Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q4 2020 Earnings Presentation
57 slides from Hawaiian Electric Industries's earnings presentation, Feb 16, 2021
Slide 1: 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, depend
Slide 2: Cautionary Note Regarding Forward-Looking Statements (cont'd)
• fuel oil price changes, delivery of adequate fuel by suppliers and the continued availability to the electric utilities of their energy cost recovery clauses (ECRCs); • the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased
Slide 3: Cautionary Note Regarding Forward-Looking Statements (cont'd)
policy limits), and the risks associated with the operation of transmission and distribution assets and power generation facilities, including public and employee safety issues, and assets causing or contributing to wildfires; • the ability of the Company’s non-regulated subsidiary, Pacific Current,
Slide 4: 4th Quarter & Full Year 2020 Financial Results; 2021 Outlook
Hawaiian Electric Industries, Inc. 4th Quarter & Full Year 2020 Financial Results; 2021 Outlook February 16, 2021
Slide 5: 2020 highlights
2020 highlights WHAT WE ACCOMPLISHED Financial stability enabled HEI companies to serve as a source of strength for customers and communities during pandemic Record charitable commitments of $5.5 million ($3.5 million related to COVID), more than double typical annual giving Development of con
Slide 6: 2020 utility achievements
2020 utility achievements HAWAIIAN ELECTRIC • Nation-leading residential rooftop solar penetration − 20% of all residential customers; ~36% of Oahu single family homes Cost-effective • Aggressively advanced utility-scale renewable procurements clean energy portfolio − Stage 1 and Stage 2 projects fi
Slide 7: 2020 utility achievements (cont'd)
2020 utility achievements (cont’d) HAWAIIAN ELECTRIC • Intensive stakeholder engagement is core to Integrated Grid Planning process to Stakeholder develop recommendations and identify investment priorities for resilience, grid and engagement resource needs • Collaborated with stakeholders on develop
Slide 8: PBR D&O: Constructive framework designed to balance range of interests
PBR D&O: Constructive framework designed to balance range of interests Guiding Regulatory Priority Balancing of Interests Principles Goals Outcomes • Affordability • Cost control and affordability – Annual Revenue • Reliability Adjustment (ARA) and shared-savings mechanisms A customer- Enhance • Int
Slide 9: 2020 bank achievements: Executing well in a tough environment
2020 bank achievements: Executing well in a tough environment • Operated 70% of branches during height of pandemic (most among peers) • Timely PPP origination and funding supporting 4,100 businesses and 40,000+ jobs Delivering for • Extensive customer accommodations, including deferments and fee wai
Slide 10: Transition to Anytime, Anywhere banking
Transition to Anytime, Anywhere banking Accelerating digital transformation to make banking even easier for customers • Customers adopted digital options at accelerated pace during pandemic • High levels of customer satisfaction with digital offerings • Refocusing branch footprint to enhance multi-c
Slide 11: Hawaii economy on path to recovery
Hawaii economy on path to recovery Dec. 2020 vs Full year 2020 vs Dec. 2019 full year 2019 Total arrivals -75.2% -73.8% Tourism 15,000 Reopening of 10,000 Tourism 10/15/201 8,383 5,000 - 10/20 11/20 12/20 01/21 02/21 • Dec. 2020 – Hawaii: 9.3%; U.S.: 6.7% Unemployment • Hawaii unemployment peaked Ap
Slide 12: Full year 2020 financial performance
Full year 2020 financial performance Net Income (GAAP) Diluted EPS (GAAP) Consolidated LTM ROE ($ in millions) $217.9 $1.99 $197.8 $1.81 9.8% $89.0 $57.6 $0.81 $0.53 Full year 8.6% $156.8 $169.3 $1.43 $1.55 ($27.9) ($29.1) ($0.26) ($0.27) $66.3 $0.61 $50.5 $0.46 $28.2 $0.26 Q4 $15.7 $0.14 $45.4 $43.
Slide 13: Full year 2020 utility financial highlights
Full year 2020 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 2020 vs 2019 Rate adjustment mechanism revenues 17 Operations and maintenance1 6 $169.3 Interest expense 3 $156.8 Major Project Interim Recovery mechanism 2 revenues Dep
Slide 14: 2021 reflects PBR transition
2021 reflects PBR transition • Earnings opportunities increase as PBR mechanisms fully implemented, utility achieves accelerated customer savings commitment, projects are approved under EPRM and new pilot program, and RPS-A PIM potential grows with addition of Stage 1 & 2 RFP projects • In Final PBR
Slide 15: Efficiency remains a core focus
Efficiency remains a core focus • Accelerated delivery of management audit savings in 2021 • Ongoing efficiencies needed under ARA − Focus on keeping O&M growth below inflation and offsetting costs that rise faster than inflation (i.e., audit fees, insurance premiums, healthcare benefits) • Utility
Slide 16: Performance incentive mechanisms (PIMs) incentivize performance on key outcomes
Performance incentive mechanisms (PIMs) incentivize performance on key outcomes Maximum PIM rewards / (penalties) in $mm—Annual unless otherwise specified Existing PIMs (pre-PBR) PBR-established PIMs $8.0 See next $6.0 page for $4.0 RPS-A $6.5 PIM $2.0 $3.7 $3.0 $1.4 $1.5 $2.0 $2.0 $0.0 $0.5 ($1.4)
Slide 17: RPS-A PIM rewards accelerated renewable energy growth
RPS-A PIM rewards accelerated renewable energy growth RPS-A PIM potential grows as Stage 1 & Stage 2 RFP projects come online • Projects filed or pending filing have potential to add ~657 MW of solar and ~3 GWh of storage by ~2023 Statutory RPS1 PBR RPS-A3 ($ millions) $16.0 Estimated ranges for RPS
Slide 18: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST 4-Year CAGR ~4-5% ($ millions) ($ millions) $3,950- $3,750- $4,100 $450 $400-450 $350- $450 $3,650- $3,900 $411 3,700 $335-355 $3,545 $335 $3,425 $3,212 2018A 2019A 2020A 2021E 2022E 2023
Slide 19: Full year 2020 bank financial highlights
Full year 2020 bank financial highlights ($ in millions) BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) $5.51 2020 vs 2019 $89.0 Net interest income (11) $5.22 Provision for credit losses3 (20) $57.6 Noninterest income 4 Noninterest expense (5) 2019 2020 Key components of year-over
Slide 20: Lower funding cost and recognition of PPP fees partially soften the impact of lower rate environment
Lower funding cost and recognition of PPP fees partially soften the impact of lower rate environment YIELD ON EARNING ASSETS (%) NET INTEREST MARGIN (%) 5.00 5.00 4.50 ASB ASB 4.50 4.50 4.00 Avg Top 3 HI Peers Avg Top 3 HI Peers 4.00 4.00 3.85 4.14 3.50 3.50 3.50 3.12 3.22 3.77 3.00 3.20 3.00 3.00 2
Slide 21: Significant ACL coverage increase reflects elevated credit risk from COVID
Significant ACL coverage increase reflects elevated credit risk from COVID…not yet realized ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) ACL: 1.90% $105 $95 $85 $101.2 $75 $49.8 $65 $19.4 $21.4 ACL: 1.04% $55 $45 $35 $53.4 $25 $15 ACL - 12/31/19 Day 1 CECL 2020 NCOs 2020 Provision for ACL - 12
Slide 22: Loan deferrals declining
Loan deferrals declining • 1% of portfolio on active deferral as of 12/31/20 • Majority of customers on pandemic-related payment deferrals have resumed payments, with approximately 1% requiring further assistance through repayment modifications • Previously deferred loan delinquency = 1.1%; overall
Slide 23: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong ASB is not expected to require capital from HEI Access to large amounts of secured ASB has over $273M of excess equity funding above the “well capitalized” level Secured funding available ($ in millions) $3,686 Capital Ratio1 Tier 1 leverage2 $3,000 As of 12/
Slide 24: HEI financing outlook 2021
HEI financing outlook 2021 (as of February 16, 2021) 2021 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) ~$245 ~$245 Both bank and utility remain net cash flow HC Expense, providers to holding ~$30 company; Bank Debt Issuance, dividend increases HEI Investments ~$95 in Utility, ~$65 No ex
Slide 25: HEI 2021 EPS guidance
HEI 2021 EPS guidance (as of February 16, 2021) HEI EPS: $1.75 - $1.95 PER SHARE UTILITY EPS: $1.53 - $1.61 BANK EPS: $0.52 - $0.62 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • With limited exception, PBR changes effective • Flat to low single digit earning asset growth Jun. 1, 2021 • NIM: ~2.90% to 3.15% •
Slide 26: Mahalo
Mahalo Catalyst for a better Hawai'i ————_
Slide 27: Appendix
Appendix HEI Catalyst for a better Hawai'i _———_a
Slide 28: Hawaii COVID case update
Hawaii COVID case update Focusing on community health and safety Hawaii Daily New Cases (statewide total) 400 350 300 250 200 New cases 150 100 50 7-day average 0 3/15 4/15 5/15 6/15 7/15 8/15 9/15 10/15 11/15 12/15 1/15 2/15 Average daily case rate in last 7 days, per 100K residents (as of 2/14/21)
Slide 29: Hawaii economic update
Hawaii economic update 16,000 Daily Visitor Arrivals Unemployment Rate 14,000 UHERO Baseline Forecast Recent high: 23.8 23.5 12,000 2021F 4.4M 12,996 2/11/21 2022F 8.2M 10,000 2023F 9.1M 15 14.2 8,000 13.4 13.5 13 10.4 10.9 6,000 9.3 4,000 5.6 4.4 2,000 Reopening of 2.7 2.7 2.7 Economy 10/15/20 - Oa
Slide 30: Hawaii economic forecast
Hawaii economic forecast • UHERO forecast (base case) projects meaningful Hawaii economic recovery starting mid-2021 • Recent positive COVID-19 vaccine developments have potential to accelerate recovery − 10.8% of Hawaii population vaccinated as of 2/15/21 • Hawaii to receive at least $1.7 billion f
Slide 31: Hawaii's resilient real estate values
Hawaii’s resilient real estate values Demonstrates lower risk of bank portfolio Honolulu single family home prices declined less and rebounded faster in last recession 325.0 283 Global financial crisis 274 275.0 246 225.0 236 185 175.0 125.0 75.0 Index 2000 Q1 = 100 2000 2001 2002 2003 2004 2005 200
Slide 32: ESG is in our DNA
ESG is in our DNA Strength of our companies is inextricably linked to the health of our environment, economy and communities Focused on achieving state’s 100% renewable energy and carbon neutrality goals in a way that is safe, reliable, resilient and affordable for customers Embedded in Core Investi
Slide 33: ESG underpins key strategic initiatives
ESG underpins key strategic initiatives • Advancing 100% RPS and carbon neutrality goals while maintaining focus on reliability, resilience, affordability and equity − Filed and approved PPAs in recent RFPs would add ~657 MW renewable energy and ~3 GWh storage − #1 in nation in rooftop solar penetra
Slide 34: Aggressively pursuing clean energy additions
Aggressively pursuing clean energy additions • Procurements underway to increase future RPS achievement − Procurements significant given system peak load: Oahu: ~1200 MW, Hawaii Island: ~200 MW, Maui County: ~200 MW − Filed 9 PPAs for solar and storage and 2 self-build storage applications in 2020 S
Slide 35: Path to a 100% renewable, carbon neutral future
Path to a 100% renewable, carbon neutral future Leading a community-wide transformation • Advancing Hawaii’s largest-ever renewable energy and storage Aggressively procuring procurements renewable energy & storage • Helping enable end of coal in Hawaii in 2022, additional fossil plant retirement i
Slide 36: Solid enterprise-wide capital and liquidity position
Solid enterprise-wide capital and liquidity position Modest 2021 long-term debt maturities Liquidity and balance sheet strong prefunded ($ in millions) Utility and bank expected to be self-funding in Liquidity as of 12/31/2020 2020, with strong stand-alone balance sheets HEI HECO Credit facility c
Slide 37: New PBR framework
New PBR framework Most components effective June 1, 2021 Pre-PBR mechanisms Change under PBR 3-year rate plan 5-year rate plan Revenue Annual revenue adjustment (ARA) adjustment Accounts for inflation, productivity improvements (set at zero), material events mechanism (RAM) outside utility control,
Slide 38: Annual revenue adjustment mechanism formula
Annual revenue adjustment mechanism formula Annual target revenues now set with ARA during 5-year MRP Annual revenue adjustment formula: i-factor x-factor z-factor customer dividend Accounts for Productivity Ex post Two components: annual inflation factor opportunity to recover costs for (i) 0.22% a
Slide 39: New performance incentive and shared savings mechanisms create additional earnings opportunities
New performance incentive (PIMs) and shared savings mechanisms (SSMs) create additional earnings opportunities Summary Upside / downside Interconnection Rewards and penalties based on utility ability to reduce +$3M / -$0.9M approval PIM approval time to interconnect DER systems <100 kW annually Grid
Slide 40: RPS-A PIM reward calculation
RPS-A PIM reward calculation 2021 RPS-A Renewable 2020 RPS 2020 RPS-A 2020 Total 2019 2021 RPS-A Renewable Generation (%) (%) Generation Renewable Target Generation Shortfall (GWH) Generation (%) Threshold (GWH) (GWH) (GWH) [F] = [C] x [G] = [F] – [A] [B] [C] [D] [E] [E] [D] 34.5% 28.4% 9,851 2,801
Slide 41: Utility LTM ROE
Utility LTM ROE 4Q20 CONSOLIDATED UTILITY ROE ROE (%) ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ Structural Lagged 38
Slide 42: Hawaiian Electric: Current authorized rates
Hawaiian Electric: Current authorized rates Hawaiian Electric Hawaii Electric Light Maui Electric (Oahu) (Hawaii Island) (Maui County) Return on Average 9.50% 9.50% 9.50% Common Equity Common Equity 57.15% 56.83% 57.02% Capitalization Average Rate Base $1,993 million $534 million $454 million Date A
Slide 43: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 PUC issued Phase 2 D&O Dec. 23, 2020 Tariff Development. Post D&O Working Group. Proceeding to evolve regulatory framework to better align with PUC issued Order granti
Slide 44: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 45: 4Q20 utility financial highlights
4Q20 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 4Q 2020 vs 4Q 2019 Operations and maintenance1 (4) Depreciation (1) $45.4 $43.0 Allowance for funds used during construction (1) Amortization of excess deferred income taxes and (
Slide 46: 4Q20 bank financial highlights
4Q20 bank financial highlights ($ in millions) BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) $7.71 4Q20 4Q20 vs vs 4Q19 3Q202 Net interest income (2) 1 1 $28.2 Provision for credit losses (4) 2 $15.7 Noninterest income (4) 1 $12.2 Noninterest expense (2) (2) 4Q19 3Q20 4Q20 1 For 4
Slide 47: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 2.9% 2.3% 0.3% ~79% of portfolio secured by real estate (84% excl. PPP) 3.2% C&I represent ~14% of total loans (9% excl. PPP) 14.3% Personal unsecured loans represent ~
Slide 48: Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs As of 12/31/20 $230 / $121 / ($ in millions) 5% 3% $754 / Commercial real estate 18% $2,171 / 51% Represents 21% of overall loan portfolio $754M CRE investor & $230M CRE owner occupied Wtd avg LTV: 59.1% 97%
Slide 49: Bank national syndication risk characteristics
Bank national syndication risk characteristics Admin & Consumer NR Healthcare Supp Staples $4 / 2% A- $7 / 4% $5 / 3% $4 / 3% $13 / 8% BB+ Retail $9 / $44 / 26% 5% BBB+ $39 / 23% $171 $171 Manufacturing $33 / 19% BBB- REIT $113 $41 / 24% BBB / 66% $30 / 17% National syndication Represents ~3% of o
Slide 50: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition Personal Unsecured Loans 704 ($ in millions) $250 702 $200 700 $150 68% 698 $100 696 $50 694 $- 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 Personal unsecured loans Personal line of credit PUL - Balance PUL - FICO **
Slide 51: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Health Care and Social Assistance well diversified with highest concentration to Construction Health Care & Social Other
Slide 52: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.22% Corporates Mortgage Revenue 2% Bonds Average cost of funds 0.09% 1% Return on avg. equity2 8.58% Government Backed 97% Core 100% of ASB Loans Loans Deposits loans 73% 62% 81% Investm
Slide 53: Net charge-offs & level of classified loans remain stable through COVID period
Net charge-offs & level of classified loans remain stable through COVID period ($ in millions) Provision for Credit Losses1 and Net Charge-Offs Provision for Credit Losses Net Charge-Offs Net Charge-Offs to Average Loans Stable Credit Trends $16 $14.5 $14.6 Net charge-offs to average loans improve
Slide 54: 2020 ASB peer group
2020 ASB peer group Bancorp, Inc. TBBK Enterprise Financial Services Corp EFSC Sandy Spring Bancorp, Inc. SASR FB Financial Corporation FBK Veritex Holdings, Inc. VBTX Financial Institutions, Inc. FISI Meta Financial Group, Inc. CASH Heritage Financial Corporation HFWA Washington Trust Bancorp, Inc.
Slide 55: 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, depend
Slide 56: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection
Slide 57: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • federal, state, county and international governmental and regulatory actions, such as existing, new and changes in laws, rules and regulations applicable to HEI, the Utilities and ASB (including changes in taxation and tax rates, increases in ca
Hawaiian Electric Industries — Q4 2020 Earnings Presentation on 6ix