EX-99 2 exhibit99to8-ka11x7x18.htm EXHIBIT 99 Exhibit


HEI Exhibit 99
heicatalyst2a18.jpg NEWS RELEASE

November 7, 2018
Contact:
Julie R. Smolinski
Telephone: (808) 543-7300
 
Director, Investor Relations
           E-mail: ir@hei.com
 
 
 
 
 
 

HEI REPORTS THIRD QUARTER 2018 EARNINGS

3Q2018 Diluted Earnings per Share (EPS) of $0.60
Utility Advances Renewable Transition
Bank Records Strong Earnings

HONOLULU, Nov. 7, 2018 - Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the third quarter of 2018 of $65.9 million and diluted earnings per share (EPS) of $0.60 compared to $60.1 million and EPS of $0.55 for the third quarter of 2017.
“We are pleased to report solid third quarter results from both our utility and bank and are excited about the progress we’re making on our strategies across the company,” said Constance H. Lau, president and CEO of HEI.
“Our utilities are quickly advancing Hawaii’s clean energy transition now that key foundational frameworks are in place, including for 100% renewable power and grid modernization. For example, we’re negotiating contracts for seven solar-plus-storage projects across our three utilities to add 260 megawatts of solar and more than a gigawatt-hour of storage in the state’s largest-ever renewable energy procurement. As we advance toward 100% clean energy, we’re focused on ensuring we all move forward together, and that all customers have access to affordable, reliable renewable energy.”
“Our bank delivered strong financial performance in the third quarter, expanding its margin and improving profitability, while at the same time continuing its focus on making banking easier for customers and improving operational efficiency."




Hawaiian Electric Industries, Inc.
November 7, 2018
Page 2

HAWAIIAN ELECTRIC COMPANY EARNINGS
Hawaiian Electric Company’s1 net income for the third quarter of 2018 was $49.7 million compared to $47.5 million in the third quarter of 2017, an increase of $2.2 million primarily driven by the following after-tax items:
•
$12 million higher revenues from rate adjustment mechanism (RAM) revenues, major projects interim recovery (MPIR) revenues for the Schofield Generating Station that was completed in June and rate relief from the interim decision in Maui Electric’s 2018 test year rate case and final decisions in Hawaiian Electric’s 2017 and Hawaii Electric Light’s 2016 test year rate cases;
•
$5 million higher net income from net favorable tax adjustments primarily related to differences between the 2017 year-end tax accrual and the filing of the 2017 tax return (differences are largely related to the acceleration of the deduction of 2018 pension contributions into the 2017 tax year); and
•
$1 million higher net income for the quarter, representing the difference between actual third quarter tax savings and the reduction in revenue requirement from tax reform, which was based on test-year projections. Year to date, the reduction in revenue requirement from tax reform was approximately $3 million higher than actual tax savings.
These items were partially offset by the following after-tax items:
•
$11 million higher O&M expenses2 compared to 2017, primarily due to the reset of pension costs as part of rate case decisions, and higher costs for underground circuit repair work, generating station operation and maintenance, and workers’ compensation claims;
•
$2 million higher depreciation expense as a result of increasing investments for the integration of more renewable energy, improved reliability and greater system efficiency;
•
$2 million lower allowance for funds used during construction; and
•
$1 million higher interest expense from higher interest rates and increased borrowings.
AMERICAN SAVINGS BANK EARNINGS
American Savings Bank’s (American) third quarter of 2018 net income was $21.2 million compared to $20.6 million in the second, or linked, quarter and $17.6 million in the prior year quarter.
_________________

Note:  Amounts indicated as after-tax in this earnings release are based upon adjusting items using the current year composite statutory tax rates of 25.75% for the utilities and 26.79% for the bank.
1 Hawaiian Electric Company, unless otherwise defined, refers to the three utilities, Hawaiian Electric Company, Inc. on Oahu, Maui Electric Company, Limited for Maui County, and Hawaii Electric Light Company, Inc. on Hawaii Island.
2 Excludes net income neutral expenses covered by surcharges or by third parties. See the “Explanation of HEI’s Use of Certain Unaudited Non-GAAP Measures” and the related reconciliation accompanying this release.



Hawaiian Electric Industries, Inc.
November 7, 2018
Page 3

Compared to the linked quarter of 2018, the $0.7 million net income increase in the third quarter was primarily driven by higher net interest income, mainly due to higher yields on interest earning assets, higher bank-owned life insurance income and lower noninterest expense, which offset higher provision expense that was primarily due to additional loan loss reserves for the consumer loan portfolio.
Compared to the third quarter of 2017, the $3.6 million higher net income in the third quarter of 2018 was primarily driven by higher net interest income and $3.6 million lower income tax expense in the third quarter of 2018 compared to the third quarter of 2017, primarily due to the benefits of the lower federal corporate tax rate from tax reform. These items were partially offset by higher provision
for loan losses due to increased reserves for loan growth and additional loan loss reserves for the consumer loan portfolio.
Total loans were $4.8 billion at September 30, 2018, up $83 million or 2.4% annualized from December 31, 2017, driven mainly by increases in home equity lines of credit and commercial and consumer loans of $90 million.
Total deposits were $6.1 billion at September 30, 2018, an increase of $240 million or 5.4% annualized from December 31, 2017, including $100 million in repurchase agreements that were transferred into deposit accounts. Excluding such transfer, total deposits increased by 3.1% annualized. Cost of funds was 26 basis points for the third quarter of 2018, up 2 basis points from the linked quarter and up 6 basis points from the prior year quarter.
American’s return on average equity3 for the third quarter of 2018 was 13.80%, compared to 13.56% in the linked quarter and 11.64% in the third quarter of 2017. Return on average assets was 1.22% for the third quarter of 2018, compared to 1.20% in the linked quarter and 1.07% in the same quarter last year.
Please refer to American’s news release issued on October 30, 2018 for additional information on American.
HOLDING AND OTHER COMPANIES
The holding and other companies’ net loss was $5.0 million in both the third quarter of 2018 and the prior year quarter.   


_________________
3 Bank return on average equity calculated using weighted average daily common equity.




Hawaiian Electric Industries, Inc.
November 7, 2018
Page 4

WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND EPS GUIDANCE
Hawaiian Electric Industries, Inc. will conduct a webcast and conference call to review its third quarter 2018 earnings and 2018 EPS guidance on Wednesday, November 7, 2018, at 11:00 a.m. Hawaii time (4:00 p.m. Eastern time).
Interested parties within the United States may listen to the conference by calling (844) 834-0652 and international parties may listen to the conference by calling (412) 317-5198 or by accessing the webcast on HEI’s website at www.hei.com under the “Investor Relations” section, sub-heading “News and Events.”  HEI and Hawaiian Electric Company intend to continue to use HEI’s website,
www.hei.com, as a means of disclosing additional information. Such disclosures will be included on HEI’s website in the Investor Relations section.
Accordingly, investors should routinely monitor such portions of HEI’s website at www.hei.com in addition to following HEI’s, Hawaiian Electric Company’s and American’s press releases, HEI’s and
Hawaiian Electric Company’s Securities and Exchange Commission (SEC) filings and HEI’s public conference calls and webcasts. The information on HEI’s website is not incorporated by reference in this document or in HEI’s and Hawaiian Electric Company’s SEC filings unless, and except to the extent, specifically incorporated by reference. Investors may also wish to refer to the Public Utilities Commission of the State of Hawaii (PUC) website at dms.puc.hawaii.gov/dms in order to review documents filed with and issued by the PUC. No information on the PUC website is incorporated by reference in this document or in HEI’s and Hawaiian Electric Company’s SEC filings.
An online replay of the webcast will be available at www.hei.com beginning about two hours after the event. Replays of the conference call will also be available approximately two hours after the event through November 21, 2018, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10125059.
HEI supplies power to approximately 95% of Hawaii’s population through its electric utilities, Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited; provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, one of Hawaii’s largest financial institutions; and helps advance Hawaii’s clean energy and sustainability goals through investments by its non-regulated subsidiary, Pacific Current, LLC.
NON-GAAP MEASURES
See “Explanation of HEI’s Use of Certain Unaudited Non-GAAP Measures” and related reconciliations on page 8 of this release.
###



Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended September 30
 
Nine months ended September 30
(in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
 
Electric utility
 
$
687,409

 
$
598,769

 
$
1,865,962

 
$
1,674,255

Bank
 
80,496

 
74,289

 
233,019

 
222,474

Other
 
143

 
127

 
218

 
299

Total revenues
 
768,048

 
673,185

 
2,099,199

 
1,897,028

Expenses
 
 
 
 
 
 
 
 
Electric utility
 
613,373

 
510,272

 
1,685,413

 
1,478,915

Bank
 
53,232

 
47,313

 
153,951

 
146,146

Other
 
3,379

 
4,127

 
11,083

 
12,954

Total expenses
 
669,984

 
561,712

 
1,850,447

 
1,638,015

Operating income (loss)
 
 
 
 
 
 
 
 
Electric utility
 
74,036

 
88,497

 
180,549

 
195,340

Bank
 
27,264

 
26,976

 
79,068

 
76,328

Other
 
(3,236
)
 
(4,000
)
 
(10,865
)
 
(12,655
)
Total operating income
 
98,064

 
111,473

 
248,752

 
259,013

Retirement defined benefits expense—other than service costs
 
(1,276
)
 
(1,928
)
 
(4,673
)
 
(5,710
)
Interest expense, net—other than on deposit liabilities and other bank borrowings
 
(22,523
)
 
(19,227
)
 
(66,042
)
 
(59,235
)
Allowance for borrowed funds used during construction
 
1,006

 
1,339

 
3,815

 
3,371

Allowance for equity funds used during construction
 
1,962

 
3,482

 
8,239

 
8,908

Income before income taxes
 
77,233

 
95,139

 
190,091

 
206,347

Income taxes
 
10,862

 
34,595

 
36,473

 
72,003

Net income
 
66,371

 
60,544

 
153,618

 
134,344

Preferred stock dividends of subsidiaries
 
471

 
471

 
1,417

 
1,417

Net income for common stock
 
$
65,900

 
$
60,073

 
$
152,201

 
$
132,927

Basic earnings per common share
 
$
0.61

 
$
0.55

 
$
1.40

 
$
1.22

Diluted earnings per common share
 
$
0.60

 
$
0.55

 
$
1.40

 
$
1.22

Dividends declared per common share
 
$
0.31

 
$
0.31

 
$
0.93

 
$
0.93

Weighted-average number of common shares outstanding
 
108,879

 
108,786

 
108,847

 
108,737

Weighted-average shares assuming dilution
 
109,055

 
108,865

 
109,090

 
108,909

Net income (loss) for common stock by segment
 
 
 
 
 
 
 
 
Electric utility
 
$
49,712

 
$
47,487

 
$
108,356

 
$
94,596

Bank
 
21,221

 
17,592

 
60,742

 
50,138

Other
 
(5,033
)
 
(5,006
)
 
(16,897
)
 
(11,807
)
Net income for common stock
 
$
65,900

 
$
60,073

 
$
152,201

 
$
132,927

Comprehensive income attributable to Hawaiian Electric Industries, Inc.
 
$
61,311

 
$
60,627

 
$
131,014

 
$
136,836

Return on average common equity (twelve months ended)1
 
 
 
 
 
8.7
%
 
8.5
%
The Consolidated Statements of Income Data reflects the retrospective application of ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which was adopted in the first quarter of 2018. Nonservice cost was reclassified from “Expenses” to “Retirement defined benefits expense—other than service costs.”
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI filings with the SEC.
1 On a core basis, 2018 and 2017 returns on average common equity (twelve months ended September 30) were 9.4% and 8.5%, respectively.  See reconciliation of GAAP to non-GAAP measures.

5


Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended September 30
 
Nine months ended September 30
(dollars in thousands, except per barrel amounts)
 
2018
 
2017
 
2018
 
2017
Revenues
 
$
687,409

 
$
598,769

 
$
1,865,962

 
$
1,674,255

Expenses
 
 

 
 

 
 
 
 
Fuel oil
 
206,551

 
146,258

 
545,236

 
431,787

Purchased power
 
177,590

 
160,347

 
478,238

 
440,538

Other operation and maintenance
 
113,553

 
98,681

 
333,805

 
302,437

Depreciation
 
50,983

 
48,206

 
151,810

 
144,578

Taxes, other than income taxes
 
64,696

 
56,780

 
176,324

 
159,575

Total expenses
 
613,373

 
510,272

 
1,685,413

 
1,478,915

Operating income
 
74,036

 
88,497

 
180,549

 
195,340

Allowance for equity funds used during construction
 
1,962

 
3,482

 
8,239

 
8,908

Retirement defined benefits expense—other than service costs
 
(682
)
 
(1,421
)
 
(2,934
)
 
(4,279
)
Interest expense and other charges, net
 
(18,968
)
 
(16,907
)
 
(54,822
)
 
(52,625
)
Allowance for borrowed funds used during construction
 
1,006

 
1,339

 
3,815

 
3,371

Income before income taxes
 
57,354

 
74,990

 
134,847

 
150,715

Income taxes
 
7,144

 
27,005

 
24,995

 
54,623

Net income
 
50,210

 
47,985

 
109,852

 
96,092

Preferred stock dividends of subsidiaries
 
228

 
228

 
686

 
686

Net income attributable to Hawaiian Electric
 
49,982

 
47,757

 
109,166

 
95,406

Preferred stock dividends of Hawaiian Electric
 
270

 
270

 
810

 
810

Net income for common stock
 
$
49,712

 
$
47,487

 
$
108,356

 
$
94,596

Comprehensive income attributable to Hawaiian Electric
 
$
49,740

 
$
47,509

 
$
108,441

 
$
95,117

OTHER ELECTRIC UTILITY INFORMATION
 
 
 
 
 
 
 
 
Kilowatthour sales (millions)
 
 
 
 
 
 
 
 
   Hawaiian Electric
 
1,761

 
1,775

 
4,855

 
4,924

   Hawaii Electric Light
 
277

 
272

 
796

 
782

   Maui Electric
 
291

 
293

 
818

 
822

 
 
2,329

 
2,340

 
6,469

 
6,528

Average fuel oil cost per barrel
 
$
90.93

 
$
66.73

 
$
84.67

 
$
67.42

Return on average common equity (twelve months ended)1
 
 
 
 
 
7.22
%
 
7.16
%
The Consolidated Statements of Income Data reflects the retrospective application of ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which was adopted in the first quarter of 2018. Nonservice cost was reclassified from “Other operation and maintenance” to “Retirement defined benefits expense—other than service costs.”
This information should be read in conjunction with the consolidated financial statements and the notes thereto in Hawaiian Electric filings with the SEC.
1 Simple average. On a core basis, 2018 and 2017 returns on average common equity (twelve months ended September 30) were 7.7% and 7.2%, respectively.  See reconciliation of GAAP to non-GAAP measures.




6


American Savings Bank, F.S.B.
STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended 
 
Nine months ended September 30
(in thousands)
 
September 30, 2018
 
June 30, 2018
 
September 30, 2017
 
2018
 
2017
Interest and dividend income
 
 

 
 

 
 

 
 
 
 
Interest and fees on loans
 
$
55,885

 
$
54,633

 
$
52,210

 
$
163,318

 
$
155,269

Interest and dividends on investment securities
 
9,300

 
8,628

 
6,850

 
27,130

 
20,593

Total interest and dividend income
 
65,185

 
63,261

 
59,060

 
190,448

 
175,862

Interest expense
 
 

 
 

 
 
 
 
 
 
Interest on deposit liabilities
 
3,635

 
3,284

 
2,444

 
9,876

 
6,858

Interest on other borrowings
 
404

 
393

 
470

 
1,293

 
2,110

Total interest expense
 
4,039

 
3,677

 
2,914

 
11,169

 
8,968

Net interest income
 
61,146

 
59,584

 
56,146

 
179,279

 
166,894

Provision for loan losses
 
6,033

 
2,763

 
490

 
12,337

 
7,231

Net interest income after provision for loan losses
 
55,113

 
56,821

 
55,656

 
166,942

 
159,663

Noninterest income
 
 

 
 

 
 
 
 
 
 
Fees from other financial services
 
4,543

 
4,744

 
5,635

 
13,941

 
17,055

Fee income on deposit liabilities
 
5,454

 
5,138

 
5,533

 
15,781

 
16,526

Fee income on other financial products
 
1,746

 
1,675

 
1,904

 
5,075

 
5,741

Bank-owned life insurance
 
2,663

 
1,133

 
1,257

 
4,667

 
4,165

Mortgage banking income
 
169

 
617

 
520

 
1,399

 
1,896

Other income, net
 
736

 
536

 
380

 
1,708

 
1,229

Total noninterest income
 
15,311

 
13,843

 
15,229

 
42,571

 
46,612

Noninterest expense
 
 

 
 

 
 
 
 
 
 
Compensation and employee benefits
 
23,952

 
23,655

 
23,512

 
72,047

 
71,095

Occupancy
 
4,363

 
4,194

 
4,284

 
12,837

 
12,623

Data processing
 
3,583

 
3,540

 
3,262

 
10,587

 
9,749

Services
 
2,485

 
3,028

 
2,863

 
8,560

 
7,989

Equipment
 
1,783

 
1,874

 
1,814

 
5,385

 
5,333

Office supplies, printing and postage
 
1,556

 
1,491

 
1,444

 
4,554

 
4,506

Marketing
 
993

 
1,085

 
934

 
2,723

 
2,290

FDIC insurance
 
638

 
727

 
746

 
2,078

 
2,296

Other expense
 
4,240

 
4,556

 
5,262

 
12,897

 
14,674

Total noninterest expense
 
43,593

 
44,150

 
44,121

 
131,668

 
130,555

Income before income taxes
 
26,831

 
26,514

 
26,764

 
77,845

 
75,720

Income taxes
 
5,610

 
5,953

 
9,172

 
17,103

 
25,582

Net income
 
$
21,221

 
$
20,561

 
$
17,592

 
$
60,742

 
$
50,138

Comprehensive income
 
$
16,480

 
$
16,579

 
$
18,009

 
$
39,944

 
$
53,613

OTHER BANK INFORMATION (annualized %, except as of period end)
 
 
 
 
 
 
 
 
Return on average assets
 
1.22

 
1.20

 
1.07

 
1.18

 
1.02

Return on average equity
 
13.80

 
13.56

 
11.64

 
13.32

 
11.24

Return on average tangible common equity
 
15.93

 
15.68

 
13.47

 
15.40

 
13.04

Net interest margin
 
3.81

 
3.76

 
3.69

 
3.78

 
3.68

Efficiency ratio
 
57.02

 
60.13

 
61.82

 
59.35

 
61.15

Net charge-offs to average loans outstanding
 
0.40

 
0.32

 
0.32

 
0.33

 
0.27

As of period end
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans to loans receivable held for investment
 
0.59

 
0.57

 
0.50

 
 
 
 
Allowance for loan losses to loans outstanding
 
1.14

 
1.11

 
1.13

 
 
 
 
Tangible common equity to tangible assets
 
7.75

 
7.64

 
8.01

 
 
 
 
Tier-1 leverage ratio
 
8.6

 
8.6

 
8.7

 
 
 
 
Total capital ratio
 
13.8

 
13.9

 
13.9

 
 
 
 
Dividend paid to HEI (via ASB Hawaii, Inc.) ($ in millions)
 
$
14.0

 
$
11.1

 
$
9.4

 
$
36.0

 
$
28.1

The Statements of Income Data reflects the retrospective application of ASU No. 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which was adopted in the first quarter of 2018. Nonservice cost was reclassified from “Compensation and employee benefits” to “Other expense.”
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI filings with the SEC.

7


EXPLANATION OF HEI’S USE OF CERTAIN UNAUDITED NON-GAAP MEASURES
HEI and Hawaiian Electric Company management use certain non-GAAP measures to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator of the companies’ core operating activities than the corresponding GAAP measures given the non-recurring nature of certain items. Non-GAAP core measures presented here may not be comparable to similarly titled measures used by other companies. The accompanying tables provide the return on average common equity (ROACE) and adjusted non-GAAP core ROACE for HEI and the utility.
The reconciling adjustments from GAAP earnings to core earnings used in the calculation of the twelve months ended September 30, 2018 ROACE exclude the impact of the federal tax reform act recorded in the fourth quarter of 2017 due to the adjustment of deferred tax balances and the $1,000 employee bonuses paid by the bank related to federal tax reform. Management does not consider these items to be representative of the company’s fundamental core earnings and has shown the non-GAAP (core) ROACE in order to provide better comparability between periods.
The accompanying table also provides the calculation of utility GAAP other operation and maintenance (O&M) expense adjusted for “O&M-related net income neutral items,” which are O&M expenses covered by specific surcharges or by third parties. These “O&M-related net income neutral items” are grossed-up in revenue and expense and do not impact net income.

RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES
 
 
 
Hawaiian Electric Industries, Inc. and Subsidiaries (HEI)
(Unaudited)
 
 
Twelve months ended September 30
 
2018
 
2017
HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
 
 
 
Based on GAAP
8.7
%
 
8.5
%
Based on non-GAAP (core)2
9.4
%
 
8.5
%
 
 
 
 
Hawaiian Electric Company, Inc. and Subsidiaries
 
 
 
 
Twelve months ended September 30
 
 
 
 
2018
 
2017
HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
 
 
 
 
 
 
Based on GAAP
 
 
 
7.22
%
 
7.16
%
Based on non-GAAP (core)2
 
 
 
7.71
%
 
7.16
%
 
 
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
($ in millions)
2018
2017
 
2018
 
2017
HAWAIIAN ELECTRIC CONSOLIDATED OTHER OPERATION AND MAINTENANCE (O&M) EXPENSE
 
 
 
 
 
 
GAAP (as reported)
$
113.6

$
98.7

 
$
333.8

 
$
302.4

Excluding other O&M-related net income neutral items3
0.2

0.7

 
0.7

 
2.7

Non-GAAP (Adjusted other O&M expense)
$
113.3

$
98.0


$
333.1

 
$
299.7

Note: Columns may not foot due to rounding
 
 
 
 
1  Accounting principles generally accepted in the United States of America
 
 
 
 
 
 
2  Calculated as core net income divided by average GAAP common equity
3  Expenses covered by surcharges or by third parties recorded in revenues
 
 
 
 
 
 


8