Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q3 2020 Earnings Presentation
47 slides from Hawaiian Electric Industries's earnings presentation, Nov 6, 2020
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)
biofuels, environmental assessments required to meet renewable portfolio standards (RPS) goals and the impacts of implementation of the renewable energy proposals on future costs of electricity; • the ability of the Utilities to develop, implement and recover the costs of implementing the Utilities’
Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)
• decisions by the PUC and by other agencies and courts on land use, environmental and other permitting issues (such as required corrective actions, restrictions and penalties that may arise, such as with respect to environmental conditions or RPS); • potential enforcement actions by the Office of t
Slide 4: 3rd Quarter 2020 Financial Results & Outlook
Hawaiian Electric Industries, Inc. 3rd Quarter 2020 Financial Results & Outlook November 6, 2020
Slide 5: Strong foundation continues to support solid consolidated results
Strong foundation continues to support solid consolidated results QTD EPS (GAAP) Core business strengths $0.59 $0.58 • Consolidated enterprise comprised of stable operating subsidiaries in essential 3Q19 3Q20 industries • Fully decoupled utility, with good YTD EPS (GAAP) recovery mechanisms $1.39 •
Slide 6: Despite economic uncertainty, some positive signs
Despite economic uncertainty, some positive signs Reduction in new COVID cases and reopening of tourism sector • Oahu economy began reopening late Sept. under tiered framework • Tourism sector reopened with Oct. 15 pre-arrival testing program for domestic travelers; program now expanded to travelers
Slide 7: Hawaiian Electric: Focusing on efficiency and affordability
Hawaiian Electric: Focusing on efficiency and affordability • Hawaiian Electric 2020 rate case final D&O received Oct. 22 − Maintained 9.5% allowed ROE, 58% equity Plan for Achieving $25M Customer capitalization Savings by YE 2022 − Removed 90% cap on Schofield generating Cost savings to be 80% capi
Slide 8: Hawaiian Electric: Aggressively pursuing clean energy additions
Hawaiian Electric: Aggressively pursuing clean energy additions • On track to exceed 2020 milestone of 30% RPS achievement • Additional procurements underway to increase future RPS achievement − Procurements significant given system peak load: Oahu: ~1200 MW, Hawaii Island: ~200 MW, Maui County: ~20
Slide 9: PUC decision on PBR anticipated in December
PUC decision on PBR anticipated in December • Phase I D&O established guiding principles, goals and core structural elements of PBR Guiding principles Goals Structure • Utility financial integrity • Enhance customer experience • Decoupling, trackers • MPIR • 5-yr rate plan • Earnings sharing • Custo
Slide 10: ASB: Solid execution in dynamic environment
ASB: Solid execution in dynamic environment • Key elements returning to normal operations − Reopened several branches temporarily closed earlier in pandemic − Strong mortgage banking income from residential lending − Resumption of certain fees previously suspended during initial impact of COVID • Co
Slide 11: 3Q20 consolidated financial performance
3Q20 consolidated financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) $65.0 $63.5 9.4% $12.2 $0.59 9.2% $0.58 $22.9 $0.11 $0.21 $60.1 $0.55 $46.8 $0.43 ($6.2) ($7.2) ($0.06) ($0.07) 3Q19 3Q20 Utility 7.6% 8.4% 3Q19 3Q20 3Q19 3Q20 Bank1 13.7% / 12.4% 6.8% / 7.9% Ut
Slide 12: 3Q20 utility financial highlights
3Q20 utility financial highlights ($ in millions) ✓ Lower O&M driven by: • Ongoing efficiency initiatives • Elevated 3Q19 overhauls and vegetation management • Timing of generating unit overhauls ✓ Revenue additions from RAM, MPIR UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV
Slide 13: Utility outlook and drivers
Utility outlook and drivers • HECO final D&O in Oct. approved settlement proposing no base rate increase − Base rates held flat; 9.5% allowed ROE; 58% equity capitalization Cost − Follows HELCO final decision in July holding base rates flat efficiencies offsetting lack − No rate case filing for Maui
Slide 14: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST ($ millions) ($ millions) 4-Year CAGR ~4-6%3 $3,730- $4,010 $450 $350-450 $350-$450 $401 $411 $3,620- $340-$350 3,700 $3,490- 3,560 $3,425 $3,212 $2,972 2017A 2018A 2019A 2020E 2021E 2022
Slide 15: 3Q20 bank financial highlights
3Q20 bank financial highlights ($ in millions) ✓ Record mortgage production ✓ Improved noninterest fee income from resumption of fees ✓ Net interest margin compression slowing ✓ Record low cost of funds BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 3Q20 3Q20 vs vs 3Q19 2Q20 $22.9
Slide 16: Higher noninterest income and lower noninterest expense drove 3Q20 performance
Higher noninterest income from core activities and lower noninterest expense drove 3Q20 performance Core activities and expense control partially offset 2Q20 gains on sales of securities NONINTEREST INCOME1 NONINTEREST EXPENSE ($ in millions) ($ in millions) $48.4 Gain on sale of securities $47.3 $9
Slide 17: Record low funding cost and lower FAS 91 amortization offset asset yield decline
Record low funding cost and lower FAS 91 amortization partially offset asset yield decline NET INTEREST MARGIN (%) ASSET 4.11 3.39 3.25 YIELD (%) 3Q19 2Q20 3Q20 3.82 3.35 to COST OF 0.30 3.25 FUNDS 3.21 3.12 (%) 0.18 0.13 ** 3Q19 2Q20 3Q20 3Q19 2Q20 3Q20 Full Year 2020 Actual PPP Excluding PPP 2Q20
Slide 18: Additional provision reflects Sept. 30 outlook
Additional provision reflects Sept. 30 outlook ALLOWANCE FOR CREDIT LOSSES (ACL) $100 ($ in millions) ACL: 1.67% $14.5 $91.5 $90 ACL: 1.50% $4.3 $81.3 $80 $81.3 $70 $60 $50 ACL - 6/30/20 3Q NCOs 3Q Provision for Credit ACL - 9/30/20 Losses 1Q20 2Q20 3Q20 Beginning ACL balance $53.4 $77.1 $81.3 DAY 1
Slide 19: Loan deferrals declining
Loan deferrals declining 3% of portfolio on active deferral as of 9/30/20 • 76% of deferred loans have returned to payment • Modest requests for 2nd deferral as initial 90-day period deferral period ends (2% of portfolio) • Only 3% of portfolio on active deferral as of 9/30/20 • Previously deferred
Slide 20: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong ASB is not expected to require capital from HEI Access to large amounts of secured ASB has over $266M of excess equity funding above the “well capitalized” level Secured funding available ($ in millions) $3,333 Capital Ratio1 Tier 1 leverage2 $2,927 $3,000 As
Slide 21: Solid enterprise-wide capital and liquidity position
Solid enterprise-wide capital and liquidity position Modest 2021 long-term debt maturities Liquidity and balance sheet strong already prefunded ($ in millions) ✓ Utility and bank expected to be self-funding in Liquidity 2020, with strong stand-alone balance sheets HEI HECO Credit facility capacity $
Slide 22: HEI financing outlook 2020
HEI financing outlook 2020 (as of November 6, 2020) 2020 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) ~$210M ~$210M HC Expense, ~$30 Debt Issuance, Both bank and utility HEI Investments in ~$75 Utility, ~$35 remain net cash flow providers to holding company No change in net utility divi
Slide 23: HEI 2020 guidance
HEI 2020 guidance (as of November 6, 2020) UTILITY EPS: $1.46 – $1.54 BANK Pretax Pre-Provision (PTPP) Stable performance through supportive regulatory income increased to: $105 – $115 million framework and focus on cost reductions Continued profitable operations with upward revision to some pre-pro
Slide 24: 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 100% renewable energy and carbon neutrality goals in a way that is safe, reliable, resilient and affordable for customers Embedded in Core Investi
Slide 25: Appendix
Appendix
Slide 26: Hawaii COVID-19 case update
Hawaii COVID-19 case update Hawaii Daily New Cases (statewide total) 400 350 300 Added probable cases 250 213 cases 200 150 New cases 100 7-day average 50 0 3/4 4/4 5/4 6/4 7/4 8/4 9/4 10/4 11/4 Cases in last 7 days as of 11/5 Total cases by Island Oahu Maui county 0 – 1,361 13,445 414 2,667 – 4,618
Slide 27: Hawaii economic update
Hawaii economic update September 2020 vs YTD 2020 vs September 2019 YTD 2019 Tourism Total arrivals -97.4% -71.6% Total expenditures N/A N/A Unemployment • September 2020 – Hawaii: 15.1%; U.S.: 7.9% • YTD September 2020 Oahu sales volume vs PY: – Single family homes, down 1.4%; Condominiums, down 18
Slide 28: 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 303 305 Global financial crisis 294 275 273 245 248 215 189 185 155 125 Index 2000 Q1 = 100 95 2000 2001 2002 2003 2004 2005 2006 20
Slide 29: Protecting our employees, helping our customers and community during COVID-19 period
Protecting our employees, helping our customers and community during COVID-19 period Protecting our employees Helping our customers Supporting our community • Activated pandemic response team • Suspended disconnections for nonpayment through December 31, • Mandatory work-from-home for all 2020 appli
Slide 30: Utility LTM ROE
Utility LTM ROE 3Q20 CONSOLIDATED UTILITY ROE ROE (%) 1 2 3 4 5 6 7 8 9 Structural Lagged 27
Slide 31: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 Hearings held in Sept. Post hearing briefs filed in Oct. Proceeding is ready for decision making Proceeding to evolve regulatory framework to better align with custome
Slide 32: 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 $454 million Date A
Slide 33: PBR — Summary of remaining issues
PBR — Summary of remaining issues From Hawaiian Electric Reply Statement of Position: General consensus among the parties that: Differences remain among the parties on many issues, including, e.g.: 1. the MRP control period should be 5 years; 2. there should be continuation of ECRC, 1. the “X-factor
Slide 34: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC Docket No. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases • Hawaiian Electric’s 2020 test year rate case through the
Slide 35: Performance incentive mechanisms (PIMs)
Performance incentive mechanisms (PIMs) Current PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service $4.0 $2.0 $6.5 $3.1 $1.4 $0.5 $0.0 $0.0 ($1.4) $0.0 $0.0 $0.0 ($2.0) ($3.4) ($3.4) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand Renewable Durat
Slide 36: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Implemented at Hawaiian Electric and Maui Electric; approved in Hawaii Electric Light 2019 rate case • Hawaiian Electric: - Symmetrical mechanism, with utility annual upside / downside capped at $2.5 million Oahu January - Variations in fossil fuel price above or below
Slide 37: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 3.2% 2.1% 0.2% ✓ ~78% of portfolio secured by real estate (83% excl. PPP) 3.5% ✓ C&I represent ~16% of total loans (9% excl. PPP) ✓ Personal unsecured loans represent ~3% of
Slide 38: Bank real estate secured portfolio characteristics
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs CRE owner- Commercial construction Commercial real estate occupied 3% 5% ✓ Represents 16% of overall loan portfolio Commercial investor Residential $668M CRE investor & $217M CRE owner 16% ✓ mortgage occupied 52% ✓
Slide 39: Bank national syndication risk characteristics
Bank national syndication risk characteristics Consumer NR Healthcare A- Disc BB- $6 / 3% $7 / 4% ($ in millions) $13 / 7% Industrial $8 / 4% $10 / 5% $10 / 5% Consumer BBB+ Staples BB+ $49 / 25% $10 / 5% $44 / 23% Technology $15 / 8% $193 $193 Materials $19 / 10% BBB- BBB REIT $124 $41 / 21% $30 /
Slide 40: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition Personal Unsecured Loans ($ in millions) 704 $250 702 $200 71% 700 $150 698 $100 696 $50 694 $- 9/30/2019 12/31/2019 3/31/2020 6/30/2020 9/30/2020 Personal unsecured loans Personal line of credit PUL - Balance PUL - FICO **
Slide 41: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Health Care and Social Assistance well diversified with Construction highest concentration to Real Estate Rental and Leas
Slide 42: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.25% Corporates Mortgage Revenue 2% Bonds Average cost of funds 0.13% 1% Return on avg. equity2 6.75% Government Backed 97% Core 100% of ASB Loans Loans Deposits loans 73% 67% 80% Investm
Slide 43: Lower loss rates and sufficient PTPP income at bank to offset even historical peak loss
Lower loss rates and sufficient PTPP income at bank to offset even historical peak loss ASB’s net charge-offs have been ASB has substantial loss absorption consistently below national average capacity 2020 expected PTPP income: $105 to $115 million Historical loss experience applied to a $5B loan po
Slide 44: 2020 ASB peer group
2020 ASB peer group Bancorp, Inc. TBBK Enterprise Financial Services Corp EFSC Sandy Spring Bancorp, Inc. SASR FB Financial Corporation FBK Veritex Holdings, Inc. VBTX Financial Institutions, Inc. FISI Meta Financial Group, Inc. CASH Heritage Financial Corporation HFWA Washington Trust Bancorp, Inc.
Slide 45: 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 46: 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 47: 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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