8-K/A: American Savings Bank Reports Second Quarter 2024 Net Loss Due to Goodwill Impairment

American Savings Bank reported a net loss of $45.8 million for the second quarter of 2024, primarily due to a $66.1 million after-tax goodwill impairment.

Summary

• American Savings Bank (ASB) reported a net loss of $45.8 million for the second quarter of 2024.
• This loss is primarily due to a $66.1 million after-tax goodwill impairment related to acquisitions from the 1980s and 1990s.
• Excluding the goodwill impairment and $0.3 million in after-tax Maui wildfire-related expenses, ASB's core net income was $20.7 million.
• This compares to $20.9 million in the first quarter of 2024 and $20.2 million in the second quarter of 2023.
• The bank's net interest margin expanded to 2.79%, a 4 basis point increase from the previous quarter.
• ASB experienced a negative provision for credit losses of $1.9 million, reflecting an improved economic outlook for Maui and lower loss rates.
• Total loans were $6.1 billion as of June 30, 2024, down 2.5% from December 31, 2023.
• Total deposits were $8.0 billion as of June 30, 2024, down 1.3% from December 31, 2023.

Sentiment

Score: 3

Explanation: The sentiment is negative due to the significant net loss and goodwill impairment. While core operations show some strength, the overall financial picture is concerning. The strategic review adds uncertainty.

Positives

• ASB's core net income, excluding the goodwill impairment and wildfire expenses, was $20.7 million, showing underlying strength.
• The net interest margin expanded to 2.79%, indicating improved profitability.
• A negative provision for credit losses of $1.9 million reflects a positive economic outlook for Maui and lower loss rates.
• The bank maintains a strong financial position with high liquidity and deep borrowing capacity.
• ASB did not pay a dividend to HEI in the second quarter, supporting healthy capital levels.

Negatives

• ASB reported a net loss of $45.8 million for the second quarter of 2024.
• The loss was primarily driven by a $66.1 million after-tax goodwill impairment.
• Net interest income decreased compared to both the linked quarter and the second quarter of 2023.
• Total loans and deposits both decreased since the end of 2023.
• Noninterest expense increased significantly due to the goodwill impairment.

Risks

• The ongoing review of strategic options for ASB introduces uncertainty about the bank's future.
• There is no set timetable for the strategic review, and no assurance that any actions will result from the evaluation.
• The goodwill impairment indicates a potential overvaluation of past acquisitions.
• The decrease in total loans and deposits could indicate a slowdown in business activity.
• The bank's exposure to the Hawaiian economy makes it vulnerable to local economic fluctuations.

Future Outlook

There is no set timetable for HEI's comprehensive review of strategic options for ASB, and there are no assurances that any actions regarding ASB will result from this evaluation. HEI and ASB do not expect to disclose or provide an update concerning developments related to this process unless or until HEI's Board of Directors has approved a definitive course of action or otherwise determined that further disclosure is appropriate or necessary.

Management Comments

• Ann Teranishi, president and chief executive officer of ASB, stated that the bank's core operations and earnings remain strong.
• Scott Seu, HEI president and CEO, mentioned that HEI has been advancing a strategy designed to support a strong, financially healthy enterprise.
• Teranishi also noted that the goodwill impairment charge reflects management's analysis of the bank's market valuation.

Industry Context

This announcement comes as the banking industry faces increased scrutiny and economic uncertainty. The goodwill impairment suggests a potential reevaluation of asset values, which could be a trend across the sector. The strategic review of ASB also reflects a broader trend of companies assessing their portfolios and considering divestitures or restructuring to optimize performance.

Comparison to Industry Standards

• The net interest margin of 2.79% is within the range of regional banks, but the goodwill impairment is a significant negative outlier.
• Compared to other regional banks like First Hawaiian Bank (FHB), which has shown more stable earnings, ASB's results are weaker this quarter due to the impairment.
• The decrease in loans and deposits is a concern, as many banks are seeing growth in these areas, such as Bank of Hawaii (BOH).
• The efficiency ratio of 176.20% is significantly worse than industry benchmarks, which are typically below 60%, but this is due to the one-off goodwill impairment.

Stakeholder Impact

• Shareholders will be negatively impacted by the reported net loss and goodwill impairment.
• Employees may experience uncertainty due to the ongoing strategic review of ASB.
• Customers may be concerned about the bank's financial health, although management has emphasized its strong liquidity.
• Creditors may be more cautious about lending to ASB due to the reported loss.

Next Steps

• HEI will announce its second quarter 2024 consolidated financial results on August 9, 2024.
• HEI will conduct a webcast and conference call on August 9, 2024, to discuss its consolidated earnings.
• HEI will continue its comprehensive review of strategic options for ASB.

Key Dates

Keywords

American Savings Bank, Hawaiian Electric Industries, Goodwill Impairment, Net Loss, Financial Results, Net Interest Margin, Core Net Income, Strategic Review, Maui Wildfires, Banking