Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q1 2019 Earnings Presentation
48 slides from Hawaiian Electric Industries's earnings presentation, May 7, 2019
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 (continued)
• the continued availability to the electric utilities or modifications of other cost recovery mechanisms, including the purchased power adjustment clauses (PPACs), rate adjustment mechanisms (RAMs) and pension and postretirement benefits other than pensions (OPEB) tracking mechanisms, and the conti
Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)
• faster than expected loan prepayments that can cause an acceleration of the amortization of premiums on loans and investments and the impairment of mortgage-servicing assets of ASB; • changes in ASB’s loan portfolio credit profile and asset quality and/or mix which may increase or decrease the req
Slide 4: First Quarter 2019 Financial Results and Outlook
Hawaiian Electric Industries, Inc. First Quarter 2019 Financial Results and Outlook May 7, 2019
Slide 5: Q1 2019 consolidated earnings results
Q1 2019 consolidated earnings results Q1 Net Income (GAAP) Q1 EPS (GAAP) ($ in millions) $45.7 $0.42 $40.2 $0.37 2018 2019 2018 2019 2 2
Slide 6: Working to achieve state policy goals expeditiously, affordably and reliably
Working to achieve state policy goals expeditiously, affordably and reliably PUC Approves Hawaii DECISIONS Approves Hawaiian Electric Electric Light base base rate adjustment due to rate adjustment due Interim D&O in Approves PPAs for federal tax reform to federal tax reform Maui Electric 2018 247 M
Slide 7: Accelerating procurement of renewable energy and grid services, and modernization of grid
Accelerating procurement of renewable energy and grid services, and modernization of grid • Modern grid & technology platform • PUC approved Phase 1 of Grid Modernization Strategy implementation, encouraging faster and broader smart meter deployment • Cost-effective, clean energy portfolio expanding
Slide 8: Performance based regulation (PBR) update
Performance based regulation (PBR) update Status Key aspects of utility proposal • PUC Staff Proposal filed on February 7, 2019 Utility financial health must guide consideration of potential changes • Utility and other parties filed statements of Significant progress already made toward state Ph
Slide 9: Bank performing well
Bank performing well Continued solid financial performance 1 $0.82 from ASB $0.76 • Net interest margin expansion continues $0.62 • Funding costs remain low due to low-cost core deposit base and relationship-based banking 2 $60.0 • Move into new campus creates $50.0 opportunities to deliver more cus
Slide 10: Pacific Current continues organizational build-out
Pacific Current continues organizational build-out Existing portfolio provides solid foundation • UH solar + storage project construction proceeding well • Team continues to focus on optimizing existing assets, developing partnerships and identifying sustainable investment opportunities Leeward Comm
Slide 11: Hawaii economy remains healthy
Hawaii economy remains healthy While pace moderates, growth continues March 2019 vs YTD 2019 vs YTD March 2018 2018 Arrivals +3.9% +2.6% Tourism Expenditures -2.3% -2.4% Unemployment • March 2019 – Hawaii: 2.8%; U.S.: 3.8% • YTD March 2019 Oahu sales volume vs PY: – Single family homes, down 5.7% –
Slide 12: Solid Q1 2019 financial performance
Solid Q1 2019 financial performance Q1 Net Income (GAAP) Q1 EPS (GAAP) Consolidated LTM ROE1 ($ in millions) 9.7% 8.9% $0.42 Core $45.7 $0.37 $40.2 $0.19 $20.8 $0.17 $19.0 8.2% $0.29 GAAP $32.1 $0.25 $27.5 ($6.2) ($7.3) ($0.05) ($0.06) 2018 2019 2018 2019 2018 2019 Utility 6.9% GAAP/ 7.8% 7.4% Core
Slide 13: Q1 2019 utility financial highlights
Q1 2019 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) Q1 2019 vs Q1 2018 New rates for Hawaiian Electric and Maui Electric 9 Non-recurring O&M items1 4 MPIR revenues 3 Joint pole attachment fees 1 $32.1 $27.5 Renewables RFP perfor
Slide 14: Solid bank performance in Q1 2019
Solid bank performance in Q1 2019 Year-over-year net income growth BANK NET INCOME Key bank earnings drivers, after-tax 1Q19 vs 1Q19 vs ($ IN MILLIONS) fav/(unfav) 4Q18 1Q18 Net interest income – 4 Provision for loan losses (3) (2) $19.0 $21.8 $20.8 Noninterest income 1 1 Noninterest expense 1 (1) 1
Slide 15: Solid bank profitability
Solid bank profitability Return on assets (%) Return on average equity (%) 13.09 1.25 10.50 >1.15 1.18 2019 ASB Peers ASB Peers Annual Target 1Q19 1Q19 ASB Target ASB QTD Annualized Peers1 Source for peer data: SNL Financial (based upon data available as of May 6, 2019). Note: Quarterly and YTD info
Slide 16: Strong net interest margin
Strong net interest margin Annual target: 3.85 - 3.95% ASSET YIELD 5.0 NET INTEREST MARGIN (%) 1 ASB Peers 4.5 4.00 4.0 4.22 4.29 3.5 3.98 3.99 4.06 3.75 3.0 1Q18 2Q18 3Q18 4Q18 1Q19 3.50 3.99 COST OF FUNDS (%) 3.95 3.81 1.2 3.76 3.76 3.25 0.8 0.4 3.00 0.23 0.24 0.26 0.28 0.31 1Q18 2Q18 3Q18 4Q18 1Q
Slide 17: Net interest income growth
Net interest income growth ($ in millions) 1.21% annualized loan growth, 3.04% annualized deposit growth Total loans $4,742 $4,843 $4,858 Net interest income and noninterest income Net interest income Noninterest income $72.0 $76.9 $78.3 $13.4 $13.5 $14.6 1Q18 4Q18 1Q19 Total deposits $6,159 $6,206
Slide 18: Prudent credit quality management
Prudent credit quality management Favorable 4Q18 credit events and 1Q19 additional reserves drove provision and nonaccrual loan changes Net charge-offs1 Nonaccrual loans2 0.83% 0.39% 0.40% 0.37% 0.32% 0.28% 0.59% 0.57% 0.56% 0.53% $40.2 0.42% 0.40% 0.38% 0.38% 0.06% 0.07% 0.03% 0.05% 0.05% $6.9 $27.
Slide 19: Efficiency ratio continues to improve in 2019
Efficiency ratio continues to improve in 2019 Efficiency ratio (%) ASB’s efficiency ratio continued to improve in the first quarter, down 64.9 170 bps since Q4 2018 and down 320 bps since Q1 2018 61.9 61.6 Targeting 100 basis points of 61.6 59.4 annual improvement through 2021 57.8 59.1 56.4 56.
Slide 20: Clean and reliable energy drives capital investment
Clean and reliable energy drives capital investment Compound CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST annual rate base ($ in millions) ($ in millions) growth of ~5-7% $600 $5,000 through 2021 as $400-500 $400-500 3-Year CAGR ~5-7%1 we invest in $401 $411 $400 $400 $3,720- renewables, $318 $3
Slide 21: HEI 2019 EPS guidance
HEI 2019 EPS guidance (as of May 7, 2019) HEI EPS: $1.85 - $2.05 PER SHARE UTILITY EPS: $1.40 - $1.47 BANK EPS: $0.79 - $0.85 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery mechanisms • Low to mid-single digit earning asset growth • No material impact from PIM penalties and
Slide 22: Summary
Summary HEI • Focused on enterprise mission to be a catalyst for a better Hawaii • Place-based strategy continues to provide the financial resources to invest in our strategic growth and Hawaii’s sustainable future Hawaiian Electric Company • Advancing 100% renewable energy and carbon neutral goals
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Slide 24: Appendix
Appendix Catalyst for a better Hawai‘i
Slide 25: HEI financing outlook 2019
HEI financing outlook 2019 (as of March 31, 2019) 2019 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) Intend to maintain a ~$190M ~$190M consolidated investment Debt Issuance and HC Expense, ~$30 grade profile Cash, ~$30 HEI Investments in Utility, ~$20 Utility capex program equity needs
Slide 26: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition LTM 03/31/19 CONSOLIDATED UTILITY ROE (((1) 1 O&M over RAM cap is primarily due to the write off of preliminary engineering costs for LNG projects and smart grid costs. 23
Slide 27: Utility LTM ROE
Utility LTM ROE Consolidated utility ROE 12 months ended March 31 7.4% (core) 7.8% 6.9% (GAAP) 2018 2019 Consolidated utility Hawaiian Electric Hawaii Electric Light Maui Electric 2019 7.8% 7.6% 8.0% 8.8% 2018 (GAAP) 6.9% 6.9% 7.5% 6.4% 24 24
Slide 28: 500 MW near-term pipeline of clean energy projects
500 MW near-term pipeline of clean energy projects Potential to add half a gigawatt of renewables from a diverse array of resources near-term Near-term pipeline Pipeline breakdown by type (MW) • Approved projects: • Waikoloa Solar (30 MW solar, 120 MWh storage) 22 MW • Hale Kuawehi (30 MW solar, 120
Slide 29: Oil is the primary driver of rates in Hawaii
Oil is the primary driver of rates in Hawaii BREAKDOWN OF HAWAIIAN ELECTRIC RATES1 (typical residential bill) ¢/kWh Fuel Purchased Energy Fossil Fuels 40 Revenue Taxes Purchased Energy Renewables PPAC Expenses All Other May 2019 31.8 31.5 December 2018 $163.56 30.9 $169.64 30.1 29.1 30 27.4 24.3 24.
Slide 30: Utility regulatory mechanisms provide financial stability during renewable transition
Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms & Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate case what they do: (revenues not linked to kWh sales) Rate adjustment mechanism (RAM) Annually
Slide 31: Hawaii Electric Light 2019 rate case: Updates from latest filing
Hawaii Electric Light 2019 rate case: Updates from latest filing (latest filing versus most recent approved rate case) Hawaii PUC docket no. 2018-0368 Final D&O (2016 Test Year) Application (2019 Test Year) (6/29/18) (12/14/18) (eff. 10/1/18) Amount requested Commission approves rates implemented in
Slide 32: Maui Electric rate case: 2018 test year
Maui Electric rate case: 2018 test year Hawaii PUC docket no. 2017-0150 Adjustment for Tax June 2018 Settlement Interim D&O Parties’ Joint Proposed Application Final Rates and Refund Reform Approved New (8/9/18) (10/12/17) Plan (filed 4/17/19) (2/26/18) Depreciation Rates (eff. 8/23/18) $21.2M (6.5%
Slide 33: Hawaiian Electric rate case: 2017 test year
Hawaiian Electric rate case: 2017 test year Hawaii PUC docket no. 2016-0328 March 2018 Settlement/ Final D&O Application Settlement Interim D&O Tax Reform Act Impact (6/22/18) (12/16/16) (11/15/17) (12/15/17 as modified) (3/5/18) (eff. 9/1/18) Amount requested $106.4M Approximately $53.7M (at Approx
Slide 34: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC docket no. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases through the • Capital cost recovery approved June 2018 reve
Slide 35: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) CURRENT PIMS1 ($ in millions) Reliability Customer Service Fuel Cost Resource Acquisitions $4.0 $6.5 $2.0 $2.5 $1.3 $0.0 $0.0 $0.0 $0.0 $0.5 $0.0 ($1.3) ($2.5) ($3.3) ($3.3) ($2.0) ($4.0) Interruption Interruption Call Center Fuel Cost Risk Demand Renewable RF
Slide 36: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Hawaiian Electric 2017 test year rate case D&O, Hawaii PUC docket no. 2016-0328 Maui Electric 2018 test year rate case D&O, Hawaii PUC docket no. 2017-0150 • As part of the final D&O in Hawaiian Electric’s 2017 rate case, the Commission established a new fossil fuel cos
Slide 37: Power supply improvement plan (PSIP) update
Power supply improvement plan (PSIP) update Hawaii PUC docket no. 2014-0183 (closed) accepted on July 14, 2017 • Anticipates reaching 100% Renewable Portfolio Standard (RPS)1 by 2040, 5 years ahead of mandate • On track to meet or exceed 2020 milestone of 30% • Plan stresses the need to stay flexibl
Slide 38: Grid modernization strategy update
Grid modernization strategy update Hawaii PUC Docket Nos. 2017-0226, 2018-0141 • In February 2018 the PUC approved the strategy and directed the Companies to implement the Grid Modernization Strategy with project applications to follow • Customer and stakeholder engagement used to define grid modern
Slide 39: Electrification of transportation (EoT) strategic roadmap
Electrification of transportation (EoT) strategic roadmap Hawaii PUC docket no. 2018-0135 • Proposes role of the utility and identifies partners to increase adoption of electric vehicles (EV) and other electrification activities • Customer and stakeholder engagement used to develop plans; engagement
Slide 40: Distributed energy resources (DER) update
Distributed energy resources (DER) update Hawaii PUC docket no. 2014-0192 • In February 2018, the Companies launched two new DER programs: - Smart Export: Intended for customers installing a rooftop PV system combined with a battery energy storage system. Customers may export energy between 4pm – 9a
Slide 41: Quality balance sheet and strong capital efficiency
Quality balance sheet and strong capital efficiency ASB1 PEER BANKS2 Average yield on earning assets 4.29% Median of average yield on earning assets 4.53% Average cost of funds 0.31% Median of average cost of funds 0.96% Return on average equity3 13.09% Return on average equity 11.25% 100% of Loans
Slide 42: 2019 ASB peer group
2019 ASB peer group 1st Source Corporation SRCE First Busey Corporation BUSE OFG Bancorp OFG Ameris Bancorp ABCB First Commonwealth Financial Corporation FCF Oritani Financial Corp. ORIT Axos Financial, Inc. AX First Financial Bankshares, Inc. FFIN Pacific Premier Bancorp, Inc. PPBI BancFirst Corpor
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: • capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned)
• 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 resources fall short of achieving their forecasted b
Slide 45: • developments in laws, regulations and policies governing protections for historic, archaeological and cultural
• developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies; • discovery of conditions that may
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Slide 47: Explanation of HEI's use of certain unaudited non-GAAP measures
EXPLANATION OF HEI’S USE OF CERTAIN UNAUDITED NON-GAAP MEASURES HEI and Hawaiian Electric Company management use certain non-GAAP measures to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator of the comp
Slide 48: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries Unaudited ‘Twelve months ended March 31 2019 2018 HEI CONSOLIDATED RETURN ON AVERAGE COMMON EQUITY (ROACE) (simple average) Based on GAAP Based on non-GAAP (core)? RECONCILIATION OF GAAP! TO NON-GA
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