Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Siebert Williams Shank Virtual West Coast Utilities Conference 2021
45 slides from Hawaiian Electric Industries's conference presentation, Mar 17, 2021
Slide 1: Hawaiian Electric Industries, Inc.
Hawaiian Electric Industries, Inc. Siebert Williams Shank Virtual West Coast Utilities Conference March 17, 2021
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 29 1 4 Molokai 1 Maui Utility Lanai 6 service territory 1 Hawaii Bank 4 branches1 1 Pacific Current projects 75% (Utility) 3,702 8%
Slide 5: Full year 2020 financial performance
Full year 2020 financial performance Net Income (GAAP) Diluted EPS (GAAP) Consolidated LTM ROE ($ in millions) $217.9 $1.99 $197.8 $1.81 9.8% $89.0 $57.6 $0.81 $0.53 Full year 8.6% $156.8 $169.3 $1.43 $1.55 ($27.9) ($29.1) ($0.26) ($0.27) $66.3 $0.61 $50.5 $0.46 $28.2 $0.26 Q4 $15.7 $0.14 $45.4 $43.
Slide 6: 2020 highlights
2020 highlights WHAT WE ACCOMPLISHED Financial stability enabled HEI companies to serve as a source of strength for customers and communities during pandemic Record charitable commitments of $5.5 million ($3.5 million related to COVID), more than double typical annual giving Development of con
Slide 7: Hawaii economy on path to recovery
Hawaii economy on path to recovery Jan. 2021 vs YTD 2020 vs Jan. 2020 YTD 2021 Total arrivals -80.1% -80.1% Tourism 16,000 Reopening of 15,679 Tourism 10/15/201 11,000 6,000 1,000 10/1 10/24 11/16 12/9 1/1 1/24 2/16 3/11 • Dec. 2020 – Hawaii: 9.3%; U.S.: 6.7% Unemployment • Hawaii unemployment peake
Slide 8: Advancing Hawaii’s clean energy transition
HAWAIIAN ELECTRIC Advancing Hawaii’s clean energy transition
Slide 9: PBR: Constructive framework designed to balance range of interests
PBR: Constructive framework designed to balance range of interests Guiding Regulatory Priority Balancing of Interests Principles Goals Outcomes • Affordability • Cost control and affordability – Annual Revenue • Reliability Adjustment (ARA) and shared-savings mechanisms A customer- Enhance • Interco
Slide 10: New PBR framework
New PBR framework Retains or enhances many existing mechanisms 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 outside mechanism (RAM) utility con
Slide 11: 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 12: 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 $3.5 PIM $3.0 $1.0 $1.4 $1.5 $2.0 $2.0 $0.0 $0.5 ($
Slide 13: 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) $16.0 Estimated ranges for RPS
Slide 14: Committed to ambitious climate goals
Committed to ambitious climate goals Hawaii’s goals of 100% RPS and carbon Exceeded 2020 RPS milestone of 30% neutrality by 2045 are among most 2020 RPS = 34.5% ambitious in the nation 40% 35% 35% 30% 28%(1) 27% 27% 26% 25% 23% 21% 20% 18% 15% 14% 12% 10% 9% 10% 10% 5% 0% 2008 2009 2010 2011 2012 20
Slide 15: Path to a 100% renewable, carbon neutral future
Path to a 100% renewable, carbon neutral future Leading a community-wide transformation • Advancing Hawaii’s largest-ever renewable energy and storage Aggressively procuring procurements renewable energy & storage • Helping enable end of coal in Hawaii in 2022, additional fossil plant retirement i
Slide 16: Renewable energy key to affordability, bill stability
Renewable energy key to affordability, bill stability UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Energy Cost ($/kWh) Pre-2016 PPAs 2016+ PPAs 0.40 Proposed and Approved 0.35 0.30 0.25 12/20
Slide 17: Encouraging rooftop PV, customer-sited resources
Encouraging rooftop PV, customer-sited resources Providing programs and infrastructure to integrate and incentivize DER Nation-leading rooftop solar penetration Cumulative residential PV installations (in megawatts) • 20% of all residential customers Net Energy Metering New DER programs • 36% of Oah
Slide 18: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST 4-Year CAGR ~4-5% ($ millions) ($ millions) $3,950- $3,750- $4,100 $450 $400-450 $350- $450 $3,650- $3,900 $411 3,700 $335-355 $3,545 $335 $3,425 $3,212 2018A 2019A 2020A 2021E 2022E 2023
Slide 19: Pacific Current: Non-regulated platform for sustainable infrastructure investment
Pacific Current: Non-regulated platform for sustainable infrastructure investment • Focused on local partnerships and projects consistent with investment grade profile • Long-term strategy, with modest earnings impact as build Hawaii-based portfolio − Baseline plan anticipates building to ~$0.03-$0.
Slide 20: Serving and investing in Hawaii’s families, businesses and communities
AMERICAN SAVINGS BANK Serving and investing in Hawaii’s families, businesses and communities
Slide 21: American Savings Bank: Conservatively managed bank with strong financial position
American Savings Bank: Conservatively managed bank with strong financial position SERVING HAWAII THROUGH OVER 95 YEARS OF ECONOMIC CYCLES Prudent risk management is foundation of our management approach Earning assets 100% funded by core and low-cost deposits Diverse, high quality loan portfolio
Slide 22: Lower funding cost and recognition of PPP fees partially soften the impact of lower rate environment
Lower funding cost and recognition of PPP fees partially soften the impact of lower rate environment YIELD ON EARNING ASSETS (%) NET INTEREST MARGIN (%) 5.00 5.00 4.50 ASB ASB 4.50 4.50 4.00 Avg Top 3 HI Peers Avg Top 3 HI Peers 4.00 4.00 3.85 4.14 3.50 3.50 3.50 3.12 3.22 3.77 3.00 3.20 3.00 3.00 2
Slide 23: Significant ACL coverage increase reflects elevated credit risk from COVID
Significant ACL coverage increase reflects elevated credit risk from COVID…not yet realized ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) ACL: 1.90% $105 $95 $85 $101.2 $75 $49.8 $65 $19.4 $21.4 ACL: 1.04% $55 $45 $35 $53.4 $25 $15 ACL - 12/31/19 Day 1 CECL 2020 NCOs 2020 Provision for ACL - 12
Slide 24: Transition to Anytime, Anywhere banking
Transition to Anytime, Anywhere banking Accelerating digital transformation to make banking even easier for customers • Customers adopted digital options at accelerated pace during pandemic • High levels of customer satisfaction with digital offerings • Refocusing branch footprint to enhance multi-c
Slide 25: Financial outlook
Financial outlook
Slide 26: HEI 2021 EPS guidance
HEI 2021 EPS guidance (as of February 16, 2021) HEI EPS: $1.75 - $1.95 PER SHARE UTILITY EPS: $1.53 - $1.61 BANK EPS: $0.52 - $0.62 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • With limited exception, PBR changes effective • Flat to low single digit earning asset growth Jun. 1, 2021 • NIM: ~2.90% to 3.15% •
Slide 27: Appendix
Appendix HEI Catalyst for a better Hawai'i _———_a
Slide 28: Hawaii COVID case update
Hawaii COVID case update Hawaii Daily New Cases (statewide total) 400 350 300 250 200 New cases 150 100 50 7-day average 0 3/5 4/5 5/6 6/6 7/7 8/7 9/7 10/8 11/8 12/9 1/9 2/9 3/12 Average daily case rate in last 7 days, per 100K residents (as of 3/13/21) 0 – 42 44.9 – 75.7 83.6 – 97.3 101.5 – 116.6 1
Slide 29: HEI financing outlook 2021
HEI financing outlook 2021 (as of February 16, 2021) 2021 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) ~$245 ~$245 Both bank and utility remain net cash flow HC Expense, providers to holding ~$30 company; Bank Debt Issuance, dividend increases HEI Investments ~$95 in Utility, ~$65 No ex
Slide 30: Full year 2020 utility financial highlights
Full year 2020 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 2020 vs 2019 Rate adjustment mechanism revenues 17 Operations and maintenance1 6 $169.3 Interest expense 3 $156.8 Major Project Interim Recovery mechanism 2 revenues Dep
Slide 31: Utility LTM ROE
Utility LTM ROE 4Q20 CONSOLIDATED UTILITY ROE ROE (%) ① ② ③ ④ ⑤ ⑥ ⑦ ⑧ Structural Lagged 31
Slide 32: 2021 reflects PBR transition
2021 reflects PBR transition • Earnings opportunities increase as PBR mechanisms fully implemented, utility achieves accelerated customer savings commitment, projects are approved under EPRM and new pilot program, and RPS-A PIM potential grows with addition of Stage 1 & 2 RFP projects • In Final PBR
Slide 33: Annual revenue adjustment mechanism formula
Annual revenue adjustment mechanism formula Annual target revenues set with ARA during 5-year MRP Annual revenue adjustment formula: i-factor x-factor z-factor customer dividend Accounts for Productivity Ex post Two components: annual inflation factor opportunity to recover costs for (i) 0.22% adjus
Slide 34: New PIMs and shared savings mechanisms (SSMs) create additional earnings opportunities
New PIMs and shared savings mechanisms (SSMs) create additional earnings opportunities Summary Upside / downside Interconnection Rewards and penalties based on utility ability to reduce +$3M / -$0.9M approval PIM approval time to interconnect DER systems <100 kW annually Grid services Rewards (no pe
Slide 35: Full year 2020 bank financial highlights
Full year 2020 bank financial highlights ($ in millions) BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) $5.51 2020 vs 2019 $89.0 Net interest income (11) $5.22 Provision for credit losses3 (20) $57.6 Noninterest income 4 Noninterest expense (5) 2019 2020 Key components of year-over
Slide 36: 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 $273M of excess equity funding above the “well capitalized” level Secured funding available ($ in millions) $3,686 Capital Ratio1 Tier 1 leverage2 $3,000 As of 12/
Slide 37: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.22% Corporates Mortgage Revenue 2% Bonds Average cost of funds 0.09% 1% Return on avg. equity2 8.58% Government Backed 97% Core 100% of ASB Loans Loans Deposits loans 73% 62% 81% Investm
Slide 38: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 2.9% 2.3% 0.3% ~79% of portfolio secured by real estate (84% excl. PPP) 3.2% C&I represent ~14% of total loans (9% excl. PPP) 14.3% Personal unsecured loans represent ~
Slide 39: 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 highest concentration to Construction Health Care & Social Other
Slide 40: Net charge-offs & level of classified loans remain stable through COVID period
Net charge-offs & level of classified loans remain stable through COVID period ($ in millions) Provision for Credit Losses1 and Net Charge-Offs Provision for Credit Losses Net Charge-Offs Net Charge-Offs to Average Loans Stable Credit Trends $16 $14.5 $14.6 Net charge-offs to average loans improve
Slide 41: Loan deferrals declining
Loan deferrals declining • 1% of portfolio on active deferral as of 12/31/20 • Majority of customers on pandemic-related payment deferrals have resumed payments, with approximately 1% requiring further assistance through repayment modifications • Previously deferred loan delinquency = 1.1%; overall
Slide 42: 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 43: 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 44: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’ action plans included in their updated Power Supply Improvement Plans, Demand Response Portfolio Plan, Distributed Generation Interconnection
Slide 45: 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