Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q2 2021 Earnings Presentation
43 slides from Hawaiian Electric Industries's earnings presentation, Aug 9, 2021
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: producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, envir…
producers (IPPs) and developers; and uncertainties surrounding technologies, solar power, wind power, biofuels, environmental assessments required to meet RPS goals; the impacts of implementation of the renewable energy proposals on future costs of electricity and potential penalties imposed by the
Slide 3: • decisions by the PUC and by other agencies and courts on land use,
• decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS); • potential enforcement actions by the Office of t
Slide 4: 2nd Quarter 2021 Financial Results & Outlook
Hawaiian Electric Industries, Inc. 2nd Quarter 2021 Financial Results & Outlook August 9, 2021
Slide 5: Strong HEI consolidated results
Strong HEI consolidated results HEI Consolidated 2Q21 selected key drivers QTD EPS (GAAP) $0.58 Utility $0.45 • Higher O&M due to increased overhauls vs 2Q20, partly offset by cost efficiencies • Began delivering management audit 2Q20 2Q21 commitment savings to customers June 1 HEI Consolidated QTD
Slide 6: Cautiously optimistic on economy
Cautiously optimistic on economy Improved economic metrics; monitoring virus developments 40,000 Daily average since tourism reopening1: 16,532 30,000 Tourism 20,000 7-day moving average: 32,885 Arrivals 10,000 Recent high: 35,435 on 8/1 (26% above 2019 daily average) 0 10/20 11/20 12/20 01/21 02/21
Slide 7: Hawaiian Electric: Continued focus on operational efficiencies and PBR
Hawaiian Electric: Continued focus on operational efficiencies and PBR • PBR fully in effect as of June 1; utility now returning management audit commitment savings and customer dividend to customers via ARA Focus on cost • Cost efficiencies and reductions remain a core focus savings • Realized $1 m
Slide 8: Hawaiian Electric: Continued collaboration to progress climate goals
Hawaiian Electric: Continued collaboration to progress climate goals • Advancing utility-scale clean energy projects − Powering Past Coal Task Force focuses on ensuring PUC- approved projects are successfully brought online − Three Stage 1 projects under construction, six Stage 2 projects with appro
Slide 9: American Savings Bank: Strengthened local economy and solid execution
American Savings Bank: Strengthened local economy and solid execution Strengthened economy and credit quality • Credit-driven reserve release and resulting negative provision for credit losses reflect improved economy and credit quality Earning asset growth helping offset margin pressure • Margin pr
Slide 10: 2Q21 financial performance
2Q21 financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) $63.9 $0.58 10.5% $48.9 9.4% $30.3 $0.45 $14.0 $0.28 $0.13 $42.3 $41.9 $0.39 $0.38 ($7.5) ($8.3) ($0.07) ($0.08) 2020 2021 2Q20 2Q21 2Q20 2Q21 Utility 7.9% 8.9% Bank1 8.0% 16.8% Utility Bank Holding Co. & Ot
Slide 11: 2Q21 utility financial highlights
2Q21 utility financial highlights ($ in millions) Higher revenues from RAM/ARA (as of June 1) and timing $6M higher O&M expense: − $3M: more generating facility overhauls performed in 2Q21 − $2M: bad debt expense reversal in 2Q20 − $1M: write-off of combined heat and power unit − $1M: increased
Slide 12: Utility outlook and drivers
Utility outlook and drivers • No material upside expected from new PBR PIMs in 2021 PIMs • Potential for reliability PIM penalties and downside sharing under fuel cost risk sharing mechanism • ~$26M of COVID-related costs deferred as of quarter-end COVID-19 − Moratorium on disconnections expired May
Slide 13: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST ($ millions) ($ millions) 4-Year CAGR ~3-4% $3,850- $3,750- $4,000 $3,650- $3,850 $450 $400- $450 $350- $450 $411 3,700 $3,545 $335 $310- $335 $3,425 $3,212 2018A 2019A 2020A 2021E 2022E
Slide 14: 2Q21 bank financial highlights
2Q21 bank financial highlights ($ in millions) Release of reserves for credit losses resulting in negative provision − Improved local economy and credit quality − Credit upgrades in commercial portfolio − Lowest level of net charge offs since 2015 Higher net interest income − Higher PPP fee reco
Slide 15: PPP fees, lower investment premium amortization soften margin pressures
PPP fees, lower investment premium amortization soften impact of margin pressures YIELD ON EARNING ASSETS (%) PPP ($ in millions) Loans Fees 3.39 3.03 3.05 Funded $ / count $551 / 6,300 $23 Forgiveness / paydowns to date $303 $13 2Q20 1Q21 2Q21 Balance (as of 6/30/21) $248 $10 COST OF FUNDS (%) 0.18
Slide 16: Negative provision reflects improved economy and credit quality
Negative provision reflects improved economy and credit quality • Reserve levels continue to reflect pandemic uncertainty ALLOWANCE FOR CREDIT LOSSES (ACL) ($ in millions) ACL: 1.73% $100 $91.8 $0.5 $13.0 ACL: 1.51% $90 $80 $78.3 $70 $60 $50 ACL - 3/31/21 2Q NCOs 2Q Provision for Credit ACL - 6/30/2
Slide 17: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong Access to large amounts of secured funding ASB has more than $248M of excess equity above the “well capitalized” level Secured funding available ($ in millions) $4,366 Capital Ratio Tier 1 leverage $3,686 $3,213 As of 6/30/21 8.03% $2,289 ** $1,576 $931 “Well
Slide 18: HEI financing outlook 2021
HEI financing outlook 2021 (as of August 9, 2021) 2021 HOLDING COMPANY SOURCES & USES OF CAPITAL Both bank and utility ($ in millions) remain net cash flow providers to holding company; Bank ~$245 dividend increasing ~$245 HC Expense, No external equity ~$30 Debt Issuance, required in 2021 ~$75 HEI
Slide 19: HEI 2021 revised EPS guidance
HEI 2021 revised EPS guidance (as of August 9, 2021) HEI EPS: $2.00 - $2.20 PER SHARE [Previous: $1.90 - $2.05] UTILITY EPS: $1.53 - $1.61 (Reaffirmed) BANK REVISED EPS: $0.79 - $0.94 [Previous: $0.67 - $0.74] KEY ASSUMPTIONS: KEY ASSUMPTIONS: • With limited exception, PBR changes effective June 1,
Slide 20: 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 climate goals in a way that is safe, reliable, resilient, equitable and affordable Embedded Investing in Hawaii’s economic growth; fostering innov
Slide 21: Appendix
Appendix HEI Catalyst for a better Hawai'i _————_a
Slide 22: Hawaii COVID case update
Hawaii COVID case update Hawaii Daily New Cases (statewide total) 700 600 500 400 300 New cases 200 7-day average 100 0 8/20 9/20 10/20 11/20 12/20 1/21 2/21 3/21 4/21 5/21 6/21 7/21 8/21 Average daily case rate in last 7 days, per 100K residents (as of 8/6/21) 0 – 36.5 57.2 – 96.6 106.0 – 139.6 150
Slide 23: Committed to ambitious climate goals
Committed to ambitious climate goals Hawaii’s goals of 100% RPS and carbon Exceeded 2020 RPS milestone of 30% neutrality by 2045 are among most 2020 RPS = 34.5% ambitious in the nation 40% 35% 35% 30% 28%(1) 27% 27% 26% 25% 23% 21% 20% 18% 15% 14% 12% 10% 9% 10% 10% 5% 0% 2008 2009 2010 2011 2012 20
Slide 24: Path to a carbon neutral future
Path to a 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 planned for 2024
Slide 25: 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 26: Efficiency remains a core focus
Efficiency remains a core focus • Accelerated delivery of management audit savings in 2021 • Ongoing efficiencies needed under ARA − Focus on keeping O&M growth below inflation and offsetting costs that rise faster than inflation (i.e., audit fees, insurance premiums, healthcare benefits) • Utility
Slide 27: New performance incentive and shared savings mechanisms create additional earnings opportunities
New performance incentive (PIMs) and shared savings mechanisms (SSMs) create additional earnings opportunities Summary Upside / downside Interconnection Rewards and penalties based on utility ability to reduce +$3M / -$0.9M approval PIM approval time to interconnect DER systems <100 kW annually Grid
Slide 28: 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 RPS-A $2.0 $3.7 TBD $3.5 PIM $3.0 $1.0 $1.4 $1.5 $2.0 $2.0 $0.0 - (
Slide 29: RPS-A PIM rewards accelerated renewable energy growth
RPS-A PIM rewards accelerated renewable energy growth RPS-A PIM potential grows as Stage 1 & Stage 2 RFP projects come online • Projects filed or pending filing have potential to add ~657 MW of solar and ~3 GWh of storage by ~2023 Statutory RPS1 PBR RPS-A3 ($ millions) Estimated ranges for RPS- Annu
Slide 30: Utility LTM ROE
Utility LTM ROE 1 2 3 4 5 6 7 Structural Lagged 27
Slide 31: 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 $454 million Date A
Slide 32: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 Final PBR and annual decoupling tariffs went into effect Jun. Post D&O working group to convene to consider Proceeding to evolve regulatory framework to better align w
Slide 33: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 34: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 2.3% 2.2% 0.2% 2.7% ~81% of portfolio secured by real estate (85% excl. PPP) 13.8% C&I represent ~14% of total loans (9% excl. PPP) Personal unsecured loans represent ~
Slide 35: Bank real estate secured portfolio characteristics
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs As of 6/30/21 $222 / $116 / ($ in millions) 5% 3% $850 / Commercial real estate $2,152 / 20% Represents 21% of overall loan portfolio 51% $850M CRE investor & $222M CRE owner occupied Wtd avg LTV: ~59% ~97%
Slide 36: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Accommodation and Food Services well diversified with Real Estate Rental and Leasing highest concentration to accommodati
Slide 37: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics ($ in millions) Consumer Portfolio Composition Personal Unsecured Loans 705 250 7% 5% 12% 700 200 150 695 6% 100 690 50 61% 685 0 9% 6/30/2020 9/30/2020 12/31/2020 3/31/2021 6/30/2021 PUL - Balance PUL - FICO ** Personal unsecured loans Personal line of c
Slide 38: Bank national syndication risk characteristics
Bank national syndication risk characteristics ($ in millions) Admin & Supp A- / $13 / NR Manufacturing $6 / 4% 9% $5 / 4% $11 / 8% BBB+ $10 / 7% Retail $15 / 11% $139 $139 BB+ BBB $49/ 35% $30 / 22% Healthcare $17 / 12% REIT $90 / 65% BBB- $32 / 23% National syndication Represents ~3% of overall
Slide 39: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.05% Corporates Mortgage Revenue 1% Bonds Average cost of funds 0.07% 1% Return on avg. equity2 16.8% Government Backed 98% Core 100% of ASB Loans Loans Deposits loans 73% 57% 83% Investm
Slide 40: 2021 ASB peer group
2021 ASB peer group Allegiance Bancshares, Inc. ABTX First Financial Bankshares, Inc. FFIN OFG Bancorp OFG Banc of California, Inc. BANC First Foundation Inc. FFWM Peoples Bancorp Inc. PEBO BancFirst Corporation BANF Financial Institutions, Inc. FISI Premier Financial Corp. PFC Bryn Mawr Bank Corpor
Slide 41: 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 42: 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 43: 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
Hawaiian Electric Industries — Q2 2021 Earnings Presentation on 6ix