EX-99 2 exhibit998-3x18.htm EXHIBIT 99 Exhibit


HEI Exhibit 99
heicatalyst2a15.jpg NEWS RELEASE
August 3, 2018

Contact:
Julie R. Smolinski
Telephone: (808) 543-7300
 
Manager, Investor Relations
           E-mail: ir@hei.com
 
 
 
 
 
 
HEI REPORTS SECOND QUARTER 2018 EARNINGS

2Q2018 Diluted Earnings Per Share (EPS) of $0.42
Schofield MPIR Approved as Utility Advances Renewable Strategy
Another Record Quarter of Bank Earnings

HONOLULU - Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the second quarter of 2018 of $46.1 million and diluted earnings per share (EPS) of $0.42 compared to $38.7 million and EPS of $0.36 for the second quarter of 2017.
“HEI delivered solid results for the second quarter of 2018 as we continue to make significant progress on our strategies across our companies,” said Constance H. Lau, president and CEO of HEI.
“In the second quarter our utilities continued to pave the way to add more renewables while increasing resilience, reliability and customer options. We brought our state-of-the-art, flexible, Schofield Generating Station online in June, under budget. The facility uses biofuels and conventional fuels, enhances reliability as we add more solar and wind resources and is the first project approved for recovery under the Major Projects Interim Recovery (MPIR) mechanism. In addition, we applied to implement the first phase of our grid modernization plan to make our grid more renewable-ready and provide greater customer options. Our utilities are receiving national attention for their efforts and were named Investor-Owned Utility of the Year by Smart Electric Power Alliance for their grid modernization work and innovation.”
“Our bank again delivered solid performance, with increased profitability and its second consecutive quarter of record earnings. American continues to execute well and benefit from the bottom line impacts of tax reform, and remains focused on making banking easier for customers and deepening customer relationships,” said Lau.






Hawaiian Electric Industries, Inc.
August 3, 2018
Page 2
HAWAIIAN ELECTRIC COMPANY EARNINGS
Hawaiian Electric Company’s1 net income for the second quarter of 2018 was $31.2 million compared to $25.6 million in the second quarter of 2017, primarily driven by the following after-tax items:
•
$8 million higher rate adjustment mechanism (RAM) revenues, primarily due to lower RAM revenues in the second quarter of 2017 because of the return in 2017 to recording Oahu RAM revenues for accounting purposes on a lagged basis beginning June 1, 2017, instead of on a calendar year basis; and
•
$7 million of rate relief from Hawaiian Electric’s 2017 test year and Hawaii Electric Light’s 2016 test year.
These items were partially offset by the following after-tax items:
•
$6 million higher O&M expenses2 compared to 2017, primarily due to the reset of pension costs as part of rate case decisions, Hawaii Island lava eruption response costs, and higher vegetation management costs, partially offset by higher overhauls in the prior year quarter;
•
$2 million higher depreciation expense as a result of increasing investments for the integration of more renewable energy, improved customer reliability and greater system efficiency; and
•
$2 million lower net income, representing the reduction in revenue requirements from tax reform, based on test-year projections, which is higher than the actual second quarter tax savings.





_________________
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.
August 3, 2018
Page 3
AMERICAN SAVINGS BANK EARNINGS
American Savings Bank’s (American) second quarter of 2018 net income was $20.6 million compared to $19.0 million in the first, or linked, quarter and $16.7 million in the prior year quarter.
Compared to the linked quarter of 2018, the $1.6 million net income increase in the second quarter of 2018 was primarily driven by higher net interest income, which was mainly due to good deposit growth that funded commercial and home equity lines of credit loan portfolio growth and lower provision for loan losses.
Compared to the second quarter of 2017, the $3.8 million higher net income in the second quarter of 2018 was primarily driven by higher net interest income partially offset by lower noninterest income. Tax expense was approximately $2 million lower in the second quarter of 2018 compared to the second quarter of 2017, primarily due to the benefits of the lower federal corporate tax rate from tax reform.
Total loans were $4.8 billion at June 30, 2018, up $104 million or 4.4% annualized from December 31, 2017, driven mainly by increases in commercial and commercial real estate loans of $91 million.
Total deposits were $6.1 billion at June 30, 2018, an increase of $226 million or 7.7% annualized from December 31, 2017, including $100 million in repurchase agreements that were transferred into deposit accounts. Excluding such transfer, total deposits increased by 4.2% annualized. Cost of funds was 0.24% for the second quarter of 2018, up 1 basis point from the linked quarter and up 3 basis points from the prior year quarter.
American’s return on average equity3 for the second quarter of 2018 was 13.56%, compared to 12.58% in the linked quarter and 11.25% in the second quarter of 2017. Return on average assets was 1.20% for the second quarter of 2018, compared to 1.12% in the linked quarter and 1.02% in the same quarter last year.
Please refer to American’s news release issued on July 30, 2018 for additional information on American.



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






Hawaiian Electric Industries, Inc.
August 3, 2018
Page 4
HOLDING AND OTHER COMPANIES
The holding and other companies’ net loss was $5.7 million in the second quarter of 2018 compared to $3.7 million in the prior year quarter. The higher net loss was primarily driven by approximately $1 million lower tax benefits on expenses resulting from a lower corporate federal tax rate and higher interest expense due to higher interest rates and additional debt related to Pacific Current investments, partially offset by income related to Pacific Current’s investment in Hamakua Energy.  
WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND EPS GUIDANCE
Hawaiian Electric Industries, Inc. will conduct a webcast and conference call to review its second quarter 2018 earnings and 2018 EPS guidance on Friday, August 3, 2018, at 10:00 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




Hawaiian Electric Industries, Inc.
August 3, 2018
Page 5
event through August 17, 2018, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10121450.
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 9 of this release.

###





Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(in thousands, except per share amounts)
 
2018
 
2017
 
2018
 
2017
Revenues
 
 
 
 
 
 
 
 
Electric utility
 
$
608,126

 
$
556,875

 
$
1,178,553

 
$
1,075,486

Bank
 
77,104

 
75,329

 
152,523

 
148,185

Other
 
47

 
77

 
75

 
172

Total revenues
 
685,277

 
632,281

 
1,331,151

 
1,223,843

Expenses
 
 
 
 
 
 
 
 
Electric utility
 
552,982

 
500,393

 
1,072,040

 
968,643

Bank
 
50,187

 
50,332

 
100,719

 
98,833

Other
 
3,309

 
3,754

 
7,704

 
8,827

Total expenses
 
606,478

 
554,479

 
1,180,463

 
1,076,303

Operating income (loss)
 
 
 
 
 
 
 
 
Electric utility
 
55,144

 
56,482

 
106,513

 
106,843

Bank
 
26,917

 
24,997

 
51,804

 
49,352

Other
 
(3,262
)
 
(3,677
)
 
(7,629
)
 
(8,655
)
Total operating income
 
78,799

 
77,802

 
150,688

 
147,540

Retirement defined benefits expense—other than service costs
 
(1,564
)
 
(1,906
)
 
(3,397
)
 
(3,782
)
Interest expense, net—other than on deposit liabilities and other bank borrowings
 
(22,001
)
 
(20,440
)
 
(43,519
)
 
(40,008
)
Allowance for borrowed funds used during construction
 
1,365

 
1,143

 
2,809

 
2,032

Allowance for equity funds used during construction
 
2,983

 
3,027

 
6,277

 
5,426

Income before income taxes
 
59,582

 
59,626

 
112,858

 
111,208

Income taxes
 
13,055

 
20,492

 
25,611

 
37,408

Net income
 
46,527

 
39,134

 
87,247

 
73,800

Preferred stock dividends of subsidiaries
 
473

 
473

 
946

 
946

Net income for common stock
 
$
46,054

 
$
38,661

 
$
86,301

 
$
72,854

Basic earnings per common share
 
$
0.42

 
$
0.36

 
$
0.79

 
$
0.67

Diluted earnings per common share
 
$
0.42

 
$
0.36

 
$
0.79

 
$
0.67

Dividends declared per common share
 
$
0.31

 
$
0.31

 
$
0.62

 
$
0.62

Weighted-average number of common shares outstanding
 
108,842

 
108,750

 
108,830

 
108,712

Weighted-average shares assuming dilution
 
108,963

 
108,797

 
109,053

 
108,869

Net income (loss) for common stock by segment
 
 
 
 
 
 
 
 
Electric utility
 
$
31,169

 
$
25,644

 
$
58,644

 
$
47,109

Bank
 
20,561

 
16,733

 
39,521

 
32,546

Other
 
(5,676
)
 
(3,716
)
 
(11,864
)
 
(6,801
)
Net income for common stock
 
$
46,054

 
$
38,661

 
$
86,301

 
$
72,854

Comprehensive income attributable to Hawaiian Electric Industries, Inc.
 
$
42,229

 
$
41,031

 
$
69,703

 
$
76,209

Return on average common equity (twelve months ended)1
 
 
 
 
 
8.6
%
 
12.1
%
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 first quarter 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 June 30) were 9.2% and 8.9%, respectively.  See reconciliation of GAAP to non-GAAP measures.

6


Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended June 30
 
Six months ended June 30
(dollars in thousands, except per barrel amounts)
 
2018
 
2017
 
2018
 
2017
Revenues
 
$
608,126

 
$
556,875

 
$
1,178,553

 
$
1,075,486

Expenses
 
 

 
 

 
 
 
 
Fuel oil
 
171,717

 
141,259

 
338,685

 
285,529

Purchased power
 
160,738

 
153,067

 
300,648

 
280,191

Other operation and maintenance
 
112,642

 
104,939

 
220,252

 
203,756

Depreciation
 
50,361

 
48,156

 
100,827

 
96,372

Taxes, other than income taxes
 
57,524

 
52,972

 
111,628

 
102,795

Total expenses
 
552,982

 
500,393

 
1,072,040

 
968,643

Operating income
 
55,144

 
56,482

 
106,513

 
106,843

Allowance for equity funds used during construction
 
2,983

 
3,027

 
6,277

 
5,426

Retirement defined benefits expense—other than service costs
 
(988
)
 
(1,435
)
 
(2,252
)
 
(2,858
)
Interest expense and other charges, net
 
(18,160
)
 
(18,214
)
 
(35,854
)
 
(35,718
)
Allowance for borrowed funds used during construction
 
1,365

 
1,143

 
2,809

 
2,032

Income before income taxes
 
40,344

 
41,003

 
77,493

 
75,725

Income taxes
 
8,676

 
14,860

 
17,851

 
27,618

Net income
 
31,668

 
26,143

 
59,642

 
48,107

Preferred stock dividends of subsidiaries
 
229

 
229

 
458

 
458

Net income attributable to Hawaiian Electric
 
31,439

 
25,914

 
59,184

 
47,649

Preferred stock dividends of Hawaiian Electric
 
270

 
270

 
540

 
540

Net income for common stock
 
$
31,169

 
$
25,644

 
$
58,644

 
$
47,109

Comprehensive income attributable to Hawaiian Electric
 
$
31,195

 
$
25,684

 
$
58,701

 
$
47,608

OTHER ELECTRIC UTILITY INFORMATION
 
 
 
 
 
 
 
 
Kilowatthour sales (millions)
 
 
 
 
 
 
 
 
   Hawaiian Electric
 
1,597

 
1,624

 
3,094

 
3,149

   Hawaii Electric Light
 
262

 
257

 
519

 
510

   Maui Electric
 
269

 
269

 
527

 
529

 
 
2,128

 
2,150

 
4,140

 
4,188

Average fuel oil cost per barrel
 
$
81.84

 
$
69.86

 
$
81.26

 
$
67.78

Return on average common equity (twelve months ended)1
 
 
 
 
 
7.19
%
 
7.23
%
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 first quarter 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 June 30) were 7.7% and 7.2%, respectively.  See reconciliation of GAAP to non-GAAP measures.




7


American Savings Bank, F.S.B.
STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended 
 
Six months ended June 30
(in thousands)
 
June 30, 2018
 
March 31, 2018
 
June 30, 2017
 
2018
 
2017
Interest and dividend income
 
 

 
 

 
 

 
 
 
 
Interest and fees on loans
 
$
54,633

 
$
52,800

 
$
52,317

 
$
107,433

 
$
103,059

Interest and dividends on investment securities
 
8,628

 
9,202

 
6,763

 
17,830

 
13,743

Total interest and dividend income
 
63,261

 
62,002

 
59,080

 
125,263

 
116,802

Interest expense
 
 

 
 

 
 
 
 
 
 
Interest on deposit liabilities
 
3,284

 
2,957

 
2,311

 
6,241

 
4,414

Interest on other borrowings
 
393

 
496

 
824

 
889

 
1,640

Total interest expense
 
3,677

 
3,453

 
3,135

 
7,130

 
6,054

Net interest income
 
59,584

 
58,549

 
55,945

 
118,133

 
110,748

Provision for loan losses
 
2,763

 
3,541

 
2,834

 
6,304

 
6,741

Net interest income after provision for loan losses
 
56,821

 
55,008

 
53,111

 
111,829

 
104,007

Noninterest income
 
 

 
 
 
 
 
 
 
 
Fees from other financial services
 
4,744

 
4,654

 
5,810

 
9,398

 
11,420

Fee income on deposit liabilities
 
5,138

 
5,189

 
5,565

 
10,327

 
10,993

Fee income on other financial products
 
1,675

 
1,654

 
1,971

 
3,329

 
3,837

Bank-owned life insurance
 
1,133

 
871

 
1,925

 
2,004

 
2,908

Mortgage banking income
 
617

 
613

 
587

 
1,230

 
1,376

Other income, net
 
536

 
436

 
391

 
972

 
849

Total noninterest income
 
13,843

 
13,417

 
16,249

 
27,260

 
31,383

Noninterest expense
 
 

 
 
 
 
 
 
 
 
Compensation and employee benefits
 
23,655

 
24,440

 
24,541

 
48,095

 
47,583

Occupancy
 
4,194

 
4,280

 
4,185

 
8,474

 
8,339

Data processing
 
3,540

 
3,464

 
3,207

 
7,004

 
6,487

Services
 
3,028

 
3,047

 
2,766

 
6,075

 
5,126

Equipment
 
1,874

 
1,728

 
1,771

 
3,602

 
3,519

Office supplies, printing and postage
 
1,491

 
1,507

 
1,527

 
2,998

 
3,062

Marketing
 
1,085

 
645

 
839

 
1,730

 
1,356

FDIC insurance
 
727

 
713

 
822

 
1,440

 
1,550

Other expense
 
4,556

 
4,101

 
4,906

 
8,657

 
9,412

Total noninterest expense
 
44,150

 
43,925

 
44,564

 
88,075

 
86,434

Income before income taxes
 
26,514

 
24,500

 
24,796

 
51,014

 
48,956

Income taxes
 
5,953

 
5,540

 
8,063

 
11,493

 
16,410

Net income
 
$
20,561

 
$
18,960

 
$
16,733

 
$
39,521

 
$
32,546

Comprehensive income
 
$
16,579

 
$
6,885

 
$
18,956

 
$
23,464

 
$
35,604

OTHER BANK INFORMATION (annualized %, except as of period end)
 
 
 
 
 
 
 
 
Return on average assets
 
1.20

 
1.12

 
1.02

 
1.16

 
1.00

Return on average equity
 
13.56

 
12.58

 
11.25

 
13.07

 
11.04

Return on average tangible common equity
 
15.68

 
14.57

 
13.06

 
15.13

 
12.82

Net interest margin
 
3.76

 
3.76

 
3.68

 
3.76

 
3.68

Efficiency ratio
 
60.13

 
61.04

 
61.73

 
60.58

 
60.81

Net charge-offs to average loans outstanding
 
0.32

 
0.28

 
0.21

 
0.30

 
0.25

As of period end
 
 
 
 
 
 
 
 
 
 
Nonaccrual loans to loans receivable held for investment
 
0.57

 
0.53

 
0.44

 
 
 
 
Allowance for loan losses to loans outstanding
 
1.11

 
1.14

 
1.19

 
 
 
 
Tangible common equity to tangible assets
 
7.64

 
7.66

 
7.88

 
 
 
 
Tier-1 leverage ratio
 
8.6

 
8.6

 
8.5

 
 
 
 
Total capital ratio
 
13.9

 
14.0

 
13.7

 
 
 
 
Dividend paid to HEI (via ASB Hawaii, Inc.) ($ in millions)
 
$
11.1

 
$
10.9

 
$
9.4

 
$
22.0

 
$
18.8

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 first quarter 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.

8


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 June 30, 2017 ROACE include income, costs and associated taxes related to the terminated merger between HEI and NextEra Energy, Inc. For more information on the transactions, see HEI’s Form 8-K filed on July 18, 2016, and HEI’s Form 8-K filed on July 19, 2016. The reconciling adjustments from GAAP earnings to core earnings used in the calculation of the twelve months ended June 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 June 30
 
2018
 
2017
HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
 
 
 
Based on GAAP
8.6
%
 
12.1
%
Based on non-GAAP (core)2
9.2
%
 
8.9
%
 
 
 
 
Hawaiian Electric Company, Inc. and Subsidiaries
 
 
 
 
Twelve months ended June 30
 
 
 
 
2018
 
2017
HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
 
 
 
 
 
 
Based on GAAP
 
 
 
7.19
%
 
7.23
%
Based on non-GAAP (core)2
 
 
 
7.69
%
 
7.23
%
 
 
 
 
 
 
 
 
Three months ended June 30
 
Six months ended June 30
($ in millions)
2018
2017
 
2018
 
2017
HAWAIIAN ELECTRIC CONSOLIDATED OTHER OPERATION AND MAINTENANCE (O&M) EXPENSE
 
 
 
 
 
 
GAAP (as reported)
$
112.6

$
104.9

 
$
220.3

 
$
203.8

Excluding other O&M-related net income neutral items3
0.1

0.9

 
0.5

 
2.0

Non-GAAP (Adjusted other O&M expense)
$
112.5

$
104.0


$
219.8

 
$
201.7

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
 
 
 
 
 
 


9