American Savings Bank Reports First Quarter 2015 Earnings

Net Income of $13.5 Million

Return on Assets of 0.96%, Return on Equity of 10.0%

American Continues to Deliver Solid Results as It Prepares for Planned Spin-off

Company Release - 4/30/2015 5:15 PM ET

HONOLULU, April 30, 2015 /PRNewswire/ -- American Savings Bank, F.S.B. (American), a wholly-owned indirect subsidiary of Hawaiian Electric Industries, Inc. (HEI) (NYSE - HE), today reported net income for the first quarter of 2015 of $13.5 million, compared to $12.1 million in the fourth (or linked) quarter of 2014 and $14.4 million in the first quarter of 2014.   

"We made good progress on our key priorities during the quarter, with strong core deposit growth, excellent asset quality, and broad improvement in non-interest income.  Mortgage production was strong following the dip in interest rates, but our decision to sell most of the low-rate loans contributed to lower loan growth than in prior quarters," said Rich Wacker, president and chief executive officer of American.  "We also accomplished an important step toward the planned spin-off of ASB Hawaii by filing our Form 10 with the Securities and Exchange Commission."

First quarter 2015 net income was $1.4 million higher than the linked quarter primarily driven by (on an after-tax basis):

  • $1 million lower provision for loan losses, with no repeat of the lava flow-related provision in the linked quarter; and
  • $1 million higher noninterest income in the first quarter of 2015 across many areas, especially mortgage banking income from gains on sale of newly originated mortgages.

These were partially offset by $1 million lower net interest income primarily due to interest and fees related to commercial loan payoffs in the fourth quarter of 2014.

                                     
Note:  Amounts indicated as "after-tax" in this earnings release are based upon adjusting items for the composite statutory tax rate of 40% for American.

Compared to the same quarter of 2014, net income was lower by $0.9 million primarily driven by (on an after-tax basis):

  • $2 million gain in the first quarter of 2014 on the sale of the municipal bond securities portfolio; and
  • $2 million higher noninterest expense in the first quarter of 2015 due primarily to higher pension expense from the effect of a lower discount rate and changes in the national mortality tables. 

These were largely offset by (on an after-tax basis):

  • $1 million higher non-interest income, excluding the gain on sale of the municipal bond securities portfolio discussed above, particularly from mortgage banking and fees on deposit products in the first quarter of 2015; and
  • $1 million higher net interest income in the first quarter of 2015 driven by the growth in our lending portfolio.

Net interest income (pretax) was $45.5 million in the first quarter of 2015 compared to $46.7 million in the linked quarter of 2014 and $44.1 million in the prior year quarter.  Net interest margin was 3.52% compared to 3.65% in the linked quarter and 3.64% in the first quarter of 2014.  Compared to the linked quarter, the declines were due to the previously mentioned fourth quarter 2014 interest and fees realized in connection with certain commercial loan payoffs combined with lower yields related to the accounting effect of slower recognition of loan fees and faster premium amortization on mortgage-related securities in the first quarter of 2015.  Compared to the prior year quarter, the decline in net interest margin was largely attributable to lower yields on interest earning assets as loans continued to re-price down. 

Provision for loan losses (pretax) was $0.6 million in the first quarter of 2015, lower than the $2.6 million in the linked quarter of 2014 and lower than the provision of $1.0 million in the first quarter of 2014.  The higher provision in the linked quarter was largely due to reserves for a commercial loan impacted by the lava flows on Hawaii Island.  The first quarter 2015 net charge-off ratio was 0.04%, consistent with the linked quarter and 0.02% in the prior year quarter.  Credit quality and trends continue to be stable and good, reflecting prudent credit risk management and a strong Hawaii economy.

Noninterest income (pretax) was $16.1 million in the first quarter of 2015, compared to $15.3 million in the linked quarter and $16.9 million in the first quarter of 2014, which included the $2.8 million gain on the sale of the municipal bond portfolio. 

Noninterest expense (pretax) was $40.4 million in the first quarter of 2015, compared to $41.1 million in the linked quarter and $37.5 million in the first quarter of 2014.  Noninterest expense was $0.7 million lower compared to the linked quarter, which included a settlement of a purported class action lawsuit related to overdraft fees on debit card transactions and other one-time costs.

Loan growth was 1% annualized in the first quarter of 2015 driven largely by increases in commercial real estate and commercial markets loans.  Residential loans were down slightly as more newly originated mortgages were sold in the secondary markets.  American continues to expect to meet its target of mid-single digit loan growth for the full year.

Total deposits were $4.8 billion at March 31, 2015, up $128 million from December 31, 2014, primarily driven by the 12% annualized increase in low-cost core deposits.  Average cost of funds remained low at 0.22% for the first quarter of 2015, consistent with the linked quarter and 1 basis point lower than the 0.23% for the prior year quarter.

American's return on average equity was 10.0%, up from 8.9% in the linked quarter, but lower than the 10.9% in the first quarter of last year.  Return on average assets was 0.96% for the first quarter of 2015, compared to 0.88% from the linked quarter and 1.09% in the same quarter last year.  American's solid results enabled it to pay dividends of $7.5 million to HEI in the quarter while maintaining healthy capital levels – leverage ratio of 8.9% and total capital ratio of 13.2% at March 31, 2015.

HEI EARNINGS RELEASE

Concurrent with American's regulatory filing 30 days after the end of the quarter, American announced its first quarter 2015 financial results today.  Please note that these reported results relate only to American and are not necessarily indicative of HEI's consolidated financial results for the first quarter of 2015.

HEI plans to announce its first quarter 2015 consolidated financial results via press release on Wednesday, May 6, 2015.  However, in light of the upcoming special meeting of shareholders to be held on May 12, 2015, there will not be a webcast and conference call for the first quarter.

HEI supplies power to approximately 450,000 customers or 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited and provides a wide array of banking and other financial services to consumers and businesses through American, one of Hawaii's largest financial institutions.

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 "expects," "anticipates," "intends," "plans," "believes," "predicts," "estimates" or similar expressions.  In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements.  Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries, the performance of the industries in which they do business and economic and market factors, among other things.  These forward-looking statements are not guarantees of future performance.

Forward-looking statements in this release should be read in conjunction with the "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, 2014 and HEI's future periodic reports that discuss important factors that could cause HEI's results to differ materially from those anticipated in such statements.  These forward-looking statements speak only as of the date of the report, presentation or filing in which they are made.  Except to the extent required by the federal securities laws, HEI, Hawaiian Electric Company, Inc, 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.

 

American Savings Bank, F.S.B.

STATEMENTS OF INCOME DATA

(Unaudited)




Three months ended

(in thousands)


March 31, 2015


December 31, 2014


March 31, 2014

Interest and dividend income







Interest and fees on loans


$

45,198



$

46,276



$

43,682


Interest and dividends on investment securities


3,051



3,187



3,035


Total interest and dividend income


48,249



49,463



46,717


Interest expense







Interest on deposit liabilities


1,260



1,303



1,225


Interest on other borrowings


1,466



1,468



1,405


Total interest expense


2,726



2,771



2,630


Net interest income


45,523



46,692



44,087


Provision for loan losses


614



2,560



995


Net interest income after provision for loan losses


44,909



44,132



43,092


Noninterest income







Fees from other financial services


5,355



5,760



5,128


Fee income on deposit liabilities


5,315



5,074



4,421


Fee income on other financial products


1,889



1,806



2,290


Bank-owned life insurance


983



1,004



963


Mortgage banking income


1,822



1,164



628


Gains on sale of investment securities






2,847


Other income, net


735



455



625


Total noninterest income


16,099



15,263



16,902


Noninterest expense







Compensation and employee benefits


21,766



19,835



20,286


Occupancy


4,113



4,238



3,953


Data processing


3,116



2,975



3,060


Services


2,341



2,561



2,273


Equipment


1,701



1,638



1,645


Office supplies, printing and postage


1,483



1,602



1,616


Marketing


841



1,309



711


FDIC insurance


811



820



796


Other expense


4,205



6,116



3,122


Total noninterest expense


40,377



41,094



37,462


Income before income taxes


20,631



18,301




22,532


Income taxes


7,156



6,188



8,133


Net income


$

13,475



$

12,113



$

14,399


Comprehensive income


$

17,318



$

5,419



$

15,423


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





Return on average assets


0.96



0.88



1.09


Return on average equity


9.96



8.93



10.94


Return on average tangible common equity


11.74



10.52



12.96


Net interest margin


3.52



3.65



3.64


Net charge-offs to average loans outstanding


0.04



0.04



0.02


As of period end







Nonperforming assets to loans outstanding and real estate owned *


0.80



0.85



1.12


Allowance for loan losses to loans outstanding


1.03



1.03



0.98


Tier-1 leverage ratio *


8.9



8.9



9.0


Total capital ratio *


13.2



12.3



12.7


Tangible common equity to total assets


8.18



8.23



8.42


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


8



9



9












*  Regulatory basis. Capital ratios as of March 31, 2015 calculated under Basel III rules, which became effective January 1, 2015.


Prior period financial statements reflect the retrospective application of Accounting Standards Update (ASU) No. 2014-01, "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects," which was adopted as of January 1, 2015 and did not have a material impact on ASB's financial condition or results of operations.


This information should be read in conjunction with the consolidated financial statements and the notes thereto in  HEI's Annual Report on SEC Form 10-K for the year ended December 31, 2014, ASB Hawaii, Inc.'s Form 10 filed with the SEC on March 30, 2015 and HEI's Quarterly Report on SEC Form 10-Q for the quarter ended March 31, 2015 (when filed), as updated by SEC Forms 8-K. 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.

BALANCE SHEETS DATA

(Unaudited)



March 31, 2015

December 31, 2014

(in thousands)





Assets





Cash and due from banks


$

98,484



$

107,233


Interest-bearing deposits


172,517



54,230


Available-for-sale investment securities, at fair value


590,648



550,394


Stock in Federal Home Loan Bank of Seattle, at cost


63,711



69,302


Loans receivable held for investment


4,447,299



4,434,651


Allowance for loan losses


(45,795)



(45,618)


Net loans


4,401,504



4,389,033


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


9,906



8,424


Other


305,917



305,416


Goodwill


82,190



82,190


  Total assets


$

5,724,877



$

5,566,222


Liabilities and shareholder's equity





Deposit liabilities–noninterest-bearing


$

1,420,085



$

1,342,794


Deposit liabilities–interest-bearing


3,331,243



3,280,621


Other borrowings


312,094



290,656


Other


117,849



118,363


  Total liabilities


5,181,271



5,032,434


Common stock


1



1


Additional paid in capital


338,411



338,411


Retained earnings


217,909



211,934


Accumulated other comprehensive loss, net of tax benefits





     Net unrealized gains on securities

$

3,913



$

462



     Retirement benefit plans

(16,628)


(12,715)


(17,020)


(16,558)


  Total shareholder's equity


543,606



533,788


  Total liabilities and shareholder's equity


$

5,724,877



$

5,566,222



Prior period financial statements reflect the retrospective application of Accounting Standards Update (ASU) No. 2014-01, "Investments-Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects," which was adopted as of January 1, 2015 and did not have a material impact on ASB's financial condition or results of operations.


This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI's Annual Report on SEC Form 10-K for the year ended December 31, 2014, ASB Hawaii, Inc.'s Form 10 filed with the SEC on March 30, 2015 and HEI's Quarterly Report on SEC Form 10-Q for the quarter ended March 31, 2015 (when filed), as updated by SEC Forms 8-K.

 

Contact:

Clifford H. Chen



Manager, Investor Relations &

Telephone: (808) 543-7300


Strategic Planning

E-mail:  ir@hei.com

 

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SOURCE Hawaiian Electric Industries, Inc.