HAWAIIAN ELECTRIC INDUSTRIES INC - 10-Q - Management's Discussion and Analysis of Financial Condition and Resultsof Operations

   The following discussion updates "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in HEI's and Hawaiian Electric's 2021 Form 10-K and should be read in conjunction with such discussion and the 2021 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI's and Hawaiian Electric's 2021 Form 10-K, as well as the quarterly (as of and for the three months ended March 31, 2022) condensed consolidated financial statements and notes thereto included in this Form 10-Q.  HEI consolidated  Recent developments-COVID-19. Hawaii's 7-day average daily COVID-19 case counts have receded from the high of 4,610 reached in January 2022 and recently the 7-day average for new cases was 436 as of April 25, 2022. In March 2022, the state ended the Safe Travels program for domestic U.S. travelers and the indoor mask mandate. Hawaii vaccinations have steadily increased with over 77% of the state's population fully vaccinated as of April 19, 2022 and 39% of those fully vaccinated received a third shot.  Tourism numbers remain below pre-pandemic levels, primarily due to a delayed recovery in international travel. However, domestic travel has recovered significantly and recently exceeded pre-pandemic levels, with March 2022 total domestic passenger counts at approximately 112% of March 2019 (pre-pandemic) total domestic passenger counts. Although the Hawaii economy experienced a temporary setback with the Delta and Omicron variants, the Hawaii economy is expected to continue its improvement in 2022 with the lifting of restrictions and gradual return of international travel.  In the first quarter of 2022, Utility kWh sales remained below pre-pandemic levels, but were 2.5% higher than the first quarter of 2021 due to increased economic activity following the loosening of restrictions and an increase in tourism. While the level of kWh sales does not affect Utility revenues due to decoupling, it may increase or decrease the price per kWh paid by customers. See "Decoupling" in Note 3 of the Condensed Consolidated Financial Statements for a discussion of the decoupling mechanism.  At the Bank, due to favorable credit trends and continued improvement in the economic environment, ASB recorded a $3.3 million negative provision for credit losses in the first quarter of 2022 compared to a negative provision for credit losses of $8.4 million in the first quarter of 2021. Net interest income increased $1.9 million to $59.0 million in the first quarter of 2022 due to growth in the investment securities portfolio that was principally funded by the growth in deposits, as well as lower amortization of premiums in the investment portfolio. The higher net interest income from the investment portfolio was partly offset by the impact of a decrease in loan portfolio balances and lower loan portfolio yields as a result of the low interest rate environment and lower PPP fees.  For further discussion of the impact of the COVID-19 pandemic on the Utilities and the Bank, see "Recent Developments-COVID-19" in the Electric Utility and Bank sections below. There has been no material impact on the "Other" segment and Pacific Current as a result of the COVID-19 pandemic as the primary businesses of Pacific Current are supported by PPAs that provide for contractual cash flows with credit-worthy counterparties.  

For a discussion regarding the impact of the economic conditions caused by the COVID-19 pandemic on the Company's liquidity and capital resources, see discussion under "Financial Condition-Liquidity and capital resources," contained in each of the "HEI Consolidated," "Electric utility" and "Bank" sections of this MD&A.

    Environmental, Social & Governance. At HEI, environmental, social and governance (ESG) principles and sustainability have long been embedded within all aspects of the Company's activities and integral to the Company's efforts to create value for all of its stakeholders. With all of its operations isolated in the middle of the Pacific Ocean, the Company's long-term health and financial performance is inextricably linked with the strength of the Hawaii economy, its communities, and the environment. That is why long-term shareholder and broader stakeholder value are both served by the Company's mission to be a catalyst for a better Hawaii.  In 2021, the Company identified a number of priorities that reflect the essential connection between the health of Hawaii's environment, economy and communities and HEI's long-term success. The key ESG priorities the Company is working to advance include:  

•decarbonizing the Company's operations and the broader Hawaii economy;

•promoting Hawaii's economic health and improving affordability for all residents;

•ensuring reliability and resilience as the Company navigates the clean energy transition and adapts to a changing climate;

•advancing digitalization of the Company's operations to better serve customers and increase efficiency while protecting against cyber-security challenges;

                                         51 --------------------------------------------------------------------------------

•promoting diversity, equity and inclusion both within the Company and in the ways the Company interacts with and impacts external stakeholders;

•increasing employee engagement; and

•identifying and integrating climate-related risks and opportunities throughout the Company's planning and decision-making.

The Company has also focused on ensuring that ESG considerations are appropriately integrated into governance structures, strategies and risk management. This includes:

    •Integration of Board oversight of important ESG matters into its existing governance structures and processes. This includes full Board review of ESG-related strategies, Audit & Risk Committee oversight of ESG risks, Compensation & Human Capital Management Committee responsibility for ESG-related compensation matters and human capital management and Nominating and Corporate Governance Committee responsibility for ensuring an appropriate board governance framework is in place with respect to ESG.  

•Robust ESG expertise among board members, including directors with direct experience in renewable energy, climate change policy and strategy, environmental management and sustainable investing.

•Expanded ESG goals as part of HEI and Utility executive incentive compensation.

•ESG considerations explicitly woven into strategic planning efforts and enterprise risk management processes.

    The Company is committed to transparency and providing information to allow customers, community leaders, investors and other stakeholders understand how the Company's strategies and operations advance ESG objectives and contribute to long-term stakeholder value creation.  The Company issued its first ESG report in September 2020. The report encompassed ESG policies, principles and results reported during 2019 across the Company's two primary operating subsidiaries, Hawaiian Electric and ASB, and was aligned with Sustainability Accounting Standards Board (SASB) guidance-using the electric utilities standard for Hawaiian Electric, and the commercial banks, commercial finance, and mortgage finance standards for ASB. On April 22, 2021, the Company issued its second ESG report. This report continues to include SASB disclosures for Hawaiian Electric and ASB and incorporates disclosures regarding risks and opportunities related to climate change, as well as associated risk management and governance processes, based on recommendations from the Task Force on Climate-related Financial Disclosures. It also outlines key impacts for the Company under two climate scenarios, including a scenario targeted to limit global temperature rise to 2 degrees Celsius or lower. On April 12, 2022, the Company issued its third and most comprehensive ESG report. The report includes HEI's first enterprise-wide greenhouse gas (GHG) emissions inventory, which will further guide the company's ESG strategies and provide greater transparency around its progress on climate issues. Net enterprise-wide GHG emissions in measured categories have decreased over time, driven largely by reductions in the utility's generation-related emissions The Company's ESG reports can be found at www.hei.com/esg.                               RESULTS OF OPERATIONS                                          Three months ended March 31                 % (in thousands)                            2022                  2021              change                       Primary reason(s)* Revenues                            $      785,068          $ 642,946                 22          Primarily increase for the electric utility                                                                                                   segment Operating income                            99,276             98,031                  1          Increase for the electric utility segment and                                                                                                   lower losses for the "other" segment, partly                                                                                                   offset by decrease for bank segment Net income for common stock                 69,167             64,358                  7          Higher net income at the electric utility                                                                                                   segment and lower net loss for the "other"                                                                                                   segment, partly offset by lower net income at                                                                                                   the bank segment. See below for effective tax                                                                                                   rate explanation.   *   Also, see segment discussions which follow. 

The Company's effective tax rates for the first three months of 2022 and 2021 were comparable at 20% and 19%, respectively.

Economic conditions.

    Note: The statistical data in this section is from public third-party sources that management believes to be reliable (e.g., Department of Business, Economic Development and Tourism (DBEDT), University of Hawaii Economic Research Organization (UHERO), Department of Health of the State of Hawaii , U.S. Bureau of Labor Statistics, Department of Labor                                         52 --------------------------------------------------------------------------------

and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local news media).

    At the end of March 2022, the Safe Travels Program, which required proof of vaccination or a negative COVID test for travel to Hawaii, ended following a significant reduction in case counts in recent months. In addition, lower case counts across most states also led to stronger demand for travel to Hawaii in the first quarter of 2022, resulting in the average daily passenger count 122.7% higher than the comparable period in the prior year, but still 16.8% below 2019. The recovery in total passenger counts from the low levels in 2020 thus far has been driven by domestic travelers, with international travelers remaining at low levels due to higher restrictions for international travelers, depending on country of origin. In March 2022, domestic passenger counts were up 10.8% compared to 2019 pre-COVID-19 levels, while international passenger counts were down 87% compared to 2019 pre-COVID-19 levels.  Hawaii's seasonally adjusted unemployment rate in March 2022 was 4.1%, which was lower compared to the March 2021 rate of 6.6%. The national unemployment rate in March 2022 was 3.6% compared to 6.0% in March 2021. Hawaii's unemployment rate is expected to continue to improve now that restrictions have been lifted.  Hawaii real estate activity through March 2022, as indicated by Oahu's home resale market, drove an increase in the median sales price of 12.1% for condominiums and 20.2% for single-family homes compared to the same period in 2021, with the March median single-family home price reaching a record $1,150,000 set in March. The number of closed sales was up 16.8% for condominiums and down 2.6% for single-family residential homes for the first quarter of 2022 compared to 2021.  Hawaii's petroleum product prices reflect supply and demand in the Asia-Pacific region and the price of crude oil in international markets. The price of crude oil gradually increased throughout 2021 but decreased in January 2022 and increased significantly in February 2022.  At its March 15, 2022 meeting, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate target range of 0.25%-0.5%. The FOMC plans to continue to maintain an accommodative stance of monetary policy to achieve maximum employment and inflation at the rate of 2 percent over the long run. The Federal Reserve stated that it will begin to reduce its holdings of Treasury securities and agency mortgage-backed securities.  The most recent forecast by UHERO, which was issued on March 6, 2022, forecasts full year 2022 real GDP growth of 3.8%, increase in total visitor arrivals of 29.1%, decrease in real personal income of 4.7%, and an unemployment rate of 5.1%. This forecast reflects improvement of Hawaii's economy after experiencing a downturn due to the Delta and Omicron variants of COVID-19 in 2021. The international market is still anticipated to gradually return in late summer of 2022. However, a full economic recovery is still forecasted to be several years out and dependent on the ability to adapt to new COVID-19 threats, the global economic fallout from Russia's invasion of Ukraine, increasing federal interest rates, and the return of international visitors.  The Company expects economic conditions to improve going forward; however, it is difficult to predict the future path of the pandemic. If economic conditions worsen from current levels or remain depressed for an extended period of time, it could have a material unfavorable impact on the Company's financial position or results of operations in 2022.  See also "Recent Developments-COVID-19" in the "Electric utility" and "Bank" sections below for further discussion of the economic impact caused by the pandemic.  "Other" segment.                                       Three months ended                                            March 31 (in thousands)                                    2022             2021                                Primary reason(s) Revenues                                       $ 1,161          $    951   

Increase in other sales at Pacific Current subsidiaries. Operating loss

                                    (4,349)           (6,379)         The first three months of 2022 and 2021 include $0.8                                                                                   million and $0.7 million, respectively, of operating income                                                                                   from Pacific Current1. Corporate expenses for the first                                                                                   three months of 2022 was $1.9 million lower than the same                                                                                   period in 2021, primarily due to lower charitable                                                                                   donations, due to timing of contributions. Gain on sale of                                  8,123                 -    

Gain on sale of an equity-method investment at Pacific equity-method investment

Current.

   Net loss                                        (1,112)           (8,556)         The net loss for the first three months of 2022 was lower                                                                                   than the net loss for the first three months of 2021 due to                                                                                   the gain on sale of an equity-method investment by Pacific                                                                                   Current and the same factors cited for the change in                                                                                   operating loss.  

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

                                         53 --------------------------------------------------------------------------------  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 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, Alenuihaha Developments, LLC, which owns a collection of renewable energy assets, 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.                                FINANCIAL CONDITION  Liquidity and capital resources.  As of March 31, 2022, there was no balance on HEI's revolving credit facility or Hawaiian Electric's revolving credit facility and the available committed capacities under the facilities were $175 million and $200 million, respectively. At the end of the quarter, HEI and Hawaiian Electric had approximately $66 million and $6 million of commercial paper outstanding, respectively. As of March 31, 2022, ASB's unused FHLB borrowing capacity was approximately $2.1 billion and ASB had unpledged investment securities of $2.8 billion that were available to be used as collateral for additional borrowing capacity.  

As of March 31, 2022 and December 31, 2021, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company's committed lines of credit was approximately $304 million and $321 million, respectively.

    The Company believes that its cash and cash equivalents, expected operating cash flow from subsidiaries, existing credit facilities, and access to the capital markets will be sufficient to meet the Company's cash requirements over the next twelve months and beyond based on its current business plans. However, the Company expects that its liquidity will continue to be moderately impacted at the Utilities due to higher working capital requirements due to lingering COVID-19 impacts to the local economy. For the Utilities, the economic impact of the pandemic on customers have resulted in higher accounts receivable balances and bad debt expense and may result in higher write-offs in the future. As of March 31, 2022, approximately $38 million of the Utilities' accounts receivables were 30 days past due. Of the over 30 days past due amounts, approximately 23% were on payment plans. The Company commenced its disconnection process on a tiered basis, starting in the third quarter of 2021, targeting the oldest and largest balances first, which is expected to reduce delinquent accounts receivable balances over time as payments are made. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements (see "Recent Developments-COVID-19" in the Electric utility section below). At this time, the delay in customer cash collections has not significantly affected the Company's liquidity. The Company is prepared to address, if needed, the potential financing requirement related to the delayed timing of customer collections.  At ASB, liquidity remains at satisfactory levels largely due to U.S. economic stimulus programs implemented as a result of COVID-19 that led to a substantial increase in customer deposits. ASB's cash and cash equivalents was $270 million as of March 31, 2022, compared to $251 million as of December 31, 2021. ASB remains well above the "well capitalized" level under the FDIC Improvement Act prompt correction action capital category, and while the economic outlook has improved and is expected to continue to improve, there are still COVID-19 risks, such as new variants, that could create ongoing uncertainty regarding COVID-19's impact on loan performance and the allowance for credit losses (see "Recent Developments - COVID-19" in the Bank section below).  HEI material cash requirements. HEI's material cash requirements include: capital expenditures, labor and benefit costs, O&M expenses, fuel and purchase power costs, and debt and interest payments at the Utilities; investments in loans and investment securities at the Bank; labor and benefits costs, shareholder dividends and debt and interest payments at HEI; and HEI equity contributions to support Pacific Current's sustainable infrastructure investments.  The Company believes that its ability to generate cash, both internally from electric utility and banking operations and externally from issuances of equity and debt securities, as well as bank borrowings, is adequate to maintain sufficient liquidity to fund its contractual obligations and commercial commitments, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term material cash requirements. However, the COVID-19 pandemic continues to be an evolving situation, and the Company cannot predict the extent or duration of outbreaks from new variants, the future effects that it will have on the global, national or local economy, including the impact on the Company's cost of capital and its ability to access additional capital, or the future impacts on the Company's financial position, results of operations, and cash flows.                                         54 --------------------------------------------------------------------------------  The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows: (dollars in millions)                              March 31, 2022           

December 31, 2021 Short-term borrowings-other than bank $ 71 1 % $

               54         1  % Long-term debt, net-other than bank                  2,316        49                  2,322        48 Preferred stock of subsidiaries                         34         1                     34         1 Common stock equity                                  2,304        49                  2,391        50                                              $       4,725       100  %    $          4,801       100  %   HEI's commercial paper borrowings and line of credit facility were as follows:                                                              Average balance                           Balance                                                                Three months                                                              ended March 31, (in millions)                                                      2022               March 31, 2022           December 31, 2021 Commercial paper                                             $          51          $            66          $               54 Line of credit draws on revolving credit facility                        -                        -                           -   Note: This table does not include Hawaiian Electric's separate commercial paper issuances and line of credit facilities and draws, which are disclosed below under "Electric utility-Financial Condition-Liquidity and capital resources." The maximum amount of HEI's short-term commercial paper borrowings during the first three months of 2022 was $66 million. As of March 31, 2022, available committed capacity under HEI's line of credit facility was $175 million.  

There were no new issuances of common stock through the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), HEIRSP or the ASB 401(k) Plan in the three months ended March 31, 2022 and 2021 and HEI satisfied the share purchase requirements of the DRIP, HEIRSP and ASB 401(k) Plan through open market purchases of its common stock.

    For the first three months of 2022, net cash provided by operating activities of HEI consolidated was $93 million. Net cash used by investing activities for the same period was $228 million, primarily due to capital expenditures, ASB's purchases of available-for-sale investment securities, partly offset by ASB's receipt of investment security repayments and maturities and net decrease in loans. Net cash provided by financing activities during this period was $131 million as a result of several factors, including net increases in ASB's deposit liabilities and other bank borrowings, the issuances of long-term debt and net increases in short-term borrowings, partly offset by repayment of long-term debt and payment of common stock dividends. During the first three months of 2022, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $31 million and $15 million, respectively.  Dividends.  The payout ratios for the first three months of 2022 and full year 2021 were 55% and 60%, respectively. On February 11, 2022, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.34 per share to $0.35 per share, starting with the dividend in the first quarter of 2022. HEI currently expects to maintain its dividend at its present level; however, the HEI Board of Directors evaluates the dividend quarterly and considers many factors in the evaluation including, but not limited to, the Company's results of operations, the long-term prospects for the Company, current and expected future economic conditions, including impacts from the COVID-19 pandemic, and capital investment alternatives.                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 45 to 46, 62 to 63, and 76 to 77 of HEI's MD&A included in Part II, Item 7 of HEI's 2021 Form 10-K.  

Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.

                                         55 --------------------------------------------------------------------------------

Electric utility

Recent developments-COVID-19

See also Recent developments-COVID-19 in HEI's MD&A.

    In the first quarter of 2022, COVID-19 case counts peaked in mid-January 2022, followed by a rapid decline in case counts and hospitalizations by the end of the quarter. In response to the improvement in COVID-19 trends, in March 2022, the state ended the Safe Travels program that required proof of vaccination or a negative COVID-19 test for transpacific travelers and removed the indoor mask mandate. As a result, for the first quarter of 2022, driven by continued recovery of the economy and the lifting of all COVID-19 restrictions, the demand for electricity increased 2.5% from 2021 levels.  Accounts receivable collection trends improved in the first quarter with past due accounts receivable balances decreasing by $6.2 million, or 9%, and the number of accounts past due decreasing by approximately 4% since December 31, 2021. The decrease in accounts receivables was primarily driven by payments on installment plans, Low Income Home Energy Assistance Program payment, a large government account payment that was previously in arrears, higher cash receipts associated with increased disconnection efforts, application of the $2 million Kokua bill credit, offset by higher customer balances driven by higher fuel prices. At this time, the delay in customer cash collections has not significantly affected the Utilities' liquidity. The Utilities are prepared to address, if needed, the financing requirement related to the delayed timing of cash flows collected under the decoupling mechanism through the RBA and the modest slowing or reduction in accounts receivable collections from customers. See "Financial Condition-Liquidity and capital resources" for additional information.  In the second quarter of 2020, the PUC approved the deferral of certain COVID-19 related costs, such as higher bad debt expense, higher financing costs, non-collection of late payment fees, increased personal protective equipment costs, and sequestration costs for mission-critical employees. As of March 31, 2022, these cumulative costs, which have been deferred and recorded as a regulatory asset, totaled approximately $27.8 million (see also discussion under "Regulatory assets for COVID-19 related costs" in Note 3 of the Condensed Consolidated Financial Statements). The Utilities deferred COVID-19 related costs through a PUC approved period that ended on December 31, 2021 and will be seeking recovery of the deferred costs in a separate proceeding to be filed in the second quarter of 2022.  Looking forward, while case counts and hospitalizations have declined since the peak in January 2022, the positivity rate has recently increased. A worsening of COVID-19 case counts with existing or new variants or a reinstatement of COVID-19 restrictions could adversely affect the ability of the Utilities' contractors, suppliers, IPPs, and other business partners to perform or fulfill their obligations timely, or at all, or require modifications to existing contracts, which could adversely affect the Utilities' business, increase expenses, and impact the Utilities' ability to achieve their RPS and other climate related goals. Additionally, while the state's aggressive response to the pandemic has managed to control the spread of the coronavirus, the measures taken have had a negative economic impact on the state's businesses and residents, which may influence the PUC's actions regarding future rate increases.  In March 2022, the consumer price index reached a 40-year high of 8.5% as gas prices and rents spiked. In Hawaii, the Urban Hawaii (Honolulu) Consumer Price Index (CPI) was 7.5% higher than it was one year ago. For the Utilities, the inflationary impacts have primarily manifested as higher fuel prices, which have increased 62% quarter-over-quarter. Although the Utilities are able to pass through fuel costs to customers and have limited fuel cost exposure through a 2% fuel-cost sharing mechanism (approximately $3.7 million exposure annually), higher customer bills could reduce customers' ability to pay timely or increase the risk of non-payment. In addition, the higher customer bills may lead the PUC to consider other actions to limit or delay any proposed increase in rates in order to mitigate the overall bill impact of rising fuel prices.  Under the PBR framework, the Utilities receive annual inflationary adjustments (compounded) on test year target revenues. The annual revenue adjustment is equal to the gross domestic producer price index (GDPPI), less a productivity factor (currently zero) and a 0.22% customer dividend, multiplied by the previous year's adjusted revenue requirements. The GDPPI adjustment is measured in October and is effective for the following calendar year. For the 2022 calendar year, GDPPI was measured at 3% in October 2021 and will be remeasured in October 2022 for the 2023 calendar year. Although the GDPPI inflationary adjustment protects the Utilities from inflationary pressures over time, there may be a lag in recovery when prices move rapidly as they have done in recent months.  

For a discussion regarding the impact of the economic conditions caused by the COVID-19 pandemic on the Utilities' liquidity and capital resources, see discussion under "Financial Condition-Liquidity and capital resources."

                                         56 --------------------------------------------------------------------------------                               RESULTS OF OPERATIONS   Three months ended March 31                 Increase     2022              2021                  (decrease)               (dollars in millions, except per barrel amounts) $     709          $    565          $   144                         

Revenues. Net increase largely due to:

                                                         $ 105          higher 

fuel oil prices and higher kWh generated1

                                                            25          higher 

purchased power energy prices offset by lower kWh

purchased2

                                                            10          higher 

revenue from ARA adjustments, which included an

                                                                        offset 

of management audit savings delivered to customers

                                                             2          

revenue in 2022 related to ownership of and responsibility

                                                                        for 

the U.S. Army's electrical distribution system on Oahu

starting March 1, 2022, offset by an equal amount of

operating expense

                                                             1          

increase related solely to a change in the timing for

revenue recognition within the year, which eliminates

seasonality in recognizing target revenues and results in

recognizing revenues evenly throughout the year with target

revenues recognized on an annual basis remaining unchanged

                                                                1       higher 

MPIR and PIMs revenue

        221               127               94                         Fuel

oil expense1. Net increase largely due to higher fuel

                                                                        oil 

prices and higher kWh generated partially offset by

                                                                        lower 

penalties for fuel efficiency due to reset of heat

                                                                        rate       164               142               22                         

Purchased power expense1, 2. Net increase largely due to

                                                                        higher 

purchased power energy prices partially offset by

                                                                        lower 

kWh purchased and lower capacity charges

         125               115               10                         

Operation and maintenance expenses. Net increase largely

                                                                        due 

to:

                                                             2          more 

generating facility overhauls and maintenance work

performed

                                                             2          

expense in 2022 related to ownership of and responsibility

                                                                        for 

the U.S. Army's electrical distribution system on Oahu

starting March, 1, 2022, offset by an equal amount of

revenue

                                                             2          higher 

transmission and distribution preventive and

corrective maintenance expense

                                                             1          higher 

outside services for Information Technology and

Services support, Demand Response Management System, and

Battery Bonus program

                                                             1          higher 

property damage and legal reserve for pending claims

                                                             1          higher 

bad debt expense

        125               111               14                         Other

expenses. Increase due to higher revenue taxes,

coupled with higher depreciation expense in 2022 for plant

investments in 2021

          74                69                5                         

Operating income. Increase largely due to higher ARA

revenue, MPIR and PIMs revenue and lower penalties for fuel

efficiency, partially offset by higher operation and

maintenance expenses and higher depreciation expense

          59                55                4                         Income 

before income taxes. Increase largely due to higher

operating income

         46                43                3                         Net

income for common stock. Increase largely due to higher

operating income. See below for effective tax rate

explanation

       1,957             1,909               48                         Kilowatthour sales (millions)3 $  103.40          $  63.87          $ 39.53                         

Average fuel oil cost per barrel

     470,851           468,745            2,106                         

Customer accounts (end of period)

1The rate schedules of the electric utilities currently contain ECRCs through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.

    2The rate schedules of the electric utilities currently contain PPACs through which changes in purchased power expenses (except purchased energy costs) are passed on to customers.  3 In the first quarter of 2022, kWh sales were higher when compared to the same periods last year largely due to continued recovery from the impacts of the COVID-19 pandemic. COVID-19 cases peaked in January 2022 due to the Omicron variant, but case counts have since returned to pre-Omicron levels. U.S. visitor arrivals continued to increase above first quarter of 2021 levels and approach pre-pandemic levels, but international arrivals remain low. With the outlook of the pandemic transitioning to an endemic status and remaining restrictions removed at the end of March, the economic recovery is expected to strengthen this year as international visitors return and sales rebound, although the improvement is expected to remain below pre-pandemic levels.                                         57 --------------------------------------------------------------------------------   The Utilities' effective tax rate for the first three months of 2022 and 2021 were comparable at 21% and 20%, respectively. Hawaiian Electric's consolidated ROACE was 8.1% and 9.0% for the twelve months ended March 31, 2022 and March 31, 2021, respectively.  The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of March 31, 2022 amounted to $4.9 billion, of which approximately 25% related to generation PPE, 66% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 8% of the total net book value relates to generation PPE that has been deactivated or that the Utilities plan to deactivate or decommission.  

See "Economic conditions" in the "HEI Consolidated" section above.

    Executive overview and strategy.  The Utilities provide electricity on all the principal islands in the state, other than Kauai, to approximately 95% of the state's population and operate five separate grids. The Utilities' mission is to provide innovative energy leadership for Hawaii, to meet the needs and expectations of customers and communities, and to empower them with affordable, reliable and clean energy. The goal is to create a modern, resilient, flexible and dynamic electric grid that enables an optimal mix of distributed energy resources, such as private rooftop solar, demand response and grid-scale resources to enable the creation of smart, sustainable, resilient communities and achieve the statutory goal of 100% renewable energy by 2045.  Performance-based regulations. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving a new performance-based regulation framework (PBR Framework). See "Regulatory proceedings" under "Commitments and contingencies" in Note 3 of the Condensed Consolidated Financial Statements.  

Transition to a decarbonized and sustainable energy future. The Utilities are fully committed to leading and enabling pathways to a decarbonized and sustainable energy future for Hawaii. The Utilities believe that a holistic approach to decarbonization is needed, and that such a strategy requires achieving the Utilities' decarbonization and renewable energy commitments, facilitating and promoting beneficial electrification, and deploying carbon removal and offsets among other levers to reduce statewide emissions.

    In the fourth quarter of 2021, the Utilities outlined its 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. The 2030 commitment would provide a significant portion of the reduction the entire Hawaii economy needs to meet the U.S. target of cutting carbon emissions by at least 50% economy-wide by 2030. Hawaiian Electric has also committed to achieving net zero carbon emissions from power generation by 2045 or sooner. Key elements of the 2030 plan include the closure of the state's last coal-fired IPP plant in 2022 upon expiry of the PPA, increasing rooftop solar by more than 50% over 2021 levels, retiring six fossil fuel generating units, adding at least 1 GW of renewable generation to what was already in place in 2021, increasing grid-scale and customer-owned storage, expanding geothermal resources, and creating customer incentives for using clean, lower-cost energy at certain times of the day and using less fossil-fueled energy at night. The retirement of fossil-fueled generating units to achieve the Utilities' 70% decarbonization goal is consistent with state policy and supported by Hawaii State law. See "Forecast of capital expenditures-Liquidity and capital resources" for a discussion of potential capital expenditures related to decarbonization efforts.  

On September 1, 2022, the last coal-fired IPP plant in the state, providing approximately 10% of Oahu's generation, will cease operations, removing a significant amount of GHG emissions from the Utilities' generation mix. The plant's aging infrastructure could lead to more unscheduled outages compared to historic performance, which may impact system reliability.

    In anticipation of the retirement of the coal-fired IPP plant, the Utilities have developed plans, including contingency plans, to ensure reliable service through the transition period. These plans include the anticipated addition of ten renewable energy/storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, and multiple demand response/distributed energy resources programs. However, future events, including unexpected issues with existing generation, or supply chain issues and inflationary pressures, as well as federal policies related to solar panel imports, among other factors, delay in the commercial operation of new generation resources, could disrupt the ability of the Utilities to deliver reliable service. Also, see the "Developments in renewable energy efforts-New renewable PPAs" section below.  

Hawaii's renewable portfolio standard law requires electric utilities to meet an RPS of 40%, 70% and 100% by December 31, 2030, 2040 and 2045, respectively. Hawaii law has also established a target of sequestering more atmospheric

                                         58 --------------------------------------------------------------------------------

carbon and greenhouse gases than emitted within the state by 2045. The Utilities' strategies and plans are fully aligned in meeting these targets.

    The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals. The Utilities reached its 2015 RPS goal two years early and exceeded the 30% RPS target for 2020, achieving an RPS of 34.5% that year. In 2021, the Utilities achieved an RPS of 38.4%. The Utilities will continue to actively procure additional renewable energy post-2021 and expect to meet or exceed the next statutory RPS goal of 40% in advance of the 2030 compliance year. (See "Developments in renewable energy efforts" below).  If the Utilities are not successful in meeting the RPS targets as mandated by law, the PUC could assess a penalty of $20 for every MWh that an electric utility is deficient. Based on the level of electricity sales in 2021, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $1.7 million. The PUC has the discretion to reduce the penalty due to events or circumstances that are outside an electric utility's reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target had been achieved, which in turn would be expected to subject the Utilities to limited commodity fossil fuel price exposure under a fuel cost risk-sharing mechanism. The fuel cost risk-sharing mechanism apportions 2% of the fuel cost risk to the utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.7 million. Conversely, the Utilities have incentives under PIMs that provide a financial reward for accelerating the achievement of renewable generation as a percentage of total generation, including customer supplied generation. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $20/MWh in 2022, $15/MWh in 2023, and $10/MWh for the remainder of the multi-year rate period.  The Utilities are fully aligned with, and supportive of, state policy to achieve a decarbonized future and have made significant progress in reducing emissions through renewable energy and electrification. This alignment with state policy is reflected in management compensation programs and the Utilities' long-range plans, which include aspirational targets in order to catalyze action and accelerate the transition away from fossil fuels throughout its operations at a pace more rapid than dictated by current law. The long-range plans, including aspirational targets, serve as guiding principles in the Utilities' continued transformation, and are updated regularly to adapt to changing technology, costs, and other factors. While there is no financial penalty for failure to achieve the Utilities' long-range aspirational objectives, the Utilities recognize that there are environmental and social costs from the continued use of fossil fuels.  The State of Hawaii's policy is supported by the regulatory framework and includes a number of mechanisms designed to maintain the Utilities' financial stability during the transition toward the State's decarbonized future. Under the sales decoupling mechanism, the Utilities are allowed to recover from customers, target test year revenues, independent of the level of kWh sales, which have generally trended lower over time as privately-owned distributed energy resources have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms under the new PBR framework reduce some of the regulatory lag during the multi-year rate plan (MRP), such as the annual revenue adjustment to provide annual changes in utility revenues and the exceptional project recovery mechanism, which allows the Utilities to recover and earn on certain approved eligible projects placed into service. See "Regulatory proceedings" under "Commitments and contingencies" and "Decoupling" in Note 3 of the 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) utilizes an inclusive and transparent Stakeholder Engagement model to provide an avenue for interested parties to engage with the Utilities and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical Advisory Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues and process steps in the IGP. The Utilities submitted an updated IGP work plan to the PUC in January 2021. In August 2021, the Utilities submitted their Revised Inputs and Assumptions to the PUC for review and approval, marking the significant progress made through the stakeholder engagement phase of the IGP process. On March 31, 2022, the Utilities submitted the final Inputs and Assumptions approved by the PUC. The PUC is currently reviewing the Utilities' planning methodologies and criteria. Once approved, the next step in the IGP process to complete a Grid Needs Assessment will begin.  Demand response programs. Pursuant to PUC orders, the Utilities are developing an integrated Demand Response (DR) Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will take the form of either rates or incentive-based programs that will compensate customers for their participation individually,                                         59 --------------------------------------------------------------------------------

or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets.

    On June 9, 2021, the PUC issued an order providing guidance to the third Grid Service RFP filed on February 23, 2021. The proposed Grid Service RFP focused only on Oahu and is seeking 132 MW of grid services with focus on capacity reduction (60 MW) similarly in response to the potential reserve shortfall from the AES coal plant retirement scheduled on September 1, 2022. The Utilities filed a final draft and received PUC approval to proceed on August 3, 2021. The Utilities subsequently issued an approved Grid Services RFP and the bids were due on October 13, 2021. The Utilities made their final selections on November 10, 2021 and commenced negotiations immediately after. The Utilities executed a GSPA for a total grid services amount of 97.4 MW and filed with the PUC to request approval on March 16, 2022.  On June 8, 2021, the PUC approved the new program, Emergency Demand Response Program (EDRP), a battery storage incentive program to dispatch electricity between 6 p.m. to 8 p.m. daily from participating residential and commercial customers, to address the potential reserve shortfalls following the AES coal plant retirement. The PUC approved EDRP for 50MW on Oahu with an incentive budget not to exceed $34 million, which will be recovered via a surcharge cost recovery mechanism over a 10-year amortization. The Utilities' implementation plan was approved by the PUC on June 30, 2021, and the Utilities subsequently filed the updated EDRP tariffs on July 1, 2021. On February 25, 2022, the PUC approved an amendment to the Battery Bonus program that provides additional incentives to participating customers. This new amendment became effective on March 1, 2022. As of March 31, 2022, the Utilities have received and approved the applications totaling approximately 5 MW.  Grid modernization. The overall goal of the Grid Modernization Strategy is to deploy modern grid investments at an appropriate priority, sequence and pace to cost-effectively maximize flexibility, minimize the risk of redundancy and obsolescence, deliver customer benefits and enable greater distributed energy resources and renewable energy integration. Under the Grid Modernization Strategy, the Utilities expect that new technology will help increase adoption of private rooftop solar and make use of rapidly evolving products, including storage and advanced inverters. On March 25, 2019, the PUC approved a plan for the Utilities to implement Phase 1 of their Grid Modernization Strategy (proportional deployment of advanced metering infrastructure "AMI"). On February 28, 2022, the PUC expanded the scope of Phase 1 AMI 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 March 31, 2022, approximately $42 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. On February 14, 2022, the Utilities filed a request with the PUC to increase operations and maintenance costs to reflect the incremental O&M costs associated with full-service territory AMI deployment. To date, the Utilities have deployed over 65,000 advanced meters, or approximately 14% of the total scheduled deployment under Phase 1.  The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of the second phase of their Grid Modernization Strategy implementation. However, on December 30, 2019, the PUC suspended the Utilities' application for the Advanced Distribution Management System pending the Utilities' filing of a supplemental application for the broad deployment of field devices. This supplement and update to the Grid Mod Phase 2 field devices application was filed on March 31, 2021. The estimated cost for the implementation over five years of the ADMS and field devices, which includes capital, deferred software costs and O&M costs, is $105 million. A PUC order was issued on April 27, 2021, unsuspending and resuming consideration of the Phase 2 Application. The Utilities filed the reply statement of position on October 15, 2021, completing the discovery phase of the docket. On November 16, 2021, the PUC suspended the Utilities' ADMS and Phase 2 field device application to focus the Utilities' attention on completing Phase 1. The Utilities filed a Motion for Reconsideration with the PUC in response to the suspension, but was denied. The PUC subsequently clarified that the Utilities may resume the Phase 2 docket no earlier than six months before Phase 1 is scheduled to be completed, which is the third quarter of 2024. Resumption of the Phase 2 proceeding would likely commence six months prior to this completion date selected by the PUC.  Community-based renewable energy. In December 2017, the PUC adopted a community-based renewable energy (CBRE) program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases.  The first phase, which commenced in July 2018, totals 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020. Two phase 1 projects (28.32 kW on Maui and 270 kW on Oahu) have been operational for over a year, with four additional phase 1 projects expected to become operational in 2023.  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                                         60 --------------------------------------------------------------------------------

to encourage a variety of system sizes. To provide opportunities for LMI customers to participate in the program, separate project proposals may be submitted specifically targeting LMI customers.

Eight RFPs were required by order: one each for Oahu, Maui, Hawaii Island, Molokai, and Lanai, and LMI-specific RFPs for Oahu, Maui, and Hawaii Island. LMI projects do not have a size cap nor do they decrease the 250 MW capacity available to other projects.

    For Lanai, the Utilities proposed to combine the previously issued Variable Renewable Dispatchable Generation Paired with Energy Storage RFP and the CBRE RFP to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE Program on Lanai. See "Developments in renewable energy efforts-Requests for renewable proposals, expressions of interest, and information" for additional information.  CBRE proposals for Lanai were due on February 14, 2022 and are currently being evaluated. CBRE proposals due date for Molokai was extended until March 1, 2022 and are currently being evaluated. On March 17, 2022 the CBRE LMI RFPs for Oahu, Maui and Hawaii were issued and are currently accepting proposals until May 17, 2022. The Utilities issued the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022 and will accept proposals for these RFPs through August 17, 2022.  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 portal to 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 4, 2022, the PUC established its Prioritized Issues for Resolution in 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.  

Decoupling. See "Decoupling" in Note 3 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 2021, 2020 and 2019 did not trigger the earnings sharing mechanism for the Utilities.                                         61 --------------------------------------------------------------------------------

Actual and PUC-allowed returns, as of March 31, 2022, were as follows: %

                                                                          Rate-making Return on rate base (RORB)*                                                             ROACE**                                                                     Rate-making ROACE*** Twelve months ended                                                                                                                                                       Hawaii Electric March 31, 2022                                       Hawaiian Electric                Hawaii Electric Light              Maui Electric         Hawaiian Electric               Light                Maui Electric            Hawaiian Electric             Hawaii Electric Light           Maui Electric Utility returns                                             7.30                               6.01                            6.68                   8.60                          6.66                 7.50                       9.61                            7.41                        8.58 PUC-allowed returns                                         7.37                               7.52                            7.43                   9.50                          9.50                 9.50                       9.50                            9.50                        9.50 Difference                                                 (0.07)                             (1.51)                          (0.75)                 (0.90)                        (2.84)               (2.00)                      0.11                           (2.09)                      (0.92)   *   Based on recorded operating income and average rate base, both adjusted for items not included in determining electric rates. **  Recorded net income divided by average common equity. *** ROACE adjusted to remove items not included by the PUC in establishing rates, such as incentive compensation.  The factors contributing to the difference between PUC-allowed ROACEs and the ROACEs actually achieved prior to the establishment of PBR include the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), the recognition of annual RAM revenues on June 1 annually rather than on January 1, and return on capital additions since the last rate case in excess of indexed escalations. As a result of the D&O in the PBR proceeding, the Utilities are allowed to recognize previously established RAM adjustment and ARA revenues on January 1 of each year.  Regulatory proceedings.  On December 23, 2020, the PBR D&O was issued, establishing a new PBR Framework. The PBR Framework implemented a five-year multi-year rate period (MRP), during which there will be no general rate case applications. In the fourth year of the MRP, the PUC will comprehensively review the PBR Framework to determine if any modifications or revisions are appropriate. See also "Regulatory proceedings" in Note 3 of the Condensed Consolidated Financial Statements.  

Developments in renewable energy efforts. Developments in the Utilities' efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Condensed Consolidated Financial Statements and the following:

    New renewable PPAs.  •On December 31, 2019, Hawaii Electric Light and PGV entered into an Amended and Restated Power Purchase Agreement (ARPPA). The ARPPA extends the term of the existing PPA by 25 years to 2052, expands the firm capacity of the facility to 46 MW and delinks the pricing for energy delivered from the facility from fossil fuel prices to reduce cost to customers. On March 31, 2021, the PUC suspended the docket pending the completion of a supplemental environmental review under the Hawaii Environmental Policy Act (HEPA). After the Office of Planning and Sustainable Development identified the Planning Department for the County of Hawaii to be the accepting agency and approving authority for any required HEPA review, the PUC lifted the suspension of the docket stating that the docket was ready for decision-making. On March 16, 2022, the PUC issued a D&O, approving the ARPPA, subject to conditions, that include requiring completion of the 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.  •The Utilities' renewable energy goals depend, in large part, on the success of renewable projects developed and operated by independent power producers. Beginning in 2017, the Utilities embarked on an ambitious procurement effort, selecting multiple solar plus storage efforts to help reach the Utilities renewable portfolio standards goals as well as to assist the Utilities in retiring fossil fuel generation. Several of the recently procured projects have experienced delays and four Stage 2 projects have been declared null and void by the independent power producers due to a number of issues, including supply chain disruptions caused by impacts from the COVID-19 pandemic, solar product detentions at U.S. ports of entry ordered by the U.S. Customers and Border Protection agency, and unforeseen site conditions which resulted in unanticipated project costs or in some cases the inability to effectively use previously identified project sites. Projects have also indicated potential impacts from the investigation launched by the US Department of Commerce on March 28, 2022, in response to a request by Auxin Solar Inc. in regards to solar panel imports. Significant project delays or failures of these projects increase the risk of the Utilities not meeting the renewable portfolio standards or other climate related goals, eligibility for performance incentive mechanisms associated with the speed of increasing renewable generation, and the ability to retire fossil fuel units.  Tariffed renewable resources. •As of March 31, 2022, there were approximately 554 MW, 119 MW and 133 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                                         62 --------------------------------------------------------------------------------  Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of March 31, 2022, an estimated 33% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 20% of the Utilities' total customers have solar systems.  •The Utilities began accepting energy from feed-in tariff projects in 2011. As of March 31, 2022, there were 43 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.

    •In July 2018, the PUC approved Hawaiian Electric's three-year biodiesel supply contract with Pacific Biodiesel Technologies, LLC (PBT) to supply 2 million to 4 million gallons of biodiesel at Hawaiian Electric's Schofield Generating Station and the Honolulu International Airport Emergency Power Facility and any other generating unit on Oahu, as necessary. The PBT contract became effective on November 1, 2018 and has been extended for one year through December 2022. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of "at parity" biodiesel have been made under the spot purchase contract, which was extended through June 2023. On June 30, 2021, the Utilities issued an RFP for all fuels, including biodiesel, for supply commencing January 1, 2023. The Utilities and PBT signed an agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, subject to PUC approval.  •Hawaiian Electric has a contingency supply contract with REG Marketing & Logistics Group, LLC to also supply biodiesel to any generating unit on Oahu in the event PBT is not able to supply necessary quantities. This contingency contract has been extended to November 2023, and will continue with no volume purchase requirements.  Requests for renewable proposals, expressions of interest, and information. •Under a request for proposal process governed by the PUC and monitored by independent observers, in February 2018, the Utilities issued 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, summarized information for a total of 8 PPAs is as follows:                                                                                                                                                                                        Total                                                                                                                                                                                      projected                                                                                                                                                                                       annual                                                                  Total photovoltaic                                     Guaranteed commercial                                       payment (in          Utilities                  Number of contracts              size (MW)              BESS Size (MW/MWh)             operation dates            Contract term (years)          millions)                                                                                                                              7/31/22, 9/30/22, Hawaiian Electric                                       4                      139.5                   139.5/558              1/20/23 &8/31/23                       20 & 25       $     32.2 Hawaii Electric Light                                   2                         60                      60/240             11/3/22 & 12/2/22                            25             14.1 Maui Electric                                           2                         75                      75/300            4/28/23 & 10/27/23                            25             17.6 Total                                                   8                      274.5                 274.5/1,098                                                                   $     63.9   The Utilities have received PUC approvals to recover the total projected annual payment of $63.9 million for the eight PPAs through the PPAC to the extent such costs are not included in base rates. On March 29, 2022, the Utilities filed a letter with the PUC requesting approval of an amendment requesting a price and guaranteed commercial operation date change to a previously-approved PPA for Stage 1 on Oahu to resolve a force majeure condition. On May 6, 2022, the PUC conditionally approved this PPA amendment.  •In continuation of their February 2018 request for proposal process, the Utilities issued their Stage 2 Renewable RFPs for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. Final awards for the renewable projects were made on May 8, 2020. Final awards for the grid services projects were made starting in January 2020. On Oahu, seven solar-plus-storage projects and one standalone storage project, totaling approximately 281 MW of generation and 1.8 GWh of storage, were selected. On Maui, three solar-plus-storage projects and one standalone storage project, totaling approximately 100 MW of generation and 560 MWh of storage, were selected. On Hawaii Island, two solar-plus-storage projects and one standalone storage project, totaling approximately 72 MW of generation and 492 MWh of storage, were selected. Two Utility Self-Build projects were among those selected; a 40-MW, 160-MWh standalone energy storage system on Maui and a 12-MW, 12-MWh storage system on Hawaii Island. Three renewable plus storage projects voluntarily withdrew from the process prior to execution of a power purchase agreement for various reasons, including change in circumstances for the developer and a misunderstanding of contract requirements. To date, the Utilities had filed 11 PPAs, including 4 PPAs declared null and void by the independent power producers, 2 GSPAs and 2 applications for commitments of funds for capital                                         63 --------------------------------------------------------------------------------  expenditures for approval of the utility self-build projects with the PUC. On March 23, 2022, the PUC approved one solar-plus-storage project on Oahu for 15 MW of generation and 60 MWh of storage.  A summary of the 7 PPAs that are still under active development, is as follows:                                                                                                                                                                                           Total                                                                                                                                                                                         projected                                                                                                                                                                                          annual                                                              Total photovoltaic                                            Guaranteed commercial                                       payment (in        Utilities                Number of contracts              size (MW)                  BESS Size (MW/MWh)                operation dates           

Contract term (years) millions)

                                                                                                                               5/17/23, 10/30/23, Hawaiian Electric                                   4                         94             94        / 503                12/29/23 & 4/9/2024                         20 & 25       $     32.9 Hawaiian Electric                                   1 *                      N/A            185        / 565                     12/30/22                                    20             24.0 Maui Electric                                       2                         60             60        / 240                7/25/23 & 12/29/23                               25             18.2 Total                                               7                        154            339        / 1,308                                                                        $     75.1  

* See further discussion under "Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement" below.

    To date, six projects that have been approved by the PUC remain in development - five solar-plus-storage PPAs (112 MW) and one standalone storage PPA (185 MW). The total projected annual payment of $63.5 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates. On February 15, 2022, the Utilities filed letters with the PUC requesting approval of amendments to two of the previously-approved PPAs for Stage 2, one on Oahu and one on Maui, that address delays and price increase due to the COVID-19 pandemic and the global supply-chain crisis, as well as other market conditions that have arisen during the development of these projects. On March 2, 2022, the PUC declined to approve both amendments. On March 14, 2022, both the developer of the project and the Utilities filed a motion for reconsideration for one project, and the developer also filed a motion for reconsideration for the second project. On May 5, 2022, the developer withdrew its motions for reconsideration for both projects and on May 6, 2022, the Utilities withdrew their motion for reconsideration and filed the developer's notices declaring PPAs for the projects null and void. On May 6, 2022, after the developer declared the PPAs null and void, the PUC granted the Utilities' motion for reconsideration, approving the amendment to the Maui based project. However, the PUC's order does not change the developer's null and void declaration of the PPA for the Maui based project. The PPA remains null and void at this time.  A summary of the GSPAs that were approved by PUC in December 2020 is as follows:                                                 Fast Frequency             Fast Frequency               Capacity -                   Capacity -                                                 Response - 1               Response - 2                Load Build                 Load Reduction            Utilities                                (MW)                       (MW)                       (MW)                         (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 that are pending PUC approval is as follows:                                                                                                                 Guaranteed commercial operation                Utilities                          Number of contracts             BESS Size (MW/MWh)                        dates Hawaii Electric Light                                                  1                           12/12                              12/30/22 Maui Electric                                                          1                          40/160                               4/28/23 Total                                                                  2                          52/172   •On November 27, 2019, the Utilities issued RFPs for renewable generation paired with energy storage on the islands of Lanai and Molokai. The Utilities were seeking PV paired with storage or small wind (specified as 100 kW turbines or smaller) on Molokai and PV paired with storage on Lanai. The RFP on Lanai was postponed on January 14, 2020 to allow the Utility to re-evaluate the scope of the RFP in response to announced plans to remove two large resorts from the grid. Proposals for the Molokai RFP were received on February 14, 2020. In light of a PUC order issued on April 9, 2020 in the CBRE docket, the Utilities proposed in their July 9, 2020 filing to combine the previously issued and subsequently postponed Lanai RFP with the CBRE RFP described in the order to optimize the benefits of procuring renewable energy, spurring development and increasing the likelihood of success of the CBRE program on Lanai. On May 21, 2021, the PUC approved the proposed combined Lanai RFP. On October 15, 2020, the Utilities selected one project from the Molokai RFP for a total of 4.5 MW of solar and 24 MWh of storage. The developer, however, declined to accept the award. On August 25 and 31, 2021, the Utilities filed proposed final drafts of the CBRE RFPs, which included three dedicated Low-to-Moderate-Income RFPs on Oahu, Maui and Hawaii, three Tranche 1 RFPs on Oahu, Maui and Hawaii, a Molokai CBRE RFP, and a combined Lanai Variable                                         64 --------------------------------------------------------------------------------  and CBRE RFP. On November 22, 2021, CBRE RFPs for Molokai and Lanai were opened. The Lanai RFP closed on February 14, 2022 and the Molokai RFP closed on March 1, 2022. A project has been selected in the Lanai RFP. Proposals are currently being evaluated in the Molokai RFP. On February 8, 2022, the PUC approved, subject to modifications, the CBRE and LMI CBRE RFPs for Oahu, Maui, and Hawaii Island. The Utilities filed the final RFPs with the PUC on February 23, 2022. On March 17, 2022, the CBRE LMI RFPs for Oahu, Maui and Hawaii were opened. The Utilities opened the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022. See "Transition to a decarbonized and sustainable energy future-Community-based renewable energy" for additional information.  •The PUC issued a letter to the Utilities requesting development with a Stage 3 RFP on Hawaii Island on January 21, 2021. In accordance with guidance provided by the PUC in a subsequent letter on April 20, 2021, the Utilities filed the Hawaii Island Grid Needs Assessment on July 15, 2021 and the draft RFP, including model contracts for PV+BESS, wind+BESS, standalone storage, firm renewable generation, and distributed energy resources aggregators on October 15, 2021. The requirements in the Stage 3 RFP are guided by the results of the Grid Needs Assessment. On March 18, 2022, the Utilities filed a second draft of the Stage 3 RFP for Hawaii Island, incorporating stakeholder and PUC feedback.  •On February 18, 2022, the PUC sent a letter to the Utilities directing them to develop Stage 3 RFPs for Oahu and Maui. On March 10, 2022, the Utilities submitted its recommendations on plans to develop Stage 3 RFPs for Oahu and Maui, and on May 2, 2022, the Utilities filed draft RFPs for Oahu and Maui. For Oahu, the Utilities are seeking 500 to 700 MW of renewable firm capacity, and at least 475 GWh of renewable dispatchable energy annually. For Maui, the Utilities are procuring at least 40 MW of renewable firm capacity, and at least 180 GWh of renewable dispatchable energy annually.  •On November 17, 2021, the Utilities filed a request with the PUC to develop an RFP for firm renewable generation for Oahu. On December 22, 2021, the PUC issued guidance to the Utilities on proceeding with such RFP. The Utilities filed a draft RFP on February 28, 2022. Per the PUC's March 23, 2022 letter, the Utilities will pursue firm renewable generation as a part of the Stage 3 Oahu RFP.  

Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement.

    •In February 2021, the PUC initiated a docket for the purposes of reviewing the status and interconnection progress of various utility-related renewable projects (i.e., Stage 1 and Stage 2 RFP PPAs and CBRE) and the Utilities' transition plans for the expiration of the AES power purchase agreement, the retirement of the Kahului Power Plant, and other fossil fuel power plant transition plans, as needed. The Utilities filed initial status updates on the project timelines, steps needed for each of the renewable projects to achieve commercial operation and steps the Utilities are taking to address projected extensions of guaranteed commercial operation dates (GCOD) for renewable projects under development, which are due to a variety of factors, including those outside of the control of the Utilities. The PUC subsequently held status conferences on the Utilities' updates. In April 2021, the PUC issued an Order directing the Utilities to establish regulatory liabilities for the difference between the on-peak avoided cost and the unit price included in the applications for approval of the renewable project PPAs, effective with the GCOD included in the applications (the earliest GCOD included in the applications is July 2021) or from the date of the Order for CBRE Phase 1 projects. The amount of regulatory liabilities to be recorded in future periods are not determinable at this time and would be affected by a number of factors, including the length of the GCOD extension period, the monthly on-peak avoided cost, as well as the factors described above. The Utilities filed a Motion for Reconsideration of the entire Order, or in the alternative to clarify that at most the PUC is directing the Utilities to track the information and not record the information at this time. The Utilities further requested a Stay of the Order pending resolution of the Motion. The Utilities maintain that extensions of GCODs are allowed under the PUC-approved contracts and that the Order has the unintended consequence of imposing penalties against the Utilities without due process. In May 2021, the PUC issued an order clarifying its Order and directed the Utilities to track costs to consumers caused by the perceived delay of renewable projects, and that the PUC does not intend to, at this time, impose any penalties on the Utilities. The Utilities report the tracked cost on a monthly basis. The full text of the Order, Motion for Reconsideration and request for a Stay of the Order, and clarification Order as well as the tracked costs can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2021-0024).  •Also in April 2021, the PUC approved the Kapolei Energy Storage (KES) PPA (one of the PPAs as a result of the Stage 2 Renewable RFP process) (KES Decision and Order), subject to nine conditions, including the Utilities forgoing the second portion of the PIM rewards amounting up to $1.7 million for the Stage 1 RFP PPAs, removing grid constraints for the Utilities' CBRE Phase 2 projects and for existing and new distributed energy programs, financial retirement of Hawaiian Electric generating units by specified dates and adjusting target revenues at the retirement dates for such retirements, and a requirement to charge the batteries in the project using significant levels                                         65 --------------------------------------------------------------------------------  of renewable energy generation. The financial retirement of the generating units described in the KES Decision and Order is contrary to the intent of Hawaii Revised Statutes §269-6(d), which encourages the recovery of stranded costs for the retirement of fossil fuel generation, and contrary to the regulatory compact under which in return for agreeing to commit capital necessary to allow utilities to meet their obligation to serve, utilities are assured recovery of their investment and a fair opportunity to earn a reasonable return on the capital prudently committed to the business. Hawaiian Electric filed a Motion for Reconsideration and Stay of the Decision and Order due to potentially significant financial and operational impacts. In May 2021, the PUC granted, in part, Hawaiian Electric's Motion for Reconsideration and Stay. In this Order, the PUC addressed a number of Hawaiian Electric's concerns, including removing the condition of the Utilities foregoing the PIM award from Stage 1 RFP projects, agreeing to address grid constraint concerns in respective DER and CBRE dockets and not in the KES docket, removing the minimum thresholds of charging energy coming from renewable energy generation and corresponding deadlines associated with these thresholds and modifying the condition on financial retirement of generating units. The PUC indicated the net book value of generating assets would be addressed at the time of retirement. The full text of the KES Decision and Order and the Motion for Reconsideration and Stay with respect thereto, and the Order granting, in part, Hawaiian Electric's Motion for Reconsideration can be found on the PUC website at dms.puc.hawaii.gov/dms (Docket No. 2020-0136).  Legislation and regulation. Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the Utilities and their customers. Also see "Environmental regulation" in Note 3 of the Condensed Consolidated Financial Statements.  Fuel contracts. The fuel contract entered into in January 2019, by the Utilities and PAR Hawaii Refining, LLC (PAR Hawaii), for the Utilities' low sulfur fuel oil (LSFO), high sulfur fuel oil (HSFO), No. 2 diesel, and ultra-low sulfur diesel (ULSD) requirements was approved by the PUC, and became effective on April 28, 2019 and terminates on December 31, 2022. This contract is a requirement contract with no minimum purchases. If PAR Hawaii is unable to provide LSFO, HSFO, diesel and/or ULSD the contract allows the Utilities to purchase LSFO, HSFO, diesel and/or ULSD from another supplier.  On June 9, 2020, the Utilities and PAR Hawaii entered into a First Amendment to the fuel contract. The First Amendment amends only the LSFO pricing to create a two-tiered structure based on volume, with all tier-1 LSFO up to the tier-1 maximum to be purchased exclusively from PAR Hawaii at the established pricing, and purchases in excess of that volume (tier-2) either from PAR Hawaii at the established pricing, or from an alternative supplier. On August 4, 2020, the PUC approved the First Amendment, which has an effective date of July 15, 2020, on an interim basis. The PUC's approval order allows the recovery of such costs associated with the First Amendment through the ECRC to the extent that the costs are not recovered in base rates. The PUC intends to review whether the First Amendment is reasonable and in the public interest in the final decision, but it will not subject the recovery of the costs between the interim decision and the final decision to retroactive disallowances. On July 6, 2021, the PUC issued a D&O, approving the First Amendment and requiring the Utilities to meet certain conditions of approval (COA). The Utilities are currently addressing the COAs as required in the D&O.  On June 30, 2021, the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. On February 1, 2022, the Utilities and PAR Hawaii entered into a fuel supply contract commencing January 1, 2023 and Second Amendment to the existing fuel contract to amend tier-1 volumes. The Second Amendment will take effect contingent upon PUC's approval. The costs incurred under the contract with PAR Hawaii are recovered in the Utilities' respective ECRCs.  On March 3, 2022, as part of economic sanctions amid the Russia-Ukraine war, Par Hawaii announced that it is suspending all purchases of Russian crude oil, which accounts for at least 25% of Hawaii's supply. The average fuel oil cost per barrel has increased 62% quarter over quarter and the Utilities is forecasting an approximate 10% increase in the average electric bill for the island of Oahu and approximate 20% average increase for Hawaii and Maui Island.  Army privatization. On October 30, 2020, the PUC approved Hawaiian Electric's 50-year contract with the U.S. Army to own, operate and maintain the electric distribution system serving the U.S. Army's 12 installations on Oahu, including Schofield Barracks, Wheeler Army Airfield, Tripler Army Medical Center, Fort Shafter, and Army housing areas. On March 1, 2022, Hawaiian Electric acquired the Army's existing distribution system for a purchase price of $14.5 million, and will pay the Army in the form of a monthly credit against the monthly utility services charge over the 50-year term of the contract. The acquisition of additional assets contemplated in the contract, with an estimated value of $4 million, is planned for 2023.  Hawaiian Electric took ownership and all responsibilities for operation and maintenance of the system on March 1, 2022 for a 50-year term after a one-year transition period. Under the contract, Hawaiian Electric will make initial capital upgrades over the first six years of the contract and replace aging infrastructure over the 50-year term. In addition to its regular monthly electricity bill, the Army will pay Hawaiian Electric a monthly utility services charge to cover operations and maintenance expenses and provide recovery for capital upgrades, capital replacements, and the existing distribution system                                         66 --------------------------------------------------------------------------------  based on a rate of return determined by the PUC for regulated utility investments, as well as depreciation expense. A preliminary assessment estimated the capital needs of approximately $40 million in the first six years of the contract. The PUC requires Hawaiian Electric to file regular periodic reports on the activities and investments in fulfillment of the contract and will review the major projects planned on behalf of the Army. The annual impact on Hawaiian Electric's earnings is not expected to be material and will depend on a number of factors, including the amount and timing of capital upgrades and capital replacement.                                FINANCIAL CONDITION  Liquidity and capital resources. As of March 31, 2022, there were no amounts outstanding on Hawaiian Electric's revolving credit facility and $6 million of commercial paper borrowings outstanding by the Utilities. The total amount of available borrowing capacity under the Utilities' committed line of credit was $200 million.  Hawaiian Electric expects that its liquidity will continue to be moderately impacted at the Utilities due to lingering COVID-19 impacts to the local economy. Compared to pre-pandemic levels, delinquent accounts receivable balances have increased, which could result in higher write-offs in the future, and kWh sales have generally declined until recently, both of which impact the timing of cash flows and creates higher working capital requirements. However, the Utilities' liquidity and access to capital remains adequate and is expected to remain adequate. As of March 31, 2022, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Utilities' committed lines of credit and cash and cash equivalents was approximately $223 million.  The moratorium on customer disconnections was lifted on May 31, 2021. Starting in the third quarter of 2021, the Utilities commenced the disconnection process on a tiered basis, targeting the oldest and largest balances first, which is expected to reduce delinquent accounts receivable balances over time and accelerate cash collections.  Hawaiian Electric's consolidated capital structure was as follows: (dollars in millions)            March 31, 2022                December 31, 2021 Short-term borrowings      $           6         -  %    $              -         -  % Long-term debt, net                1,677        42                  1,676        42 Preferred stock                       34         1                     34         1 Common stock equity                2,277        57                  2,262        57                            $       3,994       100  %    $          3,972       100  %   

Information about Hawaiian Electric's commercial paper borrowings, borrowings from HEI and line of credit facility were as follows:

                                                                  Average balance                                Balance                                                             Three months ended March (in millions)                                                       31, 2022                 March 31, 2022            December 31, 2021

  Short-term borrowings1 Commercial paper                                            $                  13          $              6          $                - Borrowings from HEI                                                             -                         -                           - Line of credit draws on revolving credit facility                               -                         -                           -    1  The maximum amount of external short-term borrowings by Hawaiian Electric during the first three months of 2022 was approximately $41 million. As of March 31, 2022, Hawaii Electric Light had short-term borrowings from Hawaiian Electric of $5 million and Hawaiian Electric had short-term borrowings from Maui Electric of $12.8 million, which intercompany borrowings are eliminated in consolidation. Credit agreement. On February 18, 2022, the PUC approved Hawaiian Electric's request to extend the term of the $200 million Hawaiian Electric revolving credit facility to May 14, 2026. In addition to extending the term, Hawaiian Electric also received PUC approval to exercise its options of two one-year extensions of the commitment termination date and to increase its aggregate revolving commitment amount from $200 million to $275 million, should there be a need. Hawaiian Electric has a $200 million line of credit facility with no amount outstanding at March 31, 2022.  SPRBs. Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State of Hawaii (DBF) to finance (and refinance) capital improvement projects of Hawaiian Electric and its subsidiaries, but the sources of their repayment are the non-collateralized obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric's guarantees of its subsidiaries' obligations.  On May 24, 2019, the PUC approved the Utilities' request to issue SPRBs in the amounts of up to $70 million, $2.5 million and $7.5 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, prior to June 30, 2020,                                         67 --------------------------------------------------------------------------------  to finance the Utilities' capital improvement programs. Pursuant to this approval, on October 10, 2019, the DBF issued, at par, Series 2019 SPRBs in the aggregate principal amount of $80 million with a maturity of October 1, 2049. As of March 31, 2022, Hawaiian Electric had $2.1 million of undrawn funds remaining with the trustee. Hawaii Electric Light and Maui Electric have no undrawn funds.  On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval, prior to June 30, 2024, to finance the Utilities' multi-project capital improvement programs (2019 Legislative Authorization).  On February 9, 2021, the PUC approved the Utilities' request to issue SPRBs (up to $100 million, $35 million and $45 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively) through 2022, with the proceeds to be used to finance the Utilities' multi-project capital improvement programs. The PUC also approved the use of the expedited approval procedure to request the issuance and sale of the remaining/unused amount of SPRBs authorized by the 2019 Legislative Authorization (i.e., total not to exceed up to $400 million for Hawaiian Electric, up to $150 million for Hawaii Electric Light, and up to $150 million for Maui Electric) during the period January 1, 2023 through June 30, 2024.  Taxable debt. On January 31, 2019, the Utilities received PUC approval (January 2019 Approval) to issue the remaining authorized amounts under the PUC approval received in April 2018 (April 2018 Approval) in 2019 through 2020 (Hawaiian Electric up to $205 million and Hawaii Electric Light up to $15 million of taxable debt), as well as a supplemental increase to authorize the issuance of additional taxable debt to finance capital expenditures, repay long-term and/or short term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures, and to refinance the Utilities' 2004 junior subordinated deferrable interest debentures (QUIDS) prior to maturity. In addition, the January 2019 Approval authorized the Utilities to extend the period to issue additional taxable debt from December 31, 2021 to December 31, 2022. The new total "up to" amounts of taxable debt requested to be issued through December 31, 2022 are $410 million, $150 million and $130 million for Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.  

As of March 31, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $135 million, $85 million, and $45 million, respectively, of remaining taxable debt to issue prior to December 31, 2022. See summary table below.

                                                                     Hawaiian    Hawaii Electric (in millions)                                                     Electric         Light         Maui Electric Total "up to" amounts of taxable debt authorized through 2022  $       410    $         150    $          130 Less: Taxable debt authorized and issued in 2018 under April 2018 Approval                                                                75               15                10 Taxable debt issuance to refinance the 2004 QUIDS in 2019               30               10                10 Taxable debt issuance in May 2020                                      110               10                40 

Taxable debt executed in October 2020, but issued on January 14, 2021

                                                                  60               30                25 Remaining authorized amounts                                   $       135    $          85    $           45   On May 3, 2022, the Utilities received PUC approval through the expedited approval process to issue taxable debt (Hawaiian Electric up to $50 million, Hawaii Electric Light up to $30 million and Maui Electric up to $35 million) prior to December 31, 2022.  On April 29, 2022, the Utilities requested 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 expenditures.  Equity. In October 2018, the Utilities received PUC approval for the supplemental increase to issue and sell additional common stock in the amounts of up to $280 million for Hawaiian Electric and up to $100 million each for Hawaii Electric Light and Maui Electric, with the new total "up to" amounts of $430 million for Hawaiian Electric and $110 million each for Hawaii Electric Light and Maui Electric, and to extend the period authorized by the PUC to issue and sell common stock from December 31, 2021 to December 31, 2022. As of March 31, 2022, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $221.4 million, $93.7 million, and $63.2 million, respectively, of remaining common stock to issue prior to December 31, 2022. See summary table below.                                         68 --------------------------------------------------------------------------------                                                                    Hawaiian   Hawaii Electric (in millions)                                                     Electric  

Light Maui Electric Total "up to" amounts of common stock authorized to issue and sell through 2021

                                                 $   150.0    $       10.0    $         10.0 Supplemental increase authorized                                    280.0           100.0             100.0 

Total "up to" amounts of common stock authorized to issue and sell through 2022

                                                     430.0           110.0             110.0 

Less: Common stock authorized and issued in 2017, 2018, 2019, 2020 and 2021

                                                         208.6            16.3              46.8 Remaining authorized amounts                                    $   221.4   

$ 93.7 $ 63.2

     On April 29, 2022, the Utilities requested 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.  Cash flows. The following table reflects the changes in cash flows for the three months ended March 31, 2022 compared to the three months ended March 31, 2021:                                                               Three months ended March 31 (in thousands)                                                  2022                 2021             Change Net cash provided by operating activities                 $       76,775          $ 31,961          $ 44,814 Net cash used in investing activities                            (74,864)          (68,498)           (6,366) Net cash provided by (used in) financing activities              (25,974)           36,460           (62,434)    Net cash provided by operating activities. The increase in net cash provided by operating activities was driven by higher cash receipts from customers due to increased disconnection effort and receipts of payments on installment plans, and timing in receipts of payments from large government accounts, as well as lower cash paid for accounts payable due to timing, partially offset by higher cash paid for fuel oil stock due to higher fuel oil prices and volume purchased.  

Net cash used in investing activities. The increase in net cash used in investing activities was primarily driven by an increase in capital expenditures related to construction activities.

Net cash provided by financing activities. The decrease in net cash provided by financing activities was primarily driven by lower net cash from long-term debts, partially offset by net increase in short-term borrowings.

    Material cash requirements. Material cash requirements of the Utilities include O&M expenses, including labor and benefit costs, fuel and purchase power costs, repayment of debt and interest payments, operating lease obligations, its forecasted capital expenditures and investments, its expected retirement benefit plan contributions and other short-term and long-term material cash requirements. The cash requirements for O&M, fuel and purchase power costs, debt and interest payments, and operating lease obligations are generally funded through the collection of the Utilities' revenue requirement established in the last rate case and other mechanisms established under the regulatory framework. The cash requirements for capital expenditures are generally funded through retained earnings, the issuance of debt, and contributions of equity from HEI and generally recovered through the Utilities' revenue requirement or other capital recovery mechanisms over time. The Utilities believe that their ability to generate cash is adequate to maintain sufficient liquidity to fund their material cash requirements. However, the COVID-19 pandemic is an evolving situation, and the Utilities cannot predict the extent or duration of the outbreak, the future effects that it will have on the global, national or local economy, including the impacts on the Utilities' ability, as well as the cost, to access additional capital, or the future impacts on the Utilities' financial position, results of operations, and cash flows.  Forecast capital expenditures. For the five-year period 2022 through 2026, the Utilities forecast up to $2.1 billion of net capital expenditures, which could change over time based upon external factors such as the timing and scope of environmental regulations and/or unforeseen delays in permitting and timing of PUC decisions. Approximately $1.3 billion is related to replacement and modernization of generation, transmission and distribution assets; approximately $0.5 billion is related to climate-related projects to transition to renewable energy or mitigate climate impacts by increasing the resilience of the system, and approximately $0.3 billion for targeted efforts to improve reliability. Proceeds from the issuance of equity and long-term debt, cash flows from operating activities, temporary increases in short-term borrowings and existing cash and cash equivalents are expected to provide the funds needed for the net capital expenditures, to pay down commercial paper or other short-term borrowings, as well as to fund any unanticipated expenditures not included in the 2022 to 2026 forecast (such as increases in the costs or acceleration of capital projects, or unanticipated capital expenditures that may be required by new environmental laws and regulations).                                         69 --------------------------------------------------------------------------------  Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities.                                         70 --------------------------------------------------------------------------------

Bank

Recent Developments-COVID-19

See also Recent developments-COVID-19 in HEI's MD&A.

    The Hawaii economy continued to improve in the first quarter of 2022 as an increase in visitor arrivals have helped drive a growing labor market and tax collections. Domestic visitor arrivals were near pre-pandemic levels due to pent up demand from leisure travelers. The state and county governments have also lifted all COVID-related travel restrictions for arriving domestic passengers. International visitor arrivals continued to lag significantly behind pre-pandemic levels but it is expected to increase as Asian countries begin to loosen travel restrictions. Other COVID-related mandates have also been lifted such as the indoor mask mandate and capacity limits for indoor and outdoor events. Although new daily case counts have risen recently, hospitalization rates have not been impacted by the increase in infection counts.  The Federal Reserve raised its federal funds rate for the first time in three years in response to inflationary pressures in the economy. The overall level of interest rates across the curve remain at relatively low levels and ASB's net interest margin for the quarter ended March 31, 2022 of 2.79% was flat to the linked quarter ended December 31, 2021 and lower than the net interest margin for the quarter ended March 31, 2021 of 2.95%.  ASB continued to experience deposit growth, which outpaced loan growth and was used to purchase investment securities. The Bank's ASB CARES loan program continued to paydown and fees from the program along with the growth in investment securities portfolio contributed to higher interest income, offsetting the effect of lower loan portfolio balances and earning asset yields. Net interest income improved to $59.0 million for the quarter ended March 31, 2022 compared to $57.1 million for the quarter ended March 31, 2021.  For the quarter ended March 31, 2022, ASB recorded a $3.3 million negative provision for credit losses that reduced the allowance for credit losses, reflecting the release of reserves for a nonperforming loan that was paid down, lower loss rates in the commercial real estate loan portfolio and overall lower net charge offs. The provision for credit losses in future quarters will be dependent on future economic conditions and changes to borrower credit quality at that time.  In response to COVID-19, ASB made short-term loan modifications to borrowers who were generally payment current at the time of relief. As of March 31, 2022, approximately $0.1 million of loans remained in their active deferral period. Approximately $6.1 million of loans were not able to resume their contractual payments and were considered delinquent as of March 31, 2022.  In 2020, ASB temporarily closed 15 of its 49 branches and reduced banking hours at the branches that remained open in an effort to reduce social gathering and protect employees and customers. The bank has since reopened seven of the branches that were temporarily closed and permanently closed eight branches. Three of the reopened branches are now digital branches, which provides digital solutions such as full-service ATMs and access to expert bankers through videoconferencing tools while allowing ASB to have a more efficient physical footprint . The reduction in ASB's branch network should not have a significant impact to the bank's customers as there are other branches nearby and other channels such as online and mobile banking. ASB continues to evaluate its branch network to determine whether further changes may be appropriate given its customers' use of other banking channels.  ASB's senior management team continually addresses the impacts to the operations and business of the bank as a result of the pandemic and meets regularly with ASB's board of directors to keep them apprised of the impacts of the COVID-19 pandemic.  The CARES Act was signed into law on March 27, 2020. The CARES Act provided over $2 trillion in economic assistance for American workers, families, and small businesses, and job preservation for American industries. The PPP was established under the CARES Act and implemented by the United States Small Business Administration (SBA) to provide a direct incentive for small businesses to keep their workers on the payroll as a result of the COVID-19 crisis. ASB worked with a number of small businesses, both customers and non-customers, to complete the loan application forms so that these businesses could participate in the program. During the first round of PPP, the Bank secured more than $370 million in PPP loans for approximately 4,100 small businesses that supported over 40,000 jobs; ASB received processing fees totaling approximately $13 million and started recognizing these fees over the life of the loans. During the second round of PPP, ASB secured more than $175 million for approximately 2,200 small businesses that supported more than 20,000 jobs; ASB received processing fees of approximately $9 million. The remaining PPP loans outstanding as of March 31, 2022 was approximately $41 million and the remaining fees to be recognized over the life of the loans was approximately $1.5 million.  

Other provisions of the CARES Act provides that a financial institution may elect to suspend the requirements under GAAP for certain loan modifications that would otherwise be categorized as a TDR and any related impairment for accounting

                                         71 --------------------------------------------------------------------------------

purposes. See Note 4 of the Condensed Consolidated Financial Statements and "Economic conditions" in the "HEI Consolidated" section above.

ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.

                                    Three months ended March                                            31                    Increase (in millions)                      2022           2021          (decrease)                                Primary reason(s) Interest and dividend           $    60          $ 59          $        1 income                                                                                    Average loan portfolio yields were 19 basis points                                                                                    lower-impacted by the continued low interest rate environment                                                                                    as adjustable rate loans have repriced lower during the past                                                                                    year and new loan production yields continue to originate below                                                                                    their portfolio yields. Lower loan yields were also due to                                                                                    lower PPP loan fees recognized in 2022 compared to 2021 as the                                                                                    PPP loan portfolio has paid down significantly over the past                                                                                    year.                                                                                    Average loan portfolio balances decreased $156 million - home                                                                                    equity lines of credit average balance decreased $97 million                                                                                    due to increased paydowns in the portfolio; consumer loan                                                                                    average balance decreased $45 million due to ASB's strategic                                                                                    decision to reduce production of this loan type during the                                                                                    period of weakened economic activity caused by the COVID-19                                                                                    pandemic. Commercial loan average balance decreased $201                                                                                    million due to repayments in the PPP loan portfolio.                                                                                    Residential average balance increased $154 million due to the                                                                                    Bank's decision to portfolio a larger portion of the                                                                                    production. Commercial real estate average balance increased                                                                                    $28 million due to demand for this loan type.                                                                                    Average investment securities portfolio balance increased $801                                                                                    million-excess liquidity from strong deposit growth invested in                                                                                    agency securities.                                                                                    Average investment securities yields 30 basis points                                                                                    higher-benefited from lower amortization of premiums in the                                                                                    investment portfolio. Noninterest income                   16            19                  (3)                                                                                    Lower mortgage banking income - lower residential loan sale                                                                                    volume due to lower production volume, ASB's decision to                                                                                    portfolio a larger portion of the residential loan production                                                                                    and lower residential loan sale profit margin in 2022 compared                                                                                    to 2021.                                                                                    Lower bank owned life insurance income - lower return from                                                                                    insurance policies and lower insurance policy claim proceeds in                                                                                    2022 compared to 2021.                                                                                    Gain on sale of real estate - due to the sale of a branch                                                                            

property owned by ASB. The branch was closed in January 2022. Less: gain on sale of

                  (1)            -                  (1)  

Gain on sale of real estate, which is included in Noninterest real estate

         income above and in the Bank's statements of income and                                                                                    comprehensive income in Note 4, is classified as gain on sale                                                                                    of real estate in the condensed consolidated statements of                                                                                    income, and accordingly, is reflected in operating expenses                                                                            

below as a separate line item and excluded from Revenues. Less: gain on sale of

                   -            (1)                  1   

Gain on sale of investment securities, net, which is included investment securities,

         in Noninterest income above and in the Bank's statements of net                                                                                income and comprehensive income in Note 4, is classified as                                                                                    gain on sale of investment securities, net in the condensed                                                                                    consolidated statements of income, and accordingly, is                                                                                    reflected below following operating income as a separate line                                                                                    item and excluded from Revenues. Revenues                             75            77                  (2)         The decrease in revenues for the three months ended March 31,                                                                                    2022 compared to the same period in 2021 was primarily due to                                                                                    lower noninterest income partly offset by higher interest                                                                                    income. Interest expense                      1             1                   -                                                                                    Interest expense on deposits and other borrowings were flat.                                                                                    Average core deposit balances increased $535 million; average                                                                                    term certificate balances decreased $129 million.                                                                                    Average deposit yields decreased from 8 basis points to 5 basis                                                                                    points.                                                                                    Average other borrowings decreased $15 million and average                                                                                    yields decreased 8 basis points.

  Provision for credit                 (3)           (8)                  5 losses                                          72

  --------------------------------------------------------------------------------

                                       Three months ended March 31             Increase (in millions)                      2022                    2021            (decrease)                                Primary reason(s)                                                                                               2022 negative provision for credit losses reflects a stable                                                                                               economic outlook, good credit trends including lower net                                                                                               charge-offs and improved credit loss rates which included                                                                                               credit upgrades in the commercial real estate loan portfolio.                                                                                               2022 negative provision for credit losses also due to the                                                                                               release of loss reserves for a commercial real estate credit.                                                                                               2021 negative provision for credit losses reflected improvement                                                                                               in economic outlook, strong credit results including lower net                                                                                               charge-offs and improved credit loss rates which included                                                                                               credit upgrades in the commercial real estate and commercial                                                                                               loan portfolios.                                                                                               2021 negative provision for credit losses was also due to lower                                                                                               personal unsecured loan portfolio balances which had higher                                                                                               credit loss rates.                                                                                               Delinquency rates have decreased-from 0.43% at March 31, 2021                                                                                               to 0.27% at March 31, 2022 due to lower residential 1-4 family,                                                                                               commercial real estate, consumer and home equity line of credit                                                                                               loan delinquencies.                                                                                               Net charge-off to average loans have decreased-from 0.18% at                                                                                               March 31, 2021 to 0.01% at March 31, 2022 primarily due to                                                                                               lower personal unsecured loan portfolio net charge-offs. Noninterest expense                 48                      48                   -                                                                                               Lower compensation and benefits expenses offset by higher                                                                                               occupancy expenses.                                                                                               2021 noninterest expense benefited from a one-time credit                                                                                               adjustment for a change in accounting for the ASB retirement                                                                                               plan. Gain on sale of real                (1)                      -                  (1) estate Expenses                            45                      41                   4            The increase in expenses for the three months ended March 31,                                                                                               2022 compared to the same period in 2021 was due to higher                                                                                               negative provision for credit losses in 2021, partly offset by                                                                                               higher gain on sale of real estate. Operating income                    30                      36                  (6)           The decrease in operating income for the three months ended                                                                                               March 31, 2022 compared to the same period in 2021 was                                                                                               primarily due to higher negative provision for credit losses in                                                                                               2021 and lower noninterest income, partly offset by higher                                                                                               interest income. Gain on sale of                      -                       1                  (1)           The decrease in gain on sale of investment securities - investment securities,                                                                        primarily due to the sale of investment securities in 2021 with net                                                                                           no similar sales in 2022. Net income                          24                      30                  (6)           Net income for the three months ended March 31, 2022 was lower                                                                                               than the same period in 2021 due to lower operating income and                                                                                               lower gain on sale of investment securities, partly offset by                                                                                               lower income tax expense.    ASB's return on average assets, return on average equity and net interest margin were as follows:                                         Three months ended March 31 (%)                                                            2022          2021 Return on average assets                                      1.04           1.40 Return on average equity                                     13.70          16.04 Net interest margin                                           2.79           2.95                                           73

  --------------------------------------------------------------------------------                                                                                                Three months ended March 31                                                                             2022                                                      2021                                                                            Interest                                                  Interest                                                         Average             income/            Yield/             Average             income/            Yield/ (dollars in thousands)                                  balance             expense           rate (%)            balance             expense           rate (%) Assets: Interest-earning deposits                            $   134,835          $     66             0.20            $    47,080          $     12             0.10 FHLB stock                                                10,000                74             3.00                  9,929                81             3.29 Investment securities Taxable                                                3,131,482            13,554             1.73              2,352,570             8,366             1.42 Non-taxable                                               69,600               367             2.11                 47,599               271             2.28 Total investment securities                            3,201,082            13,921             1.74              2,400,169             8,637             1.44 Loans Residential 1-4 family                                 2,303,446            20,113             3.49              2,149,788            19,588             3.64 Commercial real estate                                 1,137,295             9,211             3.25              1,108,851             9,005             3.26 Home equity line of credit                               840,974             6,223             3.00                937,942             7,265             3.14 Residential land                                          20,822               257             4.93                 16,457               210             5.11 Commercial                                               761,525             6,812             3.60                962,198             8,912             3.73 Consumer                                                 113,826             3,459            12.33                158,930             4,987            12.72 Total loans 1,2                                        5,177,888            46,075             3.58              5,334,166            49,967             3.77 Total interest-earning assets 3                        8,523,805            60,136             2.83              7,791,344            58,697             3.03 Allowance for credit losses                              (71,135)                                                 (101,712) Noninterest-earning assets                               709,010                                                   766,844 Total assets                                         $ 9,161,680                                               $ 8,456,476 Liabilities and shareholder's equity: Savings                                              $ 3,258,551          $    207             0.03            $ 2,901,661          $    191             0.03 Interest-bearing checking                              1,331,008                64             0.02              1,180,049                57             0.02 Money market                                             205,363                33             0.07                178,275                37             0.09 Time certificates                                        411,372               643             0.63                540,461             1,177             0.88 Total interest-bearing deposits                        5,206,294               947             0.07              4,800,446             1,462            

0.12

   Advances from Federal Home Loan Bank                           -                 -                -                 30,126                23           

0.30

   Securities sold under agreements to repurchase and federal funds purchased                               90,279                 5             0.02                 75,332                 4           

0.02

   Total interest-bearing liabilities                     5,296,573               952             0.07              4,905,904             1,489            

0.12

   Noninterest bearing liabilities: Deposits                                               2,973,597                                                 2,645,636 Other                                                    194,449                                                   168,067 Shareholder's equity                                     697,061                                                   736,869 Total liabilities and shareholder's equity           $ 9,161,680                                               $ 8,456,476 Net interest income                                                       $ 59,184                                                  $ 57,208 Net interest margin (%) 4                                                                      2.79                                                      2.95  

1 Includes loans held for sale, at lower of cost or fair value.

2 Includes recognition of net deferred loan fees of $1.9 million and $2.8 million for the three months ended March 31, 2022 and 2021, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans. Includes nonaccrual loans.

3 For the three months ended March 31, 2022 and 2021, the taxable-equivalent basis adjustments made to the table above were not material.

4 Defined as net interest income, on a fully taxable equivalent basis, as a percentage of average total interest-earning assets.

    Earning assets, costing liabilities, contingencies and other factors.  Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on earning assets and interest paid on costing liabilities. The interest rate environment has been impacted by disruptions in the financial markets over a period of several years. Although the Federal Open Market Committee increased its federal funds rate target range to 0.25% - 0.50% in 2022 due to signs of inflation, ASB's                                         74 --------------------------------------------------------------------------------

net interest income and net interest margin remain at lower levels. A prolonged low interest rate environment may continue to negatively impact ASB's net interest income and net interest margin.

Loans and mortgage-backed securities are ASB's primary earning assets.

    Loan portfolio.  ASB's loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management's responses to these factors. See Note 4 of the Condensed Consolidated Financial Statements for a composition of ASB's loan portfolio.  Home equity - key credit statistics. The 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 March 31, 2022, approximately 38% of the portfolio balances were amortizing loans under the Fixed Rate Loan Option. A HELOC loan is typically in a subordinate lien position to a borrower's first mortgage loan, however, approximately 57% of ASB's HELOC loan portfolio is in a first lien position.  

Loan portfolio risk elements. See Note 4 of the Condensed Consolidated Financial Statements.

Investment securities. ASB's investment portfolio was comprised as follows:

         March 31, 2022                                  December 31, 2021 (dollars in thousands)                                                     Balance               % of total                 Balance                 % of total U.S. Treasury and federal agency obligations                          $      166,079                       5  %       $         149,961                 

5 % Mortgage-backed securities - issued or guaranteed by U.S. Government agencies or sponsored agencies

  2,914,027                      93                  2,900,322                      94 Corporate bonds                                                               43,123                       1                     31,178                       1 Mortgage revenue bonds                                                        15,296                       1                     15,427                       - Total investment securities                                           $    3,138,525                     100  %       $       3,096,888                     100  %   Currently, ASB's investment portfolio consists of U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are also backed by the full faith of the U.S. government. The increase in the investment securities portfolio was primarily due to the purchase of treasury and agency mortgage-backed securities with excess liquidity.  Deposits and other borrowings.  Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management's responses to these factors. While deposits have increased by $117 million year-to-date, deposit retention and sustained growth will remain challenging in the current environment due to the low level of short-term interest rates. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase and federal funds purchased continue to be additional sources of funds. As of March 31, 2022 ASB's costing liabilities consisted of 98% deposits and 2% other borrowings compared to 99% deposits and 1% other borrowings as of December 31, 2021. The weighted average cost of deposits for the first three months of 2022 and 2021 was 0.05% and 0.08%, respectively.  Federal Home Loan Bank of Des Moines. As of March 31, 2022 and December 31, 2021, ASB had no advances outstanding at the FHLB of Des Moines. As of March 31, 2022, the unused borrowing capacity with the FHLB of Des Moines was $2.1 billion. The FHLB of Des Moines continues to be an important source of liquidity for ASB.  Contingencies.  ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.  Other factors.  Interest rate risk is a significant risk of ASB's operations and also represents a market risk factor affecting the fair value of ASB's investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively. In addition, changes in credit spreads also impact the fair values of the investment securities.                                         75 --------------------------------------------------------------------------------  As of March 31, 2022, ASB had an unrealized loss, net of taxes, on available-for-sale investment securities (including securities pledged for repurchase agreements) in AOCI of $152.4 million compared to an unrealized loss, net of taxes, of $32.0 million as of December 31, 2021. See "Item 3. Quantitative and qualitative disclosures about market risk" for a discussion of ASB's interest rate risk sensitivity.  During the first three months of 2022, ASB recorded a negative provision for credit losses of $3.8 million in the allowance for credit losses reflecting a stable economic outlook, good credit trends including lower net charge-offs and credit upgrades in the commercial real estate loan portfolio and the release of reserves for a nonperforming commercial real estate loan. During the first three months of 2021, ASB recorded a negative provision for credit losses of $7.0 million in the allowance for credit losses primarily due to improvement in the economic outlook, strong credit results including lower net charge-offs and credit upgrades in the commercial real estate and commercial loan portfolios and lower personal unsecured loan portfolio balances.                                                                     Three months ended March 31               Year ended (in thousands)                                                        2022                 2021            December 31, 2021 Allowance for credit losses, beginning of period                $     71,130           $ 101,201          $        101,201  Provision for credit losses                                           (3,763)             (7,035)                  (26,425) Less: net charge-offs                                                    156               2,373                     3,646 Allowance for credit losses, end of period                      $     67,211           $  91,793          $         71,130 

Ratio of net charge-offs during the period to average loans outstanding (annualized)

                                            0.01  %             0.18  %                   0.07  %   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 three months ended March 31, 2022 and 2021, ASB recorded a provision for credit losses for unfunded commitments of $0.5 million and a negative provision for credit losses for unfunded commitments of $1.4 million, respectively. As of March 31, 2022 and December 31, 2021, the reserve for unfunded loan commitments was $5.4 million and $2.9 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."  Changes to Community Bank Leverage Ratio. In April 2020, the federal bank regulatory agencies issued two interim final rules to implement Section 4012 of the CARES Act, which requires the agencies to temporarily lower the community bank leverage ratio to 8 percent. The two rules modify the community bank leverage ratio framework so that: •Beginning in the second quarter of 2020 and until the end of the year, a banking organization that has a leverage ratio of 8 percent or greater and meets certain other criteria may elect to use the community bank leverage ratio framework; and •Community banking organizations had until January 1, 2022 before the community bank leverage ratio requirement is re-established at greater than 9 percent.  Under the interim final rules, the community bank leverage ratio was 8 percent beginning in the second quarter of 2020 and for the remainder of calendar year 2020, 8.5 percent for calendar year 2021, and 9 percent thereafter. The interim final rules also maintain a two-quarter grace period for a qualifying community banking organization whose leverage ratio falls no more than 1 percent below the applicable community bank leverage ratio.  Beginning in the second quarter of 2020, ASB adopted the community bank leverage ratio framework, which allowed it to report only on the community bank leverage ratio, but does not change minimum capital requirements under OCC regulations. At March 31, 2021, ASB's leverage ratio was below the 8.5 percent requirement to qualify for abbreviated reporting under the community bank leverage framework for 2021 and started reporting its risk-based capital ratios in the third quarter of 2021. As of March 31, 2022, the bank was in compliance with all of the minimum capital requirements under OCC regulations, and was categorized as "well capitalized" under the regulatory framework for prompt corrective action.                                         76 --------------------------------------------------------------------------------                                FINANCIAL CONDITION  Liquidity and capital resources. (dollars in millions)                March 31, 2022      December 31, 2021       % change Total assets                        $        9,252      $            9,182           1 Investment securities                        3,139                   3,097           1 Loans held for investment, net               5,118                   5,140           - Deposit liabilities                          8,289                   8,172           1 Other bank borrowings                          137                      88          56  

As of March 31, 2022, ASB was one of Hawaii's largest financial institutions based on assets of $9.3 billion and deposits of $8.3 billion.

    As of March 31, 2022, ASB's unused FHLB borrowing capacity was approximately $2.1 billion. As of March 31, 2022, ASB had commitments to borrowers for loans and unused lines and letters of credit of $2.0 billion, of which, commitments to lend to borrowers whose loan terms have been modified in troubled debt restructurings were nil. Management believes ASB's current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.  For the three months ended March 31, 2022, net cash provided by ASB's operating activities was $24 million. Net cash used during the same period by ASB's investing activities was $152 million, primarily due to purchases of available-for-sale securities of $291 million and additions to premises and equipment of $1 million, partly offset by the receipt of investment security repayments and maturities of $109 million, a net decrease in loans of $28 million, proceeds from redemption of bank owned life insurance of $2 million and proceeds from the sale of real estate of $1 million. Net cash provided by financing activities during this period was $147 million, primarily due to increases in deposit liabilities of $117 million and a net increase in repurchase agreements of $49 million, partly offset by a net decrease in mortgage escrow deposits of $4 million and $15 million in common stock dividends to HEI (through ASB Hawaii).  For the three months ended March 31, 2021, net cash provided by ASB's operating activities was $17 million. Net cash used during the same period by ASB's investing activities was $448 million, primarily due to purchases of available-for-sale securities of $782 million, purchases of held-to-maturity securities of $88 million, additions to premises and equipment of $3 million, contributions to low income housing investments of $3 million and a net increase in stock from the Federal Home Loan Bank of $1 million, partly offset by the receipt of investment security repayments and maturities of $205 million, proceeds from the sale of investment securities of $197 million, a net decrease in loans receivable of $24 million and proceeds from the redemption of bank owned life insurance of $3 million. Net cash provided by financing activities during this period was $362 million, primarily due to increases in deposit liabilities of $358 million and a net increase in repurchase agreements of $13 million, partly offset by a net decrease in mortgage escrow deposits of $4 million and $5 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 March 31, 2022, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 7.8% (5.0%), common equity Tier-1 ratio of 13.3% (6.5%), Tier-1 capital ratio of 13.3% (8.0%) and total capital ratio of 14.3% (10.0%). As of December 31, 2021, ASB was well-capitalized (well-capitalized ratio requirements noted in parentheses) with a Tier-1 leverage ratio of 7.9% (5.0%), common equity Tier-1 ratio of 13.3% (6.5%), Tier-1 capital ratio of 13.3% (8.0%) and total capital ratio of 14.3% (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).