Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — EEI Financial Conference 2020
60 slides from Hawaiian Electric Industries's conference presentation, November 2020
Slide 1: Hawaiian Electric Industries, Inc. EEI Financial Conference
Hawaiian Electric Industries, Inc. EEI Financial Conference November 2020
Slide 2: Forward looking statements
Forward looking statements Cautionary statements and risk factors that may affect future results This presentation includes forward-looking statements within the meaning of the federal securities laws. Actual results could differ materially from such forward-looking statements. The factors that coul
Slide 3: Catalyst for a better Hawaii
HAWAIIAN ELECTRIC INDUSTRIES Catalyst for a better Hawaii
Slide 4: HEI overview
HEI overview Hawaii's largest corporation with a diversified platform supplying energy, providing financial services and investing in a sustainable future Kauai 2 Oahu 30 1 4 Molokai 1 Maui Utility Lanai 6 service territory 1 Hawaii Bank 5 branches1 1 Pacific Current projects 71% (Utility) 3,846 7%
Slide 5: 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 6: COVID Response
COVID Response
Slide 7: Hawaii COVID case update
Hawaii COVID case update Hawaii Daily New Cases (statewide total) 400 350 300 Added probable cases 250 213 cases 200 150 New cases 100 7-day average 50 0 3/4 4/4 5/4 6/4 7/4 8/4 9/4 10/4 11/4 Cases in last 7 days as of 11/5 Total cases by Island Oahu Maui county 0 – 1,361 13,445 414 2,667 – 4,618 5,
Slide 8: Despite economic uncertainty, some positive signs
Despite economic uncertainty, some positive signs Reduction in new COVID cases and reopening of tourism sector • Oahu economy began reopening late Sept. under tiered framework • Tourism sector reopened with Oct. 15 pre-arrival testing program for domestic travelers; program now expanded to travelers
Slide 9: HEI is well positioned to weather COVID impacts
HEI is well positioned to weather COVID 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 to i
Slide 10: Hawaiian Electric – A source of strength as Hawaii recovers
Hawaiian Electric – A source of strength as Hawaii recovers CONSISTENTLY POWERING OUR STATE FOR OVER 129 YEARS Well positioned to serve as a source of strength, supporting Hawaii’s recovery Fully decoupled, with revenues adjusted for load decline impacts Good recovery mechanisms Deferral of CO
Slide 11: American Savings Bank – Conservatively managed bank with strong financial position
American Savings Bank – Conservatively managed bank with strong financial position SERVING HAWAII THROUGH OVER 95 YEARS OF ECONOMIC CYCLES Prudent risk management is the foundation of our management approach Earning assets 100% funded by core and low-cost deposits Diverse, high quality loan port
Slide 12: Financial update
Financial update
Slide 13: Strong foundation continues to support solid consolidated results
Strong foundation continues to support solid consolidated results QTD EPS (GAAP) Core business strengths $0.59 $0.58 • Consolidated enterprise comprised of stable operating subsidiaries in essential 3Q19 3Q20 industries • Fully decoupled utility, with good YTD EPS (GAAP) recovery mechanisms $1.39 •
Slide 14: 3Q20 consolidated financial performance
3Q20 consolidated financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) $65.0 $63.5 9.4% $12.2 $0.59 9.2% $0.58 $22.9 $0.11 $0.21 $60.1 $46.8 $0.55 $0.43 ($6.2) ($7.2) ($0.06) ($0.07) 3Q19 3Q20 Utility 7.6% 8.4% 3Q19 3Q20 3Q19 3Q20 Bank1 13.7% / 12.4% 6.8% / 7.9% Ut
Slide 15: 3Q20 utility financial highlights
3Q20 utility financial highlights ($ in millions) Lower O&M driven by: • Ongoing efficiency initiatives • Elevated 3Q19 overhauls and vegetation management • Timing of generating unit overhauls Revenue additions from RAM, MPIR UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV
Slide 16: 3Q20 bank financial highlights
3Q20 bank financial highlights ($ in millions) Record mortgage production Improved noninterest fee income from resumption of fees Net interest margin compression slowing Record low cost of funds BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 3Q20 3Q20 vs vs 3Q19 2Q20 $22.9
Slide 17: Hawaiian Electric: Focusing on efficiency and affordability
Hawaiian Electric: Focusing on efficiency and affordability • Hawaiian Electric 2020 rate case final D&O received Oct. 22 − Maintained 9.5% allowed ROE, 58% equity Plan for Achieving $25M Customer capitalization Savings by YE 2022 − Removed 90% cap on Schofield generating Cost savings to be 80% capi
Slide 18: Utility outlook and drivers
Utility outlook and drivers • HECO final D&O in Oct. approved settlement proposing no base rate increase − Base rates held flat; 9.5% allowed ROE; 58% equity capitalization Cost − Follows HELCO final decision in July holding base rates flat efficiencies offsetting lack − No rate case filing for Maui
Slide 19: ASB: Solid execution in dynamic environment
ASB: Solid execution in dynamic environment • Key elements returning to normal operations − Reopened several branches temporarily closed earlier in pandemic − Strong mortgage banking income from residential lending − Resumption of certain fees previously suspended during initial impact of COVID • Co
Slide 20: Record low funding cost and lower FAS 91 amortization partially offset asset yield decline
Record low funding cost and lower FAS 91 amortization partially offset asset yield decline NET INTEREST MARGIN (%) ASSET 4.11 3.39 3.25 YIELD (%) 3Q19 2Q20 3Q20 3.82 3.35 to COST OF 0.30 3.25 3.21 FUNDS 3.12 (%) 0.18 0.13 ** 3Q19 2Q20 3Q20 3Q19 2Q20 3Q20 Full Year 2020 Actual PPP Excluding PPP 2Q20
Slide 21: Higher noninterest income from core activities and lower noninterest expense drove 3Q20 performance
Higher noninterest income from core activities and lower noninterest expense drove 3Q20 performance Core activities and expense control partially offset 2Q20 gains on sales of securities NONINTEREST INCOME1 NONINTEREST EXPENSE ($ in millions) ($ in millions) $48.4 Gain on sale of securities $47.3 $9
Slide 22: Additional provision reflects Sept. 30 outlook
Additional provision reflects Sept. 30 outlook ALLOWANCE FOR CREDIT LOSSES (ACL) $100 ($ in millions) ACL: 1.67% $14.5 $91.5 $90 ACL: 1.50% $4.3 $81.3 $80 $81.3 $70 $60 $50 ACL - 6/30/20 3Q NCOs 3Q Provision for Credit ACL - 9/30/20 Losses 1Q20 2Q20 3Q20 Beginning ACL balance $53.4 $77.1 $81.3 DAY 1
Slide 23: Loan deferrals declining
Loan deferrals declining • 3% of portfolio on active deferral as of 9/30/20 (2% of portfolio on second deferral) • Of loans that had a deferral at any time from Mar. 2020, 76% have returned to payment • Previously deferred loan delinquency = 1.0%; overall portfolio delinquency = 0.3% DEFERRED LOANS
Slide 24: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 3.2% 2.1% 0.2% 3.5% ~78% of portfolio secured by real estate (83% excl. PPP) C&I represent ~16% of total loans (9% excl. PPP) 15.5% Personal unsecured loans represent ~
Slide 25: 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 $266M of excess equity funding above the “well capitalized” level Secured funding available ($ in millions) $3,333 Capital Ratio1 Tier 1 leverage2 $2,927 $3,000 As
Slide 26: Solid enterprise-wide capital and liquidity position
Solid enterprise-wide capital and liquidity position Modest 2021 long-term debt maturities Liquidity and balance sheet strong already prefunded ($ in millions) Utility and bank expected to be self-funding in Liquidity 2020, with strong stand-alone balance sheets HEI HECO Credit facility capacity $
Slide 27: HEI financing outlook 2020
HEI financing outlook 2020 (as of November 6, 2020) 2020 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) ~$210M ~$210M HC Expense, ~$30 Debt Issuance, Both bank and utility HEI Investments in ~$75 Utility, ~$35 remain net cash flow providers to holding company No change in net utility divi
Slide 28: HEI 2020 guidance
HEI 2020 guidance (as of November 6, 2020) UTILITY EPS: $1.46 – $1.54 BANK Pretax Pre-Provision (PTPP) Stable performance through supportive regulatory income increased to: $105 – $115 million framework and focus on cost reductions Continued profitable operations with upward revision to some pre-pro
Slide 29: Advancing Hawaii’s sustainable future
Advancing Hawaii’s sustainable future
Slide 30: Committed to ambitious climate goals
Committed to ambitious climate goals Hawaii’s goals of 100% RPS and carbon On course to exceed 2020 RPS neutrality by 2045 are among the most milestone of 30% 35% ambitious in the nation 30% (1) 27% 27% 28% 26% 25% 23% 21% 20% 18% 15% 14% 12% 9% 10%10% 10% 5% 0% 2008 2009 2010 2011 2012 2013 2014 20
Slide 31: Path to a 100% renewable, carbon neutral future
Path to a 100% renewable, carbon neutral future Leading a community-wide transformation • Advancing Hawaii’s largest-ever renewable energy and storage Aggressively procuring procurements renewable energy & storage • Helping enable end of coal in Hawaii in 2022, additional fossil plant retirement b
Slide 32: Aggressively pursuing clean energy additions
Aggressively pursuing clean energy additions • On track to exceed 2020 milestone of 30% RPS achievement • Additional procurements underway to increase future RPS achievement − Procurements significant given system peak load: Oahu: ~1200 MW, Hawaii Island: ~200 MW, Maui County: ~200 MW − Filed 8 PPAs
Slide 33: Encouraging rooftop PV, customer-sited resources
Encouraging rooftop PV, customer-sited resources Providing management and infrastructure to integrate, and programs to incentivize, DER Nation’s highest penetration of rooftop solar Cumulative residential PV installations (in megawatts) • 20% of all residential customers Net Energy Metering New DER
Slide 34: Renewable energy key to affordability, bill stability
Renewable energy key to affordability, bill stability UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Energy Cost ($/kWh) Pre-2016 PPAs 2016+ PPAs 0.40 Proposed and Approved 0.35 0.30 0.25 12/20
Slide 35: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST ($ millions) ($ millions) 4-Year CAGR ~4-6%3 $3,730- $4,010 $450 $350-450 $350-$450 $401 $411 $3,620- $340-$350 3,700 $3,490- 3,560 $3,425 $3,212 $2,972 2017A 2018A 2019A 2020E 2021E 2022
Slide 36: Regulatory evolution seeks to facilitate clean energy transition
Regulatory evolution seeks to facilitate clean energy transition • Performance-based regulation (PBR) is intended to align regulatory framework with customer interests and renewable energy goals • Phase I D&O established guiding principles, goals and core structural elements Guiding principles Goals
Slide 37: Regulatory mechanisms
Regulatory mechanisms Most mechanisms expected to remain in place or be enhanced under 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
Slide 38: PBR — Summary of remaining issues
PBR — Summary of remaining issues From Hawaiian Electric Reply Statement of Position: General consensus among the parties that: Differences remain among the parties on many issues, including, e.g.: 1. the MRP control period should be 5 years; 2. there should be continuation of ECRC, 1. the “X-factor
Slide 39: Pacific Current provides non-regulated platform for sustainable infrastructure investment
Pacific Current provides non-regulated platform for sustainable infrastructure investment Drivers Sectors Criteria Sustainability is the Technology Technology driver of value Renewable Transportation Power Electrification Long term viability Climate adaptation ESG-aligned / local and resilience exec
Slide 40: Initial project cash flow funding Pacific Current growth
Initial project cash flow funding Pacific Current growth • Focused on local partnerships and projects consistent with investment grade profile • Long-term strategy, with modest earnings impact as it builds Hawaii-based portfolio − Baseline plan anticipates building to ~$0.03-$0.05 EPS contribution o
Slide 41: Appendix
Appendix
Slide 42: Protecting our employees, helping our customers and community during COVID-19 period
Protecting our employees, helping our customers and community during COVID-19 period Protecting our employees Helping our customers Supporting our community • Activated pandemic response team • Suspended disconnections for nonpayment through December 31, • Mandatory work-from-home for all 2020 appli
Slide 43: Hawaii economic update
Hawaii economic update September 2020 vs YTD 2020 vs September 2019 YTD 2019 Tourism Total arrivals -97.4% -71.6% Total expenditures N/A N/A Unemployment • September 2020 – Hawaii: 15.1%; U.S.: 7.9% • YTD September 2020 Oahu sales volume vs PY: – Single family homes, down 1.4%; Condominiums, down 18
Slide 44: 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 303 305 Global financial crisis 294 275 273 245 248 215 189 185 155 125 Index 2000 Q1 = 100 95 2000 2001 2002 2003 2004 2005 2006 20
Slide 45: Utility LTM ROE
Utility LTM ROE 3Q20 CONSOLIDATED UTILITY ROE ROE (%) 1 2 3 4 5 6 7 8 9 Structural Lagged 45
Slide 46: 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 $454 million Date A
Slide 47: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 Hearings held in Sept. Post hearing briefs filed in Oct. Proceeding is ready for decision making Proceeding to evolve regulatory framework to better align with custome
Slide 48: Evolution to performance-based regulation (PBR)
Evolution to performance-based regulation (PBR) Focused on supporting renewable energy transition Conceptual framework established PBR structure • Utility financial integrity to maintain the Revenue adjustment mechanisms Guiding principles utility’s financial health, including access to low- Maint
Slide 49: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC Docket No. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases • Hawaiian Electric’s 2020 test year rate case through the
Slide 50: Performance incentive mechanisms (PIMs)
Performance incentive mechanisms (PIMs) Current PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service $4.0 $2.0 $6.5 $3.1 $1.4 $0.5 $0.0 $0.0 ($1.4) $0.0 $0.0 $0.0 ($2.0) ($3.4) ($3.4) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand Renewable Durat
Slide 51: Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs CRE owner- Commercial construction Commercial real estate occupied 3% 5% Represents 16% of overall loan portfolio Commercial investor Residential $668M CRE investor & $217M CRE owner 16% mortgage occupied 52%
Slide 52: Bank national syndication risk characteristics
Bank national syndication risk characteristics Consumer NR Healthcare A- Disc BB- $6 / 3% $7 / 4% ($ in millions) $13 / 7% Industrial $8 / 4% $10 / 5% $10 / 5% Consumer BBB+ Staples BB+ $49 / 25% $10 / 5% $44 / 23% Technology $15 / 8% $193 $193 Materials $19 / 10% BBB- BBB REIT $124 $41 / 21% $30 /
Slide 53: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition Personal Unsecured Loans ($ in millions) 704 $250 702 $200 71% 700 $150 698 $100 696 $50 694 $- 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Personal unsecured loans Personal line of credit PUL - Balance PUL - FICO **
Slide 54: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Health Care and Social Assistance well diversified with Construction highest concentration to Real Estate Rental and Leas
Slide 55: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.25% Corporates Mortgage Revenue 2% Bonds Average cost of funds 0.13% 1% Return on avg. equity2 6.75% Government Backed 97% Core 100% of ASB Loans Loans Deposits loans 73% 67% 80% Investm
Slide 56: Lower loss rates and sufficient PTPP income at bank to offset even historical peak loss
Lower loss rates and sufficient PTPP income at bank to offset even historical peak loss ASB’s net charge-offs have been ASB has substantial loss absorption consistently below national average capacity 2020 expected PTPP income: $105 to $115 million Historical loss experience applied to a $5B loan po
Slide 57: 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 58: 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 59: 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 60: 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
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