Thank you, Jamie, and welcome everyone to Hawaiian Electric Industries' third quarter 2019 earnings conference call. Joining me today are Connie Lau, HEI President and Chief Executive Officer; Greg Hazelton, HEI Executive Vice President, Chief Financial Officer and Treasurer; Alan Oshima, Hawaiian Electric Company President and Chief Executive Officer; and Rich Wacker, American Savings Bank President and Chief Executive Officer, as well as other members of senior management.

Connie will provide an overview followed by Greg, who will update you on Hawaii's economy, our results for the third quarter, and our outlook for the remainder of the year. Then, we'll conclude with questions and answers.

During today's call, we'll be using non-GAAP financial measures to describe our operating performance. Our press release and webcast presentation are posted on HEI's Investor Relations website and contain reconciliations of these measures to the equivalent GAAP measures.

Forward-looking statements will also be made on today's call. Factors that could cause actual results to differ materially from expectations can be found in our webcast slides, our filings with the SEC, and on the HEI website.

I'll now ask our CEO, Connie Lau, to begin with an overview.

Thanks, Julie and aloha to everyone. In the third quarter, we continue to execute well on key initiatives across our enterprise and our subsidiaries delivered solid results.

Consolidated net income was $63.4 million and EPS was $0.58, compared to $66 million and $0.60 in the same quarter last year. Excluding a one-time tax adjustment at our utility in the third quarter of 2018, our third quarter 2019 results would have been about 4% higher than the prior year quarter.

Overall, we continue to track in-line with our 2019 plan. We are reaffirming our consolidated earnings guidance range for the year with some updates to underline drivers that Greg will address shortly.

At our utility, we continue to work together with our communities and stakeholders to find the best ways to achieve a clean energy future that’s affordable, resilient, and reliable. As we’ve often said, this will take our whole community.

It’s what we call in Hawaii [indiscernible] thing. Community acceptance, the ability of the competitive market to propose cost effective projects, land availability, and customer participation are all key to how fast we can move forward as a state.

Our utility team has worked hard to ensure that for our part we can fully support the integration of renewable projects, distributed energy resources, electrification of transportation, and more to reach our states aggressive clean energy goals. We’re on track for our next renewable portfolio milestone of 30% by 2020 and our record Stage 2 renewables storage and grid services procurement launched earlier this year will help us make further strides.

Request for proposals were issued in August with bids due this month. Our utility will be submitting self-bid proposals for reliability projects per our commission order.

We continue to look for ways for customers to engage to help reach our collective clean energy goals, including enrolling in projects with aggregators to turn customer side as solar and storage into virtual power plants. We also recently launched Hawaii’s first community solar project providing a way for customer without access to rooftop solar the opportunity to lower their bills and be part of or clean energy transformation.

The performance-based regulatory process or PBR now in Phase 2 is another way we and our stakeholders are working together on the best path to achieve our goals. Consistent with the commission guidance from the outset, gradualism, and the financial integrity of the utility have remained key principles of PBR.

While the details will be worked out over the next year before the anticipated December 2020 final order, the commissions process allows for thoughtful design of new mechanisms and reduces the risk of unintended consequences. As we continue to advance our clean energy goals, we're also focused on operating our core utility business well, maintaining our system, keeping it resilient, improving cost efficiency and building customer satisfaction.

Our strong operational capabilities were key to our utility winning a 50-year contract to own, operate and maintain the electric distribution system serving the Army's installations on Oahu. In a rigorous competitive process, we made the case that we could deliver a cost-effective long-term solution for the Army.

Subject to commission approval, our ownership and operation of the army system would begin in late 2021. While strategically important, the earnings impact is not expected to be material, as we already provide the Army's energy needs.

The contract will, however, provide an opportunity for us to add modestly to our rate base. Also, as we've spoken about before, we're very focused on efficiency improvements to deliver customer savings.

Our ERP enterprise system implemented last year is already delivering savings ahead of schedule, which are embedded in our pending rate cases. We have a host of other cost management initiatives under way, including our One Company effort to drive consolidation and standardization across our utility, and Oahu facility consolidation plan expected to yield savings beginning in 2023.

Use of technologies to reduce costs such as drones for aerial inspection and benefit program evaluation. And of course, our transition away from fossil fuel-based energy to renewables provides lower cost electricity and more stable bills for our customers.

As for pending rate cases, we expect interim rates in our Hawaii Electric Light 2019 rate case by November 14. We filed a partial settlement with the consumer advocate in September and are awaiting the Commission's decision on the open items, including ROE.

We filed our Hawaiian Electric 2020 Oahu rate case in August and expect interim rates next summer. Turning to our bank, American's results and increased earnings for the quarter reflect good performance and prudent expense management in a volatile market environment.

As soon as we started to see the yield curve shift earlier this year, the bank heightened its focus on expense control, strengthening performance, and efficiency in the quarter. The bank's focus on customer relationships also served it well in the third quarter, helping deliver strong loan growth.

Net interest margin remained steady, despite the continued challenge of lower interest rates, as asset yields were consistent with the linked-quarter despite lower rates and the bank maintained its low cost of funds. Net interest margin was a solid 3.82% for the quarter and 3.87% on a year-to-date basis, well above peers.

American completed the sale of its former headquarters in October, achieving another important milestone in its transition to its new campus. The gain will be recognized in the fourth quarter, delivering the financial benefit we've been projecting in our guidance.

Pacific Current continues to optimize its existing assets and evaluate new opportunities that align with its sustainability focus. It recently executed a contract to purchase locally produced biodiesel for its Hamakua Energy plant, advancing Hawaii Island's energy independence and energy security and supporting the local economy.

Construction activity continues for Pacific Current solar plus storage projects at 5 University of Hawaii campuses, although some of the sites have experienced permitting and other delays that push completion of several projects into 2020. Pacific Current also recently signed a joint venture agreement with electric vehicle charging company EverCharge to bring its charging technology to Hawaii.

The system will help advance our state's clean transportation and energy goal by facilitating charging in high rises and condos, where approximately 50% of Oahu's residents live and which often lack the infrastructure to allow multiple owners to charge their vehicles in a timely manner. These initial projects are just the beginning for Pacific Current, and we continue to be excited about its future.

I'll now ask Greg to cover Hawaii's economy, our third quarter results and 2019 outlook.

Thanks, Connie. Hawaii's economy remained stable with some softening this year, following last year's peak levels.

Unemployment remains steady at 2.7% in September and well below the national rate. This year is seeing continued strength in tourism arrivals although visitor spending is less versus record highs in the first half of last year.

This is in part due to higher costs for international visitors and a stronger dollar. Hawaii real estate fundamentals remained sound, while year-to-date sales volumes were flat for single-family homes and declined 6.7% for condos.

Median prices are relatively steady following seven consecutive years of price appreciation. The state's outlook is stable with GDP expected to continue to grow modestly in 2019 and 2020.

Turning to our results. Q3 earnings were $0.58 per share, compared to $0.60 per share in the prior year quarter.

As Connie mentioned, the one-time tax benefit in the third quarter of last year increased EPS that quarter by about $0.05. Excluding that one-time tax benefit, year-over-year earnings grew at both the utility and the bank, while holding company and other segment loss grew slightly.

Pacific Current's operating asset Hamakua continues to contribute to earnings, offsetting the cost of building out the platform and its development activities. On the right side of the slide, our consolidated GAAP ROE for the last 12 months was 9.2%.

At the utility, we expect improvement in realized ROEs from Hawaii Electric Light interim rates in mid-November. On Slide 9, utility earnings were $46.8 million, compared to $49.7 million in the third quarter of 2018.

Without last year's one-time tax benefit, the utilities Q3 results would be nearly 5% higher than the prior-year quarter. The most significant net income drivers in the quarter this year were $6 million from rate increases and higher rate adjustment mechanism revenues, $2 million from the recovery of Schofield Generation project under the major project interim recovery mechanism, $2 million from higher AFUDC and lower interest expense and $1 million from pole attachment fees.

These items were partially offset by the following after-tax items, $8 million higher operations and maintenance expenses, compared to the third quarter of 2018, which I'll discuss momentarily. The previously mentioned $5 million tax benefit in the third quarter of 2018 and $2 million higher depreciation, due to increasing investments to integrate more renewable energy and improved customer reliability and system efficiency.

On O&M, you can see from the chart on the bottom right that we've experienced higher costs for overhauls and maintenance for generating fleet. We saw higher expenses in these items last quarter, as well as last year.

Given the variability of revenues, we have to run older generating units less efficiently, meaning more wear and tear. We need to keep these older units in good repair as they are important for reliability as we integrate more renewable projects.

While expenditures for maintenance and overhauls are recognized as incurred rate case recovery is based on historical averages, which are well below levels experienced this year. These higher levels will be included in future historical averages, so we expect to see the benefit of those in future rate cases.

Turning to the bank on Slide 10, as Connie noted, American executed well in the third quarter despite a challenging interest rate dynamics, growing net income to $23 million up from both the linked-quarter and the same quarter last year. The increase compared to the linked-quarter was primarily due to lower provision, lower net interest expense, and higher non-interest income.

The increase over the prior year quarter was largely due to lower provision as well as higher net interest income and higher non-interest income, partially offset by higher non-interest expense. American achieved solid profitability in the third quarter.

Return on assets of 129 basis points was up from 96 basis points in the second quarter and 122 basis points in the same quarter last year. Return on equity continued to compare favorably to peers at 13.7%, it was up versus the linked-quarter of 10.5% and comparable to the 13.8% in the same quarter last year.

Overall, good profitability at the bank. Let's look at the key drivers of this performance.

Net interest margin, the core driver of bank net income remained steady at 3.82% and continued to perform well versus peers. Year-to-date, American's net interest margin was 3.87%.

Interest earning asset yields were stable at 4.11% and we were able to maintain our low cost of funds at 30 basis points. American's cost of funds continues to be best-in-class.

Turning to the next slide, net interest income of $62.1 million increased versus the linked and prior-year quarters. The increase from the linked-quarter was primarily due to lower amortization of premiums in the investment securities portfolio as well as higher loan volume.

The increase compared to the prior year was primarily due to higher loan volumes and yields. Non-interest income was $16.3 million, compared to $15.5 million in the linked-quarter and $15.3 million in the third quarter of 2018.

The increase compared to the linked and prior-year quarters was primarily from higher mortgage banking income, as lower rates drove stronger residential loan production and more loan sales. As of September 30, 2019, total deposits were $6.2 billion, rising to 0.8% annualized from December 31, 2018 with low-cost core deposits growing 2.1% annualized to $5.4 billion.

American delivered strong loan growth in the quarter with loans rising to $5.1 billion as of September 30, 2019, up $240 million or 6.6% annualized from December 31. The loan growth was driven mainly by increases in the home equity lines of credit, commercial, and commercial real estate portfolios.

We still expect to meet our target of low to mid-single digit earning asset growth for the full-year. Credit quality remained sound due to prudent risk management and stable economic environment.

We're not seeing any significant deterioration across our portfolios, but as you've seen earlier this year, a decline in credit quality of a single large commercial or commercial real estate credit can have an impact. The third quarter provision of $3.3 million declined from $7.7 million in the linked-quarter and $6 million in the same quarter last year.

The lower provision versus the linked-quarter stemmed from the pay-off of a nonperforming commercial credit and the partial charge-off of the commercial credit that contributed to elevated provision in the linked-quarter. That charge-off did increase the net charge-off ratio as shown on the left side of the page.

The lower provision versus the prior year quarter was primarily due to higher provision that quarter from the consumer and credit scored loan portfolios. As Connie mentioned, the bank has worked prudently to control expenses in this more challenging banking environment.

Recall that the bank has had additional occupancy costs this year from the transition to its new campus. Excluding those costs, efficiency ratio has improved on a year-to-date basis, compared to last year.

Turning to utility CapEx, we are executing at or above our $370 million target discussed in our last – our call last quarter, as we focused on maintaining our system and ensuring resilience as we grow the amount of renewables on the grid and pave the way for increased electrification. Recent examples include a new transformer to provide reliability and resilience for the airport in Honolulu, infrastructure upgrades to electrify our ports and additional electric vehicle charging infrastructure.

We see this type of core investment driving fairly stable CapEx moving forward. We continue to expect CapEx of roughly $400 million or more in 2020 and 2021.

As Connie has mentioned, we are reaffirming our 2019 consolidated earnings guidance of $1.85 to $2.05 per share. At the utility, we expect EPS to remain within the $1.40 to $1.47 range for the year.

This is despite the fact that utility O&M costs have been coming in higher than projected. We now expect O&M to be 5% to 6% over 2018.

This is due to a few key dynamics we've seen this year. First, as we discussed, we realized higher overhaul and generation maintenance expenses to ensure reliability and incorporate more variable renewable generation.

Second, we've seen expansions in scope in several key areas, driven by regulatory requirements and stakeholder input, including the increased scale of our latest renewable RFP, new greenhouse gas emission lifecycle, requirements for projects in the pipeline in all future PPAs, increased planning for non-wires alternatives and expanded PBR workshops. Third, we're making strategic investments in advancing electrification of transportation, improving resilience and reliability, providing additional customer options and continuing to improve our stakeholder and customer engagement, while also working on a Hawaii Electric 2020 rate case and preparing to transition to the new PBR framework.

Despite all of this, we believe utility EPS will be within our guidance range. The offsets don't all come through the O&M line, they include some lower non-O&M expenses, as well as higher operating revenues.

We will continue to seek efficiency improvements moving forward. Connie mentioned a number of cost management plans under way and we're driving customer savings through our ERP implementation, which is delivering $2 million in savings this year and a steady state of savings of $9 million beginning in 2020.

As discussed last quarter, we expect bank earnings to be at the low end of the $0.79 to $0.85 guidance range, as we continue to expect net interest margin at the low end of the range and the provision at the high end of the range, but both remaining within the range. Our guidance includes an $8.8 million pre-tax gain from the sale of ASB's former headquarters in October to be recognized in the fourth quarter, including carrying costs from exited properties, the net gain is about $0.03 to $0.04 per share.

Connie will now make her closing remarks.

Thanks, Greg. In summary, third quarter performance was in line with expectations and we expect to continue performing in line with plan for the remainder of 2019.

Our utilities are focused on achieving our state's 100% clean energy and carbon-neutral economy goal, while ensuring affordable, reliable and resilient energy. We'll continue to move forward strongly on these important goals, but it's not just about the utility, this will take our whole community working together.

Our bank continues to provide a strong platform to deliver sustained value for customers, shareholders and our communities. Its performance in the current cycle underscores its prudent management expense control and the strength of its business model.

Pacific Current is showing promise as it continues to optimize existing assets and pursue further sustainable investment opportunities. Our business model continues to provide the financial resources to invest in the strategic growth of our company and our state's sustainable future, while supporting our dividend, which the board maintained at $0.32 per share this quarter continuing our uninterrupted dividends since 1901.

And now, we look forward to hearing your questions.

Hi, good afternoon. Thanks for taking the question.

Hi, Eric.

Hi, Eric.

Hi. So, maybe first off given relatively flat year-to-date earnings results.

For 2019 guidance, could you just walk us through the drivers and expectations for remaining year-on-year EPS uplift?

Yes. Well, as you know, we are reaffirming our guidance for the year and we've indicated in the drivers as you break it down to each of the subsidiaries for American Savings Bank because of the lower yields on assets, although, they've maintained their core deposit rates, we're expecting lower net interest margin, which is – which will be at the low end of the guidance range, which we've provided to you on our slides, so we'd anticipate that that NIM.

And we've also indicated that the provision while in the range would be at the high end of the range. We do expect, in addition, which we've also disclosed, as well as a return on assets, we do expect to be in line with our overall return on asset target.

Those are the elements and the drivers that we provide guidance around.

And Eric, we also mentioned that they've completed the sale of their headquarters.

Yes.

So that gain that was expected to be roughly $0.03 to $0.05 will be coming in, in that same range in the fourth quarter.

In that $0.03 to $0.05 range Eric, include – well is netted with the additional carrying cost of carrying the exited properties, facilities through the end of the year. So, that's also embedded in our guidance range.

So, they completed that as anticipated, which is helpful. On the utility side, again given that we've had – we expect to be well within the guidance range.

We've seen some higher O&M costs that we've highlighted, but we've had several offsets to those, so that – whether on revenue side, as well as additional cost savings that they've been able to incur in other areas. So, we – the core driver for the utility performance also anticipates the interim rate from the Hawaii Electric Light rate case in November, which you'll see some benefit from in the fourth quarter and assuming that we continue to – that the fourth quarter goes as planned with no one-time types of expenses or other types of adjustments we tend to come in line with our guidance levels.

Yes. This is Tayne, and I would also like to add that we do have performance incentive mechanisms and we're performing well within our expectations for that.

Thank you. And then actually just to touch upon the utility a bit further.

I mean with the extent of lag in the third quarter at 7.6% earned ROE. Could you just discuss potential drivers for reducing lag near-term pending PBR?

Yes. And just maybe to frame this up, and I'll let Tayne also maybe explain some, but that 7.6% includes the fourth quarter of last year.

And as you remember, the fourth quarter of last year we had some significant one-time events and overruns from an O&M perspective. So, as you roll forward into the current year, where we don't anticipate that those – that will roll off from a compared – from that LTM calculation to the calendar year calculation, and with the new revenues that we've highlighted that are driving the year-to-date numbers, the interim rate case, I would say, the other element here though is that the utility has from a CapEx perspective is performing on deployment of capital investment as they prioritize some reliability projects and customer-driven projects.

So, at the 370 or above level, they should come in well. So, you've seen good AFUDC from those investments and you continue to see them prioritize on the reliability resilience CapEx levels.

So, again, part of that ROE impact that you're seeing on a year – on an LTM basis incorporate some of the prior year that will roll off as we go to the annual number. And so, we do anticipate some improvement in our realized ROEs on a calendar year versus calendar year basis.

Got it. That's helpful.

And maybe just to shift gears a little bit. Could you just discuss expectations for net interest margin at ASB on a forward basis?

And should we expect any incremental volatility associated with FAS 91 [indiscernible] in coming quarters? Thank you.

So, this is Rich. Yes, I mean obviously with the continued cuts of rates, we expect pressure on the net interest margin.

We've given you the guidance on the full-year that we expect to be at the low end of the range on that. And we've been holding the margins, as well as we can, a little bit better than our local peers, but I think in, at the end of the year, we'll give more guidance on next year, we're not prepared to do that right now.

But directionally, there's pressure. I mean it's clear and we expect that pressure to continue.

In terms of FAS 91. Yes, it's – we do expect that it's going to continue to be a little bit volatile, the prepayments on the pools determine what we actually get in terms of amortization of the premium.

It was a little bit slower than second quarter and this quarter, but we'll have to wait and see what fourth quarter looks like.

Thank you. I'll pass it on.

Appreciate it.

Hi, how are you doing?

Hi, Paul.

Hi, Paul.

Just to sort of follow-up and apologize if I sort of missed this. The O&M outlook, which has gone up for this year, which you guys I think said was offset by revenues and other cost savings.

Could you elaborate a little bit again about what exactly has changed that quarter-over-quarter – your outlook with respect to that for this year?

Hi, Paul. This is Tayne.

Let me take you through the additional guidance we gave for just on this call. As Greg had mentioned earlier, we do have higher expenses for our overhauls and generating units.

These overhauls are based on scheduled overhauls based on run time and we've been running our units hard and when we open the units, sometimes there is more work than expected to be done on those units. And again, we keep these units operating to be in really good shape to backstop the increased renewables that we have on our system.

We've also had increased scope of work in things like greenhouse gas lifecycle analysis, requirements for our projects, as well as additional planning cost associated with things, we need to look at non-wires alternatives as an example. And with the PBR docket ongoing there has been increased work in our workshops and interactions that we've had with our stakeholders.

And finally, I would also mention that our Stage 2 RFPs with the – that coming in, we anticipate work to review the RFPs that are coming in. Offsetting that are items not in the O&M line item.

For example, we managed the generating heat rate of our units. We also are managing our customer service area where there is a performance incentive mechanism associated with that.

And of course, we don't know the outcome of that until the year end, but we're performing well there. We're looking at things like when we refinance – we have the opportunity to refinance debt and of course those savings can be passed on to customers in rate cases.

And then finally, a note on our ERP, which by the way is a year old now. We continue to get realized benefits out of using the system and all of those costs as part of our commitment are being passed back to customers.

So that was kind of a summary there, Paul.

Okay. I mean, I'm just – I mean, I guess it's sort of hard to – how do we think about 2020 coming up here, I mean, some of these things sound like they are one-time items on the O&M side, but I'm not really clear about how all these items sort of moving forward are going to be tracking.

Any sense of how we should think about that?

One thing you – for these costs related to increased scope of work with planning for resilience and all those things. We were looking at – we have incorporated that into our Hawaiian Electric 2020 rate case.

So, you should think about those costs being included there, and we look at that rate cases as a case that we believe will be a starting point when PBR will be in effect year later.

And as we mentioned even the overhaul cost that we're incurring now are now part of the baselines for the – within the new rate cases, those higher levels of cost get incorporated into the historical averages that are used. So, again, there is mechanisms there.

They just don't perfectly have matched what we've had incurred to-date. So, there's some timing difference there.

Yes. And Paul, I'd add some of it that Tayne mentioned are in response to things like court decisions or PUC orders like the greenhouse gas emissions analysis that was, as a result of a court order, that came out just this year.

So those will all get incorporated going forward.

Okay. So then looking at the appendix Slide 21 and the structural last 12 months ROE.

Is that 150 basis points that you guys are mentioning as being sort of – as you guys are graphically demonstrating as being sort of the structural impact. How should we in general think about that?

Do you see that pretty much holding in there plus or minus 10 basis points or something or which is where I think it was in the last few looking back or how should we – is that pretty much how you still see it or any thoughts on that?

Paul, I would look at it – let's take the components. The customer benefit adjustment we have in our appendix slide there…

Right. That was down a little bit.

It will be decreasing over time.

Right.

The ERP item there as we get those included incorporated in our rate cases, that should also disappear. One thing out there when we look at the RAM revenue accrual delay.

Those are the kinds of discussions we're having in the PBR workshops to see as we look at the entirety of how we collect revenues between rate cases. We were examining things like this type of delay that's being discussed as well.

So those three items, I would point out for you as changing with the ERP, and the ERP when eliminated as the costs are included in rate cases, customer benefit adjustments decreasing and the RAM revenue accrual being adjust in the PBR.

Okay.

And of course, something like MPIR with a mid-year convention, it really just depends on when the project goes into service in that year. That can go either way.

Okay, great. And then just on the assessment regarding the insurance premium, the assessment credit for the FDIC.

How much was that?

650,000.

Okay. Thanks so much.

Thanks, Paul.

Thank you. Hope we see you at EEI.

Hi, good morning.

Good morning, Jackie.

Just wanted to touch on expenses and see some of what you've been working on in light of the low rate environment in order to control costs. Just some added color there would be great.

Okay. So, as you know, one of the big ones is the campus moves and since we're moving out of five different properties into one and you haven't seen that benefit come through, in fact, you've seen a little bit of duplication of costs as we've brought the campus online and we've been in the progress of exiting the other properties.

We mentioned we were getting out of four properties, two were leased, two were owned. We got out of two of them as of the end of the third quarter where we were out – while we were out of physically earlier, we were out of the costs fully by the end of the third quarter.

And then we just sold [indiscernible] and Greg mentioned, we just sold the headquarters building. And so, as of October, we're out of that one and we've got a nice gain that we anticipated.

We have one more to go and that's our Mililani property and we believe that that would be an early first quarter event. That's our hope and timing could move in or out a little bit on that one.

So, as we get through those, then we're in one place and we get the efficiencies of operating in one place and we expect that to continue, and so we're still targeting continued improvement over the years of efficiency improvement. I think we've been talking about a point of year as our goal and we expect that that's not going to change.

Additionally, we're working on self-service opportunities for customers. We have a rollout of our ATM – a new ATM fleet that begins first quarter next year and goes, that brings additional opportunities for customer self-service.

We are – all the things you'd expect on e-banking and those capabilities and mobile banking we have and are doing and driving adoption of those, so that we reduce in branch transaction flow and that transfers through to branch network productivity as well. So, I think we're hitting things across the board and this year because of the building dynamics you don't – we don't see it in the reported, but we see it in what we're doing on a measurement and the ongoing cost of the enterprise.

Okay. And so, a lot of these initiatives that you're taking, my assumption is that these helped to offset the impact of margin pressure on efficiency to enable you could still get that one point of improvement.

Is that a fair assessment?

Yes. That's what we're working to.

Okay. And that was done – and I realize that it's offset by some costs, but that – you said that was an $8.8 million gain expected in the fourth quarter?

Right.

And the building. Okay.

Thank you. And then just lastly for me on fees, since we've already covered the margin.

We've seen fee income and I understand mortgage banking has been strong because of the rates, but outside of mortgage banking, there has still been increases in fees outside of unique boldly related items. Is there anything unique that's driving those up or is it just strength that the bank can focus?

Yes, no, there is nothing unique it's three yards and a cloud of dust kind of stuff. We're executing on a lot of different elements.

We've been able to get some improvement out of our investment services. We've been working on a shift there ahead of the fiduciary rule to move a lot of our work from commission based to advisory base and more trailing revenues on assets under management that has over the last couple of years has contributed to declines of fees in that space and that's stabilizing, so the absence of declines is good and we're getting some modest improvement on that level and that's letting some of the other work show up as growth.

And so, it's – as you know a ton of little things inside there and nothing big to highlight.

Okay. Great.

Thanks, Rich.

Thank you. Just I guess this would be for you, Connie or Greg.

Dividend review, I mean that is still scheduled for – you would meet with the board late this year, early next year, given your thoughts on 2020 and then we'd hear about it in the fourth quarter call of any decision on the dividend?

We typically would be talking to the Board in the New Year. And so, our announcement has ranged between first and second quarter.

So, it'll be in that timeframe.

Okay. Still 65% payout ratio is the target for you?

Yes.

Excuse me. And then one other question.

Slide 6, this EverCharge system and you make a point there under the bullet point that the building owner, it sounds like does not – is not going to be subject to a lot of cost to put this in, which means there is probably going to be fairly decent acceptance of this and good penetration rates. Is that going to cause you an issue on the distribution system and for upgrades of Hawaiian Electric System and I guess that obviously [baits] the question, is that in CapEx forecast for the next couple of years?

Well, just to be clear, it's a managed system, which takes a bit – optimizes the capacity of the existing building, which tends to have significant excess capacity to serve peak loads, which the building doesn't operate at the vast majority of the time. So, it means it's got a cost advantage in terms of getting into these multi-unit dwellings and condos and can come in at a lower price point and bring more charging units to the building at a lower cost.

So, that's – we're very excited about it. It's been very effective in high-density areas such as San Francisco and other major cities within the U.S.

So, we're optimistic about that. It should drive as we believe there is pent-up demand for electric vehicle adoption in those underserved buildings right now and so we think it should drive increased demand for electric vehicles and electric load.

Looking at my utility, I think we're again it's relying on existing infrastructure.

If it's within the envelope of the planned usage of that building. Sure, and do the levelized.

But wanting to make clear the separation of Pacific Current, AGI and the Utility. So, on these business opportunities unless there is a need for system stability as we would with any vendor, we would not interact.

So, again it's – we treat Pacific Current like any other third-party as it enters into the utility space?

Go ahead, Connie.

Hi, Charles, does makes sense to you? So, Pacific Current is on our non-regulated side and is working directly with like office management companies or the Homeowners Association of those high rises, and this was our attempt as an enterprise to help drive electrification within our economy and those particularly difficult to address areas, which were the high rises.

I think you've heard us talk before about how an individual homeowners, particularly those who have installed photovoltaics on their roofs are also buyers of electric vehicles and charge them off of those systems, but if you live in a high-rise, you may not have that opportunity because you don't have your own TV to do that kind of charging, but you still want to own an electric vehicles. So, we're trying to solve that problem and to extent Scott has also been working with some of the office management companies that would also allow us to encourage daytime charging, which would be also good to match with the solar load.

So, I just [indiscernible] from the – because we have a whole group in the utility on an electrification transportation. We work with some of these same clients, but we are not aware of other vendors and we have some of programs that may or may not be supplemental to or in lieu of and we have some pilots in the pipeline that we might be showcasing – because not every user, every condo has the same base of clients and depending on where they're located, we're looking at other solutions also, it's going to take a whole portfolio of solutions to really move the market and availability of electric charging.

And Hawaii is unique in our short driving distances, not every user needs very fast charging frequently. So, we're looking at the totality of that and there is a separation on this.

Okay.

Aiming for the same goal by the way.

Yes. Okay.

Thanks for the discussion. That's all I had.

Great. Thanks, Charles.

Hello. Is it still good morning to you guys over there?

Hi, Vedula.

Yes, it is. Vedula.

Okay, good morning. Let's see, kind of more mundane type of things.

If I think about today in terms of the 2019 numbers. In order for the Utility to kind of get even to the low end of current guidance based on the current trailing nine months, as well as 4Q of last year?

It appears that the net income differentials needed to be like at least $42 million versus $35 million from last year, you highlighted several factors that are going to be favorable. So, I'm wondering if you can give a sense as if $42 million is what would get you to the bottom end of the range, whether – how I should think about the buildup for 4Q?

Well, again, you need to consider the roll off of the fourth quarter, which had some significant charges roll through, which is not relevant to our 2019 guidance. So, two, and when we say – we believe we're well within the range, if we haven't indicated the low end of the range unless we believe we're in well within the range.

We have an interim rates anticipation this year. We've had the interim rate adjustments through the RAM mechanism that we've highlighted that have contributed to the year-to-date results, and despite the O&M challenges that we've had we've also had some wins within other areas that have contributed to our year-to-date results.

We are in line with the plan on a year-to-date basis and again, we expect to come in well within our guidance range.

So, if $35 million last year in 4Q 2018 is depressed. What's the appropriate for 4Q 2018 that just kind of the baseline off of which the other positive factors you're highlighting would be built on?

Well, I think we highlighted in the last fourth quarter the one-time charges that we had during the fourth quarter, which we don't anticipate to be – and it'd be replicated this fourth quarter, again, I'm not sure that that's really reflective of our performance this year in terms of – and as you know, our rates tend to be skewed or actually our earnings seemed to be skewed towards the last half of the year. So, we expect, absent those one-time items, the new rates sort of rate relief that's been put into effect, and the execution on our investment programs through the year will deliver solid results for the fourth quarter.

We haven't and don't give quarterly earnings guidance, Vedula.

I understand, I do apologize, but simply remind me in aggregate, would you consider where the unusual charges that depress 4Q 2018 within the Utility that I should be taking out?

Yes, so one other significant charge is that we did have is we did have to accrue on our performance incentive mechanism some penalties that were incurred in Q4 of last year. We also had some higher expenses as we were just coming off of the implementation of ERP in the fourth quarter.

We had some higher expenses there.

So, we'll come back to you with the reconciliation for the fourth quarter one-time items and elements that are not relevant to this year. Vedula, we'll be happy to follow up with you after this call.

Okay. But otherwise, you're comfortable with the range.

That's Fine. In terms of then ASB, if, obviously you highlighted the property sale gain that's happening because if – again, if I'm looking at the rolling run rate, excluding what I would think would be gain, you people of the range if like, for instance, $61 million is the current net income for the nine months.

Last year 4Q was $22 million, which will put you more like $0.73 or something like that for the bank, which would be below the range. So, obviously you highlight some items that kind of get you towards the bottom end of the range.

And you indicated that there'll be some efforts to help things on the expense side to offset interest compression. So, just trying to think about how those negative, if I'm thinking about going low to forward, if you – based on what given that the one-time items in 4Q will not replicate?

Are you talking about – we're talking about the bank elements of the guidance. Correct?

Correct.

And I think we've tried and we've broken that down in terms of net interest margin expectations, provision expectations, which are really the key drivers. And in terms of that – I think Rich, you've done a pretty good job of talking about some of the cost elements that you've been focused on during the year.

Yes, I think if you look at the year-to-date plus the directional number that you talked about for the fourth quarter and then consider the nonrecurring gain item, I think you can use your way to the number.

No, I understand that. I guess kind of like thinking about going forward here from 3Q even with lower reserve assessment or whatever.

If you have a run rate of approximately $20 million a year, which is fairly – which has been pretty good compared in terms of your history, that still would be just toward the lower end of the 2019 range if we're just thinking about going forward? So, I'm just trying to think about what – how to net the pressure of interest margin versus the benefits from the ongoing cost reductions and other initiatives [you’re doing?]

As it relates to 2020 and beyond?

Yes.

Okay. I think I got to follow Greg's lead on when we talk about 2020, we talk directionally about cost reductions, as you know.

In that third quarter number, for example, there are some of the duplicate costs of the properties and things that we referred to. So, we will continue to work productivity, we – part of the offset of margin compression is asset growth as well.

And so, asset growth is one of the all-in provision stabilizations in some of the lines, and they are other elements. So, it's just – there is a broad thing and then I think as we give you the guidance for 2020 and beyond in connection with the whole company, we'll be able to give a little bit more detail on that.

I want to make sure I was taking a look at the asset growth, it looked like it was like about 6.5% or like that in terms of assets or then such thing. Is that actually good proxy going forward in terms of trying to translate before the other the pressures in terms of what the underlying top line growth is before the compressions?

It changes quarter-to-quarter. We've always talked about targeting mid-single digit loan growth.

So, that's at the higher end of what we would expect in any quarter, and we in other quarters, we're kind of in that 3% to 6% range is what we've long talked about as our target to mid-single digit.

Okay. So, I'll let other people ask questions.

Thank you.

Okay.

Hi, can you hear me?

Hi, Andy. Yeah, we can hear you well.

Hi, guys. Great.

I have four very quick questions. First one probably the most important is, why do we do conference calls after 4 o'clock New York Time on Friday.

You can tell me at EEI, but just a little pet peeve I have. But I assume it probably has to do with the banks on a Friday.

I don't mind like after 4 o'clock any day, but Friday, especially in the summer. So, we could talk summer, it's not Halloween.

So, it's good. Okay, so anyway that's that one.

The second one I was – is more curiosity, I was reading an article maybe about a week or two ago. And I guess it had to do with like power demand and kind of the fact that you have so much renewables on the various Islands.

And I guess the wind wasn't blowing and the sun wasn't shining and so there was kind of an issue, which is not your fault just with being able to meet demand and could you just kind of explain kind of what happened and how you fix that in the future or are there just too much renewables or kind of what's going on?

Andy, this is Alan. Hi.

You may have read an article on a situation that occurred on Hawaii, which is not part of Hawaiian Electric, but we face the same issues. And they had an island wide outage at a time when one of their units was down for planned maintenance and backup unit went down to another cause.

At the same time, it was a cloudy day and so they couldn't hold low and so they have to, they went on a blackout and then for a couple of days until they could get things stabilized, they have to have rolling blackouts schedule. So, but that indicates the fragility of islanded systems that cannot draw from neighboring states or other grids we're out stand-alone all of us each island is stand-alone, and the needs for redundancy backup and resource portfolio that is balanced and not all in one basket.

So, next time you come to Hawaii, you'll observe the cloud cover for example and even on each Island solar is not consistent throughout the day, as clouds cover one part of the island, we follow it. We track it in our system operation centers to try to predict total solar volt from minute to minute or even in smaller increments, so that we can manage our own resources and other resources to meet the gaps.

And so, you heard earlier about overhauls. We are operating primarily except for our new Schofield Generating Station, what I call the step and forget workhorses from years past and we're operating them in somewhat abnormal ways of ramping up and down to meet the vagaries of the primary source renewables, which we will do every bit that we can get.

But that results in additional wear and tear as the plants age. So, back in 2006, on this island, Oahu where 80% of the population resides, we had 40 days approximately of rain and cloud cover.

We had mudslides etcetera. So, we use that in terms of our planning for what can carry us through, and it's not just climate change, but things that happened – happen on islands.

And so, you're right, it happens and we have to do that all in our system planning.

Got it. Okay.

So, one more utility question and a bank question. Just for this year, with the MPIR how much earnings did you get year-to-date and is there anything expected in the fourth quarter?

So, while Tayne is looking that up. Ask your bank question.

Sure, sure. Not a problem.

Okay and then the bank question has to do with the loan loss provision expense that was a lot lower in the third quarter than the prior quarter and the last linked-quarter and that seemed to be a sizable benefit to earnings. So, can you explain what is driving that and should we think that as being kind of one-time in nature or is that something that will reoccur every quarter or is it more of a function of just kind of the interest rate environment?

The variability – the biggest driver of variability in our provision line comes when from the commercial business, which is normally a very low volatility, very low charge-off and then we'll have a large commercial exposure where we need to provide for a customer who is having some struggles. So, that's what you saw in second quarter as we had a larger provision there.

We had the absence of that in the third quarter and we had some actually some recoveries of prior ones that helped drive that a little bit lower. If you compare to a year ago when we – the third quarter of 2018, we added some provision for our consumer unsecured portfolio where we felt we wanted to bump it up.

And so, we increased coverage on that portfolio at that time. Our guidance would generally put you at about $4.5 million a quarter as kind of a steady-state run rate and then we go up and down off of that based on anything unique that happens in the quarter.

This year, we're at the high-end of the range. This year, we've set the high end of the range, which would be on the order of $22 million something like that and it's a result of really commercial credit a couple of larger commercial credits this year.

So, really going forward in our estimates, we should assume of about $16 million and there is, I don't know, what because you have [indiscernible] year-to-date?

The low end of the range was about $4.5 million a quarter. So, that would put you toward $18 million something like that and then give us some room for a periodic large credit or a lump that might come through.

Got it. And your $22 million year-to-date and then we should assume that there's going to be some incremental piece in the fourth quarter as well?

Well it's $17 million through the third quarter.

$17 million, Okay. But you said something about $22 million, but…

That's our guidance – that's the high end of our guidance range for the full-year.

I understood it. Okay.

Okay. And then on the…

And Andy, what I was going to add was that that's not necessarily associated with economy.

Okay.

Economic trends. Okay.

Okay. And then the MPIR do we have that or you want to get back to me on that, if you don't it, no big deal.

I have that. Andy, this is Tayne.

For the MPIR, we are collecting that for our Scofield Generating Station and we did submit a filing with the Public Utilities Commission for about $19 million for MPIR and that includes the return on the rate base, the depreciation and the incremental O&M. Now remember, under MPIR when a project is completed in the first year, we get a return on half the investment and then in the subsequent year beginning in January, we get a return on the full amount of the investments, so 2019 we would be earning on the full amount of the investment.

That's just how the MPIR works.

Okay.

So, the numbers that she is referencing Andy is 60, 61 of our 10-Q and it shows the incremental revenues that we're receiving this year that is – we've benefited from the recovery on the full investment balance for [2020] – for this year. So, and there is further disclosures that we'd be happy to talk to you offline as well, if…

Yes, when I see you at EEI, we can talk about it. And then my last question, if I lied, I have one more.

I don't know what the name of the mechanism is, but basically when you do sign a renewable project even though maybe it's not yours like you did with AES earlier in the year, you get a benefit for that, a revenue [indiscernible]. How much have you accrued year-to-date on that?

Andy, this is Tayne. Year-to-date, we accrued $1.7 million in revenue and the way that performance incentive mechanism works, it was provided in two phases.

One, upon the five agreements with PUC approval is -- so you get half of the incentive and then the other half of the incentive comes in a year after that project is in commercial operations.

Okay. And anything…

So, it was based on shared savings against a targeted price.

For Phase 1. For that Phase 1, sorry, but we cannot.

Yes, I thought there was a second one, so I was mistaken again. And in the fourth quarter, is there anything expected in the fourth quarter of that mechanism?

We're not expecting anything under that mechanism now.

The next set of incentive payments from that would be a year after they are completed and in service.

But there are some standard payments.

Yes, there are other terms, but that was relative to the generation, right.

Right, exactly. Okay, perfect.

Well, thank you very much. I'll see you guys in about a week if we can have, and I'm going to go home to my family.

Thanks, guys.

Thanks, Andy. Look forward to seeing you there.

Thanks for hanging out with us.

Thank you all very much for joining us on a Friday afternoon, your time on the East Coast. So, have a great weekend.