Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q4 2022 Earnings Presentation
29 slides from Hawaiian Electric Industries's earnings presentation, Feb 14, 2023
Slide 1: Fourth Quarter and Full Year 2022 Financial Results
HEI Fourth Quarter and Full Year 2022 Financial Results February 14, 2023
Slide 2: Solid Performance Across the Enterprise
Solid Performance Across the Enterprise • Utility Diluted EPS (GAAP) ‒ Achieved earnings growth of 6% despite unprecedented combination of macroeconomic challenges $2.25 $2.20 1 ‒ Earnings in line with guidance $0.92 $0.73 • Bank ‒ Achieved historically strong loan growth while maintaining strong cr
Slide 3: 2022 Utility Achievements
2022 Utility Achievements Successful execution under Pushing ahead with Caring for our customers PBR renewables transition • Delivered on earnings • Responded to macro • Ended coal use in Hawaii guidance and achieved strong challenges impacting our earnings growth in first full year customers by fin
Slide 4: 2022 Bank Achievements
2022 Bank Achievements Strong, consistent performance while maintaining conservative risk profile ✓ Excluding unique pandemic-related items in 2021, meaningfully grew earnings ✓ Generated consistent dividends to HEI, contributing to growing shareholder dividends and solid investment grade capital st
Slide 5: Resilient Hawaii Economy
Resilient Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 % Full year 2022: 9.2M Dec. 2022: 3.2% 12 1,200,000 10,000 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400,000 2,000 2 200,000 -
Slide 6: Solid 2022 Financial Performance
Solid 2022 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE $246.2 $241.1 1 $2.25 $2.201 10.4% 10.5% $101.2 $80.0 $0.92 $0.73 Full year $177.6 $188.9 $1.62 $1.72 ($32.7) ($27.8) ($0.30) ($0.25) $54.5 $57.3 $0.50 $0.52 $22.1 $17.9 $0.20 $0.16 Q4 $42.0 $48.6 $0.38 $0.44 2021 2022
Slide 7: 2022 Financial Highlights
2022 Financial Highlights $0.03 $0.02 $0.01 $0.11 $0.12 $0.19 $0.06 $0.23 $0.06 $0.05 $0.04 $0.04 $0.01 $2.25 $2.20 Total: ~($0.19) Total: ~$0.10 2021 EPS Net interest Provision Noninterest Noninterest ARA Other fee MPIR AFUDC O&M Deprec Interest & HoldCo & Gain on sale 2022 EPS income expense incom
Slide 8: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment $330-$540 Capital Expenditures Forecast ($ in millions) Low range includes baseline ARA capital $370-$410 $320-$420 Pending Separate Approval and approved separately recovered $357 Recovery projects. Approved High range includes separat
Slide 9: 2023 Utility Guidance Drivers
2023 Utility Guidance Drivers • 3.68% inflationary increase in 2023 (Blue Chip GDPPI forecast less 22 basis point customer dividend) ARA Revenues • Net $33.5 million in incremental revenues for 2023 • $26.2 million in MPIR/EPRM revenues Separate • Further upside potential of $1 million for PUC-appro
Slide 10: Net Interest Income Grew with Earning Asset Growth and Higher Yields
Net Interest Income Grew with Earning Asset Growth and Higher Yields Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin1 (%) 3.09 3.28 2.85 2.96 2.91 2.89 2.84 0.38 2.79 2.79 0.13 0.05 4Q21 3Q22 4Q22 4Q21 3Q22 4Q22 4Q21 1Q22 2Q22 3Q22 4Q22 Full Year Actual 3Q22 Reported NIM 2.96% Rate
Slide 11: 2023 Bank Guidance Drivers
2023 Bank Guidance Drivers Stable Net Interest Margin and Healthy Loan Pipeline • Healthy loan pipeline, with growth returning to more normal levels in 2023 • Provision expectations reflect strong credit quality, as well as economic outlook and loan growth expectations • Further Fed fund rate hikes
Slide 12: 2023 EPS Guidance – Consistent Growth from Utility and Bank
2023 EPS Guidance1 – Consistent Growth from Utility and Bank $1.75-$1.85 Key Assumptions: $2.15-$2.35 ➢ Full recovery of COVID-19 $0.75-$0.85 Key Assumptions: expenses ➢ NIM: 3.00% – 3.15% ➢ No fuel cost risk sharing ➢ Provision exp. $0M – penalty or reward assumed $10M Additional Assumptions: ➢ Cap
Slide 13: Q&A
Q&A
Slide 14: Appendix
Appendix —_—e
Slide 15: HEI Financing Outlook 2023
HEI Financing Outlook 20231 • Both bank and utility remain net cash 2023 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2023 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$40 • Two investment grade subsidiaries:
Slide 16: Adjusted O&M Excluding Pension (non-GAAP)
Adjusted O&M Excluding Pension (non-GAAP)1 $422 $428 $414 $412 2019 2020 2021 2022 O&M GAAP to Non-GAAP reconciliation of 2022 O&M, net of • In 2019 through 2021, adjusted O&M declined. In 2022 exclusions (a year of unusually high inflation and increased ($ in millions) generating station maintenanc
Slide 17: Utility LTM ROE
Utility LTM ROE 9.5% 0.3% 9.2% 0.5% 0.3% 0.2% 8.2% Allowed Non-recoverable ROE less Actual O&M, Fuel Risk Others, Actual 2022 ROE ROE items (i.e. Incentive Structural Depreciation and Sharing and net compensation, Items Return on Higher Fuel advertising, charitable Inventory Rate Base contributions,
Slide 18: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes Metric Opportunity T&D SAIDI and SAIFI ($6.8 million) annually Call Center Performance +$1.4 million / ($1.4 million) annually Pre-PBR Fossil Fuel Cost Risk Sharing +$3.7 million / ($3.7 million) annually West Loch PV Based on under/overproductio
Slide 19: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2022 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2023-2025) $8 $6 $4 - $7 Forecast based on $4 $3 - $6 December 2022 assumptions for renewable $2 project commercial $1 - $3 operation dates and total $0 $0 generation 2022 2023 2024
Slide 20: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 21: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 PUC approved final PIM tariffs and held a workshop to discuss Awaiting PUC guidance on next steps for the PBR Proceeding to evolve regulatory framework to better align
Slide 22: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone DER Policies 2019-0323 The PUC issued two D&Os in Oct. 2022. The first establishes an Utility to file an updated DER Program Transition Investigates Distributed Energy Resources (DER) as they rel
Slide 23: Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends
Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) $80 ACL: 1.21% ACL: 1.36% $2.5 $72.2 $71.1 $1.4 $70 $60 $50 ACL - 12/31/21 2022 NCOs 2022 Provision for Credit Losses ACL - 12/31/22 2021 2022 Beginning ACL balan
Slide 24: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,563 ASB has more than $194M of excess equity above the “well capitalized” level Capital Ratio Tier 1 leverage $3,299 $2,493 As of 12/31/22 7.78% $1,640 “Well capitalized” 5.00% $2,049 $1,633 Minimum requirements 4.00% 12/31/2
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 7.6% 5.4% Personal ✓ ~83% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 56% 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 3.28% Sectors Ratings Average cost of funds 0.38% Return on avg. equity 15.7% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 62% Core Deposits 79%
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 or resilience proposals, among others, and related costs; reliance by the Utili
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
Hawaiian Electric Industries — Q4 2022 Earnings Presentation on 6ix