Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q3 2019 Earnings Presentation
41 slides from Hawaiian Electric Industries's earnings presentation, Nov 1, 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 risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid; • the growing risk that energy pro
Slide 3: Third Quarter 2019 Financial Results and Outlook
Hawaiian Electric Industries, Inc. Third Quarter 2019 Financial Results and Outlook November 1, 2019
Slide 4: Q3 2019 consolidated earnings results
Q3 2019 consolidated earnings results Q3 Net Income / Diluted EPS (GAAP) $65.9 million / $63.4 million / 3Q18 non- $0.60 Net Income (millions) 3Q18 3Q19 recurring tax $0.58 benefit GAAP $65.9 $63.4 Excluding non-recurring $5.0 -- tax adjustment in 3Q18 Non-GAAP $60.9 $63.4 Diluted EPS 3Q18 3Q19 GAAP
Slide 5: Advancing clean energy transformation
Advancing clean energy transformation Focused on affordability, reliability and resilience • On track for 2020 renewable portfolio standard (RPS) milestone of 30% • Record renewable energy and grid services procurement will help reach future RPS goals, replace fossil-fuel generation ‒ Issued Stage 2
Slide 6: Maintaining strength of core business as renewable transformation continues
Maintaining strength of core business as renewable transformation continues • Utility awarded 50-year Army privatization contract through competitive process ‒ Subject to Commission approval, utility to own, operate and maintain electric distribution system serving Army’s 12 Oʻahu installations begi
Slide 7: Bank performing well despite continued low interest rate environment
Bank performing well despite continued low interest rate environment 1 $0.79-0.85 Quarterly earnings increased, $0.76 margins remain healthy $0.62 • YTD net interest margin remained strong despite more challenging interest rate environment ~$60.02 • Another quarter of solid loan growth $50.0 reflect
Slide 8: Pacific Current initiatives highlight focus on sustainability
Pacific Current initiatives highlight focus on sustainability Recent developments • Contract to provide locally-produced biofuels for Hamakua Energy facility advances Hawaii Island energy independence and energy security, supports local economy • 5 solar + storage projects with University of Hawaii
Slide 9: Hawaii economy remains stable
Hawaii economy remains stable Moderate pace of growth Sept. 2019 vs YTD 2019 vs YTD 2018 Sept. 2018 Total arrivals +3.5% +5.5% Tourism Total expenditures -3.9% -0.1% Unemployment • September 2019 – Hawaii: 2.7%; U.S.: 3.5% • YTD September 2019 Oahu sales volume vs PY: – Single family homes, up 0.8%
Slide 10: Q3 2019 financial performance
Q3 2019 financial performance Q3 Net Income (GAAP) Q3 Diluted EPS (GAAP) Consolidated LTM ROE1 ($ in millions) 9.4% $0.60 $0.58 Core 9.2% $65.9 $63.4 $0.19 $0.21 $21.2 $22.9 8.7% $0.46 $0.43 GAAP $49.7 $46.8 ($5.0) ($6.2) ($0.05) 2018 2019 ($0.06) 7.2% GAAP/ 2018 2019 2018 2019 Utility 7.6% 7.7% Cor
Slide 11: Q3 2019 utility financial highlights
Q3 2019 utility financial highlights ($ in millions) UTILITY NET INCOME Key utility earnings drivers, after-tax fav/(unfav) 3Q19 vs 3Q18 New rates (Maui Electric) and RAM revenues 6 MPIR revenues 2 $49.7 Higher AFUDC and lower interest 2 3Q18 non- $46.8 recurring tax Pole attachment fees 1 benefit O
Slide 12: Q3 2019 bank performance
Q3 2019 bank performance BANK NET INCOME Key bank earnings drivers, after-tax 3Q19 vs 3Q19 vs ($ IN MILLIONS) fav/(unfav) 2Q19 3Q18 Net interest income - 1 $22.9 Provision for loan losses 3 2 $21.2 $17.0 Noninterest income 1 1 Noninterest expense 2 (2) 3Q18 2Q19 3Q19 SUMMARY OF ASB Common equity tie
Slide 13: Bank profitability metrics
Bank profitability metrics Return on assets (%) Return on average equity (%) 13.7 1.29 1.33 11.1 >1.15 2019 ASB Peers ASB Peers Annual Target 3Q19 3Q19 3Q19 3Q19 ASB Target ASB QTD Annualized Peers1 Source for peer data: SNL Financial (based upon data available as of October 30, 2019). Note: Quarter
Slide 14: Net interest margin
Net interest margin YTD NIM 3.87% ASSET YIELD 5.0 NET INTEREST MARGIN (%) 1 ASB Peers 4.5 4.00 4.0 4.22 4.29 3.5 4.06 4.11 4.11 3.75 3.0 3Q18 4Q18 1Q19 2Q19 3Q19 3.50 3.99 COST OF FUNDS (%) 3.95 3.81 3.82 3.82 1.2 3.25 0.8 0.4 3.00 0.26 0.28 0.31 0.30 0.30 3Q18 4Q18 1Q19 2Q19 3Q19 0.0 3Q18 4Q18 1Q19
Slide 15: Net interest income
Net interest income ($ in millions) 6.6% annualized loan growth, 2.1% annualized core deposit growth Total loans $5,084 $5,008 $4,755 Net interest income and noninterest income Net interest income Noninterest income $76.4 $77.0 $78.4 3Q18 2Q19 3Q19 $16.3 $15.3 $15.5 Total deposits $6,130 $6,257 $6,1
Slide 16: Prudent credit quality management
Prudent credit quality management Net charge-offs1 Nonaccrual loans2 0.83% 0.69% 0.79% 0.63% 0.59% 0.56% 0.40% 0.37% 0.39% 0.29% 0.40% 0.40% 0.38% 0.38% $8.7 $32.0 $27.9 $27.3 0.07% 0.07% 0.07% $40.2 $39.4 0.06% 0.05% $4.7 $4.4 $4.7 $7.7 $6.0 $6.9 $3.6 $3.3 $2.4 3Q18 4Q18 1Q19 2Q19 3Q19 3Q18 4Q18 1Q
Slide 17: Efficiency improvement remains a key focus
Efficiency improvement remains a key focus Efficiency ratio (%) 2 ✓ ASB’s efficiency ratio continues improving trajectory (excluding 64.9 campus transition costs, 58.7% Q319 61.9 61.6 YTD versus 59.4% 2018)1 59.4 59.6 61.6 58.71 59.1 56.4 55.9 55.9 ✓ Targeting an average of ~100 basis points of impr
Slide 18: Clean and reliable energy drives capital investment
Clean and reliable energy drives capital investment Compound annual CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST rate base growth of ($ in millions) ($ in millions) ~5-7% through $600 $5,000 2021 even without $400-500 $400-500 3-Year CAGR ~5-7%1 CIP and West Loch $401 $411 battery projects, as $
Slide 19: HEI 2019 EPS guidance
HEI 2019 EPS guidance (as of November 1, 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
Slide 20: Summary
Summary HEI • Focused on enterprise mission to be a catalyst for a better Hawaii • Place-based strategy provides the financial resources to invest in our strategic growth and Hawaii’s sustainable future Hawaiian Electric Company • Collaborating with stakeholders to advance 100% renewable energy and
Slide 21: Slide 21
Slide 22: Appendix
Appendix [EXE] Catalyst for a better Hawai‘i
Slide 23: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition LTM 9/30/19 CONSOLIDATED UTILITY ROE 1 2 3 4 5 6 7 8 9 10 Structural Lagged 21
Slide 24: Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases
Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases Hawaiian Electric Hawaiian Electric Maui Electric Total Pension Adjustment Plant Adds Adjustment Pension Adjustment Net Net Net Bps Rev Req Net Income Rev Req Rev Req Rev Req Income Income Income (ROE) 2018 $5,250 $3,
Slide 25: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation Parties filed initial proposals; Financial modeling workshop to Develop new regulations aimed at lowering electricity costs, improving customer service, working group meetings u
Slide 26: Regulatory evolution: Performance-based regulation (PBR)
Regulatory evolution: Performance-based regulation (PBR) Potential changes 3-year rate case cycle from PBR Multi-year rate plans with interim adjustments 5-year rate plan Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate case (revenues not lin
Slide 27: Regulatory evolution: PBR goals and outcomes
Regulatory evolution: Performance-based regulation (PBR) Phase 1 D&O established conceptual framework Conceptual framework established PBR structure • A customer-centric approach, including immediate “day 1” Revenue adjustment mechanisms savings when the new regulations take effect ✓ Maintain revenu
Slide 28: Performance based regulation—Phase II schedule
Performance based regulation—Phase II schedule PBR Phase II in progress Phase II continues collaborative approach from Phase I, and includes workshops and working group meetings to develop, present, and evaluate stakeholder proposals • Timeline is measured and shows PUC’s commitment to gradualism in
Slide 29: Hawaiian Electric 2020 rate case status
Hawaiian Electric 2020 rate case status Hawaii PUC docket no. 2019-0085 Final D&O (2017 test year) Application (2020 Test Year) (6/22/18) (8/21/19) (eff. 9/1/18) Amount requested Commission approves Parties’ Stipulated Settlement $77.6 million Agreements filed on November 15, 2017 and March 5, 2018.
Slide 30: Hawaii Electric Light 2019 rate case updates
Hawaii Electric Light 2019 rate case updates Hawaii PUC docket no. 2018-0368 Application (2019 Test Year) Partial Settlement (9/24/19)3, 4 (12/14/18)1 (Hawaii Electric Light’s position) (for interim rate relief purposes) 5 Amount requested $13.4M $7.1M $2.8M (3.4% increase over revenues at current (
Slide 31: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC Docket No. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases through the revenue • Capital cost recovery approved June 2
Slide 32: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) CURRENT PIMs1 ($ in millions) Reliability Customer Service Fuel Cost Resource Acquisitions (Oahu & Maui) $4.0 $6.5 $2.0 $3.1 $1.3 $0.0 $0.0 $0.0 $0.0 $0.5 $0.0 ($1.3) ($3.3) ($3.3) ($3.1) ($2.0) ($4.0) Interruption Interruption Call Center Fossil Fuel Cost Dem
Slide 33: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Hawaiian Electric 2017 test year rate case D&O, Maui Electric 2018 test year rate case D&O, Hawai‘i Electric Light 2019 test year rate case settlement • In final D&O in Hawaiian Electric 2017 rate case, Commission established fossil fuel cost risk sharing mechanism as p
Slide 34: 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 35: 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 36: 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 37: • the ability of the Utilities to develop, implement and recover the costs of
• 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 Plan, Grid Modernization Plans, and business model c
Slide 38: • discovery of conditions that may be attributable to historical chemical releases, including any
• discovery of conditions that may be attributable to historical chemical releases, including any necessary investigation and remediation, and any associated enforcement, litigation or regulatory oversight; • decisions by the PUC in rate cases and other proceedings (including the risks of delays in
Slide 39: 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 management use certain non-GAAP measures, which exclude certain items that are not reflective of ongoing operations or that are not expected to reoccur. to evaluate the performance of HEI and the utility. Manag
Slide 40: Reconciliation of GAAP to non-GAAP measures
—— a RECONCILIATION OF GAAP! TO NON-GAAP MEASURES Hawaiian Electric Industries, Inc. and Subsidiaries (HEI) Unaudited Twelve months ended September 30 ($ in millions) 2019 2018 HEI CONSOLIDATED NET INCOME GAAP (as reported) $ 201.2 184.6 Excluding special items (after-tax): One-time non-executive ba
Slide 41: Reconciliation of GAAP to non-GAAP measures
RECONCILIATION OF GAAP' TO NON-GAAP MEASURES HEI Hawaiian Electric Company, Inc. (Hawaiian Electric) and Subsidiaries Unaudited ‘Twelve months ended September 30 (S in millions) 2019 2018 HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME GAAP (as reported) $s 146.8 § 133.7 Excluding special items (after-tax
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