HEI(HE) - 2021 Q2 - Quarterly Report

Glossary of Terms This section defines key terms and acronyms used in the report for clarity and understanding Cautionary Note Regarding Forward-Looking Statements This section warns that forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ from projections - Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions concerning HEI and its subsidiaries, industry performance, and economic, political, and market factors[14] - Key risks include international, national, and local economic and political conditions (e.g., Hawaii tourism, real estate markets, federal government presence), the extent and duration of the COVID-19 pandemic, ability to address ESG risks, citizen activism, weather and natural disasters, interest rate changes, access to capital markets, and changes in pension/retirement plan assets[15] - Additional risks involve potential PUC delays or disapprovals of renewable energy proposals, ability to recover costs of implementing utility action plans, fuel oil price changes, availability of cost recovery mechanisms, impact of performance-based ratemaking, increasing reliance on renewable energy, cybersecurity risks, and federal/state/county regulatory actions[16] Part I. Financial Information Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements for HEI and Hawaiian Electric, including income, balance sheets, and notes Hawaiian Electric Industries, Inc. and Subsidiaries This subsection provides HEI's condensed consolidated financial statements, covering income, comprehensive income, balance sheets, equity, and cash flows Condensed Consolidated Statements of Income (HEI) HEI's consolidated net income for common stock significantly increased, driven by higher revenues and operating income from the Bank segment Condensed Consolidated Statements of Income (in thousands, except per share amounts) | (in thousands, except per share amounts) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenues | $ 680,257 | $ 608,945 | $ 1,323,203 | $ 1,286,131 | | Total operating income | $ 101,856 | $ 71,556 | $ 199,887 | $ 131,258 | | Net income for common stock | $ 63,872 | $ 48,887 | $ 128,230 | $ 82,307 | | Basic earnings per common share | $ 0.58 | $ 0.45 | $ 1.17 | $ 0.75 | Condensed Consolidated Statements of Comprehensive Income (HEI) HEI's comprehensive income increased for three months but decreased for six months, due to unrealized losses on investment securities Condensed Consolidated Statements of Comprehensive Income (in thousands) | (in thousands) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income for common stock | $ 63,872 | $ 48,887 | $ 128,230 | $ 82,307 | | Other comprehensive income (loss), net of taxes | $ 16,472 | $ (332) | $ (27,544) | $ 17,880 | | Comprehensive income attributable to Hawaiian Electric Industries, Inc. | $ 80,344 | $ 48,555 | $ 100,686 | $ 100,187 | Condensed Consolidated Balance Sheets (HEI) HEI's total assets increased to $15.6 billion from $15.0 billion, driven by investment securities and property, plant, and equipment Condensed Consolidated Balance Sheets (dollars in thousands) | (dollars in thousands) | June 30, 2021 | December 31, 2020 | | :--------------------- | :------------ | :---------------- | | Total assets | $ 15,606,729 | $ 15,004,007 | | Total liabilities | $ 13,205,107 | $ 12,632,212 | | Total shareholders' equity | $ 2,367,329 | $ 2,337,502 | Condensed Consolidated Statements of Changes in Shareholders' Equity (HEI) HEI's total shareholders' equity increased to $2.367 billion, driven by net income, partially offset by dividends and other comprehensive loss Condensed Consolidated Statements of Changes in Shareholders' Equity (in thousands) | (in thousands) | Balance, December 31, 2020 | Net income for common stock | Other comprehensive loss, net of tax benefits | Common stock dividends (34¢ per share) | Balance, June 30, 2021 | | :------------- | :------------------------- | :-------------------------- | :-------------------------------------------- | :------------------------------------- | :--------------------- | | Total | $ 2,337,502 | $ 128,230 | $ (27,544) | $ (74,311) | $ 2,367,329 | Condensed Consolidated Statements of Cash Flows (HEI) HEI experienced a net decrease in cash, with operating activities providing $117.6 million, investing using $771.4 million, and financing providing $552.9 million Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $ 117,587 | $ 197,383 | | Net cash used in investing activities | $ (771,432) | $ (629,256) | | Net cash provided by financing activities | $ 552,927 | $ 808,046 | | Net increase (decrease) in cash, cash equivalents and restricted cash | $ (100,918) | $ 376,173 | | Cash and cash equivalents, end of period | $ 247,443 | $ 574,482 | Hawaiian Electric Company, Inc. and Subsidiaries This subsection presents Hawaiian Electric's condensed consolidated financial statements, covering income, comprehensive income, balance sheets, equity, and cash flows Condensed Consolidated Statements of Income (Hawaiian Electric) Hawaiian Electric's net income for common stock increased for the six-month period due to higher revenues and operating income, despite a slight three-month decrease Condensed Consolidated Statements of Income (in thousands) | (in thousands) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Revenues | $ 601,879 | $ 534,215 | $ 1,166,743 | $ 1,131,657 | | Operating income | $ 67,684 | $ 67,801 | $ 136,798 | $ 111,759 | | Net income for common stock | $ 41,901 | $ 42,329 | $ 85,259 | $ 66,234 | Condensed Consolidated Statements of Comprehensive Income (Hawaiian Electric) Hawaiian Electric's comprehensive income increased for both periods, driven by higher net income and positive other comprehensive income from retirement plans Condensed Consolidated Statements of Comprehensive Income (in thousands) | (in thousands) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income for common stock | $ 41,901 | $ 42,329 | $ 85,259 | $ 66,234 | | Other comprehensive income, net of taxes | $ 35 | $ 25 | $ 69 | $ 51 | | Comprehensive income attributable to Hawaiian Electric Company, Inc. | $ 41,936 | $ 42,354 | $ 85,328 | $ 66,285 | Condensed Consolidated Balance Sheets (Hawaiian Electric) Hawaiian Electric's total assets increased to $6.548 billion from $6.457 billion, primarily due to increased utility property, plant, and equipment Condensed Consolidated Balance Sheets (dollars in thousands) | (dollars in thousands) | June 30, 2021 | December 31, 2020 | | :--------------------- | :------------ | :---------------- | | Total assets | $ 6,547,974 | $ 6,457,373 | | Total capitalization | $ 3,881,732 | $ 3,737,513 | | Total current liabilities | $ 524,027 | $ 572,995 | | Total deferred credits and other liabilities | $ 2,142,215 | $ 2,146,865 | Condensed Consolidated Statements of Changes in Common Stock Equity (Hawaiian Electric) Hawaiian Electric's common stock equity increased to $2.171 billion, driven by net income, partially offset by common stock dividends Condensed Consolidated Statements of Changes in Common Stock Equity (in thousands) | (in thousands) | Balance, December 31, 2020 | Net income for common stock | Other comprehensive income, net of taxes | Common stock dividends | Balance, June 30, 2021 | | :------------- | :------------------------- | :-------------------------- | :--------------------------------------- | :--------------------- | :--------------------- | | Total | $ 2,141,918 | $ 85,259 | $ 69 | $ (55,850) | $ 2,171,396 | Condensed Consolidated Statements of Cash Flows (Hawaiian Electric) Hawaiian Electric's net cash from operating activities decreased significantly, while investing cash use and financing cash provided also saw reductions Condensed Consolidated Statements of Cash Flows (in thousands) | (in thousands) | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $ 57,453 | $ 181,468 | | Net cash used in investing activities | $ (133,355) | $ (181,091) | | Net cash provided by financing activities | $ 45,210 | $ 51,100 | | Net increase (decrease) in cash and cash equivalents | $ (30,692) | $ 51,477 | | Cash and cash equivalents, end of period | $ 23,666 | $ 63,995 | Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited financial statements, covering presentation, segments, credit, equity, revenues, benefits, compensation, taxes, cash flows, and fair value Note 1 · Basis of presentation The unaudited financial statements conform to GAAP, with no material impact from ASU 2019-12 adoption and no expected material impact from planned early adoption of ASU 2021-05 - The Company adopted ASU No. 2019-12, 'Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,' as of January 1, 2021, with no material impact on its consolidated financial statements[39] - The Company plans to early adopt ASU No. 2021-05, 'Leases (Topic 842): Lessors–Certain Leases with Variable Lease Payments,' as of September 30, 2021, retrospectively, with no material impact expected[40] Note 2 · Segment financial information This note disaggregates HEI's financial performance by Electric Utility, Bank, and Other segments, detailing revenues, income, and assets for reported periods HEI Segment Performance (Three Months Ended June 30) | (in thousands) | Electric utility | Bank | Other | Total | | :------------- | :--------------- | :--- | :---- | :---- | | Revenues | $ 601,879 | $ 77,260 | $ 1,118 | $ 680,257 | | Income (loss) before income taxes | $ 53,898 | $ 39,992 | $ (10,946) | $ 82,944 | | Net income (loss) for common stock | $ 41,901 | $ 30,284 | $ (8,313) | $ 63,872 | HEI Segment Performance (Six Months Ended June 30) | (in thousands) | Electric utility | Bank | Other | Total | | :------------- | :--------------- | :--- | :---- | :---- | | Revenues | $ 1,166,743 | $ 154,391 | $ 2,069 | $ 1,323,203 | | Income (loss) before income taxes | $ 108,988 | $ 77,094 | $ (22,942) | $ 163,140 | | Net income (loss) for common stock | $ 85,259 | $ 59,840 | $ (16,869) | $ 128,230 | HEI Segment Assets (As of Period End) | (in thousands) | Electric utility | Bank | Other | Total | | :------------- | :--------------- | :--- | :---- | :---- | | Total assets (June 30, 2021) | $ 6,547,974 | $ 8,909,904 | $ 148,851 | $ 15,606,729 | | Total assets (December 31, 2020) | $ 6,457,373 | $ 8,396,533 | $ 150,101 | $ 15,004,007 | Note 3 · Electric utility segment This note details the Electric Utility segment's operations, including PPAs, environmental contingencies, regulatory proceedings, and the new PBR Framework with ARA and ESM - The Utilities are not the primary beneficiary of Kalaeloa Partners, L.P., AES Hawaii, Inc., and Hamakua Energy, and thus do not consolidate them, despite having variable interests through PPAs[45] Power Purchases from IPPs (in millions) | IPP | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Kalaeloa | $ 49 | $ 34 | $ 86 | $ 72 | | AES Hawaii | $ 36 | $ 32 | $ 66 | $ 63 | | HPOWER | $ 14 | $ 17 | $ 31 | $ 34 | | Hamakua Energy | $ 12 | $ 11 | $ 23 | $ 24 | | Puna Geothermal Venture | $ 7 | $ — | $ 11 | $ — | | Wind IPPs | $ 28 | $ 25 | $ 57 | $ 53 | | Solar IPPs | $ 16 | $ 17 | $ 28 | $ 28 | | Other IPPs | $ 1 | $ 1 | $ 3 | $ 3 | | Total IPPs | $ 163 | $ 137 | $ 305 | $ 277 | - The PUC approved a new Performance-Based Regulation (PBR) Framework on December 23, 2020, which includes an index-driven Annual Revenue Adjustment (ARA) and a symmetric Earnings Sharing Mechanism (ESM) with a 300 basis points dead band around a 9.5% target ROE[64][67][69] - The Utilities recorded $25.6 million in regulatory assets as of June 30, 2021, for COVID-19 related costs, with recovery pending PUC approval[85] Note 4 · Bank segment This note provides detailed financial information for American Savings Bank (ASB), covering income, balance sheets, credit losses, loan portfolio, and other financial instruments ASB Statements of Income Data (in thousands) | (in thousands) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net interest income | $ 60,762 | $ 56,683 | $ 117,893 | $ 117,758 | | Provision for credit losses | $ (12,207) | $ 15,133 | $ (20,642) | $ 25,534 | | Net income | $ 30,284 | $ 14,014 | $ 59,840 | $ 29,775 | ASB Balance Sheets Data (in thousands) | (in thousands) | June 30, 2021 | December 31, 2020 | | :------------- | :------------ | :---------------- | | Total assets | $ 8,909,904 | $ 8,396,533 | | Net loans | $ 5,106,207 | $ 5,232,642 | | Deposit liabilities | $ 7,873,430 | $ 7,386,957 | | Total shareholder's equity | $ 740,390 | $ 736,175 | - ASB recorded a negative provision for credit losses of $12.2 million for the three months and $20.6 million for the six months ended June 30, 2021, reflecting improved economic outlook and credit quality[106] Allowance for Credit Losses by Portfolio Segment (in thousands) | (in thousands) | Residential 1-4 family | Commercial real estate | Home equity line of credit | Commercial loans | Consumer loans | Total | | :------------- | :--------------------- | :--------------------- | :------------------------- | :--------------- | :------------- | :---- | | Ending balance, June 30, 2021 | $ 5,518 | $ 28,708 | $ 5,335 | $ 20,058 | $ 16,370 | $ 78,252 | | Ending balance, June 30, 2020 | $ 3,911 | $ 21,100 | $ 6,214 | $ 13,868 | $ 31,087 | $ 81,307 | Note 5 · Credit agreements HEI and Hawaiian Electric amended credit agreements, increasing HEI's facility to $175 million and extending terms, with Hawaiian Electric's extension pending PUC approval - HEI's revolving credit facility increased to $175 million from $150 million, with its term extended to May 14, 2026[153] - Hawaiian Electric's $200 million revolving credit facility term is pending PUC approval for extension to May 14, 2026, and also requested an increase to $275 million[153] - The Amended Facilities include provisions for pricing adjustments based on performance against sustainability-linked metrics, such as achieving renewable portfolio standards and increasing PV system penetration[156] Note 6 · Shareholders' equity This note details changes in AOCI for HEI and Hawaiian Electric, covering unrealized gains/losses on securities, derivatives, and retirement plans Changes in AOCI Balances (in thousands) | (in thousands) | HEI Consolidated AOCI | Hawaiian Electric Consolidated AOCI-Retirement benefit plans | | :------------- | :-------------------- | :------------------------------------------ | | Balance, December 31, 2020 | $ (1,264) | $ (2,919) | | Current period other comprehensive income (loss) | $ (27,544) | $ 69 | | Balance, June 30, 2021 | $ (28,808) | $ (2,850) | Note 7 · Revenues This note disaggregates HEI's consolidated revenues by source, timing, and segment, including electric energy sales, bank fees, regulatory revenue, and interest income HEI Consolidated Revenues by Source (Three Months Ended June 30, 2021) | (in thousands) | Electric utility | Bank | Other | Total | | :------------- | :--------------- | :--- | :---- | :---- | | Electric energy sales - residential | $ 196,318 | $ — | $ — | $ 196,318 | | Electric energy sales - commercial | $ 192,103 | $ — | $ — | $ 192,103 | | Electric energy sales - large light and power | $ 201,536 | $ — | $ — | $ 201,536 | | Bank fees | $ — | $ 11,569 | $ — | $ 11,569 | | Regulatory revenue | $ 2,854 | $ — | $ — | $ 2,854 | | Bank interest and dividend income | $ — | $ 62,066 | $ — | $ 62,066 | | Total revenues | $ 601,879 | $ 77,260 | $ 1,118 | $ 680,257 | HEI Consolidated Revenues by Source (Six Months Ended June 30, 2021) | (in thousands) | Electric utility | Bank | Other | Total | | :------------- | :--------------- | :--- | :---- | :---- | | Electric energy sales - residential | $ 377,557 | $ — | $ — | $ 377,557 | | Electric energy sales - commercial | $ 360,568 | $ — | $ — | $ 360,568 | | Electric energy sales - large light and power | $ 378,351 | $ — | $ — | $ 378,351 | | Bank fees | $ — | $ 22,947 | $ — | $ 22,947 | | Regulatory revenue | $ 31,283 | $ — | $ — | $ 31,283 | | Bank interest and dividend income | $ — | $ 120,686 | $ — | $ 120,686 | | Total revenues | $ 1,166,743 | $ 154,391 | $ 2,069 | $ 1,323,203 | Note 8 · Retirement benefits This note details HEI's and Hawaiian Electric's retirement benefit plans, including contributions, net periodic costs, and an accounting principle change for fixed income securities - For the first six months of 2021, HEI contributed $23 million to its pension and other postretirement benefit plans, with an estimated total contribution of $52 million for the full year 2021[165] HEI Consolidated Net Periodic Pension/Benefit Cost (Six Months Ended June 30) | (in thousands) | 2021 | 2020 | | :------------- | :--- | :--- | | Net periodic pension/benefit cost (return) | $ 22,382 | $ 36,241 | | Impact of PUC D&Os | $ 16,680 | $ 12,523 | | Net periodic pension/benefit cost (adjusted for impact of PUC D&Os) | $ 39,062 | $ 48,764 | - Effective January 1, 2021, the Company adopted a change in accounting principle for the plans' fixed income securities from the calculated market-related value method to the fair value method, which was immaterial to historical financial statements[168] Note 9 · Share-based compensation This note details HEI's share-based compensation plans, including EIP and Director Stock Plan, covering restricted stock units and LTIPs linked to TSR and performance Share-based Compensation Expense (in millions) | (in millions) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :------------ | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | HEI consolidated Share-based compensation expense | $ 2.9 | $ 2.4 | $ 5.5 | $ 4.1 | | Hawaiian Electric consolidated Share-based compensation expense | $ 0.9 | $ 0.4 | $ 2.0 | $ 1.2 | - As of June 30, 2021, $7.3 million of total unrecognized compensation cost related to nonvested restricted stock units is expected to be recognized over a weighted-average period of 2.4 years[176] - As of June 30, 2021, $2.1 million of total unrecognized compensation cost related to nonvested performance awards linked to TSR is expected to be recognized over a weighted-average period of 1.6 years[182] Note 10 · Income taxes HEI's and Hawaiian Electric's effective tax rates were 21%, differing from statutory rates due to deferred taxes, tax credits, and non-taxable income, with IRS examining 2017-2018 returns - HEI's and Hawaiian Electric's effective tax rates were 21% for the six months ended June 30, 2021, compared to 17% and 19% respectively, for the same period in 2020[185] - The IRS notified the Company in August 2020 that its 2017 and 2018 income tax returns would be examined[186] Note 11 · Cash flows This note provides supplemental cash flow disclosures for HEI and Hawaiian Electric, including interest and taxes paid, and noncash activities like capital expenditures and right-of-use assets Supplemental Disclosures of Cash Flow Information (Six Months Ended June 30) | (in millions) | HEI consolidated 2021 | HEI consolidated 2020 | Hawaiian Electric consolidated 2021 | Hawaiian Electric consolidated 2020 | | :------------ | :-------------------- | :-------------------- | :---------------------------------- | :---------------------------------- | | Interest paid to non-affiliates, net of amounts capitalized | $ 51 | $ 50 | $ 37 | $ 32 | | Income taxes paid (including refundable credits) | $ 14 | $ — | $ 20 | $ — | Supplemental Disclosures of Noncash Activities (Six Months Ended June 30, 2021) | (in millions) | HEI consolidated | Hawaiian Electric consolidated | | :------------ | :--------------- | :----------------------------- | | Estimated fair value of noncash contributions in aid of construction (investing) | $ 1 | $ 1 | | Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) | $ 31 | $ 27 | | Right-of-use assets obtained in exchange for operating lease obligations (investing) | $ 38 | $ 38 | | Common stock issued (gross) for director and executive/management compensation (financing) | $ 7 | N/A | Note 12 · Fair value measurements This note describes fair value measurement methodologies for assets and liabilities, including investment securities, loans, and derivatives, presenting the fair value hierarchy - The fair value of ASB's investment securities is determined quarterly using independent third-party pricing services, primarily classified within Level 2 of the fair value hierarchy[189] - Loans held for investment are valued using a discounted cash flow approach, incorporating loan characteristics and forecast assumptions, and are classified within Level 3[193] HEI Consolidated Financial Assets Fair Value Hierarchy (June 30, 2021) | (in thousands) | Carrying or notional amount | Level 1 | Level 2 | Level 3 | Total Estimated Fair Value | | :------------- | :-------------------------- | :------ | :------ | :------ | :------------------------- | | Available-for-sale investment securities | $ 2,509,906 | $ — | $ 2,494,479 | $ 15,427 | $ 2,509,906 | | Held-to-maturity investment securities | $ 375,655 | $ — | $ 374,141 | $ — | $ 374,141 | | Loans, net | $ 5,157,084 | $ — | $ 50,884 | $ 5,233,001 | $ 5,283,885 | | Mortgage servicing rights | $ 10,754 | $ — | $ — | $ 14,213 | $ 14,213 | | Derivative assets | $ 30,465 | $ — | $ 511 | $ — | $ 511 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses HEI's financial condition and results, covering COVID-19, ESG, Hawaii's economy, and performance of Electric Utility and Bank segments HEI consolidated HEI's consolidated performance improved in Q2 2021, driven by Electric Utility and Bank segments, amidst improving Hawaii economic conditions and ongoing ESG commitment - Hawaii's economic conditions improved significantly in Q2 2021, with July 2021 daily passenger counts reaching 89% of 2019 levels and 60.3% of the state population fully vaccinated by August 1, 2021[212] - HEI's ESG strategy includes Board oversight, robust ESG expertise among directors, integration into executive incentive compensation, and explicit weaving into strategic planning and risk management[218][219][225] HEI Consolidated Financial Highlights (Three Months Ended June 30) | (in thousands) | 2021 | 2020 | % change | | :------------- | :--- | :--- | :------- | | Revenues | $ 680,257 | $ 608,945 | 12 | | Operating income | $ 101,856 | $ 71,556 | 42 | | Net income for common stock | $ 63,872 | $ 48,887 | 31 | HEI Consolidated Financial Highlights (Six Months Ended June 30) | (in thousands) | 2021 | 2020 | % change | | :------------- | :--- | :--- | :------- | | Revenues | $ 1,323,203 | $ 1,286,131 | 3 | | Operating income | $ 199,887 | $ 131,258 | 52 | | Net income for common stock | $ 128,230 | $ 82,307 | 56 | - HEI's effective tax rates for Q2 2021 and H1 2021 were 22% and 21% respectively, higher than the prior year due to increased income before taxes and lower amortization of regulatory liability related to excess deferred income taxes[224] - As of June 30, 2021, HEI had no outstanding balance on its $175 million revolving credit facility and $58 million of commercial paper outstanding. Available borrowing capacity (net of commercial paper) was approximately $279 million[238][242][244] - HEI's Board approved a 1 cent increase in the quarterly dividend to $0.34 per share, starting Q1 2021, with a payout ratio of 58% for H1 2021[249] Electric utility The Electric Utility segment saw improved H1 2021 economic conditions, increased kWh sales and revenues, and is pursuing decarbonization under a new PBR Framework - Statewide daily passenger counts reached 94.5% of 2019 levels by August 1, 2021, and unemployment improved to 7.7% by June 2021, leading to an 8.1% increase in Q2 2021 kWh sales compared to Q2 2020[256] - The Utilities' RBA balance was approximately $35.6 million as of June 30, 2021, up from $7.6 million at December 31, 2020, due to delayed timing of customer collections[257] Electric Utility Financial Highlights (Three Months Ended June 30) | (dollars in millions) | 2021 | 2020 | Increase (decrease) | | :-------------------- | :--- | :--- | :------------------ | | Revenues | $ 602 | $ 534 | $ 68 | | Fuel oil expense | $ 139 | $ 112 | $ 27 | | Purchased power expense | $ 162 | $ 137 | $ 25 | | Operating income | $ 68 | $ 68 | $ — | | Net income for common stock | $ 42 | $ 42 | $ — | | Kilowatthour sales (millions) | 2,026 | 1,874 | 152 | Electric Utility Financial Highlights (Six Months Ended June 30) | (dollars in millions) | 2021 | 2020 | Increase (decrease) | | :-------------------- | :--- | :--- | :------------------ | | Revenues | $ 1,167 | $ 1,132 | $ 35 | | Fuel oil expense | $ 267 | $ 286 | $ (19) | | Purchased power expense | $ 305 | $ 277 | $ 28 | | Operating income | $ 137 | $ 112 | $ 25 | | Net income for common stock | $ 85 | $ 66 | $ 19 | | Kilowatthour sales (millions) | 3,935 | 3,880 | 55 | - The Utilities exceeded the 2020 RPS goal with 34.5% renewable energy, surpassing the statutory goal of 30%, and aim to meet or exceed the 40% goal by 2030[270] - The PUC approved the Emergency Demand Response Program (EDRP) for 50MW on Oahu, with an incentive budget not exceeding $34 million, to address potential reserve shortfalls after the AES coal plant retirement[278] - As of June 30, 2021, Hawaiian Electric had $38 million of commercial paper outstanding and a $200 million revolving credit facility with no outstanding balance[318][320] Bank ASB's H1 2021 performance showed improved economic conditions, leading to a negative provision for credit losses, while maintaining strong regulatory capital despite low net interest margin - ASB recorded a $12 million negative provision for credit losses in Q2 2021 (and $20.6 million for H1 2021) due to strengthening Hawaii economy, credit upgrades in commercial real estate and commercial loan portfolios, and lower net charge-offs[338] - ASB's net interest margin was 2.98% in Q2 2021, compared to 3.21% in Q2 2020, impacted by the low interest rate environment and new loan origination rates below existing portfolio yields[336] - ASB secured over $370 million in PPP loans for approximately 4,100 small businesses in the first round and over $175 million for approximately 2,200 small businesses in the second round, receiving processing fees totaling approximately $22 million[341][342] ASB Financial Highlights (Three Months Ended June 30) | (in millions) | 2021 | 2020 | Increase (decrease) | | :------------ | :--- | :--- | :------------------ | | Interest income | $ 62 | $ 60 | $ 2 | | Noninterest income | $ 15 | $ 24 | $ (9) | | Revenues | $ 77 | $ 75 | $ 2 | | Interest expense | $ 1 | $ 3 | $ (2) | | Provision for credit losses | $ (12) | $ 15 | $ (27) | | Operating income | $ 40 | $ 9 | $ 31 | | Net income | $ 30 | $ 14 | $ 16 | ASB Financial Highlights (Six Months Ended June 30) | (in millions) | 2021 | 2020 | Increase (decrease) | | :------------ | :--- | :--- | :------------------ | | Interest income | $ 121 | $ 125 | $ (4) | | Noninterest income | $ 34 | $ 39 | $ (5) | | Revenues | $ 154 | $ 155 | $ (1) | | Interest expense | $ 3 | $ 7 | $ (4) | | Provision for credit losses | $ (21) | $ 26 | $ (47) | | Operating income | $ 76 | $ 28 | $ 48 | | Net income | $ 60 | $ 30 | $ 30 | ASB Key Ratios (As of June 30) | (%) | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 | | :-- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Return on average assets | 1.38 | 0.72 | 1.39 | 0.79 | | Return on average equity | 16.76 | 8.00 | 16.40 | 8.57 | | Net interest margin | 2.98 | 3.21 | 2.97 | 3.46 | - As of June 30, 2021, ASB's Tier-1 leverage ratio was 8.0%, categorizing it as 'well capitalized' under regulatory frameworks, though it was below the 8.5% requirement for abbreviated reporting under the community bank leverage framework for 2021[371][372] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details ASB's interest-rate risk, presenting NII and EVE sensitivity measures to hypothetical interest rate changes, noting decreased sensitivity as of June 30, 2021 ASB Interest-Rate Risk Sensitivity Measures (As of June 30, 2021 and December 31, 2020) | Change in interest rates (basis points) | Change in NII (gradual change in interest rates) June 30, 2021 | Change in NII (gradual change in interest rates) December 31, 2020 | Change in EVE (instantaneous change in interest rates) June 30, 2021 | Change in EVE (instantaneous change in interest rates) December 31, 2020 | | :-------------------------------------- | :------------------------------------------------------------- | :---------------------------------------------------------------- | :-------------------------------------------------------------------- | :-------------------------------------------------------------------- | | +300 | 5.4 % | 7.0 % | 18.6 % | 31.4 % | | +200 | 3.9 | 5.0 | 14.0 | 23.9 | | +100 | 2.2 | 2.7 | 8.3 | 14.0 | | -100 | (2.4) | (1.9) | (16.5) | (25.2) | - ASB's NII sensitivity profile was less asset sensitive as of June 30, 2021, compared to December 31, 2020, due to increased market rates, growth in fixed-rate HELOCs, and core deposit-funded investment securities purchases[374] - EVE sensitivity decreased as of June 30, 2021, compared to December 31, 2020, as the duration of assets lengthened due to the steepening of the yield curve and slower prepayment expectations in fixed-rate mortgage and mortgage-backed investment portfolios[375] Item 4. Controls and Procedures HEI and Hawaiian Electric's management concluded disclosure controls were effective, with no material changes in internal control over financial reporting during Q2 2021 - HEI's management, including the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021[379] - Hawaiian Electric's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of June 30, 2021[382] - There were no material changes in internal control over financial reporting for either HEI or Hawaiian Electric during the second quarter of 2021[380][383] Part II. Other Information Item 1. Legal Proceedings This section incorporates legal proceedings by reference from HEI's and Hawaiian Electric's 2020 Form 10-K and current 10-Q, covering various judicial and administrative actions - The descriptions of legal proceedings from HEI's and Hawaiian Electric's 2020 Form 10-K and the current 10-Q are incorporated by reference[386] - Legal proceedings include judicial, PUC, environmental, and other administrative agency proceedings[386] - Alternative dispute resolution, such as mediation or settlement, may be pursued confidentially[386] Item 1A. Risk Factors This section refers to risk factors discussed in HEI's and Hawaiian Electric's 2020 Form 10-K, and other relevant sections of this report, including forward-looking statements - Information about Risk Factors is incorporated by reference from HEI's and Hawaiian Electric's 2020 Form 10-K (pages 18-30) and other sections of this 10-Q[387] - Readers are also directed to the 'Cautionary Note Regarding Forward-Looking Statements' for additional risk information[387] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds HEI purchased common shares in Q2 2021 for DRIP, HEIRSP, and ASB 401(k) Plan requirements, not under publicly announced repurchase programs Issuer Purchases of Equity Securities (Q2 2021) | Period* | Total Number of Shares Purchased ** | Average Price Paid per Share ** | | :------ | :-------------------------------- | :------------------------------ | | April 1 to 30, 2021 | 23,560 | $43.08 | | May 1 to 31, 2021 | 21,172 | $43.73 | | June 1 to 30, 2021 | 158,234 | $43.67 | - Shares were purchased to satisfy requirements of the DRIP, HEIRSP, and ASB 401(k) Plan, not under publicly announced repurchase plans[391] Item 6. Exhibits This section lists exhibits filed with the 10-Q report, including executive agreements, credit agreements, certifications, and XBRL instance documents - Key exhibits include the Executive Separation and Release Agreement (HEI Exhibit 10.1) and the Third Amended and Restated Credit Agreements for HEI (HEI Exhibit 10.2) and Hawaiian Electric (Hawaiian Electric Exhibit 10.3)[393] - Certifications from the Chief Executive Officer and Chief Financial Officer for both HEI and Hawaiian Electric are included (Exhibits 31.1, 31.2, 31.3, 31.4, 32.1, 32.2)[393] - XBRL Instance Document and Taxonomy Extension documents are provided for interactive data filing[393] Signatures This section contains official signatures of authorized officers for HEI and Hawaiian Electric, certifying the report's filing under the Securities Exchange Act of 1934 - The report is signed by Constance H. Lau (President and CEO of HEI) and Gregory C. Hazelton (EVP and CFO of HEI) for Hawaiian Electric Industries, Inc.[396] - The report is signed by Scott W. H. Seu (President and CEO of Hawaiian Electric) and Tayne S. Y. Sekimura (SVP and CFO of Hawaiian Electric) for Hawaiian Electric Company, Inc.[396]