HEI Exhibit 99
July 30, 2014
Contact: | Clifford H. Chen | |
Manager, Investor Relations & | Telephone: (808) 543-7384 | |
Strategic Planning | E-mail: cchen@hei.com | |
AMERICAN SAVINGS BANK REPORTS SECOND QUARTER 2014 EARNINGS
Net Income of $11.7 Million
Bank Delivers Solid Results In Line with Expectations
HONOLULU - American Savings Bank, F.S.B. (American), a wholly-owned indirect subsidiary of Hawaiian Electric Industries, Inc. (HEI) (NYSE - HE), today reported net income for the second quarter of 2014 of $11.7 million, compared to $14.5 million in the first (or linked) quarter of 2014 and $15.9 million in the second quarter of 2013.
“American continued to deliver solid results in line with expectations, with good growth across our target market segments in both loans and core deposits. Asset quality continued to improve, reflecting the healthy local market environment, and our rate of asset growth has helped offset the effects of the persistently low rate environment,” said Rich Wacker, president and chief executive officer of American.
Second quarter 2014 net income was $2.9 million lower than the linked quarter primarily driven by (on an after-tax basis):
• | $2 million gain on the sale of municipal bond securities in the first (or linked) quarter of 2014 in response to recent regulatory guidance on liquidity standards and the anticipation of higher interest rates over time; and |
• | $1 million higher noninterest expense due to higher branch security expense, product development costs, and timing of debit card-related expenses. |
Compared to the same quarter of 2013, net income decreased by $4.2 million primarily driven by (on an after-tax basis):
• | $1 million lower interchange fees under regulatory caps (Durbin Amendment) that became effective for American on July 1, 2013; |
• | $1 million gain on the sale of securities in the second quarter of 2013; |
• | $1 million lower mortgage banking income from significantly lower refinancing activity; and |
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Note: Amounts indicated as “after-tax” in this earnings release are based upon adjusting items for the composite statutory tax rate of 40% for the bank.
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• | $1 million change in the provision for loan losses, which was a credit in the second quarter of 2013 due to the sale of American’s credit card portfolio. |
Net interest income (pretax) was $44.1 million in both the second quarter of 2014 and in the linked quarter and $44.4 million in the second quarter of 2013. Net interest margin was 3.55% compared to 3.64% in the linked quarter and 3.79% in the second quarter of 2013. The 0.09% point decline in net interest margin compared to the linked quarter was attributable to multiple factors, including the effect of the sale of higher yielding municipal bond securities in the first quarter and slower recognition of mortgage-related fees as prepayment rates decline, and the ongoing effect of low rates on interest-earning assets. Compared to the second quarter of 2013, the net interest margin decline was primarily attributable to lower yields on interest earning assets as the loan portfolio continued to re-price down in the low interest rate environment. In both periods, a portion of the net interest margin decline was offset by loan growth.
Provision for loan losses (pretax) was $1.0 million in the second quarter of 2014, flat compared to the linked quarter, but higher than the net credit of $1.0 million in the second quarter of 2013. In the second quarter of 2013, American released $1 million (pretax) of allowance for loan losses in connection with the agreement to sell its credit card portfolio in the third quarter of 2013 and released allowance associated with specific commercial loan paydowns. The second quarter 2014 net charge-off ratio improved to a recovery of 0.04% from a charge-off of 0.02% in the linked quarter and a charge-off of 0.08% in the prior year quarter primarily due to the improved credit quality of the loan portfolio and the strengthening Hawaii economy.
Noninterest income (pretax) was $13.8 million in the second quarter of 2014, compared to $16.9 million in the linked quarter and $19.2 million in the second quarter of 2013. Second quarter noninterest income was relatively in line with the first quarter, excluding the $2.8 million gain on the sale of the municipal bond portfolio in the linked quarter. Compared to the second quarter of 2013, noninterest income declined by $5.4 million primarily due to lower year-over-year fee income due to the regulatory limits on interchange fees (Durbin Amendment) of $2.3 million, lower mortgage banking income of $1.8 million due to lower refinancing volumes and no gain on sales of securities, which were $1.2 million in the prior year quarter.
Noninterest expense (pretax) was $39.9 million in the second quarter of 2014, higher than $38.4 million in the linked quarter and in line with $39.8 million in the second quarter of 2013. Noninterest expense was higher compared to the linked quarter primarily due to higher branch security expense, product development costs and timing of debit card-related expenses.
Total loans grew by $99 million and $136 million in the second quarter and year-to-date 2014, respectively. Second quarter loan growth was primarily driven by increases in residential, home equity lending and commercial real estate. Annualized loan growth was 9.4% and 6.5% in the second quarter and year-to-date 2014, respectively.
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Total deposits were $4.5 billion at June 30, 2014, an increase of $47 million and $152 million in the second quarter and year-to-date 2014, respectively. Second quarter deposit growth was primarily due to the increase in low-cost core deposits. Annualized deposit growth was 4.2% and 7.0% in the second quarter and year-to-date 2014, respectively. Average cost of funds remained low at 0.22% for the second quarter of 2014, 1 basis point lower than the linked quarter and consistent with the prior year quarter.
As a result of the net income impacts detailed above, American’s second quarter 2014 return on average equity was 8.8%, compared to 11.0% in the linked quarter and 12.6% in the second quarter of last year. Return on average assets was 0.87% for the second quarter of 2014, compared to 1.10% in the linked quarter and 1.25% in the same quarter last year.
American’s year-to-date return on average equity was 9.9%, compared to 11.9% for the same period in the prior year. Year-to-date return on average assets was 0.98% compared to 1.19% for the same period in the prior year.
American’s continued solid results enabled it to pay dividends of $9.75 million to HEI in the quarter while maintaining healthy capital levels - leverage ratio of 9.0% and total risk-based capital ratio of 12.6% at June 30, 2014.
HEI EARNINGS RELEASE, HEI WEBCAST AND CONFERENCE CALL TO DISCUSS EARNINGS AND 2014 EPS GUIDANCE
Concurrent with American’s regulatory filing 30 days after the end of the quarter, American announced its second quarter 2014 financial results today. Please note that these reported results relate only to American and are not necessarily indicative of HEI’s consolidated financial results for the second quarter of 2014.
HEI plans to announce its second quarter 2014 consolidated financial results on Monday, August 11, 2014 and will conduct a webcast and conference call to discuss its consolidated earnings, including American’s earnings, and 2014 EPS guidance on Monday, August 11, 2014, at 7:00 a.m. Hawaii time (1:00 p.m. Eastern time). Interested parties may listen to the conference by calling (877) 474-9504 and entering passcode: 92297255, or by accessing the webcast on HEI’s website at www.hei.com under the heading “Investor Relations.” HEI and Hawaiian Electric Company, Inc. (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 such portions of HEI’s website, 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
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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 webcast will be available at the same 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 August 25, 2014, by dialing (888) 286-8010, passcode: 58411343.
HEI supplies power to approximately 450,000 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, one of Hawaii’s largest financial institutions.
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, 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 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” 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, 2013, HEI’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014 and HEI’s future 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.
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American Savings Bank, F.S.B.
STATEMENTS OF INCOME DATA
(Unaudited)
Three months ended | Six months ended June 30 | |||||||||||||||||||
(in thousands) | June 30, 2014 | March 31, 2014 | June 30, 2013 | 2014 | 2013 | |||||||||||||||
Interest and dividend income | ||||||||||||||||||||
Interest and fees on loans | $ | 43,851 | $ | 43,682 | $ | 43,624 | $ | 87,533 | $ | 86,227 | ||||||||||
Interest and dividends on investment and mortgage-related securities | 2,950 | 3,035 | 3,234 | 5,985 | 6,698 | |||||||||||||||
Total interest and dividend income | 46,801 | 46,717 | 46,858 | 93,518 | 92,925 | |||||||||||||||
Interest expense | ||||||||||||||||||||
Interest on deposit liabilities | 1,237 | 1,225 | 1,296 | 2,462 | 2,608 | |||||||||||||||
Interest on other borrowings | 1,420 | 1,405 | 1,178 | 2,825 | 2,342 | |||||||||||||||
Total interest expense | 2,657 | 2,630 | 2,474 | 5,287 | 4,950 | |||||||||||||||
Net interest income | 44,144 | 44,087 | 44,384 | 88,231 | 87,975 | |||||||||||||||
Provision (credit) for loan losses | 1,021 | 995 | (959 | ) | 2,016 | 899 | ||||||||||||||
Net interest income after provision (credit) for loan losses | 43,123 | 43,092 | 45,343 | 86,215 | 87,076 | |||||||||||||||
Noninterest income | ||||||||||||||||||||
Fees from other financial services | 5,217 | 5,128 | 7,996 | 10,345 | 15,639 | |||||||||||||||
Fee income on deposit liabilities | 4,645 | 4,421 | 4,433 | 9,066 | 8,747 | |||||||||||||||
Fee income on other financial products | 2,064 | 2,290 | 1,780 | 4,354 | 3,574 | |||||||||||||||
Mortgage banking income | 246 | 628 | 2,003 | 874 | 5,349 | |||||||||||||||
Gain on sale of securities | — | 2,847 | 1,226 | 2,847 | 1,226 | |||||||||||||||
Other income, net | 1,643 | 1,588 | 1,731 | 3,231 | 3,323 | |||||||||||||||
Total noninterest income | 13,815 | 16,902 | 19,169 | 30,717 | 37,858 | |||||||||||||||
Noninterest expense | ||||||||||||||||||||
Compensation and employee benefits | 19,872 | 20,286 | 20,063 | 40,158 | 40,151 | |||||||||||||||
Occupancy | 4,489 | 3,953 | 4,219 | 8,442 | 8,342 | |||||||||||||||
Data processing | 2,971 | 3,060 | 2,827 | 6,031 | 5,814 | |||||||||||||||
Services | 2,855 | 2,273 | 2,328 | 5,128 | 4,431 | |||||||||||||||
Equipment | 1,609 | 1,645 | 1,870 | 3,254 | 3,644 | |||||||||||||||
Other expense | 8,094 | 7,153 | 8,500 | 15,247 | 16,095 | |||||||||||||||
Total noninterest expense | 39,890 | 38,370 | 39,807 | 78,260 | 78,477 | |||||||||||||||
Income before income taxes | 17,048 | 21,624 | 24,705 | 38,672 | 46,457 | |||||||||||||||
Income taxes | 5,372 | 7,085 | 8,786 | 12,457 | 16,383 | |||||||||||||||
Net income | $ | 11,676 | $ | 14,539 | $ | 15,919 | $ | 26,215 | $ | 30,074 | ||||||||||
Comprehensive income | $ | 14,434 | $ | 15,563 | $ | 7,340 | $ | 29,997 | $ | 22,824 | ||||||||||
OTHER BANK INFORMATION (annualized %, except as of period end) | ||||||||||||||||||||
Return on average assets | 0.87 | 1.10 | 1.25 | 0.98 | 1.19 | |||||||||||||||
Return on average equity | 8.78 | 11.03 | 12.56 | 9.90 | 11.93 | |||||||||||||||
Return on average tangible common equity | 10.39 | 13.06 | 15.00 | 11.72 | 14.25 | |||||||||||||||
Net interest margin | 3.55 | 3.64 | 3.79 | 3.59 | 3.79 | |||||||||||||||
Net charge-offs (recoveries) to average loans outstanding | (0.04 | ) | 0.02 | 0.08 | (0.01 | ) | 0.10 | |||||||||||||
As of period end | ||||||||||||||||||||
Nonperforming assets to loans outstanding and real estate owned * | 1.05 | 1.12 | 1.56 | |||||||||||||||||
Allowance for loan losses to loans outstanding | 0.99 | 0.98 | 1.04 | |||||||||||||||||
Tier-1 leverage ratio * | 9.0 | 9.0 | 9.3 | |||||||||||||||||
Total risk-based capital ratio * | 12.6 | 12.7 | 12.5 | |||||||||||||||||
Tangible common equity to total assets | 8.46 | 8.44 | 8.42 | |||||||||||||||||
Dividend paid to HEI (via ASHI) ($ in millions) | 10 | 9 | 10 | |||||||||||||||||
* Regulatory basis
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI’s Annual Report on SEC Form 10-K for the year ended December 31, 2013 and HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 (when filed), as updated by SEC Forms 8-K. Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.
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American Savings Bank, F.S.B.
BALANCE SHEETS DATA
(Unaudited)
(in thousands) | June 30, 2014 | December 31, 2013 | ||||||||||||||
Assets | ||||||||||||||||
Cash and cash equivalents | $ | 174,950 | $ | 156,603 | ||||||||||||
Available-for-sale investment and mortgage-related securities | 549,321 | 529,007 | ||||||||||||||
Investment in stock of Federal Home Loan Bank of Seattle | 80,863 | 92,546 | ||||||||||||||
Loans receivable held for investment | 4,287,612 | 4,150,229 | ||||||||||||||
Allowance for loan losses | (42,372 | ) | (40,116 | ) | ||||||||||||
Loans receivable held for investment, net | 4,245,240 | 4,110,113 | ||||||||||||||
Loans held for sale, at lower of cost or fair value | 956 | 5,302 | ||||||||||||||
Other | 284,607 | 268,063 | ||||||||||||||
Goodwill | 82,190 | 82,190 | ||||||||||||||
Total assets | $ | 5,418,127 | $ | 5,243,824 | ||||||||||||
Liabilities and shareholder’s equity | ||||||||||||||||
Deposit liabilities—noninterest-bearing | $ | 1,301,758 | $ | 1,214,418 | ||||||||||||
Deposit liabilities—interest-bearing | 3,223,102 | 3,158,059 | ||||||||||||||
Other borrowings | 242,455 | 244,514 | ||||||||||||||
Other | 116,953 | 105,679 | ||||||||||||||
Total liabilities | 4,884,268 | 4,722,670 | ||||||||||||||
Common stock | 337,262 | 336,054 | ||||||||||||||
Retained earnings | 205,012 | 197,297 | ||||||||||||||
Accumulated other comprehensive loss, net of tax benefits | ||||||||||||||||
Net unrealized losses on securities | $ | (315 | ) | $ | (3,663 | ) | ||||||||||
Retirement benefit plans | (8,100 | ) | (8,415 | ) | (8,534 | ) | (12,197 | ) | ||||||||
Total shareholder’s equity | 533,859 | 521,154 | ||||||||||||||
Total liabilities and shareholder’s equity | $ | 5,418,127 | $ | 5,243,824 | ||||||||||||
This information should be read in conjunction with the consolidated financial statements and the notes thereto in HEI’s Annual Report on SEC Form 10-K for the year ended December 31, 2013 and HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2014 and June 30, 2014 (when filed), as updated by SEC Forms 8-K.
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