Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q1 2021 Earnings Presentation
57 slides from Hawaiian Electric Industries's earnings presentation, May 7, 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: Cautionary Note Regarding Forward-Looking Statements (continued)
• 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 as the state, independent power producers (IPPs) and
Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)
• decisions by the PUC in rate cases and other proceedings (including the risks of delays in the timing of decisions, adverse changes in final decisions from interim decisions and the disallowance of project costs as a result of adverse regulatory audit reports or otherwise); • decisions by the PUC
Slide 4: 1st Quarter 2021 Financial Results & Outlook
Hawaiian Electric Industries, Inc. 1st Quarter 2021 Financial Results & Outlook May 7, 2021
Slide 5: Strong consolidated results
Strong consolidated results 1Q21 selected key drivers QTD EPS (GAAP) $0.59 Utility $0.31 • Cost efficiencies − Savings to be delivered to customers beginning in June 1Q20 1Q21 Bank Net Income (GAAP) • Release of provision ($ in millions) − Elevated credit risk environment $64.4 moderating as economy
Slide 6: Hawaii economy on path to recovery
Hawaii economy on path to recovery Daily average since 20,000 reopening: 10,994 Reopening of 15,000 Tourism 10/15/201 Tourism 10,000 5,000 Recent high: 22,925 on 5/1 (82% of 2019 pre-pandemic daily average) - 10/20 11/20 12/20 01/21 02/21 03/21 04/21 05/21 • Mar. 2021 – Hawaii: 9.0%; U.S.: 6.0% Unem
Slide 7: Hawaiian Electric: Focused on cost reductions to benefit customers and transition to PBR
Hawaiian Electric: Focused on cost reductions to benefit customers and transition to PBR • Cost efficiency a crucial element of PBR Benefits to • Building up savings to deliver on management audit commitment and customers customer dividend − Savings to be delivered to customers starting June 1 • Uti
Slide 8: Hawaiian Electric: Multi-pronged approach to decarbonization
Hawaiian Electric: Multi-pronged approach to decarbonization Reaching our goals must be a collaborative, equitable process • Implementing Stages 1 and 2 of largest renewable energy and storage procurement in Hawaii’s history − Actively collaborating with IPPs, government agencies and stakeholders to
Slide 9: Bank: Performing well in a challenging environment
Bank: Performing well in a challenging environment • Competitive performance in a strong mortgage market • In Q1 deployed additional $150 million in ASB CARES (PPP) loans in round 2 • Record deposit growth continues to outpace lending opportunities − Balanced portfolio management to optimize fee inc
Slide 10: Transition to Anytime, Anywhere Banking
Transition to Anytime, Anywhere Banking Accelerating digital transformation to meet customers where they are Customers adopting digital options at accelerated pace – with high levels of satisfaction Learn Net promoter score (%) Launched new website as largest 73 74 71 70 digital branch 60 64 65 65
Slide 11: 1Q21 financial performance
1Q21 financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) 10.0% $64.4 $0.59 9.2% $29.6 $0.27 $33.4 $0.31 $15.8 $0.14 $43.4 $0.40 $23.9 $0.22 ($6.2) ($8.6) ($0.06) ($0.08) 2020 2021 Utility 7.4% 9.0% 1Q20 1Q21 1Q20 1Q21 Bank1 9.1% 16.0% Utility Bank Holding Co. & Ot
Slide 12: 1Q21 utility financial highlights
1Q21 utility financial highlights ($ in millions) Improved O&M expense management, including: − Lower staffing and increased efficiencies − Timing-related items − Higher costs in 1Q20 Higher revenues from RAM and timing UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 1Q21
Slide 13: Utility outlook and drivers
Utility outlook and drivers • No meaningful contribution from existing PIMs in 2021 PIMs • Awaiting PUC final guidance on PBR PIMs • ~$22M of COVID-related costs deferred as of quarter-end COVID-19 − PUC has approved deferral through June 30; utility filing request for expense approval to continue d
Slide 14: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST 4-Year CAGR ~4-5% ($ 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 $3,212 2018A 2019A 2020A 2021E 2022E 2023
Slide 15: 1Q21 bank financial highlights
1Q21 bank financial highlights ($ in millions) Release of reserves for credit losses − Credit upgrades in commercial portfolio − Reduced exposure to riskier consumer loans − Improved Hawaii economic environment Record low cost of funds 1 BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(
Slide 16: Low funding costs and PPP fees soften impact of low rate environment
Low funding costs and PPP fees soften impact of low rate environment and record deposits YIELD ON EARNING ASSETS (%) NET INTEREST MARGIN (%) 3.72 3.96 3.22 3.03 3.12 2.95 3.00 to 2.80 1Q20 4Q20 1Q21 1Q20 4Q20 1Q21 Full Year 2021 COST OF FUNDS (%) Actual PPP Ex. PPP 4Q20 Reported NIM 3.12% 4.62 3.05
Slide 17: Provision release reflects positive portfolio dynamics
Provision release reflects positive portfolio dynamics in moderating credit risk environment ALLOWANCE FOR CREDIT LOSSES (ACL) ($ in millions) ACL: 1.90% $101.2 $2.4 ACL: 1.73% $100 $7.0 $91.8 $90 $80 $70 $60 $50 ACL - 12/31/20 1Q NCOs 1Q Provision for Credit ACL - 3/31/21 Losses1 4Q20 1Q21 Beginnin
Slide 18: Loan deferrals: Declining deferments with low delinquencies
Loan deferrals: Declining deferments with low delinquencies • Nearly all deferred loans have returned to scheduled payments; loans on active deferral = 0.2% of total loan portfolio • Declining delinquencies in higher risk commercial and consumer portfolios Deferment Status Delinquency Status ($ in m
Slide 19: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong Access to large amounts of secured ASB has over $280M of excess equity funding above the “well capitalized” level Secured funding available ($ in millions) Capital Ratio Tier 1 leverage $4,026 $3,686 As of 3/31/21 8.33% $3,053 ** $1,982 $1,576 “Well capitaliz
Slide 20: HEI financing outlook 2021
HEI financing outlook 2021 (as of May 7, 2021) 2021 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) Both bank and utility ~$245 ~$245 remain net cash flow HC Expense, providers to holding ~$30 company; Bank Debt Issuance, dividend increasing ~$80 HEI Investments in Utility, ~$65 No externa
Slide 21: HEI 2021 revised EPS guidance
HEI 2021 revised EPS guidance (as of May 7, 2021) HEI EPS: $1.90 - $2.05 PER SHARE [Previous: $1.75 - $1.95] UTILITY EPS: $1.53 - $1.61 (Reaffirmed) BANK REVISED EPS: $0.67 - $0.74 [Previous: $0.52 - $0.62] KEY ASSUMPTIONS: KEY ASSUMPTIONS: • With limited exception, PBR changes Revised guidance Prev
Slide 22: ESG is in our DNA
ESG is in our DNA Strength of our companies is inextricably linked to the health of our environment, economy and communities Focused on achieving state’s climate goals in a way that is safe, reliable, resilient, equitable and affordable Embedded in Core Investing in Hawaii’s economic growth; fosteri
Slide 23: Appendix
Appendix HEI Catalyst for a better Hawai'i _————_a
Slide 24: Hawaii COVID case update
Hawaii COVID case update Hawaii Daily New Cases (statewide total) 400 350 300 New cases 250 200 150 100 7-day average 50 0 5/6 6/6 7/6 8/6 9/6 10/6 11/6 12/6 1/6 2/6 3/6 4/6 5/6 Average daily case rate in last 7 days, per 100K residents (as of 5/6/21) 0 – 19.3 30.3 – 55.1 64.5 – 84.8 85.4 – 108.6 11
Slide 25: Hawaii on a path to recovery
Hawaii on a path to recovery 25,000 Recent high: Daily Visitor Arrivals 22,925 5/1/21 Unemployment Rate (%) UHERO Baseline Forecast 20,000 2021F 5.0M 21.9 21.9 2022F 8.0M 2023F 8.9M 15,000 Reopening of 14.1 14.1 14.1 14.8 14.0 Economy 10/15/20 10,000 10.3 10.3 10.3 9.2 9.0 7.1 5,000 4.4 3.8 2.0 2.1
Slide 26: Hawaii economic forecast
Hawaii economic forecast • UHERO forecast (base case) sees travel and tourism picking up in the second quarter of 2021, recovering more than half of pandemic losses by July • Domestic arrivals expected to see strong recovery in 2021, reaching ~70% of pre- pandemic level by late summer • Visitor spen
Slide 27: Hawaii's resilient real estate values
Hawaii’s resilient real estate values Demonstrates lower risk of bank portfolio Honolulu single family home prices declined less and rebounded faster in last recession 325 300 Global financial crisis 283 275 279 250 241 225 200 224 175 196 150 125 100 75 Index 2000 Q1 = 100 2000 2001 2002 2003 2004
Slide 28: Debt maturities & credit ratings
Debt maturities1 & credit ratings ($ in millions) HEI Hawaiian Electric Pacific Current Pacific Current: ~$4 - $6 million debt payment each year5 $42 Credit Ratings HEI Hawaiian Electric $1,600 2 Moody’s Unrated/Stable/P-2 Baa1/Stable/P-2 $1,200 3 S&P BBB-/Stable/A-3 BBB/Stable/A-2 4 $1,485 Fitch BB
Slide 29: Committed to ambitious climate goals
Committed to ambitious climate goals Hawaii’s goals of 100% RPS and carbon Exceeded 2020 RPS milestone of 30% neutrality by 2045 are among most 2020 RPS = 34.5% ambitious in the nation 40% 35% 35% 30% 28%(1) 27% 27% 26% 25% 23% 21% 20% 18% 15% 14% 12% 10% 9% 10%10% 5% 0% 2008 2009 2010 2011 2012 201
Slide 30: Path to a 100% renewable, carbon neutral future
Path to a 100% renewable, carbon neutral future Leading a community-wide transformation • Advancing Hawaii’s largest-ever renewable energy and storage Aggressively procuring procurements renewable energy & storage • Helping enable end of coal in Hawaii in 2022, additional fossil plant retirement p
Slide 31: Aggressively pursuing clean energy additions
Aggressively pursuing clean energy additions • Procurements underway to increase future RPS achievement − Procurements significant given system peak load: Oahu: ~1200 MW, Hawaii Island: ~200 MW, Maui County: ~200 MW − Filed 10 PPAs for solar and storage and 2 self-build storage applications Stage 2
Slide 32: Encouraging rooftop PV, customer-sited resources
Encouraging rooftop PV, customer-sited resources Providing programs and infrastructure to integrate and incentivize DER Nation’s highest penetration of rooftop solar Cumulative residential PV installations (in megawatts) • 20% of all residential customers Net Energy Metering New DER programs • 36% o
Slide 33: Renewable energy key to affordability, bill stability
Renewable energy key to affordability, bill stability UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Energy Cost ($/kWh) Pre-2016 PPAs 2016+ PPAs 0.40 Proposed and Approved 0.35 0.30 0.25 12/20
Slide 34: 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 35: New PBR framework
New PBR framework Most components effective 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,
Slide 36: Annual revenue adjustment mechanism formula
Annual revenue adjustment mechanism formula Annual target revenues now 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% a
Slide 37: 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 38: New performance incentive (PIMs) and shared savings mechanisms
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 39: 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 40: 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 41: Utility LTM ROE
Utility LTM ROE 1Q21 CONSOLIDATED UTILITY ROE 1 2 3 4 5 6 7 8 Structural Lagged 38
Slide 42: 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 $454 million Date A
Slide 43: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 PUC issued Phase 2 D&O Dec. 23, 2020 and Order granting Final PBR and annual decoupling tariffs go into Proceeding to evolve regulatory framework to better align with
Slide 44: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 45: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 2.5% 2.2% 0.3% 2.8% ~78% of portfolio secured by real estate (85% excl. PPP) C&I represent ~16% of total loans (9% excl. PPP) 16.2% 40.1% Personal unsecured loans repre
Slide 46: Bank real estate secured portfolio characteristics
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs As of 3/31/21 $221 / $115 / ($ in millions) 5% 3% $792 / Commercial real estate 19% $2,138 / 51% Represents 21% of overall loan portfolio $792M CRE investor & $221M CRE owner occupied Wtd avg LTV: 59.1% 97%
Slide 47: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Construction well diversified with highest concentration to Accommodation and Food Services Construction of $104M or Heal
Slide 48: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition Personal Unsecured Loans ($ in millions) 705 250 700 200 150 67% 695 100 690 50 685 0 3/31/2020 6/30/2020 9/30/2020 12/31/2020 3/31/2021 Personal unsecured loans Personal line of credit PUL - Balance PUL - FICO ** Residentia
Slide 49: Bank national syndication risk characteristics
Bank national syndication risk characteristics Admin & Supp A- / $13 / Healthcare NR $5 / 3% 9% $15 / 10% $5 / 3% BBB+ $10 / 7% Retail $17 / 11% BBB BB+ $150 $51/ 34% $150 $30 / 20% REIT$97/ Manufacturing 65% BBB- $16 / 11% $41 / 27% National syndication Represents ~3% of overall loan portfolio
Slide 50: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.03% Corporates Mortgage Revenue 1% Bonds Average cost of funds 0.08% 1% Return on avg. equity2 16.04% Government Backed 98% Core 100% of ASB Loans Loans Deposits loans 73% 60% 83% Invest
Slide 51: Net charge-offs & level of classified loans remain stable
Net charge-offs & level of classified loans remain stable through COVID period ($ 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 $18 0.69% $14.6 $14.5 Net charge-offs to average loans $
Slide 52: 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 53: 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 54: 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 we build Hawaii-based portfolio − Baseline plan anticipates building to ~$0.03-$0.05 EPS contribution ov
Slide 55: 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 56: 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 57: 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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