American Savings Bank Reports 2018 Year-End And Fourth Quarter Earnings

Fourth Quarter 2018 Net Income of $21.8 Million

2018 Net Income of $82.5 Million - Highest in Bank's History

Solid Earnings Growth and Profitability

Selected 2018 Highlights

- Continued improvement in 2018 earnings and profitability

- Return on equity of 13.5%

- Deposit growth of 4.6%

- Net interest margin expanded 14 bps to 3.83%

- Efficiency ratio of 59.4%, improved more than 200 bps versus 2017

Company Release - 1/30/2019 7:45 PM ET

HONOLULU, Jan. 30, 2019 /PRNewswire/ -- American Savings Bank, F.S.B. (American), a wholly-owned subsidiary of Hawaiian Electric Industries, Inc. (NYSE: HE) today reported 2018 net income of $82.5 million compared to $67.0 million in 2017.  Net income for the fourth quarter of 2018 was $21.8 million, compared to $21.2 million in the third, or linked, quarter of 2018 and $16.9 million in the fourth quarter of 2017. Key measures of efficiency and profitability strengthened over the prior year, with an efficiency ratio for the full year of 59.4% compared to 61.6% in 2017, net interest margin expanding to 3.83% compared to 3.69% for 2017, and return on average equity of 13.5% compared to 11.2% for 2017. 

"2018 was a record year for the bank, reflecting the combination of a healthy Hawaii economy, the benefits of tax reform, and the hard work of our ASB teammates to improve efficiency and deliver disciplined growth.  We are excited about the opportunity for continued efficiency and operational improvements with our transition to our new corporate campus during the first quarter of 2019," said Rich Wacker, president and chief executive officer of American.

Financial Highlights

Net interest income was $242.7 million in 2018, an increase of 8% compared to $223.9 million in 2017.  Fourth quarter 2018 net interest income was $63.4 million, compared to $61.1 million in the linked quarter and $57.0 million in fourth quarter of 2017. The increase in net interest income reflects growth in interest earning assets along with the improved interest rate environment, which resulted in higher yields on interest earning assets.  Net interest margin grew to 3.83% in 2018 compared to 3.69% in 2017.  Fourth quarter of 2018 net interest margin was 3.95% compared to 3.81% in the linked quarter and 3.68% in the fourth quarter of 2017, with the improvement primarily attributable to higher yields on interest earning assets and continued low funding costs.   

The provision for loan losses was $14.7 million in 2018 compared to $10.9 million in 2017. The fourth quarter of 2018 provision for loan losses was $2.4 million compared to $6.0 million in the linked quarter and $3.7 million in the fourth quarter of 2017. The year over year increase in the provision for loan losses was primarily due to additional loan loss reserves for the consumer loan portfolio. The decrease in the fourth quarter of 2018 provision for loan losses compared to the linked quarter was primarily due to releases of reserves in the commercial and commercial real estate loan portfolios as a result of improved credit quality and the payoff of a criticized commercial real estate construction loan. The 2018 net charge-off ratio was 0.34% compared to 0.27% in 2017 primarily due to charge off activity in the personal unsecured loan portfolio.  Nonaccrual loans as a percent of total loans receivable held for investment was 0.56% compared to 0.59% in the linked quarter and 0.51% in the prior year quarter.  

Noninterest income for 2018 was $56.1 million, compared to $61.6 million in 2017, and fourth quarter 2018 noninterest income was $13.5 million, compared to $15.3 million in the linked quarter and $15.0 million in the fourth quarter of 2017.  The lower noninterest income for the year was primarily due to lower debit card interchange fees as a result of a new accounting standard that reclassified $4.2 million of debit card expenses in 2018 to noninterest income.

Noninterest expense for 2018 was $177.4 million compared to $175.9 million in 2017.  Fourth quarter of 2018 noninterest expense was $45.7 million compared to $43.6 million in the linked quarter and $45.3 million in the fourth quarter of 2017.  The increase in noninterest expense for the year was primarily due to higher compensation and benefit expenses as a result of annual merit increases and the bank's decision to increase the entry salary for employees, partially offset by the reclassification of debit card expenses described above.

Total loans were $4.8 billion as of December 31, 2018, up 3.7% from December 31, 2017, with retail loans up $130 million, or 3.9%, reflecting American's disciplined approach toward growing the loan portfolio. The commercial real estate construction portfolio was down 14.8% from December 31, 2017.   

Total deposits were $6.2 billion at December 31, 2018, an increase of $268 million or 4.6% from December 31, 2017.  The average cost of funds was 0.25% for the full year 2018, up 4 basis points from the prior year.  For the fourth quarter of 2018, the average cost of funds was 0.28%, up 2 basis points from the linked quarter and up 7 basis points from the prior year quarter.

Overall, American's return on average equity for the full year was solid at 13.5% in 2018 compared to 11.2% in 2017 and the return on average assets for the full year was 1.20% in 2018 compared to 1.02% in 2017.  For the fourth quarter of 2018, the return on average equity was 14.1%, compared to 13.8% in the linked quarter and 11.1% in the fourth quarter of 2017.  Return on average assets was 1.25% for the fourth quarter of 2018, compared to 1.22% in the linked quarter and 1.01% in the same quarter last year.

In 2018, American paid dividends of $50 million to HEI while maintaining healthy capital levels — leverage ratio of 8.7% and total capital ratio of 13.9% at December 31, 2018.

HEI EARNINGS RELEASE, HEI WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND 2019 EPS GUIDANCE

Concurrent with American's regulatory filing 30 days after the end of the quarter, American announced its fourth quarter and full year 2018 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 fourth quarter and full year 2018.

HEI plans to announce its fourth quarter and 2018 consolidated financial results on Friday, February 15, 2019 and will conduct a webcast and conference call to discuss its consolidated earnings, including American's earnings, and 2019 EPS guidance that same day at 11:15 a.m. Hawaii time (4:15 p.m. Eastern time). 

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 or by accessing the webcast on HEI's website at www.hei.com under the heading "Investor Relations," sub-heading "News and Events—Events and Presentations."  HEI and Hawaiian Electric Company, Inc. (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 such portions 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.  Investors may also sign up to receive e-mail alerts (based on each investor's selected preferences) by visiting the "Investor Relations" section of the website, sub-heading "Email Notification."  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 February 15, 2019 webcast will be available on HEI's website beginning about two hours after the event.  Replays of the conference call will also be available approximately two hours after the event through March 1, 2019 by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10127920.

HEI supplies power to approximately 95% of Hawaii's population through its electric utilities, Hawaiian Electric, Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited; 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 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 Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 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, 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


Years ended December 31

(in thousands)

December 31,
2018


September 30,
2018


December 31,
2017


2018


2017

Interest and dividend income










Interest and fees on loans

$

57,145



$

55,885



$

51,986



$

220,463



$

207,255


Interest and dividends on investment securities

10,632



9,300



8,230



37,762



28,823


Total interest and dividend income

67,777



65,185



60,216



258,225



236,078


Interest expense










Interest on deposit liabilities

4,115



3,635



2,802



13,991



9,660


Interest on other borrowings

255



404



386



1,548



2,496


Total interest expense

4,370



4,039



3,188



15,539



12,156


Net interest income

63,407



61,146



57,028



242,686



223,922


Provision for loan losses

2,408



6,033



3,670



14,745



10,901


Net interest income after provision for loan losses

60,999



55,113



53,358



227,941



213,021


Noninterest income










Fees from other financial services

4,996



4,543



5,741



18,937



22,796


Fee income on deposit liabilities

5,530



5,454



5,678



21,311



22,204


Fee income on other financial products

1,977



1,746



1,464



7,052



7,205


Bank-owned life insurance

390



2,663



1,374



5,057



5,539


Mortgage banking income

94



169



305



1,493



2,201


Other income, net

492



736



388



2,200



1,617


Total noninterest income

13,479



15,311



14,950



56,050



61,562


Noninterest expense










Compensation and employee benefits

26,340



23,952



23,836



98,387



94,931


Occupancy

4,236



4,363



4,076



17,073



16,699


Data processing

3,681



3,583



3,531



14,268



13,280


Services

2,287



2,485



3,005



10,847



10,994


Equipment

1,801



1,783



1,899



7,186



7,232


Office supplies, printing and postage

1,580



1,556



1,676



6,134



6,182


Marketing

844



993



1,211



3,567



3,501


FDIC insurance

635



638



608



2,713



2,904


Other expense

4,341



4,240



5,470



17,238



20,144


Total noninterest expense

45,745



43,593



45,312



177,413



175,867


Income before income taxes

28,733



26,831



22,996



106,578



98,716


Income taxes

6,966



5,610



6,137



24,069



31,719


Net income

$

21,767



$

21,221



$

16,859



$

82,509



$

66,997


Comprehensive income

$

35,446



$

16,480



$

10,245



$

75,390



$

63,858


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









Return on average assets

1.25



1.22



1.01



1.20



1.02


Return on average equity

14.08



13.80



11.09



13.51



11.20


Return on average tangible common equity

16.23



15.93



12.82



15.61



12.99


Net interest margin

3.95



3.81



3.68



3.83



3.69


Efficiency ratio

59.50



57.02



62.95



59.39



61.60


Net charge-offs to average loans outstanding

0.37



0.40



0.26



0.34



0.27


As of period end










Nonaccrual loans to loans receivable held for investment

0.56



0.59



0.51






Allowance for loan losses to loans outstanding

1.08



1.14



1.15






Tangible common equity to tangible assets

7.95



7.75



7.81






Tier-1 leverage ratio

8.7



8.6



8.6






Total capital ratio

13.9



13.8



14.2






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

$

14.0



$

14.0



$

9.4



$

50.0



$

37.5



The Statements of Income Data reflects the retrospective application of ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which was adopted in the first quarter of 2018. Nonservice cost was reclassified from "Compensation and employee benefits" to "Other expense."

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

 

American Savings Bank, F.S.B.

BALANCE SHEETS DATA

(Unaudited)


December 31

2018

2017

(in thousands)





Assets





Cash and due from banks


$

122,059


$

140,934

Interest-bearing deposits


4,225


93,165

Investment securities





Available-for-sale, at fair value


1,388,533


1,401,198

Held-to-maturity, at amortized cost


141,875


44,515

Stock in Federal Home Loan Bank, at cost


9,958


9,706

Loans held for investment


4,843,021


4,670,768

Allowance for loan losses


(52,119)


(53,637)

Net loans


4,790,902


4,617,131

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


1,805


11,250

Other


486,347


398,570

Goodwill


82,190


82,190

Total assets


$

7,027,894


$

6,798,659

Liabilities and shareholder's equity





Deposit liabilities–noninterest-bearing


$

1,800,727


$

1,760,233

Deposit liabilities–interest-bearing


4,358,125


4,130,364

Other borrowings


110,040


190,859

Other


124,613


110,356

Total liabilities


6,393,505


6,191,812

Common stock


1


1

Additional paid in capital


347,170


345,018

Retained earnings


325,286


292,957

Accumulated other comprehensive loss, net of tax benefits





Net unrealized losses on securities

$

(24,423)


$

(14,951)


Retirement benefit plans

(13,645)

(38,068)

(16,178)

(31,129)

Total shareholder's equity


634,389


606,847

Total liabilities and shareholder's equity


$

7,027,894


$

6,798,659


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

 

Contact:

Julie R. Smolinski

Telephone: (808) 543-7300


Director, Investor Relations

E-mail:  ir@hei.com

 

American Savings Bank Logo (PRNewsfoto/American Savings Bank)

 

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SOURCE Hawaiian Electric Industries, Inc.