Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q1 2023 Earnings Presentation
32 slides from Hawaiian Electric Industries's earnings presentation, May 9, 2023
Slide 1: 1Q23 Financial Results
HEI 1Q23 Financial Results May 9, 2023
Slide 2: Solid Performance Across the Enterprise
Solid Performance Across the Enterprise HEI’s combination of businesses continues to deliver consistent results Diluted EPS (GAAP) • Utility ‒ Continuing to grow earnings under PBR $0.63 $0.50 ‒ Operating efficiently despite increased costs from storm $0.22 $0.17 activity • Bank $0.42 $0.43 ‒ Genera
Slide 3: 1Q23 Utility Highlights
1Q23 Utility Highlights Continued progression of initiatives to integrate renewables while ensuring reliability and rate stability ✓ Filed draft Integrated Grid Plan (IGP) March 31 • IGP proposes clear plan for meeting Hawaii’s clean energy goals of zero net carbon emissions and 100% renewables by 2
Slide 4: 1Q23 Bank Highlights
1Q23 Bank Highlights Solid, consistent performance in a stable banking market ✓ Well-positioned in Hawaii’s unique, stable banking market • Vast majority of deposits from sticky retail deposit base • 85% of deposits F.D.I.C. insured or fully collateralized ✓ Improving credit quality • Conservatively
Slide 5: Hawaii Economy Stable Across All Indicators
Hawaii Economy Stable Across All Indicators Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 2023 12,000 14 % Mar. 2023 YTD: 2.5M Mar. 2023: 3.5% 12 1,200,000 10,000 10 1,000,000 8,000 8 800,000 6,000 6 600,000 4,000 4 400
Slide 6: 1Q23 Financial Performance
1Q23 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE 10.9% $69.2 10.0% $54.7 $0.63 $0.50 $23.9 $18.6 $0.22 $0.17 $46.4 $47.0 $0.42 $0.43 ($1.1) 1 ($0.01) 1 2022 2023 ($10.9) ($0.10) Utility 8.1% 8.2% 1Q22 1Q23 1Q22 1Q23 Bank2 13.7%/14.4% 15.5%/13.5% Utility Bank Holding Co. & O
Slide 7: 1Q23 Financial Highlights
1Q23 Financial Highlights $0.01 $0.01 $0.04 $0.03 $0.03 $0.04 $0.02 $0.06 $0.01 $0.02 $0.03 $0.01 $0.06 $0.63 Total: ~($0.05) Total: ~$0.01 $0.50 1Q 2022 EPS Net interest Provision Noninterest Noninterest ARA AFUDC MPIR O&M Depreciation Heat Rate Interest & HoldCo & Gain on sale 1Q 2023 EPS income e
Slide 8: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment $330-$540 Capital Expenditures Forecast ($ in millions) Pending Separate $370-$410 $320-$430 Approval $357 Recovery Low range includes baseline ARA capital Approved and approved separately recovered projects. Approved ARA High range inc
Slide 9: Utility Outlook Drivers
Utility Outlook Drivers Successfully • Continued focus on efficient operations and holding O&M increases manage O&M within ARA-allowed 3.68% inflationary increase despite higher storm- expenses related costs in the quarter Achieve performance incentive • On track for guidance of $4 million in net PI
Slide 10: ASB: Long-tenured, and “Sticky” Retail Deposit Base
ASB: Long-tenured, and “Sticky” Retail Deposit Base Deposit base mostly retail, largely insured ✓ 85% of deposits F.D.I.C. insured or Uninsured 15% fully collateralized $8.23 Bn Insured or fully ✓ 86% of deposits from retail customers total deposits collateralized as of 3/31/23 85% ✓ Long-tenured re
Slide 11: ASB: Conservative Loan Portfolio
ASB: Conservative Loan Portfolio ✓ 82% of loan book backed by real estate Land • Weighted-average loan-to-values of Sr Home Spcl Purpose Resi PUL 1% 1% 2% 4% <50% for residential and <55% for HELOC 17% Nat syn 5% 2% Other cons. commercial 2% Office 10% Retail 38% ✓ 23% of loans are commercial real e
Slide 12: Net Interest Margin Seeing Impacts from Higher Funding Costs
Net Interest Margin Seeing Impacts from Higher Funding Costs but Improved from Q1 2022 1 Yield on Earning Assets (%) Cost of Funds (%) Net Interest Margin (%) 3.28 3.49 2.79 2.91 2.85 2.83 0.66 0.38 0.05 1Q22 4Q22 1Q23 1Q22 4Q22 1Q23 1Q22 4Q22 1Q23 Funding sources 2022 average Q1 2023 average Actual
Slide 13: Bank Outlook Drivers
Bank Outlook Drivers Net interest margin moderated by higher funding costs, credit trends remain positive • Further Fed funds rate hikes provide continued benefit, but offset by higher funding costs and reduced balance sheet asset sensitivity • Provision expectations continue to reflect strong credi
Slide 14: Maintaining 2023 EPS Guidance Range
Maintaining 2023 EPS Guidance Range1 Key Assumptions: $1.75-$1.85 $2.15-$2.35 ➢ Full recovery of COVID-19 $0.75-$0.85 expenses Key Assumptions: ➢ No significant fuel cost risk ➢ NIM: 2.80% – 2.90% sharing penalty or reward assumed ➢ Provision exp. $0M – Additional Assumptions: $10M ➢ Holdco and othe
Slide 15: Q&A
Q&A
Slide 16: Appendix
Appendix —_—e
Slide 17: HEI Financing Outlook 2023
HEI Financing Outlook 20231 • Both bank and utility remain net cash 2023 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2023 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$40 • Two investment grade subsidiaries:
Slide 18: Adjusted O&M Excluding Pension (non-GAAP)
Adjusted O&M Excluding Pension (non-GAAP) $111.3 GAAP to non-GAAP reconciliation of O&M, net of $107.3 exclusions ($ in millions) 1Q 2022 1Q 2023 GAAP O&M $125.3 $128.3 (less): Pension1 12.7 12.0 Covered by surcharges 1.7 2.2 Covered by third parties 3.6 2.8 Adjusted O&M $107.3 $111.3 Storm restorat
Slide 19: Utility LTM ROE
Utility LTM ROE 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 Q1 2023 ROE items (i.e. Incentive Structural Depreciation and Sharing and net Core ROE compensation, Items Return on Higher Fuel advertising, charitable Inventory Rate Bas
Slide 20: Mechanisms to Incentivize Achievement of Key Outcomes
Mechanisms to Incentivize Achievement of Key Outcomes Metric Opportunity T&D SAIDI and SAIFI ($6.8M) annually Call Center Performance +$1.4M / ($1.4M) annually Pre-PBR Fossil Fuel Cost Risk Sharing +$3.7M / ($3.7M) annually West Loch PV Based on under/overproduction Heat Rate NA Renewable RFP Stage
Slide 21: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2022 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2023-2025) $8 $6 $4 - $7 $4 $3 - $6 Forecast based on March 2023 assumptions for renewable project $2 $1 - $3 commercial operation $0 $0 dates and total generation 2022 2023 2024 20
Slide 22: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 23: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 PUC held a PBR Working Group coordination meeting in March 2023 Subgroups to schedule next meeting and develop an Proceeding to evolve regulatory framework to better a
Slide 24: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone Community Based Renewable Energy 2015-0389 Tranche 1 RFP selections made in February. Lanai replacement Four-month procurement of small projects; LMI and Phase 2 program capacity expanded to 235
Slide 25: Average Core Deposits Remain Higher than Pre-pandemic Levels
Average Core Deposits Remain Higher than Pre-pandemic Levels 8,081 8,180 8,294 8,289 8,227 8,157 7,795 7,937 7,446 433 411 387 472 608 7,184 495 466 740 6,820 7,029 540 6,278 597 553 6,217 740 776 770 4,693 4,795 4,882 4,850 4,788 4,469 4,571 4,672 4,138 4,260 4,011 3,806 3,554 3,593 2,646 2,831 2,8
Slide 26: Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends
Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) $80 ACL: 1.21% ACL: 1.18% $72.2 $2.1 $1.2 $71.3 $70 $60 $50 ACL - 12/31/22 1Q NCOs 1Q Provision for Credit Losses ACL - 03/31/23 4Q22 1Q23 Beginning ACL balance $
Slide 27: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M)* $4,634 ASB has more than $193M of excess equity above the “well capitalized” level Capital Ratio Tier 1 leverage $3,299 $3,199 $2,548 As of 3/31/23 7.71% $1,640 $888 “Well capitalized” 5.00% $2,069 $2,040 $1,633 Minimum require
Slide 28: 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 Syndications Industrial Commercial 7.8% 5.3% Personal ✓ ~82% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 55% Constructi
Slide 29: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 3.49% Sectors Ratings Average cost of funds 0.66% Return on average equity 15.5% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 62% Core Deposits 7
Slide 30: 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 31: 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 32: 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
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