(Source: Business Wire)
Hawaiian Electric Industries, Inc. (NYSE: HE) today reported consolidated net income for common stock for the second quarter of 2009 of $15.5million, or $0.17 per share, compared to $5.1million, or $0.06 per share for the second quarter of 2008 which included after-tax charges of $35.6 million ($0.42 share) related to the successful strategic restructuring of the bank's balance sheet in June 2008. Excluding those charges, second quarter 2008 net income for common stock was $40.7million, or $0.48 per share.
"The performance of our companies continues to be impacted by difficult economic conditions and delayed regulatory action. We continue to work hard to position our company to weather this economic storm and emerge with stronger, improved performance. Our utility is making investments in critical reliability projects and has sought timely cost recovery and return on those investments. As a result of these efforts, the utility received partial interim rate relief on August 3 from the Public Utilities Commission for our Oahu operations. Further rate relief, regulatory reforms and inclusion of major capital additions into rates are possible near year-end and are necessary for the utility to achieve industry-typical returns. At the bank, net interest margin expanded again in the second quarter to 4.16%. In addition, bank management continues to reduce the bank's cost structure to help offset rising credit costs, with plans now to lower its current run rate for noninterest expense1 by an additional $10-15 million annually by the end of 2010," said Constance H. Lau, HEI president and chief executive officer. "Although we had previously expected higher earnings at the utility in the second half of this year, the delay in recovery of CT-1 and deferral of regulatory reforms have pushed out the timing of expected improvement in utility earnings. The partial interim rate relief combined with expense controls should keep utility earnings for the second half consistent with the first half of 2009. Strong bank revenue and further reductions in bank noninterest expenses are expected to continue to help offset elevated credit costs in the second half of the year," added Lau.
UTILITY RESULTS
Electric utility net income for common stock for the second quarter of 2009 was $15.5 million compared with $27.4 million in the second quarter of 2008. Lower net income was primarily due to lower electric sales and higher operations and maintenance (O&M) expenses.
Kilowatthour sales were down 3.1% compared with the same quarter of 2008, impacting utility net income by an estimated $3.4 million. "As expected, the soft economy and continuing positive efforts by Hawaii residents and businesses to conserve energy lowered sales in the quarter compared with the second quarter of 2008," said Lau.
O&M expenses were up $9.2 million or 11% quarter-over-quarter as a result of higher production overhaul costs, moderate increases in bad debt expense, planned higher transmission and distribution maintenance required to support aging facilities, and new renewable energy initiatives in support of the Hawaii Clean Energy Initiative. The O&M increases were partially offset by cost reduction measures implemented during the year, including a general freeze on executive salary levels and an ongoing program to achieve cost savings in contracted services. Delays in some renewable energy initiatives and other targeted reductions in O&M expenses are being implemented in response to delays in regulatory recovery. O&M expenses for the year are expected to be approximately 10% higher than 2008, somewhat lower than previously expected, but in line with the partial interim rate relief recently received.
On July 2, 2009, the Public Utilities Commission of the State of Hawaii (PUC) issued an interim decision and order in HECO's 2009 test year rate case proceeding, and on August3, 2009, the PUC allowed HECO to implement an interim increase in annual revenues of $61.1 million, or a 4.7% increase. The PUC has scheduled an evidentiary hearing commencing October 26, 2009 to consider the remaining approximately $19million of interim rate relief that HECO continues to seek in its 2009 test year rate case, as well as the items that were not settled as part of the stipulation agreement with the parties to the case. The additional interim rate relief includes recovery for a new generating unit which has completed all utility requirements for system operations.
BANK RESULTS
Bank net income for the second quarter of 2009 was $4.0million, compared to a net loss of $18.1million for the same quarter last year. Second quarter 2008 net losses included after-tax charges of $35.6million related to the bank's balance sheet restructuring, which returned $55 million of capital to HEI. Excluding last year's restructuring charges, bank second quarter 2008 net income was $17.5 million. Provision for loan losses remained elevated, negatively impacting second quarter results, partially offset by continued strong profitability of the bank's core business and its continued focus on performance improvement to lower noninterest expenses.
"We continue to be pleased with the bank's performance during this economic downturn and tough part of the credit cycle. While the provision for loan losses has increased, the bank's performance improvement initiative is progressing well, helping offset the increased provision in the near-term and improve the bank's long-term fundamental earnings power once we are through this credit cycle. In addition, the bank continues to be well capitalized with a strong Tier-1 core leverage ratio of 8.7% at the end of the quarter," said Lau.
Net interest income in the second quarter of 2009 was $50.4million compared to $52.6million in the second quarter of 2008, but on a much smaller average balance sheet than a year ago from the bank balance sheet restructuring. Lower average earning asset balances of $4.9 billion compared to $6.3billion in the second quarter of 2008 and lower yields on loans and mortgage-related securities were offset in large part by lower funding costs. Net interest margin grew to 4.16% in the second quarter of 2009, compared with 4.11% in the first quarter of 2009 and 3.36% in the second quarter of 2008. The 80basis point expansion from the second quarter of 2008 was primarily a result of the balance sheet restructuring.
The bank recorded a $13.5million provision for loan losses for the second quarter of 2009 compared with $8.3million in the first quarter of 2009 and $1.2million in the second quarter of 2008. The provision in the second quarter of 2009 reflected additional provision for a single commercial credit the bank began providing for in the first quarter, an increase in nonperforming residential lot loans and higher residential mortgage and consumer loan delinquencies.
Noninterest income for the second quarter of 2009 was $13.0million, which included $5.6 million for the other-than-temporary-impairment of certain private-issue mortgage-related securities, compared with $1.5 million for the second quarter of 2008, which included $19.3million of losses on sales of securities related to the balance sheet restructuring. The quarter-over-quarter increase in noninterest income was 781% on the basis of U.S. generally-accepted accounting principles (GAAP). On an adjusted basis, noninterest income grew 20% quarter over quarter2.
Noninterest expense for the second quarter of 2009 was $44.4 million, compared with $83.9million for the same period in 2008, which included $39.8million of costs related to the early extinguishment of other borrowings to execute the balance sheet restructuring. The quarter-over-quarter decrease in noninterest expense was 47% on a GAAP basis. On an adjusted basis, noninterest expense was lower by 7% quarter over quarter2.
HOLDING AND OTHER COMPANIES' RESULTS
The holding and other companies' net losses were $4.0million in the second quarter of 2009 compared with $4.2 million in the second quarter of 2008, reflecting lower borrowing costs and general and administrative expenses.
WEBCAST AND TELECONFERENCE
Hawaiian Electric Industries, Inc. will conduct a webcast and teleconference call to review its second quarter 2009 earnings on Friday, August 7,2009, at 8:00 a.m. Hawaii time (2:00 p.m. Eastern time). The event can be accessed through HEI's website at http://www.hei.com or by dialing (800)299-0148, passcode: 98667926 for the teleconference call.
An online replay of the webcast will be available at the same website beginning about two hours after the event. Replays of the teleconference call will also be available approximately two hours after the event through August 21,2009, by dialing (888)286-8010, passcode: 77389401.
HEI supplies power to over 400,000 customers or 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, F.S.B., one of Hawaii's largest financial institutions.
EXPLANATION OF HEI'S USE OF CERTAIN UNAUDITED NON-GAAP FINANCIAL MEASURES
HEI and bank management use certain non-GAAP measures in their evaluation of the bank's performance and believe the presentations of such financial measures on this basis provide useful supplemental information and a clearer picture of the bank's operating performance, and are a better indicator of the bank's ongoing core operating activities. Management utilizes non-GAAP financial measures of noninterest income and expense in the calculation of certain of the bank's ratios, such as (i) efficiency, (ii) pretax, preprovision income, and (iii) return on average assets to analyze on a consistent basis and over a longer period of time the performance of the bank's core operating activities. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of others in the financial services industry.
Certain reconciling items”including balance sheet restructuring charges, professional services, real estate lease breakage, severance, FISERV conversion costs, technology write-offs, and prepayment penalties on early extinguishment of debt”are being incurred pursuant to the bank management's performance improvement initiative which was announced in June 2008 and is expected to conclude by the end of 2010. These costs are being incurred with the objective of increasing the bank's operating efficiency and profitability. Accordingly, bank management believes that these costs will remain temporarily elevated while the performance improvement project is being executed and will be reduced or eliminated once the project has ended. See schedule on page 17 of this release for a tabular reconciliation between the bank's GAAP and non-GAAP measures.
Reported noninterest income is being adjusted by an insurance recovery and a gain on sale of securities. Bank management believes that it would not be appropriate to assume that the bank would realize material insurance recoveries and gains on a quarterly basis.
Likewise, bank management also adds back to noninterest income charges related to the other-than-temporary impairment (OTTI) of mortgage-related securities because of the material nature of the charge and the unpredictability of when those charges might occur in the future. The bank incurred material OTTI in the fourth quarter of 2008 and the second of 2009, impacting the comparability of noninterest income for those quarters with the linked quarters and the same quarters of the previous year. Management believes that adjusting noninterest income to exclude the effects of OTTI helps the comparability of noninterest income quarter to quarter and quarter over quarter.
Lastly, management adjusts noninterest expense to exclude a special assessment levied by the Federal Deposit Insurance Corporation (FDIC) pursuant to the FDIC's plan to recapitalize the deposit insurance fund. While the FDIC may make future special assessments pursuant to this plan, bank management believes that it would not be appropriate to assume that the bank would incur these special assessments on a quarterly basis. Further, excluding the FDIC charge is consistent with the financial measures used by other banks and enhances the comparison of operating performance.
Limitations associated with utilizing non-GAAP measures are the risks of disagreement over the appropriateness of adjustments comprising these measures and that other companies might calculate these measures differently. Management addresses these limitations by providing detailed reconciliations between GAAP information and non-GAAP measures. See reconciliation on page 17.
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 expects, anticipates, intends, plans, believes, predicts, estimates or similar expressions. In addition, any statements concerning future financial performance (including future revenues, expenses, earnings or losses or growth rates), ongoing business strategies or prospects and possible future actions, which may be provided by management, 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 assumptions about 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 "Forward-Looking Statements" discussion (which is incorporated by reference herein) set forth on pages iv and v of HEI's Quarterly Report on Form 10-Q for the quarter ended March 31, 2009, and in HEI's future periodic reports that discuss important factors that could cause HEI's results to differ materially from those anticipated in such statements. Forward-looking statements speak only as of the date of this release.
1 The current noninterest expense run rate is based upon annualized second quarter of 2009 adjusted noninterest expense. Refer to the accompanying schedules on page 17 of this release for reconciliation of noninterest expense based on U.S. generally accepted accounting principles to adjusted noninterest expense.
2 Refer to the accompanying schedules on page 17 of this release for a reconciliation of noninterest income and expense based on U.S. generally accepted accounting principles to adjusted noninterest income and expense.
Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months Six months Twelve months ended June 30, ended June 30, ended June 30, (in thousands, except per share amounts) 2009 2008 2009 2008 2009 2008 Revenues Electric utility $ 450,417 $ 688,121 $ 912,214 $ 1,312,010 $ 2,460,554 $ 2,477,934 Bank 75,499 85,950 157,531 191,794 324,290 405,303 Other (15 ) (16 ) (47 ) (132 ) 102 2,067 525,901 774,055 1,069,698 1,503,672 2,784,946 2,885,304 Expenses Electric utility 418,254 632,725 848,982 1,205,631 2,312,342 2,282,751 Bank 69,993 116,942 134,904 199,423 267,082 367,044 Other 2,599 2,786 6,099 6,270 14,000 13,279 490,846 752,453 989,985 1,411,324 2,593,424 2,663,074 Operating income (loss) Electric utility 32,163 55,396 63,232 106,379 148,212 195,183 Bank 5,506 (30,992 ) 22,627 (7,629 ) 57,208 38,259 Other (2,614 ) (2,802 ) (6,146 ) (6,402 ) (13,898 ) (11,212 ) 35,055 21,602 79,713 92,348 191,522 222,230 Interest expense -- other than on deposit liabilities and other bank borrowings (17,910 ) (18,186 ) (35,743 ) (37,435 ) (74,450 ) (76,198 ) Allowance for borrowed funds used during construction 1,727 835 3,349 1,597 5,493 2,965 Allowance for equity funds used during construction 4,120 2,105 7,725 4,006 13,109 6,791 Income before income taxes 22,992 6,356 55,044 60,516 135,674 155,788 Income taxes 7,040 747 18,224 20,467 46,735 54,329 Net income 15,952 5,609 36,820 40,049 88,939 101,459 Less net income attributable to noncontrolling interest - preferred stock of subsidiaries 473 473 946 946 1,890 1,890 Net income for common stock $ 15,479 $ 5,136 $ 35,874 $ 39,103 $ 87,049 $ 99,569 Basic earnings per common share $ 0.17 $ 0.06 $ 0.39 $ 0.47 $ 0.99 $ 1.20 Diluted earnings per common share $ 0.17 $ 0.06 $ 0.39 $ 0.47 $ 0.99 $ 1.20 Dividends per common share $ 0.31 $ 0.31 $ 0.62 $ 0.62 $ 1.24 $ 1.24 Weighted-average number of common shares outstanding 91,384 84,052 90,996 83,762 88,220 83,249 Adjusted weighted-average shares 91,494 84,155 91,088 83,822 88,330 83,283 Income (loss) by segment Electric utility $ 15,495 $ 27,432 $ 29,627 $ 52,017 $ 69,585 $ 93,070 Bank 4,021 (18,093 ) 14,903 (3,517 ) 36,247 25,412 Other (4,037 ) (4,203 ) (8,656 ) (9,397 ) (18,783 ) (18,913 ) Net income for common $ 15,479 $ 5,136 $ 35,874 $ 39,103 $ 87,049 $ 99,569 (This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI's Form 8-K dated June 9, 2009) and the consolidated financial statements and the notes thereto in HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009 (when filed). Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.) -------------------------------------------------------------------------------
Exception caught in main.
Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six months ended June 30 2009 2008 (in thousands) Cash flows from operating activities Net income $ 36,820 $ 40,049 Adjustments to reconcile net income to net cash provided by operating activities Depreciation of property, plant and equipment 76,999 75,733 Other amortization 2,484 4,203 Provision for loan losses 21,800 2,055 Loans receivable originated and purchased, held for sale (291,500 ) (114,591 ) Proceeds from sale of loans receivable, held for sale 322,692 124,526 Net loss (gain) on sale of investment and mortgage-related securities (44 ) 17,388 Other-than-temporary impairment of available-for-sale mortgage-related securities 5,581 - Changes in deferred income taxes 3,973 (585 ) Changes in excess tax benefits from share-based payment arrangements 318 (613 ) Allowance for equity funds used during construction (7,725 ) (4,006 ) Changes in assets and liabilities Decrease (increase) in accounts receivable and unbilled revenues, net 88,308 (28,564 ) Decrease (increase) in fuel oil stock 22,383 (69,254 ) Increase (decrease) in accounts payable (20,748 ) 45,874 Changes in prepaid and accrued income taxes and utility revenue taxes (56,397 ) (68,490 ) Changes in other assets and liabilities (24,633 ) (6,327 ) Net cash provided by operating activities 180,311 17,398 Cash flows from investing activities Available-for-sale investment and mortgage-related securities purchased (190,095 ) (376,809 ) Principal repayments on available-for-sale investment and mortgage-related securities 248,109 329,669 Proceeds from sale of available-for-sale investment and mortgage-related securities 44 1,291,609 Net decrease (increase) in loans held for investment 305,381 (29,359 ) Capital expenditures (175,092 ) (101,976 ) Contributions in aid of construction 4,917 7,263 Other 86 750 Net cash provided by investing activities 193,350 1,121,147 Cash flows from financing activities Net decrease in deposit liabilities (11,467 ) (76,790 ) Net increase in short-term borrowings with original maturities of three months or less 55,000 130,172 Net decrease in retail repurchase agreements (24,592 ) (20,380 ) Proceeds from other bank borrowings 310,000 508,584 Repayments of other bank borrowings (577,517 ) (1,662,119 ) Proceeds from issuance of long-term debt 3,168 14,802 Repayment of long-term debt - (50,000 ) Changes in excess tax benefits from share-based payment arrangements (318 ) 613 Net proceeds from issuance of common stock 8,786 15,473 Common stock dividends (51,127 ) (41,497 ) Preferred stock dividends of noncontrolling interest (946 ) (946 ) Decrease in cash overdraft (962 ) (8,582 ) Other (1,190 ) 477 Net cash used in financing activities (291,165 ) (1,190,193 ) Net increase (decrease) in cash and equivalents and federal funds sold 82,496 (51,648 ) Cash and equivalents and federal funds sold, beginning of period 183,435 209,855 Cash and equivalents and federal funds sold, end of period $ 265,931 $ 158,207 (This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI's Form 8-K dated June 9, 2009) and the consolidated financial statements and the notes thereto in HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2009 and June 30, 2009 (when filed).) -------------------------------------------------------------------------------
Hawaiian Electric Company, Inc. (HECO) and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Three months ended Six months ended June 30, June 30, (dollars in thousands, except per barrel amounts) 2009 2008 2009 2008 A service of YellowBrix, Inc.
