | — | | | — | | | — | | | (31,475) | | | — | | | (31,475) | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | 17,753 | | | $ | 118,376 | | | $ | 798,526 | | | $ | 1,394,160 | | | $ | (3,070) | | | $ | 2,307,992 | |
| Balance, December 31, 2020 | Balance, December 31, 2020 | | 17,324 | | | $ | 115,515 | | | $ | 746,987 | | | $ | 1,282,335 | | | $ | (2,919) | | | $ | 2,141,918 | | Balance, December 31, 2020 | | 17,324 | | | $ | 115,515 | | | $ | 746,987 | | | $ | 1,282,335 | | | $ | (2,919) | | | $ | 2,141,918 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | — | | | 43,358 | | | — | | | 43,358 | | Net income for common stock | | — | | | — | | | — | | | 43,358 | | | — | | | 43,358 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 34 | | | 34 | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 34 | | | 34 | |
| Common stock dividends | Common stock dividends | | — | | | — | | | — | | | (27,925) | | | — | | | (27,925) | | Common stock dividends | | — | | | — | | | — | | | (27,925) | | | — | | | (27,925) | |
| | Balance, March 31, 2021 | Balance, March 31, 2021 | | 17,324 | | | 115,515 | | | 746,987 | | | 1,297,768 | | | (2,885) | | | 2,157,385 | | Balance, March 31, 2021 | | 17,324 | | | 115,515 | | | 746,987 | | | 1,297,768 | | | (2,885) | | | 2,157,385 | |
| Net income for common stock | Net income for common stock | | — | | | — | | | — | | | 41,901 | | | — | | | 41,901 | | Net income for common stock | | — | | | — | | | — | | | 41,901 | | | — | | | 41,901 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 35 | | | 35 | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 35 | | | 35 | |
| Common stock dividends | Common stock dividends | | — | | | — | | | — | | | (27,925) | | | — | | | (27,925) | | Common stock dividends | | — | | | — | | | — | | | (27,925) | | | — | | | (27,925) | |
| | Balance, June 30, 2021 | Balance, June 30, 2021 | | 17,324 | | | $ | 115,515 | | | $ | 746,987 | | | $ | 1,311,744 | | | $ | (2,850) | | | $ | 2,171,396 | | Balance, June 30, 2021 | | 17,324 | | | 115,515 | | | 746,987 | | | 1,311,744 | | | (2,850) | | | 2,171,396 | |
| | Net income for common stock | | Net income for common stock | | — | | | — | | | — | | | 50,342 | | | — | | | 50,342 | |
| Other comprehensive income, net of taxes | | Other comprehensive income, net of taxes | | — | | | — | | | — | | | — | | | 106 | | | 106 | |
| Common stock dividends | | Common stock dividends | | — | | | — | | | — | | | (27,925) | | | — | | | (27,925) | |
| Balance, September 30, 2021 | | Balance, September 30, 2021 | | 17,324 | | | $ | 115,515 | | | $ | 746,987 | | | $ | 1,334,161 | | | $ | (2,744) | | | $ | 2,193,919 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited) | | | Six months ended June 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 |
| Cash flows from operating activities | Cash flows from operating activities | | | | | Cash flows from operating activities | | | | |
| Net income | Net income | | $ | 91,542 | | | $ | 86,257 | | Net income | | $ | 141,804 | | | $ | 137,097 | |
| Adjustments to reconcile net income to net cash provided by operating activities | Adjustments to reconcile net income to net cash provided by operating activities | | | | | Adjustments to reconcile net income to net cash provided by operating activities | | | | |
| Depreciation of property, plant and equipment | Depreciation of property, plant and equipment | | 117,210 | | | 114,736 | | Depreciation of property, plant and equipment | | 175,921 | | | 172,122 | |
| Other amortization | Other amortization | | 12,703 | | | 12,245 | | Other amortization | | 19,044 | | | 17,058 | |
| Deferred income taxes | Deferred income taxes | | (15,964) | | | (11,871) | | Deferred income taxes | | (27,671) | | | (12,333) | |
| | State refundable credit | State refundable credit | | (5,517) | | | (5,309) | | State refundable credit | | (8,275) | | | (7,955) | |
| Bad debt expense | Bad debt expense | | 3,128 | | | 810 | | Bad debt expense | | 4,406 | | | 1,303 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | | (4,879) | | | (4,568) | | Allowance for equity funds used during construction | | (7,431) | | | (6,995) | |
| | Other | Other | | (4) | | | 810 | | Other | | 94 | | | 991 | |
| Changes in assets and liabilities | Changes in assets and liabilities | | | | | Changes in assets and liabilities | | | | |
| Increase in accounts receivable | Increase in accounts receivable | | (51,927) | | | (12,972) | | Increase in accounts receivable | | (64,404) | | | (33,621) | |
| Increase in accrued unbilled revenues | Increase in accrued unbilled revenues | | (49,711) | | | (31,398) | | Increase in accrued unbilled revenues | | (91,256) | | | (27,491) | |
| Increase in fuel oil stock | Increase in fuel oil stock | | (119,709) | | | (43,828) | | Increase in fuel oil stock | | (125,647) | | | (42,563) | |
| Increase in materials and supplies | Increase in materials and supplies | | (2,704) | | | (5,615) | | Increase in materials and supplies | | (5,702) | | | (5,653) | |
| Decrease (increase) in regulatory assets | Decrease (increase) in regulatory assets | | 12,956 | | | (17,731) | | Decrease (increase) in regulatory assets | | 34,278 | | | (4,952) | |
| Increase in regulatory liabilities | Increase in regulatory liabilities | | 11,288 | | | 5,824 | | Increase in regulatory liabilities | | 29,294 | | | 8,806 | |
| Increase in accounts payable | Increase in accounts payable | | 59,850 | | | 12,297 | | Increase in accounts payable | | 18,108 | | | 27,210 | |
| Change in prepaid and accrued income taxes, tax credits and revenue taxes | Change in prepaid and accrued income taxes, tax credits and revenue taxes | | 10,016 | | | (9,051) | | Change in prepaid and accrued income taxes, tax credits and revenue taxes | | 57,681 | | | 2,934 | |
| Decrease in defined benefit pension and other postretirement benefit plans liability | Decrease in defined benefit pension and other postretirement benefit plans liability | | (2,515) | | | (2,549) | | Decrease in defined benefit pension and other postretirement benefit plans liability | | (3,647) | | | (3,902) | |
| Change in other assets and liabilities | Change in other assets and liabilities | | (21,613) | | | (30,634) | | Change in other assets and liabilities | | (22,430) | | | (23,800) | |
| Net cash provided by operating activities | Net cash provided by operating activities | | 44,150 | | | 57,453 | | Net cash provided by operating activities | | 124,167 | | | 198,256 | |
| Cash flows from investing activities | Cash flows from investing activities | | | | | Cash flows from investing activities | | | | |
| Capital expenditures | Capital expenditures | | (140,245) | | | (138,025) | | Capital expenditures | | (225,876) | | | (203,746) | |
| Other | Other | | 6,685 | | | 4,670 | | Other | | 6,750 | | | 6,157 | |
| Net cash used in investing activities | Net cash used in investing activities | | (133,560) | | | (133,355) | | Net cash used in investing activities | | (219,126) | | | (197,589) | |
| Cash flows from financing activities | Cash flows from financing activities | | | | | Cash flows from financing activities | | | | |
| Common stock dividends | Common stock dividends | | (62,950) | | | (55,850) | | Common stock dividends | | (94,425) | | | (83,775) | |
| Preferred stock dividends of Hawaiian Electric and subsidiaries | Preferred stock dividends of Hawaiian Electric and subsidiaries | | (998) | | | (998) | | Preferred stock dividends of Hawaiian Electric and subsidiaries | | (1,496) | | | (1,496) | |
| | Repayment of short-term debt | Repayment of short-term debt | | — | | | (50,000) | | Repayment of short-term debt | | — | | | (50,000) | |
| Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | | 60,000 | | | 115,000 | | Proceeds from issuance of long-term debt | | 60,000 | | | 115,000 | |
| | Net increase in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less | Net increase in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less | | 54,987 | | | 37,999 | | Net increase in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less | | 97,450 | | | — | |
| Payments of obligations under finance leases | | Payments of obligations under finance leases | | (266) | | | — | |
| Other | Other | | (255) | | | (941) | | Other | | (258) | | | (942) | |
| Net cash provided by financing activities | Net cash provided by financing activities | | 50,784 | | | 45,210 | | Net cash provided by financing activities | | 61,005 | | | (21,213) | |
| Net decrease in cash, cash equivalents and restricted cash | Net decrease in cash, cash equivalents and restricted cash | | (38,626) | | | (30,692) | | Net decrease in cash, cash equivalents and restricted cash | | (33,954) | | | (20,546) | |
| Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | | 55,258 | | | 63,326 | | Cash, cash equivalents and restricted cash, beginning of period | | 55,258 | | | 63,326 | |
| Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | | 16,632 | | | 32,634 | | Cash, cash equivalents and restricted cash, end of period | | 21,304 | | | 42,780 | |
| Less: Restricted cash | Less: Restricted cash | | (1,129) | | | (8,968) | | Less: Restricted cash | | — | | | (6,313) | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 15,503 | | | $ | 23,666 | | Cash and cash equivalents, end of period | | $ | 21,304 | | | $ | 36,467 | |
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 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, 2021.
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 JuneSeptember 30, 2022 and December 31, 2021 and the results of their operations for the three and sixnine months ended JuneSeptember 30, 2022 and 2021 and cash flows for the sixnine months ended JuneSeptember 30, 2022 and 2021. 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.
Credit Losses. In March 2022, Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the accounting guidance for Troubled Debt Restructurings (TDRs) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments in this update also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost.” Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 325-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASB is assessing the requirements of the ASU.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Note 2 · Segment financial information | | (in thousands) | (in thousands) | | Electric utility | | Bank | | Other | | Total | (in thousands) | | Electric utility | | Bank | | Other | | Total |
| Three months ended June 30, 2022 | | | | | | | | | |
| Three months ended September 30, 2022 | | Three months ended September 30, 2022 | | | | | | | | |
| Revenues from external customers | Revenues from external customers | | $ | 818,873 | | | $ | 75,324 | | | $ | 1,410 | | | $ | 895,607 | | Revenues from external customers | | $ | 955,971 | | | $ | 81,411 | | | $ | 4,815 | | | $ | 1,042,197 | |
| Intersegment revenues (eliminations) | Intersegment revenues (eliminations) | | — | | | — | | | — | | | — | | Intersegment revenues (eliminations) | | — | | | — | | | — | | | — | |
| Revenues | Revenues | | $ | 818,873 | | | $ | 75,324 | | | $ | 1,410 | | | $ | 895,607 | | Revenues | | $ | 955,971 | | | $ | 81,411 | | | $ | 4,815 | | | $ | 1,042,197 | |
| Income (loss) before income taxes | Income (loss) before income taxes | | $ | 56,613 | | | $ | 22,109 | | | $ | (12,505) | | | $ | 66,217 | | Income (loss) before income taxes | | $ | 63,712 | | | $ | 27,281 | | | $ | (11,088) | | | $ | 79,905 | |
| Income taxes (benefit) | Income taxes (benefit) | | 11,979 | | | 4,643 | | | (3,419) | | | 13,203 | | Income taxes (benefit) | | 13,450 | | | 6,525 | | | (2,623) | | | 17,352 | |
| Net income (loss) | Net income (loss) | | 44,634 | | | 17,466 | | | (9,086) | | | 53,014 | | Net income (loss) | | 50,262 | | | 20,756 | | | (8,465) | | | 62,553 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | 499 | | | — | | | (26) | | | 473 | | Preferred stock dividends of subsidiaries | | 498 | | | — | | | (27) | | | 471 | |
| Net income (loss) for common stock | Net income (loss) for common stock | | $ | 44,135 | | | $ | 17,466 | | | $ | (9,060) | | | $ | 52,541 | | Net income (loss) for common stock | | $ | 49,764 | | | $ | 20,756 | | | $ | (8,438) | | | $ | 62,082 | |
| Six months ended June 30, 2022 | | | | | | | | | |
| Nine months ended September 30, 2022 | | Nine months ended September 30, 2022 | | | | | | | | |
| Revenues from external customers | Revenues from external customers | | $ | 1,527,661 | | | $ | 150,439 | | | $ | 2,575 | | | $ | 1,680,675 | | Revenues from external customers | | $ | 2,483,632 | | | $ | 231,850 | | | $ | 7,390 | | | $ | 2,722,872 | |
| Intersegment revenues (eliminations) | Intersegment revenues (eliminations) | | 4 | | | — | | | (4) | | | — | | Intersegment revenues (eliminations) | | 4 | | | — | | | (4) | | | — | |
| Revenues | Revenues | | $ | 1,527,665 | | | $ | 150,439 | | | $ | 2,571 | | | $ | 1,680,675 | | Revenues | | $ | 2,483,636 | | | $ | 231,850 | | | $ | 7,386 | | | $ | 2,722,872 | |
| Income (loss) before income taxes | Income (loss) before income taxes | | $ | 116,059 | | | $ | 52,324 | | | $ | (14,686) | | | $ | 153,697 | | Income (loss) before income taxes | | $ | 179,771 | | | $ | 79,605 | | | $ | (25,774) | | | $ | 233,602 | |
| Income taxes (benefit) | Income taxes (benefit) | | 24,517 | | | 10,988 | | | (4,462) | | | 31,043 | | Income taxes (benefit) | | 37,967 | | | 17,513 | | | (7,085) | | | 48,395 | |
| Net income (loss) | Net income (loss) | | 91,542 | | | 41,336 | | | (10,224) | | | 122,654 | | Net income (loss) | | 141,804 | | | 62,092 | | | (18,689) | | | 185,207 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | 998 | | | — | | | (52) | | | 946 | | Preferred stock dividends of subsidiaries | | 1,496 | | | — | | | (79) | | | 1,417 | |
| Net income (loss) for common stock | Net income (loss) for common stock | | $ | 90,544 | | | $ | 41,336 | | | $ | (10,172) | | | $ | 121,708 | | Net income (loss) for common stock | | $ | 140,308 | | | $ | 62,092 | | | $ | (18,610) | | | $ | 183,790 | |
| Total assets (at June 30, 2022) | | $ | 6,686,996 | | | $ | 9,214,865 | | | $ | 99,882 | | | $ | 16,001,743 | | |
| Three months ended June 30, 2021 | | | | | | | | | |
| Total assets (at September 30, 2022) | | Total assets (at September 30, 2022) | | $ | 6,806,546 | | | $ | 9,315,611 | | | $ | 142,711 | | | $ | 16,264,868 | |
| Three months ended September 30, 2021 | | Three months ended September 30, 2021 | | | | | | | | |
| Revenues from external customers | Revenues from external customers | | $ | 601,869 | | | $ | 77,260 | | | $ | 1,128 | | | $ | 680,257 | | Revenues from external customers | | $ | 679,482 | | | $ | 76,208 | | | $ | 1,214 | | | $ | 756,904 | |
| Intersegment revenues (eliminations) | Intersegment revenues (eliminations) | | 10 | | | — | | | (10) | | | — | | Intersegment revenues (eliminations) | | 17 | | | — | | | (17) | | | — | |
| Revenues | Revenues | | $ | 601,879 | | | $ | 77,260 | | | $ | 1,118 | | | $ | 680,257 | | Revenues | | $ | 679,499 | | | $ | 76,208 | | | $ | 1,197 | | | $ | 756,904 | |
| Income (loss) before income taxes | Income (loss) before income taxes | | $ | 53,898 | | | $ | 39,992 | | | $ | (10,946) | | | $ | 82,944 | | Income (loss) before income taxes | | $ | 61,175 | | | $ | 25,241 | | | $ | (8,265) | | | $ | 78,151 | |
| Income taxes (benefit) | Income taxes (benefit) | | 11,498 | | | 9,708 | | | (2,607) | | | 18,599 | | Income taxes (benefit) | | 10,335 | | | 5,976 | | | (2,046) | | | 14,265 | |
| Net income (loss) | Net income (loss) | | 42,400 | | | 30,284 | | | (8,339) | | | 64,345 | | Net income (loss) | | 50,840 | | | 19,265 | | | (6,219) | | | 63,886 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | 499 | | | — | | | (26) | | | 473 | | Preferred stock dividends of subsidiaries | | 498 | | | — | | | (27) | | | 471 | |
| Net income (loss) for common stock | Net income (loss) for common stock | | $ | 41,901 | | | $ | 30,284 | | | $ | (8,313) | | | $ | 63,872 | | Net income (loss) for common stock | | $ | 50,342 | | | $ | 19,265 | | | $ | (6,192) | | | $ | 63,415 | |
| Six months ended June 30, 2021 | | | | | | | | | |
| Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | | | | | | | | |
| Revenues from external customers | Revenues from external customers | | $ | 1,166,724 | | | $ | 154,391 | | | $ | 2,088 | | | $ | 1,323,203 | | Revenues from external customers | | $ | 1,846,206 | | | $ | 230,599 | | | $ | 3,302 | | | $ | 2,080,107 | |
| Intersegment revenues (eliminations) | Intersegment revenues (eliminations) | | 19 | | | — | | | (19) | | | — | | Intersegment revenues (eliminations) | | 36 | | | — | | | (36) | | | — | |
| Revenues | Revenues | | $ | 1,166,743 | | | $ | 154,391 | | | $ | 2,069 | | | $ | 1,323,203 | | Revenues | | $ | 1,846,242 | | | $ | 230,599 | | | $ | 3,266 | | | $ | 2,080,107 | |
| Income (loss) before income taxes | Income (loss) before income taxes | | $ | 108,988 | | | $ | 77,094 | | | $ | (22,942) | | | $ | 163,140 | | Income (loss) before income taxes | | $ | 170,163 | | | $ | 102,335 | | | $ | (31,207) | | | $ | 241,291 | |
| Income taxes (benefit) | Income taxes (benefit) | | 22,731 | | | 17,254 | | | (6,021) | | | 33,964 | | Income taxes (benefit) | | 33,066 | | | 23,230 | | | (8,067) | | | 48,229 | |
| Net income (loss) | Net income (loss) | | 86,257 | | | 59,840 | | | (16,921) | | | 129,176 | | Net income (loss) | | 137,097 | | | 79,105 | | | (23,140) | | | 193,062 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | 998 | | | — | | | (52) | | | 946 | | Preferred stock dividends of subsidiaries | | 1,496 | | | — | | | (79) | | | 1,417 | |
| Net income (loss) for common stock | Net income (loss) for common stock | | $ | 85,259 | | | $ | 59,840 | | | $ | (16,869) | | | $ | 128,230 | | Net income (loss) for common stock | | $ | 135,601 | | | $ | 79,105 | | | $ | (23,061) | | | $ | 191,645 | |
| Total assets (at December 31, 2021) | Total assets (at December 31, 2021) | | $ | 6,491,625 | | | $ | 9,181,603 | | | $ | 149,409 | | | $ | 15,822,637 | | Total assets (at December 31, 2021) | | $ | 6,491,625 | | | $ | 9,181,603 | | | $ | 149,409 | | | $ | 15,822,637 | |
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 JuneSeptember 30, 2022, the Utilities had 5four PPAs for firm capacity (including the Puna Geothermal Venture PPA that went offline in May 2018 due to lava flow on Hawaii Island, but returned to service with firm capacity of 13.0 MW in the first quarter of 2021, ramped up to 23.9 MW in the second quarter of 2021, and further increased to 25.7 MW in June 2022) 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 3two 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 3two 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. However, 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 June 30 | | Six months ended June 30 | | | | Three months ended September 30 | | Nine months ended September 30 |
| (in millions) | (in millions) | | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | | 2022 | | 2021 | | 2022 | | 2021 |
| Kalaeloa | Kalaeloa | | | $ | 83 | | | $ | 49 | | | $ | 143 | | | $ | 86 | | Kalaeloa | | | $ | 101 | | | $ | 56 | | | $ | 244 | | | $ | 142 | |
| AES Hawaii | AES Hawaii | | | 34 | | | 36 | | | 61 | | | 66 | | AES Hawaii | | | 21 | | | 32 | | | 82 | | | 98 | |
| HPOWER | HPOWER | | | 19 | | | 14 | | | 38 | | | 31 | | HPOWER | | | 18 | | | 20 | | | 56 | | | 51 | |
| Hamakua Energy | Hamakua Energy | | | 14 | | | 12 | | | 30 | | | 23 | | Hamakua Energy | | | 16 | | | 15 | | | 46 | | | 38 | |
| Puna Geothermal Venture | Puna Geothermal Venture | | | 14 | | | 7 | | | 24 | | | 11 | | Puna Geothermal Venture | | | 13 | | | 9 | | | 37 | | | 20 | |
| Wind IPPs | Wind IPPs | | | 38 | | | 28 | | | 56 | | | 57 | | Wind IPPs | | | 37 | | | 38 | | | 93 | | | 95 | |
| Solar IPPs | Solar IPPs | | | 13 | | | 16 | | | 26 | | | 28 | | Solar IPPs | | | 18 | | | 12 | | | 44 | | | 40 | |
Other IPPs 1 | Other IPPs 1 | | | 3 | | | 1 | | | 4 | | | 3 | | Other IPPs 1 | | | 1 | | | 4 | | | 5 | | | 7 | |
| Total IPPs | Total IPPs | | | $ | 218 | | | $ | 163 | | | $ | 382 | | | $ | 305 | | Total IPPs | | | $ | 225 | | | $ | 186 | | | $ | 607 | | | $ | 491 | |
1Includes 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. 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. In November 2021, Hawaiian Electric submitted an application for approval of the Amended and Restated PPA to the PUC, which is pending approval before the PUC. The price of purchases from Kalaeloa in the secondthird quarter of 2022 have increased 69%80% over the secondthird quarter of 2021, primarily due to increased fuel oil cost.
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AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amended and Restated Amendment No. 4) for a period of 30 years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. Hawaiian Electric does not intend to extend theThe term of the PPA which will expireexpired on September 1, 2022.2022 and the AES Hawaii coal plant ceased operations.
Stage 1 Renewable PPAs. In February 2018, the Utilities issued Stage 1 Renewable request for proposal and have procured eight renewable PPAs with a total of 274.5 MW capacity. The total annual payments for the eight renewable PPAs are estimated at $64.7 million. The Utilities have received PUC approvals subsequently to recover the total projected annual payment for the eight renewable PPAs through the PPAC to the extent such costs are not included in base rates. On July 31, 2022, Mililani I Solar, the first utility-scale solar-plus-storage project reached commercial operations on Oahu. The project is for a 20-year term and generates 39 MW, including a 156 MWh battery. The Utilities have accounted for battery portion of the project as a finance lease and recorded a lease liability with a corresponding right-of-use asset of $48 million.
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 was held in March 2022. On May 23, 2022, the PUC issued a decision and order denying the amended and restated PPA, based on, among other things, findings that: (1) the project will result in significant GHG emissions, (2) Hu Honua’s proposed carbon commitment to sequester more GHG emissions than produced by the project are speculative and unsupported, (3) the amended and restated PPA is likely to result in high costs to customers through its relatively high cost of electricity and through potential displacement of other, lower cost, renewable resources, and (4) based on the foregoing, approving the amended and restated PPA is not prudent or in the public interest.On June 2, 2022, Hawaii Electric Light and Hu Honua filed their separate motions for reconsideration. On June 24, 2022, the PUC issued an order denying Hawaii Electric Light and Hu Honua’s respective motions for reconsideration.On June 29, 2022, Hu Honua filed its notice of appeal to the Hawaii Supreme Court of the PUC’s May 23, 2022 decision and order denying the amended and restated PPA, and the PUC’s June 24, 2022 order denying Hawaii Electric Light and Hu Honua’s motions for reconsideration. Opening briefs were filed with the Supreme Court on October 5, 2022. Answering briefs are due on December 5, 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.
Fuels barging contract.On August 23, 2021, the Utilities entered into a five-year inter-island fuel transportation contract with Sause Bros., Inc., which commenced in January 2022. On September 22, 2022, the PUC issued a D&O approving the inter-island fuels transportation contract and recovery of associated costs through ECRC.
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
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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 a minimum of $246 million ERP/EAM project-related benefit to be delivered to customers over the system’s 12-year service life.
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
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$96 $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 JuneSeptember 30, 2022, the Utilities’ regulatory liability was $9.6$10.0 million ($4.84.4 million for Hawaiian Electric, $1.9$2.2 million for Hawaii Electric Light and $2.9$3.4 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.
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 AESB report was filed on February 14, 2022 for the period January 1 through December 31, 2021.
West Loch PV Project. In November 2019, Hawaiian Electric placed into service a 20-MW (ac) utility-owned and operated renewable and dispatchable solar facility on property owned by the Department of the Navy. PUC orders resulted in a project cost cap of $67 million (including a cap of $4.7 million for the in-kind work performed in exchange for use of the Navy property) with capital cost recovery approved under MPIR (See “Performance-based regulation framework” section below for MPIR guidelines and cost recovery discussion.)discussion). Project costs incurred as of JuneSeptember 30, 2022 amounted to $60.1$60.4 million and generated $14.7 million and $14.0 million in federal and state nonrefundable tax credits, respectively. For book and regulatory purposes, the tax credits are being deferred and amortized, starting in 2020, over 25 years and 10 years for federal and state credits, respectively. In June 2022, the in-kind consideration services were completed and fully accepted by the Navy as partial consideration in lieu of rent payment. Satisfaction of the full-term rent requires on-going compliance with all terms of the lease, which, among other things, includes provision of contingent power upon written notice of the Department of the Navy. Hawaiian Electric accounted for the arrangement as a lease, recording $6.4 million as right-of-use asset with no lease liability and will amortize the right-of-use asset over the remaining term of the lease ending June 30, 2054.
Waena Switchyard/Synchronous Condenser Project. In October 2020, to support efforts to increase renewable energy generation and reduce fossil fuel consumption by deactivating current generating units, Maui Electric filed a PUC application to construct a switchyard, which includes the extension of 2two 69 kV transmission lines and the relocation of another 69 kV transmission line; and the conversion of 2two generating units to synchronous condensers at Kahului Power Plant in central Maui. In November 2021, the PUC approved Maui Electric’s request to commit funds estimated at $38.8 million for the project, and to recover capital expenditures for the project under Exceptional Project Recovery Mechanism (EPRM) not to exceed $38.8 million, which shall be further reduced to reflect the total project cost exclusive of overhead costs not directly attributable to the project. The Waena Switchyard project is expected to be placed in service in the third quarter of 2023, while the conversion of the two generating units will be performed after the retirement of Kahului Power Plant Units 3 and 4.
In approving the project, the PUC recognized that the project will facilitate the ability to accommodate increased renewable energy, as contemplated under the EPRM guidelines. As of JuneSeptember 30, 2022, $10.2$11.2 million has been incurred for the project.
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.
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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 and left the property in 1987. The federal Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the Department of Health of State of Hawaii 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$2.6 million as of JuneSeptember 30, 2022, representing the probable and reasonably estimable undiscounted cost for remediation of the Site and the adjacent parcel based on presently available information; however, final costs of remediation will depend on the cleanup approach implemented.
Additionally, on November 24, 2021, the current landowners of the Site, Misaki’s, Inc., filed a lawsuit against Hawaiian Electric (as alleged successor in interest to Molokai Electric, the prior owner of the Site) in the Circuit Court of the Second Circuit of the State of Hawaii (removed to the U.S. District Court for the District of Hawaii). The complaint which was
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subsequently amended to include Maui Electric, alleges that Hawaiian Electric is responsible for remediation of the Site based on the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), and the Hawaii Environmental Response Law under Hawaii Revised Statutes Chapter 128D, as well as being liable on contractual claims related to a short leaseback period during the transition of ownership from Molokai Electric. The amended complaint was dismissed and a new complaint is pendingmay be filed subject to the parties attempt to enter into settlement negotiations, but the Utilities intend to vigorously defend the action if necessary. At this time, the Utilities are unable to determine the ultimate outcome of the lawsuit or the amount of any possible loss. As of JuneSeptember 30, 2022, the reserve balance recorded by the Utilities to address the lawsuit was not material.
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 under CERCLA 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 JuneSeptember 30, 2022, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $10.1$10 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. Decoupling delinks the utility’s revenues from the utility’s sales, removing the disincentive to promote energy efficiency and accept more renewable energy. Decoupling continues under the PBR Framework.
Performance-based regulation framework. On December 23, 2020, the PUC issued a decision and order (PBR D&O) establishing a new PBR Framework to govern the Utilities. The PBR Framework incorporates an annual revenue adjustment (ARA) and a suite of new regulatory mechanisms in addition to previously established regulatory mechanisms. Under the PBR Framework, the decoupling mechanism (i.e., the Revenue Balancing Account (RBA)) established by the previous regulatory framework will continue. The existing cost recovery mechanisms will continue as currently implemented (i.e., the Energy Cost Recovery Clause (ECRC), Purchased Power Adjustment Clause (PPAC), Demand Side Management surcharge, Renewable Energy Infrastructure Program, Demand Response Adjustment Clause (DRAC), Pension and Other Post-Employment Benefits (OPEB) tracking mechanisms). In addition to annual revenues provided by the ARA, the Utilities may seek relief for extraordinary projects or programs through the Exceptional Project Recovery Mechanism (EPRM) (formerly known as the Major Project Interim Recovery adjustment mechanism) and earn financial rewards for exemplary performance as provided through a portfolio of Performance Incentive Mechanisms (PIMs) and Shared Savings Mechanisms (SSMs). The PBR Framework incorporates a variety of additional performance mechanisms, including Scorecards, Reported Metrics, and an expedited Pilot Process. The PBR Framework also contains a number of safeguards, including a symmetric Earnings Sharing Mechanism (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 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.
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On June 17, 2022, the PUC issued a decision and order (June 2022 D&O) establishing additional PIMs under the PBR Framework for the Utilities. In 2021, the PUC Staff originally proposed consideration of 11 PIMs and other mechanisms to address identified areas of concern. NaNSeven of the staff proposed PIMs were designed as penalty-only. The June 2022 D&O approved 2two new PIMs, a new SSM, and extended the timeframe for an existing PIM. Of the new PIMs, only 1one is penalty-only. Specifically, the PUC approved (1) a new (penalty-only) generation-caused interruption reliability PIM, (2) a new (penalty/reward) interconnection requirements study (IRS) PIM, (3) a new (reward-only) Collective Shared Savings Mechanism (CSSM), and (4) a modification and extension of the existing interim (reward-only) Grid Services PIM. The effective date for the changes has not yet been established. On July 15,September 27, 2022, the Utilities submitted for the PUC’s review and approval, proposed tariffs to implement the aforementioned PIMs with an evaluation period proposed for the generation-caused interruption reliability PIMs, IRS PIM, and CSSM to start on January 1, 2023.2023, which is pending PUC approval. The evaluation period is the calendar year period over which performance is compared to PIM performance targets of the PIM to determine the amount of reward or penalty.
In addition, the June 2022 D&O instructed the Utilities to prepare and submit: a detailed fossil fuel retirement report (FF Retirement Report) outlining necessary steps to safely and reliably retire certain existing fossil fuel power plants during the first multi-year rate period (MRP); and a functional integration plan (FIP) for DERdistributed energy resources (DER) to increase transparency into the Utilities’ plans and progress for
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utilizing cost-effective grid services from DERs and ensure that the necessary functionalities and requisite technologies are in place to do so. The PUC also instructed the PBR Working Group to continue its ongoing collaborative efforts to consider other potential new incentive mechanisms and to address other issues raised during the proceeding. FollowingOn October 27, 2022, the PUC’s reviewPUC issued a Notice of PBR Working Group Meeting, which is scheduled for November 29, 2022.
In accordance with the Utilities’ tariffs to implementJune 2022 D&O, the approved PIMs, an order will be issued providing detailsUtilities filed their FIP andFF Retirement Report with the PUC on next steps for the proceeding.September 30, 2022 and October 14, 2022, respectively.
Revenue adjustment mechanism. Prior to the implementation of the PBR Framework, the revenue adjustment mechanism (RAM) was a major component of the previously established regulatory framework. The RAM was 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). Under the PBR Framework, the ARA mechanism replaced the RAM, and became effective on June 1, 2021. RAM revenue adjustments approved by the PUC in 2020 will continue to be included in the RBA provision’s target revenue and RBA rate adjustment unless modified with PUC approval.
Annual revenue adjustment mechanism. The PBR Framework established a five-year MRP 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% of adjusted revenue requirements compounded annually and a flow through of the “pre-PBR” savings commitment from the management audit recommendations developed in a prior docket at a rate of $6.6 million per year from 2021 to 2025. The implementation of the ARA occurred on June 1, 2021.
Earnings sharing mechanism. The PBR Framework established 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.
Exceptional project recovery mechanism. Prior to the implementation of the PBR Framework, the PUC established the Major Project Interim Recovery (MPIR) adjustment mechanism and MPIR Guidelines. The MPIR mechanism provides the opportunity to recover revenues for net costs of approved eligible projects placed in service between general rate cases. In establishing the PBR Framework, the MPIR Guidelines were terminated and replaced with the EPRM Guidelines. Although the MPIR Guidelines were terminated and replaced by the EPRM Guidelines, the MPIR mechanism will continue within the PBR Framework to provide recovery of project costs previously approved for recovery under the MPIR. The newly established EPRM Guidelines 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. Deferred and O&M expense projects are also eligible for EPRM recovery under the EPRM Guidelines. EPRM recoverable costs will be limited to the lesser of actual incurred project costs or PUC‑approved amounts, net of savings.
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As of JuneSeptember 30, 2022, the Utilities submitted 2022 MPIR and EPRM amounts totaling $25.9$26.2 million, including revenue taxes, for the Schofield Generating Station ($16.5 million), West Loch PV Project ($3.33.5 million), and Grid Modernization Strategy (GMS) Phase 1 project ($6.1 million for all three utilities) and Waiawa UFLS project ($0.1 million) for the accrual of revenues effective January 1, 2022, that included the 2022 return on project amount (based on approved amounts) in rate base, depreciation and incremental O&M expenses. The PUC approved the Utilities’ recovery of the annualized 2022 MPIR amounts for the Schofield Generating Station and GMS Phase 1 projects effective June 1, 2022 through the RBA rate adjustment. Recovery of the incremental change to the West Loch PV project and Waiawa UFLS project are subject to PUC approval.
As of JuneSeptember 30, 2022, the PUC approved 2two EPRM applications for projects totaling $41 million to the extent that the project costs are not included in rates. Currently, the Utilities have outstanding applications seeking EPRM recovery for 5five projects with total project costs of $450 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. ThisThe Pilot Process 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 are subject to PUC approval with a total annual cap of $10 million. The Pilot Process includes 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 (Pilot Notices) for expedited review by the PUC and implement the pilots upon approval.PUC. The PUC will strive to issue an order approving, denying, or modifyingaddressing a proposed Pilotpilot within 45 days of receiving noticethe filing date of a specific pilot project.Pilot Notice. If the PUC does not take affirmative action on a Pilot Notice by the end of the 45-day period, the Pilot Notice shall be considered approved as submitted. The PUC may, where necessary, suspend the Pilot Notice for further investigation within the 45-day period.
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
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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 withas directed by the July 9, 2021 order.
On November 12, 2021, the Utilities requested PUC approval of their proposed Pilot Process Workplan to guide the development of pilot projects over the next three years. A PUC order on the Workplan is pending.
On February 28, 2022, the Utilities filed their first annual Pilot Update report covering pilot projects that were approved throughand initiated prior to the Pilot Process framework.commencement of the expedited notification and review process. The Pilot Update reported on approximately $0.1 million of 2021 deferred costs which was incorporated in the Utilities’ adjustments to target revenue in the 2022 spring revenue report. The PUC approved the Utilities’ recovery of the 2021 Pilot amounts effective June 1, 2022 through the RBA rate adjustment.
On October 19, 2022, the PUC approved the Utilities’ proposed Workplan as supplemented on September 23, 2022, completing the initial workplan development phase. On October 20, 2022, the PUC opened a new docket to receive and address Notices submitted pursuant to the Pilot Process, commencing the implementation phase.
On October 26, 2022, the Utilities filed for the PUC’s approval to commence a Clearinghouse Pilot project in January 2023, which is to establish a cloud-based data analytics clearinghouse repository. This is the first notice filed in the Pilot Process implementation phase.
Performance incentive mechanisms. The PUC has established the following PIMs and SSMs: (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, (4) new PIMs established in the PBR D&O and (5) new PIMs and a SSM established in the June 2022 D&O.
•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 to remain constant in interim periods, unless otherwise amended by order of the PUC.
•Service Reliability Performance measured by Transmission and Distribution-caused 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). For the 2021 evaluation period, the Utilities earnedincurred $0.2 million in penalties.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
•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).
•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 7seven 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. On July 9, 2020, the Utilities filed 2two Grid Services Purchase Agreements (GSPA) 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 aone PPA that qualified for a PIM incentive and on February 16, 2021, the Utilities filed 1one additional PPA that qualified for a declining PIM incentive. The PUC approved 2two PPAs in September 2021 and November 2021 and 2two GSPAs on December 31, 2020. For the 2021 evaluation period, the Utilities earned $0.1 million in rewards related to the 2two PPAs.
•The PUC previously established the following 2two PIMs in its PBR D&O, which were approved in an order issued on March 23, 2021 and became effective on June 1, 2021. In its June 2022 D&O, the PUC modified and extended the Grid Services PIM.
•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 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. For the 2021 evaluation period, the Utilities earned $1.0 million in rewards.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
•Grid Services PIM that provides financial rewards on a $/kW basis for the acquisition of eligible grid services. The eligibility period for this PIM initially commenced on January 1, 2021 and was scheduled to end on December 31, 2022. However, the June 2022 D&O extended the eligibility period for this PIM through December 31, 2023. The June 2022 D&O also increased the incentive rate for the acquisition of load reduction grid services. During the PIM performance period, newly acquired committed capacity in the Oahu Scheduled Dispatch Program (SDP), the Oahu Fast DR program (up to the 7 MW cap), and the Maui SDP program shall qualify for the incentive. The Utilities can earn a maximum reward of $1.5 million from 2021 through 2023. The effective date of the revised Grid Services PIM tariff is pending.
•The PUC also previously established the following 3three 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 DER 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. For the 2021 evaluation period, the Utilities earned $2.8 million in rewards.
•Low-to-Moderate Income (LMI) Energy Efficiency PIM that provides financial rewards 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. The Utilities accrued $0.3 million in estimated rewards for the program period ending 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
•The PUC established the following new PIMs and SSM in its June 2022 D&O. The proposed tariffs and the effective date for these PIMs and SSM are pending the PUC’s review and approval.
•Generation-caused System Average Interruption Duration and Frequency Indexes PIMs to incentivize achievement of generation-based reliability targets, measured by Generation 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 3 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $1 million - for both indices in total for the three utilities).
•An IRS PIM to incentivize the timely completion of the IRS process for large-scale renewable energy projects (rewards and penalties) measured by the number of months between final model checkout and delivery of IRS results to the developer. Target performance is ten months with an asymmetrical deadband of two-months for penalties and no deadband for rewards. The maximum penalty and reward will depend on the specifics of the upcoming procurement.
•A CSSM to incentivize cost control over the Utilities’ fuel, purchased power, and EPRM/MPIR costs (collectively, non-ARA costs). This is a reward only incentive where the Utilities retain a portion of savings when non-ARA costs in a performance year are lower than target year non-ARA costs, which are adjusted for changes in fuel prices, inflation, and system generation from a base year (calendar year 2021). The CSSM does not have a maximum reward, however, rewards are tiered, with the Utilities retaining a 20% share of the first $5 million in savings at Hawaiian Electric and of the first $1 million in savings at both Hawaii Electric Light and Maui Electric, with the Utilities’ share at 5% of any savings beyond the initial amounts of CSSM savings for each utility.
For the 2021 evaluation period, the Utilities accrued $3.7 million ($2.8 million for Hawaiian Electric, $0.4 million for Hawaii Electric Light and $0.5 million for Maui Electric) in rewards net of penalties. The net rewards related to 2021 were reflected in the 2021 fall revenue report and 2022 spring revenue report filings.
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 springfall revenue report was filed on MarchOctober 31, 2022, was approved by thewhich is subject to PUC on May 25, 2022.approval. The filing reflected ARA revenues for 2023 to be collected from January 1 through December 31, 2023, as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Total |
| 2023 ARA revenues | | $ | 27.0 | | | $ | 6.6 | | | $ | 6.5 | | | $ | 40.1 | |
| Management Audit savings commitment | | (4.6) | | | (1.0) | | | (1.0) | | | (6.6) | |
| Net 2023 ARA revenues | | $ | 22.4 | | | $ | 5.6 | | | $ | 5.5 | | | $ | 33.5 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The proposed net incremental amounts between the 2021 fall and 2022 spring and fall revenue reports are as follows. The amounts are to be collected (refunded) from JuneJanuary 1 2022 through MayDecember 31, 2023 as follows:under the RBA rate tariffs, which was proposed in the 2022 fall revenue report filing and is subject to PUC approval.
| | (in millions) | (in millions) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Total | (in millions) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Total |
| | Incremental accrued RBA balance through September 30, 2021 (and associated revenue taxes) | | $ | (5.7) | | | $ | 2.1 | | | $ | (4.7) | | | $ | (8.3) | | |
| Incremental RAM revenues and ARA revenues | | Incremental RAM revenues and ARA revenues | | $ | 27.0 | | | $ | 6.6 | | | $ | 6.5 | | | $ | 40.1 | |
| Annual change in accrued RBA balance through September 30, 2022 (and associated revenue taxes) | | Annual change in accrued RBA balance through September 30, 2022 (and associated revenue taxes) | | $ | (3.6) | | | $ | (6.7) | | | $ | (3.2) | | | $ | (13.5) | |
| Incremental Performance Incentive Mechanisms (net) | Incremental Performance Incentive Mechanisms (net) | | 1.9 | | | 0.4 | | | 0.4 | | | 2.7 | | Incremental Performance Incentive Mechanisms (net) | | 0.3 | | | 0.1 | | | — | | | 0.4 | |
| Incremental MPIR/EPRM Revenue Adjustment | Incremental MPIR/EPRM Revenue Adjustment | | 1.3 | | | 0.8 | | | 0.7 | | | 2.8 | Incremental MPIR/EPRM Revenue Adjustment | | 0.3 | | | — | | | — | | | 0.3 |
| Other | | (0.1) | | | — | | | — | | | $ | (0.1) | | |
| | | Net incremental amount to be collected under the RBA rate tariffs | Net incremental amount to be collected under the RBA rate tariffs | | $ | (2.6) | | | $ | 3.3 | | | $ | (3.6) | | | $ | (2.9) | | Net incremental amount to be collected under the RBA rate tariffs | | $ | 24.0 | | | $ | — | | | $ | 3.3 | | | $ | 27.3 | |
|
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. As the moratorium on customer disconnections ended on May 31, 2021, the Utilities have resumed charging late payment fees in July 2021. Pursuant to PUC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
orders, the deferral of COVID-19 related costs by the Utilities ended on December 31, 2020. On October 1, 2021, the PUC approved the Utilities’ request to extend the deferral period to December 31, 2021. In December 2021, to keep customers connected and provide some relief to customers experiencing financial difficulty during the pandemic, the Utilities committed to issuing $2 million in bill credits to qualified customers. The Utilities will not seek recovery for the issued bill credits, resulting in a reduction to the cumulative deferred costs. On June 9, 2022, the Utilities filed an application with the PUC, requesting recovery of a portion of the COVID-19 related deferral costs, net of cost savings realized, not to exceed the amount of $27.8 million over three years, from June 2023 through May 2026. Annual requests will be limited to actual costs incurred.
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. On March 1, 2022, Hawaiian Electric acquired the Army’s existing distribution system for a purchase price of $14.5 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. The acquisition of additional assets contemplated in the contract, with an estimated value of $4 million, is planned for 2023.
Hawaiian Electric took ownership and all responsibilities for operation and maintenance of the system on March 1, 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 replace 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. 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.
Condensed consolidating financial information. Condensed consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the three and sixnine month periods ended JuneSeptember 30, 2022 and 2021, and as of JuneSeptember 30, 2022 and December 31, 2021.
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 JuneSeptember 30, 2022
| | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated |
| Revenues | Revenues | | $ | 576,472 | | | 124,502 | | | 117,928 | | | — | | | (29) | | | $ | 818,873 | | Revenues | | $ | 693,281 | | | 130,858 | | | 131,910 | | | — | | | (78) | | | $ | 955,971 | |
| Expenses | Expenses | | Expenses | |
| Fuel oil | Fuel oil | | 184,297 | | | 33,065 | | | 52,293 | | | — | | | — | | | 269,655 | | Fuel oil | | 280,447 | | | 40,540 | | | 62,615 | | | — | | | — | | | 383,602 | |
| Purchased power | Purchased power | | 165,202 | | | 38,735 | | | 14,148 | | | — | | | — | | | 218,085 | | Purchased power | | 171,470 | | | 37,263 | | | 16,476 | | | — | | | — | | | 225,209 | |
| Other operation and maintenance | Other operation and maintenance | | 82,707 | | | 21,331 | | | 20,854 | | | — | | | — | | | 124,892 | | Other operation and maintenance | | 77,115 | | | 21,882 | | | 22,113 | | | — | | | — | | | 121,110 | |
| Depreciation | Depreciation | | 39,501 | | | 10,352 | | | 8,886 | | | — | | | — | | | 58,739 | | Depreciation | | 39,474 | | | 10,350 | | | 8,887 | | | — | | | — | | | 58,711 | |
| Taxes, other than income taxes | Taxes, other than income taxes | | 54,025 | | | 11,378 | | | 10,945 | | | — | | | — | | | 76,348 | | Taxes, other than income taxes | | 64,051 | | | 12,026 | | | 12,213 | | | — | | | — | | | 88,290 | |
| | Total expenses | Total expenses | | 525,732 | | | 114,861 | | | 107,126 | | | — | | | — | | | 747,719 | | Total expenses | | 632,557 | | | 122,061 | | | 122,304 | | | — | | | — | | | 876,922 | |
| Operating income | Operating income | | 50,740 | | | 9,641 | | | 10,802 | | | — | | | (29) | | | 71,154 | | Operating income | | 60,724 | | | 8,797 | | | 9,606 | | | — | | | (78) | | | 79,049 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | | 1,946 | | | 217 | | | 307 | | | — | | | — | | | 2,470 | | Allowance for equity funds used during construction | | 2,063 | | | 206 | | | 283 | | | — | | | — | | | 2,552 | |
| Equity in earnings of subsidiaries | Equity in earnings of subsidiaries | | 12,237 | | | — | | | — | | | — | | | (12,237) | | | — | | Equity in earnings of subsidiaries | | 10,577 | | | — | | | — | | | — | | | (10,577) | | | — | |
| Retirement defined benefits credit (expense)—other than service costs | Retirement defined benefits credit (expense)—other than service costs | | 856 | | | 167 | | | (32) | | | — | | | — | | | 991 | | Retirement defined benefits credit (expense)—other than service costs | | 760 | | | 166 | | | (31) | | | — | | | — | | | 895 | |
| Interest expense and other charges, net | Interest expense and other charges, net | | (13,519) | | | (2,642) | | | (2,668) | | | — | | | 29 | | | (18,800) | | Interest expense and other charges, net | | (14,221) | | | (2,716) | | | (2,750) | | | — | | | 78 | | | (19,609) | |
| Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | | 637 | | | 67 | | | 94 | | | — | | | — | | | 798 | | Allowance for borrowed funds used during construction | | 674 | | | 63 | | | 88 | | | — | | | — | | | 825 | |
| Income before income taxes | Income before income taxes | | 52,897 | | | 7,450 | | | 8,503 | | | — | | | (12,237) | | | 56,613 | | Income before income taxes | | 60,577 | | | 6,516 | | | 7,196 | | | — | | | (10,577) | | | 63,712 | |
| Income taxes | Income taxes | | 8,492 | | | 1,659 | | | 1,828 | | | — | | | — | | | 11,979 | | Income taxes | | 10,543 | | | 1,424 | | | 1,483 | | | — | | | — | | | 13,450 | |
| Net income | Net income | | 44,405 | | | 5,791 | | | 6,675 | | | — | | | (12,237) | | | 44,634 | | Net income | | 50,034 | | | 5,092 | | | 5,713 | | | — | | | (10,577) | | | 50,262 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | — | | | 133 | | | 96 | | | — | | | — | | | 229 | | Preferred stock dividends of subsidiaries | | — | | | 133 | | | 95 | | | — | | | — | | | 228 | |
| Net income attributable to Hawaiian Electric | Net income attributable to Hawaiian Electric | | 44,405 | | | 5,658 | | | 6,579 | | | — | | | (12,237) | | | 44,405 | | Net income attributable to Hawaiian Electric | | 50,034 | | | 4,959 | | | 5,618 | | | — | | | (10,577) | | | 50,034 | |
| Preferred stock dividends of Hawaiian Electric | Preferred stock dividends of Hawaiian Electric | | 270 | | | — | | | — | | | — | | | — | | | 270 | | Preferred stock dividends of Hawaiian Electric | | 270 | | | — | | | — | | | — | | | — | | | 270 | |
| Net income for common stock | Net income for common stock | | $ | 44,135 | | | 5,658 | | | 6,579 | | | — | | | (12,237) | | | $ | 44,135 | | Net income for common stock | | $ | 49,764 | | | 4,959 | | | 5,618 | | | — | | | (10,577) | | | $ | 49,764 | |
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended JuneSeptember 30, 2022
| | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| Net income for common stock | Net income for common stock | | $ | 44,135 | | | 5,658 | | | 6,579 | | | — | | | (12,237) | | | $ | 44,135 | | Net income for common stock | | $ | 49,764 | | | 4,959 | | | 5,618 | | | — | | | (10,577) | | | $ | 49,764 | |
| Other comprehensive income, net of taxes: | Other comprehensive income, net of taxes: | | | | | | | | | | | | | Other comprehensive income, net of taxes: | | | | | | | | | | | | |
| Retirement benefit plans: | Retirement benefit plans: | | | | | | | | | | | | | 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 | Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes | | (5) | | | (72) | | | 603 | | | — | | | (531) | | | (5) | | Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes | | 5,411 | | | 768 | | | 732 | | | — | | | (1,500) | | | 5,411 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | | 56 | | | 74 | | | (602) | | | — | | | 528 | | | 56 | | Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | | (5,303) | | | (766) | | | (733) | | | — | | | 1,499 | | | (5,303) | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | 51 | | | 2 | | | 1 | | | — | | | (3) | | | 51 | | Other comprehensive income, net of taxes | | 108 | | | 2 | | | (1) | | | — | | | (1) | | | 108 | |
| Comprehensive income attributable to common shareholder | Comprehensive income attributable to common shareholder | | $ | 44,186 | | | 5,660 | | | 6,580 | | | — | | | (12,240) | | | $ | 44,186 | | Comprehensive income attributable to common shareholder | | $ | 49,872 | | | 4,961 | | | 5,617 | | | — | | | (10,578) | | | $ | 49,872 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended JuneSeptember 30, 2021
| | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated |
| Revenues | Revenues | | $ | 422,697 | | | 91,512 | | | 87,670 | | | — | | | — | | | $ | 601,879 | | Revenues | | $ | 478,046 | | | 100,313 | | | 101,141 | | | — | | | (1) | | | $ | 679,499 | |
| Expenses | Expenses | | Expenses | |
| Fuel oil | Fuel oil | | 91,345 | | | 19,586 | | | 28,205 | | | — | | | — | | | 139,136 | | Fuel oil | | 126,909 | | | 21,104 | | | 32,669 | | | — | | | — | | | 180,682 | |
| Purchased power | Purchased power | | 124,948 | | | 24,236 | | | 13,281 | | | — | | | — | | | 162,465 | | Purchased power | | 136,688 | | | 31,159 | | | 17,912 | | | — | | | — | | | 185,759 | |
| Other operation and maintenance | Other operation and maintenance | | 77,903 | | | 19,474 | | | 20,765 | | | — | | | — | | | 118,142 | | Other operation and maintenance | | 75,191 | | | 19,964 | | | 21,313 | | | — | | | — | | | 116,468 | |
| Depreciation | Depreciation | | 38,907 | | | 10,053 | | | 8,421 | | | — | | | — | | | 57,381 | | Depreciation | | 38,912 | | | 10,050 | | | 8,424 | | | — | | | — | | | 57,386 | |
| Taxes, other than income taxes | Taxes, other than income taxes | | 40,301 | | | 8,539 | | | 8,231 | | | — | | | — | | | 57,071 | | Taxes, other than income taxes | | 45,239 | | | 9,333 | | | 9,440 | | | — | | | — | | | 64,012 | |
| | Total expenses | Total expenses | | 373,404 | | | 81,888 | | | 78,903 | | | — | | | — | | | 534,195 | | Total expenses | | 422,939 | | | 91,610 | | | 89,758 | | | — | | | — | | | 604,307 | |
| Operating income | Operating income | | 49,293 | | | 9,624 | | | 8,767 | | | — | | | — | | | 67,684 | | Operating income | | 55,107 | | | 8,703 | | | 11,383 | | | — | | | (1) | | | 75,192 | |
| Allowance for equity funds used during construction | Allowance for equity funds used during construction | | 1,930 | | | 140 | | | 307 | | | — | | | — | | | 2,377 | | Allowance for equity funds used during construction | | 1,999 | | | 131 | | | 297 | | | — | | | — | | | 2,427 | |
| Equity in earnings of subsidiaries | Equity in earnings of subsidiaries | | 10,744 | | | — | | | — | | | — | | | (10,744) | | | — | | Equity in earnings of subsidiaries | | 12,028 | | | — | | | — | | | — | | | (12,028) | | | — | |
| Retirement defined benefits credit (expense)—other than service costs | Retirement defined benefits credit (expense)—other than service costs | | 884 | | | 169 | | | (33) | | | — | | | — | | | 1,020 | | Retirement defined benefits credit (expense)—other than service costs | | 741 | | | 166 | | | (30) | | | — | | | — | | | 877 | |
| Interest expense and other charges, net | Interest expense and other charges, net | | (12,829) | | | (2,573) | | | (2,593) | | | — | | | — | | | (17,995) | | Interest expense and other charges, net | | (12,943) | | | (2,590) | | | (2,616) | | | — | | | 1 | | | (18,148) | |
| Allowance for borrowed funds used during construction | Allowance for borrowed funds used during construction | | 654 | | | 48 | | | 110 | | | — | | | — | | | 812 | | Allowance for borrowed funds used during construction | | 676 | | | 44 | | | 107 | | | — | | | — | | | 827 | |
| Income before income taxes | Income before income taxes | | 50,676 | | | 7,408 | | | 6,558 | | | — | | | (10,744) | | | 53,898 | | Income before income taxes | | 57,608 | | | 6,454 | | | 9,141 | | | — | | | (12,028) | | | 61,175 | |
| Income taxes | Income taxes | | 8,505 | | | 1,668 | | | 1,325 | | | — | | | — | | | 11,498 | | Income taxes | | 6,996 | | | 1,433 | | | 1,906 | | | — | | | — | | | 10,335 | |
| Net income | Net income | | 42,171 | | | 5,740 | | | 5,233 | | | — | | | (10,744) | | | 42,400 | | Net income | | 50,612 | | | 5,021 | | | 7,235 | | | — | | | (12,028) | | | 50,840 | |
| Preferred stock dividends of subsidiaries | Preferred stock dividends of subsidiaries | | — | | | 133 | | | 96 | | | — | | | — | | | 229 | | Preferred stock dividends of subsidiaries | | — | | | 133 | | | 95 | | | — | | | — | | | 228 | |
| Net income attributable to Hawaiian Electric | Net income attributable to Hawaiian Electric | | 42,171 | | | 5,607 | | | 5,137 | | | — | | | (10,744) | | | 42,171 | | Net income attributable to Hawaiian Electric | | 50,612 | | | 4,888 | | | 7,140 | | | — | | | (12,028) | | | 50,612 | |
| Preferred stock dividends of Hawaiian Electric | Preferred stock dividends of Hawaiian Electric | | 270 | | | — | | | — | | | — | | | — | | | 270 | | Preferred stock dividends of Hawaiian Electric | | 270 | | | — | | | — | | | — | | | — | | | 270 | |
| Net income for common stock | Net income for common stock | | $ | 41,901 | | | 5,607 | | | 5,137 | | | — | | | (10,744) | | | $ | 41,901 | | 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 JuneSeptember 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| Net income for common stock | | $ | 41,901 | | | 5,607 | | | 5,137 | | | — | | | (10,744) | | | $ | 41,901 | |
| 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 | | 5,846 | | | 834 | | | 761 | | | — | | | (1,595) | | | 5,846 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | | (5,811) | | | (834) | | | (761) | | | — | | | 1,595 | | | (5,811) | |
| Other comprehensive income, net of taxes | | 35 | | | — | | | — | | | — | | | — | | | 35 | |
| Comprehensive income attributable to common shareholder | | $ | 41,936 | | | 5,607 | | | 5,137 | | | — | | | (10,744) | | | $ | 41,936 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Six months ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric
Consolidated |
| Revenues | | $ | 1,076,714 | | | 233,030 | | | 217,956 | | | — | | | (35) | | | $ | 1,527,665 | |
| Expenses | | | | | | | | | | | | |
| Fuel oil | | 338,722 | | | 58,316 | | | 93,903 | | | — | | | — | | | 490,941 | |
| Purchased power | | 289,385 | | | 69,447 | | | 22,786 | | | — | | | — | | | 381,618 | |
| Other operation and maintenance | | 166,363 | | | 41,545 | | | 42,241 | | | — | | | — | | | 250,149 | |
| Depreciation | | 78,985 | | | 20,703 | | | 17,522 | | | — | | | — | | | 117,210 | |
| Taxes, other than income taxes | | 101,299 | | | 21,410 | | | 20,289 | | | — | | | — | | | 142,998 | |
| | | | | | | | | | | | |
| Total expenses | | 974,754 | | | 211,421 | | | 196,741 | | | — | | | — | | | 1,382,916 | |
| Operating income | | 101,960 | | | 21,609 | | | 21,215 | | | — | | | (35) | | | 144,749 | |
| Allowance for equity funds used during construction | | 3,936 | | | 410 | | | 533 | | | — | | | — | | | 4,879 | |
| Equity in earnings of subsidiaries | | 25,898 | | | — | | | — | | | — | | | (25,898) | | | — | |
| Retirement defined benefits credit (expense)—other than service costs | | 1,711 | | | 334 | | | (64) | | | — | | | — | | | 1,981 | |
| Interest expense and other charges, net | | (26,612) | | | (5,251) | | | (5,298) | | | — | | | 35 | | | (37,126) | |
| Allowance for borrowed funds used during construction | | 1,288 | | | 127 | | | 161 | | | — | | | — | | | 1,576 | |
| Income before income taxes | | 108,181 | | | 17,229 | | | 16,547 | | | — | | | (25,898) | | | 116,059 | |
| Income taxes | | 17,097 | | | 3,927 | | | 3,493 | | | — | | | — | | | 24,517 | |
| Net income | | 91,084 | | | 13,302 | | | 13,054 | | | — | | | (25,898) | | | 91,542 | |
| Preferred stock dividends of subsidiaries | | — | | | 267 | | | 191 | | | — | | | — | | | 458 | |
| Net income attributable to Hawaiian Electric | | 91,084 | | | 13,035 | | | 12,863 | | | — | | | (25,898) | | | 91,084 | |
| Preferred stock dividends of Hawaiian Electric | | 540 | | | — | | | — | | | — | | | — | | | 540 | |
| Net income for common stock | | $ | 90,544 | | | 13,035 | | | 12,863 | | | — | | | (25,898) | | | $ | 90,544 | |
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Six months ended June 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated |
| Net income for common stock | | $ | 90,544 | | | 13,035 | | | 12,863 | | | — | | | (25,898) | | | $ | 90,544 | |
| 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 | | 4,371 | | | 598 | | | 1,206 | | | — | | | (1,804) | | | 4,371 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | | (4,269) | | | (596) | | | (1,205) | | | — | | | 1,801 | | | (4,269) | |
| Other comprehensive income, net of taxes | | 102 | | | 2 | | | 1 | | | — | | | (3) | | | 102 | |
| Comprehensive income attributable to common shareholder | | $ | 90,646 | | | 13,037 | | | 12,864 | | | — | | | (25,901) | | | $ | 90,646 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Six months ended June 30, 2021
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric
Consolidated |
| Revenues | | $ | 823,251 | | | 176,661 | | | 166,851 | | | — | | | (20) | | | $ | 1,166,743 | |
| Expenses | | | | | | | | | | | | |
| Fuel oil | | 180,073 | | | 36,071 | | | 50,419 | | | — | | | — | | | 266,563 | |
| Purchased power | | 233,552 | | | 45,833 | | | 25,376 | | | — | | | — | | | 304,761 | |
| Other operation and maintenance | | 155,238 | | | 37,386 | | | 40,088 | | | — | | | — | | | 232,712 | |
| Depreciation | | 77,821 | | | 20,101 | | | 16,814 | | | — | | | — | | | 114,736 | |
| Taxes, other than income taxes | | 78,928 | | | 16,532 | | | 15,713 | | | — | | | — | | | 111,173 | |
| | | | | | | | | | | | |
| Total expenses | | 725,612 | | | 155,923 | | | 148,410 | | | — | | | — | | | 1,029,945 | |
| Operating income | | 97,639 | | | 20,738 | | | 18,441 | | | — | | | (20) | | | 136,798 | |
| Allowance for equity funds used during construction | | 3,678 | | | 272 | | | 618 | | | — | | | — | | | 4,568 | |
| Equity in earnings of subsidiaries | | 23,254 | | | — | | | — | | | — | | | (23,254) | | | — | |
| Retirement defined benefits credit (expense)—other than service costs | | 1,770 | | | 337 | | | (66) | | | — | | | — | | | 2,041 | |
| Interest expense and other charges, net | | (25,661) | | | (5,154) | | | (5,183) | | | — | | | 20 | | | (35,978) | |
| Allowance for borrowed funds used during construction | | 1,245 | | | 92 | | | 222 | | | — | | | — | | | 1,559 | |
| Income before income taxes | | 101,925 | | | 16,285 | | | 14,032 | | | — | | | (23,254) | | | 108,988 | |
| Income taxes | | 16,126 | | | 3,719 | | | 2,886 | | | — | | | — | | | 22,731 | |
| Net income | | 85,799 | | | 12,566 | | | 11,146 | | | — | | | (23,254) | | | 86,257 | |
| Preferred stock dividends of subsidiaries | | — | | | 267 | | | 191 | | | — | | | — | | | 458 | |
| Net income attributable to Hawaiian Electric | | 85,799 | | | 12,299 | | | 10,955 | | | — | | | (23,254) | | | 85,799 | |
| Preferred stock dividends of Hawaiian Electric | | 540 | | | — | | | — | | | — | | | — | | | 540 | |
| Net income for common stock | | $ | 85,259 | | | 12,299 | | | 10,955 | | | — | | | (23,254) | | | $ | 85,259 | |
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Six months ended June 30, 2021
| | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| Net income for common stock | Net income for common stock | | $ | 85,259 | | | 12,299 | | | 10,955 | | | — | | | (23,254) | | | $ | 85,259 | | Net income for common stock | | $ | 50,342 | | | 4,888 | | | 7,140 | | | — | | | (12,028) | | | $ | 50,342 | |
| Other comprehensive income, net of taxes: | Other comprehensive income, net of taxes: | | Other comprehensive income, net of taxes: | | | | | | | | | | | | |
| Retirement benefit plans: | Retirement benefit plans: | | 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 | Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes | | 11,691 | | | 1,669 | | | 1,522 | | | — | | | (3,191) | | | 11,691 | | Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes | | 2,905 | | | 393 | | | 393 | | | — | | | (786) | | | 2,905 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | | (11,622) | | | (1,668) | | | (1,522) | | | — | | | 3,190 | | | (11,622) | | 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 | Other comprehensive income, net of taxes | | 69 | | | 1 | | | — | | | — | | | (1) | | | 69 | | Other comprehensive income, net of taxes | | 106 | | | 2 | | | — | | | — | | | (2) | | | 106 | |
| Comprehensive income attributable to common shareholder | Comprehensive income attributable to common shareholder | | $ | 85,328 | | | 12,300 | | | 10,955 | | | — | | | (23,255) | | | $ | 85,328 | | 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 Balance SheetStatement of Income
Nine months ended September 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric
Consolidated |
| Revenues | | $ | 1,769,995 | | | 363,888 | | | 349,866 | | | — | | | (113) | | | $ | 2,483,636 | |
| Expenses | | | | | | | | | | | | |
| Fuel oil | | 619,169 | | | 98,856 | | | 156,518 | | | — | | | — | | | 874,543 | |
| Purchased power | | 460,855 | | | 106,710 | | | 39,262 | | | — | | | — | | | 606,827 | |
| Other operation and maintenance | | 243,478 | | | 63,427 | | | 64,354 | | | — | | | — | | | 371,259 | |
| Depreciation | | 118,459 | | | 31,053 | | | 26,409 | | | — | | | — | | | 175,921 | |
| Taxes, other than income taxes | | 165,350 | | | 33,436 | | | 32,502 | | | — | | | — | | | 231,288 | |
| | | | | | | | | | | | |
| Total expenses | | 1,607,311 | | | 333,482 | | | 319,045 | | | — | | | — | | | 2,259,838 | |
| Operating income | | 162,684 | | | 30,406 | | | 30,821 | | | — | | | (113) | | | 223,798 | |
| Allowance for equity funds used during construction | | 5,999 | | | 616 | | | 816 | | | — | | | — | | | 7,431 | |
| Equity in earnings of subsidiaries | | 36,475 | | | — | | | — | | | — | | | (36,475) | | | — | |
| Retirement defined benefits credit (expense)—other than service costs | | 2,471 | | | 500 | | | (95) | | | — | | | — | | | 2,876 | |
| Interest expense and other charges, net | | (40,833) | | | (7,967) | | | (8,048) | | | — | | | 113 | | | (56,735) | |
| Allowance for borrowed funds used during construction | | 1,962 | | | 190 | | | 249 | | | — | | | — | | | 2,401 | |
| Income before income taxes | | 168,758 | | | 23,745 | | | 23,743 | | | — | | | (36,475) | | | 179,771 | |
| Income taxes | | 27,640 | | | 5,351 | | | 4,976 | | | — | | | — | | | 37,967 | |
| Net income | | 141,118 | | | 18,394 | | | 18,767 | | | — | | | (36,475) | | | 141,804 | |
| Preferred stock dividends of subsidiaries | | — | | | 400 | | | 286 | | | — | | | — | | | 686 | |
| Net income attributable to Hawaiian Electric | | 141,118 | | | 17,994 | | | 18,481 | | | — | | | (36,475) | | | 141,118 | |
| Preferred stock dividends of Hawaiian Electric | | 810 | | | — | | | — | | | — | | | — | | | 810 | |
| Net income for common stock | | $ | 140,308 | | | 17,994 | | | 18,481 | | | — | | | (36,475) | | | $ | 140,308 | |
June
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Nine months ended September 30, 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other subsidiaries | | Consolidating adjustments | | Hawaiian Electric Consolidated |
| Net income for common stock | | $ | 140,308 | | | 17,994 | | | 18,481 | | | — | | | (36,475) | | | $ | 140,308 | |
| 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 | | 9,782 | | | 1,366 | | | 1,938 | | | | | (3,304) | | | 9,782 | |
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes | | (9,572) | | | (1,362) | | | (1,938) | | | | | 3,300 | | | (9,572) | |
| Other comprehensive income, net of taxes | | 210 | | | 4 | | | — | | | — | | | (4) | | | 210 | |
| Comprehensive income attributable to common shareholder | | $ | 140,518 | | | 17,998 | | | 18,481 | | | — | | | (36,479) | | | $ | 140,518 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | $ | 42,860 | | | 5,606 | | | 3,594 | | | — | | | — | | | $ | 52,060 | |
| Plant and equipment | | 5,178,903 | | | 1,399,002 | | | 1,262,710 | | | — | | | — | | | 7,840,615 | |
| Less accumulated depreciation | | (1,816,724) | | | (633,559) | | | (576,012) | | | — | | | — | | | (3,026,295) | |
| Construction in progress | | 173,970 | | | 20,725 | | | 31,984 | | | — | | | — | | | 226,679 | |
| Utility property, plant and equipment, net | | 3,579,009 | | | 791,774 | | | 722,276 | | | — | | | — | | | 5,093,059 | |
| Nonutility property, plant and equipment, less accumulated depreciation | | 5,300 | | | 115 | | | 1,532 | | | — | | | — | | | 6,947 | |
| Total property, plant and equipment, net | | 3,584,309 | | | 791,889 | | | 723,808 | | | — | | | — | | | 5,100,006 | |
| Investment in wholly owned subsidiaries, at equity | | 686,338 | | | — | | | — | | | — | | | (686,338) | | | — | |
| Current assets | | | | | | | | | | | | |
| Cash and cash equivalents | | 6,578 | | | 5,754 | | | 3,094 | | | 77 | | | — | | | 15,503 | |
| Restricted cash | | 1,129 | | | — | | | — | | | — | | | — | | | 1,129 | |
| Advances to affiliates | | 3,000 | | | — | | | 10,000 | | | — | | | (13,000) | | | — | |
| Customer accounts receivable, net | | 176,838 | | | 37,631 | | | 32,801 | | | — | | | — | | | 247,270 | |
| Accrued unbilled revenues, net | | 128,083 | | | 26,245 | | | 24,548 | | | — | | | — | | | 178,876 | |
| Other accounts receivable, net | | 20,525 | | | 3,063 | | | 3,320 | | | — | | | (16,520) | | | 10,388 | |
| Fuel oil stock, at average cost | | 178,911 | | | 17,254 | | | 27,622 | | | — | | | — | | | 223,787 | |
| Materials and supplies, at average cost | | 43,836 | | | 10,001 | | | 20,744 | | | — | | | — | | | 74,581 | |
| Prepayments and other | | 27,424 | | | 4,911 | | | 3,593 | | | — | | | 612 | | | 36,540 | |
| Regulatory assets | | 64,999 | | | 4,452 | | | 4,127 | | | — | | | — | | | 73,578 | |
| Total current assets | | 651,323 | | | 109,311 | | | 129,849 | | | 77 | | | (28,908) | | | 861,652 | |
| Other long-term assets | | | | | | | | | | | | |
| Operating lease right-of-use assets | | 49,326 | | | 36,743 | | | 13,621 | | | — | | | — | | | 99,690 | |
| Regulatory assets | | 309,077 | | | 76,660 | | | 71,585 | | | — | | | — | | | 457,322 | |
| Other | | 129,402 | | | 19,163 | | | 20,280 | | | — | | | (519) | | | 168,326 | |
| Total other long-term assets | | 487,805 | | | 132,566 | | | 105,486 | | | — | | | (519) | | | 725,338 | |
| Total assets | | $ | 5,409,775 | | | 1,033,766 | | | 959,143 | | | 77 | | | (715,765) | | | $ | 6,686,996 | |
| Capitalization and liabilities | | | | | | | | | | | | |
| Capitalization | | | | | | | | | | | | |
| Common stock equity | | $ | 2,289,595 | | | 337,737 | | | 348,524 | | | 77 | | | (686,338) | | | $ | 2,289,595 | |
| Cumulative preferred stock—not subject to mandatory redemption | | 22,293 | | | 7,000 | | | 5,000 | | | — | | | — | | | 34,293 | |
| Long-term debt, net | | 1,176,691 | | | 244,393 | | | 263,436 | | | — | | | — | | | 1,684,520 | |
| Total capitalization | | 3,488,579 | | | 589,130 | | | 616,960 | | | 77 | | | (686,338) | | | 4,008,408 | |
| Current liabilities | | | | | | | | | | | | |
| Current portion of operating lease liabilities | | 18,985 | | | 6,441 | | | 2,550 | | | — | | | — | | | 27,976 | |
| Current portion of long-term debt | | 39,991 | | | 11,997 | | | — | | | — | | | — | | | 51,988 | |
| Short-term borrowings from non-affiliates | | 54,987 | | | — | | | — | | | — | | | — | | | 54,987 | |
| Short-term borrowings from affiliate | | 10,000 | | | 3,000 | | | — | | | — | | | (13,000) | | | — | |
| Accounts payable | | 156,222 | | | 22,524 | | | 20,410 | | | — | | | — | | | 199,156 | |
| Interest and preferred dividends payable | | 12,779 | | | 2,677 | | | 2,350 | | | — | | | (10) | | | 17,796 | |
| Taxes accrued, including revenue taxes | | 145,594 | | | 34,157 | | | 31,636 | | | — | | | 612 | | | 211,999 | |
| Regulatory liabilities | | 14,614 | | | 3,532 | | | 4,487 | | | — | | | — | | | 22,633 | |
| Other | | 61,438 | | | 17,749 | | | 18,105 | | | — | | | (16,668) | | | 80,624 | |
| Total current liabilities | | 514,610 | | | 102,077 | | | 79,538 | | | — | | | (29,066) | | | 667,159 | |
| Deferred credits and other liabilities | | | | | | | | | | | | |
| Operating lease liabilities | | 44,498 | | | 30,428 | | | 11,185 | | | — | | | — | | | 86,111 | |
| Deferred income taxes | | 285,438 | | | 51,403 | | | 63,269 | | | — | | | — | | | 400,110 | |
| Regulatory liabilities | | 709,954 | | | 182,303 | | | 93,185 | | | — | | | — | | | 985,442 | |
| Unamortized tax credits | | 73,441 | | | 13,643 | | | 13,028 | | | — | | | — | | | 100,112 | |
| Defined benefit pension and other postretirement benefit plans liability | | 216,789 | | | 47,783 | | | 51,264 | | | — | | | (361) | | | 315,475 | |
| Other | | 76,466 | | | 16,999 | | | 30,714 | | | — | | | — | | | 124,179 | |
| Total deferred credits and other liabilities | | 1,406,586 | | | 342,559 | | | 262,645 | | | — | | | (361) | | | 2,011,429 | |
| Total capitalization and liabilities | | $ | 5,409,775 | | | 1,033,766 | | | 959,143 | | | 77 | | | (715,765) | | | $ | 6,686,996 | |
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 credit (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 Balance Sheet
September 30, 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (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 | | $ | 42,860 | | | 5,606 | | | 3,594 | | | — | | | — | | | $ | 52,060 | |
| Plant and equipment | | 5,218,701 | | | 1,403,784 | | | 1,268,441 | | | — | | | — | | | 7,890,926 | |
| Right-of-use assets - finance lease | | 48,371 | | | — | | | — | | | — | | | — | | | 48,371 | |
| Less accumulated depreciation | | (1,845,767) | | | (640,257) | | | (581,618) | | | — | | | — | | | (3,067,642) | |
| Construction in progress | | 197,033 | | | 25,671 | | | 34,878 | | | — | | | — | | | 257,582 | |
| Utility property, plant and equipment, net | | 3,661,198 | | | 794,804 | | | 725,295 | | | — | | | — | | | 5,181,297 | |
| Nonutility property, plant and equipment, less accumulated depreciation | | 5,300 | | | 114 | | | 1,532 | | | — | | | — | | | 6,946 | |
| Total property, plant and equipment, net | | 3,666,498 | | | 794,918 | | | 726,827 | | | — | | | — | | | 5,188,243 | |
| Investment in wholly owned subsidiaries, at equity | | 689,016 | | | — | | | — | | | — | | | (689,016) | | | — | |
| Current assets | | | | | | | | | | | | |
| Cash and cash equivalents | | 13,295 | | | 5,154 | | | 2,778 | | | 77 | | | — | | | 21,304 | |
| | | | | | | | | | | | |
| Advances to affiliates | | — | | | 1,500 | | | 16,000 | | | — | | | (17,500) | | | — | |
| Customer accounts receivable, net | | 181,813 | | | 40,566 | | | 36,593 | | | — | | | — | | | 258,972 | |
| Accrued unbilled revenues, net | | 167,037 | | | 26,508 | | | 26,875 | | | — | | | — | | | 220,420 | |
| Other accounts receivable, net | | 26,795 | | | 4,615 | | | 4,691 | | | — | | | (20,609) | | | 15,492 | |
| Fuel oil stock, at average cost | | 184,981 | | | 20,817 | | | 23,927 | | | — | | | — | | | 229,725 | |
| Materials and supplies, at average cost | | 45,405 | | | 10,621 | | | 21,553 | | | — | | | — | | | 77,579 | |
| Prepayments and other | | 33,628 | | | 6,731 | | | 6,611 | | | — | | | (1,172) | | | 45,798 | |
| Regulatory assets | | 50,074 | | | 2,397 | | | 3,435 | | | — | | | — | | | 55,906 | |
| Total current assets | | 703,028 | | | 118,909 | | | 142,463 | | | 77 | | | (39,281) | | | 925,196 | |
| Other long-term assets | | | | | | | | | | | | |
| Operating lease right-of-use assets | | 44,802 | | | 35,953 | | | 12,954 | | | — | | | — | | | 93,709 | |
| Regulatory assets | | 298,759 | | | 73,845 | | | 68,678 | | | — | | | — | | | 441,282 | |
| Other | | 119,348 | | | 18,831 | | | 20,233 | | | — | | | (296) | | | 158,116 | |
| Total other long-term assets | | 462,909 | | | 128,629 | | | 101,865 | | | — | | | (296) | | | 693,107 | |
| Total assets | | $ | 5,521,451 | | | 1,042,456 | | | 971,155 | | | 77 | | | (728,593) | | | $ | 6,806,546 | |
| Capitalization and liabilities | | | | | | | | | | | | |
| Capitalization | | | | | | | | | | | | |
| Common stock equity | | $ | 2,307,992 | | | 338,598 | | | 350,341 | | | 77 | | | (689,016) | | | $ | 2,307,992 | |
| Cumulative preferred stock—not subject to mandatory redemption | | 22,293 | | | 7,000 | | | 5,000 | | | — | | | — | | | 34,293 | |
| Long-term debt, net | | 1,176,814 | | | 244,417 | | | 263,468 | | | — | | | — | | | 1,684,699 | |
| Total capitalization | | 3,507,099 | | | 590,015 | | | 618,809 | | | 77 | | | (689,016) | | | 4,026,984 | |
| Current liabilities | | | | | | | | | | | | |
| Current portion of operating lease liabilities | | 9,371 | | | 6,611 | | | 2,590 | | | — | | | — | | | 18,572 | |
| Current portion of long-term debt | | 39,996 | | | 11,999 | | | — | | | — | | | — | | | 51,995 | |
| Short-term borrowings from non-affiliates | | 97,450 | | | — | | | — | | | — | | | — | | | 97,450 | |
| Short-term borrowings from affiliate | | 17,500 | | | — | | | — | | | — | | | (17,500) | | | — | |
| Accounts payable | | 117,259 | | | 26,043 | | | 22,159 | | | — | | | — | | | 165,461 | |
| Interest and preferred dividends payable | | 20,800 | | | 3,822 | | | 4,583 | | | — | | | (41) | | | 29,164 | |
| Taxes accrued, including revenue taxes | | 181,935 | | | 39,023 | | | 36,557 | | | — | | | (1,172) | | | 256,343 | |
| Regulatory liabilities | | 15,349 | | | 6,451 | | | 7,518 | | | — | | | — | | | 29,318 | |
| Other | | 62,303 | | | 18,022 | | | 20,188 | | | — | | | (20,725) | | | 79,788 | |
| Total current liabilities | | 561,963 | | | 111,971 | | | 93,595 | | | — | | | (39,438) | | | 728,091 | |
| Deferred credits and other liabilities | | | | | | | | | | | | |
| Operating lease liabilities | | 43,275 | | | 29,517 | | | 10,519 | | | — | | | — | | | 83,311 | |
| Finance lease liabilities | | 46,468 | | | — | | | — | | | — | | | — | | | 46,468 | |
| Deferred income taxes | | 278,230 | | | 50,774 | | | 63,172 | | | — | | | — | | | 392,176 | |
| Regulatory liabilities | | 725,346 | | | 183,073 | | | 92,639 | | | — | | | — | | | 1,001,058 | |
| Unamortized tax credits | | 71,916 | | | 13,354 | | | 12,731 | | | — | | | — | | | 98,001 | |
| Defined benefit pension and other postretirement benefit plans liability | | 211,560 | | | 46,584 | | | 50,128 | | | — | | | (139) | | | 308,133 | |
| Other | | 75,594 | | | 17,168 | | | 29,562 | | | | | — | | | 122,324 | |
| Total deferred credits and other liabilities | | 1,452,389 | | | 340,470 | | | 258,751 | | | — | | | (139) | | | 2,051,471 | |
| Total capitalization and liabilities | | $ | 5,521,451 | | | 1,042,456 | | | 971,155 | | | 77 | | | (728,593) | | | $ | 6,806,546 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 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 | | $ | 42,737 | | | 5,606 | | | 3,594 | | | — | | | — | | | $ | 51,937 | |
| Plant and equipment | | 5,097,033 | | | 1,390,361 | | | 1,248,589 | | | — | | | — | | | 7,735,983 | |
| Less accumulated depreciation | | (1,757,096) | | | (619,991) | | | (563,430) | | | — | | | — | | | (2,940,517) | |
| Construction in progress | | 159,854 | | | 17,129 | | | 27,586 | | | — | | | — | | | 204,569 | |
| Utility property, plant and equipment, net | | 3,542,528 | | | 793,105 | | | 716,339 | | | — | | | — | | | 5,051,972 | |
| Nonutility property, plant and equipment, less accumulated depreciation | | 5,302 | | | 115 | | | 1,532 | | | — | | | — | | | 6,949 | |
| Total property, plant and equipment, net | | 3,547,830 | | | 793,220 | | | 717,871 | | | — | | | — | | | 5,058,921 | |
Investment in wholly owned subsidiaries, at equity | | 676,237 | | | — | | | — | | | — | | | (676,237) | | | — | |
| Current assets | | | | | | | | | | | | |
| Cash and cash equivalents | | 23,344 | | | 5,326 | | | 23,422 | | | 77 | | | — | | | 52,169 | |
| Restricted cash | | 3,089 | | | — | | | — | | | — | | | — | | | 3,089 | |
| Advances to affiliates | | 1,000 | | | — | | | — | | | — | | | (1,000) | | | — | |
| Customer accounts receivable, net | | 135,949 | | | 28,469 | | | 22,441 | | | — | | | — | | | 186,859 | |
| Accrued unbilled revenues, net | | 92,469 | | | 19,529 | | | 17,157 | | | — | | | — | | | 129,155 | |
| Other accounts receivable, net | | 18,624 | | | 3,347 | | | 3,031 | | | — | | | (17,735) | | | 7,267 | |
| Fuel oil stock, at average cost | | 71,184 | | | 12,814 | | | 20,080 | | | — | | | — | | | 104,078 | |
| Materials and supplies, at average cost | | 42,006 | | | 9,727 | | | 20,144 | | | — | | | — | | | 71,877 | |
| Prepayments and other | | 32,140 | | | 6,052 | | | 7,114 | | | — | | | 725 | | | 46,031 | |
| Regulatory assets | | 58,695 | | | 3,051 | | | 4,918 | | | — | | | — | | | 66,664 | |
| Total current assets | | 478,500 | | | 88,315 | | | 118,307 | | | 77 | | | (18,010) | | | 667,189 | |
| Other long-term assets | | | | | | | | | | | | |
| Operating lease right-of-use assets | | 78,710 | | | 22,442 | | | 318 | | | — | | | — | | | 101,470 | |
| Regulatory assets | | 337,903 | | | 81,645 | | | 79,331 | | | — | | | — | | | 498,879 | |
| Other | | 130,546 | | | 17,124 | | | 18,510 | | | — | | | (1,014) | | | 165,166 | |
| Total other long-term assets | | 547,159 | | | 121,211 | | | 98,159 | | | — | | | (1,014) | | | 765,515 | |
| Total assets | | $ | 5,249,726 | | | 1,002,746 | | | 934,337 | | | 77 | | | (695,261) | | | $ | 6,491,625 | |
| Capitalization and liabilities | | | | | | | | | | | | |
| Capitalization | | | | | | | | | | | | |
| Common stock equity | | $ | 2,261,899 | | | 332,900 | | | 343,260 | | | 77 | | | (676,237) | | | $ | 2,261,899 | |
| Cumulative preferred stock—not subject to mandatory redemption | | 22,293 | | | 7,000 | | | 5,000 | | | — | | | — | | | 34,293 | |
| Long-term debt, net | | 1,136,620 | | | 234,390 | | | 253,417 | | | — | | | — | | | 1,624,427 | |
| Total capitalization | | 3,420,812 | | | 574,290 | | | 601,677 | | | 77 | | | (676,237) | | | 3,920,619 | |
| Current liabilities | | | | | | | | | | | | |
| Current portion of operating lease liabilities | | 45,955 | | | 3,378 | | | 35 | | | — | | | — | | | 49,368 | |
| Current portion of long-term debt | | 39,981 | | | 11,994 | | | — | | | — | | | — | | | 51,975 | |
| | | | | | | | | | | | |
| Short-term borrowings-affiliate | | — | | | 1,000 | | | — | | | — | | | (1,000) | | | — | |
| Accounts payable | | 111,024 | | | 26,139 | | | 22,844 | | | — | | | — | | | 160,007 | |
| Interest and preferred dividends payable | | 12,442 | | | 2,617 | | | 2,269 | | | — | | | (3) | | | 17,325 | |
| Taxes accrued, including revenue taxes | | 143,723 | | | 33,153 | | | 30,679 | | | — | | | 725 | | | 208,280 | |
| Regulatory liabilities | | 22,240 | | | 3,247 | | | 4,273 | | | — | | | — | | | 29,760 | |
| Other | | 56,752 | | | 14,158 | | | 18,540 | | | — | | | (17,881) | | | 71,569 | |
| Total current liabilities | | 432,117 | | | 95,686 | | | 78,640 | | | — | | | (18,159) | | | 588,284 | |
| Deferred credits and other liabilities | | | | | | | | | | | | |
| Operating lease liabilities | | 46,426 | | | 19,063 | | | 291 | | | — | | | — | | | 65,780 | |
| Deferred income taxes | | 291,027 | | | 53,298 | | | 64,309 | | | — | | | — | | | 408,634 | |
| Regulatory liabilities | | 695,152 | | | 179,267 | | | 92,589 | | | — | | | — | | | 967,008 | |
| Unamortized tax credits | | 76,201 | | | 14,212 | | | 13,532 | | | — | | | — | | | 103,945 | |
| Defined benefit pension and other postretirement benefit plans liability | | 220,480 | | | 48,900 | | | 53,257 | | | — | | | (857) | | | 321,780 | |
| Other | | 67,511 | | | 18,030 | | | 30,042 | | | — | | | (8) | | | 115,575 | |
| Total deferred credits and other liabilities | | 1,396,797 | | | 332,770 | | | 254,020 | | | — | | | (865) | | | 1,982,722 | |
| Total capitalization and liabilities | | $ | 5,249,726 | | | 1,002,746 | | | 934,337 | | | 77 | | | (695,261) | | | $ | 6,491,625 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
SixNine months ended JuneSeptember 30, 2022 | | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| Balance, December 31, 2021 | Balance, December 31, 2021 | | $ | 2,261,899 | | | 332,900 | | | 343,260 | | | 77 | | | (676,237) | | | $ | 2,261,899 | | Balance, December 31, 2021 | | $ | 2,261,899 | | | 332,900 | | | 343,260 | | | 77 | | | (676,237) | | | $ | 2,261,899 | |
| Net income for common stock | Net income for common stock | | 90,544 | | | 13,035 | | | 12,863 | | | — | | | (25,898) | | | 90,544 | | Net income for common stock | | 140,308 | | | 17,994 | | | 18,481 | | | — | | | (36,475) | | | 140,308 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | 102 | | | 2 | | | 1 | | | — | | | (3) | | | 102 | | Other comprehensive income, net of taxes | | 210 | | | 4 | | | — | | | — | | | (4) | | | 210 | |
| Common stock dividends | Common stock dividends | | (62,950) | | | (8,200) | | | (7,600) | | | — | | | 15,800 | | | (62,950) | | Common stock dividends | | (94,425) | | | (12,300) | | | (11,400) | | | — | | | 23,700 | | | (94,425) | |
| | Balance, June 30, 2022 | | $ | 2,289,595 | | | 337,737 | | | 348,524 | | | 77 | | | (686,338) | | | $ | 2,289,595 | | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | | $ | 2,307,992 | | | 338,598 | | | 350,341 | | | 77 | | | (689,016) | | | $ | 2,307,992 | |
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
SixNine months ended JuneSeptember 30, 2021 | | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| Balance, December 31, 2020 | Balance, December 31, 2020 | | $ | 2,141,918 | | | 317,451 | | | 309,363 | | | 77 | | | (626,891) | | | $ | 2,141,918 | | Balance, December 31, 2020 | | $ | 2,141,918 | | | 317,451 | | | 309,363 | | | 77 | | | (626,891) | | | $ | 2,141,918 | |
| Net income for common stock | Net income for common stock | | 85,259 | | | 12,299 | | | 10,955 | | | — | | | (23,254) | | | 85,259 | | Net income for common stock | | 135,601 | | | 17,187 | | | 18,095 | | | — | | | (35,282) | | | 135,601 | |
| Other comprehensive income, net of taxes | Other comprehensive income, net of taxes | | 69 | | | 1 | | | — | | | — | | | (1) | | | 69 | | Other comprehensive income, net of taxes | | 175 | | | 3 | | | — | | | — | | | (3) | | | 175 | |
| Common stock dividends | Common stock dividends | | (55,850) | | | (7,300) | | | (7,550) | | | — | | | 14,850 | | | (55,850) | | Common stock dividends | | (83,775) | | | (10,950) | | | (11,326) | | | — | | | 22,276 | | | (83,775) | |
| Balance, June 30, 2021 | | $ | 2,171,396 | | | 322,451 | | | 312,768 | | | 77 | | | (635,296) | | | $ | 2,171,396 | | |
| Balance, September 30, 2021 | | Balance, September 30, 2021 | | $ | 2,193,919 | | | 323,691 | | | 316,132 | | | 77 | | | (639,900) | | | $ | 2,193,919 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
SixNine months ended JuneSeptember 30, 2022 | | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| | Net cash provided by operating activities | Net cash provided by operating activities | | $ | 25,367 | | | 19,742 | | | 14,841 | | | — | | | (15,800) | | | $ | 44,150 | | Net cash provided by operating activities | | $ | 74,053 | | | 38,302 | | | 35,512 | | | — | | | (23,700) | | | $ | 124,167 | |
| Cash flows from investing activities | Cash flows from investing activities | | | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | | | |
| Capital expenditures | Capital expenditures | | (87,892) | | | (23,638) | | | (28,715) | | | — | | | — | | | (140,245) | | Capital expenditures | | (152,015) | | | (34,055) | | | (39,806) | | | — | | | — | | | (225,876) | |
| | Advances to affiliates | Advances to affiliates | | (2,000) | | | — | | | (10,000) | | | — | | | 12,000 | | | — | | Advances to affiliates | | 1,000 | | | (1,500) | | | (16,000) | | | — | | | 16,500 | | | — | |
| Other | Other | | 4,471 | | | 834 | | | 1,380 | | | — | | | — | | | 6,685 | | Other | | 4,545 | | | 825 | | | 1,380 | | | — | | | — | | | 6,750 | |
| Net cash used in investing activities | Net cash used in investing activities | | (85,421) | | | (22,804) | | | (37,335) | | | — | | | 12,000 | | | (133,560) | | Net cash used in investing activities | | (146,470) | | | (34,730) | | | (54,426) | | | — | | | 16,500 | | | (219,126) | |
| Cash flows from financing activities | Cash flows from financing activities | | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | | |
| Common stock dividends | Common stock dividends | | (62,950) | | | (8,200) | | | (7,600) | | | — | | | 15,800 | | | (62,950) | | Common stock dividends | | (94,425) | | | (12,300) | | | (11,400) | | | — | | | 23,700 | | | (94,425) | |
| Preferred stock dividends of Hawaiian Electric and subsidiaries | Preferred stock dividends of Hawaiian Electric and subsidiaries | | (540) | | | (267) | | | (191) | | | — | | | — | | | (998) | | Preferred stock dividends of Hawaiian Electric and subsidiaries | | (810) | | | (400) | | | (286) | | | — | | | — | | | (1,496) | |
| | Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | | 40,000 | | | 10,000 | | | 10,000 | | | — | | | — | | | 60,000 | | Proceeds from issuance of long-term debt | | 40,000 | | | 10,000 | | | 10,000 | | | — | | | — | | | 60,000 | |
| | Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less | | 64,987 | | | 2,000 | | | — | | | — | | | (12,000) | | | 54,987 | | |
| Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less | | Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less | | 114,950 | | | (1,000) | | | — | | | — | | | (16,500) | | | 97,450 | |
| Payments of obligations under finance leases | | Payments of obligations under finance leases | | (266) | | | — | | | — | | | — | | | — | | | (266) | |
| Other | Other | | (169) | | | (43) | | | (43) | | | — | | | — | | | (255) | | Other | | (170) | | | (44) | | | (44) | | | — | | | — | | | (258) | |
| Net cash provided by financing activities | Net cash provided by financing activities | | 41,328 | | | 3,490 | | | 2,166 | | | — | | | 3,800 | | | 50,784 | | Net cash provided by financing activities | | 59,279 | | | (3,744) | | | (1,730) | | | — | | | 7,200 | | | 61,005 | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | | (18,726) | | | 428 | | | (20,328) | | | — | | | — | | | (38,626) | | |
| Cash, cash equivalents and restricted cash, beginning of period | | 26,433 | | | 5,326 | | | 23,422 | | | 77 | | | — | | | 55,258 | | |
| Cash, cash equivalents and restricted cash, end of period | | 7,707 | | | 5,754 | | | 3,094 | | | 77 | | | — | | | 16,632 | | |
| Less: Restricted cash | | (1,129) | | | — | | | — | | | — | | | — | | | (1,129) | | |
| Net decrease in cash and cash equivalents | | Net decrease in cash and cash equivalents | | (13,138) | | | (172) | | | (20,644) | | | — | | | — | | | (33,954) | |
| Cash and cash equivalents, beginning of period | | Cash and cash equivalents, beginning of period | | 26,433 | | | 5,326 | | | 23,422 | | | 77 | | | — | | | 55,258 | |
| | Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 6,578 | | | 5,754 | | | 3,094 | | | 77 | | | — | | | $ | 15,503 | | Cash and cash equivalents, end of period | | $ | 13,295 | | | 5,154 | | | 2,778 | | | 77 | | | — | | | $ | 21,304 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
SixNine months ended JuneSeptember 30, 2021 | | (in thousands) | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated | (in thousands) | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Other
subsidiaries | | Consolidating
adjustments | | Hawaiian Electric
Consolidated |
| | Net cash provided by operating activities | Net cash provided by operating activities | | $ | 43,623 | | | 15,315 | | | 13,365 | | | — | | | (14,850) | | | $ | 57,453 | | Net cash provided by operating activities | | $ | 157,191 | | | 32,698 | | | 30,643 | | | — | | | (22,276) | | | $ | 198,256 | |
| Cash flows from investing activities | Cash flows from investing activities | | | | | | | | | | | Cash flows from investing activities | | | | | | | | | | |
| Capital expenditures | Capital expenditures | | (92,352) | | | (22,135) | | | (23,538) | | | — | | | — | | | (138,025) | | Capital expenditures | | (137,916) | | | (33,511) | | | (32,319) | | | — | | | — | | | (203,746) | |
| Advances from affiliates | Advances from affiliates | | 22,900 | | | — | | | — | | | — | | | (22,900) | | | — | | Advances from affiliates | | 26,000 | | | — | | | — | | | — | | | (26,000) | | | — | |
| Other | Other | | 3,087 | | | 911 | | | 672 | | | — | | | — | | | 4,670 | | Other | | 4,136 | | | 1,121 | | | 900 | | | — | | | — | | | 6,157 | |
| Net cash used in investing activities | Net cash used in investing activities | | (66,365) | | | (21,224) | | | (22,866) | | | — | | | (22,900) | | | (133,355) | | Net cash used in investing activities | | (107,780) | | | (32,390) | | | (31,419) | | | — | | | (26,000) | | | (197,589) | |
| Cash flows from financing activities | Cash flows from financing activities | | | | | | | | | | | | Cash flows from financing activities | | | | | | | | | | | |
| Common stock dividends | Common stock dividends | | (55,850) | | | (7,300) | | | (7,550) | | | — | | | 14,850 | | | (55,850) | | Common stock dividends | | (83,775) | | | (10,950) | | | (11,326) | | | — | | | 22,276 | | | (83,775) | |
| Preferred stock dividends of Hawaiian Electric and subsidiaries | Preferred stock dividends of Hawaiian Electric and subsidiaries | | (540) | | | (267) | | | (191) | | | — | | | — | | | (998) | | Preferred stock dividends of Hawaiian Electric and subsidiaries | | (810) | | | (400) | | | (286) | | | — | | | — | | | (1,496) | |
| | Repayment of short-term debt | Repayment of short-term debt | | (50,000) | | | — | | | — | | | — | | | — | | | (50,000) | | Repayment of short-term debt | | (50,000) | | | — | | | — | | | — | | | — | | | (50,000) | |
| Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | | 60,000 | | | 30,000 | | | 25,000 | | | — | | | — | | | 115,000 | | Proceeds from issuance of long-term debt | | 60,000 | | | 30,000 | | | 25,000 | | | — | | | — | | | 115,000 | |
| | Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less | | 37,999 | | | (15,700) | | | (7,200) | | | — | | | 22,900 | | | 37,999 | | |
| Net decrease in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less | | 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 | Other | | (703) | | | (116) | | | (122) | | | — | | | — | | | (941) | | Other | | (703) | | | (116) | | | (123) | | | — | | | — | | | (942) | |
| Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | | (9,094) | | | 6,617 | | | 9,937 | | | — | | | 37,750 | | | 45,210 | | Net cash provided by (used in) financing activities | | (75,288) | | | 434 | | | 5,365 | | | — | | | 48,276 | | | (21,213) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | Net increase (decrease) in cash, cash equivalents and restricted cash | | (31,836) | | | 708 | | | 436 | | | — | | | — | | | (30,692) | | Net increase (decrease) in cash, cash equivalents and restricted cash | | (25,877) | | | 742 | | | 4,589 | | | — | | | — | | | (20,546) | |
| Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | | 58,171 | | | 3,046 | | | 2,032 | | | 77 | | | — | | | 63,326 | | 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 | Cash, cash equivalents and restricted cash, end of period | | 26,335 | | | 3,754 | | | 2,468 | | | 77 | | | — | | | 32,634 | | Cash, cash equivalents and restricted cash, end of period | | 32,294 | | | 3,788 | | | 6,621 | | | 77 | | | — | | | 42,780 | |
| Less: Restricted cash | Less: Restricted cash | | (8,968) | | | — | | | — | | | — | | | — | | | (8,968) | | Less: Restricted cash | | (6,313) | | | — | | | — | | | — | | | — | | | (6,313) | |
| Cash and cash equivalents, end of period | Cash and cash equivalents, end of period | | $ | 17,367 | | | 3,754 | | | 2,468 | | | 77 | | | — | | | $ | 23,666 | | Cash and cash equivalents, end of period | | $ | 25,981 | | | 3,788 | | | 6,621 | | | 77 | | | — | | | $ | 36,467 | |
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 June 30 | | Six months ended June 30 | | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Interest and dividend income | Interest and dividend income | | | | | | | | | Interest and dividend income | | | | | | | | |
| Interest and fees on loans | Interest and fees on loans | | $ | 48,129 | | | $ | 51,026 | | | $ | 94,134 | | | $ | 100,973 | | Interest and fees on loans | | $ | 53,365 | | | $ | 49,445 | | | $ | 147,499 | | | $ | 150,418 | |
| Interest and dividends on investment securities | Interest and dividends on investment securities | | 14,693 | | | 11,040 | | | 28,677 | | | 19,713 | | Interest and dividends on investment securities | | 15,052 | | | 11,996 | | | 43,729 | | | 31,709 | |
| Total interest and dividend income | Total interest and dividend income | | 62,822 | | | 62,066 | | | 122,811 | | | 120,686 | | Total interest and dividend income | | 68,417 | | | 61,441 | | | 191,228 | | | 182,127 | |
| Interest expense | Interest expense | | | | | | | | | Interest expense | | | | | | | | |
| Interest on deposit liabilities | Interest on deposit liabilities | | 921 | | | 1,281 | | | 1,868 | | | 2,743 | | Interest on deposit liabilities | | 1,704 | | | 1,176 | | | 3,572 | | | 3,919 | |
| Interest on other borrowings | Interest on other borrowings | | 139 | | | 23 | | | 144 | | | 50 | | Interest on other borrowings | | 1,055 | | | 5 | | | 1,199 | | | 55 | |
| Total interest expense | Total interest expense | | 1,060 | | | 1,304 | | | 2,012 | | | 2,793 | | Total interest expense | | 2,759 | | | 1,181 | | | 4,771 | | | 3,974 | |
| Net interest income | Net interest income | | 61,762 | | | 60,762 | | | 120,799 | | | 117,893 | | Net interest income | | 65,658 | | | 60,260 | | | 186,457 | | | 178,153 | |
| Provision for credit losses | Provision for credit losses | | 2,757 | | | (12,207) | | | (506) | | | (20,642) | | Provision for credit losses | | (186) | | | (1,725) | | | (692) | | | (22,367) | |
| Net interest income after provision for credit losses | Net interest income after provision for credit losses | | 59,005 | | | 72,969 | | | 121,305 | | | 138,535 | | Net interest income after provision for credit losses | | 65,844 | | | 61,985 | | | 187,149 | | | 200,520 | |
| Noninterest income | Noninterest income | | | | | | | | | Noninterest income | | | | | | | | |
| Fees from other financial services | Fees from other financial services | | 4,716 | | | 5,464 | | | 10,303 | | | 10,537 | | Fees from other financial services | | 4,763 | | | 4,800 | | | 15,066 | | | 15,337 | |
| Fee income on deposit liabilities | Fee income on deposit liabilities | | 4,552 | | | 3,904 | | | 9,243 | | | 7,767 | | Fee income on deposit liabilities | | 4,879 | | | 4,262 | | | 14,122 | | | 12,029 | |
| Fee income on other financial products | Fee income on other financial products | | 2,529 | | | 2,201 | | | 5,247 | | | 4,643 | | Fee income on other financial products | | 2,416 | | | 2,124 | | | 7,663 | | | 6,767 | |
| Bank-owned life insurance | Bank-owned life insurance | | (142) | | | 1,624 | | | 539 | | | 4,185 | | Bank-owned life insurance | | 122 | | | 2,026 | | | 661 | | | 6,211 | |
| Mortgage banking income | Mortgage banking income | | 372 | | | 1,925 | | | 1,449 | | | 6,225 | | Mortgage banking income | | 181 | | | 1,272 | | | 1,630 | | | 7,497 | |
| Gain on sale of real estate | Gain on sale of real estate | | — | | | — | | | 1,002 | | | — | | Gain on sale of real estate | | — | | | — | | | 1,002 | | | — | |
| Gain on sale of investment securities, net | Gain on sale of investment securities, net | | — | | | — | | | — | | | 528 | | Gain on sale of investment securities, net | | — | | | — | | | — | | | 528 | |
| Other income, net | Other income, net | | 475 | | | 76 | | | 847 | | | 348 | | Other income, net | | 633 | | | 283 | | | 1,480 | | | 631 | |
| Total noninterest income | Total noninterest income | | 12,502 | | | 15,194 | | | 28,630 | | | 34,233 | | Total noninterest income | | 12,994 | | | 14,767 | | | 41,624 | | | 49,000 | |
| Noninterest expense | Noninterest expense | | | | | | | | | Noninterest expense | | | | | | | | |
| Compensation and employee benefits | Compensation and employee benefits | | 27,666 | | | 27,670 | | | 54,881 | | | 55,707 | | Compensation and employee benefits | | 28,597 | | | 30,888 | | | 83,478 | | | 86,595 | |
| Occupancy | Occupancy | | 5,467 | | | 5,100 | | | 11,419 | | | 10,069 | | Occupancy | | 5,577 | | | 5,157 | | | 16,996 | | | 15,226 | |
| Data processing | Data processing | | 4,484 | | | 4,533 | | | 8,635 | | | 8,884 | | Data processing | | 4,509 | | | 4,278 | | | 13,144 | | | 13,162 | |
| Services | Services | | 2,522 | | | 2,475 | | | 4,961 | | | 5,337 | | Services | | 2,751 | | | 2,272 | | | 7,712 | | | 7,609 | |
| Equipment | Equipment | | 2,402 | | | 2,394 | | | 4,731 | | | 4,616 | | Equipment | | 2,432 | | | 2,373 | | | 7,163 | | | 6,989 | |
| Office supplies, printing and postage | Office supplies, printing and postage | | 1,073 | | | 978 | | | 2,133 | | | 2,022 | | Office supplies, printing and postage | | 1,123 | | | 1,072 | | | 3,256 | | | 3,094 | |
| Marketing | Marketing | | 934 | | | 665 | | | 1,952 | | | 1,313 | | Marketing | | 925 | | | 995 | | | 2,877 | | | 2,308 | |
| FDIC insurance | FDIC insurance | | 891 | | | 788 | | | 1,699 | | | 1,604 | | FDIC insurance | | 914 | | | 808 | | | 2,613 | | | 2,412 | |
| Other expense | Other expense | | 3,959 | | | 3,568 | | | 7,200 | | | 6,122 | | Other expense | | 4,729 | | | 3,668 | | | 11,929 | | | 9,790 | |
| Total noninterest expense | Total noninterest expense | | 49,398 | | | 48,171 | | | 97,611 | | | 95,674 | | Total noninterest expense | | 51,557 | | | 51,511 | | | 149,168 | | | 147,185 | |
| Income before income taxes | Income before income taxes | | 22,109 | | | 39,992 | | | 52,324 | | | 77,094 | | Income before income taxes | | 27,281 | | | 25,241 | | | 79,605 | | | 102,335 | |
| Income taxes | Income taxes | | 4,643 | | | 9,708 | | | 10,988 | | | 17,254 | | Income taxes | | 6,525 | | | 5,976 | | | 17,513 | | | 23,230 | |
| Net income | Net income | | 17,466 | | | 30,284 | | | 41,336 | | | 59,840 | | Net income | | 20,756 | | | 19,265 | | | 62,092 | | | 79,105 | |
| Other comprehensive income (loss), net of taxes | | (88,835) | | | 16,999 | | | (211,276) | | | (28,755) | | |
| Other comprehensive loss, net of taxes | | Other comprehensive loss, net of taxes | | (98,942) | | | (11,684) | | | (310,218) | | | (40,439) | |
| Comprehensive income (loss) | Comprehensive income (loss) | | $ | (71,369) | | | $ | 47,283 | | | $ | (169,940) | | | $ | 31,085 | | Comprehensive income (loss) | | $ | (78,186) | | | $ | 7,581 | | | $ | (248,126) | | | $ | 38,666 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*: | | | | | Three months ended June 30 | | Six months ended June 30 | | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Interest and dividend income | Interest and dividend income | | $ | 62,822 | | | $ | 62,066 | | | $ | 122,811 | | | $ | 120,686 | | Interest and dividend income | | $ | 68,417 | | | $ | 61,441 | | | $ | 191,228 | | | $ | 182,127 | |
| Noninterest income | Noninterest income | | 12,502 | | | 15,194 | | | 28,630 | | | 34,233 | | Noninterest income | | 12,994 | | | 14,767 | | | 41,624 | | | 49,000 | |
| Less: Gain on sale of real estate | Less: Gain on sale of real estate | | — | | | — | | | 1,002 | | | — | | Less: Gain on sale of real estate | | — | | | — | | | 1,002 | | | — | |
| Less: Gain on sale of investment securities, net | Less: Gain on sale of investment securities, net | | — | | | — | | | — | | | 528 | | Less: Gain on sale of investment securities, net | | — | | | — | | | — | | | 528 | |
| *Revenues-Bank | *Revenues-Bank | | 75,324 | | | 77,260 | | | 150,439 | | | 154,391 | | *Revenues-Bank | | 81,411 | | | 76,208 | | | 231,850 | | | 230,599 | |
| Total interest expense | Total interest expense | | 1,060 | | | 1,304 | | | 2,012 | | | 2,793 | | Total interest expense | | 2,759 | | | 1,181 | | | 4,771 | | | 3,974 | |
| Provision for credit losses | Provision for credit losses | | 2,757 | | | (12,207) | | | (506) | | | (20,642) | | Provision for credit losses | | (186) | | | (1,725) | | | (692) | | | (22,367) | |
| Noninterest expense | Noninterest expense | | 49,398 | | | 48,171 | | | 97,611 | | | 95,674 | | Noninterest expense | | 51,557 | | | 51,511 | | | 149,168 | | | 147,185 | |
| Less: Gain on sale of real estate | Less: Gain on sale of real estate | | — | | | — | | | 1,002 | | | — | | Less: Gain on sale of real estate | | — | | | — | | | 1,002 | | | — | |
| Less: Retirement defined benefits credit—other than service costs | Less: Retirement defined benefits credit—other than service costs | | (186) | | | (186) | | | (371) | | | (1,464) | | Less: Retirement defined benefits credit—other than service costs | | (181) | | | (184) | | | (552) | | | (1,648) | |
| *Expenses-Bank | *Expenses-Bank | | 53,401 | | | 37,454 | | | 98,486 | | | 79,289 | | *Expenses-Bank | | 54,311 | | | 51,151 | | | 152,797 | | | 130,440 | |
| *Operating income-Bank | *Operating income-Bank | | 21,923 | | | 39,806 | | | 51,953 | | | 75,102 | | *Operating income-Bank | | 27,100 | | | 25,057 | | | 79,053 | | | 100,159 | |
| Add back: Retirement defined benefits credit—other than service costs | Add back: Retirement defined benefits credit—other than service costs | | (186) | | | (186) | | | (371) | | | (1,464) | | Add back: Retirement defined benefits credit—other than service costs | | (181) | | | (184) | | | (552) | | | (1,648) | |
| Add back: Gain on sale of investment securities, net | Add back: Gain on sale of investment securities, net | | — | | | — | | | — | | | 528 | | Add back: Gain on sale of investment securities, net | | — | | | — | | | — | | | 528 | |
| Income before income taxes | Income before income taxes | | $ | 22,109 | | | $ | 39,992 | | | $ | 52,324 | | | $ | 77,094 | | Income before income taxes | | $ | 27,281 | | | $ | 25,241 | | | $ | 79,605 | | | $ | 102,335 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
American Savings Bank, F.S.B.
Balance Sheets Data | | (in thousands) | (in thousands) | | June 30, 2022 | | December 31, 2021 | (in thousands) | | September 30, 2022 | | December 31, 2021 |
| Assets | Assets | | | | | | | | | Assets | | | | | | | | |
| Cash and due from banks | Cash and due from banks | | | | $ | 128,971 | | | | | $ | 100,051 | | Cash and due from banks | | | | $ | 143,618 | | | | | $ | 100,051 | |
| Interest-bearing deposits | Interest-bearing deposits | | 12,054 | | | 151,189 | | Interest-bearing deposits | | 6,179 | | | 151,189 | |
| Cash and cash equivalents | Cash and cash equivalents | | 141,025 | | | 251,240 | | Cash and cash equivalents | | 149,797 | | | 251,240 | |
| | Investment securities | Investment securities | | Investment securities | |
| Available-for-sale, at fair value | Available-for-sale, at fair value | | | | 2,444,267 | | | | | 2,574,618 | | Available-for-sale, at fair value | | | | 2,232,336 | | | | | 2,574,618 | |
| Held-to-maturity, at amortized cost (fair value of $440,023 and $510,474, respectively) | | 513,767 | | | 522,270 | | |
| Held-to-maturity, at amortized cost (fair value of $411,191 and $510,474, respectively) | | Held-to-maturity, at amortized cost (fair value of $411,191 and $510,474, respectively) | | 510,879 | | | 522,270 | |
| Stock in Federal Home Loan Bank, at cost | Stock in Federal Home Loan Bank, at cost | | | | 13,200 | | | | | 10,000 | | Stock in Federal Home Loan Bank, at cost | | | | 15,000 | | | | | 10,000 | |
| Loans held for investment | Loans held for investment | | | | 5,426,995 | | | | | 5,211,114 | | Loans held for investment | | | | 5,687,390 | | | | | 5,211,114 | |
| Allowance for credit losses | Allowance for credit losses | | | | (69,456) | | | | | (71,130) | | Allowance for credit losses | | | | (70,406) | | | | | (71,130) | |
| Net loans | Net loans | | | | 5,357,539 | | | | | 5,139,984 | | Net loans | | | | 5,616,984 | | | | | 5,139,984 | |
| Loans held for sale, at lower of cost or fair value | Loans held for sale, at lower of cost or fair value | | | | 3,738 | | | | | 10,404 | | Loans held for sale, at lower of cost or fair value | | | | 3,101 | | | | | 10,404 | |
| Other | Other | | | | 659,139 | | | | | 590,897 | | Other | | | | 705,324 | | | | | 590,897 | |
| Goodwill | Goodwill | | | | 82,190 | | | | | 82,190 | | Goodwill | | | | 82,190 | | | | | 82,190 | |
| Total assets | Total assets | | | | $ | 9,214,865 | | | | | $ | 9,181,603 | | Total assets | | | | $ | 9,315,611 | | | | | $ | 9,181,603 | |
| Liabilities and shareholder’s equity | Liabilities and shareholder’s equity | | | | | | | | | Liabilities and shareholder’s equity | | | | | | | | |
| Deposit liabilities—noninterest-bearing | Deposit liabilities—noninterest-bearing | | | | $ | 2,993,900 | | | | | $ | 2,976,632 | | Deposit liabilities—noninterest-bearing | | | | $ | 2,921,857 | | | | | $ | 2,976,632 | |
| Deposit liabilities—interest-bearing | Deposit liabilities—interest-bearing | | | | 5,259,636 | | | | | 5,195,580 | | Deposit liabilities—interest-bearing | | | | 5,337,028 | | | | | 5,195,580 | |
| Other borrowings | Other borrowings | | | | 241,610 | | | | | 88,305 | | Other borrowings | | | | 409,040 | | | | | 88,305 | |
| Other | Other | | | | 187,770 | | | | | 193,268 | | Other | | | | 198,596 | | | | | 193,268 | |
| Total liabilities | Total liabilities | | | | 8,682,916 | | | | | 8,453,785 | | Total liabilities | | | | 8,866,521 | | | | | 8,453,785 | |
| | | | | | | | | | |
| Common stock | Common stock | | | | 1 | | | | | 1 | | Common stock | | | | 1 | | | | | 1 | |
| Additional paid-in capital | Additional paid-in capital | | 354,966 | | | 353,895 | | Additional paid-in capital | | 355,293 | | | 353,895 | |
| Retained earnings | Retained earnings | | | | 426,040 | | | | | 411,704 | | Retained earnings | | | | 441,796 | | | | | 411,704 | |
| Accumulated other comprehensive loss, net of tax benefits | Accumulated other comprehensive loss, net of tax benefits | | | | | | | | | Accumulated other comprehensive loss, net of tax benefits | | | | | | | | |
| Net unrealized losses on securities | Net unrealized losses on securities | | $ | (241,301) | | | | | $ | (32,037) | | | Net unrealized losses on securities | | $ | (340,266) | | | | | $ | (32,037) | | |
| Retirement benefit plans | Retirement benefit plans | | (7,757) | | | (249,058) | | | (5,745) | | | (37,782) | | Retirement benefit plans | | (7,734) | | | (348,000) | | | (5,745) | | | (37,782) | |
| Total shareholder’s equity | Total shareholder’s equity | | 531,949 | | | | | 727,818 | | Total shareholder’s equity | | 449,090 | | | | | 727,818 | |
| Total liabilities and shareholder’s equity | Total liabilities and shareholder’s equity | | | | $ | 9,214,865 | | | | | $ | 9,181,603 | | Total liabilities and shareholder’s equity | | | | $ | 9,315,611 | | | | | $ | 9,181,603 | |
| | Other assets | Other assets | | | | | | | | | Other assets | | | | | | | | |
| Bank-owned life insurance | Bank-owned life insurance | | | | $ | 181,166 | | | | | $ | 177,566 | | Bank-owned life insurance | | | | $ | 181,107 | | | | | $ | 177,566 | |
| Premises and equipment, net | Premises and equipment, net | | | | 199,429 | | | | | 202,299 | | Premises and equipment, net | | | | 196,035 | | | | | 202,299 | |
| Accrued interest receivable | Accrued interest receivable | | | | 21,335 | | | | | 20,854 | | Accrued interest receivable | | | | 23,140 | | | | | 20,854 | |
| Mortgage-servicing rights | Mortgage-servicing rights | | | | 9,696 | | | | | 9,950 | | Mortgage-servicing rights | | | | 9,351 | | | | | 9,950 | |
| Low-income housing investments | Low-income housing investments | | 104,592 | | | 110,989 | | Low-income housing investments | | 110,700 | | | 110,989 | |
| Real estate acquired in settlement of loans, net | Real estate acquired in settlement of loans, net | | | | 271 | | | | | — | | Real estate acquired in settlement of loans, net | | | | 271 | | | | | — | |
| Real estate held for sale | Real estate held for sale | | 3,030 | | | — | | Real estate held for sale | | 3,030 | | | — | |
| Deferred tax asset | Deferred tax asset | | 84,814 | | | 7,699 | | Deferred tax asset | | 120,442 | | | 7,699 | |
| Other | Other | | | | 54,806 | | | | | 61,540 | | Other | | | | 61,248 | | | | | 61,540 | |
| | | | | | $ | 659,139 | | | | | $ | 590,897 | | | | | | $ | 705,324 | | | | | $ | 590,897 | |
| Other liabilities | Other liabilities | | | | | | | | | Other liabilities | | | | | | | | |
| Accrued expenses | Accrued expenses | | | | $ | 83,915 | | | | | $ | 87,905 | | Accrued expenses | | | | $ | 94,782 | | | | | $ | 87,905 | |
| Federal and state income taxes payable | | | | — | | | | | — | | |
| | Cashier’s checks | Cashier’s checks | | | | 33,747 | | | | | 33,675 | | Cashier’s checks | | | | 36,393 | | | | | 33,675 | |
| Advance payments by borrowers | Advance payments by borrowers | | | | 9,980 | | | | | 9,994 | | Advance payments by borrowers | | | | 4,488 | | | | | 9,994 | |
| Other | Other | | | | 60,128 | | | | | 61,694 | | Other | | | | 62,933 | | | | | 61,694 | |
| | | | | | $ | 187,770 | | | | | $ | 193,268 | | | | | | $ | 198,596 | | | | | $ | 193,268 | |
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 FHLB advances of $80.0$125.0 million and nil at JuneSeptember 30, 2022 and December 31, 2021, respectively, and securities sold under agreements to repurchase of $161.6$284.0 million and $88.3 million at JuneSeptember 30, 2022 and December 31, 2021, 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 | | | Amortized cost | | Gross unrealized gains | | Gross unrealized losses | | Estimated fair
value | | Gross unrealized losses |
| | | | Less than 12 months | | 12 months or longer | | | Less than 12 months | | 12 months or longer |
| (dollars in thousands) | (dollars in thousands) | | Number of issues | | Fair
value | | Amount | | Number of issues | | Fair
value | | Amount | (dollars in thousands) | | Number of issues | | Fair
value | | Amount | | Number of issues | | Fair
value | | Amount |
| June 30, 2022 | | | | | | | | | | | | | | | | | |
| September 30, 2022 | | September 30, 2022 | | | | | | | | | | | | | | | | |
| Available-for-sale | Available-for-sale | | Available-for-sale | |
| U.S. Treasury and federal agency obligations | U.S. Treasury and federal agency obligations | | $ | 107,389 | | | $ | — | | | $ | (4,902) | | | $ | 102,487 | | | 17 | | | $ | 102,487 | | | $ | (4,902) | | | — | | | $ | — | | | $ | — | | U.S. Treasury and federal agency obligations | | $ | 104,278 | | | $ | — | | | $ | (7,865) | | | $ | 96,413 | | | 16 | | | $ | 78,651 | | | $ | (5,672) | | | 1 | | | $ | 17,762 | | | $ | (2,193) | |
| Mortgage-backed securities* | Mortgage-backed securities* | | 2,606,904 | | | 467 | | | (322,185) | | | 2,285,186 | | | 180 | | | 1,409,947 | | | (158,235) | | | 66 | | | 845,879 | | | (163,950) | | Mortgage-backed securities* | | 2,533,445 | | | 13 | | | (452,503) | | | 2,080,955 | | | 139 | | | 735,328 | | | (110,054) | | | 109 | | | 1,342,950 | | | (342,449) | |
| Corporate bonds | Corporate bonds | | 44,447 | | | — | | | (3,018) | | | 41,429 | | | 5 | | | 41,429 | | | (3,018) | | | — | | | — | | | — | | Corporate bonds | | 44,412 | | | — | | | (4,477) | | | 39,935 | | | 5 | | | 39,935 | | | (4,477) | | | — | | | — | | | — | |
| Mortgage revenue bonds | Mortgage revenue bonds | | 15,165 | | | — | | | — | | | 15,165 | | | — | | | — | | | — | | | — | | | — | | | — | | Mortgage revenue bonds | | 15,033 | | | — | | | — | | | 15,033 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | $ | 2,773,905 | | | $ | 467 | | | $ | (330,105) | | | $ | 2,444,267 | | | 202 | | | $ | 1,553,863 | | | $ | (166,155) | | | 66 | | | $ | 845,879 | | | $ | (163,950) | | | | $ | 2,697,168 | | | $ | 13 | | | $ | (464,845) | | | $ | 2,232,336 | | | 160 | | | $ | 853,914 | | | $ | (120,203) | | | 110 | | | $ | 1,360,712 | | | $ | (344,642) | |
| Held-to-maturity | Held-to-maturity | | Held-to-maturity | |
| U.S. Treasury and Federal agency obligations | U.S. Treasury and Federal agency obligations | | $ | 59,882 | | | $ | — | | | $ | (5,997) | | | $ | 53,885 | | | 3 | | | $ | 53,885 | | | $ | (5,997) | | | — | | | $ | — | | | $ | — | | U.S. Treasury and Federal agency obligations | | $ | 59,888 | | | $ | — | | | $ | (8,918) | | | $ | 50,970 | | | 2 | | | $ | 33,821 | | | $ | (6,106) | | | 1 | | | $ | 17,149 | | | $ | (2,812) | |
| Mortgage-backed securities* | Mortgage-backed securities* | | 453,885 | | | — | | | (67,747) | | | 386,138 | | | 24 | | | 236,918 | | | (35,867) | | | 13 | | | 149,220 | | | (31,880) | | Mortgage-backed securities* | | 450,991 | | | — | | | (90,770) | | | 360,221 | | | 13 | | | 91,218 | | | (19,048) | | | 24 | | | 269,003 | | | (71,722) | |
| | | | $ | 513,767 | | | $ | — | | | $ | (73,744) | | | $ | 440,023 | | | 27 | | | $ | 290,803 | | | $ | (41,864) | | | 13 | | | $ | 149,220 | | | $ | (31,880) | | | | $ | 510,879 | | | $ | — | | | $ | (99,688) | | | $ | 411,191 | | | 15 | | | $ | 125,039 | | | $ | (25,154) | | | 25 | | | $ | 286,152 | | | $ | (74,534) | |
| December 31, 2021 | December 31, 2021 | | December 31, 2021 | |
| Available-for-sale | Available-for-sale | | Available-for-sale | |
| U.S. Treasury and federal agency obligations | U.S. Treasury and federal agency obligations | | $ | 89,714 | | | $ | 803 | | | $ | (427) | | | $ | 90,090 | | | 4 | | | $ | 44,827 | | | $ | (427) | | | — | | | $ | — | | | $ | — | | U.S. Treasury and federal agency obligations | | $ | 89,714 | | | $ | 803 | | | $ | (427) | | | $ | 90,090 | | | 4 | | | $ | 44,827 | | | $ | (427) | | | — | | | $ | — | | | $ | — | |
| Mortgage-backed securities* | Mortgage-backed securities* | | 2,482,618 | | | 6,511 | | | (51,206) | | | 2,437,923 | | | 120 | | | 1,845,243 | | | (38,321) | | | 18 | | | 271,012 | | | (12,885) | | Mortgage-backed securities* | | 2,482,618 | | | 6,511 | | | (51,206) | | | 2,437,923 | | | 120 | | | 1,845,243 | | | (38,321) | | | 18 | | | 271,012 | | | (12,885) | |
| Corporate bonds | Corporate bonds | | 30,625 | | | 655 | | | (102) | | | 31,178 | | | 1 | | | 12,780 | | | (102) | | | — | | | — | | | — | | Corporate bonds | | 30,625 | | | 655 | | | (102) | | | 31,178 | | | 1 | | | 12,780 | | | (102) | | | — | | | — | | | — | |
| Mortgage revenue bonds | Mortgage revenue bonds | | 15,427 | | | — | | | — | | | 15,427 | | | — | | | — | | | — | | | — | | | — | | | — | | Mortgage revenue bonds | | 15,427 | | | — | | | — | | | 15,427 | | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | $ | 2,618,384 | | | $ | 7,969 | | | $ | (51,735) | | | $ | 2,574,618 | | | 125 | | | $ | 1,902,850 | | | $ | (38,850) | | | 18 | | | $ | 271,012 | | | $ | (12,885) | | | | $ | 2,618,384 | | | $ | 7,969 | | | $ | (51,735) | | | $ | 2,574,618 | | | 125 | | | $ | 1,902,850 | | | $ | (38,850) | | | 18 | | | $ | 271,012 | | | $ | (12,885) | |
| Held-to-maturity | Held-to-maturity | | Held-to-maturity | |
| U.S. Treasury and Federal agency obligations | U.S. Treasury and Federal agency obligations | | $ | 59,871 | | | $ | 168 | | | $ | (170) | | | $ | 59,869 | | | 2 | | | $ | 39,594 | | | $ | (170) | | | — | | | $ | — | | | $ | — | | U.S. Treasury and Federal agency obligations | | $ | 59,871 | | | $ | 168 | | | $ | (170) | | | $ | 59,869 | | | 2 | | | $ | 39,594 | | | $ | (170) | | | — | | | $ | — | | | $ | — | |
| Mortgage-backed securities* | Mortgage-backed securities* | | 462,399 | | | 1,480 | | | (13,274) | | | 450,605 | | | 22 | | | 290,883 | | | (7,665) | | | 7 | | | 106,483 | | | (5,609) | | Mortgage-backed securities* | | 462,399 | | | 1,480 | | | (13,274) | | | 450,605 | | | 22 | | | 290,883 | | | (7,665) | | | 7 | | | 106,483 | | | (5,609) | |
| | | | $ | 522,270 | | | $ | 1,648 | | | $ | (13,444) | | | $ | 510,474 | | | 24 | | | $ | 330,477 | | | $ | (7,835) | | | 7 | | | $ | 106,483 | | | $ | (5,609) | | | | $ | 522,270 | | | $ | 1,648 | | | $ | (13,444) | | | $ | 510,474 | | | 24 | | | $ | 330,477 | | | $ | (7,835) | | | 7 | | | $ | 106,483 | | | $ | (5,609) | |
* 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 JuneSeptember 30, 2022 and December 31, 2021, 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 JuneSeptember 30, 2022 and December 31, 2021.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.
The contractual maturities of investment securities were as follows: | | June 30, 2022 | | Amortized cost | | Fair value | |
| September 30, 2022 | | September 30, 2022 | | Amortized cost | | Fair value |
| (in thousands) | (in thousands) | | | | | (in thousands) | | | | |
| Available-for-sale | Available-for-sale | | Available-for-sale | |
| Due in one year or less | Due in one year or less | | $ | 15,807 | | | $ | 15,781 | | Due in one year or less | | $ | 15,239 | | | $ | 15,195 | |
| Due after one year through five years | Due after one year through five years | | 84,406 | | | 81,286 | | Due after one year through five years | | 81,842 | | | 76,442 | |
| Due after five years through ten years | Due after five years through ten years | | 66,788 | | | 62,014 | | Due after five years through ten years | | 66,642 | | | 59,744 | |
| Due after ten years | Due after ten years | | — | | | — | | Due after ten years | | — | | | — | |
| | | | 167,001 | | | 159,081 | | | | 163,723 | | | 151,381 | |
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | 2,606,904 | | | 2,285,186 | | Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | 2,533,445 | | | 2,080,955 | |
| Total available-for-sale securities | Total available-for-sale securities | | $ | 2,773,905 | | | $ | 2,444,267 | | Total available-for-sale securities | | $ | 2,697,168 | | | $ | 2,232,336 | |
| Held-to-maturity | Held-to-maturity | | Held-to-maturity | |
| Due in one year or less | Due in one year or less | | $ | — | | | $ | — | | Due in one year or less | | $ | — | | | $ | — | |
| Due after one year through five years | Due after one year through five years | | — | | | — | | Due after one year through five years | | — | | | — | |
| Due after five years through ten years | Due after five years through ten years | | 59,882 | | | 53,885 | | Due after five years through ten years | | 59,888 | | | 50,970 | |
| Due after ten years | Due after ten years | | — | | | — | | Due after ten years | | — | | | — | |
| | 59,882 | | | 53,885 | | | 59,888 | | | 50,970 | |
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | 453,885 | | | 386,138 | | Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | 450,991 | | | 360,221 | |
| Total held-to-maturity securities | Total held-to-maturity securities | | $ | 513,767 | | | $ | 440,023 | | Total held-to-maturity securities | | $ | 510,879 | | | $ | 411,191 | |
The proceeds, gross gains and losses from sales of available-for-sale securities were as follows:
| | | Three months ended June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| (in thousands) | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Proceeds | Proceeds | $ | — | | | $ | — | | | $ | — | | | $ | 197,354 | | Proceeds | $ | — | | | $ | — | | | $ | — | | | $ | 197,354 | |
| Gross gains | Gross gains | — | | | — | | | — | | | 975 | | Gross gains | — | | | — | | | — | | | 975 | |
| Gross losses | Gross losses | — | | | — | | | — | | | 447 | | Gross losses | — | | | — | | | — | | | 447 | |
| Tax expense on realized gains | Tax expense on realized gains | — | | | — | | | — | | | 142 | | Tax expense on realized gains | — | | | — | | | — | | | 142 | |
Transfer of available-for sale securities to held-to-maturity - subsequent event. In October 2022, ASB transferred 66 available-for-sale investment securities with a fair value of $755 million to the held-to-maturity category. On the date of transfer, these securities had a total unrealized loss of $206 million. There was no impact to net income as a result of the transfer.
These transfers were executed to mitigate the potential future impact to capital through accumulated other comprehensive loss and the impact of rising rates on the market value of the investment securities. ASB believes that it maintains sufficient liquidity for future business needs and it has the positive intent and ability to hold these securities to maturity.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The components of loans were summarized as follows: | | | June 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | | | (in thousands) | | | |
| Real estate: | Real estate: | | | | Real estate: | | | |
| Residential 1-4 family | Residential 1-4 family | $ | 2,310,041 | | | $ | 2,299,212 | | Residential 1-4 family | $ | 2,392,780 | | | $ | 2,299,212 | |
| Commercial real estate | Commercial real estate | 1,261,389 | | | 1,056,982 | | Commercial real estate | 1,295,737 | | | 1,056,982 | |
| Home equity line of credit | Home equity line of credit | 923,976 | | | 835,663 | | Home equity line of credit | 967,153 | | | 835,663 | |
| Residential land | Residential land | 21,535 | | | 19,859 | | Residential land | 21,539 | | | 19,859 | |
| Commercial construction | Commercial construction | 94,060 | | | 91,080 | | Commercial construction | 89,185 | | | 91,080 | |
| Residential construction | Residential construction | 19,230 | | | 11,138 | | Residential construction | 20,303 | | | 11,138 | |
| Total real estate | Total real estate | 4,630,231 | | | 4,313,934 | | Total real estate | 4,786,697 | | | 4,313,934 | |
| Commercial | Commercial | 660,478 | | | 793,304 | | Commercial | 703,737 | | | 793,304 | |
| Consumer | Consumer | 148,637 | | | 113,966 | | Consumer | 216,744 | | | 113,966 | |
| Total loans | Total loans | 5,439,346 | | | 5,221,204 | | Total loans | 5,707,178 | | | 5,221,204 | |
| Less: Deferred fees and discounts | Less: Deferred fees and discounts | (12,351) | | | (10,090) | | Less: Deferred fees and discounts | (19,788) | | | (10,090) | |
| Allowance for credit losses | Allowance for credit losses | (69,456) | | | (71,130) | | Allowance for credit losses | (70,406) | | | (71,130) | |
| Total loans, net | Total loans, net | $ | 5,357,539 | | | $ | 5,139,984 | | Total loans, net | $ | 5,616,984 | | | $ | 5,139,984 | |
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 property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Allowance for credit losses. The allowance for credit losses (balances and changes) by portfolio segment were as follows: | | (in thousands) | (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 | (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 June 30, 2022 | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2022 | | Three months ended September 30, 2022 | | | | | | | | | | | | | | | | |
| Allowance for credit losses: | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
| Beginning balance | Beginning balance | | $ | 7,874 | | | $ | 20,176 | | | $ | 5,650 | | | $ | 697 | | | $ | 2,340 | | | $ | 31 | | | $ | 14,314 | | | $ | 16,129 | | | $ | 67,211 | | Beginning balance | | $ | 8,520 | | | $ | 20,900 | | | $ | 6,096 | | | $ | 677 | | | $ | 2,634 | | | $ | 46 | | | $ | 12,413 | | | $ | 18,170 | | | $ | 69,456 | |
| Charge-offs | Charge-offs | | — | | | — | | | — | | | — | | | — | | | — | | | (148) | | | (1,369) | | | (1,517) | | Charge-offs | | — | | | — | | | — | | | — | | | — | | | — | | | (143) | | | (1,503) | | | (1,646) | |
| Recoveries | Recoveries | | 3 | | | — | | | 31 | | | 96 | | | — | | | — | | | 399 | | | 976 | | | 1,505 | | Recoveries | | 2 | | | — | | | 14 | | | — | | | — | | | — | | | 303 | | | 963 | | | 1,282 | |
| Provision | Provision | | 643 | | | 724 | | | 415 | | | (116) | | | 294 | | | 15 | | | (2,152) | | | 2,434 | | | 2,257 | | Provision | | (938) | | | 136 | | | (167) | | | 12 | | | (1,635) | | | 3 | | | 378 | | | 3,525 | | | 1,314 | |
| Ending balance | Ending balance | | $ | 8,520 | | | $ | 20,900 | | | $ | 6,096 | | | $ | 677 | | | $ | 2,634 | | | $ | 46 | | | $ | 12,413 | | | $ | 18,170 | | | $ | 69,456 | | Ending balance | | $ | 7,584 | | | $ | 21,036 | | | $ | 5,943 | | | $ | 689 | | | $ | 999 | | | $ | 49 | | | $ | 12,951 | | | $ | 21,155 | | | $ | 70,406 | |
| Three months ended June 30, 2021 | | | | | | | | | | | | | | | | | |
| Three months ended September 30, 2021 | | Three months ended September 30, 2021 | | | | | | | | | | | | | | | | |
| Allowance for credit losses: | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
| Beginning balance | Beginning balance | | $ | 5,261 | | | $ | 34,345 | | | $ | 5,901 | | | $ | 573 | | | $ | 1,453 | | | $ | 16 | | | $ | 24,504 | | | $ | 19,740 | | | $ | 91,793 | | Beginning balance | | $ | 5,518 | | | $ | 28,708 | | | $ | 5,335 | | | $ | 618 | | | $ | 1,629 | | | $ | 16 | | | $ | 20,058 | | | $ | 16,370 | | | $ | 78,252 | |
| Charge-offs | Charge-offs | | (20) | | | — | | | 10 | | | — | | | — | | | — | | | (319) | | | (1,931) | | | (2,260) | | Charge-offs | | (47) | | | — | | | (5) | | | — | | | — | | | — | | | (266) | | | (1,597) | | | (1,915) | |
| Recoveries | Recoveries | | 51 | | | — | | | 61 | | | 11 | | | — | | | — | | | 366 | | | 1,187 | | | 1,676 | | Recoveries | | 5 | | | — | | | 7 | | | 35 | | | — | | | — | | | 417 | | | 1,118 | | | 1,582 | |
| Provision | Provision | | 226 | | | (5,637) | | | (637) | | | 34 | | | 176 | | | — | | | (4,493) | | | (2,626) | | | (12,957) | | Provision | | 522 | | | (2,750) | | | 441 | | | (19) | | | 104 | | | (3) | | | (758) | | | 488 | | | (1,975) | |
| Ending balance | Ending balance | | $ | 5,518 | | | $ | 28,708 | | | $ | 5,335 | | | $ | 618 | | | $ | 1,629 | | | $ | 16 | | | $ | 20,058 | | | $ | 16,370 | | | $ | 78,252 | | Ending balance | | $ | 5,998 | | | $ | 25,958 | | | $ | 5,778 | | | $ | 634 | | | $ | 1,733 | | | $ | 13 | | | $ | 19,451 | | | $ | 16,379 | | | $ | 75,944 | |
| Six months ended June 30, 2022 | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2022 | | Nine months ended September 30, 2022 | | | | | | | | | | | | | | | | |
| Allowance for credit losses: | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
| Beginning balance | Beginning balance | | $ | 6,545 | | | $ | 24,696 | | | $ | 5,657 | | | $ | 646 | | | $ | 2,186 | | | $ | 18 | | | $ | 15,798 | | | $ | 15,584 | | | $ | 71,130 | | Beginning balance | | $ | 6,545 | | | $ | 24,696 | | | $ | 5,657 | | | $ | 646 | | | $ | 2,186 | | | $ | 18 | | | $ | 15,798 | | | $ | 15,584 | | | $ | 71,130 | |
| Charge-offs | Charge-offs | | — | | | — | | | — | | | — | | | — | | | — | | | (224) | | | (2,851) | | | (3,075) | | Charge-offs | | — | | | — | | | — | | | — | | | — | | | — | | | (367) | | | (4,354) | | | (4,721) | |
| Recoveries | Recoveries | | 11 | | | — | | | 42 | | | 101 | | | — | | | — | | | 752 | | | 2,001 | | | 2,907 | | Recoveries | | 13 | | | — | | | 56 | | | 101 | | | — | | | — | | | 1,055 | | | 2,964 | | | 4,189 | |
| Provision | Provision | | 1,964 | | | (3,796) | | | 397 | | | (70) | | | 448 | | | 28 | | | (3,913) | | | 3,436 | | | (1,506) | | Provision | | 1,026 | | | (3,660) | | | 230 | | | (58) | | | (1,187) | | | 31 | | | (3,535) | | | 6,961 | | | (192) | |
| Ending balance | Ending balance | | $ | 8,520 | | | $ | 20,900 | | | $ | 6,096 | | | $ | 677 | | | $ | 2,634 | | | $ | 46 | | | $ | 12,413 | | | $ | 18,170 | | | $ | 69,456 | | Ending balance | | $ | 7,584 | | | $ | 21,036 | | | $ | 5,943 | | | $ | 689 | | | $ | 999 | | | $ | 49 | | | $ | 12,951 | | | $ | 21,155 | | | $ | 70,406 | |
| | Six months ended June 30, 2021 | | | | | | | | | | | | | | | | | |
| Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | | | | | | | | | | | | | | | | |
| Allowance for credit losses: | Allowance for credit losses: | | | | | | | | | | | | | | | | | | | Allowance for credit losses: | | | | | | | | | | | | | | | | | | |
| Beginning balance | Beginning balance | | $ | 4,600 | | | $ | 35,607 | | | $ | 6,813 | | | $ | 609 | | | $ | 4,149 | | | $ | 11 | | | $ | 25,462 | | | $ | 23,950 | | | $ | 101,201 | | Beginning balance | | $ | 4,600 | | | $ | 35,607 | | | $ | 6,813 | | | $ | 609 | | | $ | 4,149 | | | $ | 11 | | | $ | 25,462 | | | $ | 23,950 | | | $ | 101,201 | |
| Charge-offs | Charge-offs | | (20) | | | — | | | (40) | | | — | | | — | | | — | | | (1,090) | | | (4,791) | | | (5,941) | | Charge-offs | | (67) | | | — | | | (45) | | | — | | | — | | | — | | | (1,356) | | | (6,388) | | | (7,856) | |
| Recoveries | Recoveries | | 54 | | | — | | | 76 | | | 21 | | | — | | | — | | | 639 | | | 2,194 | | | 2,984 | | Recoveries | | 59 | | | — | | | 83 | | | 56 | | | — | | | — | | | 1,056 | | | 3,312 | | | 4,566 | |
| Provision | Provision | | 884 | | | (6,899) | | | (1,514) | | | (12) | | | (2,520) | | | 5 | | | (4,953) | | | (4,983) | | | (19,992) | | Provision | | 1,406 | | | (9,649) | | | (1,073) | | | (31) | | | (2,416) | | | 2 | | | (5,711) | | | (4,495) | | | (21,967) | |
| Ending balance | Ending balance | | $ | 5,518 | | | $ | 28,708 | | | $ | 5,335 | | | $ | 618 | | | $ | 1,629 | | | $ | 16 | | | $ | 20,058 | | | $ | 16,370 | | | $ | 78,252 | | Ending balance | | $ | 5,998 | | | $ | 25,958 | | | $ | 5,778 | | | $ | 634 | | | $ | 1,733 | | | $ | 13 | | | $ | 19,451 | | | $ | 16,379 | | | $ | 75,944 | |
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) | (in thousands) | | Home equity
line of credit | | Commercial construction | | Commercial loans | | Total | (in thousands) | | Home equity
line of credit | | Commercial construction | | Commercial loans | | Total |
| Three months ended June 30, 2022 | | |
| Three months ended September 30, 2022 | | Three months ended September 30, 2022 | |
| Allowance for loan commitments: | Allowance for loan commitments: | | Allowance for loan commitments: | |
| Beginning balance | Beginning balance | | $ | 400 | | | $ | 3,600 | | | $ | 1,400 | | | $ | 5,400 | | Beginning balance | | $ | 400 | | | $ | 4,100 | | | $ | 1,400 | | | $ | 5,900 | |
| Provision | Provision | | — | | | 500 | | | — | | | 500 | | Provision | | — | | | (1,500) | | | — | | | (1,500) | |
| Ending balance | Ending balance | | $ | 400 | | | $ | 4,100 | | | $ | 1,400 | | | $ | 5,900 | | Ending balance | | $ | 400 | | | $ | 2,600 | | | $ | 1,400 | | | $ | 4,400 | |
| Three months ended June 30, 2021 | | |
| Three months ended September 30, 2021 | | Three months ended September 30, 2021 | |
| Allowance for loan commitments: | Allowance for loan commitments: | | Allowance for loan commitments: | |
| Beginning balance | Beginning balance | | $ | 400 | | | $ | 1,300 | | | $ | 1,200 | | | $ | 2,900 | | Beginning balance | | $ | 400 | | | $ | 2,400 | | | $ | 850 | | | $ | 3,650 | |
| Provision | Provision | | — | | | 1,100 | | | (350) | | | 750 | | Provision | | — | | | 300 | | | (50) | | | 250 | |
| Ending balance | Ending balance | | $ | 400 | | | $ | 2,400 | | | $ | 850 | | | $ | 3,650 | | Ending balance | | $ | 400 | | | $ | 2,700 | | | $ | 800 | | | $ | 3,900 | |
| Six months ended June 30, 2022 | | |
| Nine months ended September 30, 2022 | | Nine months ended September 30, 2022 | |
| Allowance for loan commitments: | Allowance for loan commitments: | | Allowance for loan commitments: | |
| Beginning balance | Beginning balance | | $ | 400 | | | $ | 3,700 | | | $ | 800 | | | $ | 4,900 | | Beginning balance | | $ | 400 | | | $ | 3,700 | | | $ | 800 | | | $ | 4,900 | |
| Provision | Provision | | — | | | 400 | | | 600 | | | 1,000 | | Provision | | — | | | (1,100) | | | 600 | | | (500) | |
| Ending balance | Ending balance | | $ | 400 | | | $ | 4,100 | | | $ | 1,400 | | | $ | 5,900 | | Ending balance | | $ | 400 | | | $ | 2,600 | | | $ | 1,400 | | | $ | 4,400 | |
| Six months ended June 30, 2021 | | |
| Nine months ended September 30, 2021 | | Nine months ended September 30, 2021 | |
| Allowance for loan commitments: | Allowance for loan commitments: | | Allowance for loan commitments: | |
| Beginning balance | Beginning balance | | $ | 300 | | | $ | 3,000 | | | $ | 1,000 | | | $ | 4,300 | | Beginning balance | | $ | 300 | | | $ | 3,000 | | | $ | 1,000 | | | $ | 4,300 | |
| | Provision | Provision | | 100 | | | (600) | | | (150) | | | (650) | | Provision | | 100 | | | (300) | | | (200) | | | (400) | |
| Ending balance | Ending balance | | $ | 400 | | | $ | 2,400 | | | $ | 850 | | | $ | 3,650 | | Ending balance | | $ | 400 | | | $ | 2,700 | | | $ | 800 | | | $ | 3,900 | |
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 | | | Term Loans by Origination Year | | Revolving Loans | |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Converted to term loans | | Total | (in thousands) | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Revolving | | Converted to term loans | | Total |
| June 30, 2022 | | |
| September 30, 2022 | | September 30, 2022 | |
| Residential 1-4 family | Residential 1-4 family | | Residential 1-4 family | |
| Current | Current | | $ | 176,333 | | | $ | 768,123 | | | $ | 437,911 | | | $ | 119,503 | | | $ | 56,469 | | | $ | 742,653 | | | $ | — | | | $ | — | | | $ | 2,300,992 | | Current | | $ | 305,656 | | | $ | 761,490 | | | $ | 428,088 | | | $ | 115,625 | | | $ | 53,423 | | | $ | 720,572 | | | $ | — | | | $ | — | | | $ | 2,384,854 | |
| 30-59 days past due | 30-59 days past due | | — | | | — | | | 572 | | | 217 | | | 453 | | | 3,288 | | | — | | | — | | | 4,530 | | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | 1,389 | | | — | | | — | | | 1,389 | |
| 60-89 days past due | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | 637 | | | — | | | — | | | 637 | | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | 2,040 | | | — | | | — | | | 2,040 | |
| Greater than 89 days past due | Greater than 89 days past due | | — | | | — | | | — | | | — | | | 809 | | | 3,073 | | | — | | | — | | | 3,882 | | Greater than 89 days past due | | — | | | — | | | 267 | | | — | | | 809 | | | 3,421 | | | — | | | — | | | 4,497 | |
| | 176,333 | | | 768,123 | | | 438,483 | | | 119,720 | | | 57,731 | | | 749,651 | | | — | | | — | | | 2,310,041 | | | 305,656 | | | 761,490 | | | 428,355 | | | 115,625 | | | 54,232 | | | 727,422 | | | — | | | — | | | 2,392,780 | |
| Home equity line of credit | Home equity line of credit | | Home equity line of credit | |
| Current | Current | | — | | | — | | | — | | | — | | | — | | | — | | | 881,505 | | | 41,295 | | | 922,800 | | Current | | — | | | — | | | — | | | — | | | — | | | — | | | 924,228 | | | 41,514 | | | 965,742 | |
| 30-59 days past due | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 110 | | | 101 | | | 211 | | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 242 | | | 130 | | | 372 | |
| 60-89 days past due | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 106 | | | 83 | | | 189 | | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 106 | | | 43 | | | 149 | |
| Greater than 89 days past due | Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 423 | | | 353 | | | 776�� | | Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 427 | | | 463 | | | 890 | |
| | — | | | — | | | — | | | — | | | — | | | — | | | 882,144 | | | 41,832 | | | 923,976 | | | — | | | — | | | — | | | — | | | — | | | — | | | 925,003 | | | 42,150 | | | 967,153 | |
| Residential land | Residential land | | Residential land | |
| Current | Current | | 4,290 | | | 9,861 | | | 5,410 | | | 753 | | | 527 | | | 283 | | | — | | | — | | | 21,124 | | Current | | 5,516 | | | 9,263 | | | 5,410 | | | 338 | | | 525 | | | 390 | | | — | | | — | | | 21,442 | |
| 30-59 days past due | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60-89 days past due | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | 109 | | | — | | | — | | | 109 | | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Greater than 89 days past due | Greater than 89 days past due | | — | | | — | | | — | | | 205 | | | — | | | 97 | | | — | | | — | | | 302 | | Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | 97 | | | — | | | — | | | 97 | |
| | 4,290 | | | 9,861 | | | 5,410 | | | 958 | | | 527 | | | 489 | | | — | | | — | | | 21,535 | | | 5,516 | | | 9,263 | | | 5,410 | | | 338 | | | 525 | | | 487 | | | — | | | — | | | 21,539 | |
| Residential construction | Residential construction | | Residential construction | |
| Current | Current | | 5,614 | | | 11,071 | | | 2,297 | | | — | | | — | | | 248 | | | — | | | — | | | 19,230 | | Current | | 6,028 | | | 11,804 | | | 2,471 | | | — | | | — | | | — | | | — | | | — | | | 20,303 | |
| 30-59 days past due | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60-89 days past due | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Greater than 89 days past due | Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 5,614 | | | 11,071 | | | 2,297 | | | — | | | — | | | 248 | | | — | | | — | | | 19,230 | | | 6,028 | | | 11,804 | | | 2,471 | | | — | | | — | | | — | | | — | | | — | | | 20,303 | |
| Consumer | Consumer | | Consumer | |
| Current | Current | | 71,436 | | | 28,455 | | | 10,209 | | | 16,525 | | | 3,385 | | | 198 | | | 11,509 | | | 4,235 | | | 145,952 | | Current | | 152,156 | | | 24,939 | | | 7,779 | | | 11,509 | | | 1,487 | | | 167 | | | 11,097 | | | 4,536 | | | 213,670 | |
| 30-59 days past due | 30-59 days past due | | 268 | | | 224 | | | 68 | | | 330 | | | 82 | | | 2 | | | 107 | | | 110 | | | 1,191 | | 30-59 days past due | | 786 | | | 181 | | | 119 | | | 303 | | | 43 | | | — | | | 41 | | | 74 | | | 1,547 | |
| 60-89 days past due | 60-89 days past due | | 74 | | | 109 | | | 78 | | | 161 | | | 91 | | | — | | | 45 | | | 57 | | | 615 | | 60-89 days past due | | 229 | | | 111 | | | 50 | | | 162 | | | 35 | | | — | | | 23 | | | 53 | | | 663 | |
| Greater than 89 days past due | Greater than 89 days past due | | 80 | | | 159 | | | 67 | | | 255 | | | 107 | | | — | | | 91 | | | 120 | | | 879 | | Greater than 89 days past due | | 128 | | | 178 | | | 69 | | | 213 | | | 61 | | | — | | | 68 | | | 147 | | | 864 | |
| | 71,858 | | | 28,947 | | | 10,422 | | | 17,271 | | | 3,665 | | | 200 | | | 11,752 | | | 4,522 | | | 148,637 | | | 153,299 | | | 25,409 | | | 8,017 | | | 12,187 | | | 1,626 | | | 167 | | | 11,229 | | | 4,810 | | | 216,744 | |
| Commercial real estate | Commercial real estate | | Commercial real estate | |
| Pass | Pass | | 229,603 | | | 171,805 | | | 301,360 | | | 52,361 | | | 61,179 | | | 289,835 | | | 4,235 | | | — | | | 1,110,378 | | Pass | | 293,602 | | | 179,753 | | | 297,137 | | | 51,953 | | | 57,857 | | | 297,949 | | | 4,235 | | | — | | | 1,182,486 | |
| Special Mention | Special Mention | | — | | | 19,600 | | | 3,488 | | | 41,235 | | | 14,174 | | | 36,958 | | | — | | | — | | | 115,455 | | Special Mention | | — | | | 11,250 | | | 3,467 | | | 40,838 | | | 415 | | | 27,202 | | | — | | | — | | | 83,172 | |
| Substandard | Substandard | | — | | | — | | | 675 | | | 11,444 | | | 1,835 | | | 21,602 | | | — | | | — | | | 35,556 | | Substandard | | — | | | — | | | 668 | | | 11,371 | | | 1,822 | | | 16,218 | | | — | | | — | | | 30,079 | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 229,603 | | | 191,405 | | | 305,523 | | | 105,040 | | | 77,188 | | | 348,395 | | | 4,235 | | | — | | | 1,261,389 | | | 293,602 | | | 191,003 | | | 301,272 | | | 104,162 | | | 60,094 | | | 341,369 | | | 4,235 | | | — | | | 1,295,737 | |
| Commercial construction | Commercial construction | | Commercial construction | |
| Pass | Pass | | — | | | 35,982 | | | 25,123 | | | — | | | 11,341 | | | — | | | 21,614 | | | — | | | 94,060 | | Pass | | — | | | 46,263 | | | 9,570 | | | — | | | 11,342 | | | — | | | 22,010 | | | — | | | 89,185 | |
| Special Mention | Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Substandard | Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | — | | | 35,982 | | | 25,123 | | | — | | | 11,341 | | | — | | | 21,614 | | | — | | | 94,060 | | | — | | | 46,263 | | | 9,570 | | | — | | | 11,342 | | | — | | | 22,010 | | | — | | | 89,185 | |
| Commercial | Commercial | | Commercial | |
| Pass | Pass | | 41,268 | | | 181,637 | | | 87,936 | | | 74,326 | | | 45,637 | | | 87,962 | | | 78,344 | | | 14,590 | | | 611,700 | | Pass | | 145,209 | | | 185,304 | | | 82,895 | | | 68,730 | | | 39,524 | | | 65,509 | | | 75,669 | | | 14,430 | | | 677,270 | |
| Special Mention | Special Mention | | — | | | 23 | | | 9,702 | | | 6,533 | | | 101 | | | 1,011 | | | 15,414 | | | 14 | | | 32,798 | | Special Mention | | — | | | — | | | 295 | | | 6,103 | | | 25 | | | 784 | | | 3,750 | | | 10 | | | 10,967 | |
| Substandard | Substandard | | 315 | | | 409 | | | 156 | | | 2,122 | | | 1,548 | | | 5,975 | | | 4,308 | | | 1,147 | | | 15,980 | | Substandard | | 422 | | | 2,496 | | | 143 | | | 766 | | | 1,355 | | | 4,819 | | | 4,382 | | | 1,117 | | | 15,500 | |
| Doubtful | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 41,583 | | | 182,069 | | | 97,794 | | | 82,981 | | | 47,286 | | | 94,948 | | | 98,066 | | | 15,751 | | | 660,478 | | | 145,631 | | | 187,800 | | | 83,333 | | | 75,599 | | | 40,904 | | | 71,112 | | | 83,801 | | | 15,557 | | | 703,737 | |
| Total loans | Total loans | | $ | 529,281 | | | $ | 1,227,458 | | | $ | 885,052 | | | $ | 325,970 | | | $ | 197,738 | | | $ | 1,193,931 | | | $ | 1,017,811 | | | $ | 62,105 | | | $ | 5,439,346 | | Total loans | | $ | 909,732 | | | $ | 1,233,032 | | | $ | 838,428 | | | $ | 307,911 | | | $ | 168,723 | | | $ | 1,140,557 | | | $ | 1,046,278 | | | $ | 62,517 | | | $ | 5,707,178 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Term Loans by Origination Year | | Revolving Loans | | |
| (in thousands) | | 2021 | | 2020 | | 2019 | | 2018 | | 2017 | | Prior | | Revolving | | Converted to term loans | | Total |
| December 31, 2021 | | | | | | | | | | | | | | | | | | |
| Residential 1-4 family | | | | | | | | | | | | | | | | | | |
| Current | | $ | 791,758 | | | $ | 461,683 | | | $ | 133,345 | | | $ | 64,421 | | | $ | 124,994 | | | $ | 712,452 | | | $ | — | | | $ | — | | | $ | 2,288,653 | |
| 30-59 days past due | | — | | | — | | | — | | | 809 | | | — | | | 2,210 | | | — | | | — | | | 3,019 | |
| 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | 1,468 | | | — | | | — | | | 1,468 | |
| Greater than 89 days past due | | — | | | — | | | 2,987 | | | — | | | — | | | 3,085 | | | — | | | — | | | 6,072 | |
| | 791,758 | | | 461,683 | | | 136,332 | | | 65,230 | | | 124,994 | | | 719,215 | | | — | | | — | | | 2,299,212 | |
| Home equity line of credit | | | | | | | | | | | | | | | | | | |
| Current | | — | | | — | | | — | | | — | | | — | | | — | | | 794,518 | | | 39,116 | | | 833,634 | |
| 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 296 | | | 313 | | | 609 | |
| 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 16 | | | 70 | | | 86 | |
| Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | 838 | | | 496 | | | 1,334 | |
| | — | | | — | | | — | | | — | | | — | | | — | | | 795,668 | | | 39,995 | | | 835,663 | |
| Residential land | | | | | | | | | | | | | | | | | | |
| Current | | 10,572 | | | 6,794 | | | 1,116 | | | 532 | | | 267 | | | 181 | | | — | | | — | | | 19,462 | |
| 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | 397 | | | — | | | — | | | 397 | |
| | 10,572 | | | 6,794 | | | 1,116 | | | 532 | | | 267 | | | 578 | | | — | | | — | | | 19,859 | |
| Residential construction | | | | | | | | | | | | | | | | | | |
| Current | | 7,856 | | | 3,019 | | | — | | | — | | | 263 | | | — | | | — | | | — | | | 11,138 | |
| 30-59 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| 60-89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Greater than 89 days past due | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 7,856 | | | 3,019 | | | — | | | — | | | 263 | | | — | | | — | | | — | | | 11,138 | |
| Consumer | | | | | | | | | | | | | | | | | | |
| Current | | 37,563 | | | 15,488 | | | 29,383 | | | 10,897 | | | 302 | | | 238 | | | 12,740 | | | 4,157 | | | 110,768 | |
| 30-59 days past due | | 202 | | | 181 | | | 517 | | | 234 | | | 15 | | | — | | | 156 | | | 70 | | | 1,375 | |
| 60-89 days past due | | 59 | | | 127 | | | 392 | | | 183 | | | 8 | | | — | | | 7 | | | 106 | | | 882 | |
| Greater than 89 days past due | | 14 | | | 93 | | | 387 | | | 192 | | | 27 | | | — | | | 141 | | | 87 | | | 941 | |
| | 37,838 | | | 15,889 | | | 30,679 | | | 11,506 | | | 352 | | | 238 | | | 13,044 | | | 4,420 | | | 113,966 | |
| Commercial real estate | | | | | | | | | | | | | | | | | | |
| Pass | | 173,794 | | | 275,242 | | | 49,317 | | | 56,490 | | | 33,581 | | | 259,583 | | | 11,602 | | | — | | | 859,609 | |
| Special Mention | | 19,600 | | | 3,529 | | | 42,935 | | | 30,870 | | | 20,788 | | | 32,824 | | | — | | | — | | | 150,546 | |
| Substandard | | — | | | 684 | | | 13,936 | | | 1,859 | | | 1,805 | | | 28,543 | | | — | | | — | | | 46,827 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 193,394 | | | 279,455 | | | 106,188 | | | 89,219 | | | 56,174 | | | 320,950 | | | 11,602 | | | — | | | 1,056,982 | |
| Commercial construction | | | | | | | | | | | | | | | | | | |
| Pass | | 17,140 | | | 43,261 | | | — | | | 11,342 | | | — | | | — | | | 19,337 | | | — | | | 91,080 | |
| Special Mention | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Substandard | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 17,140 | | | 43,261 | | | — | | | 11,342 | | | — | | | — | | | 19,337 | | | — | | | 91,080 | |
| Commercial | | | | | | | | | | | | | | | | | | |
| Pass | | 266,087 | | | 96,963 | | | 79,329 | | | 56,497 | | | 31,019 | | | 66,570 | | | 96,673 | | | 15,510 | | | 708,648 | |
| Special Mention | | 40 | | | 27,336 | | | 10,071 | | | 202 | | | 439 | | | 8,966 | | | 15,303 | | | 18 | | | 62,375 | |
| Substandard | | 427 | | | 184 | | | 3,737 | | | 1,777 | | | 4,457 | | | 2,961 | | | 7,083 | | | 1,655 | | | 22,281 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| | 266,554 | | | 124,483 | | | 93,137 | | | 58,476 | | | 35,915 | | | 78,497 | | | 119,059 | | | 17,183 | | | 793,304 | |
| Total loans | | $ | 1,325,112 | | | $ | 934,584 | | | $ | 367,452 | | | $ | 236,305 | | | $ | 217,965 | | | $ | 1,119,478 | | | $ | 958,710 | | | $ | 61,598 | | | $ | 5,221,204 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Revolving loans converted to term loans during the sixnine months ended JuneSeptember 30, 2022 in the commercial, home equity line of credit and consumer portfolios were $1.0$1.6 million, $10.0$12.9 million and $1.7$2.7 million, respectively. Revolving loans converted to term loans during the sixnine months ended JuneSeptember 30, 2021 in the commercial, home equity line of credit and consumer portfolios were $0.6$1.6 million, $9.8$13.6 million and $1.5$1.9 million, respectively.
The credit risk profile based on payment activity for loans was as follows: | | (in thousands) | (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 | (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 |
| June 30, 2022 | | | | | | | | | | | | | | | |
| September 30, 2022 | | September 30, 2022 | | | | | | | | | | | | | | |
| Real estate: | Real estate: | | | | | | | | | | | | | | | Real estate: | | | | | | | | | | | | | | |
| Residential 1-4 family | Residential 1-4 family | | $ | 4,530 | | | $ | 637 | | | $ | 3,882 | | | $ | 9,049 | | | $ | 2,300,992 | | | $ | 2,310,041 | | | $ | — | | Residential 1-4 family | | $ | 1,389 | | | $ | 2,040 | | | $ | 4,497 | | | $ | 7,926 | | | $ | 2,384,854 | | | $ | 2,392,780 | | | $ | — | |
| Commercial real estate | Commercial real estate | | 472 | | | — | | | — | | | 472 | | | 1,260,917 | | | 1,261,389 | | | — | | Commercial real estate | | — | | | — | | | — | | | — | | | 1,295,737 | | | 1,295,737 | | | — | |
| Home equity line of credit | Home equity line of credit | | 211 | | | 189 | | | 776 | | | 1,176 | | | 922,800 | | | 923,976 | | | — | | Home equity line of credit | | 372 | | | 149 | | | 890 | | | 1,411 | | | 965,742 | | | 967,153 | | | — | |
| Residential land | Residential land | | — | | | 109 | | | 302 | | | 411 | | | 21,124 | | | 21,535 | | | — | | Residential land | | — | | | — | | | 97 | | | 97 | | | 21,442 | | | 21,539 | | | — | |
| Commercial construction | Commercial construction | | — | | | — | | | — | | | — | | | 94,060 | | | 94,060 | | | — | | Commercial construction | | — | | | — | | | — | | | — | | | 89,185 | | | 89,185 | | | — | |
| Residential construction | Residential construction | | — | | | — | | | — | | | — | | | 19,230 | | | 19,230 | | | — | | Residential construction | | — | | | — | | | — | | | — | | | 20,303 | | | 20,303 | | | — | |
| Commercial | Commercial | | 87 | | | 763 | | | 9 | | | 859 | | | 659,619 | | | 660,478 | | | — | | Commercial | | 366 | | | 110 | | | 2,100 | | | 2,576 | | | 701,161 | | | 703,737 | | | — | |
| Consumer | Consumer | | 1,191 | | | 615 | | | 879 | | | 2,685 | | | 145,952 | | | 148,637 | | | — | | Consumer | | 1,547 | | | 663 | | | 864 | | | 3,074 | | | 213,670 | | | 216,744 | | | — | |
| Total loans | Total loans | | $ | 6,491 | | | $ | 2,313 | | | $ | 5,848 | | | $ | 14,652 | | | $ | 5,424,694 | | | $ | 5,439,346 | | | $ | — | | Total loans | | $ | 3,674 | | | $ | 2,962 | | | $ | 8,448 | | | $ | 15,084 | | | $ | 5,692,094 | | | $ | 5,707,178 | | | $ | — | |
| December 31, 2021 | December 31, 2021 | | | | | | | | | | | | | | | December 31, 2021 | | | | | | | | | | | | | | |
| Real estate: | Real estate: | | | | | | | | | | | | | | | Real estate: | | | | | | | | | | | | | | |
| Residential 1-4 family | Residential 1-4 family | | $ | 3,019 | | | $ | 1,468 | | | $ | 6,072 | | | $ | 10,559 | | | $ | 2,288,653 | | | $ | 2,299,212 | | | $ | — | | Residential 1-4 family | | $ | 3,019 | | | $ | 1,468 | | | $ | 6,072 | | | $ | 10,559 | | | $ | 2,288,653 | | | $ | 2,299,212 | | | $ | — | |
| Commercial real estate | Commercial real estate | | — | | | — | | | — | | | — | | | 1,056,982 | | | 1,056,982 | | | — | | Commercial real estate | | — | | | — | | | — | | | — | | | 1,056,982 | | | 1,056,982 | | | — | |
| Home equity line of credit | Home equity line of credit | | 609 | | | 86 | | | 1,334 | | | 2,029 | | | 833,634 | | | 835,663 | | | — | | Home equity line of credit | | 609 | | | 86 | | | 1,334 | | | 2,029 | | | 833,634 | | | 835,663 | | | — | |
| Residential land | Residential land | | — | | | — | | | 397 | | | 397 | | | 19,462 | | | 19,859 | | | — | | Residential land | | — | | | — | | | 397 | | | 397 | | | 19,462 | | | 19,859 | | | — | |
| Commercial construction | Commercial construction | | — | | | — | | | — | | | — | | | 91,080 | | | 91,080 | | | — | | Commercial construction | | — | | | — | | | — | | | — | | | 91,080 | | | 91,080 | | | — | |
| Residential construction | Residential construction | | — | | | — | | | — | | | — | | | 11,138 | | | 11,138 | | | — | | Residential construction | | — | | | — | | | — | | | — | | | 11,138 | | | 11,138 | | | — | |
| Commercial | Commercial | | 700 | | | 313 | | | 48 | | | 1,061 | | | 792,243 | | | 793,304 | | | — | | Commercial | | 700 | | | 313 | | | 48 | | | 1,061 | | | 792,243 | | | 793,304 | | | — | |
| Consumer | Consumer | | 1,375 | | | 882 | | | 941 | | | 3,198 | | | 110,768 | | | 113,966 | | | — | | Consumer | | 1,375 | | | 882 | | | 941 | | | 3,198 | | | 110,768 | | | 113,966 | | | — | |
| Total loans | Total loans | | $ | 5,703 | | | $ | 2,749 | | | $ | 8,792 | | | $ | 17,244 | | | $ | 5,203,960 | | | $ | 5,221,204 | | | $ | — | | Total loans | | $ | 5,703 | | | $ | 2,749 | | | $ | 8,792 | | | $ | 17,244 | | | $ | 5,203,960 | | | $ | 5,221,204 | | | $ | — | |
The credit risk profile based on nonaccrual loans were as follows: | | (in thousands) | (in thousands) | | June 30, 2022 | | December 31, 2021 | (in thousands) | | September 30, 2022 | | December 31, 2021 |
| | With a Related ACL | | Without a Related ACL | | Total | | With a Related ACL | | Without a Related ACL | | Total | | With a Related ACL | | Without a Related ACL | | Total | | With a Related ACL | | Without a Related ACL | | Total |
| Real estate: | Real estate: | | Real estate: | |
| Residential 1-4 family | Residential 1-4 family | | $ | 11,487 | | | $ | 3,571 | | | $ | 15,058 | | | $ | 16,045 | | | $ | 3,703 | | | $ | 19,748 | | Residential 1-4 family | | $ | 6,125 | | | $ | 4,219 | | | $ | 10,344 | | | $ | 16,045 | | | $ | 3,703 | | | $ | 19,748 | |
| Commercial real estate | Commercial real estate | | — | | | — | | | — | | | 14,104 | | | 1,221 | | | 15,325 | | Commercial real estate | | — | | | — | | | — | | | 14,104 | | | 1,221 | | | 15,325 | |
| Home equity line of credit | Home equity line of credit | | 3,225 | | | 725 | | | 3,950 | | | 4,227 | | | 1,294 | | | 5,521 | | Home equity line of credit | | 3,715 | | | 916 | | | 4,631 | | | 4,227 | | | 1,294 | | | 5,521 | |
| Residential land | Residential land | | 205 | | | 97 | | | 302 | | | 97 | | | 300 | | | 397 | | Residential land | | 312 | | | 97 | | | 409 | | | 97 | | | 300 | | | 397 | |
| Commercial construction | Commercial construction | | — | | | — | | | — | | | — | | | — | | | — | | Commercial construction | | — | | | — | | | — | | | — | | | — | | | — | |
| Residential construction | Residential construction | | — | | | — | | | — | | | — | | | — | | | — | | Residential construction | | — | | | — | | | — | | | — | | | — | | | — | |
| Commercial | Commercial | | 240 | | | 899 | | | 1,139 | | | 1,446 | | | 692 | | | 2,138 | | Commercial | | 2,591 | | | 811 | | | 3,402 | | | 1,446 | | | 692 | | | 2,138 | |
| Consumer | Consumer | | 1,430 | | | — | | | 1,430 | | | 1,845 | | | — | | | 1,845 | | Consumer | | 1,346 | | | — | | | 1,346 | | | 1,845 | | | — | | | 1,845 | |
| Total | Total | | $ | 16,587 | | | $ | 5,292 | | | $ | 21,879 | | | $ | 37,764 | | | $ | 7,210 | | | $ | 44,974 | | Total | | $ | 14,089 | | | $ | 6,043 | | | $ | 20,132 | | | $ | 37,764 | | | $ | 7,210 | | | $ | 44,974 | |
|
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) | (in thousands) | | June 30, 2022 | | December 31, 2021 | (in thousands) | | September 30, 2022 | | December 31, 2021 |
| Real estate: | Real estate: | | Real estate: | |
| Residential 1-4 family | Residential 1-4 family | | $ | 7,690 | | | $ | 6,949 | | Residential 1-4 family | | $ | 7,671 | | | $ | 6,949 | |
| Commercial real estate | Commercial real estate | | 10,031 | | | 3,055 | | Commercial real estate | | 9,633 | | | 3,055 | |
| Home equity line of credit | Home equity line of credit | | 5,037 | | | 6,021 | | Home equity line of credit | | 4,814 | | | 6,021 | |
| Residential land | Residential land | | 920 | | | 980 | | Residential land | | 806 | | | 980 | |
| Commercial construction | Commercial construction | | — | | | — | | Commercial construction | | — | | | — | |
| Residential construction | Residential construction | | — | | | — | | Residential construction | | — | | | — | |
| Commercial | Commercial | | 6,844 | | | 7,860 | | Commercial | | 6,011 | | | 7,860 | |
| Consumer | Consumer | | 51 | | | 52 | | Consumer | | 51 | | | 52 | |
| Total troubled debt restructured loans accruing interest | Total troubled debt restructured loans accruing interest | | $ | 30,573 | | | $ | 24,917 | | Total troubled debt restructured loans accruing interest | | $ | 28,986 | | | $ | 24,917 | |
ASB did not recognize interest on nonaccrual loans for the sixnine months ended JuneSeptember 30, 2022 and 2021.
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.
Loans modified as a TDR. Loan modifications that occurred during the three and sixnine months ended JuneSeptember 30, 2022 and 2021 were as follows:
| | | Three months ended June 30, 2022 | | Six months ended June 30, 2022 | | Three months ended September 30, 2022 | | Nine months ended September 30, 2022 |
| (dollars in thousands) | (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) | (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 | Troubled debt restructurings | | | | | | | | | | Troubled debt restructurings | | | | | | | | | |
| Real estate: | Real estate: | | | | | | | | | | Real estate: | | | | | | | | | |
| Residential 1-4 family | Residential 1-4 family | | 1 | | | 381 | | | 135 | | | 1 | | | 381 | | | 135 | | Residential 1-4 family | | 2 | | | $ | 512 | | | $ | — | | | 3 | | | $ | 893 | | | $ | 135 | |
| Commercial real estate | Commercial real estate | | — | | | — | | | — | | | — | | | — | | | — | | Commercial real estate | | — | | | — | | | — | | | — | | | — | | | — | |
| Home equity line of credit | Home equity line of credit | | — | | | — | | | — | | | — | | | — | | | — | | Home equity line of credit | | — | | | — | | | — | | | — | | | — | | | — | |
| Residential land | Residential land | | — | | | — | | | — | | | — | | | — | | | — | | Residential land | | 1 | | | 204 | | 16 | | 1 | | | 204 | | | 16 | |
| Commercial construction | Commercial construction | | — | | | — | | | — | | | — | | | — | | | — | | Commercial construction | | — | | | — | | | — | | | — | | | — | | | — | |
| Residential construction | Residential construction | | — | | | — | | | — | | | — | | | — | | | — | | Residential construction | | — | | | — | | | — | | | — | | | — | | | — | |
| Commercial | Commercial | | — | | | — | | | — | | | — | | | — | | | — | | Commercial | | — | | | — | | | — | | | 1 | | | 288 | | | 20 | |
| Consumer | Consumer | | — | | | — | | | — | | | — | | | — | | | — | | Consumer | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | 1 | | | $ | 381 | | | $ | 135 | | | 1 | | | $ | 381 | | | $ | 135 | | | | 3 | | | $ | 716 | | | $ | 16 | | | 5 | | | $ | 1,385 | | | $ | 171 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
| | | Three months ended June 30, 2021 | | Six months ended June 30, 2021 | | Three months ended September 30, 2021 | | Nine months ended September 30, 2021 |
| (dollars in thousands) | (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) | (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 | Troubled debt restructurings | | | | | | | | | | Troubled debt restructurings | | | | | | | | | |
| Real estate: | Real estate: | | | | | | | | | | Real estate: | | | | | | | | | |
| Residential 1-4 family | Residential 1-4 family | | 3 | | | $ | 1,835 | | | $ | 77 | | | 15 | | | $ | 10,024 | | | $ | 271 | | Residential 1-4 family | | 1 | | | $ | 442 | | | $ | 81 | | | 16 | | | $ | 10,363 | | | $ | 309 | |
| Commercial real estate | Commercial real estate | | — | | | — | | | — | | | — | | | — | | | — | | Commercial real estate | | — | | | — | | | — | | | — | | | — | | | — | |
| Home equity line of credit | Home equity line of credit | | — | | | — | | | — | | | 1 | | | 163 | | | 18 | | Home equity line of credit | | — | | | — | | | — | | | — | | | — | | | — | |
| Residential land | Residential land | | 1 | | | 288 | | | 12 | | | 2 | | | 558 | | | 23 | | Residential land | | 1 | | | 247 | | | 11 | | | 3 | | | 802 | | | 37 | |
| Commercial construction | Commercial construction | | — | | | — | | | — | | | — | | | — | | | — | | Commercial construction | | — | | | — | | | — | | | — | | | — | | | — | |
| Residential construction | Residential construction | | — | | | — | | | — | | | — | | | — | | | — | | Residential construction | | — | | | — | | | — | | | — | | | — | | | — | |
| Commercial | Commercial | | 4 | | | 237 | | | 11 | | | 6 | | | 296 | | | 26 | | Commercial | | 1 | | | 2,386 | | | 212 | | | 7 | | | 2,678 | | | 242 | |
| Consumer | Consumer | | — | | | — | | | — | | | — | | | — | | | — | | Consumer | | — | | | — | | | — | | | — | | | — | | | — | |
| | | | 8 | | | $ | 2,360 | | | $ | 100 | | | 24 | | | $ | 11,041 | | | $ | 338 | | | | 3 | | | $ | 3,075 | | | $ | 304 | | | 26 | | | $ | 13,843 | | | $ | 588 | |
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 secondthird quarter and first sixnine months of 2022 and 2021.
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 JuneSeptember 30, 2022 and December 31, 2021.
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 | | | Amortized cost | |
| (in thousands) | (in thousands) | | June 30, 2022 | | December 31, 2021 | | Collateral type | (in thousands) | | September 30, 2022 | | December 31, 2021 | | Collateral type |
| Real estate: | Real estate: | | Real estate: | |
| Residential 1-4 family | Residential 1-4 family | | $ | 4,070 | | | $ | 3,493 | | | Residential real estate property | Residential 1-4 family | | $ | 4,699 | | | $ | 3,493 | | | Residential real estate property |
| Commercial real estate | Commercial real estate | | — | | | 1,221 | | | Commercial real estate property | Commercial real estate | | — | | | 1,221 | | | Commercial real estate property |
| Home equity line of credit | Home equity line of credit | | 706 | | | 1,294 | | | Residential real estate property | Home equity line of credit | | 899 | | | 1,294 | | | Residential real estate property |
| Residential land | Residential land | | 97 | | | 300 | | | Residential real estate property | Residential land | | 97 | | | 300 | | | Residential real estate property |
| Total real estate | Total real estate | | 4,873 | | | 6,308 | | | Total real estate | | 5,695 | | | 6,308 | | |
| Commercial | Commercial | | 205 | | | 692 | | | Business assets | Commercial | | 187 | | | 692 | | | Business assets |
| Total | Total | | $ | 5,078 | | | $ | 7,000 | | | Total | | $ | 5,882 | | | $ | 7,000 | | |
ASB had $3.2$4.6 million and $3.4 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at JuneSeptember 30, 2022 and December 31, 2021, 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 $38.7$12.1 million and $95.6$38.3 million for the three months ended JuneSeptember 30, 2022 and 2021, respectively, and recognized gains on such sales of $0.3$0.2 million and $1.9$1.3 million for the three months ended JuneSeptember 30, 2022 and 2021, respectively. ASB received proceeds from the sale of residential mortgages of $114.3$126.4 million and $266.5$304.8 million for the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively, and recognized gains on such sales of $1.4$1.6 million and $6.2$7.5 million for the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively.
There werewas one repurchased mortgage loan for the three and nine months ended September 30, 2022 and no repurchased mortgage loans for the sixthree and nine months ended JuneSeptember 30, 2022 and 2021.
Mortgage servicing fees, a component of other income, net, were $0.9 million and $1.0 million for the three months ended JuneSeptember 30, 2022 and 2021, respectively, and $1.8 million and $1.9$2.8 million for the sixnine months ended JuneSeptember 30, 2022 and 2021, respectively.2021.
Changes in the carrying value of MSRs were as follows: | | (in thousands) | (in thousands) | | Gross
carrying amount | | Accumulated amortization | | Valuation allowance | | Net
carrying amount | (in thousands) | | Gross
carrying amount | | Accumulated amortization | | Valuation allowance | | Net
carrying amount |
| June 30, 2022 | | $ | 19,341 | | | $ | (9,645) | | | $ | — | | | $ | 9,696 | | |
| September 30, 2022 | | September 30, 2022 | | $ | 19,454 | | | $ | (10,103) | | | $ | — | | | $ | 9,351 | |
| December 31, 2021 | December 31, 2021 | | 18,674 | | | (8,724) | | | — | | | 9,950 | | December 31, 2021 | | 18,674 | | | (8,724) | | | — | | | 9,950 | |
Changes related to MSRs were as follows: | | | Three months ended June 30, | | Six months ended June 30 | | Three months ended September 30, | | Nine months ended September 30 |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Mortgage servicing rights | Mortgage servicing rights | | Mortgage servicing rights | |
| Beginning balance | Beginning balance | | $ | 10,024 | | | $ | 10,689 | | | $ | 9,950 | | | $ | 10,280 | | Beginning balance | | $ | 9,696 | | | $ | 10,754 | | | $ | 9,950 | | | $ | 10,280 | |
| Amount capitalized | Amount capitalized | | 204 | | | 1,023 | | | 923 | | | 2,570 | | Amount capitalized | | 117 | | | 315 | | | 1,040 | | | 2,885 | |
| Amortization | Amortization | | (532) | | | (958) | | | (1,177) | | | (2,096) | | Amortization | | (462) | | | (797) | | | (1,639) | | | (2,893) | |
| Other-than-temporary impairment | Other-than-temporary impairment | | — | | | — | | | — | | | — | | Other-than-temporary impairment | | — | | | — | | | — | | | — | |
| Carrying amount before valuation allowance | Carrying amount before valuation allowance | | 9,696 | | | 10,754 | | | 9,696 | | | 10,754 | | Carrying amount before valuation allowance | | 9,351 | | | 10,272 | | | 9,351 | | | 10,272 | |
| Valuation allowance for mortgage servicing rights | Valuation allowance for mortgage servicing rights | | Valuation allowance for mortgage servicing rights | |
| Beginning balance | Beginning balance | | — | | | 4 | | | — | | | 260 | | Beginning balance | | — | | | — | | | — | | | 260 | |
| Provision | Provision | | — | | | (4) | | | — | | | (260) | | Provision | | — | | | — | | | — | | | (260) | |
| Other-than-temporary impairment | Other-than-temporary impairment | | — | | | — | | | — | | | — | | Other-than-temporary impairment | | — | | | — | | | — | | | — | |
| Ending balance | Ending balance | | — | | | — | | | — | | | — | | Ending balance | | — | | | — | | | — | | | — | |
| Net carrying value of mortgage servicing rights | Net carrying value of mortgage servicing rights | | $ | 9,696 | | | $ | 10,754 | | | $ | 9,696 | | | $ | 10,754 | | Net carrying value of mortgage servicing rights | | $ | 9,351 | | | $ | 10,272 | | | $ | 9,351 | | | $ | 10,272 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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) | (dollars in thousands) | | June 30, 2022 | | December 31, 2021 | (dollars in thousands) | | September 30, 2022 | | December 31, 2021 |
| Unpaid principal balance | Unpaid principal balance | | $ | 1,483,877 | | | $ | 1,481,899 | | Unpaid principal balance | | $ | 1,467,806 | | | $ | 1,481,899 | |
| Weighted average note rate | Weighted average note rate | | 3.34 | % | | 3.38 | % | Weighted average note rate | | 3.36 | % | | 3.38 | % |
| Weighted average discount rate | Weighted average discount rate | | 9.25 | % | | 9.25 | % | Weighted average discount rate | | 9.25 | % | | 9.25 | % |
| Weighted average prepayment speed | Weighted average prepayment speed | | 6.55 | % | | 9.77 | % | Weighted average prepayment speed | | 6.72 | % | | 9.77 | % |
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) | (dollars in thousands) | | June 30, 2022 | | December 31, 2021 | (dollars in thousands) | | September 30, 2022 | | December 31, 2021 |
| Prepayment rate: | Prepayment rate: | | Prepayment rate: | |
| 25 basis points adverse rate change | 25 basis points adverse rate change | | $ | (111) | | | $ | (714) | | 25 basis points adverse rate change | | $ | (144) | | | $ | (714) | |
| 50 basis points adverse rate change | 50 basis points adverse rate change | | (244) | | | (1,608) | | 50 basis points adverse rate change | | (299) | | | (1,608) | |
| Discount rate: | Discount rate: | | Discount rate: | |
| 25 basis points adverse rate change | 25 basis points adverse rate change | | (176) | | | (129) | | 25 basis points adverse rate change | | (177) | | | (129) | |
| 50 basis points adverse rate change | 50 basis points adverse rate change | | (350) | | | (256) | | 50 basis points adverse rate change | | (351) | | | (256) | |
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 JuneSeptember 30, 2022 and December 31, 2021, ASB had $80$125 million and nil of FHLB advances outstanding, respectively, and no federal funds purchased with the Federal Reserve Bank. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of JuneSeptember 30, 2022.
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 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) | (in millions) | | Gross amount
of recognized
liabilities | | Gross amount
offset in the
Balance Sheets | | Net amount of
liabilities presented
in the Balance Sheets | (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 | Repurchase agreements | | | | | | | Repurchase agreements | | | | | | |
| June 30, 2022 | | $ | 162 | | | $ | — | | | $ | 162 | | |
| September 30, 2022 | | September 30, 2022 | | $ | 284 | | | $ | — | | | $ | 284 | |
| December 31, 2021 | December 31, 2021 | | 88 | | | — | | | 88 | | December 31, 2021 | | 88 | | | — | | | 88 | |
| | | | | Gross amount not offset in the Balance Sheets | | | Gross amount not offset in the Balance Sheets |
| (in millions) | (in millions) | | Net amount of liabilities presented
in the Balance Sheets | | Financial
instruments | | Cash
collateral
pledged | (in millions) | | Net amount of liabilities presented
in the Balance Sheets | | Financial
instruments | | Cash
collateral
pledged |
| Commercial account holders | Commercial account holders | | Commercial account holders | |
| | June 30, 2022 | | $ | 162 | | | $ | 181 | | | $ | — | | |
| September 30, 2022 | | September 30, 2022 | | $ | 284 | | | $ | 285 | | | $ | — | |
| | December 31, 2021 | December 31, 2021 | | 88 | | | 161 | | | — | | December 31, 2021 | | 88 | | | 161 | | | — | |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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: | | | | | June 30, 2022 | | December 31, 2021 | | | September 30, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | Notional amount | | Fair value | | Notional amount | | Fair value | (in thousands) | | Notional amount | | Fair value | | Notional amount | | Fair value |
| Interest rate lock commitments | Interest rate lock commitments | | $ | 4,939 | | | $ | 44 | | | $ | 39,377 | | | $ | 638 | | Interest rate lock commitments | | $ | 5,635 | | | $ | (85) | | | $ | 39,377 | | | $ | 638 | |
| Forward commitments | Forward commitments | | 4,750 | | | 27 | | | 38,000 | | | (11) | | Forward commitments | | 5,250 | | | 172 | | | 38,000 | | | (11) | |
ASB’s derivative financial instruments, their fair values and balance sheet location were as follows: | Derivative Financial Instruments Not Designated as Hedging Instruments 1 | Derivative Financial Instruments Not Designated as Hedging Instruments 1 | | June 30, 2022 | | December 31, 2021 | Derivative Financial Instruments Not Designated as Hedging Instruments 1 | | September 30, 2022 | | December 31, 2021 |
| (in thousands) | (in thousands) | | Asset derivatives | | Liability
derivatives | | Asset derivatives | | Liability
derivatives | (in thousands) | | Asset derivatives | | Liability
derivatives | | Asset derivatives | | Liability
derivatives |
| Interest rate lock commitments | Interest rate lock commitments | | $ | 44 | | | $ | — | | | $ | 638 | | | $ | — | | Interest rate lock commitments | | $ | 3 | | | $ | 88 | | | $ | 638 | | | $ | — | |
| Forward commitments | Forward commitments | | 27 | | | — | | | — | | | 11 | | Forward commitments | | 172 | | | — | | | — | | | 11 | |
| | | | $ | 71 | | | $ | — | | | $ | 638 | | | $ | 11 | | | | $ | 175 | | | $ | 88 | | | $ | 638 | | | $ | 11 | |
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 | Derivative Financial Instruments Not Designated as Hedging Instruments | | Location of net gains (losses) recognized in the Statements of Income | | Three months ended June 30, | | Six months ended June 30 | 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) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 |
| Interest rate lock commitments | Interest rate lock commitments | | Mortgage banking income | | $ | 62 | | | $ | (67) | | | $ | (593) | | | $ | (4,165) | | Interest rate lock commitments | | Mortgage banking income | | $ | (129) | | | $ | (63) | | | $ | (722) | | | $ | (4,228) | |
| Forward commitments | Forward commitments | | Mortgage banking income | | (141) | | | (381) | | | 37 | | | 459 | | Forward commitments | | Mortgage banking income | | 145 | | | 150 | | | 182 | | | 609 | |
| | | | $ | (79) | | | $ | (448) | | | $ | (556) | | | $ | (3,706) | | | | $ | 16 | | | $ | 87 | | | $ | (540) | | | $ | (3,619) | |
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $71.4 million and $62.8 million at JuneSeptember 30, 2022 and December 31, 2021.2021, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of June 30, 2022, ASB did not
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
other assets. As of September 30, 2022, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.
Note 5 · Credit agreementagreements and changes in debt
On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of 9nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities) to amend and restate their respective previously existing revolving unsecured credit agreements. The $175 million HEI Facility and $200 million Hawaiian Electric Facility both terminate on May 14, 2026. On February 18, 2022, the PUC approved Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026. In addition to extending the term, Hawaiian Electric also received PUC approval to exercise its options of 2two 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 JuneSeptember 30, 2022 and December 31, 2021, 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.
Changes in debt.
HEI private placement. On September 29, 2022, HEI entered into a note purchase agreement (HEI NPA) under which HEI has authorized the issue and sale of $110 million of unsecured senior notes that were drawn on November 1, 2022, as displayed in the table below.
| | | | | | | | | | | | | | |
| | HEI Series 2022C | | HEI Green Series 2022D |
| Aggregate principal amount | | $75 million | | $35 million |
| Fixed coupon interest rate | | 5.43% | | 5.43% |
| Maturity date | | 11/1/2032 | | 11/1/2034 |
| | | | |
Proceeds from the Series 2022C tranche are expected to be used for general corporate purposes, including refinancing a portion of $150 million of maturing debt in November 2022 and to repay a portion of HEI commercial paper outstanding. Proceeds from the Green Series 2022D tranche are expected to be used to finance and/or refinance Green Investments, as defined in the HEI NPA, provided, however, that pending the full allocation of an amount equal to the proceeds from the Green Series 2022D to eligible Green Investments, the proceeds of the Green Series 2022D tranche will be managed in accordance with the Company’s normal treasury practices, including the repayment of existing indebtedness and/or used for working capital purposes.
Once drawn, interest on the notes is paid semiannually on June 15th and December 15th. The HEI NPA contains 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.
On September 29, 2021, HEI executed a $125 million private placement, utilizing a delayed draw feature with two tranches. The first tranche of $75 million was drawn on December 29, 2021 and the proceeds were primarily used to invest in the Utilities’ equity to support its capital expenditure program and maintain a Utilities’ equity capitalization ratio of approximately 58%. The second and final tranche of $50 million was drawn on October 26, 2022, to refinance a portion of $150 million of debt that matures on November 20, 2022.
HEI term loan. On October 20, 2022, HEI entered into a term loan facility in the aggregate principal amount of $100 million. The term loan facility allows HEI to draw down proceeds on a delayed basis through March 31, 2023, at which time the term loan commitment expires. Any borrowings under the facility mature on November 30, 2023. Borrowings under the facility bear interest at Term Secured Overnight Financing Rate (SOFR), as defined in the agreement, plus an applicable margin. The term loan facility contains certain restrictive financial covenants that are substantially the same as the financial covenants contained in the HEI Facility.
Mahipapa loan. On July 1, 2022, Mahipapa, LLC (Mahipapa), a wholly owned subsidiary of Pacific Current, acquired Green Energy Team, LLC’s 7.5 MW renewable, firm dispatchable closed-loop biomass-to-energy facility on Kauai. In
connection with the acquisition, Mahipapa assumed approximately $61 million of long-term debt in various tranches that mature on various dates through 2036. Principal and interest total approximately $1.6 million per quarter. The loan is secured by all of the assets of Mahipapa and all equity ownership interests in Mahipapa, excluding certain mobile equipment.
Utilities private placement. On May 11, 2022, the Utilities executed, through a private placement pursuant to separate Note Purchase Agreements (the Note Purchase Agreements), the following unsecured senior notes bearing taxable interest (the Notes). The Notes had a delayed draw feature and the Utilities drew down all the proceeds on June 15, 2022.
| | | | | |
| Series 2022A |
| Aggregate principal amount | $60 million |
| Fixed coupon interest rate | 3.7% |
| Maturity date | 6/15/2032 |
| Principal amount by company: | |
| Hawaiian Electric | $40 million |
| Hawaii Electric Light | $10 million |
| Maui Electric | $10 million |
The Notes include substantially the same financial covenants and customary conditions as Hawaiian Electric’s credit agreement. Hawaiian Electric is also a party as guarantor under the Note Purchase Agreements entered into by Hawaii Electric Light and Maui Electric. The Utilities did not obtain any of the proceeds at execution and instead drew down all the proceeds on June 15, 2022. The proceeds were used to finance their respective capital expenditures, repay short-term debt used to finance or refinance capital expenditures and/or reimburse funds used for the payment of capital expenditures. The Notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount plus a “Make-Whole Amount.”
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 | | | HEI Consolidated | | | Hawaiian Electric Consolidated | |
| (in thousands) | (in thousands) | Net unrealized gains (losses) on securities | | Unrealized gains (losses) on derivatives | | Retirement benefit plans | | AOCI | | | AOCI-Retirement benefit plans | | (in thousands) | Net unrealized gains (losses) on securities | | Unrealized gains (losses) on derivatives | | Retirement benefit plans | | AOCI | | | AOCI-Retirement benefit plans | |
| Balance, December 31, 2021 | Balance, December 31, 2021 | $ | (32,037) | | | $ | (3,638) | | | $ | (16,858) | | | $ | (52,533) | | | | $ | (3,280) | | | Balance, December 31, 2021 | $ | (32,037) | | | $ | (3,638) | | | $ | (16,858) | | | $ | (52,533) | | | | $ | (3,280) | | |
| Current period other comprehensive income (loss) | Current period other comprehensive income (loss) | (209,264) | | | 3,911 | | | 354 | | | (204,999) | | | | 102 | | | Current period other comprehensive income (loss) | (308,229) | | | 6,561 | | | 657 | | | (301,011) | | | | 210 | | |
| Balance, June 30, 2022 | $ | (241,301) | | | $ | 273 | | | $ | (16,504) | | | $ | (257,532) | | | | $ | (3,178) | | | |
| Balance, September 30, 2022 | | Balance, September 30, 2022 | $ | (340,266) | | | $ | 2,923 | | | $ | (16,201) | | | $ | (353,544) | | | | $ | (3,070) | | |
| Balance, December 31, 2020 | Balance, December 31, 2020 | $ | 19,986 | | | $ | (3,363) | | | $ | (17,887) | | | $ | (1,264) | | | | $ | (2,919) | | | Balance, December 31, 2020 | $ | 19,986 | | | $ | (3,363) | | | $ | (17,887) | | | $ | (1,264) | | | | $ | (2,919) | | |
| Current period other comprehensive income (loss) | Current period other comprehensive income (loss) | (28,801) | | | 861 | | | 396 | | | (27,544) | | | | 69 | | | Current period other comprehensive income (loss) | (40,308) | | | 1,009 | | | 450 | | | (38,849) | | | | 175 | | |
| Balance, June 30, 2021 | $ | (8,815) | | | $ | (2,502) | | | $ | (17,491) | | | $ | (28,808) | | | | $ | (2,850) | | | |
| Balance, September 30, 2021 | | Balance, September 30, 2021 | $ | (20,322) | | | $ | (2,354) | | | $ | (17,437) | | | $ | (40,113) | | | | $ | (2,744) | | |
Reclassifications out of AOCI were as follows: | | | | | Amount reclassified from AOCI | | Affected line item in the
Statements of Income / Balance Sheets | | | Amount reclassified from AOCI | | Affected line item in the
Statements of Income / Balance Sheets |
| | Three months ended June 30 | | Six months ended June 30 | | | Three months ended September 30 | | Nine months ended September 30 | |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | |
| | HEI consolidated | HEI consolidated | | HEI consolidated | |
| Net realized gains on securities included in net income | Net realized gains on securities included in net income | | $ | — | | | $ | — | | | $ | — | | | $ | (387) | | | Gain on sale of investment securities, net | Net realized gains on securities included in net income | | $ | — | | | $ | — | | | $ | — | | | $ | (387) | | | Gain on sale of investment securities, net |
| | Net realized losses on derivatives qualifying as cash flow hedges | Net realized losses on derivatives qualifying as cash flow hedges | | 53 | | | — | | | 108 | | | — | | | Interest expense | Net realized losses on derivatives qualifying as cash flow hedges | | 53 | | | 9 | | | 161 | | | 9 | | | Interest expense |
| Retirement benefit plans: | Retirement benefit plans: | | | | | | | | | | | Retirement benefit plans: | | | | | | | | | | |
| Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost | Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost | | 122 | | | 6,008 | | | 4,623 | | | 12,018 | | | See Note 9 for additional details | Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost | | 5,606 | | | 2,853 | | | 10,229 | | | 14,871 | | | See Note 9 for additional details |
| Impact of D&Os of the PUC included in regulatory assets | Impact of D&Os of the PUC included in regulatory assets | | 56 | | | (5,811) | | | (4,269) | | | (11,622) | | | See Note 9 for additional details | Impact of D&Os of the PUC included in regulatory assets | | (5,303) | | | (2,799) | | | (9,572) | | | (14,421) | | | See Note 9 for additional details |
| Total reclassifications | Total reclassifications | | $ | 231 | | | $ | 197 | | | $ | 462 | | | $ | 9 | | | | Total reclassifications | | $ | 356 | | | $ | 63 | | | $ | 818 | | | $ | 72 | | | |
| Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
| | Retirement benefit plans: | Retirement benefit plans: | | | | | | | Retirement benefit plans: | | | | | | |
| Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost | Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost | | $ | (5) | | | $ | 5,846 | | | $ | 4,371 | | | $ | 11,691 | | | See Note 9 for additional details | Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost | | $ | 5,411 | | | $ | 2,905 | | | $ | 9,782 | | | $ | 14,596 | | | See Note 9 for additional details |
| Impact of D&Os of the PUC included in regulatory assets | Impact of D&Os of the PUC included in regulatory assets | | 56 | | | (5,811) | | | (4,269) | | | (11,622) | | | See Note 9 for additional details | Impact of D&Os of the PUC included in regulatory assets | | (5,303) | | | (2,799) | | | (9,572) | | | (14,421) | | | See Note 9 for additional details |
| Total reclassifications | Total reclassifications | | $ | 51 | | | $ | 35 | | | $ | 102 | | | $ | 69 | | | | Total reclassifications | | $ | 108 | | | $ | 106 | | | $ | 210 | | | $ | 175 | | | |
Note 7 · Interest rate swaps
The Company uses interest rate swap agreements to fix the variable interest rates on portions of its debt. The purpose of using these derivatives is to reduce the Company’s exposure to the interest rate risk associated with variable-rate borrowings. Under these agreements, the Company pays a fixed interest rate in exchange for a LIBOR- or SOFR-based variable interest rate on a given notional amount. All of the Company’s interest rate swaps are designated and accounted for as cash flow hedges. Changes in the fair value of these derivatives are reported as a component of other comprehensive income and are reclassified into earnings in the period or periods in which the hedged transaction affects earnings. For information regarding the valuation of our interest rate swaps, see Note 13, “Fair value measurements.”
| Notional amount
(in millions) | Notional amount
(in millions) | | Fixed interest rate | | Asset (liability) (in millions) at | Notional amount
(in millions) | | Fixed interest rate | | Asset (liability) (in millions) at |
| Effective date | | Maturity date | | June 30, 2022 | | December 31, 2021 | | Effective date | | Maturity date | | September 30, 2022 | | December 31, 2021 |
| $50.0 | | 2.75% | | 11/21/2022 | | 11/21/2027 | | $ | (0.1) | | | $ | — | | |
| $50.0 | | 2.78% | | 11/21/2022 | | 11/21/2029 | | (0.1) | | | — | | |
| | $24.0 | $24.0 | | 4.88% - 5.05% | | 9/1/2021 - 9/1/2022 | | 9/1/2034 - 9/1/2035 | | (0.6) | | | (5.3) | | $24.0 | | 4.88% - 5.05% | | 9/1/2021 - 9/1/2022 | | 9/1/2034 - 9/1/2035 | | 0.7 | | | (5.3) | |
| $13.0 | $13.0 | | 2.79% | | 11/1/2020 | | 10/1/2031 | | 1.0 | | | 0.3 | | $13.0 | | 2.79% | | 11/1/2020 | | 10/1/2031 | | 1.4 | | | 0.3 | |
The asset related to the interest rate swaps as of JuneSeptember 30, 2022, is presented within other assets in the condensed consolidated balance sheet. The liability related to the interest rate swaps as of December 31, 2021, is presented within other liabilities. The changes in fair value of the cash flow hedges are recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense as interest is incurred on the related variable-rate debt.
In September 2022, HEI terminated forward starting swaps with a total notional amount of $100 million, resulting in a gain of $1.7 million, which is recognized in accumulated other comprehensive income (loss). The gain will be reclassified to interest expense over the life of the related Private Placement debt. See Note 5, “Credit Agreement and changes in debt.”
The following table provides the pre-tax gain (loss) of the derivative instruments in the Company's condensed consolidated statement of comprehensive income (loss) during the three and six months ended JuneSeptember 30, 2022 and 2021:
| | | Three months ended June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Gain (loss) on interest rate swaps designated as cash flow hedges recognized in other comprehensive income | | $ | 1.1 | | | $ | (0.9) | | | $ | 5.1 | | | $ | 1.2 | | |
| Gain on interest rate swaps designated as cash flow hedges recognized in other comprehensive income | | Gain on interest rate swaps designated as cash flow hedges recognized in other comprehensive income | | $ | 3.5 | | | $ | 0.2 | | | $ | 8.6 | | | $ | 1.3 | |
As of JuneSeptember 30, 2022, the amount the Company expects to reclassify out of net gains (losses) on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months is not expected to be material.
Note 8 · Revenues
Revenue from contracts with customers. The following tables disaggregate revenues by major source, timing of revenue recognition, and segment: | | | Three months ended June 30, 2022 | | Six months ended June 30, 2022 | | Three months ended September 30, 2022 | | Nine months ended September 30, 2022 |
| (in thousands) | (in thousands) | | Electric utility | | Bank | | Other | | Total | | Electric utility | | Bank | | Other | | Total | (in thousands) | | Electric utility | | Bank | | Other | | Total | | Electric utility | | Bank | | Other | | Total |
| Revenues from contracts with customers | Revenues from contracts with customers | | Revenues from contracts with customers | |
| Electric energy sales - residential | Electric energy sales - residential | | $ | 259,433 | | | $ | — | | | $ | — | | | $ | 259,433 | | | $ | 484,007 | | | $ | — | | | $ | — | | | $ | 484,007 | | Electric energy sales - residential | | $ | 306,417 | | | $ | — | | | $ | — | | | $ | 306,417 | | | $ | 790,424 | | | $ | — | | | $ | — | | | $ | 790,424 | |
| Electric energy sales - commercial | Electric energy sales - commercial | | 264,701 | | | — | | | — | | | 264,701 | | | 484,298 | | | — | | | — | | | 484,298 | | Electric energy sales - commercial | | 309,940 | | | — | | | — | | | 309,940 | | | 794,238 | | | — | | | — | | | 794,238 | |
| Electric energy sales - large light and power | Electric energy sales - large light and power | | 293,847 | | | — | | | — | | | 293,847 | | | 534,970 | | | — | | | — | | | 534,970 | | Electric energy sales - large light and power | | 351,763 | | | — | | | — | | | 351,763 | | | 886,733 | | | — | | | — | | | 886,733 | |
| Electric energy sales - other | Electric energy sales - other | | 4,873 | | | — | | | — | | | 4,873 | | | 6,299 | | | — | | | — | | | 6,299 | | Electric energy sales - other | | 5,400 | | | — | | | — | | | 5,400 | | | 11,699 | | | — | | | — | | | 11,699 | |
| Bank fees | Bank fees | | — | | | 11,797 | | | — | | | 11,797 | | | — | | | 24,793 | | | — | | | 24,793 | | Bank fees | | — | | | 12,058 | | | — | | | 12,058 | | | — | | | 36,851 | | | — | | | 36,851 | |
| Other sales | Other sales | | — | | | — | | | 1,333 | | | 1,333 | | | — | | | — | | | 2,448 | | | 2,448 | | Other sales | | — | | | — | | | 4,760 | | | 4,760 | | | — | | | — | | | 7,208 | | | 7,208 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 822,854 | | | 11,797 | | | 1,333 | | | 835,984 | | | 1,509,574 | | | 24,793 | | | 2,448 | | | 1,536,815 | | Total revenues from contracts with customers | | 973,520 | | | 12,058 | | | 4,760 | | | 990,338 | | | 2,483,094 | | | 36,851 | | | 7,208 | | | 2,527,153 | |
| Revenues from other sources | Revenues from other sources | | Revenues from other sources | |
| Regulatory revenue | Regulatory revenue | | $ | (11,428) | | | $ | — | | | $ | — | | | $ | (11,428) | | | $ | 1,458 | | | $ | — | | | $ | — | | | $ | 1,458 | | Regulatory revenue | | $ | (26,301) | | | $ | — | | | $ | — | | | $ | (26,301) | | | $ | (24,843) | | | $ | — | | | $ | — | | | $ | (24,843) | |
| Bank interest and dividend income | Bank interest and dividend income | | — | | | 62,822 | | | — | | | 62,822 | | | — | | | 122,811 | | | — | | | 122,811 | | Bank interest and dividend income | | — | | | 68,417 | | | — | | | 68,417 | | | — | | | 191,228 | | | — | | | 191,228 | |
| Other bank noninterest income | Other bank noninterest income | | — | | | 705 | | | — | | | 705 | | | — | | | 2,835 | | | — | | | 2,835 | | Other bank noninterest income | | — | | | 936 | | | — | | | 936 | | | — | | | 3,771 | | | — | | | 3,771 | |
| Other | Other | | 7,447 | | | — | | | 77 | | | 7,524 | | | 16,633 | | | — | | | 123 | | | 16,756 | | Other | | 8,752 | | | — | | | 55 | | | 8,807 | | | 25,385 | | | — | | | 178 | | | 25,563 | |
| Total revenues from other sources | Total revenues from other sources | | (3,981) | | | 63,527 | | | 77 | | | 59,623 | | | 18,091 | | | 125,646 | | | 123 | | | 143,860 | | Total revenues from other sources | | (17,549) | | | 69,353 | | | 55 | | | 51,859 | | | 542 | | | 194,999 | | | 178 | | | 195,719 | |
| Total revenues | Total revenues | | $ | 818,873 | | | $ | 75,324 | | | $ | 1,410 | | | $ | 895,607 | | | $ | 1,527,665 | | | $ | 150,439 | | | $ | 2,571 | | | $ | 1,680,675 | | Total revenues | | $ | 955,971 | | | $ | 81,411 | | | $ | 4,815 | | | $ | 1,042,197 | | | $ | 2,483,636 | | | $ | 231,850 | | | $ | 7,386 | | | $ | 2,722,872 | |
| Timing of revenue recognition | Timing of revenue recognition | | Timing of revenue recognition | |
| Services/goods transferred at a point in time | Services/goods transferred at a point in time | | $ | — | | | $ | 11,797 | | | $ | — | | | $ | 11,797 | | | $ | — | | | $ | 24,793 | | | $ | — | | | $ | 24,793 | | Services/goods transferred at a point in time | | $ | — | | | $ | 12,058 | | | $ | — | | | $ | 12,058 | | | $ | — | | | $ | 36,851 | | | $ | — | | | $ | 36,851 | |
| Services/goods transferred over time | Services/goods transferred over time | | 822,854 | | | — | | | 1,333 | | | 824,187 | | | 1,509,574 | | | — | | | 2,448 | | | 1,512,022 | | Services/goods transferred over time | | 973,520 | | | — | | | 4,760 | | | 978,280 | | | 2,483,094 | | | — | | | 7,208 | | | 2,490,302 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | $ | 822,854 | | | $ | 11,797 | | | $ | 1,333 | | | $ | 835,984 | | | $ | 1,509,574 | | | $ | 24,793 | | | $ | 2,448 | | | $ | 1,536,815 | | Total revenues from contracts with customers | | $ | 973,520 | | | $ | 12,058 | | | $ | 4,760 | | | $ | 990,338 | | | $ | 2,483,094 | | | $ | 36,851 | | | $ | 7,208 | | | $ | 2,527,153 | |
| | | Three months ended June 30, 2021 | | Six months ended June 30, 2021 | | Three months ended September 30, 2021 | | Nine months ended September 30, 2021 |
| (in thousands) | (in thousands) | | Electric utility | | Bank | | Other | | Total | | Electric utility | | Bank | | Other | | Total | (in thousands) | | Electric utility | | Bank | | Other | | Total | | Electric utility | | Bank | | Other | | Total |
| Revenues from contracts with customers | Revenues from contracts with customers | | Revenues from contracts with customers | |
| Electric energy sales - residential | Electric energy sales - residential | | $ | 196,318 | | | $ | — | | | $ | — | | | $ | 196,318 | | | $ | 377,557 | | | $ | — | | | $ | — | | | $ | 377,557 | | Electric energy sales - residential | | $ | 228,878 | | | $ | — | | | $ | — | | | $ | 228,878 | | | $ | 606,435 | | | $ | — | | | $ | — | | | $ | 606,435 | |
| Electric energy sales - commercial | Electric energy sales - commercial | | 192,103 | | | — | | | — | | | 192,103 | | | 360,568 | | | — | | | — | | | 360,568 | | Electric energy sales - commercial | | 217,468 | | | — | | | — | | | 217,468 | | | 578,036 | | | — | | | — | | | 578,036 | |
| Electric energy sales - large light and power | Electric energy sales - large light and power | | 201,536 | | | — | | | — | | | 201,536 | | | 378,351 | | | — | | | — | | | 378,351 | | Electric energy sales - large light and power | | 229,129 | | | — | | | — | | | 229,129 | | | 607,480 | | | — | | | — | | | 607,480 | |
| Electric energy sales - other | Electric energy sales - other | | 2,212 | | | — | | | — | | | 2,212 | | | 4,691 | | | — | | | — | | | 4,691 | | Electric energy sales - other | | 2,779 | | | — | | | — | | | 2,779 | | | 7,470 | | | — | | | — | | | 7,470 | |
| Bank fees | Bank fees | | — | | | 11,569 | | | — | | | 11,569 | | | — | | | 22,947 | | | — | | | 22,947 | | Bank fees | | — | | | 11,186 | | | — | | | 11,186 | | | — | | | 34,133 | | | — | | | 34,133 | |
| Other sales | Other sales | | — | | | — | | | 1,089 | | | 1,089 | | | — | | | — | | | 2,013 | | | 2,013 | | Other sales | | — | | | — | | | 1,178 | | | 1,178 | | | — | | | — | | | 3,191 | | | 3,191 | |
| Total revenues from contracts with customers | Total revenues from contracts with customers | | 592,169 | | | 11,569 | | | 1,089 | | | 604,827 | | | 1,121,167 | | | 22,947 | | | 2,013 | | | 1,146,127 | | 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 | Revenues from other sources | | Revenues from other sources | |
| Regulatory revenue | Regulatory revenue | | 2,854 | | | — | | | — | | | 2,854 | | | 31,283 | | | — | | | — | | | 31,283 | | Regulatory revenue | | (5,717) | | | — | | | — | | | (5,717) | | | 25,566 | | | — | | | — | | | 25,566 | |
| Bank interest and dividend income | Bank interest and dividend income | | — | | | 62,066 | | | — | | | 62,066 | | | — | | | 120,686 | | | — | | | 120,686 | | Bank interest and dividend income | | — | | | 61,441 | | | — | | | 61,441 | | | — | | | 182,127 | | | — | | | 182,127 | |
| Other bank noninterest income | Other bank noninterest income | | — | | | 3,625 | | | — | | | 3,625 | | | — | | | 10,758 | | | — | | | 10,758 | | Other bank noninterest income | | — | | | 3,581 | | | — | | | 3,581 | | | — | | | 14,339 | | | — | | | 14,339 | |
| Other | Other | | 6,856 | | | — | | | 29 | | | 6,885 | | | 14,293 | | | — | | | 56 | | | 14,349 | | Other | | 6,962 | | | — | | | 19 | | | 6,981 | | | 21,255 | | | — | | | 75 | | | 21,330 | |
| Total revenues from other sources | Total revenues from other sources | | 9,710 | | | 65,691 | | | 29 | | | 75,430 | | | 45,576 | | | 131,444 | | | 56 | | | 177,076 | | Total revenues from other sources | | 1,245 | | | 65,022 | | | 19 | | | 66,286 | | | 46,821 | | | 196,466 | | | 75 | | | 243,362 | |
| Total revenues | Total revenues | | $ | 601,879 | | | $ | 77,260 | | | $ | 1,118 | | | $ | 680,257 | | | $ | 1,166,743 | | | $ | 154,391 | | | $ | 2,069 | | | $ | 1,323,203 | | Total revenues | | $ | 679,499 | | | $ | 76,208 | | | $ | 1,197 | | | $ | 756,904 | | | $ | 1,846,242 | | | $ | 230,599 | | | $ | 3,266 | | | $ | 2,080,107 | |
| Timing of revenue recognition | Timing of revenue recognition | | Timing of revenue recognition | |
| Services/goods transferred at a point in time | Services/goods transferred at a point in time | | $ | — | | | $ | 11,569 | | | $ | — | | | $ | 11,569 | | | $ | — | | | $ | 22,947 | | | $ | — | | | $ | 22,947 | | Services/goods transferred at a point in time | | $ | — | | | $ | 11,186 | | | $ | — | | | $ | 11,186 | | | $ | — | | | $ | 34,133 | | | $ | — | | | $ | 34,133 | |
| Services/goods transferred over time | Services/goods transferred over time | | 592,169 | | | — | | | 1,089 | | | 593,258 | | | 1,121,167 | | | — | | | 2,013 | | | 1,123,180 | | 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 | Total revenues from contracts with customers | | $ | 592,169 | | | $ | 11,569 | | | $ | 1,089 | | | $ | 604,827 | | | $ | 1,121,167 | | | $ | 22,947 | | | $ | 2,013 | | | $ | 1,146,127 | | Total revenues from contracts with customers | | $ | 678,254 | | | $ | 11,186 | | | $ | 1,178 | | | $ | 690,618 | | | $ | 1,799,421 | | | $ | 34,133 | | | $ | 3,191 | | | $ | 1,836,745 | |
There are no material contract assets or liabilities associated with revenues from contracts with customers existing at December 31, 2021 or as of JuneSeptember 30, 2022. 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 JuneSeptember 30, 2022, 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 9 · Retirement benefits
Defined benefit pension and other postretirement benefit plans information. For the first sixnine months of 2022, the Company contributed $21$32 million ($2031 million by the Utilities) to its pension and other postretirement benefit plans, compared to $23$39 million ($2338 million by the Utilities) in the first sixnine months of 2021. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in 2022 is $41$43 million ($4142 million by the Utilities), compared to $52 million ($51 million by the Utilities) in 2021. In addition, the Company expects to pay directly $3 million ($1 million by the Utilities) of benefits in 2022, compared to $1 million ($1 million by the Utilities) paid in 2021.
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 June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| | | | Pension benefits | | Other benefits | | Pension benefits | | Other benefits | | | Pension benefits | | Other benefits | | Pension benefits | | Other benefits |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| Service cost | Service cost | | $ | 19,823 | | | $ | 20,465 | | | $ | 657 | | | $ | 705 | | | $ | 39,647 | | | $ | 40,929 | | | $ | 1,313 | | | $ | 1,410 | | Service cost | | $ | 18,831 | | | $ | 20,102 | | | $ | 624 | | | $ | 711 | | | $ | 58,478 | | | $ | 61,031 | | | $ | 1,937 | | | $ | 2,121 | |
| Interest cost | Interest cost | | 19,810 | | | 18,800 | | | 1,638 | | | 1,569 | | | 39,621 | | | 37,601 | | | 3,275 | | | 3,138 | | Interest cost | | 20,274 | | | 18,896 | | | 1,593 | | | 1,459 | | | 59,895 | | | 56,497 | | | 4,868 | | | 4,597 | |
| Expected return on plan assets | Expected return on plan assets | | (35,331) | | | (33,068) | | | (3,398) | | | (3,232) | | | (70,664) | | | (66,135) | | | (6,795) | | | (6,465) | | Expected return on plan assets | | (35,163) | | | (33,022) | | | (3,394) | | | (3,252) | | | (105,827) | | | (99,157) | | | (10,189) | | | (9,717) | |
| Amortization of net prior period gain | Amortization of net prior period gain | | — | | | — | | | (232) | | | (384) | | | — | | | — | | | (464) | | | (767) | | Amortization of net prior period gain | | — | | | — | | | (232) | | | (383) | | | — | | | — | | | (696) | | | (1,150) | |
Amortization of net actuarial (gain)/losses1 | Amortization of net actuarial (gain)/losses1 | | 6,297 | | | 8,431 | | | (3) | | | 44 | | | 12,594 | | | 9,987 | | | (6) | | | 298 | | Amortization of net actuarial (gain)/losses1 | | 7,782 | | | 10,112 | | | (3) | | | (140) | | | 20,376 | | | 20,099 | | | (9) | | | 158 | |
| Net periodic pension/benefit cost (return) | Net periodic pension/benefit cost (return) | | 10,599 | | | 14,628 | | | (1,338) | | | (1,298) | | | 21,198 | | | 22,382 | | | (2,677) | | | (2,386) | | Net periodic pension/benefit cost (return) | | 11,724 | | | 16,088 | | | (1,412) | | | (1,605) | | | 32,922 | | | 38,470 | | | (4,089) | | | (3,991) | |
| Impact of PUC D&Os | Impact of PUC D&Os | | 9,552 | | | 5,513 | | | 1,217 | | | 1,176 | | | 19,103 | | | 16,680 | | | 2,436 | | | 2,146 | | Impact of PUC D&Os | | 8,758 | | | 4,292 | | | 1,289 | | | 1,483 | | | 27,861 | | | 20,972 | | | 3,725 | | | 3,629 | |
| Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | | $ | 20,151 | | | $ | 20,141 | | | $ | (121) | | | $ | (122) | | | $ | 40,301 | | | $ | 39,062 | | | $ | (241) | | | $ | (240) | | Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | | $ | 20,482 | | | $ | 20,380 | | | $ | (123) | | | $ | (122) | | | $ | 60,783 | | | $ | 59,442 | | | $ | (364) | | | $ | (362) | |
| Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
| Service cost | Service cost | | $ | 19,317 | | | $ | 19,993 | | | $ | 649 | | | $ | 698 | | | $ | 38,635 | | | $ | 39,987 | | | $ | 1,298 | | | $ | 1,397 | | Service cost | | $ | 18,248 | | | $ | 19,610 | | | $ | 617 | | | $ | 704 | | | $ | 56,883 | | | $ | 59,597 | | | $ | 1,915 | | | $ | 2,101 | |
| Interest cost | Interest cost | | 18,461 | | | 17,531 | | | 1,572 | | | 1,504 | | | 36,923 | | | 35,062 | | | 3,145 | | | 3,008 | | Interest cost | | 18,850 | | | 17,614 | | | 1,525 | | | 1,398 | | | 55,773 | | | 52,676 | | | 4,670 | | | 4,406 | |
| Expected return on plan assets | Expected return on plan assets | | (33,545) | | | (31,367) | | | (3,345) | | | (3,182) | | | (67,091) | | | (62,735) | | | (6,692) | | | (6,364) | | Expected return on plan assets | | (33,314) | | | (31,318) | | | (3,343) | | | (3,202) | | | (100,405) | | | (94,053) | | | (10,035) | | | (9,566) | |
| Amortization of net prior period gain | Amortization of net prior period gain | | — | | | — | | | (231) | | | (382) | | | — | | | — | | | (462) | | | (765) | | Amortization of net prior period gain | | — | | | — | | | (232) | | | (383) | | | — | | | — | | | (694) | | | (1,148) | |
Amortization of net actuarial losses1 | | 6,125 | | | 8,212 | | | — | | | 43 | | | 12,250 | | | 10,771 | | | — | | | 293 | | |
Amortization of net actuarial (gain)/losses1 | | Amortization of net actuarial (gain)/losses1 | | 7,519 | | | 9,880 | | | — | | | (138) | | | 19,769 | | | 20,651 | | | — | | | 155 | |
| Net periodic pension/benefit cost (return) | Net periodic pension/benefit cost (return) | | 10,358 | | | 14,369 | | | (1,355) | | | (1,319) | | | 20,717 | | | 23,085 | | | (2,711) | | | (2,431) | | Net periodic pension/benefit cost (return) | | 11,303 | | | 15,786 | | | (1,433) | | | (1,621) | | | 32,020 | | | 38,871 | | | (4,144) | | | (4,052) | |
| Impact of PUC D&Os | Impact of PUC D&Os | | 9,552 | | | 5,513 | | | 1,217 | | | 1,176 | | | 19,103 | | | 16,680 | | | 2,436 | | | 2,146 | | Impact of PUC D&Os | | 8,758 | | | 4,292 | | | 1,289 | | | 1,483 | | | 27,861 | | | 20,972 | | | 3,725 | | | 3,629 | |
| Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | | $ | 19,910 | | | $ | 19,882 | | | $ | (138) | | | $ | (143) | | | $ | 39,820 | | | $ | 39,765 | | | $ | (275) | | | $ | (285) | | Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | | $ | 20,061 | | | $ | 20,078 | | | $ | (144) | | | $ | (138) | | | $ | 59,881 | | | $ | 59,843 | | | $ | (419) | | | $ | (423) | |
1 SixNine months ended JuneSeptember 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 $24$35 million ($2334 million by the Utilities) in the first sixnine months of 2022 and $23$35 million ($2335 million by the Utilities) in the first sixnine months of 2021 and charged the remaining net periodic benefit cost primarily to electric utility plant.
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 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 sixnine months of 2022 and 2021, 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 $4.1$6.5 million and $3.2$4.9 million, respectively, and cash contributions were $3.5$5.4 million and $3.2$4.8 million, respectively. For the first sixnine months of 2022 and 2021, the Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP were $1.8$2.9 million and $1.5$2.3 million, respectively.
Retirement benefit plan changes. On December 3, 2021, the Utilities’ union members ratified a new collective bargaining
agreement, which included changes to retirement benefits for all new employees commencing employment on or
after January 1, 2022. The changes ratified in the collective bargaining agreement apply to all employees of HEI and the
Utilities first hired on or after January 1, 2022 (New Employees). New Employees are not eligible to participate in the HEI
Pension Plan. Instead, New Employees will receive a non-elective employer contribution, equal to 10% of their annual
compensation, subject to a vesting schedule, to their account under the HEIRSP, the defined contribution plan for HEI and the
Utilities. Only New Employees are impacted by the retirement benefit plan changes. There are no retirement benefit plan
changes for employees hired on or before December 31, 2021.
Note 10 · 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 JuneSeptember 30, 2022, approximately 2.8 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy statutory tax liabilities relating to EIP awards, including an estimated 0.6 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. As of JuneSeptember 30, 2022, there were 209,592208,627 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 June 30 | | Six months ended June 30 | | | Three months ended September 30 | | Nine months ended September 30 |
| (in millions) | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
Share-based compensation expense 1 | Share-based compensation expense 1 | | $ | 3.5 | | | $ | 2.9 | | | $ | 5.6 | | | $ | 5.5 | | Share-based compensation expense 1 | | $ | 1.7 | | | $ | 1.3 | | | $ | 7.3 | | | $ | 6.7 | |
| Income tax benefit | Income tax benefit | | 0.8 | | | 0.5 | | | 1.1 | | | 1.0 | | Income tax benefit | | 0.4 | | | 0.1 | | | 1.5 | | | 1.0 | |
| Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
Share-based compensation expense 1 | Share-based compensation expense 1 | | 1.0 | | | 0.9 | | | 1.6 | | | 2.0 | | Share-based compensation expense 1 | | 0.6 | | | 0.1 | | | 2.1 | | | 2.1 | |
| Income tax benefit | Income tax benefit | | 0.3 | | | 0.2 | | | 0.4 | | | 0.4 | | Income tax benefit | | 0.1 | | | — | | | 0.5 | | | 0.4 | |
1 For the three and sixnine months ended JuneSeptember 30, 2022 and 2021, 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 June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| (dollars in millions) | (dollars in millions) | | 2022 | | 2021 | | 2022 | | 2021 | (dollars in millions) | | 2022 | | 2021 | | 2022 | | 2021 |
| Shares granted | Shares granted | | 34,755 | | | 29,320 | | | 34,755 | | | 29,320 | | Shares granted | | 965 | | | — | | | 35,720 | | | 29,320 | |
| Fair value | Fair value | | $ | 1.4 | | | $ | 1.2 | | | $ | 1.4 | | | $ | 1.2 | | Fair value | | $ | — | | | $ | — | | | $ | 1.5 | | | $ | 1.2 | |
| Income tax benefit | Income tax benefit | | 0.4 | | | 0.3 | | | 0.4 | | | 0.3 | | Income tax benefit | | — | | | — | | | 0.4 | | | 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.
Restricted stock units. Information about HEI’s grants of restricted stock units was as follows: | | | Three months ended June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) |
| Outstanding, beginning of period | Outstanding, beginning of period | 208,345 | | | $ | 39.71 | | | 236,191 | | | $ | 37.91 | | | 233,448 | | | $ | 38.10 | | | 193,939 | | | $ | 40.89 | | Outstanding, beginning of period | 208,953 | | | $ | 39.71 | | | 229,775 | | | $ | 38.02 | | | 233,448 | | | $ | 38.10 | | | 193,939 | | | $ | 40.89 | |
| Granted | Granted | 2,008 | | | 42.15 | | | 4,894 | | | 44.61 | | | 98,463 | | | 41.31 | | | 132,492 | | | 34.37 | | Granted | — | | | — | | | 1,432 | | | 45.09 | | | 98,463 | | | 41.31 | | | 133,924 | | | 34.49 | |
| Vested | Vested | (1,034) | | | 44.31 | | | (292) | | | 38.77 | | | (91,414) | | | 37.65 | | | (79,280) | | | 38.51 | | Vested | (4,244) | | | 39.49 | | | (343) | | | 37.83 | | | (95,658) | | | 37.73 | | | (79,623) | | | 38.51 | |
| Forfeited | Forfeited | (366) | | | 38.07 | | | (11,018) | | | 38.74 | | | (31,544) | | | 38.77 | | | (17,376) | | | 40.01 | | Forfeited | (16,540) | | | 39.99 | | | (1,074) | | | 38.52 | | | (48,084) | | | 39.19 | | | (18,450) | | | 39.92 | |
| Outstanding, end of period | Outstanding, end of period | 208,953 | | | $ | 39.71 | | | 229,775 | | | $ | 38.02 | | | 208,953 | | | $ | 39.71 | | | 229,775 | | | $ | 38.02 | | Outstanding, end of period | 188,169 | | | $ | 39.69 | | | 229,790 | | | $ | 38.06 | | | 188,169 | | | $ | 39.69 | | | 229,790 | | | $ | 38.06 | |
| Total weighted-average grant-date fair value of shares granted (in millions) | Total weighted-average grant-date fair value of shares granted (in millions) | $ | 0.1 | | | $ | 0.2 | | | $ | 4.1 | | | $ | 4.6 | | | Total weighted-average grant-date fair value of shares granted (in millions) | $ | — | | | $ | 0.1 | | | $ | 4.1 | | | $ | 4.6 | | |
(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 sixnine months ended JuneSeptember 30, 2022 and 2021, total restricted stock units and related dividends that vested had a fair value of $4.0$4.2 million and $3.0 million, respectively, and the related tax benefits were $0.6 million and $0.6 million, respectively.
As of JuneSeptember 30, 2022, there was $6.2$5.3 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 2.11.9 years.
Long-term incentive plan payable in stock. The 2020-22, 2021-23 and 2022-24 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, carbon emissions reduction, 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 June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) |
| Outstanding, beginning of period | Outstanding, beginning of period | 76,340 | | | $ | 47.70 | | | 100,053 | | | $ | 42.89 | | | 90,974 | | | $ | 42.86 | | | 89,222 | | | $ | 42.10 | | Outstanding, beginning of period | 76,730 | | | $ | 47.74 | | | 91,159 | | | $ | 42.87 | | | 90,974 | | | $ | 42.86 | | | 89,222 | | | $ | 42.10 | |
| Granted | Granted | 390 | | | 54.92 | | | 1,533 | | | 41.12 | | | 26,469 | | | 54.92 | | | 45,743 | | | 41.12 | | Granted | — | | | — | | | 281 | | | 41.12 | | | 26,469 | | | 54.92 | | | 46,024 | | | 41.12 | |
| Vested (issued or unissued and cancelled) | Vested (issued or unissued and cancelled) | — | | | — | | | — | | | — | | | (29,042) | | | 41.07 | | | (32,355) | | | 38.20 | | Vested (issued or unissued and cancelled) | — | | | — | | | — | | | — | | | (29,042) | | | 41.07 | | | (32,355) | | | 38.20 | |
| Forfeited | Forfeited | — | | | — | | | (10,427) | | | 42.82 | | | (11,671) | | | 42.60 | | | (11,451) | | | 43.10 | | Forfeited | (4,829) | | | 48.52 | | | (466) | | | 42.49 | | | (16,500) | | | 44.33 | | | (11,917) | | | 43.07 | |
| Outstanding, end of period | Outstanding, end of period | 76,730 | | | $ | 47.74 | | | 91,159 | | | $ | 42.87 | | | 76,730 | | | $ | 47.74 | | | 91,159 | | | $ | 42.87 | | Outstanding, end of period | 71,901 | | | $ | 47.69 | | | 90,974 | | | $ | 42.86 | | | 71,901 | | | $ | 47.69 | | | 90,974 | | | $ | 42.86 | |
| Total weighted-average grant-date fair value of shares granted (in millions) | Total weighted-average grant-date fair value of shares granted (in millions) | $ | — | | | $ | 0.1 | | | $ | 1.5 | | | $ | 1.9 | | | Total weighted-average grant-date fair value of shares granted (in millions) | $ | — | | | $ | — | | | $ | 1.5 | | | $ | 1.9 | | |
(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.
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: | | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Risk-free interest rate | | 1.71 | % | | 0.19 | % |
| Expected life in years | | 3 | | 3 |
| Expected volatility | | 31.0 | % | | 29.9 | % |
| Range of expected volatility for Peer Group | | 25.4% to 76.7% | | 25.6% to 102.9% |
| Grant date fair value (per share) | | $54.92 | | $41.12 |
For the sixnine months ended JuneSeptember 30, 2022 and 2021, total vested LTIP awards linked to TSR and related dividends had a fair value of $0.8 million and $0.8 million, respectively, and the related tax benefits were $0.1 million and $0.2 million, respectively.
As of JuneSeptember 30, 2022, there was $1.7$1.4 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 1.61.3 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 June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) | | Shares | | (1) |
| Outstanding, beginning of period | Outstanding, beginning of period | 292,151 | | | $ | 39.89 | | | 335,702 | | | $ | 38.04 | | | 306,342 | | | $ | 38.42 | | | 220,715 | | | $ | 41.03 | | Outstanding, beginning of period | 293,711 | | | $ | 39.91 | | | 316,005 | | | $ | 38.38 | | | 306,342 | | | $ | 38.42 | | | 220,715 | | | $ | 41.03 | |
| Granted | Granted | 1,560 | | | 42.37 | | | 6,133 | | | 44.49 | | | 105,860 | | | 41.31 | | | 182,977 | | | 34.33 | | Granted | — | | | — | | | 1,125 | | | 41.12 | | | 105,860 | | | 41.31 | | | 184,102 | | | 34.37 | |
| Vested | Vested | — | | | — | | | — | | | — | | | (71,807) | | | 37.68 | | | (43,155) | | | 34.12 | | Vested | — | | | — | | | — | | | — | | | (71,807) | | | 37.68 | | | (43,155) | | | 34.12 | |
| Increase above target (cancelled) | Increase above target (cancelled) | — | | | — | | | 15,881 | | | 42.92 | | | — | | | — | | | 1,277 | | | 31.71 | | Increase above target (cancelled) | — | | | — | | | (22,354) | | | 37.81 | | | — | | | — | | | (21,077) | | | 38.18 | |
| Forfeited | Forfeited | — | | | — | | | (41,711) | | | 38.27 | | | (46,684) | | | 36.77 | | | (45,809) | | | 38.82 | | Forfeited | (19,316) | | | 38.60 | | | (1,865) | | | 36.77 | | | (66,000) | | | 37.31 | | | (47,674) | | | 38.74 | |
| Outstanding, end of period | Outstanding, end of period | 293,711 | | | $ | 39.91 | | | 316,005 | | | $ | 38.38 | | | 293,711 | | | $ | 39.91 | | | 316,005 | | | $ | 38.38 | | Outstanding, end of period | 274,395 | | | $ | 40.00 | | | 292,911 | | | $ | 38.45 | | | 274,395 | | | $ | 40.00 | | | 292,911 | | | $ | 38.45 | |
| Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions) | Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions) | $ | 0.1 | | | $ | 0.3 | | | $ | 4.4 | | | $ | 6.3 | | | Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions) | $ | — | | | $ | — | | | $ | 4.4 | | | $ | 6.3 | | |
(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 sixnine months ended JuneSeptember 30, 2022 and 2021, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $3.2 million and $1.7 million, respectively, and the related tax benefits were $0.4 million and $0.4 million, respectively.
As of JuneSeptember 30, 2022, there was $5.2$4.4 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 1.61.4 years.
Note 11 · Income taxtaxes
The Company’s and the Utilities’ effective tax rates (combined federal and state income tax rates) were 20% and 21%, respectively, for the sixnine months ended JuneSeptember 30, 2022. 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 2017 Tax Cuts and Jobs Act that lowered the federal income tax rate from 35% to 21%, and the tax benefits derived from the low income housing tax credit investments and the non-taxability of the bank-owned life insurance income.investments. The Company’s and the Utilities’ effective tax rates were each 21%20% and 19%, respectively for the sixnine months ended JuneSeptember 30, 2021.
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 audit is still in progress and the Company has responded to all information requests received.due on or before September 30, 2022. The Company has not been notified of any material audit adjustments to date.
The Inflation Reduction Act of 2022 (IRA) was signed by President Biden on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax imposed on certain large corporations and the extension and expansion of clean energy tax incentives. The 15% corporate alternative minimum tax is not expected to affect the Company. The Company is in the process of evaluating the impact of the clean energy tax incentives on its businesses and is awaiting U.S. Department of the Treasury and Internal Revenue Service guidance.
Note 12 · Cash flows
| | Six months ended June 30 | | 2022 | | 2021 | |
| Nine months ended September 30 | | Nine months ended September 30 | | 2022 | | 2021 |
| (in millions) | (in millions) | | | | | (in millions) | | | | |
| Supplemental disclosures of cash flow information | Supplemental disclosures of cash flow information | | | | | Supplemental disclosures of cash flow information | | | | |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| Interest paid to non-affiliates, net of amounts capitalized | Interest paid to non-affiliates, net of amounts capitalized | | $ | 47 | | | $ | 51 | | Interest paid to non-affiliates, net of amounts capitalized | | $ | 59 | | | $ | 61 | |
| Income taxes paid (including refundable credits) | Income taxes paid (including refundable credits) | | 14 | | | 14 | | Income taxes paid (including refundable credits) | | 26 | | | 34 | |
| Income taxes refunded (including refundable credits) | Income taxes refunded (including refundable credits) | | 2 | | | — | | Income taxes refunded (including refundable credits) | | 2 | | | — | |
| Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
| Interest paid to non-affiliates | Interest paid to non-affiliates | | 34 | | | 37 | | Interest paid to non-affiliates | | 40 | | | 43 | |
| Income taxes paid (including refundable credits) | Income taxes paid (including refundable credits) | | 27 | | | 20 | | Income taxes paid (including refundable credits) | | 46 | | | 20 | |
| | Supplemental disclosures of noncash activities | Supplemental disclosures of noncash activities | | | | | Supplemental disclosures of noncash activities | | | | |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| Property, plant and equipment | Property, plant and equipment | | Property, plant and equipment | |
| | Estimated fair value of noncash contributions in aid of construction (investing) | | Estimated fair value of noncash contributions in aid of construction (investing) | | 6 | | | 5 | |
| Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | | 25 | | | 31 | | Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | | 34 | | | 30 | |
| Increase related to an acquisition (investing) | Increase related to an acquisition (investing) | | 15 | | | — | | Increase related to an acquisition (investing) | | 15 | | | — | |
| Right-of-use assets obtained in exchange for finance lease obligations (financing) | | Right-of-use assets obtained in exchange for finance lease obligations (financing) | | 48 | | | — | |
| | Right-of-use assets obtained in exchange for operating lease obligations (investing) | Right-of-use assets obtained in exchange for operating lease obligations (investing) | | 40 | | | 38 | | Right-of-use assets obtained in exchange for operating lease obligations (investing) | | 48 | | | 44 | |
| Property, plant, equipment and other assets received in exchange for the assumption of debt associated with a business acquisition (investing) | | Property, plant, equipment and other assets received in exchange for the assumption of debt associated with a business acquisition (investing) | | 68 | | | — | |
| Debt, lease liabilities and other liabilities assumed in business acquisition (financing) | | Debt, lease liabilities and other liabilities assumed in business acquisition (financing) | | 68 | | | — | |
Common stock issued (gross) for director and executive/management compensation (financing)1 | Common stock issued (gross) for director and executive/management compensation (financing)1 | | 9 | | | 7 | | Common stock issued (gross) for director and executive/management compensation (financing)1 | | 10 | | | 7 | |
| | Obligations to fund low income housing investments (investing) | Obligations to fund low income housing investments (investing) | | — | | | 9 | | Obligations to fund low income housing investments (investing) | | 9 | | | 9 | |
| Loans transferred from held for investment to held for sale (investing) | Loans transferred from held for investment to held for sale (investing) | | — | | | 62 | | Loans transferred from held for investment to held for sale (investing) | | — | | | 62 | |
| | Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
| Electric utility property, plant and equipment | Electric utility property, plant and equipment | | Electric utility property, plant and equipment | |
| | Estimated fair value of noncash contributions in aid of construction (investing) | | Estimated fair value of noncash contributions in aid of construction (investing) | | 6 | | | 5 | |
| Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | | 22 | | | 27 | | Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | | 31 | | | 27 | |
| Increase related to an acquisition (investing) | Increase related to an acquisition (investing) | | 15 | | | — | | Increase related to an acquisition (investing) | | 15 | | | — | |
| Right-of-use assets obtained in exchange for finance lease obligations (financing) | | Right-of-use assets obtained in exchange for finance lease obligations (financing) | | 48 | | | — | |
| | Right-of-use assets obtained in exchange for operating lease obligations (investing) | Right-of-use assets obtained in exchange for operating lease obligations (investing) | | 37 | | | 38 | | Right-of-use assets obtained in exchange for operating lease obligations (investing) | | 44 | | | 44 | |
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 13 · 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.
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 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.
Interest rate swaps. The Company measures its interest rate swaps at fair value. The fair values of the Company's interest rate swaps are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The fair values of the Company's interest rate swaps are classified as a 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 | | Estimated fair value |
| (in thousands) | (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 | (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 |
| June 30, 2022 | | | | | | | | | | | |
| September 30, 2022 | | September 30, 2022 | | | | | | | | | | |
| Financial assets | Financial assets | | | | | | | | | | | Financial assets | | | | | | | | | | |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| | Available-for-sale investment securities | Available-for-sale investment securities | | $ | 2,444,267 | | | $ | — | | | $ | 2,429,102 | | | $ | 15,165 | | | $ | 2,444,267 | | Available-for-sale investment securities | | $ | 2,232,336 | | | $ | — | | | $ | 2,217,303 | | | $ | 15,033 | | | $ | 2,232,336 | |
| Held-to-maturity investment securities | Held-to-maturity investment securities | | 513,767 | | | — | | | 440,023 | | | — | | | 440,023 | | Held-to-maturity investment securities | | 510,879 | | | — | | | 411,191 | | | — | | | 411,191 | |
| | Loans, net | Loans, net | | 5,361,277 | | | — | | | 3,737 | | | 5,096,243 | | | 5,099,980 | | Loans, net | | 5,620,085 | | | — | | | 3,071 | | | 5,146,554 | | | 5,149,625 | |
| Mortgage servicing rights | Mortgage servicing rights | | 9,696 | | | — | | | — | | | 17,201 | | | 17,201 | | Mortgage servicing rights | | 9,351 | | | — | | | — | | | 17,244 | | | 17,244 | |
| | Derivative assets | Derivative assets | | 22,689 | | | 27 | | | 1,074 | | | — | | | 1,101 | | Derivative assets | | 42,988 | | | 172 | | | 2,077 | | | — | | | 2,249 | |
| | Financial liabilities | Financial liabilities | | | | | | | | | | Financial liabilities | | | | | | | | | |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| Deposit liabilities | Deposit liabilities | | 407,972 | | | — | | | 397,909 | | | — | | | 397,909 | | Deposit liabilities | | 499,797 | | | — | | | 485,755 | | | — | | | 485,755 | |
| Short-term borrowings—other than bank | Short-term borrowings—other than bank | | 124,017 | | | — | | | 124,017 | | | — | | | 124,017 | | Short-term borrowings—other than bank | | 171,125 | | | — | | | 171,125 | | | — | | | 171,125 | |
| Other bank borrowings | Other bank borrowings | | 241,610 | | | — | | | 241,606 | | | — | | | 241,606 | | Other bank borrowings | | 409,040 | | | — | | | 409,033 | | | — | | | 409,033 | |
| Long-term debt, net—other than bank | Long-term debt, net—other than bank | | 2,374,500 | | | — | | | 2,222,491 | | | — | | | 2,222,491 | | Long-term debt, net—other than bank | | 2,430,326 | | | — | | | 2,147,438 | | | — | | | 2,147,438 | |
| Derivative liabilities | Derivative liabilities | | 124,000 | | | — | | | 810 | | | — | | | 810 | | Derivative liabilities | | 4,897 | | | — | | | 88 | | | — | | | 88 | |
| Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
| Short-term borrowings | Short-term borrowings | | 54,987 | | | — | | | 54,987 | | | — | | | 54,987 | | Short-term borrowings | | 97,450 | | | — | | | 97,450 | | | — | | | 97,450 | |
| Long-term debt, net | Long-term debt, net | | 1,736,508 | | | — | | | 1,622,996 | | | — | | | 1,622,996 | | Long-term debt, net | | 1,736,694 | | | — | | | 1,510,725 | | | — | | | 1,510,725 | |
| | December 31, 2021 | December 31, 2021 | | | | | | | | | | | December 31, 2021 | | | | | | | | | | |
| Financial assets | Financial assets | | | | | | | | | | | Financial assets | | | | | | | | | | |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| | Available-for-sale investment securities | Available-for-sale investment securities | | $ | 2,574,618 | | | $ | — | | | $ | 2,559,191 | | | $ | 15,427 | | | $ | 2,574,618 | | Available-for-sale investment securities | | $ | 2,574,618 | | | $ | — | | | $ | 2,559,191 | | | $ | 15,427 | | | $ | 2,574,618 | |
| Held-to-maturity investment securities | Held-to-maturity investment securities | | 522,270 | | | — | | | 510,474 | | | — | | | 510,474 | | Held-to-maturity investment securities | | 522,270 | | | — | | | 510,474 | | | — | | | 510,474 | |
| | Loans, net | Loans, net | | 5,150,388 | | | — | | | 10,403 | | | 5,218,121 | | | 5,228,524 | | Loans, net | | 5,150,388 | | | — | | | 10,403 | | | 5,218,121 | | | 5,228,524 | |
| Mortgage servicing rights | Mortgage servicing rights | | 9,950 | | | — | | | — | | | 14,480 | | | 14,480 | | Mortgage servicing rights | | 9,950 | | | — | | | — | | | 14,480 | | | 14,480 | |
| | Derivative assets | Derivative assets | | 57,377 | | | — | | | 909 | | | — | | | 909 | | Derivative assets | | 57,377 | | | — | | | 909 | | | — | | | 909 | |
| | Financial liabilities | Financial liabilities | | | | | | | | | | Financial liabilities | | | | | | | | | |
| HEI consolidated | HEI consolidated | | HEI consolidated | |
| Deposit liabilities | Deposit liabilities | | 423,976 | | | — | | | 442,361 | | | — | | | 442,361 | | Deposit liabilities | | 423,976 | | | — | | | 442,361 | | | — | | | 442,361 | |
| Short-term borrowings—other than bank | Short-term borrowings—other than bank | | 53,998 | | | — | | | 53,998 | | | — | | | 53,998 | | Short-term borrowings—other than bank | | 53,998 | | | — | | | 53,998 | | | — | | | 53,998 | |
| Other bank borrowings | Other bank borrowings | | 88,305 | | | — | | | 88,304 | | | — | | | 88,304 | | Other bank borrowings | | 88,305 | | | — | | | 88,304 | | | — | | | 88,304 | |
| Long-term debt, net—other than bank | Long-term debt, net—other than bank | | 2,321,937 | | | — | | | 2,624,130 | | | — | | | 2,624,130 | | Long-term debt, net—other than bank | | 2,321,937 | | | — | | | 2,624,130 | | | — | | | 2,624,130 | |
| Derivative liabilities | Derivative liabilities | | 57,000 | | | 11 | | | 5,271 | | | — | | | 5,282 | | Derivative liabilities | | 57,000 | | | 11 | | | 5,271 | | | — | | | 5,282 | |
| Hawaiian Electric consolidated | Hawaiian Electric consolidated | | Hawaiian Electric consolidated | |
| | Long-term debt, net | Long-term debt, net | | 1,676,402 | | | — | | | 1,955,710 | | | — | | | 1,955,710 | | Long-term debt, net | | 1,676,402 | | | — | | | 1,955,710 | | | — | | | 1,955,710 | |
|
Fair value measurements on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were as follows: | | | June 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| | | | Fair value measurements using | | Fair value measurements using | | | Fair value measurements using | | Fair value measurements using |
| (in thousands) | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 | (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Level 1 | | Level 2 | | Level 3 |
| | Available-for-sale investment securities (bank segment) | Available-for-sale investment securities (bank segment) | | | | | | | | | | | | | Available-for-sale investment securities (bank segment) | | | | | | | | | | | | |
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | $ | — | | | $ | 2,285,186 | | | $ | — | | | $ | — | | | $ | 2,437,923 | | | $ | — | | Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | $ | — | | | $ | 2,080,955 | | | $ | — | | | $ | — | | | $ | 2,437,923 | | | $ | — | |
| U.S. Treasury and federal agency obligations | U.S. Treasury and federal agency obligations | | — | | | 102,487 | | | — | | | — | | | 90,090 | | | — | | U.S. Treasury and federal agency obligations | | — | | | 96,413 | | | — | | | — | | | 90,090 | | | — | |
| Corporate bonds | Corporate bonds | | — | | | 41,429 | | | — | | | — | | | 31,178 | | | — | | Corporate bonds | | — | | | 39,935 | | | — | | | — | | | 31,178 | | | — | |
| Mortgage revenue bonds | Mortgage revenue bonds | | — | | | — | | | 15,165 | | | — | | | — | | | 15,427 | | Mortgage revenue bonds | | — | | | — | | | 15,033 | | | — | | | — | | | 15,427 | |
| | | | $ | — | | | $ | 2,429,102 | | | $ | 15,165 | | | $ | — | | | $ | 2,559,191 | | | $ | 15,427 | | | | $ | — | | | $ | 2,217,303 | | | $ | 15,033 | | | $ | — | | | $ | 2,559,191 | | | $ | 15,427 | |
| Derivative assets | Derivative assets | | | | | | | | | | | Derivative assets | | | | | | | | | | |
Interest rate lock commitments (bank segment)1 | Interest rate lock commitments (bank segment)1 | | $ | — | | | $ | 44 | | | $ | — | | | $ | — | | | $ | 638 | | | $ | — | | Interest rate lock commitments (bank segment)1 | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 638 | | | $ | — | |
Forward commitments (bank segment)1 | Forward commitments (bank segment)1 | | 27 | | | — | | | — | | | — | | | — | | | — | | Forward commitments (bank segment)1 | | 172 | | | — | | | — | | | — | | | — | | | — | |
Interest rate swap (Other segment)2 | Interest rate swap (Other segment)2 | | — | | | 1,030 | | | — | | | — | | | 271 | | | — | | Interest rate swap (Other segment)2 | | — | | | 2,074 | | | — | | | — | | | 271 | | | — | |
| | | | $ | 27 | | | $ | 1,074 | | | $ | — | | | $ | — | | | $ | 909 | | | $ | — | | | | $ | 172 | | | $ | 2,077 | | | $ | — | | | $ | — | | | $ | 909 | | | $ | — | |
| Derivative liabilities | Derivative liabilities | | Derivative liabilities | |
Interest rate lock commitments (bank segment)1 | Interest rate lock commitments (bank segment)1 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | Interest rate lock commitments (bank segment)1 | | $ | — | | | $ | 88 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Forward commitments (bank segment)1 | Forward commitments (bank segment)1 | | — | | | — | | | — | | | 11 | | | — | | | — | | Forward commitments (bank segment)1 | | — | | | — | | | — | | | 11 | | | — | | | — | |
| Interest rate swap (Other segment)2 | Interest rate swap (Other segment)2 | | — | | | 810 | | | — | | | — | | | 5,271 | | | — | | Interest rate swap (Other segment)2 | | — | | | — | | | — | | | — | | | 5,271 | | | — | |
| | $ | — | | | $ | 810 | | | $ | — | | | $ | 11 | | | $ | 5,271 | | | $ | — | | | $ | — | | | $ | 88 | | | $ | — | | | $ | 11 | | | $ | 5,271 | | | $ | — | |
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 June 30 | | Six months ended June 30 | | Three months ended September 30 | | Nine months ended September 30 |
| Mortgage revenue bonds | Mortgage revenue bonds | | 2022 | | 2021 | | 2022 | | 2021 | Mortgage revenue bonds | | 2022 | | 2021 | | 2022 | | 2021 |
| (in thousands) | (in thousands) | | (in thousands) | |
| Beginning balance | Beginning balance | | $ | 15,296 | | | $ | 15,427 | | | $ | 15,427 | | | $ | 27,185 | | Beginning balance | | $ | 15,165 | | | $ | 15,427 | | | $ | 15,427 | | | $ | 27,185 | |
| Principal payments received | Principal payments received | | (131) | | | — | | | (262) | | | (11,758) | | Principal payments received | | (132) | | | — | | | (394) | | | (11,758) | |
| Purchases | Purchases | | — | | | — | | | — | | | — | | Purchases | | — | | | — | | | — | | | — | |
| Unrealized gain (loss) included in other comprehensive income | Unrealized gain (loss) included in other comprehensive income | | — | | | — | | | — | | | — | | Unrealized gain (loss) included in other comprehensive income | | — | | | — | | | — | | | — | |
| Ending balance | Ending balance | | $ | 15,165 | | | $ | 15,427 | | | $ | 15,165 | | | $ | 15,427 | | Ending balance | | $ | 15,033 | | | $ | 15,427 | | | $ | 15,033 | | | $ | 15,427 | |
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 JuneSeptember 30, 2022, the weighted average discount rate was 2.89%3.89%, 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.
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. As of JuneSeptember 30, 2022 and December 31, 2021, there were no financial instruments measured at fair value on a nonrecurring basis. For the sixnine months ended JuneSeptember 30, 2022 and 2021, there were no adjustments to fair value for ASB’s loans held for sale.
Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value measurements.
Note 14 ·Subsequent event
On July 1, 2022, Mahipapa, LLC (Mahipapa), a wholly owned subsidiary of Pacific Current, acquired Green Energy Team, LLC’s 7.5 MW renewable, firm dispatchable closed-loop biomass-to-energy facility on Kauai. In addition to the biomass facility situated on 65 acres of fee simple land, the acquisition also included machinery and equipment and the assumption of land leases totaling approximately 3,500 acres, upon which the eucalyptus feedstock is grown. The plant sells all of the power it produces to Kauai Island Utility Cooperative under an existing power purchase agreement that expires in 2036. In connection with the acquisition, Mahipapa assumed approximately $61 million of long-term debt in various tranches, which have a final maturity in 2036 for the last tranche. Principal and interest total approximately $1.2 million per quarter. The loan is secured by all of assets of Mahipapa and all equity ownership interests in Mahipapa, excluding certain mobile equipment. Covenants include a debt service coverage ratio and a times interest earned ratio, which must be above 1.0 and 1.05, respectively, in two of the best calendar years out of the three most recent calendar years.
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 2021 Form 10-K and should be read in conjunction with such discussion and the 2021 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI’s and Hawaiian Electric’s 2021 Form 10-K, as well as the quarterly (as of and for the sixnine months ended JuneSeptember 30, 2022) condensed consolidated financial statements and notes thereto included in this Form 10-Q.
HEI consolidated
Recent developments. InDuring the secondthird quarter of 2022, Hawaii’s 7-day average daily COVID-19 case counts peaked at 1,258 casescontinued to decrease and case counts have since receded,currently remain relative stable, recently averaging below 600200 cases per day (7-day daily average). Hospitalizations have remained at low levels with approximately 77%86% of the state’s population fully vaccinated,with at least one dose, and approximately 44%46% of those fully vaccinatedthe state’s population received the first booster shot as of JulyOctober 26, 2022. On March 25, 2022, Hawaii ended its Safe Travels program for domestic U.S. travelers and its indoor mask mandate. On June 12, 2022, the U.S. Centers for Disease Control and Prevention ended the requirement that required air passengers traveling from a foreign country to the United States to show a negative COVID-19 test before boarding their flight.
As a result of the removal of COVID restrictions, domestic tourism has recovered to pre-pandemic levels with June 2022 domestic passenger counts up more than 5% of the domestic passenger counts in June 2019. However, the number of international travelers remains below pre-pandemic levels with June 2022 passenger counts down approximately 72% from the total number of international travelers in June 2019.
While economic conditions have improved significantly over the past year as the Hawaii economy fully reopened, new variants such as BA.5, present potential risks to the ongoing economic recovery. At this time, the Company does not expect that COVID restrictions will be reinstated, but will continue to monitor the situation and remains focused on the continued safety and well-being of customers, employees, their families and the community. The Company has maintained its safety protocols and policies to keep employees safe, while at the same time ensuring the reliability and resilience of its operations.
In the secondthird quarter of 2022, driven by increased economic activity as the tourism industry continues its recovery, the Utility’s kWh sales improved modestly, increasing 0.3%1.0% compared to the secondthird quarter of 2021. 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 the decoupling mechanism.
At the Bank, an improving Hawaii economy helped fuel loan growth whichand has supported stable credit trends. Loan growth was broad based and required additional provision for credit losses. ASB recordedHowever, the additional provision was more than offset by the release of credit loss reserves as a $2.8result of improved credit quality, resulting in a $0.2 million negative provision for credit losses in the secondthird quarter of 2022 due primarily to growth in the commercial real estate loan portfolio2022. The higher interest rate environment and consumer loan purchases. In the second quarter of 2021, ASB recorded a negative provision for credit losses of $12.2 million due primarily to credit upgrades in the commercial real estate and commercial loan portfolios and lowerhigher earning asset balances benefited net charge-offs. Net interest income, which increased $1.0$5.4 million to $61.8$65.7 million in the secondthird quarter of 2022 compared to net interest income in the secondthird quarter of 2021 due primarily to higher investment portfolio balances and yields,2021. The increase in net interest income was partially offset by lower PPP fees.fees and higher cost of funds. The higher interest rate environment also reduced the fair value of the Bank’s investment portfolio, which was recorded as an other comprehensive loss (see “Transfer of available-for sale securities to held-to-maturity- subsequent event” in Note 4 of the Condensed Consolidated Financial Statements).
Over the past few months, inflation has rapidly increased as reflected in the U.S. Consumer Price Index, which hit a 41-year high of 9.1%remained elevated at 8.2% in JuneSeptember 2022. In addition, fuel costs have risen rapidly increasing in the first half of the year. More recently, fuel prices have moderated; however, they remain at elevated levels, with fuel costs more than 90% higher than90% over the prior year’s quarter. Short-term interest rates have also increased significantly following the Federal Reserve’s ongoing rate increases to the federal funds target rate. These inflationary pressures are expected to continue over the near- to medium-term and have led to higher costs for O&M and capital projects and higher interest expense at the Utility and HEI, as well as higher compensation and benefits cost at the bank.
For further discussion of the impacts of the COVID-19 pandemic, fuel prices and other macro-economic factors impacting the Utilities and the Bank, see “Recent Developments” in the Electric Utility and Bank sections below.
RESULTS OF OPERATIONS
| | | Three months ended June 30 | | % | | | Three months ended September 30 | | % | |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | change | | Primary reason(s)* | (in thousands) | | 2022 | | 2021 | | change | | Primary reason(s)* |
| Revenues | Revenues | | $ | 895,607 | | | $ | 680,257 | | | 32 | | | Primarily increase for the electric utility segment | Revenues | | $ | 1,042,197 | | | $ | 756,904 | | | 38 | | | Primarily increase for the electric utility segment |
| Operating income | Operating income | | 86,668 | | | 101,856 | | | (15) | | | Decrease for bank segment and higher losses for the “other” segment, partly offset by increase for the electric utility segment | Operating income | | 102,115 | | | 97,316 | | | 5 | | | Increases for electric utility and bank segments, partly offset by higher losses for the “other” segment |
| Net income for common stock | Net income for common stock | | 52,541 | | | 63,872 | | | (18) | | | Lower net income at the bank segment and higher net loss for the “other” segment, partly offset by higher net income at the electric utility segment. See below for effective tax rate explanation. | Net income for common stock | | 62,082 | | | 63,415 | | | (2) | | | Higher net loss for the “other” segment and slightly lower net income at the electric utility segment, partly offset by higher net income at the bank segment. See below for effective tax rate explanation. |
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| | Six months ended June 30 | | % | | |
| (in thousands) | | 2022 | | 2021 | | change | | Primary reason(s)* |
| Revenues | | $ | 1,680,675 | | | $ | 1,323,203 | | | 27 | | | Primarily increase for the electric utility segment |
| Operating income | | 185,944 | | | 199,887 | | | (7) | | | Decrease for bank segment, partially offset by increase for the electric utility segment and lower losses for the “other” segment |
| Net income for common stock | | 121,708 | | | 128,230 | | | (5) | | | Lower net income at the bank segment, partly offset by lower net loss for the “other” segment and higher net income at the electric utility segment. See below for effective tax rate explanation. |
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| | Nine months ended September 30 | | % | | |
| (in thousands) | | 2022 | | 2021 | | change | | Primary reason(s)* |
| Revenues | | $ | 2,722,872 | | | $ | 2,080,107 | | | 31 | | | Primarily increase for the electric utility segment |
| Operating income | | 288,059 | | | 297,203 | | | (3) | | | Decrease for bank segment, partially offset by increase for the electric utility segment |
| Net income for common stock | | 183,790 | | | 191,645 | | | (4) | | | Lower net income at the bank segment, partly offset by higher net income at the electric utility segment and lower net loss for the “other” segment. See below for effective tax rate explanation. |
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* Also, see segment discussions which follow.
The Company’s effective tax rates for the secondthird quarters of 2022 and 2021 were 20%22% and 22%18%, respectively. The Company’s effective tax rates for the first sixnine months of 2022 and 2021 were comparable at 20%21% and 21%20%, respectively. The lower effective tax raterates were higher for the secondthird quarter and the first sixnine months of 2022 was primarily due to a decreasehigher non-taxable bank owned life insurance in income before taxes at ASB over the prior periods, which increased the rate impact of certain2021 and federal research and development tax items.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), 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).
AtBy the end of MarchSeptember 2022, the Safe Travels Program, which required proofmajority of vaccination or a negative COVID test for travel to Hawaii, ended following a significant reduction in case counts in recent months. In addition,national and state COVID-19 restrictions were lifted and lower case counts across most states also led to stronger demand for travel to Hawaii in the secondthird quarter of 2022, resulting in the2022. The average daily passenger count 29.1%was 14.9% higher than the comparable period in the prior year, but remained 5.7%7.1% below 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 JuneSeptember 2022, domestic passenger counts were up 7.6%18.9% compared to 2019 pre-COVID-19 levels, while international passenger counts were down 72%63.9% compared to 2019 pre-COVID-19 levels. On October 11, 2022, Japan eliminated the daily entry cap into Japan, which had made travel to and from Hawaii more difficult.
Hawaii’s seasonally adjusted unemployment rate in JuneSeptember 2022 was 4.3%3.5%, which was lower compared to the JuneSeptember 2021 rate of 5.9%4.8%. The national unemployment rate in JuneSeptember 2022 was 3.6%3.5% compared to 5.9%4.7% in JuneSeptember 2021. Hawaii’s unemployment rate is expected to continue to improve now that restrictions have been lifted and non-farm jobs are expected to increase this year.
Hawaii real estate activity through JuneSeptember 2022, as indicated by Oahu’s home resale market, drove an increaseincreased in the median sales price of 13.2%5.1% for condominiums and 17%4.8% for single-family homes compared to the same period in 2021, with the JuneSeptember median single-family home price of $1,100,000, slightly below the record $1,150,000 set in March. The number of closed sales was up 7.5%decreased 3.3% for condominiums and down 8.8%15.8% for single-family residential homes forthrough the secondthird quarter of 2022 compared to 2021.
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 throughout 2021 but decreased insignificantly from January 2022 and increased significantly through MayJuly 2022, but declined in August 2022.
At its July 27,September 21, 2022 meeting, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate target range of 2.25%-2.5%to 3%-3.25% and anticipates ongoing increases as appropriate. The FOMC is still assessing with plans to continue to maintain an
accommodativeadjust their stance ofon monetary policy depending on the economic outlook to achieve maximum employment and inflation at the rate of 2 percent over the long run. The Federal Reserve stated that it will continue to reduce its holdings of Treasury securities and agency mortgage-backed securities.
The most recent forecast by UHERO, which was issued on May 12,September 23, 2022, forecasts full year 2022 real GDP growth of 3.5%4.4%, an increase in total visitor arrivals of 31.8%35.9%, a decrease in real personal income of 5.1%5.4%, and an unemployment rate of 3.6%4.2%. This forecast reflects growth of Hawaii’s economy after experiencinganticipates a downturnpotential slowdown in recovery due to omicron variantsrising inflation, fuel costs, and supply chain issues despite the return of COVID-19Japanese visitors. However, in early 2022. The international marketthe event of a U.S. recession, UHERO believes that Hawaii is anticipatedunlikely to returnsuffer as severely compared to the omicron wave in Asia recedes. However, a full economic recovery is stillU.S. mainland. Downward risks are forecasted to be several years out and dependent on adapting to new COVID-19 threats,include ongoing global economic fallout from Russia’s invasion of Ukraine, increasing federal interest rates to combat rising inflation, riskspossibility of a global recession, and returninguncertainties of international visitors.
Theand domestic visitor arrivals due to higher travel costs. While the Company expects economic conditions to improveremain relatively stable going forward; however,forward, it is difficult to predict the future path of the pandemic.pandemic and global economy. 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 financial position or results of operations in 2022.operations.
See also “Recent Developments” in the “Electric utility” and “Bank” sections below for further discussion of the economic impact caused by the pandemic.
“Other” segment. | | | | | Three months ended June 30 | | Six months ended June 30 | | | | Three months ended September 30 | | Nine months ended September 30 | |
| (in thousands) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | Primary reason(s) | (in thousands) | | 2022 | | 2021 | | 2022 | | 2021 | | Primary reason(s) |
| Revenues | Revenues | | $ | 1,410 | | | $ | 1,118 | | | $ | 2,571 | | | $ | 2,069 | | | Increase in other sales at Pacific Current subsidiaries. | Revenues | | $ | 4,815 | | | $ | 1,197 | | | $ | 7,386 | | | $ | 3,266 | | | Increase in other sales at Pacific Current subsidiaries. |
| Operating loss | Operating loss | | (6,409) | | | (5,634) | | | (10,758) | | | (12,013) | | | The second quarters of 2022 and 2021 include $0.7 million and $0.6 million, respectively, of operating income from Pacific Current1. Corporate expenses for the second quarter 2022 were $0.8 million higher than the same period in 2021, primarily due to higher charitable donations in the second quarter of 2022 (due to timing of contributions) and higher board and consulting expenses, partly offset by a settlement agreement with the former President and Chief Executive Officer of the Bank in 2021. The first six months of 2022 and 2021 include $1.5 million and $1.3 million, respectively, of operating income from Pacific Current1. Corporate expenses for the first six months of 2022 were $1.1 million lower than the same period in 2021, primarily due to a settlement agreement with the former President and Chief Executive Officer of the Bank in 2021 and higher charitable donations in 2021, due to timing of contributions, partly offset by higher board and consulting expenses. | Operating loss | | (4,034) | | | (2,933) | | | (14,792) | | | (14,946) | | | The third quarters of 2022 and 2021 include $0.9 million and $1.3 million, respectively, of operating income from Pacific Current1. Corporate expenses for the third quarter 2022 were $0.6 million higher than the same period in 2021, primarily due to lower charges to subsidiaries. The first nine months of 2022 and 2021 include $2.3 million and $2.6 million, respectively, of operating income from Pacific Current1. Corporate expenses for the first nine months of 2022 were $0.4 million lower than the same period in 2021, primarily due to a settlement agreement with the former President and Chief Executive Officer of the Bank in 2021 and higher charitable donations in 2021, due to timing of contributions, partly offset by higher general and administrative expenses. |
| Gain on sale of equity-method investment | Gain on sale of equity-method investment | | — | | | — | | | 8,123 | | | — | | | Gain on sale of an equity-method investment at Pacific Current. | Gain on sale of equity-method investment | | — | | | — | | | 8,123 | | | — | | | Gain on sale of an equity-method investment at Pacific Current. |
| Net loss | Net loss | | (9,060) | | | (8,313) | | | (10,172) | | | (16,869) | | | The net loss for the second quarter of 2022 was slightly higher than the net loss for the second quarter of 2021 due to the same factors cited for the change in operating loss and higher interest expense due to higher average borrowings. The net loss for the first six months of 2022 was lower than the net loss for the first six months of 2021 due to the gain on sale of an equity-method investment by Pacific Current and the same factors cited for the change in operating loss, partly offset by higher interest expense due to higher average borrowings. | Net loss | | (8,438) | | | (6,192) | | | (18,610) | | | (23,061) | | | The net loss for the third quarter of 2022 was higher than the net loss for the third quarter of 2021 due to the same factors cited for the change in operating loss and higher interest expense primarily due to higher average borrowings and higher average short-term rate. The net loss for the first nine months of 2022 was lower than the net loss for the first nine months of 2021 due to the gain on sale of an equity-method investment by Pacific Current and the same factors cited for the change in operating loss, partly offset by higher interest expense primarily due to higher average borrowings and higher average short-term rate. |
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-MW60 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, Mahipapa, which owns a 7.5 MW nameplate biomass facility on Kauai, Alenuihaha 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 JuneSeptember 30, 2022, there was no balance on HEI’s revolving credit facility or Hawaiian Electric’s revolving credit facility and the available committed capacities under the facilities were $175 million and $200 million, respectively. At the end of the quarter, HEI and Hawaiian Electric had approximately $69$74 million and $55$98 million of commercial paper outstanding, respectively. As of JuneSeptember 30, 2022, ASB’s unused FHLB borrowing capacity was approximately $2.0$1.9 billion and ASB had unpledged investment securities of $2.3$2.2 billion that were available to be used as collateral for additional borrowing capacity.
As of JuneSeptember 30, 2022 and December 31, 2021, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s committed lines of credit was approximately $251$204 million and $321 million,
respectively.
On September 29, 2021, HEI executed a $125 million private placement, utilizing a delayed draw feature with two tranches. The first tranche of $75 million was drawn on December 29, 2021 and the proceeds were primarily used to invest in the Utilities’ equity to support its capital expenditure program and maintain a Utilities’ equity capitalization ratio of approximately 58%. The second and final tranche of $50 million was drawn on October 26, 2022, to refinance a portion of $150 million of debt that matures on November 20, 2022.
On September 29, 2022, HEI executed a private placement under which HEI has authorized the issue and sale of $110 million of unsecured senior notes. The proceeds totaling $110 million were drawn on November 1, 2022 to refinance a portion of the $150 million of debt that matures on November 20, 2022. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
On October 20, 2022, HEI entered into a term loan facility in the aggregate principal amount of $100 million. The term loan facility allows HEI to draw down proceeds on a delayed basis through March 31, 2023, at which time the term loan commitment expires. Any borrowings under the facility mature on November 30, 2023. Borrowings under the facility bear interest at Term SOFR, as defined in the agreement, plus an applicable margin. The term loan was entered into to prefund $50 million of maturing debt in March 2023 as well as enhance HEI’s liquidity position. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
The Company believes that its cash and cash equivalents, expected operating cash flow from subsidiaries, existing credit facilities, and access to the capital markets will be sufficient to meet the Company’s cash requirements over the next twelve months and beyond based on its current business plans. However, the Company expects that its liquidity will continue to be moderately impacted at the Utilities due to higher working capital requirements due to lingering COVID-19 impacts to the local economy and elevated fuel prices. For the Utilities, the elevated fuel prices billed to customers have increased the cost of carrying fuel inventory and have also resulted in higher customer accounts receivable balances as fuel is consumed and billed to customers. The higher accounts receivable balance, which has increased $72 million since December 31, 2021, has led to higher bad debt expense and may result in higher write-offs in the future. As of JuneSeptember 30, 2022, approximately $42$30 million of the Utilities’ accounts receivables were over 30 days past due. Of the over 30 days past due amounts, approximately 22%20% were on payment plans. The Company commenced its disconnection process on a tiered basis, starting in the third quarter of 2021, targeting the oldest and largest balances first, which has reduced the older balances in arrears over time as payments were made, as well as decreasing the number of customers in arrears. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements. 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.levels. ASB’s cash and cash equivalents was $141$150 million as of JuneSeptember 30, 2022, compared to $251 million as of December 31, 2021. 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 emerging risks from inflation and the tightening of monetary policy that increases the risk of a recession, as well as ongoing COVID-19 risks, such as new variants, all of which could create increased uncertainty regarding the impact on loan performance and the allowance for credit losses.
HEI material cash requirements. HEI’s material cash requirements include: capital expenditures, labor and benefit costs, O&M expenses, fuel and purchase power costs, and debt and interest payments at the Utilities; investments in loans and investment securities at the Bank; labor and benefits costs, shareholder dividends and debt and interest payments at HEI; and HEI equity contributions to support Pacific Current’s sustainable infrastructure investments.
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 short-term and long-term material cash requirements. However, the economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy and the ongoing COVID-19 pandemic, create significant uncertainty, and the Company cannot predict the future effects that these factors 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) | (dollars in millions) | | June 30, 2022 | | December 31, 2021 | (dollars in millions) | | September 30, 2022 | | December 31, 2021 |
| Short-term borrowings—other than bank | | $ | 124 | | | 2 | % | | $ | 54 | | | 1 | % | |
| Short-term borrowings—other than bank, net of discount | | Short-term borrowings—other than bank, net of discount | | $ | 171 | | | 3 | % | | $ | 54 | | | 1 | % |
| Long-term debt, net—other than bank | Long-term debt, net—other than bank | | 2,375 | | | 50 | | | 2,322 | | | 48 | | Long-term debt, net—other than bank | | 2,430 | | | 51 | | | 2,322 | | | 48 | |
| Preferred stock of subsidiaries | Preferred stock of subsidiaries | | 34 | | | 1 | | | 34 | | | 1 | | Preferred stock of subsidiaries | | 34 | | | 1 | | | 34 | | | 1 | |
| Common stock equity | Common stock equity | | 2,234 | | | 47 | | | 2,391 | | | 50 | | Common stock equity | | 2,163 | | | 45 | | | 2,391 | | | 50 | |
| | | | $ | 4,767 | | | 100 | % | | $ | 4,801 | | | 100 | % | | | $ | 4,798 | | | 100 | % | | $ | 4,801 | | | 100 | % |
HEI’s commercial paper borrowings and line of credit facility were as follows: | | | | | Average balance | | Balance | | | Average balance | | Balance |
| (in millions) | (in millions) | | Six months ended June 30, 2022 | | June 30, 2022 | | December 31, 2021 | (in millions) | | Nine months ended September 30, 2022 | | September 30, 2022 | | December 31, 2021 |
| Commercial paper | Commercial paper | | $ | 45 | | | $ | 69 | | | $ | 54 | | Commercial paper | | $ | 51 | | | $ | 74 | | | $ | 54 | |
| Line of credit draws on revolving credit facility | Line of credit draws on revolving credit facility | | — | | | — | | | — | | Line of credit draws on revolving credit facility | | — | | | — | | | — | |
|
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 sixnine months of 2022 was $69$80 million. As of JuneSeptember 30, 2022, available committed capacity under HEI’s line of credit facility was $175 million.
On June 27, 2022, Fitch revised HEI’s outlook to “Positive” from “Stable” and affirmed the “BBB” long-term issuer default rating and “F3” short-term issuer default rating.
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 sixnine months ended JuneSeptember 30, 2022 and 2021 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 sixnine months of 2022, net cash provided by operating activities of HEI consolidated was $75$213 million. Net cash used by investing activities for the same period was $497$795 million, primarily due to capital expenditures, ASB’s net increase in loans held for investment, purchases of available-for-sale investment securities net increase inand purchases of loans held for investment, partly offset by ASB’s receipt of investment security repayments and maturities. Net cash provided by financing activities during this period was $276$449 million as a result of several factors, including net increases in ASB’s other bank borrowings and deposit liabilities, net increases in short-term borrowings and issuances of long-term debt, partly offset by repayment of long-term debt and payment of common stock dividends. During the first sixnine months of 2022, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $63$94 million and $27$32 million, respectively.
Dividends. The payout ratios for the first sixnine months of 2022 and full year 2021 were 63% and 60%, respectively. On February 11, 2022, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.34 per share to $0.35 per share, starting with the dividend in the first quarter of 2022. 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 POLICIESFINANCIAL CONDITION
In preparing financial statements, management is required to make estimatesLiquidity and assumptions that affect the reported amountscapital resources. As of assets and liabilities, the disclosure of contingent assets and liabilitiesSeptember 30, 2022, there was no balance on HEI’s revolving credit facility or Hawaiian Electric’s revolving credit facility and the reported amountsavailable committed capacities under the facilities were $175 million and $200 million, respectively. At the end of revenuesthe quarter, HEI 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 believesHawaiian Electric had approximately $74 million and $98 million of commercial paper outstanding, respectively. As of September 30, 2022, ASB’s unused FHLB borrowing capacity was approximately $1.9 billion and ASB had unpledged investment securities of $2.2 billion that were available to be used as collateral for additional borrowing capacity.
As of September 30, 2022 and December 31, 2021, the most critical tototal amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayalcommitted lines of the Company’s results of operationscredit was approximately $204 million 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 45 to 46, 62 to 63, and 76 to 77 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2021 Form 10-K.
Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.$321 million,
Electric utilityrespectively.
Recent developmentsOn September 29, 2021, HEI executed a $125 million private placement, utilizing a delayed draw feature with two tranches. The first tranche of $75 million was drawn on December 29, 2021 and the proceeds were primarily used to invest in the Utilities’ equity to support its capital expenditure program and maintain a Utilities’ equity capitalization ratio of approximately 58%. The second and final tranche of $50 million was drawn on October 26, 2022, to refinance a portion of $150 million of debt that matures on November 20, 2022.
On September 29, 2022, HEI executed a private placement under which HEI has authorized the issue and sale of $110 million of unsecured senior notes. The proceeds totaling $110 million were drawn on November 1, 2022 to refinance a portion of the $150 million of debt that matures on November 20, 2022. See also Recent developmentsNote 5 of the Condensed Consolidated Financial Statements for additional information.
On October 20, 2022, HEI entered into a term loan facility in the aggregate principal amount of $100 million. The term loan facility allows HEI to draw down proceeds on a delayed basis through March 31, 2023, at which time the term loan commitment expires. Any borrowings under the facility mature on November 30, 2023. Borrowings under the facility bear interest at Term SOFR, as defined in the agreement, plus an applicable margin. The term loan was entered into to prefund $50 million of maturing debt in March 2023 as well as enhance HEI’s MD&A.liquidity position. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
In the second quarterThe Company believes that its cash and first six months of 2022, kWh sales volume increased 0.3%cash equivalents, expected operating cash flow from subsidiaries, existing credit facilities, and 1.4% comparedaccess to the same periods in 2021, respectively. The increase in kWh sales is primarilycapital markets will be sufficient to meet the Company’s cash requirements over the next twelve months and beyond based on its current business plans. However, the Company expects that its liquidity will continue to be moderately impacted at the Utilities due to continued recovery ofhigher working capital requirements due to lingering COVID-19 impacts to the local economy and tourism activity.
Accounts receivableelevated fuel prices. For the Utilities, the elevated fuel prices have increased the cost of carrying fuel inventory and have also resulted in the second quarter with past duehigher customer accounts receivable balances increasing by $11.9as fuel is consumed and billed to customers. The higher accounts receivable balance, which has increased $72 million or 17%, while the number of accounts past due decreased by approximately 9% since December 31, 2021. The increase2021, has led to higher bad debt expense and may result in higher write-offs in the future. As of September 30, 2022, approximately $30 million of the Utilities’ accounts receivables was primarily driven by higher customer bills impacted bywere over 30 days past due. Of the increaseover 30 days past due amounts, approximately 20% were on payment plans. The Company commenced its disconnection process on a tiered basis, starting in fuel prices, delaysthe third quarter of 2021, targeting the oldest and largest balances first, which has reduced the older balances in a large government accountarrears over time as payments offset by payments on installment plans, higher cash receipts associated with increased disconnection efforts and application of the $2 million Kokua bill credit, all of which contributed to the decrease inwere made, as well as decreasing the number of customers in arrears. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements. At this time, the delay in customer cash collections has not significantly affected the Utilities’Company’s liquidity. The Utilities areCompany 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. ASB’s cash flows collected under the decoupling mechanism through the Revenue Balancing Account and the modest slowing or reduction in accounts receivable collections from customers. See “Financial Condition—Liquidity and capital resources” for additional information.
In the second quartercash equivalents was $150 million as of 2020, the PUC approved the deferralSeptember 30, 2022, compared to $251 million as 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. The Utilities deferred COVID-19 related costs through a PUC approved period that ended on December 31, 2021. InASB remains well above the second quarter“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 emerging risks from inflation and the tightening of 2022,monetary policy that increases the Utilities filed an application, which is currently pending, to seek recoveryrisk of thea recession, as well as ongoing COVID-19 deferred costs, not to exceed the amount of $27.8 million. (See discussion under “Regulatory assets for COVID-19 related costs” in Note 3 of the Condensed Consolidated Financial Statements).
Looking forward, while case counts and hospitalizations have declined, a worsening of COVID-19 case counts withrisks, such as new variants, or a reinstatementall of COVID-19 restrictions could adversely affect the ability of the Utilities’ contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations timely, or at all, or require modifications to existing contracts, which could adversely affectcreate increased uncertainty regarding the Utilities’ business, increase expenses,impact on loan performance and impact the Utilities’ ability to achieve their RPS and other climate related goals.allowance for credit losses.
In June 2022, the consumer price index reached a 40-year high of 9.1% as gas prices and rents spiked. In Hawaii, the May 2022 Urban Hawaii (Honolulu) Consumer Price Index (CPI) was 7.0% higher than it was one year agoHEI material cash requirements. In addition,HEI’s material cash requirements include: capital expenditures, labor and benefit costs, O&M expenses, fuel and purchase power costs, have risen rapidly and have increased 90% over prior year’s quarter. Althoughdebt and interest payments at the Utilities are ableUtilities; investments in loans and investment securities at the Bank; labor and benefits costs, shareholder dividends and debt and interest payments at HEI; and HEI equity contributions to pass through fuel costs to customers and have limited fuel cost exposure through a 2% fuel-cost sharing mechanism (approximately $3.7 million exposure annually), higher customer bills could reduce customers’support Pacific Current’s sustainable infrastructure investments.
The Company believes that its ability to pay timely or increasegenerate 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 short-term and long-term material cash requirements. However, the risk of non-payment. In addition, the higher customer bills may lead the PUC to consider other actions to limit or delay any proposed increase in rates in order to mitigate the overall billeconomic impact of risinghigher fuel prices.
Underprices, inflation, higher interest rates, tightening of monetary policy and the PBR framework, inflation risk forongoing COVID-19 pandemic, create significant uncertainty, and the Utilities is mitigated by an Annual Rate Adjustment (ARA), which is based on a formulaCompany cannot predict the future effects that includes a compounded and non-compounded portion.
•The compounded portion of the ARA adjustment includes an adjustment for inflation basedthese factors will have on the estimated change in Gross Domestic Product Price Index (GDPPI) forglobal, national or local economy, including the upcoming year, less a predetermined annual productivity factor (currently set at zero), less a 0.22% customer dividend, applied to a basis equal to test year target revenues plus the RAM Revenue adjustments in effect prior to the implementation of PBR, plus the prior adjustment year’s compounded portion of the ARA adjustment. The GDPPI adjustment is determined using the forecasted GDPPI in October, which is effective for the following calendar year. For the 2022 calendar year, GDPPI was measured at 3% in October 2021 and was effective in rates on January 1, 2022. For the 2023 calendar year, the estimated change in GDPPI will be effective in rates on January 1, 2023.
•The non-compounded portion of the ARA adjustment includes a subtractive component, representing the management audit savings commitment, or refund to customers, which was approved by the PUC for the years 2021 through 2025.
Regulatory Developments. On June 17, 2022, the PUC issued a D&O approving (1) a new (penalty-only) Performance Incentive Mechanism (PIM) to incentivize achievement of generation-based reliability targets, with an annual maximum penalty of $1 million, (2) a new (penalty/reward) PIM to incentivize the timely completion of the interconnection requirements study process for large-scale renewable energy projects, the penalty/reward will dependimpact on the specificsCompany’s cost of capital and its ability to access additional capital, or the upcoming procurement, (3) a new (reward-only) Collective Shared Savings Mechanism to incentivize cost control overfuture impacts on the Utilities’ fuel, purchased power,Company’s financial position, results of operations, and Exceptional Project Recovery Mechanism costs (collectively, non-Annual Revenue Adjustment-related costs), and (4) a modification and extension of the existing interim (reward-only) Grid Services PIM with a maximum reward ofcash flows.
$1.5 million through December 31, 2023. The effective date for the changes hasconsolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | September 30, 2022 | | December 31, 2021 |
| Short-term borrowings—other than bank, net of discount | | $ | 171 | | | 3 | % | | $ | 54 | | | 1 | % |
| Long-term debt, net—other than bank | | 2,430 | | | 51 | | | 2,322 | | | 48 | |
| Preferred stock of subsidiaries | | 34 | | | 1 | | | 34 | | | 1 | |
| Common stock equity | | 2,163 | | | 45 | | | 2,391 | | | 50 | |
| | | $ | 4,798 | | | 100 | % | | $ | 4,801 | | | 100 | % |
HEI’s commercial paper borrowings and line of credit facility were as follows: | | | | | | | | | | | | | | | | | | | | |
| | | Average balance | | Balance |
| (in millions) | | Nine months ended September 30, 2022 | | September 30, 2022 | | December 31, 2021 |
| Commercial paper | | $ | 51 | | | $ | 74 | | | $ | 54 | |
| Line of credit draws on revolving credit facility | | — | | | — | | | — | |
| | | | | | |
Note:This table does not yet been established. See “Regulatory proceedings” in Note 3include Hawaiian Electric’s separate commercial paper issuances and line of the Condensed Consolidated credit facilities and draws, which are disclosed below under “Electric utility—Financial Statements for additional discussions.
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–Condition—Liquidity and capital resources.”
RESULTS OF OPERATIONS
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended June 30 | | Increase | | |
| 2022 | | 2021 | | (decrease) | | (dollars in millions, except per barrel amounts) |
| $ | 819 | | | $ | 602 | | | $ | 217 | | | | | Revenues. Net increase largely due to: |
| | | | | | $ | 143 | | | higher fuel oil prices and higher kWh generated1 |
| | | | | | 62 | | | higher purchased power energy prices, partially offset by lower kWh purchased2 |
| | | | | | 10 | | | higher revenue from ARA adjustments, which included an offset of management audit savings delivered to customers |
| | | | | | 1 | | | revenue in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March 1, 2022 |
| | | | | | 1 | | | higher MPIR revenue |
| | | | | | 1 | | | higher revenue 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 |
| 270 | | | 139 | | | 131 | | | | | Fuel oil expense1. Net increase largely due to higher fuel oil prices and higher kWh generated |
| 218 | | | 162 | | | 56 | | | | | Purchased power expense1, 2. Net increase largely due to higher purchased power energy prices partially offset by lower kWh purchased |
| 125 | | | 118 | | | 7 | | | | | Operation and maintenance expenses. Net increase largely due to: |
| | | | | | 5 | | | more generating facility maintenance work performed |
| | | | | | 3 | | | more generating facility overhauls performed |
| | | | | | 1 | | | higher bad debt expense |
| | | | | | (1) | | | expense due to decommissioning of combined heat and power unit on Lanai in 2021 |
| | | | | | (1) | | | higher Pearl Harbor environmental reserves in 2021 |
| 135 | | | 114 | | | 21 | | | | | Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2022 for plant investment in 2021 |
| 71 | | | 68 | | | 3 | | | | | Operating income. Increase largely due to higher ARA and MPIR revenue, offset in part by higher operation and maintenance expenses and higher depreciation expense |
| 57 | | | 54 | | | 3 | | | | | Income before income taxes. Increase largely due to higher operating income, partially offset by higher interest expense |
| 44 | | | 42 | | | 2 | | | | | Net income for common stock. Increase largely due to higher income before income taxes. See below for effective tax rate explanation. |
| 2,031 | | | 2,026 | | | 5 | | | | | Kilowatthour sales (millions)3 |
| $ | 139.51 | | | $ | 73.58 | | | $ | 65.93 | | | | | Average fuel oil cost per barrel |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six months ended June 30 | | Increase | | |
| 2022 | | 2021 | | (decrease) | | (dollars in millions, except per barrel amounts) |
| $ | 1,528 | | | $ | 1,167 | | | $ | 361 | | | | | Revenues. Net increase largely due to: |
| | | | | | $ | 247 | | | higher fuel oil prices and higher kWh generated1 |
| | | | | | 86 | | | higher purchased power energy prices, partially offset by lower kWh purchased2 |
| | | | | | 20 | | | higher revenue from ARA adjustments, which included an offset of management audit savings delivered to customers |
| | | | | | 3 | | | revenue in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March 1, 2022 |
| | | | | | 2 | | | higher MPIR revenue |
| | | | | | 2 | | | higher revenue 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 |
| 491 | | | 267 | | | 224 | | | | | Fuel oil expense1. Net increase largely due to higher fuel oil prices and higher kWh generated partially offset by lower penalties for better fuel efficiency due to reset of heat rate |
| 382 | | | 305 | | | 77 | | | | | Purchased power expense1, 2. Net increase largely due to higher purchased power energy prices partially offset by lower kWh purchased |
| 250 | | | 233 | | | 17 | | | | | Operation and maintenance expenses. Net increase largely due to: |
| | | | | | 7 | | | more generating facility maintenance work performed |
| | | | | | 3 | | | more generating facility overhauls performed |
| | | | | | 2 | | | higher transmission and distribution preventive and corrective maintenance expense |
| | | | | | 2 | | | higher outside services for Information Technology and Services support, Customer Interconnection/Installation, Demand Response Management System, and Battery Bonus program |
| | | | | | 2 | | | higher bad debt expense |
| | | | | | 2 | | | expense in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March, 1, 2022 |
| | | | | | 1 | | | higher property damage and legal reserve for pending claims |
| | | | | | (1) | | | expense due to decommissioning of combined heat and power unit on Lanai in 2021 |
| | | | | | (1) | | | higher Pearl Harbor environmental reserves in 2021 |
| 260 | | | 226 | | | 34 | | | | | Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2022 for plant investment in 2021 |
| 145 | | | 137 | | | 8 | | | | | Operating income. Increase largely due to higher ARA and MPIR revenue, offset by higher operation and maintenance expense and higher depreciation expense |
| 116 | | | 109 | | | 7 | | | | | Income before income taxes. Increase largely due to higher operating income, partially offset by higher interest expense |
| 91 | | | 85 | | | 6 | | | | | Net income for common stock. Increase largely due to higher income before income taxes. See below for effective tax rate explanation. |
| 3,988 | | | 3,935 | | | 53 | | | | | Kilowatthour sales (millions)3 |
| $ | 120.54 | | | $ | 68.59 | | | $ | 51.95 | | | | | Average fuel oil cost per barrel |
| 470,812 | | | 468,745 | | | 2,067 | | | | | Customer accounts (end of period) |
1The rate schedulesmaximum amount of HEI’s short-term commercial paper borrowings during 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.
2The 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 In the second quarterfirst nine months of 2022 kWh saleswas $80 million. As of September 30, 2022, available committed capacity under HEI’s line of credit facility was $175 million.
On June 27, 2022, Fitch revised HEI’s outlook to “Positive” from “Stable” and affirmed the “BBB” long-term issuer default rating and “F3” short-term issuer default rating.
There were higher when compared tono new issuances of common stock through the same periods last year largely due to continued recovery fromHEI Dividend Reinvestment and Stock Purchase Plan (DRIP), HEIRSP or the impacts of the COVID-19 pandemic. COVID-19 cases have decreasedASB 401(k) Plan in the second quarter of 2022, but not to pre-Omicron levels. U.S. visitor arrivals continued to increase above the second quarter of 2021 levels and approach pre-pandemic levels, but international
arrivals remain low. The economic recovery is expected to strengthen this year as international visitors return and sales rebound, although the improvement is expected to remain below pre-pandemic levels due to global economic factors such as the continued effects of the invasion of Ukraine, increasing inflation, supply chain issues, and lingering impacts from the pandemic.
The Utilities’ effective tax rate for the second quarters ofnine months ended September 30, 2022 and 2021 were comparable at 21%.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 2022, net cash provided by operating activities of HEI consolidated was $213 million. Net cash used by investing activities for the same period was $795 million, primarily due to capital expenditures, ASB’s net increase in loans held for investment, purchases of available-for-sale investment securities and purchases of loans held for investment, partly offset by ASB’sreceipt of investment security repayments and maturities. Net cash provided by financing activities during this period was $449 million as a result of several factors, including net increases in ASB’s other bank borrowings and deposit liabilities, net increases in short-term borrowings and issuances of long-term debt, partly offset by repayment of long-term debt and payment of common stock dividends. During the first nine months of 2022, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $94 million and $32 million, respectively.
Dividends. The Utilities’ effective tax ratepayout ratios for the first sixnine months of 2022 and full year 2021 were comparable63% and 60%, respectively. On February 11, 2022, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.34 per share to $0.35 per share, starting with the dividend in the first quarter of 2022. HEI currently expects to maintain its dividend at 21%.
Hawaiian Electric’s consolidated ROACE was 8.2%its present level; however, the HEI Board of Directors evaluates the dividend quarterly and 8.9%considers many factors in the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the twelve months ended June 30, 2022Company, current and June 30, 2021, respectively.
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of June 30, 2022 amounted to $4.9 billion, of which approximately 25% related to generation PPE, 66% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 8% 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 (DER), 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 energyexpected future for Hawaii. The Utilities believe that a holistic approach to decarbonization is needed, and that such a strategy requires achieving the Utilities’ decarbonization and renewable energy commitments, facilitating and promoting beneficial electrification, and deploying carbon removal and offsets among other levers to reduce statewide emissions.
In the fourth quarter of 2021, the Utilities outlined its Climate Action Plan to cut carbon emissions from power generation 70% by 2030, compared to a 2005 baseline. The emissions covered by this goal include stack emissions from generation owned by Hawaiian Electric and IPPs who sell electricity to the Utilities. The 2030 commitment would provide a significant portion of the reduction the entire Hawaii economy needs to meet the U.S. target of cutting carbon emissions by at least 50% economy-wide by 2030. Hawaiian Electric has also committed to achieving net zero carbon emissions from power generation by 2045 or sooner. Key elements of the 2030 plan include the closure of the state’s last coal-fired IPP plant in 2022 upon expiry of the PPA, increasing rooftop solar by more than 50% over 2021 levels, retiring six fossil fuel generating units, adding at least 1 GW of renewable generation to what was already in place in 2021, increasing grid-scale and customer-owned storage, expanding geothermal resources, and creating customer incentives for using clean, lower-cost energy at certain times of the day and using less fossil-fueled energy at night. The retirement of fossil-fueled generating units to achieve the Utilities’ 70% decarbonization goal is consistent with state policy and supported by Hawaii State law. See “Forecast of capital expenditures—Liquidity and capital resources” for a discussion of potential capital expenditures related to decarbonization efforts.
On September 1, 2022, the last coal-fired IPP plant in the state, providing approximately 10% of Oahu’s generation, will cease operations, removing a significant amount of GHG emissions from the Utilities’ generation mix. The plant’s aging infrastructure could lead to more unscheduled outages compared to historic performance, which may impact system reliability.
In anticipation of the retirement of the coal-fired IPP plant, the Utilities have developed plans,economic conditions, including contingency plans, to ensure reliable service through the transition period. These plans include the anticipated addition of renewable energy/storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, and multiple demand response/DER programs. For example, the state’s largest solar plus battery storage project to date, totaling 39 MW, reached commercial operations on July 31, 2022. However, future events, including unexpected issues with existing generation, or supply chain issues and inflationary pressures, as well as federal policies related to solar panel imports, among other factors, delay in the commercial operation of new generation resources, could disrupt the ability of the Utilities to deliver reliable service. Also, see the “Developments in renewable energy efforts—New renewable PPAs” section below.
Hawaii’s renewable portfolio standard law requires electric utilities to meet an RPS of 40%, 70% and 100% by December 31, 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’ strategies and plans are fully aligned in meeting these targets.
The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals. To date the Utilities have met all of the statutory RPS goals, including exceeding the last milestone RPS target of 30% for 2020, where it achieved an RPS of 34.5%. In 2021, the Utilities achieved an RPS of 38.4%. The Utilities will continue to actively procure additional renewable energy post-2021 and expect to meet or exceed the next statutory RPS goal of 40% in advance of the 2030 compliance year. In July 2022, Governor Ige signed Act 240 (H.B.2089), that amended the RPS calculation from renewable energy as a percentage of sales to renewable energy as a percentage of total generation. The amended RPS calculation results in a lower calculated percentage than the amount calculated under the previous methodology. The change in the definition is to be applied prospectively to future milestone measurements and will require that the Utilities acquire more renewable energy than under the previous RPS calculation to comply with the RPS milestones; however, the Utilities expect to continue to meet the RPS milestones under the amended RPS law. (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 total generation in 2021, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $2 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. Conversely, the Utilities have incentives under PIMs that provide a financial reward for accelerating the achievement of renewable generation as a percentage of total generation, including customer supplied generation. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $20/MWh in 2022, $15/MWh in 2023, and $10/MWh for the remainder of the multi-year rate period.
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 trended lower over time as privately-owned DER have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms under the new PBR framework reduce some of the regulatory lag during the multi-year rate plan (MRP), such as the annual revenue adjustment to provide annual changes in utility revenues, including inflationary adjustments, and the exceptional project recovery mechanism, which allows the Utilities to recover and earn on certain approved eligible projects placed into service. 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 and a carbon free electric system will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities are implementing an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy and decarbonization pathways that incorporates customer and stakeholder input.
The Integrated Grid Planning (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. The Utilities submitted an updated IGP work plan to the PUC in January 2021. In August 2021, the Utilities submitted their Revised Inputs and Assumptions to the PUC for review and approval, marking the significant progress made through the stakeholder engagement phase of the IGP process. On March 31, 2022, the Utilities submitted the final Inputs and Assumptions approved by the PUC. On June 30, 2022, the PUC approved the
Utilities’ planning methodologies and criteria with modifications. Once the revised planning methodologies and criteria are approved, the next step in the IGP process to complete a Grid Needs Assessment 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 132 MW of grid services with focus on capacity reduction (60 MW) similarly in response to the potential reserve shortfall from the AES coal plant retirement scheduled on September 1, 2022. The Utilities executed a GSPA for a total grid services amount of 97.4 MW and filed with the PUC to request approval on March 16, 2022. The Utilities are currently going through the procedural schedule where they answered a set of information requests. On July 26, 2022, the Consumer Advocate filed its Statement of Position not objecting to the PUC approving the GSPA if certain conditions are adopted. The Utilities will respond to the Statement of Position in August 2022 to comment to the various conditions proposed by the Consumer Advocate, at which point the procedural schedule steps are completed and the GSPA is ready for the PUC’s decision.
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. On February 25, 2022, the PUC approved an amendment to the Battery Bonus program that provides additional incentives to participating customers. This new amendment became effective on March 1, 2022. As of June 30, 2022, the Utilities have received and approved the applications totaling approximately 7.5 MW on Oahu.
On March 30, 2022, the Utilities filed with the PUC to request expanding the EDRP for up to 15 MW on the island of Maui and received PUC approval on May 20, 2022. The EDRP on Maui became effective as of June 1, 2022. Subsequently on June 23, 2022, the PUC approved the cost recovery of the additional incentives for both Oahu and Maui through the DSM Surcharge. As of June 30, 2022, the Utilities have received less than 10 applications for Maui that are currently being reviewed.
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 DER 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. On March 25, 2019, the PUC approved a plan for the Utilities to implement Phase 1 of their Grid Modernization Strategy, which is the proportional deployment of advanced metering infrastructure (AMI). On February 28, 2022, the PUC expanded the scope of Phase 1 to the full service territory with a completion date set for the third quarter of 2024. The estimated cost of full deployment (including proportional deployment) is approximately $143 million in capital and deferred software cost and is expected to be incurred over five years. As of June 30, 2022, approximately $46 million of capital and deferred software cost has been incurred to date under Phase 1 and is currently being recovered under the MPIR mechanism until such costs are included in base rates. On June 24, 2022, the PUC approved with certain conditions the Utilities’ request to aggregate the per-meter and network cost caps and to recover O&M costs associated with full-service territory AMI deployment under the MPIR mechanism. To date, the Utilities have deployed over 100,000 advanced meters, servicing approximately 21% of total customers.
The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of Phase 2 of their Grid Modernization Strategy implementation. However, on December 30, 2019, the PUC suspended the Utilities’ application for the ADMS pending the Utilities’ filing of a supplemental application for the broad deployment of field devices. This supplement and update to the Grid Modernization Strategy 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 software costs 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. On November 16, 2021, the PUC suspended the Utilities’ ADMS and Phase 2 field device application to focus the Utilities’ attention on completing Phase 1. The Utilities filed a Motion for Reconsideration with the PUC in response to the suspension, but the motion was denied. The PUC subsequently clarified that the Utilities may resume the Phase 2 docket no earlier than six months before Phase 1 is scheduled to be completed in the
third quarter of 2024. Resumption of the Phase 2 proceeding would likely commence six months prior to the scheduled completion date selected by the PUC.
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. Two phase 1 projects (28.32 kW on Maui and 270 kW on Oahu) have been operational for over a year, with four additional phase 1 projects expected to become operational in 2023.
The second phase, which commenced on April 9, 2020 and subsequently expanded on July 27, 2021, allows over 250 MW across all Hawaiian Electric service territories in two tranches for small (under 250 kW), mid-tier 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. LMI projects do not have a size cap nor do they decrease the 250 MW capacity available to other projects.
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.
One CBRE proposal for Lanai was selected but negotiations were terminated on June 15, 2022. With the concurrence of the Independent Observer, a replacement proposal was selected on July 1, 2022. On July 25, 2022, the Utilities announced the selection of a new developer for the Lanai CBRE RFP. CBRE proposals due date for Molokai was extended until March 1, 2022 and are currently being evaluated. CBRE LMI proposals for Oahu, Maui and Hawaii were issued and are currently being evaluated. The Utilities issued the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022 and will accept proposals for these RFPs through August 17, 2022.
The Utilities CBRE Phase 2 Rule 29 became effective on March 10, 2022. The Utilities are currently accepting project applications for small CBRE projects less than 250 kW in size. The PUC reserved 45 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. The Utilities have developed a CBRE Portal where Subscriber Organizations can apply for small project capacity and manage subscribers for all CBRE projects in the program. Customers can also use the portal to subscribe to a project once the Subscriber Organization has added their project to the portal.
Microgrid services tariff proceeding. In enacting Act 200 of 2018, the Hawaii legislature found that Hawaii’s residents and businesses were vulnerable to disruptions in the islands’ energy systems caused by extreme weather events or other disasters, and stated its belief that the use of microgrids would build energy resiliency into Hawaii’s communities, thereby increasing public safety and security. The purpose of Act 200 was therefore to encourage and facilitate the development and use of microgrids through the establishment of a standard microgrid services tariff. In July 2018, pursuant to Act 200, the PUC opened a proceeding to investigate the establishment of a microgrid services tariff. In August 2019, the PUC issued an order prioritizing items for resolution in the docket and directed the Parties to establish working groups (the Working Group) to address issues identified by the PUC.
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, specifically identifying the objective for Phase 2 to promote self-sufficiency and resilience among microgrid project operators, as well as to further streamline the Microgrid Services Tariff where applicable. Furthermore, the PUC 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, which the parties submitted by October 21, 2021.
On April 1, 2022, the PUC established its Prioritized Issues for Resolution for Phase 2 of the Microgrid proceeding, which includes the following: 1) Microgrid Compensation and Grid Services; 2) Utility Compensation; 3) Customer Protection and Related Considerations; 4) Interconnection; and 5) Working group coordination with related microgrid and resilience Initiatives at Hawaiian Electric and government agencies. Furthermore, the PUC established a procedural schedule to consist of quarterly status conference meetings with the PUC, a Phase 2 Working Group Report, draft of a revised Microgrid Service Tariff, Party comments to the proposed Microgrid Service Tariff, followed by a PUC D&O.
On June 30, 2022, the PUC provided further guidance to the Working Group and instructed the Working Group to prioritize discussion of the microgrid types in the following order: 1) Hybrid Microgrid - Third Party Developer using Utility lines/infrastructure; 2) Hybrid Microgrid - Utility Project with Partners; and 3) Customer Microgrid. Additionally, the PUC instructed the Working Group to discuss microgrid compensation and continue the involvement of microgrid developers in working group meetings.
Decoupling. See “Decoupling” in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling.
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 2021, 2020 and 2019 did not trigger the earnings sharing mechanism for the Utilities.
Actual and PUC-allowed returns, as of June 30, 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| % | | Rate-making Return on rate base (RORB)* | | ROACE** | | Rate-making ROACE*** |
Twelve months ended June 30, 2022 | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric |
| Utility returns | | 7.20 | | | 5.99 | | | 6.87 | | | 8.60 | | | 6.64 | | | 7.89 | | | 9.53 | | | 7.47 | | | 8.99 | |
| PUC-allowed returns | | 7.37 | | | 7.52 | | | 7.43 | | | 9.50 | | | 9.50 | | | 9.50 | | | 9.50 | | | 9.50 | | | 9.50 | |
| Difference | | (0.17) | | | (1.53) | | | (0.56) | | | (0.90) | | | (2.86) | | | (1.61) | | | 0.03 | | | (2.03) | | | (0.51) | |
* 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 gap between PUC-allowed ROACEs and the ROACEs achieved is primarily due to the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), and depreciation, O&M expense and return on rate base that are in excess of what is currently being recovered through rates (the last rate case plus authorized RAM adjustments and ARA revenues).
Regulatory proceedings. On December 23, 2020, the PBR D&O was issued, establishing a new PBR Framework. The PBR Framework implemented a five-year 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. See also “Regulatory proceedings” in Note 3 of the Condensed Consolidated Financial Statements.
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.
•On December 31, 2019, Hawaii Electric Light and Puna Geothermal Ventures entered into an Amended and Restated Power Purchase Agreement (ARPPA). 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). After the Office of Planning and Sustainable Development identified the Planning Department for the County of Hawaii to be the accepting agency and approving authority for any required HEPA review, the PUC lifted the suspension of the docket stating that the docket was ready for decision-making. On March 16, 2022, the PUC issued a D&O, approving the ARPPA, subject to conditions, that include requiring completion of the final environmental review prior to construction. On March 28, 2022, Puna Pono Alliance filed a Motion for Reconsideration seeking reconsideration, modification and/or vacation of the D&O. On June 6, the PUC denied Puna Pono’s Motion for Reconsideration. PGV has notified the Utilities that changes in market conditions have transpired since the terms of the ARPPA were negotiated and has indicated its desire to negotiate an amendment to the ARPPA to mitigate the impacts. The Utilities are reviewing PGV’s request.
•Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued Stage 1 Renewable 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. To date, summarized information for a total of eight 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, 9/30/22, 1/20/23 &8/31/23 | | 20 & 25 | | $ | 32.2 | |
| Hawaii Electric Light | | 2 | | 60 | | 60/240 | | 12/2/22 & 4/21/23 | | 25 | | 14.9 | |
| Maui Electric | | 2 | | 75 | | 75/300 | | 4/28/23 & 10/27/23 | | 25 | | 17.6 | |
| Total | | 8 | | 274.5 | | 274.5/1,098 | | | | | | $ | 64.7 | |
The Utilities have received PUC approvals to recover the total projected annual payment of $64.7 million for the eight PPAs through the PPAC to the extent such costs are not included in base rates. On March 29, 2022, the Utilities filed a letter with the PUC requesting approval of an amendment requesting a price and guaranteed commercial operation date change to a previously-approved PPA for Stage 1 on Oahu to resolve a force majeure condition. On May 6, 2022, the PUC conditionally approved this PPA amendment. On May 26, 2022, the Utilities filed a letter with the PUC requesting approval of an amendment requesting a price increase, a guaranteed commercial operation date change, and provisions to allow partial commissioning to a previously-approved PPA for Stage 1 on Hawaii Island to resolve a force majeure condition. On June 29, 2022, the PUC approved this PPA amendment.
•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. To date, the Utilities had filed 11 PPAs, including 4 PPAs declared null and void by the independent power producers, 2 GSPAs and 2 applications for commitments of funds for capital expenditures for approval of the utility self-build projects with the PUC. On March 23, 2022, the PUC approved one solar-plus-storage project on Oahu for 15 MW of generation and 60 MWh of storage. On May 25, 2022, the PUC denied the one Utility Self-Build project on Hawaii Island. In response, the Utilities filed a motion for reconsideration with the PUC. On June 24, 2022 the Utilities filed Supplemental Request informing the PUC that the project might be eligible to receive funds under the federal Infrastructure Investment and Jobs Act (IIJA). On July 27, 2022 the PUC suspended the docket until after such time that the Utilities have received final disposition of its application for funding under the IIJA. The Utilities shall then properly request the PUC to lift the suspension and either issue a decision on the pending Motion, or take further action as appropriate. On July 25, 2022, the PUC approved the final solar-plus-storage project on Oahu for 42 MW of generation and 168 MWh of storage.
A summary of the seven PPAs that are approved and still under active development, 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 | | 94 | | 94 | / | 503 | | 5/17/23, 10/30/23, 12/29/23 & 4/9/2024 | | 20 & 25 | | $ | 32.9 | |
| Hawaiian Electric | | 1 | * | N/A | | 185 | / | 565 | | 12/30/22 | | 20 | | 24.0 | |
| Maui Electric | | 2 | | 60 | | 60 | / | 240 | | 7/25/23 & 12/29/23 | | 25 | | 18.2 | |
| Total | | 7 | | 154 | | 339 | / | 1,308 | | | | | | $ | 75.1 | |
* See further discussion under “Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement” below.
The total projected annual payment of $75.1 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates. On February 15, 2022, the Utilities filed letters with the PUC requesting approval of amendments to two of the previously-approved PPAs for Stage 2, one on Oahu and one on Maui, that address delays and price increase due to the COVID-19 pandemic and the global supply-chain crisis, as well as other market conditions that have arisen during the development of these projects. On March 2, 2022, the PUC declined to approve both amendments. On March 14, 2022, both the developer of the project and the Utilities filed a motion for reconsideration for one project, and the developer also filed a motion for reconsideration for the second project. On May 5, 2022, the developer withdrew its motions for reconsideration for both projects and on May 6, 2022, the Utilities withdrew their motion for reconsideration and filed the developer’s notices declaring PPAs for the projects null and void. On May 6, 2022, after the developer declared the PPAs null and void, the PUC granted the Utilities’
motion for reconsideration, approving the amendment to the Maui based project. However, the PUC’s order did not change the developer’s null and void declaration of the PPA for the Maui based project.
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 | | 1 | * | 12/12 | | 12/30/22 |
Maui Electric | | 1 | | 40/160 | | 4/28/23 |
Total | | 2 | | 52/172 | | |
* The Utility Self-Build project was denied by the PUC on May 25, 2022 and the Utilities have filed a motion for reconsideration with the PUC.
•The Utilities’ renewable energy goals depend, in large part, on the success of renewable projects developed and operated by independent power producers. Beginning in 2017, the Utilities embarked on an ambitious procurement effort, selecting multiple solar plus storage efforts to help reach the Utilities renewable portfolio standards goals as well as to assist the Utilities in retiring fossil fuel generation. Several of the recently procured projects have experienced delays and four Stage 2 projects have been declared null and void by the independent power producers due to a number of issues, including supply chain disruptions caused by impacts from the COVID-19 pandemic, solar product detentions at U.S. ports of entry ordered by the U.S. Customers and Border Protection agency, and unforeseen site conditions which resulted in unanticipated project costs or in some cases the inability to effectively use previously identified project sites. Projects have also indicated potential impacts from the investigation launched by the US Department of Commerce on March 28, 2022, in response to a request by Auxin Solar Inc. in regards to solar panel imports. On June 6, 2022, President Biden created a bridge to temporarily facilitate U.S. solar deployers’ ability to source certain imported solar modules and cells free of certain duties for 24 months in order to ensure the U.S. has access to a sufficient supply of solar modules to meet electricity generation needs. Significant project delays or failures of these projects increase the risk of the Utilities not meeting the renewable portfolio standards or other climate related goals, eligibility for performance incentive mechanisms associated with the speed of increasing renewable generation, and the ability to retire fossil fuel units.capital investment alternatives.
Tariffed renewable resources.
•As of June 30, 2022, there were approximately 560 MW, 121 MW and 134 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 June 30, 2022, an estimated 33% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 20% of the Utilities’ total customers have solar systems.
•The Utilities began accepting energy from feed-in tariff projects in 2011. As of June 30, 2022, there were 43 MW, 2 MW and 6 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 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. The Utilities and PBT signed an agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, subject to PUC approval.
•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 2023, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
•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. On November 22, 2021, CBRE RFPs for Molokai and Lanai were opened. The Lanai RFP closed on February 14, 2022 and the Molokai RFP closed on March 1, 2022. A project was selected in the Lanai RFP but negotiations were terminated. On July 1, 2022, a replacement project was selected. Proposals are currently being evaluated in the Molokai RFP. On February 8, 2022, the PUC approved, subject to modifications, the CBRE and LMI CBRE RFPs for Oahu, Maui, and Hawaii Island. The Utilities filed the final RFPs with the PUC on February 23, 2022. On March 17, 2022, the CBRE LMI RFPs for Oahu, Maui and Hawaii were opened and proposals are currently being evaluated. The Utilities opened the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022. See “Transition to a decarbonized and sustainable energy future—Community-based renewable energy” for additional information.
•The PUC issued a letter to the Utilities requesting development with a Stage 3 RFP on Hawaii Island on January 21, 2021. In accordance with guidance provided by the PUC in a subsequent letter on April 20, 2021, the Utilities filed the Hawaii Island Grid Needs Assessment on July 15, 2021 and the draft RFP, including model contracts for PV+BESS, wind+BESS, standalone storage, firm renewable generation, and DER aggregators on October 15, 2021. The requirements in the Stage 3 RFP are guided by the results of the Grid Needs Assessment. On March 18, 2022, the Utilities filed a second draft of the Stage 3 RFP for Hawaii Island, incorporating stakeholder and PUC feedback. On May 31, 2022, the Utilities filed its proposed final draft Stage 3 RFP for Hawaii Island. On June 30, 2022, the PUC issued an order approving with modifications the Stage 3 RFP for Hawaii Island and providing guidance on the Oahu and Maui Stage 3 RFPs. On July 11, 2022, the Utilities filed a motion for partial reconsideration and/or clarification of the PUC’s order. On July 20, 2022, the Utilities filed a Request for Extension to file the final Stage 3 RFP for Hawaii Island. On July 29, 2022, the PUC issued an order granting the Utilities’ motion for an enlargement of time to file the final Stage 3 RFP for Hawaii Island. The Utilities’ deadline to file the final Stage 3 RFP for Hawaii Island is 15 days from the filing date of the PUC’s decision on the Utilities’ Motion for Reconsideration.
•On February 18, 2022, the PUC sent a letter to the Utilities directing them to develop Stage 3 RFPs for Oahu and Maui. On March 10, 2022, the Utilities submitted its recommendations on plans to develop Stage 3 RFPs for Oahu and Maui, and on May 2, 2022, the Utilities filed draft RFPs for Oahu and Maui. For Oahu, the Utilities are seeking 500 to 700 MW of renewable firm capacity, and at least 475 GWh of renewable dispatchable energy annually. For Maui, the Utilities are procuring at least 40 MW of renewable firm capacity, and at least 180 GWh of renewable dispatchable energy annually. Updated grid needs assessments for Oahu and Maui were filed on July 29, 2022.
•On November 17, 2021, the Utilities filed a request with the PUC to develop an RFP for firm renewable generation for Oahu. On December 22, 2021, the PUC issued guidance to the Utilities on proceeding with such RFP. The Utilities filed a draft RFP on February 28, 2022. Per the PUC’s March 23, 2022 letter, the Utilities will pursue firm renewable generation as a part of the Stage 3 Oahu RFP.
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 Utilities report the tracked cost on a monthly basis.The full text of the Order, Motion for Reconsideration and request for a Stay of the Order, and clarification Order as well as the tracked costs 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 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. On July 6, 2021, the PUC issued a D&O, approving the First Amendment and requiring the Utilities to meet certain conditions of approval (COA). The Utilities are currently addressing the COAs as required in the D&O.
On June 30, 2021, the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. On February 1, 2022, the Utilities and PAR Hawaii entered into a fuel supply contract commencing January 1, 2023 and Second Amendment to the existing fuel contract to amend tier-1 volumes. The Second Amendment will take effect contingent upon PUC’s approval. The costs incurred under the contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs.
On March 3, 2022, as part of economic sanctions amid the Russia-Ukraine war, Par Hawaii announced that it is suspending all purchases of Russian crude oil, which accounts for at least 25% of Hawaii’s supply. The average fuel oil cost per barrel has increased 90% over prior year’s quarter. The Utilities are expecting bills to fluctuate until global oil market stabilizes.
Proposed modification to the pension tracking mechanisms. On June 9, 2022, the Utilities filed an application with the PUC for approval to modify the pension tracking mechanisms. The existing pension tracking mechanisms allow the Utilities to record the difference between actual NPPC and NPPC in rates to regulatory asset or liability. The proposed modification would allow the Utilities to also record to regulatory asset or liability the difference between the actual cash contributions made to the defined contribution plans and the contribution amounts included in rates. The Utilities also proposed in the application the accelerated return of pension tracking regulatory liability to the ratepayers during the current MRP.
FINANCIAL CONDITION
Liquidity and capital resources. As of June 30, 2022, there were no amounts outstanding on Hawaiian Electric’s revolving credit facility and $55 million of commercial paper borrowings outstanding by the Utilities. The total amount of available borrowing capacity under the Utilities’ committed line of credit was $200 million.
Hawaiian Electric expects that its liquidity will continue to be moderately impacted at the Utilities due to higher fuel prices and lingering COVID-19 impacts to the local economy. As of June 30, 2022, fuel inventories have increased by $120 million compared to December 31, 2021. Elevated fuel prices billed to customers have also resulted in higher accounts receivable balances, which increased by $60 million, compared to the accounts receivable balances as of December 31, 2021. Higher accounts receivable balances and bad debt expense may result in higher write-offs in the future. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements. However, the Utilities’ liquidity and access to capital remains adequate and is expected to remain adequate. As of June 30, 2022, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Utilities’ committed lines of credit and cash and cash equivalents was approximately $160 million.
The Utilities are continuing the disconnection process on a tiered basis, expanding the targeted balances, which is expected to reduce delinquent accounts receivable balances and accelerate cash collections.
Hawaiian Electric’s consolidated capital structure was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | June 30, 2022 | | December 31, 2021 |
| Short-term borrowings | | $ | 55 | | | 1 | % | | $ | — | | | — | % |
| Long-term debt, net | | 1,737 | | | 42 | | | 1,676 | | | 42 | |
| Preferred stock | | 34 | | | 1 | | | 34 | | | 1 | |
| Common stock equity | | 2,290 | | | 56 | | | 2,262 | | | 57 | |
| | $ | 4,116 | | | 100 | % | | $ | 3,972 | | | 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) | | Six months ended June 30, 2022 | | June 30, 2022 | | December 31, 2021 |
Short-term borrowings1 | | | | | | |
| Commercial paper | | $ | 31 | | | $ | 55 | | | $ | — | |
| Borrowings from HEI | | — | | | — | | | — | |
| Line of credit draws on revolving credit facility | | — | | | — | | | — | |
1 The maximum amount of external short-term borrowings by Hawaiian Electric during the first six months of 2022 was approximately $92 million. As of June 30, 2022, Hawaii Electric Light had short-term borrowings from Hawaiian Electric of $3 million and Hawaiian Electric had short-term borrowings from Maui Electric of $10 million, which intercompany borrowings are eliminated in consolidation.
Credit agreement. On February 18, 2022, the PUC approved Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric revolving credit facility to May 14, 2026. In addition to extending the term, Hawaiian Electric also received 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. Hawaiian Electric has a $200 million line of credit facility with no amount outstanding at June 30, 2022.
Credit ratings. On June 27, 2022, Fitch revised Hawaiian Electric’s outlook to “Positive” from “Stable” and affirmed the “BBB+” long-term issuer default rating and “F-2” short-term issuer default rating.
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 June 30, 2022, Hawaiian Electric had $1.1 million of undrawn funds remaining with the trustee. Hawaii Electric Light and Maui Electric have no undrawn funds.
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. The Utilities filed their expedited letter request on July 29, 2022.
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 June 30, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $95 million, $75 million, and $35 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 | |
| Taxable debt executed in May 2022, but issued on June 15, 2022 | 40 | | 10 | | 10 | |
| Remaining authorized amounts | $ | 95 | | $ | 75 | | $ | 35 | |
On April 29, 2022, the Utilities requested PUC approval to issue, over a four-year period from January 1, 2023 to December 31, 2026, unsecured obligations bearing taxable interest (Hawaiian Electric up to $230 million, Hawaii Electric Light up to $65 million and Maui Electric up to $105 million), 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.
On May 3, 2022, the Utilities received PUC approval through the expedited approval process to issue taxable debt (Hawaiian Electric up to $50 million, Hawaii Electric Light up to $30 million and Maui Electric up to $35 million) prior to December 31, 2022. Pursuant to the approval, on June 15, 2022, the Utilities drew $60 million of proceeds using a delayed draw feature under a private placement executed on May 11, 2022. The proceeds of the notes were used by the Utilities to finance their respective capital expenditures, repay short-term debt used to finance or refinance capital expenditures and/or reimburse funds used for the payment of capital expenditures.See Note 5 of the Condensed Consolidated Financial Statements.
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 June 30, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $221.4 million, $93.7 million, and $63.2 million, 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 | |
| Less: Common stock authorized and issued in 2017, 2018, 2019, 2020 and 2021 | 208.6 | | 16.3 | | 46.8 | |
| Remaining authorized amounts | $ | 221.4 | | $ | 93.7 | | $ | 63.2 | |
On April 29, 2022, the Utilities requested PUC approval to issue and sell each utility’s common stock over a four-year period from January 1, 2023 through December 31, 2026 (Hawaiian Electric’s sale/s to HEI of up to $75 million, Hawaii Electric Light sale/s to Hawaiian Electric of up to $25 million, and Maui Electric sale/s to Hawaiian Electric of up to $55 million) and the purchase of Hawaii Electric Light and Maui Electric common stock by Hawaiian Electric from 2023 through December 31, 2026.
Cash flows. The following table reflects the changes in cash flows for the six months ended June 30, 2022 compared to the six months ended June 30, 2021: | | | | | | | | | | | | | | | | | |
| Six months ended June 30 | | |
| (in thousands) | 2022 | | 2021 | | Change |
| Net cash provided by operating activities | $ | 44,150 | | | $ | 57,453 | | | $ | (13,303) | |
| Net cash used in investing activities | (133,560) | | | (133,355) | | | (205) | |
| Net cash provided by financing activities | 50,784 | | | 45,210 | | | 5,574 | |
Net cash provided by operating activities. The decrease in net cash provided by operating activities was driven by higher cash paid for fuel oil stock due to higher fuel oil prices and volume purchased, as well as increase in customer accounts receivable resulting from increase in fuel prices and delays in a large government account payments, partially offset by
payments on installment plans, higher cash receipts associated with increased disconnection efforts, and lower cash paid for accounts payable due to timing.
Net cash used in investing activities. The increase in net cash used in investing activities was primarily driven by an increase in capital expenditures related to construction activities.
Net cash provided by financing activities. The increase in net cash provided by financing activities was primarily driven by net increase in short-term borrowing and repayment of short-term debt in 2021, partially offset by lower net cash from long-term debts.
Material cash requirements. Material cash requirements of the Utilities include O&M expenses, including labor and benefit costs, fuel and purchase power costs, repayment of debt and interest payments, operating lease obligations, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term material cash requirements. The cash requirements for O&M, fuel and purchase power costs, debt and interest payments, and operating lease obligations are generally funded through the collection of the Utilities’ revenue requirement established in the last rate case and other mechanisms established under the regulatory framework. The cash requirements for capital expenditures are generally funded through retained earnings, the issuance of debt, and contributions of equity from HEI and generally recovered through the Utilities’ revenue requirement or other capital recovery mechanisms over time. The Utilities believe that their ability to generate cash is adequate to maintain sufficient liquidity to fund their material cash requirements. However, the economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy, and the ongoing COVID-19 pandemic, create significant uncertainty, 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.
Forecast capital expenditures. For the five-year period 2022 through 2026, the Utilities forecast up to $2.1 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. Approximately $1.3 billion is related to replacement and modernization of generation, transmission and distribution assets; approximately $0.5 billion is related to climate-related projects to transition to renewable energy or mitigate climate impacts by increasing the resilience of the system, and approximately $0.3 billion for targeted efforts to improve reliability. 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 2022 to 2026 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. See also Recent developments in HEI’s MD&A.
The Hawaii economy continued to improve in the second quarter of 2022 as an increase in visitor arrivals have helped drive a growing labor market and tax collections. Domestic visitor arrivals exceeded pre-pandemic levels in June 2022 due to pent up demand from leisure travelers. The state and county governments have also lifted all COVID-related travel restrictions for arriving domestic passengers. International visitor arrivals continued to lag significantly behind pre-pandemic levels but it is expected to increase as Asian countries begin to loosen travel restrictions. Other COVID-related mandates have also been lifted such as the indoor mask mandate and capacity limits for indoor and outdoor events. Although cases caused by the new variants have increased, hospitalization rates have not been significantly impacted.
In the first six months in 2022, the Federal Reserve raised its federal funds rate to a target range of 1.5%-1.75% in response to surging inflationary pressures in the economy. The increase in interest rates have increased ASB’s net interest margin; however, the higher interest rates have also reduced mortgage refinance and purchase activity, negatively impacting mortgage banking income. Additionally, the tight labor market and inflationary pressures have increased compensation and benefit expenses, which have partially offset the benefit of a higher interest rate environment. ASB’s net interest margin for the quarter ended June 30, 2022 of 2.85% was slightly higher than the linked quarter ended March 31, 2022 and lower than the net interest margin for the quarter ended June 30, 2021 of 2.98%.
ASB continued to experience deposit growth, which was used to fund loan growth and purchase investment securities. The Bank’s ASB CARES loan program continued to paydown and fees from the program along with the growth in investment securities portfolio contributed to higher interest income in 2022, offsetting the effect of lower loan portfolio balances and earning asset yields when compared to the prior year. Net interest income was $61.8 million for the quarter ended June 30, 2022 compared to $60.8 million for the quarter ended June 30, 2021.
For the quarter ended June 30, 2022, ASB recorded a $2.8 million provision for credit losses, primarily driven by loan growth in the commercial real estate loan portfolio and reserves established for consumer loans purchased. Credit upgrades in the commercial real estate and commercial loan portfolios released reserves to partially offset the additional reserves for loan portfolio growth and purchased loans. 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 response to COVID-19, ASB made short-term loan modifications to borrowers who were generally payment current at the time of relief. As of June 30, 2022, no loans remained in their active deferral period. Approximately $4.4 million of loans were not able to resume their contractual payments and were considered delinquent as of June 30, 2022.
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. 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 June 30, 2022 was approximately $9 million and the remaining fees to be recognized over the life of the loans was approximately $0.3 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 June 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Interest and dividend income | | $ | 63 | | | $ | 62 | | | $ | 1 | | | |
| | | | | | | | Average loan portfolio yields were 21 basis points lower—impacted by low interest rate environment in the prior year, which has only started to rise in the current quarter. New loan production had been below the portfolio yields. |
| | | | | | | | Average loan portfolio balances decreased $11 million - residential and commercial real estate loan portfolio average balances increased $163 million and $105 million, respectively. The increase in the commercial real estate loan portfolio was due to increased demand for this loan product. The increase in the residential loan portfolio was due to the Bank’s decision to portfolio a larger portion of the residential loan production. The commercial and consumer loan average balances decreased $267 million and $15 million, respectively, due to repayments in the portfolios. |
| | | | | | | | Average investment securities portfolio balance increased $547 million—excess liquidity from deposit growth invested in agency securities. Average investment securities portfolio yield was 18 basis point higher due to lower premium amortizations. |
| | | | | | | | Average other investments decreased $11 million - decrease in interest earning deposits due to excess liquidity being used to purchase investment securities. |
| Noninterest income | | 13 | | | 15 | | | (2) | | | |
| | | | | | | | Lower mortgage banking income - lower residential loan sale volume due to lower production volume and ASB’s decision to portfolio a larger portion of the residential loan production. In addition, the residential loan sale profit margin was lower in 2022 compared to 2021. |
| | | | | | | | Lower bank owned life insurance income - lower returns from insurance policies. |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Revenues | | 76 | | | 77 | | | (1) | | | The decrease in revenues for the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to lower noninterest income partly offset by higher interest and dividend income. |
| Interest expense | | 1 | | | 1 | | | — | | | |
| | | | | | | | Interest expense on deposits and other borrowings were flat. |
| | | | | | | | Average core deposit balances increased $607 million; average term certificate balances decreased $108 million. |
| | | | | | | | Average deposit yields decreased from 7 basis points to 4 basis points. |
| | | | | | | | Average other borrowings increased $17 million and average yields increased 33 basis points. |
| Provision for credit losses | | 3 | | | (12) | | | 15 | | | |
| | | | | | | | 2022 provision for credit losses was primarily due to additional reserves for growth in the commercial real estate and consumer loan portfolios, and higher loss rates for the residential and consumer loan portfolios. In addition, loan loss reserves were established for the solar and sustainable home improvement loans purchased during the quarter. |
| | | | | | | | 2022 provision for credit losses also included the release of loss reserves for a commercial and commercial real estate loan portfolios due to improved credit trends in those loan portfolios and reduction in the commercial loan portfolio. |
| | | | | | | | 2021 negative provision for credit losses reflected improvement in economic outlook, strong credit results including lower net charge-offs and credit upgrades in the commercial real estate and commercial loan portfolios. |
| | | | | | | | 2021 negative provision for credit losses was also due to a shift in asset mix - lower personal unsecured loan portfolio balances which had higher credit loss rates partly offset by higher commercial real estate loan portfolio balances. |
| | | | | | | | Delinquency rates have decreased—from 0.43% at June 30, 2021 to 0.27% at June 30, 2022 due to lower residential 1-4 family, consumer and home equity line of credit loan delinquencies. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended June 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| | | | | | | | Net charge-off to average loans have decreased—from 0.04% at June 30, 2021 to nil at June 30, 2022 primarily due to lower personal unsecured loan portfolio net charge-offs. |
| Noninterest expense | | 49 | | | 48 | | | 1 | | | Higher occupancy, marketing and employee expenses. |
| | | | | | | | Included in compensation and benefits were higher base compensation, incentive compensation and employee benefit costs for the three months ended June 30, 2022 compared to the same period in 2021, offset by the fair value adjustment related to the deferred compensation plan and the separation agreement for an executive officer that was paid in the second quarter of 2021 with no similar payment in 2022. |
| | | | | | | | |
| Expenses | | 53 | | | 37 | | | 16 | | | The increase in expenses for the three months ended June 30, 2022 compared to the same period in 2021 was due to higher provision for credit losses in 2022 and higher noninterest expenses. |
| Operating income | | 23 | | | 40 | | | (17) | | | The decrease in operating income for the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to higher provision for credit losses in 2022, higher noninterest expenses and lower noninterest income, partly offset by higher interest income. |
| | | | | | | | |
| Net income | | 17 | | | 30 | | | (13) | | | Net income for the three months ended June 30, 2022 was lower than the same period in 2021 due to lower operating income partly offset by lower income tax expense. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six months ended June 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Interest and dividend income | | $ | 123 | | | $ | 121 | | | $ | 2 | | | |
| | | | | | | | Average loan portfolio yields were 20 basis points lower—impacted by the continued low interest rate environment in 2021 and the beginning of 2022 as adjustable rate loans had repriced lower during the past year and new loan production yields continued to originate below their portfolio yields. Lower loan yields were also due to lower PPP loan fees recognized in 2022 compared to 2021 as the PPP loan portfolio has paid down significantly over the past year. |
| | | | | | | | Average loan portfolio balances decreased $83 million - home equity lines of credit average balance decreased $49 million due to increased paydowns in the portfolio; consumer loan average balance decreased $30 million due to ASB’s strategic decision to reduce production of this loan type during the period of weakened economic activity caused by the COVID-19 pandemic. Commercial loan average balance decreased $234 million due to repayments in the PPP loan portfolio. Residential average balance increased $158 million due to the Bank’s decision to portfolio a larger portion of the residential loan production. Commercial real estate average balance increased $67 million due to demand for this loan type. |
| | | | | | | | Average investment securities portfolio balance increased $673 million—excess liquidity from strong deposit growth invested in agency securities. |
| | | | | | | | Average investment securities yields 24 basis points higher—benefited from lower amortization of premiums in the investment portfolio. |
| Noninterest income | | 29 | | | 34 | | | (5) | | | |
| | | | | | | | Lower mortgage banking income - lower residential loan sale volume due to lower production volume and ASB’s decision to portfolio a larger portion of the residential loan production. In addition, the residential loan sale profit margin was lower in 2022 compared to 2021. |
| | | | | | | | Lower bank owned life insurance income - lower return from insurance policies and lower insurance policy claim proceeds in 2022 compared to 2021. |
| | | | | | | | Gain on sale of real estate - due to the sale of a branch property owned by ASB. The branch was closed in January 2022. No similar sale in 2021. |
| Less: gain on sale of real estate | | (1) | | | — | | | (1) | | | Gain on sale of real estate, 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 real estate in the condensed consolidated statements of income, and accordingly, is reflected in operating expenses below as a separate line item and excluded from Revenues. |
| Less: gain on sale of investment securities, net | | — | | | (1) | | | 1 | | | 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 below following operating income as a separate line item and excluded from Revenues. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Six months ended June 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Revenues | | 151 | | | 154 | | | (3) | | | The decrease in revenues for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to lower noninterest income partly offset by higher interest and dividend income. |
| Interest expense | | 2 | | | 3 | | | (1) | | | |
| | | | | | | | Interest expense on deposits and other borrowings decreased in 2022 compared to 2021 due to a decrease in term certificate balances and yields. |
| | | | | | | | Average core deposit balances increased $734 million; average term certificate balances decreased $118 million. |
| | | | | | | | Average deposit yields decreased from 7 basis points to 5 basis points. |
| | | | | | | | Average other borrowings increased $1 million and average yields increased 17 basis points. |
| Provision for credit losses | | (1) | | | (21) | | | 20 | | | |
| | | | | | | | 2022 negative provision for credit losses reflects good credit trends including lower net charge-offs and improved credit loss rates which included credit upgrades in the commercial real estate and commercial loan portfolios. |
| | | | | | | | 2022 negative provision for credit losses also included additional reserves for growth in the commercial real estate loan portfolio and loss reserves established for the solar and sustainable home improvement loans purchased during the year. |
| | | | | | | | 2021 negative provision for credit losses reflected improvement in economic outlook, strong credit results including lower net charge-offs and credit upgrades in the commercial real estate and commercial loan portfolios. |
| | | | | | | | 2021 negative provision for credit losses was also due to lower personal unsecured loan portfolio balances which had higher credit loss rates. |
| | | | | | | | Delinquency rates have decreased—from 0.43% at June 30, 2021 to 0.27% at June 30, 2022 due to lower residential 1-4 family, consumer and home equity line of credit loan delinquencies. |
| | | | | | | | Net charge-off to average loans have decreased—from 0.11% at June 30, 2021 to 0.01% at June 30, 2022 primarily due to lower personal unsecured loan portfolio net charge-offs. |
| Noninterest expense | | 98 | | | 96 | | | 2 | | | |
| | | | | | | | Lower compensation and benefits expenses offset by higher occupancy expenses. |
| | | | | | | | Higher base compensation, incentive compensation and employee benefit costs were more than offset by the fair value adjustment related to the deferred compensation plan and the separation agreement for an executive officer that was paid in 2021 with no similar payment in 2022. |
| | | | | | | | 2021 noninterest expense benefited from a one-time credit adjustment for a change in accounting for the ASB retirement plan. |
| Gain on sale of real estate | | (1) | | | — | | | (1) | | | |
| Expenses | | 98 | | | 78 | | | 20 | | | The increase in expenses for the six months ended June 30, 2022 compared to the same period in 2021 was due to lower negative provision for credit losses in 2022 and higher noninterest expenses, partly offset by lower interest expenses and higher gain on sale of real estate. |
| Operating income | | 53 | | | 76 | | | (23) | | | The decrease in operating income for the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to higher negative provision for credit losses in 2021 and lower noninterest income, partly offset by higher interest income. |
| Gain on sale of investment securities, net | | — | | | 1 | | | (1) | | | The decrease in gain on sale of investment securities - primarily due to the sale of investment securities in 2021 with no similar sales in 2022. |
| Net income | | 41 | | | 60 | | | (19) | | | Net income for the six months ended June 30, 2022 was lower than the same period in 2021 due to lower operating income and lower gain on sale of investment securities, partly offset by lower income tax expense. |
ASB’s return on average assets, return on average equity and net interest margin were as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30 | | Six months ended June 30 |
| (%) | | 2022 | | 2021 | | 2022 | | 2021 |
| Return on average assets | | 0.76 | | | 1.38 | | | 0.90 | | | 1.39 | |
| Return on average equity | | 12.17 | | | 16.76 | | | 13.01 | | | 16.40 | |
| Net interest margin | | 2.85 | | | 2.98 | | | 2.82 | | | 2.97 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30 |
| | 2022 | | 2021 |
| (dollars in thousands) | | Average
balance | | Interest
income/
expense | | Yield/
rate (%) | | Average
balance | | Interest
income/
expense | | Yield/
rate (%) |
| Assets: | | | | | | | | | | | | |
| Interest-earning deposits | | $ | 59,306 | | | $ | 81 | | | 0.54 | | | $ | 69,987 | | | $ | 19 | | | 0.11 | |
| FHLB stock | | 11,265 | | | 94 | | | 3.34 | | | 11,263 | | | 94 | | | 3.38 | |
| Investment securities | | | | | | | | | | | | |
| Taxable | | 3,262,914 | | | 14,213 | | | 1.74 | | | 2,748,382 | | | 10,770 | | | 1.57 | |
| Non-taxable | | 69,264 | | | 386 | | | 2.22 | | | 36,960 | | | 198 | | | 2.13 | |
| Total investment securities | | 3,332,178 | | | 14,599 | | | 1.75 | | | 2,785,342 | | | 10,968 | | | 1.57 | |
| Loans | | | | | | | | | | | | |
| Residential 1-4 family | | 2,309,091 | | | 20,070 | | | 3.48 | | | 2,146,078 | | | 19,473 | | | 3.63 | |
| Commercial real estate | | 1,258,349 | | | 10,739 | | | 3.39 | | | 1,153,578 | | | 9,541 | | | 3.29 | |
| Home equity line of credit | | 889,560 | | | 6,481 | | | 2.92 | | | 890,998 | | | 7,062 | | | 3.18 | |
| Residential land | | 22,507 | | | 531 | | | 9.43 | | | 17,840 | | | 204 | | | 4.57 | |
| Commercial | | 675,760 | | | 6,593 | | | 3.90 | | | 942,871 | | | 10,279 | | | 4.36 | |
| Consumer | | 125,120 | | | 3,798 | | | 12.18 | | | 140,001 | | | 4,504 | | | 12.91 | |
Total loans 1,2 | | 5,280,387 | | | 48,212 | | | 3.65 | | | 5,291,366 | | | 51,063 | | | 3.86 | |
Total interest-earning assets 3 | | 8,683,136 | | | 62,986 | | | 2.90 | | | 8,157,958 | | | 62,144 | | | 3.05 | |
| Allowance for credit losses | | (67,620) | | | | | | | (91,329) | | | | | |
| Noninterest-earning assets | | 572,869 | | | | | | | 724,767 | | | | | |
| Total assets | | $ | 9,188,385 | | | | | | | $ | 8,791,396 | | | | | |
| Liabilities and shareholder’s equity: | | | | | | | | | | | | |
| Savings | | $ | 3,297,511 | | | $ | 212 | | | 0.03 | | | $ | 3,054,677 | | | $ | 199 | | | 0.03 | |
| Interest-bearing checking | | 1,372,035 | | | 81 | | | 0.02 | | | 1,221,540 | | | 60 | | | 0.02 | |
| Money market | | 212,527 | | | 36 | | | 0.07 | | | 192,667 | | | 31 | | | 0.06 | |
| Time certificates | | 386,869 | | | 592 | | | 0.61 | | | 494,844 | | | 991 | | | 0.80 | |
| Total interest-bearing deposits | | 5,268,942 | | | 921 | | | 0.07 | | | 4,963,728 | | | 1,281 | | | 0.10 | |
| Advances from Federal Home Loan Bank | | 31,638 | | | 134 | | | 1.68 | | | 31,573 | | | 19 | | | 0.24 | |
| Securities sold under agreements to repurchase and federal funds purchased | | 101,861 | | | 5 | | | 0.02 | | | 85,330 | | | 4 | | | 0.02 | |
| Total interest-bearing liabilities | | 5,402,441 | | | 1,060 | | | 0.08 | | | 5,080,631 | | | 1,304 | | | 0.10 | |
| Noninterest bearing liabilities: | | | | | | | | | | | | |
| Deposits | | 3,024,910 | | | | | | | 2,831,273 | | | | | |
| Other | | 186,749 | | | | | | | 156,883 | | | | | |
| Shareholder’s equity | | 574,285 | | | | | | | 722,609 | | | | | |
| Total liabilities and shareholder’s equity | | $ | 9,188,385 | | | | | | | $ | 8,791,396 | | | | | |
| Net interest income | | | | $ | 61,926 | | | | | | | $ | 60,840 | | | |
Net interest margin (%) 4 | | | | | | 2.85 | | | | | | | 2.98 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six months ended June 30 |
| | 2022 | | 2021 |
| (dollars in thousands) | | Average
balance | | Interest
income/
expense | | Yield/
rate (%) | | Average
balance | | Interest income/ expense | | Yield/
rate (%) |
| Assets: | | | | | | | | | | | | |
| Interest-earning deposits | | $ | 96,862 | | | $ | 147 | | | 0.30 | | | $ | 58,597 | | | $ | 31 | | | 0.11 | |
| FHLB stock | | 10,636 | | | 168 | | | 3.18 | | | 10,600 | | | 175 | | | 3.34 | |
| Investment securities | | | | | | | | | | | | |
| Taxable | | 3,197,561 | | | 27,767 | | | 1.74 | | | 2,551,569 | | | 19,136 | | | 1.50 | |
| Non-taxable | | 69,431 | | | 753 | | | 2.17 | | | 42,250 | | | 469 | | | 2.21 | |
| Total investment securities | | 3,266,992 | | | 28,520 | | | 1.75 | | | 2,593,819 | | | 19,605 | | | 1.51 | |
| Loans | | | | | | | | | | | | |
| Residential 1-4 family | | 2,306,284 | | | 40,183 | | | 3.48 | | | 2,147,923 | | | 39,061 | | | 3.64 | |
| Commercial real estate | | 1,198,157 | | | 19,950 | | | 3.32 | | | 1,131,338 | | | 18,546 | | | 3.27 | |
| Home equity line of credit | | 865,401 | | | 12,704 | | | 2.96 | | | 914,340 | | | 14,327 | | | 3.16 | |
| Residential land | | 21,669 | | | 788 | | | 7.27 | | | 17,152 | | | 414 | | | 4.83 | |
| Commercial | | 718,406 | | | 13,405 | | | 3.74 | | | 952,481 | | | 19,191 | | | 4.04 | |
| Consumer | | 119,504 | | | 7,257 | | | 12.25 | | | 149,413 | | | 9,491 | | | 12.81 | |
Total loans 1,2 | | 5,229,421 | | | 94,287 | | | 3.61 | | | 5,312,647 | | | 101,030 | | | 3.81 | |
Total interest-earning assets 3 | | 8,603,911 | | | 123,122 | | | 2.87 | | | 7,975,663 | | | 120,841 | | | 3.04 | |
| Allowance for credit losses | | (69,368) | | | | | | | (96,492) | | | | | |
| Noninterest-earning assets | | 640,563 | | | | | | | 745,690 | | | | | |
| Total assets | | $ | 9,175,106 | | | | | | | $ | 8,624,861 | | | | | |
| Liabilities and shareholder’s equity: | | | | | | | | | | | | |
| Savings | | $ | 3,278,139 | | | $ | 419 | | | 0.03 | | | $ | 2,978,592 | | | $ | 390 | | | 0.03 | |
| Interest-bearing checking | | 1,351,635 | | | 145 | | | 0.02 | | | 1,200,909 | | | 117 | | | 0.02 | |
| Money market | | 208,965 | | | 69 | | | 0.07 | | | 185,511 | | | 68 | | | 0.07 | |
| Time certificates | | 399,053 | | | 1,235 | | | 0.62 | | | 517,527 | | | 2,168 | | | 0.84 | |
| Total interest-bearing deposits | | 5,237,792 | | | 1,868 | | | 0.07 | | | 4,882,539 | | | 2,743 | | | 0.11 | |
| Advances from Federal Home Loan Bank | | 15,906 | | | 134 | | | 1.68 | | | 30,853 | | | 42 | | | 0.27 | |
| Securities sold under agreements to repurchase and federal funds purchased | | 96,102 | | | 10 | | | 0.02 | | | 80,358 | | | 8 | | | 0.02 | |
| Total interest-bearing liabilities | | 5,349,800 | | | 2,012 | | | 0.08 | | | 4,993,750 | | | 2,793 | | | 0.11 | |
| Noninterest bearing liabilities: | | | | | | | | | | | | |
| Deposits | | 2,999,395 | | | | | | | 2,738,967 | | | | | |
| Other | | 190,577 | | | | | | | 162,444 | | | | | |
| Shareholder’s equity | | 635,334 | | | | | | | 729,700 | | | | | |
| Total liabilities and shareholder’s equity | | $ | 9,175,106 | | | | | | | $ | 8,624,861 | | | | | |
| Net interest income | | | | $ | 121,110 | | | | | | | $ | 118,048 | | | |
Net interest margin (%) 4 | | | | | | 2.82 | | | | | | | 2.97 | |
1 Includes loans held for sale, at lower of cost or fair value.
2 Includes recognition of net deferred loan fees of $1.7 million and $4.6 million for the three months ended June 30, 2022 and 2021, respectively, and $3.6 million and $7.4 million for the six months ended June 30, 2022 and 2021, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans. Includes nonaccrual loans.
3 For the three and six months ended June 30, 2022 and 2021, 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. The Federal Open
Market Committee increased its federal funds rate target range to 2.25% - 2.5% in 2022 due to signs of inflation and ASB’s net interest income and net interest margin has started to increase but still remains at lower levels. A return of the recent low interest rate environment may 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 a composition of ASB’s loan portfolio.
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 June 30, 2022, approximately 41% 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 57% of ASB’s HELOC loan portfolio is in a first lien position.
Loan portfolio risk elements. See Note 4 of the Condensed Consolidated Financial Statements.
Investment securities. ASB’s investment portfolio was comprised as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | June 30, 2022 | | December 31, 2021 |
| (dollars in thousands) | | Balance | | % of total | | Balance | | % of total |
| U.S. Treasury and federal agency obligations | | $ | 162,369 | | | 5 | % | | $ | 149,961 | | | 5 | % |
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | 2,739,071 | | | 93 | | | 2,900,322 | | | 94 | |
| Corporate bonds | | 41,429 | | | 1 | | | 31,178 | | | 1 | |
| Mortgage revenue bonds | | 15,165 | | | 1 | | | 15,427 | | | — | |
| Total investment securities | | $ | 2,958,034 | | | 100 | % | | $ | 3,096,888 | | | 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 treasury and agency mortgage-backed 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 $81 million year-to-date, deposit retention and sustained growth will remain challenging in the current environment due to 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 June 30, 2022 ASB’s costing liabilities consisted of 97% deposits and 3% other borrowings compared to 99% deposits and 1% other borrowings as of December 31, 2021. The weighted average cost of deposits for the first six months of 2022 and 2021 was 0.05% and 0.07%, respectively.
Federal Home Loan Bank of Des Moines. As of June 30, 2022 ASB had $80 million of advances outstanding at the FHLB of Des Moines compared to no advances outstanding as of December 31, 2021. As of June 30, 2022, 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 June 30, 2022, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $241.3 million compared to an unrealized loss, net of taxes, of $32.0 million as of December 31, 2021. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.
During the first six months of 2022, ASB recorded a negative provision for credit losses of $1.5 million in the allowance for credit losses reflecting good credit trends including lower net charge-offs and credit upgrades in the commercial real estate and commercial loan portfolios, partly offset by loan reserves for growth in the commercial real estate loan portfolio and solar and sustainable home improvement loans purchased during the year. During the first six months of 2021, ASB recorded a negative provision for credit losses of $20.0 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 the commercial real estate and commercial loan portfolios and due to lower personal unsecured loan portfolio balances which had higher credit loss rates. | | | | | | | | | | | | | | | | | | | | |
| | | Six months ended June 30 | | Year ended December 31, 2021 |
| (in thousands) | | 2022 | | 2021 | |
| Allowance for credit losses, beginning of period | | $ | 71,130 | | | $ | 101,201 | | | $ | 101,201 | |
| | | | | | |
| Provision for credit losses | | (1,506) | | | (19,992) | | | (26,425) | |
| Less: net charge-offs | | 168 | | | 2,957 | | | 3,646 | |
| Allowance for credit losses, end of period | | $ | 69,456 | | | $ | 78,252 | | | $ | 71,130 | |
| Ratio of net charge-offs during the period to average loans outstanding (annualized) | | 0.01 | % | | 0.11 | % | | 0.07 | % |
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 six months ended June 30, 2022 and 2021, ASB recorded a provision for credit losses for unfunded commitments of $1.0 million and a recovery in the provision for credit losses for unfunded commitments of $0.7 million, respectively. As of June 30, 2022 and December 31, 2021, the reserve for unfunded loan commitments was $5.9 million and $4.9 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.
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. As of June 30, 2022, 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.
FINANCIAL CONDITION
Liquidity and capital resources. | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | June 30, 2022 | | December 31, 2021 | | % change |
| Total assets | | $ | 9,215 | | | $ | 9,182 | | | — | |
| Investment securities | | 2,958 | | | 3,097 | | | (4) | |
| Loans held for investment, net | | 5,358 | | | 5,140 | | | 4 | |
| Deposit liabilities | | 8,254 | | | 8,172 | | | 1 | |
| Other bank borrowings | | 242 | | | 88 | | | 174 | |
As of September 30, 2022 and December 31, 2021, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s committed lines of credit was approximately $204 million and $321 million,
respectively.
On September 29, 2021, HEI executed a $125 million private placement, utilizing a delayed draw feature with two tranches. The first tranche of $75 million was drawn on December 29, 2021 and the proceeds were primarily used to invest in the Utilities’ equity to support its capital expenditure program and maintain a Utilities’ equity capitalization ratio of approximately 58%. The second and final tranche of $50 million was drawn on October 26, 2022, to refinance a portion of $150 million of debt that matures on November 20, 2022.
On September 29, 2022, HEI executed a private placement under which HEI has authorized the issue and sale of $110 million of unsecured senior notes. The proceeds totaling $110 million were drawn on November 1, 2022 to refinance a portion of the $150 million of debt that matures on November 20, 2022. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
On October 20, 2022, HEI entered into a term loan facility in the aggregate principal amount of $100 million. The term loan facility allows HEI to draw down proceeds on a delayed basis through March 31, 2023, at which time the term loan commitment expires. Any borrowings under the facility mature on November 30, 2023. Borrowings under the facility bear interest at Term SOFR, as defined in the agreement, plus an applicable margin. The term loan was entered into to prefund $50 million of maturing debt in March 2023 as well as enhance HEI’s liquidity position. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
The Company believes that its cash and cash equivalents, expected operating cash flow from subsidiaries, existing credit facilities, and access to the capital markets will be sufficient to meet the Company’s cash requirements over the next twelve months and beyond based on its current business plans. However, the Company expects that its liquidity will continue to be moderately impacted at the Utilities due to higher working capital requirements due to lingering COVID-19 impacts to the local economy and elevated fuel prices. For the Utilities, the elevated fuel prices have increased the cost of carrying fuel inventory and have also resulted in higher customer accounts receivable balances as fuel is consumed and billed to customers. The higher accounts receivable balance, which has increased $72 million since December 31, 2021, has led to higher bad debt expense and may result in higher write-offs in the future. As of September 30, 2022, approximately $30 million of the Utilities’ accounts receivables were over 30 days past due. Of the over 30 days past due amounts, approximately 20% were on payment plans. The Company commenced its disconnection process on a tiered basis, starting in the third quarter of 2021, targeting the oldest and largest balances first, which has reduced the older balances in arrears over time as payments were made, as well as decreasing the number of customers in arrears. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements. 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. ASB’s cash and cash equivalents was $150 million as of September 30, 2022, compared to $251 million as of December 31, 2021. 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 emerging risks from inflation and the tightening of monetary policy that increases the risk of a recession, as well as ongoing COVID-19 risks, such as new variants, all of which could create increased uncertainty regarding the impact on loan performance and the allowance for credit losses.
HEI material cash requirements.HEI’s material cash requirements include: capital expenditures, labor and benefit costs, O&M expenses, fuel and purchase power costs, and debt and interest payments at the Utilities; investments in loans and investment securities at the Bank; labor and benefits costs, shareholder dividends and debt and interest payments at HEI; and HEI equity contributions to support Pacific Current’s sustainable infrastructure investments.
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 short-term and long-term material cash requirements. However, the economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy and the ongoing COVID-19 pandemic, create significant uncertainty, and the Company cannot predict the future effects that these factors 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, 2022 | | December 31, 2021 |
| Short-term borrowings—other than bank, net of discount | | $ | 171 | | | 3 | % | | $ | 54 | | | 1 | % |
| Long-term debt, net—other than bank | | 2,430 | | | 51 | | | 2,322 | | | 48 | |
| Preferred stock of subsidiaries | | 34 | | | 1 | | | 34 | | | 1 | |
| Common stock equity | | 2,163 | | | 45 | | | 2,391 | | | 50 | |
| | | $ | 4,798 | | | 100 | % | | $ | 4,801 | | | 100 | % |
HEI’s commercial paper borrowings and line of credit facility were as follows: | | | | | | | | | | | | | | | | | | | | |
| | | Average balance | | Balance |
| (in millions) | | Nine months ended September 30, 2022 | | September 30, 2022 | | December 31, 2021 |
| Commercial paper | | $ | 51 | | | $ | 74 | | | $ | 54 | |
| Line of credit draws on revolving credit facility | | — | | | — | | | — | |
| | | | | | |
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 2022 was $80 million. As of September 30, 2022, available committed capacity under HEI’s line of credit facility was $175 million.
On June 27, 2022, Fitch revised HEI’s outlook to “Positive” from “Stable” and affirmed the “BBB” long-term issuer default rating and “F3” short-term issuer default rating.
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, 2022 and 2021 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 2022, net cash provided by operating activities of HEI consolidated was $213 million. Net cash used by investing activities for the same period was $795 million, primarily due to capital expenditures, ASB’s net increase in loans held for investment, purchases of available-for-sale investment securities and purchases of loans held for investment, partly offset by ASB’sreceipt of investment security repayments and maturities. Net cash provided by financing activities during this period was $449 million as a result of several factors, including net increases in ASB’s other bank borrowings and deposit liabilities, net increases in short-term borrowings and issuances of long-term debt, partly offset by repayment of long-term debt and payment of common stock dividends. During the first nine months of 2022, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $94 million and $32 million, respectively.
Dividends. The payout ratios for the first nine months of 2022 and full year 2021 were 63% and 60%, respectively. On February 11, 2022, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.34 per share to $0.35 per share, starting with the dividend in the first quarter of 2022. 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 45 to 46, 62 to 63, and 76 to 77 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2021 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
See also Recent developments in HEI’s MD&A.
In the third quarter and first nine months of 2022, kWh sales volume increased 1.0% and 1.2% compared to the same periods in 2021, respectively. The increase in kWh sales is primarily due to continued recovery of the economy and tourism activity.
Fuel costs have risen rapidly and have increased 92% over prior year’s quarter. Although the Utilities are able to pass through fuel costs to customers and have limited fuel cost exposure through a 2% fuel-cost sharing mechanism (approximately $3.7 million exposure annually, and the amount the Utilities have forecasted as a penalty for 2022), higher customer bills could reduce customers’ ability to pay timely or increase the risk of non-payment. In addition, the higher customer bills may lead the PUC to consider other actions to limit or delay any proposed increase in rates in order to mitigate the overall bill impact of rising fuel prices.
In September 2022, the consumer price index moderated to 8.2% from a 40-year high of 9.1% in June 2022. In Hawaii, the September 2022 Urban Hawaii (Honolulu) Consumer Price Index (CPI) was modestly lower, with an increase of 6.6% over the last twelve months. Under the PBR framework, inflation risk for the Utilities is mitigated by an Annual Rate Adjustment (ARA), which is based on a formula that includes a compounded and non-compounded portion.
•The compounded portion of the ARA adjustment includes an adjustment for inflation based on the estimated change in Gross Domestic Product Price Index (GDPPI) for the upcoming year, less a predetermined annual productivity factor (currently set at zero), less a 0.22% customer dividend, applied to a basis equal to test year target revenues plus the RAM Revenue adjustments in effect prior to the implementation of PBR, plus the prior adjustment year’s compounded portion of the ARA adjustment. The GDPPI adjustment is determined using the forecasted GDPPI in October, which is effective for the following calendar year. For the 2022 calendar year, GDPPI was measured at 2.78% (net of the 0.22% customer dividend) in October 2021 and was effective in rates on January 1, 2022. For the 2023 calendar year, the forecasted 2023 GDPPI of 3.68% (net of the 0.22% customer dividend), measured in October 2022, will be effective in rates on January 1, 2023.
•The non-compounded portion of the ARA adjustment includes a subtractive component, representing the management audit savings commitment, or refund to customers, which was approved by the PUC for the years 2021 through 2025.
Although accounts receivable increased in the third quarter, past due accounts receivable balances decreased by $15.7 million, or 23% with a corresponding decrease in the number of accounts past due decreased by approximately 13% since December 31, 2021. The increase in accounts receivables was primarily driven by higher customer bills impacted by the increase in fuel prices, offset by payments on installment plans, higher cash receipts associated with increased disconnection efforts and application of the $2 million Kokua bill credit, all of which contributed to the decrease in the number of customers 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 Revenue Balancing Account and the impact of higher fuel prices on accounts receivable balances. See “Financial Condition—Liquidity and capital resources” for additional information.
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. The Utilities deferred COVID-19 related costs through a PUC approved period that ended on December 31, 2021. In the second quarter of 2022, the Utilities filed an application, which is currently pending, to seek recovery of the COVID-19 deferred costs, not to exceed the amount of $27.8 million. (See discussion under “Regulatory assets for COVID-19 related costs” in Note 3 of the Condensed Consolidated Financial Statements).
In the most recent quarter, case counts and hospitalizations have declined; however, a worsening of COVID-19 case counts with new variants or a reinstatement of COVID-19 restrictions could adversely affect the ability of the Utilities’ contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations timely, or at all, or require modifications to existing contracts, which could adversely affect the Utilities’ business, increase expenses, and impact the Utilities’ ability to achieve their RPS and other climate related goals.
Regulatory Developments. On June 17, 2022, the PUC issued a D&O approving (1) a new (penalty-only) Performance Incentive Mechanism (PIM) to incentivize achievement of generation-based reliability targets, with an annual maximum penalty of $1 million, (2) a new (penalty/reward) PIM to incentivize the timely completion of the interconnection requirements study process for large-scale renewable energy projects, the penalty/reward will depend on the specifics of the upcoming procurement, (3) a new (reward-only) Collective Shared Savings Mechanism to incentivize cost control over the Utilities’ fuel,
purchased power, and Exceptional Project Recovery Mechanism costs (collectively, non-Annual Revenue Adjustment-related costs), and (4) a modification and extension of the existing interim (reward-only) Grid Services PIM with a maximum reward of $1.5 million through December 31, 2023. The effective date for the changes has not yet been established. See “Regulatory proceedings” in Note 3 of the Condensed Consolidated Financial Statements for additional discussions.
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 | | |
| 2022 | | 2021 | | (decrease) | | (dollars in millions, except per barrel amounts) |
| $ | 956 | | | $ | 679 | | | $ | 277 | | | | | Revenues. Net increase largely due to: |
| | | | | | $ | 223 | | | higher fuel oil prices and higher kWh generated1 |
| | | | | | 43 | | | higher purchased power energy prices, partially offset by lower kWh purchased and lower PPAC revenues2 |
| | | | | | 9 | | | higher revenue from ARA adjustments, which included an offset of management audit savings delivered to customers |
| | | | | | 2 | | | revenue in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March 1, 2022 |
| | | | | | 1 | | | higher MPIR revenue |
| | | | | | (2) | | | lower revenue 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 |
| 384 | | | 181 | | | 203 | | | | | Fuel oil expense1. Net increase largely due to higher fuel oil prices and higher kWh generated, partially offset by lower penalties for better fuel efficiency due to reset of heat rate |
| 225 | | | 186 | | | 39 | | | | | Purchased power expense1, 2. Net increase largely due to higher purchased power energy prices, partially offset by lower kWh purchased and lower capacity charges |
| 121 | | | 116 | | | 5 | | | | | Operation and maintenance expenses. Net increase largely due to: |
| | | | | | 3 | | | more generating facility maintenance work performed |
| | | | | | 2 | | | higher transmission and distribution preventive and corrective maintenance expense |
| | | | | | 2 | | | expense in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March, 1, 2022 |
| | | | | | 1 | | | higher bad debt expense |
| | | | | | (3) | | | increased scope of generating facility overhauls performed in 2021 |
| 147 | | | 121 | | | 26 | | | | | Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2022 for plant investments in 2021 |
| 79 | | | 75 | | | 4 | | | | | Operating income. Increase largely due to higher ARA and MPIR revenue, offset in part by higher operation and maintenance expense and higher depreciation expense |
| 64 | | | 61 | | | 3 | | | | | Income before income taxes. Increase largely due to higher operating income, partially offset by higher interest expense due to higher rates and balances |
| 50 | | | 50 | | | — | | | | | Net income for common stock. See below for effective tax rate explanation |
| 2,212 | | | 2,191 | | | 21 | | | | | Kilowatthour sales (millions)3 |
| $ | 166.79 | | | $ | 86.77 | | | $ | 80.02 | | | | | Average fuel oil cost per barrel |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine months ended September 30 | | Increase | | |
| 2022 | | 2021 | | (decrease) | | (dollars in millions, except per barrel amounts) |
| $ | 2,484 | | | $ | 1,846 | | | $ | 638 | | | | | Revenues. Net increase largely due to: |
| | | | | | $ | 470 | | | higher fuel oil prices and higher kWh generated1 |
| | | | | | 128 | | | higher purchased power energy prices, partially offset by lower kWh purchased and lower PPAC revenues2 |
| | | | | | 28 | | | higher revenue from ARA adjustments, which included an offset of management audit savings delivered to customers |
| | | | | | 5 | | | revenue in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March 1, 2022 |
| | | | | | 3 | | | higher MPIR revenue |
| | | | | | 1 | | | higher revenue 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 |
| 875 | | | 447 | | | 428 | | | | | Fuel oil expense1. Net increase largely due to higher fuel oil prices and higher kWh generated, partially offset by lower penalties for better fuel efficiency due to reset of heat rate |
| 607 | | | 491 | | | 116 | | | | | Purchased power expense1, 2. Net increase largely due to higher purchased power energy prices, partially offset by lower kWh purchased and lower capacity charges |
| 371 | | | 349 | | | 22 | | | | | Operation and maintenance expenses. Net increase largely due to: |
| | | | | | 9 | | | more generating facility maintenance work performed |
| | | | | | 5 | | | higher transmission and distribution preventive and corrective maintenance expense |
| | | | | | 4 | | | expense in 2022 related to ownership of and responsibility for the U.S. Army’s electrical distribution system on Oahu starting March, 1, 2022 |
| | | | | | 3 | | | higher bad debt expense |
| | | | | | 2 | | | higher outside services for Information Technology and Services support, Customer Interconnection/Installation, Demand Response Management System, and Battery Bonus program |
| | | | | | 1 | | | higher property damage and legal reserve for pending claims |
| | | | | | (1) | | | expense due to decommissioning of combined heat and power unit on Lanai in 2021 |
| | | | | | (1) | | | higher Pearl Harbor environmental reserves in 2021 |
| 407 | | | 347 | | | 60 | | | | | Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2022 for plant investments in 2021 |
| 224 | | | 212 | | | 12 | | | | | Operating income. Increase largely due to higher ARA and MPIR revenue, offset in part by higher operation and maintenance expense and higher depreciation expense |
| 180 | | | 170 | | | 10 | | | | | Income before income taxes. Increase largely due to higher operating income, partially offset by higher interest expense due to higher rates and balances |
| 140 | | | 136 | | | 4 | | | | | Net income for common stock. Increase largely due to higher income before income taxes. See below for effective tax rate explanation |
| 6,200 | | | 6,126 | | | 74 | | | | | Kilowatthour sales (millions)3 |
| $ | 137.23 | | | $ | 74.93 | | | $ | 62.30 | | | | | Average fuel oil cost per barrel |
| 471,026 | | | 470,013 | | | 1,013 | | | | | Customer accounts (end of period) |
1The 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.
2The 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 In the third quarter of 2022, kWh sales were higher when compared to the same periods last year largely due to continued recovery from the impacts of the COVID-19 pandemic. COVID-19 cases have continued to decrease in the third quarter of 2022 and, as a result, a majority of restrictions have been lifted. U.S. visitor arrivals continued to increase above the third quarter of 2021 levels and surpassed pre-
pandemic levels, but international arrivals remain lower than pre-pandemic levels. The economic recovery is expected to continue this year as international visitors return and sales are expected to rebound, although uncertainties and downward risks are present due to global economic factors such as the continued effects of the invasion of Ukraine, increasing inflation, supply chain issues, the risk of a global recession, and lingering impacts from the pandemic.
The Utilities’ effective tax rate for the third quarters of 2022 and 2021 were 21% and 17%, respectively. The Utilities’ effective tax rate for the first nine months of 2022 and 2021 were 21% and 19%, respectively. The effective rates were higher for the third quarter and the first nine months of 2022 primarily due to federal research and development tax credit claims in 2021.
Hawaiian Electric’s consolidated ROACE was 8.1% and 8.3% for the twelve months ended September 30, 2022 and September 30, 2021, respectively.
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of September 30, 2022 amounted to $4.9 billion, of which approximately 25% related to generation PPE, 66% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 8% 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 (DER), 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’ decarbonization and renewable energy commitments, facilitating and promoting beneficial electrification, and deploying carbon removal and offsets among other levers to reduce statewide emissions.
In the fourth quarter of 2021, the Utilities outlined their Climate Action Plan to cut carbon emissions from power generation 70% by 2030, compared to a 2005 baseline. The emissions covered by this goal include stack emissions from generation owned by Hawaiian Electric and IPPs who sell electricity to the Utilities. The 2030 commitment would provide a significant portion of the reduction the entire Hawaii economy needs to meet the U.S. target of cutting carbon emissions by at least 50% economy-wide by 2030. Hawaiian Electric has also committed to achieving net zero carbon emissions from power generation by 2045 or sooner. Key elements of the 2030 plan include the closure of the state’s last coal-fired IPP plant in 2022 which occurred in September 2022, increasing rooftop solar by more than 50% over 2021 levels, retiring six fossil fuel generating units, adding at least 1 GW of renewable generation to what was already in place in 2021, increasing grid-scale and customer-owned storage, expanding geothermal resources, and creating customer incentives for using clean, lower-cost energy at certain times of the day and using less fossil-fueled energy at night. The retirement of fossil-fueled generating units to achieve the Utilities’ 70% decarbonization goal is consistent with state policy and supported by Hawaii State law. See “Forecast of capital expenditures—Liquidity and capital resources” for a discussion of potential capital expenditures related to decarbonization efforts.
On September 1, 2022, the last coal-fired IPP plant in the state, providing approximately 10% of Oahu’s generation, ceased operations, removing a significant amount of GHG emissions from the Utilities’ generation mix.
Prior to the retirement of the coal-fired IPP plant, the Utilities developed plans, including contingency plans, to ensure reliable service through the transition period. These plans include the anticipated addition of renewable energy/storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, and multiple demand response/DER programs. For example, the state’s largest solar plus battery storage project to date, totaling 39 MW, reached commercial operations on July 31, 2022. While the Utilities continue to execute on their plans, including sustaining provisional and elevated levels of maintenance for internal generation to support the capacity needs from the coal-fired IPP plant retirement prior to renewable energy/storage projects coming online, future events, including
unexpected issues with existing generation, or supply chain issues and inflationary pressures, as well as federal policies related to solar panel imports, among other factors, and delay in the commercial operation of new generation resources, could disrupt the ability of the Utilities to deliver reliable service. Also, see the “Developments in renewable energy efforts—New renewable PPAs” section below.
Hawaii’s renewable portfolio standard law requires electric utilities to meet an RPS of 40%, 70% and 100% by December 31, 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’ strategies and plans are fully aligned in meeting these targets.
The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals. To date the Utilities have met all of the statutory RPS goals, including exceeding the last milestone RPS target of 30% for 2020, where it achieved an RPS of 34.5%. In 2021, the Utilities achieved an RPS of 38.4%. The Utilities will continue to actively procure additional renewable energy post-2021 and expect to meet or exceed the next statutory RPS goal of 40% in advance of the 2030 compliance year. In July 2022, Governor Ige signed Act 240 (H.B.2089), that amended the RPS calculation from renewable energy as a percentage of sales to renewable energy as a percentage of total generation. The amended RPS calculation results in a lower calculated percentage than the amount calculated under the previous methodology. For example, the 2021 RPS achieved under the revised RPS calculation would have been 31.5% versus 38.4% under the prior method. The change in the definition is to be applied prospectively to future milestone measurements and will require that the Utilities acquire more renewable energy than under the previous RPS calculation to comply with the RPS milestones; however, the Utilities expect to continue to meet the RPS milestones under the amended RPS law. (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 total generation in 2021, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $2 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. Conversely, the Utilities have incentives under PIMs that provide a financial reward for accelerating the achievement of renewable generation as a percentage of total generation, including customer supplied generation. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $20/MWh in 2022, $15/MWh in 2023, and $10/MWh for the remainder of the multi-year rate period.
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 trended lower over time as privately-owned DER have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms under the new PBR framework reduce some of the regulatory lag during the multi-year rate plan (MRP), such as the annual revenue adjustment to provide annual changes in utility revenues, including inflationary adjustments, and the exceptional project recovery mechanism, which allows the Utilities to recover and earn on certain approved eligible projects placed into service. 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 and a carbon free electric system will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities are implementing an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy and decarbonization pathways that incorporates customer and stakeholder input.
The Integrated Grid Planning (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. The Utilities submitted an updated IGP work plan to the PUC in January 2021. In August 2021, the Utilities submitted their Revised Inputs and Assumptions to the PUC for review and approval, marking the significant progress made through the stakeholder engagement phase of the IGP process. On March 31, 2022, the Utilities submitted the final Inputs and Assumptions approved by the PUC. On September 26, 2022, the PUC approved the Utilities’ planning methodologies and criteria. The Grid Needs Assessment is now underway and is expected to be completed in the second quarter of 2023.
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 132 MW of grid services with focus on capacity reduction (60 MW) similarly in response to the potential reserve shortfall from the AES coal plant retirement scheduled on September 1, 2022. The Utilities executed a GSPA for a total grid services amount of 97.4 MW and filed with the PUC to request approval on March 16, 2022. The Utilities are currently going through the procedural schedule where they answered a set of information requests. On July 26, 2022, the Consumer Advocate filed its Statement of Position not objecting to the PUC approving the GSPA if certain conditions are adopted. The Utilities responded to the Statement of Position on August 9, 2022 to comment to the various conditions proposed by the Consumer Advocate. The procedural schedule steps are completed and the GSPA is ready for the PUC’s decision.
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. As of September 30, 2022, the Utilities have received and approved the applications totaling approximately 10.9 MW on Oahu.
On March 30, 2022, the Utilities filed with the PUC to request expanding the EDRP for up to 15 MW on the island of Maui and received PUC approval on May 20, 2022. The EDRP on Maui became effective as of June 1, 2022. Subsequently on June 23, 2022, the PUC approved the cost recovery of the additional incentives for both Oahu and Maui through the DSM Surcharge. As of September 30, 2022, the Utilities have received and approved 25 applications totaling approximately 0.4 MW on Maui.
On October 31, 2022, the PUC issued an order, directing the Utilities to solicit comments from all interested parties and stakeholders on the Utilities’ Draft Grid Services RFP filed on June 30, 2022. The proposed Draft Grid Services RFP focused only on Maui and is seeking 15 MW of grid services. Upon review of the comments, the PUC intends to provide its guidance on the Maui Draft Grid Services RFP.
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 DER 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. On March 25, 2019, the PUC approved a plan for the Utilities to implement Phase 1 of their Grid Modernization Strategy, which is the proportional deployment of advanced metering infrastructure (AMI). On February 28, 2022, the PUC expanded the scope of Phase 1 to the full service territory with a completion date set for the third quarter of 2024. The estimated cost of full deployment (including proportional deployment) is approximately $143 million in capital and deferred software cost and is expected to be incurred over five years. As of September 30, 2022, approximately $56 million of capital and deferred software cost has been incurred to date under Phase 1 and is currently being recovered under the MPIR mechanism until such costs are included in base rates. On June 24, 2022, the PUC approved with certain conditions the Utilities’ request to aggregate the per-meter and network cost caps and to recover O&M costs associated with full-service territory AMI deployment under the MPIR mechanism. As of September 30, 2022, the Utilities have deployed about 152,000 advanced meters, servicing approximately 32% of total customers.
The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of Phase 2 of their Grid Modernization Strategy implementation. However, on December 30, 2019, the PUC suspended the Utilities’ application for the ADMS pending the Utilities’ filing of a supplemental application for the broad deployment of field devices. This supplement and update to the Grid Modernization Strategy 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 software costs 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. On November 16, 2021, the PUC suspended the Utilities’ ADMS and Phase 2 field device application to focus the Utilities’ attention on completing Phase 1. The Utilities filed a Motion for Reconsideration with the PUC in response to the suspension, but the motion was denied. The PUC subsequently clarified that the Utilities may resume the Phase 2 docket no earlier than six months before Phase 1 is scheduled to be completed in the third quarter of 2024. Resumption of the Phase 2 proceeding would likely commence six months prior to the scheduled completion date selected by the PUC.
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, totaling 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020. Two phase 1 projects (28.32 kW on Maui and 270 kW on Oahu) have been operational for over a year, with four additional phase 1 projects expected to become operational in 2023.
The second phase, which commenced on April 9, 2020 and subsequently expanded on July 27, 2021, allows over 250 MW across all Hawaiian Electric service territories in two tranches for small (under 250 kW), mid-tier 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. LMI projects do not have a size cap nor do they decrease the 250 MW capacity available to other projects.
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.
One CBRE proposal for Lanai was selected but negotiations were terminated on June 15, 2022. With the concurrence of the Independent Observer, a replacement proposal was selected on July 1, 2022. On July 25, 2022, the Utilities announced the selection of a new developer for the Lanai CBRE RFP. On September 21, 2022, the Utilities were informed by Pulama Lanai of a project being planned on Lanai to remove the two large resorts from the grid, which represent approximately 40% of the load of the island and raises great uncertainty around the future energy needs for Lanai. On September 28, 2022, the Utilities notified the PUC that ongoing negotiations for the Lanai CBRE project will continue, but that the Utilities will not execute a PPA at this time given the uncertainty due to the recent Pulama Lanai notification. On Molokai, proposals were only received from a single community co-op group. After evaluation of these proposals and with concurrence of the independent observer, the Utilities filed a letter on September 9, 2022, proposing to close the Molokai CBRE RFP and to work with the lone bidder to improve certain aspects of its two proposed projects outside of the RFP process for the benefit of the residents of Molokai. Discussions are ongoing. CBRE LMI proposals for Oahu, Maui and Hawaii were issued and are currently being evaluated. The Utilities issued the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022. The RFPs closed on August 17, 2022, and proposals are also currently being evaluated.
The Utilities CBRE Phase 2 Rule 29 became effective on March 10, 2022. The Utilities are currently accepting project applications for small CBRE projects less than 250 kW in size. The PUC reserved 45 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. The Utilities have developed a CBRE Portal where Subscriber Organizations can apply for small project capacity and manage subscribers for all CBRE projects in the program. Customers can also use the portal to subscribe to a project once the Subscriber Organization has added their project to the portal.
Microgrid services tariff proceeding. In enacting Act 200 of 2018, the Hawaii legislature found that Hawaii’s residents and businesses were vulnerable to disruptions in the islands’ energy systems caused by extreme weather events or other disasters, and stated its belief that the use of microgrids would build energy resiliency into Hawaii’s communities, thereby increasing public safety and security. The purpose of Act 200 was therefore to encourage and facilitate the development and use of microgrids through the establishment of a standard microgrid services tariff. In July 2018, pursuant to Act 200, the PUC opened a proceeding to investigate the establishment of a microgrid services tariff. In August 2019, the PUC issued an order prioritizing items for resolution in the docket and directed the Parties to establish working groups (the Working Group) to address issues identified by the PUC.
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, specifically identifying the objective for Phase 2 to promote self-sufficiency and resilience among microgrid project operators, as well as to further streamline the Microgrid Services Tariff where applicable. Furthermore, the PUC 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, which the parties submitted by October 21, 2021.
On April 1, 2022, the PUC established its Prioritized Issues for Resolution for Phase 2 of the Microgrid proceeding, which includes the following: 1) Microgrid Compensation and Grid Services; 2) Utility Compensation; 3) Customer Protection and Related Considerations; 4) Interconnection; and 5) Working Group coordination with related microgrid and resilience Initiatives at Hawaiian Electric and government agencies. Furthermore, the PUC established a procedural schedule to consist of quarterly status conference meetings with the PUC, a Phase 2 Working Group Report, draft of a revised Microgrid Service Tariff, Party comments to the proposed Microgrid Service Tariff, followed by a PUC D&O.
On June 30, 2022, the PUC provided further guidance to the Working Group to prioritize discussion of the microgrid types in the following order: 1) Hybrid Microgrid - Third Party Developer using Utility lines/infrastructure; 2) Hybrid Microgrid - Utility Project with Partners; and 3) Customer Microgrid. Additionally, the PUC instructed the Working Group to discuss microgrid compensation and continue the involvement of microgrid developers in working group meetings.
The Working Group has been meeting from April 2022 and will continue until mid-November 2022 to meet the PUC’s objectives and respond to the Phase 2 priority issues. All discussions and final recommendations will be detailed in the Working Group Report which will be filed by November 23, 2022 and presented at the Technical Conference on December 8, 2022 per the PUC’s procedural schedule.
Decoupling. See “Decoupling” in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling.
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 2021, 2020 and 2019 did not trigger the earnings sharing mechanism for the Utilities.
Actual and PUC-allowed returns, as of September 30, 2022, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| % | | Rate-making Return on rate base (RORB)* | | ROACE** | | Rate-making ROACE*** |
Twelve months ended September 30, 2022 | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric | | Hawaiian Electric | | Hawaii Electric Light | | Maui Electric |
| Utility returns | | 7.23 | | | 5.96 | | | 6.61 | | | 8.56 | | | 6.64 | | | 7.37 | | | 9.58 | | | 7.38 | | | 8.48 | |
| PUC-allowed returns | | 7.37 | | | 7.52 | | | 7.43 | | | 9.50 | | | 9.50 | | | 9.50 | | | 9.50 | | | 9.50 | | | 9.50 | |
| Difference | | (0.14) | | | (1.56) | | | (0.82) | | | (0.94) | | | (2.86) | | | (2.13) | | | 0.08 | | | (2.12) | | | (1.02) | |
* 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 gap between PUC-allowed ROACEs and the ROACEs achieved is primarily due to the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), and depreciation, O&M expense and return on rate base that are in excess of what is currently being recovered through rates (the last rate case plus authorized RAM adjustments and ARA revenues).
Regulatory proceedings. On December 23, 2020, the PBR D&O was issued, establishing a new PBR Framework. The PBR Framework implemented a five-year 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. See also “Regulatory proceedings” in Note 3 of the Condensed Consolidated Financial Statements.
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.
•On November 16, 2021, Hawaii Electric Light and Hawi Renewable Development, LLC (HRD) entered into an Amended and Restated Power Purchase Agreement (ARPPA). Under the ARPPA, HRD would make modifications to upgrade and repower the existing wind facility to enable it to continue to provide up to 10.56 MW of energy at a cost savings for customers. The ARPPA is delinked from the price of fossil fuel and extends the term of the existing PPA by 20 years following the commercial operations date. On December 17, 2021, Hawaii Electric Light filed an application for approval of the ARPPA, requesting a decision no later than June 15, 2022. On June 17, 2022, HRD notified the Utilities that the lead time for delivery and price of equipment needed for the repowering project had increased such that it would prevent HRD from achieving the required guaranteed commercial operation date. Additionally, HRD informed the Utilities that drastic changes in the market conditions had significantly impacted the financial viability of the project. On June 24, 2022, the Utilities requested that the PUC put the procedural schedule on hold to allow HRD time to re-evaluate its plans and determine what is needed to keep the project financially viable. The Utilities and HRD are currently in discussions regarding the project.
•On December 31, 2019, Hawaii Electric Light and Puna Geothermal Ventures entered into an Amended and Restated Power Purchase Agreement (ARPPA). 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). After the Office of Planning and Sustainable Development identified the Planning Department for the County of Hawaii to be the accepting agency and approving authority for any required HEPA review, the PUC lifted the suspension of the docket stating that the docket was ready for decision-making. On March 16, 2022, the PUC issued a D&O, approving the ARPPA, subject to conditions, that include requiring completion of the final environmental review prior to construction. On March 28, 2022, Puna Pono Alliance filed a Motion for Reconsideration seeking reconsideration, modification and/or vacation of the D&O. On June 6, the PUC denied Puna Pono’s Motion for Reconsideration. PGV has notified the Utilities that changes in market conditions have transpired since the terms of the ARPPA were negotiated and has indicated its desire to negotiate an amendment to the ARPPA to mitigate the impacts. The Utilities are reviewing PGV’s request.
•Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued Stage 1 Renewable 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. To date, summarized information for a total of eight 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, 9/30/22*, 1/20/23 & 8/31/23 | | 20 & 25 | | $ | 32.2 | |
| Hawaii Electric Light | | 2 | | 60 | | 60/240 | | 12/2/22 & 4/21/23 | | 25 | | 14.9 | |
| Maui Electric | | 2 | | 75 | | 75/300 | | 4/28/23 & 10/27/23 | | 25 | | 17.6 | |
| Total | | 8 | | 274.5 | | 274.5/1,098 | | | | | | $ | 64.7 | |
* Project delays have resulted in Guaranteed Commercial Operations Date being missed.
The Utilities have received PUC approvals to recover the total projected annual payment of $64.7 million for the eight PPAs through the PPAC to the extent such costs are not included in base rates. On March 29, 2022, the Utilities filed a letter with the PUC requesting approval of an amendment requesting a price and guaranteed commercial operation date change to a previously-approved PPA for Stage 1 on Oahu to resolve a force majeure condition. On May 6, 2022, the PUC conditionally approved this PPA amendment. On May 26, 2022, the Utilities filed a letter with the PUC requesting approval of an amendment requesting a price increase, a guaranteed commercial operation date change, and provisions to allow partial commissioning to a previously-approved PPA for Stage 1 on Hawaii Island to resolve a force majeure condition. On June 29, 2022, the PUC approved this PPA amendment. On July 31, 2022, the first Stage 1 solar-pus-storage project (39 MW solar/156 MWh storage) was placed into service. See also “Stage 1 renewable PPAs” in Note 3 of the Condensed Consolidated Financial Statements.
•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. To date, the Utilities had filed 11 PPAs, including 4 PPAs declared null and void by the independent power producers, 2 GSPAs and 2 applications for commitments of funds for capital expenditures for approval of the utility self-build projects with the PUC. The majority of these projects were approved by the PUC in 2021. On March 23, 2022, the PUC approved one solar-plus-storage project on Oahu for 15 MW of generation and 60 MWh of storage. On May 25,
2022, the PUC denied the one Utility Self-Build project on Hawaii Island. In response, the Utilities filed a motion for reconsideration with the PUC. On June 24, 2022 the Utilities filed Supplemental Request informing the PUC that the project might be eligible to receive funds under the federal Infrastructure Investment and Jobs Act (IIJA). On July 27, 2022 the PUC suspended the docket until after such time that the Utilities have received final disposition of its application for funding under the IIJA. The Utilities shall then properly request the PUC to lift the suspension and either issue a decision on the pending Motion, or take further action as appropriate. On July 25, 2022, the PUC approved the final solar-plus-storage project on Oahu for 42 MW of generation and 168 MWh of storage. The Utility Self-Build project on Maui is still pending PUC approval.
A summary of the seven PPAs that are approved and still under active development, 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 | | 94 | | 94 | / | 503 | | 5/17/23, 10/30/23, 12/29/23 & 4/9/2024 | | 20 & 25 | | $ | 32.9 | |
| Hawaiian Electric | | 1 | * | N/A | | 185 | / | 565 | | 12/30/22 | | 20 | | 24.0 | |
| Maui Electric | | 2 | | 60 | | 60 | / | 240 | | 7/25/23 & 12/29/23 | | 25 | | 18.2 | |
| Total | | 7 | | 154 | | 339 | / | 1,308 | | | | | | $ | 75.1 | |
* See further discussion under “Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement” below.
The total projected annual payment of $75.1 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates. On February 15, 2022, the Utilities filed letters with the PUC requesting approval of amendments to two of the previously-approved PPAs for Stage 2, one on Oahu and one on Maui, that address delays and price increase due to the COVID-19 pandemic and the global supply-chain crisis, as well as other market conditions that have arisen during the development of these projects. On March 2, 2022, the PUC declined to approve both amendments. On March 14, 2022, both the developer of the project and the Utilities filed a motion for reconsideration for one project, and the developer also filed a motion for reconsideration for the second project. On May 5, 2022, the developer withdrew its motions for reconsideration for both projects and on May 6, 2022, the Utilities withdrew their motion for reconsideration and filed the developer’s notices declaring PPAs for the projects null and void. On May 6, 2022, after the developer declared the PPAs null and void, the PUC granted the Utilities’ motion for reconsideration, approving the amendment to the Maui based project. However, the PUC’s order did not change the developer’s null and void declaration of the PPA for the Maui based project. On October 21, 2022, the Utilities filed a letter with the PUC requesting approval of an amendment to increase price and to change the guaranteed commercial operation date of a previously-approved PPA for Stage 2 on Maui.
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 | | 1 | * | 12/12 | | 12/30/22 |
| Maui Electric | | 1 | | 40/160 | | 4/28/23 |
| Total | | 2 | | 52/172 | | |
* The Utility Self-Build project was denied by the PUC on May 25, 2022 and the Utilities have filed a motion for reconsideration with the PUC.
•The Utilities’ renewable energy goals depend, in large part, on the success of renewable projects developed and operated by independent power producers. Beginning in 2017, the Utilities embarked on an ambitious procurement effort, selecting multiple solar plus storage efforts to help reach the Utilities renewable portfolio standards goals as well as to assist the Utilities in retiring fossil fuel generation. Several of the recently procured projects have experienced delays and four Stage 2 projects have been declared null and void by the independent power producers due to a number of issues, including supply chain disruptions caused by impacts from the COVID-19 pandemic, solar
product detentions at U.S. ports of entry ordered by the U.S. Customers and Border Protection agency, and unforeseen site conditions which resulted in unanticipated project costs or in some cases the inability to effectively use previously identified project sites. Projects have also indicated potential impacts from the investigation launched by the US Department of Commerce on March 28, 2022, in response to a request by Auxin Solar Inc. in regards to solar panel imports. On June 6, 2022, President Biden created a bridge to temporarily facilitate U.S. solar deployers’ ability to source certain imported solar modules and cells free of certain duties for 24 months in order to ensure the U.S. has access to a sufficient supply of solar modules to meet electricity generation needs. The Utilities are in discussions with several project developers regarding requests to increase previously approved prices and extend guaranteed commercial operations date for those projects in order to ensure their viability given the impact of these recent market conditions. The Inflation Reduction Act (IRA) was signed into law on August 16, 2022. The Utilities are working with the developers to determine if the IRA will provide any benefit for the issues currently being seen by projects. Significant project delays or failures of these projects increase the risk of the Utilities not meeting the renewable portfolio standards or other climate related goals, eligibility for performance incentive mechanisms associated with the speed of increasing renewable generation, and the ability to retire fossil fuel units.
Tariffed renewable resources.
•As of September 30, 2022, there were approximately 564 MW, 123 MW and 135 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, 2022, an estimated 33% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 20% of the Utilities’ total customers have solar systems.
•The Utilities began accepting energy from feed-in tariff projects in 2011. As of September 30, 2022, there were 43 MW, 2 MW and 6 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 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. The Utilities and PBT signed an agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, subject to PUC approval.
•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 2023, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
•On November 22, 2021, CBRE RFPs for Molokai and Lanai were opened. The RFP for Lanai sought a single PV paired with storage project, which included a 3 MW portion, reserved for CBRE. The Lanai RFP closed on February 14, 2022 and the Molokai RFP closed on March 1, 2022. A project was selected in the Lanai RFP but negotiations were terminated. On July 1, 2022, a replacement project was selected and negotiations commenced. The RFP for Molokai sought 2.75 MW of new PV paired with storage projects for CBRE generation. No projects were selected in the Molokai RFP. However, with the concurrence of the independent observer, the Utilities are working with the lone bidder outside of the RFP process.
•On March 17, 2022, the CBRE LMI RFPs for Oahu, Maui and Hawaii were opened and proposals are currently being evaluated. The Utilities opened the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022 and proposals are currently being evaluated. See “Transition to a decarbonized and sustainable energy future—Community-based renewable energy” for additional information.
•The PUC issued a letter to the Utilities requesting development with a Stage 3 RFP on Hawaii Island on January 21, 2021. In accordance with guidance provided by the PUC in a subsequent letter on April 20, 2021, the Utilities filed the Hawaii Island Grid Needs Assessment on July 15, 2021 and the draft RFP, including model contracts for PV+BESS,
wind+BESS, standalone storage, firm renewable generation, and DER aggregators on October 15, 2021. The requirements in the Stage 3 RFP are guided by the results of the Grid Needs Assessment. On March 18, 2022, the Utilities filed a second draft of the Stage 3 RFP for Hawaii Island, incorporating stakeholder and PUC feedback. On May 31, 2022, the Utilities filed its proposed final draft Stage 3 RFP for Hawaii Island. On June 30, 2022, the PUC issued an order approving with modifications the Stage 3 RFP for Hawaii Island and providing guidance on the Oahu and Maui Stage 3 RFPs. On July 11, 2022, the Utilities filed a motion for partial reconsideration and/or clarification of the PUC’s order. On July 20, 2022, the Utilities filed a Request for Extension to file the final Stage 3 RFP for Hawaii Island. On July 28, 2022, the PUC issued an order granting the Utilities’ motion for an enlargement of time to file the final Stage 3 RFP for Hawaii Island. The Utilities’ deadline to file the final Stage 3 RFP for Hawaii Island is 15 days from the filing date of the PUC’s decision on the Utilities’ Motion for Reconsideration. On October 17, 2022, the PUC issued an order in response to the Utilities’ Motion. The final Stage 3 RFP was filed on November 7, 2022 and the RFP will be deemed approved and issued on November 17, 2022 unless the PUC directs otherwise.
•On February 18, 2022, the PUC sent a letter to the Utilities directing them to develop Stage 3 RFPs for Oahu and Maui. On March 10, 2022, the Utilities submitted its recommendations on plans to develop Stage 3 RFPs for Oahu and Maui, and on May 2, 2022, the Utilities filed draft RFPs for Oahu and Maui. For Oahu, the Utilities are seeking 500 to 700 MW of renewable firm capacity, and at least 475 GWh of renewable dispatchable energy annually. For Maui, the Utilities are procuring at least 40 MW of renewable firm capacity, and at least 180 GWh of renewable dispatchable energy annually. Updated grid needs assessments for Oahu and Maui were filed on July 29, 2022. Thirty-three information requests were issued by the PUC for the near term grid needs assessments supporting the Oahu and Maui Stage 3 RFPs on September 28, 2022. On October 7, 2022, the Utilities requested an extension from October 19, 2022 to November 16, 2022 to respond. On October 17, 2022, the Utilities filed a letter in both the RFP and IGP dockets with updated schedules for the Stage 3 and IGP RFPs and requesting approval to issue the Stage 3 Hawaii RFP by October 31, 2022 and the Stage 3 Maui and Oahu RFPs by November 30, 2022. The October 17, 2022 Order also mandated a 30 day comment period on the grid needs assessments for Oahu and Maui, which started on October 20, 2022. The filing of the Utilities’ letter crossed with the filing of the PUC order.
•On November 17, 2021, the Utilities filed a request with the PUC to develop an RFP for firm renewable generation for Oahu. On December 22, 2021, the PUC issued guidance to the Utilities on proceeding with such RFP. The Utilities filed a draft RFP on February 28, 2022. Per the PUC’s March 23, 2022 letter, the Utilities will pursue firm renewable generation as a part of the Stage 3 Oahu RFP.
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 Utilities report the tracked cost on a monthly basis.The full text of the Order, Motion for Reconsideration and request for a Stay of the Order, and clarification Order as well as the tracked costs 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 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. On July 6, 2021, the PUC issued a D&O, approving the First Amendment and requiring the Utilities to meet certain conditions of approval (COA). The Utilities are currently addressing the COAs as required in the D&O.
On June 30, 2021, the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. On February 1, 2022, the Utilities and PAR Hawaii entered into a fuel supply contract commencing January 1, 2023 and Second Amendment to the existing fuel contract to amend tier-1 volumes. On September 1, 2022, the fuel supply contract with PAR Hawaii was approved by the PUC on an interim basis and the Second Amendment to the existing fuel contract received final approval from the PUC. The costs incurred under the contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs.
On March 3, 2022, as part of economic sanctions amid the Russia-Ukraine war, Par Hawaii announced that it is suspending all purchases of Russian crude oil, which accounts for at least 25% of Hawaii’s supply. The average fuel oil cost per barrel has increased 92% over prior year’s quarter. The Utilities are expecting bills to fluctuate until global oil market stabilizes.
Proposed modification to the pension tracking mechanisms. On June 9, 2022, the Utilities filed an application with the PUC for approval to modify the pension tracking mechanisms. The existing pension tracking mechanisms allow the Utilities to record the difference between actual NPPC and NPPC in rates to regulatory asset or liability. The proposed modification would allow the Utilities to also record to regulatory asset or liability the difference between the actual cash contributions made to the defined contribution plans and the contribution amounts included in rates. The Utilities also proposed in the application the accelerated return of pension tracking regulatory liability to the ratepayers during the current MRP.
FINANCIAL CONDITION
Liquidity and capital resources. As of September 30, 2022, there were no amounts outstanding on Hawaiian Electric’s revolving credit facility and $98 million of commercial paper borrowings outstanding by the Utilities. The total amount of available borrowing capacity under the Utilities’ committed line of credit was $200 million.
Hawaiian Electric expects that its liquidity will continue to be moderately impacted at the Utilities due to higher fuel prices and lingering COVID-19 impacts to the local economy. As of September 30, 2022, fuel inventories have increased by $126 million compared to December 31, 2021. Elevated fuel prices billed to customers have also resulted in higher accounts receivable balances, which increased by $72 million, compared to the accounts receivable balances as of December 31, 2021. Higher accounts receivable balances and bad debt expense may result in higher write-offs in the future. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements. However, the Utilities’ liquidity and access to capital remains adequate and is expected to remain adequate. As of September 30, 2022, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Utilities’ committed lines of credit and cash and cash equivalents was approximately $123 million.
The Utilities are continuing the disconnection process on a tiered basis, expanding the targeted balances, which is expected to reduce delinquent accounts receivable balances and accelerate cash collections.
Hawaiian Electric’s consolidated capital structure was as follows: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | September 30, 2022 | | December 31, 2021 |
| Short-term borrowings, net of discount | | $ | 97 | | | 2 | % | | $ | — | | | — | % |
| Long-term debt, net | | 1,737 | | | 42 | | | 1,676 | | | 42 | |
| Preferred stock | | 34 | | | 1 | | | 34 | | | 1 | |
| Common stock equity | | 2,308 | | | 55 | | | 2,262 | | | 57 | |
| | $ | 4,176 | | | 100 | % | | $ | 3,972 | | | 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, 2022 | | September 30, 2022 | | December 31, 2021 |
Short-term borrowings1 | | | | | | |
| Commercial paper | | $ | 45 | | | $ | 98 | | | $ | — | |
| Borrowings from HEI | | — | | | — | | | — | |
| Line of credit draws on revolving credit facility | | — | | | — | | | — | |
1 The maximum amount of external short-term borrowings by Hawaiian Electric during the first nine months of 2022 was approximately $106 million. As of September 30, 2022, Hawaiian Electric had short-term borrowings from Hawaii Electric Light of $2 million and had short-term borrowings from Maui Electric of $16 million, which intercompany borrowings are eliminated in consolidation.
Credit agreement. On February 18, 2022, the PUC approved Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric revolving credit facility to May 14, 2026. In addition to extending the term, Hawaiian Electric received 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. Hawaiian Electric has a $200 million line of credit facility with no amount outstanding at September 30, 2022.
Credit ratings. On June 27, 2022, Fitch revised Hawaiian Electric’s outlook to “Positive” from “Stable” and affirmed the “BBB+” long-term issuer default rating and “F-2” short-term issuer default rating.
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, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric had no undrawn funds.
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. The Utilities filed their expedited letter request on July 29, 2022, followed by their expedited letter request for supplemental project approval and certification on September 30, 2022.
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.
On May 3, 2022, the Utilities received PUC approval through the expedited approval process to issue taxable debt (Hawaiian Electric up to $50 million, Hawaii Electric Light up to $30 million and Maui Electric up to $35 million) prior to December 31, 2022. Pursuant to the approval, on June 15, 2022, the Utilities drew $60 million of proceeds using a delayed draw feature under a private placement executed on May 11, 2022. The proceeds of the notes were used by the Utilities to finance their respective capital expenditures, repay short-term debt used to finance or refinance capital expenditures and/or reimburse funds used for the payment of capital expenditures. See Note 5 of the Condensed Consolidated Financial Statements.
As of September 30, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $95 million, $75 million, and $35 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 | |
| Taxable debt executed in May 2022, but issued on June 15, 2022 | 40 | | 10 | | 10 | |
| Remaining authorized amounts | $ | 95 | | $ | 75 | | $ | 35 | |
On April 29, 2022, the Utilities requested PUC approval to issue, over a four-year period from January 1, 2023 to December 31, 2026, unsecured obligations bearing taxable interest (Hawaiian Electric up to $230 million, Hawaii Electric Light up to $65 million and Maui Electric up to $105 million), 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.
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, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $221.4 million, $93.7 million, and $63.2 million, 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 | |
| Less: Common stock authorized and issued in 2017, 2018, 2019, 2020 and 2021 | 208.6 | | 16.3 | | 46.8 | |
| Remaining authorized amounts | $ | 221.4 | | $ | 93.7 | | $ | 63.2 | |
On April 29, 2022, the Utilities requested PUC approval to issue and sell each utility’s common stock over a four-year period from January 1, 2023 through December 31, 2026 (Hawaiian Electric’s sale/s to HEI of up to $75 million, Hawaii Electric Light sale/s to Hawaiian Electric of up to $25 million, and Maui Electric sale/s to Hawaiian Electric of up to $55 million) and the purchase of Hawaii Electric Light and Maui Electric common stock by Hawaiian Electric from 2023 through December 31, 2026.
Cash flows. The following table reflects the changes in cash flows for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021: | | | | | | | | | | | | | | | | | |
| Nine months ended September 30 | | |
| (in thousands) | 2022 | | 2021 | | Change |
| Net cash provided by operating activities | $ | 124,167 | | | $ | 198,256 | | | $ | (74,089) | |
| Net cash used in investing activities | (219,126) | | | (197,589) | | | (21,537) | |
| Net cash provided by financing activities | 61,005 | | | (21,213) | | | 82,218 | |
Net cash provided by operating activities. The decrease in net cash provided by operating activities was driven by higher cash paid for fuel oil stock due to higher fuel oil prices and higher volume purchased in preparation of end of service of AES Hawaii coal plant, as well as increase in customer accounts receivable resulting from increase in fuel prices, partially offset by payments on installment plans, higher cash receipts associated with increased disconnection efforts, and lower cash paid for accounts payable due to timing.
Net cash used in investing activities. The increase in net cash used in investing activities was primarily driven by an increase in capital expenditures related to construction activities.
Net cash provided by financing activities. The increase in net cash provided by financing activities was primarily driven by net increase in short-term borrowing in 2022 and repayment of short-term debt in 2021, partially offset by lower net cash from long-term debts.
Material cash requirements. Material cash requirements of the Utilities include O&M expenses, including labor and benefit costs, fuel and purchase power costs, repayment of debt and interest payments, operating lease obligations, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term material cash requirements. The cash requirements for O&M, fuel and purchase power costs, debt and interest payments, and operating lease obligations are generally funded through the collection of the Utilities’ revenue requirement established in the last rate case and other mechanisms established under the regulatory framework. The cash requirements for capital expenditures are generally funded through retained earnings, the issuance of debt, and contributions of equity from HEI and generally recovered through the Utilities’ revenue requirement or other capital recovery mechanisms over time. The Utilities believe that their ability to generate cash is adequate to maintain sufficient liquidity to fund their material cash requirements. However, the economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy, and the ongoing COVID-19 pandemic, create significant uncertainty, 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.
Forecast capital expenditures. For the five-year period 2022 through 2026, the Utilities forecast up to $2.0 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. Approximately $1.2 billion is related to replacement and modernization of generation, transmission and distribution assets; approximately $0.5 billion is related to climate-related projects to transition to renewable energy or mitigate climate impacts by increasing the resilience of the system, and approximately $0.3 billion for targeted efforts to improve reliability. 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 2022 to 2026 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. See also Recent developments in HEI’s MD&A.
The Hawaii economy continued to improve in the third quarter of 2022 as an increase in visitor arrivals have helped drive a growing labor market and tax collections. Domestic visitor arrivals exceeded pre-pandemic levels in September 2022 due to pent up demand from leisure travelers. The state and county governments have also lifted all COVID-related travel restrictions for arriving domestic passengers. International visitor arrivals continued to lag significantly behind pre-pandemic levels but is gradually increasing as certain Asian countries have started to loosen travel restrictions. Other COVID-related mandates have also been lifted such as the indoor mask mandate and capacity limits for indoor and outdoor events. COVID cases caused by the new variants have decreased and remain relatively stable at low levels along with hospitalization rates.
In the first nine months in 2022, the Federal Reserve raised its federal funds rate to a target range of 3.0%-3.25% in response to surging inflationary pressures in the economy. The increase in interest rates have increased ASB’s net interest margin; however, the higher interest rates have also reduced mortgage refinance and purchase activity, negatively impacting mortgage banking income. Additionally, the tight labor market and inflationary pressures have increased compensation and benefit expenses, which have partially offset the benefit of a higher interest rate environment. ASB’s net interest margin for the quarter ended September 30, 2022 of 2.96% was higher than the net interest margin for linked quarter ended June 30, 2022 of 2.85% and the net interest margin for the quarter ended September 30, 2021 of 2.90%.
Deposit growth, which was used to fund loan growth and purchase investment securities, has slowed and required ASB to increase its other borrowings to fund the loan portfolio growth. The Bank’s ASB CARES loan program continued to paydown and most of the fees from the program have been recognized as of September 30, 2022. Net interest income was $65.7 million for the quarter ended September 30, 2022 compared to $60.3 million for the quarter ended September 30, 2021.
For the quarter ended September 30, 2022, ASB recorded a 0.2 million negative provision for credit losses, primarily driven by lower loss ratios for the loan portfolio due to improved credit quality, partly offset by additional reserves required for loan portfolio growth, including reserves established for consumer loans purchased. 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 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, 2022, no loans remained in their active deferral period. Approximately $4.1 million of loans were not able to resume their contractual payments and were considered delinquent as of September 30, 2022.
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.
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. 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, 2022 was approximately $5 million and the remaining fees to be recognized over the life of the loans was approximately $0.1 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) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Interest and dividend income | | $ | 68 | | | $ | 61 | | | $ | 7 | | | |
| | | | | | | | Average loan portfolio yields were 2 basis points higher—yield benefited from the rising interest rate environment. New loan production yields are now higher than the portfolio yields. |
| | | | | | | | Average loan portfolio balances increased $367 million - commercial real estate, residential, home equity line of credit and consumer loan portfolio average balances increased $176 million, $150 million, $86 million and $56 million, respectively. The increase in the commercial real estate, home equity line of credit and consumer loan portfolios were due to increased demand for these loan products. The growth in consumer loans included purchases of solar and sustainable home improvement loans. The increase in the residential loan portfolio was due to the Bank’s decision to portfolio a larger portion of the residential loan production. The commercial loan average balance decreased $102 million due to repayments in the ASB Cares loan portfolio. |
| | | | | | | | Average investment securities portfolio balance increased $230 million—excess liquidity was invested in agency securities. Average investment securities portfolio yield was 25 basis point higher due to lower investment portfolio premium amortizations. |
| | | | | | | | Average other investments decreased $61 million - decrease in interest earning deposits due to excess liquidity being used to fund loan production and purchase investment securities. |
| Noninterest income | | 13 | | | 15 | | | (2) | | | |
| | | | | | | | Lower mortgage banking income - lower residential loan sale volume due to lower production volume and ASB’s decision to portfolio a larger portion of the residential loan production. In addition, the residential loan sale profit margin was lower in 2022 compared to 2021. |
| | | | | | | | Lower bank owned life insurance income - lower returns from insurance policies. |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Revenues | | 81 | | | 76 | | | 5 | | | The increase in revenues for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to higher interest and dividend income partly offset by lower noninterest income. |
| Interest expense | | 3 | | | 1 | | | 2 | | | |
| | | | | | | | Increase in interest expense on deposits and other borrowings was due to an increase in term certificate and other borrowing balances which were required to fund the loan portfolio growth, and higher yields due to the increase in the interest rate environment. |
| | | | | | | | Average core deposit balances increased $346 million; average term certificate balances increased $6 million. |
| | | | | | | | Average deposit yields increased from 6 basis points to 8 basis points. |
| | | | | | | | Average other borrowings increased $191 million and average yields increased 145 basis points. |
| Provision for credit losses | | — | | | (2) | | | 2 | | | |
| | | | | | | | 2022 negative provision for credit losses was primarily due to the release of credit loss reserves for improved credit trends in the residential, home equity line of credit and consumer loan portfolios, partly offset by additional credit loss reserves for growth in the consumer loan portfolio which included purchases of solar and sustainable home improvement loans. |
| | | | | | | | 2022 negative provision for credit losses also included the release of credit loss reserves for unfunded commercial construction loan commitments. |
| | | | | | | | 2021 negative provision for credit losses reflected credit upgrades in the commercial real estate and commercial loan portfolios, partly offset by 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. |
| | | | | | | | 2021 negative provision for credit losses was also due to a shift in asset mix - lower personal unsecured loan portfolio balances which had higher credit loss rates were replaced with residential and commercial real estate loan portfolios with lower credit loss rates. |
| | | | | | | | Delinquency rates have decreased—from 0.37% at September 30, 2021 to 0.27% at September 30, 2022 primarily due to lower residential 1-4 family loan delinquencies, partly offset by higher commercial markets loan delinquencies. |
| | | | | | | | Net charge-off to average loans was flat—0.03% at September 30, 2022 and 2021. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Noninterest expense | | 52 | | | 52 | | | — | | | |
| | | | | | | | Included in compensation and benefits were higher base compensation, incentive compensation and employee benefit costs for the three months ended September 30, 2022 compared to the same period in 2021 that were offset by the fair value adjustment related to the deferred compensation plan. |
| | | | | | | | |
| Expenses | | 55 | | | 51 | | | 4 | | | The increase in expenses for the three months ended September 30, 2022 compared to the same period in 2021 was due to higher interest expenses and lower negative provision for credit losses. |
| Operating income | | 26 | | | 25 | | | 1 | | | The increase in operating income for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to higher interest income in 2022 partly offset by lower noninterest income, higher interest expenses and lower negative provision for credit losses. |
| | | | | | | | |
| Net income | | 21 | | | 19 | | | 2 | | | Net income for the three months ended September 30, 2022 was higher than the same period in 2021 due to higher operating income partly offset by higher income tax expense. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Interest and dividend income | | $ | 191 | | | $ | 182 | | | $ | 9 | | | |
| | | | | | | | Average loan portfolio yields were 12 basis points lower—impacted by the continued low interest rate environment in 2021 and the beginning of 2022 as adjustable rate loans had repriced lower during the past year and new loan production yields were below their portfolio yields. 2022 loan yields were also impacted by lower PPP loan fees recognized in 2022 compared to 2021 as the PPP loan portfolio has paid down significantly over the past year. |
| | | | | | | | Average loan portfolio balances increased $69 million - residential loan average balances increased $156 million due to the Bank’s decision to portfolio a larger portion of the residential loan production. Commercial real estate average loan balances increased $104 million due to demand for this loan type. Commercial loan average balances decreased $190 million due to repayments in the PPP loan portfolio. |
| | | | | | | | Average investment securities portfolio balances increased $524 million—excess liquidity from strong deposit growth had been invested in agency securities. |
| | | | | | | | Average investment securities portfolio yields were 23 basis points higher—benefited from lower amortization of premiums in the investment portfolio. |
| Noninterest income | | 42 | | | 49 | | | (7) | | | |
| | | | | | | | Lower mortgage banking income - lower residential loan sale volume due to lower production volume and ASB’s decision to portfolio a larger portion of the residential loan production. In addition, the residential loan sale profit margin was lower in 2022 compared to 2021. |
| | | | | | | | Lower bank owned life insurance income - lower returns from insurance policies and lower insurance policy claim proceeds in 2022 compared to 2021. |
| | | | | | | | Higher fee income on deposit liabilities due to fees from increased deposit account activity. |
| | | | | | | | Higher gain on sale of real estate - due to the sale of a branch property owned by ASB. The branch was closed in January 2022. No similar sale in 2021. |
| Less: gain on sale of real estate | | (1) | | | — | | | (1) | | | Gain on sale of real estate, 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 real estate in the condensed consolidated statements of income, and accordingly, is reflected in operating expenses below as a separate line item and excluded from Revenues. |
| Less: gain on sale of investment securities, net | | — | | | (1) | | | 1 | | | 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 below following operating income as a separate line item and excluded from Revenues. |
| Revenues | | 232 | | | 230 | | | 2 | | | The increase in revenues for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to higher interest and dividend income partly offset by lower noninterest income. |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30 | | Increase | | |
| (in millions) | | 2022 | | 2021 | | (decrease) | | Primary reason(s) |
| Interest expense | | 5 | | | 4 | | | 1 | | | |
| | | | | | | | Interest expense on deposits and other borrowings increased in 2022 compared to 2021 due to an increase in balances and yields of FHLB advances partly offset by lower term certificate balances and yields. |
| | | | | | | | Average core deposit balances increased $603 million; average term certificate balances decreased $76 million. |
| | | | | | | | Average deposit yields decreased from 7 basis points to 6 basis points. |
| | | | | | | | Average other borrowings increased $65 million and average yields increased 87 basis points. |
| Provision for credit losses | | (1) | | | (22) | | | 21 | | | |
| | | | | | | | 2022 negative provision for credit losses reflected improved credit trends, credit regrades and lower credit loss rates in the commercial real estate and commercial, loan portfolios. |
| | | | | | | | 2022 negative provision for credit losses also included additional credit loss reserves for growth in the commercial real estate and consumer loan portfolios, which included loss reserves established for the solar and sustainable home improvement loans purchased during the year. |
| | | | | | | | 2021 negative provision for credit losses reflected 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. |
| | | | | | | | 2021 negative provision for credit losses was also due to lower personal unsecured loan portfolio balances which had higher credit loss rates and improving net charge-off trends in the loan portfolio. |
| | | | | | | | Delinquency rates have decreased—from 0.37% at September 30, 2021 to 0.27% at September 30, 2022 due to lower residential 1-4 family loan delinquencies, partly offset by higher commercial markets loan delinquencies. |
| | | | | | | | Net charge-off to average loans have decreased—from 0.08% at September 30, 2021 to 0.01% at September 30, 2022 primarily due to lower personal unsecured loan portfolio net charge-offs. |
| Noninterest expense | | 149 | | | 147 | | | 2 | | | |
| | | | | | | | Lower compensation and benefits expenses offset by higher occupancy and retirement plan expenses. |
| | | | | | | | Higher base compensation and employee benefit costs were more than offset by the fair value adjustment related to the deferred compensation plan in 2022 and the separation agreement for an executive officer that was paid in 2021 with no similar payment in 2022. |
| | | | | | | | 2021 noninterest expense benefited from a one-time credit adjustment for a change in accounting for the ASB retirement plan with no similar credit in 2022. |
| Gain on sale of real estate | | (1) | | | — | | | (1) | | | |
| Expenses | | 152 | | | 129 | | | 23 | | | The increase in expenses for the nine months ended September 30, 2022 compared to the same period in 2021 was due to lower negative provision for credit losses in 2022, higher noninterest expenses and higher interest expenses, partly offset by higher gain on sale of real estate in 2022. |
| Operating income | | 80 | | | 101 | | | (21) | | | The decrease in operating income for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to higher negative provision for credit losses in 2021 and lower noninterest income in 2022, partly offset by higher interest income in 2022. |
| Gain on sale of investment securities, net | | — | | | 1 | | | (1) | | | The decrease in gain on sale of investment securities - primarily due to the sale of investment securities in 2021 with no similar sales in 2022. |
| Net income | | 62 | | | 79 | | | (17) | | | Net income for the nine months ended September 30, 2022 was lower than the same period in 2021 due to lower operating income and lower gain on sale of investment securities, partly offset by lower income tax expense. |
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 |
| (%) | | 2022 | | 2021 | | 2022 | | 2021 |
| Return on average assets | | 0.89 | | | 0.86 | | | 0.90 | | | 1.21 | |
| Return on average equity | | 15.11 | | | 10.26 | | | 13.65 | | | 14.31 | |
| Net interest margin | | 2.96 | | | 2.90 | | | 2.87 | | | 2.94 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30 |
| | 2022 | | 2021 |
| (dollars in thousands) | | Average
balance | | Interest
income/
expense | | Yield/
rate (%) | | Average
balance | | Interest
income/
expense | | Yield/
rate (%) |
| Assets: | | | | | | | | | | | | |
| Interest-earning deposits | | $ | 16,598 | | | $ | 83 | | | 1.96 | | | $ | 77,991 | | | $ | 30 | | | 0.15 | |
| FHLB stock | | 15,858 | | | 175 | | | 4.39 | | | 10,002 | | | 76 | | | 3.01 | |
| Investment securities | | | | | | | | | | | | |
| Taxable | | 3,183,928 | | | 14,453 | | | 1.82 | | | 2,959,102 | | | 11,625 | | | 1.57 | |
| Non-taxable | | 68,938 | | | 432 | | | 2.48 | | | 63,823 | | | 336 | | | 2.10 | |
| Total investment securities | | 3,252,866 | | | 14,885 | | | 1.83 | | | 3,022,925 | | | 11,961 | | | 1.58 | |
| Loans | | | | | | | | | | | | |
| Residential 1-4 family | | 2,348,214 | | | 20,721 | | | 3.53 | | | 2,198,089 | | | 19,531 | | | 3.55 | |
| Commercial real estate | | 1,370,993 | | | 13,535 | | | 3.88 | | | 1,194,776 | | | 9,846 | | | 3.24 | |
| Home equity line of credit | | 952,298 | | | 7,459 | | | 3.11 | | | 866,755 | | | 6,791 | | | 3.11 | |
| Residential land | | 21,253 | | | 256 | | | 4.84 | | | 19,020 | | | 269 | | | 5.66 | |
| Commercial | | 671,175 | | | 6,945 | | | 4.08 | | | 773,548 | | | 8,988 | | | 4.62 | |
| Consumer | | 182,503 | | | 4,541 | | | 9.88 | | | 126,821 | | | 4,078 | | | 12.76 | |
Total loans 1,2 | | 5,546,436 | | | 53,457 | | | 3.82 | | | 5,179,009 | | | 49,503 | | | 3.80 | |
Total interest-earning assets 3 | | 8,831,758 | | | 68,600 | | | 3.09 | | | 8,289,927 | | | 61,570 | | | 2.96 | |
| Allowance for credit losses | | (70,685) | | | | | | | (78,258) | | | | | |
| Noninterest-earning assets | | 544,651 | | | | | | | 739,522 | | | | | |
| Total assets | | $ | 9,305,724 | | | | | | | $ | 8,951,191 | | | | | |
| Liabilities and shareholder’s equity: | | | | | | | | | | | | |
| Savings | | $ | 3,296,229 | | | $ | 219 | | | 0.03 | | | $ | 3,129,166 | | | $ | 204 | | | 0.03 | |
| Interest-bearing checking | | 1,339,002 | | | 150 | | | 0.04 | | | 1,240,159 | | | 61 | | | 0.02 | |
| Money market | | 214,706 | | | 55 | | | 0.10 | | | 202,073 | | | 31 | | | 0.06 | |
| Time certificates | | 472,425 | | | 1,280 | | | 1.08 | | | 466,343 | | | 880 | | | 0.75 | |
| Total interest-bearing deposits | | 5,322,362 | | | 1,704 | | | 0.13 | | | 5,037,741 | | | 1,176 | | | 0.09 | |
| Advances from Federal Home Loan Bank | | 146,462 | | | 951 | | | 2.54 | | | 54 | | | — | | | 0.30 | |
| Securities sold under agreements to repurchase and federal funds purchased | | 134,458 | | | 104 | | | 0.31 | | | 89,540 | | | 5 | | | 0.02 | |
| Total interest-bearing liabilities | | 5,603,282 | | | 2,759 | | | 0.19 | | | 5,127,335 | | | 1,181 | | | 0.09 | |
| Noninterest bearing liabilities: | | | | | | | | | | | | |
| Deposits | | 2,966,148 | | | | | | | 2,899,005 | | | | | |
| Other | | 186,840 | | | | | | | 173,842 | | | | | |
| Shareholder’s equity | | 549,454 | | | | | | | 751,009 | | | | | |
| Total liabilities and shareholder’s equity | | $ | 9,305,724 | | | | | | | $ | 8,951,191 | | | | | |
| Net interest income | | | | $ | 65,841 | | | | | | | $ | 60,389 | | | |
Net interest margin (%) 4 | | | | | | 2.96 | | | | | | | 2.90 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine months ended September 30 |
| | 2022 | | 2021 |
| (dollars in thousands) | | Average
balance | | Interest
income/
expense | | Yield/
rate (%) | | Average
balance | | Interest income/ expense | | Yield/
rate (%) |
| Assets: | | | | | | | | | | | | |
| Interest-earning deposits | | $ | 69,813 | | | $ | 230 | | | 0.43 | | | $ | 65,133 | | | $ | 61 | | | 0.12 | |
| FHLB stock | | 12,396 | | | 343 | | | 3.70 | | | 10,398 | | | 251 | | | 3.23 | |
| Investment securities | | | | | | | | | | | | |
| Taxable | | 3,192,967 | | | 42,220 | | | 1.76 | | | 2,688,906 | | | 30,761 | | | 1.53 | |
| Non-taxable | | 69,265 | | | 1,185 | | | 2.27 | | | 49,520 | | | 805 | | | 2.16 | |
| Total investment securities | | 3,262,232 | | | 43,405 | | | 1.77 | | | 2,738,426 | | | 31,566 | | | 1.54 | |
| Loans | | | | | | | | | | | | |
| Residential 1-4 family | | 2,320,414 | | | 60,904 | | | 3.50 | | | 2,164,829 | | | 58,592 | | | 3.61 | |
| Commercial real estate | | 1,256,402 | | | 33,485 | | | 3.53 | | | 1,152,716 | | | 28,392 | | | 3.26 | |
| Home equity line of credit | | 894,685 | | | 20,163 | | | 3.01 | | | 898,304 | | | 21,118 | | | 3.14 | |
| Residential land | | 21,529 | | | 1,044 | | | 6.47 | | | 17,782 | | | 683 | | | 5.12 | |
| Commercial | | 702,489 | | | 20,350 | | | 3.85 | | | 892,181 | | | 28,179 | | | 4.21 | |
| Consumer | | 140,735 | | | 11,798 | | | 11.21 | | | 141,800 | | | 13,569 | | | 12.79 | |
Total loans 1,2 | | 5,336,254 | | | 147,744 | | | 3.69 | | | 5,267,612 | | | 150,533 | | | 3.81 | |
Total interest-earning assets 3 | | 8,680,695 | | | 191,722 | | | 2.94 | | | 8,081,569 | | | 182,411 | | | 3.01 | |
| Allowance for credit losses | | (69,811) | | | | | | | (90,347) | | | | | |
| Noninterest-earning assets | | 608,240 | | | | | | | 743,611 | | | | | |
| Total assets | | $ | 9,219,124 | | | | | | | $ | 8,734,833 | | | | | |
| Liabilities and shareholder’s equity: | | | | | | | | | | | | |
| Savings | | $ | 3,284,235 | | | $ | 638 | | | 0.03 | | | $ | 3,029,335 | | | $ | 594 | | | 0.03 | |
| Interest-bearing checking | | 1,347,378 | | | 295 | | | 0.03 | | | 1,214,136 | | | 178 | | | 0.02 | |
| Money market | | 210,899 | | | 124 | | | 0.08 | | | 191,092 | | | 99 | | | 0.07 | |
| Time certificates | | 423,779 | | | 2,515 | | | 0.79 | | | 500,278 | | | 3,048 | | | 0.81 | |
| Total interest-bearing deposits | | 5,266,291 | | | 3,572 | | | 0.09 | | | 4,934,841 | | | 3,919 | | | 0.11 | |
| Advances from Federal Home Loan Bank | | 59,903 | | | 1,085 | | | 2.39 | | | 20,474 | | | 42 | | | 0.27 | |
| Securities sold under agreements to repurchase and federal funds purchased | | 109,028 | | | 114 | | | 0.14 | | | 83,453 | | | 13 | | | 0.02 | |
| Total interest-bearing liabilities | | 5,435,222 | | | 4,771 | | | 0.12 | | | 5,038,768 | | | 3,974 | | | 0.11 | |
| Noninterest bearing liabilities: | | | | | | | | | | | | |
| Deposits | | 2,988,191 | | | | | | | 2,792,899 | | | | | |
| Other | | 189,318 | | | | | | | 166,285 | | | | | |
| Shareholder’s equity | | 606,393 | | | | | | | 736,881 | | | | | |
| Total liabilities and shareholder’s equity | | $ | 9,219,124 | | | | | | | $ | 8,734,833 | | | | | |
| Net interest income | | | | $ | 186,951 | | | | | | | $ | 178,437 | | | |
Net interest margin (%) 4 | | | | | | 2.87 | | | | | | | 2.94 | |
1 Includes loans held for sale, at lower of cost or fair value.
2 Includes recognition of net deferred loan fees of $0.9 million and $3.9 million for the three months ended September 30, 2022 and 2021, respectively, and $4.5 million and $11.3 million for the nine months ended September 30, 2022 and 2021, 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, 2022 and 2021, 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. The Federal Open
Market Committee increased its federal funds rate target range to 3.00% - 3.25% in 2022 due to signs of inflation and ASB’s net interest income and net interest margin has started to increase but still remains at lower levels. A return of the recent low interest rate environment may 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 a composition of ASB’s loan portfolio.
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, 2022, approximately 40% 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 57% of ASB’s HELOC loan portfolio is in a first lien position.
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, 2022 | | December 31, 2021 |
| (dollars in thousands) | | Balance | | % of total | | Balance | | % of total |
| U.S. Treasury and federal agency obligations | | $ | 156,301 | | | 6 | % | | $ | 149,961 | | | 5 | % |
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies | | 2,531,946 | | | 92 | | | 2,900,322 | | | 94 | |
| Corporate bonds | | 39,935 | | | 1 | | | 31,178 | | | 1 | |
| Mortgage revenue bonds | | 15,033 | | | 1 | | | 15,427 | | | — | |
| Total investment securities | | $ | 2,743,215 | | | 100 | % | | $ | 3,096,888 | | | 100 | % |
ASB continues to invest in high-grade investment securities. 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 decrease in the investment securities portfolio was primarily due to an increase in unrealized losses in the available-for-sale investment securities portfolio.
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 $87 million year-to-date, deposit retention and sustained growth will remain challenging in the current environment due to the rising interest rate environment and the level of core deposit 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, 2022 ASB’s costing liabilities consisted of 95% deposits and 5% other borrowings compared to 99% deposits and 1% other borrowings as of December 31, 2021. The weighted average cost of deposits for the first nine months of 2022 and 2021 was 0.06% and 0.07%, respectively. As of September 30, 2022 and December 31, 2021, ASB had approximately $1.3 billion and $1.4 billion, respectively, of deposits that were uninsured.
Federal Home Loan Bank of Des Moines. As of September 30, 2022 ASB had $125 million of advances outstanding at the FHLB of Des Moines compared to no advances outstanding as of December 31, 2021. As of September 30, 2022, the unused borrowing capacity with the FHLB of Des Moines was $1.9 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, 2022, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $340.3 million compared to an unrealized loss, net of taxes, of $32.0 million as of December 31, 2021. The unrealized losses were due to changes in interest rates and did not affect regulatory capital ratios. 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 2022, ASB recorded a negative provision for credit losses of $0.2 million in the allowance for credit losses reflecting improved credit trends, credit regrades and lower credit loss rates in the commercial real estate and commercial loan portfolios, partly offset by credit loss reserves for growth in the commercial real estate and consumer loan portfolios, which included loss reserves for solar and sustainable home improvement loans purchased during the year. 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 the commercial real estate and commercial loan portfolios and a decrease in personal unsecured loan portfolio balances which had higher credit loss rates. | | | | | | | | | | | | | | | | | | | | |
| | | Nine months ended September 30 | | Year ended December 31, 2021 |
| (in thousands) | | 2022 | | 2021 | |
| Allowance for credit losses, beginning of period | | $ | 71,130 | | | $ | 101,201 | | | $ | 101,201 | |
| | | | | | |
| Provision for credit losses | | (192) | | | (21,967) | | | (26,425) | |
| Less: net charge-offs | | 532 | | | 3,290 | | | 3,646 | |
| Allowance for credit losses, end of period | | $ | 70,406 | | | $ | 75,944 | | | $ | 71,130 | |
| Ratio of net charge-offs during the period to average loans outstanding (annualized) | | 0.01 | % | | 0.08 | % | | 0.07 | % |
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, 2022 and 2021, ASB recorded a recovery in the provision for credit losses for unfunded commitments of $0.5 million and $0.4 million, respectively. As of September 30, 2022 and December 31, 2021, the reserve for unfunded loan commitments was $4.4 million and $4.9 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.
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. As of September 30, 2022, 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.
FINANCIAL CONDITION
Liquidity and capital resources. | | | | | | | | | | | | | | | | | | | | |
| (dollars in millions) | | September 30, 2022 | | December 31, 2021 | | % change |
| Total assets | | $ | 9,316 | | | $ | 9,182 | | | 1 | |
| Investment securities | | 2,743 | | | 3,097 | | | (11) | |
| Loans held for investment, net | | 5,617 | | | 5,140 | | | 9 | |
| Deposit liabilities | | 8,259 | | | 8,172 | | | 1 | |
| Other bank borrowings | | 409 | | | 88 | | | 363 | |
As of September 30, 2022, ASB was one of Hawaii’s largest financial institutions based on assets of $9.2$9.3 billion and deposits of $8.3 billion.
As of JuneSeptember 30, 2022, ASB’s unused FHLB borrowing capacity was approximately $2.0$1.9 billion. As of JuneSeptember 30, 2022, ASB had commitments to borrowers for loans and unused lines and letters of credit of $2.0$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 sixnine months ended JuneSeptember 30, 2022, net cash provided by ASB’s operating activities was $53$82 million. Net cash used during the same period by ASB’s investing activities was $371$553 million, primarily due to a net increase in loans receivable of $395 million, purchases of available-for-sale securities of $366 million, net increase in loans receivables of $188 million, purchases of loans held for investment of $25$77 million, bank owned life insurance purchases of $5 million, additions to premises and equipment of $4$3 million and a net increase in FHLB stock of $3$5 million, partly offset by the receipt of investment security repayments and maturities of $217$296 million, proceeds from redemption of bank owned life insurance of $2 million and proceeds from the sale of real estate of $1 million. Net cash provided by financing activities during this period was $208$370 million, primarily due to increases in deposit liabilities of $81$87 million, a net increase in short-term borrowings of $80$125 million and a net increase in repurchase agreements of $73$196 million, partly offset by $27a net decrease in mortgage escrow deposits of $6 million and $32 million in common stock dividends to HEI (through ASB Hawaii).
For the sixnine months ended JuneSeptember 30, 2021, net cash provided by ASB’s operating activities was $63$93 million. Net cash used during the same period by ASB’s investing activities was $633$780 million, primarily due to purchases of available-for-sale securities of $1.1$1.3 billion, purchases of held-to-maturity securities of $187 million, additions to premises and equipment of $6$314 million, contributions to low income housing investments of $6$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 $359$499 million, proceeds from the sale of investment securities of $197 million, a net decrease in loans of $92$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 $499$584 million, primarily due to increases in deposit liabilities of $486$590 million and a net increase in repurchase agreements of $40 million, partly offset by $28a net decrease in mortgage escrow deposits of $5 million and $40 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 JuneSeptember 30, 2022, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 7.7% (5.0%), common equity Tier-1 ratio of 12.8%12.5% (6.5%), Tier-1 capital ratio of 12.8%12.5% (8.0%) and total capital ratio of 13.8%13.5% (10.0%). As of December 31, 2021, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 7.9% (5.0%), common equity Tier-1 ratio of 13.3% (6.5%), Tier-1 capital ratio of 13.3% (8.0%) and total capital ratio of 14.3% (10.0%). 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 2021 Form 10-K (pages 77 to 79).
ASB’s interest-rate risk sensitivity measures as of JuneSeptember 30, 2022 and December 31, 2021 constitute “forward-looking statements” and were as follows: | | Change in interest rates | Change in interest rates | | Change in NII
(gradual change in interest rates) | | Change in EVE
(instantaneous change in interest rates) | Change in interest rates | | Change in NII
(gradual change in interest rates) | | Change in EVE
(instantaneous change in interest rates) |
| (basis points) | (basis points) | | June 30, 2022 | | December 31, 2021 | | June 30, 2022 | | December 31, 2021 | (basis points) | | September 30, 2022 | | December 31, 2021 | | September 30, 2022 | | December 31, 2021 |
| +300 | +300 | | 1.9 | % | | 5.6 | % | | 6.8 | % | | 15.5 | % | +300 | | 0.7 | % | | 5.6 | % | | 5.8 | % | | 15.5 | % |
| +200 | +200 | | 1.3 | | | 4.0 | | | 4.8 | | | 11.7 | | +200 | | 0.5 | | | 4.0 | | | 4.2 | | | 11.7 | |
| +100 | +100 | | 0.7 | | | 2.3 | | | 2.6 | | | 7.0 | | +100 | | 0.3 | | | 2.3 | | | 2.3 | | | 7.0 | |
| -100 | -100 | | (1.5) | | | (2.5) | | | (3.2) | | | (12.6) | | -100 | | (0.9) | | | (2.5) | | | (2.8) | | | (12.6) | |
ASB’s net interest income (NII) sensitivity profile was less asset sensitive as of JuneSeptember 30, 2022 compared to December 31, 2021, primarily driven by the increase in market rates and the shift in liability mix. 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 bank’s liability mix shifted slightly with increased short-term borrowings due to temporary funding needs, further contributing to decreased NII sensitivity.
Economic value of equity (EVE) sensitivity decreased as of JuneSeptember 30, 2022 compared to December 31, 2021 as the duration of assets lengthened while the duration of core depositsliabilities shortened. The increase in market rates led to slower prepayment expectations and lengthened the duration of the fixed-rate mortgage and mortgage-backed investment portfolios. The upward shift in shorter term interest rates lowered the duration of core deposits and the bank’s liability mix shifted slightly with increased short-term borrowings due to temporary funding needs, further contributing to decreased EVE sensitivity.
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 secondthird quarter of 2022 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 secondthird quarter of 2022 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 2021 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 20 to 34 of HEI’s and Hawaiian Electric’s 2021 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 secondthird quarter of 2022 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 |
| April 1 to 30, 2022 | | 20,141 | | $42.97 | | — | | NA |
| May 1 to 31, 2022 | | 12,965 | | $41.58 | | — | | NA |
| June 1 to 30, 2022 | | 165,586 | | $42.91 | | — | | NA |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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, 2022 | | 21,037 | | $40.46 | | — | | NA |
| August 1 to 31, 2022 | | 23,081 | | $42.45 | | — | | NA |
| September 1 to 30, 2022 | | 172,307 | | $39.61 | | — | | 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,” 10,28714,247 of the 20,14121,037 shares, 7,31614,116 of the 12,96523,081 shares and 135,724147,929 of the 165,586172,307 shares were purchased for the DRIP; 8,9095,970 of the 20,14121,037 shares, 4,6757,087 of the 12,96523,081 shares and 25,68020,374 of the 165,586172,307 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 5. Other Information
Effective November 3, 2022, the Company’s Board of Directors approved the amendment and restatement of the Company’s bylaws (as so amended and restated, the “Amended Bylaws”). The amendments were made to (i) make compliance with the applicable provisions of Rule 14a-19 under the Securities Exchange Act of 1934, as amended, a requirement for shareholders to nominate persons for election to the Company’s Board of Directors, and (ii) eliminate certain outdated language.
The foregoing summary of the Amended Bylaws is qualified in its entirety by reference to the full text of the Amended Bylaws, a copy of which is included as Exhibit 3 to this report and incorporated by reference herein.
Item 6. Exhibits
| | | | | | | | |
| | |
| | HEI’s Amended and Restated Bylaws effective November 3, 2022. |
| | |
| | Letter Amendment effective November 1, 2022 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. |
| | |
| | Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Scott W. H. Seu (HEI Chief Executive Officer) |
| | |
| | Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Paul K. Ito (HEI Chief Financial Officer) |
| | |
| | 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) |
| | |
| | |
| | Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Shelee M. T. Kimura (Hawaiian Electric Chief Executive Officer) |
| | |
| | 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 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) | | (Registrant) |
| | | |
| | | |
| By | /s/ Scott W. H. Seu | | By | /s/ Shelee M. T. Kimura |
| | Scott W. H. Seu | | | Shelee M. T. Kimura |
| | President and Chief Executive Officer | | | President and Chief Executive Officer |
| | (Principal Executive Officer of HEI) | | | (Principal Executive Officer of Hawaiian Electric) |
| | | |
| | | |
| By | /s/ Paul K. Ito | | By | /s/ Tayne S. Y. Sekimura |
| | Paul K. Ito | | | Tayne S. Y. Sekimura |
| | Vice President - Tax, Controller and Treasurer and | | | Senior Vice President, |
| | Interim Chief Financial Officer | | | Chief Financial Officer and Treasurer |
| | (Principal Financial Officer of HEI) | | | (Principal Financial Officer of Hawaiian Electric) |
| | | | |
| | | |
| | |
Date: August 8,November 7, 2022 | | Date: August 8,November 7, 2022 |