Hawaiian Electric Industries Reports 2018 Results, Increases Dividend And Nominates New Directors

Full year net income and diluted earnings per share (EPS)(1) grew 22%

Core net income and EPS rose 12%

Dividend increase of 3%

Three new independent directors nominated for election at the 2019 Annual Meeting

Company Release - 2/15/2019 6:00 AM ET

HONOLULU, Feb. 15, 2019 /PRNewswire/ --

2018 Highlights

  • Strong consolidated earnings include record bank earnings and improved utility earnings
    • Reported net income of $201.8 million in 2018 versus $165.3 million in 2017
    • Reported EPS of $1.85 in 2018 versus $1.52 in 2017
    • Reported return on equity of 9.5% versus 7.9% in 2017
  • Quarterly dividend increase of 1 cent, from $0.31 to $0.32 per share
    • Increase reflects Board's view of the strength of the Company's performance and prospects 
  • Hawaiian Electric Company (Hawaiian Electric2delivered on key priorities:
    • Completed first full cycle of rate cases for our three utilities in six years
    • Committed to $244 million in customer savings over twelve years from successful implementation of enterprise system
    • On track to beat 2020 goal of 30% electricity sales from renewable sources; achieved 27% in 2018
    • Reduced fossil fuel use and greenhouse gas emissions by almost 20% over last ten years
    • Led state's largest renewable energy and storage procurement, resulting in filed power purchase agreements at lowest prices to date in Hawaii, pending Hawaii Public Utilities Commission (PUC) approval
    • Invested more than $400 million to increase reliability and resilience and integration of additional renewable energy
    • Recognized as 2018 Investor-Owned Utility of the Year by Smart Electric Power Alliance for its grid modernization initiative
  • American Savings Bank (American) achieved record earnings and improved efficiency:
    • Disciplined approach to growth in the healthy Hawaii economy, building upon the benefits of a lower tax rate from tax reform
    • Improved efficiency ratio by 2.2%, with a 2018 efficiency ratio of 59.4% compared to 61.6% in 2017
    • Completion of innovative new campus enables further efficiency opportunities 
  • Three new independent, uniquely qualified directors with diverse and relevant experience – Celeste Connors, Mary Powell and Jim Scilacci – nominated for election at the 2019 Annual Meeting
  • Admiral Thomas Fargo to be named Vice Chair of the Board and Peggy Fowler named Chair of the Nominating and Corporate Governance Committee of the Board

1 Unless otherwise indicated, throughout this release earnings per share (EPS) refers to diluted earnings per share.

2 Hawaiian Electric, unless otherwise defined, refers to the three utilities, Hawaiian Electric Company, Inc. on Oahu, Maui Electric Company, Limited, and Hawaii Electric Light Company, Inc.

Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported 2018 year-end consolidated net income for common stock of $201.8 million and EPS of $1.85 compared to $165.3 million and EPS of $1.52 for 2017. Excluding 2017 one-time impacts from the implementation of federal tax reform, principally to adjust deferred tax assets for the lower tax rate, 2017 core net income was $179.5 million and core EPS was $1.65, and 2018 net income and EPS growth over the prior year core amounts was 12.4% and 12.1%, respectively.

For the fourth quarter of 2018, consolidated net income for common stock was $49.6 million and EPS was $0.45 compared to $32.4 million and EPS of $0.30 for the fourth quarter of 2017. Excluding the previously referenced one-time 2017 federal tax reform impacts, core net income for the fourth quarter of 2017 was $46.5 million and core EPS was $0.43, and fourth quarter 2018 net income and EPS growth over the fourth quarter 2017 core amounts was 6.7% and 4.7%, respectively.

"We are making substantial progress across HEI, as demonstrated by our strong 2018 financial, operational and environmental results. We delivered solid earnings growth over the prior year, with particularly strong results from American Savings Bank. In light of our 2018 earnings and our future prospects, our Board of Directors yesterday approved a 3% dividend increase, enhancing our record of uninterrupted dividends since 1901," said Constance H. Lau, President and CEO of HEI.

"Our electric company generated 27% of its sales from renewable energy, despite the lava-related shutdown of a third-party owned geothermal plant in 2018, and invested more than $400 million to strengthen the resilience of our electric systems across the islands we serve. Hawaiian Electric continues to lead the nation in the efficient integration of renewable resources, and in 2018 we were again number one in the nation in rooftop solar adoption."

"American Savings Bank delivered record earnings in 2018, and finished the year with a very strong fourth quarter. The bank is well positioned to continue to grow in 2019 and achieve even greater efficiency as it brings its team together into its new, state-of-the-art campus and works continually to deliver value to customers, our consolidated company and shareholders," said Lau.

HAWAIIAN ELECTRIC

Full Year Results:

Hawaiian Electric's full-year 2018 net income was $143.7 million, compared to $120.0 million in 2017. The $23.7 million increase in reported net income over the prior year was primarily driven by the following after-tax items:

  • Resetting of base rates through the rate case cycle, resulting in a net income impact of $31 million, and recovery under the rate adjustment mechanism (RAM) and major projects interim recovery (MPIR) mechanisms, resulting in $26 million of net income impact;
  • $5 million in net income from the previously announced pole ownership agreement with Hawaiian Telcom, which resulted in attachment fees and a one-time impact from the release of reserves due to the settlement of receivables from Hawaiian Telcom; the arrangement will reduce the cost of this critical infrastructure to our customers by bringing in third party revenues;
  • $9 million lower 2017 net income reflecting the aforementioned one-time 2017 impact of federal tax reform; and
  • $2 million higher net income from net favorable tax adjustments, largely related to favorable adjustments made in connection with filing of the 2017 tax return, partially offset by the difference between the reduction to revenue requirements to return tax reform benefits to customers and actual 2018 tax savings.

These items were partially offset by the following after-tax items:

  • $37 million higher operations and maintenance (O&M) expenses3 compared to 2017, primarily due to the reset of pension costs for the first time in six years as part of rate case decisions, the write-off of costs incurred during the merger time period related to Smart Grid planning and the evaluation of importing LNG, higher consultant costs related to implementation of the new enterprise resource system, higher costs for preventative maintenance on underground circuits to ensure reliability, generating station operation and maintenance (including $2 million net income impact from the newly commissioned Schofield Generating Station), and workers' compensation claims;
  • $8 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
  • $3 million higher interest expense from higher interest rates and increased borrowings to fund utility capital investments.

3 Excludes net income neutral expenses covered by surcharges or by third parties. See "Explanation of HEI's Use of Certain Unaudited Non-GAAP Measures" and related reconciliation accompanying this release.

Fourth Quarter Results:

Fourth quarter 2018 net income of $35 million was $10 million higher than the fourth quarter of 2017, primarily driven by a $15 million (post-tax) net revenue increase from rate relief and recovery through the RAM and MPIR mechanisms, the previously mentioned impact from the pole ownership agreement with Hawaiian Telcom (the impacts of which were experienced in the fourth quarter), and lower fourth quarter 2017 earnings due to the aforementioned $9 million one-time impact of federal tax reform. These amounts were partially offset by higher depreciation and O&M impacts totaling $3 million and $13 million post-tax, respectively. The higher O&M expenses included a $2 million post-tax write off of the previously mentioned LNG expenses and a $5 million impact from above-described pension reset. Lower allowance for funds used during construction also partially offset net income by $1 million.

AMERICAN SAVINGS BANK

Full Year Results:

American's full-year 2018 net income was $82.5 million compared to $67.0 million in 2017. The 23% increase from the prior year resulted from $18.8 million higher net interest income, driven primarily by growth in interest earning assets and an improved interest rate environment. This was partially offset by $3.8 million higher provision for loan losses, as well as lower noninterest income. While noninterest income for the year was $5.5 million lower than 2017, $4.2 million of such amount resulted from the reclassification of $4.2 million of debit card expenses in 2018 from noninterest expense to noninterest income due to a new accounting standard and thus did not impact net income.

Total deposits were $6.2 billion at December 31, 2018, an increase of 4.6% from December 31, 2017.  The average cost of funds was 0.25% for the full year 2018, up 4 basis points from the prior year. 

Overall, American's return on average equity4 for the full year increased to 13.5% compared to 11.2% in 2017, and the return on average assets for the full year grew to 1.20% in 2018 compared to 1.02% in 2017.

4 Bank return on average equity calculated using weighted average daily common equity.

Fourth Quarter Results:

Fourth quarter of 2018 net income of $21.8 million was $0.5 million higher than the third, or linked quarter and $4.9 million higher than the fourth quarter of 2017. Compared to the linked quarter of 2018, the $0.5 million net income increase was primarily driven by $2.3 million (pre-tax) higher net interest income primarily due to higher yields on interest earning assets, and a lower provision for loan losses principally related to the release of reserves in the commercial and commercial real estate loan portfolios due to improved credit quality and the payoff of a criticized commercial real estate construction loan. Compared to the fourth quarter of 2017, the $4.9 million higher net income in the fourth quarter of 2018 was primarily driven by $6.4 million (pre-tax) higher net interest income mainly due to higher yields and growth in earning assets. 

American's fourth quarter of 2018 return on average equity was 14.1%, compared to 13.8% in the linked quarter and 11.1% in the fourth quarter of 2017.  Return on average assets was 1.25% for the fourth quarter of 2018, compared to 1.22% in the linked quarter and 1.01% in the same quarter last year.

Please refer to American's news release issued on January 30, 2019 for additional information.

HOLDING AND OTHER COMPANIES

The holding and other companies' net loss was $24.4 million in 2018 compared to $21.7 million in 2017. The $21.7 million net loss for 2017 included a $5.7 million one-time charge to adjust deferred tax assets due to federal tax reform. The higher 2018 net loss for the year was primarily driven by lower tax benefits on expenses and other tax impacts due to tax reform and higher interest and compensation expenses, partially offset by lower professional costs and earnings contributions from Pacific Current. Fourth quarter net losses were $2.3 million lower than the prior year quarter, at $7.5 million in 2018 compared to $9.8 million in the fourth quarter of 2017. The fourth quarter 2017 net loss included the aforementioned $5.7 million one-time charge related to tax reform. Excluding the 2017 one-time charge, the fourth quarter of 2018 net loss was $3.5 million greater than the fourth quarter of 2017, due largely to the same factors cited for the full year comparison.

BOARD DECLARES INCREASE IN QUARTERLY DIVIDEND

On February 14, 2019, the Board of Directors increased HEI's quarterly cash dividend to $0.32 per share from the previous $0.31 per share. The dividend is payable on March 13, 2019, to shareholders of record at the close of business on February 26, 2019 (ex-dividend date is February 25, 2019).  The dividend is equivalent to an annual rate of $1.28 per share. This dividend increase reflects HEI's strong 2018 performance and solid foundation for future growth at both our bank and utility subsidiaries.

HEI has paid dividends on an uninterrupted basis since 1901. At the indicated annual dividend rate and the closing price per share on February 14, 2019 of $37.68, HEI's dividend yield is 3.4%.

THREE NEW INDEPENDENT DIRECTORS NOMINATED FOR ELECTION AT THE 2019 ANNUAL MEETING

Celeste Connors, Mary Powell and Jim Scilacci – each of whom has demonstrated a strong track record of stakeholder value creation – have been nominated for election at the 2019 Annual Meeting.

About Celeste Connors

Ms. Connors has extensive environmental, energy and economic policy experience spanning a 20-year career. Since 2015 she has served as Executive Director of Hawaii Green Growth, a public-private partnership focused on identifying sustainable growth priorities within an island context. Hawaii Green Growth was recognized by the United Nations as a Local 2030 hub to help catalyze and scale island-led solutions to achieve global sustainability goals. Ms. Connors has served as Practitioner in Residence in the Energy, Resources and Environment Program at the Johns Hopkins University School of Advanced International Studies since 2012. She has also served as CEO of c.dots development, an organization that she co-founded to provide underserved communities with sustainable and resilient infrastructure and services, since 2012. Ms. Connors served as Director for Environment and Climate Change at the National Security Council and National Economic Council in the White House from 2008-2012, and served as a Foreign Service Officer with the U.S. Department of State from 2000-2012.

About Mary Powell

Ms. Powell has significant experience in utilities and renewable energy, having served as President and CEO of Green Mountain Power since 2008. She serves on the Board of Sunrun Inc., where she is a member of the compensation committee. Ms. Powell also serves on the boards of the Vermont Electric Power Company, Blue Cross and Blue Shield of Vermont and The Solar Foundation. Her exceptional leadership has received national acclaim; she was named one of Fast Company's "100 Most Creative People in Business" in 2016 and one of CEO Connection's "2017 Most Influential Women of the Mid-Market," among other recognitions.

About Jim Scilacci

Mr. Scilacci has considerable experience in the utilities space spanning a career of more than 30 years. He served as CFO of Edison International from 2008-2016, and previously as CFO of Edison Mission Energy (2005-2008) and CFO of Southern California Edison (2000-2005). Mr. Scilacci's track record of success is highlighted by his recognition among the top CFOs in the electric utilities sector by a 2017 Institutional Investor survey of investors and sell-side analysts.

The Company also announced that it is continuing to evolve its Board leadership as it continues to execute its strategies to create value for its customers, communities and shareholders. As part of HEI's planned Board leadership transition at its upcoming annual shareholder meeting, Jeff Watanabe, HEI Board Chair, has been nominated to stand for election to a one-year term, and Admiral Thomas Fargo, who has been nominated for re-election, will be named Vice Chair of the Board. Peggy Fowler has been appointed as Chair of the Nominating and Corporate Governance Committee.

"We are very excited about nominating Celeste, Mary and Jim for election at this year's Annual Meeting," said Mr. Watanabe. "Their extensive experience and track records of success add to the strength of our talented Board as we continue our work to deliver long-term value for all of our stakeholders."

WEBCAST AND CONFERENCE CALL

HEI TO ANNOUNCE 2019 EPS GUIDANCE IN EARNINGS CONFERENCE CALL

Hawaiian Electric Industries, Inc. will conduct a webcast and conference call to review its 2018 earnings on Friday, February 15, 2019, at 11:15 a.m. Hawaii time (4:15 p.m. Eastern time). HEI will announce 2019 EPS guidance during the scheduled webcast and conference call.

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 under the heading "Investor Relations," sub-heading "News and Events—Events and Presentations."  HEI and Hawaiian Electric 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, 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. Investors may also sign up to receive e-mail alerts (based on each investor's selected preferences) by visiting the "Investor Relations" section of the website, sub-heading "Email Notification."  The information on HEI's website is not incorporated by reference in this document or in HEI's and Hawaiian Electric's SEC filings, except to the extent specifically incorporated by reference. Investors may also wish to refer to the 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'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 March 1, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10127920.

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 pages 13 to 14 of this release.

FORWARD-LOOKING STATEMENTS

This release may contain "forward-looking statements," which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as "will," "expects," "anticipates," "intends," "plans," "believes," "predicts," "estimates" or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries, 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.

Forward-looking statements in this release should be read in conjunction with the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" discussions (which are incorporated by reference herein) set forth in HEI's Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 and HEI's future periodic reports that discuss important factors that could cause HEI's results to differ materially from those anticipated in such statements. These forward-looking statements speak only as of the date of the report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, American and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:

Julie R. Smolinski

Telephone: (808) 543-7300


Director, Investor Relations

E-mail:  ir@hei.com


Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME DATA

(Unaudited)


Three months ended December 31


Years ended December 31

(in thousands, except per share amounts)

2018


2017


2018


2017

Revenues








Electric utility

$

680,563



$

583,311



$

2,546,525



$

2,257,566


Bank

81,256



75,166



314,275



297,640


Other

(169)



120



49



419


Total revenues

761,650



658,597



2,860,849



2,555,625


Expenses








Electric utility

619,451



515,127



2,304,864



1,994,042


Bank

52,089



51,958



206,040



198,104


Other

5,506



4,292



16,589



17,246


Total expenses

677,046



571,377



2,527,493



2,209,392


Operating income (loss)








Electric utility

61,112



68,184



241,661



263,524


Bank

29,167



23,208



108,235



99,536


Other

(5,675)



(4,172)



(16,540)



(16,827)


Total operating income

84,604



87,220



333,356



346,233


Retirement defined benefits expense—other than service costs

(1,289)



(2,232)



(5,962)



(7,942)


Interest expense, net—other than on deposit liabilities and other bank borrowings

(22,635)



(19,737)



(88,677)



(78,972)


Allowance for borrowed funds used during construction

1,052



1,407



4,867



4,778


Allowance for equity funds used during construction

2,638



3,575



10,877



12,483


Income before income taxes

64,370



70,233



254,461



276,580


Income taxes

14,324



37,390



50,797



109,393


Net income

50,046



32,843



203,664



167,187


Preferred stock dividends of subsidiaries

473



473



1,890



1,890


Net income for common stock

$

49,573



$

32,370



$

201,774



$

165,297


Basic earnings per common share

$

0.46



$

0.30



$

1.85



$

1.52


Diluted earnings per common share

$

0.45



$

0.30



$

1.85



$

1.52


Dividends declared per common share

$

0.31



$

0.31



$

0.93



$

1.24


Weighted-average number of common shares outstanding

108,879



108,786



108,855



108,749


Weighted-average shares assuming dilution

109,132



108,912



109,146



108,933


Net income (loss) for common stock by segment








Electric utility

$

35,297



$

25,355



$

143,653



$

119,951


Bank

21,767



16,859



82,509



66,997


Other

(7,491)



(9,844)



(24,388)



(21,651)


Net income for common stock

$

49,573



$

32,370



$

201,774



$

165,297


Comprehensive income attributable to Hawaiian Electric Industries, Inc.

$

62,091



$

27,089



$

193,105



$

163,925


Return on average common equity (twelve months ended)1





9.5

%


7.9

%


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 December 31) were 9.5% and 8.6%, respectively.  See reconciliation of GAAP to non-GAAP measures.




Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME DATA

(Unaudited)



Three months ended December 31


Years ended December 31

(dollars in thousands, except per barrel amounts)

2018


2017


2018


2017

Revenues

$

680,563



$

583,311



$

2,546,525



$

2,257,566


Expenses








Fuel oil

215,292



155,981



760,528



587,768


Purchased power

161,069



146,096



639,307



586,634


Other operation and maintenance

127,686



109,470



461,491



411,907


Depreciation

51,816



48,206



203,626



192,784


Taxes, other than income taxes

63,588



55,374



239,912



214,949


Total expenses

619,451



515,127



2,304,864



1,994,042


Operating income

61,112



68,184



241,661



263,524


Allowance for equity funds used during construction

2,638



3,575



10,877



12,483


Retirement defined benefits expense—other than service costs

(697)



(1,724)



(3,631)



(6,003)


Interest expense and other charges, net

(18,526)



(17,012)



(73,348)



(69,637)


Allowance for borrowed funds used during construction

1,052



1,407



4,867



4,778


Income before income taxes

45,579



54,430



180,426



205,145


Income taxes

9,783



28,576



34,778



83,199


Net income

35,796



25,854



145,648



121,946


Preferred stock dividends of subsidiaries

229



229



915



915


Net income attributable to Hawaiian Electric

35,567



25,625



144,733



121,031


Preferred stock dividends of Hawaiian Electric

270



270



1,080



1,080


Net income for common stock

$

35,297



$

25,355



$

143,653



$

119,951


Comprehensive income attributable to Hawaiian Electric

$

36,530



$

24,146



$

144,971



$

119,263


OTHER ELECTRIC UTILITY INFORMATION








Kilowatthour sales (millions)








   Hawaiian Electric

1,671



1,624



6,526



6,548


   Hawaii Electric Light

268



265



1,064



1,047


   Maui Electric

281



273



1,099



1,095



2,220



2,162



8,689



8,690


Average fuel oil cost per barrel

$

97.27



$

72.84



$

87.90



$

68.78


Return on average common equity (twelve months ended)1





7.56

%


6.58

%


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 December 31) were 7.6% and  7.1%, respectively.  See reconciliation of GAAP to non-GAAP measures.




American Savings Bank, F.S.B.

STATEMENTS OF INCOME DATA

(Unaudited)



Three months ended


Years ended December 31

(in thousands)

December 31,
2018


September 30,
2018


December 31,
2017


2018


2017

Interest and dividend income










Interest and fees on loans

$

57,145



$

55,885



$

51,986



$

220,463



$

207,255


Interest and dividends on investment securities

10,632



9,300



8,230



37,762



28,823


Total interest and dividend income

67,777



65,185



60,216



258,225



236,078


Interest expense










Interest on deposit liabilities

4,115



3,635



2,802



13,991



9,660


Interest on other borrowings

255



404



386



1,548



2,496


Total interest expense

4,370



4,039



3,188



15,539



12,156


Net interest income

63,407



61,146



57,028



242,686



223,922


Provision for loan losses

2,408



6,033



3,670



14,745



10,901


Net interest income after provision for loan losses

60,999



55,113



53,358



227,941



213,021


Noninterest income










Fees from other financial services

4,996



4,543



5,741



18,937



22,796


Fee income on deposit liabilities

5,530



5,454



5,678



21,311



22,204


Fee income on other financial products

1,977



1,746



1,464



7,052



7,205


Bank-owned life insurance

390



2,663



1,374



5,057



5,539


Mortgage banking income

94



169



305



1,493



2,201


Other income, net

492



736



388



2,200



1,617


Total noninterest income

13,479



15,311



14,950



56,050



61,562


Noninterest expense










Compensation and employee benefits

26,340



23,952



23,836



98,387



94,931


Occupancy

4,236



4,363



4,076



17,073



16,699


Data processing

3,681



3,583



3,531



14,268



13,280


Services

2,287



2,485



3,005



10,847



10,994


Equipment

1,801



1,783



1,899



7,186



7,232


Office supplies, printing and postage

1,580



1,556



1,676



6,134



6,182


Marketing

844



993



1,211



3,567



3,501


FDIC insurance

635



638



608



2,713



2,904


Other expense

4,341



4,240



5,470



17,238



20,144


Total noninterest expense

45,745



43,593



45,312



177,413



175,867


Income before income taxes

28,733



26,831



22,996



106,578



98,716


Income taxes

6,966



5,610



6,137



24,069



31,719


Net income

$

21,767



$

21,221



$

16,859



$

82,509



$

66,997


Comprehensive income

$

35,446



$

16,480



$

10,245



$

75,390



$

63,858


OTHER BANK INFORMATION (annualized %, except as of period end)


Return on average assets

1.25



1.22



1.01



1.20



1.02


Return on average equity

14.08



13.80



11.09



13.51



11.20


Return on average tangible common equity

16.23



15.93



12.82



15.61



12.99


Net interest margin

3.95



3.81



3.68



3.83



3.69


Efficiency ratio

59.50



57.02



62.95



59.39



61.60


Net charge-offs to average loans outstanding

0.37



0.40



0.26



0.34



0.27


As of period end










Nonaccrual loans to loans receivable held for investment

0.56



0.59



0.51






Allowance for loan losses to loans outstanding

1.08



1.14



1.15






Tangible common equity to tangible assets

7.95



7.75



7.81






Tier-1 leverage ratio

8.7



8.6



8.6






Total capital ratio

13.9



13.8



14.2






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

$

14.0



$

14.0



$

9.4



$

50.0



$

37.5



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.


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 given the non-recurring nature of certain items. Core earnings and other financial measures as presented here may not be comparable to similarly titled measures used by other companies.  The accompanying tables provide a reconciliation of reported GAAP1 earnings to non-GAAP core earnings and the adjusted return on average common equity (ROACE) for HEI and the utility.

The reconciling adjustments from GAAP earnings to core earnings exclude the 2017 impact of the federal tax reform act due to the adjustment of the 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. Management has shown adjusted non-GAAP (core) net income, adjusted non-GAAP (core) diluted earnings per common share and adjusted non-GAAP (core) ROACE  in order to provide better comparability of core net income, EPS and ROACE 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

Three months ended
December 31


Years ended
December 31

($ in millions, except per share amounts)

2018

2017


2018

2017

HEI CONSOLIDATED BONUSES2






Pre-tax expenses

$


$

1.2



$


$

1.2


Current income taxes (benefits)


(0.5)




(0.5)


After-tax (income) expenses

$


$

0.7



$


$

0.7


HEI CONSOLIDATED NET INCOME






GAAP (as reported)

$

49.6


$

32.4



$

201.8


$

165.3


Excluding special items (after-tax):






Bonus related to enactment of federal tax reform2


0.7




0.7


Federal tax reform impacts3


13.4




13.4


Non-GAAP (core) net income

$

49.6


$

46.5



$

201.8


$

179.5


HEI CONSOLIDATED DILUTED EARNINGS PER COMMON SHARE





GAAP (as reported)

$

0.45


$

0.30



$

1.85


$

1.52


Excluding special items (after-tax):






Bonus related to enactment of federal tax reform2


0.01




0.01


Federal tax reform impacts3


0.12




0.12


Non-GAAP (core) diluted earnings per common share

$

0.45


$

0.43



$

1.85


$

1.65






Years ended
December 31





2018

2017

HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)




Based on GAAP




9.5

%

7.9

%

Based on non-GAAP (core)4




9.5

%

8.6

%







Note:  Columns may not foot due to rounding

1  Accounting principles generally accepted in the United States of America

2  Bonus paid by American Savings Bank related to enactment of federal tax reform

3   Reflects the lower rates enacted by federal tax reform, primarily the adjustments to reduce the unregulated net deferred tax asset balances

4  Calculated as core net income divided by average GAAP common equity




RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES


Hawaiian Electric Company, Inc. and Subsidiaries

Unaudited

Three months ended
December 31


Years ended
December 31

($ in millions)

2018

2017


2018

2017

HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME






GAAP (as reported)

$

35.3


$

25.4



$

143.7


$

120.0


Excluding special items (after-tax):






Federal tax reform impacts2


9.2




9.2


Non-GAAP (core) net income

$

35.3


$

34.5



$

143.7


$

129.1












Years ended
December 31





2018

2017

HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)






Based on GAAP




7.56

%

6.58

%

Based on non-GAAP (core)3




7.56

%

7.08

%








Three months ended
December 31


Years ended
December 31

($ in millions)

2018

2017


2018

2017

HAWAIIAN ELECTRIC CONSOLIDATED OTHER OPERATION AND MAINTENANCE (O&M) EXPENSE






GAAP (as reported)4

$

127.7


$

109.5



$

461.5


$

411.9


Excluding other O&M-related net income neutral items5

0.7


1.1



1.4


3.8


Non-GAAP (Adjusted other O&M expense)

$

127.0


$

108.4



$

460.1


$

408.1






Note:  Columns may not foot due to rounding




1  Accounting principles generally accepted in the United States of America

2   Reflects the lower rates enacted by federal tax reform, primarily the adjustments to reduce the unregulated net deferred tax asset balances

3  Calculated as core net income divided by average GAAP common equity

4  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 expense" to "Retirement defined benefits expense—other than service costs."

5  Expenses covered by surcharges or by third parties recorded in revenues



Hawaiian Electric Industries, Inc. (PRNewsFoto/Hawaiian Electric Industries, Inc.)

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SOURCE Hawaiian Electric Industries, Inc.