HEI Reports First Quarter 2019 Earnings
HONOLULU, May 7, 2019 /PRNewswire/ -- Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the first quarter of 2019 of $45.7 million and diluted earnings per share (EPS) of $0.42 compared to $40.2 million and EPS of $0.37 for the first quarter of 2018.
"We are pleased to report solid earnings for the first quarter of 2019 from both our bank and utility," said Constance H. Lau, president and CEO of HEI.
"In the first quarter, the Public Utilities Commission approved in record time six renewable power purchase agreements that will bring a significant amount of solar-plus-battery-storage projects onto our grids on Oahu, Maui and Hawaii Island. The cooperation among the energy stakeholders, regulators, customers and our companies has continued to keep Hawaii at the forefront of greening our environment while providing reliable, resilient and more affordable electricity for our customers and our economy."
"At American Savings Bank, in addition to continued healthy performance in the first quarter, the bank is completing the consolidation of its team into its new ASB Campus, which offers new opportunities for the team to work better together for customers and realize operational effectiveness and cost efficiencies," said Lau.
HAWAIIAN ELECTRIC COMPANY EARNINGS
Hawaiian Electric Company's(1) net income for the first quarter of 2019 was $32.1 million compared to $27.5 million in the first quarter of 2018, primarily driven by the following after-tax items:
(1) Hawaiian Electric, unless otherwise defined, refers to the three utilities, Hawaiian Electric Company, Inc. on Oahu, Maui Electric Company, Limited, and Hawaii Electric Light Company, Inc.
-- $9 million revenue increase resulting from rate increases at Hawaiian
Electric (Oahu) and Maui Electric;
-- $3 million revenue increase from recovery of the Schofield generation
project under the major project interim recovery (MPIR) mechanism;
-- $2 million higher net income due to the absence of one-time charges
incurred in 2018, including the write-off of smart grid costs incurred
before the approval of our Grid Modernization Strategy and the one-time
rent expense adjustment for existing substation land;
-- $2 million higher net income due to the Commission granting deferral
treatment and recovery for certain previously-incurred expenses to
modify existing generating units on Maui to run at lower loads in order
to accept more renewable generation;
-- $1 million revenue increase from the first half of performance incentive
mechanism (PIM) rewards resulting from Commission approval of six new
solar-plus-storage power purchase agreements; and
-- $1 million revenue increase from pole attachment fees resulting from the
pole ownership agreement announced in 2018.
These items were partially offset by the following after-tax items:
-- $11 million higher O&M expenses(2) compared to 2018, primarily due to
the reset of pension costs included in rates as part of rate case
decisions, higher costs for continued clean up of asset management data
after go-live of our new enterprise resource planning system, and higher
personnel expenses (medical premium, executive compensation, and
retirement-related expenses);
-- $3 million higher depreciation expense as a result of increasing
investments for the integration of more renewable energy, improved
customer reliability and greater system efficiency; and
-- $1 million lower net income from lower AFUDC and higher interest
expense.
AMERICAN SAVINGS BANK EARNINGS
American Savings Bank's (American) first quarter 2019 net income was $20.8 million compared to $21.8 million in the fourth, or linked, quarter of 2018 and $19.0 million in the first quarter of 2018.
(2) Excludes net income neutral expenses covered by surcharges or by third parties. See "Explanation of HEI's Use of Certain Unaudited Non-GAAP Measures" and related reconciliation accompanying this release.
The net income variance in the first quarter of 2019 compared to the fourth quarter of 2018 was primarily driven by favorable credit events that reduced the provision for loan losses in the fourth quarter of 2018 and additional reserves required for two loans in the commercial and commercial real estate portfolios in the first quarter of 2019. The higher provision for loan losses in the first quarter of 2019 was partially offset by proceeds from bank-owned life insurance.
Compared to the first quarter of 2018, the $1.8 million higher net income was primarily driven by higher yields on earning assets combined with funding costs that have remained relatively low and stable. Noninterest expense in the first quarter of 2019 included new depreciation and occupancy costs of $1.3 million related to the new campus building while still including the costs of four properties being vacated, and higher compensation and employee benefit expenses of $1.1 million.
Total loans were $4.9 billion at March 31, 2019, up $14.6 million or 1.2% annualized from December 31, 2018. The increase in total loans was driven mainly by increases in residential loans of $16.5 million, and increases in home equity loans of $17.4 million, partly offset by declines within the commercial and commercial real estate portfolios of $11.7 million and $4.4 million, respectively.
Total deposits were $6.2 billion at March 31, 2019, an increase of $46.8 million or 3.04% annualized from December 31, 2018. Low-cost core deposits increased $94 million or 7.1% annualized from December 31, 2018. The average cost of funds was 0.31% for the first quarter of 2019, up 3 basis points from the linked quarter and up 8 basis points from the prior year quarter.
American's return on average equity was 13.1% in the first quarter of 2019 compared to 14.1% in the fourth quarter of 2018 and 12.6% in the prior year quarter. Return on average assets was 1.18% in the first quarter of 2019 compared to 1.25% in the fourth quarter of 2018 and 1.12% in the same quarter last year.
Please refer to American's news release issued on April 30, 2019 for additional information on American.
HOLDING AND OTHER COMPANIES
The holding and other companies' net loss was $7.3 million in the first quarter of 2019 compared to $6.2 million in the prior year quarter. The higher net loss was primarily driven by higher interest expense resulting from an increase in long-term debt drawn in the fourth quarter of 2018 at higher fixed rates.
BOARD DECLARES QUARTERLY DIVIDEND
On May 6, 2019, the board of directors maintained HEI's quarterly cash dividend of $0.32 per share, payable on June 12, 2019, to shareholders of record at the close of business on May 23, 2019 (ex-dividend date is May 22, 2019). The dividend is equivalent to an annual rate of $1.28 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 May 6, 2019 of $41.69, HEI's dividend yield is 3.1%.
WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND EPS GUIDANCE
Hawaiian Electric Industries, Inc. will conduct a webcast and conference call to review its first quarter 2019 earnings and 2019 EPS guidance on Tuesday, May 7, 2019, at 7:30 a.m. Hawaii time (1:30 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 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, 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 on-line replay of the May 7, 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 May 21, 2019 by dialing (877) 344-7529 or (412) 317-0088 and entering passcode: 10129956.
HEI supplies power to approximately 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company, 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 9 of this release.
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 Company, 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 March 31
(in thousands, except per share amounts) 2019 2018
---
Revenues
Electric utility $
578,495 $
570,427
Bank 83,052 75,419
Other 68 28
Total revenues 661,615 645,874
---
Expenses
Electric utility 521,935 519,058
Bank 56,930 50,532
Other 4,813 4,395
Total expenses 583,678 573,985
---
Operating income (loss)
Electric utility 56,560 51,369
Bank 26,122 24,887
Other (4,745) (4,367)
Total operating income 77,937 71,889
---
Retirement defined benefits expense-other than service costs (763) (1,833)
Interest expense, net-other than on deposit liabilities and other bank borrowings (23,123) (21,518)
Allowance for borrowed funds used during construction 1,078 1,444
Allowance for equity funds used during construction 2,910 3,294
---
Income before income taxes 58,039 53,276
Income taxes 11,878 12,556
---
Net income 46,161 40,720
Preferred stock dividends of subsidiaries 473 473
Net income for common stock $
45,688 $
40,247
===
Basic earnings per common share $
0.42 $
0.37
===
Diluted earnings per common share $
0.42 $
0.37
===
Dividends declared per common share $
0.32 $
0.31
===
Weighted-average number of common shares outstanding 108,913 108,818
===
Weighted-average shares assuming dilution 109,268 109,024
===
Net income (loss) for common stock by segment
Electric utility $
32,126 $
27,475
Bank 20,839 18,960
Other (7,277) (6,188)
Net income for common stock $
45,688 $
40,247
===
Comprehensive income attributable to Hawaiian Electric Industries, Inc. $
54,929 $
27,474
===
Return on average common equity (twelve months ended)(1) 9.7
% 8.2
%
===
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
March 31) were 9.7% and 8.9%,
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 March 31
(dollars in thousands, except per
barrel amounts) 2019 2018
---
Revenues $
578,495 $
570,427
---
Expenses
Fuel oil 160,609 166,968
Purchased power 134,445 139,910
Other operation and maintenance 118,130 107,610
Depreciation 53,947 50,466
Taxes, other than income taxes 54,804 54,104
Total expenses 521,935 519,058
---
Operating income 56,560 51,369
Allowance for equity funds used
during construction 2,910 3,294
Retirement defined benefits
expense-other than service costs (703) (1,264)
Interest expense and other charges,
net (17,986) (17,694)
Allowance for borrowed funds used
during construction 1,078 1,444
---
Income before income taxes 41,859 37,149
Income taxes 9,234 9,175
---
Net income 32,625 27,974
Preferred stock dividends of
subsidiaries 229 229
---
Net income attributable to Hawaiian
Electric 32,396 27,745
Preferred stock dividends of
Hawaiian Electric 270 270
Net income for common stock $
32,126 $
27,475
===
Comprehensive income attributable
to Hawaiian Electric $
32,150 $
27,506
===
OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)
Hawaiian Electric 1,424 1,497
Hawaii Electric Light 245 257
Maui Electric 247 258
1,916 2,012
Average fuel oil cost per barrel $
80.39 $
80.68
Return on average common equity
(twelve months ended)(1) 7.8
% 6.9
%
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 March 31) were 7.8%
and 7.4%. See reconciliation of
GAAP to non-GAAP measures.
American Savings Bank, F.S.B.
STATEMENTS OF INCOME DATA
(Unaudited)
Three months ended
(in thousands) March 31, December 31, March 31,
2019 2018 2018
---
Interest and dividend income
Interest and fees on loans $
57,860 $
57,145 $
52,800
Interest and dividends on
investment securities 10,628 10,632 9,202
Total interest and dividend income 68,488 67,777 62,002
---
Interest expense
Interest on deposit liabilities 4,252 4,115 2,957
Interest on other borrowings 528 255 496
Total interest expense 4,780 4,370 3,453
---
Net interest income 63,708 63,407 58,549
Provision for loan losses 6,870 2,408 3,541
Net interest income after
provision for loan losses 56,838 60,999 55,008
---
Noninterest income
Fees from other financial services 4,562 4,996 4,654
Fee income on deposit liabilities 5,078 5,530 5,189
Fee income on other financial
products 1,593 1,977 1,654
Bank-owned life insurance 2,259 390 871
Mortgage banking income 614 94 613
Other income, net 458 492 436
Total noninterest income 14,564 13,479 13,417
---
Noninterest expense
Compensation and employee benefits 25,512 26,340 24,440
Occupancy 4,670 4,236 4,280
Data processing 3,738 3,681 3,464
Services 2,426 2,287 3,047
Equipment 2,064 1,801 1,728
Office supplies, printing and
postage 1,360 1,580 1,507
Marketing 990 844 645
FDIC insurance 626 635 713
Other expense 3,854 4,341 4,101
Total noninterest expense 45,240 45,745 43,925
---
Income before income taxes 26,162 28,733 24,500
Income taxes 5,323 6,966 5,540
Net income $
20,839 $
21,767 $
18,960
===
Comprehensive income $
27,091 $
35,446 $
6,885
===
OTHER BANK INFORMATION (annualized %, except as of period end)
Return on average assets 1.18 1.25 1.12
Return on average equity 13.09 14.08 12.58
Return on average tangible common
equity 15.03 16.23 14.57
Net interest margin 3.99 3.95 3.76
Efficiency ratio 57.80 59.50 61.04
Net charge-offs to average loans
outstanding 0.39 0.37 0.28
As of period end
Nonaccrual loans to loans
receivable held for investment 0.83 0.56 0.53
Allowance for loan losses to loans
outstanding 1.12 1.08 1.14
Tangible common equity to tangible
assets 8.1 8.0 7.7
Tier-1 leverage ratio 8.7 8.7 8.6
Total capital ratio 13.9 13.9 14.0
Dividend paid to HEI (via ASB
Hawaii, Inc.) ($ in millions) $
18.0 $
14.0 $
10.9
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 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 given the non-recurring nature of certain items. Core earnings and other financial measures as presented here may not be comparable to similarly titled measures used by other companies. The accompanying tables provide a reconciliation of reported GAAP(1) 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 $1,000 employee bonuses paid by the bank related to federal tax reform. Management does not consider these items to be representative of the company's fundamental core earnings. Management has shown adjusted non-GAAP (core) net income, adjusted non-GAAP (core) diluted earnings per common share and adjusted non-GAAP (core) ROACE in order to provide better comparability of ROACE between periods.
The accompanying table also provides the calculation of utility GAAP other operation and maintenance (O&M) expense adjusted for "O&M-related net income neutral items," which are O&M expenses covered by specific surcharges or by third parties. These "O&M-related net income neutral items" are grossed-up in revenue and expense and do not impact net income.
RECONCILIATION OF GAAP(1) TO NON-GAAP
MEASURES
---
Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries
Unaudited Twelve months
ended March 31
2019 2018
---
HEI CONSOLIDATED RETURN ON AVERAGE COMMON
EQUITY (ROACE) (simple average)
Based on GAAP 9.7 8.2
% %
Based on non-GAAP (core)(2) 9.7 8.9
% %
--- ---
RECONCILIATION OF GAAP(1) TO NON-GAAP MEASURES
---
Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries
Unaudited Twelve months ended
March 31
2019 2018
---
HAWAIIAN ELECTRIC CONSOLIDATED RETURN ON
AVERAGE COMMON EQUITY (ROACE)
(simple average)
Based on GAAP 7.8 6.9
% %
Based on non-GAAP (core) 7.8 7.4
(2)
% %
--- ---
Three months ended
March 31
($ in millions) 2019 2018
--- ---
HAWAIIAN ELECTRIC CONSOLIDATED OTHER OPERATION
AND MAINTENANCE (O&M) EXPENSE
GAAP (as reported) $
118.1 $
107.6
Excluding other O&M-related
net income neutral items(3) 0.1 0.3
Non-GAAP (Adjusted other O&M
expense) $
118.0 $
107.3
---
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. For the twelve
months ended March 31, 2018,
core net income for HEI and
Hawaiian Electric includes
adjustments of $14 million and
$9 million, respectively, which
principally relate to the 2017
impact of lower rates under the
federal tax reform act on
deferred tax balances.
(3) 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
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SOURCE Hawaiian Electric Industries, Inc.
