Julie Smolinski - Manager of Investor Relations Constance Lau - President and Chief Executive Officer Gregory Hazelton - Executive Vice President and Chief Financial Officer Alan Oshima - President and Chief Executive Officer, Hawaiian Electric Company Richard Wacker - President and Chief Executive Officer, American Savings Bank Joseph Viola - Vice President of Regulatory Affairs.

Paul Patterson - Glenrock Associates Rose-Lynn Armstrong - UBS Jonathan Reeder - Wells Fargo Securities, LLC Charles Fishman - Morningstar Jacquelynne Bohlen - Keefe, Bruyette, & Woods, Inc..

Good day and welcome to the Hawaiian Electric Industries Incorporated First Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Julie Smolinski, Manager, Investor Relations. Please go ahead..

Thank you and welcome to Hawaiian Electric Industries’ First Quarter 2018 Earnings Conference Call.

Joining me this morning are Connie Lau, HEI President and Chief Executive Officer and Chairman of the Boards of Hawaiian Electric Company and American Savings Bank; Greg Hazelton, HEI Executive Vice President and Chief Financial Officer; 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 first quarter and our outlook for the remainder of the year. Then, we will conclude with questions and answers. During today’s call we will 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 could differ materially from expectations can be found in our webcast slides, our filings with the SEC and on the HEI website. I will now ask our CEO, Connie Lau to begin with an overview..

Thank you, Julie and aloha to everyone. As we get started today, I would like to provide an update on the lava and related seismic activity on the Island of Hawaii. Our thoughts are with those who have lost their homes and with those who have had to evacuate.

Our utility on Hawaii Islands has been working with authorities to ensure public safety and sufficient power supply and our teams from Oahu and Maui County have been providing assistance as well. I want to acknowledge the hard work of our teams and we thank them for their dedication and support of one another and of our customers.

While this is still a developing situation at this time we expect the lava and seismic activity will not have a material impact on our Company.

The affected area is about 10 square miles on the Southeastern part of Hawaii Island and while several hundred residents have evacuated and some have indeed lost their homes significant utility infrastructure has not been destroyed. We are also assessing earthquake impacts to facilities and have not found widespread damage to-date.

On bank side total loan exposure in the lava affected area is limited, the area is not densely populated and Americans feast making new loans in that area after lava activity in 2014. Now, turning to the results for the first quarter.

We are pleased to report solid earnings from both our bank and utility in line with expectations for the year and resulting in consolidated net income of $40 million and consolidated earnings-per-share of $0.37. This includes American’s highest ever quarterly earnings. Greg will walk through our results in more detail in a few minutes.

With respect to the utility, in the first quarter we have made progress on a number of important initiatives, as we complete our return to a triennial rate case cycle for our three utilities, we are providing the net benefits of Tax Reform to our utility customers.

These benefits are reflected in adjusted interim rate for our Oahu and Hawaii Island customers that began this spring. And our Maui County utility has filed a reduced 2018 RAM adjustment mechanism request and also reduced its 2018 rate case request to reflect Tax Reform with an interim decision expected in August.

We filed our electrification of transportation roadmap in March, to driving near and long-term actions to create a clean energy future and reduced dependence on imported fuel oil for both transportation and electricity.

Transportation accounts for nearly two-thirds of fossil fuel brought to Hawaii, so addressing the transportation sector is essential to reducing Hawaii’s carbon footprint and increasing our Island state energy security. At our current pace, we are on track to neither exceed our State’s next renewable milestone of 30% by 2020.

We have recently seen the groundbreaking of several large solar projects including our own 20 megawatt photovoltaic project at Joint Base Pearl Harbor-Hickam.

Through our renewable generation RSPs, we are providing a platform for third-party development of approximately 300 megawatts of additional renewable, and last week, we filed applications to add two grid scale batteries on Oahu to help integrate more renewable while improving resilience.

Finally as many of you know, last month our Commission opened a proceeding and our Governor signed into law legislation to evaluate and implement performance-based regulation or PBR.

We have advocated for these PBR for some time and already have some elements of it in place, such as decoupling and performance incentives for reliability, customer service, renewable energy procurement and demand response.

In its socket the Commission indicated it seeks to build on the existing regulatory framework, rather than make wholesale changes. We see PBR as an opportunity for Company as incentives may be approved to provide revenue opportunities without completely changing cost to service regulation.

The recently established performance incentives for our revenue generation RFPs are a good example of this, providing the potential for the utility to earn by successfully adding competitively priced contracted renewable underwriting PPA framework.

With the commissions acceptance of our power supply improvement plan last year and approval of our grid modernization strategy earlier this year and now I recently filed electrification of transportation roadmap, we now have in place comprehensive plan for reaching our 100% clean energy goal and the framework for measuring performance as we move forward.

We believe the Commission has outlined a collaborative deliberative approach for developing PBR elements to advance with our each goals while maintaining a financially stable utility and a safe, reliable and resilient grid and we look forward to participating in the process over the next two years.

Turning to the bank, as I mentioned American has the highest quarterly net income in its history, delivering well on fundamentals like net interest margin and deposit and loan growth while benefiting from lower tax rates due to Tax Reform.

The lower tax expense also allowed American to meaningfully increase wage rate for its employees or entry-level and lower wage positions starting this year. American’s new Honolulu campus renamed a key focus for the bank and construction is well underway.

Our bank team looks forward to consolidating its core management and operations teams into a single new and innovative base later this year, resulting in greater efficiencies for the bank and its customers.

Moving to Pacific Current, in the first quarter our new subsidiary announced its second investment a solar plus storage project that will provide 8.6 megawatts of solid capacity and 42.3 mega watt hours of storage capacity on the island and Maui and Oahu at five University of Campuses.

The facilities are in construction phase and are expected to be operational in 2019. We expect this project to be accretive to earnings in its first full-year of operation.

This project is a great Pacific Current’s of the current approach of partnering with others and helping bring together Hawaii based resources to advance our State’s clean energy [Technical Difficulty].

Our initial project Hamakua Energy is helping to fund Pacific Currents start up cost and we are focused on building out Pacific Current’s organization and management team. I will now ask Greg to cover Hawaii’s economy, our first quarter financial results and Company outlook for 2018. Greg..

Thanks Connie. The overall health of Hawaii economies remains sound as expansion continues with ongoing strength in tourism and real estate and the labor force near full employment. unemployment remains very low below 3% since mid 2016 at 2.1% in March is the lowest on record for the State and continues to be below the national rate.

The increasingly tight labor market could begin to spur wage growth, which consistent with the rest of the country has lagged unemployment levels. A key area of employment growth has been the tourism industry which continued a lengthy expansion that began in 2010.

The industry has built on its record-setting 2017 results, seen visitor arrivals and spending continued to rise. The outlook is positive. At current rates we are heading toward another record year for arrivals approaching 10 million visitors. Airlines have increased scheduled air seats to Hawaii particularly from the Western U.S.

and Southwest is entering the market with service from the Mainland as well as into Island. Hawaii real estate has remained strong, year-to-date April wholesales volume and prices continue to rise due to high demand. As of April, the median sales price for single-family homes rose 4.6% from the prior year to 774,000 and condos were up 7.5% to 425,000.

Overall, the Hawaii economy is performing well with local and international conditions supporting the positive outlook. Turning to our financial results, as shown on Slide 6. First quarter earnings per share were $0.37 per share, compared to $0.31 per share for the first quarter of 2017.

We realized earnings improvement at both utility and bank offset in part by higher holding company losses which were expected due to lower tax benefits on expenses and from a reduced Federal Tax rate and increased interest expense.

The holding company segment currently also includes Pacific Current, currently with two investments, Hamakua Energy which is operated well and according to plan and contributed positively to earnings. However, our UH investment in February incurred transaction costs, which offset in part the earnings contributions at Hamakua. Turning to Slide 7.

HEI’s consolidated ROE for the last 12 months was 8.2% with contributions of 6.9% from utility and 11.8% from the bank. Excluding the one-time impacts of Tax Reform recorded in the fourth quarter of 2017 HEI’s core consolidated ROE for the last 12 months was 8.9% and the utility core ROE was 7.4%.

Utility results for the March 2018 LTM period, reflecting impact of the 2017 expiry of the RAM settlement agreement, as well as our ongoing transition back to a triennial rate case cycle and reset of base rates. After no base rate in rate increases for six years.

The March 2018 LTM results includes seven months of interim rates at Hawaiian Electric Light and a half of interim rates at Hawaiian Electric, our largest utility. We expect ROE improvement from continuation of these interim rates throughout the rest of the year as well as the upcoming interim decision on Maui Electric rate case in August.

At the bank, we realized an increase in ROEs for the last 12 months, primarily driven by Tax Reform, continued low-cost funding and strengthening yield on earning assets. We expect further ROE expansion as we progress through the year. The bank’s annualized ROE for Q1 2018 was 12.58%.

On Slide 8, utility earnings were $27.5 million in the first quarter of 2018 compared to $21.5 million in the first quarter of 2017. The most significant net income drivers were as follows.

$11 million higher RAM revenues in 2018 primarily due to lower revenues in the first quarter of 2017 because of those return in 2017 to recording Oahu RAM revenue for accounting purposes on a lagged basis beginning June 1, 2017. Instead of on a calendar basis due to the exploration of a 2013 settlement agreement.

$5 million of interim rate relief for Hawaiian Electric’s 2017 year interim rates effective mid-February and a full-year of benefits from Hawaiian Electric Lights 2016 test year interim rates, which became effective in August of 2017.

And $1 million allowance for funds used during construction mainly from the Schofield Generation Station to be completed in the second quarter.

These amounts were partially offset by 7 million higher O&M expenses compared to 2017 primarily due to the reset of pension cost as part of rate case interim decisions, higher overhaul cost for generation, a write-off of certain smart grid costs that were encouraged before the approval of a revised grid monetization strategy and a one-time rent expense adjustment for an existing substation land lease, partially offset by an additional reserve for environmental cost in 2017.

Also $2 million higher depreciation expense for increasing investment and integration of more renewable energy, improved customer reliability and greater system efficiency and $2 million, lower net income, primarily representing the difference between first quarter 2018 accrued Tax Reform net benefits to customers and our first quarter tax savings.

Turning to the bank on Slide 9. In the first quarter of 2018 American saw its highest quarterly net income average at $19 million, $3.1 million higher within the first quarter of 2017 and $2.1 million higher than the fourth or linked quarter.

Compared to linked quarters increase was primarily driven by higher net interest income, which was mainly due to higher yields on earning assets and strong deposit growth that funded increases in the investment and retail portfolios.

The first quarter also included $3 million in benefits from lower federal tax rates compared to the one-time tax benefit of $1.7 million recognized in the linked quarter. In the linked quarter American awarded $1 million to its employees through a $1000 cash bonus.

American’s wage rate increase for entry level and lower wage positions beginning in 2018 increased compensations costs for the quarter and the year. Compared to the first quarter 2017 the $3.1 million higher net income was primarily driven by higher net income, partially offset by lower non-interest income.

Non-interest expense in the first quarter of 2018 was higher than the same period in 2017 due to higher compensation expense and benefit expense reflecting the wage increases mentioned a moment ago, along with higher performance-based incentive and annual merit increases substantially offset by the impact of lower taxes.

On Slide 10 we see American's solid profitability, reflecting increases in both its return on assets and net interest margin. We achieved a return on assets of 112 basis points, exceeding our 2018 annual targets of over 110 basis points. Our net interest margin was 3.76% within our guidance range of 3.7% to 3.8%.

Our net interest margin is primarily due to higher yields on interest-earning assets and strong low cost deposit growth that funded earning asset growth and investment and retail portfolios. On Slide 11, our net interest margin of 3.76% in the first quarter of 2018, was eight basis points higher than the linked quarter.

Our interest-earning assets, asset yield increased 10 basis points from the quarter, primarily due to increases in yields in the investment and loan portfolios.

And our liability cost at 23 remains low at 23 basis points, although it increased by two basis points compared to the linked quarter, as deposit costs have increased in the rising interest rate environment primarily due to term certificates. On Slide 12.

Net interest income was approximately 3% higher compared to the linked quarter, driven by low cost deposit growth that funded our investment growth as well as higher yields on loans.

Non-interest income of $13.4 million was lower than the linked quarter mainly due to lower net debt to chart interchange fee income resulting primarily from a reclassification of expenses due to the new accounting standard.

Total loans as of the quarter end increased by $71 million or at 6.1% annualized growth rate primarily driven by increases in commercial and commercial real estate loans of $62 million. We expect to meet our target of low to mid single-digit earning asset growth for the year.

Our deposit growth in the first quarter was 12.8% annualized, including approximately $100 million in repurchase agreements that were transferred into deposit accounts. Excluding such transfers, deposit growth was 6%. Credit quality remains sound due to prudent risk management and a healthy local economy.

Our residential portfolio remains very clean, consumer unsecured credit quality is in line with expectations and the commercial and commercial real estate portfolios are stable with improving trends. First quarter 2018 provision for loan losses including reserves for loan growth.

Additional reserves for the consumer loan portfolios were partially offset by the release of reserves for the commercial loan portfolios due to a recovery on previously charged-off commercial loan and improved credit quality. Our net charge-off ratio was 28 basis points for the first quarter of 2018 compared to 26 basis points in the linked quarter.

Non-accrual loans as a percentage of total loans receivable held for investment was 0.53% compared to 51% at the end of quarter. The allowance for loan losses of $54 million was 1.14% of outstanding loans at the quarter end compared to 1.15% in the linked quarter and 1.19% as of the prior quarter.

Slide 14 illustrates American's continued attractive asset and funding mix relative to our peer banks. American’s March 31, 2018 balance sheet is compared to the last available data for our peers from the fourth quarter. 100% of our loan portfolio was funded with low cost core deposits versus the aggregate of our peer banks at 88%.

In the first quarter total, deposits increased by 188 million while we maintained a very low cost of funds of 23 basis points, 36 basis points lower than our peer median.

American paid $11 million in dividends to HEI in the first quarter and remains well capitalized at March 31st with a leverage ratio of 8.6%, tangible common equity to tangible asset ratio of 7.7% and total risk-based capital ratio of 14%. On Slide 15, we are reaffirming HEI’s 2018 earnings guidance in the range of $1.80 to $2 per share.

There are no changes to the guidance ranges for the utility and the bank at this time. I will turn it over to Connie to make her closing remarks..

Thanks, Greg. In summary, our companies has continue to focus on an enterprise wide mission of being a catalyst for a better Hawaii. At the utility, we are providing Tax Reform’s net benefits to customers and are on course to meet or exceed the State’s 2020 target o 30% renewable energy.

We look forward to participating alongside other stakeholders in the PUC's PBR docket, as we work together to achieve our State’s goals. We are focused on our role in creating resilient and sustainable communities through technology from our use of resources and building partnerships and providing more value to customers.

At the bank, we look to build on its record earnings and profitability as we continue our work to make banking easier, deepen customer relationships, strengthen efficiency and enhance asset quality while growing the asset portfolio. And we very much look forward to the new campus opening later this year.

At Pacific Current, we are pleased to have two great projects in place and are prudently investing in the build out of the organization. Finally our board yesterday maintained our quarterly dividend of $0.31 per share, continuing our history of uninterrupted dividend since 1901.

The dividend yield continues to be attractive at 3.7% as of yesterday's market close. As always, our companies will continue to focus on providing long-term value for our customers, communities, employees and shareholders. And now, we look forward to hearing your questions..

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Julien Dumoulin-Smith from Bank of America Merrill Lynch. Please go ahead..

Hey, good morning.

This is [Claire] (Ph) for Julian how are you all doing?.

Hi Claire..

Hi Claire..

Hi, thanks for taking my question. I wanted to first talk about Pacific Current.

So I was hoping to get a little more - some color beyond what you have provided so far, particularly earnings contribution, earnings cadence and second to follow-up, if you can give a little more color on the strategic view for Pacific Current and the competitive dynamic first of all at the storage and space..

Sure. Thanks for your question Claire. Frankly, Pacific Current is in a nascent states right now and as we indicated, we are really building that out. So we may have a more of those specifics for you later in the year, but frankly at this time we are not in a position to provide those to you.

However, we see that there are great opportunities within the state for us to help advance clean energy and that's frankly why we started the Pacific Current strategy is that when you have a state that has a very aggressive goal of 100% clean energy and now we are also starting to work on the transportation side.

We actually see that there is lots of opportunities to do things that frankly haven't been done in other places and that's the reason why we needed another vehicle besides the utility and the bank.

To try to fill those gaps in our community, we actually have a number of folks in Hawaii that are very excited about clean energy and coming up with lots of different innovative proposals, and new companies some of which you know you have seen transfer into the California market like the stem that has been involved in storage.

And so we think that having this additional vehicle can allow us to support some of those effort and work together in ways in Hawaii that you may never have seen elsewhere as we collaborate with everyone to do some pretty innovative things in energy. So stay tuned later this year..

Great, that’s really helpful. And just to quickly follow-up, if there is any more color you can provide on the University of Hawaii projects. Thank you..

Sure. I'm going to turn that over to Greg, who was involved in negotiating that transaction with [Technical Difficulty] and also our partner there Johnson Control..

Yes. Claire, so I can provide a little bit of additional color, the project now is in the notice to proceed stage, the final development permits, transmission interconnects and processes underway. JCI, who was the developer and also our EPC contractor is proceeding with its work plan, we should deliver the project by mid-2019.

I would caution that there are actually five different campuses and frankly each campus kind of has its own timeline, they are moving forward as quickly as they can on those, but we expect the vast majority of them to be online our COD by 2019, plus or minus a few months.

As I have mentioned previously, the contract with JCI his on a fixed-price and strong performance guarantees backed by JCI, so we are currently funding of the project and the construction phase, but we are not taking construction risk.

So you will see us continue to fund that throughout the period of time until it reaches COD and is recapitalized at that point in time. Beyond that, things are progressing according to plan, a good coordination among all the parties between us, University of Hawaii and JCI..

Yes. So Claire to add, so we have typical construction financing in place through the banking market, but not in American savings bank, Rich would say jeez how come, but through another banking contortion here in Hawaii and then on COD there will be non-recourse financing that takes that out typical project financing.

But here is an example of what I was talking about, because in Hawaii it’s not only the power sector that has great desires to go green and renewals, the University of Hawaii itself has a goal to be net zero by 2035.

So this is part of their plan that they have actually been working for quite a while to get their campuses to that net zero stage and we are very happy to be able to partner and be a catalyst which is our mission for Hawaii. To be catalyst to help get the University of Hawaii to their mandated 2035 net zero goal..

Excellent its really helpful color and lastly just to I know you have already given great deal on the PBR docket. If you can give a little more detail on what exactly needs to be in place by 2020 or at least what you can provide at this time. Thank you..

This is Alan, we have Joe Viola here our VP of Regulatory to give you more detail, but in general, its broken down into two phases and by the end of 2020 we expect to have a PUC roadmap for PBR. PUC opened the docket and has been working on it for a quite a while, we have been advocating for PBR for decades.

So I think what we have is a rational docket with all stake holders that will be around the table going through a very complex regulatory mechanism and by the end of the two-year period we should have a roadmap that is rational and we hope continues to live by preserving the financial integrity of utility as PUC has mentioned in his order opening dockets..

Excellent. I will leave it there. Thank you so much..

Great..

The next question comes from Paul Patterson with Glenrock Associates. Please go ahead..

Good morning.

Can you hear me?.

Yes. Can hear you fine Paul..

Just if you could give a little bit more clarity on SB 939 and how it relates to the PBR docket.

I mean how are they different I guess, or how should we think about between SB 2939 in the context of the docket at the PUC currently and outside of it?.

Well I think you can think of it as PUC's order actually predated the signing of 2939, and in the order it covered most of the relevant substantive matters discussed in 2939 and it even adopted a schedule that seem to comply with the intent of 2939, but the PUC was very careful in it media release and in the order, to say that this is not a wholesale change to the regulatory environment.

We already have performance incentive mechanisms that PUC is moving in that direction. We have filed testimony in our rate cases on PBR.

We have suggested certain kinds of actions and I think the PUC was very careful to say that Hawaii is unique and there will not be a wholesale adoption of other areas of PBR mechanisms to the very unique circumstances in Hawaii.

I think they comply and will even in the docket itself some of the parties who were advocating for 2939 have recognized that the PUC's process seems to comply with the intent of 2939..

Okay. There were some reports that you guys weren't supportive of 2939.

Were your concerns resolved during the legislative process, are there any concerns that you guys have now?.

Our concerns are the unintended consequences and a rush to judgment. We have strongly advocated for the notion of PBR, we want a rational process with all stakeholders around the table not just some.

And I think the ITT community for example, has already filed letters with the Governor saying that the unintended consequence if you destroy or greatly impact the utility’s financial integrity is their ability to access reasonable financing as we move forward with our 100% RTS.

We have 300 megawatt RFP out there right now and people have indicated interest in it, they have to access financing based upon our ability to pay as their customer. So these are some of the unintended consequences if PBR is not done rationally, and they have registered their concerns about it, but I think the PUC understands that..

Okay, well let me tell you where it’s a little confusing to me. And that is first of all as you mentioned this PUC order came out just before it seemed the Governor signing the bill within days before and I don't know if that was a coincidence or not..

And I guess what I’m sort of wondering if I understand that you think that the PUC is complying, with 2939, but I guess what I'm wondering is if the PUC was doing this, et cetera why was 2939 necessary and what drove that, could you help us out a little bit on that?.

I won’t speculate as to why it's necessary. We have made our positions clear. I will say that the PUC order was not done in a week.

It’s been in the process for months and while the bill was being processed, the PUC has continued its quarterly deliberations to issue an order so the timing maybe coincident or the timing maybe as a result of the build arriving on the governor's desk. I cannot say we are pleased that the PUC took the action..

Paul I think what you have to understand about Hawaii is it's kind of like what I was saying about the University of Hawaii is that across our communities it is no longer just about the utility and just about moving clean energy forward through the utility process as you know with contributed energy resources.

There are so many parties that need to come together to work through regulatory framework, rational framework that can actually best advance the State’s goal to get to the ultimate goal line and I know another example of that is on the transportation side, we have our four county Mayors who have said that they want all ground transportation to the non-fossil as well.

So like I say we have got our whole community moving and our position is that frankly the Public Utilities Commission process similar to what we went through in doing the grid modernization strategy when we were able to bring in.

and the PUC was able to bring in all relevant parties in our community to work through something that would work best for everyone and for the state that's the nature of this PBR docket.

but there are the good thing is there is a lot of people in our community who want to see that happen sooner rather than later and that's what you see in the intent of 2939 if that the buyer within the community to move all of these things forward as quickly as possible..

But I will put a side note on that, 2939 does a lot required a PUC to implement it's not the legislature that’s going to implement this they set the policy the PUC will implement. As I mentioned earlier the PUC had already been working on this four months. It was not as a result of 2939..

I’m aware of that, I guess what surprises me I guess is that there is this PUC process underway, I assume that the legislature was informed of that and yet they have moved ahead with their own legislation, which my understanding was you guys were in supportive of. So I guess what I'm wondering and I don’t want to belabor this topic.

So I mean I guess my question sort of is what is it the 2939 does that the PUC wasn’t doing or what was the purpose of 2939 policy wise, if there is a short answer to that I don’t mean to - do you thought what I'm saying it's little confusing that you have this process underway but you guys think is basically compliant with..

Thank you, Paul. We understand your question, we have a same question frankly and we abbreviated to a lot of PUC to do its job in our testimony as did the consumer advocate.

So why it was passed and why the Governor move to it, it's really speculation on our part, it's there but we are very, very comfortable that the PUC will implement it in a rational way..

Awesome Okay, and then, I’m going to now ask a bank question. The debit card interest the interchange fee and the change in accounting could you just elaborate a little bit, I apologize if I forgot what that is and where that now shows up or how that's - if you could elaborate a little more on that..

Yes. This is Rich thanks for the question Paul. So there is two pieces in the income statement that come from our customer using their debit cards.

One is in the non-interest income when they swipe we get a fee on the transactions governed by the caps on Durbin as we have talked to you in the past and that comes through and there is volume related component the more swipes the more income we get.

Within other expense we have had the charges that come with it right so there is a similar under the cart agreement and association agreements there is a similar charge that comes through and so they have just been in two pieces, what this does is, it brings them together and so that within non-interest income you see the net of debit card income, net of expenses associated with those swipes..

Okay and what has changed?.

Geography, so no bottom line impact, it was its bringing them that expense up from the non-interest expense line in other expense to non-interest income where you are offsetting some of the debit card income, interchange income..

Okay. I appreciate that. Thanks so much..

Okay..

The next question comes from and question comes from Rose-Lynn Armstrong with UBS. Please go ahead..

Hi. Just two process related question on the PBR docket and the legislation. Did I say you correctly that the PBR docket the two phases would be completed by the end of 2020..

Roughly yes and its looked up some allowance for in slippage or investment. The docket has just been open, interveners of file for intervention, it’s going to be a convening of all the parties, we think in a few months or so. So we will know more once that’s done..

Okay. So then how does that work in with the timeline of the legislation which I believe called for implementation by January 1 with 2020 and then secondly who will decide if the PUC outcome on PBR implementation complies with what the intent of the legislation..

This is Joe Viola from Hawaiian Electric Regulatory. Actually the PUC schedule is larger complies with statute, it’s not at the end of 2020, the PUC schedule actually complete phase two basically in the first month of 2020. The bill called for implementation of PBR by January 2020 points is pretty much aligned right there. As far as who will judge it.

I mean we can’t speculate on that, but its again as Alan said earlier, we think the process that’s set out satisfies the intent of the statute..

Thank you..

The next question comes from Jonathan Reeder with Wells Fargo. Please go ahead..

Hey just to follow-up again on the legislation.

I think part of the language is to break the direct link between allowed revenues and investment levels, so CapEx, rate base like how do you envisioned I guess complying with that aspect of it without kind of turning the current rate base model on its head?.

The statute says that the PUC order does not say that, the PUC was charged with implementing the newspaper within days of the signing called for amendments to the law. We don't know if that's going to happen to give the PUC more flexibility in this very complex area and to avoid unintended consequences.

I mean the goal has been set, the PUC have been working on it for a while. We will see how this develops. There are changes that may come about, as people understand the complexities of moving to PBR..

Jonathan I would add that If you look at the order.

An example of what you are talking about is that they specifically say that they want to make it neutral between capital expenditures and also services that are provided, because that is what is happening in the energy landscape is you are starting to see lots of other products and services that customers want.

And if you look at the recent incentive that was provided to us on renewable procurement, there is an example of potential revenues and incentive that can come from us not making a capital investment, but instead procuring competitively priced purchase power, right.

So there is where we could potentially have 20% of the savings against the target benchmark of procurement..

Which we already do but we don't have an incentive built into the regulation..

Right.

So, I mean I guess in your view that I guess sharing of the savings breaks the direct link between kind of revenues and investment levels, I mean even if it’s in utility favor so to speak, but you still have the underlying kind of rate base model and then you layer on perhaps that kind of service component as well as checking the boxes plus or minus on certain performance metrics achievements and you kind of get to this new framework that’s being contemplated?.

Yes exactly..

You said it well. You want to testify in the docket..

No I don’t think I do, I think I will pass, but maybe I will come out and listen to some of the hearings and enjoy things. Alright if you can clarify that a little bit..

Yes, you may want to do that, because frankly Hawaii is leading the nation in lots of these new frameworks that will lead us to a 100% clean energy..

Thanks so much for taking the time..

Thank you..

The next question comes from Charles Fishman with Morningstar Research. Please go ahead..

Thank you. I think my question is going to be directed to Greg.

Greg is there anything in the electrification of transportation roadmap, is there anything in 2939, Is there anything in the ongoing commission docket with respect to PBR that gets you more excited about the opportunities for Pacific Current or does any of the those things make it harder for Pacific Current, if you could comment on that?.

Yes. Thanks Charles. I think Connie said it well, in that Pacific current was created to help move the State forward on its renewable energy goals.

A lot of the investment that will get us there is going to be made in the competitive market, not just purely through the utility and consequently being a local player our ability to partner with local developers, local teams that are pursuing renewable energy create a good platform for capital formation and partnering with those parties.

Tax Reform was clearly a benefit to Pacific Current, and if you think about after tax cash flows from a non-regulated enterprise, so I see that is a benefit, but I'm not concerned about any of the regulatory dynamics overall at the utility, those will progress on pace, we will be will be focused on other activities and other opportunities working locally with other partners..

Like on the UH project, you are the equity behind that not the university and not Johnson Controls..

Yes, we are the ones that funded that our funding that project and we are the ones that provided the lowest cost to the University relative to a large number of competitors that were looking at that same project.

So our involvement resulted in a very lower cost than otherwise would have been obtained by the university and so were proud of our involvement there and were proud to have brought together a local team to accomplish that..

So I mean really what drives the Pacific Current opportunities are more the RPS the aggressive RPS goals of Hawaii rather than as PBR noise..

Yes, you know Charles that’s not just the RPS, but it's all the other things that are talking about, all the policy moves like on the transportation side. For example, the net zero for the University itself, so that's what I was trying to describe earlier.

You have got our entire community here in Hawaii moving towards clean energy and if you remember back to one of the principle of the Hawaii Clean Energy initiatives back in 2008 it's because our entire state is very dependent on imported fossil fuel.

So we are an Island we don't - back then with the technologies you might have indigenous resources like the sun and the wind, but the technology through really not in the money so to speak.

So oil was the least expensive way to generate power here and also to provide gasoline for the cars and you know jet fuels for the airplane that made Hawaii really dependent on oil and then when you have the oil price shocks where in April of 2008 you started seeing oil prices climb and then boy when you had Fukushima occur that just jacked up all of the oil prices in the whole Asia-Pacific region you know the Hawaii economy really took a hit from the standpoint of that oil expense going through the roof, and that was not just power generation that was across the board..

That’s really helpful. Thank you..

Yes..

The next question comes Jackie Bohlen with KBW. Please go ahead..

Hi everyone good morning..

Good morning Jackie..

Hi Jackie..

I switched over in giving Rich a little bit of airtime here. Focusing first on the net interest margin I know it's within the range that you had spoken about it, it certainly came in about my expectation.

Just if you could talk about how you are thinking about asset reprising and deposit reprising in light of March’s increase and then if we work to get any additional increases latter this year..

We are expecting one more increase this year. That's kind of our plan and I think you have observed we are fighting pretty hard to control the costs on the funding side and we have been able to do that pretty well. A lot of it is through the approaches that we are taking particular in the retail network on our relationship banking.

So we want to keep pushing that, we are seeing pressure in the markets, particularly on the commercial side where the pricing is getting more competitive and so you know we were up a couple of basis points in the quarter, we are trying to keep it at that level and control the upward pressure there.

On the asset side again commercial pricing is competitive as is the residential, because there is just no movement on the on the volume in the market on residential with the REFIs flat and limited inventory on that side.

So those are going to remain fairly competitive, but in the investment portfolio we are getting nice movement on the yield there as we reprise..

Do you happen to know what the reinvestment differential is on where the portfolio stands verses what you are purchasing?.

Right now we are plus 80 basis points..

Okay. And that was as of 1Q or is that current..

Yes. That’s as of 1Q..

Okay. And then if you wouldn’t mind providing an update on where you see and in terms of intended portfolio run off and how much more do you expect to come this year and kind of where you are seeing most of your growth in terms of new generation..

So the new generation has been pretty good, last year was challenging for us on the commercial side, as we were repositioning that book on some of the leverage lending and national credit, and we got through that in the fourth quarter.

So you saw us get the growth started up again as we came into the first quarter, loan growth was about six and we want to keep playing in that mid single-digit range on loan growth and then obviously the investment portfolio will depend on deposit growth..

Okay, fair enough, and just on last one, if you could provide an update on your expectations for the timing and perhaps the amounts on any costs you are going to have associated with the capitalization of the new campus..

So the campus we would expect to be completed with the investment on that this year, we are hoping to get the building in the early fourth quarter to fit it out with the with furniture and everything and then be able to start moving in toward the end of the year and the first part of next year.

So we are excited about that as Connie mentioned that earlier on. We are moving from five different locations for people who aren’t in the branches to one and we think that helps us a lot on our on a go forward basis in terms of how efficiently and nimbly we can operate, so we are looking forward to that.

We will probably have on the order of the million dollars of costs sort of project related costs associated with moving in and beginning to exit those other properties, that will come through this year and you will see that in the non-interest income line - non-interest expense line, sorry..

And what about any future capitalized costs that might be depreciating when would that start?.

Depreciation would probably start either December of fourth quarter or first quarter next year, depending on the completion of the constructions..

Okay and I would guess there would likely be some offsetting benefits just from consolidating from other areas?.

Yes and we have got a couple other properties that we are in that we own, that we would expect to sales with positive effect on the income statement. We should see gains on the properties that we sell, timing hard to call..

Okay, fair enough. Alright, thank you very much..

Okay..

This concludes the question-and-answer session. I would like to turn the conference back over to Julie Smolinski for any closing remarks..

Thank you, Gary, thank you everyone for participating in today’s call. Have a good rest of the week..

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..