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Form 8-K HAWAIIAN ELECTRIC INDUST For: Nov 04 Filed by: HAWAIIAN ELECTRIC CO INC

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November 4, 2016 4:18 PM EDT


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
CURRENT REPORT

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report: November 4, 2016

Exact Name of Registrant
Commission
I.R.S. Employer
as Specified in Its Charter
File Number
Identification No.
Hawaiian Electric Industries, Inc.
1-8503
99-0208097
Hawaiian Electric Company, Inc.
1-4955
99-0040500


State of Hawaii
(State or other jurisdiction of incorporation)
 
1001 Bishop Street, Suite 2900, Honolulu, Hawaii  96813 - Hawaiian Electric Industries, Inc. (HEI)
900 Richards Street, Honolulu, Hawaii  96813 - Hawaiian Electric Company, Inc. (Hawaiian Electric)
(Address of principal executive offices and zip code)
 
Registrant’s telephone number, including area code:
 
(808) 543-5662 - HEI
(808) 543-7771 - Hawaiian Electric
 
None
(Former name or former address, if changed since last report.)
  
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02 Results of Operations and Financial Condition.
On November 4, 2016, HEI issued a news release, “Hawaiian Electric Industries Reports Third Quarter 2016 Earnings.” This news release is furnished as HEI Exhibit 99.



Item 9.01 Financial Statements and Exhibits.

(d) Exhibits    
HEI Exhibit 99
News release, dated November 4, 2016, “Hawaiian Electric Industries Reports Third Quarter 2016 Earnings”






















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)
/s/ James A. Ajello
/s/ Tayne S. Y. Sekimura
James A. Ajello
Tayne S. Y. Sekimura
Executive Vice President and
Senior Vice President and
Chief Financial Officer
Chief Financial Officer
 
 
 
 
Date: November 4, 2016
Date: November 4, 2016
 
 

1


EXHIBIT INDEX

Exhibit No.        Description
HEI Exhibit 99
News release, dated November 4, 2016, “Hawaiian Electric Industries Reports Third Quarter 2016 Earnings”


2


HEI Exhibit 99
image0a13.jpg

November 4, 2016
Contact:
Clifford H. Chen
Telephone: (808) 543-7300
 
Manager, Investor Relations &
 
Strategic Planning
 
 
 
 
                                    
HAWAIIAN ELECTRIC INDUSTRIES REPORTS
THIRD QUARTER 2016 EARNINGS

GAAP Diluted Earnings Per Share (EPS) of $1.17;
Includes Merger-Related Net Income of $0.59
Merger Termination Payment Will Help Support Utility Investments
Core EPS1 of $0.58


HONOLULU - Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the third quarter of 2016 of $127.1 million and diluted earnings per share (EPS) of $1.17 compared to $50.7 million and EPS of $0.47 for the third quarter of 2015. Financial results for the third quarter of 2016 include the one-time increase to net income of $63.8 million related to the recently terminated merger with NextEra Energy, Inc. and related spin-off of ASB Hawaii, Inc., as compared to $1.7 million net expense in the third quarter of 2015. Excluding these items, core earnings1 for the third quarter of 2016 were $63.3 million and core EPS1 of $0.58 compared to $52.4 million and $0.49 respectively for the third quarter of 2015.
“The NextEra Energy termination payment will support HEI's investments in our community and projects our utility is undertaking to reliably integrate more renewable energy for its customers. Through the first nine months of this year, Hawaiian Electric invested $230 million in local infrastructure projects to modernize the electric grid and to reliably integrate more renewable energy, moving us closer to our renewable energy goals. And in October, Hawaiian Electric marked its 125th year of serving the people of Hawaii. At American Savings Bank, we continued to deliver solid earnings growth and strong year-to-date annualized deposit growth of 9.4%,” said Constance H. Lau, HEI president and chief executive officer.
_________________
1 Non-GAAP measure which excludes fees, reimbursements and other related costs to the recently terminated merger between HEI and NextEra Energy, Inc. and the terminated spin-off of ASB Hawaii, Inc. and costs related to the recently terminated LNG contract which required PUC approval of the merger with NextEra Energy, Inc. See the “Explanation of HEI’s Use of Certain Unaudited Non-GAAP measures” and the related reconciliation.



Hawaiian Electric Industries, Inc.
November 4, 2016
Page 2

HAWAIIAN ELECTRIC COMPANY EARNINGS
Hawaiian Electric Company’s2 net income for the third quarter of 2016 was $47.0 million compared to $43.0 million in the third quarter of 2015. The increase was largely due to the non-recurrence of one-time items recorded in 2015.
O&M expenses were $5 million (after-tax) lower compared to the prior year quarter as the third quarter of 2015 was impacted by one-time items including the $3 million after-tax adjustment for enterprise resource planning software costs. In addition, third quarter 2016 O&M costs were $2 million (after-tax) lower due to fewer overhauls performed.
Lower O&M expenses were partially offset by $1 million higher depreciation expense as a result of increased investments for improved customer reliability and greater system efficiency, and the integration of more renewable energy.
Net revenues were relatively flat as $2 million (after-tax) higher recovery of costs for clean energy and reliability investments were offset by $2 million (after-tax) lower fuel efficiency.

AMERICAN SAVINGS BANK EARNINGS
    American Savings Bank’s (American) net income for the third quarter of 2016 was $15.1 million compared to $13.3 million in the second (or linked) quarter of 2016 and $13.5 million in the third quarter of 2015. Third quarter 2016 net income was $1.8 million higher than the linked quarter primarily driven by $2 million (after-tax) higher revenues due to higher noninterest income and net interest income, partially offset by higher provision for loan losses.
Compared to the third quarter of 2015, net income improved by $1.7 million primarily driven by $2 million (after-tax) higher net interest income due to growth in the commercial real estate and consumer loan portfolios. Higher net interest income was partially offset by higher provision for loan losses.

_________________
Note: Amounts indicated as “after-tax” in this earnings release are based upon adjusting items for the composite statutory tax rates of 39% for the utilities and 40% for the bank.

2 
Hawaiian Electric Company, 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.
November 4, 2016
Page 3

Total loans were $4.7 billion at September 30, 2016, essentially flat compared to the linked quarter and increased $118 million year-to-date 2016. Year-to-date annualized loan growth was 3.4%, on track for American’s target of mid-single digit loan growth for the full year.
Total deposits were $5.4 billion at September 30, 2016, an increase of $149 million and $355 million in the third quarter and year-to-date 2016, respectively. Year-to-date annualized deposit growth of 9.4% was primarily driven by the $190 million (5.6% year-to-date annualized) increase in low-cost core deposits. Average cost of funds remained low at 0.24% for the third quarter of 2016, 1 basis point higher than the linked quarter and 2 basis points higher than the prior year quarter.
Overall, American achieved solid profitability in the third quarter of 2016 with a return on average equity of 10.4% and a return on average assets of 0.97%.
For additional information, refer to the American news release issued on October 28, 2016.

HOLDING AND OTHER COMPANIES
The holding and other companies’ net income (loss) were $65.1 million net income in the third quarter of 2016 compared to ($5.8) million net loss in the third quarter of 2015. Excluding one-time merger-related items of $63.8 million net income in the third quarter of 2016 and $1.7 million net expenses in the third quarter of 2015, the holding and other companies’ net income (loss) in the third quarter of 2016 and 2015 were $1.2 million net income and ($4.1) million net loss, respectively. The holding company’s third quarter 2016 results included favorable tax adjustments as HEI moved out of a federal net operating loss position, enabling the recognition of tax benefits.

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 of 2016 earnings on Friday, November 4, 2016, at 11:00 a.m. Hawaii time (5:00 p.m. Eastern time).
Interested parties within the United States may listen to the conference by calling (888) 317-6016. International parties may listen to the conference by calling (412) 317-6016 or by accessing the webcast on HEI’s website at www.hei.com under the heading “Investor Relations.”  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



Hawaiian Electric Industries, Inc.
November 4, 2016
Page 4

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. 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 the same website beginning about two hours after the event. Replays of the conference call will also be available approximately two hours after the event through November 18, 2016, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10094997.
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 and 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.

NON-GAAP MEASURES
See “Explanation of HEI’s Use of Certain Unaudited Non-GAAP Measures” and related reconciliations on pages 12 and 13 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




Hawaiian Electric Industries, Inc.
November 4, 2016
Page 5

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 “Forward-Looking Statements” and “Risk Factors” discussions (which are incorporated by reference herein) set forth in HEI’s Annual Report on Form 10-K for the year ended December 31, 2015, HEI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 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 Company, 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.

###




Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended September 30
 
Nine months ended September 30
(in thousands, except per share amounts)
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 
 
 
Electric utility
 
$
572,253

 
$
648,127

 
$
1,549,700

 
$
1,779,732

Bank
 
73,708

 
69,091

 
213,297

 
199,222

Other
 
94

 
(42
)
 
262

 
(4
)
Total revenues
 
646,055

 
717,176

 
1,763,259

 
1,978,950

Expenses
 
 
 
 
 
 
 
 
Electric utility
 
482,441

 
565,470

 
1,333,876

 
1,573,278

Bank
 
50,981

 
48,289

 
150,752

 
138,063

Other
 
7,191

 
6,322

 
18,883

 
28,278

Total expenses
 
540,613

 
620,081

 
1,503,511

 
1,739,619

Operating income (loss)
 
 
 
 
 
 
 
 
Electric utility
 
89,812

 
82,657

 
215,824

 
206,454

Bank
 
22,727

 
20,802

 
62,545

 
61,159

Other
 
(7,097
)
 
(6,364
)
 
(18,621
)
 
(28,282
)
Total operating income
 
105,442

 
97,095

 
259,748

 
239,331

Merger termination fee
 
90,000

 
—

 
90,000

 
—

Interest expense, net—other than on deposit liabilities and other bank borrowings
 
(19,365
)
 
(19,229
)
 
(56,792
)
 
(57,235
)
Allowance for borrowed funds used during construction
 
854

 
737

 
2,276

 
1,918

Allowance for equity funds used during construction
 
2,274

 
2,057

 
6,010

 
5,366

Income before income taxes
 
179,205

 
80,660

 
301,242

 
189,380

Income taxes
 
51,592

 
29,516

 
96,203

 
70,406

Net income
 
127,613

 
51,144

 
205,039

 
118,974

Preferred stock dividends of subsidiaries
 
471

 
471

 
1,417

 
1,417

Net income for common stock
 
$
127,142

 
$
50,673

 
$
203,622

 
$
117,557

Basic earnings per common share
 
$
1.17

 
$
0.47

 
$
1.89

 
$
1.11

Diluted earnings per common share
 
$
1.17

 
$
0.47

 
$
1.88

 
$
1.11

Dividends per common share
 
$
0.31

 
$
0.31

 
$
0.93

 
$
0.93

Weighted-average number of common shares outstanding
 
108,268

 
107,457

 
107,951

 
106,067

Adjusted weighted-average shares
 
108,472

 
107,738

 
108,171

 
106,347

Net income (loss) for common stock by segment
 
 
 
 
 
 
 
 
Electric utility
 
$
46,974

 
$
43,006

 
$
108,198

 
$
102,721

Bank
 
15,104

 
13,451

 
41,062

 
39,777

Other
 
65,064

 
(5,784
)
 
54,362

 
(24,941
)
Net income for common stock
 
$
127,142

 
$
50,673

 
$
203,622

 
$
117,557

Comprehensive income attributable to Hawaiian Electric Industries, Inc.
 
$
125,473

 
$
55,103

 
$
212,861

 
$
122,918

Return on average common equity (twelve months ended)1
 
 
 
 
 
12.3
%
 
8.1
%
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI filings with the SEC. Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.
1 On a core basis, 2016 and 2015 returns on average common equity (twelve months ended September 30) were 9.5% and 9.1%.  See reconciliation of GAAP to non-GAAP measures.

6


Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands)
 
September 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Cash and cash equivalents
 
$
284,355

 
$
300,478

Accounts receivable and unbilled revenues, net
 
250,076

 
242,766

Available-for-sale investment securities, at fair value
 
996,984

 
820,648

Stock in Federal Home Loan Bank, at cost
 
11,218

 
10,678

Loans receivable held for investment, net
 
4,675,901

 
4,565,781

Loans held for sale, at lower of cost or fair value
 
26,743

 
4,631

Property, plant and equipment, net of accumulated depreciation of $2,416,937 and $2,339,319 at the respective dates
 
4,532,556

 
4,377,658

Regulatory assets
 
879,775

 
896,731

Other
 
459,187

 
480,457

Goodwill
 
82,190

 
82,190

Total assets
 
$
12,198,985

 
$
11,782,018

Liabilities and shareholders’ equity
 
 

 
 

Liabilities
 
 

 
 

Accounts payable
 
$
134,176

 
$
138,523

Interest and dividends payable
 
27,115

 
26,042

Deposit liabilities
 
5,380,721

 
5,025,254

Short-term borrowings—other than bank
 
—

 
103,063

Other bank borrowings
 
265,388

 
328,582

Long-term debt, net—other than bank
 
1,579,065

 
1,578,368

Deferred income taxes
 
721,470

 
680,877

Regulatory liabilities
 
400,479

 
371,543

Contributions in aid of construction
 
525,491

 
506,087

Defined benefit pension and other postretirement benefit plans liability
 
572,933

 
589,918

Other
 
489,466

 
471,828

Total liabilities
 
10,096,304

 
9,820,085

Preferred stock of subsidiaries - not subject to mandatory redemption
 
34,293

 
34,293

Shareholders’ equity
 
 

 
 

Preferred stock, no par value, authorized 10,000,000 shares; issued: none
 
—

 
—

Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 108,503,210 shares and 107,460,406 shares at the respective dates
 
1,657,421

 
1,629,136

Retained earnings
 
427,990

 
324,766

Accumulated other comprehensive loss, net of tax benefits
 
(17,023
)
 
(26,262
)
Total shareholders’ equity
 
2,068,388

 
1,927,640

Total liabilities and shareholders’ equity
 
$
12,198,985

 
$
11,782,018

The Consolidated Balance Sheet as of December 31, 2015 reflects the retrospective application of ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which was adopted in first quarter 2016.
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI filings with the SEC.


7


Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
 
 
Three months ended September 30
 
Nine months ended September 30
(dollars in thousands, except per barrel amounts)
 
2016
 
2015
 
2016
 
2015
Revenues
 
$
572,253

 
$
648,127

 
$
1,549,700

 
$
1,779,732

Expenses
 
 

 
 

 
 
 
 
Fuel oil
 
128,624

 
195,633

 
334,263

 
518,670

Purchased power
 
157,750

 
160,518

 
412,667

 
445,809

Other operation and maintenance
 
94,789

 
103,653

 
298,260

 
306,519

Depreciation
 
46,759

 
44,356

 
140,300

 
132,840

Taxes, other than income taxes
 
54,519

 
61,310

 
148,386

 
169,440

Total expenses
 
482,441

 
565,470

 
1,333,876

 
1,573,278

Operating income
 
89,812

 
82,657

 
215,824

 
206,454

Allowance for equity funds used during construction
 
2,274

 
2,057

 
6,010

 
5,366

Interest expense and other charges, net
 
(17,323
)
 
(16,557
)
 
(49,734
)
 
(49,170
)
Allowance for borrowed funds used during construction
 
854

 
737

 
2,276

 
1,918

Income before income taxes
 
75,617

 
68,894

 
174,376

 
164,568

Income taxes
 
28,145

 
25,390

 
64,682

 
60,351

Net income
 
47,472

 
43,504

 
109,694

 
104,217

Preferred stock dividends of subsidiaries
 
228

 
228

 
686

 
686

Net income attributable to Hawaiian Electric
 
47,244

 
43,276

 
109,008

 
103,531

Preferred stock dividends of Hawaiian Electric
 
270

 
270

 
810

 
810

Net income for common stock
 
$
46,974

 
$
43,006

 
$
108,198

 
$
102,721

Comprehensive income attributable to Hawaiian Electric
 
$
47,125

 
$
43,010

 
$
108,610

 
$
102,732

OTHER ELECTRIC UTILITY INFORMATION
 
 
 
 
 
 
 
 
Kilowatthour sales (millions)
 
 
 
 
 
 
 
 
   Hawaiian Electric
 
1,800

 
1,874

 
4,982

 
5,016

   Hawaii Electric Light
 
277

 
282

 
795

 
792

   Maui Electric
 
295

 
312

 
836

 
848

 
 
2,372

 
2,468

 
6,613

 
6,656

Wet-bulb temperature (Oahu average; degrees Fahrenheit)
 
72.3

 
74.9

 
69.8

 
70.2

Cooling degree days (Oahu)
 
1,496

 
1,711

 
3,637

 
3,687

Average fuel oil cost per barrel
 
$
57.72

 
$
81.35

 
$
52.06

 
$
79.13

 
 
 
 
 
 
 
 
 
 
 
 
 
Twelve months ended
 September 30
 
 
 
 
 
 
2016
 
2015
Return on average common equity (%) (simple average)
 
 
 
 
 
 
 
 
   Hawaiian Electric
 
 
 
 
 
7.94

 
7.95

   Hawaii Electric Light
 
 
 
 
 
8.46

 
6.30

   Maui Electric
 
 
 
 
 
8.45

 
9.21

   Hawaiian Electric Consolidated1
 
 
 
 
 
8.11

 
7.86

This information should be read in conjunction with the consolidated financial statements and the notes thereto in Hawaiian Electric filings with the SEC. Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.
1 On a core basis, 2016 and 2015 returns on average common equity (twelve months ended September 30) were 8.2% and 7.9%.  See reconciliation of GAAP to non-GAAP measures.



8


Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except par value)
 
September 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Property, plant and equipment
 
 
 
 
Utility property, plant and equipment
 
 

 
 

Land
 
$
53,175

 
$
52,792

Plant and equipment
 
6,483,562

 
6,315,698

Less accumulated depreciation
 
(2,343,601
)
 
(2,266,004
)
Construction in progress
 
236,608

 
175,309

Utility property, plant and equipment, net
 
4,429,744

 
4,277,795

Nonutility property, plant and equipment, less accumulated depreciation of $1,231 and $1,229 at respective dates
 
7,374

 
7,272

Total property, plant and equipment, net
 
4,437,118

 
4,285,067

Current assets
 
 
 
 

Cash and cash equivalents
 
22,977

 
24,449

Customer accounts receivable, net
 
134,418

 
132,778

Accrued unbilled revenues, net
 
95,167

 
84,509

Other accounts receivable, net
 
4,629

 
10,408

Fuel oil stock, at average cost
 
64,480

 
71,216

Materials and supplies, at average cost
 
57,356

 
54,429

Prepayments and other
 
35,645

 
36,640

Regulatory assets
 
74,681

 
72,231

Total current assets
 
489,353

 
486,660

Other long-term assets
 
 

 
 

Regulatory assets
 
805,094

 
824,500

Unamortized debt expense
 
267

 
497

Other
 
68,994

 
75,486

Total other long-term assets
 
874,355

 
900,483

Total assets
 
$
5,800,826

 
$
5,672,210

Capitalization and liabilities
 
 

 
 

Capitalization
 
 

 
 

Common stock ($6 2/3 par value, authorized 50,000,000 shares; outstanding 15,805,327 shares)
 
$
105,388

 
$
105,388

Premium on capital stock
 
578,921

 
578,930

Retained earnings
 
1,081,081

 
1,043,082

Accumulated other comprehensive income, net of income taxes
 
1,337

 
925

Common stock equity
 
1,766,727

 
1,728,325

Cumulative preferred stock — not subject to mandatory redemption
 
34,293

 
34,293

Long-term debt, net
 
1,279,327

 
1,278,702

Total capitalization
 
3,080,347

 
3,041,320

Current liabilities
 
 

 
 

Short-term borrowings from affiliates
 
21,000

 
—

Accounts payable
 
107,497

 
114,846

Interest and preferred dividends payable
 
25,934

 
23,111

Taxes accrued
 
167,276

 
191,084

Regulatory liabilities
 
2,987

 
2,204

Other
 
56,753

 
54,079

Total current liabilities
 
381,447

 
385,324

Deferred credits and other liabilities
 
 

 
 

Deferred income taxes
 
714,559

 
654,806

Regulatory liabilities
 
397,492

 
369,339

Unamortized tax credits
 
87,794

 
84,214

Defined benefit pension and other postretirement benefit plans liability
 
535,912

 
552,974

Other
 
77,784

 
78,146

Total deferred credits and other liabilities
 
1,813,541

 
1,739,479

Contributions in aid of construction
 
525,491

 
506,087

Total capitalization and liabilities
 
$
5,800,826

 
$
5,672,210

The Consolidated Balance Sheet as of December 31, 2015 reflects the retrospective application of ASU No. 2015-03, “Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs,” which was adopted in first quarter 2016.
This information should be read in conjunction with the consolidated financial statements and the notes thereto in Hawaiian Electric filings with the SEC.

9


American Savings Bank, F.S.B.
STATEMENTS OF INCOME DATA
(Unaudited)
 
 
Three months ended 
 
Nine months ended September 30
(in thousands)
 
September 30, 2016
 
June 30, 2016
 
September 30, 2015
 
2016
 
2015
Interest and dividend income
 
 

 
 

 
 

 
 
 
 
Interest and fees on loans
 
$
50,444

 
$
49,690

 
$
46,413

 
$
148,571

 
$
137,646

Interest and dividends on investment securities
 
4,759

 
4,443

 
4,213

 
14,219

 
10,570

Total interest and dividend income
 
55,203

 
54,133

 
50,626

 
162,790

 
148,216

Interest expense
 
 

 
 

 
 
 
 
 
 
Interest on deposit liabilities
 
1,871

 
1,691

 
1,355

 
5,154

 
3,881

Interest on other borrowings
 
1,464

 
1,467

 
1,515

 
4,416

 
4,468

Total interest expense
 
3,335

 
3,158

 
2,870

 
9,570

 
8,349

Net interest income
 
51,868

 
50,975

 
47,756

 
153,220

 
139,867

Provision for loan losses
 
5,747

 
4,753

 
2,997

 
15,266

 
5,436

Net interest income after provision for loan losses
 
46,121

 
46,222

 
44,759

 
137,954

 
134,431

Noninterest income
 
 

 
 

 
 
 
 
 
 
Fees from other financial services
 
5,599

 
5,701

 
5,639

 
16,799

 
16,544

Fee income on deposit liabilities
 
5,627

 
5,262

 
5,883

 
16,045

 
16,622

Fee income on other financial products
 
2,151

 
2,207

 
2,096

 
6,563

 
6,088

Bank-owned life insurance
 
1,616

 
1,006

 
1,021

 
3,620

 
3,062

Mortgage banking income
 
2,347

 
1,554

 
1,437

 
5,096

 
5,327

Gains on sale of investment securities, net
 
—

 
598

 
—

 
598

 
—

Other income, net
 
1,165

 
288

 
2,389

 
1,786

 
3,363

Total noninterest income
 
18,505

 
16,616

 
18,465

 
50,507

 
51,006

Noninterest expense
 
 

 
 

 
 
 
 
 
 
Compensation and employee benefits
 
22,844

 
21,919

 
22,728

 
67,197

 
66,813

Occupancy
 
3,991

 
4,115

 
4,128

 
12,244

 
12,250

Data processing
 
3,150

 
3,277

 
3,032

 
9,599

 
9,101

Services
 
2,427

 
2,755

 
2,556

 
8,093

 
7,730

Equipment
 
1,759

 
1,771

 
1,608

 
5,193

 
4,999

Office supplies, printing and postage
 
1,483

 
1,583

 
1,511

 
4,431

 
4,297

Marketing
 
747

 
899

 
934

 
2,507

 
2,619

FDIC insurance
 
907

 
913

 
809

 
2,704

 
2,393

Other expense
 
4,591

 
5,382

 
5,116

 
13,948

 
14,076

Total noninterest expense
 
41,899

 
42,614

 
42,422

 
125,916

 
124,278

Income before income taxes
 
22,727

 
20,224

 
20,802

 
62,545

 
61,159

Income taxes
 
7,623

 
6,939

 
7,351

 
21,483

 
21,382

Net income
 
$
15,104

 
$
13,285

 
$
13,451

 
$
41,062

 
$
39,777

Comprehensive income
 
$
13,176

 
$
16,051

 
$
17,678

 
$
49,537

 
$
44,540

OTHER BANK INFORMATION (annualized %, except as of period end)
 
 
 
 
 
 
 
 
Return on average assets
 
0.97

 
0.86

 
0.92

 
0.89

 
0.92

Return on average equity
 
10.36

 
9.22

 
9.73

 
9.50

 
9.69

Return on average tangible common equity
 
12.06

 
10.75

 
11.43

 
11.07

 
11.4

Net interest margin
 
3.57

 
3.58

 
3.53

 
3.59

 
3.52

Efficiency ratio
 
59.54

 
63.05

 
64.06

 
61.81

 
65.11

Net charge-offs to average loans outstanding
 
0.20

 
0.15

 
0.10

 
0.19

 
0.08

As of period end
 
 
 
 
 
 
 
 
 
 
Nonperforming assets to loans outstanding and real estate owned
 
1.12

 
1.02

 
1.00

 
 
 
 
Allowance for loan losses to loans outstanding
 
1.24

 
1.16

 
1.06

 
 
 
 
Tangible common equity to tangible assets
 
8.03

 
8.15

 
8.23

 
 
 
 
Tier-1 leverage ratio
 
8.6

 
8.7

 
8.8

 
 
 
 
Total capital ratio
 
13.3

 
13.2

 
13.4

 
 
 
 
Dividend paid to HEI (via ASB Hawaii, Inc.) ($ in millions)
 
$
9.0

 
$
9.0

 
$
7.5

 
 
 
 
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI filings with the SEC. Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.

10


American Savings Bank, F.S.B.
BALANCE SHEETS DATA
(Unaudited)
(in thousands)
September 30, 2016
 
December 31, 2015
 
 
 
 

 
 

Assets
 
 

 
 

Cash and due from banks
 
$
109,591

 
$
127,201

Interest-bearing deposits
 
103,989

 
93,680

Available-for-sale investment securities, at fair value
 
996,984

 
820,648

Stock in Federal Home Loan Bank, at cost
 
11,218

 
10,678

Loans receivable held for investment
 
4,734,638

 
4,615,819

Allowance for loan losses
 
(58,737
)
 
(50,038
)
Net loans
 
4,675,901

 
4,565,781

Loans held for sale, at lower of cost or fair value
 
26,743

 
4,631

Other
 
330,054

 
309,946

Goodwill
 
82,190

 
82,190

Total assets
 
$
6,336,670

 
$
6,014,755

Liabilities and shareholder’s equity
 
 
 
 
Deposit liabilities–noninterest-bearing
 
$
1,570,613

 
$
1,520,374

Deposit liabilities–interest-bearing
 
3,810,108

 
3,504,880

Other borrowings
 
265,388

 
328,582

Other
 
106,396

 
101,029

Total liabilities
 
5,752,505

 
5,454,865

Common stock
 
1

 
1

Additional paid in capital
 
342,234

 
340,496

Retained earnings
 
250,726

 
236,664

Accumulated other comprehensive loss, net of tax benefits
 
 
 
 
     Net unrealized gains (losses) on securities
$
5,965

 

$
(1,872
)
 
     Retirement benefit plans
(14,761
)
(8,796
)
(15,399
)
(17,271
)
Total shareholder’s equity
 
584,165

 
559,890

Total liabilities and shareholder’s equity
 
$
6,336,670

 
$
6,014,755


This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI filings with the SEC.



11


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. 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 is limited to the fees, reimbursements costs and associated taxes related to the recently terminated merger between HEI and NextEra Energy, Inc., and the cancelled spin-off of ASB Hawaii, Inc., and the recently terminated liquefied natural gas (LNG) contract which required the Hawaii Public Utilities Commission approval of the merger with 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, respectively. Management does not consider these items to be representative of the company’s fundamental core earnings.
The accompanying table also provides the calculation of utility GAAP O&M adjusted for costs related to the terminated merger discussed above. “O&M-related net income neutral items” which are O&M expenses covered by specific surcharges or by third parties have also been excluded. 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 September 30
 
Nine months ended September 30
($ in millions, except per share amounts)
2016
2015
 
2016
2015
HEI CONSOLIDATED (INCOME) EXPENSES RELATED TO THE TERMINATED MERGER WITH NEXTERA ENERGY AND CANCELLED SPIN-OFF OF ASB HAWAII
 
 
 
 
 
Pre-tax (income) expenses
$
(88.5
)
$
1.8

 
$
(84.9
)
$
15.7

Current income taxes (benefits)
24.7

(0.1
)
 
24.7

(2.1
)
After-tax (income) expenses
$
(63.8
)
$
1.7

 
$
(60.3
)
$
13.6

HEI CONSOLIDATED LNG CONTRACT COSTS2 
 
 
 
 
 
Pre-tax expenses
$
—

$
—

 
$
3.4

$
—

Current income taxes (benefits)
—

—

 
(1.3
)
—

After-tax (income) expenses
$
—

$
—

 
$
2.1

$
—

HEI CONSOLIDATED NET INCOME
 
 
 
 
 
GAAP (as reported)
$
127.1

$
50.7

 
$
203.6

$
117.6

Excluding special items (after-tax):
 
 
 
 
 
(Income) expenses related to the terminated merger with NextEra Energy and cancelled spin-off of ASB Hawaii
(63.8
)
1.7

 
(60.3
)
13.6

Costs related to the terminated LNG contract2
—

—

 
2.1

—

Non-GAAP (core) net income
$
63.3

$
52.4

 
$
145.4

$
131.1

HEI CONSOLIDATED DILUTED EARNINGS PER COMMON SHARE
 
 
 
 
GAAP (as reported)
$
1.17

$
0.47

 
$
1.88

$
1.11

Excluding special items (after-tax):
 
 
 
 
 
(Income) expenses related to the terminated merger with NextEra Energy and cancelled spin-off of ASB Hawaii
(0.59
)
0.02

 
(0.56
)
0.13

Costs related to the terminated LNG contract2
—

—

 
0.02

—

Non-GAAP (core) diluted earnings per common share
$
0.58

$
0.49

 
$
1.34

$
1.23

 
 
 
 
Twelve months ended September 30
 
 
 
 
2016
2015
HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
 
 
 
Based on GAAP
 
 
 
12.3
%
8.1
%
Based on non-GAAP (core)3
 
 
 
9.5
%
9.1
%
 
 
 
 
 
 
Note: Columns may not foot due to rounding
 
 
 
 
 
1  Accounting principles generally accepted in the United States of America
 
 
 
 
 
2  The LNG contract was terminated as it was conditioned on the merger with NextEra Energy closing
3  Calculated as core net income divided by average GAAP common equity

12


RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES
 
Hawaiian Electric Company, Inc. and Subsidiaries
Unaudited
Three months ended September 30
 
Nine months ended September 30
($ in millions)
2016
2015
 
2016
2015
HAWAIIAN ELECTRIC CONSOLIDATED COSTS RELATED TO THE TERMINATED MERGER WITH NEXTERA ENERGY
 
 
 
 
 
Pre-tax expenses
$
—

$
—

 
$
0.1

$
0.4

Current income taxes (benefits)
—

—

 
—

(0.2
)
After-tax expenses
$
—

$
—

 
$
0.1

$
0.3

HAWAIIAN ELECTRIC CONSOLIDATED LNG CONTRACT COSTS2
 
 
 
 
Pre-tax expenses
$
—

$
—

 
$
3.4

$
—

Current income taxes (benefits)
—

—

 
(1.3
)
—

After-tax expenses
$
—

$
—

 
$
2.1

$
—

HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME
 
 
 
 
 
GAAP (as reported)
$
47.0

$
43.0

 
$
108.2

$
102.7

Excluding special items (after-tax):
 
 
 
 
 
Costs related to the terminated merger with NextEra Energy
—

—

 
0.1

0.3

Costs related to the terminated LNG contract2
—

—

 
2.1

—

Non-GAAP (core) net income
$
47.0

$
43.0

 
$
110.3

$
103.0

 
 
 
 
 
 
 
 
 
 
Twelve months ended September 30
 
 
 
 
2016
2015
HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
 
 
 
 
 
Based on GAAP
 
 
 
8.11
%
7.86
%
Based on non-GAAP (core)3
 
 
 
8.24
%
7.88
%
 
 
 
 
 
 
 
Three months ended September 30
 
Nine months ended September 30
($ in millions)
2016
2015
 
2016
2015
HAWAIIAN ELECTRIC CONSOLIDATED OTHER OPERATION AND MAINTENANCE (O&M) EXPENSE
 
 
 
 
 
GAAP (as reported)
$
94.8

$
103.7

 
$
298.3

$
306.5

Excluding O&M-related net income neutral items4
1.4

1.9

 
4.6

5.4

Excluding costs related to the terminated merger with NextEra Energy
—

—

 
0.1

0.4

Excluding costs related to the terminated LNG contract2
—

—

 
3.4

—

Non-GAAP (Adjusted other O&M expense)
$
93.4

$
101.8

 
$
290.2

$
300.7

Note: Columns may not foot due to rounding
 
 
 
1  Accounting principles generally accepted in the United States of America
 
 
 
 
 
2  The LNG contract was terminated as it was conditioned on the merger with NextEra Energy closing
3  Calculated as core net income divided by average GAAP common equity
4  Expenses covered by surcharges or by third parties recorded in revenues
 
 
 
 
 


13

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