Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q3 2022 Earnings Presentation
29 slides from Hawaiian Electric Industries's earnings presentation, Nov 7, 2022
Slide 1: HEI 3Q22 Financial Results
HEI 3Q22 Financial Results November 7, 2022
Slide 2: Solid Results Support Strengthened 2022 Outlook
Solid Results Support Strengthened 2022 Outlook • Steady utility performance Diluted EPS (GAAP) ‒ Strong mitigation of cost pressures ‒ Increasing utility 2022 EPS outlook to closer to midpoint $0.58 $0.57 • Continued bank strength $0.18 $0.19 ‒ Net interest margin expansion in rising rate environme
Slide 3: Resilient Hawaii Economy
Resilient Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 % YTD Sep. 2022: 6.9M Sept. 2022: 3.5% 12 1,200,000 10,000 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400,000 2,000 2 200,000 -
Slide 4: 3Q22 Utility Highlights
3Q22 Utility Highlights Executing on Clean Energy Transition Managing Costs • Clean energy transition expected to stabilize • Mitigating cost pressures from unique economic customer bills environment • State’s largest solar-plus-storage project now • Focused on managing costs within ARA long online;
Slide 5: 3Q22 Bank Highlights
3Q22 Bank Highlights Strong Financial Performance in Rising Interest Rate Environment ✓ Rising interest rates continued to benefit profitability ✓ Strong loan growth included increases across nearly entire portfolio ✓ Favorable credit trends enabled loan growth without net provision increase ✓ Digit
Slide 6: 3Q22 Financial Performance
3Q22 Financial Performance Net Income ($M) Diluted EPS (GAAP) Consolidated LTM ROE 10.3% 10.5% $63.4 $62.1 $0.58 $0.57 $19.3 $20.8 $0.18 $0.19 $50.3 $49.8 $0.46 $0.45 2021 2022 ($6.2) ($8.4) ($0.06) ($0.08) Utility 8.3% 8.1% 3Q21 3Q22 3Q21 3Q22 Bank1 13.0% 14.2% Utility Bank Holding Co. & Other Note
Slide 7: 3Q22 Financial Highlights
3Q22 Financial Highlights Diluted EPS Variances Q322 vs Q321 $0.02 $0.01 $0.06 $0.02 $0.04 $0.01 $0.02 $0.01 $0.02 $0.01 $0.58 $0.57 Total: ~$0.01 Total: ~($0.01) Q3 2021 Net interest Provision Noninterest ARA and MPIR Tax adjustments1 Monthly factor Heat rate reset Higher O&M Higher deprec HoldCo &
Slide 8: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment Capital Expenditures Forecast ($ in millions) $320-$420 $370-$410 $350-$375 Pending Approval Separate $315 Approved Recovery Low range includes baseline ARA capital and approved separately recovered projects. Approved ARA High range inc
Slide 9: 2022 Utility Outlook Drivers
2022 Utility Outlook Drivers Improved 2022 EPS outlook • Aggressive cost management to respond to inflationary and interest rate environment • Higher generation O&M being offset by savings in labor, outside services, and leased space expense • Accelerated long-term-debt financing to ensure adequate
Slide 10: Net Interest Income Grew with Earning Assets Growth, Improved Margin
Net Interest Income Grew with Earning Assets Growth, Improved Margin 1 Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin (%) 0.13 2.96 2.90 3.09 2.90 2.85 2.96 0.06 0.05 3Q21 2Q22 3Q22 3Q21 2Q22 3Q22 3Q21 2Q22 3Q22 Actual PPP Ex. PPP 2Q22 Reported NIM 2.85% 19.98% 2.80% Rate environm
Slide 11: 2022 Bank Outlook Drivers
2022 Bank Outlook Drivers Stronger Net Interest Margin and Healthy Loan Pipeline • Fed rate increases expected to continue driving NIM expansion • Healthy loan pipeline, but likely more moderate growth in 4Q • Lower mortgage banking income due to higher interest rates • Managing noninterest expense
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 $2.08-$2.20 Key Assumptions: $0.72-$0.76 Additional Assumptions: Key Assumptions: ➢ ➢ Full recovery of COVID-19 Holdco and other expenses ➢ NIM: 2.90 - 2.95% segment net loss of $0.28 - $0.30 ➢ C
Slide 13: Q&A
Q&A
Slide 14: Appendix
Appendix —_—e
Slide 15: HEI Financing Outlook 2022
HEI Financing Outlook 20221 • Both bank and utility remain net cash 2022 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2022 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$30 Debt Issuance ~$35 • Two investment g
Slide 16: Utility LTM ROE
Utility LTM ROE ROE (%) 9.5% 0.4% 9.1% 0.5%* 0.3% 0.2% 8.1% Allowed Non-recoverable ROE less Fuel Risk Actual O&M, Others, Actual Q3 2022 ROE items (i.e., Incentive Structural Sharing and Depreciation and net ROE compensation, Items Higher Fuel Return on advertising, charitable Inventory* Rate Base
Slide 17: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes PIMs Description Max reward / (penalty) T&D SAIDI and SAIFI Incentivizes T&D-caused reliability. Targets based on utility’s historical 10-year average with a deadband of one standard deviation ($6.8 million) Generation SAIDI and Incentivizes gene
Slide 18: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2021 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2022-2024) $10 Based on Sept. 2022 $8 assumptions for renewable $5 - $8 project commercial $6 operation dates and total $4 $2 - $6 generation, RPS-A PIM 2023-24 outcomes $2 expected
Slide 19: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 20: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 Jun. 2022 PUC D&O approved three new PIMs and modifications to an PUC order providing details on PIM tariffs and next Proceeding to evolve regulatory framework to bett
Slide 21: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone DER Policies 2019-0323 The PUC issued two D&Os in Oct. 2022. The first establishes an Utility to file an ARD Compliance Filing in Jan. 2023 Investigates Distributed Energy Resources (DER) as they
Slide 22: Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends
Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) $80 ACL: 1.28% ACL: 1.24% $1.3 $0.4 $70.4 $70 $69.5 $60 $50 ACL - 6/30/22 3Q NCOs 3Q Provision for Credit Losses ACL - 9/30/22 2Q22 3Q22 Beginning ACL balance $67
Slide 23: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,523 $4,563 ASB has more than $208M of excess equity above the “well capitalized” level $3,773 Capital Ratio Tier 1 leverage $2,486 $2,493 $1,821 As of 9/30/22 7.75% “Well capitalized” 5.00% $2,013 $2,049 $1,925 Minimum requir
Slide 24: ASB's Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment
ASB’s Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment Adjustable rate assets ($ in millions) ~$1,214 Timing of repricing Consumer: $9 following rate increase • Revised guidance range accommodates further Fed >3 months -- rate increases during the remainder of 2022 <15 mont
Slide 25: Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans
Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans Commercial & National Loan portfolio characteristics Industrial Syndications Commercial 7.8% 4.5% Personal ✓ ~84% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 58% Constructi
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 3.09% Sectors Ratings Average cost of funds 0.13% Return on avg. equity2 14.2%/15.1% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 100% of 60% 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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