Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q4 2021 Earnings Presentation
33 slides from Hawaiian Electric Industries's earnings presentation, Feb 14, 2022
Slide 1: 4th Quarter & Full Year 2021 Financial Results; 2022 Outlook
Hawaiian Electric Industries, Inc. 4th Quarter & Full Year 2021 Financial Results; 2022 Outlook February 14, 2022
Slide 2: Solid 2021 performance
Solid 2021 performance 2021 selected highlights Diluted EPS (GAAP) Consolidated enterprise • 24% year-over-year EPS growth $2.25 • Increased annual dividend 4th year in a row $1.81 Utility $0.92 $0.53 • Cost efficiencies and productivity improvements • Delivered significant customer savings • Contin
Slide 3: 2021 utility achievements
2021 utility achievements • Delivered $8 million in customer savings Creating • Supported customers in financial need, including through pandemic bill relief customer • Implemented Battery Bonus and Quick Connect programs to accelerate storage value additions and customer resource interconnections •
Slide 4: 2021 bank achievements
2021 bank achievements • Accelerated anytime, anywhere banking transition to meet customer needs − ATM re-fleet Delivering for − 4 digital center conversions customers − Expanded online functionality • 52% of customer deposits self service (as of Dec. 2021) • Deployed $551M in Paycheck Protection Pr
Slide 5: Hawaii economy strengthened with reopening
Hawaii economy strengthened with reopening Continues to reflect virus trends Unemployment Rate & YTD Visitor Arrivals Daily Arrivals (excludes flights from Canada) (In thousands) YTD visitor arrivals Unemployment rate 2022 2021 2020 2019 10,000 12% 45,000 2021 6.8M visitor arrivals 9,000 vs 40,000 8
Slide 6: Solid 2021 financial performance
Solid 2021 financial performance Net Income Diluted EPS Consolidated LTM ROE ($ in millions) $246.2 $2.25 $197.8 $1.81 10.4% $101.2 $0.92 $57.6 $0.53 Full year $169.3 $177.6 $1.55 $1.62 8.6% ($29.1) ($32.7) ($0.27) ($0.30) $54.5 $0.50 $50.5 $0.46 $15.7 $22.1 $0.14 $0.20 Q4 2020 2021 $43.0 $42.0 $0.3
Slide 7: 2021 utility financial highlights
2021 utility financial highlights ($ in millions) Delivered $8M customer savings and established $2M customer bill credit program Higher revenues: − $9M rate adjustment mechanism (RAM); $7M annual rate adjustment (ARA) mechanism • Partially offset by management audit savings and Maui County and
Slide 8: Lower Adjusted O&M excluding pension (non-GAAP) reflects focus on cost efficiencies
Lower Adjusted O&M excluding pension (non-GAAP)1 reflects focus on cost efficiencies Adjusted O&M excluding pension (non-GAAP)1 ($ millions) $422 $414 $412 Original expectation: $409M • Reduction in Adjusted O&M excluding pension (non-GAAP)1 since 2019 • Lower expenses in 2021 2019 2020 2021 despite
Slide 9: PBR framework financial drivers
PBR framework financial drivers 2022 amounts included under PBR Impacts in 2022 – first full year of PBR Eliminate 20 bps of lag from Annual revenue • $22.9M net ARA revenues (net of shift to Jan. 1 ARA accrual adjustment customer dividend and management (ARA) audit savings) Continue to narrow g
Slide 10: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST ($ in millions) $350-$500 Low range includes baseline ARA capital $450 $320-$430 and approved $411 $350-$400 separately recovered $335 Separate projects. $302 Recovery High range includes separately recover
Slide 11: 2021 bank financial highlights
2021 bank financial highlights ($ in millions) Net income up 76%, largely due to $25.8 million negative provision for credit losses • Reflects significant improvement in credit quality and economic environment Net interest margin of 2.91%, with record low average funding cost of 6 bps 10.6% de
Slide 12: Net interest income grew with earning asset growth despite margin pressure
Net interest income grew with earning asset growth despite margin pressure YIELD ON EARNING ASSETS (%) PPP ($ in millions) Loans Fees 3.22 2.96 Funded $ / count $551 / 6,300 $23 2.84 Forgiveness / paydowns to date $482 $20 4Q20 3Q21 4Q21 Balance (as of 12/31/21) $69 $3 COST OF FUNDS (%) 0.09 Actual
Slide 13: 2022 bank net income drivers
2022 bank net income drivers • PPP fee income tapers off as remaining PPP loans are forgiven • Allowance for credit losses reflects anticipated continued economic improvement and reserves for loan growth • Rising interest rate environment benefits net interest margin over time • Efficiency focus kee
Slide 14: HEI financing outlook 2022
HEI financing outlook 2022 (as of February 14, 2022) 2022 HOLDING COMPANY SOURCES & USES OF CAPITAL Both bank and utility ($ in millions) remain net cash flow providers to holding ~$200 ~$200 company Debt Issuance, HC Expense, ~$5 ~$30 No external equity HEI Investments required in 2022 in Utility,
Slide 15: HEI 2022 EPS guidance
HEI 2022 EPS guidance (as of February 14, 2022) HEI EPS: $2.00 - $2.20 PER SHARE UTILITY EPS: $1.68 - $1.78 BANK EPS: $0.59 - $0.68 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • Full recovery of COVID-19 related expenses • NIM (%) 2.70% – 2.85% • Capex of $350 to $400 million • Provision expense (millions) $0
Slide 16: Appendix
Appendix HEI Catalyst for a better Hawai'i ie
Slide 17: Experienced, committed leadership team
Experienced, committed leadership team New HEI and Hawaiian Electric CEOs effective Jan. 1, 2022 Scott Seu Shelee Kimura Ann Teranishi Greg Hazelton Kurt Murao HEI Hawaiian Electric American Savings Bank HEI HEI President & CEO President & CEO President & CEO EVP & Chief Financial EVP, General Couns
Slide 18: COVID-19 Update
COVID-19 Update • COVID cases declining as Omicron surge wanes • Dec. 2021 tourism arrivals 150% above Dec. 2020 • 75% of Hawaii population fully vaccinated, 36% with boosters (In thousands) Hawaii Cases & Hospitalizations Average daily case rate in last 7 days, (7 Day Average) per 100K residents 5,
Slide 19: New PBR framework
New PBR framework In full effect as of 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, custo
Slide 20: Earnings primarily driven by 3 main sources under PBR
Earnings primarily driven by 3 main sources under PBR Annual Revenue Performance Incentive 1 Adjustment (ARA) 2 Separate Recovery 3 Mechanisms (PIMs) • Inflation less customer dividend • Exceptional Project Recovery • PBR PIMs provide opportunity • Keeping baseline O&M and Mechanism (EPRM), innovati
Slide 21: 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 $5.0 $4.0 See next $3.0 page for $3.0 RPS-A $2.0 $3.7 TBD $3.5 $1.5 PIM $1.0 $1.4 $1.8-$2.0 $2.0 $2.
Slide 22: RPS-A PIM rewards accelerated renewable energy growth
RPS-A PIM rewards accelerated renewable energy growth ($ millions) 2021 Award Estimated ranges for RPS-A PIM $12 (Actual) 2022-24 $10 RPS-A PIM potential $7 - $11 grows as more $8 renewable energy $4 - $10 $6 projects come online $4 • Projects approved or $2 $0 - $4 pending approval have $0.8 potent
Slide 23: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 24: Utility LTM ROE
Utility LTM ROE 1 2 3 4 Allowed ROE Non-recoverable Transition to PBR ROE less Actual O&M, Others, Actual Q4 2021 items (i.e. Incentive – Impact of 2021 Structural depreciation net Core ROE compensation, ARA effective Items and rate base advertising, June 1, 2021 not recovered charitable contributio
Slide 25: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 Nov. 2021 PUC Order revised procedural schedule for consideration Responses to information requests and final Proceeding to evolve regulatory framework to better align
Slide 26: 4Q21 bank financial highlights
4Q21 bank financial highlights ($ in millions) 4Q21 vs 3Q21 selected key drivers Release of reserves for credit losses resulting in negative provision − Favorable credit trends − Continued improvement in economic environment Net interest income impacted by lower PPP fee recognition 1 − Lower ass
Slide 27: Negative provision reflects favorable credit trends, improved economic environment
Negative provision reflects favorable credit trends, improved economic environment ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) ACL: 1.90% $3.7 $100 $26.4 $101.2 ACL: 1.36% $90 $80 $71.1 $70 $60 $50 ACL - 12/31/20 2021 NCOs 2021 Provision for Credit Losses ACL - 12/31/21 2020 2021 Change Begin
Slide 28: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong Access to large amounts of secured funding ASB has more than $232M of excess equity above the “well capitalized” level Secured funding available ($ in millions) $4,563 Capital Ratio Tier 1 leverage $3,686 As of 12/31/21 7.86% $2,493 ** “Well capitalized” 5.00
Slide 29: Bank loan portfolio: Conservative profile, concentrated in real estate-secured loans
Bank loan portfolio: Conservative profile, concentrated in real estate-secured loans ($ in millions) Loan portfolio characteristics 1.9% 1.7% 0.3% 4.8% ~83% of portfolio secured by real estate (84% excl. PPP) * Residential Wtg Avg LTV < 50%; CRE Wtg Avg LTV < 60% 10.4% C&I represent ~10% of tota
Slide 30: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Corporates Mortgage Revenue Average yield on earning assets 2.84% 1% Bonds Average cost of funds 0.05% 1% Return on avg. equity2 12.10% Government Backed Loans 98% 73% Core 100% of Loans ASB Deposits loans 56% 84% funded
Slide 31: 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 32: 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 33: 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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