Published: 2022-05-09 00:00:00 ET

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Recent accounting pronouncements.

Credit Losses. In March 2022, Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the accounting guidance for Troubled Debt Restructurings (TDRs) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments in this update also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost.” Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 325-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASB is assessing the requirements of the ASU.

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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 March 31, 2022, 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 13.0 MW in the first quarter of 2021, ramped up to 23.9 MW in the second quarter of 2021, and continued to provide capacity at the same level to date) 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. However, 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 March 31
(in millions)																														2022						2021
Kalaeloa																														$	60					$	37
AES Hawaii																														27						30
HPOWER																														19						17
Hamakua Energy																														16						11
Puna Geothermal Venture																														10						4
Wind IPPs																														18						29
Solar IPPs																														13						12
Other IPPs 1																														1						2
Total IPPs																														$	164					$	142

1Includes hydro power and other PPAs

Kalaeloa Partners, L.P.  Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. In October 2021, Hawaiian Electric and Kalaeloa signed the Amended and Restated Power Purchase Agreement for Firm Dispatchable Capacity and Energy (Amended and Restated PPA) to extend the PPA for an additional term of 10 years. In November 2021, Hawaiian Electric submitted an application for approval of the Amended and Restated PPA to the PUC, which is pending approval before the PUC. The price of purchases from Kalaeloa in the first quarter of 2022 have increased 62% over the first quarter of 2021, primarily due to increased fuel oil cost.

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AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amended and Restated Amendment No. 4) for a period of 30 years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. Hawaiian Electric does not intend to extend 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 was held in March 2022. The matter is currently with the PUC for decision making.

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

Fuels barging contract. On August 23, 2021, the Utilities entered into a five-year inter-island fuel transportation contract with Sause Bros., Inc. On December 23, 2021, the PUC issued an interim D&O approving the inter-island fuels transportation contract and recovery of associated costs on an interim basis. The interim decision is effective until the PUC issues its final D&O in the proceeding. The Utility recorded a lease liability of $32 million in connection with the contract, which commenced in January 2022 with an estimated annual base rent of $6.2 million.

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 a minimum of $246 million ERP/EAM project-related benefit to be delivered to customers over the system’s 12-year service life.

In February 2019, the PUC approved a methodology for passing the future cost saving benefits of the new ERP/EAM system to customers developed by the Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification document on June 10, 2019, reflecting $150 million in future net O&M expense reductions and cost avoidance, and $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 March 31, 2022, the Utilities’ regulatory liability was $9.1 million ($5.1 million for Hawaiian Electric, $1.6 million for Hawaii

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Electric Light and $2.4 million for Maui Electric) for the O&M expense savings that are being amortized or to be included in future rates. As part of the settlement agreement approved in the Hawaiian Electric 2020 test year rate case, the regulatory liability for Hawaiian Electric will be amortized over five years, beginning in November 2020, and the O&M benefits for Hawaiian Electric was considered flowed through to customers.

On July 7, 2021, the PUC issued an order modifying the reporting frequency of the Semi-Annual Enterprise System Benefits (SAESB) reports to an Annual Enterprise System Benefits (AESB) report on the achieved benefits savings. The most recent SAESB report was filed on February 14, 2022 for the period January 1 through December 31, 2021.

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 and left the property in 1987. The federal Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the Department of Health of State of Hawaii (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 March 31, 2022, representing the probable and reasonably estimable undiscounted cost for remediation of the Site and the adjacent parcel based on presently available information; however, final costs of remediation will depend on the cleanup approach implemented.

Additionally, on November 24, 2021, the current landowners of the Site, Misaki’s, Inc., filed a lawsuit against Hawaiian Electric (as alleged successor in interest to Molokai Electric, the prior owner of the Site) in the Circuit Court of the Second Circuit of the State of Hawaii (removed to the U.S. District Court for the District of Hawaii). The complaint which was subsequently amended to include Maui Electric, alleges that Hawaiian Electric is responsible for remediation of the Site based on the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), and the Hawaii Environmental Response Law under Hawaii Revised Statutes Chapter 128D, as well as being liable on contractual claims related to a short leaseback period during the transition of ownership from Molokai Electric. At this time, the Utilities are unable to determine the ultimate outcome of the lawsuit or the amount of any possible loss. The Utilities intend to vigorously defend the action.

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

As of March 31, 2022, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $10.1 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore and offshore investigation and remediation. The final remediation costs will depend on the actual onshore and offshore cleanup costs.

Regulatory proceedings

Decoupling. Decoupling is a regulatory model that is intended to provide the Utilities with financial stability and facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. Decoupling delinks the utility’s revenues from the utility’s sales, removing the disincentive to promote energy efficiency and accept more renewable energy. Decoupling continues under the PBR Framework.

Performance-based regulation framework. On December 23, 2020, the PUC issued a D&O (PBR D&O) establishing a new PBR Framework to govern the Utilities. The PBR Framework incorporates an annual revenue adjustment (ARA) and a suite of new regulatory mechanisms in addition to previously established regulatory mechanisms. Under the PBR Framework, the decoupling mechanism (i.e., the Revenue Balancing Account (RBA)) established by the previous regulatory framework will

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continue. The existing cost recovery mechanisms will continue as currently implemented (i.e., the Energy Cost Recovery Clause (ECRC), Purchased Power Adjustment Clause (PPAC), Demand Side Management surcharge (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 ARA, the Utilities may seek relief for extraordinary projects or programs through the Exceptional Project Recovery Mechanism (EPRM) (formerly known as the Major Project Interim Recovery adjustment mechanism) and earn financial rewards for exemplary performance as provided through a portfolio of Performance Incentive Mechanisms (PIMs) and Shared Savings Mechanisms (SSMs). The PBR Framework incorporates a variety of additional performance mechanisms, including Scorecards, Reported Metrics, and an expedited Pilot Process. The PBR Framework also contains a number of safeguards, including a symmetric Earnings Sharing Mechanism (ESM) which protects the Utilities and customers from excessive earnings or losses, as measured by the Utilities’ achieved rate-making ROACE and a Re-Opener mechanism, under which the PUC will open an examination, at its discretion, to determine if adjustments or modifications to specific PBR mechanisms are appropriate. The new PBR Framework became fully effective on June 1, 2021.

On September 17, 2021, the PUC issued an order introducing the PUC staff’s proposal for the development of new PIMs to address the following areas of 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 also established a procedural schedule, including technical conferences, statements of position, and a PUC hearing, to govern the PBR Working Group’s review and development of the new PIMs. On March 10, 2022, the PUC issued an order modifying the procedural schedule. In accordance with the modified procedural schedule, the PBR Parties filed final statements of position on April 8, 2022. The PUC hearing was held on April 26 to 27, 2022.

Revenue adjustment mechanism. Prior to the implementation of the PBR Framework, the RAM was a major component of the previously established regulatory framework. The RAM was based on the lesser of: a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). 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. RAM revenue adjustments approved by the PUC in 2020 will continue to be included in the RBA provision’s target revenue and RBA rate adjustment unless modified with PUC approval.

Annual revenue adjustment mechanism. The PBR Framework established a five-year 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% of adjusted revenue requirements compounded annually and a flow through of the “pre-PBR” savings commitment from the management audit recommendations developed in a prior docket at a rate of $6.6 million per year from 2021 to 2025. The implementation of the ARA occurred on June 1, 2021.

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

Exceptional project recovery mechanism. Prior to the implementation of the PBR Framework, the PUC established the Major Project Interim Recovery (MPIR) adjustment mechanism and MPIR Guidelines. The MPIR mechanism provides the opportunity to recover revenues for net costs of approved eligible projects placed in service between general rate cases. In establishing the PBR Framework, the MPIR Guidelines were terminated and replaced with the EPRM Guidelines. Although the MPIR Guidelines were terminated and replaced by the EPRM Guidelines, the MPIR mechanism will continue within the PBR Framework to provide recovery of project costs previously approved for recovery under the MPIR. The newly established EPRM Guidelines permit the Utilities to include the full amount of approved costs in the EPRM for recovery in the first year the project goes into service, pro-rated for the portion of the year the project is in service. Deferred and O&M expense projects

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are also eligible for EPRM recovery under the EPRM Guidelines. EPRM recoverable costs will be limited to the lesser of actual incurred project costs or PUC‑approved amounts, net of savings.

As of March 31, 2022, the Utilities submitted 2022 MPIR amounts totaling $25.9 million, including revenue taxes, for the Schofield Generating Station ($16.5 million), West Loch PV Project ($3.3 million), and Grid Modernization Strategy (GMS) Phase 1 project ($6.1 million for all three utilities) for the accrual of revenues effective January 1, 2022, that included the 2022 return on project amount (based on approved amounts) in rate base, depreciation and incremental O&M expenses. Subject to PUC approval, the Utilities will begin recovery of the annualized 2022 MPIR amounts effective June 1, 2022 through the RBA rate adjustment.

As of March 31, 2022, the PUC approved two EPRM projects totaling $41 million to the extent that the project costs are not included in rates. Currently, the Utilities are seeking EPRM recovery of five projects with total project costs of $264 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.

On November 12, 2021, the Utilities requested PUC approval of their proposed Pilot Process Workplan to guide the development of pilot projects over the next three years. A PUC order on the Workplan is pending.

On February 28, 2022, the Utilities filed their first annual Pilot Update report covering pilot projects approved through the Pilot Process framework. The Pilot Update reported on approximately $0.1 million of 2021 deferred costs to be reviewed by the PUC in their review of the Utilities’ proposed adjustments to target revenue in the 2022 spring revenue report.

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, (4) new PIMs established in the PBR D&O.

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

•Service Reliability Performance measured by System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $6.8 million - for both indices in total for the three utilities). For the 2021 evaluation period, the Utilities earned $0.2 million in penalties.

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

•Phase 1 RFP PIM. Procurement of low-cost variable renewable resources through the RFP process in 2018 is measured by comparison of the procurement price to target prices. Half of the incentive was earned upon PUC

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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. On July 9, 2020, the Utilities filed two Grid Services Purchase Agreements (GSPA) for the Grid Service RFP that potentially qualify for a demand response PIM; however, details of the incentive metrics will be determined by the PUC. On September 15, 2020, the Utilities filed a PPA that qualified for a PIM incentive and on February 16, 2021, the Utilities filed one additional PPA that qualified for a declining PIM incentive. The PUC approved two PPAs in September 2021 and November 2021 and two GSPAs on December 31, 2020. For the 2021 evaluation period, the Utilities earned $0.1 million in rewards related to the two PPAs.

•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. For the 2021 evaluation period, the Utilities earned $1.0 million in rewards.

•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. For the 2021 evaluation period, the Utilities earned $2.8 million in rewards.

•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.

For the 2021 evaluation period, the Utilities accrued $3.7 million ($2.8 million for Hawaiian Electric, $0.4 million for Hawaii Electric Light and $0.5 million for Maui Electric) in rewards net of penalties. The net rewards related to 2021 were reflected in the 2021 fall revenue report and 2022 spring revenue report filings.

Annual review cycle. PBR D&O established an annual review cycle for revenue adjustments under the PBR Framework, including the biannual submission of the revenue reports. The Utilities filed the spring revenue report on March 31, 2022, which is subject to PUC approval.

The net incremental amounts between the 2021 fall and 2022 spring revenue reports are proposed to be collected (refunded) from June 1, 2022 through May 31, 2023 as follows:

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(in millions)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Total
Incremental accrued RBA balance through September 30, 2021 (and associated revenue taxes)						$	(5.7)					$	2.1					$	(4.7)					$	(8.3)
Incremental Performance Incentive Mechanisms (net)						1.9						0.4						0.4						2.7
Incremental MPIR/EPRM Revenue Adjustment						1.3						0.8						0.7						2.8
Other						(0.1)						—						—						$	(0.1)
Net incremental amount to be collected under the RBA rate tariffs						$	(2.6)					$	3.3					$	(3.6)					$	(2.9)

Regulatory assets for COVID-19 related costs. On May 4, 2020, the PUC issued an order, authorizing all utilities, including the Utilities, to establish regulatory assets to record costs resulting from the suspension of disconnections of service during the pendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the Utilities from charging late payment fees on past due payments. As the moratorium on customer disconnections ended on May 31, 2021, the Utilities have resumed charging late payment fees in July 2021. Pursuant to PUC orders, the deferral of COVID-19 related costs by the Utilities ended on December 31, 2020. On October 1, 2021, the PUC approved the Utilities’ request to extend the deferral period to December 31, 2021. In December 2021, to keep customers connected and provide some relief to customers experiencing financial difficulty during the pandemic, the Utilities committed to issuing $2 million in bill credits to qualified customers. The Utilities will not seek recovery for the issued bill credits, resulting in a reduction to the cumulative deferred costs. As of March 31, 2022, the Utilities had recorded a total of $27.8 million in regulatory assets pursuant to the orders.

Condensed consolidating financial information. Condensed consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the three month periods ended March 31, 2022 and 2021, and as of March 31, 2022 and December 31, 2021.

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

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Condensed Consolidating Statement of Income

Three months ended March 31, 2022

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Revenues						$	500,242					108,528						100,028						—						(6)						$	708,792
Expenses
Fuel oil						154,425						25,251						41,610						—						—						221,286
Purchased power						124,183						30,712						8,638						—						—						163,533
Other operation and maintenance						83,656						20,214						21,387						—						—						125,257
Depreciation						39,484						10,351						8,636						—						—						58,471
Taxes, other than income taxes						47,274						10,032						9,344						—						—						66,650
Total expenses						449,022						96,560						89,615						—						—						635,197
Operating income						51,220						11,968						10,413						—						(6)						73,595
Allowance for equity funds used during construction						1,990						193						226						—						—						2,409
Equity in earnings of subsidiaries						13,661						—						—						—						(13,661)						—
Retirement defined benefits credit (expense)—other than service costs						855						167						(32)						—						—						990
Interest expense and other charges, net						(13,093)						(2,609)						(2,630)						—						6						(18,326)
Allowance for borrowed funds used during construction						651						60						67						—						—						778
Income before income taxes						55,284						9,779						8,044						—						(13,661)						59,446
Income taxes						8,605						2,268						1,665						—						—						12,538
Net income						46,679						7,511						6,379						—						(13,661)						46,908
Preferred stock dividends of subsidiaries						—						134						95						—						—						229
Net income attributable to Hawaiian Electric						46,679						7,377						6,284						—						(13,661)						46,679
Preferred stock dividends of Hawaiian Electric						270						—						—						—						—						270
Net income for common stock						$	46,409					7,377						6,284						—						(13,661)						$	46,409

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended March 31, 2022

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Net income for common stock						$	46,409					7,377						6,284						—						(13,661)						$	46,409
Other comprehensive income, net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes						4,376						670						603						—						(1,273)						4,376
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes						(4,325)						(670)						(603)						—						1,273						(4,325)
Other comprehensive income, net of taxes						51						—						—						—						—						51
Comprehensive income attributable to common shareholder						$	46,460					7,377						6,284						—						(13,661)						$	46,460

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Income

Three months ended March 31, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Revenues						$	400,554					85,149						79,181						—						(20)						$	564,864
Expenses
Fuel oil						88,728						16,485						22,214						—						—						127,427
Purchased power						108,604						21,597						12,095						—						—						142,296
Other operation and maintenance						77,335						17,912						19,323						—						—						114,570
Depreciation						38,914						10,048						8,393						—						—						57,355
Taxes, other than income taxes						38,627						7,993						7,482						—						—						54,102
Total expenses						352,208						74,035						69,507						—						—						495,750
Operating income						48,346						11,114						9,674						—						(20)						69,114
Allowance for equity funds used during construction						1,748						132						311						—						—						2,191
Equity in earnings of subsidiaries						12,510						—						—						—						(12,510)						—
Retirement defined benefits credit (expense)—other than service costs						886						168						(33)						—						—						1,021
Interest expense and other charges, net						(12,832)						(2,581)						(2,590)						—						20						(17,983)
Allowance for borrowed funds used during construction						591						44						112						—						—						747
Income before income taxes						51,249						8,877						7,474						—						(12,510)						55,090
Income taxes						7,621						2,051						1,561						—						—						11,233
Net income						43,628						6,826						5,913						—						(12,510)						43,857
Preferred stock dividends of subsidiaries						—						134						95						—						—						229
Net income attributable to Hawaiian Electric						43,628						6,692						5,818						—						(12,510)						43,628
Preferred stock dividends of Hawaiian Electric						270						—						—						—						—						270
Net income for common stock						$	43,358					6,692						5,818						—						(12,510)						$	43,358

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Comprehensive Income

Three months ended March 31, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Net income for common stock						$	43,358					6,692						5,818						—						(12,510)						$	43,358
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						5,845						835						761						—						(1,596)						5,845
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes						(5,811)						(834)						(761)						—						1,595						(5,811)
Other comprehensive income, net of taxes						34						1						—						—						(1)						34
Comprehensive income attributable to common shareholder						$	43,392					6,693						5,818						—						(12,511)						$	43,392

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

March 31, 2022

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsi- diaries						Consoli- dating adjustments						Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land						$	42,857					5,606						3,594						—						—						$	52,057
Plant and equipment						5,144,377						1,394,875						1,256,817						—						—						7,796,069
Less accumulated depreciation						(1,788,280)						(627,421)						(570,061)						—						—						(2,985,762)
Construction in progress						164,073						19,691						28,984						—						—						212,748
Utility property, plant and equipment, net						3,563,027						792,751						719,334						—						—						5,075,112
Nonutility property, plant and equipment, less accumulated depreciation						5,301						115						1,532						—						—						6,948
Total property, plant and equipment, net						3,568,328						792,866						720,866						—						—						5,082,060
Investment in wholly owned subsidiaries, at equity						681,998						—						—						—						(681,998)						—
Current assets
Cash and cash equivalents						19,894						6,017						3,067						77						—						29,055
Restricted cash						2,140						—						—						—						—						2,140
Advances to affiliates						5,000						—						12,800						—						(17,800)						—
Customer accounts receivable, net						128,263						27,735						25,402						—						—						181,400
Accrued unbilled revenues, net						98,511						21,235						20,259						—						—						140,005
Other accounts receivable, net						15,846						5,128						4,269						—						(18,203)						7,040
Fuel oil stock, at average cost						105,780						13,895						19,697						—						—						139,372
Materials and supplies, at average cost						42,852						9,673						20,181						—						—						72,706
Prepayments and other						29,677						4,602						5,883						—						1,253						41,415
Regulatory assets						69,638						4,877						4,360						—						—						78,875
Total current assets						517,601						93,162						115,918						77						(34,750)						692,008
Other long-term assets
Operating lease right-of-use assets						61,826						38,368						14,284						—						—						114,478
Regulatory assets						325,063						78,877						76,346						—						—						480,286
Other						128,934						18,620						19,607						—						(817)						166,344
Total other long-term assets						515,823						135,865						110,237						—						(817)						761,108
Total assets						$	5,283,750					1,021,893						947,021						77						(717,565)						$	6,535,176
Capitalization and liabilities
Capitalization
Common stock equity						$	2,276,884					336,177						345,744						77						(681,998)						$	2,276,884
Cumulative preferred stock—not subject to mandatory redemption						22,293						7,000						5,000						—						—						34,293
Long-term debt, net						1,136,739						234,413						253,447						—						—						1,624,599
Total capitalization						3,435,916						577,590						604,191						77						(681,998)						3,935,776
Current liabilities
Current portion of operating lease liabilities						31,078						6,370						2,510						—						—						39,958
Current portion of long-term debt						39,986						11,996						—						—						—						51,982
Short-term borrowings from non-affiliates						6,000						—						—						—						—						6,000
Short-term borrowings from affiliate						12,800						5,000						—						—						(17,800)						—
Accounts payable						124,463						22,175						21,551						—						—						168,189
Interest and preferred dividends payable						20,057						3,687						4,414						—						(4)						28,154
Taxes accrued, including revenue taxes						125,425						29,109						25,537						—						1,253						181,324
Regulatory liabilities						19,416						5,495						5,017						—						—						29,928
Other						60,491						18,869						19,214						—						(18,356)						80,218
Total current liabilities						439,716						102,701						78,243						—						(34,907)						585,753
Deferred credits and other liabilities
Operating lease liabilities						44,785						32,066						11,838						—						—						88,689
Deferred income taxes						289,376						52,859						64,089						—						—						406,324
Regulatory liabilities						702,745						178,224						92,547						—						—						973,516
Unamortized tax credits						74,821						13,927						13,219						—						—						101,967
Defined benefit pension and other postretirement benefit plans liability						216,181						47,842						52,312						—						(660)						315,675
Other						80,210						16,684						30,582						—						—						127,476
Total deferred credits and other liabilities						1,408,118						341,602						264,587						—						(660)						2,013,647
Total capitalization and liabilities						$	5,283,750					1,021,893						947,021						77						(717,565)						$	6,535,176

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Balance Sheet

December 31, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsi-diaries						Consoli- dating adjustments						Hawaiian Electric Consolidated
Assets
Property, plant and equipment
Utility property, plant and equipment
Land						$	42,737					5,606						3,594						—						—						$	51,937
Plant and equipment						5,097,033						1,390,361						1,248,589						—						—						7,735,983
Less accumulated depreciation						(1,757,096)						(619,991)						(563,430)						—						—						(2,940,517)
Construction in progress						159,854						17,129						27,586						—						—						204,569
Utility property, plant and equipment, net						3,542,528						793,105						716,339						—						—						5,051,972
Nonutility property, plant and equipment, less accumulated depreciation						5,302						115						1,532						—						—						6,949
Total property, plant and equipment, net						3,547,830						793,220						717,871						—						—						5,058,921
Investment in wholly owned subsidiaries, at equity						676,237						—						—						—						(676,237)						—
Current assets
Cash and cash equivalents						23,344						5,326						23,422						77						—						52,169
Restricted cash						3,089						—						—						—						—						3,089
Advances to affiliates						1,000						—						—						—						(1,000)						—
Customer accounts receivable, net						135,949						28,469						22,441						—						—						186,859
Accrued unbilled revenues, net						92,469						19,529						17,157						—						—						129,155
Other accounts receivable, net						18,624						3,347						3,031						—						(17,735)						7,267
Fuel oil stock, at average cost						71,184						12,814						20,080						—						—						104,078
Materials and supplies, at average cost						42,006						9,727						20,144						—						—						71,877
Prepayments and other						32,140						6,052						7,114						—						725						46,031
Regulatory assets						58,695						3,051						4,918						—						—						66,664
Total current assets						478,500						88,315						118,307						77						(18,010)						667,189
Other long-term assets
Operating lease right-of-use assets						78,710						22,442						318						—						—						101,470
Regulatory assets						337,903						81,645						79,331						—						—						498,879
Other						130,546						17,124						18,510						—						(1,014)						165,166
Total other long-term assets						547,159						121,211						98,159						—						(1,014)						765,515
Total assets						$	5,249,726					1,002,746						934,337						77						(695,261)						$	6,491,625
Capitalization and liabilities
Capitalization
Common stock equity						$	2,261,899					332,900						343,260						77						(676,237)						$	2,261,899
Cumulative preferred stock—not subject to mandatory redemption						22,293						7,000						5,000						—						—						34,293
Long-term debt, net						1,136,620						234,390						253,417						—						—						1,624,427
Total capitalization						3,420,812						574,290						601,677						77						(676,237)						3,920,619
Current liabilities
Current portion of operating lease liabilities						45,955						3,378						35						—						—						49,368
Current portion of long-term debt						39,981						11,994						—						—						—						51,975
Short-term borrowings-affiliate						—						1,000						—						—						(1,000)						—
Accounts payable						111,024						26,139						22,844						—						—						160,007
Interest and preferred dividends payable						12,442						2,617						2,269						—						(3)						17,325
Taxes accrued, including revenue taxes						143,723						33,153						30,679						—						725						208,280
Regulatory liabilities						22,240						3,247						4,273						—						—						29,760
Other						56,752						14,158						18,540						—						(17,881)						71,569
Total current liabilities						432,117						95,686						78,640						—						(18,159)						588,284
Deferred credits and other liabilities
Operating lease liabilities						46,426						19,063						291						—						—						65,780
Deferred income taxes						291,027						53,298						64,309						—						—						408,634
Regulatory liabilities						695,152						179,267						92,589						—						—						967,008
Unamortized tax credits						76,201						14,212						13,532						—						—						103,945
Defined benefit pension and other postretirement benefit plans liability						220,480						48,900						53,257						—						(857)						321,780
Other						67,511						18,030						30,042						—						(8)						115,575
Total deferred credits and other liabilities						1,396,797						332,770						254,020						—						(865)						1,982,722
Total capitalization and liabilities						$	5,249,726					1,002,746						934,337						77						(695,261)						$	6,491,625

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Three months ended March 31, 2022

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Balance, December 31, 2021						$	2,261,899					332,900						343,260						77						(676,237)						$	2,261,899
Net income for common stock						46,409						7,377						6,284						—						(13,661)						46,409
Other comprehensive income, net of taxes						51						—						—						—						—						51
Common stock dividends						(31,475)						(4,100)						(3,800)						—						7,900						(31,475)
Balance, March 31, 2022						$	2,276,884					336,177						345,744						77						(681,998)						$	2,276,884

 

Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Changes in Common Stock Equity

Three months ended March 31, 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						43,358						6,692						5,818						—						(12,510)						43,358
Other comprehensive income, net of taxes						34						1						—						—						(1)						34
Common stock dividends						(27,925)						(3,650)						(3,776)						—						7,426						(27,925)
Balance, March 31, 2021						$	2,157,385					320,494						311,405						77						(631,976)						$	2,157,385

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Three months ended March 31, 2022

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Net cash provided by operating activities						$	55,669					15,778						13,228						—						(7,900)						$	76,775
Cash flows from investing activities
Capital expenditures						(44,084)						(15,133)						(17,141)						—						—						(76,358)
Advances to affiliates						(4,000)						—						(12,800)						—						16,800						—
Other						961						280						253						—						—						1,494
Net cash used in investing activities						(47,123)						(14,853)						(29,688)						—						16,800						(74,864)
Cash flows from financing activities
Common stock dividends						(31,475)						(4,100)						(3,800)						—						7,900						(31,475)
Preferred stock dividends of Hawaiian Electric and subsidiaries						(270)						(134)						(95)						—						—						(499)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less						18,800						4,000						—						—						(16,800)						6,000
Net cash used in financing activities						(12,945)						(234)						(3,895)						—						(8,900)						(25,974)
Net increase (decrease) in cash and cash equivalents						(4,399)						691						(20,355)						—						—						(24,063)
Cash, cash equivalents and restricted cash, beginning of period						26,433						5,326						23,422						77						—						55,258
Cash, cash equivalents and restricted cash, end of period						22,034						6,017						3,067						77						—						31,195
Less: Restricted cash						(2,140)						—						—						—						—						(2,140)
Cash and cash equivalents, end of period						$	19,894					6,017						3,067						77						—						$	29,055

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Hawaiian Electric Company, Inc. and Subsidiaries

Condensed Consolidating Statement of Cash Flows

Three months ended March 31, 2021

(in thousands)						Hawaiian Electric						Hawaii Electric Light						Maui Electric						Other subsidiaries						Consolidating adjustments						Hawaiian Electric Consolidated
Net cash provided by operating activities						$	18,764					9,635						10,988						—						(7,426)						$	31,961
Cash flows from investing activities
Capital expenditures						(45,293)						(12,728)						(12,340)						—						—						(70,361)
Advances from affiliates						26,700						—						—						—						(26,700)						—
Other						1,182						372						309						—						—						1,863
Net cash used in investing activities						(17,411)						(12,356)						(12,031)						—						(26,700)						(68,498)
Cash flows from financing activities
Common stock dividends						(27,925)						(3,650)						(3,776)						—						7,426						(27,925)
Preferred stock dividends of Hawaiian Electric and subsidiaries						(270)						(134)						(95)						—						—						(499)
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						—						(18,800)						(7,900)						—						26,700						—
Other						(96)						(11)						(9)						—						—						(116)
Net cash provided by (used in) financing activities						(18,291)						7,405						13,220						—						34,126						36,460
Net increase (decrease) in cash and cash equivalents						(16,938)						4,684						12,177						—						—						(77)
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						41,233						7,730						14,209						77						—						63,249
Less: Restricted cash						(11,506)						—						—						—						—						(11,506)
Cash and cash equivalents, end of period						$	29,727					7,730						14,209						77						—						$	51,743

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Selected financial information

American Savings Bank, F.S.B.

Statements of Income and Comprehensive Income Data

												Three months ended March 31
(in thousands)																		2022						2021
Interest and dividend income
Interest and fees on loans																		$	46,005					$	49,947
Interest and dividends on investment securities																		13,984						8,673
Total interest and dividend income																		59,989						58,620
Interest expense
Interest on deposit liabilities																		947						1,462
Interest on other borrowings																		5						27
Total interest expense																		952						1,489
Net interest income																		59,037						57,131
Provision for credit losses																		(3,263)						(8,435)
Net interest income after provision for credit losses																		62,300						65,566
Noninterest income
Fees from other financial services																		5,587						5,073
Fee income on deposit liabilities																		4,691						3,863
Fee income on other financial products																		2,718						2,442
Bank-owned life insurance																		681						2,561
Mortgage banking income																		1,077						4,300
Gain on sale of real estate																		1,002						—
Gain on sale of investment securities, net																		—						528
Other income, net																		372						272
Total noninterest income																		16,128						19,039
Noninterest expense
Compensation and employee benefits																		27,215						28,037
Occupancy																		5,952						4,969
Data processing																		4,151						4,351
Services																		2,439						2,862
Equipment																		2,329						2,222
Office supplies, printing and postage																		1,060						1,044
Marketing																		1,018						648
FDIC insurance																		808						816
Other expense																		3,241						2,554
Total noninterest expense																		48,213						47,503
Income before income taxes																		30,215						37,102
Income taxes																		6,345						7,546
Net income																		23,870						29,556
Other comprehensive loss, net of tax benefits																		(122,441)						(45,754)
Comprehensive income (loss)																		$	(98,571)					$	(16,198)

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American Savings Bank, F.S.B.

Balance Sheets Data

(in thousands)						March 31, 2022												December 31, 2021
Assets
Cash and due from banks												$	114,249											$	100,051
Interest-bearing deposits												155,279												151,189
Cash and cash equivalents												269,528												251,240
Investment securities
Available-for-sale, at fair value												2,621,375												2,574,618
Held-to-maturity, at amortized cost (fair value of $466,236 and $510,474, respectively)												517,150												522,270
Stock in Federal Home Loan Bank, at cost												10,000												10,000
Loans held for investment												5,184,733												5,211,114
Allowance for credit losses												(67,211)												(71,130)
Net loans												5,117,522												5,139,984
Loans held for sale, at lower of cost or fair value												7,961												10,404
Other												626,599												590,897
Goodwill												82,190												82,190
Total assets												$	9,252,325											$	9,181,603
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing												$	3,016,520											$	2,976,632
Deposit liabilities—interest-bearing												5,272,752												5,195,580
Other borrowings												137,385												88,305
Other												210,681												193,268
Total liabilities												8,637,338												8,453,785
Common stock												1												1
Additional paid-in capital												354,635												353,895
Retained earnings												420,574												411,704
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities						$	(152,444)											$	(32,037)
Retirement benefit plans						(7,779)						(160,223)						(5,745)						(37,782)
Total shareholder’s equity												614,987												727,818
Total liabilities and shareholder’s equity												$	9,252,325											$	9,181,603
Other assets
Bank-owned life insurance												$	176,301											$	177,566
Premises and equipment, net												199,949												202,299
Accrued interest receivable												21,133												20,854
Mortgage-servicing rights												10,024												9,950
Low-income housing investments												107,791												110,989
Deferred tax asset												51,720												7,699
Other												59,681												61,540
												$	626,599											$	590,897
Other liabilities
Accrued expenses												$	104,958											$	87,905
Federal and state income taxes payable												2,174												—
Cashier’s checks												36,586												33,675
Advance payments by borrowers												5,664												9,994
Other												61,299												61,694
												$	210,681											$	193,268

    

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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 $137.4 million and $88.3 million at March 31, 2022 and December 31, 2021, respectively.

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

						Amortized cost						Gross unrealized gains						Gross unrealized losses						Estimated fair value						Gross unrealized losses
																														Less than 12 months																		12 months or longer
(dollars in thousands)																														Number of issues						Fair  value						Amount						Number of issues						Fair  value						Amount
March 31, 2022
Available-for-sale
U.S. Treasury and federal agency obligations						$	109,343					$	75					$	(3,216)					$	106,202					16						$	91,087					$	(3,216)					—						$	—					$	—
Mortgage-backed securities*						2,660,506						277						(204,029)						2,456,754						165						1,484,883						(97,460)						64						904,628						(106,569)
Corporate bonds						44,481						101						(1,459)						43,123						3						34,014						(1,459)						—						—						—
Mortgage revenue bonds						15,296						—						—						15,296						—						—						—						—						—						—
						$	2,829,626					$	453					$	(208,704)					$	2,621,375					184						$	1,609,984					$	(102,135)					64						$	904,628					$	(106,569)
Held-to-maturity
U.S. Treasury and Federal agency obligations						$	59,877					$	—					$	(3,831)					$	56,046					3						$	56,046					$	(3,831)					—						$	—					$	—
Mortgage-backed securities*						457,273						76						(47,159)						410,190						23						246,986						(23,964)						13						158,370						(23,195)
						$	517,150					$	76					$	(50,990)					$	466,236					26						$	303,032					$	(27,795)					13						$	158,370					$	(23,195)
December 31, 2021
Available-for-sale
U.S. Treasury and federal agency obligations						$	89,714					$	803					$	(427)					$	90,090					4						$	44,827					$	(427)					—						$	—					$	—
Mortgage-backed securities*						2,482,618						6,511						(51,206)						2,437,923						120						1,845,243						(38,321)						18						271,012						(12,885)
Corporate bonds						30,625						655						(102)						31,178						1						12,780						(102)						—						—						—
Mortgage revenue bonds						15,427						—						—						15,427						—						—						—						—						—						—
						$	2,618,384					$	7,969					$	(51,735)					$	2,574,618					125						$	1,902,850					$	(38,850)					18						$	271,012					$	(12,885)
Held-to-maturity
U.S. Treasury and Federal agency obligations						$	59,871					$	168					$	(170)					$	59,869					2						$	39,594					$	(170)					—						$	—					$	—
Mortgage-backed securities*						462,399						1,480						(13,274)						450,605						22						290,883						(7,665)						7						106,483						(5,609)
						$	522,270					$	1,648					$	(13,444)					$	510,474					24						$	330,477					$	(7,835)					7						$	106,483					$	(5,609)

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

ASB does not believe that the investment securities that were in an unrealized loss position at March 31, 2022 and December 31, 2021, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at March 31, 2022 and December 31, 2021.

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.

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In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.

The contractual maturities of investment securities were as follows:

March 31, 2022						Amortized cost						Fair value
(in thousands)
Available-for-sale
Due in one year or less						$	15,821					$	15,890
Due after one year through five years						81,524						79,931
Due after five years through ten years						71,775						68,800
Due after ten years						—						—
						169,120						164,621
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies						2,660,506						2,456,754
Total available-for-sale securities						$	2,829,626					$	2,621,375
Held-to-maturity
Due in one year or less						$	—					$	—
Due after one year through five years						—						—
Due after five years through ten years						59,877						56,046
Due after ten years						—						—
						59,877						56,046
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies						457,273						410,190
Total held-to-maturity securities						$	517,150					$	466,236

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

									Three months ended March 31
															2022						2021
(in thousands)
Proceeds															$	—					$	197,354
Gross gains															—						974
Gross losses															—						446
Tax expense on realized gains															—						142

The components of loans were summarized as follows:

			March 31, 2022						December 31, 2021
(in thousands)
Real estate:
Residential 1-4 family			$	2,279,671					$	2,299,212
Commercial real estate			1,115,632						1,056,982
Home equity line of credit			845,271						835,663
Residential land			22,309						19,859
Commercial construction			90,332						91,080
Residential construction			15,508						11,138
Total real estate			4,368,723						4,313,934
Commercial			708,447						793,304
Consumer			116,090						113,966
Total loans			5,193,260						5,221,204
Less: Deferred fees and discounts			(8,527)						(10,090)
Allowance for credit losses			(67,211)						(71,130)
Total loans, net			$	5,117,522					$	5,139,984

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ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.

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 March 31, 2022
Allowance for credit losses:
Beginning balance						$	6,545					$	24,696					$	5,657					$	646					$	2,186					$	18					$	15,798					$	15,584					$	71,130
Charge-offs						—						—						—						—						—						—						(76)						(1,482)						(1,558)
Recoveries						8						—						11						5						—						—						353						1,025						1,402
Provision						1,321						(4,520)						(18)						46						154						13						(1,761)						1,002						(3,763)
Ending balance						$	7,874					$	20,176					$	5,650					$	697					$	2,340					$	31					$	14,314					$	16,129					$	67,211
Three months ended March 31, 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						—						—						(50)						—						—						—						(771)						(2,860)						(3,681)
Recoveries						3						—						15						10						—						—						273						1,007						1,308
Provision						658						(1,262)						(877)						(46)						(2,696)						5						(460)						(2,357)						(7,035)
Ending balance						$	5,261					$	34,345					$	5,901					$	573					$	1,453					$	16					$	24,504					$	19,740					$	91,793

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 March 31, 2022
Allowance for loan commitments:
Beginning balance						$	400					$	3,700					$	800					$	4,900
Provision						—						(100)						600						500
Ending balance						$	400					$	3,600					$	1,400					$	5,400
Three months ended March 31, 2021
Allowance for loan commitments:
Beginning balance						$	300					$	3,000					$	1,000					$	4,300
Provision						100						(1,700)						200						(1,400)
Ending balance						$	400					$	1,300					$	1,200					$	2,900

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

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

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Revolving loans converted to term loans during the three months ended March 31, 2022 in the commercial, home equity line of credit and consumer portfolios were $0.5 million, $4.4 million and $1.0 million, respectively. Revolving loans converted to term loans during the three months ended March 31, 2021 in the commercial, home equity line of credit and consumer portfolios were $0.5 million, $6.2 million and $0.7 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
March 31, 2022
Real estate:
Residential 1-4 family						$	1,920					$	2,414					$	4,303					$	8,637					$	2,271,034					$	2,279,671					$	—
Commercial real estate						—						—						—						—						1,115,632						1,115,632						—
Home equity line of credit						969						64						1,040						2,073						843,198						845,271						—
Residential land						—						—						397						397						21,912						22,309						—
Commercial construction						—						—						—						—						90,332						90,332						—
Residential construction						—						—						—						—						15,508						15,508						—
Commercial						200						139						40						379						708,068						708,447						—
Consumer						1,178						621						852						2,651						113,439						116,090						—
Total loans						$	4,267					$	3,238					$	6,632					$	14,137					$	5,179,123					$	5,193,260					$	—
December 31, 2021
Real estate:
Residential 1-4 family						$	3,019					$	1,468					$	6,072					$	10,559					$	2,288,653					$	2,299,212					$	—
Commercial real estate						—						—						—						—						1,056,982						1,056,982						—
Home equity line of credit						609						86						1,334						2,029						833,634						835,663						—
Residential land						—						—						397						397						19,462						19,859						—
Commercial construction						—						—						—						—						91,080						91,080						—
Residential construction						—						—						—						—						11,138						11,138						—
Commercial						700						313						48						1,061						792,243						793,304						—
Consumer						1,375						882						941						3,198						110,768						113,966						—
Total loans						$	5,703					$	2,749					$	8,792					$	17,244					$	5,203,960					$	5,221,204					$	—

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

(in thousands)						March 31, 2022																		December 31, 2021
						With a Related ACL						Without a Related ACL						Total						With a Related ACL						Without a Related ACL						Total
Real estate:
Residential 1-4 family						$	12,583					$	3,909					$	16,492					$	16,045					$	3,703					$	19,748
Commercial real estate						—						12,530						12,530						14,104						1,221						15,325
Home equity line of credit						3,371						1,054						4,425						4,227						1,294						5,521
Residential land						—						397						397						97						300						397
Commercial construction						—						—						—						—						—						—
Residential construction						—						—						—						—						—						—
Commercial						1,307						562						1,869						1,446						692						2,138
Consumer						1,555						—						1,555						1,845						—						1,845
Total						$	18,816					$	18,452					$	37,268					$	37,764					$	7,210					$	44,974

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

(in thousands)						March 31, 2022						December 31, 2021
Real estate:
Residential 1-4 family						$	7,296					$	6,949
Commercial real estate						2,888						3,055
Home equity line of credit						5,437						6,021
Residential land						976						980
Commercial construction						—						—
Residential construction						—						—
Commercial						7,079						7,860
Consumer						52						52
Total troubled debt restructured loans accruing interest						$	23,728					$	24,917

ASB did not recognize interest on nonaccrual loans for the three months ended March 31, 2022 and 2021.

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

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

There were no loan modifications that occurred during the three months ended March 31, 2022. Loan modifications that occurred during the three months ended March 31, 2021 were as follows:

												Three months ended March 31, 2021
(dollars in thousands)																								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																								12						$	8,283					$	298
Commercial real estate																								1						482						—
Home equity line of credit																								1						170						21
Residential land																								1						271						11
Commercial construction																								—						—						—
Residential construction																								—						—						—
Commercial																								2						59						19
Consumer																								—						—						—
																								17						$	9,265					$	349

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 first three months of 2022 and 2021.

If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at March 31, 2022 and December 31, 2021.

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

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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. Loans considered collateral-dependent were as follows:

						Amortized cost
(in thousands)						March 31, 2022						December 31, 2021						Collateral type
Real estate:
Residential 1-4 family						$	4,500					$	3,493					Residential real estate property
Commercial real estate						1,200						1,221						Commercial real estate property
Home equity line of credit						1,034						1,294						Residential real estate property
Residential land						397						300						Residential real estate property
Total real estate						7,131						6,308
Commercial						562						692						Business assets
Total						$	7,693					$	7,000

ASB had $4.0 million and $3.4 million of mortgage loans collateralized by residential real estate property that were in the process of foreclosure at March 31, 2022 and December 31, 2021, respectively.

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

ASB received proceeds from the sale of residential mortgages of $75.6 million and $170.9 million for the three months ended March 31, 2022 and 2021, respectively, and recognized gains on such sales of $1.1 million and $4.3 million for the three months ended March 31, 2022 and 2021, respectively.

There were no repurchased mortgage loans for the three months ended March 31, 2022 and 2021.

Mortgage servicing fees, a component of other income, net, were $0.9 million for both the three months ended March 31, 2022 and 2021.

Changes in the carrying value of MSRs were as follows:

(in thousands)						Gross carrying amount						Accumulated amortization						Valuation allowance						Net carrying amount
March 31, 2022						$	19,137					$	(9,113)					$	—					$	10,024
December 31, 2021						18,674						(8,724)						—						9,950

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Changes related to MSRs were as follows:

												Three months ended March 31
(in thousands)																		2022						2021
Mortgage servicing rights
Beginning balance																		$	9,950					$	10,280
Amount capitalized																		719						1,547
Amortization																		(645)						(1,138)
Other-than-temporary impairment																		—						—
Carrying amount before valuation allowance																		10,024						10,689
Valuation allowance for mortgage servicing rights
Beginning balance																		—						260
Provision																		—						(256)
Other-than-temporary impairment																		—						—
Ending balance																		—						4
Net carrying value of mortgage servicing rights																		$	10,024					$	10,685

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

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

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

(dollars in thousands)						March 31, 2022						December 31, 2021
Unpaid principal balance						$	1,488,591					$	1,481,899
Weighted average note rate						3.34		%				3.38		%
Weighted average discount rate						9.25		%				9.25		%
Weighted average prepayment speed						7.06		%				9.77		%

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

(dollars in thousands)						March 31, 2022						December 31, 2021
Prepayment rate:
25 basis points adverse rate change						$	(360)					$	(714)
50 basis points adverse rate change						(809)						(1,608)
Discount rate:
25 basis points adverse rate change						(160)						(129)
50 basis points adverse rate change						(318)						(256)

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

Other borrowings.  As of March 31, 2022 and December 31, 2021, 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 March 31, 2022.

Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting

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arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:

(in millions)						Gross amount  of recognized  liabilities						Gross amount  offset in the  Balance Sheets						Net amount of liabilities presented in the Balance Sheets
Repurchase agreements
March 31, 2022						$	137					$	—					$	137
December 31, 2021						88						—						88

						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
March 31, 2022						$	137					$	161					$	—
December 31, 2021						88						161						—

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:

						March 31, 2022												December 31, 2021
(in thousands)						Notional amount						Fair value						Notional amount						Fair value
Interest rate lock commitments						$	12,342					$	(18)					$	39,377					$	638
Forward commitments						11,750						168						38,000						(11)

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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						March 31, 2022												December 31, 2021
(in thousands)						Asset derivatives						Liability derivatives						Asset derivatives						Liability derivatives
Interest rate lock commitments						$	40					$	58					$	638					$	—
Forward commitments						168						—						—						11
						$	208					$	58					$	638					$	11

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

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

Derivative Financial Instruments Not Designated as Hedging Instruments						Location of net gains (losses) recognized in the Statements of Income												Three months ended March 31
(in thousands)																								2022						2021
Interest rate lock commitments						Mortgage banking income																		$	(655)					$	(4,098)
Forward commitments						Mortgage banking income																		178						840
																								$	(477)					$	(3,258)

Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $62.8 million at March 31, 2022 and December 31, 2021. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of March 31, 2022, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.

On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities) to amend and restate their respective previously existing revolving unsecured credit agreements. The $175 million HEI Facility and $200 million Hawaiian Electric Facility both terminate on May 14, 2026. On February 18, 2022, the PUC approved Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026. In addition to extending the term, Hawaiian Electric also received PUC approval to exercise its options of 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 March 31, 2022 and December 31, 2021, no amounts were outstanding under the Credit Facilities.

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

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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, 2021			$	(32,037)					$	(3,638)					$	(16,858)					$	(52,533)											$	(3,280)
Current period other comprehensive income (loss)			(120,407)						3,072						176						(117,159)												51
Balance, March 31, 2022			$	(152,444)					$	(566)					$	(16,682)					$	(169,692)											$	(3,229)
Balance, December 31, 2020			$	19,986					$	(3,363)					$	(17,887)					$	(1,264)											$	(2,919)
Current period other comprehensive income (loss)			(45,777)						1,562						199						(44,016)												34
Balance, March 31, 2021			$	(25,791)					$	(1,801)					$	(17,688)					$	(45,280)											$	(2,885)

Reclassifications out of AOCI were as follows:

															Amount reclassified from AOCI															Affected line item in the  Statements of Income / Balance Sheets
												Three months ended March 31
(in thousands)																		2022						2021
HEI consolidated
Net realized gains on securities included in net income																		$	—					$	(387)					Gain on sale of investment securities, net
Net realized losses on derivatives qualifying as cash flow hedges																		55						—						Interest expense
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost																		4,501						6,010						See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets																		(4,325)						(5,811)						See Note 8 for additional details
Total reclassifications																		$	231					$	(188)
Hawaiian Electric consolidated
Retirement benefit plans:
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost																		$	4,376					$	5,845					See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets																		(4,325)						(5,811)						See Note 8 for additional details
Total reclassifications																		$	51					$	34

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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 March 31, 2022
(in thousands)																														Electric  utility						Bank						Other						Total
Revenues from contracts with customers
Electric energy sales - residential																														$	224,574					$	—					$	—					$	224,574
Electric energy sales - commercial																														219,597						—						—						219,597
Electric energy sales - large light and power																														241,123						—						—						241,123
Electric energy sales - other																														1,426						—						—						1,426
Bank fees																														—						12,996						—						12,996
Other sales																														—						—						1,115						1,115
Total revenues from contracts with customers																														686,720						12,996						1,115						700,831
Revenues from other sources
Regulatory revenue																														$	12,886					$	—					$	—					$	12,886
Bank interest and dividend income																														—						59,989						—						59,989
Other bank noninterest income																														—						2,130						—						2,130
Other																														9,186						—						46						9,232
Total revenues from other sources																														22,072						62,119						46						84,237
Total revenues																														$	708,792					$	75,115					$	1,161					$	785,068
Timing of revenue recognition
Services/goods transferred at a point in time																														$	—					$	12,996					$	—					$	12,996
Services/goods transferred over time																														686,720						—						1,115						687,835
Total revenues from contracts with customers																														$	686,720					$	12,996					$	1,115					$	700,831

												Three months ended March 31, 2021
(in thousands)																														Electric  utility						Bank						Other						Total
Revenues from contracts with customers
Electric energy sales - residential																														$	181,239					$	—					$	—					$	181,239
Electric energy sales - commercial																														168,465						—						—						168,465
Electric energy sales - large light and power																														176,815						—						—						176,815
Electric energy sales - other																														2,479						—						—						2,479
Bank fees																														—						11,378						—						11,378
Other sales																														—						—						924						924
Total revenues from contracts with customers																														528,998						11,378						924						541,300
Revenues from other sources
Regulatory revenue																														28,429						—						—						28,429
Bank interest and dividend income																														—						58,620						—						58,620
Other bank noninterest income																														—						7,133						—						7,133
Other																														7,437						—						27						7,464
Total revenues from other sources																														35,866						65,753						27						101,646
Total revenues																														$	564,864					$	77,131					$	951					$	642,946
Timing of revenue recognition
Services/goods transferred at a point in time																														$	—					$	11,378					$	—					$	11,378
Services/goods transferred over time																														528,998						—						924						529,922
Total revenues from contracts with customers																														$	528,998					$	11,378					$	924					$	541,300

There are no material contract assets or liabilities associated with revenues from contracts with customers existing at December 31, 2021 or as of March 31, 2022. Accounts receivable and unbilled revenues related to contracts with customers represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are disclosed as accounts receivable and unbilled revenues, net on HEI’s condensed consolidated balance sheets and customer accounts receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s condensed consolidated balance sheets.

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Defined benefit pension and other postretirement benefit plans information.  For the first three months of 2022, the Company contributed $10 million ($10 million by the Utilities) to its pension and other postretirement benefit plans, compared to $9 million ($9 million by the Utilities) in the first three months of 2021. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in 2022 is $41 million ($41 million by the Utilities), compared to $52 million ($51 million by the Utilities) in 2021. In addition, the Company expects to pay directly $3 million ($1 million by the Utilities) of benefits in 2022, compared to $1 million ($1 million by the Utilities) paid in 2021.

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

												Three months ended March 31
																		Pension benefits												Other benefits
(in thousands)																														2022						2021						2022						2021
HEI consolidated
Service cost																														$	19,824					$	20,464					$	656					$	705
Interest cost																														19,811						18,801						1,637						1,569
Expected return on plan assets																														(35,333)						(33,067)						(3,397)						(3,233)
Amortization of net prior period gain																														—						—						(232)						(383)
Amortization of net actuarial (gain)/losses1																														6,297						1,556						(3)						254
Net periodic pension/benefit cost (return)																														10,599						7,754						(1,339)						(1,088)
Impact of PUC D&Os																														9,551						11,167						1,219						970
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)																														$	20,150					$	18,921					$	(120)					$	(118)
Hawaiian Electric consolidated
Service cost																														$	19,318					$	19,994					$	649					$	699
Interest cost																														18,462						17,531						1,573						1,504
Expected return on plan assets																														(33,546)						(31,368)						(3,347)						(3,182)
Amortization of net prior period gain																														—						—						(231)						(383)
Amortization of net actuarial losses1																														6,125						2,559						—						250
Net periodic pension/benefit cost (return)																														10,359						8,716						(1,356)						(1,112)
Impact of PUC D&Os																														9,551						11,167						1,219						970
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)																														$	19,910					$	19,883					$	(137)					$	(142)

1 Three months ended March 31, 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 $12 million ($12 million by the Utilities) in the first three months of 2022 and $11 million ($12 million by the Utilities) in the first three months of 2021 and charged the remaining net periodic benefit cost primarily to electric utility plant.

The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, any actual costs determined in accordance with GAAP that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over 5 years beginning with the respective utility’s next rate case.

Defined contribution plans information.  For the first three months of 2022 and 2021, the Company’s expenses for its defined contribution plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $2.0 million and $1.7 million, respectively, and cash contributions were $1.9 million and $1.8 million, respectively. For the first three months of 2022 and 2021, the Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP were $0.9 million and $0.8 million, respectively.

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Retirement benefit plan changes. On December 3, 2021, the Utilities’ union members ratified a new collective bargaining

agreement, which includes changes to retirement benefits for all new employees commencing employment on or

after January 1, 2022. The changes ratified in the collective bargaining agreement will apply to all employees of HEI and the

Utilities first hired on or after January 1, 2022 (New Employees). New Employees are not eligible to participate in the HEI

Pension Plan. Instead, New Employees will receive a non-elective employer contribution, equal to 10% of their annual

compensation, subject to a vesting schedule, to their account under the HEIRSP, the defined contribution plan for HEI and the

Utilities. Only New Employees are impacted by the retirement benefit plan changes. There are no retirement benefit plan

changes for employees hired on or before December 31, 2021.

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 March 31, 2022, approximately 2.8 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy statutory tax liabilities relating to EIP awards, including an estimated 0.6 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).

Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of March 31, 2022, there were 244,347 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 March 31
(in millions)																		2022						2021
HEI consolidated
Share-based compensation expense 1																		$	2.1					$	2.6
Income tax benefit																		0.3						0.4
Hawaiian Electric consolidated
Share-based compensation expense 1																		0.6						1.1
Income tax benefit																		0.1						0.3

1    For the three months ended March 31, 2022 and 2021, the Company has not capitalized any share-based compensation.

Stock awards. There were no grants to nonemployee directors for the three months ended March 31, 2022 and 2021.

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

									Three months ended March 31
															2022												2021
																											Shares						(1)						Shares						(1)
Outstanding, beginning of period																											233,448						$	38.10					193,939						$	40.89
Granted																											96,455						41.29						127,598						33.98
Vested																											(90,380)						37.58						(78,988)						38.51
Forfeited																											(31,178)						38.78						(6,358)						42.20
Outstanding, end of period																											208,345						$	39.71					236,191						$	37.91
Total weighted-average grant-date fair value of shares granted (in millions)																											$	4.0											$	4.3

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

For the three months ended March 31, 2022 and 2021, total restricted stock units and related dividends that vested had a fair value of $3.9 million and $3.0 million, respectively, and the related tax benefits were $0.6 million and $0.6 million, respectively.

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As of March 31, 2022, there was $7.6 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 2.3 years.

Long-term incentive plan payable in stock.  The 2020-22, 2021-23 and 2022-24 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the relevant three-year period. The other performance condition goals relate to EPS growth, return on average common equity (ROACE), renewable portfolio standards, carbon emissions reduction, Hawaiian Electric’s net income growth, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth and return on average invested capital.

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

									Three months ended March 31
															2022												2021
																											Shares						(1)						Shares						(1)
Outstanding, beginning of period																											90,974						$	42.86					89,222						$	42.10
Granted																											26,079						54.92						44,210						41.12
Vested (issued or unissued and cancelled)																											(29,042)						41.07						(32,355)						38.20
Forfeited																											(11,671)						42.60						(1,024)						45.89
Outstanding, end of period																											76,340						$	47.70					100,053						$	42.89
Total weighted-average grant-date fair value of shares granted (in millions)																											$	1.4											$	1.8

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

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

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

						2022						2021
Risk-free interest rate						1.71		%				0.19		%
Expected life in years						3						3
Expected volatility						31.0		%				29.9		%
Range of expected volatility for Peer Group						25.4% to 76.7%						25.6% to 102.9%
Grant date fair value (per share)						$54.92						$41.12

For the three months ended March 31, 2022 and 2021, total vested LTIP awards linked to TSR and related dividends had a fair value of $0.8 million and $0.8 million, respectively, and the related tax benefits were $0.1 million and $0.2 million, respectively.

As of March 31, 2022, there was $2.2 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 1.8 years.

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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 March 31
															2022												2021
																											Shares						(1)						Shares						(1)
Outstanding, beginning of period																											306,342						$	38.42					220,715						$	41.03
Granted																											104,300						41.29						176,844						33.98
Vested																											(71,807)						37.68						(43,155)						34.12
Increase above target (cancelled)																											—						—						(14,604)						43.90
Forfeited																											(46,684)						36.77						(4,098)						44.36
Outstanding, end of period																											292,151						$	39.89					335,702						$	38.04
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions)																											$	4.3											$	6.0

(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 three months ended March 31, 2022 and 2021, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $3.2 million and $1.7 million, respectively, and the related tax benefits were $0.4 million and $0.4 million, respectively.

As of March 31, 2022, there was $6.6 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 1.9 years.

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Three months ended March 31						2022						2021
(in millions)
Supplemental disclosures of cash flow information
HEI consolidated
Interest paid to non-affiliates, net of amounts capitalized						$	10					$	15
Hawaiian Electric consolidated
Interest paid to non-affiliates						6						9
Supplemental disclosures of noncash activities
HEI consolidated
Property, plant and equipment
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)						24						28
Increase related to an acquisition (investing)						15						—
Right-of-use assets obtained in exchange for operating lease obligations (investing)						35						28
Common stock issued (gross) for director and executive/management compensation (financing)1						8						6
Unsettled trades to purchase investment securities (investing)						25						—
Other receivable related to pending sales proceeds from the sale of an equity-method investment (investing)						9						—
Hawaiian Electric consolidated
Electric utility property, plant and equipment
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)						21						24
Increase related to an acquisition (investing)						15						—
Right-of-use assets obtained in exchange for operating lease obligations (investing)						32						28

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Forward sales commitments. To be announced (TBA) mortgage-backed securities forward commitments are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are determined using quoted prices in the market place that are observable and are classified as Level 2 measurements.

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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:

						March 31, 2022																		December 31, 2021
						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						$	—					$	2,456,754					$	—					$	—					$	2,437,923					$	—
U.S. Treasury and federal agency obligations						—						106,202						—						—						90,090						—
Corporate bonds						—						43,123						—						—						31,178						—
Mortgage revenue bonds						—						—						15,296						—						—						15,427
						$	—					$	2,606,079					$	15,296					$	—					$	2,559,191					$	15,427
Derivative assets
Interest rate lock commitments (bank segment)1						$	—					$	40					$	—					$	—					$	638					$	—
Forward commitments (bank segment)1						168						—						—						—						—						—
Interest rate swap (Other segment)2						—						784						—						—						271						—
						$	168					$	824					$	—					$	—					$	909					$	—
Derivative liabilities
Interest rate lock commitments (bank segment)1						$	—					$	58					$	—					$	—					$	—					$	—
Forward commitments (bank segment)1						—						—						—						11						—						—
Interest rate swap (Other segment)2						—						1,646						—						—						5,271						—
						$	—					$	1,704					$	—					$	11					$	5,271					$	—

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

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

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

												Three months ended March 31
Mortgage revenue bonds																		2022						2021
(in thousands)
Beginning balance																		$	15,427					$	27,185
Principal payments received																		(131)						(11,758)
Purchases																		—						—
Unrealized gain (loss) included in other comprehensive income																		—						—
Ending balance																		$	15,296					$	15,427

Mortgage revenue bonds are issued by the Department of Budget and Finance of the State of Hawaii. The Company estimates the fair value by using a discounted cash flow model to calculate the present value of estimated future principal and interest payments. The unobservable input used in the fair value measurement is the weighted average discount rate. As of March 31, 2022, the weighted average discount rate was 2.27%, which was derived by incorporating a credit spread over the one month LIBOR rate. Significant increases (decreases) in the weighted average discount rate could result in a significantly lower (higher) fair value measurement.

Fair value measurements on a nonrecurring basis.  Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. As of March 31, 2022 and December 31, 2021, there were no financial instruments measured at fair value on a nonrecurring basis. For the three months ended March 31, 2022 and 2021, there were no adjustments to fair value for ASB’s loans held for sale.

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

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