HEI ' s和夏威夷電力管理層認爲，隨附的未經審計的簡明合併財務報表包含GAAP要求的所有重大調整，以公平地陳述HEI ' s和夏威夷電力截至2024年9月30日和2023年12月31日的合併財務狀況、截至9月30日的三個月和九個月的經營業績。2024年和2023年，以及截至2024年和2023年9月30日止九個月的現金流。除非下文或其他參考材料中另有披露，否則所有此類調整均爲正常重複性。中期的經營業績不一定代表全年的業績。
卡勞斯訴約翰斯等人案，第3：23-cv-06627號(卡勞斯行動)，科爾訴約翰斯等人案，第3：24-cv-00598號(科爾行動)，以及泰訴Seu等人案，第3：24-cv-01198號(泰行動)。2024年3月19日，根據當事人的規定，法院在Re Hawaian Electric Industries，Inc.和Hawaian Electric Company，Inc.衍生品訴訟編號3：23-cv-06627(合併衍生品訴訟)的標題下合併了Kallaus訴訟、Cole訴訟和TAI訴訟。2024年6月19日，原告提交了一份合併的修改後的起訴書。綜合衍生訴訟據稱是由HeI的股東代表名義被告Hei和Hawaian Electric針對Hei和Hawaian Electric的某些現任和前任高級管理人員和董事提起的。原告聲稱同時主張夏威夷州法律和聯邦證券法的索賠。原告聲稱，州法律違反了受託責任、公司浪費、不當得利、嚴重管理不善和濫用控制，據稱是與2023年8月發生的毛伊島風暴和野火以及某些公開披露有關。原告還根據交易法第10(B)節及其頒佈的第100億.5條提出索賠，並普遍指控本公司及其若干現任和前任高級管理人員在本公司的野火預防和安全協議及相關事項方面做出了重大虛假和誤導性陳述或遺漏。原告代表Hei和Hawaian Electric尋求未指明的金錢和懲罰性損害賠償、返還和其他
阿薩德訴Seu等人案，第1期：24-cv-00164號(阿薩德行動)，以及Faris訴Seu等人案，第1號：24-cv-00247號(Faris行動)。2024年7月3日，根據各方的規定，法院將阿薩德訴訟和法里斯訴訟合併到Re Hawaian Electric Industries，Inc.，股東衍生訴訟，No.1：24-cv-00164(夏威夷聯邦衍生訴訟)的標題下。這兩起訴訟據稱都是由股東代表名義被告Hei以及針對Hei和Hawaian Electric的某些現任和前任高級管理人員和董事提起的。原告聲稱，夏威夷州法律要求違反受託責任、公司浪費和不當得利，據稱與2023年8月發生的毛伊島風暴和野火有關，並披露了某些信息。原告普遍聲稱，本公司及其若干現任和前任高級管理人員就本公司的野火預防和安全協議及相關事項作出了重大虛假和誤導性陳述或遺漏。原告代表HEI尋求補償性損害賠償、恢復原狀、歸還、禁令救濟和公平救濟，包括以改變HEI的公司治理政策和程序的形式。2024年7月30日，根據Hei的動議，法院暫停了夏威夷聯邦衍生品訴訟，等待駁回證券訴訟的動議和擱置和駁回綜合衍生品訴訟的動議得到解決。雖然公司有義務賠償和/或墊付被告與此訴訟相關的法律費用和費用，但衍生訴訟中的任何金錢追回應由公司承擔。雙方已同意對此案進行調解，目前正在聘請一名私人調解人並安排調解會議。本公司無法預測最終結果，也無法對任何不利結果可能導致的損失金額或範圍做出合理估計。
合併可變利益實體。 HE AR INTER LLC及其直接子公司HE AR BRWR LLC（統稱爲MBE）是公用事業公司的破產遠程、直接和間接全資子公司。根據資產支持貸款便利（ABL便利）信貸協議，公用事業公司將某些應收賬款出售給特殊目的實體作爲抵押品，而特殊目的實體反過來又從金融機構獲得融資。截至2024年9月30日，ABL設施仍未提取，SPE擁有美元325.1 百萬美元的應收賬款淨額，包括公用事業公司濃縮合並資產負債表中的客戶應收賬款淨額和應計未開票收入淨額，以及公司濃縮合並資產負債表中的應收賬款和未開票收入淨額。
前莫洛凱電力公司發電廠. 1989年，毛伊島電氣收購了莫洛凱電氣公司。Molokai Electric Company於1983年出售了其前發電場（Site），但繼續以租賃方式在該發電場運營直至1985年，並於1987年離開該物業。此後，環境保護局（EPA）發現了該現場地下土壤的環境影響。毛伊島電力公司與夏威夷州衛生部和美國環保局合作，進一步調查了該現場和鄰近地塊，以確定多氯聯苯（PCB）、殘留燃油和其他地下污染物的影響程度。毛伊島電力的儲備餘額爲美元2.5 截至2024年9月30日，百萬，代表現場及鄰近地塊補救的可能且合理估計的未貼現成本
2024年4月1日，公用事業公司提出了部分暫時暫停和修改T & D SAIDI和T & D SADID PIM的請求，以便在2024年1月1日至2025年12月31日期間專門暫停用於野火風險電路的T & D SAIDI和T & D SADID PIM。公用事業公司還提議，未被識別爲野火風險電路的電路將繼續按比例遵守現有的PIM。2024年4月26日，PUC發佈了程序時間表來管理對該請求的審查。公用事業公司要求在2024年12月16日之前進行D & O。
Statements of Income and Comprehensive Income Data
Three months ended September 30
Nine months ended September 30
(in thousands)
2024
2023
2024
2023
Interest and dividend income
Interest and fees on loans
$
73,654
$
71,540
$
219,585
$
204,348
Interest and dividends on investment securities
14,001
14,096
42,183
42,508
Total interest and dividend income
87,655
85,636
261,768
246,856
Interest expense
Interest on deposit liabilities
19,018
14,446
54,465
30,944
Interest on other borrowings
6,403
8,598
21,036
25,171
Total interest expense
25,421
23,044
75,501
56,115
Net interest income
62,234
62,592
186,267
190,741
Provision for credit losses
248
8,835
(3,821)
10,053
Net interest income after provision for credit losses
61,986
53,757
190,088
180,688
Noninterest income
Fees from other financial services
5,188
4,703
15,195
14,391
Fee income on deposit liabilities
5,156
4,924
14,684
14,027
Fee income on other financial products
3,131
2,440
8,834
7,952
Bank-owned life insurance
2,993
2,303
8,832
5,683
Mortgage banking income
363
341
1,151
701
Gain on sale of real estate
—
—
—
495
Other income, net
658
627
1,767
2,106
Total noninterest income
17,489
15,338
50,463
45,355
Noninterest expense
Compensation and employee benefits
31,485
29,902
93,746
89,500
Occupancy
5,630
5,154
15,913
16,281
Data processing
4,974
5,133
14,780
15,240
Services
3,816
3,627
12,217
8,911
Equipment
2,436
3,125
7,562
8,728
Office supplies, printing and postage
1,014
1,022
3,038
3,296
Marketing
885
984
2,408
2,834
Goodwill impairment
—
—
82,190
—
Other expense
5,806
7,399
16,561
19,742
Total noninterest expense
56,046
56,346
248,415
164,532
Income (loss) before income taxes
23,429
12,749
(7,864)
61,511
Income tax (benefit)
4,651
1,384
(1,789)
11,380
Net income (loss)
18,778
11,365
(6,075)
50,131
Other comprehensive income (loss), net of taxes
40,204
(34,231)
32,069
(23,011)
Comprehensive income (loss)
$
58,982
$
(22,866)
$
25,994
$
27,120
44
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:
Three months ended September 30
Nine months ended September 30
(in thousands)
2024
2023
2024
2023
Interest and dividend income
$
87,655
$
85,636
$
261,768
$
246,856
Noninterest income
17,489
15,338
50,463
45,355
Less: Gain on sale of real estate
—
—
—
495
*Revenues-Bank
105,144
100,974
312,231
291,716
Total interest expense
25,421
23,044
75,501
56,115
Provision for credit losses
248
8,835
(3,821)
10,053
Noninterest expense
56,046
56,346
248,415
164,532
Less: Gain on sale of real estate
—
—
—
495
Less: Retirement defined benefits credit—other than service costs
(257)
(190)
(818)
(564)
*Expenses-Bank
81,972
88,415
320,913
230,769
*Operating income (loss)-Bank
23,172
12,559
(8,682)
60,947
Add back: Retirement defined benefits credit—other than service costs
(257)
(190)
(818)
(564)
Income (loss) before income taxes
$
23,429
$
12,749
$
(7,864)
$
61,511
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. The Company has identified ASB as a reporting unit and ASB’s goodwill relates to past acquisitions and is ASB’s only intangible asset with an indefinite useful life. The Company performs assessments of the carrying value of its goodwill at least annually and whenever events occur or circumstances change that would more-likely-than-not reduce the fair value of a reporting unit below its carrying amount. Examples of these events and circumstances include a significant change in business climate, an adverse action or assessment by a regulator, competition, loss of key personnel, a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed of, and other factors.
HEI and ASB have been undertaking a comprehensive review of strategic options for ASB. During the course of this process, HEI and ASB had determined it is more-likely-than-not that the fair value of ASB is less than its carrying value. In light of this, as part of its on-going goodwill evaluation and the change in circumstances, after performing the goodwill impairment test as of June 30, 2024, HEI and ASB determined the full amount of its goodwill was impaired. As a result of the June 30, 2024 impairment test ASB recorded a pretax goodwill impairment charge of $82.2 million in the second quarter 2024. The impairment charge is recorded in “Total Noninterest Expense” in ASB’s Statements of Income and Comprehensive Income Data, and recorded in “Bank Expenses” in the Company’s Condensed Consolidated Statements of Income. The impairment charge was non-cash in nature and did not affect the Company’s current liquidity, cash flows or any debt covenants under the Company’s existing credit agreements.
45
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
American Savings Bank, F.S.B.
Balance Sheets Data
(in thousands)
September 30, 2024
December 31, 2023
Assets
Cash and due from banks
$
155,869
$
184,383
Interest-bearing deposits
176,784
251,072
Cash and cash equivalents
332,653
435,455
Investment securities
Available-for-sale, at fair value
1,084,083
1,136,439
Held-to-maturity, at amortized cost (fair value of $1,086,205 and $1,103,668, at September 30, 2024 and December 31, 2023, respectively)
1,159,229
1,201,314
Stock in Federal Home Loan Bank, at cost
29,204
14,728
Loans held for investment
6,037,410
6,180,810
Allowance for credit losses
(64,796)
(74,372)
Net loans
5,972,614
6,106,438
Loans held for sale, at lower of cost or fair value
2,704
15,168
Other
687,359
681,460
Goodwill
—
82,190
Total assets
$
9,267,846
$
9,673,192
Liabilities and shareholder’s equity
Deposit liabilities—noninterest-bearing
$
2,486,717
$
2,599,762
Deposit liabilities—interest-bearing
5,512,493
5,546,016
Other borrowings
520,000
750,000
Other
191,512
247,563
Total liabilities
8,710,722
9,143,341
Common stock
1
1
Additional paid-in capital
359,346
358,067
Retained earnings
457,980
464,055
Accumulated other comprehensive loss, net of tax benefits
Net unrealized losses on securities
$
(251,703)
$
(282,963)
Retirement benefit plans
(8,500)
(260,203)
(9,309)
(292,272)
Total shareholder’s equity
557,124
529,851
Total liabilities and shareholder’s equity
$
9,267,846
$
9,673,192
Other assets
Bank-owned life insurance
$
199,741
$
187,857
Premises and equipment, net
180,073
187,042
Accrued interest receivable
28,764
28,472
Mortgage-servicing rights
7,722
8,169
Low-income housing investments
100,499
112,234
Deferred tax asset
108,338
104,292
Other
62,222
53,394
Total other assets
$
687,359
$
681,460
Other liabilities
Accrued expenses
$
80,788
$
115,231
Cashier’s checks
35,625
40,479
Advance payments by borrowers
4,373
10,107
Other
70,726
81,746
Total other liabilities
$
191,512
$
247,563
46
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) 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.
Other borrowings consisted of FHLB advances and borrowings from the Federal Reserve Bank.
Investment securities.The major components of investment securities were as follows:
Amortized cost
Gross unrealized gains
Gross unrealized losses
Estimated fair value
Gross unrealized losses
Less than 12 months
12 months or longer
(dollars in thousands)
Number of issues
Fair value
Amount
Number of issues
Fair value
Amount
September 30, 2024
Available-for-sale
U.S. Treasury and federal agency obligations
$
7,789
$
—
$
(192)
$
7,597
—
$
—
$
—
6
$
7,597
$
(192)
Mortgage-backed securities*
1,203,271
31
(174,675)
1,028,627
—
—
—
108
1,025,897
(174,675)
Corporate bonds
35,137
—
(1,213)
33,924
—
—
—
3
33,924
(1,213)
Mortgage revenue bonds
13,935
—
—
13,935
—
—
—
—
—
—
$
1,260,132
$
31
$
(176,080)
$
1,084,083
—
$
—
$
—
117
$
1,067,418
$
(176,080)
Held-to-maturity
U.S. Treasury and federal agency obligations
$
59,935
$
—
$
(5,686)
$
54,249
—
$
—
$
—
3
$
54,249
$
(5,686)
Mortgage-backed securities*
1,099,294
6,355
(73,693)
1,031,956
—
—
—
65
648,634
(73,693)
$
1,159,229
$
6,355
$
(79,379)
$
1,086,205
—
$
—
$
—
68
$
702,883
$
(79,379)
December 31, 2023
Available-for-sale
U.S. Treasury and federal agency obligations
$
12,437
$
—
$
(427)
$
12,010
—
$
—
$
—
9
$
12,010
$
(427)
Mortgage-backed securities*
1,279,852
—
(202,684)
1,077,168
3
1,649
(22)
116
1,075,519
(202,662)
Corporate bonds
35,239
—
(2,336)
32,903
—
—
—
3
32,903
(2,336)
Mortgage revenue bonds
14,358
—
—
14,358
—
—
—
—
—
—
$
1,341,886
$
—
$
(205,447)
$
1,136,439
3
$
1,649
$
(22)
128
$
1,120,432
$
(205,425)
Held-to-maturity
U.S. Treasury and federal agency obligations
$
59,917
$
—
$
(7,135)
$
52,782
—
$
—
$
—
3
$
52,782
$
(7,135)
Mortgage-backed securities*
1,141,397
2,221
(92,732)
1,050,886
37
378,326
(7,610)
43
432,082
(85,122)
$
1,201,314
$
2,221
$
(99,867)
$
1,103,668
37
$
378,326
$
(7,610)
46
$
484,864
$
(92,257)
* Issued or guaranteed by U.S. Government agencies or sponsored agencies
ASB does not believe that the investment securities that were in an unrealized loss position at September 30, 2024 and December 31, 2023, 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 rated 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, an agency of the government or a government-sponsored entity. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at September 30, 2024 and December 31, 2023.
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.
47
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.
The contractual maturities of investment securities were as follows:
September 30, 2024
Amortized cost
Fair value
(in thousands)
Available-for-sale
Due in one year or less
$
370
$
364
Due after one year through five years
42,557
41,157
Due after five years through ten years
13,934
13,935
Due after ten years
—
—
56,861
55,456
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
1,203,271
1,028,627
Total available-for-sale securities
$
1,260,132
$
1,084,083
Held-to-maturity
Due in one year or less
$
—
$
—
Due after one year through five years
39,858
36,634
Due after five years through ten years
20,077
17,615
Due after ten years
—
—
59,935
54,249
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
1,099,294
1,031,956
Total held-to-maturity securities
$
1,159,229
$
1,086,205
There were no sales of available-for-sale securities for the three and nine months ended September 30, 2024 and 2023.
The components of loans were summarized as follows:
September 30, 2024
December 31, 2023
(in thousands)
Real estate:
Residential 1-4 family
$
2,608,281
$
2,595,162
Commercial real estate
1,366,214
1,374,038
Home equity line of credit
959,607
1,017,207
Residential land
19,900
18,364
Commercial construction
208,867
172,405
Residential construction
16,998
17,843
Total real estate
5,179,867
5,195,019
Commercial
645,571
743,303
Consumer
239,410
272,256
Total loans
6,064,848
6,210,578
Less: Deferred fees and discounts
(27,438)
(29,768)
Allowance for credit losses
(64,796)
(74,372)
Total loans, net
$
5,972,614
$
6,106,438
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.
As of September 30, 2024, ASB had commitments to borrowers for loans and unused lines and letters of credit of $1.8 billion, of which, commitments to lend to borrowers experiencing financial difficulty whose loan terms have been modified were nil.
48
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Allowance for credit losses.The allowance for credit losses (balances and changes) by portfolio segment were as follows:
(in thousands)
Residential 1-4 family
Commercial real estate
Home equity line of credit
Residential land
Commercial construction
Residential construction
Commercial loans
Consumer loans
Total
Three months ended September 30, 2024
Allowance for credit losses:
Beginning balance
$
6,219
$
18,656
$
9,552
$
759
$
3,369
$
38
$
6,317
$
21,903
$
66,813
Charge-offs
(8)
—
—
—
—
—
(120)
(2,999)
(3,127)
Recoveries
9
—
12
—
—
—
100
741
862
Provision
(211)
96
(443)
(147)
(278)
(1)
(292)
1,524
248
Ending balance
$
6,009
$
18,752
$
9,121
$
612
$
3,091
$
37
$
6,005
$
21,169
$
64,796
Three months ended September 30, 2023
Allowance for credit losses:
Beginning balance
$
4,708
$
20,278
$
7,139
$
653
$
2,549
$
26
$
11,358
$
22,357
$
69,068
Charge-offs
—
—
—
—
—
—
(125)
(2,667)
(2,792)
Recoveries
57
—
131
1
—
—
725
841
1,755
Provision
1,702
2,180
505
(33)
1,075
16
(1,175)
4,065
8,335
Ending balance
$
6,467
$
22,458
$
7,775
$
621
$
3,624
$
42
$
10,783
$
24,596
$
76,366
Nine months ended September 30, 2024
Allowance for credit losses:
Beginning balance
$
7,435
$
22,185
$
7,778
$
621
$
3,603
$
43
$
9,122
$
23,585
$
74,372
Charge-offs
(850)
—
—
—
—
—
(360)
(8,718)
(9,928)
Recoveries
202
—
259
—
—
—
385
2,427
3,273
Provision
(778)
(3,433)
1,084
(9)
(512)
(6)
(3,142)
3,875
(2,921)
Ending balance
$
6,009
$
18,752
$
9,121
$
612
$
3,091
$
37
$
6,005
$
21,169
$
64,796
Nine months ended September 30, 2023
Allowance for credit losses:
Beginning balance
$
6,270
$
21,898
$
6,125
$
717
$
1,195
$
46
$
12,426
$
23,539
$
72,216
Charge-offs
(990)
—
(360)
—
—
—
(509)
(7,558)
(9,417)
Recoveries
63
—
165
4
—
—
1,329
2,653
4,214
Provision
1,124
560
1,845
(100)
2,429
(4)
(2,463)
5,962
9,353
Ending balance
$
6,467
$
22,458
$
7,775
$
621
$
3,624
$
42
$
10,783
$
24,596
$
76,366
49
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Allowance for loan commitments.The allowance for loan commitments by portfolio segment were as follows:
(in thousands)
Home equity line of credit
Commercial construction
Commercial loans
Total
Three months ended September 30, 2024
Allowance for loan commitments:
Beginning balance
$
700
$
3,100
$
400
$
4,200
Provision
—
—
—
—
Ending balance
$
700
$
3,100
$
400
$
4,200
Three months ended September 30, 2023
Allowance for loan commitments:
Beginning balance
$
600
$
3,800
$
200
$
4,600
Provision
—
500
—
500
Ending balance
$
600
$
4,300
$
200
$
5,100
Nine months ended September 30, 2024
Allowance for loan commitments:
Beginning balance
$
600
$
4,300
$
200
$
5,100
Provision
100
(1,200)
200
(900)
Ending balance
$
700
$
3,100
$
400
$
4,200
Nine months ended September 30, 2023
Allowance for loan commitments:
Beginning balance
$
400
$
2,600
$
1,400
$
4,400
Provision
200
1,700
(1,200)
700
Ending balance
$
600
$
4,300
$
200
$
5,100
Credit quality. ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.
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.
50
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
根據付款活動或內部指定的貸款等級按年份劃分的信用風險概況如下：
按起始年份分列的定期貸款
循環貸款
(單位：千)
2024
2023
2022
2021
2020
之前
旋轉
轉爲定期貸款
總
2024年9月30日
住宅1-4戶
當前
$
131,347
$
253,155
$
397,855
$
706,189
$
385,208
$
726,220
$
—
$
—
$
2,599,974
逾期30-59天
—
—
—
333
264
1,541
—
—
2,138
逾期60-89天
—
—
—
—
—
891
—
—
891
逾期超過89天
—
—
727
543
—
4,008
—
—
5,278
131,347
253,155
398,582
707,065
385,472
732,660
—
—
2,608,281
房屋淨值信用額度
當前
—
—
—
—
—
—
888,858
67,452
956,310
逾期30-59天
—
—
—
—
—
—
969
419
1,388
逾期60-89天
—
—
—
—
—
—
624
449
1,073
逾期超過89天
—
—
—
—
—
—
732
104
836
—
—
—
—
—
—
891,183
68,424
959,607
住宅用地
當前
5,889
3,689
4,513
3,473
1,729
607
—
—
19,900
逾期30-59天
—
—
—
—
—
—
—
—
—
逾期60-89天
—
—
—
—
—
—
—
—
—
逾期超過89天
—
—
—
—
—
—
—
—
—
5,889
3,689
4,513
3,473
1,729
607
—
—
19,900
住宅建設
當前
831
9,640
6,527
—
—
—
—
—
16,998
逾期30-59天
—
—
—
—
—
—
—
—
—
逾期60-89天
—
—
—
—
—
—
—
—
—
逾期超過89天
—
—
—
—
—
—
—
—
—
831
9,640
6,527
—
—
—
—
—
16,998
消費者
當前
31,632
63,848
120,783
5,061
648
280
9,635
1,790
233,677
逾期30-59天
503
566
1,387
101
4
—
67
96
2,724
逾期60-89天
111
402
990
61
8
—
21
40
1,633
逾期超過89天
88
353
602
40
6
—
116
171
1,376
32,334
65,169
123,762
5,263
666
280
9,839
2,097
239,410
商業地產
經過
35,630
104,725
376,087
188,549
256,108
368,171
15,482
—
1,344,752
特別提及
—
—
1,208
1,455
—
1,106
—
—
3,769
不合標準
—
—
—
1,505
—
13,990
—
—
15,495
值得懷疑
—
—
—
—
—
2,198
—
—
2,198
35,630
104,725
377,295
191,509
256,108
385,465
15,482
—
1,366,214
商業性建築
經過
—
68,962
41,201
17,685
1,333
—
79,686
—
208,867
特別提及
—
—
—
—
—
—
—
—
—
不合標準
—
—
—
—
—
—
—
—
—
值得懷疑
—
—
—
—
—
—
—
—
—
—
68,962
41,201
17,685
1,333
—
79,686
—
208,867
商業廣告
經過
90,529
80,793
171,002
71,410
44,575
75,689
95,912
7,074
636,984
特別提到
—
—
—
—
—
—
—
—
—
不合標準
1,058
—
3,812
158
—
2,635
799
51
8,513
值得懷疑
—
—
—
—
74
—
—
—
74
91,587
80,793
174,814
71,568
44,649
78,324
96,711
7,125
645,571
貸款總額
$
297,618
$
586,133
$
1,126,694
$
996,563
$
689,957
$
1,197,336
$
1,092,901
$
77,646
$
6,064,848
51
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
按起始年份分列的定期貸款
循環貸款
(單位：千)
2023
2022
2021
2020
2019
之前
旋轉
轉爲定期貸款
總
2023年12月31日
住宅1-4戶
當前
$
263,605
$
407,304
$
729,256
$
399,766
$
104,487
$
672,408
$
—
$
—
$
2,576,826
逾期30-59天
—
708
—
268
—
3,525
—
—
4,501
逾期60-89天
—
726
2,694
—
—
1,745
—
—
5,165
逾期超過89天
—
2,519
871
1,129
489
3,662
—
—
8,670
263,605
411,257
732,821
401,163
104,976
681,340
—
—
2,595,162
房屋淨值信用額度
當前
—
—
—
—
—
—
954,461
59,146
1,013,607
逾期30-59天
—
—
—
—
—
—
1,219
262
1,481
逾期60-89天
—
—
—
—
—
—
597
—
597
逾期超過89天
—
—
—
—
—
—
1,111
411
1,522
—
—
—
—
—
—
957,388
59,819
1,017,207
住宅用地
當前
3,788
4,097
7,234
1,847
—
723
—
—
17,689
逾期30-59天
—
—
—
—
—
—
—
—
—
逾期60-89天
—
675
—
—
—
—
—
—
675
逾期超過89天
—
—
—
—
—
—
—
—
—
3,788
4,772
7,234
1,847
—
723
—
—
18,364
住宅建設
當前
5,369
10,984
1,490
—
—
—
—
—
17,843
逾期30-59天
—
—
—
—
—
—
—
—
—
逾期60-89天
—
—
—
—
—
—
—
—
—
逾期超過89天
—
—
—
—
—
—
—
—
—
5,369
10,984
1,490
—
—
—
—
—
17,843
消費者
當前
87,686
153,239
9,852
1,654
451
200
10,663
2,779
266,524
逾期30-59天
805
1,314
176
29
24
—
56
163
2,567
逾期60-89天
385
886
114
41
21
—
60
69
1,576
逾期超過89天
354
786
101
24
34
—
67
223
1,589
89,230
156,225
10,243
1,748
530
200
10,846
3,234
272,256
商業地產
經過
104,368
384,144
180,986
267,458
65,625
307,367
15,482
—
1,325,430
特別提及
—
1,975
11,159
—
14,110
3,008
—
—
30,252
不合標準
—
—
1,538
—
11,048
5,770
—
—
18,356
值得懷疑
—
—
—
—
—
—
—
—
—
104,368
386,119
193,683
267,458
90,783
316,145
15,482
—
1,374,038
商業性建築
經過
45,863
33,240
26,133
1,333
—
—
65,836
—
172,405
特別提及
—
—
—
—
—
—
—
—
—
不合標準
—
—
—
—
—
—
—
—
—
值得懷疑
—
—
—
—
—
—
—
—
—
45,863
33,240
26,133
1,333
—
—
65,836
—
172,405
商業廣告
經過
124,667
199,796
106,669
73,976
37,580
80,012
87,206
6,250
716,156
特別提到
1,860
6,989
951
—
250
—
7,352
—
17,402
不合標準
—
2,962
1,848
98
60
3,369
1,275
133
9,745
值得懷疑
—
—
—
—
—
—
—
—
—
126,527
209,747
109,468
74,074
37,890
83,381
95,833
6,383
743,303
貸款總額
$
638,750
$
1,212,344
$
1,081,072
$
747,623
$
234,179
$
1,081,789
$
1,145,385
$
69,436
$
6,210,578
52
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Gross charge-offs by portfolio segment and vintage were as follows:
(in thousands)
2024
2023
2022
2021
2020
Prior
Total
Nine months ended September 30, 2024
Residential 1-4 family
$
—
$
—
$
361
$
277
$
—
$
212
$
850
Commercial real estate
—
—
—
—
—
—
—
Home equity line of credit
—
—
—
—
—
—
—
Residential land
—
—
—
—
—
—
—
Commercial construction
—
—
—
—
—
—
—
Residential construction
—
—
—
—
—
—
—
Commercial
—
—
12
63
—
285
360
Consumer
733
2,853
4,329
481
102
220
8,718
Total
$
733
$
2,853
$
4,702
$
821
$
102
$
717
$
9,928
Revolving loans converted to term loans during the nine months ended September 30, 2024 in the commercial, home equity line of credit and consumer portfolios were $2.6 million, $18.1 million and $0.5 million, respectively. Revolving loans converted to term loans during the nine months ended September 30, 2023 in the commercial, home equity line of credit and consumer portfolios were $6.1 million, $20.4 million and $1.1 million, respectively.
The credit risk profile based on payment activity for loans was as follows:
(in thousands)
30-59 days past due
60-89 days past due
90 days or more past due
Total past due
Current
Total financing receivables
Amortized cost> 90 days and accruing
September 30, 2024
Real estate:
Residential 1-4 family
$
2,138
$
891
$
5,278
$
8,307
$
2,599,974
$
2,608,281
$
—
Commercial real estate
—
—
10,698
10,698
1,355,516
1,366,214
—
Home equity line of credit
1,388
1,073
836
3,297
956,310
959,607
—
Residential land
—
—
—
—
19,900
19,900
—
Commercial construction
—
—
—
—
208,867
208,867
—
Residential construction
—
—
—
—
16,998
16,998
—
Commercial
309
9
74
392
645,179
645,571
—
Consumer
2,724
1,633
1,376
5,733
233,677
239,410
—
Total loans
$
6,559
$
3,606
$
18,262
$
28,427
$
6,036,421
$
6,064,848
$
—
December 31, 2023
Real estate:
Residential 1-4 family
$
4,501
$
5,165
$
8,670
$
18,336
$
2,576,826
$
2,595,162
$
425
Commercial real estate
—
—
11,048
11,048
1,362,990
1,374,038
—
Home equity line of credit
1,481
597
1,522
3,600
1,013,607
1,017,207
—
Residential land
—
675
—
675
17,689
18,364
—
Commercial construction
—
—
—
—
172,405
172,405
—
Residential construction
—
—
—
—
17,843
17,843
—
Commercial
163
135
244
542
742,761
743,303
—
Consumer
2,567
1,576
1,589
5,732
266,524
272,256
—
Total loans
$
8,712
$
8,148
$
23,073
$
39,933
$
6,170,645
$
6,210,578
$
425
53
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
The credit risk profile based on nonaccrual loans were as follows:
(in thousands)
September 30, 2024
December 31, 2023
With a related ACL
Without a related ACL
Total
With a related ACL
Without a related ACL
Total
Real estate:
Residential 1-4 family
$
4,335
$
4,107
$
8,442
$
7,755
$
2,190
$
9,945
Commercial real estate
10,698
—
10,698
11,048
—
11,048
Home equity line of credit
3,346
553
3,899
2,626
1,135
3,761
Residential land
—
—
—
780
—
780
Commercial construction
—
—
—
—
—
—
Residential construction
—
—
—
—
—
—
Commercial
175
158
333
133
301
434
Consumer
2,273
—
2,273
2,458
—
2,458
Total
$
20,827
$
4,818
$
25,645
$
24,800
$
3,626
$
28,426
ASB did not recognize interest on nonaccrual loans for the nine months ended September 30, 2024 and 2023.
Modifications Made to Borrowers Experiencing Financial Difficulty. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loan information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. ASB uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.
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 marketplace, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral.
54
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024 were as follows:
(in thousands)
Term extension
Interest Rate Reduction
Payment delay
Combination payment delay & term extension
Total
% of total class of loans
Three months ended September 30, 2024
Real estate loans
Residential 1-4 family
$
153
$
—
$
1,850
$
—
$
2,003
0.08
%
Commercial real estate
—
—
—
—
—
—
Home equity line of credit
—
153
—
—
153
0.02
Residential land
—
—
—
—
—
—
Commercial construction
—
—
—
—
—
—
Residential construction
—
—
—
—
—
—
Commercial
—
—
—
—
—
—
Consumer
—
—
—
—
—
—
Total
$
153
$
153
$
1,850
$
—
$
2,156
0.04
%
Nine months ended September 30, 2024
Real estate loans
Residential 1-4 family
$
468
$
—
$
6,764
$
—
$
7,232
0.28
%
Commercial real estate
—
—
—
1,208
1,208
0.09
%
Home equity line of credit
—
153
447
—
600
0.06
%
Residential land
—
—
675
—
675
3.39
%
Commercial construction
—
—
—
—
—
—
Residential construction
—
—
—
—
—
—
Commercial
—
—
—
—
—
—
Consumer
—
—
—
—
—
—
Total
$
468
$
153
$
7,886
$
1,208
$
9,715
0.16
%
55
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Financial effect of loan modifications during the three and nine months ended September 30, 2024 for borrowers experiencing financial difficulty were as follows:
Weighted average
Term extension
(in months)
Interest Rate Reduction
(in percent)
Payment delay
(in months)
Three months ended September 30, 2024
Real estate loans
Residential 1-4 family
329
—
6
Commercial real estate
—
—
—
Home equity line of credit
—
3.00
%
—
Residential land
—
—
—
Commercial construction
—
—
—
Residential construction
—
—
—
Commercial
—
—
—
Consumer
—
—
—
Nine months ended September 30, 2024
Real estate loans
Residential 1-4 family
208
—
9
Commercial real estate
9
—
9
Home equity line of credit
—
3.00
%
11
Residential land
—
—
9
Commercial construction
—
—
—
Residential construction
—
—
—
Commercial
—
—
—
Consumer
—
—
—
Credit risk profile based on payment activity for loans modified during the nine months ended September 30, 2024 were as follows:
(in thousands)
Current
30-59 days
past due
60-89 days
past due
90 days or more past due
Total
Real estate loans
Residential 1-4 family
$
4,867
$
264
$
—
$
2,101
$
7,232
Commercial real estate
1,208
—
—
—
1,208
Home equity line of credit
447
—
153
—
600
Residential land
675
—
—
—
675
Commercial construction
—
—
—
—
—
Residential construction
—
—
—
—
—
Commercial
—
—
—
—
—
Consumer
—
—
—
—
—
Total
$
7,197
$
264
$
153
$
2,101
$
9,715
During the nine months ended September 30, 2024, there were no loan modifications made to borrowers experiencing financial difficulty that defaulted.
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.
56
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Loans considered collateral-dependent were as follows:
Amortized cost
(in thousands)
September 30, 2024
December 31, 2023
Collateral type
Real estate:
Residential 1-4 family
$
4,184
$
2,272
Residential real estate property
Commercial real estate
10,698
11,048
Commercial real estate property
Home equity line of credit
662
1,135
Residential real estate property
Total real estate
15,544
14,455
Commercial
232
301
Business assets
Total
$
15,776
$
14,756
ASB had $2.7 million and $3.4 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at September 30, 2024 and December 31, 2023, respectively.
Mortgage servicing rights (MSRs).In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold.
ASB received proceeds from the sale of residential mortgages of $28.1 million and $21.5 million for the three months ended September 30, 2024 and 2023, respectively, and recognized gains on such sales of $0.4 million and $0.3 million for the three months ended September 30, 2024 and 2023, respectively. ASB received proceeds from the sale of residential mortgages of $85.4 million and $36.1 million for the nine months ended September 30, 2024 and 2023, respectively, and recognized gains on such sales of $1.2 million and $0.7 million for the nine months ended September 30, 2024 and 2023, respectively.
There were no repurchased mortgage loans for the nine months ended September 30, 2024 and 2023.
Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended September 30, 2024 and 2023. Mortgage servicing fees, a component of other income, net, were $2.6 million and $2.7 million for the nine months ended September 30, 2024 and 2023, respectively.
Changes in the carrying value of MSRs were as follows:
(in thousands)
Gross carrying amount
Accumulated amortization
Valuation allowance
Net carrying amount
September 30, 2024
$
18,284
$
(10,562)
$
—
$
7,722
December 31, 2023
18,241
(10,072)
—
8,169
Changes related to MSRs were as follows:
Three months ended September 30
Nine months ended September 30
(in thousands)
2024
2023
2024
2023
Mortgage servicing rights
Beginning balance
$
7,906
$
8,495
$
8,169
$
9,047
Amount capitalized
171
184
548
319
Amortization
(355)
(303)
(995)
(990)
Other-than-temporary impairment
—
—
—
—
Carrying amount before valuation allowance
7,722
8,376
7,722
8,376
Valuation allowance for mortgage servicing rights
Beginning balance
—
—
—
—
Provision
—
—
—
—
Other-than-temporary impairment
—
—
—
—
Ending balance
—
—
—
—
Net carrying value of mortgage servicing rights
$
7,722
$
8,376
$
7,722
$
8,376
57
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs.
ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the condensed consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.
Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:
(dollars in thousands)
September 30, 2024
December 31, 2023
Unpaid principal balance
$
1,392,423
$
1,402,736
Weighted average note rate
3.61
%
3.47
%
Weighted average discount rate
10.00
%
10.00
%
Weighted average prepayment speed
7.47
%
5.71
%
The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:
(dollars in thousands)
September 30, 2024
December 31, 2023
Prepayment rate:
25 basis points adverse rate change
$
(232)
$
(90)
50 basis points adverse rate change
(494)
(204)
Discount rate:
25 basis points adverse rate change
(171)
(203)
50 basis points adverse rate change
(340)
(402)
The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.
Other borrowings. As of September 30, 2024 and December 31, 2023, ASB had $520.0 million and $200.0 million of FHLB advances outstanding, respectively, and borrowings with the Federal Reserve Bank of nil and $550.0 million, respectively. As of September 30, 2024, ASB was in compliance with all FHLB Advances, Pledge and Security Agreement requirements and all requirements to borrow at the Federal Reserve Discount Window Primary Credit Facility under 12 CFR 201.4(a) guidelines.
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.
58
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
The notional amount and fair value of ASB’s derivative financial instruments were as follows:
September 30, 2024
December 31, 2023
(in thousands)
Notional amount
Fair value
Notional amount
Fair value
Interest rate lock commitments
$
4,672
$
68
$
6,246
$
86
Forward commitments
4,250
10
5,500
(18)
ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:
Derivative Financial Instruments Not Designated as Hedging Instruments 1
September 30, 2024
December 31, 2023
(in thousands)
Asset derivatives
Liability derivatives
Asset derivatives
Liability derivatives
Interest rate lock commitments
$
68
$
—
$
86
$
—
Forward commitments
10
—
—
18
$
78
$
—
$
86
$
18
1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.
The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:
Derivative Financial Instruments Not Designated as Hedging Instruments
Location of net gains (losses) recognized in the Statements of Income
Three months ended September 30
Nine months ended September 30
(in thousands)
2024
2023
2024
2023
Interest rate lock commitments
Mortgage banking income
$
(21)
$
(34)
$
(18)
$
45
Forward commitments
Mortgage banking income
5
(36)
28
(3)
$
(16)
$
(70)
$
10
$
42
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $54.4 million and $87.9 million at September 30, 2024 and December 31, 2023, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of September 30, 2024, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.
Note 6 · Credit agreements and changes in debt
On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities) to amend and restate their respective previously existing revolving unsecured credit agreements. The $175 million HEI Facility’s initial termination date was May 14, 2026. The $200 million Hawaiian Electric Facility’s initial termination date was May 13, 2022, but 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 twoone-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.
On April 21, 2023, HEI and Hawaiian Electric executed Amendment No. 1 to the Credit Facilities (Amendment). The Amendment was executed to reflect the transition from the London Inter-Bank Offered Rate to the Term Secured Overnight Financing Rate (SOFR) as the benchmark interest rate for non-Alternate Base Rate (ABR) Loans under the Credit Facilities.
On May 14, 2023, HEI and Hawaiian Electric exercised their first of two, one-year extensions to the commitment termination date with eight of the nine financial institutions to extend the Credit Facilities to May 14, 2027. The committed capacities under the HEI Facility and Hawaiian Electric Facility are $175 million and $200 million, respectively, through May 14, 2026, and step down to approximately $157 million and $180 million, respectively, through May 14, 2027.
In August 2023, HEI and Hawaiian Electric drew the full committed capacity on their respective existing revolving credit facilities, totaling $175 million and $200 million, respectively. The draws were made to provide access to liquidity and support the Company’s restoration efforts on Maui. The cash proceeds were primarily invested in highly liquid short-term investments and used for general corporate purposes.
59
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Under the HEI and Hawaiian Electric Intercompany Borrowing and Investment Policy effective January 1, 2020 (the Intercompany Borrowing Policy), HEI has committed to make revolving short-term loans to Hawaiian Electric pursuant to the terms set forth in the standing commitment letter dated December 8, 2023 (the 2023 Commitment Letter). For loans that mature on or before December 6, 2024, the 2023 Commitment Letter provides a borrowing limit of $75 million outstanding at any time and the applicable interest rate. Hawaiian Electric currently has no borrowings under the Intercompany Borrowing Policy and the 2023 Commitment Letter.
Asset-backed lending facility credit agreement. On May 17, 2024, Hawaiian Electric, through a special-purpose subsidiary, entered into an asset-based lending facility (ABL Facility) credit agreement (ABL Credit Facility Agreement) with several banks, which, subject to the limitations and conditions set forth in such agreement, including approval by the PUC, allows borrowings of up to $250 million on a revolving basis using certain accounts receivable as collateral. Hawaiian Electric filed an application with the PUC for approval to (i) sell accounts receivable, and (ii) establish a long-term credit facility. The first approval would allow the ABL Credit Facility Agreement to become effective for 364 days and the second approval would extend the term of the ABL Credit Facility Agreement from 364 days to three years. The ABL Credit Facility Agreement has an initial term of 364 days, with an automatic extension to three years upon receipt of the second PUC approval, with three separate options to extend one additional year, subject to the consent of the lenders. Hawaiian Electric received the first and second approvals from the PUC for the ABL Credit Facility Agreement that allows short-term and long-term borrowings of up to $250 million on June 27, 2024 and October 11, 2024, respectively, subject to the availability of a sufficient borrowing base of eligible receivables. The ABL Facility became effective on July 24, 2024. The ABL Facility remains undrawn as of September 30, 2024; however, the amount that could be drawn is temporarily limited due to the accrual of the wildfire tort-related claims, which reduces the amount of additional debt that could be incurred before exceeding certain financial covenants. The amount that could be drawn as of September 30, 2024 was approximately $90 million and will increase over time as earnings are generated and when HEI contributes equity related to the settlement payments or for capital expenditures.
Changes in debt. As of September 30, 2024, the Company and Hawaiian Electric were in compliance with all applicable financial covenants.
Mahipapa non-recourse loan. In March 2024, a fire destroyed the cooling tower at the Mahipapa facility on Kauai. The fire was ignited from a vendor’s welding activities being performed on the cooling tower during its scheduled maintenance. The plant is currently shut down while repairs are being performed. As a result, on June 26, 2024, the lender granted Mahipapa a deferral of two scheduled (July 2024 and September 2024) principal and interest payments totaling $3 million. The deferred payments will be repaid in quarterly payments commencing in March 2025. Mahipapa will re-commence debt payments in December 2024.
60
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Note 7 · Shareholders' equity
Accumulated other comprehensive income/(loss).Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:
HEI Consolidated
Hawaiian Electric Consolidated
(in thousands)
Net unrealized gains (losses) on securities
Unrealized gains (losses) on derivatives
Retirement benefit plans
AOCI
AOCI-Retirement benefit plans
Balance, December 31, 2023
$
(282,963)
$
1,638
$
(8,025)
$
(289,350)
$
2,849
Current period other comprehensive income (loss)
31,260
(220)
113
31,153
(93)
Balance, September 30, 2024
$
(251,703)
$
1,418
$
(7,912)
$
(258,197)
$
2,756
Balance, December 31, 2022
$
(328,904)
$
1,991
$
(9,115)
$
(336,028)
$
2,861
Current period other comprehensive income (loss)
(21,330)
(827)
161
(21,996)
(166)
Balance, September 30, 2023
$
(350,234)
$
1,164
$
(8,954)
$
(358,024)
$
2,695
Reclassifications out of AOCI were as follows:
Amount reclassified from AOCI
Affected line item in the Statements of Income / Balance Sheets
Three months ended September 30
Nine months ended September 30
(in thousands)
2024
2023
2024
2023
HEI consolidated
Amortization of unrealized holding losses on held-to-maturity securities
$
3,366
$
3,699
$
9,740
$
11,065
Bank revenues
Net realized gains on derivatives qualifying as cash flow hedges
(52)
(47)
(151)
(143)
Interest expense
Retirement benefit plans:
Amortization of prior service credit and net gains recognized during the period in net periodic benefit cost
(1,244)
(446)
(2,138)
(1,160)
See Note 9 for additional details
Impact of D&Os of the PUC included in regulatory assets
1,333
470
2,251
1,321
See Note 9 for additional details
Total reclassifications
$
3,403
$
3,676
$
9,702
$
11,083
Hawaiian Electric consolidated
Retirement benefit plans:
Amortization of prior service credit and net gains recognized during the period in net periodic benefit cost
$
(1,331)
$
(547)
$
(2,344)
$
(1,487)
See Note 9 for additional details
Impact of D&Os of the PUC included in regulatory assets
1,333
470
2,251
1,321
See Note 9 for additional details
Total reclassifications
$
2
$
(77)
$
(93)
$
(166)
61
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Note 8 · Revenues
The following tables disaggregate revenues by major source, timing of revenue recognition, and segment:
Three months ended September 30, 2024
Nine months ended September 30, 2024
(in thousands)
Electric utility
Bank
Other
Total
Electric utility
Bank
Other
Total
Revenues from contracts with customers
Electric energy sales - residential
$
272,541
$
—
$
—
$
272,541
$
758,602
$
—
$
—
$
758,602
Electric energy sales - commercial
268,538
—
—
268,538
761,788
—
—
761,788
Electric energy sales - large light and power
294,421
—
—
294,421
846,448
—
—
846,448
Electric energy sales - other
4,532
—
—
4,532
14,087
—
—
14,087
Bank fees
—
13,475
—
13,475
—
38,713
—
38,713
Other sales
—
—
2,897
2,897
—
—
9,167
9,167
Total revenues from contracts with customers
840,032
13,475
2,897
856,404
2,380,925
38,713
9,167
2,428,805
Revenues from other sources
Regulatory revenue
(19,924)
—
—
(19,924)
780
—
—
780
Bank interest and dividend income
—
87,655
—
87,655
—
261,768
—
261,768
Other bank noninterest income
—
4,014
—
4,014
—
11,750
—
11,750
Other
9,509
—
725
10,234
28,821
—
977
29,798
Total revenues from other sources
(10,415)
91,669
725
81,979
29,601
273,518
977
304,096
Total revenues
$
829,617
$
105,144
$
3,622
$
938,383
$
2,410,526
$
312,231
$
10,144
$
2,732,901
Timing of revenue recognition
Services/goods transferred at a point in time
$
—
$
13,475
$
—
$
13,475
$
—
$
38,713
$
—
$
38,713
Services/goods transferred over time
840,032
—
2,897
842,929
2,380,925
—
9,167
2,390,092
Total revenues from contracts with customers
$
840,032
$
13,475
$
2,897
$
856,404
$
2,380,925
$
38,713
$
9,167
$
2,428,805
截至2023年9月30日的三個月
截至2023年9月30日的9個月
(單位：千人)。
電業
銀行
其他
總
電業
銀行
其他
總
與客戶簽訂合同的收入
電能銷售-住宅
$
257,790
$
—
$
—
$
257,790
$
753,207
$
—
$
—
$
753,207
電能銷售-商業
257,876
—
—
257,876
762,454
—
—
762,454
電能銷售-大型光和電力
284,607
—
—
284,607
855,396
—
—
855,396
電能銷售-其他
4,688
—
—
4,688
14,628
—
—
14,628
銀行手續費
—
12,067
—
12,067
—
36,370
—
36,370
其他銷售
—
—
5,016
5,016
—
—
13,361
13,361
與客戶簽訂合同的總收入
804,961
12,067
5,016
822,044
2,385,685
36,370
13,361
2,435,416
其他來源的收入
監管收入
(20,927)
—
—
(20,927)
3,716
—
—
3,716
銀行利息和股息收入
—
85,636
—
85,636
—
246,856
—
246,856
其他銀行非利息收入
—
3,271
—
3,271
—
8,490
—
8,490
其他
10,953
—
896
11,849
30,138
—
1,179
31,317
其他來源總收入
(9,974)
88,907
896
79,829
33,854
255,346
1,179
290,379
總收入
$
794,987
$
100,974
$
5,912
$
901,873
$
2,419,539
$
291,716
$
14,540
$
2,725,795
收入確認的時機
在某個時間點轉移的服務/貨物
$
—
$
12,067
$
—
$
12,067
$
—
$
36,370
$
—
$
36,370
隨着時間的推移轉移的服務/貨物
804,961
—
5,016
809,977
2,385,685
—
13,361
2,399,046
與客戶簽訂合同的總收入
$
804,961
$
12,067
$
5,016
$
822,044
$
2,385,685
$
36,370
$
13,361
$
2,435,416
There are no material contract assets or liabilities associated with revenues from contracts with customers existing at December 31, 2023 or as of September 30, 2024. Accounts receivable and unbilled revenues related to contracts with customers represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are disclosed as accounts receivable and unbilled revenues, net on HEI’s condensed consolidated balance sheets and customer accounts receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s condensed consolidated balance sheets.
62
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
As of September 30, 2024, the Company had no material remaining performance obligations due to the nature of the Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to customers. For ASB, fees are recognized when a transaction is completed.
Note 9 ·Retirement benefits
Defined benefit pension and other postretirement benefit plans information. The Company contributed $5 million ($5 million by the Utilities) to its pension and other postretirement benefit plans during the first nine months of 2024, compared to $6 million ($6 million by the Utilities) in the first nine months of 2023. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in 2024 is $9 million ($9 million by the Utilities), compared to $8 million ($8 million by the Utilities) in 2023. In addition, in 2024, comparable to 2023, the Company expects to pay directly $3 million ($1 million by the Utilities) of benefits.
HEI consolidated recorded retirement benefits expense of $34 million ($34 million by the Utilities) in the first nine months of 2024 and $33 million ($32 million by the Utilities) in the first nine months of 2023 and charged the remaining net periodic benefit cost primarily to electric utility plant.
The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, any actual costs determined in accordance with GAAP that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over five years beginning with the respective utility’s next rate case.
Defined contribution plans information. For the first nine months of 2024 and 2023, the Company’s expenses for its defined contribution plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $8.9 million and $7.0 million, respectively, and cash contributions were $8.9 million and $7.6 million, respectively. For the first nine months of 2024 and 2023, the Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP were $5.5 million and $4.3 million, respectively.
63
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
Note 10 ·Share-based compensation
Under the 2010 Equity and Incentive Plan, as amended and restated effective February 9, 2024 (EIP), HEI can issue shares of common stock as incentive compensation to non-employee directors and selected employees and consultants in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards.
As of September 30, 2024, approximately 2.5 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 0.9 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).
Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of September 30, 2024, there were 168,177 shares remaining available for future issuance under the 2011 Director Plan.
Share-based compensation expense and the related income tax benefit were as follows:
Three months ended September 30
Nine months ended September 30
(in millions)
2024
2023
2024
2023
HEI consolidated
Share-based compensation expense 1
$
0.1
$
2.4
$
3.2
$
8.3
Income tax benefit
—
0.5
0.3
1.6
Hawaiian Electric consolidated
Share-based compensation expense (benefit) 1
(0.1)
0.7
1.1
2.5
Income tax benefit (expense)
(0.1)
0.1
0.1
0.5
1 For the three and nine months ended September 30, 2024 and 2023, the Company has not capitalized any share-based compensation.
Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:
Three months ended September 30
Nine months ended September 30
(dollars in millions)
2024
2023
2024
2023
Shares granted
—
—
—
40,450
Fair value
$
—
$
—
$
—
$
1.5
Income tax benefit
—
—
—
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:
Three months ended September 30
Nine months ended September 30
2024
2023
2024
2023
Shares
(1)
Shares
(1)
Shares
(1)
Shares
(1)
Outstanding, beginning of period
89,869
$
42.08
199,130
$
41.22
189,024
$
41.23
182,528
$
39.75
Granted
—
—
—
—
—
—
100,088
42.41
Vested
—
—
—
—
(98,084)
40.43
(81,112)
39.37
Forfeited
—
—
—
—
(1,071)
41.97
(2,374)
41.79
Outstanding, end of period
89,869
$
42.08
199,130
$
41.22
89,869
$
42.08
199,130
$
41.22
Total weighted-average grant-date fair value of shares granted (in millions)
$
—
$
—
$
—
$
4.2
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
64
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
For the nine months ended September 30, 2024 and 2023, total restricted stock units and related dividends that vested had a fair value of $1.4 million and $3.7 million, respectively, and the related tax benefits were $0.3 million and $0.8 million, respectively.
As of September 30, 2024, there was $2.2 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 1.2 years.
Long-term incentive plan payable in stock. The 2022-24, 2023-25 and 2024-26 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Peer Group (Edison Electric Institute Index (EEI Index) for the 2022-24 performance period, and compared to the Company's compensation peer group consisting of companies in the EEI Index and approved by the Company's Compensation and Human Capital Management Committee for the 2023-25 and 2024-26 performance periods), in each case over the relevant three-year period. The other performance condition goals relate to EPS growth, cumulative EPS, return on average common equity (ROACE), carbon emissions reduction, Hawaiian Electric’s net income growth, credit rating and public safety, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth and return on average invested capital.
LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows:
Three months ended September 30
Nine months ended September 30
2024
2023
2024
2023
Shares
(1)
Shares
(1)
Shares
(1)
Shares
(1)
Outstanding, beginning of period
109,262
$
33.75
79,284
$
50.28
76,477
$
50.11
71,574
$
47.67
Granted
—
—
—
—
62,152
17.28
27,123
55.98
Vested (issued or unissued and cancelled)
—
—
—
—
(28,577)
41.12
(18,691)
48.62
Forfeited
—
—
—
—
(790)
55.64
(722)
48.92
Outstanding, end of period
109,262
$
33.75
79,284
$
50.28
109,262
$
33.75
79,284
$
50.28
Total weighted-average grant-date fair value of shares granted (in millions)
$
—
$
—
$
1.1
$
1.5
(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 the Peer Group for the period from the beginning of the performance period to the grant date and estimated future stock volatility of HEI and the Peer Group over the remaining three-year performance period. The expected stock volatility assumptions for HEI and the 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:
2024
2023
Risk-free interest rate
4.25
%
4.19
%
Expected life in years
3
3
Expected volatility
52.5
%
33.1
%
Range of expected volatility for Peer Group
12.3% to 52.5%
28.7% to 38.8%
Grant-date fair value (per share)
$17.28
$55.98
There were no share-based LTIP awards linked to TSR with a vesting date in 2024 and 2023.
As of September 30, 2024, there was $1.5 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.
65
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For the nine months ended September 30, 2024 and 2023, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $1.7 million and $2.9 million, respectively, and the related tax benefits were $0.4 million and $0.6 million, respectively.
As of September 30, 2024, there was $5.3 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 1.8 years.
Interest rate swaps. The Company measures its interest rate swaps at fair value. The fair values of the Company's interest rate swaps are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The fair values of the Company's interest rate swaps are classified as a Level 2 measurements.
69
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
下表列出了公司金融工具的公允價值層級中的公允價值或名義金額、公允價值和放置情況。
估計公平值
(單位：萬人)
攜帶或名義金額
中國報價： 活躍的市場 相同資產 高級(1級)
意義重大 其他可觀察 輸入 （2級）
意義重大 看不見 輸入 （3級）
總
2024年9月30日
金融資產
HEI合併
可供出售的投資證券
$
1,084,083
$
—
$
1,070,148
$
13,935
$
1,084,083
持有至到期的投資證券
1,159,229
—
1,086,205
—
1,086,205
聯邦住房貸款銀行股票
29,204
—
29,204
—
29,204
貸款，淨額
5,975,318
—
2,698
5,669,632
5,672,330
抵押貸款償還權
7,722
—
—
17,046
17,046
衍生資產
16,991
10
792
—
802
金融負債
HEI合併
存款負債-定期憑證
1,064,978
—
1,058,464
—
1,058,464
其他銀行借款
520,000
—
520,677
—
520,677
長期債務，淨債務-銀行以外
2,836,539
—
2,289,207
—
2,289,207
衍生負債
21,867
—
116
—
116
夏威夷電力合併
長期債務，淨額
1,934,980
—
1,519,620
—
1,519,620
2023年12月31日
金融資產
HEI合併
可供出售投資證券
$
1,136,439
$
—
$
1,122,081
$
14,358
$
1,136,439
持有至到期投資證券
1,201,314
—
1,103,668
—
1,103,668
聯邦住房貸款銀行股票
14,728
—
14,728
—
14,728
貸款，淨額
6,121,606
—
15,176
5,723,823
5,738,999
抵押貸款償還權
8,169
—
—
18,722
18,722
衍生資產
16,880
—
1,058
—
1,058
金融負債
HEI合併
存款負債-定期憑證
1,063,907
—
1,053,101
—
1,053,101
其他銀行借款
750,000
—
747,508
—
747,508
長期債務，淨債務-銀行以外
2,842,429
—
2,133,225
—
2,133,225
衍生負債
28,449
18
303
—
321
夏威夷電力合併
長期債務，淨額
1,934,277
—
1,385,025
—
1,385,025
70
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited) continued
See also “Recent Developments” in the “Electric utility” and “Bank” sections below for further discussion of the economic impact of recent events.
“Other” segment.
Three months ended September 30
(in thousands)
2024
2023
Primary reason(s)
Revenues
$
3,622
$
5,912
The revenues for the third quarter of 2024 were lower than the comparable period in 2023 primarily due to lower sales at Pacific Current1 subsidiaries.
Operating loss
(45,156)
(8,806)
The higher operating loss is due to a $35.2 million impairment loss on certain long-lived assets at Pacific Current. Corporate expenses for the third quarter of 2024 were $1.4 million higher than the same period in 2023.
Net loss
(40,595)
(13,708)
Increase in net loss due to the same factors cited for the change in operating loss above. Also see effective tax rate explanations above.
Nine months ended September 30
(in thousands)
2024
2023
Primary reason(s)
Revenues
$
10,144
$
14,540
The revenues for the first nine months of 2024 were lower than the comparable period in 2023 primarily due to lower sales at Pacific Current1 subsidiaries.
Operating loss
(74,773)
(20,197)
The first nine months of 2024 and 2023 include $45.7 million and $1.8 million of operating loss, respectively, from Pacific Current1. The higher operating loss is primarily due to a $35.2 million impairment loss on certain long-lived assets at Pacific Current in the third quarter of 2024, $3.5 million impairment loss on assets damaged in a March 2024 fire at Mahipapa and lower Pacific Current asset performances mainly at Hamakua Energy and Mahipapa due to unexpected plant shut downs in the first quarter of 2024 as compared to the prior year period. Corporate expenses for the first nine months of 2024 were $10.7 million higher than the same period in 2023, primarily due to $6.9 million of higher Maui windstorm and wildfires related costs, net of insurance recovery for the first nine months of 2024 than the same period in 2023.
Net loss
(78,931)
(35,451)
Increase in net loss due to the same factors cited for the change in operating loss above. Also see effective tax rate explanations above.
1 Hamakua Energy’s sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.
The “other” business segment loss includes results of the stand-alone corporate operations of HEI (including eliminations of intercompany transactions) and ASB Hawaii, Inc. (ASB Hawaii), as well as the results of Pacific Current, a direct subsidiary of HEI focused on investing in clean energy and sustainable infrastructure projects; Pacific Current’s indirect subsidiary, Hamakua Energy, which owns a 60 MW combined cycle power plant on Hawaii Island that provides electricity to Hawaii Electric Light; Pacific Current’s subsidiaries, Mauo, LLC (Mauo), which owns solar-plus-storage projects totaling 8.6 MW on five University of Hawaii campuses, Mahipapa, which owns a 7.5 MW nameplate biomass facility on Kauai, Alenuihaha Developments, LLC, which owns a collection of renewable energy assets on Oahu and Kauai, Ka‘ie‘ie Waho Company, LLC, which owns a 6 MW solar photovoltaic system that provides renewable energy to Kauai Island Utility Cooperative, and Ka‘aipua‘a, LLC, which is constructing a wastewater treatment and energy recovery facility on Hawaii Island; as well as eliminations of intercompany transactions.
In September 2024, Pacific Current recorded a pretax long-lived asset impairment charge of $35.2 million after determining it was more-likely-than-not that the long-lived assets of Pacific Current will be sold significantly before the end of their previously estimated useful life and that the fair value of certain long-lived assets of Pacific Current were less than its carrying value. In addition, HEI forgave its intercompany loan receivable from Mahipapa, including accrued interest, amounting to $9.6 million. Concurrently, Mahipapa classified its intercompany loan payable to HEI, including accrued interest,
78
of an equivalent amount as an equity contribution. These transactions were accounted for as equity transactions and offset in the Company’s Condensed Consolidated Balance Sheets.
The impairment charge and intercompany loan transactions were non-cash in nature and did not affect the Company’s current liquidity, cash flows or any debt covenants under the Company’s existing credit agreements.
In late February 2024, Hamakua Energy’s first combustion turbine (CT1) and its leased combustion turbine (leased CT) unexpectedly sustained damages resulting in a plant shut down on Hawaii Island. The Company is currently conducting an investigation into the root cause of the damages. Upon inspection of CT1, it was determined that the unit was not serviceable. Due to the generation capacity shortfall on Hawaii Island (refer to “System reliability” in “Recent developments” of Hawaiian Electric’s MD&A below), and the extensive timeline and cost to overhaul CT1, management decided to retire and replace CT1. Due to the age of the unit, the net book value is immaterial. In April 2024, Hamakua Energy purchased a new combustion turbine and installed the unit in May 2024 at a total cost of approximately $8.3 million. The new CT1 was placed into service in June 2024. Pursuant to the lease pool program agreement, the leased CT was returned to the lessor and a new leased CT had been delivered and placed into service in September 2024 bringing Hamakua Energy back to full capacity. Hamakua Energy’s second combustion turbine (CT2) is currently in a scheduled overhaul which has incurred delays due to supply shortages. The CT2 overhaul is expected to be completed and the unit placed back into service in the first quarter of 2025. Hamakua Energy is currently working with its legal counsel and insurance company on seeking recovery of its losses related to damages sustained to its plant facilities.
In March 2024, a fire destroyed the cooling tower at the Mahipapa facility on Kauai. The fire was ignited from a vendor’s welding activities being performed on the cooling tower during its scheduled maintenance. As a result, the plant is currently shut down while repairs are being performed. Mahipapa recorded an impairment loss of $3.5 million in March 2024. The Company expects to complete its repairs and bring the facility back online in the fourth quarter of 2024. Mahipapa is currently working with its legal counsel and insurance company on seeking reimbursement of its losses related to damages sustained to its plant facilities.
FINANCIAL CONDITION
Liquidity and capital resources. See “Credit and Capital Market Risk” in Item 1A. Risk Factors in HEI’s and Hawaiian Electric’s 2023 Form 10-K and in Item 1A. Risk Factors below.
As of September 30 2024, the Utilities accrued estimated wildfire liabilities of approximately $1.92 billion (pre-tax), related to the settlement of the Maui windstorm and wildfire tort-related legal claims (see Note 2 of the Condensed Consolidated Financial Statements). For the three and nine months ended September 30, 2024, HEI and its subsidiaries incurred net losses of approximately $104 million and $1.36 billion, respectively.
HEI and the Utilities’ future results of operations involve significant risks and uncertainties. Factors that could affect HEI’s and the Utilities’ future operating results and could cause actual results to vary materially from expectations include, but are not limited to, access to capital, ability to attract and retain key personnel, and pending or threatened litigation (including recent litigation noted above).
Management believes HEI’s and the Utilities’ current combined cash balance, excluding ASB, at September 30, 2024 of $825.3 million and the available capacity on Hawaiian Electric’s ABL facility (see Note 6 of the Condensed Consolidated Financial Statements), additional liquidity under HEI’s recently registered ATM program as well as expenditure reduction efforts have effectively alleviated the conditions that caused substantial doubt regarding HEI’s and Utilities’ ability to continue as a going concern, as the Company has available sufficient liquidity to fund the first installment of the settlement of wildfire tort claims expected to be made in late 2025 and the Company’s other cash obligations for the next 12 months following the issuance of its financial statements. The plans that have been implemented have mitigated the conditions that previously caused the substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern as of the date of filing its 2024 second quarter financial statements. HEI is working with its financial advisors on additional financing plans to raise capital necessary to fund the remaining settlement amount. See Note 1 of the Condensed Consolidated Financial Statements for additional discussion. If the financing plans are unsuccessful, the Company may need to consider other strategic alternatives. See further discussion in Part II. Other Information—Item 1A. Risk Factors.
At the end of the quarter, HEI and Hawaiian Electric had no commercial paper outstanding. As of September 30, 2024, ASB’s unused FHLB borrowing capacity was approximately $1.5 billion and ASB had unpledged investment securities of $1.1 billion that were available to be used as collateral for additional borrowing capacity. At both September 30, 2024 and December 31, 2023, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s committed lines of credit was nil. As of September 30, 2024, HEI consolidated has $2.8 billion of long-term debt, net - other than bank, of which $60 million is due within 12 months and $284 million is due within 24 months.
79
As of September 30, 2024, HEI’s cash and cash equivalents balance, excluding its subsidiaries, was $677.7 million, compared to $137 million as of December 31, 2023. The increase in cash and cash equivalents balance was primarily the result of the sale of common stock in September 2024. The Company believes that its cash and cash equivalents, including the additional liquidity under its $250 million ATM program, would be sufficient to meet the Company’s cash requirements in the next 12 months following the issuance of the financial statements. However, the Company expects that liquidity will continue to be impacted in the long-term primarily due to the remaining liability payments to settle wildfire claims; the result of the August 2023 downgrades of their credit ratings to below investment grade which prevents the Company from accessing unsecured, short-term borrowings and continues to restrict access to the capital markets and other sources of debt and equity financing in a timely manner and on acceptable terms; extended plant shutdowns at Pacific Current’s Mahipapa facility; and higher working capital requirements resulting from inflation and elevated fuel prices. Although the Company has raised sufficient cash to pay the first installment of the settlement of wildfire tort claims, the Company is currently working with its financial advisors on a financing plan to raise the additional capital necessary to fund the remaining settlement of wildfire tort claims. While management believes the Company will be able to raise the necessary capital, there is no assurance that management’s plans will be successful.
For the Utilities, while fuel prices have moderated from their highs in 2022, they remain elevated and have increased the cost of carrying fuel inventory and higher customer accounts receivable balances as fuel is consumed and billed to customers. While the accounts receivable balance has decreased since December 2023, it remains elevated coming out of the pandemic and has led to higher bad debt expense and higher write-offs in 2023 and year-to-date 2024, following the end of the moratorium on disconnections. The higher bad debt expense is expected to continue until the Utilities return to pre-pandemic accounts receivable balances, along with a decrease in volume, for delinquent accounts. The Maui windstorm and wildfires have not and are not anticipated to materially impact accounts receivable, however, it has and will continue to lead to higher bad debt expense. As of September 30, 2024, approximately $16.3 million of the Utilities’ accounts receivables were over 30 days past due, which is a decrease of approximately 26% since December 2023. 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” in the Electric utility section below).
If further liquidity is deemed necessary in the short term, Hawaiian Electric could also use its available capacity on its $250 million ABL facility, reduce the pace of capital spending related to non-essential projects, manage O&M expenses, seek borrowings on a secured basis, and explore asset sales.
At ASB, liquidity remains at satisfactory levels. ASB’s cash and cash equivalents was $333 million as of September 30, 2024, compared to $435 million as of December 31, 2023. ASB remains well above the “well capitalized” level under the FDIC Improvement Act prompt correction action capital category, and while the Hawaii economic outlook remains stable, there are emerging risks from potential continued turmoil in the banking industry, inflation, higher interest rates and the tightening of monetary policy that increase the risk of a recession, which could create increased uncertainty regarding the impact on loan performance and the allowance for credit losses (see “Recent Developments” in the Bank section below).
HEI Consolidated material cash requirements. Material cash requirements of HEI Consolidated include: payments related to settlement of tort-related legal claims and cross claims, Utility related capital expenditures (including capital expenditures related to wildfires and wildfire mitigations), labor and benefit costs, O&M expenses, legal and consulting costs related to the Maui windstorm and wildfires, fuel and purchase power costs, and debt and interest payments; Bank related investments in loans; HEI related labor and benefits costs, debt and interest payments and legal and consulting costs related to the Maui windstorm and wildfires and HEI equity contributions to support Pacific Current’s sustainable infrastructure investments.
The Company’s credit rating downgrades related to the Maui windstorm and wildfires will continue to adversely impact its ability to access capital markets and other sources of debt and equity financing, if at all, in a timely manner and on acceptable terms. Through the sale of common stock in September 2024, the Company has raised sufficient cash to pay the first installment of the settlement of wildfire tort claims expected to be made in late 2025. The Company is currently working with its financial advisors on a financing plan to raise the additional capital required to fund its remaining wildfire tort claims. While management believes the Company will be able to raise the necessary capital, there is no assurance that management’s plans will be successful. The potential damages and losses related to the Maui windstorm and wildfires and related lawsuits (see further information in Note 2 of the Condensed Consolidated Financial Statements), the suspension of dividends from its subsidiaries, the economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy and geopolitical situations, create significant uncertainty, and the Company cannot predict the extent or duration of these conditions, the future effects that these conditions will have on the Company’s financing plan, 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.
80
The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:
(dollars in millions)
September 30, 2024
December 31, 2023
Long-term debt, net—other than bank
$
2,837
64
%
$
2,842
54
%
Preferred stock of subsidiaries
34
1
34
1
Common stock equity
1,577
35
2,345
45
$
4,448
100
%
$
5,221
100
%
On August 26, 2024, S&P revised HEI’s outlook to “Watch Negative” from “Negative” and affirmed the “B-” issuer credit rating. On October 25, 2024, Fitch updated HEI’s outlook to “Stable” from “Watch Negative”, while affirming the “B” issuer credit rating. The downgrades of HEI’s credit ratings will continue to adversely impact its ability to access capital markets and other sources of debt financing, if at all, in a timely manner and on acceptable terms.
On September 25, 2024, HEI completed the sale of 62.2 million shares of common stock. The shares were issued under a registration statement registering up to $575 million of common stock. The net proceeds from the sale of common stock amounted to approximately $557.7 million and will be used to fund the Company’s contribution to the expected Maui wildfire tort litigation settlement and for general corporate purposes.
On September 19, 2024, HEI filed with the SEC an at-the-market (ATM) offering program under which HEI may offer and sell, from time to time at its sole discretion, its common stock, without par value, having an aggregate offering price of up to $250 million. To date, HEI has not sold any common stock under this program.
There were no new issuances of common stock through the Dividend Reinvestment Program (DRIP), HEIRSP or the ASB 401(k) Plan in the nine months ended September 30, 2024 and 2023.
For the first nine months of 2024, net cash provided by operating activities of HEI consolidated was $351 million. Net cash used by investing activities for the same period was $24 million, primarily due to capital expenditures and ASB’s contributions to low income housing investments and purchase of FHLB stock, net of redemption, partly offset by ASB’s net decrease in loans held for investment, receipt of investment security repayments and maturities and sale of commercial loans. Net cash provided by financing activities during this period was $152 million primarily due to net proceeds from issuance of common stock, partly offset by net decreases in ASB’s other bank borrowings and deposit liabilities.
Dividends. The payout ratios for the first nine months of 2024 and full year 2023 were nil and 59%, respectively. 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, current and expected future economic conditions, and capital investment alternatives. In August 2023, due to the potential impact from the Maui windstorm and wildfires, the HEI Board of Directors voted to suspend the quarterly cash dividend, starting after the second quarter dividend. This action is intended to allow the Company to provide additional liquidity and allocate cash to rebuilding and restoring power and help ensure a strong future for the Utilities and Bank. The ASB Board of Directors determined to suspend its quarterly cash dividends to HEI, starting after the second quarter 2023 dividend, to help ensure maximum possible Bank liquidity and capital. The Hawaiian Electric Board of Directors determined it would suspend its quarterly dividends to HEI, starting with the second quarter 2024 dividend, which would have been paid in the third quarter of 2024. The decision of the Hawaiian Electric Board of Directors to suspend its dividend to HEI was based upon the size of the proposed settlement of wildfire tort litigation and the fact that, although HEI and the Utilities have sufficient liquidity to fund the first settlement payment, no definitive funding plan currently exists for the remaining settlement payment liability.
MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES
In preparing financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.
In accordance with SEC Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies,” management has identified the accounting policies it believes to be the most critical to the Company’s financial statements—that is, management believes that these policies are both the most important to the portrayal of the Company’s results of operations and financial condition, and currently require management’s most difficult, subjective or complex judgments.
For information about these material estimates and critical accounting policies, in addition to the critical policy discussed below, see pages 48 to 50, 67, and 80 to 81 of the MD&A included in Part II, Item 7 of HEI’s and Hawaiian Electric’s 2023 Form 10-K.
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Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.
Electric utility
Recent developments. See also “Recent developments,” which includes disclosures relating to Maui windstorm and wildfires in HEI’s MD&A.
In 2024, the Utilities accrued estimated wildfire liabilities of approximately $1.92 billion (pre-tax) related to the settlement of the Maui windstorm and wildfire tort-related legal claims (see Note 2 of the Condensed Consolidated Financial Statements). For the three and nine months ended September 30, 2024, the Utilities incurred net losses of approximately $83 million and $1.27 billion, respectively.
In the third quarter of 2024, operation and maintenance expenses were higher by approximately $20 million, or 14%, as compared to the same period in 2023. The increase was mainly due to more generation maintenance work performed, wildfire mitigation program expenditures related to inspections, higher property and general liability insurance costs, and an agreement to settle indemnification claims asserted by the State of Hawaii, partially offset by costs incurred associated with the Maui windstorm and wildfires in 2023.
In the third quarter of 2024, kWh sales volume increased 1.6% compared to the same period in 2023. The increase reflects the recovery since the Maui windstorm and wildfires as Maui consumption increased 3.8% in the third quarter of 2024 compared to the same period in 2023. Additionally, increased tourism, especially on Oahu, in 2024 further contributed to the increase of kWh sales.
The price of crude oil has decreased about 7.9% over the same quarter in the prior year. The Utilities are able to pass through fuel costs to customers and have limited fuel cost exposure through a 2% fuel cost-risk sharing mechanism (approximately $3.7 million maximum exposure annually).
In September 2024, the consumer price index increased 2.4% over the last 12 months. In Hawaii, the September 2024 Urban Hawaii (Honolulu) Consumer Price Index (CPI) increased 4.2% over the last 12 months. Under the PBR framework, inflation risk for the Utilities is partially mitigated by an Annual Rate Adjustment (ARA), which is based on a formula that includes a compounded and non-compounded portion.
•The compounded portion of the ARA adjustment includes an adjustment for the annual change in inflation based on the estimated change in Gross Domestic Product Price Index (GDPPI) for the upcoming year, less a predetermined annual productivity factor (currently set at zero), less a 0.22% customer dividend, applied to a basis equal to test year target revenues plus the RAM Revenue adjustments in effect prior to the implementation of PBR, plus the prior adjustment year’s compounded portion of the ARA adjustment. The inflation factor percentage is the consensus projection of annual percentage change in GDPPI for the following calendar year published by Blue Chip Economic Indicators each October. For the 2024 calendar year, the forecasted 2024 GDPPI was 2.18% (net of the 0.22% customer dividend), measured in October 2023, and became effective in rates on January 1, 2024. For the 2025 calendar year, the forecasted 2025 GDPPI was 1.98% (net of the 0.22% customer dividend), measured in October 2024, and is scheduled to become effective in rates on January 1, 2025, pending PUC approval.
•The non-compounded portion of the ARA adjustment includes a subtractive component, representing the management audit savings commitment, or refund to customers, which was approved by the PUC for the years 2021 through 2025.
Customer accounts receivable decreased in 2024 by $36 million, or 15% with the number of accounts past due greater than 90 days decreasing by 43% since December 31, 2023. The decrease in accounts receivables was primarily driven by receipt of government and other program assistance, higher cash receipts associated with increased disconnection efforts and a change in bill due date from 19 days to 15 days in March 2024, along with lower customer bills resulting from lower fuel prices. At this time, while accounts receivable balances continue to remain elevated compared to pre-pandemic levels, with the exception for Maui County, which has been trending down closer to pre-pandemic levels, the decrease in accounts receivable balances since the beginning of the year has reduced working capital requirements and benefited the Utilities’ liquidity. See “Financial Condition—Liquidity and capital resources” for additional information.
System reliability. On March 25, 2024, the Utilities called on Hawaii Island customers to reduce or shift their electricity usage, and in certain instances initiated rolling outages due to a generation capacity shortfall. The situation was due to Hamakua Energy’s unexpected plant shutdown in late February 2024 and also due to the unavailability of generators that have experienced mechanical problems, were at reduced output, or were undergoing maintenance. During that time, generation margins were below targeted levels, especially when wind, solar and hydroelectric output were lower than forecasted. On April 24, 2024, the Utilities lifted their request to conserve electricity as several of the Utilities’ large generators returned to service and on June 3, 2024 Hamakua Energy completed replacement of one combustion turbine and returned it to service. The second
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combustion turbine returned to service on September 9, 2024. See above in “HEI MD&A-“Other” segment” for discussion relating to Hamakua Energy’s unexpected plant shutdown.
Since the August 2023 Maui windstorm and wildfires, the Utilities have developed a set of Interim Wildfire Safety Measures (IWSM) to mitigate the risk of wildfires in areas identified as having higher risk of wildfire in all service territories (Oahu, Maui County, and Hawaii Island). These interim measures represent actions the Utilities either have already started, or will start in 2024, while the Utilities simultaneously work to develop a more comprehensive Wildfire Safety Strategy. In the near term, it is anticipated that these measures will result in disruptions to service and negatively impact T&D SAIDI and SAIFI. While the Utilities work to refine these measures over time to mitigate customer impacts, the Utilities are currently focused on taking immediate steps to keep island communities safe during extreme weather events. For a discussion regarding the launch of the Public Safety Power Shutoff (PSPS) program, see discussion below under “Interim Wildfire Safety Measures.”
Regulatory developments. On November 15, 2021, President Biden signed into law the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), which includes approximately $550 billion of new federal spending to be allocated over the next five years through various programs. The funding will help the State of Hawaii achieve its sustainability goals, including renewable energy, resilience, and decarbonization, while also prioritizing economic development, equity and affordability. The Utilities are pursuing potential grant funding of projects under various programs as primary applicant as well as in partnership with other organizations. On August 7, 2024, the Utilities received a notification from the U.S. Department of Energy that their application for $95 million in federal funds under IIJA has been awarded. The Utilities had submitted two full applications that if awarded, would allow for reduction up to $112 million in the Utilities’ recovery under the Exceptional Project Recovery Mechanism (EPRM) and cost to customers. In October 2024, the Utilities were notified that they were not selected in this second round of IIJA funding opportunities. See “Regulatory proceedings” in Note 4 of the Condensed Consolidated Financial Statements for additional discussions.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA) that provides for $258 billion in energy-related provisions over a 10-year period. The provisions of the IRA are intended to, among other things, lower gasoline and electricity prices, incentivize clean energy investment and promote reductions in carbon emissions. The Utilities are exploring clean energy tax incentives included in the IRA that may further reduce the Utilities’ recovery under the EPRM and cost to customers. See Note 11 of the Condensed Consolidated Financial Statements for additional information.
The Utilities cannot predict the ultimate timing and success of securing funding from any federal government programs.
For a discussion regarding the impact of the Maui windstorm and wildfires on the Utilities’ liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.”
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RESULTS OF OPERATIONS
Three months ended September 30
Increase
2024
2023
(decrease)
(dollars in millions, except per barrel amounts)
$
830
$
795
$
35
Revenues. Net increase largely due to:
$
14
higher fuel oil prices and higher kWh generated1
13
higher PPAC revenues and higher kWh purchased, partially offset by lower purchased power energy prices2
6
higher revenue from ARA adjustments
2
higher DSM revenue
2
higher MPIR revenue
279
267
12
Fuel oil expense1. Net increase largely due to higher fuel oil prices and higher kWh generated, offset in part by better heat rate performance due to greater availability and use of more efficient reheat units on Oahu
189
178
11
Purchased power expense1, 2. Net increase largely due to higher kWh purchased, along with the addition of Stage 1 and Stage 2 renewable projects, offset in part by lower purchased power energy prices
162
143
19
Operation and maintenance expenses. Net increase largely due to:
4
more generation maintenance work performed
4
wildfire mitigation program related to inspections
4
higher property and general liability insurance costs
4
the settlement of indemnification claims asserted by the State of Hawaii3
4
accrual for settlement administration fees
3
write-off of preliminary engineering costs
3
higher outside services for legal, engineering and grant management
2
higher claim and liability reserves
1
higher Demand Response cost
1
higher scope of generating facility overhauls performed
1
higher employee benefits costs
(13)
incremental Maui windstorm and wildfires costs incurred in 2023
163
—
163
Wildfire tort-related claims. Increase due to the accrual of estimated wildfire liabilities related to the settlement of the Maui windstorm and wildfire tort-related legal claims, net of insurance
141
136
5
Other expenses. Increase due to higher revenue taxes, and higher depreciation expense due to increasing investments to integrate more renewable energy and improve customer reliability and system efficiency
(105)
71
(176)
Operating income (loss). Decrease largely due higher operation and maintenance expenses, wildfire tort-related claims along with higher depreciation expenses, offset in part by higher ARA and MPIR revenue
(118)
55
(173)
Income (loss) before income taxes. Decrease largely due to operating loss and lower AFUDC due to lower AFUDC equity rate, partially offset by lower interest expense and higher interest income earned
(83)
43
(126)
Net income (loss) for common stock. Decrease due to loss before income taxes. See below for effective tax rate explanation
2,191
2,157
34
Kilowatthour sales (millions)4
$
114.61
$
111.51
$
3.10
Average fuel oil cost per barrel
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Nine months ended September 30
Increase
2024
2023
(decrease)
(dollars in millions, except per barrel amounts)
$
2,411
$
2,420
$
(9)
Revenues. Net decrease largely due to:
$
(71)
lower fuel oil prices and lower kWh generated1
5
higher DSM revenue
5
higher MPIR revenue
18
higher revenue from ARA adjustments
35
higher kWh purchased and higher PPAC revenues, partially offset by lower purchased power energy prices2
822
882
(60)
Fuel oil expense1. Net decrease largely due to lower fuel oil prices and lower kWh generated, offset in part by worse heat rate performance, impacted by battery storage round trip efficiency loss and the loss of more efficient generator units on Oahu and Hawaii Island
530
499
31
Purchased power expense1, 2. Net increase largely due to higher kWh purchased, along with the addition of Stage 1 and Stage 2 renewable projects, offset in part by lower purchased power energy prices and the recovery of compensable curtailment energy payments in 2023
454
407
47
Operation and maintenance expenses. Net increase largely due to:
13
the settlement of indemnification claims asserted by the State of Hawaii3
11
higher property and general liability insurance costs
10
wildfire mitigation program related to inspections
4
higher Demand Response cost
4
accrual for settlement administration fees
3
higher outside services for legal, engineering and grant management
3
write-off of preliminary engineering costs
3
higher employee benefits costs
2
higher claim and liability reserves
2
higher transmission and distribution operation and maintenance expense
2
amortization of Honolulu generating units 8 and 9 net book value at retirement
1
higher scope of generating facility overhauls performed
1
higher audit fees
(13)
incremental Maui windstorm and wildfires costs incurred in 2023
1,875
—
1,875
Wildfire tort-related claims. Increase due to the accrual of estimated wildfire liabilities related to the settlement of the Maui windstorm and wildfire tort-related legal claims, net of insurance
415
411
4
Other expenses. Increase due to higher depreciation expense due to increasing investments to integrate more renewable energy and improve customer reliability and system efficiency, partially offset by lower revenue and payroll taxes
(1,686)
221
(1,907)
Operating income (loss). Decrease largely due to wildfire tort-related claims, higher operation and maintenance expenses along with higher depreciation expenses, offset in part by higher ARA and MPIR revenue
(1,725)
175
(1,900)
Income (loss) before income taxes. Decrease largely due to operating loss and lower AFUDC due to lower AFUDC equity rate, partially offset by lower interest expense and higher interest income earned
(1,273)
136
(1,409)
Net income (loss) for common stock. Decrease due to loss before income taxes. See below for effective tax rate explanation
6,068
6,087
(19)
Kilowatthour sales (millions)
$
118.76
$
124.70
$
(5.94)
Average fuel oil cost per barrel
471,790
471,372
418
Customer accounts (end of period)
1The rate schedules of the electric utilities currently contain energy cost recovery clauses (ECRCs) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.
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2The rate schedules of the electric utilities currently contain PPACs through which changes in purchased power expenses (except purchased energy costs) are passed on to customers.
3Pursuant to an agreement to settle indemnification claims with the State of Hawaii. See Note 2 of the Condensed Consolidated Financial Statements.
4 kWh sales were higher compared to the same quarter in prior year. The increase in sales can be attributed to increased tourism on Oahu and the recovery from the Maui windstorm and wildfires.
The Utilities’ effective tax rates for the third quarters of 2024 and 2023 were 30% tax benefit and 21% tax expense, respectively. The Utilities’ effective tax rates for the first nine months of 2024 and 2023 were 26% tax benefit and 22% tax expense, respectively. The effective tax rates for the third quarter and the first nine months of 2024, were higher than the comparable periods in 2023 primarily due to the substantial pretax loss resulting from the accrual of the loss contingencies related to the wildfire tort-related claims and the smaller impact of permanent items on the effective tax rates including federal research and development tax credit claims in 2024, partially offset by an increase in excess taxes related to vesting of share-based awards, and lower amortization in 2024 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.
Hawaiian Electric’s consolidated ROACE was not meaningful and 7.9% for the twelve months ended September 30, 2024 and September 30, 2023, respectively.
For more information of the Utilities’ incremental expenses related to the Maui windstorm and wildfires for the nine months ended September 30, 2024 and 2023, see “Results of operations—Maui windstorm and wildfires related expenses” in HEI’s MD&A.
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of September 30, 2024 amounted to $5.6 billion, of which approximately 20% related to generation PPE, 64% related to transmission and distribution PPE, and 16% related to other PPE. Approximately 6% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission by 2046.
See “Economic conditions” in the “HEI Consolidated” section above.
Executive overview and strategy. The Utilities provide electricity on all the principal islands in the state, other than Kauai, to approximately 95% of the state’s population, and operate five separate grids. The Utilities’ mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a safe, modern, resilient, flexible, and dynamic electric grid that protects Hawaii from impacts of climate change and enables an optimal mix of distributed energy resources, such as private rooftop solar, demand response, and grid-scale resources to enable the creation of smart, sustainable, resilient communities and achieve their decarbonization goals that are aligned with the statutory goal of 100% renewable energy by 2045.
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” in Note 4 of the Condensed Consolidated Financial Statements.
Interim Wildfire Safety Measures. The Utilities first began developing a Wildfire Safety Strategy in 2019 and continue to adapt the plan to address the elevated risks in Hawaii. Since the Maui windstorm and wildfires, the Utilities have developed a set of Interim Wildfire Safety Measures to reduce the risk of wildfires associated with utility infrastructure in service territory areas identified as posing a higher wildfire risk. These interim measures represent actions the Utilities have either already started, or will start in 2024, while simultaneously working to develop a more comprehensive strategy. These actions include wildfire risk analysis, operation procedures and grid design changes, enhanced inspection and vegetation management plans, and system hardening.
One of the interim measures is the Public Safety Power Shutoff (PSPS) program, which calls for the Utilities to preventatively de-energize circuits in areas identified as high fire risk during certain weather conditions. The PSPS program launched on July 1, 2024 and is ready to use, if and when it is needed, and as the last line of defense to protect customers, communities and employees. The initial PSPS protocols and operational procedures represent an early-stage iteration, which will evolve over time as more analytical, forecast, and situational awareness capabilities and wildfire mitigations are deployed. De-energizing circuits in high wildfire risk areas will lead to extended interruptions for many customers, even if not in a high wildfire risk area. The Utilities will continue to work with key stakeholders in balancing the risk of utility-related wildfires with the public consequences of not having electricity.
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. A sustainable energy future is one that focuses on delivering electricity safely, reliably and affordably, strengthening resilience and shifting away from fossil-fueled resources. The Utilities believe that a holistic approach to climate change is needed, working on both climate mitigation efforts along with
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climate adaptation efforts. Climate mitigation 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 outlined their Climate Action Plan 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. Since that time, delays and cancellations in the commercial operation of new renewable third-party generation resources and higher costs as a result of supply chain disruptions and inflationary pressures, as well as federal policies related to solar panel imports have slowed the pace of progress toward reducing GHG emissions. Also, see the “Developments in renewable energy efforts—New renewable PPAs” section below. The downgrade of Hawaiian Electric’s credit ratings after the Maui windstorm and wildfires is anticipated to be an additional impediment to completion of new renewable energy and storage projects. As a result of these challenges, the Utilities expect the planned 70% reduction in carbon emissions to be achieved later than the original 2030 target date. However, the Utilities will continue to replace significant amounts of fossil fuel generation with renewable energy between now and 2030 and expect to meet or exceed the State of Hawaii’s RPS goals.
Hawaiian Electric has also committed to achieving net zero carbon emissions from power generation by 2045 or sooner. While the timing of the Utilities’ carbon reduction goals will be adjusted, key elements of the 2030 plan have already been completed or remain on track to be completed by 2030, including the closure of the state’s last coal-fired IPP plant that occurred in September 2022, increasing rooftop solar by more than 50% over 2021 levels, retiring six fossil fuel generating units, 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 is consistent with state policy and supported by Hawaii State law.
On September 1, 2022, the last coal-fired IPP plant in the state, providing approximately 10% of Oahu’s generation, ceased operations, removing a significant source of GHG emissions from the Utilities’ generation mix. In advance of the retirement of the coal-fired IPP plant, the Utilities developed plans, including contingency plans, to ensure reliable service through the transition period. These plans include the anticipated addition of renewable energy/storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, and multiple demand response/DER programs. For example, in 2024, the first solar-plus storage project on Maui, a 60 megawatt (MW) Stage 1 project which is the largest solar-plus storage project in the State of Hawaii, reached commercial operations on May 31, 2024. Additionally, a 12.5 MW Stage 1 solar-plus storage project on Oahu reached commercial operations on March 28, 2024. The first Stage 2 solar-plus storage project, a 42 MW project on Oahu, reached commercial operations on June 7, 2024.
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 (see also “Integrated Grid Planning”below).
The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals. To date the Utilities have met all of the statutory RPS goals, including exceeding the latest milestone RPS target of 30% for 2020, where it achieved an RPS of 34.5%. In July 2022, former Governor Ige signed Act 240 (H.B.2089), that amended the RPS calculation from renewable energy as a percentage of sales to renewable energy as a percentage of total generation. The amended RPS calculation results in a lower calculated percentage than the amount calculated under the previous methodology. For example, the 2022 RPS achieved under the revised RPS calculation was 31.8% versus 39.1% under the prior method. The change in the definition is effective from July 2022 forward and will require that the Utilities acquire more renewable energy than under the previous RPS calculation to comply with the RPS milestones; however, the Utilities expect to continue to meet the RPS milestones under the amended RPS law. (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 megawatt-hour (MWh) that an electric utility is deficient. Based on the level of total generation in 2023, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $2.1 million. The PUC has the discretion to reduce the penalty due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target had been achieved, which in turn would be expected to subject 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. In 2023, the Utilities achieved a 33.3% RPS earning a
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reward of $444,116 based on $15/MWh in exceedance of 33.0% RPS. In 2024, the Utilities are eligible for a reward of $10/MWh in exceedance of 34.0% RPS.
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 their 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 trended lower over time as privately-owned DER have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms under the 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, including inflationary adjustments, 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” in Note 4 of the Condensed 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 Integrated Grid Planning (IGP) process 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. On March 7, 2024, the PUC accepted the Utilities’ final Integrated Grid Plan. The Integrated Grid Plan proposes actionable steps to decarbonize the electric grid on the State of Hawaii’s timeline, with a flexible framework that can adapt to future technologies. The Integrated Grid Plan is the culmination of more than five years of partnership with stakeholders and community members across the islands. Together, they forecasted future energy needs and identified strategies to meet Hawaii’s growing energy demand with 100% renewable resources.
On June 28, 2024, the Utilities filed their annual update of the Action Plan described in their 2023 final Integrated Grid Plan.
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 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 Battery Bonus on Oahu is officially closed to new applications. As of September 30, 2024, the Utilities have received and approved applications totaling 46.45 MW on Oahu.
On March 30, 2022, the Utilities filed with the PUC to request expanding the EDRP for up to 15 MW on the island of Maui and received PUC approval on May 20, 2022. The EDRP on Maui became effective as of June 1, 2022. Subsequently on June 23, 2022, the PUC approved the cost recovery of the additional incentives for both Oahu and Maui through the Demand Side Management Surcharge. As of September 30, 2024, the Battery Bonus program on Maui has officially closed to new applications, and the Utilities have received and approved the applications totaling approximately 10.6 MW on Maui.
On September 20, 2024, the Utilities notified customers (approximately 1,200) participating in the Home Battery Rewards Program operated by certain third party service provider that the service provider has gone out of business. The Utilities notified the customers that they will halt the monthly grid service operation along with the monthly incentive payment. The Utilities are committed to the customers that an alternate solution is being worked on and will migrate the existing customers to the new pathway as soon as possible.
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Grid modernization. The overall goal of the Grid Modernization Strategy (GMS) is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater DER and renewable energy integration. On March 25, 2019, the PUC approved a plan for the Utilities to implement GMS Phase 1, which is the proportional deployment of advanced metering infrastructure (AMI). On February 28, 2022, the PUC expanded the scope of Phase 1 to the full service territory with a completion date set for the third quarter of 2024. The estimated cost of full deployment (including proportional deployment) is approximately $143 million in capital and deferred software cost and is expected to be incurred over five years. As of September 30, 2024, approximately $129 million of capital and deferred software cost has been incurred to date under Phase 1 and is currently being recovered under the MPIR mechanism until such costs are included in base rates. As of September 30, 2024, the Utilities have completed the formal GMS Phase 1 project and deployed about 448,000 advanced meters, servicing approximately 95% of total customers.
The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of Phase 2 of their GMS implementation. On March 31, 2021, the Utilities filed a supplement and update to the GMS Phase 2 ADMS application to include broad deployment of field devices, which the PUC suspended on November 16, 2021, to focus the Utilities’ attention on completing Phase 1. On April 17, 2023, the Utilities filed a motion with the PUC, requesting the suspended docket to be reopened and to allow the Utilities to file an updated and supplemented application for updated project costs and expansion of the Phase 2 scope to also include Operational Technology Cybersecurity Monitoring. On May 31, 2024, the Utilities filed another updated and supplemented application for updated project costs, as well as the addition of Private Long-Term Evolution expansion and Supervisory Control and Data Acquisition expansion to the prior GMS Phase 2 scope (ADMS, Field Devices, and Operational Technology Cybersecurity Monitoring). The estimated cost for the implementation of GMS Phase 2 over seven years, which includes capital, deferred software costs and O&M costs, is $215 million. The Utilities have requested PUC approval by the end of 2024.
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, totaling 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020. Two phase 1 projects (28.32 kW on Maui and 270 kW on Oahu) have been operational for three years and one Phase 1 project (3,000 kW on Oahu) achieved commercial operations on October 1, 2023. Two additional phase 1 projects achieved commercial operations on April 1, 2024 (Hawaii Island: 750kW and Molokai: 250kW).
The second phase, which commenced on April 9, 2020 and subsequently expanded on July 27, 2021, allows over 250 MW across all Hawaiian Electric service territories in two tranches for small (under 250 kW), mid-tier 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, 23 MW of capacity for dedicated-LMI projects were awarded on November 15, 2022 through three island specific RFPs for Oahu, Maui and Hawaii Island. LMI projects do not have a size cap nor do they decrease the 250 MW capacity available to other projects. Three projects have since been withdrawn by the selected CBRE developers and the remaining 14 MW of dedicated-LMI projects are expected to become operational in 2026.
The Utilities issued the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022. The RFPs closed on August 17, 2022, and proposals were evaluated. Tranche 1 projects, which are greater than or equal to 250 kW, were awarded on February 22, 2023. Two projects on Hawaii Island were subsequently withdrawn by the developer on October 18, 2023. Two additional Hawaii Island projects were disqualified on May 13, 2024. On June 14, 2024, a project on Oahu was withdrawn by the developer. There are no remaining Tranche 1 projects in development.
For Lanai, the Utilities combined the previously issued Variable Renewable Dispatchable Generation Paired with Energy Storage RFP and the CBRE RFP to optimize the benefits of procuring renewable energy, spur development and increase 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.
One CBRE proposal for Lanai was selected but negotiations were terminated on June 15, 2022. With the concurrence of the independent observer, a replacement proposal was selected on July 1, 2022. On July 25, 2022, the Utilities announced the selection of a new developer for the Lanai CBRE RFP. On September 21, 2022, the Utilities were informed by Pulama Lanai of a project being planned on Lanai to remove the two large resorts from the grid, which represent approximately 40% of the load of the island and raises great uncertainty around the future energy needs for Lanai. On September 28, 2022, the Utilities notified the PUC that ongoing negotiations for the Lanai CBRE project would continue, but the Utilities did not execute a PPA at this time given the uncertainty due to the Pulama Lanai notification. Unfortunately, due to the lapse in time from selection, the parties were unable to reach an agreement on a PPA and on October 23, 2024, the developer submitted a withdrawal letter to
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the Utilities. The Utilities are considering options for procuring renewable energy on Lanai. On Molokai, proposals were only received from a single community co-op group. After evaluation of these proposals and with concurrence of the independent observer, the Utilities filed a letter on September 9, 2022, proposing to close the Molokai CBRE RFP and to work with the lone bidder to improve certain aspects of their two proposed projects outside of the RFP process for the benefit of the residents of Molokai. After successful negotiations, two contracts for solar plus storage facilities were executed and on September 29, 2023, the Utilities filed two applications with the PUC requesting approval of the contracts. On January 8, 2024, the PUC approved the two contracts.
The Utilities CBRE Phase 2 Rule 29 became effective on March 10, 2022. The Utilities are currently accepting project applications for small CBRE projects less than 250 kW in size. The PUC reserved 45 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. The Utilities have developed a CBRE Portal where Subscriber Organizations can apply for small project capacity and manage subscribers for all CBRE projects in the program. Customers can also use the CBRE Portal to solicit subscription quotes, compare, and subscribe to a project once the Subscriber Organization has added their project to the portal.
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 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.
On April 1, 2022, the PUC established its Prioritized Issues for Resolution for Phase 2 of the Microgrid proceeding, which includes the following: 1) Microgrid Compensation and Grid Services; 2) Utility Compensation; 3) Customer Protection and Related Considerations; 4) Interconnection; and 5) Working Group coordination with related microgrid and resilience Initiatives at Hawaiian Electric and government agencies. Furthermore, the PUC established a procedural schedule to consist of quarterly status conference meetings with the PUC, a Phase 2 Working Group Report, draft of a revised Microgrid Service Tariff, Party comments to the proposed Microgrid Service Tariff, followed by a PUC D&O.
On June 30, 2022, the PUC provided further guidance to the Working Group to prioritize discussion of the microgrid types in the following order: 1) Hybrid Microgrid - Third Party Developer using Utility lines/infrastructure; 2) Hybrid Microgrid - Utility Project with Partners; and 3) Customer Microgrid. Additionally, the PUC instructed the Working Group to discuss microgrid compensation and continue the involvement of microgrid developers in working group meetings.
The Working Group met from April 2022 through October 2022 to discuss the PUC’s objectives and respond to the Phase 2 priority issues. On October 31, 2022, the PUC issued a guidance letter and advised that the Working Group propose a new timeline for the Report. The Utilities and the Consumer Advocate filed a joint letter with a revised timeline on November 10, 2022. On November 21, 2022, the PUC issued an order to suspend the Phase 2 procedural schedule while it reviews the joint letter.
Decoupling. See “Decoupling” in Note 4 of the Condensed 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 2022 and 2021 did not trigger the earnings sharing mechanism for the Utilities.
On August 31, 2023, the PUC issued an order temporarily suspending the ESM until further notice. The intent of the order is to address the unintended consequence of customers potentially bearing the costs associated with the Maui windstorm and
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wildfires through the operation of the ESM without prior PUC review. In accordance with the order, the earnings sharing adjustment for 2023 is zero until the PUC lifts the suspension.
Actual and PUC-allowed returns, as of September 30, 2024, were as follows:
%
Rate-making Return on rate base (RORB)*
ROACE**
Rate-making ROACE***
Twelve months ended
September 30, 2024
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Utility returns
NM
NM
NM
NM
NM
NM
NM
NM
NM
PUC-allowed returns
7.37
7.52
7.43
9.50
9.50
9.50
9.50
9.50
9.50
* 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.
NM - Not meaningful.
The Utility’s actual and allowed rates of return are not meaningful due to the accrual of estimated wildfire liabilities of approximately $1.92 billion (see Note 2 of the Condensed Consolidated Financial Statements).
The gap between PUC-allowed ROACEs and the ROACEs achieved is generally due to the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), and depreciation, O&M expense and return on rate base that are in excess of what is currently being recovered through rates (the last rate case plus authorized RAM adjustments and ARA revenues).
Regulatory proceedings. On December 23, 2020, the PBR D&O was issued, establishing the 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 4 of the Condensed Consolidated Financial Statements.
Developments in renewable energy efforts.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 projects 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 as a result of supply chain disruptions caused by impacts from the COVID-19 pandemic, solar product detentions at U.S. ports of entry ordered by the U.S. Customs 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. These impacts have resulted in five Stage 2 projects declared null and void by the independent power producers and one Stage 1 project and one Stage 2 project mutually terminating their PPAs with the Utilities. The Utilities have negotiated amendments with several project developers regarding requests to increase previously approved prices and extend guaranteed commercial operations dates for those projects in order to ensure their viability given the impact of these recent market conditions. All of these amendments have been approved. 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. Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 4 of the Condensed Consolidated Financial Statements and the following:
New renewable PPAs.
•On December 31, 2019, Hawaii Electric Light and Puna Geothermal Ventures entered into an Amended and Restated Power Purchase Agreement (PGV ARPPA). The PGV 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 16, 2022, the PUC issued a D&O, approving the PGV ARPPA, subject to conditions, that include requiring completion of a final environmental review prior to construction. On March 28, 2022, Puna Pono Alliance filed a Motion for Reconsideration seeking reconsideration, modification and/or vacation of the D&O. On June 6, the PUC denied Puna Pono’s Motion for Reconsideration. PGV notified the Utilities that changes in market conditions that transpired since the terms of the PGV ARPPA were negotiated impacted the financial viability of the Project, and that an amendment to the PGV ARPPA was necessary to mitigate the impacts. On March 27, 2023, the Utilities and PGV executed the First Amendment to the PGV ARPPA which increases the capacity payment and extends the GCOD. An application requesting approval of the First Amendment to the PGV ARPPA was filed on April 4, 2023. On June 13, 2023, PGV notified the Utilities of concerns of its ability to
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timely deliver on the terms of the ARPPA. PGV has been working to re-establish its capacity generation and has continued drilling and plans to drill additional wells, however, this process has taken longer than anticipated and PGV has become increasingly concerned about timely achieving the Contract Firm Capacity of 46 MW. In light of receiving this information and to allow the Utilities and PGV to determine the best path forward, on July 6, 2023 the Utilities asked the PUC to put the procedural schedule on hold for approval of the First Amendment to the PGV ARPPA. In order to address PGV’s concerns, the parties executed a Second Amendment to the PGV ARPPA, which among other things lowered the capacity needed to reach commercial operations and preserves the full contract capacity, effectuating a partial commissioning. On October 2, 2023 the Utilities filed a letter requesting the docket be reopened and seeking approval of the First and Second Amendments to the PGV ARPPA by the end of 2023. On December 29, 2023, the PUC issued a D&O conditionally approving the First and Second Amendments to the PGV ARPPA. As directed, on January 12, 2024, the Utilities filed a supplemental brief explaining their request for cost recovery. On September 30, 2024, the PUC approved the Utilities’ request for cost recovery.
•Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued Stage 1 Renewable 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. To date, the Utilities filed seven requests with the PUC for approval of amendments related to previously-approved PPAs for changes in pricing and/or guaranteed commercial operations dates to support completion of the projects while maintaining system reliability. The PUC has approved all seven amendments. AES West Oahu Solar project on Oahu and AES Kuihelani Solar project on Maui reached commercial operations on March 28, 2024 and May 31, 2024, respectively. See also “Purchase commitments” in Note 4 of the Condensed Consolidated Financial Statements. To date, five projects reached commercial operations.
A summary of the remaining seven 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
4
139.5
139.5/558
7/31/22, 1/11/23, 3/28/24 & 10/31/24*
20 & 25
$
34.0
Hawaii Electric Light
2
60
60/240
4/21/23 & 10/11/24*
25
19.2
Maui Electric
1
60
60/240
5/31/24
25
13.2
Total
7
259.5
259.5/1038
$
66.4
* Project delays have resulted in Guaranteed Commercial Operations Date being missed.
The Utilities have received PUC approvals to recover the total projected annual payment of $66.4 million for the seven 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. To date, the Utilities had filed 11 PPAs. Of the 11 filed PPAs, six PPAs were declared null and void by the independent power producers and one PPA was mutually terminated. The four remaining projects have received PUC approval. To date, the Utilities filed three requests with the PUC for approval of amendments related to previously-approved PPAs for changes in pricing and/or guaranteed commercial operations dates to support completion of the projects while maintaining system reliability. The PUC has approved all three amendments. The Kupono Solar project on Oahu reached commercial operations on June 7, 2024. See also “Purchase commitments” in Note 4 of the Condensed Consolidated Financial Statements. To date, two projects reached commercial operations. Additionally, two GSPAs and two applications for commitments of funds for capital expenditures for approval of the utility self-build projects were filed with the PUC. The two GSPAs were approved by the PUC in December 2020. As of September 30, 2024, the GSPA contracts have not yet achieved the contractual target. One of the aggregators has had financial difficulties where continuing the GSPA contract is now difficult. The Utilities are working towards planning and implementing an alternative solution for the two GSPA contracts.
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A summary of the remaining four approved Stage 2 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
3
79
79
/
443
5/17/24*, 6/7/24 & 9/1/24*
20 & 25
$
31.4
Hawaiian Electric
1
N/A
185
/
565
12/19/23
20
24.0
Total
4
79
264
/
1,008
$
55.4
* Project delays have resulted in Guaranteed Commercial Operations Date being missed.
The total projected annual payment of $55.4 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates.
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
—
26.7
14.5
19.4
Hawaii Electric Light
6.0
—
3.2
4.0
Maui Electric
6.1
—
1.9
4.7
Total
12.1
26.7
19.6
28.1
A summary of the utility self-build projects is as follows:
Utilities
Number of contracts
BESS Size (MW/MWh)
Guaranteed commercial operation dates
Hawaii Electric Light
1
*
12/12
12/30/22
Maui Electric
1
40/160
11/30/26
Total
2
52/172
* The utility Self-Build project was denied by the PUC on May 25, 2022 and the Utilities filed a motion for reconsideration with the PUC. On January 26, 2024, the PUC granted the Utilities’ November 15, 2023 request to suspend the docket to focus on identified priorities. The Utilities provided the PUC with an updated assessment of the project on April 30, 2024 and requested to withdraw the application because the need that was to be served by the project can now be met by Stage 3 RFP resources. On July 8, 2024, the Utilities received approval from the PUC to withdraw the project.
Tariffed renewable resources.
•As of September 30, 2024, there were approximately 639 MW, 145 MW and 152 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of September 30, 2024, an estimated 43% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 24% of the Utilities’ total customers have solar systems.
•The Utilities began accepting energy from feed-in tariff projects in 2011. As of September 30, 2024, there were 44 MW, 2 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.
•On August 23, 2024, the Utilities issued an RFP for biodiesel fuel supply commencing February 1, 2026. Proposals were due on September 30, 2024 and are currently being reviewed.
•On June 30, 2021, the Utilities issued an RFP for all fuels, including biodiesel, for supply commencing January 1, 2023. The Utilities and Pacific Biodiesel Technologies, LLC (PBT) signed an agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, which was approved by the PUC on December 1, 2022. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or
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below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was extended through June 2025.
•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 2025, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
•On November 22, 2021, CBRE RFPs for Molokai and Lanai were opened. The RFP for Lanai sought a single PV paired with storage project, which included a 3 MW portion, reserved for CBRE. The Lanai RFP closed on February 14, 2022 and the Molokai RFP closed on March 1, 2022. A project was selected in the Lanai RFP, but negotiations were terminated. On July 1, 2022, a replacement project was selected and negotiations commenced. The RFP for Molokai sought 2.75 MW of new PV paired with storage projects for CBRE generation. No projects were selected in the Molokai RFP. However, with the concurrence of the independent observer, the Utilities worked with the lone bidder outside of the RFP process and filed two PPAs with a total of 2.45 MW of PV paired with 11.1 MWh of battery energy storage on September 29, 2023.The PUC approved both PPAs on January 8, 2024. See “Transition to a decarbonized and sustainable energy future—Community-based renewable energy” for additional information.
•On March 17, 2022, the CBRE LMI RFPs for Oahu, Maui and Hawaii Island were opened and proposals were received. In November 2022, seven projects were selected consisting of one standalone PV project on Oahu, three paired PV with storage projects on Maui, and three paired PV with storage projects on Hawaii Island. One project on Maui was subsequently withdrawn by the developer on April 11, 2024. The Utilities opened the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii Island on April 14, 2022. In March 2023, five projects were selected consisting of one paired PV with storage project on Oahu and four standalone PV projects on Hawaii Island. Two projects on Hawaii Island were subsequently withdrawn by the developer on October 18, 2023 and an additional project on Oahu was subsequently withdrawn by the developer on June 14, 2024. Two projects on Hawaii Island were disqualified on May 13, 2024. See “Transition to a decarbonized and sustainable energy future—Community-based renewable energy” for additional information.
•The Hawaii Island Stage 3 RFP, seeking 325 gigawatt-hours (GWh) per year of energy and 65 MW of renewable firm capacity, was issued on November 21, 2022. Proposals were received on April 20, 2023. The Stage 3 RFPs for Oahu and Maui opened for bids on January 20, 2023. For Oahu, the Utilities sought 500 to 700 MW of renewable firm capacity, and at least 965 GWh of renewable dispatchable energy annually. For Maui, the Utilities sought at least 40 MW of renewable firm capacity, and at least 425 GWh of renewable dispatchable energy annually. For the Oahu and Hawaii Island RFPs, as well as for the variable generation portion of the Maui RFP. Proposals for the firm generation portion of the Maui Stage 3 RFP were received on August 17, 2023, and Priority List selections were announced on October 9, 2023. 15 proposals were selected to the Final Award Group on December 8, 2023. Seven projects were selected on Oahu (three solar plus storage and four firm renewable) totaling 413 GWh of variable generation, 594 MW of firm generation, and 990 MWh of storage; four projects were selected on Maui (three solar plus storage and one wind) totaling 324 GWh of variable generation, and 320 MWh of storage; and four projects were selected on Hawaii Island (three solar plus storage and one firm renewable) totaling 512 GWh of variable generation, 60 MW of firm generation, and 834 MWh of storage. One project totaling 40 MW of firm renewable generation was selected to the Maui Firm Final Award Group on February 2, 2024. On May 24, 2024, a 20 MW / 80 MWh solar-plus storage project on Maui was withdrawn by the developer. On October 7, 2024, an 80 MW / 320 MWh solar-plus storage project on Oahu and two solar-plus storage projects on Hawaii Island totaling 115 MW / 460 MWh were withdrawn by the developer. Negotiations for the remaining projects are ongoing.
•On August 19, 2024, the PUC opened a docket for the Utilities’ Integrated Grid Planning RFP (IGP RFP). On August 26, 2024, the Utilities filed their draft IGP RFP for Oahu and Hawaii Island. The Oahu portion of the IGP RFP seeks 589 GWh per year of energy and 270 MW of grid forming resources by December 2029, and 50 MW of renewable firm capacity by December 2032. The Hawaii Island portion of the IGP RFP seeks 134 GWh per year of energy by December 2029 and 60 MW of renewable firm capacity by December 2031.
Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see “Environmental regulation” in Note 4 of the Condensed Consolidated Financial Statements.
Fuel contracts. 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 Refining, LLC (PAR Hawaii) entered into a fuel supply contract (Supply Agreement) commencing January 1, 2023. On December 1, 2022, the PUC issued a decision and order (D&O) approving the PAR Hawaii fuels contract and recovery of associated costs through ECRC. On August 14, 2024, the Utilities entered into a
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second amendment of the Supply Agreement. The second amendment extends the term of the Supply Agreement by additional three years and create savings in fuel costs. The second amendment must be approved by the PUC to become effective. On August 23, 2024, the Utilities issued an RFP for biodiesel fuel supply commencing February 1, 2026. Proposals were due on September 30, 2024 and are currently being reviewed.
On March 3, 2022, as part of economic sanctions amid the Russia-Ukraine war, PAR Hawaii announced that it was suspending all purchases of Russian crude oil, which accounts for at least 25% of Hawaii’s supply. The Utilities are taking additional measure to ensure adequate supply of fuel by entering into a backup fuel supply contract with Vitol Inc. (Vitol) commencing on December 1, 2022 through June 30, 2025 with annual extensions if mutually agreed by both parties. The PUC issued the final D&O approving the Vitol backup fuels supply contract on December 1, 2022 and the costs incurred under the contract with Vitol are recovered in the Utilities’ respective ECRCs.
FINANCIAL CONDITION
Liquidity and capital resources.
As of September 30, 2024, the Utilities accrued estimated wildfire liabilities of approximately $1.92 billion (pre-tax) related to the settlement of the Maui windstorm and wildfire tort-related legal claims (see Note 2 of the Condensed Consolidated Financial Statements). For the three and nine months ended September 30, 2024, the Utilities incurred net losses of approximately $83 million and $1.27 billion, respectively.
When preparing financial statements for each annual and interim reporting period, management has the responsibility to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern within one year after the date that the financial statements are issued. In making their evaluation, the Utilities consider, among other things, risks and/or uncertainties related to their results of operations, contractual obligations, including near-term debt maturities, dividend requirements, debt covenant compliance, or other factors impacting the Utilities’ liquidity and capital resources.
The Company previously concluded that as of June 30, 2024, conditions existed that raised substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern, and that while HEI and the Utilities were working with their financial advisors on a financing plan to raise the capital necessary to mitigate those conditions, there was no assurance that management’s plans would be successful. As a result, HEI and the Utilities disclosed in the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ending June 30, 2024 there was substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern.
As a discussed in Note 2 of the Condensed Consolidated Financial Statements, in the third quarter of 2024, after working with its financial advisors on various financing plans, the Company determined it would pay the proposed settlement in four equal annual installments. The Utilities revised their total settlement accrual to $1.92 billion, classifying the first $479 million installment as a current liability based on expected timing of the payment and the remaining $1.44 billion as a non-current liability on the Utilities’ Condensed Consolidated Balance Sheet as of September 30, 2024. To finance the first installment payment, in September 2024, HEI completed the sale of 62.2 million shares of common stock in a registered offering, raising net proceeds of approximately $557.7 million. In addition, HEI filed with the SEC an at-the-market (ATM) offering program under which HEI may offer and sell, from time to time at its sole discretion, its common stock, without par value, having an aggregate offering price of up to $250 million. To date, HEI has not sold any common stock under this program.
Management believes that HEI’s and the Utilities’ current cash balances, excluding ASB, as of September 30, 2024, amounting to $677.7 million and $147.6 million, respectively, the available capacity on Hawaiian Electric’s ABL facility (see Note 6 of the Condensed Consolidated Financial Statements), the additional liquidity from HEI’s recently registered ATM program, and expenditure reduction efforts, provide sufficient liquidity to alleviate the conditions that caused the substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern. As discussed in Note 2 of the Condensed Consolidated Financial Statements, HEI has agreed to transfer the amount of the first payment, $479 million, into a new subsidiary, which is restricted from disbursing such funds except in connection with the initial payments to the settlement funds. HEI expects to make this initial payment in late 2025 and HEI and the Utilities have sufficient resources to fund their operations and satisfy their other obligations for the next 12 months following the issuances of their financial statements. The plans that have been implemented have mitigated the conditions that previously caused the substantial doubt about HEI and the Utilities’ ability to continue as a going concern as of the date of filing their 2024 second quarter financial statements.
HEI’s and the Utilities’ future results of operations involve significant risks and uncertainties. Factors that could affect HEI’s and the Utilities’ future operating results and could cause actual results to vary materially from expectations include, but are not limited to, access to capital, ability to attract and retain key personnel, and pending or threatened litigation (including recent litigation noted above).
95
The Utilities’ future results of operations involve significant risks and uncertainties. Factors that could affect the Utilities’ future operating results and could cause actual results to vary materially from expectations include, but are not limited to, access to capital, ability to attract and retain key personnel, and pending or threatened litigation (including recent litigation noted above).
As of September 30, 2024, Hawaiian Electric had no commercial paper outstanding, $200 million outstanding on its revolving credit facility and no remaining available borrowing capacity under the Utilities’ committed line of credit. The cash proceeds were invested in highly liquid short-term investments, and as of September 30, 2024, the Utilities’ cash and cash equivalents balance was $147.6 million, compared to $106.1 million as of December 31, 2023.
Additionally, at September 30, 2024, Hawaii Electric had no borrowing from HEI with remaining available borrowing capacity of $75 million, pursuant to a standing commitment letter from HEI. See Note 6 of the Condensed Consolidated Financial Statements for additional information. At September 30, 2024, Hawaii Electric Light and Maui Electric had short-term borrowings from Hawaiian Electric of nil and $46.2 million, respectively, which intercompany borrowings are eliminated in consolidation.
Hawaiian Electric’s objective continues to be to operate a strong, financially healthy enterprise to empower a thriving future for Hawaii. While the fundamentals of their business remain strong, the Utilities took prudent and measured actions to strengthen their financial position while continuing to provide reliable service to their customers and reinforcing their commitment to serving the community for the long term. In August 2023, Hawaiian Electric fully drew down $200 million on its existing revolving credit facilities. The cash proceeds were primarily invested in highly liquid short-term investments and used for general corporate purposes. Longer term, the Utilities are evaluating other sources of liquidity that could include securitization, re-prioritizing capital spending and reducing O&M, issuing secured debt, and conducting asset sales, among others.
Accounts receivable balances remain elevated coming out of the pandemic and has led to higher bad debt expense and higher write-offs in 2023 and year-to-date 2024, following the end of the moratorium on disconnections. The higher bad debt expense is expected to continue until the Utilities return to pre-pandemic accounts receivable balances, along with a decrease in volume, for delinquent accounts. The Maui windstorm and wildfires have not and are not anticipated to materially impact accounts receivable, however, it has and will continue to lead to higher bad debt expense. As of September 30, 2024, approximately $16.3 million of the Utilities’ accounts receivables were over 30 days past due, which is a decrease of approximately 26% since December 2023. 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.
With the exception of Maui, the Utilities are continuing the disconnection process on a tiered basis, expanding the targeted balances, which is expected to reduce delinquent accounts receivable balances and accelerate cash collections. Service disconnections on Maui have been suspended through December 7, 2024, in accordance with the extension of Governor Josh Green’s emergency proclamation; however, efforts are ongoing to educate and inform customers impacted by the Maui windstorm and wildfires on the availability of financial assistance to manage delinquencies accordingly. See also “Regulatory assets and liabilities” in Note 4 of the Condensed Consolidated Financial Statements.
The rebuilding of Lahaina will be a community-led effort and will occur over an extended period of time. The cost of rebuilding the electric utility infrastructure is not yet known, but could be significant because the infrastructure that may be required is expected to be different than what previously existed. For example, to mitigate wildfire risk, grid hardening strategies, such as undergrounding of lines in high-risk locations will be significantly more expensive than using overhead lines and will thus result in increased costs.
Hawaiian Electric’s consolidated capital structure was as follows:
(dollars in millions)
September 30, 2024
December 31, 2023
Long-term debt, net
$
1,935
63
%
$
1,934
44
%
Preferred stock
34
1
34
1
Common stock equity
1,110
36
2,409
55
$
3,079
100
%
$
4,377
100
%
As of September 30, 2024, the Utilities are in compliance with all applicable financial covenants. For the nine months ended September 30, 2024, the Utilities accrued liabilities related to wildfire tort-related claims totaling $1.92 billion. As a result, as of September 30, 2024, the amount of additional debt that the Utilities could incur will be temporarily limited to approximately $90 million due to certain financial covenants. The amount of additional debt that could be incurred by the Utilities will increase over time as earnings are generated or when HEI contributes equity related to the settlement payments or for capital expenditures. The Utilities believe that with the cash on hand, availability on the ABL facility, and potential equity
96
contributions from HEI, they have sufficient financial flexibility to continue to be in compliance with all the financial covenants in the next 12 months. However, the Utilities cannot predict the future effects on the Utilities’ ability to access additional capital or the future impacts on the Utilities’ financial position, results of operations, and cash flows.
Prior to the Maui windstorm and wildfires, Hawaiian Electric utilized short-term debt, typically commercial paper, to support normal operations, to refinance short-term debt and for other temporary requirements. Hawaiian Electric may also borrow 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 also historically utilized 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 downgrades of Hawaiian Electric’s credit ratings will continue to adversely impact the Utilities’ ability to access capital markets and other sources of debt and equity financing, if at all, in a timely manner and on acceptable terms.
Credit ratings. On August 26, 2024, S&P revised Hawaiian Electric’s outlook to “Watch Negative” from “Negative” and affirmed the “B-” issuer credit rating. On October 25, 2024, Fitch revised Hawaiian Electric’s outlook to “Stable” from “Watch Negative” and affirmed the “B” issuer credit rating.
See “Credit and Capital Market Risk” in Item 1A. Risk Factors in HEI’s and Hawaiian Electric’s 2023 Form 10-K. The downgrades of Hawaiian Electric’s credit ratings will continue to adversely impact the Utilities’ ability to access capital markets and other sources of debt financing, if at all, in a timely manner and on acceptable terms. In addition, the downgrades of Hawaiian Electric’s credit ratings triggered certain cash or payment requirements with the Utilities’ vendors. However, the Utilities believe additional vendor collateral or payment requirements will not have a material impact on the Utilities’ liquidity.
Asset-based lending facility credit agreement. On May 17, 2024, Hawaiian Electric, through a special-purpose subsidiary, entered into an asset-based lending facility (ABL Facility) credit agreement (ABL Credit Facility Agreement) with several banks, which, subject to the limitations and conditions set forth in such agreement, including approval by the PUC, allows borrowings of up to $250 million on a revolving basis using certain accounts receivable as collateral. Hawaiian Electric filed an application with the PUC for approval to (i) sell accounts receivable, and (ii) establish a long-term credit facility. The first approval would allow the ABL Credit Facility Agreement to become effective for 364 days and the second approval would extend the term of the ABL Credit Facility Agreement from 364 days to three years. The ABL Credit Facility Agreement has an initial term of 364 days, with an automatic extension to three years upon receipt of the second PUC approval, with three separate options to extend one additional year, subject to the consent of the lenders. Hawaiian Electric received the first and second approvals from the PUC for the ABL Credit Facility Agreement that allows short-term and long-term borrowings of up to $250 million on June 27, 2024 and October 11, 2024, respectively, subject to the availability of a sufficient borrowing base of eligible receivables. The ABL Facility became effective on July 24, 2024. The ABL Facility remains undrawn as of September 30, 2024; however, the amount that could be drawn is temporarily limited due to the accrual of the wildfire tort-related claims, which reduces the amount of additional debt that could be incurred before exceeding certain financial covenants. The amount that could be drawn as of September 30, 2024 was approximately $90 million and will increase over time as earnings are generated and when HEI contributes equity related to the settlement payments or for capital expenditures.
Credit agreement. On August 23, 2023, Hawaiian Electric fully drew down $200 million on its existing revolving credit facilities. The cash proceeds were invested in highly liquid short-term investments and will be used for general corporate purposes. The $200 million line of credit facility remained fully drawn as of September 30, 2024. See Note 6 of the Condensed Consolidated Financial Statements for additional information.
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 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). The Utilities did not issue SPRBs under the 2019 Legislative Authorization which lapsed on June 30, 2024.
Taxable debt. On December 20, 2022, the Utilities received PUC approval to issue, over a four-year period from January 1, 2023 to December 31, 2026, unsecured obligations bearing taxable interest (Hawaiian Electric up to $230 million, Hawaii Electric Light up to $65 million and Maui Electric up to $105 million), 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
97
expenditures. Pursuant to the approval, on January 10, 2023, the Utilities executed through a private placement, $150 million in unsecured senior notes (2023 Notes). The 2023 Notes had a delayed draw feature and the Utilities drew down all the proceeds on February 9, 2023. See summary table below for remaining authorized amounts as of September 30, 2024 for each respective utility.
(in millions)
Hawaiian Electric
Hawaii Electric Light
Maui Electric
Total “up to” amounts of taxable debt authorized from 2023 through 2026
$
230
$
65
$
105
Less: taxable debt executed on January 10, 2023, but issued on February 9, 2023
100
25
25
Remaining authorized amounts
$
130
$
40
$
80
As of September 30, 2024, the Utilities have $1.9 billion of long-term debt, net, of which $47.0 million and $145.3 million are due within 12 and 24 months, respectively.
Equity. On December 20, 2022, the Utilities received PUC approval to issue and sell each utility’s common stock over a four-year period from January 1, 2023 through December 31, 2026 (Hawaiian Electric’s sale/s to HEI of up to $75 million, Hawaii Electric Light sale/s to Hawaiian Electric of up to $25 million, and Maui Electric sale/s to Hawaiian Electric of up to $55 million) and the purchase of Hawaii Electric Light and Maui Electric common stock by Hawaiian Electric from 2023 through December 31, 2026. As of September 30, 2024, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $75 million, $25 million, and nil, respectively, of unused common stock authorization.
Cash flows. The following table reflects the changes in cash flows for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:
Nine months ended September 30
(in thousands)
2024
2023
Change
Net cash provided by operating activities
$
322,648
$
406,111
$
(83,463)
Net cash used in investing activities
(241,603)
(329,281)
87,678
Net cash provided by (used in) financing activities
(39,498)
160,782
(200,280)
Net cash provided by operating activities. The decrease in net cash provided by operating activities was primarily driven by higher vendor payments, higher income taxes paid, partially offset by higher insurance proceeds received in 2024.
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 used in financing activities. The decrease in net cash used in financing activities was driven by lower net cash from long-term and short-term borrowings due to fully drawing on the $200 million revolving credit facilities in August 2023.
For a discussion of 2023 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 2023 Form 10-K.
Material cash requirements. Material cash requirements of the Utilities include payments related to settlement of tort-related legal claims and cross claims, legal and consulting costs related to the Maui windstorm and wildfires (see further information in Note 2 of the Condensed Consolidated Financial Statements), O&M expenses, labor and benefit costs, fuel and purchase power costs, debt and interest payments, operating and finance lease obligations, their forecasted capital expenditures (including capital expenditures related to wildfires and wildfire mitigations) and investments, their 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 and finance 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 operating cash flows, 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’ credit rating downgrades related to the Maui windstorm and wildfires will continue to adversely impact their ability to access capital markets and other sources of debt and equity financing, if at all, in a timely manner and on acceptable terms. Through the sale of common stock in September 2024, the Company has raised sufficient cash to pay the first installment of the settlement of wildfire tort claims expected to be made in late 2025. The Company is currently working with its financial advisors on a financing plan to raise the additional capital required to fund their remaining wildfire tort claims. While management believes that the Company will be able to raise the necessary capital, there is no assurance that management’s plans will be successful. The potential damages and losses related to the Maui windstorm and wildfires and related lawsuits (see
98
further information in Note 2 of the Condensed Consolidated Financial Statements), the economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy, and geopolitical situations, create significant uncertainty, and the Utilities cannot predict the extent or duration of these conditions, the future effects that these conditions will have on the Utilities’ financing plan, cost of capital and their ability to access additional capital, or the future impacts on the Utilities’ financial position, results of operations, and cash flows.
99
Bank
Recent Developments. See also “Recent developments” in HEI’s MD&A.
In June 2024, ASB recorded a pretax goodwill impairment charge of $82.2 million after determining it was more-likely-than-not that the fair value of ASB was less than its carrying value. The impairment charge was non-cash in nature and did not affect the Company’s current liquidity, cash flows or any debt covenants under the Company’s existing credit agreements. See “Goodwill” in Note 5 of the Condensed Consolidated Financial Statements for additional discussion.
In August 2023, ASB was impacted by wildfires on Maui which caused widespread property damage and fatalities. ASB’s outstanding credit exposure in Maui and the fire impacted zone of Lahaina as of September 30, 2024 was 12.3% and 0.6%, respectively, of the Bank’s total loan portfolio.
For the quarter ended September 30, 2024, ASB incurred additional expenses as a result of the Maui wildfires of $0.9 million, pretax, primarily consisting of professional services, partially offset by negative provision for credit losses of $0.2 million.
The Hawaii economy remained stable in the third quarter of 2024 with average daily passenger counts 3.9% higher than the comparable period in the prior year. The recovery in total passenger counts from the low levels in 2020 is largely due to domestic travelers. International visitors (excluding Japan) have gradually increased although still below pre-pandemic levels. The weak yen continues to be a key contributing factor to the low Japan visitor counts as compared to other international visitors. Hawaii’s seasonally adjusted unemployment rate of 2.9% in September 2024 was slightly lower compared to the September 2023 rate of 3.0%. Despite higher interest rates, Hawaii’s real estate market, as indicated by Oahu’s residential real estate market, has remained relatively stable. Single-family home sales grew 5.8% through September 2024 compared to the same period in 2023, while condo sales declined 5.6%.
At its September 18, 2024 meeting, the Federal Open Market Committee decided to lower the federal funds rate target range by 1/2 percentage point to 4.75% - 5.0% reflecting its confidence that inflation is moving sustainably toward 2 percent. The interest rate environment has impacted ASB’s net interest margin as higher yields on earning assets were offset by an increase in yields on deposits and other borrowings. The higher interest rate environment has also reduced mortgage refinance and purchase activity, negatively impacting mortgage banking income. Additionally, the tight labor market and inflationary pressures have increased compensation and benefit expenses.
ASB’s loan portfolio decreased $146 million in 2024 as compared to the end of 2023 primarily due to payoffs and sale of commercial loans as well as reduced demand for home equity line of credit and consumer loan products.
For the quarter ended September 30, 2024, ASB recorded a provision for credit losses of $0.2 million primarily based on strong credit quality of the loan portfolio, the healthy Hawaii economy, lower loan portfolio balances and the release of $0.2 million of credit loss reserves for loans that were impacted by Maui wildfires. The provision for credit losses in future quarters will be dependent on future economic conditions and changes to borrower credit quality at that time.
At September 30, 2024, the investment securities portfolio balance decreased approximately $94 million from year end 2023 due to repayments and no purchases of investment securities in 2024.
At September 30, 2024, ASB’s regulatory capital ratios were above the “well-capitalized” and regulatory requirements, including the conservation buffers. Approximately 83% of the Bank’s deposits are FDIC insured or fully collateralized. ASB has access to approximately $3.1 billion in funding sources to meet its liquidity needs.
ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.
100
Three months ended September 30
Increase
(in millions)
2024
2023
(decrease)
Primary reason(s)
Interest and dividend income
$
88
$
86
$
2
Average loan portfolio yields were 26 basis points higher—yield benefited from the rising interest rate environment as adjustable rate yields repriced upward.
Average loan portfolio balances decreased $137 million—commercial, home equity line of credit and consumer loan portfolio average balances decreased $105 million, $68 million and $43 million, respectively, due to payoffs and decreased demand for these loan products. Residential and commercial real estate loan average balances increased $46 million and $32 million, respectively.
Average investment securities portfolio balances decreased $372 million—investment security portfolio repayments were used to pay down maturing higher costing liabilities. Average investment securities portfolio yields were 2 basis points lower.
Average other investments increased $89 million—increase due to higher interest-earning deposits being held.
Noninterest income
17
15
2
Higher fee income from other financial products - higher revenues from Investment Services.
Higher bank-owned life insurance income - higher returns from insurance policies.
Revenues
105
101
4
The increase in revenues for the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to higher interest and dividend income and higher noninterest income.
Interest expense
25
23
2
Increase in interest expense due to an increase in interest expense on deposits offset by a decrease in interest expense on other borrowings due to the increase in the interest rate environment and a shift in costing liability mix.
Average core deposit balances decreased $366 million; average term certificate balances increased $150 million.
Average deposit yields increased from 70 basis points to 95 basis points due to a shift in mix of deposits and higher yields from the increase in the interest rate environment.
Average other borrowings decreased $249 million and average yields increased 40 basis points.
Average cost of funds increased from 102 basis points to 118 basis points due to a shift in funding from low cost core deposits to higher costing term certificates and other borrowings.
Provision for credit losses
—
9
(9)
No provision for credit losses for the three months ended September 30, 2024 reflects strong credit quality, the healthy Hawaii economy, lower loan portfolio balances as well as the reversal of $0.2 million credit loss reserves for loans impacted by the Maui wildfires.
Delinquency rates have increased—from 0.24% at September 30, 2023 to 0.47% at September 30, 2024 primarily due to Maui-related loan accommodations and one commercial real estate loan in foreclosure.
Net charge-off to average loans increased 8 basis points from 0.07% at September 30, 2023 to 0.15% at September 30, 2024 primarily due to an increase in consumer loan net charge-offs.
Noninterest expense
56
56
—
Expenses
81
88
(7)
The decrease in expenses for the three months ended September 30, 2024 compared to the same period in 2023 was due to a decrease in provision for credit losses, partially offset by an increase in interest expense.
Operating income
24
13
11
The increase in operating income for the three months ended September 30, 2024 compared to the same period in 2023 was primarily due to lower provision for credit losses, higher interest and dividend income and higher noninterest income, partially offset by higher interest expense.
Net income
$
19
$
11
$
8
Net income for the three months ended September 30, 2024 was higher as compared to the same period in 2023 due to higher operating income.
.
101
Nine months ended September 30
Increase
(in millions)
2024
2023
(decrease)
Primary reason(s)
Interest and dividend income
$
262
$
247
$
15
Average loan portfolio yields were 34 basis points higher—loan yields continued to increase in 2024 due to the interest rate environment as adjustable rate loan yields repriced with rising interest rates.
Average loan portfolio balances decreased $3 million—commercial, home equity line of credit and consumer loan portfolio average balances decreased $85 million, $41 million and $24 million, respectively, due to payoffs and decreased demand for these loan products. Residential and commercial real estate loan average balances increased $87 million and $61 million, respectively.
Average investment securities portfolio balances decreased $388 million primarily due to repayments, no purchases in 2024 and sale of investment securities in the quarter ended December 31, 2023.
Average investment securities portfolio yields decreased 5 basis points.
Noninterest income
50
45
5
Higher bank-owned life insurance income—higher returns from insurance policies.
Higher fee income from other financial products - higher revenues from Investment Services.
Revenues
312
292
20
The increase in revenues for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to higher interest and dividend income and higher noninterest income.
Interest expense
76
56
20
Increase in interest expense due to an increase in core deposit and term certificate yields, partially offset by lower other borrowing balances.
Average core deposit balances decreased $375 million; average term certificate balances increased $226 million.
Average deposit yields increased from 51 to 91 basis points primarily due to the increase in term certificate yields of 52 basis points and the shift in mix of deposits from low cost core deposits to term certificates.
Average other borrowings decreased $172 million and average yields increased 29 basis points.
Provision for credit losses
(4)
10
(14)
2024 negative provision for credit losses included reversal of $2.5 million credit loss reserves for loans impacted by the Maui wildfires, improving loan loss rates and lower loan portfolio balances.
2024 negative provision for credit losses also included the release of $0.9 million of credit loss reserves for unfunded loan commitments.
Delinquency rates have increased—from 0.24% at September 30, 2023 to 0.47% at September 30, 2024 primarily due to Maui-related loan accommodations and one commercial real estate loan in foreclosure.
Net charge-off to average loans increased 4 basis points from 0.11% as of September 30, 2023 to 0.15% at September 30, 2024 primarily due to an increase in consumer loan net charge-offs.
Noninterest expense
248
165
83
The increase in noninterest expenses was primarily due to a goodwill impairment charge of $82.2 million as a result of HEI’s comprehensive review of strategic options for ASB, expenses related to the Maui wildfires and higher compensation and benefits expenses.
Expenses
320
231
89
The increase in expenses for the nine months ended September 30, 2024 compared to the same period in 2023 was due to higher noninterest expense and interest expense, partially offset by lower provision for credit losses.
Operating income (loss)
(8)
61
(69)
The decrease in operating income (loss) for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily due to higher noninterest expense and interest expense, partially offset by higher interest and dividend income, lower provision for credit losses and higher noninterest income.
Net income (loss)
$
(6)
$
50
$
(56)
Net income (loss) for the nine months ended September 30, 2024 was lower than the same period in 2023 due to lower operating income.
102
ASB’s return on average assets, return on average equity and net interest margin were as follows:
Three months ended September 30
Nine months ended September 30
(Annualized %)
2024
2023
2024
2023
Return on average assets
0.81
0.47
(0.09)
0.70
Return on average equity
14.28
9.19
(1.52)
13.62
Net interest margin
2.82
2.70
2.78
2.77
For the three and nine months ended September 30, 2024 and 2023 the Bank’s costs related to the Maui wildfires is as follows:
(in thousands)
Three months ended September 30, 2024
Nine months ended September 30, 2024
Three and nine months ended September 30, 2023
Bank Maui wildfires related cost:
Provision for credit losses
$
(200)
$
(2,500)
$
5,900
Professional services expenses
1,134
4,043
1,300
Other expenses1
(42)
(308)
1,357
Total Bank Maui wildfires related cost
$
892
$
1,235
$
8,557
1 Other expenses includes recovery of destroyed/loss cash of $0.4 million in the first three months ended March 31, 2024.
Note: Bank Maui wildfires related expenses - provision for credit losses is included in Provision for credit losses, professional services expenses are included in Noninterest expense-Services and other expenses are included in Noninterest expense-Other expense on the ASB Statements of Income and Comprehensive Income Data.
103
Three months ended September 30
2024
2023
(dollars in thousands)
Average balance
Interest income/ expense
Yield/ rate (%)
Average balance
Interest income/ expense
Yield/ rate (%)
Assets:
Interest-earning deposits
$
180,021
$
2,458
5.34
$
91,499
$
1,246
5.33
FHLB stock
29,204
662
9.02
18,769
253
5.35
Investment securities
Taxable
2,554,707
10,476
1.64
2,925,474
12,183
1.67
Non-taxable
66,122
513
3.07
67,552
525
3.07
Total investment securities
2,620,829
10,989
1.68
2,993,026
12,708
1.70
Loans
Residential 1-4 family
2,615,001
26,128
4.00
2,569,148
24,350
3.79
Commercial real estate
1,560,935
20,949
5.28
1,528,448
19,931
5.12
Home equity line of credit
969,373
11,451
4.70
1,037,147
10,289
3.94
Residential land
19,966
323
6.46
20,553
286
5.58
Commercial
630,001
9,737
6.11
734,545
10,794
5.79
Consumer
223,221
5,331
9.52
265,801
6,104
9.13
Total loans 1,2
6,018,497
73,919
4.88
6,155,642
71,754
4.62
Total interest-earning assets 3
8,848,551
88,028
3.95
9,258,936
85,961
3.68
Allowance for credit losses
(66,247)
(69,165)
Noninterest-earning assets
444,553
478,529
Total assets
$
9,226,857
$
9,668,300
Liabilities and shareholder’s equity:
Savings
$
2,645,994
$
1,853
0.28
$
2,917,408
$
687
0.09
Interest-bearing checking
1,374,092
2,755
0.80
1,372,670
2,157
0.62
Money market
423,061
4,089
3.83
358,512
3,121
3.45
Time certificates
1,058,503
10,321
3.87
908,392
8,481
3.70
Total interest-bearing deposits
5,501,650
19,018
1.37
5,556,982
14,446
1.03
Advances from Federal Home Loan Bank
520,000
6,403
4.82
219,228
2,535
4.53
Borrowings from Federal Reserve Bank
—
—
—
550,000
6,063
4.37
Securities sold under agreements to repurchase and federal funds purchased
—
—
—
—
—
—
Total interest-bearing liabilities
6,021,650
25,421
1.67
6,326,210
23,044
1.44
Noninterest bearing liabilities:
Deposits
2,468,368
2,628,869
Other
210,952
218,435
Shareholder’s equity
525,887
494,786
Total liabilities and shareholder’s equity
$
9,226,857
$
9,668,300
Net interest income
$
62,607
$
62,917
Net interest margin (%) 4
2.82
2.70
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Nine months ended September 30
2024
2023
(dollars in thousands)
Average balance
Interest income/ expense
Yield/ rate (%)
Average balance
Interest
income/
expense
Yield/ rate (%)
Assets:
Interest-earning deposits
$
165,039
$
6,754
5.38
$
46,499
$
1,855
5.26
FHLB stock
25,429
1,672
8.79
21,465
916
5.70
Investment securities
Taxable
2,598,384
32,536
1.67
2,984,976
38,524
1.72
Non-taxable
66,485
1,546
3.08
67,911
1,536
3.00
Total investment securities
2,664,869
34,082
1.70
3,052,887
40,060
1.75
Loans
Residential 1-4 family
2,611,793
77,212
3.94
2,524,994
70,076
3.70
Commercial real estate
1,551,834
61,591
5.23
1,490,412
55,551
4.93
Home equity line of credit
990,158
33,295
4.49
1,031,133
28,974
3.76
Residential land
19,199
887
6.16
20,362
832
5.45
Commercial
680,106
30,735
5.99
765,251
32,045
5.56
Consumer
232,829
16,579
9.51
257,237
17,340
9.01
Total loans 1,2
6,085,919
220,299
4.81
6,089,389
204,818
4.47
Total interest-earning assets 3
8,941,256
262,807
3.91
9,210,240
247,649
3.58
Allowance for credit losses
(70,387)
(70,812)
Noninterest-earning assets
474,103
472,184
Total assets
$
9,344,972
$
9,611,612
Liabilities and shareholder’s equity:
Savings
$
2,681,499
$
4,335
0.22
$
3,021,660
$
1,222
0.05
Interest-bearing checking
1,388,039
8,808
0.85
1,334,576
3,556
0.36
Money market
376,250
10,698
3.79
275,352
5,445
2.64
Time certificates
1,048,037
30,624
3.89
822,234
20,721
3.37
Total interest-bearing deposits
5,493,825
54,465
1.32
5,453,822
30,944
0.76
Advances from Federal Home Loan Bank
436,664
15,843
4.77
286,615
10,010
4.61
Borrowings from Federal Reserve Bank
158,212
5,193
4.37
396,630
12,989
4.38
Securities sold under agreements to repurchase
—
—
—
83,484
2,172
3.48
Total interest-bearing liabilities
6,088,701
75,501
1.65
6,220,551
56,115
1.20
Noninterest bearing liabilities:
Deposits
2,497,320
2,686,245
Other
225,530
214,070
Shareholder’s equity
533,421
490,746
Total liabilities and shareholder’s equity
$
9,344,972
$
9,611,612
Net interest income
$
187,306
$
191,534
Net interest margin (%) 4
2.78
2.77
1 Includes loans held for sale, at lower of cost or fair value.
2 Includes recognition of net deferred loan fees of $0.9 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively, and $2.0 million and $2.3 million for the nine months ended September 30, 2024 and 2023, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans. Includes nonaccrual loans.
3 For the three and nine months ended September 30, 2024 and 2023, the taxable-equivalent basis adjustments made to the table above were not material.
4 Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.
Earning assets, costing liabilities, contingencies and other factors. Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. At its September 18, 2024 meeting, the Federal Open Market Committee decided to lower the federal funds rate target range by 1/2
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percentage point to 4.75% - 5.0%. ASB’s net interest income and net interest margin has been impacted by the higher interest rates as the Bank has used higher costing other borrowings and term certificates to fund its loan growth.
Loans and mortgage-backed securities are ASB’s primary earning assets.
Loan portfolio. ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. See Note 5 of the Condensed Consolidated Financial Statements for a composition of ASB’s loan portfolio.
Home equity— key credit statistics. The home equity line 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 September 30, 2024, 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 51% of ASB’s HELOC loan portfolio is in a first lien position.
Loan portfolio risk elements. See Note 5 of the Condensed Consolidated Financial Statements.
Investment securities. ASB’s investment portfolio was comprised as follows:
September 30, 2024
December 31, 2023
(dollars in thousands)
Balance
% of total
Balance
% of total
U.S. Treasury and federal agency obligations
$
67,532
3
%
$
71,927
3
%
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies
2,127,921
95
2,218,565
95
Corporate bonds
33,924
1
32,903
1
Mortgage revenue bonds
13,935
1
14,358
1
Total investment securities
$
2,243,312
100
%
$
2,337,753
100
%
Currently, ASB’s investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are also backed by the full faith of the U.S. government.
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. In 2024, deposits decreased by $147 million due to an outflow of core deposits and reduction of public certificates of deposits, partially offset by an increase in time certificates. Core deposit retention will remain challenging in the current interest rate environment. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase, borrowings from the Federal Reserve Bank and federal funds purchased continue to be additional sources of funds. As of September 30, 2024, ASB’s costing liabilities consisted of 94% deposits and 6% borrowings as compared to 92% deposits and 8% borrowings as of December 31, 2023. The weighted average cost of interest-bearing deposits for the first nine months of 2024 and 2023 was 1.32% and 0.76%, respectively. As of September 30, 2024 and December 31, 2023, ASB had approximately $1.7 billion and $1.6 billion of deposits that were uninsured or not collateralized, respectively.
Federal Home Loan Bank of Des Moines and Federal Reserve Bank. As of September 30, 2024 and December 31, 2023, ASB had $520 million and $200 million of advances outstanding at the FHLB of Des Moines, respectively. As of September 30, 2024, the unused borrowing capacity with the FHLB of Des Moines was $1.5 billion. As of September 30, 2024 and December 31, 2023, ASB had nil and $550 million of borrowings from the Federal Reserve Bank, respectively. The FHLB of Des Moines and Federal Reserve Bank are important sources of liquidity for ASB.
Contingencies. ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.
Other factors. Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into
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decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities.
As of September 30, 2024, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities in AOCI of $128.9 million compared to an unrealized loss, net of taxes, of $150.4 million as of December 31, 2023. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.
During the first nine months of 2024, ASB recorded a negative provision for credit losses of $2.9 million in the allowance for credit losses primarily due to the release of $2.5 million of credit loss reserves related to the Maui wildfires, improving credit loss rates and lower loan balances. During the first nine months of 2023, ASB recorded a provision for credit losses of $9.4 million in the allowance for credit losses for growth in the loan portfolio, credit loss reserves related to the Maui wildfires and additional credit loss reserves to cover net charge-offs, partly offset by the release of credit loss reserves for improved credit trends and lower credit loss rates.
Nine months ended September 30
Year ended
December 31, 2023
(in thousands)
2024
2023
Allowance for credit losses, beginning of period
$
74,372
$
72,216
$
72,216
Provision for credit losses
(2,921)
9,353
9,657
Less: net charge-offs
6,655
5,203
7,501
Allowance for credit losses, end of period
$
64,796
$
76,366
$
74,372
Ratio of net charge-offs during the period to average loans outstanding (annualized)
0.15
%
0.11
%
0.12
%
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. For the nine months ended September 30, 2024, ASB recorded a negative provision for credit losses for unfunded commitments of $0.9 million as compared to a provision for credit losses for unfunded commitments of $0.7 million for the nine months ended September 30, 2023. As of September 30, 2024 and December 31, 2023, the reserve for unfunded loan commitments was $4.2 million and $5.1 million, respectively.
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.”
FINANCIAL CONDITION
Liquidity and capital resources.
(dollars in millions)
September 30, 2024
December 31, 2023
% change
Total assets
$
9,268
$
9,673
(4)
Investment securities
2,243
2,338
(4)
Loans held for investment, net
5,973
6,106
(2)
Deposit liabilities
7,999
8,146
(2)
Other bank borrowings
520
750
(31)
As of September 30, 2024, ASB was one of Hawaii’s largest financial institutions based on assets of $9.3 billion and deposits of $8.0 billion.
As of September 30, 2024, ASB’s unused FHLB borrowing capacity was approximately $1.5 billion. As of September 30, 2024, ASB had commitments to borrowers for loans and unused lines and letters of credit of $1.8 billion, of which, commitments to lend to borrowers experiencing financial difficulty whose loan terms have been modified were nil. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.
For the nine months ended September 30, 2024, net cash provided by ASB’s operating activities was $49 million. Net cash provided by ASB’s investing activities during the same period was $231 million, primarily due to the receipt of investment security repayments and maturities of $133 million, a net decrease in loans receivable of $111 million and proceeds from the sale of commercial loans of $40 million partly offset by contributions to low income housing investments of $34 million and a net increase in FHLB stock of $14 million. Net cash used in financing activities during this period was $382 million, primarily
107
due to a net decrease in other borrowings of $230 million, a decrease in deposit liabilities of $147 million and a net decrease in mortgage escrow deposits of $6 million.
For the nine months ended September 30, 2023, net cash provided by ASB’s operating activities was $80 million. Net cash used during the same period by ASB’s investing activities was $38 million, primarily due to a net increase in loans receivable of $283 million, purchases of loans held for investment of $26 million and additions to premises and equipment of $5 million, partly offset by the receipt of investment security repayments and maturities of $170 million, proceeds from the sale of commercial loans of $95 million, a net decrease in FHLB stock of $9 million and proceeds from the redemption of bank owned life insurance of $3 million. Net cash provided by financing activities during this period was $65 million, primarily due to a net increase in other borrowings of $336 million, partly offset by a net decrease in repurchase agreements of $183 million, decreases in deposit liabilities of $44 million, a net decrease in mortgage escrow deposits of $5 million and $39 million in common stock dividends to HEI (through ASB Hawaii).
ASB believes that maintaining a satisfactory regulatory capital position provides a basis for public confidence, affords protection to depositors, helps to ensure continued access to capital markets on favorable terms and provides a foundation for growth. FDIC regulations restrict the ability of financial institutions that are not well-capitalized to compete on the same terms as well-capitalized institutions, such as by offering interest rates on deposits that are significantly higher than the rates offered by competing institutions. As of September 30, 2024, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 8.6% (5.0%), common equity Tier-1 ratio of 13.5% (6.5%), Tier-1 capital ratio of 13.5% (8.0%) and total capital ratio of 14.6% (10.0%). As of December 31, 2023, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 7.7% (5.0%), common equity Tier-1 ratio of 12.3% (6.5%), Tier-1 capital ratio of 12.3% (8.0%) and total capital ratio of 13.4% (10.0%). All dividends are subject to review by the OCC and FRB and receipt of a letter from the FRB communicating the agencies’ non-objection to the payment of any dividend ASB proposes to declare and pay to HEI (through ASB Hawaii). As of September 30, 2024, ASB did not request a dividend distribution from the OCC and FRB and will reevaluate its ability to distribute excess capital next quarter.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company considers interest-rate risk (a non-trading market risk) to be a significant market risk for ASB as it could potentially have material impacts on the Company’s results of operations, financial condition and liquidity. For additional quantitative and qualitative information about the Company’s market risks, see HEI’s and Hawaiian Electric’s Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of HEI’s 2023 Form 10-K (pages 81 to 83).
ASB’s interest-rate risk sensitivity measures as of September 30, 2024 and December 31, 2023 constitute “forward-looking statements” and were as follows:
Change in interest rates
Change in NII (gradual change in interest rates)
Change in EVE (instantaneous change in interest rates)
(basis points)
September 30, 2024
December 31, 2023
September 30, 2024
December 31, 2023
+300
(0.9
%)
2.1
%
1.6
%
2.7
%
+200
(0.6)
1.4
1.7
2.5
+100
(0.3)
0.7
1.3
1.7
-100
(0.1)
(1.0)
(2.2)
(2.3)
-200
(0.3)
(2.2)
(5.2)
(5.4)
-300
(0.8)
(3.5)
(10.2)
(10.3)
ASB’s net interest income (NII) sensitivity profile shifted to a more neutral position as of September 30, 2024 compared to December 31, 2023 primarily driven by lower cash balances and higher rate sensitive deposit balances.
Economic value of equity (EVE) sensitivity decreased as of September 30, 2024 compared to December 31, 2023 due to lower core deposit duration, partially offset by decrease in duration of mortgage-related investments and loans.
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.
Item 4. Controls and Procedures
HEI:
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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Hawaiian Electric:
Disclosure Controls and Procedures
Hawaiian Electric maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by Hawaiian Electric in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to Hawaiian Electric’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of Hawaiian Electric’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Hawaiian Electric’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including Hawaiian Electric’s Chief Executive Officer and Chief Financial Officer, concluded that Hawaiian Electric’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the third quarter of 2024 that have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in HEI’s and Hawaiian Electric’s 2023 Form 10-K (see “Part I. Item 3. Legal Proceedings” and proceedings referred to therein) and this Form 10-Q (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 2, 4 and 5 of the Condensed Consolidated Financial Statements) are incorporated by reference in this Item 1. With regard to any pending legal proceeding, alternative dispute resolution, such as mediation or settlement, may be pursued where appropriate, with such efforts typically maintained in confidence unless and until a resolution is achieved. Certain HEI subsidiaries (including Hawaiian Electric and its subsidiaries, ASB and Pacific Current and its subsidiaries) may also be involved in ordinary routine PUC proceedings, environmental proceedings and litigation incidental to their respective businesses.
Item 1A. Risk Factors
For information about Risk Factors, see pages 20 to 33 of HEI’s and Hawaiian Electric’s 2023 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and the Condensed Consolidated Financial Statements herein. Also, see “Cautionary Note Regarding Forward-Looking Statements” on pages iv through vi herein and as supplemented below.
There may be future conditions or events that raise substantial doubt about our ability to continue as a going concern, and it is possible that any plan developed to alleviate such doubt may be unsuccessful. In addition, any capital raised may result in dilution to our current shareholders.
As described more fully in Note 1 of the Condensed Consolidated Financial Statements included herein, for the three and nine months ended September 30, 2024, the Company incurred net losses of approximately $104 million and $1.36 billion, respectively. For the three and nine months ended September 30, 2024, the Utilities incurred net losses of approximately $83 million and $1.27 billion, respectively. The net losses for the nine months ended September 30, 2024 were primarily due to the accruals of estimated wildfire liabilities in the second and third quarters of 2024, totaling approximately $1.92 billion related to the Maui windstorm and wildfire tort-related legal claims. The Company previously disclosed in its Quarterly Report on Form 10-Q for the quarter ending June 30, 2024, that based on its financial and liquidity condition, and because it had not yet implemented a capital financing plan to address proposed wildfire settlement payments, there was substantial doubt about HEI’s and the Utilities’ ability to continue as a going concern.