Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q2 2023 Earnings Presentation
32 slides from Hawaiian Electric Industries's earnings presentation, Aug 7, 2023
Slide 1: HEI 2Q23 Financial Results
HEI 2Q23 Financial Results August 7, 2023
Slide 2: Good Execution Across the Enterprise
Good Execution Across the Enterprise Executed well at both the utility and bank in 2Q Diluted EPS (GAAP) • Utility ‒ Continuing to grow earnings under PBR despite elevated O&M (some timing related), during the quarter $0.50 $0.48 ‒ Executing well on capital plan $0.16 $0.18 • Bank ‒ Deposit base rem
Slide 3: 2Q23 Utility Highlights
2Q23 Utility Highlights Progressing decarbonization while laying the groundwork for reliable, resilient and affordable clean energy ✓ Improved customer affordability, with average bills down 17% from 2022 peak in September1 ✓ Significantly improved collection rates in lower bill environment ✓ Filed
Slide 4: 2Q23 Bank Highlights
2Q23 Bank Highlights ASB continues to be well-positioned within the industry, performing well in Hawaii’s stable banking market ✓ Deposit base remains stable • Vast majority of deposits from our loyal retail customer base • 86% of deposits F.D.I.C. insured or fully collateralized, 79% F.D.I.C. insur
Slide 5: Hawaii Economy Remains Stable
Hawaii Economy Remains Stable Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 2023 12,000 14 % June 2023 YTD: 5.0M June 2023: 3.0% 12 1,200,000 10,000 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400,000 2,000 2 2
Slide 6: 2Q23 Financial Performance
2Q23 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE 10.4% 10.2% $54.6 $52.5 $0.50 $0.48 $17.5 $20.2 $0.16 $0.18 $44.1 $45.3 $0.40 $0.41 2022 2023 ($9.1) ($10.9) ($0.08) ($0.10) Utility 8.2% 8.2% 2Q22 2Q23 2Q22 2Q23 Bank1 12.2%/13.0% 16.2%/15.1% Utility Bank Holding Co. & Other
Slide 7: 2Q23 Financial Highlights
2Q23 Financial Highlights 2Q 2022 vs. 2Q 2023 EPS Variances $0.01 $0.02 $0.02 $0.08 $0.02 $0.06 $0.01 $0.01 $0.02 $0.03 $0.03 $0.02 $0.01 Total: ~$0.02 Total: ~$0.01 $0.50 $0.48 2Q 2022 Net interest Provision Noninterest Noninterest ARA PIMs1 AFUDC Other MPIR O&M Depreciation Interest & HoldCo & 2Q
Slide 8: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment $330-$540 Capital Expenditures Forecast ($ in millions) Pending Separate $370-$410 $320-$430 Approval $357 Recovery Low range includes baseline ARA capital Approved and approved separately recovered projects. Approved ARA High range inc
Slide 9: Utility Outlook Drivers
Utility Outlook Drivers • Continued focus on efficient operations and holding the annual O&M increase within the ARA-allowed 3.68% Lower O&M • Second quarter saw ~$2 million of timing-related O&M expenses expenses in 2H • Vegetation management accelerated ahead of hurricane season, and generating st
Slide 10: Sticky Retail Deposit Base and High-Quality Loan Book Positions ASB Well for the Long Term
Sticky Retail Deposit Base and High-Quality Loan Book Positions ASB Well for the Long Term Deposit base mostly retail, largely insured Well-positioned, high quality loan portfolio ✓ 86% of deposits F.D.I.C. insured or fully ✓ 83% of loan book backed by real estate, with collateralized; 79% F.D.I.C.
Slide 11: Stable NIM Compared to Peers Despite Industry-wide Impacts from Higher Funding Costs
Stable NIM Compared to Peers Despite Industry-wide Impacts from Higher Funding Costs 1 Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin (%) 3.49 3.56 0.83 0.66 2.85 2.85 2.75 2.90 0.05 2Q22 1Q23 2Q23 2Q22 1Q23 2Q23 2Q22 1Q23 2Q23 Funding sources Q1 2023 average Q2 2023 average Actua
Slide 12: Bank Outlook Drivers
Bank Outlook Drivers Relatively stable NIM despite industry headwinds Credit outlook excellent Expense management a key focus • Impact of industry-wide NIM challenges favorable compared to peers given strong deposit franchise • Reducing NIM expectations given higher funding costs and reduced balance
Slide 13: Revising 2023 EPS Guidance Range
Revising 2023 EPS Guidance Range1 $1.75-$1.85 Key Assumptions: $2.00-$2.10 ➢ Full recovery of COVID-19 $0.62-$0.66 expenses Key Assumptions: ➢ Expect $4 million in net ➢ NIM: 2.70% – 2.80% PIM rewards for 2023 ➢ Provision exp. $0M – Additional Assumptions: ➢ Capex of $370 - $410M $6M ➢ Holdco and ot
Slide 14: Q&A
Q&A
Slide 15: Appendix
Appendix —_—e
Slide 16: HEI Financing Outlook 2023
HEI Financing Outlook 20231 • Both bank and utility remain net cash 2023 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2023 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$40 • Two investment grade subsidiaries:
Slide 17: Adjusted O&M Excluding Pension (non-GAAP)
Adjusted O&M Excluding Pension (non-GAAP) $118.6 GAAP to non-GAAP reconciliation of O&M, net of exclusions ($ in millions) $108.1 2Q 2022 2Q 2023 GAAP O&M $124.9 $136.4 (less): Pension1 12.6 12.0 Covered by surcharges 2.1 2.4 Covered by third parties 2.0 3.4 Adjusted O&M $108.1 $118.6 2Q22 2Q23 1. I
Slide 18: Utility LTM ROE
Utility LTM ROE ROE (%) 9.5% 0.3% 9.2% 0.6% 0.4% 8.2% Allowed Non-recoverable ROE less Actual O&M, Fuel Risk Actual Q2 2023 ROE items (i.e. Incentive Structural Depreciation and Sharing and Core ROE compensation, Items Return on Higher Fuel advertising, charitable Rate Base Inventory contributions,
Slide 19: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes Metric Opportunity T&D SAIDI and SAIFI ($6.8M) annually Call Center Performance +$1.4M / ($1.4M) annually Pre-PBR Fossil Fuel Cost Risk Sharing +$3.7M / ($3.7M) annually West Loch PV Based on under/overproduction Heat Rate NA Renewable RFP Stage
Slide 20: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth Actual Award Estimated Ranges ($ millions) (2021-2022) (2023-2025) $8 $6 $5 - $7 Forecast based on June $4 $2 - $5 2023 assumptions for renewable project $2 commercial operation $1 $0 $0 $0 dates and total generation 2021 2022 2023 2024 2025 RPS-
Slide 21: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 22: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 During 2Q23, PBR subgroup meetings were held on the Long-Term Proceeding to evolve regulatory framework to better align with customer Grid Services PIM, Evaluation of/
Slide 23: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone Community Based Renewable Energy 2015-0389 Contract negotiations are ongoing. Four-month procurement of small projects; Molokai, Phase 2 program capacity expanded to 235 MW LMI and Tranche 1 RFP
Slide 24: Net Interest Margin Compression Relatively Muted
Net Interest Margin Compression Relatively Muted 2Q 2023 Quarter-on-quarter NIM compression vs. KRX constituents1 Median compression: 20bps 0.60 0.40 0.20 0.00 -0.10 -0.20 -0.40 -0.60 -0.80 -1.00 Source: S&P Global as of July 29, 2023. 1. Excludes Community Bank System, whose NIM compression during
Slide 25: Average Core Deposits Remain Higher than Pre-pandemic Levels
Average Core Deposits Remain Higher than Pre-pandemic Levels 7,937 8,081 8,180 8,294 8,289 8,227 8,157 8,077 7,795 411 387 472 7,446 466 433 608 740 7,029 7,184 495 817 6,820 540 597 553 6,217 6,278 740 776 770 4,795 4,882 4,850 4,788 4,469 4,571 4,693 4,672 4,574 4,260 4,011 4,138 3,806 3,554 3,593
Slide 26: Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends
Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) ACL: 1.18% ACL: 1.13% $80 $2.0 $0.2 $71.3 $69.1 $70 $60 $50 $40 $30 $20 $10 $- ACL - 3/31/23 2Q NCOs 2Q Provision for Credit Losses ACL - 06/30/23 1Q23 2Q23 Begin
Slide 27: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) ASB has more than $202M of excess equity $4,234 above the “well capitalized” level Capital Ratio Tier 1 leverage $3,299 $3,150 $2,264 As of 6/30/23 7.79% $1,640 $1,053 “Well capitalized” 5.00% $1,955 $1,839 $1,633 Minimum requir
Slide 28: Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans
Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans National Loan portfolio characteristics Commercial & Syndications Industrial Commercial 8.1% 4.0% Personal ✓ ~83% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 54% Unsecured
Slide 29: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 3.56% Sectors Ratings Average cost of funds 0.83% Return on average equity 16.2% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 63% Core Deposits 7
Slide 30: Cautionary Note Regarding Forward Looking Statements
Cautionary Note Regarding Forward Looking Statements • This presentation made by Hawaiian Electric Industries, Inc. (HEI) and Hawaiian Electric Company, Inc. (Hawaiian Electric) and their subsidiaries contain “forward-looking statements,” which include statements that are predictive in nature, depen
Slide 31: Cautionary Note Regarding Forward Looking Statements
Cautionary Note Regarding Forward Looking Statements • the potential delay by the Public Utilities Commission of the State of Hawaii (PUC) in considering (and potential disapproval of actual or proposed) renewable energy or resilience proposals, among others, and related costs; reliance by the Utili
Slide 32: Cautionary Note Regarding Forward Looking Statements
Cautionary Note Regarding Forward Looking Statements • failure to achieve remaining cost savings commitment related to the management audit committed savings of $33 million over the 2021 to 2025 multi-year rate period (MRP); • federal, state, county and international governmental and regulatory acti
Hawaiian Electric Industries — Q2 2023 Earnings Presentation on 6ix