HEI Reports Third Quarter 2019 Earnings

3Q 2019 Diluted Earnings Per Share (EPS) of $0.58

Utility Performing as Expected

Solid Loan Growth and Strong Capital Position at Bank

Company Release - 11/1/2019 6:00 AM ET

HONOLULU, Nov. 1, 2019 /PRNewswire/ -- Hawaiian Electric Industries, Inc. (NYSE: HE) (HEI) today reported consolidated net income for common stock for the third quarter of 2019 of $63.4 million and diluted earnings per share of $0.58 compared to $65.9 million and EPS of $0.60 for the third quarter of 2018.

"HEI's third quarter earnings were consistent with our expectations, and we continue to execute well on key initiatives across our enterprise," said Constance H. Lau, president and CEO of HEI. "Our utilities continue to work together with our communities and other stakeholders toward achieving a renewable energy future that's affordable, reliable and resilient. This work includes the ongoing performance-based regulation process and our latest renewable energy and grid services request for proposals."

"Our bank's results and earnings growth reflect good performance in a volatile market environment. American continued to deliver strong loan growth and steady net interest margins despite the continued challenges of lower interest rates. In October, American completed the sale of its former headquarters," said Lau.

HAWAIIAN ELECTRIC COMPANY EARNINGS

Hawaiian Electric Company's (Hawaiian Electric)1 net income for the third quarter of 2019 was $46.8 million compared to $49.7 million in the third quarter of 2018, primarily driven by the following after-tax items:

  • $6 million revenue increase resulting from rate increases and higher rate adjustment mechanism (RAM) revenues, including $2 million from Hawaiian Electric (Oahu), $3 million from Maui Electric (Maui County), and $1 million from Hawaii Electric Light (Hawaii Island);
  • $2 million revenue increase from recovery of the Schofield generation project under the major project interim recovery (MPIR) mechanism;
  • $2 million from higher AFUDC and lower interest expense; and
  • $1 million in revenues from pole attachment fees.
    These items were partially offset by the following after-tax items:
  • $8 million higher operations and maintenance expenses2 compared to the third quarter of 2018, primarily due to higher overhaul and maintenance expenses for generating facilities and higher vegetation management expenses;
  • $5 million in net income impact experienced in the third quarter of 2018 due to net favorable tax adjustments primarily related to differences between the 2017 year-end tax accrual and the filing of the 2017 tax return. There were no significant differences between the 2018 year-end tax accrual and the filing of the 2018 tax return that impacted net income in 2019; and
  • $2 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.

1  Hawaiian Electric, unless otherwise defined, refers to the three utilities, Hawaiian Electric Company, Inc. on Oahu, Hawaii Electric Light Company, Inc. on Hawaii Island, and Maui Electric Company, Limited, serving Maui County.

2  Includes pension but excludes other net income neutral expenses covered by surcharges or by third parties. See the "Explanation of HEI's Use of Certain Unaudited Non-GAAP Measures" and the related reconciliation accompanying this release.

AMERICAN SAVINGS BANK EARNINGS

American Savings Bank's (American) third quarter 2019 net income was $22.9 million compared to $17.0 million in the second, or linked, quarter and $21.2 million in the prior year quarter.  The increase in net income compared to the linked and prior year quarters was driven by a lower provision expense,  higher non-interest income, higher net interest income and, compared to the linked quarter, lower non-interest expense.

Total loans were $5.1 billion as of September 30, 2019, up $240.0 million or 6.6% annualized from December 31, 2018, driven mainly by increases in the home equity lines of credit, commercial, and commercial real estate portfolios.

Total deposits were $6.2 billion at September 30, 2019, an increase of $37.4 million or 0.8% annualized from December 31, 2018. Low-cost core deposits were $5.4 billion as of September 30, 2019.

American's return on average equity3 was 13.7% in the third quarter of 2019 compared to 10.5% in the second quarter of 2019 and 13.8% in the prior year quarter.  Return on average assets was 1.29% in the third quarter of 2019 compared to 0.96% in the second quarter of 2019 and 1.22% in the third quarter of 2018.

Please refer to American's news release issued on October 30, 2019 for additional information on American.

HOLDING AND OTHER COMPANIES

The holding and other companies' net loss was $6.2 million in the third quarter of 2019 compared to $5.0 million in the prior year quarter. The higher net loss was primarily due to higher interest expense associated with long-term debt issued in the fourth quarter of 2018.

BOARD DECLARES QUARTERLY DIVIDEND

On October 31, 2019, the Board of Directors maintained HEI's quarterly cash dividend of $0.32 per share, payable on December 10, 2019, to shareholders of record at the close of business on November 22, 2019 (ex-dividend date is November 21, 2019). The dividend would be equivalent to an annual rate of $1.28 per share. Dividends have been paid uninterrupted since 1901. At the indicated annual dividend rate and based on the closing price per share on October 31, 2019 of $45.15, HEI's dividend yield is 2.8%.

3  Bank return on average equity calculated using weighted average daily common equity.

WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND EPS GUIDANCE

HEI will conduct a webcast and conference call to review its third quarter 2019 earnings and 2019 EPS guidance on Friday, November 1, 2019, at 10:15 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 "Investor Relations" section, sub-heading "News and Events."  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 online replay of the November 1, 2019 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 November 15, 2019, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10134898.

HEI supplies power to approximately 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company, Inc., 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 Savings Bank, 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, 2018 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 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.

NON-GAAP MEASURES

See "Explanation of HEI's Use of Certain Unaudited Non-GAAP Measures" and related reconciliations on pages 9 and 10 of this release.

Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME DATA

(Unaudited)



Three months ended September 30


Nine months ended September 30

(in thousands, except per share amounts)


2019


2018


2019


2018

Revenues









Electric utility


$

688,330



$

687,409



$

1,900,609



$

1,865,962


Bank


83,201



80,496



247,940



233,019


Other


4



143



86



218


Total revenues


771,535



768,048



2,148,635



2,099,199


Expenses









Electric utility


616,537



613,373



1,716,562



1,685,413


Bank


54,240



53,232



171,605



153,951


Other


3,450



3,379



12,589



11,083


Total expenses


674,227



669,984



1,900,756



1,850,447


Operating income (loss)









Electric utility


71,793



74,036



184,047



180,549


Bank


28,961



27,264



76,335



79,068


Other


(3,446)



(3,236)



(12,503)



(10,865)


Total operating income


97,308



98,064



247,879



248,752


Retirement defined benefits expense—other than service costs


(648)



(1,276)



(2,172)



(4,673)


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


(22,425)



(22,523)



(69,081)



(66,042)


Allowance for borrowed funds used during construction


1,208



1,006



3,465



3,815


Allowance for equity funds used during construction


3,250



1,962



9,335



8,239


Income before income taxes


78,693



77,233



189,426



190,091


Income taxes


14,803



10,862



36,390



36,473


Net income


63,890



66,371



153,036



153,618


Preferred stock dividends of subsidiaries


471



471



1,417



1,417


Net income for common stock


$

63,419



$

65,900



$

151,619



$

152,201


Basic earnings per common share


$

0.58



$

0.61



$

1.39



$

1.40


Diluted earnings per common share


$

0.58



$

0.60



$

1.39



$

1.40


Dividends declared per common share


$

0.32



$

0.31



$

0.96



$

0.93


Weighted-average number of common shares outstanding


108,973



108,879



108,941



108,847


Weighted-average shares assuming dilution


109,363



109,055



109,378



109,090


Net income (loss) for common stock by segment









Electric utility


$

46,779



$

49,712



$

111,479



$

108,356


Bank


22,888



21,221



60,743



60,742


Other


(6,248)



(5,033)



(20,603)



(16,897)


Net income for common stock


$

63,419



$

65,900



$

151,619



$

152,201


Comprehensive income attributable to Hawaiian Electric Industries, Inc.


$

66,716



$

61,311



$

177,856



$

131,014


Return on average common equity (twelve months ended)1






9.2

%


8.7

%


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.


1  On a core basis, 2019 and 2018 returns on average common equity (twelve months ended September 30) were 9.2% and 9.4%, respectively.  See reconciliation of GAAP to non-GAAP measures.

 

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

CONSOLIDATED STATEMENTS OF INCOME DATA

(Unaudited)



Three months ended September 30


Nine months ended September 30

($ in thousands, except per barrel amounts)


2019


2018


2019


2018

Revenues


$

688,330



$

687,409



$

1,900,609



$

1,865,962


Expenses









Fuel oil


199,093



206,551



541,322



545,236


Purchased power


175,037



177,590



472,336



478,238


Other operation and maintenance


124,415



113,553



361,805



333,805


Depreciation


53,935



50,983



161,795



151,810


Taxes, other than income taxes


64,057



64,696



179,304



176,324


Total expenses


616,537



613,373



1,716,562



1,685,413


Operating income


71,793



74,036



184,047



180,549


Allowance for equity funds used during construction


3,250



1,962



9,335



8,239


Retirement defined benefits expense—other than service costs


(723)



(682)



(2,127)



(2,934)


Interest expense and other charges, net


(17,429)



(18,968)



(53,945)



(54,822)


Allowance for borrowed funds used during construction


1,208



1,006



3,465



3,815


Income before income taxes


58,099



57,354



140,775



134,847


Income taxes


10,822



7,144



27,800



24,995


Net income


47,277



50,210



112,975



109,852


Preferred stock dividends of subsidiaries


228



228



686



686


Net income attributable to Hawaiian Electric


47,049



49,982



112,289



109,166


Preferred stock dividends of Hawaiian Electric


270



270



810



810


Net income for common stock


$

46,779



$

49,712



$

111,479



$

108,356


Comprehensive income attributable to Hawaiian Electric


$

46,805



$

49,740



$

111,552



$

108,441


OTHER ELECTRIC UTILITY INFORMATION









Kilowatthour sales (millions)









   Hawaiian Electric


1,823



1,761



4,840



4,855


   Hawaii Electric Light


279



277



777



796


   Maui Electric


312



291



832



818




2,414



2,329



6,449



6,469


Average fuel oil cost per barrel


$

82.30



$

90.93



$

83.64



$

84.67


Return on average common equity (twelve months ended)1






7.6

%


7.2

%


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.


1  Simple average. On a core basis, 2019 and 2018 returns on average common equity (twelve months ended September 30) were 7.6% and 7.7%, respectively.  See reconciliation of GAAP to non-GAAP measures.

 

American Savings Bank, F.S.B.

STATEMENTS OF INCOME DATA

(Unaudited)



Three months ended


Nine months ended September 30

($ in thousands)


September 30,
2019


June 30,
2019


September 30,
2018


2019


2018

Interest and dividend income











Interest and fees on loans


$

59,260



$

58,620



$

55,885



$

175,740



$

163,318


Interest and dividends on investment securities


7,599



7,535



9,300



25,762



27,130


Total interest and dividend income


66,859



66,155



65,185



201,502



190,448


Interest expense











Interest on deposit liabilities


4,384



4,287



3,635



12,923



9,876


Interest on other borrowings


422



411



404



1,361



1,293


Total interest expense


4,806



4,698



4,039



14,284



11,169


Net interest income


62,053



61,457



61,146



187,218



179,279


Provision for loan losses


3,315



7,688



6,033



17,873



12,337


Net interest income after provision for loan losses


58,738



53,769



55,113



169,345



166,942


Noninterest income











Fees from other financial services


5,085



4,798



4,543



14,445



13,941


Fee income on deposit liabilities


5,320



5,004



5,454



15,402



15,781


Fee income on other financial products


1,706



1,830



1,746



5,129



5,075


Bank-owned life insurance


1,660



2,390



2,663



6,309



4,667


Mortgage banking income


1,490



976



169



3,080



1,399


Gains on sale of investment securities, net


653







653




Other income, net


428



534



736



1,420



1,708


Total noninterest income


16,342



15,532



15,311



46,438



42,571


Noninterest expense











Compensation and employee benefits


25,364



25,750



23,952



76,626



72,047


Occupancy


5,694



5,479



4,363



15,843



12,837


Data processing


3,763



3,852



3,583



11,353



10,587


Services


2,829



2,606



2,485



7,861



8,560


Equipment


2,163



2,189



1,783



6,416



5,385


Office supplies, printing and postage


1,297



1,663



1,556



4,320



4,554


Marketing


1,142



1,323



993



3,455



2,723


FDIC insurance


(5)



628



638



1,249



2,078


Other expense


3,676



4,519



4,240



12,049



12,897


Total noninterest expense


45,923



48,009



43,593



139,172



131,668


Income before income taxes


29,157



21,292



26,831



76,611



77,845


Income taxes


6,269



4,276



5,610



15,868



17,103


Net income


$

22,888



$

17,016



$

21,221



$

60,743



$

60,742


Comprehensive income


$

26,697



$

31,291



$

16,480



$

85,079



$

39,944


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









Return on average assets


1.29



0.96



1.22



1.14



1.18


Return on average equity


13.75



10.46



13.80



12.44



13.32


Return on average tangible common equity


15.68



11.97



15.93



14.23



15.40


Net interest margin


3.82



3.82



3.81



3.87



3.78


Efficiency ratio


58.58



62.36



57.02



59.56



59.35


Net charge-offs to average loans outstanding


0.69



0.29



0.40



0.46



0.33


As of period end











Nonaccrual loans to loans receivable held for investment


0.63



0.79



0.59






Allowance for loan losses to loans outstanding


1.04



1.17



1.14






Tangible common equity to tangible assets


8.4



8.2



7.7






Tier-1 leverage ratio


8.8



8.7



8.6






Total capital ratio


14.0



14.0



13.8






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


$

14.0



$

15.0



$

14.0



$

47.0



$

36.0



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.

EXPLANATION OF HEI'S USE OF CERTAIN UNAUDITED NON-GAAP MEASURES

HEI and Hawaiian Electric management use certain non-GAAP measures, which exclude certain items that are not reflective of ongoing operations or that are not expected to reoccur, to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful supplemental information and are a better indicator of the companies' core operating activities. Core earnings and other financial measures as presented below may not be comparable to similarly titled measures used by other companies. The accompanying tables provide a reconciliation of reported GAAP1 earnings to non-GAAP core earnings and the adjusted return on average common equity (ROACE) for HEI and the utility.

The reconciling adjustments from GAAP earnings to core earnings exclude the 2017 impact of the federal tax reform act due to the adjustment of the deferred tax balances and the $1,000 non-executive employee bonuses paid by the bank related to federal tax reform. Management does not consider these items to be representative of the company's fundamental core earnings. Management has shown adjusted non-GAAP (core) net income, adjusted non-GAAP (core) ROACE in order to provide better comparability of ROACE between periods.

The accompanying table also provides the calculation of utility GAAP other operation and maintenance (O&M) expense adjusted for "O&M-related net income neutral items," which are O&M expenses covered by specific surcharges or by third parties. These "O&M-related net income neutral items" are grossed-up in revenue and expense and do not impact net income.

RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES




Hawaiian Electric Industries, Inc. and Subsidiaries (HEI)

Unaudited

Twelve months ended September 30

($ in millions)

2019


2018

HEI CONSOLIDATED NET INCOME




GAAP (as reported)

$

201.2



$

184.6


Excluding special items (after-tax):




One-time non-executive bank employee bonus related to federal tax reform



0.7


Federal tax reform impacts2



13.4


Non-GAAP (core) net income

$

201.2



$

198.7


HEI CONSOLIDATED AVERAGE COMMON EQUITY

$

2,187.4



$

2,117.5


HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)




Based on GAAP

9.2

%


8.7

%

Based on non-GAAP (core)3

9.2

%


9.4

%





Note:  Columns may not foot due to rounding








1  Accounting principles generally accepted in the United States of America








2    Reflects the lower rates enacted by federal tax reform, primarily the adjustments to reduce the unregulated net deferred tax asset balances


3  Calculated as core net income divided by average GAAP common equity




 

RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES



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

Unaudited






Twelve months ended September 30

($ in millions)




2019


2018

HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME







GAAP (as reported)




$

146.8



$

133.7


Excluding special items (after-tax):







Federal tax reform impacts2






9.2


Non-GAAP (core) net income




$

146.8



$

142.9


HAWAIIAN ELECTRIC CONSOLIDATED AVERAGE COMMON EQUITY


$

1,934.7



$

1,852.7


HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)





Based on GAAP




7.6

%


7.2

%

Based on non-GAAP (core)3




7.6

%


7.7

%









Three months ended September 30


Nine months ended September 30

(in millions)

2019

2018


2019


2018

HAWAIIAN ELECTRIC CONSOLIDATED OTHER OPERATION AND MAINTENANCE (O&M) EXPENSE







GAAP (as reported)

$

124.4


$

113.6



$

361.8



$

333.8


Excluding other O&M-related net income neutral items4

0.4


0.2



0.5



0.7


Non-GAAP (Adjusted other O&M expense)

$

124.0


$

113.3



$

361.3



$

333.1



Note:  Columns may not foot due to rounding


1  Accounting principles generally accepted in the United States of America


2  Reflects the lower rates enacted by federal tax reform, primarily the adjustments to reduce the unregulated net deferred tax asset balances


3  Calculated as core net income divided by average GAAP common equity


4  Expenses covered by surcharges or by third parties recorded in revenues

 

Contact:

Julie R. Smolinski

Telephone: (808) 543-7300


Director, Investor Relations & Strategic Planning

           E-mail:  ir@hei.com

 

Hawaiian Electric Industries, Inc. (PRNewsFoto/Hawaiian Electric Industries, Inc.)

 

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SOURCE Hawaiian Electric Industries, Inc.