Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q1 2022 Earnings Presentation
29 slides from Hawaiian Electric Industries's earnings presentation, May 9, 2022
Slide 1: HEI 1Q22 Financial Results
HEI 1Q22 Financial Results May 9, 2022
Slide 2: Solid Financial and Operational Results
Solid Financial and Operational Results • Consolidated earnings up 7% vs 1Q21 Diluted EPS (GAAP) • Utility ‒ Executing well under PBR $0.59 $0.63 ‒ Delivering customer value ‒ Progressing climate action goals $0.27 $0.22 • Bank ‒ Good execution in improving bank environment ‒ Solid credit quality $0
Slide 3: 1Q22 Utility Highlights
1Q22 Utility Highlights Adding Resources to Meet Managing Macro Challenges PBR Update Climate Goals • Affordability, efficiency and • Accelerating state’s largest solar- • Process to develop additional customer bill management options plus-storage project PBR PIMs nearing conclusion increasingly imp
Slide 4: 1Q22 Bank Highlights
1Q22 Bank Highlights Strengthening Operations through Improving Banking Environment Digital Transformation • Rising interest rates, recovering • Successfully implementing large Hawaii economy are improving projects (e.g., customer profitability and loan growth relationship management opportunities s
Slide 5: Strengthening Hawaii Economy
Strengthening Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 Mar. 2022 YTD: 2.0M Mar. 2022: 4.1% 12 1,000,000 10,000 10 800,000 8,000 8 6,000 600,000 6 4,000 400,000 4 2,000 2 200,000 - 0 0 January February Mar
Slide 6: 1Q22 Financial Performance
1Q22 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE 10.9% $64.4 $69.2 $0.59 10.0% $0.63 $29.6 $23.9 $0.27 $0.22 $43.4 $46.4 $0.40 $0.42 ($1.1) ($0.01) 2021 2022 ($8.6) ($0.08) Utility 9.0% 8.1% 1Q21 1Q22 1Q21 1Q22 Bank1 10.1% 14.4% Utility Bank Holding Co. & Other Note: Column
Slide 7: 1Q22 Financial Highlights
1Q22 Financial Highlights $0.01 $0.01 $0.01 $0.01 $0.03 $0.06 $0.07 $0.07 $0.03 $0.63 $0.59 Total: ~($0.05) Total: ~$0.02 1 2 1Q 2021 Net interest Provision Noninterest ARA and MPIR Monthly Generation Depreciation O&M Holdco and 1Q 2022 income income and revenue heat other noninterest allocation rat
Slide 8: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment Capital Expenditures Forecast ($ in millions) $380-$450 $320-$450 $350-$400 Pending Approval Separate $302 Approved Recovery Low range includes baseline ARA capital and approved separately recovered projects. Approved ARA High range inc
Slide 9: Utility Outlook Drivers
Utility Outlook Drivers Heat Rate Performance O&M Expense Management PIM Rewards Improvement / Fuel Costs Increases • Higher 1Q22 O&M expenses • Supply chain disruptions impacting • If fuel prices remain high, could driven by: timelines of contracted renewable see full $3.7M pre-tax sharing projects
Slide 10: Net Interest Income Grew with Earning Assets Growth, Stable Margin
Net Interest Income Grew with Earning Assets Growth, Stable Margin Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin (%) 3.03 2.84 2.83 2.95 2.79 2.79 0.08 0.05 0.05 1Q21 4Q21 1Q22 1Q21 4Q21 1Q22 1Q21 4Q21 1Q22 Actual PPP Ex. PPP 4Q21 Reported NIM 2.79% 12.90% 2.68% Increasing invest
Slide 11: Bank Outlook Drivers
Bank Outlook Drivers Stronger Interest Rate Outlook Slowing PPP Fee Income Economic Outlook • Larger and faster rate increases vs • PPP loan fees continue declining • Improving Hawaii economic original assumptions as loans are forgiven, offsetting outlook as COVID-19 recovery near-term rising intere
Slide 12: 2022 EPS Guidance – Utility Strength and Bank Earnings Reset
2022 EPS Guidance1 – Utility Strength and Bank Earnings Reset Provide Base for Future Growth $1.68-$1.78 $2.00-$2.20 Key Assumptions: ➢ Full recovery of COVID-19 $0.59-$0.68 Additional Assumptions: expenses Key Assumptions: ➢ Holdco and other ➢ Capex of $350-$400M segment net loss of ➢ NIM: 2.70-2.8
Slide 13: Q&A
Q&A
Slide 14: Appendix
Appendix —_—e
Slide 15: COVID-19 Update
COVID-19 Update • 77% of Hawaii population fully vaccinated, 39% with boosters • Hawaii Safe Travels program restrictions on U.S. transpacific travelers and indoor mask mandate ended Mar. 25 Hawaii Daily New Cases Average daily case rate in last 7 days, (Statewide 7 Day Average) per 100K residents 5
Slide 16: HEI Financing Outlook 2022
HEI Financing Outlook 20221 • Both bank and utility remain net cash 2022 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2022 ~$200M ~$200M • Balance sheet remains investment grade HC Expense Debt Issuance ~$5 ~$30 • Two investment gr
Slide 17: Utility LTM ROE
Utility LTM ROE ROE (%) 9.5% 0.4% 0.1% 0.1% 8.9% 0.6% 0.2% 8.1% 1 2 3 4 5 Allowed Non-recoverable Transition to PBR Monthly ROE less Actual O&M, Others, Actual 1Q22 ROE items (i.e., Incentive - Impact of 2021 revenue Structural depreciation and net Core ROE compensation, ARA effective allocation Ite
Slide 18: Performance Incentive Mechanisms (PIMs) Incentivize Achievement of Key Outcomes
Performance Incentive Mechanisms (PIMs) Incentivize Achievement of Key Outcomes Maximum PIM Rewards / (Penalties) in $M – Annual unless otherwise specified Existing PIMs (pre-PBR) PBR-established PIMs $6.0 $5.0 See next $4.0 $3.0 page for $3.0 RPS-A PIM $2.0 $3.7 $3.5 $1.5 TBD $2.0-3.0 $1.0 $2.0 $2.
Slide 19: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2021 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2022-2024) $10 $8 $7 - $9 RPS-A PIM potential grows $6 as more renewable energy $3 - $6.5 projects come online $4 • Projects approved or pending $2 approval have potential to $0 - $
Slide 20: 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 21: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 Evidentiary hearing on potential additional PIMs held Apr. 26-27. Post-hearing brief and post-hearing reply brief due in May. Proceeding to evolve regulatory framework
Slide 22: Allowance for Credit Losses Reflects Favorable Credit Trends
Allowance for Credit Losses Reflects Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) $80 ACL: 1.36% $71.1 $0.1 ACL: 1.30% $3.8 $70 $67.2 $60 $50 ACL - 12/31/21 1Q NCOs 1Q Provision for Credit Losses ACL - 3/31/22 4Q21 1Q22 Beginning ACL balance $75.9 $71.1 Quarterly provis
Slide 23: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,563 $4,634 ASB has more than $234M of excess equity $4,026 above the “well capitalized” level Capital Ratio Tier 1 leverage $2,493 $2,548 $1,982 As of 3/31/22 7.83% “Well capitalized” 5.00% $2,011 $2,049 $2,069 Minimum requir
Slide 24: ASB's Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment
ASB’s Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment Adjustment rate assets ($ in millions) ~$1,170 Timing of repricing following rate increase • Base case forecast for 2022 assumed four Fed rate Consumer: $13 increases; guidance range accommodates further >3 months -- in
Slide 25: Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans
Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans Loan portfolio characteristics Commercial & National Industrial Commercial 9.3% Syndications 4.4% ✓ ~84% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 58% Construction Person
Slide 26: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 2.83% Sectors Ratings Average cost of funds 0.05% Return on avg. equity2 14.4%/13.7% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 55% 100% of ASB
Slide 27: 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 28: 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 proposals and related costs; reliance by the Utilities on outside parties such
Slide 29: 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
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