10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Exact Name of Registrant as Specified in Its Charter	Commission File Number	I.R.S. Employer Identification No.
HAWAIIAN ELECTRIC INDUSTRIES, INC.	1-8503	99-0208097
	and Principal Subsidiary
HAWAIIAN ELECTRIC COMPANY, INC.	1-4955	99-0040500

State of Hawaii

(State or other jurisdiction of incorporation or organization)

900 Richards Street, 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)

None

(Former name, former address and former fiscal year, if changed since last report)

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.    Yes x   No ¨

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class of Common Stock	Outstanding August 1, 2002
Hawaiian Electric Industries, Inc. (Without Par Value)	36,402,976 Shares
Hawaiian Electric Company, Inc. ($6 2/3 Par Value)	12,805,843 Shares (not publicly traded)

HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

FORM 10-Q—QUARTER ENDED JUNE 30, 2002

INDEX

		Page No.
Glossary of terms		ii
Forward-looking statements		v
PART I.    FINANCIAL INFORMATION
Item 1.	Financial statements
	Hawaiian Electric Industries, Inc. and subsidiaries
	Consolidated balance sheets (unaudited)—June 30, 2002 and December 31, 2001	1
	Consolidated statements of income (unaudited)—three and six months ended June 30, 2002 and 2001	2
	Consolidated statements of changes in stockholders’ equity (unaudited)—six months ended June 30, 2002 and 2001	3
	Consolidated statements of cash flows (unaudited)—six months ended June 30, 2002 and 2001	4
	Notes to consolidated financial statements (unaudited)	5
	Hawaiian Electric Company, Inc. and subsidiaries
	Consolidated balance sheets (unaudited)—June 30, 2002 and December 31, 2001	14
	Consolidated statements of income (unaudited)—three and six months ended June 30, 2002 and 2001	15
	Consolidated statements of retained earnings (unaudited)—three and six months ended June 30, 2002 and 2001	15
	Consolidated statements of cash flows (unaudited)—six months ended June 30, 2002 and 2001	16
	Notes to consolidated financial statements (unaudited)	17
Item 2.	Management’s discussion and analysis of financial condition and results of operations	33
Item 3.	Quantitative and qualitative disclosures about market risk	50
PART II.    OTHER INFORMATION
Item 1.	Legal proceedings	51
Item 2.	Changes in securities and use of proceeds	51
Item 5.	Other information	51
Item 6.	Exhibits and reports on Form 8-K	54
Signatures		55

i

HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

FORM 10-Q—QUARTER ENDED JUNE 30, 2002

GLOSSARY OF TERMS

Terms	Definitions
AFUDC	Allowance for funds used during construction
ASB	American Savings Bank, F.S.B., a wholly owned subsidiary of HEI Diversified, Inc. and parent company of American Savings Investment Services Corp. (and its subsidiary since March 15, 2001, Bishop Insurance Agency of Hawaii, Inc.), ASB Service Corporation, AdCommunications, Inc., American Savings Mortgage Co., Inc. and ASB Realty Corporation
BLNR	Board of Land and Natural Resources of the State of Hawaii
CDUP	Conservation District Use Permit
CEPALCO	Cagayan Electric Power & Light Co., Inc.
Company	Hawaiian Electric Industries, Inc. and its direct and indirect subsidiaries, including, without limitation, Hawaiian Electric Company, Inc., Maui Electric Company, Limited, Hawaii Electric Light Company, Inc., HECO Capital Trust I, HECO Capital Trust II, HEI Diversified, Inc., American Savings Bank, F.S.B. and its subsidiaries, Pacific Energy Conservation Services, Inc., HEI District Cooling, Inc., ProVision Technologies, Inc., HEI Properties, Inc., HEI Leasing, Inc., Hycap Management, Inc., Hawaiian Electric Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital Trust III, HEI Preferred Funding, LP, The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.), HEI Power Corp. and its subsidiaries and Malama Pacific Corp. and its subsidiaries
Consumer Advocate	Division of Consumer Advocacy, Department of Commerce and Consumer Affairs of the State of Hawaii
D&O	Decision and order
DLNR	Department of Land and Natural Resources of the State of Hawaii
DOH	Department of Health of the State of Hawaii
DRIP	HEI Dividend Reinvestment and Stock Purchase Plan
EAB	Environmental Appeals Board
EAPRC	East Asia Power Resources Corporation
Enserch	Enserch Development Corporation
EPA	Environmental Protection Agency—federal

ii

GLOSSARY OF TERMS, continued

Terms	Definitions
EPHE	EPHE Philippines Energy Company, Inc.
FASB	Financial Accounting Standards Board
Federal	U.S. Government
FHLB	Federal Home Loan Bank
GAAP	Accounting principles generally accepted in the United States of America
HCPC	Hilo Coast Power Company
HECO	Hawaiian Electric Company, Inc., an electric utility subsidiary of Hawaiian Electric Industries, Inc. and parent company of Maui Electric Company, Limited, Hawaii Electric Light Company, Inc., HECO Capital Trust I and HECO Capital Trust II
HEI	Hawaiian Electric Industries, Inc., direct parent company of Hawaiian Electric Company, Inc., HEI Diversified, Inc., Pacific Energy Conservation Services, Inc., HEI District Cooling, Inc., ProVision Technologies, Inc., HEI Properties, Inc., HEI Leasing, Inc., Hycap Management, Inc., Hawaiian Electric Industries Capital Trust I, Hawaiian Electric Industries Capital Trust II, Hawaiian Electric Industries Capital Trust III, The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp.), HEI Power Corp. and Malama Pacific Corp.
HEIDI	HEI Diversified, Inc., a wholly owned subsidiary of Hawaiian Electric Industries, Inc. and the parent company of American Savings Bank, F.S.B.
HEIII	HEI Investments, Inc. (formerly HEI Investment Corp.), a subsidiary of HEI Power Corp.
HEIPC	HEI Power Corp., a wholly owned subsidiary of Hawaiian Electric Industries, Inc., and the parent company of several subsidiaries. On October 23, 2001, the HEI Board of Directors adopted a formal plan to exit the international power business (engaged in by HEIPC and its subsidiaries) over the next year.
HEIPC Group	HEI Power Corp. and its subsidiaries
HELCO	Hawaii Electric Light Company, Inc., a wholly owned electric utility subsidiary of Hawaiian Electric Company, Inc.
HPG	HEI Power Corp. Guam, a wholly owned subsidiary of HEI Power Corp.
HTB	Hawaiian Tug & Barge Corp. On November 10, 1999, HTB sold substantially all of its operating assets and the stock of Young Brothers, Limited, and changed its name to The Old Oahu Tug Service, Inc.

iii

GLOSSARY OF TERMS, continued

Terms	Definitions
IPP	Independent power producer
KCP	Kawaihae Cogeneration Partners
KWH	Kilowatthour
MECO	Maui Electric Company, Limited, a wholly owned electric utility subsidiary of Hawaiian Electric Company, Inc.
MW	Megawatt
OTS	Office of Thrift Supervision, Department of Treasury
PBR	Performance-based rate-making
PRPs	Potentially responsible parties
PUC	Public Utilities Commission of the State of Hawaii
ROACE	Return on average common equity
SEC	Securities and Exchange Commission
SFAS	Statement of Financial Accounting Standards
TOOTS	The Old Oahu Tug Service, Inc. (formerly Hawaiian Tug & Barge Corp. (HTB)), a wholly owned subsidiary of Hawaiian Electric Industries, Inc. On November 10, 1999, HTB sold Young Brothers, Limited and substantially all of HTB’s operating assets and changed its name
YB	Young Brothers, Limited, which was sold on November 10, 1999, was formerly a wholly owned subsidiary of Hawaiian Tug & Barge Corp.

iv

FORWARD-LOOKING STATEMENTS

This report and other presentations made by Hawaiian Electric Industries, Inc. (HEI) and its 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 “expects,” “anticipates,” “intends,” “plans,” “believes,” “predicts,” “estimates” or similar expressions. In addition, any statements concerning future financial performance (including future revenues, expenses, earnings or losses or growth rates), ongoing business strategies or prospects and possible future actions, which may be provided by management, 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 assumptions about HEI and its subsidiaries, the performance of the industries in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.

Risks, uncertainties and other important factors that could cause actual results to differ materially from those in forward-looking statements and from historical results include, but are not limited to, the following:

• the effects of international, national and local economic conditions, including the condition of the Hawaii tourist and construction industries and the Hawaii and California housing markets;

• the effects of weather and natural disasters;

• the effects of terrorist acts and the war on terrorism;

• the timing and extent of changes in interest rates;

• the risks inherent in changes in the value of and market for securities available for sale;

• product demand and market acceptance risks;

• increasing competition in the electric utility and banking industries;

• capacity and supply constraints or difficulties;

• fuel oil price changes, performance by suppliers of their fuel oil delivery obligations and the continued availability to the electric utilities of their energy cost adjustment clauses;

• the ability of independent power producers to deliver the firm capacity anticipated in their power purchase agreements;

• the ability of the electric utilities to negotiate favorable collective bargaining agreements;

• new technological developments that could render the operations of HEI’s subsidiaries less competitive or obsolete;

• federal, state and international governmental and regulatory actions, including changes in laws, rules and regulations applicable to HEI and its subsidiaries; decisions by the Hawaii Public Utilities Commission (PUC) in rate cases and other proceedings and by other agencies and courts on land use, environmental and other permitting issues; required corrective actions (such as with respect to environmental conditions, capital adequacy and business practices); changes in taxation; and changes in accounting principles;

• the risks associated with the geographic concentration of HEI’s businesses;

• the effects of changes in accounting principles applicable to HEI and its subsidiaries;

• the effects of changes by securities rating agencies in the ratings of the securities of HEI and Hawaiian Electric Company, Inc. (HECO);

• the results of financing efforts;

• the ultimate net proceeds from the disposition of assets and settlement of liabilities of discontinued or sold operations;

• the ultimate outcome of tax positions taken by HEI and its subsidiaries, including with respect to its real estate investment trust subsidiary and its discontinued operations;

• the risks of suffering losses that are uninsured; and

• other risks or uncertainties described elsewhere in this report and in other periodic reports previously and subsequently filed by HEI and/or HECO with the Securities and Exchange Commission (SEC).

Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made.

v

PART I—FINANCIAL INFORMATION

Item 1.    Financial statements

Hawaiian Electric Industries, Inc. and subsidiaries

Consolidated balance sheets (unaudited)

(in thousands)				June 30, 2002					December 31, 2001
Assets
Cash and equivalents				$	243,873				$	450,827
Accounts receivable and unbilled revenues, net					172,215					164,124
Available-for-sale investment and mortgage-related securities					1,943,048					1,613,710
Available-for-sale mortgage-related securities pledged for repurchase agreements					833,390					756,749
Held-to-maturity investment securities					86,735					84,211
Loans receivable, net					2,813,086					2,857,622
Property, plant and equipment, net of accumulated depreciation of $1,386,455 and $1,332,979					2,059,582					2,067,503
Regulatory assets					108,153					111,376
Other					323,610					309,874
Goodwill and other intangibles					100,294					101,947
				$	8,683,986				$	8,517,943
Liabilities and stockholders’ equity
Liabilities
Accounts payable				$	120,735				$	119,850
Deposit liabilities					3,737,016					3,679,586
Short-term borrowings					50,439					—
Securities sold under agreements to repurchase					693,839					683,180
Advances from Federal Home Loan Bank					1,097,752					1,032,752
Long-term debt					1,088,576					1,145,769
Deferred income taxes					191,718					185,436
Contributions in aid of construction					213,531					213,557
Other					257,993					293,742
					7,451,599					7,353,872
HEI—and HECO-obligated preferred securities of trust subsidiaries directly or indirectly holding solely HEI and HEI-guaranteed and HECO and HECO-guaranteed subordinated debentures					200,000					200,000
Preferred stock of subsidiaries—not subject to mandatory redemption					34,406					34,406
					234,406					234,406
Stockholders’ equity
Preferred stock, no par value, authorized 10,000 shares; issued: none					—					—
Common stock, no par value, authorized 100,000 shares; issued and outstanding: 36,345 shares and 35,600 shares					817,209					787,374
Retained earnings					161,099					147,837
Accumulated other comprehensive income (loss)
Net unrealized gains (losses) on securities	$	20,506				$	(5,181	)
Minimum pension liability		(833	)		19,673		(365	)		(5,546	)
					997,981					929,665
				$	8,683,986					8,517,943

See accompanying notes to consolidated financial statements.

1

HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001
	(in thousands, except per share amounts and ratio of earnings to fixed charges)
Revenues
Electric utility	$	307,676		$	313,651		$	586,007		$	632,074
Bank		102,069			112,250			200,911			228,004
Other		(743	)		1,438			(480	)		598
		409,002			427,339			786,438			860,676
Expenses
Electric utility		256,723			263,623			489,450			534,036
Bank		77,700			94,678			154,371			190,283
Other		5,094			4,338			9,263			6,723
		339,517			362,639			653,084			731,042
Operating income (loss)
Electric utility		50,953			50,028			96,557			98,038
Bank		24,369			17,572			46,540			37,721
Other		(5,837	)		(2,900	)		(9,743	)		(6,125	)
		69,485			64,700			133,354			129,634
Interest expense—other than bank		(18,340	)		(19,939	)		(36,867	)		(39,524	)
Allowance for borrowed funds used during construction		488			511			843			1,187
Preferred stock dividends of subsidiaries		(502	)		(501	)		(1,003	)		(1,003	)
Preferred securities distributions of trust subsidiaries		(4,009	)		(4,009	)		(8,018	)		(8,018	)
Allowance for equity funds used during construction		1,042			955			1,815			2,220
Income before income taxes		48,164			41,717			90,124			84,496
Income taxes		17,180			15,605			32,221			30,620
Income from continuing operations		30,984			26,112			57,903			53,876
Discontinued operations—loss from operations, net of income taxes		—			(524	)		—			(543	)
Net income	$	30,984		$	25,588		$	57,903		$	53,333
Basic earnings (loss) per common share
Continuing operations	$	0.86		$	0.78		$	1.61		$	1.62
Discontinued operations		—			(0.02	)		—			(0.02	)
	$	0.86		$	0.76		$	1.61		$	1.60
Diluted earnings (loss) per common share
Continuing operations	$	0.85		$	0.78		$	1.60		$	1.61
Discontinued operations		—			(0.02	)		—			(0.02	)
	$	0.85		$	0.76		$	1.60		$	1.59
Dividends per common share	$	0.62		$	0.62		$	1.24		$	1.24
Weighted-average number of common shares outstanding		36,189			33,481			36,005			33,321
Dilutive effect of stock options and dividend equivalents		217			165			198			156
Adjusted weighted-average shares		36,406			33,646			36,203			33,477
Ratio of earnings to fixed charges (SEC method)
Excluding interest on ASB deposits								2.03			1.79
Including interest on ASB deposits								1.71			1.49

See accompanying notes to consolidated financial statements.

2

HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

	Common stock			Retained earnings			Accumulated other comprehensive income (loss)			Total
	Shares	Amount
	(in thousands, except per share amounts)
Balance, December 31, 2001	35,600	$	787,374	$	147,837		$	(5,546	)	$	929,665
Comprehensive income:
Net income	—		—		57,903			—			57,903
Net unrealized gains on securities:
Net unrealized gains arising during the period, net of taxes of $8,799	—		—		—			24,858			24,858
Add: reclassification adjustment for net losses included in net income, net of tax benefits of $554	—		—		—			829			829
Minimum pension liability adjustment, net of tax benefits of $288	—		—		—			(468	)		(468	)
Comprehensive income	—		—		57,903			25,219			83,122
Issuance of common stock	745		29,835		—			—			29,835
Common stock dividends ($1.24 per share)	—		—		(44,641	)		—			(44,641	)
Balance, June 30, 2002	36,345	$	817,209	$	161,099		$	19,673		$	997,981
Balance, December 31, 2000	32,991	$	691,925	$	147,324		$	(190	)	$	839,059
Comprehensive income:
Net income	—		—		53,333			—			53,333
Net unrealized losses on securities:
Cumulative effect of the adoption of SFAS No. 133, net of tax benefits of $460	—		—		—			(559	)		(559	)
Net unrealized losses arising during the period, net of tax benefits of $3,645	—		—		—			(6,478	)		(6,478	)
Add: reclassification adjustment for net losses included in net income, net of tax benefits of $758	—		—		—			1,319			1,319
Minimum pension liability adjustment, net of tax benefits of $29	—		—		—			(46	)		(46	)
Comprehensive income	—		—		53,333			(5,764	)		47,569
Issuance of common stock	645		23,279		—			—			23,279
Common stock dividends ($1.24 per share)	—		—		(41,288	)		—			(41,288	)
Balance, June 30, 2001	33,636	$	715,204	$	159,369		$	(5,954	)	$	868,619

See accompanying notes to consolidated financial statements.

3

HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six months ended June 30
	2002			2001
	(in thousands)
Cash flows from operating activities
Income from continuing operations	$	57,903		$	53,876
Adjustments to reconcile income from continuing operations to net cash provided by operating activities
Depreciation of property, plant and equipment		57,619			54,788
Other amortization		11,700			8,237
Provision for loan losses		6,500			6,000
Deferred income taxes		(2,808	)		(1,238	)
Allowance for equity funds used during construction		(1,815	)		(2,220	)
Changes in assets and liabilities
Decrease (increase) in accounts receivable and unbilled revenues, net		(8,091	)		23,756
Increase (decrease) in accounts payable		885			(3,172	)
Decrease in taxes accrued		(22,181	)		(32,965	)
Changes in other assets and liabilities		(13,831	)		(20,920	)
Net cash provided by operating activities		85,881			86,142
Cash flows from investing activities
Proceeds from sale of investment securities		—			72,003
Available-for-sale mortgage-related securities purchased		(1,085,911	)		(407,958	)
Principal repayments on available-for-sale mortgage-related securities		633,150			232,899
Proceeds from sale of mortgage-related securities		68,586			309,444
Loans receivable originated and purchased		(505,780	)		(474,578	)
Principal repayments on loans receivable		438,881			372,598
Proceeds from sale of loans		101,204			117,445
Capital expenditures		(52,159	)		(53,515	)
Other		10,418			9,222
Net cash provided by (used in) investing activities		(391,611	)		177,560
Cash flows from financing activities
Net increase in deposit liabilities		57,430			74,999
Net increase (decrease) in short-term borrowings with original maturities of three months or less		50,439			(38,920	)
Repayment of other short-term borrowings		—			(3,000	)
Net increase in retail repurchase agreements		4,920			2,315
Proceeds from securities sold under agreements to repurchase		836,711			485,245
Repayments of securities sold under agreements to repurchase		(829,750	)		(520,048	)
Proceeds from advances from Federal Home Loan Bank		128,000			194,100
Principal payments on advances from Federal Home Loan Bank		(63,000	)		(249,100	)
Proceeds from issuance of long-term debt		7,206			111,580
Repayment of long-term debt		(64,500	)		(35,500	)
Preferred securities distributions of trust subsidiaries		(8,018	)		(8,018	)
Net proceeds from issuance of common stock		21,591			14,947
Common stock dividends		(36,459	)		(33,225	)
Other		(8,195	)		(12,812	)
Net cash provided by (used in) financing activities		96,375			(17,437	)
Net cash provided by discontinued operations		2,401			34,827
Net increase (decrease) in cash and equivalents		(206,954	)		281,092
Cash and equivalents, beginning of period		450,827			212,783
Cash and equivalents, end of period	$	243,873		$	493,875

See accompanying notes to consolidated financial statements.

4

HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1)  Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with 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 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in HEI’s Annual Report on SEC Form 10-K for the year ended December 31, 2001 and the consolidated financial statements and the notes thereto in HEI’s Quarterly Report on SEC Form 10-Q for the quarter ended March 31, 2002.

In the opinion of HEI’s management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to present fairly the Company’s financial position as of June 30, 2002 and December 31, 2001, the results of its operations for the three and six months ended June 30, 2002 and 2001, and its cash flows for the six months ended June 30, 2002 and 2001. All such adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

When required, certain reclassifications are made to prior periods’ consolidated financial statements to conform to the 2002 presentation.

5

(2)  Segment financial information

Segment financial information was as follows:

	Electric Utility		Bank		Other			Total
	(in thousands)
Three months ended June 30, 2002
Revenues from external customers	$	307,674	$	102,069	$	(741	)	$	409,002
Intersegment revenues (eliminations)		2		–		(2	)		–
Revenues		307,676		102,069		(743	)		409,002
Profit (loss)*		38,958		22,973		(13,767	)		48,164
Income taxes (benefit)		15,108		8,161		(6,089	)		17,180
Income (loss) from continuing operations		23,850		14,812		(7,678	)		30,984
Six months ended June 30, 2002
Revenues from external customers	$	586,004	$	200,911	$	(477	)	$	786,438
Intersegment revenues (eliminations)		3		–		(3	)		–
Revenues		586,007		200,911		(480	)		786,438
Profit (loss)*		72,186		43,746		(25,808	)		90,124
Income taxes (benefit)		27,977		15,583		(11,339	)		32,221
Income (loss) from continuing operations		44,209		28,163		(14,469	)		57,903
Assets (at June 30, 2002, including net assets of discontinued operations)		2,398,843		6,171,257		113,886			8,683,986
Three months ended June 30, 2001
Revenues from external customers	$	313,650	$	112,250	$	1,439		$	427,339
Intersegment revenues (eliminations)		1		–		(1	)		–
Revenues		313,651		112,250		1,438			427,339
Profit (loss)*		37,157		16,165		(11,605	)		41,717
Income taxes (benefit)		14,441		5,958		(4,794	)		15,605
Income (loss) from continuing operations		22,716		10,207		(6,811	)		26,112
Six months ended June 30, 2001
Revenues from external customers	$	632,071	$	228,004	$	601		$	860,676
Intersegment revenues (eliminations)		3		–		(3	)		–
Revenues		632,074		228,004		598			860,676
Profit (loss)*		72,158		34,902		(22,564	)		84,496
Income taxes (benefit)		28,017		12,820		(10,217	)		30,620
Income (loss) from continuing operations		44,141		22,082		(12,347	)		53,876
Assets (at June 30, 2001, including net assets of discontinued operations)		2,377,122		5,994,192		176,809			8,548,123

*Income (loss) from continuing operations before income taxes.

Revenues attributed to foreign countries and long-lived assets located in foreign countries as of the dates and for the periods identified above were not material.

(3)  Electric utility subsidiary

For HECO’s consolidated financial information, including its commitments and contingencies, see pages 14 through 32.

6

(4)  Bank subsidiary

Selected financial information

American Savings Bank, F.S.B. and subsidiaries

Consolidated balance sheet data

	June 30, 2002		December 31, 2001
	(in thousands)
Assets
Cash and equivalents	$	218,039	$	425,595
Available-for-sale mortgage-related securities		1,930,618		1,598,100
Available-for-sale mortgage-related securities pledged for repurchase agreements		833,390		756,749
Held-to-maturity investment securities		86,735		84,211
Loans receivable, net		2,813,086		2,857,622
Other		189,095		187,224
Goodwill and other intangibles		100,294		101,947
	$	6,171,257	$	6,011,448
Liabilities and equity
Deposit liabilities—noninterest bearing	$	294,988	$	246,633
Deposit liabilities—interest bearing		3,442,028		3,432,953
Securities sold under agreements to repurchase		693,839		683,180
Advances from Federal Home Loan Bank		1,097,752		1,032,752
Other		120,353		130,494
		5,648,960		5,526,012
Minority interests and preferred stock of subsidiary		3,498		3,409
Preferred stock		75,000		75,000
Common stock		243,315		242,786
Retained earnings		179,362		165,564
Accumulated other comprehensive income (loss)		21,122		(1,323	)
		443,799		407,027
	$	6,171,257	$	6,011,448

7

AMERICAN SAVINGS BANK, F.S.B. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENT DATA

	Three months ended June 30,					Six months ended June 30,
	2002		2001			2002		2001
	(in thousands)
Interest and dividend income
Interest and fees on loans	$	50,468	$	60,766		$	102,090	$	124,905
Interest on mortgage-related securities		36,325		38,393			68,131		76,195
Interest and dividends on investment securities		1,873		3,432			4,099		9,092
		88,666		102,591			174,320		210,192
Interest expense
Interest on deposit liabilities		19,325		31,233			39,498		63,226
Interest on Federal Home Loan Bank advances		14,440		18,070			28,422		37,727
Interest on securities sold under repurchase agreements		5,612		7,509			9,573		16,359
		39,377		56,812			77,493		117,312
Net interest income		49,289		45,779			96,827		92,880
Provision for loan losses		3,000		3,000			6,500		6,000
Net interest income after provision for loan losses		46,289		42,779			90,327		86,880
Other income
Fees from other financial services		5,345		4,318			9,965		8,082
Fee income on deposit liabilities		4,151		2,211			7,626		4,404
Fee income on other financial products		2,368		2,428			5,055		3,568
Fee income on loans serviced for others		100		487			513		1,131
Gain on sale of securities		117		4,035			273		3,999
Loss on investment		—		(5,417	)		—		(6,164	)
Other income		1,322		1,597			3,159		2,792
		13,403		9,659			26,591		17,812
General and administrative expenses
Compensation and employee benefits		15,276		13,111			29,293		25,557
Office occupancy		7,376		7,109			14,491		14,099
Service bureau		2,664		2,419			5,340		4,844
Consulting		1,146		1,097			2,792		1,627
Amortization of goodwill and core deposit intangibles*		432		1,677			865		3,345
Other		8,429		9,453			17,597		17,499
		35,323		34,866			70,378		66,971
Income before minority interests and income taxes		24,369		17,572			46,540		37,721
Minority interests		44		55			89		114
Income taxes		8,161		5,958			15,583		12,820
Income before preferred stock dividends		16,164		11,559			30,868		24,787
Preferred stock dividends		1,352		1,352			2,705		2,705
Net income for common stock	$	14,812	$	10,207		$	28,163	$	22,082

* See note (9) of notes to consolidated financial statements for a discussion of goodwill amortization.

At June 30, 2002, ASB had commitments to borrowers for undisbursed loan funds and unused lines and letters of credit of $0.7 billion.

8

Disposition of certain debt securities

In June 2000, the Office of Thrift Supervision (OTS) advised American Savings Bank, F.S.B. (ASB) that four series of trust certificates, in the original aggregate principal amount of $114 million, were impermissible investments under regulations applicable to federal savings banks and subsequently directed that ASB dispose of the securities. The original trust certificates were purchased through two brokers and represented (i) the right to receive the principal amount of the trust certificates at maturity from an Aaa-rated swap counterparty (principal swap) and (ii) the right to receive the cash flow received on subordinated notes (income class notes). As a result, ASB recognized interest income on these securities on a cash basis and reclassified these trust certificates from held-to-maturity status to available-for-sale status in its financial statements, recognizing a $3.8 million net loss ($5.8 million pretax) on the writedown of these securities to their then-current estimated fair value. In the first six months of 2001, ASB recognized an additional $4.0 million net loss ($6.2 million pretax) on the writedown of three series of these trust certificates to their then-current estimated fair value. In April 2001, ASB sold one issue of trust certificates for $30 million, an amount approximating the original purchase price.

After demanding that PaineWebber Incorporated, the broker through whom the other three issues of trust certificates were purchased, buy them back from ASB or rescind the transaction, ASB filed a lawsuit against PaineWebber Incorporated seeking rescission or other remedies, including recovery of any losses ASB (directly and through its indemnification of HEI) may incur as a result of its purchase and ownership of these trust certificates.

To bring ASB into compliance with the OTS direction, ASB directed the trustees to terminate the principal swaps on the three issues and received $43 million from the swaps. Prior to terminating the swaps, ASB had received $2 million of cash from the three issues of trust certificates. After terminating the swaps, the related income class notes were sold by the swap counterparty to HEI. In May 2001, HEI purchased two series of the income class notes for approximately $21 million and, in July 2001, HEI purchased the third series of income class notes for approximately $7 million. As of June 30, 2002, HEI had received $7.6 million of cash from the income class notes.

Due to the uncertainty of future cash flows, HEI is accounting for the income class notes under the cost recovery method of accounting. In the second half of 2001 and the first half of 2002, HEI recognized a $5.6 million ($8.7 million pretax) and a $1.2 million ($1.9 million pretax), respectively, net loss on the writedown of the three income class notes to their then-current estimated fair value based upon an independent third party valuation that is updated quarterly. As of June 30, 2002, the fair value and carrying value (including valuation adjustments) of the three income class notes were $12.4 million. HEI could incur additional losses from the ultimate disposition of these income class notes from further “other-than-temporary” declines in their fair value. ASB has agreed to indemnify HEI against losses related to these income class notes, but the indemnity obligation is payable solely out of any recoveries achieved in the litigation against PaineWebber Incorporated. In 2002, PaineWebber Incorporated filed a counterclaim alleging misrepresentation and fraud among other allegations. The ultimate outcome of this litigation cannot be determined at this time.

ASB Realty Corporation

In March 1998, ASB formed a subsidiary, ASB Realty Corporation, which elects to be taxed as a real estate investment trust. This reorganization has reduced Hawaii bank franchise taxes, net of federal income taxes, of HEI Diversified, Inc. (HEIDI) and ASB by $2.1 million for the six months ended June 30, 2002 and $12.3 million for prior years. Although a State of Hawaii Department of Taxation tax auditor has challenged ASB’s position that it is entitled to a dividends received deduction on dividends paid to it by ASB Realty Corporation, ASB believes that its tax position is proper.

9

(5)  Discontinued operations

HEI Power Corp. (HEIPC)

On October 23, 2001, the HEI Board of Directors adopted a formal plan to exit the international power business (engaged in by HEIPC and its subsidiaries, the HEIPC Group) over the next year. HEIPC management has been carrying out a program to dispose of all of the HEIPC Group’s remaining projects and investments. Accordingly, the HEIPC Group has been reported as a discontinued operation in the Company’s consolidated statements of income.

Guam project

In September 1996, HEI Power Corp. Guam (HPG) entered into an energy conversion agreement for approximately 20 years with the Guam Power Authority, pursuant to which HPG repaired and operated two oil-fired 25 megawatt (MW) (net) units in Tanguisson, Guam. In November 2001, HEI sold HPG for a nominal gain.

China project

In 1998 and 1999, the HEIPC Group acquired what became a 75% interest in a joint venture, Baotou Tianjiao Power Co., Ltd., formed to construct, own and operate a 200 MW (net) coal-fired power plant to be located in Inner Mongolia. The power plant was intended to be built “inside the fence” for Baotou Iron & Steel (Group) Co., Ltd. The project received approval from both the national and Inner Mongolia governments. However, the Inner Mongolia Power Company, which owns and operates the electricity grid in Inner Mongolia, caused a delay of the project by failing to enter into a satisfactory interconnection arrangement with the joint venture. The Inner Mongolia Power Company was seeking to limit the joint venture’s load, which is inconsistent with the terms of the project approvals and the power purchase contract. Upon appeal to the Inner Mongolia government, the Inner Mongolia Economic and Trade Committee (the regulator of the electric utility industry) refused to enforce the HEIPC Group’s rights associated with the approved project. The HEIPC Group determined that a satisfactory interconnection arrangement could not be obtained and is not proceeding with the project. (An indirect subsidiary of HEIPC has a conditional, nonrecourse commitment to make an additional investment in Baotou Tianjiao Power Co., Ltd., but it is HEIPC’s position that the conditions to this commitment have not been satisfied and no further investment will be made.) In the third quarter of 2001, the HEIPC Group wrote off its remaining investment of approximately $24 million in the project. The HEIPC Group is continuing to pursue recovery of the costs incurred in connection with the joint venture interest; however, there can be no assurance that any amounts will be recovered.

Philippines investments

In March 2000, the HEIPC Group acquired a 50% interest in EPHE Philippines Energy Company, Inc. (EPHE), an indirect subsidiary of El Paso Corporation, for $87.5 million. EPHE then owned approximately 91.7% of the common shares of East Asia Power Resources Corporation (EAPRC), a Philippines holding company primarily engaged in the electric generation business in Manila and Cebu through its subsidiaries.

Due to the equity losses of $24.1 million incurred in 2000 from the investment in EPHE and the changes in the political and economic conditions related to the investment (primarily devaluation of the Philippine peso and increase in fuel oil prices), management determined that the investment in EAPRC was impaired and, on December 31, 2000, wrote off the remaining $65.7 million investment in EAPRC. Also, on December 31, 2000, HEI accrued a potential payment obligation under an HEI guaranty of $10 million of EAPRC loans. In the first quarter of 2001, HEI was partially released ($1.5 million) from the guaranty obligation; and, in August 2002, HEI paid the remaining guaranty obligation ($8.5 million) in full satisfaction of such obligation.

In December 1998, the HEIPC Group invested $7.6 million to acquire convertible preferred shares in Cagayan Electric Power & Light Co., Inc. (CEPALCO), an electric distribution company in the Philippines. In September 1999, the HEIPC Group also acquired 5% of the outstanding CEPALCO common stock for $2.1 million. In July 2001, the preferred shares were converted to common stock. The HEIPC Group currently owns approximately 22% of the outstanding common stock of CEPALCO. This investment is classified as available for sale. The HEIPC Group recognized an impairment loss of approximately $2.7 million in the third quarter of 2001 to adjust this investment to its estimated net realizable value.

10

For the three months ended June 30, 2001, the HEIPC Group had revenues from operations of $1.5 million, operating loss of $0.4 million, interest expense of $0.4 million and income tax benefits of $0.2 million. For the six months ended June 30, 2001, the HEIPC Group had revenues from operations of $3.0 million, operating income of $0.4 million, interest expense of $0.8 million and income taxes of $0.2 million. As of June 30, 2002, the remaining net assets of the discontinued international power operations, after the writeoffs and writedowns described above, amounted to $7 million (included in “Other” assets) and consisted primarily of the investment in CEPALCO and deferred taxes receivable, reduced by a reserve for losses from operations during the phase-out period and the remaining $8.5 million HEI guaranty obligation (fully satisfied in August 2002).

The amounts that HEIPC will ultimately realize from the disposition or sale of the international power assets could differ materially from the recorded amounts. This could occur, for example, if the HEIPC Group is successful in recovery of the costs incurred in connection with the China joint venture interest, if the investment in CEPALCO is disposed of for less or more than $7.0 million or if the Internal Revenue Service does not accept HEI’s treatment of the write-off of its indirect investment in EAPRC as an ordinary loss for federal corporate income tax purposes. In addition, further losses from the discontinued international power operations may be sustained during the phase-out period if the expenditures made in seeking recovery of the costs incurred in connection with the China joint venture interest exceed the total of any recovery ultimately achieved and the amount provided for in HEI’s reserve for discontinued operations.

(6)  Cash flows

Supplemental disclosures of cash flow information

For the six months ended June 30, 2002 and 2001, the Company paid interest amounting to $107.0 million and $146.9 million, respectively.

For the six months ended June 30, 2002 and 2001, the Company paid income taxes amounting to $39.0 million and $19.4 million, respectively.

Supplemental disclosures of noncash activities

Under the HEI Dividend Reinvestment and Stock Purchase Plan (DRIP), common stock dividends reinvested by shareholders in HEI common stock in noncash transactions amounted to $8.2 million and $8.1 million for the six months ended June 30, 2002 and 2001, respectively.

ASB securitized $392.8 million of residential loans into mortgage-related securities in the six months ended June 30, 2001.

(7)  Recent accounting pronouncements

Asset retirement obligations

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 143, “Accounting for Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are to be capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The discounted liability is to be accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company is to recognize a gain or loss on settlement. The provisions of SFAS No. 143 are effective for fiscal years beginning after June 15, 2002. The Company will adopt SFAS No. 143 on January 1, 2003. Management has not yet determined the impact, if any, of adoption.

Rescission of SFAS No. 4, 44 and 64, amendment of SFAS No. 13, and technical corrections

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” and SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers.” SFAS No. 145 also amends

11

SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS No. 145 are effective for financial statements issued on or after May 15, 2002. Early application of the provisions of SFAS No. 145 is encouraged and may be as of the beginning of the fiscal year or as of the beginning of the interim period in which SFAS No. 145 was issued. The Company adopted the provisions of SFAS No. 145 in the second quarter of 2002. The adoption of SFAS No. 145 did not have a material effect on the Company’s financial condition, results of operations or liquidity.

Costs associated with exit or disposal activities

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces EITF Issue No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The Company will adopt the provisions of SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 is not expected to have a material effect on the Company’s financial condition, results of operations or liquidity.

(8)  Commitments and contingencies

See note (4), “Bank subsidiary,” and note (5), “Discontinued operations,” above and note (4), “Commitments and contingencies,” in HECO’s notes to consolidated financial statements.

(9)  Goodwill and other intangibles

The Company adopted the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and also be reviewed for impairment in accordance with SFAS No. 144.

Goodwill

The Company’s $83.2 million of goodwill is in the bank segment and was tested for impairment as of January 1, 2002 and will be tested for impairment annually in the third quarter. As of January 1, 2002, there was no impairment of goodwill. The fair value of ASB was estimated using a valuation method based on a market approach which takes into consideration market values of comparable publicly traded companies and recent transactions of companies in the industry.

Application of the provisions of SFAS No. 142 has affected the comparability of current period results of operations with prior periods because the goodwill in the bank segment is no longer being amortized over a 25-year period. Thus, the following “transitional” disclosures present net income and earnings per common share “adjusted” in 2001 as shown below:

12

	Three months ended June 30,				Six months ended June 30,
	2002		2001		2002		2001
	(in thousands, except per share amounts)
Consolidated
Reported net income	$	30,984	$	25,588	$	57,903	$	53,333
Goodwill amortization, net of tax benefits		—		962		—		1,916
Adjusted net income	$	30,984	$	26,550	$	57,903	$	55,249
Per common share:
Reported basic earnings	$	0.86	$	0.76	$	1.61	$	1.60
Goodwill amortization, net of tax benefits		—		0.03		—		0.06
Adjusted basic earnings	$	0.86	$	0.79	$	1.61	$	1.66
Per common share:
Reported diluted earnings	$	0.85	$	0.76	$	1.60	$	1.59
Goodwill amortization, net of tax benefits		—		0.03		—		0.06
Adjusted diluted earnings	$	0.85	$	0.79	$	1.60	$	1.65
Bank
Reported net income	$	14,812	$	10,207	$	28,163	$	22,082
Goodwill amortization, net of tax benefits		—		962		—		1,916
Adjusted net income	$	14,812	$	11,169	$	28,163	$	23,998

Amortized intangible assets

	June 30, 2002				December 31, 2001
	Gross carrying amount		Accumulated amortization		Gross carrying amount		Accumulated amortization
	(in thousands)
Core deposits	$	26,520	$	17,119	$	26,520	$	16,254
Mortgage servicing rights		11,021		3,327		11,025		2,544
	$	37,541	$	20,446	$	37,545	$	18,798
	Three months ended June 30,				Six months ended June 30,
	2002		2001		2002		2001
	(in thousands)
Aggregate amortization expense	$	852	$	758	$	1,648	$	1,335

The estimated aggregate amortization expense for ASB’s core deposits and mortgage servicing rights for 2002, 2003, 2004, 2005 and 2006 is $3.3 million, $3.1 million, $2.9 million, $2.7 million and $2.5 million, respectively.

        ASB capitalizes mortgage servicing rights acquired through either the purchase or origination of mortgage loans for sale or securitization with servicing rights retained. Changes in mortgage interest rates impact the value of ASB’s mortgage servicing rights. Rising interest rates typically result in slower prepayment speeds in the loans being serviced for others which increases the value of mortgage servicing rights, whereas declining interest rates typically result in faster prepayment speeds which decreases the value of mortgage servicing rights and increases the amortization of the mortgage servicing rights. Currently, ASB does not hedge its mortgage servicing rights against this risk. During the three and six month periods ended June 30, 2002, mortgage servicing rights acquired were not significant.

(10)  Financing costs

HEI uses the effective interest method to amortize the financing costs of the holding company over the term of the related long-term debt.

13

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30, 2002			December 31, 2001
	(in thousands, except par value)
Assets
Utility plant, at cost
Land	$	31,858		$	31,689
Plant and equipment		3,112,564			3,068,254
Less accumulated depreciation		(1,315,021	)		(1,266,332	)
Plant acquisition adjustment, net		328			354
Construction in progress		169,826			170,558
Net utility plant		1,999,555			2,004,523
Current assets
Cash and equivalents		1,356			1,858
Customer accounts receivable, net		84,034			81,872
Accrued unbilled revenues, net		57,537			52,623
Other accounts receivable, net		2,733			2,652
Fuel oil stock, at average cost		29,114			24,440
Materials and supplies, at average cost		21,176			19,702
Prepayments and other		63,209			53,744
Total current assets		259,159			236,891
Other assets
Regulatory assets		108,153			111,376
Other		31,976			36,948
Total other assets		140,129			148,324
	$	2,398,843		$	2,389,738
Capitalization and liabilities
Capitalization
Common stock, $6 2/3 par value, authorized 50,000 shares; outstanding 12,806 shares	$	85,387		$	85,387
Premium on capital stock		295,777			295,806
Retained earnings		520,757			495,961
Common stock equity		901,921			877,154
Cumulative preferred stock—not subject to mandatory redemption		34,293			34,293
HECO-obligated mandatorily redeemable trust preferred securities of subsidiary trusts holding solely HECO and HECO-guaranteed debentures		100,000			100,000
Long-term debt		677,098			670,674
Total capitalization		1,713,312			1,682,121
Current liabilities
Long-term debt due within one year		10,478			14,595
Short-term borrowings—nonaffiliate		45,839			–
Short-term borrowings—affiliate		6,180			48,297
Accounts payable		58,032			53,966
Interest and preferred dividends payable		11,170			11,765
Taxes accrued		65,565			86,058
Other		26,491			29,799
Total current liabilities		223,755			244,480
Deferred credits and other liabilities
Deferred income taxes		146,411			145,608
Unamortized tax credits		49,112			48,512
Other		52,722			55,460
Total deferred credits and other liabilities		248,245			249,580
Contributions in aid of construction		213,531			213,557
	$	2,398,843		$	2,389,738

See accompanying notes to HECO’s consolidated financial statements.

14

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001
	(in thousands, except for ratio of earnings to fixed charges)
Operating revenues	$	306,616		$	312,455		$	583,949		$	629,748
Operating expenses
Fuel oil		74,355			82,085			133,590			170,330
Purchased power		76,520			83,481			153,621			165,397
Other operation		32,462			30,096			61,685			59,870
Maintenance		16,010			13,015			30,022			28,212
Depreciation		26,363			25,363			52,723			49,972
Taxes, other than income taxes		30,792			29,426			57,482			59,917
Income taxes		15,032			14,362			27,823			27,966
		271,534			277,828			516,946			561,664
Operating income		35,082			34,627			67,003			68,084
Other income
Allowance for equity funds used during construction		1,042			955			1,815			2,220
Other, net		762			960			1,577			1,937
		1,804			1,915			3,392			4,157
Income before interest and other charges		36,886			36,542			70,395			72,241
Interest and other charges
Interest on long-term debt		10,167			10,072			20,303			20,001
Amortization of net bond premium and expense		507			507			1,007			1,037
Other interest charges		432			1,340			883			3,413
Allowance for borrowed funds used during construction		(488	)		(511	)		(843	)		(1,187	)
Preferred stock dividends of subsidiaries		229			229			458			458
Preferred securities distributions of trust subsidiaries		1,919			1,919			3,838			3,838
		12,766			13,556			25,646			27,560
Income before preferred stock dividends of HECO		24,120			22,986			44,749			44,681
Preferred stock dividends of HECO		270			270			540			540
Net income for common stock	$	23,850		$	22,716		$	44,209		$	44,141
Ratio of earnings to fixed charges (SEC method)								3.66			3.44

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (UNAUDITED)

	Three months ended June 30,					Six months ended June 30,
	2002			2001		2002			2001
	(in thousands)
Retained earnings, beginning of period	$	507,087		$	465,395	$	495,961		$	443,970
Net income for common stock		23,850			22,716		44,209			44,141
Common stock dividends		(10,180	)		—		(19,413	)		—
Retained earnings, end of period	$	520,757		$	488,111	$	520,757		$	488,111

HEI owns all the common stock of HECO. Therefore, per share data with respect to shares of common stock of HECO are not meaningful.

See accompanying notes to HECO’s consolidated financial statements.

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HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	Six months ended June 30
	2002			2001
	(in thousands)
Cash flows from operating activities
Income before preferred stock dividends of HECO	$	44,749		$	44,681
Adjustments to reconcile income before preferred stock dividends of HECO to net cash provided by operating activities
Depreciation of property, plant and equipment		52,723			49,972
Other amortization		6,321			6,373
Deferred income taxes		859			2,222
Tax credits, net		1,379			534
Allowance for equity funds used during construction		(1,815	)		(2,220	)
Changes in assets and liabilities
Decrease (increase) in accounts receivable		(2,243	)		12,209
Decrease (increase) in accrued unbilled revenues		(4,914	)		9,430
Decrease (increase) in fuel oil stock		(4,674	)		25
Increase in materials and supplies		(1,474	)		(3,442	)
Increase in regulatory assets		(1,127	)		(1,119	)
Increase (decrease) in accounts payable		4,066			(21,029	)
Decrease in taxes accrued		(20,493	)		(2,121	)
Changes in other assets and liabilities		(4,889	)		(13,338	)
Net cash provided by operating activities		68,468			82,177
Cash flows from investing activities
Capital expenditures		(50,160	)		(51,072	)
Contributions in aid of construction		5,443			3,650
Net cash used in investing activities		(44,717	)		(47,422	)
Cash flows from financing activities
Common stock dividends		(19,413	)		—
Preferred stock dividends		(540	)		(540	)
Preferred securities distributions of trust subsidiaries		(3,838	)		(3,838	)
Proceeds from issuance of long-term debt		7,206			11,580
Repayment of long-term debt		(5,000	)		—
Net increase (decrease) in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less		3,722			(31,283	)
Repayment of other short-term borrowings		—			(3,000	)
Other		(6,390	)		(8,275	)
Net cash used in financing activities		(24,253	)		(35,356	)
Net decrease in cash and equivalents		(502	)		(601	)
Cash and equivalents, beginning of period		1,858			1,534
Cash and equivalents, end of period	$	1,356		$	933

See accompanying notes to HECO’s consolidated financial statements.

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HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1)  Basis of presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information and with 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 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 consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference in HECO’s Annual Report on SEC Form 10-K for the year ended December 31, 2001 and the consolidated financial statements and the notes thereto in HECO’s Quarterly Report on SEC Form 10-Q for the quarter ended March 31, 2002.

In the opinion of HECO’s management, the accompanying unaudited consolidated financial statements contain all material adjustments required by GAAP to present fairly the financial position of HECO and its subsidiaries as of June 30, 2002 and December 31, 2001, the results of their operations for the three and six months ended June 30, 2002 and 2001, and their cash flows for the six months ended June 30, 2002 and 2001. All such adjustments are of a normal recurring nature unless otherwise disclosed in this Form 10-Q or other referenced material. Results of operations for interim periods are not necessarily indicative of results for the full year.

When required, certain reclassifications are made to prior periods’ consolidated financial statements to conform to the 2002 presentation.

(2)  Revenue taxes

HECO and its subsidiaries’ operating revenues include amounts for various revenue taxes they collect from customers and pay to taxing authorities. Revenue taxes to be paid to the taxing authorities are recorded as an expense and a corresponding liability in the year the related revenues are recognized. Payments to the taxing authorities are made in the subsequent year. For the six months ended June 30, 2002, HECO and its subsidiaries included $52 million of revenue taxes in “operating revenues” and $54 million (including a $2 million nonrecurring PUC fee adjustment) of revenue taxes in “taxes, other than income taxes” expense. For the six months ended June 30, 2001, HECO and its subsidiaries included $56 million of revenue taxes in “operating revenues” and in “taxes, other than income taxes” expense.

(3)  Cash flows

Supplemental disclosures of cash flow information

For the six months ended June 30, 2002 and 2001, HECO and its subsidiaries paid interest amounting to $21.5 million and $22.8 million, respectively.

For the six months ended June 30, 2002 and 2001, HECO and its subsidiaries paid income taxes amounting to $29.0 million and $15.2 million, respectively.

Supplemental disclosure of noncash activities

The allowance for equity funds used during construction, which was charged to construction in progress as part of the cost of electric utility plant, amounted to $1.8 million and $2.2 million for the six months ended June 30, 2002 and 2001, respectively.

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HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

(4)  Commitments and contingencies

HELCO power situation

In 1991, Hawaii Electric Light Company, Inc. (HELCO) began planning to meet increased electric generation demand forecast for 1994. HELCO’s plans were to install at its Keahole power plant two 20 MW combustion turbines (CT-4 and CT-5), followed by an 18 MW heat steam recovery generator (ST-7), at which time these units would be converted to a 56 MW (net) dual-train combined-cycle unit. In January 1994, the PUC approved expenditures for CT-4, which HELCO had planned to install in late 1994. The timing of the installation of HELCO’s phased units has been revised on several occasions due to delays in obtaining an amendment of a land use permit from the Hawaii Board of Land and Natural Resources (BLNR) and an air permit from the Department of Health of the State of Hawaii (DOH) and the U.S. Environmental Protection Agency (EPA) for the Keahole power plant site. The delays are also attributable to lawsuits, claims and petitions filed by independent power producers (IPPs) and other parties challenging these permits and objecting to the expansion, alleging among other things that (1) operation of the expanded Keahole site would not comply with land use regulations (including noise standards) and HELCO’s land patent; (2) HELCO cannot operate the plant within current air quality standards; (3) HELCO could alternatively purchase power from IPPs to meet increased electric generation demand; and (4) HELCO’s land use entitlement expired in April 1999.

As a result of the favorable decisions described below, most notably the issuance of a final air permit, extension of the land use entitlement period and lifting of the stay on further construction by the Third Circuit Court of the State of Hawaii (Circuit Court), HELCO has been proceeding with the installation of CT-4 and CT-5 since April 29, 2002.

Land use permit amendment.    The Circuit Court ruled in 1997 that because the BLNR had failed to render a valid decision on HELCO’s application to amend its land use permit before the statutory deadline in April 1996, HELCO was entitled to use its Keahole site for the expansion project (HELCO’s “default entitlement”). Final judgments of the Circuit Court related to this ruling are on appeal to the Hawaii Supreme Court which, in 1998, denied motions to stay the Circuit Court’s final judgment pending resolution of the appeals.

The Circuit Court’s final judgment provided that HELCO must comply with the conditions in its application and with the standard land use conditions insofar as those conditions were not inconsistent with HELCO’s default entitlement. There have been numerous proceedings before the Circuit Court and the BLNR in which certain parties (a) have sought determinations of what conditions apply to HELCO’s default entitlement, (b) have claimed that HELCO has not complied with applicable land use conditions and that its default entitlement should thus be forfeited, (c) have claimed that HELCO will not be able to operate the proposed plant without violating applicable land use conditions and provisions of Hawaii’s Air Pollution Control Act and Noise Pollution Act and (d) have sought orders enjoining any further construction at the Keahole site. Although there has not been a final resolution of these claims, there have been several significant rulings related to these claims.

First, based on a change by the DOH in its interpretation of the noise rules it promulgated under the Hawaii Noise Pollution Act, the Circuit Court ruled that a stricter noise standard than the previously applied standard applies to HELCO’s plant, but left enforcement of the ruling to the DOH. The DOH has been periodically monitoring noise levels at the site. If the DOH were to issue a notice of violation based on the stricter standards, HELCO may, among other things, assert that the noise regulations, as applied to it at Keahole, are unconstitutional. Meanwhile, while not waiving possible claims or defenses that it might have against the DOH, HELCO has implemented noise mitigation measures for the existing units at Keahole and is planning to implement additional noise mitigation measures for both the existing units and for CT-4 and CT-5. The estimated cost for these additional noise mitigation measures (for the existing units and CT-4 and CT-5) is $5 million, which amount should be incurred primarily in the second half of 2002 and will be capitalized. While the noise mitigation measures are being implemented, HELCO applied to the DOH and has received approval for a noise permit through 2003.

Second, in September 2000, the Circuit Court orally ruled that, absent a legal or equitable extension properly authorized by the BLNR, the three-year construction period in the standard land use conditions of the Department of Land and Natural Resources of the State of Hawaii (DLNR) expired in April 1999. In October 2000, HELCO filed

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HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

with the BLNR a request for extension of the construction deadline and, in January 2001, the BLNR sent the request to a contested case hearing, which was held in September 2001. The BLNR, by Order dated March 25, 2002, granted HELCO an extension through December 31, 2003. The extension is subject to a number of conditions, including, but not limited to, HELCO (1) complying with all applicable laws and with all conditions applicable (a) to the default entitlement, including the 15 standard land use conditions (except where deviations are approved by the BLNR), and (b) to each Conservation District Use Permit (CDUP) and amendment previously awarded to HELCO for this site; (2) agreeing to indemnify and hold the State harmless from claims arising out of any act or omission of HELCO relating to the “permit”; (3) proceeding with construction in accordance with construction plans to be submitted to and signed by the chairperson of the BLNR; (4) obtaining approval of the DOH and the Board of Water Supply for any potable water supply or sanitation facilities; (5) complying with its representations relative to mitigation, as set forth in the accepted environmental impact statement; (6) minimizing or eliminating any interference, nuisance or harm which may be caused by this land use; (7) filing, within 90 days of the Order, an application for boundary amendment with the State Land Use Commission (LUC) to remove the site from the conservation district; and (8) complying with other terms and conditions as prescribed by the chairperson of the BLNR. The Order states that failure to comply with any of these conditions shall render the “permit” void. The Order also states that “no further extensions will be provided.” On June 21, 2002, HELCO filed an application for a boundary amendment with the LUC. A hearing before the LUC is tentatively scheduled for September 2002 in order to determine the adequacy, for purposes of the boundary amendment petition, of the Environmental Impact Statement accepted in 1993 and submitted by HELCO as part of its petition. HELCO’s assessment is that it will be able to comply with each of the conditions in the Order.

Keahole Defense Coalition (KDC) and the Department of Hawaiian Home Lands (DHHL) filed two appeals of the BLNR Order with the Circuit Court and those appeals have been consolidated. KDC and DHHL each filed their opening briefs in July 2002. HELCO’s answering brief is due on August 26, 2002. On July 19, 2002, KDC and DHHL filed a motion to supplement the record on appeal, and DHHL filed a joinder in that motion on July 23, 2002. HELCO filed a memorandum in opposition on July 31, 2002, and by order dated August 2, 2002, the Circuit Court denied the motion to supplement. Oral arguments are scheduled for September 16, 2002.

At a hearing on May 8, 2002, the Circuit Court denied the following motions: a motion for a stay while one of the appeals is pending; a motion for injunction to enjoin construction (based on the allegation that HELCO’s default entitlement is no longer valid); and a motion for preliminary injunction to enjoin construction until the Hawaii Supreme Court decides HELCO’s appeal of the DOH noise regulations and until HELCO demonstrates that the expanded plant can satisfy the noise standards established in 1999 by the Circuit Court. The nonprevailing parties made several filings in response to the denial of these motions. On May 14, 2002, they filed a petition for writ of mandamus with the Hawaii Supreme Court, attempting to get that court to compel the Circuit Court to enforce the conditions in its 1998 final judgment. The Hawaii Supreme Court denied that petition on July 1, 2002. On May 15, 2002, the nonprevailing parties filed a motion for reconsideration of the Circuit Court’s decision denying the motion for preliminary injunction. That motion is pending. On June 10, 2002, the nonprevailing parties filed a notice of appeal to the Hawaii Supreme Court of the Circuit Court’s decision denying the motion for injunction. HELCO believes that it will prevail on the appeals.

Third, in December 2000, the Circuit Court granted a motion to stay further construction. However, in April 2002, the stay was lifted in light of the BLNR’s March 25, 2002 Order.

Air permit.    In 1997, the DOH issued a final air permit for the Keahole expansion project. Nine appeals of the issuance of the permit were filed with the EPA’s Environmental Appeals Board (EAB). In November 1998, the EAB denied the appeals on most of the grounds stated, but directed the DOH to reopen the permit for limited purposes. The EPA and DOH required additional data collection, which was satisfactorily completed in April 2000. A final air permit was reissued by the DOH in July 2001. Six appeals were filed with the EAB, but those appeals were denied. On November 27, 2001, the final air permit became effective. In December 2001, opponents filed a Motion for Reconsideration which the EAB denied in January 2002.

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HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

IPP Complaints.    Three IPPs––Kawaihae Cogeneration Partners (KCP), Enserch Development Corporation (Enserch) and Hilo Coast Power Company (HCPC)––filed separate complaints with the PUC in 1993, 1994 and 1999, respectively, alleging that they are each entitled to a power purchase agreement (PPA) to provide HELCO with additional capacity. KCP and Enserch each claimed they would be a substitute for HELCO’s planned expansion of Keahole.

In 1994 and 1995, the PUC allowed HELCO to pursue construction of and commit expenditures for CT-5 and ST-7, but noted that such costs are not to be included in rate base until the project is installed and “is used and useful for utility purposes.” The PUC also ordered HELCO to continue negotiating with the IPPs and held that the facility to be built should be the one that can be most expeditiously put into service at “allowable cost.”

The Enserch and HCPC complaints have been resolved by HELCO’s entry into two PPAs which were necessary to ensure reliable service to customers on the island of Hawaii, but, in the opinion of management, do not supplant the need for CT-4 and CT-5. HELCO can terminate the PPA with HCPC prior to its 2004 expiration date for a fee.

In October 1999, the Circuit Court ruled that the lease for KCP’s proposed plant site was invalid. Based on this ruling and for other reasons, management believes that KCP’s pending proposal for a PPA is not viable and, therefore, will not impact the need for CT-4 and CT-5.

Management’s evaluation; costs incurred.    Management believes that the issues surrounding the amendment to the land use permit and applicable land use conditions and related matters will be satisfactorily resolved and will not prevent HELCO from continuing to construct CT-4 and CT-5 now that construction has commenced. Management currently expects that CT-4 will be in service in December 2002 and CT-5 will be in service in February 2003. However, because of the ongoing challenges to the project, there can be no assurances that CT-4 and CT-5 will be installed or that this time frame will be met.

The recovery of costs relating to CT-4 and CT-5 are subject to the rate-making process governed by the PUC. Management believes no adjustment to costs incurred to put CT-4 and CT-5 into service is required as of June 30, 2002. However, if it becomes probable that CT-4 and/or CT-5 will not be installed or probable that, even if CT-4 and CT-5 are installed, the PUC will disallow certain costs for rate-making purposes, HELCO may be required to write off a material portion of the costs incurred in its efforts to put these units into service. As of June 30, 2002, HELCO’s costs incurred in its efforts to put CT-4 and CT-5 into service and to support existing units (less costs the PUC permitted to be transferred to plant-in-service for pre-air permit facilities) amounted to approximately $75 million, including $29 million for equipment and material purchases, $26 million for planning, engineering, permitting, site development and other costs and $20 million for an allowance for funds used during construction (AFUDC) prior to HELCO’s decision to discontinue the further accrual of AFUDC on CT-4 and CT-5, effective December 1, 1998, due in part to the delays and the potential for further delays. In view of the limitation on the construction period and the requirements of the boundary amendment process, HELCO has decided to defer the installation of ST-7 to a date outside of the near-term planning horizon. No costs for ST-7 are included in construction in progress.

Oahu transmission system

Oahu’s power sources are located primarily in West Oahu. The bulk of HECO’s system load is in the Honolulu/East Oahu area. HECO transmits bulk power to the Honolulu/East Oahu area over two major transmission corridors (Northern and Southern). HECO planned to construct a part underground/part overhead 138 kv transmission line from the Kamoku substation to the Pukele substation in order to close the gap between the Southern and Northern corridors and provide a third 138 kv transmission line to the Pukele substation.

The proposed Kamoku to Pukele transmission line project required the BLNR to approve a CDUP for the overhead portion of the line that is in conservation district lands. Several community and environmental groups have opposed the project, particularly the overhead portion of the line.

In November 2000, the DLNR accepted a Revised Final Environmental Impact Statement (RFEIS) prepared in support of HECO’s application for a CDUP. In January 2001, three organizations and an individual filed a complaint

20

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

challenging the DLNR’s acceptance of the RFEIS and seeking, among other things, a judicial declaration that the RFEIS is inadequate and null and void. HECO continues to contest the lawsuit.

The BLNR held a public hearing on the CDUP in March 2001, at which several groups requested a contested case hearing which was held in November 2001. The hearings officer submitted his report, findings of fact and conclusions of law and recommended that HECO’s request for the CDUP be denied. He concluded that HECO had failed to establish that there is a need that outweighs the transmission line’s adverse impacts on conservation district lands and that there are practical alternatives that could be pursued, including an all-underground route outside the conservation district lands. On June 28, 2002, the BLNR issued a ruling denying HECO’s request for the CDUP.

HECO continues to believe that the proposed line is needed. HECO is evaluating other alternatives (e.g., other alignments for the transmission line) and further actions, including seeking a declaratory ruling from the PUC on the issue of the need for the line. Until this evaluation of alternatives is completed, an estimated project completion date cannot be determined.

As of June 30, 2002, the accumulated costs related to the Kamoku to Pukele transmission line amounted to $16 million, including $12 million for planning, engineering and permitting costs and $4 million for AFUDC. These costs are recorded in construction in progress. The recovery of costs relating to the Kamoku to Pukele transmission line project is subject to the rate-making process governed by the PUC. Management believes no adjustment to costs incurred to put the Kamoku to Pukele transmission line into service is required as of June 30, 2002. However, if it becomes probable that the Kamoku to Pukele transmission line will not be installed, or probable that the PUC will disallow some or all of the incurred costs for rate-making purposes, HECO may be required to write off a material portion or all of the costs incurred in its efforts to put the Kamoku to Pukele transmission line into service.

Environmental regulation

In early 1995, the DOH initially advised HECO, Hawaiian Tug & Barge Corp. (HTB), Young Brothers, Limited (YB) and others that it was conducting an investigation to determine the nature and extent of actual or potential releases of hazardous substances, oil, pollutants or contaminants at or near Honolulu Harbor. The DOH issued letters in December 1995 indicating that it had identified a number of parties, including HECO, HTB and YB, who appear to be potentially responsible for the contamination and/or operate their facilities upon contaminated land. The DOH met with these identified parties in January 1996 and certain of the identified parties (including HECO, Chevron Products Company, the State of Hawaii Department of Transportation Harbors Division and others) formed a Honolulu Harbor Work Group (Work Group). Effective January 30, 1998, the Work Group and the DOH entered into a voluntary agreement and scope of work to determine the nature and extent of any contamination, the responsible parties and appropriate remedial actions.

In 1999, the Work Group submitted reports to the DOH presenting environmental conditions and recommendations for additional data gathering to allow for an assessment of the need for risk-based corrective action. The Work Group also engaged a consultant who identified 27 additional potentially responsible parties (PRPs) who were not members of the Work Group, including YB. Under the terms of the agreement for the sale of YB, HEI and The Old Oahu Tug Service, Inc. (TOOTS, formerly HTB) have specified indemnity obligations, including obligations with respect to the Honolulu Harbor investigation.

In response to the DOH’s request for technical assistance, the EPA became involved with the harbor investigation in June 2000. In November 2000, the DOH issued notices to over 20 other PRPs, including YB, regarding the ongoing investigation in the Honolulu Harbor area. A new voluntary agreement and a joint defense agreement were signed by the parties in the Work Group and some of the new PRPs, including Phillips Petroleum, but not YB. The group is now called the Iwilei District Participating Parties (Participating Parties). The Participating Parties agreed to fund remediation work using an interim cost allocation method. In September 2001, TOOTS joined the Participating Parties.

In July 2001, the EPA issued a notice of interest (Initial NOI) under the Oil Pollution Act of 1990 to HECO, YB and others regarding the Iwilei Unit of the Honolulu Harbor site. In the Initial NOI, the EPA stated that immediate

21

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

subsurface investigation and assessment (also known as the Rapid Assessment Work) must be conducted to delineate the extent of contamination at the site. The Participating Parties completed the Rapid Assessment Work and submitted a report to the EPA and DOH in January 2002. Based on the Rapid Assessment Work and input from the DOH and EPA, the Participating Parties are developing proposals for additional investigation and recommendations for remedial activities, which will be submitted to the EPA and DOH for approval.

In September 2001, the EPA and DOH concurrently issued notices of interest (collectively, the Second NOI) to the members of the Participating Parties, including HECO and TOOTS. The Second NOI identified several investigative and preliminary oil removal tasks to be taken at certain valve control facilities associated with historic pipelines in the Iwilei Unit of the Honolulu Harbor site. The Participating Parties have substantially performed the tasks identified in the Second NOI. Once evaluation of the work performed under the Second NOI has been completed, the Participating Parties will develop proposals for additional investigation, if needed, and recommend remedial activities in the areas identified in the Second NOI.

Management has developed a preliminary estimate of costs for continuing investigative work, remedial activities and monitoring at the Iwilei Unit of the site. Management estimates that HECO will incur approximately $1.1 million (of which $0.1 million has been incurred through June 30, 2002) and TOOTS will incur approximately $0.1 million in connection with work to be performed at the site primarily from January 2002 through December 2003. These estimates were expensed in 2001. However, because (1) the full scope and extent of additional investigative work, remedial activities and monitoring are unknown at this time, (2) the final cost allocation method has not yet been determined and (3) management cannot estimate the costs to be incurred (if any) for the sites other than the Iwilei Unit (including its Honolulu power plant site), the HECO and TOOTS cost estimates may be subject to significant change.

(5)  HECO-obligated mandatorily redeemable preferred securities of trust subsidiaries holding solely HECO and HECO-guaranteed subordinated debentures

In March 1997, HECO Capital Trust I (Trust I), a grantor trust and a wholly owned subsidiary of HECO, sold (i) in a public offering, 2 million of its HECO-Obligated 8.05% Cumulative Quarterly Income Preferred Securities, Series 1997 (1997 trust preferred securities) with an aggregate liquidation preference of $50 million and (ii) to HECO, common securities with a liquidation preference of approximately $1.55 million. Proceeds from the sale of the 1997 trust preferred securities and the common securities were used by Trust I to purchase 8.05% Junior Subordinated Deferrable Interest Debentures, Series 1997 (1997 junior deferrable debentures) issued by HECO in the principal amount of $31.55 million and issued by each of Maui Electric Company, Limited (MECO) and HELCO in the respective principal amounts of $10 million. The 1997 junior deferrable debentures, which bear interest at 8.05% and mature on March 27, 2027, together with the subsidiary guarantees (pursuant to which the obligations of MECO and HELCO under their respective debentures are fully and unconditionally guaranteed by HECO), are the sole assets of Trust I. The 1997 trust preferred securities must be redeemed at the maturity of the underlying debt on March 27, 2027, which maturity may be shortened to any date after March 27, 2002 or extended to a date no later than March 27, 2046. The 1997 trust preferred securities are not redeemable at the option of the holders, and may now be redeemed by Trust I, in whole or in part. All of the proceeds from the sale were invested by Trust I in the underlying debt securities of HECO, HELCO and MECO.

In December 1998, HECO Capital Trust II (Trust II), a grantor trust and a wholly owned subsidiary of HECO, sold (i) in a public offering, 2 million of its HECO-Obligated 7.30% Cumulative Quarterly Income Preferred Securities, Series 1998 (1998 trust preferred securities) with an aggregate liquidation preference of $50 million and (ii) to HECO, common securities with a liquidation preference of approximately $1.55 million. Proceeds from the sale of the 1998 trust preferred securities and the common securities were used by Trust II to purchase 7.30% Junior Subordinated Deferrable Interest Debentures, Series 1998 (1998 junior deferrable debentures) issued by HECO in the principal amount of $31.55 million and issued by each of MECO and HELCO in the respective principal amounts of $10 million. The 1998 junior deferrable debentures, which bear interest at 7.30% and mature on December 15, 2028, together with the subsidiary guarantees (pursuant to which the obligations of MECO and HELCO under their respective debentures are fully and unconditionally guaranteed by HECO), are the sole assets

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HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

of Trust II. The 1998 trust preferred securities must be redeemed at the maturity of the underlying debt on December 15, 2028, which maturity may be shortened to a date no earlier than December 15, 2003 or extended to a date no later than December 15, 2047, and are not redeemable at the option of the holders, but may be redeemed by Trust II, in whole or in part, from time to time, on or after December 15, 2003 or upon the occurrence of certain events. All of the proceeds from the sale were invested by Trust II in the underlying debt securities of HECO, HELCO and MECO, who used such proceeds from the sale of the 1998 junior deferrable debentures primarily to effect the redemption of certain series of their preferred stock having a total par value of $47 million.

The 1997 and 1998 junior deferrable debentures and the common securities of the Trusts have been eliminated in HECO’s consolidated balance sheets as of June 30, 2002 and December 31, 2001. The 1997 and 1998 junior deferrable debentures are redeemable only (i) at the option of HECO, MECO and HELCO, respectively, in whole or in part, on or after March 27, 2002 (1997 junior deferrable debentures) and December 15, 2003 (1998 junior deferrable debentures) or (ii) at the option of HECO, in whole, upon the occurrence of a “Special Event” (relating to certain changes in laws or regulations).

(6)  Recent accounting pronouncements

Asset retirement obligations

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are to be capitalized as part of the carrying amount of the long-lived asset and depreciated over the life of the asset. The discounted liability is to be accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company is to recognize a gain or loss on settlement. The provisions of SFAS No. 143 are effective for fiscal years beginning after June 15, 2002. HECO and its subsidiaries will adopt SFAS No. 143 on January 1, 2003. Management has not yet determined the impact, if any, of adoption.

Rescission of SFAS No. 4, 44 and 64, amendment of SFAS No. 13, and technical corrections

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt,” SFAS No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements,” and SFAS No. 44, “Accounting for Intangible Assets of Motor Carriers.” SFAS No. 145 also amends SFAS No. 13, “Accounting for Leases,” to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. SFAS No. 145 also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 are effective for fiscal years beginning after May 15, 2002. The provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions occurring after May 15, 2002. All other provisions of SFAS No. 145 are effective for financial statements issued on or after May 15, 2002. Early application of the provisions of SFAS No. 145 is encouraged and may be as of the beginning of the fiscal year or as of the beginning of the interim period in which SFAS No. 145 was issued. HECO and its subsidiaries adopted the provisions of SFAS No. 145 in the second quarter of 2002. The adoption of SFAS No. 145 did not have a material effect on HECO and its subsidiaries’ financial condition, results of operations or liquidity.

Costs associated with exit or disposal activities

In July 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity. Previous accounting guidance was provided by Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee

23

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 replaces EITF Issue No. 94-3. SFAS No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. HECO and its subsidiaries will adopt the provisions of SFAS No. 146 on January 1, 2003. The adoption of SFAS No. 146 is not expected to have a material effect on HECO and its subsidiaries’ financial condition, results of operations or liquidity.

(7)  Reconciliation of electric utility operating income per HEI and HECO consolidated statements of income

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001
	(in thousands)
Operating income from regulated and nonregulated activities before income taxes (per HEI consolidated statements of income)	$	50,953		$	50,028		$	96,557		$	98,038
Deduct:
Income taxes on regulated activities		(15,032	)		(14,362	)		(27,823	)		(27,966	)
Revenues from nonregulated activities		(1,060	)		(1,196	)		(2,058	)		(2,326	)
Add:
Expenses from nonregulated activities		221			157			327			338
Operating income from regulated activities after income taxes (per HECO consolidated statements of income)	$	35,082		$	34,627		$	67,003		$	68,084

(8)  Financing costs

HECO and its subsidiaries use the straight-line method to amortize financing costs and premiums or discounts over the term of the related long-term debt. Unamortized financing costs and premiums or discounts on HECO and its subsidiaries’ long-term debt retired prior to maturity are classified as regulatory assets or liabilities and are amortized on a straight-line basis over the remaining original term of the retired debt. The method and periods for amortizing financing costs, premiums and discounts, including the treatment of these items when long-term debt is retired prior to maturity, have been established by the PUC as part of the ratemaking process.

(9)  Consolidating financial information

HECO has not provided separate financial statements and other disclosures concerning HELCO and MECO because management has concluded that such financial statements and other information are not material to holders of the 1997 and 1998 junior deferrable debentures issued by HELCO and MECO since these securities have been fully and unconditionally guaranteed by HECO.

Consolidating financial information for HECO and its subsidiaries is as follows for the periods ending on and as of the dates indicated:

24

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(Unaudited)

	June 30, 2002
	HECO			HELCO			MECO			HECO Capital Trust I		HECO Capital Trust II		Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Assets
Utility plant, at cost
Land	$	25,308		$	2,964		$	3,586		$	—	$	—	$	—		$	31,858
Plant and equipment		1,971,958			553,977			586,629			—		—		—			3,112,564
Less accumulated depreciation		(840,527	)		(246,107	)		(228,387	)		—		—		—			(1,315,021	)
Plant acquisition adjustment, net		—			—			328			—		—		—			328
Construction in progress		75,014			87,823			6,989			—		—		—			169,826
Net utility plant		1,231,753			398,657			369,145			—		—		—			1,999,555
Investment in subsidiaries, at equity		350,565			—			—			—		—		(350,565	)		—
Current assets
Cash and equivalents		9			4			1,343			—		—		—			1,356
Advances to affiliates		13,200			—			12,000			51,546		51,546		(128,292	)		—
Customer accounts receivable, net		58,148			14,268			11,618			—		—		—			84,034
Accrued unbilled revenues, net		39,237			9,389			8,911			—		—		—			57,537
Other accounts receivable, net		3,072			336			259			—		—		(934	)		2,733
Fuel oil stock, at average cost		17,903			2,973			8,238			—		—		—			29,114
Materials and supplies, at average cost		9,908			2,486			8,782			—		—		—			21,176
Prepayments and other		51,524			7,832			3,853			—		—		—			63,209
Total current assets		193,001			37,288			55,004			51,546		51,546		(129,226	)		259,159
Other assets
Regulatory assets		76,022			16,996			15,135			—		—		—			108,153
Other		21,132			5,295			5,549			—		—		—			31,976
Total other assets		97,154			22,291			20,684			—		—		—			140,129
	$	1,872,473		$	458,236		$	444,833		$	51,546	$	51,546	$	(479,791	)	$	2,398,843
Capitalization and liabilities
Capitalization
Common stock equity	$	901,921		$	170,594		$	176,879		$	1,546	$	1,546	$	(350,565	)	$	901,921
Cumulative preferred stock–not subject to mandatory redemption		22,293			7,000			5,000			—		—		—			34,293
HECO-obligated mandatorily redeemable trust preferred securities of subsidiary trusts holding solely HECO and HECO-guaranteed debentures		—			—			—			50,000		50,000		—			100,000
Long-term debt		467,557			140,977			171,656			—		—		(103,092	)		677,098
Total capitalization		1,391,771			318,571			353,535			51,546		51,546		(453,657	)		1,713,312
Current liabilities
Long-term debt due within one year		10,478			—			—			—		—		—			10,478
Short-term borrowings–nonaffiliates		45,839			—			—			—		—		—			45,839
Short-term borrowings–affiliate		18,180			13,200			—			—		—		(25,200	)		6,180
Accounts payable		41,750			7,505			8,777			—		—		—			58,032
Interest and preferred dividends payable		7,240			1,567			2,400			—		—		(37	)		11,170
Taxes accrued		36,975			13,614			14,976			—		—		—			65,565
Other		19,280			4,230			3,878			—		—		(897	)		26,491
Total current liabilities		179,742			40,116			30,031			—		—		(26,134	)		223,755
Deferred credits and other liabilities
Deferred income taxes		124,653			11,618			10,140			—		—		—			146,411
Unamortized tax credits		28,491			9,278			11,343			—		—		—			49,112
Other		13,520			24,744			14,458			—		—		—			52,722
Total deferred credits and other liabilities		166,664			45,640			35,941			—		—		—			248,245
Contributions in aid of construction		134,296			53,909			25,326			—		—		—			213,531
	$	1,872,473		$	458,236		$	444,833		$	51,546	$	51,546	$	(479,791	)	$	2,398,843

25

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING BALANCE SHEET (UNAUDITED)

	December 31, 2001
	HECO			HELCO			MECO			HECO Capital Trust I		HECO Capital Trust II		Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Assets
Utility plant, at cost
Land	$	25,369		$	2,752		$	3,568		$	—	$	—	$	—		$	31,689
Plant and equipment		1,943,378			550,671			574,205			—		—		—			3,068,254
Less accumulated depreciation		(810,187	)		(238,962	)		(217,183	)		—		—		—			(1,266,332	)
Plant acquisition adjustment, net		—			—			354			—		—		—			354
Construction in progress		70,501			85,913			14,144			—		—		—			170,558
Net utility plant		1,229,061			400,374			375,088			—		—		—			2,004,523
Investment in subsidiaries, at equity		341,186			—			—			—		—		(341,186	)		—
Current assets
Cash and equivalents		9			1,282			567			—		—		—			1,858
Advances to affiliates		12,600			—			7,000			51,546		51,546		(122,692	)		—
Customer accounts receivable, net		56,227			13,644			12,001			—		—		—			81,872
Accrued unbilled revenues, net		35,072			8,855			8,696			—		—		—			52,623
Other accounts receivable, net		2,537			497			352			—		—		(734	)		2,652
Fuel oil stock, at average cost		15,840			3,007			5,593			—		—		—			24,440
Materials and supplies, at average cost		9,168			1,982			8,552			—		—		—			19,702
Prepayments and other		43,326			7,028			3,390			—		—		—			53,744
Total current assets		174,779			36,295			46,151			51,546		51,546		(123,426	)		236,891
Other assets
Regulatory assets		76,153			18,376			16,847			—		—		—			111,376
Other		24,875			5,920			6,153			—		—		—			36,948
Total other assets		101,028			24,296			23,000			—		—		—			148,324
	$	1,846,054		$	460,965		$	444,239		$	51,546	$	51,546	$	(464,612	)	$	2,389,738
Capitalization and liabilities
Capitalization
Common stock equity	$	877,154		$	165,655		$	172,439		$	1,546	$	1,546	$	(341,186	)	$	877,154
Cumulative preferred stock—not subject to mandatory redemption		22,293			7,000			5,000			—		—		—			34,293
HECO-obligated mandatorily redeemable trust preferred securities of subsidiary trusts holding solely HECO and HECO-guaranteed debentures		—			—			—			50,000		50,000		—			100,000
Long-term debt		461,173			140,962			171,631			—		—		(103,092	)		670,674
Total capitalization		1,360,620			313,617			349,070			51,546		51,546		(444,278	)		1,682,121
Current liabilities
Long-term debt due within one year		9,595			5,000			—			—		—		—			14,595
Short-term borrowings—affiliate		55,297			12,600			—			—		—		(19,600	)		48,297
Accounts payable		34,860			10,108			8,998			—		—		—			53,966
Interest and preferred dividends payable		7,664			1,698			2,433			—		—		(30	)		11,765
Taxes accrued		52,216			15,841			18,001			—		—		—			86,058
Other		23,712			2,852			3,939			—		—		(704	)		29,799
Total current liabilities		183,344			48,099			33,371			—		—		(20,334	)		244,480
Deferred credits and other liabilities
Deferred income taxes		123,097			11,984			10,527			—		—		—			145,608
Unamortized tax credits		28,538			8,644			11,330			—		—		—			48,512
Other		15,557			25,309			14,594			—		—		—			55,460
Total deferred credits and other liabilities		167,192			45,937			36,451			—		—		—			249,580
Contributions in aid of construction		134,898			53,312			25,347			—		—		—			213,557
	$	1,846,054		$	460,965		$	444,239		$	51,546	$	51,546	$	(464,612	)	$	2,389,738

26

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME (UNAUDITED)

	Three months ended June 30, 2002
	HECO			HELCO			MECO			HECO Capital Trust I		HECO Capital Trust II		Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Operating revenues	$	212,460		$	47,049		$	47,107		$	—	$	—	$	—		$	306,616
Operating expenses
Fuel oil		52,528			6,784			15,043			—		—		—			74,355
Purchased power		61,109			13,597			1,814			—		—		—			76,520
Other operation		20,289			5,591			6,582			—		—		—			32,462
Maintenance		10,261			2,166			3,583			—		—		—			16,010
Depreciation		15,903			4,894			5,566			—		—		—			26,363
Taxes, other than income taxes		21,345			4,759			4,688			—		—		—			30,792
Income taxes		9,523			2,709			2,800			—		—		—			15,032
		190,958			40,500			40,076			—		—		—			271,534
Operating income		21,502			6,549			7,031			—		—		—			35,082
Other income
Allowance for equity funds used during construction		927			54			61			—		—		—			1,042
Equity in earnings of subsidiaries		8,672			—			—			—		—		(8,672	)		—
Other, net		777			85			9			1,038		940		(2,087	)		762
		10,376			139			70			1,038		940		(10,759	)		1,804
Income before interest and other charges		31,878			6,688			7,101			1,038		940		(10,759	)		36,886
Interest and other charges
Interest on long-term debt		6,154			1,809			2,204					—		—			10,167
Amortization of net bond premium and expense		320			87			100			—		—		—			507
Other interest charges		1,716			472			331			—		—		(2,087	)		432
Allowance for borrowed funds used during construction		(432	)		(29	)		(27	)		—		—		—			(488	)
Preferred stock dividends of subsidiaries		—			—			—			—		—		229			229
Preferred securities distributions of trust subsidiaries		—			—			—			—		—		1,919			1,919
		7,758			2,339			2,608			—		—		61			12,766
Income before preferred stock dividends of HECO		24,120			4,349			4,493			1,038		940		(10,820	)		24,120
Preferred stock dividends of HECO		270			133			96			1,007		912		(2,148	)		270
Net income for common stock	$	23,850		$	4,216		$	4,397		$	31	$	28	$	(8,672	)	$	23,850

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF RETAINED EARNINGS (UNAUDITED)

	Three months ended June 30, 2002
	HECO			HELCO			MECO			HECO Capital Trust I			HECO Capital Trust II			Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Retained earnings, beginning of period	$	507,087		$	68,036		$	80,365		$	—		$	—		$	(148,401	)	$	507,087
Net income for common stock		23,850			4,216			4,397			31			28			(8,672	)		23,850
Common stock dividends		(10,180	)		(1,636	)		(2,145	)		(31	)		(28	)		3,840			(10,180	)
Retained earnings, end of period	$	520,757		$	70,616		$	82,617		$	—		$	—		$	(153,233	)	$	520,757

27

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME (UNAUDITED)

	Three months ended June 30, 2001
	HECO			HELCO			MECO			HECO Capital Trust I		HECO Capital Trust II		Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Operating revenues	$	215,810		$	47,186		$	49,459		$	—	$	—	$	—		$	312,455
Operating expenses
Fuel oil		55,684			7,251			19,150			—		—		—			82,085
Purchased power		65,738			16,200			1,543			—		—		—			83,481
Other operation		19,601			4,050			6,445			—		—		—			30,096
Maintenance		8,800			1,672			2,543			—		—		—			13,015
Depreciation		15,196			4,819			5,348			—		—		—			25,363
Taxes, other than income taxes		20,244			4,448			4,734			—		—		—			29,426
Income taxes		9,135			2,455			2,772			—		—		—			14,362
		194,398			40,895			42,535			—		—		—			277,828
Operating income		21,412			6,291			6,924			—		—		—			34,627
Other income
Allowance for equity funds used during construction		784			73			98			—		—		—			955
Equity in earnings of subsidiaries		8,246			—			—			—		—		(8,246	)		—
Other, net		1,017			163			41			1,038		940		(2,239	)		960
		10,047			236			139			1,038		940		(10,485	)		1,915
Income before interest and other charges		31,459			6,527			7,063			1,038		940		(10,485	)		36,542
Interest and other charges
Interest on long-term debt		5,962			1,907			2,203			—		—		—			10,072
Amortization of net bond premium and expense		327			79			101			—		—		—			507
Other interest charges		2,608			638			333			—		—		(2,239	)		1,340
Allowance for borrowed funds used during construction		(424	)		(43	)		(44	)		—		—		—			(511	)
Preferred stock dividends of subsidiaries		—			—			—			—		—		229			229
Preferred securities distributions of trust subsidiaries		—			—			—			—		—		1,919			1,919
		8,473			2,581			2,593			—		—		(91	)		13,556
Income before preferred stock dividends of HECO		22,986			3,946			4,470			1,038		940		(10,394	)		22,986
Preferred stock dividends of HECO		270			133			96			1,007		912		(2,148	)		270
Net income for common stock	$	22,716		$	3,813		$	4,374		$	31	$	28	$	(8,246	)	$	22,716

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF RETAINED EARNINGS (UNAUDITED)

	Three months ended June 30, 2001
	HECO		HELCO			MECO			HECO Capital Trust I			HECO Capital Trust II			Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Retained earnings, beginning of period	$	465,395	$	65,117		$	74,920		$	—		$	—		$	(140,037	)	$	465,395
Net income for common stock		22,716		3,813			4,374			31			28			(8,246	)		22,716
Common stock dividends		—		(3,044	)		(3,275	)		(31	)		(28	)		6,378			—
Retained earnings, end of period	$	488,111	$	65,886		$	76,019		$	—		$	—		$	(141,905	)	$	488,111

28

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME (UNAUDITED)

	Six months ended June 30, 2002
	HECO			HELCO			MECO			HECO Capital Trust I		HECO Capital Trust II		Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Operating revenues	$	401,626		$	91,475		$	90,848		$	—	$	—	$	—		$	583,949
Operating expenses
Fuel oil		91,942			13,287			28,361			—		—		—			133,590
Purchased power		122,514			27,783			3,324			—		—		—			153,621
Other operation		38,442			10,252			12,991			—		—		—			61,685
Maintenance		19,117			4,410			6,495			—		—		—			30,022
Depreciation		31,804			9,788			11,131			—		—		—			52,723
Taxes, other than income taxes		39,545			8,975			8,962			—		—		—			57,482
Income taxes		17,478			4,815			5,530			—		—		—			27,823
		360,842			79,310			76,794			—		—		—			516,946
Operating income		40,784			12,165			14,054			—		—		—			67,003
Other income
Allowance for equity funds used during construction		1,638			109			68			—		—		—			1,815
Equity in earnings of subsidiaries		16,292			—			—			—		—		(16,292	)		—
Other, net		1,598			187			—			2,075		1,881		(4,164	)		1,577
		19,528			296			68			2,075		1,881		(20,456	)		3,392
Income before interest and other charges		60,312			12,461			14,122			2,075		1,881		(20,456	)		70,395
Interest and other charges
Interest on long-term debt		12,243			3,651			4,409			—		—		—			20,303
Amortization of net bond premium and expense		640			165			202			—		—		—			1,007
Other interest charges		3,434			949			664			—		—		(4,164	)		883
Allowance for borrowed funds used during construction		(754	)		(59	)		(30	)		—		—		—			(843	)
Preferred stock dividends of subsidiaries		—			—			—			—		—		458			458
Preferred securities distributions of trust subsidiaries		—			—			—			—		—		3,838			3,838
		15,563			4,706			5,245			—		—		132			25,646
Income before preferred stock dividends of HECO		44,749			7,755			8,877			2,075		1,881		(20,588	)		44,749
Preferred stock dividends of HECO		540			267			191			2,013		1,825		(4,296	)		540
Net income for common stock	$	44,209		$	7,488		$	8,686		$	62	$	56	$	(16,292	)	$	44,209

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF RETAINED EARNINGS (UNAUDITED)

	Six months ended June 30, 2002
	HECO			HELCO			MECO			HECO Capital Trust I			HECO Capital Trust II			Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Retained earnings, beginning of period	$	495,961		$	65,690		$	78,182		$	—		$	—		$	(143,872	)	$	495,961
Net income for common stock		44,209			7,488			8,686			62			56			(16,292	)		44,209
Common stock dividends		(19,413	)		(2,562	)		(4,251	)		(62	)		(56	)		6,931			(19,413	)
Retained earnings, end of period	$	520,757		$	70,616		$	82,617		$	—		$	—		$	(153,233	)	$	520,757

29

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF INCOME (UNAUDITED)

	Six months ended June 30, 2001
	(in thousands)
	HECO			HELCO			MECO			HECO Capital Trust I		HECO Capital Trust II		Reclassi- fications and elimina- tions			HECO consolidated
Operating revenues	$	431,029		$	97,437		$	101,282		$	—	$	—	$	—		$	629,748
Operating expenses
Fuel oil		113,311			15,136			41,883			—		—		—			170,330
Purchased power		129,199			34,274			1,924			—		—		—			165,397
Other operation		39,191			8,388			12,291			—		—		—			59,870
Maintenance		19,312			3,441			5,459			—		—		—			28,212
Depreciation		30,392			8,884			10,696			—		—		—			49,972
Taxes, other than income taxes		41,010			9,220			9,687			—		—		—			59,917
Income taxes		17,364			5,058			5,544			—		—		—			27,966
		389,779			84,401			87,484			—		—		—			561,664
Operating income		41,250			13,036			13,798			—		—		—			68,084
Other income
Allowance for equity funds used during construction		1,860			130			230			—		—		—			2,220
Equity in earnings of subsidiaries		16,730			—			—			—		—		(16,730	)		—
Other, net		2,193			279			97			2,075		1,881		(4,588	)		1,937
		20,783			409			327			2,075		1,881		(21,318	)		4,157
Income before interest and other charges		62,033			13,445			14,125			2,075		1,881		(21,318	)		72,241
Interest and other charges
Interest on long-term debt		11,781			3,816			4,404			—		—		—			20,001
Amortization of net bond premium and expense		654			181			202			—		—		—			1,037
Other interest charges		5,923			1,387			691			—		—		(4,588	)		3,413
Allowance for borrowed funds used during construction		(1,006	)		(78	)		(103	)		—		—		—			(1,187	)
Preferred stock dividends of subsidiaries		—			—			—			—		—		458			458
Preferred securities distributions of trust subsidiaries		—			—			—			—		—		3,838			3,838
		17,352			5,306			5,194			—		—		(292	)		27,560
Income before preferred stock dividends of HECO		44,681			8,139			8,931			2,075		1,881		(21,026	)		44,681
Preferred stock dividends of HECO		540			267			191			2,013		1,825		(4,296	)		540
Net income for common stock	$	44,141		$	7,872		$	8,740		$	62	$	56	$	(16,730	)	$	44,141

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF RETAINED EARNINGS (UNAUDITED)  

	Six months ended June 30, 2001
	(in thousands)
	HECO		HELCO			MECO			HECO Capital Trust I			HECO Capital Trust II			Reclassi- fications and elimina- tions			HECO consolidated
Retained earnings, beginning of period	$	443,970	$	62,962		$	73,586		$	—		$	—		$	(136,548	)	$	443,970
Net income for common stock		44,141		7,872			8,740			62			56			(16,730	)		44,141
Common stock dividends		—		(4,948	)		(6,307	)		(62	)		(56	)		11,373			—
Retained earnings, end of period	$	488,111	$	65,886		$	76,019		$	—		$	—		$	(141,905	)	$	488,111

30

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

	Six months ended June 30, 2002
	HECO			HELCO			MECO			HECO Capital Trust I			HECO Capital Trust II			Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Cash flows from operating activities
Income before preferred stock dividends of HECO	$	44,749		$	7,755		$	8,877		$	2,075		$	1,881		$	(20,588	)	$	44,749
Adjustments to reconcile income before preferred stock dividends of HECO to net cash provided by operating activities
Equity in earnings		(16,292	)		—			—			—			—			16,292			—
Common stock dividends received from subsidiaries		6,931			—			—			—			—			(6,931	)		—
Depreciation of property, plant and equipment		31,804			9,788			11,131			—			—			—			52,723
Other amortization		2,068			1,234			3,019			—			—			—			6,321
Deferred income taxes		1,611			(365	)		(387	)		—			—			—			859
Tax credits, net		483			751			145			—			—			—			1,379
Allowance for equity funds used during construction		(1,638	)		(109	)		(68	)		—			—			—			(1,815	)
Changes in assets and liabilities
Decrease (increase) in accounts receivable		(2,456	)		(463	)		476			—			—			200			(2,243	)
Increase in accrued unbilled revenues		(4,165	)		(534	)		(215	)		—			—			—			(4,914	)
Decrease (increase) in fuel oil stock		(2,063	)		34			(2,645	)		—			—			—			(4,674	)
Increase in materials and supplies		(740	)		(504	)		(230	)		—			—			—			(1,474	)
Decrease (increase) in regulatory assets		(266	)		233			(1,094	)		—			—			—			(1,127	)
Increase (decrease) in accounts payable		6,890			(2,603	)		(221	)		—			—			—			4,066
Decrease in taxes accrued		(15,241	)		(2,227	)		(3,025	)		—			—			—			(20,493	)
Changes in other assets and liabilities		(7,893	)		(233	)		(401	)		—			—			3,638			(4,889	)
Net cash provided by operating activities		43,782			12,757			15,362			2,075			1,881			(7,389	)		68,468
Cash flows from investing activities
Capital expenditures		(35,416	)		(8,969	)		(5,775	)		—			—			—			(50,160	)
Contributions in aid of construction		2,849			1,954			640			—			—			—			5,443
Repayments from affiliates		(600	)		—			(5,000	)		—			—			5,600			—
Net cash used in investing activities		(33,167	)		(7,015	)		(10,135	)		—			—			5,600			(44,717	)
Cash flows from financing activities
Common stock dividends		(19,413	)		(2,562	)		(4,251	)		(62	)		(56	)		6,931			(19,413	)
Preferred stock dividends		(540	)		(267	)		(191	)		—			—			458			(540	)
Preferred securities distributions of trust subsidiaries		—			—			—			(2,013	)		(1,825	)		—			(3,838	)
Proceeds from issuance of long-term debt		7,206			—			—			—			—			—			7,206
Repayment of long-term debt		—			(5,000	)		—			—			—			—			(5,000	)
Net increase in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less		8,722			600			—			—			—			(5,600	)		3,722
Other		(6,590	)		209			(9	)		—			—			—			(6,390	)
Net cash used in financing activities		(10,615	)		(7,020	)		(4,451	)		(2,075	)		(1,881	)		1,789			(24,253	)
Net increase (decrease) in cash and equivalents		—			(1,278	)		776			—			—			—			(502	)
Cash and equivalents, beginning of period		9			1,282			567			—			—			—			1,858
Cash and equivalents, end of period	$	9		$	4		$	1,343		$	—		$	—		$	—		$	1,356

31

HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

	Six months ended June 30, 2001
	HECO			HELCO			MECO			HECO Capital Trust I			HECO Capital Trust II			Reclassi- fications and elimina- tions			HECO consolidated
	(in thousands)
Cash flows from operating activities
Income before preferred stock dividends of HECO	$	44,681		$	8,139		$	8,931		$	2,075		$	1,881		$	(21,026	)	$	44,681
Adjustments to reconcile income before preferred stock dividends of HECO to net cash provided by operating activities
Equity in earnings		(16,730	)		—			—			—			—			16,730			—
Common stock dividends receivedfrom subsidiaries		11,373			—			—			—			—			(11,373	)		—
Depreciation of property, plant and equipment		30,392			8,884			10,696			—			—			—			49,972
Other amortization		2,904			971			2,498			—			—			—			6,373
Deferred income taxes		3,340			(56	)		(1,062	)		—			—			—			2,222
Tax credits, net		257			96			181			—			—			—			534
Allowance for equity funds used during construction		(1,860	)		(130	)		(230	)		—			—			—			(2,220	)
Changes in assets and liabilities
Decrease in accounts receivable		10,749			718			999			—			—			(257	)		12,209
Decrease in accrued unbilled revenues		5,907			1,876			1,647			—			—			—			9,430
Decrease (increase) in fuel oil stock		(4,325	)		1,254			3,096			—			—			—			25
Increase in materials and supplies		(2,215	)		(254	)		(973	)		—			—			—			(3,442	)
Increase in regulatory assets		(119	)		(24	)		(976	)		—			—			—			(1,119	)
Decrease in accounts payable		(13,490	)		(2,915	)		(4,624	)		—			—			—			(21,029	)
Increase (decrease) in taxes accrued		(3,497	)		(224	)		1,600			—			—			—			(2,121	)
Changes in other assets and liabilities		(13,148	)		(3,473	)		(812	)		—			—			4,095			(13,338	)
Net cash provided by operating activities		54,219			14,862			20,971			2,075			1,881			(11,831	)		82,177
Cash flows from investing activities
Capital expenditures		(33,220	)		(8,081	)		(9,771	)		—			—			—			(51,072	)
Contributions in aid of construction		1,586			1,328			736			—			—			—			3,650
Advances to (repayments from) affiliates		2,900			—			(4,000	)		—			—			1,100			—
Net cash used in investing activities		(28,734	)		(6,753	)		(13,035	)		—			—			1,100			(47,422	)
Cash flows from financing activities
Common stock dividends		—			(4,948	)		(6,307	)		(62	)		(56	)		11,373			—
Preferred stock dividends		(540	)		(267	)		(191	)		—			—			458			(540	)
Preferred securities distributions of trust subsidiaries		—			—			—			(2,013	)		(1,825	)		—			(3,838	)
Proceeds from issuance of long-term debt		11,580			—			—			—			—			—			11,580
Net decrease in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less		(27,283	)		(1,400	)		(1,500	)		—			—			(1,100	)		(31,283	)
Repayment of other short-term borrowings		(3,000	)		—			—			—			—			—			(3,000	)
Other		(7,631	)		(638	)		(6	)		—			—			—			(8,275	)
Net cash used in financing activities		(26,874	)		(7,253	)		(8,004	)		(2,075	)		(1,881	)		10,731			(35,356	)
Net increase (decrease) in cash and equivalents		(1,389	)		856			(68	)		—			—			—			(601	)
Cash and equivalents, beginning of period		1,398			4			132			—			—			—			1,534
Cash and equivalents, end of period	$	9		$	860		$	64		$	—		$	—		$	—		$	933

32

Item 2.    Management’s discussion and analysis of financial condition and results of operations

The following discussion should be read in conjunction with the consolidated financial statements of HEI and HECO and accompanying notes.

RESULTS OF OPERATIONS

HEI Consolidated

	Three months ended June 30,					% change		Primary reason(s) for significant change*
	2002		2001
	(in thousands, except per share amounts)
Revenues	$	409,002	$	427,339		(4	)	Decreases for all segments
Operating income		69,485		64,700		7		Increases for the bank and electric utility segments, partly offset by an increased loss for the “other” segment
Income (loss) from:
Continuing operations	$	30,984	$	26,112		19		Higher operating income and lower interest expense due to lower borrowing balances and short-term interest rates
Discontinued operations		—		(524	)	100		Loss from discontinued international power operations in 2001
Net income	$	30,984	$	25,588		21
Basic earnings per common share—
Continuing operations	$	0.86	$	0.78		10
Discontinued operations		—		(0.02	)	100
	$	0.86	$	0.76		13		See explanation for income (loss) above and weighted-average number of common shares outstanding below
Weighted-average number of common shares outstanding		36,189		33,481		8		Issuances of shares under the DRIP, other plans and a registered public offering of 1.5 million shares of common stock in November 2001

33

	Six months ended June 30,					% change		Primary reason(s) for significant change*
	2002		2001
	(in thousands, except per share amounts)
Revenues	$	786,438	$	860,676		(9	)	Decreases for all segments
Operating income		133,354		129,634		3		Increase for the bank segment, partly offset by a decrease for the electric utility segment and an increased loss for the “other” segment
Income (loss) from:
Continuing operations	$	57,903	$	53,876		7		Higher operating income and lower interest expense due to lower borrowing balances and short-term interest rates
Discontinued operations		—		(543	)	100		Loss from discontinued international power operations in 2001
Net income	$	57,903	$	53,333		9
Basic earnings per common share—
Continuing operations	$	1.61	$	1.62		(1	)
Discontinued operations		—		(0.02	)	100
	$	1.61	$	1.60		1		See explanation for income (loss) above and weighted-average number of common shares outstanding below
Weighted-average number of common shares outstanding		36,005		33,321		8		Issuances of shares under the DRIP, other plans and a registered public offering of 1.5 million shares of common stock in November 2001

* Also see segment discussions which follow.

34

Following is a general discussion of the results of operations by business segment.

Electric utility

	Three months ended June 30,				% change		Primary reason(s) for significant change
	2002		2001
	($ in thousands, except per barrel amounts)
Revenues	$	307,676	$	313,651	(2	)	Lower fuel oil costs and fuel components of purchased energy prices, the effects of which are passed on to customers ($20 million), partly offset by 3.5% higher KWH sales ($11 million) and sales mix variance ($2 million)
Expenses
Fuel oil		74,355		82,085	(9	)	Lower fuel oil prices, partly offset by more KWHs generated
Purchased power		76,520		83,481	(8	)	Lower fuel components of purchased energy prices and fewer KWHs purchased
Other		105,848		98,057	8		Higher other operation and maintenance expenses, depreciation and taxes, other than income taxes
Operating income		50,953		50,028	2		Higher KWH sales, partly offset by higher other operation and maintenance expenses, depreciation and taxes, other than income taxes
Net income		23,850		22,716	5		Higher operating income and lower interest expense due to lower short-term borrowing balances and interest rates
Kilowatthour sales (millions)		2,379		2,298	4
Cooling degree days (Oahu)		1,253		1,223	2
Fuel oil price per barrel	$	27.04	$	32.24	(16	)

35

	Six months ended June 30,				% change		Primary reason(s) for significant change
	2002		2001
	($ in thousands, except per barrel amounts)
Revenues	$	586,007	$	632,074	(7	)	Lower fuel oil costs and fuel components of purchased energy prices, the effects of which are passed on to customers ($58 million), partly offset by 1.4% higher KWH sales ($9 million) and sales mix variance ($4 million)
Expenses
Fuel oil		133,590		170,330	(22	)	Lower fuel oil prices, partly offset by more KWHs generated
Purchased power		153,621		165,397	(7	)	Lower fuel components of purchased energy prices, partly offset by more KWHs purchased
Other		202,239		198,309	2		Higher other operation and maintenance expenses and depreciation, partly offset by lower taxes, other than income taxes
Operating income		96,557		98,038	(2	)	Higher other operation and maintenance expenses and depreciation, partly offset by higher KWH sales
Net income		44,209		44,141	—		Lower interest expense due to lower short-term borrowing balances and interest rates, partly offset by lower operating income
Kilowatthour sales (millions)		4,602		4,539	1
Cooling degree days (Oahu)		2,072		2,133	(3	)
Fuel oil price per barrel	$	25.82	$	33.56	(23	)

Kilowatthour (KWH) sales in the second quarter of 2002 increased 3.5% compared to the same period in 2001, partly due to an increase in the number of customers, increases in residential and nontourism related commercial KWH usage and warmer weather. Partly offsetting the impact of the higher KWH sales were higher other operation and maintenance expenses, depreciation and taxes, other than income taxes, including a $2 million nonrecurring PUC fee adjustment. Other operation and maintenance expenses increased 12% due in part to higher employee benefit expenses, including lower pension and other postretirement benefit credits ($2.9 million income in the second quarter of 2002 compared to $4.2 million income in the second quarter of 2001), and the timing and larger scope of generating unit overhauls. The decrease in the pension and other postretirement benefit credits is largely related to the performance of the assets in the master pension trust and the decrease in the discount rate from 7.50% at December 31, 2000 to 7.25% at December 31, 2001.

KWH sales in the first half of 2002 increased 1.4% compared to the same period in 2001, partly due to an increase in the number of customers and an increase in residential KWH usage. However, electric utility operating income decreased 2% compared to the first half of 2001, primarily due to higher other operation and maintenance expenses and depreciation and the $2 million nonrecurring PUC fee adjustment. Other operation and maintenance

36

expenses and depreciation and the $2 million nonrecurring PUC fee adjustment. Other operation and maintenance expenses increased 4% due in part to higher employee benefit expenses, including lower pension and other postretirement benefit credits ($5.7 million income in the first half of 2002 compared to $8.6 million income in the first half of 2001), and the timing and larger scope of generating unit overhauls. The decrease in the pension and other postretirement benefit credits is largely related to the performance of the assets in the master pension trust and the decrease in the discount rate from December 31, 2000 to December 31, 2001.

Based on the reduction in the market value of the master pension trust assets through July 31, 2002, assuming no further asset appreciation or depreciation through yearend, and assuming a range of 9.0% to 10.0% for the expected long-term return on plan assets, the electric utilities’ qualified pension plan (expense)/income, net of taxes, for 2003 is projected to be between $(0.2) million and $2.9 million, compared to an estimated $9.1 million for 2002, $12.1 million for 2001 and $11.6 million for 2000.

Competition

The electric utility industry in Hawaii has become increasingly competitive. IPPs are well established in Hawaii and continue to actively pursue new projects. Competition in the generation sector in Hawaii is moderated, however, by the scarcity of generation sites, various permitting processes and lack of interconnections to other electric utilities. Customer self-generation, with or without cogeneration, has made modest inroads in Hawaii and is a continuing competitive factor. HECO and its subsidiaries have been able to compete successfully by offering customers economic alternatives that, among other things, employ energy efficient electrotechnologies such as the heat pump water heater.

In 1996, the PUC instituted a proceeding to identify and examine the issues surrounding electric competition and to determine the impact of competition on the electric utility infrastructure in Hawaii. Several of the parties submitted final statements of position to the PUC in 1998. HECO’s position in the proceeding was that retail competition is not feasible in Hawaii, but that some of the benefits of competition could be achieved through competitive bidding for new generation, performance-based rate-making (PBR) and innovative pricing provisions. The other parties to the proceeding advanced numerous other proposals.

In May 1999, the PUC approved HECO’s standard form contract for customer retention that allows HECO to provide a rate option for customers who would otherwise reduce their energy use from HECO’s system by using energy from a nonutility generator. Based on HECO’s current rates, the standard form contract provides a 2.77% and an 11.27% discount on base energy rates for qualifying “Large Power” and “General Service Demand” customers, respectively. In March 2000, the PUC approved a similar standard form contract for HELCO which, based on HELCO’s current rates, provides a 10.00% discount on base energy rates for qualifying “Large Power” and “General Service Demand” customers.

In December 1999, HECO, HELCO and MECO filed an application with the PUC seeking permission to implement PBR in future rate cases. In early 2001, the PUC dismissed the PBR proposal without prejudice, indicating it declined at that time to change its current cost of service/rate of return methodology for determining electric utility rates.

In January 2000, the PUC submitted to the legislature a status report on its investigation of competition. The report stated that competitive bidding for new power supplies (i.e., wholesale generation competition) is a logical first step to encourage competition in the state’s electric industry and that the PUC plans to proceed with an examination of the feasibility of competitive bidding and to review specific policies to encourage renewable energy resources in the power generation mix. The report states that “further steps” by the PUC “will involve the development of specific policies to encourage wholesale competition and the continuing examination of other areas suitable for the development of competition.” HECO is unable to predict the ultimate outcome of the proceeding, which (if any) of the proposals advanced in the proceeding will be implemented or whether the parties will seek and obtain state legislative action on their proposals (other than the legislation described below under “Legislation”).

37

Regulation of electric utility rates

The PUC has broad discretion in its regulation of the rates charged by HEI’s electric utility subsidiaries and in other matters. Any adverse decision and order (D&O) by the PUC concerning the level or method of determining electric utility rates, the authorized returns on equity or other matters, or any prolonged delay in rendering a D&O in a rate or other proceeding, would affect the amounts the utility charges to its customers and recognizes as revenues and could have a material adverse effect on the Company’s financial condition and results of operations. Upon a showing of probable entitlement, the PUC is required to issue an interim D&O in a rate case within 10 months from the date of filing a completed application if the evidentiary hearing is completed (subject to extension for 30 days if the evidentiary hearing is not completed). There is no time limit for rendering a final D&O. Interim rate increases are subject to refund with interest, pending the final outcome of the case. At June 30, 2002, HECO and its subsidiaries had recognized $15 million of revenues with respect to interim orders regarding certain integrated resource planning costs, which revenues are subject to refund, with interest, to the extent they exceed the amounts allowed in final orders. Management cannot predict with certainty when D&Os in pending or future rate cases will be rendered or the amount of any interim or final rate increase that may be granted.

Recent rate requests

HEI’s electric utility subsidiaries initiate PUC proceedings from time to time to request electric rate increases to cover rising operating costs (e.g., the cost of purchased power) and the cost of plant and equipment, including the cost of new capital projects to maintain and improve service reliability. As of August 1, 2002, the return on average common equity (ROACE) found by the PUC to be reasonable in the most recent final rate decision for each utility was 11.40% for HECO (D&O issued on December 11, 1995 and based on a 1995 test year), 11.50% for HELCO (D&O issued on February 8, 2001 and based on a 2000 test year) and 10.94% for MECO (amended D&O issued on April 6, 1999 and based on a 1999 test year).

Hawaiian Electric Company, Inc.

HECO has not initiated a rate case for several years, but in 2001 it committed to initiate a rate case within three years, using a 2003 or 2004 test year, as part of the agreement described below under “Other regulatory matters.”

Hawaii Electric Light Company, Inc.

In October 1999, HELCO filed a request to increase rates by 9.6%, or $15.5 million in annual revenues, based on a 2000 test year.

In early 2001, HELCO received a final D&O from the PUC authorizing an $8.4 million, or 4.9% increase in annual revenues, effective February 15, 2001 and based on an 11.50% ROACE. The order granted HELCO an increase of approximately $2.3 million in annual revenues, in addition to affirming interim increases that took effect in September 2000 ($3.5 million) and January 2001 ($2.6 million). The D&O included in rate base $7.6 million for pre-air permit facilities needed for the delayed Keahole power plant expansion project that the PUC had also found to be used or useful to support the existing generating units at Keahole.

On June 1, 2001, the PUC issued an order approving a new standby service rate schedule rider for HELCO. The standby service rider issue had been bifurcated from the rest of the rate case. The rider provides the rates, terms and conditions for obtaining backup and supplemental electric power from the utility when a customer obtains all or part of its electric power from sources other than HELCO.

The timing of a future HELCO rate increase request to recover costs relating to the delayed Keahole power plant expansion project, i.e., adding two combustion turbines (CT-4 and CT-5) at Keahole, including the remaining cost of pre-air permit facilities, will depend on future circumstances. See “HELCO power situation” in note (4) of HECO’s notes to consolidated financial statements.

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PUC Commissioners

In July 2002, Commissioner Dennis R. Yamada retired and Commissioner Wayne H. Kimura became the Chairman of the PUC. Continuing to serve is Commissioner Janet E. Kawelo. A third PUC Commissioner is yet to be appointed, and would be subject to Senate confirmation.

Other regulatory matters

In October 2001, HECO and the Consumer Advocate finalized agreements, subject to PUC approval, under which HECO’s three commercial and industrial demand-side management (DSM) programs and two residential DSM programs would be continued until HECO’s next rate case (which, under the agreements, HECO committed to file using a 2003 or 2004 test year). The agreements for the temporary continuation of HECO’s existing DSM programs are in lieu of HECO continuing to seek approval of new 5-year DSM programs. Any DSM programs to be in place after HECO’s next rate case will be determined as part of the case. Under the agreements, HECO will cap the recovery of lost margins and shareholder incentives if such recovery would cause HECO to exceed its current authorized return on rate base. HECO also agrees it will not pursue the continuation of lost margins recovery through a surcharge mechanism or shareholder incentives in future rate cases. Consistent with the HECO agreements, in October 2001, HELCO and MECO reached agreements with the Consumer Advocate and filed requests to continue their four existing DSM programs. In November 2001, the PUC issued orders (one of which was later amended) that, subject to certain reporting requirements and other conditions, approved (1) the agreements regarding the temporary continuation of HECO’s five existing DSM programs until HECO’s next rate case and (2) the agreements regarding the temporary continuation of HELCO’s and MECO’s DSM programs until one year after the PUC makes a revenue requirements determination in HECO’s next rate case. Under the orders, however, HELCO and MECO are allowed to recover only lost margins and shareholder incentives accrued through the date that interim rates are established in HECO’s next rate case, but may request to extend the time of such accrual and recovery for up to one additional year.

Legislation

Congress and the Hawaii legislature periodically consider legislation that could have positive or negative effects on the utilities and their customers. For example, Congress is attempting to reconcile substantially different House and Senate versions of an energy bill. Outcomes could range from an increased supply of domestic oil to federal mandates for renewable energy.

The Hawaii legislature did not consider deregulation in its 2002 session, but did consider legislation to prohibit standby charges by utilities, require the undergrounding of utility lines, establish “green” marketing programs and institute a carbon tax on utilities, among other proposals. None of these proposals was adopted by the legislature.

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Bank

	Three months ended June 30,
	2002			2001			% change	Primary reason(s) for significant change
	($ in thousands)
Revenues	$	102,069		$	112,250		(9)	Lower interest income as a result of a lower weighted-average yield on interest-earning assets, partly offset by higher other income, including higher fee income and lower net investment losses
Operating income		24,369			17,572		39	Higher net interest income due to a higher average balance of interest-earning assets and higher other income, partly offset by higher expenses, including higher compensation expense. Also, in 2002, goodwill is no longer being amortized.
Net income		14,812			10,207		45	Higher operating income
Interest rate spread		3.31	%		3.07	%	8	109 basis points decrease in the weighted-average yield on interest-earning assets, more than offset by a 133 basis points decrease in the weighted-average rate on interest-bearing liabilities

	Six months ended June 30,
	2002			2001			% change	Primary reason(s) for significant change
	($ in thousands)
Revenues	$	200,911		$	228,004		(12)	Lower interest income as a result of a lower weighted-average yield on interest-earning assets, partly offset by higher other income, including higher fee income and lower net investment losses
Operating income		46,540			37,721		23	Higher net interest and other income, partly offset by higher expenses, including higher compensation, consulting, service bureau and office occupancy expenses. Also, in 2002, goodwill is no longer being amortized.
Net income		28,163			22,082		28	Higher operating income
Interest rate spread		3.29	%		3.08	%	7	126 basis points decrease in the weighted-average yield on interest-earning assets, more than offset by a 147 basis points decrease in the weighted-average rate on interest-bearing liabilities

Earnings of ASB depend primarily on net interest income, which is the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. ASB’s loan volumes and yields are affected by market interest rates, competition, demand for real estate financing, availability of funds and management’s responses to these factors. Advances from the Federal Home Loan Bank (FHLB) of Seattle and securities sold under agreements to repurchase continue to be significant sources of funds. Other factors affecting ASB’s

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operating results include gains or losses on sales of securities available for sale, fee income, provision for loan losses and expenses from operations.

Interest income and interest expense

The following table sets forth average balances, interest and dividend income, interest expense and weighted-average yields earned and rates paid, for certain categories of interest-earning assets and interest-bearing liabilities for the periods indicated. Average balances for each period have been calculated using the average month-end or daily balances during the period.

	Three months ended June 30,						Six months ended June 30,
	2002			2001			2002			2001
	(dollars in thousands)
Loans receivable
Average balances(1)	$	2,798,703		$	3,067,947		$	2,810,500		$	3,142,275
Interest income(2)		50,468			60,766			102,090			124,905
Weighted-average yield		7.21	%		7.92	%		7.26	%		7.95	%
Mortgage-related securities
Average balances	$	2,717,915		$	2,272,292		$	2,563,699		$	2,174,800
Interest income		36,325			38,393			68,131			76,195
Weighted-average yield		5.35	%		6.74	%		5.32	%		7.00	%
Investments(3)
Average balances	$	231,133		$	277,677		$	276,509		$	292,699
Interest and dividend income		1,873			3,432			4,099			9,092
Weighted-average yield		3.24	%		4.28	%		2.97	%		5.04	%
Total interest-earning assets
Average balances	$	5,747,751		$	5,617,916		$	5,650,708		$	5,609,774
Interest and dividend income		88,666			102,591			174,320			210,192
Weighted-average yield		6.17	%		7.26	%		6.17	%		7.43	%
Deposit liabilities
Average balances	$	3,706,115		$	3,646,931		$	3,677,567		$	3,624,155
Interest expense		19,325			31,233			39,498			63,226
Weighted-average rate		2.09	%		3.44	%		2.17	%		3.52	%
Borrowings
Average balances	$	1,807,817		$	1,791,844		$	1,740,433		$	1,808,569
Interest expense		20,052			25,579			37,995			54,086
Weighted-average rate		4.44	%		5.71	%		4.39	%		6.02	%
Total interest-bearing liabilities
Average balances	$	5,513,932		$	5,438,775		$	5,418,000		$	5,432,724
Interest expense		39,377			56,812			77,493			117,312
Weighted-average rate		2.86	%		4.19	%		2.88	%		4.35	%
Net balance, net interest income and interest rate spread
Net balance	$	233,819		$	179,141		$	232,708		$	177,050
Net interest income		49,289			45,779			96,827			92,880
Interest rate spread		3.31	%		3.07	%		3.29	%		3.08	%

(1) Includes nonaccrual loans.

(2) Includes interest accrued prior to suspension of interest accrual on nonaccrual loans and loan fees of $0.7 million and $0.9 million for the three months ended June 30, 2002 and 2001, and $1.5 million and $1.6 million for the six months ended June 30, 2002 and 2001, respectively.

(3) Includes stock in the FHLB of Seattle.

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Three months ended June 30, 2002

Net interest income before provision for losses for the second quarter of 2002 increased by $3.5 million, or 7.7%, over the same period in 2001. For the second quarter of 2002, net interest spread increased from 3.07% to 3.31% when compared to the same period in 2001 as ASB’s cost of interest-bearing liabilities decreased faster than the yield on its interest-earning assets. Total interest and dividend income for the second quarter of 2002 decreased by $13.9 million, or 13.6%, compared to the same period in 2001. The average balance of interest-earning assets for the second quarter of 2002 increased by $129.8 million compared to the same period in 2001. The weighted-average yield on interest-earning assets for the second quarter of 2002 was 109 basis points lower than for the second quarter of 2001. Interest income on loans decreased by $10.3 million, or 16.9%, compared to the same period in 2001, as average loan portfolio balances decreased by $269.2 million and the weighted-average yield on the loan portfolio decreased by 71 basis points. The decrease in the average loan portfolio balance was due to the high repayments in ASB’s residential loan portfolio as the low interest-rate environment brought about high refinancing activity and the securitization of $0.4 billion in residential loans into Federal National Mortgage Association (FNMA) pass-through securities in June 2001. Interest income on mortgage-related securities decreased by $2.1 million for the second quarter of 2002 compared to the second quarter of 2001 despite an increase in the average balance in mortgage-related securities of $445.6 million. The weighted-average yield on the mortgage-related securities decreased by 139 basis points. Total interest expense for the second quarter of 2002 decreased by $17.4 million, or 30.7%, compared to the same period in 2001. The average balance of interest-bearing liabilities for the second quarter of 2002 was $75.2 million higher than for the same period in 2001. The weighted-average interest rate on interest-bearing liabilities for the second quarter of 2002 was 133 basis points lower than for the second quarter of 2001. Interest expense on deposits decreased by $11.9 million as the weighted-average rate on deposits decreased by 135 basis points, partly offset by an increase in the average deposit balance of $59.2 million. The increase in average deposit balances was primarily in core deposit balances, which also lowered the weighted-average rate on ASB’s deposit balances. Interest expense on borrowings decreased by $5.5 million for the second quarter of 2002 compared to the same period in 2001. The weighted-average rate on ASB’s borrowings decreased by 127 basis points.

Other income for the second quarter of 2002 increased by $3.7 million, or 38.8%, over the same period in 2001. ASB had $1.9 million of higher fee income from its deposit liabilities for the second quarter of 2002 compared to the same period in 2001 primarily from income from service charges. The second quarter 2002 increase in fee income from other financial services was due to higher fee income from its debit and ATM cards resulting from ASB’s expansion of its debit card base and its introduction of new check cashing ATMs in August 2001. Gains on sales of investments and mortgage-related securities for the second quarter of 2002 decreased by $3.9 million compared to the same period in 2001. However, for the second quarter of 2001, ASB recognized a loss of $5.4 million on the writedown of investments in trust certificates to their then-current estimated fair value.

General and administrative expenses for the second quarter of 2002 increased by $0.5 million, or 1.3%, over the same period in 2001. The amortization of goodwill decreased by $1.2 million for the second quarter of 2002 compared to the same period in 2001 as a result of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. SFAS No. 142 requires that goodwill and intangible assets with indefinite lives no longer be amortized, but instead be tested for impairment at least annually. Compensation and benefits for the second quarter of 2002 was $2.2 million higher than the same period in 2001.

Six months ended June 30, 2002

Net interest income before provision for losses for the first half of 2002 increased by $3.9 million, or 4.2%, over the same period in 2001. For the first half of 2002, net interest spread increased from 3.08% to 3.29% when compared to the same period in 2001 as ASB’s cost of interest-bearing liabilities decreased faster than the yield on its interest-earning assets. Total interest and dividend income for the first half of 2002 decreased by $35.9 million, or 17.1%, compared to the same period in 2001. The average balance of interest-earning assets for the first half of 2002 increased by $40.9 million compared to the same period in 2001. The weighted-average yield on interest-earning assets for the first half of 2002 was 126 basis points lower than for the first half of 2001. Interest income on loans

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decreased by $22.8 million, or 18.3%, compared to the same period in 2001, as average loan portfolio balances decreased by $331.8 million and the weighted-average yield on the loan portfolio decreased by 69 basis points. The decrease in the average loan portfolio balance was due to the high repayments in ASB’s residential loan portfolio and the securitization of $0.4 billion in residential loans into FNMA pass-through securities in June 2001. Interest income on mortgage-related securities decreased by $8.1 million for the first half of 2002 compared to the first half of 2001 despite an increase in the average balance in mortgage-related securities of $388.9 million. The weighted-average yield on the mortgage-related securities decreased by 168 basis points. Interest and dividends on other investments decreased by $5.0 million for the first half of 2002 compared to the same period in 2001 as the weighted-average yield on the other investments decreased by 207 basis points. Total interest expense for the first half of 2002 decreased by $39.8 million, or 33.9%, compared to the same period in 2001. The average balance of interest-bearing liabilities for the first half of 2002 was $14.7 million lower than for the same period in 2001. The weighted-average interest rate on interest-bearing liabilities for the first half of 2002 was 147 basis points lower than for the first half of 2001. Interest expense on deposits decreased by $23.7 million as the weighted-average rate on deposits decreased by 135 basis points, partly offset by an increase in the average deposit balance of $53.4 million. The increase in average deposit balances was primarily in core deposit balances. Interest expense on borrowings decreased by $16.1 million for the first half of 2002 compared to the same period in 2001. The average borrowings outstanding decreased by $68.1 million and the weighted-average rate on ASB’s borrowings decreased by 163 basis points.

Other income for the first half of 2002 increased by $8.8 million, or 49.3%, over the same period in 2001. ASB had $3.2 million of higher fee income from its deposit liabilities for the first half of 2002 compared to the same period in 2001 primarily from income from service charges. Fee income from other financial services increased by $1.9 million for the first half of 2002 compared to the same period in 2001 due to higher fee income from its debit and ATM cards resulting from ASB’s expansion of its debit card base and its introduction of new check cashing ATMs in August 2001. Gains on sales of investments and mortgage-related securities for the first half of 2002 decreased by $3.7 million compared to the same period in 2001. However, for the first half of 2001, ASB recognized a loss of $6.2 million on the writedown of investments in trust certificates to their then-current estimated fair value.

General and administrative expenses for the first half of 2002 increased by $3.4 million, or 5.1%, over the same period in 2001. The amortization of goodwill decreased by $2.5 million for the first half of 2002 compared to the first half of 2001 as a result of the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets” on January 1, 2002. Compensation and benefits for the first half of 2002 was $3.7 million higher than the same period in 2001.

ASB continues to manage the volatility of its net interest income by managing the relationship of interest-sensitive assets to interest-sensitive liabilities. To accomplish this, ASB management uses simulation analysis to monitor and measure the relationship between the balances and repayment and repricing characteristics of interest sensitive-assets and interest-sensitive liabilities. Specifically, simulation analysis is used to measure net interest income and net market value fluctuations in various interest-rate scenarios. The simulation analysis shows that, in general, ASB’s net income is negatively impacted in scenarios where interest rates rise and positively impacted in scenarios where interest rates fall. In order to manage this interest-rate risk profile, ASB has utilized the following strategies: (1) increasing the level of low-cost core deposits; (2) originating relatively short-term or variable-rate business banking and commercial real estate loans; (3) investing in mortgage-related securities with short average lives; and (4) taking advantage of the lower interest-rate environment by lengthening the maturities of interest-bearing liabilities. The shape of the yield curve and the difference between the short-term and long-term rates are also factors affecting profitablility. For example, if a long-term fixed rate earning asset was funded by a short-term costing liability, the interest rate spread would be higher in a “steep” yield curve than a “flat” yield curve interest rate environment.

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During the first half of 2002, ASB added $6.5 million to its allowance for loan losses. As of June 30, 2002, ASB’s allowance for loan losses was 1.63% of average loans outstanding. The following table presents the changes in the allowance for loan losses for the periods indicated.

	Six months ended June 30,
	2002			2001
	(in thousands)
Allowance for loan losses, January 1	$	42,224		$	37,449
Provision for loan losses		6,500			6,000
Net charge-offs		(3,046	)		(4,085	)
Allowance for loan losses, June 30	$	45,678		$	39,364

In March 1998, ASB formed a wholly owned operating subsidiary, ASB Realty Corporation, which elects to be taxed as a real estate investment trust. This reorganization has reduced ASB’s Hawaii bank franchise taxes, net of federal income taxes, by $2.1 million for the six months ended June 30, 2002 and by $12.3 million for prior years. Although a State of Hawaii Department of Taxation tax auditor has challenged ASB’s position that it is entitled to a dividends received deduction on dividends paid to it by ASB Realty Corporation, ASB believes that its tax position is proper.

Regulation

ASB is subject to extensive regulation, principally by the OTS and the Federal Deposit Insurance Corporation. Depending on its 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 shareholders. See the discussions below under “Liquidity and capital resources—Bank.”

For a discussion of securities deemed impermissible investments by the OTS, see “Disposition of certain debt securities” in note (4) of HEI’s notes to consolidated financial statements.

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Other

	Three months ended June 30,						% change		Primary reason(s) for significant change
	2002			2001
	(in thousands)
Revenues	$	(743	)	$	1,438		NM		Second quarter of 2002 includes a writedown ($1.0 million) of income notes purchased in connection with the termination of ASB’s investments in trust certificates in May and July of 2001, which more than offset other income. The second quarter of 2001 includes interest income ($0.8 million) on the income notes.
Operating loss		(5,837	)		(2,900	)	(101	)	See explanation for revenues. Also, higher legal and other expenses related to the income notes ($0.9 million).

	Six months ended June 30,						% change		Primary reason(s) for significant change
	2002			2001
	(in thousands)
Revenues	$	(480	)	$	598		NM		First half of 2002 includes a writedown ($1.9 million) of income notes purchased in connection with the termination of ASB’s investments in trust certificates in May and July 2001, which more than offset other income. The first half of 2001 includes interest income ($0.8 million) on the income notes. The first half of 2001 also includes the equity in net loss of Utech Venture Capital Corporation ($1.5 million).
Operating loss		(9,743	)		(6,125	)	(59	)	See explanation for revenues. Also, higher legal and other expenses related to the income notes ($1.4 million) and stock options ($0.7 million).

NM Not meaningful.

The “other” business segment includes results of operations of TOOTS, formerly named HTB, a maritime freight transportation company that ceased operations in the fourth quarter of 1999; HEI Investments, Inc. (HEIII), a company primarily holding investments in leveraged leases (excluding foreign investments reported in discontinued operations); Pacific Energy Conservation Services, Inc., a contract services company primarily providing windfarm operational and maintenance services to an affiliated electric utility; ProVision Technologies, Inc., a company formed to sell, install, operate and maintain on-site power generation equipment and auxiliary appliances in Hawaii and the Pacific Rim; HEI Properties, Inc., a company currently holding passive investments and expected to hold real estate and related assets; Hawaiian Electric Industries Capital Trust I, HEI Preferred Funding, LP and Hycap Management, Inc., companies formed as special purpose financing entities to effect the issuance of 8.36% Trust Originated Preferred Securities; other inactive subsidiaries; HEI and HEIDI, holding companies; and eliminations of intercompany transactions.

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Contingencies

See note (8) and note (4) in HEI’s and HECO’s respective notes to consolidated financial statements for discussions of contingencies.

Recent accounting pronouncements

See note (7) and note (6) in HEI’s and HECO’s respective notes to consolidated financial statements.

FINANCIAL CONDITION

Liquidity and capital resources

The Company and consolidated HECO each believes that its ability to generate cash, both internally from operations and externally from issuances of equity and debt securities, commercial paper and bank borrowings, is adequate to maintain sufficient liquidity to fund its respective construction programs and investments and to cover debt and other cash requirements in the foreseeable future.

The consolidated capital structure of HEI (excluding ASB’s deposit liabilities, securities sold under agreements to repurchase and advances from the FHLB of Seattle) was as follows:

	June 30, 2002				December 31, 2001
	(in millions)
Short-term borrowings	$	50	2	%	$	—	—	%
Long-term debt		1,089	46			1,146	50
HEI-  and HECO-obligated preferred securities of trust subsidiaries		200	9			200	9
Preferred stock of subsidiaries		34	1			34	1
Common stock equity		998	42			930	40
	$	2,371	100	%	$	2,310	100	%

As of August 1, 2002, the Standard & Poor’s (S&P) and Moody’s Investors Service’s (Moody’s) ratings of HEI’s and HECO’s securities were as follows:

	S&P	Moody’s
HEI:
Commercial paper	A-2	P-2
Medium-term notes	BBB	Baa2
HEI-obligated preferred securities of trust subsidiary	BB+	Ba1
HECO:
Commercial paper	A-2	P-2
Revenue bonds (insured)	AAA	Aaa
Revenue bonds (noninsured)	BBB+	Baa1
HECO-obligated preferred securities of trust subsidiaries	BBB-	Baa2
Cumulative preferred stock (selected series)	nr	Baa3

nr Not rated.

The above ratings are not recommendations to buy, sell or hold any securities; such ratings may be subject to revision or withdrawal at any time by the rating agencies; and each rating should be evaluated independently of any other rating.

In May 2002, S&P revised its credit outlook on HEI and HECO securities to stable from negative, citing “recovery in Hawaii’s economy, moderate construction spending, aggressive cost containment, limited competitive pressures, steady banking operations, and expectations for continued financial improvement.” In June 2001, Moody’s revised its credit outlook on HEI and HECO securities to stable from negative, citing “significant improvements in the

46

Hawaiian economy, the resulting strong financial performance of the company’s main operating subsidiaries, and a reduced emphasis on overseas investments.”

The rating agencies use a combination of qualitative measures (i.e., assessment of business risk that incorporates an analysis of the qualitative factors of management, competitive positioning, operations, markets and regulation) as well as quantitative measures (e.g., cash flow, debt, interest coverage and liquidity ratios) in determining the Companies’ ratings.

In May 2002, at the time HEI filed a shelf registration statement to register the sale of up to $300 million of medium-term notes, Moody’s affirmed HEI’s medium-term note rating (Baa2) and S&P affirmed all of HEI’s and HECO’s ratings (A-2 for commercial paper, BBB for HEI’s medium-term notes and BBB+ for HECO’s noninsured revenue bonds).

From time to time, HEI and HECO each utilizes short-term debt, principally commercial paper, to support normal operations and for other temporary requirements. HECO also borrows short-term from HEI from time to time. HEI and HECO had average outstanding balances of commercial paper for the second quarter of 2002 of $0.5 million and $8.6 million, and balances at June 30, 2002 of $4.6 million and $45.8 million, respectively. Management believes that, if HEI’s and HECO’s commercial paper ratings were downgraded, they may not be able to sell commercial paper under current market conditions.

At June 30, 2002, HEI and HECO maintained bank lines of credit totaling $60 million and $100 million, respectively (all maturing in the first half of 2003). These lines of credit are principally maintained to support the issuance of commercial paper and may be drawn for general corporate purposes. Accordingly, the lines of credit are available for short-term liquidity in the event a ratings downgrade obviates access to the commercial paper markets. A $30 million line of credit to HEI contains provisions for revised pricing in the event of a ratings change (e.g., a ratings downgrade of HEI medium-term notes from BBB/Baa2 to BBB-/Baa3 by S&P and Moody’s, respectively, would result in a 15 basis points higher interest rate; a ratings upgrade from BBB/Baa2 to BBB+/Baa1 by S&P and Moody’s, respectively, would result in a 30 basis points lower interest rate). There are no such provisions in the Companies’ other lines of credit agreements. Further, none of HEI’s or HECO’s line of credit agreements contain “material adverse change” clauses that would affect access to the lines of credit in the event of a ratings downgrade or other material adverse events. At June 30, 2002, the lines were unused. To the extent deemed necessary, HEI and HECO anticipate arranging similar lines of credit as existing lines of credit mature.

For the first half of 2002, net cash provided by operating activities of consolidated HEI was $86 million. Net cash used in investing activities was $392 million, largely due to banking activities (including the purchase of mortgage-related securities and origination and purchase of loans, net of repayments and sales of such securities) and HECO’s consolidated capital expenditures. Net cash provided by financing activities was $96 million as a result of several factors, including net increases in deposits, short-term borrowings, securities sold under agreements to repurchase and advances from the FHLB and proceeds from the issuance of common stock, partly offset by the payment of common stock dividends and trust preferred securities distributions and net repayments of long-term debt.

Total HEI consolidated financing requirements for 2002 through 2006, including net capital expenditures (which exclude AFUDC and capital expenditures funded by third-party contributions in aid of construction) and long-term debt retirements (excluding repayments of advances from the FHLB of Seattle and securities sold under agreements to repurchase), are estimated to total $1.2 billion. Of this amount, approximately $0.7 billion is for net capital expenditures (mostly relating to the electric utilities’ net capital expenditures described below) and $0.3 billion is for the retirement or maturity of long-term debt. HEI’s consolidated internal sources (primarily consolidated cash flows from operations comprised mainly of net income, adjusted for noncash income and expense items such as depreciation, amortization and deferred taxes, and changes in working capital), after the payment of dividends, are expected to provide approximately 73% of the consolidated financing requirements (approximately 103% excluding long-term debt retirements), with debt and equity financing providing the remaining requirements. Additional debt and/or equity financing may be required to fund unanticipated expenditures not

47

included in the 2002 through 2006 forecast, such as increases in the costs of or an acceleration of the construction of capital projects of the electric utilities.

In November 2001, HEI sold 1.5 million shares of its common stock in a registered public offering. Proceeds of approximately $54 million from the sale initially were used to make short-term investments or to make short-term loans to HECO, and ultimately used to repay long-term debt at maturity and for other general corporate purposes.

Following is a discussion of the liquidity and capital resources of HEI’s largest segments.

Electric utility

HECO’s consolidated capital structure was as follows:

	June 30, 2002				December 31, 2001
	(in millions)
Short-term borrowings	$	52	3	%	$	49	3	%
Long-term debt		688	39			685	39
HECO-obligated preferred securities of trust subsidiaries		100	5			100	6
Preferred stock		34	2			34	2
Common stock equity		902	51			877	50
	$	1,776	100	%	$	1,745	100	%

Operating activities provided $68 million in net cash during the first half of 2002. Investing activities used net cash of $45 million, primarily for capital expenditures. Financing activities used net cash of $24 million, including $24 million for the payment of common and preferred dividends and preferred securities distributions, partially offset by a $6 million net increase in short-term and long-term debt.

The electric utilities’ consolidated financing requirements for 2002 through 2006, including net capital expenditures and long-term debt repayments, are estimated to total $0.6 billion. HECO’s consolidated internal sources (primarily consolidated cash flows from operations comprised mainly of net income, adjusted for noncash income and expense items such as depreciation, amortization and deferred taxes, and changes in working capital), after the payment of dividends, are expected to provide cash in excess of the consolidating financing requirements and may be used to reduce the level of short-term borrowings. However, debt and/or equity financing may be required to fund unanticipated expenditures not included in the 2002 through 2006 forecast, such as increases in the costs of or an acceleration of the construction of capital projects.

As of June 30, 2002, HECO could still draw on the remaining $4 million of proceeds from previous sales of special purpose revenue bonds by the Department of Budget and Finance of the State of Hawaii for the benefit of HECO. Also as of June 30, 2002, an additional $65 million of special purpose revenue bonds were authorized by the Hawaii Legislature for issuance for the benefit of HECO and HELCO prior to the end of 2003. HECO does not anticipate the need to issue common equity over the five-year period 2002 through 2006. The PUC must approve issuances, if any, of equity and long-term debt securities by HECO and its subsidiaries.

Capital expenditures include the costs of projects that are required to meet expected load growth, to improve reliability and to replace and upgrade existing equipment. Net capital expenditures for the five-year period 2002 through 2006 are currently estimated to total $0.6 billion. Approximately 60% of forecast gross capital expenditures (which include AFUDC and the capital expenditures funded by third-party contributions in aid of construction) is for transmission and distribution projects, with the remaining 40% primarily for generation projects.

For 2002, electric utility net capital expenditures are estimated to be $114 million. Gross capital expenditures are estimated to be $132 million, including approximately $88 million for transmission and distribution projects, approximately $30 million for generation projects and approximately $14 million for general plant and other projects. Drawdowns of proceeds from sales of tax-exempt special purpose revenue bonds and the generation of funds from internal sources are expected to provide the cash needed for the net capital expenditures in 2002.

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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 generating units, the availability of generating sites and transmission and distribution corridors, the ability to obtain adequate and timely rate increases, escalation in construction costs, the impacts of demand-side management programs, the effects of opposition to proposed construction projects and requirements of environmental and other regulatory and permitting authorities.

Bank

	June 30, 2002		December 31, 2001		% change
	(in millions)
Total assets	$	6,171	$	6,011	3
Available-for-sale mortgage-related securities		2,764		2,355	17
Held-to-maturity investment securities		87		84	3
Loans receivable, net		2,813		2,858	(2	)
Deposit liabilities		3,737		3,680	2
Securities sold under agreements to repurchase		694		683	2
Advances from Federal Home Loan Bank		1,098		1,033	6

As of June 30, 2002, ASB was the third largest financial institution in Hawaii based on total assets of $6.2 billion and deposits of $3.7 billion.

ASB’s principal sources of liquidity are customer deposits, wholesale borrowings, the sale of mortgage loans into secondary market channels and the maturity and repayment of portfolio loans and mortgage-related securities. ASB’s deposits increased by $57 million during the first half of 2002. ASB’s principal sources of borrowings are advances from the FHLB and securities sold under agreements to repurchase from broker/dealers. At June 30, 2002, FHLB borrowings totaled $1.1 billion, representing 17.8% of assets. ASB is approved by the FHLB to borrow up to 35% of assets to the extent it provides qualifying collateral and holds sufficient FHLB stock. At June 30, 2002, ASB’s unused FHLB borrowing capacity was approximately $1.1 billion. At June 30, 2002, securities sold under agreements to repurchase totaled $0.7 billion, representing 11.2% of assets. To the extent 2002 deposit growth falls short of satisfying ongoing commitments to fund maturing and withdrawable deposits, repay maturing borrowings, fund existing and future loans and make investments, ASB will utilize advances from the FHLB and securities sold under agreements to repurchase. At June 30, 2002, ASB had commitments to borrowers for undisbursed loan funds and unused lines and letters of credit of $0.7 billion. Management believes ASB’s current sources of funds will enable it to meet these obligations while maintaining liquidity at satisfactory levels.

In June 2001, ASB converted $0.4 billion in residential mortgage loans into FNMA pass-through securities. These securities were transferred into the investment securities portfolio and can serve as collateral for FHLB advances and other borrowings. The conversion of the loans also improves ASB’s risk-based capital ratio since less capital is needed to support federal agency securities than whole loans. In late June 2001, ASB sold $0.2 billion of the FNMA securities to improve ASB’s interest-rate risk profile. The securities sold were lower yielding 30-year fixed-rate securities with long durations. ASB has reinvested the proceeds into shorter duration fixed-rate and adjustable-rate securities.

For the first half of 2002, net cash provided by ASB’s operating activities was $22 million. Net cash used in ASB’s investing activities was $346 million, due largely to the purchase of mortgage-related securities and the origination and purchase of loans, net of repayments and sales. Net cash provided by financing activities was $117 million largely due to net increases in deposits, securities sold under agreements to repurchase and advances from the FHLB, partly offset by the payment of common and preferred stock dividends.

ASB believes that 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. Federal Deposit Insurance Corporation 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

49

deposits that are significantly higher than the rates offered by competing institutions. As of June 30, 2002, ASB was well-capitalized (ratio requirements noted in parentheses) with a leverage ratio of 6.7% (5.0%), a Tier-1 risk-based ratio of 13.3% (6.0%) and a total risk-based ratio of 14.5% (10.0%).

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION

The Company’s results of operations and financial condition can be affected by numerous factors, many of which are beyond its control and could cause future results of operations to differ materially from historical results. Such factors include international, national and local economic conditions; competition in its principal segments; developments in the U.S. capital markets; weather; terrorist acts; interest rate environment; loan loss experience; technological developments; final costs of exits from discontinued operations; asset dispositions; insurance coverages; environmental matters; regulation of electric utility rates; deliveries of fuel oil and purchased power; other electric utility regulatory and permitting contingencies; and regulation of ASB. For additional information about these factors, see pages 15 to 23 of HEI’s 2001 Annual Report to Stockholders.

Additional factors that may affect future results and financial condition are described on page v under “Forward-looking statements.”

MATERIAL ESTIMATES AND CRITICAL ACCOUNTING POLICIES

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ significantly from those estimates.

Material estimates that are particularly susceptible to significant change in the case of the Company include the amounts reported for investment securities, allowance for loan losses, regulatory assets, pension and other postretirement benefit obligations, reserves for discontinued operations, current and deferred taxes, contingencies and litigation.

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 financial condition and results of operations, and currently require management’s most difficult, subjective or complex judgments. For information about these policies, see pages 23 to 25 of HEI’s 2001 Annual Report to Stockholders.

Item 3.    Quantitative and qualitative disclosures about market risk

The Company considers interest-rate risk to be a very significant market risk for ASB as it could potentially have a significant effect on the Company’s financial condition and results of operations. For additional quantitative and qualitative information about the Company’s market risks, see pages 25 to 29 of HEI’s 2001 Annual Report to Stockholders.

U.S. Treasury yields at June 28, 2002 and December 31, 2001 were as follows:

Term	June 28, 2002	December 31, 2001
3 month	1.68%	1.72%
1 year	1.93	2.03
5 year	4.04	4.30
10 year	4.80	5.05
30 year	5.51	5.47

Interest rates (as measured by U.S. Treasury yields for the various terms above) have moved between a negative 26 basis points and a positive 4 basis points from December 31, 2001 to June 28, 2002. Management believes that this shift in interest rates resulted in an immaterial change in the Company’s estimated fair values of its interest-sensitive assets, liabilities and off-balance sheet items.

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PART II—OTHER INFORMATION

Item 1.    Legal proceedings

There are no significant developments in pending legal proceedings except as set forth in HEI’s and HECO’s notes to consolidated financial statements, management’s discussion and analysis of financial condition and results of operations and Item 5, “Other information.”

Item 2.    Changes in securities and use of proceeds

On May 1, 2002 HEI has issued an aggregate of 7,500 shares of unregistered common stock pursuant to the HEI 1999 Nonemployee Company Director Stock Grant Plan, as amended effective May 1, 2002 (the HEI Nonemployee Director Plan). Under the HEI Nonemployee Director Plan, each HEI nonemployee director receives an annual stock grant of 600 shares of HEI common stock and each nonemployee subsidiary director receives an annual stock grant of 300 shares of HEI common stock.

HEI did not register the shares issued under the Plan since their issuance did not involve a “sale” as defined under Section 2(3) of the Securities Act of 1933, as amended. Participation by nonemployee directors of HEI and subsidiaries in the plan is mandatory and does not involve an investment decision. The Company received no proceeds in connection with this stock issuance.

Item 5.    Other information

A. State of Hawaii, ex rel., Bruce R. Knapp, Qui Tam Plaintiff, and Beverly Perry, on behalf of herself and all others similarly situated, Class Plaintiff, vs. The AES Corporation, AES Hawaii, Inc., Hawaiian Electric Company, Inc., and Hawaiian Electric Industries, Inc.

On April 22 and 23, 2002, HECO and HEI, respectively, were served with a complaint filed in the Circuit Court for the First Circuit of Hawaii which alleges that the State of Hawaii and HECO’s other customers have been overcharged for electricity as a result of alleged excessive prices in the amended power purchase agreement (Amended PPA) between defendants HECO and AES Hawaii, Inc. (AES-HI). AES-HI is a subsidiary of The AES Corporation (AES), which guarantees certain obligations of AES-HI under the Amended PPA.

HECO entered into a PPA with AES Barbers Point, Inc. (now known as AES-HI) in March 1988, and the PPA was amended in August 1989. The AES-HI 180 MW coal-fired cogeneration plant, which became operational in September 1992, utilizes a “clean-coal” technology and is designed to sell sufficient steam to be a “Qualifying Facility” under the Public Utility Regulatory Policies Act of 1978. The Amended PPA, which has a 30-year term, was approved by the PUC in December 1989, following contested case hearings in October 1988, an initial Decision and Order in July 1989, an amendment of the PPA in August 1989, and further contested case hearings in November 1989. Intervenors included the state Consumer Advocate and the U.S. Department of Defense. The PUC proceedings addressed a number of issues, including whether the prices for capacity and energy in the Amended PPA were less than HECO’s long-term estimated avoided costs, whether HECO needed the capacity to be provided by AES-HI, and whether the terms and conditions of the Amended PPA were reasonable.

The Complaint alleges that HECO’s payments to AES-HI for power, based on the prices, terms and conditions in the PUC-approved Amended PPA, have been “excessive” by over $1 billion since September 1992, and that approval of the Amended PPA was wrongfully obtained from the PUC as a result of alleged misrepresentations and/or material omissions by the defendants, individually and/or in conspiracy, with respect to the estimated future costs of the Amended PPA versus the costs of hypothetical HECO-owned generating units. The Complaint seeks treble damages, attorneys fees’, rescission of the Amended PPA, and punitive damages against HECO, HEI, AES-HI and AES under Hawaii laws permitting qui tam actions (asserting that the State declined to take over the action) and prohibiting unfair or deceptive acts or practices, and also asserts claims of fraud and unjust enrichment. The claimed damages are payments by the State and the class of all HECO customers for electricity at rates established by the PUC based on HECO’s costs, including payments under the Amended PPA to AES-HI.

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On May 22, 2002, AES, with the consent of HECO and HEI, removed the case to the U.S. District Court for the District of Hawaii on the ground that the action arises under and is completely preempted by the Public Utility Regulatory Policies Act of 1978.

On June 12, 2002, HECO and HEI filed a motion to dismiss the complaint on the grounds that the plaintiffs’ claims either arose prior to enactment of the Hawaii False Claims Act, which does not have retroactive application, or are barred by the applicable statute of limitations. AES also filed a motion to dismiss, on the same and additional grounds. Both motions are set for hearing on October 23, 2002.

Plaintiffs moved to remand the case to state court on June 21, 2002. The motion is scheduled to be heard before the federal magistrate on August 23, 2002.

Management believes that the claims are without merit and intends to vigorously defend the lawsuit.

B. Puna Geothermal Venture

HELCO has a 35-year PPA with Puna Geothermal Venture (PGV) for 30 MW of firm capacity from its geothermal steam facility expiring on December 31, 2027. PGV’s output has been in decline since mid-2000 and PGV is currently able to produce only about 5 MW of firm capacity compared to the 30 MW the company contracted to provide to HELCO. The loss of generation capacity has been attributed to blockage of a source well due to a failed liner below 5000 feet and decreasing steam quality emanating from one of its source wells. PGV is in the process of drilling additional source wells and a re-injection well in order to recover the 30 MW capacity. PGV is targeting a return to full contract capacity of 30 MW in November 2002.

C. Hawaiian Commercial & Sugar Company

MECO has a PPA with Hawaiian Commercial & Sugar Company (HC&S) for 16 MW of firm capacity. The HC&S generating units primarily burn bagasse (sugar cane waste) along with secondary fuels of oil or coal. In March 1998, an HC&S unit failed and HC&S lost 10 MW of generating capacity. HC&S replaced the unit and put it into operation in the second quarter of 2000. HC&S, however, has since struggled to meet its contractual obligations to MECO in 2000 and 2001 due to operational constraints that led to several claims of force majeure by HC&S. On January 23, 2001, MECO rescinded a December 27, 1999 PPA termination notice that it had sent to HC&S and agreed with HC&S that neither party would issue to the other a notice of termination prior to the end of 2002. On June 14, 2002, MECO and HC&S agreed that neither party will give written notice of termination under the terms of the PPA, such that the PPA terminates prior to December 31, 2007. As a result, the PPA remains in force and effect through December 31, 2007, and from year to year thereafter, subject to termination on or after December 31, 2007 on not less than two years’ prior written notice by either party.

D. Change of Escrow Agent

Optional cash investments made under the Hawaiian Electric Industries, Inc. Dividend Reinvestment and Stock Purchase Plan (the Plan) are forwarded to a segregated escrow account at a bank designated by HEI (Escrow Agent) to be held for the benefit of the Plan participants pending investment in shares of HEI common stock. Prior to December 10, 2001, First Hawaiian Bank was the Escrow Agent. Effective December 10, 2001, HEI changed the Escrow Agent to Central Pacific Bank.

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E.    Ratio of earnings to fixed charges

HEI and subsidiaries

Ratio of earnings to fixed charges excluding interest on ASB deposits

Six months ended June 30, 2002	Years ended December 31,
	2001	2000	1999	1998	1997
2.03	1.82	1.76	1.83	1.88	1.91

Ratio of earnings to fixed charges including interest on ASB deposits

Six months ended June 30, 2002	Years ended December 31,
	2001	2000	1999	1998	1997
1.71	1.52	1.49	1.50	1.48	1.59

For purposes of calculating the ratio of earnings to fixed charges for HEI and its subsidiaries, “earnings” represent the sum of (i) pretax income from continuing operations (excluding undistributed net income or net loss from less than 50%-owned persons) and (ii) fixed charges (but excluding capitalized interest). “Fixed charges” are calculated both excluding and including interest on ASB’s deposits during the applicable periods and represent the sum of (i) interest incurred by HEI and its subsidiaries, whether capitalized or expensed, but excluding interest on nonrecourse debt from leveraged leases which is not included in interest expense in HEI’s consolidated statements of income, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the interest factor in rental expense, (iv) the preferred stock dividend requirements of HEI’s subsidiaries, increased to an amount representing the pretax earnings required to cover such dividend requirements and (v) the preferred securities distribution requirements of trust subsidiaries.

HECO and subsidiaries

Ratio of earnings to fixed charges

Six months ended June 30, 2002	Years ended December 31,
	2001	2000	1999	1998	1997
3.66	3.51	3.39	3.09	3.33	3.26

For purposes of calculating the ratio of earnings to fixed charges for HECO and its subsidiaries, “earnings” represent the sum of (i) pretax income before preferred stock dividends of HECO and (ii) fixed charges (but excluding the allowance for borrowed funds used during construction). “Fixed charges” represent the sum of (i) interest incurred by HECO and its subsidiaries, whether capitalized or expensed, (ii) amortization of debt expense and discount or premium related to any indebtedness, whether capitalized or expensed, (iii) the interest factor in rental expense, (iv) the preferred stock dividend requirements of HELCO and MECO, increased to an amount representing the pretax earnings required to cover such dividend requirements and (v) the preferred securities distribution requirements of the trust subsidiaries.

53

Item 6.    Exhibits and reports on Form 8-K

(a)  Exhibits

HEI
Exhibit 4	Escrow Agreement dated as of November 26, 2001 between HEI and Central Pacific Bank for incorporation by reference in the Registration on Form S-3 (Regis. No. 333-56312) (superseding Exhibit 4(f) thereto)
HEI
Exhibit 12.1	Hawaiian Electric Industries, Inc. and subsidiaries Computation of ratio of earnings to fixed charges, six months ended June 30, 2002 and 2001
HEI
Exhibit 99.1	Fifth Amendment to Trust Agreement, made and entered into April 1, 2002, between Fidelity Management Trust Company and HEI for the Hawaiian Electric Industries Retirement Savings Plan for incorporation by reference in the Registration Statement on Form S-8 (Regis. No. 333-02103)
HEI
Exhibit 99.2	Amendment 2002-2 to the Hawaiian Electric Industries Retirement Savings Plan, executed on May 31, 2002, for incorporation by reference in the Registration Statement on Form S-8 (Regis. No. 333-02103)
HEI
Exhibit 99.3	Written Statement Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 of Robert F. Clarke (HEI Chief Executive Officer)
HEI
Exhibit 99.4	Written Statement Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 of Robert F. Mougeot (HEI Chief Financial Officer)
HEI
Exhibit 99.5	Opinion of D’Amato & Lonborg (including consent) re: Employee Retirement Income Security Act of 1974, as amended, for incorporation by reference in the Registration Statement on Form S-8 (Regis. No. 333-02103)
HEI
Exhibit 99.8	Sixth Amendment to Trust Agreement, made and entered into effective January 1, 2002, between Fidelity Management Trust Company and HEI for the Hawaiian Electric Industries Retirement Savings Plan for incorporation by reference in the Registration Statement on Form S-8 (Regis. No. 333-02103)
HECO
Exhibit 12.2	Hawaiian Electric Company, Inc. and subsidiaries Computation of ratio of earnings to fixed charges, six months ended June 30, 2002 and 2001
HECO
Exhibit 99.6	Written Statement Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 of T. Michael May (HECO Chief Executive Officer)
HECO
Exhibit 99.7	Written Statement Pursuant to 18 U.S.C. Section 1350, as Adopted by Section 906 of the Sarbanes-Oxley Act of 2002 of Richard von Gnechten (HECO Chief Financial Officer)

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(b)    Reports on Form 8-K

Subsequent to March 31, 2002, HEI and/or HECO filed Current Reports, Forms 8-K, with the SEC as follows:

Dated	Registrant/s	Items reported
April 22, 2002	HEI/HECO	Item 5. HEI’s April 22, 2002 news release reporting first quarter 2002 earnings
May 1, 2002	HEI/HECO	Item 5. Announcement of HEI’s webcast and teleconference call of the financial analyst presentation on May 7, 2002
June 10, 2002	HEI	Item 5. HEI’s June 10, 2002 news release reporting inaccuracies in June 7, 2002 Pacific Business News article
July 1, 2002	HEI/HECO	Item 5. Update of “Oahu transmission system” and disclosures for goodwill and other intangibles
July 22, 2002	HEI/HECO	Item 5. HEI’s July 22, 2002 news release reporting second quarter 2002 earnings
July 25, 2002	HEI	Item 5. Reporting that HEI Board members A. Maurice Myers and Bill D. Mills had each entered into written HEI common stock trading plans

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.

HAWAIIAN ELECTRIC INDUSTRIES, INC.		HAWAIIAN ELECTRIC COMPANY, INC.
(Registrant)		(Registrant)
By:	/s/    Robert F. Mougeot	By:	/s/    Richard A. von Gnechten
	Robert F. Mougeot Financial Vice President, Treasurer     and Chief Financial Officer (Principal Financial Officer of HEI)		Richard A. von Gnechten Financial Vice President (Principal Financial Officer of HECO)
Date: August 13, 2002		Date: August 13, 2002

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EX-4

                                                                   HEI EXHIBIT 4

                                ESCROW AGREEMENT

     THIS ESCROW AGREEMENT (this "Agreement"), dated as of November 26, 2001 is
made by and among Hawaiian Electric Industries, Inc., a Hawaii corporation (the
"Company") for itself and on behalf of the Hawaiian Electric Industries, Inc.
Dividend Reinvestment and Stock Purchase Plan, as in effect from time to time
(the "Plan"), and Central Pacific Bank, a corporation having trust powers, in
its capacity as escrow agent (the "Escrow Agent"). As used in this Agreement,
the term "Administrator" shall mean the Shareholder Services Division of the
Company or any other person or entity designated by the Company from time to
time.

     WHEREAS, the Company wishes to engage the Escrow Agent for the purpose of
receiving certain funds designated for the purchase of common stock of the
Company pursuant to the Plan, and for the purpose of depositing and holding such
funds in an escrow account until it receives written instructions from the
Administrator to release and distribute the funds in accordance with the written
instructions;

     WHEREAS, the Escrow Agent has agreed to act as escrow agent and to receive,
hold and distribute the funds in accordance with and subject to the terms and
conditions of this Agreement;

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     1.  Creation of Escrow Account, Compensation. The Company and the
Administrator hereby create with the Escrow Agent an interest bearing escrow
account identified as number XXX (the "Escrow Account"), to which certain
dividends declared and paid by the Company, initial cash investments and
optional cash investments will be promptly forwarded, deposited and held,
pending investment in common stock of the Company pursuant to the Plan. The
Escrow Agent shall hold the Escrow Account for the benefit of participants in
the Plan in accordance with this Agreement. Any interest earned on principal
amounts shall belong to the Company. The Company shall pay to the Escrow Agent
reasonable compensation for all services rendered by it, and reasonable expenses
incurred by it pursuant to this Agreement, as agreed to by the Company and the
Escrow Agent from time to time.

     2.  General Duties and Powers of Escrow Agent. The Escrow Agent shall keep
accurate and detailed records of the receipts, disbursements and other
transactions affecting the Escrow Account, shall make such records available for
review by of the Administrator, and shall furnish the Company with information
requested by the Company from time to time. Upon receiving written instructions
from the Administrator, the Escrow Agent shall make disbursements from the
Escrow Account at such times, to such persons (including the Administrator and
the Company), and in such amounts as the Administrator shall direct. The Escrow
Agent shall not be liable for any loss sustained by reason of acting or failing
to act pursuant to this Agreement in the absence of negligence, willful
misconduct or breach on the part of the Escrow Agent.

     3. Resignation and Removal; Successor. The Escrow Agent may resign its
duties by delivering its written resignation to the Administrator. Such
resignation shall be effective upon the appointment of a successor escrow agent,
as provided below. The Escrow Agent may be removed by the Administrator at any
time, with or without cause, upon not less than thirty (30) days written notice
to the Escrow Agent. The appointment of a successor escrow agent shall be
accomplished by and shall take effect upon the delivery to the resigning or
removed Escrow Agent, as the case may be, of (i) a written instrument appointing
the successor escrow agent, executed by the Administrator and consented to by
the



Company, and (ii) an acceptance in writing, executed by the appointed successor
escrow agent. Upon the appointment of a successor escrow agent, the resigning or
removed Escrow Agent shall transfer and deliver control over the Escrow Account
and all records relating thereto, to the successor escrow agent.

     4.  Termination. This Agreement may be terminated by the Company at any
time by written notice given to the Escrow Agent by the Administrator with
instructions as to the disposition of any funds or other property then remaining
in the Escrow Account.

     5. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered or if sent by
registered mail or certified mail, postage prepaid, or by facsimile, if to the
Escrow Agent, to Central Pacific Bank, Central Pacific Plaza, 220 S. King
Street, Suite 400, Honolulu, Hawaii 96813, Facsimile: XXX-XXXX, Attention: BCSC,
or, if to the Company or the Administrator, to Hawaiian Electric Industries,
Inc., 900 Richards Street, Honolulu, Hawaii 96813, Facsimile: (XXX) XXX-XXXX,
Attention: Shareholder Services. Any such notice shall be deemed to have been
given as of the date personally delivered or transmitted by facsimile, or five
(5) business days after the date mailed. Any party hereto may change its address
for purposes of this Section by written notice given in the manner provided
above.

     6.  Miscellaneous. This Agreement is made and shall be construed and
enforced in accordance with the laws of the State of Hawaii. This Agreement is
not be assignable by the Escrow Agent. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof. The
provisions of this Agreement shall be binding upon and inure to the benefit of
the parties hereto an their respective successors and permitted assigns. No
failure or delay by either party in exercising any right, power or remedy under
this Agreement shall operate as a waiver of any such right, power or remedy.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

     IN WITNESS WHEREOF, the parties have duly executed this Escrow Agreement as
of the date first above written.


Hawaiian Electric Industries, Inc.        Central Pacific Bank

By:  /s/ ROBERT F. MOUGEOT                By:  /s/ WILLARD LEE
    -----------------------------------       ----------------------------------
    Name:    Robert F. Mougeot                Name:    Willard Lee
    Title:   Financial Vice President,        Title:   Vice President
             Treasurer, & Chief
             Financial Officer


                                       2




                                                               November 13, 2001


TO: Central Pacific Bank

RE: Escrow account no. __________


     This certification is given pursuant to that certain Escrow Agreement
("Agreement") dated as of November 13, 2001 between Hawaiian Electric
Industries, Inc. ("Company") and Central Pacific Bank ("Escrow Agent").

     The following persons are designated as an authorized representative of the
Company and each hereby is authorized to issue standard instructions to Escrow
Agent in the form attached as Exhibit A. Specimen signatures of such persons are
shown below.

     Laurie Loo-Ogata
     Director, Shareholder Services           /s/ LAURIE LOO-OGATA
                                              ---------------------------

     Dara Teruya
     Administrator, Shareholder Services      /s/ DARA TERUYA
                                              ---------------------------

     Suzy A. P. Hollinger
     Manager, Investor Relations              /s/ SUZY A. P. HOLLINGER
                                              ---------------------------

     Lon K. Okada
     Manager, Tax Department                  /s/ LON K. OKADA
                                              ---------------------------

     Curtis Y. Harada
     Controller                               /s/ CURTIS Y. HARADA
                                              ---------------------------

     Robert F. Mougeot
     Financial Vice President, Treasurer
     & Chief Financial Officer                /s/ ROBERT F. MOUGEOT
                                              ---------------------------

     Nonstandard instructions in the form attached as Exhibit B shall be signed
by any one of the foregoing persons and countersigned by any one of the
following persons provided such countersigner is a different person.

     Robert F. Mougeot, Financial Vice
     President, Treasurer & Chief
     Financial Officer                        /s/ ROBERT F. MOUGEOT
                                              ---------------------------

     Curtis Y. Harada, Controller             /s/ CURTIS Y. HARADA
                                              ---------------------------

                                              Very truly yours,

                                              HAWAIIAN ELECTRIC INDUSTRIES, INC.


Corporate Seal
                                              By
                                                 -------------------------------
                                                 Corporate Secretary





                  HAWAIIAN ELECTRIC INDUSTRIES, INC. LETTERHEAD

[HEI Logo]                                                             EXHIBIT A

                                November 9, 2001


TO:  Central Pacific Bank
     Attn:
     FAX

RE:  Escrow account no. ____________

     These instructions are issued pursuant to that certain Escrow Agreement
dated as of _______________________ between Hawaiian Electric Industries, Inc.
("HEI") and Central Pacific Bank ("Escrow Agent").

     You are hereby authorized and requested to transfer via the fed wire system
on 2001:

         [X]  The amount of $__ to Bank of Hawaii (ABA No. XXX), for
              credit to HEI, account no. XXX.

         [X]  The amount of $__ to American Savings Bank, F.S.B. (ABA No.
              XXX) for credit to HEI DRIP account no. XXX.

     If you have any questions, please call Elizabeth Lee, Treasury
Administrator, Hawaiian Electric Company, Inc. at 543-7310.

                                        Very truly yours,
                                        HAWAIIAN ELECTRIC INDUSTRIES, INC.
                                        Shareholder Services

                                        By
                                          --------------------------------------
                                          Authorized Signor

Please sign below and fax it back to us at (XXX) XXX-XXXX to indicate your
acknowledgement of receipt of this letter.

CPB: Received by                                      Date
                 -------------------------------          ----------------------

cc:  Elizabeth Lee (FAX 543-7396)
     Amy Buser - KS4-MM            ASB 22500 L72 N   (Pot Shares)        $
                                   TT 47000 R73 Y    (Misc. Inc.)        $
                                   ZZ 22004 L41 N    (Fed. Taxes)        $
                                   ZZ 11502 R05 N    (Interest Inc.)     $
                                   ZZ 25100 S51 N    (Common Stock)      $





                                    EXHIBIT B

                    [FORM OF NONSTANDARD ESCROW INSTRUCTIONS]

                                                                          (date)

TO:  CENTRAL PACIFIC BANK

RE:  Escrow account no. _________________

     These instructions are issued pursuant to that certain Escrow Agreement
dated as of _____________________ between Hawaiian Electric Industries, Inc.
("HEI") and Central Pacific Bank ("Escrow Agent").

     You are hereby authorized and requested to:

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

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

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

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

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


     If you have any questions, please call Elizabeth Lee, Treasury
Administrator, Hawaiian Electric Company, Inc. at 543-7310.

                                      Very truly yours,
                                      HAWAIIAN ELECTRIC INDUSTRIES, INC.


                                      By
                                        ----------------------------------------
                                        Authorized Signor



                                      By
                                        ----------------------------------------
                                        Financial Vice President, Treasurer
                                        & Chief Financial Officer
                                        OR Controller

EX-12.1

                                                                HEI Exhibit 12.1

               HAWAIIAN ELECTRIC INDUSTRIES, INC. AND SUBSIDIARIES

               COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                   (unaudited)


Six months ended June 30                                      2002 (1)         2002 (2)         2001 (1)         2001 (2)
- ---------------------------------------------------------------------------------------------------------------------------
                                                                                (dollars in thousands)
                                                                                                   
FIXED CHARGES
Total interest charges (3) ................................  $  74,862         $114,360         $ 93,610         $156,836
Interest component of rentals .............................      2,247            2,247            2,122            2,122
Pretax preferred stock dividend requirements of
   subsidiaries ...........................................      1,552            1,552            1,563            1,563
Preferred securities distributions of
   trust subsidiaries .....................................      8,018            8,018            8,018            8,018
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED CHARGES .......................................  $  86,679         $126,177         $105,313         $168,539
===========================================================================================================================
EARNINGS
Pretax income .............................................  $  90,124        $  90,124         $ 84,496         $ 84,496
Fixed charges, as shown ...................................     86,679          126,177          105,313          168,539
Interest capitalized ......................................       (843)            (843)          (1,187)          (1,187)
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR FIXED CHARGES ......................   $175,960         $215,458         $188,622         $251,848
===========================================================================================================================
RATIO OF EARNINGS TO FIXED CHARGES ........................       2.03             1.71             1.79             1.49
===========================================================================================================================


(1)  Excluding interest on ASB deposits.

(2)  Including interest on ASB deposits.

(3)  Interest on nonrecourse debt from leveraged leases is not included in total
     interest charges nor in interest expense in HEI's consolidated statements
     of income.

EX-12.2

                                                               HECO Exhibit 12.2

                HAWAIIAN ELECTRIC COMPANY, INC. AND SUBSIDIARIES

                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                                  (unaudited)


Six months ended June 30                                                                       2002                2001
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                 (dollars in thousands)
                                                                                                           
FIXED CHARGES
Total interest charges ....................................................................  $ 22,193            $ 24,451
Interest component of rentals .............................................................       313                 351
Pretax preferred stock dividend requirements of subsidiaries ..............................       718                 719
Preferred securities distributions of trust subsidiaries ..................................     3,838               3,838
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL FIXED CHARGES .......................................................................   $27,062             $29,359
============================================================================================================================
EARNINGS
Income before preferred stock dividends of HECO ...........................................   $44,749            $ 44,681
Income taxes (see note below) .............................................................    27,977              28,017
Fixed charges, as shown ...................................................................    27,062              29,359
AFUDC for borrowed funds ..................................................................      (843)             (1,187)
- ----------------------------------------------------------------------------------------------------------------------------
EARNINGS AVAILABLE FOR FIXED CHARGES ......................................................   $98,945            $100,870
============================================================================================================================
RATIO OF EARNINGS TO FIXED CHARGES ........................................................      3.66                3.44
============================================================================================================================
Note:
Income taxes is comprised of the following
   Income tax expense relating to operating income for regulatory purposes ................   $27,823             $27,966
   Income tax expense relating to nonoperating results ....................................       154                  51
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                              $27,977             $28,017
============================================================================================================================

EX-99.1

                                                                HEI EXHIBIT 99.1

                   FIFTH AMENDMENT TO TRUST AGREEMENT BETWEEN
                     HAWAIIAN ELECTRIC INDUSTRIES, INC. AND
                        FIDELITY MANAGEMENT TRUST COMPANY

         THIS fifth AMENDMENT TO TRUST AGREEMENT, is made and entered into April
1, 2002, and is effective on that date unless otherwise noted below, by and
between Fidelity Management Trust Company (the "Trustee") and Hawaiian Electric
Industries, Inc. (the "Sponsor");

                                   WITNESSETH:

         WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated February 1, 2000, and amended August 1, 2000, November 1, 2000,
April 1, 2001 and December 31, 2001 (the "Trust Agreement") for the Hawaiian
Electric Industries Retirement Savings Plan (the "Plan"); and

         WHEREAS, the Sponsor has notified the Trustee that, effective April 2,
2002, the Bishop Insurance Agency of Hawaii, Inc. 401(k) Profit Sharing Plan
will be merged into the Plan; and

         WHEREAS, in furtherance of the foregoing, the Sponsor and the Trustee
desire to amend said Trust Agreement as provided for in Section 13 thereunder;

         NOW THEREFORE, in consideration of the above premises, the Sponsor and
the Trustee hereby amend the Trust Agreement by

                  Amending and restating Schedule "A" in its entirety, as
attached hereto.

         IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Fifth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.

HAWAIIAN ELECTRIC INDUSTRIES, INC.       FIDELITY MANAGEMENT TRUST
BY:  HAWAIIAN ELECTRIC INDUSTRIES,       COMPANY
INC. PENSION INVESTMENT COMMITTEE


By: /s/ Robert F. Mougeot  3/28/02       By: /s/ Sarah Mullins          4/19/02
    ---------------------------------        ----------------------------------
    Robert F. Mougeot        Date            FMTC Authorized Signatory   Date
    Chairman


By: /s/ Robert F. Clarke   3/28/02
    ---------------------------------
    Robert F. Clarke         Date
    Member



                                  Schedule "A"

                             ADMINISTRATIVE SERVICES

Administration

         * Establishment and maintenance of participant account and election
percentages.

         * Maintenance of the following plan investment options:

                  - Fidelity Retirement Money Market Portfolio
                  - ASB Money Market Account
                  - HEI Common Stock Fund
                  - Fidelity Puritan Fund
                  - Fidelity Magellan Fund
                  - Fidelity Overseas Fund
                  - Fidelity Freedom 2000 Fund
                  - Fidelity Freedom 2010 Fund
                  - Fidelity Freedom 2020 Fund
                  - Fidelity Freedom 2030 Fund
                  - Fidelity Freedom 2040 Fund
                  - Fidelity Freedom Income Fund
                  - Spartan U.S. Equity Index Fund
                  - MSIF Trust Value Portfolio - Adviser Class
                  - Neuberger Berman Partners Fun - Trust Class
                  - PBHG Emerging Growth Fund
                  - Fidelity U.S. Bond Index Fund
                  - INVESCO Dynamics Fund

         * Maintenance of the following money classifications:

                  - Salary Reduction
                  - Participant Voluntary
                  - Rollover
                  - HEI Diversified Plan
                  - Employer ASB
                  - Employer Supplemental
                  - IRA
                  - Voluntary HEISOP
                  - Employer HEISOP
                  - Employer BIA

         * Processing of investment option trades

         * Establishment and maintenance of participant loans

         The Trustee will provide only the recordkeeping and administrative
services set forth on this Schedule "A" and no others.

Processing

         * Weekly processing of contribution data and contributions
         * Daily processing of transfers and changes of future allocations via
           the telephone exchange system or by such other means as the Sponsor
           and Trustee may agree to from time to time
         * Daily processing of withdrawals
         * Daily and weekly processing of participant data updates via the Plan
           Sponsor Webstation or by such other means as the Sponsor and Trustee
           may agree to from time to time

                                        2



Other

         * Monthly trial balance
         * Monthly loan reports
         * Quarterly administrative reports
         * Quarterly participant statements via paper or electronic copy
         * 1099Rs
         * Account segregation for Qualified Domestic Relations Orders ("QDRO")
           as directed by Sponsor
         * Account segregation for named beneficiary(ies) due to a participant's
           death as directed by Sponsor
         * Excess contributions report
         * Periodic meetings with Sponsor
         * Educational services as needed and mutually agreed upon by the
           Trustee and the Sponsor
         * Minimum Required Distribution ("MRD") service
         * Provide employee communications describing available investment
           options, including multimedia informational materials and group
           presentations
         * Fidelity PortfolioPlanner(SM), an internet-based educational service
           for participants that generates target asset allocations and model
           portfolios customized to investment options in the Plan(s) based upon
           methodology provided by Strategic Advisers, Inc., an affiliate of the
           Trustee. The Sponsor acknowledges that it has received the ADV Part
           II for Strategic Advisers, Inc. more than 48 hours prior to executing
           the Trust amendment.
         * NetBenefits(SM)
         * Financial reporting to assist in the preparation of Form 5500

                                        3



HAWAIIAN ELECTRIC INDUSTRIES, INC.        FIDELITY MANAGEMENT
BY:  HAWAIIAN ELECTRIC INDUSTRIES,        TRUST COMPANY
INC. PENSION INVESTMENT COMMITTEE


By: /s/ Robert F. Mougeot   3/28/02       By: /s/ Sarah Mullins        4/19/02
    ----------------------------------        ----------------------------------
    Robert F. Mougeot        Date         FMTC Authorized Signatory     Date
    Chairman


By: /s/ Robert F. Clarke    3/28/02
    ----------------------------------
    Robert F. Clarke         Date
    Member

                                        4

EX-99.2

                                                                HEI EXHIBIT 99.2

                                AMENDMENT 2002-2
                                     TO THE
              HAWAIIAN ELECTRIC INDUSTRIES RETIREMENT SAVINGS PLAN

In accordance with Section 8.1 of the Hawaiian Electric Industries Retirement
Savings Plan (the "Plan"), the Plan is hereby amended as follows:

1.    Duration of Participation. Effective January 1, 2002, Section 1.3 of the
Plan is amended by replacing the words "separation from service" with "severance
from employment" in the last line thereof.

2.    Salary Reduction Elections. Effective July 1, 2002, Section 1.1(c) of the
Plan is amended and restated in its entirety to read as follows:

      (c)   Salary Reduction Elections. An Eligible Employee who has met the
      requirements for participation in Section 1.1(a) or 1.1(b) becomes a
      Participant by making a salary reduction election. A salary reduction
      election is an election by the Participant to forego taxable cash
      compensation in return for a tax-deferred, employer contribution of equal
      amount to the Participant's Account in the Plan. A Participant's salary
      reduction election becomes effective as soon as practicable following its
      completion and submission in accordance with procedures established by the
      Administrative Committee, but no sooner than the pay period following the
      pay period in which the election is properly submitted.

      A Participant may amend or revoke a salary reduction election for any
      reason, such changes to take effect prospectively. If a Participant
      voluntarily terminates a salary reduction election, the Participant may
      resume salary reduction contributions by making and submitting a new
      election in accordance with procedures established by the Administrative
      Committee. A Participating Employer, the PIC, or the Administrative
      Committee may also revoke or amend a Participant's salary reduction
      election to prevent the Participant from exceeding one of the maximum
      limitations described in Article III or in the event of a conflict between
      the salary reduction election and other payroll deductions authorized by
      the Participant or required by law. The Administrative Committee may adopt
      and modify rules and procedures for salary reduction elections.

3.    Salary Reduction Contributions. Effective July 1, 2002, Section 2.1 of the
Plan is amended and restated in its entirety to read as follows:

      Section 2.1   Salary Reduction Contributions

      Each Participating Employer shall make salary reduction contributions in
      accordance with the salary reduction elections made by its Participants in
      accordance with this Section.

      (a)   Regular Salary Reduction Elections. Any Eligible Employee may elect
      Regular Salary Reduction Contributions of 1% - 30% (in increments of .25%)
      of



         his or her annual Compensation. Such contributions may not exceed the
         maximum permissible for any Plan Year under the limitations set forth
         in Article III.

         (b)   Catch-Up Contributions. Any Participant who has reached age 50
         may elect to make Catch-Up Contributions to the Plan. For purposes of
         this subsection, a Participant is deemed to reach age 50 on January 1
         of the year in which his or her 50th birthday will occur (even if the
         Participant subsequently terminates employment or dies before reaching
         his or her 50th birthday).

         A Participant's Catch-Up Contributions for a Plan Year may not exceed
         the maximum dollar amount permissible under Section 414(v) of the Code.
         The limitation is $1,000 for 2002, and will increase to $2,000 for
         2003, $3,000 for 2004, $4,000 for 2005, and $5,000 (as adjusted for
         changes in the cost of living after 2006) for 2006 and thereafter.
         Catch-Up Contributions are not subject to the limitations set forth in
         Article III or to the 30% Plan limit on regular salary reduction
         contributions set forth in the preceding subsection.

         A Participant who has reached age 50 may elect to make Catch-Up
         Contributions for a Plan Year regardless of whether his or her Regular
         Salary Reduction Contributions have yet reached the Plan limitation set
         forth in subsection (a) or the Code limitations set forth in Sections
         3.1 and 3.2. However, if such Participant's Regular Salary Reduction
         Contributions do not reach such limits by the end of the Plan Year, the
         Participant's Catch-Up Contributions shall be recharacterized as
         Regular Salary Reduction Contributions to the extent provided in
         Section 3.1(b)(5).

         (c)   Administrative Procedures. The Administrative Committee shall
         have the power to adopt reasonable procedures for administering Regular
         Salary Reduction Contributions and Catch-Up Contributions. Such
         procedures may provide for salary reduction elections to be stated as
         dollar amounts, percentages, or a combination thereof, and may employ
         measures of compensation other than Compensation as defined in Section
         10.7 (e.g., percentage elections may be applied to periodic payroll
         amounts rather than pro-rated Compensation). The procedures may
         establish reasonable limitations on the amount a Participant may
         contribute for any pay period, provided such limitations do not
         unreasonably limit Participants' opportunities to make the maximum
         permissible Regular Salary Reduction Contributions and Catch-Up
         Contributions over the course of a Plan Year. The procedures may
         provide for an Eligible Employee to receive salary reduction election
         materials within a reasonable time before or after he or she becomes
         eligible to participate, and thus may defer the effective date of the
         Eligible Employee's initial election for a reasonable time after his or
         her eligibility date to allow for the distribution of election
         materials and the processing of the initial election. The procedures
         shall not discriminate in favor of highly compensated employees.

                                       2



      (d)   Deposit of Contributions. Except as permitted under Section
      2510.3-102 of the Department of Labor Regulations, all salary reduction
      contributions shall be deposited with the Trustee no later than the
      fifteenth (15th) business day of the month following the month in which
      such amounts would have been paid to the Participant in cash but for the
      Participant's salary reduction election.

      (e)   Mistakes of Fact. If a salary reduction contribution is made because
      of a mistake of fact, the contribution may be returned within one year
      after the contribution is made. The amount that may be returned is the
      amount contributed over the amount that would have been contributed had no
      mistake of fact occurred. Earnings on mistaken contributions may not be
      returned, but losses attributable thereto reduce the amount returned.

4.    Rollover Contributions. Effective July 1, 2002, Section 2.4 of the Plan is
amended and restated in its entirety to read as follows:

      Section 2.4   Rollover Contributions

              (a)   Direct Rollovers. With the consent of the Administrative
      Committee, an Eligible Employee, whether or not a Participant, may make a
      "direct rollover" to the Plan from (i) a retirement plan qualified under
      Section 401(a) of the Code; (ii) an annuity arrangement described in
      Section 403(b) of the Code; (iii) an eligible deferred compensation plan
      described in Section 457(b) of the Code that is maintained by an eligible
      employer described in Section 457(e)(1)(A) of the Code; or (iv) an
      individual retirement arrangement qualified under Section 408 of the Code.
      A "direct rollover" is a direct payment of an eligible rollover
      distribution by any reasonable means from the trustee or annuity provider
      of the former plan or arrangement to the Trustee of this Plan. The
      Administrative Committee may adopt reasonable standards and procedures for
      determining whether a proposed rollover is permissible under this Section
      and the applicable provision of the Code.

              (b)   Other Rollovers. The Administrative Committee may consider
      traditional rollovers by Eligible Employees. To protect the tax-qualified
      status of the Plan, the Administrative Committee may ask the Eligible
      Employee to provide an opinion of counsel or other evidence to establish
      that the requirements for a rollover distribution have been satisfied.

              (c)   After-Tax Rollovers from Employer Plans. The Plan may accept
      direct rollovers of after-tax amounts from retirement plans qualified
      under Section 401(a) of the Code. The Trustee shall separately account for
      such after-tax amounts.

5.    Section 401(k) Nondiscrimination Rules. Effective July 1, 2002, Section
3.1 of the Plan, as amended by Amendment 2002-1, is further amended by adding
the following new subsection following subsection (b)(4) thereof:

                                        3



      (5)   ADP testing shall be based solely on Participants' Regular Salary
      Reduction Contributions during each Plan Year; Catch-Up Contributions
      shall be disregarded. In particular, Catch-Up Contributions shall be
      excluded from the determination of each Participant's Regular Salary
      Reduction Contributions to each Component of the Plan for the Plan Year,
      and thus shall not be included in computing the ADP for the Participant's
      group of Eligible Employees for the relevant component for the Plan Year.

      A Participant's Catch-Up Contributions for the Plan Year shall equal the
      amount contributed by the Participant pursuant to Section 2.1(b), adjusted
      as provided in this subsection. If the Participant's Regular Salary
      Reduction Contributions made pursuant to Section 2.1(a) for the Plan Year
      do not exceed the lesser of the Plan percentage limit set forth in Section
      2.1(a) or the Code limitation set forth in Section 3.2(a), contributions
      made by the Participant pursuant to Section 2.1(b) shall be reclassified
      as Regular Salary Reduction Contributions in an amount equal to the lesser
      of (i) the difference between the lower of the applicable limitations and
      the Participant's contributions pursuant to Section 2.1(a), or (ii) the
      total amount contributed by the Participant pursuant to Section 2.1(b).
      Any recharacterization pursuant to this subsection shall apply to the ESOP
      Component and Non-ESOP Component in proportion to the amount of Catch-Up
      Contributions to each Component prior to the recharacterization.

6.    Excess Contributions. Effective July 1, 2002, Section 3.1(c) of the Plan,
as amended by Amendment 2002-1, is further amended by adding the following new
subsection after subsection (7) thereof:

            (8)    If an HCE who would otherwise receive a corrective
      distribution has reached age 50 (determined in accordance with Section
      2.1(b)), and such HCE's Catch-Up Contributions for the Plan Year pursuant
      to Section 2.1(b) (adjusted in accordance with Section 3.1(b)(5)) are less
      than the Catch-Up Contribution dollar limit set forth in Section 2.1(b),
      some or all of the amount that would otherwise be distributed to such HCE
      shall be recharacterized as a Catch-Up Contribution and retained in such
      HCE's Account. The amount to be recharacterized and retained pursuant to
      this subsection shall be equal to the lesser of (i) the difference between
      the Catch-Up Contribution dollar limit for the Plan Year and the HCE's
      prior Catch-Up Contributions for the Plan Year (adjusted in accordance
      with Section 3.1(b)(5)), or (ii) the total amount that would otherwise be
      distributed to the HCE as a corrective distribution.

7.    Maximum Contributions. Effective January 1, 2002, Section 3.2 of the Plan
is amended and restated in its entirety to read as follows:

      Section 3.2  Maximum Contributions

             (a)  Dollar Limit on Salary Reduction Contributions. No Participant
      shall be permitted to elect Regular Salary Reduction Contributions during
      any calendar year in excess of the amount of elective deferrals permitted
      by Section

                                       4



         402(g)(1) of the Code. The limit is $11,000 for 2002, $12,000 for 2003,
         $13,000 for 2004, $14,000 for 2005, and $15,000 for 2006 and
         thereafter. After 2006, the limit will be adjusted annually by the IRS
         for cost-of-living increases.

                  This limitation applies to the Participant and is based not
         only on Regular Salary Reduction Contributions to this Plan but also on
         "elective deferrals" to certain plans or annuity arrangements of other
         employers. "Elective deferrals" are elective salary reduction
         contributions (other than catch-up contributions) made to
         employer-sponsored, qualified Section 401(k) plans, Section 403(b)
         annuity arrangements, Section 408(k) simplified employee pension plans,
         and Section 408(p) SIMPLE plans. Because neither the Participating
         Employers, nor the PIC, nor the Administrative Committee has knowledge
         of a Participant's elective deferrals in plans or arrangements of other
         employers, it is the Participant's responsibility to monitor this
         limitation with respect to all elective deferrals. If a Participant's
         Regular Salary Reduction Contributions plus other elective deferrals
         for a Plan Year are in excess of the 402(g) limit, the Participant must
         allocate the excess to one or more of the plans or arrangements in
         which he or she participates. If the Participant chooses to allocate
         some or all of the excess elective deferrals to this Plan , the
         Participant must so notify the Administrative Committee no later than
         March 1 of the year following the year in which the excess occurred.
         The Participant's notice to the Administrative Committee must (i) be in
         writing, (ii) specify the amount of such excess for the preceding year
         allocated to the Plan, and (iii) be accompanied by the Participant's
         written statement to the effect that if such amounts are not
         distributed, such excess (when added to amounts deferred under other
         qualified retirement plans or arrangements) would exceed the limit
         imposed on the Participant by Section 402(g) of the Code for the year
         in which the contribution occurred. A Participant shall be deemed to
         have provided the foregoing notice to the Administrative Committee if
         the Participant's deferrals have exceeded the 402(g) limit taking into
         account only deferrals to this Plan and other plans sponsored by the
         Participating Employers or an Associated Company.

                  Any excess elective deferrals allocated to the Plan in
         accordance with the foregoing paragraph, plus any income and minus any
         loss allocable thereto, shall be distributed to the Participant no
         later than April 15 of the year following the year in which the excess
         occurred. Income or loss shall be determined by multiplying the income
         or loss allocable to the Participant's Account (to the extent the
         Account is derived from Regular Salary Reduction Contributions and
         Catch-Up Contributions) for the Plan Year by a fraction, the numerator
         of which is the amount of the excess deferrals under the Plan on behalf
         of the Participant for the Plan Year and the denominator of which is
         the sum of the Participant's Account balance attributable to Regular
         Salary Reduction Contributions and Catch-Up Contributions as of the
         beginning of the Plan Year plus the Participant's Regular Salary
         Reduction Contributions and Catch-Up Contributions for the Plan Year.
         No adjustment shall be made for the gap period between the end of the

                                       5



     Plan Year in which the excess deferrals were made and the time when the
     excess deferrals are distributed.

          (b)  Section 415 Limitations. In each Plan Year "Annual Additions" to
     the Plan (plus "Annual Additions" to any other defined contribution plan
     that a Participating Employer maintains) on behalf of each Participant may
     not exceed the lesser of $40,000 (adjusted for cost-of-living increases) or
     100% of the Participant's 415 Compensation for the Plan Year. "Annual
     Additions" means the sum credited to a Participant's Account for a Plan
     Year of:

          (1)  all Regular Salary Reduction Contributions and HEIDI
     contributions,

          (2)  all Employee contributions (none are currently allowed),

          (3)  forfeitures (there is no allocation of forfeitures under the
     Plan; any forfeiture of HEIDI contributions is used to reduce future HEIDI
     contributions), and

          (4)  with respect to "key employees" only, amounts contributed to a
     401(h) account in a defined benefit plan or to a qualified asset account in
     a welfare benefit fund to provide postretirement medical benefits to or on
     behalf of the "key employee," except that the 100% of 415 Compensation
     limitation on Annual Additions shall not apply to any amounts treated as
     Annual Additions under this paragraph.

          Catch-Up Contributions and assets transferred or rolled over from
     another qualified plan are not Annual Additions. Furthermore, the repayment
     of a Plan loan is not an Annual Addition. However, Annual Additions shall
     include Regular Salary Reduction Contributions for such Plan Year that are
     subsequently distributed to a Participant pursuant to this Article III,
     except to the extent of excess Regular Salary Reduction Contributions and
     earnings thereon refunded to the Participant by April 15 of the following
     Plan Year.

          (c)  Section 415 Aggregation Rules. In applying the limitations of
     Section 415 of the Code, all defined benefit plans (whether or not
     terminated) of a Participating Employer shall be treated as one plan, and
     all defined contribution plans (whether or not terminated) of a
     Participating Employer shall be treated as one plan. Furthermore, the term
     "Participating Employer" shall include all corporations that are members of
     the same controlled group of corporations or are under common control with
     a Participating Employer, except that control shall be considered to exist
     if there is more than 50% ownership control rather than 80% ownership
     control.

8.   Subaccounts.  Effective July 1, 2002, Section 4.2(a) of the Plan is amended
by revising the last sentence of the first paragraph to read as follows:

                                        6



         As of July 1, 2002, the Trustee maintains the following subaccounts:

         .     Salary Reduction          .     IRA
         .     Participant Voluntary     .     Voluntary HEISOP
         .     Rollover                  .     Employer HEISOP
         .     HEI Diversified Plan      .     Employee Pre-Tax Catch-Up
         .     Employer ASB              .     After-Tax Rollover
         .     Employer Supplemental     .     Employer BIA

9.       Expenses. Effective July 1, 2002, Section 4.2(d) of the Plan (as
renumbered by Amendment 2002-1) is amended and restated in its entirety to read
as follows:

                  (d)  Expenses. To the extent not paid by the Participating
         Employers, all costs and expenses of the Plan and any taxes assessed
         against the Plan shall be paid from the Plan. Each Participant may be
         assessed a recordkeeping fee by the Trustee with respect to his or her
         overall Account. If a Participant directs an investment in a Plan loan
         to himself or herself in accordance with Section 4.3(f), a loan set-up
         fee may be charged against the Participant's Account, and a periodic
         loan servicing fee may be assessed for as long as the loan is
         outstanding. If a Participant requests and receives an in-service
         withdrawal in accordance with Section 6.4, an administrative fee may be
         charged to the Participant's Account. The current fee schedule for fees
         charged to Participants' Accounts is available from the Trustee upon
         request.

10.      Plan Loans to Active Participants. Section 4.3(f) of the Plan is
amended and restated in its entirety to read as follows:

                  (f)  Plan Loans to Active Participants. This Section 4.3(f)
         sets forth guidelines for administering the loan program established by
         the PIC for Participants who are "parties in interest," as defined in
         Section 3(14) of ERISA. The loan program is administered by the Trustee
         in accordance with procedures approved by the Administrative Committee.
         The loan procedures are incorporated herein by this reference and may
         be amended at any time without notice and without further amendment to
         the Plan.

                       (i)  Loan Sources. Plan loans may be taken only from the
         following subaccounts: Salary Reduction, Participant Voluntary,
         Rollover, Employer ASB, Employer BIA, Employee Pre-Tax Catch-Up and
         After-Tax Rollover (collectively, "loan subaccounts").

                       (ii) Application Procedures. A Participant wishing to
         obtain a loan may initiate the process through the Trustee's telephone
         and internet services. The Participant has thirty days after initiating
         the loan to complete the loan application process. If the process is
         not completed within thirty days, the Participant must reinitiate the
         process. The loan application includes a

                                        7



     promissory note and security agreement and is subject to the review and
     approval of the Administrative Committee.

               (iii) Maximum Loan Amount. The maximum amount which may be
     borrowed by any Participant is the lesser of:

                     (A) 50% of the Participant's vested Account balance, or

                     (B) $50,000, reduced by the excess (if any) of

                          (1) the highest outstanding balance of loans from the
                          Plan during the one-year period ending on the date one
                          day before the date on which the loan is made, over

                          (2) the outstanding balance of loans from the Plan on
                          the date the loan is made.

               (iv)  Minimum Loan Amount. Loans will not be permitted for less
     than $1,000.

               (v)   Repayment Terms. Loans must be repaid within five years,
     unless the Participant uses the loan proceeds to buy the Participant's
     principal residence, in which case the Administrative Committee may agree
     to a repayment period of up to fifteen years. The principal residence
     exception to the five-year repayment rule does not apply to loans for the
     improvement of a Participant's principal residence. The Administrative
     Committee shall require that active Participants agree to have their loans
     repaid by payroll deduction so long as they are receiving Compensation from
     a Participating Employer, and to make payments directly to the
     Participating Employer during any periods of leave of absence when the
     Participant is not receiving sufficient Compensation to cover the loan
     payment (other than periods of military leave during which repayment is
     suspended pursuant to subsection (xi)). When a Participant terminates
     employment and ceases receiving Compensation from a Participating Employer,
     repayments thereafter shall be made directly to the Trustee. Interest will
     be paid as it accrues, with level amortization.

               (vi)  Purposes for Which Loans May Be Granted. Participants may
     have up to two loans outstanding, provided the maximum loan amount is not
     exceeded. The first loan may be granted without restriction on the use of
     the proceeds. A second loan will be permitted only if a Participant
     experiences an unforeseen or extraordinary situation that the
     Administrative Committee determines constitutes a "hardship." A Participant
     wishing to apply for a hardship loan must demonstrate to the satisfaction
     of the Administrative Committee that the Participant has an immediate and
     substantial financial need. Examples of situations that constitute
     "hardship" include (1) the purchase of a principal residence, (2) payment
     of medical expenses described in Section 213(d) of the

                                        8



     Code incurred by the Participant, the Participant's spouse, children or
     other tax dependents, (3) payment of college tuition and related expenses
     for up to twelve months for the Participant, the Participant's spouse,
     children or other tax dependents, (4) payment of funeral expenses of a
     family member, or (5) payment to prevent eviction from the Participant's
     principal residence or foreclosure on the mortgage on the Participant's
     principal residence. Under no circumstances shall the Administrative
     Committee or the Trustee conduct the loan program in a manner which is more
     favorable to Participants who are HCEs than to other Participants.

               (vii)  Interest Rates. The interest rate charged shall be two
     percentage points above the then current rate of interest being paid by the
     American Savings Bank, F.S.B. Money Market Account.

               (viii) Collateral. The Administrative Committee shall require
     that the loan be secured by 50% of the Participant's vested Account balance
     at the time the loan is approved.

               (ix)   Repayment Upon Distribution. If a Participant or
     Beneficiary applies for or otherwise becomes entitled to an immediate
     distribution in accordance with Section 6.1 of the Plan upon the
     Participant's severance from employment, Retirement, Disability, or death
     (including the automatic distribution of a small Account balance without
     the Participant's consent), the unpaid balance of any outstanding loan
     shall be due and payable in full immediately prior to such distribution. If
     repayment is not made in full prior to the distribution, the Participant's
     total Account balance will be reduced by the unpaid loan balance when the
     distribution is made.

               (x)    Default. Default will occur if:

                      (1) The Participant falls more than three months behind on
     repayment of the loan, without repaying the unpaid balance, either because
     of inadequate payroll deductions during employment or because of failure to
     make required payments to the Trustee following termination of employment,

                      (2) The Plan is terminated, or

                      (3) The Participant is involved as a debtor in a
     bankruptcy or insolvency proceeding brought by or against the Participant.

               If there is a default, the following will occur:

                      (A) The principal amount of the loan plus interest accrued
     through the date of default will be a deemed distribution, subject to all
     applicable taxes. The Trustee will issue Internal Revenue Service Form
     1099-R to the Participant, reflecting the deemed distribution.

                                        9



                    (B)  Although the default will be a deemed distribution, the
     Trustee will not reduce the Participant's Account until a distributable
     event occurs under the terms of the Plan. The outstanding balance of the
     defaulted loan (including interest accruing after default) shall be
     considered outstanding in applying Section 4.3(f)(iii) to determine the
     maximum amount of any subsequent loan. Furthermore, the Administrative
     Committee shall balance the fact that the Participant is in default against
     the "hardship" demonstrated as the need for the second loan, and may deny a
     second loan based on the default.

This section is effective July 1, 2002, except that: (i) the addition of
Employer BIA as a loan subaccount in subsection (i) is effective April 1, 2002;
and (ii) the amendment of subsection (ix) is effective January 1, 2002.

11.  Vesting. Effective January 1, 2002, Section 5.1 of the Plan is amended by
replacing the words "severance from service" with "separation from employment"
in each place they occur.

12.  Restoration of Forfeitures from Merged Plan. Effective April 1, 2002,
Section 5.2 of the Plan is amended by adding the following new subsection at the
end thereof:

          (d)  Restoration of Forfeitures from Merged Plan. If an individual was
     a participant in the Bishop Insurance Agency of Hawaii, Inc. 401(k) Profit
     Sharing Plan (the "BIA Plan") before the BIA Plan was merged into this
     Plan, and such individual terminated employment and incurred a forfeiture
     of all or part of his or her account balance in the BIA Plan on or before
     December 31, 2001, the individual may be entitled to restoration of the
     forfeited amount if he or she subsequently becomes an Employee of a
     Participating Employer. The forfeited amount will be restored only if (1)
     the individual becomes an Employee before he or she has incurred five
     consecutive One-Year Breaks in Service (determined under the rules set
     forth in Sections 10.20 and 5.1(b)(iii), applied as if Bishop Insurance
     Agency of Hawaii, Inc. had been a Participating Employer at all relevant
     times), and (2) the Employee repays any amount distributed to him or her
     from the BIA Plan within five years of the date on which he or she becomes
     an Employee. Any amount restored pursuant to this subsection shall be fully
     vested from the time of such restoration.

13.  Commencement of Benefits. Effective January 1, 2002, Section 6.1 of the
Plan is amended by replacing the words "separation from service" with "severance
from employment" in each place they occur. Effective July 1, 2002, Section 6.1
is further amended by replacing the words "completing the proper distribution
forms" in the first sentence of the second paragraph with the words "applying
for a distribution in accordance with procedures established by the
Administrative Committee."

14.  Form of Benefits. Effective July 1, 2002, the last paragraph of Section 6.2
of the Plan, as amended by Amendment 2002-1, is further amended and restated to
read as follows:

     All distributions shall be in the form of cash, except that a Participant's
     investment in the Company Stock Fund shall be converted to an equivalent

                                       10



       number of shares of Company Stock. The normal form of distribution for
       investments held in the Company Stock Fund shall be such Company Stock. A
       Participant may also elect to receive any such distribution from the
       Company Stock Fund in cash in lieu of Company Stock (and shall be deemed
       to have made such an election with respect to any automatic distribution
       of $5,000 or less, in accordance with the first paragraph of Section 6.1,
       unless the Participant affirmatively elects to receive the distribution
       in the form of Company Stock before the automatic distribution is made).
       The value of any fractional share equivalent shall be paid in cash. A
       Participant may determine the portion of his or her Account balance that
       will be distributable in Company Stock by directing the investment of
       such portion in the Company Stock Fund before a distribution is made.

15.    In-Service Withdrawals. Effective July 1, 2002, the heading of Section
6.4 of the Plan is amended to read "In-Service Withdrawals," and Section 6.4(a)
is amended and restated in its entirety to read as follows:

       (a)    Withdrawals from Participant Voluntary, Voluntary HEISOP, and IRA
       Subaccounts. A Participant may at any time request (in accordance with
       procedures adopted by the Administrative Committee) a withdrawal from the
       following subaccounts: Participant Voluntary, Voluntary HEISOP, or IRA.
       Any withdrawal will be processed as soon as administratively feasible.

16.    Hardship Withdrawals.  Effective January 1, 2002, Section 6.4(b) of the
Plan is amended and restated in its entirety to read as follows:

       (b)    Hardship Withdrawals. Hardship withdrawals may be made from the
       following subaccounts: Salary Reduction, Employer ASB, and Employer
       HEISOP. Effective April 1, 2002, hardship withdrawals may also be made
       from Employer BIA subaccounts, and effective July 1, 2002, from Employee
       Pre-Tax Catch-Up subaccounts. However, no hardship withdrawal shall
       include any income earned after January 1, 1989 that is allocable to
       Regular Salary Reduction Contributions or Catch-Up Contributions. To
       qualify for a hardship withdrawal, a Participant must demonstrate to the
       satisfaction of the Administrative Committee that the Participant has an
       "immediate and heavy financial need" and no other resources readily
       available to meet such need. A Participant shall be deemed to have an
       immediate and heavy financial need in connection with: (1) the purchase
       (excluding mortgage payments) of a principal residence, (2) payment of
       medical expenses described in Section 213(d) of the Code incurred by the
       Participant, the Participant's spouse, children or other tax dependents,
       (3) payment of tuition, related educational fees, and room and board
       expenses for the next twelve months of post-secondary education for the
       Participant, the Participant's spouse, children or other tax dependents,
       (4) payment of funeral expenses of a family member, or (5) payment to
       prevent eviction from the Participant's principal residence or
       foreclosure on the mortgage on the Participant's principal residence.

                                       11



          The amount requested may not exceed the amount required to relieve the
       immediate and heavy financial need after taking into consideration the
       amount of such need that may be satisfied from other resources reasonably
       available to the Participant. In connection with determining the amount
       of such need that may be satisfied from other resources, the
       Administrative Committee may rely on the Participant's written
       representation that the need cannot be relieved: (1) through
       reimbursement or compensation by insurance or otherwise, (2) by
       reasonable liquidation of the Participant's assets, to the extent such
       liquidation would not itself cause an immediate and heavy financial need,
       (3) by cessation of salary reduction contributions under the Plan, or (4)
       through other distributions or nontaxable loans from the Plan or other
       plans maintained by a Participating Employer or any other employer of the
       Participant or by borrowing from commercial sources on reasonable
       commercial terms. If a Participant qualifies for and receives an
       in-service withdrawal on account of hardship from his or her Salary
       Reduction subaccount on or after January 1, 2002, the Participant shall
       not be permitted to make salary reduction contributions to the Plan for
       six months following the distribution. In the case of a hardship
       distribution made prior to January 1, 2002, the period of suspension
       shall be one year, as provided under the Plan as in effect prior to this
       Amendment.

17.    Eligible Rollover Distributions. Effective January 1, 2002, Section 6.7
of the Plan is amended by amending and restating the third paragraph thereof to
read as follows:

       A "direct rollover" is a payment by the Plan directly to the eligible
       retirement plan specified by the distributee. An "eligible retirement
       plan" is a plan that will accept the distributee's eligible rollover
       distribution and that is (i) an individual retirement account described
       in section 408(a) of the Code, (ii) an individual retirement annuity
       described in section 408(b) of the Code, (iii) a qualified trust
       described in section 401(a) of the Code, (iv) an annuity plan described
       in section 403(a) of the Code, (v) an eligible deferred compensation plan
       described in Section 457(b) of the Code that is maintained by an eligible
       employer described in Section 457(e)(1)(A) of the Code, or (vi) an
       annuity contract described in Section 403(b) of the Code. A "distributee"
       includes a Participant and a Participant's spouse or former spouse who is
       an alternate payee under a QDRO.

18.    The PIC and the Administrative Committee. Effective July 1, 2002, Section
7.1 of the Plan is amended by replacing the fourth paragraph thereof with the
following:

       All consents, elections, applications, designations, and other
       submissions required or permitted under the Plan must be made in
       accordance with procedures (and, where applicable, on forms) established
       or otherwise approved by the Administrative Committee, and shall be
       recognized only if properly completed and authenticated in accordance
       with such procedures.

19.    Compensation. Effective January 1, 2002, Section 10.7 of the Plan is
amended and restated in its entirety to read as follows:

                                       12



       10.7  Compensation means the Employee's Box 1, W-2 earnings from the
       Participating Employers for the Plan Year, modified (i) to exclude
       discretionary bonuses (other than the Merit Performance Bonus of American
       Savings Bank, F.S.B., which may be partially or fully contributed to the
       Plan in accordance with Section 2.2, but which is not taken into account
       in determining other Regular Salary Reduction Contributions or Catch-Up
       Contributions under Section 2.1), fringe benefits, FlexCredits and ASB
       Dollars, reimbursements, moving expenses and other expense allowances,
       retroactive pay increases, and special executive compensation; and (ii)
       to include elective contributions made by a Participating Employer to
       this Plan, a cafeteria plan (other than employer-provided FlexCredits and
       ASB Dollars), or a transportation spending plan that are excluded from
       the taxable income of the Employee under Sections 402(e)(3), 125, or
       132(f) of the Code. Special executive compensation is noncash
       compensation and nonqualified deferred compensation available only to a
       select group of management Employees. Compensation earned prior to an
       Eligible Employee becoming a Participant shall not be counted in
       determining contributions to the Plan. Compensation shall be limited to
       $200,000 annually, as adjusted for increases in the cost of living since
       July 1, 2001, in accordance with Sections 401(a)(17)(B) and 415(d) of the
       Code.

       "HEIDI Compensation" means all straight-time pay and commissions paid (or
       accrued) during the Plan Year for services rendered to a HEIDI Employer.
       HEIDI Compensation shall include elective contributions made by a HEIDI
       Employer to this Plan or to a cafeteria plan (other than
       employer-provided FlexCredits) or transportation spending plan that are
       excluded from the taxable income of the Employee under Sections
       402(e)(3), 125, or 132(f) of the Code. HEIDI Compensation shall not
       include overtime or premium pay, discretionary bonuses, reimbursements or
       other expense allowances, fringe benefits, deferred compensation, welfare
       benefits, or contributions (except for elective contributions) by a HEIDI
       Employer to this Plan or any other employee benefit plan. HEIDI
       Compensation earned prior to an Eligible Employee becoming a Participant
       shall not be counted in determining contributions to the Plan. HEIDI
       Compensation shall be limited to $200,000 annually, as adjusted for
       increases in the cost of living since July 1, 2001, in accordance with
       Sections 401(a)(17)(B) and 415(d) of the Code.

       "ADP Compensation" means the Employee's Box 1, W-2 earnings for the year,
       without modification. ADP Compensation shall be limited to $200,000
       annually, as adjusted for increases in the cost of living since July 1,
       2001, in accordance with Sections 401(a)(17)(B) and 415(d) of the Code.

       "415 Compensation" means the Employee's Box 1, W-2 earnings for the year,
       modified to include elective contributions made by a Participating
       Employer to this Plan or to a cafeteria plan or transportation spending
       plan that are excluded from the taxable income of the Employee under
       Sections 402(e)(3), 125, or 132(f) of the Code. 415 Compensation shall be
       limited to $200,000 annually, as adjusted

                                       13



       for increases in the cost of living since July 1, 2001, in accordance
       with Sections 401(a)(17)(B) and 415(d) of the Code.

20.    HEIDI Employers. Effective January 1, 2002, Section 10.14 of the Plan is
amended and restated in its entirety to read as follows:

       10.14 HEIDI Employer means, effective January 1, 2002, HEI Diversified,
       Inc., HEI Power Corp., Pacific Energy Conservation Services, Inc.,
       ProVision Technologies, Inc., and any other Participating Employer that
       chooses to make nonelective, employer contributions on behalf of its
       eligible Employees pursuant to Section 2.3.

21.    Participating Employers. Effective January 1, 2002, Section 10.22 of the
Plan is amended and restated in its entirety to read as follows:

       10.22 Participating Employer means the Company and any entity affiliated
       with the Company whose participation in the Plan has been approved by the
       Company and by such entity's board of directors. As of January 1, 2002,
       the Participating Employers are: the Company; Hawaiian Electric Company,
       Inc.; Maui Electric Company, Limited; Hawaii Electric Light Company,
       Inc.; American Savings Bank, F.S.B.; American Savings Investment Services
       Corp.; Bishop Insurance Agency of Hawaii, Inc.; HEI Diversified, Inc.;
       HEI Power Corp.; Pacific Energy Conservation Services, Inc.; and
       ProVision Technologies, Inc.

22.    Definitions of Regular Salary Reduction Contribution and Catch-Up
Contribution. Effective July 1, 2002, Article X of the Plan is amended by adding
the following new definitions, to be appropriately numbered:

       Catch-Up Contribution means an additional salary reduction contribution
       that is made by a Participant who has reached age 50 (determined in
       accordance with Section 2.1(b) of the Plan) and that exceeds either the
       percentage limitation on Regular Salary Reduction Contributions set forth
       in Section 2.1(a) of the Plan, a Code limitation described in Section 3.2
       of the Plan, or the ADP limitation described in Section 3.1 of the Plan.
       The amount of a Participant's Catch-Up Contributions for a Plan Year is
       determined in accordance with Section 2.1(b) of the Plan, as adjusted in
       accordance with Section 3.1(b)(5) and/or Section 3.1(c)(8) of the Plan.

       Regular Salary Reduction Contribution means a salary reduction
       contribution made pursuant to a Participant's salary reduction election
       under Section 2.1(a) or Section 2.2 of the Plan, other than a
       contribution that is recharacterized as a Catch-Up Contribution pursuant
       to Section 3.1(c)(8), plus any contribution made pursuant to Section
       2.1(b) that is recharacterized as a Regular Salary Reduction Contribution
       pursuant to Section 3.1(c)(5).

                                       14



23.    Determination of Top-Heavy Status. Effective January 1, 2002, Section
11.1(a) of the Plan is amended and restated in its entirety to read as follows:

       (a)  Key Employee: Any Employee or former Employee (and the beneficiaries
       of such Employee) who at any time during the Plan Year was:

            (i)    An officer of a Participating Employer having annual 415
       Compensation greater than $130,000 (as adjusted for changes in the cost
       of living after July 1, 2001),

            (ii)   A 5% owner of a Participating Employer, or

            (iv)   A 1% owner of a Participating Employer who has an annual 415
       Compensation of more than $150,000.

            The determination of who is a Key Employee shall be made in
       accordance with Section 416(i)(1) of the Code and the regulations
       thereunder.

            A "non-Key Employee" is any Employee who is not a Key Employee.

Portions of this Amendment 2002-2 are adopted to reflect certain provisions of
the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"). This
amendment is intended as good faith compliance with the requirements of EGTRRA
and is to be construed in accordance with EGTRRA and guidance issued thereunder.

TO RECORD the adoption of these amendments to the Plan, the Hawaiian Electric
Industries, Inc. Pension Investment Committee has caused this document to be
executed this 31st day of,      May      , 2002.


                                         HAWAIIAN ELECTRIC INDUSTRIES, INC.
                                         PENSION INVESTMENT COMMITTEE

                                         By /s/ Peter C. Lewis
                                           ----------------------------------
                                                Its member


                                         By /s/ Constance H. Lau
                                           ----------------------------------
                                                Its member

                                       15

EX-99.3

                                                                HEI EXHIBIT 99.3

                       Hawaiian Electric Industries, Inc.

            Written Statement of Chief Executive Officer Pursuant to
                             18 U.S.C. Section 1350,
                                  as Adopted by
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hawaiian Electric Industries, Inc.
("HEI") on Form 10-Q for the quarterly period ended June 30, 2002 (the
"Report"), I, Robert F. Clarke, Chief Executive Officer of HEI, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)  The Report fully complies with the requirements of section 13(a) of the
     Securities Exchange Act of 1934; and

(2)  The consolidated information contained in the Report fairly presents, in
     all material respects, the financial condition as of June 30, 2002 and
     results of operations for the three months and six months ended June 30,
     2002 of HEI and its subsidiaries.

/s/ Robert F. Clarke
- --------------------------------------------------------
Robert F. Clarke
Chairman, President and Chief Executive Officer of HEI
Date: August 13, 2002

EX-99.4

                                                                HEI EXHIBIT 99.4

                       Hawaiian Electric Industries, Inc.

            Written Statement of Chief Financial Officer Pursuant to
                             18 U.S.C. Section 1350,
                                  as Adopted by
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hawaiian Electric Industries, Inc.
("HEI") on Form 10-Q for the quarterly period ended June 30, 2002 (the
"Report"), I, Robert F. Mougeot, Chief Financial Officer of HEI, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)  The Report fully complies with the requirements of section 13(a) of the
     Securities Exchange Act of 1934; and

(2)  The consolidated information contained in the Report fairly presents, in
     all material respects, the financial condition as of June 30, 2002 and
     results of operations for the three months and six months ended June 30,
     2002 of HEI and its subsidiaries.

/s/ Robert F. Mougeot
- --------------------------------------------------------
Robert F. Mougeot
Financial Vice President, Treasurer and Chief Financial Officer of HEI
Date: August 13, 2002

EX-99.5

                                                                HEI Exhibit 99.5

[Letterhead of D'Amato & Lonborg, Attorneys at Law]




August 1, 2002

Hawaiian Electric Industries, Inc.
Pension Investment Committee
900 Richards Street
Honolulu, Hawaii  96813

         Re:   Hawaiian Electric Industries Retirement Savings Plan

Ladies and Gentlemen:

We have served as counsel to Hawaiian Electric Industries, Inc. ("HEI") and the
Hawaiian Electric Industries, Inc. Pension Investment Committee (the "PIC") with
respect to the Hawaiian Electric Industries Retirement Savings Plan (the
"Plan"). In particular, we have advised HEI and the PIC regarding the adoption
of the documents setting forth the terms of the Plan as in force on the date of
this letter, which consist of the following: (1) the amended and restated Plan
document adopted December 28, 2000; (2) Amendment 2001-1, adopted October 29,
2001; (3) Amendment 2002-1, adopted February 28, 2002; and (4) Amendment 2002-2,
adopted May 31, 2002 (collectively, the "Plan Documents"). This opinion is being
prepared in connection with the Registration Statement on Form S-8 filed by HEI
with the Securities and Exchange Commission (Registration No. 333-02103) on
April 1, 1996 (the "Registration Statement").

The Plan is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and is intended to satisfy the tax qualification requirements
set forth in Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). The Internal Revenue Service ("IRS") issued a
determination letter dated June 21, 1995, stating that the form of the Plan, as
set forth in an amended and restated Plan document adopted November 21, 1994,
was in compliance with the qualification requirements of the Code as in force at
that time. Since the issuance of that determination letter, both the Plan and
the qualification requirements of the Code have been amended.

The Plan, as amended and restated by the Plan document adopted December 28, 2000
and as further amended by Amendment 2001-1, was again submitted to the IRS for a
determination letter on January 31, 2002. The application constituted a timely
request for a determination that the form of the amended and restated Plan is in
compliance with the qualification requirements of the Code as amended by Uruguay
Round Agreements Act, the Uniformed Services Employment and Reemployment Rights
Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief
Act of 1997, the Internal Revenue Service Restructuring and Reform



Hawaiian Electric Industries, Inc.
Pension Investment Committee
August 1, 2002
Page 2


Act of 1998, and the Community Renewal Tax Relief Act of 2000 (collectively,
"GUST"). The application stated that further amendments of the Plan were pending
and that the additional amendments would be provided to the IRS for review.
Thus, the pending determination letter application seeks an IRS determination
that all provisions of the Plan Documents comply in form with the tax
qualification requirements of Sections 401(a) and 401(k) of the Code as amended
by GUST.

Before issuing such a determination letter, the IRS may request further
amendments to the Plan to conform with its interpretation of those qualification
requirements. The PIC has authority under the Plan to adopt such amendments, and
while it is not obligated to do so, we anticipate that the PIC will adopt any
necessary amendments to ensure the qualified status of the Plan.

The IRS will not yet issue a determination letter concerning the Plan's
compliance with provisions of the Economic Growth and Tax Relief Reconciliation
Act of 2001 ("EGTRRA") that amend the qualification requirements of Sections
401(a) and 401(k) of the Code. Portions of Amendment 2002-2 are intended to
comply with EGTRRA and certain guidance issued by the IRS thereunder. Until the
IRS has issued additional guidance and begun issuing determination letters that
address EGTRRA, no assurance can be provided that the Plan is in full compliance
with EGTRRA. However, provided the Plan Documents comply with a good faith
interpretation of the EGTRRA qualification requirements, the Plan may later be
amended to achieve full compliance with EGTRRA without adverse effect on the
Plan's qualified status.

Based upon the foregoing, we are of the opinion that:

   1.  The Plan Documents are in substantial compliance with the tax
       qualification requirements of Sections 401(a) and 401(k) of the Code,
       such that any noncompliance that may exist may be remedied without
       disqualification of the Plan or material adverse effect on its
       participants and beneficiaries;

   2.  Subject to the adoption of such further amendments as the IRS may
       require, the Plan should receive a determination letter confirming
       compliance with the tax qualification requirements of Sections 401(a) and
       401(k) of the Code as amended by GUST;

   3.  The Plan Documents are in substantial compliance with the provisions of
       ERISA affecting such documents that do not amend the Code, such that any
       noncompliance that may exist may be remedied without material adverse
       effect on participants or beneficiaries of the Plan.

The foregoing opinions are limited to compliance in form of the Plan Documents.
The Plan is required to comply with the tax qualification requirements of the
Code and certain provisions of ERISA both in form and in operation. Compliance
in operation is dependent on factual matters, including the demographics of
HEI's and its subsidiaries' workforces and the operation of the Plan in
accordance with its written terms. We have made no review of such factual
matters and accordingly express no opinion as to the operational compliance of
the Plan.



Hawaiian Electric Industries, Inc.
Pension Investment Committee
August 1, 2002
Page 3


Our opinions are based upon the Plan Documents and the provisions of the Code,
ERISA, and applicable IRS and U.S. Department of Labor regulations and guidance
in effect as of the date hereof. We assume no obligation to supplement or modify
this opinion if applicable laws, regulations, or guidance change after the date
hereof or if we become aware of facts that might change the opinions expressed
herein after the date hereof.

This opinion letter is provided solely for your use in connection with the
Registration Statement. We consent to the filing of this opinion as Exhibit 5(d)
to the Registration Statement and the reference to our firm under Item 5 to the
Registration Statement. This letter may not be used, relied upon, disclosed,
filed, or quoted for any other purpose or by any other person. The opinions
expressed in this letter are limited to the matters set forth herein, and no
other opinions are expressed or implied beyond the matters expressly stated
herein.

                                         Very truly yours,

                                         /s/ D'Amato & Lonborg

                                         D'Amato & Lonborg

EX-99.6

                                                               HECO EXHIBIT 99.6

                         Hawaiian Electric Company, Inc.

            Written Statement of Chief Executive Officer Pursuant to
                             18 U.S.C. Section 1350,
                                  as Adopted by
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hawaiian Electric Company, Inc.
("HECO") on Form 10-Q for the quarterly period ended June 30, 2002 (the "HECO
Report"), I, T. Michael May, Chief Executive Officer of HECO, hereby certify,
pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)  The HECO Report fully complies with the requirements of section 13(a) of
     the Securities Exchange Act of 1934; and

(2)  The HECO consolidated information contained in the HECO Report fairly
     presents, in all material respects, the financial condition as of June 30,
     2002 and results of operations for the three months and six months ended
     June 30, 2002 of HECO and its subsidiaries.

/s/ T. Michael May
- --------------------------------------------------------
T. Michael May
President and Chief Executive Officer of HECO
Date: August 13, 2002

EX-99.7

                                                               HECO EXHIBIT 99.7

                         Hawaiian Electric Company, Inc.

            Written Statement of Chief Financial Officer Pursuant to
                             18 U.S.C. Section 1350,
                                  as Adopted by
                  Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Hawaiian Electric Company, Inc.
("HECO") on Form 10-Q for the quarterly period ended June 30, 2002 (the "HECO
Report"), I, Richard A. von Gnechten, Chief Financial Officer of HECO, hereby
certify, pursuant to 18 U.S.C. Section 1350, as adopted by Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1)  The HECO Report fully complies with the requirements of section 13(a) of
     the Securities Exchange Act of 1934; and

(2)  The HECO consolidated information contained in the HECO Report fairly
     presents, in all material respects, the financial condition as of June 30,
     2002 and results of operations for the three months and six months ended
     June 30, 2002 of HECO and its subsidiaries.

/s/ Richard A. von Gnechten
- --------------------------------------------------------
Richard A. von Gnechten
Financial Vice President
Principal Financial Officer of HECO
Date: August 13, 2002

EX-99.8

                                                                HEI EXHIBIT 99.8

                   SIXTH AMENDMENT TO TRUST AGREEMENT BETWEEN
                     HAWAIIAN ELECTRIC INDUSTRIES, INC. AND
                       FIDELITY MANAGEMENT TRUST COMPANY

     THIS SIXTH AMENDMENT TO TRUST AGREEMENT, is made and entered into effective
January 1, 2002, by and between Fidelity Management Trust Company (the
"Trustee") and Hawaiian Electric Industries, Inc. (the "Sponsor");

                                   WITNESSETH:

     WHEREAS, the Trustee and the Sponsor heretofore entered into a Trust
Agreement dated February 1, 2000, and amended August 1, 2000, November 1, 2000,
April 1, 2001, December 31, 2001 and April 1, 2002 (the "Trust Agreement") for
the Hawaiian Electric Industries Retirement Savings Plan (the "Plan"); and

     WHEREAS, the Sponsor has notified the Trustee that, the Sponsor has amended
the Plan document to convert the HEI Common Stock Fund to an ESOP component of
the Plan; and

     WHEREAS, in furtherance of the foregoing, the Sponsor and the Trustee
desire to amend said Trust Agreement as provided for in Section 13 thereunder;

     NOW THEREFORE, in consideration of the above premises, the Sponsor and the
Trustee hereby amend the Trust Agreement by:

     (1)  Amending and restating Section 4 (d) in its entirety, as follows:

          (d)  Sponsor Stock. Trust investments in HEI common stock shall be
made via the HEI Common Stock Fund (the "Stock Fund"). Investments in the Stock
Fund shall consist primarily of shares of HEI common stock. The Stock Fund shall
also include cash or short-term liquid investments, in accordance with this
paragraph, in amounts designed to satisfy daily participant exchange or
withdrawal requests. Such holdings will include Colchester Street Trust: Money
Market Portfolio: Class I or such other Mutual Fund or commingled money market
pool as agreed to in writing by the Sponsor or the PIC and Trustee. To satisfy
the Stock Fund's cash needs for participant-directed distributions and
exchanges, a target range for cash shall be maintained in the Stock Fund. Such
target range is currently 2%, +/-0.2%, and may be changed as agreed to in
writing by the Sponsor or the PIC and the Trustee via letter of direction.
Subject to its ability to execute open-market trades in HEI common stock or to
otherwise trade with the Sponsor, the Trustee shall be responsible for ensuring
that the short-term investments held in the Stock Fund falls within the
agreed-upon range over time. Each participant's proportional interest in the
Stock Fund shall be measured in units of participation, rather than shares of
HEI common stock. Such units shall represent a proportionate interest in all of
the assets of the Stock Fund, which includes shares of




HEI common stock, short-term investments and at times, receivables and payables
(such as receivables and payables arising out of unsettled stock trades). The
Trustee shall determine a daily net asset value ("NAV") for each unit
outstanding of the Stock Fund. Valuation of the Stock Fund shall be based upon:
(a) the closing price of the stock on the principal national securities exchange
on which the HEI common stock is traded; (b) if such price is unavailable, the
latest available price as reported by the principal national securities exchange
on which the HEI common stock is traded (the "Closing Price"); or (c) if neither
is available, the price determined in good faith by the Trustee. The NAV shall
be adjusted for gains or losses realized on sales of HEI common stock,
appreciation or depreciation in the value of those shares owned, and interest on
the short-term investments held by the Stock Fund, payables and receivables for
pending stock trades, receivables for dividends not yet distributed, and
payables for other expenses of the Stock Fund, including principal obligations,
if any, and expenses that, pursuant to Sponsor direction, the Trustee accrues or
pays from the Stock Fund. Dividends on shares of Sponsor Stock held in the Stock
Fund shall be: (a) paid to Participants in cash; or (b) retained by the Trustee
in the Stock Fund and used to allocate additional units of such fund to the
accounts of Participants who have elected to have dividends reinvested. The
Trustee will establish and maintain procedures as described in Schedule "K" to
allow Plan participants to elect to reinvest dividends or to amend such
elections in order to receive dividend payments from the Stock Fund in cash. In
the absence of valid Participant direction to the contrary, the Named Fiduciary
directs the Trustee to reinvest the Participant's dividend in additional shares
of the Stock Fund. The Trustee shall pay out or reinvest the dividend in
accordance with Schedule "K", attached hereto.



               (i)  Acquisition Limit. The Trust will be invested in HEI common
stock to the extent necessary to comply with investment directions of
participants and beneficiaries in accordance with this Agreement. The Sponsor
shall be responsible for providing specific direction on any acquisition limits
required by the Plan or for Sponsor's compliance with applicable law.

               (ii) Responsibility of PIC. The PIC is responsible for offering
the Stock Fund as an investment option under the Plan. The Trustee shall not be
liable for any loss, or by reason of any breach of fiduciary responsibility,
which arises from the directions of the PIC with respect to the acquisition and
holding of HEI common stock, unless the Trustee knew or should have known that
the actions to be taken under those directions would be prohibited by ERISA or
would be contrary to the terms of this Agreement.


                                       2



               (iii) Purchases and Sales of HEI common stock. Unless otherwise
directed by the Sponsor in writing pursuant to directions that the Trustee can
administratively implement, the following provisions shall govern purchases and
sales of HEI common stock.

                    (A)  Open Market Purchases and Sales. Purchase and sales of
HEI common stock shall be made on the open market in accordance with the
Trustee's standard trading guidelines, as they may be amended by the Trustee
from time to time, as necessary to honor exchange and withdrawal activity and to
maintain the target cash percentage and drift allowance for the Stock Fund,
provided that:

                         (1)  If the Trustee is unable to purchase or sell the
total number of shares required to be purchased or sold on such day as a result
of market conditions; or

                         (2)  If the Trustee is prohibited by the Securities and
Exchange Commission, the New York Stock Exchange or principal exchange on which
the HEI common stock is traded, or any other judicial or regulatory body from
purchasing or selling any or all of the shares required to be purchased or sold
on such day, then the Trustee shall purchase or sell such shares as soon
thereafter as administratively feasible.

                    (B)  Purchases and Sales from or to Sponsor. If directed by
the Sponsor or PIC in writing prior to the trading date, the Trustee may
purchase or sell HEI common stock from or to the Sponsor if the purchase or sale
is for adequate consideration (within the meaning of section 3(18) of ERISA) and
no commission is charged. If Sponsor contributions or contributions made by the
Sponsor on behalf of the participants under the Plan are to be invested in the
Stock Fund, the Sponsor may transfer HEI common stock in lieu of cash to the
Trust. In either case, the number of shares to be transferred will be determined
by dividing the total amount of HEI common stock to be purchased or sold by the
Closing Price of the HEI common stock on the trading date, rounded up to the
nearest whole share.

                    (C)  Use of an Affiliated Broker. The Sponsor hereby
authorizes the Trustee to use Fidelity Capital Markets, a division of National
Financial Services LLC ("Capital Markets") to provide brokerage services in
connection with any purchase or sale of HEI


                                       3



common stock on the open market, in accordance with directions from Plan
participants. Capital Markets shall execute such directions directly or through
its affiliates. The provision of brokerage services shall be subject to the
following:

                         (1)  As consideration for such brokerage services, the
Sponsor agrees that Capital Markets shall be entitled to remuneration under this
authorization provision in an amount of no more than three and one-fifth cents
($.032) commission on each share of HEI common stock purchased or sold. Any
change in such remuneration may be made only by written agreement between
Sponsor and Trustee.

                         (2)  The Trustee will provide the Sponsor with periodic
reports which summarize all securities transaction-related charges incurred with
respect to trades of HEI common stock for the Plan.

                         (3)  Any successor organization of Capital Markets,
through reorganization, consolidation, merger or similar transactions, shall,
upon consummation of such transaction, become the successor broker in accordance
with the terms of this authorization provision, provided Capital Markets
provides advance written notice of such transfer to the Sponsor.

                         (4)  The authorization by the Sponsor to use Capital
Markets for brokerage services as provided in this Section is terminable at will
by the Sponsor, without penalty to the Plan, upon receipt by the Trustee of a
written notice of termination, in accordance with Section 11 of this Agreement.

               (iv) Execution of Purchases and Sales of Units. Unless otherwise
directed in writing pursuant to directions that the Trustee can administratively
implement, purchases and sales of units shall be made as follows:

                    (A)  Subject to subparagraphs (B) and (C) below, purchases
and sales of units in the Stock Fund (other than for exchanges) shall be made on
the date on which the Trustee receives from the Sponsor or PIC in good order all
information, documentation, and wire transfers of funds


                                       4



(if applicable), necessary to accurately effect such transactions. Exchanges of
units in the Stock Fund shall be made in accordance with the Exchange Guidelines
attached hereto as Schedule "F".

                    (B)  Aggregate sales of units in the Stock Fund on any day
shall be limited to the Stock Fund's Available Liquidity for that day. For these
purposes, Available Liquidity shall mean the amount of short-term investments
held in the fund decreased by any outgoing cash for expenses then due, payables
for loan principal, and obligations for pending stock purchases, and increased
by incoming cash (such as contributions, exchanges in, loan repayments) and to
the extent credit is available and allocable to the Stock Fund, receivables for
pending stock sales. In the event that the requested sales exceed the Available
Liquidity, then transactions shall be processed giving precedence to
distributions, loans and withdrawals, and otherwise on a first-in first-out
(FIFO) basis, as provided in Schedule "F-1" (the "Specified Hierarchy"). So long
as the Stock Fund is open for such transactions, sales of units that are
requested but not processed on a given day due to insufficient Available
Liquidity shall be suspended until Available Liquidity is sufficient to honor
such transactions in accordance with the Specified Hierarchy.

                    (C)  The Trustee shall close the Stock Fund to sales or
purchases of units, as applicable, on any date on which trading in the HEI
common stock has been suspended or substantial purchase or sale orders are
outstanding and cannot be executed.

               (v)  Securities Law Reports. The Sponsor or PIC shall be
responsible for filing all reports required under Federal or state securities
laws with respect to the Trust's ownership of HEI common stock, including,
without limitation, any reports required under section 13 or 16 of the
Securities Exchange Act of 1934, and shall immediately notify the Trustee in
writing of any requirement to stop purchases or sales of HEI common stock
pending the filing of any report. The Trustee shall provide to the Sponsor or
PIC such information on the Trust's ownership of HEI common stock as the Sponsor
or PIC may reasonably request in order to comply with Federal or state
securities laws.

               (vi) Voting and Tender Offers. Notwithstanding any other
provision of this Agreement, the provisions of this Section shall govern the
voting and tendering of HEI common stock. The Sponsor shall provide and pay for
all printing, mailing, tabulation and other costs associated with the voting and
tendering of HEI common stock. The Trustee, after consultation with the Sponsor,
shall prepare the necessary documents associated with the voting and tendering
of HEI common stock.


                                       5



                    (A)  Voting.

                         (1)  When the issuer of HEI common stock prepares for
any annual or special meeting, the Sponsor shall notify the Trustee at least
thirty (30) days in advance of the intended record date (or as soon as
administratively feasible) and the Trustee shall furnish to the Sponsor's
transfer agent the name, address and social security number of the participants
holding units in the Stock Fund, and each participant's interest (in number of
shares) as of the record date. The Sponsor shall prepare proxy materials and
voting instruction forms to be distributed to participants holding an interest
in the Stock Fund. The Sponsor shall provide the Trustee with a copy of any
materials provided to the participants and shall certify to the Trustee that the
materials have been mailed or otherwise sent to participants.

                         (2)  Each participant with an interest in the Stock
Fund shall have the right to direct the Trustee as to the manner in which the
Trustee is to vote (including not to vote) that number of shares of HEI common
stock reflecting such participant's proportional interest in the Stock Fund
(both vested and unvested). Directions from a participant to the Trustee
concerning the voting of HEI common stock shall be communicated in writing, or
by such other means as is agreed upon by the Trustee and the Sponsor. These
directions shall be tabulated by an affiliate of the Sponsor or any other
organization deemed appropriate by the Sponsor, held in confidence, in
accordance with confidentiality procedures established by the Sponsor or PIC.
Upon its receipt of the directions, the Sponsor or PIC shall provide the Trustee
with an omnibus proxy form and the Trustee shall vote the shares of HEI common
stock reflecting the participant's proportional interest in the Stock Fund as
directed by the HEIRS participant. The Trustee shall vote shares of HEI common
stock reflecting the participant's proportional interest in the Stock Fund for
which it received no direction from participants in the same proportion on each
issue as it votes those shares reflecting a participant's proportional interest
in the Stock Fund for which it received voting directions from participants. The
Sponsor or PIC shall notify the Trustee of any situation regarding undue
influence including, but not limited to the following: tender offers, exchange
offers, contested board elections, mergers and the disposition of corporate
assets. In the event of any of the above mentioned actions, directions from a
participant concerning the voting of HEI common stock shall be communicated to
the Trustee. Directions from a participant to the Trustee concerning the voting
of HEI common stock shall be communicated in writing, or by such other means as
is agreed upon by the Trustee and Sponsor. These directions shall be held in
confidence by the Trustee


                                       6



and shall not be divulged to the Sponsor, or any officer or employee thereof, or
any person except (i) as necessary to meet applicable legal requirements, (ii)
in the case of any contested proxy solicitation, as may be necessary to permit
proper parties to verify the propriety of proxies presented by any person and
the results of the voting, and (iii) in the event a shareholder has made a
written comment on the proxy form. In addition, the Trustee will provide the
Sponsor as reasonably requested by the Sponsor, periodic reports indicating the
number of shares voted and not voted. Upon its receipt of the directions, the
Trustee shall vote the shares of HEI common stock reflecting the participant's
proportional interest in the Stock Fund as directed by the participant. Except
as otherwise required by law, the Trustee shall vote shares of HEI common stock
reflecting the participant's proportional interest in the Stock Fund for which
it has received no direction from the participant in the same proportion on each
issue as it votes those shares reflecting the participant's proportional
interest in the Stock Fund for which it has received voting directions from
participants.

                         (3)  Except as otherwise required by law, the Trustee
shall vote that number of shares of HEI common stock not credited to
participants' accounts in the same proportion on each issue as it votes those
shares credited to participants' accounts for which it received voting
directions from participants.

                    (B)  Tender Offers.

                         (1)  Upon commencement of a tender offer for any
securities held in the Trust that are HEI common stock, the Sponsor shall notify
each Plan participant with an interest in such HEI common stock of the tender
offer and utilize its best efforts to timely distribute or cause to be
distributed to the participant the same information that is distributed to all
shareholders of HEI common stock in connection with the tender offer, and, after
consulting with the Trustee, shall provide and pay for a means by which the
participant may direct the Trustee whether or not to tender the HEI common stock
reflecting such participant's proportional interest in the Stock Fund (both
vested and unvested). The Sponsor shall provide the Trustee with a copy of any
material provided to the participants and shall certify to the Trustee that the
materials have been mailed or otherwise sent to participants.

                         (2)  Each participant with an interest in the Stock
Fund shall have the right to direct the Trustee to tender or not to tender some
or all of the shares of HEI common stock reflecting such participant's
proportional interest in the Stock Fund (both vested and


                                       7




unvested). Directions from a participant to the Trustee concerning the tender of
HEI common stock shall be communicated in writing, or by such other means as is
agreed upon by the Trustee and the Sponsor. These directions shall be held in
confidence by the Trustee and shall not be divulged to the Sponsor, or any
officer or employee thereof, or any other person except to the extent that the
consequences of such directions are reflected in reports regularly communicated
to any such persons in the ordinary course of the performance of the Trustee's
services hereunder. However, the Trustee will provide to the Sponsor, as
reasonably requested by the Sponsor, periodic reports indicating the number of
shares tendered and not tendered. The Trustee shall tender or not tender shares
of HEI common stock as directed by the participant. Except as otherwise required
by law, the Trustee shall not tender shares of HEI common stock reflecting a
participant's proportional interest in the Stock Fund for which it has received
no direction from the participant.

                    (3)  Except as otherwise required by law, the Trustee shall
tender that number of shares of HEI common stock not credited to participants'
accounts in the same proportion as the total number of shares of HEI common
stock credited to participants' accounts for which it has received instructions
from Participants.

                    (4)  A participant who has directed the Trustee to tender
some or all of the shares of HEI common stock reflecting the participant's
proportional interest in the Stock Fund may, at any time prior to the tender
offer withdrawal date, direct the Trustee to withdraw some or all of the
tendered shares reflecting the participant's proportional interest, and the
Trustee shall withdraw the directed number of shares from the tender offer prior
to the tender offer withdrawal deadline. Prior to the withdrawal deadline, if
any shares of HEI common stock not credited to participants' accounts have been
tendered, the Trustee shall redetermine the number of shares of HEI common stock
that would be tendered under Section 4(d)(vi)(B)(3) if the date of the foregoing
withdrawal were the date of determination, and withdraw from the tender offer
the number of shares of HEI common stock not credited to participants' accounts
necessary to reduce the amount of tendered HEI common stock not credited to
participants' accounts to the amount so redetermined. A participant shall not be
limited as to the number of directions to tender or withdraw that the
participant may give to the Trustee.

                    (5)  A direction by a participant to the Trustee to tender


                                       8



shares of HEI common stock reflecting the participant's proportional interest in
the Stock Fund shall not be considered a written election under the Plan by the
participant to withdraw, or have distributed, any or all of his withdrawable
shares. The Trustee shall credit a proportional share of the proceeds received
by the Trustee in exchange for the shares of HEI common stock tendered to the
account of each participant who directed the Trustee to tender some or all of
the shares reflecting such participant's proportional interest in the Stock
Fund. Pending receipt of directions from the participant or the PIC, as provided
in the Plan, as to which of the remaining investment options the proceeds should
be invested in, the Trustee shall invest the proceeds in the investment option
described in Schedule "C".

               (vii)  General. With respect to all rights other than the right
to vote, the right to tender, and the right to withdraw shares previously
tendered, in the case of HEI common stock credited to a participant's
proportional interest in the Stock Fund, the Trustee shall follow the directions
of the participant and if no such directions are received, the directions of the
Sponsor or PIC. The Trustee shall have no duty to solicit directions from
participants. With respect to all rights other than the right to vote and the
right to tender, in the case of HEI common stock not credited to participants'
accounts, the Trustee shall follow the directions of the Sponsor or PIC.

               (viii) Conversion. All provisions in this Section 4(d) shall also
apply to any securities received as a result of a conversion of HEI common
stock.

     (2)  Amending and restating Schedules "A" and "B" in their entirety, as
          attached hereto.

     (3)  Adding Schedule "K" as attached hereto.



                                       9



     IN WITNESS WHEREOF, the Trustee and the Sponsor have caused this Sixth
Amendment to be executed by their duly authorized officers effective as of the
day and year first above written.

HAWAIIAN ELECTRIC INDUSTRIES, INC.          FIDELITY MANAGEMENT TRUST
BY:  HAWAIIAN ELECTRIC INDUSTRIES,          COMPANY
INC. PENSION INVESTMENT COMMITTEE


By: /s/ Robert F. Mougeot     6/25/02       By: /s/ Carolyn Redden        8/6/02
    ------------------------------------        --------------------------------
       Robert F. Mougeot            Date        Vice President              Date
       Chairman


By: /s/ Peter C. Lewis        6/25/02
    ------------------------------------
      Peter C. Lewis                Date
      Secretary



                                       10



                                  Schedule "A"

                             ADMINISTRATIVE SERVICES

Administration

     * Establishment and maintenance of participant account and election
       percentages

     * Maintenance of the following plan investment options:

       -Fidelity Retirement Money Market Portfolio
       -ASB Money Market Account
       -HEI Common Stock Fund
       -Fidelity Puritan(R) Fund
       -Fidelity Magellan(R) Fund
       -Fidelity Overseas Fund
       -Fidelity Freedom 2000 Fund(R)
       -Fidelity Freedom 2010 Fund(R)
       -Fidelity Freedom 2020 Fund(R)
       -Fidelity Freedom 2030 Fund(R)
       -Fidelity Freedom 2040 Fund(R)
       -Fidelity Freedom Income Fund(R)
       -Spartan U.S. Equity Index Fund
       -MSIF Trust Value Portfolio -- Adviser Class
       -Neuberger Berman Partners Fund -- Trust Class
       -PBHG Emerging Growth Fund
       -Fidelity U.S. Bond Index Fund
       -INVESCO Dynamics Fund

     * Maintenance of the following money classifications:

       -Salary Reduction
       -Participant Voluntary
       -Rollover
       -HEI Diversified Plan
       -Employer ASB
       -Employer Supplemental
       -IRA
       -Voluntary HEISOP
       -Employer HEISOP
       -Employer BIA

     * Processing of investment option trades

     * Establishment and maintenance of participant loans

     The Trustee will provide only the recordkeeping and administrative services
set forth on this Schedule "A" and no others.


                                       11



Processing

     * Weekly processing of contribution data and contributions

     * Daily processing of transfers and changes of future allocations via the
       telephone exchange system or by such other means as the Sponsor and
       Trustee may agree to from time to time

     * Daily processing of requests for loans, withdrawals and distributions

     * Daily and weekly processing of participant data updates via the Plan
       Sponsor Webstation or by such other means as the Sponsor and Trustee may
       agree to from time to time

     * Processing of rollovers

     * Processing of excess contributions and deferrals

Other

     * Reports

     * Monthly trial balance

     * Monthly loan reports

     * Quarterly administrative reports

     * Quarterly participant statements via paper or electronic copy

Financial Reporting

     * 1099Rs

     * Assist in the preparation of Form 5500

Account Segregation

     * Account segregation for Qualified Domestic Relations Orders ("QDRO") as
       directed by Sponsor

     * Account segregation for named beneficiary(ies) due to a participant's
       death as directed by Sponsor

Internet Services

     * Plan Sponsor Webstation

     * Fidelity PortfolioPlanner(SM), an internet-based educational service for
       participants that generates target asset allocations and model
       portfolios customized to investment options in the Plan(s) based upon
       methodology provided by Strategic Advisers, Inc., an affiliate of the
       Trustee. The Sponsor acknowledges that it has received the ADV Part II
       for Strategic Advisers, Inc. more than 48 hours prior to executing the
       Trust amendment.

     * NetBenefits(SM)

Processing Services

     * Minimum Required Distribution ("MRD") service


                                       12



Miscellaneous Services

     * Periodic meetings with Sponsor

     * Educational services as needed and mutually agreed upon by the Trustee
       and the Sponsor

     * Provide employee communications describing available investment
       options, including multimedia informational materials and group
       presentations

HAWAIIAN ELECTRIC INDUSTRIES, INC.          FIDELITY MANAGEMENT TRUST
BY:  HAWAIIAN ELECTRIC INDUSTRIES,          COMPANY
INC. PENSION INVESTMENT COMMITTEE


By: /s/ Robert F. Mougeot      6/25/02      By: /s/ Carolyn Redden        8/6/02
    ----------------------------------          --------------------------------
        Robert F. Mougeot        Date               Vice President         Date
        Chairman


By: /s/ Peter C. Lewis         6/25/02
    ----------------------------------
        Peter C. Lewis           Date
        Secretary



                                       13



                                  Schedule "B"

                                  FEE SCHEDULE

Recordkeeping Fees

* Annual Participation Fee:             $0 per participant.


* Minimum Required Distribution (MRD):  $25.00 per MRD recipient per year.


* Plan Establishment Fee:               $2,500.00


* Loan Fee:                             Establishment fee of $35.00 per loan
                                        account; annual fee of $15.00 per loan
                                        account.**


* Plan Sponsor WebStation (PSW):        All User ID fees waived.


* NetBenefits:                          All User ID fees waived.


* Non-Fidelity Mutual Funds:            35% annual administrative fee on the
                                        following Non-Fidelity Mutual Fund
                                        assets which are equity/balanced funds:
                                        MSIF Trust Value Portfolio - Adviser
                                        Class; Neuberger Berman Partners Fund-
                                        Trust Class and the PBHG Emerging Growth
                                        Fund; .25% annual administration fee
                                        plus an $8.00 per participant fee,
                                        subject to a maximum total fee of .35%,
                                        on all INVESCO Dynamics Fund assets (to
                                        be paid by the Non-Fidelity Mutual Fund
                                        vendor).

* Other Fees: Separate charges for optional nondiscrimination testing,
extraordinary expenses resulting from large numbers of simultaneous manual
transactions, from errors not caused by Fidelity, reports not contemplated in
this Agreement, corporate actions, or the provision of communications materials
in hard copy which are also accessible to participants via electronic services
in the event that the provision of such material in hard copy would result in an
additional expense deemed to be material.

** This fee will be imposed pro rata for each calendar quarter, or any part
thereof, that it remains necessary to keep a participant's loan(s) as part of
the Plan's records through the calendar year end for 1099R reporting.


                                       14



Trustee Fees

Investment Options
*Sponsor Stock:                  0.10% per annum of such assets in the Trust
                                 payable quarterly on the basis of such assets
                                 as of the average market value for each
                                 calendar quarter. In no event will the fee be
                                 less than $10,000 nor more than $35,000 per
                                 year.

     Dividend Pass-Through Fee

     -  $8,000 per year, payable pro rata quarterly.

     -  $5,000 implementation fee.

     -  $7 for each dividend check that is cut.

     -  This fee is based on the following assumptions, in addition to those
        set forth in the Note section:

          .    Dividends will be distributed quarterly
          .    The default option for receiving dividends will be reinvestment
               into the Stock Fund.

* Others:                         None.


     Note: These fees have been negotiated and accepted based on the following
     Plan characteristics, as of 3/22/01: 1 plan in the relationship, plan
     assets of $189.9 million, participation of 3,152 participants, Sponsor
     Stock assets of $44.6 million, total Fidelity actively managed Mutual Fund
     assets of $105.4 million, total Fidelity nonactively managed Mutual Fund
     assets of $16.4 million, total Non-Fidelity Mutual Funds and ASB MMA assets
     of $23.5 million, projected net cash flows of $0.0 million per year, and up
     to 18 investment options. Subject to Section 13 of the Trust Agreement,
     fees will be subject to review when the Sponsor requests a change to the
     Plan and/or the Plan characteristics have changed by +/- 10%.

HAWAIIAN ELECTRIC INDUSTRIES, INC.          FIDELITY MANAGEMENT TRUST
BY:  HAWAIIAN ELECTRIC INDUSTRIES,          COMPANY
INC. PENSION INVESTMENT COMMITTEE


By: /s/ Robert F. Mougeot     6/25/02       By: /s/ Carolyn Redden        8/6/02
    ---------------------------------           --------------------------------
        Robert F. Mougeot       Date                Vice President         Date
        Chairman


By: /s/ Peter C. Lewis        6/25/02
    ---------------------------------
        Peter C. Lewis          Date
        Secretary



                                       15



                                  Schedule "K"

   DIVIDEND PASS-THROUGH PROGRAM OPERATING PROCEDURES FOR PROCESSING DIVIDENDS

     Hawaiian Electric Industries, Inc., ("the Sponsor") and Fidelity Management
Trust Company and Fidelity Investments Institutional Operations Company, Inc.
(collectively, "Fidelity") hereby agree that the dividend pass-through program
with respect to the HEI Common Stock Fund (the "Stock Fund") established as an
investment option under the Hawaiian Electric Industries Retirement Savings Plan
(the "Plan") shall be administered in accordance with the following procedures.

Definitions:

"Dividend Payable Date" shall mean the business day Fidelity receives funding
for the Stock Fund dividends from the Sponsor's transfer agent.

Procedures:

     1.   Fidelity shall establish and maintain procedures for Plan participants
who have elected to invest portions of their account balances in the Stock Fund
to make and periodically amend elections to reinvest dividends or receive
dividend payments from the Stock Fund in cash. Such procedures shall be provided
to the Sponsor for review and approval prior to implementation. The procedures
may be amended from time to time by Fidelity with the prior approval of the
Sponsor, such approval to not be unreasonably withheld, or at the reasonable
request of the Sponsor.

     2.   The Sponsor shall, as soon as practicable prior to each dividend
payment on the Sponsor's common stock held in the Stock Fund, inform Fidelity of
the expected dividend dates (record date, ex-dividend date and payment date) and
the anticipated amount of the dividend per share.

     3.   Fidelity shall determine the amount of dividends attributable to each
participant who is eligible to elect to receive Stock Fund dividends in cash
under the terms of the Plan as communicated in writing by the Sponsor to the
Trustee, and who is invested in the Stock Fund on the ex-dividend date, as
follows: Fidelity shall calculate the dividend per unit in the Stock Fund by
dividing the total dividend received for shares held within the Stock Fund by
the total number of units of the Stock Fund outstanding on ex-dividend date. The
amount of dividend attributable to each eligible participant shall be determined
by multiplying the dividend per unit by the number of units held by each
eligible participant on ex-dividend date.

     4.   On the Dividend Payable Date, Depository Trust Company shall wire to
Fidelity the funding for the dividends paid to the Plan, on shares of Sponsor
Stock held in the Stock Fund.

     5.   Fidelity shall issue checks to each participant for the participant's
allocated share of dividends paid to the Stock Fund (determined in accordance
with Section 3 above) if the participant (i) holds balances in the Stock Fund on
the ex-dividend date, (ii) has elected (and has not rescinded such election in a
timely manner) to receive Stock Fund dividends in accordance with the procedures
established pursuant to Section 1 above, and (iii) is entitled to an allocated
share of dividends of $10 or greater. Processing of such checks shall begin on
the business day following Dividend Payable Date, and checks shall be issued as
promptly as administratively feasible thereafter. Participants whose allocable


                                       16



shares of Stock Fund dividends are less than $10 and participants who have not
elected to receive their dividend in cash will have their allocable portion of
the Stock Fund dividends reinvested in the Stock Fund.

     6.   Fidelity shall issue IRS Form 1099-DIV to each participant who
receives dividends in cash no later than January 31 of the year following the
year in which the cash dividends were paid to the participant.

HAWAIIAN ELECTRIC INDUSTRIES, INC.          FIDELITY MANAGEMENT TRUST
BY:  HAWAIIAN ELECTRIC INDUSTRIES,          COMPANY
INC. PENSION INVESTMENT COMMITTEE


By: /s/ Robert F. Mougeot     6/25/02       By: /s/ Carolyn Redden        8/6/02
    ---------------------------------           --------------------------------
        Robert F. Mougeot       Date                Vice President         Date
        Chairman


By: /s/ Peter C. Lewis        6/25/02
    ---------------------------------
        Peter C. Lewis          Date
        Secretary

                                       17