Hawaiian Electric Industries, Inc. (HEI) — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited results cover HEI and subsidiaries, including Hawaiian Electric’s regulated utilities and American Savings Bank (ASB). Amounts below are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| HEI revenue | $895.7 | $895.6 | $1,823.9 | $1,680.7 |
| HEI operating income | $93.0 | $86.7 | $186.5 | $185.9 |
| HEI net income for common stock | $54.6 | $52.5 | $109.3 | $121.7 |
| HEI diluted EPS | $0.50 | $0.48 | $1.00 | $1.11 |
| Hawaiian Electric net income for common stock | $45.3 | $44.1 | $92.3 | $90.5 |
- HEI’s Q2 revenue was essentially flat year over year; common net income rose about 4%. For the first half, revenue increased about 9%, while common net income declined about 10%, partly reflecting a $8.1 million investment-sale gain in the 2022 comparison period and lower bank income.
- Electric utility Q2 revenue fell to $794.2 million from $818.9 million, while operating income rose to $73.6 million from $71.2 million. First-half utility revenue rose to $1.625 billion from $1.528 billion and operating income increased to $149.5 million from $144.7 million. Higher fuel costs and generation lifted first-half revenue; lower purchased-power costs helped Q2 results.
- ASB Q2 net income was $20.2 million versus $17.5 million; first-half net income was $38.8 million versus $41.3 million. Q2 net interest margin was 2.75%, versus 2.85% a year earlier; first-half NIM was 2.80%, versus 2.82%.
- HEI first-half operating cash flow was $371.6 million, versus $74.6 million in 2022; investing cash use was $282.9 million, versus $497.0 million. Utility capital expenditures were $230.1 million in the first half. HEI cash and cash equivalents at June 30 were $314.3 million.
- At June 30, HEI reported $46.2 million of short-term nonbank borrowings and $2.572 billion of long-term nonbank debt. Hawaiian Electric reported no short-term borrowings and approximately $1.835 billion of long-term debt, including current maturities. ASB deposits were $8.163 billion and other bank borrowings $750 million.
- HEI and Hawaiian Electric had $175 million and $200 million, respectively, available under revolving credit facilities. Hawaiian Electric reported approximately $344 million of available borrowing capacity and cash combined. ASB had about $1.8 billion of unused FHLB capacity and approximately $3 billion in total liquidity sources, according to management.
Material changes, outlook and risks
- ASB’s loan growth and deposit outflows increased its reliance on higher-cost term certificates and wholesale borrowing. Management expects deposits to be flat to down and funding costs to remain under pressure; higher rates may weigh on net interest income and margin.
- ASB remained above regulatory “well-capitalized” thresholds. Approximately 86% of deposits were FDIC-insured or fully collateralized; retail deposits represented 85% of deposits. The bank had approximately $1.2 billion of uninsured deposits.
- Management stated that HEI’s liquidity and expected operating cash flows, credit facilities and capital-market access should meet cash needs. Utility customer receivables remained elevated, though they had declined from year-end; $24.3 million was more than 30 days past due, and about 53% of that amount was on payment plans.
- The Utilities forecast approximately $2.2 billion of net capital expenditures for 2023–2027, including grid replacement and modernization, resilience, renewable-energy transition and reliability investments. Funding depends on operating cash, debt and equity issuance, among other sources.
- Renewable projects faced delays, cancellations, supply-chain constraints and inflationary cost pressures. The Utilities said the 2030 emissions-reduction target remained achievable, but would require additional procurement and timely project completion. Hawaiian Electric’s 70% reduction goal is measured against 2005 generation emissions.
- Material legal and regulatory matters include Hu Honua’s stated intent to reassert federal antitrust and other claims after the Hawaii Supreme Court affirmed the PUC’s rejection of its amended PPA. The Utilities also disclosed other proceedings and environmental reserves, including $9.7 million for Pearl Harbor PCB investigation and remediation and $2.6 million for a former Molokai site.
- HEI said it currently expects to maintain its quarterly dividend at $0.36 per share; the board reviews it quarterly. No specific earnings or revenue guidance was provided in the supplied filing text. Fitch upgraded HEI and Hawaiian Electric ratings on July 28, 2023, after quarter-end, and assigned stable outlooks.
- Key broader risks include interest rates, inflation, fuel prices, bank deposit competition, regulatory cost recovery, renewable-project execution, reliability and potential natural disasters or wildfire-related losses. The filing states that certain legal or regulatory outcomes could materially affect a particular future period, even though management did not expect aggregate pending utility legal liabilities to be material to financial position.
Most important facts for investors to verify
- Whether ASB deposit trends, borrowing costs and NIM stabilize, and how credit quality and consumer-loan charge-offs evolve.
- Whether utility renewable projects meet revised schedules and budgets, and whether the PUC approves pending cost-recovery and contract amendments.
- Progress on collection of overdue utility receivables and the timing and amount of any approved recovery of deferred COVID-related costs.
- Developments in Hu Honua and other legal, environmental and regulatory matters, including any change in potential exposure.
- Actual capital spending, financing requirements, credit ratings and dividend decisions compared with management’s stated liquidity expectations.