Published: 2021-11-05 00:00:00 ET

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Recent accounting pronouncements.

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

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

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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.

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Unconsolidated variable interest entities.

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

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

Commitments and contingencies.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Regulatory proceedings

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

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

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

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

•Grid reliability,

•Timely retirement of fossil fuel generation units,

•Interconnection of large-scale renewable energy projects,

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

•Expedient utilization of grid services from demand-side resources

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(in millions)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Total
Incremental RAM revenues and ARA revenues						$	41.7					$	8.9					$	10.9					$	61.5
Incremental accrued RBA balance through September 30, 2021 (and associated revenue taxes)						21.9						2.5						(0.1)						24.3
Incremental Performance Incentive Mechanisms (net)						—						—						0.1						0.1
Incremental MPIR/EPRM Revenue Adjustment						9.8						0.3						0.3						10.4
Net incremental amount to be collected under the RBA rate tariffs						$	73.4					$	11.7					$	11.1					$	96.2

Note: Columns may not foot due to rounding.

Most recent rate proceedings.

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

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

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

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

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

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

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

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended September 30, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Revenues						$	478,046					100,313						101,141						—						(1)						$	679,499
Expenses
Fuel oil						126,909						21,104						32,669						—						—						180,682
Purchased power						136,688						31,159						17,912						—						—						185,759
Other operation and maintenance						75,191						19,964						21,313						—						—						116,468
Depreciation						38,912						10,050						8,424						—						—						57,386
Taxes, other than income taxes						45,239						9,333						9,440						—						—						64,012
Total expenses						422,939						91,610						89,758						—						—						604,307
Operating income						55,107						8,703						11,383						—						(1)						75,192
Allowance for equity funds used during construction						1,999						131						297						—						—						2,427
Equity in earnings of subsidiaries						12,028						—						—						—						(12,028)						—
Retirement defined benefits expense—other than service costs						741						166						(30)						—						—						877
Interest expense and other charges, net						(12,943)						(2,590)						(2,616)						—						1						(18,148)
Allowance for borrowed funds used during construction						676						44						107						—						—						827
Income before income taxes						57,608						6,454						9,141						—						(12,028)						61,175
Income taxes						6,996						1,433						1,906						—						—						10,335
Net income						50,612						5,021						7,235						—						(12,028)						50,840
Preferred stock dividends of subsidiaries						—						133						95						—						—						228
Net income attributable to Hawaiian Electric						50,612						4,888						7,140						—						(12,028)						50,612
Preferred stock dividends of Hawaiian Electric						270						—						—						—						—						270
Net income for common stock						$	50,342					4,888						7,140						—						(12,028)						$	50,342

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended September 30, 2021

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

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended September 30, 2020

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Revenues						$	398,877					82,172						81,629						—						(110)						$	562,568
Expenses
Fuel oil						70,557						17,047						17,438						—						—						105,042
Purchased power						116,249						17,665						15,111						—						—						149,025
Other operation and maintenance						71,179						17,565						22,499						—						—						111,243
Depreciation						37,853						9,760						8,076						—						—						55,689
Taxes, other than income taxes						38,005						7,512						7,534						—						—						53,051
Total expenses						333,843						69,549						70,658						—						—						474,050
Operating income						65,034						12,623						10,971						—						(110)						88,518
Allowance for equity funds used during construction						1,902						208						237						—						—						2,347
Equity in earnings of subsidiaries						14,912						—						—						—						(14,912)						—
Retirement defined benefits expense—other than service costs						(591)						194						(35)						—						—						(432)
Interest expense and other charges, net						(11,970)						(2,519)						(2,457)						—						110						(16,836)
Allowance for borrowed funds used during construction						659						65						77						—						—						801
Income before income taxes						69,946						10,571						8,793						—						(14,912)						74,398
Income taxes						9,611						2,378						1,846																		13,835
Net income						60,335						8,193						6,947						—						(14,912)						60,563
Preferred stock dividends of subsidiaries						—						133						95						—												228
Net income attributable to Hawaiian Electric						60,335						8,060						6,852						—						(14,912)						60,335
Preferred stock dividends of Hawaiian Electric						270						—						—						—						—						270
Net income for common stock						$	60,065					8,060						6,852						—						(14,912)						$	60,065

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended September 30, 2020

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

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Nine months ended September 30, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Revenues						$	1,301,297					276,974						267,992						—						(21)						$	1,846,242
Expenses
Fuel oil						306,982						57,175						83,088						—						—						447,245
Purchased power						370,240						76,992						43,288						—						—						490,520
Other operation and maintenance						230,429						57,350						61,401						—						—						349,180
Depreciation						116,733						30,151						25,238						—						—						172,122
Taxes, other than income taxes						124,167						25,865						25,153						—						—						175,185
Total expenses						1,148,551						247,533						238,168						—						—						1,634,252
Operating income						152,746						29,441						29,824						—						(21)						211,990
Allowance for equity funds used during construction						5,677						403						915						—						—						6,995
Equity in earnings of subsidiaries						35,282						—						—						—						(35,282)						—
Retirement defined benefits expense—other than service costs						2,511						503						(96)						—						—						2,918
Interest expense and other charges, net						(38,604)						(7,744)						(7,799)						—						21						(54,126)
Allowance for borrowed funds used during construction						1,921						136						329						—						—						2,386
Income before income taxes						159,533						22,739						23,173						—						(35,282)						170,163
Income taxes						23,122						5,152						4,792						—						—						33,066
Net income						136,411						17,587						18,381						—						(35,282)						137,097
Preferred stock dividends of subsidiaries						—						400						286						—						—						686
Net income attributable to Hawaiian Electric						136,411						17,187						18,095						—						(35,282)						136,411
Preferred stock dividends of Hawaiian Electric						810						—						—						—						—						810
Net income for common stock						$	135,601					17,187						18,095						—						(35,282)						$	135,601

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Nine months ended September 30, 2021

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

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Nine months ended September 30, 2020

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Revenues						$	1,200,677					249,970						244,043						—						(465)						$	1,694,225
Expenses
Fuel oil						268,382						55,733						66,599						—						—						390,714
Purchased power						333,146						53,032						39,501						—						—						425,679
Other operation and maintenance						231,090						54,250						63,491						—						—						348,831
Depreciation						113,724						29,281						24,230						—						—						167,235
Taxes, other than income taxes						115,179						23,324						22,986						—						—						161,489
Total expenses						1,061,521						215,620						216,807						—						—						1,493,948
Operating income						139,156						34,350						27,236						—						(465)						200,277
Allowance for equity funds used during construction						5,452						520						584						—						—						6,556
Equity in earnings of subsidiaries						37,492						—						—						—						(37,492)						—
Retirement defined benefits expense—other than service costs						(1,683)						581						(93)						—						—						(1,195)
Interest expense and other charges, net						(36,471)						(7,536)						(7,226)						—						465						(50,768)
Allowance for borrowed funds used during construction						1,887						163						191						—						—						2,241
Income before income taxes						145,833						28,078						20,692						—						(37,492)						157,111
Income taxes						18,724						6,372						4,220						—						—						29,316
Net income						127,109						21,706						16,472						—						(37,492)						127,795
Preferred stock dividends of subsidiaries						—						400						286						—						—						686
Net income attributable to Hawaiian Electric						127,109						21,306						16,186						—						(37,492)						127,109
Preferred stock dividends of Hawaiian Electric						810						—						—						—						—						810
Net income for common stock						$	126,299					21,306						16,186						—						(37,492)						$	126,299

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Nine months ended September 30, 2020

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

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

September 30, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsi- diaries						Consoli- dating adjustments						Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land						$	42,410					5,606						3,594						—						—						$	51,610
Plant and equipment						5,063,487						1,375,782						1,230,451						—						—						7,669,720
Less accumulated depreciation						(1,766,707)						(619,003)						(562,005)						—						—						(2,947,715)
Construction in progress						172,417						17,966						31,135						—						—						221,518
Utility property, plant and equipment, net						3,511,607						780,351						703,175						—						—						4,995,133
Nonutility property, plant and equipment, less accumulated depreciation						5,303						115						1,532						—						—						6,950
Total property, plant and equipment, net						3,516,910						780,466						704,707						—						—						5,002,083
Investment in wholly owned subsidiaries, at equity						639,900						—						—						—						(639,900)						—
Current assets
Cash and cash equivalents						25,981						3,788						6,621						77						—						36,467
Restricted cash						6,313						—						—						—						—						6,313
Advances to affiliates						700						—						—						—						(700)						—
Customer accounts receivable, net						118,776						29,371						26,090						—						—						174,237
Accrued unbilled revenues, net						93,949						17,660						17,470						—						—						129,079
Other accounts receivable, net						20,732						3,843						3,616						—						(22,075)						6,116
Fuel oil stock, at average cost						71,072						13,079						16,650						—						—						100,801
Materials and supplies, at average cost						43,094						10,107						19,796						—						—						72,997
Prepayments and other						41,706						5,232						7,023						—						—						53,961
Regulatory assets						47,004						2,966						6,254						—						—						56,224
Total current assets						469,327						86,046						103,520						77						(22,775)						636,195
Other long-term assets
Operating lease right-of-use assets						96,026						23,271						327						—						—						119,624
Regulatory assets						489,746						108,093						103,141						—						—						700,980
Other						112,298						19,008						18,448						—						(5,728)						144,026
Total other long-term assets						698,070						150,372						121,916						—						(5,728)						964,630
Total assets						$	5,324,207					1,016,884						930,143						77						(668,403)						$	6,602,908
Capitalization and liabilities
Capitalization
Common stock equity						$	2,193,919					323,691						316,132						77						(639,900)						$	2,193,919
Cumulative preferred stock—not subject to mandatory redemption						22,293						7,000						5,000						—						—						34,293
Long-term debt, net						1,176,477						246,360						253,386						—						—						1,676,223
Total capitalization						3,392,689						577,051						574,518						77						(639,900)						3,904,435
Current liabilities
Current portion of operating lease liabilities						61,505						3,354						35						—						—						64,894
Short-term borrowings from affiliate						—						700						—						—						(700)						—
Accounts payable						101,685						24,640						20,550						—						—						146,875
Interest and preferred dividends payable						20,390						3,750						4,471						—						(1)						28,610
Taxes accrued, including revenue taxes						136,016						31,338						29,014						—						—						196,368
Regulatory liabilities						21,257						4,164						6,840						—						—						32,261
Other						71,738						14,488						20,503						—						(22,223)						84,506
Total current liabilities						412,591						82,434						81,413						—						(22,924)						553,514
Deferred credits and other liabilities
Operating lease liabilities						47,585						19,917						300						—						—						67,802
Deferred income taxes						284,245						51,822						60,486						—						—						396,553
Regulatory liabilities						672,712						177,877						92,662						—						—						943,251
Unamortized tax credits						78,215						14,577						13,586						—						—						106,378
Defined benefit pension and other postretirement benefit plans liability						364,749						74,183						76,619						—						(5,579)						509,972
Other						71,421						19,023						30,559						—						—						121,003
Total deferred credits and other liabilities						1,518,927						357,399						274,212						—						(5,579)						2,144,959
Total capitalization and liabilities						$	5,324,207					1,016,884						930,143						77						(668,403)						$	6,602,908

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

December 31, 2020

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsi-diaries						Consoli- dating adjustments						Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land						$	42,411					5,606						3,594						—						—						$	51,611
Plant and equipment						4,960,470						1,352,885						1,195,988						—						—						7,509,343
Less accumulated depreciation						(1,677,256)						(597,606)						(544,217)						—						—						(2,819,079)
Construction in progress						143,616						13,043						31,683						—						—						188,342
Utility property, plant and equipment, net						3,469,241						773,928						687,048						—						—						4,930,217
Nonutility property, plant and equipment, less accumulated depreciation						5,306						115						1,532						—						—						6,953
Total property, plant and equipment, net						3,474,547						774,043						688,580						—						—						4,937,170
Investment in wholly owned subsidiaries, at equity						626,890						—						—						—						(626,890)						—
Current assets
Cash and cash equivalents						42,205						3,046						2,032						77						—						47,360
Restricted cash						15,966						—						—						—						—						15,966
Advances to affiliates						26,700						—						—						—						(26,700)						—
Customer accounts receivable, net						102,736						23,989						21,107						—						—						147,832
Accrued unbilled revenues, net						73,628						13,631						13,777						—						—						101,036
Other accounts receivable, net						17,984						3,028						2,856						—						(16,195)						7,673
Fuel oil stock, at average cost						38,777						8,471						10,990						—						—						58,238
Materials and supplies, at average cost						38,786						9,896						18,662						—						—						67,344
Prepayments and other						34,306						5,197						4,580						—						—						44,083
Regulatory assets						22,095						1,954						6,386						—						—						30,435
Total current assets						413,183						69,212						80,390						77						(42,895)						519,967
Other long-term assets
Operating lease right-of-use assets						125,858						1,443						353						—						—						127,654
Regulatory assets						513,192						114,461						108,620						—						—						736,273
Other						98,307						17,992						20,010						—						—						136,309
Total other long-term assets						737,357						133,896						128,983						—						—						1,000,236
Total assets						$	5,251,977					977,151						897,953						77						(669,785)						$	6,457,373
Capitalization and liabilities
Capitalization
Common stock equity						$	2,141,918					317,451						309,363						77						(626,891)						$	2,141,918
Cumulative preferred stock—not subject to mandatory redemption						22,293						7,000						5,000						—						—						34,293
Long-term debt, net						1,116,426						216,447						228,429						—						—						1,561,302
Total capitalization						3,280,637						540,898						542,792						77						(626,891)						3,737,513
Current liabilities
Current portion of operating lease liabilities						64,599						98						33						—						—						64,730
Short-term borrowings-non-affiliate						49,979						—						—						—						—						49,979
Short-term borrowings-affiliate						—						18,800						7,900						—						(26,700)						—
Accounts payable						97,102						19,570						17,177						—						—						133,849
Interest and preferred dividends payable						14,480						3,138						2,790						—						(58)						20,350
Taxes accrued, including revenue taxes						135,018						29,869						27,637						—						—						192,524
Regulatory liabilities						20,224						8,785						8,292						—						—						37,301
Other						57,926						13,851						18,621						—						(16,136)						74,262
Total current liabilities						439,328						94,111						82,450						—						(42,894)						572,995
Deferred credits and other liabilities
Operating lease liabilities						67,824						1,344						326						—						—						69,494
Deferred income taxes						282,685						54,108						61,005						—						—						397,798
Regulatory liabilities						656,270						173,938						92,277						—						—						922,485
Unamortized tax credits						82,563						15,363						13,989						—						—						111,915
Defined benefit pension and other postretirement benefit plans liability						373,112						77,679						79,741						—						—						530,532
Other						69,558						19,710						25,373						—						—						114,641
Total deferred credits and other liabilities						1,532,012						342,142						272,711						—						—						2,146,865
Total capitalization and liabilities						$	5,251,977					977,151						897,953						77						(669,785)						$	6,457,373

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Nine months ended September 30, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Balance, December 31, 2020						$	2,141,918					317,451						309,363						77						(626,891)						$	2,141,918
Net income for common stock						135,601						17,187						18,095						—						(35,282)						135,601
Other comprehensive income, net of taxes						175						3						—						—						(3)						175
Common stock dividends						(83,775)						(10,950)						(11,326)						—						22,276						(83,775)
Balance, September 30, 2021						$	2,193,919					323,691						316,132						77						(639,900)						$	2,193,919

 

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Nine months ended September 30, 2020

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

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Net cash provided by operating activities						$	157,191					32,698						30,643						—						(22,276)						$	198,256
Cash flows from investing activities
Capital expenditures						(137,916)						(33,511)						(32,319)						—						—						(203,746)
Advances from affiliates						26,000						—						—						—						(26,000)						—
Other						4,136						1,121						900						—						—						6,157
Net cash used in investing activities						(107,780)						(32,390)						(31,419)						—						(26,000)						(197,589)
Cash flows from financing activities
Common stock dividends						(83,775)						(10,950)						(11,326)						—						22,276						(83,775)
Preferred stock dividends of Hawaiian Electric and subsidiaries						(810)						(400)						(286)						—						—						(1,496)
Repayment of short-term debt						(50,000)						—						—						—						—						(50,000)
Proceeds from issuance of long-term debt						60,000						30,000						25,000						—						—						115,000
Net decrease in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less						—						(18,100)						(7,900)						—						26,000						—
Other						(703)						(116)						(123)						—						—						(942)
Net cash provided by (used in) financing activities						(75,288)						434						5,365						—						48,276						(21,213)
Net increase (decrease) in cash and cash equivalents						(25,877)						742						4,589						—						—						(20,546)
Cash, cash equivalents and restricted cash, beginning of period						58,171						3,046						2,032						77						—						63,326
Cash, cash equivalents and restricted cash, end of period						32,294						3,788						6,621						77						—						42,780
Less: Restricted cash						(6,313)						—						—						—						—						(6,313)
Cash and cash equivalents, end of period						$	25,981					3,788						6,621						77						—						$	36,467

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Nine months ended September 30, 2020

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Net cash provided by operating activities						$	205,645					27,256						34,678						—						(22,624)						$	244,955
Cash flows from investing activities
Capital expenditures						(180,088)						(48,750)						(38,644)						—						—						(267,482)
Advances from (to) affiliates						(800)						8,000						—						—						(7,200)						—
Other						5,636						1,056						1,031						(24)						(404)						7,295
Net cash used in investing activities						(175,252)						(39,694)						(37,613)						(24)						(7,604)						(260,187)
Cash flows from financing activities
Common stock dividends						(80,352)						(12,240)						(10,788)						—						23,028						(80,352)
Preferred stock dividends of Hawaiian Electric and subsidiaries						(810)						(400)						(286)						—						—						(1,496)
Proceeds from issuance of short-term debt						100,000						—						—						—						—						100,000
Repayment of short-term debt						(100,000)						—						—						—						—						(100,000)
Proceeds from issuance of long-term debt						205,000						10,000						40,000						—						—						255,000
Repayment of long-term debt						(95,000)						(14,000)						—						—						—						(109,000)
Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less						(46,987)						26,500						(25,700)						—						7,200						(38,987)
Other						(1,249)						(67)						(253)						—						—						(1,569)
Net cash provided by (used in) financing activities						(19,398)						9,793						2,973						—						30,228						23,596
Net increase (decrease) in cash and cash equivalents						10,995						(2,645)						38						(24)						—						8,364
Cash, cash equivalents and restricted cash, beginning of period						32,988						7,008						1,797						101						—						41,894
Cash, cash equivalents and restricted cash, end of period						43,983						4,363						1,835						77						—						50,258
Less: Restricted cash						(20,458)						—						—						—						—						(20,458)
Cash and cash equivalents, end of period						$	23,525					4,363						1,835						77						—						$	29,800

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Selected financial information

American Savings Bank, F.S.B.

Statements of Income and Comprehensive Income Data

						Three months ended September 30												Nine months ended September 30
(in thousands)						2021						2020						2021						2020
Interest and dividend income
Interest and fees on loans						$	49,445					$	52,419					$	150,418					$	161,505
Interest and dividends on investment securities						11,996						7,221						31,709						22,939
Total interest and dividend income						61,441						59,640						182,127						184,444
Interest expense
Interest on deposit liabilities						1,176						2,287						3,919						8,945
Interest on other borrowings						5						61						55						449
Total interest expense						1,181						2,348						3,974						9,394
Net interest income						60,260						57,292						178,153						175,050
Provision for credit losses						(1,725)						13,970						(22,367)						39,504
Net interest income after provision for credit losses						61,985						43,322						200,520						135,546
Noninterest income
Fees from other financial services						4,800						4,233						15,337						11,906
Fee income on deposit liabilities						4,262						3,832						12,029						11,842
Fee income on other financial products						2,124						1,524						6,767						4,608
Bank-owned life insurance						2,026						1,965						6,211						4,432
Mortgage banking income						1,272						7,681						7,497						15,933
Gain on sale of investment securities, net						—						—						528						9,275
Other income, net						283						(231)						631						(69)
Total noninterest income						14,767						19,004						49,000						57,927
Noninterest expense
Compensation and employee benefits						30,888						26,431						86,595						77,287
Occupancy						5,157						5,693						15,226						16,402
Data processing						4,278						3,366						13,162						11,052
Services						2,272						2,624						7,609						7,907
Equipment						2,373						2,001						6,989						6,630
Office supplies, printing and postage						1,072						1,187						3,094						3,577
Marketing						995						727						2,308						1,908
FDIC insurance						808						714						2,412						1,567
Other expense1						3,668						4,556						9,790						15,813
Total noninterest expense						51,511						47,299						147,185						142,143
Income before income taxes						25,241						15,027						102,335						51,330
Income taxes						5,976						2,877						23,230						9,405
Net income						19,265						12,150						79,105						41,925
Other comprehensive income (loss), net of taxes						(11,684)						1,393						(40,439)						20,960
Comprehensive income						$	7,581					$	13,543					$	38,666					$	62,885

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

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American Savings Bank, F.S.B.

Balance Sheets Data

(in thousands)						September 30, 2021												December 31, 2020
Assets
Cash and due from banks												$	109,942											$	178,422
Interest-bearing deposits												80,007												114,304
Cash and cash equivalents												189,949												292,726
Investment securities
Available-for-sale, at fair value												2,580,830												1,970,417
Held-to-maturity, at amortized cost (fair value of $484,654 and $229,963, respectively)												491,871												226,947
Stock in Federal Home Loan Bank, at cost												10,000												8,680
Loans held for investment												5,122,124												5,333,843
Allowance for credit losses												(75,944)												(101,201)
Net loans												5,046,180												5,232,642
Loans held for sale, at lower of cost or fair value												53,998												28,275
Other												555,401												554,656
Goodwill												82,190												82,190
Total assets												$	9,010,419											$	8,396,533
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing												$	2,931,394											$	2,598,500
Deposit liabilities—interest-bearing												5,045,144												4,788,457
Other borrowings												129,305												89,670
Other												168,064												183,731
Total liabilities												8,273,907												7,660,358
Common stock												1												1
Additional paid-in capital												353,429												351,758
Retained earnings												408,575												369,470
Accumulated other comprehensive income (loss), net of taxes
Net unrealized gains (losses) on securities						$	(20,322)											$	19,986
Retirement benefit plans						(5,171)						(25,493)						(5,040)						14,946
Total shareholder’s equity												736,512												736,175
Total liabilities and shareholder’s equity												$	9,010,419											$	8,396,533
Other assets
Bank-owned life insurance												$	166,486											$	163,265
Premises and equipment, net												205,624												206,134
Accrued interest receivable												22,036												24,616
Mortgage-servicing rights												10,272												10,020
Low-income housing investments												84,728												83,435
Other												66,255												67,186
												$	555,401											$	554,656
Other liabilities
Accrued expenses												$	59,270											$	62,694
Federal and state income taxes payable												—												6,582
Cashier’s checks												37,451												38,011
Advance payments by borrowers												5,129												10,207
Other												66,214												66,237
												$	168,064											$	183,731

    

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Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.

Other borrowings consisted of securities sold under agreements to repurchase of $129.3 million and $89.7 million at September 30, 2021 and December 31, 2020, respectively.

Investment securities.  The major components of investment securities were as follows:

						Amortized cost						Gross unrealized gains						Gross unrealized losses						Estimated fair value						Gross unrealized losses
																														Less than 12 months																		12 months or longer
(dollars in thousands)																														Number of issues						Fair  value						Amount						Number of issues						Fair  value						Amount
September 30, 2021
Available-for-sale
U.S. Treasury and federal agency obligations						$	90,831					$	1,334					$	(90)					$	92,075					1						$	19,851					$	(90)					—						$	—					$	—
Mortgage-backed securities*						2,471,650						11,193						(41,160)						2,441,683						105						1,772,753						(36,561)						9						123,882						(4,599)
Corporate bonds						30,684						961						—						31,645						—						—						—						—						—						—
Mortgage revenue bonds						15,427						—						—						15,427						—						—						—						—						—						—
						$	2,608,592					$	13,488					$	(41,250)					$	2,580,830					106						$	1,792,604					$	(36,651)					9						$	123,882					$	(4,599)
Held-to-maturity
U.S. Treasury and Federal agency obligations						$	40,064					$	100					$	(13)					$	40,151					1						$	19,941					$	(13)					—						$	—					$	—
Mortgage-backed securities*						451,807						2,387						(9,691)						444,503						23						325,907						(8,278)						2						23,860						(1,413)
						$	491,871					$	2,487					$	(9,704)					$	484,654					24						$	345,848					$	(8,291)					2						$	23,860					$	(1,413)
December 31, 2020
Available-for-sale
U.S. Treasury and federal agency obligations						$	60,260					$	2,062					$	—					$	62,322					—						$	—					$	—					—						$	—					$	—
Mortgage-backed securities*						1,825,893						26,817						(3,151)						1,849,559						22						373,924						(3,151)						—						—						—
Corporate bonds						29,776						1,575						—						31,351						—						—						—						—						—						—
Mortgage revenue bonds						27,185						—						—						27,185						—						—						—						—						—						—
						$	1,943,114					$	30,454					$	(3,151)					$	1,970,417					22						$	373,924					$	(3,151)					—						$	—					$	—
Held-to-maturity
Mortgage-backed securities*						$	226,947					$	3,846					$	(830)					$	229,963					7						$	114,152					$	(830)					—						$	—					$	—
						$	226,947					$	3,846					$	(830)					$	229,963					7						$	114,152					$	(830)					—						$	—					$	—

* Issued or guaranteed by U.S. Government agencies or sponsored agencies

ASB does not believe that the investment securities that were in an unrealized loss position at September 30, 2021 and December 31, 2020, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at September 30, 2021 and December 31, 2020.

U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.

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The contractual maturities of investment securities were as follows:

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

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

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

The components of loans were summarized as follows:

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

ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential

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

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

(in thousands)						Residential 1-4 family						Commercial real estate						Home equity line of credit						Residential land						Commercial construction						Residential construction						Commercial loans						Consumer loans						Total
Three months ended September 30, 2021
Allowance for credit losses:
Beginning balance						$	5,518					$	28,708					$	5,335					$	618					$	1,629					$	16					$	20,058					$	16,370					$	78,252
Charge-offs						(47)						—						(5)						—						—						—						(266)						(1,597)						(1,915)
Recoveries						5						—						7						35						—						—						417						1,118						1,582
Provision						522						(2,750)						441						(19)						104						(3)						(758)						488						(1,975)
Ending balance						$	5,998					$	25,958					$	5,778					$	634					$	1,733					$	13					$	19,451					$	16,379					$	75,944
Three months ended September 30, 2020
Allowance for credit losses:
Beginning balance						$	3,911					$	21,100					$	6,214					$	356					$	4,757					$	14					$	13,868					$	31,087					$	81,307
Charge-offs						—						—						—						—						—						—						(1,727)						(3,881)						(5,608)
Recoveries						12						—						50						12						—						—						211						1,005						1,290
Provision						(286)						11,049						(390)						178						1,282						(3)						5,840						(3,200)						14,470
Ending balance						$	3,637					$	32,149					$	5,874					$	546					$	6,039					$	11					$	18,192					$	25,011					$	91,459
Nine months ended September 30, 2021
Allowance for credit losses:
Beginning balance						$	4,600					$	35,607					$	6,813					$	609					$	4,149					$	11					$	25,462					$	23,950					$	101,201
Charge-offs						(67)						—						(45)						—						—						—						(1,356)						(6,388)						(7,856)
Recoveries						59						—						83						56						—						—						1,056						3,312						4,566
Provision						1,406						(9,649)						(1,073)						(31)						(2,416)						2						(5,711)						(4,495)						(21,967)
Ending balance						$	5,998					$	25,958					$	5,778					$	634					$	1,733					$	13					$	19,451					$	16,379					$	75,944
Nine months ended September 30, 2020
Allowance for credit losses:
Beginning balance, prior to adoption of ASU No. 2016-13						$	2,380					$	15,053					$	6,922					$	449					$	2,097					$	3					$	10,245					$	16,206					$	53,355
Impact of adopting ASU No. 2016-13						2,150						208						(541)						(64)						289						14						922						16,463						19,441
Charge-offs						(7)						—						—						(351)						—						—						(2,795)						(16,466)						(19,619)
Recoveries						67						—						56						26						—						—						503						2,426						3,078
Provision						(953)						16,888						(563)						486						3,653						(6)						9,317						6,382						35,204
Ending balance						$	3,637					$	32,149					$	5,874					$	546					$	6,039					$	11					$	18,192					$	25,011					$	91,459

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

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

Credit quality.  ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.

Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications:  Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.

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

The credit risk profile based on payment activity for loans was as follows:

(in thousands)						30-59 days past due						60-89 days past due						Greater than 90 days						Total past due						Current						Total financing receivables						Amortized cost> 90 days and accruing
September 30, 2021
Real estate:
Residential 1-4 family						$	2,224					$	1,584					$	8,552					$	12,360					$	2,159,713					$	2,172,073					$	—
Commercial real estate						—						—						—						—						1,090,816						1,090,816						—
Home equity line of credit						255						208						1,455						1,918						849,498						851,416						—
Residential land						97						—						300						397						19,002						19,399						—
Commercial construction						—						—						—						—						109,716						109,716						—
Residential construction						—						—						—						—						9,170						9,170						—
Commercial						937						68						110						1,115						757,223						758,338						—
Consumer						1,427						780						1,050						3,257						119,399						122,656						—
Total loans						$	4,940					$	2,640					$	11,467					$	19,047					$	5,114,537					$	5,133,584					$	—
December 31, 2020
Real estate:
Residential 1-4 family						$	2,629					$	2,790					$	2,715					$	8,134					$	2,136,105					$	2,144,239					$	—
Commercial real estate						—						488						—						488						983,377						983,865						—
Home equity line of credit						850						342						2,052						3,244						960,334						963,578						—
Residential land						702						—						300						1,002						14,615						15,617						—
Commercial construction						—						—						—						—						121,424						121,424						—
Residential construction						—						—						—						—						11,022						11,022						—
Commercial						608						300						132						1,040						935,708						936,748						—
Consumer						2,605						1,491						1,631						5,727						163,006						168,733						—
Total loans						$	7,394					$	5,411					$	6,830					$	19,635					$	5,325,591					$	5,345,226					$	—

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

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

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

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

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

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

The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value of collateral less cost to sell. The financial impact of the estimated loss is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for credit losses.

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

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

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

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

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

If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at September 30, 2021 and December 31, 2020.

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

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

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

Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral.

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Loans considered collateral-dependent were as follows:

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

ASB had $3.4 million and $3.8 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2021 and December 31, 2020, respectively.

Mortgage servicing rights (MSRs). In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold.

ASB received proceeds from the sale of residential mortgages of $38.3 million and $128.0 million for the three months ended September 30, 2021 and 2020, respectively, $304.8 million and $387.2 million for the nine months ended September 30, 2021 and 2020, respectively, and recognized gains on such sales of $1.3 million and $7.7 million for the three months ended September 30, 2021 and 2020, respectively, $7.5 million and $15.9 million for the nine months ended September 30, 2021 and 2020, respectively.

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

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

Changes in the carrying value of MSRs were as follows:

(in thousands)						Gross carrying amount1						Accumulated amortization						Valuation allowance						Net carrying amount
September 30, 2021						$	22,182					$	(11,910)					$	—					$	10,272
December 31, 2020						22,950						(12,670)						(260)						10,020

1     Reflects impact of loans paid in full

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Changes related to MSRs were as follows:

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

ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs.

ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the condensed consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.

Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:

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

The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:

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

The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.

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

Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents

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securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:

(in millions)						Gross amount  of recognized  liabilities						Gross amount  offset in the  Balance Sheets						Net amount of liabilities presented in the Balance Sheets
Repurchase agreements
September 30, 2021						$	129					$	—					$	129
December 31, 2020						90						—						90

						Gross amount not offset in the Balance Sheets
(in millions)						Net amount of liabilities presented in the Balance Sheets						Financial instruments						Cash collateral pledged
Commercial account holders
September 30, 2021						$	129					$	146					$	—
December 31, 2020						90						92						—

The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.

Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.

ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.

ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.

Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.

The notional amount and fair value of ASB’s derivative financial instruments were as follows:

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

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

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

1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.

The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:

Derivative Financial Instruments Not Designated as Hedging Instruments						Location of net gains (losses) recognized in the Statements of Income						Three months ended September 30,												Nine months ended September 30
(in thousands)												2021						2020						2021						2020
Interest rate lock commitments						Mortgage banking income						$	(63)					$	2,930					$	(4,228)					$	4,974
Forward commitments						Mortgage banking income						150						44						609						(201)
												$	87					$	2,974					$	(3,619)					$	4,773

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

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

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

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

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

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

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

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

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

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

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HEI Series 2021A

HEI Series 2021B

HEI Series 2021C

HEI Series 2022A

HEI Series 2022B

Aggregate principal amount

$30 million

$25 million

$20 million

$30 million

$20 million

Fixed coupon interest rate

2.48%

2.78%

3.74%

2.98%

3.94%

Maturity date

12/29/2028

12/29/2031

12/29/2051

11/15/2032

11/15/2052

Final draw date

12/29/2021

12/29/2021

12/29/2021

11/15/2022

11/15/2022

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

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

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

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

Reclassifications out of AOCI were as follows:

						Amount reclassified from AOCI																								Affected line item in the  Statements of Income / Balance Sheets
						Three months ended September 30												Nine months ended September 30
						2021						2020						2021						2020
(in thousands)
HEI consolidated
Net realized gains on securities included in net income						$	—					$	—					$	(387)					$	(1,638)					Gain on sale of investment securities, net
Net realized losses on derivatives qualifying as cash flow hedges						9						—						9						—						Interest expense
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost						2,853						6,324						14,871						17,720						See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets						(2,799)						(5,721)						(14,421)						(16,038)						See Note 8 for additional details
Total reclassifications						$	63					$	603					$	72					$	44
Hawaiian Electric consolidated
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost						$	2,905					$	5,769					$	14,596					$	16,137					See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets						(2,799)						(5,721)						(14,421)						(16,038)						See Note 8 for additional details
Total reclassifications						$	106					$	48					$	175					$	99

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

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

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

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

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

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

						Three months ended September 30																								Nine months ended September 30
						Pension benefits												Other benefits												Pension benefits												Other benefits
						2021						2020						2021						2020						2021						2020						2021						2020
(in thousands)
HEI consolidated
Service cost						$	20,102					$	18,341					$	711					$	641					$	61,031					$	55,066					$	2,121					$	1,903
Interest cost						18,896						20,660						1,459						1,842						56,497						60,987						4,597						5,553
Expected return on plan assets						(33,022)						(28,422)						(3,252)						(3,023)						(99,157)						(85,353)						(9,717)						(9,100)
Amortization of net prior period (gain)/cost						—						2						(383)						(474)						—						7						(1,150)						(1,355)
Amortization of net actuarial (gain)/losses1						10,112						8,944						(140)						53						20,099						25,059						158						154
Net periodic pension/benefit cost (return)						16,088						19,525						(1,605)						(961)						38,470						55,766						(3,991)						(2,845)
Impact of PUC D&Os						4,292						4,976						1,483						835						20,972						17,499						3,629						2,389
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)						$	20,380					$	24,501					$	(122)					$	(126)					$	59,442					$	73,265					$	(362)					$	(456)
Hawaiian Electric consolidated
Service cost						$	19,610					$	17,921					$	704					$	635					$	59,597					$	53,703					$	2,101					$	1,886
Interest cost						17,614						19,183						1,398						1,764						52,676						56,613						4,406						5,327
Expected return on plan assets						(31,318)						(26,815)						(3,202)						(2,986)						(94,053)						(80,527)						(9,566)						(8,966)
Amortization of net prior period (gain)/cost						—						1						(383)						(474)						—						6						(1,148)						(1,353)
Amortization of net actuarial (gain)/losses1						9,880						8,188						(138)						53						20,651						22,925						155						155
Net periodic pension/benefit cost (return)						15,786						18,478						(1,621)						(1,008)						38,871						52,720						(4,052)						(2,951)
Impact of PUC D&Os						4,292						4,976						1,483						835						20,972						17,499						3,629						2,389
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)						$	20,078					$	23,454					$	(138)					$	(173)					$	59,843					$	70,219					$	(423)					$	(562)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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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.

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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

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

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

												Estimated fair value
(in thousands)						Carrying or notional amount						Quoted prices in active markets for identical assets  (Level 1)						Significant  other observable  inputs  (Level 2)						Significant unobservable inputs  (Level 3)						Total
September 30, 2021
Financial assets
HEI consolidated
Available-for-sale investment securities						$	2,580,830					$	—					$	2,565,403					$	15,427					$	2,580,830
Held-to-maturity investment securities						491,871						—						484,654						—						484,654
Loans, net						5,100,178						—						54,537						5,167,221						5,221,758
Mortgage servicing rights						10,272						—						—						13,712						13,712
Derivative assets						53,789						121						494						—						615
Financial liabilities
HEI consolidated
Deposit liabilities						444,897						—						445,401						—						445,401
Short-term borrowings—other than bank						92,246						—						92,246						—						92,246
Other bank borrowings						129,305						—						129,304						—						129,304
Long-term debt, net—other than bank						2,244,795						—						2,588,972						—						2,588,972
Derivative liabilities						27,250						12						3,456						—						3,468
Hawaiian Electric consolidated
Short-term borrowings						—						—						—						—						—
Long-term debt, net						1,676,223						—						1,987,933						—						1,987,933
December 31, 2020
Financial assets
HEI consolidated
Available-for-sale investment securities						$	1,970,417					$	—					$	1,943,232					$	27,185					$	1,970,417
Held-to-maturity investment securities						226,947						—						229,963						—						229,963
Loans, net						5,260,917						—						28,354						5,410,976						5,439,330
Mortgage servicing rights						10,020						—						—						10,705						10,705
Derivative assets						120,980						—						4,536						—						4,536
Financial liabilities
HEI consolidated
Deposit liabilities						548,830						—						552,800						—						552,800
Short-term borrowings—other than bank						129,379						—						129,379						—						129,379
Other bank borrowings						89,670						—						89,669						—						89,669
Long-term debt, net—other than bank						2,119,129						—						2,487,790						—						2,487,790
Derivative liabilities						137,500						500						4,530						—						5,030
Hawaiian Electric consolidated
Short-term borrowings						49,979						—						49,979						—						49,979
Long-term debt, net						1,561,302						—						1,890,490						—						1,890,490

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

						September 30, 2021																		December 31, 2020
						Fair value measurements using																		Fair value measurements using
(in thousands)						Level 1						Level 2						Level 3						Level 1						Level 2						Level 3
Available-for-sale investment securities (bank segment)
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies						$	—					$	2,441,683					$	—					$	—					$	1,849,559					$	—
U.S. Treasury and federal agency obligations						—						92,075						—						—						62,322						—
Corporate bonds						—						31,645						—						—						31,351						—
Mortgage revenue bonds						—						—						15,427						—						—						27,185
						$	—					$	2,565,403					$	15,427					$	—					$	1,943,232					$	27,185
Derivative assets
Interest rate lock commitments (bank segment)1						$	—					$	308					$	—					$	—					$	4,536					$	—
Forward commitments (bank segment)1						121						—						—						—						—						—
Interest rate swap (Other segment)2						—						186						—						—						—						—
						$	121					$	494					$	—					$	—					$	4,536					$	—
Derivative liabilities
Forward commitments (bank segment)1						$	12					$	—					$	—					$	500					$	—					$	—
Interest rate swap (Other segment)2						—						3,456						—						—						4,530						—
						$	12					$	3,456					$	—					$	500					$	4,530					$	—

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

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

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

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

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

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

												Fair value measurements using
(in thousands)						Balance						Level 1						Level 2						Level 3
September 30, 2021
Loans						$	125					$	—					$	—					$	125
December 31, 2020
Loans						387						—						—						387
Mortgage servicing rights						3,001						—						—						3,001

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

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

Significant unobservable  input value (1)

($ in thousands)

Fair value

Valuation technique

Significant unobservable input

Range

Weighted Average

September 30, 2021

Residential

$

125

Fair value of property or collateral

Appraised value less selling cost

N/A (2)

N/A (2)

December 31, 2020

Commercial loan

$

387

Fair value of collateral

Appraised value less selling cost

N/A (2)

N/A (2)

Mortgage servicing rights

3,001

Discounted cash flow

Prepayment speed

15% - 22%

22

%

Discount rate

9.3

%

(1) Represents percent of outstanding principal balance.

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

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

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