Hawaiian Electric Industries
Annual Report 2021

Plain-text annual report

* Years ended December 31 (in millions, except per share amounts) 2021 2020 2019 Operating income1 $ 386 $ 311 $ 348 Net income (loss) for common stock by segment Electric utility Bank1 Other Net income for common stock1 Diluted earnings per common share1 178 101 (33 ) 246 2.25 169 58 (29 ) 198 1.81 157 89 (28 ) 218 1.99 Return on average common equity1 10.4 % 8.6 % 9.8 % Dividends per common share 1.36 1.32 1.28 Annual dividend yield2 3.3 % 3.7 % 2.7 % Common shares (in millions) December 31 Weighted-average — basic Weighted-average — diluted 109.3 109.3 109.6 109.2 109.1 109.4 109.0 108.9 109.4 HEI S&P 500 Index Edison Electric Institute (EEI) Index KBW Regional Banking Index 2021 21.3 28.7 17.1 36.6 3-Year 24.9 100.4 45.6 54.4 5-Year 48.7 133.4 68.6 29.7 10-Year 132.3 362.6 183.0 225.2 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 1 1 3/8/22 6:08 PM Acting on Climate Change and Advancing Energy Independence The HEI family of companies is uniquely positioned to advance Hawai‘i’s energy independence and statewide response to the global climate crisis. As providers of critical infrastructure and services, our companies play essential roles in transitioning Hawai‘i away from fossil fuels and toward a net-zero economy. Our utility, Hawaiian Electric, anchors these efforts, as it works to directly decarbonize Hawai‘i’s power and ground transportation sectors while enhancing the resilience of our grid and our communities to the impacts of climate change. In addition to advancing economic development and affordability, our bank, American Savings Bank, is helping address climate change by providing financing for customers to invest in clean energy and resilience projects and by improving sustainability across its banking operations. Our infrastructure investment platform, Pacific Current, invests in innovative projects to help Hawai‘i achieve its climate ambitions and a more sustainable future. We have already made tremendous progress on our plans to replace fossil fuels with renewable generation. Buoyed by a full year of geothermal production and an increase in private rooftop solar, Hawaiian Electric achieved a consolidated renewable portfolio standard (RPS) of 38.4% in 2021, up from 34.5% the year before. This puts us well ahead of schedule to achieve Hawai‘i’s statutory goal of 40% RPS by 2030. We have reduced the use of oil for power generation by 113 million gallons, or 25%, since 2008, helping keep electricity rates in check and reducing customer bill volatility. Over the past decade, Hawaiian Electric has nearly quadrupled the amount of renewable energy on its system. And together with our customers, in 2021 we reached over 1 gigawatt (GW) of installed solar capacity, most of it customer-owned. This is a major milestone considering the peak load of our five-island system is approximately 1.6 GW. In 2021 Hawaiian Electric also committed to reducing carbon emissions from power generation1 to 70% below 2005 levels by 2030 and to achieving or exceeding net- zero carbon emissions from power generation2 by 2045. We view it as our kuleana (responsibility) to set ambitious climate goals and plans, and by doing so, to inspire and enable other sectors of the economy to take action to reduce carbon emissions. Hawaiian Electric will achieve its 2030 goal by adding at least one more gigawatt of renewable energy capacity by the end of the current decade, adding 50,000 rooftop solar systems to the 93,000 already on our system, using more grid-scale and customer-owned energy storage, retiring and reducing the use of fossil fuel generating units and ending the use of coal in Hawai‘i in September 2022 when our contract with the third-party owned coal plant expires. To reach our 2045 net-zero goal, we’ll also need to pursue emerging technologies along with cost-effective, low- or zero-emission fuels like biofuels and green hydrogen. 1 Applies to greenhouse gases (GHGs) in stack emissions from utility-owned generation and from independent power producer generation on Hawaiian Electric’s system. 2 2 See footnote 1. The Hawaiian Electric Declaration presents our aspiration that by 2025, Hawaiian Electric shall be one of the most progressive and highest-performing companies in the world, serving the energy needs of each person in Hawai‘i with purpose, compassion, empathy and aloha for each other and the natural environment. This declaration is intended to drive us to higher levels of achievement, guiding our daily decisions and actions as we build a sustainable Hawai‘i in which our children and grandchildren, our communities, our customers and our fellow employees will thrive together. Hawaiian Electric’s Ambition Most Progressive and Forward-Thinking Energy Company in the World Highest Performance in Customer Service, Operational Excellence, and Financial Results Human-Centered Internally and Community- Centered Externally malama hawai‘i A Company of and for Hawai‘i, Relentlessly Dedicated to Serving the People and Caring for its Environment 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 2 3/8/22 9:43 AM SUSTAINABLE HAWAI‘I 2022 Environmental | Social | Governance Report ESG. At HEI, environmental, social and gove r nance (ESG) pr inciple s and sustainability have long been fundamental values, so much so that we’ve often said that ESG is in our DNA. We’re committed to transparency and providing information to allow customers, community leaders, investors and other stakeholders to understand how our strategies and operations advance our ESG objectives. To read our ESG report, visit hei.com/esg. “Life’s most persistent and urgent question is, ‘What are you doing for others?’” –Dr. Martin Luther King, Jr. HEI Foundation Report 2021 CATALYST To learn more, please visit us at hei.com/foundation Please be kind to the environment and recycle. 3 “Hawaiian Electric strives to be one of the most progressive and highest performing companies in the world, serving the energy needs of each person in Hawai‘i with purpose, compassion, empathy, and aloha for our fellow humans and our natural environment.” Hawaiian Electric In 2021, Hawaiian Electric worked hard to harness cost efficiencies, enabling it to deliver strong financial results while providing significant customer savings and advancing our ambitious climate action plan. We also made significant progress on our 2021-2025 strategic plan, which centers on three pillars – creating customer value, strengthening our foundation and building a stronger Hawai‘i: • We delivered $8 million in customer savings from cost efficiencies, and supported customers who faced financial challenges during the pandemic. We accomplished the latter through bill relief programs – including a $2 million bill credit program and extended and deferred payment plans – and by facilitating customer use of government assistance. • In June 2021 we successfully transitioned to the new performance-based regulation (PBR) framework, which we worked with the Public Utilities Commission and numerous stakeholders to create. Our focus now is on continued execution under PBR to increase operational efficiencies, improve customer experience and advance clean energy initiatives. Shelee M. T. Kimura Hawaiian Electric President and CEO • We launched programs giving customers more options to benefit from the clean energy transition, including Battery Bonus to incentivize customer-owned energy storage and Quick Connect to enable customers to interconnect solar and battery systems to the grid faster. This work also helped us earn a financial reward under PBR – a win-win-win for our company, our customers and our efforts to reduce fossil fuel usage and address climate change. • In recognition of the critical importance of our workforce and culture, we implemented new leadership development programs, continued to promote equity and inclusion within our diverse employee base, and successfully concluded negotiations with our union, leading to ratification of a new three-year contract. • We showed continued climate leadership, committing to the ambitious carbon reduction goals discussed earlier in this letter. • We made great strides in our electrification of transportation strategy, which is crucial to reducing fossil fuel usage, greenhouse gas emissions and the per-unit cost of energy for customers. Our e-bus make-ready and commercial electric vehicle (EV) charging rate pilot programs have now been approved. We also filed an application to dramatically expand our public EV charging network. On January 1, 2022, Shelee Kimura became Hawaiian Electric’s first female president and CEO. Since joining Hawaiian Electric in 2014, Kimura has held numerous senior leadership positions in the company, including senior vice president for customer service and public affairs and senior vice president for business development and strategy. Kimura was instrumental in developing Hawaiian Electric’s 2015-2020 transformation strategy, which helped guide the leap from a traditional utility model to a transformative clean energy leader in the industry. Prior to joining Hawaiian Electric, Kimura spent 10 years at HEI, leading corporate finance and investments, investor relations and strategic planning. Kimura was born and raised in Hawai‘i, and is the mother of three children. 4 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 4 3/8/22 9:43 AM 38.4% 1,019 MW RENEWABLE PORTFOLIO STANDARD (RPS) TOTAL SOLAR CAPACITY 21% OF RESIDENTIAL CUSTOMERS WITH ROOFTOP SOLAR 37% OAHU SINGLE-FAMILY HOMES WITH ROOFTOP SOLAR 91% OF NEW ROOFTOP SOLAR INSTALLED IN 2021 WITH BATTERY STORAGE 99.98% RELIABILITY Average service availability Information as of December 2021 unless otherwise indicated. 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 5 5 3/8/22 9:43 AM “As I reflect on the last two years, I am extremely proud of the way American Savings Bank “As I reflect on the last two years, I am extremely proud of the way American Savings Bank teammates stepped up to tackle the challenges presented by the pandemic while navigating teammates stepped up to tackle the challenges presented by the pandemic while navigating the numerous other issues that transpired. It’s never been clearer that everything we do at the numerous other issues that transpired. It’s never been clearer that everything we do at ASB stems from the deep care we feel for our customers, community and each other.” Ann C. Teranishi American Savings Bank President and CEO American Savings Bank American Savings Bank has performed very well through the pandemic, demonstrating the value of its conservative management approach, strong credit quality, and low-cost funding base. It continues to produce solid earnings that provide efficient capital to support our consolidated, investment-grade capital structure and growing dividends to HEI shareholders. American Savings Bank’s 2021 results reflected improved credit quality in Hawai‘i’s recovering economy, growth in the bank’s earning assets (loans and investments), and fees we earned from supporting customers with Paycheck Protection Program (PPP) loans. The bank’s solid financial performance in 2021 was matched with robust execution on a number of strategies and key initiatives: • Customers’ reliance on online and other self-service options grew dramatically through the pandemic. While ASB had already embarked on an ambitious digital transformation, we accelerated our efforts to support the shift in customer digital adoption. We completed our ATM re-fleet, expanded online and mobile options for our customers and opened four new digital centers – the first of their kind in Hawai‘i – all to make banking easy anytime, anywhere. In our digital centers, customers are assisted in-person and virtually as they learn about digital banking solutions, while continuing to receive the warm and responsive service they expect from ASB. • Supporting Hawai‘i’s economy and affordability for those who live here continued to be a central focus for ASB in 2021: - We implemented the second and third rounds of PPP loans, deploying $551 million in PPP funding to support businesses and their employees since 2020, achieved mortgage production volume of $1.2 billion – on par with our record in 2020 – and grew our commercial real estate loan portfolio, all of which support our local economy. - We’re proud of our teammates’ efforts to build on the momentum from 2020 and once again lead the Hawai‘i Restaurant Card – Business Holiday Card program. The statewide campaign resulted in the sale of 14,000 cards, totaling over $750,000, in direct support of our restaurant and food supply industries. - We also launched the ASB Financial Education program – a comprehensive online resource center featuring helpful information on debt management, budgeting, credit scores and other topics. In addition, our knowledgeable bank teammates regularly host seminars on financial topics, such as purchasing a home, saving and investing, managing credit, planning for retirement, insuring against losses and preventing fraud. They also speak on personal financial responsibility and entrepreneurship at local schools and youth organizations. In May of 2021, Ann Teranishi was promoted to become American Savings Bank’s president and CEO. As the bank’s former executive vice president of operations, Teranishi was responsible for delivering operational improvements to enhance overall customer experience. She played a key role in transitioning ASB from more traditional branch-centric operations to online and other self-service options, which have become increasingly popular with customers during the pandemic. Teranishi was also responsible for developing an enterprise-wide compliance program, leading the retail credit team to best-in-class fulfillment times for consumer loans, and heading strategic initiatives to enhance ASB’s quality of customer service. Teranishi was born and raised in Hawai‘i, and is the mother of two children. 6 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 6 3/8/22 9:43 AM 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 7 7 3/8/22 6:08 PM Pacific Current Pacific Current made steady progress in its mission to accelerate Hawai‘i’s sustainable future by supporting and developing projects that advance the state’s ambitious environmental and economic goals. In 2021 Pacific Current continued to evaluate additional opportunities to grow its portfolio of sustainable infrastructure facilities, increased deployment of EverCharge electric vehicle charging systems to accelerate electrification of transportation in Hawai‘i, and made its first investment in the water sector with a small water-energy purchase agreement project. These efforts help to keep money in the state by investing local capital into local projects and local communities. In addition, Pacific Current helps build Hawai‘i’s talent base by partnering with and promoting local companies participating in the sustainable infrastructure transition. Honoring Our Past, Building Our Future As we review the milestones of the last year and look toward the future, we honor Connie Lau, who served the HEI companies for 37 years before retiring at the end of 2021. Under Connie’s leadership, American Savings Bank went from a thrift to a full- service community bank that is consistently ranked among Hawai‘i’s best places to work, Hawaiian Electric has become a recognized leader in transitioning off fossil fuels and reducing carbon emissions, and Pacific Current was established to help realize a sustainable future for Hawai‘i. In partnership with our Board, Connie cultivated leadership throughout our companies – creating opportunities for many to develop their talents and strengthen our businesses in the process. I am a beneficiary of this initiative, and am honored to count among my colleagues Shelee Kimura, who in 2022 succeeded me as president and CEO of Hawaiian Electric, and Ann Teranishi, who in 2021 was appointed president and CEO of American Savings Bank. Together with our 3,600 fellow employees, we’re grateful to Connie for her leadership and long-standing service to our companies and Hawai‘i. Forward Thinking, Forward Acting We’re committed to doing our part to build a future for Hawai‘i that is economically, environmentally and socially sustainable. We’re acutely aware that continued success will require teamwork, discipline, imagination and thoughtful action as we meet the challenges that lie ahead. On behalf of our employees, our leadership and our Board, I wish to thank you, our shareholders, for your confidence and support of the important work we are doing. Together with you, and through the integrated efforts of our companies, we will achieve our aim to put Hawai‘i at the forefront of clean energy, to create a sustainable and growing local economy, and to empower our families and communities to flourish. Me ke aloha pumehana – with warm regards, Scott W. H. Seu HEI President and Chief Executive Officer From everyone at HEI, mahalo Connie for your leadership. Connie Lau joined the HEI family of companies in 1984 and held the top post at HEI from 2006 to 2021. She served as president and CEO of American Savings Bank from 2001 to 2008, and prior to that, held key leadership positions at HEI and Hawaiian Electric. Her career with HEI and its subsidiaries spanned numerous leadership roles and included spearheading key initiatives that transformed the companies. In 2008, she signed the agreement with the governor and other leaders that set the course for Hawaiian Electric’s clean energy transition as part of the Hawai‘i Clean Energy Initiative. She also led the transformation of American Savings Bank from a thrift institution to a full-service community bank that is now the third largest bank in the state. 8 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 8 3/8/22 9:43 AM Hawaiian Electric Industries, Inc. 2021 Annual Report to Shareholders UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 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 Hawaiian Electric Industries, Inc. Hawaiian Electric Company, Inc. Commission File Number 1-8503 1-4955 State of Hawaii I.R.S. Employer Identification No. 99-0208097 99-0040500 (State or other jurisdiction of incorporation) 1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813 - Hawaiian Electric Industries, Inc. (HEI) 1001 Bishop Street, Suite 2500, Honolulu, Hawaii 96813 - Hawaiian Electric Company, Inc. (Hawaiian Electric) (Address of principal executive offices and zip code) Registrant’s telephone number, including area code: (808) 543-5662 - HEI (808) 543-7771 - Hawaiian Electric Not applicable (Former name or former address, if changed since last report.) Securities registered pursuant to Section 12(b) of the Act: Registrant Hawaiian Electric Industries, Inc. Title of each class Common Stock, Without Par Value Securities registered pursuant to Section 12(g) of the Act: Registrant Hawaiian Electric Industries, Inc. Hawaiian Electric Company, Inc. Trading Symbol HE Name of each exchange on which registered New York Stock Exchange Title of each class None Cumulative Preferred Stock Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Hawaiian Electric Industries, Inc. Yes ☒ No ☐ Hawaiian Electric Company, Inc. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Hawaiian Electric Industries, Inc. Yes ☐ No ☒ Hawaiian Electric Company, Inc. Yes ☐ No ☒ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Hawaiian Electric Industries, Inc. Yes ☒ No ☐ Hawaiian Electric Company, Inc. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Hawaiian Electric Industries, Inc. Yes ☒ No ☐ Hawaiian Electric Company, Inc. Yes ☒ No ☐ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Hawaiian Electric Industries, Inc.: Large accelerated filer ☒ Smaller reporting company ☐ Large accelerated filer ☐ Smaller reporting company Accelerated filer ☐ Emerging growth company Non-accelerated filer ☐ ☐ Emerging growth company ☐ Accelerated filer Hawaiian Electric Company, Inc.: Non-accelerated filer ☒ ☐ ☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Hawaiian Electric Industries, Inc. Yes ☐ No ☐ Hawaiian Electric Company, Inc. Yes ☐ No ☐ Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Hawaiian Electric Industries, Inc. ☒ Hawaiian Electric Company, Inc. ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Hawaiian Electric Industries, Inc. Yes ☐ No ☒ Hawaiian Electric Company, Inc. Yes ☐ No ☒ Aggregate market value of the voting and non- voting common equity held by non-affiliates of the registrants as of June 30, 2021 Number of shares of common stock outstanding of the registrants as of June 30, 2021 February 11, 2022 Hawaiian Electric Industries, Inc. (Without Par Value) Hawaiian Electric Company, Inc. ($6-2/3 Par Value) $4,621,670,518 109,311,034 109,311,785 None 17,324,376 17,753,533 DOCUMENTS INCORPORATED BY REFERENCE Hawaiian Electric’s Exhibit 99.1, consisting of: Hawaiian Electric’s Directors, Executive Officers and Corporate Governance—Part III Hawaiian Electric’s Executive Compensation—Part III Hawaiian Electric’s Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters— Part III Hawaiian Electric’s Certain Relationships and Related Transactions, and Director Independence—Part III Hawaiian Electric’s Principal Accounting Fees and Services—Part III Selected sections of Proxy Statement of HEI for the 2022 Annual Meeting of Shareholders to be filed-Part III This combined Form 10-K represents separate filings by Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc. Information contained herein relating to any individual registrant is filed by each registrant on its own behalf. Hawaiian Electric makes no representations as to any information not relating to it or its subsidiaries. TABLE OF CONTENTS Glossary of Terms Cautionary Note Regarding Forward-Looking Statements Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Information About Our Executive Officers (HEI) PART I PART II Item 5. Item 6. Item 7. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities [Reserved] Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures about Market Risk Item 8. Item 9. Item 9A. Item 9B. Item 9C Item 10. Item 11. Item 12. Item 13. Item 14. Item 15. Item 16. Signatures Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Disclosure Regarding Foreign Jurisdictions that Prevent Inspections PART III Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services PART IV Exhibits and Financial Statement Schedules Form 10-K Summary Page ii v 1 20 34 34 34 34 35 36 36 37 77 80 179 179 180 180 180 181 182 182 183 183 183 195 i Defined below are certain terms used in this report: GLOSSARY OF TERMS Terms ABO ACL AES Hawaii AFS AFUDC AOCI APBO ARA ARO ASB ASB Hawaii ASC ASU Btu CARES Act CBRE CERCLA Company Consolidated Financial Statements Definitions Accumulated benefit obligation Allowance for credit losses as determined under the credit loss standard (ASU No. 2016-13, adopted by the Company on January 1, 2020), which requires the measurement of lifetime expected credit losses for financial assets held at the reporting date (based on historical experience, current conditions and reasonable and supportable forecasts) AES Hawaii, Inc. Available-for-sale Allowance for funds used during construction Accumulated other comprehensive income (loss) Accumulated postretirement benefit obligation Annual revenue adjustment Asset retirement obligations American Savings Bank, F.S.B., a wholly-owned subsidiary of ASB Hawaii Inc. ASB Hawaii, Inc., a wholly-owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B. Accounting Standards Codification Accounting Standards Update British thermal unit The Coronavirus Aid, Relief, and Economic Security Act enacted March 27, 2020 Community-based renewable energy Comprehensive Environmental Response, Compensation and Liability Act When used in Hawaiian Electric Industries, Inc. sections and in the Notes to Consolidated Financial Statements, “Company” refers to 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 (listed under Pacific Current); and The Old Oahu Tug Service, Inc. . When used in Hawaiian Electric Company, Inc. sections, “Company” refers to Hawaiian Electric Company, Inc. and its direct subsidiaries. HEI’s or Hawaiian Electric’s Consolidated Financial Statements, including notes, in Item 8 of this Form 10-K Consumer Advocate Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii D&O DBF DER Dodd-Frank Act DOH DRAC DRIP DSM ECRC EIP EPA EPRM EPS ERISA ERL ERP/EAM ESG ESM Exchange Act FASB FDIC Decision and order from the PUC State of Hawaii Department of Budget and Finance Distributed energy resources Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 State of Hawaii Department of Health Demand response adjustment clause HEI Dividend Reinvestment and Stock Purchase Plan Demand side management Energy cost recovery clause 2010 Equity and Incentive Plan, as amended Environmental Protection Agency - federal Exceptional Project Recovery Mechanism Earnings per share Employee Retirement Income Security Act of 1974, as amended Environmental Response Law of the State of Hawaii Enterprise Resource Planning/Enterprise Asset Management Environmental, Social & Governance Earnings Sharing Mechanism Securities Exchange Act of 1934 Financial Accounting Standards Board Federal Deposit Insurance Corporation ii Terms Definitions GLOSSARY OF TERMS (continued) federal FERC FHLB FHLMC FICO Fitch FNMA FRB GAAP GHG GNMA Gramm Act Hamakua Energy Hawaii Electric Light Hawaiian Electric U.S. Government Federal Energy Regulatory Commission Federal Home Loan Bank Federal Home Loan Mortgage Corporation Fair Isaac Corporation Fitch Ratings, Inc. Federal National Mortgage Association Federal Reserve Board Accounting principles generally accepted in the United States of America Greenhouse gas Government National Mortgage Association Gramm-Leach-Bliley Act of 1999 Hamakua Energy, LLC, an indirect subsidiary of Pacific Current Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc. 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 Hawaiian Electric’s MD&A Hawaiian Electric Company, Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K 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. HEI’s 2022 Proxy Statement Selected sections of Proxy Statement for the 2022 Annual Meeting of Shareholders of Hawaiian Electric Industries, Inc. to be filed after the date of this Form 10-K and not later than 120 days after December 31, 2021, which are incorporated in this Form 10-K by reference HEI’s MD&A Hawaiian Electric Industries, Inc.’s Management’s Discussion and Analysis of Financial Condition and HEIRSP HELOC HPOWER HSFO HTM IPP Ka‘ie‘ie Waho Kalaeloa kW kWh LSFO LTIP Maui Electric Mauo MBtu MD&A Moody’s MPIR MSR MW MWh NA NII NPBC NPPC O&M OCC OPEB Results of Operations in Item 7 of this Form 10-K Hawaiian Electric Industries Retirement Savings Plan Home equity line of credit City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant High sulfur fuel oil Held-to-maturity Independent power producer Ka‘ie‘ie Waho Company, LLC, a subsidiary of Pacific Current Kalaeloa Partners, L.P. Kilowatt/s (as applicable) Kilowatt-hour/s (as applicable) Low sulfur fuel oil Long-term incentive plan Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc. Mauo, LLC, a subsidiary of Pacific Current Million British thermal unit Management’s Discussion and Analysis of Financial Condition and Results of Operations Moody’s Investors Service’s Major Project Interim Recovery Mortgage servicing right Megawatt/s (as applicable) Megawatt-hour/s (as applicable) Not applicable Net interest income Net periodic benefits costs Net periodic pension costs Other operation and maintenance Office of the Comptroller of the Currency Postretirement benefits other than pensions iii Terms Definitions GLOSSARY OF TERMS (continued) OTS Pacific Current PBO PBR PCB PGV PIMs PPA PPAC PUC PURPA PV QF QTL RAM RBA Registrant REIP RFP RHI ROACE RORB RPS S&P SEC See SLHCs SPRBs SSM state Tax Act TDR TOOTS ULSD Utilities VIE Office of Thrift Supervision, Department of Treasury Pacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings, LLC, Mauo, LLC, Alenuihaha Developments, LLC, Ka‘ie‘ie Waho Company, LLC, Ka‘aipua‘a, LLC, Upena, LLC and Mahipapa, LLC Projected benefit obligation Performance-based regulation Polychlorinated biphenyls Puna Geothermal Venture Performance incentive mechanisms Power purchase agreement Purchased power adjustment clause Public Utilities Commission of the State of Hawaii Public Utility Regulatory Policies Act of 1978 Photovoltaic Qualifying Facility under the Public Utility Regulatory Policies Act of 1978 Qualified Thrift Lender Revenue adjustment mechanism Revenue balancing account Each of Hawaiian Electric Industries, Inc. and Hawaiian Electric Company, Inc. Renewable Energy Infrastructure Program Request for proposals Renewable Hawaii, Inc., a wholly-owned nonregulated subsidiary of Hawaiian Electric Company, Inc. Return on average common equity Return on rate base Renewable portfolio standards S&P Global Ratings Securities and Exchange Commission Means the referenced material is incorporated by reference (or means refer to the referenced section in this document or the referenced exhibit or other document) Savings & Loan Holding Companies Special Purpose Revenue Bonds Shared Savings Mechanism State of Hawaii 2017 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) Troubled debt restructuring The Old Oahu Tug Service, Inc., a wholly-owned inactive subsidiary of Hawaiian Electric Industries, Inc. Ultra-low sulfur diesel Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited Variable interest entity iv Cautionary Note Regarding Forward-Looking Statements This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking statements are not guarantees of future performance and actual results and financial condition may differ materially from those indicated in the forward-looking statements. Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following: • international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of future Federal government shutdowns, including the impact to our customers’ ability to pay their electric bills and/or bank loans and the impact on the state of Hawaii economy; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; the potential impacts of global and local developments (including global economic conditions and uncertainties, unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic or other crisis); the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; and pandemics; • the extent of the impact of the COVID-19 pandemic, including the duration, spread, severity and any recurrence of the COVID-19 pandemic due to new variants or insufficient vaccinations, the duration and scope of related government orders and restrictions, the impact on our employees, customers and suppliers, and the impact of the COVID-19 pandemic on the overall demand or ability to pay for the Company’s goods and services, all of which could be affected by the pace of distribution, administration, and efficacy of COVID-19 vaccines over the short- and long-term, as well as the proportion of the population vaccinated; • ability to adequately address risks and capitalize on opportunities related to our environmental, social and governance (ESG) priority areas, which currently include decarbonization, economic health and affordability, reliability and resilience, secure digitalization, diversity, equity and inclusion, employee engagement, and climate-related risks and opportunities; • citizen activism, including civil unrest, especially in times of severe economic depression and social divisiveness, which could negatively impact customers and employees, impair the ability of the Company and the Utilities to operate and maintain their facilities in an effective and safe manner, and citizen or stakeholder activism that could delay the construction, increase project costs or preclude the completion, of third-party or Utility projects that are required to meet electricity demand, resilience and reliability objectives and renewable portfolio standards (RPS) and other climate-related goals; • the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling or budget funding, monetary policy, trade policy and tariffs, energy and environmental policy, and other policy and regulatory changes advanced or proposed by President Biden and his administration; • weather, natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the increasing effects of climate change, such as more severe storms, flooding, droughts, heat waves, and rising sea levels) and wildfires, including their impact on the resilience and reliability and cost of the Company’s and Utilities’ operations and the economy; • the timing, speed and extent of changes in interest rates and the shape of the yield curve, which could result in lower portfolio yields and net interest margin, or higher borrowing costs; • the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the potential higher cost of such financings, if available; • the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale, and the risks inherent in changes in the value of the Company’s pension liabilities, including changes driven by interest rates and mortality improvements; • changes in laws, regulations (including tax regulations), market conditions, interest rates and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements; • the impact of the Economic Growth, Regulatory Relief and Consumer Protection Act which became Public Law No.: 115-174 on May 24, 2018, and its associated rules and regulations; • increasing competition in the banking industry from traditional financial institutions as well as from non-traditional providers of financial services, including financial service subsidiaries of commercial and manufacturing companies (e.g., increased price v competition for deposits, or an outflow of deposits to alternative investments or platforms, which may have an adverse impact on ASB’s cost of funds); • the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy proposals and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet RPS and other climate-related goals; the impacts of implementation of the renewable energy proposals on future costs of electricity and potential penalties imposed by the PUC for delays in the commercial operations of renewable energy projects; • the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC, the PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC; • the ability of the Utilities to recover undepreciated cost of fossil fuel generating units, if they are required to be retired before the end of their expected useful life; • capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand; • 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), annual revenue adjustment (ARA) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatt-hour sales; • the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by the annual revenue adjustment (ARA), while providing the customer dividend required by performance-based regulation (PBR); • the ability of the Utilities to achieve performance incentive goals currently in place; • the impact from the PUC’s implementation of PBR for the Utilities pursuant to Act 005, Session Laws 2018, including the potential addition of new performance incentive mechanisms (PIMs), third-party proposals adopted by the PUC in its implementation of PBR, and the implications of not achieving performance incentive goals; • the impact of fuel price levels and volatility on customer satisfaction and political and regulatory support for the Utilities; • the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid; • the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage; • the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs); • the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units; • the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements and avoid or mitigate labor disputes and work stoppages; • new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels, including use of digital currencies, which could include a central bank digital currency; • cybersecurity risks and the potential for cyber incidents, including potential incidents at HEI, its third-party vendors, and its subsidiaries (including at ASB branches, electric utility plants and IPP-owned facilities) and incidents at data processing centers used, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general IT controls; • failure to achieve remaining cost savings commitment related to the management audit committed savings of $33 million over the 2021 to 2025 multi-year rate period (MRP); • federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation and tax rates, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon pricing or “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation); vi • developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies; • discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight; • decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise); • decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS); • potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy); • the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers); • changes in accounting principles applicable to HEI and its subsidiaries, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting related to PBR or other regulatory changes, the effects of potentially required consolidation of variable interest entities (VIEs), or required finance lease or on-balance-sheet operating lease accounting for PPAs with IPPs; • downgrades by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and their impact on results of financing efforts; • faster than expected loan prepayments that can cause a decrease in net interest income and portfolio yields, an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB; • changes in ASB’s loan portfolio credit profile and asset quality and/or mix, which may increase or decrease the required level of provision for credit losses, allowance for credit losses (ACL) and charge-offs; • changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds; • unanticipated changes from the expected discontinuance of LIBOR and the transition to an alternative reference rate, which may include adverse impacts to the Company’s cost of capital, loan portfolio and interest income on loans; • the final outcome of tax positions taken by HEI and its subsidiaries; • the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits), and the risks associated with the operation of transmission and distribution assets and power generation facilities, including public and employee safety issues, and assets causing or contributing to wildfires; • the ability of the Company’s non-regulated subsidiary, Pacific Current, LLC (Pacific Current), to achieve its performance and growth objectives, which in turn could affect its ability to service its non-recourse debt; • the Company’s reliance on third parties and the risk of their non-performance, which has increased due to the impact from the COVID-19 pandemic; and • other risks or uncertainties described elsewhere in this report (e.g., Item 1A. Risk Factors) and in other reports previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission (SEC). 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. vii ITEM 1. BUSINESS HEI Consolidated PART I HEI and subsidiaries and lines of business. HEI is a holding company with its subsidiaries principally engaged in electric utility, banking, and non-regulated renewable/sustainable infrastructure businesses operating in the State of Hawaii. As a holding company with no significant operations of its own, HEI’s sources of funds are dividends or other distributions from its operating subsidiaries, borrowings, and sales of equity. The rights of HEI and its creditors and shareholders to participate in any distribution of the assets of any of HEI’s subsidiaries are subject to the prior claims of the creditors and preferred shareholders of such subsidiary, except to the extent that claims of HEI in its capacity as a creditor are recognized as primary. The abilities of certain of HEI’s subsidiaries to pay dividends or make other distributions to HEI are subject to contractual and regulatory restrictions (see Note 14 of the Consolidated Financial Statements). HEI is headquartered in Honolulu, Hawaii and has three reportable segments—Electric utility, Bank, and Other. Electric Utility. Hawaiian Electric and its operating utility subsidiaries, Hawaii Electric Light Company, Inc. (Hawaii Electric Light) and Maui Electric Company, Limited (Maui Electric), are regulated electric public utilities that provide essential electric service to approximately 95% of Hawaii’s population through the operation of five separate grids that serve communities on the islands of Oahu, Hawaii, Maui, Lanai and Molokai. See also “Electric utility” section below. Bank. ASB is one of the largest financial institutions in the State of Hawaii (based on total assets), with assets totaling approximately $9.2 billion as of December 31, 2021. ASB provides a wide array of banking and other financial services to Hawaii consumers and businesses. See also “Bank” section below. Other. The “Other” segment is composed of HEI’s corporate-level operating, general and administrative expenses and the results of Pacific Current, LLC (Pacific Current). Pacific Current was formed in September 2017 to focus on investing in non- regulated clean energy and sustainable infrastructure in the State of Hawaii to help reach the state’s sustainability goals. See also “Electric utility—Hawaii Electric Light firm capacity PPAs” section below and Note 2 of the Consolidated Financial Statements for additional information on Pacific Current activities. The “Other” segment also includes ASB Hawaii, Inc. (ASB Hawaii) (a holding company), which owns ASB, and The Old Oahu Tug Service, Inc. (TOOTS), which is inactive. Additional information. For additional information about HEI, see HEI’s MD&A, HEI’s “Quantitative and Qualitative Disclosures about Market Risk” and HEI’s Consolidated Financial Statements. The Company’s website address is www.hei.com, where annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports (last 10 years) are made available free of charge in the Investor Relations section as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC (and available at the SEC’s website at www.sec.gov). The information on the Company’s website is not incorporated by reference in this annual report on Form 10-K unless, and except to the extent, specifically incorporated herein by reference. HEI and Hawaiian Electric intend to continue to use HEI’s website as a means of disclosing additional information. Accordingly, investors should routinely monitor such portions of HEI’s website, in addition to following HEI’s, Hawaiian Electric’s and ASB’s press releases, SEC filings and public conference calls and webcasts. Investors may also wish to refer to the PUC website at dms.puc.hawaii.gov/dms in order to review documents filed with and issued by the PUC. No information at the PUC website is incorporated herein by reference, and the Company has no control over its accuracy or completeness. Regulation. HEI and Hawaiian Electric are each holding companies within the meaning of the Public Utility Holding Company Act of 2005 and implementing regulations, which requires holding companies and their subsidiaries to grant the Federal Energy Regulatory Commission (FERC) access to books and records relating to FERC’s jurisdictional rates. FERC granted HEI and Hawaiian Electric a waiver from its record retention, accounting and reporting requirements, effective May 2006. HEI is subject to an agreement entered into with the PUC (the PUC Agreement) which, among other things, requires PUC approval of any change in control of HEI. The PUC Agreement also requires HEI to provide the PUC with periodic financial information and other reports concerning intercompany transactions and other matters. It also prohibits the electric utilities from loaning funds to HEI or its nonutility subsidiaries and from redeeming common stock of the electric utility subsidiaries without PUC approval. Further, the PUC could limit the ability of the electric utility subsidiaries to pay dividends on their common stock. See also Note 14 of the Consolidated Financial Statements and “Electric utility—Regulation” below. In October 2021, Pacific Current requested informal guidance from the PUC regarding application of the affiliate transaction requirements (ATRs) to certain investments. In response, in January 2022, the PUC issued guidance (Order No. 38186, Docket No. 2018-0065) providing that, if Pacific Current acquires or invests in an unaffiliated entity that has been awarded a power purchase agreement with the Utilities through the Stage 1 or 2 RFPs, such entity would become an “Affiliate” 1 or “Affiliate-Related Entity” under the ATRs, and any wholesale power transactions between the entity and the Utilities, including under the awarded power purchase agreement, would require PUC review and approval. Such a requirement may impact Pacific Current’s competitiveness in acquiring and investing in new utility-scale projects in the Utilities’ service territory and thereby impact the pace and extent of Pacific Current’s growth. Pacific Current is still reviewing the guidance and has not yet determined its impact. HEI and ASB Hawaii are subject to Federal Reserve Board (FRB) regulation, supervision and reporting requirements as savings and loan holding companies. As a result of the enactment of the Dodd-Frank Act, supervision and regulation of HEI and ASB Hawaii, as thrift holding companies, moved to the FRB, and supervision and regulation of ASB, as a federally chartered savings bank, moved to the Office of the Comptroller of the Currency (OCC) in July 2011. In the event the OCC has reasonable cause to believe that any activity of HEI or ASB Hawaii constitutes a serious risk to the financial safety, soundness or stability of ASB, the OCC is authorized to impose certain restrictions on HEI, ASB Hawaii and/or any of their subsidiaries. Possible restrictions include precluding or limiting: (i) the payment of dividends by ASB; (ii) transactions between ASB, HEI or ASB Hawaii, and their subsidiaries or affiliates; and (iii) any activities of ASB that might expose ASB to the liabilities of HEI and/or ASB Hawaii and their other affiliates. See also Note 14 of the Consolidated Financial Statements. The Gramm-Leach-Bliley Act of 1999 (Gramm Act) permitted banks, insurance companies and investment firms to compete directly against each other, thereby allowing “one-stop shopping” for an array of financial services. Although the Gramm Act further restricted the creation of so-called “unitary savings and loan holding companies” (i.e., companies such as HEI whose subsidiaries include one or more savings associations and one or more nonfinancial subsidiaries), the unitary savings and loan holding company relationship among HEI, ASB Hawaii and ASB is “grandfathered” under the Gramm Act so that HEI and its subsidiaries will be able to continue to engage in their current activities so long as ASB maintains its qualified thrift lender (QTL) status test discussed under “Bank—Regulation—Qualified thrift lender test.” ASB met the QTL test at all times during 2021; however, the failure of ASB to satisfy the QTL test in the future could result in a need for HEI to divest ASB. Under the Gramm Act, any proposed sale of ASB would have to satisfy applicable statutory and regulatory requirements and potential acquirers of ASB would most likely be limited to companies that are already qualified as, or capable of qualifying as, either a traditional savings and loan association holding company or a bank holding company, or as one of the authorized financial holding companies permitted under the Gramm Act. HEI is also affected by provisions of the Dodd-Frank Act relating to corporate governance and executive compensation, including provisions requiring shareholder “say on pay” and “say on pay frequency” votes, mandating additional disclosures concerning executive compensation and compensation consultants and advisors and further restricting proxy voting by brokers in the absence of instructions. See “Bank—Legislation and regulation” in HEI’s MD&A for a discussion of effects of the Dodd- Frank Act on HEI and ASB. Environmental regulation. HEI and its subsidiaries are subject to federal and state statutes and governmental regulations pertaining to water quality, air quality and other environmental factors. See the “Environmental regulation” discussions in the “Electric utility” and “Bank” sections below, and Note 1 of the Consolidated Financial Statements. Human Capital Resources. Employees. The Company had total and full-time employees as follows: December 31 2021 2020 2019 HEI and Pacific Current Hawaiian Electric and its subsidiaries ASB Total employees 49 2,504 1,096 3,649 Full-time employees 49 2,469 1,079 3,597 Total employees 49 2,636 1,084 3,769 Full-time employees 49 2,579 1,064 3,692 Total employees 50 2,720 1,139 3,909 Full-time employees 50 2,675 1,111 3,836 The employees of HEI and its direct and indirect subsidiaries, other than the electric utilities, are not covered by any collective bargaining agreement. The International Brotherhood of Electrical Workers Local 1260 represents roughly half of the Utilities’ workforce covered by a collective bargaining agreement that expires on October 31, 2024. Diversity & inclusion. The diversity of the Company’s workforce, which includes diversity of people, backgrounds, experiences, thoughts and perspectives, gives the Company an advantage that helps guide the Company’s decision-making and its ability to meet its customers’ and community’s needs. Additionally, because the Company’s businesses operate exclusively in Hawaii, which is one of the most racially diverse states in the U.S., the Company believes it is important that its workforce reflects this diversity. The diversity information that follows is based on total employees, including employees on long-term leave, part-time employees and temporary employees. 2 Diversity representation HEI5 Hawaiian Electric ASB Female 33.3% 81.8% 67.3% Racially diverse1 55.6% 72.7% 83.7% Female 40.0% 28.3% 28.7% Racially diverse1 66.7% 84.5% 90.3% Executives2 Leaders3 All workforce4 1 Racially diverse defined as all races/ethnicities that are not ‘White’ (as defined by the EEO-1 categories) 2 Executives includes EE0-1 category 1.1-Executive/Sr. Level Officials 3 Leaders includes EE0-1 category 1.2-First/Mid-Level Officials 4 All Workforce includes EE0-1 categories 1.1-Executive/Sr. Level Officials, 1.2-First/ Mid-Level Officials, 2-Professionals, 3-Technicians, 4-Sales Workers, 5-Administrative Support Workers, 6-Craft Workers, 7-Operatives, 8-Laborers and Helpers, 9-Service Workers 5 Includes Pacific Current employees Racially diverse1 80.0% 82.2% 89.0% Female 40.0% 64.3% 66.0% Racial composition White Asian Black Hispanic Native Hawaiian or other Pacific Islander American Indian or Alaska Native Hawaii1 21.5% 38.1% 1.8% 10.7% 9.9% 0.2% HEI2 16.3% 57.1% 2.0% 2.0% 6.1% 2.0% Diversity-All workforce Hawaiian Electric 9.7% 52.8% 0.5% 4.6% 10.6% 0.3% ASB 11.0% 58.9% 1.1% 4.7% 14.2% 0.3% 9.8% Two or more races 1 Source: 2019 U.S. Census Bureau American Community Survey-Data Profile. While 2020 experimental estimates (pandemic-related) were 17.8% 21.5% 14.5% available at the time of analysis, 2019 data was used to maintain consistency with previous analyses. U.S. Census Bureau guidance recommends against comparing 2020 experimental estimates with standard estimates. 2 Includes Pacific Current employees Employee development & training. In order to meet the changing demands of the industries in which the Company operates, address the needs of the Company's stakeholders, and design and carry out the Company's strategies, it is crucial for the Company’s workforce to be highly skilled in their areas of focus. As such, the Company prioritizes specific skill enhancement training as well as industry and leadership development programs. Hawaiian Electric. Hawaiian Electric offers Hawaiian Electric and HEI holding company employees skills and professional training programs, including leadership development courses, employee development courses, technical training, apprenticeship programs, operational, environmental compliance, cybersecurity awareness and required safety training. Hawaiian Electric also offers tailored leadership development programs, including supervisor training to transition new supervisors to critical operational, administrative, and leadership roles as well as leadership and employee assessments geared to improve productivity and effectiveness in the workplace. Leadership development metrics are included in executive and management incentive plans. Learning and development initiatives are integrated with annual performance evaluations to reinforce development as integral parts of individual performance goals. Annual succession planning ensures the identification and development of successors, high potential individuals, and nurtures a leadership pipeline. ASB. ASB invests in continuous training and development of its employees. Curriculum includes technical banker training programs that cover all aspects of banking laws, banking operations, new product and service offerings, legal and regulatory compliance and company procedures and ethics. The Bank delivers company-wide financial education, empowering its employees to make wise personal decisions to help meet their financial goals and provide valuable customer guidance. ASB offers opportunities for all employees to grow and build their careers, through a multitude of soft skills training and leadership programs, including Leadership Forums, Trust, Emotional Intelligence, Embracing and Driving Change, Diversity and Inclusion, and Respect in the Workplace. ASB further invests in leadership development through their leadership cohort programs, designed to help employees grow professionally and personally, enhance their leadership skills, and broaden their understanding of the banking industry. These include Rise, a 6-month development experience for mid-level managers, and Leadership Academy, a robust 12-15 month program for well-established leaders. Offerings are delivered in online, instructor- led, and on-the-job learning formats. ASB’s focus on meaningful growth and development opportunities positions the Bank to recruit and retain top talent. Safety and health. As a key priority, the Company strives to create workplace environments where employees feel physically and emotionally safe. For the Utility, safety is of paramount importance due to the inherent risks involved in certain aspects of its operations and the critical importance to the State of Hawaii of maintaining the electrical grid. During the 3 COVID-19 pandemic, the Company has continued to modify its operations and policies to align with guidance from the Centers of Disease Control and Prevention and the Hawaii Department of Health. The Company also monitors the rates of infection within the state and makes adjustments, accordingly, to limit the risk of transmission in the workplace and ensure the health of the Company’s employees. Hawaiian Electric. Hawaiian Electric is committed to maintaining a strong safety culture. Due to the nature of its operations, safety is of paramount importance. Management strives to provide visible leadership and strategic direction for the health and safety management system and programs in their area of responsibility. This leadership and direction help to build and maintain a strong safety culture and drive safety improvement, allocates adequate resources to enable implementation of safety programs and holds leaders accountable for the implementation of safety programs and resulting health and safety performance. Executive compensation is tied to achievement of quantified severity and total case incident rate targets (TCIR). These targets reward improvements in workplace safety, promote employee well-being, and reduce expenses. Hawaiian Electric promotes a safety culture that aims for zero incidents through all employees taking ownership of safety for themselves, their co- workers, contractors, and the public. More information on such targets is available in HEI’s annual proxy statement. Hawaiian Electric also provides a variety of programs and benefits that support employee physical, financial and emotional well-being. These programs include access to fitness and yoga classes, online corporate wellness activities and education, gym and group fitness discounts, and financial well-being classes. ASB. ASB is committed to supporting the continued health and safety of its employees through a wellness program which takes a holistic approach to improving the health and well-being of its employees by focusing on all aspects of wellness including nutrition, fitness, mindfulness and finances. ASB also encourages participation in the program through its annual bank-wide step and weight loss challenges and community charity walks. ASB also offers outdoor and virtual fitness classes, including high intensity interval training and yoga. ASB’s employees can also participate in a program which allows employees to enjoy national fitness center chains or workout in their homes at a reduced price. To further support ASB’s employees’ well- being, ASB rewards everyone who completes an annual preventative health screening with a Wellness Holiday, offers a robust employee assistance program, and provides many family friendly benefits, including generous and gender-neutral parental leave. Workforce Stability. The Company’s employees are its greatest asset and the Company strives to create a highly desirable place to work. Hawaiian Electric. Hawaiian Electric seeks to provide compensation and benefits that are comprehensive, market- competitive, and internally equitable to attract, engage, and retain highly skilled employees. Hawaiian Electric believes that employee engagement is key to creating a desirable, inclusive, rewarding place to work and conducts employee engagement surveys on a regular cycle, and, more recently, change management surveys to assess and support the organizations’ adaptability to change. Hawaiian Electric is expanding its strategic workforce planning initiative to build its workforce to support future transformation plans. ASB. ASB seeks to attract, develop, and retain high performers who not only excel at their jobs but who also align with ASB’s priorities and objectives. ASB strives to provide competitive pay and benefits and an award-winning culture that attracts top talent. ASB regularly conducts anonymous employee surveys to gather feedback on their work experience. Topics covered include confidence in company leadership, career growth opportunities, diversity and inclusion, and suggestions on how to create a great place to work. Survey results are shared with leaders, who prioritize actions and activities in response to feedback to drive meaningful improvements in employee engagement. ASB’s talent management process is integrated into its business process and its human capital management strategy is part of its business strategy. ASB’s investment in creating a great place to work and innovative, inclusive programs have resulted in it being recognized both locally and nationally for its workplace culture. Properties. HEI leases office space from nonaffiliated lessors in downtown Honolulu under leases that expire in December 2022. See “Electric Utility” and “Bank” sections for a description of properties they own and lease. Hamakua Energy, LLC (Hamakua Energy), an indirect wholly owned subsidiary of Pacific Current, which is included in the “Other” segment, owns a 60-MW dual-train combined-cycle facility and a total of approximately 93 acres located on the Hamakua coast on the island of Hawaii. Its power plant is situated on approximately 59 acres and the remaining 34 acres includes surrounding parcels of which 30 acres are located on the ocean front. Ka‘ie‘ie Waho Company, LLC (Ka‘ie‘ie Waho), a wholly owned subsidiary of Pacific Current, owns a 6-MW solar photovoltaic facility located on approximately 20 acres on the southern coast of the island of Kauai. Electric utility Hawaiian Electric and subsidiaries and service areas. Hawaiian Electric, Hawaii Electric Light and Maui Electric (Utilities) are regulated operating electric public utilities engaged in the production, purchase, transmission, distribution and sale of electricity on the islands of Oahu; Hawaii; and Maui, Lanai and Molokai, respectively. 4 In 2021, the electric utilities’ revenues and net income amounted to approximately 89% and 72% respectively, of HEI’s consolidated revenues and net income, compared to approximately 88% and 86% in 2020 and approximately 89% and 72% in 2019, respectively. The islands of Oahu, Hawaii, Maui, Lanai and Molokai have a combined population estimated at 1.3 million, or approximately 95% of the total population of the State of Hawaii, and comprise a service area of 5,815 square miles. The principal communities served include Honolulu (on Oahu), Hilo and Kona (on Hawaii) and Wailuku and Kahului (on Maui). The service areas also include numerous suburban communities, resorts, U.S. Armed Forces installations and agricultural operations. In November 2020, the PUC approved Hawaiian Electric’s acquisition of the electric distribution systems serving 12 U.S. Army installations on Oahu, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort Shafter and Army housing areas. The state has granted Hawaiian Electric, Hawaii Electric Light and Maui Electric nonexclusive franchises, which authorize the Utilities to construct, operate and maintain facilities over and under public streets and sidewalks. Each of these franchises will continue in effect for an indefinite period of time until forfeited, altered, amended or repealed. Climate change action plan. The Utilities have set an aggressive goal to cut carbon emissions from power generation 70% by 2030, compared with 2005 levels. The emissions covered by this goal include stack emissions from generation owned by Hawaiian Electric and independent power producers (IPPs) who sell electricity to the Utilities. In addition, the Utilities have committed to achieving net zero carbon emissions from power generation by 2045 or sooner. These commitments are aligned with the Intergovernmental Panel on Climate Change recommendation of no more than 1.5°C average global warming to avoid potentially devastating climate events. Key elements of the 2030 plan to reduce emissions include: • The closing of the state’s last coal plant in 2022 upon expiry of the PPA • Adding nearly 50,000 rooftop solar systems, more than a 50% increase, compared to the approximately 90,000 systems online in 2021 • Retiring at least six fossil-fueled generating units and significantly reducing the use of others as new renewable resources come online • Adding additional renewable energy projects capable of generating a total of at least 1 gigawatt beyond resources in place in 2021, including shared solar (community-based renewable energy) • Using more grid-scale and customer-owned energy storage • Expanding geothermal resources • Creating innovative programs that provide customers incentives for using clean, lower-cost energy at certain times of the day and using less fossil-fueled energy at night By 2030, Hawaiian Electric’s renewable portfolio standard is expected to exceed 70%, with renewable resources available to provide close to 100% of the electricity generated on Hawaii Island and in Maui County. Achieving the 70% carbon emissions reduction by 2030 is highly dependent on the successful completion of renewable IPP projects under Phase 1, Phase 2 and other RFPs. After 2030, progress on elimination of carbon from power generation assumes continued use of proven resources, including wind, solar, geothermal, hydroelectric, biofuels and energy storage, along with the development of new technologies. Those technologies may include offshore wind, green hydrogen, wave energy and carbon-capture—all currently under development around the world—as well as other solutions that will emerge. A diverse portfolio of resources will also enhance resilience to climate-related events. 5 Sales of electricity. Years ended December 31 2021 2020 2019 (dollars in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric * As of December 31. Customer accounts* Electric sales revenues Customer accounts* Electric sales revenues Customer accounts* Electric sales revenues 308,721 $ 1,772,183 307,378 $ 1,592,463 306,368 $ 1,784,982 88,103 73,788 375,775 359,648 87,357 73,304 329,195 317,872 86,576 72,522 360,019 372,034 470,612 $ 2,507,606 468,039 $ 2,239,530 465,466 $ 2,517,035 Regulatory mechanisms. Base electric rates are set in rate cases, and on April 29, 2020, the PUC issued an order terminating the mandatory triennial rate case cycle in anticipation of the performance-based regulation framework (PBR Framework). The regulatory framework in effect in 2020 included a number of mechanisms designed to provide utility financial stability during the transition toward the state’s 100% renewable energy goals. For example, under the sales decoupling mechanism, the Utilities are allowed to recover from customers, target test year revenues, independent of the level of kilowatt- hour (kWh) sales, which declined measured on an annual basis from 2008 to 2018, as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. On December 23, 2020, the PUC issued a D&O in Phase 2 of the PBR proceeding, establishing a new PBR Framework for the Utilities. The PBR Framework includes, among other matters, a five-year multi-year rate plan with an index-driven annual revenue adjustment (ARA), which replaces the RAM, modification of the MPIR mechanism (renamed Exceptional Project Recovery Mechanism (EPRM)) to include deferred and operation and maintenance (O&M) expense projects and to permit the Utilities to include the full amount of approved costs in the EPRM for recovery in the first year the project goes into service, pro-rated for the portion of the year the project is in service, and continuation of (i) the revenue balancing account, (ii) the pension and other postretirement benefit tracking mechanisms, and (iii) energy cost recovery clause, purchased power adjustment clause, and other recovery mechanisms. See “Commitments and contingencies-Regulatory proceedings- Performance-based regulation framework” in Note 3 of the Consolidated Financial Statements. 6 A summary of these regulatory mechanisms, most of which have been either maintained, modified, or approved under PBR as noted, is as follows: Mechanism Sales decoupling Annual Revenue Adjustment (ARA) Exceptional Project Recovery Mechanism (EPRM) Energy cost recovery clause (ECRC) and purchased power adjustment clause (PPAC) Performance incentive mechanism (PIM) / Shared Savings Mechanism (SSM) Pension and other post-employment benefit trackers Renewable energy infrastructure program Expedited Pilot Process Description Provides predictable revenue stream by fixing net revenues at the level approved in last rate case (revenues not linked to kWh sales) Annually adjusts revenue levels during a Multi-Year Rate Period, determined by formula which includes an inflation factor, a predetermined productivity adjustment (currently set at zero), adjustments for exceptional circumstances not in the Utilities’ control and a customer dividend. Reduces regulatory lag and permits recovery of revenues for net costs of approved eligible projects placed in service during the Multi-Year Rate Period through the revenue balancing account (RBA) that is not provided for by other effective tariffs, the ARA, Performance Incentive Mechanism (PIMS) or Shared Savings Mechanisms (SSMs). Allows for timely recovery of fuel and purchased power costs to reduce earnings volatility. Symmetrical fossil fuel cost risk-sharing (98% customer/2% utility) mechanism established for Hawaiian Electric, Hawaii Electric Light and Maui Electric capped at $2.5 million, $0.6 million and $0.6 million annually, respectively. Annually adjusts revenue to recover from or credit customers for specific areas of the Utilities’ performance measured against the PUC’s approved targets. Allow tracking of pension and other post-employment benefit costs and contributions above or below the cost included in rates in a separate regulatory asset/liability account PBR Framework (effective June 2021) Maintained under PBR Replaced the Revenue Adjustment Mechanism (RAM) effective June 1, 2021. The transition to the ARA includes the continuation of the 2020 RAM revenue adjustment. Formerly known as the Major Projects Interim Recovery adjustment mechanism (MPIR). The EPRM was modified to include recovery of both capital and O&M expenses and to permit the Utilities to include the full amount of approved costs for recovery in the first year that projects are placed into service, pro-rated for the portion of the year that projects are in service. Maintained under PBR Maintained under PBR with a portfolio of SSMs and new PIMs added to encourage acceleration in renewables, grid services, interconnection, low-to- moderate income energy efficiency, and advanced metering infrastructure and allows for financial rewards for exemplary performance. Maintained under PBR Permits recovery of renewable energy infrastructure projects through a surcharge Maintained under PBR Fosters innovation by establishing an expedited implementation process for pilots that test new technologies, programs, business models and other arrangements. Proposed pilots are subject to PUC approval with a total annual cap of $10 million. Approved under PBR to allow for timely cost recovery of annual expenditures of approved pilot projects through an adjustment to target revenues. Earnings Sharing Mechanism (ESM) Protects the Utilities and customers from excessive earnings or losses, as measured by the Utilities’ achieved rate making ROACE. Maintained under PBR, adjusted to reflect a symmetrical ESM for achieved rate making ROACE outside of a 300 basis points dead band above or below the current authorized ROACE of 9.5% for each of the Utilities. Seasonality. kWh sales of the Utilities follow a seasonal pattern, but they do not experience extreme seasonal variations experienced by some electric utilities on the U.S. mainland. In Hawaii, kWh sales tend to increase in the warmer, more humid months as a result of increased demand for air conditioning, and with cloudy and rainy weather due to lower production by privately owned customer photovoltaic (PV) systems. In 2021, kWh sales increased compared to the prior year due to the easing of pandemic related restrictions and increased domestic travel to Hawaii, which in turn increased the demand for electricity. Significant customers. The Utilities derived approximately 11% of their operating revenues in each of 2021, 2020 and 2019 from the sale of electricity to various federal government agencies. Hawaiian Electric continues to work with various federal agencies to implement measures that will help them achieve their energy efficiency, resilience and clean energy objectives. 7 Selected consolidated electric utility operating statistics. Years ended December 31 MWh sales (thousands) Residential Commercial Industrial Other MWh net generated and purchased (thousands) Net generated Purchased MWh customer-sited solar (thousands) RPS (%) Losses and system uses (%) Energy supply (December 31) Net generating capability—MW Firm and other purchased capability—MW1 Net peak demand—MW2 Btu per net kWh generated Average fuel oil cost per MBtu (cents) Customer accounts (December 31) Residential Commercial Industrial Other Electric revenues (thousands) Residential Commercial Industrial Other Average revenue per kWh sold (cents) 2021 2020 2019 2018 2017 2,491.6 2,572.5 3,174.3 22.7 8,261.1 4,501.0 4,153.7 8,654.7 1,418.0 38.4 4.3 1,738 540 2,278 1,471 10,988 1,305.4 414,713 54,373 698 828 470,612 2,525.4 2,456.0 3,118.0 20.8 8,120.2 4,629.2 3,896.2 8,525.4 1,325.8 34.5 4.5 1,737 517 2,254 1,471 10,834 1,028.7 412,484 54,035 694 826 468,039 2,439.3 2,793.0 3,467.2 40.5 8,740.0 4,972.7 4,168.6 9,141.3 1,224.6 28.4 4.2 1,737 517 2,254 1,601 10,860 1,337.6 409,689 54,233 700 844 465,466 2,410.8 2,810.8 3,425.1 42.1 8,688.8 4,966.4 4,139.3 9,105.7 948.4 26.7 4.4 1,739 517 2,256 1,598 10,826 1,420.2 407,505 54,075 696 813 463,089 2,334.5 2,867.9 3,443.3 44.7 8,690.4 4,888.4 4,247.1 9,135.5 862.6 26.8 4.7 1,673 551 2,224 1,584 10,812 1,114.3 406,241 53,732 656 1,596 462,225 $ 843,655 $ 802,878 853,293 7,780 691,857 766,921 776,808 12,009 $ 2,507,606 $ 2,239,530 $ 2,517,035 $ 2,526,207 $ 2,247,595 770,135 $ 708,180 754,775 6,440 791,398 $ 829,000 884,722 11,915 788,028 $ 843,326 882,443 12,410 30.35 33.86 31.21 26.88 34.19 27.58 30.50 28.83 24.21 31.01 Residential Commercial Industrial Other Residential statistics Average annual use per customer account (kWh) Average annual revenue per customer account Average number of customer accounts 1 Puna Geothermal Venture (PGV) with 34.6 MW of firm capacity went offline due to lava flow on Hawaii Island since May 2018, but returned to service with firm capacity of 13 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter and continued to provide 23.9 MW for the remainder of 2021. 2 Sum of the net peak demands on all islands served, noncoincident and nonintegrated. 5,779 1,713 403,983 6,022 2,039 $ 6,145 1,874 $ 5,967 1,936 $ 5,923 1,936 $ 413,725 410,973 408,768 407,044 $ 28.80 32.44 29.68 25.52 29.39 29.07 32.69 30.00 25.76 29.47 25.86 29.64 26.74 22.56 26.82 8 Generation statistics. The following table contains certain generation statistics as of and for the year ended December 31, 2021. The net generating and firm purchased capability available for operation at any given time may be more or less than shown because of capability restrictions or temporary outages for inspection, maintenance, repairs or unforeseen circumstances. Hawaiian Electric Island of Oahu Hawaii Electric Light Island of Hawaii Maui Electric Island of Maui Island of Lanai Island of Molokai Total Net generating and firm purchased capability (MW) as of December 31, 20211 Conventional oil-fired steam units Diesel internal combustion engine Simple-cycle combustion turbines Dual train combined-cycle unit Biodiesel internal combustion engine Firm contract power2 Net peak demand (MW)3 Reserve margin Annual load factor 999.5 — 230.8 — 57.4 456.5 1,744.2 1,072.0 61.6% 68.5% 50.1 29.5 46.3 56.3 — 83.9 266.1 193.9 37.2% 65.5% 35.9 96.8 — 113.6 — — 246.3 193.4 30.7% 61.3% MWh net generated and purchased (thousands) 6,435.8 1,112.1 1,038.6 — 9.4 — — — — 9.4 6.1 — 9.8 2.2 — — — 12.0 5.8 1,085.5 145.5 279.3 169.9 57.4 540.4 2,278.0 1,471.2 54.1% 68.2% 36.4 106.9% 62.6% 54.8% 67.2% 31.8 8,654.7 1 Hawaiian Electric units at normal ratings; Hawaii Electric Light and Maui Electric units at reserve ratings. 2 Nonutility generators - Hawaiian Electric: 208 MW (Kalaeloa Partners, L.P., oil-fired), 180 MW (AES Hawaii, Inc., coal-fired) and 68.5 MW (HPOWER, refuse-fired); Hawaii Electric Light: 60 MW (Hamakua Energy, oil-fired). Hawaii Electric Light also has a firm capacity PPA with PGV for 34.6 MW that went offline due to lava flow on Hawaii Island since May 2018, but returned to service with firm capacity of 13 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter. PGV’s capability of 23.9 MW has been incorporated into the utility’s firm contract power capability as of December 31, 2021. 3 Noncoincident and nonintegrated. Generating reliability and reserve margin. Hawaiian Electric serves the island of Oahu and Hawaii Electric Light serves the island of Hawaii. Maui Electric has three separate electrical systems—one each on the islands of Maui, Molokai and Lanai. Hawaiian Electric, Hawaii Electric Light and Maui Electric have isolated electrical systems that are not currently interconnected to each other or to any other electrical grid and, thus, each maintains a higher level of reserve generation and cost structure than is typically carried by interconnected mainland U.S. utilities, which are able to share reserve capacity. These higher levels of reserve margins are required to meet peak electric demands, to provide for scheduled maintenance of generating units (including the units operated by IPPs relied upon for firm capacity) and to allow for the forced outage of the largest generating unit in the system. Nonutility generation. The Utilities have supported state and federal energy policies which encourage the development of renewable energy sources that reduce the use of fuel oil as well as the development of qualifying facilities. The Utilities’ renewable energy sources and potential sources range from wind, solar, photovoltaic, geothermal, wave and hydroelectric power to energy produced by municipal waste and other biofuels. The rate schedules of the electric utilities contain ECRCs and PPACs that allow them to recover costs of fuel and purchase power expenses. In addition to the firm capacity PPAs described below, the electric utilities also purchase energy on an as-available basis directly from nonutility generators and through its Feed-In Tariff programs. The electric utilities also receive renewable energy from customers under its Net Energy Metering and Customer Grid Supply programs. The PUC has allowed rate recovery for the firm capacity and purchased energy costs for the electric utilities’ approved firm capacity and as-available energy PPAs. Hawaiian Electric firm capacity PPAs. Hawaiian Electric currently has three major PPAs that provide a total of 456.5 MW of firm capacity, representing 26% of Hawaiian Electric’s total net generating and firm purchased capacity on the Island of Oahu as of December 31, 2021. 9 In March 1988, Hawaiian Electric entered into a PPA with AES Hawaii, Inc. (AES Hawaii), a Hawaii-based, indirect subsidiary of The AES Corporation. The agreement with AES Hawaii, as amended, provides that, for a period of 30 years beginning September 1992 and ending on September 1, 2022, Hawaiian Electric will purchase 180 megawatts (MW) of firm capacity. The AES Hawaii coal-fired cogeneration plant utilizes a “clean coal” technology. See “Commitments and contingencies–Power purchase agreements–AES Hawaii, Inc.” in Note 3 of the Consolidated Financial Statements for an update regarding this PPA. Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa Partners, L.P. (Kalaeloa). The Kalaeloa facility, which is a Qualifying Facility (QF), is a combined-cycle operation, consisting of two oil-fired combustion turbines burning low sulfur fuel oil (LSFO) and a steam turbine that utilizes waste heat from the combustion turbines. The PPA term ended on May 23, 2016; however, the parties were in negotiations for a new agreement and the PPA automatically extended on a month-to-month basis while the parties were negotiating in good faith. The parties executed an Amended and Restated Power Purchase Agreement on October 29, 2021, which among other provisions extends the term for ten contract years after the effective date. The Amended and Restated Power Purchase Agreement was filed with the PUC on November 24, 2021 for review and approval. Hawaiian Electric also entered into a PPA in March 1986 and a firm capacity amendment in April 1991 with the City and County of Honolulu with respect to a refuse-fired plant (HPOWER). Under the PPA, as amended and restated, Hawaiian Electric is committed to purchase 68.5 MW of firm capacity annually up until the PPA expires on April 2, 2033. Hawaii Electric Light firm capacity PPAs. Hawaii Electric Light has two major PPAs that provide a total of 83.9 MW of firm capacity, representing 32% of Hawaii Electric Light’s total net generating and firm purchased capacity on the Island of Hawaii as of December 31, 2021. In October 1997, Hawaii Electric Light entered into an agreement with Encogen, which was succeeded by Hamakua Energy Partners, L. P. (HEP). The agreement requires Hawaii Electric Light to purchase up to 60 MW (net) of firm capacity for a period of 30 years, expiring on December 31, 2030. The dual-train combined-cycle facility consists of two oil-fired combustion turbines and a steam turbine that utilizes waste heat from the combustion turbines, which primarily burns naphtha (a mixture of liquid hydrocarbons) and, starting in late 2019, biodiesel (comprising approximately 21% of the fuel mix in 2021). In November 2017, Hamakua Energy, an indirect subsidiary of HEI, purchased the plant from HEP. Hawaii Electric Light has a 35-year PPA, as amended, with Puna Geothermal Venture (PGV) for 34.6 MW of firm capacity from its geothermal steam facility, which will expire on December 31, 2027. However, the PGV facility went offline in May 2018 due to lava flow on Hawaii Island. In March 2019, Hawaii Electric Light entered into a Rebuild Agreement with PGV, which sets forth the parties’ respective responsibilities associated with restoration of the facility. The Rebuild Agreement shall govern the terms until PGV becomes fully operational. In December 2019, Hawaii Electric Light entered into an Amended and Restated PPA with PGV to, among other things, extend the term by 25 years to 2052 and expand the firm capacity capable of being delivered to 46 MW, subject to PUC approval. PGV returned to service at a level providing limited output without firm capacity in the fourth quarter of 2020 and is currently providing 23.9 MW of capacity. See “New renewable PPAs” in the “Developments in renewable energy efforts” section in Hawaiian Electric’s MD&A. In May 2012, Hawaii Electric Light signed a PPA with Hu Honua Bioenergy, LLC (Hu Honua) for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass on the island of Hawaii. This PPA was approved by the PUC in December 2013, however, the approval was appealed. The Supreme Court of Hawaii issued a decision remanding the matter to the PUC for further proceedings. See “Commitments and contingencies–Power purchase agreements–Hu Honua Bioenergy, LLC” in Note 3 of the Consolidated Financial Statements for an update regarding this PPA. Maui Electric firm capacity PPAs. Maui Electric has no firm capacity PPAs. Fuel oil usage and supply. The rate schedules of the Utilities include ECRCs under which electric rates (and consequently the revenues of the electric utility subsidiaries generally) are adjusted for changes in the weighted-average price paid for fuel oil and certain components of purchased power, and the relative amounts of company-generated power and purchased power. See discussion of rates and issues relating to the ECRC below under “Rates,” and “Material estimates and critical accounting policies–Revenues” in Hawaiian Electric’s MD&A. Hawaiian Electric’s steam generating units consume LSFO and Hawaiian Electric’s combustion turbine peaking units consume diesel, including Hawaiian Electric’s Campbell Industrial Park generating facility which recently converted from B99 grade biodiesel to diesel. Hawaiian Electric’s Schofield Generating Station consumes mostly B99 grade biodiesel, but is permitted to also burn ultra-low sulfur diesel (ULSD). 10 Hawaii Electric Light’s and Maui Electric’s steam generating units burn high sulfur fuel oil (HSFO) and Hawaii Electric Light’s and Maui Electric’s Maui combustion turbine generating units burn diesel. Hawaii Electric Light’s and Maui Electric’s Maui, Molokai, and Lanai diesel engine generating units burn ULSD. See “Fuel contracts” in Hawaiian Electric’s MD&A. The following table sets forth the average cost of fuel oil used by Hawaiian Electric, Hawaii Electric Light and Maui Electric to generate electricity in 2021, 2020 and 2019: 2021 2020 2019 Hawaiian Electric $/Barrel ¢/MBtu Hawaii Electric Light ¢/MBtu $/Barrel Maui Electric Consolidated $/Barrel ¢/MBtu $/Barrel ¢/MBtu 79.10 62.06 81.02 1,275.9 1,003.7 1,304.8 80.52 63.21 81.96 1,333.9 1,048.3 1,354.0 83.45 66.81 86.58 1,404.0 1,122.7 1,454.8 80.06 63.00 82.17 1,305.4 1,028.7 1,337.6 The average per-unit cost of fuel oil consumed to generate electricity for Hawaiian Electric, Hawaii Electric Light and Maui Electric reflects a different volume mix of fuel types and grades as follows: 2021 2020 2019 Hawaiian Electric % LSFO % Biodiesel/Diesel 7 6 7 93 94 93 Hawaii Electric Light % HSFO 41 39 44 % Diesel 59 61 56 Maui Electric % HSFO 22 24 24 % Diesel 78 76 76 The prices that Hawaiian Electric and Hawaii Electric Light pay for purchased energy from certain older nonutility generators are generally linked to the price of oil. The AES Hawaii energy prices vary primarily with an inflation index. The energy prices for Kalaeloa, which purchases LSFO from Par Hawaii Refining, LLC (PAR), vary primarily with the price of Asian crude oil. On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power Purchase Agreement, which delinks the pricing for energy delivered from the facility from fossil fuel prices. Hamakua Energy’s energy prices vary primarily with the cost of naphtha. The Utilities estimate that 67% of the net energy they generate will come from fossil fuel oil in 2022 compared to 63% in 2021. Hawaiian Electric generally maintains an average system fuel inventory level equivalent to 47 days of forward consumption. Hawaiian Electric is targeting to increase inventory level equivalent to 59 days in 2022 in response to the expiration of the PPA with AES Hawaii on September 1, 2022. Hawaii Electric Light and Maui Electric generally maintain an average system fuel inventory level equivalent to approximately one month’s supply of both HSFO and diesel. The PPAs with AES Hawaii and Hamakua Energy require that they maintain certain minimum fuel inventory levels. Rates. Hawaiian Electric, Hawaii Electric Light and Maui Electric are subject to the regulatory jurisdiction of the PUC with respect to rates, issuance of securities, accounting and certain other matters. See “Regulation” below. General rate increases require the prior approval of the PUC after public and contested case hearings. Rates for Hawaiian Electric and its subsidiaries include ECRCs, and PPACs. Under current law and practices, specific and separate PUC approval is not required for each rate change pursuant to automatic rate adjustment clauses previously approved by the PUC. Public Utility Regulatory Policies Act of 1978 (PURPA) requires the PUC to periodically review the adjustment clauses related to energy cost of electric and gas utilities in the state, and such clauses, as well as the rates charged by the utilities generally, are subject to change. PUC approval is also required for all surcharges and adjustments before they are reflected in rates. See “Material estimates and critical accounting policies–Revenues” in Hawaiian Electric’s MD&A and “Most recent rate proceedings,” and “Utility projects” under “Commitments and contingencies” in Note 3 of the Consolidated Financial Statements. Competition. See “Competition” in Hawaiian Electric’s MD&A. Regulation. The PUC regulates the rates, issuance of securities, accounting and certain other aspects of the operations of Hawaiian Electric and its electric utility subsidiaries. See the previous discussion under “Rates” and the discussions under “Most recent rate proceedings” in Note 3 of the Consolidated Financial Statements. On September 15, 2014, the State of Hawaii and the U.S. Department of Energy executed a Memorandum of Understanding (MOU) recognizing that Hawaii is embarking on the next phase of its clean energy future. The MOU provides the framework for a comprehensive, sustained effort to better realize its vast renewable energy potential and allow Hawaii to push forward in three main areas: the power sector, transportation and energy efficiency. This next phase is focused on 11 stimulating deployment of clean energy infrastructure as a catalyst for economic growth, energy system innovation and test bed investments. Energy efficiency. The PUC issued an order on January 3, 2012 approving a framework for Energy Efficiency Portfolio Standards (EEPS) that set 2008 as the initial base year for evaluation and linearly allocated the 2030 goal to interim incremental reduction goals of 1,375 GWH by 2015 and 975 GWH by each of the years 2020, 2025 and 2030. Pursuant to the PUC’s EEPS framework, the PUC has contracted with a public benefits fee administrator to operate and manage energy efficiency programs, and any incentive and/or penalty mechanisms applicable solely to the public benefit fee administrator and related to the achievement of the goals are at the discretion of the PUC. The Division of Consumer Advocacy’s 2019 Compliance Resolution Fund Report states that Hawaii continues to progress towards its 2030 Renewable Portfolio Standards and EEPS goals. The EEPS has contributed to lower kWh sales; however, the implementation of sales decoupling has delinked sales and revenues. See “Regulatory mechanisms” above. Electrification of Transportation. In June 2018, the PUC initiated a proceeding to review the Utilities’ Electrification of Transportation (EoT) Strategic Roadmap, which provided an economic analysis for light duty electric vehicles on the island of Oahu, Maui and Hawaii. In July 2019 the Utilities filed a study analyzing data regarding the critical backbone for electric vehicle charging needs in their service territories. In October 2019, the Utilities filed their EoT Workplan, establishing a schedule to continue implementation of the EoT roadmap with a focus on EV rate design and make-ready charging infrastructure in the near-term. The Utilities followed through on the EoT Workplan in 2020, with three filings: the electric bus make ready infrastructure pilot, Charge Ready Hawaii commercial infrastructure pilot, and two commercial EV rates, EV-J and EV-P. The electric bus make ready infrastructure pilot, EV-J and EV-P, and Charge Ready Hawaii commercial infrastructure pilot were approved by the PUC on May 7, 2021, December 30, 2021 and January 24, 2022, respectively, and will launch in the first and fourth quarters of 2022. In August 2020, the Utilities committed to electrifying 100% of its class 1 vehicles (sedans, SUVs and light trucks) by 2035. Renewable Portfolio Standards. In 2015, Hawaii’s RPS law was amended to require electric utilities to meet an RPS of 15%, 30%, 40%, 70% and 100% by December 31, 2015, 2020, 2030, 2040 and 2045, respectively. Energy savings resulting from energy efficiency programs do not count toward the RPS since 2014 (only electrical generation using renewable energy as a source counts). The Utilities’ also exceeded the 30% RPS target for 2020, achieving an RPS of 34.5%, and in 2021, achieved an RPS of 38.4%. Affiliate transactions. Certain transactions between HEI’s electric public utility subsidiaries (Hawaiian Electric, Hawaii Electric Light and Maui Electric) and HEI and affiliated interests (as defined by statute) are subject to regulation by the PUC. In December 1996, the PUC issued an order in a docket to review the relationship between HEI and Hawaiian Electric and the effects of that relationship on the operations of Hawaiian Electric. The order required Hawaiian Electric to continue to provide the PUC with periodic status reports on its compliance with the PUC Agreement (pursuant to which HEI became the holding company of Hawaiian Electric). Hawaiian Electric files such status reports annually. In the order, the PUC also required the Utilities to present a comprehensive analysis of the impact that the holding company structure and investments in nonutility subsidiaries have on a case-by-case basis on the cost of capital to each utility in future rate cases and remove any such effects from the cost of capital. The Utilities have made presentations in their subsequent rate cases to support their positions that there was no evidence that would modify the PUC’s finding that Hawaiian Electric’s access to capital did not suffer as a result of HEI’s involvement in nonutility activities and that HEI’s diversification did not permanently raise or lower the cost of capital incorporated into the rates paid by Hawaiian Electric’s utility customers. In December 2018, the PUC established a set of requirements governing transactions and sharing of information between the Utilities and its affiliates (Affiliate Transaction Requirements, ATRs), which was subsequently modified and clarified in January 2019 following the Utilities’ motion for reconsideration. The PUC stated the intent of the ATRs is to establish safeguards to avoid potential market power benefits and cross-subsidization between regulated and unregulated activities. The requirements include rules on interactions with affiliates, information handling, business development, political activities, promotional activities, sales of products and services, and employee sharing restrictions. The ATRs include implementing an internal code of conduct, a compliance plan, including policies and procedures to comply with the requirements, and having an audit conducted every three years that examines the compliance with the requirements. Penalties for non-compliance depend on the severity of the violation, and can range from daily fines to divestiture of the Utilities by the holding company. Other regulations. The Utilities are not subject to regulation by the FERC under the Federal Power Act, except under Sections 210 through 212 (added by Title II of PURPA and amended by the Energy Policy Act of 1992), which permit the FERC to order electric utilities to interconnect with qualifying cogenerators and small power producers, and to wheel power to other electric utilities. Title I of PURPA, which relates to retail regulatory policies for electric utilities, and Title VII of the 12 Energy Policy Act of 1992, which addresses transmission access, also apply to the Utilities. The Utilities are also required to file various operational reports with the FERC. Because they are located in the State of Hawaii, Hawaiian Electric and its subsidiaries are exempt by statute from limitations set forth in the Powerplant and Industrial Fuel Use Act of 1978 on the use of petroleum as a primary energy source. See also “HEI–Regulation” above. Environmental regulation. Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, are subject to periodic inspections by federal, state and, in some cases, local environmental regulatory agencies, including agencies responsible for the regulation of water quality, air quality, hazardous and other waste and hazardous materials. These inspections may result in the identification of items needing corrective or other action. Except as otherwise disclosed in this report (see “Risk Factors” in Item 1A, and Notes 1 and 3 of the Consolidated Financial Statements), the Utilities believe that each subsidiary has appropriately responded to environmental conditions requiring action and that, as a result of such actions, such environmental conditions will not have a material adverse effect on the capital expenditures, earnings and competitive position of the Utilities. Water quality controls. The generating stations, substations and other utility facilities operate under federal and state water quality regulations and permits, including, but not limited to, the Clean Water Act National Pollution Discharge Elimination System (governing point source discharges, including wastewater and storm water discharges) and the Safe Drinking Water Act Underground Injection Control (regulating disposal of wastewater into the subsurface). Oil pollution controls. The Oil Pollution Act of 1990 (OPA) establishes programs that govern actual or threatened oil releases and imposes strict liability on responsible parties for clean-up costs and damages to natural resources and property. The federal Environmental Protection Agency (EPA) regulations under OPA require certain facilities that use or store oil to prepare and implement Spill Prevention, Control and Countermeasures (SPCC) Plans in order to prevent releases of oil to navigable waters of the U.S. Certain facilities are also required to prepare and implement Facility Response Plans (FRPs) to ensure prompt and proper response to releases of oil. The utility facilities that are subject to SPCC Plan and FRP requirements have prepared and implemented SPCC Plans and FRPs. Air quality controls. The Clean Air Act (CAA) establishes permitting programs to reduce air pollution. The CAA amendments of 1990, established the federal Title V Operating Permit Program (in Hawaii known as the Covered Source Permit program) to ensure compliance with all applicable federal and state air pollution control requirements. The 1977 CAA Amendments established the New Source Review (NSR) permitting program, which affect new or modified generating units by requiring a permit to construct under the CAA and the controls necessary to meet the National Ambient Air Quality Standards. Title V operating permits have been issued for all of the Utilities’ affected generating units. Hazardous waste and toxic substances controls. The operations of the electric utility are subject to EPA regulations that implement provisions of the Resource Conservation and Recovery Act (RCRA), the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA, also known as Superfund), the Superfund Amendments and Reauthorization Act (SARA), and the Toxic Substances Control Act (TSCA). RCRA underground storage tank (UST) regulations require all facilities that use USTs for storing petroleum products to comply with established leak detection, spill prevention, standards for tank design and retrofits, financial assurance, operator training, and tank decommissioning and closure requirements. All of the Utilities’ USTs currently meet the applicable requirements. The Emergency Planning and Community Right-to-Know Act under SARA Title III requires the Utilities to report potentially hazardous chemicals present in their facilities in order to provide the public with information so that emergency procedures can be established to protect the public in the event of hazardous chemical releases. Since January 1, 1998, the steam electric industry category has been subject to Toxics Release Inventory (TRI) reporting requirements. The TSCA regulations specify procedures for the handling and disposal of polychlorinated biphenyls (PCBs), a compound found in some transformer and capacitor dielectric fluids. The TSCA regulations also apply to responses to releases of PCBs to the environment. The Utilities have instituted procedures to monitor compliance with these regulations and have implemented a program to identify and replace PCB transformers and capacitors in their systems. On October 22, 2021, the EPA published its proposed rule entitled “Alternate PCB Extraction Methods and Amendments to PCB Cleanup and Disposal Regulations” in the Federal Register. The EPA is proposing to expand options for the methods used to characterize and verify the cleanup of PCBs, and amend the performance-based disposal option along with other amendments to improve the implementation of the regulations, clarify ambiguity, and correct technical errors. The EPA comments period closed on January 20, 2022. 13 Hawaii’s Environmental Response Law (ERL), as amended, governs releases of hazardous substances, including oil, to the environment in areas within the state’s jurisdiction. Responsible parties under the ERL are jointly, severally, and strictly liable for a release of a hazardous substance. Responsible parties include owners or operators of a facility where a hazardous substance is located and any person who at the time of disposal of the hazardous substance owned or operated any facility at which such hazardous substance was disposed. The Utilities periodically discover leaking oil-containing equipment such as USTs, piping, and transformers. Each subsidiary reports releases from such equipment when and as required by applicable law and addresses the releases in compliance with applicable regulatory requirements. Additional information. For additional information about Hawaiian Electric, see Hawaiian Electric’s MD&A, Hawaiian Electric’s “Quantitative and Qualitative Disclosures about Market Risk” and Hawaiian Electric’s Consolidated Financial Statements, including the Notes thereto. Properties. As of December 31, 2021, the Utilities’ ownership in generating assets was as follows: Property Hawaiian Electric: Waiau1 Kahe1 Campbell Industrial Park (CIP)1 Honolulu Power Plant1 Schofield Generating Station2 West Loch PV Project3 Hawaii Electric Light4: Shipman Waimea Keahole Puna Hill/Kanoelehua Distributed generators at substation sites Maui Electric5: Kahului Maalaea Miki Basin Palaau Location (island) Principal Fuel Type Generating Capacity (MW) Oahu Oahu Oahu Oahu Oahu Oahu Hawaii Hawaii Hawaii Hawaii Hawaii Hawaii Maui Maui Lanai Molokai LSFO / Diesel LSFO Diesel N/A Biodiesel / ULSD Renewable (Solar) N/A ULSD Diesel / ULSD HSFO / Diesel HSFO / ULSD ULSD HSFO Diesel / ULSD ULSD ULSD 480.8 620.5 129.0 — 49.4 20.0 — 7.5 77.6 36.7 55.4 5.0 35.9 210.4 9.4 12.0 Status Active Active Active Deactivated in 2014 Active Active Retired in 2015 Active Active Active Active Active Active Active Active Active 1 The four plants are situated on Hawaiian Electric-owned land having a combined area of 542 acres. 2 Hawaiian Electric has a 35-year land lease on 8.13 acres, effective September 1, 2016 (with an option to extend an additional 10 years), with the Department of the Army. 3 Hawaiian Electric has a 37-year land lease on 102 acres, effective July 1, 2017, with the Secretary of the Navy. 4 The plants are situated on Hawaii Electric Light-owned land having a combined area of approximately 44 acres. The distributed generators are located within Hawaii Electric Light-owned substation sites having a combined area of approximately four acres. 5 The four plants are situated on Maui Electric-owned land having a combined area of 60.7 acres. 14 As of December 31, 2021, the Utilities’ ownership in fuel storage facilities was as follows: Facility Hawaiian Electric: Barbers Point Tank Farm Generation sites - various (in aggregate) Generation sites - various (in aggregate) Generation sites - various (in aggregate) Hawaii Electric Light1: Generation sites - various (in aggregate) Generation sites - various (in aggregate) Maui Electric2: Generation sites - various (in aggregate) Generation sites - various (in aggregate) Location (island) Oahu Oahu Oahu Oahu Hawaii Hawaii Maui Maui Fuel Type LSFO LSFO Diesel Biodiesel HSFO Diesel HSFO Diesel Capacity (barrels in thousands) Generation Serviced 1,000 770 132 11 48 82 81 95 Kahe, Waiau Various Various Various Various Various Various Various 1 There are an additional 19,200 barrels of diesel and 24,770 barrels of HSFO storage capacity for Hawaii Electric Light-owned fuel off-site at Island Energy Services, LLC-owned terminalling facilities. 2 There are an additional 56,358 barrels of diesel oil storage capacity off-site at Aloha Petroleum, Ltd-owned terminalling facilities. Other properties. The Utilities own overhead transmission and distribution lines, underground cables, pole (some jointly) and metal high voltage towers. Electric lines are located over or under public and nonpublic properties. Hawaiian Electric owns a total of 132 acres of land on which substations, transformer vaults, distribution baseyards and the Kalaeloa cogeneration facility are located. Hawaiian Electric also owns buildings and approximately 11.6 acres of land located in Honolulu, which house its operating and engineering departments. It also leases an office building and certain office spaces in Honolulu, land for office spaces and storage in Pearl City, and a warehousing center in Kapolei. Hawaii Electric Light owns 6 acres of land in Kona, which is used for a baseyard, and one acre of land in Hilo, which houses its accounting, customer services and administrative offices. Hawaii Electric Light also leases 3.7 acres of land for its baseyard in Hilo under a lease expiring in 2030. In addition, Hawaii Electric Light owns a total of approximately 100 acres of land, and leases a total of approximately 8.5 acres of land, on which hydro facilities, substations and switching stations, microwave facilities and transmission lines are located. The deeds to the sites located in Hilo contain certain restrictions, but the restrictions do not materially interfere with the use of the sites for public utility purposes. Maui Electric’s administrative offices, as well as its engineering and distribution departments, are situated on 9.1 acres of Maui Electric-owned land in Kahului. Maui Electric also owns approximately 18 acres of land which house some of its substations, leases approximately 3,600 square feet of land for its telecommunication and microwave facilities, leases approximately 6,000 square feet of land at Kahului Harbor for pipeline purposes, and leases 17,958 square feet of land at Puunene for the Puunene Substation. Maui Electric also owns approximately 89 acres of undeveloped land at Waena, Palaau, and Kahului. Fuel storage facilities are located on Maui Electric-owned properties at Kahului Baseyard, Kahului Power Plant, Maalaea Power Plant, Miki Basin, Palaau, and Hana. Two, 1-MW stand-by diesel generators are located within the Maui Electric-owned land at Hana Substation. See “Hawaiian Electric and subsidiaries and service areas” above for a discussion of the nonexclusive franchises of Hawaiian Electric and subsidiaries. See “Generation statistics” above for a further discussion of some of the electric utility properties. Bank General. ASB is one of the largest financial institutions headquartered in the State of Hawaii with assets of $9.2 billion and deposits of $8.2 billion, as of December 31, 2021. ASB is a full-service community bank that serves both consumer and commercial customers and operates 42 branches on the islands of Oahu (29), Maui (6), Hawaii (4), Kauai (2), and Molokai (1). In 2021, ASB’s revenues and net income amounted to approximately 11% and 41% of HEI’s consolidated revenues and net income, respectively, compared to approximately 12% and 29% in 2020 and approximately 11% and 41% in 2019. At the time of HEI’s acquisition of ASB, HEI agreed with the Office of Thrift Supervision (OTS), Department of Treasury’s predecessor regulatory agency, that ASB’s regulatory capital would be maintained at a level of at least 6% of ASB’s total liabilities, or at such greater amount as may be required from time to time by regulation. Under the agreement, HEI’s 15 obligation to contribute additional capital to ensure that ASB would have the capital level required by the OTS was limited to a maximum aggregate amount of approximately $65.1 million. As of December 31, 2021, as a result of certain HEI contributions of capital to ASB over the years, HEI’s maximum obligation under the agreement to contribute additional capital has been reduced to approximately $28.3 million. ASB is subject to OCC regulations on dividends and other distributions and ASB must receive a letter from the FRB communicating the OCC’s and FRB’s non-objection to the payment of any dividend ASB proposes to declare and pay to ASB Hawaii and HEI. In addition to OCC oversight, federal law and Federal Reserve Board policy require that HEI, as a savings and loan holding company, serve as a source of financial and managerial strength for any FDIC-insured depository institution that it controls. Accordingly, if ASB were to be in financial distress or to otherwise be viewed by the regulators as in unsatisfactory condition, HEI could be required to provide additional capital or liquidity support or take other action, in support of ASB. Lending activities. See Note 4 of the Consolidated Financial Statements for the composition of ASB’s loan portfolio. Origination, purchase and sale of loans. Generally, residential and commercial real estate loans originated by ASB are collateralized by real estate located in Hawaii. For additional information, including information concerning the geographic distribution of ASB’s mortgage-backed securities portfolio and the geographic concentration of credit risk, see Note 15 of the Consolidated Financial Statements. The demand for loans is primarily dependent on the Hawaii real estate market, business conditions, interest rates and loan refinancing activity. Residential mortgage lending. ASB originates fixed rate and adjustable rate loans secured by single family residential property, including investor-owned properties, with maturities of up to 30 years. ASB’s general policy is to require private mortgage insurance 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 typically may not exceed 75% of the lower of the appraised value or purchase price at origination. Construction and development lending. ASB provides fixed rate loans for the construction of one-to-four unit residential and commercial properties. Construction loan projects are typically short term in nature. Construction and development financing generally involves a higher degree of credit risk than long-term financing on improved, occupied real estate. Accordingly, construction and development loans are generally priced higher than loans collateralized by completed structures. ASB’s underwriting, monitoring and disbursement practices with respect to construction and development financing are designed to ensure sufficient funds are available to complete construction projects. See “Bank—Loan portfolio risk elements” in HEI’s MD&A and “Multifamily residential and commercial real estate lending” below. Multifamily residential and commercial real estate lending. ASB provides permanent financing and construction and development financing collateralized by multifamily residential properties (including apartment buildings) and collateralized by commercial and industrial properties (including office buildings, shopping centers and warehouses) for its own portfolio as well as for participation with other lenders. Commercial real estate lending typically involves long lead times to originate and fund. As a result, production results can vary significantly from period to period. Consumer lending. ASB offers a variety of secured and unsecured consumer loans. Loans collateralized by deposits are limited to 90% of the available account balance. ASB offers home equity lines of credit, clean energy loans, secured and unsecured VISA cards (through a third party issuer), checking account overdraft protection and other general purpose consumer loans. Commercial lending. ASB provides both secured and unsecured commercial loans to business entities. This lending activity is designed to diversify ASB’s asset structure, shorten maturities, improve rate sensitivity of the loan portfolio and attract commercial checking deposits. ASB offers commercial loans with terms generally up to ten years. Loan origination fee and servicing income. In addition to interest earned on residential mortgage loans, ASB receives income from servicing loans, for late payments and from other related services. Servicing fees are received on loans originated and subsequently sold by ASB where ASB acts as collection agent on behalf of third-party purchasers. ASB charges the borrower at loan settlement a loan origination fee. See “Loans” in Note 1 of the Consolidated Financial Statements. Deposits and sources of funds. Deposits continue to be the largest source of funds for ASB for use in lending, meeting liquidity requirements and making investments, and are affected by market interest rates, competition and management’s responses to these factors. While deposits have increased by $785 million in 2021 in part due to PPP loan proceeds and consumer economic impact payments from the CARES Act stimulus program, deposit retention and sustained growth will remain challenging in the current environment due to the low level of short-term interest rates. ASB borrows on a short-term basis to compensate for seasonal or other reductions in deposit flows. ASB may borrow on a longer-term basis to support expanded lending or investment activities. Advances from the Federal Home Loan Bank (FHLB) of Des Moines and securities 16 sold under agreements to repurchase continue to be additional sources of funds, but they are a higher cost funding source than deposits. Competition. The banking industry in Hawaii is highly competitive. At December 31, 2021, there were 7 financial institutions insured by the FDIC headquartered in the State of Hawaii. While ASB is one of the largest financial institutions in Hawaii, based on total assets, ASB faces vigorous competition for deposits and loans from two larger banking institutions based in Hawaii and from smaller institutions that heavily promote their services in niche areas, such as providing financial services to small and medium-sized businesses, as well as national financial services organizations. Competition for loans and deposits comes primarily from other savings institutions, commercial banks, credit unions, securities brokerage firms, money market and mutual funds and other investment alternatives. ASB faces additional competition in seeking deposit funds from various types of corporate and government borrowers, including insurance companies. Competition for origination of mortgage loans comes primarily from mortgage banking and brokerage firms, commercial banks, other savings institutions, insurance companies and real estate investment trusts. These entities may have a physical presence in the State of Hawaii or operate from out of state and provide online services. See also “Bank—Executive overview and strategy” in HEI’s MD&A. To remain competitive and continue building core franchise value, ASB continues to develop and introduce new products and services to meet the needs of its consumer and commercial customers. Additionally, the banking industry is constantly changing and ASB is making the investment in its people and technology necessary to adapt and remain competitive. The primary factors in ASB’s competition for mortgage and other loans are the competitive interest rates and loan origination fees it charges, the wide variety of loan programs it offers and the quality and efficiency of the services it provides to borrowers and the business community. ASB believes that it is able to compete for such loans primarily through the competitive interest rates and loan fees it charges, the type of mortgage loan programs it offers and the efficiency and quality of the services it provides to individual borrowers and the business community. The primary factors in competing for deposits are interest rates, the quality and range of services offered, marketing, convenience of locations, hours of operation, availability and functionality of other non-branch channels such as online and mobile banking and perceptions of the institution’s financial soundness and safety. To compete effectively, ASB offers a variety of savings and checking accounts at competitive rates, convenient business hours, convenient branch locations with interbranch deposit and withdrawal privileges at each branch, convenient automated teller machines and other banking options including online and mobile banking platforms. ASB also conducts advertising and promotional campaigns. ASB has been diversifying its loan portfolio from single-family home mortgages to higher-spread, shorter-duration consumer, commercial and commercial real estate loans. The origination of consumer, commercial and commercial real estate loans involves risks and other considerations different from those associated with originating residential real estate loans. For example, the sources and level of competition may be different and credit risk is generally higher than for residential mortgage loans. These different risk factors are considered in the underwriting and pricing standards and in the allowance for credit losses established by ASB for its consumer, commercial and commercial real estate loans. Regulation. ASB, a federally chartered saving bank, is subject to examination and comprehensive regulation by the Department of Treasury, OCC and the FDIC, and is subject to reserve requirements established by the Board of Governors of the Federal Reserve System. Regulation by these agencies focuses in large measure on the adequacy of ASB’s capital and the results of periodic “safety and soundness” examinations conducted by the OCC. In addition, ASB’s holding companies are subject to the regulatory supervision of the FRB. See “HEI Consolidated–Regulation” above. Changes to Community Bank Leverage Ratio. In April 2020, the federal bank regulatory agencies issued two interim final rules to implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank leverage ratio to 8 percent. The two rules modify the community bank leverage ratio framework so that: • • Beginning in the second quarter of 2020 and until the end of 2020, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and Community banking organizations will have until January 1, 2022 before the community bank leverage ratio requirement is re-established at greater than 9 percent. Under the interim final rules, the community bank leverage ratio requirement was 8 percent beginning in the second quarter of 2020 and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim final rules also maintained a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percent below the applicable community bank leverage ratio. In the second quarter of 2020, ASB had adopted the community bank leverage ratio framework and reported its Tier 1 leverage ratio only. Beginning in the third quarter of 2021, ASB began reporting all of the required capital ratios as the Bank did not meet the requirements of the community bank leverage ratio framework. With Tier 1 leverage, common equity, Tier 1 17 capital and total capital ratios of 7.9%, 13.3%, 13.3% and 14.3%, respectively as of December 31, 2021, ASB’s regulatory capital ratios exceeded the minimum regulatory capital requirements of 4.0%, 4.5%, 6.0% and 8.0%, respectively. See “Bank—Legislation and regulation” in HEI’s MD&A for the final capital rules under the Basel III regulatory capital framework. Examinations. ASB is subject to periodic “safety and soundness” examinations and other examinations by the OCC. In conducting its examinations, the OCC utilizes the Uniform Financial Institutions Rating System adopted by the Federal Financial Institutions Examination Council, which system utilizes the “CAMELS” criteria for rating financial institutions. The six components in the rating system are: Capital adequacy, Asset quality, Management, Earnings, Liquidity and Sensitivity to market risk. The OCC examines and rates each CAMELS component. An overall CAMELS rating is also given, after taking into account all of the component ratings. A financial institution may be subject to formal regulatory or administrative direction or supervision such as a “memorandum of understanding” or a “cease and desist” order following an examination if its CAMELS rating is not satisfactory. An institution is prohibited from disclosing the OCC’s report of its safety and soundness examination or the component and overall CAMELS rating to any person or organization not officially connected with the institution as an officer, director, employee, attorney or auditor, except as provided by regulation. The OCC also regularly examines ASB’s information technology practices and its performance under Community Reinvestment Act measurement criteria. The Federal Deposit Insurance Act, as amended, addresses the safety and soundness of the deposit insurance system, supervision of depository institutions and improvement of accounting standards. Pursuant to this Act, federal banking agencies have promulgated regulations that affect the operations of ASB and its holding companies (e.g., standards for safety and soundness, real estate lending, accounting and reporting, transactions with affiliates and loans to insiders). Deposit insurance coverage. The Federal Deposit Insurance Act, as amended, and regulations promulgated by the FDIC, govern insurance coverage of deposit accounts. In July 2010, the Dodd-Frank Act permanently raised the current standard maximum deposit insurance amount to $250,000. Generally, the amount of all deposits held by a depositor in the same capacity (even if held in separate accounts) is aggregated for purposes of applying the insurance limit. See “Federal Deposit Insurance Corporation assessment” in Note 4 of the Consolidated Financial Statements for a discussion of FDIC deposit insurance assessment rates. Recent legislation and issuances. See “Bank–Legislation and regulation” in HEI’s MD&A. Affiliate transactions. Significant restrictions apply to certain transactions between ASB and its affiliates, including HEI and its direct and indirect subsidiaries. For example, ASB is prohibited from making any loan or other extension of credit to an entity affiliated with ASB unless the affiliate is engaged exclusively in activities which the FRB has determined to be permissible for bank holding companies. There are also various other restrictions which apply to certain transactions between ASB and certain executive officers, directors and insiders of ASB. ASB is also barred from making a purchase of or any investment in securities issued by an affiliate, other than with respect to shares of a subsidiary of ASB. Financial derivatives and interest rate risk. ASB is subject to OCC rules relating to derivatives activities, such as interest rate swaps, interest rate lock commitments and forward commitments. See “Derivative financial instruments” in Note 4 of the Consolidated Financial Statements for a description of interest rate lock commitments and forward commitments used by ASB. Currently ASB does not use interest rate swaps to manage interest rate risk, but may do so in the future. Generally speaking, the OCC rules permit financial institutions to engage in transactions involving financial derivatives to the extent these transactions are otherwise authorized under applicable law and are safe and sound. The rules require ASB to have certain internal procedures for handling financial derivative transactions, including involvement of the ASB Board of Directors. Management believes ASB’s interest rate risk processes are aligned with the Interagency Advisory on Interest Rate Risk Management and appropriate with earnings and capital levels, balance sheet complexity, business model and risk tolerance. Liquidity. OCC regulations require ASB to maintain sufficient liquidity to ensure safe and sound operations. ASB’s principal sources of liquidity are customer deposits, borrowings, the maturity and repayment of portfolio loans and securities and the sale of loans into secondary market channels. ASB’s principal sources of borrowings are advances from the FHLB of Des Moines and securities sold under agreements to repurchase from broker/dealers. ASB is approved by the FHLB of Des Moines to borrow an amount of up to 35% of assets to the extent it provides qualifying collateral and holds sufficient FHLB of Des Moines stock. As of December 31, 2021, ASB’s unused FHLB of Des Moines borrowing capacity was approximately $2.0 billion. ASB utilizes growth in deposits, advances from the FHLB of Des Moines and securities sold under agreements to repurchase to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and make investments. As of December 31, 2021, ASB had loan commitments, undisbursed loan funds and unused lines and letters of 18 credit of $1.9 billion. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels. Supervision. The Federal Deposit Insurance Corporation Improvement Act of 1991 (the FDICIA) establishes a statutory framework that is triggered by the capital level of a financial institution and subjects it to progressively more stringent restrictions and supervision as capital levels decline. The prompt corrective action capital requirements establish thresholds for varying degrees of oversight and intervention by regulators. Declines in levels of capital, depending on their severity, will result in increasingly stringent mandatory and discretionary regulatory consequences. Capital levels may decline for any number of reasons, including reductions that would result if there were losses from operations, deterioration in collateral values or the inability to dispose of real estate owned (typically acquired by foreclosure). The regulators have substantial discretion in the corrective actions they might direct and could include restrictions on dividends and other distributions that ASB may make to HEI (through ASB Hawaii) and the requirement that ASB develop and implement a plan to restore its capital. The OCC rules implement the system of prompt corrective action. In particular, the rules define the relevant capital measures for the categories of “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” As of December 31, 2021, ASB was “well-capitalized.” Interest rates. FDIC regulations restrict the ability of financial institutions that are undercapitalized to offer interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of December 31, 2021, ASB was “well capitalized” and thus not subject to these interest rate restrictions. Qualified thrift lender test. ASB is a “qualified thrift lender” (QTL) under its federal thrift charter and, in order to maintain this status, ASB is required to maintain at least 65% of its assets in “qualified thrift investments,” measured on a monthly average basis in 9 out of the previous 12 months, which include housing-related loans (including mortgage-backed securities) as well as certain small business loans, education loans, loans made through credit card accounts and a basket (not exceeding 20% of total assets) of other consumer loans and other assets. Institutions that fail to maintain QTL status are subject to various penalties, including limitations on their activities. In ASB’s case, the activities of HEI, ASB Hawaii and HEI’s other subsidiaries would also be subject to restrictions if ASB failed to maintain its QTL status, and a failure or inability to comply with those restrictions could effectively result in the required divestiture of ASB. As of December 31, 2021, and at all times during 2021, ASB was a qualified thrift lender. Federal Home Loan Bank System. ASB is a member of the FHLB System, which consists of 11 regional FHLBs, and ASB’s regional bank is the FHLB of Des Moines. The FHLB System provides a central credit facility for member institutions. Historically, the FHLBs have served as the central liquidity facilities for savings associations and sources of long-term funds for financing housing. At such time as an advance is made to ASB or renewed, it must be collateralized by collateral from one of the following categories: (1) fully disbursed, whole first mortgages on improved residential property, or securities representing a whole interest in such mortgages; (2) securities issued, insured or guaranteed by the U.S. Government or any agency thereof; (3) FHLB deposits; and (4) other real estate-related collateral that has a readily ascertainable value and with respect to which a security interest can be perfected. The aggregate amount of outstanding advances collateralized by such other real estate-related collateral may not exceed 300% of ASB’s capital. ASB’s required holding in the stock of the FHLB is both membership and activity-based. Membership is based on a percentage of total assets (0.12%) while the portion related to activity is based on a percentage of outstanding activity, mainly advances (4%). As of December 31, 2021, ASB was required and owned capital stock in the FHLB of Des Moines in the amount of $10.0 million. Community Reinvestment. The Community Reinvestment Act (CRA) requires financial institutions to help meet the credit needs of their communities, including low- and moderate-income areas, consistent with safe and sound lending practices. The OCC will consider ASB’s CRA record in evaluating an application for a new deposit facility, including the establishment of a branch, the relocation of a branch or office, or the acquisition of an interest in another bank. ASB currently holds a “satisfactory” CRA rating. Other laws. ASB is subject to federal and state consumer protection laws which affect deposit and lending activities, such as the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act and several federal and state financial privacy acts intended to protect consumers’ personal information and prevent identity theft, such as the Gramm Act and the Fair and Accurate Transactions Act. ASB is also subject to federal laws regulating certain of its lending practices, such as the Flood Disaster Protection Act, and laws requiring reports to regulators of certain customer transactions, such as the Currency and Foreign Transactions Reporting Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act. ASB’s relationship with Cetera Investment Services LLC and Cetera Investment Advisers LLC is also governed by regulations adopted by the FRB under the Gramm Act, which regulate “networking” relationships under which a financial institution refers customers to a broker-dealer 19 for securities services and employees of the financial institution are permitted to receive a nominal fee for the referrals. These laws may provide for substantial penalties in the event of noncompliance. Proposed legislation. See the discussion of proposed legislation in “Bank–Legislation and regulation” in HEI’s MD&A. Environmental regulation. ASB may be subject to the provisions of Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), Hawaii Environmental Response Law (ERL) and regulations promulgated thereunder, which impose liability for environmental cleanup costs on certain categories of responsible parties. CERCLA and ERL exempt persons whose ownership in a facility is held primarily to protect a security interest, provided that they do not participate in the management of the facility. Additional information. For additional information about ASB, see the sections under “Bank” in HEI’s MD&A, HEI’s “Quantitative and Qualitative Disclosures about Market Risk” and HEI’s Consolidated Financial Statements, including Note 4 thereto. Properties. ASB owns or leases several office buildings in Honolulu and owns land on which a number of its branches are located. The following table sets forth the number of bank branches owned and leased by ASB by island: December 31, 2021 Oahu Maui Hawaii Kauai Molokai Number of branches Leased Total Owned 10 2 3 1 — 16 19 4 1 1 1 26 29 6 4 2 1 42 As of December 31, 2021, the net book value (NBV) of branches and office facilities was $175 million ($168 million represents the NBV of the land and improvements for the branches and office facilities owned by ASB and $7 million represents the NBV of ASB’s leasehold improvements). As of December 31, 2020, the NBV of branches and office facilities was $180 million ($174 million represents the NBV of the land and improvements for the branches and office facilities owned by ASB and $6 million represents the NBV of ASB’s leasehold improvements). The leases expire on various dates through December 2040, but many of the leases have extension provisions. As of December 31, 2021, ASB owned 122 automated teller machines. In January and February 2022, ASB closed three branches (one each on the islands of Oahu, Maui and Hawaii) that are owned by the Bank. ITEM 1A. RISK FACTORS The businesses of HEI and its subsidiaries involve numerous risks which, if realized, could have a material and adverse effect on the Company’s financial statements. For additional information for certain risk factors enumerated below and other risks of the Company and its operations, see “Cautionary Note Regarding Forward-Looking Statements” above and HEI’s MD&A, HEI’s “Quantitative and Qualitative Disclosures about Market Risk,” the Notes to the Consolidated Financial Statements, Hawaiian Electric’s MD&A and Hawaiian Electric’s “Quantitative and Qualitative Disclosures About Market Risk.” Holding company and company-wide risks. COVID-19—Our business, financial condition, liquidity and results of operations are being and could continue to be adversely impacted by the ongoing effects of the COVID-19 pandemic. Due to the numerous country, state, city and local jurisdictions that have imposed “shelter-in-place” orders or other restrictions in response to the COVID-19 pandemic, including travel restrictions that directly impact the Hawaii economy, economic activity in the state has been adversely impacted. While many restrictions have been subsequently lifted as vaccination rates increased and new daily case counts moderated, leading to improved economic conditions, new COVID-19 variants, such as Omicron, could require a reinstatement of restrictions that would threaten the ongoing economic recovery. Until the economy recovers more broadly, the Utilities expect that demand for electricity will remain muted and past due accounts receivables at the Utilities could remain at an elevated level, which has an impact on liquidity. While the Utilities expect to recover the difference between PUC approved target revenues and recorded adjusted revenues (regardless of the level of kWh sales) through the revenue balancing account under the decoupling mechanism based on estimated sales, starting on January 1st of the following year, the collection occurs on a lagged basis. If the 20 difference to be collected, which needs to be financed in the interim, exceeds the Utilities’ current liquidity sources, there can be no assurance that the Utilities will be able to secure additional liquidity sources at a reasonable cost, or at all, or if the difference becomes so large that it would result in a significant increase in customer bills, whether the PUC will allow recovery of such difference through the revenue balancing account. In addition to lower and lagged collections, the COVID-19 pandemic has also resulted in higher costs and expenses. While the Utilities have been granted deferral treatment of certain COVID-19 related costs, such as higher bad debt expense, non-collection of late payment fees, higher financing costs, sequestration costs for mission-critical employees and other costs and expenses, there can be no assurance that the PUC will grant recovery of such costs, and such costs could be material. Additionally, in light of the significant impact that economic conditions have had on residents and businesses in the state, a stipulated settlement between Hawaiian Electric and the Division of Consumer Advocacy of the Department of Commerce and Consumer Affairs, reflecting no base rate increase, was submitted in the Hawaiian Electric 2020 test year rate case, and approved by the PUC in October 2020. While the Utilities were successful in offsetting the no base rate increase with corresponding cost decreases in 2021, such reduction of cost in future periods is not assured and, therefore, the inability to achieve targeted cost savings could adversely affect the Utilities’ results of operations in future periods. ASB’s net interest income has also been adversely impacted by lower interest rates across the curve, which are influenced by economic conditions. Accordingly, an extended economic slowdown could have a significant continuing impact on its net interest income. In addition, while economic conditions improved in 2021, COVID-19 variants, such as Omicron, could lead to an extended economic slowdown that may affect the ability of borrowers to make payments on their loans, which would have an adverse impact on ASB’s provision for credit losses. While the Company believes that it has sufficient liquidity to continue to operate through this crisis, there can be no assurance that sufficient liquidity will be available if the slowdown in economic activity continues for an extended period of time or worsens from current levels. The Company continues to closely monitor the situation and will continue to take appropriate actions to operate its businesses and protect its workforce while serving customers and the community. If the current weakness in economic activity persists for an extended period of time or worsens from current levels, it could have a material adverse effect on the Company. These effects could include, but are not limited to: • Disruptions or restrictions on employees’ ability to work effectively due to illness, travel restrictions, quarantines, shelter-in-place orders or other limitations. • The inability of customers, IPPs, contractors, suppliers, creditors and other business partners to fulfill their obligations due to various factors, including, but not limited to, supply chain disruptions, labor shortages and wage inflation, which could result in unanticipated project costs. For example, several IPPs have declared force majeure, citing the pandemic, which could potentially result in significant project delays or project cancellations. In addition, several of the recently procured renewable projects have experienced delays or have been declared null and void by the independent power producers due to a number of issues, including supply chain disruptions. • Disruption and volatility in the global credit and financial markets, which may increase the cost of capital and could adversely impact access to capital for the Company and its customers and suppliers. • Further deterioration in economic conditions, or an extension of slow economic activity, which negatively impacts the Company’s earnings and liquidity, could also result in an impairment in the carrying value of goodwill or long-lived assets. • Actions taken or may be taken, or decisions made or may be made by the Company, as a consequence of the COVID-19 pandemic, may result in legal claims or litigation against the Company. Due to the unprecedented nature of the pandemic and the significant uncertainty it creates, including the unknown severity and duration of the pandemic and the resulting impact it may have on Hawaii businesses and residents of the state, which could also be affected by the pace of distribution, administration, and efficacy of the COVID-19 vaccine against variants, as well as the proportion of the population vaccinated and boosted, the Company is unable to predict the full extent of the future impact on the Company’s businesses at this time, and those impacts could have a material adverse effect on the Company’s results of operations, financial position, and cash flows. Holding Company Risk—HEI is a holding company that derives its income from its operating subsidiaries and depends on the ability of those subsidiaries to pay dividends or make other distributions to HEI and on its own ability to raise capital. HEI is a legal entity separate and distinct from its various subsidiaries. As a holding company with no significant operations of its own, HEI’s cash flows and consequent ability to service its obligations and pay dividends on its common stock is dependent upon its receipt of dividends or other distributions from its operating subsidiaries and its ability to issue common stock or other equity securities and to incur additional debt. The ability of HEI’s subsidiaries to pay dividends or make other distributions to HEI, in turn, is subject to the risks associated with their operations and to contractual and regulatory restrictions, including: 21 • • • • • • the provisions of an HEI agreement with the PUC, which could limit the ability of HEI’s principal electric public utility subsidiary, Hawaiian Electric, to pay dividends to HEI in the event that the consolidated common stock equity of the Utilities falls below 35% of total capitalization of the electric utilities; the provisions of an HEI agreement entered into with federal bank regulators in connection with its acquisition of its bank subsidiary, ASB, which requires HEI to contribute additional capital to ASB (up to a maximum amount of additional capital of $28.3 million as of December 31, 2021 under the Regulatory Capital Maintenance/Dividend Agreement dated May 26, 1988, between HEI, HEIDI (HEI Diversified Inc.) and the Federal Savings and Loan Insurance Corporation) upon request of the regulators in order to maintain ASB’s regulatory capital at the level required by regulation; obligations under federal law and Federal Reserve Board policy, which require that a savings and loan holding company serve as a source of financial and managerial strength for any FDIC-insured depository institution that it controls, and accordingly, if ASB were to be in financial distress or to otherwise be viewed by the regulators as in unsatisfactory condition, HEI could be required to provide additional capital or liquidity support or take other action, in support of ASB; the minimum capital and capital distribution regulations of the OCC that are applicable to ASB and capital regulations that become applicable to HEI and ASB Hawaii; the receipt of a letter from the FRB communicating the OCC’s and the FRB’s non-objection to the payment of any dividend ASB proposes to declare and pay to ASB Hawaii and HEI; and the provisions of preferred stock resolutions and debt instruments of HEI and its subsidiaries. Credit and Capital Market Risk—The Company, and its credit rating, is subject to risks associated with the Hawaii economy (in the aggregate and on an individual island basis), volatile U.S. capital markets and changes in the interest rate and credit market environment that have or could result in higher retirement benefit plan funding requirements, declines in ASB’s interest rate margins and investment values, higher delinquencies and charge-offs in ASB’s loan portfolio and restrictions on the ability of HEI or its subsidiaries to borrow money or issue securities. The two largest components of Hawaii’s economy are tourism and the federal government (including the military). Because the core businesses of HEI’s subsidiaries are providing local public electric utility services (through Hawaiian Electric and its subsidiaries) and banking services (through ASB) in Hawaii, the Company’s operating results are significantly influenced by: Hawaii’s economy, which in turn is influenced by economic conditions in the mainland U.S. (particularly California) and Asia (particularly Japan) as a result of the impact of those conditions on tourism; by the impact of interest rates on the construction and real estate industries and by the impact of federal government spending in Hawaii, which can be affected by world conditions; and, from time to time, the expiration of federal government appropriations bills. In addition, the Hawaii economy could be directly or indirectly affected by implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions and the potential impacts of global and local developments (including economic conditions and uncertainties; unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic, pandemics, or other crisis; the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade). HEI’s and Hawaiian Electric’s securities ratings only reflect the view, at the time the ratings are issued, of the applicable rating agency. There is no assurance that any such credit rating will remain in effect for any given period of time or that such rating will not be lowered, suspended or withdrawn entirely by the applicable rating agency if, in such rating agency’s judgment, circumstances, such as current, past or future effects or events so warrant. Any such lowering, suspension or withdrawal of any rating may have an adverse effect on the availability of capital to the Company or the market price or marketability of HEI’s and/or Hawaiian Electric’s securities, which could increase the cost of capital of HEI and Hawaiian Electric, and such increased costs, including interest charges, under HEI’s and/or Hawaiian Electric’s debt securities and credit facilities, would result in reductions in HEI’s consolidated net income in future periods. Further, if HEI’s or Hawaiian Electric’s commercial paper ratings were to be downgraded, HEI and Hawaiian Electric might not be able to sell commercial paper and might be required to draw on more expensive bank lines of credit or to defer capital or other expenditures. Neither HEI nor Hawaiian Electric management can predict future rating agency actions or their effects on the future cost of capital of HEI or Hawaiian Electric. Such ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating. Changes in the U.S. capital markets can also have significant effects on the Company. For example, pension funding requirements are affected by the market performance of the assets in the master pension trust maintained for pension plans, and by the discount rate used to estimate the service and interest cost components of net periodic pension cost and value obligations. The Utilities’ pension tracking mechanisms help moderate pension expense; however, a significant reduction in the discount rate or in the value of the Company’s defined benefit pension plan assets could result in a substantial increase in the gap between the projected benefit obligations under the plans and the value of plan assets, resulting in increases in funding requirements. 22 Because the earnings of ASB depend primarily on net interest income, interest rate risk is a significant risk of ASB’s operations. HEI and the Utilities are also exposed to interest rate risk primarily due to their periodic borrowing requirements, the discount rate used to determine pension funding requirements and the possible effect of interest rates on the electric utilities’ rates of return. Interest rates are sensitive to many factors, including general economic conditions and the policies of government and regulatory authorities. HEI cannot predict future changes in interest rates, nor be certain that interest rate risk management strategies it or its subsidiaries have implemented will be successful in managing interest rate risk. Interest rate risk also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair values of those instruments, respectively. Disruptions in the credit markets, a liquidity crisis in the banking industry or increased levels of residential mortgage delinquencies and defaults may result in decreases in the fair value of ASB’s investment securities and an impairment, requiring ASB to write down its investment securities. As of December 31, 2021, ASB’s investment in U.S. Treasury, federal agency obligations, and mortgage-backed securities have an implicit guarantee from the U.S. government. Geographic Concentration Risk—The Company is subject to the risks associated with the geographic concentration of its businesses and current lack of interconnections that could result in service interruptions at the Utilities or higher default rates on loans held by ASB. The business of the Utilities is concentrated on the individual islands they serve in the State of Hawaii. Their operations are more vulnerable to service interruptions than that of many U.S. mainland utilities because none of the systems of the Utilities are interconnected with the systems on the other islands they serve. Because of this lack of interconnections, it is necessary to maintain higher generation reserve margins than are typical for U.S. mainland utilities to help ensure reliable service. Service interruptions, including in particular extended interruptions that could result from a natural disaster or terrorist activity, could adversely impact the revenues and costs of some or all of the Utilities. Substantially all of ASB’s consumer loan customers are Hawaii residents. A significant portion of the commercial loan customers are also located in Hawaii. While a majority of customers are on Oahu, ASB also has customers on the neighbor islands (whose economies have been weaker than Oahu’s economy during the last economic downturn). Substantially all of the real estate underlying ASB’s residential and commercial real estate loans are located in Hawaii. These assets may be subject to a greater risk of default than other comparable assets held by financial institutions with other geographic concentrations in the event of adverse economic, political or business developments or natural disasters affecting Hawaii and affect the ability of ASB’s customers to make payments of principal and interest on their loans. Competitive and Technological Risk—Increasing competition and technological advances could cause HEI’s businesses to lose customers or render their operations obsolete. The banking industry in Hawaii, and certain aspects of the electric utility industry, are competitive. The success of HEI’s subsidiaries in meeting competition and responding to technological advances will continue to have a direct impact on HEI’s consolidated financial performance. For example: • • ASB, one of the largest financial institutions in the state, is in direct competition for deposits and loans not only with two larger institutions that have substantial capital, technology and marketing resources, but also with smaller Hawaii institutions and other U.S. institutions, including credit unions, mutual funds, mortgage brokers, finance companies, non-traditional providers of financial services and investment banking firms. Larger financial institutions may have greater access to capital at lower costs, which could impair ASB’s ability to compete effectively. New or significant advances in technology (e.g., significant advances in internet or mobile banking) or customer adoption of alternative banking channels could render the operations of ASB less competitive or obsolete. The Utilities face competition from IPPs; customer self-generation, with or without cogeneration; customer energy storage; and the potential formation of community-based, cooperative ownership or municipality structures for electrical service on all islands it serves. With the exception of certain identified projects, the Utilities are required to use competitive bidding to acquire a future generation resource unless the PUC finds competitive bidding to be unsuitable. The PUC sets policies for distributed generation interconnection agreements and standby rates. The results of competitive bidding, competition from IPPs, customer self-generation, and potential cooperative ownership or municipality structures for electric utility service, and the rate at which technological developments facilitating nonutility generation of electricity, combined heat and power technology, off-grid microgrids, and customer energy storage may render the operations of the Utilities less competitive or outdated and adversely affect the Utilities and the results of their operations. Cybersecurity Risk—The Company may be subject to information technology and operational system failures, network disruptions, cyber attacks and breaches in data security that could adversely affect its businesses and reputation. The Company and its subsidiaries rely on information technology systems, some of which are managed or hosted by third party service providers, to manage its business data, communications, and other business processes. Such information technology systems may be vulnerable to cyberattacks or other security incidents, which could result in unauthorized access to confidential data, ransomware demands or disruptions to operations. In addition, there is increasing cybersecurity risk associated with the broad 23 adoption of a remote working environment as a result of the pandemic. If the Company is unable to prevent or adequately respond to and resolve an incident, it may have a material impact on the Company’s operations or business reputation. Utilities. The Utilities rely on evolving and increasingly complex operational and information systems, networks and other technologies, which are interconnected with the systems and network infrastructure owned by third parties to support a variety of business processes and activities, including procurement and supply chain, invoicing and collection of payments, customer relationship management, human resource management, the acquisition, generation and delivery of electrical service to customers, and to process financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting and legal and tax requirements. The Utilities use their systems and infrastructure to create, collect, store, and process sensitive information, including personal information regarding customers, employees and their dependents, retirees, and other individuals. Despite the Utilities security measures, all of their systems are vulnerable to disability, failures or unauthorized access caused by natural disasters, cybersecurity incidents, security breaches, user error, unintentional defects created by system changes, military or terrorist actions, power or communication failures or similar events. Any such failure could have a material adverse impact on the Utilities’ ability to process transactions and provide service, as well the Utilities’ financial condition and results of operations. Further, a data breach involving theft, improper disclosure, or other unauthorized access to or acquisition of confidential information could subject the Utilities to penalties for violation of applicable privacy laws, claims by third parties, and enforcement actions by government agencies. A data breach could also reduce the value of proprietary information, and harm the reputation of the Utilities. As noted by the U.S. Department of Homeland Security, the utility industry is continuing to experience an increase in the frequency and sophistication of cybersecurity incidents. The Utilities’ systems have been, and will likely continue to be, a target of attacks. Further, the Utilities’ operational networks may be subject to new cybersecurity risks due to modernizing and interconnecting existing infrastructure with new technologies and control systems, including those owned by third parties. Although the Utilities have not experienced a material cybersecurity breach to date, such incidents may occur and may have a material adverse effect on the Utilities and the Company in the future. In order to address cybersecurity risks to their information systems, the Utilities maintain security measures designed to protect their information technology systems, network infrastructure and other assets. The Utilities actively monitor developments in the area of cybersecurity and are involved in various related government and industry groups, and brief the Company’s Board quarterly on relevant cybersecurity issues. Although the Utilities continue to make investments in their cybersecurity program, including personnel, technologies, cyber insurance and training of Utilities personnel, there can be no assurance that these systems or their expected functionality will be implemented, maintained, or expanded effectively; nor can security measures completely eliminate the possibility of a cybersecurity breach. The Utility maintains cyber liability insurance that covers certain damages caused by cyber incidents. However, there is no guarantee that adequate insurance will continue to be available at rates the Utility believes are reasonable or that the costs of responding to and recovering from a cyber incident will be covered by insurance or recoverable in rates. If the Utilities’ cybersecurity measures were to be breached, the Utilities could suffer financial loss, business disruptions, liability to customers, regulatory intervention or damage to their reputations. Due to the size, scope and complexity of the Utilities’ business, the development and maintenance of information technology systems to process and track information is critical and challenging. The Utilities often rely on third-party vendors to host, maintain, modify, and update its systems and these third-party vendors could cease to exist, fail to establish adequate processes to protect the Utilities systems and information, experience supply chain compromises or other internal or external security incidents. In addition, the Utilities are pursuing complex business transformation initiatives, which include the implementation of new systems and the upgrade or replacement of existing systems. Significant system changes increase the risk of system interruptions. Although the Utilities maintain change control processes to mitigate this risk, system interruptions may occur. Further, delay or failure to complete the integration of information systems and processes may result in delays in regulatory cost recovery, or the failure to realize the benefits anticipated to be derived from these initiatives. The Utilities have disaster recovery plans in place to protect their businesses from information technology service interruptions. The disaster recovery plans, however, may not be successful in preventing the loss of customer data, service interruptions and disruptions to operations or damage to important facilities. If any of these systems fail to operate properly or becomes disabled and the Utilities’ disaster recovery plans do not effectively resolve the issues in a timely manner, the Utilities could suffer financial loss, business disruptions, liability to customers, regulatory intervention or damage to their reputations, any of which could have a material adverse effect on the Utilities’ and the Company’s financial condition and results of operations. ASB. ASB is highly dependent on its ability to process, on a daily basis, a large number of transactions and relies heavily on communication and information systems, including those of third-party vendors and other service providers. Communication and information system failures can result from a variety of risks including, but not limited to, events that are wholly or partially out of ASB’s control, such as communication line integrity, weather, terrorist acts, natural disasters, accidental disasters, unauthorized breaches of security systems, energy delivery systems, cyberattacks and other events. 24 ASB is under continuous threat of loss due to cyberattacks, especially as ASB continues to expand customer capabilities to utilize the Internet and other digital channels to transact business. Two of the most significant cyberattack risks that ASB faces are e-fraud and loss of sensitive customer data. Loss from e-fraud occurs when cybercriminals extract funds directly from customers’ or ASB’s accounts using fraudulent schemes that may include Internet-based funds transfers. ASB has been subject to e-fraud incidents historically. Loss of sensitive customer data are attempts to steal sensitive customer data, such as account numbers and social security numbers, through unauthorized access to computer systems, including computer hacking. Such attacks are less frequent, but could present significant reputational, legal and regulatory costs if successful. Intrusion detection and prevention systems, anti-virus software, firewalls and other general information technology controls have been put in place to detect and prevent cyberattacks or information system breaches. A disaster recovery plan has been developed in the event of a natural disaster, security breach, military or terrorist action, power or communication failure or similar event. The disaster recovery plan, however, may not be successful in preventing the loss of customer data, service interruptions, disruptions to operations or damage to important facilities. Although ASB devotes significant resources to maintain and regularly upgrade its systems and processes that are designed to protect the security of ASB’s computer systems, software, networks and other technology assets and the confidentiality, integrity and availability of information belonging to ASB and its customers, there can be no assurance that such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately corrected by ASB or its vendors. If any of these systems fail to operate properly or become disabled even for a brief period of time, ASB could suffer financial loss, business disruptions, liability to customers, regulatory intervention or damage to its reputation, any of which could have a material adverse effect on ASB’s and the Company’s financial condition and results of operations. Uninsured Losses—HEI’s businesses could suffer losses that are uninsured due to a lack of affordable insurance coverage, unavailability of insurance coverage or limitations on the insurance coverage the Company does have. In the ordinary course of business, HEI and its subsidiaries purchase insurance coverages (e.g., property and liability coverages) to protect against loss of, or damage to, their properties and against claims made by third parties and employees for property damage or personal injuries. However, the protection provided by such insurance is limited in significant respects and, in some instances, there is no coverage. Some of the insurance coverages have substantial deductibles or has limits on the maximum amounts that may be recovered. In common with other companies in its line of business, the Utilities’ overhead and underground transmission and distribution systems (with the exception of substation buildings and contents), which have a replacement value roughly estimated at $8 billion, are largely not insured against loss or damage because the amount of transmission and distribution system insurance capacity is limited and the premiums are cost prohibitive. Similarly, the Utilities have no business interruption insurance as the premiums for such insurance would be cost prohibitive, particularly since the Utilities are not interconnected to other systems. If a hurricane or other uninsured catastrophic natural disaster were to occur, and if the PUC did not allow the affected Utilities to recover from ratepayers restoration costs and revenues lost from business interruption, the lost revenues and repair expenses could result in a significant decrease in HEI’s consolidated net income or in significant net losses for the affected periods. ASB generally does not obtain credit enhancements, such as mortgagor bankruptcy insurance, but does require standard hazard and hurricane insurance and may require flood insurance for certain properties. ASB is subject to the risks of borrower defaults and bankruptcies, special hazard losses not covered by the required insurance and the insurance company’s inability to pay claims on existing policies. Environmental Regulation—Increased federal and state environmental regulation will require an increasing commitment of resources and funds and could result in construction delays or penalties and fines for non-compliance. HEI and its subsidiaries are subject to federal, state and local environmental laws and regulations relating to air quality, water quality, hazardous substances, waste management, natural resources and health and safety, which regulate, among other matters, the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous and toxic wastes and substances. These laws and regulations could result in increased capital, operating, and other costs. HEI or its subsidiaries are currently involved in investigatory or remedial actions at current, former or third-party sites and there is no assurance that the Company will not incur material costs relating to these sites. In addition, compliance with these legal requirements requires the Utilities to commit significant resources and funds toward, among other things, environmental monitoring, installation of pollution control equipment and payment of emission fees. These laws and regulations, among other things, require that certain environmental permits be obtained in order to construct or operate certain facilities, and obtaining such permits can entail significant expense and cause substantial construction delays. Also, these laws and regulations may be amended from time to time, including amendments that increase the burden and cost of compliance. For example, emission and/ or discharge limits may be tightened, more extensive permitting requirements may be imposed and additional substances may become regulated. In addition, significant regulatory uncertainty exists regarding the impact of federal or state greenhouse gas emission limits and reductions. 25 If HEI or its subsidiaries fail to comply with environmental laws and regulations, even if caused by factors beyond their control, that failure may result in civil or criminal penalties and fines or the cessation of operations that could have a material adverse on the Company’s financial condition or results of operations. Electric utility risks. The following risks are generally specific to Hawaiian Electric, but could have a material adverse effect on the Company’s consolidated results of operations, financial condition and liquidity. Regulatory Risk—Actions of the PUC are outside the control of the Utilities and could result in inadequate or untimely rate increases, in rate reductions or refunds or in unanticipated delays, expenses or writedowns in connection with the construction of new projects. The rates the Utilities are allowed to charge for their services and the timeliness of permitted rate increases are among the most important items influencing the Utilities’ results of operations, financial condition and liquidity. The PUC has broad discretion over the rates that the Utilities charge their customers. On December 23, 2020, as part of the D&O establishing a new PBR Framework, there will be a five-year Multi-year Rate Period (MRP) during which there will be no general rate cases. In the fourth year of the MRP, the PUC will comprehensively review the PBR Framework to determine if any modifications or revisions are appropriate. Any adverse decision by the PUC concerning the level or method of determining electric utility rates at the end of the multi-year rate period including the items and amounts that may be included in rate base, the returns on equity or rate base found to be reasonable, the potential consequences of exceeding or not meeting such returns, the denial of exceptional project recovery applications during the multi-year rate period, adverse impact of adjustments made to the PBR Framework, decisions on recovery of exogenous items under the PBR Framework, or any prolonged delay in rendering a decision in a rate or other proceeding could have a material adverse effect on Hawaiian Electric’s consolidated results of operations, financial condition and liquidity. To improve the timing and certainty of the recovery of their costs, the Utilities have proposed and/or received approval of various cost recovery mechanisms, including an ECRC (includes a PUC-ordered 98%/2% risk-sharing split between customers and the Utilities for fossil fuel price variations from baseline prices, with a current annual aggregate exposure cap of +/- $3.7 million), a PPAC, and pension and OPEB tracking mechanisms, as well as a decoupling mechanism, an exceptional project recovery mechanism (EPRM) (formerly major project interim recovery (MPIR) adjustment mechanism), and a Renewable Energy Infrastructure Program (REIP) surcharge. A change in, or the elimination of, any of these cost recovery mechanisms, could have a material adverse effect on the Utilities. See “Regulatory mechanisms” in Electric Utility’s Business. Under the new PBR Framework, the Utilities’ annual revenue adjustment (ARA) includes a customer dividend consisting of a negative adjustment of 0.22% compounded annually and a flow through of the “pre-PBR” savings commitment from the management audit recommendations developed in the 2020 test year rate case. The ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by the annual revenue adjustment (ARA) or not achieving the customer dividend and cost savings commitment could have a material adverse effect on the Utilities. Under the new PBR Framework, the existing PIMs continue, and the PUC established new PIMs and is working on additional PIMs with stakeholders. Not meeting the PIMs that have penalties for not achieving performance incentive goals or PIMs that would contribute to the Utilities’ ability to achieve their allowed ROACEs could have a material adverse effect on the Utilities. Based on the current operations of the Utilities and regulatory framework, including the impact of the newly approved PBR Framework, the Utilities continue to follow regulatory accounting under Accounting Standards Codification (ASC) 980. Continued accounting in this manner requires that certain criteria relating to the recoverability of such costs through rates be met, including achieved financial results that support the recovery of costs. If events or circumstances should change, such that the criteria are no longer satisfied, the Utilities expect that their regulatory assets (amounting to $566 million as of December 31, 2021), net of regulatory liabilities (amounting to $997 million as of December 31, 2021), would be charged to the statement of income in the period of discontinuance. See “Performance-based regulation framework” in Note 3 of the Consolidated Financial Statements. The Utilities could be required to refund to their customers, with interest, revenues that have been or may be received under interim rate orders in their rate case proceedings and other proceedings, if and to the extent they exceed the amounts allowed in final orders. Many public utility projects require PUC approval and various permits (e.g., environmental and land use permits) from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits, or any adverse decision or policy made or adopted, or any prolonged delay in rendering a decision, by an agency with respect to such approvals and permits, can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if the PUC disallows cost recovery for all or part of a project, or if project costs exceed caps imposed by 26 the PUC in its approval of the project, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income. There is significant uncertainty around the potential impacts related to the recent surge in COVID-19 and the variant strains. See risk factor, “COVID-19—Our business, financial condition, liquidity and results of operations are being and could continue to be adversely impacted by the ongoing effects of the COVID-19 pandemic” in the “Holding company and company- wide” risk factor section for a discussion regarding the risks related to the recovery of deferred COVID-19 costs and expenses. Weather Conditions Risk—Electric utility operations are significantly influenced by weather conditions and natural disasters. The Utilities’ results of operations can be affected by the weather and natural disasters. Weather conditions, particularly temperature and humidity, directly influence the demand for electricity. In addition, severe weather and natural disasters, such as hurricanes, earthquakes, tsunamis, lava flows and lightning storms, some of which may become more severe or frequent as a result of global climate changes, have occurred in the past and will likely continue to occur in the future. When these events occur, they can cause outages and property damage and require the Utilities to incur significant additional expenses that may not be recoverable. Climate Change Risk—Electric utility operations may be significantly influenced by climate change. While the timing, extent and ultimate effects of climate change cannot be determined with any certainty, climate change is predicted to result in sea level rise, which could potentially impact coastal and other low-lying areas (where much of the Utilities’ electric infrastructure is sited), and could cause erosion of beaches, saltwater intrusion into aquifers and surface ecosystems, higher water tables and increased flooding and storm damage due to heavy rainfall. The effects of climate change on the weather (for example, floods, hurricanes, heat waves or drought conditions, the latter of which could increase wildfire risk), sea levels, and water availability and quality, all have the potential to materially adversely affect the results of operations, financial condition and liquidity of the Utilities. For example, severe weather and its related impacts could cause significant harm to the Utilities’ physical facilities. Third Party Performance Risk—Electric utility operations depend heavily on third-party suppliers of fuel and purchased power. The Utilities rely on fuel suppliers and shippers, and IPPs to deliver fuel and power, respectively, in accordance with contractual agreements. Approximately 67% of the net energy generated or purchased by the Utilities in 2021 was generated from the burning of fossil fuel oil, and purchases of power by the Utilities provided about 48% of their total net energy generated and purchased for the same period. Failure or delay by fuel suppliers and shippers to provide fuel pursuant to existing contracts, or failure by a major IPP to deliver the firm capacity anticipated in its PPA, could disrupt the ability of the Utilities to deliver electricity, affect the Utilities’ maintenance schedules that could affect future reliability and require the Utilities to incur additional expenses to meet the needs of their customers that may not be recoverable. In addition, as the 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. Also, as these contractual agreements end, the Utilities may not be able to purchase fuel and power on terms equivalent to the current contractual agreements. Capacity Risk—The capacity provided by the Utilities’ generating resources and third-party purchased power may not be sufficient to meet customers’ energy requirements. The Utilities rely upon their generating resources and purchased power from third parties to meet their customers’ energy requirements. The Utilities update their evaluation of long-term generation capacity every three years to determine the Utilities’ ability to meet reasonably expected demands for service and provide reasonable reserves for emergencies and other unplanned events. These evaluations are impacted by a variety of factors, including customer energy demand, energy conservation and efficiency initiatives, economic conditions, and weather patterns. If the capacity provided by the Utilities’ generating resources and third-party purchased power is not adequate relative to customer demand, the Utilities may have to contract to buy more power from third parties, invest in additional generating facilities over the long-term, or extend the operating life of existing utility units. Any failure to meet customer energy requirements could negatively impact the satisfaction of the Utilities’ customers, which could have an adverse impact on the Utilities’ business, reputation and results of operations. Stakeholder Activism Risk—Electric utility and third-party purchased power projects may be significantly impacted by stakeholder activism. The potential impact of stakeholder activism could increase total utility project costs, and delay the permitting, construction and overall timing or preclude the completion of third-party or utility projects that are required to meet electricity demand, resilience and reliability objectives, and RPS and other climate related goals. If a utility project cannot be completed, the project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income and negatively impact its financial condition and liquidity. Operational Risk—Electric utility generating facilities are subject to operational risks that could result in unscheduled plant outages, unanticipated and/or increased operation and maintenance expenses and increased power purchase costs. Operation of electric generating facilities involves certain risks which can adversely affect energy output and efficiency levels. Included among these risks are facility shutdowns or power interruptions due to insufficient generation or a breakdown or 27 failure of equipment or processes. In addition, operations could be negatively impacted by interruptions in fuel supply, inability to negotiate satisfactory collective bargaining agreements when existing agreements expire or other labor disputes, inability to comply with regulatory or permit requirements, disruptions in delivery of electricity, operator error and catastrophic events such as earthquakes, tsunamis, hurricanes, fires, explosions, lava flows, floods or other similar occurrences affecting the Utilities’ generating facilities or transmission and distribution systems. Legislative Risk—The Utilities may be adversely affected by new legislation or administrative actions. Congress, the Hawaii legislature and governmental agencies periodically consider legislation and other initiatives that could have uncertain or negative effects on the Utilities and their customers. Congress, the Hawaii legislature and governmental agencies have adopted, or are considering adopting, a number of measures that will significantly affect the Utilities, as described below. Renewable Portfolio Standards law. In 2015, Hawaii’s RPS law was amended to require electric utilities to meet an RPS of 15%, 30%, 40%, 70% and 100% by December 31, 2015, 2020, 2030, 2040 and 2045 respectively. Energy savings resulting from energy efficiency programs do not count toward the RPS after 2014. The Utilities are committed to achieving these goals and met the 2015 and 2020 RPS; however, due to the exclusion of energy savings in calculating RPS after 2014 and risks such as potential delays in IPPs being able to deliver contracted renewable energy, it is possible the Utilities may not attain the required renewable percentages in the future, and management cannot predict the future consequences of failure to do so (including potential penalties to be assessed by the PUC). On December 19, 2008, the PUC approved a penalty of $20 for every MWh that an electric utility is deficient under Hawaii’s RPS law. The PUC noted, however, that this penalty may be reduced, in the PUC’s discretion, due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated, as described in the RPS law and in an RPS framework adopted by the PUC. In addition, the PUC ordered that the Utilities will be prohibited from recovering any RPS penalty costs through rates. Renewable energy. In 2007, a measure was passed by the Hawaii legislature stating that the PUC may consider the need for increased renewable energy in rendering decisions on utility matters. Due to this measure, it is possible that, if energy from a renewable source is more expensive than energy from fossil fuel, the PUC may still approve the purchase of energy from the renewable source, resulting in higher costs. Global climate change and greenhouse gas emissions reduction. National and international concern about climate change and the contribution of greenhouse gas (GHG) emissions (including carbon dioxide emissions from the combustion of fossil fuels) to climate change have led to federal legislative and regulatory proposals and action by the state of Hawaii to reduce GHG emissions. In July 2007, the State Legislature passed Act 234, which requires a statewide reduction of GHG emissions by January 1, 2020 to levels at or below the statewide GHG emission levels in 1990. On June 20, 2014, the Governor signed the final rules required to implement Act 234 and these rules went into effect on June 30, 2014. In general, Act 234 and the GHG rule require affected sources that have the potential to emit GHGs in excess of established thresholds to reduce their GHG emissions by 16% below 2010 emission levels by 2020. In accordance with state requirements, the Utilities submitted an Emissions Reduction Plan (ERP) to the DOH on June 30, 2015, with the most recent revision filed on June 9, 2020, to reflect the partnership established between the Utilities and several IPPs. In this plan, the partnership committed to a 16% reduction in GHG emissions in accordance with the rule, which the partnership achieved in 2017 in advance of the 2020 requirement. The DOH issued the air permits incorporating the ERP including provisions to address the period of unavailability of the PGV facility on Hawaii Island. It is expected that with the advent of additional renewable projects and the application to the PUC with respect to the expansion of the PPA for the PGV project, the goals should be attainable. Hawaii Revised Statutes (HRS) § 269-6(b) requires that “in making determinations of the reasonableness of the costs pertaining to electric or gas utility system capital improvements and operations, the PUC shall explicitly consider, quantitatively or qualitatively, the effect of the state’s reliance on fossil fuels on price volatility, export of funds for fuel imports, fuel supply reliability risk, and greenhouse gas emissions.” Based on HRS § 269-6(b) and recent case law discussing the scope of this section, the Utilities are performing GHG analyses to quantitatively or qualitatively describe the GHG emissions of proposed projects that are submitted to the PUC for approval. In June 2018, House Bill 2182 was signed into law as Act 15 and took effect on July 1, 2018. Among its provisions, Act 15 aligned the state’s clean energy and carbon sequestration efforts with climate initiative goals and established a statewide carbon neutral goal by 2045. Under this Act, efforts would be made to “sequester more atmospheric carbon and greenhouse gases than emitted within the state as quickly as practicable, but no later than 2045.” The Hawaii Climate Change Mitigation and Adaptation Commission, administratively placed under the State Department of Land and Natural Resources, was charged with endeavoring to achieve the target, and giving consideration to the impact of its plans, decisions and strategies on the state’s ability to attain the goal. The general functions, duties and powers of the Hawaii Climate Change Mitigation and Adaptation Commission are set forth in HRS § 225P-3. To achieve its mandates, the Hawaii Climate Change Mitigation and Adaptation 28 Commission may recommend plans, decisions and strategies that could have an impact on various entities including the Utilities. The Utilities have taken, and continue to identify opportunities to take, direct action to reduce GHG emissions from their operations, including, but not limited to, supporting demand-side management programs that foster energy efficiency, using renewable resources for energy production and purchasing power from IPPs generated by renewable resources, and burning renewable biodiesel at selected Hawaiian Electric and Maui Electric generating units. In November 2021, the Utilities committed to a 70% reduction in power generation GHG emissions by 2030 compared to a 2005 baseline and achievement of net zero carbon emissions from power generation by 2045. While the reduction is not mandated by law, the Utilities could suffer reputational harm if it fails to achieve its commitments, which may negatively impact its business. The foregoing legislation or legislation that now is, or may in the future be, proposed, such as potential carbon “cap and trade” legislation that, if applicable, may fundamentally alter costs to produce electricity and accelerate the move to renewable generation, present risks and uncertainties for the Utilities. Renewable Transition Risk—The Utilities may be subject to increased operational challenges and their results of operations, financial condition and liquidity may be adversely impacted in meeting the commitments and objectives of clean energy initiatives, Renewable Portfolio Standards (RPS) and other climate related goals. The far-reaching nature of the Utilities’ renewable energy commitments and the RPS and other climate related goals present risks to the Company. Among such risks are: (1) 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; (2) the dependence on outside parties, such as the state, developers and third-party suppliers of renewable purchased energy, which if the Utilities are unsuccessful in negotiating purchased power agreements with such IPPs or if a major IPP delays or fails to deliver the anticipated capacity and/or energy in its purchased power agreement, could impact the Utilities’ achievement of their commitments to RPS and other climate related goals, eligibility for performance incentive mechanisms associated with the speed of increasing renewable generation, the ability to retire fossil fuel units, and/or the Utilities’ ability to deliver reliable service; (3) delays in acquiring or unavailability of non-fossil fuel supplies for renewable generation; (4) the impact of intermittent power to the electrical grid and reliability of service if appropriate supporting infrastructure is not installed or does not operate effectively; (5) the inability to recover the undepreciated cost of fossil fuel generating units if they are required to be retired before the end of their expected useful life; (6) uncertainties surrounding current and future renewable technologies, such as solar power, wind power, biofuels, battery storage, hydro, hydrogen, as well as related environmental assessments required to meet RPS and other climate related goals; (7) the impacts of implementation of the renewable energy proposals on future costs of electricity and potential penalties imposed by the PUC for delays in the commercial operations of renewable energy projects; (8) the likelihood that the Utilities may need to make substantial investments in related infrastructure, which could result in increased borrowings and, therefore, materially impact the financial condition and liquidity of the Utilities; (9) the imputed debt related to the pending renewable power purchase agreements under the stage 1 and stage 2 RFPs could result in a credit rating downgrade for the Utilities and the Company; and (10) the commitment to support a variety of initiatives, which, if approved by the PUC, may have a material impact on the results of operations and financial condition of the Utilities depending on their design and implementation. These initiatives include, but are not limited to, programs to enable more customer-sited generation. The implementation of these or other programs may adversely impact the results of operations, financial condition and liquidity of the Utilities. Retirement of the AES coal plant—Hawaiian Electric’s ability to deliver reliable power could be impacted by the availability of AES’ coal plant for the remainder of the PPA term and by the availability of other generating units with the planned retirement of AES’ coal plant. The AES coal plant provides 180 MW of capacity (approximately 10% of generation) on Oahu and is scheduled for retirement on September 1, 2022. The availability of the AES coal plant as well as the availability of other IPP and utility units directly affects Hawaiian Electric’s maintenance schedules for its own and other IPP generation resources, which in turn could impact Hawaiian Electric’s ability to provide reliable service to its customers. On September 1, 2022, the PPA with AES will terminate and will not be renewed, which will require replacement capacity from other generating resources. Hawaiian Electric believes its plans, including contingency plans, are adequate to ensure reliable service through the transition period. These plans include the anticipated addition of ten renewable energy/storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, multiple demand response/distributed energy resources programs and a proposed battery project. However, if there were unexpected issues with existing generation, or Hawaiian Electric is not able to implement its plans for replacement generation after September 1, 2022, it could disrupt the ability of Hawaiian Electric to deliver reliable service, result in financial loss that may not be recoverable, cause business disruptions, result in liability to customers, invite regulatory intervention or result in damage to Hawaiian Electric’s reputation, any of which could have a material adverse effect on the Utilities’ and the Company’s financial condition and results of operations. 29 Bank risks. The following risks are generally specific to ASB, but could have a material adverse effect on the Company’s consolidated results of operations, financial condition and liquidity. Interest Rate Risk—Fluctuations in interest rates could result in lower net interest income, impair ASB’s ability to originate new loans or impair the ability of ASB’s adjustable-rate borrowers to make increased payments or cause such borrowers to repay their adjustable-rate loans. Interest rate risk is a significant risk of ASB’s operations. ASB’s net interest income consists primarily of interest income received on fixed-rate and adjustable-rate loans, mortgage-backed securities and investments, less interest expense consisting primarily of interest paid on deposits and other borrowings. Interest rate risk arises when earning assets mature or when their interest rates change in a time frame different from that of the costing liabilities. Changes in market interest rates, including changes in the relationship between short-term and long-term market interest rates (e.g., a flat or an inverted yield curve) or between different interest rate indices, and the duration and severity of the changes in market interest rates can impact ASB’s net interest margin. See “Quantitative and Qualitative Disclosures about Market Risk.” Although ASB pursues an asset-liability management strategy designed to mitigate its risk from changes in market interest rates, unfavorable movements in interest rates could result in lower net interest income. Residential 1-4 family fixed-rate mortgage loans comprised about 42% of ASB’s loan portfolio as of December 31, 2021 and do not re-price with movements in interest rates. ASB continues to face a challenging interest rate environment. Increases in market interest rates could have an adverse impact on ASB’s cost of funds. Higher market interest rates could lead to higher interest rates paid on deposits and other borrowings. Significant increases in market interest rates, or the perception that an increase may occur, could adversely affect ASB’s ability to originate new loans and grow. An increase in market interest rates, especially a sudden increase, could also adversely affect the ability of ASB’s adjustable-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and charge-offs. Conversely, a decrease in interest rates or a mismatching of maturities of interest sensitive financial instruments could result in an acceleration in the prepayment of loans and mortgage- backed securities and impact ASB’s ability to reinvest its liquidity in similar yielding assets. LIBOR Sunset Transition Risk—Changes in the method for determining London Interbank Offered Rate (LIBOR) and the potential replacement of LIBOR may affect our loan portfolio and interest income on loans. On July 27, 2017, the United Kingdom’s Financial Conduct Authority (FCA), which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. On March 5, 2021, the ICE Benchmark Administration Limited (IBA), as administrator of LIBOR, publicly announced that it intends to cease publication of one week and two month USD LIBOR tenors on December 31, 2021 and the remaining USD LIBOR tenors on June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee composed of large U.S. financial institutions, announced replacement of U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate (SOFR). ASB has loans and other financial instruments with rates that are either directly or indirectly tied to LIBOR. Failure to adequately manage this transition process with our customers could adversely impact the Bank’s reputation. ASB has formed a cross-functional project team to oversee the transition. The project team reports to Management and the Board on a periodic basis. The project team is organized around key work streams which cover products, systems and operational processes impacted by the transition as well as client communication. The project team has completed an inventory of existing LIBOR-indexed products, which are monitored on an ongoing basis. In addition, the project team has retired all LIBOR-based originations as of December 31, 2021 and continues to offer floating rate loans with alternative indices, including SOFR. ASB will continue to monitor legacy contracts and will continue the orderly transition away from LIBOR by June 30, 2023 in accordance with the OCC and other federal financial institution regulatory agencies’ statement on LIBOR transition. Credit Risk—ASB’s allowance for credit losses may not cover actual loan losses. ASB’s allowance for credit losses is ASB’s estimate of lifetime expected credit losses on financial instruments and other commitments to extend credit and is based on a continuing assessment of: • • • • • existing risks in the loan portfolio; historical loss experience with ASB’s loans; changes in collateral value; current conditions (for example, economic conditions, real estate market conditions and interest rate environment) and; reasonable and supportable forecasts that affect the collectability of the reported amount. If ASB’s actual loan losses exceed its allowance for credit losses, it may incur losses, its financial condition may be materially and adversely affected, and additional capital may be required to enhance its capital position. In addition, various regulatory agencies, as an integral part of their examination process, regularly review the adequacy of ASB’s allowance. These agencies may require ASB to establish additional allowances based on their judgment of the information available at the time of 30 their examinations. No assurance can be given that ASB will not sustain loan losses in excess of present or future levels of its allowance for credit losses. Operational Risk—ASB’s operations are affected by factors that are beyond its control, that could result in lower revenues, higher expenses or decreased demand for its products and services. ASB’s results of operations depend primarily on the income generated by the supply of, and demand for, its products and services, which primarily consist of loans and deposit services. ASB’s revenues and expenses may be adversely affected by various factors, including: • • • • • • • • • • • local, regional, national and other economic and political conditions that could result in declines in employment and real estate values, which in turn could adversely affect the ability of borrowers to make loan payments and the ability of ASB to recover the full amounts owing to it under defaulted loans; the ability of borrowers to obtain insurance and the ability of ASB to place insurance where borrowers fail to do so, particularly in the event of catastrophic damage to collateral securing loans made by ASB; 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 profiles and asset quality, which may increase or decrease the required level of allowance for credit losses; technological disruptions affecting ASB’s operations or financial or operational difficulties experienced by any outside vendor on whom ASB relies to provide key components of its business operations, such as business processing, network access or internet connections; events of default and foreclosure of loans whereby ASB becomes the owner of mortgage properties that presents environmental risk or potential clean up liability; the impact of legislative and regulatory changes, including changes affecting capital requirements, increasing oversight of and reporting by banks, or affecting the lending programs or other business activities of ASB; additional legislative changes regulating the assessment of overdraft, interchange and credit card fees, which can have a negative impact on noninterest income; public opinion about ASB and financial institutions in general, which, if negative, could impact the public’s trust and confidence in ASB and adversely affect ASB’s ability to attract and retain customers and expose ASB to adverse legal and regulatory consequences; increases in operating costs (including employee compensation expense and benefits and regulatory compliance costs), inflation and other factors, that exceed increases in ASB’s net interest, fee and other income; and the ability of ASB to maintain or increase the level of deposits, ASB’s lowest costing funds. Banking Regulatory Risk—Banking and related regulations could result in significant restrictions being imposed on ASB’s business or in a requirement that HEI divest ASB. ASB is subject to examination and comprehensive regulation by the Department of Treasury, the OCC and the FDIC, and is subject to reserve requirements established by the Board of Governors of the Federal Reserve System. In addition, the FRB is responsible for regulating ASB’s holding companies, HEI and ASB Hawaii. The regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities and examination policies to address not only ASB’s compliance with applicable banking laws and regulations, but also capital adequacy, asset quality, management ability and performance, earnings, liquidity and various other factors. Under certain circumstances, including any determination that ASB’s relationship with HEI results in an unsafe and unsound banking practice, these regulatory authorities have the authority to restrict the ability of ASB to transfer assets and to make distributions to its shareholders (including payment of dividends to HEI), or they could seek to require HEI to sever its relationship with or divest its ownership of ASB. Payment by ASB of dividends to HEI may also be restricted by the OCC and FRB under its prompt corrective action regulations or its capital distribution regulations if ASB’s capital position deteriorates. In order to maintain its status as a QTL, ASB is required to maintain at least 65% of its assets in “qualified thrift investments.” Institutions that fail to maintain QTL status are subject to various penalties, including limitations on their activities. In ASB’s case, the activities of HEI and HEI’s other subsidiaries would also be subject to restrictions, and a failure or inability to comply with those restrictions could effectively result in the required divestiture of ASB. Federal legislation has also been proposed in the past that could operate to eliminate the thrift charter or the grandfathered status of HEI as a unitary thrift holding company, which in turn would result in a required divestiture of ASB. In the event of a required divestiture, federal law substantially limits the types of entities that could potentially acquire ASB. Bank Regulatory Risk - Heightened regulatory requirements if ASB’s total assets exceed $10 billion. As of December 31, 2021, ASB had total assets of approximately $9.2 billion and it is possible that total assets could exceed $10 billion in the near future. The Dodd-Frank Act and its implementing regulations impose enhanced supervisory requirements on financial institutions with more than $10 billion in total assets. For financial institutions with more than $10 billion in total assets, such requirements include, among other things: 31 Increased capital leverage, liquidity and risk management standards; Examinations by the CFPB for compliance with federal consumer financial protection laws and regulations; and • Applicability of Volcker Rule requirements and restrictions; • • • The Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA), which was enacted in 2018, amended the Dodd-Frank Act to raise the $10 billion stress testing threshold to $250 billion, among other things. The federal financial regulators issued final rules in 2019 to increase the threshold for these stress testing requirements from $10 billion to $250 billion, consistent with the EGRRCPA. Limits on interchange fees on debit cards (Durbin Amendment) ASB is already subject to limits for its interchange fees on debit cards as the Bank’s parent company, HEI, has total assets exceeding $10 billion and the Durbin Amendment did not exclude unitary thrift holding companies from the threshold for holding company assets subject to interchange fee limits. Federal financial regulators may require ASB to take actions to prepare for compliance with the foregoing requirements before it exceeds $10 billion in total assets. ASB’s regulators may consider its preparation for compliance with these regulatory requirements when examining the Bank’s operations or considering any request for regulatory approval. ASB may, therefore, incur compliance costs before it reaches $10 billion in total assets and may be required to maintain the additional compliance procedures even if the Bank does not grow at the anticipated rate or at all. Failure to comply with these new requirements may negatively impact the results of ASB’s operations and financial condition. To ensure compliance, the Bank may be required to invest significant resources, which may necessitate hiring additional personnel and implementing additional internal controls. These additional compliance costs may have a material adverse effect on our business, results of operations and financial condition. Legislative Risk—Legislative and regulatory initiatives could have an adverse effect on ASB’s business. From time to time, new legislative and other regulatory initiatives are enacted, which could have an adverse effect on ASB’s business. For example, the Dodd-Frank Act, which became law in July 2010, has had a substantial impact on the financial services industry. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/ or reputational damage, which could have a material adverse effect on ASB’s business, results of operations, financial condition and liquidity. Product Concentration Risk—A large percentage of ASB’s loans and securities are collateralized by real estate, and adverse changes in the real estate market and/or general economic or other conditions may result in loan losses and adversely affect the Company’s profitability. As of December 31, 2021 approximately 83% of ASB’s loan portfolio was comprised of loans primarily collateralized by real estate, most of which was concentrated in the State of Hawaii. During 2021, ASB’s home equity lines of credit (HELOC) decreased 13% and the residential 1-4 family portfolios increased by 7%, comprising 73% of total real estate loans. ASB’s financial results may be adversely affected by changes in prevailing economic conditions, either nationally or in the state. ASB had been pursuing a strategy that included expanding its commercial, commercial real estate and consumer lines of business. Commercial and commercial real estate loans have a higher risk profile than residential loans. Though both commercial and commercial real estate loans have shorter terms and earn higher spreads than residential mortgage loans, these loan types generally entail higher underwriting and other service costs and present greater credit risks than traditional residential mortgages. Commercial loans are secured by the assets of the business and, upon default, any collateral repossessed may not be sufficient to repay the outstanding loan balance. In addition, loan collections are dependent on the borrower’s continuing financial stability and, thus, are more likely to be affected by current economic conditions and adverse business developments. Commercial real estate properties tend to be unique and are more difficult to value than residential real estate properties. Commercial real estate loans may not be fully amortizing, meaning that they have a significant principal balance or “balloon” payment due at maturity. In addition, commercial real estate properties, particularly industrial and warehouse properties, are generally subject to relatively greater environmental risks than noncommercial properties and to the corresponding burdens and costs of compliance with environmental laws and regulations. Also, there may be costs and delays involved in enforcing rights of a property owner against tenants in default under terms of leases with respect to commercial properties. For example, a tenant may seek protection under bankruptcy laws, which could result in termination of the tenant’s lease. ASB also has a national syndicated lending portfolio where ASB is a participant in credit facilities agented by established and reputable national lenders. Management selectively chooses each deal based on conservative credit criteria to ensure a high- quality, well diversified portfolio. In the event the borrower encounters financial difficulties and ASB is unable to sell its participation interest in the loan in the secondary market, ASB is typically reliant on the originating lender for managing any loan workout or foreclosure proceedings that may become necessary. Accordingly, ASB has less control over such proceedings than loans it originates and may be required to accommodate the interests of other participating lenders in resolving 32 delinquencies or defaults on participated loans, which could result in outcomes that are not fully consistent with ASB’s preferred strategies. In addition, a significant proportion of ASB’s syndicated loans are originated in states other than Hawaii and are subject to the local regional and regulatory risks specific to those states. Similar to the national syndicated lending portfolio, ASB does not service commercial loans in which it has participation interests rather than being the lead or agent lender and is subject to the policies and practices of the agent lender, who is the loan servicer, in resolving delinquencies or defaults on participated loans. The consumer loan portfolio primarily consists of personal unsecured loans with risk-based pricing. Repayment is based on the borrower’s financial stability as these loans have no collateral and there is less assurance that ASB will be able to collect all payments due under these loans or have sufficient collateral to cover all outstanding loan balances. General Risk Factors. ESG Risk—Increased scrutiny and changing stakeholder expectations with respect to our environmental, social and governance (ESG) programs may result in increased costs and expenses and may expose the Company to new or incremental risks. Companies across all industries, including HEI, face increasing stakeholder scrutiny related to ESG practices. These stakeholders include investors, customers, consumers, employees, lenders and other stakeholders, and in recent years, certain stakeholders have placed increasing importance on the impact and social cost of their investments. This increased focus and activism related to ESG may hinder the cost of, or access to, capital or financing as these investors or lenders may elect to increase their required returns on capital offered to the company, reallocate capital or not commit capital as a result of their assessment of a company’s ESG profile. Additionally, if the Company fails to adapt, or is perceived to have failed in addressing investor, lender, and other stakeholder ESG expectations or standards, which continue to evolve, or if the Company fails to fully and accurately report its progress on ESG initiatives, the Company may suffer reputational damage and its business or financial condition could be materially and adversely affected. Human Capital Risk—HEI’s businesses may be unable to attract, hire, engage and retain a highly skilled and diverse workforce, including senior management, which could affect the Company’s execution of its growth strategy and profitability and adversely affect its future performance. The skill and experience of the Company’s employees, particularly with respect to the senior management team, are vital to the Company’s success. The management teams of HEI’s businesses have significant industry experience and would be difficult to replace. Failure to attract, hire, develop, motivate, and retain highly qualified and diverse employee talent, to develop and implement adequate succession plans for the senior management team, or to maintain a successful work culture that fosters collaboration, innovation, and communications could disrupt the Company’s operations and adversely affect its businesses and its future success. In addition, a variety of economic and social factors are exacerbating the current labor supply shortage, which may make it difficult to staff critical positions, retain key employees, and could result in significantly higher costs to maintain appropriate staffing levels with the right talent. The inability to fill these positions or a delay in staffing these positions could have a significant impact on the Company’s initiatives and strategies, which in turn would adversely affect the Company’s businesses and their future prospects. Inflation Risk—The Company’s costs and expenses could increase as a result of inflationary pressures and such increases may not be fully offset by an increase in revenues. A variety of economic and social factors have recently driven inflation to levels above the Federal Reserve Board’s long-term target of 2%. Long-term inflationary pressures could result in higher labor, commodities, materials and supplies, outside services and capital costs, among others, that may not fully be offset by an increase in revenues, which would adversely affect the Company’s profitability and results of operations. For example, while the Utilities’ annual revenue adjustment mechanism provides for an annual inflationary adjustment, recent months’ annualized rates of inflation have surpassed the rate of the last inflationary adjustment for the Utilities’ target revenues. To the extent the Utilities increase in actual expenses exceeds the amount provided by the last inflationary adjustment and the Utilities are unable to offset such excess with other efficiencies or cost savings, the Utilities’ profitability could be adversely impacted. Similarly, to the extent that higher labor and other costs at ASB, due to inflation or other factors, is not fully offset by an increase in non- interest income or net interest income, which is dependent on interest rates, the shape of the yield curve, earning assets growth and low-cost deposit liabilities, the Bank’s profitability and results of operations would be adversely impacted. Pension Liability Risk—HEI and Hawaiian Electric and their subsidiaries may incur higher retirement benefits expenses and have and will likely continue to be subject to substantial liabilities for retirement benefits. Retirement benefits expenses and cash funding requirements could increase in future years depending on numerous factors, including, but not limited to, the performance of the U.S. equity markets, trends in interest rates and health care costs, plan amendments, mortality improvements, new laws relating to pension funding and changes in accounting principles. For the Utilities, however, retirement benefits expenses, as adjusted by the pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, have been an allowable expense for rate-making purposes. 33 Tax Legislation Risk—Adverse tax rulings or developments or changes in tax legislation could result in significant increases in tax payments and/or expense. Governmental taxing authorities could challenge a tax return position taken by HEI or its subsidiaries and if the taxing authorities prevail, HEI’s consolidated tax payments and/or expense, including applicable penalties and interest, could increase significantly. Additionally, changes in tax legislation or IRS interpretations could increase the Company’s tax burden and adversely affect the Company’s financial position, results of operations, and cash flows. Litigation Risk—The Company could be subject to the risk of uninsured losses in excess of its accruals for litigation matters. HEI and its subsidiaries are involved in routine litigation in the ordinary course of their businesses, most of which is covered by insurance (subject to policy limits and deductibles). However, other litigation may arise that is not routine or involves claims that may not be covered by insurance. Because of the uncertainties associated with litigation, there is a risk that litigation against HEI or its subsidiaries, even if vigorously defended, could result in costs of defense and judgment or settlement amounts not covered by insurance and in excess of reserves established in HEI’s consolidated financial statements. Changes in Accounting Estimates Risk—Changes in accounting principles and estimates could affect the reported amounts of the Company’s assets and liabilities or revenues and expenses. HEI’s consolidated financial statements are prepared in accordance with accounting principles generally accepted in the U.S. Changes in accounting principles (including the possible adoption of International Financial Reporting Standards or new U.S. accounting standards), or changes in the Company’s application of existing accounting principles, could materially affect the financial statement presentation of HEI’s or the Utilities’ consolidated results of operations and/or financial condition. Further, in preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change include the amounts reported for electric utility revenues; allowance for credit losses; income taxes; investment securities, property, plant and equipment; regulatory assets and liabilities; derivatives; pension and other postretirement benefit obligations; and contingencies and litigation. Changes in accounting principles can also impact HEI’s consolidated financial statements. For example, if management determines that a PPA requires the consolidation of the IPP in the financial statements, the consolidation could have a material effect on Hawaiian Electric’s and HEI’s 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. ITEM 1B. UNRESOLVED STAFF COMMENTS HEI: None. Hawaiian Electric: Not applicable. ITEM 2. PROPERTIES HEI and Hawaiian Electric: See the “Properties” sections under “HEI,” “Electric utility” and “Bank” in Item 1. Business above. ITEM 3. LEGAL PROCEEDINGS HEI and Hawaiian Electric: HEI and Hawaiian Electric (including their direct and indirect subsidiaries) may be involved in ordinary routine PUC proceedings, environmental proceedings and/or litigation incidental to their respective businesses. See the descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in “Item 1. Business,” in HEI’s MD&A and in the Notes 3 and 4 of the Consolidated Financial Statements. The outcomes of litigation and administrative proceedings are necessarily uncertain and there is a risk that the outcome of such matters could have a material adverse effect on the financial position, results of operations or liquidity of HEI or one or more of its subsidiaries for a particular period in the future. ITEM 4. MINE SAFETY DISCLOSURE HEI and Hawaiian Electric: Not applicable. 34 INFORMATION ABOUT OUR EXECUTIVE OFFICERS (HEI) The executive officers of HEI are listed below. Mss. Kimura and Teranishi are officers of HEI subsidiaries rather than of HEI, but are deemed to be executive officers of HEI under SEC Rule 3b-7 promulgated under the 1934 Exchange Act. HEI executive officers serve from the date of their initial appointment and are reappointed annually by the HEI Board (or annually by the applicable HEI subsidiary board), and thereafter are appointed for one-year terms or until their successors have been duly appointed and qualified or until their earlier resignation or removal. HEI executive officers may also hold offices with HEI subsidiaries and affiliates in addition to their current positions listed below. Name Scott W. H. Seu Age 56 Business experience for last 5 years and prior positions with the Company HEI President and Chief Executive Officer since 1/22 HEI Director since 1/22 ASB Chairman of the Board since 1/22 ASB Hawaii Director since 1/22 · Hawaiian Electric President and Chief Executive Officer, 2/20 to 12/21 · Hawaiian Electric Director, 2/20 to 12/21 · Hawaiian Electric Senior Vice President, Public Affairs, 1/17 to 2/20 · Hawaiian Electric Vice President, System Operation, 5/14 to 12/16 · Hawaiian Electric Vice President, Energy Resources and Operations, 1/13 to 4/14 · Hawaiian Electric Vice President, Energy Resources, 8/10 to 12/12 · Hawaiian Electric Manager, Resource Acquisition Department, 3/09 to 8/10 · Hawaiian Electric Manager, Energy Projects Department, 5/04 to 3/09 · Hawaiian Electric Manager, Customer Installations Department, 1/03 to 5/04 · Hawaiian Electric Manager, Environmental Department, 4/98 to 12/02 · Hawaiian Electric Principal Environmental Scientist, 1/97 to 4/98 · Hawaiian Electric Senior Environmental Scientist, 5/96 to 12/96 · Hawaiian Electric Environmental Scientist, 8/93 to 5/96 Gregory C. Hazelton 57 HEI Executive Vice President and Chief Financial Officer since 4/17 · HEI Executive Vice President, Chief Financial Officer and Treasurer, 3/18 to 11/19 · HEI Senior Vice President, Finance, 10/16 to 4/17 · Prior to rejoining the Company in 2016: Northwest Natural Gas Company, Senior Vice President, Chief Financial Officer and Treasurer, 2/16 to 9/16, and Northwest Natural Gas Company, Senior Vice President and Chief Financial Officer, 6/15 to 2/16 · HEI Vice President, Finance, Treasurer and Controller, 8/13 to 6/15 · Prior to joining the Company in 2013: UBS Investment Bank, Managing Director, Global Power & Utilities Group 3/11 to 5/13 HEI Executive Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary since 1/20 · HEI Vice President - Legal & Administration and Corporate Secretary, 10/16 to 12/19 · HEI Associate General Counsel, 3/11 to 10/16 Kurt K. Murao 52 Shelee M. T. Kimura 48 Hawaiian Electric President and Chief Executive Officer since 1/22 · Hawaiian Electric Senior Vice President, Customer Service and Public Affairs, 3/21 to 12/21 · Hawaiian Electric Senior Vice President, Customer Service, 2/19 to 3/21 · Hawaiian Electric Senior Vice President, Business Development & Strategic Planning, 1/17 to 2/19 · Hawaiian Electric Vice President, Corporate Planning & Business Development, 5/14 to 1/17 · HEI, Manager, Investor Relations, Strategic Planning & Budget, 11/09 to 5/14 · HEI Director, Corporate Finance and Investments, 8/04 to 11/09 Ann C. Teranishi 47 ASB President and Chief Executive Officer since 5/21 ASB Director since 5/21 · ASB Executive Vice President, Operations, 2/18 to 5/21 · ASB Senior Vice President, Director of Operations, 1/17 to 1/18 · ASB Senior Vice President, Customer Experience, 5/14 to 1/17 · ASB Senior Vice President, Director of Retail Credit Management, 4/13 to 4/14 · ASB Senior Vice President, Director of Consumer Credit Management, 4/11 to 4/13 · ASB Senior Vice President, Director of Regulatory Compliance, 9/07 to 3/11 Family relationships; executive arrangements There are no family relationships between any HEI executive officer and any other HEI executive officer or any HEI director or director nominee. There are no arrangements or understandings between any HEI executive officer and any other person pursuant to which such executive officer was selected. 35 PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES HEI: Certain of the information required by this item is disclosed in Note 14, “Regulatory restrictions on net assets” and “Equity compensation plan information” under “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10-K. HEI’s common stock is traded on the New York Stock Exchange under the ticker symbol “HE.” The total number of holders of record of HEI common stock (i.e., registered holders) as of February 11, 2022, was 5,194. On February 11, 2022, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.34 per share to $0.35 per share, starting with the dividend in the first quarter of 2022. HEI currently expects to maintain the dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the Company’s results of operations, the long-term prospects for the Company, and the current and expected future economic conditions. Purchases of HEI common shares were made during the fourth quarter to satisfy the requirements of certain plans as follows: ISSUER PURCHASES OF EQUITY SECURITIES Period* October 1 to 31, 2021 November 1 to 30, 2021 December 1 to 31, 2021 Total Total Number of Shares Purchased ** Average Price Paid per Share ** 22,403 $ 14,067 168,420 204,890 40.70 40.39 40.52 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs — — — — Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs NA NA NA NA NA Not applicable. * Trades (total number of shares purchased) are reflected in the month in which the order is placed. ** The purchases were made to satisfy the requirements of the DRIP, the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP), and the ASB 401(k) Plan for shares purchased for cash or by the reinvestment of dividends by participants under those plans and none of the purchases were made under publicly announced repurchase plans or programs. Average prices per share are calculated exclusive of any commissions payable to the brokers making the purchases for the DRIP, the HEIRSP and the ASB 401(k) Plan. Of the “Total number of shares purchased,” 173,484 of the 204,890 shares were purchased for the DRIP; 25,794 of the 204,890 shares were purchased for the HEIRSP; and the remaining of the 5,612 shares were purchased for the ASB 401(k) Plan. The repurchased shares were issued for the accounts of the participants under registration statements registering the shares issued under these plans. Hawaiian Electric: Since a corporate restructuring on July 1, 1983, all the common stock of Hawaiian Electric has been held solely by its parent, HEI, and is not publicly traded. Accordingly, information required with respect to “Market information” and “holders” is not applicable to Hawaiian Electric. The dividends declared and paid on Hawaiian Electric’s common stock for the quarters of 2021 and 2020 were as follows: Quarters ended (in thousands) March 31 June 30 September 30 December 31 Total 2021 2020 $ $ 27,925 $ 27,925 27,925 27,925 111,700 $ 26,784 26,784 26,784 26,782 107,134 Also, see “Liquidity and capital resources” in HEI’s MD&A. See the discussion of regulatory and other restrictions on dividends or other distributions in Note 14 of the Consolidated Financial Statements. ITEM 6. [RESERVED] 36 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS HEI and Hawaiian Electric (in the case of Hawaiian Electric, only the information related to Hawaiian Electric and its subsidiaries): The following discussion should be read in conjunction with the Consolidated Financial Statements and the related Notes that appear in Item 8 of this report. For information on factors that may cause HEI’s and Hawaiian Electric’s actual future results to differ from those currently contemplated by the relevant forward-looking statements, see “Cautionary Note Regarding Forward-Looking Statements” at the front of this report and “Risk Factors” in Item 1A. The general discussion of HEI’s consolidated results should be read in conjunction with the Electric utility and Bank segment discussions that follow. HEI Consolidated Executive overview and strategy. HEI is a holding company with operations primarily focused on Hawaii’s electric utility and banking sectors. In 2017, HEI formed Pacific Current to make investments in non-regulated renewable energy and sustainable infrastructure projects. HEI has three reportable segments—Electric utility, Bank, and Other. Electric utility. Hawaiian Electric, Hawaii Electric Light and Maui Electric (Utilities) are regulated operating electric public utilities engaged in the production, purchase, transmission, distribution and sale of electricity on the islands of Oahu; Hawaii; and Maui, Lanai and Molokai, respectively. Bank. ASB is a full-service community bank serving both consumer and commercial customers in the State of Hawaii and has 42 branches on the islands of Oahu (29), Maui (6), Hawaii (4), Kauai (2), and Molokai (1). Other. The Other segment comprises the results of Pacific Current, which invests in non-regulated clean energy and sustainable infrastructure in the State of Hawaii to help reach the state’s sustainability goals, and HEI’s corporate-level operating, general and administrative expenses. A major focus of HEI’s financial strategy is to grow core earnings/profitability at the Utilities, Bank and Pacific Current in a controlled risk manner and optimize operating, capital and tax efficiencies in order to support its dividend and deliver shareholder value. Together, HEI’s unique combination of power, sustainable investments, and financial services companies provides the Company with a strong balance sheet and the financial resources to invest in the strategic growth of its subsidiaries, while providing an attractive dividend for investors. Recent developments—COVID-19. The Company remains focused on the continued safety and well-being of customers, employees, their families and the community. The Company’s mandatory work-from-home policy remains in effect for certain employees and this policy has not impaired the Company’s ability to serve customers and maintain effective internal controls over financial reporting. For personnel that cannot perform their work remotely, the Company has maintained safety protocols and policies to keep employees safe, while at the same time ensuring the reliability and resilience of its operations. The Hawaii economy began to improve in the second half of 2021 as case counts declined and vaccination rates increased. However, the economic recovery experienced a setback early in the third quarter as the declining trend of daily COVID-19 case counts reversed and began a rapid increase, setting a pandemic high at that time, exceeding approximately 900 cases per day (7- day average) in early September. As a result of the rising cases, a number of preventative policies were enacted by state, county and private entities, which included limiting group sizes for indoor and outdoor activities, mandatory vaccinations or adherence to regular testing protocols, and proof of vaccination or negative COVID-19 test for entry into certain indoor venues under the state’s Safe Access program. Additionally, the governor of the State of Hawaii made an announcement in late August, recommending that tourists postpone their visit to Hawaii. These measures contributed to a significant decline in new cases, leading to a 7-day average of approximately 100 cases in early December. Following the detection of the Omicron variant in Hawaii in early December, case counts have increased rapidly, reaching a high of approximately 4,666 new daily cases (7-day average) as of January 19, 2022. Since then, case counts have declined rapidly, reaching a 7-day average daily case count of 256 as of February 22, 2022. Although the severity of the Omicron variant appears to be significantly lower than the Delta variant, the higher case counts have led to an increase in hospitalizations. Despite the case count spike from the Omicron variant, the state remains open for business. The Hawaii Safe Travels Program, allows domestic transpacific passengers to avoid mandatory quarantine with proof of vaccination or a negative COVID test taken within 72 hours prior to the flight into Hawaii. On January 3, 2022, the state reduced the mandatory quarantine period from ten days to five days, consistent with the guidance from the Centers for Disease Control and Prevention. Hawaii vaccinations have steadily increased with over 75% of the state’s population fully vaccinated as of February 10, 2022 and 36% of those fully vaccinated received a third shot. 37 Tourism numbers remain below pre-pandemic levels, primarily due to a delayed recovery in international travel. However, domestic travel has recovered significantly and are nearing pre-pandemic levels, with January 2022 average daily passenger counts at approximately 92% of January 2020 average daily passenger counts. Although the Hawaii economy experienced a temporary setback with the Delta and Omicron variants, the Company expects that the Hawaii economy will continue to improve in 2022. In 2021, kWh sales remained below pre-pandemic levels, but were 1.7% higher than 2020 due to increased economic activity following the loosening of restrictions and an increase in tourism. While the level of kWh sales does not affect Utility revenues due to decoupling, it may increase or decrease the price per kWh paid by customers. See “Decoupling” in Note 3 of the Consolidated Financial Statements for a discussion of the decoupling mechanism. At the Bank, due to favorable credit trends and continued improvement in the economic environment, ASB recorded a $25.8 million negative provision for credit losses in 2021 compared to a provision for credit losses of $50.8 million in 2020. Net interest income increased $3.7 million to $237.2 million in 2021 due to higher earning assets, primarily related to growth in the investment securities portfolio that was principally funded by the growth in deposits. The higher net interest income from the higher average earning asset balances, PPP income, and lower funding costs was partly offset by the impact of a decrease in loan portfolio balances and lower earning asset yields as a result of the low interest rate environment. For further discussion of the impact of the COVID-19 pandemic on the Utilities and the Bank, see “Recent Developments —COVID-19” in the Electric Utility and Bank sections below. There has been no material impact on the “Other” segment and Pacific Current as a result of the COVID-19 pandemic as the primary businesses of Pacific Current are supported by PPAs that provide for contractual cash flows with credit-worthy counterparties. For a discussion regarding the impact of the economic conditions caused by the pandemic on the Company’s liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources,” contained in each of the “HEI Consolidated,” “Electric utility” and “Bank” sections of this MD&A. Environmental, Social & Governance. At HEI, environmental, social and governance (ESG) principles and sustainability have long been embedded within all aspects of the Company’s activities and integral to the Company’s efforts to create value for all of its stakeholders. With all of its operations isolated in the middle of the Pacific Ocean, the Company’s long-term health and financial performance is inextricably linked with the strength of the Hawaii economy, its communities, and the environment. That is why long-term shareholder and broader stakeholder value are both served by the Company’s mission to be a catalyst for a better Hawaii. In 2021, the Company identified a number of priorities that reflect the essential connection between the health of Hawaii’s environment, economy and communities and HEI’s long-term success. The key ESG priorities the Company is working to advance include: • • • • • • • decarbonizing the Company’s operations and the broader Hawaii economy; promoting Hawaii’s economic health and improving affordability for all residents; ensuring reliability and resilience as the Company navigates the clean energy transition and adapts to a changing climate; advancing digitalization of the Company’s operations to better serve customers and increase efficiency while protecting against cyber-security challenges; promoting diversity, equity and inclusion both within the Company and in the ways the Company interacts with and impacts external stakeholders; increasing employee engagement; and identifying and integrating climate-related risks and opportunities throughout the Company’s planning and decision- making. The Company has also focused on ensuring that ESG considerations are appropriately integrated into governance structures, strategies and risk management. This includes: • Integration of Board oversight of important ESG matters into its existing governance structures and processes. This includes full Board review of ESG-related strategies, Audit & Risk Committee oversight of ESG risks, Compensation & Human Capital Management Committee responsibility for ESG-related compensation matters and human capital management and Nominating and Corporate Governance Committee responsibility for ensuring an appropriate board governance framework is in place with respect to ESG. • Robust ESG expertise among board members, including directors with direct experience in renewable energy, climate change policy and strategy, environmental management and sustainable investing. • Expanded ESG goals as part of HEI and Utility executive incentive compensation. • ESG considerations explicitly woven into strategic planning efforts and enterprise risk management processes. 38 The Company is committed to transparency and providing information to allow customers, community leaders, investors and other stakeholders understand how the Company’s strategies and operations advance ESG objectives and contribute to long-term stakeholder value creation. The Company issued its first ESG report in September 2020. The report encompassed ESG policies, principles and results reported during 2019 across the Company’s two primary operating subsidiaries, Hawaiian Electric and ASB, and was aligned with Sustainability Accounting Standards Board (SASB) guidance—using the electric utilities standard for Hawaiian Electric, and the commercial banks, commercial finance, and mortgage finance standards for ASB. On April 22, 2021, the Company issued its second ESG report. This report continues to include SASB disclosures for Hawaiian Electric and ASB and incorporates disclosures regarding risks and opportunities related to climate change, as well as associated risk management and governance processes, based on recommendations from the Task Force on Climate-related Financial Disclosures. It also outlines key impacts for the Company under two climate scenarios, including a scenario targeted to limit global temperature rise to 2 degrees Celsius or lower. The Company’s ESG reports can be found at www.hei.com/esg. HEI consolidated results of operations. (dollars in millions, except per share amounts) Revenues Operating income Net income for common stock Net income (loss) by segment: Electric utility Bank Other Net income for common stock Basic earnings per share Diluted earnings per share Dividends per share Weighted-average number of common shares outstanding (millions) Dividend payout ratio 2021 % change 2020 % change 2019 $ 2,850 386 246 $ $ $ $ $ 178 101 (33) 246 2.25 2.25 1.36 109.3 60% 10 $ 2,580 311 24 198 24 5 $ 76 (12) 24 $ 24 $ 24 $ 3 $ — 169 58 (29) 198 1.81 1.81 1.32 109.1 73% (10) $ 2,874 348 (10) 218 (9) 8 $ (35) (4) (9) $ (10) $ (9) $ 3 $ — 157 89 (28) 218 2.00 1.99 1.28 108.9 64% In 2021, net income for HEI common stock increased 24% to $246 million ($2.25 diluted earnings per share), compared to $198 million ($1.81 diluted earnings per share) in 2020, due to $44 million higher net income at ASB and $8 million higher net income at the Utilities, partially offset by $4 million higher net loss at the “other” segment. The increase in ASB’s 2021 net income compared to 2020 was primarily due to a negative provision for credit losses as a result of improved credit quality as the local economy improved significantly from the prior year. Results for 2020 included the impact of the COVID-19 pandemic on the local and national economy, which resulted in higher provision for credit losses, lower net interest income due to a lower yield curve and additional noninterest expenses. The increase in the Utilities’ 2021 net income compared to 2020 was principally due to higher RAM and ARA revenues, which included the customer dividend and an offset of management audit savings delivered to customers and delivery of Hawaiian Electric ERP benefits commitment completed in 2020, partially offset by higher operating expenses. See “Electric utility,” “Bank,” and “HEI Consolidated—Other segment” sections below for additional information on year-to-year fluctuations. The Company’s effective tax rate (combined federal and state income tax rates) was higher at 20% in 2021, compared to 17.0% in 2020, primarily due to an increase in income before income taxes in 2021, which reduces the rate impact of certain tax items, lower amortization in 2021 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate and a decrease in excess tax benefits related to share-based awards in 2021. The factors leading to an increase in the effective tax rate were partially offset by higher nontaxable bank-owned life insurance and federal research and developments tax credit claims in 2021. For a discussion of 2019 results, please refer to the “HEI consolidated results of operations” section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—HEI Consolidated,” in the Company’s 2020 Form 10-K. 39 Other segment. The “other” business segment (loss)/income includes results of the stand-alone corporate operations of HEI, ASB Hawaii, and Pacific Current. (in millions) Revenue1 Operating loss1 Interest expense & other Income tax benefit 2021 2020 $ 4 $ Increase (decrease) 3 1 $ Increase in other sales at Pacific Current subsidiaries. Primary reason(s) (22) (19) (3) Higher HEI corporate operating loss ($25 million in 2021 vs. $22 million in 2020) primarily due to an increase in incentive compensation. Pacific Current’s operating income was comparable ($3 million in 2021 and 2020). (22) (21) (1) Interest expense & other in 2021 was slightly higher than in 2020 primarily due to higher interest expense at Pacific Current. 11 11 — Income tax benefits were comparable in 2021 and 2020, but the income tax benefit in 2021 reflects a lower effective tax rate, offset by an increase in pretax losses Net loss $ (33) $ (29) $ (4) 1 Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation. Economic conditions. The statistical data in this section is from public third-party sources that management believes to be reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic Research Organization (UHERO), Department of Health of the State of Hawaii, U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local news media). Hawaii’s tourism industry, a significant driver of Hawaii’s economy, suffered dramatically with a 73.8% reduction in total visitor arrivals in 2020 compared with 2019. Starting October 15, 2020, the state launched its Safe Travels Program that allows travelers to avoid the mandatory 14-day quarantine if they test negative for COVID-19 within 72 hours of departure. Effective July 8, 2021, domestic visitors can now bypass the mandatory quarantine or COVID-19 test by providing proof of vaccination. Since the launch of the Safe Travels Program, total daily passenger arrivals have steadily improved, but remain below pre- pandemic levels. For the fourth quarter of 2021, the average daily passenger count was 249.3% higher than the comparable period in the prior year, but still 22.2% below 2019. The recovery in total passenger counts from the low levels in 2020 thus far has been driven by domestic travelers, with international travelers remaining at low levels due to higher restrictions for international travelers, depending on country of origin. In December 2021, domestic passenger counts were down 0.3% compared to 2019 pre-COVID-19 levels, while international passenger counts were down 89.7% compared to 2019 pre- COVID-19 levels. Hawaii’s seasonally adjusted unemployment rate in December 2021 was 5.7%, which was substantially lower compared to the December 2020 rate of 10.3%. The national unemployment rate in December 2021 was 3.9% compared to 6.7% in December 2020. Hawaii’s unemployment rate is expected to continue to improve now that restrictions on travel have been reduced significantly and increased vaccination rates should enable further reductions in business restrictions. Hawaii real estate activity through December 2021, as indicated by Oahu’s home resale market, drove an increase in the median sales price of 9.2% for condominiums and 19.3% for single-family homes compared to the same period in 2020, with the December median single-family home price tying a record of $1,050,000 set in August. The number of closed sales was up 53.1% for condominiums and up 17.9% for single-family residential homes in 2021 compared to 2020. Hawaii’s petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. The price of crude oil gradually increased during the 4th quarter of 2020 and the trend has continued during the first ten months of 2021. At its December 15, 2021 meeting, the Federal Open Market Committee (FOMC) decided to maintain the federal funds rate target range of 0%-0.25%. The FOMC plans to continue to maintain an accommodative stance of monetary policy to achieve maximum employment and inflation at the rate of 2 percent over the long run. The Federal Reserve stated that it will decrease its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace to sustain smooth market functioning and help foster accommodative financial conditions, thereby supporting the flow of credit to households and businesses. The most recent forecast by UHERO, which was issued on December 17, 2021, forecasts full year 2021 real GDP growth of 5.8%, increase in total visitor arrivals of 149.2%, increase in real personal income of 0.8%, and an unemployment rate of 7.7%. This forecast reflects improvement of Hawaii’s economy after experiencing a downturn due to the Delta variant of COVID-19; however, the Omicron variant has set a new record in new daily virus cases and led to implementation of increased international travel restrictions. The international market is still anticipated to gradually return in 2022 once the Omicron 40 situation clears. Real GDP growth in 2022 is forecasted to be 2.7% supported by a 22.8% increase in total visitor arrivals in 2022 to 8.3 million visitors and a decrease in the unemployment rate to 5.4%. However, a full economic recovery is still forecasted to be several years out and dependent on the ability to adapt to new COVID-19 threats. The Company expects economic conditions to improve going forward; however, it is difficult to predict the future path of the pandemic. If economic conditions worsen from current levels or remain depressed for an extended period of time, it could have a material unfavorable impact on the Company’s financial position or results of operations in 2022. See also “Recent Developments—COVID-19” in the “Electric utility” and “Bank” sections below for further discussion of the economic impact caused by the pandemic. Liquidity and capital resources. As of December 31, 2021, HEI and Hawaiian Electric had approximately $54 million and nil of commercial paper outstanding, respectively, and Hawaiian Electric had $52 million of cash and cash equivalents. As of December 31, 2021, there was no balance on HEI’s revolving credit facility and the available committed capacity under the revolving credit facility was $175 million (see Note 5 of the Consolidated Financial Statements). As of December 31, 2021, there was no balance on Hawaiian Electric’s revolving credit facility and the available committed capacity under the revolving credit facility was $200 million. On April 19, 2021, the term of Hawaiian Electric’s $75 million 364-day revolving credit agreement expired and was not renewed. As of December 31, 2021, ASB’s unused FHLB borrowing capacity was approximately $2.0 billion and ASB had unpledged investment securities of $2.5 billion that were available to be used as collateral for additional borrowing capacity. As of December 31, 2021, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s committed lines of credit was approximately $321 million, which was a decrease of approximately $39 million compared to December 31, 2020. The Company believes that its cash and cash equivalents, expected operating cash flow from subsidiaries, existing credit facilities, and access to the capital markets will be sufficient to meet the Company’s cash requirements over the next twelve months and beyond based on its current business plans. However, the Company expects that its liquidity will continue to be moderately impacted at the Utilities due to ongoing COVID-19 impacts to the local economy. For the Utilities, the elevated level of unemployment in the state and the moratorium on customer disconnections (which ended on May 31, 2021) have resulted in higher accounts receivable balances and bad debt expense and may result in higher write-offs in the future. As of December 31, 2021, approximately $38 million of the Utilities’ accounts receivables were 30 days past due. Of the over 30 days past due amounts, approximately 30% were on payment plans. The Company commenced its disconnection process on a tiered basis, starting in the third quarter of 2021, targeting the oldest and largest balances first, which is expected to reduce delinquent accounts receivable balances over time as payments are made. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements (see “Recent Developments— COVID-19” in the Electric utility section below). At this time, the delay in customer cash collections has not significantly affected the Company’s liquidity. The Company is prepared to address, if needed, the potential financing requirement related to the delayed timing of customer collections. At ASB, liquidity remains at satisfactory levels, largely due to U.S. economic stimulus programs implemented as a result of COVID-19 that led to a substantial increase in customer deposits, which grew 11% and 18% in 2021 and 2020, respectively. ASB’s cash and cash equivalents was $251 million as of December 31, 2021, compared to $293 million as of December 31, 2020. ASB remains well above the “well capitalized” level under the FDIC Improvement Act prompt correction action capital category, and while the economic outlook has improved and is expected to continue to improve, there are still COVID-19 related business restrictions that remain in place that could create ongoing uncertainty regarding COVID-19’s impact on loan performance and the allowance for credit losses (see “Recent Developments — COVID-19” in the Bank section below). To preserve and enhance the Company’s liquidity position and address higher working capital requirements, in light of the significant and ongoing uncertainty regarding the potential scale and duration of the COVID-19 pandemic and its impact on the global, national and local economy, the Company completed a number of financing actions in 2021. • • On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Facilities), to amend and restate their respective previously existing unsecured revolving credit agreements. The committed capacity under the HEI Facility was increased to $175 million from $150 million and its term was extended to May 14, 2026. On February 18, 2022, the PUC approved Hawaiian Electric's request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026 from May 13, 2022. On September 29, 2021, HEI executed a $125 million private placement utilizing a delayed draw feature, which allows HEI to draw $75 million and $50 million at any time on or before December 29, 2021 and November 15, 2022, respectively. On December 29, HEI drew $75 million, the proceeds of which were primarily used to invest in the 41 Utilities’ equity and support its capital expenditure program. Proceeds from the remaining $50 million are expected to be used to refinance a portion of HEI’s $150 million long-term notes maturing in November 2022 or for other general corporate purposes. The ability to draw at any time prior to the November 15, 2022 date will provide additional liquidity in the interim period. The notes bear interest at a weighted average rate of 3.10% and have a weighted average maturity of 15.7 years. If further liquidity is deemed necessary, which is not contemplated at this time, the Utilities could also reduce the pace of capital spending related to non-essential projects. Additionally, the Company has the option to issue new shares rather than purchase currently outstanding shares on the open market to satisfy share issuances under its Dividend Reinvestment and Stock Purchase Plan (DRIP) program. The estimated amount of equity capital that could be raised by issuing new shares, rather than utilizing open market purchases, is estimated to be approximately $30 million on an annual basis, based on historical demand, but such future amount is dependent on a number of factors, including, without limitation, future share prices, number of shares/participants in the DRIP program, and the amount of new investment in HEI’s stock by DRIP participants. HEI material cash requirements. HEI’s material cash requirements include: capital expenditures, labor and benefit costs, O&M expenses, fuel and purchase power costs, and debt and interest payments at the Utilities; investments in loans and investment securities at the Bank; labor and benefits costs, shareholder dividends and debt and interest payments at HEI; and HEI equity contributions to support Pacific Current’s sustainable infrastructure investments. Forecasted HEI consolidated “net cash used in investing activities” (excluding “investing” cash flows from ASB) for 2022 through 2026 consists primarily of the net capital expenditures of the Utilities principally related to maintaining and modernizing the grid to allow for the integration of more renewable energy, improved customer reliability, greater system efficiency and enhanced resilience. The Utilities’ capital expenditures are estimated to range from $2.0 billion to $2.2 billion over the next five years and are expected to be funded primarily through a combination of retained earnings and proceeds from debt issuance, and if required, contributions of equity from HEI to maintain the Utilities’ equity capitalization at approximately 58% (see also discussion regarding other material cash requirements under “Financial Condition–Liquidity and capital resources,” contained in the “Electric utility” and “Bank” sections below). In addition to the funds required for the Utilities’ construction programs and debt maturities, with respect to HEI, over the next five years, approximately $150 million will be required in 2022, $50 million in 2023, and $50 million in 2025 to repay maturing debt. Debt maturities are expected to be repaid with the proceeds from the issuance of commercial paper, bank borrowings, other medium- or long-term debt, issuance of common stock and/or dividends from subsidiaries. Additional debt and/or equity financing may be utilized to invest in the Utilities, Bank or Pacific Current; to pay down commercial paper or other short-term borrowings; to pay interest costs; or to fund unanticipated expenditures not included in the 2022 through 2026 forecast, such as increases in the costs of, or an acceleration of, the construction of capital projects of the Utilities or unanticipated utility capital expenditures. In addition, existing debt may be refinanced prior to maturity with additional debt or equity financing (or both). 42 Selected short-term and long-term contractual obligations and commitments. Information about payments under the specified contractual obligations and commercial commitments of HEI and its subsidiaries was as follows: December 31, 2021 (in millions) Contractual obligations Investment in qualifying affordable housing projects Time certificates Short-term borrowings Other bank borrowings Long-term debt Interest on CDs, other bank borrowings, short-term loan and long-term debt Operating leases PPAs classified as leases Other operating leases Service bureau contract, maintenance agreements and other Hawaiian Electric open purchase order obligations1 Hawaiian Electric fuel oil purchase obligations (estimate based on fuel oil price at December 31) Hawaiian Electric power purchase–minimum fixed capacity charges not classified as leases Liabilities for uncertain tax positions Total (estimated) Less than 1 year 1-3 years 3-5 years More than 5 years Total $ — $ 276 54 88 223 34 $ 107 — — 169 27 $ 38 — — 234 2 $ 3 — — 1,707 94 46 18 20 93 8 163 149 780 8 37 27 39 7 27 17 8 9 — 4 38 7 — — 63 424 54 88 2,333 1,186 65 120 71 140 17 30 — 950 $ 60 8 60 — 661 $ 567 $ 157 — 2,698 $ 307 8 4,876 $ 1 Includes contractual obligations and commitments for capital expenditures and expense amounts. The table above does not include other categories of obligations and commitments, such as deferred taxes, certain trade payables, amounts that will become payable in future periods under collective bargaining and other employment agreements and employee benefit plans, and potential refunds of amounts collected from ratepayers (e.g., under the earnings sharing mechanism). As of December 31, 2021, the fair value of the assets held in trusts to satisfy the obligations of the Company’s retirement benefit plans did not exceed the retirement benefit plans’ benefit obligation. Minimum funding requirements for retirement benefit plans have not been included in the tables above; however, see Note 10 of the Consolidated Financial Statements for 2022 estimated contributions. See Note 3 of the Consolidated Financial Statements for a discussion of fuel and power purchase commitments. See Note 4 of the Consolidated Financial Statements for a further discussion of ASB’s commitments. Operating activities provided net cash of $376 million in 2021 and $429 million in 2020. Investing activities used net cash of $1,180 million in 2021 and $1,414 million in 2020. In 2021, net cash used in investing activities was primarily due to purchases of available-for-sale and held-to-maturity investment securities, capital expenditures, and purchases of stock from Federal Home Loan Bank, partly offset by receipt of repayments from available-for-sale and held-to-maturity investment securities, proceeds from sale of available-for-sale investment securities, net decrease in loans held for investment, proceeds from sale of residential loans and redemption of stock from Federal Home Loan Bank. In 2020, net cash used in investing activities was primarily due to purchases of available-for-sale investment securities, capital expenditures, net increase in loans held for investment and purchases of held-to-maturity investment securities and stock from Federal Home Loan Bank, partly offset by receipt of repayments from available-for-sale and held-to-maturity investment securities, redemption of stock from Federal Home Loan Bank and proceeds from sale of available-for-sale investment securities. Financing activities provided net cash of $756 million in 2021 and $1,116 million in 2020. In 2021, net cash provided by financing activities included net increases in deposits and proceeds from issuance of long-term debt, partly offset by payment of common and preferred stock dividends, repayment of long-term debt, short-term debt and net decreases in short-term borrowings. In 2020, net cash provided by financing activities included net increases in deposits and proceeds from issuance of long-term debt, short-term debt and other bank borrowings, partly offset by payment of common and preferred stock dividends, repayment of long-term debt, short-term debt and other bank borrowings and net decreases in short-term borrowings and other bank borrowing with original maturities of three months or less. For a discussion of 2019 operating, investing and financing activities, please refer to the “Liquidity and capital resources” section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—HEI Consolidated,” in the Company’s 2020 Form 10-K. 43 Other than capital contributions from their parent company, intercompany services (and related intercompany payables and receivables), Hawaiian Electric’s periodic short-term borrowings from HEI (and related interest) and the payment of dividends to HEI, the electric utility and bank segments are largely autonomous in their operating, investing and financing activities. (See the electric utility and bank segments’ discussions of their cash flows in their respective “Liquidity and capital resources” sections below.) During 2021, Hawaiian Electric, ASB (through ASB Hawaii) and Hamakua Energy paid cash dividends to HEI of $112 million, $59 million and $1 million, respectively. A portion of the net assets of Hawaiian Electric and ASB is not available for transfer to HEI in the form of dividends, loans or advances without regulatory approval. In the absence of an unexpected material adverse change in the financial condition of the electric utilities or ASB, such restrictions are not expected to significantly affect the operations of HEI, its ability to pay dividends on its common stock or its ability to meet its debt or other cash obligations. See Note 14 of the Consolidated Financial Statements. The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, as well as bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term material cash requirements. However, the COVID-19 pandemic continues to be an evolving situation, and the Company cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impact on the Company’s cost of capital and its ability to access additional capital, or the future impacts on the Company’s financial position, results of operations, and cash flows. See Item 1A. “Risk Factors” in Part I for further discussion of risks and uncertainties. The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows: December 31 (dollars in millions) Short-term borrowings—other than bank Long-term debt, net—other than bank Preferred stock of subsidiaries Common stock equity 2021 2020 $ $ 54 2,322 34 2,391 4,801 1% $ 48 1 50 100% $ 129 2,119 34 2,338 4,620 3% 46 1 50 100% HEI’s commercial paper borrowings and line of credit facility were as follows: (in millions) Commercial paper Line of credit draws Undrawn capacity under HEI’s line of credit facility1 1 On May 14, 2021, HEI amended and restated its previously existing revolving unsecured credit agreement to increase the capacity to $175 million from 54 $ — 175 56 $ — — 65 — 150 $ Year ended December 31, 2021 Average balance End-of-period balance December 31, 2020 $150 million and extend its term to May 14, 2026. See Note 5 of the Consolidated Financial Statements. Note: This table does not include Hawaiian Electric’s separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under “Electric utility—Liquidity and capital resources” below. The maximum amount of HEI’s short-term commercial paper borrowings in 2021 was $129 million. HEI utilizes short-term debt, typically commercial paper, to support normal operations, to refinance commercial paper, to retire long-term debt, to pay dividends and for other temporary requirements, including short-term financing needs of its subsidiaries. HEI also periodically makes short-term loans to Hawaiian Electric to meet Hawaiian Electric’s cash requirements, including the funding of loans by Hawaiian Electric to Hawaii Electric Light and Maui Electric, but no such short-term loans to Hawaiian Electric were outstanding as of December 31, 2021. HEI periodically utilizes long-term debt, historically unsecured indebtedness, to fund investments in and loans to its subsidiaries to support their capital improvement or other requirements, to repay long-term and short-term indebtedness and for other corporate purposes. As of December 31, 2021, HEI’s debt maturities in 2022 include $150 million of long-term debt that matures in November 2022. HEI has partially prefunded $50 million of this maturity through the $125 million private placement completed in September 2021. See Notes 5 and 6 of the Consolidated Financial Statements for a brief description of the Company’s loans. 44 The rating of HEI’s commercial paper and debt securities could significantly impact the ability of HEI to sell its commercial paper and issue debt securities and/or the cost of such debt. As of February 11, 2022, the Fitch Ratings, Inc. (Fitch), Moody’s Investors Service (Moody’s) and S&P Global Ratings (S&P) ratings of HEI were as follows: Long-term issuer default, long-term and issuer credit, respectively Commercial paper Outlook Fitch Moody’s WR* BBB P-2 F3 Stable Stable S&P BBB- A-3 Stable * Moody’s long-term debt rating was withdrawn because HEI does not currently have any outstanding, publicly traded debt. Moody’s continues to rate Hawaiian Electric’s long-term debt. See ‘Electric utility–Liquidity and capital resources’ below. Note: The above ratings reflect only the view, at the time the ratings are issued or affirmed, of the applicable rating agency, from whom an explanation of the significance of such ratings may be obtained. Such ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating. There were no new issuances of common stock through the HEI DRIP, HEIRSP or the ASB 401(k) Plan in 2021, 2020, or 2019 and HEI satisfied the share purchase requirements of the DRIP, HEIRSP and ASB 401(k) Plan through open market purchases of its common stock. Off-balance sheet arrangements. Although the Company and the Utilities have certain off-balance sheet arrangements, management has determined that it has no off-balance sheet arrangements that either have, or are reasonably likely to have, a current or future effect on the Company’s and the Utilities’ financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors, including the following types of off-balance sheet arrangements: 1. 2. 3. 4. obligations under guarantee contracts, retained or contingent interests in assets transferred to an unconsolidated entity or similar arrangements that serve as credit, liquidity or market risk support to that entity for such assets, obligations under derivative instruments, and obligations under a material variable interest held by the Company or the Utilities in an unconsolidated entity that provides financing, liquidity, market risk or credit risk support to the Company or the Utilities, or engages in leasing, hedging or research and development services with the Company or the Utilities. Material estimates and critical accounting policies. In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change include the amounts reported for pension and other postretirement benefit obligations; contingencies and litigation; income taxes; regulatory assets and liabilities; electric utility unbilled revenues; allowance for credit losses; fair value; and asset retirement obligations (AROs). Management considers an accounting estimate to be material if it requires assumptions to be made that were uncertain at the time the estimate was made and changes in the assumptions selected could have a material impact on the estimate and on the Company’s results of operations or financial condition. In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that the policies discussed below are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments. The policies affecting both of the Company’s two principal segments are discussed below and the policies affecting just one segment are discussed in the respective segment’s section of “Material estimates and critical accounting policies.” Management has reviewed the material estimates and critical accounting policies with the HEI Audit & Risk Committee and, as applicable, the Hawaiian Electric Audit & Risk Committee. For additional discussion of the Company’s accounting policies, see Note 1 of the Consolidated Financial Statements and for additional discussion of material estimates and critical accounting policies, see the electric utility and bank segment discussions below under the same heading. Pension and other postretirement benefits obligations. The Company’s benefit obligations and reported costs of providing retirement benefits are dependent upon numerous factors resulting from actual plan experience and assumptions about future experience. For example, retirement benefits costs are impacted by actual employee demographics (including age and compensation levels), the level of contributions to the plans, earnings and realized and unrealized gains and losses on plan assets, and changes made to the provisions of the plans. Costs may also be significantly affected by changes in key actuarial 45 assumptions, including the expected return on plan assets, the discount rate and mortality. The Company’s accounting for retirement benefits under the plans in which the employees of the Utilities participate is also adjusted to account for the impact of decisions by the PUC. Changes in obligations associated with the factors noted above may not be immediately recognized as costs on the income statement, but generally are recognized in future years over the remaining average service period of plan participants. The discount rate used to calculate the Company’s benefit obligations is a significant assumption that affects the Company’s benefit obligations. As of December 31, 2021, the discount rate for HEI and the Utilities’ qualified pension plan was 3.05%. Based on various assumptions in Note 10 of the Consolidated Financial Statements, sensitivities of the projected benefit obligation (PBO) and accumulated postretirement benefit obligation (APBO) as of December 31, 2021, associated with a change in the discount rate, were as follows and constitute “forward-looking statements”: Actuarial assumption (dollars in millions) Pension benefits Discount rate Other benefits Discount rate Change in assumption in basis points Impact on HEI Consolidated PBO or APBO Impact on Consolidated Hawaiian Electric PBO or APBO +/-50 +/-50 $(211)/$241 $(199)/$228 $(14)/$16 $(14)/$16 Also, see Notes 1 and 10 of the Consolidated Financial Statements. Contingencies and litigation. The Company is subject to proceedings (including PUC proceedings), lawsuits and other claims. Management assesses the likelihood of any adverse judgments in or outcomes of these matters as well as potential ranges of probable losses, including costs of investigation. A determination of the amount of reserves required, if any, for these contingencies is based on an analysis of each individual case or proceeding often with the assistance of outside counsel. The required reserves may change in the future due to new developments in each matter or changes in approach in dealing with these matters, such as a change in settlement strategy. In general, environmental contamination treatment costs are charged to expense, unless it is probable that the PUC would allow such costs to be recovered through future rates, in which case such costs would be capitalized as regulatory assets. Also, environmental costs are capitalized if the costs extend the life, increase the capacity, or improve the safety or efficiency of property; the costs mitigate or prevent future environmental contamination; or the costs are incurred in preparing the property for sale. See Notes 1, 3 and 4 of the Consolidated Financial Statements. Income taxes. Deferred income tax assets and liabilities are established for the temporary differences between the financial reporting bases and the tax bases of the Company’s assets and liabilities using tax rates expected to be in effect when such deferred tax assets or liabilities are realized or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management evaluates its potential exposures from tax positions taken that have or could be challenged by taxing authorities. These potential exposures result because taxing authorities may take positions that differ from those taken by management in the interpretation and application of statutes, regulations and rules. Management considers the possibility of alternative outcomes based upon past experience, previous actions by taxing authorities (e.g., actions taken in other jurisdictions) and advice from its tax advisors. Management believes that the Company’s provision for tax contingencies is reasonable. However, the ultimate resolution of tax treatments disputed by governmental authorities may adversely affect the Company’s current and deferred income tax amounts. See Note 12 of the Consolidated Financial Statements. Following are discussions of the electric utility and bank segments. Additional segment information is shown in Note 2 of the Consolidated Financial Statements. The discussion concerning Hawaiian Electric should be read in conjunction with its consolidated financial statements and accompanying notes. Electric utility Executive overview and strategy. The Utilities provide electricity on all the principal islands in the state, other than Kauai, to approximately 95% of the state’s population, and operate five separate grids. The Utilities’ mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a modern, resilient, flexible, and dynamic electric grid that enables an optimal mix of distributed energy resources, such as private rooftop solar, demand response, and grid-scale resources to 46 enable the creation of smart, sustainable, resilient communities and achieve its decarbonization goals that are aligned with the statutory goal of 100% renewable energy by 2045. Recent developments—COVID-19. See also Recent developments—COVID-19 in HEI’s MD&A. Starting in early December, new COVID-19 case counts, which now include the Omicron variant, started to increase and reached a high of 4,666 cases per day (7-day average) on January 19, 2022. Since then, case counts have declined rapidly, reaching a 7-day average daily case count of 256 as of February 22, 2022. Although case counts have increased, the severity of the disease appears to be lower than the Delta variant. As a result, the state and counties have generally not reinstituted the same restrictions that were put in place to manage the Delta variant. The economy remains open for business and the mandatory quarantine period for travelers who have not been vaccinated or who have not provided evidence of a negative COVID test has been reduced to five days. For the full year 2021, driven by the broader reopening of the economy, the demand for electricity has increased 1.7% from 2020 levels; however, the full year 2021 kWh sales are still 5.5% below the pre-pandemic level of kWh sales in 2019. While the Utilities’ electric energy revenues have not been significantly impacted due to the decoupling mechanism, which allows recovery of the difference between PUC approved target revenues and recorded adjusted revenues regardless of the level of kWh sales, the timing of customer collections would be delayed (or accelerated) if the level of kWh sales decreases below (or increases above) the estimated kWh sales. See “Decoupling” in Note 3 of the Consolidated Financial Statements for a discussion of decoupling. As part of the annual review cycle, the Utilities submit bi-annual decoupling filings (fall and spring revenue report) to the PUC. The fall revenue report requests recovery by the utility (or refund to customers) of the difference between recorded adjusted revenues and target revenues under the RBA. The difference is collected or refunded through an adjustment to customer rates in the following year based on estimated sales, starting on January 1st of that following year, which has an impact on the timing of the Utilities’ cash flow. Additionally, although the Utilities’ decoupling mechanism allows for collection under the RBA, the RBA balance accrues interest only at the short-term debt rate from the last rate case (2.5% for Hawaiian Electric, 3.75% for Hawaii Electric Light and 3.0% for Maui Electric). As of December 31, 2021, the RBA balance was approximately $28.5 million, compared to $7.6 million as of December 31, 2020. The billed accounts receivable balance, net of allowance for doubtful accounts as of December 31, 2021, was $187 million, or 26.4% higher, than the billed account receivable balance as of December 31, 2020, due in part to higher fuel prices resulting in higher bills. The past due accounts receivable balance increased by $19 million, or 38%, since December 31, 2020 with a corresponding increase in the number of accounts past due by approximately 13% for the same period. The increase in accounts receivables was primarily driven by higher fuel prices, as well as lower cash receipts associated with the auto-enrollment of customers in payment plans, starting in July 2021 through mid-September 2021, under which the past due balances are recovered over a 12-18 month period. While the moratorium on customer disconnections ended on May 31, 2021, the Utilities initially focused its efforts on working with customers to enroll in payment plans and seek other bill assistance for customers through funding from non-profit organizations, as well as state and county relief programs. Starting in September 2021, the Utilities have begun the disconnection process for those customers that have not enrolled in payment plans or that have not adhered to their payment plans, beginning with the largest and oldest amounts in arrears. At this time, the delay in customer cash collections has not significantly affected the Utilities’ liquidity. The Utilities are prepared to address, if needed, the financing requirement related to the delayed timing of cash flows collected under the decoupling mechanism through the RBA and the modest slowing or reduction in accounts receivable collections from customers. See “Financial Condition—Liquidity and capital resources” for additional information. The Utilities provide an essential service to the State of Hawaii, and have continued to operate to protect the health and safety of employees and customers and to ensure system reliability, and have been following the Governor’s directive that the Utilities take necessary measures to ensure they can operate in the normal course. The Utilities have also implemented certain aspects of their business continuity plans, which includes the activation of its Incident Management Team to closely manage the response to the pandemic and have implemented practices related to employee and facilities hygiene in order to ensure the reliability and resilience of their operations. In the second quarter of 2020, the PUC approved the deferral of certain COVID-19 related costs, such as higher bad debt expense, higher financing costs, non-collection of late payment fees, increased personal protective equipment costs, and sequestration costs for mission-critical employees. As of December 31, 2021, these cumulative costs, which have been deferred and recorded as a regulatory asset, totaled approximately $27.8 million (see also discussion under Item 1A. “Risk Factors” and “Regulatory assets for COVID-19 related costs” in Note 3 of the Consolidated Financial Statements). The Utilities currently have approval to defer COVID-19 related costs through December 31, 2021 and will be seeking recovery of the deferred costs in a separate proceeding at a future date. Looking forward, while the distribution and administration of the COVID-19 vaccine has allowed for fewer restrictions and a broader reopening of the Hawaii economy, a worsening of COVID-19 case counts with the Omicron or other variants or a prolonged period of current or more severe COVID-19 restrictions could adversely affect the ability of the Utilities’ contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations timely, or 47 at all, or require modifications to existing contracts, which could adversely affect the Utilities’ business, increase expenses, and impact the Utilities’ ability to achieve their RPS and other climate related goals. Additionally, while the state’s aggressive response to the pandemic has managed to control the spread of the coronavirus, the measures taken have had a negative economic impact on the state’s businesses and residents, which may influence the PUC’s actions regarding future rate increases. See “Item 1A. Risk Factors” in Part II for additional discussion of risks. For a discussion regarding the impact of the economic conditions caused by the COVID-19 pandemic on the Utilities’ liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.” Performance-based regulations. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving a new performance- based regulation framework (PBR Framework). See “Regulatory proceedings” under “Commitments and contingencies” in Note 3 of the Consolidated Financial Statements. Transition to a decarbonized and sustainable energy future. The Utilities are fully committed to leading and enabling pathways to a decarbonized and sustainable energy future for Hawaii. The Utilities believe that a holistic approach to decarbonization is needed, and that such a strategy requires achieving the Utilities’ decarbonization and renewable energy commitments, facilitating and promoting beneficial electrification, and deploying carbon removal and offsets, among other levers, to reduce statewide emissions. In the fourth quarter of 2021, the Utilities set a goal to cut carbon emissions from power generation 70% by 2030, compared to a 2005 baseline. The emissions covered by this goal include stack emissions from generation owned by Hawaiian Electric and IPPs who sell electricity to the Utilities. The 2030 commitment would provide a significant portion of the reduction the entire Hawaii economy needs to meet the U.S. target of cutting carbon emissions by at least 50% economy-wide by 2030. Hawaiian Electric has also committed to achieving net zero carbon emissions from power generation by 2045 or sooner. Key elements of the 2030 plan include the closure of the state’s last coal-fired IPP plant in 2022 upon expiry of the PPA, increasing rooftop solar by more than 50% over 2021 levels, retiring six fossil fuel generating units, adding at least 1 GW of renewable generation to what was already in place in 2021, increasing grid-scale and customer-owned storage, expanding geothermal resources, and creating customer incentives for using clean, lower-cost energy at certain times of the day and using less fossil- fueled energy at night. The retirement of fossil-fueled generating units to achieve the Utilities’ 70% decarbonization goal is consistent with state policy and supported by Hawaii State law. See “Forecast of capital expenditures—Liquidity and capital resources” for a discussion of potential capital expenditures related to decarbonization efforts. On September 1, 2022, the last coal-fired IPP plant in the state, providing approximately 10% of Oahu’s generation, will cease operations, removing a significant amount of GHG emissions from the Utilities’ generation mix. The plant’s aging infrastructure could lead to more unscheduled outages compared to historic performance, which may impact system reliability. See “Retirement of the AES coal plant” in the “Risk Factor” section for additional information on the transition risks. In anticipation of the retirement of the coal-fired IPP plant, the Utilities have developed plans, including contingency plans, to ensure reliable service through the transition period. These plans include the anticipated addition of ten renewable energy/ storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, multiple demand response/distributed energy resources programs and a proposed battery project. However, future events, including unexpected issues with existing generation, or supply chain issues and inflationary pressures, as well as federal policies related to solar panel imports, among other factors, delay in the commercial operation of new generation resources, could disrupt the ability of the Utilities to deliver reliable service. Also, see the “Developments in renewable energy efforts—New renewable PPAs” section below. Hawaii’s renewable portfolio standard law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by December 31, 2020, 2030, 2040 and 2045, respectively. Hawaii law has also established a target of sequestering more atmospheric carbon and greenhouse gases than emitted within the state by 2045. The Utilities’ strategies and plans are fully aligned in meeting these targets. The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals. The Utilities reached its 2015 RPS goal two years early and exceeded the 30% RPS target for 2020, achieving an RPS of 34.5% that year. In 2021, the Utilities achieved an RPS of 38.4%. The Utilities will continue to actively procure additional renewable energy post-2021 and expect to meet or exceed the next statutory RPS goal of 40% in advance of the 2030 compliance year. (See “Developments in renewable energy efforts” below). If the Utilities are not successful in meeting the RPS targets as mandated by law, the PUC could assess a penalty of $20 for every MWh that an electric utility is deficient. Based on the level of electricity sales in 2021, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $1.7 million. The PUC has the discretion to reduce the penalty due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the 48 mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target had been achieved, which in turn would be expected to subject the Utilities to limited commodity fossil fuel price exposure under a fuel cost risk-sharing mechanism. The fuel cost risk-sharing mechanism apportions 2% of the fuel cost risk to the utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.7 million. Conversely, the Utilities have incentives under PIMs that provide a financial reward for accelerating the achievement of renewable generation as a percentage of total generation, including customer supplied generation. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $20/MWh in 2022, $15/MWh in 2023, and $10/MWh for the remainder of the multi-year rate period. The Utilities are fully aligned with, and supportive of, state policy to achieve a decarbonized future and have made significant progress in reducing emissions through renewable energy and electrification. This alignment with state policy is reflected in management compensation programs and the Utilities’ long-range plans, which include aspirational targets in order to catalyze action and accelerate the transition away from fossil fuels throughout its operations at a pace more rapid than dictated by current law. The long-range plans, including aspirational targets, serve as guiding principles in the Utilities’ continued transformation, and are updated regularly to adapt to changing technology, costs and other factors. While there is no financial penalty for failure to achieve the Utilities’ long-range aspirational objectives, the Utilities recognize that there are environmental and social costs from the continued use of fossil fuels. The State of Hawaii’s policy is supported by the regulatory framework and includes a number of mechanisms designed to maintain the Utilities’ financial stability during the transition toward the state’s decarbonized future. Under the sales decoupling mechanism, the Utilities are allowed to recover from customers, target test year revenues, independent of the level of kWh sales, which have generally declined (with the exception of 2019 and the first quarter of 2020), as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms under the new PBR framework reduce some of the regulatory lag during the multi-year rate plan (MRP), such as the annual revenue adjustment to provide annual changes in utility revenues and the exceptional project recovery mechanism, which allows the Utilities to recover and earn on certain approved eligible projects placed into service. See “Regulatory proceedings” under “Commitments and contingencies” and “Decoupling” in Note 3 of the Consolidated Financial Statements. Integrated Grid Planning. Achieving high levels of renewable energy and a carbon free electric system will require modernizing the grid through coordinated energy system planning in partnership with local communities and stakeholders. To accomplish this, the Utilities are implementing an innovative systems approach to energy planning intended to yield the most cost-effective renewable energy and decarbonization pathways that incorporates customer and stakeholder input. The IGP utilizes an inclusive and transparent Stakeholder Engagement model to provide an avenue for interested parties to engage with the Utilities and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical Advisory Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues and process steps in the IGP. The Utilities submitted an updated IGP work plan to the PUC in January 2021. In August 2021, the Utilities submitted their Revised Inputs and Assumptions to the PUC for review and approval, marking the significant progress made through the stakeholder engagement phase of the IGP process. Once approved by the PUC, the next phase of the process, which includes the development of long-range integrated grid plans, will begin. Demand response programs. Pursuant to PUC orders, the Utilities are developing an integrated Demand Response (DR) Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will take the form of either rates or incentive-based programs that will compensate customers for their participation individually, or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets. On June 9, 2021, the PUC issued an order providing guidance to the third Grid Service RFP filed on February 23, 2021. The proposed Grid Service RFP focused only on Oahu and is seeking 60MW of grid services with focus on capacity reduction similarly in response to the potential reserve shortfall from the AES coal plant retirement scheduled on September 1, 2022. The Utilities filed a final draft and received PUC approval to proceed on August 3, 2021. The Utilities subsequently issued an approved Grid Services RFP and the bids were due on October 13, 2021. The Utilities made their final selections on November 10, 2021 and commenced negotiations immediately after. The Utilities are targeting to execute GSPA contracts in early 2022 and file to the PUC for approval. On June 8, 2021, the PUC approved the new program, Emergency Demand Response Program (EDRP), a battery storage incentive program to dispatch electricity between 6 p.m. to 8 p.m. daily from participating residential and commercial customers, to address the potential reserve shortfalls following the AES coal plant retirement. The PUC approved EDRP for 50MW on Oahu with an incentive budget not to exceed $34 million, which will be recovered via a surcharge cost recovery mechanism over a 10-year amortization. The Utilities’ implementation plan was approved by the PUC on June 30, 2021, and the Utilities subsequently filed the updated EDRP tariffs on July 1, 2021. As of December 31, 2021, the Utilities have received and approved the applications totaling approximately 3.47 MW. 49 Grid modernization. The overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater distributed energy resources and renewable energy integration. Under the Grid Modernization Strategy, the Utilities expect that new technology will help increase adoption of private rooftop solar and make use of rapidly evolving products, including storage and advanced inverters. The Utilities are implementing Phase 1 of their Grid Modernization Strategy (proportional deployment), which received PUC approval on March 25, 2019. The estimated cost for this initial phase is approximately $86 million and is expected to be incurred over five years. As of December 31, 2021, approximately $36 million has been incurred to date under Phase 1 and is currently being recovered under the Exceptional Project Recovery Mechanism (formerly known as MPIR adjustment mechanism) until such costs are included in base rates. The Utilities have deployed over 50,000 advanced meters since the beginning of deployment and is working with the PUC on plans to expand Phase 1 to cover full service territory. The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of the second phase of their Grid Modernization Strategy implementation. However, on December 30, 2019, the PUC suspended the Utilities’ application for the Advanced Distribution Management System pending the Utilities’ filing of a supplemental application for the broad deployment of field devices. This supplement and update to the Grid Mod Phase 2 field devices application was filed on March 31, 2021. The estimated cost for the implementation over five years of the ADMS and field devices, which includes capital, deferred and O&M costs, is $105 million. A PUC order was issued on April 27, 2021, unsuspending and resuming consideration of the Phase 2 Application. The Utilities filed the reply statement of position on October 15, 2021, completing the discovery phase of the docket. On November 16, 2021, the PUC suspended the Utilities’ ADMS and Phase 2 field device application to focus the Utilities’ attention on completing Phase 1. The Utilities filed a Motion for Reconsideration with the PUC in response to the suspension, but was denied. The PUC subsequently clarified that the Utilities may resume the Phase 2 docket no earlier than six months before Phase 1 is scheduled to be complete. Phase 1 is currently scheduled to finish by the end of 2023; however, the PUC is considering expanding the scope of Phase 1 meter installations to full service territory deployment, with proposed completion dates of the third quarter of 2024 or the second quarter of 2025. Resumption of the Phase 2 proceeding would likely commence six months prior to the completion date selected by the PUC. Community-based renewable energy. In December 2017, the PUC adopted a community-based renewable energy (CBRE) program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases. The first phase, which commenced in July 2018, totals 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020. The second phase, which commenced on April 9, 2020, allows up to 235 MW across all Hawaiian Electric service territories in two tranches for small (under 250 kW) and large system sizes to encourage a variety of system sizes. To provide opportunities for low- to moderate-income (LMI) customers to participate in the program, separate project proposals may be submitted specifically targeting LMI customers. Eight RFPs were required by order: one each for Oahu, Maui, Hawaii Island, Molokai, and Lanai, and LMI-specific RFPs for Oahu, Maui, and Hawaii Island. LMI projects do not have a size cap nor do they decrease the 235 MW capacity available to other projects. For Lanai, the Utilities proposed to combine the previously issued Variable Renewable Dispatchable Generation Paired with Energy Storage RFP and the CBRE RFP to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE Program on Lanai. See “Developments in renewable energy efforts– Requests for renewable proposals, expressions of interest, and information” for additional information. On November 22, 2021, CBRE RFPs for Molokai and Lanai were issued and are currently accepting proposals through February 15, 2022. On February 8, 2022, the PUC approved, subject to modifications, the CBRE and LMI CBRE RFPs for Oahu, Maui, and Hawaii Island. The Utilities filed the final RFPs with the PUC on February 23, 2022. For small CBRE projects less than 250 kW in size, the Utilities are planning to accept projects over a four-month period on a first come first served basis as soon as the PUC approves the Utilities’ final tariff and contracts, filed on September 8, 2020. The PUC reserved 30 MW as well as a small amount of unallocated capacity from Phase 1 for small projects in Phase 2 on Oahu, Maui and Hawaii Island. If applications exceed the program capacity for that island, then a reverse auction process called Competitive Credit Rate Procurement will be triggered to allocate project capacity and determine the credit rate. The Utilities have developed a CBRE Portal where customers can subscribe to a project once the Subscriber Organization has added their project to the portal. 50 Microgrid services tariff proceeding. In enacting Act 200 of 2018, the Hawaii legislature found that Hawaii’s residents and businesses were vulnerable to disruptions in the islands’ energy systems caused by extreme weather events or other disasters, and stated its belief that the use of microgrids would build energy resiliency into Hawaii’s communities, thereby increasing public safety and security. The purpose of Act 200 was therefore to encourage and facilitate the development and use of microgrids through the establishment of a standard microgrid services tariff. In July 2018, pursuant to Act 200, the PUC opened a proceeding to investigate the establishment of a microgrid services tariff. In August 2019, the PUC issued an order prioritizing items for resolution in the docket and directed the Parties to establish working groups (the “Working Group”) to address issues identified by the PUC. On March 30, 2020, the Utilities filed a Draft Microgrid Services Tariff and updated language for various distributed energy resources Rules. On November 30, 2020, the PUC held a technical conference to present its proposed redlines to the Utilities’ Draft Microgrid Services Tariff and related documents. On February 1, 2021, the Working Group filed its Draft Microgrid Tariff reflecting areas of consensus and disagreement among the Parties. On May 17, 2021, the PUC issued an order directing the Utilities to submit the Microgrid Services Tariff and appendices as modified by the PUC. The PUC further stated its intent to issue a separate order to govern the next phase of the Microgrid Tariff proceeding. On May 27, 2021, the Utilities filed the Microgrid Service Tariff. On September 21, 2021, the PUC provided guidance for Phase 2 of the Microgrid Tariff proceeding, specifically identifying the objective for Phase 2 to promote self-sufficiency and resilience among microgrid project operators, as well as to further streamline the Microgrid Services Tariff where applicable. Furthermore, the PUC instructed Parties to recommend priority topics, along with supporting rationale to better inform the topics that will be discussed during this phase of the proceeding, which the parties submitted by October 21, 2021. Decoupling. See “Decoupling” in Note 3 of the Consolidated Financial Statements for a discussion of decoupling. Regulated returns. As part of the PBR Framework’s annual review cycle, the Utilities track their rate-making ROACEs as calculated under the earnings sharing mechanism, which includes only items considered in establishing rates. At year-end, each utility’s rate-making ROACE is compared against its ROACE allowed by the PUC to determine whether earnings sharing has been triggered. The D&O in the PBR proceeding modified the earnings sharing mechanism to a symmetric arrangement. Effective with annual earnings for 2021, the earnings sharing will be triggered for achieved rate-making ROACE outside of a 300 basis points dead band above and below the current authorized rate-making ROACE of 9.5% for each of the Utilities. Earnings sharing credits or recoveries will be included in the biannual report (formally known as annual decoupling filing) to be filed with the PUC in the spring of the following year. Results for 2021, 2020, and 2019 did not trigger the earnings sharing mechanism for the Utilities. Actual and PUC-allowed returns, as of December 31, 2021, were as follows: % Rate-making Return on rate base (RORB)* Year ended December 31, 2021 Utility returns PUC-allowed returns Difference Hawaii Electric Light Maui Electric Hawaiian Electric ROACE** Hawaii Electric Light Maui Electric Hawaiian Electric 5.96 7.52 6.61 7.43 8.53 9.50 6.51 9.50 7.41 9.50 9.38 9.50 Hawaiian Electric 7.28 7.37 Hawaii Electric Light 7.02 9.50 Maui Electric 8.22 9.50 Rate-making ROACE*** (0.09) (1.56) (0.82) (0.97) (2.99) (2.09) (0.12) (2.48) (1.28) * Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates. ** Recorded net income divided by average common equity. *** ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation. The factors contributing to the difference gap between PUC-allowed ROACEs and the ROACEs actually achieved prior to the establishment of PBR include the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual RAM revenues on June 1 annually rather than on January 1, and return on capital additions since the last rate case in excess of indexed escalations. As a result of the D&O in the PBR proceeding, the Utilities are allowed to recognize previously established RAM adjustment and ARA revenues on January 1 of each year. 51 Results of operations. 2021 vs. 2020 2021 $ 2,540 2020 $ 2,265 Increase (decrease) $ 275 (dollars in millions, except per barrel amounts) Revenues. Net increase largely due to: $ 139 higher fuel costs offset by lower kWh generated1 110 higher kWh purchased, higher purchased power energy costs and higher PPAC revenue2 13 higher revenue from 2020 RAM and ARA adjustments, which included the customer dividend and an offset of management audit savings delivered to customers 6 accrual of Hawaiian Electric ERP system implementation benefits to be returned to customers completed in 2020 5 higher other revenues from activities billed to third parties 3 higher PIMs revenue Fuel oil expense.1 Net increase largely due to higher fuel oil prices and lower fuel efficiency due to planned maintenance outages of certain generating units, partially offset by lower kWh generated Purchased power expense1,2. Increase largely due to higher purchased power energy prices, higher kWh purchased and higher capacity charges Operation and maintenance expense. Net increase largely due to: 7 more generating facility overhauls and maintenance work performed 3 ERP system costs amortization, which started for Hawaiian Electric in November 2020 2 Customer bill forgiveness and assistance in the fourth quarter of 2021 (2) lower outside services for system support (Interactive Voice Response and development of portal for CBRE) (3) lower pension service cost due to reset of pension costs included in rates as part of Hawaiian Electric final rate case decision (6) lower Pearl Harbor environmental reserves in 2021 Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense in 2021 for plant investments in 2020 Operating income. Increase due to higher RAM revenues, offset in part by higher depreciation expense Income before income taxes. Increase due to higher RAM revenues, lower pension non- service costs and higher AFUDC, partially offset by higher interest expense related to new long term debt issued in May 2020 and January 2021 and higher depreciation expense Net income for common stock. Increase due to higher RAM revenues and lower pension non-service costs, partially offset by higher operating expense. See below for effective tax rate explanation 644 515 129 670 475 569 474 102 1 470 280 224 438 269 212 31 11 12 178 169 8 8.1% 8.1% —% Return on average common equity 80.06 63.00 17.06 8,261 8,120 2,469 2,579 141 (110) Average fuel oil cost per barrel Kilowatt-hour sales (millions) 3 Number of full-time employees (at December 31) 1 The rate schedules of the electric utilities currently contain ECRCs through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers. 2 The rate schedules of the electric utilities currently contain PPACs through which changes in purchase power expenses (except purchased energy costs) are passed on to customers. 3 kWh sales were higher when compared to prior year largely due to recovery from the effects of the COVID-19 pandemic. Although international visitor arrivals have not recovered, increases in domestic travel, easing of restrictions, and high vaccination rates led to sales slowly rebounding as the year progressed but remained lower than pre-pandemic levels in 2019. Hawaiian Electric’s effective tax rate (combined federal and state income tax rates) in 2021 and 2020 was slightly higher at 20% in 2021, compared to 19%, primarily due to the lower amortization in 2021 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate and a decrease in excess tax benefits related to share-based awards in 2021. These increases were partly offset by federal research and development tax claims in 2021. For a discussion of 2019 results, please refer to the “Results of operations” section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—Electric utility,” in the Company’s 2020 Form 10-K. 52 The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of December 31, 2021 amounted to $4.8 billion, of which approximately 26% related to generation PPE, 65% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 8% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission. Regulatory proceedings. On December 23, 2020, the PBR D&O was issued, establishing a new PBR Framework. The PBR Framework implemented a five-year multi-year rate period (MRP), during which there will be no general rate case applications. In the fourth year of the MRP, the PUC will comprehensively review the PBR Framework to determine if any modifications or revisions are appropriate. See also “Regulatory proceedings” in Note 3 of the Consolidated Financial Statements. Developments in renewable energy efforts. Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Consolidated Financial Statements and the following: New renewable PPAs. • • • In December 2014, the PUC approved a PPA for Renewable As-Available Energy dated October 3, 2013 between Hawaiian Electric and Na Pua Makani Power Partners, LLC (NPM) for a proposed 24-MW wind farm on Oahu. In August 2020, the project was energized and commissioning of all wind turbines was completed. However, the project was paused due to a conductor deficiency. Hawaiian Electric reconductored the 46kV circuit and in December 2020, the project reached commercial operation. NPM received its Incidental Take Permit from the Department of Fish and Wildlife Service on September 7, 2018. Keep the North Shore Country (KNSC) has appealed this decision and the case has been transferred to the Hawaii Supreme Court. On June 17, 2020, KNSC filed a Motion for Stay Upon Appeal. On August 10, 2020, KNSC’s Motion for Stay Upon Appeal was denied. Oral arguments were held before the court on April 1, 2021, and the case is ready for decision making. KNSC and Kahuku Community Association (KCA) have also petitioned to appeal NPM’s Conditional Use Permits issued by the Honolulu Department of Planning and Permitting. On August 6, 2020, the Zoning Board of Appeals (ZBA) granted NPM’s Motions to Dismiss the Appeal Petitions of KNSC and KCA. On November 17, 2020, the ZBA dismissed the appeals. On November 24, 2020, KNSC and KCA appealed the dismissal to the circuit court. The circuit court affirmed the ZBA’s dismissal of the appeals on June 30, 2021. On July 1, 2021, KNSC and KCA appealed that decision to the Hawaii Intermediate Court of Appeals where briefing is currently ongoing. The briefing was scheduled to conclude on January 28, 2022. Life of the Land (LOL) filed a Motion for Relief to argue the PUC’s approval for NPM PPA was invalid and should be revised. Hawaiian Electric and the Consumer Advocate filed an opposition to this motion for relief. A hearing on the motion for relief was held on November 22, 2019. On April 16, 2020, the PUC issued an order denying LOL’s Motion for Relief. On April 27, 2020, LOL filed a Notice of Appeal of the PUC’s order with the Supreme Court of the State of Hawaii. In June 2021, the Supreme Court denied LOL’s appeal. On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power Purchase Agreement (ARPPA), subject to approval by the PUC. The ARPPA extends the term of the existing PPA by 25 years to 2052, expands the firm capacity of the facility to 46 MW and delinks the pricing for energy delivered from the facility from fossil fuel prices to reduce cost to customers. On March 31, 2021, the PUC suspended the docket pending the completion of a supplemental environmental review under the Hawaii Environmental Policy Act (HEPA). On November 2, 2021, the Office of Planning and Sustainable Development of the State of Hawaii (OPSD) sent a letter (November 2nd Letter) to the Honorable Mitch Roth, County of Hawaii, identifying the Planning Department for the County of Hawaii to be the accepting agency and approving authority for any required HEPA review. Shortly thereafter, the PUC lifted the suspension of the docket and stating the docket was ready for decision-making, however, the PUC gave the parties a chance to brief the PUC if they disagreed that the docket was ready for decision-making. On November 15, 2021 Puna Pono Alliance responded alleging that any decision should occur after PGV’s completed supplemental environmental review is available and sent a letter to Mayor Roth questioning OPSD’s authority to issue the November 2nd Letter. On December 8, 2021 Mayor Roth sent a letter to OPSD requesting clarification on OPSD’s determination that the County of Hawaii’s Planning Department is correctly identified as the accepting authority. The Utilities’ renewable energy goals depend, in large part, on the success of renewable projects developed and operated by independent power producers. Beginning in 2017, the Utilities embarked on an ambitious procurement effort, selecting multiple solar plus storage efforts to help reach the Utilities renewable portfolio standards goals as well as to assist the Utilities in retiring fossil fuel generation. Several of the recently procured projects have experienced delays or have been declared null and void by the independent power producers due to a number of issues, including supply chain disruptions caused by impacts from the COVID-19 pandemic, solar product detentions at U.S. 53 ports of entry ordered by the U.S. Customers and Border Protection agency, and unforeseen site conditions which resulted in unanticipated project costs or in some cases the inability to effectively use previously identified project sites. Significant project delays or failures of these projects increase the risk of the Utilities not meeting the renewable portfolio standards or other climate related goals, eligibility for performance incentive mechanisms associated with the speed of increasing renewable generation, and the ability to retire fossil fuel units. Tariffed renewable resources. • • As of December 31, 2021, there were approximately 550 MW, 117 MW and 131 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of December 31, 2021, an estimated 32% of single-family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 20% of the Utilities’ total customers have solar systems. The Utilities began accepting energy from feed-in tariff projects in 2011. As of December 31, 2021, there were 43 MW, 3 MW and 6 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively. Biofuel sources. • • In July 2018, the PUC approved Hawaiian Electric’s three-year biodiesel supply contract with Pacific Biodiesel Technologies, LLC (PBT) to supply 2 million to 4 million gallons of biodiesel at Hawaiian Electric’s Schofield Generating Station and the Honolulu International Airport Emergency Power Facility (HIA Facility) and any other generating unit on Oahu, as necessary. The PBT contract became effective on November 1, 2018, and has been extended for one year through December 2022. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was extended through June 2023. On June 30, 2021, the Utilities issued an RFP for all fuels, including biodiesel, for supply commencing January 1, 2023. The Utilities and PBT signed an agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, subject to PUC approval. Hawaiian Electric has a contingency supply contract with REG Marketing & Logistics Group, LLC to also supply biodiesel to any generating unit on Oahu in the event PBT is not able to supply necessary quantities. This contingency contract has been extended to November 2022, and will continue with no volume purchase requirements. Requests for renewable proposals, expressions of interest, and information. • • Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued RFPs for 220 MW of renewable generation on Oahu, 50 MW of renewable generation on Hawaii Island, and 60 MW of renewable generation on Maui. As of December 31, 2021, summarized information for a total of 8 PPAs is as follows: Utilities Number of contracts Total photovoltaic size (MW) BESS Size (MW/MWh) Guaranteed commercial operation dates Contract term (years) Total projected annual payment (in millions) Hawaiian Electric Hawaii Electric Light Maui Electric Total 4 2 2 8 139.5 139.5/558 7/31/22, 9/7/22, 9/30/22 & 8/31/23 20 & 25 $ 60 75 60/240 11/3/22 & 12/2/22 75/300 4/28/23 & 10/27/23 274.5 274.5/1,098 25 25 $ 31.9 14.1 17.6 63.6 The Utilities have received PUC approvals to recover the total projected annual payment of $63.6 million for the eight PPAs through the PPAC to the extent such costs are not included in base rates. In continuation of their February 2018 request for proposal process, the Utilities issued their Stage 2 Renewable RFPs for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. Final awards for the renewable projects were made on May 8, 2020. Final awards for the grid services projects were made starting in January 2020. On Oahu, seven solar-plus-storage projects and one standalone storage project totaling approximately 281 MW of generation and 1.8 GWh of storage were selected. On Maui, three solar-plus-storage projects and one standalone storage project totaling approximately 100 MW of generation and 560 MWh of storage were selected. On Hawaii Island, two solar- plus-storage projects and one standalone storage project totaling approximately 72 MW of generation and 492 MWh of 54 storage were selected. Two Utility Self-Build projects were among those selected; a 40-MW, 160-MWh standalone energy storage system on Maui and a 12-MW, 12-MWh storage system on Hawaii Island. Three renewable plus storage projects voluntarily withdrew from the process prior to execution of a power purchase agreement for various reasons, including change in circumstances for the developer and a misunderstanding of contract requirements. As of December 31, 2021, the Utilities had filed 10 PPAs, 2 grid services purchase agreements (GSPA) and 2 applications for commitments of funds for capital expenditures for approval of the utility self-build projects with the PUC. On October 25, 2021, one solar-plus-storage project on Hawaii Island was declared null and void by the developer. On December 6, 2021, one solar-plus-storage project on Oahu was declared null and void by the developer. On January 14, 2022, the Utilities filed an additional solar plus storage PPA for approval for 42 MW of generation and 168 MWh of storage. A summary of the 9 PPAs that are still under active development, is as follows: Utilities Number of contracts Total photovoltaic size (MW) BESS Size (MW/MWh) Guaranteed commercial operation dates Contract term (years) Total projected annual payment (in millions) Hawaiian Electric Hawaiian Electric Maui Electric Total 5 1 * 3 9 214 N/A 100 314 214/983 185/565 100/400 499/1,780 5/17/23, 10/30/23, 12/29/23, 12/31/23 & 4/9/2024 12/30/22 4/30/23, 4/30/23 & 12/29/23 20 & 25 $ 20 25 $ 59.3 24.0 28.2 111.5 * See further discussion under “Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement” below. As of December 31, 2021, seven projects that have been approved by the PUC remain in development – six solar-plus- storage PPAs (257 MW) and one standalone storage PPA (185 MW). The total projected annual payment of $95.8 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates. On February 15, 2022, the Utilities filed letters with the PUC requesting approval of amendments to two of the previously- approved PPAs for Stage 2, one on Oahu and one on Maui, that address delays and price increase due to the COVID-19 pandemic and the global supply-chain crisis, as well as other market conditions that have arisen during the development of these projects. A summary of the GSPAs that were approved by PUC in December 2020 is as follows: Utilities Fast Frequency Response - 1 (MW) Fast Frequency Response - 2 (MW) Capacity - Load Build (MW) Capacity - Load Reduction (MW) Hawaiian Electric Hawaii Electric Light Maui Electric Total — 6.0 6.1 12.1 26.7 — — 26.7 14.5 3.2 1.9 19.6 19.4 4.0 4.7 28.1 A summary of the utility self-build projects that are pending PUC approval is as follows: Utilities Number of contracts BESS Size (MW/MWh) Guaranteed commercial operation dates Hawaii Electric Light Maui Electric Total 1 1 2 12/12 40/160 52/172 12/30/22 4/28/23 • On November 27, 2019, the Utilities issued RFPs for renewable generation paired with energy storage on the islands of Lanai and Molokai. The Utilities were seeking PV paired with storage or small wind (specified as 100 kW turbines or smaller) on Molokai and PV paired with storage on Lanai. The RFP on Lanai was postponed on January 14, 2020 to allow the Utility to re-evaluate the scope of the RFP in response to announced plans to remove two large resorts from the grid. Proposals for the Molokai RFP were received on February 14, 2020. In light of a PUC order issued on April 9, 2020 in the CBRE docket, the Utilities proposed in their July 9, 2020 filing to combine the previously issued and subsequently postponed Lanai RFP with the CBRE RFP described in the order to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE program on Lanai. On May 21, 2021, the PUC approved the proposed combined Lanai RFP. On October 15, 2020, the Utilities selected one project from the Molokai RFP for a total of 4.5 MW of solar and 24 MWh of storage. The developer, however, 55 declined to accept the award. On August 25 and 31, 2021, the Utilities filed proposed final drafts of the CBRE RFPs, which included three dedicated Low-to-Moderate-Income RFPs on Oahu, Maui and Hawaii, three Tranche 1 RFPs on Oahu, Maui and Hawaii, a Molokai CBRE RFP, and a combined Lanai Variable and CBRE RFP. On November 22, 2021, CBRE RFPs for Molokai and Lanai were opened. On February 8, 2022, the PUC approved, subject to modifications, the CBRE and LMI CBRE RFPs for Oahu, Maui, and Hawaii island. The Utilities filed the final RFPs with the PUC on February 23, 2022. • The PUC issued a letter to the Utilities requesting development with a Stage 3 RFP on Hawaii Island on January 21, 2021. In accordance with guidance provided by the PUC in a subsequent letter on April 20, 2021, the Utilities filed the Hawaii Island Grid Needs Assessment on July 15, 2021 and the draft RFP, including model contracts for PV+BESS, wind+BESS, standalone storage, firm renewable generation, and distributed energy resources aggregators on October 15, 2021. The requirements in the Stage 3 RFP are guided by the results of the Grid Needs Assessment. On February 22, 2022, the PUC sent a letter to the Utilities directing them to develop Stage 3 RFPs for Oahu and Maui. The Utilities are currently evaluating next steps. • On November 17, 2021, the Utilities filed a request with the PUC to develop an RFP for firm renewable generation for Oahu. On December 22, 2021, the PUC issued guidance to the Utilities on proceeding with such RFP. The Utilities are developing the RFP requirements and plan to file a draft RFP in the first quarter of 2022. Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement. • In February 2021, the PUC initiated a docket for the purposes of reviewing the status and interconnection progress of various utility-related renewable projects (i.e. Stage 1 and Stage 2 RFP PPAs and CBRE) and the Utilities’ transition plans for the expiration of the AES power purchase agreement, the retirement of the Kahului Power Plant, and other fossil fuel power plant transition plans, as needed. The Utilities filed initial status updates on the project timelines, steps needed for each of the renewable projects to achieve commercial operation and steps the Utilities are taking to address projected extensions of guaranteed commercial operation dates (GCOD) for renewable projects under development, which are due to a variety of factors, including those outside of the control of the Utilities. The PUC subsequently held status conferences on the Utilities’ updates. In April 2021, the PUC issued an Order directing the Utilities to establish regulatory liabilities for the difference between the on-peak avoided cost and the unit price included in the applications for approval of the renewable project PPAs, effective with the GCOD included in the applications (the earliest GCOD included in the applications is July 2021) or from the date of the Order for CBRE Phase 1 projects. The amount of regulatory liabilities to be recorded in future periods are not determinable at this time and would be affected by a number of factors, including the length of the GCOD extension period, the monthly on- peak avoided cost, as well as the factors described above. The Utilities filed a Motion for Reconsideration of the entire Order, or in the alternative to clarify that at most the PUC is directing the Utilities to track the information and not record the information at this time. The Utilities further requested a Stay of the Order pending resolution of the Motion. The Utilities maintain that extensions of GCODs are allowed under the PUC-approved contracts and that the Order has the unintended consequence of imposing penalties against the Utilities without due process. In May 2021, the PUC issued an order clarifying its Order and directed the Utilities to track costs to consumers caused by the perceived delay of renewable projects, and that the PUC does not intend to, at this time, impose any penalties on the Utilities. The full text of the Order, Motion for Reconsideration and request for a Stay of the Order, and clarification Order can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2021-0024). • Also in April 2021, the PUC approved the Kapolei Energy Storage (KES) PPA (one of the PPAs as a result of the Stage 2 Renewable RFP process) (KES Decision and Order), subject to nine conditions, including the Utilities forgoing the second portion of the PIM rewards amounting up to $1.7 million for the Stage 1 RFP PPAs, removing grid constraints for the Utilities’ CBRE Phase 2 projects and for existing and new distributed energy programs, financial retirement of Hawaiian Electric generating units by specified dates and adjusting target revenues at the retirement dates for such retirements, and a requirement to charge the batteries in the project using significant levels of renewable energy generation. The financial retirement of the generating units described in the KES Decision and Order is contrary to the intent of Hawaii Revised Statutes §269-6(d), which encourages the recovery of stranded costs for the retirement of fossil fuel generation, and contrary to the regulatory compact under which in return for agreeing to commit capital necessary to allow utilities to meet their obligation to serve, utilities are assured recovery of their investment and a fair opportunity to earn a reasonable return on the capital prudently committed to the business. Hawaiian Electric filed a Motion for Reconsideration and Stay of the Decision and Order due to potentially significant financial and operational impacts. In May 2021, the PUC granted, in part, Hawaiian Electric’s Motion for Reconsideration and Stay. In this Order, the PUC addressed a number of Hawaiian Electric’s concerns, including removing the condition of the Utilities foregoing the PIM award from Stage 1 RFP projects, agreeing to address grid constraint concerns in respective DER and CBRE dockets and not in the KES docket, removing the minimum 56 thresholds of charging energy coming from renewable energy generation and corresponding deadlines associated with these thresholds and modifying the condition on financial retirement of generating units. The PUC indicated the net book value of generating assets would be addressed at the time of retirement. The full text of the KES Decision and Order and the Motion for Reconsideration and Stay with respect thereto, and the Order granting, in part, Hawaiian Electric’s Motion for Reconsideration can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2020-0136). Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see “Environmental regulation” in “Item 1. Business” and Note 3 of the Consolidated Financial Statements. Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC (PAR Hawaii), for the Utilities’ low sulfur fuel oil (LSFO), high sulfur fuel oil (HSFO), No. 2 diesel, and ultra-low sulfur diesel (ULSD) requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. This contract is a requirement contract with no minimum purchases. If PAR Hawaii is unable to provide LSFO, HSFO, diesel and/or ULSD the contract allows the Utilities to purchase LSFO, HSFO, diesel and/or ULSD from another supplier. On June 30, 2021, the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. On February 1, 2022, the Utilities and PAR Hawaii entered into a fuel supply contract commencing January 1, 2023 and Second Amendment to the existing fuel contract to amend tier-1 volumes. The Second Amendment will take effect contingent upon PUC’s approval. The costs incurred under the contract with PAR Hawaii are recovered in the Utilities’ respective ECRCs. On June 9, 2020, the Utilities and PAR Hawaii entered into a First Amendment to the fuel contract. The First Amendment amends only the LSFO pricing to create a two-tiered structure based on volume, with all tier-1 LSFO up to the tier-1 maximum to be purchased exclusively from PAR Hawaii at the established pricing, and purchases in excess of that volume (tier-2) either from PAR Hawaii at the established pricing, or from an alternative supplier. On August 4, 2020, the PUC approved the First Amendment, which has an effective date of July 15, 2020, on an interim basis. The PUC’s approval order allows the recovery of such costs associated with the First Amendment through the ECRC to the extent that the costs are not recovered in base rates. The PUC intends to review whether the First Amendment is reasonable and in the public interest in the final decision, but it will not subject the recovery of the costs between the interim decision and the final decision to retroactive disallowances. Army privatization. On October 30, 2020, the PUC approved Hawaiian Electric’s 50-year contract with the U.S. Army to own, operate and maintain the electric distribution system serving the U.S. Army’s 12 installations on Oahu, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort Shafter, and Army housing areas. Hawaiian Electric will acquire the Army’s existing distribution system for a stated purchase price of $16.3 million, under the approved contract, and will pay the Army in the form of a monthly credit against the monthly utility services charge over the 50-year term of the contract. The final purchase price is subject to Hawaiian Electric completing its due diligence and evaluation of the assets being acquired. Hawaiian Electric will take ownership and all responsibilities for operation and maintenance of the system on March 1, 2022 for a 50-year term, after a one-year transition period. Under the contract, Hawaiian Electric will make initial capital upgrades over the first six years of the contract and replacement of aging infrastructure over the 50-year term. In addition to its regular monthly electricity bill, the Army will pay Hawaiian Electric a monthly utility services charge to cover operations and maintenance expenses and provide recovery for capital upgrades, capital replacements, and the existing distribution system based on a rate of return determined by the PUC for regulated utility investments, as well as depreciation expense. A preliminary assessment estimated the capital needs of approximately $40 million in the first six years of the contract. The PUC requires Hawaiian Electric to file regular periodic reports on the activities and investments in fulfillment of the contract and will review the major projects planned on behalf of the Army. The annual impact on Hawaiian Electric’s earnings is not expected to be material and will depend on a number of factors, including the amount and timing of capital upgrades and capital replacement. Liquidity and capital resources. As of December 31, 2021, there were no amounts outstanding on Hawaiian Electric’s revolving credit facility and under its commercial paper program and the total amount of available borrowing capacity under the Utilities’ committed line of credit was $200 million. 57 Hawaiian Electric expects that its liquidity will continue to be moderately impacted at the Utilities due to ongoing COVID-19 impacts to the local economy. Compared to pre-pandemic levels, delinquent accounts receivable balances have increased, which could result in higher write-offs in the future, and kWh sales have generally declined, both of which impact the timing of cash flows and creates higher working capital requirements. However, the Utilities’ liquidity and access to capital remains adequate and is expected to remain adequate. As of December 31, 2021, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Utilities’ committed lines of credit and cash and cash equivalents was approximately $252 million. The moratorium on customer disconnections was lifted on May 31, 2021. Starting in the third quarter of 2021, the Utilities commenced the disconnection process on a tiered basis, targeting the oldest and largest balances first, which is expected to reduce delinquent accounts receivable balances over time and accelerate cash collections. Hawaiian Electric’s consolidated capital structure was as follows: December 31 (dollars in millions) Short-term borrowings Long-term debt, net Preferred stock Common stock equity 2021 2020 $ $ — 1,676 34 2,262 3,972 —% $ 42 1 57 100% $ 50 1,561 34 2,142 3,787 1% 41 1 57 100% Information about Hawaiian Electric’s commercial paper borrowings, borrowings from HEI, and line of credit facility were as follows: (in millions) Short-term borrowings1 Commercial paper Line of credit draws Borrowings from HEI $ Year ended December 31, 2021 Average balance End-of-period balance December 31, 2020 8 $ — — — — $ — — 200 — — — 275 Undrawn capacity under line of credit facilities2 1 The maximum amount of external short-term borrowings by Hawaiian Electric during 2021 was approximately $52 million. At December 31, 2021, Hawaii Electric Light and Maui Electric had short-term borrowings from Hawaiian Electric of $1 million and nil, respectively, which intercompany borrowings are eliminated in consolidation. In addition to the short-term borrowings above, on January 15, 2021, Hawaiian Electric paid off the $50 million term loan dated as of May 19, 2020 (see Note 5 of the Consolidated Financial Statements). 2 On April 19, 2021, Hawaiian Electric’s $75 million 364-day revolving credit agreement expired and was not renewed. Hawaiian Electric utilizes short-term debt, typically commercial paper, to support normal operations, to refinance short- term debt and for other temporary requirements. Hawaiian Electric also borrows short-term from HEI for itself and on behalf of Hawaii Electric Light and Maui Electric, and Hawaiian Electric may borrow from or loan to Hawaii Electric Light and Maui Electric on a short-term basis. The intercompany borrowings among the Utilities, but not the borrowings from HEI, are eliminated in the consolidation of Hawaiian Electric’s financial statements. The Utilities periodically utilize long-term debt, borrowings of the proceeds of special purpose revenue bonds (SPRBs) issued by the State of Hawaii Department of Budget and Finance (DBF) and the issuance of privately placed unsecured senior notes bearing taxable interest, to finance the Utilities’ capital improvement projects, or to repay short-term borrowings used to finance such projects. The PUC must approve issuances, if any, of equity and long-term debt securities by the Utilities. Credit agreement. On April 19, 2021, Hawaiian Electric’s $75 million 364-day revolving credit agreement expired and was not renewed. On May 14, 2021, Hawaiian Electric entered into an agreement with a syndicate of nine financial institutions, to amend and restate its previously existing $200 million unsecured revolving credit agreement (Hawaiian Electric Facility). As of December 31, 2021, no amounts were outstanding under the facility. On February 18, 2022, the PUC approved Hawaiian Electric's request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026 from May 13, 2022. See Note 5 of the Consolidated Financial Statements. Credit ratings. On March 17, 2021, S&P upgraded Hawaiian Electric’s issuer credit rating to “BBB” from “BBB-,” upgraded the short-term and commercial paper ratings to “A-2” from “A-3” and revised the outlook to stable from positive. The rating upgrade was primarily based on Hawaiian Electric’s strong financial measures, strength of the cumulative value of the 58 regulatory protections, and S&P’s assessment of its stand-alone credit profile as sufficient to rate Hawaiian Electric higher than HEI. On April 20, 2021, Moody’s upgraded Hawaiian Electric’s senior unsecured rating and issuer rating to “Baa1” from “Baa2” and revised the outlook to stable from positive. The rating upgrade reflects Hawaiian Electric’s considerable progress in adding renewable resources to its energy supply mix and the improving regulatory relationship with the PUC. On June 25, 2021, Fitch affirmed Hawaiian Electric’s “BBB+” long-term issuer default rating, “F2” short-term issuer default rating and stable outlook. As of February 11, 2022, the Fitch, Moody’s and S&P ratings of Hawaiian Electric were as follows: Long-term issuer default, long-term and issuer credit, respectively Commercial paper Senior unsecured debt/special purpose revenue bonds Cumulative preferred stock (selected series) Outlook * Not rated. Fitch BBB+ F2 A- * Stable Moody’s Baa1 P-2 Baa1 Baa3 Stable S&P BBB A-2 * * Stable Note: The above ratings reflect only the view, at the time the ratings are issued or affirmed, of the applicable rating agency, from whom an explanation of the significance of such ratings may be obtained. Such ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating. SPRBs. Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State of Hawaii (DBF) to finance (and refinance) capital improvement projects of Hawaiian Electric and its subsidiaries, but the sources of their repayment are the non-collateralized obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric’s guarantees of its subsidiaries’ obligations. On May 24, 2019, the PUC approved the Utilities’ request to issue SPRBs in the amounts of up to $70 million, $2.5 million and $7.5 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2020, to finance the Utilities’ capital improvement programs. Pursuant to this approval, on October 10, 2019, the DBF issued, at par, Series 2019 SPRBs in the aggregate principal amount of $80 million with a maturity of October 1, 2049. As of December 31, 2021, Hawaiian Electric had $3 million of undrawn funds remaining with the trustee. Hawaii Electric Light and Maui Electric had no undrawn funds as of December 31, 2021. On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval, prior to June 30, 2024, to finance the Utilities’ multi-project capital improvement programs (2019 Legislative Authorization). On February 9, 2021, the PUC approved the Utilities’ request to issue SPRBs (up to $100 million, $35 million and $45 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively) through 2022, with the proceeds to be used to finance the Utilities’ multi-project capital improvement programs. The PUC also approved the use of the expedited approval procedure to request the issuance and sale of the remaining/unused amount of SPRBs authorized by the 2019 Legislative Authorization (i.e., total not to exceed up to $400 million for Hawaiian Electric, up to $150 million for Hawaii Electric Light, and up to $150 million for Maui Electric) during the period January 1, 2023 through June 30, 2024. Bank loans. On January 15, 2021, Hawaiian Electric paid off the $50 million term loan drawn on May 19, 2020. Taxable debt. On January 31, 2019, the Utilities received PUC approval (January 2019 Approval) to issue the remaining authorized amounts under the PUC approval received in April 2018 (April 2018 Approval) in 2019 through 2020 (Hawaiian Electric up to $205 million and Hawaii Electric Light up to $15 million of taxable debt), as well as a supplemental increase to authorize the issuance of additional taxable debt to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures, and to refinance the Utilities’ 2004 junior subordinated deferrable interest debentures (QUIDS) prior to maturity. In addition, the January 2019 Approval authorized the Utilities to extend the period to issue additional taxable debt from December 31, 2021 to December 31, 2022. The new total “up to” amounts of taxable debt requested to be issued through December 31, 2022 are $410 million, $150 million and $130 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively. Pursuant to the approval, on January 14, 2021, the Utilities drew $115 million of proceeds using a delayed draw feature under a private placement executed on October 29, 2020. The proceeds were used to finance capital expenditures and reimburse funds used for the payment of capital expenditures. 59 As of December 31, 2021, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $135 million, $85 million, and $45 million, respectively, of remaining taxable debt to issue prior to December 31, 2022. See summary table below. (in millions) Total “up to” amounts of taxable debt authorized through 2022 Less: Taxable debt authorized and issued in 2018 under April 2018 Approval Taxable debt issuance to refinance the 2004 QUIDS in 2019 Taxable debt issuance in May 2020 Taxable debt executed in October 2020, but issued on January 14, 2021 Remaining authorized amounts $ Hawaiian Electric Hawaii Electric Light $ 410 $ Maui Electric 130 150 $ 75 30 110 60 135 $ 15 10 10 30 85 $ 10 10 40 25 45 On September 30, 2021, the Utilities requested PUC approval through the expedited approval process to issue taxable debt (Hawaiian Electric up to $30 million, Hawaii Electric Light up to $30 million and Maui Electric up to $35 million) prior to December 31, 2022. On December 13, 2021, the Utilities submitted an updated letter request to modify Hawaiian Electric’s request to up to $50 million from the original up to $30 million. Equity. In October 2018, the Utilities received PUC approval for the supplemental increase to issue and sell additional common stock in the amounts of up to $280 million for Hawaiian Electric and up to $100 million each for Hawaii Electric Light and Maui Electric, with the new total “up to” amounts of $430 million for Hawaiian Electric and $110 million each for Hawaii Electric Light and Maui Electric, and to extend the period authorized by the PUC to issue and sell common stock from December 31, 2021 to December 31, 2022. As of December 31, 2021, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $221.4 million, $93.7 million, and $63.2 million, respectively, of remaining common stock to issue prior to December 31, 2022. See summary table below. (in millions) Hawaiian Electric Hawaii Electric Light Maui Electric Total “up to” amounts of common stock authorized to issue and sell through 2021 $ 150.0 $ 10.0 $ Supplemental increase authorized Total “up to” amounts of common stock authorized to issue and sell through 2022 Less: Common stock authorized and issued in 2017, 2018, 2019, 2020 and 2021 Remaining authorized amounts $ 280.0 430.0 208.6 221.4 $ 100.0 110.0 16.3 93.7 $ 10.0 100.0 110.0 46.8 63.2 Cash flows. The following table reflects the changes in cash flows for the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020: (in thousands) Net cash provided by operating activities Net cash used in investing activities Net cash provided by (used in) financing activities Years ended December 31 2021 2020 Change $ 273,133 $ 336,551 $ (63,418) 58,829 (344,794) (285,965) (24,911) 29,675 4,764 Net cash provided by operating activities: The decrease in net cash provided by operating activities was primarily driven by lower cash receipts from customers due to the impact of the pandemic and timing in receipts of payments, and higher cash paid for fuel stock due to higher fuel oil prices and volume purchased, partially offset by lower cash paid for accounts payable due to timing . Net cash used in investing activities: The decrease in net cash used in investing activities was primarily driven by a decrease in capital expenditures related to construction activities. Net cash provided by financing activities: The decrease in net cash provided by financing activities was primarily driven by lower net cash from long-term and short-term debts. For a discussion of 2019 operating, investing and financing activities, please refer to the “Liquidity and capital resources” section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—Electric utility,” in the Company’s 2020 Form 10-K. Material cash requirements. Material cash requirements of the Utilities include O&M expenses, including labor and benefit costs, fuel and purchase power costs, repayment of debt and interest payments, operating lease obligations, its forecasted 60 capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term material cash requirements. The cash requirements for O&M, fuel and purchase power costs, debt and interest payments, and operating lease obligations are generally funded through the collection of the Utilities’ revenue requirement established in the last rate case and other mechanisms established under the regulatory framework. The cash requirements for capital expenditures are generally funded through retained earnings, the issuance of debt, and contributions of equity from HEI and generally recovered through the Utilities’ revenue requirement or other capital recovery mechanisms over time. The Utilities believe that their ability to generate cash is adequate to maintain sufficient liquidity to fund their material cash requirements. However, the COVID-19 pandemic is an evolving situation, and the Utilities cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impacts on the Utilities’ ability, as well as the cost, to access additional capital, or the future impacts on the Utilities’ financial position, results of operations, and cash flows. See Item 1A. “Risk Factors” in Part I for further discussion of risks and uncertainties. Forecast of capital expenditures. For the five-year period 2022 through 2026, the Utilities forecast up to $2.1 billion of net capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental regulations and/or unforeseen delays in permitting and timing of PUC decisions. Approximately $1.30 billion is related to replacement and modernization of generation, transmission and distribution assets; approximately $0.5 billion is related to climate-related projects to transition to renewable energy or mitigate climate impacts by increasing the resilience of the system, and approximately $0.3 billion for targeted efforts to improve reliability. Proceeds from the issuance of equity and long-term debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents are expected to provide the funds needed for the net capital expenditures, to pay down commercial paper or other short-term borrowings, as well as to fund any unanticipated expenditures not included in the 2022 to 2026 forecast (such as increases in the costs or acceleration of capital projects, or unanticipated capital expenditures that may be required by new environmental laws and regulations). Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities. Selected short-term and long-term contractual obligations and commitments. The following table presents aggregated information about total payments due from the Utilities during the indicated periods under the specified contractual obligations and commitments: December 31, 2021 (in millions) Long-term debt Interest on long-term debt Operating leases PPAs classified as leases Other leases Open purchase order obligations 1 Fuel oil purchase obligations (estimate based on fuel oil price at December 31) Purchase power obligations-minimum fixed capacity charges not classified as leases Liabilities for uncertain tax positions Total (estimated) 1 Less than 1 year Payments due by period 3-5 years More than 5 years 1-3 years Total $ 52 $ 70 100 $ 130 172 $ 121 1,360 $ 727 1,684 1,048 46 12 93 8 30 — $ 311 $ 8 28 39 9 60 2 376 $ 7 24 8 5 60 — 397 $ 4 32 — — 65 96 140 22 157 — 2,280 $ 307 2 3,364 Includes contractual obligations and commitments for capital expenditures and expense amounts. The table above does not include other categories of obligations and commitments, such as deferred taxes, trade payables, amounts that will become payable in future periods under collective bargaining and other employment agreements and employee benefit plans and potential refunds of amounts collected from ratepayers (e.g., under the earnings sharing mechanism). As of December 31, 2021, the fair value of the assets held in trusts to satisfy the obligations of the Utilities’ retirement benefit plans did not exceed the retirement benefit plans’ benefit obligation. Minimum funding requirements for retirement benefit plans have not been included in the table above. See Note 10 of the Consolidated Financial Statements for retirement benefit plan obligations and estimated contributions for 2022. 61 See “Biofuel sources” in the “Developments in renewable energy efforts” section above for additional information for fuel oil purchase obligation. See Notes 3 and 8 of the Consolidated Financial Statements for a discussion of power purchase commitments and operating leases obligations, respectively. Competition. Although competition in the generation sector in Hawaii is moderated by the scarcity of generation sites, various permitting processes and lack of interconnections to other electric utilities, the PUC has promoted a more competitive electric industry environment through its decisions concerning competitive bidding and distributed generation. An increasing amount of generation is provided by IPPs and customer distributed generation. Competitive bidding. In December 2006, the PUC issued a decision that included a final competitive bidding framework, which became effective immediately. The final framework states, among other things, that: (1) a utility is required to use competitive bidding to acquire a future generation resource or a block of generation resources unless the PUC finds bidding to be unsuitable; (2) the framework does not apply in certain situations identified in the framework; (3) waivers from competitive bidding for certain circumstances will be considered; (4) the utility is required to select an independent observer from a list approved by the PUC whenever the utility or its affiliate seeks to advance a project proposal (i.e., in competition with those offered by bidders); (5) the utility may consider its own self-bid proposals in response to generation needs identified in its RFP; and (6) for any resource to which competitive bidding does not apply (due to waiver or exemption), the utility retains its traditional obligation to offer to purchase capacity and energy from a Qualifying Facility (QF) at avoided cost upon reasonable terms and conditions approved by the PUC. Technological developments. New emerging and breakthrough technological developments (e.g., the commercial development of long-duration energy storage, grid-forming and black starting inverters in low inertia power systems, microgrids, distributed generation, grid modernization, electrification of transportation, implement predictive analytics using artificial intelligence machine learning algorithms to help assess the state of health of utility assets and prevent premature failure, and the diversification of generation from renewable sources) may impact the Utilities’ future competitive position, results of operations, financial condition and liquidity. The Utilities continue to seek prudent opportunities to develop, test, pilot, and implement technologies that align with their technical and business plans and support clean energy and decarbonized goals, while ensuring reliability and resilience as the Utilities adapt to a changing climate. Environmental matters. See “Electric utility—Regulation—Environmental regulation” under “Item 1. Business” and “Environmental regulation” in Note 3 of the Consolidated Financial Statements. Commitments and contingencies. See Item 1A. Risk Factors, and Note 3 of the Consolidated Financial Statements for a discussion of important commitments and contingencies. Off-balance sheet arrangements. See “Off-balance sheet arrangements” above in HEI Consolidated section. Material estimates and critical accounting policies. Also see “Material estimates and critical accounting policies” above in HEI Consolidated section. Regulatory assets and liabilities. The Utilities are regulated by the PUC. In accordance with accounting standards for regulatory operations, the Company’s and the Utilities’ financial statements reflect assets, liabilities, revenues and costs of the Utilities based on current cost-based rate-making regulations. The actions of regulators, including the PBR Framework, can affect the timing of recognition of revenues, expenses, assets and liabilities. Regulatory liabilities represent amounts collected from customers for costs that are expected to be incurred in the future, or amounts collected in excess of costs incurred that are refundable to customers. Regulatory assets represent incurred costs that have been deferred because their recovery in future customer rates is probable. As of December 31, 2021, the consolidated regulatory liabilities and regulatory assets of the Utilities amounted to $997 million and $566 million, respectively, compared to $960 million and $767 million as of December 31, 2020, respectively. Regulatory liabilities and regulatory assets are itemized in Note 3 of the Consolidated Financial Statements. Management continually assesses whether the regulatory assets are probable of future recovery by considering factors such as changes in the applicable regulatory environment. Because current rates include the recovery of regulatory assets existing as of the last rate case and rates in effect allow the Utilities to earn a reasonable rate of return, management believes that the recovery of the regulatory assets as of December 31, 2021 is probable. This determination assumes continuation of the current political and regulatory climate in Hawaii and is subject to change in the future. Management believes that the operations of the Utilities, including the impact of the newly approved PBR Framework, currently satisfy the criteria for regulatory accounting. If events or circumstances should change so that those criteria are no longer satisfied, the Utilities expect that their regulatory assets, net of regulatory liabilities, would be charged to the statement of income in the period of discontinuance, which may result in a material adverse effect on the Company’s and the Utilities’ results of operations, financial condition and liquidity. 62 Revenues. Electric utility revenues are based on rates authorized by the PUC and include revenues applicable to estimated energy consumed in the accounting period, but not yet billed to customers (Unbilled revenues), and RBA revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kWh sales. Unbilled revenues represent an estimate of energy consumed by customers subsequent to the date of the last meter reading to the end of the current reporting period. As of December 31, 2021, Unbilled revenues, net of allowance for doubtful accounts, amounted to $129 million and the RBA revenue recognized in 2021 amounted to $20 million. Asset retirement obligations. The Utilities recognize AROs at present value of expected costs to retire long-lived assets from service, which is estimated using a discounted cash flow model that relies on significant estimates and assumptions about future decommissioning costs, inflationary rates, and the estimated date of decommissioning. The estimated future cash flows are discounted using a credit-adjusted risk-free rate to reflect the risk associated with decommissioning the assets. The Utilities have not recorded AROs for assets that are expected to operate indefinitely or where the Utilities cannot estimate a settlement date (or range of potential settlement dates.) As such, ARO liabilities are not recorded for certain asset retirement activities, including various Utility-owned generating facilities and certain electric transmission, distribution and telecommunication assets resulting from easements over property not owned by the Utilities. Changes in estimated costs, timing of decommissioning or other assumptions used in the calculation could cause material revision on the recorded liabilities. As of December 31, 2021 and December 31, 2020, the Utilities’ AROs totaled $11.1 million and $10.7 million, respectively. Bank Executive overview and strategy. ASB, headquartered in Honolulu, Hawaii, is a full-service community bank serving both consumer and commercial customers. ASB is one of the largest financial institutions in Hawaii and ended 2021 with assets of $9 billion and net income of $101 million, compared to assets of $8 billion and net income of $58 million in 2020. ASB provides a wide range of financial products and services, and in order to remain competitive and continue building core franchise value, ASB is focused on making banking easier for the customer and developing and introducing new products and services in order to meet market needs. Additionally, the banking industry is constantly changing and ASB is making the investments in people and technology necessary to adapt and remain competitive, facilitate process improvements in order to deliver a continuously better experience for its customers, and be a more efficient bank. ASB’s continued focus has been on efficient growth to maximize profitability and capital efficiency, as well as control expenses. The current economic crisis from the COVID-19 pandemic altered the strategies ASB set out to achieve. Key strategies to drive organic growth include: 1. 2. 3. deepening customer relationships through the redesign of branch-centric approaches as transactions and engagement migrate to other channels; building out product and service offerings to open new segments; online and remotely-assisted account opening capabilities as there is a much more rapid and pervasive adoption of online and mobile banking by Hawaii banking customers; and 4. prioritizing efficiency actions to gain earnings leverage on organic growth. The interest rate environment and the quality of ASB’s assets will continue to influence its financial results. A lowering of interest rates across the yield curve as a result of the pandemic’s impact on the economy has negatively affected ASB’s net interest margin and initially impacted credit losses. With the reopening of the economy and government stimulus assistance, asset quality has improved. The potential for further compression of ASB’s net interest margin if interest rates remain at current low levels is a risk that is actively managed. As part of its interest rate risk management process, ASB uses simulation analysis to measure net interest income sensitivity to changes in interest rates (see “Item 7A. Quantitative and Qualitative Disclosures about Market Risk”). ASB then employs strategies to limit the impact of changes in interest rates on net interest income. ASB’s key strategies to manage interest rate risk include: 1. 2. 3. attracting and retaining low-cost deposits, particularly those in non-interest bearing transaction accounts; diversifying the loan portfolio with higher-spread, shorter-maturity loans and/or variable rate loans; focusing investment growth in securities that exhibit less extension risk (i.e., risk of longer average lives) as rates rise. Recent Developments—COVID-19. See also Recent developments—COVID-19 in HEI’s MD&A. The Hawaii economy improved significantly in 2021, compared to 2020, due to the impact of stimulus programs and the loosening of business restrictions; however, the Hawaii economy experienced temporary setbacks with increased COVID-19 case counts stemming from the Delta variant in the third quarter of 2021 and the Omicron variant at the end of 2021. Although new daily case counts have continued to rise into early 2022 with a peak in late January, hospitalization rates have remained 63 below rates experienced with the Delta variant, and as a result, the state and counties have not reinstituted the same level of restrictions that were put in place earlier in the pandemic and the Hawaii economy remains largely open for business. Consistent with the improvement in the Hawaii economy in 2021, the bank’s performance improved in 2021, relative to 2020, with net interest income after provision for credit losses improving to $263.1 million for the year ended December 31, 2021, compared to $182.7 million for the year ended December 31, 2020, primarily driven by a negative provision for credit losses. Net interest margin declined to 2.91% for the year ended December 31, 2021, compared to 3.29% for the year ended December 31, 2020. The lower net interest margin was driven by the continued low interest rate environment that resulted in new loan origination rates remaining below existing portfolio yields. In addition, a change in the mix of earning assets, with a higher proportion of earning assets composed of investment securities which have a lower yield than the loan portfolio. The growth in the investment portfolio was driven by the growth in deposits, which grew at a faster pace than the loan portfolio resulting in excess liquidity being used to purchase investment securities. In the fourth quarter of 2021, the Bank’s net interest margin was 2.79% compared to 2.90% and 3.12% for the quarters ended September 30, 2021 and December 31, 2020, respectively. For the year ended December 31, 2021, the investment securities portfolio increased approximately $900 million, or 41%, as deposit growth of $785 million, or 11%, which included funds from stimulus programs that were provided to individuals and businesses, continued to outpace loan growth. The growth in the investment securities portfolio and fees from the PPP program contributed to higher interest income, partially offsetting the effect of lower loan portfolio balances and earning asset yields on a year-to-date basis. In response to COVID-19, ASB made short-term loan modifications to borrowers who were generally payment current at the time of relief. As of December 31, 2021, approximately $0.6 million of loans remained in their active deferral period. Approximately $9.0 million of loans were not able to resume their contractual payments and were considered delinquent as of December 31, 2021. ASB recorded a negative provision for credit losses in 2021 due to improved credit quality in the commercial, commercial real estate and consumer loan portfolios and overall lower net charge offs as a result of an improving economic outlook. For the year ended December 31, 2021, ASB recorded a negative provision for credit losses of $25.8 million, compared to a provision for credit losses of $50.8 million for the year ended December 31, 2020. The provision for credit losses in future quarters will be dependent on future economic conditions and changes to borrower credit quality at that time. In 2021, ASB collected higher fee income compared to 2020 as certain fees were waived during the second and third quarter of 2020 to accommodate the hardships facing its customers. The Bank restarted its normal fee practices in the fourth quarter of 2020 and continued throughout 2021. Noninterest expenses that were considered direct and incremental COVID-19 related costs were lower in 2021 compared to 2020. In 2021, ASB reopened three branches that were temporarily closed during the start of the pandemic, as digital branches, which provide digital solutions such as full-service ATMs and access to expert bankers through videoconferencing tools while allowing the Bank to have a more efficient physical footprint. ASB continues to evaluate its branch network to determine whether further changes may be appropriate given its customers’ use of other banking channels. ASB’s senior management team continually addresses the impacts to the operations and business of the Bank as a result of the pandemic and meets regularly with ASB’s board of directors to keep them apprised of the impacts of the COVID-19 pandemic. The CARES Act was signed into law on March 27, 2020. The CARES Act provided over $2 trillion in economic assistance for American workers, families, and small businesses, and job preservation for American industries. The PPP was established under the CARES Act and implemented by the United States Small Business Administration (SBA) to provide a direct incentive for small businesses to keep their workers on the payroll as a result of the COVID-19 crisis. The Paycheck Protection Program Flexibility Act was signed into law on June 5, 2020 and the Economic Aid Act was signed into law on December 27, 2020, which amended some of the prior rules and guidelines of the CARES Act. The Economic Aid Act established a second round of PPP, reopening the PPP for first-time borrowers and allowing for a second draw for businesses that meet more restrictive eligibility criteria to target businesses hardest hit by the pandemic. Loans issued through the PPP are 100% federally guaranteed and have a maturity of 2-5 years, depending on when the loan was made, at a fixed interest rate of 1%. Loan payments will be deferred until the earlier of (a) the date that the forgiven amount is remitted to the lender by the SBA; or (b) 10 months from the date the covered period ends. The SBA will forgive all loan amounts to a particular small business if such small business is compliant with the terms and conditions of the PPP. Small businesses generally have 24 weeks from disbursement of the loan to incur allowable expenses such as payroll costs, interest on mortgages, rent and utility expenses that would be covered by the loan forgiveness rules, with 60% of the loan forgiveness needing to be for payroll costs. Small businesses may receive partial forgiveness if they do not spend the entirety of their PPP loan on eligible expenses, or if less than 60% of the loan disbursement is spent on payroll costs. Employers had until December 31, 2020 to restore their workforce, or, 64 for a PPP loan made after December 27, 2020, before the last day of the Covered Period. Lenders processed and approved the PPP loans under delegated authority of the SBA. As an existing SBA certified lender, ASB worked with a number of small businesses, both customers and non-customers, to complete the loan application forms so that these businesses could participate in the program. During the first round of PPP, the Bank secured more than $370 million in PPP loans for approximately 4,100 small businesses that supported over 40,000 jobs, ASB received processing fees totaling approximately $13 million and started recognizing these fees over the life of the loans. During the second round of PPP, ASB secured more than $175 million for approximately 2,200 small businesses that supported more than 20,000 jobs; ASB received processing fees of approximately $9 million. The remaining PPP loans outstanding as of December 31, 2021 was $69 million. Other provisions of the CARES Act provides that a financial institution may elect to suspend the requirements under accounting principles generally accepted in the United States of America (GAAP) for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes. See Note 4 of the Consolidated Financial Statements and “Economic conditions” in the “HEI Consolidated” section above. ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model. 65 Results of operations. • 2021 vs. 2020 (in millions) Interest income 2021 $ 242 2020 $ 244 Increase (decrease) $ (2) Noninterest income 65 78 (13) Less: gain on sale of investment securities, net (1) (9) 8 Primary reason(s) Lower average earning asset yields and lower average loan portfolio balances partly offset by higher investment security portfolio balances. Average loan portfolio yields 21 basis points lower - impacted by the continued low interest rate environment as adjustable rate loans had repriced lower during the past year and new loan production yields continue to originate below their portfolio yields. Average loan portfolio balances decreased $117 million - home equity lines of credit and commercial loan portfolio balances decreased $175 million and $79 million, respectively, primarily due to repayments in the portfolio. Average consumer loans portfolio balance decreased $80 million - primarily due to ASB’s decision to reduce production of this loan product in the current economic environment. Average commercial real estate loans portfolio balance increased $203 million - primarily due to demand for this loan type. Average investment securities portfolio balance increased $1.3 billion - excess liquidity from strong deposit growth was invested in agency securities Average investment securities portfolio yield 38 basis points lower - impacted by the continued low interest rate environment as new investment security purchase yields were lower than the investment security portfolio yield. Lower mortgage banking income and lower gain on sale of investment securities, partly offset by higher customer fee income and higher bank- owned life insurance income. Lower gain on sale of investment securities - in 2020, ASB sold all of its Visa Class B restricted shares and recognized a gain of $7.0 million with no similar sales in 2021. Lower mortgage banking income - lower residential loan sales volume primarily due to ASB’s decision to portfolio a larger portion of its residential loan production in 2021. Loan sale profit margins were lower in 2021 compared to 2020. Higher customer fee income - in the second and third quarters 2020, ASB waived overdraft and other deposit account fees to accommodate the hardships customers were experiencing during the COVID-19 pandemic. Normal customer fee practices were resumed in the fourth quarter of 2020 and all of 2021. Higher bank-owned life insurance income - primarily due to higher proceeds from life insurance policies received in 2021 compared to 2020. Gain on sale of investment securities, net, which is included in Noninterest income above and in the Bank’s statements of income and comprehensive income in Note 4 of the Consolidated Financial Statements, is classified as gain on sale of investment securities, net in the consolidated statements of income, and accordingly, is reflected below following operating income as a separate line item and excluded from Revenues. Revenues 306 313 (7) The decrease in revenues was primarily due to lower interest and noninterest income. Interest expense 5 11 (6) Lower interest expense on deposits and other borrowings. Lower interest expense on deposits - lower term certificate balances primarily due to runoff of government term certificates and lower deposit yields as a result of the continued low interest rate environment. Average core deposit balances increased $1.2 billion; average term certificate balances decreased $181 million. Average deposit yields decreased from 16 basis points to 6 basis points Lower interest expense on other borrowings - primarily due to lower repurchase agreement yields as a result of the continued low interest rate environment. 66 (in millions) Provision for credit losses 2021 (26) 2020 51 Increase (decrease) Primary reason(s) (77) Negative provision for credit losses reflects favorable credit trends with continued improvement in the economic environment and a slight shift in loan portfolio composition with growth in the real estate secured portfolio. Negative provision for credit losses included credit upgrades in the commercial real estate and commercial loan portfolios. Negative provision for credit losses was also due to a shift in loan portfolio mix - a decrease in personal unsecured loan portfolio balances which had higher credit loss rates replaced with higher residential and commercial real estate loan portfolio balances with lower credit loss rates. The personal unsecured loan portfolio also experienced improved net charge-off trends. 2020 provision for credit losses included $39 million of COVID-19 related reserves and loss reserves of $21 million for net charge-offs as well as other changes in loan portfolio composition and asset quality metrics. Delinquency rates have decreased - from 0.37% at December 31, 2020 to 0.33% at December 31, 2021 due to lower personal unsecured and home equity line of credit loan delinquencies, partly offset by higher residential 1-4 family loan delinquencies. Net charge-offs to average loans have decreased - from 0.40% at December 31, 2020 to 0.07% at December 31, 2021 due to lower personal unsecured loan portfolio net charge-offs. Higher compensation and benefit expenses and data processing expenses were partly offset by lower COVID-19 related costs and lower pension expense. Higher compensation and benefit expenses - increase in incentive compensation payout for commission based employees, higher performance-based compensation and payment of the separation and release agreement with the former President and Chief Executive Officer. Higher data processing expenses - due to upgrades in ASB’s technology and data analytics capabilities. 2021 noninterest expense benefited from a one-time credit adjustment for a change in accounting for the ASB retirement plan. Lower other expenses - 2020 expenses included higher direct and incremental COVID-19 related costs1 to enhance cleaning and sanitation of ASB’s facilities as well as incremental compensation expense. The decrease in expenses was primarily due to lower provision for credit losses, and lower interest expense, partly offset by an increase in noninterest expense. Lower provision for credit losses and lower interest expense, partly offset by lower interest and noninterest income, and higher noninterest expenses. The increase in net income was the result of higher operating income partly offset by higher income tax expense and lower gain on sale of investment securities. Noninterest expense 197 191 6 Expenses 176 253 (77) Operating income 130 Gain on sale of investment securities, net 1 60 9 70 (8) Net income $ 101 $ 58 $ 43 Return on average equity2 1 Higher operating expenses, which were considered direct and incremental COVID-19 related costs, included approximately $2.5 million of 13.8% 5.7% 8.1% incremental compensation expense and $2.0 million of enhanced cleaning and sanitation costs. 2 Calculated using the average daily balance. For a discussion of 2019 results, please refer to the “Results of operations” section in Item 7, “Management Discussion and Analysis of Financial Condition and Results of Operations—Bank,” in the Company’s 2020 Form 10-K. See Note 4 of the Consolidated Financial Statements for further information about ASB. 67 Average balance sheet and net interest margin. The following table provides a summary of average balances, including major categories of interest-earning assets and interest-bearing liabilities: (dollars in thousands) Assets: 2021 2020 2019 Average balance Interest income/ expense Yield/ rate (%) Average balance Interest income/ expense Yield/ rate (%) Average balance Interest income/ expense Yield/ rate (%) Interest-earning deposits $ 69,930 $ 93 0.13 $ 153,879 $ 241 0.16 $ 16,618 $ 320 1.92 FHLB stock Investment securities Taxable Non-taxable 10,298 327 3.17 9,481 306 3.23 9,716 350 3.60 2,792,255 42,114 1.51 1,554,812 29,213 1.88 1,406,564 31,178 2.22 54,646 1,177 2.15 32,080 974 3.04 27,512 1,360 4.94 Total investment securities 2,846,901 43,291 1.52 1,586,892 30,187 1.90 1,434,076 32,538 2.27 Loans Residential 1-4 family Commercial real estate 2,189,680 78,672 3.59 2,180,013 85,769 3.93 2,181,554 89,956 4.12 1,157,987 38,255 3.30 954,836 34,596 3.62 863,468 40,324 4.67 Home equity line of credit 885,759 27,669 3.12 1,060,444 33,731 3.18 1,043,479 38,826 3.72 Residential land Commercial Consumer Total loans 1,2 18,227 856,226 135,609 924 5.07 36,178 4.23 17,284 12.75 13,799 935,663 215,994 754 5.46 14,065 774 5.50 31,642 3.38 620,206 27,950 4.51 27,728 12.84 270,340 35,864 13.27 5,243,488 198,982 3.79 5,360,749 214,220 4.00 4,993,112 233,694 4.68 Total interest-earning assets 3 8,170,617 242,693 2.97 7,111,001 244,954 3.44 6,453,522 266,902 4.14 Allowance for credit losses Noninterest-earning assets Total Assets Liabilities and Shareholder’s Equity: Savings Interest-bearing checking Money market Time certificates (86,691) 742,174 $ 8,826,100 $ 3,069,615 1,237,969 192,044 483,353 (81,193) 762,746 $ 7,792,554 (54,640) 696,270 $ 7,095,152 802 0.03 $ 2,620,311 1,774 0.07 $ 2,340,671 1,904 0.08 242 0.02 1,106,563 471 0.04 1,044,315 1,298 0.12 132 0.07 3,805 0.79 161,084 664,578 465 0.29 145,939 953 0.65 7,944 1.20 810,749 12,675 1.56 Total interest-bearing deposits 4,982,981 4,981 0.10 4,552,536 10,654 0.23 4,341,674 16,830 0.39 Advances from Federal Home Loan Bank 15,319 42 0.27 21,490 146 0.68 33,652 843 2.50 Securities sold under agreements to repurchase and federal funds purchased 88,405 17 0.02 76,360 314 0.41 79,647 767 0.96 Total interest-bearing liabilities 5,086,705 5,040 0.10 4,650,386 11,114 0.24 4,454,973 18,440 0.41 Noninterest bearing liabilities: Deposits Other Shareholder’s equity 2,833,886 169,967 735,542 Total Liabilities and Shareholder’s Equity $ 8,826,100 2,276,722 155,589 709,857 $ 7,792,554 1,848,336 131,691 660,152 $ 7,095,152 Net interest income Net interest margin (%)4 $ 237,653 $ 233,840 $ 248,462 2.91 3.29 3.85 1 2 Includes loans held for sale, at lower of cost or fair value, of $23.0 million, $20.5 million and $6.3 million as of December 31, 2021, 2020 and 2019, respectively. Includes recognition of net deferred loan fees of $14.3 million, $4.9 million and $0.2 million for 2021, 2020 and 2019 respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans. 3 For 2021, 2020 and 2019, the taxable-equivalent basis adjustments made to the table above were not material. 4 Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets. 68 The following table shows the effect on net interest income of (1) changes in interest rates (change in weighted-average interest rate multiplied by prior year average balance) and (2) changes in volume (change in average balance multiplied by prior period weighted-average interest rate). Any remaining change is allocated to the above two categories on a pro rata basis. (in thousands) Interest income Interest-earning deposits FHLB stock Investment securities Taxable Non-taxable Total investment securities Loans Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial Consumer Total loans Total increase (decrease) in interest income Interest expense Savings Interest-bearing checking Money market Time certificates Advances from Federal Home Loan Bank 2021 vs. 2020 Volume Rate Total Rate 2020 vs. 2019 Volume Total $ (38) $ (6) (110) $ 27 (148) $ 21 (545) $ (36) 466 $ (8) (79) (44) (6,655) (343) (6,998) (7,473) (3,243) (623) (57) 7,118 (193) (4,471) (11,513) 1,234 271 409 2,302 70 19,556 546 20,102 376 6,902 (5,439) 227 (2,582) (10,251) (10,767) 9,252 (262) (42) (76) 1,837 34 12,901 203 13,104 (7,097) 3,659 (6,062) 170 4,536 (10,444) (15,238) (2,261) 972 229 333 4,139 104 (5,062) (585) (5,647) (4,124) (9,697) (5,717) (6) (3,447) (1,129) (24,120) (30,348) 298 897 577 2,656 466 3,097 199 3,296 (63) 3,969 622 (14) 7,139 (7,007) 4,646 8,400 (168) (70) (89) 2,075 231 (1,965) (386) (2,351) (4,187) (5,728) (5,095) (20) 3,692 (8,136) (19,474) (21,948) 130 827 488 4,731 697 Securities sold under agreements to repurchase and federal funds purchased Total decrease (increase) in interest expense Increase (decrease) in net interest income $ 339 4,625 (6,888) $ (42) 1,449 10,701 $ 297 6,074 3,813 $ 422 5,316 (25,032) $ 31 2,010 10,410 $ 453 7,326 (14,622) Earning assets, costing liabilities, contingencies and other factors. Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets over a period of several years. In 2020, the Federal Open Market Committee lowered its federal funds rate target range to 0% - 0.25% in response to the financial crisis caused by the COVID-19 pandemic, which resulted in a decrease in ASB’s net interest income and net interest margin. A prolonged low interest rate environment may continue to negatively impact ASB’s net interest income and net interest margin. Loans and mortgage-backed securities are ASB’s primary earning assets. Loan portfolio. ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. See “Loans” in Note 4 of the Consolidated Financial Statements for a composition of ASB’s loan portfolio. The increase in the loan portfolio balance in 2021 was primarily due to growth in the residential and commercial real estate loan portfolio balances. The growth in the residential loan portfolio balance was due to ASB’s decision to portfolio a larger portion of the residential mortgage loan production and reduce the amount of residential loans sold in the secondary market. The growth in the commercial real estate loan portfolio was due to ASB’s continued effort to diversify its loan portfolio with higher-spread, shorter-maturity loans and/or variable rate loans. The decrease in the commercial loan portfolio was due to paydown of the PPP loans which decreased from $300 million at December 31, 2020 to $69 million at December 31, 2021. The increase in the loans balance in 2020 was primarily due to growth in the commercial, commercial real estate and HELOC loan portfolio balances, which were the portfolios targeted as ASB continued its loan growth strategy of diversifying the loan portfolio with higher-spread, shorter-maturity loans and/or variable rate loans. 69 The following table summarizes loans held for investment based upon contractually scheduled principal payments allocated to the indicated maturity categories: December 31 Due (in millions) Residential 1-4 family – Fixed Residential 1-4 family – Adjustable Total residential 1-4 family Commercial real estate – Fixed Commercial real estate – Adjustable Total commercial real estate Home equity line of credit– Fixed Home equity line of credit – Adjustable Total home equity line of credit Residential land– Fixed Residential land – Adjustable Total residential land Commercial construction – Fixed Commercial construction – Adjustable Total commercial construction Residential construction – Fixed Residential construction – Adjustable Total residential construction Commercial – Fixed Commercial – Adjustable Total commercial Consumer – Fixed Consumer – Adjustable Total consumer Total loans – Fixed Total loans – Adjustable Total loans In 1 year or less After 1 year through 5 years 2021 After 5 years through 15 years After 15 years $ 74 $ 310 $ 803 $ 1,002 $ 7 81 59 83 142 27 5 32 1 — 1 — 31 31 11 — 11 71 121 192 47 3 50 290 250 26 336 229 220 449 97 23 120 19 — 19 15 10 25 — — — 224 284 508 47 10 57 941 573 59 862 328 126 454 175 161 336 — — — 1 — 1 — — — 60 32 92 6 1 7 18 1,020 12 — 12 12 336 348 — — — — 34 34 — — — — 1 1 — — — 1,373 379 1,026 389 $ 540 $ 1,514 $ 1,752 $ 1,415 $ Total 2,189 110 2,299 628 429 1,057 311 525 836 20 — 20 16 75 91 11 — 11 355 438 793 100 14 114 3,630 1,591 5,221 Home equity lines of credit. The home equity lines of credit (HELOC) portfolio makes up 16% of the total loan portfolio and is generally an interest-only revolving loan for a 10-year period, after which time the HELOC outstanding balance converts to a fully amortizing variable-rate term loan with a 20-year amortization period. Borrowers also have a “Fixed Rate Loan Option” to convert a part of their available line of credit into a 5, 7 or 10-year fully amortizing fixed-rate loan with level principal and interest payments. As of December 31, 2021, approximately 36% of the portfolio balances were amortizing loans under the Fixed Rate Loan Option. A HELOC loan is typically in a subordinate lien position to a borrower’s first mortgage loan, however, approximately 57% of ASB’s HELOC loan portfolio is in a first lien position. Attention had been given by regulators and rating agencies to the potential for increased exposure to credit losses associated with HELOCs that were originated during the period of rapid home price appreciation between 2003 and 2007 as they have reached the end of their 10-year, interest-only payment periods. Once the interest only payment period has ended, payments are reset to include principal repayments along with interest. ASB does not have a large exposure to HELOCs originated between 2003 and 2007. Nearly all of ASB’s HELOC originations prior to 2008 consisted of amortizing equity lines that have structured principal payments during the draw period. These older equity lines represent 1% of the HELOC portfolio. Loan portfolio risk elements. When a borrower fails to make a required payment on a loan and does not cure the delinquency promptly, the loan is classified as delinquent. If delinquencies are not cured promptly, ASB normally commences a collection action, including foreclosure proceedings in the case of real estate secured loans. In a foreclosure action, the property collateralizing the delinquent debt is sold at a public auction in which ASB may participate as a bidder to protect its interest. If 70 ASB is the successful bidder, the property is classified as real estate owned until it is sold. As of December 31, 2021 and 2020, ASB had nil real estate acquired in settlement of loans. In addition to delinquent loans, other significant lending risk elements include: (1) loans which accrue interest and are 90 days or more past due as to principal or interest, (2) loans accounted for on a nonaccrual basis (nonaccrual loans), and (3) loans on which various concessions are made with respect to interest rate, maturity, or other terms due to the inability of the borrower to service the obligation under the original terms of the agreement (troubled debt restructured loans). ASB loans that were 90 days or more past due on which interest was being accrued as of December 31, 2021 and 2020 were immaterial or nil. The following table sets forth certain information with respect to nonaccrual loans: December 31 (dollars in thousands) Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Total real estate Commercial Consumer Total nonaccrual loans Loans receivable, net Allowance for credit losses Nonaccrual loans to loans receivable, net Allowance for credit losses to nonaccrual loans 2021 2020 $ 19,748 $ 15,325 5,521 397 — — 40,991 2,138 1,845 11,826 18,722 7,358 408 — — 38,314 5,147 3,935 $ 44,974 $ 47,396 $ 5,211,114 $ 5,333,843 $ 71,130 $ 101,201 0.86% 1.58x 0.89% 2.14x In 2021, nonaccrual loans decreased $2.4 million primarily due to decreases in commercial real estate, commercial, consumer and HELOC nonaccrual loans of $3.4 million, $3.0 million, $2.1 million and $1.8 million, respectively, partly offset by an increase in residential 1-4 family nonaccrual loans of $7.9 million. The increase in residential nonaccrual loans was attributed to customers that could not resume contractual payments after their deferral period was completed. In 2020, nonaccrual loans increased $17.7 million primarily due to an increase in commercial real estate nonaccrual loans of $18.5 million. The increase in commercial real estate nonaccrual loans was primarily attributed to one commercial credit. See “Allowance for credit losses” in Note 4 of the Consolidated Financial Statements for information with respect to nonperforming assets. Allowance for credit losses. See “Allowance for credit losses” in Note 4 of the Consolidated Financial Statements for the tables which sets forth the allocation of ASB’s allowance for credit losses. On January 1, 2020, ASB adopted Accounting Standards Update (ASU) 2016-13, Financial Instruments - Measurement of Current Expected Credit Losses on Financial Instruments, modifying the accounting for the allowance for credit losses from an incurred loss model to an expected loss model (see Note 1, “Summary of Significant Accounting Policies” of the Consolidated Financial Statements). With the adoption of ASU 2016-13, ASB added $19.4 million to the allowance for credit losses on January 1, 2020. During 2021, ASB recorded a negative provision for credit losses related to the allowance for credit losses of $26.4 million primarily due to decreased reserves for the commercial real estate, commercial and consumer loan portfolios for improved credit quality in those loan portfolios and a lower personal unsecured loan portfolio balance, which has a higher loss rate than other loan portfolios. During 2020, ASB recorded a provision for credit losses related to the allowance for credit losses of $49.8 million primarily due to increased reserves for the commercial, commercial real estate and consumer loan portfolios for expected credit deterioration due to the COVID-19 pandemic and additional loss reserves to cover net loan charge-offs. 71 ASB maintains a reserve for credit losses that consists of two components, the allowance for credit losses and an allowance for loan commitments (unfunded reserve). The level of the reserve for unfunded loan commitments is adjusted by recording an expense or recovery in provision for credit losses. With the adoption of ASU 2016-13, ASB added $1.6 million to the reserve for unfunded loan commitments on January 1, 2020. For 2021 and 2020, ASB recorded a provision for credit losses for unfunded commitments of $0.6 million and $1.0 million, respectively. As of December 31, 2021 and December 31, 2020, the reserve for unfunded loan commitments was $4.9 million and $4.3 million, respectively. The following table sets forth the allocation of ASB’s allowance for credit losses and the percentage of loans in each category to total loans: December 31 (dollars in thousands) Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Total real estate Commercial Consumer 2021 2020 Allowance balance Allowance to loan receivable % Loan receivable % of total Allowance balance Allowance to loan receivable % Loan receivable % of total $ 6,545 24,696 5,657 646 2,186 18 39,748 15,798 15,584 0.28 2.34 0.68 3.25 2.40 0.16 0.92 1.99 13.67 1.36 44.0 $ 4,600 20.3 16.0 0.4 1.7 0.2 82.6 15.2 2.2 35,607 6,813 609 4,149 11 51,789 25,462 23,950 100.0 $ 101,201 0.21 3.62 0.71 3.90 3.42 0.10 1.22 2.72 14.19 1.90 40.1 18.4 18.0 0.3 2.3 0.2 79.3 17.5 3.2 100.0 Total allowance for credit losses $ 71,130 In 2021, ASB’s allowance for credit losses decreased by $30.1 million primarily due to decreases in loan loss reserves for the commercial real estate, commercial and consumer loan portfolios for improved credit quality. The decrease in the consumer loan portfolio was also due to the decrease in the personal unsecured loan portfolio outstanding balance. Total delinquencies of $17.2 million at December 31, 2021 was a decrease of $2.4 million compared to total delinquencies of $19.6 million at December 31, 2020 primarily due to decreases in delinquent consumer, HELOC and residential land loans, partly offset by an increase in residential 1-4 family delinquent loans. The ratio of delinquent loans to total loans decreased from 0.37% of total outstanding loans at December 31, 2020 to 0.33% of total outstanding loans at December 31, 2021. Net charge-offs for 2021 were $3.6 million, a decrease of $17.8 million compared to $21.4 million in 2020 primarily due to a decrease in consumer loan portfolio net charge-offs. In 2020, ASB’s allowance for credit losses increased by $47.8 million primarily due to an increase in loan loss reserves for the commercial, commercial real estate and consumer loan portfolios for expected credit deterioration due to the COVID-19 pandemic and the impact of adopting ASU 2016-13. Total delinquencies of $19.6 million at December 31, 2020 was a decrease of $0.2 million compared to total delinquencies of $19.8 million at December 31, 2019 primarily due to decreases in delinquent consumer loans, partly offset by an increase in residential 1-4 family delinquent loans. The ratio of delinquent loans to total loans decreased from 0.39% of total outstanding loans at December 31, 2019 to 0.37% of total outstanding loans at December 31, 2020. Net charge-offs for 2020 were $21.4 million, a decrease of $0.8 million compared to $22.2 million in 2019 primarily due to a decrease in consumer loan portfolio net charge-offs. Investment securities. Currently, ASB’s investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). The weighted-average yield on investments during 2021, 2020 and 2019 was 1.52%, 1.90% and 2.27%, respectively. ASB did not maintain a portfolio of securities held for trading during 2021 and 2020. As of December 31, 2021 and 2020, ASB had $522.3 million and $226.9 million, respectively, of investment securities that were purchased and classified as held-to-maturity. The investment securities were classified as held-to-maturity to enhance ASB’s capital management in a rising rate environment. ASB considers the held-to-maturity classification of these investment securities to be appropriate as ASB has the positive intent and ability to hold these securities to maturity. Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities 72 are also backed by the full faith of the U.S. government. The increase in the investment securities portfolio was primarily due to the purchase of agency mortgage-backed and credit securities with excess liquidity. The net unrealized gains and losses on ASB’s investment securities were primarily caused by movements in interest rates. All contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Based upon ASB’s evaluation at December 31, 2021 and 2020, there was no indicated impairment as ASB expects to collect the contractual cash flows for these investments. See “Investment securities” in Note 1 of the Consolidated Financial Statements for a discussion of securities impairment assessment. As of December 31, 2021 and 2020, ASB did not have any private-issue mortgage-backed securities. ASB does not have any exposure to securities backed by subprime mortgages. See “Investment securities” in Note 4 of the Consolidated Financial Statements for a discussion of the allowance for credit losses for the investment securities portfolio. The following table summarizes the current amortized cost of ASB’s investment portfolio (excluding stock of the FHLB of Des Moines, which has no contractual maturity) and weighted average yields as of December 31, 2021. Mortgage-backed securities are shown separately because they are typically paid in monthly installments over a number of years. (dollars in millions) U.S. Treasury and federal agency obligations Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies Corporate bonds Mortgage revenue bonds1 After 1 year through 5 years After 5 years through 10 years $ 44 $ In 1 year or less 15 $ — — — 18 $ $ — 15 2.10% — 62 2.06% $ 15 119 1.53% 91 — 13 After 10 years $ — Mortgage- backed securities — $ Total1 150 $ — — 2,945 — 2,945 31 — $ — — $ 2,945 15 $ 3,141 Weighted average yield 1 Weighted average yield on the mortgage revenue bonds is computed on a tax equivalent basis using a federal statutory tax rate of 21%. 1.53% —% 1.54% Stock in FHLB. As of December 31, 2021 and 2020, ASB’s stock in FHLB of Des Moines $10 million and $9 million, respectively, was carried at cost because it can only be redeemed at par. The amount that ASB is required to invest in FHLB stock is determined by FHLB requirements. In 2021, 2020 and 2019, ASB received cash dividends of $327,000, $306,000 and $349,000, respectively, on its FHLB Stock. Deposits and other borrowings. Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. While deposits have increased by $1.1 billion in 2020 in part due to PPP loan proceeds and consumer economic impact payments from the CARES Act stimulus program, deposit retention and sustained growth will remain challenging in the current environment due to the low level of short-term interest rates. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase and federal funds purchased continue to be additional sources of funds. As of December 31, 2021 and 2020, ASB’s costing liabilities consisted of 99% deposits and 1% borrowings.. ASB’s deposits are obtained primarily from residents of Hawaii. Net deposit inflow or outflow, measured as the year-over- year difference in year-end deposits, was an inflow of $785 million in 2021, compared to an inflow of $1.1 billion in 2020. The following table presents the amount of time certificates of deposit of $250,000 or more, segregated by time remaining until maturity: (in thousands) Three months or less Greater than three months through six months Greater than six months through twelve months Greater than twelve months Amount 37,556 8,577 23,094 18,381 87,608 $ $ As of December 31, 2021 and 2020, ASB had approximately $1.4 billion and $1.2 billion, respectively, of deposits that were uninsured. Other borrowings consist of advances from the FHLB and securities sold under agreements to repurchases. See “Other borrowings” in Note 4 of the Consolidated Financial Statements. ASB may obtain advances from the FHLB of Des Moines provided that certain standards related to creditworthiness have been met. Advances are collateralized by a blanket pledge of certain notes held by ASB and the mortgages securing them. To the extent that advances exceed the amount of mortgage loan 73 collateral pledged to the FHLB of Des Moines, the excess must be covered by qualified marketable securities held under the control of and at the FHLB of Des Moines or at an approved third-party custodian. FHLB advances generally are available to meet seasonal and other withdrawals of deposit accounts, to expand lending and to assist in the effort to improve asset and liability management. FHLB advances are made pursuant to several different credit programs offered from time to time by the FHLB of Des Moines. Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The decreases in other borrowings in 2021 and 2020 were due to decreases in business repurchase agreements. The increase in other borrowings in 2019 was due to an increase in business repurchase agreements, partly offset by the payoff of FHLB advances. As of December 31, 2021, the unused borrowing capacity with the FHLB of Des Moines was $2.0 billion. The FHLB of Des Moines continues to be an important source of liquidity for ASB. See “Liquidity and capital resources” below for changes in the unused borrowing capacity with the FHLB of Des Moines. Other factors. Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities. As of December 31, 2021, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in accumulated other comprehensive income (AOCI) of $32.0 million compared to an unrealized gain, net of taxes, of $20.0 million as of December 31, 2020. See “Quantitative and Qualitative Disclosures About Market Risk.” Legislation and regulation. ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.” Also see “Federal Deposit Insurance Corporation assessment” in Note 4 of the Consolidated Financial Statements. Final Capital Rules. On July 2, 2013, the FRB finalized its rule implementing the Basel III regulatory capital framework. The final rules applied to banking organizations of all sizes and types regulated by the FRB and the OCC, except bank holding companies subject to the FRB’s Small Bank Holding Company Policy Statement and Savings & Loan Holding Companies (SLHCs) substantially engaged in insurance underwriting or commercial activities. HEI currently meets the requirements of the exemption as a top-tier grandfathered unitary SLHC that derived, as of June 30 of the previous calendar year, either 50% or more of its total consolidated assets or 50% or more of its total revenues on an enterprise-wide basis (calculated under GAAP) from activities that are not financial in nature pursuant to Section 4(k) of the Bank Holding Company Act. The FRB is temporarily excluding these SLHCs from the final rule while it considers a proposal relating to capital and other requirements for SLHC intermediate holding companies (such as ASB Hawaii). The FRB indicated that it would release a proposal on intermediate holding companies that would specify the criteria for establishing and transferring activities to intermediate holding companies and propose to apply the FRB’s capital requirements to such intermediate holding companies. The FRB has not yet issued such a proposal, or a proposal on how to apply the Basel III capital rules to SLHCs that are substantially engaged in commercial or insurance underwriting activities, such as grandfathered unitary SLHCs like HEI. Pursuant to the final rule and consistent with the proposals, all banking organizations, including covered holding companies, would initially be subject to the following minimum regulatory capital requirements: a common equity Tier 1 capital ratio of 4.5%, a Tier 1 capital ratio of 6%, a total capital ratio of 8% of risk-weighted assets and a tier 1 leverage ratio of 4%, and these requirements would increase in subsequent years. In order to avoid restrictions on capital distributions and discretionary bonus payments to executive officers, the final rule requires a banking organization to hold a buffer of common equity tier 1 capital above its minimum capital requirements in an amount greater than 2.5% of total risk-weighted assets (capital conservation buffer). Subject to the timing and final outcome of the FRB’s SLHC intermediate holding company proposal, HEI anticipates that the capital requirements in the final rule will eventually be effective for HEI or ASB Hawaii as well. If the capital requirements were currently applicable to HEI, management believes HEI would satisfy the capital requirements, including the capital conservation buffer. Management cannot predict what final rule the FRB may adopt concerning intermediate holding companies or their impact on ASB Hawaii, if any. 74 In the second quarter of 2020, ASB had adopted the community bank leverage ratio framework and was only subject to the Tier 1 leverage ratio requirement. Beginning in the third quarter of 2021, ASB began reporting all of the required capital ratios as the Bank did not meet the requirements of the community bank leverage ratio framework. With Tier 1 leverage, common equity, Tier 1 capital and total capital ratios of 7.9%, 13.3%, 13.3% and 14.3%, respectively as of December 31, 2021, ASB’s regulatory capital ratios exceeded the minimum regulatory capital requirements of 4.0%, 4.5%, 6.0% and 8.0%, respectively. See Bank - Regulation in HEI’s “Item 1. Business” for a description of the changes to the community bank leverage ratio framework. Liquidity and capital resources. December 31 (dollars in millions) Total assets Investment securities Loans held for investment, net Deposit liabilities Other bank borrowings 2021 % change 2020 % change $ 9,182 3,097 5,140 8,172 88 9 $ 8,397 2,197 41 5,233 (2) 7,387 11 90 (2) 16 60 3 18 (22) As of December 31, 2021, ASB was one of Hawaii’s largest financial institutions based on assets of $9.2 billion and deposits of $8.2 billion. ASB’s principal sources of liquidity are customer deposits, borrowings and the maturity and repayment of portfolio loans and securities. The Bank’s liquidity remains at satisfactory levels as deposits continued to grow substantially which enabled ASB to fund its loan production and purchase investment securities with low cost funding. ASB’s deposits as of December 31, 2021 were $785 million higher than December 31, 2020. ASB’s sources of borrowings include advances from the FHLB and securities sold under agreements to repurchase from broker/dealers and commercial account holders. As of December 31, 2021, ASB had no FHLB borrowings outstanding. ASB is approved to borrow from the FHLB up to 35% of ASB’s assets to the extent it provides qualifying collateral and holds sufficient FHLB stock. As of December 31, 2021, ASB’s unused FHLB borrowing capacity was approximately $2.0 billion. As of December 31, 2021, securities sold under agreements to repurchase totaled $88 million, representing 1.0% of assets. ASB utilizes deposits, advances from the FHLB and securities sold under agreements to repurchase to fund maturing and withdrawn deposits, repay maturing borrowings, fund existing and future loans and purchase investment and mortgage-backed securities. As of December 31, 2021, ASB had commitments to borrowers for loans and unused lines and letters of credit of $1.9 billion, of which, commitments to lend to borrowers whose loan terms have been modified in troubled debt restructurings were nil. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels. As of December 31, 2021 and 2020, ASB had $45.0 million and $47.4 million of loans on nonaccrual status, respectively, or 0.9% and 0.9%, respectively, of net loans outstanding. As of December 31, 2021 and 2020, ASB had nil real estate acquired in settlement of loans. In 2021, operating activities provided cash of $115 million. Net cash of $881 million was used by investing activities primarily due to purchases of available-for-sale investment securities of $1.5 billion, purchases of held-to-maturity investment securities of $350 million, contributions to low-income housing investments of $16 million, purchases of bank-owned life insurance of $13 million and additions to premises and equipment of $11 million, partly offset by receipt of repayments from available-for-sale investment securities of $583 million, proceeds from the sale of available-for-sale investment securities of $197 million, net decrease in loans receivable of $72 million, proceeds from sale of residential loans of $60 million, repayments from held-to-maturity investment securities of $54 million and proceeds from the redemption of bank-owned life insurance of $6 million. Financing activities provided net cash of $725 million primarily due to a net increase in deposits of $785 million, partly offset by a net decrease in repurchase agreements of $1 million and common stock dividends to HEI (through ASB Hawaii) of $59 million. ASB believes that maintaining a satisfactory regulatory capital position provides a basis for public confidence, affords protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for growth. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of December 31, 2021, ASB was well-capitalized (see Note 4 of the Consolidated Financial Statements for ASB’s capital ratios). 75 For a discussion of ASB dividends, see “Common stock equity” in Note 4 of the Consolidated Financial Statements. See “Commitments” in Note 4 of the Consolidated Financial Statements for a discussion of commitments and contingencies and off-balance sheet arrangements. Material estimates and critical accounting policies. Also see “Material estimates and critical accounting policies” for Consolidated HEI above. Allowance for credit losses. The Company considers the policies related to the allowance for credit losses as critical to the financial statement presentation. The allowance for credit losses applies to financial assets subject to credit losses and measured at amortized cost and certain off-balance sheet credit exposures. This includes, but is not limited to loans, loan commitments and held-to-maturity securities. In addition, the accounting for credit losses on available-for-sale (AFS) debt securities and purchased financial assets with credit deterioration were amended. The other-than-temporary impairment model of accounting for credit losses on AFS debt securities was replaced with an estimate of expected credit losses only when the fair value is below the amortized cost of the asset. The credit loss models use a probability-of-default, loss given default and exposure at default methodology to estimate the expected credit losses. Within each model or calculation, loans are further segregated based on additional risk characteristics specific to that loan type, such as risk rating, Fair Isaac Corporation (FICO) score, bankruptcy score, age of loan and collateral. The Company uses both internal and external historical data, as appropriate, and a blend of economic forecasts to estimate credit losses over a reasonable and supportable forecast period and then reverts to a longer-term historical loss experience to arrive at lifetime expected credit losses. The reversion period incorporates forward-looking expectations about repayments (including prepayments) as determined by the Company’s asset liability management system. See “Recent Accounting Pronouncements” in Note 1 of the Consolidated Financial Statements for further discussion of the Company’s allowance for credit losses. ASB disaggregates the loan portfolio into loan segments for purposes of determining the allowance for credit losses. Commercial, commercial real estate, and commercial construction loans are defined as non-homogeneous loans. ASB utilizes a risk rating system for evaluating the credit quality of such loans. Loans are rated based on the degree of risk at origination and periodically thereafter, as appropriate. Values are applied separately to the probability of default (borrower risk) and loss given default (transaction risk). ASB utilizes a numerical-based, risk rating “PD Model” that takes into consideration fiscal year-end financial information of the borrower and identified financial attributes including retained earnings, operating cash flows, interest coverage, liquidity and leverage that demonstrate a strong correlation with default to assign default probabilities at the borrower level. In addition, a loss given default value is assigned to each loan to measure loss in the event of default based on loan specific features such as collateral that mitigates the amount of loss in the event of default. Together the PD Model and loss given default construct provide a quantitative, data driven and consistent framework for measuring risk within the portfolio, on a loan by loan basis and for the ultimate collectability of each loan. Residential, consumer and credit scored business loans are considered homogeneous loans, which are typically underwritten based on common, uniform standards. For the homogeneous portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. ASB supplements performance data with external credit bureau data and credit scores such as the FICO score on a quarterly basis. ASB has built portfolio loss models for each major segment based on the combination of internal and external data to predict the probability of default at the loan level. ASB also considers qualitative factors in determining the allowance for credit losses. These include but are not limited to adjustments for changes in policies and procedures in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values and any concentrations of credit. The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to cover expected losses related to unfunded credit facilities and is included in accounts payable and other liabilities in the consolidated balance sheets. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, credit risk grading and historical loss rates. This process takes into consideration the same risk elements that are analyzed in the determination of the adequacy of the allowance for credit losses, as discussed above. Net adjustments to the reserve for unfunded commitments are included in the provision for credit losses in the consolidated statements of income. Management believes its allowance for credit losses is adequate to cover expected credit losses in the loan portfolio. However, such estimates are based on currently available information and historical experience, and future adjustments may be required from time to time to the allowance for credit losses based on new information and changes that occur (e.g., due to changes in economic conditions, particularly in Hawaii). Actual losses could differ from management’s estimates, and these differences and subsequent adjustments could be material. 76 Fair value. Fair value estimates are based on the price that would be received to sell an asset, or paid upon the transfer of a liability, in an orderly transaction between market participants at the measurement date. The fair value estimates are generally determined based on assumptions that market participants would use in pricing the asset or liability and are based on market data obtained from independent third party sources. However, in certain cases, ASB uses its own assumptions based on the best information available in certain circumstances. These valuations are estimates at a specific point in time, based on relevant market information, information about the financial instrument and judgments regarding future expected loss experience, economic conditions, risk characteristics of various financial instruments and other factors. These estimates do not reflect any premium or discount that could result if ASB were to sell its entire holdings of a particular financial instrument at one time. Because no active trading market exists for a portion of its financial instruments, fair value estimates cannot be determined with precision. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses could have a significant effect on fair value estimates, but have not been considered in making such estimates. ASB classifies its financial assets and liabilities that are measured at fair value in accordance with the three-level valuation hierarchy. Level 1 valuations are based on quoted prices, unadjusted for identical instruments traded in active markets. Level 2 valuations are based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active or model-based techniques for which all significant assumptions are observable in the market. Level 3 valuations are based on model-based techniques that use at least one significant assumption not observable in the market or significant management judgment or estimation. See “Fair value measurements” in Note 1 of the Consolidated Financial Statements). Significant assets measured at fair value on a recurring basis include ASB’s mortgage-backed securities available for sale. These instruments are priced using an external pricing service and are classified as Level 2 within the fair value hierarchy. The third-party pricing services use a variety of methods to determine fair value including quoted prices for similar securities in an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic prepayment speeds and other observable market factors. To enhance the robustness of the pricing process, ASB compares its standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by the investment manager and a challenge to the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable characteristics of the security. In all cases, the fair value used will have been independently determined by a third-party pricing vendor or non-affiliated broker. Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan impairments for certain loans, real estate acquired in settlement of loans and goodwill. See “Investment securities” and “Derivative financial instruments” in Note 4 and Note 16 of the Consolidated Financial Statements for additional information regarding ASB’s fair value measurements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK HEI and Hawaiian Electric (in the case of Hawaiian Electric, only the information related to Hawaiian Electric and its subsidiaries is applicable): The Company manages various market risks in the ordinary course of business, including credit risk and liquidity risk. The Company believes the electric utility and the “other” segment’s exposures to these two risks were not material as of December 31, 2021. Credit risk for ASB is the risk that borrowers or issuers of securities will not be able to repay their obligations to the Bank. Credit risk associated with ASB’s lending portfolios is controlled through its underwriting standards, loan rating of commercial and commercial real estate loans, on-going monitoring by loan officers, credit review and quality control functions in these lending areas and adequate allowance for credit losses. Credit risk associated with the securities portfolio is mitigated through investment portfolio limits, experienced staff working with analytical tools, monthly fair value analysis and on-going monitoring and reporting such as investment watch reports and loss sensitivity analysis. See “Allowance for credit losses” in Item 7 above and in Note 4 of the Consolidated Financial Statements. Liquidity risk for ASB is the risk that the Bank will not meet its obligations when they become due. Liquidity risk is mitigated by ASB’s asset/liability management process, on-going analytical analysis, monitoring and reporting information such as weekly cash-flow analyses and maintenance of liquidity contingency plans. 77 The Utilities are exposed to some commodity price risk primarily related to their fuel supply and IPP contracts. The Utilities’ commodity price risk is substantially mitigated so long as they have their current ECRCs in their rate schedules. The Utilities currently have no hedges against its commodity price risk. The Company currently has no direct exposure to market risk from trading activities nor foreign currency exchange rate risk. The Company considers interest rate risk to be a very significant market risk as it could potentially have a significant effect on the Company’s results of operations, financial condition and liquidity, especially as it relates to ASB, but also as it may affect the discount rate used to determine retirement benefit liabilities and minimum contributions, the market value of retirement benefit plans’ assets, borrowing costs and the Utilities’ allowed rates of return. Interest rate risk can be defined as the exposure of the Company’s earnings to adverse movements in interest rates. Bank interest rate risk The Company’s success is dependent, in part, upon ASB’s ability to manage interest rate risk. ASB’s interest-rate risk profile is strongly influenced by its primary business of making fixed-rate residential mortgage loans and taking in retail deposits. Large mismatches in the amounts or timing between the maturity or repricing of interest sensitive assets or liabilities could adversely affect ASB’s earnings and the market value of its interest-sensitive assets and liabilities in the event of significant changes in the level of interest rates. Many other factors also affect ASB’s exposure to changes in interest rates, such as general economic and financial conditions, customer preferences and competition for loans or deposits. ASB’s Asset/Liability Management Committee (ALCO), whose voting members are officers and employees of ASB, is responsible for managing interest rate risk and carrying out the overall asset/liability management objectives and activities of ASB as approved by the ASB Board of Directors. ALCO establishes policies under which management monitors and coordinates ASB’s assets and liabilities. See Note 4 of the Consolidated Financial Statements for a discussion of the use of rate lock commitments on loans held for sale and forward sale contracts to manage some interest rate risk associated with ASB’s residential loan sale program. Management of ASB measures interest-rate risk using simulation analysis with an emphasis on measuring changes in net interest income (NII) and the market value of interest-sensitive assets and liabilities in different interest-rate environments. The simulation analysis is performed using a dedicated asset/liability management software system enhanced with a mortgage prepayment model and a collateralized mortgage obligation database. The simulation software is capable of generating scenario-specific cash flows for all instruments using the specified contractual information for each instrument and product specific prepayment assumptions for mortgage loans and mortgage-backed securities. NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios. NII sensitivity is measured as the change in NII in the alternate interest-rate scenarios as a percentage of the base case NII. The base case interest-rate scenario is established using the current yield curve and assumes interest rates remain constant over the next twelve months. The alternate scenarios are created by assuming “rate ramps” or gradual interest changes and accomplished by moving the yield curve in a parallel fashion, over the next twelve-month period, in increments of +/- 100 basis points. The simulation model forecasts scenario-specific principal and interest cash flows for the interest-bearing assets and liabilities, and the NII is calculated for each scenario. Key balance sheet modeling assumptions used in the NII sensitivity analysis include: the size of the balance sheet remains relatively constant over the simulation horizon and maturing assets or liabilities are reinvested in similar instruments in order to maintain the current mix of the balance sheet. In addition, assumptions are made about the prepayment behavior of mortgage-backed assets, future pricing spreads for new assets and liabilities and the speed and magnitude with which deposit rates change in response to changes in the overall level of interest rates. Other NII sensitivity analysis may include scenarios such as yield curve twists or non-static balance sheet changes (such as changes to key balance sheet drivers). Consistent with OCC guidelines, the market value or economic capitalization of ASB is measured as economic value of equity (EVE). EVE represents the theoretical market value of ASB’s net worth and is defined as the present value of expected net cash flows from existing assets minus the present value of expected cash flows from existing liabilities plus the present value of expected net cash flows from existing off-balance sheet contracts. Key assumptions used in the calculation of ASB’s EVE include the prepayment behavior of loans and investments, the possible distribution of future interest rates, pricing spreads for assets and liabilities in the alternate scenarios and the rate and balance behavior of deposit accounts with indeterminate maturities. EVE is calculated in multiple scenarios. As with the NII simulation, the base case is represented by the current yield curve. Alternate scenarios are created by assuming immediate parallel shifts in the yield curve in increments of +/- 100 basis points (bp) up to + 300 bp. The change in EVE is measured as the change in EVE in a given rate scenario from the base case and expressed as a percentage. To gain further insight into the interest rate risk profile, additional analysis is periodically performed in alternate scenarios including rate shifts of greater magnitude and changes in key balance sheet drivers. 78 ASB’s interest-rate risk sensitivity measures as of December 31, 2021 and 2020 constitute “forward-looking statements” and were as follows: Change in interest rates (basis points) +300 +200 +100 -100 Change in NII (gradual change in interest rates) Change in EVE (instantaneous change in interest rates) December 31, 2021 December 31, 2020 December 31, 2021 December 31, 2020 5.6 % 4.0 2.3 (2.5) 7.0 % 5.0 2.7 (1.9) 15.5 % 11.7 7.0 (12.6) 31.4 % 23.9 14.0 (25.2) ASB’s NII sensitivity profile was less asset sensitive as of December, 31, 2021 as compared to December 31, 2020, primarily driven by the increase in market rates, growth in the fixed rate portion of the HELOC and residential mortgage portfolios, and core deposit funded investment securities purchases. The increase in market rates decreased prepayment expectations in the Bank’s fixed-rate mortgage and mortgage-backed investment portfolios, driving decreased asset sensitivity. In addition, the fixed rate portion of the HELOC and residential mortgage portfolios grew, contributing to decreased asset sensitivity. Lastly, the deployment of strong core deposit growth into new fixed-rate investment purchases further contributed to decreased sensitivity. EVE sensitivity decreased as of December 31, 2021 compared to December 31, 2020 as the duration of assets lengthened. The steepening of the yield curve led to slower prepayment expectations and lengthened the duration of the fixed-rate mortgage and mortgage-backed investment portfolios. The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance changes and pricing strategies, and should not be relied upon as indications of actual results. To the extent market conditions and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the simulation results. NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent management’s views of future market movements, the level of future earnings, or the timing of any changes in earnings within the twelve-month analysis horizon. The actual impact of changes in interest rates on NII will depend on the magnitude and speed with which rates change, actual changes in ASB’s balance sheet, and management’s responses to the changes in interest rates. Other than bank interest rate risk The Company’s general policy is to manage “other than bank” interest rate risk through use of a combination of short-term debt, long-term debt and preferred securities. As of December 31, 2021, the Company was exposed to “other than bank” interest rate risk because of its periodic borrowing requirements, the impact of interest rates on the discount rate and the market value of plan assets used to determine retirement benefits expenses and obligations (see “Pension and other postretirement benefits obligations” in HEI’s MD&A and “Retirement benefits” in Notes 1 and 10 of the Consolidated Financial Statements) and the possible effect of interest rates on the electric utilities’ allowed rates of return. Other than these exposures, management believes its exposure to “other than bank” interest rate risk is not material. The Company’s long-term debt, in the form of borrowings of proceeds of revenue bonds, privately-placed senior notes and bank term loans, is predominately at fixed rates (see Note 16 of the Consolidated Financial Statements for the fair value of long-term debt, net-other than bank). 79 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA HEI and Hawaiian Electric: Index to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firms (PCAOB ID No. 34) - HEI Reports of Independent Registered Public Accounting Firms (PCAOB ID No. 34) - Hawaiian Electric Consolidated Financial Statements HEI Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Balance Sheets at December 31, 2021 and 2020 Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 Hawaiian Electric Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Comprehensive Income for the years ended December 31, 2021, 2020 and 2019 Consolidated Balance Sheets at December 31, 2021 and 2020 Consolidated Statements of Capitalization at December 31, 2021 and 2020 Consolidated Statements of Changes in Common Stock Equity for the years ended December 31, 2021, 2020 and 2019 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 Notes to Consolidated Financial Statements Page 81 84 86 86 87 88 89 90 92 92 93 94 96 97 98 80 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Hawaiian Electric Industries, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Hawaiian Electric Industries, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2021, and the related notes and the schedules listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 81 Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Electric Utility Segment - Regulatory Assets and Liabilities - Refer to Notes 1 and 3 to the financial statements Critical Audit Matter Description Hawaiian Electric Company, Inc. (“Hawaiian Electric” or the “Utility”) is subject to rate regulation by the Hawaii Public Utility Commission (the “PUC”) and accounts for the effects of regulation under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 980, “Regulated Operations,” as management believes that the operations of the Utility currently satisfy the criteria for regulatory accounting. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; and depreciation expense. As of December 31, 2021, regulatory assets and liabilities amounted to approximately $565,543,000 and $996,768,000, respectively. The Company’s continued accounting under ASC Topic 980 generally requires that rates are established by an independent, third-party regulator; rates are designed to recover the costs of providing service; and it is reasonable to assume that rates can be charged to, and collected from, customers. On December 23, 2020, the PUC issued a Decision and Order approving a new performance-based regulation (“PBR”) framework. The framework became fully effective on June 1, 2021. Hawaiian Electric’s rates are subject to regulatory rate-setting processes and earnings oversight. Rates are determined and approved in regulatory proceedings based on an analysis of the Utility’s costs to provide utility service and a return on, and recovery of, Hawaiian Electric’s investment in the utility business. Any decision by the PUC could (1) impact the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (2) necessitate a refund in rates that should be reported as regulatory liabilities. We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about the applicability of applying the specialized rules and the impacted account balances, including disclosures and the high degree of subjectivity involved in assessing the impact of regulatory orders on the financial statements. Management judgments include assessing the applicability of the specialized rules and the likelihood of (1) recovery in future rates of incurred costs and (2) a refund to customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the PUC, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the application of specialized rules to account for the effects of cost-based rate regulation and the uncertainty of future decisions by the rate regulators included the following, among others: • We tested the effectiveness of management’s controls over (1) the evaluation of the application of specialized rules to account for the effects of cost-based rate regulation and (2) the evaluation of the likelihood of (a) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (b) a refund that should be reported as regulatory liabilities. Such controls include the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or refunding amounts in rates. • We evaluated the Company’s conclusion that it should apply the specialized rules to account for the effects of cost- based rate regulation including considerations as a result of the PBR decision and order. • We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments. • We read relevant regulatory orders issued by the PUC for the Utility, regulatory statutes, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the PUC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness. For regulatory matters in process, we inspected the Utility’s filings with the PUC and the filings with the PUC by intervenors that may impact the Utility’s future rates, for any evidence that might contradict management’s assertions. • • We obtained analyses from management as appropriate regarding probability of recovery for regulatory assets or refund in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery, or refundable in rates. 82 Allowance for Credit Losses - Refer to Notes 1 and 4 to the financial statements Critical Audit Matter Description The allowance for credit losses is a material estimate of the Company and as of December 31, 2021, the total balance was $71,130,000. The allowance for credit losses is based on the composition, characteristics, and quality of the loans, as well as the prevailing economic conditions and reasonable and supportable forecasts. The credit loss models use a probability-of-default, loss given default, and exposure at default methodology to estimate expected credit losses. The Company also incorporates qualitative factors to adjust the historical loss rates or other static sources as these rates may not be an accurate indicator of expected losses in the current portfolio. These qualitative factors include, but are not limited to, adjustments for changes in policies and procedures in underwriting, monitoring or collections, current and expected economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values, and any concentrations of credit. The selection of relevant and appropriate qualitative factors in calculating the allowance for credit losses requires significant management judgment. Given the magnitude of the qualitative factors and significant amount of judgment required by management in developing the qualitative component of the overall allowance, performing audit procedures to evaluate the reasonableness of the allowance for credit losses required a high degree of auditor judgment, an increased level of effort, and the need to involve more experienced audit professionals. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the allowance for credit losses included the following, among others: • We tested the effectiveness of controls over the allowance for credit losses, including management’s controls over the respective qualitative factors. • We evaluated the reasonableness and conceptual soundness of the allowance for credit losses modeling framework, including the use of qualitative factors. • We tested the mathematical accuracy of the calculation of the qualitative allowance for credit losses as well as the accuracy and completeness of data used as inputs to the determination of qualitative factors. • We evaluated the qualitative factors applied to the historical loss rates, including assessing the basis for the factors and the reasonableness of the qualitative factors used in the allowance for credit losses. • We evaluated the directional consistency and magnitude of the qualitative adjustments, as well as the absolute value of • the allowance for credit losses attributable to the qualitative adjustments. In order to identify potential bias in the determination of the allowance for credit losses, we performed analytical analysis, including retrospective review, where we compared the estimate of losses to actual losses, analyzed ratios of the allowance for credit losses to loans and other relevant metrics, such as losses and nonperforming loans, and performed peer analysis where we compared relevant metrics to comparable financial institutions, and evaluated the relevance of the underlying data used to determine qualitative factors, to identify potential bias in the determination of the allowance for credit losses. /s/ Deloitte & Touche LLP Honolulu, Hawaii February 25, 2022 We have served as the Company’s auditor since 2017. 83 Report of Independent Registered Public Accounting Firm To the Shareholder and the Board of Directors of Hawaiian Electric Company, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets and statements of capitalization of Hawaiian Electric Company, Inc. and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, changes in common stock equity, and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Electric Utility Segment – Regulatory Assets and Liabilities - Refer to Notes 1 and 3 to the financial statements Critical Audit Matter Description Hawaiian Electric Company, Inc. (“Hawaiian Electric” or the “Utility”) is subject to rate regulation by the Hawaii Public Utility Commission (the “PUC”) and accounts for the effects of regulation under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 980, “Regulated Operations,” as management believes that the operations of the Utility currently satisfy the criteria for regulatory accounting. Accounting for the economics of rate regulation impacts multiple financial statement line items and disclosures, such as property, plant, and equipment; regulatory assets and liabilities; operating revenues; operation and maintenance expense; and depreciation expense. As of December 31, 2021, regulatory assets and liabilities amounted to approximately $565,543,000 and $996,768,000, respectively. The Company’s continued accounting under ASC Topic 980 generally requires that rates are established by an independent, third-party regulator; rates are designed to recover the costs of providing service; and it is reasonable to assume that rates can be charged to, and collected from, customers. On December 23, 2020, the PUC issued a Decision and Order approving a new performance-based regulation (“PBR”) framework. The framework became fully effective on June 1, 2021. Hawaiian Electric’s rates are subject to regulatory rate-setting processes and earnings oversight. Rates are determined and approved in regulatory proceedings based on an analysis of the Utility’s costs to provide utility service and a return on, and 84 recovery of, Hawaiian Electric’s investment in the utility business. Any decision by the PUC could (1) impact the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (2) necessitate a refund in rates that should be reported as regulatory liabilities. We identified the impact of rate regulation as a critical audit matter due to the significant judgments made by management to support its assertions about the applicability of applying the specialized rules and the impacted account balances, including disclosures and the high degree of subjectivity involved in assessing the impact of regulatory orders on the financial statements. Management judgments include assessing the applicability of the specialized rules and the likelihood of (1) recovery in future rates of incurred costs and (2) a refund to customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by the PUC, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate-setting process due to its inherent complexities. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the application of specialized rules to account for the effects of cost-based rate regulation and the uncertainty of future decisions by the rate regulators included the following, among others: • We tested the effectiveness of management’s controls over (1) the evaluation of the application of specialized rules to account for the effects of cost-based rate regulation and (2) the evaluation of the likelihood of (a) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets and (b) a refund that should be reported as regulatory liabilities. Such controls include the monitoring and evaluation of regulatory developments that may affect the likelihood of recovering costs in future rates or refunding amounts in rates. • We evaluated the Company’s conclusion that it should apply the specialized rules to account for the effects of cost- based rate regulation including considerations as a result of the PBR decision and order. • We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments. • We read relevant regulatory orders issued by the PUC for the Utility, regulatory statutes, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the PUC’s treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness. For regulatory matters in process, we inspected the Utility’s filings with the PUC and the filings with the PUC by intervenors that may impact the Utility’s future rates, for any evidence that might contradict management’s assertions. • • We obtained analyses from management as appropriate regarding probability of recovery for regulatory assets or refund in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery, or refundable in rates. /s/ Deloitte & Touche LLP Honolulu, Hawaii February 25, 2022 We have served as the Company’s auditor since 2017. 85 Consolidated Statements of Income Hawaiian Electric Industries, Inc. and Subsidiaries Years ended December 31 (in thousands, except per share amounts) Revenues Electric utility Bank Other Total revenues Expenses Electric utility Bank (includes $10.8 million gain on sales of properties in 2019) Other Total expenses Operating income (loss) Electric utility Bank Other Total operating income 2021 2020 2019 $ 2,539,636 $ 2,265,320 $ 2,545,942 327,917 306,398 313,511 4,345 944 89 2,850,379 2,579,775 2,873,948 2,260,078 1,996,770 2,291,564 178,195 26,040 251,702 19,810 217,008 17,355 2,464,313 2,268,282 2,525,927 279,558 128,203 268,550 61,809 254,378 110,909 (21,695) (18,866) (17,266) 386,066 311,493 348,021 Retirement defined benefits credit (expense)—other than service costs 5,848 (3,210) (2,806) Interest expense, net – other than on deposit liabilities and other bank borrowings Allowance for borrowed funds used during construction (94,363) 3,250 (88,694) 2,992 9,534 528 310,863 62,807 248,056 1,890 8,768 9,275 240,624 40,910 199,714 1,890 (90,899) 4,453 11,987 653 271,409 51,637 219,772 1,890 $ $ $ 246,166 $ 197,824 $ 217,882 2.25 $ 2.25 $ 1.81 $ 1.81 $ 109,282 109,140 298 216 2.00 1.99 108,949 458 109,580 109,356 109,407 Allowance for equity funds used during construction Gain on sale of investment securities, net Income before income taxes Income taxes Net income Preferred stock dividends of subsidiaries Net income for common stock Basic earnings per common share Diluted earnings per common share Weighted-average number of common shares outstanding Net effect of potentially dilutive shares Weighted-average shares assuming dilution The accompanying notes are an integral part of these consolidated financial statements. 86 Consolidated Statements of Comprehensive Income Hawaiian Electric Industries, Inc. and Subsidiaries Years ended December 31 (in thousands) Net income for common stock Other comprehensive income (loss), net of taxes: Net unrealized gains (losses) on available-for sale investment securities: Net unrealized gains (losses) on available-for sale investment securities arising during the period, net of taxes of $(18,903), $7,008 and $10,024 for 2021, 2020 and 2019, respectively 2021 2020 2019 $ 246,166 $ 197,824 $ 217,882 (51,636) 19,143 27,382 Reclassification adjustment for net realized gains included in net income, net of taxes of $(142), $(599) and $(175) for 2021, 2020 and 2019, respectively (387) (1,638) (478) Derivatives qualified as cash flow hedges: Unrealized interest rate hedging losses, net of taxes of $(108), $(607) and $(409) for 2021, 2020 and 2019, respectively Reclassification adjustment to net income, net of taxes of $13, nil and nil for 2021, 2020 and 2019, respectively Retirement benefit plans: Net gains (losses) arising during the period, net of taxes of $53,068, $(20,907) and $3,892 for 2021, 2020 and 2019, respectively Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $6,665, $8,247 and $3,512 for 2021, 2020 and 2019, respectively Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(59,429), $13,825 and $(5,610) for 2021, 2020 and 2019, respectively Other comprehensive income (loss), net of taxes (312) (1,750) (1,177) 37 — — 153,121 (60,529) 10,914 19,253 23,689 10,107 (171,345) (51,269) 39,860 18,775 (16,177) 30,571 Comprehensive income attributable to Hawaiian Electric Industries, Inc. $ 194,897 $ 216,599 $ 248,453 The accompanying notes are an integral part of these consolidated financial statements. 87 Consolidated Balance Sheets Hawaiian Electric Industries, Inc. and Subsidiaries December 31 (dollars in thousands) ASSETS Cash and cash equivalents Restricted cash Accounts receivable and unbilled revenues, net Available-for-sale investment securities, at fair value Held-to-maturity investment securities, at amortized cost Stock in Federal Home Loan Bank, at cost Loans held for investment, net Loans held for sale, at lower of cost or fair value Property, plant and equipment, net Land Plant and equipment Construction in progress Less – accumulated depreciation Operating lease right-of-use assets Regulatory assets Other Goodwill Total assets LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Accounts payable Interest and dividends payable Deposit liabilities Short-term borrowings—other than bank Other bank borrowings Long-term debt, net—other than bank Deferred income taxes Operating lease liabilities Regulatory liabilities Defined benefit pension and other postretirement benefit plans liability Other Total liabilities Preferred stock of subsidiaries - not subject to mandatory redemption Commitments and contingencies (Notes 3 and 4) Shareholders’ equity Preferred stock, no par value, authorized 10,000,000 shares; issued: none Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 109,311,785 shares and 109,181,124 shares at December 31, 2021 and 2020, respectively Retained earnings Accumulated other comprehensive income (loss), net of taxes 2021 2020 102,910 $ 8,085,793 231,495 8,420,198 (3,028,130) $ $ $ 305,551 5,911 344,213 2,574,618 522,270 10,000 5,139,984 10,404 5,392,068 122,416 565,543 747,469 82,190 15,822,637 205,544 19,889 8,172,212 53,998 88,305 2,321,937 384,760 136,760 996,768 348,072 669,215 13,397,460 34,293 103,428 $ 7,851,185 214,266 8,168,879 (2,903,144) $ $ $ 341,421 17,558 281,216 1,970,417 226,947 8,680 5,232,642 28,275 5,265,735 153,069 766,708 629,149 82,190 15,004,007 182,347 23,547 7,386,957 129,379 89,670 2,119,129 395,089 160,432 959,786 567,438 618,438 12,632,212 34,293 — — 1,685,496 757,921 1,678,368 660,398 Net unrealized gains (losses) on securities Unrealized losses on derivatives Retirement benefit plans Total shareholders’ equity Total liabilities and shareholders’ equity $ (32,037) (3,638) (16,858) $ 19,986 (3,363) (17,887) (52,533) 2,390,884 15,822,637 $ (1,264) 2,337,502 15,004,007 $ The accompanying notes are an integral part of these consolidated financial statements. 88 Consolidated Statements of Changes in Shareholders’ Equity Hawaiian Electric Industries, Inc. and Subsidiaries (in thousands, except per share amounts) Balance, December 31, 2018 Net income for common stock Other comprehensive income, net of taxes Issuance of common stock: Share-based plans Share-based expenses and other, net Common stock dividends ($1.28 per share) Balance, December 31, 2019 Impact of adoption of ASU No. 2016-13 Balance, January 1, 2020 after adoption of ASU No. 2016-13 Net income for common stock Other comprehensive income, net of taxes Issuance of common stock: Share-based plans Share-based expenses and other, net Common stock dividends ($1.32 per share) Balance, December 31, 2020 Net income for common stock Other comprehensive loss, net of tax benefits Issuance of common stock: Share-based plans Share-based expenses and other, net Common stock dividends ($1.36 per share) Balance, December 31, 2021 Common stock Shares Amount Retained earnings Accumulated other comprehensive income (loss) Total 108,879 $ 1,669,267 $ 543,623 $ — — 94 — — — 3,092 5,898 217,882 — — — — 108,973 — — 1,678,257 — (139,463) 622,042 (15,372) (50,610) $ 2,162,280 217,882 — 30,571 30,571 — — 3,092 5,898 — (139,463) (20,039) 2,280,260 (15,372) — 108,973 1,678,257 606,670 (20,039) 2,264,888 — — 208 — — — 3,973 (3,862) 197,824 — 197,824 — — — 18,775 18,775 — — 3,973 (3,862) — 109,181 — — 1,678,368 — (144,096) 660,398 246,166 — 131 — — 5,027 2,101 — — — — (148,643) 109,312 $ 1,685,496 $ 757,921 $ — — (144,096) (1,264) 2,337,502 246,166 — (51,269) (51,269) — — 5,027 2,101 — (148,643) (52,533) $ 2,390,884 The accompanying notes are an integral part of these consolidated financial statements. 89 Consolidated Statements of Cash Flows Hawaiian Electric Industries, Inc. and Subsidiaries Years ended December 31 (in thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Depreciation of property, plant and equipment Other amortization Provision for credit losses Loans originated, held for sale Proceeds from sale of loans, held for sale Gain on sale of real estate, held for sale Gain on sale of investment securities, net Gain on sale of loans Deferred income taxes Share-based compensation expense Allowance for equity funds used during construction Other Changes in assets and liabilities Decrease (increase) in accounts receivable and unbilled revenues, net Decrease (increase) in fuel oil stock Decrease (increase) in regulatory assets Increase (decrease) in regulatory liabilities Increase (decrease) in accounts, interest and dividends payable Change in prepaid and accrued income taxes, tax credits and utility revenue taxes Decrease in defined benefit pension and other postretirement benefit plans liability Change in other assets and liabilities, net Net cash provided by operating activities Cash flows from investing activities Available-for-sale investment securities purchased Principal repayments on available-for-sale investment securities Proceeds from sale of available-for-sale investment securities Purchases of held-to-maturity investment securities Proceeds from repayments or maturities of held-to-maturity investment securities Purchase of stock from Federal Home Loan Bank Redemption of stock from Federal Home Loan Bank Net decrease (increase) in loans held for investment Proceeds from sale of residential loans Proceeds from sale of real estate held for sale Capital expenditures Proceeds from sale of low income housing investments Contributions to low income housing investments Other, net Net cash used in investing activities 90 2021 2020 2019 $ 248,056 $ 199,714 $ 219,772 246,158 238,114 229,858 32,544 (25,825) 52,664 50,811 48,255 23,480 (340,986) (564,525) (285,042) 364,848 567,652 277,119 — — (10,762) (528) (9,275) (653) (9,305) (23,734) (4,943) (5,398) 9,135 (1,706) 5,810 (15,085) 9,986 (9,534) (8,768) (11,987) (7,060) 1,366 18,568 (73,811) 2,533 23,933 (45,819) 34,202 (11,493) (13,874) 1,007 15,358 9,925 41,331 71,262 1,953 (16,562) (20,068) (3,054) (35,610) (27,538) (6,660) (2,029) (4,482) (52,882) (42,189) (36,677) 375,673 429,407 512,470 (1,464,644) (1,361,594) 583,238 197,354 (349,579) 53,654 (33,022) 31,702 72,489 478,351 169,157 (146,738) 59,894 (27,350) 27,104 (229,311) 59,844 — — — (314,524) — (16,131) (383,895) 6,725 (9,403) (108,088) 272,949 19,810 (13,057) 15,505 (95,636) 97,160 (300,210) — 21,060 (457,520) 1 (6,974) 27 3,412 13,291 (1,179,592) (1,413,648) (541,709) (continued) Consolidated Statements of Cash Flows (continued) Hawaiian Electric Industries, Inc. and Subsidiaries Years ended December 31 Cash flows from financing activities Net increase in deposit liabilities Net increase (decrease) in short-term borrowings with original maturities of three months or less Proceeds from issuance of short-term debt Repayment of short-term debt Net increase (decrease) in other bank borrowings with original maturities of three months or less Proceeds from issuance of other bank borrowings Repayment of other bank borrowings Proceeds from issuance of long-term debt 2021 2020 2019 785,255 1,115,055 113,050 (10,493) (71,219) — 165,000 86,718 75,000 (65,000) (150,000) (50,000) (1,365) (25,440) 5,070 — — 30,000 (30,000) — — 285,886 415,997 289,349 Repayment of long-term debt and funds transferred for repayment of long-term debt (82,262) (178,969) (287,285) Withheld shares for employee taxes on vested share-based compensation Common stock dividends Preferred stock dividends of subsidiaries Other Net cash provided by financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, January 1 Cash, cash equivalents and restricted cash, December 31 Less: Restricted cash Cash and cash equivalents, December 31 (2,006) (5,700) (997) (148,643) (144,096) (139,463) (1,890) (1,890) (3,080) (3,203) 756,402 1,115,535 (47,517) 131,294 (1,890) (1,836) 87,716 58,477 358,979 311,462 227,685 358,979 169,208 227,685 (5,911) (17,558) (30,872) $ 305,551 $ 341,421 $ 196,813 The accompanying notes are an integral part of these consolidated financial statements. 91 Consolidated Statements of Income Hawaiian Electric Company, Inc. and Subsidiaries Years ended December 31 (in thousands) Revenues Expenses Fuel oil Purchased power Other operation and maintenance Depreciation Taxes, other than income taxes Total expenses Operating income Allowance for equity funds used during construction Retirement defined benefits credit (expense)—other than service costs Interest expense and other charges, net Allowance for borrowed funds used during construction Income before income taxes Income taxes Net income Preferred stock dividends of subsidiaries Net income attributable to Hawaiian Electric Preferred stock dividends of Hawaiian Electric Net income for common stock 2021 2020 2019 $ 2,539,636 $ 2,265,320 $ 2,545,942 644,349 670,494 475,412 229,469 240,354 2,260,078 279,558 9,534 3,890 (72,447) 3,250 223,785 44,148 179,637 915 178,722 1,080 177,642 $ 515,274 568,749 474,192 222,733 215,822 1,996,770 268,550 8,768 (763) (67,794) 2,992 211,753 40,418 171,335 915 170,420 1,080 169,340 $ 720,709 633,256 481,737 215,731 240,131 2,291,564 254,378 11,987 (2,836) (70,842) 4,453 197,140 38,305 158,835 915 157,920 1,080 156,840 $ The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Comprehensive Income Hawaiian Electric Company, Inc. and Subsidiaries Years ended December 31 (in thousands) Net income for common stock Other comprehensive income (loss), net of taxes: 2021 2020 2019 $ 177,642 $ 169,340 $ 156,840 Retirement benefit plans: Net gains (losses) arising during the period, net of taxes of $52,554, $(21,868) and $1,821 for 2021, 2020 and 2019, respectively Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes of $6,750, $7,474 and $3,312 for 2021, 2020 and 2019, respectively Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $(59,429), $13,825, and $(5,610) for 2021, 2020 and 2019, respectively Other comprehensive loss, net of tax benefits 151,523 (63,050) 5,249 19,461 21,550 9,550 (171,345) 39,860 (16,177) (361) (1,640) (1,378) Comprehensive income attributable to Hawaiian Electric Company, Inc. $ 177,281 $ 167,700 $ 155,462 The accompanying notes are an integral part of these consolidated financial statements. 92 Consolidated Balance Sheets Hawaiian Electric Company, Inc. and Subsidiaries December 31 (in thousands) Assets Property, plant and equipment Utility property, plant and equipment Land Plant and equipment Less accumulated depreciation Construction in progress Utility property, plant and equipment, net Nonutility property, plant and equipment, less accumulated depreciation of $59 and $115 as of December 31, 2021 and 2020, respectively Total property, plant and equipment, net Current assets Cash and cash equivalents Restricted cash Customer accounts receivable, net Accrued unbilled revenues, net Other accounts receivable, net Fuel oil stock, at average cost Materials and supplies, at average cost Prepayments and other Regulatory assets Total current assets Other long-term assets Operating lease right-of-use-assets Regulatory assets Other Total other long-term assets Total assets Capitalization and liabilities Capitalization (see Consolidated Statements of Capitalization) Common stock equity Cumulative preferred stock – not subject to mandatory redemption Commitments and contingencies (Note 3) Long-term debt, net Long-term debt, net Total capitalization Total capitalization Current liabilities Current portion of operating lease liabilities Current portion of long-term debt, net Short-term borrowings from non-affiliate Accounts payable Interest and preferred dividends payable Taxes accrued, including revenue taxes Regulatory liabilities Other Total current liabilities Deferred credits and other liabilities Operating lease liabilities Deferred income taxes Regulatory liabilities Unamortized tax credits Defined benefit pension and other postretirement benefit plans liability Other Total deferred credits and other liabilities Total capitalization and liabilities The accompanying notes are an integral part of these consolidated financial statements. 93 2021 2020 $ 51,937 $ 7,735,983 (2,940,517) 204,569 5,051,972 51,611 7,509,343 (2,819,079) 188,342 4,930,217 6,949 5,058,921 6,953 4,937,170 52,169 3,089 186,859 129,155 7,267 104,078 71,877 46,031 66,664 667,189 47,360 15,966 147,832 101,036 7,673 58,238 67,344 44,083 30,435 519,967 101,470 498,879 165,166 765,515 127,654 736,273 136,309 1,000,236 $ 6,491,625 $ 6,457,373 $ 2,261,899 $ 2,141,918 34,293 34,293 1,624,427 3,920,619 1,561,302 3,737,513 49,368 51,975 — 160,007 17,325 208,280 29,760 71,569 588,284 64,730 — 49,979 133,849 20,350 192,524 37,301 74,262 572,995 65,780 408,634 967,008 103,945 321,780 115,575 1,982,722 69,494 397,798 922,485 111,915 530,532 114,641 2,146,865 $ 6,491,625 $ 6,457,373 2021 2020 $ 118,376 $ 115,515 798,526 746,987 1,348,277 1,282,335 (3,280) (2,919) 2,261,899 2,141,918 Shares outstanding December 31, 2021 and 2020 2021 2020 150,000 $ 3,000 $ 50,000 150,000 250,000 89,657 250,000 175,000 70,000 50,000 1,000 3,000 5,000 1,793 5,000 3,500 7,000 5,000 3,000 1,000 3,000 5,000 1,793 5,000 3,500 7,000 5,000 1,234,657 34,293 34,293 (continued) Consolidated Statements of Capitalization Hawaiian Electric Company, Inc. and Subsidiaries December 31 (dollars in thousands, except par value) Common stock equity Common stock of $6 2/3 par value Authorized: 50,000,000 shares. Outstanding: 17,753,533 shares and 17,324,376 shares at December 31, 2021 and 2020, respectively Premium on capital stock Retained earnings Accumulated other comprehensive loss, net of tax benefits-retirement benefit plans Common stock equity Cumulative preferred stock not subject to mandatory redemption Authorized: 5,000,000 shares of $20 par value and 7,000,000 shares of $100 par value. Series Par Value (dollars in thousands, except par value and shares outstanding) C-4.25% (Hawaiian Electric) 20 $ D-5.00% E-5.00% H-5.25% I-5.00% J-4.75% K-4.65% G-7.625% H-7.625% 20 20 20 20 20 20 (Hawaiian Electric) (Hawaiian Electric) (Hawaiian Electric) (Hawaiian Electric) (Hawaiian Electric) (Hawaiian Electric) 100 (Hawaii Electric Light) 100 (Maui Electric) 94 Consolidated Statements of Capitalization (continued) Hawaiian Electric Company, Inc. and Subsidiaries December 31 (in thousands) Long-term debt Obligations to the State of Hawaii for the repayment of Special Purpose Revenue Bonds (subsidiary obligations unconditionally guaranteed by Hawaiian Electric): 3.50%, Series 2019, due 2049 3.20%, Refunding series 2019, due 2039 3.10%, Refunding series 2017A, due 2026 4.00%, Refunding series 2017B, due 2037 3.25%, Refunding series 2015, due 2025 Total obligations to the State of Hawaii Other long-term debt – unsecured: Taxable senior notes: 3.51%, Series 2020C and 2020E, due 2050 3.28%, Series 2020B and 2020D, due 2040 3.96%, Series 2020A, 2020B and 2020C, due 2050 3.31%, Series 2020A and 2020B, due 2030 4.21%, Series 2019A, due 2034 4.38%, Series 2018A, due 2028 4.53%, Series 2018B, due 2033 4.72%, Series 2018C, due 2048 4.31%, Series 2017A, due 2047 4.54%, Series 2016A, due 2046 5.23%, Series 2015A, due 2045 4.45%, Series 2013A and 2013B, due 2022 4.84%, Series 2013A, 2013B and 2013C, due 2027 5.65%, Series 2013B and 2013C, due 2043 4.55%, Series 2012B and 2012C, due 2023 4.72%, Series 2012D, due 2029 5.39%, Series 2012E, due 2042 4.53%, Series 2012F, due 2032 Total taxable senior notes Total long-term debt Less unamortized debt issuance costs Less current portion long-term debt, net of unamortized debt issuance costs Long-term debt, net Total capitalization The accompanying notes are an integral part of these consolidated financial statements. 2021 2020 $ 80,000 $ 80,000 150,000 125,000 140,000 47,000 150,000 125,000 140,000 47,000 $ 542,000 $ 542,000 $ 70,000 $ 45,000 50,000 110,000 50,000 67,500 17,500 15,000 50,000 40,000 80,000 52,000 100,000 70,000 100,000 35,000 150,000 40,000 — — 50,000 110,000 50,000 67,500 17,500 15,000 50,000 40,000 80,000 52,000 100,000 70,000 100,000 35,000 150,000 40,000 1,142,000 1,684,000 7,598 51,975 1,027,000 1,569,000 7,698 — 1,624,427 1,561,302 $ 3,920,619 $ 3,737,513 95 Consolidated Statements of Changes in Common Stock Equity Hawaiian Electric Company, Inc. and Subsidiaries (in thousands) Balance, December 31, 2018 Net income for common stock Other comprehensive income, net of taxes Issuance of common stock, net of expenses Common stock dividends Balance, December 31, 2019 Net income for common stock Other comprehensive loss, net of tax benefits Issuance of common stock, net of expenses Common stock dividends Balance, December 31, 2020 Net income for common stock Other comprehensive loss, net of tax benefits Issuance of common stock, net of expenses Common stock dividends Balance, December 31, 2021 Common stock Shares Amount Premium on capital stock Retained earnings Accumulated other comprehensive income (loss) Total 16,751 $ 111,696 $ 681,305 $ 1,164,541 $ 99 $ 1,957,641 156,840 — 156,840 — — 297 — — — 1,982 — — — 276 — — — 1,837 — — — 33,519 — — 32,163 — (101,252) 17,048 113,678 714,824 1,220,129 (1,279) 2,047,352 169,340 — 169,340 — — — — (1,378) — — (1,378) 35,501 (101,252) (1,640) — — (1,640) 34,000 (107,134) — (107,134) 17,324 115,515 746,987 1,282,335 (2,919) 2,141,918 — — 429 — — — 2,861 — — — 51,539 177,642 — — — (111,700) — (361) — — 177,642 (361) 54,400 (111,700) 17,753 $ 118,376 $ 798,526 $ 1,348,277 $ (3,280) $ 2,261,899 The accompanying notes are an integral part of these consolidated financial statements. 96 Consolidated Statements of Cash Flows Hawaiian Electric Company, Inc. and Subsidiaries Years ended December 31 (in thousands) Cash flows from operating activities 2021 2020 2019 Net income Adjustments to reconcile net income to net cash provided by operating activities $ 179,637 $ 171,335 $ 158,835 Depreciation of property, plant and equipment Other amortization Deferred income taxes State refundable credit Bad debt expense Allowance for equity funds used during construction Bill credits Accrued environmental reserve Other Changes in assets and liabilities Decrease (increase) in accounts receivable Decrease (increase) in accrued unbilled revenues Decrease (increase) in fuel oil stock Increase in materials and supplies Decrease (increase) in regulatory assets Increase (decrease) in regulatory liabilities Increase (decrease) in accounts payable Change in prepaid and accrued income taxes, tax credits and revenue taxes Decrease in defined benefit pension and other postretirement benefit plans liability Change in other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Capital expenditures Other Net cash used in investing activities Cash flows from financing activities Common stock dividends Preferred stock dividends of Hawaiian Electric and subsidiaries Proceeds from issuance of common stock Proceeds from issuance of long-term debt Repayment of long-term debt and funds transferred for repayment of long-term debt Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less Proceeds from issuance of short-term debt Repayment of short-term debt Other Net cash provided by (used in) financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, January 1 Cash, cash equivalents and restricted cash, December 31 Less: Restricted cash Cash and cash equivalents, December 31 Cash and cash equivalents, December 31 229,469 21,737 (3,829) (10,582) 2,183 (9,534) 2,000 — 1,350 (50,090) (27,464) (45,840) (4,533) (13,874) 15,358 17,671 26,930 (5,154) (52,302) 273,133 (292,000) 6,035 (285,965) (111,700) (1,995) 54,400 115,000 — 222,733 33,746 3,151 (9,961) 2,115 (8,768) — 6,556 2,610 (7,286) 15,285 33,699 (6,642) 1,007 (16,562) (33,129) (37,180) (4,306) (31,852) 336,551 (350,864) 6,070 (344,794) (107,134) (1,995) 34,000 255,000 (109,000) — — (50,000) (941) 4,764 (8,068) 63,326 55,258 (3,089) 52,169 $ (38,987) 100,000 (100,000) (2,209) 29,675 21,432 41,894 63,326 (15,966) 47,360 $ $ 215,731 29,631 (16,284) (8,369) 2,150 (11,987) — 406 27,459 18,822 4,495 (12,002) (5,498) 71,262 1,953 (2,051) (28,523) (4,448) (17,626) 423,956 (419,898) 11,374 (408,524) (101,252) (1,995) 35,500 280,000 (283,546) 38,987 75,000 (50,000) (2,109) (9,415) 6,017 35,877 41,894 (30,872) 11,022 The accompanying notes are an integral part of these consolidated financial statements. 97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 · Summary of significant accounting policies General Hawaiian Electric Industries, Inc. (HEI) is a holding company with direct and indirect subsidiaries principally engaged in electric utility, banking, and non-regulated renewable/sustainable infrastructure businesses operating in the State of Hawaii. HEI owns Hawaiian Electric Company, Inc. (Hawaiian Electric), ASB Hawaii, Inc. (ASB Hawaii), an intermediate holding company that owns American Savings Bank, F.S.B. (ASB), and Pacific Current, LLC (Pacific Current). Hawaiian Electric and its wholly owned operating subsidiaries, Hawaii Electric Light Company, Inc. (Hawaii Electric Light) and Maui Electric Company, Limited (Maui Electric), are regulated public electric utilities (collectively, the Utilities) in the business of generating, purchasing, transmitting, distributing and selling electric energy on all major islands in Hawaii other than Kauai. See Note 2. ASB is a federally chartered, full-service community bank providing a wide range of banking services to individual and business customers through its 42 branches on Oahu (29), Maui (6), Hawaii (4), Kauai (2) and Molokai (1). Pacific Current’s significant subsidiaries include Hamakua Energy, LLC (Hamakua Energy), Mauo, LLC (Mauo) and Ka‘ie‘ie Waho Company, LLC (Ka‘ie‘ie Waho). Hamakua Energy, owns and operates a 60-megawatt (MW) combined-cycle power plant, which sells the power it produces only to Hawaii Electric Light. Mauo is a commercial-scale, solar-plus-storage project (8.6 MW of solar and 42.3 MW of storage) currently under construction on the islands of Oahu and Maui. Ka‘ie‘ie Waho owns and operates a 6-MW photovoltaic project, which sells all power produced to Kauai Island Utility Cooperative. Basis of presentation. In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change for HEI and its subsidiaries (collectively, the Company) include the amounts reported as fair value for investment securities (ASB only); pension and other postretirement benefit obligations; contingencies and litigation; income taxes; regulatory assets and liabilities (Utilities only); electric utility unbilled revenues (Utilities only); asset retirement obligations (Utilities only); and allowance for credit losses (ASB only). Consolidation. The HEI consolidated financial statements include the accounts of HEI and its subsidiaries. The Hawaiian Electric consolidated financial statements include the accounts of Hawaiian Electric and its subsidiaries. When HEI or Hawaiian Electric has a controlling financial interest in another entity (usually, majority voting interest), that entity is consolidated. Investments in companies over which the Company or the Utilities have the ability to exercise significant influence, but not control, are accounted for using the equity method. The consolidated financial statements exclude variable interest entities (VIEs) when the Company or the Utilities are not the primary beneficiaries. Significant intercompany amounts are eliminated in consolidation (see Note 2 for limited exceptions). Cash and cash equivalents. The Utilities consider cash on hand, deposits in banks, money market accounts, certificates of deposit, short-term commercial paper of non-affiliates and liquid investments (with original maturities of three months or less) to be cash and cash equivalents. The Company considers the same items to be cash and cash equivalents as well as ASB’s deposits with the Federal Home Loan Bank (FHLB), federal funds sold (excess funds that ASB loans to other banks overnight at the federal funds rate) and securities purchased under resale agreements with original maturities of three months or less. Additionally, ASB is required by the Federal Reserve System to maintain noninterest-bearing cash reserves equal to a percentage of certain deposits. The reserve requirement for ASB at December 31, 2021 and 2020 was nil. In March 2020, the Federal Reserve Board reduced the reserve requirement to nil to support the depository institutions during the COVID-19 pandemic and effective March 2021, the change was made permanent. Restricted cash. The Utilities consider funds on deposit with trustees, which represent the undrawn proceeds from the issuance of special purpose revenue bonds, to be restricted cash because these funds are available only to finance (or reimburse payment of) approved capital expenditures. In addition to the Utilities’ funds on deposit with trustees, the Company considers cash held by trustees related to non-recourse loans at Pacific Current subsidiaries to be restricted cash. At December 31, 2021 and 2020, total restricted cash of the Company was $5.9 million and $17.6 million, respectively, and for the Utilities was $3.1 million and $16.0 million, respectively. 98 Property, plant and equipment. Property, plant and equipment are reported at cost. Self-constructed electric utility plant includes engineering, supervision, administrative and general costs and an allowance for the cost of funds used during the construction period. These costs are recorded in construction in progress and are transferred to utility plant when construction is completed and the facilities are either placed in service or become useful for public utility purposes. Costs for betterments that make utility plant more useful, more efficient, of greater durability or of greater capacity are also capitalized. Upon the retirement or sale of electric utility plant, generally no gain or loss is recognized. The cost of the plant retired is charged to accumulated depreciation. Amounts collected from customers for cost of removal are included in regulatory liabilities. See discussion regarding “Utility projects” in Note 3. Depreciation. Depreciation is computed primarily using the straight-line method over the estimated lives of the assets being depreciated. Electric utility plant additions in the current year are depreciated beginning January 1 of the following year in accordance with rate-making. Electric utility plant has lives ranging from 16 to 51 years for production plant, from 10 to 79 years for transmission and distribution plant, and from 5 to 50 years for general plant. The Utilities’ composite annual depreciation rate, which includes a component for cost of removal, was 3.2% in 2021, 2020 and 2019. Retirement benefits. Pension and other postretirement benefit costs are charged primarily to expense and electric utility plant (in the case of the Utilities). Funding for the Company’s qualified pension plans (Plans) is based on actuarial assumptions adopted by the Pension Investment Committee administering the Plans. The participating employers contribute amounts to pension trusts for the Plans in accordance with the funding requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA), including changes promulgated by the Pension Protection Act of 2006, and considering the deductibility of contributions under the Internal Revenue Code. The Company generally funds at least the net periodic pension cost during the year, subject to ERISA minimum and Internal Revenue Code limits and targeted funded status. Certain health care and/or life insurance benefits are provided to eligible retired employees and the employees’ beneficiaries and covered dependents. The Company generally funds the net periodic postretirement benefit costs other than pensions (except for executive life) for postretirement benefits other than pensions (OPEB), while maximizing the use of the most tax-advantaged funding vehicles, subject to cash flow requirements and reviews of the funded status with the consulting actuary. Environmental expenditures. The Company and the Utilities are subject to numerous federal and state environmental statutes and regulations. In general, environmental contamination treatment costs are charged to expense. Environmental costs are capitalized if the costs extend the life, increase the capacity, or improve the safety or efficiency of property; the costs mitigate or prevent future environmental contamination; or the costs are incurred in preparing the property for sale. Environmental costs are either capitalized or charged to expense when environmental assessments and/or remedial efforts are probable and the cost can be reasonably estimated. The Utilities review their sites and measure the liability quarterly by assessing a range of reasonably likely costs of each identified site using currently available information, including existing technology, presently enacted laws and regulations, experience gained at similar sites, and the probable level of involvement and financial condition of other potentially responsible parties. Income taxes. Deferred income tax assets and liabilities are established for the temporary differences between the financial reporting bases and the tax bases of the Company’s and the Utilities’ assets and liabilities at federal and state tax rates expected to be in effect when such deferred tax assets or liabilities are realized or settled. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. HEI and the Utilities’ investment tax credits are deferred and amortized over the estimated useful lives of the properties to which the credits relate (and for the Utilities, this treatment is in accordance with Accounting Standards Codification (ASC) Topic 980, “Regulated Operations”). The Utilities are included in the consolidated income tax returns of HEI. However, income tax expense has been computed for financial statement purposes as if each utility filed a separate income tax return and Hawaiian Electric filed a consolidated Hawaiian Electric income tax return. Governmental tax authorities could challenge a tax return position taken by the Company. The Company and the Utilities use a “more-likely-than-not” recognition threshold and measurement standard for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Fair value measurements. Fair value estimates are estimates of the price that would be received to sell an asset, or paid upon the transfer of a liability, in an orderly transaction between market participants at the measurement date. The fair value 99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) estimates are generally determined based on assumptions that market participants would use in pricing the asset or liability and are based on market data obtained from independent sources. However, in certain cases, the Company and the Utilities use their own assumptions about market participant assumptions based on the best information available in the circumstances. These valuations are estimates at a specific point in time, based on relevant market information, information about the financial instrument and judgments regarding future expected loss experience, economic conditions, risk characteristics of various financial instruments and other factors. These estimates do not reflect any premium or discount that could result if the Company or the Utilities were to sell its entire holdings of a particular financial instrument at one time. Because no active trading market exists for a portion of the Company’s and the Utilities’ financial instruments, fair value estimates cannot be determined with precision. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the estimates. In addition, the tax ramifications related to the realization of the unrealized gains and losses could have a significant effect on fair value estimates, but have not been considered in making such estimates. The Company and the Utilities group their financial assets measured at fair value in three levels outlined as follows: Level 1: Inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and is used to measure fair value whenever available. Level 2: Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; inputs to the valuation methodology include quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs to the valuation methodology that are derived principally from or can be corroborated by observable market data by correlation or other means. Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Level 3 assets and liabilities include financial instruments whose value is determined using discounted cash flow methodologies, as well as instruments for which the determination of fair value requires significant management judgment or estimation. Classification in the hierarchy is based upon the lowest level input that is significant to the fair value measurement of the asset or liability. For instruments classified in Level 1 and 2 where inputs are primarily based upon observable market data, there is less judgment applied in arriving at the fair value. For instruments classified in Level 3, management judgment is more significant due to the lack of observable market data. The Company reviews and updates the fair value hierarchy classifications on a quarterly basis. Changes from one quarter to the next related to the observability of inputs in fair value measurements may result in a reclassification between the fair value hierarchy levels and are recognized based on period-end balances. Fair value is also used on a nonrecurring basis to evaluate certain assets for impairment or for disclosure purposes. Examples of nonrecurring uses of fair value include mortgage servicing rights accounted for by the amortization method, loan impairments for certain loans, real estate acquired in settlement of loans, goodwill and asset retirement obligations (AROs). Earnings per share (HEI only). Basic earnings per share (EPS) is computed by dividing net income for common stock by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that dilutive common shares for stock compensation is added to the denominator. There were no shares of antidilutive securities outstanding during the years ended December 31, 2021, 2020 and 2019. Impairment of long-lived assets and long-lived assets to be disposed of. The Company and the Utilities review long-lived assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value, less costs to sell. Recent accounting pronouncements. Income Taxes. In December 2019, Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” which removes specific exceptions to the general principles in Topic 740, improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP under certain situations. ASU No. 2019-12 is effective for public business entities for fiscal 100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted the ASU as of January 1, 2021 with no material impact on its consolidated financial statements and related disclosures. Leases. On July 19, 2021 FASB issued ASU No. 2021-05, “Leases (Topic 842): Lessors–Certain Leases with Variable Lease Payments.” The ASU allows lessors to treat sales-type leases with variable payments to be classified as operating leases if the sales-type lease treatment under Topic 842 would result in a selling loss at lease commencement (day-one loss). The Company early adopted ASU No. 2021-05 as of September 30, 2021 retrospectively to leases that commenced on or after the adoption of ASU No. 2016-02, “Leases (Topic 842).” The adoption of ASU No. 2021-05 did not have a material impact on the Company’s consolidated financial statements and related disclosures. Financial Disclosures. In August 2021, the FASB issued ASU 2021-06, “Presentation of Financial Statements (Topic 205), Financial Services-Depository and Lending (Topic 942), and Financial Services-Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33- 10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants.” This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 33-10786, “Amendments to Financial Disclosures about Acquired and Disposed Businesses”, and No. 33-10835, “Update of Statistical Disclosures for Bank and Savings and Loan Registrants.” The amendments in this update are effective upon addition to the FASB Codification and the Company determined that this guidance does not have a material impact on the Company’s consolidated financial statements. Electric utility Regulation by the Public Utilities Commission of the State of Hawaii (PUC). The Utilities are regulated by the PUC and account for the effects of regulation under FASB ASC Topic 980, “Regulated Operations.” As a result, the Utilities’ financial statements reflect assets, liabilities, revenues and expenses based on current cost-based rate-making regulations (see Note 3 —“Regulatory assets and liabilities”). Their continued accounting under ASC Topic 980 generally requires that rates are established by an independent, third-party regulator; rates are designed to recover the costs of providing service; and it is reasonable to assume that rates can be charged to, and collected from, customers. Management believes that the operations of the Utilities, including the impact of the newly approved PBR Framework, currently satisfy the criteria under ASC Topic 980. The rate schedules of the Utilities include energy costs recovery clauses (ECRCs) under which electric rates are adjusted for changes in the weighted-average price paid for fuel oil and certain components of purchased power, and the relative amounts of company-generated power and purchased power. The rate schedules also include purchased power adjustment clauses (PPACs) under which the remaining purchase power expenses are recovered through surcharge mechanisms. The amounts collected through the ECRCs and PPACs are required to be reconciled quarterly. Accounts receivable. Accounts receivable are recorded at the invoiced amount. The Utilities generally assess a late payment charge on balances unpaid from the previous month. The allowance for doubtful accounts is the Utilities’ best estimate of the amount of expected credit losses in the Utilities’ existing accounts receivable. Due to the economic impact of COVID-19 on customers and the moratorium on electric service disconnections through May 31, 2021, the allowance for doubtful accounts increased in 2020 and 2021. At December 31, 2021 and 2020, the allowance for customer accounts receivable, accrued unbilled revenues and other accounts receivable was $26.1 million and $17.8 million, respectively. Electric utility revenues. Revenues related to electric service are generally recorded when service is rendered and include revenues applicable to energy consumed in the accounting period but not yet billed to the customers. The Utilities also record revenue under a decoupling mechanism. See “Decoupling” discussion in Note 3. Repairs and maintenance costs. Repairs and maintenance costs for overhauls of generating units are generally expensed as they are incurred. Allowance for funds used during construction (AFUDC). AFUDC represents the estimated costs of debt (i.e., interest) and equity funds used to finance plant construction. AFUDC is credited on the statement of income and charged to construction in progress on the balance sheet. If a project under construction is delayed for an extended period of time, AFUDC on the delayed project may be stopped after assessing the causes of the delay and probability of recovery. The tax gross up of the allowance for equity funds used during construction is credited to income taxes on the statement of income and charged to a regulatory asset. This gross up, net of amortization of the regulatory asset, is reflected in income tax expense. The weighted-average AFUDC rate was 7.1% in 2021, 7.1% in 2020 and 7.4% in 2019, and reflected quarterly compounding. 101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Asset retirement obligations. AROs are accounted for in accordance with ASC 410-20, Asset Retirement Obligations. AROs are recognized at present value of expected costs to retire long-lived assets from service, provided a legal obligation exists and a reasonable estimate of the fair value and the settlement date can be made. In the subsequent period, the liability is accreted to its future value while the asset retirement cost is depreciated over the estimated useful life of the underlying asset. The Utilities’ recognition of AROs have no impact on earnings, as the cost of the AROs are recovered over the life of the asset through depreciation. AROs recognized by the Utilities relate to legal obligations with the retirement of plant and equipment, including removal of asbestos and other hazardous materials. See “Asset retirement obligations” in Note 3. Bank (HEI only) Investment securities. Investments in debt securities are classified as held-to-maturity (HTM), trading or available-for-sale (AFS). ASB determines the appropriate classification at the time of purchase. Debt securities that ASB intends to and has the ability to hold to maturity are classified as HTM securities and reported at amortized cost. Marketable debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings. Marketable debt securities not classified as either HTM or trading securities are classified as AFS and reported at fair value. Unrealized gains and losses for AFS securities are excluded from earnings and reported on a net basis in accumulated other comprehensive income (AOCI) until realized. Interest income is recorded on an accrual basis. Discounts and premiums on securities are accreted or amortized into interest income using the interest method over the remaining contractual lives of the agency obligation securities and the estimated lives of the mortgage-backed securities adjusted for anticipated prepayments. ASB uses actual prepayment experience and estimates of future prepayments to determine the constant effective yield necessary to apply the interest method of income recognition. The discounts and premiums on the agency obligations portfolio are accreted or amortized on a prospective basis using expected contractual cash flows. The discounts and premiums on the mortgage-backed securities portfolio are accreted or amortized on a retrospective basis using changes in anticipated prepayments. This method requires a retrospective adjustment of the effective yield each time ASB changes the estimated life as if the new estimate had been known since the original acquisition date of the securities. Estimates of future prepayments are based on the underlying collateral characteristics and historic or projected prepayment behavior of each security. The specific identification method is used in determining realized gains and losses on the sales of securities. AFS debt securities with unrealized losses are reviewed quarterly. ASB will first assess whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security’s amortized cost basis is written down to fair value through income. For AFS securities that do not meet the aforementioned criteria, ASB evaluates whether the decline in fair value is the result of a credit loss or other factors. The determination of whether or not a credit loss exists is based on consideration of the cash flows expected to be collected from the debt security. ASB develops these expectations after considering various factors such as agency ratings, the financial condition of the issuer, payment history, payment structure of the security, industry and market conditions, underlying collateral and other factors which may be relevant based on the facts and circumstances pertaining to individual securities. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2021, 2020 and 2019, there was no indicated impairment as ASB expects to collect the contractual cash flows for these investments. Held-to-maturity debt securities are assessed periodically to determine if a valuation allowance is necessary to absorb credit losses expected to occur over the remaining contractual life of the securities. The carrying amount of held-to-maturity debt securities is presented net of the valuation allowance for credit losses when such an allowance is deemed necessary. Stock in FHLB is carried at cost and is reviewed at least quarterly for impairment, with valuation adjustments recognized in noninterest income. Loans. ASB carries loans at amortized cost less the allowance for credit losses, loan origination fees (net of direct loan origination costs), commitment fees and purchase premiums and discounts. Interest on loans is credited to income as it is earned. Discounts and premiums are accreted or amortized over the life of the loans using the interest method. Loan origination fees (net of direct loan origination costs) are deferred and recognized as an adjustment in yield over periods not exceeding the contractual life of the loan using the interest method or taken into income when the loan is paid off or 102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) sold. Nonrefundable commitment fees (net of direct loan origination costs, if applicable) received for commitments to originate or purchase loans are deferred and, if the commitment is exercised, recognized as an adjustment of yield over the life of the loan using the interest method. Nonrefundable commitment fees received for which the commitment expires unexercised are recognized as income upon expiration of the commitment. Loans held for sale are stated at the lower of cost or estimated fair value on an aggregate basis. Premiums, discounts and net deferred loan fees are not amortized while a loan is classified as held for sale. A sale is recognized only when the consideration received is other than beneficial interests in the assets sold and control over the assets is transferred irrevocably to the buyer. Gains or losses on sales of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the allocated basis of the loans sold. Allowance for credit losses. The allowance for credit losses (ACL) represents management’s estimate of expected credit losses over the expected contractual life of the related loans as of the balance sheet date. Contractual terms are adjusted for expected prepayments but are not extended for expected extensions, renewals or modifications except in circumstances where ASB reasonably expects to execute a troubled debt restructuring with the borrower or where certain extension or renewal options are embedded in the original contract and not unconditionally cancellable by the Bank. Accrued interest receivables on loans are presented in the Consolidated Financial Statements as a component of other assets. When accrued interest is deemed to be uncollectible (typically when a loan is placed on nonaccrual status), interest income is reversed against interest income on loans. ASB follows established policies for placing loans on nonaccrual status, so uncollectible accrued interest receivable is reversed in a timely manner. As a result, the Bank has elected not to measure an allowance for credit losses for accrued interest receivables. Credit losses are charged and recoveries are credited to the ACL. The ACL is maintained at a level the Bank considers to be adequate and is based on ongoing assessments and evaluations of the collectability of loans. The Bank’s expected credit loss models consider historical credit loss experience, current market and economic conditions, and forecasted changes in market and economic conditions if such forecasts are considered reasonable and supportable. Generally, the Bank considers its forecasts to be reasonable and supportable for a period of up to a year from the estimation date. For periods beyond the reasonable and supportable forecast period, expected credit losses are estimated by reverting to historical loss information without adjustment for changes in economic conditions. The Bank evaluates the length of its reasonable and supportable forecast period, its reversion period and reversion methodology at least annually, or more often if warranted by economic conditions or other circumstances. The Bank’s methodology for determining the ACL includes an estimate of expected credit losses on a collective basis for groups of loans with similar risk characteristics and specific allowances for loans which are individually evaluated. ASB disaggregates its portfolio loans into portfolio segments for purposes of determining the allowance for credit losses. Commercial, commercial real estate, and commercial construction loans are defined as non-homogeneous loans and ASB utilizes a risk rating system for evaluating the credit quality of the loans. Non-homogeneous loans are also categorized into the regulatory asset quality classifications—Pass, Special Mention, Substandard, Doubtful, and Loss based on credit quality. ASB utilizes a numerical-based, risk rating “PD Model” that takes into consideration fiscal year-end financial information of the borrower and identified financial attributes including retained earnings, operating cash flows, interest coverage, liquidity and leverage that demonstrate a strong correlation with default to assign default probabilities at the borrower level. In addition, a loss given default (LGD) value is assigned to each loan to measure loss in the event of default based on loan specific features such as collateral that mitigates the amount of loss in the event of default. Residential, consumer and credit scored business loans are considered homogeneous loans, which are typically underwritten based on common, uniform standards. For the homogeneous portfolio, the quality of the loan is best indicated by the repayment performance of an individual borrower. ASB supplements performance data with external credit bureau data and credit scores such as the Fair Isaac Corporation (FICO) score on a quarterly basis. ASB has built portfolio loss models for each major segment based on the combination of internal and external data to predict the probability of default at the loan level. The Bank also considers qualitative factors in determining the ACL. Qualitative factors are used to capture characteristics in the portfolio that impact expected credit losses but that are not fully captured within the Bank’s expected credit loss models. These include but are not limited to adjustments for changes in policies or procedures in underwriting, monitoring or collections, economic conditions, portfolio mix, lending and risk management personnel, results of internal audit and quality control reviews, collateral values and any concentrations of credit. The reserve for unfunded commitments is maintained at a level believed by management to cover expected losses related to unfunded credit facilities and is included in accounts payable and other liabilities in the consolidated balance sheets. The 103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, credit risk grading and historical loss rates. This process takes into consideration the same risk elements that are analyzed in the determination of the adequacy of the allowance for credit losses, as discussed above. Net adjustments to the reserve for unfunded commitments are included in the provision for credit losses in the consolidated statements of income. The allowance for credit losses is based on currently available information and historical experience, and future adjustments may be required from time to time to the allowance for credit losses based on new information and changes that occur (e.g., due to changes in economic conditions, particularly in Hawaii). Actual losses could differ from management’s estimates, and these differences and subsequent adjustments could be material. Nonperforming loans. Loans are generally placed on nonaccrual status when contractually past due 90 days or more, or earlier if the probability of collection is insufficient to warrant further accrual. All interest that is accrued but not collected is reversed. A loan may be returned to accrual status if (i) principal and interest payments have been brought current and repayment of the remaining contractual principal and interest is expected to be made, (ii) the loan has otherwise become well- secured and in the process of collection, or (iii) the borrower has been making regularly scheduled payments in full for the prior six months and it is reasonably assured that the loan will be brought fully current within a reasonable period. Cash receipts on nonaccruing loans are generally applied to reduce the unpaid principal balance. Loans considered to be uncollectible are charged-off against the allowance for credit losses. The amount and timing of charge-offs on loans includes consideration of the loan type, length of delinquency, insufficiency of collateral value, lien priority and the overall financial condition of the borrower. Recoveries on loans previously charged-off are credited back to the allowance for credit losses. Loans that have been charged-off against the allowance for credit losses are periodically monitored to evaluate whether further adjustments to the allowance are necessary. Loans in the commercial and commercial real estate portfolio are charged-off when the loan is risk rated “Doubtful” or “Loss.” The loan or a portion thereof is determined to be uncollectible after considering the borrower’s overall financial condition and collateral deficiency. A commercial or commercial real estate loan is considered uncollectible when: (a) the borrower is delinquent in principal or interest 90 days or more; (b) significant improvement in the borrower’s repayment capacity is doubtful; and/or (c) collateral value is insufficient to cover outstanding indebtedness and no other viable assets or repayment sources exist. Loans in the residential mortgage and home equity portfolios are charged-off when the loan or a portion thereof is determined to be uncollectible after considering the borrower’s overall financial condition and collateral deficiency. Such loan is considered uncollectible when: (a) the borrower is delinquent in principal or interest 180 days or more; (b) it is probable that collateral value is insufficient to cover outstanding indebtedness and no other viable assets or repayment sources exist; (c) notification of the borrower’s bankruptcy is received or the borrower’s debt is discharged in bankruptcy and the loan is not reaffirmed; or (d) in cases where ASB is in a subordinate position to other debt, the senior lien holder has foreclosed and ASB’s junior lien is extinguished. Other consumer loans are generally charged-off when the balance becomes 120 days delinquent. Loans modified in a troubled debt restructuring. Loans are considered to have been modified in a troubled debt restructuring (TDR) when, due to a borrower’s financial difficulties, ASB makes concessions to the borrower that it would not otherwise consider for a non-troubled borrower. Modifications may include interest rate reductions, interest only payments for an extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the normal market place, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral. Generally, a nonaccrual loan that has been modified in a TDR remains on nonaccrual status until the borrower has demonstrated sustained repayment performance for a period of six consecutive months. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, or there is reasonable doubt over the full collectability of principal and interest, the loan remains on nonaccrual status. Real estate acquired in settlement of loans. ASB records real estate acquired in settlement of loans at fair value, less estimated selling expenses. ASB obtains appraisals based on recent comparable sales to assist management in estimating the fair value of real estate acquired in settlement of loans. Subsequent declines in value are charged to expense through a valuation allowance. Costs related to holding real estate are charged to operations as incurred. 104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Goodwill. Goodwill is initially recorded as the excess of the purchase price over the fair value of the net assets acquired in a business combination and is subsequently evaluated at least annually for impairment during the fourth quarter. At December 31, 2021 and 2020, the amount of goodwill was $82.2 million. The goodwill relates to ASB and is the Company’s only intangible asset with an indefinite useful life. To determine if there was an impairment to the book value of goodwill pertaining to ASB, the fair value of ASB was estimated using a valuation method based on the market and income approaches. The market approach considers publicly traded financial institutions and measures the institutions’ market values as a multiple to (1) net income and (2) tangible book equity. The market approach also looks at sale transactions to determine the fair value under this approach. The income approach uses a discounted cash flow method to value a company on a going concern basis and is based on the concept that the future benefits derived from a particular company can be measured by its sustainable after-tax cash flows in the future. ASB used its forecasted net income and estimated cost savings if the Bank were acquired and applied a discount rate to calculate its discounted cash flows. A capitalization of earnings method was used to calculate a terminal value for the discounted cash flow method. The income approach was weighted 75%, the publicly traded company valuation method was weighted 20% and the sale transaction valuation method was weighted 5%. More weight was given to the income approach as this approach uses the projected performance of ASB in the stressed environment and would be more indicative of the current fair value of the Bank. For the three years ended December 31, 2021, there has been no impairment of goodwill. Mortgage banking. Mortgage loans held for sale are stated at the lower of cost or estimated fair value on an aggregate basis. Premiums, discounts and net deferred loan fees are not amortized while a loan is classified as held-for-sale. A sale is recognized only when the consideration received is other than beneficial interests in the assets sold and control over the assets is transferred irrevocably to the buyer. Gains or losses on sales of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the allocated basis of the loans sold. ASB is obligated to subsequently repurchase a loan if the purchaser discovers a standard representation or warranty violation such as noncompliance with eligibility requirements, customer fraud or servicing violations. This primarily occurs during a loan file review. ASB considers and records a reserve for loan repurchases if appropriate. ASB recognizes a mortgage servicing asset when a mortgage loan is sold with servicing rights retained. This mortgage servicing right (MSR) is initially capitalized at its presumed fair value based on market data at the time of sale and accounted for in subsequent periods at the lower of amortized cost or fair value. Mortgage servicing assets or liabilities are included as a component of gain on sale of loans. Under ASC Topic 860, “Transfers and Servicing,” ASB amortizes the MSRs in proportion to and over the period of estimated net servicing income and assess for impairment at each reporting date. ASB’s MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type such as fixed-rate 15- and 30-year mortgages and note rate in bands primarily of 50 to 100 basis points. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others. ASB uses a present value cash flow model using techniques described above to estimate the fair value of MSRs. Because observable market prices with exact terms and conditions may not be readily available, ASB compares the fair value of MSRs to an estimated value calculated by an independent third-party on a semi-annual basis. The third-party relies on both published and unpublished sources of market related assumptions and its own experience and expertise to arrive at a value. ASB uses the third-party value only to assess the reasonableness of fair value generated by the valuation model. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. Loan servicing fee income represents income earned for servicing mortgage loans owned by investors. It includes mortgage servicing fees and other ancillary servicing income, net of guaranty fees. Servicing fees are generally calculated on the outstanding principal balances of the loans serviced and are recorded as income when earned. Tax credit investments. ASB invests in limited liability entities formed to operate qualifying affordable housing projects. The affordable housing investments provide tax benefits to investors in the form of tax deductions from operating losses and tax credits. As a limited partner, ASB has no significant influence over the operations. These investments are initially recorded at the initial capital contribution with a liability recognized for the commitment to contribute additional capital over the term of the investment. 105 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ASB uses the proportional amortization method of accounting for its investments. Under the proportional amortization method, ASB amortizes the cost of its investments in proportion to the tax credits and other tax benefits it receives. The amortization, tax credits and tax benefits are reported as a component of income tax expense. For these limited liability entities, ASB assesses whether it is the primary beneficiary of the limited liability entity, which is a variable interest entity (VIE). The primary beneficiary of a VIE is determined to be the party that meets both of the following criteria: (i) has the power to make decisions that most significantly affect the economic performance of the VIE; and (ii) has the obligation to absorb losses or the right to receive benefits that in either case could potentially be significant to the VIE. Generally, ASB, as a limited partner, is not deemed to be the primary beneficiary as it does not meet the power criterion, i.e., no power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and no direct ability to unilaterally remove the general partner. All tax credit investments are evaluated for potential impairment at least annually, or more frequently, when events or conditions indicate that it is deemed probable that ASB will not recover its investment. If an investment is determined to be impaired, it is written down to its estimated fair value and the new cost basis of the investment is not adjusted for subsequent recoveries in value. As of December 31, 2021, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its low-income housing tax credit (LIHTC) investments. At December 31, 2021 and 2020, the carrying amount of LIHTC investments was $111.0 million and $83.4 million, respectively, and included in other assets in the consolidated balance sheets. ASB’s unfunded commitments to fund its LIHTC investment partnerships were $62.8 million and $41.0 million as of December 31, 2021 and 2020, respectively. These unfunded commitments are unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. The table below summarizes the amounts in income tax expense related to ASB’s LIHTC investments: Years ended December 31 (in millions) 2021 2020 2019 Amounts in income taxes related to low-income housing tax credit investments Amortization recognized in the provision for income taxes Tax credits and other tax benefits recognized in the provision for income taxes Net benefit to income tax expense $ $ (10.3) $ (9.6) $ 13.9 13.7 3.6 $ 4.1 $ (7.9) 11.9 4.0 106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 2 · Segment financial information The electric utility and bank segments are strategic business units of the Company that offer different products and services and operate in different regulatory environments. The accounting policies of the segments are the same as those described for the Company in the summary of significant accounting policies, except as otherwise indicated and except that federal and state income taxes for each segment are calculated on a “stand-alone” basis. HEI evaluates segment performance based on net income. Each segment accounts for intersegment sales and transfers as if the sales and transfers were to third parties (i.e., at current market prices). Intersegment revenues consist primarily of Hamakua Energy electricity revenues, interest, rent and preferred stock dividends. Electric utility Hawaiian Electric and its wholly owned operating subsidiaries, Hawaii Electric Light and Maui Electric, are public electric utilities in the business of generating, purchasing, transmitting, distributing and selling electric energy on all major islands in Hawaii other than Kauai, and are regulated by the PUC. The utility subsidiaries are aggregated within the electric utility segment because they: (1) are involved in the business of supplying electric energy in the same geographical location (i.e., the State of Hawaii), (2) have similar production processes that comprise electric generation, (3) serve similar customers within their franchise territories (e.g., residential, commercial and industrial customers), (4) use similar electric grids to distribute the energy to their customers, (5) are regulated by the PUC and undergo similar rate-making processes, (6) have similar economic characteristics and (7) perform financial reporting oversight and management of the business at the consolidated level. Bank ASB is a federally chartered savings bank that provides a full range of banking services to individual and business customers through its branch system in Hawaii. ASB is subject to examination and comprehensive regulation by the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), and is subject to reserve requirements established by the Board of Governors of the Federal Reserve System. Other “Other” includes amounts for the holding companies (HEI and ASB Hawaii), Pacific Current and its subsidiaries, and other subsidiaries not qualifying as reportable segments, and intercompany eliminations. Pacific Current. Pacific Current was formed in 2017 to focus on investing in non-regulated renewable energy and sustainable infrastructure in the State of Hawaii to help achieve the state’s sustainability goals. Significant investments of Pacific Current made through its subsidiaries, Hamakua Energy, Mauo and Ka‘ie‘ie Waho, include: Hamakua power plant. In 2017, Hamakua Energy acquired Hamakua Energy Partners, L.P.’s 60-MW combined cycle power plant and other assets from affiliates of ArcLight Capital Partners, a private equity firm. The plant sells all the power it produces to Hawaii Electric Light under an existing power purchase agreement (PPA) that expires in 2030. Solar-plus-storage power purchase agreement. On February 2, 2018, Mauo executed definitive agreements to acquire a solar-plus-storage PPA for a multi-site, commercial-scale project that will provide 8.6 MW of solar capacity and 42.3 megawatt-hour (MWh) of storage capacity on the islands of Maui and Oahu. The PPA has a 15-year term with a customer option to extend for an additional five years. The system is being constructed by a third party contractor under an Engineering, Procurement and Construction (EPC) contract that was contemporaneously negotiated and executed by Mauo. The EPC contract provides a fixed price for the purchase of the completed system, a project completion schedule and performance obligations designed to match the requirements of the solar-plus-storage PPA. Mauo is funding the construction of the project with a construction facility that will be repaid on a pro rata basis at the commercial operation dates (ultimately with cash from investment tax credits, state renewable tax credits, non-recourse project debt, and equity). 6-MW photovoltaic system. In September 2020 Ka‘ie‘ie Waho acquired a 6-MW photovoltaic situated on 20 acres of land on the island of Kauai. Kauai Island Utility Cooperative purchases all of the power generated by the system under a PPA that expires in 2033. 107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Segment financial information was as follows: Electric utility Bank Other Total (in thousands) 2021 Revenues from external customers Intersegment revenues (eliminations) Revenues Depreciation and amortization Depreciation and amortization Interest expense, net Interest expense, net Income (loss) before income taxes Income taxes (benefit) Net income (loss) Preferred stock dividends of subsidiaries Net income (loss) for common stock Net income (loss) for common stock Capital expenditures1 Capital expenditures Assets (at December 31, 2021) Assets (at December 31, 2021) 2020 Revenues from external customers Intersegment revenues (eliminations) Revenues Depreciation and amortization Depreciation and amortization Interest expense, net Interest expense, net Income (loss) before income taxes Income taxes (benefit) Net income (loss) Preferred stock dividends of subsidiaries Net income (loss) for common stock Net income (loss) for common stock Capital expenditures1 Assets (at December 31, 2020) Assets (at December 31, 2020) 2019 Revenues from external customers Intersegment revenues (eliminations) Revenues Depreciation and amortization Interest expense, net Income (loss) before income taxes Income taxes (benefit) Net income (loss) Preferred stock dividends of subsidiaries Net income (loss) for common stock Capital expenditures1 Assets (at December 31, 2019) $ 2,539,589 $ 47 2,539,636 251,206 72,447 223,785 44,148 179,637 1,995 177,642 292,000 6,491,625 $ 2,265,281 $ 39 2,265,320 256,479 67,794 211,753 40,418 171,335 1,995 169,340 350,864 6,457,373 $ 2,545,865 $ 77 2,545,942 245,362 70,842 197,140 38,305 158,835 1,995 156,840 419,898 306,398 $ — 306,398 21,124 5,040 130,559 29,325 101,234 — 101,234 11,131 9,181,603 313,511 $ — 313,511 29,349 11,114 69,271 11,688 57,583 — 57,583 12,203 8,396,533 4,392 $ (47) 4,345 6,372 21,916 (43,481) (10,666) (32,815) (105) (32,710) 11,393 149,409 983 $ (39) 944 4,950 20,900 (40,400) (11,196) (29,204) (105) (29,099) 20,828 150,101 327,917 $ — 166 $ (77) 327,917 28,675 18,440 112,034 23,061 88,973 — 88,973 24,175 89 4,076 20,057 (37,765) (9,729) (28,036) (105) (27,931) 13,447 123,552 2,850,379 — 2,850,379 278,702 99,403 310,863 62,807 248,056 1,890 246,166 314,524 15,822,637 2,579,775 — 2,579,775 290,778 99,808 240,624 40,910 199,714 1,890 197,824 383,895 15,004,007 2,873,948 — 2,873,948 278,113 109,339 271,409 51,637 219,772 1,890 217,882 457,520 13,745,251 6,388,682 7,233,017 1 Contributions in aid of construction balances are included in capital expenditures. Intercompany electricity sales of the Utilities to ASB and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by the Utilities and the profit on such sales is nominal. 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’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation. 108 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 3 · Electric utility segment Regulatory assets and liabilities. Regulatory assets represent deferred costs and accrued decoupling revenues which are expected to be recovered through rates over PUC-authorized periods. Generally, the Utilities do not earn a return on their regulatory assets; however, they have been allowed to recover interest on certain regulatory assets and to include certain regulatory assets in rate base. Regulatory liabilities represent amounts included in rates and collected from ratepayers for costs expected to be incurred in the future, or amounts collected in excess of costs incurred that are refundable to customers. For example, the regulatory liability for cost of removal in excess of salvage value represents amounts that have been collected from ratepayers for costs that are expected to be incurred in the future to retire utility plant. Generally, the Utilities include regulatory liabilities in rate base or are required to apply interest to certain regulatory liabilities. In the table below, noted in parentheses are the original PUC authorized amortization or recovery periods and, if different, the remaining amortization or recovery periods as of December 31, 2021 are noted. Regulatory assets were as follows: December 31 (in thousands) 2021 2020 Retirement benefit plans (balance primarily varies with plans’ funded statuses) $ 351,070 $ 592,644 Income taxes (1-55 years) Decoupling revenue balancing account and RAM (1-2 years) Unamortized expense and premiums on retired debt and equity issuances (1-18 years; 1-18 years remaining) Vacation earned, but not yet taken (1 year) COVID-19 related costs (to be determined by PUC) Other (1-38 years remaining) Total regulatory assets Included in: Current assets Long-term assets Total regulatory assets Regulatory liabilities were as follows: December 31 (in thousands) Cost of removal in excess of salvage value (1-79 years) Income taxes (1-55 years) Decoupling revenue balancing account and RAM (1-2 years) Retirement benefit plans (balance primarily varies with plans’ funded statuses) Solar tax credits (1-20 years) Other (1-4 years remaining) Total regulatory liabilities Included in: Current liabilities Long-term liabilities Total regulatory liabilities 88,087 31,607 7,300 14,255 27,839 45,385 96,171 10,432 8,654 15,665 18,032 25,110 $ 565,543 $ 766,708 $ 66,664 $ 30,435 498,879 736,273 $ 565,543 $ 766,708 2021 2020 $ 562,514 $ 541,730 337,304 360,426 251 51,734 27,123 17,842 1,957 29,759 8,096 17,818 $ 996,768 $ 959,786 $ 29,760 $ 37,301 967,008 922,485 $ 996,768 $ 959,786 The regulatory asset and liability relating to retirement benefit plans was recorded as a result of pension and OPEB tracking mechanisms adopted by the PUC in rate case decisions for the Utilities in 2007 (see Note 10). Major customers. The Utilities received 11% ($267 million), 11% ($249 million) and 11% ($281 million) of their operating revenues from the sale of electricity to various federal government agencies in 2021, 2020 and 2019, respectively. 109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Cumulative preferred stock. The following series of cumulative preferred stock are redeemable only at the option of the respective company at the following prices in the event of voluntary liquidation or redemption: December 31, 2021 Series Voluntary liquidation price Redemption price C, D, E, H, J and K (Hawaiian Electric) $ 20 $ I (Hawaiian Electric) G (Hawaii Electric Light) H (Maui Electric) 20 100 100 21 20 100 100 Hawaiian Electric is obligated to make dividend, redemption and liquidation payments on the preferred stock of each of its subsidiaries if the respective subsidiary is unable to make such payments, but this obligation is subordinated to Hawaiian Electric’s obligation to make payments on its own preferred stock. Related-party transactions. HEI charged the Utilities $5.2 million, $5.6 million and $6.0 million for general management and administrative services in 2021, 2020 and 2019, respectively. The amounts charged by HEI to its subsidiaries for services provided by HEI employees are allocated primarily on the basis of time expended in providing such services. In 2021, 2020 and 2019, Hamakua Energy (an indirect subsidiary of HEI) sold energy and capacity to Hawaii Electric Light (subsidiary of Hawaiian Electric and indirect subsidiary of HEI) under a PPA in the amount of $54 million, $50 million and $68 million, respectively. Hawaiian Electric’s short-term borrowings from HEI totaled nil at December 31, 2021 and 2020. Borrowings among the Utilities are eliminated in consolidation. Interest charged by HEI to Hawaiian Electric was not material for the years ended December 31, 2021 and 2020. Unconsolidated variable interest entities. Power purchase agreements. As of December 31, 2021, the Utilities had five PPAs for firm capacity (including the Puna Geothermal Venture (PGV) PPA that went offline in May 2018 due to lava flow on Hawaii Island, but returned to service with firm capacity of 13.0 MW in the first quarter of 2021 and ramped up to 23.9 MW in the second quarter of 2021) and other PPAs with independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or power production facilities who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs. Pursuant to the current accounting standards for VIEs, the Utilities are deemed to have a variable interest in Kalaeloa Partners, L.P. (Kalaeloa), AES Hawaii, Inc. (AES Hawaii) and Hamakua Energy by reason of the provisions of the PPA that the Utilities have with the three IPPs. However, management has concluded that the Utilities are not the primary beneficiary of Kalaeloa, AES Hawaii and Hamakua Energy because the Utilities do not have the power to direct the activities that most significantly impact the three IPPs’ economic performance nor the obligation to absorb their expected losses, if any, that could potentially be significant to the IPPs. Thus, the Utilities have not consolidated Kalaeloa, AES Hawaii and Hamakua Energy in its consolidated financial statements. Hamakua Energy is an indirect subsidiary of Pacific Current, and is consolidated in HEI’s consolidated financial statements. For the other PPAs with IPPs, the Utilities have concluded that the consolidation of the IPPs was not required because either the Utilities do not have variable interests in the IPPs due to the absence of an obligation in the PPAs for the Utilities to absorb any variability of the IPPs, or the IPP was considered a “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. The consolidation of any significant IPP could have a material effect on the 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. 110 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Power purchase agreements. Purchases from all IPPs were as follows: Years ended December 31 (in millions) Kalaeloa AES Hawaii HPOWER Hamakua Energy Puna Geothermal Venture Wind IPPs Solar IPPs Other IPPs1 Total IPPs 1 Includes hydro power and other PPAs 2021 2020 2019 $ $ 204 $ 130 70 29 53 124 50 10 670 $ 149 $ 133 70 50 1 105 57 4 569 $ 214 139 76 68 — 95 36 5 633 As of December 31, 2021, the Utilities had five firm capacity PPAs for a total of 540.4 megawatts (MW) of firm capacity. The PGV facility with 34.6 MW of firm capacity went offline in May 2018 due to lava flow on Hawaii Island, but returned to service with firm capacity of 13.0 MW in the first quarter of 2021, and ramped up to 23.9 MW in the second quarter and continued to provide 23.9 MW for the remainder of 2021. The PUC allows rate recovery for energy and firm capacity payments to IPPs under these agreements. Assuming that each of the agreements remains in place for its current term (and as amended) and the minimum availability criteria in the PPAs are met, aggregate minimum fixed capacity charges are expected to be approximately $76 million in 2022, $34 million each in 2023, 2024, 2025 and 2026, and $161 million from 2027 through 2033. In general, the Utilities base their payments under the PPAs upon available capacity and actual energy supplied and they are generally not required to make payments for capacity if the contracted capacity is not available, and payments are reduced, under certain conditions, if available capacity drops below contracted levels. In general, the payment rates for capacity have been predetermined for the terms of the agreements. Energy payments will vary over the terms of the agreements. The Utilities pass on changes in the fuel component of the energy charges to customers through the energy cost recovery clause (ECRC) in their rate schedules. The Utilities do not operate, or participate in the operation of, any of the facilities that provide power under the agreements. Title to the facilities does not pass to Hawaiian Electric or its subsidiaries upon expiration of the agreements, and the agreements do not contain bargain purchase options for the facilities. Purchase power adjustment clause. The PUC has approved purchased power adjustment clauses (PPACs) for the Utilities. Purchased power capacity, operation and maintenance (O&M) and other non-energy costs previously recovered through base rates are now recovered in the PPACs and, subject to approval by the PUC, such costs resulting from new purchased power agreements can be added to the PPACs outside of a rate case. Purchased energy costs continue to be recovered through the ECRC. Kalaeloa Partners, L.P. Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. Hawaiian Electric and Kalaeloa had been negotiating an extension to the PPA, and the PPA had automatically extended on a month-to-month basis as long as the parties were still negotiating in good faith. In October 2021, Hawaiian Electric and Kalaeloa signed the Amended and Restated Power Purchase Agreement for Firm Dispatchable Capacity and Energy (Amended and Restated PPA) to extend the PPA for an additional term of 10 years. In November 2021, Hawaiian Electric submitted an application for approval of the Amended and Restated PPA to the PUC. AES Hawaii, Inc. Under a PPA entered into in March 1988, as amended (through Amended and Restated Amendment No. 4) for a period of 30 years ending September 2022, Hawaiian Electric agreed to purchase 180 MW of firm capacity from AES Hawaii. Hawaiian Electric 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 (Amendment No. 4). 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. Subsequently on November 25, 2021, Hawaiian Electric and AES Hawaii reached agreement in Amended and Restated Amendment No. 4 to power purchase agreement (A&RA No. 4) and Hawaiian Electric filed a Withdrawal of Application regarding Amendment No. 4. A&RA No. 4 resolves AES Hawaii’s claims related to the additional capacity and was filed as an informational filing with the PUC. Hawaiian Electric does not intend to extend the term of the PPA which will expire on September 1, 2022. Hu Honua Bioenergy, LLC (Hu Honua). In May 2012, Hawaii Electric Light signed a PPA, which the PUC approved in December 2013, with Hu Honua for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a facility on the island of Hawaii. Under the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016. However, Hu Honua encountered construction and litigation delays, which resulted in an amended and restated PPA between 111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hawaii Electric Light and Hu Honua dated May 9, 2017. In July 2017, the PUC approved the amended and restated PPA, which becomes effective once the PUC’s order is final and non-appealable. In August 2017, the PUC’s approval was appealed by a third party. On May 10, 2019, the Hawaii Supreme Court issued a decision remanding the matter to the PUC for further proceedings consistent with the court’s decision, which must include express consideration of greenhouse gas (GHG) emissions that would result from approving the PPA, whether the cost of energy under the PPA is reasonable in light of the potential for GHG emissions, and whether the terms of the PPA are prudent and in the public interest, in light of its potential hidden and long-term consequences. As a result, the PUC reopened the docket for further proceedings, including re-examining all of the issues in the proceedings. On July 9, 2020, the PUC issued an order denying Hawaii Electric Light’s request to waive the amended and restated PPA from the PUC’s competitive bidding requirements and therefore, dismissed the request for approval of the amended and restated PPA without prejudice to possible participation in any future competitive bidding process. On September 9, 2020, the PUC denied Hu Honua’s motion for reconsideration of the PUC’s order. Hu Honua filed its notice of appeal to the Hawaii Supreme Court of the PUC’s order denying Hu Honua’s motion for reconsideration. On May 24, 2021, the Hawaii Supreme Court vacated the PUC’s decision and remanded the matter back to the PUC for further proceedings. On June 30, 2021, the PUC issued an order reopening the docket consistent with the Hawaii Supreme Court’s order. A contested case hearing was scheduled for January and February 2022, and has been rescheduled for March 2022. Molokai New Energy Partners (MNEP). In July 2018, the PUC approved Maui Electric’s PPA with MNEP to purchase solar energy from a photovoltaic (PV) plus battery storage project. The 4.88 MW PV and 3 MW Battery Energy Storage System project was to deliver no more than 2.64 MW at any time to the Molokai system. On March 25, 2020, MNEP filed a complaint in the United Stated District Court for the District of Hawaii against Maui Electric claiming breach of contract. On June 3, 2020, Maui Electric provided Notice of Default and Termination of the PPA to MNEP terminating the PPA with an effective date of July 10, 2020. Thereafter, MNEP filed an amended Complaint to include claims relating to the termination and Hawaiian Electric filed its Answer to the Amended Complaint on September 11, 2020, disputing the facts presented by MNEP and all claims within the original and amended complaint. Currently, the discovery phase is ongoing. Fuels barging contract. On August 23, 2021, the Utilities entered into a five-year inter-island fuel transportation contract with Sause Bros., Inc., with an estimated annual base rent of $6.2 million, commencing in January 2022 (see Note 8 for lease discussion). On December 23, 2021, the PUC issued an interim D&O approving the inter-island fuels transportation contract and recovery of associated costs on an interim basis. The interim decision is effective until the PUC issues its final D&O in the proceeding. Utility projects. Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits or community support can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, or if PUC-imposed caps on project costs are expected to be exceeded, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income. Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) implementation project. The ERP/EAM Implementation Project went live in October 2018. Hawaii Electric Light and Hawaiian Electric began to incorporate their portion of the deferred project costs in rate base and started the amortization over a 12-year period in January 2020 and November 2020, respectively. The PUC required a minimum of $246 million ERP/EAM project-related benefit to be delivered to customers over the system’s 12-year service life. In February 2019, the PUC approved a methodology for passing the future cost saving benefits of the new ERP/EAM system to customers developed by the Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification document on June 10, 2019, reflecting $150 million in future net O&M expense reductions and cost avoidance, and $96 million in capital cost reductions and tax savings over the 12-year service life. To the extent the reduction in O&M expense relates to amounts reflected in electric rates, the Utilities would reduce future rates for such amounts. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism. As of December 31, 2021, the Utilities’ regulatory liability was $8.6 million ($5.4 million for Hawaiian Electric, $1.3 million for Hawaii Electric Light and $1.9 million for Maui Electric) for the O&M expense savings that are being amortized or to be included in future rates. As part of the settlement agreement approved in the Hawaiian Electric 2020 test year rate case, the regulatory liability for Hawaiian Electric will be amortized over five years, beginning in November 2020, and the O&M benefits for Hawaiian Electric was considered flowed through to customers. As part of the PBR proceeding, the regulatory liability as of December 31, 2020 of approximately $1.6 million and $2.3 million, respectively, for Hawaii Electric Light and Maui Electric was flowed to customers as part of the customer dividend in the annual revenue adjustment in 2021. On July 7, 2021, the PUC issued an order modifying the reporting frequency of the Semi-Annual Enterprise System Benefits (SAESB) reports to an Annual Enterprise System Benefits (AESB) report on the achieved benefits savings. The most recent AESB report was filed on February 14, 2022 for the period January 1 through December 31, 2021. 112 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) West Loch PV Project. In November 2019, Hawaiian Electric placed into service a 20-MW (ac) utility-owned and operated renewable and dispatchable solar facility on property owned by the Department of the Navy. PUC orders resulted in a project cost cap of $67 million (including a cap of $4.7 million for the in-kind work to be performed in exchange for use of the Navy property) with capital cost recovery approved under MPIR (See “Performance-based regulation framework” section below for MPIR guidelines and cost recovery discussion.) Project costs incurred as of December 31, 2021 amounted to $58.8 million and generated $14.7 million and $14.0 million in federal and state nonrefundable tax credits, respectively. For book and regulatory purposes, the tax credits are being deferred and amortized, starting in 2020, over 25 years and 10 years for federal and state credits, respectively. As part of the approval of the project, a performance guarantee mechanism was established, which calls for the Utilities to provide energy at target annual energy production levels. Customers are compensated for production shortfalls by the amount of shortfall multiplied by the Equivalent Levelized Energy Price (ELEP) based on the revenue requirements of the actual total cost of the project, but not to exceed 9.56 cents/kilowatt-hours (kWh). Compensation for shortfalls is provided to customers as a credit through the PPAC, while production surpluses are refunded to the Utilities up to the amount of previously issued underproduction credits. In December 2021, the Utilities accrued $0.7 million in estimated underproduction credits to be returned to customers in 2022 due to not meeting the 2021 annual production target. The 2021 underproduction credit is based on an interim ELEP representing total project costs as of August 31, 2021. The credit will be trued up based on a final ELEP based on final project costs. Environmental regulation. The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances. Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity. Former Molokai Electric Company generation site. In 1989, Maui Electric acquired Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983 but continued to operate at the Site under a lease until 1985. The federal Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the DOH and EPA, Maui Electric further investigated the Site and the Adjacent Parcel to determine the extent of impacts of polychlorinated biphenyls (PCBs), residual fuel oils and other subsurface contaminants. Maui Electric has a reserve balance of $2.7 million as of December 31, 2021, representing the probable and reasonably estimable undiscounted cost for remediation of the Site and the Adjacent Parcel based on presently available information; however, final costs of remediation will depend on the cleanup approach implemented. On November 24, 2021, the current landowners of the Site, Misaki’s, Inc., filed a lawsuit against Hawaiian Electric (as alleged successor in interest to Molokai Electric, the prior owner of the Site) in the Circuit Court of the Second Circuit of the State of Hawaii (subsequently removed to the U.S. District Court for the District of Hawaii), alleging that Hawaiian Electric is responsible for remediation of the Site based on the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, section 9601 and the Hawaii Environmental Response Law under Hawaii Revised Statutes Chapter 128D. The lawsuit seeks reimbursement and indemnification of costs to respond to the alleged release of hazardous substances on the Site, a declaratory judgment as to liability for response costs and other unspecified damages. Additionally, there are contractual claims for damages and past rent based on the period when the property was briefly leased back from Misaki’s to Molokai Electric during the transition of ownership. At this time, the Utilities are unable to determine the ultimate outcome of the lawsuit or the amount of any possible loss. The Utilities intend to vigorously defend the action. Pearl Harbor sediment study. In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is a Potentially Responsible Party 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 December 31, 2021, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $10.3 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore and offshore investigation and remediation. The final remediation costs will depend on the actual onshore and offshore cleanup costs. Asset retirement obligations. Asset retirement obligations (AROs) represent legal obligations associated with the retirement of certain tangible long-lived assets, are measured as the present value of the projected costs for the future retirement 113 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) of specific assets and are recognized in the period in which the liability is incurred if a reasonable estimate of fair value can be made. The Utilities’ recognition of AROs have no impact on their earnings. The cost of the AROs is recovered over the life of the asset through depreciation. AROs recognized by the Utilities relate to legal obligations associated with the retirement of plant and equipment, including removal of asbestos and other hazardous materials. The Utilities recorded AROs related to: 1) the removal of retired generating units, certain types of transformers and underground storage tanks; 2) the abandonment of fuel pipelines, underground injection and supply wells; and 3) the removal of equipment and restoration of leased land used in connection with Utility-owned renewable and dispatchable generation facilities. Changes to the ARO liability included in “Other liabilities” on Hawaiian Electric’s balance sheet were as follows: (in thousands) Balance, January 1 Accretion expense Liabilities incurred Liabilities settled Balance, December 31 2021 2020 $ 10,692 $ 10,324 423 — (5) 405 — (37) $ 11,110 $ 10,692 The Utilities have not recorded AROs for assets that are expected to operate indefinitely or where the Utilities cannot estimate a settlement date (or range of potential settlement dates). As such, ARO liabilities are not recorded for certain asset retirement activities, including various Utilities-owned generating facilities and certain electric transmission, distribution and telecommunications assets resulting from easements over property not owned by the Utilities. Regulatory proceedings. Decoupling. Decoupling is a regulatory model that is intended to provide the Utilities with financial stability and facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. Prior to the implementation of the performance-based regulation framework (PBR Framework), the decoupling mechanism had the following major components: (1) monthly revenue balancing account (RBA) revenues or refunds for the difference between PUC-approved target revenues and recorded adjusted revenues, which delinks revenues from kWh sales, (2) revenue adjustment mechanism (RAM) revenues for escalation in certain O&M expenses and rate base changes, (3) major project interim recovery (MPIR) adjustment mechanism, (4) performance incentive mechanisms (PIMs), and (5) an earnings sharing mechanism (ESM), which would provide for a reduction of revenues between rate cases in the event the utility exceeds the authorized rate-making return on average common equity (ROACE) allowed in its most recent rate case. Performance-based regulation framework. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving the new PBR Framework. Under the PBR Framework, the Utilities’ decoupling will continue to be used with modifications, as described below. The existing cost recovery mechanisms will continue as currently implemented (e.g., the Energy Cost Recovery Clause (ECRC), Purchased Power Adjustment Clause (PPAC), Demand Side Management surcharge (DSM), Renewable Energy Infrastructure Program (REIP), Demand Response Adjustment Clause (DRAC), Pension and Other Post- Employment Benefits (OPEB) tracking mechanisms). In addition to annual revenues provided by the annual revenue adjustment (ARA), the Utilities may seek relief for extraordinary projects or programs through the Exceptional Project Recovery Mechanism (EPRM) (formerly known as the MPIR adjustment mechanism) and earn financial rewards for exemplary performance as provided through a portfolio of PIMs and Shared Savings Mechanisms (SSMs). The PBR Framework will incorporate a variety of other performance mechanisms, including Scorecards, Reported Metrics, and an expedited Pilot Process. The PBR Framework also contains a number of safeguards, including a symmetric ESM which protects the Utilities and customers from excessive earnings or losses, as measured by the Utilities’ achieved rate-making ROACE and a Re-Opener mechanism, under which the PUC will open an examination, at its discretion, to determine if adjustments or modifications to specific PBR mechanisms are appropriate. The new PBR Framework became fully effective on June 1, 2021. On September 17, 2021, the PUC issued an order, including a proposed new set of potential PIMs to address these areas of PUC concern: • Grid reliability, • • • • Timely retirement of fossil fuel generation units, Interconnection of large-scale renewable energy projects, Cost control for fossil fuel, purchased power, and other non-ARA costs, and Expedient utilization of grid services from demand-side resources The order established a procedural schedule by which a PBR Working Group (consisting of parties from the docket in which the new PBR Framework was established) will comment upon and evaluate the potential new PIMs and potentially 114 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) propose alternatives. The schedule included procedural steps for technical conferences, statements of position filings and an evidentiary hearing. The PUC has not stated when any new PIMs might become effective. On November 19, 2021, the PUC modified the procedural schedule. Accordingly, the Utilities filed their preliminary statements of position on February 8, 2022. The final statements of position are due on March 18, 2022, and an evidentiary hearing during the week of April 4, 2022. Revenue adjustment mechanism. The RAM is based on the lesser of: a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). All Utilities were limited to the RAM Cap in 2020. Under the PBR Framework, the ARA mechanism replaced the RAM, and became effective on June 1, 2021. The transition to the ARA includes the continuation of the 2020 RAM revenue adjustment. Annual revenue adjustment mechanism. The PBR Framework established a five-year multi-year rate period during which there will be no general rate cases. Target revenues will be adjusted according to an index-driven ARA based on (i) an inflation factor, (ii) a predetermined X-factor to encompass productivity, which is set at zero, (iii) a Z-factor to account for exceptional circumstances not in the Utilities’ control and (iv) a customer dividend consisting of a negative adjustment of 0.22% of adjusted revenue requirements compounded annually and a flow through of the “pre-PBR” savings commitment from the management audit recommendations developed in a prior docket. As a result of an Order issued by the PUC pursuant to a motion for partial reconsideration the customer dividend for “pre- PBR” savings commitment portion to be delivered to customers will be at a rate of $6.6 million per year from 2021 to 2025, and the Enterprise Resource Planning system benefits savings of $3.9 million, to be delivered to customers in 2021. The implementation of the ARA occurred on June 1, 2021. Earnings sharing mechanism. A symmetrical ESM for achieved rate-making ROACE outside of a 300 basis points dead band above or below the current authorized ROACE of 9.5% for each of each of the Utilities. There is a 50/50 sharing between customers and Utilities for the achieved rate-making ROACE falling within 150 basis points outside of the dead band in either direction, and a 90/10 sharing for any further difference. A reopening or review of the PBR terms will be triggered if the Utilities credit rating outlook indicates a potential credit downgrade below investment grade status, or if its achieved rate- making ROACE enters the outer most tier of the ESM. Major project interim recovery. On April 27, 2017, the PUC issued an order that provided guidelines for interim recovery of revenues to support major projects placed in service between general rate cases. Projects eligible for recovery through the MPIR adjustment mechanism are major projects (i.e., projects with capital expenditures net of customer contributions in excess of $2.5 million), including, but not restricted to, renewable energy, energy efficiency, utility scale generation, grid modernization and smaller qualifying projects grouped into programs for review. The MPIR adjustment mechanism provides the opportunity to recover revenues for approved costs of eligible projects placed in service between general rate cases wherein cost recovery is limited by a revenue cap and is not provided by other effective recovery mechanisms. The request for PUC approval must include a business case, and all costs that are allowed to be recovered through the MPIR adjustment mechanism must be offset by any related benefits. The guidelines provide for accrual of revenues approved for recovery upon in-service date to be collected from customers through the annual RBA tariff. Capital projects that are not recovered through the MPIR would be included in the RAM and be subject to the RAM Cap, until the next rate case when the Utilities would request recovery in base rates. On May 26, 2021, the PUC approved 2021 MPIR amounts totaling $21.8 million, including revenue taxes, for the Schofield Generating Station ($17.6 million), West Loch PV Project ($3.3 million), and Grid Modernization Strategy (GMS) Phase 1 project ($0.9 million for all three utilities) for the accrual of revenues effective January 1, 2021, that included the 2021 return on project amount (based on approved amounts) in rate base, depreciation and incremental O&M expenses. Under the PBR Framework, the Utilities began recovery of the annualized 2021 MPIR amounts effective June 1, 2021 through the RBA rate adjustment. On September 27, 2021, the PUC issued an order rejecting the Utilities’ August 31, 2021 request to update target revenues resulting from the GMS Phase 1 Meter Data Management System (MDMS) deferred software go‑live and completion of implementation through July 2021, as it inappropriately relied on an automatic approval provision in Hawaii Administrative Rules. The PUC did not rule on the merits of the Utilities’ request and offered the Utilities to file an amended request as soon as practicable. On October 7, 2021, the Utilities filed an amended request, requesting PUC approval of RBA tariff sheets reflecting the change to target revenues associated with the GMS Phase 1 MDMS deferred software go-live and completion of implementation through July 2021, which was approved by the PUC on December 20, 2021. Exceptional project recovery mechanism. Under the PBR Framework, the existing MPIR adjustment mechanism was renamed EPRM to include deferred and O&M expense projects and to permit the Utilities to include the full amount of approved costs in the EPRM for recovery in the first year the project goes into service, pro-rated for the portion of the year the 115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) project is in service. Any pending application for MPIR relief submitted by the Utilities prior to the PBR D&O will be grandfathered under the MPIR Guidelines. The Utilities may alternatively request that pending MPIR applications be reviewed under EPRM Guidelines. EPRM recovery will be in accordance with the EPRM Guidelines limited to the lesser of actual incurred project costs or PUC-approved amounts, net of savings. As of December 31, 2021, the PUC approved two EPRM projects totaling $41 million to the extent that the project costs are not included in rates. Currently, the Utilities are seeking EPRM recovery of five projects with total project costs of $264 million, subject to PUC approval. Pilot process. The PBR D&O approved a Pilot Process to foster innovation by establishing an expedited implementation process for pilots that test new technologies, programs, business models, and other arrangements. This is intended to support initiatives by the Utilities to test new programs and ideas quickly and elevate any successful pilots for consideration of full-scale implementation. The proposed pilots would be subject to PUC approval with a total annual cap of $10 million. The Pilot Process will feature the two primary activities: an initial “Workplan Development” phase, during which the Utilities identify and scope areas of interests, so as to inform the subsequent “Implementation” phase, during which the Utilities submit specific pilot proposals for expedited review by the PUC and implement the pilot upon approval. The PUC will issue an order, approving, denying, or modifying a proposed Pilot within 45 days of receiving notice of a specific pilot project. On July 9, 2021, the PUC issued an order approving the Utilities’ proposed Pilot Process submitted in April 2021 with modifications, including a cost recovery process that generally allows the Utilities to defer and recover total annual expenditures of approved pilot projects in full over twelve months beginning June 1 of the year following implementation through the RBA rate adjustment, although the Utilities may determine on a case-by-case basis that a particular project’s deferred costs should be amortized over a period greater than twelve months. On July 28, 2021, the Utilities submitted the finalized Pilot Process to govern the review of the pilot project proposals in accordance with the July 9, 2021 order. On November 30, 2021, the PUC solicited comments from the Parties regarding the Pilot Process Workplan filed by the Utilities on November 12, 2021. The Utilities filed their response to those comments on January 5, 2022. Performance incentive mechanisms. The PUC has established the following PIMs: (1) Service Quality performance incentives, (2) Phase 1 Request for proposal (RFP) PIM for procurement of low-cost renewable energy, (3) Phase 2 RFP PIMs for generation and generation plus storage project, and Grid Services and standalone storage, (4) new PIMs established in the PBR D&O. • • • Service Quality performance incentives (ongoing). Service Quality performance incentives are measured on a calendar-year basis. The PIM tariff requires the performance targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels for each of the PIMs to remain constant in interim periods, unless otherwise amended by order of the PUC. • • Service Reliability Performance measured by System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $6.8 million - for both indices in total for the three utilities). In 2021, the Utilities accrued $0.2 million in estimated penalties for service reliability. Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent 8 quarters with a deadband of 3% above and below the target. The maximum penalty or reward is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or rewards of approximately $1.4 million - in total for the three utilities). Phase 1 RFP PIM. Procurement of low-cost variable renewable resources through the RFP process in 2018 is measured by comparison of the procurement price to target prices. Half of the incentive was earned upon PUC approval of the PPAs. Based on the seven PPAs approved in 2019, the Utilities recognized $1.7 million in 2019 with the remaining award to be recognized in the year following the in-service date of the projects, which is estimated to occur from 2023 to 2024. Phase 2 RFP PIMs. The PUC order issued on October 9, 2019 establishes pricing thresholds, timelines to complete contracting, and other performance criteria for the performance incentive eligibility. The PIMs provide incentives only without penalties. On July 9, 2020, the Utilities filed two Grid Service Purchase Agreements for the Grid Service RFP that potentially qualify for a demand response PIM; however, details of the incentive metrics will be determined by the PUC. On September 15, 2020, the Utilities filed a PPA that qualified for a PIM incentive and on February 16, 2021, the Utilities filed one additional PPA that qualified for a declining PIM incentive. The PUC approved two PPAs in September 2021 and November 2021, and two Grid Services Purchase Agreements on December 31, 2020. In 2021, the Utilities accrued $0.1 million in incentive related to the two PPAs. 116 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) • The PUC established the following two new PIMs in its PBR D&O, which were approved in an order issued on March 23, 2021 and became effective on June 1, 2021. • • Renewable portfolio standard (RPS)-A PIM that provides a financial reward for accelerating the achievement of RPS goals. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $20/MWh in 2021 and 2022, $15/MWh in 2023, and $10/MWh for the remainder of the multi-year rate period (MRP). Penalties are already prescribed in the RPS as $20/MWh for failing to meet RPS targets in 2030, 2040 and 2045. The evaluation period commenced on January 1, 2021. In 2021, the Utilities accrued $0.7 million in estimated rewards. Grid Services Procurement PIM that provides financial rewards for grid services acquired in 2021 and 2022. The Utilities can earn a total maximum reward of $1.5 million over 2021 and 2022. The evaluation period commenced on January 1, 2021. • The PUC also established the following three new PIMs in its PBR D&O, which were approved by the PUC on May 17, 2021 and became effective on June 1, 2021. • • • Interconnection Approval PIM that provides financial rewards and penalties for interconnection times for distributed energy resources systems <100 kW in size. The Utilities can earn a total annual maximum reward of $3.0 million or a total annual maximum penalty of $0.9 million. The evaluation period commenced on January 1, 2021. In 2021, the Utilities accrued $2.8 million in estimated rewards. Low-to-Moderate Income (LMI) Energy Efficiency PIM that provides financial reward for collaboration between the Utilities and the third-party Public Benefits Fee Administrator to deliver energy savings for low- and moderate-income customers. The Utilities can earn a total annual maximum reward of $2.0 million. The PIM will initially have a duration of three years and be subject to an annual review. The evaluation period is based on Hawaii Energy’s program year with the initial evaluation year being the period of July 1, 2021 through June 30, 2022. Advanced Metering Infrastructure Utilization PIM that provides financial rewards for leveraging grid modernization investments and engaging customers beyond what is already planned in the Phase 1 Grid Modernization program. The Utilities can earn a total annual maximum reward of $2.0 million. The PIM will initially have a duration of three years after which it will be re-evaluated. The evaluation period commenced on January 1, 2021. In 2021, the Utilities accrued $3.4 million ($2.6 million for Hawaiian Electric, $0.3 million for Hawaii Electric Light and $0.5 million for Maui Electric) in estimated rewards net of penalties, for 2021. The net rewards related to 2021 will be reflected in the 2022 PIMs annual report and 2022 Spring Revenue Report filings. Annual review cycle. PBR D&O established an annual review cycle for revenue adjustments under the PBR Framework, including the biannual submission of the revenue reports. The Utilities filed the fall revenue report on October 29, 2021, which was approved by the PUC on December 22, 2021. The filing reflected ARA revenues for 2022 to be collected from January 1 through December 31, 2022, as follows: (in millions) 2022 ARA revenues Management Audit savings commitment Net 2022 ARA revenues Hawaiian Electric Hawaii Electric Light Maui Electric Total $ $ 19.8 $ (4.6) 15.2 $ 4.9 $ 4.8 $ (1.0) (1.0) 3.9 $ 3.8 $ 29.5 (6.6) 22.9 The net incremental amounts between the 2021 spring and fall revenue reports are as follows. The amounts are to be collected (refunded) from January 1 through December 31, 2022 under the RBA rate tariffs, which were included in the 2021 fall revenue report filing. (in millions) Hawaiian Electric Hawaii Electric Light Maui Electric Total Incremental RAM revenues and ARA revenues $ 41.7 $ 8.9 $ 10.9 $ 61.5 Incremental accrued RBA balance through September 30, 2021 (and associated revenue taxes) Incremental Performance Incentive Mechanisms (net) Incremental MPIR/EPRM Revenue Adjustment 21.9 — 9.8 2.5 — 0.3 (0.1) 0.1 0.3 Net incremental amount to be collected under the RBA rate tariffs $ 73.4 $ 11.7 $ 11.1 $ 24.3 0.1 10.4 96.2 Note: Columns may not foot due to rounding. 117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Most recent rate proceedings. Hawaiian Electric 2020 test year rate case. On October 22, 2020, the PUC issued a final D&O approving the stipulated settlement agreement filed in the proceeding. As a result, there will be no increase in base electric rates established in the 2017 test year rate case. In the final D&O, the PUC approved the capital structure that consists of a 58% total equity ratio, and an authorized ROACE of 9.5% for the 2020 test year. The resulting return on rate base (RORB) is 7.37%. The D&O approved the agreement to implement the overall lower depreciation rates approved in the last depreciation study proceeding, effective January 1, 2020. See “Annual revenue adjustment mechanism” under “Performance-based regulation framework” above, regarding the PUC’s decision on the treatment of Hawaiian Electric’s Management Audit savings commitment. Hawaiian Electric’s proposed RBA provision tariff and ECRC tariff submitted on November 6, 2020 were approved by the PUC on December 11, 2020 and took effect on January 1, 2021. Hawaii Electric Light 2019 test year rate case. On July 28, 2020, the PUC issued a final D&O, approving the Stipulated Partial Settlement Letter in part and ordering final rates for the 2019 test year to remain at current effective rates such that there is a zero increase in rates. The PUC determined that an appropriate authorized ROACE for the 2019 test year is 9.5%, approved a capital structure of 58% total equity and approved as fair a 7.52% RORB. In addition, the order, among others, (1) approved a 10-year amortization period for the state investment tax credit; and (2) approved a modification to Hawaii Electric Light’s ECRC to incorporate a 98%/2% risk-sharing split between customers and Hawaii Electric Light with an annual maximum exposure cap of +/- $600,000. The proposed final tariffs and PIM tariffs took effect on November 1, 2020, and the ECRC tariff took effect on January 1, 2021. Regulatory assets for COVID-19 related costs. On May 4, 2020, the PUC issued an order, authorizing all utilities, including the Utilities, to establish regulatory assets to record costs resulting from the suspension of disconnections of service during the pendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the Utilities from charging late payment fees on past due payments. As the moratorium on customer disconnections ended on May 31, 2021, the Utilities have resumed charging late payment fees in July 2021. On June 30, 2020, the PUC issued an order approving the Utilities’ request made in April 2020 for deferral treatment of COVID-19 related costs through December 31, 2020. On October 1, 2021, the PUC approved the Utilities’ request to extend the deferral period to December 31, 2021. In December 2021, to keep customers connected and provide some relief to customers experiencing financial difficulty during the pandemic, the Utilities have committed to issuing $2 million in bill credits to qualified customers. The Utilities will not seek recovery for the issued bill credits resulting in a reduction to the cumulative deferred costs. As of December 31, 2021, the Utilities recorded a total of $27.8 million in regulatory assets pursuant to the orders. Collective bargaining agreement. As of December 31, 2021, approximately 47% of the Utilities’ employees are members of the International Brotherhood of Electrical Workers, AFL-CIO, Local 1260. The collective bargaining agreement between the union and the Utilities was set to expire on October 31, 2021 but had been extended through January 3, 2022 while negotiations for a new agreement continued. On December 3, 2021, the union’s members ratified a new collective bargaining agreement. The new collective bargaining agreement covers a term from November 1, 2021 to October 31, 2024 and provides for non- compound 3% general wage increase for each year of the 3-year contract and includes changes to retirement benefits for employees hired on or after January 1, 2022. (see Note 10) Consolidating financial information. Consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the years ended December 31, 2021, 2020 and 2019, and as of December 31, 2021 and 2020. Hawaiian Electric unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric and (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder (see Hawaiian Electric and Subsidiaries’ Consolidated Statements of Capitalization). 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. 118 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 644,349 670,494 475,412 229,469 240,354 2,260,078 279,558 9,534 — 3,890 (72,447) 3,250 223,785 44,148 179,637 915 178,722 1,080 Consolidating statement of income Year ended December 31, 2021 (in thousands) Revenues Expenses Fuel oil Purchased power Other operation and maintenance Depreciation Taxes, other than income taxes Total expenses Operating income Hawaiian Electric $ 1,793,372 Hawaii Electric Light 381,033 Maui Electric 365,256 Consolidating adjustments (25) [1] Hawaiian Electric Consolidated $ 2,539,636 442,818 508,642 313,009 155,607 170,604 1,590,680 202,692 80,086 108,997 79,390 40,201 35,499 344,173 36,860 121,445 52,855 83,013 33,661 34,251 325,225 40,031 — — — — — — (25) Allowance for equity funds used during construction Equity in earnings of subsidiaries 7,734 45,353 586 — 1,214 — — (45,353) [2] Retirement defined benefits credit (expense)—other than service costs Interest expense and other charges, net Allowance for borrowed funds used during construction Income before income taxes Income taxes Net income Preferred stock dividends of subsidiaries Net income attributable to Hawaiian Electric Preferred stock dividends of Hawaiian Electric 3,348 (51,680) 670 (10,353) (128) (10,439) — 25 [1] 2,617 210,064 31,342 178,722 — 178,722 1,080 197 27,960 6,246 21,714 534 21,180 — 436 31,114 6,560 24,554 381 24,173 — — (45,353) — (45,353) — (45,353) — Net income for common stock $ 177,642 21,180 24,173 (45,353) $ 177,642 Consolidating statement of comprehensive income Year ended December 31, 2021 (in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Consolidating adjustments Hawaiian Electric Consolidated Net income for common stock $ 177,642 21,180 24,173 (45,353) $ 177,642 Other comprehensive income (loss), net of taxes: Retirement benefit plans: Net gains arising during the period, net of taxes 151,523 17,902 16,572 (34,474) [1] 151,523 Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes 19,461 2,749 2,553 (5,302) [1] 19,461 (171,345) (20,585) (18,898) 39,483 [1] (171,345) Other comprehensive income (loss), net of taxes (361) 66 227 (293) (361) Comprehensive income attributable to common shareholder $ 177,281 21,246 24,400 (45,646) $ 177,281 119 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating statement of income Year ended December 31, 2020 (in thousands) Revenues Expenses Fuel oil Purchased power Other operation and maintenance Depreciation Taxes, other than income taxes Total expenses Operating income Allowance for equity funds used during construction Equity in earnings of subsidiaries Retirement defined benefits credit (expense)—other than service costs Interest expense and other charges, net Allowance for borrowed funds used during construction Income before income taxes Income taxes Net income Preferred stock dividends of subsidiaries Net income attributable to Hawaiian Electric Preferred stock dividends of Hawaiian Electric Net income for common stock 1,080 $ 169,340 Consolidating statement of comprehensive income Year ended December 31, 2020 Hawaiian Electric $ 1,608,305 Hawaii Electric Light 334,221 Maui Electric 323,430 Consolidating adjustments (636) [1] Hawaiian Electric Consolidated $ 2,265,320 354,087 446,672 311,781 151,387 154,191 1,418,118 190,187 7,335 47,504 72,202 73,120 73,746 39,041 31,181 289,290 44,931 543 — 88,985 48,957 88,665 32,305 30,450 289,362 34,068 — — — — — — (636) 890 — — (47,504) [2] (1,294) (48,775) 2,540 197,497 27,077 170,420 — 170,420 672 (10,004) (141) (9,651) — 636 [1] 160 36,302 8,275 28,027 534 27,493 — 27,493 292 25,458 5,066 20,392 381 20,011 — 20,011 — (47,504) — (47,504) — (47,504) — (47,504) $ 515,274 568,749 474,192 222,733 215,822 1,996,770 268,550 8,768 — (763) (67,794) 2,992 211,753 40,418 171,335 915 170,420 1,080 169,340 (in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Consolidating adjustments Hawaiian Electric Consolidated Net income for common stock $ 169,340 27,493 20,011 (47,504) $ 169,340 Other comprehensive income (loss), net of taxes: Retirement benefit plans: Net losses arising during the period, net of tax benefits Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes Other comprehensive loss, net of tax benefits Comprehensive income attributable to common shareholder (63,050) (9,424) (10,897) 20,321 [1] (63,050) 21,550 3,179 2,763 (5,942) [1] 21,550 39,860 (1,640) 6,025 (220) 8,000 (134) (14,025) [1] 354 39,860 (1,640) $ 167,700 27,273 19,877 (47,150) $ 167,700 120 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating statement of income Year ended December 31, 2019 (in thousands) Revenues Expenses Fuel oil Purchased power Other operation and maintenance Depreciation Taxes, other than income taxes Total expenses Operating income Allowance for equity funds used during construction Equity in earnings of subsidiaries Retirement defined benefits expense—other than service costs Interest expense and other charges, net Allowance for borrowed funds used during construction Income before income taxes Income taxes Net income Preferred stock dividends of subsidiaries Net income attributable to Hawaiian Electric Preferred stock dividends of Hawaiian Electric Net income for common stock 157,920 1,080 $ 156,840 Consolidating statement of comprehensive income Year ended December 31, 2019 Hawaiian Electric $ 1,803,698 Hawaii Electric Light 364,590 Maui Electric 378,202 Consolidating adjustments Hawaiian Electric Consolidated (548) [1] $ 2,545,942 494,728 494,215 319,771 143,470 170,979 1,623,163 180,535 84,565 90,989 76,091 41,812 33,787 327,244 37,346 141,416 48,052 85,875 30,449 35,365 341,157 37,045 — — — — — — (548) 9,955 43,167 (2,287) (51,199) 3,666 183,837 25,917 157,920 — 816 — 1,216 — — (43,167) [2] (422) (10,741) (127) (9,450) — 548 [1] 342 27,341 5,990 21,351 534 20,817 — 20,817 445 29,129 6,398 22,731 381 22,350 — 22,350 — (43,167) — (43,167) — (43,167) — (43,167) $ 720,709 633,256 481,737 215,731 240,131 2,291,564 254,378 11,987 — (2,836) (70,842) 4,453 197,140 38,305 158,835 915 157,920 1,080 156,840 (in thousands) Hawaiian Electric Hawaii Electric Light Maui Electric Consolidating adjustments Hawaiian Electric Consolidated Net income for common stock $ 156,840 20,817 22,350 (43,167) $ 156,840 Other comprehensive income (loss), net of taxes: Retirement benefit plans: Net gains (losses) arising during the period, net of taxes Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of tax benefits Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes Other comprehensive loss, net of tax benefits Comprehensive income attributable to common shareholder 5,249 373 (204) (169) [1] 5,249 9,550 1,455 1,182 (2,637) [1] 9,550 (16,177) (1,378) (1,840) (1,152) 2,992 [1] (12) (174) 186 (16,177) (1,378) $ 155,462 20,805 22,176 (42,981) $ 155,462 121 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating balance sheet December 31, 2021 (in thousands) Assets Property, plant and equipment Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric Consolidated Utility property, plant and equipment Land Plant and equipment Less accumulated depreciation Construction in progress Utility property, plant and equipment, net Nonutility property, plant and equipment, less accumulated depreciation 42,737 $ 5,097,033 (1,757,096) 159,854 3,542,528 5,606 1,390,361 (619,991) 17,129 793,105 3,594 1,248,589 (563,430) 27,586 716,339 5,302 115 1,532 Total property, plant and equipment, net Investment in wholly-owned subsidiaries, at equity 3,547,830 793,220 717,871 676,237 — — Current assets Cash and cash equivalents Restricted cash Advances to affiliates Customer accounts receivable, net Accrued unbilled revenues, net Other accounts receivable, net Fuel oil stock, at average cost Materials and supplies, at average cost Prepayments and other Regulatory assets Total current assets Other long-term assets Operating lease right-of-use assets Regulatory assets Other Total other long-term assets Total assets Capitalization and liabilities Capitalization Common stock equity Cumulative preferred stock–not subject to mandatory redemption Long-term debt, net Total capitalization Current liabilities Current portion of operating lease liabilities Current portion of long-term debt, net Short-term borrowings-affiliate Accounts payable Interest and preferred dividends payable Taxes accrued, including revenue taxes Regulatory liabilities Other Total current liabilities Deferred credits and other liabilities Operating lease liabilities Deferred income taxes Regulatory liabilities Unamortized tax credits Defined benefit pension and other postretirement benefit plans liability Other Total deferred credits and other liabilities Total capitalization and liabilities 23,344 3,089 1,000 135,949 92,469 18,624 71,184 42,006 32,140 58,695 5,326 23,422 — — 28,469 19,529 3,347 12,814 9,727 6,052 3,051 — — 22,441 17,157 3,031 20,080 20,144 7,114 4,918 478,500 88,315 118,307 78,710 337,903 130,546 547,159 $ 5,249,726 22,442 81,645 17,124 121,211 1,002,746 318 79,331 18,510 98,159 934,337 $ 2,261,899 332,900 343,260 22,293 1,136,620 3,420,812 7,000 234,390 574,290 5,000 253,417 601,677 45,955 39,981 — 111,024 12,442 143,723 22,240 56,752 432,117 46,426 291,027 695,152 76,201 220,480 67,511 1,396,797 $ 5,249,726 35 — — 22,844 2,269 30,679 4,273 18,540 78,640 291 64,309 92,589 13,532 53,257 30,042 254,020 934,337 3,378 11,994 1,000 26,139 2,617 33,153 3,247 14,158 95,686 19,063 53,298 179,267 14,212 48,900 18,030 332,770 1,002,746 122 — — — — — — — — 77 — — — — — — — — — 77 — — — — 77 77 — — 77 — — — — — — — — — — — — — — — — 77 $ — — — — — — — (676,237) [2] — — (1,000) [1] — — (17,735) [1] — — 725 [1] — (18,010) 51,937 7,735,983 (2,940,517) 204,569 5,051,972 6,949 5,058,921 — 52,169 3,089 — 186,859 129,155 7,267 104,078 71,877 46,031 66,664 667,189 — — (1,014) [1] (1,014) (695,261) $ 101,470 498,879 165,166 765,515 6,491,625 (676,237) [2] $ 2,261,899 — — (676,237) — — (1,000) [1] — (3) [1] 725 [1] — (17,881) [1] (18,159) — — — — 34,293 1,624,427 3,920,619 49,368 51,975 — 160,007 17,325 208,280 29,760 71,569 588,284 65,780 408,634 967,008 103,945 (857) [1] (8) (865) (695,261) $ 321,780 115,575 1,982,722 6,491,625 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric Consolidated Consolidating balance sheet December 31, 2020 (in thousands) Assets Property, plant and equipment Utility property, plant and equipment Land Plant and equipment Less accumulated depreciation Construction in progress Utility property, plant and equipment, net Nonutility property, plant and equipment, less accumulated depreciation Total property, plant and equipment, net Investment in wholly-owned subsidiaries, at equity Current assets Cash and cash equivalents Restricted cash Advances to affiliates Customer accounts receivable, net Accrued unbilled revenues, net Other accounts receivable, net Fuel oil stock, at average cost Materials and supplies, at average cost Prepayments and other Regulatory assets Total current assets Other long-term assets Operating lease right-of-use assets Regulatory assets Other Total other long-term assets Total assets Capitalization and liabilities Capitalization Common stock equity Cumulative preferred stock–not subject to mandatory redemption Long-term debt, net Total capitalization Current liabilities $ 42,411 4,960,470 5,606 3,594 1,352,885 1,195,988 (1,677,256) (597,606) (544,217) 143,616 13,043 31,683 3,469,241 773,928 687,048 5,306 3,474,547 626,890 115 774,043 — 1,532 688,580 — 42,205 15,966 26,700 102,736 73,628 17,984 38,777 38,786 34,306 22,095 413,183 125,858 513,192 98,307 737,357 3,046 — — 23,989 13,631 3,028 8,471 9,896 5,197 1,954 69,212 2,032 — — 21,107 13,777 2,856 10,990 18,662 4,580 6,386 80,390 1,443 114,461 17,992 353 108,620 20,010 133,896 128,983 $ 5,251,977 977,151 897,953 $ 2,141,918 317,451 309,363 22,293 1,116,426 3,280,637 7,000 216,447 5,000 228,429 540,898 542,792 Current portion of operating lease liabilities Short-term borrowings-non-affiliate Short-term borrowings-affiliate Accounts payable Interest and preferred dividends payable Taxes accrued, including revenue taxes Regulatory liabilities Other Total current liabilities Deferred credits and other liabilities Operating lease liabilities Deferred income taxes Regulatory liabilities Unamortized tax credits Defined benefit pension and other postretirement benefit plans liability Other Total deferred credits and other liabilities Total capitalization and liabilities 64,599 49,979 — 97,102 14,480 135,018 20,224 57,926 439,328 67,824 282,685 656,270 82,563 373,112 69,558 1,532,012 $ 5,251,977 98 — 18,800 19,570 3,138 29,869 8,785 13,851 94,111 1,344 54,108 173,938 15,363 77,679 19,710 342,142 33 — 7,900 17,177 2,790 27,637 8,292 18,621 82,450 326 61,005 92,277 13,989 79,741 25,373 272,711 977,151 897,953 123 — — — — — — — — 77 — — — — — — — — — 77 — — — — 77 77 — — 77 — — — — — — — — — — — — — — — — 77 — — — — — — — (626,890) [2] — — (26,700) [1] — — (16,195) [1] — — — — (42,895) — — — — $ 51,611 7,509,343 (2,819,079) 188,342 4,930,217 6,953 4,937,170 — 47,360 15,966 — 147,832 101,036 7,673 58,238 67,344 44,083 30,435 519,967 127,654 736,273 136,309 1,000,236 6,457,373 (669,785) $ (626,891) [2] $ 2,141,918 — — (626,891) — — (26,700) [1] — (58) [1] — — (16,136) [1] (42,894) — — — — — — — (669,785) $ 34,293 1,561,302 3,737,513 64,730 49,979 — 133,849 20,350 192,524 37,301 74,262 572,995 69,494 397,798 922,485 111,915 530,532 114,641 2,146,865 6,457,373 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating statements of changes in common stock equity (in thousands) Balance, December 31, 2018 Net income for common stock Other comprehensive income, net of taxes Issuance of common stock, net of expenses Common stock dividends Balance, December 31, 2019 Net income for common stock Other comprehensive loss, net of tax benefits Issuance of common stock, net of expenses Common stock dividends Dissolution of subsidiary Balance, December 31, 2020 Net income for common stock Other comprehensive loss, net of tax benefits Issuance of common stock, net of expenses Common stock dividends Balance, December 31, 2021 Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric Consolidated $ 1,957,641 295,874 280,863 101 (576,838) $ 1,957,641 156,840 20,817 22,350 (1,378) 35,501 (12) (1) (174) 4,899 (101,252) (17,680) (15,068) — — — — (43,167) 156,840 186 (4,898) 32,748 (1,378) 35,501 (101,252) 2,047,352 298,998 292,870 101 (591,969) 2,047,352 169,340 27,493 20,011 (1,640) 34,000 (220) 7,500 (134) 11,000 (107,134) (16,320) (14,384) — — — — — — — (24) 2,141,918 317,451 309,363 177,642 21,180 24,173 (361) 54,400 66 227 8,803 24,597 (111,700) (14,600) (15,100) $ 2,261,899 332,900 343,260 77 — — — — 77 (47,504) 169,340 354 (18,500) 30,704 24 (1,640) 34,000 (107,134) — (626,891) 2,141,918 (45,353) 177,642 (293) (33,400) 29,700 (361) 54,400 (111,700) (676,237) $ 2,261,899 124 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric Consolidated $ 178,722 21,714 24,554 — (45,353) [2] $ 179,637 Consolidating statement of cash flows Year ended December 31, 2021 (in thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Equity in earnings of subsidiaries Common stock dividends received from subsidiaries Depreciation of property, plant and equipment Other amortization Deferred income taxes State refundable credit Bad debt expense Allowance for equity funds used during construction Bill credits Other Changes in assets and liabilities: Increase in accounts receivable Increase in accrued unbilled revenues Increase in fuel oil stock Decrease (increase) in materials and supplies Decrease (increase) in regulatory assets Increase (decrease) in regulatory liabilities Increase in accounts payable Change in prepaid and accrued income taxes, tax credits and revenue taxes Decrease in defined benefit pension and other postretirement benefit plans liability Change in other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Capital expenditures Advances from affiliates Other Net cash used in investing activities Cash flows from financing activities Common stock dividends Preferred stock dividends of Hawaiian Electric and subsidiaries Proceeds from issuance of common stock Proceeds from issuance of long-term debt Net decrease in short-term borrowings from non- affiliates and affiliate with original maturities of three months or less Repayment of short-term debt Other Net cash provided by (used in) financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, January 1 58,171 Cash, cash equivalents and restricted cash, December 31 Less: Restricted cash Cash and cash equivalents, December 31 26,433 (3,089) $ 23,344 (45,353) 29,700 155,607 16,688 (3,191) (7,120) 1,159 (7,734) 1,400 366 (41,727) (18,345) (32,407) (3,220) (15,422) 16,269 9,828 — — 40,201 3,532 (1,955) (1,672) 509 (586) 300 (41) (6,832) (5,816) (4,343) 169 24 (1,031) 4,723 — — 33,661 1,517 1,317 (1,790) 515 (1,214) 300 1,025 (3,071) (3,303) (9,090) (1,482) 1,524 120 3,120 21,217 3,861 1,938 (3,480) (36,733) 216,224 (950) (5,833) 45,974 (724) (8,196) 40,721 (194,984) (50,516) (46,500) 25,700 (29,596) (198,880) — 1,072 — 1,073 (49,444) (45,427) (111,700) (14,600) (15,100) (1,080) 54,400 60,000 (534) (381) 8,803 30,000 24,597 25,000 — (17,800) (7,900) (50,000) (702) (49,082) (31,738) — (119) 5,750 2,280 3,046 5,326 — 5,326 — (120) 26,096 21,390 2,032 23,422 — 23,422 125 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 77 77 — 77 45,353 [2] (29,700) [2] — — — — — — — — 1,540 [1] — — — — — (86) [1] — (1,540) [1] (29,786) — (25,700) [1] 33,486 [1],[2] 7,786 — — 229,469 21,737 (3,829) (10,582) 2,183 (9,534) 2,000 1,350 (50,090) (27,464) (45,840) (4,533) (13,874) 15,358 17,671 26,930 (5,154) (52,302) 273,133 (292,000) — 6,035 (285,965) 29,700 [2] (111,700) — (33,400) [2] — 25,700 [1] — — 22,000 — — — — — (1,995) 54,400 115,000 — (50,000) (941) 4,764 (8,068) 63,326 55,258 (3,089) 52,169 $ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Consolidating statement of cash flows Year ended December 31, 2020 (in thousands) Cash flows from operating activities Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric Consolidated Net income $ 170,420 28,027 20,392 — (47,504) [2] $ 171,335 Adjustments to reconcile net income to net cash provided by operating activities Equity in earnings of subsidiaries Common stock dividends received from subsidiaries Depreciation of property, plant and equipment Other amortization Deferred income taxes State refundable credit Bad debt expense Allowance for equity funds used during construction Accrued environmental reserve Other Changes in assets and liabilities: Increase in accounts receivable Decrease in accrued unbilled revenues Decrease in fuel oil stock Increase in materials and supplies Decrease (increase) in regulatory assets Decrease in regulatory liabilities Decrease in accounts payable (47,504) 30,704 151,387 24,511 2,130 (6,668) 1,042 (7,335) 6,556 1,201 (8,093) 8,832 30,226 (3,910) 8,526 (5,490) (26,093) — — 39,041 5,090 (463) (1,593) 620 (543) — 1,322 — — 32,305 4,145 1,484 (1,700) 453 (890) — 87 (3,349) (1,343) 3,327 430 (1,583) (2,908) (4,489) (1,819) 3,126 3,043 (1,149) (4,611) (6,583) (5,217) Change in prepaid and accrued income taxes, tax credits and revenue taxes Decrease in defined benefit pension and other postretirement benefit plans liability Change in other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Capital expenditures Advances from affiliates Other Net cash used in investing activities Cash flows from financing activities (25,757) (5,483) (5,998) (3,092) (21,124) 280,469 (643) (8,864) 46,120 (571) 3,635 40,608 (229,127) (64,346) (57,391) 1,000 (14,340) 8,000 1,032 — 960 (242,467) (55,314) (56,431) Common stock dividends (107,134) (16,320) (14,384) Preferred stock dividends of Hawaiian Electric and subsidiaries Proceeds from the issuance of common stock Proceeds from the issuance of long-term debt Repayment of long-term debt Net increase (decrease) in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less Proceeds from issuance of short-term debt Repayment of short-term debt Other Net cash provided by (used in) financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, January 1 Cash, cash equivalents and restricted cash, December 31 Less: Restricted cash (1,080) 34,000 205,000 (95,000) (46,987) 100,000 (100,000) (1,618) (12,819) 25,183 32,988 58,171 (15,966) Cash and cash equivalents, December 31 Cash and cash equivalents, December 31 $ 42,205 (534) (381) 7,500 10,000 (14,000) 11,000 40,000 — 18,800 (19,800) — — (214) — — (377) 5,232 16,058 235 1,797 2,032 — 2,032 (3,962) 7,008 3,046 — 3,046 126 — — — — — — — — — — — — — — — — — — — — — — (24) (24) — — — — — — — — — — (24) 101 77 — 77 47,504 [2] (30,704) [2] — — — — — — — — 5,499 [1] — — — — — 58 [1] — (5,499) [1] (30,646) — — 222,733 33,746 3,151 (9,961) 2,115 (8,768) 6,556 2,610 (7,286) 15,285 33,699 (6,642) 1,007 (16,562) (33,129) (37,180) (4,306) (31,852) 336,551 — (9,000) [1] 18,442 [1],[2] 9,442 (350,864) — 6,070 (344,794) 30,704 [2] (107,134) — (18,500) [2] — — 9,000 [1] — — — 21,204 — — — — — (1,995) 34,000 255,000 (109,000) (38,987) 100,000 (100,000) (2,209) 29,675 21,432 41,894 63,326 (15,966) $ 47,360 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Hawaiian Electric Hawaii Electric Light Maui Electric Other subsidiaries Consolidating adjustments Hawaiian Electric Consolidated $ 157,920 21,351 22,731 Consolidating statement of cash flows Year ended December 31, 2019 (in thousands) Cash flows from operating activities Net income Adjustments to reconcile net income to net cash provided by operating activities Equity in earnings of subsidiaries Common stock dividends received from subsidiaries Depreciation of property, plant and equipment Other amortization Deferred income taxes State refundable credit Bad debt expense Allowance for equity funds used during construction Accrued environmental reserve Other Changes in assets and liabilities: Decrease in accounts receivable Decrease (increase) in accrued unbilled revenues Decrease (increase) in fuel oil stock Decrease (increase) in materials and supplies Decrease in regulatory assets Increase (decrease) in regulatory liabilities Increase (decrease) in accounts payable Change in prepaid and accrued income taxes, tax credits and revenue taxes Decrease in defined benefit pension and other postretirement benefit plans liability Change in other assets and liabilities Net cash provided by operating activities Cash flows from investing activities Capital expenditures Advances to affiliates Other Net cash used in investing activities Cash flows from financing activities Common stock dividends Preferred stock dividends of Hawaiian Electric and subsidiaries Proceeds from the issuance of common stock Proceeds from the issuance of long-term debt Repayment of long-term debt and funds transferred for repayment of long-term debt Net increase in short-term borrowings from non- affiliates and affiliate with original maturities of three months or less Proceeds from issuance of short-term debt Other Repayment of short-term debt Net cash provided by (used in) financing activities Net increase (decrease) in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash, January 1 Cash, cash equivalents and restricted cash, December 31 Less: Restricted cash (43,204) 32,783 143,470 23,351 (13,547) (6,245) 1,236 (9,955) 406 27,575 24,150 4,902 (14,741) (4,585) 55,494 102 4,687 — — 41,812 4,810 (2,383) (559) 470 (816) — (61) 2,858 (22) 2,126 (1,158) 9,218 (1,558) (3,160) — — 30,449 1,470 (354) (1,565) 444 (1,216) — (55) 3,029 (385) 613 245 6,550 3,409 (3,578) (24,900) (893) (3,097) (3,033) (15,747) 340,119 (311,538) (27,700) 5,241 (333,997) (762) (6,152) 65,121 (49,811) (8,000) 297 (57,514) (653) (6,940) 51,097 (58,549) — 1,303 (57,246) (101,252) (17,680) (15,068) (1,080) 35,500 190,000 (534) — 72,500 (381) 4,900 17,500 (183,546) (70,000) (30,000) 46,987 75,000 (1,475) (50,000) 10,134 16,256 16,732 32,988 (30,749) — — (508) — 27,700 — (126) — (16,222) 4,525 (8,615) 15,623 7,008 (123) 6,885 (1,624) 3,421 1,797 — 1,797 Cash and cash equivalents, December 31 $ 2,239 Explanation of consolidating adjustments on consolidating schedules: [1] Eliminations of intercompany receivables and payables and other intercompany transactions [2] Elimination of investment in subsidiaries, carried at equity 127 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 101 101 — 101 (43,167) [2] $ 158,835 43,167 [2] (32,748) [2] — — — — — — — — (11,215) [1] — — — — — 367 [1] — 11,215 [1] (32,381) (37) 35 215,731 29,631 (16,284) (8,369) 2,150 (11,987) 406 27,459 18,822 4,495 (12,002) (5,498) 71,262 1,953 (2,051) (28,523) (4,448) (17,624) 423,956 — 35,700 [1] 4,533 [1][2] 40,233 (419,898) — 11,374 (408,524) 32,748 [2] (101,252) — (4,900) [2] — — (35,700) [1] — — — (7,852) — — — — — (1,995) 35,500 280,000 (283,546) 38,987 75,000 (2,109) (50,000) (9,415) 6,017 35,877 41,894 (30,872) $ 11,022 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 4· Bank segment (HEI only) Selected financial information American Savings Bank, F.S.B. Statements of Income and Comprehensive Income Data Years ended December 31 (in thousands) Interest and dividend income Interest and fees on loans Interest and dividends on investment securities Total interest and dividend income Interest expense Interest on deposit liabilities Interest on other borrowings Total interest expense Net interest income Provision for credit losses Net interest income after provision for credit losses Noninterest income Fees from other financial services Fee income on deposit liabilities Fee income on other financial products Bank-owned life insurance Mortgage banking income Gain on sale of real estate Gain on sale of investment securities, net Other income, net Total noninterest income Noninterest expense Compensation and employee benefits Occupancy Data processing Services Equipment Office supplies, printing and postage Marketing FDIC insurance Other expense1 Total noninterest expense Income before income taxes Income taxes Net income Other comprehensive income (loss), net of taxes Comprehensive income 2021 2020 2019 $ 198,802 $ 214,134 $ 233,632 43,464 242,266 4,981 59 5,040 237,226 (25,825) 263,051 21,225 16,663 8,770 7,318 9,305 — 528 851 30,529 244,663 10,654 460 11,114 233,549 50,811 182,738 16,447 16,059 6,381 6,483 23,734 — 9,275 (256) 64,660 78,123 32,922 266,554 16,830 1,610 18,440 248,114 23,480 224,634 19,275 20,877 6,507 7,687 4,943 10,762 653 2,074 72,778 113,970 104,443 103,009 20,584 17,634 10,327 9,510 4,239 3,870 3,235 13,783 197,152 130,559 29,325 101,234 (52,728) 21,573 14,769 11,121 9,001 4,623 3,435 2,342 20,283 191,590 69,271 11,688 57,583 23,608 21,272 15,306 10,239 8,760 5,512 4,490 1,204 15,586 185,378 112,034 23,061 88,973 29,406 $ 48,506 $ 81,191 $ 118,379 1 2021 and 2020 include approximately $0.6 million and $5.1 million of certain direct and incremental COVID-19 related costs, respectively. For 2020, these costs include $2.5 million of compensation expense and $2.0 million of enhanced cleaning and sanitation costs. 128 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reconciliation to amounts per HEI Consolidated Statements of Income*: Years ended December 31 (in thousands) Interest and dividend income Noninterest income Less: Gain on sale of real estate Less: Gain on sale of investment securities, net *Revenues-Bank Total interest expense Provision for credit losses Noninterest expense Less: Retirement defined benefits expense (credit)—other than service costs Add: Gain on sale of real estate *Expenses-Bank *Operating income-Bank Add back: Retirement defined benefits expense (credit)—other than service costs Add back: Gain on sale of investment securities, net 2021 2020 2019 $ 242,266 $ 244,663 $ 266,554 64,660 — 528 306,398 5,040 (25,825) 197,152 (1,828) — 178,195 128,203 (1,828) 528 78,123 — 9,275 313,511 11,114 50,811 191,590 1,813 — 251,702 61,809 1,813 9,275 72,778 10,762 653 327,917 18,440 23,480 185,378 (472) 10,762 217,008 110,909 (472) 653 Income before income taxes $ 130,559 $ 69,271 $ 112,034 129 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Balance Sheets Data December 31 (in thousands) Assets Cash and due from banks Interest-bearing deposits Cash and cash equivalents Investment securities Available-for-sale, at fair value Held-to-maturity, at amortized cost (fair value of $510,474 and $229,963 at December 31, 2021 and 2020, respectively) Stock in Federal Home Loan Bank, at cost Loans held for investment Allowance for credit losses Net loans Loans held for sale, at lower of cost or fair value Other Goodwill Total assets Liabilities and shareholder’s equity Deposit liabilities–noninterest-bearing Deposit liabilities–interest-bearing Other borrowings Other Total liabilities Commitments and contingencies Common stock Additional paid in capital Retained earnings Accumulated other comprehensive income (loss), net of taxes Net unrealized gains (losses) on securities Retirement benefit plans Total shareholder’s equity Total liabilities and shareholder’s equity Total liabilities and shareholder’s equity $ 2021 2020 $ 100,051 151,189 251,240 $ 178,422 114,304 292,726 2,574,618 1,970,417 522,270 10,000 5,211,114 (71,130) 5,139,984 10,404 590,897 82,190 $ 9,181,603 $ 2,976,632 5,195,580 88,305 193,268 8,453,785 1 353,895 411,704 $ (37,782) 727,818 $ 9,181,603 (32,037) (5,745) 226,947 8,680 5,333,843 (101,201) 5,232,642 28,275 554,656 82,190 $ 8,396,533 $ 2,598,500 4,788,457 89,670 183,731 7,660,358 1 351,758 369,470 19,986 (5,040) 14,946 736,175 $ 8,396,533 2021 2020 December 31 (in thousands) Other assets Bank-owned life insurance Premises and equipment, net Accrued interest receivable Mortgage servicing rights Low-income housing investments Other Other liabilities Accrued expenses Federal and state income taxes payable Cashier’s checks Advance payments by borrowers Other $ $ $ $ 177,566 $ 202,299 20,854 9,950 110,989 69,239 590,897 $ 87,905 $ — 33,675 9,994 61,694 193,268 $ 163,265 206,134 24,616 10,020 83,435 67,186 554,656 62,694 6,582 38,011 10,207 66,237 183,731 130 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 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. Investment securities. The major components of investment securities were as follows: Amortized cost Gross unrealized gains Gross unrealized losses Less than 12 months 12 months or longer Estimated fair value Number of issues Fair value Amount Number of issues Fair value Amount Gross unrealized losses (dollars in thousands) December 31, 2021 Available-for-sale U.S. Treasury and federal agency obligations $ 89,714 $ 803 $ (427) $ 90,090 Mortgage-backed securities* 2,482,618 6,511 (51,206) 2,437,923 Corporate bonds Mortgage revenue bonds 30,625 15,427 655 — (102) — 31,178 15,427 4 120 1 — $ 44,827 $ (427) — $ — $ — 1,845,243 (38,321) 18 271,012 (12,885) 12,780 (102) — — — — — — — $ 271,012 $ (12,885) — 18 $ 2,618,384 $ 7,969 $ (51,735) $ 2,574,618 125 $ 1,902,850 $ (38,850) Held-to-maturity US Treasury and Federal agency obligations $ 59,871 $ 168 $ (170) $ 59,869 Mortgage-backed securities* 462,399 1,480 (13,274) 450,605 $ 522,270 $ 1,648 $ (13,444) $ 510,474 December 31, 2020 Available-for-sale U.S. Treasury and federal agency obligations $ 60,260 $ 2,062 $ — $ 62,322 Mortgage-backed securities* 1,825,893 Corporate bonds Mortgage revenue bonds 29,776 27,185 26,817 1,575 — (3,151) 1,849,559 — — 31,351 27,185 $ 1,943,114 $ 30,454 $ (3,151) $ 1,970,417 Held-to-maturity Mortgage-backed securities* $ 226,947 $ 3,846 $ (830) $ 229,963 $ 226,947 $ 3,846 $ (830) $ 229,963 * Issued or guaranteed by U.S. Government agencies or sponsored agencies 2 22 24 — 22 — — 22 7 7 $ 39,594 $ (170) — $ — $ — 290,883 (7,665) $ 330,477 $ (7,835) 7 7 106,483 (5,609) $ 106,483 $ (5,609) $ — $ — — $ — $ — 373,924 (3,151) — — — — — — — $ 373,924 $ (3,151) — $ 114,152 $ (830) — $ 114,152 $ (830) — $ $ $ — — — — — — — $ — — $ — — $ — ASB does not believe that the investment securities that were in an unrealized loss position as of December 31, 2021, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses as of December 31, 2021. U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal. In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages. 131 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The contractual maturities of investment securities were as follows: December 31, 2021 (in thousands) Available-for-sale Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies Total available-for-sale securities Held-to-maturity Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies Total held-to-maturity securities Amortized Cost Fair value $ 15,055 $ 15,298 62,461 58,250 — 63,256 58,141 — 135,766 136,695 2,482,618 2,437,923 $ 2,618,384 $ 2,574,618 $ — $ — — — 59,871 59,869 — — 59,871 59,869 462,399 450,605 $ 522,270 $ 510,474 The proceeds, gross gains and losses from sales of available-for-sale securities were as follows: Years ended December 31 2021 2020 2019 (in thousands) Proceeds Gross gains Gross losses Interest income from taxable and non-taxable investment securities were as follows: Years ended December 31 (in thousands) Taxable Non-taxable $ 197,354 $ 169,157 $ 19,810 975 (447) 9,275 — 653 — 2021 2020 2019 $ 42,534 $ 29,760 $ 31,848 930 769 1,074 $ 43,464 $ 30,529 $ 32,922 ASB pledged securities with a market value of approximately $416 million and $353 million as of December 31, 2021 and 2020, respectively, as collateral for public funds and other deposits, mortgage pipeline hedge margin, automated clearinghouse transactions, The Federal Reserve Bank of San Francisco Discount Window and bankruptcy account, and The Federal Home Loan Bank of Des Moines advance line. In addition, ASB pledged securities with a market value of $161 million and $92 million as of December 31, 2021 and 2020, respectively, as collateral for securities sold under agreements to repurchase. Stock in FHLB. As of December 31, 2021 and 2020, ASB’s stock in FHLB was carried at cost ($10.0 million and $8.7 million, respectively) because it can only be redeemed at par and it is a required investment based on measurements of ASB’s capital, assets and borrowing levels. Quarterly and as conditions warrant, ASB reviews its investment in the stock of the FHLB for impairment. ASB evaluated its investment in FHLB stock for credit losses as of December 31, 2021, consistent with its accounting policy. ASB did not recognize any credit losses for 2021, 2020 and 2019 based on its evaluation of the underlying investment. Future deterioration in the FHLB’s financial position and/or negative developments in any of the factors considered in ASB’s impairment evaluation may result in future impairment losses. 132 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Loans. The components of loans were summarized as follows: December 31 (in thousands) Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Total real estate Commercial Consumer Total loans Less: Deferred fees and discounts Allowance for credit losses Total loans, net 2021 2020 $ 2,299,212 $ 2,144,239 1,056,982 835,663 19,859 91,080 11,138 983,865 963,578 15,617 121,424 11,022 4,313,934 4,239,745 793,304 113,966 936,748 168,733 5,221,204 5,345,226 (10,090) (71,130) (11,383) (101,201) $ 5,139,984 $ 5,232,642 ASB’s policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination. ASB services real estate loans for investors (principal balance of $1.5 billion, $1.5 billion and $1.3 billion as of December 31, 2021, 2020 and 2019, respectively), which are not included in the accompanying balance sheets data. ASB reports fees earned for servicing such loans as income when the related mortgage loan payments are collected and charges loan servicing cost to expense as incurred. As of December 31, 2021 and 2020, ASB had pledged loans with an amortized cost of approximately $2.8 billion and $3.0 billion, respectively, as collateral to secure advances from the FHLB. As of December 31, 2021 and 2020, the aggregate amount of loans to directors and executive officers of ASB and its affiliates and any related interests (as defined in Federal Reserve Board (FRB) Regulation O) of such individuals, was $13.1 million and $13.2 million, respectively. As of December 31, 2021 and 2020, there was a loan to a related interest of a director of ASB for $10.0 million. The loan was made at ASB’s normal credit terms. 133 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Allowance for credit losses. As discussed in Note 1, ASB must maintain an allowance for credit losses that is adequate to absorb estimated expected credit losses associated with its loan portfolio. The allowance for credit losses (balances and changes) and financing receivables by portfolio segment were as follows: (in thousands) December 31, 2021 Allowance for credit losses: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Total Beginning balance $ 4,600 $ 35,607 $ 6,813 $ 609 $ 4,149 $ Charge-offs Recoveries Net (charge-offs) recoveries Provision Ending balance (67) 92 25 — — — (45) 113 68 — 61 61 — — — 1,920 (10,911) (1,224) (24) (1,963) $ 6,545 $ 24,696 $ 5,657 $ 646 $ 2,186 $ 11 — — — 7 18 $ 25,462 $ 23,950 $ 101,201 (1,561) (8,027) 1,468 4,320 (93) (3,707) (9,700) 6,054 (3,646) (9,571) (4,659) (26,425) $ 15,798 $ 15,584 $ 71,130 Average loans outstanding $ 2,155,322 $ 1,046,276 $ 885,759 $ 18,227 $ 111,711 $ 11,361 $ 856,226 $ 135,609 $ 5,220,491 — % —% (0.01%) (0.33%) —% —% 0.01% 2.73% 0.07% Net charge-offs (recoveries) to average loans December 31, 2020 Allowance for credit losses: Beginning balance, prior to adoption of ASU No. 2016-13 $ 2,380 $ 15,053 $ 6,922 $ 449 $ 2,097 $ Impact of adopting ASU No. 2016-13 2,150 Charge-offs Recoveries Net (charge-offs) recoveries (7) 394 387 208 — — — Provision Ending balance (317) 20,346 $ 4,600 $ 35,607 $ 6,813 $ (541) (77) 63 (14) 446 (64) (351) 38 (313) 537 609 289 — — — 1,763 4,149 $ 3 14 — — — (6) 11 $ 10,245 $ 16,206 $ 53,355 922 16,463 19,441 (5,819) (19,900) (26,154) 872 3,381 4,748 (4,947) (16,519) (21,406) 19,242 7,800 49,811 $ 25,462 $ 23,950 $ 101,201 Average loans outstanding $ 2,148,848 $ 861,096 $ 1,060,444 $ 13,799 93,740 $ 10,703 $ 935,663 $ 215,994 $ 5,340,287 Net charge-offs (recoveries) to average loans December 31, 2019 Allowance for credit losses: (0.02) % —% —% 2.27% —% —% 0.53% 7.65% 0.40% Beginning balance $ 1,976 $ 14,505 $ 6,371 $ 479 $ 2,790 $ $ $ $ $ $ $ — — — (693) 2,097 $ 4 — — — (1) 3 $ 9,225 $ 16,769 $ 52,119 (6,811) (21,677) (28,662) 2,351 2,967 6,418 (4,460) (18,710) (22,244) 5,480 18,147 23,480 $ 10,245 $ 16,206 $ 53,355 81,937 $ 10,513 $ 620,206 $ 270,340 $ 4,986,830 —% —% 0.72% 6.92% 0.45% — 2,097 $ $ — $ 1,015 $ 454 $ 2,691 3 $ 9,230 $ 15,752 $ 50,664 Charge-offs Recoveries Net (charge-offs) recoveries Provision Ending balance (26) 854 828 (424) — — — 548 (144) 17 (127) 678 (4) 229 225 (255) $ 2,380 $ 15,053 $ 6,922 $ 449 Average loans outstanding $ 2,164,759 $ 781,531 $ 1,043,479 $ 14,065 (0.04) % —% 0.01% (1.60%) $ 898 $ 2 $ 322 $ 1,482 $ 15,051 $ 6,600 $ $ — 449 Net charge-offs (recoveries) to average loans Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment Financing Receivables: Ending balance Ending balance: individually evaluated for impairment Ending balance: collectively evaluated for impairment $ 2,178,135 $ 824,830 $ 1,092,125 $ 14,704 $ 70,605 $ 11,670 $ 670,674 $ 257,921 $ 5,120,664 $ 15,600 $ 1,048 $ 12,073 $ 3,091 $ — $ — $ 8,418 $ 507 $ 40,737 $ 2,162,535 $ 823,782 $ 1,080,052 $ 11,613 $ 70,605 $ 11,670 $ 662,256 $ 257,414 $ 5,079,927 134 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Allowance for loan commitments. The allowance for loan commitments by portfolio segment were as follows: (in thousands) Year ended December 31, 2021 Allowance for loan commitments: Beginning balance Provision Ending balance Ending balance Year ended December 31, 2020 Allowance for loan commitments: Beginning balance, prior to adoption of ASU No. 2016-13 Impact of adopting ASU No. 2016-13 Provision Ending balance Home equity line of credit Commercial construction Commercial loans Total $ $ $ $ 300 100 400 $ $ $ 3,000 $ 700 3,700 $ 3,700 1,000 $ (200) 800 $ $ 4,300 600 4,900 4,900 392 $ 931 $ 418 $ (92) — 300 $ 1,745 324 3,000 $ (94) 676 1,000 $ 1,741 1,559 1,000 4,300 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. 135 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows: (in thousands) December 31, 2021 Residential 1-4 family Current 30-59 days past due 60-89 days past due Greater than 89 days past due Home equity line of credit Current 30-59 days past due 60-89 days past due Greater than 89 days past due Residential land Current 30-59 days past due 60-89 days past due Greater than 89 days past due Residential construction Current 30-59 days past due 60-89 days past due Greater than 89 days past due Consumer Current 30-59 days past due 60-89 days past due Greater than 89 days past due Commercial real estate Pass Special Mention Substandard Doubtful Commercial construction Pass Special Mention Substandard Doubtful Commercial Pass Special Mention Substandard Doubtful Term Loans by Origination Year 2021 2020 2019 2018 2017 Prior Revolving Loans Revolving loans Converted to term loans Total $ 791,758 $ 461,683 $ 133,345 $ 64,421 $ 124,994 $ 712,452 $ — $ — $ 2,288,653 — — — — — — — — 2,987 809 — — — — — 2,210 1,468 3,085 791,758 461,683 136,332 65,230 124,994 719,215 — — — — — — — — 3,019 1,468 6,072 2,299,212 — — — — — — — — — — — — — — — 10,572 6,794 1,116 — — — — — — — — — 10,572 6,794 1,116 7,856 3,019 — — — — — — 7,856 3,019 — — — — — — — — — — 532 — — — 532 — — — — — 37,563 15,488 29,383 10,897 202 59 14 181 127 93 517 392 387 234 183 192 37,838 15,889 30,679 11,506 — — — — — 267 — — — 267 263 — — — 263 302 15 8 27 352 — — — — — 181 — — 397 578 — — — — — 794,518 39,116 833,634 296 16 838 313 70 496 609 86 1,334 795,668 39,995 835,663 — — — — — — — — — — — — — — — — — — — — 19,462 — — 397 19,859 11,138 — — — 11,138 238 12,740 4,157 110,768 — — — 156 7 141 70 106 87 1,375 882 941 238 13,044 4,420 113,966 173,794 275,242 19,600 3,529 — — 684 — 49,317 42,935 13,936 — 56,490 30,870 1,859 — 33,581 259,583 11,602 20,788 1,805 — 32,824 28,543 — — — — 193,394 279,455 106,188 89,219 56,174 320,950 11,602 17,140 43,261 — — — — — — 17,140 43,261 — — — — — 11,342 — — — 11,342 — — — — — — — — — — 266,087 40 427 — 96,963 27,336 184 — 79,329 10,071 3,737 — 56,497 31,019 66,570 202 1,777 — 439 4,457 — 8,966 2,961 — 19,337 — — — 19,337 96,673 15,303 7,083 — — — — — — — — — — — 859,609 150,546 46,827 — 1,056,982 91,080 — — — 91,080 15,510 708,648 18 1,655 — 62,375 22,281 — Total loans $ 1,325,112 $ 934,584 $ 367,452 $ 236,305 $ 217,965 $ 1,119,478 $ 958,710 $ 61,598 $ 5,221,204 266,554 124,483 93,137 58,476 35,915 78,497 119,059 17,183 793,304 136 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Term Loans by Origination Year 2020 2019 2018 2017 2016 Prior Revolving Loans Revolving loans Converted to term loans Total $ 567,282 $ 218,988 $ 111,243 $ 203,916 $ 184,888 $ 849,788 $ — $ — $ 2,136,105 — — — — 476 — — — — — — 353 — — — 2,629 2,314 2,362 567,282 219,464 111,243 204,269 184,888 857,093 — — — — — — — — 2,629 2,790 2,715 2,144,239 — — — — — 939 — — — 939 625 — — — 625 — — — — — 22 — — — 22 — — — — — — — — — — 272 702 — 300 1,274 — — — — — 927,106 33,228 960,334 552 267 1,463 298 75 589 850 342 2,052 929,388 34,190 963,578 — — — — — — — — — — — — — — — — — — — — 14,615 702 — 300 15,617 11,022 — — — 11,022 — — — — — — — — — — — — — — — 8,357 3,427 1,598 — — — — — — — — — 8,357 3,427 1,598 385 — — — 385 6,919 3,093 — — — — — — 6,919 3,093 28,818 406 191 131 67,159 1,085 549 532 37,072 7,207 293 348 18,351 3,758 163,006 727 427 409 155 165 119 4 3 7 — — — 138 97 262 29,546 69,325 38,635 7,646 307 348 18,848 270,603 10,261 — 63,301 36,405 14,720 62,168 57,952 4,181 — 280,864 — 114,426 — 124,301 28,432 33,763 1,892 — 64,087 68,287 4,423 48,094 57,640 — 127,799 — 261,388 55,089 155,654 11,000 14,480 1,910 — — 31,965 26,990 — 5,562 — — — — — — 18,000 — — — — — 16,390 31,965 26,990 18,000 5,562 — — — — — 392,088 117,791 75,533 29,211 37,836 304 — 23,087 7,785 — 1,920 2,043 — 6,990 4,017 — 12,520 30,264 7,542 — 35,770 13,250 3,113 — 90 59 171 4,078 — — — — — — — — — — 11,004 11,218 1,928 — 2,605 1,491 1,631 168,733 646,247 254,762 82,856 — 983,865 101,514 19,910 — — 121,424 748,437 155,927 31,997 387 — — — 11,000 22,517 — — — 22,517 74,520 31,362 5,265 387 (in thousands) December 31, 2020 Residential 1-4 family Current 30-59 days past due 60-89 days past due Greater than 89 days past Greater than 89 days past due due due Home equity line of credit Current 30-59 days past due 60-89 days past due Greater than 89 days past Greater than 89 days past due due due Residential land Current 30-59 days past due 60-89 days past due Greater than 89 days past Greater than 89 days past due due due Residential construction Current 30-59 days past due 60-89 days past due Greater than 89 days past Greater than 89 days past due due due Consumer Current 30-59 days past due 60-89 days past due Greater than 89 days past Greater than 89 days past due due due Commercial real estate Pass Special Mention Substandard Doubtful Commercial construction Pass Special Mention Substandard Doubtful Commercial Pass Special Mention Substandard Doubtful Total loans $ 1,339,586 $ 590,363 $ 382,648 $ 335,784 $ 368,904 $ 1,172,236 $ 1,093,287 $ 62,418 $ 5,345,226 430,228 148,663 79,496 40,218 50,326 52,133 111,534 24,150 936,748 Revolving loans converted to term loans during 2021 in the commercial, home equity line of credit and consumer portfolios were $1.8 million, $16.0 million and $2.7 million, respectively. 137 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The credit risk profile based on payment activity for loans was as follows: (in thousands) December 31, 2021 Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Total loans December 31, 2020 Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Total loans 30-59 days past due 60-89 days past due Greater than 90 days Total past due Current Total financing receivables Recorded investment> 90 days and accruing $ 3,019 $ 1,468 $ 6,072 $ 10,559 $ 2,288,653 $ 2,299,212 $ — 609 — — — 700 1,375 — 86 — — — 313 882 — 1,334 397 — — 48 941 — 1,056,982 1,056,982 2,029 397 — — 1,061 3,198 833,634 835,663 19,462 91,080 11,138 792,243 110,768 19,859 91,080 11,138 793,304 113,966 $ 5,703 $ 2,749 $ 8,792 $ 17,244 $ 5,203,960 $ 5,221,204 $ $ 2,629 $ 2,790 $ 2,715 $ 8,134 $ 2,136,105 $ 2,144,239 $ — 850 702 — — 608 2,605 488 342 — — — 300 1,491 — 2,052 300 — — 132 1,631 488 3,244 1,002 — — 1,040 5,727 983,377 960,334 14,615 121,424 11,022 935,708 163,006 983,865 963,578 15,617 121,424 11,022 936,748 168,733 $ 7,394 $ 5,411 $ 6,830 $ 19,635 $ 5,325,591 $ 5,345,226 $ — — — — — — — — — — — — — — — — — — The credit risk profile based on nonaccrual loans were as follows: (in thousands) Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Total December 31, 2021 December 31, 2020 With a Related ACL Without a Related ACL Total With a Related ACL Without a Related ACL Total $ 16,045 $ 3,703 $ 19,748 $ 8,991 $ 2,835 $ 11,826 14,104 4,227 97 — — 1,446 1,845 1,221 1,294 300 — — 692 — 15,325 5,521 397 — — 2,138 1,845 15,847 5,791 108 — — 1,819 3,935 2,875 1,567 300 — — 3,328 — 18,722 7,358 408 — — 5,147 3,935 $ 37,764 $ 7,210 $ 44,974 $ 36,491 $ 10,905 $ 47,396 138 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The credit risk profile based on loans whose terms have been modified and accruing interest were as follows: (in thousands) Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer December 31, 2021 December 31, 2020 $ 6,949 $ 3,055 6,021 980 — — 7,860 52 7,932 3,281 8,148 1,555 — — 6,108 54 27,078 Total troubled debt restructured loans accruing interest $ 24,917 $ ASB did not recognize interest on nonaccrual loans for 2021, 2020 and 2019. 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. When a borrower experiencing financial difficulty fails to make a required payment on a loan or is in imminent default, ASB takes a number of steps to improve the collectability of the loan and maximize the likelihood of full repayment. At times, ASB may modify or restructure a loan to help a distressed borrower improve its financial position to eventually be able to fully repay the loan, provided the borrower has demonstrated both the willingness and the ability to fulfill the modified terms. TDR loans are considered an alternative to foreclosure or liquidation with the goal of minimizing losses to ASB and maximizing recovery. ASB may consider various types of concessions in granting a TDR including maturity date extensions, extended amortization of principal, temporary deferral of principal payments, and temporary interest rate reductions. ASB rarely grants principal forgiveness in its TDR modifications. Residential loan modifications generally involve interest rate reduction, extending the amortization period, or capitalizing certain delinquent amounts owed not to exceed the original loan balance. Land loans at origination are typically structured as a three-year term, interest-only monthly payment with a balloon payment due at maturity. Land loan TDR modifications typically involve extending the maturity date up to three years and converting the payments from interest-only to principal and interest monthly, at the same or higher interest rate. Commercial loan modifications generally involve extensions of maturity dates, extending the interest only or amortization period, and temporary deferral or reduction of principal payments. ASB generally does not reduce the interest rate on commercial loan TDR modifications. Occasionally, additional collateral and/or guaranties are obtained. 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. 139 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Loan modifications that occurred during 2021, 2020, and 2019 were as follows: (dollars in thousands) Year ended December 31, 2021 Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Year ended December 31, 2020 Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Year ended December 31, 2019 Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Number of contracts Outstanding recorded investment (as of period end)1 Related allowance (as of period end) 14 $ 8,379 $ — — 3 — — 7 — — — 799 — — 2,931 — 24 $ 12,109 $ 1 $ 6 3 4 — — 54 — 144 $ 20,714 85 668 — — 5,380 — 68 $ 26,991 $ 11 $ 1,770 $ — 3 3 — — 8 — — 442 1,086 — — 5,523 — 442 — — 38 — — 205 — 685 6 4,439 11 54 — — 869 — 5,379 190 — 73 — — — 417 — 680 1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed 8,821 $ 25 $ upon by period end are not included. 140 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Loans modified in TDRs that experienced a payment default of 90 days or more in 2021, 2020, and 2019 and for which the payment default occurred within one year of the modification, were as follows: Years ended December 31 2021 2020 2019 (dollars in thousands) Troubled debt restructurings that subsequently defaulted Number of contracts Recorded investment Number of contracts Recorded investment Number of contracts Recorded investment Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer 1 $ — — — — — 1 — 2 $ 474 — — — — — 9 — 483 — $ — — — — — — — — $ — — — — — — — — — — $ — — — — — — — — $ — — — — — — — — — If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at December 31, 2021 and 2020. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting purposes. In response to the COVID-19 pandemic, the Board of Governors of the FRB, the FDIC, the National Credit Union Administration, the OCC, and the Consumer Financial Protection Bureau, in consultation with the state financial regulators (collectively, the “agencies”) issued a joint interagency statement (issued March 22, 2020; revised statement issued April 7, 2020). Some of the provisions applicable to the Company include, but are not limited to accounting for loan modifications, past due reporting and nonaccrual status and charge-offs. Loan modifications that do not meet the conditions of the CARES Act may still qualify as a modification that does not need to be accounted for as a TDR. The agencies confirmed with the FASB staff that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or insignificant delays in payment. Financial institutions are not expected to designate loans with deferrals granted due to COVID-19 as past due because of the deferral. A loan’s payment date is governed by the due date stipulated in the legal agreement. If a financial institution agrees to a payment deferral, these loans would not be considered past due during the period of the deferral. Lastly, during short-term COVID-19 modifications, these loans generally should not be reported as nonaccrual or as classified. 141 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral-dependent were as follows: December 31, 2021 December 31, 2020 Amortized cost Collateral type Amortized cost Collateral type (in thousands) Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Total real estate Commercial Total $ $ 3,493 1,221 1,294 300 6,308 692 7,000 $ Residential real estate property Commercial real estate property Residential real estate property Residential real estate property 2,541 Residential real estate property 2,875 Commercial real estate property 1,567 Residential real estate property 300 Residential real estate property Business assets 7,283 934 Business assets $ 8,217 ASB had $3.4 million and $3.8 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at December 31, 2021 and 2020, respectively. 142 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The total carrying amount and the total unpaid principal balance of impaired loans and ASB’s average recorded investment of, and interest income recognized from, impaired loans were as follows: December 31 (in thousands) With no related allowance recorded Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer With an allowance recorded Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Total Real estate: Residential 1-4 family Commercial real estate Home equity line of credit Residential land Commercial construction Residential construction Commercial Consumer Recorded investment 2019 Unpaid principal balance 2019 Related allowance Average recorded investment Interest income recognized* $ $ 6,817 $ 195 1,984 3,091 — — 1,948 2 14,037 8,783 853 10,089 — — — 6,470 505 26,700 15,600 1,048 12,073 3,091 — — 8,418 507 40,737 $ 7,207 $ 200 2,135 3,294 — — 2,285 2 15,123 8,835 853 10,099 — — — 6,470 505 26,762 16,042 1,053 12,234 3,294 — — 8,755 507 41,885 $ — $ — — — — — — — — 898 2 322 — — — 1,015 454 2,691 898 2 322 — — — 1,015 454 2,691 $ 8,169 $ 16 2,020 2,662 — — 4,534 21 17,422 8,390 886 11,319 27 — — 6,990 360 27,972 16,559 902 13,339 2,689 — — 11,524 381 45,394 $ 907 — 84 129 — — 276 4 1,400 359 37 567 — — — 132 24 1,119 1,266 37 651 129 — — 408 28 2,519 * Since loan was classified as impaired. Mortgage servicing rights (MSRs). In its mortgage banking business, ASB sells residential mortgage loans to government- sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold. ASB received $364.8 million, $567.7 million and $277.1 million of proceeds from the sale of residential mortgages in 2021, 2020, and 2019, respectively, and recognized gains on such sales of $9.3 million, $23.7 million, and $4.9 million in 2021, 2020, and 2019, respectively. Repurchased mortgage loans were nil for 2021, 2020 and 2019. The repurchase reserve was $0.1 million as of December 31, 2021 and 2020. Mortgage servicing fees, a component of other income, net, were $3.8 million, $3.4 million and $3.0 million for the years ended December 31, 2021, 2020, and 2019, respectively. 143 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Changes in the carrying value of MSRs were as follows: (in thousands) December 31, 2021 December 31, 2020 1 Reflects impact of loans paid in full. Gross carrying amount1 Accumulated amortization1 Valuation allowance Net carrying amount $ $ 18,674 22,950 $ $ (8,724) (12,670) $ $ — $ (260) $ 9,950 10,020 Changes related to MSRs were as follows: (in thousands) Mortgage servicing rights Balance, January 1 Amount capitalized Amortization Sale of mortgage servicing rights Other-than-temporary impairment 2021 2020 2019 $ 10,280 $ 9,101 $ 3,404 (3,734) — — 5,096 (3,917) — — 8,062 2,987 (1,948) — — Carrying amount before valuation allowance, December 31 9,950 10,280 9,101 Valuation allowance for mortgage servicing rights Balance, January 1 Provision Other-than-temporary impairment Balance, December 31 260 (260) — — — 260 — 260 — — — — Net carrying value of mortgage servicing rights $ 9,950 $ 10,020 $ 9,101 The estimated aggregate amortization expenses of MSRs for 2022, 2023, 2024, 2025 and 2026 are $1.6 million, $1.3 million, $1.2 million, $1.0 million and $0.9 million, respectively. ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs. ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows: December 31 (dollars in thousands) Unpaid principal balance Weighted average note rate Weighted average discount rate Weighted average prepayment speed 2021 2020 $ 1,481,899 $ 1,450,312 3.38% 9.25% 9.77% 3.68% 9.25% 17.70% 144 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows: December 31 (in thousands) Prepayment rate: 25 basis points adverse rate change 50 basis points adverse rate change Discount rate: 25 basis points adverse rate change 50 basis points adverse rate change 2021 2020 $ (714) $ (1,608) (129) (256) (738) (1,445) (68) (135) The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear. Deposit liabilities. The summarized components of deposit liabilities were as follows: December 31 (dollars in thousands) Savings Checking Interest-bearing Noninterest-bearing Commercial checking Money market Time certificates 2021 Weighted- average stated rate Amount 2020 Weighted- average stated rate Amount 0.03% $ 3,234,646 0.03% $ 2,873,727 0.02 — — 0.06 0.67 1,344,049 1,472,727 1,503,905 192,909 423,976 0.02 — — 0.09 0.99 1,196,675 1,329,264 1,269,236 169,225 548,830 0.05% $ 8,172,212 0.09% $ 7,386,957 As of December 31, 2021 and 2020, time certificates of $250,000 or more totaled $87.6 million and $121.3 million, respectively. The approximate scheduled maturities of time certificates outstanding at December 31, 2021 were as follows: (in thousands) 2022 2023 2024 2025 2026 Thereafter $ 275,702 60,049 47,248 24,278 13,736 2,963 $ 423,976 Overdrawn deposit accounts are classified as loans and totaled $1.3 million and $1.0 million at December 31, 2021 and 2020, respectively. 145 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Interest expense on deposit liabilities by type of deposit was as follows: Years ended December 31 (in thousands) Time certificates Savings Money market Interest-bearing checking Other borrowings. 2021 2020 2019 $ 3,805 $ 7,944 $ 12,675 802 132 242 1,774 465 471 1,904 953 1,298 $ 4,981 $ 10,654 $ 16,830 Securities sold under agreements to repurchase. Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase. All such agreements are subject to master netting arrangements, which provide for conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties: (in millions) Repurchase agreements December 31, 2021 December 31, 2020 (in millions) Commercial account holders December 31, 2021 December 31, 2020 Gross amount of recognized liabilities Gross amount offset in the Balance Sheets Net amount of liabilities presented in the Balance Sheets $ 88 $ 90 — $ — Gross amount not offset in the Balance Sheets Net amount of liabilities presented in the Balance Sheets Financial instruments Cash collateral pledged $ 88 $ 90 161 $ 92 88 90 — — The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts. The counterparties or tri-parties may determine that additional collateral is required based on movements in the fair value of the collateral. Typically, a five percent discount is taken from the fair value of the investment securities to determine the value of the collateral pledged for the repurchase agreements. Information concerning securities sold under agreements to repurchase, which provided for the repurchase of identical securities, was as follows: (dollars in thousands) Amount outstanding as of December 31 Average amount outstanding during the year Maximum amount outstanding as of any month-end Weighted-average interest rate as of December 31 Weighted-average interest rate during the year Weighted-average remaining days to maturity as of December 31 2021 2020 2019 $ 88,305 $ 89,670 $ 115,110 88,405 73,738 79,598 129,665 100,580 115,110 0.02% 0.02% 1 0.02% 0.42% 1 0.98% 0.96% 1 146 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Securities sold under agreements to repurchase were summarized as follows: December 31 Maturity (dollars in thousands) Overnight 1 to 29 days 30 to 90 days Over 90 days 2021 Weighted- average interest rate Collateralized by mortgage-backed securities and federal agency obligations at fair value plus accrued interest 2020 Repurchase liability Weighted- average interest rate Collateralized by mortgage-backed securities and federal agency obligations at fair value plus accrued interest Repurchase liability $ 88,305 0.02% $ 160,847 $ 89,670 0.02% $ 92,478 — — — —% —% —% — — — — — — —% —% —% — — — $ 88,305 0.02% $ 160,847 $ 89,670 0.02% $ 92,478 Advances from Federal Home Loan Bank. FHLB advances were nil as of December 31, 2021 and 2020. ASB and the FHLB are parties to an Advances, Pledge and Security Agreement (Advances Agreement), which applies to currently outstanding and future advances, and governs the terms and conditions under which ASB borrows and the FHLB makes loans or advances from time to time. Under the Advances Agreement, ASB agrees to abide by the FHLB’s credit policies, and makes certain warranties and representations to the FHLB. Upon the occurrence of and during the continuation of an “Event of Default” (which term includes any event of nonpayment of interest or principal of any advance when due or failure to perform any promise or obligation under the Advances Agreement or other credit arrangements between the parties), the FHLB may, at its option, declare all indebtedness and accrued interest thereon, including any prepayment fees or charges, to be immediately due and payable. Advances from the FHLB are collateralized by loans, investment securities and stock in the FHLB. As of December 31, 2021 and 2020, ASB’s available FHLB borrowing capacity was $2.0 billion, and $2.1 billion, respectively. In February 2020, the FHLB of Des Moines notified its members that certain assets, which included high-quality home equity lines of credit that were priced off a variable index with a fixed rate option, would no longer qualify as collateral for FHLB Advances and effective October 1, 2020, the FHLB of Des Moines no longer accepted the fixed rate portion of any home equity lines of credit as collateral. In addition, effective July 13, 2020, the FHLB of Des Moines lowered their Loan to Value (LTV), a system-wide percentage applied to eligible pledged collateral to determine borrowing capacity, to reflect ongoing risks in the market due to COVID-19. The lower LTV reduced ASB’s collateral value of the existing pledged loans and the borrowing capacity. To increase the borrowing capacity at the FHLB of Des Moines, ASB pledged commercial real estate loans and is evaluating other assets to pledge as collateral to increase its reserve borrowing capacity with the FHLB. ASB is required to obtain and hold a specific number of shares of capital stock of the FHLB. ASB was in compliance with all Advances Agreement requirements as of December 31, 2021 and 2020. Common stock equity. ASB is regulated and supervised by the OCC. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on ASB’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, ASB must meet specific capital guidelines that involve quantitative measures of ASB’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. The prompt corrective action provisions impose certain restrictions on institutions that are undercapitalized. The restrictions imposed become increasingly more severe as an institution’s capital category declines from “undercapitalized” to “critically undercapitalized.” The regulators have substantial discretion in the corrective actions that might direct and could include restrictions on dividends and other distributions that ASB may make to ASB Hawaii and the requirement that ASB develop and implement a plan to restore its capital. In 1988, HEI agreed with the OTS predecessor regulatory agency at the time, to contribute additional capital to ASB up to a maximum aggregate amount of approximately $65.1 million (Capital Maintenance Agreement). As of December 31, 2021, as a result of capital contributions in prior years, HEI’s maximum obligation to contribute additional capital under the Capital Maintenance Agreement has been reduced to approximately $28.3 million. To be categorized as “well capitalized,” ASB must maintain minimum total capital, Tier 1 capital, and Tier 1 leverage ratios as set forth in the table below. Beginning in the second quarter of 2020, ASB had adopted the community bank leverage ratio framework and was only required to comply with Tier 1 leverage ratio. Beginning in the third quarter of 2021, ASB began reporting all of the required capital ratios as the Bank did not meet the requirements to use the community bank leverage ratio 147 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) framework. As of December 31, 2021, and 2020 ASB was in compliance with the minimum capital requirements under OCC regulations, and was categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions or events that management believes have changed the institution’s category under the capital guidelines. The tables below set forth actual and minimum required capital amounts and ratios: (dollars in thousands) December 31, 2021 Tier 1 leverage Common equity tier 1 Tier 1 capital Total capital December 31, 2020 Tier 1 leverage Actual Minimum required Required to be well capitalized Capital Ratio Capital Ratio Capital Ratio $ 714,789 7.86% $ 363,630 4.00% $ 454,538 714,789 714,789 769,836 13.29% 13.29% 14.31% 242,072 322,762 430,350 4.50% 6.00% 8.00% 349,659 430,350 537,937 5.00% 6.50% 8.00% 10.00% 677,786 8.38% 323,700 4.00% 404,625 5.00% In 2021, ASB paid cash dividends of $59.0 million to HEI, compared to cash dividends of $31.0 million in 2020. The FRB and OCC approved the dividends. Related-party transactions. HEI charged ASB $2.1 million, $2.3 million and $2.3 million for general management and administrative services in 2021, 2020 and 2019, respectively. The amounts charged by HEI for services performed by HEI employees to its subsidiaries are allocated primarily on the basis of time expended in providing such services. All amounts charged to ASB were settled as a capital contribution by HEI to ASB. Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans. ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income. Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time. The notional amount and fair value of ASB’s derivative financial instruments were as follows: December 31 (in thousands) Interest rate lock commitments Forward commitments 2021 2020 Notional amount Fair value Notional amount Fair value $ 39,377 $ 638 $ 120,980 $ 38,000 (11) 100,500 4,536 (500) 148 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) ASB’s derivative financial instruments, their fair values, and balance sheet location were as follows: Derivative Financial Instruments Not Designated as Hedging Instruments 1 December 31 (in thousands) Interest rate lock commitments Forward commitments 2021 2020 Asset derivatives Liability derivatives Asset derivatives Liability derivatives $ $ 638 $ — $ 4,536 $ — 11 — 638 $ 11 $ 4,536 $ — 500 500 1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets. The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income: Derivative Financial Instruments Not Designated as Hedging Instruments (in thousands) Interest rate lock commitments Forward commitments Location of net gains (losses) recognized in the Statements of Income Years ended December 31 2021 2020 2019 Mortgage banking income $ (3,898) $ 4,239 $ 206 Mortgage banking income 489 (458) 1 $ (3,409) $ 3,781 $ 207 Commitments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the commitments. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since certain commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. ASB minimizes its exposure to loss under these commitments by requiring that customers meet certain conditions prior to disbursing funds. The amount of collateral, if any, is based on a credit evaluation of the borrower and may include residential real estate, accounts receivable, inventory and property, plant and equipment. Letters of credit are conditional commitments issued by ASB to guarantee payment and performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. ASB holds collateral supporting those commitments for which collateral is deemed necessary. The following is a summary of outstanding off-balance sheet arrangements: December 31 (in thousands) Unfunded commitments to extend credit: Home equity line of credit Commercial and commercial real estate Consumer Residential 1-4 family Commercial and financial standby letters of credit Total 2021 2020 $ 1,181,496 $ 1,248,773 612,158 62,090 44,262 11,723 574,281 69,168 57,862 13,718 $ 1,911,729 $ 1,963,802 Federal Deposit Insurance Corporation assessment. The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) raised the minimum reserve ratio for the Deposit Insurance Fund to 1.35 percent but required the Federal Deposit Insurance Corporation (FDIC) to offset the effect of the increase in the minimum reserve ratio on small institutions (generally insured depository institutions with total consolidated assets of $10 billion or less) when setting assessments. In September 2018, the reserve ratio reached 1.36 percent and the FDIC awarded the small institutions an assessment credit, which was applied to a portion of the 2019 and 2020 assessments for these banks. For the years ended December 31, 2021, 2020 and 2019 ASB’s FDIC insurance expenses were $3.2 million, $2.3 million and $1.2 million, respectively. 149 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 5 · Short-term borrowings Commercial paper and bank term loan. As of December 31, 2021 and 2020, HEI had $54 million and $65 million of commercial paper outstanding, respectively. The weighted-average interest rate of HEI’s outstanding commercial paper, as of December 31, 2021 and 2020 was 0.55% and 0.75%, respectively. On April 20, 2020, HEI closed on a $65 million 364-day term loan (HEI term loan). The HEI term loan provisions allowed prepayments without penalty. On December 30, 2020, HEI paid down $50 million of the term loan using $50 million of proceeds from a private placement drawn on December 29, 2020, and on January 29, 2021, HEI paid off the remaining HEI term loan balance of $15 million. At both December 31, 2021 and 2020, Hawaiian Electric had no commercial paper outstanding. Hawaiian Electric entered into a 364-day, $50 million term loan credit agreement, drawing the full $50 million on May 19, 2020. On January 15, 2021, Hawaiian Electric paid off the $50 million term loan in conjunction with the terms of the loan credit agreement. The weighted- average interest rate of Hawaiian Electric’s outstanding commercial paper and bank term loan as of December 31, 2020 was 1.9%. As of December 31, 2020, HEI had three letters of credit outstanding in the aggregate amount of $6 million, on behalf of Hamakua Energy. As of December 31, 2021, HEI had five letters of credit outstanding in the aggregate amount of $10 million on behalf of Mauo and Hamakua Energy. Credit agreements. On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities) to amend and restate their respective previously existing revolving unsecured credit agreements. The HEI Facility was increased to $175 million from $150 million and its term was extended to May 14, 2026. On February 18, 2022, the PUC approved Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026. In addition to extending the term, Hawaiian Electric also received PUC approval to exercise its options of two one-year extensions of the commitment termination date and to increase its aggregate revolving commitment amount from $200 million to $275 million, should there be a need. None of the facilities are collateralized. As of December 31, 2021 and 2020, no amounts were outstanding under the Credit Facilities. The Credit Facilities will be maintained to support each company’s respective short-term commercial paper program, but may be drawn on to meet each company’s respective working capital needs and general corporate purposes. Under the Credit Facilities, draws generally bear interest, based on each company’s respective current long-term credit ratings, at the “Adjusted LIBO Rate,” as defined in the Credit Facilities, plus 137.5 and 125.0 basis points for HEI and Hawaiian Electric, respectively, and incur annual fees on undrawn commitments, excluding swingline borrowings, at the rate of 20.0 and 17.5 basis points for HEI and Hawaiian Electric, respectively. The Credit Facilities also include provisions to accommodate a transition from the London Interbank Offered Rate (LIBOR) to an alternative reference rate, based on the secured overnight financing rate administered by the Federal Reserve Bank of New York, upon the phase out of LIBOR as a reference rate. Additionally, the Credit Facilities contain provisions for pricing adjustments in the event of a long-term ratings change based on the respective Facility’s ratings-based pricing grid, which includes the ratings by Fitch Ratings, Inc. (Fitch), Moody’s Investors Service (Moody’s) and S&P Global Ratings (S&P). The Credit Facilities do not contain clauses that would affect access to the Credit Facilities by reason of a ratings downgrade, nor do they have broad “material adverse change” clauses. In addition, the Credit Facilities contain provisions for potential annual pricing adjustments to the Eurodollar or Alternate Base Rate margin on draws and fees on undrawn commitments of up to +/-5 basis points and +/-1 basis point, respectively, based on performance against certain sustainability-linked metrics. The sustainability-linked metrics include achievement of renewable portfolio standards in excess of statutory requirements and increasing cumulative penetration of installed MWs of photovoltaic systems on residential rooftops. The Credit Facilities also include updated terms and conditions customary for facilities of this type and contain customary conditions that must be met in order to draw on them, including compliance with covenants (such as covenants preventing HEI’s and Hawaiian Electric’s respective subsidiaries from entering into agreements that restrict the ability of such subsidiaries to pay dividends to, or to repay borrowings from, HEI or Hawaiian Electric, as applicable; and a covenant in Hawaiian Electric’s facility restricting Hawaiian Electric’s ability, as well as the ability of any of its subsidiaries, to guarantee additional indebtedness of the subsidiaries if such additional debt would cause the subsidiary’s “Consolidated Subsidiary Funded Debt to Capitalization Ratio” (as defined in the Hawaiian Electric Facility) to exceed 65%). 150 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Under the HEI Facility, it is an event of default if HEI fails to maintain an unconsolidated “Capitalization Ratio” (funded debt) (as defined in the HEI Facility) of 50% or less or if HEI no longer owns Hawaiian Electric or ASB. Under the Hawaiian Electric Facility, it is an event of default if Hawaiian Electric fails to maintain a “Consolidated Capitalization Ratio” (equity) (as defined in the Hawaiian Electric Facility) of at least 35%, or if Hawaiian Electric is no longer owned by HEI. Hawaiian Electric had a $75 million 364-day revolving credit agreement, under which no amounts had been drawn. On April 19, 2021, the revolving credit agreement expired and was not renewed. Note 6 · Long-term debt December 31 (dollars in thousands) Long-term debt of Utilities, net of unamortized debt issuance costs 1 HEI 5.67% senior notes, due 2021 HEI 2.99% term loan, due 2022 HEI 3.99% senior notes, due 2023 HEI 4.58% senior notes, due 2025 HEI 4.72% senior notes, due 2028 HEI 2.82% senior notes, due 2028 HEI 2.48% senior notes, due 2028 HEI 2.98% senior notes, due 2030 HEI 3.15% senior notes, due 2031 HEI 2.78% senior notes, due 2031 HEI 3.74% senior notes, due 2051 Hamakua Energy 4.02% non-recourse notes, due 20302 Mauo LIBOR + 1.375% loan, due 20233 Mauo 4.90% non-recourse term loan, due 20342 Ka‘ie‘ie Waho 2.79% non-recourse loan, due 20312 Less unamortized debt issuance costs 2021 2020 $ 1,676,402 $ 1,561,302 50,000 150,000 50,000 50,000 100,000 — — 50,000 — — — — 150,000 50,000 50,000 100,000 24,000 30,000 50,000 51,000 25,000 20,000 52,166 21,702 12,686 56,030 41,046 — 12,145 (3,164) 13,000 (2,249) $ 2,321,937 $ 2,119,129 1 See components of “Total long-term debt” and unamortized debt issuance costs in Hawaiian Electric and subsidiaries’ Consolidated Statements of Capitalization. 2 Secured by real and personal property of the respective entity. 3 In December 2021, the loan was amended to allow advances through October 5, 2022, in the maximum aggregate principal amount of up to $50.5 million and extended the required paydown of the loan balance to the lesser of (i) $7 million or (ii) the amount of state renewable tax credits not received by October 5, 2022. As of December 31, 2021, the aggregate principal payments required on the Company’s long-term debt for 2022 through 2026 are $223 million in 2022, $163 million in 2023, $6 million in 2024, $104 million in 2025 and $131 million in 2026. As of December 31, 2021, the aggregate payments of principal required on the Utilities’ long-term debt for 2022 through 2026 are $52 million in 2022, $100 million in 2023, nil in 2024, $47 million in 2025 and $125 million in 2026. The HEI term loans and senior notes contain customary representation and warranties, affirmative and negative covenants and events of default (the occurrence of which may result in some or all of the notes then outstanding becoming immediately due and payable). The HEI term loans and senior notes also contain provisions requiring the maintenance by HEI of certain financial ratios generally consistent with those in HEI’s existing, amended revolving unsecured credit agreement. Upon a change of control or certain dispositions of assets (as defined in the note purchase agreements of the senior notes), HEI is required to offer to prepay the senior notes. The Utilities’ senior notes contain customary representations and warranties, affirmative and negative covenants, and events of default (the occurrence of which may result in some or all of the notes of each and all of the utilities then outstanding becoming immediately due and payable) and provisions requiring the maintenance by Hawaiian Electric, and each of Hawaii Electric Light and Maui Electric, of certain financial ratios generally consistent with those in Hawaiian Electric’s existing, amended revolving unsecured credit agreement. 151 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Changes in long-term debt. HEI. On September 29, 2021, HEI entered into a note purchase agreement (HEI NPA) under which HEI has authorized the issue and sale of $125 million of unsecured senior notes to be drawn in two tranches at a future date. On December 29, 2021, HEI drew $75 million, and as defined in the note purchase agreement, at its option, HEI may draw the remaining $50 million of notes on a delayed basis. The following table displays the draw date for the $75 million draw and the required draw date of the remaining $50 million of HEI notes to be issued. HEI Series 2021A HEI Series 2021B HEI Series 2021C HEI Series 2022A HEI Series 2022B Aggregate principal amount $30 million $25 million $20 million $30 million $20 million Fixed coupon interest rate Maturity date Final draw date 2.48% 12/29/2028 12/29/2021 2.78% 12/29/2031 12/29/2021 3.74% 12/29/2051 12/29/2021 2.98% 11/15/2032 11/15/2022 3.94% 11/15/2052 11/15/2022 The $75 million in proceeds were primarily used to invest in the Utilities’ equity to support its capital expenditure program and maintain a Utilities’ equity capitalization ratio of approximately 58%. The $50 million to be drawn in 2022 is expected to be used to refinance a portion of $150 million of maturing debt in November 2022. Once drawn, interest on the notes is paid semiannually on June 15th and December 15th. The HEI note purchase agreements contain certain restrictive financial covenants that are substantially the same as the financial covenants contained in HEI’s senior credit facility, as amended. The HEI notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount, together with interest accrued to the date of prepayment plus a “Make-Whole Amount,” as defined in the agreements. Mauo non-recourse term loan. On September 3, 2021, Mauo entered into a $24 million credit agreement under which it has drawn an aggregate of $13 million under a series of notes. The proceeds were used to refinance a portion of a construction loan related to five solar-battery projects. The notes are non-recourse to Pacific Current and HEI, bear interest at LIBOR plus 1.7%, mature in September 2034, require quarterly principal and monthly interest payments and are collateralized by three solar-battery projects. In connection with the non-recourse notes drawn under the credit agreement, Mauo entered into interest rate swaps that effectively convert the rate on the floating rate notes to a fixed rate of 4.90%. Note 7 · Shareholders’ equity Reserved shares. As of December 31, 2021, HEI had reserved a total of 16.4 million shares of common stock for future issuance under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP), the ASB 401(k) Plan, the HEI 2011 Nonemployee Director Stock Plan, and the 2010 Equity and Incentive Plan, as amended. Accumulated other comprehensive income/(loss). Changes in the balances of each component of AOCI were as follows: (in thousands) Balance, December 31, 2018 Current period other comprehensive income (loss) and reclassifications, net of taxes Balance, December 31, 2019 Current period other comprehensive income (loss) and reclassifications, net of taxes Balance, December 31, 2020 Current period other comprehensive income (loss) and reclassifications, net of taxes Balance, December 31, 2021 HEI Consolidated Hawaiian Electric Consolidated Net unrealized gains (losses) on securities Unrealized gains (losses) on derivatives Retirement benefit plans AOCI AOCI-Retirement benefit plans $ (24,423) $ (436) $ (25,751) $ (50,610) $ 99 26,904 2,481 17,505 19,986 (1,177) 4,844 30,571 (1,613) (20,907) (20,039) (1,750) 3,020 18,775 (3,363) (17,887) (1,264) (52,023) (275) 1,029 (51,269) $ (32,037) $ (3,638) $ (16,858) $ (52,533) $ (1,378) (1,279) (1,640) (2,919) (361) (3,280) 152 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Reclassifications out of AOCI were as follows: Years ended December 31 (in thousands) HEI consolidated Amount reclassified from AOCI 2021 2020 2019 Affected line item in the Statement of Income/Balance Sheet Net realized gains on securities included in net income $ (387) $ (1,638) $ (478) Gain on sale of investment securities, net Net realized losses on derivatives qualifying as cash flow hedges Retirement benefit plans: Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost Impact of D&Os of the PUC included in regulatory assets Total reclassifications Hawaiian Electric consolidated Retirement benefit plans: 37 — — Interest expense 19,253 23,689 10,107 See Note 10 for additional details (171,345) 39,860 (16,177) See Note 10 for additional details $ (152,442) $ 61,911 $ (6,548) Amortization of prior service credit and net losses recognized during the period in net periodic benefit cost Impact of D&Os of the PUC included in regulatory assets $ 19,461 $ 21,550 $ 9,550 See Note 10 for additional details (171,345) 39,860 (16,177) See Note 10 for additional details Total reclassifications $ (151,884) $ 61,410 $ (6,627) Note 8 · Leases The Company leases certain real estate and equipment for various terms under long-term operating lease agreements. The agreements expire at various dates through 2054 and provide for renewal options up to 10 years. The periods associated with the renewal options are excluded for the purpose of determining the lease term unless the exercise of the renewal option is reasonably certain. In the normal course of business, it is expected that many of these agreements will be replaced by similar agreements. Certain real estate leases require the Company to pay for operating expenses such as common area maintenance, real estate taxes and insurance, which are recognized as variable lease expense when incurred and are not included in the measurement of the lease liability. The Company elected the short-term lease recognition exemption for all of its leases that qualify, and accordingly, does not recognize lease liabilities and ROU assets for all leases that have lease terms that are 12 months or less. The amounts related to short-term leases are not material. The Company elected the practical expedient to not separate lease and non-lease components for its real estate and equipment and fossil fuel and renewable energy PPAs. Additionally, the Utilities contract with independent power producers to supply energy under long-term power purchase agreements. Certain PPAs are treated as operating leases under the lease standard because the Company elected the practical expedient package under which prior conclusions about lease identification were not reassessed. The fixed capacity payments under the PPAs are included in the lease liability, while the variable lease payments (e.g., payments based on kWh) are excluded from the lease liability. Several as-available PPAs have variable-only payment terms based on production. For PPAs with no minimum lease payments, the Utilities do not recognize any lease liabilities or ROU assets, and the related costs are reported as variable lease costs. In the first quarter of 2021, PGV returned to service with firm capacity of 13 MW and ramped up to 23.9 MW in the second quarter of 2021. Hawaii Electric Light is required to make fixed capacity payments based on 23.9 MW. As of December 31, 2021, Hawaii Electric Light has a total of $21 million in lease liability with a corresponding ROU asset for the PGV PPA . The Utilities’ lease payments for each operating lease agreement were discounted using its estimated unsecured borrowing rates for the appropriate term, reduced for the estimated impact of collateral, which is a reduction of approximately 25 basis points. ASB’s lease payments for each operating lease agreement were discounted using Federal Home Loan Bank of Des Moines (FHLB) fixed rate advance rates, which are collateralized, for the appropriate term. The FHLB is ASB’s primary wholesale funding source and can provide collateralized borrowing rates for various terms starting at overnight borrowings to 30-year borrowing terms. In August 2019, Hawaiian Electric entered into a lease agreement for a total office space of approximately 195,000 square feet in downtown Honolulu to lower costs and bring together office workers currently in separate leased buildings. The lease 153 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) consists of two different phases with commencement dates of January 2020 and January 2021, respectively, and is an operating lease for a term of 12 years with various options to extend up to 10 years. Annual base rent expense for each phase is approximately $1.9 million and $1.7 million, respectively, and the operating lease liability recorded upon commencement of each phase was $21 million and $19 million, respectively. In addition to the annual base rent payments that are included in the lease liability, there are additional payments for operating expenses, which are recognized as variable lease cost when incurred. These payments are related to operating expenses, such as common area maintenance, various taxes and insurance. Under the terms of the lease, Hawaiian Electric is entitled to receive up to $5.0 million and $4.6 million in tenant incentives for various office improvements for each phase, respectively. The amounts were included as a reduction to the initial measurement of the ROU asset on each respective commencement date, and will be subsequently adjusted if the actual reimbursements are different from the initial amounts previously recognized. As of December 31, 2021 and 2020, total amount of office improvements for both phases were $5.7 million and $2.6 million, respectively. In December 2020, Hawaiian Electric entered into an agreement with an unrelated party to sublease out approximately 64,000 square feet of the downtown Honolulu office space commencing in January 2021. The sublease is an operating lease for six and a half years with an option to extend the term for an additional two years. Estimated base rent revenue is approximately $8.3 million for the entire lease term. In addition to the base rent, Hawaiian Electric will also collect from the sublessee its proportionate share of all operating expenses, utilities, and taxes, which will be recognized as an additional rent revenue. In August 2021, the Utilities entered into an agreement with an unrelated party for exclusive use of a barge and tug to transport fuels between islands, commencing in January 2022. The contract is an operating lease with a term of five years with an option to extend the term for an additional five years. Annual base rent expense is approximately $6.2 million and the operating lease liability recorded upon commencement was $32 million. In addition to the annual base payment, there are additional payments for operating expenses, such as inspection expense, wharfage and pipeline tolls, which are recognized as variable lease cost when incurred. 154 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Amounts related to the Company’s total lease cost and cash flows arising from lease transactions are as follows: Weighted-average discount rate—operating leases 2.84% 3.63% 3.18% 9.1 2.5 6.1 10.0 2.98% 2.5 5.9 3.63% 3.31% Year ended December 31, 2021 (dollars in thousands) Operating lease cost Variable lease cost Sublease income Total lease cost Other information Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases Weighted-average remaining lease term—operating leases (in years) Year ended December 31, 2020 (dollars in thousands) Operating lease cost Variable lease cost Total lease cost Other information Cash paid for amounts included in the measurement of lease liabilities—Operating cash flows from operating leases Weighted-average remaining lease term—operating leases (in years) HEI consolidated Hawaiian Electric consolidated Other leases PPAs classified as leases Total Other leases PPAs classified as leases Total $ 14,184 $ 66,070 $ 80,254 $ 8,578 $ 66,070 $ 74,648 14,360 257,472 271,832 11,586 257,472 269,058 (2,515) — (2,515) (2,515) — (2,515) $ 26,029 $ 323,542 $ 349,571 $ 17,649 $ 323,542 $ 341,191 $ 11,239 $ 62,136 $ 73,375 $ 6,168 $ 62,136 $ 68,304 HEI consolidated Hawaiian Electric consolidated Other leases PPAs classified as leases Total Other leases PPAs classified as leases Total $ 11,201 $ 63,319 $ 74,520 $ 6,022 $ 63,319 $ 69,341 12,765 217,173 229,938 9,842 217,173 227,015 $ 23,966 $ 280,492 $ 304,458 $ 15,864 $ 280,492 $ 296,356 $ 10,783 $ 60,801 $ 71,584 $ 6,223 $ 60,801 $ 67,024 Weighted-average discount rate—operating leases 2.87% 4.08% 3.61% 8.9 1.8 4.4 10.1 3.20% 1.8 3.8 4.08% 3.84% The following table summarizes the maturity of our operating lease liabilities as of December 31, 2021: (in millions) 2022 2023 2024 2025 2026 Thereafter Total lease payments HEI consolidated Hawaiian Electric consolidated PPAs classified as leases Other leases $ 11 $ 46 $ 13 11 7 7 36 85 (11) 4 4 4 3 4 65 (2) Total Other leases PPAs classified as leases Total 57 17 15 11 10 40 150 (13) $ 6 $ 46 $ 8 7 5 5 30 61 (9) 4 4 4 3 4 65 (2) 52 12 11 9 8 34 126 (11) Less: Imputed interest Total present value of lease payments1 115 1 The fixed capacity payment related to the existing PPA with PGV, which will expire on December 31, 2027, is included as a lease liability as of December 63 $ 52 $ 74 $ 63 $ 137 $ $ 31, 2021. The PGV facility returned to service with firm capacity in the first quarter of 2021. The annual capacity payment based on the most recent accepted output is approximately $3.8 million. The lease liability will be remeasured when PGV ramps back up to the original contracted firm capacity. 155 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 9· Revenues Revenue from contracts with customers. The revenues subject to Topic 606 include the Utilities’ electric energy sales revenue and the ASB’s transaction fees, as further described below. Electric Utilities. Electric energy sales. Electric energy sales represent revenues from the generation and transmission of electricity to customers under tariffs approved by the PUC. Transaction pricing for electricity is determined and approved by the PUC for each rate class and includes revenues from the base electric charges, which are composed of (1) the customer, demand, energy, and minimum charges, and (2) the power factor, service voltage, and other adjustments as provided in each rate and rate rider schedule. The Utilities satisfy performance obligations over time, i.e., the Utilities generate and transfer control of the electricity over time as the customer simultaneously receives and consumes the benefits provided by the Utilities’ performance. Payments from customers are generally due within 30 days from the end of the billing period. As electric bills to customers reflect the amount that corresponds directly with the value of the Utilities’ performance to date, the Utilities have elected to use the right to invoice practical expedient, which entitles them to recognize revenue in the amount they have the right to invoice. The Utilities’ revenues include amounts for recovery of various Hawaii state revenue taxes. Revenue taxes are generally recorded as an expense in the year the related revenues are recognized. For 2021, 2020 and 2019, the Utilities’ revenues include recovery of revenue taxes of approximately $226 million, $202 million and $226 million, respectively, which amounts are in “Taxes, other than income taxes” expense. However, the Utilities pay revenue taxes to the taxing authorities based on (1) the prior year’s billed revenues (in the case of public service company taxes and PUC fees) in the current year or (2) the current year’s cash collections from electric sales (in the case of franchise taxes) after year end. As of December 31, 2021 and 2020, the Utilities had recorded $128 million and $111 million, respectively, in “Taxes accrued, including revenue taxes” on the Utilities’ consolidated balance sheet for amounts previously collected from customers or accrued for public service company taxes and PUC fees, net of amounts paid to the taxing authorities. Such amounts will be used to pay public service company taxes and PUC fees owed for the following year. Bank. Bank fees. Bank fees are primarily transaction-based and are recognized when the transaction has occurred and the performance obligation satisfied. From time to time, customers will request a fee waiver and ASB may grant reversals of fees. Revenues are not recorded for the estimated amount of fee reversals for each period. Fees from other financial services - These fees primarily include debit card interchange income and fees, automated teller machine fees, credit card interchange income and fees, check ordering fees, wire fees, safe deposit rental fees, corporate/ business fees, merchant income, online banking fees and international banking fees. Amounts paid to third parties for payment network expenses are included in this financial statement caption in ASB’s Statements of Income and Comprehensive Income Data (in Revenues—Bank financial statement caption of HEI’s Consolidated Statements of Income). Fee income on deposit liabilities - These fees primarily include “not sufficient funds” fees, monthly deposit account service charge fees, commercial account analysis fees and other deposit fees. Fee income on other financial products - These fees primarily include commission income from the sales of annuity, mutual fund, and life insurance products. ASB also offers a fee-based, managed account product in which income is based on a percentage of assets under management. Other Segment. Other sales. Other sales primarily consist of revenues from the generation and sale of renewable energy at fixed contractual prices per kWh to customers under power purchase agreements by Pacific Current subsidiaries. The performance obligation is satisfied over time as renewable energy is generated and control is transferred to the customer that simultaneously receives and consumes the benefits provided. Payments from customers are generally due within 30 days from the end of the billing period. The bill to customers reflect the amount that corresponds directly with the value of performance to date. Pacific Current has elected to use the right to invoice practical expedient, which entitles it to recognize revenue in the amount they have the right to invoice. 156 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Revenues from other sources. Revenues from other sources not subject to Topic 606 are accounted for as follows: Electric Utilities. Regulatory revenues. Regulatory revenues primarily consist of revenues from the decoupling mechanism and cost recovery surcharges. Decoupling mechanism - Under the current decoupling mechanism, the Utilities are allowed to recover or obligated to refund the difference between actual revenue and the target revenue as determined by the PUC, collect annual revenue adjustment mechanism (ARA) and exceptional project recovery mechanism revenues, and recover or refund performance incentive mechanism penalties or rewards. These adjustments will be reflected in tariffs in future periods. Under the PBR framework, the accrued RBA revenues as of the preceding September 30 balance and the annual ARA amount are billed from January 1 through December 31 of each year, which is within 24 months following the end of the year in which they are recorded as required by the accounting standard for alternative revenue programs (see “Regulatory proceedings” in Note 3). Cost recovery surcharges - For the timely recovery of additional costs incurred, and reconciliation of costs and expenses included in tariffed rates, the Utilities recognize revenues under surcharge mechanisms approved by the PUC. These will be reflected in tariffs in future periods (e.g., ECRC and PPAC). Since revenue adjustments discussed above resulted from either agreements with the PUC or change in tax law, rather than contracts with customers, they are not subject to the scope of Topic 606. Also, see Notes 1, 3 and 12 of the Consolidated Financial Statements. The Utilities have elected to present these revenue adjustments on a gross basis, which results in the amounts being billed to customers presented in revenues from contracts with customers and the amortization of the related regulatory asset/liability as revenues from other sources. Depending on whether the previous deferral balance being amortized was a regulatory asset or regulatory liability, and depending on the size and direction of the current year deferral of surcharges and/or refunds to customers, it could result in negative regulatory revenue during the year. Utility pole attachment fees. These fees primarily represent revenues from third-party companies for their access to and shared use of Utilities-owned poles through licensing agreements. As the shared portion of the utility pole is functionally dependent on the rest of the structure, no distinct goods appear to exist. Therefore, these fees are not subject to the scope of Topic 606, but recognized in accordance with ASC Topic 610, Other Income. Bank. Interest and dividend income. Interest and fees on loans are recognized in accordance with ASC Topic 310, Receivables, including the related allowance for credit losses. Interest and dividends on investment securities are recognized in accordance with ASC Topic 320, Investments-Debt and Equity Securities. See Notes 1 and 4 of the Consolidated Financial Statements. Other bank noninterest income. Other bank noninterest income primarily consists of mortgage banking income and bank-owned life insurance income. Mortgage banking income - Mortgage banking income consists primarily of realized and unrealized gains on sale of loans accounted for pursuant to ASC Topic 860, Transfers and Servicing. Interest rate lock commitments and forward loan sales are considered derivatives and are accounted pursuant to ASC Topic 815, Derivatives and Hedging. Bank-Owned Life Insurance (BOLI) - The recognition of BOLI cash surrender value does not represent a contract with a customer and is accounted for in accordance with Emerging Issues Task Force Issue 06-05, Accounting for Purchases of Life Insurance-Determining the Amount that Could be Realized in Accordance with FASB Technical Bulletin No. 85-4, Accounting for Purchases of Life Insurance. 157 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Revenue disaggregation. The following tables disaggregate revenues by major source, timing of revenue recognition, and segment: (in thousands) Revenues from contracts with customers Year ended December 31, 2021 Year ended December 31, 2020 Electric utility Bank Other Total Electric utility Bank Other Total Electric energy sales - residential $ 830,653 $ — $ — $ 830,653 $ 766,609 $ — $ — $ 766,609 Electric energy sales - commercial 791,424 — — 791,424 703,516 — — 703,516 Electric energy sales - large light and power Electric energy sales - other Bank fees Other sales Total revenues from contracts with customers Revenues from other sources Regulatory revenue 837,834 10,770 — — — 46,658 — — — — — 4,086 837,834 10,770 46,658 4,086 751,464 8,054 — — — 38,887 — — — — — 921 751,464 8,054 38,887 921 2,470,681 46,658 4,086 2,521,425 2,229,643 38,887 921 2,269,451 40,069 — — 40,069 11,869 — — 11,869 Bank interest and dividend income — 242,266 — 242,266 — 244,663 — 244,663 Other bank noninterest income Other Total revenues from other sources — 28,886 17,474 — — 259 17,474 29,145 — 23,808 29,961 — — 23 29,961 23,831 68,955 259,740 259 328,954 35,677 274,624 23 310,324 Total revenues $ 2,539,636 $ 306,398 $ 4,345 $ 2,850,379 $ 2,265,320 $ 313,511 $ 944 $ 2,579,775 Timing of revenue recognition Services/goods transferred at a point in time $ — $ 46,658 $ — $ 46,658 $ — $ 38,887 $ — $ 38,887 Services/goods transferred over time 2,470,681 — 4,086 2,474,767 2,229,643 — 921 2,230,564 Total revenues from contracts with customers $ 2,470,681 $ 46,658 $ 4,086 $ 2,521,425 $ 2,229,643 $ 38,887 $ 921 $ 2,269,451 There are no material contract assets or liabilities associated with revenues from contracts with customers existing at December 31, 2021 and 2020. Accounts receivable and unbilled revenues related to contracts with customers represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are disclosed as accounts receivable and unbilled revenues, net on HEI’s consolidated balance sheets and customer accounts receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s consolidated balance sheets. As of December 31, 2021, the Company had no material remaining performance obligations due to the nature of the Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to customers. For ASB, fees are recognized when a transaction is completed. 158 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 10 · Retirement benefits Defined benefit plans. Substantially all of the employees of HEI and the Utilities participate in the Retirement Plan for Employees of Hawaiian Electric Industries, Inc. and Participating Subsidiaries (HEI Pension Plan). Substantially all of the employees of ASB participated in the American Savings Bank Retirement Plan (ASB Pension Plan) until it was frozen on December 31, 2007. The HEI Pension Plan and the ASB Pension Plan (collectively, the Plans) are qualified, noncontributory defined benefit pension plans and include, in the case of the HEI Pension Plan, benefits for utility union employees determined in accordance with the terms of the collective bargaining agreements between the Utilities and the union. The Plans are subject to the provisions of ERISA. In addition, some current and former executives and directors of HEI and its subsidiaries participate in noncontributory, nonqualified plans (collectively, Supplemental Plans). In general, benefits are based on the employees’ or directors’ years of service and compensation. The continuation of the Plans and the Supplemental Plans and the payment of any contribution thereunder are not assumed as contractual obligations by the participating employers. The Supplemental Plan for directors has been frozen since 1996. The ASB Pension Plan was frozen as of December 31, 2007. The HEI Supplemental Executive Retirement Plan and ASB Supplemental Executive Retirement, Disability, and Death Benefit Plan (noncontributory, nonqualified, defined benefit plans) were frozen as of December 31, 2008. No participants have accrued any benefits under these plans after the respective plan’s freeze and the plans will be terminated at the time all remaining benefits have been paid. Each participating employer reserves the right to terminate its participation in the applicable plans at any time, and HEI and ASB reserve the right to terminate their respective plans at any time. If a participating employer terminates its participation in the Plans, the interest of each affected participant would become 100% vested to the extent funded. Upon the termination of the Plans, assets would be distributed to affected participants in accordance with the applicable allocation provisions of ERISA and any excess assets that exist would be paid to the participating employers. Participants’ benefits in the Plans are covered up to certain limits under insurance provided by the Pension Benefit Guaranty Corporation. Postretirement benefits other than pensions. HEI and the Utilities provide eligible employees health and life insurance benefits upon retirement under the Postretirement Welfare Benefits Plan for Employees of Hawaiian Electric Company, Inc. and participating employers (Hawaiian Electric Benefits Plan). Eligibility of employees and dependents is based on eligibility to retire at termination, the retirement date and the date of hire. The plan was amended in 2011, changing eligibility for certain bargaining unit employees hired prior to May 1, 2011, based on new minimum age and service requirements effective January 1, 2012, per the collective bargaining agreement, and certain management employees hired prior to May 1, 2011 based on new eligibility minimum age and service requirements effective January 1, 2012. The minimum age and service requirements for management and bargaining unit employees hired May 1, 2011 and thereafter have increased and their dependents are not eligible to receive postretirement benefits. Employees may be eligible to receive benefits from the HEI Pension Plan but may not be eligible for postretirement welfare benefits if the different eligibility requirements are not met. The executive death benefit plan was frozen on September 10, 2009 for participants at benefit levels as of that date. The Company’s and Utilities’ cost for OPEB has been adjusted to reflect the plan amendments, which reduced benefits and created prior service credits to be amortized over average future service of affected participants. The amortization of the prior service credit will reduce benefit costs until the various credit bases are fully recognized. Each participating employer reserves the right to terminate its participation in the Hawaiian Electric Benefits Plan at any time. Balance sheet recognition of the funded status of retirement plans. Employers must recognize on their balance sheets the funded status of defined benefit pension and other postretirement benefit plans with an offset to AOCI in shareholders’ equity (using the projected benefit obligation (PBO) and accumulated postretirement benefit obligation (APBO), to calculate the funded status). The PUC allowed the Utilities to adopt pension and OPEB tracking mechanisms in previous rate cases. The amount of the net periodic pension cost (NPPC) and net periodic benefits costs (NPBC) to be recovered in rates is established by the PUC in each rate case or as allowed under the new PBR Framework (see “Regulatory proceedings” in Note 3). Under the Utilities’ tracking mechanisms, any actual costs determined in accordance with GAAP that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over 5 years beginning with the respective utility’s next rate case. Accordingly, all retirement benefit expenses (except for executive life and nonqualified pension plan expenses, which amounted to $1.2 million and $1.1 million in 2021 and 2020, respectively) determined in accordance with GAAP will be recovered. Under the tracking mechanisms, amounts that would otherwise be recorded in AOCI (excluding amounts for executive life and nonqualified pension plans), net of taxes, as well as other pension and OPEB charges, are allowed to be reclassified as a 159 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) regulatory asset, as those costs will be recovered in rates through the NPPC and NPBC in the future. The Utilities have reclassified to a regulatory asset/(liability) charges for retirement benefits that would otherwise be recorded in AOCI (amounting to the elimination of a potential adjustment to AOCI of $(230.8) million pretax and $53.7 million pretax for 2021 and 2020, respectively). Under the pension tracking mechanism, the Utilities are required to make contributions to the pension trust in the amount of the actuarially calculated NPPC, except when limited by the ERISA minimum contribution requirements or the maximum contributions imposed by the Internal Revenue Code. Contributions in excess of the calculated NPPC are recorded in a separate regulatory asset. The OPEB tracking mechanisms generally require the Utilities to make contributions to the OPEB trust in the amount of the actuarially calculated NPBC, (excluding amounts for executive life), except when limited by material, adverse consequences imposed by federal regulations. Future decisions in rate cases could further impact funding amounts. Defined benefit pension and other postretirement benefit plans information. The changes in the obligations and assets of the Company’s and Utilities’ retirement benefit plans and the changes in AOCI (gross) for 2021 and 2020 and the funded status of these plans and amounts related to these plans reflected in the Company’s and Utilities’ consolidated balance sheets as of December 31, 2021 and 2020 were as follows: (in thousands) HEI consolidated Benefit obligation, January 1 Service cost Interest cost Actuarial (gains) losses Participants contributions Benefits paid and expenses Benefit obligation, December 31 Fair value of plan assets, January 1 Actual return on plan assets Employer contributions Participants contributions Benefits paid and expenses Fair value of plan assets, December 31 Accrued benefit asset (liability), December 31 Accrued benefit asset (liability), December 31 Other assets Defined benefit pension and other postretirement benefit plans liability Accrued benefit asset (liability), December 31 Accrued benefit asset (liability), December 31 AOCI debit, January 1 (excluding impact of PUC D&Os) Recognized during year – prior service credit (cost) Recognized during year – net actuarial loss Occurring during year – net actuarial loss (gain) AOCI debit before cumulative impact of PUC D&Os, December 31 Cumulative impact of PUC D&Os AOCI debit/(credit), December 31 AOCI debit/(credit), December 31 Net actuarial loss (gain) Prior service gain AOCI debit before cumulative impact of PUC D&Os, December 31 Cumulative impact of PUC D&Os AOCI debit/(credit), December 31 Income taxes (benefits) AOCI debit/(credit), net of taxes (benefits), December 31 2021 2020 Pension benefits Other benefits Pension benefits Other benefits $ 2,624,530 $ 226,421 $ 2,278,283 $ 81,432 75,361 (43,300) — (93,384) 2,644,639 2,089,491 271,443 51,777 — (91,966) 2,320,745 (323,894) $ 23,675 $ (347,569) (323,894) $ 557,564 $ — (27,245) (182,520) 347,799 (324,162) 23,637 $ 347,799 $ — 347,799 (324,162) 23,637 (6,199) 17,438 $ $ $ $ $ $ $ $ 2,827 6,122 (8,527) 2,943 (11,635) 218,151 219,873 28,130 — 2,943 (11,635) 239,311 21,160 $ 21,663 $ (503) 21,160 $ 2,395 $ 1,533 (203) (23,700) (19,975) 19,166 (809) $ (18,172) $ (1,803) (19,975) 19,166 (809) 209 (600) $ 73,387 81,335 275,973 — (84,448) 2,624,530 1,799,200 302,566 70,844 — (83,119) 2,089,491 (535,039) $ 25,851 $ (560,890) (535,039) $ 503,821 $ (8) (33,456) 87,207 557,564 (534,594) 22,970 $ 557,564 $ — 557,564 (534,594) 22,970 (5,988) 16,982 $ 215,639 2,537 7,407 9,785 2,768 (11,715) 226,421 200,831 27,678 — 2,768 (11,404) 219,873 (6,548) — (6,548) (6,548) 6,610 1,761 (208) (5,768) 2,395 (1,177) 1,218 5,731 (3,336) 2,395 (1,177) 1,218 (313) 905 As shown in the table above, as of December 31, 2021, the other postretirement benefit plans with APBOs in excess of plan assets are unfunded plans, and as of December 31, 2020, all of the other postretirement benefit plans had APBOs in excess of plan assets. 160 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (in thousands) Hawaiian Electric consolidated Benefit obligation, January 1 Service cost Interest cost Actuarial (gains) losses Participants contributions Benefits paid and expenses Transfers Benefit obligation, December 31 Fair value of plan assets, January 1 Actual return on plan assets Employer contributions Participants contributions Benefits paid and expenses Other Fair value of plan assets, December 31 Accrued benefit asset (liability), December 31 Other assets Other liabilities (short-term) Defined benefit pension and other postretirement benefit plans liability Accrued benefit asset (liability), December 31 AOCI debit, January 1 (excluding impact of PUC D&Os) Recognized during year – prior service credit (cost) Recognized during year – net actuarial loss Occurring during year – net actuarial loss (gain) AOCI debit before cumulative impact of PUC D&Os, December 31 Cumulative impact of PUC D&Os AOCI debit/(credit), December 31 Net actuarial loss (gain) Prior service gain AOCI debit before cumulative impact of PUC D&Os, December 31 Cumulative impact of PUC D&Os AOCI debit/(credit), December 31 Income taxes (benefits) 2021 2020 Pension benefits Other benefits Pension benefits Other benefits $ 2,440,758 $ 217,074 $ 2,110,904 $ 207,073 79,463 70,235 (39,755) — 2,802 5,875 (7,779) 2,886 71,604 75,484 260,102 — 2,515 7,103 9,151 2,717 (85,425) (11,388) (77,336) (11,485) (332) 2,464,944 1,909,730 266,922 51,079 — — 209,470 216,315 27,712 — 2,886 — 2,440,758 1,640,417 276,453 69,720 — — 217,074 197,564 27,207 — 2,717 (84,852) (11,388) (76,860) (11,173) (262) — — — 2,142,617 235,525 1,909,730 216,315 $ $ $ $ $ $ (322,327) $ 26,055 $ (531,028) $ — $ 26,055 $ — $ (547) (321,780) — — (535) (530,493) (322,327) $ 26,055 $ (531,028) $ 538,521 $ 1,181 $ 478,078 $ — (27,534) (181,342) 329,645 (324,162) 1,530 (206) (22,736) (20,231) 19,166 (9) (30,566) 91,018 538,521 (534,594) 5,483 $ (1,065) $ 3,927 $ 329,645 $ (18,434) $ 538,521 $ — 329,645 (324,162) 5,483 (1,412) (1,797) (20,231) 19,166 (1,065) 274 — 538,521 (534,594) 3,927 (1,011) (759) — (720) (39) (759) 5,730 1,758 (207) (6,100) 1,181 (1,177) 4 4,508 (3,327) 1,181 (1,177) 4 (1) 3 AOCI debit/(credit), net of taxes (benefits), December 31 $ 4,071 $ (791) $ 2,916 $ As of December 31, 2020, the other postretirement benefit plan shown in the table above had APBOs in excess of plan assets. Pension benefits. In 2021, investment returns were higher than assumed rates and improved the funded position. Actuarial gains due to demographic experience, including assumption changes, the most significant of which was the increase in the discount rate used to measure PBO compared to the prior year, improved funded position while the updates to mortality assumptions projected generationally, partially offset the improvement. In 2020, investment returns were higher than assumed rates and together with updates to mortality assumptions projected generationally, improved the funded position. Actuarial losses due to demographic experience, including assumption changes, the most significant of which was the decrease in the discount rate used to measure PBO compared to the prior year, partially offset the improvement in funded position. 161 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Other benefits. In 2021, investment returns were higher than assumed rates and improved funded position. Actuarial gains due to demographic experience, including assumption changes, the most significant of which was the increase in the discount rate used to measure APBO, improved the funded position while the updates to the per capita claims cost to reflect 2022 premiums and mortality assumptions projected generationally, partially offset the improvement. In 2020, investment returns were higher than assumed rates and together with updates to the per capita claims cost to reflect 2021 premiums, improved funded position and offset the actuarial losses due to demographic experience, including assumption changes, the most significant of which was the decrease in the discount rate used to measure APBO. The dates used to determine retirement benefit measurements for the defined benefit plans and OPEB were December 31 of 2021, 2020 and 2019. Through December 31, 2020, for purposes of calculating NPPC and NPBC for all plan assets, the Company and the Utilities have determined the market-related value of retirement benefit plan assets, primarily equity securities and fixed income securities, by calculating the difference between the expected return and the actual return on the fair value of the plan assets, then amortizing the difference over future years – 0% in the first year and 25% in each of years two through five – and finally adding or subtracting the unamortized differences for the past four years from fair value. The method includes a 15% range restriction around the fair value of such assets (i.e., 85% to 115% of fair value). Effective January 1, 2021, the Company adopted a change in accounting principle for the plans’ fixed income securities from the calculated market-related value method to the fair value method in the calculation of the expected return on plan assets component of NPPC and NPBC. The remaining plan assets continue to use the calculated market-related value methodology. The Company considers the fair value approach to be preferable for its fixed-income securities portfolio because it results in a current reflection of the changes in the value of plan assets in a way similar to the obligations it is intended to hedge. The Company evaluated the effect of this change in accounting principle and deemed it to be immaterial to the historical financial statements of the Company and Hawaiian Electric and, therefore, did not account for the change retrospectively and recorded the cumulative effects from the change in accounting principle in earnings for non-Utility businesses in the first quarter of 2021. Amounts related to the Utilities were reflected as adjustments to regulatory assets as appropriate, consistent with the expected regulatory treatment as described in the following paragraph. The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, any actual costs determined in accordance with GAAP that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over 5 years beginning with the respective utility’s next rate case. A primary goal of the plans is to achieve long-term asset growth sufficient to pay future benefit obligations at a reasonable level of risk. The investment policy target for defined benefit pension and OPEB plans of HEI and the Utilities reflects the philosophy that long-term growth can best be achieved by prudent investments in equity securities while balancing overall fund and pension liability volatility by an appropriate allocation to fixed income securities. To reduce the level of portfolio risk and volatility in returns, efforts have been made to diversify the plans’ investments by asset class, geographic region, market capitalization and investment style. ASB’s frozen, overfunded defined benefit pension plan is invested in a portfolio that uses a liability-driven investment strategy to limit funded status volatility. The asset allocation of defined benefit retirement plans to equity and fixed income securities (excluding cash) and related investment policy targets and ranges were as follows: December 31 Assets held by category U.S. equity securities Non-U.S equity securities Fixed income securities Private equity Pension benefits1 Other benefits2 2021 2020 59% 13 27 1 100% 58% 14 28 — 100% Investment policy Target Range3 52% 15 30 3 100% 45-65% 5-25% 20-40% 0-5% 2021 2020 58% 15 27 — 100% 57% 16 27 — 100% Investment policy Range3 Target 52% 45-65% 15 30 3 100% 5-25% 20-40% 0-5% 1 Asset allocation (excluding cash) is applicable to only HEI and the Utilities. As of December 31, 2021 and 2020, nearly all of ASB’s pension assets were invested in fixed income securities. 2 Asset allocation (excluding cash) is applicable to only HEI and the Utilities. ASB does not fund its other benefits. 3 Broad range for equity securities is a minimum of 60% and a maximum of 80% for pension benefits and other benefits. 162 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The fair values of the investments shown in the tables below represent the Company’s best estimates of the amounts that would be received upon sale of those assets in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset at the measurement date, the fair value measurement reflects the Company’s judgments about the assumptions that market participants would use in pricing the asset. Those judgments are developed by the Company based on the best information available in the circumstances. The Company used the following valuation methodologies for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2021 and 2020. Equity securities equity index and exchange-traded funds, U.S. Treasury fixed income securities and public mutual funds (Level 1). Equity securities, equity index and exchange-traded funds, U.S. Treasury fixed income securities and public mutual funds are valued at the closing price reported on the active market on which the individual securities or funds are traded. Fixed income securities, preferred securities (Level 2). Fixed income and preferred securities, other than those issued by the U.S. Treasury, are valued based on yields currently available on comparable securities of issuers with similar credit ratings. 163 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Assets held in various trusts for the retirement benefit plans are measured at fair value on a recurring basis and were as follows: (in millions) 2021 U.S. equity securities Non-U.S. equity securities U.S. equity index and exchange-traded funds Non-U.S. equity investments at net asset value (NAV) Total equity investments 1,546 1,449 Fixed income securities and public mutual funds Fixed income investments at NAV Total fixed income investments Private equity at NAV Cash equivalents, fund and at NAV Total Cash, receivables and payables, net Fair value of plan assets 2020 U.S. equity securities Non-U.S. equity securities U.S. equity index and exchange-traded funds Non-U.S. equity investments at NAV Total equity investments Fixed income securities and public mutual funds Fixed income investments at NAV Total fixed income investments Cash equivalents at NAV Total Cash, receivables and payables, net Fair value of plan assets Pension benefits Other benefits Fair value measurements using Fair value measurements using Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) December 31 December 31 $ 432 $ 431 $ 1 $ 53 $ 53 $ 188 830 96 188 830 — 393 307 700 22 50 146 — 146 — 15 1,610 $ 2,318 $ 3 2,321 — — — 1 247 — 247 — — 248 24 84 12 173 58 5 63 — 3 24 84 — 161 56 — 56 — 3 239 $ — 220 $ $ 239 368 $ 368 $ — $ 46 $ 46 $ 172 734 102 172 734 — 1,376 1,274 363 278 641 68 105 — 105 25 2,085 $ 4 1,404 $ — — — — 258 — 258 — 258 22 77 13 158 53 5 58 4 22 77 — 145 51 — 51 3 220 $ — 199 $ $ $ $ 2,089 $ 220 — — — — — 2 — 2 — — 2 — — — — — 2 — 2 — 2 The fair value of investments measured at NAV presented in the table above is intended to permit reconciliation to the fair value of plan assets amounts. 164 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The following table represents assets measured at NAV. Measured at NAV December 31 Redemption frequency Redemption notice period December 31 Redemption frequency Redemption notice period Pension benefits Other benefits (in millions) 2021 Non-U.S. equity funds (a) Fixed income investments (b) Private equity (c) Cash equivalents (d) 2020 Non-U.S. equity funds (a) Fixed income investments (b) Cash equivalents (d) NA Not applicable $ $ $ $ 96 307 22 35 460 102 278 43 423 Daily-Monthly Daily NA 5-30 days 15 days $ NA Daily 0-1 day Daily-Monthly Daily 5-30 days 15 days Daily 0-1 day $ $ $ Daily-Monthly Daily NA Daily 5-30 days 15 days NA 0-1 day Daily-Monthly Daily Daily 5-30 days 15 days 0-1 day 12 5 — — 17 13 5 1 19 None of the investments presented in the tables above have unfunded commitments, other than private equity disclosed in (c) below. (a) Represents investments in funds that primarily invest in non-U.S., emerging markets equities. Redemption frequency for pension benefits assets as of December 31, 2021 were: daily, 61% and monthly, 39%, and as of December 31, 2020 were daily, 62% and monthly, 38%. Redemption frequency for other benefits assets as of December 31, 2021 were: daily, 57% and monthly, 43% and as of December 31, 2020 were: daily, 58% and monthly, 42%. (b) Represents investments in fixed income securities invested in a US-dollar denominated fund that seeks to exceed the Barclays Capital Long Corporate A or better Index through investments in US-dollar denominated fixed income securities and commingled vehicles. (c) Represents investment in a private equity fund. The fund is valued as reported by the General Partner, based on the valuation of the underlying investments. As of December 31, 2021, the unfunded commitment of the private equity fund was $66 million; the fund does not allow redemptions but may be dissolved with six months written notice. The termination date of the fund is November 1, 2100, unless dissolved earlier. (d) Represents investments in cash equivalent funds. This class includes funds that invest primarily in securities issued or guaranteed by the U.S. government or its agencies or instrumentalities. For pension benefits, the fund may also invest in fixed income securities of investment grade issuers. The following weighted-average assumptions were used in the accounting for the plans: December 31 Benefit obligation Discount rate1 Rate of compensation increase Net periodic pension/benefit cost (years ended) Discount rate2 Expected return on plan assets3 Rate of compensation increase4 Pension benefits 2020 2021 2019 2021 Other benefits 2020 2019 3.05% 3.5 2.92% 3.5 3.61% 3.5 3.07% NA 2.83% NA 3.52% NA 2.92 7.25 3.5 3.61 7.25 3.5 4.31 7.25 3.5 2.83 7.25 3.52 7.25 4.34 7.25 NA NA NA NA Not applicable 1 HEI and the Utilities pension benefits discount rate only at December 31, 2021, 2020 and 2019. ASB’s pension benefits discount rate at December 31, 2021, 2020 and 2019 was 3.04%, 2.76% and 3.49%, respectively. All other disclosed rates apply to the Company and the Utilities. 2 ASB’s pension benefits discount rate for the year ended December 31, 2021 and 2020 was 2.76% and 3.49%. All other disclosed rates apply to the Company and the Utilities. 3 HEI and the Utilities’ plan assets only (gross return). For 2021, 2020 and 2019, ASB’s expected return on plan assets was 2.96%, 3.69% and 4.51%, respectively. 4 HEI and the Utilities use a graded rate of compensation increase assumption based on age. The rate provided above is an average across all future years of service for the current population. NA for ASB. The Company and the Utilities based their selection of an assumed discount rate for 2022 NPPC and NPBC and December 31, 2021 disclosure on a cash flow matching analysis that utilized bond information provided by Bloomberg for all non-callable, high quality bonds (generally rated Aa or better) as of December 31, 2021. In selecting the expected rate of return on plan assets for 2022 NPPC and NPBC: a) HEI and the Utilities considered economic forecasts for the types of investments held by the plans (primarily equity and fixed income investments), the Plans’ asset allocations, industry and corporate surveys and the past performance of the plans’ assets in selecting 7.25% and b) ASB considered its liability-driven investment strategy in selecting 3.24%, which is consistent with the assumed discount rate as of December 31, 2021 with a 20 basis point active 165 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) manager premium. For 2021, retirement benefit plans’ assets of the Company and the Utilities had a net return of 13.2% and 14.2%, respectively. As of December 31, 2021, the assumed health care trend rates for 2022 and future years were as follows: medical, 6.50%, grading down to 5% for 2028 and thereafter; dental, 5%; and vision, 4%. As of December 31, 2020, the assumed health care trend rates for 2021 and future years were as follows: medical, 6.75%, grading down to 5% for 2028 and thereafter; dental, 5%; and vision, 4%. The components of NPPC and NPBC were as follows: (in thousands) HEI consolidated Service cost Interest cost Pension benefits Other benefits 2021 2020 2019 2021 2020 2019 $ 81,432 $ 73,387 $ 62,135 $ 2,827 $ 2,537 $ 75,361 81,335 84,267 6,122 7,407 2,209 8,004 Expected return on plan assets (132,223) (113,800) (111,989) (12,957) (12,124) (12,356) Amortization of net prior service (gain) cost Amortization of net actuarial losses Net periodic pension/benefit cost Impact of PUC D&Os Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) Hawaiian Electric consolidated Service cost Interest cost Expected return on plan assets Amortization of net prior service (gain) cost Amortization of net actuarial losses Net periodic pension/benefit cost Impact of PUC D&Os Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) — 27,245 51,815 27,963 8 33,456 74,386 20,997 (42) (1,533) (1,761) (1,806) 15,479 49,850 48,143 203 (5,338) 4,839 208 (3,733) 3,179 (13) (3,962) 3,258 $ 79,778 $ 95,383 $ 97,993 $ (499) $ (554) $ (704) $ 79,463 $ 71,604 $ 60,461 $ 2,802 $ 2,515 $ 70,235 75,484 77,851 5,875 7,103 2,191 7,673 (125,404) (107,369) (104,632) (12,755) (11,957) (12,180) — 27,534 51,828 27,963 9 30,566 70,294 20,997 7 (1,530) (1,758) (1,803) 14,658 48,345 48,143 206 (5,402) 4,839 207 (3,890) 3,179 — (4,119) 3,258 $ 79,791 $ 91,291 $ 96,488 $ (563) $ (711) $ (861) The Company recorded pension expense of $47 million, $59 million, $59 million in 2021, 2020 and 2019, respectively, and OPEB income of $(0.1) million in 2021, 2020 and 2019 and charged the remaining amounts primarily to electric utility plant. The Utilities recorded pension expense of $47 million, $55 million and $57 million, respectively, and OPEB income of $(0.2) million, $(0.2) million and $(0.3) million in 2021, 2020 and 2019, respectively, and charged the remaining amounts primarily to electric utility plant. Additional information on the defined benefit pension plans’ accumulated benefit obligations (ABOs), which do not consider projected pay increases (unlike the PBOs shown in the table above), and pension plans with ABOs and PBOs in excess of plan assets were as follows: December 31 (in billions) Defined benefit plans - ABOs Defined benefit plans with ABO in excess of plan assets ABOs Fair value of plan assets Defined benefit plans with PBOs in excess of plan assets PBOs Fair value of plan assets HEI consolidated Hawaiian Electric consolidated 2021 2020 2021 2020 $ 2.3 $ 2.3 $ 2.1 $ — — 2.5 2.2 2.1 2.0 2.5 2.0 — — 2.5 2.1 2.1 2.1 1.9 2.4 1.9 166 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) HEI consolidated. The Company estimates that the cash funding for the qualified defined benefit pension plans in 2022 will be $41 million, which should fully satisfy the minimum required contributions to those plans, including requirements of the Utilities’ pension tracking mechanisms and the Plan’s funding policy. The Company’s current estimate of contributions to its other postretirement benefit plans in 2022 is nil. As of December 31, 2021, the benefits expected to be paid under all retirement benefit plans in 2022, 2023, 2024, 2025, 2026 and 2027 through 2031 amount to $102 million, $105 million, $108 million, $112 million, $116 million and $632 million, respectively. Hawaiian Electric consolidated. The Utilities estimate that the cash funding for the qualified defined benefit pension plan in 2022 will be $41 million, which should fully satisfy the minimum required contributions to that Plan, including requirements of the pension tracking mechanisms and the Plan’s funding policy. The Utilities’ current estimate of contributions to its other postretirement benefit plans in 2022 is nil. As of December 31, 2021, the benefits expected to be paid under all retirement benefit plans in 2022, 2023, 2024, 2025, 2026 and 2027 through 2031 amounted to $93 million, $96 million, $99 million, $102 million, $106 million and $580 million, respectively. Defined contribution plans information. For each of 2021, 2020 and 2019, the Company’s expenses and cash contributions for its defined contribution plans under the HEIRSP and the ASB 401(k) Plan were $6 million, $7 million and $7 million, respectively. The Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP for 2021, 2020 and 2019 were $3 million. Retirement benefit plan changes. On December 3, 2021, the Utilities’ union members ratified a new collective bargaining agreement (see Note 3), which includes changes to retirement benefits for all new employees commencing employment on or after January 1, 2022. The changes ratified in the collective bargaining agreement will apply to all employees of HEI and the Utilities first hired on or after January 1, 2022 (New Employees). New Employees are not eligible to participate in the HEI Pension Plan. Instead, New Employees will receive a non-elective employer contribution, equal to 10% of their annual compensation, subject to a vesting schedule, to their account under the HEIRSP, the defined contribution plan for HEI and the Utilities. Only New Employees are impacted by the retirement benefit plan changes. There are no retirement benefit plan changes for employees hired on or before December 31, 2021. Note 11 · Share-based compensation Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares were added to the shares available for issuance under these programs. As of December 31, 2021, approximately 2.9 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy statutory tax liabilities relating to EIP awards, including an estimated 0.5 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels). Restricted stock units awarded under the EIP in 2021, 2020, 2019 and 2018 will vest and be issued in unrestricted stock in three (2021) or four (2020, 2019, 2018) equal annual increments on the anniversaries of the grant date and are forfeited to the extent they have not become vested for terminations of employment during the vesting period, except that pro-rata vesting is provided for terminations due to death, disability and retirement. Restricted stock units expense has been recognized in accordance with the fair-value-based measurement method of accounting. Dividend equivalent rights are accrued quarterly and are paid at the end of the restriction period when the associated restricted stock units vest. Stock performance awards granted under the 2021-23, 2020-22 and 2019-21 long-term incentive plans (LTIP) entitle the grantee to shares of common stock with dividend equivalent rights once service conditions and performance conditions are satisfied at the end of the three-year performance period. LTIP awards are forfeited for terminations of employment during the performance period, except that pro-rata participation is provided for terminations due to death, disability and retirement based upon completed months of service after a minimum of 12 months of service in the performance period. Compensation expense for the stock performance awards portion of the LTIP has been recognized in accordance with the fair-value-based measurement method of accounting for performance shares. 167 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. In June 2019, an additional 300,000 shares were made available for issuance under the 2011 Director Plan. As of December 31, 2021, there were 244,347 shares remaining available for future issuance under the 2011 Director Plan. Share-based compensation expense and the related income tax benefit were as follows: (in millions) HEI consolidated Share-based compensation expense1 Income tax benefit Hawaiian Electric consolidated Share-based compensation expense1 Income tax benefit 2021 2020 $ 9.1 $ 1.4 5.8 $ 1.0 2.7 0.6 1.8 0.4 2019 10.0 1.4 3.2 0.6 1 For 2021, 2020 and 2019, the Company has not capitalized any share-based compensation. Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows: (dollars in millions) Shares granted Fair value Income tax benefit 2021 29,816 1.3 $ 0.3 2020 36,100 1.3 $ 0.3 2019 36,344 1.6 0.4 $ The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI common stock on the grant date. Restricted stock units. Information about HEI’s grants of restricted stock units was as follows: Outstanding, January 1 Granted Vested Forfeited Outstanding, December 31 Outstanding, December 31 Total weighted-average grant-date fair value of 2021 Shares 193,939 $ 137,582 (79,623) (18,450) 233,448 $ (1) 40.89 34.66 38.51 39.92 38.10 2020 Shares 207,641 $ 78,595 (77,719) (14,578) 193,939 $ (1) 35.36 47.99 34.19 36.20 40.89 2019 Shares 200,358 $ 96,565 (76,813) (12,469) 207,641 $ (1) 33.05 37.82 32.61 34.20 35.36 shares granted (in millions) $ 4.8 $ 3.8 $ 3.7 (1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant. For 2021, 2020 and 2019, total restricted stock units and related dividends that vested had a fair value of $3.0 million, $4.2 million and $3.2 million, respectively, and the related tax benefits were $0.6 million, $0.7 million and $0.5 million, respectively. As of December 31, 2021, there was $4.6 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.0 years. Long-term incentive plan payable in stock. The 2019-21, 2020-22 and 2021-23 LTIPs provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the relevant three-year period. The other performance condition goals relate to EPS growth, return on average common equity (ROACE), renewable portfolio standards, Hawaiian Electric’s net income growth, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth and return on average invested capital. 168 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows: Outstanding, January 1 Granted Vested (issued or unissued and cancelled) Forfeited Outstanding, December 31 Total weighted-average grant-date fair value of shares granted (in millions) 2021 Shares 89,222 $ 46,024 (32,355) (11,917) 90,974 $ (1) 42.10 41.12 38.20 43.07 42.86 2020 Shares 96,402 $ 24,630 (29,409) (2,401) 89,222 $ (1) 39.62 48.62 39.51 41.22 42.10 2019 Shares 65,578 $ 35,215 — (4,391) 96,402 $ (1) 38.81 41.07 — 39.19 39.62 $ 1.9 $ 1.2 $ 1.4 (1) Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model. The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and estimated future stock volatility of HEI and its peers over the remaining three-year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three-year historic stock volatility. A dividend assumption is not required for the Monte Carlo simulation because the grant payout includes dividend equivalents and projected returns include the value of reinvested dividends. The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted: Risk-free interest rate Expected life in years Expected volatility Range of expected volatility for Peer Group Grant date fair value (per share) 2021 0.19% 3 29.9% 25.6% to 102.9% $ 41.12 2020 1.39% 3 13.1% 13.6% to 95.4% 2019 2.48% 3 15.8% 15.0% to 73.2% $ 48.62 $ 41.07 For 2021 and 2020, total vested LTIP awards linked to TSR and related dividends had a fair value of $0.8 million and $2.6 million, respectively, and the related tax benefits were $0.2 million and $0.4 million, respectively. There were no share-based LTIP awards linked to TSR with a vesting date in 2019. As of December 31, 2021, there was $1.0 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of 1.6 years. LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows: Outstanding, January 1 Granted Vested Increase above target (cancelled) Forfeited Outstanding, December 31 2021 Shares 220,715 $ 184,102 (43,155) (7,646) (47,674) 306,342 $ (1) 41.03 34.37 34.12 39.06 38.74 38.42 2020 Shares 403,768 $ 98,522 (135,804) (136,163) (9,608) 220,715 $ (1) 35.15 48.10 33.48 36.44 38.36 41.03 2019 Shares 276,169 $ 140,855 — 4,314 (17,570) 403,768 $ (1) 33.80 37.78 — 33.53 34.66 35.15 Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions) $ 6.3 $ 4.7 $ 5.3 (1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant. For 2021 and 2020, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $1.7 million and $7.6 million, respectively, and the related tax benefits were $0.4 million and $1.2 million, respectively. There were no share-based LTIP awards linked to other performance conditions with a vesting date in 2019. As of December 31, 2021, there was $3.4 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 1.7 years. 169 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 12 · Income taxes The components of income taxes attributable to net income for common stock were as follows: Years ended December 31 (in thousands) Federal Current Deferred Deferred tax credits, net* State Current Deferred Deferred tax credits, net* HEI consolidated Hawaiian Electric consolidated 2021 2020 2019 2021 2020 2019 $ 51,455 $ 23,207 $ 28,736 $ 42,794 $ 31,950 $ 21,751 (11,689) (4,215) (4,353) (12,109) (5,408) (7,793) 10,979 29,971 13,410 37,793 302 30,987 1,549 28,091 13,155 27,113 8,430 2,509 — 10,472 (10,732) 14,104 13,844 4,861 8,279 21 3,768 8,559 — 13,161 12,327 5,579 (8,491) 14,104 11,192 18,430 10,939 4,611 44,377 12,119 6,290 21 Total $ 62,807 $ 40,910 $ 51,637 $ 44,148 $ 40,418 $ 38,305 * In 2021 and 2020, primarily represents federal tax credits related to Mauo’s solar-plus-storage project, deferred and amortized starting in 2021 and 2020, respectively. In 2019, primarily represents federal and state credits related to Hawaiian Electric’s West Loch PV project, deferred and amortized starting in 2020. A reconciliation of the amount of income taxes computed at the federal statutory rate to the amount provided in the consolidated statements of income was as follows: Years ended December 31 (in thousands) HEI consolidated Hawaiian Electric consolidated 2021 2020 2019 2021 2020 2019 Amount at the federal statutory income tax rate $ 65,281 $ 50,531 $ 56,996 $ 46,995 $ 44,468 $ 41,399 Increase (decrease) resulting from: State income taxes, net of federal income tax benefit 15,735 9,448 11,658 10,323 9,658 8,703 Net deferred tax asset (liability) adjustment related to the Tax Act Other, net Total Effective income tax rate (9,886) (11,267) (9,255) (9,886) (11,267) (9,255) (8,323) (7,802) (7,762) (3,284) (2,441) (2,542) $ 62,807 $ 40,910 $ 51,637 $ 44,148 $ 40,418 $ 38,305 20.2% 17.0% 19.0% 19.7% 19.1% 19.4% 170 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) The tax effects of book and tax basis differences that give rise to deferred tax assets and liabilities were as follows: December 31 (in thousands) Deferred tax assets HEI consolidated Hawaiian Electric consolidated 2021 2020 2021 2020 Regulatory liabilities, excluding amounts attributable to property, plant and equipment $ 87,817 $ 93,684 $ 87,817 $ Operating lease liabilities Revenue taxes Allowance for bad debts Other1 Total deferred tax assets Deferred tax liabilities Property, plant and equipment related Operating lease right-of-use assets Regulatory assets, excluding amounts attributable to property, plant and equipment Retirement benefits Other Total deferred tax liabilities 93,684 34,586 22,726 4,835 24,741 35,449 35,040 26,217 58,518 41,582 22,726 31,973 44,127 29,661 35,040 7,156 20,529 243,041 234,092 180,203 180,572 500,659 35,271 23,700 6,863 61,308 487,209 41,370 25,841 18,407 56,354 490,713 29,661 23,700 8,261 36,502 627,801 629,181 588,837 473,734 34,586 25,841 20,537 23,672 578,370 Net deferred income tax liability $ 397,798 1 As of December 31, 2021, HEI consolidated and Hawaiian Electric consolidated have deferred tax assets of $11.0 million and $2.5 million respectively, relating to the benefit of state tax credit carryforwards of $14.6 million and $3.4 million respectively. These state tax credit carryforwards primarily relate to the West Loch PV project and do not expire. The Company concluded that as of December 31, 2021, a valuation allowance is not required. 395,089 $ 408,634 $ 384,760 $ The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. Based upon historical taxable income and projections for future taxable income, management believes it is more likely than not the Company and the Utilities will realize substantially all of the benefits of the deferred tax assets. As of December 31, 2021 and 2020, valuation allowances for deferred tax benefits were nil. The Utilities are included in the consolidated federal and Hawaii income tax returns of HEI and are subject to the provisions of HEI’s tax sharing agreement, which determines each subsidiary’s (or subgroup’s) income tax return liabilities and refunds on a standalone basis as if it filed a separate return (or subgroup consolidated return). The following is a reconciliation of the Company’s liability for unrecognized tax benefits for 2021, 2020 and 2019. (in millions) HEI consolidated 2020 2019 2021 Hawaiian Electric consolidated 2020 2019 2021 Unrecognized tax benefits, January 1 $ 12.7 $ 2.2 $ 2.1 $ 12.7 $ 1.7 $ Additions based on tax positions taken during the year Reductions based on tax positions taken during the year Additions for tax positions of prior years Reductions for tax positions of prior years Lapses of statute of limitations Settlement 2.8 (0.5) 7.6 (5.5) — — 0.2 — 11.6 (0.1) (0.2) (1.0) 0.5 — 0.1 (0.2) (0.3) — 0.3 — 0.2 (1.6) — — 0.2 — 11.6 (0.1) (0.2) (0.5) Unrecognized tax benefits, December 31 $ 17.1 $ 12.7 $ 2.2 $ 11.6 $ 12.7 $ 1.6 0.5 — 0.1 (0.2) (0.3) — 1.7 At December 31, 2021 and 2020, there were $10.2 million and $11.6 million, respectively, of unrecognized tax benefits that, if recognized, would affect the Company’s annual effective tax rate. As of December 31, 2021 and 2020, the Utilities had $10.2 million and $11.6 million, respectively, of unrecognized tax benefits that, if recognized, would affect the Utilities’ annual effective tax rate. HEI consolidated. The Company recognizes interest accrued related to unrecognized tax benefits in “Interest expense- other than on deposit liabilities and other bank borrowings” and penalties, if any, in operating expenses. In 2021, 2020 and 171 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2019, the Company recognized approximately $0.2 million, $(0.5) million and $0.1 million, respectively, in interest expense. The Company had $0.3 million and $0.1 million of interest accrued as of December 31, 2021 and 2020, respectively. Hawaiian Electric consolidated. The Utilities recognize interest accrued related to unrecognized tax benefits in “Interest expense and other charges, net” and penalties, if any, in operating expenses. In 2021, 2020 and 2019, the Utilities recognized approximately $0.1 million, $(0.3) million and $0.1 million, respectively, in interest expense. The Utilities had $0.1 million and $0.1 million of interest accrued as of December 31, 2021 and 2020, respectively. As of December 31, 2021, the disclosures above present the Company’s and the Utilities’ accruals for potential tax liabilities, which involve management’s judgment regarding the likelihood of the benefits being sustained under governmental review. While the Company and the Utilities currently do not expect material changes to occur in the next twelve months, the Company and the Utilities are generally unable to estimate the range of impacts on the balance of uncertain tax positions or the impact on the effective tax rate from the resolution of these issues until the Internal Revenue Service addresses them in the current examination process, and therefore, it is possible that the amount of unrecognized benefit with respect to the Company’s and the Utilities’ uncertain tax positions could increase or decrease within the next 12 months. The final resolution of uncertain tax positions could result in adjustments to recorded amounts. Based on information currently available, the Company and the Utilities believe these accruals have adequately provided for potential income tax issues with federal and state tax authorities, and that the ultimate resolution of tax issues for all open tax periods will not have a material adverse effect on its results of operations, financial condition or liquidity. The statute of limitations for IRS examinations has expired for years prior to 2017. The Company is currently under IRS examination for the tax years 2017 and 2018. In the fourth quarter of 2020, the Company and the Hawaii Department of Taxation agreed to a final assessment of tax liabilities for the years 2011 through 2018, however, the statute of limitations for Hawaii remains open for tax years 2017 and subsequent. 172 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Note 13 · Cash flows Years ended December 31 (in millions) Supplemental disclosures of cash flow information HEI consolidated 2021 2020 2019 Interest paid to non-affiliates, net of amounts capitalized $ 98 $ 98 $ Income taxes paid (net of refundable credits) Income taxes refunded (including refundable credits) Hawaiian Electric consolidated Interest paid to non-affiliates, net of amounts capitalized Income taxes paid (net of refundable credits) Income taxes refunded (including refundable credits) Supplemental disclosures of noncash activities HEI consolidated Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) Loans transferred from held for investment to held for sale (investing) Real estate transferred from property, plant and equipment to other assets held-for-sale (investing) Right-of-use assets obtained in exchange for operating lease obligations (investing) Common stock issued (gross) for director and executive/management compensation (financing)1 Obligations to fund low income housing investments, net (investing) Hawaiian Electric consolidated Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) Right-of-use assets obtained in exchange for operating lease obligations (investing) HEI Consolidated and Hawaiian Electric consolidated Electric utility property, plant and equipment Estimated fair value of noncash contributions in aid of construction (investing) 41 7 71 45 5 48 61 3 44 7 36 43 44 8 32 3 65 41 3 44 — — 26 16 25 41 17 10 107 56 4 68 55 4 64 — — 7 5 11 62 2 9 Reduction of long-term debt from funds previously transferred for repayment (financing) 1 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld 82 — — to satisfy statutory tax liabilities. Note 14 · Regulatory restrictions on net assets The abilities of certain of HEI’s subsidiaries to pay dividends or make other distributions to HEI are subject to contractual and regulatory restrictions. Under the PUC Agreement, in the event that the consolidated common stock equity of the electric utility subsidiaries falls below 35% of the total capitalization of the electric utilities (including the current maturities of long- term debt, but excluding short-term borrowings), the electric utility subsidiaries would, absent PUC approval, be restricted in their payment of cash dividends to 80% of the earnings available for the payment of dividends in the current fiscal year and preceding five years, less the amount of dividends paid during that period. The PUC Agreement also provides that the foregoing dividend restriction shall not be construed as relinquishing any right the PUC may have to review the dividend policies of the electric utility subsidiaries. As of December 31, 2021, the consolidated common stock equity of HEI’s electric utility subsidiaries was 57% of their total capitalization (as calculated for purposes of the PUC Agreement). As of December 31, 2021, Hawaiian Electric and its subsidiaries had common stock equity of $2.3 billion of which approximately $919 million was not available for transfer to HEI in the form of dividends, loans or advances without regulatory approval. The ability of ASB to make capital distributions to HEI and other affiliates is restricted under federal law. Subject to a limited exception for stock redemptions that do not result in any decrease in ASB’s capital and would improve ASB’s financial condition, ASB is prohibited from declaring any dividends, making any other capital distributions, or paying a management fee to a controlling person if, following the distribution or payment, ASB would be deemed to be undercapitalized, significantly undercapitalized or critically undercapitalized. ASB is required to notify the FRB and OCC prior to making any capital distribution (including dividends) to HEI (through ASB Hawaii). All dividends are subject to review by the OCC and FRB and 173 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to declare and pay to ASB Hawaii and HEI. Generally, the FRB and OCC may disapprove or deny ASB’s request to make a capital distribution if the proposed distribution will cause ASB to become undercapitalized, or the proposed distribution raises safety and soundness concerns, or the proposed distribution violates a prohibition contained in any statute, regulation or agreement between ASB and the OCC. As of December 31, 2021, in order to maintain its “well-capitalized” position, ASB could not transfer approximately $232 million of net assets to HEI. HEI and its subsidiaries are also subject to debt covenants, preferred stock resolutions and the terms of guarantees that could limit their respective abilities to pay dividends. The Company does not expect that the regulatory and contractual restrictions applicable to HEI and/or its subsidiaries will significantly affect the operations of HEI or its ability to pay dividends on its common stock. Note 15 · Significant group concentrations of credit risk Most of the Company’s business activity is with customers located in the State of Hawaii. The Utilities are regulated operating electric public utilities engaged in the generation, purchase, transmission, distribution and sale of electricity on the islands of Oahu, Hawaii, Maui, Lanai and Molokai in the State of Hawaii. The Utilities provide the only electric public utility service on the islands they serve. The Utilities extend credit to customers, all of whom reside or conduct business in the State of Hawaii. See Note 3 of the Consolidated Financial Statements for a discussion of the Utilities’ major customers. The International Brotherhood of Electrical Workers Local 1260 represents roughly half of the Utilities’ workforce covered by a collective bargaining agreement that expires on October 31, 2024. Most of ASB’s financial instruments are based in the State of Hawaii, except for the investment securities it owns. Substantially all real estate loans are collateralized by real estate in Hawaii. ASB’s policy is to require mortgage insurance on all real estate loans with a loan to appraisal ratio in excess of 80% at origination. Pacific Current’s investments are in projects located in the State of Hawaii since its strategy is focused on investing in non- regulated renewable energy and sustainable infrastructure in the State of Hawaii. Note 16 · Fair value measurements Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value: Short-term borrowings—other than bank. The carrying amount of short-term borrowings approximated fair value because of the short maturity of these instruments. Investment securities. The fair value of ASB’s investment securities is determined quarterly through pricing obtained from independent third-party pricing services or from brokers not affiliated with the trade. Non-binding broker quotes are infrequent and generally occur for new securities that are settled close to the month-end pricing date. The third-party pricing vendors ASB uses for pricing its securities are reputable firms that provide pricing services on a global basis and have processes in place to ensure quality and control. The third-party pricing services use a variety of methods to determine the fair value of securities that fall under Level 2 of ASB’s fair value measurement hierarchy. Among the considerations are quoted prices for similar securities in an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic prepayment speeds, and other observable market factors. To enhance the robustness of the pricing process, ASB will on a quarterly basis compare its standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by ASB and a challenge to the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable characteristics of the security. In all cases, the fair value used will have been independently determined by a third-party pricing vendor or non-affiliated broker. The fair value of the mortgage revenue bonds is estimated using a discounted cash flow model to calculate the present value of future principal and interest payments and, therefore is classified within Level 3 of the valuation hierarchy. 174 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Loans held for sale. Residential and commercial loans are carried at the lower of cost or market and are valued using market observable pricing inputs, which are derived from third party loan sales and, therefore, are classified within Level 2 of the valuation hierarchy. Loans held for investment. Fair value of loans held for investment is derived using a discounted cash flow approach which includes an evaluation of the underlying loan characteristics. The valuation model uses loan characteristics which includes product type, maturity dates and the underlying interest rate of the portfolio. This information is input into the valuation models along with various forecast valuation assumptions including prepayment forecasts, to determine the discount rate. These assumptions are derived from internal and third party sources. Since the valuation is derived from model-based techniques, ASB includes loans held for investment within Level 3 of the valuation hierarchy. Collateral dependent loans. Collateral dependent loans have been adjusted to fair value. When a loan is identified as collateral dependent, the Company measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little or no value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. If it is determined that the value of the collateral dependent loan is less than its recorded investment, the Company recognizes this impairment and adjusts the carrying value of the loan to fair value through the allowance for credit losses. Real estate acquired in settlement of loans. Foreclosed assets are carried at fair value (less estimated costs to sell) and are generally based upon appraisals or independent market prices that are periodically updated subsequent to classification as real estate owned. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. ASB estimates the fair value of collateral-dependent loans and real estate owned using the sales comparison approach. Mortgage servicing rights. MSRs are capitalized at fair value based on market data at the time of sale and accounted for in subsequent periods at the lower of amortized cost or fair value. MSRs are evaluated for impairment at each reporting date. ASB's MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type and note rate. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. ASB compares the fair value of MSRs to an estimated value calculated by an independent third-party. The third-party relies on both published and unpublished sources of market related assumptions and its own experience and expertise to arrive at a value. ASB uses the third-party value only to assess the reasonableness of its own estimate. ASB includes MSRs within Level 3 of the valuation hierarchy. Time deposits. The fair value of fixed-maturity certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for FHLB advances of similar remaining maturities. Deposit liabilities are classified in Level 2 of the valuation hierarchy. Other borrowings. For advances and repurchase agreements, fair value is estimated using quantitative discounted cash flow models that require the use of interest rate inputs that are currently offered for advances and repurchase agreements of similar remaining maturities. The majority of market inputs are actively quoted and can be validated through external sources, including broker market transactions and third party pricing services. Long-term debt—other than bank. Fair value of fixed-rate long-term debt—other than bank was obtained from third-party financial services providers based on the current rates offered for debt of the same or similar remaining maturities and from discounting the future cash flows using the current rates offered for debt of the same or similar risks, terms, and remaining maturities. The carrying amount of floating rate long-term debt—other than bank approximated fair value because of the short- term interest reset periods. Long-term debt—other than bank is classified in Level 2 of the valuation hierarchy. Interest rate lock commitments (IRLCs). The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. IRLCs are classified as Level 2 measurements. Forward sales commitments. To be announced (TBA) mortgage-backed securities forward commitments are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market 175 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are determined using quoted prices in the market place that are observable and are classified as Level 2 measurements. The following table presents the carrying or notional amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments. (in thousands) December 31, 2021 Financial assets HEI consolidated Available-for-sale investment securities Held-to-maturity investment securities Loans, net Mortgage servicing rights Derivative assets Financial liabilities HEI consolidated Deposit liabilities Short-term borrowings—other than bank Other bank borrowings Long-term debt, net—other than bank Derivative liabilities Hawaiian Electric consolidated Long-term debt, net December 31, 2020 Financial assets HEI consolidated Available-for-sale investment securities Held-to-maturity investment securities Loans, net Mortgage servicing rights Derivative assets Financial liabilities HEI consolidated Deposit liabilities Short-term borrowings—other than bank Other bank borrowings Long-term debt, net—other than bank Derivative liabilities Hawaiian Electric consolidated Short-term borrowings Long-term debt, net Estimated fair value Carrying or notional amount Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Total $ 2,574,618 $ — $ 2,559,191 $ 15,427 $ 2,574,618 522,270 5,150,388 9,950 57,377 423,976 53,998 88,305 2,321,937 57,000 1,676,402 — — — — — — — — 11 — 510,474 — 510,474 10,403 5,218,121 5,228,524 — 909 14,480 — 14,480 909 442,361 53,998 88,304 2,624,130 5,271 — — — — — 442,361 53,998 88,304 2,624,130 5,282 1,955,710 — 1,955,710 $ 1,970,417 $ — $ 1,943,232 $ 27,185 $ 1,970,417 — — — — — — — — 500 — — 229,963 — 229,963 28,354 5,410,976 5,439,330 — 4,536 10,705 — 10,705 4,536 552,800 129,379 89,669 2,487,790 4,530 49,979 1,890,490 — — — — — — — 552,800 129,379 89,669 2,487,790 5,030 49,979 1,890,490 226,947 5,260,917 10,020 120,980 548,830 129,379 89,670 2,119,129 137,500 49,979 1,561,302 176 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair value measurements on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were as follows: December 31 (in thousands) 2021 2020 Fair value measurements using Fair value measurements using Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Available-for-sale investment securities (bank segment) Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies U.S. Treasury and federal agency obligations Corporate bonds Mortgage revenue bonds Derivative assets Interest rate lock commitments (bank segment)1 Interest rate swap (Other segment)2 Derivative liabilities Forward commitments (bank segment)1 Interest rate swap (Other segment)2 — — — $ — $ 2,437,923 $ — $ — $ 1,849,559 $ — — — 90,090 31,178 — — — 15,427 — — — 62,322 31,351 — 27,185 $ $ $ $ $ — $ 2,559,191 $ 15,427 $ — $ 1,943,232 $ 27,185 — $ 638 $ — $ — $ 4,536 $ — 271 — — — — $ 909 $ — $ — $ 4,536 $ 11 $ — $ — $ 500 $ — $ — 5,271 — — 4,530 11 $ 5,271 $ — $ 500 $ 4,530 $ — — — — — — 1 Derivatives are carried at fair value in other assets or other liabilities in the balance sheets with changes in value included in mortgage banking income. 2 Derivatives are included in other assets and other liabilities in the balance sheets. There were no transfers of financial assets and liabilities between Level 1 and Level 2 of the fair value hierarchy during the years ended December 31, 2021 and 2020. The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows: (in thousands) Mortgage revenue bonds Balance, January 1 Principal payments received Purchases Unrealized gain (loss) included in other comprehensive income Balance, December 31 2021 2020 27,185 $ (11,758) — — 28,597 (1,641) 229 — 15,427 $ 27,185 $ $ Mortgage revenue bonds are issued by the Department of Budget and Finance of the State of Hawaii. The Company estimates the fair value by using a discounted cash flow model to calculate the present value of estimated future principal and interest payments. The unobservable input used in the fair value measurement is the weighted average discount rate. As of December 31, 2021, the weighted average discount rate was 2.07% which was derived by incorporating a credit spread over the one month LIBOR rate. Significant increases (decreases) in the weighted average discount rate could result in a significantly lower (higher) fair value measurement. 177 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Fair value measurements on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. As of December 31, 2021, there were no financial instruments measured at fair value on a nonrecurring basis. The carrying value of assets measured at fair value on a nonrecurring basis were as follows: (in thousands) December 31, 2020 Loans Mortgage servicing rights Balance Fair value measurements using Level 2 Level 3 Level 1 $ 387 $ — $ — $ 3,001 — — 387 3,001 For 2021 and 2020, there were no adjustments to fair value for ASB’s loans held for sale. The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a nonrecurring basis: (dollars in thousands) December 31, 2020 Commercial loan Mortgage servicing rights $ $ Fair value Valuation technique Significant unobservable input Range Weighted Average Significant unobservable input value (1) 387 Fair value of collateral Appraised value less selling cost N/A (2) N/A (2) 3,001 Discounted cash flow Prepayment speed 15%-22% Discount rate 22% 9.3% (1) Represents percent of outstanding principal balance. (2) N/A - Not applicable. There is one asset in each fair value measurement type. Significant increases (decreases) in any of those inputs in isolation would result in significantly higher (lower) fair value measurements. 178 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE HEI and Hawaiian Electric: None ITEM 9A. CONTROLS AND PROCEDURES HEI: Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Scott W. H. Seu, HEI Chief Executive Officer (CEO), and Gregory C. Hazelton, HEI Chief Financial Officer (CFO), have evaluated the disclosure controls and procedures of HEI as of December 31, 2021. Based on their evaluation, as of December 31, 2021, they have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective in ensuring that information required to be disclosed by HEI in reports HEI files or submits under the Securities Exchange Act of 1934: (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to HEI management, including HEI’s CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management has concluded that the Company’s internal control over financial reporting was effective as of December 31, 2021. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in its report which appears herein. Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Hawaiian Electric: Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures Shelee M. T. Kimura, Hawaiian Electric CEO, and Tayne S. Y. Sekimura, Hawaiian Electric CFO, have evaluated the disclosure controls and procedures of Hawaiian Electric as of December 31, 2021. Based on their evaluation, as of December 31, 2021, they have concluded that the disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were effective in ensuring that information required to be disclosed by Hawaiian Electric in reports Hawaiian Electric files or submits under the Securities Exchange Act of 1934: (1) is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and (2) is accumulated and communicated to Hawaiian Electric management, including Hawaiian Electric’s CEO and CFO, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. 179 Management’s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended. Hawaiian Electric’s internal control over financial reporting was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management conducted an evaluation of the effectiveness of Hawaiian Electric’s internal control over financial reporting as of December 31, 2021 based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. Based on this evaluation, management has concluded that Hawaiian Electric’s internal control over financial reporting was effective as of December 31, 2021. Changes in Internal Control over Financial Reporting There have been no changes in internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial reporting. ITEM 9B. OTHER INFORMATION HEI and Hawaiian Electric: None ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS HEI and Hawaiian Electric: None ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE HEI: PART III Information regarding HEI’s executive officers is provided in the “Information about our Executive Officers” section following Item 4 of this report. The remaining information required by this Item 10 for HEI is incorporated herein by reference to the following sections in HEI’s 2022 Proxy Statement: • • • • “Director Nominees for Election” “Continuing Directors” “Committees of the Board” (portions regarding whether HEI has an audit & risk committee and identifying its members; no other portion of the Committees of the Board section is incorporated herein by reference) “Audit & Risk Committee Report” (portion identifying audit & risk committee financial experts who serve on the HEI Audit & Risk Committee only; no other portion of the Audit & Risk Committee Report is incorporated herein by reference) 180 Family relationships; director arrangements There are no family relationships between any HEI director or director nominee and any other HEI director or director nominee or any HEI executive officer. There are no arrangements or understandings between any HEI director or director nominee and any other person pursuant to which such director or director nominee was selected. Information required to be reported under this caption is incorporated herein by reference to the “Other relationships and related person transactions” section in HEI’s 2022 Proxy Statement. Delinquent Section 16(a) reports Information required to be reported under this caption is incorporated herein by reference to the “Delinquent Section 16(a) Reports” section in HEI’s 2022 Proxy Statement. Code of Conduct HEI has a Corporate Code of Conduct that includes a code of ethics applicable to, among others, its principal executive officer, principal financial officer and principal accounting officer. The Corporate Code of Conduct is available on HEI’s website at www.hei.com. HEI intends to disclose the information required by Form 8-K, Item 5.05, “Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics,” through this website and such information will remain available on this website for at least a 12-month period. Hawaiian Electric: The information required by this Item 10 for Hawaiian Electric is incorporated herein by reference to pages 1 to 6 of Hawaiian Electric Exhibit 99.1. ITEM 11. EXECUTIVE COMPENSATION HEI: The information required by this Item 11 for HEI is incorporated herein by reference to the information relating to executive and director compensation in HEI’s 2022 Proxy Statement. Hawaiian Electric: The information required by this Item 11 for Hawaiian Electric is incorporated herein by reference to: • • • Pages 7 to 35 of Hawaiian Electric Exhibit 99.1 to this Form 10-K; The discussion of “2020-22 Long-Term Incentive Plan” at pages 17 to 19 of Hawaiian Electric’s Exhibit 99.1 to Annual Report on Form 10-K for the year ended December 31, 2020; and Information concerning compensation paid to directors of Hawaiian Electric who are also directors of HEI under the section of HEI’s 2022 Proxy Statement entitled, “Director Compensation.” COMPENSATION & HUMAN CAPITAL MANAGEMENT COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION HEI: The information required to be reported under this caption for HEI is incorporated herein by reference to the “Compensation & Human Capital Management Interlocks and Insider Participation” section in HEI’s 2022 Proxy Statement. Hawaiian Electric: The information required to be reported under this caption for Hawaiian Electric is incorporated herein by reference to page 23 of Hawaiian Electric Exhibit 99.1. 181 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS HEI: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The information required by this Item 12 for HEI is incorporated herein by reference to the “Stock Ownership Information- Security Ownership of Certain Beneficial Owners” section in HEI’s 2022 Proxy Statement. Equity Compensation Plan Information Information as of December 31, 2021 about HEI Common Stock that may be issued under all of the Company’s equity compensation plans was as follows: Plan category Equity compensation plans approved by shareholders Equity compensation plans not approved by shareholders Total (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) (b) Weighted-average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (2) 509,881 $ — 509,881 $ — — — 2,617,603 — 2,617,603 (1) This column includes the number of shares of HEI Common Stock which may be issued under the HEI 2010 Equity and Incentive Plan, as amended (EIP) on account of awards outstanding as of December 31, 2021, including: EIP 164,269 Restricted stock units plus estimated compounded dividend equivalents (if applicable)* Shares to be issued in February 2022, 2023 and 2024 under the 2019-21, 2020-22 and 2021-23 LTIPs, respectively, 345,612 plus compounded dividend equivalents** 509,881 * Under the EIP as of December 31, 2021, RSUs count as one share against shares available for issuance less estimated shares withheld for taxes under net share settlement, which again become available for the issuance of new shares on a one-to-one basis. ** For shares to be issued in February 2023 and 2024 under the 2020-22 and 2021-23 LTIPs, respectively, the number of shares to be issued assumes that applicable performance goals are achieved and shares are issued at maximum levels, reduced by the estimated number of shares withheld for taxes. (2) This represents the number of shares available as of December 31, 2021 for future awards, including 2,373,256 shares available for future awards under the EIP and 244,347 shares available for future awards under the 2011 Nonemployee Director Plan. Hawaiian Electric: The information required by this Item 12 for Hawaiian Electric is incorporated herein by reference to pages 35 to 36 of Hawaiian Electric Exhibit 99.1. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE HEI: The information required by this Item 13 for HEI is incorporated herein by reference to the sections relating to related person transactions and director independence in HEI’s 2022 Proxy Statement. Hawaiian Electric: The information required by this Item 13 for Hawaiian Electric is incorporated herein by reference to pages 36 to 37 of Hawaiian Electric Exhibit 99.1. 182 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES HEI: The information required by this Item 14 for HEI is incorporated herein by reference to the relevant information in the Audit & Risk Committee Report in HEI’s 2022 Proxy Statement (but no other part of the “Audit & Risk Committee Report” is incorporated herein by reference). Hawaiian Electric: The information required by this Item 14 for Hawaiian Electric is incorporated herein by reference to page 38 of Hawaiian Electric Exhibit 99.1. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a)(1) Financial statements See Item 8 for the Consolidated Financial Statements of HEI and Hawaiian Electric. (a)(2) and (c) Financial statement schedules The following financial statement schedules for HEI and Hawaiian Electric are included in this report on the pages indicated below: Schedule I Schedule II NA Not applicable. Condensed Financial Information of Registrant, Hawaiian Electric Industries, Inc. (Parent Company) at December 31, 2021 and 2020 and for the years ended December 31, 2021, 2020 and 2019 Valuation and Qualifying Accounts, Hawaiian Electric Industries, Inc. and subsidiaries and Hawaiian Electric Company, Inc. and subsidiaries for the years ended December 31, 2021, 2020 and 2019 Page/s in Form 10-K HEI Hawaiian Electric 184-186 188 NA 188 Certain schedules, other than those listed, are omitted because they are not required, or are not applicable, or the required information is shown in the Consolidated Financial Statements. ITEM 16. FORM 10-K SUMMARY HEI and Hawaiian Electric: None 183 Hawaiian Electric Industries, Inc. SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY) CONDENSED BALANCE SHEETS December 31 (dollars in thousands) Assets Cash and cash equivalents Accounts receivable Property, plant and equipment, net Deferred income tax assets Other assets and intercompany receivables Investments in subsidiaries, at equity Total assets Liabilities and shareholders’ equity Liabilities Accounts payable Interest payable Commercial paper Short-term debt, net Long-term debt, net Retirement benefits liability Other Total liabilities Shareholders’ equity 2021 2020 $ 479 $ 873 2,052 17,000 15,940 299 738 2,456 14,236 18,726 3,025,729 2,893,781 $ 3,062,073 $ 2,930,236 $ 914 $ 2,238 53,998 — 548,480 26,340 39,219 671,189 673 2,918 64,491 14,909 449,145 31,688 28,910 592,734 Preferred stock, no par value, authorized 10,000,000 shares; issued: none — — Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 109,311,785 shares and 109,181,124 shares at December 31, 2021 and 2020, respectively 1,685,496 1,678,368 Retained earnings Accumulated other comprehensive loss, net of tax benefits Total shareholders’ equity Total liabilities and shareholders’ equity 757,921 660,398 (52,533) (1,264) 2,390,884 2,337,502 $ 3,062,073 $ 2,930,236 184 Hawaiian Electric Industries, Inc. SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY) CONDENSED STATEMENTS OF INCOME Years ended December 31 (in thousands) Revenues Equity in net income of subsidiaries Expenses: Operating, administrative and general Depreciation of property, plant and equipment Taxes, other than income taxes Total expenses Income before interest expense and income tax benefits Retirement defined benefits expense—other than service costs Interest expense Income before income tax benefits Income tax benefits Net income 2021 2020 2019 $ 105 $ 208 $ 777 278,743 227,098 246,005 24,006 20,731 19,195 414 514 24,934 253,914 485 654 21,870 205,436 (114) 634 18,444 235,584 10,582 18,237 186,565 11,259 570 570 20,335 226,447 442 17,930 208,075 9,807 $ 246,166 $ 197,824 $ 217,882 HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY) STATEMENTS OF COMPREHENSIVE INCOME STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Incorporated by reference are HEI and Subsidiaries’ Statements of Consolidated Comprehensive Income and Consolidated Statements of Changes in Shareholders’ Equity in Part II, Item 8. 185 Hawaiian Electric Industries, Inc. SCHEDULE I — CONDENSED FINANCIAL INFORMATION OF REGISTRANT (continued) HAWAIIAN ELECTRIC INDUSTRIES, INC. (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS 2021 2020 2019 $ 154,151 $ 134,363 $ 131,120 — — — (1,187) 22,719 (10) (20) — (47) (76,232) (42,664) (38,935) 180 2,435 (1,001) (76,062) (17,530) (41,170) (10,493) (32,232) 47,731 — 65,000 (15,000) (50,000) 150,000 50,000 (50,000) — — — 66,300 (66,300) — — — — — — (2,006) (5,700) (997) (148,643) (144,096) (139,463) (1,767) (459) (10) (77,909) (117,487) (92,739) 180 299 (654) (2,789) 953 3,742 953 $ 479 $ 299 $ Years ended December 31 (in thousands) Net cash provided by operating activities Cash flows from investing activities Increase in note receivable from subsidiary Decrease in note receivable from subsidiary Capital expenditures Investments in subsidiaries Other Net cash used in investing activities Cash flows from financing activities Net increase (decrease) in short-term borrowings with original maturities of three months or less Proceeds from issuance of short-term debt Repayment of short-term debt Proceeds from issuance of long-term debt Repayment of long-term debt Proceeds from issuance of syndicated credit facility Repayment of syndicated credit facility Withheld shares for employee taxes on vested share-based compensation Common stock dividends Other Net cash used in financing activities Net increase (decrease) in cash and equivalents Cash and cash equivalents, January 1 Cash and cash equivalents, December 31 186 NOTES TO CONDENSED FINANCIAL INFORMATION Basis of Presentation The “Notes to Consolidated Financial Statements” in Part II, Item 8 should be read in conjunction with the above HEI (Parent Company) financial statements. All HEI subsidiaries are reflected in the Condensed Financial Statements under the equity method. Income taxes for equity method investments are included in “Equity in net income of subsidiaries.” Long-term debt The components of long-term debt, net, were as follows: December 31 (dollars in thousands) HEI 2.99% term loan, due 2022 HEI 5.67% senior note, due 2021 HEI 3.99% senior note, due 2023 HEI 4.58% senior notes, due 2025 HEI 4.72% senior notes, due 2028 HEI 2.82% senior notes, due 2028 HEI 2.48% senior notes, due 2028 HEI 2.98% senior notes, due 2030 HEI 3.15% senior notes, due 2031 HEI 2.78% senior notes, due 2031 HEI 3.74% senior notes, due 2051 Less unamortized debt issuance costs Long-term debt, net 2021 2020 $ 150,000 $ 150,000 — 50,000 50,000 100,000 24,000 30,000 50,000 51,000 25,000 20,000 50,000 50,000 50,000 100,000 — — 50,000 — — — (1,520) (855) $ 548,480 $ 449,145 The aggregate payments of principal required within five years after December 31, 2021 on long-term debt are $150 million in 2022, $50 million in 2023, nil in 2024, $50 million in 2025, nil for 2026, and $300 million thereafter. Income taxes The Company’s financial reporting policy for income tax allocations is based upon a separate entity concept whereby each subsidiary provides income tax expense (or benefits) as if each were a separate taxable entity. The difference between the aggregate separate tax return income tax provisions and the consolidated financial reporting income tax provision is charged or credited to HEI’s separate tax provision. Dividends from HEI subsidiaries In 2021, 2020 and 2019, cash dividends received from subsidiaries were $172 million, $145 million and $157 million, respectively. Supplemental disclosures of noncash activities In 2021, 2020 and 2019, $2.1 million, $2.3 million and $2.3 million, respectively, of HEI accounts receivable from ASB Hawaii were reduced with a corresponding reduction in HEI notes payable to ASB Hawaii in noncash transactions. In 2021, 2020 and 2019, $2.1 million, $2.3 million and $2.3 million, respectively, were contributed as equity by HEI into ASB Hawaii with a corresponding increase in HEI notes payable to ASB Hawaii in noncash transactions. Under the HEI DRIP, common stock dividends reinvested by shareholders in HEI common stock in noncash transactions was immaterial for 2021, 2020 and 2019 as HEI satisfied the share purchase requirements of the DRIP in 2021, 2020 and 2019 through open market purchases of its common stock rather than new issuances. 187 Hawaiian Electric Industries, Inc. and subsidiaries and Hawaiian Electric Company, Inc. and subsidiaries SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS Years ended December 31, 2021, 2020 and 2019 (in thousands) Description Col. A 2021 Allowance for uncollectible accounts – electric utility 2020 Allowance for uncollectible accounts – electric utility 2019 Allowance for uncollectible accounts – electric utility Col. B Balance at begin- ning of period Col. C Additions Col. D Col. E Charged to costs and expenses Charged to other accounts Deductions Balance at end of period $ 17,809 $ 4,183 $ 11,795 (a) $ 7,687 (b) $ 26,100 $ 1,377 $ 2,100 $ 18,041 (a) $ 3,709 (b) $ 17,809 $ 1,480 $ 2,106 $ 795 (a) $ 3,004 (b) $ 1,377 (a) Includes recoveries, as well as $10,700 and $16,700 of bad debt expenses for 2021 and 2020, respectively, that have been deferred to regulatory assets pursuant to a PUC order as the recovery is probable. Total deferred bad debt expense of $10,700 in 2021 is net of a $2,000 reversal associated with customer bill credits to be provided under the Utilities’ bill forgiveness program. (b) Bad debts charged off. 188 (a)(3) and (b) Exhibits The exhibits listed for HEI and Hawaiian Electric are listed in the index under the headings “HEI” and “Hawaiian Electric,” respectively, except that the exhibits listed under “Hawaiian Electric” are also exhibits for HEI. EXHIBIT INDEX The exhibits designated by an asterisk (*) are filed herewith. The exhibits not so designated are incorporated by reference to the indicated filing. Exhibit no. Description HEI’s Amended and Restated Articles of Incorporation effective June 2, 2020. HEI’s Amended and Restated Bylaws effective June 2, 2020. Description of HEI Common Stock Agreement to provide the SEC with instruments which define the rights of holders of certain long-term debt of HEI and its subsidiaries. Master Note Purchase Agreement among HEI and the Purchasers thereto, dated March 24, 2011. First Supplement to Note Purchase Agreement among HEI and the Purchasers thereto, dated March 6, 2013. 8-K 1-8503 4(a) 3/6/13 Hawaiian Electric Industries Retirement Savings Plan, restatement effective January 1, 2013. 10-K 1-8503 HEI: 3(i) 3(ii) 4 4.1 4.2 4.2(a) 4.3 4.3(a) 4.3(b) 4.3(c) 4.3(d) 4.3(e) 4.3(f) 4.3(g) 4.3(h) 4.4 4.4(a) 4.4(b) 4.4(c) 4.4(d) 4.4(e) 4.4(f) * * Amendment 2014-1 to Hawaiian Electric Industries Retirement Savings Plan, effective as of January 1, 2015 Amendment 2015-1 to Hawaiian Electric Industries Retirement Savings Plan, effective as of February 1, 2015 Amendment 2015-2 to Hawaiian Electric Industries Retirement Savings Plan, effective as of February 1, 2015 Amendment 2019-1 to Hawaiian Electric Industries Retirement Savings Plan, effective as of May 6, 2019 Amendment 2019-2 to the Hawaiian Electric Industries Retirement Savings Plan, effective as of August 1, 2019 Amendment 2020-1 to the Hawaiian Electric Industries Retirement Savings Plan, effective as of March 13, 2020 Amendment 2021-1 to the Hawaiian Electric Industries Retirement Savings Plan, effective as of November 30, 2021 Amendment 2021-2 to the Hawaiian Electric Industries Retirement Savings Plan, effective as of December 9, 2021 Master Trust Agreement dated as of September 4, 2012 between HEI and ASB and Fidelity Management Trust Company, as Trustee Letter Amendment effective November 28, 2012 to Master Trust Agreement dated as of September 4, 2012 between HEI and ASB and Fidelity Management Trust Company. Letter Amendment effective October 1, 2014 to Master Trust Agreement dated as of September 4, 2012 between HEI and ASB and Fidelity Management Trust Company. First Amendment effective March 1, 2015 to Master Trust Agreement (dated as of September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. Letter Amendment effective August 3, 2015 to Master Trust Agreement (dated as of September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. Letter Amendment effective August 15, 2017 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. Second Amendment effective January 1, 2018 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. 189 File Form Number Exhibit # 10-Q 8-K 10-K 10-K 1-8503 1-8503 1-8503 1-8503 3.1 3.1 4 4.1 Filing date 8/6/20 6/8/20 2/28/20 3/31/93 8-K 1-8503 4(a) 3/28/11 S-8 S-8 S-8 S-8 333- 232360 333- 232360 333- 232360 333- 232360 10-Q 1-8503 10-Q 1-8503 4.5 4.4 4.5 4.6 4.7 4.2 4.1 2/19/13 6/26/19 6/26/19 6/26/19 6/26/19 11/1/19 5/5/20 10-Q 1-8503 4 11/8/12 10-K 1-8503 4.6(a) 2/19/13 10-Q 1-8503 10-Q 1-8503 4 4 11/6/14 5/6/15 10-K 1-8503 4.4(d) 3/1/18 10-Q 1-8503 4 11/2/17 10-K 1-8503 4.4(f) 3/1/18 Exhibit no. 4.4(g) 4.4(h) 4.4(i) 4.4(j) 4.4(k) 4.4(l) 4.5 4.6 4.6(a) 4.6(b) 4.6(c) 10.1 10.2 10.3 Description Letter of Direction effective January 2, 2018 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. Third Amendment effective July 1, 2018 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. File Form 10-K Number Exhibit # 1-8503 4.4(g) Filing date 3/1/18 10-Q 1-8503 4 8/3/18 Fourth Amendment effective June 26, 2019 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. S-8 333- 232360 4.15 6/26/19 Letter Amendment effective November 1, 2019 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company. Fifth Amendment effective March 1, 2020 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company Letter Amendment effective October 15, 2021 to Master Trust Agreement (dated September 4, 2012) between HEI and ASB and Fidelity Management Trust Company Hawaiian Electric Industries, Inc. Dividend Reinvestment and Stock Purchase Plan, as amended and restated, effective November 8, 2019. American Savings Bank 401(k) Plan, restatement effective January 1, 2013. Amendment 2013-1 to the American Savings Bank 401(k) Plan, effective January 1, 2014. Amendment 2019-1 to the American Savings Bank 401(k) Plan, effective as of May 6, 2019. 10-K 1-8503 4.4(j) 2/28/20 10-Q 1-8503 4.2 5/5/20 10-Q 1-8503 4 11/5/21 S-3 10-K 10-K S-8 333- 234591 1-8503 1-8503 333- 232361 4.3 4.8 4.7(a) 4.5 4.1 11/8/19 2/19/13 2/23/16 6/26/19 2/28/20 Amendment 2020-1 to the American Savings Bank 401(k) Plan, effective as of January 1, 2020. 10-K 1-8503 Conditions for the Merger and Corporate Restructuring of Hawaiian Electric Company, Inc. dated September 23, 1982. 10-K 1-8503 10.1 2/28/07 Regulatory Capital Maintenance/Dividend Agreement dated May 26, 1988, between HEI, HEIDI and the Federal Savings and Loan Insurance Corporation (by the Federal Home Loan Bank of Seattle). 8-K 1-8503 (28)-2 5/26/88** OTS letter regarding release from Part II.B. of the Regulatory Capital Maintenance/Dividend Agreement dated May 26, 1988. 10-K 1-8503 10.3(a) 3/31/93 HEI Exhibits 10.4 through 10.20 are management contracts or compensatory plans or arrangements required to be filed as exhibits pursuant to Item 15(b) of this report. HEI Exhibits 10.4 through 10.18 are also management contracts or compensatory plans or arrangements with Hawaiian Electric participants. 10.4 10.5 10.6 10.7 10.7(a) 10.7(b) 10.7(c) 10.7(d) 10.7(e) 10.8 10.9 HEI Executive Incentive Compensation Plan amended as of February 4, 2013. HEI Executives’ Deferred Compensation Plan amended and restated effective January 1, 2019. 10-K 10-K 1-8503 1-8503 10.4 10.5 2/19/13 2/28/19 Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan, as amended and restated November 16, 2010. 10-K 1-8503 10.6 2/18/11 1-8503 Appendix 3/25/14 Hawaiian Electric Industries, Inc. 2010 Equity and Incentive Plan, as amended and restated February 14, 2014. Form of Non-Qualified Stock Option Agreement pursuant to 2010 Equity and Incentive Plan. Form of Stock Appreciation Right Agreement pursuant to 2010 Equity and Incentive Plan. Form of Restricted Shares Agreement pursuant to 2010 Equity and Incentive Plan. Form of Performance Shares Agreement pursuant to 2010 Equity and Incentive Plan. Proxy (DEF 14A) S-8 S-8 S-8 S-8 333- 166737 333- 166737 333- 166737 333- 166737 Form of Restricted Stock Unit Agreement, pursuant to 2010 Equity and Incentive Plan, as amended and restated February 5, 2021. 10-Q 1-8503 D 4.4 4.5 4.6 4.7 10 HEI Long-Term Incentive Plan amended and restated as of February 5, 2021. HEI Supplemental Executive Retirement Plan amended and restated as of January 1, 2009. 10-K 10-Q 1-8503 1-8503 10.8 10.3 190 5/11/10 5/11/10 5/11/10 5/11/10 5/10/21 2/26/21 11/5/08 File Form 10-K Number Exhibit # 1-8503 10.9(a) Filing date 2/27/09 10-K 10-K 10-K 10-K 10-K 10-K 10-Q 10-Q 1-8503 10.10 2/27/09 1-8503 10.10(a) 2/27/09 1-8503 10.10(c) 2/19/13 1-8503 1-8503 1-8503 1-8503 1-8503 10.11 10.15 10.13 10.5 10.6 2/27/09 3/27/90** 2/28/20 11/5/08 11/5/08 10-Q 1-8503 10.1 11/2/09 10-Q 1-8503 10 8/3/18 10-Q 1-8503 10.2 11/5/08 10-Q 1-8503 10.1 11/8/12 10-Q 1-8503 10.7 11/5/08 10-K 1-8503 10.20(a) 2/23/16 10-K 1-8503 10.20(b) 2/23/16 10-K 1-8503 10.20(c) 2/23/16 10-K 1-8503 10.20(d) 3/1/18 10-K 1-8503 10.20(e) 2/28/20 10-Q 1-8503 10.8 11/5/08 10-K 1-8503 10.19(b) 2/27/09 10-Q 1-8503 10.1 8/9/21 10-Q 1-8503 10.2 8/9/21 Exhibit no. 10.9(a) Amendments to the HEI Supplemental Executive Retirement Plan Freezing Benefit Accruals Effective December 31, 2008. Description 10.10 HEI Excess Pay Plan amended and restated as of January 1, 2009. 10.10(a) HEI Excess Pay Plan Addendum for Constance H. Lau. 10.10(b) Amendment No. 1 dated December 13, 2010 to January 1, 2009 Restatement of HEI Excess Pay Plan. 10.11 10.12 10.13 10.14 10.15 Form of Change in Control Agreement. Nonemployee Director Retirement Plan, effective as of October 1, 1989. HEI 2011 Nonemployee Director Stock Plan, as amended effective October 31, 2019. HEI Non-Employee Directors’ Deferred Compensation Plan. Executive Death Benefit Plan of HEI and Participating Subsidiaries restatement effective as of January 1, 2009. 10.15(a) Resolution of the Compensation Committee of the Board of Directors of Hawaiian Electric Industries, Inc. Re: Adoption of Amendment No. 1 to January 1, 2009 Restatement of the Executive Death Benefit Plan. 10.16 10.17 10.18 10.19 10.19(a) 10.19(b) 10.19(c) 10.19(d) 10.19(e) 10.20 10.20(a) 10.21 10.22*** Amended and Restated Severance Pay Plan for Management Employees of Hawaiian Electric Industries, Inc. and Executive Employees of Affiliates, effective as of April 2, 2018. Hawaiian Electric Industries, Inc. Executives’ Deferred Compensation Plan effective on January 1, 2009. Form of Indemnity Agreement (HEI, Hawaiian Electric and ASB with their respective directors and HEI with certain of its senior officers). American Savings Bank Select Deferred Compensation Plan (Restatement Effective January 1, 2009). Amendment No. 1 to January 1, 2009 Restatement of American Savings Bank Select Deferred Compensation Plan dated December 30, 2009. Amendment No. 2 to January 1, 2009 Restatement of American Savings Bank Select Deferred Compensation Plan dated December 29, 2010. Amendment No. 3 to January 1, 2009 Restatement of American Savings Bank Select Deferred Compensation Plan dated December 3, 2014. Amendment No. 4 to January 1, 2009 Restatement of American Savings Bank Select Deferred Compensation Plan dated December 4, 2017. Amendment No. 5 to January 1, 2009 Restatement of American Savings Bank Select Deferred Compensation Plan dated December 5, 2018. American Savings Bank Supplemental Executive Retirement, Disability, and Death Benefit Plan, effective January 1, 2009. Amendments to the American Savings Bank Supplemental Executive Retirement, Disability, and Death Benefit Plan Freezing Benefit Accruals Effective December 31, 2008. Executive Separation and Release Agreement dated as of May 5, 2021 between Richard F. Wacker, American Savings Bank, F.S.B., and Hawaiian Electric Industries, Inc. Third Amended and Restated Credit Agreement, dated as of May 14, 2021, among Hawaiian Electric Industries, Inc., as Borrower, the Lenders Party Hereto, and Bank of America, N.A. and U.S. Bank National Association, as Co-Syndication Agents, and Wells Fargo Bank, National Association, MUFG Union Bank, N.A., Barclays Bank PLC, Bank of Hawaii and The Toronto- Dominion Bank, New York Branch, as Co-Documentation Agents, and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank, and JPMorgan Chase Bank, N.A. and Bank of America, N.A. as Sustainability Structuring Agents and JPMorgan Chase Bank, N.A., BofA Securities, Inc. and U.S. Bank National Association, as Joint Lead Arrangers and Joint Book Runners. * 11 * 21.1 * 23.1 * 31.1 HEI - Computation of Earnings per Share of Common Stock. HEI - Subsidiaries of the Registrant. Consent of Independent Registered Public Accounting Firm (Deloitte & Touche LLP). Certification Pursuant to Section 13a-14 of the Securities Exchange Act of 1934 of Scott W. H. Seu (HEI Chief Executive Officer). 191 Exhibit no. * 31.2 Description File Form Number Exhibit # Filing date Certification Pursuant to Section 13a-14 of the Securities Exchange Act of 1934 of Gregory C. Hazelton (HEI Chief Financial Officer). * 32.1 HEI Certification Pursuant to 18 U.S.C. Section 1350. * 101.INS XBRL Instance Document. * 101.SCH XBRL Taxonomy Extension Schema Document. * 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. * 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. * 101.LAB XBRL Taxonomy Extension Label Linkbase Document. * 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Hawaiian Electric: 3(i).1 3(i).2 3(i).3 3(i).4 3(ii) 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 10.1(a) 10.1(b) Hawaiian Electric’s Certificate of Amendment of Articles of Incorporation. Articles of Amendment to Hawaiian Electric’s Amended Articles of Incorporation. Articles of Amendment to Hawaiian Electric’s Amended Articles of Incorporation. 10-K 10-K 1-4955 1-4955 3.1 3/31/89 3.1(b) 3/27/90** 10-K 1-4955 3(i).4 3/23/99 Articles of Amendment amending Article V of Hawaiian Electric’s Amended Articles of Incorporation effective August 6, 2009. 10-Q 1-4955 3(i).4 8/7/09 Hawaiian Electric’s Amended and Restated Bylaws (as last amended August 6, 2010). 8-K 1-4955 3(ii) 8/9/10 Description of Hawaiian Electric’s Preferred Stock Agreement to provide the SEC with instruments which define the rights of holders of certain long-term debt of Hawaiian Electric, Hawaii Electric Light and Maui Electric Note Purchase Agreement among Hawaiian Electric and the Purchasers that are parties thereto, dated April 19, 2012. Note Purchase and Guaranty Agreement among Hawaiian Electric, Maui Electric and the Purchasers that are parties thereto, dated April 19, 2012. 10-K 10-K 1-4955 1-4955 4 4.1 2/28/20 3/19/03 8-K 1-4955 4(a) 4/23/12 8-K 1-4955 4(b) 4/23/12 Note Purchase and Guaranty Agreement among Hawaiian Electric, Hawaii Electric Light and the Purchasers that are parties thereto, dated April 19, 2012. 8-K 1-4955 4(c) 4/23/12 Note Purchase Agreement among Hawaiian Electric and the Purchasers that are parties thereto, dated September 13, 2012. Note Purchase Agreement among Hawaiian Electric Company, Inc. and the Purchasers that are parties thereto, dated as of October 3, 2013. Note Purchase and Guaranty Agreement among Hawaiian Electric, Maui Electric Company, Limited and the Purchasers that are parties thereto, dated as of October 3, 2013. Note Purchase and Guaranty Agreement among Hawaiian Electric, Hawaii Electric Light Company, Inc. and the Purchasers that are parties thereto, dated as of October 3, 2013. Note Purchase Agreement among Hawaiian Electric Company, Inc. and the Purchasers that are parties thereto, dated as of October 15, 2015. Note Purchase and Guaranty Agreement among Hawaiian Electric, Maui Electric Company, Limited and the Purchasers that are parties thereto, dated as of October 15, 2015. Note Purchase and Guaranty Agreement among Hawaiian Electric, Hawaii Electric Light Company, Inc. and the Purchasers that are parties thereto, dated as of October 15, 2015. Note Purchase Agreement among Hawaiian Electric Company, Inc. and the Purchasers that are parties thereto, dated as of December 15, 2016. Power Purchase Agreement between Kalaeloa Partners, L.P., and Hawaiian Electric dated October 14, 1988. 8-K 1-4955 4 9/14/12 8-K 1-4955 4(a) 10/7/13 8-K 1-4955 4(b) 10/7/13 10-Q 1-4955 4 11/7/13 8-K 1-4955 4(a) 10/16/15 8-K 1-4955 4(b) 10/16/15 8-K 1-4955 4(c) 10/16/15 8-K 1-4955 4 12/19/16 10-Q 1-4955 10(a) 11/14/88 Amendment No. 1 to Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated June 15, 1989. 10-Q 1-4955 10(c) 8/14/89 192 Exhibit no. 10.1(c) 10.1(d) 10.1(e) 10.1(f) 10.1(g) 10.1(h) 10.1(i) Description Lease Agreement between Kalaeloa Partners, L.P., as Lessor, and Hawaiian Electric, as Lessee, dated February 27, 1989. Restated and Amended Amendment No. 2 to Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated February 9, 1990. Amendment No. 3 to Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated December 10, 1991. Amendment No. 4 to Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated October 1, 1999. Confirmation Agreement Concerning Section 5.2B(2) of Power Purchase Agreement and Amendment No. 5 to Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated October 12, 2004. Agreement for Increment Two Capacity and Amendment No. 6 to Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated October 12, 2004. Letter agreement dated July 28, 2016 and executed August 1, 2016 extending the term of the Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated October 14, 1988 (as amended). * 10.1(j) Amended and Restated Power Purchase Agreement between Hawaiian Electric and Kalaeloa Partners, L.P., dated October 29, 2021. File Form 10-Q Number Exhibit # 1-4955 10(d) Filing date 8/14/89 10-K 1-4955 10.2(c) 3/27/90** 10-K 1-4955 10.2(e) 3/24/92 10-Q 1-4955 10.1 11/8/00 10-Q 1-4955 10.3 11/5/04 10-Q 1-4955 10.4 11/5/04 10-Q 1-4955 10 11/4/16 10.2(a) 10.2(b) 10.2(c) 10.2(d) 10.2(e) Power Purchase Agreement between AES Barbers Point, Inc. and Hawaiian Electric, entered into on March 25, 1988. 10-Q 1-4955 10(a) 5/16/88 Agreement between Hawaiian Electric and AES Barbers Point, Inc., pursuant to letters dated May 10, 1988 and April 20, 1988. 10-K 1-4955 10.4 3/31/89 Amendment No. 1, entered into as of August 28, 1988, to Power Purchase Agreement between AES Barbers Point, Inc. and Hawaiian Electric. 10-Q 1-4955 10 11/13/89 Hawaiian Electric’s Conditional Notice of Acceptance to AES Barbers Point, Inc. dated January 15, 1990. Amendment No. 2, entered into as of May 8, 2003, to Power Purchase Agreement between AES Hawaii, Inc. and Hawaiian Electric. 10-K 1-4955 13(c) 3/27/90** 10-K 1-4955 10.2(e) 3/9/04 * 10.2(f) Amended and Restated Amendment No.4, entered into as of November 25, 2021, to Power Purchase Agreement between AES Hawaii, Inc. and Hawaiian Electric 10.3(a) 10.3(b) 10.3(c) 10.3(d) 10.3(e) 10.3(f) 10.3(g) 10.3(h) Purchase Power Contract between Hawaii Electric Light and Thermal Power Company dated March 24, 1986. 10-Q 1-4955 10(a) 8/14/89 Firm Capacity Amendment between Hawaii Electric Light and Puna Geothermal Venture (assignee of AMOR VIII, who is the assignee of Thermal Power Company) dated July 28, 1989 to Purchase Power Contract between Hawaii Electric Light and Thermal Power Company dated March 24, 1986. Amendment made in October 1993 to Purchase Power Contract between Hawaii Electric Light and Puna Geothermal Venture dated March 24, 1986, as amended. Third Amendment dated March 7, 1995 to the Purchase Power Contract between Hawaii Electric Light and Puna Geothermal Venture dated March 24, 1986, as amended. Performance Agreement and Fourth Amendment dated February 12, 1996 to the Purchase Power Contract between Hawaii Electric Light and Puna Geothermal Venture dated March 24, 1986, as amended. Fifth Amendment dated February 7, 2011 to the Purchase Power Contract between Hawaii Electric Light and Puna Geothermal Venture dated March 24, 1986, as amended. 10-Q 1-4955 10(b) 8/14/89 10-K 1-4955 10.5(b) 3/27/98 10-K 1-4955 10.5(c) 3/27/98 10-K 1-4955 10.5(b) 3/25/96 10-K 1-4955 10.4(f) 2/17/12 Power Purchase Agreement between Puna Geothermal Venture and Hawaii Electric Light dated February 7, 2011. 10-K 1-4955 10.4(g) 2/17/12 Amended and Restated Power Purchase Agreement between Puna Geothermal Venture and Hawaii Electric Light dated December 31, 2019 (subject to PUC approval). 10-K 1-4955 10.3(h) 2/28/20 193 Exhibit no. 10.4(a) 10.4(b) 10.4(c) 10.4(d) 10.5 10.5(a) Description Power Purchase Agreement between Encogen Hawaii, L.P. and Hawaii Electric Light dated October 22, 1997 (but with the following attachments omitted: Attachment C, “Selected portions of the North American Electric Reliability Council Generating Availability Data System Data Reporting Instructions dated October 1996” and Attachment E, “Form of the Interconnection Agreement between Encogen Hawaii, L.P. and Hawaii Electric Light,” which is provided in final form as Exhibit 10.6(b)). Interconnection Agreement between Encogen Hawaii, L.P. and Hawaii Electric Light dated October 22, 1997. Amendment No. 1, executed on January 14, 1999, to Power Purchase Agreement between Encogen Hawaii, L.P. and Hawaii Electric Light dated October 22, 1997. Notice and acknowledgment under power purchase agreement effective November 24, 2017 by Hamakua Energy, LLC and acknowledged by Hawaii Electric Light. Supply Contract for Low Sulfur Fuel Oil, High Sulfur Fuel Oil, No. 2 Diesel, and Ultra-Low Sulfur Diesel by and between Hawaiian Electric, Hawaii Electric Light, and Maui Electric and PAR Hawaii Refining, LLC dated January 21, 2019 (certain confidential information has been omitted) First Amendment dated June 9, 2020 to Supply Contract for Low Sulfur Fuel Oil, High Sulfur Fuel Oil, No. 2 Diesel, and Ultra-Low Sulfur Diesel by and between Hawaiian Electric, Hawaii Electric Light, and Maui Electric and PAR Hawaii Refining, LLC dated January 21, 2019 (certain confidential information has been omitted). * 10.6 Inter-Island Fuel Transportation Contract between Sause Bros., Inc. and Hawaiian Electric dated August 23, 2021 (certain confidential information has been omitted) File Form 10-K Number Exhibit # 1-4955 10.7 Filing date 3/27/98 10-K 1-4955 10.7(a) 3/27/98 10-K 1-4955 10.7(b) 3/23/99 10-K 1-4955 10.4(d) 3/1/18 10-Q 1-4955 10 5/7/19 10-Q 1-4955 10 8/6/20 10.8 10.9*** 11 * 21.2 * 31.3 * 31.4 * 32.2 * 99.1 Amended and Restated Power Purchase Agreement between Hawaiian Electric and Hu Honua Bioenergy, LLC dated May 9, 2017. 10-K 1-4955 10.11(a) 3/1/18 10-Q 1-4955 10.3 8/9/21 Third Amended and Restated Credit Agreement, dated as of May 14, 2021, among Hawaiian Electric Company, Inc., as Borrower, the Lenders Party Hereto, and Bank of America, N.A. and U.S. Bank National Association, as Co-Syndication Agents, and Wells Fargo Bank, National Association, MUFG Union Bank, N.A., Barclays Bank PLC, Bank of Hawaii and The Toronto- Dominion Bank, New York Branch, as Co-Documentation Agents, and JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank, and JPMorgan Chase Bank, N.A. and Bank of America, N.A. as Sustainability Structuring Agents and JPMorgan Chase Bank, N.A., BofA Securities, Inc. and U.S. Bank National Association, as Joint Lead Arrangers and Joint Book Runners. Computation of Earnings Per Share of Common Stock (Calculated using December 31 market price per common share divided by basic earnings per common share). Hawaiian Electric - Subsidiaries of the Registrant. Certification Pursuant to Section 13a-14 of the Securities Exchange Act of 1934 of Shelee M. T. Kimura (Hawaiian Electric Chief Executive Officer). Certification Pursuant to Section 13a-14 of the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer). Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350. Hawaiian Electric’s Directors, Executive Officers and Corporate Governance; Hawaiian Electric’s Executive Compensation; Hawaiian Electric’s Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Hawaiian Electric’s Certain Relationships and Related Transactions, and Director Independence; and Hawaiian Electric’s Principal Accounting Fees and Services. ** Date of transmittal letter to SEC. *** Schedules and exhibits have been omitted from this filing pursuant to Item 601(a) (5) of the Regulation S-K. We agree to furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request. 194 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The execution of this report by registrant Hawaiian Electric Company, Inc. shall be deemed to relate only to matters having reference to such registrant and its subsidiaries. HAWAIIAN ELECTRIC INDUSTRIES, INC. HAWAIIAN ELECTRIC COMPANY, INC. (Registrant) (Registrant) By /s/ Gregory C. Hazelton Gregory C. Hazelton By /s/ Tayne S. Y. Sekimura Tayne S. Y. Sekimura Executive Vice President and Chief Financial Officer Senior Vice President, Chief Financial Officer (Principal Financial Officer of HEI) (Principal Financial Officer of Hawaiian Electric) and Treasurer Date: February 25, 2022 Date: February 25, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrants and in the capacities indicated on February 25, 2022. The execution of this report by each of the undersigned who signs this report solely in such person’s capacity as a director or officer of Hawaiian Electric Company, Inc. shall be deemed to relate only to matters having reference to such registrant and its subsidiaries. Signature /s/ Scott W. H. Seu Scott W. H. Seu /s/ Shelee M. T. Kimura Shelee M. T. Kimura /s/ Gregory C. Hazelton Gregory C. Hazelton /s/ Tayne S. Y. Sekimura Tayne S. Y. Sekimura /s/ Paul K. Ito Paul K. Ito /s/ Shannon K. Asato Shannon K. Asato /s/ James A. Ajello James A. Ajello Title President & Chief Executive Officer of HEI and Director of HEI (Principal Executive Officer of HEI) President & Chief Executive Officer of Hawaiian Electric and Director of Hawaiian Electric (Principal Executive Officer of Hawaiian Electric) Executive Vice President and Chief Financial Officer of HEI (Principal Financial Officer of HEI) Senior Vice President, Chief Financial Officer and Treasurer of Hawaiian Electric (Principal Financial Officer of Hawaiian Electric) Vice President, Tax, Controller and Treasurer of HEI (Principal Accounting Officer of HEI) Controller of Hawaiian Electric (Principal Accounting Officer of Hawaiian Electric) Director of Hawaiian Electric 195 Signature /s/ Kevin M. Burke Kevin M. Burke /s/ Celeste A. Connors Celeste A. Connors /s/ Richard J. Dahl Richard J. Dahl /s/ Thomas B. Fargo Thomas B. Fargo /s/ Elisia K. Flores Elisia K. Flores /s/ Peggy Y. Fowler Peggy Y. Fowler /s/ Timothy E. Johns Timothy E. Johns /s/ Micah A. Kāne Micah A. Kāne /s/ Alana Kobayashi Pakkala Alana Kobayashi Pakkala /s/ Keith P. Russell Keith P. Russell /s/ William James Scilacci, Jr. William James Scilacci, Jr. /s/ Kelvin H. Taketa Kelvin H. Taketa /s/ Toby B. Taniguchi Toby B. Taniguchi Title Director of Hawaiian Electric Director of HEI Director of HEI Chairman of the Board of Directors of HEI Director of HEI Director of HEI Chairman of the Board of Directors of Hawaiian Electric Director of HEI Director of Hawaiian Electric Director of HEI Director of HEI Director of Hawaiian Electric Director of Hawaiian Electric 196 Appendix A Shareholder Return Performance Graph The graph below compares the cumulative total shareholder return on HEI Common Stock against the cumulative total return of the companies listed on the S&P 500 Stock Index and the Edison Electric Institute (EEI) Index of Investor- Owned Electric Companies (39 companies were included as of December 31, 2021). The graph is based on the market price of common stock for all companies in the indices at December 31 each year and assumes that $100 was invested on December 31, 2016, in HEI Common Stock and the common stock of all companies in the indices and that dividends were reinvested. COMPARISON OF CUMULATIVE FIVE YEAR TOTAL RETURN *+,-./01+23+43*5,56.7089340893:9./37+7.63/975/2 *+,-./01+23+43*5,56.7089340893:9./37+7.63/975/2 *+,-./01+23+43*5,56.7089340893:9./37+7.63/975/2 $250 !%"# !%"# !%"# $200 !%## !%## !%## $150 !$"# !$"# !$"# $100 !$## !$## !$## $50 !"# !"# !"# 2016 %#$& %#$& %#$& Source: S&P Global Inc. 2017 %#$' %#$' %#$' 2018 %#$( %#$( %#$( 2019 %#$) %#$) %#$) 2020 %#%# %#%# %#%# 2021 %#%$ %#%$ %#%$ Hawaiian Electric Industries, Inc. !"#"$$"%&'()*+,$*&-%./0+,$)01&-%*2 !"#"$$"%&'()*+,$*&-%./0+,$)01&-%*2 !"#"$$"%&'()*+,$*&-%./0+,$)01&-%*2 S&P 500 Index 345&677&-%.)8 345&677&-%.)8 345&677&-%.)8 EEI Index ''-&-%.)8 ''-&-%.)8 ''-&-%.)8 Executive Management (as of March 1, 2022) HEI Scott W. H. Seu President and Chief Executive Officer, Hawaiian Electric Industries, Inc. Chair, American Savings Bank, F.S.B. Gregory C. Hazelton Executive Vice President and Chief Financial Officer Kurt K. Murao Executive Vice President, General Counsel, Chief Administrative Officer and Corporate Secretary Darcy L. Endo-Omoto Vice President, Executive Advisor to the President Avelino J. Halagao, Jr. Vice President, Corporate and Community Advancement President, HEI Foundation Paul K. Ito Vice President, Tax, Controller and Treasurer Christine N. Ohashi Vice President, Internal Audit Julie R. Smolinski Vice President, Investor Relations and Corporate Sustainability HAWAIIAN ELECTRIC Shelee M. T. Kimura President and Chief Executive Officer Jimmy D. Alberts Senior Vice President and Chief Operations Officer Jason E. Benn Senior Vice President and Chief Information Officer Colton K. Ching Senior Vice President, Planning and Technology Tayne S. Y. Sekimura Senior Vice President, Chief Financial Officer and Treasurer Joseph P. Viola Senior Vice President, Customer, Legal and Regulatory Affairs Claire K. S. Cooper Vice President, Human Resources and Chief People Strategist Rebecca L. Dayhuff Matsushima Vice President, Resource Procurement Robert C. Isler Vice President, Power Supply James P. Kelly Vice President, Government and Community Relations and Corporate Communications Erin P. Kippen Vice President, General Counsel, Chief Compliance Officer and Corporate Secretary Keola Siafuafu Vice President, Enterprise Operations Services Rudy W. Tamayo Vice President, Energy Delivery Edward S. Tavares Vice President, Cybersecurity Risk Management and Chief Information Security Officer AMERICAN SAVINGS BANK Ann C. Teranishi President and Chief Executive Officer Danielle K. N. Aiu Executive Vice President, Consumer Banking Gabriel S. H. Lee Executive Vice President, Commercial Markets Steven R. Nakahara Executive Vice President, Chief Credit Officer David S. Oyadomari Executive Vice President, Customer Experience and Operations Natalie M. H. Taniguchi Executive Vice President, Enterprise Risk and Regulatory Relations Dane A. Teruya Executive Vice President and Chief Financial Officer John S. Ward Executive Vice President and Chief Marketing and Product Officer K. Elizabeth Whitehead Executive Vice President and Chief Administrative Officer Brian M. Yoshii Executive Vice President and Chief Information Officer PACIFIC CURRENT Scott A. Valentino President HEI Timothy E. Johns Chair, Hawaiian Electric Chair, Hawaiian Electric Audit and Risk Committee President and CEO, Zephyr Insurance Company, Inc. HEI 50687 Merrill_HEIAR21-030722-1025pm_OL.indd 1 3/8/22 6:06 PM 

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