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HE Hawaiian Electric Industries

Filed: 6 Nov 20, 3:02pm
0000354707srt:ParentCompanyMemberus-gaap:PensionPlansDefinedBenefitMember2019-12-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 FORM 10-Q
 
     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
 OR
             TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as Specified in Its Charter Commission File Number I.R.S. Employer Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC. 1-8503 99-0208097
and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC. 1-4955 99-0040500
State of Hawaii
(State or other jurisdiction of incorporation or organization)
 
Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900, Honolulu, Hawaii  96813
Hawaiian Electric Company, Inc. – 1001 Bishop Street, Suite, 2500, Honolulu, Hawaii  96813
(Address of principal executive offices and zip code)
 
Hawaiian Electric Industries, Inc. – (808) 543-5662
Hawaiian Electric Company, Inc. – (808) 543-7771
(Registrant’s telephone number, including area code) 
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
RegistrantTitle of each classTrading Symbol(s)Name of each exchange on which registered
Hawaiian Electric Industries, Inc.Common Stock, Without Par ValueHENew 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.YesNo Hawaiian Electric Company, Inc.YesNo
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.YesNo Hawaiian Electric Company, Inc.YesNo
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 filerSmaller reporting companyLarge accelerated filerSmaller reporting company
Accelerated filerEmerging growth companyAccelerated filerEmerging growth company
Non-accelerated filerNon-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.YesNoHawaiian Electric Company, Inc.YesNo
Securities registered pursuant to 12(b) of the Act:
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding October 23, 2020
Hawaiian Electric Industries, Inc. (Without Par Value) 109,181,124 Shares
Hawaiian Electric Company, Inc. ($6-2/3 Par Value) 17,048,783 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 September 30, 2020
 
TABLE OF CONTENTS
 
Page No. 
  
 
  
 
three and nine months ended September 30, 2020 and 2019
 
three and nine months ended September 30, 2020 and 2019
 
 
three and nine months ended September 30, 2020 and 2019
 
nine months ended September 30, 2020 and 2019
  
 
three and nine months ended September 30, 2020 and 2019
 
three and nine months ended September 30, 2020 and 2019
 
 
three and nine months ended September 30, 2020 and 2019
 
nine months ended September 30, 2020 and 2019
 
 
 
 
  
 
 
i


Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended September 30, 2020
GLOSSARY OF TERMS
Terms Definitions
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
AOCI Accumulated other comprehensive income/(loss)
ASB American Savings Bank, F.S.B., a wholly owned subsidiary of ASB Hawaii, Inc.
ASB Hawaii ASB 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.
ASU Accounting Standards Update
CARES ActThe Coronavirus Aid, Relief, and Economic Security Act enacted March 27, 2020
CBRECommunity-based renewable energy
Company Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B.; Pacific Current, LLC and its subsidiaries, Hamakua Holdings, LLC (and its subsidiary, Hamakua Energy, LLC), Mauo Holdings, LLC (and its subsidiary, Mauo, LLC) and Ka‘ie‘ie Waho Company, LLC; and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
Consumer Advocate Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
D&O Decision and order from the PUC
DERDistributed energy resources
Dodd-Frank Act Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010
DOH Department of Health of the State of Hawaii
DRIP HEI Dividend Reinvestment and Stock Purchase Plan
ECRCEnergy cost recovery clause
EIP 2010 Equity and Incentive Plan, as amended and restated
EPA Environmental Protection Agency — federal
EPS Earnings per share
ERP/EAMEnterprise Resource Planning/Enterprise Asset Management
ESGEnvironmental, Social & Governance
EVE Economic value of equity
Exchange Act Securities Exchange Act of 1934
FASB Financial Accounting Standards Board
FDIC Federal Deposit Insurance Corporation
federal U.S. Government
FHLB Federal Home Loan Bank
FHLMC Federal Home Loan Mortgage Corporation
FNMA Federal National Mortgage Association
FRB Federal Reserve Board
GAAP Accounting principles generally accepted in the United States of America
GNMA Government National Mortgage Association
Hamakua EnergyHamakua Energy, LLC, an indirect subsidiary of HEI
Hawaii Electric Light Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc.

ii

GLOSSARY OF TERMS, continued

Terms Definitions
Hawaiian Electric Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited and Renewable Hawaii, Inc. Uluwehiokama Biofuels Corp. was dissolved effective as of July 14, 2020
HEI Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc., Pacific Current, LLC and The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.)
HEIRSP Hawaiian Electric Industries Retirement Savings Plan
HELOCHome equity line of credit
HPOWER City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant
IPP Independent power producer
Kalaeloa Kalaeloa Partners, L.P.
kWh Kilowatthour/s (as applicable)
LTIP Long-term incentive plan
Maui Electric Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc.
MauoMauo, LLC, an indirect subsidiary of HEI
MPIRMajor Project Interim Recovery
MSRMortgage servicing right
MW Megawatt/s (as applicable)
NII Net interest income
NPBCNet periodic benefit costs
NPPCNet periodic pension costs
O&M Other operation and maintenance
OCC Office of the Comptroller of the Currency
OPEB Postretirement benefits other than pensions
Pacific CurrentPacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings, LLC, Mauo Holdings, LLC, and Ka‘ie‘ie Waho Company, LLC
PBRPerformance-based regulation
PGVPuna Geothermal Venture
PIMsPerformance incentive mechanisms
PPA Power purchase agreement
PPAC Purchased power adjustment clause
PUC Public Utilities Commission of the State of Hawaii
PVPhotovoltaic
RAM Rate adjustment mechanism
RBA Revenue balancing account
RFP Request for proposals
ROACE Return on average common equity
RORB Return on rate base
RPS Renewable portfolio standards
SEC Securities and Exchange Commission
See Means 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)
TDR Troubled debt restructuring
UtilitiesHawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited
VIE Variable 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 and actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:
international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of future Federal government shutdowns, including the impact to our customers to pay their electric bills and/or bank loans and the impact on the state of Hawaii economy; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; the potential impacts of global and local developments (including global economic conditions and uncertainties, unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic or other crisis); the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; and pandemics;
the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity and any recurrence of the COVID-19 pandemic, 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, reliability objectives 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, energy and environmental policy, and other policy and regulatory changes advanced or proposed by President Trump and his administration, or resulting from the outcome of the U.S. presidential election;
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, which could result in lower portfolio yields and net interest margin;
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,
iv


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 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 recovery clauses (ECRCs);
the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales;
the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by 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;
the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid;
the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage;
the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);
the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;
the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements and avoid or mitigate labor disputes and work stoppages;
new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels;
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 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 and tax rates, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;
discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;
decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);
v


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


PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements

Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
Three months ended September 30Nine months ended September 30
(in thousands, except per share amounts)2020201920202019
Revenues    
Electric utility$562,568 $688,330 $1,694,225 $1,900,609 
Bank78,644 82,548 233,096 247,287 
Other215 237 86 
Total revenues641,427 770,882 1,927,558 2,147,982 
Expenses    
Electric utility474,050 616,537 1,493,948 1,716,562 
Bank63,144 54,240 189,700 171,605 
Other4,672 3,450 13,091 12,589 
Total expenses541,866 674,227 1,696,739 1,900,756 
Operating income (loss)    
Electric utility88,518 71,793 200,277 184,047 
Bank15,500 28,308 43,396 75,682 
Other(4,457)(3,446)(12,854)(12,503)
Total operating income99,561 96,655 230,819 247,226 
Retirement defined benefits expense—other than service costs(1,102)(648)(2,970)(2,172)
Interest expense, net—other than on deposit liabilities and other bank borrowings(22,086)(22,425)(66,474)(69,081)
Allowance for borrowed funds used during construction801 1,208 2,241 3,465 
Allowance for equity funds used during construction2,347 3,250 6,556 9,335 
Gain on sale of investment securities, net653 9,275 653 
Income before income taxes79,521 78,693 179,447 189,426 
Income taxes14,018 14,803 30,691 36,390 
Net income65,503 63,890 148,756 153,036 
Preferred stock dividends of subsidiaries471 471 1,417 1,417 
Net income for common stock$65,032 $63,419 $147,339 $151,619 
Basic earnings per common share$0.60 $0.58 $1.35 $1.39 
Diluted earnings per common share$0.59 $0.58 $1.35 $1.39 
Weighted-average number of common shares outstanding109,181 108,973 109,126 108,941 
Net effect of potentially dilutive shares155 390 261 437 
Weighted-average shares assuming dilution109,336 109,363 109,387 109,378 
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.

1


Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
 Three months ended September 30Nine months ended September 30
(in thousands)2020201920202019
Net income for common stock$65,032 $63,419 $147,339 $151,619 
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 $360, $1,557, $7,836 and $10,194, respectively984 4,253 21,405 27,846 
Reclassification adjustment for net realized gains included in net income, net of taxes of NaN, (175), $(599) and (175), respectively(478)(1,638)(478)
Derivatives qualifying as cash flow hedges:    
Unrealized interest rate hedging losses arising during the period, net of taxes of $(51), $(208), $(739) and $(577), respectively(147)(600)(2,129)(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 taxes of $2,202, $741, $6,169 and $2,482, respectively6,324 2,615 17,720 7,621 
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,985), $(865), $(5,563) and $(2,459), respectively(5,721)(2,493)(16,038)(7,089)
Other comprehensive income, net of taxes1,440 3,297 19,320 26,237 
Comprehensive income attributable to Hawaiian Electric Industries, Inc.$66,472 $66,716 $166,659 $177,856 
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.

2


Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) 
(dollars in thousands)September 30, 2020December 31, 2019
Assets  
Cash and cash equivalents$193,126 $196,813 
Restricted cash21,881 30,872 
Accounts receivable and unbilled revenues, net276,299 300,794 
Available-for-sale investment securities, at fair value1,747,658 1,232,826 
Held-to-maturity investment securities, at amortized cost133,858 139,451 
Stock in Federal Home Loan Bank, at cost10,920 8,434 
Loans held for investment, net5,389,443 5,067,821 
Loans held for sale, at lower of cost or fair value16,806 12,286 
Property, plant and equipment, net of accumulated depreciation of $2,873,348 and $2,765,569 at September 30, 2020 and December 31, 2019, respectively5,232,177 5,109,628 
Operating lease right-of-use assets169,062 199,171 
Regulatory assets677,683 715,080 
Other591,258 649,885 
Goodwill82,190 82,190 
Total assets$14,542,361 $13,745,251 
Liabilities and shareholders’ equity  
Liabilities  
Accounts payable$158,292 $220,633 
Interest and dividends payable34,271 24,941 
Deposit liabilities7,038,137 6,271,902 
Short-term borrowings—other than bank137,783 185,710 
Other bank borrowings151,875 115,110 
Long-term debt, net—other than bank2,068,852 1,964,365 
Deferred income taxes376,356 379,324 
Operating lease liabilities176,258 199,571 
Regulatory liabilities967,846 972,310 
Defined benefit pension and other postretirement benefit plans liability488,314 513,287 
Other586,853 583,545 
Total liabilities12,184,837 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 September 30, 2020 and December 31, 2019, respectively1,678,007 1,678,257 
Retained earnings645,943 622,042 
Accumulated other comprehensive loss, net of tax benefits(719)(20,039)
Total shareholders’ equity2,323,231 2,280,260 
Total liabilities and shareholders’ equity$14,542,361 $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 
Net income for common stock— — 65,032 — 65,032 
Other comprehensive income, net of taxes— — — 1,440 1,440 
Share-based expenses and other, net— 1,391 — — 1,391 
Common stock dividends (33¢ per share)— — (36,030)— (36,030)
Balance, September 30, 2020109,181 $1,678,007 $645,943 $(719)$2,323,231 
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 
Net income for common stock— — 63,419 — 63,419 
Other comprehensive income, net of taxes— — — 3,297 3,297 
Share-based expenses and other, net2,258 — — 2,258 
Common stock dividends (32¢ per share)— — (34,871)— (34,871)
Balance, September 30, 2019108,973 $1,676,411 $590,651 $(24,373)$2,242,689 
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)
Nine months ended September 30
(in thousands)20202019
Cash flows from operating activities  
Net income$148,756 $153,036 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation of property, plant and equipment178,674 172,307 
Other amortization39,580 35,553 
Provision for credit losses39,504 17,873 
Loans originated, held for sale(380,864)(190,700)
Proceeds from sale of loans, held for sale387,247 177,345 
Gain on sale of investment securities, net(9,275)(653)
Gain on sale of loans(15,933)(3,080)
Deferred income taxes(14,464)265 
Share-based compensation expense5,449 8,142 
Allowance for equity funds used during construction(6,556)(9,335)
Other(4,773)(6,157)
Changes in assets and liabilities  
Decrease in accounts receivable and unbilled revenues, net11,252 10,723 
Decrease (increase) in fuel oil stock31,899 (3,438)
Decrease in regulatory assets10,012 54,274 
Increase (decrease) in regulatory liabilities(15,755)2,494 
Increase (decrease) in accounts, interest and dividends payable(20,794)215 
Change in prepaid and accrued income taxes, tax credits and utility revenue taxes(32,750)(32,436)
Decrease in defined benefit pension and other postretirement benefit plans liability(1,398)(2,794)
Change in other assets and liabilities(37,543)(42,206)
Net cash provided by operating activities312,268 341,428 
Cash flows from investing activities  
Available-for-sale investment securities purchased(985,874)(4,823)
Principal repayments on available-for-sale investment securities331,238 194,845 
Proceeds from sale of available-for-sale investment securities169,157 19,810 
Principal repayments of held-to-maturity investment securities34,740 9,183 
Purchases of held-to-maturity investment securities(28,602)
Purchase of stock from Federal Home Loan Bank(24,006)(80,475)
Redemption of stock from Federal Home Loan Bank21,520 80,480 
Net increase in loans held for investment(374,307)(258,064)
Proceeds from sale of low-income housing investments6,725 
Capital expenditures(296,172)(332,273)
Contributions to low income housing investments(3,951)(5,612)
Other4,899 3,495 
Net cash used in investing activities(1,144,633)(373,434)
Cash flows from financing activities  
Net increase in deposit liabilities766,235 37,371 
Net increase (decrease) in short-term borrowings with original maturities of three months or less(112,710)64,844 
Net increase in other bank borrowings with original maturities of three months or less6,765 19,150 
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 debt365,146 208,970 
Repayment of long-term debt and funds transferred for repayment of long-term debt(178,291)(204,278)
Withheld shares for employee taxes on vested share-based compensation(5,700)(997)
Common stock dividends(108,066)(104,591)
Preferred stock dividends of subsidiaries(1,417)(1,417)
Other(7,275)(4,266)
Net cash provided by financing activities819,687 39,786 
Net increase (decrease) in cash, cash equivalents and restricted cash(12,678)7,780 
Cash, cash equivalents and restricted cash, beginning of period227,685 169,208 
Cash, cash equivalents and restricted cash, end of period215,007 176,988 
Less: Restricted cash(21,881)
Cash and cash equivalents, end of period$193,126 $176,988 
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 September 30Nine months ended September 30
(in thousands)2020201920202019
Revenues$562,568 $688,330 $1,694,225 $1,900,609 
Expenses    
Fuel oil105,042 199,093 390,714 541,322 
Purchased power149,025 175,037 425,679 472,336 
Other operation and maintenance111,243 124,415 348,831 361,805 
Depreciation55,689 53,935 167,235 161,795 
Taxes, other than income taxes53,051 64,057 161,489 179,304 
Total expenses474,050 616,537 1,493,948 1,716,562 
Operating income88,518 71,793 200,277 184,047 
Allowance for equity funds used during construction2,347 3,250 6,556 9,335 
Retirement defined benefits expense—other than service costs(432)(723)(1,195)(2,127)
Interest expense and other charges, net(16,836)(17,429)(50,768)(53,945)
Allowance for borrowed funds used during construction801 1,208 2,241 3,465 
Income before income taxes74,398 58,099 157,111 140,775 
Income taxes13,835 10,822 29,316 27,800 
Net income60,563 47,277 127,795 112,975 
Preferred stock dividends of subsidiaries228 228 686 686 
Net income attributable to Hawaiian Electric60,335 47,049 127,109 112,289 
Preferred stock dividends of Hawaiian Electric270 270 810 810 
Net income for common stock$60,065 $46,779 $126,299 $111,479 
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 30Nine months ended September 30
(in thousands)2020201920202019
Net income for common stock$60,065 $46,779 $126,299 $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 taxes of $2,001, $874, $5,597 and $2,484, respectively5,769 2,519 16,137 7,162 
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(1,985), $(865), $(5,563) and $(2,459), respectively(5,721)(2,493)(16,038)(7,089)
Other comprehensive income, net of taxes48 26 99 73 
Comprehensive income attributable to Hawaiian Electric Company, Inc.$60,113 $46,805 $126,398 $111,552 
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.
6


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
(dollars in thousands, except par value)September 30, 2020December 31, 2019
Assets  
Property, plant and equipment
Utility property, plant and equipment  
Land$51,589 $51,816 
Plant and equipment7,422,908 7,240,288 
Less accumulated depreciation(2,789,917)(2,690,157)
Construction in progress212,537 193,074 
Utility property, plant and equipment, net4,897,117 4,795,021 
Nonutility property, plant and equipment, less accumulated depreciation of $114 and $111 as of September 30, 2020 and December 31, 2019, respectively6,954 6,956 
Total property, plant and equipment, net4,904,071 4,801,977 
Current assets  
Cash and cash equivalents29,800 11,022 
Restricted cash20,458 30,872 
Customer accounts receivable, net137,936 152,790 
Accrued unbilled revenues, net106,415 117,227 
Other accounts receivable, net7,074 11,568 
Fuel oil stock, at average cost60,443 91,937 
Materials and supplies, at average cost68,794 60,702 
Prepayments and other39,644 116,980 
Regulatory assets25,462 30,710 
Total current assets496,026 623,808 
Other long-term assets  
Operating lease right-of-use assets144,740 176,809 
Regulatory assets652,221 684,370 
Other125,246 101,718 
Total other long-term assets922,207 962,897 
Total assets$6,322,304 $6,388,682 
Capitalization and liabilities  
Capitalization  
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,048,783 shares at
September 30, 2020 and December 31, 2019)
$113,678 $113,678 
Premium on capital stock714,824 714,824 
Retained earnings1,266,076 1,220,129 
Accumulated other comprehensive loss, net of tax benefits-retirement benefit plans(1,180)(1,279)
Common stock equity2,093,398 2,047,352 
Cumulative preferred stock — not subject to mandatory redemption34,293 34,293 
Long-term debt, net1,561,128 1,401,714 
Total capitalization3,688,819 3,483,359 
Commitments and contingencies (Note 3)
Current liabilities  
Current portion of operating lease liabilities64,906 63,707 
Current portion of long-term debt, net95,953 
Short-term borrowings from non-affiliates49,948 88,987 
Accounts payable118,480 187,770 
Interest and preferred dividends payable30,244 20,728 
Taxes accrued, including revenue taxes183,744 207,992 
Regulatory liabilities36,555 30,724 
Other75,050 67,305 
Total current liabilities558,927 763,166 
Deferred credits and other liabilities  
Operating lease liabilities86,175 113,400 
Deferred income taxes381,535 377,150 
Regulatory liabilities931,291 941,586 
Unamortized tax credits113,516 117,868 
Defined benefit pension and other postretirement benefit plans liability454,150 478,763 
Other107,891 113,390 
Total deferred credits and other liabilities2,074,558 2,142,157 
Total capitalization and liabilities$6,322,304 $6,388,682 
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.
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)SharesAmountstockearningsincome (loss)Total
Balance, December 31, 201917,048 $113,678 $714,824 $1,220,129 $(1,279)$2,047,352 
Net income for common stock— — — 23,905 — 23,905 
Other comprehensive income, net of taxes— — — — 26 26 
Common stock dividends— — — (26,784)— (26,784)
Balance, March 31, 202017,048 113,678 714,824 1,217,250 (1,253)2,044,499 
Net income for common stock— — — 42,329 — 42,329 
Other comprehensive income, net of taxes— — — — 25 25 
Common stock dividends— — — (26,784)— (26,784)
Balance, June 30, 202017,048 $113,678 714,824 1,232,795 (1,228)2,060,069 
Net income for common stock— — — 60,065 — 60,065 
Other comprehensive income, net of taxes— — — — 48 48 
Common stock dividends— — — (26,784)— (26,784)
Balance, September 30, 202017,048 $113,678 $714,824 $1,266,076 $(1,180)$2,093,398 
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 
Other comprehensive income, net of taxes— — — — 24 24 
Common stock dividends— — — (25,313)— (25,313)
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 
Other comprehensive income, net of taxes— — — — 23 23 
Common stock dividends— — — (25,313)— (25,313)
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, 201916,751 $111,696 $681,305 $1,200,081 $172 $1,993,254 
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.


8


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
Nine months ended September 30
(in thousands)20202019
Cash flows from operating activities  
Net income$127,795 $112,975 
Adjustments to reconcile net income to net cash provided by operating activities  
Depreciation of property, plant and equipment167,235 161,795 
Other amortization24,929 21,476 
Deferred income taxes(9,827)(1,386)
State refundable credit(7,589)(6,242)
Bad debt expense1,401 1,650 
Allowance for equity funds used during construction(6,556)(9,335)
Other1,614 613 
Changes in assets and liabilities  
Decrease in accounts receivable7,076 12,706 
Decrease (increase) in accrued unbilled revenues9,842 (2,101)
Decrease (increase) in fuel oil stock31,494 (4,608)
Increase in materials and supplies(8,092)(5,606)
Decrease in regulatory assets10,012 54,274 
Increase (decrease) in regulatory liabilities(15,755)2,494 
Decrease in accounts payable(34,874)(9,261)
Change in prepaid and accrued income taxes, tax credits and revenue taxes(34,768)(32,094)
Decrease in defined benefit pension and other postretirement benefit plans liability(3,064)(2,837)
Change in other assets and liabilities(15,918)(11,895)
Net cash provided by operating activities244,955 282,618 
Cash flows from investing activities  
Capital expenditures(267,482)(297,807)
Other7,295 2,662 
Net cash used in investing activities(260,187)(295,145)
Cash flows from financing activities  
Common stock dividends(80,352)(75,939)
Preferred stock dividends of Hawaiian Electric and subsidiaries(1,496)(1,496)
Proceeds from issuance of short-term debt100,000 25,000 
Repayment of short-term debt(100,000)
Proceeds from issuance of long-term debt255,000 200,000 
Repayment of long-term debt and funds transferred for repayment of long-term debt(109,000)(201,546)
Net Increase (decrease) in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less(38,987)62,353 
Other(1,569)785 
Net cash provided by financing activities23,596 9,157 
Net increase (decrease) in cash and cash equivalents8,364 (3,370)
Cash, cash equivalents and restricted cash, beginning of period41,894 35,877 
Cash, cash equivalents and restricted cash, end of period50,258 32,507 
Less: Restricted cash(20,458)
Cash and cash equivalents, end of period$29,800 $32,507 
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.

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, 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 September 30, 2020 and December 31, 2019 and the results of their operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 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.
Credit losses. In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, “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 referred to as the current expected credit loss (CECL) methodology and 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, 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 AFS debt securities has 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 AFS debt security has been below the amortized cost will no longer impact the determination of whether a credit loss exists. The AFS debt security model requires the use of an allowance to record the estimated losses (and subsequent recoveries).
The Company adopted 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 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.
The allowance for credit losses (ACL) is a material estimate of the Company. 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 recorded an adjustment of $21 million to increase the ACL, including a $2 million increase in the allowance for loan commitments, with a corresponding adjustment to reduce retained earnings by $15 million on an after-tax basis. The ACL is based on the composition, characteristics and quality of the 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 the credit quality of the Company’s existing held-to-maturity and AFS investment securities portfolio, the Company did not recognize an ACL at adoption for those investments. The adoption of the new standard did not have a material impact to the Utilities’ customer and other accounts receivables and accrued unbilled revenue. Results for reporting periods beginning after January 1, 2020 are presented under ASU No. 2016-13 while prior period amounts continue to be reported in accordance with 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 that 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.

Reclassifications. Certain reclassifications of prior year amounts were made to conform to the current-year financial statement presentation. Reclassifications did not affect previously reported cash flows, net income or retained earnings.

11


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Note 2 · Segment financial information
(in thousands) Electric utilityBankOtherTotal
Three months ended September 30, 2020    
Revenues from external customers$562,559 $78,644 $224 $641,427 
Intersegment revenues (eliminations)(9)
Revenues$562,568 $78,644 $215 $641,427 
Income (loss) before income taxes$74,398 $15,027 $(9,904)$79,521 
Income taxes (benefit)13,835 2,877 (2,694)14,018 
Net income (loss)60,563 12,150 (7,210)65,503 
Preferred stock dividends of subsidiaries498 (27)471 
Net income (loss) for common stock$60,065 $12,150 $(7,183)$65,032 
Nine months ended September 30, 2020    
Revenues from external customers$1,694,195 $233,096 $267 $1,927,558 
Intersegment revenues (eliminations)30 (30)
Revenues$1,694,225 $233,096 $237 $1,927,558 
Income (loss) before income taxes$157,111 $51,330 $(28,994)$179,447 
Income taxes (benefit)29,316 9,405 (8,030)30,691 
Net income (loss)127,795 41,925 (20,964)148,756 
Preferred stock dividends of subsidiaries1,496 (79)1,417 
Net income (loss) for common stock$126,299 $41,925 $(20,885)$147,339 
Total assets (at September 30, 2020)$6,322,304 $8,075,745 $144,312 $14,542,361 
Three months ended September 30, 2019    
Revenues from external customers$688,299 $82,548 $35 $770,882 
Intersegment revenues (eliminations)31 (31)
Revenues$688,330 $82,548 $$770,882 
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 subsidiaries498 (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 $247,287 $143 $2,147,982 
Intersegment revenues (eliminations)57 (57)
Revenues$1,900,609 $247,287 $86 $2,147,982 
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 subsidiaries1,496 (79)1,417 
Net income (loss) for common stock$111,479 $60,743 $(20,603)$151,619 
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
Unconsolidated variable interest entities.
Power purchase agreements.  As of September 30, 2020, the Utilities had 4 PPAs for firm capacity (excluding the Puna 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.
Contingencies. The Utilities are subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, the Utilities cannot rule out the possibility that such outcomes could have a material effect on the results of operations or liquidity for a particular reporting period in the future.
Power purchase agreements.  Purchases from all IPPs were as follows:
 Three months ended September 30Nine months ended September 30
(in millions)2020201920202019
Kalaeloa$39 $58 $111 $159 
AES Hawaii33 38 96 102 
HPOWER18 20 52 57 
Hamakua Energy12 17 36 51 
Wind IPPs30 30 83 73 
Solar IPPs17 11 45 26 
Other IPPs 1
Total IPPs$149 $176 $426 $472 
 
1Includes hydro power and other PPAs
Kalaeloa Partners, L.P.  Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. Hawaiian Electric and Kalaeloa continue 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 November 20, 2020, to allow for a negotiated resolution and PUC approval.
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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 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 and on December 20, 2019, issued an order modifying the procedural schedule. Pre-hearing matters were completed on March 6, 2020. On July 9, 2020, the PUC issued an order denying the Hawaii Electric Light’s request to waive the amended and restated PPA from the PUC’s competitive bidding requirements and therefore, dismissed the request for approval of the amended and restated PPA without prejudice to possible participation in any future competitive bidding process. On July 20, 2020, Hu Honua filed a motion for reconsideration of the PUC’s order which was denied by the PUC on September 9, 2020. On September 16 2020, Hu Honua filed its notice of appeal to the Hawaii Supreme Court of the PUC’s order denying Hu Honua’s motion for reconsideration.
Molokai New Energy Partners (MNEP). In July 2018, the PUC approved Maui Electric’s PPA with MNEP to purchase solar energy from a PV plus battery storage project. The 4.88 MW PV and 3 MW Battery Energy Storage System project was to deliver no more than 2.64 MW at any time to the Molokai system. On March 25, 2020, MNEP filed a complaint in the United Stated District Court for the District of Hawaii against Maui Electric claiming breach of contract. On June 3, 2020, Maui Electric provided Notice of Default and Termination of the PPA to MNEP terminating the PPA with an effective date of July 10, 2020. Thereafter, MNEP filed an amended Complaint to include claims relating to the termination and Hawaiian Electric filed its Answer to the Amended Complaint on September 11, 2020, disputing the facts presented by MNEP and all claims within the original and amended complaint.
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. Hawaii Electric Light and Hawaiian Electric began to incorporate their portion of the deferred project costs in rate base and started the amortization over a 12-year period in January 2020 and November 2020, respectively. As of September 30, 2020, the total deferred project costs and accrued carrying costs after the project went into service amounted to $59.5 million, which is net of the amortization of $0.5 million at Hawaii Electric Light.
In February 2019, the PUC approved a methodology for passing the future cost saving benefits of the new ERP/EAM system to customers developed by the Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification document on June 10, 2019, reflecting $150 million in future net O&M expense reductions and cost avoidance, and $96 million in capital cost reductions and tax savings over the 12-year service life. To the extent the reduction in O&M expense relates to amounts reflected in electric rates, the Utilities would reduce future rates for such amounts. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism. As of September 30, 2020, the Utilities’ regulatory liability was $9.7 million for amounts to be returned to customers for reduction in O&M expense included in rates. As part of the settlement agreement approved in the Hawaiian Electric 2020 test year rate case, O&M benefits for Hawaiian Electric have been flowed through to customers as of October 2020.
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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 August 31, 2020 for the period January 1 through June 30, 2020.
Environmental regulation.  The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances.
Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.
Former Molokai Electric Company generation site.  In 1989, Maui Electric acquired Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985. The Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the DOH and EPA, Maui Electric further investigated the Site and the Adjacent Parcel to determine the extent of impacts of polychlorinated biphenyls (PCBs), residual fuel oils and other subsurface contaminants. Maui Electric has a reserve balance of $2.7 million as of September 30, 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 September 30, 2020, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $4.6 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) rate adjustment mechanism (RAM) revenues for escalation in certain O&M expenses and rate base changes, (3) major 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.
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 may be reset upon the issuance of an interim or final decision and order (D&O) in a rate case. All Utilities were limited to the RAM Cap in 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.
Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $2.5 million), including, but not restricted to, renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case, and all costs that are allowed to be recovered through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital
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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 of $19.8 million (which accrued effective January 1, 2019), included the 2019 return on project amount (based on the 90% cap on cost recovery of the project through any mechanism other than base rates) 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 2020 return on project amount (based on the capped amount) in rate base, depreciation and incremental O&M expenses, for collection from June 2021 through May 2022.
On October 22, 2020, the PUC issued the final D&O in Hawaiian Electric’s 2020 test year rate case approving the parties’ settlement agreement, including the parties’ agreement to remove the 90% cap on cost recovery for the Schofield Generating Station, such that 100% of the allowed project costs will flow through the MPIR mechanism. The 2020 MPIR amounts will be revised to reflect the new lower depreciation rates effective January 1, 2020 as approved in the Hawaiian Electric 2020 test year rate case, and for the removal of the 90% cap on cost recovery and revised rate of return effective November 1, 2020.
Performance incentive mechanisms. The PUC has established the following PIMs: (1) Service Quality performance incentives, (2) Phase 1 RFP PIM for procurement of low-cost renewable energy, (3) Phase 2 RFP PIMs for generation and generation plus storage project, and Grid Services and standalone storage.
Service Quality performance incentives (ongoing). Service Quality performance incentives are measured on a calendar-year basis. The PIM tariff requires the performance targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels for each of the PIMs 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 $6.8 million - for both indices in total for the three utilities).
Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3% above and below the target. The maximum penalty or reward is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or rewards of approximately $1.4 million - in total for the three utilities).
In December 2019, the Utilities accrued $0.3 million in estimated rewards for call center performance, net of service reliability penalties, for 2019. The net service quality performance rewards related to 2019 was reflected in the 2020 annual decoupling filing and increased customer rates in the period June 1, 2020 through May 31, 2021.
Phase 1 RFP PIM. 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 recognized $1.7 million in 2019.
Phase 2 RFP PIMs. 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
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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, with a declining PIM for projects that are not filed by these deadlines. On July 9, 2020, the Utilities filed 2 Grid Service Purchase Agreements for the Grid Service RFP, which qualify for PIMs, however, details of the incentive metrics will be determined by PUC. On September 15, 2020, the Utilities filed 8 power purchase agreements for the Phase 2 RFP. Of those 8, only 1 project qualified for a potential PIM incentive payout. The Utilities do not anticipate that any of the remaining projects from the Phase 2 RFP will qualify for PIM payouts.
Annual decoupling filings. The net annual incremental amounts to be collected (refunded) from June 1, 2020 through May 31, 2021 are as follows:
(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)

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.
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 concluded in May 2019 with the issuance of a PUC order, 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.
The Phase 2 schedule included working group meetings through the first half of 2020, followed by statements of positions that were filed in June 2020. In August 2020, the Parties filed their respective Phase 2 Reply Statement of Positions. In September 2020, the PUC held its hearing, and the Parties filed the post-hearing briefs in October 2020. The PUC’s decision is expected in December 2020.
Most recent rate proceedings.
Hawaiian Electric 2020 test year rate case. On May 27, 2020, Hawaiian Electric and the Consumer 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.
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On May 13, 2020, the PUC issued its Final Report on the Management Audit, which recommended 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 PBR proceeding.
On October 22, 2020, the PUC issued a final D&O approving the stipulated settlement agreement filed in the proceeding. As a result, there will be no increase in base electric rates established in the 2017 test year rate case. In the final D&O, the PUC approved the capital structure that consists of a 58% total equity ratio, and a ROACE of 9.5% for the 2020 test year. The resulting return on rate base (RORB) is 7.37%. The D&O approved the agreement to implement the overall lower depreciation rates approved in the last depreciation study proceeding, effective January 1, 2020. While the PUC generally approved the amount and treatment of Hawaiian Electric's Management Audit savings commitment reflected in the settlement agreement as reasonable, the PUC clarified that it is not bound in the Performance-Based Regulation proceeding to accept the proposed implementation details identified in the settlement agreement and retains full discretion in that proceeding as to the scope, nature, and treatment of Hawaiian Electric’s savings commitment. Hawaiian Electric is required to file revised tariff sheets within fifteen days of this final D&O. The effective date of the final tariffs is subject to PUC approval.
Hawaii Electric Light 2019 test year rate case. On September 24, 2019, Hawaii Electric Light and the Consumer Advocate filed a Stipulated Partial Settlement Letter which documented agreements reached on all of the issues in the proceeding, except for the ROACE, capital structure, amortization period for the state investment tax credit, and automatic annual target heat rate adjustment. On November 13, 2019, the PUC issued an interim decision 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% RORB that incorporates a ROACE of 9.5% and 58.0% total equity ratio, and tariffs became effective January 1, 2020. On July 28, 2020, the PUC issued a final D&O, approving the Stipulated Partial Settlement Letter in part and ordering final rates for the 2019 test year to remain at current effective rates such that there is a zero increase in rates. The PUC determined that an appropriate ROACE for the 2019 test year is 9.5%, approved a capital structure of 58% total equity and approved as fair a 7.52% RORB. In addition, the order, among others, (1) approved a 10-year amortization period for the state investment tax credit; and (2) approved a modification to Hawaii Electric Light’s ECRC to incorporate a 98%/2% risk-sharing split between customers and Hawaii Electric Light with an annual maximum exposure cap of +/- $600,000. Hawaii Electric Light’s proposed final tariffs, PIM tariffs and ECRC tariff submitted on August 27, 2020 were approved by the PUC on October 26, 2020. The proposed final tariffs and PIM tariffs took effect on November 1, 2020, and the ECRC tariff will take effect on January 1, 2021.
Regulatory assets for COVID-19 related 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 pendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the Utilities from charging late payment fees on past due payments. On June 30, 2020, the PUC issued an order approving the Utilities’ request made in April 2020 for deferral treatment of COVID-19 related expenses through December 31, 2020, and allowed the Utilities to file application to request an extension of the deferral period beyond December 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. The recovery of the regulatory assets would be determined in a subsequent proceeding. As of September 30, 2020, the Utilities recorded a total of $12.4 million in regulatory assets pursuant to the orders.
Condensed consolidating financial information. Condensed consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the three and nine month periods ended September 30, 2020 and 2019, and as of September 30, 2020 and December 31, 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.
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Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended September 30, 2020

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustments
Hawaiian Electric
Consolidated
Revenues$398,877 82,172 81,629 (110)$562,568 
Expenses
Fuel oil70,557 17,047 17,438 105,042 
Purchased power116,249 17,665 15,111 149,025 
Other operation and maintenance71,179 17,565 22,499 111,243 
Depreciation37,853 9,760 8,076 55,689 
Taxes, other than income taxes38,005 7,512 7,534 53,051 
   Total expenses333,843 69,549 70,658 474,050 
Operating income65,034 12,623 10,971 (110)88,518 
Allowance for equity funds used during construction1,902 208 237 2,347 
Equity in earnings of subsidiaries14,912 (14,912)
Retirement defined benefits expense—other than service costs(591)194 (35)(432)
Interest expense and other charges, net(11,970)(2,519)(2,457)110 (16,836)
Allowance for borrowed funds used during construction659 65 77 801 
Income before income taxes69,946 10,571 8,793 (14,912)74,398 
Income taxes9,611 2,378 1,846 13,835 
Net income60,335 8,193 6,947 (14,912)60,563 
Preferred stock dividends of subsidiaries133 95 228 
Net income attributable to Hawaiian Electric60,335 8,060 6,852 (14,912)60,335 
Preferred stock dividends of Hawaiian Electric270 270 
Net income for common stock$60,065 8,060 6,852 (14,912)$60,065 

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended September 30, 2020

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries
Consolidating
adjustments
Hawaiian Electric
Consolidated
Net income for common stock$60,065 8,060 6,852 (14,912)$60,065 
Other comprehensive income (loss), net of taxes:      
Retirement benefit plans:      
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits5,769 885 770 (1,655)5,769 
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes(5,721)(887)(767)1,654 (5,721)
Other comprehensive income (loss), net of taxes48 (2)(1)48 
Comprehensive income attributable to common shareholder$60,113 8,058 6,855 (14,913)$60,113 


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Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended September 30, 2019
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustments
Hawaiian Electric
Consolidated
Revenues$491,723 93,576 103,236 (205)$688,330 
Expenses
Fuel oil139,747 21,427 37,919 199,093 
Purchased power135,447 24,342 15,248 175,037 
Other operation and maintenance80,582 19,868 23,965 124,415 
Depreciation35,867 10,453 7,615 53,935 
Taxes, other than income taxes46,433 8,359 9,265 64,057 
   Total expenses438,076 84,449 94,012 616,537 
Operating income53,647 9,127 9,224 (205)71,793 
Allowance for equity funds used during construction2,685 229 336 3,250 
Equity in earnings of subsidiaries11,048 (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 construction990 95 123 1,208 
Income before income taxes55,017 6,822 7,308 (11,048)58,099 
Income taxes7,968 1,420 1,434 10,822 
Net income47,049 5,402 5,874 (11,048)47,277 
Preferred stock dividends of subsidiaries133 95 228 
Net income attributable to Hawaiian Electric47,049 5,269 5,779 (11,048)47,049 
Preferred stock dividends of Hawaiian Electric270 270 
Net income for common stock$46,779 5,269 5,779 (11,048)$46,779 

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended September 30, 2019

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
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 benefits2,519 387 309 (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 taxes26 26 
Comprehensive income attributable to common shareholder$46,805 5,269 5,779 (11,048)$46,805 

20


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Nine months ended September 30, 2020

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric
Consolidated
Revenues$1,200,677 249,970 244,043 (465)$1,694,225 
Expenses
Fuel oil268,382 55,733 66,599 390,714 
Purchased power333,146 53,032 39,501 425,679 
Other operation and maintenance231,090 54,250 63,491 348,831 
Depreciation113,724 29,281 24,230 167,235 
Taxes, other than income taxes115,179 23,324 22,986 161,489 
   Total expenses1,061,521 215,620 216,807 1,493,948 
Operating income139,156 34,350 27,236 (465)200,277 
Allowance for equity funds used during construction5,452 520 584 6,556 
Equity in earnings of subsidiaries37,492 (37,492)
Retirement defined benefits expense—other than service costs(1,683)581 (93)(1,195)
Interest expense and other charges, net(36,471)(7,536)(7,226)465 (50,768)
Allowance for borrowed funds used during construction1,887 163 191 2,241 
Income before income taxes145,833 28,078 20,692 (37,492)157,111 
Income taxes18,724 6,372 4,220 29,316 
Net income127,109 21,706 16,472 (37,492)127,795 
Preferred stock dividends of subsidiaries400 286 686 
Net income attributable to Hawaiian Electric127,109 21,306 16,186 (37,492)127,109 
Preferred stock dividends of Hawaiian Electric810 810 
Net income for common stock$126,299 21,306 16,186 (37,492)$126,299 


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Nine months ended September 30, 2020

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric Consolidated
Net income for common stock$126,299 21,306 16,186 (37,492)$126,299 
Other comprehensive income (loss), net of taxes:
Retirement benefit plans:
Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits16,137 2,384 2,072 (4,456)16,137 
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes(16,038)(2,382)(2,072)4,454 (16,038)
Other comprehensive income, net of taxes99 (2)99 
Comprehensive income attributable to common shareholder$126,398 21,308 16,186 (37,494)$126,398 

21


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Nine months ended September 30, 2019


(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian Electric
Consolidated
Revenues$1,347,412 270,697 282,939 (439)$1,900,609 
Expenses
Fuel oil374,100 62,210 105,012 541,322 
Purchased power367,541 67,548 37,247 472,336 
Other operation and maintenance240,311 56,635 64,859 361,805 
Depreciation107,602 31,359 22,834 161,795 
Taxes, other than income taxes127,654 25,170 26,480 179,304 
   Total expenses1,217,208 242,922 256,432 1,716,562 
Operating income130,204 27,775 26,507 (439)184,047 
Allowance for equity funds used during construction7,746 579 1,010 9,335 
Equity in earnings of subsidiaries30,983 (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 construction2,854 242 369 3,465 
Income before income taxes131,110 19,935 20,713 (30,983)140,775 
Income taxes18,821 4,431 4,548 27,800 
Net income112,289 15,504 16,165 (30,983)112,975 
Preferred stock dividends of subsidiaries400 286 686 
Net income attributable to Hawaiian Electric112,289 15,104 15,879 (30,983)112,289 
Preferred stock dividends of Hawaiian Electric810 810 
Net income for common stock$111,479 15,104 15,879 (30,983)$111,479 


Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Nine months ended September 30, 2019

(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther subsidiariesConsolidating adjustmentsHawaiian 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 benefits7,162 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 taxes73 (2)73 
Comprehensive income attributable to common shareholder$111,552 15,106 15,879 (30,985)$111,552 

22


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
September 30, 2020
(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$42,389 5,606 3,594 $51,589 
Plant and equipment4,910,344 1,331,934 1,180,630 7,422,908 
Less accumulated depreciation(1,656,533)(592,461)(540,923)(2,789,917)
Construction in progress163,757 20,975 27,805 212,537 
Utility property, plant and equipment, net3,459,957 766,054 671,106 4,897,117 
Nonutility property, plant and equipment, less accumulated depreciation5,307 115 1,532 6,954 
Total property, plant and equipment, net3,465,264 766,169 672,638 4,904,071 
Investment in wholly owned subsidiaries, at equity606,411 (606,411)
Current assets      
Cash and cash equivalents23,525 4,363 1,835 77 29,800 
Restricted cash20,458 20,458 
Advances to affiliates28,500 (28,500)
Customer accounts receivable, net95,884 23,322 18,730 137,936 
Accrued unbilled revenues, net77,981 14,633 13,801 106,415 
Other accounts receivable, net18,878 2,625 2,191 (16,620)7,074 
Fuel oil stock, at average cost38,716 10,216 11,511 60,443 
Materials and supplies, at average cost39,549 10,954 18,291 68,794 
Prepayments and other30,400 4,056 5,509 (321)39,644 
Regulatory assets19,095 2,502 3,865 25,462 
Total current assets392,986 72,671 75,733 77 (45,441)496,026 
Other long-term assets      
Operating lease right-of-use assets142,912 1,466 362 144,740 
Regulatory assets453,384 103,556 95,281 652,221 
Other87,024 17,515 20,707 125,246 
Total other long-term assets683,320 122,537 116,350 922,207 
Total assets$5,147,981 961,377 864,721 77 (651,852)$6,322,304 
Capitalization and liabilities      
Capitalization      
Common stock equity$2,093,398 308,066 298,268 77 (606,411)$2,093,398 
Cumulative preferred stock—not subject to mandatory redemption22,293 7,000 5,000 34,293 
Long-term debt, net1,116,305 216,424 228,399 1,561,128 
Total capitalization3,231,996 531,490 531,667 77 (606,411)3,688,819 
Current liabilities      
Current portion of operating lease liabilities64,776 98 32 64,906 
Current portion of long-term debt
Short-term borrowings from non-affiliates49,948 49,948 
Short-term borrowings from affiliate26,500 2,000 (28,500)
Accounts payable88,867 13,730 15,883 118,480 
Interest and preferred dividends payable21,681 3,950 4,653 (40)30,244 
Taxes accrued, including revenue taxes127,948 29,187 26,930 (321)183,744 
Regulatory liabilities22,943 9,304 4,308 36,555 
Other57,763 14,285 19,582 (16,580)75,050 
Total current liabilities433,926 97,054 73,388 (45,441)558,927 
Deferred credits and other liabilities      
Operating lease liabilities84,471 1,369 335 86,175 
Deferred income taxes269,635 52,682 59,218 381,535 
Regulatory liabilities661,649 174,919 94,723 931,291 
Unamortized tax credits83,626 15,502 14,388 113,516 
Defined benefit pension and other postretirement benefit plans liability321,768 66,237 66,145 454,150 
Other60,910 22,124 24,857 107,891 
Total deferred credits and other liabilities1,482,059 332,833 259,666 2,074,558 
Total capitalization and liabilities$5,147,981 961,377 864,721 77 (651,852)$6,322,304 

23


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2019
(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 accrued, including revenue taxes143,522 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 

24


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
Nine months ended September 30, 2020
(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 stock126,299 21,306 16,186 — (37,492)126,299 
Other comprehensive income, net of taxes99 — (2)99 
Common stock dividends(80,352)(12,240)(10,788)— 23,028 (80,352)
Dissolution of subsidiary— — — (24)24 
Balance, September 30, 2020$2,093,398 308,066 298,268 77 (606,411)$2,093,398 
 
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
Nine months ended September 30, 2019  
(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 stock111,479 15,104 15,879 — (30,983)111,479 
Other comprehensive income, net of taxes73 — — (2)73 
Common stock dividends(75,939)(7,635)(11,301)— 18,936 (75,939)
Common stock issuance expenses— — (1)— 
Balance, September 30, 2019$1,993,254 303,345 285,440 101 (588,886)$1,993,254 

25


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2020
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
subsidiaries
Consolidating
adjustments
Hawaiian Electric
Consolidated
Net cash provided by operating activities$205,645 27,256 34,678 (22,624)$244,955 
Cash flows from investing activities      
Capital expenditures(180,088)(48,750)(38,644)(267,482)
Advances from (to) affiliates(800)8,000 (7,200)
Other5,636 1,056 1,031 (24)(404)7,295 
Net cash used in investing activities(175,252)(39,694)(37,613)(24)(7,604)(260,187)
Cash flows from financing activities      
Common stock dividends(80,352)(12,240)(10,788)23,028 (80,352)
Preferred stock dividends of Hawaiian Electric and subsidiaries(810)(400)(286)(1,496)
Proceeds from issuance of short-term 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(95,000)(14,000)(109,000)
Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less(46,987)26,500 (25,700)7,200 (38,987)
Other(1,249)(67)(253)(1,569)
Net cash provided by financing activities(19,398)9,793 2,973 30,228 23,596 
Net increase (decrease) in cash and cash equivalents10,995 (2,645)38 (24)8,364 
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 period43,983 4,363 1,835 77 50,258 
Less: Restricted cash(20,458)(20,458)
Cash and cash equivalents, end of period$23,525 4,363 1,835 77 $29,800 

26


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)

Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Nine months ended September 30, 2019
(in thousands)Hawaiian ElectricHawaii Electric LightMaui ElectricOther
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 
Other2,975 (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 debt25,000 25,000 
Proceeds from issuance of long-term debt120,000 70,000 10,000 200,000 
Repayment of long-term debt and funds transferred for repayment of long-term debt(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 less77,353 22,200 (37,200)62,353 
Other578 123 85 (1)785 
Net cash provided by (used in) financing activities24,636 (7,912)10,698 (18,265)9,157 
Net increase (decrease) in cash and cash equivalents5,341 (10,620)1,909 (3,370)
Cash and cash equivalents, beginning of period16,732 15,623 3,421 101 35,877 
Cash and cash equivalents, end of period$22,073 5,003 5,330 101 $32,507 

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 30Nine months ended September 30
(in thousands)2020201920202019
Interest and dividend income    
Interest and fees on loans$52,419 $59,260 $161,505 $175,740 
Interest and dividends on investment securities7,221 7,599 22,939 25,762 
Total interest and dividend income59,640 66,859 184,444 201,502 
Interest expense    
Interest on deposit liabilities2,287 4,384 8,945 12,923 
Interest on other borrowings61 422 449 1,361 
Total interest expense2,348 4,806 9,394 14,284 
Net interest income57,292 62,053 175,050 187,218 
Provision for credit losses13,970 3,315 39,504 17,873 
Net interest income after provision for credit losses43,322 58,738 135,546 169,345 
Noninterest income    
Fees from other financial services4,233 5,085 11,906 14,445 
Fee income on deposit liabilities3,832 5,320 11,842 15,402 
Fee income on other financial products1,524 1,706 4,608 5,129 
Bank-owned life insurance1,965 1,660 4,432 6,309 
Mortgage banking income7,681 1,490 15,933 3,080 
Gain on sale of investment securities, net653 9,275 653 
Other income, net(231)428 (69)1,420 
Total noninterest income19,004 16,342 57,927 46,438 
Noninterest expense    
Compensation and employee benefits26,431 25,364 77,287 76,626 
Occupancy5,693 5,694 16,402 15,843 
Data processing3,366 3,763 11,052 11,353 
Services2,624 2,829 7,907 7,861 
Equipment2,001 2,163 6,630 6,416 
Office supplies, printing and postage1,187 1,297 3,577 4,320 
Marketing727 1,142 1,908 3,455 
FDIC insurance714 (5)1,567 1,249 
Other expense1
4,556 3,676 15,813 12,049 
Total noninterest expense47,299 45,923 142,143 139,172 
Income before income taxes15,027 29,157 51,330 76,611 
Income taxes2,877 6,269 9,405 15,868 
Net income12,150 22,888 41,925 60,743 
Other comprehensive income, net of taxes1,393 3,809 20,960 24,336 
Comprehensive income$13,543 $26,697 $62,885 $85,079 

1 The three and nine-month periods ended September 30, 2020 include approximately $0.7 million and $4.5 million, respectively, of certain direct and incremental COVID-19 related costs. For the nine months ended September 30, 2020, these costs, which have been recorded in Other expense, include $2.4 million of compensation expense and $1.7 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 September 30,Nine months ended September 30
(in thousands)2020201920202019
Interest and dividend income$59,640 $66,859 $184,444 $201,502 
Noninterest income19,004 16,342 57,927 46,438 
Less: Gain on sale of investment securities, net(653)(9,275)(653)
*Revenues-Bank78,644 82,548 233,096 247,287 
Total interest expense2,348 4,806 9,394 14,284 
Provision for credit losses13,970 3,315 39,504 17,873 
Noninterest expense47,299 45,923 142,143 139,172 
Less: Retirement defined benefits gain (expense)—other than service costs(473)196 (1,341)276 
*Expenses-Bank63,144 54,240 189,700 171,605 
*Operating income-Bank15,500 28,308 43,396 75,682 
Add back: Retirement defined benefits (gain) expense—other than service costs473 (196)1,341 (276)
Add back: Gain on sale of investment securities, net(653)(9,275)(653)
Income before income taxes$15,027 $29,157 $51,330 $76,611 


29


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
American Savings Bank, F.S.B.
Balance Sheets Data
(in thousands)September 30, 2020December 31, 2019
Assets    
Cash and due from banks $150,087  $129,770 
Interest-bearing deposits10,918 48,628 
Investment securities
Available-for-sale, at fair value 1,747,658  1,232,826 
Held-to-maturity, at amortized cost (fair value of $138,622 and $143,467, respectively)133,858 139,451 
Stock in Federal Home Loan Bank, at cost 10,920  8,434 
Loans held for investment 5,480,902  5,121,176 
Allowance for credit losses (91,459) (53,355)
Net loans 5,389,443  5,067,821 
Loans held for sale, at lower of cost or fair value 16,806  12,286 
Other 533,865  511,611 
Goodwill 82,190  82,190 
Total assets $8,075,745  $7,233,017 
Liabilities and shareholder’s equity    
Deposit liabilities—noninterest-bearing $2,424,539  $1,909,682 
Deposit liabilities—interest-bearing 4,613,598  4,362,220 
Other borrowings 151,875  115,110 
Other 165,300  146,954 
Total liabilities 7,355,312  6,533,966 
Commitments and contingencies  
Common stock  
Additional paid-in capital351,322 349,453 
Retained earnings 356,812  358,259 
Accumulated other comprehensive income (loss), net of taxes    
Net unrealized gains on securities$22,248  $2,481  
Retirement benefit plans(9,950)12,298 (11,143)(8,662)
Total shareholder’s equity 720,433  699,051 
Total liabilities and shareholder’s equity $8,075,745  $7,233,017 
Other assets    
Bank-owned life insurance $161,206  $157,465 
Premises and equipment, net 206,190  204,449 
Accrued interest receivable 24,770  19,365 
Mortgage-servicing rights 9,553  9,101 
Low-income housing investments71,467 66,302 
Real estate acquired in settlement of loans, net 42  
Other 60,637  54,929 
  $533,865  $511,611 
Other liabilities    
Accrued expenses $52,170  $45,822 
Federal and state income taxes payable 9,750  14,996 
Cashier’s checks 28,638  23,647 
Advance payments by borrowers 5,413  10,486 
Other 69,329  52,003 
  $165,300  $146,954 
    
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 $95.9 million, NaN and $56.0 million, respectively, as of September 30, 2020 and $115.0 million, NaN and NaN, respectively, as of December 31, 2019.
Investment securities.  The major components of investment securities were as follows:
 Amortized costGross unrealized gainsGross unrealized lossesEstimated fair
value
Gross unrealized losses
 Less than 12 months12 months or longer
(dollars in thousands)Number of issuesFair 
value
AmountNumber of issuesFair 
value
Amount
September 30, 2020        
Available-for-sale
U.S. Treasury and federal agency obligations$61,359 $2,229 $$63,588 $$$$
Mortgage-backed securities*1,598,949 27,580 (981)1,625,548 17 304,930 (981)
Corporate bonds29,772 1,565 31,337 
Mortgage revenue bonds27,185 27,185 
 $1,717,265 $31,374 $(981)$1,747,658 17 $304,930 $(981)$$
Held-to-maturity
Mortgage-backed securities*$133,858 $4,878 $(114)$138,622 $28,486 $(114)$$
 $133,858 $4,878 $(114)$138,622 $28,486 $(114)$$
December 31, 2019
Available-for-sale
U.S. Treasury and federal agency obligations$117,255 $652 $(120)$117,787 $4,110 $(11)$27,637 $(109)
Mortgage-backed securities*1,024,892 6,000 (4,507)1,026,385 19 152,071 (819)75 318,020 (3,688)
Corporate bonds58,694 1,363 60,057 
Mortgage revenue bonds28,597 28,597 
 $1,229,438 $8,015 $(4,627)$1,232,826 21 $156,181 $(830)78 $345,657 $(3,797)
Held-to-maturity
Mortgage-backed securities*$139,451 $4,087 $(71)$143,467 $12,986 $(71)$$
 $139,451 $4,087 $(71)$143,467 $12,986 $(71)$$
* 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 September 30, 2020, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at September 30, 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, 2020Amortized costFair value
(in thousands)  
Available-for-sale
Due in one year or less$16,952 $17,193 
Due after one year through five years41,941 43,735 
Due after five years through ten years32,238 33,997 
Due after ten years27,185 27,185 
 118,316 122,110 
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies1,598,949 1,625,548 
Total available-for-sale securities$1,717,265 $1,747,658 
Held-to-maturity
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies$133,858 $138,622 
Total held-to-maturity securities$133,858 $138,622 
Proceeds from the sale of available-for-sale securities, which also included the sale of ASB’s entire Visa Class B restricted stock holdings in the second quarter of 2020, were NaN and $169.2 million for the three and nine month period ended September 30, 2020, respectively, and $19.8 million for each of the three and nine month periods ended September 30, 2019. Gross realized gains were NaN and $9.3 million for the three and nine months ended September 30, 2020, respectively, and $0.7 million for each of the three and nine months ended September 30, 2019. Gross realized losses were NaN for the three and nine months ended September 30, 2020 and 2019. Tax expense on realized gains were NaN and $2.5 million for the three and nine months ended September 30, 2020, respectively and $0.2 million for each of the three and nine months ended September 30, 2019.
Loans. The components of loans were summarized as follows:
September 30, 2020December 31, 2019
(in thousands)  
Real estate:  
Residential 1-4 family$2,195,093 $2,178,135 
Commercial real estate900,912 824,830 
Home equity line of credit1,028,011 1,092,125 
Residential land14,310 14,704 
Commercial construction112,930 70,605 
Residential construction10,281 11,670 
Total real estate4,261,537 4,192,069 
Commercial1,042,435 670,674 
Consumer190,138 257,921 
Total loans5,494,110 5,120,664 
          Deferred fees and discounts(13,208)512 
          Allowance for credit losses(91,459)(53,355)
Total loans, net$5,389,443 $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 property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.
32


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Allowance for credit losses. The allowance for credit losses by 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 September 30, 2020        
Allowance for credit losses:         
Beginning balance$3,911 $21,100 $6,214 $356 $4,757 $14 $13,868 $31,087 $81,307 
Charge-offs(1,727)(3,881)(5,608)
Recoveries12 50 12 211 1,005 1,290 
Provision(286)11,049 (390)178 1,282 (3)5,840 (3,200)14,470 
Ending balance$3,637 $32,149 $5,874 $546 $6,039 $11 $18,192 $25,011 $91,459 
Three months ended September 30, 2019        
Allowance for credit losses:         
Beginning balance$2,015 $15,811 $6,881 $537 $2,046 $$13,073 $18,060 $58,425 
Charge-offs(7)(13)(4,900)(5,311)(10,231)
Recoveries27 28 726 746 1,531 
Provision(56)(396)135 (104)196 (517)4,056 3,315 
Ending balance$1,979 $15,415 $7,007 $461 $2,242 $$8,382 $17,551 $53,040 
Nine months ended September 30, 2020        
Allowance for credit losses:         
Beginning balance, prior to adoption of ASU No. 2016-13$2,380 $15,053 $6,922 $449 $2,097 $$10,245 $16,206 $53,355 
Impact of adopting ASU No. 2016-13
2,150 208 (541)(64)289 14 922 16,463 19,441 
Charge-offs(7)(351)(2,795)(16,466)(19,619)
Recoveries67 56 26 503 2,426 3,078 
Provision(953)16,888 (563)486 3,653 (6)9,317 6,382 35,204 
Ending balance$3,637 $32,149 $5,874 $546 $6,039 $11 $18,192 $25,011 $91,459 
Nine months ended September 30, 2019        
Allowance for credit losses:         
Beginning balance$1,976 $14,505 $6,371 $479 $2,790 $$9,225 $16,769 $52,119 
Charge-offs(26)(32)(4)(6,012)(15,972)(22,046)
Recoveries644 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 $$8,382 $17,551 $53,040 
December 31, 2019
Ending balance: individually evaluated for impairment$898 $$322 $$$$1,015 $454 $2,691 
Ending balance: collectively evaluated for impairment$1,482 $15,051 $6,600 $449 $2,097 $$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 

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 September 30, 2020
Allowance for loan commitments:
Beginning balance$300 $7,500 $300 $8,100 
Provision(800)300 (500)
Ending balance$300 $6,700 $600 $7,600 
Nine months ended September 30, 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 
Provision4,024 276 4,300 
Ending balance$300 $6,700 $600 $7,600 
Credit quality.  ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.
Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications:  Pass, Special Mention, Substandard, Doubtful and Loss. The AQR is a function of the probability of default model rating, the loss given default and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.
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
September 30, 2020
Residential 1-4 family
Current$425,930 $242,811 $138,155 $233,944 $201,532 $947,343 $$$2,189,715 
30-59 days past due2,461 2,461 
60-89 days past due1,028 1,028 
Greater than 89 days past due353 1,536 1,889 
425,930 242,811 138,155 234,297 201,532 952,368 2,195,093 
Home equity line of credit
Current991,199 33,800 1,024,999 
30-59 days past due419 349 768 
60-89 days past due158 158 
Greater than 89 days past due1,287 799 2,086 
993,063 34,948 1,028,011 
Residential land
Current4,606 4,433 1,598 1,600 22 1,751 14,010 
30-59 days past due300 300 
60-89 days past due
Greater than 89 days past due
4,606 4,433 1,598 1,600 22 2,051 14,310 
Residential construction
Current4,368 4,897 386 630 10,281 
30-59 days past due
60-89 days past due
Greater than 89 days past due
4,368 4,897 386 630 10,281 
Consumer
Current25,661 77,454 45,485 10,916 764 423 19,906 3,221 183,830 
30-59 days past due387 981 723 239 13 467 131 2,941 
60-89 days past due95 717 674 152 70 87 1,800 
Greater than 89 days past due32 507 411 156 18 359 84 1,567 
26,175 79,659 47,293 11,463 800 423 20,802 3,523 190,138 
Commercial real estate
Pass161,130 73,086 63,082 28,685 55,742 154,297 11,000 547,022 
Special Mention9,634 38,908 65,840 33,921 68,502 65,431 282,236 
Substandard3,165 4,193 1,896 4,461 57,939 71,654 
Doubtful
170,764 115,159 133,115 64,502 128,705 277,667 11,000 900,912 
Commercial construction
Pass11,122 21,322 30,655 5,999 24,200 93,298 
Special Mention1,632 18,000 — 19,632 
Substandard
Doubtful
12,754 21,322 30,655 18,000 5,999 24,200 112,930 
Commercial
Pass454,219 131,481 91,147 30,680 13,067 37,580 76,449 13,397 848,020 
Special Mention36,029 23,458 3,681 7,176 30,864 15,105 32,494 11,221 160,028 
Substandard132 9,420 371 4,402 8,547 3,742 6,943 830 34,387 
Doubtful
490,380 164,359 95,199 42,258 52,478 56,427 115,886 25,448 1,042,435 
Total loans$1,134,977 $632,640 $446,401 $372,750 $389,536 $1,288,936 $1,164,951 $63,919 $5,494,110 
35


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Revolving loans converted to term loans during the nine months ended September 30, 2020 in the commercial, home equity line of credit and consumer portfolios was $13.8 million, $10.0 million, and $2.0 million, respectively.
The credit risk profile based on payment activity for loans was as follows:
(in thousands)30-59
days
past due
60-89
days
past due
 90 days or more past dueTotal
past due
CurrentTotal
financing
receivables
Amortized cost>
90 days and
accruing
September 30, 2020       
Real estate:       
Residential 1-4 family$2,461 $1,028 $1,889 $5,378 $2,189,715 $2,195,093 $
Commercial real estate900,912 900,912 
Home equity line of credit768 158 2,086 3,012 1,024,999 1,028,011 
Residential land300 300 14,010 14,310 
Commercial construction112,930 112,930 
Residential construction10,281 10,281 
Commercial1,702 326 105 2,133 1,040,302 1,042,435 
Consumer2,941 1,800 1,567 6,308 183,830 190,138 
Total loans$8,172 $3,312 $5,647 $17,131 $5,476,979 $5,494,110 $
December 31, 2019       
Real estate:       
Residential 1-4 family$2,588 $290 $1,808 $4,686 $2,173,449 $2,178,135 $
Commercial real estate824,830 824,830 
Home equity line of credit813 2,117 2,930 1,089,195 1,092,125 
Residential land25 25 14,679 14,704 
Commercial construction70,605 70,605 
Residential construction11,670 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 $

36


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The credit risk profile based on nonaccrual loans were as follows:
(in thousands)September 30, 2020December 31, 2019
With a Related ACLWithout a Related ACLTotalTotal
Real estate:
Residential 1-4 family$8,271 $1,919 $10,190 $11,395 
Commercial real estate15,965 15,965 195 
Home equity line of credit6,246 1,555 7,801 6,638 
Residential land410 410 448 
Commercial construction
Residential construction
Commercial758 2,552 3,310 5,947 
Consumer4,304 4,304 5,113 
  Total nonaccrual loans$35,954 $6,026 $41,980 $29,736 


The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:
(in thousands)September 30, 2020December 31, 2019
Real estate:
Residential 1-4 family$8,224 $9,869 
Commercial real estate997 853 
Home equity line of credit8,809 10,376 
Residential land1,891 2,644 
Commercial construction
Residential construction
Commercial2,531 2,614 
Consumer54 57 
Total troubled debt restructured loans accruing interest$22,506 $26,413 

ASB did not recognize interest on nonaccrual loans for the three and nine months ended September 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.
The allowance for credit losses on TDR loans that do not share risk characteristics are individually evaluated based on the present value of expected future cash flows discounted at the loan’s effective original contractual rate or based on the fair value of collateral less cost to sell. The financial impact of the estimated loss is an increase to the allowance associated with the modified loan. When available information confirms that specific loans or portions thereof are uncollectible (confirmed losses), these amounts are charged off against the allowance for credit losses.
37


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Loan modifications that occurred during the first nine months of 2020 and 2019 were as follows:
Loans modified as a TDRThree months ended September 30, 2020Nine months ended September 30, 2020
(dollars in thousands)Number 
of contracts
Outstanding 
recorded 
investment
 (as of period end)1
Related allowance
(as of period end)
Number 
of contracts
Outstanding 
recorded 
investment
 (as of period end)1
Related allowance
(as of period end)
Troubled debt restructurings    
Real estate:    
Residential 1-4 family$$$146 $
Commercial real estate16,149 4,019 
Home equity line of credit22 
Residential land228 15 
Commercial construction
Residential construction
Commercial52 45 207 180 
Consumer
 $52 $45 12 $16,752 $4,222 
Three months ended September 30, 2019Nine 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