HEI Reports Third Quarter 2020 Results

HONOLULU, Nov. 6, 2020 /PRNewswire/ -- Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the third quarter of 2020 of $65.0 million and EPS of $0.59 compared to $63.4 million and EPS of $0.58 for the third quarter of 2019.

"I have been deeply impressed by the dedication of our employees and by the resilience of our customers and communities as we all adapt to the ongoing challenges of COVID-19," said Constance H. Lau, HEI president and CEO. "Our financial stability has enabled us to help our customers, our economy and our communities during this unprecedented time, and to continue to deliver solid financial results.

"Keeping customer rates down has been a central focus for our utility. Last month the Hawaii Public Utilities Commission approved our settlement with the Consumer Advocate to not increase base rates in our Oahu rate case. Our utility continues to implement efficiency improvements to deliver on its customer savings commitments, even as it continues to press forward aggressively on our clean energy goals.

"The reopening of Hawaii's tourism sector with pre-arrival testing is a positive step for Hawaii's economy. Even so, the timing of a sustained reopening remains uncertain and our bank's third quarter results again reflect elevated provision for potential credit losses. While low interest rates continue to compress net interest margin, in the third quarter we were able to reduce expenses and improve noninterest income from core activities, including strong mortgage banking income from our residential lending activity, replacing most of the prior quarter's gains on sales of securities," said Lau.

1    Unless otherwise indicated, throughout this release earnings per share (EPS) refers to diluted earnings per share.

HAWAIIAN ELECTRIC COMPANY EARNINGS
Hawaiian Electric Company's (Hawaiian Electric) net income for the third quarter of 2020 was $60.1 million, compared to $46.8 million in the third quarter of 2019, primarily driven by the following after-tax items:

• $10 million lower operations and maintenance (O&M) expenses compared to the third quarter of 2019, primarily due to fewer generating unit overhauls, lower labor cost due to lower staffing levels and reduced overtime and elevated vegetation management work in the third quarter of 2019. The lower generation overhauls represented approximately $5 million of the $10 million total O&M variance; of that $5 million, $2 million was due to an elevated number of overhauls in the third quarter of 2019 and the remaining $3 million was timing related, as some overhaul work will be performed later in 4Q 2020 or in 2021;
• $5 million revenue increase from higher rate adjustment mechanism (RAM) revenues; and
• $1 million increase for recovery of the West Loch PV project and Grid Modernization projects under the major project interim recovery (MPIR) mechanism.
  These items were partially offset by the following after-tax items:
• $1 million lower allowance for funds used during construction as there were fewer long duration projects in construction work in progress;
• $1 million higher cost savings from enterprise resource planning system implementation to be returned to customers; and
• $1 million higher depreciation expense due to increasing investments for the integration of more renewable energy, improved customer reliability and greater system efficiency.

AMERICAN SAVINGS BANK EARNINGS
American Savings Bank's (American) third quarter 2020 net income was $12.2 million compared to $14.0 million in the second, or linked quarter of 2020, and $22.9 million in the third quarter of 2019. The decrease in net income compared to the linked quarter was primarily due to higher second quarter gains on sales of securities of $9.3 million. This was partially offset by improved noninterest income, including higher loan sales from increased mortgage banking originations, as well as by lower noninterest expense. The lower net income compared to the third quarter of 2019 primarily reflects lower asset yields within the loan and investment portfolios due to the lower interest rate environment and higher provision for credit losses in the third quarter of 2020, which included approximately $12.3 million in additional reserves related to economic impacts from the pandemic.

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.

Total loans were $5.5 billion as of September 30, 2020, up 7.3%² from December 31, 2019, driven mainly by the addition of $370 million in Paycheck Protection Program loans, as well as increases in the commercial real estate and residential loan portfolios, offset by reductions in the home equity line of credit and consumer loan portfolios.

Total deposits were $7.0 billion as of September 30, 2020, an increase of 12.2%³ from December 31, 2019. The average cost of funds was 0.13% for the quarter, down five basis points versus the linked quarter and down 17 basis points versus the prior year quarter.

Overall, American's return on average equity⁴ for the third quarter of 2020 was 6.75%, compared to 8.00% in the linked quarter and 13.75% in the third quarter of 2019. Return on average assets was 0.61% for the third quarter of 2020, compared to 0.72% in the linked quarter and 1.29% in the same quarter last year.

In the third quarter of 2020, American retained capital and did not pay a dividend to HEI. American had a Tier 1 leverage ratio of 8.3% at September 30, 2020.

Please refer to American's news release issued on October 30, 2020 for additional information on American.

HOLDING AND OTHER COMPANIES
The holding and other companies' net loss was $7.2 million for the third quarter of 2020 compared to $6.2 million in the prior year quarter. The greater net loss was primarily due to lower income at Pacific Current reflecting lower energy sales and higher corporate interest expense from higher short-term borrowing.

BOARD MAINTAINS QUARTERLY DIVIDEND
On November 4, 2020, HEI announced that the Board of Directors maintained HEI's quarterly cash dividend of $0.33 per share payable on December 10, 2020, to shareholders of record at the close of business on November 20, 2020 (ex-dividend date is November 19, 2020). This quarterly dividend is equivalent to an annual rate of $1.32 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 November 5, 2020 of $33.05, HEI's dividend yield is 4.0%.

2   Annualized from December 31, 2019, total loans as of September 30, 2020 increased 9.7%
3   Annualized from December 31, 2019, total deposits as of September 30, 2020 increased 16.3%.
4   Bank return on average equity calculated using annualized third quarter 2020 bank net income and weighted average daily common equity.

HEI EARNINGS RELEASE, HEI WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND 2020 GUIDANCE
HEI will conduct a webcast and conference call to review its consolidated results and 2020 earnings guidance and outlook at 11:15 a.m. Hawaii time (4:15 p.m. Eastern time) on Friday, November 6, 2020.

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. Parties may also access any presentation materials for the conference call and/or listen to the conference call by accessing the webcast on HEI's website at www.hei.com under the "Investor Relations" section, sub-heading "News and Events – Events and Presentations."

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. HEI's website also contains other materials about the company, such as HEI's Environmental, Social and Governance report, which was published during the quarter. 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 on-line replay of the November 6, 2020 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 20, 2020 by dialing (877) 344-7529 or (412) 317-0088 and entering passcode 10148946.

HEI supplies power to approximately 95% of Hawaii's population through its electric utility, Hawaiian Electric; 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, 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, 2019 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 release, 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.

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)		2020				2019				2020				2019
Revenues
Electric utility		$	562,568			$	688,330			$	1,694,225			$	1,900,609
Bank		78,644				82,548				233,096				247,287
Other		215				4				237				86
Total revenues		641,427				770,882				1,927,558				2,147,982
Expenses
Electric utility		474,050				616,537				1,493,948				1,716,562
Bank		63,144				54,240				189,700				171,605
Other		4,672				3,450				13,091				12,589
Total expenses		541,866				674,227				1,696,739				1,900,756
Operating income (loss)
Electric utility		88,518				71,793				200,277				184,047
Bank		15,500				28,308				43,396				75,682
Other		(4,457)				(3,446)				(12,854)				(12,503)
Total operating income		99,561				96,655				230,819				247,226
Retirement defined benefits expense—other than service costs		(1,102)				(648)				(2,970)				(2,172)
Interest expense, net—other than on deposit liabilities and other bank borrowings		(22,086)				(22,425)				(66,474)				(69,081)
Allowance for borrowed funds used during construction		801				1,208				2,241				3,465
Allowance for equity funds used during construction		2,347				3,250				6,556				9,335
Gain on sale of investment securities, net		—				653				9,275				653
Income before income taxes		79,521				78,693				179,447				189,426
Income taxes		14,018				14,803				30,691				36,390
Net income		65,503				63,890				148,756				153,036
Preferred stock dividends of subsidiaries		471				471				1,417				1,417
Net income for common stock		$	65,032			$	63,419			$	147,339			$	151,619
Basic earnings per common share		$	0.60			$	0.58			$	1.35			$	1.39
Diluted earnings per common share		$	0.59			$	0.58			$	1.35			$	1.39
Dividends declared per common share		$	0.33			$	0.32			$	0.99			$	0.96
Weighted-average number of common shares outstanding		109,181				108,973				109,126				108,941
Weighted-average shares assuming dilution		109,336				109,363				109,387				109,378
Net income (loss) for common stock by segment
Electric utility		$	60,065			$	46,779			$	126,299			$	111,479
Bank		12,150				22,888				41,925				60,743
Other		(7,183)				(6,248)				(20,885)				(20,603)
Net income for common stock		$	65,032			$	63,419			$	147,339			$	151,619
Comprehensive income attributable to Hawaiian Electric Industries, Inc.		$	66,472			$	66,716			$	166,659			$	177,856
Return on average common equity (%) (twelve months ended)										9.4				9.2

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.

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)		2020				2019				2020				2019
Revenues		$	562,568			$	688,330			$	1,694,225			$	1,900,609
Expenses
Fuel oil		105,042				199,093				390,714				541,322
Purchased power		149,025				175,037				425,679				472,336
Other operation and maintenance		111,243				124,415				348,831				361,805
Depreciation		55,689				53,935				167,235				161,795
Taxes, other than income taxes		53,051				64,057				161,489				179,304
Total expenses		474,050				616,537				1,493,948				1,716,562
Operating income		88,518				71,793				200,277				184,047
Allowance for equity funds used during construction		2,347				3,250				6,556				9,335
Retirement defined benefits expense—other than service costs		(432)				(723)				(1,195)				(2,127)
Interest expense and other charges, net		(16,836)				(17,429)				(50,768)				(53,945)
Allowance for borrowed funds used during construction		801				1,208				2,241				3,465
Income before income taxes		74,398				58,099				157,111				140,775
Income taxes		13,835				10,822				29,316				27,800
Net income		60,563				47,277				127,795				112,975
Preferred stock dividends of subsidiaries		228				228				686				686
Net income attributable to Hawaiian Electric		60,335				47,049				127,109				112,289
Preferred stock dividends of Hawaiian Electric		270				270				810				810
Net income for common stock		$	60,065			$	46,779			$	126,299			$	111,479
Comprehensive income attributable to Hawaiian Electric		$	60,113			$	46,805			$	126,398			$	111,552
OTHER ELECTRIC UTILITY INFORMATION
Kilowatthour sales (millions)
Hawaiian Electric		1,620				1,823				4,559				4,840
Hawaii Electric Light		244				279				721				777
Maui Electric		235				312				699				832
		2,099				2,414				5,979				6,449
Average fuel oil cost per barrel		$	49.71			$	82.30			$	64.70			$	83.64
Return on average common equity (%) (twelve months ended)1										8.4				7.6
1  Simple average.

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.

American Savings Bank, F.S.B. STATEMENTS OF INCOME DATA (Unaudited)
		Three months ended												Nine months ended September 30
($ in thousands)		September 30, 2020				June 30, 2020				September 30, 2019				2020				2019
Interest and dividend income
Interest and fees on loans		$	52,419			$	53,541			$	59,260			$	161,505			$	175,740
Interest and dividends on investment securities		7,221				6,288				7,599				22,939				25,762
Total interest and dividend income		59,640				59,829				66,859				184,444				201,502
Interest expense
Interest on deposit liabilities		2,287				3,071				4,384				8,945				12,923
Interest on other borrowings		61				75				422				449				1,361
Total interest expense		2,348				3,146				4,806				9,394				14,284
Net interest income		57,292				56,683				62,053				175,050				187,218
Provision for credit losses		13,970				15,133				3,315				39,504				17,873
Net interest income after provision for credit losses		43,322				41,550				58,738				135,546				169,345
Noninterest income
Fees from other financial services		4,233				3,102				5,085				11,906				14,445
Fee income on deposit liabilities		3,832				2,897				5,320				11,842				15,402
Fee income on other financial products		1,524				1,212				1,706				4,608				5,129
Bank-owned life insurance		1,965				1,673				1,660				4,432				6,309
Mortgage banking income		7,681				6,252				1,490				15,933				3,080
Gain on sale of securities, net		—				9,275				653				9,275				653
Other income, net		(231)				(251)				428				(69)				1,420
Total noninterest income		19,004				24,160				16,342				57,927				46,438
Noninterest expense
Compensation and employee benefits		26,431				25,079				25,364				77,287				76,626
Occupancy		5,693				5,442				5,694				16,402				15,843
Data processing		3,366				3,849				3,763				11,052				11,353
Services		2,624				2,474				2,829				7,907				7,861
Equipment		2,001				2,290				2,163				6,630				6,416
Office supplies, printing and postage		1,187				1,049				1,297				3,577				4,320
Marketing		727				379				1,142				1,908				3,455
FDIC insurance		714				751				(5)				1,567				1,249
Other expense1		4,556				7,063				3,676				15,813				12,049
Total noninterest expense		47,299				48,376				45,923				142,143				139,172
Income before income taxes		15,027				17,334				29,157				51,330				76,611
Income taxes		2,877				3,320				6,269				9,405				15,868
Net income		$	12,150			$	14,014			$	22,888			$	41,925			$	60,743
Comprehensive income		$	13,543			$	13,734			$	26,697			$	62,885			$	85,079
OTHER BANK INFORMATION (annualized %, except as of period end)
Return on average assets		0.61				0.72				1.29				0.73				1.14
Return on average equity		6.75				8.00				13.75				7.95				12.44
Return on average tangible common equity		7.62				9.07				15.68				9.00				14.23
Net interest margin		3.12				3.21				3.82				3.34				3.87
Efficiency ratio		61.99				59.84				58.58				61.01				59.56
Net charge-offs to average loans outstanding		0.32				0.49				0.69				0.41				0.46
As of period end
Nonaccrual loans to loans receivable held for investment		0.77				0.86				0.63
Allowance for credit losses to loans outstanding		1.67				1.50				1.04
Tangible common equity to tangible assets		8.0				7.9				8.4
Tier-1 leverage ratio		8.3				8.4				8.8
Dividend paid to HEI (via ASB Hawaii, Inc.) ($ in millions)		$	—			$	—			$	14.0			$	28.0			$	47.0
1    The three and nine-month periods ended September 30, 2020 include approximately $0.7 million and $4.5 million, respectively, of certain direct and incremental COVID-19 related costs. For the nine months ended September 30, 2020, these costs, which have been recorded in Other expense, include $2.4 million of compensation expense and $1.7 million of enhanced cleaning and sanitation costs.

 

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.

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.