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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 FORM 10-Q
 
☒     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20192020
 OR
☐        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Specified in Its CharterCommission File NumberI.R.S. Employer Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.1-850399-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.1-495599-0040500
State of Hawaii
(State or other jurisdiction of incorporation or organization)
 
Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900,, Honolulu,, Hawaii96813
Hawaiian Electric Company, Inc. – 1001 Bishop Street, Suite, 2500,, Honolulu,, Hawaii96813
(Address of principal executive offices and zip code)
 
Hawaiian Electric Industries, Inc. – (808) (808) 543-5662
Hawaiian Electric Company, Inc. – (808) (808) 543-7771
(Registrant’s telephone number, including area code) 
900 Richards Street, Honolulu, Hawaii96813 - Hawaiian Electric Company, Inc. (Hawaiian Electric)Not applicable
(Former name, former address and former fiscal year, if changed since last report)
RegistrantTitle of each classTrading Symbol(s)Name of each exchange on which registered
Hawaiian Electric Industries, Inc.Common Stock, Without Par ValueHE
New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Hawaiian Electric Industries, Inc.Yes☒No☐Hawaiian Electric Company, Inc.Yes☒No☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Hawaiian Electric Industries, Inc.Yes☒No☐Hawaiian Electric Company, Inc.Yes☒No☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
Hawaiian Electric Industries, Inc.:Hawaiian Electric Company, Inc.:
Large accelerated filer☒Smaller reporting company☐Large accelerated filer☐Smaller reporting company☐
Accelerated filer☐Emerging growth company☐Accelerated filer☐Emerging growth company☐
Non-accelerated filer☐

Non-accelerated filer☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Hawaiian Electric Industries, Inc.☐Hawaiian Electric Company, Inc.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Hawaiian Electric Industries, Inc.Yes☐No☒Hawaiian Electric Company, Inc.Yes☐No☒
Securities registered pursuant to 12(b) of the Act:
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
Class of Common StockOutstanding October 25, 2019July 24, 2020
Hawaiian Electric Industries, Inc. (Without Par Value)108,972,564109,181,124 
Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value)16,751,48817,048,783 
Shares (not publicly traded)
Hawaiian Electric Industries, Inc. (HEI) is the sole holder of Hawaiian Electric Company, Inc. (Hawaiian Electric) common stock.
This combined Form 10-Q is separately filed by HEI and Hawaiian Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to Hawaiian Electric is also attributed to HEI.



Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended SeptemberJune 30, 20192020
 
TABLE OF CONTENTS
 
Page No.
ii
iv
1
1
Financial Statements
Hawaiian Electric Industries, Inc. and Subsidiaries
1
2
3
4
5
6
6
7
8
9
109
5756
5756
6062
7074
7784
7885
8086
8086
8087
89
8190
Exhibits
82
Signatures
 

i



Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended SeptemberJune 30, 20192020
GLOSSARY OF TERMS
TermsDefinitions
ACLAllowance for credit losses, which is the current credit loss standard, requires recording the allowance based on the expected loss model
AES HawaiiAES Hawaii, Inc.
AFSAvailable for sale
TermsAOCIDefinitions
AES HawaiiAES Hawaii, Inc.
AFUDCAllowance for funds used during construction
AOCIAccumulated other comprehensive income/(loss)
ASBAmerican Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii, Inc.
ASB HawaiiASB Hawaii, Inc. (formerly American Savings Holdings, Inc.), a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
ASCAccounting Standards Codification
ASUAccounting Standards Update
CBRECARES ActThe Coronavirus Aid, Relief, and Economic Security Act enacted March 27, 2020
CBRECommunity-based renewable energy
CompanyHawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; Pacific Current, LLC and its subsidiaries, Hamakua Holdings, LLC (and its subsidiary, Hamakua Energy, LLC) and Mauo Holdings, LLC (and its subsidiary, Mauo, LLC); and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
Consumer AdvocateDivision of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
D&ODecision and order from the PUC
DERDistributed energy resources
Dodd-Frank ActDodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOHDepartment of Health of the State of Hawaii
DRIPHEI Dividend Reinvestment and Stock Purchase Plan
ECACEnergy cost adjustment clause
ECRCEnergy cost recovery clause
EIP2010 Equity and Incentive Plan, as amended and restated
EPAEnvironmental Protection Agency — federal
EPSEarnings per share
ERP/EAMEnterprise Resource Planning/Enterprise Asset Management
EVEEconomic value of equity
Exchange ActSecurities Exchange Act of 1934
FASBFinancial Accounting Standards Board
FDICFederal Deposit Insurance Corporation
federalU.S. Government
FHLBFederal Home Loan Bank
FHLMCFederal Home Loan Mortgage Corporation
FNMAFederal National Mortgage Association
FRBFederal Reserve Board
GAAPAccounting principles generally accepted in the United States of America
GNMAGovernment National Mortgage Association
Hamakua EnergyHamakua Energy, LLC, an indirect subsidiary of HEI and successor in interest to Hamakua Energy Partners, L.P., an affiliate of Arclight Capital Partners (a Boston-based private equity firm focused on energy infrastructure investments) and successor in interest to Encogen Hawaii, L.P.
Hawaii Electric LightHawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.

ii
GLOSSARY OF TERMS, continued

TermsDefinitions
Hawaiian ElectricHawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited and Renewable Hawaii, Inc. and Uluwehiokama Biofuels Corp. HECO Capital Trust III (unconsolidated financing subsidiary) was canceleddissolved effective June 10, 2019.as of July 14, 2020
HEIHawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc., Pacific Current, LLC and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSPHawaiian Electric Industries Retirement Savings Plan
HELOCHome equity line of credit
HPOWERCity and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPPIndependent power producer
KalaeloaKalaeloa Partners, L.P.
kWhKilowatthour/s (as applicable)
LTIPLong-term incentive plan
Maui ElectricMaui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MauoMauo, LLC, an indirect subsidiary of HEI
MPIRMajor Project Interim Recovery
MSRMortgage servicing right
MWMegawatt/s (as applicable)
NIINet interest income
NPBCNet periodic benefit costs
NPPCNet periodic pension costs
O&MOther operation and maintenance
OCCOffice of the Comptroller of the Currency
OPEBPostretirement benefits other than pensions
Pacific CurrentPacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings, LLC and Mauo Holdings, LLC
PBRPerformance-based regulation
PIMsPGVPuna Geothermal Venture
PIMsPerformance incentive mechanisms
PPAPower purchase agreement
PPACPurchased power adjustment clause
PUCPublic Utilities Commission of the State of Hawaii
PVPhotovoltaic
RAMRate adjustment mechanism
RBARevenue balancing account
RFPRequest for proposals
ROACEReturn on average common equity
RORBReturn on rate base
RPSRenewable portfolio standards
SECSecurities and Exchange Commission
SeeMeans the referenced material is incorporated by reference
Tax Act2017 Tax Cuts and Jobs Act (H.R. 1, An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018)
TDRTroubled debt restructuring
Trust IIIHECO Capital Trust III was canceled effective June 10, 2019.
UtilitiesHawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIEVariable interest entity

iii



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking statements are not guarantees of future performance.performance and actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:
•international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of future Federal government shutdowns, including the impact to our customers to pay their electric bills and/or bank loans and the impact on the state of Hawaii economy; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; and the potential impacts of global and local developments (including global economic conditions and uncertainties; unrest;uncertainties, unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic or other crisis;crisis); the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; terrorist acts; and potential pandemics);pandemics;
•the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity and any recurrence of the COVID-19 pandemic, the duration and scope of related government orders and restrictions, the impact on our employees, customers and suppliers, and the impact of the COVID-19 pandemic on the overall demand for the Company’s goods and services;
•citizen activism, including civil unrest, especially in times of severe economic depression and social divisiveness, which could negatively impact customers and employees, impair the ability of the Company and the Utilities to operate and maintain its facilities in an effective and safe manner, and citizen activism could delay the construction, increase project costs or preclude the completion, of third-party or Utility projects that are required to meet electricity demand and RPS goals;
•the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling or budget funding, monetary policy, trade policy and tariffs, and other policy and regulatory changes advanced or proposed by President Trump and his administration;
•weather, natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the increasing effects of climate change, such as more severe storms, flooding, droughts, heat waves, and rising sea levels) and wildfires, including their impact on the Company’s and Utilities’ operations and the economy;
•the timing, speed and extent of changes in interest rates and the shape of the yield curve;
•the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the cost of such financings, if available;
•the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale, and the risks inherent in changes in the value of the Company’s pension liabilities, including changes driven by interest rates;
•changes in laws, regulations (including tax regulations), market conditions, interest rates and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;
•the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated, as amended by the Economic Growth, Regulatory Relief and Consumer Protection Act;
•increasing competition in the banking industry (e.g., increased price competition for deposits, or an outflow of deposits to alternative investments, which may have an adverse impact on ASB’s cost of funds);
•the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet renewable portfolio standards (RPS) goals and the impacts of implementation of the renewable energy proposals on future costs of electricity;
•the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection
iv

Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC, the PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC;
•capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation (DG), combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;
•fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost adjustment clauses (ECACs) and energy cost recovery clauses (ECRC)(ECRCs);
•the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;
•the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by RAMs;
•the ability of the Utilities to achieve performance incentive goals currently in place;
•the impact from the PUC’s implementation of performance-based ratemaking for the Utilities pursuant to Act 005, Session Laws 2018, including the potential addition of new performance incentive mechanisms (PIMs), third-party proposals adopted by the PUC in its implementation of performance-based regulation (PBR), and the implications of not achieving performance incentive goals;
•the impact of fuel price levels and volatility on customer satisfaction and political and regulatory support for the Utilities;

iv


•the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;
•the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage;
•the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);
•the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;
•the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements;agreements and avoid or mitigate labor disputes and work stoppages;
•new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels;
•cybersecurity risks and the potential for cyber incidents, including potential incidents at HEI, its third-party vendors, and its subsidiaries (including at ASB branches and electric utility plants) and incidents at data processing centers used, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general IT controls;
•failure to achieve cost savings consistent with the minimum $246 million in Enterprise Resource Planning/Enterprise Asset Management
(ERP/EAM) project-related benefits (including $150 million in operation and maintenance (O&M) benefits) to be delivered to customers over its 12-year estimated useful life;life and $25 million of annual cost reductions by the end of 2022 pursuant to a commitment made as a result of the management audit of Hawaiian Electric in its 2020 test year rate case;
•federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
•developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;
•discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;
•decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);
•decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS);
•potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required
v

corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);
•the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);
•changes in accounting principles applicable to HEI and its subsidiaries, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting, the effects of potentially required consolidation of variable interest entities (VIEs), or required capital/finance lease or on-balance-sheet operating lease accounting for PPAs with IPPs;
•downgrades by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and their impact on results of financing efforts;
•faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;
•changes in ASB’s loan portfolio credit profile and asset quality and/or mix, which may increase or decrease the required level of provision for loancredit losses, allowance for loancredit losses (ACL) and charge-offs;
•
the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” in 2020, which may require an increase in the allowance for loan losses and result in more volatility in the provision for loan losses;
changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds;
•unanticipated changes from the expected discontinuance of LIBOR and the transition to an alternative reference rate, which may include adverse impacts to the Company’s cost of capital, loan portfolio and interest income on loans;
•the final outcome of tax positions taken by HEI and its subsidiaries;
•the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits);
•the ability of the Company’s non-regulated subsidiary, Pacific Current, LLC (Pacific Current), to achieve its performance and growth objectives, which in turn could affect its ability to service its non-recourse debt;
•the Company’s reliance on third parties and the risk of their non-performance;
non-performance, which has increased due to the impact of activism that could delayfrom the construction, or preclude the completion, of third-party or Utility projects that are required to meet electricity demandCOVID-19 pandemic; and RPS goals; and
•other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB, Pacific Current and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.

vi
v


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
  Three months ended September 30 Nine months ended September 30
(in thousands, except per share amounts) 2019 2018 2019 2018
Revenues  
  
  
  
Electric utility $688,330
 $687,409
 $1,900,609
 $1,865,962
Bank 83,201
 80,496
 247,940
 233,019
Other 4
 143
 86
 218
Total revenues 771,535
 768,048
 2,148,635
 2,099,199
Expenses  
  
  
  
Electric utility 616,537
 613,373
 1,716,562
 1,685,413
Bank 54,240
 53,232
 171,605
 153,951
Other 3,450
 3,379
 12,589
 11,083
Total expenses 674,227
 669,984
 1,900,756
 1,850,447
Operating income (loss)  
  
  
  
Electric utility 71,793
 74,036
 184,047
 180,549
Bank 28,961
 27,264
 76,335
 79,068
Other (3,446) (3,236) (12,503) (10,865)
Total operating income 97,308
 98,064
 247,879
 248,752
Retirement defined benefits expense—other than service costs (648) (1,276) (2,172) (4,673)
Interest expense, net—other than on deposit liabilities and other bank borrowings (22,425) (22,523) (69,081) (66,042)
Allowance for borrowed funds used during construction 1,208
 1,006
 3,465
 3,815
Allowance for equity funds used during construction 3,250
 1,962
 9,335
 8,239
Income before income taxes 78,693
 77,233
 189,426
 190,091
Income taxes 14,803
 10,862
 36,390
 36,473
Net income 63,890
 66,371
 153,036
 153,618
Preferred stock dividends of subsidiaries 471
 471
 1,417
 1,417
Net income for common stock $63,419
 $65,900
 $151,619
 $152,201
Basic earnings per common share $0.58
 $0.61
 $1.39
 $1.40
Diluted earnings per common share $0.58
 $0.60
 $1.39
 $1.40
Weighted-average number of common shares outstanding 108,973
 108,879
 108,941
 108,847
Net effect of potentially dilutive shares 390
 176
 437
 243
Weighted-average shares assuming dilution 109,363
 109,055
 109,378
 109,090
 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.



Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
  Three months ended September 30 Nine months ended September 30
(in thousands) 2019 2018 2019 2018
Net income for common stock $63,419
 $65,900
 $151,619
 $152,201
Other comprehensive income (loss), net of taxes:  
  
  
  
Net unrealized gains (losses) on available-for-sale investment securities:  
  
  
  
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of (taxes) benefits of $(1,557), $1,876, $(10,194) and $8,335, respectively 4,253
 (5,123) 27,846
 (22,768)
Reclassification adjustment for net realized gains included in net income, net of taxes of $175, nil, $175, and nil, respectively (478) —
 (478) —
Derivatives qualifying as cash flow hedges:  
  
  
  
Unrealized interest rate hedging losses arising during the period, net of tax benefits of $208, nil, $577 and nil, respectively (600) —
 (1,663) —
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 of $741, $1,832, $2,482 and $5,486, respectively 2,615
 5,259
 7,621
 15,755
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $865, $1,639, $2,459 and $4,916, respectively (2,493) (4,725) (7,089) (14,174)
Other comprehensive income (loss), net of taxes 3,297
 (4,589) 26,237
 (21,187)
Comprehensive income attributable to Hawaiian Electric Industries, Inc. $66,716
 $61,311
 $177,856
 $131,014
 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.



Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands) September 30, 2019 December 31, 2018
Assets  
  
Cash and cash equivalents $176,988
 $169,208
Accounts receivable and unbilled revenues, net 311,235
 325,672
Available-for-sale investment securities, at fair value 1,210,748
 1,388,533
Held-to-maturity investment securities, at amortized cost 132,704
 141,875
Stock in Federal Home Loan Bank, at cost 9,953
 9,958
Loans held for investment, net 5,031,296
 4,790,902
Loans held for sale, at lower of cost or fair value 17,115
 1,805
Property, plant and equipment, net of accumulated depreciation of $2,762,118 and $2,659,230 at September 30, 2019 and December 31, 2018, respectively 5,006,394
 4,830,118
Operating lease right-of-use assets 213,910
 —
Regulatory assets 749,174
 833,426
Other 576,263
 530,364
Goodwill 82,190
 82,190
Total assets $13,517,970
 $13,104,051
Liabilities and shareholders’ equity  
  
Liabilities  
  
Accounts payable $189,244
 $214,773
Interest and dividends payable 32,338
 28,254
Deposit liabilities 6,196,223
 6,158,852
Short-term borrowings—other than bank 163,836
 73,992
Other bank borrowings 129,190
 110,040
Long-term debt, net—other than bank 1,885,454
 1,879,641
Deferred income taxes 393,140
 372,518
Operating lease liabilities 213,166
 —
Regulatory liabilities 963,740
 950,236
Defined benefit pension and other postretirement benefit plans liability 534,670
 538,384
Other 539,987
 580,788
Total liabilities 11,240,988
 10,907,478
Preferred stock of subsidiaries - not subject to mandatory redemption 34,293
 34,293
Commitments and contingencies (Notes 3 and 4) 


 


Shareholders’ equity  
  
Preferred stock, no par value, authorized 10,000,000 shares; issued: none —
 —
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 108,972,564 shares and 108,879,245 shares at September 30, 2019 and December 31, 2018, respectively 1,676,411
 1,669,267
Retained earnings 590,651
 543,623
Accumulated other comprehensive loss, net of tax benefits (24,373) (50,610)
Total shareholders’ equity 2,242,689
 2,162,280
Total liabilities and shareholders’ equity $13,517,970
 $13,104,051
 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.


Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
  Common stock Retained 
Accumulated
other
comprehensive
  
(in thousands) Shares Amount Earnings income (loss) Total
Balance, December 31, 2018 108,879
 $1,669,267
 $543,623
 $(50,610) $2,162,280
Net income for common stock —
 —
 45,688
 —
 45,688
Other comprehensive income, net of taxes —
 —
 —
 9,241
 9,241
Share-based expenses and other, net 58
 1,166
 —
 —
 1,166
Common stock dividends (32¢ per share) —
 —
 (34,860) —
 (34,860)
Balance, March 31, 2019 108,937
 1,670,433
 554,451
 (41,369) 2,183,515
Net income for common stock —
 —
 42,512
 —
 42,512
Other comprehensive income, net of taxes —
 —
 —
 13,699
 13,699
Share-based expenses and other, net 35
 3,720
 —
 —
 3,720
Common stock dividends (32¢ per share) —
 —
 (34,860) —
 (34,860)
Balance, June 30, 2019 108,972
 1,674,153
 562,103
 (27,670) 2,208,586
Net income for common stock —
 —
 63,419
 —
 63,419
Other comprehensive income, net of taxes —
 —
 —
 3,297
 3,297
Share-based expenses and other, net 1
 2,258
 —
 —
 2,258
Common stock dividends (32¢ per share) —
 —
 (34,871) —
 (34,871)
Balance, September 30, 2019 108,973
 $1,676,411
 $590,651
 $(24,373) $2,242,689
Balance, December 31, 2017 108,788
 $1,662,491
 $476,836
 $(41,941) $2,097,386
Net income for common stock —
 —
 40,247
 —
 40,247
Other comprehensive loss, net of tax benefits —
 —
 —
 (12,773) (12,773)
Share-based expenses and other, net 53
 658
 —
 —
 658
Common stock dividends (31¢ per share) —
 —
 (33,741) —
 (33,741)
Balance, March 31, 2018 108,841
 1,663,149
 483,342
 (54,714) 2,091,777
Net income for common stock —
 —
 46,054
 —
 46,054
Other comprehensive loss, net of tax benefits —
 —
 —
 (3,825) (3,825)
Share-based expenses and other, net 38
 2,752
 —
 —
 2,752
Common stock dividends (31¢ per share) —
 —
 (33,740) —
 (33,740)
Balance, June 30, 2018 108,879
 1,665,901

495,656
 (58,539) 2,103,018
Net income for common stock —
 —
 65,900
 —
 65,900
Other comprehensive loss, net of tax benefits —
 —
 —
 (4,589) (4,589)
Share-based expenses and other, net —
 1,470
 —
 —
 1,470
Common stock dividends (31¢ per share) —
 —
 (33,754) —
 (33,754)
Balance, September 30, 2018 108,879
 $1,667,371
 $527,802
 $(63,128) $2,132,045
 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.



Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
  Nine months ended September 30
(in thousands) 2019 2018
Cash flows from operating activities  
  
Net income $153,036
 $153,618
Adjustments to reconcile net income to net cash provided by operating activities  
  
Depreciation of property, plant and equipment 172,307
 159,646
Other amortization 35,553
 31,473
Provision for loan losses 17,873
 12,337
Loans originated, held for sale (190,700) (105,956)
Proceeds from sale of loans, held for sale 177,345
 109,335
Deferred income taxes 265
 10,823
Share-based compensation expense 8,142
 5,891
Allowance for equity funds used during construction (9,335) (8,239)
Other (11,540) (4,524)
Changes in assets and liabilities  
  
Decrease (increase) in accounts receivable and unbilled revenues, net 12,373
 (79,128)
Increase in fuel oil stock (3,438) (5,060)
Decrease (increase) in regulatory assets 54,274
 (6,474)
Increase (decrease) in accounts, interest and dividends payable 215
 (7,122)
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes (32,436) (32,006)
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability (2,794) 7,517
Change in other assets and liabilities (39,712) 15,548
Net cash provided by operating activities 341,428
 257,679
Cash flows from investing activities  
  
Available-for-sale investment securities purchased (4,823) (190,411)
Principal repayments on available-for-sale investment securities 194,845
 168,334
Proceeds from sale of available-for-sale investment securities 19,810
 —
Purchases of held-to-maturity investment securities —
 (62,096)
Principal repayments of held-to-maturity investment securities 9,183
 4,007
Purchase of stock from Federal Home Loan Bank (80,475) (9,933)
Redemption of stock from Federal Home Loan Bank 80,480
 11,480
Net increase in loans held for investment (258,064) (96,212)
Proceeds from sale of commercial loans —
 7,149
Capital expenditures (332,273) (380,623)
Contributions to low income housing investments (5,612) (7,714)
Other 3,495
 14,258
Net cash used in investing activities (373,434) (541,761)
Cash flows from financing activities  
  
Net increase in deposit liabilities 37,371
 137,443
Net increase in short-term borrowings with original maturities of three months or less 64,844
 85,369
Net increase (decrease) in other bank borrowings with original maturities of three months or less 19,150
 (17,374)
Proceeds from issuance of short-term debt 25,000
 —
Proceeds from issuance of long-term debt 208,970
 100,000
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds (204,278) (1,867)
Withheld shares for employee taxes on vested share-based compensation (997) (996)
Common stock dividends (104,591) (101,235)
Preferred stock dividends of subsidiaries (1,417) (1,417)
Other (4,266) (5,668)
Net cash provided by financing activities 39,786
 194,255
Net increase (decrease) in cash and cash equivalents 7,780
 (89,827)
Cash and cash equivalents, beginning of period 169,208
 261,881
Cash and cash equivalents, end of period $176,988
 $172,054

Three months ended June 30Six months ended June 30
(in thousands, except per share amounts)2020201920202019
Revenues    
Electric utility$534,215  $633,784  $1,131,657  $1,212,279  
Bank74,714  81,687  154,452  164,739  
Other16  14  22  82  
Total revenues608,945  715,485  1,286,131  1,377,100  
Expenses    
Electric utility466,414  578,090  1,019,898  1,100,025  
Bank66,221  60,435  126,556  117,365  
Other4,754  4,326  8,419  9,139  
Total expenses537,389  642,851  1,154,873  1,226,529  
Operating income (loss)    
Electric utility67,801  55,694  111,759  112,254  
Bank8,493  21,252  27,896  47,374  
Other(4,738) (4,312) (8,397) (9,057) 
Total operating income71,556  72,634  131,258  150,571  
Retirement defined benefits expense—other than service costs(934) (761) (1,868) (1,524) 
Interest expense, net—other than on deposit liabilities and other bank borrowings(22,613) (23,533) (44,388) (46,656) 
Allowance for borrowed funds used during construction752  1,179  1,440  2,257  
Allowance for equity funds used during construction2,194  3,175  4,209  6,085  
Gain on sale of investment securities, net9,275  —  9,275  —  
Income before income taxes60,230  52,694  99,926  110,733  
Income taxes10,870  9,709  16,673  21,587  
Net income49,360  42,985  83,253  89,146  
Preferred stock dividends of subsidiaries473  473  946  946  
Net income for common stock$48,887  $42,512  $82,307  $88,200  
Basic earnings per common share$0.45  $0.39  $0.75  $0.81  
Diluted earnings per common share$0.45  $0.39  $0.75  $0.81  
Weighted-average number of common shares outstanding109,146  108,938  109,098  108,925  
Net effect of potentially dilutive shares159  317  276  399  
Weighted-average shares assuming dilution109,305  109,255  109,374  109,324  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 20182019 Form 10-K.


1

Hawaiian Electric Company,Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
  Three months ended September 30 Nine months ended September 30
(in thousands) 2019 2018 2019 2018
Revenues $688,330
 $687,409
 $1,900,609
 $1,865,962
Expenses  
  
  
  
Fuel oil 199,093
 206,551
 541,322
 545,236
Purchased power 175,037
 177,590
 472,336
 478,238
Other operation and maintenance 124,415
 113,553
 361,805
 333,805
Depreciation 53,935
 50,983
 161,795
 151,810
Taxes, other than income taxes 64,057
 64,696
 179,304
 176,324
Total expenses 616,537
 613,373
 1,716,562
 1,685,413
Operating income 71,793
 74,036
 184,047
 180,549
Allowance for equity funds used during construction 3,250
 1,962
 9,335
 8,239
Retirement defined benefits expense—other than service costs (723) (682) (2,127) (2,934)
Interest expense and other charges, net (17,429) (18,968) (53,945) (54,822)
Allowance for borrowed funds used during construction 1,208
 1,006
 3,465
 3,815
Income before income taxes 58,099
 57,354
 140,775
 134,847
Income taxes 10,822
 7,144
 27,800
 24,995
Net income 47,277
 50,210
 112,975
 109,852
Preferred stock dividends of subsidiaries 228
 228
 686
 686
Net income attributable to Hawaiian Electric 47,049
 49,982
 112,289
 109,166
Preferred stock dividends of Hawaiian Electric 270
 270
 810
 810
Net income for common stock $46,779
 $49,712
 $111,479
 $108,356
 Three months ended June 30Six months ended June 30
(in thousands)2020201920202019
Net income for common stock$48,887  $42,512  $82,307  $88,200  
Other comprehensive income (loss), net of taxes:    
Net unrealized gains on available-for-sale investment securities:    
Net unrealized gains on available-for-sale investment securities arising during the period, net of taxes of $356, $5,182, $7,476 and $8,637, respectively973  14,154  20,421  23,593  
Reclassification adjustment for net realized gains included in net income, net of taxes of $(599), NaN, $(599) and NaN, respectively(1,638) —  (1,638) —  
Derivatives qualifying as cash flow hedges:    
Unrealized interest rate hedging losses arising during the period, net of taxes of $(69), $(380), $(688) and $(520), respectively(198) (660) (1,982) (1,063) 
Retirement benefit plans:    
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,981, $871, $3,967 and $1,741, respectively5,690  2,503  11,396  5,006  
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,789), $(797), $(3,578) and $(1,594), respectively(5,159) (2,298) (10,317) (4,596) 
Other comprehensive income (loss), net of taxes(332) 13,699  17,880  22,940  
Comprehensive income attributable to Hawaiian Electric Industries, Inc.$48,555  $56,211  $100,187  $111,140  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 20182019 Form 10-K.

2

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands)June 30, 2020December 31, 2019
Assets  
Cash and cash equivalents$574,482  $196,813  
Restricted cash29,376  30,872  
Accounts receivable and unbilled revenues, net271,314  300,794  
Available-for-sale investment securities, at fair value1,389,633  1,232,826  
Held-to-maturity investment securities, at amortized cost124,623  139,451  
Stock in Federal Home Loan Bank, at cost9,880  8,434  
Loans held for investment, net5,356,510  5,067,821  
Loans held for sale, at lower of cost or fair value37,143  12,286  
Property, plant and equipment, net of accumulated depreciation of $2,840,462 and $2,765,569 at June 30, 2020 and December 31, 2019, respectively5,181,427  5,109,628  
Operating lease right-of-use assets184,759  199,171  
Regulatory assets682,570  715,080  
Other556,793  649,885  
Goodwill82,190  82,190  
Total assets$14,480,700  $13,745,251  
Liabilities and shareholders’ equity  
Liabilities  
Accounts payable$142,113  $220,633  
Interest and dividends payable24,396  24,941  
Deposit liabilities7,029,952  6,271,902  
Short-term borrowings—other than bank131,180  185,710  
Other bank borrowings124,975  115,110  
Long-term debt, net—other than bank2,070,224  1,964,365  
Deferred income taxes368,834  379,324  
Operating lease liabilities191,058  199,571  
Regulatory liabilities977,780  972,310  
Defined benefit pension and other postretirement benefit plans liability514,415  513,287  
Other580,082  583,545  
Total liabilities12,155,009  11,430,698  
Preferred stock of subsidiaries - not subject to mandatory redemption34,293  34,293  
Commitments and contingencies (Notes 3 and 4)
Shareholders’ equity  
Preferred stock, 0 par value, authorized 10,000,000 shares; issued: NaN—  —  
Common stock, 0 par value, authorized 200,000,000 shares; issued and outstanding: 109,181,124 shares and 108,973,328 shares at June 30, 2020 and December 31, 2019, respectively1,676,616  1,678,257  
Retained earnings616,941  622,042  
Accumulated other comprehensive loss, net of tax benefits(2,159) (20,039) 
Total shareholders’ equity2,291,398  2,280,260  
Total liabilities and shareholders’ equity$14,480,700  $13,745,251  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2019 Form 10-K.

3

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
 Common stockRetainedAccumulated
other
comprehensive		 
(in thousands)SharesAmountEarningsincome (loss)Total
Balance, December 31, 2019108,973  $1,678,257  $622,042  $(20,039) $2,280,260  
Impact of adoption of ASU No. 2016-13
—  —  (15,372) —  (15,372) 
Balance, January 1, 2020 after adoption of
ASU No. 2016-13		108,973  1,678,257  606,670  (20,039) 2,264,888  
Net income for common stock—  —  33,420  —  33,420  
Other comprehensive income, net of taxes—  —  —  18,212  18,212  
Share-based expenses and other, net172  (3,996) —  —  (3,996) 
Common stock dividends (33¢ per share)—  —  (36,019) —  (36,019) 
Balance, March 31, 2020109,145  1,674,261  604,071  (1,827) 2,276,505  
Net income for common stock—  —  48,887  —  48,887  
Other comprehensive loss, net of tax benefits—  —  —  (332) (332) 
Share-based expenses and other, net36  2,355  —  —  2,355  
Common stock dividends (33¢ per share)—  —  (36,017) —  (36,017) 
Balance, June 30, 2020109,181  $1,676,616  $616,941  $(2,159) $2,291,398  
Balance, December 31, 2018108,879  $1,669,267  $543,623  $(50,610) $2,162,280  
Net income for common stock—  —  45,688  —  45,688  
Other comprehensive income, net of taxes—  —  —  9,241  9,241  
Share-based expenses and other, net58  1,166  —  —  1,166  
Common stock dividends 32¢ per share)—  —  (34,860) —  (34,860) 
Balance, March 31, 2019108,937  1,670,433  554,451  (41,369) 2,183,515  
Net income for common stock—  —  42,512  —  42,512  
Other comprehensive income, net of taxes—  —  —  13,699  13,699  
Share-based expenses and other, net35  3,720  —  —  3,720  
Common stock dividends (32¢ per share)—  —  (34,860) —  (34,860) 
Balance, June 30, 2019108,972  $1,674,153  $562,103  $(27,670) $2,208,586  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2019 Form 10-K.

4

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
Six months ended June 30
(in thousands)20202019
Cash flows from operating activities  
Net income$83,253  $89,146  
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation of property, plant and equipment119,367  114,863  
Other amortization26,055  22,439  
Provision for credit losses25,534  14,558  
Loans originated, held for sale(277,738) (96,033) 
Proceeds from sale of loans, held for sale259,268  89,573  
Gain on sale of investment securities, net(9,275) —  
Gain on sale of loans(8,252) (1,589) 
Deferred income taxes(21,565) (6,662) 
Share-based compensation expense4,059  5,883  
Allowance for equity funds used during construction(4,209) (6,085) 
Other(3,854) (4,929) 
Changes in assets and liabilities  
Decrease in accounts receivable and unbilled revenues, net23,458  12,048  
Decrease (increase) in fuel oil stock31,583  (40,557) 
Decrease in regulatory assets9,432  25,392  
Increase (decrease) in regulatory liabilities1,717  (3,403) 
Increase (decrease) in accounts, interest and dividends payable(48,336) 3,926  
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes(12,306) (45,977) 
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability16,312  (1,774) 
Change in other assets and liabilities(17,120) (37,413) 
Net cash provided by operating activities197,383  133,406  
Cash flows from investing activities  
Available-for-sale investment securities purchased(476,582) (4,530) 
Principal repayments on available-for-sale investment securities181,451  123,855  
Proceeds from sale of available-for-sale investment securities169,157  —  
Principal repayments of held-to-maturity investment securities15,093  4,774  
Purchase of stock from Federal Home Loan Bank(22,966) (53,115) 
Redemption of stock from Federal Home Loan Bank21,520  54,640  
Net increase in loans held for investment(328,356) (173,546) 
Proceeds from sale of low-income housing investments6,725  —  
Capital expenditures(197,816) (229,282) 
Contributions to low income housing investments(1,951) (4,069) 
Other4,469  6,143  
Net cash used in investing activities(629,256) (275,130) 
Cash flows from financing activities  
Net increase in deposit liabilities758,050  98,531  
Net increase (decrease) in short-term borrowings with original maturities of three months or less(119,211) 112,901  
Net increase (decrease) in other bank borrowings with original maturities of three months or less(20,135) 1,445  
Proceeds from issuance of short-term debt165,000  25,000  
Repayment of short-term debt(100,000) —  
Proceeds from issuance of other bank borrowings30,000  —  
Proceeds from issuance of long-term debt351,942  56,150  
Repayment of long-term debt and funds transferred for repayment of long-term debt(177,245) (52,489) 
Withheld shares for employee taxes on vested share-based compensation(5,700) (996) 
Common stock dividends(72,037) (69,720) 
Preferred stock dividends of subsidiaries(946) (946) 
Other(1,672) 1,189  
Net cash provided by financing activities808,046  171,065  
Net increase in cash, cash equivalents and restricted cash376,173  29,341  
Cash, cash equivalents and restricted cash, beginning of period227,685  169,208  
Cash, cash equivalents and restricted cash, end of period603,858  198,549  
Less: Restricted cash(29,376) —  
Cash and cash equivalents, end of period$574,482  $198,549  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2019 Form 10-K.
5

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
Three months ended June 30Six months ended June 30
(in thousands)2020201920202019
Revenues$534,215  $633,784  $1,131,657  $1,212,279  
Expenses    
Fuel oil112,451  181,620  285,672  342,229  
Purchased power136,838  162,854  276,654  297,299  
Other operation and maintenance110,041  119,260  237,588  237,390  
Depreciation55,696  53,913  111,546  107,860  
Taxes, other than income taxes51,388  60,443  108,438  115,247  
Total expenses466,414  578,090  1,019,898  1,100,025  
Operating income67,801  55,694  111,759  112,254  
Allowance for equity funds used during construction2,194  3,175  4,209  6,085  
Retirement defined benefits expense—other than service costs(382) (701) (763) (1,404) 
Interest expense and other charges, net(17,338) (18,530) (33,932) (36,516) 
Allowance for borrowed funds used during construction752  1,179  1,440  2,257  
Income before income taxes53,027  40,817  82,713  82,676  
Income taxes10,199  7,744  15,481  16,978  
Net income42,828  33,073  67,232  65,698  
Preferred stock dividends of subsidiaries229  229  458  458  
Net income attributable to Hawaiian Electric42,599  32,844  66,774  65,240  
Preferred stock dividends of Hawaiian Electric270  270  540  540  
Net income for common stock$42,329  $32,574  $66,234  $64,700  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2019 Form 10-K.
HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
 Three months ended September 30 Nine months ended September 30 Three months ended June 30Six months ended June 30
(in thousands) 2019 2018 2019 2018(in thousands)2020201920202019
Net income for common stock $46,779
 $49,712
 $111,479
 $108,356
Net income for common stock$42,329  $32,574  $66,234  $64,700  
Other comprehensive income (loss), net of taxes:  
  
  
  
Other comprehensive income (loss), net of taxes:    
Retirement benefit plans:  
  
  
  
Retirement benefit plans:    
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits of $874, $1,648, $2,484 and $4,945, respectively 2,519
 4,753
 7,162
 14,259
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $865, $1,639, $2,459 and $4,916, respectively (2,493) (4,725) (7,089) (14,174)
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,798, $805, $3,596 and $1,610, respectivelyAdjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $1,798, $805, $3,596 and $1,610, respectively5,184  2,321  10,368  4,643  
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,789), $(797), $(3,578) and $(1,594), respectivelyReclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,789), $(797), $(3,578) and $(1,594), respectively(5,159) (2,298) (10,317) (4,596) 
Other comprehensive income, net of taxes 26
 28
 73
 85
Other comprehensive income, net of taxes25  23  51  47  
Comprehensive income attributable to Hawaiian Electric Company, Inc. $46,805
 $49,740
 $111,552
 $108,441
Comprehensive income attributable to Hawaiian Electric Company, Inc.$42,354  $32,597  $66,285  $64,747  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 20182019 Form 10-K.

6

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands, except par value) September 30, 2019 December 31, 2018(dollars in thousands, except par value)June 30, 2020December 31, 2019
Assets  
  
Assets  
Property, plant and equipment    Property, plant and equipment
Utility property, plant and equipment  
  
Utility property, plant and equipment  
Land $51,330
 $49,667
Land$51,607  $51,816  
Plant and equipment 7,097,286
 6,809,671
Plant and equipment7,353,841  7,240,288  
Less accumulated depreciation (2,686,388) (2,577,342)Less accumulated depreciation(2,758,544) (2,690,157) 
Construction in progress 226,556
 233,145
Construction in progress214,487  193,074  
Utility property, plant and equipment, net 4,688,784
 4,515,141
Utility property, plant and equipment, net4,861,391  4,795,021  
Nonutility property, plant and equipment, less accumulated depreciation of $110 and $1,255 as of September 30, 2019 and December 31, 2018, respectively 6,958
 6,961
Nonutility property, plant and equipment, less accumulated depreciation of $113 and $111 as of June 30, 2020 and December 31, 2019, respectivelyNonutility property, plant and equipment, less accumulated depreciation of $113 and $111 as of June 30, 2020 and December 31, 2019, respectively6,955  6,956  
Total property, plant and equipment, net 4,695,742
 4,522,102
Total property, plant and equipment, net4,868,346  4,801,977  
Current assets  
  
Current assets  
Cash and cash equivalents 32,507
 35,877
Cash and cash equivalents63,995  11,022  
Restricted cashRestricted cash29,376  30,872  
Customer accounts receivable, net 163,093
 177,896
Customer accounts receivable, net138,038  152,790  
Accrued unbilled revenues, net 123,820
 121,738
Accrued unbilled revenues, net100,601  117,227  
Other accounts receivable, net 4,618
 6,215
Other accounts receivable, net10,415  11,568  
Fuel oil stock, at average cost 84,543
 79,935
Fuel oil stock, at average cost60,479  91,937  
Materials and supplies, at average cost 60,810
 55,204
Materials and supplies, at average cost66,244  60,702  
Prepayments and other 46,321
 32,118
Prepayments and other37,929  116,980  
Regulatory assets 32,951
 71,016
Regulatory assets21,286  30,710  
Total current assets 548,663
 579,999
Total current assets528,363  623,808  
Other long-term assets  
  
Other long-term assets  
Operating lease right-of-use assets 192,254
 —
Operating lease right-of-use assets161,029  176,809  
Regulatory assets 716,316
 762,410
Regulatory assets661,284  684,370  
Other 107,993
 102,992
Other112,985  101,718  
Total other long-term assets 1,016,563
 865,402
Total other long-term assets935,298  962,897  
Total assets $6,260,968
 $5,967,503
Total assets$6,332,007  $6,388,682  
Capitalization and liabilities  
  
Capitalization and liabilities  
Capitalization  
  
Capitalization  
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 16,751,488 shares at September 30, 2019 and December 31, 2018) $111,696
 $111,696
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,048,783 shares at
June 30, 2020 and December 31, 2019)
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,048,783 shares at
June 30, 2020 and December 31, 2019)
$113,678  $113,678  
Premium on capital stock 681,305
 681,305
Premium on capital stock714,824  714,824  
Retained earnings 1,200,081
 1,164,541
Retained earnings1,232,795  1,220,129  
Accumulated other comprehensive income, net of taxes-retirement benefit plans 172
 99
Accumulated other comprehensive loss, net of tax benefits-retirement benefit plansAccumulated other comprehensive loss, net of tax benefits-retirement benefit plans(1,228) (1,279) 
Common stock equity 1,993,254
 1,957,641
Common stock equity2,060,069  2,047,352  
Cumulative preferred stock — not subject to mandatory redemption 34,293
 34,293
Cumulative preferred stock — not subject to mandatory redemption34,293  34,293  
Long-term debt, net 1,322,255
 1,418,802
Long-term debt, net1,560,955  1,401,714  
Total capitalization 3,349,802
 3,410,736
Total capitalization3,655,317  3,483,359  
Commitments and contingencies (Note 3) 


 


Commitments and contingencies (Note 3)
Current liabilities  
  
Current liabilities  
Current portion of operating lease liabilities 62,758
 —
Current portion of operating lease liabilities64,534  63,707  
Current portion of long-term debt 95,965
 —
Current portion of long-term debt, netCurrent portion of long-term debt, net14,000  95,953  
Short-term borrowings from non-affiliates 112,353
 25,000
Short-term borrowings from non-affiliates49,919  88,987  
Accounts payable 152,562
 171,791
Accounts payable107,078  187,770  
Interest and preferred dividends payable 27,540
 23,215
Interest and preferred dividends payable20,659  20,728  
Taxes accrued, including revenue taxes 204,839
 233,333
Taxes accrued, including revenue taxes193,851  207,992  
Regulatory liabilities 19,516
 17,977
Regulatory liabilities26,067  30,724  
Other 67,899
 60,003
Other71,691  67,305  
Total current liabilities 743,432
 531,319
Total current liabilities547,799  763,166  
Deferred credits and other liabilities  
  
Deferred credits and other liabilities  
Operating lease liabilities 128,812
 —
Operating lease liabilities102,570  113,400  
Deferred income taxes 392,561
 383,197
Deferred income taxes371,052  377,150  
Regulatory liabilities 944,224
 932,259
Regulatory liabilities951,713  941,586  
Unamortized tax credits 90,720
 91,522
Unamortized tax credits115,006  117,868  
Defined benefit pension and other postretirement benefit plans liability 500,186
 503,659
Defined benefit pension and other postretirement benefit plans liability479,850  478,763  
Other 111,231
 114,811
Other108,700  113,390  
Total deferred credits and other liabilities 2,167,734
 2,025,448
Total deferred credits and other liabilities2,128,891  2,142,157  
Total capitalization and liabilities $6,260,968
 $5,967,503
Total capitalization and liabilities$6,332,007  $6,388,682  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 20182019 Form 10-K.

7

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited)
 
Common stockPremium
on
capital		RetainedAccumulated
other
comprehensive		 
(in thousands)(in thousands)SharesAmountstockearningsincome (loss)Total
Balance, December 31, 2019Balance, December 31, 201917,048  $113,678  $714,824  $1,220,129  $(1,279) $2,047,352  
Net income for common stockNet income for common stock—  —  —  23,905  —  23,905  
Other comprehensive income, net of taxesOther comprehensive income, net of taxes—  —  —  —  26  26  
Common stock dividendsCommon stock dividends—  —  —  (26,784) —  (26,784) 
Balance, March 31, 2020Balance, March 31, 202017,048  113,678  714,824  1,217,250  (1,253) 2,044,499  
Net income for common stockNet income for common stock—  —  —  42,329  —  42,329  
Other comprehensive income, net of taxesOther comprehensive income, net of taxes—  —  —  —  25  25  
Common stock dividendsCommon stock dividends—  —  —  (26,784) —  (26,784) 
Balance, June 30, 2020Balance, June 30, 202017,048  $113,678  $714,824  $1,232,795  $(1,228) $2,060,069  
 Common stock 
Premium
on
capital
 Retained 
Accumulated
other
comprehensive
  
(in thousands) Shares Amount stock earnings income (loss) Total
Balance, December 31, 2018 16,751
 $111,696
 $681,305
 $1,164,541
 $99
 $1,957,641
Balance, December 31, 201816,751  $111,696  $681,305  $1,164,541  $99  $1,957,641  
Net income for common stock —
 —
 —
 32,126
 —
 32,126
Net income for common stock—  —  —  32,126  —  32,126  
Other comprehensive income, net of taxes —
 —
 —
 —
 24
 24
Other comprehensive income, net of taxes—  —  —  —  24  24  
Common stock dividends —
 —
 —
 (25,313) —
 (25,313)Common stock dividends—  —  —  (25,313) —  (25,313) 
Balance, March 31, 2019 16,751
 111,696
 681,305
 1,171,354
 123
 1,964,478
Balance, March 31, 201916,751  111,696  681,305  1,171,354  123  1,964,478  
Net income for common stock —
 —
 —
 32,574
 —
 32,574
Net income for common stock—  —  —  32,574  —  32,574  
Other comprehensive income, net of taxes —
 —
 —
 —
 23
 23
Other comprehensive income, net of taxes—  —  —  —  23  23  
Common stock dividends —
 —
 —
 (25,313) —
 (25,313)Common stock dividends—  —  —  (25,313) —  (25,313) 
Balance, June 30, 2019 16,751
 111,696
 681,305
 1,178,615
 146
 1,971,762
Balance, June 30, 201916,751  $111,696  $681,305  $1,178,615  $146  $1,971,762  
Net income for common stock —
 —
 —
 46,779
 —
 46,779
Other comprehensive income, net of taxes —
 —
 —
 —
 26
 26
Common stock dividends —
 —
 —
 (25,313) —
 (25,313)
Balance, September 30, 2019 16,751
 $111,696
 $681,305
 $1,200,081
 $172
 $1,993,254
Balance, December 31, 2017 16,142
 $107,634
 $614,675
 $1,124,193
 $(1,219) $1,845,283
Net income for common stock —
 —
 —
 27,475
 —
 27,475
Other comprehensive income, net of taxes —
 —
 —
 —
 31
 31
Common stock dividends —
 —
 —
 (25,826) —
 (25,826)
Common stock issuance expenses —
 —
 (8) —
 —
 (8)
Balance, March 31, 2018 16,142
 107,634
 614,667
 1,125,842
 (1,188) 1,846,955
Net income for common stock —
 —
 —
 31,169
 —
 31,169
Other comprehensive income, net of taxes —
 —
 —
 —
 26
 26
Common stock dividends —
 —
 —
 (25,826) —
 (25,826)
Balance, June 30, 2018 16,142
 107,634
 614,667
 1,131,185
 (1,162) 1,852,324
Net income for common stock —
 —
 —
 49,712
 —
 49,712
Other comprehensive income, net of taxes —
 —
 —
 —
 28
 28
Common stock dividends —
 —
 —
 (25,827) —
 (25,827)
Balance, September 30, 2018 16,142
 $107,634
 $614,667
 $1,155,070
 $(1,134) $1,876,237
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 20182019 Form 10-K.



8

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
 Nine months ended September 30Six months ended June 30
(in thousands) 2019 2018(in thousands)20202019
Cash flows from operating activities  
  
Cash flows from operating activities  
Net income $112,975

$109,852
Net income$67,232  $65,698  
Adjustments to reconcile net income to net cash provided by operating activities  

 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation of property, plant and equipment 161,795

151,810
Depreciation of property, plant and equipment111,546  107,860  
Other amortization 21,476

19,823
Other amortization16,275  13,661  
Deferred income taxes (1,386)
12,835
Deferred income taxes(16,237) (6,611) 
State refundable creditState refundable credit(5,060) (4,192) 
Bad debt expenseBad debt expense1,089  802  
Allowance for equity funds used during construction (9,335)
(8,239)Allowance for equity funds used during construction(4,209) (6,085) 
Other (5,629) (1,952)Other116  639  
Changes in assets and liabilities  

 
Changes in assets and liabilities  
Decrease (increase) in accounts receivable 14,337

(53,139)
Increase in accrued unbilled revenues (2,082)
(20,648)
Increase in fuel oil stock (4,608)
(4,949)
Decrease in accounts receivableDecrease in accounts receivable10,730  9,201  
Decrease in accrued unbilled revenuesDecrease in accrued unbilled revenues15,780  2,581  
Decrease (increase) in fuel oil stockDecrease (increase) in fuel oil stock31,458  (41,706) 
Increase in materials and supplies (5,606)
(4,110)Increase in materials and supplies(5,542) (5,890) 
Decrease (increase) in regulatory assets 54,274

(6,474)
Decrease in regulatory assetsDecrease in regulatory assets9,432  25,392  
Increase (decrease) in regulatory liabilitiesIncrease (decrease) in regulatory liabilities1,717  (3,403) 
Decrease in accounts payable (9,261)
(8,712)Decrease in accounts payable(48,209) (45) 
Change in prepaid and accrued income taxes, tax credits and revenue taxes (32,094)
(37,137)Change in prepaid and accrued income taxes, tax credits and revenue taxes(14,700) (45,785) 
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability (2,837)
5,888
Increase (decrease) in defined benefit pension and other postretirement benefit plans liability14,968  (1,899) 
Change in other assets and liabilities (9,401)
38,874
Change in other assets and liabilities(4,918) (9,402) 
Net cash provided by operating activities 282,618

193,722
Net cash provided by operating activities181,468  100,816  
Cash flows from investing activities  
  
Cash flows from investing activities  
Capital expenditures (297,807) (310,369)Capital expenditures(186,532) (199,896) 
Other 2,662
 9,811
Other5,441  2,510  
Net cash used in investing activities (295,145) (300,558)Net cash used in investing activities(181,091) (197,386) 
Cash flows from financing activities  
  
Cash flows from financing activities  
Common stock dividends (75,939) (77,479)Common stock dividends(53,568) (50,626) 
Preferred stock dividends of Hawaiian Electric and subsidiaries (1,496) (1,496)Preferred stock dividends of Hawaiian Electric and subsidiaries(998) (998) 
Proceeds from issuance of short-term debt 25,000
 —
Proceeds from issuance of short-term debt100,000  25,000  
Repayment of short-term debtRepayment of short-term debt(100,000) —  
Proceeds from issuance of long-term debt 200,000
 100,000
Proceeds from issuance of long-term debt255,000  50,000  
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds (201,546) —
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less 62,353
 80,914
Repayment of long-term debt and funds transferred for repayment of long-term debtRepayment of long-term debt and funds transferred for repayment of long-term debt(109,000) (51,546) 
Increase (decrease) in short-term borrowings from non-affiliates and affiliates with original maturities of three months or lessIncrease (decrease) in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less(38,987) 111,901  
Other 785
 (396)Other(1,347) 323  
Net cash provided by financing activities 9,157
 101,543
Net cash provided by financing activities51,100  84,054  
Net decrease in cash and cash equivalents (3,370) (5,293)
Cash and cash equivalents, beginning of period 35,877
 12,517
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents51,477  (12,516) 
Cash, cash equivalents and restricted cash, beginning of periodCash, cash equivalents and restricted cash, beginning of period41,894  35,877  
Cash, cash equivalents and restricted cash, end of periodCash, cash equivalents and restricted cash, end of period93,371  23,361  
Less: Restricted cashLess: Restricted cash(29,376) —  
Cash and cash equivalents, end of period $32,507
 $7,224
Cash and cash equivalents, end of period$63,995  $23,361  
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 20182019 Form 10-K.


9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



Note 1 · Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited condensed consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric’s Form 10-K for the year ended December 31, 2018.2019.
In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of SeptemberJune 30, 20192020 and December 31, 20182019 and the results of their operations for the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019 and cash flows for the ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.
Recent accounting pronouncements.
LeasesCredit losses. In FebruaryJune 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-02, “Leases (Topic 842),” which requires that lessees recognize a liability to make lease payments (the lease liability) and a right-of-use (ROU) asset, representing its right to use the underlying asset for the lease term, for all leases (except short-term leases) at the commencement date. For finance leases, a lessee is required to recognize interest on the lease liability separately from amortization of the ROU asset in the consolidated statements of income. For operating leases, a lessee is required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.
The Company adopted ASU No. 2016-02 on January 1, 2019 and used the effective date as the date of initial application. Consequently, financial information for dates and periods before January 1, 2019 will not be updated and the disclosures required under the new standard will not be provided (i.e., the Company will continue to report prior comparative periods presented in the financial statements under Accounting Standards Codification (ASC) 840, including the required disclosures under ASC 840).
The most significant effect of the new standard relates to the recognition of new ROU assets and lease liabilities on the Company’s balance sheet for purchase power agreements and real estate operating leases. On adoption, the Company recognized lease liabilities of approximately $257 million for the Company and approximately $236 million for the Utilities ($215 million related to PPAs), based on the present value of the remaining minimum rental payments, with corresponding ROU assets for existing operating leases, under current leasing standards. In determining the lease liability upon transition, the Company used the incremental borrowing rates as of the adoption date based on the remaining lease term and remaining lease payments. See Note 6 for more information.
Credit losses. In June 2016, the FASB issued ASU No. 2016-13, “Financial“Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,,” which replaces the incurred loss methodology with an expected loss methodology. The new methodology is intendedreferred to improveas the current expected credit loss (CECL) methodology and applies to financial reporting by requiring timelier recording ofassets subject to credit losses onand measured at amortized cost and certain off-balance sheet credit exposures. This includes, but is not limited to loans, loan commitments and other financial instruments held by financial institutions and other organizations.held-to-maturity securities. In addition, ASU No. 2016-13requires the measurement of all expected credit losses for financial assets held at the reporting date (based on historical experience, current conditions and reasonable and supportable forecasts) and enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. In addition, ASU No. 2016-13 amends the accounting for credit losses on available-for-sale (AFS) debt securities and purchased financial assets with credit deterioration. The other-than-temporary impairment model of accounting for credit losses on available-for-saleAFS debt securities will behas been replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The length of time the fair value of an available-for-saleAFS debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. The available-for-saleAFS debt security model will also requirerequires the use of an allowance to record the estimated losses (and subsequent recoveries).
The Company has assembledadopted ASU No. 2016-13 on January 1, 2020 using the modified retrospective method with the cumulative effect of initially applying the amendments recognized in retained earnings as of January 1, 2020. The CECL models use a cross-functional teamprobability-of-default, loss given default and exposure at default methodology to estimate the expected credit losses. Within each model or calculation, loans are further segregated based on additional risk characteristics specific to that continues to work through its implementation plan.loan type, such as risk rating, FICO score, bankruptcy score, age of loan and collateral. The Company is inuses both internal and external historical data, as appropriate, and a blend of economic forecasts to estimate credit losses over a reasonable and supportable forecast period and then reverts to a longer-term historical loss experience to arrive at lifetime expected credit losses. The reversion period incorporates forward-looking expectations about repayments (including prepayments) as determined by the final stages of validating and testing the models that will be used to calculate the credit loss reserve for its loan portfolio and is conducting parallel runs of its new processes and controls. Company’s asset liability management system.
The allowance for credit losses (ACL) is a material

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


estimate of the Company, and givenCompany. As a result of the change from an incurred loss model to a methodology that considers the credit loss over the expected life of the loan, on January 1, 2020, the Company believes thatrecorded an adjustment of $21 million to increase the ACL, including a $2 million increase in the allowance for loan losses for its loans held for investment will increase at the adoption date.commitments, with a corresponding adjustment to reduce retained earnings by $15 million on an after-tax basis. The magnitude of the increase will dependACL is based on the composition, characteristics and quality of itsthe loans and off balance sheet credit exposures as well as the prevailing economic conditions as of the adoption date. The increase in the ACL primarily relates to required reserves for residential mortgages and consumer loans, due to the requirement to estimate lifetime expected credit losses, with lower ACL requirements for commercial and commercial real estate loans due to their short-term nature. Based on its assessment,the credit quality of the Company’s existing held-to-maturity and AFS investment securities portfolio, the Company doesdid not expect thatrecognize an ACL at adoption for those investments. The adoption of the new standard willdid not have a material impact to the Utilities’ customer and other accounts receivables and accrued unbilled revenue. The Company will continue to make refinements to its credit loss model throughout the remainder of 2019 and plans to adoptResults for reporting periods beginning after January 1, 2020 are presented under ASU No. 2016-13 in the first quarter of 2020. The guidance iswhile prior period amounts continue to be applied on a modified retrospective basisreported in accordance with the cumulative effect of initially applying the amendments recognized in retained earnings at the date of initial application (January 1, 2020), and the Company expects the bank to remain well capitalized under the regulatory framework after the initial application of ASU No. 2016-03.
Codification Improvements. In April 2019, the FASB issued ASU No. 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” which is intended to clarify certain issues related to the accounting for financial instruments.
•
With respect to Topic 326, Financial Instruments - Credit Losses, ASU No. 2019-04 allows entities to measure the allowance for credit losses on accrued interest receivable balances separately from other components of the amortized cost basis of associated financial assets, or to make an accounting policy election not to measure an allowance for credit losses on accrued interest receivable amounts if an entity writes off the uncollectible accrued interest receivable balance in a timely manner and makes certain disclosures. ASU No. 2019-04 also allows an entity to make an accounting policy election regarding the presentation and disclosure of accrued interest receivables and the related allowance for credit losses for those accrued interest receivables. ASU No. 2019-04 also clarifies certain issues related to transfers between classifications or categories for loans and debt securities, recoveries, variable interest rates and prepayments, vintage disclosures, and contractual extensions and renewal options.
•
With respect to Topic 815, Derivatives and Hedging, ASU No. 2019-04 provides amendments, among others, that address partial-term fair value hedges, fair value hedge basis adjustments, and certain transition requirements.
•
With respect to Topic 825, Financial Instruments, ASU No. 2019-04 clarifies the scope of the guidance and disclosure requirements with respect to recognizing and measuring financial instruments.

The amended guidance in ASU No. 2019-04 will be effective for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted. The Company plans to adopt ASU No. 2019-04 in the first quarter of 2020 and is currently evaluating the impact of the ASU on the Company’s consolidated financial statements.
Reclassifications. Reclassifications made to prior year financial statements to conform to the 2019 presentation include classifying contributions in aid of construction with capital expenditures in the cash flows from investing activities section of the condensed consolidated statements of cash flows for HEI and Hawaiian Electric. In addition, prior period disclosure of proceeds and repayments of other bank borrowings and the net increase in retail repurchase agreements contained in the “Net cash provided by financing activities” section of the consolidated statements of cash flows have been combined to conform to the current period presentation.previously applicable GAAP.
10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)
The table below summarizes the impact of the Company’s adoption of ASU No. 2016-13.
January 1, 2020
(in thousands)Pre-ASU No. 2016-13 adoption
Impact of ASU No. 2016-13
As reported under ASU No. 2016-13
HEI consolidated
Loans held for investments, net1
$5,067,821  $(19,441) $5,048,380  
Total assets$13,745,251  $(19,441) $13,725,810  
Deferred income taxes$379,324  $(5,628) $373,696  
Other1
583,545  1,559  585,104  
Total liabilities11,430,698  (4,069) 11,426,629  
Retained earnings622,042  (15,372) 606,670  
Total shareholders’ equity2,280,260  (15,372) 2,264,888  
Total liabilities and shareholders’ equity$13,745,251  $(19,441) $13,725,810  
1 The allowance for credit losses is classified in “Loans held for investments, net,” and the allowance for loan commitments is classified in “Other” liabilities in the Company’s condensed consolidated balance sheets.

Reference Rate Reform. In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2020-04 provides optional guidance for a limited period of time to ease the potential impacts of transitioning away from reference rates which are expected to be discontinued, such as the London Interbank Offered Rate (LIBOR). The amendments in this ASU apply only to contracts, hedging relationships, and other transactions which reference LIBOR or another reference rate expected to be discontinued. The guidance is effective upon issuance and generally can be applied through December 2022. The Company is evaluating the options provided by ASU 2020-04 and is evaluating the impact on its consolidated financial statements and related disclosures.

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 2 · Segment financial information
(in thousands)  Electric utility Bank Other Total
Three months ended September 30, 2019  
  
  
  
Revenues from external customers $688,299
 $83,201
 $35
 $771,535
Intersegment revenues (eliminations) 31
 —
 (31) —
Revenues $688,330
 $83,201
 $4
 $771,535
Income (loss) before income taxes $58,099
 $29,157
 $(8,563) $78,693
Income taxes (benefit) 10,822
 6,269
 (2,288) 14,803
Net income (loss) 47,277
 22,888
 (6,275) 63,890
Preferred stock dividends of subsidiaries 498
 —
 (27) 471
Net income (loss) for common stock $46,779
 $22,888
 $(6,248) $63,419
Nine months ended September 30, 2019  
  
  
  
Revenues from external customers $1,900,552
 $247,940
 $143
 $2,148,635
Intersegment revenues (eliminations) 57
 —
 (57) —
Revenues $1,900,609
 $247,940
 $86
 $2,148,635
Income (loss) before income taxes $140,775
 $76,611
 $(27,960) $189,426
Income taxes (benefit) 27,800
 15,868
 (7,278) 36,390
Net income (loss) 112,975
 60,743
 (20,682) 153,036
Preferred stock dividends of subsidiaries 1,496
 —
 (79) 1,417
Net income (loss) for common stock $111,479
 $60,743
 $(20,603) $151,619
Total assets (at September 30, 2019) $6,260,968
 $7,135,250
 $121,752
 $13,517,970
Three months ended September 30, 2018  
  
  
  
Revenues from external customers $687,396
 $80,496
 $156
 $768,048
Intersegment revenues (eliminations) 13
 —
 (13) —
Revenues $687,409
 $80,496
 $143
 $768,048
Income (loss) before income taxes $57,354
 $26,831
 $(6,952) $77,233
Income taxes (benefit) 7,144
 5,610
 (1,892) 10,862
Net income (loss) 50,210
 21,221
 (5,060) 66,371
Preferred stock dividends of subsidiaries 498
 —
 (27) 471
Net income (loss) for common stock $49,712
 $21,221
 $(5,033) $65,900
Nine months ended September 30, 2018  
  
  
  
Revenues from external customers $1,865,922
 $233,019
 $258
 $2,099,199
Intersegment revenues (eliminations) 40
 —
 (40) —
Revenues $1,865,962
 $233,019
 $218
 $2,099,199
Income (loss) before income taxes $134,847
 $77,845
 $(22,601) $190,091
Income taxes (benefit) 24,995
 17,103
 (5,625) 36,473
Net income (loss) 109,852
 60,742
 (16,976) 153,618
Preferred stock dividends of subsidiaries 1,496
 —
 (79) 1,417
Net income (loss) for common stock $108,356
 $60,742
 $(16,897) $152,201
Total assets (at December 31, 2018) $5,967,503
 $7,027,894
 $108,654
 $13,104,051

(in thousands) Electric utilityBankOtherTotal
Three months ended June 30, 2020    
Revenues from external customers$534,206  $74,714  $25  $608,945  
Intersegment revenues (eliminations)9  —  (9) —  
Revenues$534,215  $74,714  $16  $608,945  
Income (loss) before income taxes$53,027  $17,334  $(10,131) $60,230  
Income taxes (benefit)10,199  3,320  (2,649) 10,870  
Net income (loss)42,828  14,014  (7,482) 49,360  
Preferred stock dividends of subsidiaries499  —  (26) 473  
Net income (loss) for common stock$42,329  $14,014  $(7,456) $48,887  
Six months ended June 30, 2020    
Revenues from external customers$1,131,636  $154,452  $43  $1,286,131  
Intersegment revenues (eliminations)21  —  (21) —  
Revenues$1,131,657  $154,452  $22  $1,286,131  
Income (loss) before income taxes$82,713  $36,303  $(19,090) $99,926  
Income taxes (benefit)15,481  6,528  (5,336) 16,673  
Net income (loss)67,232  29,775  (13,754) 83,253  
Preferred stock dividends of subsidiaries998  —  (52) 946  
Net income (loss) for common stock$66,234  $29,775  $(13,702) $82,307  
Total assets (at June 30, 2020)$6,332,007  $8,019,665  $129,028  $14,480,700  
Three months ended June 30, 2019    
Revenues from external customers$633,771  $81,687  $27  $715,485  
Intersegment revenues (eliminations)13  —  (13) —  
Revenues$633,784  $81,687  $14  $715,485  
Income (loss) before income taxes$40,817  $21,292  $(9,415) $52,694  
Income taxes (benefit)7,744  4,276  (2,311) 9,709  
Net income (loss)33,073  17,016  (7,104) 42,985  
Preferred stock dividends of subsidiaries499  —  (26) 473  
Net income (loss) for common stock$32,574  $17,016  $(7,078) $42,512  
Six months ended June 30, 2019    
Revenues from external customers$1,212,253  $164,739  $108  $1,377,100  
Intersegment revenues (eliminations)26  —  (26) —  
Revenues$1,212,279  $164,739  $82  $1,377,100  
Income (loss) before income taxes$82,676  $47,454  $(19,397) $110,733  
Income taxes (benefit)16,978  9,599  (4,990) 21,587  
Net income (loss)65,698  37,855  (14,407) 89,146  
Preferred stock dividends of subsidiaries998  —  (52) 946  
Net income (loss) for common stock$64,700  $37,855  $(14,355) $88,200  
Total assets (at December 31, 2019)$6,388,682  $7,233,017  $123,552  $13,745,251  
 
Intercompany electricity sales of the Utilities to the bank 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.
Bank fees that ASB charges the Utilities and “other” segments are not eliminated because those segments would pay fees to another financial institution if they were to bank with another institution and the profit on such fees is nominal.
Hamakua Energy, LLC’s (Hamakua Energy’s) sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.
12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 3 · Electric utility segment
HECO Capital Trust III. Trust III, a statutory trust, which was formed to effect the issuance of $50 million of cumulative quarterly income trust preferred securities in 2004 (2004 Trust Preferred Securities), and had at all times been a wholly-owned unconsolidated subsidiary of Hawaiian Electric, redeemed $50 million of its outstanding 2004 Trust Preferred Securities and $1.5 million of trust common securities on May 15, 2019. Subsequently, a Certificate of Cancellation of Statutory Trust was filed with the Delaware Secretary of State in order to cancel the Trust III, which became effective on June 10, 2019.
For the year-to-date period ending on the Trust’s cancellation date on June 10, 2019 and nine month ended September 30, 2018, Trust III’s income statements consisted of $1.2 million and $2.5 million of interest income received from the 2004 Debentures; $1.2 million and $2.4 million of distributions to holders of the Trust Preferred Securities; $37,000 and $75,000 of common dividends on the trust common securities to Hawaiian Electric, respectively.
Unconsolidated variable interest entities.
Power purchase agreements.  As of SeptemberJune 30, 2019,2020, the Utilities had 4 PPAs for firm capacity (excluding the PGVPuna Geothermal Ventures (PGV) PPA as PGV has been offline since May 2018 due to lava flow on Hawaii Island) 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 3 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 3 IPPs’ economic performance nor the obligation to absorb their expected losses, if any, that could potentially be significant to the IPPs. Thus, the Utilities have not consolidated Kalaeloa, AES Hawaii and Hamakua Energy in its condensed consolidated financial statements. Hamakua Energy is an indirect subsidiary of Pacific Current and is consolidated in HEI’s condensed consolidated financial statements.
For the other PPAs with IPPs, the Utilities have concluded that the consolidation of the IPPs was not required because either the Utilities do not have variable interests in the IPPs due to the absence of an obligation in the PPAs for the Utilities to absorb any variability of the IPPs, or the IPP was considered a “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. NaN IPPs of as-available energy declined to provide the information necessary for Utilities to determine the applicability of accounting standards for VIEs. If information is ultimately received from the IPPs, a possible outcome of future analyses of such information is the consolidation of 1 or both of such IPPs in the unaudited condensed consolidated financial statements. The consolidation of any significant IPP could have a material effect on the unaudited condensed consolidated financial statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs to the IPP.
Commitments and contingencies.
Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC, for the Utilities' low sulfur fuel oil, high sulfur fuel oil, No. 2 diesel, and ultra-low sulfur diesel requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. The existing fuel contracts with Island Energy Services, LLC (IES), terminated on April 27, 2019, as agreed with IES under a mutual termination and release agreement entered into in November 2018.
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.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Power purchase agreements.  Purchases from all IPPs were as follows:
 Three months ended September 30 Nine months ended September 30 Three months ended June 30Six months ended June 30
(in millions) 2019 2018 2019 2018(in millions)2020201920202019
Kalaeloa $58
 $62
 $159
 $154
Kalaeloa$34  $61  $72  $101  
AES Hawaii 38
 38
 102
 107
AES Hawaii32  32  63  64  
HPOWER 20
 19
 57
 51
HPOWER17  19  34  37  
Puna Geothermal Venture —
 —
 —
 15
Hamakua Energy 17
 17
 51
 39
Hamakua Energy11  18  24  34  
Wind IPPs 30
 31
 73
 84
Wind IPPs25  23  53  43  
Solar IPPs 11
 8
 26
 22
Solar IPPs17  8  28  15  
Other IPPs 1
 2
 2
 4
 6
Other IPPs 1
1  1  3  2  
Total IPPs $176
 $177
 $472
 $478
Total IPPs$137  $162  $277  $296  
 
1
1Includes hydro power and other PPAs
Includes hydro power and other PPAs
Kalaeloa Partners, L.P.  Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. Hawaiian Electric and Kalaeloa are currently in negotiations to address the PPA term that ended on May 23, 2016. The PPA automatically extends on a month-to-month basis as long as the parties are still negotiating in good faith. Hawaiian Electric and Kalaeloa have agreed that neither party will terminate the PPA (which has been subject to automatic extension on a month-to-month basis) prior to July 31,November 20, 2020, to allow for a negotiated resolution and PUC approval.
13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amendment No. 2) for a period of 30 years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. Hawaiian Electric and AES Hawaii have been in dispute over an additional 9 MW of capacity. In February 2018, Hawaiian Electric reached agreement with AES Hawaii on an amendment to the PPA. However, in June 2018, the PUC issued an order suspending review of the amendment pending a Department of Health of the State of Hawaii (DOH) decision on AES Hawaii’s request for approval of its Emission Reduction Plan and partnership with Hawaiian Electric. If approved by the PUC, the amendment will resolve AES Hawaii’s claims related to the additional capacity.
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 5,9, 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 Green House 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. On June 20, 2019, the PUC issued an order reopening the docket for further proceedings, including re-examining all of the issues in the proceedings. On September 29, 2019, the PUC issued an order setting the procedural schedule for the matter.matter and on December 20, 2019, issued an order modifying the procedural schedule. Pre-hearing matters will be conducted through February 3,were completed on March 6, 2020. Thereafter,On July 9, 2020, the PUC will setissued an order denying the dateHawaii Electric Light’s request to waive the amended and restated PPA from the PUC’s competitive bidding requirements and therefore, dismissed the request for an evidentiary hearingapproval of the amended and post-hearing briefing.restated PPA without prejudice to possible participation in any future competitive bidding process. On July 20, 2020, Hu Honua expects to complete constructionfiled a motion for reconsideration of the plant inPUC’s order which is currently pending review by the fourth quarter of 2019.PUC.
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 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. In the HawaiianStarting in January 2020, Hawaii Electric 2017 rate case, a settlement agreement approved by the PUC included authorization forLight began to incorporate their portion of the deferred project costs to accrue a return at 1.75% after the project went into service and until the deferred project costs are included in rate base and for amortization of the deferred costs to not begin untilstart the amortization expense is incorporated in rates and the unamortized deferred project costs are included in rate base.over a 12-year period. As of SeptemberJune 30, 2019,2020, the total deferred project costs and accrued carrying costs after the project went into service amounted to $59.1 million.$59.4 million, which is net of the amortization of $0.3 million at Hawaii Electric Light.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


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. As of September 30, 2019, the Utilities recorded a total of $1.4 million as a regulatory liability for amounts to be returned to customers for reduction in O&M expense included in rates.
On September 13, 2019, the Utilities filed their Semi-Annual Enterprise System Benefits Report for the period January 1 through June 30, 2019. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism.
West Loch PV Project. In As of June 2017,30, 2020, the PUC approved the expenditure of fundsUtilities’ regulatory liability was $7.2 million for Hawaiian Electric to build, own and operate a utility-owned, grid-tied 20-MW (ac) solar facility on property owned by the Department of the Navy, including a proposed project cost cap of $67 million and a performance guarantee to provide energy at 9.56 cents/kWh or less to the system.
In approving the project, the PUC agreed that the project is eligible for recovery of costs offset by related net benefits under the newly-established major project interim recovery (MPIR) adjustment mechanism. (See “Decoupling” section below for MPIR guidelines and cost recovery discussion.) Hawaiian Electric has provided supplemental materials, as requested by the PUC, to support meeting the MPIR guidelines, accompanied by system performance guarantee and cost savings sharing mechanisms. A decision on these matters is pending.
Construction of the facility began in the second quarter of 2018, and the facility is expectedamounts to be placedreturned to customers for reduction in serviceO&M expense included in Novemberrates.
At the PUC’s direction, the Utilities have been filing Semi-Annual Enterprise System Benefits (SAESB) reports. The most recent SAESB report was filed on February 26, 2020 for the period July 1 through December 31, 2019. Project costs incurred as of September 30, 2019 amounted to $49.3 million.
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.
14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Former Molokai Electric Company generation site.  In 1989, Maui Electric acquired by merger Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the Hawaii Department of HealthDOH 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 SeptemberJune 30, 2019,2020, representing the probable and reasonably estimable undiscounted cost for remediation of the Site and the Adjacent Parcel; however, final costs of remediation will depend on the cleanup approach implemented.
Pearl Harbor sediment study. In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is a Potentially Responsible Party responsible for the costs of investigation and cleanup of PCB contamination in sediment in the area offshore of the Waiau Power Plant as part of the Pearl Harbor Superfund Site. Hawaiian Electric was also required by the EPA to assess potential sources and extent of PCB contamination onshore at Waiau Power Plant.
As of SeptemberJune 30, 2019,2020, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $4.4$4.8 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore investigation and the remediation of PCB contamination in the offshore sediment. The final remediation costs will depend on the potential onshore source control requirements and actual 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. The decoupling mechanism has the following major components: (1) monthly revenue balancing account (RBA) revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kilowatthour sales, (2) RAMrate adjustment mechanism (RAM) revenues for escalation in certain O&M expenses and rate base changes,

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


(3) MPIRmajor project interim recovery (MPIR) component, (4) performance incentive mechanisms (PIMs), and (5) an earnings sharing mechanism, which would provide for a reduction of revenues between rate cases in the event the utility exceeds the return on average common equity (ROACE) allowed in its most recent rate case. Under the decoupling mechanism,The requirement for triennial general rate cases are required.under the decoupling mechanism was terminated by the PUC on April 29, 2020.
Rate adjustment mechanism. The RAM is based on the lesser of: a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). Annualized target revenues reset upon the issuance of an interim or final decision and order (D&O) in a rate case. Each ofAll Utilities were limited to the Utilities’ RAM revenues was below its respective RAM Cap in 2019. The 2019 RAM also incorporated additional amortization of the regulatory liability associated with certain excess deferred taxes resulting from the 2017 Tax Cuts and Jobs Act decrease in tax rates. The reduction in the RAM revenues will be counterbalanced by the lower income tax expense and, therefore, will have no net income impact.2020.
Major project interim recovery. On April 27, 2017, the PUC issued an order that provided guidelines for interim recovery of revenues to support major projects placed in service between general rate cases.
The PUC approvedProjects eligible for recovery of capital costs underthrough the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $2.5 million), including, but not restricted to, renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case, and all costs that are allowed to be recovered through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital projects that are not recovered through the MPIR would be included in the RAM and be subject to the RAM Cap, until the next rate case when the Utilities would request recovery in base rates.
The 2019 approved MPIR amounts for Schofield Generating Station which increased revenues in 2018 by $3.6 million and are being collected in customer bills beginning in June 2019. In February 2019, Hawaiian Electric submitted an MPIR filing of $19.8 million for 2019 (which accrued effective January 1, 2019), included the 2019 return on project amount (up to the capped amount) in rate base, depreciation and incremental O&M expenses, are collected from June 2020 through May 2021.
The PUC approved the Utilities’ requests for MPIR recovery of the cost of the Grid Modernization Strategy Phase 1 project and West Loch Photovoltaic (PV) project in March and December 2019, respectively. On June 5, 2020, the Utilities submitted 2020 MPIR amounts totaling $23.6 million for the Schofield Generation Station ($19.2 million), West Loch PV project ($3.8 million) and Grid Modernization Strategy Phase 1 project ($0.6 million for all three utilities) for the accrual of revenues effective January 1, 2020, that included the 20192020 return on project amount (up to the capped amount) in rate base, depreciation and incremental O&M expenses, for collection from June 20202021 through May 2021. The2022, subject to PUC has also indicated that it intends to approve MPIR for the West Loch PV Project.review.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Performance incentive mechanisms. The PUC has established the following PIMs:
•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 be re-determined upon issuance of an interim or final order in a general rate case for each utility.
•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 $6.7$6.8 million - for both indices in total for the three utilities).
•Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3% above and below the target. The maximum penalty or incentivereward is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or incentivesrewards of approximately $1.3$1.4 million - in total for the three utilities).
•In 2018,December 2019, the Utilities accrued $2.1$0.3 million in estimated penaltiesrewards for service reliability net of call center performance, incentives for 2018. As a resultnet of a PUC order denying the exclusion of the impact of a specific project on the service reliability performance, in May 2019, Hawaiian Electric accrued an additional $1.3 million in service reliability penalties, related to 2018.for 2019. The net service quality performance penaltiesrewards related to 2018 were2019 was reflected in the 20192020 annual decoupling filing and will reduceincreased customer rates in the period June 1, 20192020 through May 31, 2020.2021.
In May•Procurement of low-cost variable renewable resources through the request for proposal process in 2018 is measured by comparison of the procurement price to target prices. The incentive is a percentage of the savings determined by comparing procured price to a target of 11.5 cents per kilowatt-hour for renewable projects with storage capability and 9.5 cents per kilowatt-hour for energy-only renewable projects. Half of the incentive was earned upon PUC approval of the PPAs and the other half is eligible to be earned in the year following the in-service date of the projects and is dependent on the amount of energy the Utilities receive from the facilities. The total amount of the incentive the Utilities are eligible for is capped at $3.5 million. Based on the 7 PPAs approved in 2019, the Utilities filed an application for approval to, among other things, modify the measurement of performance for the System Average Interruption Duration and Frequency Indexes, adjust the PIM targets, deadbands, and financial incentive levels for each of the PIMs upon issuance of a final orderrecognized $1.7 million in a general rate case, and adjust the call center performance PIM level for Hawaii Electric Light.
•
Procurement of low-cost variable renewable resources through the request for proposal process in 2018 is measured by comparison of the procurement price to target prices. The incentive is a percentage of the savings determined by comparing procured price to a target of 11.5 cents per kilowatt-hour for renewable projects with storage capability and 9.5 cents per kilowatt-hour for energy-only renewable projects. For PPAs filed by December 31, 2018 and subsequently approved by the PUC, the incentive is 20% of the savings, with a cap of $3.5 million for the three utilities in total. For PPAs filed in January, February, and March 2019 and subsequently approved by the PUC, scaled incentives are 15%, 10% and 5%, respectively, of the savings for PPAs, with a cap of $3 million for the three utilities in total. There are 0 penalties. On March 25, 2019, the PUC approved 6 contracts, which were filed by December 31, 2018 and qualified for incentives. A seventh contract, which was filed in February 2019 and approved in August 2019, also qualified for incentives. Half of the incentive is earned upon PUC approval of the contract and the other half is eligible to be earned in the year following the in-service date of the projects. The Utilities accrued $1.7 million2019.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


in incentives in March 2019, which were reflected in the 2019 annual decoupling filing and will be recovered in rates in the period June 1, 2019 through May 31, 2020.
On October 9, 2019, the PUC issued an order establishing PIMs for the Utilities with regards to the Variable Renewable Dispatchable Generation and Energy Storage requests for proposals (RFPs) as well as the Delivery of Grid Services via Customer-sited Distributed Energy Resources RFPs that were issued on August 22, 2019 for Oahu, Maui and Hawaii island. The order establishes pricing thresholds, timelines to complete contracting, and other performance criteria for the performance incentive eligibility. The PIMs provide incentives only without penalties. The earliest the Utilities would be eligible for a PIM pursuant to this order is upon PUC approval of executed contracts resulting from the Phase 2 RFPs. The order requires contracts under the Grid Service RFP be filed for approval by May 2020 (subsequently extended to July 9, 2020), and by September 2020 under the Renewable RFPs. There is no set time periodRFPs, with a declining PIM for approval. Theprojects that are not filed by these deadlines. On July 9, 2020, the Utilities filed a motion for reconsideration and/or clarification regarding the order on October 21, 2019, relating to certain design aspects and eligibility criteria2 Grid Service Purchase Agreements for the PIMs.Grid Service RFP, which qualify for PIMs, however, details of the incentive metrics will be determined by PUC.
Annual decoupling filings. The net annual incremental amounts approved to be collected (refunded) from June 1, 20192020 through May 31, 20202021 are as follows:
(in millions) Hawaiian Electric Hawaii Electric Light Maui Electric Total
2019 Annual incremental RAM adjusted revenues, net of changes in Tax Act adjustment* $6.5
 $1.1
 $5.4
 $13.0
Annual change in accrued RBA balance as of December 31, 2018 (and associated revenue taxes) which incorporates MPIR recovery (12.2) (2.0) 0.8
 (13.4)
Performance Incentive Mechanisms (net) (1.3) —
 (0.4) (1.7)
Net annual incremental amount to be collected (refunded) under the tariffs $(7.0) $(0.9) $5.8
 $(2.1)
(in millions)Hawaiian ElectricHawaii Electric LightMaui ElectricTotal
2020 Annual incremental RAM adjusted revenues$20.6  $3.2  $5.7  $29.5  
Annual change in accrued RBA balance as of December 31, 2019 (and associated revenue taxes) which incorporates MPIR recovery(46.5) (9.9) (11.0) (67.4) 
Incremental Performance Incentive Mechanisms (net)2.2  (0.1) (0.1) 2.0  
Net annual incremental amount to be collected (refunded) under the tariffs$(23.7) $(6.8) $(5.4) $(35.9) 
*   The 2017 Tax Cuts and Jobs Act (the Tax Act) had two incremental impacts in 2019. First, the 2019 RAM calculation for all of the Utilities incorporated additional amortization of the regulatory liability associated with certain deferred taxes. Secondly, Maui Electric incorporated a $2.8 million adjustment in its 2018 annual decoupling filing related to the Tax Act which is not recurring in 2019.
Performance-based regulation proceeding. On April 18, 2018, the PUC issued an order, instituting a proceeding to investigate performance-based regulation (PBR). The PUC stated that PBR seeks to utilize both revenue adjustment mechanisms and performance mechanisms to more strongly align utilities’ incentives with customer interests.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The order stated that, in general, the PUC is interested in ratemaking elements and/or mechanisms that result in:
•Greater cost control and reduced rate volatility;
•Efficient investment and allocation of resources regardless of classification as capital or operating expense;
•Fair distribution of risks between utilities and customers; and
•Fulfillment of State policy goals.
The proceeding has two phases. Phase 1 examined the current regulatory framework and identified those areas of utility performance that are deserving of further focus in Phase 2. In May 2019, the PUC issued an order concluding Phase 1, which established guiding principles, regulatory goals, and priority outcomes to guide the development of the PBR mechanisms in Phase 2. The PUC identified the following guiding principles, which will inform the development of the PBR framework: 1) a customer-centric approach, 2) administrative efficiency to reduce regulatory burdens; and 3) utility financial integrity to maintain the utility’s financial health. Priority goals (and priority outcomes) identified by the PUC were: enhance customer experience (affordability, reliability, interconnection experience, and customer engagement), improve utility performance (cost control, distributed energy resources (DER) asset effectiveness, and grid investment efficiency), and advance societal outcomes (capital formation, customer equity, greenhouse gas reduction, electrification of transportation, and resilience).
The order also outlined the PUC’s vision of a comprehensive PBR framework that would be further developed in Phase 2. The framework envisioned would include 1) a five-year multi-year rate plan with an index-driven annual revenue adjustment based on an inflation factor, an X-factor which would encompass productivity, a Z-factor to account for exceptional circumstances not in the utility’s control and a customer dividend, 2) a symmetric earnings sharing mechanism that would help ensure that utility earnings do not excessively benefit or suffer from external factors outside of utility control or unforeseen results of regulatory mechanisms, 3) off-ramp provisions, 4) continuation of the RBA, MPIR adjustment mechanism, the pension and OPEB tracking mechanism, and other recovery mechanisms, and 5) a portfolio of performance incentive mechanisms for customer engagement and DER asset effectiveness (rewards only), and interconnection experience (both rewards and penalties), in addition to scorecards to track progress against targeted performance levels, shared savings mechanisms to apportion savings to the utility and customers, and reported metrics.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


The Phase 2 schedule includesincluded working group meetings through the first half of 2020, followed by statements of positions that were filed in June 2020. The remainder of the Phase 2 schedule includes discovery, reply statements of positions in August 2020, an evidentiary hearing in OctoberSeptember 2020 and anticipated decision in December 2020. The latest procedural schedule includes steps after the Phase 2 D&O “to review and approve PBR tariffs.”
Most recent rate proceedings.
Hawaiian Electric 2020 test year rate case. On August 21, 2019,May 27, 2020, Hawaiian Electric filed an application for a general rate increase for its 2020 test year rate case, requesting an increase of $77.6 million over revenues at current effective rates (for a 4.1% increase in revenues), based on an 8% rate of return (which incorporates a ROACE of 10.5%). In September 2019, the PUC issued an order ruling that Hawaiian Electric’s application was complete as of the date of filing. It also ordered that an outside consultant, selected by the PUC, would independently conduct a management audit of Hawaiian Electric. The PUC expects the audit to conclude in May 2020. 
Maui Electric consolidated 2015 and 2018 test year rate cases. On August 9, 2018, the PUC approved an interim rate increase based on a stipulated settlement, that included the effects of the 2017 Tax Act, between Maui Electric and the Consumer Advocate. Advocate filed a Stipulated Settlement Letter, documenting a global settlement of all issues in this rate case. The Parties agreed that as a result of this settlement agreement, there will be no increase in electric revenues over the revenues established in the 2017 test year rate case. The settlement agreement is subject to PUC approval.
On March 18, 2019,May 13, 2020, the PUC issued its D&O that approved, with certain modifications,Final Report on the stipulated settlement,Management Audit, which addressed all issuesrecommended various operational and organizational changes intended to better manage costs and provide value to customers. The report also recommended a three-year timeframe to ramp up to a sustained $25 million in annual savings by the end of 2022, split between capital (approximately 80%) and O&M (approximately 20%). In its statement of position on the management audit filed on June 17, 2020, Hawaiian Electric committed to deliver these savings to customers over time through a proposal it later submitted in its statement of position in the rate case.
Revised tariffs reflecting a final increase of $12.2 million over revenues at current effective rates basedPBR proceeding. The PUC’s decisions on the approved 7.43% rate of return (which incorporates a ROACE of 9.5%settlement agreement and a capital structure that includes a 57% common equity capitalization) on a $454 million rate base became effective on June 1, 2019. Maui Electric’s ECRC tariff, resultingthe remaining procedural steps in the recovery of all fuel and purchased energy through the ECRC and the removal of the recovery of these costs from base rates, became effective on September 1, 2019. The ECRC reflects a 98%/2% fossil fuel generation cost risk-sharing split between ratepayers and Maui Electric, with an annual maximum increase or decrease to revenues to $0.6 million for the utility.this proceeding are pending.
Hawaii Electric Light 2019 test year rate case. On December 14, 2018, Hawaii Electric Light filed an application for a general rate increase for its 2019 test year rate case, requesting an increase of $13.4 million over revenues at current effective rates (for a 3.4% increase in revenues), based on an 8.3% rate of return (which incorporates a ROACE of 10.5%).
On September 24, 2019, Hawaii Electric Light and the Consumer Advocate (Parties) filed a Stipulated Partial Settlement Letter which documented agreements reached with the Consumer Advocate on all of the issues in the proceeding, except for the ROACE, capital structure, amortization period for the state investment tax credit, (ITC), and symmetric or asymmetric automatic annual target heat rate adjustment. On October 1, 2019, the Parties filed separate statements of probable entitlement, proposing the amount of interim revenue increase according to their respective proposed ROACE based on the scenario which excludes Hu Honua from the 2019 test year revenue requirement. In Hawaii Electric Light’s Statement of Probable Entitlement, the utility requested the PUC to issue an interim D&O by November 13, 2019, approving the PUC issued an interim rate increase of $2.79 million overdecision maintaining Hawaii Electric Light’s revenues at current effective rates based on an interim revenue requirement of $387 million, average rate base of $534 million, and a 7.52% return on rate base (RORB) that incorporates a ROACE of 9.50% for interim only, an adjusted capitalization structure consisting of a 58%9.5% and 58.0% total equity ratio, and tariffs became effective January 1, 2020 . On July 28, 2020, the PUC issued an order, approving the Stipulated Partial Settlement Letter in part and ordering final rates for the 2019 test year to remain at current effective rates such that there is a 40-yearzero increase in rates. The PUC determined that an appropriate ROACE for the 2019 test year is 9.5%, approved a capital structure of 58% total equity and approved as fair a 7.52% RORB. In addition, the order, among others, (1) approved a 10-year amortization ofperiod for the state ITCinvestment tax credit; and the proposed tariff changes(2) approved a modification to be effective on November 21, 2019.Hawaii Electric Light’s ECRC to incorporate a 98%/2% risk-sharing split between customers and Hawaii Electric Light requested final increase in revenues be based on a ROACE with an annual maximum exposure cap
17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
of 10.50% for its 2019 test year.
+/- $600,000. Hawaii Electric Light is to submit proposed final tariffs and a revised ECRC tariff for the PUC’s review within 30 days of this order.
Maui Electric 2021 test year rate case. By an order issued on April 29, 2020, the PUC terminated the requirement of a mandatory triennial rate case cycle that was established in the Decoupling final D&O, and indicated Maui Electric is not required to file a 2021 test year rate case. Maui Electric does not intend to file a 2021 test year rate case.
Regulatory assets for COVID-19 related expenses. On April 22, 2020, the Utilities filed rebuttal testimonies on October 9, 2019, which addressed the unresolved issues between Hawaiian Electric and the Consumer Advocate and respondeda request to the Participants’ proposalsPUC for deferral treatment of COVID-19 related expenses, including higher bad debt expense and comments made in their direct testimonies. The evidentiary hearing is scheduledwrite-offs, higher financing costs and other expenses. 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 weekpendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the Utilities from charging late payment fees on past due payments. On June 30, 2020, the PUC issued an order on the Utilities request for deferral treatment of COVID-19 related expenses through December 16, 2019.
31, 2020, and allowed the Utilities to file application to request an extension of the deferral period beyond December 31, 2020. Beginning on July 31, 2020, the Utilities are required to file quarterly reports to update the Utilities’ financial condition, measures in place to assist their customers during the COVID-19 emergency situation, identifying the planned deferred costs and details for the deferred costs, and identifying funds received or benefits received that have resulted from the COVID-19 emergency period. As of June 30, 2020, the Utilities recorded a total of $6.5 million in regulatory assets pursuant to the order.
Condensed consolidating financial information. Condensed consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the three and ninesix month periods ended SeptemberJune 30, 20192020 and 2018,2019, and as of SeptemberJune 30, 20192020 and December 31, 2018.2019.
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.

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended SeptemberJune 30, 20192020

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $491,723
 93,576
 103,236
 —
 (205) $688,330
Expenses            
Fuel oil 139,747
 21,427
 37,919
 —
 —
 199,093
Purchased power 135,447
 24,342
 15,248
 —
 —
 175,037
Other operation and maintenance 80,582
 19,868
 23,965
 —
 —
 124,415
Depreciation 35,867
 10,453
 7,615
 —
 —
 53,935
Taxes, other than income taxes 46,433
 8,359
 9,265
 —
 —
 64,057
   Total expenses 438,076
 84,449
 94,012
 —
 —
 616,537
Operating income 53,647
 9,127
 9,224
 —
 (205) 71,793
Allowance for equity funds used during construction 2,685
 229
 336
 —
 —
 3,250
Equity in earnings of subsidiaries 11,048
 —
 —
 —
 (11,048) —
Retirement defined benefits expense—other than service costs (582) (105) (36) —
 —
 (723)
Interest expense and other charges, net (12,771) (2,524) (2,339) —
 205
 (17,429)
Allowance for borrowed funds used during construction 990
 95
 123
 —
 —
 1,208
Income before income taxes 55,017
 6,822
 7,308
 —
 (11,048) 58,099
Income taxes 7,968
 1,420
 1,434
 —
 —
 10,822
Net income 47,049
 5,402
 5,874
 —
 (11,048) 47,277
Preferred stock dividends of subsidiaries —
 133
 95
 —
 —
 228
Net income attributable to Hawaiian Electric 47,049
 5,269
 5,779
 —
 (11,048) 47,049
Preferred stock dividends of Hawaiian Electric 270
 —
 —
 —
 —
 270
Net income for common stock $46,779
 5,269
 5,779
 —
 (11,048) $46,779

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustments
Hawaiian Electric
Consolidated
Revenues$380,634  78,505  75,216  —  (140) $534,215  
Expenses
Fuel oil77,290  16,254  18,907  —  —  112,451  
Purchased power108,946  15,846  12,046  —  —  136,838  
Other operation and maintenance74,274  17,581  18,186  —  —  110,041  
Depreciation37,860  9,761  8,075  —  —  55,696  
Taxes, other than income taxes36,673  7,470  7,245  —  —  51,388  
   Total expenses335,043  66,912  64,459  —  —  466,414  
Operating income45,591  11,593  10,757  —  (140) 67,801  
Allowance for equity funds used during construction1,807  193  194  —  —  2,194  
Equity in earnings of subsidiaries13,776  —  —  —  (13,776) —  
Retirement defined benefits expense—other than service costs(546) 193  (29) —  —  (382) 
Interest expense and other charges, net(12,499) (2,533) (2,446) —  140  (17,338) 
Allowance for borrowed funds used during construction626  62  64  —  —  752  
Income before income taxes48,755  9,508  8,540  —  (13,776) 53,027  
Income taxes6,156  2,196  1,847  10,199  
Net income42,599  7,312  6,693  —  (13,776) 42,828  
Preferred stock dividends of subsidiaries—  133  96  —  229  
Net income attributable to Hawaiian Electric42,599  7,179  6,597  —  (13,776) 42,599  
Preferred stock dividends of Hawaiian Electric270  —  —  —  —  270  
Net income for common stock$42,329  7,179  6,597  —  (13,776) $42,329  

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended SeptemberJune 30, 20192020

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other
subsidiaries		 Consolidating
adjustments		 Hawaiian Electric
Consolidated
Net income for common stock $46,779
 5,269
 5,779
 —
 (11,048) $46,779
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 2,519
 387
 309
 —
 (696) 2,519
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (2,493) (387) (309) —
 696
 (2,493)
Other comprehensive income, net of taxes 26
 —
 —
 —
 —
 26
Comprehensive income attributable to common shareholder $46,805
 5,269
 5,779
 —
 (11,048) $46,805

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries		Consolidating
adjustments		Hawaiian Electric
Consolidated
Net income for common stock$42,329  7,179  6,597  —  (13,776) $42,329  
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 benefits5,184  751  650  —  (1,401) 5,184  
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes(5,159) (748) (653) —  1,401  (5,159) 
Other comprehensive income (loss), net of taxes25  3  (3) —  —  25  
Comprehensive income attributable to common shareholder$42,354  7,182  6,594  —  (13,776) $42,354  


19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended SeptemberJune 30, 20182019

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustments
Hawaiian Electric
Consolidated
Revenues$450,020  89,916  94,050  —  (202) $633,784  
Expenses
Fuel oil125,431  19,941  36,248  —  —  181,620  
Purchased power126,871  24,029  11,954  —  —  162,854  
Other operation and maintenance78,551  18,031  22,678  —  —  119,260  
Depreciation35,868  10,453  7,592  —  —  53,913  
Taxes, other than income taxes42,590  8,706  9,147  —  —  60,443  
   Total expenses409,311  81,160  87,619  —  —  578,090  
Operating income40,709  8,756  6,431  —  (202) 55,694  
Allowance for equity funds used during construction2,614  218  343  —  —  3,175  
Equity in earnings of subsidiaries8,086  —  —  —  (8,086) —  
Retirement defined benefits expense—other than service costs(567) (105) (29) —  —  (701) 
Interest expense and other charges, net(13,390) (2,920) (2,422) —  202  (18,530) 
Allowance for borrowed funds used during construction962  91  126  —  —  1,179  
Income before income taxes38,414  6,040  4,449  —  (8,086) 40,817  
Income taxes5,570  1,241  933  —  —  7,744  
Net income32,844  4,799  3,516  —  (8,086) 33,073  
Preferred stock dividends of subsidiaries—  133  96  —  —  229  
Net income attributable to Hawaiian Electric32,844  4,666  3,420  —  (8,086) 32,844  
Preferred stock dividends of Hawaiian Electric270  —  —  —  —  270  
Net income for common stock$32,574  4,666  3,420  —  (8,086) $32,574  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $488,210
 98,981
 100,273
 —
 (55) $687,409
Expenses            
Fuel oil 141,357
 26,429
 38,765
 —
 —
 206,551
Purchased power 138,135
 24,091
 15,364
 —
 —
 177,590
Other operation and maintenance 78,988
 15,253
 19,312
 —
 —
 113,553
Depreciation 34,282
 10,072
 6,629
 —
 —
 50,983
Taxes, other than income taxes 46,096
 9,215
 9,385
 —
 —
 64,696
   Total expenses 438,858
 85,060
 89,455
 —
 —
 613,373
Operating income 49,352
 13,921
 10,818
 —
 (55) 74,036
Allowance for equity funds used during construction 1,648
 39
 275
 —
 —
 1,962
Equity in earnings of subsidiaries 16,636
 —
 —
 —
 (16,636) —
Retirement defined benefits expense—other than service costs (475) (104) (103) —
 —
 (682)
Interest expense and other charges, net (13,542) (3,026) (2,455) —
 55
 (18,968)
Allowance for borrowed funds used during construction 810
 49
 147
 —
 —
 1,006
Income before income taxes 54,429
 10,879
 8,682
 —
 (16,636) 57,354
Income taxes 4,447
 1,571
 1,126
 —
 —
 7,144
Net income 49,982
 9,308
 7,556
 —
 (16,636) 50,210
Preferred stock dividends of subsidiaries —
 133
 95
 —
 —
 228
Net income attributable to Hawaiian Electric 49,982
 9,175
 7,461
 —
 (16,636) 49,982
Preferred stock dividends of Hawaiian Electric 270
 —
 —
 —
 —
 270
Net income for common stock $49,712
 9,175
 7,461
 —
 (16,636) $49,712


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended SeptemberJune 30, 20182019

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other
subsidiaries		 Consolidating
adjustments		 Hawaiian Electric
Consolidated
Net income for common stock $49,712
 9,175
 7,461
 —
 (16,636) $49,712
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 4,753
 705
 606
 —
 (1,311) 4,753
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (4,725) (705) (606) —
 1,311
 (4,725)
Other comprehensive income, net of taxes 28
 —
 —
 —
 —
 28
Comprehensive income attributable to common shareholder $49,740
 9,175
 7,461
 —
 (16,636) $49,740

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries		Consolidating
adjustments		Hawaiian Electric
Consolidated
Net income for common stock$32,574  4,666  3,420  —  (8,086) $32,574  
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 benefits2,321  352  289  —  (641) 2,321  
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes(2,298) (351) (289) —  640  (2,298) 
Other comprehensive income, net of taxes23  1  —  —  (1) 23  
Comprehensive income attributable to common shareholder$32,597  4,667  3,420  —  (8,087) $32,597  

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
NineSix months ended SeptemberJune 30, 20192020

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $1,347,412
 270,697
 282,939
 —
 (439) $1,900,609
Expenses            
Fuel oil 374,100
 62,210
 105,012
 —
 —
 541,322
Purchased power 367,541
 67,548
 37,247
 —
 —
 472,336
Other operation and maintenance 240,311
 56,635
 64,859
 —
 —
 361,805
Depreciation 107,602
 31,359
 22,834
 —
 —
 161,795
Taxes, other than income taxes 127,654
 25,170
 26,480
 —
 —
 179,304
   Total expenses 1,217,208
 242,922
 256,432
 —
 —
 1,716,562
Operating income 130,204
 27,775
 26,507
 —
 (439) 184,047
Allowance for equity funds used during construction 7,746
 579
 1,010
 —
 —
 9,335
Equity in earnings of subsidiaries 30,983
 —
 —
 —
 (30,983) —
Retirement defined benefits expense—other than service costs (1,716) (316) (95) —
 —
 (2,127)
Interest expense and other charges, net (38,961) (8,345) (7,078) —
 439
 (53,945)
Allowance for borrowed funds used during construction 2,854
 242
 369
 —
 —
 3,465
Income before income taxes 131,110
 19,935
 20,713
 —
 (30,983) 140,775
Income taxes 18,821
 4,431
 4,548
 —
 —
 27,800
Net income 112,289
 15,504
 16,165
 —
 (30,983) 112,975
Preferred stock dividends of subsidiaries —
 400
 286
 —
 —
 686
Net income attributable to Hawaiian Electric 112,289
 15,104
 15,879
 —
 (30,983) 112,289
Preferred stock dividends of Hawaiian Electric 810
 —
 —
 —
 —
 810
Net income for common stock $111,479
 15,104
 15,879
 —
 (30,983) $111,479

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric
Consolidated
Revenues$801,800  167,798  162,414  —  (355) $1,131,657  
Expenses
Fuel oil197,825  38,686  49,161  —  —  285,672  
Purchased power216,897  35,367  24,390  —  —  276,654  
Other operation and maintenance159,911  36,685  40,992  —  —  237,588  
Depreciation75,871  19,521  16,154  —  —  111,546  
Taxes, other than income taxes77,174  15,812  15,452  —  —  108,438  
   Total expenses727,678  146,071  146,149  —  —  1,019,898  
Operating income74,122  21,727  16,265  —  (355) 111,759  
Allowance for equity funds used during construction3,550  312  347  —  —  4,209  
Equity in earnings of subsidiaries22,580  —  —  —  (22,580) —  
Retirement defined benefits expense—other than service costs(1,092) 387  (58) —  —  (763) 
Interest expense and other charges, net(24,501) (5,017) (4,769) —  355  (33,932) 
Allowance for borrowed funds used during construction1,228  98  114  —  —  1,440  
Income before income taxes75,887  17,507  11,899  —  (22,580) 82,713  
Income taxes9,113  3,994  2,374  —  —  15,481  
Net income66,774  13,513  9,525  —  (22,580) 67,232  
Preferred stock dividends of subsidiaries—  267  191  —  —  458  
Net income attributable to Hawaiian Electric66,774  13,246  9,334  —  (22,580) 66,774  
Preferred stock dividends of Hawaiian Electric540  —  —  —  —  540  
Net income for common stock$66,234  13,246  9,334  —  (22,580) $66,234  


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
NineSix months ended SeptemberJune 30, 20192020


(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric Consolidated
Net income for common stock$66,234  13,246  9,334  —  (22,580) $66,234  
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 benefits10,368  1,499  1,302  —  (2,801) 10,368  
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes(10,317) (1,495) (1,305) —  2,800  (10,317) 
Other comprehensive income (loss), net of taxes51  4  (3) —  (1) 51  
Comprehensive income attributable to common shareholder$66,285  13,250  9,331  —  (22,581) $66,285  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries
 
Consolidating
adjustments
 Hawaiian Electric
Consolidated
Net income for common stock $111,479
 15,104
 15,879
 —
 (30,983) $111,479
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 7,162
 1,091
 887
 —
 (1,978) 7,162
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (7,089) (1,089) (887) —
 1,976
 (7,089)
Other comprehensive income, net of taxes 73
 2
 —
 —
 (2) 73
Comprehensive income attributable to common shareholder $111,552
 15,106
 15,879
 —
 (30,985) $111,552

21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
NineSix months ended SeptemberJune 30, 20182019

(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric
Consolidated
Revenues $1,321,089
 276,462
 268,567
 —
 (156) $1,865,962
Expenses            
Fuel oil 375,862
 64,348
 105,026
 —
 —
 545,236
Purchased power 367,317
 72,589
 38,332
 —
 —
 478,238
Other operation and maintenance 228,773
 50,366
 54,666
 —
 —
 333,805
Depreciation 103,112
 30,165
 18,533
 —
 —
 151,810
Taxes, other than income taxes 125,214
 25,835
 25,275
 —
 —
 176,324
   Total expenses 1,200,278
 243,303
 241,832
 —
 —
 1,685,413
Operating income 120,811
 33,159
 26,735
 —
 (156) 180,549
Allowance for equity funds used during construction 7,123
 274
 842
 —
 —
 8,239
Equity in earnings of subsidiaries 35,041
 —
 —
 —
 (35,041) —
Retirement defined benefits expense—other than service costs (2,091) (312) (531) —
 —
 (2,934)
Interest expense and other charges, net (38,967) (8,855) (7,156) —
 156
 (54,822)
Allowance for borrowed funds used during construction 3,198
 190
 427
 —
 —
 3,815
Income before income taxes 125,115
 24,456
 20,317
 —
 (35,041) 134,847
Income taxes 15,949
 5,017
 4,029
 —
 —
 24,995
Net income 109,166
 19,439
 16,288
 —
 (35,041) 109,852
Preferred stock dividends of subsidiaries —
 400
 286
 —
 —
 686
Net income attributable to Hawaiian Electric 109,166
 19,039
 16,002
 —
 (35,041) 109,166
Preferred stock dividends of Hawaiian Electric 810
 —
 —
 —
 —
 810
Net income for common stock $108,356
 19,039
 16,002
 —
 (35,041) $108,356


(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric
Consolidated
Revenues$855,689  177,121  179,703  —  (234) $1,212,279  
Expenses
Fuel oil234,353  40,783  67,093  —  —  342,229  
Purchased power232,094  43,206  21,999  —  —  297,299  
Other operation and maintenance159,729  36,767  40,894  —  —  237,390  
Depreciation71,735  20,906  15,219  —  —  107,860  
Taxes, other than income taxes81,221  16,811  17,215  —  —  115,247  
   Total expenses779,132  158,473  162,420  —  —  1,100,025  
Operating income76,557  18,648  17,283  —  (234) 112,254  
Allowance for equity funds used during construction5,061  350  674  —  —  6,085  
Equity in earnings of subsidiaries19,935  —  —  —  (19,935) —  
Retirement defined benefits expense—other than service costs(1,134) (211) (59) —  —  (1,404) 
Interest expense and other charges, net(26,190) (5,821) (4,739) —  234  (36,516) 
Allowance for borrowed funds used during construction1,864  147  246  —  —  2,257  
Income before income taxes76,093  13,113  13,405  —  (19,935) 82,676  
Income taxes10,853  3,011  3,114  —  —  16,978  
Net income65,240  10,102  10,291  —  (19,935) 65,698  
Preferred stock dividends of subsidiaries—  267  191  —  —  458  
Net income attributable to Hawaiian Electric65,240  9,835  10,100  —  (19,935) 65,240  
Preferred stock dividends of Hawaiian Electric540  —  —  —  —  540  
Net income for common stock$64,700  9,835  10,100  —  (19,935) $64,700  


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
NineSix months ended SeptemberJune 30, 20182019

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric Consolidated
Net income for common stock$64,700  9,835  10,100  —  (19,935) $64,700  
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 benefits4,643  704  578  —  (1,282) 4,643  
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes(4,596) (702) (578) —  1,280  (4,596) 
Other comprehensive income, net of taxes47  2  —  —  (2) 47  
Comprehensive income attributable to common shareholder$64,747  9,837  10,100  —  (19,937) $64,747  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries 
 
Consolidating
adjustments
 Hawaiian Electric
Consolidated
Net income for common stock
 $108,356
 19,039
 16,002
 —
 (35,041) $108,356
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 14,259
 2,114
 1,817
 —
 (3,931) 14,259
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes (14,174) (2,113) (1,817) —
 3,930
 (14,174)
Other comprehensive income, net of taxes 85
 1
 —
 —
 (1) 85
Comprehensive income attributable to common shareholder $108,441
 19,040
 16,002
 —
 (35,042) $108,441

22

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
SeptemberJune 30, 20192020
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries
 
Consoli-
dating
adjustments
 Hawaiian Electric
Consolidated		(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsi-
diaries		Consoli-
dating
adjustments		Hawaiian Electric
Consolidated
Assets  
  
  
  
  
  
Assets      
Property, plant and equipment            Property, plant and equipment
Utility property, plant and equipment  
  
  
  
  
  
Utility property, plant and equipment      
Land $42,112
 5,606
 3,612
 —
 —
 $51,330
Land$42,389  5,606  3,612  —  —  $51,607  
Plant and equipment 4,676,163
 1,282,065
 1,139,058
 —
 —
 7,097,286
Plant and equipment4,859,373  1,321,091  1,173,377  —  —  7,353,841  
Less accumulated depreciation (1,595,962) (569,878) (520,548) —
 —
 (2,686,388)Less accumulated depreciation(1,636,504) (586,351) (535,689) —  —  (2,758,544) 
Construction in progress 185,022
 17,219
 24,315
 —
 —
 226,556
Construction in progress170,655  20,181  23,651  —  —  214,487  
Utility property, plant and equipment, net 3,307,335
 735,012
 646,437
 —
 —
 4,688,784
Utility property, plant and equipment, net3,435,913  760,527  664,951  —  —  4,861,391  
Nonutility property, plant and equipment, less accumulated depreciation 5,311
 115
 1,532
 —
 —
 6,958
Nonutility property, plant and equipment, less accumulated depreciation5,308  115  1,532  —  —  6,955  
Total property, plant and equipment, net 3,312,646
 735,127
 647,969
 —
 —
 4,695,742
Total property, plant and equipment, net3,441,221  760,642  666,483  —  —  4,868,346  
Investment in wholly owned subsidiaries, at equity 588,886
 —
 —
 —
 (588,886) —
Investment in wholly owned subsidiaries, at equity599,198  —  —  —  (599,198) —  
Current assets  
  
  
  
  
  
Current assets      
Cash and cash equivalents 22,073
 5,003
 5,330
 101
 —
 32,507
Cash and cash equivalents55,170  4,594  4,130  101  —  63,995  
Restricted cashRestricted cash29,376  —  —  —  —  29,376  
Advances to affiliates 22,200
 15,000
 —
 —
 (37,200) —
Advances to affiliates13,500  —  —  —  (13,500) —  
Customer accounts receivable, net 111,171
 25,676
 26,246
 —
 —
 163,093
Customer accounts receivable, net97,615  21,422  19,001  —  —  138,038  
Accrued unbilled revenues, net 90,015
 15,880
 17,925
 —
 —
 123,820
Accrued unbilled revenues, net74,086  12,705  13,810  —  —  100,601  
Other accounts receivable, net 10,994
 1,516
 2,056
 —
 (9,948) 4,618
Other accounts receivable, net19,409  3,592  4,358  —  (16,944) 10,415  
Fuel oil stock, at average cost 62,645
 10,694
 11,204
 —
 —
 84,543
Fuel oil stock, at average cost30,477  14,965  15,037  —  —  60,479  
Materials and supplies, at average cost 33,747
 10,170
 16,893
 —
 —
 60,810
Materials and supplies, at average cost38,475  10,116  17,653  —  —  66,244  
Prepayments and other 38,439
 4,622
 4,655
 —
 (1,395) 46,321
Prepayments and other18,005  17,151  2,773  —  —  37,929  
Regulatory assets 29,410
 1,684
 1,857
 —
 —
 32,951
Regulatory assets16,846  2,598  1,842  —  —  21,286  
Total current assets 420,694
 90,245
 86,166
 101
 (48,543) 548,663
Total current assets392,959  87,143  78,604  101  (30,444) 528,363  
Other long-term assets  
  
  
  
  
  
Other long-term assets      
Operating lease right-of-use assets 190,300
 1,560
 394
 —
 —
 192,254
Operating lease right-of-use assets159,169  1,490  370  —  —  161,029  
Regulatory assets 502,254
 112,900
 101,162
 —
 —
 716,316
Regulatory assets460,493  104,707  96,084  —  —  661,284  
Other 72,386
 17,096
 18,511
 —
 —
 107,993
Other76,482  16,915  19,588  —  —  112,985  
Total other long-term assets 764,940
 131,556
 120,067
 —
 —
 1,016,563
Total other long-term assets696,144  123,112  116,042  —  —  935,298  
Total assets $5,087,166
 956,928
 854,202
 101
 (637,429) $6,260,968
Total assets$5,129,522  970,897  861,129  101  (629,642) $6,332,007  
Capitalization and liabilities  
  
  
  
  
  
Capitalization and liabilities      
Capitalization  
  
  
  
  
  
Capitalization      
Common stock equity $1,993,254
 303,345
 285,440
 101
 (588,886) $1,993,254
Common stock equity$2,060,069  304,088  295,009  101  (599,198) $2,060,069  
Cumulative preferred stock—not subject to mandatory redemption 22,293
 7,000
 5,000
 —
 —
 34,293
Cumulative preferred stock—not subject to mandatory redemption22,293  7,000  5,000  —  —  34,293  
Long-term debt, net 937,211
 203,952
 181,092
 —
 —
 1,322,255
Long-term debt, net1,116,186  216,400  228,369  —  —  1,560,955  
Total capitalization 2,952,758
 514,297
 471,532
 101
 (588,886) 3,349,802
Total capitalization3,198,548  527,488  528,378  101  (599,198) 3,655,317  
Current liabilities  
  
  
  
  
  
Current liabilities      
Current portion of operating lease liabilities 62,634
 94
 30
 —
 —
 62,758
Current portion of operating lease liabilities64,405  97  32  —  —  64,534  
Current portion of long-term debt 61,976
 13,992
 19,997
 —
 —
 95,965
Current portion of long-term debt—  14,000  —  —  —  14,000  
Short-term borrowings from non-affiliates 112,353
 —
 —
 —
 —
 112,353
Short-term borrowings from non-affiliates49,919  —  —  —  —  49,919  
Short-term borrowings from affiliate 15,000
 —
 22,200
 —
 (37,200) —
Short-term borrowings from affiliate—  12,000  1,500  —  (13,500) —  
Accounts payable 113,544
 17,654
 21,364
 —
 —
 152,562
Accounts payable79,071  14,408  13,599  —  —  107,078  
Interest and preferred dividends payable 19,699
 3,695
 4,215
 —
 (69) 27,540
Interest and preferred dividends payable14,580  3,349  2,736  —  (6) 20,659  
Taxes accrued 143,156
 30,874
 32,204
 —
 (1,395) 204,839
Taxes accrued133,321  32,526  28,004  —  —  193,851  
Regulatory liabilities 9,255
 5,836
 4,425
 —
 —
 19,516
Regulatory liabilities11,467  7,401  7,199  —  —  26,067  
Other 51,943
 10,187
 15,648
 —
 (9,879) 67,899
Other55,378  17,181  16,070  —  (16,938) 71,691  
Total current liabilities 589,560
 82,332
 120,083
 —
 (48,543) 743,432
Total current liabilities408,141  100,962  69,140  —  (30,444) 547,799  
Deferred credits and other liabilities  
  
  
  
  
  
Deferred credits and other liabilities      
Operating lease liabilities 126,979
 1,466
 367
 —
 —
 128,812
Operating lease liabilities100,833  1,394  343  —  —  102,570  
Deferred income taxes 282,336
 53,939
 56,286
 —
 —
 392,561
Deferred income taxes261,044  52,485  57,523  —  —  371,052  
Regulatory liabilities 663,414
 181,472
 99,338
 —
 —
 944,224
Regulatory liabilities674,621  178,861  98,231  —  —  951,713  
Unamortized tax credits 60,095
 16,054
 14,571
 —
 —
 90,720
Unamortized tax credits84,885  15,773  14,348  —  —  115,006  
Defined benefit pension and other postretirement benefit plans liability 359,420
 71,112
 69,654
 —
 —
 500,186
Defined benefit pension and other postretirement benefit plans liability340,672  69,719  69,459  —  —  479,850  
Other 52,604
 36,256
 22,371
 —
 —
 111,231
Other60,778  24,215  23,707  —  —  108,700  
Total deferred credits and other liabilities 1,544,848
 360,299
 262,587
 —
 —
 2,167,734
Total deferred credits and other liabilities1,522,833  342,447  263,611  —  —  2,128,891  
Total capitalization and liabilities $5,087,166
 956,928
 854,202
 101
 (637,429) $6,260,968
Total capitalization and liabilities$5,129,522  970,897  861,129  101  (629,642) $6,332,007  

23

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 20182019
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsi-diaries		Consoli-
dating
adjustments		Hawaiian Electric
Consolidated
Assets      
Property, plant and equipment
Utility property, plant and equipment      
Land$42,598  5,606  3,612  —  —  $51,816  
Plant and equipment4,765,362  1,313,727  1,161,199  —  —  7,240,288  
Less accumulated depreciation(1,591,241) (574,615) (524,301) —  —  (2,690,157) 
Construction in progress165,137  9,993  17,944  —  —  193,074  
Utility property, plant and equipment, net3,381,856  754,711  658,454  —  —  4,795,021  
Nonutility property, plant and equipment, less accumulated depreciation5,310  114  1,532  —  —  6,956  
Total property, plant and equipment, net3,387,166  754,825  659,986  —  —  4,801,977  
Investment in wholly owned subsidiaries, at equity
591,969  —  —  —  (591,969) —  
Current assets      
Cash and cash equivalents2,239  6,885  1,797  101  —  11,022  
Restricted cash30,749  123  —  —  —  30,872  
Advances to affiliates27,700  8,000  —  —  (35,700) —  
Customer accounts receivable, net105,454  24,520  22,816  —  —  152,790  
Accrued unbilled revenues, net83,148  17,071  17,008  —  —  117,227  
Other accounts receivable, net18,396  1,907  1,960  —  (10,695) 11,568  
Fuel oil stock, at average cost69,003  8,901  14,033  —  —  91,937  
Materials and supplies, at average cost34,876  8,313  17,513  —  —  60,702  
Prepayments and other88,334  3,725  24,921  —  —  116,980  
Regulatory assets27,689  1,641  1,380  —  —  30,710  
Total current assets487,588  81,086  101,428  101  (46,395) 623,808  
Other long-term assets      
Operating lease right-of-use assets174,886  1,537  386  —  —  176,809  
Regulatory assets476,390  109,163  98,817  —  —  684,370  
Other69,010  15,493  17,215  —  —  101,718  
Total other long-term assets720,286  126,193  116,418  —  —  962,897  
Total assets$5,187,009  962,104  877,832  101  (638,364) $6,388,682  
Capitalization and liabilities      
Capitalization
Common stock equity$2,047,352  298,998  292,870  101  (591,969) $2,047,352  
Cumulative preferred stock—not subject to mandatory redemption22,293  7,000  5,000  —  —  34,293  
Long-term debt, net1,006,737  206,416  188,561  —  —  1,401,714  
Total capitalization3,076,382  512,414  486,431  101  (591,969) 3,483,359  
Current liabilities     
Current portion of operating lease liabilities63,582  94  31  —  —  63,707  
Current portion of long-term debt61,958  13,995  20,000  —  —  95,953  
Short-term borrowings-non-affiliate88,987  —  —  —  —  88,987  
Short-term borrowings-affiliate8,000  —  27,700  —  (35,700) —  
Accounts payable139,056  25,629  23,085  —  —  187,770  
Interest and preferred dividends payable14,759  3,115  2,900  —  (46) 20,728  
Taxes accrued143,522  32,541  31,929  —  —  207,992  
Regulatory liabilities13,363  9,454  7,907  —  —  30,724  
Other51,295  11,362  15,297  —  (10,649) 67,305  
Total current liabilities584,522  96,190  128,849  —  (46,395) 763,166  
Deferred credits and other liabilities     
Operating lease liabilities111,598  1,442  360  —  —  113,400  
Deferred income taxes265,864  53,534  57,752  —  —  377,150  
Regulatory liabilities664,894  178,474  98,218  —  —  941,586  
Unamortized tax credits86,852  16,196  14,820  —  —  117,868  
Defined benefit pension and other postretirement benefit plans liability339,471  69,928  69,364  —  —  478,763  
Other57,426  33,926  22,038  —  —  113,390  
Total deferred credits and other liabilities1,526,105  353,500  262,552  —  —  2,142,157  
Total capitalization and liabilities$5,187,009  962,104  877,832  101  (638,364) $6,388,682  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries
 
Consoli-
dating
adjustments
 Hawaiian Electric
Consolidated
Assets  
  
  
  
  
  
Property, plant and equipment            
Utility property, plant and equipment  
  
  
  
  
  
Land $40,449
 5,606
 3,612
 —
 —
 $49,667
Plant and equipment 4,456,090
 1,259,553
 1,094,028
 —
 —
 6,809,671
Less accumulated depreciation (1,523,861) (547,848) (505,633) —
 —
 (2,577,342)
Construction in progress 193,677
 8,781
 30,687
 —
 —
 233,145
Utility property, plant and equipment, net 3,166,355
 726,092
 622,694
 —
 —
 4,515,141
Nonutility property, plant and equipment, less accumulated depreciation 5,314
 115
 1,532
 —
 —
 6,961
Total property, plant and equipment, net 3,171,669
 726,207
 624,226
 —
 —
 4,522,102
Investment in wholly owned subsidiaries, at equity
 576,838
 —
 —
 —
 (576,838) —
Current assets  
  
  
  
  
  
Cash and cash equivalents 16,732
 15,623
 3,421
 101
 —
 35,877
Customer accounts receivable, net 125,960
 26,483
 25,453
 —
 —
 177,896
Accrued unbilled revenues, net 88,060
 17,051
 16,627
 —
 —
 121,738
Other accounts receivable, net 21,962
 3,131
 3,033
 —
 (21,911) 6,215
Fuel oil stock, at average cost 54,262
 11,027
 14,646
 —
 —
 79,935
Materials and supplies, at average cost 30,291
 7,155
 17,758
 —
 —
 55,204
Prepayments and other 23,214
 5,212
 3,692
 —
 —
 32,118
Regulatory assets 60,093
 3,177
 7,746
 —
 —
 71,016
Total current assets 420,574
 88,859
 92,376
 101
 (21,911) 579,999
Other long-term assets  
  
  
  
  
  
Regulatory assets 537,708
 120,658
 104,044
 —
 —
 762,410
Other 69,749
 15,944
 17,299
 —
 —
 102,992
Total other long-term assets 607,457
 136,602
 121,343
 —
 —
 865,402
Total assets $4,776,538
 951,668
 837,945
 101
 (598,749) $5,967,503
Capitalization and liabilities  
  
  
  
  
  
Capitalization  
  
  
  
  
  
Common stock equity $1,957,641
 295,874
 280,863
 101
 (576,838) $1,957,641
Cumulative preferred stock—not subject to mandatory redemption 22,293
 7,000
 5,000
 —
 —
 34,293
Long-term debt, net 1,000,137
 217,749
 200,916
 —
 —
 1,418,802
Total capitalization 2,980,071
 520,623
 486,779
 101
 (576,838) 3,410,736
Current liabilities  
  
  
  
  
  
Short-term borrowings-non-affiliate 25,000
 —
 —
 —
 —
 25,000
Accounts payable 126,384
 20,045
 25,362
 —
 —
 171,791
Interest and preferred dividends payable 16,203
 4,203
 2,841
 —
 (32) 23,215
Taxes accrued 164,747
 34,128
 34,458
 —
 —
 233,333
Regulatory liabilities 7,699
 4,872
 5,406
 —
 —
 17,977
Other 46,391
 15,077
 20,414
 —
 (21,879) 60,003
Total current liabilities 386,424
 78,325
 88,481
 —
 (21,911) 531,319
Deferred credits and other liabilities  
  
  
  
  
  
Deferred income taxes 271,438
 54,936
 56,823
 —
 —
 383,197
Regulatory liabilities 657,210
 176,101
 98,948
 —
 —
 932,259
Unamortized tax credits 60,271
 16,217
 15,034
 —
 —
 91,522
Defined benefit pension and other postretirement benefit plans liability 359,174
 73,147
 71,338
 —
 —
 503,659
Other 61,950
 32,319
 20,542
 —
 —
 114,811
Total deferred credits and other liabilities 1,410,043
 352,720
 262,685
 —
 —
 2,025,448
Total capitalization and liabilities $4,776,538
 951,668
 837,945
 101
 (598,749) $5,967,503

24

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
NineSix months ended SeptemberJune 30, 20192020
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries
 
Consolidating
adjustments
 Hawaiian Electric
Consolidated
Balance, December 31, 2018 $1,957,641
 295,874
 280,863
 101
 (576,838) $1,957,641
Net income for common stock 111,479
 15,104
 15,879
 —
 (30,983) 111,479
Other comprehensive income, net of taxes 73
 2
 —
 —
 (2) 73
Common stock dividends (75,939) (7,635) (11,301) —
 18,936
 (75,939)
Common stock issuance expenses —
 —
 (1) —
 1
 —
Balance, September 30, 2019 $1,993,254
 303,345
 285,440
 101
 (588,886) $1,993,254

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries		Consolidating
adjustments		Hawaiian Electric
Consolidated
Balance, December 31, 2019$2,047,352  298,998  292,870  101  (591,969) $2,047,352  
Net income for common stock66,234  13,246  9,334  —  (22,580) 66,234  
Other comprehensive income (loss), net of taxes51  4  (3) —  (1) 51  
Common stock dividends(53,568) (8,160) (7,192) —  15,352  (53,568) 
Balance, June 30, 2020$2,060,069  304,088  295,009  101  (599,198) $2,060,069  
 
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
NineSix months ended SeptemberJune 30, 20182019  
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries		Consolidating
adjustments		Hawaiian Electric
Consolidated
Balance, December 31, 2018$1,957,641  295,874  280,863  101  (576,838) $1,957,641  
Net income for common stock64,700  9,835  10,100  —  (19,935) 64,700  
Other comprehensive income, net of taxes47  2  —  —  (2) 47  
Common stock dividends(50,626) (5,090) (7,534) —  12,624  (50,626) 
Common stock issuance expenses—  (2) —  —  2  —  
Balance, June 30, 2019$1,971,762  300,619  283,429  101  (584,149) $1,971,762  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries
 
Consolidating
adjustments
 Hawaiian Electric
Consolidated
Balance, December 31, 2017 $1,845,283
 286,647
 270,265
 101
 (557,013) $1,845,283
Net income for common stock 108,356
 19,039
 16,002
 —
 (35,041) 108,356
Other comprehensive income, net of taxes 85
 1
 —
 —
 (1) 85
Common stock dividends (77,479) (11,467) (9,014) —
 20,481
 (77,479)
Common stock issuance expenses (8) —
 —
 —
 —
 (8)
Balance, September 30, 2018 $1,876,237
 294,220
 277,253
 101
 (571,574) $1,876,237

25

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
NineSix months ended SeptemberJune 30, 20192020
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries		Consolidating
adjustments		Hawaiian Electric
Consolidated
Net cash provided by operating activities$154,967  20,307  21,601  —  (15,407) $181,468  
Cash flows from investing activities      
Capital expenditures(129,829) (30,785) (25,918) —  —  (186,532) 
Advances from affiliates14,200  8,000  —  —  (22,200) —  
Other4,354  552  480  —  55  5,441  
Net cash used in investing activities(111,275) (22,233) (25,438) —  (22,145) (181,091) 
Cash flows from financing activities      
Common stock dividends(53,568) (8,160) (7,192) —  15,352  (53,568) 
Preferred stock dividends of Hawaiian Electric and subsidiaries(540) (267) (191) —  —  (998) 
Proceeds from issuance of short-term debt100,000  —  —  —  —  100,000  
Repayment of short-term debt(100,000) —  —  —  —  (100,000) 
Proceeds from issuance of long-term debt205,000  10,000  40,000  —  —  255,000  
Repayment of long-term debt and funds transferred for repayment of long-term debt(95,000) (14,000) —  —  —  (109,000) 
Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less(46,987) 12,000  (26,200) —  22,200  (38,987) 
Other(1,039) (61) (247) —  —  (1,347) 
Net cash provided by financing activities7,866  (488) 6,170  —  37,552  51,100  
Net increase (decrease) in cash and cash equivalents51,558  (2,414) 2,333  —  —  51,477  
Cash, cash equivalents and restricted cash, beginning of period32,988  7,008  1,797  101  —  41,894  
Cash, cash equivalents and restricted cash, end of period84,546  4,594  4,130  101  —  93,371  
Less: Restricted cash(29,376) —  —  —  —  (29,376) 
Cash and cash equivalents, end of period$55,170  4,594  4,130  101  —  $63,995  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric 
Other
subsidiaries
 
Consolidating
adjustments
 Hawaiian Electric
Consolidated
Net cash provided by operating activities $223,733
 41,694
 36,126
 —
 (18,935) $282,618
Cash flows from investing activities  
  
  
  
  
  
Capital expenditures (223,803) (29,119) (44,885) —
 —
 (297,807)
Advances to affiliates (22,200) (15,000) —
 —
 37,200
 —
Other 2,975
 (283) (30) —
 —
 2,662
Net cash used in investing activities (243,028) (44,402) (44,915) —
 37,200
 (295,145)
Cash flows from financing activities  
  
  
  
  
  
Common stock dividends (75,939) (7,635) (11,301) —
 18,936
 (75,939)
Preferred stock dividends of Hawaiian Electric and subsidiaries (810) (400) (286) —
 —
 (1,496)
Proceeds from issuance of short-term debt 25,000
 —
 —
 —
 —
 25,000
Proceeds from issuance of long-term debt 120,000
 70,000
 10,000
 —
 —
 200,000
Repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds (121,546) (70,000) (10,000) —
 —
 (201,546)
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less 77,353
 —
 22,200
 —
 (37,200) 62,353
Other 578
 123
 85
 —
 (1) 785
Net cash provided by financing activities 24,636
 (7,912) 10,698
 —
 (18,265) 9,157
Net increase (decrease) in cash and cash equivalents 5,341
 (10,620) 1,909
 —
 —
 (3,370)
Cash and cash equivalents, beginning of period 16,732
 15,623
 3,421
 101
 —
 35,877
Cash and cash equivalents, end of period $22,073
 5,003
 5,330
 101
 —
 $32,507

26

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
NineSix months ended SeptemberJune 30, 20182019
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries		Consolidating
adjustments		Hawaiian Electric
Consolidated
Net cash provided by operating activities$84,427  16,406  12,607  —  (12,624) $100,816  
Cash flows from investing activities                                                                                                                                        
Capital expenditures(150,945) (18,083) (30,868) —  —  (199,896) 
Advances to affiliates(25,300) (5,000) —  —  30,300  —  
Other2,821  (280) (31) —  —  2,510  
Net cash used in investing activities(173,424) (23,363) (30,899) —  30,300  (197,386) 
Cash flows from financing activities     
Common stock dividends(50,626) (5,090) (7,534) —  12,624  (50,626) 
Preferred stock dividends of Hawaiian Electric and subsidiaries(540) (267) (191) —  —  (998) 
Proceeds from issuance of short-term debt25,000  —  —  —  —  25,000  
Proceeds from issuance of long-term debt30,000  10,000  10,000  —  —  50,000  
Repayment of long-term debt(31,546) (10,000) (10,000) —  —  (51,546) 
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less116,901  —  25,300  —  (30,300) 111,901  
Other197  43  83  —  —  323  
Net cash provided by (used in) financing activities89,386  (5,314) 17,658  —  (17,676) 84,054  
Net increase (decrease) in cash and cash equivalents389  (12,271) (634) —  —  (12,516) 
Cash and cash equivalents, beginning of period16,732  15,623  3,421  101  —  35,877  
Cash and cash equivalents, end of period$17,121  3,352  2,787  101  —  $23,361  
(in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Other
subsidiaries		 Consolidating
adjustments		 Hawaiian Electric
Consolidated
Net cash provided by operating activities $159,876
 35,203
 19,455
 —
 (20,812) $193,722
Cash flows from investing activities  
  
  
  
  
  
Capital expenditures (225,907) (40,457) (44,005) —
 —
 (310,369)
Other 4,518
 1,177
 3,785
 —
 331
 9,811
Advances (to) from affiliates (2,000) —
 12,000
 —
 (10,000) —
Net cash used in investing activities (223,389) (39,280) (28,220) —
 (9,669) (300,558)
Cash flows from financing activities  
  
  
  
  
  
Common stock dividends (77,479) (11,467) (9,014) —
 20,481
 (77,479)
Preferred stock dividends of Hawaiian Electric and subsidiaries (810) (400) (286) —
 —
 (1,496)
Proceeds from issuance of long-term debt 75,000
 15,000
 10,000
 —
 —
 100,000
Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less 68,914
 —
 2,000
 —
 10,000
 80,914
Other (304) (54) (38) —
 —
 (396)
Net cash provided by financing activities 65,321
 3,079
 2,662
 —
 30,481
 101,543
Net increase (decrease) in cash and cash equivalents 1,808
 (998) (6,103) —
 —
 (5,293)
Cash and cash equivalents, beginning of period 2,059
 4,025
 6,332
 101
 —
 12,517
Cash and cash equivalents, end of period $3,867
 3,027
 229
 101
 —
 $7,224


27

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 4 · Bank segment
Selected financial information
American Savings Bank, F.S.B.
Statements of Income and Comprehensive Income Data
 Three months ended September 30, Nine months ended September 30 Three months ended June 30,Six months ended June 30
(in thousands) 2019 2018 2019 2018(in thousands)2020201920202019
Interest and dividend income  
  
  
  
Interest and dividend income    
Interest and fees on loans $59,260
 $55,885
 $175,740
 $163,318
Interest and fees on loans$53,541  $58,620  $109,086  $116,480  
Interest and dividends on investment securities 7,599
 9,300
 25,762
 27,130
Interest and dividends on investment securities6,288  7,535  15,718  18,163  
Total interest and dividend income 66,859
 65,185
 201,502
 190,448
Total interest and dividend income59,829  66,155  124,804  134,643  
Interest expense  
  
  
  
Interest expense    
Interest on deposit liabilities 4,384
 3,635
 12,923
 9,876
Interest on deposit liabilities3,071  4,287  6,658  8,539  
Interest on other borrowings 422
 404
 1,361
 1,293
Interest on other borrowings75  411  388  939  
Total interest expense 4,806
 4,039
 14,284
 11,169
Total interest expense3,146  4,698  7,046  9,478  
Net interest income 62,053
 61,146
 187,218
 179,279
Net interest income56,683  61,457  117,758  125,165  
Provision for loan losses 3,315
 6,033
 17,873
 12,337
Net interest income after provision for loan losses 58,738
 55,113
 169,345
 166,942
Provision for credit lossesProvision for credit losses15,133  7,688  25,534  14,558  
Net interest income after provision for credit lossesNet interest income after provision for credit losses41,550  53,769  92,224  110,607  
Noninterest income  
  
  
  
Noninterest income    
Fees from other financial services 5,085
 4,543
 14,445
 13,941
Fees from other financial services3,102  4,798  7,673  9,360  
Fee income on deposit liabilities 5,320
 5,454
 15,402
 15,781
Fee income on deposit liabilities2,897  5,004  8,010  10,082  
Fee income on other financial products 1,706
 1,746
 5,129
 5,075
Fee income on other financial products1,212  1,830  3,084  3,423  
Bank-owned life insurance 1,660
 2,663
 6,309
 4,667
Bank-owned life insurance1,673  2,390  2,467  4,649  
Mortgage banking income 1,490
 169
 3,080
 1,399
Mortgage banking income6,252  976  8,252  1,590  
Gains on sale of investment securities, net 653
 —
 653
 —
Gain on sale of investment securities, netGain on sale of investment securities, net9,275  —  9,275  —  
Other income, net 428
 736
 1,420
 1,708
Other income, net(251) 534  162  992  
Total noninterest income 16,342
 15,311
 46,438
 42,571
Total noninterest income24,160  15,532  38,923  30,096  
Noninterest expense  
  
  
  
Noninterest expense    
Compensation and employee benefits 25,364
 23,952
 76,626
 72,047
Compensation and employee benefits25,079  25,750  50,856  51,262  
Occupancy 5,694
 4,363
 15,843
 12,837
Occupancy5,442  5,479  10,709  10,149  
Data processing 3,763
 3,583
 11,353
 10,587
Data processing3,849  3,852  7,686  7,590  
Services 2,829
 2,485
 7,861
 8,560
Services2,474  2,606  5,283  5,032  
Equipment 2,163
 1,783
 6,416
 5,385
Equipment2,290  2,189  4,629  4,253  
Office supplies, printing and postage 1,297
 1,556
 4,320
 4,554
Office supplies, printing and postage1,049  1,663  2,390  3,023  
Marketing 1,142
 993
 3,455
 2,723
Marketing379  1,323  1,181  2,313  
FDIC insurance (5) 638
 1,249
 2,078
FDIC insurance751  628  853  1,254  
Other expense 3,676
 4,240
 12,049
 12,897
Other expense1
Other expense1
7,063  4,519  11,257  8,373  
Total noninterest expense 45,923
 43,593
 139,172
 131,668
Total noninterest expense48,376  48,009  94,844  93,249  
Income before income taxes 29,157
 26,831
 76,611
 77,845
Income before income taxes17,334  21,292  36,303  47,454  
Income taxes 6,269
 5,610
 15,868
 17,103
Income taxes3,320  4,276  6,528  9,599  
Net income $22,888
 $21,221
 $60,743
 $60,742
Net income14,014  17,016  29,775  37,855  
Other comprehensive income (loss), net of taxesOther comprehensive income (loss), net of taxes(280) 14,275  19,567  20,527  
Comprehensive incomeComprehensive income$13,734  $31,291  $49,342  $58,382  


1 The three- and six-month periods ended June 30, 2020 include approximately $3.7 million and $3.8 million, respectively, of certain significant direct and incremental COVID-19 related costs. These costs, which have been recorded in Other expense, include $2.3 million of compensation expense and $1.1 million of enhanced cleaning and sanitation costs.
28

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)



Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:
 Three months ended June 30,Six months ended June 30
(in thousands)2020201920202019
Interest and dividend income$59,829  $66,155  $124,804  $134,643  
Noninterest income24,160  15,532  38,923  30,096  
Less: Gain on sale of investment securities, net(9,275) —  (9,275) —  
*Revenues-Bank74,714  81,687  154,452  164,739  
Total interest expense3,146  4,698  7,046  9,478  
Provision for credit losses15,133  7,688  25,534  14,558  
Noninterest expense48,376  48,009  94,844  93,249  
Less: Retirement defined benefits gain (expense)—other than service costs(434) 40  (868) 80  
*Expenses-Bank66,221  60,435  126,556  117,365  
*Operating income-Bank8,493  21,252  27,896  47,374  
Add back: Retirement defined benefits (gain) expense—other than service costs434  (40) 868  (80) 
Add back: Gain on sale of investment securities, net(9,275) —  (9,275) —  
Income before income taxes$17,334  $21,292  $36,303  $47,454  
  Three months ended September 30, Nine months ended September 30
(in thousands) 2019 2018 2019 2018
Interest and dividend income 66,859
 65,185
 $201,502
 $190,448
Noninterest income 16,342
 15,311
 46,438
 42,571
*Revenues-Bank 83,201
 80,496
 247,940
 233,019
Total interest expense 4,806
 4,039
 14,284
 11,169
Provision for loan losses 3,315
 6,033
 17,873
 12,337
Noninterest expense 45,923
 43,593
 139,172
 131,668
Less: Retirement defined benefits gain (expense)—other than service costs 196
 (433) 276
 (1,223)
*Expenses-Bank 54,240
 53,232
 171,605
 153,951
*Operating income-Bank 28,961
 27,264
 76,335
 79,068
Add back: Retirement defined benefits (gain) expense—other than service costs (196) 433
 (276) 1,223
Income before income taxes $29,157
 $26,831
 $76,611
 $77,845


American Savings Bank, F.S.B.
Statements of Comprehensive Income Data
  Three months ended September 30, Nine months ended September 30
(in thousands) 2019 2018 2019 2018
Net income $22,888
 $21,221
 $60,743
 $60,742
Other comprehensive income (loss), net of taxes:  
  
  
  
Net unrealized gains (losses) on available-for-sale investment securities:  
  
  
  
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of (taxes) benefits of $(1,557), $1,876, $(10,194) and $8,335, respectively 4,253
 (5,123) 27,846
 (22,768)
Reclassification adjustment for net realized gains included in net income, net of taxes of $175, nil, $175, and nil, respectively (478) —
 (478) —
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) benefits of $13, $141, $(1,109) and $968, respectively 34
 382
 (3,032) 1,970
Other comprehensive income (loss), net of taxes 3,809
 (4,741) 24,336
 (20,798)
Comprehensive income $26,697
 $16,480
 $85,079
 $39,944

29

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


American Savings Bank, F.S.B.
Balance Sheets Data
(in thousands)June 30, 2020December 31, 2019
Assets    
Cash and due from banks $140,968   $129,770  
Interest-bearing deposits365,996  48,628  
Investment securities
Available-for-sale, at fair value 1,389,633   1,232,826  
Held-to-maturity, at amortized cost (fair value of $131,131 and $143,467, respectively)124,623  139,451  
Stock in Federal Home Loan Bank, at cost 9,880   8,434  
Loans held for investment 5,437,817   5,121,176  
Allowance for credit losses (81,307)  (53,355) 
Net loans 5,356,510   5,067,821  
Loans held for sale, at lower of cost or fair value 37,143   12,286  
Other 512,722   511,611  
Goodwill 82,190   82,190  
Total assets $8,019,665   $7,233,017  
Liabilities and shareholder’s equity    
Deposit liabilities—noninterest-bearing $2,422,042   $1,909,682  
Deposit liabilities—interest-bearing 4,607,910   4,362,220  
Other borrowings 124,975   115,110  
Other 158,344   146,954  
Total liabilities 7,313,271   6,533,966  
Commitments and contingencies  
Common stock 1   1  
Additional paid-in capital350,826  349,453  
Retained earnings 344,662   358,259  
Accumulated other comprehensive income (loss), net of taxes    
Net unrealized gains on securities$21,264   $2,481   
Retirement benefit plans(10,359) 10,905  (11,143) (8,662) 
Total shareholder’s equity 706,394   699,051  
Total liabilities and shareholder’s equity $8,019,665   $7,233,017  
Other assets    
Bank-owned life insurance $159,951   $157,465  
Premises and equipment, net 203,217   204,449  
Accrued interest receivable 23,381   19,365  
Mortgage-servicing rights 9,647   9,101  
Low-income housing investments61,632  66,302  
Real estate acquired in settlement of loans, net 43   —  
Other 54,851   54,929  
  $512,722   $511,611  
Other liabilities    
Accrued expenses $40,382   $45,822  
Federal and state income taxes payable 18,021   14,996  
Cashier’s checks 25,284   23,647  
Advance payments by borrowers 10,458   10,486  
Other 64,199   52,003  
  $158,344   $146,954  
(in thousands) September 30, 2019 December 31, 2018
Assets  
  
  
  
Cash and due from banks  
 $135,813
  
 $122,059
Interest-bearing deposits   1,315
   4,225
Investment securities        
Available-for-sale, at fair value  
 1,210,748
  
 1,388,533
Held-to-maturity, at amortized cost (fair value of $137,497 and $142,057, respectively)   132,704
   141,875
Stock in Federal Home Loan Bank, at cost  
 9,953
  
 9,958
Loans held for investment  
 5,084,336
  
 4,843,021
Allowance for loan losses  
 (53,040)  
 (52,119)
Net loans  
 5,031,296
  
 4,790,902
Loans held for sale, at lower of cost or fair value  
 17,115
  
 1,805
Other  
 514,116
  
 486,347
Goodwill  
 82,190
  
 82,190
Total assets  
 $7,135,250
  
 $7,027,894
Liabilities and shareholder’s equity  
  
  
  
Deposit liabilities—noninterest-bearing  
 $1,885,028
  
 $1,800,727
Deposit liabilities—interest-bearing  
 4,311,195
  
 4,358,125
Other borrowings  
 129,190
  
 110,040
Other  
 135,606
  
 124,613
Total liabilities  
 6,461,019
  
 6,393,505
Commitments and contingencies  
 


  
 


Common stock  
 1
  
 1
Additional paid-in capital   348,933
   347,170
Retained earnings  
 339,029
  
 325,286
Accumulated other comprehensive loss, net of tax benefits  
  
  
  
Net unrealized gains (losses) on securities $2,945
  
 $(24,423)  
Retirement benefit plans (16,677) (13,732) (13,645) (38,068)
Total shareholder’s equity  
 674,231
  
 634,389
Total liabilities and shareholder’s equity  
 $7,135,250
  
 $7,027,894
         
Other assets  
  
  
  
Bank-owned life insurance  
 $156,077
  
 $151,172
Premises and equipment, net  
 207,659
  
 214,415
Accrued interest receivable  
 19,743
  
 20,140
Mortgage-servicing rights  
 8,567
  
 8,062
Low-income housing equity investments   69,286
   67,626
Real estate acquired in settlement of loans, net  
 —
  
 406
Real estate held for sale   9,074
   —
Other  
 43,710
  
 24,526
   
 $514,116
  
 $486,347
Other liabilities  
  
  
  
Accrued expenses  
 $41,264
  
 $54,084
Federal and state income taxes payable  
 9,472
  
 2,012
Cashier’s checks  
 27,498
  
 26,906
Advance payments by borrowers  
 5,164
  
 10,183
Other  
 52,208
  
 31,428
   
 $135,606
  
 $124,613
30

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.
Other borrowings consisted of securities sold under agreements to repurchase, federal funds purchased and advances from the Federal Home Loan Bank (FHLB) of $91.2$95.0 million, NaN and $38.0$30.0 million, respectively, as of SeptemberJune 30, 20192020 and $65.0$115 million, NaN and $45.0 million,NaN, respectively, as of December 31, 2018.2019.
Investment securities.  The major components of investment securities were as follows:
 Amortized cost Gross unrealized gains Gross unrealized losses 
Estimated fair
value
 Gross unrealized losses Amortized costGross unrealized gainsGross unrealized lossesEstimated fair
value		Gross unrealized losses
 Less than 12 months 12 months or longer Less than 12 months12 months or longer
(dollars in thousands) Number of issues 
Fair 
value
 Amount Number of issues 
Fair 
value
 Amount(dollars in thousands)Number of issuesFair 
value		AmountNumber of issuesFair 
value		Amount
September 30, 2019  
  
  
  
    
  
    
  
June 30, 2020June 30, 2020        
Available-for-sale                    Available-for-sale
U.S. Treasury and federal agency obligations $126,084
 $822
 $(198) $126,708
 —
 $—
 $—
 4
 $32,686
 $(198)U.S. Treasury and federal agency obligations$100,195  $2,219  $—  $102,414  —  $—  $—  —  $—  $—  
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,017,256
 6,647
 (4,598) 1,019,305
 12
 67,163
 (252) 85
 389,212
 (4,346)
Mortgage-backed securities*Mortgage-backed securities*1,201,796  25,469  (280) 1,226,985  6  96,296  (258) 1  1,803  (22) 
Corporate bonds 34,926
 1,350
 —
 36,276
 —
 —
 —
 —
 —
 —
Corporate bonds29,767  1,640  —  31,407  —  —  —  —  —  —  
Mortgage revenue bonds 28,459
 —
 —
 28,459
 —
 —
 —
 —
 —
 —
Mortgage revenue bonds28,827  —  —  28,827  —  —  —  —  
 $1,206,725
 $8,819
 $(4,796) $1,210,748
 12
 $67,163
 $(252) 89
 $421,898
 $(4,544) $1,360,585  $29,328  $(280) $1,389,633  6  $96,296  $(258) 1  $1,803  $(22) 
Held-to-maturity                    Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies $132,704
 $4,793
 $—
 $137,497
 —
 $—
 $—
 —
 $—
 $—
Mortgage-backed securities*Mortgage-backed securities*$124,623  $6,508  $—  $131,131  —  $—  $—  —  $—  $—  
 $132,704
 $4,793
 $—
 $137,497
 —
 $—
 $—
 —
 $—
 $—
 $124,623  $6,508  $—  $131,131  —  $—  $—  —  $—  $—  
December 31, 2018                    
December 31, 2019December 31, 2019
Available-for-sale                    Available-for-sale
U.S. Treasury and federal agency obligations $156,694
 $62
 $(2,407) $154,349
 5
 $25,882
 $(208) 19
 $118,405
 $(2,199)U.S. Treasury and federal agency obligations$117,255  $652  $(120) $117,787  2  $4,110  $(11) 3  $27,637  $(109) 
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,192,169
 789
 (31,542) 1,161,416
 22
 129,011
 (1,330) 145
 947,890
 (30,212)
Mortgage-backed securities*Mortgage-backed securities*1,024,892  6,000  (4,507) 1,026,385  19  152,071  (819) 75  318,020  (3,688) 
Corporate bonds 49,398
 103
 (369) 49,132
 6
 23,175
 (369) —
 —
 —
Corporate bonds58,694  1,363  —  60,057  —  —  —  —  —  —  
Mortgage revenue bonds 23,636
 —
 —
 23,636
 —
 —
 —
 —
 —
 —
Mortgage revenue bonds28,597  —  —  28,597  —  —  —  —  —  —  
 $1,421,897
 $954
 $(34,318) $1,388,533
 33
 $178,068
 $(1,907) 164
 $1,066,295
 $(32,411) $1,229,438  $8,015  $(4,627) $1,232,826  21  $156,181  $(830) 78  $345,657  $(3,797) 
Held-to-maturity                    Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies $141,875
 $1,446
 $(1,264) $142,057
 3
 $29,814
 $(400) 2
 $31,505
 $(864)
Mortgage-backed securities*Mortgage-backed securities*$139,451  $4,087  $(71) $143,467  1  $12,986  $(71) —  $—  $—  
 $141,875
 $1,446
 $(1,264) $142,057
 3
 $29,814
 $(400) 2
 $31,505
 $(864) $139,451  $4,087  $(71) $143,467  1  $12,986  $(71) —  $—  $—  

* 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 SeptemberJune 30, 2019,2020, represent an other-than-temporary impairment (OTTI).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. ASBASB’s investment securities portfolio did not recognize OTTIrequire an allowance for the quarters and nine months ended Septembercredit losses at June 30, 2019 and 2018.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


2020.
U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.
31

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The contractual maturities of investment securities were as follows:
September 30, 2019 Amortized cost Fair value
(in thousands)    
Available-for-sale    
Due in one year or less $47,046
 $47,021
Due after one year through five years 89,085
 90,675
Due after five years through ten years 37,911
 38,320
Due after ten years 15,427
 15,427
  189,469
 191,443
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,017,256
 1,019,305
Total available-for-sale securities $1,206,725
 $1,210,748
Held-to-maturity    
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies $132,704
 $137,497
Total held-to-maturity securities $132,704
 $137,497

June 30, 2020Amortized costFair value
(in thousands)  
Available-for-sale
Due in one year or less$65,330  $65,776  
Due after one year through five years44,570  46,378  
Due after five years through ten years33,462  35,067  
Due after ten years15,427  15,427  
 158,789  162,648  
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies1,201,796  1,226,985  
Total available-for-sale securities$1,360,585  $1,389,633  
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies$124,623  $131,131  
Total held-to-maturity securities$124,623  $131,131  
Proceeds from the sale of available-for-sale securities, which also included the sale of ASB’s entire Visa Class B restricted stock holdings, were $19.8$169.2 million for botheach of the three and ninesix months ended SeptemberJune 30, 2019, respectively,2020 and NaN for botheach of the three and ninesix months ended SeptemberJune 30, 2018, respectively.2019. Gross realized gains and losses were $0.7$9.3 million for botheach of the three and ninesix months ended SeptemberJune 30, 2019, respectively,2020 and NaN for botheach of the three and ninesix months ended SeptemberJune 30, 2018, respectively.2019. Gross realized losses were NaN for each of the three and six months ended June 30, 2020 and 2019. Tax expense on realized gains were $2.5 million for the three and six months ended June 30, 2020.
Loans. The components of loans were summarized as follows:
 September 30, 2019 December 31, 2018
(in thousands) 
  
Real estate: 
  
Residential 1-4 family$2,183,888
 $2,143,397
Commercial real estate810,971
 748,398
Home equity line of credit1,079,262
 978,237
Residential land15,095
 13,138
Commercial construction76,382
 92,264
Residential construction10,104
 14,307
Total real estate4,175,702
 3,989,741
Commercial638,213
 587,891
Consumer269,741
 266,002
Total loans5,083,656
 4,843,634
Less: Deferred fees and discounts680
 (613)
          Allowance for loan losses(53,040) (52,119)
Total loans, net$5,031,296
 $4,790,902

June 30, 2020December 31, 2019
(in thousands)  
Real estate:  
Residential 1-4 family$2,123,226  $2,178,135  
Commercial real estate855,566  824,830  
Home equity line of credit1,065,264  1,092,125  
Residential land13,224  14,704  
Commercial construction92,904  70,605  
Residential construction10,759  11,670  
Total real estate4,160,943  4,192,069  
Commercial1,073,829  670,674  
Consumer216,030  257,921  
Total loans5,450,802  5,120,664  
          Deferred fees and discounts(12,985) 512  
          Allowance for credit losses(81,307) (53,355) 
Total loans, net$5,356,510  $5,067,821  
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 properties,property purchases, the loan-to-value ratio may not exceed 80%75% of the lower of the appraised value or purchase price at origination.
32

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Allowance for loancredit losses. The allowance for loancredit losses (balances and changes) and financing receivablesby portfolio segment were as follows:
(in thousands)Residential
1-4 family		Commercial real
estate		Home
equity line of credit		Residential landCommercial constructionResidential constructionCommercial loansConsumer loansTotal
Three months ended June 30, 2020        
Allowance for credit losses:         
Beginning balance$4,476  $16,587  $6,225  $352  $3,446  $14  $12,977  $33,007  $77,084  
Charge-offs(7) —  —  (343) —  —  (699) (6,331) (7,380) 
Recoveries2  —  —  5  —  —  106  657  770  
Provision(560) 4,513  (11) 342  1,311  —  1,484  3,754  10,833  
Ending balance$3,911  $21,100  $6,214  $356  $4,757  $14  $13,868  $31,087  $81,307  
Three months ended June 30, 2019        
Allowance for credit losses:         
Beginning balance$1,911  $14,825  $6,493  $425  $2,843  $3  $10,814  $16,983  $54,297  
Charge-offs(5) —  (19) (4) —  —  (494) (5,102) (5,624) 
Recoveries8  —  4  7  —  —  1,281  764  2,064  
Provision101  986  403  109  (797) (1) 1,472  5,415  7,688  
Ending balance$2,015  $15,811  $6,881  $537  $2,046  $2  $13,073  $18,060  $58,425  
Six months ended June 30, 2020        
Allowance for credit losses:         
Beginning balance, prior to adoption of ASU No. 2016-13$2,380  $15,053  $6,922  $449  $2,097  $3  $10,245  $16,206  $53,355  
Impact of adopting ASU No. 2016-13
2,150  208  (541) (64) 289  14  922  16,463  19,441  
Charge-offs(7) —  —  (351) —  —  (1,068) (12,585) (14,011) 
Recoveries55  —  6  14  —  —  292  1,421  1,788  
Provision(667) 5,839  (173) 308  2,371  (3) 3,477  9,582  20,734  
Ending balance$3,911  $21,100  $6,214  $356  $4,757  $14  $13,868  $31,087  $81,307  
Six months ended June 30, 2019        
Allowance for credit losses:         
Beginning balance$1,976  $14,505  $6,371  $479  $2,790  $4  $9,225  $16,769  $52,119  
Charge-offs(19) —  (19) (4) —  —  (1,112) (10,661) (11,815) 
Recoveries617  —  9  14  —  —  1,461  1,462  3,563  
Provision(559) 1,306  520  48  (744) (2) 3,499  10,490  14,558  
Ending balance$2,015  $15,811  $6,881  $537  $2,046  $2  $13,073  $18,060  $58,425  
December 31, 2019
Ending balance: individually evaluated for impairment$898  $2  $322  $—  $—  $—  $1,015  $454  $2,691  
Ending balance: collectively evaluated for impairment$1,482  $15,051  $6,600  $449  $2,097  $3  $9,230  $15,752  $50,664  
Financing Receivables:         
Ending balance$2,178,135  $824,830  $1,092,125  $14,704  $70,605  $11,670  $670,674  $257,921  $5,120,664  
Ending balance: individually evaluated for impairment$15,600  $1,048  $12,073  $3,091  $—  $—  $8,418  $507  $40,737  
Ending balance: collectively evaluated for impairment$2,162,535  $823,782  $1,080,052  $11,613  $70,605  $11,670  $662,256  $257,414  $5,079,927  
(in thousands) 
Residential
1-4 family
 
Commercial real
estate
 Home
equity line of credit		 Residential land Commercial construction Residential construction Commercial loans Consumer loans Total
Three months ended September 30, 2019  
  
  
  
  
  
  
  
Allowance for loan losses:  
  
  
  
  
  
  
  
  
Beginning balance $2,015
 $15,811
 $6,881
 $537
 $2,046
 $2
 $13,073
 $18,060
 $58,425
Charge-offs (7) —
 (13) —
 —
 —
 (4,900) (5,311) (10,231)
Recoveries 27
 —
 4
 28
 —
 —
 726
 746
 1,531
Provision (56) (396) 135
 (104) 196
 1
 (517) 4,056
 3,315
Ending balance $1,979
 $15,415
 $7,007
 $461
 $2,242
 $3
 $8,382
 $17,551
 $53,040
Three months ended September 30, 2018  
  
  
  
  
  
  
  
Allowance for loan losses:  
  
  
  
  
  
  
  
  
Beginning balance $2,939
 $15,298
 $7,334
 $642
 $4,616
 $4
 $10,161
 $11,809
 $52,803
Charge-offs —
 —
 (80) (1) —
 —
 (788) (4,508) (5,377)
Recoveries 5
 —
 71
 122
 —
 —
 105
 365
 668
Provision (623) (1,033) (347) (296) (356) —
 1,255
 7,433
 6,033
Ending balance $2,321
 $14,265
 $6,978
 $467
 $4,260
 $4
 $10,733
 $15,099
 $54,127
Nine months ended September 30, 2019  
  
  
  
  
  
  
  
Allowance for loan losses:  
  
  
  
  
  
  
  
  
Beginning balance $1,976
 $14,505
 $6,371
 $479
 $2,790
 $4
 $9,225
 $16,769
 $52,119
Charge-offs (26) —
 (32) (4) —
 —
 (6,012) (15,972) (22,046)
Recoveries 644
 —
 13
 42
 —
 —
 2,187
 2,208
 5,094
Provision (615) 910
 655
 (56) (548) (1) 2,982
 14,546
 17,873
Ending balance $1,979
 $15,415
 $7,007
 $461
 $2,242
 $3
 $8,382
 $17,551
 $53,040
September 30, 2019                  
Ending balance: individually evaluated for impairment $906
 $7
 $500
 $—
 $—
 $—
 $905
 $504
 $2,822
Ending balance: collectively evaluated for impairment $1,073
 $15,408
 $6,507
 $461
 $2,242
 $3
 $7,477
 $17,047
 $50,218
Financing Receivables:  
  
  
  
  
  
  
  
  
Ending balance $2,183,888
 $810,971
 $1,079,262
 $15,095
 $76,382
 $10,104
 $638,213
 $269,741
 $5,083,656
Ending balance: individually evaluated for impairment $16,556
 $877
 $12,909
 $3,194
 $—
 $—
 $9,370
 $558
 $43,464
Ending balance: collectively evaluated for impairment $2,167,332
 $810,094
 $1,066,353
 $11,901
 $76,382
 $10,104
 $628,843
 $269,183
 $5,040,192
Nine months ended September 30, 2018  
  
  
  
  
  
  
  
Allowance for loan losses:  
  
  
  
  
  
  
  
  
Beginning balance $2,902
 $15,796
 $7,522
 $896
 $4,671
 $12
 $10,851
 $10,987
 $53,637
Charge-offs (31) —
 (224) (18) —
 —
 (1,930) (12,628) (14,831)
Recoveries 73
 —
 98
 173
 —
 —
 1,555
 1,085
 2,984
Provision (623) (1,531) (418) (584) (411) (8) 257
 15,655
 12,337
Ending balance $2,321
 $14,265
 $6,978
 $467
 $4,260
 $4
 $10,733
 $15,099
 $54,127
December 31, 2018                  
Ending balance: individually evaluated for impairment $876
 $7
 $701
 $6
 $—
 $—
 $628
 $4
 $2,222
Ending balance: collectively evaluated for impairment $1,100
 $14,498
 $5,670
 $473
 $2,790
 $4
 $8,597
 $16,765
 $49,897
Financing Receivables:  
  
  
  
  
  
  
  
  
Ending balance $2,143,397
 $748,398
 $978,237
 $13,138
 $92,264
 $14,307
 $587,891
 $266,002
 $4,843,634
Ending balance: individually evaluated for impairment $16,494
 $915
 $14,800
 $2,059
 $—
 $—
 $5,340
 $89
 $39,697
Ending balance: collectively evaluated for impairment $2,126,903
 $747,483
 $963,437
 $11,079
 $92,264
 $14,307
 $582,551
 $265,913
 $4,803,937

33

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Allowance for loan commitments.The allowance for loan commitments by portfolio segment were as follows:
(in thousands)Home equity
 line of credit		Commercial constructionCommercial loansTotal
Three months ended June 30, 2020
Allowance for loan commitments:
Beginning balance$300  $3,191  $309  $3,800  
Provision—  4,309  (9) 4,300  
Ending balance$300  $7,500  $300  $8,100  
Six months ended June 30, 2020
Allowance for loan commitments:
Beginning balance, prior to adoption of ASU No. 2016-13$392  $931  $418  $1,741  
Impact of adopting ASU No. 2016-13
(92) 1,745  (94) 1,559  
Provision—  4,824  (24) 4,800  
Ending balance$300  $7,500  $300  $8,100  
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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


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 the BankASB 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.
34

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows:
Term Loans by Origination YearRevolving Loans
(in thousands)20202019201820172016PriorRevolvingConverted to term loansTotal
June 30, 2020
Residential 1-4 family
Current$176,536  $272,951  $165,584  $258,111  $215,920  $1,029,434  $—  $—  $2,118,536  
30-59 days past due—  —  —  —  —  2,192  —  —  2,192  
60-89 days past due—  —  —  —  —  606  —  —  606  
Greater than 89 days past due—  —  —  353  —  1,539  —  —  1,892  
176,536  272,951  165,584  258,464  215,920  1,033,771  —  —  2,123,226  
Home equity line of credit
Current—  —  —  —  —  —  1,027,589  33,797  1,061,386  
30-59 days past due—  —  —  —  —  —  790  312  1,102  
60-89 days past due—  —  —  —  —  —  408  175  583  
Greater than 89 days past due—  —  —  —  —  —  1,358  835  2,193  
—  —  —  —  —  —  1,030,145  35,119  1,065,264  
Residential land
Current2,095  4,975  2,024  2,041  22  2,067  —  —  13,224  
30-59 days past due—  —  —  —  —  —  —  —  —  
60-89 days past due—  —  —  —  —  —  —  —  —  
Greater than 89 days past due—  —  —  —  —  —  —  —  —  
2,095  4,975  2,024  2,041  22  2,067  —  —  13,224  
Residential construction
Current2,725  5,034  974  2,026  —  —  —  —  10,759  
30-59 days past due—  —  —  —  —  —  —  —  —  
60-89 days past due—  —  —  —  —  —  —  —  —  
Greater than 89 days past due—  —  —  —  —  —  —  —  —  
2,725  5,034  974  2,026  —  —  —  —  10,759  
Consumer
Current25,186  87,908  53,640  14,851  1,602  505  21,691  3,062  208,445  
30-59 days past due105  573  583  229  18  —  200  44  1,752  
60-89 days past due83  741  792  209  24  —  248  67  2,164  
Greater than 89 days past due95  1,258  1,172  483  73  —  424  164  3,669  
25,469  90,480  56,187  15,772  1,717  505  22,563  3,337  216,030  
Commercial real estate
Pass89,882  77,350  78,115  29,390  56,246  172,941  17,219  —  521,143  
Special Mention9,684  41,662  54,791  35,400  69,418  60,098  —  —  271,053  
Substandard—  488  1,930  605  3,669  56,678  —  —  63,370  
Doubtful—  —  —  —  —  —  —  —  —  
99,566  119,500  134,836  65,395  129,333  289,717  17,219  —  855,566  
Commercial construction
Pass6,933  13,458  29,873  —  7,472  —  14,060  —  71,796  
Special Mention819  —  —  18,000  —  —  —  —  18,819  
Substandard—  —  —  —  —  2,289  —  —  2,289  
Doubtful—  —  —  —  —  —  —  —  —  
7,752  13,458  29,873  18,000  7,472  2,289  14,060  —  92,904  
Commercial
Pass450,699  154,672  94,309  33,771  13,876  38,911  92,475  14,868  893,581  
Special Mention6,593  29,695  4,759  10,578  38,970  20,813  44,521  11,222  167,151  
Substandard165  4,681  145  1,637  1,241  3,139  607  1,482  13,097  
Doubtful—  —  —  —  —  —  —  —  —  
457,457  189,048  99,213  45,986  54,087  62,863  137,603  27,572  1,073,829  
Total loans$771,600  $695,446  $488,691  $407,684  $408,551  $1,391,212  $1,221,590  $66,028  $5,450,802  
  September 30, 2019 December 31, 2018
(in thousands) 
Commercial
real estate
 
Commercial
construction
 Commercial Total 
Commercial
real estate
 
Commercial
construction
 Commercial Total
Grade:  
  
  
    
  
  
  
Pass $723,864
 $74,093
 $593,952
 $1,391,909
 $658,288
 $89,974
 $547,640
 $1,295,902
Special mention 18,038
 —
 25,822
 43,860
 32,871
 —
 11,598
 44,469
Substandard 69,069
 2,289
 14,753
 86,111
 57,239
 2,290
 28,653
 88,182
Doubtful —
 —
 3,686
 3,686
 —
 —
 —
 —
Loss —
 —
 —
 —
 —
 —
 —
 —
Total $810,971
 $76,382
 $638,213
 $1,525,566
 $748,398
 $92,264
 $587,891
 $1,428,553
35


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Revolving loans converted to term loans during the six months ended June 30, 2020 in the commercial, home equity line of credit and consumer portfolios was $13.7 million, $8.7 million, and $1.4 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		 90 days or more past dueTotal
past due		CurrentTotal
financing
receivables		Amortized cost>
90 days and
accruing
June 30, 2020       
Real estate:       
Residential 1-4 family$2,192  $606  $1,892  $4,690  $2,118,536  $2,123,226  $—  
Commercial real estate642  —  —  642  854,924  855,566  —  
Home equity line of credit1,102  583  2,193  3,878  1,061,386  1,065,264  —  
Residential land—  —  —  —  13,224  13,224  —  
Commercial construction—  —  2,289  2,289  90,615  92,904  —  
Residential construction—  —  —  —  10,759  10,759  —  
Commercial461  575  452  1,488  1,072,341  1,073,829  —  
Consumer1,752  2,164  3,669  7,585  208,445  216,030  —  
Total loans$6,149  $3,928  $10,495  $20,572  $5,430,230  $5,450,802  $—  
December 31, 2019       
Real estate:       
Residential 1-4 family$2,588  $290  $1,808  $4,686  $2,173,449  $2,178,135  $—  
Commercial real estate—  —  —  —  824,830  824,830  —  
Home equity line of credit813  —  2,117  2,930  1,089,195  1,092,125  —  
Residential land—  —  25  25  14,679  14,704  —  
Commercial construction—  —  —  —  70,605  70,605  —  
Residential construction—  —  —  —  11,670  11,670  —  
Commercial1,077  311  172  1,560  669,114  670,674  —  
Consumer4,386  3,257  2,907  10,550  247,371  257,921  —  
Total loans$8,864  $3,858  $7,029  $19,751  $5,100,913  $5,120,664  $—  
(in thousands) 
30-59
days
past due
 
60-89
days
past due
 
Greater
than
90 days
 
Total
past due
 Current 
Total
financing
receivables
 
Recorded
investment>
90 days and
accruing
September 30, 2019  
  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $2,162
 $807
 $2,452
 $5,421
 $2,178,467
 $2,183,888
 $—
Commercial real estate 347
 —
 —
 347
 810,624
 810,971
 —
Home equity line of credit 736
 814
 2,127
 3,677
 1,075,585
 1,079,262
 —
Residential land —
 —
 25
 25
 15,070
 15,095
 —
Commercial construction —
 —
 —
 —
 76,382
 76,382
 —
Residential construction —
 —
 —
 —
 10,104
 10,104
 —
Commercial 359
 174
 1,280
 1,813
 636,400
 638,213
 —
Consumer 4,230
 2,923
 2,461
 9,614
 260,127
 269,741
 —
Total loans $7,834
 $4,718
 $8,345
 $20,897
 $5,062,759
 $5,083,656
 $—
December 31, 2018  
  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $3,757
 $2,773
 $2,339
 $8,869
 $2,134,528
 $2,143,397
 $—
Commercial real estate —
 —
 —
 —
 748,398
 748,398
 —
Home equity line of credit 1,139
 681
 2,720
 4,540
 973,697
 978,237
 —
Residential land 9
 —
 319
 328
 12,810
 13,138
 —
Commercial construction —
 —
 —
 —
 92,264
 92,264
 —
Residential construction —
 —
 —
 —
 14,307
 14,307
 —
Commercial 315
 281
 548
 1,144
 586,747
 587,891
 —
Consumer 5,220
 3,166
 2,702
 11,088
 254,914
 266,002
 —
Total loans $10,440
 $6,901
 $8,628
 $25,969
 $4,817,665
 $4,843,634
 $—


36

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


The credit risk profile based on nonaccrual loans accruing loans 90 days or more past due and troubled debt restructuring (TDR) loans was as follows:
(in thousands) September 30, 2019 December 31, 2018
Real estate:  
  
Residential 1-4 family $12,076
 $12,037
Commercial real estate —
 —
Home equity line of credit 7,859
 6,348
Residential land 457
 436
Commercial construction —
 —
Residential construction —
 —
Commercial 7,004
 4,278
Consumer 4,632
 4,196
  Total nonaccrual loans $32,028
 $27,295
Real estate:    
Residential 1-4 family $—
 $—
Commercial real estate —
 —
Home equity line of credit —
 —
Residential land —
 —
Commercial construction —
 —
Residential construction —
 —
Commercial —
 —
Consumer —
 —
     Total accruing loans 90 days or more past due $—
 $—
Real estate:    
Residential 1-4 family $9,981
 $10,194
Commercial real estate 877
 915
Home equity line of credit 10,686
 11,597
Residential land 2,737
 1,622
Commercial construction —
 —
Residential construction —
 —
Commercial 2,564
 1,527
Consumer 58
 62
     Total troubled debt restructured loans not included above $26,903
 $25,917



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
  September 30, 2019 Three months ended September 30, 2019 Nine months ended September 30, 2019
(in thousands) 
Recorded
investment
 
Unpaid
principal
balance
 
Related
Allowance
 
Average
recorded
investment
 
Interest
income
recognized*
 
Average
recorded
investment
 
Interest
income
recognized*
With no related allowance recorded  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $8,277
 $8,877
 $—
 $8,562
 $175
 $8,515
 $422
Commercial real estate —
 —
 —
 —
 —
 —
 —
Home equity line of credit 1,806
 1,967
 —
 1,797
 12
 2,091
 78
Residential land 3,194
 3,398
 —
 3,205
 40
 2,507
 90
Commercial construction —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
Commercial 6,749
 11,894
 —
 4,812
 239
 4,470
 239
Consumer 2
 2
 —
 21
 4
 27
 4
  $20,028
 $26,138
 $—
 $18,397
 $470
 $17,610
 $833
With an allowance recorded  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $8,279
 $8,332
 $906
 $8,296
 $86
 $8,377
 $265
Commercial real estate 877
 877
 7
 881
 9
 894
 28
Home equity line of credit 11,103
 11,133
 500
 11,332
 143
 11,606
 425
Residential land —
 —
 —
 —
 —
 36
 —
Commercial construction —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
Commercial 2,621
 2,621
 905
 8,330
 38
 8,026
 94
Consumer 556
 556
 504
 556
 12
 301
 14
  $23,436
 $23,519
 $2,822
 $29,395
 $288
 $29,240
 $826
Total  
  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $16,556
 $17,209
 $906
 $16,858
 $261
 $16,892
 $687
Commercial real estate 877
 877
 7
 881
 9
 894
 28
Home equity line of credit 12,909
 13,100
 500
 13,129
 155
 13,697
 503
Residential land 3,194
 3,398
 —
 3,205
 40
 2,543
 90
Commercial construction —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
Commercial 9,370
 14,515
 905
 13,142
 277
 12,496
 333
Consumer 558
 558
 504
 577
 16
 328
 18
  $43,464
 $49,657
 $2,822
 $47,792
 $758
 $46,850
 $1,659


(in thousands)June 30, 2020December 31, 2019
With a Related ACLWithout a Related ACLTotalTotal
Real estate:
Residential 1-4 family$7,584  $3,395  $10,979  $11,395  
Commercial real estate16,241  —  16,241  195  
Home equity line of credit6,249  1,616  7,865  6,638  
Residential land—  413  413  448  
Commercial construction—  2,289  2,289  —  
Residential construction—  —  —  —  
Commercial616  2,939  3,555  5,947  
Consumer5,637  —  5,637  5,113  
  Total nonaccrual loans$36,327  $10,652  $46,979  $29,736  
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:
(in thousands)June 30, 2020December 31, 2019
Real estate:
Residential 1-4 family$8,667  $9,869  
Commercial real estate1,016  853  
Home equity line of credit9,430  10,376  
Residential land2,007  2,644  
Commercial construction—  —  
Residential construction—  —  
Commercial3,203  2,614  
Consumer55  57  
Total troubled debt restructured loans accruing interest$24,378  $26,413  
  December 31, 2018 Three months ended September 30, 2018 Nine months ended September 30, 2018
(in thousands) 
Recorded
investment
 
Unpaid
principal
balance
 
Related
allowance
 
Average
recorded
investment
 
Interest
income
recognized*
 
Average
recorded
investment
 
Interest
income
recognized*
With no related allowance recorded  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $7,822
 $8,333
 $—
 $8,940
 $239
 $8,779
 $396
Commercial real estate —
 —
 —
 —
 —
 —
 —
Home equity line of credit 2,743
 3,004
 —
 2,234
 23
 2,103
 35
Residential land 2,030
 2,228
 —
 1,773
 6
 1,358
 16
Commercial construction —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
Commercial 3,722
 4,775
 —
 3,915
 6
 3,099
 26
Consumer 32
 32
 —
 33
 —
 18
 —
  $16,349
 $18,372
 $—
 $16,895
 $274
 $15,357
 $473
With an allowance recorded  
  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $8,672
 $8,875
 $876
 $8,820
 $84
 $8,909
 $274
Commercial real estate 915
 915
 7
 985
 11
 997
 32
Home equity line of credit 12,057
 12,086
 701
 12,090
 111
 10,083
 288
Residential land 29
 29
 6
 20
 —
 45
 3
Commercial construction —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
Commercial 1,618
 1,618
 628
 1,774
 28
 1,824
 94
Consumer 57
 57
 4
 57
 1
 58
 3
  $23,348
 $23,580
 $2,222
 $23,746
 $235
 $21,916
 $694
Total  
  
  
  
  
  
  
Real estate:  
  
  
  
  
  
  
Residential 1-4 family $16,494
 $17,208
 $876
 $17,760
 $323
 $17,688
 $670
Commercial real estate 915
 915
 7
 985
 11
 997
 32
Home equity line of credit 14,800
 15,090
 701
 14,324
 134
 12,186
 323
Residential land 2,059
 2,257
 6
 1,793
 6
 1,403
 19
Commercial construction —
 —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
 —
Commercial 5,340
 6,393
 628
 5,689
 34
 4,923
 120
Consumer 89
 89
 4
 90
 1
 76
 3
  $39,697
 $41,952
 $2,222
 $40,641
 $509
 $37,273
 $1,167

*Since loan was classified as impaired.
ASB did not recognize interest on nonaccrual loans for the three and six months ended June 30, 2020.
Troubled debt restructurings.  A loan modification is deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider.
AllThe allowance for credit losses on TDR loans that do not share risk characteristics are classified as impaired and are segregated and reviewed separately when assessing the adequacy of the allowance for loan lossesindividually evaluated based on the appropriate method of measuring impairment:  (1) present value of expected future cash flows discounted at the loan’s effective original contractual rate (2)or based on the fair value of collateral less cost to sell or (3) observable market price.sell. The financial impact of the calculated impairment amountestimated 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 loancredit losses.
37

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Loan modifications that occurred during the third quarters and first ninesix months of 20192020 and 20182019 were as follows:
Loans modified as a TDR Three months ended September 30, 2019 Nine months ended September 30, 2019
(dollars in thousands) Number of contracts 
Outstanding 
recorded 
investment
 (as of period end)1
 
Related allowance
(as of period end)
 Number of contracts 
Outstanding 
recorded 
investment
 (as of period end)1
 
Related allowance
(as of period end)
Troubled debt restructurings  
  
    
  
  
Real estate:  
  
    
  
  
Residential 1-4 family 1
 $324
 $—
 10
 $1,563
 $165
Commercial real estate —
 —
 —
 —
 —
 —
Home equity line of credit —
 —
 —
 3
 429
 85
Residential land 1
 350
 —
 3
 1,169
 —
Commercial construction —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
Commercial 3
 275
 58
 6
 1,761
 218
Consumer —
 —
 —
 —
 —
 —
  5
 $949
 $58
 22
 $4,922
 $468
             
Loans modified as a TDR Three months ended September 30, 2018 Nine months ended September 30, 2018
(dollars in thousands) Number of contracts 
Outstanding 
recorded 
investment
(as of period end)1
 
Related allowance
(as of period end)
 Number of contracts 
Outstanding 
recorded 
investment
 (as of period end)1
 
Related allowance
(as of period end)
Troubled debt restructurings  
  
    
  
  
Real estate:  
  
    
  
  
Residential 1-4 family 2
 $427
 $19
 2
 $427
 $19
Commercial real estate —
 —
 —
 —
 —
 —
Home equity line of credit 16
 1,571
 283
 52
 6,540
 930
Residential land 2
 1,343
 —
 2
 1,343
 —
Commercial construction —
 —
 —
 —
 —
 —
Residential construction —
 —
 —
 —
 —
 —
Commercial 6
 255
 174
 13
 2,381
 218
Consumer —
 —
 —
 —
 —
 —
  26
 $3,596
 $476
 69
 $10,691
 $1,167

Loans modified as a TDRThree months ended June 30, 2020Six months ended June 30, 2020
(dollars in thousands)Number 
of contracts
Outstanding 
recorded 
investment
 (as of period end)1
Related allowance
(as of period end)
Number 
of contracts
Outstanding 
recorded 
investment
 (as of period end)1
Related allowance
(as of period end)
Troubled debt restructurings    
Real estate:    
Residential 1-4 family—  $—  $—  1  $147  $7  
Commercial real estate—  —  —  2  16,430  4,301  
Home equity line of credit2  19  3  2  19  3  
Residential land2  330  —  2  330  —  
Commercial construction—  —  —  —  —  —  
Residential construction—  —  —  —  —  —  
Commercial—  —  —  4  751  275  
Consumer—  —  —  —  —  —  
 4  $349  $3  11  $17,677  $4,586  
Three months ended June 30, 2019Six months ended June 30, 2019
(dollars in thousands)Number 
of contracts
Outstanding 
recorded 
investment
 (as of period end)1
Related allowance
(as of period end)
Number 
of contracts
Outstanding recorded 
investment
 (as of period end)1
Related allowance
(as of period end)
Troubled debt restructurings    
Real estate:    
Residential 1-4 family1  $469  $154  9  $1,501  $161  
Commercial real estate—  —  —  —  —  —  
Home equity line of credit2  311  59  3  432  83  
Residential land2  825  —  2  825  —  
Commercial construction—  —  —  —  —  —  
Residential construction—  —  —  —  —  —  
Commercial2  1,317  133  3  1,507  150  
Consumer—  —  —  —  —  —  
 7  $2,922  $346  17  $4,265  $394  

1  TThehe 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.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


There were no loans modified in TDRs that experienced a payment default of 90 days or more during the thirdsecond quarter and first ninesix months of 2020 and 2019. Loans modified in TDRs that experienced
If a payment default of 90 days or more during the third quarter and first nine months of 2018, and for which the payment of default occurred within one year of the modification, were as follows:
  Three months ended September 30, 2018 Nine months ended September 30, 2018
(dollars in thousands) Number of contracts 
Outstanding 
recorded 
investment
(as of period end)1
 Number of contracts 
Outstanding 
recorded 
investment
 (as of period end)1
TDRs that defaulted during the period within twelve months of their modification date    
    
Real estate:    
    
Residential 1-4 family —
 $—
 —
 $—
Commercial real estate —
 —
 —
 —
Home equity line of credit —
 —
 1
 81
Residential land —
 —
 —
 —
Commercial construction —
 —
 —
 —
Residential construction —
 —
 —
 —
Commercial —
 —
 1
 291
Consumer —
 —
 —
 —
  —
 $—
 2
 $372
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.
If loansloan modified in a TDR subsequently default,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 NaN at SeptemberJune 30, 20192020 and December 31, 2018.2019.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes.
In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past due reporting and nonaccrual status and charge-offs.
38

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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:
June 30, 2020Amortized costCollateral type
(in thousands)
Real estate:
   Residential 1-4 family$1,795  Residential real estate property
   Home equity line of credit1,387  Residential real estate property
Commercial construction2,289  Commercial real estate property
     Total real estate5,471 
Commercial90  Business assets
     Total$5,561 
ASB had $4.3$3.0 million and $4.2$3.5 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively.
The credit risk profile by internally assigned grade for loans was as follows:
 December 31, 2019
(in thousands)Commercial
real estate		Commercial
construction		CommercialTotal
Grade:   
Pass$756,747  $68,316  $621,657  $1,446,720  
Special mention4,451  —  29,921  34,372  
Substandard63,632  2,289  19,096  85,017  
Doubtful—  —  —  —  
Loss—  —  —  —  
Total$824,830  $70,605  $670,674  $1,566,109  

39

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The total carrying amount and the total unpaid principal balance of impaired loans were as follows:
 December 31, 2019Three months ended June 30, 2019Six months ended June 30, 2019
(in thousands)Recorded
investment		Unpaid
principal
balance		Related
allowance		Average
recorded
investment		Interest
income
recognized*		Average
recorded
investment		Interest
income
recognized*
With no related allowance recorded      
Real estate:       
Residential 1-4 family$6,817  $7,207  $—  $8,993  $87  $8,492  $247  
Commercial real estate195  200  —  —  —  —  —  
Home equity line of credit1,984  2,135  —  1,940  54  2,238  66  
Residential land3,091  3,294  —  2,280  24  2,158  50  
Commercial construction—  —  —  —  —  —  —  
Residential construction—  —  —  —  —  —  —  
Commercial1,948  2,285  —  4,626  —  4,299  —  
Consumer2  2  —  31  —  31  —  
 $14,037  $15,123  $—  $17,870  $165  $17,218  $363  
With an allowance recorded       
Real estate:       
Residential 1-4 family$8,783  $8,835  $898  $8,440  $96  $8,417  $179  
Commercial real estate853  853  2  894  9  900  19  
Home equity line of credit10,089  10,099  322  11,665  152  11,743  282  
Residential land—  —  —  79  —  54  —  
Commercial construction—  —  —  —  —  —  —  
Residential construction—  —  —  —  —  —  —  
Commercial6,470  6,470  1,015  10,997  30  7,874  56  
Consumer505  505  454  288  1  173  2  
 $26,700  $26,762  $2,691  $32,363  $288  $29,161  $538  
Total       
Real estate:       
Residential 1-4 family$15,600  $16,042  $898  $17,433  $183  $16,909  $426  
Commercial real estate1,048  1,053  2  894  9  900  19  
Home equity line of credit12,073  12,234  322  13,605  206  13,981  348  
Residential land3,091  3,294  —  2,359  24  2,212  50  
Commercial construction—  —  —  —  —  —  —  
Residential construction—  —  —  —  —  —  —  
Commercial8,418  8,755  1,015  15,623  30  12,173  56  
Consumer507  507  454  319  1  204  2  
 $40,737  $41,885  $2,691  $50,233  $453  $46,379  $901  
*  Since loan was classified as impaired.
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 $87.8$186.8 million and $31.9$64.7 million for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, and $177.3$259.3 million and $109.3$89.6 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, and recognized gains on such sales of $1.5$6.3 million and $0.2$1.0 million for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively, and $3.1$8.3 million and $1.4$1.6 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
There were no repurchased mortgage loans for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019. The repurchase reserve was $0.1 million as of SeptemberJune 30, 20192020 and 2018.2019.
Mortgage servicing fees, a component of other income, net, were $0.8 million and $0.7 million for the three months ended SeptemberJune 30, 20192020 and 2018,2019, respectively and were $2.2$1.6 million and $1.5 million for the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, respectively.
Changes in the carrying value of MSRs were as follows:
(in thousands) Gross
carrying amount		 Accumulated amortization Valuation allowance Net
carrying amount
September 30, 2019 $20,413
 $(11,846) $—
 $8,567
December 31, 2018 18,556
 (10,494) —
 8,062
40


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Changes in the carrying value of MSRs were as follows:
(in thousands)
Gross
carrying amount1
Accumulated amortizationValuation allowanceNet
carrying amount
June 30, 2020$23,904  $(13,993) $(264) $9,647  
December 31, 201921,543  (12,442) —  9,101  
1  (Unaudited)Reflects impact of loans paid in full



Changes related to MSRs were as follows:
  Three months ended September 30, Nine months ended September 30
(in thousands) 2019 2018 2019 2018
Mortgage servicing rights        
Beginning balance $8,103
 $8,509
 $8,062
 $8,639
Amount capitalized 995
 305
 1,857
 1,032
Amortization (531) (388) (1,352) (1,245)
Other-than-temporary impairment —
 —
 —
 —
Carrying amount before valuation allowance 8,567
 8,426
 8,567
 8,426
Valuation allowance for mortgage servicing rights        
Beginning balance —
 —
 —
 —
Provision (recovery) —
 —
 —
 —
Other-than-temporary impairment —
 —
 —
 —
Ending balance —
 —
 —
 —
Net carrying value of mortgage servicing rights $8,567
 $8,426
 $8,567
 $8,426

Three months ended June 30,Six months ended June 30
(in thousands)2020201920202019
Mortgage servicing rights
Beginning balance$9,120  $7,897  $9,101  $8,062  
Amount capitalized1,726  632  2,362  862  
Amortization(935) (426) (1,552) (821) 
Other-than-temporary impairment—  —  —  —  
Carrying amount before valuation allowance9,911  8,103  9,911  8,103  
Valuation allowance for mortgage servicing rights
Beginning balance—  —  —  —  
Provision (recovery)264  —  264  —  
Other-than-temporary impairment—  —  —  —  
Ending balance264  —  264  —  
Net carrying value of mortgage servicing rights$9,647  $8,103  $9,647  $8,103  
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 consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.
Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:
(dollars in thousands) September 30, 2019
 December 31, 2018
Unpaid principal balance $1,232,240
 $1,188,514
Weighted average note rate 3.99% 3.98%
Weighted average discount rate 9.3% 10.0%
Weighted average prepayment speed 12.8% 6.5%

(dollars in thousands)June 30, 2020December 31, 2019
Unpaid principal balance$1,360,920  $1,276,437  
Weighted average note rate3.87 %3.96 %
Weighted average discount rate9.3 %9.3 %
Weighted average prepayment speed16.9 %11.4 %
The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:
(dollars in thousands) September 30, 2019
 December 31, 2018
Prepayment rate:    
  25 basis points adverse rate change $(1,058) $(250)
  50 basis points adverse rate change (2,093) (566)
Discount rate:    
  25 basis points adverse rate change (90) (139)
  50 basis points adverse rate change (180) (275)


(dollars in thousands)June 30, 2020December 31, 2019
Prepayment rate:
  25 basis points adverse rate change$(539) $(950) 
  50 basis points adverse rate change(1,062) (1,947) 
Discount rate:
  25 basis points adverse rate change(64) (102) 
  50 basis points adverse rate change(128) (202) 
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.
41

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Other borrowings.  As of SeptemberJune 30, 2019,2020, ASB had $38.0$30.0 million of FHLB advances outstanding. ASB was in compliance with all Advances, Pledge and Security Agreement requirements as of SeptemberJune 30, 2020. ASB also had 0 federal funds purchased with the Federal Reserve Bank as of June 30, 2020. There were 0 FHLB advances or federal funds purchased with the Federal Reserve Bank as of December 31, 2019.
Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties:
(in millions) 
Gross amount of
recognized liabilities
 
Gross amount offset in
the Balance Sheets
 
Net amount of liabilities presented
in the Balance Sheets
(in millions)Gross amount
 of recognized
 liabilities		Gross amount
 offset in the 
Balance Sheets		Net amount of
liabilities presented
in the Balance Sheets
Repurchase agreements  
  
  
Repurchase agreements   
September 30, 2019 $91
 $—
 $91
December 31, 2018 65
 —
 65
June 30, 2020June 30, 2020$95  $—  $95  
December 31, 2019December 31, 2019115  —  115  
  Gross amount not offset in the Balance Sheets
(in millions) 
 Net amount of liabilities presented
in the Balance Sheets
 
Financial
instruments
 
Cash
collateral
pledged
Commercial account holders      
September 30, 2019 $91
 $111
 $—
December 31, 2018 65
 92
 —

 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
June 30, 2020$95  $143  $—  
December 31, 2019115  130  —  
The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.
Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.
ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.
ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.
Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
The notional amount and fair value of ASB’s derivative financial instruments were as follows:
 September 30, 2019 December 31, 2018 June 30, 2020December 31, 2019
(in thousands) Notional amount Fair value Notional amount Fair value(in thousands)Notional amountFair valueNotional amountFair value
Interest rate lock commitments $42,073
 $470
 $10,180
 $91
Interest rate lock commitments$70,190  $2,341  $23,171  $297  
Forward commitments 55,791
 (76) 10,132
 (43)Forward commitments57,750  (287) 29,383  (42) 
42


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:
Derivative Financial Instruments Not Designated as Hedging Instruments 1
 September 30, 2019 December 31, 2018
Derivative Financial Instruments Not Designated as Hedging Instruments 1
June 30, 2020December 31, 2019
(in thousands)  Asset derivatives 
 Liability
derivatives
  Asset derivatives  Liability
derivatives		(in thousands) Asset derivatives Liability
derivatives		 Asset derivatives Liability
derivatives
Interest rate lock commitments $477
 $7
 $91
 $—
Interest rate lock commitments$2,341  $—  $297  $—  
Forward commitments 9
 85
 —
 43
Forward commitments—  287  3  45  
 $486
 $92
 $91
 $43
 $2,341  $287  $300  $45  
1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.
The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:
Derivative Financial Instruments Not Designated as Hedging Instruments Location of net gains (losses) recognized in the Statements of Income Three months ended September 30, Nine months ended September 30
(in thousands)  2019 2018 2019 2018
Interest rate lock commitments Mortgage banking income $(3) $(248) $379
 $(131)
Forward commitments Mortgage banking income 39
 62
 (33) 24
    $36
 $(186) $346
 $(107)

Derivative Financial Instruments Not Designated as Hedging InstrumentsLocation of net gains (losses) recognized in the Statements of IncomeThree months ended June 30,Six months ended June 30
(in thousands)2020201920202019
Interest rate lock commitmentsMortgage banking income$489  $11  $2,044  $382  
Forward commitmentsMortgage banking income298  46  (245) (72) 
 $787  $57  $1,799  $310  
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $20.7$21.4 million and $18.1$23.4 million at SeptemberJune 30, 20192020 and December 31, 2018,2019, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of SeptemberJune 30, 2019,2020, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.
43

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Note 5 · Credit agreements and changes in debt
HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of 8 financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities), effective July 3, 2017, to amend and restate their respective previously existing revolving unsecured credit agreements. The $150 million HEI Facility and $200 million Hawaiian Electric Facility both terminate on June 30, 2022. AsNaN amounts under the Credit Facilities were outstanding as of SeptemberJune 30, 20192020 and December 31, 2018, no amounts were outstanding under2019. None of the Credit Facilities.facilities are collateralized.
The Credit Facilities will be maintained to support each company’s respective short-term commercial paper program, but may be drawn on to meet each company’s respective working capital needs and general corporate purposes.
Changes in long-term debt. On April 20, 2020, HEI closed on a $65 million 364-day term loan from a syndicate of 2 banks. The loan bears interest at a floating rate at HEI’s option of either (i) a rate equal to an alternate base rate as defined in the agreement or (ii) a rate equal to an adjusted London interbank offered rate, as defined in the agreement, plus an applicable margin, and matures on April 19, 2021. The proceeds of the loan were used to pay down the balance on the HEI Facility, which increased the available borrowing capacity on the HEI Facility by $65 million. The loan contains provisions requiring the maintenance by HEI of certain financial ratios substantially consistent with those in HEI’s existing, amended and restated revolving unsecured credit agreement. The loan may be prepaid without penalty at any time, but proceeds from any debt capital market transactions over $50 million must first be applied to pay down the term loan.
On April 20, 2020, Hawaiian Electric closed on a $75 million 364-day revolving credit agreement (364-day Revolver) with a syndicate of 4 banks. Under the 364-day Revolver, draws bear interest at a floating rate at Hawaiian Electric’s option of either (i) a rate equal to an alternate base rate as defined in the agreement or (ii) a rate equal to an adjusted London interbank offered rate, as defined in the agreement, plus an applicable margin, requires annual fees for undrawn amounts, and terminates on April 19, 2021. The 364-day Revolver includes substantially the same financial covenant and customary representations and warranties, affirmative and negative covenants, and events of default (the occurrence of which may result in the loan outstanding becoming immediately due and payable) consistent with those in Hawaiian Electric’s existing, amended and restated revolving unsecured credit agreement. As of June 30, 2020, Hawaiian Electric had 0 amounts outstanding on this revolving credit agreement.
On May 13, 2019,14, 2020, the Utilities issued, through a private placement pursuant to separate Note Purchase Agreements (the Note Purchase Agreements), the following unsecured senior notes bearing taxable interest (the Unsecured Notes):
Series 2019A
Aggregate principal amount$50 million
Fixed coupon interest rate4.21%
Maturity dateMay 15, 2034
Principal amount by company:
Hawaiian Electric$30 million
Hawaii Electric Light$10 million
Maui Electric$10 million
Series 2020ASeries 2020BSeries 2020C
Aggregate principal amount$80 million$60 million$20 million
Fixed coupon interest rate
Hawaiian Electric3.31%3.31%3.96%
Hawaii Electric Light3.96%
Maui Electric3.31%3.96%
Maturity date
Hawaiian Electric5/1/20305/1/20305/1/2050
Hawaii Electric Light5/1/2050
Maui Electric5/1/20305/1/2050
Principal amount by company:
     Hawaiian Electric
$50 million
(Green Bond)
$40 million$20 million
     Hawaii Electric Light$10 million——
     Maui Electric$20 million20 million—
The Unsecured Notes include substantially the same financial covenants and customary conditions as Hawaiian Electric’s credit agreement.Hawaiian Electric is also a party as guarantor under the Note Purchase Agreements entered into by Hawaii Electric Light and Maui Electric.All of the proceeds of the Notes were used by Hawaiian Electric, Hawaii Electric Light and Maui Electric to finance their capital expenditures and/or to reimburse funds used for the payment of capital expenditures.The Unsecured Notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount plus a “Make-Whole Amount,Amount.” as defined in the Note Purchase Agreements.
On May 15, 2019, proceeds from the sale were applied to redeem the Utilities’ 2004 junior subordinated deferrable interest debentures at par19, 2020, Hawaiian Electric paid off and terminated $100 million term loan credit agreement dated as of December 23, 2019. In addition, Hawaiian Electric entered into a 364-day, $50 million term loan credit agreement that matures
44

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


value:
2004 Junior subordinated deferrable interest debentures redeemed
Aggregate principal amount$51.5 million
Fixed coupon interest rate6.50%
Maturity dateMay 15, 2034
Principal amount by company:
Hawaiian Electric$31.5 million
Hawaii Electric Light$10 million
Maui Electric$10 million
On July 18, 2019,on April 19, 2021. The term loan credit agreement includes substantially the Departmentsame financial covenant and customary representations and warranties, affirmative and negative covenants, and events of Budgetdefault (the occurrence of which may result in the loan outstanding becoming immediately due and Finance ofpayable) consistent with those in Hawaiian Electric’s existing, amended and restated revolving unsecured credit agreement. The loan may be prepaid without penalty at any time, but proceeds from any debt capital market transactions over $75 million must be first applied to pay down the State of Hawaii (DBF) for the benefit ofterm loan. Hawaiian Electric and Hawaii Electric Light, issued, at par:
drew the full $50 million on May 19, 2020.
Refunding Series 2019 Special Purpose Revenue Bonds
Aggregate principal amount$150 million
Fixed coupon interest rate3.20%
Maturity dateJuly 1, 2039
DBF loaned the proceeds to:
Hawaiian Electric$90 million
Hawaii Electric Light$60 million
On July 26, 2019, proceeds from the sale were applied to redeem at par, bonds previously issued by the DBF for the benefit of Hawaiian Electric and Hawaii Electric Light:
Series 2009 Special Purpose Revenue Bonds Redeemed
Aggregate principal amount$150 million
Fixed coupon interest rate6.50%
Maturity dateJuly 1, 2039
Principal amount by company:
Hawaiian Electric$90 million
Hawaii Electric Light$60 million

On October 10, 2019, the DBF for the benefit of Hawaiian Electric, Hawaii Electric Light and Maui Electric, issued, at par:
Series 2019 Special Purpose Revenue Bonds
Aggregate principal amount$80 million
Fixed coupon interest rate3.50%
Maturity dateOctober 1, 2049
DBF loaned the proceeds to:
Hawaiian Electric$70 million
Hawaii Electric Light$2.5 million
Maui Electric$7.5 million

Proceeds will be used to finance capital expenditures, including reimbursements to the Companies for previously incurred capital expenditures. For Series 2019 Special Purpose Revenue Bonds (SPRBs), funds on deposit with trustee represent the undrawn proceeds from the issuance of the SPRBs and earn interest at market rates. These funds are available only to pay (or to reimburse) the Utilities for their capital expenditures.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 6 · Leases
The Company adopted ASU No. 2016-02 and related amendments on January 1, 2019, and used the effective date as the date of initial application. The Company elected the practical expedient package under which the Company did not reassess its prior conclusions about whether any expired or existing contracts are or contain leases, whether there is a change in lease classification for any expired or existing leases under the new standard, or whether there were initial direct costs for any existing leases that would be treated differently under the new standard. The Company elected the short-term lease recognition exemption for all of its leases that qualify, and accordingly, does not recognize lease liabilities and ROU assets for all leases that have lease terms that are 12 months or less. The amounts related to short-term leases are not material. The Company elected the practical expedient to not separate lease and non-lease components for its real estate and equipment and fossil fuel and renewable energy PPAs. The Company elected the practical expedient to not assess all existing land easements that were not previously accounted for in accordance with ASC 840.
The Company leases certain real estate and equipment for various terms under long-term operating lease agreements. The agreements expire at various dates through 2054 and provide for renewal options up to 10 years. The periods associated with the renewal options are excluded for the purpose of determining the lease term unless the exercise of the renewable option is reasonably certain. In the normal course of business, it is expected that many of these agreements will be replaced by similar agreements. Certain real estate leases require the Company to pay for operating expenses such as common area maintenance, real estate taxes and insurance.
Additionally, the Utilities contract with independent power producers to supply energy under long-term power purchase agreements. Certain PPAs are treated as operating leases under the new standard because the Company elected the practical expedient package under which prior conclusions about lease identification were not reassessed. PPAs generally include variable lease payments (e.g., payments based on kWh), and several as-available PPAs have variable-only payment terms. For PPAs with no minimum lease payments, the Utilities do not recognize any lease liabilities or ROU assets, and the related costs are reported as variable lease costs.
In August 2019, Hawaiian Electric entered into a lease agreement for a total office space of approximately 195,000 square feet in downtown Honolulu to lower costs and bring together office workers in separate leased buildings. The lease consists of two different phases with expected commencement dates of January 2020 and January 2021, respectively, and is an operating lease for a term of 12 years with various options to extend up to 10 years. Annual rent expense for each phase will be approximately $1.9 million and $1.7 million, respectively.
The Utilities’ lease payments for each operating lease agreement were discounted using its estimated unsecured borrowing rates for the appropriate term, reduced for the estimated impact of collateral. ASB’s lease payments for each operating lease agreement were discounted using Federal Home Loan Bank of Des Moines (FHLB) fixed rate advance rates, which are collateralized, for the appropriate term. The FHLB is the bank’s primary wholesale funding source and can provide borrowing rates for various terms starting at overnight borrowings to 30-year borrowing terms.
Amounts related to the Company’s total lease cost and cash flows arising from lease transaction are as follows:
 HEI consolidated Hawaiian Electric consolidated

Three months ended September 30, 2019
(in thousands)
Other leasesPPAs classified as leasesTotal Other leasesPPAs classified as leasesTotal
Operating lease cost$2,892
$15,478
$18,370
 $1,542
$15,478
$17,020
Variable lease cost3,577
57,912
61,489
 2,836
57,912
60,748
Total lease cost$6,469
$73,390
$79,859
 $4,378
$73,390
$77,768
Other information       
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases$2,687
$16,795
$19,482
 $1,455
$16,795
$18,250

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


 HEI consolidated Hawaiian Electric consolidated
Nine months ended September 30, 2019
(dollars in thousands)		Other leasesPPAs classified as leasesTotal Other leasesPPAs classified as leasesTotal
Operating lease cost$8,632
$46,434
$55,066
 $4,551
$46,434
$50,985
Variable lease cost9,777
143,177
152,954
 7,686
143,177
150,863
Total lease cost$18,409
$189,611
$208,020
 $12,237
$189,611
$201,848
Other information       
Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases$7,867
$46,162
$54,029
 $4,263
$46,162
$50,425
Weighted-average remaining lease term—operating leases (in years)6.5
3.0
3.7
 4.7
3.0
3.2
Weighted-average discount rate—operating leases3.55%4.08%3.98% 4.17%4.08%4.09%

The following table summarizes the maturity of our operating lease liabilities as of September 30, 2019:
 HEI consolidated Hawaiian Electric consolidated
(in millions)Other leasesPPAs classified as leasesTotal Other leasesPPAs classified as leasesTotal
2019 (remaining months)$3
$17
$20
 $2
$17
$19
202011
63
74
 6
63
69
20219
63
72
 5
63
68
20226
42
48
 2
42
44
20234
—
4
 2
—
2
20243
—
3
 1
—
1
Thereafter9
—
9
 2
—
2
Total lease payments45
185
230
 20
185
205
Less: Imputed interest(6)(11)(17) (2)(11)(13)
Total present value of lease payments$39
$174
$213
 $18
$174
$192

The future minimum lease obligations under operating leases in effect as of December 31, 2018, having a term in excess of one year as determined prior to the adoption of ASC 842 are as follows:
 HEI consolidated Hawaiian Electric consolidated
(in millions)Other leasesPPAs classified as leasesTotal Other leasesPPAs classified as leasesTotal
2019$11
$63
$74
 $6
$63
$69
20209
63
72
 6
63
69
20218
63
71
 5
63
68
20225
42
47
 2
42
44
20234
—
4
 2
—
2
Thereafter12
—
12
 3
—
3
Total lease payments$49
$231
$280
 $24
$231
$255


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 7 · Shareholders’ equity
Accumulated other comprehensive income/(loss). Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:
HEI Consolidated Hawaiian Electric ConsolidatedHEI ConsolidatedHawaiian Electric Consolidated
(in thousands) Net unrealized gains (losses) on securities  Unrealized gains (losses) on derivatives Retirement benefit plans AOCI AOCI-Retirement benefit plans (in thousands) Net unrealized gains (losses) on securities Unrealized gains (losses) on derivativesRetirement benefit plansAOCIAOCI-Retirement benefit plans
Balance, December 31, 2019Balance, December 31, 2019$2,481  $(1,613) $(20,907) $(20,039) $(1,279) 
Current period other comprehensive income (loss)Current period other comprehensive income (loss)18,783  (1,982) 1,079  17,880  51  
Balance, June 30, 2020Balance, June 30, 2020$21,264  $(3,595) $(19,828) $(2,159) $(1,228) 
Balance, December 31, 2018$(24,423) $(436) $(25,751) $(50,610) $99
Balance, December 31, 2018$(24,423) $(436) $(25,751) $(50,610) $99  
Current period other comprehensive income (loss)27,368
 (1,663) 532
 26,237
 73
Current period other comprehensive income (loss)23,593  (1,063) 410  22,940  47  
Balance, September 30, 2019$2,945
 $(2,099) $(25,219) $(24,373) $172
Balance, December 31, 2017$(14,951) $—
 $(26,990) $(41,941) $(1,219)
Current period other comprehensive income (loss)(22,768) —
 1,581
 (21,187) 85
Balance, September 30, 2018$(37,719) $—
 $(25,409) $(63,128) $(1,134)
Balance, June 30, 2019Balance, June 30, 2019$(830) $(1,499) $(25,341) $(27,670) $146  

Reclassifications out of AOCI were as follows:
 Amount reclassified from AOCI 
 Three months ended June 30Six months ended June 30Affected line item in the
(in thousands)2020201920202019 Statements of Income / Balance Sheets
HEI consolidated
Net realized gains on securities included in net income$(1,638) $—  $(1,638) $—  Gain on sale of investment securities, net
Retirement benefit plans:     
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost5,690  2,503  11,396  5,006  See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets(5,159) (2,298) (10,317) (4,596) See Note 8 for additional details
Total reclassifications$(1,107) $205  $(559) $410   
Hawaiian Electric consolidated
Retirement benefit plans:   
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost$5,184  $2,321  $10,368  $4,643  See Note 8 for additional details
Impact of D&Os of the PUC included in regulatory assets(5,159) (2,298) (10,317) (4,596) See Note 8 for additional details
Total reclassifications$25  $23  $51  $47   
  Amount reclassified from AOCI  
  Three months ended September 30 Nine months ended September 30 Affected line item in the
(in thousands) 2019 2018 2019 2018  Statements of Income / Balance Sheets
HEI consolidated          
Net realized gains on securities included in net income $(478) $—
 $(478) $—
 Revenues-bank (gains on sale of investment securities, net)
Retirement benefit plans:  
  
  
  
  
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost 2,615
 5,259
 7,621
 15,755
 See Note 9 for additional details
Impact of D&Os of the PUC included in regulatory assets (2,493) (4,725) (7,089) (14,174) See Note 9 for additional details
Total reclassifications $(356) $534
 $54
 $1,581
  
Hawaiian Electric consolidated          
Retirement benefit plans:    
    
  
Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost $2,519
 $4,753
 $7,162
 $14,259
 See Note 9 for additional details
Impact of D&Os of the PUC included in regulatory assets (2,493) (4,725) (7,089) (14,174) See Note 9 for additional details
Total reclassifications $26
 $28
 $73
 $85
  

45

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 87 · Revenues
Revenue from contracts with customers. The following tables disaggregate revenues by major source, timing of revenue recognition, and segment:
  Three months ended September 30, 2019 Nine months ended September 30, 2019
(in thousands)  Electric  utility Bank Other Total Electric  utility Bank Other Total
Revenues from contracts with customers                
Electric energy sales - residential $230,051
 $—
 $—
 $230,051
 $601,664
 $—
 $—
 $601,664
Electric energy sales - commercial 230,411
 —
 —
 230,411
 635,097
 —
 —
 635,097
Electric energy sales - large light and power 248,457
 —
 —
 248,457
 679,252
 —
 —
 679,252
Electric energy sales - other 4,081
 —
 —
 4,081
 11,933
 —
 —
 11,933
Bank fees —
 12,111
 —
 12,111
 —
 34,976
 —
 34,976
Total revenues from contracts with customers 713,000
 12,111
 —
 725,111
 1,927,946
 34,976
 —
 1,962,922
Revenues from other sources                
Regulatory revenue (30,800) —
 —
 (30,800) (44,953) —
 —
 (44,953)
Bank interest and dividend income —
 66,859
 —
 66,859
 —
 201,502
 —
 201,502
Other bank noninterest income —
 4,231
 —
 4,231
 —
 11,462
 —
 11,462
Other 6,130
 —
 4
 6,134
 17,616
 —
 86
 17,702
Total revenues from other sources (24,670) 71,090
 4
 46,424
 (27,337) 212,964
 86
 185,713
Total revenues $688,330
 $83,201
 $4
 $771,535
 $1,900,609
 $247,940
 $86
 $2,148,635
Timing of revenue recognition                
Services/goods transferred at a point in time $—
 $12,111
 $—
 $12,111
 $—
 $34,976
 $—
 $34,976
Services/goods transferred over time 713,000
 —
 —
 713,000
 1,927,946
 —
 —
 1,927,946
Total revenues from contracts with customers $713,000
 $12,111
 $—
 $725,111
 $1,927,946
 $34,976
 $—
 $1,962,922

Three months ended June 30, 2020Six months ended June 30, 2020
(in thousands) Electric  utilityBankOtherTotalElectric  utilityBankOtherTotal
Revenues from contracts with customers
Electric energy sales - residential$187,590  $—  $—  $187,590  $377,856  $—  $—  $377,856  
Electric energy sales - commercial159,874  —  —  159,874  356,979  —  —  356,979  
Electric energy sales - large light and power176,467  —  —  176,467  392,687  —  —  392,687  
Electric energy sales - other1,779  —  —  1,779  5,237  —  —  5,237  
Bank fees—  7,211  —  7,211  —  18,767  —  18,767  
Total revenues from contracts with customers525,710  7,211  —  532,921  1,132,759  18,767  —  1,151,526  
Revenues from other sources
Regulatory revenue2,826  —  —  2,826  (12,478) —  —  (12,478) 
Bank interest and dividend income—  59,829  —  59,829  —  124,804  —  124,804  
Other bank noninterest income—  7,674  —  7,674  —  10,881  —  10,881  
Other5,679  —  16  5,695  11,376  —  22  11,398  
Total revenues from other sources8,505  67,503  16  76,024  (1,102) 135,685  22  134,605  
Total revenues$534,215  $74,714  $16  $608,945  $1,131,657  $154,452  $22  $1,286,131  
Timing of revenue recognition
Services/goods transferred at a point in time$—  $7,211  $—  $7,211  $—  $18,767  $—  $18,767  
Services/goods transferred over time525,710  —  —  525,710  1,132,759  —  —  1,132,759  
Total revenues from contracts with customers$525,710  $7,211  $—  $532,921  $1,132,759  $18,767  $—  $1,151,526  
  Three months ended September 30, 2018 Nine months ended September 30, 2018
(in thousands)  Electric  utility Bank Other Total Electric  utility Bank Other Total
Revenues from contracts with customers                
Electric energy sales - residential $222,196
 $—
 $—
 $222,196
 $586,002
 $—
 $—
 $586,002
Electric energy sales - commercial 229,476
 —
 —
 229,476
 624,643
 —
 —
 624,643
Electric energy sales - large light and power 242,457
 —
 —
 242,457
 649,454
 —
 —
 649,454
Electric energy sales - other 4,296
 —
 —
 4,296
 12,324
 —
 —
 12,324
Bank fees —
 11,743
 —
 11,743
 —
 34,797
 —
 34,797
Total revenues from contracts with customers 698,425
 11,743
 —
 710,168
 1,872,423
 34,797
 —
 1,907,220
Revenues from other sources                
Regulatory revenue (13,572) —
 —
 (13,572) (13,465) —
 —
 (13,465)
Bank interest and dividend income —
 65,185
 —
 65,185
 —
 190,448
 —
 190,448
Other bank noninterest income —
 3,568
 —
 3,568
 —
 7,774
 —
 7,774
Other 2,556
 —
 143
 2,699
 7,004
 —
 218
 7,222
Total revenues from other sources (11,016) 68,753
 143
 57,880
 (6,461) 198,222
 218
 191,979
Total revenues $687,409
 $80,496
 $143
 $768,048
 $1,865,962
 $233,019
 $218
 $2,099,199
Timing of revenue recognition                
Services/goods transferred at a point in time $832
 $11,743
 $—
 $12,575
 $2,380
 $34,797
 $—
 $37,177
Services/goods transferred over time 697,593
 —
 —
 697,593
 1,870,043
 —
 —
 1,870,043
Total revenues from contracts with customers $698,425
 $11,743
 $—
 $710,168
 $1,872,423
 $34,797
 $—
 $1,907,220


Three months ended June 30, 2019Six months ended June 30, 2019
(in thousands) Electric  utilityBankOtherTotalElectric  utilityBankOtherTotal
Revenues from contracts with customers
Electric energy sales - residential$195,868  $—  $—  $195,868  $371,613  $—  $—  $371,613  
Electric energy sales - commercial217,278  —  —  217,278  404,686  —  —  404,686  
Electric energy sales - large light and power231,869  —  —  231,869  430,795  —  —  430,795  
Electric energy sales - other3,774  —  —  3,774  7,852  —  —  7,852  
Bank fees—  11,632  —  11,632  —  22,865  —  22,865  
Total revenues from contracts with customers648,789  11,632  —  660,421  1,214,946  22,865  —  1,237,811  
Revenues from other sources
Regulatory revenue(20,360) —  —  (20,360) (14,153) —  —  (14,153) 
Bank interest and dividend income—  66,155  —  66,155  —  134,643  —  134,643  
Other bank noninterest income—  3,900  —  3,900  —  7,231  —  7,231  
Other5,355  —  14  5,369  11,486  —  82  11,568  
Total revenues from other sources(15,005) 70,055  14  55,064  (2,667) 141,874  82  139,289  
Total revenues$633,784  $81,687  $14  $715,485  $1,212,279  $164,739  $82  $1,377,100  
Timing of revenue recognition
Services/goods transferred at a point in time$—  $11,632  $—  $11,632  $—  $22,865  $—  $22,865  
Services/goods transferred over time648,789  —  —  648,789  1,214,946  —  —  1,214,946  
Total revenues from contracts with customers$648,789  $11,632  $—  $660,421  $1,214,946  $22,865  $—  $1,237,811  
There are no material contract assets or liabilities associated with revenues from contracts with customers existing at the beginning of the period or as of SeptemberJune 30, 2019.2020. 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
46

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


As of SeptemberJune 30, 2019,2020, the Company had no material remaining performance obligations due to the nature of the Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to customers. For ASB, fees are recognized when a transaction is completed.
Note 98 · Retirement benefits
Defined benefit pension and other postretirement benefit plans information.  For the first ninesix months of 2019,2020, the Company contributed $36$17 million ($3617 million by the Utilities) to its pension and other postretirement benefit plans, compared to $38$24 million ($3723 million by the Utilities) in the first ninesix months of 2018.2019. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in 20192020 is $71 million ($70 million by the Utilities, $1 million by HEI and NaN by ASB), compared to $49 million ($48 million by the Utilities, $1 million by HEI and nil by ASB), compared to $39 million ($38 million by the Utilities, $1 million by HEI and nilNaN by ASB) in 2018.2019. In addition, the Company expects to pay directly $3 million ($21 million by the Utilities) of benefits in 2019,2020, compared to $2 million ($1 million by the Utilities) paid in 2018.2019.
The components of net periodic pension costs (NPPC) and net periodic benefit costs (NPBC) for HEI consolidated and Hawaiian Electric consolidated were as follows:
  Three months ended September 30 Nine months ended September 30
  Pension benefits Other benefits Pension benefits Other benefits
(in thousands) 2019 2018 2019 2018 2019 2018 2019 2018
HEI consolidated                
Service cost $15,800
 $17,223
 $573
 $680
 $46,564
 $51,764
 $1,656
 $2,041
Interest cost 21,150
 19,340
 2,006
 1,986
 63,216
 58,033
 6,000
 5,947
Expected return on plan assets (27,991) (27,237) (3,101) (3,224) (83,988) (81,715) (9,273) (9,683)
Amortization of net prior service gain (10) (11) (451) (451) (32) (32) (1,355) (1,354)
Amortization of net actuarial (gains) losses 3,989
 7,527
 (3) 25
 11,667
 22,556
 (10) 71
Net periodic pension/benefit cost (return) 12,938
 16,842
 (976) (984) 37,427
 50,606
 (2,982) (2,978)
Impact of PUC D&Os 11,554
 7,785
 821
 953
 36,111
 17,621
 2,443
 3,048
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) $24,492
 $24,627
 $(155) $(31) $73,538
 $68,227
 $(539) $70
Hawaiian Electric consolidated                
Service cost $15,344
 $16,840
 $568
 $676
 $45,346
 $50,520
 $1,643
 $2,028
Interest cost 19,560
 17,824
 1,920
 1,907
 58,388
 53,471
 5,755
 5,721
Expected return on plan assets (26,146) (25,593) (3,064) (3,178) (78,474) (76,777) (9,135) (9,534)
Amortization of net prior service (gain) cost 2
 2
 (451) (451) 6
 6
 (1,353) (1,353)
Amortization of net actuarial loss 3,841
 6,826
 —
 25
 10,993
 20,477
 —
 74
Net periodic pension/benefit cost (return) 12,601
 15,899
 (1,027) (1,021) 36,259
 47,697
 (3,090) (3,064)
Impact of PUC D&Os 11,554
 7,785
 821
 953
 36,111
 17,621
 2,443
 3,048
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) $24,155
 $23,684
 $(206) $(68) $72,370
 $65,318
 $(647) $(16)

Three months ended June 30Six months ended June 30
 Pension benefitsOther benefitsPension benefitsOther benefits
(in thousands)20202019202020192020201920202019
HEI consolidated
Service cost$18,362  $15,382  $631  $542  $36,725  $30,764  $1,262  $1,083  
Interest cost20,164  21,033  1,856  1,997  40,327  42,066  3,711  3,994  
Expected return on plan assets(28,465) (27,999) (3,039) (3,086) (56,931) (55,997) (6,077) (6,172) 
Amortization of net prior period (gain)/cost2  (11) (441) (452) 5  (22) (881) (904) 
Amortization of net actuarial (gains)/losses8,058  3,839  51  (4) 16,115  7,678  101  (7) 
Net periodic pension/benefit cost (return)18,121  12,244  (942) (1,003) 36,241  24,489  (1,884) (2,006) 
Impact of PUC D&Os6,261  12,278  777  811  12,523  24,557  1,554  1,622  
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)$24,382  $24,522  $(165) $(192) $48,764  $49,046  $(330) $(384) 
Hawaiian Electric consolidated
Service cost$17,891  $15,001  $625  $538  $35,782  $30,002  $1,251  $1,075  
Interest cost18,715  19,414  1,781  1,918  37,430  38,828  3,563  3,835  
Expected return on plan assets(26,857) (26,164) (2,990) (3,036) (53,712) (52,328) (5,980) (6,071) 
Amortization of net prior period (gain)/cost3  2  (439) (451) 5  4  (879) (902) 
Amortization of net actuarial losses7,369  3,576  51  —  14,737  7,152  102  —  
Net periodic pension/benefit cost (return)17,121  11,829  (972) (1,031) 34,242  23,658  (1,943) (2,063) 
Impact of PUC D&Os6,261  12,278  777  811  12,523  24,557  1,554  1,622  
Net periodic pension/benefit cost (adjusted for impact of PUC D&Os)$23,382  $24,107  $(195) $(220) $46,765  $48,215  $(389) $(441) 
HEI consolidated recorded retirement benefits expense of $44$31 million ($43 million by the Utilities) and $43 million ($4029 million by the Utilities) in the first ninesix months of 20192020 and 2018, respectively,$29 million ($29 million by the Utilities) in the first six months of 2019 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, these retirement benefitany actual costs determined in accordance with GAAP that are over/under
47

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over 5 years beginning with the issuance of the PUC’s D&O in the respective utility’s next rate case.
Defined contribution plans information.  For the first ninesix months of 20192020 and 2018,2019, the Company’s expenses for its defined contribution pension plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $5.1$3.7 million and $4.8$3.6 million,, respectively, and cash contributions were $6.0$4.6 million and $5.9$4.9 million, respectively. For the first ninesix months of 20192020 and 2018,2019, the Utilities’ expenses for its defined contribution pension plan under the HEIRSP were $1.9$1.4 million and $1.7$1.3 million, respectively, and cash contributions were $1.9$1.4 million and $1.7$1.3 million, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 109 · Share-based compensation
Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares were added to the shares available for issuance under these programs.
As of SeptemberJune 30, 2019,2020, approximately 3.23.0 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated 0.80.7 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. OnIn June 26, 2019, an additional 300,000 shares were made available for issuance under the 2011 Director Plan. As of SeptemberJune 30, 2019,2020, there were 311,027274,163 shares remaining available for future issuance under the 2011 Director Plan.
Share-based compensation expense and the related income tax benefit were as follows:
 Three months ended September 30 Nine months ended September 30 Three months ended June 30Six months ended June 30
(in millions) 2019 2018 2019 2018(in millions)2020201920202019
HEI consolidated        HEI consolidated
Share-based compensation expense 1
 $2.3
 $1.5
 $8.1
 $5.9
Share-based compensation expense 1
$2.4  $3.7  $4.1  $5.9  
Income tax benefit 0.3
 0.2
 1.2
 0.9
Income tax benefit0.4  0.7  0.7  0.9  
Hawaiian Electric consolidated        Hawaiian Electric consolidated
Share-based compensation expense 1
 0.8
 0.6
 2.6
 2.1
Share-based compensation expense 1
0.4  1.1  1.2  1.8  
Income tax benefit 0.1
 0.1
 0.5
 0.4
Income tax benefit0.1  0.2  0.2  0.3  
1
1 For the three and six months ended June 30, 2020 and 2019, the Company has not capitalized any share-based compensation.
For the three and nine months ended September 30, 2019 and 2018, the Company has not capitalized any share-based compensation.
Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:
  Three months ended September 30 Nine months ended September 30
(dollars in millions) 2019 2018 2019 2018
Shares granted —
 —
 35,580
 38,821
Fair value $—
 $—
 $1.5
 $1.3
Income tax benefit —
 —
 0.4
 0.3

Three months ended June 30Six months ended June 30
(dollars in millions)2020201920202019
Shares granted35,632  35,580  36,100  35,580  
Fair value$1.3  $1.5  $1.3  $1.5  
Income tax benefit0.3  0.4  0.3  0.4  
The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI Common Stockcommon stock on the grant date.
48

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Restricted stock units.  Information about HEI’s grants of restricted stock units was as follows:
Three months ended September 30 Nine months ended September 30Three months ended June 30Six months ended June 30
2019 2018 2019 2018 2020201920202019
Shares (1) Shares (1) Shares (1) Shares (1)Shares(1)Shares(1)Shares(1)Shares(1)
Outstanding, beginning of period208,625
 $35.28
 200,856
 $33.03
 200,358
 $33.05
 197,047
 $31.53
Outstanding, beginning of period203,441  $40.67  211,225   $35.28  207,641   $35.36  200,358   $33.05  
Granted1,006

44.16
 1,789
 35.61
 95,565

37.75
 93,853

34.12
Granted916  37.90  —  —  78,595  47.99  94,559  37.68  
Vested(101) 36.27
 —
 —
 (76,813) 32.61
 (75,683) 30.56
Vested—  —  —  —  (77,719) 34.19  (76,712) 32.61  
Forfeited(2,889) 35.44
 (2,287) 32.83
 (12,469) 34.20
 (14,859) 32.35
Forfeited—  —  (2,600) 35.56  (4,160) 35.81  (9,580) 33.82  
Outstanding, end of period206,641
 $35.32
 200,358
 $33.05
 206,641
 $35.32
 200,358
 $33.05
Outstanding, end of period204,357  $40.65  208,625   $35.28  204,357   $40.65  208,625   $35.28  
Total weighted-average grant-date fair value of shares granted (in millions)$—
   $0.1
   $3.6
   $3.2
  Total weighted-average grant-date fair value of shares granted (in millions)$—  $—  $3.8  $3.6  
(1)Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
(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 first ninesix months of 20192020 and 2018,2019, total restricted stock units and related dividends that vested had a fair value of $3.2$4.2 million and $2.7$3.2 million,, respectively, and the related tax benefits were $0.5$0.7 million and $0.4$0.5 million,, respectively.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


As of SeptemberJune 30, 2019,2020, there was $5.4$6.9 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 2.72.9 years.
Long-term incentive plan payable in stock.  The 2017-2019, 2018-2020, 2019-2021 and 2019-20212020-2022 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-yearthree-year period. The other performance condition goals relate to earnings per share (EPS) growth, return on average common equity (ROACE), renewable portfolio standards, Hawaiian Electric’s net income andgrowth, ASB’s efficiency ratio.ratio and Pacific Current’s EBITDA growth and return on average invested capital.
LTIP linked to TSR.  Information about HEI’s LTIP grants linked to TSR was as follows:
Three months ended September 30 Nine months ended September 30Three months ended June 30Six months ended June 30
2019 2018 2019 2018 2020201920202019
Shares (1) Shares (1) Shares (1) Shares (1)Shares(1)Shares(1)Shares(1)Shares(1)
Outstanding, beginning of period98,311
 $39.61
 66,177
 $38.82
 65,578
 $38.81
 32,904
 $39.51
Outstanding, beginning of period90,616  $42.08  98,311  $39.61  96,402  $39.62  65,578  $38.81  
Granted568
 41.07
 878
 38.20
 35,215
 41.07
 37,819

38.21
Granted—  —  —  —  24,630  48.62  34,647  41.07  
Vested (issued or unissued and cancelled)—
 —
 —
 —
 —
 —
 —
 —
Vested (issued or unissued and cancelled)—  —  —  —  (29,409) 39.51  —  —  
Forfeited(2,477) 39.64
 (1,490) 38.85
 (4,391) 39.19
 (5,158) 38.84
Forfeited—  —  —  —  (1,007) 41.72  (1,914) 38.62  
Outstanding, end of period96,402
 $39.62
 65,565
 $38.81
 96,402
 $39.62
 65,565
 $38.81
Outstanding, end of period90,616  $42.08  98,311  $39.61  90,616  $42.08  98,311   $39.61  
Total weighted-average grant-date fair value of shares granted (in millions)$—
   $—
   $1.4
   $1.4
  Total weighted-average grant-date fair value of shares granted (in millions)$—  $—  $1.2  $1.4  
(1)Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.
(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 and dividends of HEI and its peers over the remaining three-yearthree-year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three-yearthree-year historic stock volatility, and the annual dividend yield assumptions were based on dividend yields calculated on the basis of daily stock prices over the same three-yearthree-year historical period.
49

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:
  2019
 2018
Risk-free interest rate 2.48% 2.29%
Expected life in years 3
 3
Expected volatility 15.8% 17.0%
Range of expected volatility for Peer Group 15.0% to 73.2%
 15.1% to 26.2%
Grant date fair value (per share) $41.07 $38.20

20202019
Risk-free interest rate1.39 %2.48 %
Expected life in years33
Expected volatility13.1 %15.8 %
Range of expected volatility for Peer Group13.6% to 95.4%15.0% to 73.2%
Grant date fair value (per share)$48.62$41.07
For the six months ended June 30, 2020, total vested LTIP awards linked to TSR and related dividends had a fair value of $2.6 million and the related tax benefits were $0.4 million. There were no share-based LTIP awards linked to TSR with a vesting date in 2019.
As of SeptemberJune 30, 2019,2020, there was $1.7$1.9 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 1.3 years.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


1.4 years.
LTIP awards linked to other performance conditions.  Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:
Three months ended September 30 Nine months ended September 30Three months ended June 30Six months ended June 30
2019 2018 2019 20182020201920202019
Shares (1) Shares (1) Shares (1) Shares (1) Shares(1)Shares (1)Shares(1)Shares(1)
Outstanding, beginning of period407,090
 $35.12
 264,707
 $33.79
 276,169
 $33.80
 131,616
 $33.47
Outstanding, beginning of period336,344  $39.64  407,090   $35.12  403,768  $35.15  276,169   $33.80  
Granted2,275
 44.05
 3,511

35.58
 140,855
 37.78
 151,277

34.12
Granted—  —  —  —  98,522  48.10  138,580  37.68  
Vested—
 —
 —
 —
 —
 —
 —
 —
Vested—  —  —   —  (135,804) 33.48  —   —  
Increase above target11,131
 33.49
 —
 —
 11,131
 33.49
 —
 —
Increase above target (cancelled)Increase above target (cancelled)(38,821) 34.12  —   —  (64,932) 34.12  —   —  
Forfeited(9,911) 35.24
 (5,958) 33.80
 (17,570) 34.66
 (20,633) 33.80
Forfeited—  —  —  —  (4,031) 39.67  (7,659) 33.91  
Outstanding, end of period410,585
 $35.12
 262,260
 $33.82
 410,585
 $35.12
 262,260
 $33.82
Outstanding, end of period297,523  $40.37  407,090   $35.12  297,523  $40.37  407,090   $35.12  
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions)$0.1
   $0.1
   $5.3
   $5.2
  Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions)$—  $—  $4.7  $5.2  
(1)Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
(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 six months ended June 30, 2020, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $7.6 million and the related tax benefits were $1.2 million. There were no share-based LTIP awards linked to other performance conditions with a vesting date in 2019.
As of SeptemberJune 30, 2019,2020, there was $6.1$6.8 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 1.21.6 years.
Note 1110 · Income taxes
The Company’s and the Utilities’ effective tax rates (combined federal and state income tax rates) were 19%17% and 20%19%, respectively, for the ninesix months ended SeptemberJune 30, 2019.2020. These rates differed from the combined statutory rates, due primarily to the Utilities’ amortization of excess deferred income taxes related to the provision in the Tax Act that lowered the federal income tax rate from 35% to 21%, the non-taxability of the bank-owned life insurance income and the tax benefits derived from the low income housing tax credit investments.investments and the non-taxability of the bank-owned life insurance income. The Company’s and the Utilities’ effective tax rates were both 19% and 21%, respectively, for the ninesix months ended SeptemberJune 30, 2018.2019.

50

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Note 1211 · Cash flows
Nine months ended September 30 2019 2018
(in millions)    
Supplemental disclosures of cash flow information  
  
HEI consolidated    
Interest paid to non-affiliates, net of amounts capitalized $75
 $67
Income taxes paid (including refundable credits) 55
 50
Income taxes refunded (including refundable credits) 4
 —
Hawaiian Electric consolidated    
Interest paid to non-affiliates 45
 44
Income taxes paid (including refundable credits) 55
 47
Income taxes refunded (including refundable credits) 4
 —
Supplemental disclosures of noncash activities  
  
HEI consolidated    
Property, plant and equipment    
Estimated fair value of noncash contributions in aid of construction (investing) 7
 6
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) 37
 42
Common stock issued (gross) for director and executive/management compensation (financing)1
 5
 4
Real estate transferred from property, plant and equipment to other assets held-for-sale (investing) 9
 —
Obligations to fund low income housing investments (investing) 6
 12
Transfer of retail repurchase agreements to deposit liabilities (financing) —
 102
Hawaiian Electric consolidated    
Electric utility property, plant and equipment    
Estimated fair value of noncash contributions in aid of construction (investing) 7
 6
Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) 34
 28

Six months ended June 3020202019
(in millions)  
Supplemental disclosures of cash flow information  
HEI consolidated
Interest paid to non-affiliates, net of amounts capitalized$50  $53  
Income taxes paid (including refundable credits)—  46  
Income taxes refunded (including refundable credits)—  4  
Hawaiian Electric consolidated
Interest paid to non-affiliates32  34  
Income taxes paid (including refundable credits)—  46  
Income taxes refunded (including refundable credits)—  4  
Supplemental disclosures of noncash activities  
HEI consolidated
Electric utility property, plant and equipment
   Estimated fair value of noncash contributions in aid of construction (investing)3  1  
   Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)34  30  
Reduction of long-term debt from funds previously transferred for repayment (financing)82  —  
Right-of-use assets obtained in exchange for operating lease obligations (investing)20  2  
Common stock issued (gross) for director and executive/management compensation (financing)1
16  5  
Real estate transferred from property, plant and equipment to other assets held-for-sale (investing)—  9  
Obligations to fund low income housing investments (investing)—  6  
Hawaiian Electric consolidated
Electric utility property, plant and equipment
   Estimated fair value of noncash contributions in aid of construction (investing)3  1  
   Unpaid invoices and accruals for capital expenditures, balance, end of period (investing)30  27  
Reduction of long-term debt from funds previously transferred for repayment (financing)82  —  
Right-of-use assets obtained in exchange for operating lease obligations (investing)16  1  
1 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld to satisfy statutory tax liabilities.
Note 1312 · Fair value measurements
Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value:
Short-term borrowings—other than bank.  The carrying amount of short-term borrowings approximated fair value because of the short maturity of these instruments.
Investment securities. The fair value of ASB’s investment securities is determined quarterly through pricing obtained from independent third-party pricing services or from brokers not affiliated with the trade. Non-binding broker quotes are infrequent and generally occur for new securities that are settled close to the month-end pricing date. The third-party pricing vendors ASB uses for pricing its securities are reputable firms that provide pricing services on a global basis and have processes in place to ensure quality and control. The third-party pricing services use a variety of methods to determine the fair value of securities that fall under Level 2 of ASB’s fair value measurement hierarchy. Among the considerations are quoted prices for similar securities in an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic prepayment speeds, and other observable market factors.
To enhance the robustness of the pricing process, ASB will on a quarterly basis compare its standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by ASB and a challenge to the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable
51

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


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.
Impaired loans. At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Fair value is determined primarily by using an income, cost or market approach and is normally provided through appraisals. Impaired loans carried at fair value generally receive specific allocations within the allowance for loancredit losses. For collateral-dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments typically result in a Level 3 classification of the inputs for determining fair 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. Generally, impaired loans are evaluated quarterly for additional impairment and adjusted accordingly.
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 theirits own experience and expertise to arrive at a value. ASB uses the third-party value only to assess the reasonableness of its own estimate.
Deposit liabilities. 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 of HEI and the Utilitiesdebt—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-otherdebt—other than bank is classified in Level 2 of the valuation hierarchy.
52

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


The following table presents the carrying or notional amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments. For stock in Federal Home Loan Bank, the carrying amount is a reasonable estimate of fair value because it can only be redeemed at par.
 Estimated fair value
(in thousands)Carrying or notional amountQuoted prices in
active markets
for identical assets
(Level 1)		Significant
 other observable
 inputs
(Level 2)		Significant
unobservable
inputs
(Level 3)		Total
June 30, 2020     
Financial assets     
HEI consolidated
Available-for-sale investment securities$1,389,633  $—  $1,360,806  $28,827  $1,389,633  
Held-to-maturity investment securities124,623  —  131,131  —  131,131  
Stock in Federal Home Loan Bank9,880  —  9,880  —  9,880  
Loans, net5,393,653  —  37,345  5,540,050  5,577,395  
Mortgage servicing rights9,647  —  —  10,328  10,328  
Derivative assets70,190  —  2,341  —  2,341  
Financial liabilities    
HEI consolidated
Deposit liabilities657,627  —  663,296  —  663,296  
Short-term borrowings—other than bank131,180  —  131,180  —  131,180  
Other bank borrowings124,975  —  124,966  —  124,966  
Long-term debt, net—other than bank2,070,224  —  2,427,374  —  2,427,374  
   Derivative liabilities81,861  287  4,843  —  5,130  
Hawaiian Electric consolidated
Short-term borrowings49,919  —  49,919  —  49,919  
Long-term debt, net1,574,955  —  1,895,365  —  1,895,365  
December 31, 2019     
Financial assets     
HEI consolidated
Available-for-sale investment securities$1,232,826  $—  $1,204,229  $28,597  $1,232,826  
Held-to-maturity investment securities139,451  —  143,467  —  143,467  
Stock in Federal Home Loan Bank8,434  —  8,434  —  8,434  
Loans, net5,080,107  —  12,295  5,145,242  5,157,537  
Mortgage servicing rights9,101  —  —  12,379  12,379  
Derivative assets25,179  —  300  —  300  
Financial liabilities    
HEI consolidated
Deposit liabilities769,825  —  765,976  —  765,976  
Short-term borrowings—other than bank185,710  —  185,710  —  185,710  
Other bank borrowings115,110  —  115,107  —  115,107  
Long-term debt, net—other than bank1,964,365  —  2,156,927  —  2,156,927  
Derivative liabilities51,375  33  2,185  —  2,218  
Hawaiian Electric consolidated
Short-term borrowings88,987  —  88,987  —  88,987  
Long-term debt, net1,497,667  —  1,670,189  —  1,670,189  
    Estimated fair value
  Carrying or notional amount 
Quoted prices in
active markets
for identical assets
 
Significant
 other observable
 inputs
 
Significant
unobservable
inputs
  
(in thousands)  (Level 1) (Level 2) (Level 3) Total
September 30, 2019  
  
  
  
  
Financial assets  
  
  
  
  
HEI consolidated          
Available-for-sale investment securities $1,210,748
 $—
 $1,182,289
 $28,459
 $1,210,748
Held-to-maturity investment securities 132,704
 —
 137,497
 —
 137,497
Stock in Federal Home Loan Bank 9,953
 —
 9,953
 —
 9,953
Loans, net 5,048,411
 —
 17,164
 5,121,275
 5,138,439
Mortgage servicing rights 8,567
 —
 —
 11,485
 11,485
Derivative assets 58,473
 2
 484
 —
 486
Financial liabilities  
  
  
  
  
HEI consolidated          
Deposit liabilities 783,308
 —
 779,370
 —
 779,370
Short-term borrowings—other than bank 163,836
 —
 163,836
 —
 163,836
Other bank borrowings 129,190
 —
 129,187
 —
 129,187
Long-term debt, net—other than bank 1,885,454
 —
 2,085,217
 —
 2,085,217
   Derivative liabilities 63,391
 18
 2,901
 —
 2,919
Hawaiian Electric consolidated          
Short-term borrowings 112,353
 —
 112,353
 —
 112,353
Long-term debt, net 1,418,220
 —
 1,594,271
 —
 1,594,271
December 31, 2018  
  
  
  
  
Financial assets  
  
  
  
  
HEI consolidated          
Available-for-sale investment securities 1,388,533
 —
 1,364,897
 23,636
 1,388,533
Held-to-maturity investment securities 141,875
 —
 142,057
 —
 142,057
Stock in Federal Home Loan Bank 9,958
 —
 9,958
 —
 9,958
Loans, net 4,792,707
 —
 1,809
 4,800,244
 4,802,053
Mortgage servicing rights 8,062
 —
 —
 13,618
 13,618
Derivative assets 10,180
 —
 91
 —
 91
Financial liabilities  
  
  
  
  
HEI consolidated          
Deposit liabilities 827,841
 —
 817,667
 —
 817,667
Short-term borrowings—other than bank 73,992
 —
 73,992
 —
 73,992
Other bank borrowings 110,040
 —
 110,037
 —
 110,037
Long-term debt, net—other than bank 1,879,641
 —
 1,904,261
 —
 1,904,261
Derivative liabilities 34,132
 34
 596
 —
 630
Hawaiian Electric consolidated          
Short-term borrowings 25,000
 —
 25,000
 —
 25,000
Long-term debt, net 1,418,802
 —
 1,443,968
 —
 1,443,968
53


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Fair value measurements on a recurring basis.  Assets and liabilities measured at fair value on a recurring basis were as follows:
 September 30, 2019 December 31, 2018June 30, 2020December 31, 2019
 Fair value measurements using Fair value measurements using Fair value measurements usingFair value measurements using
(in thousands) Level 1 Level 2 Level 3 Level 1 Level 2 Level 3(in thousands)Level 1Level 2Level 3Level 1Level 2Level 3
Available-for-sale investment securities (bank segment)  
  
  
  
  
  
Available-for-sale investment securities (bank segment)      
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies $—
 $1,019,305
 $—
 $—
 $1,161,416
 $—
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies$—  $1,226,985  $—  $—  $1,026,385  $—  
U.S. Treasury and federal agency obligations —
 126,708
 —
 —
 154,349
 —
U.S. Treasury and federal agency obligations—  102,414  —  —  117,787  —  
Corporate bonds —
 36,276
 —
 —
 49,132
 —
Corporate bonds—  31,407  —  —  60,057  —  
Mortgage revenue bonds —
 —
 28,459
 —
 —
 23,636
Mortgage revenue bonds—  —  28,827  —  —  28,597  
 $—
 $1,182,289
 $28,459
 $—
 $1,364,897
 $23,636
 $—  $1,360,806  $28,827  $—  $1,204,229  $28,597  
Derivative assets  
  
  
  
  
  
Derivative assets      
Interest rate lock commitments (bank segment)1
 $—
 $477
 $—
 $—
 $91
 $—
Interest rate lock commitments (bank segment)1
$—  $2,341  $—  $—  $297  $—  
Forward commitments (bank segment)1
 2
 7
 —
 —
 —
 —
Forward commitments (bank segment)1
—  —  —  —  3  —  
 $2
 $484
 $—
 $—
 $91
 $—
$—  $2,341  $—  $—  $300  $—  
Derivative liabilities            Derivative liabilities
Interest rate lock commitments (bank segment)1
 $—
 $7
 $—
 $—
 $—
 $—
Forward commitments (bank segment)1
 18
 67
 —
 34
 9
 —
Forward commitments (bank segment)1
$287  $—  $—  $33  $12  $—  
Interest rate swap (Other segment)2
 —
 2,827
 —
 —
 587
 —
Interest rate swap (Other segment)2
—  4,843  —  —  2,173  —  
 $18
 $2,901
 $—
 $34
 $596
 $—
$287  $4,843  $—  $33  $2,185  $—  
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 liabilities in the balance sheets.
There were no transfers of financial assets and liabilities between Level 1 and Level 2 of the fair value hierarchy during the nine months ended September 30, 2019.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
  Three months ended September 30 Nine months ended September 30
Mortgage revenue bonds 20192018 20192018
(in thousands)      
Beginning balance $28,166
$15,427
 $23,636
$15,427
Principal payments received —
—
 —
—
Purchases 293
3,657
 4,823
3,657
Unrealized gain (loss) included in other comprehensive income —
—
 —
—
Ending balance $28,459
$19,084
 $28,459
$19,084

Three months ended June 30Six months ended June 30
Mortgage revenue bonds2020201920202019
(in thousands)
Beginning balance$28,726  $27,970  $28,597  $23,636  
Principal payments received—  —  —  —  
Purchases101  196  230  4,530  
Unrealized gain (loss) included in other comprehensive income—  —  —  —  
Ending balance$28,827  $28,166  $28,827  $28,166  
ASB holds 2 mortgage revenue bonds 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 SeptemberJune 30, 2019,2020, the weighted average discount rate was 3.66%2.15%, 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.
54

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued(Unaudited)


Fair value measurements on a nonrecurring basis.  Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. The carrying value of assets measured at fair value on a nonrecurring basis were as follows:
    Fair value measurements
(in thousands)  Balance Level 1 Level 2 Level 3
September 30, 2019        
Loans $3,911
 $—
 $—
 $3,911
December 31, 2018        
Loans 77
 —
 —
 77
Real estate acquired in settlement of loans 186
 —
 —
 186

  Fair value measurements using
(in thousands) BalanceLevel 1Level 2Level 3
June 30, 2020
   Mortgage servicing rights$5,419  $—  $—  $5,419  
December 31, 2019
Loans25  —  —  25  
For ninethe six months ended SeptemberJune 30,2019 2020 and 2018,2019, there were 0 adjustments to fair value for ASB’s loans held for sale.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis:
        
Significant unobservable
 input value (1)
($ in thousands) Fair value Valuation technique Significant unobservable input Range 
Weighted
Average
September 30, 2019          
Home equity line of credit $199
 Fair value of property or collateral Appraised value less 7% selling cost   N/A (2)
Residential land 25
 Fair value of property or collateral Appraised value less 7% selling cost   N/A (2)
Commercial 3,687
 Discounted cash flow Expected cash flows 3.9%-6.8% 4.6%
Total loans $3,911
        
           
December 31, 2018          
Home equity line of credit $77
 Fair value of property or collateral Appraised value less 7% selling cost   N/A (2)
Total loans $77
        
Real estate acquired in settlement of loans $186
 Fair value of property or collateral Appraised value less 7% selling cost   N/A (2)
Significant unobservable
 input value (1)
($ in thousands)Fair valueValuation techniqueSignificant unobservable inputRangeWeighted
Average
June 30, 2020
Mortgage servicing rights$5,419  Discounted cash flowPrepayment Speed13.9% - 18.4%16.6 %
Discount rate9.3 %9.3 %
December 31, 2019
Residential land$25  Fair value of property or collateralAppraised value less 7% selling costN/A (2)N/A (2)
Total loans$25     
(1) RepresentRepresents percent of outstanding principal balance.
(2) N/A - Not applicable. There is one asset in each fair value measurement type.
Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value measurements.

55

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion updates “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in HEI’s and Hawaiian Electric’s 20182019 Form 10-K and should be read in conjunction with such discussion and the 20182019 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI’s and Hawaiian Electric’s 20182019 Form 10-K, as well as the quarterly (as of and for the three and ninesix months ended SeptemberJune 30, 2019)2020) condensed consolidated financial statements and notes thereto included in this Form 10-Q.

HEI consolidated
Recent developments—COVID-19.
On March 11, 2020, the World Health Organization declared the virus strain severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2), and the resulting disease COVID-19, to be a pandemic. In response, the Governor of the State of Hawaii issued a number of emergency and supplementary proclamations to limit the spread of the virus. These actions have significantly reduced the number of new cases, allowing the state to move toward a reopening of the Hawaii economy. Currently, generally all business activities have resumed, with the exception of activities related to large venues and clubs, and are allowed as long as social distancing and Safe Practices (as defined in the proclamations) are followed. Travelers from out of state are subject to a 14-day quarantine upon arrival; however, beginning September 1, 2020, travelers that test negative for COVID-19 within 72 hours of arrival and present valid documentation will not be subject to the mandatory 14-day quarantine. In addition to the restrictions imposed within Hawaii, due to the numerous other state and local jurisdictions around the world that have imposed “shelter-in-place” orders, quarantines, and similar government orders and restrictions, and in particular, travel restrictions that directly impact Hawaii tourism, economic activity in the state has been severely impacted. See “Economic Conditions” for further discussion.
The Company’s Incident Management Team, composed of senior executives across the Company, continues to monitor and manage the COVID-19 situation. Regular updates are provided to the boards of directors of the Company and its subsidiaries to discuss key focus areas, including employee and customer safety, operations, liquidity, cybersecurity, and internal controls over financial reporting. The Company’s top priority remains unchanged, which is to ensure the safety and well-being of our customers, our employees, their families and the community, while at the same time continuing to deliver essential electric and banking services. To protect its employees, customers and minimize community spread of the coronavirus, the Company’s moratorium on non-essential business travel and a mandatory work-from-home policy for all personnel that can perform their work remotely remains in effect. Such work-from-home mandates have not impaired the Company’s ability to maintain effective internal controls over financial reporting and related disclosures. For personnel that cannot perform their work remotely, the Company has taken steps to protect these employees, including implementing practices related to employee and facilities hygiene, in order to ensure the reliability and resilience of its operations. For example, at the Utilities, plant operators and operations crews have been separated into distinct teams with no overlap of personnel in order to mitigate transmission risk amongst critical personnel and to minimize the risk of not having appropriate backup personnel available to perform essential functions. Similarly, at ASB, branch operations continue to serve the community, but the number of open branches has been reduced to match reduced customer volumes, protect employees, and minimize community transmission risk.
The Company has extended various programs to support its customers and the community during this difficult and challenging time. For example, Hawaiian Electric has suspended, through September 1, 2020, customer disconnections for nonpayment and is working closely with impacted customers on payment plans. At ASB, borrowers that are experiencing financial hardship may be eligible to receive a loan forbearance, deferment or extension for up to three months. Additionally, late fee waivers may be granted for up to three months and ATM fees were waived through July 1, 2020. ASB has also secured loans totaling more than $370 million for affected businesses under the Paycheck Protection Program (PPP). Through the PPP, which was established under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and implemented by the United States Small Business Association, ASB has helped approximately 4,100 small businesses, which support roughly 40,000 jobs that contribute to economic activity in Hawaii. See “Recent Developments—COVID-19” in the Bank section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A).
For further discussion of the impact of the COVID-19 pandemic on our subsidiaries see “Recent Developments—COVID-19” section in the Electric Utility and Bank MD&As. There has been no material impact on the “Other” segment and Pacific Current as a result of the COVID-19 pandemic.
For a discussion regarding the impact of the economic conditions caused by the pandemic on the Company’s liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources,” contained in each of the HEI Consolidated, Electric Utility and Bank MD&As.

56

RESULTS OF OPERATIONS

Three months ended June 30, 2020%
(in thousands)20202019changePrimary reason(s)*
Revenues$608,945  $715,485  (15) Decrease for the electric utility and bank segments
Operating income71,556  72,634  (1) Decrease for the bank segment, partly offset by increase for electric utility segment
Net income for common stock48,887  42,512  15  Increase due to higher net income at electric utility segment, partly offset by lower net income at the bank segment
 Three months ended September 30, 2019 % Six months ended June 30%
(in thousands) 2019 2018 change Primary reason(s)*(in thousands)20202019changePrimary reason(s)*
Revenues $771,535
 $768,048
 —
 Increases for the electric utility and bank segmentsRevenues$1,286,131  $1,377,100  (7) Decrease for the electric utility and bank segments
Operating income 97,308
 98,064
 (1) Decrease for electric utility segment, partly offset by an increase for the bank segmentOperating income131,258  150,571  (13) Primarily due to decrease for the bank segment
Net income for common stock 63,419
 65,900
 (4) Lower net income at electric utility segment and higher net losses at the “other” segment, partly offset by higher net income at the bank segment. See below for effective tax rate explanation.Net income for common stock82,307  88,200  (7) Decrease due to lower net income at the bank segment, partly offset by higher net income at electric utility segment and lower losses at the Other segment. See below for effective tax rate explanation
*  Also, see segment discussions which follow.
  Nine months ended September 30, 2019 %  
(in thousands) 2019 2018 change Primary reason(s)*
Revenues $2,148,635
 $2,099,199
 2
 Increases for the electric utility and bank segments
Operating income 247,879
 248,752
 —
 Decrease for bank segment and higher operating losses for the “other” segment, partly offset by
an increase for the electric utility segment
Net income for common stock 151,619
 152,201
 —
 Higher net losses at the “other” segment, partly offset by higher net income at the electric utility segment. Bank segment was comparable between periods.
* Also, see segment discussions which follow.
The Company’s effective tax ratesrate for the thirdsecond quarters of 2020 and 2019 and 2018 were 19% and 14%, respectively.was 18% for both periods. The Company’s effective tax rates for the first ninesix months of 2020 and 2019 were 17% and 2018 were 19% for each period., respectively. The effective tax rate was higher inrates were lower for the third quarter of 2019,six months ended June 30, 2020 compared to the same period in 20182019 due primarily to certain return adjustments recorded in 2018 relating to the benefit associated with additional tax deductions taken in the Company’s 2017 tax returns in conjunction with the rate differential provided in the 2017 Tax Act offset, in part, by higher amortization in 20192020 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in federal income tax rate.rate and an increase in excess tax benefits.
Economic conditions.
Note: The statistical data in this section is from public third-party sources that management believes to be reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic Research Organization (UHERO), U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local newspapers).
ThroughHawaii’s economy began to weaken in the first eight monthslatter part of 2019, March 2020 due to the effects of the COVID-19 pandemic, which forced a statewide stay-at-home, work-from-home declaration that began March 25th, shuttered many businesses, including hotels, restaurants, bars, and other gathering places, led to an overwhelming surge in unemployment claims, and impacted the tourism industry with a significant reduction to visitor arrivals. Starting in June 2020, restrictions were gradually lifted and most business activities resumed (with operations modified as required under state guidelines), other than those related to clubs and large venues, but the mandatory 14-day quarantine for travelers entering the state remains in effect at least through August. The most recent interim forecast by UHERO, which was issued on May 28, 2020, forecasts full year 2020 real GDP contraction of 11.1%, decline in total visitor arrivals of 59.6%, decline in real personal income of 5.3%, and an unemployment rate of 18.2%. However, federal fiscal and monetary policy response is expected to cushion the economic impact of the pandemic.
The CARES Act was passed by Congress and signed into law by President Trump on March 27th, 2020. The economic relief package totals more than $2 trillion and provides direct economic support to businesses and individuals. Hawaii has received more than $7 billion through various federal assistance programs, including the CARES Act, that will help attenuate the impact to Hawaii’s economy.
On April 8, 2020, the Governor issued a proclamation appointing Alan Oshima, former CEO of the Utilities, to lead Hawaii’s efforts to develop and implement a plan for economic recovery. The “Hawaii Economic and Community Recovery & Resiliency Plan” includes a concurrent three-part strategy to address both the economic and community impacts of COVID-19 in the areas of stabilization, recovery and resiliency. Under the plan, the Beyond Recovery: Reopening Hawaii strategy conveys Hawaii’s coordinated, statewide strategy to address the COVID-19 health and economic crisis. The reopening strategy outlines a phased approach to pivot from the COVID-19 public health emergency to renew and rebuild our communities into a stronger and more resilient Hawaii moving forward. However, due to the uncertainty surrounding the timing and effectiveness of efforts to contain the spread of the virus while reopening the economy, the pace and the extent of the recovery cannot be predicted at this time.
57

See “Recent Developments—COVID-19” in the Electric Utility and Bank MD&As for further discussion of the economic impact caused by the pandemic.
Hawaii’s tourism industry, a significant driver of Hawaii’s economy, showed an increasesuffered dramatically with a decline of 58.5% in visitor arrivals through the first six months of the year primarily due to travel restrictions amid the COVID-19 pandemic. Effective March 26, 2020, a mandatory 14-day self-quarantine was ordered for all travelers, both residents and decreasevisitors, to the islands including inter-island travelers. The mandatory quarantine for inter-island travel was lifted on June 16, 2020, but the mandatory 14-day quarantine remains in visitor spending. Visitor arrivals increased 5.5%place at least through August for all visitors and expenditures at -0.1% is relatively similarresidents returning from outside the State. As a result, between April 1, 2020 and June 30, 2020, daily passenger counts declined by over 97% to 876 passengers on average per day compared to the same time period in 2018. Looking ahead,2019.
Due to the Hawaii Tourism Authority expects scheduled nonstop seats to Hawaii to increase as the year progresses, driven primarily by an increase in seats from West Coast, East Coast and Asia. While visitor arrivals numbers are still impressive, UHERO foresees a weakeningeffects of the growthmeasures to contain the COVID-19 pandemic, Hawaii’s seasonally adjusted unemployment rate in tourism dueJune 2020 was 13.9%, which was substantially higher compared to lower activity from the international markets and from the enforcementJune 2019 rate of new regulations governing home vacation rentals.
2.7%. The national unemployment rate rose to 11.1% in June 2020 compared to 3.7% in June 2019. Hawaii’s unemployment rate declined slightlyis expected to 2.7% for September 2019, which was higher thandecrease as restrictions are eased on travel. Year-to-date through July 25, 2020, there were 323,165 initial unemployment claims filed with the rate for September 2018, but lower thanState compared to 37,598 initial claims, or an increase of 760%, during the national unemployment rate of 3.5%.


same period in 2019.
Hawaii real estate activity through June 2020, as indicated by the home resale market, experienced a declineresulted in an increase in the median sales pricesprice of 2.1% for condominiums and 1.3% for single family homes through the same period in 2019. The number of closed sales was down 22.0% for condominiums and condominiums for the year-to-date period ended September 30, 2019. Median sales prices4.8% for single family residential homes on Oahu through September 2019 were lower by -0.5% and for condominiums were lower by -1% over the same time period in 2018. The number of closed sales were up by 0.8% for single family residential homes and were down by -6.7% for condominiums through September of 2019June 2020 compared to same time period in 2018.of 2019.
Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. Although theThe price of crude oil fluctuates monthdecreased dramatically during the first half of 2020 and has begun to month,stabilize at levels lower than last year. Lower fuel prices will benefit customers in the price has been decreasingform of lower bills given the high proportion of fuel cost in the cost per kWh, but the benefit will be realized over the last few months.time as existing inventory levels procured at higher cost are drawn down.
At its October 2019June 10, 2020 meeting, the Federal Open Market Committee (FOMC) lowered the target range fordecided to maintain the federal funds rate target range of 0%-0.25%. The FOMC indicated that it will continue to 1-1/2% to 1-3/4% in light ofmonitor the implications of global developments for the economic outlook as well as muted inflation pressures. This action supportsCOVID-19 pandemic and take further actions to support the FOMC’s view that sustained expansionflow of economic activity, strong labor market conditions,credit to households and inflation nearbusinesses by addressing strains in the FOMC’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain.
In its state forecast released in September 2019, the University of Hawaii Economic Research Organizationmarkets. The Federal Reserve stated that economic growthit will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to support the flow of credit to households and businesses in order to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions.
The Company expects that the negative trends and uncertainties in the islands has been slowing for several years. The main contributing factors are two years of population declinemultiple sectors described above will result in a significant economic downturn that may have reduced demand in many sectors and a decline in visitor spending. Construction remains a bright spot in the economy. The State’s Department of Business, Economic Development & Tourism in its third quarter 2019 Outlook for the Economy report has a more positive outlook and stated that Hawaii’s economy is expected to continue positive growth in 2019 and 2020 based on recent developments in the national and global economies, performance in the tourism industry, labor market conditions and growth in personal income and tax revenues. They are projecting the Hawaii economy, as measured by real GDP, to show an increase of 1.1% in 2019, followed by 1.2% in 2020. Both organizations have indicated that Hawaii’s economy depends significantlymaterial unfavorable impact on the U.S. and key global economies as there is a direct relationship to the visitor industry and labor market conditions.Company’s net revenues or income from continuing operations in 2020.

“Other” segment.
 Three months ended June 30,Six months ended June 30
(in thousands)2020201920202019Primary reason(s)
Revenues$16  $14  $22  $82  
Operating loss(4,738) (4,312) (8,397) (9,057) 
The second quarters of 2020 and 2019 include $0.9 million and $1.2 million, respectively, of operating income from Pacific Current1. Second quarter 2020 corporate expense was comparable to the second quarter of 2019. The first six months of 2020 and 2019 include $1.8 million and $1.4 million, respectively, of operating income from Pacific Current1. The first six months of 2020 corporate expense was $0.3 million lower compared to the same period of 2019, primarily due to lower professional fees.
Net loss(7,456) (7,078) (13,702) (14,355) The net loss for the second quarter of 2020 was higher than the net loss for the second quarter of 2019 due to the same factors cited for the change in operating loss. The net loss for the first six month of 2020 was lower than the net loss for the first six months of 2019 due to the same factors cited for the change in operating loss.
1 Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.

58
  Three months ended September 30, Nine months ended September 30  
(in thousands) 2019 2018 2019 2018 Primary reason(s)
Revenues $4
 $143
 $86
 $218
  
Operating loss (3,446) (3,236) (12,503) (10,865) 
The third quarters of 2019 and 2018 include $1.0 million and $0.7 million, respectively, of operating income from Pacific Current1. Third quarter 2019 corporate expense was flat compared to the third quarter of 2018. The nine months ended September 30, 2019 and 2018 include $2.3 million and $3.0 million, respectively, of operating income from Pacific Current1. The lower Pacific Current operating income was primarily due to the hiring of Pacific Current employees. Corporate expense for the nine months ended September 30, 2019 was $1.0 million higher than the same period in 2018, primarily due to higher professional fees, partly offset by lower incentive compensation expense.
Net loss (6,248) (5,033) (20,603) (16,897) 
The net loss for the third quarter and first nine months of 2019 was higher than the net loss for the third quarter and first nine months of 2018 due to higher interest expense (as a result of higher interest rates and balances at corporate), higher HEI corporate expenses,
and lower Pacific Current net income, partially offset by a higher income tax benefit.
1

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

The “other” business segment (loss)/income includes results of the stand-alone corporate operations of HEI and ASB Hawaii, Inc. (ASBH)(ASB Hawaii), as well as the results of Pacific Current, a direct subsidiary of HEI focused on investing in clean energy and sustainable infrastructure projects; Pacific Current’s indirect subsidiary, Hamakua Energy, which owns a 60-MW combined cycle power plant;plant that provides electricity to Hawaii Electric Light; Pacific Current’s indirect subsidiary, Mauo, LLC (Mauo), which is currently constructing a solar-plus-storage project totaling 8.6 MW solar-plus-storage project;on five University of Hawaii campuses; and The Old Oahu Tug Service, Inc., a subsidiary that ceased operations in 1999; as well as eliminations of intercompany transactions.



FINANCIAL CONDITION
Liquidity and capital resources.  The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, commercial paper and bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements for the foreseeable future.
The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:
(dollars in millions) September 30, 2019 December 31, 2018
Short-term borrowings—other than bank $164
 4% $74
 2%
Long-term debt, net—other than bank 1,885
 43
 1,880
 45
Preferred stock of subsidiaries 34
 1
 34
 1
Common stock equity 2,243
 52
 2,162
 52
  $4,326
 100% $4,150
 100%
HEI’s commercial paper borrowings and line of credit facility were as follows:
  Average balance Balance
(in millions)  Nine months ended September 30, 2019 September 30, 2019 December 31, 2018
Commercial paper $40
 $52
 $49
Line of credit draws —
 —
 —
Undrawn capacity under HEI’s line of credit facility   150
 150
Note: This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s external short-term borrowings during the first nine months of 2019 was $102 million.
HEI has a $150 million line of credit facility with no amounts outstanding at September 30, 2019. See Note 5 of the Condensed Consolidated Financial Statements.
In October 2019, Moody’s revised HEI’s rating outlook to “positive” from “stable,” and affirmed HEI’s P-3 commercial paper rating. The revision to the rating outlook was based on the considerable progress made with respect to the Utilities’ transition to renewable energy and the improvement in its customer service.
The Company has the ability to satisfy the share purchase requirements for the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), HEIRSP and ASB 401(k) Plan either through the issuance of new shares, which provides new equity capital, or through open market purchases of its common stock. From December 7, 2016 to date, HEI satisfied the share purchase requirements for these plans through open market purchases of its common stock rather than through new issuances.
For the first nine months of 2019, net cash provided by operating activities of HEI consolidated was $341 million. Net cash used by investing activities for the same period was $373 million, primarily due to capital expenditures and ASB’s net increase in loans, partly offset by ASB’sreceipt of repayments from and proceeds from the sale of available-for-sale investment securities. Net cash provided by financing activities during this period was $40 million as a result of several factors, including net increases in short-term borrowings and ASB’s deposit liabilities, the issuance of short-term and long-term debt, partly offset by payment of common stock dividends and repayment of long-term debt and funds transferred for redemption of special purpose revenue bonds. During the first nine months of 2019, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $76 million and $47 million, respectively.
Dividends.  The payout ratios for the first nine months of 2019 and full year 2018 were 69% and 67%, respectively. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the Company and current and expected future economic conditions.
MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES
In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.


In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.
For information about these material estimates and critical accounting policies, see pages 37 to 39, 50 to 51, and 66 to 68 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2018 Form 10-K.
Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.
Electric utility
RESULTS OF OPERATIONS
Three months ended September 30, Increase  
2019 2018 (decrease) (dollars in millions, except per barrel amounts)
$688
 $687
 $1
   
Revenues. Net increase largely due to:
      $4
 higher rates
      3
 MPIR for Schofield Generating Station
      2
 pole attachment revenues
      (2) net of lower purchase power energy price and higher kWh purchased
      (7) 
net of lower fuel oil prices and higher kWh generated
199
 207
 (8)   
Fuel oil expense1. Net decrease largely due to lower fuel oil prices, partially offset by higher kWh generated
175
 178
 (3)   
Purchased power expense1, 2. Net decrease largely due to lower purchased power energy price, partially offset by higher kWh purchased
124
 114
 10
   
Operation and maintenance expenses. Net increase largely due to:
      4
 higher generation overhaul costs
      2
 higher preventive/corrective maintenance expense for generating facilities
      1
 reset of pension costs included in rates as part of rate case decisions
      1
 higher vegetation management costs
      1
 higher medical premium costs
      1
 higher outside consulting services for grid modernization projects
118
 116
 2
   
Other expenses. Increase primarily due to higher depreciation expense for plant investments in 2018
72
 74
 (2)   
Operating income.  Decrease due to higher operation and maintenance and depreciation expenses, offset in part by higher revenue
47
 50
 (3)   
Net income for common stock. Decrease due to higher operating expenses and higher income taxes, offset in part by higher rates and lower interest expense. See below for discussion on effective tax rate.
         
2,414
 2,329
 85
   
Kilowatthour sales (millions)3
$82.30
 $90.93
 $(8.63)   Average fuel oil cost per barrel



Nine months ended September 30 Increase  
2019 2018 (decrease) (dollars in millions, except per barrel amounts)
$1,901
 $1,866
 $35
   
Revenues. Net increase largely due to:
      $26
 higher rates
      13
 MPIR for Schofield Generating Station
      5
 pole attachment revenues
      2
 billing to a third party for mutual assistance work reimbursement
      (5) 
net of lower fuel oil prices and lower kWh generated
      (6) lower kWh purchased and lower capacity charges
541
 545
 (4)   
Fuel oil expense1. Net decrease largely due to lower kWh generated, coupled with higher fuel efficiency
472
 478
 (6)   
Purchased power expense1 ,2. Net decrease largely due to lower kWh purchased and lower capacity charges
362
 334
 28
   
Operation and maintenance expenses. Net increase largely due to:
      6
 higher outside consulting services for system support (Asset management, Energy Management, Enterprise and Grid Modernization systems)
      6
 higher preventive/corrective maintenance expense for generating facilities
      5
 reset of pension costs included in rates as part of rate case decisions
      5
 higher generation overhaul costs
      2
 higher medical premium costs
      2
 cost incurred related to reimbursed third-party mutual assistance work
      1
 voluntary retirement bonus payout
      1
 higher engineering costs due to transmission planning and interconnection requirements study related to integration of more renewables
341
 328
 13
   
Other expenses. Increase due to higher depreciation expense for plant investments in 2018
184
 181
 3
   
Operating income.  Increase due to higher revenue, offset in part by higher operation and maintenance and depreciation expenses
111
 108
 3
   
Net income for common stock. Increase due to higher rates and MPIR revenues, offset in part by higher operating expenses
         
6,449
 6,469
 (20)   
Kilowatthour sales (millions)4
$83.64
 $84.67
 $(1.03)   Average fuel oil cost per barrel
464,892
 462,516
 2,376
   Customer accounts (end of period)
1The rate schedules of the electric utilities currently contain ECACs and ECRCs through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.
2The rate schedules of the electric utilities currently contain PPACs through which changes in purchase power expenses (except purchased energy costs) are passed on to customers.
3 kWh sales were higher when compared to the same quarter in the prior year due largely to warmer and more humid weather in the third quarter of 2019 than 2018.
4 kWh sales were lower when compared to prior year due largely to continued energy efficiency and conservation efforts by customers and increasing levels of private customer-sited renewable generation, coupled with cooler and less humid weather in the first quarter of 2019.

The Utilities’ effective tax rates for the third quarters of 2019 and 2018 were 19% and 12%, respectively. The Utilities’ effective tax rate for the first nine months of 2019 and 2018 were similar at 20% and 19%, respectively. The effective tax rate was higher for the three months ended September 30, 2019 compared to the same period in 2018 due primarily to certain return adjustments recorded in 2018 relating to the benefit associated with additional tax deductions taken in the Company’s 2017 tax returns in conjunction with the rate differential provided in the 2017 Tax Act offset, in part, by higher amortization in 2019 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in federal income tax rate.
Hawaiian Electric’s consolidated ROACE was 7.6% and 7.2% for the twelve months ended September 30, 2019 and September 30, 2018, respectively.


The Utilities’ consolidated kWh sales have declined each year since 2007. Year-over-year sales in 2019 are anticipated to be about the same as in 2018 on a consolidated basis due to the continued adoption of energy efficiency and distributed energy resources, partially offset by the warmer, more humid weather in the second and third quarter of the year. Cooler, less humid than average weather in the first quarter was offset by warmer, more humid weather in the second and third quarter, resulting in sales being slightly lower in the first three quarters of the year. However, following the adoption of the decoupling model in 2011, revenues are not tied to kWh sales and include annual rate adjustments to revenues. See “Decoupling” in the “Regulatory proceedings” section of Note 3 of the condensed consolidated financial statements for additional information.
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of September 30, 2019 amounted to $4 billion, of which approximately 28% related to generation PPE, 63% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 9% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission. 
See “Economic conditions” in the “HEI Consolidated” section above.
Executive overview and strategy. The Utilities provide electricity on all the principal islands in the state, other than Kauai, to approximately 95% of the state’s population and operate five separate grids. The Utilities’ mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a modern, resilient, flexible and dynamic electric grid that enables an optimal mix of distributed energy resources, such as private rooftop solar, demand response and grid-scale resources to enable the creation of smart, sustainable, resilient communities and achieve the statutory goal of 100% renewable energy by 2045.
Transition to renewable energy. The Utilities are fully committed to a 100 percent renewable energy future for Hawaii and are partnering with the State of Hawaii in achieving its Renewable Portfolio Standard goal of 100% renewable energy by 2045. Hawaii’s RPS law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by December 31, 2020, 2030, 2040 and 2045, respectively. The regulatory framework includes a number of mechanisms designed to provide utility financial stability during the transition toward the state’s 100% renewable energy future. Under the sales decoupling mechanism, the utilities are allowed to recover from customers, target test year revenues, independent of the level of kWh sales, which have declined as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms reduce regulatory lag, such as the rate adjustment mechanism to provide revenues for escalation in certain O&M expenses and rate base changes between rate cases, and the major project interim recovery mechanism, which allow the utilities to recover and earn on certain approved major capital projects placed into service in between rate cases. See “Decoupling” in Note 3 of the Consolidated Financial Statements.
Integrated Grid Planning. Achieving 100% renewable energy will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities filed its Integrated Grid Planning (IGP) Report with the PUC on March 1, 2018, which provides an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy pathways that incorporates customer and stakeholder input.
The PUC opened a docket to review the IGP process that the Utilities had proposed, and the resulting plans. In March 2019, the PUC accepted the Utilities’ IGP Work plan submitted on December 14, 2018, which describes the timing and scope of major activities that will occur in the IGP process. The IGP utilizes an inclusive and transparent Stakeholder Engagement model to provide an avenue for interested parties to engage with the Companies and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical Advisor Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues and process steps in the IGP.
Demand response programs. Pursuant to PUC orders, the Utilities are developing an integrated DR Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will take the form of either rates or incentive-based programs that will compensate customers for their participation individually, or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets.
In October 2017, the PUC approved the Utilities request made in December 2015 to defer and recover certain computer software and software development costs for a DR Management System in an amount not to exceed $3.9 million, exclusive of allowance for funds used during construction, through the Renewable Energy Infrastructure Program Surcharge. The Utilities placed the DR Management System in service in the first quarter of 2019. The Utilities are currently working through the next software update with the vendor, and will submit the final cost report in the fourth quarter of 2019. The Utilities are on track to remain below the $3.9 million budget cap.
On January 25, 2018, the PUC approved the Utilities’ revised DR Portfolio tariff structure. The PUC supported the approach of working with aggregators to implement the DR portfolio. In 2019, the Utilities are expected to sign a number of


multi-year Grid Services Purchase Agreements with third party aggregators. These contracts pay service providers to aggregate grid-supporting capabilities from customer-sited Distributed Energy Resources. The first of these five-year contracts in a not-to-exceed amount of $22 million has been executed (PUC approval obtained on August 9, 2019) and is expected to not only deliver benefit through efficient grid operations but also avoided fuel costs over that 5-year period. As the PUC considers Performance-based Regulation, demonstrated savings resulting from these contracts could results in shared savings for the Utilities. This complements the Utilities’ transformation and supports customer choice.
Grid modernization. The overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater DER and renewable energy integration. Under the Grid Modernization Strategy, new technology will help triple private rooftop solar and make use of rapidly evolving products, including storage and advanced inverters. The Utilities have begun work to implement the Grid Modernization Strategy Phase 1, which received PUC approval on March 25, 2019. The estimated cost for this initial phase is approximately $86 million and is expected to be incurred over five years. The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System as part of the second phase of their Grid Modernization implementation. The estimated cost for the implementation over five years of the Advanced Distribution Management System, which includes capital, deferred and O&M costs, is $46 million. Additional applications will be filed later to implement subsequent phases of the strategy.
Community-Based Renewable Energy. In December 2017, the PUC adopted a community-based renewable energy (CBRE) program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases.
The first phase, which commenced in July 2018, totals 8 MW of solar photovoltaic (PV) only with one credit rate for each island. The Utilities’ role is limited to administrative only during the first phase. As administrators, the Utilities will work with subscriber organizations to allocate capacity, answer general program questions, verify subscriber eligibility and process bill credits for subscribers. The Utilities are in the process of verifying the projects and awarding the capacity to interested subscriber organizations.
The second phase will commence after review of the first full year of the phase one. The second phase is contemplated to be a larger capacity and include multiple credit rates (e.g., time of day) and various technologies. The Utilities will have the opportunity to develop self-build projects; however 50% of utility capacity will be reserved for low to moderate income customers.
The PUC held an informal technical conference on July 25, 2019 to review progress and status of the first phase and to solicit recommendations for the second phase. On August 19, 2019, the Utilities and the Joint Parties submitted their comments and recommendations for the second phase.
Microgrid services tariff proceeding. In July 2018, the PUC issued an order instituting a proceeding to investigate establishment of a microgrid services tariff, pursuant to Act 200 of 2018. The PUC granted motions to intervene in the docket by eight parties (there are currently six parties) and completed its initial procedural schedule in March 2019. In August 2019, the PUC issued an order stating that the focus for the remainder of the docket is to facilitate the ability of microgrids to disconnect from the grid and provide backup power to customers and critical energy uses during contingency events.
The PUC also required the parties to form two Working Groups: (1) a Market Facilitation Working Group to recommend draft tariff language for the Microgrid Services Tariff; and (2) an Interconnection Standards Working Group to develop a new section of Rule 14H specific to interconnection and islanding/reconnection of microgrids. The Utilities are to file a Draft Microgrid Services Tariff and Rule 14H Updates by March 30, 2020.
Decoupling. See "Decoupling" in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling.
As part of decoupling, the Utilities also track their rate-making ROACEs as calculated under the earnings sharing mechanism, which includes only items considered in establishing rates. At year-end, each utility's rate-making ROACE is compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. Annual earnings of a utility over and above the ROACE allowed by the PUC are shared between the utility and its ratepayers on a tiered basis. Earnings sharing credits are included in the annual decoupling filing for the following year. Results for 2018, 2017 and 2016 did not trigger the earnings sharing mechanism for the Utilities.


Regulated returns. Actual and PUC-allowed returns, as of September 30, 2019, were as follows:
% Rate-making Return on rate base (RORB)* ROACE** Rate-making ROACE***
Twelve months ended 
September 30, 2019
 Hawaiian Electric Hawaii Electric Light Maui Electric Hawaiian Electric Hawaii Electric Light Maui Electric Hawaiian Electric Hawaii Electric Light Maui Electric
Utility returns 6.73
 6.39
 6.16
 7.78
 6.88
 7.39
 8.39
 7.36
 7.54
PUC-allowed returns 7.57
 7.80
 7.43
 9.50
 9.50
 9.50
 9.50
 9.50
 9.50
Difference (0.84) (1.41) (1.27) (1.72) (2.62) (2.11) (1.11) (2.14) (1.96)
*      Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates.
**    Recorded net income divided by average common equity.
***  ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation.
The gap between PUC-allowed ROACEs and the ROACEs actually achieved is primarily due to: the consistent exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual RAM revenues on June 1 annually rather than on January 1, and O&M increases and return on capital additions since the last rate case in excess of indexed escalations.
Most recent rate proceedings.  Hawaiian Electric filed for a rate increase based on a 2020 test year in August 2019. Hawaii Electric Light filed its 2019 test year rate case in December 2018. Final rates for Maui Electric’s 2018 rate case were effective on June 1, 2019 based on rulings in a D&O issued on March 18, 2019. Rates resulting from the March 2019 D&O were lower than what had been allowed in the interim order and Maui Electric refunded approximately $0.5 million to customers in June and July 2019.
Test year
(dollars in millions)
 
Date
(filed/
implemented)
 Amount 
% over 
rates in 
effect
 
ROACE
(%)
 
RORB
(%)
 
Rate
 base
 
Common
equity
%
 
Stipulated agreement 
reached with
Consumer Advocate
Hawaiian Electric    
  
  
  
  
  
  
2017 1
    
  
  
  
  
  
  
Request 12/16/16 $106.4
 6.9
 10.60
 8.28
 $2,002
 57.36
 Yes
Interim increase 2/16/18 36.0
 2.3
 9.50
 7.57
 1,980
 57.10
  
Interim increase with Tax Act 4/13/18 (0.6) —
 9.50
 7.57
 1,993
 57.10
  
Final increase 9/1/18 (0.6) —
 9.50
 7.57
 1,993
 57.10
  
2020                
Request 8/21/19 $77.6
 4.1
 10.50
 7.97
 $2,477
 57.15
  
Hawaii Electric Light    
  
  
  
  
  
  
2016 2 
                
Request 9/19/16 $19.3
 6.5
 10.60
 8.44
 $479
 57.12
 Yes
Interim increase 8/31/17 9.9
 3.4
 9.50
 7.80
 482
 56.69
  
Interim increase with Tax Act 5/1/18 1.5
 0.5
 9.50
 7.80
 481
 56.69
  
Final increase 10/1/18 —
 —
 9.50
 7.80
 481
 56.69
  
2019            
Request 12/14/18 $13.4
 3.4
 10.50
 8.30
 $537
 56.91
  
Maui Electric    
  
  
  
  
  
  
2018 3 
                
Request 10/12/17 $30.1
 9.3
 10.60
 8.05
 $473
 56.94
 Yes
Interim increase with Tax Act 8/23/18 12.5
 3.82
 9.50
 7.43
 462
 57.02
  
Final increase 6/1/19 12.2
 3.7
 9.50
 7.43
 454
 57.02
  
Note:  The “Request” date reflects the application filing date for the rate proceeding. The “Interim increase” and “Final increase” date reflects the effective date of the revised schedules and tariffs as a result of the PUC-approved increase.
1Final D&O was issued on June 22, 2018.
2 Final D&O was issued on June 29, 2018.
3 A D&O issued on May 16, 2019 approved Maui Electric’s revised revenue requirements filed based on the March 2019 D&O and final rates which took effect on June 1, 2019.
See “Most recent rate proceedings” in Note 3 of the Condensed Consolidated Financial Statements.


Performance-based regulation. See “Performance incentive mechanisms” and “Performance-based regulation proceeding” in Note 3 of the Condensed Consolidated Financial Statements.
Developments in renewable energy efforts.  Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Condensed Consolidated Financial Statements and the following:
New renewable PPAs.
In December 2014, the PUC approved a PPA for Renewable As-Available Energy dated October 3, 2013 between Hawaiian Electric and Na Pua Makani Power Partners, LLC (NPM) for a proposed 24-MW wind farm on Oahu. The NPM wind farm was expected to be placed into service by August 31, 2019, but has been delayed due to an appeal of the decision in the Habitat Conservation Permit contested case. NPM has now received its Habitat Conservation Permit and is working to construct the project.
In July 2017, the PUC approved, with certain modifications and conditions, three PPAs for solar energy on Oahu with Waipio PV, LLC for 45.9 MW, Lanikuhana Solar, LLC for 14.7 MW and Kawailoa Solar, LLC for 49.0 MW. The three projects are now owned by Clearway Energy Group LLC, whose controlling investor is Global Infrastructure Partners. On September 19, 2019, Lanikuhana Solar and Waipio PV projects achieved commercial operations. Kawailoa Solar, LLC is expected to be in service by the end of 2019.
In July 2018, the PUC approved Maui Electric’s PPA with Molokai New Energy Partners to purchase solar energy from a PV plus battery storage project. The 4.88 MW project will deliver no more than 2.64 MW at any time to the Molokai system. The project is expected to be in service in 2020.
In November 2018, Hawaiian Electric filed with the PUC a PPA for Renewable As-Available Energy dated October 22, 2018 between Hawaiian Electric and EE Ewa, LLC (Palehua) for a proposed 46.8 MW wind farm on Oahu, subject to PUC approval. On September 6, 2019, the PUC issued an order dismissing without prejudice Hawaiian Electric’s application for a waiver of the proposed Palehua wind project from the PUC’s framework for competitive bidding and approval of the PPA. Due to the foregoing, the PPA has been declared null and void.
Tariffed renewable resources.
As of September 30, 2019, there were approximately 486 MW, 102 MW and 116 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of September 30, 2019, an estimated 29% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 17% of the Utilities' total customers have solar systems.   
The Utilities began accepting energy from feed-in tariff projects in 2011. As of September 30, 2019, there were 34 MW, 3 MW and 5 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.
Biofuel sources.
In July 2018, the PUC approved Hawaiian Electric’s 3-year biodiesel supply contract with Pacific Biodiesel Technologies, LLC (PBT) to supply 2 million to 4 million gallons of biodiesel at Hawaiian Electric’s Schofield Generating Station and the Honolulu International Airport Emergency Power Facility (HIA Facility) and any other generating unit on Oahu, as necessary. The PBT contract became effective on November 1, 2018. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was extended through June 2021.
Hawaiian Electric has a contingency supply contract with REG Marketing & Logistics Group, LLC to also supply biodiesel to any generating unit on Oahu in the event PBT is not able to supply necessary quantities. This contingency contract has been extended to November 2020, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued RFPs for 220 MW of renewable generation on Oahu, 50 MW of renewable generation on Hawaii Island, and 60 MW of renewable generation on Maui. The Utilities selected a final award group for Hawaii Island in August 2018 and for Maui and Oahu in September 2018.


In December 2018, the Utilities executed a total of seven renewable generation PPAs utilizing photovoltaic technology paired with a battery storage system for a total of 262 MW, of which six PPAs were approved by the PUC in March 2019 and one PPA for Maui Electric is still under PUC review. In February 2019, Hawaiian Electric filed an additional PPA for a proposed 12.5 MW PV plus battery storage project, which was approved by the PUC on August 20, 2019. Summarized information for a total of 8 PPAs, including one for Maui Electric that is pending PUC approval, is as follows:
Utilities Number of contracts Total photovoltaic size (MW) Battery Energy Storage System (BESS) Size (MW/MWh) Guaranteed commercial operation dates Contract term (years) Total projected annual payment (in millions)
Hawaiian Electric 4 139.5 139.5 / 558 9/30/2021 & 12/31/2021 20 & 25 $30.9
Hawaii Electric Light 2 60 60 / 240 7/20/2021 & 6/30/2022 25 14.1
Maui Electric 2 75 75 / 300 7/20/2021 & 6/30/2022 25 17.6
Total 8 274.5 274.5 / 1,098     $62.6
In March 2019 and August 2019, the Utilities received PUC approval to recover the total projected annual payment of $57.8 million for 7 PPAs through the PPAC to the extent such costs are not included in base rates. The remaining $4.8 million of total projected annual payments for the remaining PPA is pending PUC approval.
In October 2017, the Utilities filed a draft request for proposal with the PUC for 40 MW of firm renewable generation on Maui (Maui Firm RFP) to be in service by the end of 2022. The Utilities have since decided to move forward with an RFP for variable renewable energy and energy storage.
In continuation of its February 2018 request for proposal process, the Utilities issued its Stage 2 Renewable RFPs for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. This procurement plan seeks approximately 900 MW of renewable energy, including 594 MW on Oahu, 135 MW on Maui and a range between 32 to 203 MW on Hawaii Island. This second phase, as approved by the PUC, is open to all renewable and storage resources, including efforts to add more renewable generation, renewable plus storage, standalone storage and grid services. The scope of these RFPs has been expanded to accelerate renewable energy procurements beyond the remainder of the 2022 targets identified in Stage 1 to include the energy from the retiring Kahului Power Plant on Maui and the expiring AES Hawaii facility on Oahu. For the Grid Services RFP, the targets have been expanded in alignment with the Renewable RFPs. Utility proposals to address reliability will be submitted on November 4, 2019. Proposals from third parties for these RFPs are due by November 5, 2019.
On August 6, 2019, the Utilities filed draft RFPs with the PUC for renewable generation paired with energy storage on the islands of Lanai and Molokai. Projects may come online as early as 2022. The Utilities are seeking PV paired with storage or small wind (specified as 100 kW turbines or smaller) on Molokai and PV paired with storage on Lanai.
Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see “Environmental regulation” in Note 3 of the Condensed Consolidated Financial Statements.
Impact of lava flows on PGV. In May 2018, a lava eruption occurred within the Leilani Estates subdivision and resulted in the shutdown of independent power producer PGV’s geothermal facilities. The financial impact to Hawaii Electric Light has not been material. In March 2019, Hawaii Electric Light and PGV entered into a Rebuild Agreement, which sets forth the parties’ respective responsibilities associated with restoration of facilities and reconnection of the PGV facility to the electric grid. Hawaii Electric Light and PGV are in negotiations of an amended and restated PPA, which would, among others, delink the original PPA from the cost of fossil-fuel.
In June 2019, Hawaii Electric Light filed an application requesting approval to reconstruct the necessary transmission lines. In August 2019, the PUC issued an order suspending the application with the expectation that Hawaii Electric Light provide information on an expected timeline for various permit approvals and substantive details on a renegotiated PPA. In response to the PUC’s order, Hawaii Electric Light submitted its quarterly report, which provided details on the status of permits and PGV’s assertion that every permit required to operate its facilities is in full force and effect. In addition, the report indicated that the work described in the Rebuild Agreement is necessary to restore facilities under the existing original PPA with PGV, which is valid through 2027, and that the parties continue to negotiate an amended and restated PPA that would be delinked from the cost of fossil fuel. In October 2019, the PUC opened a docket to review an amended and restated PPA between Hawaii Electric Light and PGV.


Army privatization. On September 27, 2019, Hawaiian Electric was awarded a 50-year contract to own, operate and maintain the electric distribution system serving the U.S. Army’s 12 installations on Oahu, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort Shafter, and Army housing areas. Hawaiian Electric will acquire, subject to PUC approval, the Army’s existing distribution system for a purchase price of $16.3 million and will pay the Army in the form of a monthly credit against the monthly utility services charge over the 50-year term of the contract. Hawaiian Electric filed an application with the PUC for approval of the Army privatization contract on October 25, 2019.
If approved by the PUC by 2020, Hawaiian Electric would take ownership and all responsibilities for operation and maintenance of the system in late 2021 for a 50-year term, which would start after the mutually agreed upon one-year transition period. Under the contract, Hawaiian Electric will make initial capital upgrades over the first six years of the contract and replacements of aging infrastructure over the 50-year term. In addition to its regular monthly electricity bill, the Army will pay Hawaiian Electric a monthly utility services charge to cover operations and maintenance expenses and provide recovery for capital upgrades, capital replacements, and the existing distribution system based on a rate of return determined by the PUC for regulated utility investments, as well as depreciation expense. A preliminary assessment estimated the capital needs of approximately $40 million in the first six years of the contract. The annual impact on Hawaiian Electric’s earnings is not expected to be material and will depend on a number of factors, including the amount and timing of capital upgrades and capital replacements.
FINANCIAL CONDITION
Liquidity and capital resources. Management believes that Hawaiian Electric’s ability, and that of its subsidiaries, to generate cash, both internally from operations and externally from issuances of equity and debt securities and commercial paper and draws on lines of credit, is adequate to maintain sufficient liquidity to fund their respective capital expenditures, investments, debt repayments, retirement benefit plan contributions and other cash requirements in the foreseeable future.
Hawaiian Electric’s consolidated capital structure was as follows:
(dollars in millions) September 30, 2019 December 31, 2018
Short-term borrowings $113
 3% $25
 1%
Long-term debt, net 1,418
 40
 1,419
 41
Preferred stock 34
 1
 34
 1
Common stock equity 1,993
 56
 1,958
 57
  $3,558
 100% $3,436
 100%
Information about Hawaiian Electric’s commercial paper borrowings, borrowings from HEI and line of credit facility were as follows:
  Average balance Balance
(in millions) Nine months ended September 30, 2019 September 30, 2019 December 31, 2018
Short-term borrowings 1
  
  
  
Commercial paper $50
 $63
 $—
Line of credit draws —
 —
 —
Borrowings from HEI —
 —
 —
Undrawn capacity under line of credit facility —
 200
 200
1   The maximum amount of external short-term borrowings by Hawaiian Electric during the first nine months of 2019 was approximately $158 million. As of September 30, 2019, Hawaiian Electric had short-term borrowings from Hawaii Electric Light of $15 million and Maui Electric had short-term borrowings from Hawaiian Electric of approximately $22 million.
Hawaiian Electric has a $200 million line of credit facility with no amounts outstanding at September 30, 2019. See Note 5 of the Condensed Consolidated Financial Statements.
In October 2019, Moody’s revised Hawaiian Electric’s rating outlook to “positive” from “stable” and affirmed Hawaiian Electric’s Baa2 senior unsecured rating and Hawaiian Electric’s P-2 commercial paper rating. The revision to the rating outlook was based on the considerable progress made with respect to the Utilities’ transition to renewable energy and the improvement in its customer service. Moody’s also indicated that future upgrades or downgrades in ratings action are dependent on a variety of factors, including continuing progress toward renewable energy generation, changes in its cash flow from operations ratios, and improvements in the regulatory environment, specifically, a credit-supportive decision in the performance-based regulation proceeding. See “Performance-based regulation proceeding” in Note 3 of the Condensed Consolidated Financial Statements.




On February 26, 2019, the PUC approved Hawaiian Electric and Hawaii Electric Light’s request to issue refunding special purpose revenue bonds (SPRBs) prior to December 31, 2020 to refinance their outstanding Series 2009 SPRBs in the amount of up to $90 million and $60 million, respectively. Pursuant to this approval, on July 18, 2019, the Department of Budget and Finance of the State of Hawaii (DBF) issued, at par, Refunding Series 2019 SPRBs in the aggregate principal amount of $150 million with a maturity of July 1, 2039. See Note 5 of the Condensed Consolidated Financial Statements.
On May 24, 2019, the PUC approved the Utilities’ request to issue SPRBs in the amounts of up to $70 million, $2.5 million and $7.5 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2020, to finance the Utilities’ capital improvement programs. Pursuant to this approval, on October 10, 2019, the DBF issued, at par, Series 2019 SPRBs in the aggregate principal amount of $80 million with a maturity of October 1, 2049. See Note 5 of the Condensed Consolidated Financial Statements.
On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval, prior to June 30, 2024, to finance the Utilities’ multi-project capital improvement programs.
On November 29, 2018, Hawaiian Electric entered into a 364-day, $50 million term loan credit agreement that matures on November 28, 2019. Hawaiian Electric drew the first $25 million on November 29, 2018 and the second $25 million on January 31, 2019.
On January 31, 2019, the Utilities received PUC approval to issue the remaining authorized amounts under the April 2018 Approval in 2019 through 2020 (Hawaiian Electric up to $205 million and Hawaii Electric Light up to $15 million of taxable debt), as well as a supplemental increase to authorize the issuance of additional taxable debt to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures, and to refinance the Utilities’ 2004 junior subordinated deferrable interest debentures (QUIDS) prior to maturity. In addition, the Utilities received approval to extend the period to issue additional taxable debt from December 31, 2021 to December 31, 2022. The new total “up to” amounts of taxable debt requested to be issued through December 31, 2022 are $410 million, $150 million and $130 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.
Pursuant to this approval, on May 13, 2019, the Utilities issued through a private placement, $50 million of unsecured senior notes bearing taxable interest ($30 million for Hawaiian Electric, $10 million for Hawaii Electric Light and $10 million for Maui Electric) to refinance the Utilities’ 2004 junior subordinated deferrable interest debentures. See Note 5 of the Condensed Consolidated Financial Statements. See summary table below.
(in millions)Hawaiian ElectricHawaii Electric LightMaui Electric
Total “up to” amounts of taxable debt authorized through 2022$410
$150
$130
Less:   
Taxable debt authorized and issued in 2018 under April 2018 Approval$75
$15
$10
Taxable debt issuance to refinance the 2004 QUIDS30
10
10
Remaining authorized amounts$305
$125
$110
In October 2018, the Utilities received PUC approval for the supplemental increase to issue and sell additional common stock in the amounts of up to $280 million for Hawaiian Electric and up to $100 million each for Hawaii Electric Light and Maui Electric, with the new total “up to” amounts of $430 million for Hawaiian Electric and $110 million each for Hawaii Electric Light and Maui Electric, and to extend the period authorized by the PUC to issue and sell common stock from December 31, 2021 to December 31, 2022. See summary table below.
(in millions)Hawaiian ElectricHawaii Electric LightMaui Electric
Total “up to” amounts of common stock authorized to issue and sell through 2021$150.0
$10.0
$10.0
Supplemental increase authorized280.0
100.0
100.0
Total “up to” amounts of common stock authorized to issue and sell through 2022430.0
110.0
110.0
Common stock authorized and issued in 2017 and 201884.7
—
6.3
Remaining authorized amounts$345.3
$110.0
$103.7


Cash flows. The following table reflects the changes in cash flows for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018:
 Nine months ended September 30,  
(in thousands)2019 2018 Change
Net cash provided by operating activities$282,618
 $193,722
 $88,896
Net cash used in investing activities(295,145) (300,558) 5,413
Net cash provided by financing activities9,157
 101,543
 (92,386)
Net cash provided by operating activities. The increase in net cash provided by operating activities was primarily driven by higher cash receipts from customers due to higher rates.
Net cash used in investing activities. The decrease in net cash used in investing activities was primarily driven by a decrease in capital expenditures related to construction activities.
Net cash provided by financing activities. The decrease in net cash provided by financing activities was primarily driven by higher net cash from long-term borrowings in 2018.
Forecast capital expenditures. For the five-year period 2019 through 2023, the Utilities forecast up to $2.1 billion of net capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental regulations, unforeseen delays in permitting, and the timing and results of PUC decisions. Proceeds from the issuance of equity and long-term debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents are expected to provide the funds needed for the net capital expenditures, to pay down commercial paper or other short-term borrowings, as well as to fund any unanticipated expenditures not included in the 2019 to 2023 forecast (such as increases in the costs or acceleration of capital projects or unanticipated capital expenditures that may be required by new environmental laws and regulations).
Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities.


Bank
  Three months ended September 30, Increase  
(in millions) 2019 2018 (decrease) Primary reason(s)
Interest income $67
 $65
 $2
 The increase in interest income was primarily the result of an increase in the loan portfolio balances partly offset by a decrease in balances and yields on the investment portfolio. ASB’s average loan portfolio balance for the three months ended September 30, 2019 increased by $282 million compared to the same period in 2018 due to increases in the average home equity line of credit, residential, commercial and consumer loan portfolios of $113 million, $83 million, $50 million and $34 million, respectively. The yield on the loan portfolio was comparable to the yield on the loan portfolio in the prior year. ASB’s average investment securities portfolio balance for the three months ended September 30, 2019 decreased by $135 million compared to the same period in 2018 as ASB used the investment portfolio repayments to fund the growth in the loan portfolio. The yield on the investment securities portfolio decreased by 16 basis points due to an increase in the amortization of premiums in the investment portfolio. The average balance of interest-earning deposits decreased by $57 million for the three months ended September 30, 2019 compared to the same period in 2018 as excess liquidity was also used to fund the loan portfolio growth.
Noninterest income 16
 15
 1
 Noninterest income increased for the three months ended September 30, 2019 compared to noninterest income for the three months ended September 30, 2018 primarily due to an increase in mortgage banking income and the gain on sale of securities, partly offset by bank owned life insurance policy payouts received in the three months ended September 30, 2018 with no similar payouts in the three months ended September 30 2019.
Revenues 83
 80
 3
 The increase in revenues for the three months ended September 30, 2019 compared to the same period in 2018 was due higher interest and noninterest income.
Interest expense 5
 4
 1
 The increase in interest expense for the three months ended September 30, 2019 compared to the same period in 2018 was due to an increase in term certificate balances and yields. Average deposit balances for the three months ended September 30, 2019 increased by $120 million compared to the same period in 2018 due to an increase in core deposits and term certificates of $72 million and $48 million, respectively. Average cost of deposits for the three months ended September 30, 2019 was 28 basis points, or 4 basis points above the cost of deposits for the same period in 2018. Average other borrowings for the three months ended September 30, 2019 decreased by $19 million compared to the same period in 2018 due to a decrease in repurchase agreements and FHLB advances. The interest-bearing liability rate for the three months ended September 30, 2019 of 43 basis points increased 7 basis points compared to the same period in 2018.
Provision for loan losses 3
 6
 (3) The provision for loan losses decreased for the three months ended September 30, 2019 compared to the provision for loan losses for the three months ended September 30, 2018. The provision for loan losses for 2019 was primarily for additional loan loss reserves for the consumer loan portfolio, and growth in the loan portfolio, partly offset by the release of commercial and commercial real estate loan reserves due to a loan payoff and upgrades in those loan portfolios, and the release of loan loss reserves resulting from improving credit trends throughout the loan portfolio. The provision for loan losses for 2018 was primarily for loan growth and additional loan loss reserves for the consumer and credit-scored loan portfolios, partly offset by the release of reserves due to repayments in the commercial and commercial real estate loan portfolios and improved credit quality in the residential, home equity line of credit, commercial and commercial real estate loan portfolios. Delinquency rates have decreased from 0.52% at September 30, 2018 to 0.41% at September 30, 2019. The annualized net charge-off ratio for the three months ended September 30, 2019 was 0.69% compared to an annualized net charge-off ratio of 0.40% for the same period in 2018. The annualized net charge-off for 2019 was impacted by the partial charge-off of a commercial credit.
Noninterest expense 46
 43
 3
 Noninterest expense increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to higher compensation and employee benefits expenses, and higher occupancy expenses, partly offset by lower FDIC insurance premium expenses a result of an assessment credit received from the FDIC. The higher compensation and employee benefits expenses were due to an increase in commissions incentives, an increase in the minimum pay rate for employees and annual merit increases. Occupancy expenses in 2019 included depreciation and occupancy costs related to the new campus while still including the costs of properties being vacated.
Expenses 54
 53
 1
 The increase in expenses for the three months ended September 30, 2019 compared to the same period in 2018 was due to higher interest expense and higher noninterest expenses partly offset by lower provision for loan losses.
Operating income 29
 27
 2
 The increase in operating income for the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to higher interest and noninterest income, and lower provision for loan losses, partly offset by higher interest expense and higher noninterest expenses.
Net income 23
 21
 2
 The increase in net income for the three months ended September 30, 2019 compared to the same period in 2018 was primarily due to higher operating income.


  Nine months ended September 30 Increase  
(in millions) 2019 2018 (decrease) Primary reason(s)
Interest income $202
 $190
 $12
 The increase in interest income was primarily the result of an increase in loan portfolio balances and yields partly offset by lower investment balances. ASB’s average loan portfolio balance for the nine months ended September 30, 2019 increased by $203 million compared to the same period in 2018 due to increases in the average home equity line of credit, residential, consumer and commercial loan portfolios of $91 million, $57 million, $37 million and $31 million, respectively. The yield on loans benefited from the rising interest rate environment during the past year, which resulted in an increase in yields from the total loan portfolio of 15 basis points. The average investment portfolio balance for the nine months ended September 30, 2019 decreased $35 million compared to the same period in 2018 due to repayments in the portfolio and the lack of new investment security purchases as liquidity was used to fund the loan portfolio growth. The investment portfolio yield for 2019 was comparable to the investment portfolio yield in the prior year. The average interest-earning deposits balance for the nine months ended September 30, 2019 decreased $49 million compared to the same period in 2018.
Noninterest income 46
 43
 3
 Noninterest income increased for the nine months ended September 30, 2019 compared to noninterest income for the nine months ended September 30, 2018 primarily due to higher mortgage banking income and higher bank owned life insurance policy payouts.
Revenues 248
 233
 15
 The increase in revenues for the nine months ended September 30, 2019 compared to the same period in 2018 was due higher interest and noninterest income.
Interest expense 14
 11
 3
 The increase in interest expense for the nine months ended September 30, 2019 compared to the same period in 2018 was due to higher deposit balances and interest rates. Average deposit balances for the nine months ended September 30, 2019 increased by $181 million compared to the same period in 2018 due to an increase in core deposits and term certificates of $136 million and $45 million, respectively. Average cost of deposits for the nine months ended September 30, 2019 was 28 basis points, or 6 basis points above the cost of deposits for the same period in 2018. Average other borrowings for the nine months ended September 30, 2019 decreased by $36 million compared to the same period in 2018 primarily due to a decrease in repurchase agreements. The interest-bearing liability rate for the nine months ended September 30, 2019 of 43 basis points increased by 9 basis points compared to the same period in 2018.
Provision for loan losses 18
 12
 6
 The provision for loan losses increased for the nine months ended September 30, 2019 compared to the provision for loan losses for the nine months ended September 30, 2018. The provision for loan losses for 2019 was due to additional loss reserves for the consumer loan portfolio, increased reserves for an impaired commercial credit and a commercial real estate loan that was downgraded to substandard, partly offset by the release of reserves resulting from recoveries of previously charged-off loans. The provision for loan losses for 2018 was primarily due to additional loan loss reserves for the consumer loan portfolio, partly offset by the release of reserves for improved credit quality of the commercial and commercial real estate loan portfolios. Delinquency rates have decreased from 0.52% at September 30, 2018 to 0.41% at September 30, 2019. The annualized net charge-off ratio for the nine months ended September 30, 2019 was 0.46% compared to an annualized net charge-off ratio of 0.33% for the same period in 2018. The increase was due to higher net charge-offs in the consumer loan portfolio with risk-based pricing and the partial charge-off of a commercial credit.
Noninterest expense 139
 131
 8
 Noninterest expense increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to higher compensation and employee benefits expenses, and higher occupancy expenses. The increase in compensation and employee benefits was due to an increase in performance-based incentives, an increase in the minimum pay rate for employees and annual merit increases. Occupancy expenses in 2019 included depreciation and occupancy costs for the new campus while still including the costs of properties being vacated.
Expenses 171
 154
 17
 The increase in expenses for the nine months ended September 30, 2019 compared to the same period in 2018 was due to higher interest expense, higher provision for loan losses and higher noninterest expenses.
Operating income 76
 79
 (3) The decrease in operating income for the nine months ended September 30, 2019 compared to the same period in 2018 was primarily due to higher provision for loan losses and higher interest and noninterest expenses, partly offset by higher interest and noninterest income.
Net income 61
 61
 —
 Net income for the nine months ended September 30, 2019 was comparable to the same period in 2018 as lower operating income was offset by lower tax expense.

See Note 4 of the Condensed Consolidated Financial Statements and “Economic conditions” in the “HEI Consolidated” section above.
ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.


ASB’s return on average assets, return on average equity and net interest margin were as follows:
  Three months ended September 30 Nine months ended September 30
(%) 2019 2018 2019 2018
Return on average assets 1.29
 1.22
 1.14
 1.18
Return on average equity 13.75
 13.80
 12.44
 13.32
Net interest margin 3.82
 3.81
 3.87
 3.78
  Three months ended September 30,
  2019 2018
(dollars in thousands) Average
balance		 
Interest 
income/
expense
 Yield/
rate (%)		 Average
balance		 
Interest
 income/
expense
 Yield/
rate (%)
Assets:  
  
  
  
  
  
Interest-earning deposits $9,764
 $55
 2.20
 $66,866
 $339
 1.98
FHLB stock 10,029
 91
 3.63
 10,087
 120
 4.73
Investment securities            
Taxable 1,372,821
 7,175
 2.09
 1,518,743
 8,691
 2.29
Non-taxable 28,341
 352
 4.86
 16,988
 190
 4.38
Total investment securities 1,401,162
 7,527
 2.15
 1,535,731
 8,881
 2.31
Loans            
Residential 1-4 family 2,196,926
 22,550
 4.11
 2,114,398
 21,776
 4.12
Commercial real estate 867,164
 10,107
 4.58
 863,468
 10,140
 4.61
Home equity line of credit 1,064,020
 9,961
 3.71
 951,384
 8,936
 3.73
Residential land 14,341
 202
 5.64
 14,236
 192
 5.39
Commercial 630,739
 7,314
 4.58
 581,202
 6,759
 4.59
Consumer 273,629
 9,149
 13.26
 240,067
 8,082
 13.36
Total loans 1,2
 5,046,819
 59,283
 4.66
 4,764,755
 55,885
 4.66
Total interest-earning assets 3
 6,467,774
 66,956
 4.11
 6,377,439
 65,225
 4.06
Allowance for loan losses (58,441)  
  
 (52,781)  
  
Noninterest-earning assets 707,733
  
  
 622,721
  
  
Total assets $7,117,066
  
  
 $6,947,379
  
  
Liabilities and shareholder’s equity:  
  
  
  
  
  
Savings $2,338,580
 $504
 0.09
 $2,352,553
 $415
 0.07
Interest-bearing checking 1,041,485
 388
 0.15
 1,016,490
 194
 0.08
Money market 141,664
 229
 0.64
 161,363
 244
 0.60
Time certificates 821,711
 3,263
 1.58
 773,921
 2,782
 1.43
Total interest-bearing deposits 4,343,440
 4,384
 0.40
 4,304,327
 3,635
 0.34
Advances from Federal Home Loan Bank 39,880
 233
 2.32
 48,207
 241
 1.99
Securities sold under agreements to repurchase 75,814
 189
 0.99
 86,547
 163
 0.75
Total interest-bearing liabilities 4,459,134
 4,806
 0.43
 4,439,081
 4,039
 0.36
Noninterest bearing liabilities:  
  
  
  
  
  
Deposits 1,860,080
  
  
 1,778,751
  
  
Other 131,832
  
  
 114,343
  
  
Shareholder’s equity 666,020
  
  
 615,204
  
  
Total liabilities and shareholder’s equity $7,117,066
  
  
 $6,947,379
  
  
Net interest income   $62,150
  
  
 $61,186
  
Net interest margin (%) 4
  
  
 3.82
  
  
 3.81



  Nine months ended September 30
  2019 2018
(dollars in thousands) Average
balance		 
Interest
income/
expense
 Yield/
rate (%)		 Average
balance		 
Interest
 income/
expense
 Yield/
rate (%)
Assets:  
  
  
  
  
  
Interest-earning deposits $9,776
 $172
 2.32
 $59,051
 $795
 1.77
FHLB stock 10,052
 276
 3.67
 10,035
 274
 3.65
Investment securities            
Taxable 1,444,810
 24,490
 2.26
 1,491,378
 25,664
 2.29
Non-taxable 27,476
 1,043
 5.00
 15,953
 502
 4.15
Total investment securities 1,472,286
 25,533
 2.31
 1,507,331
 26,166
 2.31
Loans            
Residential 1-4 family 2,178,214
 67,280
 4.12
 2,121,049
 65,204
 4.10
Commercial real estate 854,252
 30,393
 4.71
 865,603
 29,350
 4.49
Home equity line of credit 1,026,440
 29,295
 3.82
 935,184
 25,278
 3.61
Residential land 13,658
 557
 5.44
 15,727
 638
 5.41
Commercial 609,732
 21,196
 4.63
 578,246
 19,752
 4.55
Consumer 271,600
 27,058
 13.32
 235,063
 23,096
 13.14
Total loans 1,2
 4,953,896
 175,779
 4.73
 4,750,872
 163,318
 4.58
Total interest-earning assets 3
 6,446,010
 201,760
 4.17
 6,327,289
 190,553
 4.01
Allowance for loan losses (55,210)  
  
 (53,510)  
  
Noninterest-earning assets 691,148
  
  
 595,952
  
  
Total assets $7,081,948
  
  
 $6,869,731
  
  
Liabilities and shareholder’s equity:  
  
  
  
  
  
Savings $2,335,613
 $1,392
 0.08
 $2,336,007
 $1,227
 0.07
Interest-bearing checking 1,041,420
 918
 0.12
 993,686
 476
 0.06
Money market 146,247
 725
 0.66
 133,826
 343
 0.34
Time certificates 822,483
 9,888
 1.61
 777,816
 7,830
 1.35
Total interest-bearing deposits 4,345,763
 12,923
 0.40
 4,241,335
 9,876
 0.31
Advances from Federal Home Loan Bank 42,601
 808
 2.54
 50,487
 740
 1.96
Securities sold under agreements to repurchase 77,417
 553
 0.95
 105,410
 553
 0.70
Total interest-bearing liabilities 4,465,781
 14,284
 0.43
 4,397,232
 11,169
 0.34
Noninterest bearing liabilities:  
  
  
  
  
  
Deposits 1,835,214
  
  
 1,758,824
  
  
Other 129,642
  
  
 105,426
  
  
Shareholder’s equity 651,311
  
  
 608,249
  
  
Total liabilities and shareholder’s equity $7,081,948
  
  
 $6,869,731
  
  
Net interest income  
 $187,476
  
  
 $179,384
  
Net interest margin (%) 4
  
  
 3.87
  
  
 3.78

1 Includes loans held for sale, at lower of cost or fair value.
2
Includes recognition of net deferred loan fees of nil and $0.1 million for the three months ended September 30, 2019 and 2018, respectively, and $0.2 million for the nine months ended September 30, 2019 and 2018, together with interest accrued prior to suspension of interest accrual on nonaccrual loans.
3
For the three months ended and for the nine months ended September 30, 2019 and 2018, the taxable-equivalent basis adjustments made to the table above were not material.
4
Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.
Earning assets, costing liabilities, contingencies and other factors.  Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets over a period of several years. In the prior year, interest rate increases had resulted in an increase in ASB’s net interest income and net interest margin. However, the recent interest rate reductions have negatively impacted ASB’s net interest income and net interest margin. Future interest reductions may continue to negatively impact ASB’s net interest income and net interest margin.
Loans and mortgage-backed securities are ASB’s primary earning assets.


Loan portfolio.  ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. See Note 4 of the Condensed Consolidated Financial Statements for the composition of ASB’s loans.
Home equity— key credit statistics. Attention has been given by regulators and rating agencies to the potential for increased exposure to credit losses associated with home equity lines of credit (HELOC) that were originated during the period of rapid home price appreciation between 2003 and 2007 as they have reached the end of their 10-year, interest-only payment periods. Once the interest-only payment period has ended, payments are reset to include principal repayments along with interest. ASB does not have a large exposure to HELOCs originated between 2003 and 2007. Nearly all of ASB’s HELOC originations prior to 2008 consisted of amortizing equity lines that have structured principal payments during the draw period. These older equity lines represent 1% of the HELOC portfolio and are included in the amortizing balances identified in the loan portfolio table below.
  September 30, 2019 December 31, 2018
Outstanding balance of home equity loans (in thousands) $1,079,262
 $978,237
Percent of portfolio in first lien position 52.4% 49.2%
Annualized net charge-off ratio —% 0.01%
Delinquency ratio 0.34% 0.46%
      End of draw period – interest only Current
September 30, 2019 Total Interest only 2019-2020 2021-2023 Thereafter amortizing
Outstanding balance (in thousands) $1,079,262
 $806,692
 $17,631
 $110,978
 $678,083
 $272,570
% of total 100% 75% 2% 10% 63% 25%
The HELOC portfolio makes up 21% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year period, after which time the HELOC outstanding balance converts to a fully amortizing variable-rate term loan with a 20-year amortization period. This product type comprises 75% of the total HELOC portfolio and is the current product offering. Borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully amortizing fixed-rate loan with level principal and interest payments. As of September 30, 2019, approximately 24% of the portfolio balances were amortizing loans under the Fixed Rate Loan Option.
Loan portfolio risk elements.  See Note 4 of the Condensed Consolidated Financial Statements.
Investment securities.  ASB’s investment portfolio was comprised as follows:
  September 30, 2019 December 31, 2018
(dollars in thousands) Balance % of total Balance % of total
U.S. Treasury and federal agency obligations $126,708
 9% $154,349
 10%
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies 1,152,009
 86
 1,303,291
 85
Corporate bonds 36,276
 3
 49,132
 3
Mortgage revenue bonds 28,459
 2
 23,636
 2
Total investment securities $1,343,452
 100% $1,530,408
 100%
Currently, ASB’s investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are also backed by the full faith of the U.S. government. The decrease in the investment securities portfolio was primarily due to the lack of purchases for the portfolio as repayments in the portfolio were used to fund the growth in the loan portfolio instead of being reinvested in the investment securities portfolio.
Deposits and other borrowings.  Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. Deposit retention and growth will remain challenging in the current environment due to competition for deposits and the low level of short-term interest rates. Advances from the FHLB


of Des Moines and securities sold under agreements to repurchase continue to be additional sources of funds. As of September 30, 2019 and December 31, 2018, ASB’s costing liabilities consisted of 98% deposits and 2% other borrowings. The weighted average cost of deposits for the first nine months of 2019 and 2018 was 0.28% and 0.22%, respectively.
Federal Home Loan Bank of Des Moines. As of September 30, 2019 ASB had advances outstanding at the FHLB of Des Moines of $38 million compared to $45 million as of December 31, 2018. As of September 30, 2019, the unused borrowing capacity with the FHLB of Des Moines was $2.2 billion. The FHLB of Des Moines continues to be an important source of liquidity for ASB.
Contingencies.  ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.
Other factors.  Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities.
As of September 30, 2019, ASB had an unrealized gain, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $2.9 million compared to an unrealized loss, net of taxes, of $24.4 million as of December 31, 2018. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.
During the first nine months of 2019, ASB recorded a provision for loan losses of $17.9 million due to additional loss reserves for the consumer loan portfolio, increased reserves for an impaired commercial credit and a commercial real estate loan that was downgraded to substandard, partly offset by the release of reserves resulting from recoveries of previously charged-off loans. During the first nine months of 2018, ASB recorded a provision for loan losses of $12.3 million primarily due to additional loan loss reserves for the consumer loan portfolio, partly offset by the release of reserves for improved credit quality of the commercial and commercial real estate loan portfolios.
  Nine months ended September 30 
Year ended
December 31,
(in thousands) 2019 2018 2018
Allowance for loan losses, January 1 $52,119
 $53,637
 $53,637
Provision for loan losses 17,873
 12,337
 14,745
Less: net charge-offs 16,952
 11,847
 16,263
Allowance for loan losses, end of period $53,040
 $54,127
 $52,119
Ratio of net charge-offs during the period to average loans outstanding (annualized) 0.46% 0.33% 0.34%
ASB maintains a reserve for credit losses that consists of two components, the allowance for loan losses and a reserve for unfunded loan commitments (unfunded reserve). The level of the reserve for unfunded loan commitments is adjusted by recording an expense or recovery in other noninterest expense. As of September 30, 2019 and December 31, 2018, the reserve for unfunded loan commitments was $1.7 million.
Sale of Office Building. In October 2019, ASB completed the sale of an office building it had vacated when the bank moved into its new campus headquarters. The sale of the office building resulted in a pretax gain on sale of approximately $8.8 million, which will be reflected in the fourth quarter of 2019 financial statements.
Legislation and regulation.  ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.”
Final Capital Rules.  On July 2, 2013, the FRB finalized its rule implementing the Basel III regulatory capital framework. The final rule would apply to banking organizations of all sizes and types regulated by the FRB and the OCC, except bank holding companies subject to the FRB’s Small Bank Holding Company Policy Statement and Savings & Loan Holding Companies (SLHCs) substantially engaged in insurance underwriting or commercial activities. HEI currently meets the requirements of the exemption as a top-tier grandfathered unitary SLHC that derived, as of June 30 of the previous calendar year, either 50% or more of its total consolidated assets or 50% or more of its total revenues on an enterprise-wide basis (calculated under GAAP) from activities that are not financial in nature pursuant to Section 4(k) of the Bank Holding Company Act. The FRB is temporarily excluding these SLHCs from the final rule while it considers a proposal relating to capital and other


requirements for SLHC intermediate holding companies (such as ASB Hawaii). The FRB indicated that it would release a proposal on intermediate holding companies that would specify the criteria for establishing and transferring activities to intermediate holding companies and propose to apply the FRB’s capital requirements to such intermediate holding companies. The FRB has not yet issued such a proposal, or a proposal on how to apply the Basel III capital rules to SLHCs that are substantially engaged in commercial or insurance underwriting activities, such as grandfathered unitary SLHCs like HEI.
Pursuant to the final rule and consistent with the proposals, all banking organizations, including covered holding companies, would initially be subject to the following minimum regulatory capital requirements: a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8% of risk-weighted assets and a tier 1 leverage ratio of 4%, and these requirements would increase in subsequent years. In order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers, the final rule requires a banking organization to hold a buffer of common equity tier 1 capital above its minimum capital requirements in an amount greater than 2.5% of total risk-weighted assets (capital conservation buffer). In addition, a countercyclical capital buffer would expand the capital conservation buffer by up to 2.5% of a banking organization’s total risk-weighted assets for advanced approaches banking organizations. The final rule would establish qualification criteria for common equity, additional tier 1 and tier 2 capital instruments that help to ensure their ability to absorb losses. All banking organizations would be required to calculate risk-weighted assets under the standardized approach, which harmonizes the banking agencies’ calculation of risk-weighted assets and addresses shortcomings in capital requirements identified by the agencies. The phased-in effective dates of the capital requirements under the final rule are:
Minimum Capital Requirements
Effective dates 1/1/2015 1/1/2016 1/1/2017 1/1/2018 1/1/2019
Capital conservation buffer  
 0.625% 1.25% 1.875% 2.50%
Common equity Tier-1 ratio + conservation buffer 4.50% 5.125% 5.75% 6.375% 7.00%
Tier-1 capital ratio + conservation buffer 6.00% 6.625% 7.25% 7.875% 8.50%
Total capital ratio + conservation buffer 8.00% 8.625% 9.25% 9.875% 10.50%
Tier-1 leverage ratio 4.00% 4.00% 4.00% 4.00% 4.00%
Countercyclical capital buffer — not applicable to ASB  
 0.625% 1.25% 1.875% 2.50%
The final rule was effective January 1, 2015 for ASB and as of September 30, 2019, ASB met the new capital requirements (see “Financial Condition” for a summary of ASB’s capital ratios).
Subject to the timing and final outcome of the FRB’s SLHC intermediate holding company proposal, HEI anticipates that the capital requirements in the final rule will eventually be effective for HEI or ASB Hawaii as well. If the fully phased-in capital requirements were currently applicable to HEI, management believes HEI would satisfy the capital requirements, including the fully phased-in capital conservation buffer. Management cannot predict what final rule the FRB may adopt concerning intermediate holding companies or their impact on ASB Hawaii, if any.
Covered Savings Associations.On May 24, 2019, the OCC issued a final rule to allow federal savings associations with total consolidated assets of $20 billion or less, as reported by the association to the OCC on its call report as of December 31, 2017, to elect to operate as covered savings associations. A covered savings association generally has the same rights and privileges as a national bank that has its main office situated in the same location as the home office of the covered savings association, with some exceptions. It is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that apply to a national bank, with some exceptions, and must comply with certain rules and regulations applicable to the powers and investments of a national bank. A covered savings association is not required to comply with the lending and investment limits in HOLA and is not required to be a qualified thrift lender under HOLA. Finally, a covered savings association is not permitted to retain or engage in any subsidiaries, assets, or activities that are not permissible for a national bank. ASB has initiated a preliminary examination of the benefits and disadvantages of such an election with the preservation of being held by a unitary thrift holding company in mind. ASB is awaiting official FRB commentary, and has not reached a decision on the election.



FINANCIAL CONDITION
Liquidity and capital resources.
 In the first quarter of 2020, the capital markets, including the commercial paper markets, experienced high levels of volatility, and in some cases, disruption. As a result, in March 2020, due to elevated concerns regarding corporate credit risk, the commercial paper markets experienced significantly less liquidity, particularly for tier-3 issuers. As a consequence, HEI and Hawaiian Electric were unable to place commercial paper at reasonable rates and instead borrowed under their respective backup revolving credit facilities (floating rate at an adjusted London interbank offered rate, as defined in the agreements, plus 137.5 basis points or an alternate base rate, as defined in the agreements, plus 37.5 basis points). In the second quarter of 2020, conditions gradually improved in the commercial paper market for tier-3 issuers, and as a result, HEI returned to the commercial paper markets for its short-term borrowings at average rates that are lower than the average rates before the pandemic. As of June 30, 2020, HEI and Hawaiian Electric had $16.5 million and nil in commercial paper outstanding, respectively.
(dollars in millions) September 30, 2019 December 31, 2018 % change
Total assets $7,135
 $7,028
 2
Investment securities 1,343
 1,530
 (12)
Loans held for investment, net 5,031
 4,791
 5
Deposit liabilities 6,196
 6,159
 1
Other bank borrowings 129
 110
 17

As of June 30, 2020, there was no balance on HEI’s revolving credit facility and the available committed capacity under the revolving credit facility was $150 million. As of June 30, 2020, there was no balance on Hawaiian Electric’s revolving credit facilities and the available committed capacity under the revolving credit facilities was $275 million. As of June 30, 2020, ASB’s unused FHLB borrowing capacity was approximately $2.2 billion.
The Company expects that its liquidity will continue to be moderately impacted due to COVID-19. For the Utilities, the high level of unemployment in the state and the moratorium on customer disconnections (which moratorium is currently in place through September 1, 2020) are expected to result in higher accounts receivable balances, bad debt expense and write-offs. Additionally, lower kWh sales generally result in delayed timing of cash flows, resulting in higher working capital requirements (see “Recent Developments—COVID-19” in the Electric Utility MD&A). At ASB, liquidity remains at satisfactory levels. ASB’s cash and cash equivalents was $507.0 million as of June 30, 2020, up from $178.4 million as of December 31, 2019. ASB remains well above the “well capitalized” level, but there continues to be significant uncertainty regarding COVID-19’s impact on loan performance and the allowance for credit losses (see “Recent Developments — COVID-19” in the Bank MD&A).
To preserve and enhance the Company’s liquidity position, in light of the significant and ongoing uncertainty regarding the potential scale and duration of the COVID-19 pandemic and its impact on the global economy, the Company took a number of steps. First, on April 20, 2020, HEI borrowed $65 million under a 364-day term loan to refinance the outstanding amounts under its revolving credit facility and thereby increase the available committed borrowing capacity under its revolving credit facility. Additionally, on April 20, 2020, the Utilities added an incremental $75 million in committed revolving credit capacity at Hawaiian Electric with a 364-day revolving credit facility (see Note 5 of the Condensed Consolidated Financial Statements). The Utilities also launched and closed a $160 million private placement of taxable debt on May 14, 2020, the proceeds of which were used to finance capital expenditures, repay short-term debt used to finance or refinance capital expenditures, and reimburse funds for payment of capital expenditures. In addition, $50 million of an existing 364-day term loan was refinanced with a new $50 million term loan maturing in April 2021. As of June 30, 2020 the total amount of available borrowing capacity under the Company’s committed lines of credit was approximately $408 million, which was an increase of approximately $194 million compared to December 31, 2019. HEI and the Utilities have no remaining long-term debt maturities in 2020.
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In addition to the foregoing financing transactions, in order to further enhance the Company’s liquidity position, the Company has deferred, pursuant to section 2302 of the CARES Act, the payment of the applicable employer portion of Old-Age, Survivors and Disability Insurance payroll tax deposits that are due in 2020, but arose subsequent to the enactment of the CARES Act, which is estimated to be approximately $10 million. Fifty percent of the deferred payroll taxes will be paid in each of December 2021 and December 2022. The Company is also deferring approximately $5.8 million per month in planned monthly pension contributions, to be paid later in the year, to further strengthen its liquidity position. If further liquidity is necessary, which is not contemplated at this time, the Utilities could also reduce the pace of capital spending related to non-essential projects. Additionally, the Company has the option to issue new shares rather than purchase currently outstanding shares on the open market to satisfy share issuances under its Dividend Reinvestment and Stock Purchase Plan (DRIP) program. The estimated amount of capital that could be preserved by issuing new shares, rather than utilizing open market purchases, is estimated to be approximately $30 million on an annual basis, based on historical demand, but such future amount is dependent on a number of factors, including, without limitation, future share prices, number of shares/participants in the DRIP program, and the amount of new investment in HEI’s stock by DRIP participants.
The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, as well as bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other cash requirements. However, the COVID-19 pandemic is a rapidly evolving situation, and the Company cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impact on the Company’s cost of capital and its ability to access additional capital, or the future impacts on the Company’s financial position, results of operations, and cash flows. See Item 1A. “Risk Factors” in Part II for further discussion of risks and uncertainties.
The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:
(dollars in millions)June 30, 2020December 31, 2019
Short-term borrowings—other than bank$131  3 %$186  4 %
Long-term debt, net—other than bank2,070  46  1,964  44  
Preferred stock of subsidiaries34  1  34  1  
Common stock equity2,291  50  2,280  51  
 $4,526  100 %$4,464  100 %

HEI’s commercial paper borrowings and line of credit facility were as follows:
 Average balanceBalance
(in millions) Six months ended June 30, 2020June 30, 2020December 31, 2019
Commercial paper$35  $17  $97  
Line of credit draws13  —  —  
Undrawn capacity under HEI’s line of credit facility150  150  
Note:This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Financial Condition—Liquidity and capital resources.” The maximum amount of HEI’s external short-term borrowings during the first six months of 2020 was $99 million.
HEI has a $150 million line of credit facility with no amounts outstanding at June 30, 2020. See Note 5 of the Condensed Consolidated Financial Statements.
There were no new issuances of common stock through the DRIP, HEIRSP or the ASB 401(k) Plan in the six months ended June 30, 2020 and 2019 and HEI satisfied the share purchase requirements of the DRIP, HEIRSP and ASB 401(k) Plan through open market purchases of its common stock.
For the first six months of 2020, net cash provided by operating activities of HEI consolidated was $197 million. Net cash used by investing activities for the same period was $629 million, primarily due to capital expenditures, ASB’s purchases of available-for-sale investment securities and ASB’s net increase in loans, partly offset by ASB’sreceipt of repayments from and sales of available-for-sale investment securities. Net cash provided by financing activities during this period was $808 million as a result of several factors, including net increases in ASB’s deposit liabilities and other bank borrowings and the issuances of short-term and long-term debt, partly offset by net decrease in short-term borrowings, repayment of short-term and long-term debt and funds transferred for repayment of long-term debt and payment of common stock dividends. During the first six
60

months of 2020, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $54 million and $28 million, respectively.
Dividends.  The payout ratios for the first six months of 2020 and full year 2019 were 88% and 64%, respectively. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the Company and current and expected future economic conditions, including impacts from the COVID-19 pandemic.
MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES
In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.
In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.
For information about these material estimates and critical accounting policies, see pages 38 to 39, 51 to 52, and 67 to 68 of HEI’s MD&A included in Part II, Item 7 of HEI’s 2019 Form 10-K.
Allowance for credit losses. The Company considers the policies related to the allowance for credit losses as critical to the financial statement presentation. The allowance for credit losses applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes, but is not limited to loans, loan commitments and held-to-maturity securities. In addition, the accounting for credit losses on AFS debt securities and purchased financial assets with credit deterioration were amended. The other-than-temporary impairment model of accounting for credit losses on AFS debt securities was replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The credit loss models use a probability-of-default, loss given default and exposure at default methodology to estimate the expected credit losses. Within each model or calculation, loans are further segregated based on additional risk characteristics specific to that loan type, such as risk rating, FICO score, bankruptcy score, age of loan and collateral. The Company uses both internal and external historical data, as appropriate, and a blend of economic forecasts to estimate credit losses over a reasonable and supportable forecast period and then reverts to a longer-term historical loss experience to arrive at lifetime expected credit losses. The reversion period incorporates forward-looking expectations about repayments (including prepayments) as determined by the Company’s asset liability management system. See “Recent Accounting Pronouncements” in Note 1 of the Condensed Consolidated Financial Statements for further discussion of the Company’s allowance for credit losses.
Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.
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Electric utility
Recent developments—COVID-19
See also Recent developments—COVID-19 in HEI’s MD&A.
Economic conditions in Hawaii continue to be severely impacted by the COVID-19 pandemic. Statewide daily passenger counts remain depressed, and unemployment stood at 13.9% as of June 30, 2020. As a consequence of the significant decline in economic activity, the demand for electricity was adversely impacted. In the second quarter of 2020, kWh sales were down 11.6% compared with the same quarter in 2019. For the full year, the Utilities expect the level of kWh sales to be 6%-12% below sales levels achieved in 2019. Although the Utilities continue to expect lower sales due to COVID-19, the Utilities expect the RPS achievement to be closer to, but still above, the 30% statutory requirement by December 31, 2020.
While the Utilities do not expect electric energy revenues to be significantly impacted due to the decoupling mechanism, which allows recovery of the difference between PUC approved target revenues and recorded adjusted revenues regardless of the level of kWh sales, the timing of customer collections would be delayed (or accelerated) if the level of kWh sales decreases below (or increases above) the estimated kWh sales. See “Decoupling” in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling. Annually, the Utilities submit a decoupling filing to the PUC, which requests recovery by the utility (or refund to customers) of the difference between recorded adjusted revenues and target revenues under the RBA. The difference is collected or refunded through an adjustment to customer rates in the following year based on estimated sales, starting on June 1st of that following year, which has an impact on the timing of the Utilities’ cash flow. Additionally, although the Utilities’ decoupling mechanism allows for collection under the RBA, the RBA balance accrues interest only at the short-term debt rate from the last rate case (1.75% for Hawaiian Electric, 1.5% for Hawaii Electric Light and 3.0% for Maui Electric). As of June 30, 2020, the RBA credit balance related to decoupling revenues was approximately $17 million, a decrease in the credit balance by $7.8 million, or 32% since March 31, 2020. While the billed accounts receivable balances as of June 30, 2020 of $138 million is 9.7% lower than the billed accounts receivable balances as of December 31, 2019, due to lower fuel prices resulting in lower bills, the past due accounts receivable balance has increased by $6 million or 19% since December 31, 2019. The increase is primarily driven by the state mandated stay-at-home order, which was lifted on July 1, 2020, as well as the pandemic’s impact on the tourism industry resulting in higher unemployment rate, moratorium on customer disconnections (which moratorium is currently in place through September 1, 2020) and, for certain customers, the inability to make payment on their accounts. To address the financing requirement related to the delayed timing of cash flows collected under the decoupling mechanism through the RBA and the modest slowing or reduction in accounts receivable collections from customers, the Utilities have completed a number of steps to enhance their liquidity position. See “Financial Condition—Liquidity and capital resources” for additional information.
The Utilities provide an essential service to the State of Hawaii, and have continued to operate to protect the health and safety of employees and customers and to ensure system reliability, and have been following the Governor’s directive that the Utilities take necessary measures to ensure they can operate in the normal course. The Utilities have also implemented certain aspects of their business continuity plans, which includes the activation of its Incident Management Team to closely manage the response to the pandemic and have implemented practices related to employee and facilities hygiene in order to ensure the reliability and resilience of their operations. For example, plant operators and operations crews have been separated into distinct teams with no overlap of personnel in order to mitigate transmission risk amongst critical personnel and to minimize the risk of not having appropriate backup personnel available to perform essential functions. Plans have been developed in the event sequestration of critical personal is required. In the second quarter of 2020, the PUC approved the deferral of certain COVID-19 related expenses, such as higher bad debt expense, higher financing costs, non-collection of late payment fees, and sequestration costs for mission-critical employees. As of June 30, 2020, these costs, which have been deferred and recorded as a regulatory asset, totaled approximately $6.5 million (see also discussion under Item 1A. “Risk Factors” and “Regulatory assets for COVID-19 costs” in Note 3 of the Condensed Consolidated Financial Statements). Looking forward, the prolonged impact of COVID-19 could adversely affect the ability of the Utilities’ contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations, or require modifications to existing contracts, which could adversely affect the Utilities’ business, increase expenses, and impact the Utilities’ ability to achieve their RPS goals beyond 2020. Additionally, while the state’s aggressive response to the pandemic has dramatically reduced the spread of the coronavirus, the measures taken have had a severe economic impact on the state’s businesses and residents, which may influence the PUC’s actions regarding requested rate increases. See “Item 1A. Risk Factors” in Part II for additional discussion of risks.
At this time, the Utilities are not able to predict what the full impact of the COVID-19 pandemic will have on its results of operations, financial position and cash flows because it is uncertain the extent to which the virus can be contained and the extent to which protective measures to prevent the spread of the virus will be in place.
For a discussion regarding the impact of economic conditions caused by the COVID-19 pandemic on the Utilities’ liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.”
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RESULTS OF OPERATIONS
Three months ended June 30,Increase
20202019(decrease)(dollars in millions, except per barrel amounts)
$534  $634  $(100) 
Revenues. Net decrease largely due to:
$(76) 
lower fuel oil prices and lower kWh generated1
(29) 
lower purchased power energy prices and lower kWh purchased2
(2) higher cost savings from ERP system implementation to be returned to customers in future rates
5  higher electric rates
1  higher PIM revenue due to an adjustment made in 2019 related to 2018 reliability performance incentives
1  higher MPIR revenue (increase for West Loch PV project and Grid Modernization project)
112  182  (70) 
Fuel oil expense1. Decrease largely due to lower fuel oil prices coupled with lower kWh generated
137  163  (26) 
Purchased power expense1, 2. Decrease largely due to lower purchased power energy price coupled with lower kWh purchased
110  119  (9) 
Operation and maintenance expenses. Net decrease largely due to:
(4) less generating unit overhauls performed in 2020
(3) PUC approval to defer COVID-19 related bad debt expenses recorded in the first quarter to a regulatory asset
(2) lower labor due to lower staffing and reduction in overtime
(2) less station maintenance work performed
1  higher medical premium costs
1  leased office demolition costs
107  114  (7) 
Other expenses. Decrease due to lower revenue taxes offset in part by higher depreciation in 2020 for plant investment in 2019
68  56  12  
Operating income. Increase due to lower operation and maintenance, coupled with higher electric rates, PIM revenue and MPIR revenue, offset in part by higher depreciation expenses
53  41  12  
Income before income taxes. Increase due to lower operation and maintenance expense, higher electric rates, higher PIM revenue, higher MPIR revenue, and lower interest expense related to the hybrid securities redemption replaced with lower cost debt (in May 2019) and refinancing of revenue bonds (in July 2019) at lower rates, offset in part by higher depreciation expense and lower AFUDC
42  33  9  
Net income for common stock. Increase due to lower operating expenses, coupled with higher electric rates, higher PIM revenue and higher MPIR revenue
1,874  2,119  (245) 
Kilowatthour sales (millions)3
$63.12  $88.38  $(25.26) Average fuel oil cost per barrel
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Six months ended June 30Increase 
20202019(decrease)(dollars in millions, except per barrel amounts)
$1,132  $1,212  $(80) 
Revenues. Net decrease largely due to:
$(63) 
lower fuel oil prices and lower kWh generated1
(21) 
lower purchased power energy prices and lower kWh purchased2
(4) higher cost savings from ERP system implementation to be returned to customers in future rates
7  higher electric rates
2  higher MPIR revenue (increase for West Loch PV project and Grid Modernization project)
286  342  (56) 
Fuel oil expense1. Decrease largely due to lower fuel oil prices coupled with lower kWh generated
277  297  (20) 
Purchased power expense1 ,2. Decrease largely due to lower purchased power energy prices coupled with lower kWh purchased
237  237  —  
Operation and maintenance expenses.
(5) less generating unit overhauls performed in 2020
(2) lower labor due to lower staffing and reduction in overtime
(2) less station maintenance work performed
1  higher medical premium costs
1  leased office demolition costs
2  higher outside services for system support (Interactive Voice Response, Customer Information System, Energy Management and development of portal for CBRE)
2  increase in vegetation management work
3  2019 PUC approval of deferral treatment for previously-incurred expense to modify existing generating units on Maui to run at lower loads in order to accept more renewable generation
220  223  (3) 
Other expenses. Decrease due to lower revenue taxes offset in part by higher depreciation expense in 2020 for plant investments in 2019
112  112  —  
Operating income. Higher electric rates and higher MPIR revenue offset by higher depreciation expense
83  83  —  
Income before income taxes. Higher electric rates, higher MPIR revenue and lower interest expense due to the hybrid securities redemption replaced with lower cost debt (in May 2019) and refinancing of revenue bonds (in July 2019) at lower rates, offset by higher depreciation expense and lower AFUDC
66  65  1  
Net income for common stock. Increase due to higher electric rate and MPIR revenue offset in part by higher depreciation expense. See below for effective tax rate explanation
3,880  4,035  (155) 
Kilowatthour sales (millions)3
$72.77  $84.44  $(11.67) Average fuel oil cost per barrel
465,953  464,281  1,672  Customer accounts (end of period)
1The rate schedules of the electric utilities currently contain ECRCs through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.
2The rate schedules of the electric utilities currently contain PPACs through which changes in purchase power expenses (except purchased energy costs) are passed on to customers.
3 kWh sales were lower when compared to the same periods in the prior year largely due to the effects of the COVID-19 pandemic. The enormous reduction to visitor arrivals due to the mandatory in-bound and inter-island travel quarantine has significantly impacted the tourism industry, led to record unemployment claims, and shuttered many businesses and hotels. As restrictions are lifted and visitors begin to arrive, sales are expected to slowly rebound but at lower levels than the prior year.

The Utilities’ effective tax rate for each of the second quarters of 2020 and 2019 was 19%. The Utilities’ effective tax rates for the first six months of 2020 and 2019 were at 19% and 21%, respectively. The effective tax rate was lower for the six
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months ended June 30, 2020 compared to the same period in 2019 due primarily to higher 2020 amortization of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in federal income tax rate. The resulting benefit of lower tax expense is passed on to customers.
Hawaiian Electric’s consolidated ROACE was 7.9% and 7.8% for the twelve months ended June 30, 2020 and June 30, 2019, respectively.
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of June 30, 2020 amounted to $4 billion, of which approximately 28% related to generation PPE, 63% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 11% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission. 
See “Economic conditions” in the “HEI Consolidated” section above.
Executive overview and strategy. The Utilities provide electricity on all the principal islands in the state, other than Kauai, to approximately 95% of the state’s population and operate five separate grids. The Utilities’ mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a modern, resilient, flexible and dynamic electric grid that enables an optimal mix of distributed energy resources, such as private rooftop solar, demand response and grid-scale resources to enable the creation of smart, sustainable, resilient communities and achieve the statutory goal of 100% renewable energy by 2045.
Transition to renewable energy. The Utilities are fully committed to a 100 percent renewable energy future for Hawaii and are partnering with the State of Hawaii in achieving their Renewable Portfolio Standard goal of 100% renewable energy by 2045. Hawaii’s RPS law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by December 31, 2020, 2030, 2040 and 2045, respectively.
The Utilities have made significant progress on the path to clean energy and have been successful in adding significant amounts of renewable energy resources to their electric systems and exceeded the 2015 RPS goal two years early. The Utilities’ RPS for 2019 was approximately 28% and the Utilities are on track to achieve the 2020 RPS goal of 30%. The Utilities will continue to actively procure additional renewable energy post-2020 and expect to meet or exceed the next statutory RPS goal of 40% in advance of the 2030 compliance year. (See “Developments in renewable energy efforts” below).
If the Utilities are not successful in meeting the RPS targets as mandated by law, the PUC could assess a penalty of $20 for every MWh that an electric utility is deficient. Based on the level of electricity sales in 2019, a 1% shortfall in meeting the 2020 RPS requirement of 30% would translate into a penalty of approximately $1.75 million. The PUC has the discretion to reduce the penalty due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target had been achieved, which in turn would be expected to subject Hawaiian Electric and Maui Electric to limited commodity fossil fuel price exposure under a fuel cost risk-sharing mechanism. Currently, the fuel cost risk-sharing mechanism apportions 2% of the fuel cost risk to the two utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.1 million.
The Utilities are fully aligned with, and supportive of, state policy to achieve a 100% renewable energy future and have made significant progress in its transformation. This alignment with state policy is reflected in management compensation programs and the Utilities’ long-range plans, which include aspirational targets in order to catalyze action and accelerate the transition away from fossil fuels at a pace more rapid than dictated by current law. The long-range plans, including aspirational targets, serve as guiding principles in the Utilities’ continued transformation, and are updated regularly to adapt to changing technology, costs and other factors. While there is no financial penalty for failure to achieve the Utilities’ long-range aspirational objectives, the Utilities recognize that there is an environmental and social cost from the continued use of fossil fuels.
The State of Hawaii’s policy is supported by the regulatory framework and includes a number of mechanisms designed to provide the Utilities financial stability during the transition toward the State’s 100% renewable energy future. Under the sales decoupling mechanism, the Utilities are allowed to recover from customers, target test year revenues, independent of the level of kWh sales, which have generally declined (with the exception of 2019 and the first quarter of 2020), as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms reduce regulatory lag, such as the rate adjustment mechanism to provide revenues for escalation in certain O&M expenses and rate base changes between rate cases, and the major project interim recovery mechanism, which allow the Utilities to recover and earn on certain approved major capital projects placed into service in between rate cases. See “Decoupling” in Note 3 of the Consolidated Financial Statements.
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Integrated Grid Planning. Achieving 100% renewable energy will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities filed their Integrated Grid Planning (IGP) Report with the PUC on March 1, 2018, which provides an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy pathways that incorporates customer and stakeholder input.
The PUC opened a docket to review the IGP process that the Utilities had proposed, and the resulting plans. In March 2019, the PUC accepted the Utilities’ IGP Work plan submitted on December 14, 2018, which describes the timing and scope of major activities that will occur in the IGP process. The IGP utilizes an inclusive and transparent Stakeholder Engagement model to provide an avenue for interested parties to engage with the Utilities and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical Advisor Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues and process steps in the IGP. In March 2020, the Utilities launched a broad public engagement program, which consisted of a combination of in-person and online engagement. This provided customers opportunities to connect with the IGP team.
Demand response programs. Pursuant to PUC orders, the Utilities are developing an integrated Demand Response (DR) Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will take the form of either rates or incentive-based programs that will compensate customers for their participation individually, or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets.
In October 2017, the PUC approved the Utilities’ request made in December 2015 to defer and recover certain computer software and software development costs for a DR Management System in an amount not to exceed $3.9 million, exclusive of allowance for funds used during construction, through the Renewable Energy Infrastructure Program (REIP) Surcharge. The Utilities placed the DR Management System in service in the first quarter of 2019. On October 30, 2019, the Utilities filed the final cost report, reflecting total project costs of $3.7 million. On February 27, 2020, the PUC approved the Utilities’ request to recover deferred and other related costs of the DR Management System through the REIP Surcharge effective March 1, 2020 until such costs are included in determining base rates. On June 26, 2020, the Utilities submitted an updated REIP rate effective August 1, 2020 to the PUC.
On January 25, 2018, the PUC approved the Utilities’ revised DR Portfolio tariff structure. The PUC supported the approach of working with aggregators to implement the DR portfolio. In 2019, the Utilities signed a multi-year Grid Services Purchase Agreement (GSPA) with a third party aggregator. These contracts pay service providers to aggregate grid-supporting capabilities from customer-sited Distributed Energy Resources. The first of these five-year contracts has been executed (PUC approval obtained on August 9, 2019) and is expected to not only deliver benefits through efficient grid operations, but also avoided fuel costs over that 5-year period. The Utilities selected the next set of aggregators in the first quarter of 2020, commenced GSPA contract negotiations, and filed two executed contracts on July 9, 2020. This complements the Utilities’ transformation and supports customer choice.
Grid modernization. The overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater DER and renewable energy integration. Under the Grid Modernization Strategy, the Utilities expects that new technology will help triple private rooftop solar and make use of rapidly evolving products, including storage and advanced inverters. The Utilities have begun work to implement the Grid Modernization Strategy Phase 1, which received PUC approval on March 25, 2019. The estimated cost for this initial phase is approximately $86 million and is expected to be incurred over five years. The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System as part of the second phase of their Grid Modernization Strategy implementation. The estimated cost for the implementation over five years of the Advanced Distribution Management System, which includes capital, deferred and O&M costs, is $46 million. Additional applications will be filed later to implement subsequent phases of the Grid Modernization Strategy. On December 30, 2019, the PUC suspended the Utilities’ application for the Advanced Distribution Management System pending the Utilities’ filing of a supplemental application for the broad deployment of field devices.
Community-based renewable energy. In December 2017, the PUC adopted a community-based renewable energy (CBRE) program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases.
The first phase, which commenced in July 2018, totals 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020.
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By PUC order, CBRE Phase 2 commenced on April 9, 2020 with the goal to develop a robust CBRE market with competitive pricing anticipating that clean energy projects and programs, such as CBRE, can meaningfully contribute to the State’s recovery from the COVID-19 Emergency. CBRE Phase 2 capacity is substantially larger than Phase 1 and allows up to 235 MW across all Hawaiian Electric service territories. The capacities are allocated by island and allow for small and large system sizes to encourage a variety of system sizes. Projects will be selected through a competitive process with increased rigor around price and non-price criteria. To provide opportunities for low- to moderate-income (LMI) customers to participate in the program, separate project proposals may be submitted specifically targeting LMI customers. LMI projects do not have a size cap nor do they decrease the 235 MW capacity available to other projects. In addition to its administrative role, the Utilities and their affiliates are eligible to participate in the solicitations. The Utilities will also have opportunities to earn based on shared savings mechanisms for specific solicitations.
Microgrid services tariff proceeding. In July 2018, the PUC originally issued an order instituting a proceeding to investigate establishment of a microgrid services tariff, pursuant to Act 200 of 2018. The PUC granted motions to intervene in the docket by eight parties (there are currently four parties) and completed its initial procedural schedule in March 2019. In August 2019, the PUC issued an order stating that the focus for the remainder of the docket is to facilitate the ability of microgrids to disconnect from the grid and provide backup power to customers and critical energy uses during contingency events.
The PUC also required the parties to form two Working Groups: (1) a Market Facilitation Working Group to recommend draft tariff language for the Microgrid Services Tariff; and (2) an Interconnection Standards Working Group to develop a new section of Rule 14H specific to interconnection and islanding/reconnection of microgrids. The Utilities filed a Draft Microgrid Services Tariff and updated language for various DER Rules on March 30, 2020.Parties to the docket filed comments on and proposed revisions to the Draft Tariff on April 27, 2020.
Decoupling. See "Decoupling" in Note 3 of the Condensed Consolidated Financial Statements for a discussion of decoupling.
As part of decoupling, the Utilities also track their rate-making ROACEs as calculated under the earnings sharing mechanism, which includes only items considered in establishing rates. At year-end, each utility's rate-making ROACE is compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. Annual earnings of a utility over and above the ROACE allowed by the PUC are shared between the utility and its ratepayers on a tiered basis. Earnings sharing credits are included in the annual decoupling filing for the following year. Results for 2019, 2018 and 2017 did not trigger the earnings sharing mechanism for the Utilities.
Regulated returns. Actual and PUC-allowed returns, as of June 30, 2020, were as follows:
%Rate-making Return on rate base (RORB)*ROACE**Rate-making ROACE***
Twelve months ended 
June 30, 2020
Hawaiian ElectricHawaii Electric LightMaui ElectricHawaiian ElectricHawaii Electric LightMaui ElectricHawaiian ElectricHawaii Electric LightMaui Electric
Utility returns6.76  6.68  6.32  7.90  8.01  7.46  8.73  8.39  8.22  
PUC-allowed returns7.57  7.52  7.43  9.50  9.50  9.50  9.50  9.50  9.50  
Difference(0.81) (0.84) (1.11) (1.60) (1.49) (2.04) (0.77) (1.11) (1.28) 
*      Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates.
**    Recorded net income divided by average common equity.
***  ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation.
The gap between PUC-allowed ROACEs and the ROACEs actually achieved is primarily due to: the consistent exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual RAM revenues on June 1 annually rather than on January 1, and O&M increases and return on capital additions since the last rate case in excess of indexed escalations.
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Most recent rate proceedings.  As of June 30, 2020, the status of ongoing rate case for each utility was as follows:
Test year
(dollars in millions)		Date
(filed/
implemented)		Amount% over 
rates in 
effect		ROACE
(%)		RORB
(%)		Rate
 base		Common
equity
%		Stipulated agreement 
reached with
Consumer Advocate
Hawaiian Electric        
2020 1
Request8/21/19$77.6  4.1  10.50  7.97  $2,477  57.15  Yes
Hawaii Electric Light        
2019 2
Request12/14/18$13.4  3.4  10.50  8.30  $537  56.91  Yes
Interim increase1/1/200.00.09.507.5253456.83
Note:  The “Request” date reflects the application filing date for the rate proceeding. The “Interim increase” and “Final increase” date reflects the effective date of the revised schedules and tariffs as a result of the PUC-approved increase.
1 On May 27, 2020, Hawaiian Electric and the Consumer Advocate filed a Stipulated Settlement Letter, agreeing to no base rate increase. PUC’s decision on the settlement agreement is pending.
2 The Interim D&O issued on November 13, 2019 approved an adjustment to base rates to maintain revenues at current effective rates.
See “Most recent rate proceedings” in Note 3 of the Condensed Consolidated Financial Statements.
Performance-based regulation. See “Performance incentive mechanisms” and “Performance-based regulation proceeding” in Note 3 of the Condensed Consolidated Financial Statements.
Developments in renewable energy efforts.  Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Condensed Consolidated Financial Statements and the following:
New renewable PPAs.
•In December 2014, the PUC approved a PPA for Renewable As-Available Energy dated October 3, 2013 between Hawaiian Electric and Na Pua Makani Power Partners, LLC (NPM) for a proposed 24-MW wind farm on Oahu. The NPM wind farm was expected to be placed into service by August 31, 2019, but has been delayed due to a contested case hearing and appeal of the Board of Land and Natural Resources’ decision to approve NPM’s Habitat Conservation Plan and Incidental Take Permit/License. NPM received its Incidental Take Permit from the Department of Fish and Wildlife Service on September 7, 2018 and anticipates achieving commercial operations in late third quarter of 2020.
Keep the North Shore Country (KNSC) has appealed this decision and the case has been transferred to the Hawaii Supreme Court. On June 17, 2020, KNSC filed a Motion for Stay Upon Appeal. No additional activity has occurred regarding KNSC’s 40-day Notice of Intent to Sue that was filed on November 15, 2019. The Notice alleges the NPM Final Environmental Impact Study did not adequately address certain project aspects related to the transport route and security provisions. KNSC and Kahuku Community Association have also petitioned to appeal NPM’s Conditional Use Permits. A hearing date for motions was scheduled for April 9, 2020 but was delayed and has not yet been rescheduled.
Life of the Land (LOL) filed a Motion for Relief to argue the PPA approval was invalid and should be revised. The Utilities and the Consumer Advocate filed an opposition to this motion for relief. A hearing on the motion for relief was held on November 22, 2019. On April 16, 2020, the PUC issued an order denying LOL’s Motion for Relief. On April 27, 2020, LOL filed a Notice of Appeal of the PUC’s order with the Supreme Court of the State of Hawaii.
•In July 2018, the PUC approved Maui Electric’s PPA with Molokai New Energy Partners (MNEP) to purchase solar energy from a PV plus battery storage project. The 4.88 MW PV and 3 MW Battery Energy Storage System (BESS) 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. Management disputes the facts presented by MNEP and all claims within the complaint. 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.
•On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power Purchase Agreement (ARPPA), subject to approval by the PUC. The ARPPA extends the term of the existing PPA by 25 years to 2052, expands the firm capacity of the facility to 46 MW and delinks the pricing for energy delivered from the facility from fossil fuel prices to reduce cost to customers. The existing PPA (except for lower-tiered pricing for
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certain energy dispatched above 30 MW) will remain in effect until it is superseded by the ARPPA when the expanded capacity is in commercial operation.
Tariffed renewable resources.
•As of June 30, 2020, there were approximately 493MW, 106 MW and 120 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of June 30, 2020, an estimated 30% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 18% of the Utilities' total customers have solar systems.   
•The Utilities began accepting energy from feed-in tariff projects in 2011. As of June 30, 2020, there were 40 MW, 2 MW and 5 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.
Biofuel sources.
•In July 2018, the PUC approved Hawaiian Electric’s 3-year biodiesel supply contract with Pacific Biodiesel Technologies, LLC (PBT) to supply 2 million to 4 million gallons of biodiesel at Hawaiian Electric’s Schofield Generating Station and the Honolulu International Airport Emergency Power Facility (HIA Facility) and any other generating unit on Oahu, as necessary. The PBT contract became effective on November 1, 2018. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was extended through June 2021.
•Hawaiian Electric has a contingency supply contract with REG Marketing & Logistics Group, LLC to also supply biodiesel to any generating unit on Oahu in the event PBT is not able to supply necessary quantities. This contingency contract has been extended to November 2021, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
•Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued RFPs for 220 MW of renewable generation on Oahu, 50 MW of renewable generation on Hawaii Island, and 60 MW of renewable generation on Maui. The Utilities selected a final award group for Hawaii Island in August 2018 and for Maui and Oahu in September 2018.
In December 2018, the Utilities executed a total of seven renewable generation PPAs utilizing photovoltaic technology paired with a battery storage system for a total of 262 MW, of which six PPAs were approved by the PUC in March 2019 and one PPA for Maui Electric is still under PUC review. In February 2019, Hawaiian Electric filed an additional PPA for a proposed 12.5 MW PV plus battery storage project, which was approved by the PUC on August 20, 2019. Summarized information for a total of 8 PPAs, including one for Maui Electric that is pending PUC approval, is as follows:
UtilitiesNumber of contractsTotal photovoltaic size (MW)BESS Size (MW/MWh)Guaranteed commercial operation datesContract term (years)Total projected annual payment (in millions)
Hawaiian Electric4139.5139.5/5589/30/21 & 12/31/2120 & 25$30.9  
Hawaii Electric Light26060/2407/20/21 & 6/30/222514.1  
Maui Electric27575/3007/20/21 & 6/30/222517.6  
Total8274.5274.5/1,098$62.6  
In March 2019 and August 2019, the Utilities received PUC approval to recover the total projected annual payment of $57.8 million for 7 PPAs through the PPAC to the extent such costs are not included in base rates. The remaining $4.8 million of total projected annual payments for the remaining PPA is pending PUC approval.
•In continuation of its February 2018 request for proposal process, the Utilities issued its Stage 2 Renewable RFPs for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. This procurement plan sought approximately 900 MW of renewable energy, including 594 MW on Oahu, 135 MW on Maui and a range between 32 to 203 MW on Hawaii Island. This second phase, as approved by the PUC, was open to all renewable and storage resources, including efforts to add more renewable generation, renewable plus storage, standalone storage and grid services. The scope of these RFPs has been expanded to accelerate renewable energy procurement beyond the remainder of the 2022 targets identified in Stage 1 to include the energy requirement associated with the planned retirement of the Kahului Power Plant on Maui and the upcoming expiration of the agreement for the AES Hawaii
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facility on Oahu. For the Grid Services RFP, the targets had been expanded in alignment with the Renewable RFPs Utility proposals were submitted on November 4, 2019. Proposals from third parties for these RFPs were submitted on November 5, 2019. Final awards for the renewable projects were made on May 8, 2020. Final awards for the grid services projects were made starting in January 2020. On Oahu, seven solar-plus-storage projects and one standalone storage project totaling approximately 281 MW of generation and 1.8 GWh of storage advanced were selected. On Maui Island, three solar-plus-storage projects and one standalone storage project totaling approximately 100 MW of generation and 560 MWh of storage were selected. On Hawaii Island, two solar-plus-storage projects and one standalone storage project totaling approximately 72 MW of generation and 492 MWh of storage were selected. Two Utility Self-Build projects were among those selected; a 40-MW, 160-MWh standalone energy storage system on Maui and a 12-MW, 12-MWh storage system on Hawaii Island. Contract negotiations are ongoing. Executed contracts are projected to be filed for PUC approval in the fourth quarter of 2020.
•On November 27, 2019, the Utilities issued RFPs for renewable generation paired with energy storage on the islands of Lanai and Molokai. Projects may come online as early as 2022. The Utilities are seeking PV paired with storage or small wind (specified as 100 kW turbines or smaller) on Molokai and PV paired with storage on Lanai. Proposals for the Molokai RFP were received on February 14, 2020, and are currently being evaluated by the Utilities. The Lanai RFP has been temporarily postponed, while the Utilities reevaluate the system needs. The Utilities filed an update to the Lanai RFP on March 10, 2020. In light of a PUC order issued on April 9, 2020 in the CBRE docket, the Utilities have proposed in their July 9, 2020 filing to combine the previously issued Lanai RFP with the CBRE RFP described in the order to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE program on Lanai.
Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see “Environmental regulation” in Note 3 of the Condensed Consolidated Financial Statements.
Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC (PAR Hawaii), for the Utilities’ low sulfur fuel oil (LSFO), high sulfur fuel oil (HSFO), No. 2 diesel, and ultra-low sulfur diesel (ULSD) requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. This contract is a requirement contract with no minimum purchases. If PAR is unable to provide LSFO, HSFO, diesel and/or ULSD the contract allows the Utilities to purchase LSFO, HSFO, diesel and/or ULSD from another supplier. The contract will automatically renew upon the conclusion of the original term for successive terms of 1 year beginning on January 1, 2023 unless a party gives written termination notice at least 120 days before the beginning of an extension. The costs incurred under the contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs.
On June 9, 2020, the Utilities and Par Hawaii entered into a First Amendment to the fuel contract. The First Amendment amends only the pricing to create a two-tiered structure based on volume, with all tier-1 LSFO up to the tier-1 maximum to be purchased exclusively from PAR at the established pricing, and purchases in excess of that volume (tier-2) either from PAR at the established pricing, or from an alternative supplier. On August 4, 2020, the PUC approved the First Amendment, which has an effective date of July 15, 2020, on an interim basis. The PUC’s approval order allows the recovery of such costs associated with the First Amendment through the ECRC to the extent that the costs are not recovered in base rates. The PUC intends to review whether the First Amendment is reasonable and in the public interest in the final decision, but it will not subject the recovery of the costs between the interim decision and the final decision to retroactive disallowances.
FINANCIAL CONDITION
Liquidity and capital resources. In response to the COVID-19 pandemic, many countries, states, and cities have imposed strict social distancing measures that have had a significant impact on global economic activity. As a result, the capital markets, including the commercial paper markets, have experienced high levels of volatility, and in some cases, disruption. However, in March 2020, the Commercial Paper Funding Facility was announced, and the program was launched in April 2020. As a result, commercial paper rates began to decrease and were back down to what they were before the start of the COVID-19 pandemic. Thus, there was a significant increase in liquidity in the commercial paper market as many companies found other sources of liquidity, however, Hawaiian Electric has not needed to access the commercial paper market since closing on its private placement transaction in May 2020 (see Note 5 of Condensed Consolidated Financial Statements). As of June 30, 2020, following financing transactions further discussed below, there were no amounts outstanding on Hawaiian Electric’s revolving credit facilities and the available committed capacity under the revolving credit facilities was $275 million.
To preserve and enhance the Utilities’ liquidity position, given the significant and ongoing uncertainty regarding the potential scale and duration of the COVID-19 pandemic, the Utilities have taken a number of steps. First, on April 20, 2020, Hawaiian Electric added an incremental $75 million in committed revolving credit capacity with a 364-day revolving credit facility (see Note 5 of the Condensed Consolidated Financial Statements). The Utilities also launched and closed on a $160 million private placement of taxable debt in May 2020, the proceeds of which were used to finance capital expenditures, repay
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short-term debt used to finance or refinance capital expenditures and/or reimburse funds for payment of capital expenditures. In addition, $50 million of an existing 364-day term loan was refinanced with a new $50 million term loan maturing in April 2021. As of June 30, 2020, the total amount of available borrowing capacity under the Utilities’ committed lines of credit was $275 million. The Utilities had $14 million of long-term debt that was paid off when it matured on July 1, 2020.
In addition to the foregoing financing transactions, in order to further enhance the Utilities’ liquidity position, the Utilities are deferring, pursuant to section 2302 of the CARES Act, the payment of the applicable employer portion of Old-Age, Survivors and Disability Insurance payroll tax deposits that are due in 2020, but arose subsequent to the enactment of the CARES Act, which is estimated to be approximately $10 million. Fifty percent of the deferred payroll taxes will be paid in each of December 2021 and December 2022. The Utilities are also deferring approximately $5.7 million per month in planned monthly pension contributions, to be instead paid later in the year, to further strengthen is liquidity position. If further liquidity is necessary, the Utilities could also reduce the pace of capital spending related to non-essential projects.
The Utilities believe that their ability to generate cash, both internally from operations and externally from issuances of equity and debt securities, as well as bank borrowings, is adequate to maintain sufficient liquidity to fund their contractual obligations and commercial commitments, their forecasted capital expenditures and investments, their expected retirement benefit plan contributions and other cash requirements. However, the COVID-19 pandemic is a rapidly evolving situation, and the Utilities cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impacts on the Utilities’ ability, as well as the cost, to access additional capital, or the future impacts on the Utilities’ financial position, results of operations, and cash flows. See Item 1A. “Risk Factors” in Part II for further discussion of risks and uncertainties.
Hawaiian Electric’s consolidated capital structure was as follows:
(dollars in millions)June 30, 2020December 31, 2019
Short-term borrowings$50  1 %$89  2 %
Long-term debt, net1,575  42  1,498  41  
Preferred stock34  1  34  1  
Common stock equity2,060  56  2,047  56  
$3,719  100 %$3,668  100 %
Information about Hawaiian Electric’s commercial paper borrowings, borrowings from HEI and line of credit facility were as follows:
 Average balanceBalance
(in millions)Six months ended June 30, 2020June 30, 2020December 31, 2019
Short-term borrowings 1
   
Commercial paper$36  $—  $39  
Borrowings from HEI—  —  —  
Line of credit draws32  —  —  
Undrawn capacity under line of credit facilities—  275  200  
1   The maximum amount of external short-term borrowings by Hawaiian Electric during the first six months of 2020 was approximately $210 million. As of June 30, 2020, Hawaii Electric Light and Maui Electric had short-term borrowings from Hawaiian Electric of $12 million and $1.5 million, respectively, which intercompany borrowings are eliminated in consolidation. In addition to the short-term borrowings above, on May 19, 2020, Hawaiian Electric paid off and terminated the $100 million term loan facility dated as of December 23, 2019 and entered into a 364-day, $50 million term loan facility as of May 19, 2020. Hawaiian Electric drew the full $50 million on May 19, 2020.
Hawaiian Electric has a $200 million line of credit facility and a $75 million 364-day revolving credit facility with no amounts outstanding at June 30, 2020. See Note 5 of the Condensed Consolidated Financial Statements.
SPRBs. Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State of Hawaii (DBF) to finance (and refinance) capital improvement projects of Hawaiian Electric and its subsidiaries, but the sources of their repayment are the non-collateralized obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric’s guarantees of its subsidiaries’ obligations.
On May 24, 2019, the PUC approved the Utilities’ request to issue SPRBs in the amounts of up to $70 million, $2.5 million and $7.5 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2020, to finance the Utilities’ capital improvement programs. Pursuant to this approval, on October 10, 2019, the DBF issued, at par, Series 2019 SPRBs in the aggregate principal amount of $80 million with a maturity of October 1, 2049. As of June 30, 2020,
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Hawaiian Electric had $29 million of undrawn funds remaining with the trustee. Hawaii Electric Light and Maui Electric had no undrawn funds as of June 30, 2020.
On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval, prior to June 30, 2024, to finance the Utilities’ multi-project capital improvement programs (2019 Legislative Authorization).
On May 4, 2020, the Utilities requested PUC approval to issue up to $700 million of SPRBs (under the 2019 Legislative Authorization) in the amounts of up to $400 million, $150 million and $150 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2024 to finance the Utilities’ multi-project capital improvement programs.
Bank loans. On May 19, 2020, Hawaiian Electric paid off and terminated the $100 million term loan credit agreement dated as of December 23, 2019. In addition, Hawaiian Electric entered into a 364-day, $50 million term loan credit agreement that matures on April 19, 2021. Hawaiian Electric drew the full $50 million on May 19, 2020.
Taxable debt. On January 31, 2019, the Utilities received PUC approval (January 2019 Approval) to issue the remaining authorized amounts under the PUC approval received in April 2018 (April 2018 Approval) in 2019 through 2020 (Hawaiian Electric up to $205 million and Hawaii Electric Light up to $15 million of taxable debt), as well as a supplemental increase to authorize the issuance of additional taxable debt to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures, and to refinance the Utilities’ 2004 junior subordinated deferrable interest debentures (QUIDS) prior to maturity. In addition, the January 2019 Approval authorized the Utilities to extend the period to issue additional taxable debt from December 31, 2021 to December 31, 2022. The new total “up to” amounts of taxable debt requested to be issued through December 31, 2022 are $410 million, $150 million and $130 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.
Pursuant to this approval, on May 14, 2020, the Utilities issued through a private placement, $160 million of unsecured senior notes bearing taxable interest ($110 million for Hawaiian Electric, $10 million for Hawaii Electric Light and $40 million for Maui Electric) to finance their capital expenditures and/or to reimburse funds used for the payment of capital expenditures. See Note 5 of the Condensed Consolidated Financial Statements.
As of June 30, 2020, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $195 million, $115 million, and $70 million, respectively, of remaining taxable debt to issue prior to December 31, 2022. See summary table below.
(in millions)Hawaiian ElectricHawaii Electric LightMaui Electric
Total “up to” amounts of taxable debt authorized through 2022$410  $150  $130  
Less:
Taxable debt authorized and issued in 2018 under April 2018 Approval75  15  10  
Taxable debt issuance to refinance the 2004 QUIDS in 201930  10  10  
Taxable debt issuance in 2020110  10  40  
Remaining authorized amounts$195  $115  $70  
In July 2020, the Utilities requested PUC approval to issue, prior to December 31, 2021, unsecured senior notes bearing taxable interest (Hawaiian Electric up to $60 million, Hawaii Electric Light up to $30 million and Maui Electric up to $25 million), with the proceeds expected to be used, as applicable, to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures.
Equity. In October 2018, the Utilities received PUC approval for the supplemental increase to issue and sell additional common stock in the amounts of up to $280 million for Hawaiian Electric and up to $100 million each for Hawaii Electric Light and Maui Electric, with the new total “up to” amounts of $430 million for Hawaiian Electric and $110 million each for Hawaii Electric Light and Maui Electric, and to extend the period authorized by the PUC to issue and sell common stock from December 31, 2021 to December 31, 2022. As of June 30, 2020, Hawaiian Electric, Hawaii Electric Light, and Maui Electric
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have $309.8 million, $110 million, and $98.8, respectively, of remaining common stock to issue prior to December 31, 2022. See summary table below.
(in millions)Hawaiian ElectricHawaii Electric LightMaui Electric
Total “up to” amounts of common stock authorized to issue and sell through 2021$150.0  $10.0  $10.0  
Supplemental increase authorized280.0  100.0  100.0  
Total “up to” amounts of common stock authorized to issue and sell through 2022430.0  110.0  110.0  
Common stock authorized and issued in 2017, 2018 and 2019120.2  —  11.2  
Remaining authorized amounts$309.8  $110.0  $98.8  

Cash flows. The following table reflects the changes in cash flows for the six months ended June 30, 2020 compared to the six months ended June 30, 2019:
Six months ended June 30
(in thousands)20202019Change
Net cash provided by operating activities$181,468  $100,816  $80,652  
Net cash used in investing activities(181,091) (197,386) 16,295  
Net cash provided by financing activities51,100  84,054  (32,954) 

Net cash provided by operating activities. The increase in net cash provided by operating activities was primarily driven by lower cash paid for fuel oil stock largely due to lower fuel oil prices.
Net cash used in investing activities. The decrease in net cash used in investing activities was primarily driven by a decrease in capital expenditures related to construction activities.
Net cash provided by financing activities. The decrease in net cash provided by financing activities was primarily driven by higher net cash repayments for short-term borrowings.
Forecast capital expenditures. The Utilities continuously monitor the impact of COVID-19, and for the three-year period 2020 through 2022, the Utilities forecast up to $1.3 billion of net capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental regulations, unforeseen delays in permitting and timing of PUC decisions. Proceeds from the issuance of equity and long-term debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents are expected to provide the funds needed for the net capital expenditures, to pay down commercial paper or other short-term borrowings, as well as to fund any unanticipated expenditures not included in the 2020 to 2022 forecast (such as increases in the costs or acceleration of capital projects, or unanticipated capital expenditures that may be required by new environmental laws and regulations).
Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities.
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Bank
Recent Developments—COVID-19
While the extent and duration of the economic slowdown caused by COVID-19 is difficult to predict, the significant disruption to the global financial markets, including impacts to the capital markets and lower interest rates across the curve has begun to impact ASB’s results. The bank’s net interest margin of 3.21% for the quarter ended June 30, 2020 was 51 basis points lower than the net interest margin for the prior quarter and 61 basis points lower than the net interest margin for the same period last year. The lower interest rate environment will continue to have a negative impact on ASB’s net interest income and net interest margin in future quarters and could have an impact on the inputs and assumptions used in significant accounting estimates, such as assessing goodwill and long-live assets for impairment. ASB’s funding of short-term loans at a fixed rate of 1% under the Paycheck Protection Program (PPP) had reduced net interest margin modestly, but the income impact will be partially offset by the receipt of processing fees under the program. The state and local responses to the COVID-19 pandemic included a statewide stay-at-home order and a mandatory 14-day self-quarantine for any person traveling to Hawaii, which had a severe adverse economic impact to businesses and residents. Although many businesses have begun to reopen on a modified basis in compliance with applicable government orders, the mandatory 14-day self-quarantine order will remain in effect until the end of August, which will continue to impact the tourism industry and the unemployment rate in the state of Hawaii. ASB’s provision for credit losses increased due to forecasted credit deterioration as a result of the COVID-19 pandemic. For the three months ended June 30, 2020, the provision for credit losses was $15.1 million, compared to $7.7 million for the three months ended June 30, 2019. In response to COVID-19, ASB made short-term loan modifications to borrowers who were generally payment current at the time of relief. As of the end of June 2020, short-term loan modifications were made to approximately 13% of the total loans outstanding. These loans were not classified as past due or as a TDR under various provisions of the regulatory framework, as further described below. In addition to lower net interest income and higher provision for credit losses, ASB collected lower fee income as fees were waived to accommodate the hardships facing its customers. ASB also had higher direct and incremental operating expenses related to COVID-19 throughout 2020 as the Bank had purchased additional safety protection equipment to ensure its employees were protected and cleaning supplies to sanitize its facilities. The bank also provided additional compensation to frontline employees that serviced customers in the open branches and accrued expenses to purchase excess paid leave that employees will not be able to use during the remainder of 2020. ASB did realize lower expenses in other areas such as marketing, travel, business development and entertainment due to the bank delaying or reducing marketing efforts while focusing on the PPP loan program and there were restrictions on travel and dining at restaurants as result of the COVID-19 pandemic. Through June 30, 2020, the higher operating expenses, which were considered direct and incremental COVID-19 related costs, were approximately $3.8 million. For the balance of the year, ASB expects that direct and incremental COVID-19 related operating expenses will moderate from the levels experienced in the first half of 2020. In April 2020, ASB had temporarily closed 15 of its 49 branches and reduced banking hours at the branches that remained open in an effort to reduce social gathering and protect employees and customers. The bank has reopened three of the branches that were temporarily closed and permanently closed four branches. Two additional branches will be permanently closed and further branch closures may occur if the negative impacts of COVID-19 accelerate. The reduction in ASB’s branch network should not have a significant impact to the bank’s customers as there are other branches nearby and other channels such as online and mobile banking. ASB’s senior management team continues to meet on a regular basis to manage the response to the pandemic and discuss key focus areas such as the safety of the bank’s employees and customers as well as any impacts to the operations of the bank. Senior management also continues to meet weekly with ASB’s board of directors to keep them apprised of the impacts of the COVID-19 pandemic.
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The CARES Act was signed into law by President Trump on March 27, 2020. The CARES Act provides over $2 trillion in economic assistance for American workers, families, and small businesses, and job preservation for American industries. The PPP was established under the CARES Act and implemented by the United States Small Business Administration (SBA) to provide a direct incentive for small businesses to keep their workers on the payroll as a result of the COVID-19 crisis. The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020, which amended some of the prior rules and guidelines of the CARES Act. Loans issued through the PPP are 100% federally guaranteed and have a maturity of 2-5 years, depending on when the loan was made, at a fixed interest rate of 1%. Loan payments will be deferred until the earlier of (a) the date that the forgiven amount is remitted to the lender by the SBA; or (b) 10 months from the date the covered period ends. The SBA will forgive all loan amounts to a particular small business if such small business is compliant with the terms and conditions of the PPP. Small businesses have the earlier of 24 weeks from disbursement of the loan or December 31, 2020 to incur allowable expenses such as payroll costs, interest on mortgages, rent and utility expenses that would be covered by the loan forgiveness rules, with 60% of the loan forgiveness needing to be for payroll costs. There is a partial forgiveness if less than 60% of the loan disbursement was spent on payroll costs. Employers will have until December 31, 2020 to restore their workforce. Lenders will process and approve the PPP loans under delegated authority of the SBA. As an existing SBA certified lender, ASB worked with a number of small businesses, both customers and non-customers, to complete the loan application forms so that these businesses could participate in the program. The bank has secured more than $370 million in PPP loans for approximately 4,100 small businesses that support over 40,000 jobs, ASB received processing fees totaling approximately $13 million and will recognize these fees over the life of the loans.
To bolster the effectiveness of the SBA’s PPP, the Federal Reserve supplied liquidity to participating financial institutions through term financing backed by PPP loans to small businesses. The Paycheck Protection Program Liquidity Facility (PPPLF), authorized under section 13(3) of the Federal Reserve Act, lends to eligible borrowers on a non-recourse basis, taking PPP loans as collateral. The maturity date of an extension of credit under this facility will equal the maturity date of the PPP loan pledged to secure the extension of credit. The maturity date of the facility’s extension of credit will be accelerated if the underlying PPP loan goes into default and ASB sells the loan to the SBA to realize on the SBA guarantee. The maturity date of the facility’s extension of credit also will be accelerated to the extent of any loan forgiveness reimbursement received by ASB from the SBA.
Other provisions of the CARES Act provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes. See Note 4 of the Condensed Consolidated Financial Statements and “Economic conditions” in the “HEI Consolidated” section above.
ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.
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Three months ended June 30,Increase
(in millions)20202019(decrease)Primary reason(s)
Interest income$60  $66  $(6) The decrease in interest income was primarily the result of lower earning asset yields partly offset by an increase in loan portfolio balances. ASB’s average loan portfolio balance for the three months ended June 30, 2020 increased by $506 million compared to the same period in 2019 due to increases in the average commercial, commercial real estate and home equity line of credit loan portfolios of $390 million, $88 million and $68 million, respectively. Included in the commercial loan portfolio growth are the PPP loans with an average balance of $268 million. The yield on the loan portfolio was 80 basis points lower than the yield on the loan portfolio in the prior year. The decrease was primarily due to the declining interest rate environment which started in the second half of 2019 and has continued this year. ASB’s average investment securities portfolio balance for the three months ended June 30, 2020 decreased by $102 million compared to the same period in 2019 as ASB used the investment portfolio repayments to fund the growth in the loan portfolio. The yield on the investment securities portfolio decreased by 22 basis points due to the lower interest rate environment. The average balance of interest-earning deposits increased by $230 million for the three months ended June 30, 2020 compared to the same period in 2019 as cash balances grew due to deposit growth, which outpaced loan growth.
Noninterest income24  16  8  Noninterest income increased for the three months ended June 30, 2020 compared to noninterest income for the three months ended June 30, 2019 primarily due to the gain on sale of securities and an increase in mortgage banking income, partly offset by lower fee income from other financial services and deposit liabilities. In the second quarter of 2020, ASB sold all of its Visa Class B restricted shares and $160 million of investment securities for a pretax gain of $9.3 million. The sale of the investment securities reduced yield volatility and credit risk within the investment portfolio. The increase in mortgage banking income was due to the increase in residential mortgage loan sales in the secondary market as a result of higher loan production volumes. The lower fee income from other financial services and deposit liabilities was due to ASB’s decision to waive overdraft and other deposit account fees to accommodate the hardships customers are experiencing during the COVID-19 pandemic.
Less: gain on sale of investment securities, net(9) —  (9) Gain on sale of investment securities, net, which is included in Noninterest income above and in the Bank’s statements of income and comprehensive income in Note 4, is classified as gain on sale of investment securities, net in the condensed consolidated statements of income, and accordingly, is reflected below following operating income as a separate line item and excluded from Revenues.
Revenues75  82  (7) The decrease in revenues for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower interest income.
Interest expense3  5  (2) The decrease in interest expense for the three months ended June 30, 2020 compared to the same period in 2019 was due to a decrease in term certificate balances and lower yields on costing liabilities. Average deposit balances for the three months ended June 30, 2020 increased by $638 million compared to the same period in 2019 due to an increase in core deposits of $712 million, partly offset by a decrease in average term certificate balances of $74 million. Average cost of deposits for the three months ended June 30, 2020 was 18 basis points, or 10 basis points lower than the cost of deposits for the same period in 2019. Average other borrowings for the three months ended June 30, 2020 was flat compared to the same period in 2019 and the rate was 121 basis points lower. The interest-bearing liability rate for the three months ended June 30, 2020 of 27 basis points decreased 15 basis points compared to the same period in 2019.
Provision for credit losses15  8  7  The provision for credit losses increased for the three months ended June 30, 2020 compared to the provision for loan losses for the three months ended June 30, 2019. The provision for loan losses for 2020 was primarily for additional loan loss reserves for the consumer loan portfolio, reserves for increases in commercial real estate loan commitments and increased reserves in the commercial, commercial real estate and consumer loan portfolios for expected credit deterioration due to the COVID-19 pandemic. The provision for loan losses for 2019 was primarily additional loan loss reserves for the consumer loan portfolio, increased reserves for an impaired commercial loan and growth in the loan portfolio, partly offset by the release of loan loss reserves for the payoff of a commercial real estate loan and the completion of a commercial real estate construction project. Delinquency rates have decreased from 0.51% at June 30, 2019 to 0.38% at June 30, 2020, which exclude loans that were modified due to COVID-19. These loans were generally payment current at the time of the modification and qualify to not be treated as past due or as a TDR under relevant regulatory relief. The annualized net charge-off ratio for the three months ended June 30, 2020 was 0.49% compared to an annualized net charge-off ratio of 0.29% for the same period in 2019. The annualized net charge-off for 2019 benefited from recoveries in the commercial loan portfolio.
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Noninterest expense48  48  —  
Noninterest expense for the three months ended June 30, 2020 was flat compared to the same period in 2019. Higher expenses1 related to the COVID-19 pandemic, of approximately $3.7 million, were offset by lower compensation and benefits and marketing expenses. See Recent Developments-COVID-19 for a discussion of the additional expenses incurred due to the COVID-19 pandemic.
Expenses66  61  5  The increase in expenses for the three months ended June 30, 2020 compared to the same period in 2019 was due to higher provision for loan losses partly offset by lower interest expense.
Operating income8  21  (13) The decrease in operating income for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower interest income and higher provision for credit losses, partly offset by lower interest expense.
Gain on sale of investment securities, net9  —  9  Increase was due to the sale of ASB’s Visa Class B restricted shares and other investment securities.
Net income14  17  (3) The decrease in net income for the three months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower operating income, partly offset by gain on sale of investment securities, net.

1 Higher operating expenses, which were considered direct and incremental COVID-19 related costs, included approximately $2.3 million of incremental compensation expense and $1.1 million of enhanced cleaning and sanitation costs.
 Six months ended June 30Increase 
(in millions)20202019(decrease)Primary reason(s)
Interest income$125  $135  $(10) The decrease in interest income was primarily the result of a decrease in yield on earning assets and lower investment portfolio balances, partly offset by higher loan portfolio balances. ASB’s average loan portfolio balance for the six months ended June 30, 2020 increased by $382 million compared to the same period in 2019 due to increases in the average commercial, home equity line of credit, commercial real estate and residential loan portfolios of $244 million, $88 million, $70 million and $8 million, respectively. Included in the commercial loan portfolio growth are the PPP loans with an average balance of $134 million. The yield on loans was impacted by the declining interest rate environment which started during the last half of 2019 and has continued this year, resulting in a decrease in yields from the total loan portfolio of 63 basis points. The average investment portfolio balance for the six months ended June 30, 2020 decreased $112 million compared to the same period in 2019 due to repayments in the portfolio and the lack of new investment security purchases for most of 2019 as liquidity was used to fund the loan portfolio growth. The investment portfolio yield for 2020 was 17 basis points lower than the investment portfolio yield in the prior year. The average interest-earning deposit balance for the six months ended June 30, 2020 increased by $123 million compared to the same period in 2019 as cash balances grew due to deposit growth, which outpaced loan growth.
Noninterest income39  30  9  The increase in noninterest income for the six months ended June 30, 2020 compared to noninterest income for the six months ended June 30, 2019 was primarily due to gains on sales of investment securities and higher mortgage banking income, partly offset by lower fee income from financial services and deposit liabilities. ASB sold all of its Visa Class B restricted shares and $160 million of investment securities portfolio for a pretax gain of $9.3 million. The sale of the investment securities reduced yield volatility and credit risk within the investment portfolio. The higher mortgage banking income in 2020 was due to an increase in residential mortgage loans sold in the secondary market as a result of higher loan production volumes. The lower fee income from financial services and deposit liabilities was due to ASB’s decision to waive overdraft and other deposit account fees to accommodate the hardships customers are experiencing during the COVID-19 pandemic.
Less: gain on sale of investment securities, net(9) —  (9) Gain on sale of investment securities, net, which is included in Noninterest income above and in the Bank’s statements of income and comprehensive income in Note 4, is classified as gain on sale of investment securities, net in the condensed consolidated statements of income, and accordingly, is reflected below following operating income as a separate line item and excluded from Revenues.
Revenues155  165  (10) The decrease in revenues for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower interest income.
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Interest expense7  9  (2) The decrease in interest expense for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower term certificate balances and costing liability yields. Average deposit balances for the six months ended June 30, 2020 increased by $379 million compared to the same period in 2019 due to an increase in core deposits of $447 million, partly offset by a decrease in average term certificate balances of $68 million. Average cost of deposits for the six months ended June 30, 2020 was 20 basis points, or 8 basis points lower than the cost of deposits for the same period in 2019. Average other borrowings for the six months ended June 30, 2020 decreased by $7 million compared to the same period in 2019 due to a decrease in FHLB advances of $20 million, partly offset by an increase in repurchase agreements and federal funds purchased of $13 million. The interest-bearing liability rate for the six months ended June 30, 2020 of 31 basis points decreased by 12 basis points compared to the same period in 2019.
Provision for credit losses26  15  11  The provision for credit losses increased for the six months ended June 30, 2020 compared to the provision for credit losses for the six months ended June 30, 2019. The provision for credit losses for 2020 was primarily due to additional loss reserves for the consumer loan portfolio, reserves for increases in commercial real estate commitments and increased reserves for the commercial, commercial real estate and the consumer portfolios for expected credit deterioration due to the COVID-19 pandemic. The provision for credit losses for 2019 was primarily due to additional loss reserves for the consumer loan portfolio, increased reserves for an impaired commercial loan and a commercial real estate loan that was downgraded to substandard. Delinquency rates have decreased from 0.51% at June 30, 2019 to 0.38% at June 30, 2020, which exclude loans that were modified due to COVID-19. These loans were generally payment current at the time of the modification and qualify to not be treated as past due or as a TDR under relevant regulatory relief. The annualized net charge-off ratio for the six months ended June 30, 2020 was 0.46% compared to an annualized net charge-off ratio of 0.34% for the same period in 2019. The increase was due to higher net charge-offs in the consumer loan portfolio with risk-based pricing.
Noninterest expense94  94  —  
Noninterest expense for the six months ended June 30 2020 was flat compared to the same period in 2019. Higher expenses1 related to the COVID-19 pandemic, of approximately $3.8 million, were partly offset by lower marketing expenses and 2019 expenses included higher occupancy expenses as the bank had the costs for the new campus and properties being vacated. See Recent Developments-COVID-19 for a discussion of the additional expenses incurred due to the COVID-19 pandemic.
Expenses127  118  9  The increase in expenses for the six months ended June 30, 2020 compared to the same period in 2019 was due to higher provision for credit losses, partly offset by lower interest expense.
Operating income28  47  (19) The decrease in operating income for the six months ended June 30, 2020 compared to the same period in 2019 was primarily due to lower interest income and higher provision for credit losses, partly offset by lower interest expense.
Gain on sale of investment securities, net9  —  9  Increase was due to the sale of ASB’s Visa Class B restricted shares and other investment securities.
Net income30  38  (8) Net income for the six months ended June 30, 2020 was lower than the same period in 2019 due to lower operating income, partly offset by gain on sale of investment securities, net.
1 Higher operating expenses, which were considered direct and incremental COVID-19 related costs, included approximately $2.3 million of incremental compensation expense and $1.1 million of enhanced cleaning and sanitation costs.
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ASB’s return on average assets, return on average equity and net interest margin were as follows:
Three months ended June 30Six months ended June 30
(%)2020201920202019
Return on average assets0.72  0.96  0.79  1.07  
Return on average equity8.00  10.46  8.57  11.76  
Net interest margin3.21  3.82  3.46  3.90  

Three months ended June 30,
20202019
(dollars in thousands)Average
balance		Interest
income/
expense		Yield/
rate (%)		Average
balance		Interest
income/
expense		Yield/
rate (%)
Assets:
Interest-earning deposits$239,186  $60  0.10  $9,212  $55  2.36  
FHLB stock9,649  75  3.13  9,785  89  3.62  
Investment securities
Taxable1,346,145  5,978  1.78  1,449,233  7,105  1.96  
Non-taxable28,794  221  3.04  28,096  362  5.09  
Total investment securities1,374,939  6,199  1.80  1,477,329  7,467  2.02  
Loans
Residential 1-4 family2,175,756  21,635  3.98  2,177,030  22,480  4.13  
Commercial real estate937,990  8,298  3.52  850,037  10,113  4.72  
Home equity line of credit1,090,752  8,473  3.12  1,022,479  9,841  3.86  
Residential land13,326  184  5.53  13,816  172  4.98  
Commercial999,251  7,686  3.08  609,285  7,022  4.60  
Consumer232,360  7,286  12.61  270,914  9,008  13.34  
Total loans 1,2
5,449,435  53,562  3.94  4,943,561  58,636  4.74  
Total interest-earning assets 3
7,073,209  59,896  3.39  6,439,887  66,247  4.11  
Allowance for credit losses(80,083) (55,068) 
Noninterest-earning assets783,826  683,179  
Total assets$7,776,952  $7,067,998  
Liabilities and shareholder’s equity:
Savings$2,550,162  $619  0.10  $2,333,175  $486  0.08  
Interest-bearing checking1,096,350  93  0.03  1,040,865  266  0.10  
Money market159,876  89  0.22  146,726  255  0.69  
Time certificates740,297  2,270  1.23  814,518  3,280  1.62  
Total interest-bearing deposits4,546,685  3,071  0.27  4,335,284  4,287  0.40  
Advances from Federal Home Loan Bank24,231  21  0.36  33,791  222  2.63  
Securities sold under agreements to repurchase and federal funds purchased87,631  54  0.25  77,693  189  0.98  
Total interest-bearing liabilities4,658,547  3,146  0.27  4,446,768  4,698  0.42  
Noninterest bearing liabilities:
Deposits2,273,656  1,847,228  
Other144,256  123,371  
Shareholder’s equity700,493  650,631  
Total liabilities and shareholder’s equity$7,776,952  $7,067,998  
Net interest income$56,750  $61,549  
Net interest margin (%) 4
3.21  3.82  

79

Six months ended June 30
20202019
(dollars in thousands)Average
balance		Interest
income/
expense		Yield/
rate (%)		Average
balance
Interest
 income/
expense
Yield/
rate (%)
Assets:      
Interest-earning deposits$132,920  $152  0.23  $9,782  $117  2.39  
FHLB stock9,512  153  3.25  10,064  185  3.69  
Investment securities
Taxable1,367,306  14,997  2.19  1,481,400  17,315  2.34  
Non-taxable28,738  526  3.62  27,037  691  5.08  
Total investment securities1,396,044  15,523  2.22  1,508,437  18,006  2.39  
Loans   
Residential 1-4 family2,177,118  43,557  4.00  2,168,703  44,730  4.13  
Commercial real estate918,076  17,807  3.86  847,689  20,286  4.77  
Home equity line of credit1,095,224  17,693  3.25  1,007,338  19,334  3.87  
Residential land13,688  381  5.57  13,311  355  5.33  
Commercial843,277  14,416  3.42  599,054  13,882  4.65  
Consumer241,138  15,275  12.74  270,569  17,909  13.35  
Total loans 1,2
5,288,521  109,129  4.13  4,906,664  116,496  4.76  
Total interest-earning assets 3
6,826,997  124,957  3.66  6,434,947  134,804  4.20  
Allowance for credit losses(76,292)   (53,568)   
Noninterest-earning assets753,029    682,718    
Total assets$7,503,734    $7,064,097    
Liabilities and shareholder’s equity:      
Savings$2,472,957  $1,159  0.09  $2,334,106  $888  0.08  
Interest-bearing checking1,072,680  323  0.06  1,041,387  530  0.10  
Money market153,826  339  0.44  148,577  496  0.67  
Time certificates755,323  4,837  1.28  822,875  6,625  1.62  
Total interest-bearing deposits4,454,786  6,658  0.30  4,346,945  8,539  0.40  
Advances from Federal Home Loan Bank23,713  111  0.94  43,983  575  2.64  
Securities sold under agreements to repurchase and federal funds purchased91,822  277  0.61  78,232  364  0.94  
Total interest-bearing liabilities4,570,321  7,046  0.31  4,469,160  9,478  0.43  
Noninterest bearing liabilities:      
Deposits2,094,215    1,822,574    
Other144,433    128,529    
Shareholder’s equity694,765    643,834    
Total liabilities and shareholder’s equity$7,503,734    $7,064,097    
Net interest income $117,911    $125,326   
Net interest margin (%) 4
  3.46    3.90  

1     Includes loans held for sale, at lower of cost or fair value.
2     Includes recognition of net deferred loan fees of $0.7 million and $0.1 million for the three months ended June 30, 2020 and 2019 and $0.7 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans.
3     For the three and six months ended June 30, 2020 and 2019, the taxable-equivalent basis adjustments made to the table above were not material.
4     Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.
Earning assets, costing liabilities, contingencies and other factors.  Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets over a period of several years. In the prior year, interest rate increases had resulted in an increase in ASB’s net interest income and net interest margin. However, the recent interest rate reductions have negatively impacted ASB’s net interest income and net interest margin. Future interest reductions may continue to negatively impact ASB’s net interest income and net interest margin.
Loans and mortgage-backed securities are ASB’s primary earning assets.
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Loan portfolio.  ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. See Note 4 of the Condensed Consolidated Financial Statements for the composition of ASB’s loans.
Home equity— key credit statistics. Attention has been given by regulators and rating agencies to the potential for increased exposure to credit losses associated with home equity lines of credit (HELOC) that were originated during the period of rapid home price appreciation between 2003 and 2007 as they have reached the end of their 10-year, interest-only payment periods. Once the interest-only payment period has ended, payments are reset to include principal repayments along with interest. ASB does not have a large exposure to HELOCs originated between 2003 and 2007. Nearly all of ASB’s HELOC originations prior to 2008 consisted of amortizing equity lines that have structured principal payments during the draw period. These older equity lines represent 1% of the HELOC portfolio and are included in the amortizing balances identified in the loan portfolio table below.
 June 30, 2020December 31, 2019
Outstanding balance of home equity loans (in thousands)$1,065,264  $1,092,125  
Percent of portfolio in first lien position55.4 %53.7 %
Annualized net charge-off ratio— %0.01 %
Delinquency ratio0.36 %0.27 %

   End of draw period – interest onlyCurrent amortizing
June 30, 2020TotalInterest only2020-20212022-2024Thereafter
Outstanding balance (in thousands)$1,065,264$803,363$29,096$103,873$670,394$261,901
% of total100 %75 %2 %10 %63 %25 %
The HELOC portfolio makes up 20% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year period, after which time the HELOC outstanding balance converts to a fully amortizing variable-rate term loan with a 20-year amortization period. This product type comprises 77% of the total HELOC portfolio and is the current product offering. Borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully amortizing fixed-rate loan with level principal and interest payments. As of June 30, 2020, approximately 22% of the portfolio balances were amortizing loans under the Fixed Rate Loan Option.
Loan portfolio risk elements.  See Note 4 of the Condensed Consolidated Financial Statements.
Investment securities.  ASB’s investment portfolio was comprised as follows:
 June 30, 2020December 31, 2019
(dollars in thousands)Balance% of totalBalance% of total
U.S. Treasury and federal agency obligations$102,414  7 %$117,787  9 %
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies1,351,608  89  1,165,836  85  
Corporate bonds31,407  2  60,057  4  
Mortgage revenue bonds28,827  2  28,597  2  
Total investment securities$1,514,256  100 %$1,372,277  100 %
Currently, ASB’s investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are also backed by the full faith of the U.S. government. The increase in the investment securities portfolio was primarily due to the purchase of securities with excess liquidity.
In June 2020, the bank sold all of its Visa Class B restricted shares resulting in a pretax gain of approximately $7.1 million. ASB also sold corporate bonds and mortgage-backed securities during the second quarter for $160 million, which resulted in a pretax gain of approximately $2.2 million. The sale of the investment securities reduced yield volatility and credit risk within the investment portfolio. The proceeds from the sales were reinvested into the investment portfolio at current market yields.
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Deposits and other borrowings.  Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. Deposit retention and growth will remain challenging in the current environment due to competition for deposits and the low level of short-term interest rates. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase and federal funds purchased continue to be additional sources of funds. As of June 30, 2020 and December 31, 2019, ASB’s costing liabilities consisted of 98% deposits and 2% other borrowings. The weighted average cost of deposits for the first six months of 2020 and 2019 was 0.20% and 0.28%, respectively.
Federal Home Loan Bank of Des Moines. As of June 30, 2020 ASB had advances outstanding at the FHLB of Des Moines of $30 million compared to nil as of December 31, 2019. As of June 30, 2020, the unused borrowing capacity with the FHLB of Des Moines was $2.2 billion. The FHLB of Des Moines continues to be an important source of liquidity for ASB.
ASB had previously reported that in February 2020, the FHLB of Des Moines notified the bank that certain assets, which included high-quality home equity lines of credit, would no longer qualify as collateral for FHLB Advances, reducing ASB’s total FHLB borrowing capacity. In March 2020, the FHLB of Des Moines notified ASB that they have provisionally accepted the previously disqualified assets as collateral while they assess the eligibility of those assets. In July 2020, the FHLB of Des Moines announced the conclusion of their review of home equity lines of credit eligibility and effective October 1, 2020, the FHLB of Des Moines will no longer accept the fixed rate portion of any home equity lines of credit. If such an amendment were effective as of June 30, 2020, the amount of unused FHLB borrowing capacity would have been reduced by approximately $140 million. In addition, on June 12, 2020, the FHLB of Des Moines announced an update to their Loan to Value (LTV), a system-wide percentage applied to eligible pledged collateral to determine borrowing capacity, to reflect ongoing risks in the market due to COVID-19. Effective July 13, 2020, the LTV was lowered, which reduced the collateral value of the existing pledged loans and the borrowing capacity by $100 million. To increase the borrowing capacity at the FHLB of Des Moines, ASB pledged a portion of its commercial real estate loan portfolio in July 2020, which increased the borrowing capacity by $136 million. Additional collateral may be pledged in the third quarter of 2020 to increase the borrowing capacity.
Contingencies.  ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.
Other factors.  Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities.
As of June 30, 2020, ASB had an unrealized gain, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $21.3 million compared to an unrealized gain, net of taxes, of $2.5 million as of December 31, 2019. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.
During the first six months of 2020, ASB recorded a provision for credit losses of $25.5 million primarily due to additional loss reserves for the consumer loan portfolio, reserves for increases in commercial real estate commitments and increased reserves for the commercial, commercial real estate and consumer loan portfolios for expected credit deterioration due to the COVID-19 pandemic. During the first six months of 2019, ASB recorded a provision for credit losses of $14.6 million primarily due to increased loss reserves for the consumer loan portfolio and additional reserves for an impaired commercial loan and a commercial real estate loan that was downgraded.
 Six months ended June 30Year ended
December 31, 2019
(in thousands)20202019
Allowance for credit losses, prior to adoption of ASU No. 2016-13$53,355  $52,119  $52,119  
Impact of adopting ASU No. 2016-1319,441  —  —  
Provision for credit losses20,734  14,558  23,480  
Less: net charge-offs12,223  8,252  22,244  
Allowance for credit losses, end of period$81,307  $58,425  $53,355  
Ratio of net charge-offs during the period to average loans outstanding (annualized)0.46 %0.34 %0.45 %
ASB maintains a reserve for credit losses that consists of two components, the allowance for credit losses and an allowance for loan commitments (unfunded reserve). The level of the reserve for unfunded loan commitments is adjusted by recording an expense or recovery in provision for credit losses. As of June 30, 2020 and December 31, 2019, the reserve for unfunded loan commitments was $8.1 million and $1.7 million, respectively.
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Legislation and regulation.  ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.”
Changes to Community Bank Leverage Ratio. In April 2020, the federal bank regulatory agencies issued two interim final rules to implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank leverage ratio to 8 percent. The two rules modify the community bank leverage ratio framework so that:
•Beginning in the second quarter of 2020 and until the end of the year, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and
•Community banking organizations will have until January 1, 2022 before the community bank leverage ratio requirement is re-established at greater than 9 percent.
Under the interim final rules, the community bank leverage ratio will be 8 percent beginning in the second quarter of 2020 and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim final rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percent below the applicable community bank leverage ratio.
Beginning in the second quarter of 2020, ASB has adopted the community bank leverage ratio framework.
Covered Savings Associations. On May 24, 2019, the OCC issued a final rule to allow federal savings associations with total consolidated assets of $20 billion or less, as reported by the association to the OCC on its call report as of December 31, 2017, to elect to operate as covered savings associations. A covered savings association generally has the same rights and privileges as a national bank that has its main office situated in the same location as the home office of the covered savings association, with some exceptions. It is subject to the same duties, restrictions, penalties, liabilities, conditions, and limitations that apply to a national bank, with some exceptions, and must comply with certain rules and regulations applicable to the powers and investments of a national bank. A covered savings association is not required to comply with the lending and investment limits in HOLA and is not required to be a qualified thrift lender under HOLA. Finally, a covered savings association is not permitted to retain or engage in any subsidiaries, assets, or activities that are not permissible for a national bank. ASB has initiated a preliminary examination of the benefits and disadvantages of such an election with the preservation of being held by a unitary thrift holding company in mind. ASB is awaiting official FRB commentary, and has not reached a decision on the election.

FINANCIAL CONDITION
Liquidity and capital resources.
(dollars in millions)June 30, 2020December 31, 2019% change
Total assets$8,020  $7,233  11  
Investment securities1,514  1,372  10  
Loans held for investment, net5,357  5,068  6  
Deposit liabilities7,030  6,272  12  
Other bank borrowings125  115  9  
As of June 30, 2020, ASB was one of Hawaii’s largest financial institutions based on assets of $7.1$8.0 billion and deposits of $6.2$7.0 billion.
As of SeptemberJune 30, 2019,2020, ASB’s unused FHLB borrowing capacity was approximately $2.2 billion. As of SeptemberJune 30, 2019,2020, ASB had commitments to borrowers for loans and unused lines and letters of credit of $1.9 billion, of which, commitments to lend to borrowers whose loan terms have been modified in troubled debt restructurings were nil. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.
For the ninesix months ended SeptemberJune 30, 2019,2020, net cash provided by ASB’s operating activities was $71$29 million. Net cash used during the same period by ASB’s investing activities was $65$440 million, primarily due to purchases of available-for-sale securities of $477 million, a net increase in loans of $328 million, additions to premises and equipment of $4 million and contributions to low income housing investments of $2 million, partly offset by the receipt of repayments from investment securities of $197 million, proceeds from the sale of investment securities of $169 million and proceeds from the sale of low income housing investments of $7 million. Net cash provided by financing activities during this period was $740 million, primarily due to increases in deposit liabilities of $758 million and proceeds from FHLB advances of $30 million, partly offset by a net decrease in repurchase agreements of $20 million and $28 million in common stock dividends to HEI (through ASB Hawaii).
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For the six months ended June 30, 2019, net cash provided by ASB’s operating activities was $41 million. Net cash used during the same period by ASB’s investing activities was $67 million, primarily due to a net increase in loans of $258$174 million, additions to premises and equipment of $22$20 million, purchases of available-for-sale investment securities of $5 million and contributions to low income housing investments of $6 million and purchase of bank owned life insurance of $4 million, partly offset by the receipt of repayments from available-for-sale investment securities of $195 million, proceeds from the sale of investment securities of $20$124 million, proceeds from the redemption of bank owned life insurance policies of $6 million and the receipt of held-to-maturity investment securities of $9$5 million. Net cash provided by financing activities during this period was $5$68 million, primarily due to increases in deposit liabilities of $37 million and a net increase in retail repurchase agreements of $26$99 million, partly offset by a net decrease in FHLB advances of $7 million, a net decrease in mortgage escrow deposits of $5 million and $47 million in common stock dividends to HEI (through ASB Hawaii).
For the nine months ended September 30, 2018, net cash provided by ASB’s operating activities was $76 million. Net cash used during the same period by ASB’s investing activities was $230 million, primarily due to purchases of available-for-sale investment securities of $190 million, a net increase in loans of $96 million, additions to premises and equipment of $59 million, purchases of held-to-maturity investment securities of $62 million and contributions to low income housing investments of $8 million, partly offset by receipt of repayments from available-for-sale investment securities of $168 million, proceeds from the sale of commercial loans of $7 million and receipts of repayments from held-to-maturity investment securities of $4 million. Net cash provided by financing activities during this period was $79 million, primarily due to increases in deposit liabilities of $137 million and a net increase in retail repurchase agreements of $33 million, partly offset by a net decrease in FHLB advances of $50 million and $36 million in common stock dividends to HEI (through ASB Hawaii).
ASB believes that maintaining a satisfactory regulatory capital position provides a basis for public confidence, affords protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for growth. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by competing institutions. Beginning in the second quarter of 2020, ASB has adopted the community bank leverage ratio framework and will be required to report only its leverage ratio. As of SeptemberJune 30, 2019,2020, ASB was well-capitalized (minimum(well-capitalized ratio requirements noted in parentheses) with a Common equity Tier-1 ratio of 12.8% (6.5%), a Tier-1 capital ratio of 12.8% (8.0%), a Total capital ratio of 14.0% (10.0%) and a Tier-1 leverage ratio of 8.8%8.4% (5.0%). As of December 31, 2018,2019, ASB was well-capitalized with a common equity Tier-1 ratio of 12.8%13.2%, Tier-1 capital ratio of 12.8%13.2%, a Total capital ratio of 13.9%14.3% and a Tier-1 leverage ratio of 8.7%9.1%. All dividends are subject to review by the OCC and FRB and receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to declare and pay to HEI (through ASB Hawaii).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company considers interest-rate risk (a non-trading market risk) to be a significant market risk for ASB as it could potentially have material impacts on the Company’s results of operations, financial condition and liquidity. For additional quantitative and qualitative information about the Company’s market risks, see HEI’s and Hawaiian Electric’s Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of HEI’s 20182019 Form 10-K (pages 6869 to 70)71).
ASB’s interest-rate risk sensitivity measures as of SeptemberJune 30, 20192020 and December 31, 20182019 constitute “forward-looking statements” and were as follows:

Change in interest ratesChange in NII
(gradual change in interest rates)		Change in EVE
(instantaneous change in interest rates)
(basis points)June 30, 2020December 31, 2019June 30, 2020December 31, 2019
+3005.5 %2.8 %29.0 %15.3 %
+2003.8  2.1  22.6  12.2  
+1002.0  1.3  13.1  7.5  
-100(1.6) (2.0) (23.5) (12.7) 

Change in interest rates 
Change in NII
(gradual change in interest rates)
 
Change in EVE
(instantaneous change in interest rates)
(basis points) September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
+300 3.4% 2.5% 18.6% 10.0%
+200 2.6
 1.9
 14.7
 8.1
+100 1.5
 1.1
 9.0
 5.1
-100 (2.3) (2.3) (15.2) (11.0)
ASB’s net interest income (NII) sensitivity profile was more asset sensitive as of SeptemberJune 30, 20192020 compared to December 31, 2018. The2019. The decrease in long term market rates increased prepayment expectations, resulting in higher reinvestment into lower yielding fixed-rate mortgage and mortgage-backed investment portfolios, resulting in lower NII. The increased prepayment expectations also drove higher premium amortizationportfolios. In addition, the bank had significantly more cash on existing mortgage-backed securities,hand as of June 30, 2020, further reducing NII. Lastly, mix shifts from fixed rate loans to variable rate loans also resulted in increasedincreasing asset sensitivity.
Economic value of equity (EVE) sensitivity increased as of SeptemberJune 30, 20192020 compared to December 31, 2018 as2019 primarily due to strong growth in long duration core deposits. In addition, the duration of assets shortened while the duration of liabilities lengthened. The downward shift in the yield curve led to faster prepayment expectations and shortened the durationsduration of the fixed-rate mortgage and mortgage-backed investment portfolios, while lengthening core deposit duration.portfolios.
The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance changes and pricing strategies, and should not be relied upon as indications of actual results. To the extent market conditions and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the simulation results. NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent management’s views of future market movements, the level of future earnings or the timing of any changes in earnings within the twelve month analysis horizon. The actual impact of changes in interest rates on NII will depend on the magnitude and speed with which rates change, actual changes in ASB’s balance sheet and management’s responses to the changes in interest rates.
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Item 4. Controls and Procedures
HEI:
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the thirdsecond quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


Hawaiian Electric:
Disclosure Controls and Procedures
Hawaiian Electric maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by Hawaiian Electric in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to Hawaiian Electric’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of Hawaiian Electric’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Hawaiian Electric’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including Hawaiian Electric’s Chief Executive Officer and Chief Financial Officer, concluded that Hawaiian Electric’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the thirdsecond quarter of 20192020 that have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial reporting.
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PART II - OTHER INFORMATION

Item 1. Legal Proceedings
The descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in HEI’s and Hawaiian Electric’s 20182019 Form 10-K (see “Part I. Item 3. Legal Proceedings” and proceedings referred to therein) and this Form 10-Q (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 3 and 4 of the Condensed Consolidated Financial Statements) are incorporated by reference in this Item 1. With regard to any pending legal proceeding, alternative dispute resolution, such as mediation or settlement, may be pursued where appropriate, with such efforts typically maintained in confidence unless and until a resolution is achieved. Certain HEI subsidiaries (including Hawaiian Electric and its subsidiaries, ASB and Pacific Current and its subsidiaries) may also be involved in ordinary routine PUC proceedings, environmental proceedings and litigation incidental to their respective businesses.
Item 1A. Risk Factors
Our business, financial condition, liquidity and results of operations could be adversely impacted by the ongoing effects of the COVID-19 pandemic. The COVID-19 pandemic has affected nearly all countries and all 50 states within the United States, including Hawaii. Due to the numerous country, state, city and local jurisdictions that have imposed “shelter-in-place” orders, including travel restrictions that directly impact the Hawaii economy, economic activity in the state has been adversely impacted. As a result of the swift economic contraction and reduction in tourism that has occurred in the state to date, the Utilities expect that demand for electricity will remain depressed and the provision for bad debt and write-offs at the Utilities will remain at an elevated level and impact liquidity as long as social-distancing measures that severely restrict economic activity remain in place. In the second quarter of 2020, overall kWh sales have declined 7% as compared to the first quarter of 2020. While the Utilities expect to recover the difference between PUC approved target revenues and recorded adjusted revenues (regardless of the level of kWh sales) through the revenue balancing account under the decoupling mechanism based on estimated sales, starting on June 1st of the following year, the collection occurs on a lagged basis. If the difference to be collected, which needs to be financed in the interim, exceeds the Utilities’ current liquidity sources, there can be no assurance that the Utilities will be able to secure additional liquidity sources at a reasonable cost, or at all, or if the difference becomes so large that it would result in a significant increase in customer bills, whether the PUC will allow recovery of such difference through the revenue balancing account. In addition to lower and lagged collections, the COVID-19 pandemic has also resulted in higher costs and expenses. While the Utilities have been granted deferral treatment of certain COVID-19 related costs, such as higher bad debt expense, non-collection of late payment fees, higher financing costs, sequestration costs for mission-critical employees and other costs and expenses,there can be no assurance that the PUC will grant recovery of such costs, and such costs could be material. Additionally, in light of the significant impact that economic conditions have had on residents and businesses in the state, a stipulated settlement between Hawaiian Electric and the Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs, reflecting no base rate increase, was submitted in the Hawaiian Electric 2020 test year rate case to the PUC for approval. While the Utilities intend to offset the no base rate increase with corresponding cost decreases, such reduction of cost is not assured and, therefore, the inability to achieve targeted cost savings could adversely affect the Utilities’ results of operations.
ASB’s net interest income has also been adversely impacted by lower interest rates across the curve, which are influenced by economic conditions. Accordingly, an extended economic slowdown could have a significant continuing impact on its net interest income and its provision for credit losses.
While the Company believes that it has sufficient liquidity to operate through this crisis, there can be no assurance that sufficient liquidity will be available if the slowdown in economic activity continues for an extended period of time.
The Company is closely monitoring the situation and taking appropriate actions to operate its businesses and protect its workforce while serving customers and the community, but an extended slowdown of economic activity could have a material adverse effect on the Company. These effects could include, but are not limited to:
•Disruptions or restrictions on employees’ ability to work effectively due to illness, travel restrictions, quarantines, shelter-in-place orders or other limitations.
•The inability of customers, IPPs, contractors, suppliers, creditors and other business partners to fulfill their obligations. For example, several IPPs have declared force majeure as a protective measure, citing the pandemic, which could potentially result in significant project delays.
•Disruption and volatility in the global credit and financial markets, which may increase the cost of capital and could adversely impact access to capital for the Company and its customers and suppliers.
•Further deterioration in economic conditions, or an extension of slow economic activity, which negatively impacts the Company’s earnings and liquidity, could result in an impairment in the carrying value of goodwill or long-lived assets.
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•Actions taken or may be taken, or decisions made or may be made by the Company, as a consequence of the COVID-19 pandemic, may result in legal claims or litigation against the Company.
Due to the unprecedented nature of the pandemic and the significant uncertainty it creates, including the unknown severity and duration of the pandemic and the resulting impact it may have on Hawaii businesses and residents of the state, the Company is unable to predict the full extent of the future impact on the Company’s businesses at this time, and those impacts could have a material adverse effect on the Company’s results of operations, financial position, and cash flows.
The Paycheck Protection Program is a guaranteed loan program and is subject to federal government regulations. The Paycheck Protection Program (PPP), established under the CARES Act and administered by the United States Small Business Administration (SBA), was created to provide a direct incentive for small businesses to keep their workers on the payroll as a result of the COVID-19 crisis. The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020, which amended some of the prior rules and guidelines of the CARES Act.Loans issued through the PPP are 100% federally guaranteed and have a maturity of 2-5 years, depending on when the loan was made, at a fixed interest rate of 1%. Loan payments will be deferred until the earlier of (a) the date that the forgiven amount is remitted to the lender by the SBA; or (b) 10 months from the date the covered period ends. The SBA will forgive all loan amounts to a particular small business if such small business is compliant with the terms and conditions of the PPP. Small businesses have the earlier of 24 weeks from disbursement of the loan or December 31, 2020 to incur allowable expenses such as payroll costs, interest on mortgages, rent and utility expenses that would be covered by the loan forgiveness rules, with 60% of the loan forgiveness needing to be for payroll costs. There is a partial forgiveness if less than 60% of the loan disbursement was spent on payroll costs. Employers will have until December 31, 2020 to restore their workforce. Lenders will process and approve the PPP loans under delegated authority of the SBA. The Lender assumes all obligations, responsibilities, and requirements associated with delegated processing of covered loans made under PPP. Any change in the terms or conditions stated in the loan authorization shall be made in accordance with PPP loan program requirements. For purposes of making covered loans to an eligible recipient under PPP, the lender is responsible, to the extent set forth in the PPP loan program requirements, for all decisions concerning eligibility of a borrower for a covered loan. Failure to comply with PPP loan program requirements may result in loans losing its 100% federally guaranteed status. In addition, in the event loan proceeds are not used in accordance with PPP loan program requirements, the covered loan will not be forgiven, resulting in ASB carrying the loan on its balance sheet longer than anticipated. Through June 30, 2020, ASB has secured more than $370 million in PPP loans, and due to changes surrounding certain program requirements resulting from the rapid rollout of the program, there may be a risk that certain loans may be ultimately deemed non-compliant, in which case ASB would be subject to the credit risk of those loans.

For additional information about Risk Factors, see pages 17 to 2728 of HEI’s and Hawaiian Electric’s 20182019 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and the Condensed Consolidated Financial Statements herein. Also, see “Cautionary Note Regarding Forward-Looking Statements” on pages iv and vthrough vi herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of HEI common shares were made on the open market during the thirdsecond quarter of 20192020 to satisfy the requirements of certain plans as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Period* 

Total Number of Shares Purchased **
 
 
Average
Price Paid
per Share **
  Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
July 1 to 31, 2019 26,449 $44.29 — NA
August 1 to 31, 2019 21,415 $44.39 — NA
September 1 to 30, 2019 160,356 $44.60 — NA
Period*
Total Number of Shares Purchased **		 
Average
Price Paid
per Share **		 Total Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 to 30, 202024,160$40.91—NA
May 1 to 31, 202024,677$37.87—NA
June 1 to 30, 2020187,389$39.83—NA
NA Not applicable.
* Trades (total number of shares purchased) are reflected in the month in which the order is placed.
**The purchases were made to satisfy the requirements of the DRIP, the HEIRSP and the ASB 401(k) Plan for shares purchased for cash or by the reinvestment of dividends by participants under those plans and none of the purchases were made under publicly announced repurchase plans or programs. Average prices per share are calculated exclusive of any commissions payable to the brokers making the purchases for the DRIP, the HEIRSP and the ASB 401(k) Plan. Of the “Total number of shares purchased,” 20,70912,011 of the 26,44924,160 shares, 14,65412,260 of the 21,41524,677 shares and 138,551155,245 of the 160,356187,389 shares were purchased
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for the DRIP; 4,34210,188 of the 26,44924,160 shares, 5,9349,888 of the 21,41524,677 shares and 18,26627,497 of the 160,356187,389 shares were purchased for the HEIRSP; and the remainder was purchased for the ASB 401(k) Plan. The repurchased shares were issued for the accounts of the participants under registration statements registering the shares issued under these plans.


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Item 6. Exhibits
 
Amendment 2019-1HEI’s Amended and Restated Articles of Incorporation effective June 2, 2020
HEI’s Amended and Restated Bylaws,effective June 2, 2020 (incorporated by reference to the Retirement Plan for EmployeesExhibit 3.1 to HEI’s Current Report on Form 8-K dated June 2, 2020, File no. 1-8503)
Cooperation Agreement, dated as of February 12, 2020 by and between Hawaiian Electric Industries, Inc. and Participating Subsidiaries, effective asValueAct Spring Master Fund , L.P. and certain of August 1, 2019its affiliates (incorporated by reference to Exhibit 10.1 to HEI’s Current Report on Form 8-K dated February 12, 2020, File no.1-8503)
Amendment 2019- 2Joinder to theCooperation Agreement, dated July 22, 2020, by and between Hawaiian Electric Industries, Retirement Savings Plan, effective as of August 1, 2019Inc., and Inclusive Capital Partners, L.P. and ValueAct Capital Management, L.P.
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Constance H. Lau (HEI Chief Executive Officer)
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Gregory C. Hazelton (HEI Chief Financial Officer)
HEI Certification Pursuant to 18 U.S.C. Section 1350
HEI Exhibit 101.INSXBRL Instance Document - the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
HEI Exhibit 101.SCHInline XBRL Taxonomy Extension Schema Document
HEI Exhibit 101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
HEI Exhibit 101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
HEI Exhibit 101.LABInline XBRL Taxonomy Extension Label Linkbase Document
HEI Exhibit 101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
HEI Exhibit 104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
First Amendment dated June 9, 2020 to Supply Contract for Low Sulfur Fuel Oil, High Sulfur Fuel Oil, No. 2 Diesel, and Ultra-Low Sulfur Diesel by and between Hawaiian Electric, Hawaii Electric Light, and Maui Electric and PAR Hawaii Refining, LLC dated January 21, 2019 (certain confidential information has been omitted)
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Alan M. OshimaScott W. H. Seu (Hawaiian Electric Chief Executive Officer)
Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer)
Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof.
 
HAWAIIAN ELECTRIC INDUSTRIES, INC.HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant)(Registrant)
By/s/ Constance H. LauBy/s/ Scott W. H. Seu
Constance H. LauScott W. H. Seu
President and Chief Executive OfficerPresident and Chief Executive Officer
(Principal Executive Officer of HEI)(Principal Executive Officer of Hawaiian Electric)
By/s/ Gregory C. HazeltonBy/s/ Tayne S. Y. Sekimura
Gregory C. HazeltonTayne S. Y. Sekimura
Executive Vice PresidentSenior Vice President
and Chief Financial Officerand Chief Financial Officer
(Principal Financial Officer of HEI)(Principal Financial Officer of Hawaiian Electric)
HAWAIIAN ELECTRIC INDUSTRIES, INC.Date: August 6, 2020HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant)Date: August 6, 2020(Registrant)
By/s/ Constance H. LauBy/s/ Alan M. Oshima
Constance H. LauAlan M. Oshima
President and Chief Executive OfficerPresident and Chief Executive Officer
(Principal Executive Officer of HEI)(Principal Executive Officer of Hawaiian Electric)
By/s/ Gregory C. HazeltonBy/s/ Tayne S. Y. Sekimura
Gregory C. HazeltonTayne S. Y. Sekimura
Executive Vice President, Chief FinancialSenior Vice President
Officer and Treasurerand Chief Financial Officer
(Principal Financial Officer of HEI)(Principal Financial Officer of Hawaiian Electric)

Date: November 1, 2019Date: November 1, 2019


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