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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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| Exact Name of Registrant as Specified in Its Charter |
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Commission File Number |
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I.R.S. Employer Identification No. |
| HAWAIIAN ELECTRIC INDUSTRIES, INC. |
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1-8503 |
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99-0208097 |
| and Principal Subsidiary |
| HAWAIIAN ELECTRIC COMPANY, INC. |
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1-4955 |
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99-0040500 |
State of Hawaii
(State or other jurisdiction of incorporation or organization)
Hawaiian Electric Industries, Inc. – 1001 Bishop Street, Suite 2900, Honolulu, Hawaii 96813
Hawaiian Electric Company, Inc. – 1099 Alakea Street, Suite 2200, Honolulu, Hawaii 96813
(Address of principal executive offices and zip code)
Hawaiian Electric Industries, Inc. – (808) 543-5662
Hawaiian Electric Company, Inc. – (808) 543-7771
(Registrant’s telephone number, including area code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
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| Registrant |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
| Hawaiian Electric Industries, Inc. |
Common Stock, Without Par Value |
HE |
New York Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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| Hawaiian Electric Industries, Inc. |
Yes |
☒ |
No |
☐ |
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Hawaiian Electric Company, Inc. |
Yes |
☒ |
No |
☐ |
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
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| Hawaiian Electric Industries, Inc. |
Yes |
☒ |
No |
☐ |
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Hawaiian Electric Company, Inc. |
Yes |
☒ |
No |
☐ |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.
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| Hawaiian Electric Industries, Inc.: |
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Hawaiian Electric Company, Inc.: |
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| Large accelerated filer |
☒ |
Smaller reporting company |
☐ |
Large accelerated filer |
☐ |
Smaller reporting company |
☐ |
| Accelerated filer |
☐ |
Emerging growth company |
☐ |
Accelerated filer |
☐ |
Emerging growth company |
☐ |
| Non-accelerated filer |
☐ |
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Non-accelerated filer |
☒ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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| Hawaiian Electric Industries, Inc. |
☐ |
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Hawaiian Electric Company, Inc. |
☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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| Hawaiian Electric Industries, Inc. |
Yes |
☐ |
No |
☒ |
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Hawaiian Electric Company, Inc. |
Yes |
☐ |
No |
☒ |
Securities registered pursuant to 12(b) of the Act:
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
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| Class of Common Stock |
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Outstanding July 18, 2023 |
| Hawaiian Electric Industries, Inc. (Without Par Value) |
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109,611,599 |
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Shares |
| Hawaiian Electric Company, Inc. ($6-2/3 Par Value) |
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17,854,278 |
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Shares (not publicly traded) |
Hawaiian Electric Industries, Inc. (HEI) is the sole holder of Hawaiian Electric Company, Inc. (Hawaiian Electric) common stock.
This combined Form 10-Q is separately filed by HEI and Hawaiian Electric. Information contained herein relating to any individual registrant is filed by such registrant on its own behalf. No registrant makes any representation as to information relating to the other registrant, except that information relating to Hawaiian Electric is also attributed to HEI.
Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended June 30, 2023
TABLE OF CONTENTS
Hawaiian Electric Industries, Inc. and Subsidiaries
Hawaiian Electric Company, Inc. and Subsidiaries
Form 10-Q—Quarter ended June 30, 2023
GLOSSARY OF TERMS
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| Terms |
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Definitions |
| ABR |
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Alternate Base Rate |
| ACL |
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Allowance for credit losses, which is the current credit loss standard, requires recording the allowance based on the expected loss model |
| AES Hawaii |
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AES Hawaii, Inc. |
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| AOCI |
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Accumulated other comprehensive income/(loss) |
| ARA |
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Annual revenue adjustment |
| ASB |
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American Savings Bank, F.S.B., a wholly owned subsidiary of ASB Hawaii, Inc. |
| ASB Hawaii |
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ASB Hawaii, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B. |
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| ASU |
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Accounting Standards Update |
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| CBRE |
|
Community-based renewable energy |
| Company |
|
Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc. and its subsidiaries (listed under Hawaiian Electric); ASB Hawaii, Inc. and its subsidiary, American Savings Bank, F.S.B. and Pacific Current, LLC and its subsidiaries (listed under Pacific Current). The Old Oahu Tug Service, Inc. was dissolved in March 2022. |
| Consumer Advocate |
|
Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii |
| CSSM |
|
Collective Shared Savings Mechanism |
| D&O |
|
Decision and order from the PUC |
|
|
|
| DER |
|
Distributed energy resources |
|
|
|
| DRIP |
|
HEI Dividend Reinvestment and Stock Purchase Plan |
|
|
|
|
|
|
| ECRC |
|
Energy cost recovery clause |
| EIP |
|
2010 Equity and Incentive Plan, as amended and restated |
| EPA |
|
Environmental Protection Agency — federal |
| EPRM |
|
Exceptional Project Recovery Mechanism |
| EPS |
|
Earnings per share |
|
|
|
|
|
|
| ESM |
|
Earnings Sharing Mechanism |
| EVE |
|
Economic value of equity |
| Exchange Act |
|
Securities Exchange Act of 1934 |
|
|
|
| FDIC |
|
Federal Deposit Insurance Corporation |
| federal |
|
U.S. Government |
| FHLB |
|
Federal Home Loan Bank |
| FHLMC |
|
Federal Home Loan Mortgage Corporation |
|
|
|
| FNMA |
|
Federal National Mortgage Association |
| FRB |
|
Federal Reserve Board |
| GAAP |
|
Accounting principles generally accepted in the United States of America |
| GHG |
|
Greenhouse gas |
| GNMA |
|
Government National Mortgage Association |
| GSPA |
|
Grid Services Purchase Agreement |
| Hamakua Energy |
|
Hamakua Energy, LLC, an indirect subsidiary of Pacific Current |
| Hawaii Electric Light |
|
Hawaii Electric Light Company, Inc., an electric utility subsidiary of Hawaiian Electric Company, Inc. |
GLOSSARY OF TERMS, continued
|
|
|
|
|
|
|
|
|
| Terms |
|
Definitions |
| Hawaiian Electric |
|
Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Hawaii Electric Light Company, Inc., Maui Electric Company, Limited and Renewable Hawaii, Inc. |
| HEI |
|
Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., ASB Hawaii, Inc. and Pacific Current, LLC. The Old Oahu Tug Service, Inc. was dissolved in March 2022. |
| HEIRSP |
|
Hawaiian Electric Industries Retirement Savings Plan |
| HELOC |
|
Home equity line of credit |
| HPOWER |
|
City and County of Honolulu with respect to a power purchase agreement for a refuse-fired plant |
| IIJA |
|
Infrastructure Investment and Jobs Act |
| IPP |
|
Independent power producer |
| IRLCs |
|
Interest rate lock commitments |
| Kalaeloa |
|
Kalaeloa Partners, L.P. |
| kWh |
|
Kilowatthour/s (as applicable) |
| LIBOR |
|
London Inter-Bank Offered Rate |
| LMI |
|
Low-to-moderate income |
| LTIP |
|
Long-term incentive plan |
| Mahipapa |
|
Mahipapa, LLC, a subsidiary of Pacific Current |
| Maui Electric |
|
Maui Electric Company, Limited, an electric utility subsidiary of Hawaiian Electric Company, Inc. |
| Mauo |
|
Mauo, LLC, a subsidiary of Pacific Current |
|
|
|
| MPIR |
|
Major Project Interim Recovery |
|
|
|
| MRP |
|
Multi-year rate period |
| MSRs |
|
Mortgage servicing rights |
| MW |
|
Megawatt/s (as applicable) |
| NII |
|
Net interest income |
| NPBC |
|
Net periodic benefit costs |
| NPPC |
|
Net periodic pension costs |
| O&M |
|
Other operation and maintenance |
| OCC |
|
Office of the Comptroller of the Currency |
| OPEB |
|
Postretirement benefits other than pensions |
| Pacific Current |
|
Pacific Current, LLC, a wholly owned subsidiary of HEI and parent company of Hamakua Holdings, LLC, Mauo, LLC, Alenuihaha Developments, LLC, Kaʻieʻie Waho Company, LLC, Kaʻaipuaʻa, LLC, Upena, LLC and Mahipapa, LLC |
| PBR |
|
Performance-based regulation |
|
|
|
| PIMs |
|
Performance incentive mechanisms |
| PPA |
|
Power purchase agreement |
| PPAC |
|
Purchased power adjustment clause |
| PUC |
|
Public Utilities Commission of the State of Hawaii |
| PV |
|
Photovoltaic |
| RAM |
|
Revenue adjustment mechanism |
| RBA |
|
Revenue balancing account |
|
|
|
| RFP |
|
Request for proposals |
| ROACE |
|
Return on average common equity |
| RORB |
|
Return on rate base |
| RPS |
|
Renewable portfolio standards |
|
|
|
| SBA |
|
Small Business Administration |
| SEC |
|
Securities and Exchange Commission |
| See |
|
Means the referenced material is incorporated by reference |
|
|
|
| SOFR |
|
Secured Overnight Financing Rate |
| TDR |
|
Troubled debt restructuring |
|
|
|
| Utilities |
|
Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited |
| VIEs |
|
Variable interest entities |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions and usually include words such as “will,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries (collectively, the Company), the performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking statements are not guarantees of future performance and actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Risks, uncertainties and other important factors that could cause actual results to differ materially from those described in forward-looking statements and from historical results include, but are not limited to, the following:
•international, national and local economic and political conditions—including the state of the Hawaii tourism, defense and construction industries; the strength or weakness of the Hawaii and continental U.S. real estate markets (including the fair value and/or the actual performance of collateral underlying loans held by ASB, which could result in higher loan loss provisions and write-offs); decisions concerning the extent of the presence of the federal government and military in Hawaii; the implications and potential impacts of future federal government shutdowns, including the impact to our customers’ ability to pay their electric bills and/or bank loans and the impact on the state of Hawaii economy; the implications and potential impacts of U.S. and foreign capital and credit market conditions and federal, state and international responses to those conditions; the potential impacts of global and local developments (including global economic conditions and uncertainties, unrest, terrorist acts, wars, conflicts, political protests, deadly virus epidemic or other crisis); the effects of changes that have or may occur in U.S. policy, such as with respect to immigration and trade; and pandemics;
•the lingering impact of the COVID-19 pandemic, including any recurrence of the COVID-19 pandemic due to new variants and the potential reinstatement of related government orders and restrictions, and the resulting impact on our employees, customers and suppliers;
•ability to adequately address risks and capitalize on opportunities related to our environmental, social and governance priority areas, which currently include decarbonization, economic health and affordability, reliability and resilience, secure digitalization, diversity, equity and inclusion, employee engagement, and climate-related risks and opportunities;
•citizen activism, including civil unrest, especially in times of severe economic depression and social divisiveness, which could negatively impact customers and employees, impair the ability of the Company and the Utilities to operate and maintain their facilities in an effective and safe manner, and citizen or stakeholder activism that could delay the construction, increase project costs or preclude the completion of third-party or Utility projects that are required to meet electricity demand, resilience and reliability objectives and renewable portfolio standards (RPS) and other climate-related goals;
•the effects of future actions or inaction of the U.S. government or related agencies, including those related to the U.S. debt ceiling or budget funding, monetary policy, trade policy and tariffs, energy and environmental policy, and other policy and regulatory changes advanced or proposed by President Biden and his administration;
•weather, natural disasters (e.g., hurricanes, earthquakes, tsunamis, lightning strikes, lava flows and the increasing effects of climate change, such as more severe storms, flooding, droughts, heat waves, and rising sea levels) and wildfires, including their impact on the resilience and reliability and cost of the Company’s and Utilities’ operations, collateral underlying ASB loans and the economy;
•the timing, speed and extent of changes in interest rates and the shape of the yield curve, which could result in lower portfolio yields and net interest margin, or higher borrowing costs;
•the ability of the Company and the Utilities to access the credit and capital markets (e.g., to obtain commercial paper and other short-term and long-term debt financing, including lines of credit, and, in the case of HEI, to issue common stock) under volatile and challenging market conditions, and the potential higher cost of such financings, if available;
•the risks inherent in changes in the value of the Company’s pension and other retirement plan assets and ASB’s securities available for sale, and the risks inherent in changes in the value of the Company’s pension liabilities, including changes driven by interest rates and mortality improvements;
•changes in laws, regulations (including tax regulations), market conditions, interest rates and other factors that result in changes in assumptions used to calculate retirement benefits costs and funding requirements;
•increasing competition in the banking industry from traditional financial institutions as well as from non-traditional providers of financial services, including financial service subsidiaries of commercial and manufacturing companies (e.g., increased price competition for loans and deposits, or an outflow of deposits to alternative investments or platforms, which may have an adverse impact on ASB’s net interest margin and portfolio growth);
•the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy or resilience proposals, among others, and related costs; reliance by the Utilities on outside parties such as the state, independent power producers (IPPs) and developers; supply-chain challenges; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet RPS and other climate-related goals; the impacts of implementation of the renewable energy and resilience proposals on future costs of electricity and potential penalties imposed by the PUC for delays in the commercial operations of renewable energy projects;
•the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection Plan, Grid Modernization Plans, and business model changes, which have been and are continuing to be developed and updated in response to the orders issued by the PUC, the PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s public policy goals, and subsequent orders of the PUC;
•the ability of the Utilities to recover undepreciated cost of fossil fuel generating units, if they are required to be retired before the end of their expected useful life;
•capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation, combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted benefits or are otherwise insufficient to reduce or meet peak demand;
•high and/or volatile fuel prices, which increases working capital requirements and customer bills, or delivery of adequate fuel by suppliers (including as a result of the Russia-Ukraine war), which could affect the reliability of utility operations, and the continued availability to the electric utilities of their energy cost recovery clauses (ECRCs);
•the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), annual revenue adjustment (ARA) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatt-hour sales;
•the ability of the Utilities to recover increasing costs and earn a reasonable return on capital investments not covered by the ARA, while providing the customer dividend required by performance-based regulation (PBR);
•the impact from the PUC’s implementation of PBR for the Utilities pursuant to Act 005, Session Laws 2018, including the potential addition of new performance incentive mechanisms (PIMs), third-party proposals adopted by the PUC in its implementation of PBR, and the implications of not achieving performance incentive goals;
•the impact of fuel price levels and volatility on customer satisfaction and political and regulatory support for the Utilities;
•unfavorable changes in economic conditions, such as sustained inflation, higher interest rates or recession, may negatively impact the ability of the Company’s customers to pay their utility bills or loan payments, reduce loan production, and increase operating costs of the Utilities or Bank that cannot be passed on to, or recovered, from customers;
•the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational and related cost impacts of adding intermittent sources of renewable energy to the electric grid;
•the growing risk that energy production from renewable generating resources may be curtailed and the interconnection of additional resources will be constrained as more generating resources are added to the Utilities’ electric systems and as customers reduce their energy usage;
•the ability of IPPs to deliver the firm capacity anticipated in their power purchase agreements (PPAs);
•the potential that, as IPP contracts near the end of their terms, there may be less economic incentive for the IPPs to make investments in their units to ensure the availability of their units;
•the ability of the Utilities to negotiate, periodically, favorable agreements for significant resources such as fuel supply contracts and collective bargaining agreements and avoid or mitigate labor disputes and work stoppages;
•new technological developments that could affect the operations and prospects of the Utilities and ASB or their competitors such as the commercial development of energy storage and microgrids and banking through alternative channels, including use of digital currencies, which could include a central bank digital currency;
•cybersecurity risks and the potential for cyber incidents, including potential incidents at HEI, its subsidiaries (including at ASB branches and electric utility plants), its third-party service providers, contractors and customers with whom they have shared data (IPPs, distributed energy resources (DER) aggregators and customers enrolled under DER programs) and incidents at data processing centers used, to the extent not prevented by intrusion detection and prevention systems, anti-virus software, firewalls and other general IT controls;
•failure to achieve remaining cost savings commitment related to the management audit committed savings of $33 million over the 2021 to 2025 multi-year rate period (MRP);
•federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation and tax rates, increases in capital requirements, regulatory policy changes, environmental laws and regulations (including resulting compliance costs and risks of fines and penalties and/or liabilities), the regulation of greenhouse gas emissions, governmental fees and assessments (such as Federal Deposit Insurance Corporation assessments), and potential carbon pricing or “cap and trade” legislation that may fundamentally alter costs to produce electricity and accelerate the move to renewable generation);
•developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies;
•discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight;
•decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise);
•decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS);
•potential enforcement actions by the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board (FRB), the Federal Deposit Insurance Corporation (FDIC) and/or other governmental authorities (such as consent orders, required corrective actions, restrictions and penalties that may arise, for example, with respect to compliance deficiencies under existing or new banking and consumer protection laws and regulations or with respect to capital adequacy);
•the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers);
•changes in accounting principles applicable to HEI and its subsidiaries, including the adoption of new U.S. accounting standards, the potential discontinuance of regulatory accounting related to PBR or other regulatory changes, the effects of potentially required consolidation of variable interest entities (VIEs), or required finance lease or on-balance-sheet operating lease accounting for PPAs with IPPs;
•downgrades by securities rating agencies in their ratings of the securities of HEI and Hawaiian Electric and their impact on results of financing efforts;
•faster than expected loan prepayments that can cause a decrease in net interest income and portfolio yields, an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB;
•changes in ASB’s loan portfolio credit profile and asset quality and/or mix, which may increase or decrease the required level of provision for credit losses, allowance for credit losses (ACL) and charge-offs;
•changes in ASB’s deposit levels, cost or mix which may have an adverse impact on ASB’s cost of funds;
•unanticipated changes from the expected discontinuance of LIBOR and the transition to an alternative reference rate, which may include adverse impacts to the Company’s cost of capital, loan portfolio and interest income on loans;
•the final outcome of tax positions taken by HEI and its subsidiaries;
•the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distribution system and losses from business interruption) or underinsured (e.g., losses not covered as a result of insurance deductibles or other exclusions or exceeding policy limits), and the risks associated with the operation of transmission and distribution assets and power generation facilities, including public and employee safety issues, and assets causing or contributing to wildfires;
•the ability of the Company’s non-regulated subsidiary, Pacific Current, LLC (Pacific Current), to achieve its performance and growth objectives, which in turn could affect its ability to service its non-recourse debt;
•the Company’s reliance on third parties and the risk of their non-performance, which has increased due to the impact from the COVID-19 pandemic supply chain issues; and
•other risks or uncertainties described elsewhere in this report and in other reports (e.g., “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K) previously and subsequently filed by HEI and/or Hawaiian Electric with the Securities and Exchange Commission.
Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, ASB, Pacific Current and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether written or oral and whether as a result of new information, future events or otherwise.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands, except per share amounts) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Revenues |
|
|
|
|
|
|
|
|
| Electric utility |
|
$ |
794,191 |
|
|
$ |
818,873 |
|
|
$ |
1,624,552 |
|
|
$ |
1,527,665 |
|
| Bank |
|
96,885 |
|
|
75,324 |
|
|
190,742 |
|
|
150,439 |
|
| Other |
|
4,609 |
|
|
1,410 |
|
|
8,628 |
|
|
2,571 |
|
| Total revenues |
|
895,685 |
|
|
895,607 |
|
|
1,823,922 |
|
|
1,680,675 |
|
| Expenses |
|
|
|
|
|
|
|
|
| Electric utility |
|
720,566 |
|
|
747,719 |
|
|
1,475,052 |
|
|
1,382,916 |
|
| Bank |
|
72,017 |
|
|
53,401 |
|
|
142,354 |
|
|
98,486 |
|
| Other |
|
10,123 |
|
|
7,819 |
|
|
20,019 |
|
|
13,329 |
|
| Total expenses |
|
802,706 |
|
|
808,939 |
|
|
1,637,425 |
|
|
1,494,731 |
|
| Operating income (loss) |
|
|
|
|
|
|
|
|
| Electric utility |
|
73,625 |
|
|
71,154 |
|
|
149,500 |
|
|
144,749 |
|
| Bank |
|
24,868 |
|
|
21,923 |
|
|
48,388 |
|
|
51,953 |
|
| Other |
|
(5,514) |
|
|
(6,409) |
|
|
(11,391) |
|
|
(10,758) |
|
| Total operating income |
|
92,979 |
|
|
86,668 |
|
|
186,497 |
|
|
185,944 |
|
| Retirement defined benefits credit—other than service costs |
|
1,153 |
|
|
1,246 |
|
|
2,305 |
|
|
2,489 |
|
Interest expense, net—other than on deposit liabilities and other bank borrowings |
|
(29,832) |
|
|
(24,965) |
|
|
(58,630) |
|
|
(49,314) |
|
| Allowance for borrowed funds used during construction |
|
1,295 |
|
|
798 |
|
|
2,426 |
|
|
1,576 |
|
| Allowance for equity funds used during construction |
|
3,772 |
|
|
2,470 |
|
|
7,073 |
|
|
4,879 |
|
| Gain on sales of equity-method investment |
|
— |
|
|
— |
|
|
— |
|
|
8,123 |
|
| Income before income taxes |
|
69,367 |
|
|
66,217 |
|
|
139,671 |
|
|
153,697 |
|
| Income taxes |
|
14,284 |
|
|
13,203 |
|
|
29,394 |
|
|
31,043 |
|
| Net income |
|
55,083 |
|
|
53,014 |
|
|
110,277 |
|
|
122,654 |
|
| Preferred stock dividends of subsidiaries |
|
473 |
|
|
473 |
|
|
946 |
|
|
946 |
|
| Net income for common stock |
|
$ |
54,610 |
|
|
$ |
52,541 |
|
|
$ |
109,331 |
|
|
$ |
121,708 |
|
| Basic earnings per common share |
|
$ |
0.50 |
|
|
$ |
0.48 |
|
|
$ |
1.00 |
|
|
$ |
1.11 |
|
| Diluted earnings per common share |
|
$ |
0.50 |
|
|
$ |
0.48 |
|
|
$ |
1.00 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
| Weighted-average number of common shares outstanding |
|
109,573 |
|
|
109,432 |
|
|
109,544 |
|
|
109,397 |
|
| Net effect of potentially dilutive shares (share-based compensation programs) |
|
207 |
|
|
230 |
|
|
326 |
|
|
317 |
|
| Weighted-average shares assuming dilution |
|
109,780 |
|
|
109,662 |
|
|
109,870 |
|
|
109,714 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Net income for common stock |
|
$ |
54,610 |
|
|
$ |
52,541 |
|
|
$ |
109,331 |
|
|
$ |
121,708 |
|
| Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
| Net unrealized gains (losses) on available-for-sale investment securities: |
|
|
|
|
|
|
|
|
Net unrealized gains (losses) on available-for-sale investment securities arising during the period, net of taxes of $(4,021), $(32,529), $2,058 and $(76,608), respectively |
|
(10,984) |
|
|
(88,857) |
|
|
5,621 |
|
|
(209,264) |
|
|
|
|
|
|
|
|
|
|
Amortization of unrealized holding losses on held-to-maturity securities, net of taxes of $1,350, nil, $2,696 and nil, respectively |
|
3,689 |
|
|
— |
|
|
7,366 |
|
|
— |
|
| Derivatives qualifying as cash flow hedges: |
|
|
|
|
|
|
|
|
Unrealized interest rate hedging gains (losses) arising during the period, net of taxes of $(117), $273, $(52) and $1,319, respectively |
|
(335) |
|
|
786 |
|
|
(149) |
|
|
3,803 |
|
Reclassification adjustment to net income, net of taxes of $(16), $18, $(33) and $37, respectively |
|
(48) |
|
|
53 |
|
|
(96) |
|
|
108 |
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
Adjustment for amortization of prior service credit and net losses (gains) recognized during the period in net periodic benefit cost, net of taxes of $(122), $44, $(244) and $1,606, respectively |
|
(357) |
|
|
122 |
|
|
(714) |
|
|
4,623 |
|
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $148, $19, $295 and $(1,481), respectively |
|
426 |
|
|
56 |
|
|
851 |
|
|
(4,269) |
|
| Other comprehensive income (loss), net of taxes |
|
(7,609) |
|
|
(87,840) |
|
|
12,879 |
|
|
(204,999) |
|
| Comprehensive income (loss) attributable to Hawaiian Electric Industries, Inc. |
|
$ |
47,001 |
|
|
$ |
(35,299) |
|
|
$ |
122,210 |
|
|
$ |
(83,291) |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in thousands) |
|
June 30, 2023 |
|
December 31, 2022 |
| Assets |
|
|
|
|
| Cash and cash equivalents |
|
$ |
314,284 |
|
|
$ |
199,877 |
|
| Restricted cash |
|
5,104 |
|
|
5,050 |
|
| Accounts receivable and unbilled revenues, net |
|
409,314 |
|
|
511,903 |
|
| Available-for-sale investment securities, at fair value |
|
1,368,037 |
|
|
1,429,667 |
|
| Held-to-maturity investment securities, at amortized cost |
|
1,224,917 |
|
|
1,251,747 |
|
| Stock in Federal Home Loan Bank, at cost |
|
18,000 |
|
|
26,560 |
|
| Loans held for investment, net |
|
6,069,114 |
|
|
5,906,690 |
|
| Loans held for sale, at lower of cost or fair value |
|
6,910 |
|
|
824 |
|
Property, plant and equipment, net of accumulated depreciation of $3,292,930 and $3,192,545 at June 30, 2023 and December 31, 2022, respectively |
|
5,868,408 |
|
|
5,687,003 |
|
| Operating lease right-of-use assets |
|
105,030 |
|
|
115,684 |
|
|
|
|
|
|
| Regulatory assets |
|
252,787 |
|
|
242,513 |
|
| Other |
|
795,214 |
|
|
824,536 |
|
| Goodwill |
|
82,190 |
|
|
82,190 |
|
| Total assets |
|
$ |
16,519,309 |
|
|
$ |
16,284,244 |
|
| Liabilities and shareholders’ equity |
|
|
|
|
| Liabilities |
|
|
|
|
| Accounts payable |
|
$ |
253,954 |
|
|
$ |
251,460 |
|
| Interest and dividends payable |
|
33,294 |
|
|
21,333 |
|
| Deposit liabilities |
|
8,163,235 |
|
|
8,169,696 |
|
| Short-term borrowings—other than bank |
|
46,212 |
|
|
172,568 |
|
| Other bank borrowings |
|
750,000 |
|
|
695,120 |
|
| Long-term debt, net—other than bank |
|
2,572,375 |
|
|
2,384,980 |
|
| Deferred income taxes |
|
272,988 |
|
|
262,462 |
|
| Operating lease liabilities |
|
114,827 |
|
|
126,604 |
|
| Finance lease liabilities |
|
123,240 |
|
|
48,709 |
|
| Regulatory liabilities |
|
1,087,356 |
|
|
1,055,650 |
|
|
|
|
|
|
| Defined benefit pension and other postretirement benefit plans liability |
|
70,979 |
|
|
71,813 |
|
| Other |
|
747,179 |
|
|
787,057 |
|
| Total liabilities |
|
14,235,639 |
|
|
14,047,452 |
|
| Preferred stock of subsidiaries - not subject to mandatory redemption |
|
34,293 |
|
|
34,293 |
|
| Commitments and contingencies (Notes 3 and 4) |
|
|
|
|
| Shareholders’ equity |
|
|
|
|
Preferred stock, no par value, authorized 10,000,000 shares; issued: none |
|
— |
|
|
— |
|
Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 109,611,599 shares and 109,470,795 shares at June 30, 2023 and December 31, 2022, respectively |
|
1,696,258 |
|
|
1,692,697 |
|
| Retained earnings |
|
876,268 |
|
|
845,830 |
|
| Accumulated other comprehensive loss, net of tax benefits |
|
(323,149) |
|
|
(336,028) |
|
| Total shareholders’ equity |
|
2,249,377 |
|
|
2,202,499 |
|
| Total liabilities and shareholders’ equity |
|
$ |
16,519,309 |
|
|
$ |
16,284,244 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common stock |
|
Retained |
|
Accumulated
other
comprehensive |
|
|
| (in thousands) |
|
Shares |
|
Amount |
|
Earnings |
|
income (loss) |
|
Total |
| Balance, December 31, 2022 |
|
109,471 |
|
|
$ |
1,692,697 |
|
|
$ |
845,830 |
|
|
$ |
(336,028) |
|
|
$ |
2,202,499 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
54,721 |
|
|
— |
|
|
54,721 |
|
| Other comprehensive income, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
20,488 |
|
|
20,488 |
|
| Share-based expenses and other, net |
|
101 |
|
|
(307) |
|
|
— |
|
|
— |
|
|
(307) |
|
Common stock dividends (36¢ per share) |
|
— |
|
|
— |
|
|
(39,446) |
|
|
— |
|
|
(39,446) |
|
| Balance, March 31, 2023 |
|
109,572 |
|
|
1,692,390 |
|
|
861,105 |
|
|
(315,540) |
|
|
2,237,955 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
54,610 |
|
|
— |
|
|
54,610 |
|
| Other comprehensive loss, net of tax benefits |
|
— |
|
|
— |
|
|
— |
|
|
(7,609) |
|
|
(7,609) |
|
| Share-based expenses and other, net |
|
40 |
|
|
3,868 |
|
|
— |
|
|
— |
|
|
3,868 |
|
Common stock dividends (36¢ per share) |
|
— |
|
|
— |
|
|
(39,447) |
|
|
— |
|
|
(39,447) |
|
| Balance, June 30, 2023 |
|
109,612 |
|
|
$ |
1,696,258 |
|
|
$ |
876,268 |
|
|
$ |
(323,149) |
|
|
$ |
2,249,377 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2021 |
|
109,312 |
|
|
$ |
1,685,496 |
|
|
$ |
757,921 |
|
|
$ |
(52,533) |
|
|
$ |
2,390,884 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
69,167 |
|
|
— |
|
|
69,167 |
|
| Other comprehensive loss, net of tax benefits |
|
— |
|
|
— |
|
|
— |
|
|
(117,159) |
|
|
(117,159) |
|
| Share-based expenses and other, net |
|
119 |
|
|
(949) |
|
|
— |
|
|
— |
|
|
(949) |
|
Common stock dividends (35¢ per share) |
|
— |
|
|
— |
|
|
(38,301) |
|
|
— |
|
|
(38,301) |
|
| Balance, March 31, 2022 |
|
109,431 |
|
|
1,684,547 |
|
|
788,787 |
|
|
(169,692) |
|
|
2,303,642 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
52,541 |
|
|
— |
|
|
52,541 |
|
| Other comprehensive loss, net of tax benefits |
|
— |
|
|
— |
|
|
— |
|
|
(87,840) |
|
|
(87,840) |
|
| Share-based expenses and other, net |
|
36 |
|
|
3,462 |
|
|
— |
|
|
— |
|
|
3,462 |
|
Common stock dividends (35¢ per share) |
|
— |
|
|
— |
|
|
(38,301) |
|
|
— |
|
|
(38,301) |
|
| Balance, June 30, 2022 |
|
109,467 |
|
|
$ |
1,688,009 |
|
|
$ |
803,027 |
|
|
$ |
(257,532) |
|
|
$ |
2,233,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
| Cash flows from operating activities |
|
|
|
|
| Net income |
|
$ |
110,277 |
|
|
$ |
122,654 |
|
| Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| Depreciation of property, plant and equipment |
|
133,232 |
|
|
126,112 |
|
| Other amortization |
|
21,609 |
|
|
19,134 |
|
| Provision for credit losses |
|
1,218 |
|
|
(506) |
|
| Loans originated, held for sale |
|
(14,912) |
|
|
(108,695) |
|
| Proceeds from sale of loans, held for sale |
|
14,596 |
|
|
114,299 |
|
| Gain on sales of investment securities, net and equity-method investment |
|
— |
|
|
(8,123) |
|
| Gain on sale of loans, net |
|
(360) |
|
|
(1,449) |
|
| Deferred income taxes |
|
(1,309) |
|
|
(14,683) |
|
| Share-based compensation expense |
|
5,919 |
|
|
5,593 |
|
| Allowance for equity funds used during construction |
|
(7,073) |
|
|
(4,879) |
|
| Other |
|
(3,710) |
|
|
(3,858) |
|
| Changes in assets and liabilities |
|
|
|
|
| Decrease (increase) in accounts receivable and unbilled revenues, net |
|
103,695 |
|
|
(101,641) |
|
| Decrease (increase) in fuel oil stock |
|
47,963 |
|
|
(119,890) |
|
| Decrease (increase) in regulatory assets |
|
(10,620) |
|
|
12,956 |
|
| Increase in regulatory liabilities |
|
22,782 |
|
|
11,288 |
|
| Increase in accounts, interest and dividends payable |
|
34,946 |
|
|
62,115 |
|
| Change in prepaid and accrued income taxes, tax credits and utility revenue taxes |
|
(45,171) |
|
|
22,173 |
|
| Decrease in defined benefit pension and other postretirement benefit plans liability |
|
(4,304) |
|
|
(2,698) |
|
| Change in other assets and liabilities |
|
(37,161) |
|
|
(55,260) |
|
| Net cash provided by operating activities |
|
371,617 |
|
|
74,642 |
|
| Cash flows from investing activities |
|
|
|
|
| Available-for-sale investment securities purchased |
|
— |
|
|
(366,177) |
|
| Principal repayments on available-for-sale investment securities |
|
68,279 |
|
|
209,094 |
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from repayments or maturities of held-to-maturity investment securities |
|
35,604 |
|
|
7,932 |
|
| Purchase of stock from Federal Home Loan Bank |
|
(62,400) |
|
|
(18,720) |
|
| Redemption of stock from Federal Home Loan Bank |
|
70,960 |
|
|
15,520 |
|
| Net increase in loans held for investment |
|
(208,042) |
|
|
(212,744) |
|
|
|
|
|
|
| Proceeds from sale of commercial loans |
|
66,655 |
|
|
— |
|
| Purchase of loans held for investment |
|
(26,195) |
|
|
— |
|
| Capital expenditures |
|
(235,875) |
|
|
(147,749) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other |
|
8,160 |
|
|
15,813 |
|
| Net cash used in investing activities |
|
(282,854) |
|
|
(497,031) |
|
(continued)
Hawaiian Electric Industries, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
| Cash flows from financing activities |
|
|
|
|
| Net increase (decrease) in deposit liabilities |
|
(104,771) |
|
|
81,324 |
|
| Net increase (decrease) in short-term borrowings with original maturities of three months or less |
|
(91,438) |
|
|
70,019 |
|
| Net increase (decrease) in other bank borrowings with original maturities of three months or less |
|
(596,810) |
|
|
153,305 |
|
| Proceeds from issuance of short-term debt |
|
65,000 |
|
|
— |
|
| Repayment of short-term debt |
|
(100,000) |
|
|
— |
|
| Proceeds from issuance of other bank borrowings |
|
1,000,000 |
|
|
— |
|
| Repayment of other bank borrowings |
|
(250,000) |
|
|
— |
|
| Proceeds from issuance of long-term debt |
|
250,000 |
|
|
67,312 |
|
| Repayment of long-term debt |
|
(62,426) |
|
|
(15,030) |
|
| Withheld shares for employee taxes on vested share-based compensation |
|
(2,356) |
|
|
(3,079) |
|
| Common stock dividends |
|
(78,893) |
|
|
(76,602) |
|
| Preferred stock dividends of subsidiaries |
|
(946) |
|
|
(946) |
|
| Other |
|
(1,662) |
|
|
(318) |
|
| Net cash provided by financing activities |
|
25,698 |
|
|
275,985 |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash |
|
114,461 |
|
|
(146,404) |
|
| Cash, cash equivalents and restricted cash, beginning of period |
|
204,927 |
|
|
311,462 |
|
| Cash, cash equivalents and restricted cash, end of period |
|
319,388 |
|
|
165,058 |
|
| Less: Restricted cash |
|
(5,104) |
|
|
(5,386) |
|
| Cash and cash equivalents, end of period |
|
$ |
314,284 |
|
|
$ |
159,672 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Revenues |
|
$ |
794,191 |
|
|
$ |
818,873 |
|
|
$ |
1,624,552 |
|
|
$ |
1,527,665 |
|
| Expenses |
|
|
|
|
|
|
|
|
| Fuel oil |
|
280,157 |
|
|
269,655 |
|
|
614,254 |
|
|
490,941 |
|
| Purchased power |
|
168,434 |
|
|
218,085 |
|
|
321,195 |
|
|
381,618 |
|
| Other operation and maintenance |
|
136,360 |
|
|
124,892 |
|
|
264,676 |
|
|
250,149 |
|
| Depreciation |
|
60,689 |
|
|
58,739 |
|
|
121,616 |
|
|
117,210 |
|
| Taxes, other than income taxes |
|
74,926 |
|
|
76,348 |
|
|
153,311 |
|
|
142,998 |
|
| Total expenses |
|
720,566 |
|
|
747,719 |
|
|
1,475,052 |
|
|
1,382,916 |
|
| Operating income |
|
73,625 |
|
|
71,154 |
|
|
149,500 |
|
|
144,749 |
|
| Allowance for equity funds used during construction |
|
3,772 |
|
|
2,470 |
|
|
7,073 |
|
|
4,879 |
|
| Retirement defined benefits credit—other than service costs |
|
1,048 |
|
|
991 |
|
|
2,095 |
|
|
1,981 |
|
| Interest expense and other charges, net |
|
(20,872) |
|
|
(18,800) |
|
|
(41,118) |
|
|
(37,126) |
|
| Allowance for borrowed funds used during construction |
|
1,295 |
|
|
798 |
|
|
2,426 |
|
|
1,576 |
|
| Income before income taxes |
|
58,868 |
|
|
56,613 |
|
|
119,976 |
|
|
116,059 |
|
| Income taxes |
|
13,070 |
|
|
11,979 |
|
|
26,670 |
|
|
24,517 |
|
| Net income |
|
45,798 |
|
|
44,634 |
|
|
93,306 |
|
|
91,542 |
|
| Preferred stock dividends of subsidiaries |
|
229 |
|
|
229 |
|
|
458 |
|
|
458 |
|
| Net income attributable to Hawaiian Electric |
|
45,569 |
|
|
44,405 |
|
|
92,848 |
|
|
91,084 |
|
| Preferred stock dividends of Hawaiian Electric |
|
270 |
|
|
270 |
|
|
540 |
|
|
540 |
|
| Net income for common stock |
|
$ |
45,299 |
|
|
$ |
44,135 |
|
|
$ |
92,308 |
|
|
$ |
90,544 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
HEI owns all of the common stock of Hawaiian Electric. Therefore, per share data with respect to shares of common stock of Hawaiian Electric are not meaningful.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Net income for common stock |
|
$ |
45,299 |
|
|
$ |
44,135 |
|
|
$ |
92,308 |
|
|
$ |
90,544 |
|
| Other comprehensive income (loss), net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
Adjustment for amortization of prior service credit and net losses (gains) recognized during the period in net periodic benefit cost, net of taxes of $(163), $(2), $(326) and $1,516, respectively |
|
(470) |
|
|
(5) |
|
|
(940) |
|
|
4,371 |
|
Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes of $148, $19, $295 and $(1,481), respectively |
|
426 |
|
|
56 |
|
|
851 |
|
|
(4,269) |
|
| Other comprehensive income (loss), net of taxes |
|
(44) |
|
|
51 |
|
|
(89) |
|
|
102 |
|
Comprehensive income attributable to Hawaiian Electric Company, Inc. |
|
$ |
45,255 |
|
|
$ |
44,186 |
|
|
$ |
92,219 |
|
|
$ |
90,646 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in thousands, except par value) |
|
June 30, 2023 |
|
December 31, 2022 |
| Assets |
|
|
|
|
| Property, plant and equipment |
|
|
|
|
| Utility property, plant and equipment |
|
|
|
|
| Land |
|
$ |
52,098 |
|
|
$ |
52,060 |
|
| Plant and equipment |
|
8,122,766 |
|
|
7,979,510 |
|
| Right-of-use assets - finance lease |
|
124,372 |
|
|
48,371 |
|
| Less accumulated depreciation |
|
(3,178,967) |
|
|
(3,086,499) |
|
| Construction in progress |
|
338,052 |
|
|
275,353 |
|
| Utility property, plant and equipment, net |
|
5,458,321 |
|
|
5,268,795 |
|
Nonutility property, plant and equipment, less accumulated depreciation of $65 and $63 as of June 30, 2023 and December 31, 2022, respectively |
|
6,944 |
|
|
6,945 |
|
| Total property, plant and equipment, net |
|
5,465,265 |
|
|
5,275,740 |
|
| Current assets |
|
|
|
|
| Cash and cash equivalents |
|
143,647 |
|
|
39,242 |
|
|
|
|
|
|
| Customer accounts receivable, net |
|
209,194 |
|
|
288,338 |
|
| Accrued unbilled revenues, net |
|
154,355 |
|
|
183,280 |
|
| Other accounts receivable, net |
|
17,725 |
|
|
13,567 |
|
| Fuel oil stock, at average cost |
|
143,800 |
|
|
191,530 |
|
| Materials and supplies, at average cost |
|
91,155 |
|
|
79,568 |
|
| Prepayments and other |
|
41,880 |
|
|
33,482 |
|
| Regulatory assets |
|
77,237 |
|
|
52,273 |
|
| Total current assets |
|
878,993 |
|
|
881,280 |
|
| Other long-term assets |
|
|
|
|
| Operating lease right-of-use assets |
|
80,505 |
|
|
89,318 |
|
| Regulatory assets |
|
175,550 |
|
|
190,240 |
|
| Other |
|
161,280 |
|
|
160,889 |
|
| Total other long-term assets |
|
417,335 |
|
|
440,447 |
|
| Total assets |
|
$ |
6,761,593 |
|
|
$ |
6,597,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(continued)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in thousands, except par value) |
|
June 30, 2023 |
|
December 31, 2022 |
| Capitalization and liabilities |
|
|
|
|
| Capitalization |
|
|
|
|
Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 17,854,278 shares at June 30, 2023 and December 31, 2022) |
|
$ |
119,048 |
|
|
$ |
119,048 |
|
| Premium on capital stock |
|
810,955 |
|
|
810,955 |
|
| Retained earnings |
|
1,439,114 |
|
|
1,411,306 |
|
| Accumulated other comprehensive income, net of taxes-retirement benefit plans |
|
2,772 |
|
|
2,861 |
|
| Common stock equity |
|
2,371,889 |
|
|
2,344,170 |
|
| Cumulative preferred stock — not subject to mandatory redemption |
|
34,293 |
|
|
34,293 |
|
| Long-term debt, net |
|
1,734,530 |
|
|
1,584,854 |
|
| Total capitalization |
|
4,140,712 |
|
|
3,963,317 |
|
| Commitments and contingencies (Note 3) |
|
|
|
|
| Current liabilities |
|
|
|
|
| Current portion of operating lease liabilities |
|
17,709 |
|
|
19,095 |
|
| Current portion of long-term debt, net |
|
99,985 |
|
|
99,962 |
|
| Short-term borrowings from non-affiliates |
|
— |
|
|
87,967 |
|
|
|
|
|
|
| Accounts payable |
|
210,632 |
|
|
202,492 |
|
| Interest and preferred dividends payable |
|
21,367 |
|
|
17,176 |
|
| Taxes accrued, including revenue taxes |
|
252,937 |
|
|
289,902 |
|
| Regulatory liabilities |
|
25,938 |
|
|
31,475 |
|
| Other |
|
90,295 |
|
|
85,596 |
|
| Total current liabilities |
|
718,863 |
|
|
833,665 |
|
| Deferred credits and other liabilities |
|
|
|
|
| Operating lease liabilities |
|
70,465 |
|
|
78,715 |
|
| Finance lease liabilities |
|
119,006 |
|
|
46,048 |
|
| Deferred income taxes |
|
385,350 |
|
|
384,430 |
|
| Regulatory liabilities |
|
1,061,418 |
|
|
1,024,175 |
|
| Unamortized tax credits |
|
91,590 |
|
|
95,300 |
|
| Defined benefit pension liability |
|
49,016 |
|
|
49,748 |
|
| Other |
|
125,173 |
|
|
122,069 |
|
| Total deferred credits and other liabilities |
|
1,902,018 |
|
|
1,800,485 |
|
| Total capitalization and liabilities |
|
$ |
6,761,593 |
|
|
$ |
6,597,467 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Changes in Common Stock Equity (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Common stock |
|
Premium
on
capital |
|
Retained |
|
Accumulated
other
comprehensive |
|
|
| (in thousands) |
|
Shares |
|
Amount |
|
stock |
|
earnings |
|
income (loss) |
|
Total |
| Balance, December 31, 2022 |
|
17,854 |
|
|
$ |
119,048 |
|
|
$ |
810,955 |
|
|
$ |
1,411,306 |
|
|
$ |
2,861 |
|
|
$ |
2,344,170 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
— |
|
|
47,009 |
|
|
— |
|
|
47,009 |
|
| Other comprehensive loss, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(45) |
|
|
(45) |
|
| Common stock dividends |
|
— |
|
|
— |
|
|
— |
|
|
(32,250) |
|
|
— |
|
|
(32,250) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2023 |
|
17,854 |
|
|
119,048 |
|
|
810,955 |
|
|
1,426,065 |
|
|
2,816 |
|
|
2,358,884 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
— |
|
|
45,299 |
|
|
— |
|
|
45,299 |
|
| Other comprehensive loss, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(44) |
|
|
(44) |
|
| Common stock dividends |
|
— |
|
|
|
|
— |
|
|
(32,250) |
|
|
— |
|
|
(32,250) |
|
| Balance, June 30, 2023 |
|
17,854 |
|
|
$ |
119,048 |
|
|
$ |
810,955 |
|
|
$ |
1,439,114 |
|
|
$ |
2,772 |
|
|
$ |
2,371,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, December 31, 2021 |
|
17,753 |
|
|
$ |
118,376 |
|
|
$ |
798,526 |
|
|
$ |
1,348,277 |
|
|
$ |
(3,280) |
|
|
$ |
2,261,899 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
— |
|
|
46,409 |
|
|
— |
|
|
46,409 |
|
| Other comprehensive income, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
51 |
|
|
51 |
|
| Common stock dividends |
|
— |
|
|
— |
|
|
— |
|
|
(31,475) |
|
|
— |
|
|
(31,475) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, March 31, 2022 |
|
17,753 |
|
|
118,376 |
|
|
798,526 |
|
|
1,363,211 |
|
|
(3,229) |
|
|
2,276,884 |
|
| Net income for common stock |
|
— |
|
|
— |
|
|
— |
|
|
44,135 |
|
|
— |
|
|
44,135 |
|
| Other comprehensive income, net of taxes |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
51 |
|
|
51 |
|
| Common stock dividends |
|
— |
|
|
— |
|
|
— |
|
|
(31,475) |
|
|
— |
|
|
(31,475) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2022 |
|
17,753 |
|
|
$ |
118,376 |
|
|
$ |
798,526 |
|
|
$ |
1,375,871 |
|
|
$ |
(3,178) |
|
|
$ |
2,289,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
| Cash flows from operating activities |
|
|
|
|
| Net income |
|
$ |
93,306 |
|
|
$ |
91,542 |
|
| Adjustments to reconcile net income to net cash provided by operating activities |
|
|
|
|
| Depreciation of property, plant and equipment |
|
121,616 |
|
|
117,210 |
|
| Other amortization |
|
13,017 |
|
|
12,703 |
|
| Deferred income taxes |
|
(6,164) |
|
|
(15,964) |
|
|
|
|
|
|
| State refundable credit |
|
(5,750) |
|
|
(5,517) |
|
| Bad debt expense |
|
2,813 |
|
|
3,128 |
|
| Allowance for equity funds used during construction |
|
(7,073) |
|
|
(4,879) |
|
|
|
|
|
|
| Other |
|
381 |
|
|
(4) |
|
| Changes in assets and liabilities |
|
|
|
|
| Decrease (increase) in accounts receivable |
|
76,219 |
|
|
(51,927) |
|
| Decrease (increase) in accrued unbilled revenues |
|
28,797 |
|
|
(49,711) |
|
| Decrease (increase) in fuel oil stock |
|
47,730 |
|
|
(119,709) |
|
| Increase in materials and supplies |
|
(11,587) |
|
|
(2,704) |
|
| Decrease (increase) in regulatory assets |
|
(10,620) |
|
|
12,956 |
|
| Increase in regulatory liabilities |
|
22,782 |
|
|
11,288 |
|
| Increase in accounts payable |
|
26,984 |
|
|
59,850 |
|
| Change in prepaid and accrued income taxes, tax credits and revenue taxes |
|
(44,941) |
|
|
10,016 |
|
| Decrease in defined benefit pension and other postretirement benefit plans liability |
|
(3,926) |
|
|
(2,515) |
|
| Change in other assets and liabilities |
|
(7,439) |
|
|
(21,613) |
|
| Net cash provided by operating activities |
|
336,145 |
|
|
44,150 |
|
| Cash flows from investing activities |
|
|
|
|
| Capital expenditures |
|
(230,149) |
|
|
(140,245) |
|
| Other |
|
4,056 |
|
|
6,685 |
|
| Net cash used in investing activities |
|
(226,093) |
|
|
(133,560) |
|
| Cash flows from financing activities |
|
|
|
|
| Common stock dividends |
|
(64,500) |
|
|
(62,950) |
|
| Preferred stock dividends of Hawaiian Electric and subsidiaries |
|
(998) |
|
|
(998) |
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from issuance of long-term debt |
|
150,000 |
|
|
60,000 |
|
|
|
|
|
|
| Net increase (decrease) in short-term borrowings from non-affiliates and affiliates with original maturities of three months or less |
|
(87,967) |
|
|
54,987 |
|
| Payments of obligations under finance leases |
|
(1,339) |
|
|
— |
|
| Other |
|
(843) |
|
|
(255) |
|
| Net cash provided by (used in) financing activities |
|
(5,647) |
|
|
50,784 |
|
| Net increase (decrease) in cash, cash equivalents and restricted cash |
|
104,405 |
|
|
(38,626) |
|
| Cash, cash equivalents and restricted cash, beginning of period |
|
39,242 |
|
|
55,258 |
|
| Cash, cash equivalents and restricted cash, end of period |
|
143,647 |
|
|
16,632 |
|
| Less: Restricted cash |
|
— |
|
|
(1,129) |
|
| Cash and cash equivalents, end of period |
|
$ |
143,647 |
|
|
$ |
15,503 |
|
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2022 Form 10-K.
Note 1 · Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to SEC Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In preparing the unaudited condensed consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenues and expenses for the period. Actual results could differ significantly from those estimates. The accompanying unaudited condensed consolidated financial statements and the following notes should be read in conjunction with the audited consolidated financial statements and the notes thereto in HEI’s and Hawaiian Electric’s Form 10-K for the year ended December 31, 2022.
In the opinion of HEI’s and Hawaiian Electric’s management, the accompanying unaudited condensed consolidated financial statements contain all material adjustments required by GAAP to fairly state consolidated HEI’s and Hawaiian Electric’s financial positions as of June 30, 2023 and December 31, 2022 and the results of their operations for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 2023 and 2022. All such adjustments are of a normal recurring nature, unless otherwise disclosed below or in other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.
Recent accounting pronouncements.
Credit Losses. In March 2022, Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures,” which eliminates the accounting guidance for Troubled Debt Restructurings (TDRs) by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in paragraphs 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments in this update also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic 326-20, “Financial Instruments-Credit Losses-Measured at Amortized Cost.” Gross write-off information must be included in the vintage disclosures required for public business entities in accordance with paragraph 325-20-50-6, which requires that an entity disclose the amortized cost basis of financing receivables by credit-quality indicator and class of financing receivable by year of origination. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. ASB updated the accounting for certain loan refinancings and restructurings, and included the required disclosures in the Notes herein in accordance with ASU No. 2022-02.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Note 2 · Segment financial information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Electric utility |
|
Bank |
|
Other |
|
Total |
| Three months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
794,191 |
|
|
$ |
96,885 |
|
|
$ |
4,609 |
|
|
$ |
895,685 |
|
| Income (loss) before income taxes |
|
$ |
58,868 |
|
|
$ |
25,055 |
|
|
$ |
(14,556) |
|
|
$ |
69,367 |
|
| Income taxes (benefit) |
|
13,070 |
|
|
4,851 |
|
|
(3,637) |
|
|
14,284 |
|
| Net income (loss) |
|
45,798 |
|
|
20,204 |
|
|
(10,919) |
|
|
55,083 |
|
| Preferred stock dividends of subsidiaries |
|
499 |
|
|
— |
|
|
(26) |
|
|
473 |
|
| Net income (loss) for common stock |
|
$ |
45,299 |
|
|
$ |
20,204 |
|
|
$ |
(10,893) |
|
|
$ |
54,610 |
|
| Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
1,624,552 |
|
|
$ |
190,742 |
|
|
$ |
8,628 |
|
|
$ |
1,823,922 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income (loss) before income taxes |
|
$ |
119,976 |
|
|
$ |
48,762 |
|
|
$ |
(29,067) |
|
|
$ |
139,671 |
|
| Income taxes (benefit) |
|
26,670 |
|
|
9,996 |
|
|
(7,272) |
|
|
29,394 |
|
| Net income (loss) |
|
93,306 |
|
|
38,766 |
|
|
(21,795) |
|
|
110,277 |
|
| Preferred stock dividends of subsidiaries |
|
998 |
|
|
— |
|
|
(52) |
|
|
946 |
|
| Net income (loss) for common stock |
|
$ |
92,308 |
|
|
$ |
38,766 |
|
|
$ |
(21,743) |
|
|
$ |
109,331 |
|
Total assets (at June 30, 2023) |
|
$ |
6,761,593 |
|
|
$ |
9,620,691 |
|
|
$ |
137,025 |
|
|
$ |
16,519,309 |
|
| Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues |
|
$ |
818,873 |
|
|
$ |
75,324 |
|
|
$ |
1,410 |
|
|
$ |
895,607 |
|
| Income (loss) before income taxes |
|
$ |
56,613 |
|
|
$ |
22,109 |
|
|
$ |
(12,505) |
|
|
$ |
66,217 |
|
| Income taxes (benefit) |
|
11,979 |
|
|
4,643 |
|
|
(3,419) |
|
|
13,203 |
|
| Net income (loss) |
|
44,634 |
|
|
17,466 |
|
|
(9,086) |
|
|
53,014 |
|
| Preferred stock dividends of subsidiaries |
|
499 |
|
|
— |
|
|
(26) |
|
|
473 |
|
| Net income (loss) for common stock |
|
$ |
44,135 |
|
|
$ |
17,466 |
|
|
$ |
(9,060) |
|
|
$ |
52,541 |
|
| Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
| Revenues from external customers and other sources |
|
$ |
1,527,661 |
|
|
$ |
150,439 |
|
|
$ |
2,575 |
|
|
$ |
1,680,675 |
|
| Intersegment revenues (eliminations) |
|
4 |
|
|
— |
|
|
(4) |
|
|
— |
|
| Revenues |
|
$ |
1,527,665 |
|
|
$ |
150,439 |
|
|
$ |
2,571 |
|
|
$ |
1,680,675 |
|
| Income (loss) before income taxes |
|
$ |
116,059 |
|
|
$ |
52,324 |
|
|
$ |
(14,686) |
|
|
$ |
153,697 |
|
| Income taxes (benefit) |
|
24,517 |
|
|
10,988 |
|
|
(4,462) |
|
|
31,043 |
|
| Net income (loss) |
|
91,542 |
|
|
41,336 |
|
|
(10,224) |
|
|
122,654 |
|
| Preferred stock dividends of subsidiaries |
|
998 |
|
|
— |
|
|
(52) |
|
|
946 |
|
| Net income (loss) for common stock |
|
$ |
90,544 |
|
|
$ |
41,336 |
|
|
$ |
(10,172) |
|
|
$ |
121,708 |
|
Total assets (at December 31, 2022) |
|
$ |
6,597,467 |
|
|
$ |
9,545,970 |
|
|
$ |
140,807 |
|
|
$ |
16,284,244 |
|
Intercompany electricity sales of the Utilities to ASB and “other” segments are not eliminated because those segments would need to purchase electricity from another source if it were not provided by the Utilities and the profit on such sales is nominal.
Hamakua Energy, LLC’s (Hamakua Energy’s) sales to Hawaii Electric Light (a regulated affiliate) are eliminated in consolidation.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Note 3 · Electric utility segment
Unconsolidated variable interest entities.
Power purchase agreements. As of June 30, 2023, the Utilities had four power purchase agreements (PPAs) for firm capacity and other PPAs with independent power producers (IPPs) and Schedule Q providers (i.e., customers with cogeneration and/or power production facilities who buy power from or sell power to the Utilities), none of which are currently required to be consolidated as VIEs.
Pursuant to the current accounting standards for VIEs, the Utilities are deemed to have a variable interest in Kalaeloa Partners, L.P. (Kalaeloa) and Hamakua Energy by reason of the provisions of the PPA that the Utilities have with the two IPPs. However, management has concluded that the Utilities are not the primary beneficiary of Kalaeloa and Hamakua Energy because the Utilities do not have the power to direct the activities that most significantly impact the two IPPs’ economic performance nor the obligation to absorb their expected losses, if any, that could potentially be significant to the IPPs. Thus, the Utilities have not consolidated Kalaeloa and Hamakua Energy in its condensed consolidated financial statements. However, Hamakua Energy is an indirect subsidiary of Pacific Current and is consolidated in HEI’s condensed consolidated financial statements.
For the other PPAs with IPPs, the Utilities have concluded that the consolidation of the IPPs was not required because either the Utilities do not have variable interests in the IPPs due to the absence of an obligation in the PPAs for the Utilities to absorb any variability of the IPPs, or the IPP was considered a “governmental organization,” and thus excluded from the scope of accounting standards for VIEs. The consolidation of any significant IPP could have a material effect on the unaudited condensed consolidated financial statements, including the recognition of a significant amount of assets and liabilities and, if such a consolidated IPP were operating at a loss and had insufficient equity, the potential recognition of such losses. If the Utilities determine they are required to consolidate the financial statements of such an IPP and the consolidation has a material effect, the Utilities would retrospectively apply accounting standards for VIEs to the IPP.
Commitments and contingencies.
Contingencies. The Utilities are subject in the normal course of business to legal, regulatory and environmental proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, the Utilities cannot rule out the possibility that such outcomes could have a material effect on the results of operations or liquidity for a particular reporting period in the future. The Utilities record loss contingencies when the outcome of such proceedings is probable and when the amount of the loss is reasonably estimable. The Utilities also evaluate, on a continuous basis, whether developments in such proceedings could cause these assessments or estimates to change. Assessment regarding future events is required when evaluating whether a loss is probable or reasonably possible, and as to whether such loss or a range of such loss is estimable. Management is often unable to estimate a reasonably possible loss, or a range of loss, particularly in cases in which: (i) the damages sought are indeterminate or the basis for the damages claimed is not clear; (ii) proceedings are in early stages; (iii) discovery is not complete; (iv) the matters involve novel or unsettled legal theories; (v) significant facts are in dispute; (vi) a large number of parties are represented (including circumstances in which it is uncertain how liability, if any, would be shared among multiple defendants); (vii) a lower court or administrative agency’s decision or ruling has been appealed; and/or (vii) a wide range of potential outcomes exist. In such cases, there may be considerable uncertainty regarding the timing or ultimate resolution, including any possible loss, fine, penalty, or business impact.
Power purchase agreements. Purchases from all IPPs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in millions) |
|
|
|
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Kalaeloa |
|
|
|
|
|
$ |
67 |
|
|
$ |
83 |
|
|
$ |
134 |
|
|
$ |
143 |
|
AES Hawaii 1 |
|
|
|
|
|
— |
|
|
34 |
|
|
— |
|
|
61 |
|
| HPOWER |
|
|
|
|
|
16 |
|
|
19 |
|
|
34 |
|
|
38 |
|
| Hamakua Energy |
|
|
|
|
|
19 |
|
|
14 |
|
|
39 |
|
|
30 |
|
| Puna Geothermal Venture |
|
|
|
|
|
9 |
|
|
14 |
|
|
17 |
|
|
24 |
|
| Wind IPPs |
|
|
|
|
|
33 |
|
|
38 |
|
|
57 |
|
|
56 |
|
| Solar IPPs |
|
|
|
|
|
22 |
|
|
13 |
|
|
36 |
|
|
26 |
|
Other IPPs 2 |
|
|
|
|
|
2 |
|
|
3 |
|
|
4 |
|
|
4 |
|
| Total IPPs |
|
|
|
|
|
$ |
168 |
|
|
$ |
218 |
|
|
$ |
321 |
|
|
$ |
382 |
|
1 The term of the PPA with AES Hawaii expired on September 1, 2022 and the AES Hawaii coal plant ceased operations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
2 Includes hydro power and other PPAs.
Kalaeloa Partners, L.P. Under a 1988 PPA, as amended, Hawaiian Electric is committed to purchase 208 MW of firm capacity from Kalaeloa. In October 2021, Hawaiian Electric and Kalaeloa signed the Amended and Restated Power Purchase Agreement for Firm Dispatchable Capacity and Energy (Amended and Restated PPA) to extend the PPA for an additional term of 10 years. The Amended and Restated PPA was approved by the PUC on November 23, 2022. The new pricing provisions in the Amended and Restated PPA took effect on January 1, 2023.
Stage 1 Renewable PPAs. In February 2018, the Utilities issued their Stage 1 renewable request for proposals and have procured eight renewable PPAs with a total of 274.5 MW capacity. The total annual payments to be made by the Utilities under the eight renewable PPAs are estimated at $70.8 million. The Utilities have received PUC approvals to recover the total projected annual payments under the eight renewable PPAs through the purchased power adjustment clause (PPAC) to the extent such costs are not included in base rates. The Utilities have accounted for the battery portion of three PPAs that were placed in service, including the AES Waikoloa Solar project that began commercial operation on April 21, 2023, which has a capacity of 30 MW with 120 MWh batteries, as finance leases and recorded lease liabilities with corresponding right-of-use assets of $124 million. The timing of the Utilities’ recognition of the expense conforms to ratemaking treatment for the Utilities’ recovery of the cost of electricity and is included in purchased power for the interest and amortization of financing leases related to PPAs. Any material differences between expense recognition and timing of payments are deferred as a regulatory asset or liability in order to match what is being recovered for ratemaking purposes.
Hu Honua Bioenergy, LLC (Hu Honua). In May 2012, Hawaii Electric Light signed a PPA, which the PUC approved in December 2013, with Hu Honua for 21.5 MW of renewable, dispatchable firm capacity fueled by locally grown biomass from a facility on the island of Hawaii. Under the terms of the PPA, the Hu Honua plant was scheduled to be in service in 2016. However, Hu Honua encountered construction and litigation delays, which resulted in the termination of the original PPA. Following the termination, Hu Honua filed a lawsuit in the U.S. District Court for the District of Hawaii. The parties reached a settlement that provided that they would execute an amended and restated PPA dated May 9, 2017, provided that the amended and restated PPA was still subject to PUC approval. On May 23, 2022, the PUC issued a decision and order denying the amended and restated PPA, based on, among other things, findings that: (1) the project will result in significant greenhouse gas (GHG) emissions, (2) Hu Honua’s proposed carbon commitment to sequester more GHG emissions than produced by the project are speculative and unsupported, (3) the amended and restated PPA is likely to result in high costs to customers through its relatively high cost of electricity and through potential displacement of other, lower cost, renewable resources, and (4) based on the foregoing, approving the amended and restated PPA is not prudent or in the public interest. On June 2, 2022, Hawaii Electric Light and Hu Honua filed their separate motions for reconsideration, which were denied by the PUC on June 24, 2022. On June 29, 2022, Hu Honua filed its notice of appeal to the Hawaii Supreme Court of the PUC’s May 23, 2022 decision and order denying the amended and restated PPA. On March 13, 2023, the Hawaii Supreme Court affirmed the PUC’s decision denying the amended and restated PPA between Hu Honua and Hawaii Electric Light and entered its judgment on appeal on April 12, 2023. On June 7, 2023, Hu Honua filed a status report with the U.S. District Court for the District of Hawaii, stating, among other things, that because settlement of the underlying federal lawsuit was contingent on timely, non-appealable, final approval of the amended and restated PPA by the PUC, that the Hawaii Supreme Court’s opinion made fulfillment of the condition impossible, and therefore the settlement agreement between the Hawaiian Electric defendants (HEI, Hawaiian Electric, and Hawaii Electric Light) and Hu Honua is null and void and of no further effect. Furthermore, Hu Honua indicated that it intends to reassert its federal antitrust and other claims against the Hawaiian Electric defendants. Hu Honua also stated that to take into account the numerous relevant events which have occurred since its filing of its second amended complaint on January 29, 2018, Hu Honua intends to move for leave to file an amended and supplemental complaint. Hu Honua has yet to file a motion for leave.
Molokai New Energy Partners (MNEP). In July 2018, the PUC approved Maui Electric’s PPA with MNEP to purchase solar energy from a photovoltaic (PV) plus battery storage project. The 4.88 MW PV and 3 MW Battery Energy Storage System project was to deliver no more than 2.64 MW at any time to the Molokai system. On March 25, 2020, MNEP filed a complaint in the United Stated District Court for the District of Hawaii against Maui Electric claiming breach of contract. On June 3, 2020, Maui Electric provided a Notice of Default and Termination of the PPA to MNEP terminating the PPA with an effective date of July 10, 2020. Thereafter, MNEP filed an amended complaint to include claims relating to the termination and Hawaiian Electric filed its answer to the amended complaint on September 11, 2020, disputing the facts presented by MNEP and all claims within the original and amended complaint. Currently, the discovery phase is ongoing.
Utility projects. Many public utility projects require PUC approval and various permits from other governmental agencies. Difficulties in obtaining, or the inability to obtain, the necessary approvals or permits or community support can result in significantly increased project costs or even cancellation of projects. In the event a project does not proceed, or if it becomes probable the PUC will disallow cost recovery for all or part of a project, or if PUC-imposed caps on project costs are expected to be exceeded, project costs may need to be written off in amounts that could result in significant reductions in Hawaiian Electric’s consolidated net income.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) implementation project. The ERP/EAM Implementation Project went live in October 2018. Hawaii Electric Light and Hawaiian Electric began to incorporate their portion of the deferred project costs in rate base and started the amortization over a 12-year period in January 2020 and November 2020, respectively. The PUC required a minimum of $246 million ERP/EAM project-related benefit to be delivered to customers over the system’s 12-year service life.
In February 2019, the PUC approved a methodology for passing the future cost saving benefits of the new ERP/EAM system to customers developed by the Utilities in collaboration with the Consumer Advocate. The Utilities filed a benefits clarification document on June 10, 2019, reflecting $150 million in future net other operation and maintenance (O&M) expense reductions and cost avoidance, and $96 million in capital cost reductions and tax savings over the 12-year service life. To the extent the reduction in O&M expense relates to amounts reflected in electric rates, the Utilities would reduce future rates for such amounts. In October 2019, the PUC approved the Utilities and the Consumer Advocate’s Stipulated Performance Metrics and Tracking Mechanism. As of June 30, 2023, the Utilities’ regulatory liability was $11.5 million ($3.3 million for Hawaiian Electric, $3.3 million for Hawaii Electric Light and $4.9 million for Maui Electric) for the O&M expense savings that are being amortized or to be included in future rates. As part of the settlement agreement approved in the Hawaiian Electric 2020 test year rate case, the regulatory liability for Hawaiian Electric will be amortized over five years, beginning in November 2020, and the O&M benefits for Hawaiian Electric was considered flowed through to customers.
At the PUC’s direction, the Utilities have been filing Annual Enterprise System Benefits (AESB) report on the achieved benefits savings. The most recent AESB report was filed on February 14, 2023 for the period January 1 through December 31, 2022.
Waena Switchyard/Synchronous Condenser Project. In October 2020, to support efforts to increase renewable energy generation and reduce fossil fuel consumption by deactivating current generating units, Maui Electric filed a PUC application to construct a switchyard, which includes the extension of two 69 kV transmission lines and the relocation of another 69 kV transmission line; and the conversion of two generating units to synchronous condensers at Kahului Power Plant in central Maui. In November 2021, the PUC approved Maui Electric’s request to commit funds estimated at $38.8 million for the project, and to recover capital expenditures for the project under Exceptional Project Recovery Mechanism (EPRM) not to exceed $38.8 million, which shall be further reduced to reflect the total project cost exclusive of overhead costs not directly attributable to the project. The Waena Switchyard project is expected to be placed in service in the fourth quarter of 2023, while the conversion of the two generating units will be performed after the retirement of Kahului Power Plant Units 3 and 4.
In approving the project, the PUC recognized that the project will facilitate the ability to accommodate increased renewable energy, as contemplated under the EPRM guidelines. As of June 30, 2023, $21.2 million has been incurred for the project.
Environmental regulation. The Utilities are subject to environmental laws and regulations that regulate the operation of existing facilities, the construction and operation of new facilities and the proper cleanup and disposal of hazardous waste and toxic substances.
Hawaiian Electric, Hawaii Electric Light and Maui Electric, like other utilities, periodically encounter petroleum or other chemical releases associated with current or previous operations. The Utilities report and take action on these releases when and as required by applicable law and regulations. The Utilities believe the costs of responding to such releases identified to date will not have a material effect, individually or in the aggregate, on Hawaiian Electric’s consolidated results of operations, financial condition or liquidity.
Former Molokai Electric Company generation site. In 1989, Maui Electric acquired Molokai Electric Company. Molokai Electric Company had sold its former generation site (Site) in 1983, but continued to operate at the Site under a lease until 1985 and left the property in 1987. The federal Environmental Protection Agency (EPA) has since identified environmental impacts in the subsurface soil at the Site. In cooperation with the Department of Health of State of Hawaii and EPA, Maui Electric further investigated the Site and the adjacent parcel to determine the extent of impacts of polychlorinated biphenyls (PCBs), residual fuel oils and other subsurface contaminants. Maui Electric has a reserve balance of $2.6 million as of June 30, 2023, representing the probable and reasonably estimable undiscounted cost for remediation of the Site and the adjacent parcel based on presently available information; however, final costs of remediation will depend on the cleanup approach implemented.
Additionally, on November 24, 2021, the current landowners of the Site, Misaki’s, Inc., filed a lawsuit against Hawaiian Electric (as alleged successor in interest to Molokai Electric, the prior owner of the Site) in the Circuit Court of the Second Circuit of the State of Hawaii (removed to the U.S. District Court for the District of Hawaii).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The complaint, which was subsequently amended to include Maui Electric, alleges that Hawaiian Electric is responsible for remediation of the Site based on the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), and the Hawaii Environmental Response Law under Hawaii Revised Statutes Chapter 128D, as well as being liable on contractual claims related to a short leaseback period during the transition of ownership from Molokai Electric. The amended complaint was dismissed and a new complaint may be filed subject to the parties attempt to enter into settlement negotiations, but the Utilities intend to vigorously defend the action if necessary. At this time, the Utilities are unable to determine the ultimate outcome of the lawsuit or the amount of any possible loss. As of June 30, 2023, the reserve balance recorded by the Utilities to address the lawsuit was not material.
Pearl Harbor sediment study. In July 2014, the U.S. Navy notified Hawaiian Electric of the Navy’s determination that Hawaiian Electric is a Potentially Responsible Party under CERCLA responsible for the costs of investigation and cleanup of PCB contamination in sediment in the area offshore of the Waiau Power Plant as part of the Pearl Harbor Superfund Site. Hawaiian Electric was also required by the EPA to assess potential sources and extent of PCB contamination onshore at Waiau Power Plant.
As of June 30, 2023, the reserve account balance recorded by Hawaiian Electric to address the PCB contamination was $9.7 million. The reserve balance represents the probable and reasonably estimable undiscounted cost for the onshore and offshore investigation and remediation. The final remediation costs will depend on the actual onshore and offshore cleanup costs.
Kapolei pipeline. James Campbell Company (JCC) through its wholly owned subsidiary, Aina Nui Corporation discovered petroleum contamination in ground water during construction of a project in Kapolei in late 2022 and incurred approximately $0.8 million in remediation costs. JCC made a joint demand for these costs in June 2023 to the two companies, including Hawaiian Electric, that have pipelines in the area of the contamination. Based on the nature of the contamination, it is not clear whether it is consistent with what was in the Utilities’ pipelines or is wholly or partially the responsibility of the other pipeline owner. At this time, the Utilities are unable to determine the ultimate outcome or the amount of any possible loss.
Regulatory proceedings.
Decoupling. Decoupling is a regulatory model that is intended to provide the Utilities with financial stability and facilitate meeting the State of Hawaii’s goals to transition to a clean energy economy and achieve an aggressive renewable portfolio standard. Decoupling delinks the utility’s revenues from the utility’s sales, removing the disincentive to promote energy efficiency and accept more renewable energy. Decoupling continues under the PBR Framework.
Performance-based regulation framework. On December 23, 2020, the PUC issued a decision and order (PBR D&O) establishing the PBR Framework to govern the Utilities. The PBR Framework incorporates an annual revenue adjustment (ARA) and a suite of new regulatory mechanisms in addition to previously established regulatory mechanisms. Under the PBR Framework, the decoupling mechanism (i.e., the Revenue Balancing Account (RBA)) established by the previous regulatory framework will continue. The existing cost recovery mechanisms will continue as currently implemented (e.g., the Energy Cost Recovery Clause, PPAC, Demand Side Management surcharge, Renewable Energy Infrastructure Program, Demand Response Adjustment Clause, Pension and Other Post-Employment Benefits (OPEB) tracking mechanisms). In addition to annual revenues provided by the ARA, the Utilities may seek relief for extraordinary projects or programs through the Exceptional Project Recovery Mechanism (EPRM) (formerly known as the Major Project Interim Recovery adjustment mechanism) and earn financial rewards for exemplary performance as provided through a portfolio of Performance Incentive Mechanisms (PIMs) and Shared Savings Mechanisms (SSMs). The PBR Framework incorporates a variety of additional performance mechanisms, including Scorecards, Reported Metrics, and an expedited Pilot Process. The PBR Framework also contains a number of safeguards, including a symmetric Earnings Sharing Mechanism (ESM) which protects the Utilities and customers from excessive earnings or losses, as measured by the Utilities’ achieved rate-making ROACE and a Re-Opener mechanism, under which the PUC will open an examination, at its discretion, to determine if adjustments or modifications to specific PBR mechanisms are appropriate. The PBR Framework became fully effective on June 1, 2021.
On June 17, 2022, the PUC issued a decision and order (June 2022 D&O) establishing additional PIMs under the PBR Framework for the Utilities. The June 2022 D&O approved two new PIMs, a new SSM, and extended the timeframe for an existing PIM. Specifically, the PUC approved (1) a new (penalty-only) generation-caused interruption reliability PIM, (2) a new (penalty/reward) interconnection requirements study (IRS) PIM, (3) a new (reward-only) Collective Shared Savings Mechanism (CSSM), and (4) a modification and extension of the existing Interim Grid Services PIM (reward-only). On November 23, 2022, the PUC approved the Utilities’ proposed tariffs to implement the aforementioned PIMs with an effective date of January 1, 2023.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
In addition, the June 2022 D&O instructed the Utilities to prepare and submit: a detailed fossil fuel retirement report (FF Retirement Report) outlining necessary steps to safely and reliably retire certain existing fossil fuel power plants during the first multi-year rate period (MRP); and a functional integration plan (FIP) for distributed energy resources (DER) to increase transparency into the Utilities’ plans and progress for utilizing cost-effective grid services from DERs and ensure that the necessary functionalities and requisite technologies are in place to do so. The PUC also instructed the PBR Working Group to continue its ongoing collaborative efforts to consider other potential new incentive mechanisms and to address other issues raised during the proceeding. On March 30, 2023, the PUC held a PBR Working Group coordination meeting to initiate subgroups on the Long-Term Grid Services PIM, modification/evaluation of existing PIMs, and comprehensive PBR Framework review priority topics.
In accordance with the June 2022 D&O, the Utilities filed their FIP on September 30, 2022, FF Retirement Report on April 17, 2023, and Long-Term Grid Services PIM proposal on July 3, 2023.
Revenue adjustment mechanism. Prior to the implementation of the PBR Framework, the revenue adjustment mechanism (RAM) was a major component of the previously established regulatory framework. The RAM was based on the lesser of: (a) an inflationary adjustment for certain O&M expenses and return on investment for certain rate base changes, or (b) cumulative annual compounded increase in Gross Domestic Product Price Index applied to annualized target revenues (the RAM Cap). Under the PBR Framework, the ARA mechanism replaced the RAM, and became effective on June 1, 2021. RAM revenue adjustments approved by the PUC in 2020 will continue to be included in the RBA provision’s target revenue and RBA rate adjustment unless modified with PUC approval.
Annual revenue adjustment mechanism. The PBR Framework established a five-year MRP during which there will be no general rate cases. Target revenues will be adjusted according to an index-driven ARA based on (i) an inflation factor, (ii) a predetermined X-factor to encompass productivity, which is set at zero, (iii) a Z-factor to account for exceptional circumstances not in the Utilities’ control and (iv) a customer dividend consisting of a negative adjustment of 0.22% of adjusted revenue requirements compounded annually and a flow through of the “pre-PBR” savings commitment from the management audit recommendations developed in a prior docket at a rate of $6.6 million per year from 2021 to 2025. The implementation of the ARA occurred on June 1, 2021.
Earnings sharing mechanism. The PBR Framework established a symmetrical ESM for achieved rate-making ROACE outside of a 300 basis points dead band above or below the current authorized ROACE of 9.5% for each of the Utilities. There is a 50/50 sharing between customers and Utilities for the achieved rate-making ROACE falling within 150 basis points outside of the dead band in either direction, and a 90/10 sharing for any further difference. A reopening or review of the PBR terms will be triggered if the Utilities credit rating outlook indicates a potential credit downgrade below investment grade status, or if its achieved rate-making ROACE enters the outer most tier of the ESM.
Exceptional project recovery mechanism. Prior to the implementation of the PBR Framework, the PUC established the Major Project Interim Recovery (MPIR) adjustment mechanism and MPIR Guidelines. The MPIR mechanism provides the opportunity to recover revenues for net costs of approved eligible projects placed in service between general rate cases. In establishing the PBR Framework, the MPIR Guidelines were terminated and replaced with the EPRM Guidelines. Although the MPIR Guidelines were terminated and replaced by the EPRM Guidelines, the MPIR mechanism will continue within the PBR Framework to provide recovery of project costs previously approved for recovery under the MPIR. The established EPRM Guidelines permit the Utilities to include the full amount of approved costs in the EPRM for recovery in the first year the project goes into service, pro-rated for the portion of the year the project is in service. Deferred and O&M expense projects are also eligible for EPRM recovery under the EPRM Guidelines. EPRM recoverable costs will be limited to the lesser of actual incurred project costs or PUC‑approved amounts, net of savings.
As of June 30, 2023, the Utilities annualized MPIR and EPRM revenue amounts totaled $26.2 million, including revenue taxes, for the Schofield Generating Station ($16.5 million), West Loch PV project ($3.5 million), Grid Modernization Strategy (GMS) Phase 1 project ($6.1 million for all three utilities) and Waiawa UFLS project ($0.1 million) that included the 2022 return on project amount (based on approved amounts) in rate base, depreciation and incremental O&M expenses. The PUC approved the Utilities’ recovery of the annualized 2022 MPIR amounts for the Schofield Generating Station, West Loch PV, and GMS Phase 1 projects effective June 1, 2022 through the RBA rate adjustment. Recovery of the incremental change to the West Loch PV project and Waiawa UFLS project were approved on December 7, 2022 and December 5, 2022, respectively.
As of June 30, 2023, the PUC approved two EPRM applications for projects totaling $41 million to the extent that the project costs are not included in rates. Currently, the Utilities are seeking EPRM recovery for five projects with total project costs up to $488 million, subject to PUC approval.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Pilot process. As part of the PBR Framework, the PUC approved a Pilot Process to foster innovation by establishing an expedited implementation process for pilots that tests new technologies, programs, business models, and other arrangements. Under the Pilot Process, the Utilities submit specific pilot proposals (Pilot Notices) that are within the scope of the approved Workplan to the PUC for their expedited review. The PUC will strive to issue an order addressing a proposed pilot within 45 days of the filing date of a Pilot Notice. If the PUC does not take affirmative action on a Pilot Notice by the end of the 45-day period, the Pilot Notice shall be considered approved as submitted. The PUC may modify the pilot as originally proposed, and the Utilities shall have 15 days to notify the PUC whether the Utilities accept the modification, propose further modification, or withdraw the Pilot Notice. The PUC may also, where necessary, suspend the Pilot Notice for further investigation.
The approved Pilot Process includes a cost recovery process that generally allows the Utilities to defer and recover total annual expenditures of approved pilot projects net of revenues, subject to an annual cap of $10 million, over 12 months beginning June 1 of the year following pilot implementation through the RBA rate adjustment, although the PUC may determine on a case-by-case basis that a particular project’s deferred costs should be amortized over a period greater than 12 months.
On February 28, 2023, the Utilities filed their annual Pilot Update report covering pilot projects that were active during 2022, including reporting on pilot projects that were initiated prior to the commencement of the Pilot Process. The Pilot Update reported on approximately $0.4 million of 2022 recorded pilot project costs including revenue taxes for the Utilities. The 2022 recorded pilot project costs were included in the Utilities’ proposed adjustments to target revenue in the 2023 spring revenue report filed on March 28, 2023.
On February 2, 2023, the Utilities filed a Pilot Notice to commence an EV Telematics Pilot project in April 2023. On March 22, 2023, the PUC issued an order approving the Utilities’ EV Telematics Pilot project. The order also temporarily suspended the filing of Pilot Notices, pending a stakeholder meeting which was convened on June 15, 2023, to discuss potential improvements to the Pilot Process.
On July 28, 2023, the PUC issued an order providing additional guidance on the Pilot Process, specifying expectations for future Pilot Notices submitted pursuant to the Pilot Process. The order lifts the temporary suspension on submitting Pilot Notices and the Utilities may file Pilot Notices consistent with the approved Workplan.
Performance incentive mechanisms. The PUC has established the following PIMs and SSMs: (1) Service Quality performance incentives, (2) Phase 1 Request for proposal (RFP) PIM for procurement of low-cost renewable energy, (3) Phase 2 RFP PIMs for generation and generation plus storage project, and grid services and standalone storage, (4) new PIMs established in the PBR D&O and (5) new PIMs and a SSM established in the June 2022 D&O.
•Service Quality performance incentives (ongoing). Service Quality performance incentives are measured on a calendar-year basis. The PIM tariff requires the performance targets, deadbands and the amount of maximum financial incentives used to determine the PIM financial incentive levels for each of the PIMs to remain constant in interim periods, unless otherwise amended by order of the PUC.
•Service Reliability Performance measured by Transmission and Distribution-caused System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a deadband of one standard deviation. The maximum penalty for each performance index is 20 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $6.8 million - for both indices in total for the three utilities). For the 2022 evaluation period, the Utilities incurred $0.1 million in penalties.
•Call Center Performance measured by the percentage of calls answered within 30 seconds. Target performance is based on the annual average performance for each utility for the most recent eight quarters with a deadband of 3% above and below the target. The maximum penalty or reward is 8 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties or rewards of approximately $1.4 million - in total for the three utilities).
•Phase 1 RFP PIM. Procurement of low-cost variable renewable resources through the RFP process in 2018 is measured by comparison of the procurement price to target prices. The first portion of the incentive was earned upon PUC approval of the PPAs. Based on the seven PPAs approved in 2019, the Utilities recognized $1.7 million in 2019 with the remaining award to be recognized in the year following the in-service date of the projects, which is estimated to occur from 2023 to 2025.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
•Phase 2 RFP PIMs. The PUC order issued on October 9, 2019 establishes pricing thresholds, timelines to complete contracting, and other performance criteria for the performance incentive eligibility. The PIMs provide incentives only without penalties. On July 9, 2020, the Utilities filed two Grid Services Purchase Agreements (GSPA) for the Grid Service RFP that potentially qualify for a demand response PIM; however, details of the incentive metrics will be determined by the PUC. On September 15, 2020, the Utilities filed one PPA that qualified for a PIM incentive and on February 16, 2021, the Utilities filed one additional PPA that qualified for a declining PIM incentive. The PUC approved two PPAs in September 2021 and November 2021 and two GSPAs on December 31, 2020. Based on the two approved PPAs, the Utilities recognized $0.1 million in rewards in 2021. In December 2022 and March 2023, these two PPAs were terminated or declared null and void.
•The PUC previously established the following two PIMs in its PBR D&O, which were approved in an order issued on March 23, 2021 and became effective on June 1, 2021. In its June 2022 D&O, the PUC modified and extended the Interim Grid Services PIM.
•Renewable portfolio standard (RPS) - A PIM that provides a financial reward for accelerating the achievement of RPS goals. The Utilities may earn a reward for the amount of system generation above the interpolated statutory RPS goal at $20/MWh in 2021 and 2022, $15/MWh in 2023, and $10/MWh for the remainder of the MRP. Penalties are already prescribed in the RPS as $20/MWh for failing to meet RPS targets in 2030, 2040 and 2045. The evaluation period commenced on January 1, 2021.
•Interim Grid Services - A PIM that provides financial rewards on a $/kW basis for the acquisition of eligible grid services. The eligibility period for this PIM initially commenced on January 1, 2021 and was scheduled to end on December 31, 2022. However, the June 2022 D&O extended the eligibility period for this PIM through December 31, 2023. The June 2022 D&O also increased the incentive rate for the acquisition of load reduction grid services. During the PIM performance period, newly acquired committed capacity in the Oahu Scheduled Dispatch Program (SDP), the Oahu Fast DR program (up to the 7 MW cap), and the Maui SDP program shall qualify for the incentive. The Utilities can earn a maximum reward of $1.5 million from 2021 through 2023. In 2022, the Utilities earned $0.04 million in rewards.
•The PUC also previously established the following three PIMs in its PBR D&O, which were approved by the PUC on May 17, 2021 and became effective on June 1, 2021.
•Interconnection Approval PIM that provides financial rewards and penalties for interconnection times for DER systems <100 kW in size. The Utilities can earn a total annual maximum reward of $3.0 million or a total annual maximum penalty of $0.9 million. In 2022, the Utilities earned $3.0 million in rewards.
•Low-to-Moderate Income (LMI) Energy Efficiency PIM that provides financial rewards for collaboration between the Utilities and the third-party Public Benefits Fee Administrator to deliver energy savings for low- and moderate-income customers. The Utilities can earn a total annual maximum reward of $2.0 million. The PIM will initially have a duration of three years and be subject to an annual review. The evaluation period is based on Hawaii Energy’s program year with the initial evaluation year being the period of July 1, 2021 through June 30, 2022. The Utilities earned $0.5 million in rewards for the program period ending June 30, 2022.
•Advanced Metering Infrastructure Utilization PIM that provides financial rewards for leveraging grid modernization investments and engaging customers beyond what is already planned in the Phase 1 Grid Modernization program. The Utilities can earn a total annual maximum reward of $2.0 million. The PIM will initially have a duration of three years after which it will be re-evaluated. The evaluation period commenced on January 1, 2021.
•The PUC established the following new PIMs and SSM in its June 2022 D&O, which became effective on January 1, 2023.
•Generation-caused System Average Interruption Duration and Frequency Indexes PIMs to incentivize achievement of generation-based reliability targets, measured by Generation System Average Interruption Duration and Frequency Indexes (penalties only). Target performance is based on each utility’s historical 10-year average performance with a deadband of one standard deviation. The maximum penalty for each performance index is 3 basis points applied to the common equity share of each respective utility’s approved rate base (or maximum penalties of approximately $1 million - for both indices in total for the three utilities).
•An IRS PIM to incentivize the timely completion of the IRS process for large-scale renewable energy projects (rewards and penalties) measured by the number of months between final model checkout and delivery of IRS results to the developer. Target performance is ten months with an asymmetrical deadband of two-months for penalties and no deadband for rewards. The maximum penalty and reward will depend on the specifics of the upcoming procurement.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
•A CSSM to incentivize cost control over the Utilities’ fuel, purchased power, and EPRM/MPIR costs (collectively, non-ARA costs). This is a reward only incentive where the Utilities retain 20% share of savings when non-ARA costs in a performance year are lower than target year non-ARA costs, which are adjusted for changes in fuel prices, inflation, and system generation from a base year (calendar year 2021). The CSSM does not have a potential penalty and does not have a cap for maximum reward.
For the 2022 evaluation period, the Utilities earned $3.4 million ($2.5 million for Hawaiian Electric, $0.4 million for Hawaii Electric Light and $0.5 million for Maui Electric) in rewards net of penalties. The net rewards related to 2022 were reflected in the 2023 PIMs annual report and 2023 spring revenue report filings.
Annual review cycle. PBR D&O established an annual review cycle for revenue adjustments under the PBR Framework, including the biannual submission of the revenue reports. The Utilities’ spring revenue report filed on March 28, 2023 was approved by the PUC on May 23, 2023.
The net incremental amounts between the 2022 fall and 2023 spring revenue reports are shown in the following table. The amounts are to be collected (refunded) from June, 1, 2023 through May 31, 2024 under the RBA rate tariffs, which were included in the 2023 spring revenue report filing.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental Performance Incentive Mechanisms (net) |
|
$ |
(0.4) |
|
|
$ |
0.1 |
|
|
$ |
0.1 |
|
|
$ |
(0.2) |
|
| Incremental EPRM/MPIR Revenue Adjustment |
|
2.5 |
|
|
1.4 |
|
|
1.0 |
|
|
4.9 |
| Other |
|
0.4 |
|
|
0.1 |
|
|
— |
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net incremental amount to be collected under the RBA rate tariffs |
|
$ |
2.5 |
|
|
$ |
1.5 |
|
|
$ |
1.1 |
|
|
$ |
5.1 |
|
|
|
|
|
|
|
|
|
|
Note: Columns may not foot due to rounding.
Regulatory assets for COVID-19 related costs. On May 4, 2020, the PUC issued an order, authorizing all utilities, including the Utilities, to establish regulatory assets to record costs resulting from the suspension of disconnections of service during the pendency of the Governor’s Emergency Proclamation and until otherwise ordered by the PUC. In future proceedings, the PUC will consider the reasonableness of the costs, the appropriate period of recovery, any amount of carrying costs thereon, and any savings directly attributable to suspension of disconnects, and other related matters. As part of the order, the PUC prohibits the Utilities from charging late payment fees on past due payments. As the moratorium on customer disconnections ended on May 31, 2021, the Utilities have resumed charging late payment fees in July 2021. Pursuant to PUC orders, the deferral of COVID-19 related costs by the Utilities ended on December 31, 2020. On October 1, 2021, the PUC approved the Utilities’ request to extend the deferral period to December 31, 2021. In December 2021, to keep customers connected and provide some relief to customers experiencing financial difficulty during the pandemic, the Utilities committed to issuing $2 million in bill credits to qualified customers. The Utilities will not seek recovery for the issued bill credits, resulting in a reduction to the cumulative deferred costs. On June 9, 2022, the Utilities filed an application with the PUC, requesting recovery of a portion of the COVID-19 related deferral costs, net of cost savings realized, not to exceed the amount of $27.8 million over three years, from June 2023 through May 2026. Annual requests will be limited to actual costs incurred. On January 25, 2023, the PUC issued an order to modify the procedural schedule to allow more time for more discovery and consideration of the application. As of June 30, 2023, the Utilities have recorded $9.1 million in regulatory assets for deferral of COVID-19 related costs. The updated amounts have been reflected in the Utilities’ Second Supplemental Report to the PUC filed on July 31, 2023.
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 2024.
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 based on a rate of return determined by the PUC for regulated utility investments, as well as depreciation expense. 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.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
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.
Condensed consolidating financial information. Condensed consolidating financial information for Hawaiian Electric and its subsidiaries are presented for the three and six month periods ended June 30, 2023 and 2022, and as of June 30, 2023 and December 31, 2022.
Hawaiian Electric unconditionally guarantees Hawaii Electric Light’s and Maui Electric’s obligations (a) to the State of Hawaii for the repayment of principal and interest on Special Purpose Revenue Bonds issued for the benefit of Hawaii Electric Light and Maui Electric, and (b) under their respective private placement note agreements and the Hawaii Electric Light notes and Maui Electric notes issued thereunder. Hawaiian Electric is also obligated, after the satisfaction of its obligations on its own preferred stock, to make dividend, redemption and liquidation payments on Hawaii Electric Light’s and Maui Electric’s preferred stock if the respective subsidiary is unable to make such payments.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other subsidiary |
|
Consolidating adjustments |
|
Hawaiian Electric
Consolidated
|
| Revenues |
|
$ |
570,689 |
|
|
112,074 |
|
|
111,428 |
|
|
— |
|
|
— |
|
|
$ |
794,191 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Fuel oil |
|
213,471 |
|
|
20,471 |
|
|
46,215 |
|
|
— |
|
|
— |
|
|
280,157 |
|
| Purchased power |
|
119,460 |
|
|
37,246 |
|
|
11,728 |
|
|
— |
|
|
— |
|
|
168,434 |
|
| Other operation and maintenance |
|
88,967 |
|
|
21,666 |
|
|
25,727 |
|
|
— |
|
|
— |
|
|
136,360 |
|
| Depreciation |
|
40,800 |
|
|
10,636 |
|
|
9,253 |
|
|
— |
|
|
— |
|
|
60,689 |
|
| Taxes, other than income taxes |
|
54,046 |
|
|
10,389 |
|
|
10,491 |
|
|
— |
|
|
— |
|
|
74,926 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total expenses |
|
516,744 |
|
|
100,408 |
|
|
103,414 |
|
|
— |
|
|
— |
|
|
720,566 |
|
| Operating income |
|
53,945 |
|
|
11,666 |
|
|
8,014 |
|
|
— |
|
|
— |
|
|
73,625 |
|
| Allowance for equity funds used during construction |
|
2,959 |
|
|
354 |
|
|
459 |
|
|
— |
|
|
— |
|
|
3,772 |
|
| Equity in earnings of subsidiaries |
|
11,414 |
|
|
— |
|
|
— |
|
|
— |
|
|
(11,414) |
|
|
— |
|
| Retirement defined benefits credit (expense)—other than service costs |
|
905 |
|
|
168 |
|
|
(25) |
|
|
— |
|
|
— |
|
|
1,048 |
|
| Interest expense and other charges, net |
|
(14,742) |
|
|
(2,975) |
|
|
(3,155) |
|
|
— |
|
|
— |
|
|
(20,872) |
|
| Allowance for borrowed funds used during construction |
|
1,030 |
|
|
113 |
|
|
152 |
|
|
— |
|
|
— |
|
|
1,295 |
|
| Income before income taxes |
|
55,511 |
|
|
9,326 |
|
|
5,445 |
|
|
— |
|
|
(11,414) |
|
|
58,868 |
|
| Income taxes |
|
9,942 |
|
|
2,118 |
|
|
1,010 |
|
|
— |
|
|
— |
|
|
13,070 |
|
| Net income |
|
45,569 |
|
|
7,208 |
|
|
4,435 |
|
|
— |
|
|
(11,414) |
|
|
45,798 |
|
| Preferred stock dividends of subsidiaries |
|
— |
|
|
133 |
|
|
96 |
|
|
— |
|
|
— |
|
|
229 |
|
Net income attributable to Hawaiian Electric |
|
45,569 |
|
|
7,075 |
|
|
4,339 |
|
|
— |
|
|
(11,414) |
|
|
45,569 |
|
| Preferred stock dividends of Hawaiian Electric |
|
270 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
270 |
|
| Net income for common stock |
|
$ |
45,299 |
|
|
7,075 |
|
|
4,339 |
|
|
— |
|
|
(11,414) |
|
|
$ |
45,299 |
|
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsidiary |
|
Consolidating
adjustments |
|
Hawaiian Electric
Consolidated |
| Net income for common stock |
|
$ |
45,299 |
|
|
7,075 |
|
|
4,339 |
|
|
— |
|
|
(11,414) |
|
|
$ |
45,299 |
|
| Other comprehensive loss, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustment for amortization of prior service credit and net gains recognized during the period in net periodic benefit cost, net of taxes |
|
(470) |
|
|
(55) |
|
|
(66) |
|
|
— |
|
|
121 |
|
|
(470) |
|
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes |
|
426 |
|
|
53 |
|
|
57 |
|
|
— |
|
|
(110) |
|
|
426 |
|
| Other comprehensive loss, net of taxes |
|
(44) |
|
|
(2) |
|
|
(9) |
|
|
— |
|
|
11 |
|
|
(44) |
|
Comprehensive income attributable to common shareholder |
|
$ |
45,255 |
|
|
7,073 |
|
|
4,330 |
|
|
— |
|
|
(11,403) |
|
|
$ |
45,255 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Three months ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other subsidiary |
|
Consolidating adjustments |
|
Hawaiian Electric
Consolidated
|
| Revenues |
|
$ |
576,472 |
|
|
124,502 |
|
|
117,928 |
|
|
— |
|
|
(29) |
|
|
$ |
818,873 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Fuel oil |
|
184,297 |
|
|
33,065 |
|
|
52,293 |
|
|
— |
|
|
— |
|
|
269,655 |
|
| Purchased power |
|
165,202 |
|
|
38,735 |
|
|
14,148 |
|
|
— |
|
|
— |
|
|
218,085 |
|
| Other operation and maintenance |
|
82,707 |
|
|
21,331 |
|
|
20,854 |
|
|
— |
|
|
— |
|
|
124,892 |
|
| Depreciation |
|
39,501 |
|
|
10,352 |
|
|
8,886 |
|
|
— |
|
|
— |
|
|
58,739 |
|
| Taxes, other than income taxes |
|
54,025 |
|
|
11,378 |
|
|
10,945 |
|
|
— |
|
|
— |
|
|
76,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total expenses |
|
525,732 |
|
|
114,861 |
|
|
107,126 |
|
|
— |
|
|
— |
|
|
747,719 |
|
| Operating income |
|
50,740 |
|
|
9,641 |
|
|
10,802 |
|
|
— |
|
|
(29) |
|
|
71,154 |
|
| Allowance for equity funds used during construction |
|
1,946 |
|
|
217 |
|
|
307 |
|
|
— |
|
|
— |
|
|
2,470 |
|
| Equity in earnings of subsidiaries |
|
12,237 |
|
|
— |
|
|
— |
|
|
— |
|
|
(12,237) |
|
|
— |
|
| Retirement defined benefits credit (expense)—other than service costs |
|
856 |
|
|
167 |
|
|
(32) |
|
|
— |
|
|
— |
|
|
991 |
|
| Interest expense and other charges, net |
|
(13,519) |
|
|
(2,642) |
|
|
(2,668) |
|
|
— |
|
|
29 |
|
|
(18,800) |
|
| Allowance for borrowed funds used during construction |
|
637 |
|
|
67 |
|
|
94 |
|
|
— |
|
|
— |
|
|
798 |
|
| Income before income taxes |
|
52,897 |
|
|
7,450 |
|
|
8,503 |
|
|
— |
|
|
(12,237) |
|
|
56,613 |
|
| Income taxes |
|
8,492 |
|
|
1,659 |
|
|
1,828 |
|
|
— |
|
|
— |
|
|
11,979 |
|
| Net income |
|
44,405 |
|
|
5,791 |
|
|
6,675 |
|
|
— |
|
|
(12,237) |
|
|
44,634 |
|
| Preferred stock dividends of subsidiaries |
|
— |
|
|
133 |
|
|
96 |
|
|
— |
|
|
— |
|
|
229 |
|
Net income attributable to Hawaiian Electric |
|
44,405 |
|
|
5,658 |
|
|
6,579 |
|
|
— |
|
|
(12,237) |
|
|
44,405 |
|
| Preferred stock dividends of Hawaiian Electric |
|
270 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
270 |
|
| Net income for common stock |
|
$ |
44,135 |
|
|
5,658 |
|
|
6,579 |
|
|
— |
|
|
(12,237) |
|
|
$ |
44,135 |
|
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Three months ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsidiary |
|
Consolidating
adjustments |
|
Hawaiian Electric
Consolidated |
| Net income for common stock |
|
$ |
44,135 |
|
|
5,658 |
|
|
6,579 |
|
|
— |
|
|
(12,237) |
|
|
$ |
44,135 |
|
| Other comprehensive income, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes |
|
(5) |
|
|
(72) |
|
|
603 |
|
|
— |
|
|
(531) |
|
|
(5) |
|
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes |
|
56 |
|
|
74 |
|
|
(602) |
|
|
— |
|
|
528 |
|
|
56 |
|
| Other comprehensive income, net of taxes |
|
51 |
|
|
2 |
|
|
1 |
|
|
— |
|
|
(3) |
|
|
51 |
|
Comprehensive income attributable to common shareholder |
|
$ |
44,186 |
|
|
5,660 |
|
|
6,580 |
|
|
— |
|
|
(12,240) |
|
|
$ |
44,186 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Six months ended June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other subsidiary |
|
Consolidating adjustments |
|
Hawaiian Electric
Consolidated |
| Revenues |
|
$ |
1,172,219 |
|
|
227,362 |
|
|
225,101 |
|
|
— |
|
|
(130) |
|
|
$ |
1,624,552 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Fuel oil |
|
467,298 |
|
|
48,231 |
|
|
98,725 |
|
|
— |
|
|
— |
|
|
614,254 |
|
| Purchased power |
|
229,739 |
|
|
71,332 |
|
|
20,124 |
|
|
— |
|
|
— |
|
|
321,195 |
|
| Other operation and maintenance |
|
172,200 |
|
|
43,016 |
|
|
49,460 |
|
|
— |
|
|
— |
|
|
264,676 |
|
| Depreciation |
|
81,838 |
|
|
21,271 |
|
|
18,507 |
|
|
— |
|
|
— |
|
|
121,616 |
|
| Taxes, other than income taxes |
|
110,999 |
|
|
21,126 |
|
|
21,186 |
|
|
— |
|
|
— |
|
|
153,311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total expenses |
|
1,062,074 |
|
|
204,976 |
|
|
208,002 |
|
|
— |
|
|
— |
|
|
1,475,052 |
|
| Operating income |
|
110,145 |
|
|
22,386 |
|
|
17,099 |
|
|
— |
|
|
(130) |
|
|
149,500 |
|
| Allowance for equity funds used during construction |
|
5,599 |
|
|
638 |
|
|
836 |
|
|
— |
|
|
— |
|
|
7,073 |
|
| Equity in earnings of subsidiaries |
|
22,955 |
|
|
— |
|
|
— |
|
|
— |
|
|
(22,955) |
|
|
— |
|
| Retirement defined benefits credit (expense)—other than service costs |
|
1,809 |
|
|
337 |
|
|
(51) |
|
|
— |
|
|
— |
|
|
2,095 |
|
| Interest expense and other charges, net |
|
(29,299) |
|
|
(5,806) |
|
|
(6,143) |
|
|
— |
|
|
130 |
|
|
(41,118) |
|
| Allowance for borrowed funds used during construction |
|
1,948 |
|
|
204 |
|
|
274 |
|
|
— |
|
|
— |
|
|
2,426 |
|
| Income before income taxes |
|
113,157 |
|
|
17,759 |
|
|
12,015 |
|
|
— |
|
|
(22,955) |
|
|
119,976 |
|
| Income taxes |
|
20,309 |
|
|
4,027 |
|
|
2,334 |
|
|
— |
|
|
— |
|
|
26,670 |
|
| Net income |
|
92,848 |
|
|
13,732 |
|
|
9,681 |
|
|
— |
|
|
(22,955) |
|
|
93,306 |
|
| Preferred stock dividends of subsidiaries |
|
— |
|
|
267 |
|
|
191 |
|
|
— |
|
|
— |
|
|
458 |
|
| Net income attributable to Hawaiian Electric |
|
92,848 |
|
|
13,465 |
|
|
9,490 |
|
|
— |
|
|
(22,955) |
|
|
92,848 |
|
| Preferred stock dividends of Hawaiian Electric |
|
540 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
540 |
|
| Net income for common stock |
|
$ |
92,308 |
|
|
13,465 |
|
|
9,490 |
|
|
— |
|
|
(22,955) |
|
|
$ |
92,308 |
|
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Six months ended June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other subsidiary |
|
Consolidating adjustments |
|
Hawaiian Electric Consolidated |
| Net income for common stock |
|
$ |
92,308 |
|
|
13,465 |
|
|
9,490 |
|
|
— |
|
|
(22,955) |
|
|
$ |
92,308 |
|
| Other comprehensive loss, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustment for amortization of prior service credit and net gains recognized during the period in net periodic benefit cost, net of taxes |
|
(940) |
|
|
(111) |
|
|
(129) |
|
|
— |
|
|
240 |
|
|
(940) |
|
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes |
|
851 |
|
|
103 |
|
|
114 |
|
|
— |
|
|
(217) |
|
|
851 |
|
| Other comprehensive loss, net of taxes |
|
(89) |
|
|
(8) |
|
|
(15) |
|
|
— |
|
|
23 |
|
|
(89) |
|
| Comprehensive income attributable to common shareholder |
|
$ |
92,219 |
|
|
13,457 |
|
|
9,475 |
|
|
— |
|
|
(22,932) |
|
|
$ |
92,219 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Income
Six months ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other subsidiary |
|
Consolidating adjustments |
|
Hawaiian Electric
Consolidated |
| Revenues |
|
$ |
1,076,714 |
|
|
233,030 |
|
|
217,956 |
|
|
— |
|
|
(35) |
|
|
$ |
1,527,665 |
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Fuel oil |
|
338,722 |
|
|
58,316 |
|
|
93,903 |
|
|
— |
|
|
— |
|
|
490,941 |
|
| Purchased power |
|
289,385 |
|
|
69,447 |
|
|
22,786 |
|
|
— |
|
|
— |
|
|
381,618 |
|
| Other operation and maintenance |
|
166,363 |
|
|
41,545 |
|
|
42,241 |
|
|
— |
|
|
— |
|
|
250,149 |
|
| Depreciation |
|
78,985 |
|
|
20,703 |
|
|
17,522 |
|
|
— |
|
|
— |
|
|
117,210 |
|
| Taxes, other than income taxes |
|
101,299 |
|
|
21,410 |
|
|
20,289 |
|
|
— |
|
|
— |
|
|
142,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total expenses |
|
974,754 |
|
|
211,421 |
|
|
196,741 |
|
|
— |
|
|
— |
|
|
1,382,916 |
|
| Operating income |
|
101,960 |
|
|
21,609 |
|
|
21,215 |
|
|
— |
|
|
(35) |
|
|
144,749 |
|
| Allowance for equity funds used during construction |
|
3,936 |
|
|
410 |
|
|
533 |
|
|
— |
|
|
— |
|
|
4,879 |
|
| Equity in earnings of subsidiaries |
|
25,898 |
|
|
— |
|
|
— |
|
|
— |
|
|
(25,898) |
|
|
— |
|
| Retirement defined benefits credit (expense)—other than service costs |
|
1,711 |
|
|
334 |
|
|
(64) |
|
|
— |
|
|
— |
|
|
1,981 |
|
| Interest expense and other charges, net |
|
(26,612) |
|
|
(5,251) |
|
|
(5,298) |
|
|
— |
|
|
35 |
|
|
(37,126) |
|
| Allowance for borrowed funds used during construction |
|
1,288 |
|
|
127 |
|
|
161 |
|
|
— |
|
|
— |
|
|
1,576 |
|
| Income before income taxes |
|
108,181 |
|
|
17,229 |
|
|
16,547 |
|
|
— |
|
|
(25,898) |
|
|
116,059 |
|
| Income taxes |
|
17,097 |
|
|
3,927 |
|
|
3,493 |
|
|
— |
|
|
— |
|
|
24,517 |
|
| Net income |
|
91,084 |
|
|
13,302 |
|
|
13,054 |
|
|
— |
|
|
(25,898) |
|
|
91,542 |
|
| Preferred stock dividends of subsidiaries |
|
— |
|
|
267 |
|
|
191 |
|
|
— |
|
|
— |
|
|
458 |
|
| Net income attributable to Hawaiian Electric |
|
91,084 |
|
|
13,035 |
|
|
12,863 |
|
|
— |
|
|
(25,898) |
|
|
91,084 |
|
| Preferred stock dividends of Hawaiian Electric |
|
540 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
540 |
|
| Net income for common stock |
|
$ |
90,544 |
|
|
13,035 |
|
|
12,863 |
|
|
— |
|
|
(25,898) |
|
|
$ |
90,544 |
|
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Comprehensive Income
Six months ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other subsidiary |
|
Consolidating adjustments |
|
Hawaiian Electric Consolidated |
| Net income for common stock |
|
$ |
90,544 |
|
|
13,035 |
|
|
12,863 |
|
|
— |
|
|
(25,898) |
|
|
$ |
90,544 |
|
| Other comprehensive income, net of taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
|
|
| Adjustment for amortization of prior service credit and net losses recognized during the period in net periodic benefit cost, net of taxes |
|
4,371 |
|
|
598 |
|
|
1,206 |
|
|
— |
|
|
(1,804) |
|
|
4,371 |
|
| Reclassification adjustment for impact of D&Os of the PUC included in regulatory assets, net of taxes |
|
(4,269) |
|
|
(596) |
|
|
(1,205) |
|
|
— |
|
|
1,801 |
|
|
(4,269) |
|
| Other comprehensive income, net of taxes |
|
102 |
|
|
2 |
|
|
1 |
|
|
— |
|
|
(3) |
|
|
102 |
|
| Comprehensive income attributable to common shareholder |
|
$ |
90,646 |
|
|
13,037 |
|
|
12,864 |
|
|
— |
|
|
(25,901) |
|
|
$ |
90,646 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsi-
diary |
|
Consoli-
dating
adjustments |
|
Hawaiian Electric
Consolidated |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
| Utility property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
| Land |
|
$ |
42,859 |
|
|
5,645 |
|
|
3,594 |
|
|
— |
|
|
— |
|
|
$ |
52,098 |
|
| Plant and equipment |
|
5,370,111 |
|
|
1,436,118 |
|
|
1,316,537 |
|
|
— |
|
|
— |
|
|
8,122,766 |
|
| Right-of-use assets - finance lease |
|
88,297 |
|
|
36,075 |
|
|
— |
|
|
— |
|
|
— |
|
|
124,372 |
|
| Less accumulated depreciation |
|
(1,921,855) |
|
|
(657,127) |
|
|
(599,985) |
|
|
— |
|
|
— |
|
|
(3,178,967) |
|
| Construction in progress |
|
256,266 |
|
|
33,118 |
|
|
48,668 |
|
|
— |
|
|
— |
|
|
338,052 |
|
| Utility property, plant and equipment, net |
|
3,835,678 |
|
|
853,829 |
|
|
768,814 |
|
|
— |
|
|
— |
|
|
5,458,321 |
|
Nonutility property, plant and equipment, less accumulated depreciation |
|
5,297 |
|
|
115 |
|
|
1,532 |
|
|
— |
|
|
— |
|
|
6,944 |
|
| Total property, plant and equipment, net |
|
3,840,975 |
|
|
853,944 |
|
|
770,346 |
|
|
— |
|
|
— |
|
|
5,465,265 |
|
| Investment in wholly owned subsidiaries, at equity |
|
708,465 |
|
|
— |
|
|
— |
|
|
— |
|
|
(708,465) |
|
|
— |
|
| Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
70,235 |
|
|
35,894 |
|
|
37,441 |
|
|
77 |
|
|
— |
|
|
143,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Customer accounts receivable, net |
|
147,065 |
|
|
32,293 |
|
|
29,836 |
|
|
— |
|
|
— |
|
|
209,194 |
|
| Accrued unbilled revenues, net |
|
113,069 |
|
|
20,474 |
|
|
20,812 |
|
|
— |
|
|
— |
|
|
154,355 |
|
| Other accounts receivable, net |
|
26,535 |
|
|
5,602 |
|
|
6,143 |
|
|
— |
|
|
(20,555) |
|
|
17,725 |
|
| Fuel oil stock, at average cost |
|
106,515 |
|
|
17,069 |
|
|
20,216 |
|
|
— |
|
|
— |
|
|
143,800 |
|
| Materials and supplies, at average cost |
|
53,681 |
|
|
12,304 |
|
|
25,170 |
|
|
— |
|
|
— |
|
|
91,155 |
|
| Prepayments and other |
|
32,621 |
|
|
5,082 |
|
|
4,475 |
|
|
— |
|
|
(298) |
|
|
41,880 |
|
| Regulatory assets |
|
70,932 |
|
|
2,789 |
|
|
3,516 |
|
|
— |
|
|
— |
|
|
77,237 |
|
| Total current assets |
|
620,653 |
|
|
131,507 |
|
|
147,609 |
|
|
77 |
|
|
(20,853) |
|
|
878,993 |
|
| Other long-term assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating lease right-of-use assets |
|
38,675 |
|
|
30,903 |
|
|
10,927 |
|
|
— |
|
|
— |
|
|
80,505 |
|
| Regulatory assets |
|
146,918 |
|
|
16,686 |
|
|
11,946 |
|
|
— |
|
|
— |
|
|
175,550 |
|
| Other |
|
114,318 |
|
|
33,129 |
|
|
30,740 |
|
|
— |
|
|
(16,907) |
|
|
161,280 |
|
| Total other long-term assets |
|
299,911 |
|
|
80,718 |
|
|
53,613 |
|
|
— |
|
|
(16,907) |
|
|
417,335 |
|
| Total assets |
|
$ |
5,470,004 |
|
|
1,066,169 |
|
|
971,568 |
|
|
77 |
|
|
(746,225) |
|
|
$ |
6,761,593 |
|
| Capitalization and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Capitalization |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock equity |
|
$ |
2,371,889 |
|
|
349,227 |
|
|
359,161 |
|
|
77 |
|
|
(708,465) |
|
|
$ |
2,371,889 |
|
Cumulative preferred stock—not subject to mandatory redemption |
|
22,293 |
|
|
7,000 |
|
|
5,000 |
|
|
— |
|
|
— |
|
|
34,293 |
|
| Long-term debt, net |
|
1,226,714 |
|
|
249,370 |
|
|
258,446 |
|
|
— |
|
|
— |
|
|
1,734,530 |
|
| Total capitalization |
|
3,620,896 |
|
|
605,597 |
|
|
622,607 |
|
|
77 |
|
|
(708,465) |
|
|
4,140,712 |
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Current portion of operating lease liabilities |
|
8,128 |
|
|
6,861 |
|
|
2,720 |
|
|
— |
|
|
— |
|
|
17,709 |
|
| Current portion of long-term debt |
|
49,992 |
|
|
19,997 |
|
|
29,996 |
|
|
— |
|
|
— |
|
|
99,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts payable |
|
158,400 |
|
|
23,919 |
|
|
28,313 |
|
|
— |
|
|
— |
|
|
210,632 |
|
| Interest and preferred dividends payable |
|
15,126 |
|
|
3,271 |
|
|
2,970 |
|
|
— |
|
|
— |
|
|
21,367 |
|
| Taxes accrued, including revenue taxes |
|
180,089 |
|
|
37,077 |
|
|
36,069 |
|
|
— |
|
|
(298) |
|
|
252,937 |
|
| Regulatory liabilities |
|
9,325 |
|
|
7,599 |
|
|
9,014 |
|
|
— |
|
|
— |
|
|
25,938 |
|
| Other |
|
66,765 |
|
|
22,001 |
|
|
22,084 |
|
|
— |
|
|
(20,555) |
|
|
90,295 |
|
| Total current liabilities |
|
487,825 |
|
|
120,725 |
|
|
131,166 |
|
|
— |
|
|
(20,853) |
|
|
718,863 |
|
| Deferred credits and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating lease liabilities |
|
37,657 |
|
|
24,343 |
|
|
8,465 |
|
|
— |
|
|
— |
|
|
70,465 |
|
| Finance lease liabilities |
|
83,642 |
|
|
35,364 |
|
|
— |
|
|
— |
|
|
— |
|
|
119,006 |
|
| Deferred income taxes |
|
272,556 |
|
|
50,433 |
|
|
62,361 |
|
|
— |
|
|
— |
|
|
385,350 |
|
| Regulatory liabilities |
|
758,970 |
|
|
196,235 |
|
|
106,213 |
|
|
— |
|
|
— |
|
|
1,061,418 |
|
| Unamortized tax credits |
|
66,632 |
|
|
12,657 |
|
|
12,301 |
|
|
— |
|
|
— |
|
|
91,590 |
|
| Defined benefit pension liability |
|
65,923 |
|
|
— |
|
|
— |
|
|
— |
|
|
(16,907) |
|
|
49,016 |
|
| Other |
|
75,903 |
|
|
20,815 |
|
|
28,455 |
|
|
— |
|
|
— |
|
|
125,173 |
|
| Total deferred credits and other liabilities |
|
1,361,283 |
|
|
339,847 |
|
|
217,795 |
|
|
— |
|
|
(16,907) |
|
|
1,902,018 |
|
| Total capitalization and liabilities |
|
$ |
5,470,004 |
|
|
1,066,169 |
|
|
971,568 |
|
|
77 |
|
|
(746,225) |
|
|
$ |
6,761,593 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsi-diary |
|
Consoli-
dating
adjustments |
|
Hawaiian Electric
Consolidated |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
| Utility property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
| Land |
|
$ |
42,860 |
|
|
5,606 |
|
|
3,594 |
|
|
— |
|
|
— |
|
|
$ |
52,060 |
|
| Plant and equipment |
|
5,260,685 |
|
|
1,425,442 |
|
|
1,293,383 |
|
|
— |
|
|
— |
|
|
7,979,510 |
|
| Finance lease right-of-use assets |
|
48,371 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
48,371 |
|
| Less accumulated depreciation |
|
(1,855,150) |
|
|
(644,457) |
|
|
(586,892) |
|
|
— |
|
|
— |
|
|
(3,086,499) |
|
| Construction in progress |
|
215,560 |
|
|
23,989 |
|
|
35,804 |
|
|
— |
|
|
— |
|
|
275,353 |
|
| Utility property, plant and equipment, net |
|
3,712,326 |
|
|
810,580 |
|
|
745,889 |
|
|
— |
|
|
— |
|
|
5,268,795 |
|
Nonutility property, plant and equipment, less accumulated depreciation |
|
5,298 |
|
|
115 |
|
|
1,532 |
|
|
— |
|
|
— |
|
|
6,945 |
|
| Total property, plant and equipment, net |
|
3,717,624 |
|
|
810,695 |
|
|
747,421 |
|
|
— |
|
|
— |
|
|
5,275,740 |
|
Investment in wholly owned subsidiaries, at equity |
|
701,833 |
|
|
— |
|
|
— |
|
|
— |
|
|
(701,833) |
|
|
— |
|
| Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents |
|
27,579 |
|
|
5,092 |
|
|
6,494 |
|
|
77 |
|
|
— |
|
|
39,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Advances to affiliates |
|
— |
|
|
4,500 |
|
|
21,700 |
|
|
— |
|
|
(26,200) |
|
|
— |
|
| Customer accounts receivable, net |
|
216,802 |
|
|
39,339 |
|
|
32,197 |
|
|
— |
|
|
— |
|
|
288,338 |
|
| Accrued unbilled revenues, net |
|
136,508 |
|
|
23,839 |
|
|
22,933 |
|
|
— |
|
|
— |
|
|
183,280 |
|
| Other accounts receivable, net |
|
23,746 |
|
|
5,519 |
|
|
6,686 |
|
|
— |
|
|
(22,384) |
|
|
13,567 |
|
| Fuel oil stock, at average cost |
|
153,342 |
|
|
16,964 |
|
|
21,224 |
|
|
— |
|
|
— |
|
|
191,530 |
|
| Materials and supplies, at average cost |
|
48,130 |
|
|
9,783 |
|
|
21,655 |
|
|
— |
|
|
— |
|
|
79,568 |
|
| Prepayments and other |
|
24,040 |
|
|
6,346 |
|
|
4,137 |
|
|
— |
|
|
(1,041) |
|
|
33,482 |
|
| Regulatory assets |
|
46,504 |
|
|
2,435 |
|
|
3,334 |
|
|
— |
|
|
— |
|
|
52,273 |
|
| Total current assets |
|
676,651 |
|
|
113,817 |
|
|
140,360 |
|
|
77 |
|
|
(49,625) |
|
|
881,280 |
|
| Other long-term assets |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating lease right-of-use assets |
|
42,752 |
|
|
34,283 |
|
|
12,283 |
|
|
— |
|
|
— |
|
|
89,318 |
|
| Regulatory assets |
|
154,040 |
|
|
21,816 |
|
|
14,384 |
|
|
— |
|
|
— |
|
|
190,240 |
|
| Other |
|
115,028 |
|
|
32,654 |
|
|
29,495 |
|
|
— |
|
|
(16,288) |
|
|
160,889 |
|
| Total other long-term assets |
|
311,820 |
|
|
88,753 |
|
|
56,162 |
|
|
— |
|
|
(16,288) |
|
|
440,447 |
|
| Total assets |
|
$ |
5,407,928 |
|
|
1,013,265 |
|
|
943,943 |
|
|
77 |
|
|
(767,746) |
|
|
$ |
6,597,467 |
|
| Capitalization and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Capitalization |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock equity |
|
$ |
2,344,170 |
|
|
344,720 |
|
|
357,036 |
|
|
77 |
|
|
(701,833) |
|
|
$ |
2,344,170 |
|
Cumulative preferred stock—not subject to mandatory redemption |
|
22,293 |
|
|
7,000 |
|
|
5,000 |
|
|
— |
|
|
— |
|
|
34,293 |
|
| Long-term debt, net |
|
1,126,915 |
|
|
224,439 |
|
|
233,500 |
|
|
— |
|
|
— |
|
|
1,584,854 |
|
| Total capitalization |
|
3,493,378 |
|
|
576,159 |
|
|
595,536 |
|
|
77 |
|
|
(701,833) |
|
|
3,963,317 |
|
| Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Current portion of operating lease liabilities |
|
9,775 |
|
|
6,690 |
|
|
2,630 |
|
|
— |
|
|
— |
|
|
19,095 |
|
| Current portion of long-term debt |
|
49,981 |
|
|
19,992 |
|
|
29,989 |
|
|
— |
|
|
— |
|
|
99,962 |
|
| Short-term borrowings-non-affiliate |
|
87,967 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
87,967 |
|
| Short-term borrowings-affiliate |
|
26,200 |
|
|
— |
|
|
— |
|
|
— |
|
|
(26,200) |
|
|
— |
|
| Accounts payable |
|
143,253 |
|
|
32,113 |
|
|
27,126 |
|
|
— |
|
|
— |
|
|
202,492 |
|
| Interest and preferred dividends payable |
|
12,398 |
|
|
2,576 |
|
|
2,282 |
|
|
— |
|
|
(80) |
|
|
17,176 |
|
| Taxes accrued, including revenue taxes |
|
207,798 |
|
|
42,436 |
|
|
40,709 |
|
|
— |
|
|
(1,041) |
|
|
289,902 |
|
| Regulatory liabilities |
|
13,145 |
|
|
8,553 |
|
|
9,777 |
|
|
— |
|
|
— |
|
|
31,475 |
|
| Other |
|
64,659 |
|
|
20,856 |
|
|
22,385 |
|
|
— |
|
|
(22,304) |
|
|
85,596 |
|
| Total current liabilities |
|
615,176 |
|
|
133,216 |
|
|
134,898 |
|
|
— |
|
|
(49,625) |
|
|
833,665 |
|
| Deferred credits and other liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating lease liabilities |
|
41,049 |
|
|
27,817 |
|
|
9,849 |
|
|
— |
|
|
— |
|
|
78,715 |
|
| Finance lease liabilities |
|
46,048 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
46,048 |
|
| Deferred income taxes |
|
271,234 |
|
|
50,615 |
|
|
62,581 |
|
|
— |
|
|
— |
|
|
384,430 |
|
| Regulatory liabilities |
|
729,683 |
|
|
194,222 |
|
|
100,270 |
|
|
— |
|
|
— |
|
|
1,024,175 |
|
| Unamortized tax credits |
|
69,614 |
|
|
13,150 |
|
|
12,536 |
|
|
— |
|
|
— |
|
|
95,300 |
|
Defined benefit pension and other postretirement benefit plans liability |
|
65,907 |
|
|
129 |
|
|
— |
|
|
— |
|
|
(16,288) |
|
|
49,748 |
|
| Other |
|
75,839 |
|
|
17,957 |
|
|
28,273 |
|
|
— |
|
|
— |
|
|
122,069 |
|
| Total deferred credits and other liabilities |
|
1,299,374 |
|
|
303,890 |
|
|
213,509 |
|
|
— |
|
|
(16,288) |
|
|
1,800,485 |
|
| Total capitalization and liabilities |
|
$ |
5,407,928 |
|
|
1,013,265 |
|
|
943,943 |
|
|
77 |
|
|
(767,746) |
|
|
$ |
6,597,467 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
Six months ended June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsidiary |
|
Consolidating
adjustments |
|
Hawaiian Electric
Consolidated |
| Balance, December 31, 2022 |
|
$ |
2,344,170 |
|
|
344,720 |
|
|
357,036 |
|
|
77 |
|
|
(701,833) |
|
|
$ |
2,344,170 |
|
| Net income for common stock |
|
92,308 |
|
|
13,465 |
|
|
9,490 |
|
|
— |
|
|
(22,955) |
|
|
92,308 |
|
| Other comprehensive loss, net of taxes |
|
(89) |
|
|
(8) |
|
|
(15) |
|
|
— |
|
|
23 |
|
|
(89) |
|
| Common stock dividends |
|
(64,500) |
|
|
(8,950) |
|
|
(7,350) |
|
|
— |
|
|
16,300 |
|
|
(64,500) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance, June 30, 2023 |
|
$ |
2,371,889 |
|
|
349,227 |
|
|
359,161 |
|
|
77 |
|
|
(708,465) |
|
|
$ |
2,371,889 |
|
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Changes in Common Stock Equity
Six months ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsidiary |
|
Consolidating
adjustments |
|
Hawaiian Electric
Consolidated |
| Balance, December 31, 2021 |
|
$ |
2,261,899 |
|
|
332,900 |
|
|
343,260 |
|
|
77 |
|
|
(676,237) |
|
|
$ |
2,261,899 |
|
| Net income for common stock |
|
90,544 |
|
|
13,035 |
|
|
12,863 |
|
|
— |
|
|
(25,898) |
|
|
90,544 |
|
| Other comprehensive income, net of taxes |
|
102 |
|
|
2 |
|
|
1 |
|
|
— |
|
|
(3) |
|
|
102 |
|
| Common stock dividends |
|
(62,950) |
|
|
(8,200) |
|
|
(7,600) |
|
|
— |
|
|
15,800 |
|
|
(62,950) |
|
| Balance, June 30, 2022 |
|
$ |
2,289,595 |
|
|
337,737 |
|
|
348,524 |
|
|
77 |
|
|
(686,338) |
|
|
$ |
2,289,595 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Six months ended June 30, 2023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsidiary |
|
Consolidating
adjustments |
|
Hawaiian Electric
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash provided by operating activities |
|
$ |
274,412 |
|
|
43,352 |
|
|
34,681 |
|
|
— |
|
|
(16,300) |
|
|
$ |
336,145 |
|
| Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Capital expenditures |
|
(152,823) |
|
|
(33,512) |
|
|
(43,814) |
|
|
— |
|
|
— |
|
|
(230,149) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Advances to affiliates |
|
— |
|
|
4,500 |
|
|
21,700 |
|
|
— |
|
|
(26,200) |
|
|
— |
|
| Other |
|
2,086 |
|
|
912 |
|
|
1,058 |
|
|
— |
|
|
— |
|
|
4,056 |
|
| Net cash used in investing activities |
|
(150,737) |
|
|
(28,100) |
|
|
(21,056) |
|
|
— |
|
|
(26,200) |
|
|
(226,093) |
|
| Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock dividends |
|
(64,500) |
|
|
(8,950) |
|
|
(7,350) |
|
|
— |
|
|
16,300 |
|
|
(64,500) |
|
| Preferred stock dividends of Hawaiian Electric and subsidiaries |
|
(540) |
|
|
(267) |
|
|
(191) |
|
|
— |
|
|
— |
|
|
(998) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from issuance of long-term debt |
|
100,000 |
|
|
25,000 |
|
|
25,000 |
|
|
— |
|
|
— |
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net decrease in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less |
|
(114,167) |
|
|
— |
|
|
— |
|
|
— |
|
|
26,200 |
|
|
(87,967) |
|
| Payments of obligations under finance leases |
|
(1,241) |
|
|
(98) |
|
|
|
|
|
|
|
|
(1,339) |
|
| Other |
|
(571) |
|
|
(135) |
|
|
(137) |
|
|
— |
|
|
— |
|
|
(843) |
|
| Net cash provided by (used in) financing activities |
|
(81,019) |
|
|
15,550 |
|
|
17,322 |
|
|
— |
|
|
42,500 |
|
|
(5,647) |
|
| Net increase in cash and cash equivalents |
|
42,656 |
|
|
30,802 |
|
|
30,947 |
|
|
— |
|
|
— |
|
|
104,405 |
|
| Cash and cash equivalents, beginning of period |
|
27,579 |
|
|
5,092 |
|
|
6,494 |
|
|
77 |
|
|
— |
|
|
39,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cash and cash equivalents, end of period |
|
$ |
70,235 |
|
|
35,894 |
|
|
37,441 |
|
|
77 |
|
|
— |
|
|
$ |
143,647 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Hawaiian Electric Company, Inc. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Six months ended June 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Hawaiian Electric |
|
Hawaii Electric Light |
|
Maui Electric |
|
Other
subsidiary |
|
Consolidating
adjustments |
|
Hawaiian Electric
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net cash provided by operating activities |
|
$ |
25,367 |
|
|
19,742 |
|
|
14,841 |
|
|
— |
|
|
(15,800) |
|
|
$ |
44,150 |
|
| Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Capital expenditures |
|
(87,892) |
|
|
(23,638) |
|
|
(28,715) |
|
|
— |
|
|
— |
|
|
(140,245) |
|
| Advances to affiliates |
|
(2,000) |
|
|
— |
|
|
(10,000) |
|
|
— |
|
|
12,000 |
|
|
— |
|
| Other |
|
4,471 |
|
|
834 |
|
|
1,380 |
|
|
— |
|
|
— |
|
|
6,685 |
|
| Net cash used in investing activities |
|
(85,421) |
|
|
(22,804) |
|
|
(37,335) |
|
|
— |
|
|
12,000 |
|
|
(133,560) |
|
| Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
| Common stock dividends |
|
(62,950) |
|
|
(8,200) |
|
|
(7,600) |
|
|
— |
|
|
15,800 |
|
|
(62,950) |
|
| Preferred stock dividends of Hawaiian Electric and subsidiaries |
|
(540) |
|
|
(267) |
|
|
(191) |
|
|
— |
|
|
— |
|
|
(998) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Proceeds from issuance of long-term debt |
|
40,000 |
|
|
10,000 |
|
|
10,000 |
|
|
— |
|
|
— |
|
|
60,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net increase in short-term borrowings from non-affiliates and affiliate with original maturities of three months or less |
|
64,987 |
|
|
2,000 |
|
|
— |
|
|
— |
|
|
(12,000) |
|
|
54,987 |
|
| Other |
|
(169) |
|
|
(43) |
|
|
(43) |
|
|
— |
|
|
— |
|
|
(255) |
|
| Net cash provided by financing activities |
|
41,328 |
|
|
3,490 |
|
|
2,166 |
|
|
— |
|
|
3,800 |
|
|
50,784 |
|
| Net increase (decrease) in cash and cash equivalents |
|
(18,726) |
|
|
428 |
|
|
(20,328) |
|
|
— |
|
|
— |
|
|
(38,626) |
|
| Cash, cash equivalents and restricted cash, beginning of period |
|
26,433 |
|
|
5,326 |
|
|
23,422 |
|
|
77 |
|
|
— |
|
|
55,258 |
|
| Cash, cash equivalents and restricted cash, end of period |
|
7,707 |
|
|
5,754 |
|
|
3,094 |
|
|
77 |
|
|
— |
|
|
16,632 |
|
| Less: Restricted cash |
|
(1,129) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,129) |
|
| Cash and cash equivalents, end of period |
|
$ |
6,578 |
|
|
5,754 |
|
|
3,094 |
|
|
77 |
|
|
— |
|
|
$ |
15,503 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Note 4 ·Bank segment
Selected financial information
American Savings Bank, F.S.B.
Statements of Income and Comprehensive Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Interest and dividend income |
|
|
|
|
|
|
|
|
| Interest and fees on loans |
|
$ |
67,966 |
|
|
$ |
48,129 |
|
|
$ |
132,808 |
|
|
$ |
94,134 |
|
| Interest and dividends on investment securities |
|
13,775 |
|
|
14,693 |
|
|
28,412 |
|
|
28,677 |
|
| Total interest and dividend income |
|
81,741 |
|
|
62,822 |
|
|
161,220 |
|
|
122,811 |
|
| Interest expense |
|
|
|
|
|
|
|
|
| Interest on deposit liabilities |
|
9,661 |
|
|
921 |
|
|
16,498 |
|
|
1,868 |
|
| Interest on other borrowings |
|
8,852 |
|
|
139 |
|
|
16,573 |
|
|
144 |
|
| Total interest expense |
|
18,513 |
|
|
1,060 |
|
|
33,071 |
|
|
2,012 |
|
| Net interest income |
|
63,228 |
|
|
61,762 |
|
|
128,149 |
|
|
120,799 |
|
| Provision for credit losses |
|
43 |
|
|
2,757 |
|
|
1,218 |
|
|
(506) |
|
| Net interest income after provision for credit losses |
|
63,185 |
|
|
59,005 |
|
|
126,931 |
|
|
121,305 |
|
| Noninterest income |
|
|
|
|
|
|
|
|
| Fees from other financial services |
|
5,009 |
|
|
4,716 |
|
|
9,688 |
|
|
10,303 |
|
| Fee income on deposit liabilities |
|
4,504 |
|
|
4,552 |
|
|
9,103 |
|
|
9,243 |
|
| Fee income on other financial products |
|
2,768 |
|
|
2,529 |
|
|
5,512 |
|
|
5,247 |
|
| Bank-owned life insurance |
|
1,955 |
|
|
(142) |
|
|
3,380 |
|
|
539 |
|
| Mortgage banking income |
|
230 |
|
|
372 |
|
|
360 |
|
|
1,449 |
|
| Gain on sale of real estate |
|
495 |
|
|
— |
|
|
495 |
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
| Other income, net |
|
678 |
|
|
475 |
|
|
1,479 |
|
|
847 |
|
| Total noninterest income |
|
15,639 |
|
|
12,502 |
|
|
30,017 |
|
|
28,630 |
|
| Noninterest expense |
|
|
|
|
|
|
|
|
| Compensation and employee benefits |
|
29,394 |
|
|
27,666 |
|
|
59,598 |
|
|
54,881 |
|
| Occupancy |
|
5,539 |
|
|
5,467 |
|
|
11,127 |
|
|
11,419 |
|
| Data processing |
|
5,095 |
|
|
4,484 |
|
|
10,107 |
|
|
8,635 |
|
| Services |
|
2,689 |
|
|
2,522 |
|
|
5,284 |
|
|
4,961 |
|
| Equipment |
|
2,957 |
|
|
2,402 |
|
|
5,603 |
|
|
4,731 |
|
| Office supplies, printing and postage |
|
1,109 |
|
|
1,073 |
|
|
2,274 |
|
|
2,133 |
|
| Marketing |
|
834 |
|
|
934 |
|
|
1,850 |
|
|
1,952 |
|
|
|
|
|
|
|
|
|
|
| Other expense |
|
6,152 |
|
|
4,850 |
|
|
12,343 |
|
|
8,899 |
|
| Total noninterest expense |
|
53,769 |
|
|
49,398 |
|
|
108,186 |
|
|
97,611 |
|
| Income before income taxes |
|
25,055 |
|
|
22,109 |
|
|
48,762 |
|
|
52,324 |
|
| Income taxes |
|
4,851 |
|
|
4,643 |
|
|
9,996 |
|
|
10,988 |
|
| Net income |
|
20,204 |
|
|
17,466 |
|
|
38,766 |
|
|
41,336 |
|
| Other comprehensive income (loss), net of taxes |
|
(7,210) |
|
|
(88,835) |
|
|
11,220 |
|
|
(211,276) |
|
| Comprehensive income (loss) |
|
$ |
12,994 |
|
|
$ |
(71,369) |
|
|
$ |
49,986 |
|
|
$ |
(169,940) |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Reconciliation to amounts per HEI Condensed Consolidated Statements of Income*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Interest and dividend income |
|
$ |
81,741 |
|
|
$ |
62,822 |
|
|
$ |
161,220 |
|
|
$ |
122,811 |
|
| Noninterest income |
|
15,639 |
|
|
12,502 |
|
|
30,017 |
|
|
28,630 |
|
| Less: Gain on sale of real estate |
|
495 |
|
|
— |
|
|
495 |
|
|
1,002 |
|
|
|
|
|
|
|
|
|
|
| *Revenues-Bank |
|
96,885 |
|
|
75,324 |
|
|
190,742 |
|
|
150,439 |
|
| Total interest expense |
|
18,513 |
|
|
1,060 |
|
|
33,071 |
|
|
2,012 |
|
| Provision for credit losses |
|
43 |
|
|
2,757 |
|
|
1,218 |
|
|
(506) |
|
| Noninterest expense |
|
53,769 |
|
|
49,398 |
|
|
108,186 |
|
|
97,611 |
|
| Less: Gain on sale of real estate |
|
495 |
|
|
— |
|
|
495 |
|
|
1,002 |
|
| Less: Retirement defined benefits credit—other than service costs |
|
(187) |
|
|
(186) |
|
|
(374) |
|
|
(371) |
|
| *Expenses-Bank |
|
72,017 |
|
|
53,401 |
|
|
142,354 |
|
|
98,486 |
|
| *Operating income-Bank |
|
24,868 |
|
|
21,923 |
|
|
48,388 |
|
|
51,953 |
|
| Add back: Retirement defined benefits credit—other than service costs |
|
(187) |
|
|
(186) |
|
|
(374) |
|
|
(371) |
|
|
|
|
|
|
|
|
|
|
| Income before income taxes |
|
$ |
25,055 |
|
|
$ |
22,109 |
|
|
$ |
48,762 |
|
|
$ |
52,324 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
American Savings Bank, F.S.B.
Balance Sheets Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
June 30, 2023 |
|
December 31, 2022 |
| Assets |
|
|
|
|
|
|
|
|
| Cash and due from banks |
|
|
|
$ |
158,170 |
|
|
|
|
$ |
153,042 |
|
| Interest-bearing deposits |
|
|
|
9,958 |
|
|
|
|
3,107 |
|
| Cash and cash equivalents |
|
|
|
168,128 |
|
|
|
|
156,149 |
|
|
|
|
|
|
|
|
|
|
| Investment securities |
|
|
|
|
|
|
|
|
| Available-for-sale, at fair value |
|
|
|
1,368,037 |
|
|
|
|
1,429,667 |
|
Held-to-maturity, at amortized cost (fair value of $1,121,995 and $1,150,971, respectively) |
|
|
|
1,224,917 |
|
|
|
|
1,251,747 |
|
| Stock in Federal Home Loan Bank, at cost |
|
|
|
18,000 |
|
|
|
|
26,560 |
|
| Loans held for investment |
|
|
|
6,138,182 |
|
|
|
|
5,978,906 |
|
| Allowance for credit losses |
|
|
|
(69,068) |
|
|
|
|
(72,216) |
|
| Net loans |
|
|
|
6,069,114 |
|
|
|
|
5,906,690 |
|
| Loans held for sale, at lower of cost or fair value |
|
|
|
6,910 |
|
|
|
|
824 |
|
| Other |
|
|
|
683,395 |
|
|
|
|
692,143 |
|
| Goodwill |
|
|
|
82,190 |
|
|
|
|
82,190 |
|
| Total assets |
|
|
|
$ |
9,620,691 |
|
|
|
|
$ |
9,545,970 |
|
| Liabilities and shareholder’s equity |
|
|
|
|
|
|
|
|
| Deposit liabilities—noninterest-bearing |
|
|
|
$ |
2,683,725 |
|
|
|
|
$ |
2,811,077 |
|
| Deposit liabilities—interest-bearing |
|
|
|
5,479,510 |
|
|
|
|
5,358,619 |
|
| Other borrowings |
|
|
|
750,000 |
|
|
|
|
695,120 |
|
| Other |
|
|
|
212,268 |
|
|
|
|
212,269 |
|
| Total liabilities |
|
|
|
9,125,503 |
|
|
|
|
9,077,085 |
|
|
|
|
|
|
|
|
|
|
| Common stock |
|
|
|
1 |
|
|
|
|
1 |
|
| Additional paid-in capital |
|
|
|
357,123 |
|
|
|
|
355,806 |
|
| Retained earnings |
|
|
|
463,459 |
|
|
|
|
449,693 |
|
| Accumulated other comprehensive loss, net of tax benefits |
|
|
|
|
|
|
|
|
| Net unrealized losses on securities |
|
$ |
(315,917) |
|
|
|
|
$ |
(328,904) |
|
|
|
| Retirement benefit plans |
|
(9,478) |
|
|
(325,395) |
|
|
(7,711) |
|
|
(336,615) |
|
| Total shareholder’s equity |
|
|
|
495,188 |
|
|
|
|
468,885 |
|
| Total liabilities and shareholder’s equity |
|
|
|
$ |
9,620,691 |
|
|
|
|
$ |
9,545,970 |
|
|
|
|
|
|
|
|
|
|
| Other assets |
|
|
|
|
|
|
|
|
| Bank-owned life insurance |
|
|
|
$ |
183,833 |
|
|
|
|
$ |
182,986 |
|
| Premises and equipment, net |
|
|
|
192,070 |
|
|
|
|
195,324 |
|
| Accrued interest receivable |
|
|
|
27,136 |
|
|
|
|
25,077 |
|
| Mortgage-servicing rights |
|
|
|
8,495 |
|
|
|
|
9,047 |
|
| Low-income housing investments |
|
|
|
107,164 |
|
|
|
|
106,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Deferred tax asset |
|
|
|
112,345 |
|
|
|
|
116,441 |
|
| Real estate acquired in settlement of loans, net |
|
|
|
— |
|
|
|
|
115 |
|
| Other |
|
|
|
52,352 |
|
|
|
|
56,175 |
|
| |
|
|
|
$ |
683,395 |
|
|
|
|
$ |
692,143 |
|
| Other liabilities |
|
|
|
|
|
|
|
|
| Accrued expenses |
|
|
|
$ |
98,664 |
|
|
|
|
$ |
97,295 |
|
| Federal and state income taxes payable |
|
|
|
187 |
|
|
|
|
863 |
|
| Cashier’s checks |
|
|
|
32,634 |
|
|
|
|
36,401 |
|
| Advance payments by borrowers |
|
|
|
10,800 |
|
|
|
|
9,637 |
|
| Other |
|
|
|
69,983 |
|
|
|
|
68,073 |
|
| |
|
|
|
$ |
212,268 |
|
|
|
|
$ |
212,269 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Bank-owned life insurance is life insurance purchased by ASB on the lives of certain key employees, with ASB as the beneficiary. The insurance is used to fund employee benefits through tax-free income from increases in the cash value of the policies and insurance proceeds paid to ASB upon an insured’s death.
Other borrowings consisted of FHLB advances and borrowings from the Federal Reserve Bank.
Investment securities. The major components of investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized cost |
|
Gross unrealized gains |
|
Gross unrealized losses |
|
Estimated fair
value |
|
Gross unrealized losses |
| |
|
|
|
|
|
Less than 12 months |
|
12 months or longer |
| (dollars in thousands) |
|
|
|
|
|
Number of issues |
|
Fair
value |
|
Amount |
|
Number of issues |
|
Fair
value |
|
Amount |
| June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury and federal agency obligations |
|
$ |
84,728 |
|
|
$ |
— |
|
|
$ |
(6,981) |
|
|
$ |
77,747 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
14 |
|
|
$ |
77,747 |
|
|
$ |
(6,981) |
|
| Mortgage-backed securities* |
|
1,465,232 |
|
|
— |
|
|
(230,718) |
|
|
1,234,514 |
|
|
8 |
|
|
36,332 |
|
|
(3,863) |
|
|
175 |
|
|
1,198,182 |
|
|
(226,855) |
|
| Corporate bonds |
|
44,307 |
|
|
— |
|
|
(3,161) |
|
|
41,146 |
|
|
— |
|
|
— |
|
|
— |
|
|
5 |
|
|
41,146 |
|
|
(3,161) |
|
| Mortgage revenue bonds |
|
14,630 |
|
|
— |
|
|
— |
|
|
14,630 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
$ |
1,608,897 |
|
|
$ |
— |
|
|
$ |
(240,860) |
|
|
$ |
1,368,037 |
|
|
8 |
|
|
$ |
36,332 |
|
|
$ |
(3,863) |
|
|
194 |
|
|
$ |
1,317,075 |
|
|
$ |
(236,997) |
|
| Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury and federal agency obligations |
|
$ |
59,906 |
|
|
$ |
— |
|
|
$ |
(8,207) |
|
|
$ |
51,699 |
|
|
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
3 |
|
|
$ |
51,699 |
|
|
$ |
(8,207) |
|
| Mortgage-backed securities* |
|
1,165,011 |
|
|
2,449 |
|
|
(97,164) |
|
|
1,070,296 |
|
|
33 |
|
|
322,971 |
|
|
(6,521) |
|
|
40 |
|
|
403,177 |
|
|
(90,643) |
|
| |
|
$ |
1,224,917 |
|
|
$ |
2,449 |
|
|
$ |
(105,371) |
|
|
$ |
1,121,995 |
|
|
33 |
|
|
$ |
322,971 |
|
|
$ |
(6,521) |
|
|
43 |
|
|
$ |
454,876 |
|
|
$ |
(98,850) |
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Available-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury and federal agency obligations |
|
$ |
88,344 |
|
|
$ |
— |
|
|
$ |
(7,281) |
|
|
$ |
81,063 |
|
|
12 |
|
|
$ |
41,201 |
|
|
$ |
(2,120) |
|
|
4 |
|
|
$ |
39,862 |
|
|
$ |
(5,161) |
|
| Mortgage-backed securities* |
|
1,530,582 |
|
|
— |
|
|
(237,614) |
|
|
1,292,968 |
|
|
113 |
|
|
455,836 |
|
|
(56,999) |
|
|
70 |
|
|
837,132 |
|
|
(180,615) |
|
| Corporate bonds |
|
44,377 |
|
|
— |
|
|
(3,643) |
|
|
40,734 |
|
|
4 |
|
|
29,644 |
|
|
(2,028) |
|
|
1 |
|
|
11,090 |
|
|
(1,615) |
|
| Mortgage revenue bonds |
|
14,902 |
|
|
— |
|
|
— |
|
|
14,902 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
$ |
1,678,205 |
|
|
$ |
— |
|
|
$ |
(248,538) |
|
|
$ |
1,429,667 |
|
|
129 |
|
|
$ |
526,681 |
|
|
$ |
(61,147) |
|
|
75 |
|
|
$ |
888,084 |
|
|
$ |
(187,391) |
|
| Held-to-maturity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Treasury and federal agency obligations |
|
$ |
59,894 |
|
|
$ |
— |
|
|
$ |
(8,478) |
|
|
$ |
51,416 |
|
|
1 |
|
|
$ |
16,874 |
|
|
$ |
(3,222) |
|
|
2 |
|
|
$ |
34,542 |
|
|
$ |
(5,256) |
|
| Mortgage-backed securities* |
|
1,191,853 |
|
|
2,670 |
|
|
(94,968) |
|
|
1,099,555 |
|
|
22 |
|
|
183,629 |
|
|
(10,593) |
|
|
51 |
|
|
567,250 |
|
|
(84,375) |
|
| |
|
$ |
1,251,747 |
|
|
$ |
2,670 |
|
|
$ |
(103,446) |
|
|
$ |
1,150,971 |
|
|
23 |
|
|
$ |
200,503 |
|
|
$ |
(13,815) |
|
|
53 |
|
|
$ |
601,792 |
|
|
$ |
(89,631) |
|
* Issued or guaranteed by U.S. Government agencies or sponsored agencies
ASB does not believe that the investment securities that were in an unrealized loss position at June 30, 2023 and December 31, 2022, represent a credit loss. Total gross unrealized losses were primarily attributable to change in market conditions. On a quarterly basis the investment securities are evaluated for changes in financial condition of the issuer. Based upon ASB’s evaluation, all securities held within the investment portfolio continue to be rated investment grade by one or more agencies. The contractual cash flows of the U.S. Treasury, federal agency obligations and agency mortgage-backed securities are backed by the full faith and credit guaranty of the United States government or an agency of the government. ASB does not intend to sell the securities before the recovery of its amortized cost basis and there have been no adverse changes in the timing of the contractual cash flows for the securities. ASB’s investment securities portfolio did not require an allowance for credit losses at June 30, 2023 and December 31, 2022.
U.S. Treasury, federal agency obligations, corporate bonds, and mortgage revenue bonds have contractual terms to maturity. Mortgage-backed securities have contractual terms to maturity, but require periodic payments to reduce principal.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
In addition, expected maturities will differ from contractual maturities because borrowers have the right to prepay the underlying mortgages.
The contractual maturities of investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2023 |
|
Amortized
cost |
|
Fair value |
| (in thousands) |
|
|
|
|
| Available-for-sale |
|
|
|
|
| Due in one year or less |
|
$ |
2,213 |
|
|
$ |
2,177 |
|
| Due after one year through five years |
|
126,822 |
|
|
116,716 |
|
| Due after five years through ten years |
|
14,630 |
|
|
14,630 |
|
| Due after ten years |
|
— |
|
|
— |
|
| |
|
143,665 |
|
|
133,523 |
|
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies |
|
1,465,232 |
|
|
1,234,514 |
|
| Total available-for-sale securities |
|
$ |
1,608,897 |
|
|
$ |
1,368,037 |
|
| Held-to-maturity |
|
|
|
|
| Due in one year or less |
|
$ |
— |
|
|
$ |
— |
|
| Due after one year through five years |
|
19,966 |
|
|
17,403 |
|
| Due after five years through ten years |
|
39,940 |
|
|
34,296 |
|
| Due after ten years |
|
— |
|
|
— |
|
|
|
59,906 |
|
|
51,699 |
|
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies |
|
1,165,011 |
|
|
1,070,296 |
|
| Total held-to-maturity securities |
|
$ |
1,224,917 |
|
|
$ |
1,121,995 |
|
There were no sales of available-for-sale securities for the three months and six months ended June 30, 2023 and 2022.
The components of loans were summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
December 31, 2022 |
| (in thousands) |
|
|
|
| Real estate: |
|
|
|
| Residential 1-4 family |
$ |
2,548,160 |
|
|
$ |
2,479,637 |
|
| Commercial real estate |
1,382,376 |
|
|
1,358,123 |
|
| Home equity line of credit |
1,035,099 |
|
|
1,002,905 |
|
| Residential land |
21,226 |
|
|
20,679 |
|
| Commercial construction |
128,748 |
|
|
88,489 |
|
| Residential construction |
14,536 |
|
|
20,788 |
|
| Total real estate |
5,130,145 |
|
|
4,970,621 |
|
| Commercial |
747,343 |
|
|
779,691 |
|
| Consumer |
290,918 |
|
|
254,709 |
|
| Total loans |
6,168,406 |
|
|
6,005,021 |
|
| Less: Deferred fees and discounts |
(30,224) |
|
|
(26,115) |
|
| Allowance for credit losses |
(69,068) |
|
|
(72,216) |
|
| Total loans, net |
$ |
6,069,114 |
|
|
$ |
5,906,690 |
|
ASB's policy is to require private mortgage insurance on all real estate loans when the loan-to-value ratio of the property exceeds 80% of the lower of the appraised value or purchase price at origination. For non-owner occupied residential property purchases, the loan-to-value ratio may not exceed 75% of the lower of the appraised value or purchase price at origination.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Allowance for credit losses. The allowance for credit losses (balances and changes) by portfolio segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Residential
1-4 family |
|
Commercial real
estate |
|
Home
equity line of credit |
|
Residential land |
|
Commercial construction |
|
Residential construction |
|
Commercial loans |
|
Consumer loans |
|
Total |
| Three months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
4,612 |
|
|
$ |
22,701 |
|
|
$ |
6,053 |
|
|
$ |
620 |
|
|
$ |
735 |
|
|
$ |
28 |
|
|
$ |
11,936 |
|
|
$ |
24,611 |
|
|
$ |
71,296 |
|
| Charge-offs |
|
(181) |
|
|
— |
|
|
(297) |
|
|
— |
|
|
— |
|
|
— |
|
|
(157) |
|
|
(2,568) |
|
|
(3,203) |
|
| Recoveries |
|
2 |
|
|
— |
|
|
17 |
|
|
3 |
|
|
— |
|
|
— |
|
|
206 |
|
|
904 |
|
|
1,132 |
|
| Provision |
|
275 |
|
|
(2,423) |
|
|
1,366 |
|
|
30 |
|
|
1,814 |
|
|
(2) |
|
|
(627) |
|
|
(590) |
|
|
(157) |
|
| Ending balance |
|
$ |
4,708 |
|
|
$ |
20,278 |
|
|
$ |
7,139 |
|
|
$ |
653 |
|
|
$ |
2,549 |
|
|
$ |
26 |
|
|
$ |
11,358 |
|
|
$ |
22,357 |
|
|
$ |
69,068 |
|
| Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
7,874 |
|
|
$ |
20,176 |
|
|
$ |
5,650 |
|
|
$ |
697 |
|
|
$ |
2,340 |
|
|
$ |
31 |
|
|
$ |
14,314 |
|
|
$ |
16,129 |
|
|
$ |
67,211 |
|
| Charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(148) |
|
|
(1,369) |
|
|
(1,517) |
|
| Recoveries |
|
3 |
|
|
— |
|
|
31 |
|
|
96 |
|
|
— |
|
|
— |
|
|
399 |
|
|
976 |
|
|
1,505 |
|
| Provision |
|
643 |
|
|
724 |
|
|
415 |
|
|
(116) |
|
|
294 |
|
|
15 |
|
|
(2,152) |
|
|
2,434 |
|
|
2,257 |
|
| Ending balance |
|
$ |
8,520 |
|
|
$ |
20,900 |
|
|
$ |
6,096 |
|
|
$ |
677 |
|
|
$ |
2,634 |
|
|
$ |
46 |
|
|
$ |
12,413 |
|
|
$ |
18,170 |
|
|
$ |
69,456 |
|
| Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
6,270 |
|
|
$ |
21,898 |
|
|
$ |
6,125 |
|
|
$ |
717 |
|
|
$ |
1,195 |
|
|
$ |
46 |
|
|
$ |
12,426 |
|
|
$ |
23,539 |
|
|
$ |
72,216 |
|
| Charge-offs |
|
(990) |
|
|
— |
|
|
(360) |
|
|
— |
|
|
— |
|
|
— |
|
|
(384) |
|
|
(4,891) |
|
|
(6,625) |
|
| Recoveries |
|
6 |
|
|
— |
|
|
34 |
|
|
3 |
|
|
— |
|
|
— |
|
|
604 |
|
|
1,812 |
|
|
2,459 |
|
| Provision |
|
(578) |
|
|
(1,620) |
|
|
1,340 |
|
|
(67) |
|
|
1,354 |
|
|
(20) |
|
|
(1,288) |
|
|
1,897 |
|
|
1,018 |
|
| Ending balance |
|
$ |
4,708 |
|
|
$ |
20,278 |
|
|
$ |
7,139 |
|
|
$ |
653 |
|
|
$ |
2,549 |
|
|
$ |
26 |
|
|
$ |
11,358 |
|
|
$ |
22,357 |
|
|
$ |
69,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allowance for credit losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
6,545 |
|
|
$ |
24,696 |
|
|
$ |
5,657 |
|
|
$ |
646 |
|
|
$ |
2,186 |
|
|
$ |
18 |
|
|
$ |
15,798 |
|
|
$ |
15,584 |
|
|
$ |
71,130 |
|
| Charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(224) |
|
|
(2,851) |
|
|
(3,075) |
|
| Recoveries |
|
11 |
|
|
— |
|
|
42 |
|
|
101 |
|
|
— |
|
|
— |
|
|
752 |
|
|
2,001 |
|
|
2,907 |
|
| Provision |
|
1,964 |
|
|
(3,796) |
|
|
397 |
|
|
(70) |
|
|
448 |
|
|
28 |
|
|
(3,913) |
|
|
3,436 |
|
|
(1,506) |
|
| Ending balance |
|
$ |
8,520 |
|
|
$ |
20,900 |
|
|
$ |
6,096 |
|
|
$ |
677 |
|
|
$ |
2,634 |
|
|
$ |
46 |
|
|
$ |
12,413 |
|
|
$ |
18,170 |
|
|
$ |
69,456 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Allowance for loan commitments. The allowance for loan commitments by portfolio segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Home equity
line of credit |
|
Commercial construction |
|
Commercial loans |
|
Total |
| Three months ended June 30, 2023 |
|
|
|
|
|
|
|
|
| Allowance for loan commitments: |
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
400 |
|
|
$ |
2,600 |
|
|
$ |
1,400 |
|
|
$ |
4,400 |
|
| Provision |
|
200 |
|
|
1,200 |
|
|
(1,200) |
|
|
200 |
|
| Ending balance |
|
$ |
600 |
|
|
$ |
3,800 |
|
|
$ |
200 |
|
|
$ |
4,600 |
|
| Three months ended June 30, 2022 |
|
|
|
|
|
|
|
|
| Allowance for loan commitments: |
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
400 |
|
|
$ |
3,600 |
|
|
$ |
1,400 |
|
|
$ |
5,400 |
|
| Provision |
|
— |
|
|
500 |
|
|
— |
|
|
500 |
|
| Ending balance |
|
$ |
400 |
|
|
$ |
4,100 |
|
|
$ |
1,400 |
|
|
$ |
5,900 |
|
| Six months ended June 30, 2023 |
|
|
|
|
|
|
|
|
| Allowance for loan commitments: |
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
400 |
|
|
$ |
2,600 |
|
|
$ |
1,400 |
|
|
$ |
4,400 |
|
| Provision |
|
200 |
|
|
1,200 |
|
|
(1,200) |
|
|
200 |
|
| Ending balance |
|
$ |
600 |
|
|
$ |
3,800 |
|
|
$ |
200 |
|
|
$ |
4,600 |
|
| Six months ended June 30, 2022 |
|
|
|
|
|
|
| Allowance for loan commitments: |
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
400 |
|
|
$ |
3,700 |
|
|
$ |
800 |
|
|
$ |
4,900 |
|
|
|
|
|
|
|
|
|
|
| Provision |
|
— |
|
|
400 |
|
|
600 |
|
|
1,000 |
|
| Ending balance |
|
$ |
400 |
|
|
$ |
4,100 |
|
|
$ |
1,400 |
|
|
$ |
5,900 |
|
Credit quality. ASB performs an internal loan review and grading on an ongoing basis. The review provides management with periodic information as to the quality of the loan portfolio and effectiveness of its lending policies and procedures. The objectives of the loan review and grading procedures are to identify, in a timely manner, existing or emerging credit trends so that appropriate steps can be initiated to manage risk and avoid or minimize future losses. Loans subject to grading include commercial, commercial real estate and commercial construction loans.
Each commercial and commercial real estate loan is assigned an Asset Quality Rating (AQR) reflecting the likelihood of repayment or orderly liquidation of that loan transaction pursuant to regulatory credit classifications: Pass, Special Mention, Substandard, Doubtful, and Loss. The AQR is a function of the probability of default model rating, the loss given default, and possible non-model factors which impact the ultimate collectability of the loan such as character of the business owner/guarantor, interim period performance, litigation, tax liens and major changes in business and economic conditions. Pass exposures generally are well protected by the current net worth and paying capacity of the obligor or by the value of the asset or underlying collateral. Special Mention loans have potential weaknesses that, if left uncorrected, could jeopardize the liquidation of the debt. Substandard loans have well-defined weaknesses that jeopardize the liquidation of the debt and are characterized by the distinct possibility that ASB may sustain some loss. An asset classified Doubtful has the weaknesses of those classified Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. An asset classified Loss is considered uncollectible and has such little value that its continuance as a bankable asset is not warranted.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
The credit risk profile by vintage date based on payment activity or internally assigned grade for loans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans by Origination Year |
|
Revolving Loans |
|
|
| (in thousands) |
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
Prior |
|
Revolving |
|
Converted to term loans |
|
Total |
| June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
$ |
145,486 |
|
|
$ |
418,635 |
|
|
$ |
748,251 |
|
|
$ |
413,204 |
|
|
$ |
109,756 |
|
|
$ |
710,451 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,545,783 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
223 |
|
|
— |
|
|
— |
|
|
223 |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
236 |
|
|
— |
|
|
— |
|
|
236 |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,918 |
|
|
— |
|
|
— |
|
|
1,918 |
|
|
|
145,486 |
|
|
418,635 |
|
|
748,251 |
|
|
413,204 |
|
|
109,756 |
|
|
712,828 |
|
|
— |
|
|
— |
|
|
2,548,160 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
990 |
|
|
— |
|
|
— |
|
|
990 |
|
| Home equity line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
981,266 |
|
|
51,857 |
|
|
1,033,123 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
773 |
|
|
— |
|
|
773 |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
485 |
|
|
120 |
|
|
605 |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
342 |
|
|
256 |
|
|
598 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
982,866 |
|
|
52,233 |
|
|
1,035,099 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
77 |
|
|
283 |
|
|
360 |
|
| Residential land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
3,073 |
|
|
5,231 |
|
|
8,270 |
|
|
3,664 |
|
|
— |
|
|
988 |
|
|
— |
|
|
— |
|
|
21,226 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
3,073 |
|
|
5,231 |
|
|
8,270 |
|
|
3,664 |
|
|
— |
|
|
988 |
|
|
— |
|
|
— |
|
|
21,226 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Residential construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
1,370 |
|
|
9,967 |
|
|
3,199 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,536 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
1,370 |
|
|
9,967 |
|
|
3,199 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,536 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
75,489 |
|
|
175,654 |
|
|
14,671 |
|
|
3,209 |
|
|
2,207 |
|
|
256 |
|
|
10,274 |
|
|
4,069 |
|
|
285,829 |
|
| 30-59 days past due |
|
249 |
|
|
1,577 |
|
|
244 |
|
|
67 |
|
|
72 |
|
|
1 |
|
|
58 |
|
|
69 |
|
|
2,337 |
|
| 60-89 days past due |
|
74 |
|
|
922 |
|
|
85 |
|
|
40 |
|
|
65 |
|
|
1 |
|
|
88 |
|
|
57 |
|
|
1,332 |
|
| Greater than 89 days past due |
|
40 |
|
|
908 |
|
|
69 |
|
|
31 |
|
|
79 |
|
|
5 |
|
|
96 |
|
|
192 |
|
|
1,420 |
|
|
|
75,852 |
|
|
179,061 |
|
|
15,069 |
|
|
3,347 |
|
|
2,423 |
|
|
263 |
|
|
10,516 |
|
|
4,387 |
|
|
290,918 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
460 |
|
|
2,976 |
|
|
643 |
|
|
106 |
|
|
283 |
|
|
35 |
|
|
142 |
|
|
246 |
|
|
4,891 |
|
| Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
|
50,165 |
|
|
391,965 |
|
|
177,687 |
|
|
276,039 |
|
|
51,699 |
|
|
335,469 |
|
|
8,358 |
|
|
— |
|
|
1,291,382 |
|
| Special Mention |
|
— |
|
|
— |
|
|
11,250 |
|
|
3,403 |
|
|
29,784 |
|
|
21,069 |
|
|
— |
|
|
— |
|
|
65,506 |
|
| Substandard |
|
5,421 |
|
|
— |
|
|
— |
|
|
— |
|
|
11,354 |
|
|
8,713 |
|
|
— |
|
|
— |
|
|
25,488 |
|
| Doubtful |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
55,586 |
|
|
391,965 |
|
|
188,937 |
|
|
279,442 |
|
|
92,837 |
|
|
365,251 |
|
|
8,358 |
|
|
— |
|
|
1,382,376 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans by Origination Year |
|
Revolving Loans |
|
|
| (in thousands) |
|
2023 |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
Prior |
|
Revolving |
|
Converted to term loans |
|
Total |
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Commercial construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
|
1,980 |
|
|
14,970 |
|
|
60,602 |
|
|
65 |
|
|
— |
|
|
— |
|
|
51,131 |
|
|
— |
|
|
128,748 |
|
| Special Mention |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Substandard |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Doubtful |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
1,980 |
|
|
14,970 |
|
|
60,602 |
|
|
65 |
|
|
— |
|
|
— |
|
|
51,131 |
|
|
— |
|
|
128,748 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
|
60,151 |
|
|
223,817 |
|
|
131,123 |
|
|
84,694 |
|
|
46,411 |
|
|
85,210 |
|
|
76,926 |
|
|
13,197 |
|
|
721,529 |
|
| Special Mention |
|
— |
|
|
— |
|
|
989 |
|
|
— |
|
|
2,434 |
|
|
— |
|
|
9,784 |
|
|
— |
|
|
13,207 |
|
| Substandard |
|
— |
|
|
3,144 |
|
|
1,128 |
|
|
329 |
|
|
1,248 |
|
|
4,635 |
|
|
928 |
|
|
1,195 |
|
|
12,607 |
|
| Doubtful |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
60,151 |
|
|
226,961 |
|
|
133,240 |
|
|
85,023 |
|
|
50,093 |
|
|
89,845 |
|
|
87,638 |
|
|
14,392 |
|
|
747,343 |
|
| Current YTD period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross charge-offs |
|
— |
|
|
— |
|
|
51 |
|
|
— |
|
|
— |
|
|
— |
|
|
124 |
|
|
209 |
|
|
384 |
|
| Total loans |
|
$ |
343,498 |
|
|
$ |
1,246,790 |
|
|
$ |
1,157,568 |
|
|
$ |
784,745 |
|
|
$ |
255,109 |
|
|
$ |
1,169,175 |
|
|
$ |
1,140,509 |
|
|
$ |
71,012 |
|
|
$ |
6,168,406 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loans by Origination Year |
|
Revolving Loans |
|
|
| (in thousands) |
|
2022 |
|
2021 |
|
2020 |
|
2019 |
|
2018 |
|
Prior |
|
Revolving |
|
Converted to term loans |
|
Total |
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
$ |
432,707 |
|
|
$ |
755,056 |
|
|
$ |
423,455 |
|
|
$ |
113,096 |
|
|
$ |
51,860 |
|
|
$ |
698,354 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,474,528 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
448 |
|
|
1,098 |
|
|
— |
|
|
— |
|
|
1,546 |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
268 |
|
|
— |
|
|
— |
|
|
90 |
|
|
— |
|
|
— |
|
|
358 |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
809 |
|
|
2,396 |
|
|
— |
|
|
— |
|
|
3,205 |
|
|
|
432,707 |
|
|
755,056 |
|
|
423,723 |
|
|
113,096 |
|
|
53,117 |
|
|
701,938 |
|
|
— |
|
|
— |
|
|
2,479,637 |
|
| Home equity line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
959,131 |
|
|
40,814 |
|
|
999,945 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,103 |
|
|
209 |
|
|
1,312 |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
209 |
|
|
226 |
|
|
435 |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
587 |
|
|
626 |
|
|
1,213 |
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
961,030 |
|
|
41,875 |
|
|
1,002,905 |
|
| Residential land |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
5,245 |
|
|
9,010 |
|
|
5,222 |
|
|
203 |
|
|
522 |
|
|
477 |
|
|
— |
|
|
— |
|
|
20,679 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
5,245 |
|
|
9,010 |
|
|
5,222 |
|
|
203 |
|
|
522 |
|
|
477 |
|
|
— |
|
|
— |
|
|
20,679 |
|
| Residential construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
7,986 |
|
|
11,624 |
|
|
1,178 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20,788 |
|
| 30-59 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| 60-89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Greater than 89 days past due |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
7,986 |
|
|
11,624 |
|
|
1,178 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20,788 |
|
| Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current |
|
199,574 |
|
|
21,330 |
|
|
5,543 |
|
|
7,580 |
|
|
527 |
|
|
140 |
|
|
10,810 |
|
|
4,782 |
|
|
250,286 |
|
| 30-59 days past due |
|
1,110 |
|
|
287 |
|
|
65 |
|
|
239 |
|
|
30 |
|
|
— |
|
|
81 |
|
|
167 |
|
|
1,979 |
|
| 60-89 days past due |
|
756 |
|
|
163 |
|
|
88 |
|
|
137 |
|
|
19 |
|
|
— |
|
|
45 |
|
|
107 |
|
|
1,315 |
|
| Greater than 89 days past due |
|
621 |
|
|
105 |
|
|
37 |
|
|
176 |
|
|
28 |
|
|
— |
|
|
20 |
|
|
142 |
|
|
1,129 |
|
|
|
202,061 |
|
|
21,885 |
|
|
5,733 |
|
|
8,132 |
|
|
604 |
|
|
140 |
|
|
10,956 |
|
|
5,198 |
|
|
254,709 |
|
| Commercial real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
|
390,206 |
|
|
177,130 |
|
|
283,321 |
|
|
51,542 |
|
|
63,084 |
|
|
278,280 |
|
|
8,235 |
|
|
— |
|
|
1,251,798 |
|
| Special Mention |
|
— |
|
|
11,250 |
|
|
3,446 |
|
|
40,423 |
|
|
— |
|
|
24,466 |
|
|
— |
|
|
— |
|
|
79,585 |
|
| Substandard |
|
— |
|
|
— |
|
|
665 |
|
|
11,357 |
|
|
— |
|
|
14,718 |
|
|
— |
|
|
— |
|
|
26,740 |
|
| Doubtful |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
390,206 |
|
|
188,380 |
|
|
287,432 |
|
|
103,322 |
|
|
63,084 |
|
|
317,464 |
|
|
8,235 |
|
|
— |
|
|
1,358,123 |
|
| Commercial construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
|
15,094 |
|
|
47,478 |
|
|
44 |
|
|
— |
|
|
— |
|
|
— |
|
|
25,873 |
|
|
— |
|
|
88,489 |
|
| Special Mention |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Substandard |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Doubtful |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
15,094 |
|
|
47,478 |
|
|
44 |
|
|
— |
|
|
— |
|
|
— |
|
|
25,873 |
|
|
— |
|
|
88,489 |
|
| Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Pass |
|
239,852 |
|
|
185,013 |
|
|
85,220 |
|
|
68,161 |
|
|
46,142 |
|
|
53,192 |
|
|
60,871 |
|
|
13,964 |
|
|
752,415 |
|
| Special Mention |
|
— |
|
|
— |
|
|
— |
|
|
2,374 |
|
|
— |
|
|
645 |
|
|
9,005 |
|
|
8 |
|
|
12,032 |
|
| Substandard |
|
3,322 |
|
|
2,305 |
|
|
401 |
|
|
1,304 |
|
|
1,346 |
|
|
3,849 |
|
|
1,664 |
|
|
1,053 |
|
|
15,244 |
|
| Doubtful |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
243,174 |
|
|
187,318 |
|
|
85,621 |
|
|
71,839 |
|
|
47,488 |
|
|
57,686 |
|
|
71,540 |
|
|
15,025 |
|
|
779,691 |
|
| Total loans |
|
$ |
1,296,473 |
|
|
$ |
1,220,751 |
|
|
$ |
808,953 |
|
|
$ |
296,592 |
|
|
$ |
164,815 |
|
|
$ |
1,077,705 |
|
|
$ |
1,077,634 |
|
|
$ |
62,098 |
|
|
$ |
6,005,021 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Revolving loans converted to term loans during the six months ended June 30, 2023 in the commercial, home equity line of credit and consumer portfolios were $2.0 million, $14.9 million and $0.9 million, respectively. Revolving loans converted to term loans during the six months ended June 30, 2022 in the commercial, home equity line of credit and consumer portfolios were $1.0 million, $10.0 million and $1.7 million, respectively.
The credit risk profile based on payment activity for loans was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
30-59
days
past due |
|
60-89
days
past due |
|
Greater than
90 days |
|
Total
past due |
|
Current |
|
Total
financing
receivables |
|
Amortized cost>
90 days and
accruing |
| June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
$ |
223 |
|
|
$ |
236 |
|
|
$ |
1,918 |
|
|
$ |
2,377 |
|
|
$ |
2,545,783 |
|
|
$ |
2,548,160 |
|
|
$ |
— |
|
| Commercial real estate |
|
472 |
|
|
— |
|
|
— |
|
|
472 |
|
|
1,381,904 |
|
|
1,382,376 |
|
|
— |
|
| Home equity line of credit |
|
773 |
|
|
605 |
|
|
598 |
|
|
1,976 |
|
|
1,033,123 |
|
|
1,035,099 |
|
|
— |
|
| Residential land |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
21,226 |
|
|
21,226 |
|
|
— |
|
| Commercial construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
128,748 |
|
|
128,748 |
|
|
— |
|
| Residential construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
14,536 |
|
|
14,536 |
|
|
— |
|
| Commercial |
|
45 |
|
|
351 |
|
|
380 |
|
|
776 |
|
|
746,567 |
|
|
747,343 |
|
|
— |
|
| Consumer |
|
2,337 |
|
|
1,332 |
|
|
1,420 |
|
|
5,089 |
|
|
285,829 |
|
|
290,918 |
|
|
— |
|
| Total loans |
|
$ |
3,850 |
|
|
$ |
2,524 |
|
|
$ |
4,316 |
|
|
$ |
10,690 |
|
|
$ |
6,157,716 |
|
|
$ |
6,168,406 |
|
|
$ |
— |
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
$ |
1,546 |
|
|
$ |
358 |
|
|
$ |
3,205 |
|
|
$ |
5,109 |
|
|
$ |
2,474,528 |
|
|
$ |
2,479,637 |
|
|
$ |
— |
|
| Commercial real estate |
|
508 |
|
|
217 |
|
|
— |
|
|
725 |
|
|
1,357,398 |
|
|
1,358,123 |
|
|
— |
|
| Home equity line of credit |
|
1,312 |
|
|
435 |
|
|
1,213 |
|
|
2,960 |
|
|
999,945 |
|
|
1,002,905 |
|
|
— |
|
| Residential land |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20,679 |
|
|
20,679 |
|
|
— |
|
| Commercial construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
88,489 |
|
|
88,489 |
|
|
— |
|
| Residential construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20,788 |
|
|
20,788 |
|
|
— |
|
| Commercial |
|
614 |
|
|
18 |
|
|
77 |
|
|
709 |
|
|
778,982 |
|
|
779,691 |
|
|
— |
|
| Consumer |
|
1,979 |
|
|
1,315 |
|
|
1,129 |
|
|
4,423 |
|
|
250,286 |
|
|
254,709 |
|
|
— |
|
| Total loans |
|
$ |
5,959 |
|
|
$ |
2,343 |
|
|
$ |
5,624 |
|
|
$ |
13,926 |
|
|
$ |
5,991,095 |
|
|
$ |
6,005,021 |
|
|
$ |
— |
|
The credit risk profile based on nonaccrual loans were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
June 30, 2023 |
|
December 31, 2022 |
|
|
With a Related ACL |
|
Without a Related ACL |
|
Total |
|
With a Related ACL |
|
Without a Related ACL |
|
Total |
| Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
$ |
2,016 |
|
|
$ |
2,550 |
|
|
$ |
4,566 |
|
|
$ |
4,198 |
|
|
$ |
2,981 |
|
|
$ |
7,179 |
|
| Commercial real estate |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Home equity line of credit |
|
4,528 |
|
|
740 |
|
|
5,268 |
|
|
3,654 |
|
|
1,442 |
|
|
5,096 |
|
| Residential land |
|
107 |
|
|
— |
|
|
107 |
|
|
420 |
|
|
— |
|
|
420 |
|
| Commercial construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Residential construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Commercial |
|
1,241 |
|
|
— |
|
|
1,241 |
|
|
2,183 |
|
|
— |
|
|
2,183 |
|
| Consumer |
|
2,086 |
|
|
— |
|
|
2,086 |
|
|
1,588 |
|
|
— |
|
|
1,588 |
|
| Total |
|
$ |
9,978 |
|
|
$ |
3,290 |
|
|
$ |
13,268 |
|
|
$ |
12,043 |
|
|
$ |
4,423 |
|
|
$ |
16,466 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASB did not recognize interest on nonaccrual loans for the six months ended June 30, 2023 and 2022.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Modifications Made to Borrowers Experiencing Financial Difficulty. The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loan information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. ASB uses a probability of default/loss given default model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of the modification.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.
Modifications may include interest rate reductions, interest only payments for an extended period of time, protracted terms such as amortization and maturity beyond the customary length of time found in the normal marketplace, and other actions intended to minimize economic loss and to provide alternatives to foreclosure or repossession of collateral.
During the first half of 2023, no loans received a material modification based on borrower financial difficulty.
Troubled debt restructurings. Prior to January 1, 2023, a loan modification was deemed to be a TDR when the borrower is determined to be experiencing financial difficulties and ASB grants a concession it would not otherwise consider. With the adoption of ASU No. 2022-02, accounting guidance for TDRs by creditors is eliminated. Loan refinancing and restructuring guidance is applied to determine whether a modification results in a new loan or a continuation of an existing loan. ASB will continue TDR disclosures for years prior to the adoption of ASU No. 2022-02.
The credit risk profile based on loans whose terms have been modified and accruing interest were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
|
|
December 31, 2022 |
| Real estate: |
|
|
|
|
| Residential 1-4 family |
|
|
|
$ |
8,821 |
|
| Commercial real estate |
|
|
|
9,477 |
|
| Home equity line of credit |
|
|
|
4,404 |
|
| Residential land |
|
|
|
782 |
|
| Commercial construction |
|
|
|
— |
|
| Residential construction |
|
|
|
— |
|
| Commercial |
|
|
|
6,596 |
|
| Consumer |
|
|
|
50 |
|
| Total troubled debt restructured loans accruing interest |
|
|
|
$ |
30,130 |
|
Loans modified as a TDR. Loan modifications that occurred during the three and six months ended June 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2022 |
|
Six months ended June 30, 2022 |
| (dollars in thousands) |
|
Number
of contracts |
|
Outstanding
recorded
investment
(as of period end)1
|
|
Related allowance
(as of period end)
|
|
Number
of contracts |
|
Outstanding recorded
investment
(as of period end)1
|
|
Related allowance
(as of period end)
|
| Troubled debt restructurings |
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
1 |
|
|
$ |
381 |
|
|
$ |
135 |
|
|
1 |
|
|
$ |
381 |
|
|
$ |
135 |
|
| Commercial real estate |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Home equity line of credit |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Residential land |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Commercial construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Residential construction |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Commercial |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Consumer |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
1 |
|
|
$ |
381 |
|
|
$ |
135 |
|
|
1 |
|
|
$ |
381 |
|
|
$ |
135 |
|
1 The period end balances reflect all paydowns and charge-offs since the modification period. TDRs fully paid off, charged-off, or foreclosed upon by period end are not included.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
There were no loans modified in TDRs that experienced a payment default of 90 days or more during the second quarter and first six months of 2022.
If a loan modified in a TDR subsequently defaults, ASB evaluates the loan for further impairment. Based on its evaluation, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan. Commitments to lend additional funds to borrowers whose loan terms have been modified in a TDR totaled nil at December 31, 2022.
Collateral-dependent loans. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment of the loan is expected to be provided substantially through the operation or sale of the collateral. Loans considered collateral-dependent were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost |
|
|
| (in thousands) |
|
June 30, 2023 |
|
December 31, 2022 |
|
Collateral type |
| Real estate: |
|
|
|
|
|
|
| Residential 1-4 family |
|
$ |
2,712 |
|
|
$ |
3,959 |
|
|
Residential real estate property |
|
|
|
|
|
|
|
| Home equity line of credit |
|
740 |
|
|
1,425 |
|
|
Residential real estate property |
|
|
|
|
|
|
|
| Total real estate |
|
3,452 |
|
|
5,384 |
|
|
|
| Commercial |
|
380 |
|
|
— |
|
|
Business assets |
| Total |
|
$ |
3,832 |
|
|
$ |
5,384 |
|
|
|
ASB had $3.3 million and $4.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure at June 30, 2023 and December 31, 2022, respectively.
Mortgage servicing rights (MSRs). In its mortgage banking business, ASB sells residential mortgage loans to government-sponsored entities and other parties, who may issue securities backed by pools of such loans. ASB retains no beneficial interests in these loans other than the servicing rights of certain loans sold.
ASB received proceeds from the sale of residential mortgages of $8.9 million and $38.7 million for the three months ended June 30, 2023 and 2022, respectively, and recognized gains on such sales of $0.3 million for the three months ended June 30, 2023 and 2022. ASB received proceeds from the sale of residential mortgages of $14.6 million and $114.3 million for the six months ended June 30, 2023 and 2022, respectively, and recognized gains on such sales of $0.4 million and $1.4 million for the six months ended June 30, 2023 and 2022, respectively.
There were no repurchased mortgage loans for the six months ended June 30, 2023 and 2022.
Mortgage servicing fees, a component of other income, net, were $0.9 million for the three months ended June 30, 2023 and 2022 and $1.8 million for the six months ended June 30, 2023 and 2022.
Changes in the carrying value of MSRs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (in thousands) |
|
Gross
carrying amount |
|
Accumulated amortization |
|
Valuation allowance |
|
Net
carrying amount |
| June 30, 2023 |
|
$ |
17,953 |
|
|
$ |
(9,458) |
|
|
$ |
— |
|
|
$ |
8,495 |
|
| December 31, 2022 |
|
19,544 |
|
|
(10,497) |
|
|
— |
|
|
9,047 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
Changes related to MSRs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Mortgage servicing rights |
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
8,745 |
|
|
$ |
10,024 |
|
|
$ |
9,047 |
|
|
$ |
9,950 |
|
| Amount capitalized |
|
84 |
|
|
204 |
|
|
135 |
|
|
923 |
|
| Amortization |
|
(334) |
|
|
(532) |
|
|
(687) |
|
|
(1,177) |
|
| Other-than-temporary impairment |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Carrying amount before valuation allowance |
|
8,495 |
|
|
9,696 |
|
|
8,495 |
|
|
9,696 |
|
| Valuation allowance for mortgage servicing rights |
|
|
|
|
|
|
|
|
| Beginning balance |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Provision |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Other-than-temporary impairment |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Ending balance |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Net carrying value of mortgage servicing rights |
|
$ |
8,495 |
|
|
$ |
9,696 |
|
|
$ |
8,495 |
|
|
$ |
9,696 |
|
ASB capitalizes MSRs acquired upon the sale of mortgage loans with servicing rights retained. On a monthly basis, ASB compares the net carrying value of the MSRs to its fair value to determine if there are any changes to the valuation allowance and/or other-than-temporary impairment for the MSRs.
ASB uses a present value cash flow model to estimate the fair value of MSRs. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the condensed consolidated statements of income. A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable.
Key assumptions used in estimating the fair value of ASB’s MSRs used in the impairment analysis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in thousands) |
|
June 30, 2023 |
|
December 31, 2022 |
| Unpaid principal balance |
|
$ |
1,414,845 |
|
|
$ |
1,451,322 |
|
| Weighted average note rate |
|
3.40 |
% |
|
3.38 |
% |
| Weighted average discount rate |
|
10.00 |
% |
|
10.00 |
% |
| Weighted average prepayment speed |
|
6.28 |
% |
|
6.56 |
% |
The sensitivity analysis of fair value of MSRs to hypothetical adverse changes of 25 and 50 basis points in certain key assumptions was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in thousands) |
|
June 30, 2023 |
|
December 31, 2022 |
| Prepayment rate: |
|
|
|
|
| 25 basis points adverse rate change |
|
$ |
(72) |
|
|
$ |
(92) |
|
| 50 basis points adverse rate change |
|
(169) |
|
|
(214) |
|
| Discount rate: |
|
|
|
|
| 25 basis points adverse rate change |
|
(191) |
|
|
(182) |
|
| 50 basis points adverse rate change |
|
(378) |
|
|
(361) |
|
The effect of a variation in certain assumptions on fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the changes in the fair value of MSRs typically is not linear.
Other borrowings. As of June 30, 2023 and December 31, 2022, ASB had $200.0 million and $414.0 million of FHLB advances outstanding, respectively, and borrowings with the Federal Reserve Bank of $550.0 million and nil, respectively. As of June 30, 2023, ASB was in compliance with all FHLB Advances, Pledge and Security Agreement requirements and all requirements to borrow at the Federal Reserve Discount Window Primary Credit Facility under 12 CFR 201.4(a) guidelines.
Securities sold under agreements to repurchase are accounted for as financing transactions and the obligations to repurchase these securities are recorded as liabilities in the condensed consolidated balance sheets. ASB pledges investment securities as collateral for securities sold under agreements to repurchase.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
All such agreements are subject to master netting arrangements, which provide for a conditional right of set-off in case of default by either party; however, ASB presents securities sold under agreements to repurchase on a gross basis in the balance sheet. The following tables present information about the securities sold under agreements to repurchase, including the related collateral received from or pledged to counterparties: (in millions) Gross amount of recognized liabilities Gross amount offset in the Balance Sheets Net amount of liabilities presented in the Balance Sheets Repurchase agreements June 30, 2023 $ — $ — $ — December 31, 2022 281 — 281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Gross amount not offset in the Balance Sheets |
| (in millions) |
|
Net amount of liabilities presented
in the Balance Sheets |
|
Financial
instruments |
|
Cash
collateral
pledged |
| Commercial account holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| June 30, 2023 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
281 |
|
|
327 |
|
|
— |
|
|
|
|
|
|
|
|
The securities underlying the agreements to repurchase are book-entry securities and were delivered by appropriate entry into the counterparties’ accounts or into segregated tri-party custodial accounts at the FHLB. The securities underlying the agreements to repurchase continue to be reflected in ASB’s asset accounts.
Derivative financial instruments. ASB enters into interest rate lock commitments (IRLCs) with borrowers, and forward commitments to sell loans or to-be-announced mortgage-backed securities to investors to hedge against the inherent interest rate and pricing risks associated with selling loans.
ASB enters into IRLCs for residential mortgage loans, which commit ASB to lend funds to a potential borrower at a specific interest rate and within a specified period of time. IRLCs that relate to the origination of mortgage loans that will be held for sale are considered derivative financial instruments under applicable accounting guidance. Outstanding IRLCs expose ASB to the risk that the price of the mortgage loans underlying the commitments may decline due to increases in mortgage interest rates from inception of the rate lock to the funding of the loan. The IRLCs are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.
ASB enters into forward commitments to hedge the interest rate risk for rate locked mortgage applications in process and closed mortgage loans held for sale. These commitments are primarily forward sales of to-be-announced mortgage backed securities. Generally, when mortgage loans are closed, the forward commitment is liquidated and replaced with a mandatory delivery forward sale of the mortgage to a secondary market investor. In some cases, a best-efforts forward sale agreement is utilized as the forward commitment. These commitments are free-standing derivatives which are carried at fair value with changes recorded in mortgage banking income.
Changes in the fair value of IRLCs and forward commitments subsequent to inception are based on changes in the fair value of the underlying loan resulting from the fulfillment of the commitment and changes in the probability that the loan will fund within the terms of the commitment, which is affected primarily by changes in interest rates and the passage of time.
The notional amount and fair value of ASB’s derivative financial instruments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 30, 2023 |
|
December 31, 2022 |
| (in thousands) |
|
Notional amount |
|
Fair value |
|
Notional amount |
|
Fair value |
| Interest rate lock commitments |
|
$ |
11,810 |
|
|
$ |
88 |
|
|
$ |
1,720 |
|
|
$ |
9 |
|
| Forward commitments |
|
9,500 |
|
|
51 |
|
|
1,500 |
|
|
18 |
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - continued (Unaudited)
ASB’s derivative financial instruments, their fair values and balance sheet location were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Financial Instruments Not Designated as Hedging Instruments 1 |
|
June 30, 2023 |
|
December 31, 2022 |
| (in thousands) |
|
Asset derivatives |
|
Liability
derivatives |
|
Asset derivatives |
|
Liability
derivatives |
| Interest rate lock commitments |
|
$ |
88 |
|
|
$ |
— |
|
|
$ |
9 |
|
|
$ |
— |
|
| Forward commitments |
|
51 |
|
|
— |
|
|
18 |
|
|
— |
|
| |
|
$ |
139 |
|
|
$ |
— |
|
|
$ |
27 |
|
|
$ |
— |
|
1 Asset derivatives are included in other assets and liability derivatives are included in other liabilities in the balance sheets.
The following table presents ASB’s derivative financial instruments and the amount and location of the net gains or losses recognized in ASB’s statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative Financial Instruments Not Designated as Hedging Instruments |
|
Location of net gains (losses) recognized in the Statements of Income |
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in thousands) |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Interest rate lock commitments |
|
Mortgage banking income |
|
$ |
62 |
|
|
$ |
62 |
|
|
$ |
79 |
|
|
$ |
(593) |
|
| Forward commitments |
|
Mortgage banking income |
|
46 |
|
|
(141) |
|
|
33 |
|
|
37 |
|
| |
|
|
|
$ |
108 |
|
|
$ |
(79) |
|
|
$ |
112 |
|
|
$ |
(556) |
|
Low-Income Housing Tax Credit (LIHTC). ASB’s unfunded commitments to fund its LIHTC investment partnerships were $77.1 million and $70.1 million at June 30, 2023 and December 31, 2022, respectively. These unfunded commitments were unconditional and legally binding and are recorded in other liabilities with a corresponding increase in other assets. As of June 30, 2023, ASB did not have any impairment losses resulting from forfeiture or ineligibility of tax credits or other circumstances related to its LIHTC investment partnerships.
Note 5 · Credit agreements and changes in debt
On May 14, 2021, HEI and Hawaiian Electric each entered into a separate agreement with a syndicate of nine financial institutions (the HEI Facility and Hawaiian Electric Facility, respectively, and together, the Credit Facilities) to amend and restate their respective previously existing revolving unsecured credit agreements. The $175 million HEI Facility’s initial termination date was May 14, 2026. The $200 million Hawaiian Electric Facility’s initial termination date was May 13, 2022, but on February 18, 2022, the PUC approved Hawaiian Electric’s request to extend the term of the $200 million Hawaiian Electric Facility to May 14, 2026. In addition to extending the term, Hawaiian Electric also received PUC approval to exercise its options of 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.
On April 21, 2023, HEI and Hawaiian Electric executed Amendment No. 1 to the Credit Facilities (Amendment). The Amendment was executed to reflect the transition from the London Inter-Bank Offered Rate (LIBOR) to the Term Secured Overnight Financing Rate (SOFR) as the benchmark interest rate for non-Alternate Base Rate (ABR) Loans under the Credit Facilities.
On May 14, 2023, HEI and Hawaiian Electric exercised their first of two, one-year extensions to the commitment termination date with eight financial institutions to extend the Credit Facilities to May 14, 2027. The committed capacities under the HEI Facility and Hawaiian Electric Facility are $175 million and $200 million, respectively, through May 14, 2026, and step down to approximately $157 million and $180 million, respectively, through May 14, 2027.
None of the facilities are collateralized. As of June 30, 2023 and December 31, 2022, no amounts were outstanding under the Credit Facilities.
The Credit Facilities will be maintained to support each company’s respective short-term commercial paper program, but may be drawn on to meet each company’s respective working capital needs and general corporate purposes.
Changes in debt.
HEI private placement. On March 16, 2023, HEI entered into a note purchase agreement (HEI NPA) under which HEI has authorized the issue and sale of $100 million of unsecured senior notes that were drawn on May 30, 2023. The proceeds of the notes were used to repay the $100 million term loan facility on May 31, 2023. The terms of the notes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEI Series 2023A |
|
HEI Series 2023B |
Aggregate principal amount |
|
$39 million |
|
$61 million |
Fixed coupon interest rate |
|
6.04% |
|
6.10% |
| Maturity date |
|
6/15/2028 |
|
6/15/2033 |
|
|
|
|
|
Interest on the notes is paid semiannually on June 15th and December 15th. The HEI NPA contains certain restrictive financial covenants that are substantially the same as the financial covenants contained in HEI’s revolving unsecured credit facility, as amended. The HEI notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount, together with interest accrued to the date of prepayment plus a “Make-Whole Amount,” as defined in the agreements.
HEI term loan. On October 20, 2022, HEI entered into a term loan facility in the aggregate principal amount of $100 million. On December 28, 2022, HEI drew $35 million on the term loan, and on March 31, 2023, HEI drew the remaining $65 million at an initial interest rate of 5.81% for an initial one month interest period. On May 31, 2023, HEI fully repaid the term loan facility at which time it was terminated. Borrowings under the facility bore interest at Term Secured Overnight Financing Rate (SOFR), as defined in the agreement, plus an applicable margin and a SOFR spread adjustment. The term loan facility contained certain restrictive financial covenants that were substantially the same as the financial covenants contained in the HEI Facility.
Utilities private placement. On January 10, 2023, the Utilities executed through a private placement pursuant to separate Note Purchase Agreements (the NPAs), the following unsecured senior notes bearing taxable interest (2023 Notes). The 2023 Notes had a delayed draw feature and the Utilities drew down all the proceeds on February 9, 2023.
|
|
|
|
|
|
|
|
|
|
|
|
|
Series 2023A |
Series 2023B |
Series 2023C |
| Aggregate principal amount |
$90 million |
$40 million |
$20 million |
| Fixed coupon interest rate |
|
|
|
| Hawaiian Electric |
6.11% |
6.25% |
6.70% |
| Hawaii Electric Light |
6.25% |
— |
— |
| Maui Electric |
6.25% |
— |
— |
| Maturity date |
|
|
|
| Hawaiian Electric |
2/9/2030 |
2/9/2033 |
2/9/2053 |
| Hawaii Electric Light |
2/9/2033 |
— |
— |
| Maui Electric |
2/9/2033 |
— |
— |
| Principal amount by company |
|
|
|
| Hawaiian Electric |
$40 million |
$40 million |
$20 million |
| Hawaii Electric Light |
$25 million |
— |
— |
| Maui Electric |
$25 million |
— |
— |
The 2023 Notes include substantially the same financial covenants and customary conditions as Hawaiian Electric’s credit agreement. Hawaiian Electric is also a party as guarantor under the NPAs entered into by Hawaii Electric Light and Maui Electric. The Utilities did not obtain any of the proceeds at execution and instead drew down all the proceeds on February 9, 2023. The proceeds were used to finance their respective capital expenditures, repay short-term debt used to finance or refinance capital expenditures and/or reimburse funds used for the payment of capital expenditures. The 2023 Notes may be prepaid in whole or in part at any time at the prepayment price of the principal amount plus a “Make-Whole Amount” as defined in the NPAs.
Note 6 · Shareholders' equity
Accumulated other comprehensive income/(loss). Changes in the balances of each component of accumulated other comprehensive income/(loss) (AOCI) were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEI Consolidated |
|
|
|
Hawaiian Electric Consolidated |
|
|
| (in thousands) |
Net unrealized gains (losses) on securities |
|
Unrealized gains (losses) on derivatives |
|
Retirement benefit plans |
|
AOCI |
|
|
|
AOCI-Retirement benefit plans |
|
|
| Balance, December 31, 2022 |
$ |
(328,904) |
|
|
$ |
1,991 |
|
|
$ |
(9,115) |
|
|
$ |
(336,028) |
|
|
|
|
$ |
2,861 |
|
|
|
| Current period other comprehensive income (loss) |
12,987 |
|
|
(245) |
|
|
137 |
|
|
12,879 |
|
|
|
|
(89) |
|
|
|
| Balance, June 30, 2023 |
$ |
(315,917) |
|
|
$ |
1,746 |
|
|
$ |
(8,978) |
|
|
$ |
(323,149) |
|
|
|
|
$ |
2,772 |
|
|
|
| Balance, December 31, 2021 |
$ |
(32,037) |
|
|
$ |
(3,638) |
|
|
$ |
(16,858) |
|
|
$ |
(52,533) |
|
|
|
|
$ |
(3,280) |
|
|
|
| Current period other comprehensive income (loss) |
(209,264) |
|
|
3,911 |
|
|
354 |
|
|
(204,999) |
|
|
|
|
102 |
|
|
|
| Balance, June 30, 2022 |
$ |
(241,301) |
|
|
$ |
273 |
|
|
$ |
(16,504) |
|
|
$ |
(257,532) |
|
|
|
|
$ |
(3,178) |
|
|
|
Reclassifications out of AOCI were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amount reclassified from AOCI |
|
Affected line item in the
Statements of Income / Balance Sheets |
|
|
Three months ended June 30 |
|
Six months ended June 30 |
|
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
| HEI consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net unrealized gains (losses) on available-for sale investment securities - amortization of unrealized holding losses on held-to-maturity securities |
|
$ |
3,689 |
|
|
$ |
— |
|
|
$ |
7,366 |
|
|
$ |
— |
|
|
Bank revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net realized losses (gains) on derivatives qualifying as cash flow hedges |
|
(48) |
|
|
53 |
|
|
(96) |
|
|
108 |
|
|
Interest expense |
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
| Amortization of prior service credit and net losses (gains) recognized during the period in net periodic benefit cost |
|
(357) |
|
|
122 |
|
|
(714) |
|
|
4,623 |
|
|
See Note 8 for additional details |
| Impact of D&Os of the PUC included in regulatory assets |
|
426 |
|
|
56 |
|
|
851 |
|
|
(4,269) |
|
|
See Note 8 for additional details |
| Total reclassifications |
|
$ |
3,710 |
|
|
$ |
231 |
|
|
$ |
7,407 |
|
|
$ |
462 |
|
|
|
| Hawaiian Electric consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Retirement benefit plans: |
|
|
|
|
|
|
|
|
|
|
| Amortization of prior service credit and net losses (gains) recognized during the period in net periodic benefit cost |
|
$ |
(470) |
|
|
$ |
(5) |
|
|
$ |
(940) |
|
|
$ |
4,371 |
|
|
See Note 8 for additional details |
| Impact of D&Os of the PUC included in regulatory assets |
|
426 |
|
|
56 |
|
|
851 |
|
|
(4,269) |
|
|
See Note 8 for additional details |
| Total reclassifications |
|
$ |
(44) |
|
|
$ |
51 |
|
|
$ |
(89) |
|
|
$ |
102 |
|
|
|
Note 7 · Revenues
Revenue from contracts with customers. The following tables disaggregate revenues by major source, timing of revenue recognition, and segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2023 |
|
Six months ended June 30, 2023 |
| (in thousands) |
|
Electric utility |
|
Bank |
|
Other |
|
Total |
|
Electric utility |
|
Bank |
|
Other |
|
Total |
| Revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric energy sales - residential |
|
$ |
239,867 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
239,867 |
|
|
$ |
495,417 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
495,417 |
|
Electric energy sales - commercial |
|
250,108 |
|
|
— |
|
|
— |
|
|
250,108 |
|
|
504,578 |
|
|
— |
|
|
— |
|
|
504,578 |
|
Electric energy sales - large light and power |
|
279,811 |
|
|
— |
|
|
— |
|
|
279,811 |
|
|
570,789 |
|
|
— |
|
|
— |
|
|
570,789 |
|
| Electric energy sales - other |
|
4,483 |
|
|
— |
|
|
— |
|
|
4,483 |
|
|
9,940 |
|
|
— |
|
|
— |
|
|
9,940 |
|
| Bank fees |
|
— |
|
|
12,281 |
|
|
— |
|
|
12,281 |
|
|
— |
|
|
24,303 |
|
|
— |
|
|
24,303 |
|
| Other sales |
|
— |
|
|
— |
|
|
4,438 |
|
|
4,438 |
|
|
— |
|
|
— |
|
|
8,345 |
|
|
8,345 |
|
| Total revenues from contracts with customers |
|
774,269 |
|
|
12,281 |
|
|
4,438 |
|
|
790,988 |
|
|
1,580,724 |
|
|
24,303 |
|
|
8,345 |
|
|
1,613,372 |
|
| Revenues from other sources |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Regulatory revenue |
|
9,039 |
|
|
— |
|
|
— |
|
|
9,039 |
|
|
24,643 |
|
|
— |
|
|
— |
|
|
24,643 |
|
Bank interest and dividend income |
|
— |
|
|
81,741 |
|
|
— |
|
|
81,741 |
|
|
— |
|
|
161,220 |
|
|
— |
|
|
161,220 |
|
| Other bank noninterest income |
|
— |
|
|
2,863 |
|
|
— |
|
|
2,863 |
|
|
— |
|
|
5,219 |
|
|
— |
|
|
5,219 |
|
| Other |
|
10,883 |
|
|
— |
|
|
171 |
|
|
11,054 |
|
|
19,185 |
|
|
— |
|
|
283 |
|
|
19,468 |
|
| Total revenues from other sources |
|
19,922 |
|
|
84,604 |
|
|
171 |
|
|
104,697 |
|
|
43,828 |
|
|
166,439 |
|
|
283 |
|
|
210,550 |
|
| Total revenues |
|
$ |
794,191 |
|
|
$ |
96,885 |
|
|
$ |
4,609 |
|
|
$ |
895,685 |
|
|
$ |
1,624,552 |
|
|
$ |
190,742 |
|
|
$ |
8,628 |
|
|
$ |
1,823,922 |
|
| Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services/goods transferred at a point in time |
|
$ |
— |
|
|
$ |
12,281 |
|
|
$ |
— |
|
|
$ |
12,281 |
|
|
$ |
— |
|
|
$ |
24,303 |
|
|
$ |
— |
|
|
$ |
24,303 |
|
Services/goods transferred over time |
|
774,269 |
|
|
— |
|
|
4,438 |
|
|
778,707 |
|
|
1,580,724 |
|
|
— |
|
|
8,345 |
|
|
1,589,069 |
|
| Total revenues from contracts with customers |
|
$ |
774,269 |
|
|
$ |
12,281 |
|
|
$ |
4,438 |
|
|
$ |
790,988 |
|
|
$ |
1,580,724 |
|
|
$ |
24,303 |
|
|
$ |
8,345 |
|
|
$ |
1,613,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2022 |
|
Six months ended June 30, 2022 |
| (in thousands) |
|
Electric utility |
|
Bank |
|
Other |
|
Total |
|
Electric utility |
|
Bank |
|
Other |
|
Total |
| Revenues from contracts with customers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electric energy sales - residential |
|
$ |
259,433 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
259,433 |
|
|
$ |
484,007 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
484,007 |
|
Electric energy sales - commercial |
|
264,701 |
|
|
— |
|
|
— |
|
|
264,701 |
|
|
484,298 |
|
|
— |
|
|
— |
|
|
484,298 |
|
Electric energy sales - large light and power |
|
293,847 |
|
|
— |
|
|
— |
|
|
293,847 |
|
|
534,970 |
|
|
— |
|
|
— |
|
|
534,970 |
|
| Electric energy sales - other |
|
4,873 |
|
|
— |
|
|
— |
|
|
4,873 |
|
|
6,299 |
|
|
— |
|
|
— |
|
|
6,299 |
|
| Bank fees |
|
— |
|
|
11,797 |
|
|
— |
|
|
11,797 |
|
|
— |
|
|
24,793 |
|
|
— |
|
|
24,793 |
|
| Other sales |
|
— |
|
|
— |
|
|
1,333 |
|
|
1,333 |
|
|
— |
|
|
— |
|
|
2,448 |
|
|
2,448 |
|
| Total revenues from contracts with customers |
|
822,854 |
|
|
11,797 |
|
|
1,333 |
|
|
835,984 |
|
|
1,509,574 |
|
|
24,793 |
|
|
2,448 |
|
|
1,536,815 |
|
| Revenues from other sources |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Regulatory revenue |
|
(11,428) |
|
|
— |
|
|
— |
|
|
(11,428) |
|
|
1,458 |
|
|
— |
|
|
— |
|
|
1,458 |
|
Bank interest and dividend income |
|
— |
|
|
62,822 |
|
|
— |
|
|
62,822 |
|
|
— |
|
|
122,811 |
|
|
— |
|
|
122,811 |
|
| Other bank noninterest income |
|
— |
|
|
705 |
|
|
— |
|
|
705 |
|
|
— |
|
|
2,835 |
|
|
— |
|
|
2,835 |
|
| Other |
|
7,447 |
|
|
— |
|
|
77 |
|
|
7,524 |
|
|
16,633 |
|
|
— |
|
|
123 |
|
|
16,756 |
|
| Total revenues from other sources |
|
(3,981) |
|
|
63,527 |
|
|
77 |
|
|
59,623 |
|
|
18,091 |
|
|
125,646 |
|
|
123 |
|
|
143,860 |
|
| Total revenues |
|
$ |
818,873 |
|
|
$ |
75,324 |
|
|
$ |
1,410 |
|
|
$ |
895,607 |
|
|
$ |
1,527,665 |
|
|
$ |
150,439 |
|
|
$ |
2,571 |
|
|
$ |
1,680,675 |
|
| Timing of revenue recognition |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services/goods transferred at a point in time |
|
$ |
— |
|
|
$ |
11,797 |
|
|
$ |
— |
|
|
$ |
11,797 |
|
|
$ |
— |
|
|
$ |
24,793 |
|
|
$ |
— |
|
|
$ |
24,793 |
|
Services/goods transferred over time |
|
822,854 |
|
|
— |
|
|
1,333 |
|
|
824,187 |
|
|
1,509,574 |
|
|
— |
|
|
2,448 |
|
|
1,512,022 |
|
| Total revenues from contracts with customers |
|
$ |
822,854 |
|
|
$ |
11,797 |
|
|
$ |
1,333 |
|
|
$ |
835,984 |
|
|
$ |
1,509,574 |
|
|
$ |
24,793 |
|
|
$ |
2,448 |
|
|
$ |
1,536,815 |
|
There are no material contract assets or liabilities associated with revenues from contracts with customers existing at December 31, 2022 or as of June 30, 2023. Accounts receivable and unbilled revenues related to contracts with customers represent an unconditional right to consideration since all performance obligations have been satisfied. These amounts are disclosed as accounts receivable and unbilled revenues, net on HEI’s condensed consolidated balance sheets and customer accounts receivable, net and accrued unbilled revenues, net on Hawaiian Electric’s condensed consolidated balance sheets.
As of June 30, 2023, the Company had no material remaining performance obligations due to the nature of the Company’s contracts with its customers. For the Utilities, performance obligations are fulfilled as electricity is delivered to customers. For ASB, fees are recognized when a transaction is completed.
Note 8 · Retirement benefits
Defined benefit pension and other postretirement benefit plans information. For the first six months of 2023, the Company contributed $4 million ($4 million by the Utilities) to its pension and other postretirement benefit plans, compared to $21 million ($20 million by the Utilities) in the first six months of 2022. The Company’s current estimate of total contributions to its pension and other postretirement benefit plans in 2023 is $8 million ($8 million by the Utilities), compared to $43 million ($42 million by the Utilities) in 2022. In addition, the Company expects to pay directly $3 million ($1 million by the Utilities) of benefits in 2023, compared to $2 million ($1 million by the Utilities) paid in 2022.
The components of net periodic pension costs (NPPC) and net periodic benefit costs (NPBC) for HEI consolidated and Hawaiian Electric consolidated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| |
|
Pension benefits |
|
Other benefits |
|
Pension benefits |
|
Other benefits |
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| HEI consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service cost |
|
$ |
11,396 |
|
|
$ |
19,823 |
|
|
$ |
343 |
|
|
$ |
657 |
|
|
$ |
22,792 |
|
|
$ |
39,647 |
|
|
$ |
687 |
|
|
$ |
1,313 |
|
| Interest cost |
|
25,622 |
|
|
19,810 |
|
|
2,157 |
|
|
1,638 |
|
|
51,243 |
|
|
39,621 |
|
|
4,314 |
|
|
3,275 |
|
| Expected return on plan assets |
|
(35,197) |
|
|
(35,331) |
|
|
(3,405) |
|
|
(3,398) |
|
|
(70,392) |
|
|
(70,664) |
|
|
(6,810) |
|
|
(6,795) |
|
| Amortization of net prior period gain |
|
— |
|
|
— |
|
|
(219) |
|
|
(232) |
|
|
— |
|
|
— |
|
|
(438) |
|
|
(464) |
|
| Amortization of net actuarial (gain)/losses |
|
189 |
|
|
6,297 |
|
|
(449) |
|
|
(3) |
|
|
377 |
|
|
12,594 |
|
|
(898) |
|
|
(6) |
|
Net periodic pension/benefit cost (return) |
|
2,010 |
|
|
10,599 |
|
|
(1,573) |
|
|
(1,338) |
|
|
4,020 |
|
|
21,198 |
|
|
(3,145) |
|
|
(2,677) |
|
| Impact of PUC D&Os |
|
18,133 |
|
|
9,552 |
|
|
1,424 |
|
|
1,217 |
|
|
36,266 |
|
|
19,103 |
|
|
2,849 |
|
|
2,436 |
|
| Net periodic pension/benefit cost (return) (adjusted for impact of PUC D&Os) |
|
$ |
20,143 |
|
|
$ |
20,151 |
|
|
$ |
(149) |
|
|
$ |
(121) |
|
|
$ |
40,286 |
|
|
$ |
40,301 |
|
|
$ |
(296) |
|
|
$ |
(241) |
|
| Hawaiian Electric consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Service cost |
|
$ |
11,018 |
|
|
$ |
19,317 |
|
|
$ |
340 |
|
|
$ |
649 |
|
|
$ |
22,037 |
|
|
$ |
38,635 |
|
|
$ |
680 |
|
|
$ |
1,298 |
|
| Interest cost |
|
23,699 |
|
|
18,461 |
|
|
2,063 |
|
|
1,572 |
|
|
47,397 |
|
|
36,923 |
|
|
4,126 |
|
|
3,145 |
|
| Expected return on plan assets |
|
(32,971) |
|
|
(33,545) |
|
|
(3,354) |
|
|
(3,345) |
|
|
(65,943) |
|
|
(67,091) |
|
|
(6,707) |
|
|
(6,692) |
|
| Amortization of net prior period gain |
|
— |
|
|
— |
|
|
(218) |
|
|
(231) |
|
|
— |
|
|
— |
|
|
(436) |
|
|
(462) |
|
| Amortization of net actuarial (gain)/losses |
|
18 |
|
|
6,125 |
|
|
(433) |
|
|
— |
|
|
37 |
|
|
12,250 |
|
|
(867) |
|
|
— |
|
Net periodic pension/benefit cost (return) |
|
1,764 |
|
|
10,358 |
|
|
(1,602) |
|
|
(1,355) |
|
|
3,528 |
|
|
20,717 |
|
|
(3,204) |
|
|
(2,711) |
|
| Impact of PUC D&Os |
|
18,133 |
|
|
9,552 |
|
|
1,424 |
|
|
1,217 |
|
|
36,266 |
|
|
19,103 |
|
|
2,849 |
|
|
2,436 |
|
| Net periodic pension/benefit cost (return) (adjusted for impact of PUC D&Os) |
|
$ |
19,897 |
|
|
$ |
19,910 |
|
|
$ |
(178) |
|
|
$ |
(138) |
|
|
$ |
39,794 |
|
|
$ |
39,820 |
|
|
$ |
(355) |
|
|
$ |
(275) |
|
HEI consolidated recorded retirement benefits expense of $22 million ($22 million by the Utilities) in the first six months of 2023 and $24 million ($23 million by the Utilities) in the first six months of 2022 and charged the remaining net periodic benefit cost primarily to electric utility plant.
The Utilities have implemented pension and OPEB tracking mechanisms under which all of their retirement benefit expenses (except for executive life and nonqualified pension plan expenses) determined in accordance with GAAP are recovered over time. Under the tracking mechanisms, any actual costs determined in accordance with GAAP that are over/under amounts allowed in rates are charged/credited to a regulatory asset/liability. The regulatory asset/liability for each utility will then be amortized over five years beginning with the respective utility’s next rate case.
Defined contribution plans information. For the first six months of 2023 and 2022, the Company’s expenses for its defined contribution plans under the Hawaiian Electric Industries Retirement Savings Plan (HEIRSP) and the ASB 401(k) Plan were $4.2 million and $4.1 million, respectively, and cash contributions were $5.0 million and $3.5 million, respectively. For the first six months of 2023 and 2022, the Utilities’ expenses and cash contributions for its defined contribution plan under the HEIRSP were $2.6 million and $1.8 million, respectively.
Note 9 · Share-based compensation
Under the 2010 Equity and Incentive Plan, as amended and restated effective March 1, 2014 (EIP), HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The original 2010 Equity and Incentive Plan was amended and restated effective March 1, 2014 and an additional 1.5 million shares were added to the shares available for issuance under these programs.
As of June 30, 2023, approximately 2.7 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy statutory tax liabilities relating to EIP awards, including an estimated 0.7 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).
Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of June 30, 2023, there were 168,177 shares remaining available for future issuance under the 2011 Director Plan.
Share-based compensation expense and the related income tax benefit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30 |
|
Six months ended June 30 |
| (in millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| HEI consolidated |
|
|
|
|
|
|
|
|
Share-based compensation expense 1 |
|
$ |
3.9 |
|
|
$ |
3.5 |
|
|
$ |
5.9 |
|
|
$ |
5.6 |
|
| Income tax benefit |
|
0.8 |
|
|
0.8 |
|
|
1.1 |
|
|
1.1 |
|
| Hawaiian Electric consolidated |
|
|
|
|
|
|
|
|
Share-based compensation expense 1 |
|
1.1 |
|
|
1.0 |
|
|
1.7 |
|
|
1.6 |
|
| Income tax benefit |
|
0.2 |
|
|
0.3 |
|
|
0.4 |
|
|
0.4 |
|
1 For the three and six months ended June 30, 2023 and 2022, the Company has not capitalized any share-based compensation.
Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| (dollars in millions) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Shares granted |
|
38,941 |
|
|
34,755 |
|
|
40,450 |
|
|
34,755 |
|
| Fair value |
|
$ |
1.4 |
|
|
$ |
1.4 |
|
|
$ |
1.5 |
|
|
$ |
1.4 |
|
| Income tax benefit |
|
0.4 |
|
|
0.4 |
|
|
0.4 |
|
|
0.4 |
|
The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI common stock on the grant date.
Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
| Outstanding, beginning of period |
202,133 |
|
|
$ |
41.25 |
|
|
208,345 |
|
|
$ |
39.71 |
|
|
182,528 |
|
|
$ |
39.75 |
|
|
233,448 |
|
|
$ |
38.10 |
|
| Granted |
— |
|
|
— |
|
|
2,008 |
|
|
42.15 |
|
|
100,088 |
|
|
42.41 |
|
|
98,463 |
|
|
41.31 |
|
| Vested |
(1,035) |
|
|
44.31 |
|
|
(1,034) |
|
|
44.31 |
|
|
(81,112) |
|
|
39.37 |
|
|
(91,414) |
|
|
37.65 |
|
| Forfeited |
(1,968) |
|
|
42.49 |
|
|
(366) |
|
|
38.07 |
|
|
(2,374) |
|
|
41.79 |
|
|
(31,544) |
|
|
38.77 |
|
| Outstanding, end of period |
199,130 |
|
|
$ |
41.22 |
|
|
208,953 |
|
|
$ |
39.71 |
|
|
199,130 |
|
|
$ |
41.22 |
|
|
208,953 |
|
|
$ |
39.71 |
|
| Total weighted-average grant-date fair value of shares granted (in millions) |
$ |
— |
|
|
|
|
$ |
0.1 |
|
|
|
|
$ |
4.2 |
|
|
|
|
$ |
4.1 |
|
|
|
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For the six months ended June 30, 2023 and 2022, total restricted stock units and related dividends that vested had a fair value of $3.7 million and $4.0 million, respectively, and the related tax benefits were $0.8 million and $0.6 million, respectively.
As of June 30, 2023, there was $6.5 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.0 years.
Long-term incentive plan payable in stock. The 2021-23, 2022-24 and 2023-25 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Peer Group (Edison Electric Institute Index (EEI Index) for the 2021-23 and 2022-24 performance periods, and compared to the Company's compensation peer group consisting of companies in the EEI Index and approved by the Company's Compensation and Human Capital Management Committee for the 2023-25 performance period), in each case over the relevant three-year period. The other performance condition goals relate to EPS growth, cumulative EPS, return on average common equity (ROACE), renewable portfolio standards, carbon emissions reduction, Hawaiian Electric’s net income growth, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth and return on average invested capital.
LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows:
|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
| Outstanding, beginning of period |
80,006 |
|
|
$ |
50.27 |
|
|
76,340 |
|
|
$ |
47.70 |
|
|
71,574 |
|
|
$ |
47.67 |
|
|
90,974 |
|
|
$ |
42.86 |
|
| Granted |
— |
|
|
— |
|
|
390 |
|
|
54.92 |
|
|
27,123 |
|
|
55.98 |
|
|
26,469 |
|
|
54.92 |
|
| Vested (issued or unissued and cancelled) |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(18,691) |
|
|
48.62 |
|
|
(29,042) |
|
|
41.07 |
|
| Forfeited |
(722) |
|
|
48.92 |
|
|
— |
|
|
— |
|
|
(722) |
|
|
48.92 |
|
|
(11,671) |
|
|
42.60 |
|
| Outstanding, end of period |
79,284 |
|
|
$ |
50.28 |
|
|
76,730 |
|
|
$ |
47.74 |
|
|
79,284 |
|
|
$ |
50.28 |
|
|
76,730 |
|
|
$ |
47.74 |
|
| Total weighted-average grant-date fair value of shares granted (in millions) |
$ |
— |
|
|
|
|
$ |
— |
|
|
|
|
$ |
1.5 |
|
|
|
|
$ |
1.5 |
|
|
|
(1) Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.
The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and the Peer Group for the period from the beginning of the performance period to the grant date and estimated future stock volatility of HEI and the Peer Group over the remaining three-year performance period. The expected stock volatility assumptions for HEI and the Peer Group were based on the three-year historic stock volatility. A dividend assumption is not required for the Monte Carlo simulation because the grant payout includes dividend equivalents and projected returns include the value of reinvested dividends.
The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2023 |
|
2022 |
| Risk-free interest rate |
|
4.19 |
% |
|
1.71 |
% |
| Expected life in years |
|
3 |
|
3 |
| Expected volatility |
|
33.1 |
% |
|
31.0 |
% |
| Range of expected volatility for Peer Group |
|
28.7% to 38.8% |
|
25.4% to 76.7% |
| Grant date fair value (per share) |
|
$55.98 |
|
$54.92 |
There were no share-based LTIP awards linked to TSR with a vesting date in 2023. For the six months ended June 30, 2022, total vested LTIP awards linked to TSR and related dividends had a fair value of $0.8 million and the related tax benefits were $0.1 million.
As of June 30, 2023, there was $2.1 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of 1.5 years.
LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| |
Shares |
|
(1) |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
|
Shares |
|
(1) |
| Outstanding, beginning of period |
355,310 |
|
|
$ |
38.87 |
|
|
292,151 |
|
|
$ |
39.89 |
|
|
309,589 |
|
|
$ |
39.50 |
|
|
306,342 |
|
|
$ |
38.42 |
|
| Granted |
— |
|
|
— |
|
|
1,560 |
|
|
42.37 |
|
|
108,499 |
|
|
42.41 |
|
|
105,860 |
|
|
41.31 |
|
| Vested |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(62,778) |
|
|
48.07 |
|
|
(71,807) |
|
|
37.68 |
|
| Increase above target |
6,001 |
|
|
36.08 |
|
|
— |
|
|
— |
|
|
6,001 |
|
|
36.08 |
|
|
— |
|
|
— |
|
| Forfeited |
(3,834) |
|
|
43.53 |
|
|
— |
|
|
— |
|
|
(3,834) |
|
|
43.53 |
|
|
(46,684) |
|
|
36.77 |
|
| Outstanding, end of period |
357,477 |
|
|
$ |
38.78 |
|
|
293,711 |
|
|
$ |
39.91 |
|
|
357,477 |
|
|
$ |
38.78 |
|
|
293,711 |
|
|
$ |
39.91 |
|
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions) |
$ |
— |
|
|
|
|
$ |
0.1 |
|
|
|
|
$ |
4.6 |
|
|
|
|
$ |
4.4 |
|
|
|
(1) Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.
For the six months ended June 30, 2023 and 2022, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $2.9 million and $3.2 million, respectively, and the related tax benefits were $0.6 million and $0.4 million, respectively.
As of June 30, 2023, there was $6.5 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 1.4 years.
Note 10 · Income taxes
The Company’s and the Utilities’ effective tax rates (combined federal and state income tax rates) for the six months ended June 30, 2023 were 21% and 22%, respectively. These rates differed from the combined statutory rates, due primarily to the Utilities’ amortization of excess deferred income taxes related to the provision in the 2017 Tax Cuts and Jobs Act that lowered the federal income tax rate from 35% to 21% and the tax benefits derived from the low income housing tax credit investments.
In August 2020, the Internal Revenue Service notified the Company that its 2017 and 2018 income tax returns would be examined. The Company was previously audited every year through 2011, at which time the IRS changed their internal policies regarding audit frequency. The audit is still in progress. The Company has not been notified of any material audit adjustments to date.
The Inflation Reduction Act of 2022 (IRA) was signed by President Biden on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax (CAMT) imposed on certain large corporations and a 1% excise tax on stock repurchases after December 31, 2022. Based on current interpretation of the law and current guidance available we do not believe HEI will be impacted by the CAMT or stock repurchase excise tax provisions.
The IRA also creates new tax credits and enhances others to stimulate investment in renewable energy sources. Certain provisions of the IRA became effective beginning tax year 2023. The Company continues to monitor guidance and assess related tax planning opportunities.
Note 11 · Cash flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30 |
|
2023 |
|
2022 |
| (in millions) |
|
|
|
|
| Supplemental disclosures of cash flow information |
|
|
|
|
| HEI consolidated |
|
|
|
|
| Interest paid to non-affiliates, net of amounts capitalized |
|
$ |
75 |
|
|
$ |
47 |
|
| Income taxes paid (including refundable credits) |
|
28 |
|
|
14 |
|
| Income taxes refunded (including refundable credits) |
|
1 |
|
|
2 |
|
| Hawaiian Electric consolidated |
|
|
|
|
| Interest paid to non-affiliates |
|
33 |
|
|
34 |
|
| Income taxes paid (including refundable credits) |
|
38 |
|
|
27 |
|
| Income taxes refunded (including refundable credits) |
|
2 |
|
|
— |
|
| Supplemental disclosures of noncash activities |
|
|
|
|
| HEI consolidated |
|
|
|
|
| Property, plant and equipment |
|
|
|
|
| Estimated fair value of noncash contributions in aid of construction (investing) |
|
6 |
|
|
1 |
|
| Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) |
|
50 |
|
|
25 |
|
| Increase related to an acquisition (investing) |
|
— |
|
|
15 |
|
| Right-of-use assets obtained in exchange for finance lease obligations (financing) |
|
76 |
|
|
— |
|
|
|
|
|
|
| Right-of-use assets obtained in exchange for operating lease obligations (investing) |
|
1 |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
Common stock issued (gross) for director and executive/management compensation (financing)1 |
|
8 |
|
|
9 |
|
|
|
|
|
|
| Obligations to fund low income housing investments (investing) |
|
7 |
|
|
— |
|
| Loans transferred from held for investment to held for sale (investing) |
|
72 |
|
|
— |
|
|
|
|
|
|
| Transfer of retail repurchase agreements to deposit liabilities (financing) |
|
98 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| Hawaiian Electric consolidated |
|
|
|
|
| Electric utility property, plant and equipment |
|
|
|
|
| Estimated fair value of noncash contributions in aid of construction (investing) |
|
6 |
|
|
1 |
|
| Unpaid invoices and accruals for capital expenditures, balance, end of period (investing) |
|
49 |
|
|
22 |
|
| Increase related to an acquisition (investing) |
|
— |
|
|
15 |
|
| Right-of-use assets obtained in exchange for finance lease obligations (financing) |
|
76 |
|
|
— |
|
|
|
|
|
|
| Right-of-use assets obtained in exchange for operating lease obligations (investing) |
|
— |
|
|
37 |
|
1 The amounts shown represent the market value of common stock issued for director and executive/management compensation and withheld to satisfy statutory tax liabilities.
Note 12 · Fair value measurements
Fair value measurement and disclosure valuation methodology. The following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value:
Short-term borrowings—other than bank. The carrying amount of short-term borrowings approximated fair value because of the short maturity of these instruments.
Investment securities. The fair value of ASB’s investment securities is determined quarterly through pricing obtained from independent third-party pricing services or from brokers not affiliated with the trade. Non-binding broker quotes are infrequent and generally occur for new securities that are settled close to the month-end pricing date. The third-party pricing vendors ASB uses for pricing its securities are reputable firms that provide pricing services on a global basis and have processes in place to ensure quality and control. The third-party pricing services use a variety of methods to determine the fair value of securities that fall under Level 2 of ASB’s fair value measurement hierarchy. Among the considerations are quoted prices for similar securities in an active market, yield spreads for similar trades, adjustments for liquidity, size, collateral characteristics, historic and generic prepayment speeds, and other observable market factors.
To enhance the robustness of the pricing process, ASB will on a quarterly basis compare its standard third-party vendor’s price with that of another third-party vendor. If the prices are within an acceptable tolerance range, the price of the standard vendor will be accepted. If the variance is beyond the tolerance range, an evaluation will be conducted by ASB and a challenge to the price may be made. Fair value in such cases will be based on the value that best reflects the data and observable characteristics of the security. In all cases, the fair value used will have been independently determined by a third-party pricing vendor or non-affiliated broker.
The fair value of the mortgage revenue bonds is estimated using a discounted cash flow model to calculate the present value of future principal and interest payments and, therefore is classified within Level 3 of the valuation hierarchy.
Loans held for sale. Residential and commercial loans are carried at the lower of cost or market and are valued using market observable pricing inputs, which are derived from third party loan sales and, therefore, are classified within Level 2 of the valuation hierarchy.
Loans held for investment. Fair value of loans held for investment is derived using a discounted cash flow approach which includes an evaluation of the underlying loan characteristics. The valuation model uses loan characteristics which includes product type, maturity dates and the underlying interest rate of the portfolio. This information is input into the valuation models along with various forecast valuation assumptions including prepayment forecasts, to determine the discount rate. These assumptions are derived from internal and third party sources. Since the valuation is derived from model-based techniques, ASB includes loans held for investment within Level 3 of the valuation hierarchy.
Collateral dependent loans. Collateral dependent loans have been adjusted to fair value. When a loan is identified as collateral dependent, the Company measures the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals, but in some cases, the value of the collateral may be estimated as having little or no value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. If it is determined that the value of the collateral dependent loan is less than its recorded investment, the Company recognizes this impairment and adjusts the carrying value of the loan to fair value through the allowance for credit losses.
Real estate acquired in settlement of loans. Foreclosed assets are initially measured at fair value (less estimated costs to sell) and subsequently measured at the lower of the carrying value or fair value less selling costs. Fair values are generally based upon appraisals or independent market prices that are periodically updated subsequent to classification as real estate owned. Such adjustments typically result in a Level 3 classification of the inputs for determining fair value. ASB estimates the fair value of collateral-dependent loans and real estate owned using the sales comparison approach.
Mortgage servicing rights. MSRs are capitalized at fair value based on market data at the time of sale and accounted for in subsequent periods at the lower of amortized cost or fair value. MSRs are evaluated for impairment at each reporting date. ASB's MSRs are stratified based on predominant risk characteristics of the underlying loans including loan type and note rate. For each stratum, fair value is calculated by discounting expected net income streams using discount rates that reflect industry pricing for similar assets. Expected net income streams are estimated based on industry assumptions regarding prepayment expectations and income and expenses associated with servicing residential mortgage loans for others. Impairment is recognized through a valuation allowance for each stratum when the carrying amount exceeds fair value, with any associated provision recorded as a component of loan servicing fees included in “Revenues - bank” in the consolidated statements of income.
A direct write-down is recorded when the recoverability of the valuation allowance is deemed to be unrecoverable. ASB compares the fair value of MSRs to an estimated value calculated by an independent third-party. The third-party relies on both published and unpublished sources of market related assumptions and its own experience and expertise to arrive at a value. ASB uses the third-party value only to assess the reasonableness of its own estimate. ASB includes MSRs within Level 3 of the valuation hierarchy.
Time deposits. The fair value of fixed-maturity certificates of deposit was estimated by discounting the future cash flows using the rates currently offered for FHLB advances of similar remaining maturities. Deposit liabilities are classified in Level 2 of the valuation hierarchy.
Other borrowings. For advances and repurchase agreements, fair value is estimated using quantitative discounted cash flow models that require the use of interest rate inputs that are currently offered for advances and repurchase agreements of similar remaining maturities. The majority of market inputs are actively quoted and can be validated through external sources, including broker market transactions and third party pricing services.
Long-term debt—other than bank. Fair value of fixed-rate long-term debt—other than bank was obtained from third-party financial services providers based on the current rates offered for debt of the same or similar remaining maturities and from discounting the future cash flows using the current rates offered for debt of the same or similar risks, terms, and remaining maturities. The carrying amount of floating rate long-term debt—other than bank approximated fair value because of the short-term interest reset periods. Long-term debt—other than bank is classified in Level 2 of the valuation hierarchy.
Interest rate lock commitments (IRLCs). The estimated fair value of commitments to originate residential mortgage loans for sale is based on quoted prices for similar loans in active markets. IRLCs are classified as Level 2 measurements.
Forward sales commitments. To be announced (TBA) mortgage-backed securities forward commitments are classified as Level 1, and consist of publicly-traded debt securities for which identical fair values can be obtained through quoted market prices in active exchange markets. The fair values of ASB’s best efforts and mandatory delivery loan sale commitments are determined using quoted prices in the market place that are observable and are classified as Level 2 measurements.
Interest rate swaps. The Company measures its interest rate swaps at fair value. The fair values of the Company's interest rate swaps are based on the estimated amounts that the Company would receive or pay to terminate the contracts at the reporting date and are determined using interest rate pricing models and interest rate related observable inputs. The fair values of the Company's interest rate swaps are classified as a Level 2 measurements.
The following table presents the carrying or notional amount, fair value and placement in the fair value hierarchy of the Company’s financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value |
| (in thousands) |
|
Carrying or notional amount |
|
Quoted prices in
active markets
for identical assets
(Level 1) |
|
Significant
other observable
inputs
(Level 2) |
|
Significant
unobservable
inputs
(Level 3) |
|
Total |
| June 30, 2023 |
|
|
|
|
|
|
|
|
|
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
| HEI consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities |
|
$ |
1,368,037 |
|
|
$ |
— |
|
|
$ |
1,353,407 |
|
|
$ |
14,630 |
|
|
$ |
1,368,037 |
|
Held-to-maturity investment securities |
|
1,224,917 |
|
|
— |
|
|
1,121,995 |
|
|
— |
|
|
1,121,995 |
|
|
|
|
|
|
|
|
|
|
|
|
| Loans, net |
|
6,076,024 |
|
|
— |
|
|
6,906 |
|
|
5,627,774 |
|
|
5,634,680 |
|
| Mortgage servicing rights |
|
8,495 |
|
|
— |
|
|
— |
|
|
18,127 |
|
|
18,127 |
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative assets |
|
31,944 |
|
|
51 |
|
|
1,291 |
|
|
— |
|
|
1,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
| HEI consolidated |
|
|
|
|
|
|
|
|
|
|
| Deposit liabilities |
|
815,538 |
|
|
— |
|
|
799,873 |
|
|
— |
|
|
799,873 |
|
| Short-term borrowings—other than bank |
|
46,212 |
|
|
— |
|
|
46,212 |
|
|
— |
|
|
46,212 |
|
| Other bank borrowings |
|
750,000 |
|
|
— |
|
|
741,357 |
|
|
— |
|
|
741,357 |
|
| Long-term debt, net—other than bank |
|
2,572,375 |
|
|
— |
|
|
2,351,288 |
|
|
— |
|
|
2,351,288 |
|
| Derivative liabilities |
|
22,949 |
|
|
— |
|
|
540 |
|
|
— |
|
|
540 |
|
| Hawaiian Electric consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Long-term debt, net |
|
1,834,515 |
|
|
— |
|
|
1,671,739 |
|
|
— |
|
|
1,671,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
| Financial assets |
|
|
|
|
|
|
|
|
|
|
| HEI consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale investment securities |
|
$ |
1,429,667 |
|
|
$ |
— |
|
|
$ |
1,414,765 |
|
|
$ |
14,902 |
|
|
$ |
1,429,667 |
|
Held-to-maturity investment securities |
|
1,251,747 |
|
|
— |
|
|
1,150,971 |
|
|
— |
|
|
1,150,971 |
|
|
|
|
|
|
|
|
|
|
|
|
| Loans, net |
|
5,907,514 |
|
|
— |
|
|
821 |
|
|
5,453,381 |
|
|
5,454,202 |
|
| Mortgage servicing rights |
|
9,047 |
|
|
— |
|
|
— |
|
|
17,646 |
|
|
17,646 |
|
|
|
|
|
|
|
|
|
|
|
|
| Derivative assets |
|
16,220 |
|
|
18 |
|
|
1,330 |
|
|
— |
|
|
1,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Financial liabilities |
|
|
|
|
|
|
|
|
|
|
| HEI consolidated |
|
|
|
|
|
|
|
|
|
|
| Deposit liabilities |
|
611,718 |
|
|
— |
|
|
597,617 |
|
|
— |
|
|
597,617 |
|
| Short-term borrowings—other than bank |
|
172,568 |
|
|
— |
|
|
172,568 |
|
|
— |
|
|
172,568 |
|
| Other bank borrowings |
|
695,120 |
|
|
— |
|
|
695,095 |
|
|
— |
|
|
695,095 |
|
| Long-term debt, net—other than bank |
|
2,384,980 |
|
|
— |
|
|
2,122,605 |
|
|
— |
|
|
2,122,605 |
|
| Derivative liabilities |
|
22,949 |
|
|
— |
|
|
472 |
|
|
— |
|
|
472 |
|
| Hawaiian Electric consolidated |
|
|
|
|
|
|
|
|
|
|
| Short-term borrowings |
|
87,967 |
|
|
— |
|
|
87,967 |
|
|
— |
|
|
87,967 |
|
| Long-term debt, net |
|
1,684,816 |
|
|
— |
|
|
1,487,496 |
|
|
— |
|
|
1,487,496 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements on a recurring basis. Assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
December 31, 2022 |
| |
|
Fair value measurements using |
|
Fair value measurements using |
| (in thousands) |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Available-for-sale investment securities (bank segment) |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies |
|
$ |
— |
|
|
$ |
1,234,514 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,292,968 |
|
|
$ |
— |
|
| U.S. Treasury and federal agency obligations |
|
— |
|
|
77,747 |
|
|
— |
|
|
— |
|
|
81,063 |
|
|
— |
|
| Corporate bonds |
|
— |
|
|
41,146 |
|
|
— |
|
|
— |
|
|
40,734 |
|
|
— |
|
| Mortgage revenue bonds |
|
— |
|
|
— |
|
|
14,630 |
|
|
— |
|
|
— |
|
|
14,902 |
|
| |
|
$ |
— |
|
|
$ |
1,353,407 |
|
|
$ |
14,630 |
|
|
$ |
— |
|
|
$ |
1,414,765 |
|
|
$ |
14,902 |
|
| Derivative assets |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate lock commitments (bank segment)1 |
|
$ |
— |
|
|
$ |
88 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9 |
|
|
$ |
— |
|
Forward commitments (bank segment)1 |
|
51 |
|
|
— |
|
|
— |
|
|
18 |
|
|
— |
|
|
— |
|
Interest rate swap (Other segment)2 |
|
— |
|
|
1,203 |
|
|
— |
|
|
— |
|
|
1,321 |
|
|
— |
|
| |
|
$ |
51 |
|
|
$ |
1,291 |
|
|
$ |
— |
|
|
$ |
18 |
|
|
$ |
1,330 |
|
|
$ |
— |
|
| Derivative liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (Other segment)2 |
|
$ |
— |
|
|
$ |
540 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
472 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Derivatives are carried at fair value in other assets or other liabilities in the balance sheets with changes in value included in mortgage banking income.
2 Derivatives are included in other assets and other liabilities in the balance sheets.
There were no transfers of financial assets and liabilities between Level 1 and Level 2 of the fair value hierarchy during the six months ended June 30, 2023 and 2022.
The changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
Six months ended June 30 |
| Mortgage revenue bonds |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| (in thousands) |
|
|
|
|
|
|
|
|
| Beginning balance |
|
$ |
14,766 |
|
|
$ |
15,296 |
|
|
$ |
14,902 |
|
|
$ |
15,427 |
|
| Principal payments received |
|
(136) |
|
|
(131) |
|
|
(272) |
|
|
(262) |
|
| Purchases |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Unrealized gain (loss) included in other comprehensive income |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| Ending balance |
|
$ |
14,630 |
|
|
$ |
15,165 |
|
|
$ |
14,630 |
|
|
$ |
15,165 |
|
Mortgage revenue bonds are issued by the Department of Budget and Finance of the State of Hawaii. The Company estimates the fair value by using a discounted cash flow model to calculate the present value of estimated future principal and interest payments. The unobservable input used in the fair value measurement is the weighted average discount rate. As of June 30, 2023, the weighted average discount rate was 5.48%, which was derived by incorporating a credit spread over the one month London Inter-Bank Offered Rate (LIBOR). Significant increases (decreases) in the weighted average discount rate could result in a significantly lower (higher) fair value measurement.
Fair value measurements on a nonrecurring basis. Certain assets and liabilities are measured at fair value on a nonrecurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. As of June 30, 2023 and December 31, 2022, there were no financial instruments measured at fair value on a nonrecurring basis.
For the six months ended June 30, 2023 and 2022, there were no adjustments to fair value for ASB’s loans held for sale.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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 2022 Form 10-K and should be read in conjunction with such discussion and the 2022 annual consolidated financial statements of HEI and Hawaiian Electric and notes thereto included in HEI’s and Hawaiian Electric’s 2022 Form 10-K, as well as the quarterly condensed consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q.
HEI consolidated
Recent developments. In the second quarter of 2023, economic conditions in Hawaii remained stable with seasonally adjusted unemployment rate at 3.0% for June 2023 and total passenger counts higher by 3.4% and 10.8% for the quarter and six months ended June 30, 2023, as compared to the prior quarter and year ended June 30, 2022, respectively. While economic conditions remained stable during the quarter, the Utility’s kWh sales in the second quarter of 2023 were down by 1.8%, compared to the second quarter of 2022 due to the continued adoption of energy efficiency measures and distributed energy resources. 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 an increase in wholesale borrowings and term certificates, which was driven primarily by strong loan growth in 2022 coupled with an outflow of core deposits which started in the latter half of 2022 and continued through the first half of 2023, the Bank’s net interest margin for the second quarter of 2023 decreased to 2.75%, compared to net interest margin of 2.85% for the prior quarters ended March 31, 2023 and June 30, 2022.
In March 2023, the banking industry experienced significant turmoil with the failures of Silicon Valley Bank and Signature Bank. The failures of these banks were in part due to a significant concentration of deposits in certain industries that contributed to a significant amount of deposit withdrawals that occurred in a short period of time. Both banks had a significant amount of uninsured deposits that exceeded the FDIC insured limits, totaling 88% and 90% for Silicon Valley Bank and Signature Bank, respectively, as of December 31, 2022, which contributed to the “run” on these institutions as depositors became concerned about their bank’s solvency.
As of June 30, 2023, approximately 86% of ASB’s deposits are FDIC insured or fully collateralized. Additionally, ASB’s total deposit base is primarily composed of retail deposits, which represented 85% of the total deposit base as of June 30, 2023. Retail deposits are generally less rate sensitive and less volatile compared to commercial deposits. ASB also remains “well capitalized” and has approximately $3 billion in liquidity, which is nearly three times the amount of uninsured deposits as of June 30, 2023.
ASB’s funding cost, which impacts its net interest margin, is driven by the mix of its funding sources, with the lowest cost source of funding provided by its core deposits. At June 30, 2023, ASB’s year-to-date average core deposits were down approximately 2.9% from year end 2022 balances, which resulted in an increase in ASB’s wholesale borrowings and term certificates to fund loan growth and an in increase in its overall cost of funds. Looking forward, ASB expects that its deposit base will remain relatively flat to down, given the higher interest rate environment, as well as inflationary pressures on customers that may drive increased spending. ASB also expects that the higher interest rate environment will continue to pressure funding costs and its deposit mix, which in turn will affect net interest income and net interest margin.
Since its peak in June of last year, monthly inflation rates have steadily decreased as reflected in the U.S. Consumer Price Index (CPI). Although the inflation rate, as measured by CPI, appears to be cooling off, the rate is still at a moderately-high level of 3% as of June 2023 and inflationary pressures are expected to continue over the near- to medium-term and have led to higher costs for O&M and capital projects and higher interest expense at the Utility and HEI, as well as higher compensation and benefits cost at the bank.
Short-term interest rates have also increased significantly as a result of the Federal Reserve’s ongoing rate increases to the federal funds target rate. The higher interest rate environment has impacted the fair value of the Bank’s investment portfolio, which declined and was recorded as an other comprehensive loss. Unrealized losses on held-to-maturity (HTM) securities are not recorded to other comprehensive loss because ASB has the positive intent and ability to hold the securities till maturity and recover its full investment. At June 30, 2023, the unrealized losses on HTM securities not recorded to other comprehensive losses was approximately $75 million after tax.
For further discussion of the impacts of inflation and other macro-economic factors impacting the Utilities and the Bank, see “Recent Developments” in the Electric Utility and Bank sections below.
RESULTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
% |
|
|
| (in thousands) |
|
2023 |
|
2022 |
|
change |
|
Primary reason(s)* |
| Revenues |
|
$ |
895,685 |
|
|
$ |
895,607 |
|
|
— |
|
|
Increase for the bank and “other” segments, offset by electric utility segment |
| Operating income |
|
92,979 |
|
|
86,668 |
|
|
7 |
|
|
Increases for electric utility and bank segments and lower losses for the “other” segment |
| Net income for common stock |
|
54,610 |
|
|
52,541 |
|
|
4 |
|
|
Higher net income at the electric utility and bank segments, partly offset by higher net loss for the “other” segment. See below for effective tax rate explanation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
% |
|
|
| (in thousands) |
|
2023 |
|
2022 |
|
change |
|
Primary reason(s)* |
| Revenues |
|
$ |
1,823,922 |
|
|
$ |
1,680,675 |
|
|
9 |
|
|
Increase for all segments. |
| Operating income |
|
186,497 |
|
|
185,944 |
|
|
— |
|
|
Higher operating income for the electric utility segment, offset by lower operating income for bank segment and increase in operating losses for “other” segment |
| Net income for common stock |
|
109,331 |
|
|
121,708 |
|
|
(10) |
|
|
Lower net income at the bank segment and higher net loss for the “other” segment, partly offset by higher net income for the electric utility segment. See below for effective tax rate explanation. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Also, see segment discussions which follow.
The Company’s effective tax rates for the second quarters of 2023 and 2022 were 21% and 20%, respectively. The Company’s effective tax rates for the first six months of 2023 and 2022 were 21% and 20%, respectively. The effective tax rates were higher for the first three and six months of 2023 primarily due to lower amortization in 2023 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate, partially offset by higher nontaxable bank owned life insurance and low-income housing tax credit benefits in 2023.
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), U.S. Bureau of Labor Statistics, Department of Labor and Industrial Relations (DLIR), Hawaii Tourism Authority (HTA), Honolulu Board of REALTORS® and national and local news media).
In the second quarter, the average daily passenger count was 3.4% higher than the comparable period in the prior year, but down 2.7% compared to 2019. The recovery in total passenger counts from the low levels in 2020 thus far has been driven by domestic travelers, with international travelers, primarily Japan, remaining at lower levels, but activity is increasing compared to 2022. In the second quarter, international visitor arrivals (excluding Japan) have continued to increase at a modest pace, but is still 18% below 2019 levels, whereas Japanese visitors are 58% below 2019 levels.
Hawaii’s preliminary seasonally adjusted unemployment rate in June 2023 was 3.0%, which was lower compared to the June 2022 rate of 3.4%. The national unemployment rate in June 2023 was 3.6% compared to 3.6% in June 2022. According to the most recent forecast by UHERO, issued on May 12, 2023, Hawaii’s job sectors are seeing a softening in labor demand, reducing the worker shortage, but are still experiencing hiring challenges. The unemployment rate in Hawaii may rise above 4% by the beginning of 2024 according to UHERO.
Hawaii real estate activity through June 2023, as indicated by Oahu’s home resale market, resulted in a 4.5% decrease in the median sales price ($510,000) for condominiums, and a decrease of 4.5% for single-family homes compared to the same period in 2022, with the June median single-family home price of $1,050,000. The number of closed sales decreased 35.8% for condominiums and 34.6% for single-family residential homes through the second quarter of 2023 compared to 2022.
Hawaii’s petroleum product prices relate to the price of crude oil in international markets. The price of crude oil declined in August 2022 through December 2022 and has remained relatively flat during January 2023 – June 2023.
At its June 14, 2023 meeting, the Federal Open Market Committee (FOMC) decided to raise the federal funds rate target range to 5.0%-5.25% and anticipates ongoing increases as appropriate. With inflation being above the longer-run goal of 2 percent, the FOMC raised the federal funds rate 25 basis points and intends to further reduce the Federal Reserve’s holdings of Treasury securities.
UHERO forecasts full year 2023 real GDP growth of 2.6%, an increase in total visitor arrivals of 6.4%, an increase in real personal income of 3.0%, and an unemployment rate of 3.9%. This forecast anticipates the Hawaii economy will avoid an outright recession despite a U.S. recession later in the year looking more likely. Later in the year, domestic travel is expected to weaken due to economic headwinds, while the Japanese market may continue to fall short of expectations. Other risks remain and is dependent on how aggressive the Fed will be at combating inflation now that it is declining, but UHERO expects that Hawaii is likely to avoid a recession.
The Company expects economic conditions in Hawaii to remain relatively stable going forward, supported by a gradual recovery in the international tourism market and increased construction spending in the public sector. 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.
See also “Recent Developments” in the “Electric utility” and “Bank” sections below for further discussion of the economic impact caused by the pandemic.
“Other” segment.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three months ended June 30 |
|
Six months ended June 30 |
|
|
| (in thousands) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Primary reason(s) |
| Revenues |
|
$ |
4,609 |
|
|
$ |
1,410 |
|
|
$ |
8,628 |
|
|
$ |
2,571 |
|
|
Increase in other sales at Pacific Current subsidiaries. |
| Operating loss |
|
(5,514) |
|
|
(6,409) |
|
|
(11,391) |
|
|
(10,758) |
|
|
The second quarters of 2023 and 2022 include $0.6 million and $0.7 million, respectively, of operating income from Pacific Current1. Corporate expenses for the second quarter of 2023 were $1.0 million lower than the same period in 2022, primarily due to lower general and administrative expenses. The first six months of 2023 and 2022 include $0.5 million of operating losses and $1.5 million of operating income, respectively, from Pacific Current1. The higher operating loss is primarily due to lower Pacific Current asset performance. Corporate expenses for the first six months of 2023 were $1.4 million lower than the same period in 2022, primarily due to lower general and administrative expenses. |
| Gain on sale of equity-method investment |
|
— |
|
|
— |
|
|
— |
|
|
8,123 |
|
|
Gain on sale of an equity-method investment at Pacific Current in first quarter of 2022. |
| Net loss |
|
(10,893) |
|
|
(9,060) |
|
|
(21,743) |
|
|
(10,172) |
|
|
The net loss for the second quarter of 2023 was higher than the net loss for the second quarter of 2022 due to the same factors cited for the change in operating loss and higher interest expense due to higher average borrowings. The net loss for the first six months of 2023 was higher than the net loss for the first six months of 2022 due to the first quarter of 2022 gain on sale of an equity-method investment by Pacific Current, higher interest expense primarily due to higher average borrowings and higher average rates 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.
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, Mahipapa, which owns a 7.5 MW nameplate biomass facility on Kauai, Alenuihaha Developments, LLC, which owns a collection of renewable energy assets on Oahu and Kauai, Ka‘ie‘ie Waho Company, LLC, which owns a 6 MW solar photovoltaic system that provides renewable energy to Kauai Island Utility Cooperative, and Ka‘aipua‘a, LLC, which is constructing a wastewater treatment and energy recovery facility on Hawaii island; as well as eliminations of intercompany transactions.
FINANCIAL CONDITION
Liquidity and capital resources. As of June 30, 2023, 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 $46 million and nil of commercial paper outstanding, respectively. As of June 30, 2023, ASB’s unused FHLB borrowing capacity was approximately $1.8 billion and ASB had unpledged investment securities of $1.1 billion that were available to be used as collateral for additional borrowing capacity.
As of June 30, 2023 and December 31, 2022, the total amount of available borrowing capacity (net of commercial paper outstanding) under the Company’s committed lines of credit was approximately $329 million and $237 million, respectively.
On October 20, 2022, HEI entered into a term loan facility in the aggregate principal amount of $100 million. On December 28, 2022, HEI drew $35 million on the term loan and on March 31, 2023, HEI drew the remaining $65 million. On May 31, 2023, HEI fully repaid the term loan facility at which time it was terminated. Borrowings under the facility bore interest at Term SOFR, as defined in the agreement, plus an applicable margin and a SOFR spread adjustment. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
On March 16, 2023, HEI executed a private placement under which HEI authorized the issue and sale of $100 million of unsecured senior notes that were fully drawn on May 30, 2023. The proceeds of the notes, HEI Series 2023A for $39 million and HEI Series 2023B for $61 million, were used to repay the $100 million term loan facility on May 31, 2023. The HEI Series 2023A and 2023B bear interest at 6.04% and 6.10%, respectively and are due June 15, 2028 and June 15, 2033, respectively. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
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 12 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 resulting from lingering COVID-19 impacts to the local economy and elevated fuel prices. For the Utilities, while fuel prices have moderated from its highs in 2022, they remain elevated and have increased the cost of carrying fuel inventory and have also resulted in higher customer accounts receivable balances as fuel is consumed and billed to customers. While the accounts receivable balance has decreased since December 2022, it remains elevated coming out of the pandemic and has led to higher bad debt expense and higher write-offs in 2022 and year-to-date June 2023, following the end of the moratorium on disconnections. The higher bad debt expense is expected to continue until the Utilities return to pre-pandemic collection practices for delinquent accounts. As of June 30, 2023, approximately $24.3 million of the Utilities’ accounts receivables were over 30 days past due. Of the over 30 days past due amounts, approximately 53% were on payment plans. In addition to the cash flow impact from delayed collection of accounts receivable, lower kWh sales relative to the level of kWh sales approved in the last rate case generally result in delayed timing of cash flows, resulting in higher working capital requirements (see “Recent Developments” in the Electric utility section below). 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. ASB’s cash and cash equivalents was $168 million as of June 30, 2023, compared to $156 million as of December 31, 2022. ASB remains well above the “well capitalized” level under the FDIC Improvement Act prompt correction action capital category, and while the Hawaii economic outlook remains stable, there are emerging risks from potential continued turmoil in the banking industry, inflation, and the tightening of monetary policy that increase the risk of a recession, which could create increased uncertainty regarding the impact on loan performance and the allowance for credit losses (see “Recent Developments” in the Bank section below).
If further liquidity is deemed necessary, which is not contemplated at this time, the Utilities could also reduce the pace of capital spending related to non-essential projects. Additionally, the Company has the option to issue new shares rather than purchase currently outstanding shares on the open market to satisfy share issuances under its Dividend Reinvestment and Stock Purchase Plan program. The estimated amount of equity capital that could be raised by issuing new shares, rather than utilizing open market purchases, is estimated to be approximately $25 million to $30 million on an annual basis, based on historical demand, but such future amount is dependent on a number of factors, including, without limitation, future share prices, number of shares and participants in the DRIP program, and the amount of new investment in HEI’s stock by DRIP participants.
HEI material cash requirements. HEI’s material cash requirements include: Utility capital expenditures, labor and benefit costs, O&M expenses, fuel and purchase power costs, and debt and interest payments; 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 economic impact of higher fuel prices, inflation, higher interest rates and tightening of monetary policy create significant uncertainty, and the Company cannot predict the future effects that these factors 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.
The consolidated capital structure of HEI (excluding deposit liabilities and other bank borrowings) was as follows:
|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
June 30, 2023 |
|
December 31, 2022 |
| Short-term borrowings—other than bank, net of discount |
|
$ |
46 |
|
|
1 |
% |
|
$ |
173 |
|
|
3 |
% |
| Long-term debt, net—other than bank |
|
2,572 |
|
|
52 |
|
|
2,385 |
|
|
50 |
|
| Preferred stock of subsidiaries |
|
34 |
|
|
1 |
|
|
34 |
|
|
1 |
|
| Common stock equity |
|
2,249 |
|
|
46 |
|
|
2,202 |
|
|
46 |
|
| |
|
$ |
4,901 |
|
|
100 |
% |
|
$ |
4,794 |
|
|
100 |
% |
HEI’s commercial paper borrowings and line of credit facility were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average balance |
|
Balance |
| (in millions) |
|
Six months ended June 30, 2023 |
|
June 30, 2023 |
|
December 31, 2022 |
| Commercial paper |
|
$ |
39 |
|
|
$ |
46 |
|
|
$ |
50 |
|
| 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 six months of 2023 was $99 million. As of June 30, 2023, available committed capacity under HEI’s line of credit facility was $175 million.
On July 28, 2023, Fitch Ratings, Inc. upgraded HEI’s long-term issuer default rating to “BBB+” from “BBB”, its short-term issuer default rating and short-term senior unsecured rating to “F2” from “F3”, and revised HEI’s outlook to “Stable” from “Positive”. These ratings are not recommendations to buy, sell or hold any securities. See “Credit and Capital Market Risk” in Item 1A. Risk Factors in HEI’s and Hawaiian Electric’s 2022 Form 10-K.
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 six months ended June 30, 2023 and 2022 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 six months of 2023, net cash provided by operating activities of HEI consolidated was $372 million. Net cash used by investing activities for the same period was $283 million, primarily due to capital expenditures, ASB’s net increase in loans receivable and purchases of loans held for investment, partly offset by ASB’s receipt of investment security repayments and maturities, proceeds from the sale of commercial loans and a net decrease in FHLB stock. Net cash provided by financing activities during this period was $26 million as a result of several factors, including net increase in ASB’s other bank borrowings and long-term debt, partly offset by net decreases in ASB’s deposit liabilities and short-term borrowings, repayment of long-term debt and payment of common stock dividends. During the first six months of 2023, Hawaiian Electric and ASB (through ASB Hawaii) paid cash dividends to HEI of $65 million and $25 million, respectively.
Dividends. The payout ratios for the first six months of 2023 and full year 2022 were 72% and 64%, respectively. On February 10, 2023, the HEI Board of Directors approved a 1 cent increase in the quarterly dividend from $0.35 per share to $0.36 per share, starting with the dividend in the first quarter of 2023. 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, 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 44 to 45, 64, and 77 to 78 of the MD&A included in Part II, Item 7 of HEI’s and Hawaiian Electric’s 2022 Form 10-K.
Following are discussions of the results of operations, liquidity and capital resources of the electric utility and bank segments.
Electric utility
Recent developments. See also “Recent developments” in HEI’s MD&A.
In the second quarter of 2023, kWh sales volume decreased 1.8% compared to the same period in 2022. Although electricity prices have decreased since the end of 2022, elevated prices over the past year have continued to impact electricity consumption. Additionally, the continued adoption of energy efficiency measures and distributed energy resources contributed to the reduction of kWh sales.
Fuel costs have risen rapidly beginning in 2022 and have decreased year-to-date through June 30, 2023, but remain elevated. Although the Utilities are able to pass through fuel costs to customers and have limited fuel cost exposure through a 2% fuel-cost risk sharing mechanism (approximately $3.7 million maximum exposure annually), 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. The rising fuel costs are not expected to materially impact the Utilities’ financial position at this time.
In June 2023, the consumer price index moderated to 3% from a peak of 9.1% in June 2022. In Hawaii, the May 2023 Urban Hawaii (Honolulu) Consumer Price Index (CPI) also declined from its peak, with an increase of 2% over the last 12 months. Under the PBR framework, inflation risk for the Utilities is mitigated by an Annual Rate Adjustment (ARA), which is based on a formula that includes a compounded and non-compounded portion.
•The compounded portion of the ARA adjustment includes an adjustment for inflation based on the estimated change in Gross Domestic Product Price Index (GDPPI) for the upcoming year, less a predetermined annual productivity factor (currently set at zero), less a 0.22% customer dividend, applied to a basis equal to test year target revenues plus the RAM Revenue adjustments in effect prior to the implementation of PBR, plus the prior adjustment year’s compounded portion of the ARA adjustment. The GDPPI adjustment is determined using the forecasted GDPPI in October, which is effective for the following calendar year. For the 2022 calendar year, GDPPI was measured at 2.78% (net of the 0.22% customer dividend) in October 2021 and was effective in rates on January 1, 2022. For the 2023 calendar year, the forecasted 2023 GDPPI was 3.68% (net of the 0.22% customer dividend), measured in October 2022, and became effective in rates on January 1, 2023.
•The non-compounded portion of the ARA adjustment includes a subtractive component, representing the management audit savings commitment, or refund to customers, which was approved by the PUC for the years 2021 through 2025.
Operation and maintenance expenses in the second quarter of 2023 were higher by approximately $11 million or 9% as compared to the same period in 2022. The increase was partly due to higher transmission and distribution (T&D) preventive and corrective maintenance resulting primarily from more trouble calls. Higher costs due to inclement weather related issues, higher outside consulting costs on various customer service and information technology projects, and higher labor and employee benefits also contributed to the increase. The Utilities expect T&D costs to moderate for the remainder of the year and continue to focus on managing overall operation and maintenance costs efficiently.
Customer accounts receivable decreased in 2023 by $79.1 million, or 27% with the number of accounts past due decreasing by 14% since December 31, 2022. The decrease in accounts receivables was primarily driven by payment on a large delinquent commercial customer account, payments on installment plans, receipt of government and other program assistance, and higher cash receipts associated with increased disconnection efforts. At this time, while accounts receivable balances remain elevated compared to pre-pandemic levels, the higher balances have 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 Revenue Balancing Account and the impact of higher fuel prices on accounts receivable balances. 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. The Utilities deferred COVID-19 related costs through a PUC approved period that ended on December 31, 2021. In the second quarter of 2022, the Utilities filed an application to seek recovery of the COVID-19 deferred costs, not to exceed the amount of $27.8 million. On July 31, 2023, the Utilities submitted their most recent Supplemental Report to the PUC, reflecting the updated request amount of $9.1 million, which was a decrease from the original requested amount due to cash collections on past due accounts. (See discussion under “Regulatory assets for COVID-19 related costs” in Note 3 of the Condensed Consolidated Financial Statements).
Regulatory Developments. On November 15, 2021, President Biden signed into law the $1.2 trillion Infrastructure Investment and Jobs Act (IIJA), which includes approximately $550 billion of new federal spending to be allocated over the next five years through various programs. The funding will help our state achieve its sustainability goals, including renewable energy, resilience, decarbonization, while also prioritizing economic development, equity and affordability. The Utilities are pursuing potential grant funding of projects under various programs including, but not limited to, in partnership with other organizations.
To date, the Utilities have three full applications that are pending decisions and are the primary applicants for two of the submissions. If all three applications are awarded, it would allow for reduction up to $151 million in the Utilities’ recovery under the Exceptional Project Recovery Mechanism (EPRM) and cost to customers. See “Regulatory proceedings” in Note 3 of the Condensed Consolidated Financial Statements for additional discussions.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (IRA) that provides for $258 billion in energy-related provisions over a 10-year period. The provisions of the IRA are intended to, among other things, lower gasoline and electricity prices, incentivize clean energy investment and promote reductions in carbon emissions. The Utilities are exploring clean energy tax incentives included in the IRA that may further reduce the Utilities’ recovery under the EPRM and cost to customers.
The Utilities cannot predict the ultimate timing and success of securing funding from any federal government programs.
For a discussion regarding the impact of the economic conditions caused by the COVID-19 pandemic on the Utilities’ liquidity and capital resources, see discussion under “Financial Condition–Liquidity and capital resources.”
RESULTS OF OPERATIONS
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30 |
|
Increase |
|
|
| 2023 |
|
2022 |
|
(decrease) |
|
(dollars in millions, except per barrel amounts) |
| $ |
794 |
|
|
$ |
819 |
|
|
$ |
(25) |
|
|
|
|
Revenues. Net decrease largely due to: |
|
|
|
|
|
|
$ |
(55) |
|
|
lower purchased power energy prices, lower kWh purchased, and lower PPAC revenues1 |
|
|
|
|
|
|
1 |
|
|
higher MPIR revenue |
|
|
|
|
|
|
1 |
|
|
one-time true-up of billable costs |
|
|
|
|
|
|
1 |
|
|
higher investment interest income |
|
|
|
|
|
|
3 |
|
|
higher fuel-cost risk sharing adjustment |
|
|
|
|
|
|
10 |
|
|
higher revenue from ARA adjustments |
|
|
|
|
|
|
12 |
|
|
higher kWh generated, partially offset by lower fuel oil prices2 |
| 280 |
|
|
270 |
|
|
10 |
|
|
|
|
Fuel oil expense2. Net increase largely due to higher kWh generated, partially offset by lower fuel oil prices |
| 168 |
|
|
218 |
|
|
(50) |
|
|
|
|
Purchased power expense1, 2. Net decrease largely due to lower kWh purchased, lower purchased power energy prices, and lower charges due to the AES plant closure on September 1, 2022, offset in part by the addition of Mililani I and Waiawa solar-plus-storage projects |
| 136 |
|
|
125 |
|
|
11 |
|
|
|
|
Operation and maintenance expenses. Net increase largely due to: |
|
|
|
|
|
|
4 |
|
|
higher transmission and distribution operation and maintenance expense |
|
|
|
|
|
|
2 |
|
|
higher outside costs for Customer Service Support Improvement and Information and Technology Services support |
|
|
|
|
|
|
2 |
|
|
increased labor and employee benefits costs |
|
|
|
|
|
|
1 |
|
|
increased storm costs due to inclement weather |
|
|
|
|
|
|
1 |
|
|
higher legal and other fees associated with environmental matters |
|
|
|
|
|
|
1 |
|
|
higher facilities expenses |
|
|
|
|
|
|
(2) |
|
|
fewer generating facility overhauls performed |
| 136 |
|
|
135 |
|
|
1 |
|
|
|
|
Other expenses. Increase due to higher depreciation expense due to increasing investments to integrate more renewable energy and improve customer reliability and system efficiency and higher payroll taxes due to higher unemployment tax rate, partially offset by lower revenue taxes |
| 74 |
|
|
71 |
|
|
3 |
|
|
|
|
Operating income. Increase largely due to higher ARA and MPIR revenue, and higher AFUDC, offset in part by higher operation and maintenance expenses, higher depreciation expense, and higher payroll taxes |
| 59 |
|
|
57 |
|
|
2 |
|
|
|
|
Income before income taxes. Increase largely due to higher operating income, partially offset by higher interest expense due to increased borrowings |
| 45 |
|
|
44 |
|
|
1 |
|
|
|
|
Net income for common stock. See below for effective tax rate explanation |
| 1,994 |
|
|
2,031 |
|
|
(37) |
|
|
|
|
Kilowatthour sales (millions)3 |
| $ |
122.69 |
|
|
$ |
139.51 |
|
|
$ |
(16.82) |
|
|
|
|
Average fuel oil cost per barrel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Six months ended June 30 |
|
Increase |
|
|
| 2023 |
|
2022 |
|
(decrease) |
|
(dollars in millions, except per barrel amounts) |
| $ |
1,625 |
|
|
$ |
1,528 |
|
|
$ |
97 |
|
|
|
|
Revenues. Net increase largely due to: |
|
|
|
|
|
|
$ |
135 |
|
|
higher fuel oil prices and higher kWh generated2 |
|
|
|
|
|
|
20 |
|
|
higher revenue from ARA adjustments |
|
|
|
|
|
|
3 |
|
|
higher MPIR revenue |
|
|
|
|
|
|
3 |
|
|
higher fuel-cost risk sharing adjustment |
|
|
|
|
|
|
2 |
|
|
higher investment interest income |
|
|
|
|
|
|
1 |
|
|
one-time true-up of billable costs |
|
|
|
|
|
|
(66) |
|
|
lower kWh purchased and lower PPAC revenues, partially offset by higher purchased power energy prices1 |
| 614 |
|
|
491 |
|
|
123 |
|
|
|
|
Fuel oil expense2. Net increase largely due to higher fuel oil prices and higher kWh generated |
| 321 |
|
|
382 |
|
|
(61) |
|
|
|
|
Purchased power expense1, 2. Net decrease largely due to lower kWh purchased and lower charges due to the AES plant closure on September 1, 2022, partially offset by higher purchased power energy prices |
| 265 |
|
|
250 |
|
|
15 |
|
|
|
|
Operation and maintenance expenses. Net increase largely due to: |
|
|
|
|
|
|
6 |
|
|
increased labor and employee benefits costs |
|
|
|
|
|
|
4 |
|
|
higher transmission and distribution operation and maintenance expense |
|
|
|
|
|
|
3 |
|
|
increased storm costs due to inclement weather |
|
|
|
|
|
|
3 |
|
|
higher outside costs for Customer Service Support Improvement and Information and Technology Services support |
|
|
|
|
|
|
1 |
|
|
higher facilities expenses |
|
|
|
|
|
|
(3) |
|
|
fewer generating facility overhauls performed |
| 275 |
|
|
260 |
|
|
15 |
|
|
|
|
Other expenses. Increase due to higher revenue taxes, coupled with higher depreciation expense due to increasing investments to integrate more renewable energy and improve customer reliability and system efficiency and higher payroll taxes due to higher unemployment tax rate |
| 150 |
|
|
145 |
|
|
5 |
|
|
|
|
Operating income. Increase largely due to higher ARA and MPIR revenue, and higher AFUDC, offset in part by higher operation and maintenance expenses, higher depreciation expense, and higher payroll taxes |
| 120 |
|
|
116 |
|
|
4 |
|
|
|
|
Income before income taxes. Increase largely due to higher operating income, partially offset by higher interest expense due to higher rates and increased borrowings |
| 92 |
|
|
91 |
|
|
1 |
|
|
|
|
Net income for common stock. Increase due to higher income before income taxes. See below for effective tax rate explanation |
| 3,930 |
|
|
3,988 |
|
|
(58) |
|
|
|
|
Kilowatthour sales (millions)3 |
| $ |
131.48 |
|
|
$ |
120.54 |
|
|
$ |
10.94 |
|
|
|
|
Average fuel oil cost per barrel |
| 472,482 |
|
|
470,812 |
|
|
1,670 |
|
|
|
|
Customer accounts (end of period) |
1The 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.
2The rate schedules of the electric utilities currently contain energy cost recovery clauses (ECRCs) through which changes in fuel oil prices and certain components of purchased energy costs are passed on to customers.
3 kWh sales were lower compared to the same quarter in prior year primarily due to elevated prices over the past year which continued to impact electricity consumption. In addition, the continued adoption of energy efficiency measures and distributed energy resources contributed to the reduction in kWh sales.
The Utilities’ effective tax rates for the second quarters of 2023 and 2022 were 22% and 21%, respectively. The Utilities’ effective tax rates for the first six months of 2023 and 2022 were 22% and 21%, respectively. The effective rates were higher for the first three and six months of 2023 primarily due to lower amortization in 2023 of the Utilities’ regulatory liability related to certain excess deferred income taxes resulting from the Tax Act’s decrease in the federal income tax rate.
Hawaiian Electric’s consolidated ROACE was 8.2% for the twelve months ended June 30, 2023 and June 30, 2022.
The net book value (cost less accumulated depreciation) of utility property, plant and equipment (PPE) as of June 30, 2023 amounted to $5.1 billion, of which approximately 24% related to generation PPE, 67% related to transmission and distribution PPE, and 9% related to other PPE. Approximately 7% 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 its decarbonization goals that are aligned with the statutory goal of 100% renewable energy by 2045.
Performance-based regulations. On December 23, 2020, the PUC issued a D&O (PBR D&O) approving a new performance-based regulation framework (PBR Framework). See “Regulatory proceedings” in Note 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 their Climate Action Plan to cut carbon emissions from power generation 70% by 2030, compared to a 2005 baseline. The emissions covered by this goal include stack emissions from generation owned by Hawaiian Electric and IPPs who sell electricity to the Utilities. 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 that occurred in September 2022, 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, ceased operations, removing a significant source of GHG emissions from the Utilities’ generation mix. In advance of the retirement of the coal-fired IPP plant, the Utilities developed plans, including contingency plans, to ensure reliable service through the transition period. These plans include the anticipated addition of renewable energy/storage projects, reserve capacity from existing generation sources, the acceleration of maintenance work during periods with anticipated higher reserve levels, and multiple demand response/DER programs. For example, a 39 MW solar-plus-storage project from Stage 1 renewable PPAs reached commercial operations in mid-2022 and a 36 MW Stage 1 solar-plus-storage project reached commercial operations in early 2023. It is expected that a 185 MW standalone storage facility from Stage 2 renewable PPAs will reach commercial operations by the end of August 2023.
While the Utilities continue to execute on their plans, delays and cancellations in the commercial operation of new renewable third-party generation resources and higher costs as a result of supply chain issues and inflationary pressures, as well as federal policies related to solar panel imports, have slowed the pace of progress toward achieving the Utilities’ 70% GHG emissions reduction goal. Despite these headwinds, the Utilities currently believe that the 70% GHG emissions reduction target remains achievable; however, additional renewable energy procurements and timely construction of significant generating capacity beyond the Stage 3 RFPs are required. Future events that impact the pace and amount of newly installed renewable variable and firm generation, including unexpected issues with existing generation, among other factors, could disrupt the ability of the Utilities to deliver reliable service. Also, see the “Developments in renewable energy efforts—New renewable PPAs” section below.
Hawaii’s renewable portfolio standard law requires electric utilities to meet an RPS of 30%, 40%, 70% and 100% by December 31, 2020, 2030, 2040 and 2045, respectively. Hawaii law has also established a target of sequestering more atmospheric carbon and greenhouse gases than emitted within the state by 2045.
The Utilities’ strategies and plans are fully aligned in meeting these targets (see also Integrated Grid Planning below).
The Utilities have made significant progress on the path to clean energy and have been successful in achieving RPS goals. To date the Utilities have met all of the statutory RPS goals, including exceeding the last milestone RPS target of 30% for 2020, where it achieved an RPS of 34.5%. In July 2022, Governor Ige signed Act 240 (H.B.2089), that amended the RPS calculation from renewable energy as a percentage of sales to renewable energy as a percentage of total generation. The amended RPS calculation results in a lower calculated percentage than the amount calculated under the previous methodology. For example, the 2022 RPS achieved under the revised RPS calculation would have been 31.8% versus 39.1% under the prior method. The change in the definition is to be applied prospectively to future milestone measurements and will require that the Utilities acquire more renewable energy than under the previous RPS calculation to comply with the RPS milestones; however, the Utilities expect to continue to meet the RPS milestones under the amended RPS law. (See “Developments in renewable energy efforts” below).
If the Utilities are not successful in meeting the RPS targets as mandated by law, the PUC could assess a penalty of $20 for every MWh that an electric utility is deficient. Based on the level of total generation in 2022, a 1% shortfall in meeting the 2030 RPS requirement of 40% would translate into a penalty of approximately $2.1 million. The PUC has the discretion to reduce the penalty due to events or circumstances that are outside an electric utility’s reasonable control, to the extent the event or circumstance could not be reasonably foreseen and ameliorated. In addition to penalties under the RPS law, failure to meet the mandated RPS targets would be expected to result in a higher proportion of fossil fuel-based generation than if the RPS target had been achieved, which in turn would be expected to subject the Utilities to limited commodity fossil fuel price exposure under a fuel cost risk-sharing mechanism. The fuel cost risk-sharing mechanism apportions 2% of the fuel cost risk to the utilities (and 98% to ratepayers) and has a maximum exposure (or benefit) of $3.7 million. Conversely, the Utilities have incentives under PIMs that provide a financial reward for accelerating the achievement of renewable generation as a percentage of total generation, including customer supplied generation. 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 DER have been added to the grid and energy efficiency measures have been put into place. Other regulatory mechanisms under the PBR framework reduce some of the regulatory lag during the multi-year rate plan (MRP), such as the annual revenue adjustment to provide annual changes in utility revenues, including inflationary adjustments, and the exceptional project recovery mechanism, which allows the Utilities to recover and earn on certain approved eligible projects placed into service. See “Regulatory proceedings” in Note 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) process utilizes an inclusive and transparent stakeholder engagement model to provide an avenue for interested parties to engage with the Utilities and contribute meaningful input throughout the IGP process. The IGP Stakeholder Council, Technical Advisory Panel and Working groups have been established and meet regularly to provide feedback and input on specific issues and process steps in the IGP. On May 12, 2023, the Utilities submitted their final Integrated Grid Plan: A pathway to a clean energy future for stakeholder and public comments. The Integrated Grid Plan proposes actionable steps to decarbonize the electric grid on the State of Hawaii’s timeline, with a flexible framework that can adapt to future technologies. The Integrated Grid Plan is the culmination of more than five years of partnership with stakeholders and community members across the islands. Together, they forecasted future energy needs and identified strategies to meet Hawaii’s growing energy demand with 100% renewable resources.
Demand response programs. Pursuant to PUC orders, the Utilities are developing an integrated Demand Response (DR) Portfolio Plan that will enhance system operations and reduce costs to customers. The reduction in cost for the customer will take the form of either rates or incentive-based programs that will compensate customers for their participation individually, or by way of engagements with turnkey service providers that contract with the Utilities to aggregate and deliver various grid services on behalf of participating customers and their distributed assets.
On June 9, 2021, the PUC issued an order providing guidance to the third Grid Service RFP filed on February 23, 2021. The proposed Grid Service RFP focused only on Oahu and is seeking 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 that occurred on September 1, 2022. 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 July 12, 2023, the PUC approved the GSPA with modifications. The Utilities will work with an aggregator to amend the GSPA and submit to the PUC for approval by the fourth quarter of 2023.
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. As of June 30, 2023, the Utilities have received and approved the applications totaling approximately 26.5 MW on Oahu.
On March 30, 2022, the Utilities filed with the PUC to request expanding the EDRP for up to 15 MW on the island of Maui and received PUC approval on May 20, 2022. The EDRP on Maui became effective as of June 1, 2022. Subsequently on June 23, 2022, the PUC approved the cost recovery of the additional incentives for both Oahu and Maui through the Demand Side Management Surcharge. As of June 30, 2023, the Utilities have received and approved the applications totaling approximately 3.9 MW on Maui.
On October 31, 2022, the PUC issued an order, directing the Utilities to solicit comments from all interested parties and stakeholders on the Utilities’ Draft Grid Services RFP filed on June 30, 2022. The proposed Draft Grid Services RFP focused only on Maui and is seeking 15 MW of grid services. Hawaiian Electric issued the RFP on February 1, 2023 and bids are due on August 31, 2023.
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 DER 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, which is the proportional deployment of advanced metering infrastructure (AMI). On February 28, 2022, the PUC expanded the scope of Phase 1 to the full service territory with a completion date set for the third quarter of 2024. The estimated cost of full deployment (including proportional deployment) is approximately $143 million in capital and deferred software cost and is expected to be incurred over five years. As of June 30, 2023, approximately $101 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 June 24, 2022, the PUC approved with certain conditions the Utilities’ request to aggregate the per-meter and network cost caps and to recover O&M costs associated with full-service territory AMI deployment under the MPIR mechanism. As of June 30, 2023, the Utilities have deployed about 277,000 advanced meters, servicing approximately 60% of total customers.
The Utilities filed an application with the PUC on September 30, 2019 for an Advanced Distribution Management System (ADMS) as part of Phase 2 of their Grid Modernization Strategy implementation. However, on December 30, 2019, the PUC suspended the Utilities’ application for the ADMS pending the Utilities’ filing of a supplemental application for the broad deployment of field devices. This supplement and update to the Grid Modernization Strategy Phase 2 field devices application was filed on March 31, 2021. 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 the motion 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 in the third quarter of 2024. Resumption of the Phase 2 proceeding would likely commence six months prior to the scheduled completion date selected by the PUC. On April 17, 2023, the Utilities filed a motion with the PUC, requesting the suspended docket to be reopened and to allow the Utilities to file an updated and supplemented application for updated project costs. The estimated cost for the implementation of Phase 2 over six years, which includes capital, deferred software costs and O&M costs, is $113 million. On May 3, 2023, the PUC granted the motion to resume the docket, and hosted a technical conference on the updated application on May 19, 2023.
Community-based renewable energy. In December 2017, the PUC adopted a community-based renewable energy (CBRE) program framework which allows customers who cannot, or chose not to, take advantage of private rooftop solar to receive the benefits of renewable energy to help offset their monthly electric bills and support clean energy for Hawaii. The program has two phases.
The first phase, which commenced in July 2018, totaling 8 MW of solar photovoltaic (PV) only with one credit rate for each island, closed on April 9, 2020. Two phase 1 projects (28.32 kW on Maui and 270 kW on Oahu) have been operational for two years, with four additional phase 1 projects expected to become operational in 2023 (third quarter: Oahu: 3,000kW; fourth quarter: Hawaii Island: 750kW and Molokai: 250kW) and 2024 (fourth quarter: Oahu: 1,720kW).
The second phase, which commenced on April 9, 2020 and subsequently expanded on July 27, 2021, allows over 250 MW across all Hawaiian Electric service territories in two tranches for small (under 250 kW), mid-tier and large system sizes to encourage a variety of system sizes. To provide opportunities for low-to-moderate income (LMI) customers to participate in the program, 23 MW of capacity for dedicated-LMI projects were awarded on November 15, 2022 through three island specific RFPs for Oahu, Maui and Hawaii Island. LMI projects do not have a size cap nor do they decrease the 250 MW capacity available to other projects. The dedicated-LMI projects are expected to become operational in 2025.
The Utilities issued the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022. The RFPs closed on August 17, 2022, and proposals were evaluated. Tranche 1 projects, which are greater than or equal to 250 kW, were awarded on February 22, 2023. The Tranche 1 projects are expected to become operational in 2025 or 2026.
For Lanai, the Utilities combined the previously issued Variable Renewable Dispatchable Generation Paired with Energy Storage RFP and the CBRE RFP to optimize the benefits of procuring renewable energy, spur development and increase the likelihood of success of the CBRE Program on Lanai. See “Developments in renewable energy efforts–Requests for renewable proposals, expressions of interest, and information” for additional information.
One CBRE proposal for Lanai was selected but negotiations were terminated on June 15, 2022. With the concurrence of the Independent Observer, a replacement proposal was selected on July 1, 2022. On July 25, 2022, the Utilities announced the selection of a new developer for the Lanai CBRE RFP. On September 21, 2022, the Utilities were informed by Pulama Lanai of a project being planned on Lanai to remove the two large resorts from the grid, which represent approximately 40% of the load of the island and raises great uncertainty around the future energy needs for Lanai. On September 28, 2022, the Utilities notified the PUC that ongoing negotiations for the Lanai CBRE project will continue, but that the Utilities will not execute a PPA at this time given the uncertainty due to the Pulama Lanai notification. On Molokai, proposals were only received from a single community co-op group. After evaluation of these proposals and with concurrence of the independent observer, the Utilities filed a letter on September 9, 2022, proposing to close the Molokai CBRE RFP and to work with the lone bidder to improve certain aspects of its two proposed projects outside of the RFP process for the benefit of the residents of Molokai. Discussions are ongoing.
The Utilities CBRE Phase 2 Rule 29 became effective on March 10, 2022. The Utilities are currently accepting project applications for small CBRE projects less than 250 kW in size. The PUC reserved 45 MW as well as a small amount of unallocated capacity from Phase 1 for small projects in Phase 2 on Oahu, Maui and Hawaii Island. The Utilities have developed a CBRE Portal where Subscriber Organizations can apply for small project capacity and manage subscribers for all CBRE projects in the program. Customers can also use the CBRE Portal to solicit quotes, compare, and subscribe to a project once the Subscriber Organization has added their project to the portal.
Microgrid services tariff proceeding. In enacting Act 200 of 2018, the Hawaii legislature found that Hawaii’s residents and businesses were vulnerable to disruptions in the islands’ energy systems caused by extreme weather events or other disasters, and stated its belief that the use of microgrids would build energy resiliency into Hawaii’s communities, thereby increasing public safety and security. The purpose of Act 200 was therefore to encourage and facilitate the development and use of microgrids through the establishment of a standard microgrid services tariff. In July 2018, pursuant to Act 200, the PUC opened a proceeding to investigate the establishment of a microgrid services tariff. In August 2019, the PUC issued an order prioritizing items for resolution in the docket and directed the Parties to establish working groups (the Working Group) to address issues identified by the PUC.
On May 27, 2021, the Utilities filed the Microgrid Service Tariff. On September 21, 2021, the PUC provided guidance for Phase 2 of the Microgrid Tariff proceeding, specifically identifying the objective for Phase 2 to promote self-sufficiency and resilience among microgrid project operators, as well as to further streamline the Microgrid Services Tariff where applicable. Furthermore, the PUC instructed Parties to recommend priority topics, along with supporting rationale to better inform the topics that will be discussed during this phase of the proceeding, which the parties submitted by October 21, 2021.
On April 1, 2022, the PUC established its Prioritized Issues for Resolution for Phase 2 of the Microgrid proceeding, which includes the following: 1) Microgrid Compensation and Grid Services; 2) Utility Compensation; 3) Customer Protection and Related Considerations; 4) Interconnection; and 5) Working Group coordination with related microgrid and resilience Initiatives at Hawaiian Electric and government agencies.
Furthermore, the PUC established a procedural schedule to consist of quarterly status conference meetings with the PUC, a Phase 2 Working Group Report, draft of a revised Microgrid Service Tariff, Party comments to the proposed Microgrid Service Tariff, followed by a PUC D&O.
On June 30, 2022, the PUC provided further guidance to the Working Group to prioritize discussion of the microgrid types in the following order: 1) Hybrid Microgrid - Third Party Developer using Utility lines/infrastructure; 2) Hybrid Microgrid - Utility Project with Partners; and 3) Customer Microgrid. Additionally, the PUC instructed the Working Group to discuss microgrid compensation and continue the involvement of microgrid developers in working group meetings.
The Working Group met from April 2022 through October 2022 to discuss the PUC’s objectives and respond to the Phase 2 priority issues. On October 31, 2022, the PUC issued a guidance letter and advised that the Working Group propose a new timeline for the Report. The Utilities and the Consumer Advocate filed a joint letter with a revised timeline on November 10, 2022. On November 21, 2022, the PUC issued an order to suspend the Phase 2 procedural schedule while it reviews the joint letter.
Decoupling. See “Decoupling” in Note 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 2022, 2021 and 2020 did not trigger the earnings sharing mechanism for the Utilities.
Actual and PUC-allowed returns, as of June 30, 2023, were as follows:
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| % |
|
Rate-making Return on rate base (RORB)* |
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ROACE** |
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Rate-making ROACE*** |
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Twelve months ended
June 30, 2023
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Hawaiian Electric |
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Hawaii Electric Light |
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Maui Electric |
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Hawaiian Electric |
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Hawaii Electric Light |
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Maui Electric |
|
Hawaiian Electric |
|
Hawaii Electric Light |
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Maui Electric |
| Utility returns |
|
7.36 |
|
|
5.83 |
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|
5.82 |
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|
8.95 |
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6.48 |
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6.30 |
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|
9.77 |
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7.06 |
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7.06 |
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| PUC-allowed returns |
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7.37 |
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7.52 |
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7.43 |
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9.50 |
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9.50 |
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9.50 |
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9.50 |
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9.50 |
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9.50 |
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| Difference |
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(0.01) |
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(1.69) |
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(1.61) |
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(0.55) |
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(3.02) |
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(3.20) |
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0.27 |
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(2.44) |
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(2.44) |
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* 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 gap between PUC-allowed ROACEs and the ROACEs achieved is primarily due to the exclusion of certain expenses from rates (for example, incentive compensation and charitable contributions), and depreciation, O&M expense and return on rate base that are in excess of what is currently being recovered through rates (the last rate case plus authorized RAM adjustments and ARA revenues).
Regulatory proceedings. On December 23, 2020, the PBR D&O was issued, establishing the PBR Framework. The PBR Framework implemented a five-year 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. The Utilities’ renewable energy goals depend, in large part, on the success of renewable projects developed and operated by independent power producers. Beginning in 2017, the Utilities embarked on an ambitious procurement effort, selecting multiple solar plus storage projects to help reach the Utilities renewable portfolio standards goals as well as to assist the Utilities in retiring fossil fuel generation. Several of the recently procured projects have experienced delays as a result of supply chain disruptions caused by impacts from the COVID-19 pandemic, solar product detentions at U.S. ports of entry ordered by the U.S. Customs and Border Protection agency, and unforeseen site conditions which resulted in unanticipated project costs or in some cases the inability to effectively use previously identified project sites. These impacts have resulted in five Stage 2 projects declared null and void by the independent power producers and one Stage 2 project mutually terminating its PPA with the Utilities. Projects have also indicated potential impacts from the investigation launched by the U.S. Department of Commerce on March 28, 2022, in response to a request by Auxin Solar Inc. in regard to solar panel imports.
On June 6, 2022, President Biden created a bridge to temporarily facilitate U.S. solar deployers’ ability to source certain imported solar modules and cells free of certain duties for 24 months in order to ensure the U.S. has access to a sufficient supply of solar modules to meet electricity generation needs. The Utilities are in discussions with several project developers regarding requests to increase previously approved prices and extend guaranteed commercial operations dates for those projects in order to ensure their viability given the impact of these recent market conditions. Significant project delays or failures of these projects increase the risk of the Utilities not meeting the renewable portfolio standards or other climate related goals, eligibility for performance incentive mechanisms associated with the speed of increasing renewable generation, and the ability to retire fossil fuel units. Developments in the Utilities’ efforts to further their renewable energy strategy include renewable energy projects discussed in Note 3 of the Condensed Consolidated Financial Statements and the following:
New renewable PPAs.
•On November 16, 2021, Hawaii Electric Light and Hawi Renewable Development, LLC (HRD) entered into an Amended and Restated Power Purchase Agreement (HRD ARPPA). Under the HRD ARPPA, HRD would make modifications to upgrade and repower the existing wind facility to enable it to continue to provide up to 10.56 MW of energy at a cost savings for customers. The HRD ARPPA is delinked from the price of fossil fuel and extends the term of the existing PPA by 20 years following the commercial operations date. On December 17, 2021, Hawaii Electric Light filed an application for approval of the HRD ARPPA, requesting a decision no later than June 15, 2022. On January 11, 2023, Hawaii Electric Light and HRD entered into a First Amendment to the HRD ARPPA (First Amendment). The First Amendment includes an extension of the Guaranteed Commercial Operations Date (GCOD) by 26 months to accommodate the delayed delivery of components, and a temporary price increase until HRD recovers its estimated increased costs specified in the First Amendment. The Amendment was conditionally approved by the PUC on July 12, 2023.
•On December 31, 2019, Hawaii Electric Light and Puna Geothermal Ventures entered into an Amended and Restated Power Purchase Agreement (PGV ARPPA). The PGV ARPPA extends the term of the existing PPA by 25 years to 2052, expands the firm capacity of the facility to 46 MW and delinks the pricing for energy delivered from the facility from fossil fuel prices to reduce cost to customers. On March 16, 2022, the PUC issued a D&O, approving the PGV ARPPA, subject to conditions, that include requiring completion of a final environmental review prior to construction. On March 28, 2022, Puna Pono Alliance filed a Motion for Reconsideration seeking reconsideration, modification and/or vacation of the D&O. On June 6, the PUC denied Puna Pono’s Motion for Reconsideration. PGV notified the Utilities that changes in market conditions that transpired since the terms of the PGV ARPPA were negotiated impacted the financial viability of the Project, and that an amendment to the PGV ARPPA was necessary to mitigate the impacts. On March 27, 2023, the Utilities and PGV executed the First Amendment to the PGV ARPPA which increases the capacity payment and extends the GCOD. An application requesting approval of the First Amendment to the PGV ARPPA was filed on April 4, 2023. On June 13, 2023, PGV notified the Utilities of concerns of its ability to timely deliver on the terms of the ARPPA. PGV has been working to re-establish its capacity generation and has continued drilling and plans to drill additional wells, however, this process has taken longer than anticipated and PGV has become increasingly concerned about timely achieving the Contract Firm Capacity of 46 MW. In light of receiving this information and to allow the Utilities and PGV to determine the best path forward, on July 6, 2023 the Utilities asked the PUC to put the procedural schedule on hold for approval of the First Amendment.
•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 eight PPAs is as follows:
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| Utilities |
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Number of contracts |
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Total photovoltaic size (MW) |
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BESS Size (MW/MWh) |
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Guaranteed commercial operation dates |
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Contract term (years) |
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Total projected annual payment (in millions) |
| Hawaiian Electric |
|
4 |
|
139.5 |
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139.5/558 |
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7/31/22, 1/11/23, 1/20/23* & 10/31/24 |
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20 & 25 |
|
$ |
34.0 |
|
| Hawaii Electric Light |
|
2 |
|
60 |
|
60/240 |
|
10/11/24 & 4/21/23 |
|
25 |
|
19.2 |
|
| Maui Electric |
|
2 |
|
75 |
|
75/300 |
|
4/28/23* & 10/27/23** |
|
25 |
|
17.6 |
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| Total |
|
8 |
|
274.5 |
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274.5/1,098 |
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|
|
$ |
70.8 |
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* Project delays have resulted in Guaranteed Commercial Operations Date being missed.
** Dates would change upon PUC approval of a PPA amendment.
The Utilities have received PUC approvals to recover the total projected annual payment of $70.8 million for the eight PPAs through the PPAC to the extent such costs are not included in base rates. To date, the Utilities filed seven requests with the PUC for approval of amendments related to previously-approved PPAs for changes in pricing and/or guaranteed commercial operations dates to support completion of the projects while maintaining system reliability.
The PUC has approved six amendments and one request filed on July 18, 2023 for Maui is pending PUC approval. On July 31, 2022, Mililani I Solar on Oahu, the first Stage 1 solar-plus-storage project, was placed into service. Waiawa Solar project on Oahu and the AES Waikoloa Solar project on Hawaii Island also reached commercial operations on January 11, 2023 and April 21, 2023, respectively. See also “Stage 1 renewable PPAs” in Note 3 of the Condensed Consolidated Financial Statements.
•In continuation of their February 2018 request for proposal process, the Utilities issued their Stage 2 Renewable RFPs for Oahu, Maui and Hawaii Island and Grid Services RFP on August 22, 2019. To date, the Utilities had filed 11 PPAs. Additionally, two GSPAs and two applications for commitments of funds for capital expenditures for approval of the utility self-build projects were filed with the PUC. Of the 11 filed PPAs, six PPAs were declared null and void by the independent power producers and one PPA was mutually terminated. The most recent of these six PPAs was declared null and void by the developer on March 10, 2023; the Utilities filed a notice with the PUC on March 15, 2023. The four remaining projects have received PUC approval. On May 2, and July 31, 2023, the Utilities filed letters with the PUC requesting approval of an amendment to increase price and to change the guaranteed commercial operation date of previously-approved PPAs for Stage 2 on Oahu. One request was approved by the PUC on August 1, 2023, and one request is still pending PUC approval. On July 19, 2023, the PUC approved the second amendment to a previously approved energy storage PPA for Stage 2 on Oahu to allow for partial commissioning. The two GSPAs were approved by the PUC in December 2020. The two utility Self-Build projects are still pending PUC approval.
A summary of the remaining four approved Stage 2 PPAs, is as follows:
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Utilities |
|
Number of contracts |
|
Total photovoltaic size (MW) |
|
BESS Size (MW/MWh) |
|
Guaranteed commercial operation dates |
|
Contract term (years) |
|
Total projected annual payment (in millions) |
| Hawaiian Electric |
|
3 |
|
79 |
|
79 |
/ |
443 |
|
5/17/23**, 9/1/2024, & 4/9/2024 |
|
20 & 25 |
|
$ |
30.9 |
|
| Hawaiian Electric |
|
1 |
* |
N/A |
|
185 |
/ |
565 |
|
12/30/2022*** |
|
20 |
|
24.0 |
|
| Total |
|
4 |
|
79 |
|
264 |
/ |
1,008 |
|
|
|
|
|
$ |
54.9 |
|
* See further discussion under “Review of Interconnection Process and Kapolei Energy Storage Power Purchase Agreement” below.
** Dates would change upon PUC approval of a PPA amendment.
*** Project delays have resulted in Guaranteed Commercial Operations Date being missed.
The total projected annual payment of $54.9 million for these PPAs will be recovered through the PPAC to the extent such costs are not included in base rates.
A summary of the GSPAs that were approved by PUC in December 2020 is as follows:
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|
|
|
|
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|
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|
|
|
|
|
|
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|
|
|
|
|
|
| Utilities |
|
|
|
Fast Frequency Response - 1
(MW) |
|
Fast Frequency Response - 2
(MW) |
|
Capacity -
Load Build
(MW) |
|
Capacity -
Load Reduction
(MW) |
| Hawaiian Electric |
|
|
|
— |
|
26.7 |
|
14.5 |
|
19.4 |
| Hawaii Electric Light |
|
|
|
6.0 |
|
— |
|
3.2 |
|
4.0 |
| Maui Electric |
|
|
|
6.1 |
|
— |
|
1.9 |
|
4.7 |
| Total |
|
|
|
12.1 |
|
26.7 |
|
19.6 |
|
28.1 |
A summary of the utility self-build projects that are pending PUC approval is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Utilities |
|
Number of contracts |
|
BESS Size (MW/MWh) |
|
Guaranteed commercial operation dates |
| Hawaii Electric Light |
|
1 |
* |
12/12 |
|
12/30/22 |
| Maui Electric |
|
1 |
|
40/160 |
|
4/28/23 |
| Total |
|
2 |
|
52/172 |
|
|
* The Utility Self-Build project was denied by the PUC on May 25, 2022 and the Utilities have filed a motion for reconsideration with the PUC.
Tariffed renewable resources.
•As of June 30, 2023, there were approximately 590 MW, 130 MW and 142 MW of installed distributed renewable energy technologies (mainly PV) at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively, for tariff-based private customer generation programs, namely Standard Interconnection Agreement, Net Energy Metering, Net Energy Metering Plus, Customer Grid Supply, Customer Self Supply, Customer Grid Supply Plus and Interim Smart Export. As of June 30, 2023, an estimated 37% of single family homes on the islands of Oahu, Hawaii and Maui have installed private rooftop solar systems, and approximately 21% of the Utilities’ total customers have solar systems.
•The Utilities began accepting energy from feed-in tariff projects in 2011. As of June 30, 2023, there were 44 MW, 2 MW and 6 MW of installed feed-in tariff capacity from renewable energy technologies at Hawaiian Electric, Hawaii Electric Light and Maui Electric, respectively.
Biofuel sources.
•On June 30, 2021, the Utilities issued an RFP for all fuels, including biodiesel, for supply commencing January 1, 2023. The Utilities and Pacific Biodiesel Technologies, LLC (PBT) signed an agreement on December 13, 2021 for supply of biodiesel on all islands commencing January 1, 2023, which was approved by the PUC on December 1, 2022. Hawaiian Electric also has a spot buy contract with PBT to purchase additional quantities of biodiesel at or below the price of diesel. Some purchases of “at parity” biodiesel have been made under the spot purchase contract, which was extended through June 2024.
•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 2024, and will continue with no volume purchase requirements.
Requests for renewable proposals, expressions of interest, and information.
•On November 22, 2021, CBRE RFPs for Molokai and Lanai were opened. The RFP for Lanai sought a single PV paired with storage project, which included a 3 MW portion, reserved for CBRE. The Lanai RFP closed on February 14, 2022 and the Molokai RFP closed on March 1, 2022. A project was selected in the Lanai RFP but negotiations were terminated. On July 1, 2022, a replacement project was selected and negotiations commenced. The RFP for Molokai sought 2.75 MW of new PV paired with storage projects for CBRE generation. No projects were selected in the Molokai RFP. However, with the concurrence of the independent observer, the Utilities are working with the lone bidder outside of the RFP process.
•On March 17, 2022, the CBRE LMI RFPs for Oahu, Maui and Hawaii were opened and proposals were received. In November 2022, seven projects were selected consisting of one standalone PV project on Oahu, three paired PV with storage projects on Maui, and three paired PV with storage projects on Hawaii Island. The Utilities opened the CBRE Tranche 1 RFPs for Oahu, Maui and Hawaii on April 14, 2022. In March 2023, five projects were selected consisting of one paired PV with storage project on Oahu and four standalone PV projects on Hawaii Island. See “Transition to a decarbonized and sustainable energy future—Community-based renewable energy” for additional information.
•The Hawaii Island Stage 3 RFP, seeking 325 GWh per year of energy and 65 MW of renewable firm capacity, was filed on November 7, 2022 and was issued on November 21, 2022. Proposals were received on April 20, 2023. The Stage 3 RFPs for Oahu and Maui opened for bids on January 20, 2023. For Oahu, the Utilities are seeking 500 to 700 MW of renewable firm capacity, and at least 965 GWh of renewable dispatchable energy annually. For Maui, the Utilities are procuring at least 40 MW of renewable firm capacity, and at least 425 GWh of renewable dispatchable energy annually. On March 15, 2023, the PUC denied the Utility’s request to not advance its own proposal to meet the Maui firm capacity need as required under the Framework for Competitive Bidding, and on April 5, 2023, denied the Utility’s motion to modify the Maui RFP to allow a self-build, ordering the Utility to submit a proposal for the firm capacity need, or in the alternative, file a request to suspend the firm generation portion of the Maui RFP to make adjustments as ordered by the PUC, including an extension of the bidding period for firm generation proposals. The Utility filed its request on April 12, 2023, which the PUC granted on April 14, 2023. The updated Maui RFP was filed on April 27, 2023. Proposals for the Oahu RFP and the variable generation portion of the Maui RFP were received on April 20, 2023. The Utility submitted a proposal that is consistent with the reliability requirements under the competitive bidding framework as directed by the PUC. Priority List selections were announced on July 6, 2023 and best and final offers for the Oahu and Hawaii RFPs and the variable generation portion of the Maui RFP were due on July 14, 2023. Final award selection is in October 2023, with negotiations of the PPAs expected to be completed in the later part of 2024. Proposals for the firm generation portion of the Maui Stage 3 RFP are due on August 17, 2023.
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 GCODs 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).
•During the 2022 Legislative Session, the Hawaii State Legislature passed Senate Bill 2474 SD 2 HD 1 CD 1, which was signed into law on June 27, 2022 as Act 201. The law requires that the PUC contract with a qualified consultant to conduct a study on the accessibility of Hawaii’s electric system and procedures for interconnection to Hawaii’s electric system, including but not limited to the timeliness and costs of interconnection. The PUC contracted with PA Consulting to conduct the study as well as act as the Independent Engineer for the Stage 3 Request for Proposal procurement. The report was submitted to the PUC on December 28, 2022 and did not find any wrongdoing on the part of the utility. The report made minor recommendations for Hawaiian Electric to review interconnection related tariff/rules and revise, if necessary, to provide technical clarity in terms of interconnection requirements, to establish a database for the purpose of centralizing all information related to all interconnection projects they manage, including their self-build and IPP-built projects, and to develop comparable interconnection cost metrics for self-build and IPP-built projects so that interconnection costs can be directly compared. The PUC stated its intent to address the recommendations that are directed to Hawaiian Electric through various proceedings related to the interconnection process. Hawaiian Electric will be working on these recommendations. The contracted consultant is also planning a second phase of the study, to be completed in 2023, which will include the assessment and recommendation of remaining issues listed in Act 201 that are not covered in Phase 1.
•Also in April 2021, the PUC approved the Kapolei Energy Storage (KES) PPA (one of the PPAs as a result of the Stage 2 Renewable RFP process) (KES Decision and Order), subject to nine conditions, including the Utilities forgoing the second portion of the PIM rewards amounting up to $1.7 million for the Stage 1 RFP PPAs, removing grid constraints for the Utilities’ CBRE Phase 2 projects and for existing and new distributed energy programs, financial retirement of Hawaiian Electric generating units by specified dates and adjusting target revenues at the retirement dates for such retirements, and a requirement to charge the batteries in the project using significant levels of renewable energy generation. The financial retirement of the generating units described in the KES Decision and Order is contrary to the intent of Hawaii Revised Statutes §269-6(d), which encourages the recovery of stranded costs for the retirement of fossil fuel generation, and contrary to the regulatory compact under which in return for agreeing to commit capital necessary to allow utilities to meet their obligation to serve, utilities are assured recovery of their investment and a fair opportunity to earn a reasonable return on the capital prudently committed to the business. Hawaiian Electric filed a Motion for Reconsideration and Stay of the Decision and Order due to potentially significant financial and operational impacts. In May 2021, the PUC granted, in part, Hawaiian Electric’s Motion for Reconsideration and Stay. In this Order, the PUC addressed a number of Hawaiian Electric’s concerns, including removing the condition of the Utilities foregoing the PIM award from Stage 1 RFP projects, agreeing to address grid constraint concerns in respective DER and CBRE dockets and not in the KES docket, removing the minimum 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. On June 30, 2021, the Utilities issued two RFPs for all fuels for supply commencing January 1, 2023. On February 1, 2022, the Utilities and PAR Hawaii Refining, LLC (PAR Hawaii) entered into a fuel supply contract commencing January 1, 2023.
On December 1, 2022, the PUC issued a decision and order (D&O) approving the PAR Hawaii fuels contract and recovery of associated costs through ECRC.
On 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 Utilities are taking additional measure to ensure adequate supply of fuel by entering into a backup fuel supply contract with Vitol Inc. (Vitol) commencing on December 1, 2022 through June 30, 2024 with annual extensions if mutually agreed by both parties. The PUC issued the final D&O approving the Vitol backup fuels supply contract on December 1, 2022 and the costs incurred under the contract with Vitol are recovered in the Utilities’ respective ECRCs.
FINANCIAL CONDITION
Liquidity and capital resources. As of June 30, 2023, Hawaiian Electric had no commercial paper outstanding, no amount outstanding on its revolving credit facility and the total amount of available borrowing capacity under the Utilities’ committed line of credit was $200 million.
Hawaiian Electric expects that its liquidity will be adequate as fuel prices are moderating and lingering COVID-19 impacts are dissipating as the local economy is beginning to return to pre-pandemic levels. However, accounts receivable balances remain elevated coming out of the pandemic and has led to higher bad debt expense and higher write-offs in 2022 and 2023. As of June 30, 2023, approximately $24.3 million of the accounts receivables were over 30 days past due. Of the over 30 days past due amounts, approximately 53% were on payment plans. 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. However, the Utilities’ liquidity and access to capital remains adequate and is expected to remain adequate. As of June 30, 2023, 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 $344 million.
The Utilities are continuing the disconnection process on a tiered basis, expanding the targeted balances, which is expected to further reduce delinquent accounts receivable balances and accelerate cash collections.
Hawaiian Electric’s consolidated capital structure was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
June 30, 2023 |
|
December 31, 2022 |
| Short-term borrowings, net |
|
$ |
— |
|
|
— |
% |
|
$ |
88 |
|
|
2 |
% |
| Long-term debt, net |
|
1,835 |
|
|
43 |
|
|
1,685 |
|
|
41 |
|
| Preferred stock |
|
34 |
|
|
1 |
|
|
34 |
|
|
1 |
|
| Common stock equity |
|
2,372 |
|
|
56 |
|
|
2,344 |
|
|
56 |
|
|
|
$ |
4,241 |
|
|
100 |
% |
|
$ |
4,151 |
|
|
100 |
% |
Information about Hawaiian Electric’s commercial paper borrowings, borrowings from HEI and line of credit facility were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Average balance |
|
Balance |
| (in millions) |
|
Six months ended June 30, 2023 |
|
June 30, 2023 |
|
December 31, 2022 |
Short-term borrowings1 |
|
|
|
|
|
|
| Commercial paper |
|
$ |
12 |
|
|
$ |
— |
|
|
$ |
88 |
|
| 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 six months of 2023 was approximately $96 million. At June 30, 2023, Hawaiian Electric had no short-term borrowings from Hawaii Electric Light and Maui Electric.
Hawaiian Electric utilizes short-term debt, typically commercial paper, to support normal operations, to refinance short-term debt and for other temporary requirements. Hawaiian Electric also borrows short-term from HEI for itself and on behalf of Hawaii Electric Light and Maui Electric, and Hawaiian Electric may borrow from or loan to Hawaii Electric Light and Maui Electric on a short-term basis. The intercompany borrowings among the Utilities, but not the borrowings from HEI, are eliminated in the consolidation of Hawaiian Electric’s financial statements. The Utilities periodically utilize long-term debt, borrowings of the proceeds of special purpose revenue bonds (SPRBs) issued by the State of Hawaii Department of Budget and Finance (DBF) and the issuance of privately placed unsecured senior notes bearing taxable interest, to finance the Utilities’ capital improvement projects, or to repay short-term borrowings used to finance such projects. The PUC must approve issuances, if any, of equity and long-term debt securities by the Utilities.
Credit agreement. Hawaiian Electric has a $200 million line of credit facility with no amount outstanding at June 30, 2023. See Note 5 of the Condensed Consolidated Financial Statements for additional information.
Credit ratings. On July 28, 2023, Fitch Ratings, Inc. upgraded Hawaiian Electric’s long-term issuer default rating to “A-” from “BBB+”, long-term senior unsecured rating to “A” from “A-”, affirmed its short-term issuer default rating and short-term senior unsecured rating at “F2”, and revised the outlook to "Stable” from “Positive”. These ratings are not recommendations to buy, sell or hold any securities. See “Credit and Capital Market Risk” in item 1A. Risk Factors in HEI’s and Hawaiian Electric’s 2022 Form 10-K.
SPRBs. Special purpose revenue bonds (SPRBs) have been issued by the Department of Budget and Finance of the State of Hawaii (DBF) to finance (and refinance) capital improvement projects of Hawaiian Electric and its subsidiaries, but the sources of their repayment are the non-collateralized obligations of Hawaiian Electric and its subsidiaries under loan agreements and notes issued to the DBF, including Hawaiian Electric’s guarantees of its subsidiaries’ obligations.
On June 10, 2019, the Hawaii legislature authorized the issuance of up to $700 million of SPRBs ($400 million for Hawaiian Electric, $150 million for Hawaii Electric Light and $150 million for Maui Electric), with PUC approval, prior to June 30, 2024, to finance the Utilities’ multi-project capital improvement programs (2019 Legislative Authorization).
On February 9, 2021, the PUC 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. On January 31, 2023, the PUC approved the Utilities’ requests to issue the remaining unused amounts of the SPRBs during the period January 1, 2023 through June 30, 2024, and the certification and approval of supplemental projects eligible to be financed by the SPRB proceeds.
Taxable debt. On December 20, 2022, the Utilities received PUC approval to issue, over a four-year period from January 1, 2023 to December 31, 2026, unsecured obligations bearing taxable interest (Hawaiian Electric up to $230 million, Hawaii Electric Light up to $65 million and Maui Electric up to $105 million), to finance capital expenditures, repay long-term and/or short-term debt used to finance or refinance capital expenditures, and/or to reimburse funds used for payment of capital expenditures. Pursuant to the approval, on January 10, 2023, the Utilities executed through a private placement, $150 million in unsecured senior notes (2023 Notes). The 2023 Notes had a delayed draw feature and the Utilities drew down all the proceeds on February 9, 2023. See Note 5 of the Condensed Consolidated Financial Statements for additional information and see summary table below for remaining authorized amounts.
|
|
|
|
|
|
|
|
|
|
|
|
| (in millions) |
Hawaiian Electric |
Hawaii Electric Light |
Maui Electric |
| Total “up to” amounts of taxable debt authorized from 2023 through 2026 |
$ |
230 |
|
$ |
65 |
|
$ |
105 |
|
| Less: |
|
|
|
| Taxable debt executed on January 10, 2023, but issued on February 9, 2023 |
100 |
|
25 |
|
25 |
|
| Remaining authorized amounts |
$ |
130 |
|
$ |
40 |
|
$ |
80 |
|
As of June 30, 2023, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $130 million, $40 million, and $80 million, respectively of remaining taxable debt authorization.
Equity. On December 20, 2022, the Utilities received PUC approval to issue and sell each utility’s common stock over a four-year period from January 1, 2023 through December 31, 2026 (Hawaiian Electric’s sale/s to HEI of up to $75 million, Hawaii Electric Light sale/s to Hawaiian Electric of up to $25 million, and Maui Electric sale/s to Hawaiian Electric of up to $55 million) and the purchase of Hawaii Electric Light and Maui Electric common stock by Hawaiian Electric from 2023 through December 31, 2026. As of June 30, 2023, Hawaiian Electric, Hawaii Electric Light, and Maui Electric have $75 million, $25 million, and $55 million, respectively, of unused common stock authorization.
Cash flows. The following table reflects the changes in cash flows for the six months ended June 30, 2023 compared to the six months ended June 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
|
| (in thousands) |
2023 |
|
2022 |
|
Change |
| Net cash provided by operating activities |
$ |
336,145 |
|
|
$ |
44,150 |
|
|
$ |
291,995 |
|
| Net cash used in investing activities |
(226,093) |
|
|
(133,560) |
|
|
(92,533) |
|
| Net cash provided by (used in) financing activities |
(5,647) |
|
|
50,784 |
|
|
(56,431) |
|
Net cash provided by operating activities. The increase in net cash provided by operating activities was primarily driven by lower cash paid for fuel oil stock due to lower fuel oil prices, as well as higher cash receipts from large delinquent commercial customer accounts, receipts from customers associated with increased disconnection efforts, receipts of payments on installment plans, and receipt of government and other program assistance, partially offset by higher cash paid for accounts payable due to timing.
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 driven by net increase in repayment of short-term borrowings, partially offset by higher proceeds from issuance of long-term debts.
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 economic impact of higher fuel prices, inflation, higher interest rates, tightening of monetary policy, the lingering COVID-19 pandemic and geopolitical situations, create significant uncertainty, and the Utilities cannot predict the extent or duration of these conditions, 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 2023 through 2027, the Utilities forecast approximately $2.2 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 $1.6 billion is related to replacement and modernization of generation, transmission and distribution assets; approximately $0.3 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 2023 to 2027 forecast (such as increases in the costs or acceleration of capital projects, or unanticipated capital expenditures that may be required by new environmental laws and regulations).
Management periodically reviews capital expenditure estimates and the timing of construction projects. These estimates may change significantly as a result of many considerations, including changes in economic conditions, changes in forecasts of kWh sales and peak load, the availability of purchased power and changes in expectations concerning the construction and ownership of future generation units, the availability of generating sites and transmission and distribution corridors, the need for fuel infrastructure investments, the ability to obtain adequate and timely rate increases, escalation in construction costs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities.
Bank
Recent Developments. See also “Recent developments” in HEI’s MD&A.
The Hawaii economy continued to improve in the second quarter of 2023 as visitor arrivals increased, which have helped drive a growing labor market and tax collections. Domestic visitor arrivals exceeded pre-pandemic levels in 2022 and continued to remain strong into 2023 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 have gradually increased as certain Asian countries began loosening travel restrictions. COVID cases caused by the new variants remain relatively stable at low levels along with hospitalization rates.
As of June 30, 2023, the Federal Reserve federal funds rate target range was 5.00%-5.25% in response to continued inflationary pressures in the economy. The increase in interest rates has impacted ASB’s net interest margin as higher yields on earning assets were more than offset by an increase in yields on deposits and other borrowings. The higher interest rates have also reduced mortgage refinance and purchase activity, negatively impacting mortgage banking income. Additionally, the tight labor market and inflationary pressures have increased compensation and benefit expenses.
ASB experienced continued loan growth in 2023 as total loans increased $163 million compared to total loans at the end of 2022. There was demand for commercial real estate, home equity line of credit and consumer loan products. The consumer loan portfolio growth also included purchases of solar and sustainable home improvement loans from a third party. The residential loan portfolio also grew due to ASB’s decision to portfolio a larger portion of its residential loan production.
Deposit growth driven by federal stimulus, which had previously funded loan growth and investment security purchases, has ceased and required ASB to increase its other borrowings to fund the loan portfolio growth, thereby increasing the Bank’s funding costs and reducing its balance sheet sensitivity. Additional federal funds rate increases may not further increase the Bank’s net interest margin if core deposits continue to flow out and funding is replaced with other borrowings.
For the quarter ended June 30, 2023, ASB recorded a provision for credit losses of $0.04 million as the release of reserves for lower loss rates due to improved credit quality were offset by additional reserves required for loan portfolio growth. The provision for credit losses in future quarters will be dependent on future economic conditions and changes to borrower credit quality at that time.
At June 30, 2023, the investment securities portfolio balance decreased approximately $88 million as investment securities portfolio repayments were used as a funding source for the loan growth and ASB did not purchase any investment securities. The lack of deposit growth resulted in lower excess liquidity and the need for other sources to fund the loan growth. The change in interest rates in the first half of 2023 resulted in lower unrealized losses in the available-for-sale investment securities portfolio, which increased the investment portfolio balance.
In 2023, the increase in interest rates and the collapse of a few financial institutions had caused turmoil in the banking industry. Due to the failure of these financial institutions, the focus on the banking industry has been around capital levels, uninsured deposits and liquidity. At June 30, 2023, ASB’s regulatory capital ratios were above the “well-capitalized” and regulatory requirements, including the conservation buffers. Approximately 86% of the Bank’s deposits are FDIC insured or fully collateralized. ASB has access to approximately $3 billion in funding sources to meet its liquidity needs.
ASB continues to maintain its low-risk profile, strong balance sheet and straightforward community banking business model.
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| |
|
Three months ended June 30 |
|
Increase |
|
|
| (in millions) |
|
2023 |
|
2022 |
|
(decrease) |
|
Primary reason(s) |
| Interest and dividend income |
|
$ |
82 |
|
|
$ |
63 |
|
|
$ |
19 |
|
|
|
|
|
|
|
|
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|
|
Average loan portfolio yields were 81 basis points higher—yield benefited from the rising interest rate environment and new loan production yields were higher than the portfolio yields. |
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|
|
Average loan portfolio balances increased $811 million - commercial real estate, home equity line of credit and commercial loan portfolio average balances increased $225 million, $145 million and $101 million, respectively, due to increased demand for these loan products. Residential loan average balances increased $207 million due to the Bank’s decision to portfolio a larger portion of the residential loan production. Consumer loan portfolio average balance increased $135 million due to purchases of solar and sustainable home improvement loans. |
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| |
|
Three months ended June 30 |
|
Increase |
|
|
| (in millions) |
|
2023 |
|
2022 |
|
(decrease) |
|
Primary reason(s) |
|
|
|
|
|
|
|
|
Average investment securities portfolio balances decreased $276 million—investment security portfolio repayments were used to fund loan growth. Average investment securities portfolio yields were 3 basis points lower due to higher investment portfolio premium amortizations. |
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Average other investments decreased $22 million - decrease in interest earning deposits due to excess liquidity being used to fund loan production. |
| Noninterest income |
|
16 |
|
|
13 |
|
|
3 |
|
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|
|
|
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|
|
Higher bank owned life insurance income - higher returns from insurance policies. |
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|
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|
|
|
|
|
| Revenues |
|
98 |
|
|
76 |
|
|
22 |
|
|
The increase in revenues for the three months ended June 30, 2023 compared to the same period in 2022 was primarily due to higher interest and dividend income and higher noninterest income. |
| Interest expense |
|
19 |
|
|
1 |
|
|
18 |
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|
Increase in interest expense on deposits and other borrowings was due to an increase in term certificate and other borrowing balances which were required to fund the loan portfolio growth, higher yields due to the increase in the interest rate environment and a shift in costing liability mix. |
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Average core deposit balances decreased $647 million; average term certificate balances increased $430 million. |
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Average cost of funds increased from 5 basis points to 83 basis points due to a shift in funding from low cost core deposits to higher costing term certificates and other borrowings. |
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Average deposit yields increased from 4 basis points to 48 basis points due to a shift in mix of deposits and higher yields from the increase in the interest rate environment. |
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Average other borrowings increased $682 million and average yields increased 394 basis points. |
| Provision for credit losses |
|
— |
|
|
3 |
|
|
(3) |
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2023 provision for credit losses included credit loss reserves for growth in the loan portfolio and additional credit loss reserves for the home equity line of credit loan portfolio, offset by the release of credit loss reserves due to improved credit trends in the commercial real estate and consumer loan portfolios. |
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2022 provision for credit losses was primarily due to additional reserves for growth in the commercial real estate and consumer loan portfolios, and higher loss rates for the residential and consumer loan portfolios. In addition, loan loss reserves were established for the solar and sustainable home improvement loans purchased during the quarter. |
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2022 provision for credit losses also included the release of loss reserves for the commercial and commercial real estate loan portfolios due to improved credit trends in those loan portfolios and reduction in the commercial loan portfolio. |
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|
|
Delinquency rates have decreased—from 0.27% at June 30, 2022 to 0.17% at June 30, 2023 primarily due to lower residential 1-4 family loan delinquencies, partly offset by higher consumer loan delinquencies. |
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|
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|
|
|
|
Net charge-off to average loans increased from nil at June 30, 2022 to 0.14% at June 30, 2023 primarily due to an increase in consumer loan net charge-offs. |
| Noninterest expense |
|
54 |
|
|
49 |
|
|
5 |
|
|
|
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|
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|
|
The increase in noninterest expenses was primarily due to higher compensation and benefits as a result of higher base compensation and the fair value adjustment related to the deferred compensation plan, and higher FDIC insurance assessments. |
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|
|
|
|
|
|
|
|
| Expenses |
|
73 |
|
|
53 |
|
|
20 |
|
|
The increase in expenses for the three months ended June 30, 2023 compared to the same period in 2022 was due to higher interest expenses and higher noninterest expenses, partly offset by lower provision for credit losses. |
| Operating income |
|
25 |
|
|
23 |
|
|
2 |
|
|
The increase in operating income for the three months ended June 30, 2023 compared to the same period in 2022 was primarily due to higher interest and noninterest income and lower provision for credit losses, partly offset by higher interest and noninterest expenses. |
|
|
|
|
|
|
|
|
|
| Net income |
|
20 |
|
|
17 |
|
|
3 |
|
|
Net income for the three months ended June 30, 2023 was higher than the same period in 2022 due to higher operating income and lower income tax expense. |
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|
|
|
|
|
|
|
| |
|
Six months ended June 30 |
|
Increase |
|
|
| (in millions) |
|
2023 |
|
2022 |
|
(decrease) |
|
Primary reason(s) |
| Interest and dividend income |
|
$ |
161 |
|
|
$ |
123 |
|
|
$ |
38 |
|
|
|
|
|
|
|
|
|
|
|
Average loan portfolio yields were 79 basis points higher—loan yields continued to increase in 2023 due to the interest rate environment as adjustable rate loan yields repriced with rising interest rates and new loan production yields were higher than the portfolio rates. |
|
|
|
|
|
|
|
|
Average loan portfolio balances increased $826 million - commercial real estate, home equity line of credit and commercial loan portfolio average balances increased $273 million, $163 million and $62 million, respectively, due to demand for these loan types. Residential loan portfolio average balances increased $196 million due to the Bank’s decision to portfolio a larger portion of the residential loan production. Consumer loan portfolio average balances increased $133 million primarily due to the purchase of solar and sustainable home improvement loans. |
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|
|
Average investment securities portfolio balances decreased $184 million—repayments in the investment securities portfolio were used to fund the loan portfolio growth. |
|
|
|
|
|
|
|
|
Average investment securities portfolio yields increased 2 basis points. |
| Noninterest income |
|
30 |
|
|
29 |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
Higher bank-owned life insurance income - higher returns from insurance policies. |
|
|
|
|
|
|
|
|
Lower mortgage banking income - lower residential loan sale volume due to lower production volume as the higher interest rate environment has reduced the demand for residential mortgage loans. ASB’s decision to portfolio a larger portion of the residential loan production also reduced the amount of loans sold on the secondary market. |
| Less: gain on sale of real estate |
|
— |
|
|
(1) |
|
|
1 |
|
|
Gain on sale of real estate, which is included in Noninterest 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. |
| Revenues |
|
191 |
|
|
151 |
|
|
40 |
|
|
The increase in revenues for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to higher interest and dividend income and higher noninterest income. |
| Interest expense |
|
33 |
|
|
2 |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense on deposits and other borrowings increased in 2023 compared to 2022 due to an increase in term certificate and other borrowing balances which were required to fund the loan portfolio growth, higher yields due to the increase in the interest rate environment and a shift in deposit mix. |
|
|
|
|
|
|
|
|
Average core deposit balances decreased $500 million; average term certificate balances increased $379 million. |
|
|
|
|
|
|
|
|
Average deposit yields increased from 5 basis points to 41 basis points. The increase was primarily due to the increase in term certificate yields of 255 basis points and the shift in mix of deposits from low cost core deposits to term certificates. |
|
|
|
|
|
|
|
|
Average other borrowings increased $653 million and average yields increased 408 basis points. Other borrowings were used to fund the growth in the loan portfolio. The higher yields was reflective of the higher interest rate environment. |
| Provision for credit losses |
|
1 |
|
|
(1) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
2023 provision for credit losses was primarily for the growth in the loan portfolio. |
|
|
|
|
|
|
|
|
2023 provision for credit losses also included the release of credit loss reserves for improved credit loss rates in the commercial real estate and consumer loan portfolios. |
|
|
|
|
|
|
|
|
2022 negative provision for credit losses reflected good credit trends including lower net charge-offs and improved credit loss rates which included credit upgrades in the commercial real estate and commercial loan portfolios. |
|
|
|
|
|
|
|
|
2022 negative provision for credit losses also included additional reserves for growth in the commercial real estate loan portfolio and loss reserves established for the solar and sustainable home improvement loans purchased during the year. |
|
|
|
|
|
|
|
|
Delinquency rates have decreased—from 0.27% at June 30, 2022 to 0.17% at June 30, 2023 due to lower residential 1-4 family loan delinquencies, partly offset by higher consumer loan delinquencies. |
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|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
| |
|
Six months ended June 30 |
|
Increase |
|
|
| (in millions) |
|
2023 |
|
2022 |
|
(decrease) |
|
Primary reason(s) |
|
|
|
|
|
|
|
|
Net charge-off to average loans have increased—from 0.01% at June 30, 2022 to 0.14% at June 30, 2023 primarily due to an increase in consumer loan portfolio net charge-offs and the charge-off of a residential loan. |
| Noninterest expense |
|
108 |
|
|
98 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
The increase in noninterest expenses were due to higher compensation and benefits expenses, an increase in FDIC insurance assessments and higher deposit account expenses. |
|
|
|
|
|
|
|
|
Higher compensation and benefits expenses included higher base compensation as a result of merit increases, market adjustments and the fair value adjustment related to the deferred compensation plan. |
| Gain on sale of real estate |
|
— |
|
|
(1) |
|
|
1 |
|
|
|
| Expenses |
|
142 |
|
|
98 |
|
|
44 |
|
|
The increase in expenses for the six months ended June 30, 2023 compared to the same period in 2022 was due to higher interest expenses, higher provision for credit losses and higher noninterest expense partly offset by higher gain on sale of real estate in 2022. |
| Operating income |
|
49 |
|
|
53 |
|
|
(4) |
|
|
The decrease in operating income for the six months ended June 30, 2023 compared to the same period in 2022 was primarily due to higher interest expenses, higher noninterest expenses and higher provision for credit losses, partly offset by higher interest income and higher noninterest income. |
|
|
|
|
|
|
|
|
|
| Net income |
|
39 |
|
|
41 |
|
|
(2) |
|
|
Net income for the six months ended June 30, 2023 was lower than the same period in 2022 due to lower operating income 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 June 30 |
|
Six months ended June 30 |
| (%) |
|
2023 |
|
2022 |
|
2023 |
|
2022 |
| Return on average assets |
|
0.84 |
|
|
0.76 |
|
|
0.81 |
|
|
0.90 |
|
| Return on average equity |
|
16.20 |
|
|
12.17 |
|
|
15.87 |
|
|
13.01 |
|
| Net interest margin |
|
2.75 |
|
|
2.85 |
|
|
2.80 |
|
|
2.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
|
2023 |
|
2022 |
| (dollars in thousands) |
|
Average
balance |
|
Interest
income/
expense |
|
Yield/
rate (%) |
|
Average
balance |
|
Interest
income/
expense |
|
Yield/
rate (%) |
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest-earning deposits |
|
$ |
36,891 |
|
|
$ |
488 |
|
|
5.23 |
|
|
$ |
59,306 |
|
|
$ |
81 |
|
|
0.54 |
|
| FHLB stock |
|
15,660 |
|
|
237 |
|
|
6.07 |
|
|
11,265 |
|
|
94 |
|
|
3.34 |
|
| Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
| Taxable |
|
2,988,483 |
|
|
12,645 |
|
|
1.69 |
|
|
3,262,914 |
|
|
14,213 |
|
|
1.74 |
|
| Non-taxable |
|
67,912 |
|
|
513 |
|
|
3.01 |
|
|
69,264 |
|
|
386 |
|
|
2.22 |
|
| Total investment securities |
|
3,056,395 |
|
|
13,158 |
|
|
1.72 |
|
|
3,332,178 |
|
|
14,599 |
|
|
1.75 |
|
| Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
2,515,753 |
|
|
23,111 |
|
|
3.67 |
|
|
2,309,091 |
|
|
20,070 |
|
|
3.48 |
|
| Commercial real estate |
|
1,483,566 |
|
|
18,373 |
|
|
4.91 |
|
|
1,258,349 |
|
|
10,739 |
|
|
3.39 |
|
| Home equity line of credit |
|
1,034,785 |
|
|
9,657 |
|
|
3.74 |
|
|
889,560 |
|
|
6,481 |
|
|
2.92 |
|
| Residential land |
|
20,235 |
|
|
269 |
|
|
5.32 |
|
|
22,507 |
|
|
531 |
|
|
9.43 |
|
| Commercial |
|
777,028 |
|
|
10,854 |
|
|
5.56 |
|
|
675,760 |
|
|
6,593 |
|
|
3.90 |
|
| Consumer |
|
260,437 |
|
|
5,843 |
|
|
8.99 |
|
|
125,120 |
|
|
3,798 |
|
|
12.18 |
|
Total loans 1,2 |
|
6,091,804 |
|
|
68,107 |
|
|
4.46 |
|
|
5,280,387 |
|
|
48,212 |
|
|
3.65 |
|
Total interest-earning assets 3 |
|
9,200,750 |
|
|
81,990 |
|
|
3.56 |
|
|
8,683,136 |
|
|
62,986 |
|
|
2.90 |
|
| Allowance for credit losses |
|
(71,191) |
|
|
|
|
|
|
(67,620) |
|
|
|
|
|
| Noninterest-earning assets |
|
471,600 |
|
|
|
|
|
|
572,869 |
|
|
|
|
|
| Total assets |
|
$ |
9,601,159 |
|
|
|
|
|
|
$ |
9,188,385 |
|
|
|
|
|
| Liabilities and shareholder’s equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| Savings |
|
$ |
3,006,949 |
|
|
$ |
313 |
|
|
0.04 |
|
|
$ |
3,297,511 |
|
|
$ |
212 |
|
|
0.03 |
|
| Interest-bearing checking |
|
1,298,399 |
|
|
769 |
|
|
0.24 |
|
|
1,372,035 |
|
|
81 |
|
|
0.02 |
|
| Money market |
|
268,744 |
|
|
1,738 |
|
|
2.59 |
|
|
212,527 |
|
|
36 |
|
|
0.07 |
|
| Time certificates |
|
816,772 |
|
|
6,841 |
|
|
3.36 |
|
|
386,869 |
|
|
592 |
|
|
0.61 |
|
| Total interest-bearing deposits |
|
5,390,864 |
|
|
9,661 |
|
|
0.72 |
|
|
5,268,942 |
|
|
921 |
|
|
0.07 |
|
| Advances from Federal Home Loan Bank |
|
141,506 |
|
|
1,605 |
|
|
4.49 |
|
|
31,638 |
|
|
134 |
|
|
1.68 |
|
| Borrowings from Federal Reserve Bank |
|
567,857 |
|
|
6,207 |
|
|
4.38 |
|
|
— |
|
|
— |
|
|
— |
|
| Securities sold under agreements to repurchase and federal funds purchased |
|
105,691 |
|
|
1,040 |
|
|
3.95 |
|
|
101,861 |
|
|
5 |
|
|
0.02 |
|
| Total interest-bearing liabilities |
|
6,205,918 |
|
|
18,513 |
|
|
1.20 |
|
|
5,402,441 |
|
|
1,060 |
|
|
0.08 |
|
| Noninterest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Deposits |
|
2,685,828 |
|
|
|
|
|
|
3,024,910 |
|
|
|
|
|
| Other |
|
210,698 |
|
|
|
|
|
|
186,749 |
|
|
|
|
|
| Shareholder’s equity |
|
498,715 |
|
|
|
|
|
|
574,285 |
|
|
|
|
|
| Total liabilities and shareholder’s equity |
|
$ |
9,601,159 |
|
|
|
|
|
|
$ |
9,188,385 |
|
|
|
|
|
| Net interest income |
|
|
|
$ |
63,477 |
|
|
|
|
|
|
$ |
61,926 |
|
|
|
Net interest margin (%) 4 |
|
|
|
|
|
2.75 |
|
|
|
|
|
|
2.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
|
2023 |
|
2022 |
| (dollars in thousands) |
|
Average
balance |
|
Interest
income/
expense |
|
Yield/
rate (%) |
|
Average
balance |
|
Interest
income/
expense
|
|
Yield/
rate (%) |
| Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| Interest-earning deposits |
|
$ |
23,626 |
|
|
$ |
609 |
|
|
5.13 |
|
|
$ |
96,862 |
|
|
$ |
147 |
|
|
0.30 |
|
| FHLB stock |
|
22,835 |
|
|
663 |
|
|
5.85 |
|
|
10,636 |
|
|
168 |
|
|
3.18 |
|
| Investment securities |
|
|
|
|
|
|
|
|
|
|
|
|
| Taxable |
|
3,015,220 |
|
|
26,341 |
|
|
1.75 |
|
|
3,197,561 |
|
|
27,767 |
|
|
1.74 |
|
| Non-taxable |
|
68,094 |
|
|
1,011 |
|
|
2.96 |
|
|
69,431 |
|
|
753 |
|
|
2.17 |
|
| Total investment securities |
|
3,083,314 |
|
|
27,352 |
|
|
1.77 |
|
|
3,266,992 |
|
|
28,520 |
|
|
1.75 |
|
| Loans |
|
|
|
|
|
|
|
|
|
|
|
|
| Residential 1-4 family |
|
2,502,551 |
|
|
45,726 |
|
|
3.65 |
|
|
2,306,284 |
|
|
40,183 |
|
|
3.48 |
|
| Commercial real estate |
|
1,471,079 |
|
|
35,620 |
|
|
4.83 |
|
|
1,198,157 |
|
|
19,950 |
|
|
3.32 |
|
| Home equity line of credit |
|
1,028,076 |
|
|
18,685 |
|
|
3.67 |
|
|
865,401 |
|
|
12,704 |
|
|
2.96 |
|
| Residential land |
|
20,266 |
|
|
546 |
|
|
5.39 |
|
|
21,669 |
|
|
788 |
|
|
7.27 |
|
| Commercial |
|
780,859 |
|
|
21,251 |
|
|
5.45 |
|
|
718,406 |
|
|
13,405 |
|
|
3.74 |
|
| Consumer |
|
252,883 |
|
|
11,236 |
|
|
8.94 |
|
|
119,504 |
|
|
7,257 |
|
|
12.25 |
|
Total loans 1,2 |
|
6,055,714 |
|
|
133,064 |
|
|
4.40 |
|
|
5,229,421 |
|
|
94,287 |
|
|
3.61 |
|
Total interest-earning assets 3 |
|
9,185,489 |
|
|
161,688 |
|
|
3.52 |
|
|
8,603,911 |
|
|
123,122 |
|
|
2.87 |
|
| Allowance for credit losses |
|
(71,649) |
|
|
|
|
|
|
(69,368) |
|
|
|
|
|
| Noninterest-earning assets |
|
468,958 |
|
|
|
|
|
|
640,563 |
|
|
|
|
|
| Total assets |
|
$ |
9,582,798 |
|
|
|
|
|
|
$ |
9,175,106 |
|
|
|
|
|
| Liabilities and shareholder’s equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| Savings |
|
$ |
3,074,650 |
|
|
$ |
535 |
|
|
0.04 |
|
|
$ |
3,278,139 |
|
|
$ |
419 |
|
|
0.03 |
|
| Interest-bearing checking |
|
1,315,213 |
|
|
1,399 |
|
|
0.21 |
|
|
1,351,635 |
|
|
145 |
|
|
0.02 |
|
| Money market |
|
233,083 |
|
|
2,324 |
|
|
2.01 |
|
|
208,965 |
|
|
69 |
|
|
0.07 |
|
| Time certificates |
|
778,441 |
|
|
12,240 |
|
|
3.17 |
|
|
399,053 |
|
|
1,235 |
|
|
0.62 |
|
| Total interest-bearing deposits |
|
5,401,387 |
|
|
16,498 |
|
|
0.62 |
|
|
5,237,792 |
|
|
1,868 |
|
|
0.07 |
|
| Advances from Federal Home Loan Bank |
|
320,867 |
|
|
7,475 |
|
|
4.63 |
|
|
15,906 |
|
|
134 |
|
|
1.68 |
|
| Borrowings from Federal Reserve Bank |
|
318,674 |
|
|
6,926 |
|
|
4.38 |
|
|
— |
|
|
— |
|
|
— |
|
| Securities sold under agreements to repurchase |
|
125,917 |
|
|
2,172 |
|
|
3.48 |
|
|
96,102 |
|
|
10 |
|
|
0.02 |
|
| Total interest-bearing liabilities |
|
6,166,845 |
|
|
33,071 |
|
|
1.08 |
|
|
5,349,800 |
|
|
2,012 |
|
|
0.08 |
|
| Noninterest bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
| Deposits |
|
2,715,408 |
|
|
|
|
|
|
2,999,395 |
|
|
|
|
|
| Other |
|
211,852 |
|
|
|
|
|
|
190,577 |
|
|
|
|
|
| Shareholder’s equity |
|
488,693 |
|
|
|
|
|
|
635,334 |
|
|
|
|
|
| Total liabilities and shareholder’s equity |
|
$ |
9,582,798 |
|
|
|
|
|
|
$ |
9,175,106 |
|
|
|
|
|
| Net interest income |
|
|
|
$ |
128,617 |
|
|
|
|
|
|
$ |
121,110 |
|
|
|
Net interest margin (%) 4 |
|
|
|
|
|
2.80 |
|
|
|
|
|
|
2.82 |
|
1 Includes loans held for sale, at lower of cost or fair value.
2 Includes recognition of net deferred loan fees of $0.7 million and $1.7 million for the three months ended June 30, 2023 and 2022, respectively, and $1.4 million and $3.6 million for the six months ended June 30, 2023 and 2022, respectively, together with interest accrued prior to suspension of interest accrual on nonaccrual loans. Includes nonaccrual loans.
3 For the six months ended June 30, 2023 and 2022, 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. The Federal Open Market Committee federal funds rate target range was 5.00% - 5.25% at June 30, 2023 to combat inflation.
ASB’s net interest income and net interest margin has been impacted by the higher interest rates as the Bank has used higher costing other borrowings and term certificates to fund its loan growth.
Loans and mortgage-backed securities are ASB’s primary earning assets.
Loan portfolio. ASB’s loan volumes and yields are affected by market interest rates, competition, demand for financing, availability of funds and management’s responses to these factors. See Note 4 of the Condensed Consolidated Financial Statements for a composition of ASB’s loan portfolio.
Home equity — key credit statistics. The home equity line of credit (HELOC) portfolio makes up 17% 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 June 30, 2023, approximately 39% 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 54% 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 30, 2023 |
|
December 31, 2022 |
| (dollars in thousands) |
|
Balance |
|
% of total |
|
Balance |
|
% of total |
| U.S. Treasury and federal agency obligations |
|
$ |
137,653 |
|
|
5 |
% |
|
$ |
140,957 |
|
|
5 |
% |
| Mortgage-backed securities — issued or guaranteed by U.S. Government agencies or sponsored agencies |
|
2,399,525 |
|
|
92 |
|
|
2,484,821 |
|
|
92 |
|
| Corporate bonds |
|
41,146 |
|
|
2 |
|
|
40,734 |
|
|
2 |
|
| Mortgage revenue bonds |
|
14,630 |
|
|
1 |
|
|
14,902 |
|
|
1 |
|
| Total investment securities |
|
$ |
2,592,954 |
|
|
100 |
% |
|
$ |
2,681,414 |
|
|
100 |
% |
Currently, ASB’s investment portfolio consists of high-grade investment securities, including U.S. Treasury and federal agency obligations, mortgage-backed securities, corporate bonds and mortgage revenue bonds. ASB owns mortgage-backed securities issued or guaranteed by the U.S. government agencies or sponsored agencies, including the Federal National Mortgage Association (FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Government National Mortgage Association (GNMA) and Small Business Administration (SBA). Principal and interest on mortgage-backed securities issued by FNMA, FHLMC, GNMA and SBA are guaranteed by the issuer and, in the case of GNMA and SBA, backed by the full faith and credit of the U.S. government. U.S. Treasury securities are also backed by the full faith of the U.S. government.
Deposits and other borrowings. Deposits continue to be the largest source of funds for ASB and are affected by market interest rates, competition and management’s responses to these factors. In 2023, deposits decreased by $6.5 million, as an outflow of core deposits was replaced with time certificates. Core deposit retention will remain challenging in the current rising interest rate environment. Advances from the FHLB of Des Moines, securities sold under agreements to repurchase, borrowings from the Federal Reserve Bank and federal funds purchased continue to be additional sources of funds. As of June 30, 2023 and December 31, 2022, ASB’s costing liabilities consisted of 92% deposits and 8% borrowings. The weighted average cost of deposits for the first six months of 2023 and 2022 was 0.41% and 0.05%, respectively. As of June 30, 2023 and December 31, 2022, ASB had approximately $1.2 billion of deposits that were uninsured.
Federal Home Loan Bank of Des Moines and Federal Reserve Bank. As of June 30, 2023 and December 31, 2022, ASB had $200 million and $414 million of advances outstanding at the FHLB of Des Moines, respectively. As of June 30, 2023, the unused borrowing capacity with the FHLB of Des Moines was $1.8 billion. As of June 30, 2023 and December 31, 2022, ASB had $550 million and nil borrowings from the Federal Reserve Bank, respectively. The FHLB of Des Moines and Federal Reserve Bank are important sources of liquidity for ASB.
Contingencies. ASB is subject in the normal course of business to pending and threatened legal proceedings. Management does not anticipate that the aggregate ultimate liability arising out of these pending or threatened legal proceedings will be material to its financial position. However, ASB cannot rule out the possibility that such outcomes could have a material adverse effect on the results of operations or liquidity for a particular reporting period in the future.
Other factors. Interest rate risk is a significant risk of ASB’s operations and also represents a market risk factor affecting the fair value of ASB’s investment securities. Increases and decreases in prevailing interest rates generally translate into decreases and increases in the fair value of the investment securities, respectively.
In addition, changes in credit spreads also impact the fair values of the investment securities.
As of June 30, 2023, ASB had an unrealized loss, net of taxes, on investment securities (including securities pledged for repurchase agreements) in AOCI of $315.9 million compared to an unrealized loss, net of taxes, of $328.9 million as of December 31, 2022. The unrealized losses were due to changes in interest rates and did not affect regulatory capital ratios. See “Item 3. Quantitative and qualitative disclosures about market risk” for a discussion of ASB’s interest rate risk sensitivity.
During the first six months of 2023, ASB recorded a provision for credit losses of $1.0 million in the allowance for credit losses for growth in the loan portfolio partly offset by the release of credit loss reserves for improved credit trends and lower credit loss rates. During the first six months of 2022, ASB recorded a negative provision for credit losses of $1.5 million in the allowance for credit losses reflecting good credit trends including lower net charge-offs and credit upgrades in the commercial real estate and commercial loan portfolios, partly offset by loan reserves for growth in the commercial real estate loan portfolio and solar and sustainable home improvement loans purchased during the year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Six months ended June 30 |
|
Year ended
December 31, 2022
|
| (in thousands) |
|
2023 |
|
2022 |
|
| Allowance for credit losses, beginning of period |
|
$ |
72,216 |
|
|
$ |
71,130 |
|
|
$ |
71,130 |
|
|
|
|
|
|
|
|
| Provision for credit losses |
|
1,018 |
|
|
(1,506) |
|
|
2,537 |
|
| Less: net charge-offs |
|
4,166 |
|
|
168 |
|
|
1,451 |
|
| Allowance for credit losses, end of period |
|
$ |
69,068 |
|
|
$ |
69,456 |
|
|
$ |
72,216 |
|
| Ratio of net charge-offs during the period to average loans outstanding (annualized) |
|
0.14 |
% |
|
0.01 |
% |
|
0.03 |
% |
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 six months ended June 30, 2023 and 2022, ASB recorded a provision for credit losses for unfunded commitments of $0.2 million and $1.0 million, respectively. As of June 30, 2023 and December 31, 2022, the reserve for unfunded loan commitments was $4.6 million and $4.4 million, respectively.
Legislation and regulation. ASB is subject to extensive regulation, principally by the OCC and the FDIC. Depending on ASB’s level of regulatory capital and other considerations, these regulations could restrict the ability of ASB to compete with other institutions and to pay dividends to its shareholder. See the discussion below under “Liquidity and capital resources.”
FINANCIAL CONDITION
Liquidity and capital resources.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (dollars in millions) |
|
June 30, 2023 |
|
December 31, 2022 |
|
% change |
| Total assets |
|
$ |
9,621 |
|
|
$ |
9,546 |
|
|
1 |
|
| Investment securities |
|
2,593 |
|
|
2,681 |
|
|
(3) |
|
| Loans held for investment, net |
|
6,069 |
|
|
5,907 |
|
|
3 |
|
| Deposit liabilities |
|
8,163 |
|
|
8,170 |
|
|
— |
|
| Other bank borrowings |
|
750 |
|
|
695 |
|
|
8 |
|
As of June 30, 2023, ASB was one of Hawaii’s largest financial institutions based on assets of $9.6 billion and deposits of $8.2 billion.
As of June 30, 2023, ASB’s unused FHLB borrowing capacity was approximately $1.8 billion. As of June 30, 2023, ASB had commitments to borrowers for loans and unused lines and letters of credit of $2.0 billion. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.
For the six months ended June 30, 2023, net cash provided by ASB’s operating activities was $43 million. Net cash used during the same period by ASB’s investing activities was $56 million, primarily due to a net increase in loans receivable of $208 million, purchases of loans held for investment of $26 million and additions to premises and equipment of $4 million, partly offset by the receipt of investment security repayments and maturities of $104 million, proceeds from the sale of commercial loans of $67 million, a net decrease in FHLB stock of $9 million and proceeds from the redemption of bank owned life insurance of $3 million. Net cash provided by financing activities during this period was $25 million, primarily due to a net increase in other borrowings of $336 million and a net increase in mortgage escrow deposits of $1 million, partly offset by a net decrease in repurchase agreements of $183 million, decreases in deposit liabilities of $105 million and $25 million in common stock dividends to HEI (through ASB Hawaii).
For the six months ended June 30, 2022, net cash provided by ASB’s operating activities was $53 million. Net cash used during the same period by ASB’s investing activities was $371 million, primarily due to purchases of available-for-sale securities of $366 million, a net increase in loans receivables of $188 million, purchases of loans held for investment of $25 million, bank owned life insurance purchases of $5 million, additions to premises and equipment of $4 million and a net increase in FHLB stock of $3 million, partly offset by the receipt of investment security repayments and maturities of $217 million, proceeds from the 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 $208 million, primarily due to increases in deposit liabilities of $81 million, a net increase in short-term borrowings of $80 million and a net increase in repurchase agreements of $73 million, partly offset by $27 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 June 30, 2023, 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 12.2% (6.5%), Tier-1 capital ratio of 12.2% (8.0%) and total capital ratio of 13.2% (10.0%). As of December 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 12.2% (6.5%), Tier-1 capital ratio of 12.2% (8.0%) and total capital ratio of 13.1% (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).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company considers interest-rate risk (a non-trading market risk) to be a significant market risk for ASB as it could potentially have material impacts on the Company’s results of operations, financial condition and liquidity. For additional quantitative and qualitative information about the Company’s market risks, see HEI’s and Hawaiian Electric’s Quantitative and Qualitative Disclosures About Market Risk in Part II, Item 7A of HEI’s 2022 Form 10-K (pages 78 to 80).
ASB’s interest-rate risk sensitivity measures as of June 30, 2023 and December 31, 2022 constitute “forward-looking statements” and were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Change in interest rates |
|
Change in NII
(gradual change in interest rates) |
|
Change in EVE
(instantaneous change in interest rates) |
| (basis points) |
|
June 30, 2023 |
|
December 31, 2022 |
|
June 30, 2023 |
|
December 31, 2022 |
| +300 |
|
0.6 |
% |
|
(0.1 |
%) |
|
6.0 |
% |
|
5.1 |
% |
| +200 |
|
0.4 |
|
|
— |
|
|
4.8 |
|
|
3.8 |
|
| +100 |
|
0.2 |
|
|
— |
|
|
2.8 |
|
|
2.1 |
|
| -100 |
|
(0.6) |
|
|
(0.3) |
|
|
(3.6) |
|
|
(3.4) |
|
| -200 |
|
(1.3) |
|
|
(0.9) |
|
|
(7.9) |
|
|
(7.8) |
|
| -300 |
|
(2.0) |
|
|
(1.7) |
|
|
(13.6) |
|
|
(13.8) |
|
ASB’s net interest income (NII) sensitivity profile was more asset sensitive as of June 30, 2023 compared to December 31, 2022, primarily driven by a shift in the bank’s liability mix as ASB extended the term of wholesale funding and new retail term certificates replaced shorter-term public fund term certificates.
Economic value of equity (EVE) sensitivity increased as of June 30, 2023 compared to December 31, 2022 due to a shift in the bank’s liability mix as ASB extended the term of wholesale funding and new retail term certificates replaced shorter-term public fund term certificates.
The computation of the prospective effects of hypothetical interest rate changes on the NII sensitivity and the percentage change in EVE is based on numerous assumptions, including relative levels of market interest rates, loan prepayments, balance changes and pricing strategies, and should not be relied upon as indications of actual results. To the extent market conditions and other factors vary from the assumptions used in the simulation analysis, actual results may differ materially from the simulation results. NII sensitivity analysis measures the change in ASB’s twelve-month, pretax NII in alternate interest rate scenarios, and is intended to help management identify potential exposures in ASB’s current balance sheet and formulate appropriate strategies for managing interest rate risk. The simulation does not contemplate any actions that ASB management might undertake in response to changes in interest rates. Further, the changes in NII vary in the twelve-month simulation period and are not necessarily evenly distributed over the period. These analyses are for analytical purposes only and do not represent management’s views of future market movements, the level of future earnings or the timing of any changes in earnings within the twelve month analysis horizon.
The actual impact of changes in interest rates on NII will depend on the magnitude and speed with which rates change, actual changes in ASB’s balance sheet and management’s responses to the changes in interest rates.
Item 4. Controls and Procedures
HEI:
Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in reports that it files or submits under the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including the Company’s Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Hawaiian Electric:
Disclosure Controls and Procedures
Hawaiian Electric maintains a set of disclosure controls and procedures designed to provide reasonable assurance that information required to be disclosed by Hawaiian Electric in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC’s rules and forms, and that such information is accumulated and communicated to Hawaiian Electric’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was performed under the supervision and with the participation of Hawaiian Electric’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of Hawaiian Electric’s disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) of the Exchange Act. Management, including Hawaiian Electric’s Chief Executive Officer and Chief Financial Officer, concluded that Hawaiian Electric’s disclosure controls and procedures were effective, as of the end of the period covered by this report, at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting during the second quarter of 2023 that have materially affected, or are reasonably likely to materially affect, Hawaiian Electric’s internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The descriptions of legal proceedings (including judicial proceedings and proceedings before the PUC and environmental and other administrative agencies) in HEI’s and Hawaiian Electric’s 2022 Form 10-K (see “Part I. Item 3. Legal Proceedings” and proceedings referred to therein) and this Form 10-Q (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Notes 3 and 4 of the Condensed Consolidated Financial Statements) are incorporated by reference in this Item 1. With regard to any pending legal proceeding, alternative dispute resolution, such as mediation or settlement, may be pursued where appropriate, with such efforts typically maintained in confidence unless and until a resolution is achieved. Certain HEI subsidiaries (including Hawaiian Electric and its subsidiaries, ASB and Pacific Current and its subsidiaries) may also be involved in ordinary routine PUC proceedings, environmental proceedings and litigation incidental to their respective businesses.
Item 1A. Risk Factors
For information about Risk Factors, see pages 20 to 33 of HEI’s and Hawaiian Electric’s 2022 Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Quantitative and Qualitative Disclosures about Market Risk” and the Condensed Consolidated Financial Statements herein. Also, see “Cautionary Note Regarding Forward-Looking Statements” on pages iv through vi herein.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Purchases of HEI common shares were made on the open market during the second quarter of 2023 to satisfy the requirements of certain plans as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
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| Period* |
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Total Number of Shares Purchased ** |
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Average
Price Paid
per Share ** |
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Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
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Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
| April 1 to 30, 2023 |
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23,331 |
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$38.97 |
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— |
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NA |
| May 1 to 31, 2023 |
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27,385 |
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$36.98 |
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— |
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NA |
| June 1 to 30, 2023 |
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179,989 |
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$38.00 |
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— |
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NA |
NA - Not applicable.
* Trades (total number of shares purchased) are reflected in the month in which the order is placed.
**The purchases were made to satisfy the requirements of the DRIP, the HEIRSP and the ASB 401(k) Plan for shares purchased for cash or by the reinvestment of dividends by participants under those plans and none of the purchases were made under publicly announced repurchase plans or programs. Average prices per share are calculated exclusive of any commissions payable to the brokers making the purchases for the DRIP, the HEIRSP and the ASB 401(k) Plan. Of the “Total number of shares purchased,” 17,764 of the 23,331 shares, 14,550 of the 27,385 shares and 154,142 of the 179,989 shares were purchased for the DRIP; 4,501 of the 23,331 shares, 4,918 of the 27,385, shares and 21,571 of the 179,898 shares were purchased for the HEIRSP; and the remainder was purchased for the ASB 401(k) Plan. The repurchased shares were issued for the accounts of the participants under registration statements registering the shares issued under these plans.
Item 5. Other Information
On August 3, Bruce Tamashiro (53) was designated as the Company’s Principal Accounting Officer (PAO). Mr. Tamashiro was appointed as the Company’s Controller effective July 1, 2023. Mr. Tamashiro previously worked with the Company’s subsidiary, Hawaiian Electric, as Director, Corporate and Property Accounting where he managed Hawaiian Electric’s daily accounting operations and financial reporting functions. Mr. Tamashiro served as Financial Reporting Manager for Shidler Pacific Advisors, LLC from 2012-2019, where he was responsible for all SEC financial reporting. Most recently, Mr. Tamashiro served as Director of Corporate Accounting and Controller of The Gas Company, LLC (dba Hawaii Gas) from 2019-2023, where he managed Hawaii Gas’s daily accounting operations, oversaw all aspects of financial reporting to the SEC and the Hawaii Public Utilities Commission as well as to Hawaii Gas’s owners, creditors and other stakeholders, and managed all aspects of Hawaii Gas’s internal controls.
There are no arrangements or understandings between Mr. Tamashiro and any other person pursuant to which he was selected as an officer, no family relationships between Mr. Tamashiro and any other executive officer or director, and no related person transactions within the meaning of Item 404(a) of Regulation S-K between Mr. Tamashiro and HEI.
Effective concurrently with Mr. Tamashiro’s designation as PAO, Paul Ito, the Company’s Chief Financial Officer, resigned as the Company’s PAO. Mr. Ito will remain the Company’s Principal Financial Officer.
Item 6. Exhibits
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Amendment No. 1 dated as of April 21, 2023 to the Third Amended and Restated Credit Agreement, dated as of May 14, 2021.* |
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Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Scott W. H. Seu (HEI Chief Executive Officer) |
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Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Paul K. Ito (HEI Chief Financial Officer) |
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HEI Certification Pursuant to 18 U.S.C. Section 1350 |
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| HEI Exhibit 101.INS |
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XBRL Instance Document - the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
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| HEI Exhibit 101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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| HEI Exhibit 101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| HEI Exhibit 101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| HEI Exhibit 101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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| HEI Exhibit 101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| HEI Exhibit 104 |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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Amendment No. 1 dated as of April 21, 2023 to the Third Amended and Restated Credit Agreement, dated as of May 14, 2021.* |
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Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Shelee M. T. Kimura (Hawaiian Electric Chief Executive Officer) |
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Certification Pursuant to Rule 13a-14 promulgated under the Securities Exchange Act of 1934 of Tayne S. Y. Sekimura (Hawaiian Electric Chief Financial Officer) |
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Hawaiian Electric Certification Pursuant to 18 U.S.C. Section 1350 |
* Schedules and exhibits have been omitted from this filing pursuant to Item 601(a) (5) of Regulation S-K. We agree to furnish a copy of any omitted schedule or exhibit to the Securities and Exchange Commission upon request.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned, thereunto duly authorized. The signature of the undersigned companies shall be deemed to relate only to matters having reference to such companies and any subsidiaries thereof.
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| HAWAIIAN ELECTRIC INDUSTRIES, INC. |
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HAWAIIAN ELECTRIC COMPANY, INC. |
| (Registrant) |
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(Registrant) |
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| By |
/s/ Scott W. H. Seu |
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By |
/s/ Shelee M. T. Kimura |
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Scott W. H. Seu |
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Shelee M. T. Kimura |
| |
President and Chief Executive Officer |
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President and Chief Executive Officer |
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(Principal Executive Officer of HEI) |
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(Principal Executive Officer of Hawaiian Electric) |
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| By |
/s/ Paul K. Ito |
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By |
/s/ Tayne S. Y. Sekimura |
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Paul K. Ito |
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Tayne S. Y. Sekimura |
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Executive Vice President, |
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Senior Vice President, |
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Chief Financial Officer and Treasurer |
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Chief Financial Officer and Treasurer |
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(Principal Financial Officer of HEI) |
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(Principal Financial Officer of Hawaiian Electric) |
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| Date: August 7, 2023 |
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Date: August 7, 2023 |
EX-10.1
2
heiex101amendment12023-04x.htm
EX-10.1
Document
HEI Exhibit 10.1
EXECUTION COPY
AMENDMENT NO. 1
Dated as of April 21, 2023
to
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 14, 2021
THIS AMENDMENT NO. 1 (this “Amendment”) is made as of April 21, 2023 by and among Hawaiian Electric Industries, Inc., a Hawaii corporation (the “Borrower”), the Lenders party hereto and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders (the “Administrative Agent”), under that certain Third Amended and Restated Credit Agreement dated as of May 14, 2021 by and among the Borrower, the Lenders from time to time party thereto and the Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Credit Agreement”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement.
WHEREAS, the Borrower has requested that the Lenders and the Administrative Agent agree to make certain amendments to the Credit Agreement;
WHEREAS, the Borrower, the Lenders party hereto and the Administrative Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders party hereto and the Administrative Agent hereby agree to enter into this Amendment.
1.Amendments to the Credit Agreement. Effective as of the date of satisfaction of the conditions precedent set forth in Section 2 below (such date, the “Amendment No. 1 Effective Date”), the parties hereto agree that the Credit Agreement (including certain of the Exhibits thereto) shall be amended to delete the stricken text (indicated textually in the same manner as the following example: ) and to add the double-underlined text (indicated textually in the same manner as the following example: double-underlined text [insertions in the SEC-filed document are indicated as single-underlined text]) as set forth in the pages of the Credit Agreement (including certain of the Exhibits thereto) attached as Annex A hereto (the Credit Agreement as so amended, the “Amended Credit Agreement”).
2.Conditions of Effectiveness. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:
(a)The Administrative Agent (or its counsel) shall have received counterparts of this Amendment duly executed by the Borrower, each of the Lenders, the Issuing Bank, the Swingline Lender and the Administrative Agent.
(b)The Administrative Agent shall have received payment of all fees required to be paid, and all reasonably incurred and documented expenses which are otherwise required to be reimbursed,
in each case, for which invoices with appropriate supporting documentation have been presented at least two (2) Business Days prior to the Amendment No. 1 Effective Date.
3.Representations and Warranties of the Borrower. The Borrower hereby represents and warrants as follows:
(a)Each of this Amendment and the Amended Credit Agreement constitutes a legal, valid and binding obligations of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(b)As of the date hereof and immediately after giving effect to the terms of this Amendment, (i) no Default has occurred and is continuing and (ii) the representations and warranties of the Borrower set forth in the Amended Credit Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of the Amended Credit Agreement) are true and correct in all material respects (or, in the case of any representation or warranty qualified by materiality or Material Adverse Effect, in all respects), except to the extent such representations and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects (or, in the case of any representation or warranty qualified by materiality or Material Adverse Effect, in all respects) on and as of such earlier date.
4.Reference to and Effect on the Credit Agreement.
(a)Upon the effectiveness hereof, each reference to the Credit Agreement in the Amended Credit Agreement or any other Loan Document shall mean and be a reference to the Amended Credit Agreement.
(b)Each Loan Document and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.
(c)The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders, nor constitute a waiver of any provision of the Credit Agreement, the Loan Documents or any other documents, instruments and agreements executed and/or delivered in connection therewith.
(d)This Amendment shall be deemed to be a Loan Document.
5.Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflict of laws.
6.Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
7.Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment that is an Electronic Signature transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Amendment and/or any document to be signed in connection with this Amendment and the transactions contemplated hereby shall be deemed to include Electronic Signatures (as defined below), deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be. As used herein, “Electronic Signatures” means any electronic symbol or process attached to, or associated with, any contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
[Signature Pages Follow]
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.
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| HAWAIIAN ELECTRIC INDUSTRIES, INC., |
| as the BORROWER |
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| By: |
/s/ Scott W. H. Seu |
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Name: Scott W. H. Seu |
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Title: President & Chief Executive Officer |
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| By: |
/s/ Paul K. Ito |
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Name: Paul K. Ito |
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Title: Executive Vice President, Chief Financial |
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Officer and Treasurer |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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JPMORGAN CHASE BANK, N.A. |
as Administrative Agent, as Issuing Bank, as Swingline Lender and as a Lender |
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| By: |
/s/ Nancy R. Barwig |
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Name: Nancy R. Barwig |
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Title: Executive Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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BANK OF AMERICA, N.A., |
as a Lender |
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| By: |
/s/ Reese Morikubo |
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Name: Reese Morikubo |
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Title: Senior Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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U.S. BANK NATIONAL ASSOCIATION, |
as a Lender |
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| By: |
/s/ Michael E. Temnick |
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Name: Michael E. Temnick |
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Title: Senior Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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WELLS FARGO BANK, NATIONAL ASSOCIATION, |
as a Lender |
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| By: |
/s/ Gregory R. Gredvig |
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Name: Gregory R. Gredvig |
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Title: Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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MUFG BANK, LTD., |
as a Lender |
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| By: |
/s/ Viet-Linh Fujitaki |
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Name: Viet-Linh Fujitaki |
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Title: Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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BARCLAYS BANK PLC, |
as a Lender |
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| By: |
/s/ Sydney G. Dennis |
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Name: Sydney G. Dennis |
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Title: Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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BANK OF HAWAII, |
as a Lender |
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| By: |
/s/ Kyle Bischoff |
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Name: Kyle Bischoff |
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Title: Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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THE TORONTO-DOMINION BANK, NEW YORK |
BRANCH as a Lender |
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| By: |
/s/ Betty Chang |
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Name: Betty Chang |
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Title: Authorized Signatory |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
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THE BANK OF NEW YORK MELLON, |
as a Lender |
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| By: |
/s/ Molly H. Ross |
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Name: Molly H. Ross |
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Title: Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Industries, Inc.
ANNEX A
Amended Credit Agreement
[Attached]
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
dated as of May 14, 2021
among
HAWAIIAN ELECTRIC INDUSTRIES, INC.,
as Borrower
The Lenders Party Hereto
and
BANK OF AMERICA, N.A. and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Syndication Agents
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
MUFG UNION BANK, N.A., BARCLAYS BANK PLC, BANK OF HAWAII and
THE TORONTO-DOMINION BANK, NEW YORK BRANCH
as Co-Documentation Agents
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent, Swingline Lender and Issuing Bank
and
JPMORGAN CHASE BANK, N.A. and BANK OF AMERICA, N.A.
as Sustainability Structuring Agents
_____________
JPMORGAN CHASE BANK, N.A.,
BofA SECURITIES, INC. and
U.S. BANK NATIONAL ASSOCIATION,
as Joint Lead Arrangers and Joint Book Runners
US-DOCS\138728443.8
TABLE OF CONTENTS
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| ARTICLE 1. DEFINITIONS |
1 |
| Section 1.01 Defined Terms |
1 |
| Section 1.02 Terms Generally |
31 |
| Section 1.03 Accounting Terms; GAAP |
31 |
| Section 1.04 Amendment and Restatement of the Existing Credit Agreement |
32 |
Section 1.05 Interest Rates; Benchmark Notification |
32 |
| Section 1.06 Letter of Credit Amounts |
33 |
| Section 1.07 Divisions |
33 |
| ARTICLE 2. THE CREDITS |
33 |
| Section 2.01 Commitments |
33 |
| Section 2.02 Loans and Borrowings |
33 |
| Section 2.03 Requests for Borrowings |
34 |
| Section 2.04 Funding of Borrowings |
35 |
| Section 2.05 Termination, Reduction and Increase of Commitments |
35 |
| Section2.06 Repayment of Loans; Evidence of Debt |
37 |
| Section 2.07 Prepayment of Loans |
38 |
| Section 2.08 Payments Generally; Pro Rata Treatment; Sharing of Setoffs |
39 |
| Section 2.09 Letter of Credit Sub-Facility |
40 |
| Section 2.10 Letter of Credit Participation and Funding Commitments |
42 |
| Section 2.11 Absolute Obligation With Respect to Letter of Credit Payments; |
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| Cash Collateral; Replacement of Issuing Bank |
43 |
| Section 2.12 Defaulting Lenders |
44 |
| Section 2.13 Swingline Loans |
46 |
| Section 2.14 Extension of Commitment Termination Date. |
48 |
| ARTICLE 3. INTEREST, FEES, YIELD PROTECTION, ETC. |
50 |
| Section 3.01 Interest |
50 |
| Section 3.02 Interest Elections |
50 |
| Section 3.03 Fees |
52 |
| Section 3.04 Alternate Rate of Interest |
53 |
| Section 3.05 Increased Costs; Illegality |
55 |
| Section 3.06 Break Funding Payments |
57 |
| Section 3.07 Taxes |
58 |
| Section 3.08 Mitigation Obligations; Replacement of Lenders |
61 |
| ARTICLE 4. REPRESENTATIONS AND WARRANTIES |
62 |
| Section 4.01 Organization; Powers |
62 |
| Section 4.02 Authorization; Enforceability |
62 |
| Section 4.03 Governmental Approvals; No Conflicts |
62 |
| Section 4.04 Financial Condition; No Material Adverse Effect |
63 |
| Section 4.05 Properties |
63 |
| Section 4.06 Litigation and Environmental Matters |
63 |
| Section 4.07 Compliance with Laws and Agreements |
64 |
| Section 4.08 Regulated Entities |
64 |
| Section 4.09 Taxes |
64 |
| Section 4.10 ERISA |
64 |
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| Section 4.11 Disclosure |
64 |
| Section 4.12 Subsidiaries |
65 |
| Section 4.13 Federal Reserve Regulations |
65 |
| Section 4.14 Rankings |
65 |
| Section 4.15 Solvency |
65 |
| Section 4.16 Anti-Corruption Laws and Sanctions |
65 |
| Section 4.17 Affected Financial Institutions |
66 |
| ARTICLE 5. CONDITIONS |
66 |
| Section 5.01 Effective Date |
66 |
| Section 5.02 Each Credit Event |
67 |
| ARTICLE 6. AFFIRMATIVE COVENANTS |
67 |
| Section 6.01 Financial Statements and Other Information |
67 |
| Section 6.02 Notices of Material Events |
69 |
| Section 6.03 Existence; Conduct of Business |
70 |
| Section 6.04 Payment of Obligations |
70 |
| Section 6.05 Maintenance of Properties; Insurance |
70 |
| Section 6.06 Books and Records; Inspection Rights |
71 |
| Section 6.07 Compliance with Laws |
71 |
| Section 6.08 Use of Proceeds |
71 |
| ARTICLE 7. NEGATIVE COVENANTS |
71 |
| Section 7.01 Liens |
72 |
| Section 7.02 Sale of Assets; Consolidation; Merger; Sale and Leaseback |
74 |
| Section 7.03 Restrictive Agreements |
74 |
| Section 7.04 Transactions with Affiliates |
75 |
| Section 7.05 Capitalization Ratio |
75 |
| ARTICLE 8. EVENTS OF DEFAULT |
75 |
| ARTICLE 9. THE ADMINISTRATIVE AGENT |
78 |
| Section 9.01 Appointment |
78 |
| Section 9.02 Individual Capacity |
78 |
| Section 9.03 Exculpatory Provisions |
78 |
| Section 9.04 Reliance by Administrative Agent |
79 |
| Section 9.05 Performance of Duties |
79 |
| Section 9.06 Resignation; Successors |
79 |
| Section 9.07 Acknowledgements of Credit Parties |
80 |
| Section 9.08 Agents |
82 |
| Section 9.09 Posting of Communications |
82 |
| Section 9.10 Certain ERISA Matters |
83 |
| Section 9.11 Sustainability Matters |
84 |
| ARTICLE 10. MISCELLANEOUS |
84 |
| Section 10.01 Notices |
84 |
| Section 10.02 Waivers; Amendments |
86 |
| Section 10.03 Expenses; Indemnity; Damage Waiver |
88 |
| Section 10.04 Successors and Assigns |
90 |
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|
|
|
|
| Section 10.05 Survival |
94 |
| Section 10.06 Counterparts; Integration; Effectiveness; Electronic Execution |
94 |
| Section 10.07 Severability |
95 |
| Section 10.08 Right of Setoff |
95 |
| Section 10.09 Governing Law; Jurisdiction; Consent to Service of Process |
96 |
| Section 10.10 WAIVER OF JURY TRIAL |
96 |
| Section 10.11 Headings |
97 |
| Section 10.12 Confidentiality |
97 |
| Section 10.13 Interest Rate Limitation |
98 |
| Section 10.14 No Third Parties Benefited |
98 |
| Section 10.15 USA PATRIOT Act and Beneficial Ownership Regulation Notice |
98 |
| Section 10.16 No Fiduciary Duty |
98 |
| Section 10.17 Acknowledgment and Consent to Bail-In Action. |
99 |
| Section 10.18 Acknowledgement Regarding Any Supported QFCs |
100 |
SCHEDULES:
Schedule 1.01 Capitalization
Schedule 1.01 Consolidated Funded Debt
Schedule 1.01 Funded Debt
Schedule 1.02 Sustainability Table and Sustainability Pricing Adjustments
Schedule 2.01 Commitments
Schedule 2.09 Existing Letters of Credit
Schedule 4.12 Subsidiaries
Schedule 7.01 Existing Liens
Schedule 7.03 Existing Restrictions
EXHIBITS:
Exhibit A Form of Assignment and Acceptance
Exhibit B-1 Form of Opinion of Pillsbury Winthrop Shaw Pittman LLP
Exhibit B-2 Form of Opinion of Kurt K. Murao, Executive Vice President, General
Counsel, Chief Administrative Officer and Corporate Secretary of the Borrower
Exhibit C Form of Note
Exhibit D Form of Borrowing Request
Exhibit E Form of Letter of Credit Request
Exhibit F Form of Increase Request
Exhibit G Form of Interest Election Request
Exhibit H Form of Pricing Certificate
THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 14, 2021 (this “Agreement”), among HAWAIIAN ELECTRIC INDUSTRIES, INC., as Borrower, the Lenders party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent, Swingline Lender and Issuing Bank.
WHEREAS, the Borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, are currently party to the Second Amended and Restated Credit Agreement, dated as of June 30, 2017 (as amended, supplemented or otherwise modified prior to the date hereof, the “Existing Credit Agreement”).
WHEREAS, the Borrower, the Lenders and the Administrative Agent have agreed to enter into this Agreement in order to (i) amend and restate the Existing Credit Agreement in its entirety; (ii) extend the maturity date in respect of the existing revolving credit facility under the Existing Credit Agreement;
(iii) re-evidence the obligations of the Borrower under the Existing Credit Agreement, which shall be repayable in accordance with the terms of this Agreement; and (iv) amend and restate the terms and conditions under which the Lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Borrower.
WHEREAS, it is the intent of the parties hereto that this Agreement not constitute a novation of the obligations and liabilities of the parties under the Existing Credit Agreement or be deemed to evidence or constitute full repayment of such obligations and liabilities, but that this Agreement amend and restate in its entirety the Existing Credit Agreement and re-evidence the obligations and liabilities of the Borrower outstanding thereunder, which shall be payable in accordance with the terms hereof.
WHEREAS, it is also the intent of the Borrower to confirm that all obligations under the applicable “Loan Documents” (as referred to and defined in the Existing Credit Agreement) shall continue in full force and effect as modified or restated by the Loan Documents (as referred to and defined herein) and that, from and after the Effective Date, all references to the “Credit Agreement” contained in any such existing “Loan Documents” shall be deemed to refer to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree that the Existing Credit Agreement is hereby amended and restated as follows:
ARTICLE 1. DEFINITIONS
Section 1.01 Defined Terms
As used in this Agreement, the following terms have the meanings specified below:
“ABR Loan” or “ABR Borrowing”, when used in reference to any Loan or Borrowing, refers to such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Alternate Base Rate.
“Additional Commitment Lender” is defined in Section 2.14(d).
“Adjusted Daily Simple SOFR” means an interest rate per annum equal to (a) the Daily Simple SOFR, plus (b) 0.10%; provided that if the Adjusted Daily Simple SOFR as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Adjusted Term SOFR Rate” means, for any Interest Period, an interest rate per annum equal to (a) the Term SOFR Rate for such Interest Periodmultiplied , plus (b) 0.10%; provided that if the Adjusted Term SOFR Rate as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Administrative Agent” means JPMCB, in its capacity as administrative agent for the Lenders hereunder, or any successor thereto in such capacity.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent-Related Person” has the meaning assigned to such term in Section 10.03(c).
“Agreement” has the meaning assigned to such term in the introductory paragraph.
“Aggregate Credit Exposure” means, at any time, the sum at such time of (a) the outstanding principal balance of the Revolving Loans of all Lenders, plus (b) the Aggregate Letter of Credit Exposure, plus (c) the Swingline Exposure.
“Aggregate Letter of Credit Commitments” means, at any time, the sum at such time of the Letter of Credit Commitments of all Lenders.
“Aggregate Letter of Credit Exposure” means, at any time, the sum at such time of the Letter of Credit Exposure of all of the Lenders.
“Aggregate Revolving Commitments” means, at any time, the sum at such time of the Revolving Commitments of all Lenders. The initial amount of the Aggregate Revolving Commitments is $175,000,000.
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the sum of NYFRB Rate in effect on such day plus 1/2 of 1% per annum and (c) the Adjusted Term SOFR Rate for a one month Interest Period as published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day) plus 1%; provided that for the purpose of this definition, the Adjusted Term SOFR Rate for any day shall be based on the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, on such day (or any amended publication time for the Term SOFR Reference Rate, as specified by the CME Term SOFR Administrator in the Term SOFR Reference Rate methodology). Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted Term SOFR Rate shall be
effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted Term SOFR Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 3.04 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 3.04(b)), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00% for purposes of this Agreement.
“Amendment No. 1 Effective Date” means April 21, 2023.
“Ancillary Document” has the meaning assigned to such term in Section 10.06.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Applicable Margin” means with respect to: (a) any Term Benchmark Borrowings and any Letters of Credit, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Term Benchmark Margin” and adjacent to such Pricing Level, (b) any RFR Borrowings, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “RFR Margin” and adjacent to such Pricing Level, (c) any ABR Borrowings, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “ABR Margin” and adjacent to such Pricing Level and (d) with respect to the Commitment Fee, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Commitment Fee Rate” and adjacent to such Pricing Level, in each case, subject to the provisos set forth below:
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Pricing
Level
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Issuer Ratings
(S&P/Moody’s/Fitch)
|
Commitment
Fee Rate
|
Term Benchmark Margin
|
RFR
Margin
|
ABR
Margin
|
| I |
(A-/A3/A-) or high |
0.15% |
1.00% |
1.00% |
0.00% |
| II |
(BBB+/Baa1/BBB+) |
0.175% |
1.25% |
1.25% |
0.25% |
| III |
(BBB/Baa2/BBB) |
0.20% |
1.375% |
1.375% |
0.375% |
| IV |
(BBB-/Baa3/BBB-) |
0.25% |
1.50% |
1.50% |
0.50% |
| V |
(BB+/Ba1/BB+) or low |
0.30% |
1.75% |
1.75% |
0.75% |
For purposes hereof:
(A) when the Borrower has Issuer Ratings from all three of S&P, Moody’s and Fitch: (i) if two or three of the three Issuer Ratings are in the same Pricing Level, such Pricing Level shall apply and (ii) if each of the three Issuer Ratings are in different Pricing Levels, the Issuer Ratings corresponding to the highest and the lowest Pricing Levels shall be disregarded and the Pricing Level shall be determined by reference to the Pricing Level which corresponds to the remaining Issuer Rating;
(B) when the Borrower has Issuer Ratings from only two of S&P, Moody’s and Fitch: (i) if both of the two Issuer Ratings are in the same Pricing Level, such Pricing Level shall
apply and (ii) if the two Issuer Ratings are split-rated (x) by one Pricing Level, the Pricing Level shall be determined by the higher of the two (e.g., an Issuer Rating of BBB-/Baa2 results in Pricing Level III) or (y) by more than one Pricing Level, the Pricing Level shall be determined by the Pricing Level one below the Pricing Level which corresponds to the higher Issuer Rating (e.g., an Issuer Rating of BBB-/Baa1 results in Pricing Level III and an Issuer Rating of BBB+/Baa3 results in Pricing Level III);
(C) when the Borrower has an Issuer Rating from only one of S&P, Moody’s and Fitch: the Pricing Level shall be determined by reference to the Pricing Level immediately below the Pricing Level which corresponds to the one Issuer Rating in effect (provided that if the one Issuer Rating in effect corresponds to Pricing Level V, then Pricing Level V shall apply); and
(D) when the Borrower does not have an Issuer Rating from any of S&P, Moody’s or Fitch: Pricing Level V shall apply.
If the Issuer Ratings established or deemed to have been established by S&P, Moody’s and Fitch shall be changed (other than as a result of a change in the rating system of S&P, Moody’s or Fitch), such change shall be effective as of the date that is three (3) Business Days following the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Administrative Agent and the Lenders pursuant to this Agreement or otherwise. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P, Moody’s or Fitch shall change, or if any such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Administrative Agent (in consultation with the Lenders) shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Margin shall be determined by reference to the rating most recently in effect prior to such change or cessation.
It is hereby understood and agreed that (a) the Commitment Fee shall be adjusted from time to time based upon the Sustainability Fee Adjustment (to be calculated and applied as set forth in Schedule 1.02) and (b) the Applicable Margin with respect to Term Benchmark Borrowings, RFR Borrowings, ABR Borrowings and Letters of Credit shall be adjusted from time to time based upon the Sustainability Margin Adjustment (to be calculated and applied as set forth in Schedule 1.02); provided that in no event shall any of the Commitment Rate, the Term Benchmark Margin, the RFR Margin or the ABR Margin be less than 0.00%.
“Applicable Party” has the meaning assigned to such term in Section 9.09(c)
“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitments; provided that, in the case of Section 2.12 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitments) represented by such Lender’s Commitments. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments and to any Lender’s status as a Defaulting Lender at the time of such determination.
“Approved Electronic Platform” has the meaning assigned to such term in Section 9.09(a).
“Approved Fund” means, with respect to any Lender, any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business that is administered or managed by (a) such Lender or (b) an Affiliate of such Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an assignee (with the consent of each party whose consent is required by Section 10.04), and accepted by the Administrative Agent, substantially in the form of Exhibit A or any other form (including electronic records generated by the use of an electronic platform) approved by the Administrative Agent, including the forms described in the last sentence of Section 3.08(b) and Section 10.02(d) and executed by the parties described therein.
“Availability Period” means the period from and including the Effective Date to (but excluding) the Commitment Termination Date.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark (or component thereof), as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark (or component thereof), as applicable, that is or may be used for determining the length of an Interest Period for any term rate or otherwise, for determining any frequency of making payments of interest calculated pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (e) of Section 3.04.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bankruptcy Code” means the United States Bankruptcy Code of 1978, as amended.
“Benchmark” means, initially, with respect to any (i) RFR Loan, the Adjusted Daily Simple SOFR or (ii) Term Benchmark Loan, the Adjusted Term SOFR Rate; provided that if a Benchmark Transition Event and the related Benchmark Replacement Date have occurred with respect to the Adjusted Daily Simple SOFR or Adjusted Term SOFR Rate, as applicable, or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (b) of Section 3.04.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(1) the Adjusted Daily Simple SOFR ;
(2) the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for Dollar-denominated syndicated credit facilities at such time in the United States and (b) the related Benchmark Replacement Adjustment;
provided thatprovidedfurther
provided that if the Benchmark Replacement as determined pursuant to clause (1) or clause (2) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement:
, the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero), that has been selected by (1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in
the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date and/or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities at such time in the United States.
provided
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement and/or any Term Benchmark Loan, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides in its reasonable discretion are generally consistent with changes made by the Administrative Agent in other syndicated credit facilities agented by it and may be appropriate to reflect the adoption and implementation of such Benchmark and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark exists, in such other manner of administration as the Administrative Agent decides is generally consistent with changes made by the Administrative Agent in other syndicated credit facilities agented by it and reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means, with respect to any Benchmark, the earliest to occur of the following events with respect to such then-current Benchmark:
the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(2) in the case of clause (3) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be no longer representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (3) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
)
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means, with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then-current Benchmark:
(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board, the NYFRB, the CME Term SOFR Administrator, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), in each case, which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means, with respect to any Benchmark, the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.04 and (y) ending at the time that a Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.04.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership or control as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the Code applies, and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” means Hawaiian Electric Industries, Inc., a Hawaii corporation.
“Borrowing” means (a) Revolving Loans of the same Type made, converted or continued on the same date and, in the case of Term Benchmark Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03 in substantially the form annexed hereto as Exhibit D or any other form approved by the Administrative Agent.
“Business Day” means any day other than a Saturday, Sunday or a day when banks are authorized by law to close in New York, New York or Honolulu, Hawaii ; provided that, in addition to the foregoing, a Business Day shall be (a) in relation to RFR Loans and any interest rate settings, fundings, disbursements, settlements or payments of any such RFR Loan, or any other dealings of such RFR Loan and (b) in relation to Loans referencing the Adjusted Term SOFR Rate and any interest rate settings, fundings, disbursements, settlements or payments of any such Loans referencing the Adjusted Term SOFR Rate or any other dealings of such Loans referencing the Adjusted Term SOFR Rate, any such day that is only a U.S. Government Securities Business Day.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases or financing leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP, provided however, no power purchase agreement with an independent power producer or a power producer which is not an Affiliate of the Borrower shall constitute a Capital Lease Obligation.
“Capitalization” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) Funded Debt, (b) preferred stock and (c) Common Stock Equity. The Borrower’s Capitalization as of December 31, 2020 is annexed hereto as Schedule 1.01 (Capitalization); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Capitalization on or for any subsequent date of determination.
“Capitalization Ratio” means, at any date of determination, the ratio of (a) Funded Debt to (b) Capitalization.
“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the SEC thereunder as in effect on the Effective Date) of shares representing more than 50% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Borrower; and (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Borrower by Persons who were neither (i) nominated by the board of directors of the Borrower, nor (ii) appointed by directors so nominated.
“Change in Law” means the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) the making or issuance of any request, rules, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided however, that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall (except to the extent the same are merely proposed and not in effect) in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.
“CME Term SOFR Administrator” means CME Group Benchmark Administration Limited as administrator of the forward-looking term Secured Overnight Financing Rate (SOFR) (or a successor administrator).
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Commitment Fee” has the meaning assigned to such term in Section 3.03(a).
“Commitment Percentage” means, as to any Lender in respect of such Lender’s Commitments and its obligations with respect to Loans and Letters of Credit, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments (or, if no Commitments then exist, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment on the last day upon which Commitments did exist divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments, on such day).
“Commitment Termination Date” means the earliest of (a) May 14, 2026, subject to extension (in the case of each Lender consenting thereto) as provided in Section 2.14, (b) the date on which the Commitments are terminated in whole pursuant to Section 2.05, and (c) the date the Commitments are terminated in whole pursuant to Article 8; provided, however, in the case of the foregoing clauses (a) and (b), if such date is not a Business Day, the Commitment Termination Date shall be the next preceding Business Day.
“Commitments” means the Revolving Commitments and the Letter of Credit Commitments.
“Common Stock Equity” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to Section 9.09, including through an Approved Electronic Platform.
“Consolidated Capitalization” means, at any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Funded Debt, Capacity for such calendar year as set forth in the KPI Metrics Report is less than the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year.
“Cumulative Residential Photovoltaic (CRPV) Capacity Target B” means, with respect to any calendar year, the Cumulative Residential Photovoltaic (CRPV) Capacity Target B for such calendar year as set forth in the Sustainability Table.
“Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B” means, with respect to any calendar year, the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year as set forth in the Sustainability Table.
“Current SEC Reports” means (a) the Annual Report of the Borrower to the SEC on Form 10K for the fiscal year ended December 31, 2020, (b) the Quarterly Report of the Borrower to the SEC on Form 10-Q for the fiscal quarter ended March 31, 2021 and (c) any current reports of the Borrower to the SEC on Form 8K filed prior to the Effective Date.
“Daily Simple SOFR” means, for any day (a “SOFR Rate Day”), a rate per annum equal to SOFR for the day that is five (5) U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator’s Website. Any change in Daily Simple SOFR due to a change in SOFR shall be effective from and including the effective date of such change in SOFR without notice to the Borrower.
“Debtor Relief Laws” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, suspension of payments, rearrangement, receivership, insolvency, judicial management, composition, arrangement, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition which constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“Defaulting Lender” means any Lender, as reasonably determined by the Administrative Agent, that has (a) failed to fund any portion of its Revolving Loans or participations in Letters of Credit or Swingline Loans within three (3) Business Days of the date required to be funded by it hereunder unless such failure to fund is based on such Lender’s good faith determination that the conditions precedent to such funding under this Agreement have not been satisfied or waived and such Lender has notified the Administrative Agent in writing of such determination, (b) notified the Borrower, the Administrative Agent, the Swingline Lender, the Issuing Bank or any other Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three (3) Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Revolving Loans and participations in then outstanding Letters of Credit or Swingline Loans (provided that any such Lender shall cease to be a Defaulting Lender under this clause (c) upon receipt of such confirmation by the Administrative Agent), (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three (3) Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or has a parent company that has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or (ii) become the subject of (A) a voluntary or involuntary bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has had any order for relief in such proceeding entered in respect thereof or has a parent company that has become the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment; provided, that a Lender shall not become a Defaulting Lender solely as the result of (x) the acquisition or maintenance of an ownership interest in such Lender or a Person controlling such Lender or (y) the exercise of control over a Lender or a Person controlling such Lender, in each case, by a Governmental Authority or an instrumentality thereof.
“Disclosed Matters” means the matters (a) disclosed in the current and periodic reports filed by the Borrower from time to time with the SEC pursuant to the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, or
(b) disclosed by the Borrower to the Lenders (either directly or indirectly through the Administrative Agent) in writing.
“Dollars” or “$” refers to lawful money of the United States of America.
distribution of assets of, the issuing company and (b) all warrants, options or other rights to acquire any Equity Interest described in clause (a) of this definition.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.
“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the Borrower or any Subsidiary, is treated with the Borrower as a single employer under Section 414(b) or (c) of the Code or Section 4001(14) of ERISA or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated with the Borrower as a single employer under Section 414(b), (c), (m) or (o) of the Code.
“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the failure with respect to any Plan to pay the “minimum required contribution” (as defined in Section 430 of the Code or Section 303 of ERISA), unless waived; (c) the incurrence by the Borrower or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (d) the receipt by the Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (e) the incurrence by the Borrower or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal from any Multiemployer Plan; or (f) the receipt by the Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from the Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent, within the meaning of Title IV of ERISA.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“Event of Default” has the meaning assigned to such term in Article 8.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Credit Party or required to be withheld and deducted from a payment to a Credit Party on account of any obligation of the Borrower under any Loan Document: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profit Taxes, in each case, (i) imposed as a result of such Person being organized under the laws of, or having its principal office or applicable lending office is located in the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, any U.S. federal withholding tax that is imposed on amounts payable to or for the account of to such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in a Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 3.08(b)) or (ii) such Lender changes its lending office, except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.07, (d) Taxes attributable to such Person’s failure to comply with Section 3.07(f) and (e) any withholding taxes imposed under FATCA.
“Existing Commitment Termination Date” is defined in Section 2.14(a).
“Existing Credit Agreement” is defined in the recitals hereof.
“Existing Letters of Credit” is defined in Section 2.09(a).
“Existing Loans” is defined in Section 2.01.
“Extending Lender” is defined in Section 2.14(b).
“Extension Date” is defined in Section 2.14(a).
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions (as determined in such manner as shall be set forth on the NYFRB’s Website from time to time) and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that if the Federal Funds Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“Financial Officer” means the Executive Vice President and Chief Financial Officer, the Treasurer, and the Controller of the Borrower and persons performing similar responsibilities regardless of title. The Financial Officers as of the Amendment No. 1 Effective Date are Paul K. Ito and Brenda Lee, and replacement or additional Financial Officers may be identified to the Administrative Agent from time to time in a writing signed by the President and Secretary of the Borrower.
“Fitch” means Fitch Ratings, Inc., or its successors.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR, as applicable. For the avoidance of doubt the initial Floor for each of Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR shall be 0%.
(d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation;
provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. The term “Guaranteed” has a meaning correlative thereto.
“Hawaiian Electric” means Hawaiian Electric Company, Inc., a Hawaii corporation.
“Hawaiian Electric Cash Manager” means, to the extent having received a legally valid delegation of authority from the Borrower with respect to borrowings and investments to be made by the Borrower and its Subsidiaries, the Cash Management Administrator of Hawaiian Electric, the Treasury Analyst of Hawaiian Electric, or the Securities Administrator of Hawaiian Electric, or any other person having received such authority; it being understood and agreed that (i) such person need not be a Financial Officer or an employee of the Borrower, and (ii) the Administrative Agent shall be entitled to rely on telephonic notice received from the Hawaiian Electric Cash Manager for all purposes of Sections 2.03, 2.07(e), 2.13 and 3.02(b).
“Hawaiian Electric Credit Agreement” means the Third Amended and Restated Credit Agreement, dated the date hereof, among Hawaiian Electric, the lenders party thereto, and JPMCB, as Administrative Agent, as amended, modified, supplemented, replaced or refinanced from time to time.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Hedging Agreement” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
“Increase Request” means a request by the Borrower for an increase of the total Commitments in accordance with Section 2.05(d).
“Indebtedness” of any Person means, without duplication,
(a) all obligations of such Person for borrowed money,
“Interest Election Request” means a request by the Borrower to convert or continue a Borrowing in accordance with Section 3.02 and substantially in the form annexed hereto as Exhibit G or any other form approved by the Administrative Agent.
“Interest Payment Date” means (a) with respect to the accrued interest on any ABR Loan (other than a Swingline Loan), the first Business Day of each January, April, July and October and the Commitment Termination Date, (b) with respect to the accrued interest on any RFR Loan, each date that is on the numerically corresponding day in each calendar month that is one month after the Borrowing of such RFR Loan (or, if there is no such numerically corresponding day in such month, then the last day of such month) and the Commitment Termination Date, (c) with respect to the accrued interest on any Term Benchmark Loan, the last day of the Interest Period applicable to the Borrowing of which such Revolving Loan is a part and, in the case of a Term Benchmark Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Commitment Termination Date and (d) with respect to the accrued interest on any Swingline Loan, the day that such Loan is required to be repaid and the Commitment Termination Date.
“Interest Period” means, with respect to any Term Benchmark Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three or six months thereafter (in each case, subject to the availability for the Benchmark applicable to the relevant Loan or Commitment), as the Borrower may elect, provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period and (c) no tenor that has been removed from this definition pursuant to Section 3.04(e) shall be available for specification in such Borrowing Request or Interest Election Request. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
such later version thereof as may be in effect at the applicable time) or similar terms of the Letter of Credit itself, or if compliant documents have been presented but not yet honored, such Letter of Credit shall be deemed to be “outstanding” and “undrawn” in the amount so remaining available to be paid, and the obligations of the Borrower and each Lender shall remain in full force and effect until the Issuing Bank and the Lenders shall have no further obligations to make any payments or disbursements under any circumstances with respect to any Letter of Credit.
“Letter of Credit Fee” has the meaning assigned to such term in Section 3.03(b).
“Letter of Credit Request” means, a request by the Borrower for the issuance of a Letter of Credit in the form of Exhibit E.
“Liabilities” means any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
providedImpactedInterest Period
provided
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“Loan Documents” means this Agreement, the Notes, the Reimbursement Agreements and, if applicable, any Hedging Agreement between the Borrower and any Lender.
“Loans” means the Revolving Loans and Swingline Loans made by the Lenders to the Borrower pursuant to this Agreement.
“Margin Stock” has the meaning assigned to such term in Regulation U.
“Material Adverse Effect” means a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries, “NYFRB” means the Federal Reserve Bank of New York.
“NYFRB Rate” means, for any day, the greater of (a) the Federal Funds Rate in effect on such day and (b) the Overnight Bank Funding Rate in effect on such day (or for any day that is not a Business Day, for the immediately preceding Business Day); provided that if none of such rates are published for any day that is a Business Day, the term “NYFRB Rate” means the rate for a federal funds transaction quoted at 11:00 a.m., New York City time, on such day received by the Administrative Agent from a federal funds broker of recognized standing selected by it; provided, further, that if any of the aforesaid rates as so determined would be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“NYFRB’s Website” means the website of the NYFRB at http://www.newyorkfed.org, or any successor source.
“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, the Borrower arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against the Borrower or any Affiliate thereof of any proceeding under any debtor relief laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed or allowable claims in such proceeding. Without limiting the foregoing, the Obligations include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, indemnities and other amounts payable by the Borrower under any Loan Document and (b) the obligation of the Borrower to reimburse any amount in respect of any of the foregoing that the Administrative Agent or any Lender, in each case in its sole discretion, may elect to pay or advance on behalf of the Borrower.
“OFAC” means the Office of Foreign Assets Control of the U.S. Department of Treasury.
“OFAC Sanctions” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by OFAC.
“Other Connection Taxes” means, with respect to any Credit Party, Taxes imposed as a result of a present or former connection between such Credit Party and the jurisdiction imposing such Tax (other than connections arising from such Credit Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, the Loan Documents, other than Excluded Taxes.
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar transactions denominated in Dollars by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Pricing Level IV” means at any time the Borrower’s Issuer Rating is (a) BBB- or higher by S&P, (b) Baa3 or higher by Moody’s or (c) BBB- or higher by Fitch, and Pricing Levels I, II and III are not applicable.
“Pricing Level V” means at any time the Borrower’s Issuer Rating is (a) less than or equal to BB+ by S&P, (b) less than or equal to Ba1 by Moody’s or (c) less than or equal to BB+ by Fitch.
“Prime Rate” means the rate of interest last quoted by The Wall Street Journal as the “Prime Rate” in the U.S. or, if The Wall Street Journal ceases to quote such rate, the highest per annum interest rate published by the Board in Federal Reserve Statistical Release H.15 (519) (Selected Interest Rates) as the “bank prime loan” rate or, if such rate is no longer quoted therein, any similar rate quoted therein (as determined by the Administrative Agent) or any similar release by the Board (as determined by the Administrative Agent). Each change in the Prime Rate shall be effective from and including the date such change is publicly announced or quoted as being effective.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Purchase Money Indebtedness” means Indebtedness of the Borrower that is incurred to finance part or all of (but not more than) the purchase price of a tangible asset; provided that (a) the Borrower did not at any time prior to such purchase have any interest in such asset other than an option to purchase, a security interest, or an interest as lessee under an operating lease and (b) such Indebtedness is incurred at the time of, or within 90 days after, such purchase.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
“QFC Credit Support” has the meaning assigned to it in Section 10.18.
“Reference Time” with respect to any setting of the then-current Benchmark means (i) if such Benchmark is the Term SOFR Rate, 5:00 a.m., Chicago time, on the day that is two (2) U.S. Government Securities Business Days preceding the date of such setting, (ii) if the RFR for such Benchmark is Daily Simple SOFR, then four (4) U.S. Government Securities Business Days prior to such setting or (iii) if such Benchmark is none of the Term SOFR Rate or Daily Simple SOFR, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning assigned to such term in Section 10.04(e).
“Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Reimbursement Agreement” has the meaning assigned to such term in Section 2.09(b).
“Reimbursement Obligation” means the obligation of the Borrower to reimburse the Issuing Bank for amounts drawn under a Letter of Credit.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, and employees of such Person and such Person’s Affiliates.
“Relevant Governmental Body” means the Board or the NYFRB, or a committee officially endorsed or convened by the Board or the NYFRB, or any successor thereto.
“Relevant Rate” means (i) with respect to any Term Benchmark Borrowing, the Adjusted Term SOFR Rate or (ii) with respect to any RFR Borrowing, the Adjusted Daily Simple SOFR, as applicable.
“Required Lenders” means, subject to Section 2.12, (a) at any time prior to the earlier of the Loans becoming due and payable pursuant to Article 8 or the Revolving Commitments terminating or expiring, Lenders having Credit Exposures and Unfunded Commitments representing more than 50% of the sum of the Aggregate Credit Exposure and Unfunded Commitments at such time, provided that, solely for purposes of declaring the Loans to be due and payable pursuant to Article 8, the Unfunded Commitment of each Lender shall be deemed to be zero; and (b) for all purposes after the Loans become due and payable pursuant to Article 8 or the Revolving Commitments expire or terminate, Lenders having Credit Exposures representing more than 50% of the Aggregate Credit Exposure at such time; provided that, in the case of clauses (a) and (b) above, (x) the Credit Exposure of any Lender that is the Swingline Lender shall be deemed to exclude any amount of its Swingline Exposure in excess of its Applicable Percentage of all outstanding Swingline Loans, adjusted to give effect to any reallocation under Section 2.12 of the Swingline Exposures of Defaulting Lenders in effect at such time, and the Unfunded Commitment of such Lender shall be determined on the basis of its Credit Exposure excluding such excess amount and (y) for the purpose of determining the Required Lenders needed for any waiver, amendment, modification or consent of or under this Agreement or any other Loan Document, any Lender that is the Borrower or an Affiliate of the Borrower shall be disregarded.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Restricted Payment” means, with respect to any Person, (a) any dividend or other distribution (whether in cash, securities or other property) by such entity with respect to any Equity Interests of such Person, (b) any payment (whether cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such Equity Interest, and (c) any payment of principal, interest or premium or any purchase, redemption, retirement, acquisition or defeasance with respect to any subordinated debt of such Person.
thereto.
“Reuters” means, as applicable, Thomson Reuters Corp., Refinitiv, or any successor “Revolving Commitment” means, with respect to each Lender, the commitment of such Lender during the Availability Period to make Revolving Loans and to acquire participations in Swingline Loans hereunder, expressed as an amount representing the maximum aggregate amount of such Lender’s Revolving Credit Exposure hereunder, as such commitment may be reduced or increased from time to time pursuant to Section 2.05 or pursuant to assignments by or to such Lender pursuant to Section 10.04. The initial amount of each Lender’s Revolving Commitment is set forth on Schedule 2.01, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Revolving Commitment, as applicable.
“Revolving Credit Exposure” means, with respect to any Lender at any time, the aggregate outstanding principal amount of such Lender’s Revolving Loans and Swingline Exposure at such time.
“Revolving Loans” means the revolving loans referred to in Section 2.01 and made pursuant to Article 2, other than, for the avoidance of doubt, Swingline Loans.
“Renewable Portfolio Standards” or “RPS” means, with respect to any calendar year, the ratio (expressed as a percentage rounded to the nearest whole) of (i) the amount, measured in net megawatt hours, of Renewable Electrical Energy (as defined by Hawaii Revised Statutes (HRS)
§269-91) generated by or at Hawaiian Electric-owned facilities, customer-owned facilities, or facilities owned by one or more third parties, including independent power producers, in contract with Hawaiian Electric, during such calendar year to (ii) the amount, measured in net megawatt hours, of Hawaiian Electric’s aggregate electrical energy sales during such calendar year.
“RFR Loan” or “RFR Borrowing”, when used in reference to any Loan or Borrowing, means that such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Adjusted Daily Simple SOFR.
“RPS Applicable Margin Adjustment Amount” means, with respect to any calendar year, (a) negative 0.0375%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Target A for such calendar year, (b) 0.00%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Threshold A for such calendar year but less than the RPS Target A for such calendar year, and (c) positive 0.0375%, if the RPS for such calendar year as set forth in the KPI Metrics Report is less than the RPS Threshold A for such calendar year.
“RPS Commitment Fee Adjustment Amount” means, with respect to any calendar year, (a) negative 0.0075%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Target A for such calendar year, (b) 0.00%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Threshold A for such calendar year but less than the RPS Target A for such calendar year, and (c) positive 0.0075%, if the RPS for such calendar year as set forth in the KPI Metrics Report is less than the RPS Threshold A for such calendar year.
“RPS Target A” means, with respect to any calendar year, the RPS Target A for such calendar year as set forth in the Sustainability Table.
“RPS Threshold A” means, with respect to any calendar year, the RPS Threshold A for such calendar year as set forth in the Sustainability Table.
“Sanctioned Country” means, at any time, a country, region or territory which itself is the subject or target of any Sanctions (as of the Amendment No. 1 Effective Date, the so-called Donetsk People’s Republic, the so-called Luhansk People’s Republic, the Crimea, Zaporizhzhia and Kherson Regions of Ukraine, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC or the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b), or (d) any Person with which the Borrower is prohibited under Sanctions from dealing or engaging in transactions.
“Sanctions” means, collectively, OFAC Sanctions and U.S. Department of State Sanctions.
“SEC” means the United States Securities and Exchange Commission.
“SEC Reports” means the reports filed by the Borrower with the SEC pursuant to the Securities Exchange Act of 1934, as amended.
“S&P” means Standard & Poor’s Rating Services, a Standard & Poor’s Financial Services LLC business, or its successors.
“Significant Subsidiary” means each of Hawaiian Electric, American Savings Bank, F.S.B., ASB Hawaii, Inc. and any other Subsidiary having 15% or more of the total assets, or 15% or more of the total operating income, of the Borrower and its Subsidiaries on a consolidated basis, in either case as the consolidated total assets and consolidated total operating income of the Borrower and its Subsidiaries are reflected in the most recent annual or quarterly report filed by the Borrower with the SEC.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator .
“SOFR Administrator” means the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB’s Website, currently at http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
minus
“SOFR Rate Day” has the meaning specified in the definition of “Daily Simple SOFR”.
“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
“Subsidiary” means any subsidiary of the Borrower and any subsidiary of a Subsidiary of the Borrower.
“Supported QFC” has the meaning assigned to it in Section 10.18.
“Sustainability Fee Adjustment” means, with respect to any KPI Metrics Report for any calendar year, an amount (whether positive, negative or zero), expressed as a percentage, equal to the sum of (a) the RPS Commitment Fee Adjustment Amount, plus (b) the Cumulative Residential Photovoltaic (CRPV) Capacity Commitment Fee Adjustment Amount, in each case for such calendar year.
“Sustainability Margin Adjustment” with respect to any KPI Metrics Report for any calendar year, an amount (whether positive, negative or zero), expressed as a percentage, equal to the sum of (a) the RPS Applicable Margin Adjustment Amount, plus (b) the Cumulative Residential Photovoltaic (CRPV) Capacity Applicable Margin Adjustment Amount, in each case for such calendar year.
“Sustainability Pricing Adjustment Date” has the meaning specified in Schedule 1.02.
“Sustainability Report” means the annual non-financial disclosure form according to the GRI Standard for Sustainability Reporting publicly reported by the Borrower and published on an Internet or intranet website to which each Lender and the Administrative Agent have been granted access free of charge (or at the expense of the Borrower).
“Sustainability Structuring Agent” means each of JPMCB and Bank of America, N.A., in its capacity as a Sustainability Structuring Agent in connection with the credit facility provided hereunder.
“Sustainability Table” means the Sustainability Table set forth in Schedule 1.02.
“Sustainability Targets” means both the RPS Target A and Cumulative Residential Photovoltaic (CRPV) Capacity Target B, as set forth in the Sustainability Table.
“Sustainability Thresholds” means both the RPS Threshold A and Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B, as set forth in the Sustainability Table.
“Swingline Exposure” means, at any time, the aggregate principal amount of all Swingline Loans outstanding at such time. The Swingline Exposure of any Lender at any time shall be the sum of (a) its Applicable Percentage of the aggregate principal amount of all Swingline Loans outstanding at such time (excluding, in the case of any Lender that is a Swingline Lender, Swingline Loans made by it that are outstanding at such time to the extent that the other Lenders shall not have funded their participations in such Swingline Loans), adjusted to give effect to any reallocation under Section 2.12 of the Swingline Exposure of Defaulting Lenders in effect at such time, and (b) in the case of any Lender that is a Swingline Lender, the aggregate principal amount of all Swingline Loans made by such Lender outstanding at such time, less the amount of participations funded by the other Lenders in such Swingline Loans.
“Swingline Lender” means JPMCB, in its capacity as lender of Swingline Loans hereunder.
“Swingline Loan” means a loan made pursuant to Section 2.13.
“Taxes” means any and all current or future taxes, levies, imposts, duties, deductions, fees, assessments, charges or withholdings imposed by any Governmental Authority.
“Term Benchmark Loan” or “Term Benchmark Borrowing”, when used in reference to any Loan or Borrowing, means that such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted Term SOFR Rate.
“Term SOFR Determination Day” has the meaning assigned to it under the definition of Term SOFR Reference Rate.
“Term SOFR Rate” means, with respect to any Term Benchmark Borrowing and for any tenor comparable to the applicable Interest Period, the Term SOFR Reference Rate two U.S. Government Securities Business Days prior to the commencement of such tenor comparable to the applicable Interest Period, as such rate is published by the CME Term SOFR Administrator.
“Term SOFR Reference Rate” means, for any day and time (such day, the “Term SOFR Determination Day”), with respect to any Term Benchmark Borrowing denominated in Dollars and for any tenor comparable to the applicable Interest Period, the rate per annum published by the CME Term SOFR Administrator and identified by the Administrative Agent as the forward-looking term rate based on SOFR. If by 5:00 p.m. (New York City time) on such Term SOFR Determination Day, the “Term SOFR Reference Rate” for the applicable tenor has not been published by the CME Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Rate has not occurred, then, so long as such Term SOFR Determination Day is otherwise a U.S. Government Securities Business Day, the Term SOFR Reference Rate for such Term SOFR Determination Day will be the Term SOFR Reference Rate as published in respect of the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate was published by the CME Term SOFR Administrator, so long as such first preceding U.S. Government Securities Business Day is not more than five (5) U.S. Government Securities Business Days prior to such Term SOFR Determination Day.
“Transactions” means (a) the execution, delivery and performance by the Borrower of each Loan Document to which it is a party, (b) the borrowing of the Loans, and (c) the use of the proceeds of the Loans.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted Term SOFR Rate, the Alternate Base Rate or the Adjusted Daily Simple SOFR. For the avoidance of doubt, a Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Term Benchmark Loan.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Unfunded Commitment” means, with respect to each Lender, the Revolving Commitment of such Lender less its Credit Exposure.
“U.S. Department of State Sanctions” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by the U.S. Department of State.
“U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
Lenders request an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. Unless the context otherwise requires, any reference to a fiscal period shall refer to the relevant fiscal period of the Borrower. Notwithstanding any other provision contained herein, (i) all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (x) without giving effect to any election under Accounting Standards Codification (ASC) Section 825-10-25, Fair Value Option, (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of the Borrower or any Subsidiary at “fair value”, as defined therein and (y) without giving effect to any treatment of Indebtedness under ASC Subtopic 470-20, Debt with Conversion and Other Options, or FASB Accounting Standards Update (ASU) No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30), (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Indebtedness in a reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof and (ii) Indebtedness included in the financial covenant set forth in Section 7.05 shall exclude any liability to make lease payments for all leases included on a balance sheet of the Borrower by reason of the application of FASB Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), as amended.
Section 1.04 Amendment and Restatement of the Existing Credit Agreement
The parties to this Agreement agree that, upon (i) the execution and delivery by each of the parties hereto of this Agreement and (ii) satisfaction of the conditions set forth in Section 5.01, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement as of the Effective Date. This Agreement is not intended to and shall not constitute a novation. All Revolving Loans made and obligations incurred under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as Revolving Loans and obligations under (and, as of the Effective Date, shall be governed by the terms of) this Agreement and the other Loan Documents. Without limiting the foregoing, upon the effectiveness hereof: (a) all references in the “Loan Documents” (as defined in the Existing Credit Agreement) to the “Administrative Agent”, the “Credit Agreement” and the “Loan Documents” shall be deemed to refer to the Administrative Agent, this Agreement and the Loan Documents, (b) the Existing Letters of Credit which remain outstanding on the Effective Date shall continue as Letters of Credit under (and, as of the Effective Date, shall be governed by the terms of) this Agreement, (c) all obligations of the Borrower owing to any Lender or any Affiliate of any Lender under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as obligations under this Agreement and the other Loan Documents, (d) the Administrative Agent shall make such reallocations, sales, assignments or other relevant actions in respect of each Lender’s credit exposure under the Existing Credit Agreement as of the Effective Date as are necessary in order that each such Lender’s Revolving Credit Exposure and outstanding Revolving Loans hereunder reflect such Lender’s Applicable Percentage of the outstanding aggregate Revolving Exposures on the Effective Date and (e) the Borrower hereby agrees to compensate each Lender for any and all losses, costs and expenses incurred by such Lender in connection with the sale and assignment of any Eurodollar Loans (as defined in this Agreement as of the Effective Date) (including the “Eurodollar Loans” under the Existing Credit Agreement) and such reallocation described above as of the Effective Date, in each case on the terms and in the manner set forth in Section 3.06 of this Agreement as of the Effective Date.
Section 1.05 Interest Rates; LIBORBenchmark Notification
The interest rate on LIBORFCAa Loan denominated in Dollars may be derived from an interest rate benchmark that may be discontinued or is, or may in the future become, the subject of regulatory reform. Upon the occurrence of a Benchmark Transition Event, Section 3.04(b) provides a mechanism for determining an alternative rate of interest. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission, performance or any other matter related to any interest rate used in this Agreement, or with respect to any alternative or successor rate thereto, or replacement rate thereof, including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, the existing interest rate being replaced or have the same volume or liquidity as did any existing interest rate prior to its discontinuance or unavailability. The Administrative Agent and its affiliates and/or other related entities may engage in transactions that affect the calculation of any interest rate used in this Agreement or any alternative, successor or alternative rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain any interest rate used in this Agreement, any component thereof, or rates referenced in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
Section 1.06 Letter of Credit Amounts
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the amount of such Letter of Credit available to be drawn at such time; provided that, with respect to any Letter of Credit that, by its terms or the terms of any Letter of Credit Agreement related thereto, provides for one or more automatic increases in the available amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum amount is available to be drawn at such time.
Section 1.07 Divisions
For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and
(b) if any new Person comes into existence, such new Person shall be deemed to have been organized and acquired on the first date of its existence by the holders of its Equity Interests at such time.
ARTICLE 2. THE CREDITS
Section 2.01 Commitments
Prior to the Effective Date, certain loans were previously made to the Borrower under the Existing Credit Agreement which remain outstanding as of the date of this Agreement (such outstanding loans being hereinafter referred to as the “Existing Loans”). Subject to the terms and conditions set forth in this Agreement, the Borrower and each of the Lenders agree that on the Effective Date but subject to the satisfaction of the conditions precedent set forth in Section 5.01 and the reallocation and other transactions described in Section 1.04, the Existing Loans shall, as of the Effective Date, be reevidenced as Revolving Loans under this Agreement and the terms of the Existing Loans shall be restated in their entirety and shall be evidenced by this Agreement. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result (after giving effect to any application of proceeds of such Borrowing to any Swingline Loans outstanding pursuant to Section 2.06(a)) in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the Aggregate Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
Section 2.02 Loans and Borrowings
(a) Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Revolving Commitments. The failure of any Lender to make any Revolving Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Revolving Commitments of the Lenders are several, and no Lender shall be responsible for any other Lender’s failure to make Revolving Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.13.
(b) Subject to Section 3.04, each Revolving Loan shall be an ABR Loan or a Term Benchmark Loan, as the Borrower may request in accordance herewith (including Section 3.02). Each Swingline Loan shall be an ABR Loan.
Each Lender at its option may make any Term Benchmark Loan (and any ABR Loan, the interest on which is determined pursuant to clause (c) of the definition of Alternate Base Rate) by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 3.05, 3.06 and 3.07 shall apply to such Affiliate to the same extent as to such Lender), provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and neither such Lender nor such Affiliate shall be entitled to any amounts payable under Sections 3.05 or 3.07 solely in respect of increased costs or taxes resulting from such exercise and existing at the time of such exercise.
(c) At the commencement of each Interest Period for any Term Benchmark Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000. At the time that each ABR Borrowing (other than a Swingline Loan) is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000, provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments. Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time, provided that there shall not at any time be more than a total of fifteen Term Benchmark Borrowings outstanding.
(d) Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Commitment Termination Date.
Section 2.03 Requests for Borrowings
To request a Borrowing (other than a Swingline Loan, requests for which are governed by Section 2.13), the Borrower shall notify the Administrative Agent of such request either (x) by email from (with such email request being confirmed promptly by delivery of a written Borrowing Request signed by) the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager or (y) by delivery of a written Borrowing Request signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, (a) in the case of a Term Benchmark Borrowing, not later than 3:00 p.m., New York City time, three U.S. Government Securities Business Days before the date of the proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 2:00 p.m., New York City time on the date of the proposed Borrowing. Each such Borrowing Request shall be irrevocable (except as otherwise provided in Section 3.04). Each such Borrowing Request shall specify the following information in compliance with Section 2.02:
(i) the aggregate amount of the requested Borrowing;
(ii) the date of such Borrowing, which shall be a Business Day;
(iii) whether such Borrowing is to be an ABR Borrowing or a Term Benchmark Borrowing;
(iv) in the case of a Term Benchmark Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and (v) the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Term Benchmark Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Revolving Loan to be made as part of the requested Borrowing.
Section 2.04 Funding of Borrowings
(a) Each Lender shall make each Revolving Loan to be made by it hereunder on the proposed date thereof solely by wire transfer of immediately available funds by 3:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Swingline Loans shall be made as provided in Section 2.13. Subject to Section 5.02, the Administrative Agent will make the proceeds of such Loans available to the Borrower by promptly crediting or otherwise transferring the amounts so received, in like funds, to an account of the Borrower designated by the Borrower in the applicable Borrowing Request.
(b) Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Revolving Loan that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent by 3:00 p.m., New York City time, for a Term Benchmark Borrowing or by 4:00 p.m., New York City time, for an ABR Borrowing on the applicable day, then such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount was made available by the Administrative Agent to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, or (ii) in the case of the Borrower, the interest rate that would be otherwise applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Revolving Loan included in such Borrowing. Such payment by the Borrower shall be without prejudice to its rights against each Lender who fails to fund its share of any Borrowing.
Section 2.05 Termination, Reduction and Increase of Commitments
(a) Unless previously terminated, the Revolving Commitments and the Letter of Credit Commitments shall terminate on the Commitment Termination Date.
(b) The Borrower may at any time terminate, or from time to time reduce, the Commitments, provided that (i) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.07 and/or any concurrent cash collateralization of the Letter of Credit Exposure, (w) the amount of any Lender’s Revolving Credit Exposure would exceed its Revolving Commitment, (x) the (iii) the Revolving Commitments shall not be increased on more than three occasions;
(iv) the Administrative Agent shall have received documents (including, without limitation, one or more opinions of counsel) consistent with those delivered on the Effective Date as to the corporate power and authority of the Borrower to borrow hereunder after giving effect to such increase;
(v) if Loans shall be outstanding immediately after giving effect to such increase, the Lenders shall, upon the acceptance of the Increase Request by, and at the direction of, the Administrative Agent, make appropriate adjustments among themselves so that the amount of Revolving Credit Exposures from any of the Lenders under this Agreement are allocated among the Lenders according to their Commitment Percentages after giving effect to the increase in the Aggregate Revolving Commitments (it being understood and agreed that any reallocation made pursuant to this clause (v) shall require the Borrower to make payment pursuant to Section 3.06 with respect to any affected Term Benchmark Loans); and
(vi) each such Eligible Assignee shall have delivered to the Administrative Agent and the Borrower an Administrative Questionnaire and all forms, if any, that are required to be delivered by such Eligible Assignee pursuant to Section 3.07(e).
Section 2.06 Repayment of Loans; Evidence of Debt
(a) The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Commitment Termination Date and (ii) to the Administrative Agent for the account of the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Commitment Termination Date and the date that is the 21st Business Day after such Swingline Loan is made; provided that on each date that a Revolving Loan is made, the Borrower shall repay all Swingline Loans then outstanding and the proceeds of any such Borrowing shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.
(b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c) The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type and Class thereof and, if applicable, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d) The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall, to the extent not inconsistent with any entries made in any Note, be prima facie evidence of the existence and amounts of the obligations recorded therein except for clearly demonstrated error; provided, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement; provided, further, that in the event of any inconsistency between the accounts maintained by the Administrative Agent pursuant to paragraph (c) and any Lender’s records, the accounts of the Administrative Agent shall govern.
(e) The Loans of each Lender and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be evidenced by one or more Notes payable to such Lender (or its registered assigns).
Section 2.07 Prepayment of Loans
(a) The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b) In the event of any partial reduction or termination of the Commitments, then (i) at or prior to the date of such reduction or termination, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Credit Exposures after giving effect thereto, and (ii) if such sum would exceed the Aggregate Revolving Commitments after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, prepay Revolving Borrowings, and/or cash collateralize the Letter of Credit Exposure, in an amount sufficient to eliminate such excess.
(c) Mandatory Prepayments.
(i) The Borrower shall immediately prepay the Loans, by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments.
(ii) Simultaneously with each reduction or termination of the Revolving Commitments, (1) in the event that the Aggregate Letter of Credit Commitments shall exceed the Aggregate Revolving Commitments as so reduced or terminated, the Aggregate Letter of Credit Commitments shall be automatically reduced, and/or the Letter of Credit Exposure shall be cash collateralized, by an amount equal to such excess, and (2) the Borrower shall prepay the Loans by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments as so reduced or terminated.
(d) Simultaneously with each prepayment of a Loan, the Borrower shall, if and to the extent required by Section 3.01(e), prepay all accrued interest on the amount prepaid through the date of prepayment.
(e) The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by either (x) email notice, which may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager of any prepayment under Section 2.07(a) (with such email notice being confirmed promptly by delivery of a written notice in a form approved by the Administrative Agent signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager) or (y) written notice in a form approved by the Administrative Agent signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager (i) in the case of prepayment of (x) a Term Benchmark Borrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of prepayment or (y) an RFR Revolving Borrowing, not later than 11:00 a.m., New York City time, five (5) Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing (other than a Swingline Loan), not later than 2:00 p.m., New York City time, on the Business Day of the prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m., New York City time, on the Business Day of prepayment.
Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided, that if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments contemplated by Section 2.05(c), then such notice of prepayment may also be conditional and may be revoked if such notice of termination is revoked in accordance with Section 2.05(c). Promptly following receipt of any such notice relating to a prepayment of a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing under Section 2.07(a) shall, be in an integral multiple of $1,000,000 and not less than $1,000,000. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest if and to the extent required by Section 3.01.
Section 2.08 Payments Generally; Pro Rata Treatment; Sharing of Setoffs
(a) The Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 3.05, 3.06, 3.07 or 10.03, or otherwise) in Dollars prior to 3:00 p.m., New York City time, on the date when due, in immediately available funds, without setoff or counterclaim. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its office at 10 South Dearborn Street, Chicago, Illinois, 60603, or such other office as to which the Administrative Agent may notify the other parties hereto, except payments to be made directly to the Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 3.03(b) (with respect to the fronting fee and other amounts payable to the Issuing Bank), 3.03(c), 3.05, 3.06, 3.07, 3.08, 10.03 and 10.04 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. In the event the Administrative Agent has not in fact made available to each Lender its share of the applicable payment within one Business Day of the receipt thereof, then the Administrative Agent agrees to pay to the applicable Lender forthwith on demand its share of such payment with interest thereon for each day, from and including the second Business Day after such payment was received by the Administrative Agent but excluding the date of payment by the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment of accrued interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.
(b) If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal of Loans, interest, fees and commissions then due hereunder, such funds shall be applied (i) first, towards payment of interest, fees and commissions then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and commissions then due to such parties, and (ii) second, towards payment of principal of Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal of Loans then due to such parties.
the foregoing clauses (i) and (ii) and (B) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such extension.
(g) Commitment Termination Date for Non-Extending Lenders. On the Commitment Termination Date of each Non-Extending Lender, (i) the Commitment of each Non-Extending Lender shall automatically terminate and (ii) the Borrower shall repay such Non-Extending Lender in accordance with Section 2.06 (and shall pay to such Non-Extending Lender all of the other obligations owing to it under this Agreement) and after giving effect thereto shall prepay any Revolving Loans outstanding on such date (and pay any additional amounts required pursuant to Section 3.06) to the extent necessary to keep outstanding Revolving Loans ratable with any revised Applicable Percentages of the respective Lenders effective as of such date, and the Administrative Agent shall administer any necessary reallocation of the Revolving Credit Exposures (without regard to any minimum borrowing, pro rata borrowing and/or pro rata payment requirements contained elsewhere in this Agreement).
(h) Conflicting Provisions. This Section shall supersede any provisions in Section 2.08 or Section 10.02 to the contrary.
ARTICLE 3. INTEREST, FEES, YIELD PROTECTION, ETC.
Section 3.01 Interest
(a) ABR Loans (including each Swingline Loan) and unpaid Reimbursement Obligations shall bear interest at the Alternate Base Rate plus the Applicable Margin.
(b) Term Benchmark Borrowings shall bear interest at the Adjusted Term SOFR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c) Each RFR Loan shall bear interest at a rate per annum equal to the Adjusted Daily Simple SOFR plus the Applicable Margin.
(d) Notwithstanding the foregoing, if any principal of and interest on any Loan or Reimbursement Obligation or any fee or other amount payable by the Borrower hereunder is not paid when due and after the expiration of any applicable grace period, then all such amounts shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of principal of any Loan or Reimbursement Obligation, 2% plus the rate otherwise applicable to such Loan or Reimbursement Obligation as provided in the preceding paragraphs of this Section, or (ii) in the case of any other amount, 2% plus the Alternate Base Rate.
(e) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment (other than a prepayment of an ABR Loan before the end of the Availability Period), and (iii) in the event of any conversion of any Term Benchmark Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(f) All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate only at times when the Alternate
Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year). In each case interest shall be payable for the actual number of days elapsed (including the first day but excluding the last day) . All interest hereunder on any Loan shall be computed on a daily basis based upon the outstanding principal amount of such Loan as of the applicable date of determination. A determination of the applicable Alternate Base Rate, Adjusted Term SOFR Rate, Term SOFR Rate, Adjusted Daily Simple SOFR or Daily Simple SOFR shall be determined by the Administrative Agent in accordance with the provisions of this Agreement, and such determination shall be conclusive absent clearly demonstrable error.
Section 3.02 Interest Elections
(a) Any Borrowing on the Effective Date shall be of ABR Loans. Thereafter, each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Term Benchmark Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Term Benchmark Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably (subject to the provisions of Section 2.12) among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b) To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election either (x) by email from (with such email request being confirmed promptly by delivery of a written Interest Election Request signed by) the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager or (y) by delivery of a written Interest Election Request signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such Interest Election Request shall be irrevocable, except as otherwise provided in Section 3.04.
(c) Each Interest Election Request shall specify the following information in compliance with Section 2.02:
(i) the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing);
(ii) the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii) whether the resulting Borrowing is to be an ABR Borrowing or a Term Benchmark Borrowing; and (iv) if the resulting Borrowing is a Term Benchmark Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Term Benchmark Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d) Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e) If the Borrower fails to deliver a timely Interest Election Request prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be deemed to have an Interest Period that is one (1) month. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued as a Term Benchmark Borrowing, and (ii) unless repaid, (A) each Term Benchmark Borrowing and (B) each RFR Borrowing shall be converted to an ABR Borrowing (in the case of a Term Benchmark Borrowing) at the end of the Interest Period applicable thereto or (in the case of an RFR Borrowing) on the next Interest Payment Date in respect thereof.
(f) Notwithstanding any contrary provision herein, this Section shall not be construed to permit the Borrower to (i) elect an Interest Period for Term Benchmark Loans that does not comply with Section 2.02(d) or (ii) convert any Borrowing to a Borrowing of a Type not available under such Borrowing.
(g) Notwithstanding anything in this Agreement or any other Loan Document to the contrary, interest on all “Eurodollar Loans” (as defined in this Agreement immediately prior to the Amendment No. 1 Effective Date) outstanding under this Agreement immediately prior to the Amendment No. 1 Effective Date shall continue to accrue and be paid based upon the “Adjusted LIBO Rate” (as defined in this Agreement immediately prior to the Amendment No. 1 Effective Date) applicable pursuant to the terms of this Agreement immediately prior to the Amendment No. 1 Effective Date solely until the expiration of the current “Interest Period” (as defined in this Agreement immediately prior to the Amendment No. 1 Effective Date) applicable thereto (at which time such Loans may be reborrowed as or converted to ABR Borrowings or Term Benchmark Borrowings, as applicable, in accordance with this Section 3.02).
Section 3.03 Fees
(a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender, a commitment fee, which shall accrue at a rate per annum equal to the Applicable Margin on the average daily amount of the unused Revolving Commitment of such Lender during the period from and including the date on which this Agreement shall have become effective in accordance with Section 10.06 to but excluding the date on which such Revolving Commitment terminates (the “Commitment Fee”).
For purposes of calculating the Commitment Fee, Swingline Exposure shall not be considered usage of the Revolving Commitment of any Lender.
Accrued Commitment Fees through and including the last day of March, June, September and December of each year shall be payable in arrears on the fifteenth day following such last day (or for any such fifteenth day that is not a Business Day , on the next succeeding Business Day) and on the Commitment Termination Date, commencing on the first such date to occur after the Amendment No. 1 Effective Date.
(b) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a fee (the “Letter of Credit Fee”) with respect to each Letter of Credit, payable quarterly in arrears during the period from and including the date of issuance thereof to and including the expiration or cancellation date thereof (a) on the first Business Day of each January, April, July and October of each year, (b) upon such expiration or cancellation date and (c) on the Commitment Termination Date, at a rate per annum equal to the Applicable Margin on Term Benchmark Borrowings on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations). The Borrower also agrees to pay to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations) attributable to Letters of Credit issued by the Issuing Bank during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any Letter of Credit Exposure as well as the Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment or extension of any Letter of Credit or processing of drawings thereunder. The Letter of Credit Fees and the fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the fifteenth day following such last day (or for any such fifteenth day that is not a Business Day, on the next succeeding Business Day), commencing on the first such date to occur after the Amendment No. 1 Effective Date. The Letter of Credit Fee and the fronting fees described above shall be calculated for the actual number of days elapsed (including the first day and the last day of each period but excluding the date on which the Commitments terminate) during the period in question on the basis of a year of 365 or 366 days, as applicable.
(c) The Borrower agrees to pay to the Administrative Agent, for its own account, fees and other amounts payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.
(d) All Commitment Fees shall be computed on the basis of a year of 365 or 366 days, as applicable, and shall be payable for the actual number of days elapsed (including the first day but excluding the last day) during the period in question.
(e) All fees and other amounts payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of Commitment Fees, to the Lenders. Fees and other amounts paid shall not be refundable under any circumstances other than clearly demonstrable error.
Section 3.04 Alternate Rate of Interest
(a) Subject to clauses (b), (c), (d), (e) and (f) of this Section 3.04, if to
(i) the Administrative Agent determines (which determination shall be conclusive and binding absent clearly demonstrable error) (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, that adequate and reasonable means do not exist for ascertaining the Adjusted Term SOFR Rate (including because the Term SOFR Reference Rate is not available or published on a current basis) for such Interest Periodprovided or (B) at any time during which an RFR Loan is outstanding or a Revolving Borrowing is to be made as an RFR Borrowing or converted into an RFR Borrowing, that adequate and reasonable means do not exist for ascertaining the applicable Adjusted Daily Simple SOFR; or
(ii) the Administrative Agent is advised by the Required Lenders that (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, the Adjusted Term SOFR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; or (B) at any time during which an RFR Loan is outstanding or a Revolving Borrowing is to be made as an RFR Borrowing or converted into an RFR Borrowing, Adjusted Daily Simple SOFR will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone , telecopy or electronic mail as promptly as practicable thereafter and, until (x) the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark and (y) the Borrower delivers a new Interest Election Request in accordance with the terms of Section 3.02 or a new Borrowing Request in accordance with the terms of Section 2.03, any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Term Benchmark Borrowing and any Borrowing Request that requests a N Term Benchmark Revolving Borrowing shall instead be deemed to be an Interest Election Request or a Borrowing Request, as applicable, for (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not also the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above on such day or (y) an ABR Borrowing if the Adjusted Daily Simple SOFR also is the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above on such day; provided that if the circumstances giving rise to such notice affect only one Type of Borrowing, then all other Types of Borrowings shall be permitted.
terms of Section 3.02 or a new Borrowing Request in accordance with the terms of Section 2.03, (A) any Term Benchmark Loan shall on the last day of the Interest Period applicable to such Loan, be converted by the Administrative Agent to, and shall constitute, (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not also the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above on such day or (y) an ABR Loan if the Adjusted Daily Simple SOFR also is the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above, on such day, and (B) any RFR Loan shall on and from such day be converted by the Administrative Agent to, and shall constitute an ABR Loan.
Furthermore, if any Term Benchmark Loan or RFR Loan is outstanding on the date of the Borrower’s receipt of the notice from the Administrative Agent referred to in this Section 3.04(a) with respect to a Relevant Rate applicable to such Term Benchmark Loan or RFR Loan, then until (x) the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark and (y) the Borrower delivers a new Interest Election Request in accordance with the (b) Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (2) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m., New York City time, on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.
provided
(c) Notwithstanding anything to the contrary herein or in any other Loan Document, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(d)The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (e) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.04, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.04.
(e)Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including the Term SOFR Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will no longer be representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is not or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(f)Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Term Benchmark Borrowing or a conversion to or continuation of Term Benchmark Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request for a Term Benchmark Borrowing into a request for a Borrowing of or conversion to (A) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not the subject of a Benchmark Transition Event or (B) an ABR Borrowing if the Adjusted Daily Simple SOFR is the subject of a Benchmark Transition Event. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Alternate Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Alternate Base Rate. Furthermore, if any Term Benchmark Loan or RFR Loan is outstanding on the date of the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to a Relevant Rate applicable to such Term Benchmark Loan or RFR Loan, then until such time as a Benchmark Replacement is implemented pursuant to this Section 3.04, (1) any Term Benchmark Loan shall on the last day of the Interest Period applicable to such Loan, be converted by the Administrative Agent to, and shall constitute, (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not the subject of a Benchmark Transition Event or (y) an ABR Loan if the Adjusted Daily Simple SOFR is the subject of a
Benchmark Transition Event, on such day and (2) any RFR Loan shall on and from such day be converted by the Administrative Agent to, and shall constitute an ABR Loan.
Section 3.05 Increased Costs; Illegality
(a) If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Credit Party ;
(ii) impose on any Credit Party or the applicable offshore interbank market any other condition affecting this Agreement or Loans made by such Credit Party or any participation therein; or
(iii) subject the Administrative Agent or any Credit Party to any Taxes (other than (A) Indemnified Taxes and (B) Excluded Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; and the result of any of the foregoing shall be to increase the cost to the Administrative Agent or such Credit Party of making, continuing, converting or maintaining any Loan hereunder (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by the Administrative Agent or such Credit Party hereunder (whether of principal, interest or otherwise), then the Borrower will, upon request by the Administrative Agent or such Credit Party, pay to the Administrative Agent or such Credit Party such additional amount or amounts as will compensate the Administrative Agent or such Credit Party for such additional costs incurred or reduction suffered.
(b) If any Credit Party determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Credit Party’s capital or on the capital of such Credit Party’s holding company, if any, as a consequence of this Agreement or the Loans made by such Credit Party to a level below that which such Credit Party or such Credit Party’s holding company could have achieved but for such Change in Law (taking into consideration such Credit Party’s policies and the policies of such Credit Party’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Credit Party such additional amount or amounts as will compensate such Credit Party or such Credit Party’s holding company for any such reduction suffered.
(c) A certificate of a Credit Party setting forth the amount or amounts necessary to compensate such Credit Party or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section including reasonably detailed supporting information shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error, it being understood that the Borrower’s obligations payable to any Credit Party pursuant to this clause (c) will be reasonably determined by such Credit Party (which determination shall be made in good faith (and not on an arbitrary or capricious basis) and consistent with similarly situated customers of such Credit Party under agreements having provisions similar to this Section 3.05 after consideration of such factors as such Credit Party then reasonably determines to be relevant).
30 days after receipt thereof unless the Borrower is asserting in good faith that there is clearly demonstrable error in such certificate.
The Borrower shall pay such Credit Party the amount shown as due on any such certificate within (d) Failure or delay on the part of any Credit Party to demand compensation pursuant to this Section shall not constitute a waiver of such Credit Party’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Credit Party pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Credit Party notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Credit Party’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90 day period referred to above shall be extended to include the period of retroactive effect thereof but not to exceed a period of 365 days.
(e) Notwithstanding any other provision of this Agreement, if, after the date of this Agreement, any Change in Law shall make it unlawful for any Lender to make or maintain any Term Benchmark Loan or to give effect to its obligations as contemplated hereby with respect to any Term Benchmark Loan, then, by written notice to the Borrower and to the Administrative Agent:
(i) such Lender may declare that Term Benchmark Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Term Benchmark Loans), whereupon any request for a Term Benchmark Borrowing or to convert an ABR Borrowing to a Term Benchmark Borrowing or to continue a Term Benchmark Borrowing, as applicable, for an additional Interest Period shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such for an additional Interest Period or to convert a Term Benchmark Loan into an ABR Loan, as applicable), unless such declaration shall be subsequently withdrawn; and
(ii) such Lender may require that all outstanding Term Benchmark Loans made by it be converted to ABR Loans, in which event all such Term Benchmark Loans shall be automatically converted to ABR Loans, as of the effective date of such notice as provided in the last sentence of this paragraph.
In the event any Lender shall exercise its rights under (i) or (ii) of this paragraph, all payments and prepayments of principal that would otherwise have been applied to repay the Term Benchmark Loans that would have been made by such Lender or the converted Term Benchmark Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Term Benchmark Loans, as applicable. For purposes of this paragraph, a notice to the Borrower by any Lender shall be effective as to each Term Benchmark Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Term Benchmark Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.
Section 3.06 Break Funding Payments
(a)With respect to Term Benchmark Loans, in the event of (i) the payment or prepayment (voluntary or otherwise) of any principal of any Term Benchmark Loan other than on the last day of an Interest Period applicable thereto (including as a result of an
Event of Default), (ii) the conversion of any Term Benchmark Loan other than on the last day of the Interest Period applicable thereto, (iii) the failure to borrow, convert, continue or prepay any Term Benchmark Loan on the date specified in any notice delivered pursuant hereto or (iv) the assignment of any Term Benchmark Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 3.08 or 10.02(d), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event . A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof unless there is clearly demonstrable error in any such certificate.
(b) With respect to RFR Loans, in the event of (i) the payment of any principal of any RFR Loan other than on the Interest Payment Date applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.07), (ii) the failure to borrow or prepay any RFR Loan on the date specified in any notice delivered pursuant hereto or (iii) the assignment of any RFR Loan other than on the Interest Payment Date applicable thereto as a result of a request by the Borrower pursuant to Section 3.08 or 10.02(d), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof unless there is clearly demonstrable error in any such certificate.
Section 3.07 Taxes
(a) Except as required by applicable law, any and all payments by or on account of any obligation of the Borrower hereunder and under any other Loan Document shall be made free and clear of and without deduction for any Taxes, provided that, if the Withholding Agent is required by applicable law (as determined in the good faith discretion of the applicable Withholding Agent) to deduct or withhold any Taxes from such payments, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this (a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile transmission, as follows:
Section 10.01 Notices
(i) if to the Borrower:
Hawaiian Electric Industries, Inc.
1001 Bishop Street, Suite 2900 (if by hand delivery or overnight courier)
Honolulu, Hawaii 96813
P.O. Box 730 (if by mail) Honolulu, Hawaii 96808-0730
Attention: Paul K. Ito, Executive Vice President, Chief
Financial Officer and Treasurer
Telephone No.: 808-543-7359
Facsimile No.: 808-543-7735
(ii) if to the Administrative Agent:
JPMorgan Chase Bank, N.A.
6135 Park South Dr Ste 500, Floor 02
Charlotte, NC 28210-3272
Attention: Johnny Michael
Email: johnny.michael@jpmorgan.com
Phone: 980-296-6594
with a copy to: Loan and Agency Servicing
Email: jpm.agency.cri@jpmorgan.com
and with a copy to:
JPMorgan Chase Bank, N.A.
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Telephone No.: 310-860-7256
Facsimile No.: 310-860-7110
(iii) if to the Issuing Bank:
JPMorgan Chase Bank, N.A.
131 South Dearborn, Floor 04
Chicago, IL 60603-5506
Attention: CB
Trade Execution Team
Email: cb.trade.execution.team@chase.com and
jpm.agency.cri@jpmorgan.com
(iv) if to the Swingline Lender:
JPMorgan Chase Bank, N.A.
131 South Dearborn, Floor
04
Chicago, IL 60603-5506
Attention: Johnny Michael
Email: johnny.michael@jpmorgan.com
Phone: 980-296-6594
with a copy to: Loan and Agency Servicing
Email: jpm.agency.cri@jpmorgan.com
(v) if to any other Credit Party, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Approved Electronic Platforms, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b) Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by using Approved Electronic Platforms pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(d) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
Section 10.02 Waivers; Amendments
(a) No failure or delay by any Credit Party in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.
(b) Except as provided in Section 3.04(b) and Section 3.04(c), neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders, provided that no such agreement shall:
(i) increase the Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount of any Loan or Reimbursement Obligations, or reduce the rate of interest thereon (other than (x) the imposition of additional interest under Section 3.01(d) and (y) for the avoidance of doubt pursuant to the provisions of the penultimate paragraph of Schedule 1.02), or reduce any fees or other amounts payable under the Loan Documents, without the written consent of each Lender directly affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees or other amounts payable under the Loan Documents, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Credit Party directly affected thereby,
(iv) change any provision hereof in a manner that would alter the ratable reduction of Revolving Commitments or the pro rata sharing of payments required by any Loan Document, without the written consent of each Credit Party,
(v) change the payment waterfall provisions of Section 2.12(b) without the written consent of each Credit Party, or
(vi) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender,
EX-10.2
3
hecoex102amendmentno1tothe.htm
EX-10.2
Document
Hawaiian Electric Exhibit 10.2
EXECUTION COPY
AMENDMENT NO. 1
Dated as of April 21, 2023
to
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of May 14, 2021
THIS AMENDMENT NO. 1 (this “Amendment”) is made as of April 21, 2023 by and among Hawaiian Electric Company, Inc., a Hawaii corporation (the “Borrower”), the Lenders party hereto and JPMorgan Chase Bank, N.A., in its capacity as administrative agent for the Lenders (the “Administrative Agent”), under that certain Third Amended and Restated Credit Agreement dated as of May 14, 2021 by and among the Borrower, the Lenders from time to time party thereto and the Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time prior to the date hereof, the “Credit Agreement”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to them in the Credit Agreement.
WHEREAS, the Borrower has requested that the Lenders and the Administrative Agent agree to make certain amendments to the Credit Agreement;
WHEREAS, the Borrower, the Lenders party hereto and the Administrative Agent have agreed to amend the Credit Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower, the Lenders party hereto and the Administrative Agent hereby agree to enter into this Amendment.
1.Amendments to the Credit Agreement. Effective as of the date of satisfaction of the conditions precedent set forth in Section 2 below (such date, the “Amendment No. 1 Effective Date”), the parties hereto agree that the Credit Agreement (including certain of the Exhibits thereto) shall be amended to delete the stricken text (indicated textually in the same manner as the following example: ) and to add the double-underlined text (indicated textually in the same manner as the following example: double-underlined text [insertions in the SEC-filed document are indicated as single-underlined text]) as set forth in the pages of the Credit Agreement (including certain of the Exhibits thereto) attached as Annex A hereto (the Credit Agreement as so amended, the “Amended Credit Agreement”).
2.Conditions of Effectiveness. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:
(a)The Administrative Agent (or its counsel) shall have received counterparts of this Amendment duly executed by the Borrower, each of the Lenders, the Issuing Bank, the Swingline Lender and the Administrative Agent.
(b)The Administrative Agent shall have received payment of all fees required to be paid, and all reasonably incurred and documented expenses which are otherwise required to be reimbursed,
in each case, for which invoices with appropriate supporting documentation have been presented at least two (2) Business Days prior to the Amendment No. 1 Effective Date.
3.Representations and Warranties of the Borrower. The Borrower hereby represents and warrants as follows:
(a)Each of this Amendment and the Amended Credit Agreement constitutes a legal,
valid and binding obligations of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(b)As of the date hereof and immediately after giving effect to the terms of this Amendment, (i) no Default has occurred and is continuing and (ii) the representations and warranties of the Borrower set forth in the Amended Credit Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of the Amended Credit Agreement) are true and correct in all material respects (or, in the case of any representation or warranty qualified by materiality or Material Adverse Effect, in all respects), except to the extent such representations and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects (or, in the case of any representation or warranty qualified by materiality or Material Adverse Effect, in all respects) on and as of such earlier date.
4.Reference to and Effect on the Credit Agreement.
(a)Upon the effectiveness hereof, each reference to the Credit Agreement in the Amended Credit Agreement or any other Loan Document shall mean and be a reference to the Amended Credit Agreement.
(b)Each Loan Document and all other documents, instruments and agreements executed and/or delivered in connection therewith shall remain in full force and effect and are hereby ratified and confirmed.
(c)The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders, nor constitute a waiver of any provision of the Credit Agreement, the Loan Documents or any other documents, instruments and agreements executed and/or delivered in connection therewith.
(d) This Amendment shall be deemed to be a Loan Document.
5.Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflict of laws.
6.Headings. Section headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
7.Counterparts. This Amendment may be executed by one or more of the parties hereto on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page of this Amendment that is an Electronic Signature transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page shall be effective as delivery of a manually executed counterpart of this Amendment. The words “execution,” “signed,” “signature,” “delivery,” and words of like import in or relating to this Amendment and/or any document to be signed in connection with this Amendment and the transactions contemplated hereby shall be deemed to include Electronic Signatures (as defined below), deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature, physical delivery thereof or the use of a paper-based recordkeeping system, as the case may be. As used herein, “Electronic Signatures” means any electronic symbol or process attached to, or associated with, any contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
[Signature Pages Follow]
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day and year first above written.
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| HAWAIIAN ELECTRIC COMPANY, INC., |
| as the Borrower |
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| By: |
/s/ Tayne S.Y. Sekimura |
| Name: |
Tayne S.Y. Sekimura |
| Title: |
Senior Vice President, Chief Financial Officer |
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and Treasurer |
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| By: |
/s/ Shannon Asato |
| Name: |
Shannon Asato |
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| Title: |
Controller |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| JPMORGAN CHASE BANK, N.A., |
| as Administrative Agent, as Issuing Bank, as Swingline |
| Lender and as a Lender |
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| By: |
/s/ Nancy R. Barwig |
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| Name: |
Nancy R. Barwig |
| Title: |
Executive Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| BANK OF AMERICA, N.A., |
| as a Lender |
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| By: |
/s/ Reese Morikubo |
| Name: |
Reese Morikubo |
| Title: |
Senior Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| U.S. BANK NATIONAL ASSOCIATION, |
| as a Lender |
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| By: |
/s/ Michael E Temnick |
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| Name: |
Michael E Temnick |
| Title: |
Senior Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| WELLS FARGO BANK, NATIONAL ASSOCIATION, |
| as a Lender |
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| By: |
/s/ Gregory R. Gredvig |
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| Name: |
Gregory R. Gredvig |
| Title: |
Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| MUFG BANK, LTD., |
| as a Lender |
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| By: |
/s/ Viet-Linh Fujitaki |
| Name: |
Viet-Linh Fujitaki |
| Title: |
Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| BARCLAYS BANK PLC, |
| as a Lender |
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| By: |
/s/ Sydney G. Dennis |
| Name: |
Sydney G. Dennis |
| Title: |
Director |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| BANK OF HAWAII, |
| as a Lender |
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| By: |
/s/ Kyle Bischoff |
| Name: |
Kyle Bischoff |
| Title: |
Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| THE TORONTO-DOMINION BANK, NEW YORK |
| BRANCH, as a Lender |
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| By: |
/s/ Betty Chang |
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| Name: |
Betty Chang |
| Title: |
Authorized Signatory |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
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| BANK OF NEW YORK MELLON, |
| as a Lender |
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| By: |
/s/ Molly H. Ross |
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| Name: |
Molly H. Ross |
| Title: |
Vice President |
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Signature Page to Amendment No. 1 to
Third Amended and Restated Credit Agreement
Hawaiian Electric Company, Inc.
ANNEX A
Amended Credit Agreement
[Attached]
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
dated as of May 14, 2021
among
HAWAIIAN ELECTRIC COMPANY, INC.,
as Borrower
The Lenders Party Hereto
and
BANK OF AMERICA, N.A. and
U.S. BANK NATIONAL ASSOCIATION,
as Co-Syndication Agents
and
WELLS FARGO BANK, NATIONAL ASSOCIATION,
MUFG UNION BANK, N.A., BARCLAYS BANK PLC, BANK OF HAWAII and
THE TORONTO-DOMINION BANK, NEW YORK BRANCH
as Co-Documentation Agents
and
JPMORGAN CHASE BANK, N.A.,
as Administrative Agent, Swingline Lender and Issuing Bank
and
JPMORGAN CHASE BANK, N.A. and
BANK OF AMERICA, N.A.
as Sustainability Structuring Agents
_____________
JPMORGAN CHASE BANK, N.A.,
BofA SECURITIES, INC. and
U.S. BANK NATIONAL ASSOCIATION,
as Joint Lead Arrangers and Joint Book Runners
Table of Contents
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ARTICLE 1. DEFINITIONS |
1 |
Section 1.01 Defined Terms |
1 |
Section 1.02 Terms Generally |
31 |
Section 1.03 Accounting Terms; GAAP |
31 |
Section 1.04 Amendment and Restatement of the Existing Credit Agreement |
31 |
Section 1.05 Interest Rates; Benchmark Notification |
32 |
Section 1.06 Letter of Credit Amounts |
32 |
Section 1.07 Divisions |
33 |
ARTICLE 2. THE CREDITS |
33 |
Section 2.01 Commitments |
33 |
Section 2.02 Loans and Borrowings |
33 |
Section 2.03 Requests for Borrowings |
34 |
Section 2.04 Funding of Borrowings |
35 |
Section 2.05 Termination, Reduction and Increase of Commitments |
35 |
Section 2.06 Repayment of Loans; Evidence of Debt |
37 |
Section 2.07 Prepayment of Loans |
38 |
Section 2.08 Payments Generally; Pro Rata Treatment; Sharing of Setoffs |
39 |
Section 2.09 Letter of Credit Sub-Facility |
40 |
Section 2.10 Letter of Credit Participation and Funding Commitments |
42 |
Section 2.11 Absolute Obligation With Respect to Letter of Credit Payments; |
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Cash Collateral; Replacement of Issuing Bank |
43 |
Section 2.12 Defaulting Lenders |
44 |
Section 2.13 Swingline Loans |
46 |
Section 2.14 Extension of Commitment Termination Date |
48 |
ARTICLE 3. INTEREST, FEES, YIELD PROTECTION, ETC. |
50 |
Section 3.01 Interest |
50 |
Section 3.02 Interest Elections |
50 |
Section 3.03 Fees |
52 |
Section 3.04 Alternate Rate of Interest |
53 |
Section 3.05 Increased Costs; Illegality |
55 |
Section 3.06 Break Funding Payments |
57 |
Section 3.07 Taxes |
58 |
Section 3.08 Mitigation Obligations; Replacement of Lenders |
61 |
ARTICLE 4. REPRESENTATIONS AND WARRANTIES |
62 |
Section 4.01 Organization; Powers |
62 |
Section 4.02 Authorization; Enforceability |
62 |
Section 4.03 Governmental Approvals; No Conflicts |
62 |
Section 4.04 Financial Condition; No Material Adverse Effect |
63 |
Section 4.05 Properties |
63 |
Section 4.06 Litigation and Environmental Matters |
63 |
Section 4.07 Compliance with Laws and Agreements |
64 |
Section 4.08 Regulated Entities |
64 |
Section 4.09 Taxes |
64 |
Section 4.10 ERISA |
64 |
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Section 4.11 Disclosure |
64 |
Section 4.12 Subsidiaries |
65 |
Section 4.13 Federal Reserve Regulations |
65 |
Section 4.14 Rankings |
65 |
Section 4.15 Solvency |
65 |
Section 4.16 Anti-Corruption Laws and Sanctions |
65 |
Section 4.17 Affected Financial Institutions |
65 |
ARTICLE 5. CONDITIONS |
66 |
Section 5.01 Effective Date |
66 |
Section 5.02 Each Credit Event |
67 |
ARTICLE 6. AFFIRMATIVE COVENANTS |
67 |
Section 6.01 Financial Statements and Other Information |
67 |
Section 6.02 Notices of Material Events |
69 |
Section 6.03 Existence; Conduct of Business |
70 |
Section 6.04 Payment of Obligations |
70 |
Section 6.05 Maintenance of Properties; Insurance |
70 |
Section 6.06 Books and Records; Inspection Rights |
70 |
Section 6.07 Compliance with Laws |
70 |
Section 6.08 Use of Proceeds |
71 |
ARTICLE 7. NEGATIVE COVENANTS |
71 |
Section 7.01 Liens |
71 |
Section 7.02 Sale of Assets; Consolidation; Merger |
73 |
Section 7.03 Restrictive Agreements |
74 |
Section 7.04 Transactions with Affiliates |
74 |
Section 7.05 Consolidated Capitalization Ratio |
74 |
Section 7.06 Guaranties |
74 |
ARTICLE 8. EVENTS OF DEFAULT |
75 |
ARTICLE 9. THE ADMINISTRATIVE AGENT |
77 |
Section 9.01 Appointment |
77 |
Section 9.02 Individual Capacity |
77 |
Section 9.03 Exculpatory Provisions |
78 |
Section 9.04 Reliance by Administrative Agent |
78 |
Section 9.05 Performance of Duties |
78 |
Section 9.06 Resignation; Successors |
79 |
Section 9.07 Acknowledgements of Credit Parties |
79 |
Section 9.08 Agents |
81 |
Section 9.09 Posting of Communications |
81 |
Section 9.10 Certain ERISA Matters |
82 |
Section 9.11 Sustainability Matters |
84 |
ARTICLE 10. MISCELLANEOUS |
84 |
Section 10.01 Notices |
84 |
Section 10.02 Waivers; Amendments |
86 |
Section 10.03 Expenses; Indemnity; Damage Waiver |
88 |
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Section 10.04 Successors and Assigns |
89 |
Section 10.05 Survival |
93 |
Section 10.06 Counterparts; Integration; Effectiveness; Electronic Execution |
94 |
Section 10.07 Severability |
95 |
Section 10.08 Right of Setoff |
95 |
Section 10.09 Governing Law; Jurisdiction; Consent to Service of Process |
95 |
Section 10.10 WAIVER OF JURY TRIAL |
96 |
Section 10.11 Headings |
96 |
Section 10.12 Confidentiality |
96 |
Section 10.13 Interest Rate Limitation |
97 |
Section 10.14 No Third Parties Benefited |
98 |
Section 10.15 USA PATRIOT Act and Beneficial Ownership Regulation Notice |
98 |
Section 10.16 No Fiduciary Duty |
98 |
Section 10.17 Acknowledgment and Consent to Bail-In Action. |
99 |
Section 10.18 Acknowledgement Regarding Any Supported QFCs |
99 |
SCHEDULES:
Schedule 1.01 Consolidated Capitalization
Schedule 1.01 Consolidated Funded Debt
Schedule 1.01 Consolidated Subsidiary Funded Debt
Schedule 1.02 Sustainability Table and Sustainability Pricing Adjustments
Schedule 2.01 Commitments
Schedule 2.09 Existing Letters of Credit
Schedule 4.12 Subsidiaries
Schedule 7.01 Existing Liens
Schedule 7.03 Existing Restrictions
EXHIBITS:
Exhibit A Form of Assignment and Acceptance
Exhibit B-1 Form of Opinion of Pillsbury Winthrop Shaw Pittman LLP
Exhibit B-2 Form of Opinion of Erin P. Kippen, Vice President, General Counsel, Chief
Exhibit C Form of Note
Exhibit D Form of Borrowing Request
Exhibit E Form of Letter of Credit Request
Exhibit F Form of Increase Request
Exhibit G Form of Interest Election Request
Exhibit H Form of Pricing Certificate
Compliance Officer & Corporate Secretary of the Borrower THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of May 14, 2021 (this “Agreement”), among HAWAIIAN ELECTRIC COMPANY, INC., as Borrower, the Lenders party hereto and JPMORGAN CHASE BANK, N.A., as Administrative Agent, Swingline Lender and Issuing Bank.
WHEREAS, the Borrower, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, are currently party to the Second Amended and Restated Credit Agreement, dated as of June 30, 2017 (as amended, supplemented or otherwise modified prior to the date hereof, the “Existing Credit Agreement”).
WHEREAS, the Borrower, the Lenders and the Administrative Agent have agreed to enter into this Agreement in order to (i) amend and restate the Existing Credit Agreement in its entirety; (ii) extend the maturity date in respect of the existing revolving credit facility under the Existing Credit Agreement; (iii) re-evidence the obligations of the Borrower under the Existing Credit Agreement, which shall be repayable in accordance with the terms of this Agreement; and (iv) amend and restate the terms and conditions under which the Lenders will, from time to time, make loans and extend other financial accommodations to or for the benefit of the Borrower.
WHEREAS, it is the intent of the parties hereto that this Agreement not constitute a novation of the obligations and liabilities of the parties under the Existing Credit Agreement or be deemed to evidence or constitute full repayment of such obligations and liabilities, but that this Agreement amend and restate in its entirety the Existing Credit Agreement and re-evidence the obligations and liabilities of the Borrower outstanding thereunder, which shall be payable in accordance with the terms hereof.
WHEREAS, it is also the intent of the Borrower to confirm that all obligations under the applicable “Loan Documents” (as referred to and defined in the Existing Credit Agreement) shall continue in full force and effect as modified or restated by the Loan Documents (as referred to and defined herein) and that, from and after the Effective Date, all references to the “Credit Agreement” contained in any such existing “Loan Documents” shall be deemed to refer to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree that the Existing Credit Agreement is hereby amended and restated as follows:
ARTICLE 1. DEFINITIONS
Section 1.01 Defined Terms
As used in this Agreement, the following terms have the meanings specified below:
“ABR Loan” or “ABR Borrowing”, when used in reference to any Loan or Borrowing, refers to such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Alternate Base Rate.
“Additional Commitment Lender” is defined in Section 2.14(d).
“Adjusted Daily Simple SOFR” means an interest rate per annum equal to (a) the Daily Simple SOFR, plus (b) 0.10%; provided that if the Adjusted Daily Simple SOFR as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Adjusted Term SOFR Rate” means, for any Interest Period, an interest rate per annum equal to (a) the Term SOFR Rate for such Interest Periodmultiplied, plus (b) 0.10%; provided that if the Adjusted Term SOFR Rate as so determined would be less than the Floor, such rate shall be deemed to be equal to the Floor for the purposes of this Agreement.
“Administrative Agent” means JPMCB, in its capacity as administrative agent for the Lenders hereunder, or any successor thereto in such capacity.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent-Related Person” has the meaning assigned to such term in Section 10.03(c).
“Agreement” has the meaning assigned to such term in the introductory paragraph.
“Aggregate Credit Exposure” means, at any time, the sum at such time of (a) the outstanding principal balance of the Revolving Loans of all Lenders, plus (b) the Aggregate Letter of Credit Exposure, plus (c) the Swingline Exposure.
“Aggregate Letter of Credit Commitments” means, at any time, the sum at such time of the Letter of Credit Commitments of all Lenders.
“Aggregate Letter of Credit Exposure” means, at any time, the sum at such time of the Letter of Credit Exposure of all of the Lenders.
“Aggregate Revolving Commitments” means, at any time, the sum at such time of the Revolving Commitments of all Lenders. The initial amount of the Aggregate Revolving Commitments is $200,000,000.
“Alternate Base Rate” means, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the sum of NYFRB Rate in effect on such day plus 1/2 of 1% per annum and (c) the Adjusted Term SOFR Rate for a one month Interest Period as published two U.S. Government Securities Business Days prior to such day (or if such day is not a U.S. Government Securities Business Day, the immediately preceding U.S. Government Securities Business Day) plus 1%; provided that for the purpose of this definition, the Adjusted Term SOFR Rate for any day shall be based on the Term SOFR Reference Rate at approximately 5:00 a.m., Chicago time, on such day (or any amended publication time for the Term SOFR Reference Rate, as specified by the CME Term SOFR Administrator in the Term SOFR Reference Rate methodology). Any change in the Alternate Base Rate due to a change in the Prime Rate, the NYFRB Rate or the Adjusted Term SOFR Rate shall be
effective from and including the effective date of such change in the Prime Rate, the NYFRB Rate or the Adjusted Term SOFR Rate, respectively. If the Alternate Base Rate is being used as an alternate rate of interest pursuant to Section 3.04 (for the avoidance of doubt, only until the Benchmark Replacement has been determined pursuant to Section 3.04(b)), then the Alternate Base Rate shall be the greater of clauses (a) and (b) above and shall be determined without reference to clause (c) above. For the avoidance of doubt, if the Alternate Base Rate as determined pursuant to the foregoing would be less than 1.00%, such rate shall be deemed to be 1.00% for purposes of this Agreement.
“Amendment No. 1 Effective Date” means April 21, 2023.
“Ancillary Document” has the meaning assigned to such term in Section 10.06.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Applicable Margin” means with respect to: (a) any Term Benchmark Borrowings and any Letters of Credit, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Term Benchmark Margin” and adjacent to such Pricing Level, (b) any RFR Borrowings, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “RFR Margin” and adjacent to such Pricing Level, (c) any ABR Borrowings, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “ABR Margin” and adjacent to such Pricing Level and (d) with respect to the Commitment Fee, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below under the heading “Commitment Fee Rate” and adjacent to such Pricing Level, in each case, subject to the provisos set forth below:
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Pricing
Level |
Issuer Ratings
(S&P/Moody’s/Fitch) |
Commitment
Fee Rate |
Term
Benchmark
Margin
|
R
FR
Margin
|
ABR
Margin |
| I |
(A-/A3/A-) or higher |
0.15% |
1.00% |
1.00% |
0.00% |
| II |
(BBB+/Baa1/BBB+) |
0.175% |
1.25% |
1.25% |
0.25% |
| III |
(BBB/Baa2/BBB) |
0.20% |
1.375% |
1.375% |
0.375% |
| IV |
(BBB-/Baa3/BBB-) |
0.25% |
1.50% |
1.50% |
0.50% |
| V |
(BB+/Ba1/BB+) or lower |
0.30% |
1.75% |
1.75% |
0.75% |
For purposes hereof:
(A) when the Borrower has Issuer Ratings from all three of S&P, Moody’s and Fitch: (i) if two or three of the three Issuer Ratings are in the same Pricing Level, such Pricing Level shall apply and (ii) if each of the three Issuer Ratings are in different Pricing Levels, the Issuer Ratings corresponding to the highest and the lowest Pricing Levels shall be disregarded and the Pricing Level shall be determined by reference to the Pricing Level which corresponds to the remaining Issuer Rating;
(B) when the Borrower has Issuer Ratings from only two of S&P, Moody’s and Fitch: (i) if both of the two Issuer Ratings are in the same Pricing Level, such Pricing Level shall
apply and (ii) if the two Issuer Ratings are split-rated (x) by one Pricing Level, the Pricing Level shall be determined by the higher of the two (e.g., an Issuer Rating of BBB-/Baa2 results in Pricing Level III) or (y) by more than one Pricing Level, the Pricing Level shall be determined by the Pricing Level one below the Pricing Level which corresponds to the higher Issuer Rating (e.g., an Issuer Rating of BBB-/Baa1 results in Pricing Level III and an Issuer Rating of BBB+/Baa3 results in Pricing Level III);
(C) when the Borrower has an Issuer Rating from only one of S&P, Moody’s and Fitch: the Pricing Level shall be determined by reference to the Pricing Level immediately below the Pricing Level which corresponds to the one Issuer Rating in effect (provided that if the one Issuer Rating in effect corresponds to Pricing Level V, then Pricing Level V shall apply); and
(D) when the Borrower does not have an Issuer Rating from any of S&P, Moody’s or Fitch: Pricing Level V shall apply.
If the Issuer Ratings established or deemed to have been established by S&P, Moody’s and Fitch shall be changed (other than as a result of a change in the rating system of S&P, Moody’s or Fitch), such change shall be effective as of the date that is three (3) Business Days following the date on which it is first announced by the applicable rating agency, irrespective of when notice of such change shall have been furnished by the Borrower to the Administrative Agent and the Lenders pursuant to this Agreement or otherwise. Each change in the Applicable Margin shall apply during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of S&P, Moody’s or Fitch shall change, or if any such rating agency shall cease to be in the business of rating corporate debt obligations, the Borrower and the Administrative Agent (in consultation with the Lenders) shall negotiate in good faith to amend this definition to reflect such changed rating system or the unavailability of ratings from such rating agency and, pending the effectiveness of any such amendment, the Applicable Margin shall be determined by reference to the rating most recently in effect prior to such change or cessation.
It is hereby understood and agreed that (a) the Commitment Fee shall be adjusted from time to time based upon the Sustainability Fee Adjustment (to be calculated and applied as set forth in Schedule 1.02) and (b) the Applicable Margin with respect to Term Benchmark Borrowings, RFR Borrowings, ABR Borrowings and Letters of Credit shall be adjusted from time to time based upon the Sustainability Margin Adjustment (to be calculated and applied as set forth in Schedule 1.02); provided that in no event shall any of the Commitment Rate, the Term Benchmark Margin, the RFR Margin or the ABR Margin be less than 0.00%.
“Applicable Party” has the meaning assigned to such term in Section 9.09(c)
“Applicable Percentage” means, with respect to any Lender, the percentage of the total Commitments represented by such Lender’s Commitments; provided that, in the case of Section 2.12 when a Defaulting Lender shall exist, “Applicable Percentage” shall mean the percentage of the total Commitments (disregarding any Defaulting Lender’s Commitments) represented by such Lender’s Commitments. If the Commitments have terminated or expired, the Applicable Percentages shall be determined based upon the Commitments most recently in effect, giving effect to any assignments and to any Lender’s status as a Defaulting Lender at the time of such determination.
“Approved Electronic Platform” has the meaning assigned to such term in Section 9.09(a).
“Approved Fund” means, with respect to any Lender, any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in bank loans and similar extensions of credit in the ordinary course of its business that is administered or managed by (a) such Lender or (b) an Affiliate of such Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an assignee (with the consent of each party whose consent is required by Section 10.04), and accepted by the Administrative Agent, substantially in the form of Exhibit A or any other form (including electronic records generated by the use of an electronic platform) approved by the Administrative Agent, including the forms described in the last sentence of Section 3.08(b) and Section 10.02(d) and executed by the parties described therein.
“Availability Period” means the period from and including the Effective Date to (but excluding) the Commitment Termination Date.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark (or component thereof), as applicable, any tenor for such Benchmark or payment period for interest calculated with reference to such Benchmark (or component thereof), as applicable, that is or may be used for determining the length of an Interest Period for any term rate or otherwise, for determining any frequency of making payments of interest calculated pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to clause (e) of Section 3.04.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Bankruptcy Code” means the United States Bankruptcy Code of 1978, as amended.
“Benchmark” means, initially, with respect to any (i) RFR Loan, the Adjusted Daily Simple SOFR or (ii) Term Benchmark Loan, the Adjusted Term SOFR Rate; provided that if a Benchmark Transition Event and the related Benchmark Replacement Date have occurred with respect to the Adjusted Daily Simple SOFR or Adjusted Term SOFR Rate, as applicable, or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to clause (b) of Section 3.04.
“Benchmark Replacement” means, for any Available Tenor, the first alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(1) the Adjusted Daily Simple SOFR;
(2) the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower as the replacement for the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current Benchmark for Dollar-denominated syndicated credit facilities at such time in the United States and (b) the related Benchmark Replacement Adjustment;
providedthatprovidedfurther
provided that if the Benchmark Replacement as determined pursuant to clause (1) or clause (2) above would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Interest Period and Available Tenor for any setting of such Unadjusted Benchmark Replacement (1) in the case of clause (1) or (2) of the definition of “Benchmark Transition Event,” the later of (a) the date of the public statement or publication of information referenced therein and
, the spread adjustment, or method for calculating or determining such spread adjustment (which may be a positive or negative value or zero), that has been selected by
the Administrative Agent and the Borrower for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date and/or (ii) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities at such time in the United States.
provided
“Benchmark Replacement Conforming Changes” means, with respect to any Benchmark Replacement and/or any Term Benchmark Loan, any technical, administrative or operational changes (including changes to the definition of “Alternate Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period,” timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides in its reasonable discretion are generally consistent with changes made by the Administrative Agent in other syndicated credit facilities agented by it and may be appropriate to reflect the adoption and implementation of such Benchmark and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of such Benchmark exists, in such other manner of administration as the Administrative Agent decides is generally consistent with changes made by the Administrative Agent in other syndicated credit facilities agented by it and reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Benchmark Replacement Date” means, with respect to any Benchmark, the earliest to occur of the following events with respect to such then-current Benchmark:
(b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(2)in the case of clause (3) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be no longer representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (3) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, (i) if the event giving rise to the Benchmark Replacement Date occurs on the same day as, but earlier than, the Reference Time in respect of any determination, the Benchmark Replacement Date will be deemed to have occurred prior to the Reference Time for such determination and (ii) the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means, with respect to any Benchmark, the occurrence of one or more of the following events with respect to such then-current Benchmark:
(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(2) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Board, the NYFRB, the CME Term SOFR Administrator, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), in each case, which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are no longer, or as of a specified future date will no longer be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Unavailability Period” means, with respect to any Benchmark, the period (if any) (x) beginning at the time that a Benchmark Replacement Date pursuant to clauses (1) or (2) of that definition has occurred if, at such time, no Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.04 and (y) ending at the time that a Benchmark Replacement has replaced such then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.04.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership or control as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in Section 3(3) of ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in Section 4975 of the Code to which Section 4975 of the Code applies, and (c) any Person whose assets include (for purposes of the Plan Asset Regulations or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” means Hawaiian Electric Company, Inc., a Hawaii corporation.
“Borrowing” means (a) Revolving Loans of the same Type made, converted or continued on the same date and, in the case of Term Benchmark Loans, as to which a single Interest Period is in effect or (b) a Swingline Loan.
“Borrowing Request” means a request by the Borrower for a Borrowing in accordance with Section 2.03 in substantially the form annexed hereto as Exhibit D or any other form approved by the Administrative Agent.
“Business Day” means any day other than a Saturday, Sunday or a day when banks are authorized by law to close in New York, New York or Honolulu, Hawaii “Change in Control” means the Borrower is not a wholly-owned subsidiary of HEI.
; provided that, in addition to the foregoing, a Business Day shall be (a) in relation to RFR Loans and any interest rate settings, fundings, disbursements, settlements or payments of any such RFR Loan, or any other dealings of such RFR Loan and (b) in relation to Loans referencing the Adjusted Term SOFR Rate and any interest rate settings, fundings, disbursements, settlements or payments of any such Loans referencing the Adjusted Term SOFR Rate or any other dealings of such Loans referencing the Adjusted Term SOFR Rate, any such day that is only a U.S. Government Securities Business Day.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases or financing leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP, provided however, no power purchase agreement with an independent power producer or a power producer which is not an Affiliate of the Borrower shall constitute a Capital Lease Obligation.
“Change in Law” means the occurrence, after the date of this Agreement (or with respect to any Lender, if later, the date on which such Lender becomes a Lender), of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (c) the making or issuance of any request, rules, guideline, requirement or directive (whether or not having the force of law) by any Governmental Authority; provided however, that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder, issued in connection therewith or in implementation thereof, and (ii) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall (except to the extent the same are merely proposed and not in effect) in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted, issued or implemented.
“Class”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, are Revolving Loans or Swingline Loans.
“CME Term SOFR Administrator” means CME Group Benchmark Administration Limited as administrator of the forward-looking term Secured Overnight Financing Rate (SOFR) (or a successor administrator).
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Commitment Fee” has the meaning assigned to such term in Section 3.03(a).
“Commitment Percentage” means, as to any Lender in respect of such Lender’s Commitments and its obligations with respect to Loans and Letters of Credit, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments (or, if no Commitments then exist, the percentage equal to such Lender’s Revolving Commitment and Letter of Credit Commitment on the last day upon which Commitments did exist divided by the total of all Lenders’ Revolving Commitments and Letter of Credit Commitments, on such day).
“Commitment Termination Date” means the earliest of (a) May 14, 2026, subject to extension (in the case of each Lender consenting thereto) as provided in Section 2.14, (b) the date on which the Commitments are terminated in whole pursuant to Section 2.05, and (c) the date the Commitments are terminated in whole pursuant to Article 8; provided, however, in the case of the foregoing clauses (a) and (b), if such date is not a Business Day, the Commitment Termination Date shall be the next preceding Business Day.
“Commitments” means the Revolving Commitments and the Letter of Credit Commitments.
“Common Stock Equity” means, at any date of determination with respect to the Borrower on a non-consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and (d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the Borrower pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent, any Lender or the Issuing Bank by means of electronic communications pursuant to Section 9.09, including through an Approved Electronic Platform.
“Consolidated Capitalization” means, at any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) Consolidated Funded Debt, (b) preferred stock of the Borrower and its Subsidiaries and (c) Consolidated Common Stock Equity. The Borrower’s Consolidated Capitalization as of December 31, 2020 is annexed hereto as Schedule 1.01 (Consolidated Capitalization); for the avoidance of doubt, such Schedule is attached hereto for illustrative purposes only and is not intended to be a calculation of Consolidated Capitalization on or for any subsequent date of determination.
“Consolidated Capitalization Ratio” means, at any date of determination, the ratio of (a) Consolidated Common Stock Equity to (b) Consolidated Capitalization.
“Consolidated Common Stock Equity” means, at any date of determination, with respect to the Borrower and its Subsidiaries on a consolidated basis, the sum of (a) common stock, (b) premium and/or expenses on common stock and preferred stock, (c) additional paid-in capital, and(d) retained earnings, excluding Accumulated Other Comprehensive Income or Loss (AOCI) as defined by GAAP, as such definitions now exist and as they may hereafter be amended but subject to Section 1.03 except with respect to matters affecting AOCI, and excluding adjustments made directly to stockholders’ equity as a result of any future issued accounting standards, adopted by the Borrower, that will require adjustments directly to stockholders’ equity.
“Cumulative Residential Photovoltaic (CRPV) Capacity Applicable Margin Adjustment Amount” means, with respect to any calendar year, (a) negative 0.0125%, if the Cumulative Residential Photovoltaic (CRPV) Capacity for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the Cumulative Residential Photovoltaic (CRPV) Capacity Target B for such calendar year, (b) 0.00%, if the Cumulative Residential Photovoltaic (CRPV) Capacity for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year but less than the Cumulative Residential Photovoltaic (CRPV) Capacity Target B for such calendar year, and (c) positive 0.0125%, if the Cumulative Residential Photovoltaic (CRPV) Capacity for such calendar year as set forth in the KPI Metrics Report is less than the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year.
“Cumulative Residential Photovoltaic (CRPV) Capacity Commitment Fee Adjustment Amount” means, with respect to any calendar year, (a) negative 0.0025%, if the Cumulative Residential Photovoltaic (CRPV) Capacity for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the Cumulative Residential Photovoltaic (CRPV) Capacity Target B for such calendar year, (b) 0.00%, if the Cumulative Residential Photovoltaic (CRPV) Capacity for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year but less than the Cumulative Residential Photovoltaic (CRPV) Capacity Target B for such calendar year, and (c) positive 0.0025%, if the Cumulative Residential Photovoltaic (CRPV) Capacity for such calendar year as set forth in the KPI Metrics Report is less than the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year.
“Cumulative Residential Photovoltaic (CRPV) Capacity Target B” means, with respect to any calendar year, the Cumulative Residential Photovoltaic (CRPV) Capacity Target B for such calendar year as set forth in the Sustainability Table.
“Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B” means, with respect to any calendar year, the Cumulative Residential Photovoltaic (CRPV) Capacity Threshold B for such calendar year as set forth in the Sustainability Table.
“Current SEC Reports” means (a) the Annual Report of the Borrower to the SEC on Form 10K for the fiscal year ended December 31, 2020, (b) the Quarterly Report of the Borrower to the SEC on Form 10-Q for the fiscal quarter ended March 31, 2021 and (c) any current reports of the Borrower to the SEC on Form 8K filed prior to the Effective Date.
“Daily Simple SOFR” means, for any day (a “SOFR. Rate Day”), a rate per annum equal to SOFR for the day that is five (5) U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, in each case, as such SOFR is published by the SOFR Administrator on the SOFR Administrator’s Website.
be effective from and including the effective date of such change in SOFR without notice to the Borrower.
“Debtor Relief Laws” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, suspension of payments, rearrangement, receivership, insolvency, judicial management, composition, arrangement, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition which constitutes an Event of Default or that upon notice, lapse of time or both would, unless cured or waived, become an Event of Default.
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
Any change in Daily Simple SOFR due to a change in SOFR shall “Defaulting Lender” means any Lender, as reasonably determined by the Administrative Agent, that has (a) failed to fund any portion of its Revolving Loans or participations in Letters of Credit or Swingline Loans within three (3) Business Days of the date required to be funded by it hereunder unless such failure to fund is based on such Lender’s good faith determination that the conditions precedent to such funding under this Agreement have not been satisfied or waived and such Lender has notified the Administrative Agent in writing of such determination, (b) notified the Borrower, the Administrative Agent, the Swingline Lender, the Issuing Bank or any other Lender in writing that it does not intend to comply with any of its funding obligations under this Agreement or has made a public statement to the effect that it does not intend to comply with its funding obligations under this Agreement or under other agreements in which it commits to extend credit, (c) failed, within three (3) Business Days after request by the Administrative Agent, to confirm that it will comply with the terms of this Agreement relating to its obligations to fund prospective Revolving Loans and participations in then outstanding Letters of Credit or Swingline Loans (provided that any such Lender shall cease to be a Defaulting Lender under this clause (c) upon receipt of such confirmation by the Administrative Agent), (d) otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within three (3) Business Days of the date when due, unless the subject of a good faith dispute, or (e) (i) has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or has a parent company that has been adjudicated as, or determined by any Governmental Authority having regulatory authority over such Person or its assets to be, insolvent or (ii) become the subject of (A) a voluntary or involuntary bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian, appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment or has had any order for relief in such proceeding entered in respect thereof or has a parent company that has become the subject of (A) a bankruptcy or insolvency proceeding or (B) a Bail-In Action, or has had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or custodian appointed for it, or has taken any action in furtherance of, or indicating its consent to, approval of or acquiescence in any such proceeding or appointment; provided, that a Lender shall not become a Defaulting Lender solely as the result of (x) the acquisition or maintenance of an ownership interest in such Lender or a Person controlling such Lender or (y) the exercise of control over a Lender or a Person controlling such Lender, in each case, by a Governmental Authority or an instrumentality thereof.
“Disclosed Matters” means the matters (a) disclosed in the current and periodic reports filed by the Borrower from time to time with the SEC pursuant to the requirements of the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder, or (b) disclosed by the Borrower to the Lenders (either directly or indirectly through the Administrative Agent) in writing.
“Dollars” or “$” refers to lawful money of the United States of America.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Effective Date” means the date on which the conditions specified in Section 5.01 are satisfied (or waived in accordance with Section 10.02).
“Electronic Signature” means an electronic sound, symbol, or process attached to, or associated with, a contract or other record and adopted by a Person with the intent to sign, authenticate or accept such contract or record.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“Event of Default” has the meaning assigned to such term in Article 8.
“Eligible Assignee” means (a) a Credit Party (other than a Defaulting Lender); (b) an Affiliate of a Credit Party; (c) an Approved Fund; and (d) any other financial institution approved by (i) the Administrative Agent, (ii) the Issuing Bank, (iii) the Swingline Lender and (iv) unless a Default has occurred under Article 8(a), Article 8(h) or Article 8(i), and is continuing, the Borrower (each such approval not to be unreasonably withheld or delayed); provided, however, that none of the Borrower nor any Subsidiary or Affiliate of the Borrower, nor any natural person, nor any company, investment vehicle or trust for, or owned and operated for the primary benefit “Excluded Taxes” means any of the following Taxes imposed on or with respect to a Credit Party or required to be withheld and deducted from a payment to a Credit Party on account of any obligation of the Borrower under any Loan Document: (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profit Taxes, in each case, (i) imposed as a result of such Person being organized under the laws of, or having its principal office or applicable lending office is located in the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, any U.S. federal withholding tax that is imposed on amounts payable to or for the account of to such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in a Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 3.08(b)) or (ii) such Lender changes its lending office, except to the extent that such Lender (or its assignor, if any) was entitled, at the time of designation of a new lending office (or assignment), to receive additional amounts from the Borrower with respect to such withholding tax pursuant to Section 3.07, (d) Taxes attributable to such Person’s failure to comply with Section 3.07(f) and (e) any withholding taxes imposed under FATCA.
“Existing Commitment Termination Date” is defined in Section 2.14(a).
“Existing Credit Agreement” is defined in the recitals hereof.
“Existing Letters of Credit” is defined in Section 2.09(a).
“Existing Loans” is defined in Section 2.01.
“Extending Lender” is defined in Section 2.14(b).
“Extension Date” is defined in Section 2.14(a).
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreement entered into pursuant to Section 1471(b)(1) of the Code and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the Code.
“Federal Funds Rate” means, for any day, the rate calculated by the NYFRB based on such day’s federal funds transactions by depositary institutions (as determined in such manner as shall be set forth on the NYFRB’s Website from time to time) and published on the next succeeding Business Day by the NYFRB as the effective federal funds rate; provided that if the Federal Funds Rate as so determined would be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
“Financial Officer” means the Senior Vice President and Chief Financial Officer, the Treasurer or the Controller of the Borrower and persons performing similar responsibilities regardless of title. The Financial Officers as of the Amendment No. 1 Effective Date are Tayne S. Y. Sekimura, Shannon Asato and Brent Noyama, and replacement or additional Financial Officers may be identified to the Administrative Agent from time to time in a writing signed by the President and Secretary of the Borrower.
“Fitch” means Fitch Ratings, Inc., or its successors.
“Floor” means the benchmark rate floor, if any, provided in this Agreement initially (as of the execution of this Agreement, the modification, amendment or renewal of this Agreement or otherwise) with respect to the Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR, as applicable. For the avoidance of doubt the initial Floor for each of Adjusted Term SOFR Rate or the Adjusted Daily Simple SOFR shall be 0%.
“Foreign Lender” means any Lender that is not a U.S. Person.
“GAAP” means generally accepted accounting principles in the United States of America.
“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government, including the Hawaii Public Utilities Commission, the SEC and the Federal Energy Regulatory Commission.
“Guarantee” of or by any Person (the “guarantor”) means any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of the guarantor, direct or indirect,
(a)to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof,
(b)to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof,
(c)to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or
(d)as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation;
provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee of any guarantor shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made and (b) the maximum amount for which such guarantor may be liable pursuant to the terms of the instrument embodying such Guarantee, unless such primary obligation and the maximum amount for which such guarantor may be liable are not stated or determinable, in which case the amount of such Guarantee shall be such guarantor’s maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. The term “Guaranteed” has a meaning correlative thereto.
“Hawaii Electric Light” means Hawaii Electric Light Company, Inc., a Hawaii corporation.
“Hawaiian Electric Cash Manager” means, to the extent having received a legally valid delegation of authority from the Borrower with respect to borrowings and investments to be made by the Borrower and its Subsidiaries, the Cash Management Administrator of the Borrower, the Treasury Analyst of the Borrower, or the Securities Administrator of the Borrower, or any other person having received such authority; it being understood and agreed that (i) such person need not be a Financial Officer, and (ii) the Administrative Agent shall be entitled to rely on telephonic notice received from the Hawaiian Electric Cash Manager for all purposes of Sections 2.03, 2.07(e), 2.13 and 3.02(b).
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Hedging Agreement” means any interest rate protection agreement, foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement.
“HEI” means Hawaiian Electric Industries, Inc., a Hawaii corporation.
“Increase Request” means a request by the Borrower for an increase of the total Commitments in accordance with Section 2.05(d).
“Indebtedness” of any Person means, without duplication,
(a) all obligations of such Person for borrowed money,
“Interest Payment Date” means (a) with respect to the accrued interest on any ABR Loan (other than a Swingline Loan), the first Business Day of each January, April, July and October and the Commitment Termination Date, (b) with respect to the accrued interest on any RFR Loan, each date that is on the numerically corresponding day in each calendar month that is one month after the Borrowing of such RFR Loan (or, if there is no such numerically corresponding day in such month, then the last day of such month) and the Commitment Termination Date, (c) with respect to the accrued interest on any Term Benchmark Loan, the last day of the Interest Period applicable to the Borrowing of which such Revolving Loan is a part and, in the case of a Term Benchmark Borrowing with an Interest Period of more than three months’ duration, each day prior to the last day of such Interest Period that occurs at intervals of three months’ duration after the first day of such Interest Period and the Commitment Termination Date and (d) with respect to the accrued interest on any Swingline Loan, the day that such Loan is required to be repaid and the Commitment Termination Date.
“Interest Period” means, with respect to any Term Benchmark Borrowing, the period commencing on the date of such Borrowing and ending on the numerically corresponding day in the calendar month that is one, three or six months thereafter (in each case, subject to the availability for the Benchmark applicable to the relevant Loan or Commitment), as the Borrower may elect, provided that (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (b) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period and (c) no tenor that has been removed from this definition pursuant to Section 3.04(e) shall be available for specification in such Borrowing Request or Interest Election Request. For purposes hereof, the date of a Borrowing initially shall be the date on which such Borrowing is made and thereafter shall be the effective date of the most recent conversion or continuation of such Borrowing.
“Issuer Ratings” means the Borrower’s corporate issuer ratings from any of S&P, Moody’s and Fitch.
available to be paid, and the obligations of the Borrower and each Lender shall remain in full force and effect until the Issuing Bank and the Lenders shall have no further obligations to make any payments or disbursements under any circumstances with respect to any Letter of Credit.
“Letter of Credit Fee” has the meaning assigned to such term in Section 3.03(b).
“Letter of Credit Request” means, a request by the Borrower for the issuance of a Letter of Credit in the form of Exhibit E.
“Liabilities” means any losses, claims (including intraparty claims), demands, damages or liabilities of any kind.
providedImpacted Interest Period
provided
“Lien” means, with respect to any asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities.
“Loan Documents” means this Agreement, the Notes, the Reimbursement Agreements and, if applicable, any Hedging Agreement between the Borrower and any Lender.
“Loans” means the Revolving Loans and Swingline Loans made by the Lenders to the Borrower pursuant to this Agreement.
“Margin Stock” has the meaning assigned to such term in Regulation U.
“Material Adverse Effect” means a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries, taken as a whole, or (b) the validity or enforceability of any of the Loan Documents or the rights and remedies of the Administrative Agent and the Lenders thereunder.
“OFAC” means the Office of Foreign Assets Control of the U.S. Department of Treasury.
“OFAC Sanctions” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by OFAC.
“Other Connection Taxes” means, with respect to any Credit Party, Taxes imposed as a result of a present or former connection between such Credit Party and the jurisdiction imposing such Tax (other than connections arising from such Credit Party having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means any and all current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, the Loan Documents, other than Excluded Taxes.
“Overnight Bank Funding Rate” means, for any day, the rate comprised of both overnight federal funds and overnight eurodollar transactions denominated in Dollars by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB as set forth on the NYFRB’s Website from time to time, and published on the next succeeding Business Day by the NYFRB as an overnight bank funding rate.
“Participant” has the meaning assigned to such term in Section 10.04(g).
“Participant Register” has the meaning assigned to such term in Section 10.04(g).
“Payment” has the meaning assigned to such term in Section 9.07(c).
“Payment Notice” has the meaning assigned to such term in Section 9.07(c).
“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.
“Permitted Investments” means, at any time, investments as allowed in accordance with the Hawaiian Electric Cash Management Investment Guidelines dated August 2, 2011, as disclosed to the Administrative Agent prior to the Effective Date and as the same may be amended from time to time with the written consent of the Administrative Agent, such written consent not to be unreasonably delayed or withheld.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which the Borrower, any Subsidiary or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.
lessee under an operating lease and (b) such Indebtedness is incurred at the time of, or within 90 days after, such purchase.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
“QFC Credit Support” has the meaning assigned to it in Section 10.18.
“Reference Time” with respect to any setting of the then-current Benchmark means (i) if such Benchmark is the Term SOFR Rate, 5:00 a.m., Chicago time, on the day that is two (2) U.S. Government Securities Business Days preceding the date of such setting, (ii) if the RFR for such Benchmark is Daily Simple SOFR, then four (4) U.S. Government Securities Business
Days prior to such setting or (iii) if such Benchmark is none of the Term SOFR Rate or Daily Simple SOFR, the time determined by the Administrative Agent in its reasonable discretion.
“Register” has the meaning assigned to such term in Section 10.04(e).
“Regulation T” means Regulation T of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation U” means Regulation U of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Regulation X” means Regulation X of the Board as from time to time in effect and all official rulings and interpretations thereunder or thereof.
“Reimbursement Agreement” has the meaning assigned to such term in Section 2.09(b).
“Reimbursement Obligation” means the obligation of the Borrower to reimburse the Issuing Bank for amounts drawn under a Letter of Credit.
“Related Parties” means, with respect to any specified Person, such Person’s Affiliates and the respective directors, officers, and employees of such Person and such Person’s Affiliates.
“Relevant Governmental Body” means the Board or the NYFRB, or a committee officially endorsed or convened by the Board or the NYFRB, or any successor thereto.
“Relevant Rate” means (i) with respect to any Term Benchmark Borrowing, the Adjusted Term SOFR Rate or (ii) with respect to any RFR Borrowing, the Adjusted Daily Simple SOFR, as applicable.
“Required Lenders” means, subject to Section 2.12, (a) at any time prior to the earlier of the Loans becoming due and payable pursuant to Article 8 or the Revolving Commitments terminating or expiring, Lenders having Credit Exposures and Unfunded Commitments representing more than 50% of the sum of the Aggregate Credit Exposure and Unfunded Commitments at such time, provided that, solely for purposes of declaring the Loans to be due Borrower, during such calendar year to (ii) the amount, measured in net megawatt hours, of the Borrower’s aggregate electrical energy sales during such calendar year.
“RFR Loan” or “RFR Borrowing”, when used in reference to any Loan or Borrowing, means that such Loan, or the Loans comprising such Borrowing, bearing interest at a rate determined by reference to the Adjusted Daily Simple SOFR.
“RPS Applicable Margin Adjustment Amount” means, with respect to any calendar year, (a) negative 0.0375%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Target A for such calendar year, (b) 0.00%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Threshold A for such calendar year but less than the RPS Target A for such calendar year, and (c) positive 0.0375%, if the RPS for such calendar year as set forth in the KPI Metrics Report is less than the RPS Threshold A for such calendar year.
“RPS Commitment Fee Adjustment Amount” means, with respect to any calendar year, (a) negative 0.0075%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Target A for such calendar year, (b) 0.00%, if the RPS for such calendar year as set forth in the KPI Metrics Report is greater than or equal to the RPS Threshold A for such calendar year but less than the RPS Target A for such calendar year, and (c) positive 0.0075%, if the RPS for such calendar year as set forth in the KPI Metrics Report is less than the RPS Threshold A for such calendar year.
“RPS Target A” means, with respect to any calendar year, the RPS Target A for such calendar year as set forth in the Sustainability Table.
“RPS Threshold A” means, with respect to any calendar year, the RPS Threshold A for such calendar year as set forth in the Sustainability Table.
“Sanctioned Country” means, at any time, a country, region or territory which itself is the subject or target of any Sanctions (as of the Amendment No. 1 Effective Date, the so-called Donetsk People’s Republic, the so-called Luhansk People’s Republic, the Crimea, Zaporizhzhia and Kherson Regions of Ukraine, Cuba, Iran, North Korea and Syria).
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC or the U.S. Department of State, (b) any Person operating, organized or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person or Persons described in the foregoing clauses (a) or (b), or (d) any Person with which the Borrower is prohibited under Sanctions from dealing or engaging in transactions.
“Sanctions” means, collectively, OFAC Sanctions and U.S. Department of State Sanctions.
“SEC” means the United States Securities and Exchange Commission.
“SEC Reports” means the reports filed by the Borrower with the SEC pursuant to the Securities Exchange Act of 1934, as amended.
“S&P” means Standard & Poor’s Rating Services, a Standard & Poor’s Financial Services LLC business, or its successors.
“Significant Subsidiary” means each of Maui Electric, Hawaii Electric Light and any other Subsidiary having 15% or more of the total assets, or 15% or more of the total operating income, of the Borrower and its Subsidiaries on a consolidated basis, in either case as the consolidated total assets and consolidated total operating income of the Borrower and its Subsidiaries are reflected in the most recent annual or quarterly report filed by the Borrower with the SEC.
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the NYFRB (or a successor administrator of the secured overnight financing rate).
“SOFR Administrator’s Website” means the NYFRB’s Website, currently at
http://www.newyorkfed.org, or any successor source for the secured overnight financing rate identified as such by the SOFR Administrator from time to time.
“SOFR Rate Day” has the meaning specified in the definition of “Daily Simple SOFR”.
“subsidiary” means, with respect to any Person (the “parent”) at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
“Swingline Lender” means JPMCB, in its capacity as lender of Swingline Loans hereunder.
“Swingline Loan” means a loan made pursuant to Section 2.13.
“Taxes” means any and all current or future taxes, levies, imposts, duties, deductions, fees, assessments, charges or withholdings imposed by any Governmental Authority.
“Term Benchmark Loan” or “Term Benchmark Borrowing”, when used in reference to any Loan or Borrowing, means that such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted Term SOFR Rate.
“Term SOFR Determination Day” has the meaning assigned to it under the definition of Term SOFR Reference Rate.
“Term SOFR Rate” means, with respect to any Term Benchmark Borrowing and for any tenor comparable to the applicable Interest Period, the Term SOFR Reference Rate two U.S. Government Securities Business Days prior to the commencement of such tenor comparable to the applicable Interest Period, as such rate is published by the CME Term SOFR Administrator.
“Term SOFR Reference Rate” means, for any day and time (such day, the “Term SOFR Determination Day”), with respect to any Term Benchmark Borrowing denominated in Dollars and for any tenor comparable to the applicable Interest Period, the rate per annum published by the CME Term SOFR Administrator and identified by the Administrative Agent as the forward-looking term rate based on SOFR. If by 5:00 p.m. (New York City time) on such Term SOFR Determination Day, the “Term SOFR Reference Rate” for the applicable tenor has not been published by the CME Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Rate has not occurred, then, so long as such Term SOFR Determination Day is otherwise a U.S. Government Securities Business Day, the Term SOFR Reference Rate for such Term SOFR Determination Day will be the Term SOFR Reference Rate as published in respect of the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate was published by the CME Term SOFR Administrator, so long as such first preceding U.S. Government Securities Business Day is not more than five (5) U.S. Government Securities Business Days prior to such Term SOFR Determination Day.
“Transactions” means (a) the execution, delivery and performance by the Borrower of each Loan Document to which it is a party, (b) the borrowing of the Loans, and (c) the use of the proceeds of the Loans.
“Type”, when used in reference to any Loan or Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted Term SOFR Rate, the Alternate Base Rate or the Adjusted Daily Simple SOFR. For the avoidance of doubt, a Loan that bears interest at a rate determined pursuant to clause (c) of the definition of Alternate Base Rate shall, for all purposes of this Agreement, be deemed to be an ABR Loan and not a Term Benchmark Loan.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“Unfunded Commitment” means, with respect to each Lender, the Revolving Commitment of such Lender less its Credit Exposure.
“U.S. Department of State Sanctions” means economic or financial sanctions or trade embargoes imposed or enforced from time to time by the U.S. government and administered by the U.S. Department of State.
“U.S. Government Securities Business Day” means any day except for (i) a Saturday, (ii) a Sunday or (iii) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
“U.S. Special Resolution Regime” has the meaning assigned to it in Section 10.18.
“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Withholding Agent” means the Borrower and the Administrative Agent.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect reduced or bifurcated manner as described therein, and such Indebtedness shall at all times be valued at the full stated principal amount thereof and (ii) Indebtedness included in the financial covenant set forth in Section 7.05 shall exclude any liability to make lease payments for all leases included on a balance sheet of the Borrower by reason of the application of FASB Accounting Standards Update (ASU) No.
2016-02, Leases (Topic 842), as amended.
Section 1.04 Amendment and Restatement of the Existing Credit Agreement
The parties to this Agreement agree that, upon (i) the execution and delivery by each of the parties hereto of this Agreement and (ii) satisfaction of the conditions set forth in Section 5.01, the terms and provisions of the Existing Credit Agreement shall be and hereby are amended, superseded and restated in their entirety by the terms and provisions of this Agreement as of the Effective Date. This Agreement is not intended to and shall not constitute a novation. All Revolving Loans made and obligations incurred under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as Revolving Loans and obligations under (and, as of the Effective Date, shall be governed by the terms of) this Agreement and the other Loan Documents. Without limiting the foregoing, upon the effectiveness hereof: (a) all references in the “Loan Documents” (as defined in the Existing Credit Agreement) to the “Administrative Agent”, the “Credit Agreement” and the “Loan Documents” shall be deemed to refer to the Administrative Agent, this Agreement and the Loan Documents, (b) the Existing Letters of Credit which remain outstanding on the Effective Date shall continue as Letters of Credit under (and, as of the Effective Date, shall be governed by the terms of) this Agreement, (c) all obligations of the Borrower owing to any Lender or any Affiliate of any Lender under the Existing Credit Agreement which are outstanding on the Effective Date shall continue as obligations under this Agreement and the other Loan Documents, (d) the Administrative Agent shall make such reallocations, sales, assignments or other relevant actions in respect of each Lender’s credit exposure under the Existing Credit Agreement as of the Effective Date as are necessary in order that each such Lender’s Revolving Credit Exposure and outstanding Revolving Loans hereunder reflect such Lender’s Applicable Percentage of the outstanding aggregate Revolving Exposures on the Effective Date and (e) the Borrower hereby agrees to compensate each Lender for any and all losses, costs and expenses incurred by such Lender in connection with the sale and assignment of any Eurodollar Loans (as defined in this Agreement as of the Effective Date) (including the “Eurodollar Loans” under the Existing Credit Agreement) and such reallocation described above as of the Effective Date, in each case on the terms and in the manner set forth in Section 3.06 of this Agreement as of the Effective Date.
Section 1.05 Interest Rates; LIBORBenchmark Notification
The interest rate on
a Loan denominated in Dollars may be derived from an interest rate benchmark that may be discontinued or is, or may in the future become, the subject of regulatory reform. Upon the occurrence of a Benchmark Transition Event, Section 3.04(b) provides a mechanism for determining an alternative rate of interest. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, the administration, submission, performance or any other matter related to any interest rate used in this Agreement, or with respect to any alternative or successor rate thereto, or replacement rate thereof, including without limitation, whether the composition or characteristics of any such alternative, successor or replacement reference rate will be similar to, or produce the same value or economic equivalence of, the existing interest rate being replaced or have the same volume or liquidity as did any existing interest rate prior to its discontinuance or unavailability. The Administrative Agent and its affiliates and/or other related entities may engage in transactions that affect the calculation of any interest rate used in this Agreement or any alternative, successor or alternative rate (including any Benchmark Replacement) and/or any relevant adjustments thereto, in each case, in a manner adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain any interest rate used in this Agreement, any component thereof, or rates referenced in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
Section 1.06 Letter of Credit Amounts
Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the amount of such Letter of Credit available to be drawn at such time; provided that, with respect to any Letter of Credit that, by its terms or the terms of any Letter of Credit Agreement related thereto, provides for one or more automatic increases in the available amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum amount is available to be drawn at such time.
Section 1.07 Divisions
For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized and acquired on the first date of its existence by the holders of its Equity Interests at such time.
ARTICLE 2. THE CREDITS
Section 2.01 Commitments
Prior to the Effective Date, certain loans were previously made to the Borrower under the Existing Credit Agreement which remain outstanding as of the date of this Agreement (such outstanding loans being hereinafter referred to as the “Existing Loans”). Subject to the terms and conditions set forth in this Agreement, the Borrower and each of the Lenders agree that on the Effective Date but subject to the satisfaction of the conditions precedent set forth in Section 5.01 and the reallocation and other transactions described in Section 1.04, the Existing Loans shall, as of the Effective Date, be reevidenced as Revolving Loans under this Agreement and the terms of the Existing Loans shall be restated in their entirety and shall be evidenced by this Agreement. Subject to the terms and conditions set forth herein, each Lender agrees to make Revolving Loans to the Borrower from time to time during the Availability Period in an aggregate principal amount that will not result (after giving effect to any application of proceeds of such Borrowing to any Swingline Loans outstanding pursuant to Section 2.06(a)) in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the sum of the total Revolving Credit Exposures exceeding the Aggregate Revolving Commitments. Within the foregoing limits and subject to the terms and conditions set forth herein, the Borrower may borrow, prepay and reborrow Revolving Loans.
Section 2.02 Loans and Borrowings
(a)Each Revolving Loan shall be made as part of a Borrowing consisting of Revolving Loans made by the Lenders ratably in accordance with their respective Revolving Commitments. The failure of any Lender to make any Revolving Loan required to be made by it shall not relieve any other Lender of its obligations hereunder, provided that the Revolving Commitments of the Lenders are several, and no Lender shall be responsible for any other Lender’s failure to make Revolving Loans as required. Any Swingline Loan shall be made in accordance with the procedures set forth in Section 2.13.
(b)Subject to Section 3.04, each Revolving Loan shall be an ABR Loan or a Term Benchmark Loan, as the Borrower may request in accordance herewith (including Section 3.02). Each Swingline Loan shall be an ABR Loan. Each Lender at its option may make any Term Benchmark Loan (and any ABR Loan, the interest on which is determined pursuant to clause (c) of the definition of Alternate Base Rate) by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan (and in the case of an Affiliate, the provisions of Sections 3.05, 3.06 and 3.07 shall apply to such Affiliate to the same extent as to such Lender), provided that any exercise of such option shall not affect the obligation of the Borrower to repay such Loan in accordance with the terms of this Agreement and neither such Lender nor such Affiliate shall be entitled to any amounts payable under Sections 3.05 or 3.07 solely in respect of increased costs or taxes resulting from such exercise and existing at the time of such exercise.
(c)At the commencement of each Interest Period for any Term Benchmark Borrowing, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000. At the time that each ABR Borrowing (other than a Swingline Loan) is made, such Borrowing shall be in an aggregate amount that is an integral multiple of $1,000,000 and not less than $1,000,000, provided that an ABR Borrowing may be in an aggregate amount that is equal to the entire unused balance of the total Revolving Commitments. Each Swingline Loan shall be in an amount that is an integral multiple of $500,000 and not less than $1,000,000. Borrowings of more than one Type and Class may be outstanding at the same time, provided that there shall not at any time be more than a total of fifteen Term Benchmark Borrowings outstanding.
(d)Notwithstanding any other provision of this Agreement, the Borrower shall not be entitled to request, or to elect to convert or continue, any Borrowing if the Interest Period requested with respect thereto would end after the Commitment Termination Date.
Section 2.03 Requests for Borrowings
To request a Borrowing (other than a Swingline Loan, requests for which are governed by Section 2.13), the Borrower shall notify the Administrative Agent of such request either (x) by email from (with such email request being confirmed promptly by delivery of a written Borrowing Request signed by) the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager or (y) by delivery of a written Borrowing Request signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, (a) in the case of a Term Benchmark Borrowing, not later than 3:00 p.m., New York City time, three U.S. Government Securities Business Days before the date of the proposed Borrowing, or (b) in the case of an ABR Borrowing, not later than 2:00 p.m., New York City time on the date of the proposed Borrowing. Each such Borrowing Request shall be irrevocable (except as otherwise provided in Section 3.04). Each such Borrowing Request shall specify the following information in compliance with Section 2.02:
(i)the aggregate amount of the requested Borrowing;
(ii)the date of such Borrowing, which shall be a Business Day;
(iii)whether such Borrowing is to be an ABR Borrowing or a Term Benchmark Borrowing;
(iv)in the case of a Term Benchmark Borrowing, the initial Interest Period to be applicable thereto, which shall be a period contemplated by the definition of the term “Interest Period”; and
(v)the location and number of the Borrower’s account to which funds are to be disbursed, which shall comply with the requirements of Section 2.04.
If no election as to the Type of Borrowing is specified, then the requested Borrowing shall be an ABR Borrowing. If no Interest Period is specified with respect to any requested Term Benchmark Borrowing, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration. Promptly following receipt of a Borrowing Request in accordance with this Section, the Administrative Agent shall advise each Lender of the details thereof and of the amount of such Lender’s Revolving Loan to be made as part of the requested Borrowing.
Section 2.04 Funding of Borrowings
(a)Each Lender shall make each Revolving Loan to be made by it hereunder on the proposed date thereof solely by wire transfer of immediately available funds by 3:00 p.m., New York City time, to the account of the Administrative Agent most recently designated by it for such purpose by notice to the Lenders. Swingline Loans shall be made as provided in Section 2.13. Subject to Section 5.02, the Administrative Agent will make the proceeds of such Loans available to the Borrower by promptly crediting or otherwise transferring the amounts so received, in like funds, to an account of the Borrower designated by the Borrower in the applicable Borrowing Request.
(b)Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Revolving Loan that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with paragraph (a) of this Section and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent by 3:00 p.m., New York City time, for a Term Benchmark Borrowing or by 4:00 p.m., New York City time, for an ABR Borrowing on the applicable day, then such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount with interest thereon, for each day from and including the date such amount was made available by the Administrative Agent to the Borrower to but excluding the date of payment to the Administrative Agent, at (i) in the case of such Lender, the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, or (ii) in the case of the Borrower, the interest rate that would be otherwise applicable to such Borrowing. If such Lender pays such amount to the Administrative Agent, then such amount shall constitute such Lender’s Revolving Loan included in such Borrowing. Such payment by the Borrower shall be without prejudice to its rights against each Lender who fails to fund its share of any Borrowing.
Section 2.05 Termination, Reduction and Increase of Commitments
(a)Unless previously terminated, the Revolving Commitments and the Letter of Credit Commitments shall terminate on the Commitment Termination Dateprovided.
(b)The Borrower may at any time terminate, or from time to time reduce, the Commitments, provided that (i) the Borrower shall not terminate or reduce the Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.07 and/or any concurrent cash collateralization of the Letter of Credit Exposure, (w) the amount of any Lender’s Revolving Credit Exposure would exceed its Revolving Commitment, (x) the Aggregate Credit Exposure would exceed the Aggregate Revolving Commitments, (y) the total Revolving Credit Exposures of all of the Lenders would exceed the Aggregate Revolving Commitments or (z) the Aggregate Letter of Credit Exposure would exceed the Aggregate Letter of Credit Commitments, and (ii) each such reduction shall be in an amount that is an integral multiple of $1,000,000 and not less than $5,000,000.
(c)The Borrower shall notify the Administrative Agent of any election to terminate or reduce the Commitments under paragraph (b) of this Section at least two Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Promptly following receipt of any notice, the Administrative Agent shall advise the Lenders of the contents thereof. Each notice delivered by the Borrower pursuant to this Section shall be irrevocable; provided, that a notice of termination of the Commitments delivered by the Borrower may state that such notice is conditioned upon the effectiveness of other credit facilities, in which case such notice may be revoked by the Borrower (by notice to the Administrative Agent on or prior to the specified effective date) if such condition is not satisfied. Any termination or reduction of the Commitments hereunder shall be permanent but without prejudice to the rights of the Borrower under paragraph (d) below. Each reduction of the Commitments hereunder shall be made ratably among the Lenders in accordance with their respective Commitments.
(d)Provided that immediately before and after giving effect thereto, no Default shall or would exist and be continuing and the conditions set forth in Section 5.02 have been satisfied or waived, the Borrower may at any time and from time to time, on or before the Commitment Termination Date referred to in clause (a) of the definition thereof, request any one or more of the Lenders to increase (such decision to be within the sole and absolute discretion of such Lender) its Revolving Commitment and Letter of Credit Commitment, and/or any other Eligible Assignee reasonably satisfactory to the Administrative Agent and the Borrower, to provide a new Revolving Commitment and a new Letter of Credit Commitment, by submitting an Increase Request in the form of Exhibit F (an “Increase Request”), duly executed by the Borrower and each such Lender or Eligible Assignee, as the case may be. Thereupon, the Administrative Agent shall execute such Increase Request and deliver a copy thereof to the Borrower and each such Lender or Eligible Assignee, as the case may be.
Upon execution and delivery of such Increase Request, (i) in the case of each such Lender, such Lender’s Revolving Commitment shall be increased to the amount set forth in such Increase Request, (ii) in the case of each such Eligible Assignee, such Eligible Assignee shall become a party hereto and shall for all purposes of the Loan Documents be deemed a “Lender” with a Revolving Commitment in the amount set forth in such Increase Request, and (iii) the Borrower shall contemporaneously therewith execute and deliver to the Administrative Agent a Note or Notes for each such Eligible Assignee providing a new Revolving Commitment and for such existing Lender increasing its Revolving Commitment provided, however, that:
(i)immediately after giving effect thereto, the Aggregate Revolving Commitments shall not have been increased pursuant to this subsection (d) to an amount greater than the sum of (x) $275,000,000 plus (y) the amount of the Revolving Commitment of each Lender that becomes a Defaulting Lender;
(ii)each such increase shall be in an amount not less than $5,000,000 or such amount plus an integral multiple of $1,000,000;
(iii) the Revolving Commitments shall not be increased on more than three occasions;
(iv) the Administrative Agent shall have received documents (including, without limitation, one or more opinions of counsel) consistent with those delivered on the Effective Date as to the corporate power and authority of the Borrower to borrow hereunder after giving effect to such increase;
(v)if Loans shall be outstanding immediately after giving effect to such increase, the Lenders shall, upon the acceptance of the Increase Request by, and at the direction of, the Administrative Agent, make appropriate adjustments among themselves so that the amount of Revolving Credit Exposures from any of the Lenders under this
Agreement are allocated among the Lenders according to their Commitment Percentages after giving effect to the increase in the Aggregate Revolving Commitments (it being understood and agreed that any reallocation made pursuant to this clause (v) shall require the Borrower to make payment pursuant to Section 3.06 with respect to any affected Term Benchmark Loans);
(vi) each such Eligible Assignee shall have delivered to the Administrative Agent and the Borrower an Administrative Questionnaire and all forms, if any, that are required to be delivered by such Eligible Assignee pursuant to Section 3.07(e); and
(vii)the Administrative Agent shall have received (1) a copy of an order or approval issued by the PUC, certified by a Financial Officer to be true and complete, which is final and not subject to review or appeal, that authorizes the Borrower to obtain any increase in the Commitments requested by the Borrower and (2) a certificate of a Financial Officer attaching thereto resolutions of the Board of Directors of the Borrower authorizing any increase of the Commitments requested by the Borrower.
Section 2.06 Repayment of Loans; Evidence of Debt
(a)The Borrower hereby unconditionally promises to pay (i) to the Administrative Agent for the account of each Lender the then unpaid principal amount of each Revolving Loan on the Commitment Termination Date and (ii) to the Administrative Agent for the account of the Swingline Lender the then unpaid principal amount of each Swingline Loan on the earlier of the Commitment Termination Date and the date that is the 21st Business Day after such Swingline Loan is made; provided that on each date that a Revolving Loan is made, the Borrower shall repay all Swingline Loans then outstanding and the proceeds of any such Borrowing shall be applied by the Administrative Agent to repay any Swingline Loans outstanding.
(b)Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(c)The Administrative Agent shall maintain accounts in which it shall record (i) the amount of each Loan made hereunder, the Type and Class thereof and, if applicable, the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder, and (iii) the amount of any sum received by the Administrative Agent hereunder for the account of the Lenders and each Lender’s share thereof.
(d)The entries made in the accounts maintained pursuant to paragraph (b) or (c) of this Section shall, to the extent not inconsistent with any entries made in any Note, be prima facie evidence of the existence and amounts of the obligations recorded therein except for clearly demonstrated error; provided, that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans in accordance with the terms of this Agreement; provided, further, that in the event of any inconsistency between the accounts maintained by the Administrative Agent pursuant to paragraph (c) and any Lender’s records, the accounts of the Administrative Agent shall govern.
(e)The Loans of each Lender and interest thereon shall at all times (including after assignment pursuant to Section 10.04) be evidenced by one or more Notes payable to such Lender (or its registered assigns).
Section 2.07 Prepayment of Loans
(a)The Borrower shall have the right at any time and from time to time to prepay any Borrowing in whole or in part, subject to the requirements of this Section.
(b)In the event of any partial reduction or termination of the Commitments, then (i) at or prior to the date of such reduction or termination, the Administrative Agent shall notify the Borrower and the Lenders of the Aggregate Credit Exposures after giving effect thereto, and (ii) if such sum would exceed the Aggregate Revolving Commitments after giving effect to such reduction or termination, then the Borrower shall, on the date of such reduction or termination, prepay Revolving Borrowings, and/or cash collateralize the Letter of Credit Exposure, in an amount sufficient to eliminate such excess.
(c)Mandatory Prepayments.
(i)The Borrower shall immediately prepay the Loans, by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments.
(ii)Simultaneously with each reduction or termination of the Revolving Commitments, (1) in the event that the Aggregate Letter of Credit Commitments shall exceed the Aggregate Revolving Commitments as so reduced or terminated, the Aggregate Letter of Credit Commitments shall be automatically reduced, and/or the Letter of Credit Exposure shall be cash collateralized, by an amount equal to such excess, and (2) the Borrower shall prepay the Loans by an amount equal to the excess, if any, of the aggregate outstanding principal balance of the Loans over the Aggregate Revolving Commitments as so reduced or terminated.
(d)Simultaneously with each prepayment of a Loan, the Borrower shall, if and to the extent required by Section 3.01(e), prepay all accrued interest on the amount prepaid through the date of prepayment.
(e)The Borrower shall notify the Administrative Agent (and, in the case of prepayment of a Swingline Loan, the Swingline Lender) by either (x) email notice, which may be given by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager of any prepayment under Section 2.07(a) (with such email notice being confirmed promptly by delivery of a written notice in a form approved by the Administrative Agent signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager) or (y) written notice in a form approved by the Administrative Agent signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager (i) in the case of prepayment of (x) a Term Benchmark Borrowing, not later than 2:00 p.m., New York City time, three Business Days before the date of prepayment or (y) an RFR Revolving Borrowing, not later than 11:00 a.m., New York City time, five (5) Business Days before the date of prepayment, (ii) in the case of prepayment of an ABR Borrowing (other than a Swingline Loan), not later than 2:00 p.m., New York City time, on the Business Day of the prepayment or (iii) in the case of prepayment of a Swingline Loan, not later than 1:00 p.m., New York City time, on the Business Day of prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of each Borrowing or portion thereof to be prepaid; provided, that if a notice of prepayment is given in connection with a conditional notice of termination of the Commitments contemplated by Section 2.05(c), then such notice of prepayment may also be conditional and may be revoked if such notice of termination is revoked in accordance with Section 2.05(c). Promptly following receipt of any such notice relating to a prepayment of a Borrowing, the Administrative Agent shall advise the Lenders of the contents thereof. Each partial prepayment of any Borrowing under Section 2.07(a) shall, be in an integral multiple of $1,000,000 and not less than $1,000,000. Each prepayment of a Borrowing shall be applied ratably to the Loans included in the prepaid Borrowing. Prepayments shall be accompanied by accrued interest if and to the extent required by Section 3.01.
Section 2.08 Payments Generally; Pro Rata Treatment; Sharing of Setoffs
(a)The Borrower shall make each payment required to be made by it hereunder or under any other Loan Document (whether of principal, interest or fees, or of amounts payable under Section 3.05, 3.06, 3.07 or 10.03, or otherwise) in Dollars prior to 3:00 p.m., New York City time, on the date when due, in immediately available funds, without setoff or counterclaim.
Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at its office at 10 South Dearborn Street, Chicago, Illinois, 60603, or such other office as to which the Administrative Agent may notify the other parties hereto, except payments to be made directly to the Issuing Bank or the Swingline Lender as expressly provided herein and except that payments pursuant to Sections 3.03(b) (with respect to the fronting fee and other amounts payable to the Issuing Bank), 3.03(c), 3.05, 3.06, 3.07, 3.08, 10.03 and 10.04 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. In the event the Administrative Agent has not in fact made available to each Lender its share of the applicable payment within one Business Day of the receipt thereof, then the Administrative Agent agrees to pay to the applicable Lender forthwith on demand its share of such payment with interest thereon for each day, from and including the second Business Day after such payment was received by the Administrative Agent but excluding the date of payment by the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment of accrued interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in Dollars.
(b)If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal of Loans, interest, fees and commissions then due hereunder, such funds shall be applied (i) first, towards payment of interest, fees and commissions then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest, fees and commissions then due to such parties, and (ii) second, towards payment of principal of Loans then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal of Loans then due to such parties.
(c)If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of, or interest on, any of its Loans resulting in such Lender receiving payment of a greater proportion of the aggregate amount of its Loans and accrued interest thereon than the proportion received by any other Lender, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Loans of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of, and accrued interest on, their respective Loans, provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this paragraph shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant. The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d)Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the applicable Credit Parties hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to such Credit Parties the amount due. In such event, if the Borrower has not in fact made such payment, then each such Credit Party severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Credit Party with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate per annum determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
(e)If any Credit Party shall fail to make any payment required to be made by it pursuant to Section 2.04(b), then the Administrative Agent may, in its discretion (notwithstanding any contrary provision hereof), apply any amounts thereafter received by the Administrative Agent for the account of such Credit Party to satisfy such Credit Party’s obligations under such Section until all such unsatisfied obligations are fully paid.
Section 2.09 Letter of Credit Sub-Facility
(a)Subject to the terms and conditions of this Agreement, the Issuing Bank, in reliance on the agreement of the other Lenders set forth in Section 2.10, may agree, but shall have no obligation, to issue standby or documentary letters of credit (the “Letters of Credit”; each, individually, a “Letter of Credit”) during the Availability Period for the account of the Borrower, provided that immediately after the issuance of each Letter of Credit (i) the Letter of Credit Exposure of each Lender (whether or not the conditions for drawing under any Letter of Credit have or may be satisfied) would not exceed its Letter of Credit Commitment, (ii) the Aggregate Credit Exposure would not exceed the Aggregate Revolving Commitments and (iii) each Lender’s Revolving Credit Exposure would not exceed such Lender’s Commitment. Notwithstanding the foregoing, the letters of credit identified on Schedule 2.09 (the “Existing Letters of Credit”) shall be deemed to be “Letters of Credit” issued on the Effective Date for all purposes of the Loan Documents. Each Letter of Credit issued pursuant to this Section shall have an expiration date which shall be not later than the earlier of (i) three hundred sixty-four days after the date of issuance thereof and (ii) five Business Days before the Commitment Termination Date referred to in clause (a) of the definition thereof, provided that any Letter of Credit with a three hundred sixty-four day tenor may provide for the periodic and/or successive renewals or extensions thereof for additional periods expiring prior to the earlier to occur of (x) three hundred sixty-four days after the date of such renewal or extension and (y) date referred to in clause (ii) above. No Letter of Credit shall be issued if the Administrative Agent, or the Required Lenders by notice to the Administrative Agent no later than 1:00 p.m. New York City time one Business Day prior to the requested date of issuance of such Letter of Credit, shall have determined that any condition set forth in Section 5.01 or 5.02 has not been satisfied. The Issuing Bank shall not be under any obligation to issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from issuing such Letter of Credit, or any law applicable to the Issuing Bank shall prohibit, or require that the Issuing Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Effective Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense that was not applicable on the Effective Date and that the Issuing Bank in good faith deems material to it; or (ii) the issuance of such Letter of Credit would violate one or more policies of the Issuing Bank applicable to letters of credit generally.
(b)Each Letter of Credit shall be issued for the account of the Borrower in support of an obligation of the Borrower or a Subsidiary in favor of a beneficiary who has requested the issuance of such Letter of Credit as a condition to a transaction entered into in connection with the Borrower’s or such Subsidiary’s ordinary course of business. The Borrower shall give the Administrative Agent a Letter of Credit Request for the issuance of each Letter of Credit by 2:00 p.m. New York City time, two (2) Business Days prior to the requested date of issuance. If requested by the Issuing Bank, each Letter of Credit Request shall be accompanied by the Issuing Bank’s standard application and agreement for standby or documentary letters of credit, as applicable (each, a “Reimbursement Agreement”) executed by the President of the Borrower or a Financial Officer, and shall specify (i) the beneficiary of such Letter of Credit and the obligations of the Borrower or such Subsidiary in respect of which such Letter of Credit is to be issued, (ii) the Borrower’s proposal as to the conditions under which a drawing may be made under such Letter of Credit and the documentation to be required in respect thereof, (iii) the maximum amount to be available under such Letter of Credit, and (iv) the requested dates of issuance and expiration. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Reimbursement Agreement, the terms and conditions of this Agreement shall control. Upon receipt of such Letter of Credit Request from the Borrower, the Administrative Agent shall promptly notify the Issuing Bank and each other Lender thereof. Each Letter of Credit shall be in form and substance reasonably satisfactory to the Issuing Bank, with such provisions with respect to the conditions under which a drawing may be made thereunder and the documentation required in respect of such drawing as the Issuing Bank shall reasonably require. Each Letter of Credit shall be used solely for the purposes described therein. The Issuing Bank shall, on the proposed date of issuance and subject to the terms and conditions of the Reimbursement Agreement, if any, and to the other terms and conditions of this Agreement, issue the requested Letter of Credit.
(c)Each payment by the Issuing Bank of a draft drawn under a Letter of Credit shall give rise to an obligation on the part of the Borrower to reimburse the Issuing Bank by 3:00 p.m. New York City time two Business Days after the date of such payment together with interest on the amount of such payment from the date such payment was made by the Issuing Bank; provided that, if the amount of the draft drawn under such Letter of Credit is not less than $1,000,000, the
(d)Additional Commitment Lenders. The Borrower shall have the right, but shall not be obligated, on or before the applicable Commitment Termination Date for any Non-Extending Lender to replace such Non-Extending Lender with, and add as “Lenders” under this Agreement in place thereof, one or more financial institutions that each qualify as an Eligible Assignee (each, an “Additional Commitment Lender”) approved by the Administrative Agent in accordance with the procedures provided in Section 3.08(b), each of which Additional Commitment Lenders shall have entered into an Assignment and Acceptance (in accordance with and subject to the restrictions contained in Section 10.04, with the Borrower or replacement Lender obligated to pay any applicable processing or recordation fee) with such Non-Extending Lender, pursuant to which such Additional Commitment Lenders shall, effective on or before the applicable Commitment Termination Date for such Non-Extending Lender, assume a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date). The Administrative Agent may effect such amendments to this Agreement as are reasonably necessary to provide for any such extensions with the consent of the Borrower but without the consent of any other Lenders.
(e)Minimum Extension Requirement. If (and only if) the total of the Commitments of the Lenders that have agreed to extend their Commitment Termination Date and the new or increased Commitments of any Additional Commitment Lenders is more than 50% of the aggregate amount of the Commitments in effect immediately prior to the applicable Extension Date, then, effective as of the applicable Extension Date, the Commitment Termination Date of each Extending Lender and of each Additional Commitment Lender shall be extended to the date that is one year after the Existing Commitment Termination Date (except that, if such date is not a Business Day, such Commitment Termination Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a “Lender” for all purposes of this Agreement and shall be bound by the provisions of this Agreement as a Lender hereunder and shall have the obligations of a Lender hereunder.
(f)Conditions to Effectiveness of Extension. Notwithstanding the foregoing, (x) no more than two (2) extensions of the Commitment Termination Date shall be permitted pursuant to this Section 2.14 and (y) any extension of any Commitment Termination Date pursuant to this Section 2.14 shall not be effective with respect to any Extending Lender unless:
(i)no Default shall have occurred and be continuing on the applicable Extension Date and immediately after giving effect thereto;
(ii)the representations and warranties of the Borrower set forth in Article 4 of this Agreement are true and correct in all material respects on and as of the applicable Extension Date and after giving effect thereto, except to the extent such representations and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; and
(iii)the Administrative Agent shall have received a certificate from the Borrower signed by a Financial Officer of the Borrower (A) certifying the accuracy of the foregoing clauses (i) and (ii), (B) certifying and attaching the resolutions adopted by the Borrower approving or consenting to such extension and (C) attaching a copy of an order or approval issued by the PUC, certified to be true and complete, which is final and not subject to review or appeal, that approves the extension.
(g)Commitment Termination Date for Non-Extending Lenders. On the Commitment Termination Date of each Non-Extending Lender, (i) the Commitment of each Non-Extending Lender shall automatically terminate and (ii) the Borrower shall repay such Non-Extending Lender in accordance with Section 2.06 (and shall pay to such Non-Extending Lender all of the other obligations owing to it under this Agreement) and after giving effect thereto shall prepay any Revolving Loans outstanding on such date (and pay any additional amounts required pursuant to Section 3.06) to the extent necessary to keep outstanding Revolving Loans ratable with any revised Applicable Percentages of the respective Lenders effective as of such date, and the Administrative Agent shall administer any necessary reallocation of the Revolving Credit Exposures (without regard to any minimum borrowing, pro rata borrowing and/or pro rata payment requirements contained elsewhere in this Agreement).
(h)Conflicting Provisions. This Section shall supersede any provisions in Section 2.08 or Section 10.02 to the contrary.
ARTICLE 3. INTEREST, FEES, YIELD PROTECTION, ETC.
Section 3.01 Interest
(a)ABR Loans (including each Swingline Loan) and unpaid Reimbursement Obligations shall bear interest at the Alternate Base Rate plus the Applicable Margin.
(b)Term Benchmark Borrowings shall bear interest at the Adjusted Term SOFR Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin.
(c)Each RFR Loan shall bear interest at a rate per annum equal to the Adjusted Daily Simple SOFR plus the Applicable Margin.
(d)Notwithstanding the foregoing, if any principal of and interest on any Loan or Reimbursement Obligation or any fee or other amount payable by the Borrower hereunder is not paid when due and after the expiration of any applicable grace period, then all such amounts shall bear interest, after as well as before judgment, at a rate per annum equal to (i) in the case of principal of any Loan or Reimbursement Obligation, 2% plus the rate otherwise applicable to such Loan or Reimbursement Obligation as provided in the preceding paragraphs of this Section, or (ii) in the case of any other amount, 2% plus the Alternate Base Rate.
(e)Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan, provided that (i) interest accrued pursuant to paragraph (d) of this Section shall be payable on demand, (ii) in the event of any repayment or prepayment of any Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment (other than a prepayment of an ABR Loan before the end of the Availability Period), and (iii) in the event of any conversion of any Term Benchmark Loan prior to the end of the current Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion.
(f)All interest hereunder shall be computed on the basis of a year of 360 days, except that interest computed by reference to the Alternate Base Rate only at times when the
Alternate Base Rate is based on the Prime Rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year). In each case interest shall be payable for the actual number of days elapsed (including the first day but excluding the last day). All interest hereunder on any Loan shall be computed on a daily basis based upon the outstanding principal amount of such Loan as of the applicable date of determination. A determination of the applicable Alternate Base Rate, Adjusted Term SOFR Rate, Term SOFR Rate, Adjusted Daily Simple SOFR or Daily Simple SOFR shall be determined by the Administrative Agent in accordance with the provisions of this Agreement, and such determination shall be conclusive absent clearly demonstrable error.
Section 3.02 Interest Elections
(a)Any Borrowing on the Effective Date shall be of ABR Loans. Thereafter, each Borrowing initially shall be of the Type specified in the applicable Borrowing Request and, in the case of a Term Benchmark Borrowing, shall have an initial Interest Period as specified in such Borrowing Request. Thereafter, the Borrower may elect to convert such Borrowing to a different Type or to continue such Borrowing and, in the case of a Term Benchmark Borrowing, may elect Interest Periods therefor, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably (subject to the provisions of Section 2.12) among the Lenders holding the Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing. This Section shall not apply to Swingline Borrowings, which may not be converted or continued.
(b)To make an election pursuant to this Section, the Borrower shall notify the Administrative Agent of such election either (x) by email from (with such email request being confirmed promptly by delivery of a written Interest Election Request signed by) the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager or (y) by delivery of a written Interest Election Request signed by the President of the Borrower, a Financial Officer or the Hawaiian Electric Cash Manager, by the time that a Borrowing Request would be required under Section 2.03 if the Borrower were requesting a Borrowing of the Type resulting from such election to be made on the effective date of such election. Each such Interest Election Request shall be irrevocable, except as otherwise provided in Section 3.04.
(c)Each Interest Election Request shall specify the following information in compliance with Section 2.02:
(i)the Borrowing to which such Interest Election Request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Borrowing);
(ii)the effective date of the election made pursuant to such Interest Election Request, which shall be a Business Day;
(iii)whether the resulting Borrowing is to be an ABR Borrowing or a Term Benchmark Borrowing; and
(iv)if the resulting Borrowing is a Term Benchmark Borrowing, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term “Interest Period”.
If any such Interest Election Request requests a Term Benchmark Borrowing but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month’s duration.
(d)Promptly following receipt of an Interest Election Request, the Administrative Agent shall advise each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
(e)If the Borrower fails to deliver a timely Interest Election Request prior to the end of the Interest Period applicable thereto, then, unless such Borrowing is repaid as provided herein, at the end of such Interest Period, such Borrowing shall be deemed to have an Interest Period that is one (1) month. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Administrative Agent, at the request of the Required Lenders, so notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Borrowing may be converted to or continued as a Term Benchmark Borrowing, and (ii) unless repaid, (A) each Term Benchmark Borrowing and (B) each RFR Borrowing shall be converted to an ABR Borrowing (in the case of a Term Benchmark Borrowing) at the end of the Interest Period applicable thereto or (in the case of an RFR Borrowing) on the next Interest Payment Date in respect thereof.
(f)Notwithstanding any contrary provision herein, this Section shall not be construed to permit the Borrower to (i) elect an Interest Period for Term Benchmark Loans that does not comply with Section 2.02(d) or (ii) convert any Borrowing to a Borrowing of a Type not available under such Borrowing.
(g)Notwithstanding anything in this Agreement or any other Loan Document to the contrary, interest on all “Eurodollar Loans” (as defined in this Agreement immediately prior to the Amendment No. 1 Effective Date) outstanding under this Agreement immediately prior to the Amendment No. 1 Effective Date shall continue to accrue and be paid based upon the “Adjusted LIBO Rate” (as defined in this Agreement immediately prior to the Amendment No. 1 Effective Date) applicable pursuant to the terms of this Agreement immediately prior to the Amendment No. 1 Effective Date solely until the expiration of the current “Interest Period” (as defined in this Agreement immediately prior to the Amendment No. 1 Effective Date) applicable thereto (at which time such Loans may be reborrowed as or converted to ABR Borrowings or Term Benchmark Borrowings, as applicable, in accordance with this Section 3.02).
Section 3.03 Fees
(a)The Borrower agrees to pay to the Administrative Agent for the account of each Lender, a commitment fee, which shall accrue at a rate per annum equal to the Applicable Margin on the average daily amount of the unused Revolving Commitment of such Lender during the period from and including the date on which this Agreement shall have become effective in accordance with Section 10.06 to but excluding the date on which such Revolving Commitment terminates (the “Commitment Fee”). For purposes of calculating the Commitment Fee, Swingline Exposure shall not be considered usage of the Revolving Commitment of any Lender.
Accrued Commitment Fees through and including the last day of March, June, September and December of each year shall be payable in arrears on the fifteenth day following such last day (or for any such fifteenth day that is not a Business Day, on the next succeeding Business Day) and on the Commitment Termination Date, commencing on the first such date to occur after the Amendment No. 1 Effective Date.
(b)The Borrower agrees to pay to the Administrative Agent for the account of each Lender a fee (the “Letter of Credit Fee”) with respect to each Letter of Credit, payable quarterly in arrears during the period from and including the date of issuance thereof to and including the expiration or cancellation date thereof (a) on the first Business Day of each January, April, July and October of each year, (b) upon such expiration or cancellation date and (c) on the Commitment Termination Date, at a rate per annum equal to the Applicable Margin on Term Benchmark Borrowings on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations). The Borrower also agrees to pay to the Issuing Bank for its own account a fronting fee, which shall accrue at the rate of 0.125% per annum on the average daily amount of the Letter of Credit Exposure (excluding any portion thereof attributable to unreimbursed Reimbursement Obligations) attributable to Letters of Credit issued by the Issuing Bank during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any Letter of Credit Exposure as well as the Issuing Bank’s standard fees and commissions with respect to the issuance, amendment, cancellation, negotiation, transfer, presentment or extension of any Letter of Credit or processing of drawings thereunder. The Letter of Credit Fees and the fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the fifteenth day following such last day (or for any such fifteenth day that is not a Business Day, on the next succeeding Business Day), commencing on the first such date to occur after the Amendment No. 1 Effective Date. The Letter of Credit Fee and the fronting fees described above shall be calculated for the actual number of days elapsed (including the first day and the last day of each period but excluding the date on which the Commitments terminate) during the period in question on the basis of a year of 365 or 366 days, as applicable.
(c)The Borrower agrees to pay to the Administrative Agent, for its own account, fees and other amounts payable in the amounts and at the times separately agreed upon between the Borrower and the Administrative Agent.
(d)All Commitment Fees shall be computed on the basis of a year of 365 or 366 days, as applicable, and shall be payable for the actual number of days elapsed (including the first day but excluding the last day) during the period in question.
(e)All fees and other amounts payable hereunder shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, in the case of Commitment Fees, to the Lenders. Fees and other amounts paid shall not be refundable under any circumstances other than clearly demonstrable error.
Section 3.04 Alternate Rate of Interest
(a)Subject to clauses (b), (c), (d), (e) and (f) of this Section 3.04, if:
(i)the Administrative Agent determines (which determination shall be conclusive and binding absent clearly demonstrable error) (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, that adequate and reasonable means do not exist for ascertaining the Adjusted Term SOFR Rate (including because the Term SOFR Reference Rate is not available or published on a current basis) for such Interest Periodprovided or (B) at any time during which an RFR Loan is outstanding or a Revolving Borrowing is to be made as an RFR Borrowing or converted into an RFR Borrowing, that adequate and reasonable means do not exist for ascertaining the applicable Adjusted Daily Simple SOFR; or
(ii)the Administrative Agent is advised by the Required Lenders that (A) prior to the commencement of any Interest Period for a Term Benchmark Borrowing, the Adjusted Term SOFR Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Periodor (B) at any time during which an RFR Loan is outstanding or a Revolving Borrowing is to be made as an RFR Borrowing or converted into an RFR Borrowing, Adjusted Daily Simple SOFR will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing;
then the Administrative Agent shall give notice thereof to the Borrower and the Lenders by telephone, telecopy or electronic mail as promptly as practicable thereafter and, until (x) the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark and (y) the Borrower delivers a new Interest Election Request in accordance with the terms of Section 3.02 or a new Borrowing Request in accordance with the terms of Section 2.03, any Interest Election Request that requests the conversion of any Revolving Borrowing to, or continuation of any Revolving Borrowing as, a Term Benchmark Borrowing and any Borrowing Request that requests a Term Benchmark Revolving Borrowing shall instead be deemed to be an Interest Election Request or a Borrowing Request, as applicable, for (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not also the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above on such day or (y) an ABR Borrowing if the Adjusted Daily Simple SOFR also is the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above on such day; provided that if the circumstances giving rise to such notice affect only one Type of Borrowing, then all other Types of Borrowings shall be permitted. Furthermore, if any Term Benchmark Loan or RFR Loan is outstanding on the date of the Borrower’s receipt of the notice from the Administrative Agent referred to in this Section 3.04(a) with respect to a Relevant Rate applicable to such Term Benchmark Loan or RFR Loan, then until (x) the Administrative Agent notifies the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist with respect to the relevant Benchmark and (y) the Borrower delivers a new Interest Election Request in accordance with the
terms of Section 3.02 or a new Borrowing Request in accordance with the terms of Section 2.03, (A) any Term Benchmark Loan shall on the last day of the Interest Period applicable to such Loan, be converted by the Administrative Agent to, and shall constitute, (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not also the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above on such day or (y) an ABR Loan if the Adjusted Daily Simple SOFR also is the subject of Section 3.04(a)(i)(B) or Section 3.04(a)(ii)(B) above, on such day, and (B) any RFR Loan shall on and from such day be converted by the Administrative Agent to, and shall constitute an ABR Loan.
(b)Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to the Reference Time in respect of any setting of the then-current Benchmark, then (x) if a Benchmark Replacement is determined in accordance with clause (1) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (y) if a Benchmark Replacement is determined in accordance with clause (2) of the definition of “Benchmark Replacement” for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m., New York City time, on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice of objection to such Benchmark Replacement from Lenders comprising the Required Lenders.
provided
(c)Notwithstanding anything to the contrary herein or in any other Loan Document, the Administrative Agent will have the right to make Benchmark Replacement Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Benchmark Replacement Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(d)The Administrative Agent will promptly notify the Borrower and the Lenders of (i) any occurrence of a Benchmark Transition Event, (ii) the implementation of any Benchmark Replacement, (iii) the effectiveness of any Benchmark Replacement Conforming Changes, (iv) the removal or reinstatement of any tenor of a Benchmark pursuant to clause (e) below and (v) the commencement or conclusion of any Benchmark Unavailability Period. Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.04, including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.04.
(e)Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (i) if the then-current Benchmark is a term rate (including the Term SOFR Rate) and either (A) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (B) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will no longer be representative, then the Administrative Agent may modify the definition of “Interest Period” for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (ii) if a tenor that was removed pursuant to clause (i) above either (A) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (B) is not, or is no longer, subject to an announcement that it is not or will no longer be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(f)Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, the Borrower may revoke any request for a Term Benchmark Borrowing or a conversion to or continuation of Term Benchmark Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request for a Term Benchmark Borrowing into a request for a Borrowing of or conversion to (A) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not the subject of a Benchmark Transition Event or (B) an ABR Borrowing if the Adjusted Daily Simple SOFR is the subject of a Benchmark Transition Event. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Alternate Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Alternate Base Rate. Furthermore, if any Term Benchmark Loan or RFR Loan is outstanding on the date of the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period with respect to a Relevant Rate applicable to such Term Benchmark Loan or RFR Loan, then until such time as a Benchmark Replacement is implemented pursuant to this Section 3.04, (1) any Term Benchmark Loan shall on the last day of the Interest Period applicable to such Loan, be converted by the Administrative Agent to, and shall constitute, (x) an RFR Borrowing so long as the Adjusted Daily Simple SOFR is not the subject of a Benchmark Transition Event or (y) an ABR Loan if the Adjusted Daily Simple SOFR is the subject of a
Benchmark Transition Event, on such day and (2) any RFR Loan shall on and from such day be converted by the Administrative Agent to, and shall constitute an ABR Loan.
Section 3.05 Increased Costs; Illegality
(a)If any Change in Law shall:
(i)impose, modify or deem applicable any reserve, special deposit, liquidity or similar requirement (including any compulsory loan requirement, insurance charge or other assessment) against assets of, deposits with or for the account of, or credit extended by, any Credit Party
(ii)impose on any Credit Party or the applicable offshore interbank market any other condition affecting this Agreement or Loans made by such Credit Party or any participation therein; or
(iii)subject the Administrative Agent or any Credit Party to any Taxes (other than (A) Indemnified Taxes and (B) Excluded Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto;
and the result of any of the foregoing shall be to increase the cost to the Administrative Agent or such Credit Party of making, continuing, converting or maintaining any Loan hereunder (or of maintaining its obligation to make any such Loan) or to reduce the amount of any sum received or receivable by the Administrative Agent or such Credit Party hereunder (whether of principal, interest or otherwise), then the Borrower will, upon request by the Administrative Agent or such Credit Party, pay to the Administrative Agent or such Credit Party such additional amount or amounts as will compensate the Administrative Agent or such Credit Party for such additional costs incurred or reduction suffered.
(b)If any Credit Party determines that any Change in Law regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Credit Party’s capital or on the capital of such Credit Party’s holding company, if any, as a consequence of this Agreement or the Loans made by such Credit Party to a level below that which such Credit Party or such Credit Party’s holding company could have achieved but for such Change in Law (taking into consideration such Credit Party’s policies and the policies of such Credit Party’s holding company with respect to capital adequacy and liquidity), then from time to time the Borrower will pay to such Credit Party such additional amount or amounts as will compensate such Credit Party or such Credit Party’s holding company for any such reduction suffered.
(c)A certificate of a Credit Party setting forth the amount or amounts necessary to compensate such Credit Party or its holding company, as applicable, as specified in paragraph (a) or (b) of this Section including reasonably detailed supporting information shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error, it being understood that the Borrower’s obligations payable to any Credit Party pursuant to this clause (c) will be reasonably determined by such Credit Party (which determination shall be made in good faith (and not on an arbitrary or capricious basis) and consistent with similarly situated customers of such Credit Party under agreements having provisions similar to this Section 3.05 after consideration of such factors as such Credit Party then reasonably determines to be relevant). The Borrower shall pay such Credit Party the amount shown as due on any such certificate within
30 days after receipt thereof unless the Borrower is asserting in good faith that there is clearly demonstrable error in such certificate.
(d)Failure or delay on the part of any Credit Party to demand compensation pursuant to this Section shall not constitute a waiver of such Credit Party’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Credit Party pursuant to this Section for any increased costs or reductions incurred more than 90 days prior to the date that such Credit Party notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Credit Party’s intention to claim compensation therefor; provided further that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the 90 day period referred to above shall be extended to include the period of retroactive effect thereof but not to exceed a period of 365 days.
(e)Notwithstanding any other provision of this Agreement, if, after the date of this Agreement, any Change in Law shall make it unlawful for any Lender to make or maintain any Term Benchmark Loan or to give effect to its obligations as contemplated hereby with respect to any Term Benchmark Loan, then, by written notice to the Borrower and to the Administrative Agent:
(i)such Lender may declare that Term Benchmark Loans will not thereafter (for the duration of such unlawfulness) be made by such Lender hereunder (or be continued for additional Interest Periods and ABR Loans will not thereafter (for such duration) be converted into Term Benchmark Loans), whereupon any request for a Term Benchmark Borrowing or to convert an ABR Borrowing to a Term Benchmark Borrowing or to continue a Term Benchmark Borrowing, as applicable, for an additional Interest Period shall, as to such Lender only, be deemed a request for an ABR Loan (or a request to continue an ABR Loan as such for an additional Interest Period or to convert a Term Benchmark Loan into an ABR Loan, as applicable), unless such declaration shall be subsequently withdrawn; and
(ii)such Lender may require that all outstanding Term Benchmark Loans made by it be converted to ABR Loans, in which event all such Term Benchmark Loans shall be automatically converted to ABR Loans, as of the effective date of such notice as provided in the last sentence of this paragraph.
In the event any Lender shall exercise its rights under (i) or (ii) of this paragraph, all payments and prepayments of principal that would otherwise have been applied to repay the Term Benchmark Loans that would have been made by such Lender or the converted Term Benchmark Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Term Benchmark Loans, as applicable. For purposes of this paragraph, a notice to the Borrower by any Lender shall be effective as to each Term Benchmark Loan made by such Lender, if lawful, on the last day of the Interest Period currently applicable to such Term Benchmark Loan; in all other cases such notice shall be effective on the date of receipt by the Borrower.
Section 3.06 Break Funding Payments
(a)With respect to Term Benchmark Loans, in the event of (i) the payment or prepayment (voluntary or otherwise) of any principal of any Term Benchmark Loan other than on the last day of an Interest Period applicable thereto (including as a result of an Event of Default), (ii) the conversion of any Term Benchmark Loan other than on the last day of the Interest Period applicable thereto, iii) the failure to borrow, convert, continue or prepay any Term Benchmark Loan on the date specified in any notice delivered pursuant hereto or (iv) the assignment of any Term Benchmark Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 3.08 or 10.02(d), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof unless there is clearly demonstrable error in any such certificate.
(b)With respect to RFR Loans, in the event of (i) the payment of any principal of any RFR Loan other than on the Interest Payment Date applicable thereto (including as a result of an Event of Default or as a result of any prepayment pursuant to Section 2.07), (ii) the failure to borrow or prepay any RFR Loan on the date specified in any notice delivered pursuant hereto or (iii) the assignment of any RFR Loan other than on the Interest Payment Date applicable thereto as a result of a request by the Borrower pursuant to Section 3.08 or 10.02(d), then, in any such event, the Borrower shall compensate each Lender for the loss, cost and expense attributable to such event. A certificate of any Lender setting forth any amount or amounts that such Lender is entitled to receive pursuant to this Section shall be delivered to the Borrower and shall be binding on the Borrower absent clearly demonstrable error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 15 days after receipt thereof unless there is clearly demonstrable error in any such certificate.
Section 3.07 Taxes
(a) Except as required by applicable law, any and all payments by or on account of any obligation of the Borrower hereunder and under any other Loan Document shall be made free and clear of and without deduction for any Taxes, provided that, if the Withholding Agent is required by applicable law (as determined in the good faith discretion of the applicable Withholding Agent) to deduct or withhold any Taxes from such payments, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Credit Parties that:
Section 4.01 Organization; Powers
The Borrower and each of its Significant Subsidiaries is duly and validly organized and existing in good standing under the laws of its jurisdiction of organization, formation or charter (it being understood that the Borrower was originally organized under the laws of the Kingdom of Hawaii, Hawaii Electric Light was organized under the laws of the Republic of Hawaii and Maui Electric was organized under the laws of the Territory of Hawaii) and is in good standing and duly licensed or qualified to transact business in each other jurisdiction where failure to so qualify would have a Material Adverse Effect. The Borrower has full power to execute, deliver and perform this Agreement and the Notes and to borrow hereunder. The Borrower’s execution and performance of this Agreement and the Notes, and each borrowing hereunder have been duly authorized by all necessary corporate action and do not and, as of the time of each borrowing will not, violate any provision of law or of its articles of incorporation or bylaws, or result in the breach of or constitute a default under or require any consent under any indenture or other material agreement or material instrument to which the Borrower is a party or by which the Borrower or its property is bound or affected.
Section 4.02 Authorization; Enforceability
Each Loan Document has been (or, at the time executed by the Borrower, will have been) duly executed and delivered by the Borrower and constitutes (or at such time will constitute) a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 4.03 Governmental Approvals; No Conflicts
All consents or approvals of any state or federal agency or authority, if any, required in order to permit the Borrower to enter into this Agreement and to borrow hereunder, have been obtained and remain in full force and effect and the Transactions (a) do not require any other consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of the Borrower or any of its Significant Subsidiaries or any applicable order, rule or regulation of any Governmental Authority, (c) will not violate or result in a default under any indenture, material agreement or other material instrument binding upon the Borrower or any of its Significant Subsidiaries or its assets, or give rise to a right thereunder to require any payment to be made by the Borrower or any of its Significant Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of the Borrower or any of its Significant Subsidiaries.
Section 4.04 Financial Condition; No Material Adverse Effect
(a)The Current SEC Reports include (in clause (a) of the definition thereof) the consolidated balance sheets of the Borrower and its Subsidiaries as of the last day of the fiscal year ended December 31, 2020, and the related consolidated statements of income, retained earnings and cash flows (or changes in financial position, as the case may be) for such fiscal year, delivering or furnishing a facsimile transmission or other electronic image thereof followed by the delivery of an original or an originally executed counterpart thereof):
(a)The Administrative Agent (or its counsel) shall have received from each party hereto a counterpart of this Agreement signed on behalf of such party (which, subject to Section 10.06, may include any Electronic Signatures transmitted by telecopy, emailed pdf, or any other electronic means that reproduces an image of an actual executed signature page).
(b)The Administrative Agent shall have received a Note for each Lender signed on behalf of the Borrower.
(c)The Administrative Agent shall have received a favorable written opinion (addressed to the Credit Parties and dated the Effective Date) from (i) Pillsbury Winthrop Shaw Pittman LLP substantially in the form of Exhibit B-1 and (ii) Erin P. Kippen, Vice President, General Counsel, Chief Compliance Officer & Corporate Secretary of the Borrower, substantially in the form of Exhibit B-2, in each case covering such other matters relating to the Borrower, the Loan Documents or the Transactions as the Administrative Agent shall reasonably request. The Borrower hereby requests such counsels to deliver such opinions.
(d)The Administrative Agent shall have received such documents and certificates as the Administrative Agent or its counsel may reasonably request relating to the organization, existence and good standing of the Borrower, the authorization of the Transactions and any other legal matters relating to the Loan Documents or the Transactions, all in form and substance reasonably satisfactory to the Administrative Agent and its counsel.
(e)The Administrative Agent shall have received a certificate, dated the Effective Date and signed by the President of the Borrower or a Financial Officer, confirming compliance, as of the Effective Date, with the conditions set forth in Section 5.02.
(f)(i) The Administrative Agent shall have received, at least five (5) days prior to the Effective Date, all documentation and other information regarding the Borrower requested in connection with applicable “know your customer” and anti-money laundering rules and regulations, including the Patriot Act, to the extent requested in writing of the Borrower at least ten (10) days prior to the Effective Date and (ii) to the extent the Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation (and is not exempt therefrom), at least five (5) days prior to the Effective Date, any Lender that has requested, in a written notice to the Borrower at least ten (10) days prior to the Effective Date, a Beneficial Ownership Certification in relation to the Borrower shall have received such Beneficial Ownership Certification (provided that, upon the execution and delivery by such Lender of its signature page to this Agreement, the condition set forth in this clause (f) shall be deemed to be satisfied).
(g)The Administrative Agent shall have received payment of all fees required to be paid, and all reasonably incurred and documented expenses which are otherwise required to be reimbursed, in each case for which invoices with appropriate supporting documentation have been presented at least two (2) Business Days prior to the Effective Date.
(h)The Administrative Agent shall have received evidence reasonably satisfactory to it that all material governmental and third party approvals necessary or, in the discretion of the Administrative Agent, advisable in connection with the Transactions shall have been obtained and be in full force and effect (it being understood and agreed that, as related to the increase of the Revolving Commitment contemplated by Section 2.05(d)
, the foregoing approvals may not have been applied for, and/or may not have been received, on or as of the Effective Date).
The Administrative Agent shall notify the Borrower and the Credit Parties of the Effective Date, and such notice shall be conclusive and binding.
Section 5.02 Each Credit Event
The obligation of each Lender to make a Loan on the occasion of any Borrowing and of the Issuing Bank to issue any Letter of Credit is subject to the satisfaction of the following conditions:
(a)The representations and warranties of the Borrower set forth in Article 4 of this Agreement (other than the representations and warranties in Sections 4.04(b) and 4.06 of this Agreement) shall be true and correct in all material respects on and as of the date of such Borrowing or issuance of such Letter of Credit, except to the extent such representations and warranties relate to any earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date.
(b)At the time of and immediately after giving effect to such Borrowing or issuance of such Letter of Credit, no Default shall have occurred and be continuing.
Each request for a Loan or issuance of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section.
ARTICLE 6. AFFIRMATIVE COVENANTS
Until the Commitments and all Letters of Credit shall have expired or been terminated, in each case, without any pending draw, and the principal of and interest on all Loans, all Reimbursement Obligations and all fees and other amounts (other than contingent liability obligations) payable under the Loan Documents shall have been paid in full, the Borrower covenants and agrees with the Lenders that:
Section 6.01 Financial Statements and Other Information
The Borrower will furnish to the Administrative Agent sufficient copies for each Lender of the following (it being agreed that the obligation of the Borrower to furnish the financial statements, reports, information and documents referred to below (other than the certificate referred to in clause (c) below) may be satisfied by the Borrower’s delivery to, or filing such statements, reports, information and documents with, the SEC via the EDGAR filing system (or any successor system thereto)):
(a) within 120 days after the end of each fiscal year of the Borrower, its audited consolidated balance sheet and related statements of operations, cash flows and retained earnings as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Deloitte & Touche LLP or other independent registered public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(c) The Administrative Agent and each Lead Arranger hereby informs the Lenders that each such Person is not undertaking to provide investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Letters of Credit, the Commitments, this Agreement and any other Loan Documents, (ii) may recognize a gain if it extended the Loans, the Letters of Credit or the Commitments for an amount less than the amount being paid for an interest in the Loans, the Letters of Credit or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent fees or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
Section 9.11 Sustainability Matters
Each party to this Agreement agrees that neither the Administrative Agent nor any Sustainability Structuring Agent shall have any responsibility for (or liability in respect of) reviewing, auditing or otherwise evaluating any calculation by the Borrower of any Sustainability Fee Adjustment or any Sustainability Margin Adjustment (or any of the data or computations that are part of or related to any such calculation) set forth in any Pricing Certificate (and the Administrative Agent may rely conclusively on any such certificate, without further inquiry).
ARTICLE 10. MISCELLANEOUS
Section 10.01 Notices
(a) Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile transmission, as follows:
(i) if to the Borrower:
Hawaiian Electric Company, Inc.
Attention: Ms. Tayne S. Y. Sekimura
Senior Vice President and Chief Financial Officer & Treasurer
1099 Alakea Street, Suite 2200 (if by hand delivery or
overnight courier)
Honolulu, Hawaii 96813
Telephone No.: 808-543-7840
P.O. Box 2750 (if by mail)
Honolulu, Hawaii 96840-0001
Facsimile No.: 808-203-1176 (if by facsimile)
tayne.sekimura@hawaiianelectric.com;
shannon.asato@hawaiianelectric.com; and
brent.noyama@hawaiianelectric.com (if by e-mail)
(ii) if to the Administrative Agent:
JPMorgan Chase Bank, N.A.
6135 Park South Dr Ste 500, Floor 02
Charlotte, NC 28210-3272
Attention: Johnny Michael
Email: johnny.michael@jpmorgan.com
Phone: 980-296-6594
with a copy to: Loan and Agency Servicing
Email: jpm.agency.cri@jpmorgan.com
and with a copy to:
JPMorgan Chase Bank, N.A.
2029 Century Park East, Floor 38
Los Angeles, CA 90067
Attention: Jeff Bailard
Telephone No.: 310-860-7256
Facsimile No.: 310-860-7110
(iii) if to the Issuing Bank:
JPMorgan Chase Bank, N.A.
131 South Dearborn, Floor 04
Chicago, IL 60603-5506
Attention: CB Trade
Execution Team
Email: cb.trade.execution.team@chase.com
and jpm.agency.cri@jpmorgan.com
(iv) if to the Swingline Lender:
JPMorgan Chase Bank, N.A.
131 South Dearborn, Floor
04
Chicago, IL 60603-5506
Attention: Johnny Michael
Email: johnny.michael@jpmorgan.com
Phone: 980-296-6594
with a copy to: Loan and Agency Servicing
Email: jpm.agency.cri@jpmorgan.com
(v) if to any other Credit Party, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through Approved Electronic Platforms, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b) Notices and other communications to the Lenders and the Issuing Bank hereunder may be delivered or furnished by using Approved Electronic Platforms pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices pursuant to Article II unless otherwise agreed by the Administrative Agent and the applicable Lender. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
(c) Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(d) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
Section 10.02 Waivers; Amendments
(a) No failure or delay by any Credit Party in exercising any right or power under any Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Credit Parties under the Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether any Credit Party may have had notice or knowledge of such Default at the time.
(b) Except as provided in Section 3.04(b) and Section 3.04(c), neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Borrower and the Required Lenders or by the Borrower and the Administrative Agent with the consent of the Required Lenders, provided that no such agreement shall:
(i) increase the Commitment of any Lender without the written consent of such Lender,
(ii) reduce the principal amount of any Loan or Reimbursement Obligations, or reduce the rate of interest thereon (other than (x) the imposition of additional interest under Section 3.01(cd) and (y) for the avoidance of doubt pursuant to the provisions of the penultimate paragraph of Schedule 1.02), or reduce any fees or other amounts payable under the Loan Documents, without the written consent of each Lender directly affected thereby,
(iii) postpone the scheduled date of payment of the principal amount of any Loan, or any interest thereon, or any fees or other amounts payable under the Loan Documents, or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date of expiration of any Commitment, without the written consent of each Credit Party directly affected thereby,
(iv) change any provision hereof in a manner that would alter the ratable reduction of Revolving Commitments or the pro rata sharing of payments required by any Loan Document, without the written consent of each Credit Party,
(v) change the payment waterfall provisions of Section 2.12(b) without the written consent of each Credit Party, or
(vi) change any of the provisions of this Section or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender,
and provided, further, that no such agreement shall amend, modify or otherwise affect the rights or duties of (A) the Administrative Agent hereunder without the prior written consent of the Administrative Agent, (B) the Issuing Bank hereunder without the prior written consent of the Issuing Bank and (C) the Swingline Lender hereunder without the prior written consent of the Swingline Lender (it being understood that any change to Section 2.12 shall require the consent of the Administrative Agent, the Issuing Bank and the Swingline Lender); and provided further that no such agreement shall amend or modify the provisions of Section 2.09, Section 2.10 or Section 2.11 without the prior written consent of the Administrative Agent and the Issuing Bank. Notwithstanding the foregoing, no consent with respect to any amendment, waiver or other modification of this Agreement shall be required of any Defaulting Lender, except with respect to any amendment, waiver or other modification referred to in clause (i), (ii) or (iii) of the first proviso of this paragraph and then only in the event such Defaulting Lender shall be directly affected by such amendment, waiver or other modification.
EX-31.1
4
a01hei2q23ex311.htm
EX-31.1
Document
HEI Exhibit 31.1
CERTIFICATION
I, Scott W. H. Seu, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2023 of Hawaiian Electric Industries, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Date: August 7, 2023 |
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/s/ Scott W. H. Seu |
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Scott W. H. Seu |
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President and Chief Executive Officer |
EX-31.2
5
a02hei2q23ex312.htm
EX-31.2
Document
HEI Exhibit 31.2
CERTIFICATION
I, Paul K. Ito, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2023 of Hawaiian Electric Industries, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Date: August 7, 2023 |
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/s/ Paul K. Ito |
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Paul K. Ito |
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Executive Vice President, Chief Financial Officer |
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and Treasurer |
EX-31.3
6
a04heco2q23ex313.htm
EX-31.3
Document
Hawaiian Electric Exhibit 31.3
CERTIFICATION
I, Shelee M. T. Kimura, certify that:
1. I have reviewed this report on Form 10-Q for the quarter ended June 30, 2023 of Hawaiian Electric Company, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Date: August 7, 2023 |
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/s/ Shelee M. T. Kimura |
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Shelee M. T. Kimura |
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President and Chief Executive Officer |
EX-31.4
7
a05heco2q23ex314.htm
EX-31.4
Document
Hawaiian Electric Exhibit 31.4
CERTIFICATION
I, Tayne S. Y. Sekimura, certify that:
1.I have reviewed this report on Form 10-Q for the quarter ended June 30, 2023 of Hawaiian Electric Company, Inc. (“registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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| Date: August 7, 2023 |
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/s/ Tayne S. Y. Sekimura |
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Tayne S. Y. Sekimura |
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Senior Vice President, Chief Financial Officer and Treasurer |
EX-32.1
8
a03hei2q23ex321.htm
EX-32.1
Document
HEI Exhibit 32.1
Hawaiian Electric Industries, Inc.
Certification Pursuant to
18 U.S.C. Section 1350
In connection with the Quarterly Report of Hawaiian Electric Industries, Inc. (HEI) on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission (the Report), each of Scott W. H. Seu and Paul K. Ito, Chief Executive Officer and Chief Financial Officer, respectively, of HEI, certify, pursuant to 18 U.S.C. Section 1350, that to the best of his knowledge:
(1) The Report complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of HEI and its subsidiaries as of, and for, the periods presented in this report.
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| Date: August 7, 2023 |
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| /s/ Scott W. H. Seu |
| Scott W. H. Seu |
| President and Chief Executive Officer |
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| /s/ Paul K. Ito |
| Paul K. Ito |
| Executive Vice President, Chief Financial Officer |
| and Treasurer |
A signed original of this written statement has been provided to HEI and will be retained by HEI and furnished to the Securities and Exchange Commission or its staff upon request.
EX-32.2
9
a06heco2q23ex322.htm
EX-32.2
Document
Hawaiian Electric Exhibit 32.2
Hawaiian Electric Company, Inc.
Certification Pursuant to
18 U.S.C. Section 1350
In connection with the Quarterly Report of Hawaiian Electric Company, Inc. (Hawaiian Electric) on Form 10-Q for the quarter ended June 30, 2023, as filed with the Securities and Exchange Commission (the Hawaiian Electric Report), each of Shelee M. T. Kimura and Tayne S. Y. Sekimura, Chief Executive Officer and Chief Financial Officer, respectively, of Hawaiian Electric, certify, pursuant to 18 U.S.C. Section 1350, that to the best of her knowledge:
(1) The Hawaiian Electric Report complies with the requirements of section 13(a) of the Securities Exchange Act of 1934, as amended; and
(2) The Hawaiian Electric information contained in the Hawaiian Electric Report fairly presents, in all material respects, the financial condition and results of operations of Hawaiian Electric and its subsidiaries as of, and for, the periods presented in this report.
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| Date: August 7, 2023 |
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| /s/ Shelee M. T. Kimura |
| Shelee M. T. Kimura |
| President and Chief Executive Officer |
| |
| /s/ Tayne S. Y. Sekimura |
| Tayne S. Y. Sekimura |
| Senior Vice President, Chief Financial Officer and Treasurer |
A signed original of this written statement has been provided to Hawaiian Electric and will be retained by Hawaiian Electric and furnished to the Securities and Exchange Commission or its staff upon request.
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