Hawaiian Electric Industries, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results cover HEI and its subsidiaries, including Hawaiian Electric (the regulated electric utility) and American Savings Bank (ASB). Dollar amounts below are in millions unless stated otherwise.
Financial performance
| HEI consolidated | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 |
|---|---|---|---|---|
| Revenue | $680.3 | $608.9 | $1,323.2 | $1,286.1 |
| Operating income | $101.9 | $71.6 | $199.9 | $131.3 |
| Net income for common stock | $63.9 | $48.9 | $128.2 | $82.3 |
| Diluted EPS | $0.58 | $0.45 | $1.17 | $0.75 |
- HEI’s operating margin was approximately 15.0% in Q2 and 15.1% for H1, compared with 11.7% and 10.2% in the respective 2020 periods. Net margin was approximately 9.4% in Q2 and 9.7% for H1, versus 8.0% and 6.4%.
- Q2 revenue increased 12% and H1 revenue 3%. Higher electric utility revenue and stronger bank earnings drove results; H1 earnings growth also reflected improved electric utility operating income.
Operating segments
- Electric utility: Q2 revenue was $601.9 million and operating income $67.7 million, nearly unchanged from Q2 2020; common-stock income was $41.9 million versus $42.3 million. H1 revenue was $1,166.7 million, operating income $136.8 million and common-stock income $85.3 million, versus $1,131.7 million, $111.8 million and $66.2 million, respectively. H1 improvement reflected lower fuel costs, lower O&M and higher RAM revenues, partly offset by higher purchased-power and depreciation costs. Many fuel and purchased-power costs are passed through to customers.
- ASB: Q2 net income was $30.3 million versus $14.0 million; H1 net income was $59.8 million versus $29.8 million. A negative provision for credit losses of $12.2 million in Q2 and $20.6 million in H1 supported earnings as the bank cited improved economic conditions, credit upgrades and lower net charge-offs. Net interest margin was 2.98% in Q2 and 2.97% for H1, down from 3.21% and 3.46% in 2020, reflecting low rates and lower asset yields.
- Other segment: H1 net loss increased to $16.9 million from $13.7 million, partly due to higher corporate and incentive compensation expenses.
Cash flow, balance sheet and liquidity
- HEI operating cash flow was $117.6 million for H1, down from $197.4 million. Investing used $771.4 million, principally reflecting ASB securities purchases and other investment activity; financing provided $552.9 million, including deposit growth and debt financing. Cash and cash equivalents ended at $247.4 million, down from $341.4 million at year-end 2020.
- At June 30, HEI reported total assets of $15.61 billion, long-term debt excluding bank debt of $2.26 billion and short-term borrowings excluding bank borrowings of $95.7 million. ASB deposit liabilities were $7.87 billion. HEI’s common equity was $2.37 billion.
- Electric utility H1 operating cash flow was $57.5 million versus $181.5 million; capital expenditures were $138.0 million versus $186.5 million. Utility long-term debt was $1.68 billion, and common equity was $2.17 billion. Utility cash and cash equivalents were $23.7 million.
- HEI and Hawaiian Electric had $175 million and $200 million, respectively, available under their revolving facilities before commercial paper; about $58 million and $38 million of commercial paper were outstanding. HEI reported approximately $279 million of aggregate committed-line capacity net of commercial paper. ASB had approximately $2.0 billion of unused FHLB borrowing capacity and $2.3 billion of unpledged investment securities.
- HEI raised its quarterly dividend from $0.33 to $0.34 per share beginning in Q1 2021 and said it currently expects to maintain the dividend, subject to quarterly board review. H1 payout ratio was 58%, compared with 73% for full-year 2020.
Material changes, outlook and risks
- Hawaii’s economy and tourism improved during H1, and Q2 utility electricity sales rose 8.1% year over year but remained 4.4% below Q2 2019. Management noted utility revenues are substantially insulated from sales volume by decoupling, though sales and collections affect cash-flow timing and customer rates.
- The PUC’s performance-based regulation framework began June 1, 2021, establishing a five-year rate period without general rate cases and replacing the RAM with an annual revenue adjustment. Cost recovery, earnings-sharing provisions and performance incentives remain subject to regulatory terms and outcomes.
- Management forecast up to $1.2 billion of utility net capital expenditures for 2021–2023. No specific earnings or EPS guidance was provided in the supplied filing text.
- COVID-19-related utility costs of $25.6 million were recorded as regulatory assets. Recovery is subject to a future proceeding; an extension of the deferral period through year-end 2021 was pending PUC approval. Management cited ongoing risk from pandemic developments, customer arrears and delayed collections.
- Key energy-transition uncertainties include renewable project permitting and interconnection delays, potential capacity shortfalls as the AES coal plant retirement approaches, PUC decisions on cost recovery, fuel-price volatility and the ability of IPPs and developers to deliver projects. The Utilities reported a 2020 renewable portfolio standard of 34.5%, above the 30% statutory target.
- Other notable matters include pending negotiations over the Kalaeloa power purchase agreement, litigation involving the Molokai New Energy Partners agreement, and environmental reserves of $2.7 million for the former Molokai site and $10.5 million for Pearl Harbor PCB investigation and remediation. Management said aggregate legal liabilities were not expected to be material to financial position, while acknowledging possible period-specific effects.
- ASB faces interest-rate and credit risks. Its loan delinquency rate rose to 0.43% from 0.38% a year earlier, while annualized net charge-offs fell to 0.11% from 0.46%. ASB’s Tier 1 leverage ratio was 8.0% at June 30; it remained categorized as well capitalized but fell below the 2021 threshold for abbreviated community-bank leverage reporting.
Important facts for investors to verify
- Whether ASB’s unusually favorable negative credit-loss provisions persist, and how loan delinquencies, charge-offs and allowance levels evolve.
- Whether utility cash collection, accounts receivable and regulatory-asset recovery improve, including the pending extension and recovery process for COVID-19 costs.
- PUC decisions and project milestones affecting renewable procurement, interconnection, AES replacement capacity, and the recovery of utility capital investment.
- Funding and execution of the $1.2 billion 2021–2023 utility capital plan, alongside debt levels, commercial-paper usage and available liquidity.
- ASB’s net interest margin sensitivity to rate changes and deposit growth, and the market-value effects of its expanded securities portfolio.