8-K: Hawaiian Electric Industries Reports Lower 2023 Earnings Amidst Wildfire Costs and Bank Repositioning

Hawaiian Electric Industries (HEI) reported a decrease in full-year 2023 net income to $199.2 million, impacted by Maui wildfire-related expenses and a loss from American Savings Bank's (ASB) balance sheet repositioning.

Summary

• Hawaiian Electric Industries (HEI) announced a full-year 2023 net income of $199.2 million, or $1.81 per diluted share, down from $241.1 million and $2.20 per share in 2022.
• The results include $14.1 million in after-tax expenses related to the Maui wildfires and an $11.0 million after-tax loss from ASB's sale of investment securities.
• Core net income, excluding these items, was $224.3 million, or $2.04 per share, compared to $235.0 million and $2.14 per share in 2022.
• Hawaiian Electric Company's full-year net income was $194.0 million, up from $188.9 million in 2022, with core net income at $195.1 million after excluding wildfire expenses.
• American Savings Bank's full-year net income was $53.4 million, down from $80.0 million in 2022, with core net income at $72.6 million after excluding wildfire expenses and the loss on securities sales.
• The holding and other companies segment reported a net loss of $48.1 million for 2023, compared to a $27.8 million loss in 2022.
• Hawaiian Electric's quarterly dividend to HEI was reduced to $13 million, down from approximately $30 million in previous quarters, to support restoration work and capital investments.

Sentiment

Score: 4

Explanation: The document presents a mixed picture with some positive aspects, such as revenue growth at the utility and the bank's balance sheet repositioning, but the overall sentiment is negative due to the significant impact of wildfire expenses and reduced profitability. The reduction in the utility's dividend is also a negative signal.

Positives

• Hawaiian Electric's full-year net income increased to $194.0 million compared to $188.9 million in 2022.
• Hawaiian Electric saw a $34 million increase in revenues, driven by regulatory mechanisms.
• ASB's balance sheet repositioning is expected to improve net interest margin and profitability.
• ASB maintains a strong credit quality and capital position.
• The utility is continuing to execute on its plans to modernize its generation system and make electric grids more resilient.
• The bank continues to be well-positioned with strong capital, excellent credit quality, lending capacity and ample liquidity.

Negatives

• HEI's consolidated net income decreased to $199.2 million from $241.1 million in 2022.
• The company incurred $14.1 million in after-tax expenses related to the Maui wildfires.
• ASB experienced an $11.0 million after-tax loss from the sale of investment securities.
• ASB's full-year net income decreased to $53.4 million from $80.0 million in 2022.
• The holding and other companies segment reported a net loss of $48.1 million for 2023.
• Hawaiian Electric's operations and maintenance expenses increased by $28 million.
• ASB's return on average equity decreased to 11.0% from 14.1% in 2022.
• ASB's return on average assets decreased to 0.55% from 0.86% in 2022.

Risks

• The company faces potential liabilities from lawsuits related to the Maui wildfires.
• There are potential regulatory penalties related to the Maui wildfires.
• The company may face increased insurance premiums and difficulty obtaining wildfire and general liability insurance.
• There are uncertainties surrounding the company's access to capital and credit markets due to the Maui wildfires.
• The company faces the risk of material reduction or extended delay in dividends from operating subsidiaries.
• Further downgrades by securities rating agencies could impact financing efforts.
• The company faces risks of uninsured or underinsured losses from damages to the utility's infrastructure and business interruption.
• Extreme weather events and natural disasters pose a risk to the utility's equipment and operations.

Future Outlook

The company is focused on supporting the recovery of Maui, modernizing its generation system, and improving the resilience of its electric grids. ASB is positioned for improved profitability and net interest margin after its balance sheet repositioning.

Management Comments

• Scott Seu, HEI president and CEO, stated that he is encouraged by the collaborative efforts to prioritize Maui's recovery following the wildfires.
• Scott Seu also noted that the core businesses delivered solid results under challenging circumstances.
• Management believes that the non-GAAP measures provide useful information and are a better indicator of the companies core operating activities.

Industry Context

The results reflect the challenges faced by utilities and financial institutions in Hawaii, particularly in the wake of the devastating Maui wildfires. The focus on resilience and modernization aligns with broader industry trends towards grid hardening and renewable energy integration. The bank's balance sheet repositioning is a common strategy to improve profitability in a changing interest rate environment.

Comparison to Industry Standards

• The decrease in HEI's net income and EPS is significant and may be worse than some peers in the utility sector, particularly those not impacted by major disasters.
• The bank's performance, with a decrease in net income and return on equity, is below the average for regional banks, especially those that did not have to sell securities at a loss.
• The utility's increase in revenue due to regulatory mechanisms is typical for regulated utilities, but the increase in operating expenses is a concern.
• The reduction in the utility's dividend to HEI is a significant move, indicating financial stress and a need to prioritize capital investments over shareholder returns, which is not typical for stable utilities.
• Compared to other utilities, Hawaiian Electric's wildfire-related expenses are unusually high, reflecting the unique challenges faced in Hawaii.

Legal Proceedings

• The company faces potential liabilities from the many lawsuits filed against the Company related to the Maui windstorm and wildfires.

Stakeholder Impact

• Shareholders will be impacted by the reduced net income and dividend reduction.
• Employees may be affected by cost-cutting measures.
• Customers may experience service disruptions due to the wildfires and infrastructure damage.
• Suppliers and creditors may face increased risk due to the company's financial challenges.

Next Steps

• HEI will conduct a webcast and conference call to review its fourth quarter and full year 2023 consolidated financial results.
• The company intends to continue to use HEI's website as a means of disclosing additional information.
• Investors are advised to monitor the Investor Relations section of HEI's website and refer to SEC filings.

Key Dates

Keywords

Hawaiian Electric Industries, HEI, Hawaiian Electric Company, American Savings Bank, Maui wildfires, financial results, net income, EPS, core earnings, utility, banking, resilience, dividends, balance sheet, investment securities