HEI Reports Third Quarter 2018 Earnings
HONOLULU, Nov. 7, 2018 /PRNewswire/ -- Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the third quarter of 2018 of $65.9 million and diluted earnings per share (EPS) of $0.60 compared to $60.1 million and EPS of $0.55 for the third quarter of 2017.
"We are pleased to report solid third quarter results from both our utility and bank and are excited about the progress we're making on our strategies across the company," said Constance H. Lau, president and CEO of HEI.
"Our utilities are quickly advancing Hawaii's clean energy transition now that key foundational frameworks are in place, including for 100% renewable power and grid modernization. For example, we're negotiating contracts for seven solar-plus-storage projects across our three utilities to add 260 megawatts of solar and more than a gigawatt-hour of storage in the state's largest-ever renewable energy procurement. As we advance toward 100% clean energy, we're focused on ensuring we all move forward together, and that all customers have access to affordable, reliable renewable energy."
"Our bank delivered strong financial performance in the third quarter, expanding its margin and improving profitability, while at the same time continuing its focus on making banking easier for customers and improving operational efficiency."
HAWAIIAN ELECTRIC COMPANY EARNINGS
Hawaiian Electric Company's(1) net income for the third quarter of 2018 was $49.7 million compared to $47.5 million in the third quarter of 2017, an increase of $2.2 million primarily driven by the following after-tax items:
-- $12 million higher revenues from rate adjustment mechanism (RAM)
revenues, major projects interim recovery (MPIR) revenues for the
Schofield Generating Station that was completed in June and rate relief
from the interim decision in Maui Electric's 2018 test year rate case
and final decisions in Hawaiian Electric's 2017 and Hawaii Electric
Light's 2016 test year rate cases;
-- $5 million higher net income from net favorable tax adjustments
primarily related to differences between the 2017 year-end tax accrual
and the filing of the 2017 tax return (differences are largely related
to the acceleration of the deduction of 2018 pension contributions into
the 2017 tax year); and
-- $1 million higher net income for the quarter, representing the
difference between actual third quarter tax savings and the reduction in
revenue requirement from tax reform, which was based on test-year
projections. Year to date, the reduction in revenue requirement from tax
reform was approximately $3 million higher than actual tax savings.
These items were partially offset by the following after-tax items:
-- $11 million higher O&M expenses(2) compared to 2017, primarily due to
the reset of pension costs as part of rate case decisions, and higher
costs for underground circuit repair work, generating station operation
and maintenance, and workers' compensation claims;
-- $2 million higher depreciation expense as a result of increasing
investments for the integration of more renewable energy, improved
reliability and greater system efficiency;
-- $2 million lower allowance for funds used during construction; and
-- $1 million higher interest expense from higher interest rates and
increased borrowings.
___________________
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 Company, unless otherwise
defined, refers to the three utilities,
Hawaiian Electric Company, Inc. on Oahu,
Maui Electric Company, Limited for Maui
County, and Hawaii Electric Light Company,
Inc. on Hawaii Island.
2 Excludes 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 of 2018 net income was $21.2 million compared to $20.6 million in the second, or linked, quarter and $17.6 million in the prior year quarter.
Compared to the linked quarter of 2018, the $0.7 million net income increase in the third quarter was primarily driven by higher net interest income, mainly due to higher yields on interest earning assets, higher bank-owned life insurance income and lower noninterest expense, which offset higher provision expense that was primarily due to additional loan loss reserves for the consumer loan portfolio.
Compared to the third quarter of 2017, the $3.6 million higher net income in the third quarter of 2018 was primarily driven by higher net interest income and $3.6 million lower income tax expense in the third quarter of 2018 compared to the third quarter of 2017, primarily due to the benefits of the lower federal corporate tax rate from tax reform. These items were partially offset by higher provision for loan losses due to increased reserves for loan growth and additional loan loss reserves for the consumer loan portfolio.
Total loans were $4.8 billion at September 30, 2018, up $83 million or 2.4% annualized from December 31, 2017, driven mainly by increases in home equity lines of credit and commercial and consumer loans of $90 million.
Total deposits were $6.1 billion at September 30, 2018, an increase of $240 million or 5.4% annualized from December 31, 2017, including $100 million in repurchase agreements that were transferred into deposit accounts. Excluding such transfer, total deposits increased by 3.1% annualized. Cost of funds was 26 basis points for the third quarter of 2018, up 2 basis points from the linked quarter and up 6 basis points from the prior year quarter.
American's return on average equity(3) for the third quarter of 2018 was 13.80%, compared to 13.56% in the linked quarter and 11.64% in the third quarter of 2017. Return on average assets was 1.22% for the third quarter of 2018, compared to 1.20% in the linked quarter and 1.07% in the same quarter last year.
Please refer to American's news release issued on October 30, 2018 for additional information on American.
____________________
3 Bank return on average equity calculated using
weighted average daily common equity.
HOLDING AND OTHER COMPANIES
The holding and other companies' net loss was $5.0 million in both the third quarter of 2018 and the prior year quarter.
WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND EPS GUIDANCE
Hawaiian Electric Industries, Inc. will conduct a webcast and conference call to review its third quarter 2018 earnings and 2018 EPS guidance on Wednesday, November 7, 2018, at 11:00 a.m. Hawaii time (4:00 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 Company 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 Company's and American's press releases, HEI's and Hawaiian Electric Company'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 Company'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 Company's SEC filings.
An online replay of the webcast will be available at www.hei.com beginning about two hours after the event. Replays of the conference call will also be available approximately two hours after the event through November 21, 2018, by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10125059.
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.
NON-GAAP MEASURES
See "Explanation of HEI's Use of Certain Unaudited Non-GAAP Measures" and related reconciliations on page 8 of this release.
Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME DATA
(Unaudited)
Three months ended Nine months ended September 30
September 30
(in thousands, except per share amounts) 2018 2017 2018 2017
---
Revenues
Electric utility $
687,409 $
598,769 $
1,865,962 $
1,674,255
Bank 80,496 74,289 233,019 222,474
Other 143 127 218 299
Total revenues 768,048 673,185 2,099,199 1,897,028
---
Expenses
Electric utility 613,373 510,272 1,685,413 1,478,915
Bank 53,232 47,313 153,951 146,146
Other 3,379 4,127 11,083 12,954
Total expenses 669,984 561,712 1,850,447 1,638,015
---
Operating income (loss)
Electric utility 74,036 88,497 180,549 195,340
Bank 27,264 26,976 79,068 76,328
Other (3,236) (4,000) (10,865) (12,655)
Total operating income 98,064 111,473 248,752 259,013
---
Retirement defined benefits expense-other than service costs (1,276) (1,928) (4,673) (5,710)
Interest expense, net-other than on deposit liabilities and other bank borrowings (22,523) (19,227) (66,042) (59,235)
Allowance for borrowed funds used during construction 1,006 1,339 3,815 3,371
Allowance for equity funds used during construction 1,962 3,482 8,239 8,908
---
Income before income taxes 77,233 95,139 190,091 206,347
Income taxes 10,862 34,595 36,473 72,003
---
Net income 66,371 60,544 153,618 134,344
Preferred stock dividends of subsidiaries 471 471 1,417 1,417
Net income for common stock $
65,900 $
60,073 $
152,201 $
132,927
===
Basic earnings per common share $
0.61 $
0.55 $
1.40 $
1.22
===
Diluted earnings per common share $
0.60 $
0.55 $
1.40 $
1.22
===
Dividends declared per common share $
0.31 $
0.31 $
0.93 $
0.93
===
Weighted-average number of common shares outstanding 108,879 108,786 108,847 108,737
===
Weighted-average shares assuming dilution 109,055 108,865 109,090 108,909
===
Net income (loss) for common stock by segment
Electric utility $
49,712 $
47,487 $
108,356 $
94,596
Bank 21,221 17,592 60,742 50,138
Other (5,033) (5,006) (16,897) (11,807)
Net income for common stock $
65,900 $
60,073 $
152,201 $
132,927
===
Comprehensive income attributable to Hawaiian Electric Industries, Inc. $
61,311 $
60,627 $
131,014 $
136,836
===
Return on average common equity (twelve months ended)(1) 8.7
% 8.5
%
===
The Consolidated 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 "Expenses"
to "Retirement defined benefits
expense-other than service costs."
This information should be read in
conjunction with the consolidated
financial statements and the notes
thereto in HEI filings with the SEC.
(1) On a core basis, 2018 and 2017
returns on average common equity
(twelve months ended September 30)
were 9.4% and 8.5%, 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 Nine months ended September 30
September 30
(dollars in thousands, except per
barrel amounts) 2018 2017 2018 2017
---
Revenues $
687,409 $
598,769 $
1,865,962 $
1,674,255
---
Expenses
Fuel oil 206,551 146,258 545,236 431,787
Purchased power 177,590 160,347 478,238 440,538
Other operation and maintenance 113,553 98,681 333,805 302,437
Depreciation 50,983 48,206 151,810 144,578
Taxes, other than income taxes 64,696 56,780 176,324 159,575
Total expenses 613,373 510,272 1,685,413 1,478,915
---
Operating income 74,036 88,497 180,549 195,340
Allowance for equity funds used
during construction 1,962 3,482 8,239 8,908
Retirement defined benefits
expense-other than service costs (682) (1,421) (2,934) (4,279)
Interest expense and other charges,
net (18,968) (16,907) (54,822) (52,625)
Allowance for borrowed funds used
during construction 1,006 1,339 3,815 3,371
---
Income before income taxes 57,354 74,990 134,847 150,715
Income taxes 7,144 27,005 24,995 54,623
---
Net income 50,210 47,985 109,852 96,092
Preferred stock dividends of
subsidiaries 228 228 686 686
---
Net income attributable to Hawaiian
Electric 49,982 47,757 109,166 95,406
Preferred stock dividends of
Hawaiian Electric 270 270 810 810
Net income for common stock $
49,712 $
47,487 $
108,356 $
94,596
===
Comprehensive income attributable
to Hawaiian Electric $
49,740 $
47,509 $
108,441 $
95,117
===
OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)
Hawaiian Electric 1,761 1,775 4,855 4,924
Hawaii Electric Light 277 272 796 782
Maui Electric 291 293 818 822
2,329 2,340 6,469 6,528
Average fuel oil cost per barrel $
90.93 $
66.73 $
84.67 $
67.42
Return on average common equity
(twelve months ended)(1) 7.22
% 7.16
%
The Consolidated 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 "Other
operation and maintenance" to
"Retirement defined benefits expense-
other than service costs."
This information should be read in
conjunction with the consolidated
financial statements and the notes
thereto in Hawaiian Electric filings
with the SEC.
(1) Simple average. On a core basis,
2018 and 2017 returns on average
common equity (twelve months ended
September 30) were 7.7% and 7.2%,
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, June 30, September 30, 2018 2017
2018 2018 2017
---
Interest and dividend income
Interest and fees on loans $
55,885 $
54,633 $
52,210 $
163,318 $
155,269
Interest and dividends on
investment securities 9,300 8,628 6,850 27,130 20,593
Total interest and dividend income 65,185 63,261 59,060 190,448 175,862
---
Interest expense
Interest on deposit liabilities 3,635 3,284 2,444 9,876 6,858
Interest on other borrowings 404 393 470 1,293 2,110
Total interest expense 4,039 3,677 2,914 11,169 8,968
---
Net interest income 61,146 59,584 56,146 179,279 166,894
Provision for loan losses 6,033 2,763 490 12,337 7,231
Net interest income after
provision for loan losses 55,113 56,821 55,656 166,942 159,663
---
Noninterest income
Fees from other financial services 4,543 4,744 5,635 13,941 17,055
Fee income on deposit liabilities 5,454 5,138 5,533 15,781 16,526
Fee income on other financial
products 1,746 1,675 1,904 5,075 5,741
Bank-owned life insurance 2,663 1,133 1,257 4,667 4,165
Mortgage banking income 169 617 520 1,399 1,896
Other income, net 736 536 380 1,708 1,229
Total noninterest income 15,311 13,843 15,229 42,571 46,612
---
Noninterest expense
Compensation and employee benefits 23,952 23,655 23,512 72,047 71,095
Occupancy 4,363 4,194 4,284 12,837 12,623
Data processing 3,583 3,540 3,262 10,587 9,749
Services 2,485 3,028 2,863 8,560 7,989
Equipment 1,783 1,874 1,814 5,385 5,333
Office supplies, printing and
postage 1,556 1,491 1,444 4,554 4,506
Marketing 993 1,085 934 2,723 2,290
FDIC insurance 638 727 746 2,078 2,296
Other expense 4,240 4,556 5,262 12,897 14,674
Total noninterest expense 43,593 44,150 44,121 131,668 130,555
---
Income before income taxes 26,831 26,514 26,764 77,845 75,720
Income taxes 5,610 5,953 9,172 17,103 25,582
Net income $
21,221 $
20,561 $
17,592 $
60,742 $
50,138
===
Comprehensive income $
16,480 $
16,579 $
18,009 $
39,944 $
53,613
===
OTHER BANK INFORMATION (annualized %, except as of period end)
Return on average assets 1.22 1.20 1.07 1.18 1.02
Return on average equity 13.80 13.56 11.64 13.32 11.24
Return on average tangible common
equity 15.93 15.68 13.47 15.40 13.04
Net interest margin 3.81 3.76 3.69 3.78 3.68
Efficiency ratio 57.02 60.13 61.82 59.35 61.15
Net charge-offs to average loans
outstanding 0.40 0.32 0.32 0.33 0.27
As of period end
Nonaccrual loans to loans
receivable held for investment 0.59 0.57 0.50
Allowance for loan losses to loans
outstanding 1.14 1.11 1.13
Tangible common equity to tangible
assets 7.75 7.64 8.01
Tier-1 leverage ratio 8.6 8.6 8.7
Total capital ratio 13.8 13.9 13.9
Dividend paid to HEI (via ASB
Hawaii, Inc.) ($ in millions) $
14.0 $
11.1 $
9.4 $
36.0 $
28.1
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.
EXPLANATION OF HEI'S USE OF CERTAIN UNAUDITED NON-GAAP MEASURES
HEI and Hawaiian Electric Company management use certain non-GAAP measures to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator of the companies' core operating activities than the corresponding GAAP measures given the non-recurring nature of certain items. Non-GAAP core measures presented here may not be comparable to similarly titled measures used by other companies. The accompanying tables provide the return on average common equity (ROACE) and adjusted non-GAAP core ROACE for HEI and the utility.
The reconciling adjustments from GAAP earnings to core earnings used in the calculation of the twelve months ended September 30, 2018 ROACE exclude the impact of the federal tax reform act recorded in the fourth quarter of 2017 due to the adjustment of deferred tax balances and the $1,000 employee bonuses paid by the bank related to federal tax reform. Management does not consider these items to be representative of the company's fundamental core earnings and has shown the non-GAAP (core) ROACE in order to provide better comparability between periods.
The accompanying table also provides the calculation of utility GAAP other operation and maintenance (O&M) expense adjusted for "O&M-related net income neutral items," which are O&M expenses covered by specific surcharges or by third parties. These "O&M-related net income neutral items" are grossed-up in revenue and expense and do not impact net income.
RECONCILIATION OF GAAP(1) TO NON-GAAP MEASURES
---
Hawaiian Electric Industries, Inc. and Subsidiaries (HEI)
(Unaudited)
Twelve months ended September 30
2018 2017
---
HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average)
Based on GAAP 8.7 8.5
% %
Based on non-GAAP (core)(2) 9.4 8.5
% %
--- ---
Hawaiian Electric Company, Inc. and Subsidiaries
Twelve months ended September 30
2018 2017
HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON
AVERAGE COMMON EQUITY (ROACE) (simple
average)
Based on GAAP 7.22 7.16
% %
Based on non-GAAP (core) 7.71 7.16
(2)
% %
---
Three months ended September 30 Nine months ended September 30
($ in millions) 2018 2017 2018 2017
--- ---
HAWAIIAN ELECTRIC CONSOLIDATED OTHER
OPERATION AND MAINTENANCE (O&M) EXPENSE
GAAP (as reported) $
113.6 $
98.7 $
333.8 $
302.4
Excluding other O&M-related
net income neutral items(3) 0.2 0.7 0.7 2.7
Non-GAAP (Adjusted other
O&M expense) $
113.3 $
98.0 $
333.1 $
299.7
---
Note: Columns may not foot
due to rounding
(1) Accounting principles
generally accepted in the
United States of America
(2) Calculated as core net
income divided by average
GAAP common equity
(3) Expenses covered by
surcharges or by third
parties recorded in revenues
Contact: Julie R. Smolinski Telephone: (808) 543-7300
Director, Investor
Relations E-mail: ir@hei.com
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SOURCE Hawaiian Electric Industries, Inc.
