HEI Reports Second Quarter 2020 Results

|Aug 6|magazine43 min read

HONOLULU, Aug. 6, 2020 /PRNewswire/ -- Hawaiian Electric Industries, Inc. (NYSE: HE) (HEI) today reported consolidated net income for common stock for the second quarter of 2020 of $48.9 million and EPS of $0.45 compared to $42.5 million and EPS of $0.39 for the second quarter of 2019.

"I am very proud of the performance of our companies and our employees in the unprecedented COVID-19 period," said Connie Lau, HEI president and CEO. "While all of us continue to face uncertainties regarding the trajectory of the virus and its implications for the pace of economic recovery, what is clear is the strength and resilience of our businesses, the dedication of our employees, and our commitment to supporting our customers and community.

"We continue to maintain a strong financial position across the enterprise. Our utility's stabilizing regulatory mechanisms, our bank's conservative approach to risk, and our strong enterprise-wide liquidity have created a solid foundation, enabling us to continue delivering good consolidated results and supporting our customers and community through these challenging times.

"Our utility is advancing important cost reductions to help manage affordability for our customers. As we tighten our belts, we remain focused on collaborating with stakeholders to progress our renewable energy transition, supporting Hawaii's economic recovery and clean energy goals.

"Our bank's results reflect the impact of the crisis in the compression of lending margins and higher provision for potential credit losses. The bank was able to offset some of these pressures through strong mortgage production, good cost control and a gain on sale of securities, while continued deposit growth reinforced its liquidity position and low cost funding base. As the uncertain environment unfolds, the bank will continue to work closely with customers to manage our risk and serve as a source of stability," said Lau.

_____________

1

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

HAWAIIAN ELECTRIC COMPANY EARNINGS

Hawaiian Electric Company's (Hawaiian Electric) net income for the second quarter of 2020 was $42.3 million, compared to $32.6 million in the second quarter of 2019, primarily driven by the following after-tax items:

  • $7 million lower operations and maintenance (O&M) expenses compared to the second quarter of 2019, primarily due to fewer generating unit overhauls, less generating station maintenance work associated with overhauls, the reclassification in the second quarter of COVID-19 related bad debt expense from the first quarter of 2020 to a regulatory asset as a result of Public Utilities Commission approval to defer these expenses (increasing quarterly earnings by $1.6 million), and lower labor cost due to lower staffing levels and reduced overtime (increasing earnings by $1 million). The lower generation overhauls and station maintenance work represented approximately $4 million of the $7 million total O&M variance, and are largely timing-related as some overhauls and station maintenance work will be performed later in 2020 or in 2021;
  • $5 million revenue increase from $4 million higher rate adjustment mechanism (RAM) revenues (including $2 million from Hawaiian Electric (Oahu), and $1 million each from Maui Electric (Maui County) and Hawaii Electric Light (Hawaii Island)) and $1 million for recovery of the West Loch PV project and Grid Modernization projects under the major project interim recovery (MPIR) mechanism;
  • $1 million higher net income due to an unfavorable adjustment made in 2019 related to 2018 reliability performance incentives; and
  • $1 million lower interest expense due to debt refinancings at lower rates.

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

  • $1 million lower allowance for funds used during construction as there were fewer long duration projects in construction work in progress;
  • $1 million higher cost savings from enterprise resource planning system implementation to be returned to customers; and
  • $1 million higher depreciation expense due to increasing investments for the integration of more renewable energy, improved customer reliability and greater system efficiency.

 

_________________

Note:     Amounts indicated as after-tax in this earnings release are based upon adjusting items using the current year composite statutory tax rates of 25.75% for the utilities and 26.79% for the bank.

AMERICAN SAVINGS BANK EARNINGS

American Savings Bank's (American) second quarter 2020 net income was $14.0 million compared to $15.8 million in the first, or linked quarter of 2020, and $17.0 million in the second quarter of 2019. The decrease in net income compared to the linked and prior year quarters reflects lower asset yields within the loan and investment portfolios as a result of the lower interest rate environment, a higher provision for credit losses due to $7 million in additional credit loss reserves related to COVID-19 and $4 million in provisioning for unfunded commitments. This was partially offset by higher noninterest income due to a $7.1 million gain related to the sale of 34,680 Visa Class B restricted shares and a $2.2 million gain on the sale of investment securities as the bank sold some legacy positions to reduce credit risk and yield volatility in its investment portfolio.

Total loans were $5.5 billion as of June 30, 2020, up 6.45%2 from December 31, 2019, driven mainly by the addition of $370 million in Paycheck Protection Program (PPP) loans, as well as increases in the commercial real estate and commercial and industrial portfolios, offset by reductions in the retail portfolio.

Total deposits were $7.0 billion as of June 30, 2020, an increase of 12.1%3 from December 31, 2019. The average cost of funds was 0.18% for the quarter, down six basis points versus the linked quarter and down twelve basis points versus the prior year quarter.

Overall, American's return on average equity4 for the second quarter of 2020 was 8.00%, compared to 9.15% in the linked quarter and 10.46% in the second quarter of 2019. Return on average assets was 0.72% for the second quarter of 2020, compared to 0.87% in the linked quarter and 0.96% in the same quarter last year.

In the second quarter of 2020, American retained capital and did not pay a dividend to HEI to support its commitment to PPP lending to the community while maintaining healthy capital levels. American had a leverage ratio of 8.4% at June 30, 2020.

Please refer to American's news release issued on July 30, 2020 for additional information on American.

_____________

2  

Annualized from December 31, 2019, total loans as of June 30, 2020 increased 12.9%.

3  

Annualized from December 31, 2019, total deposits as of June 30, 2020 increased 24.2%.

4  

Bank return on average equity calculated using annualized second quarter 2020 bank net income and weighted average daily common equity.

HOLDING AND OTHER COMPANIES

The holding and other companies' net loss was $7.5 million for the second quarter of 2020 compared to $7.1 million in the prior year quarter. The greater net loss was primarily due to an increase and acceleration of charitable contributions to support our community during the COVID-19 pandemic.

BOARD MAINTAINS QUARTERLY DIVIDEND

On August 5, 2020, HEI announced that the Board of Directors maintained HEI's quarterly cash dividend of $0.33 per share payable on September 10, 2020, to shareholders of record at the close of business on August 21, 2020 (ex-dividend date is August 20, 2020). This quarterly dividend is equivalent to an annual rate of $1.32 per share. Dividends have been paid on an uninterrupted basis since 1901. At the indicated annual dividend rate and based on the closing price per share on August 5, 2020 of $34.93, HEI's dividend yield is 3.8%.

HEI EARNINGS RELEASE, HEI WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND 2020 GUIDANCE

HEI will conduct a webcast and conference call to review its consolidated results and 2020 earnings guidance and outlook at 10:15 a.m. Hawaii time (4:15 p.m. Eastern time) on Thursday, August 6, 2020.

Interested parties within the United States may listen to the conference by calling (844) 834-0652 and international parties may listen to the conference by calling (412) 317-5198. Parties may also access any presentation materials for the conference call and/or listen to the conference call by accessing the webcast on HEI's website at www.hei.com under the "Investor Relations" section, sub-heading "News and Events – Events and Presentations."

HEI and Hawaiian Electric intend to continue to use HEI's website, www.hei.com, as a means of disclosing additional information; such disclosures will be included on HEI's website in the Investor Relations section. Accordingly, investors should routinely monitor the Investor Relations section of HEI's website at www.hei.com in addition to following HEI's, Hawaiian Electric's and American's press releases, HEI's and Hawaiian Electric's Securities and Exchange Commission (SEC) filings and HEI's public conference calls and webcasts. The information on HEI's website is not incorporated by reference in this document or in HEI's and Hawaiian Electric's SEC filings unless, and except to the extent, specifically incorporated by reference. Investors may also wish to refer to the Public Utilities Commission of the State of Hawaii (PUC) website at dms.puc.hawaii.gov/dms in order to review documents filed with and issued by the PUC. No information on the PUC website is incorporated by reference in this document or in HEI's and Hawaiian Electric's SEC filings.

An on-line replay of the August 6, 2020 webcast will be available on HEI's website beginning about two hours after the event. Audio replays of the conference call will also be available approximately two hours after the event through August 20, 2020 by dialing (877) 344-7529 or (412) 317-0088 and entering passcode 10146073.

HEI supplies power to approximately 95% of Hawaii's population through its electric utility, Hawaiian Electric; provides a wide array of banking and other financial services to consumers and businesses through American, one of Hawaii's largest financial institutions; and helps advance Hawaii's clean energy and sustainability goals through investments by its non-regulated subsidiary, Pacific Current, LLC.

FORWARD-LOOKING STATEMENTS

This release may contain "forward-looking statements," which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as "will," "expects," "anticipates," "intends," "plans," "believes," "predicts," "estimates" or similar expressions. In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries, the performance of the industries in which they do business and economic, political and market factors, among other things. These forward-looking statements are not guarantees of future performance.

Forward-looking statements in this release should be read in conjunction with the "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" discussions (which are incorporated by reference herein) set forth in HEI's Annual Report on Form 10-K for the year ended December 31, 2019 and HEI's other periodic reports that discuss important factors that could cause HEI's results to differ materially from those anticipated in such statements. These forward-looking statements speak only as of the date of the release, report, presentation or filing in which they are made. Except to the extent required by the federal securities laws, HEI, Hawaiian Electric, American and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME DATA

(Unaudited)




Three months ended June 30


Six months ended June 30

(in thousands, except per share amounts)


2020


2019


2020


2019

Revenues









Electric utility


$

534,215



$

633,784



$

1,131,657



$

1,212,279


Bank


74,714



81,687



154,452



164,739


Other


16



14



22



82


Total revenues


608,945



715,485



1,286,131



1,377,100


Expenses









Electric utility


466,414



578,090



1,019,898



1,100,025


Bank


66,221



60,435



126,556



117,365


Other


4,754



4,326



8,419



9,139


Total expenses


537,389



642,851



1,154,873



1,226,529


Operating income (loss)









Electric utility


67,801



55,694



111,759



112,254


Bank


8,493



21,252



27,896



47,374


Other


(4,738)



(4,312)



(8,397)



(9,057)


Total operating income


71,556



72,634



131,258



150,571


Retirement defined benefits expense—other than service costs


(934)



(761)



(1,868)



(1,524)


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


(22,613)



(23,533)



(44,388)



(46,656)


Allowance for borrowed funds used during construction


752



1,179



1,440



2,257


Allowance for equity funds used during construction


2,194



3,175



4,209



6,085


Gain on sale of investment securities, net


9,275





9,275




Income before income taxes


60,230



52,694



99,926



110,733


Income taxes


10,870



9,709



16,673



21,587


Net income


49,360



42,985



83,253



89,146


Preferred stock dividends of subsidiaries


473



473



946



946


Net income for common stock


$

48,887



$

42,512



$

82,307



$

88,200


Basic earnings per common share


$

0.45



$

0.39



$

0.75



$

0.81


Diluted earnings per common share


$

0.45



$

0.39



$

0.75



$

0.81


Dividends declared per common share


$

0.33



$

0.32



$

0.66



$

0.64


Weighted-average number of common shares outstanding


109,146



108,938



109,098



108,925


Weighted-average shares assuming dilution


109,305



109,255



109,374



109,324


Net income (loss) for common stock by segment









Electric utility


$

42,329



$

32,574



$

66,234



$

64,700


Bank


14,014



17,016



29,775



37,855


Other


(7,456)



(7,078)



(13,702)



(14,355)


Net income for common stock


$

48,887



$

42,512



$

82,307



$

88,200


Comprehensive income attributable to Hawaiian Electric
   Industries, Inc.


$

48,555



$

56,211



$

100,187



$

111,140


Return on average common equity (twelve months ended)






9.4

%


9.4

%


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

 

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

CONSOLIDATED STATEMENTS OF INCOME DATA

(Unaudited)




Three months ended June 30


Six months ended June 30

($ in thousands, except per barrel amounts)


2020


2019


2020


2019

Revenues


$

534,215



$

633,784



$

1,131,657



$

1,212,279


Expenses









Fuel oil


112,451



181,620



285,672



342,229


Purchased power


136,838



162,854



276,654



297,299


Other operation and maintenance


110,041



119,260



237,588



237,390


Depreciation


55,696



53,913



111,546



107,860


Taxes, other than income taxes


51,388



60,443



108,438



115,247


Total expenses


466,414



578,090



1,019,898



1,100,025


Operating income


67,801



55,694



111,759



112,254


Allowance for equity funds used during construction


2,194



3,175



4,209



6,085


Retirement defined benefits expense—other than service costs


(382)



(701)



(763)



(1,404)


Interest expense and other charges, net


(17,338)



(18,530)



(33,932)



(36,516)


Allowance for borrowed funds used during construction


752



1,179



1,440



2,257


Income before income taxes


53,027



40,817



82,713



82,676


Income taxes


10,199



7,744



15,481



16,978


Net income


42,828



33,073



67,232



65,698


Preferred stock dividends of subsidiaries


229



229



458



458


Net income attributable to Hawaiian Electric


42,599



32,844



66,774



65,240


Preferred stock dividends of Hawaiian Electric


270



270



540



540


Net income for common stock


$

42,329



$

32,574



$

66,234



$

64,700


Comprehensive income attributable to Hawaiian Electric


$

42,354



$

32,597



$

66,285



$

64,747


OTHER ELECTRIC UTILITY INFORMATION









Kilowatthour sales (millions)









   Hawaiian Electric


1,444



1,593



2,940



3,016


   Hawaii Electric Light


224



253



476



498


   Maui Electric


206



273



464



521




1,874



2,119



3,880



4,035


Average fuel oil cost per barrel


$

63.12



$

88.38



$

72.77



$

84.44


Return on average common equity (twelve months ended)1






7.9

%


7.8

%


1     Simple average.

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

 

American Savings Bank, F.S.B.

STATEMENTS OF INCOME DATA

(Unaudited)




Three months ended 


Six months ended June 30

($ in thousands)


June 30, 2020


March 31, 2020


June 30, 2019


2020


2019

Interest and dividend income











Interest and fees on loans


$

53,541



$

55,545



$

58,620



$

109,086



$

116,480


Interest and dividends on investment securities


6,288



9,430



7,535



15,718



18,163


Total interest and dividend income


59,829



64,975



66,155



124,804



134,643


Interest expense











Interest on deposit liabilities


3,071



3,587



4,287



6,658



8,539


Interest on other borrowings


75



313



411



388



939


Total interest expense


3,146



3,900



4,698



7,046



9,478


Net interest income


56,683



61,075



61,457



117,758



125,165


Provision for credit losses


15,133



10,401



7,688



25,534



14,558


Net interest income after provision for credit losses


41,550



50,674



53,769



92,224



110,607


Noninterest income











Fees from other financial services


3,102



4,571



4,798



7,673



9,360


Fee income on deposit liabilities


2,897



5,113



5,004



8,010



10,082


Fee income on other financial products


1,212



1,872



1,830



3,084



3,423


Bank-owned life insurance


1,673



794



2,390



2,467



4,649


Mortgage banking income


6,252



2,000



976



8,252



1,590


Gain on sale of securities, net


9,275







9,275




Other income, net


(251)



413



534



162



992


Total noninterest income


24,160



14,763



15,532



38,923



30,096


Noninterest expense











Compensation and employee benefits


25,079



25,777



25,750



50,856



51,262


Occupancy


5,442



5,267



5,479



10,709



10,149


Data processing


3,849



3,837



3,852



7,686



7,590


Services


2,474



2,809



2,606



5,283



5,032


Equipment


2,290



2,339



2,189



4,629



4,253


Office supplies, printing and postage


1,049



1,341



1,663



2,390



3,023


Marketing


379



802



1,323



1,181



2,313


FDIC insurance


751



102



628



853



1,254


Other expense1


7,063



4,194



4,519



11,257



8,373


Total noninterest expense


48,376



46,468



48,009



94,844



93,249


Income before income taxes


17,334



18,969



21,292



36,303



47,454


Income taxes


3,320



3,208



4,276



6,528



9,599


Net income


$

14,014



$

15,761



$

17,016



$

29,775



$

37,855


Comprehensive income


$

13,734



$

35,608



$

31,291



$

49,342



$

58,382


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







Return on average assets


0.72



0.87



0.96



0.79



1.07


Return on average equity


8.00



9.15



10.46



8.57



11.76


Return on average tangible common equity


9.07



10.39



11.97



9.72



13.48


Net interest margin


3.21



3.72



3.82



3.46



3.90


Efficiency ratio


59.84



61.27



62.36



60.53



60.06


Net charge-offs to average loans outstanding


0.49



0.44



0.29



0.46



0.34


As of period end











Nonaccrual loans to loans receivable held for investment


0.86



0.90



0.79






Allowance for credit losses to loans outstanding


1.50



1.49



1.17






Tangible common equity to tangible assets


7.9



8.3



8.2






Tier-1 leverage ratio


8.4



8.8



8.7






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


$



$

28.0



$

15.0



$

28.0



$

33.0




The three- and six-month periods ended June 30, 2020 include approximately $3.7 million and $3.8 million, respectively, of certain significant direct and incremental COVID-19 related costs. These costs, which have been recorded in Other expense, include $2.3 million of compensation expense and $1.1 million of enhanced cleaning and sanitation costs.



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

 

Contact:

Julie R. Smolinski

Telephone: (808) 543-7300


Director, Investor Relations

E-mail: [email protected]

 

 

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SOURCE Hawaiian Electric Industries, Inc.