Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q1 2020 Earnings Presentation
52 slides from Hawaiian Electric Industries's earnings presentation, May 5, 2020
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)
• the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid; • the growing risk that energy pro
Slide 3: 1st Quarter 2020 Financial Results & Outlook
Hawaiian Electric Industries, Inc. 1st Quarter 2020 Financial Results & Outlook May 5, 2020
Slide 4: Hawaii actions have succeeded in keeping total cases low and flattening the curve
Hawaii actions have succeeded in keeping total cases low and flattening the curve Low cases and transmission rate, Hawaii daily new cases declining new cases 45 • Total cases = 621, less than 1/10th of 40 1% of state population 35 • New cases per day in single digits since April 19 30 25 Success thu
Slide 5: Despite near-term impacts, underlying strengths of Hawaii economy remain
Despite near-term impacts, underlying strengths of Hawaii economy remain Hawaii jobs by industry GDP by industry 25% 20% Natural resources, Real estate & rental 15% construction & mining 2% 10% 8% 5% Information, 0% finance & insurance Government & 8% defense 19% Professional services Trade, 35% Per
Slide 6: Gradual reopening of Hawaii economy has begun
Gradual reopening of Hawaii economy has begun • Gradual reopening began May 1st (low-contact businesses) among residents • Anticipate meaningful activity resuming mid-to-late summer, and significant recovery by year-end • Statewide economic recovery planning underway: Source: State of Hawaii, Econom
Slide 7: Protecting our employees, helping our customers and community
Protecting our employees, helping our customers and community Protecting our employees Helping our customers Supporting our community • Pandemic response team activated • Suspended disconnections for nonpayment through June 30 • Identified essential workforce and deployed alternating work teams • Pa
Slide 8: Hawaiian Electric—A source of strength as Hawaii recovers
Hawaiian Electric—A source of strength as Hawaii recovers CONSISTENTLY POWERING OUR STATE FOR 125 YEARS Although utility has been impacted by this crisis, it is well-positioned to serve as a source of strength, supporting Hawaii’s recovery Utility is fully decoupled, and earnings are insulated fro
Slide 9: American Savings Bank—Conservatively managed bank with strong financial position
American Savings Bank—Conservatively managed bank with strong financial position SERVING HAWAII THROUGH 95 YEARS OF ECONOMIC CYCLES Prudent lending and risk management practices Earning assets 100% funded by low-cost deposits drive track record of above-peer NIM Pers. Com. Loan portfolio predomi
Slide 10: HEI is well positioned to weather COVID-19 impacts
HEI is well positioned to weather COVID-19 impacts • Consolidated enterprise comprised of stable operating subsidiaries in essential industries • Robust liquidity position enterprise-wide, with recent enhancements to strengthen liquidity at utility and holding company • No need for holding company t
Slide 11: 1Q 2020 financial performance
1Q 2020 financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) 9.7% $45.7 9.2% $0.42 $20.8 $33.4 $0.31 $0.19 $15.8 $0.14 $32.1 $23.9 $0.29 $0.22 ($7.3) ($6.2) ($0.06) ($0.06) 2019 2020 2019 2020 2019 2020 Utility 7.8% 7.4% Bank1 13.1% 9.1% Utility Bank Holding Co. &
Slide 12: 1Q 2020 utility financial highlights
1Q 2020 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 1Q 2020 vs 1Q 2019 RAM revenues for Hawaiian Electric, Hawaii 3 Electric Light and Maui Electric MPIR revenues 1 $32.1 Lower interest expense 1 $23.9 Operations and maintenance
Slide 13: 1Q 2020 bank performance
1Q 2020 bank performance ($ in millions) BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 1Q20 1Q20 $7.71 vs vs 4Q19 1Q19 Net interest income – (2) $28.2 Provision for loan losses (4) (3) $20.8 $15.8 Noninterest income1 (9) – Noninterest expense – (1) 1Q19 4Q19 1Q20 1 For Q4 2019, th
Slide 14: Solid capital and liquidity positions
Solid capital and liquidity positions Liquidity and balance sheet strong across the Upcoming long term debt maturities at HEI enterprise and Hawaiian Electric are manageable Both utility and bank expected to be self- ($ in millions) funding in 2020, with strong stand-alone balance sheets and liqui
Slide 15: Bank liquidity and capital remains solid
Bank liquidity and capital remains solid Secured funding available ASB has sufficient access to large $2,992 $3,000 $3,053 amounts of liquidity, and is currently expanding available borrowing capacity by $704 $808 pledging PPP loans ($250 million $867 pledgable) ASB has significant capacity to absor
Slide 16: HEI financing outlook 2020
HEI financing outlook 2020 (as of May 5, 2020) 2020 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) ~$210M ~$210M Both bank and utility remain net cash flow HC Expense, $30 providers to holding company HEI Investments in Debt Issuance, $75 Utility, $35 We remain committed to an investment
Slide 17: Utility outlook and drivers
Utility outlook and drivers • 4/22—Submitted application requesting deferral of COVID-19 related expenses, starting March 17 through at least year-end. Decision requested by 6/30 Deferral of COVID-19 • Not all costs can be estimated/predicted, but will include: expenses • Bad debt expense, increased
Slide 18: Utility outlook and drivers (cont'd)
Utility outlook and drivers (cont’d) • Decoupling provides earnings stability • COVID-19 is expected to decrease loads, and loads in the last week of March declined versus the same period last year: minimum loads were 7% lower on Oahu, 14% lower on Maui, and 7% lower on Hawaii Island • We expect to
Slide 19: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment We are maintaining long term guidance on capex CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST Potential for COVID-19 related impacts in 2020 of $30M ($ in millions) ($ millions) 4-Year CAGR ~4-6%1 $600 $3,730- $4,000 $4,010 $450 $350-
Slide 20: ASB guidance focused on pre-tax, pre-provision income given COVID uncertainty
ASB guidance focused on pre-tax, pre-provision income given COVID uncertainty ASB 2020 EPS guidance (As of February 13, 2020) ASB Current Assumptions: ASB Sufficient Visibility to many factors: KEY ASSUMPTIONS: • Net Interest Margin • Non-interest Income • Low to mid-single digit earning asset • Non
Slide 21: NIM compression expected given interest rate environment
NIM compression expected given interest rate environment • Interest rates could remain low for the remainder of the year • Federal Reserve reduced the fed funds rate 0.50% on Mar 3rd and 1.00% on Mar 15th Interest rates • Lower interest rate environment increases FAS91 amortization, adding to NIM pr
Slide 22: Lower loss rates and sufficient pre-tax, pre-provision income to offset peak loss experience
Lower loss rates and sufficient pre-tax, pre- provision income to offset even historical peak loss experience ($ in millions) ASB’s net charge-offs have been consistently below national average ASB has substantial loss absorption capacity 2020 expected pre-tax pre-provision income: $90 to $110 Histo
Slide 23: HEI 2020 guidance
HEI 2020 guidance – see below BANK— UTILITY EPS: $1.46 - $1.54 Revisions to pre provision elements KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery mechanisms • Continued profitable operations with pre-tax, • No material impact from PIM penalties and rewards pre-provision inco
Slide 24: Mahalo
Mahalo 22
Slide 25: Slide 25
Slide 26: Appendix
Appendix HEI Catalyst for a better Hawai'i _———_a
Slide 27: Hawaii economic update
Hawaii economic update Mar. 2020 vs YTD 2020 vs Mar. 2019 YTD 2019 Total arrivals -53.7% -16.4% Tourism Total expenditures -52.2% -14.1% Unemployment • March 2020 – Hawaii: 2.6%; U.S.: 4.4% • YTD March 2020 Oahu sales volume vs PY: – Single family homes, up 11.6%; Condominiums, down 0.8% Real Estate
Slide 28: Hawaii's resilient real estate values
Hawaii’s resilient real estate values Honolulu single family home prices declined less and rebounded faster in last recession 305 Global financial crisis 275 303 245 294 215 273 185 248 155 189 125 Index 2000 Q1 = 100 95 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Slide 29: Holding company maintaining strong liquidity
Holding company maintaining strong liquidity Credit facility liquidity enhancements—HEI Holding company’s strong balance sheet and liquidity serve as a source of strength for the combined enterprise $65 $65 In light of COVID-19 pressures, HEI raised capital in April, ensuring ample liquidity ** whil
Slide 30: Utility transactions ensure healthy liquidity
Utility transactions ensure healthy liquidity Credit facility liquidity enhancements—Hawaiian Electric Hawaiian Electric transactions will increase liquidity by ~3x, $95 and show the resilience of our capital markets access $160 million private placement included $50 million green ** bond $95 $75 po
Slide 31: ACL methodology
ACL methodology March 31, 2020 results ACL Methodology Adoption Walk ($ in millions) $90 ACL: 1.49% $80 $77.1 $9.9 $19.4 $70 $5.6 ACL: 1.04% $60 $53.4 $50 $40 $30 ACL - 12/31/19 Day 1 Q1 NCOs Day 2 Reserve for ACL - 3/31/20 Credit Losses • ASB Day 1 Adjustment: 36% increase totaling $19.4 million, p
Slide 32: Quality balance sheet and loan portfolio
Quality balance sheet and loan portfolio Investment Portfolio Sectors ASB1 Mortgage Revenue Bonds Corporates Average yield on earning assets 3.96% 4% 2% Average cost of funds 0.24% Return on avg. equity2 9.1% Government Backed 94% 100% of Core Deposits Core Loans Loans ASB 58% Deposits loans 73% Por
Slide 33: Loan portfolio highly secured by real estate
Loan portfolio highly secured by real estate ($ in millions) $202 / % of total 3.9% 1.5% 1.3% March 31, 2020 loans $204 / 3.9% Residential mortgage 2,162 41.7% Home equity 1,096 21.2% $518 / Commercial real estate 852 16.4% 10.0% Commercial construction 79 1.5% $2,162 / Real Estate Secured 4,189 80.
Slide 34: Real estate secured portfolio characteristics
Real estate secured portfolio characteristics $221 / $79 / $631 / 5% 2% Commercial real estate 15% $2,162 / Represents 16% of overall loan portfolio 52% $631 CRE investor & $221 CRE owner occupied Wtd avg LTV: 50.0% 88% of CRE portfolio is located in Hawaii $1,096 / 26% Home equity ** Repr
Slide 35: Consumer loan portfolio characteristics
Consumer loan portfolio characteristics ($ in millions) Consumer Portfolio Composition 75% Personal unsecured loans Personal line of credit ** Residential construction Land Clean energy loans Other consumer Personal unsecured loan risk characteristics 100% Hawaii originated loans Personal unsecu
Slide 36: Commercial & industrial portfolio characteristics
Commercial & industrial portfolio characteristics ($ in millions) Commercial & Industrial (ex National Sync) Real Estate Rental and Leasing • Commercial portfolio is well Construction diversified with our highest Finance and Insurance concentration to real estate Wholesale Trade rental and leasing o
Slide 37: National syndication risk characteristics
National syndication risk characteristics ($ in millions) Consumer Consumer NR / Disc Staples $5 A- / $10 / 5% $5 / 2% $27 Technology BB+ / $16 / 8% $47 BBB+ / $42 Industrial $17 / 8% Materials $204 $204 $20 / 10% ** REIT Healthcare $113 / 56% $23 / 12% BBB / BBB- / $63 $20 National syndication Re
Slide 38: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition 1Q 2020 CONSOLIDATED UTILITY ROE ROE (%) 1 2 3 4 5 6 7 8 9 Structural Lagged 36
Slide 39: Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases
Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases ($ in millions) Hawaiian Electric Hawaiian Electric Maui Electric Total Pension Adjustment Plant Adds Adjustment Pension Adjustment Net Net Net Bps Rev Req Net Income Rev Req Rev Req Rev Req Income Income Income (ROE)
Slide 40: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation Parties filed updated Second proposal update due Develop new regulations aimed at lowering electricity costs, improving customer service, comprehensive proposals. May 13. Initia
Slide 41: Guiding principles, goals and outcomes
Phase 1 PBR D&O established conceptual framework Conceptual framework established PBR structure • A customer-centric approach, including Revenue adjustment mechanisms Guiding principles immediate “day 1” savings Maintain revenue decoupling and existing cost trackers • Administrative efficiency to
Slide 42: Regulatory evolution: Performance-based regulation (PBR)
Regulatory evolution: Performance-based regulation (PBR) Current Mechanisms Potential changes under PBR 3-year rate case cycle 5-year rate Multi-year rate plans with interim adjustments plan Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate ca
Slide 43: PBR—Phase 2 continues collaborative approach from Phase I
PBR—Phase 2 continues collaborative approach from Phase I • Measured timeline shows PUC’s commitment to gradualism in implementing PBR • Collaborative format is focused on creating a thoughtful process that minimizes risk of unintended consequences • Annual revenue adjustment mechanism has potential
Slide 44: Hawaiian Electric 2020 rate case status
Hawaiian Electric 2020 rate case status Hawaii PUC docket no. 2019-0085 Final D&O (2017 test year) Application (2020 Test Year) (6/22/18) (8/21/19) (eff. 9/1/18) Amount requested Commission approves Parties’ Stipulated $77.6 million Settlement Agreements filed on November 15, (4.1% increase over rev
Slide 45: Hawaii Electric Light 2019 rate case status
Hawaii Electric Light 2019 rate case status Hawaii PUC docket no. 2018-0368 Application (2019 Test Year) Interim D&O (11/13/19) (Eff. 1/1/20)3, 4 (12/14/18)1 Amount requested $13.4M $0M (3.4% increase over revenues at current effective (0.0% increase over revenues at current rates)2 effective rates)
Slide 46: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC Docket No. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases through • Capital cost recovery approved June 2018 the reve
Slide 47: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) Current PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service (Oahu & Maui) $4.0 $2.0 $3.1 $6.5 $1.4 $0.0 $0.0 ($1.4) $0.0 $0.0 $0.5 $0.0 ($2.0) ($3.4) ($3.4) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand R
Slide 48: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Approved for Hawaiian Electric and Maui Electric; included in Hawai‘i Electric Light 2019 test year settlement • Hawaiian Electric: Final D&O in 2017 rate case established fossil fuel cost risk sharing mechanism as part of Energy Cost Recovery Clause Oahu January - Symm
Slide 49: 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 50: 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 51: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation (DG), combined heat and power or other firm capacity supply-side
Slide 52: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory
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