Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q3 2018 Earnings Presentation
44 slides from Hawaiian Electric Industries's earnings presentation, Nov 7, 2018
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)
(OPEB) tracking mechanisms, and the continued decoupling of revenues from sales to mitigate the effects of declining kilowatthour sales; • the ability of the Utilities to achieve performance incentive mechanisms currently in place; • the impact from the PUC’s implementation of performance-based rate
Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)
• changes in ASB’s deposit cost or mix which may have an adverse impact on ASB’s cost of funds; • the final outcome of tax positions taken by HEI and its subsidiaries; • the risks of suffering losses and incurring liabilities that are uninsured (e.g., damages to the Utilities’ transmission and distr
Slide 4: Third Quarter 2018 Financial Results and Outlook
Hawaiian Electric Industries, Inc. Third Quarter 2018 Financial Results and Outlook November 7, 2018
Slide 5: 3Q 2018 consolidated earnings results
3Q 2018 consolidated earnings results Solid consolidated earnings growth Net Income (in millions) Diluted EPS $66 $60 $0.60 $0.55 Q3 2017 Q3 2018 2
Slide 6: Other Developments
Renewable energy and grid transformations advancing quickly with core frameworks in place Approves Hawaiian Electric base rate Approves Hawaii adjustment due to Electric Light base Interim D&O Interim D&O in federal tax reform rate adjustment due in Maui Hawaii Electric Light to federal tax reform E
Slide 7: Progress on other key utility initiatives
Progress on other key utility initiatives Hawaiian Electric Highlights Implementing initiatives to increase efficiency and provide more customer benefits ‒ Pole ownership agreement to provide greater efficiency and new revenue and technology opportunities ‒ Enterprise Resource Planning system went
Slide 8: Bank performing well; Pacific Current President appointed
Bank performing well; Pacific Current President appointed American Savings Bank Highlights Continued strong financial performance Expanding net interest margin, improving operational efficiency and positive tax reform impact Focus on making banking easy, deepening customer relationships New
Slide 9: Hawaii economy continues to grow
Hawaii economy continues to grow Year-over- September 2018 YTD 2018 year change Tourism Arrivals +3.5% +6.5% Expenditures +6.4% +9.8% Unemployment • September 2018 – Hawaii: 2.2%; U.S.: 3.7% • YTD September 2018 Oahu sales volume vs PY: – Single family homes, down 3.7% – Condominiums, down 0.1% Real
Slide 10: Q3 2018 earnings by segment
Q3 2018 earnings by segment Solid quarterly performance across enterprise EPS (Diluted) Net Income (in millions) $66 $0.60 $60 $0.55 $0.46 $50 $0.44 $47 $0.16 $0.19 $18 $21 ($0.05) ($0.05) ($5) ($5) 2017 2018 2017 2018 Utility Bank Holding Co. & Other Note: Columns may not foot due to rounding . 7
Slide 11: HEI LTM ROE strengthening with utility resumption of triennial rate cases
HEI LTM ROE strengthening with utility resumption of triennial rate cases Continued bank ROE expansion due to tax reform and net interest income growth GAAP LTM 9/30/18 ROE includes 4Q17 tax reform impact Consolidated HEI ROE Twelve Months Ended September 30 9.4% (Core) Core Earnings Adjustment
Slide 12: 3Q18 utility financial highlights
3Q18 utility financial highlights ($ in millions) Key utility earnings drivers, after-tax 3Q18 vs Utility net income fav/(unfav) 3Q17 Rate relief for Hawaiian Electric, Hawaii Electric Light and Maui Electric 8 RAM and MPIR revenues 4 Operation & maintenance, excluding net income (11) neutral items
Slide 13: Strong bank financial results
Strong bank financial results ($ in millions) Third consecutive quarter of strong bank net income growth Bank net income Key bank earnings drivers, after-tax 3Q18 vs 3Q18 vs fav/(unfav) 2Q18 3Q17 Net interest income 1 4 Provision for loan losses (2) (4) Noninterest income 1 -- $20.6 $21.2 $17.6 No
Slide 14: Solid bank profitability
Solid bank profitability Return on assets (%) Net interest margin (%) 1.62 1.27 3.81 3.78 3.82 1.22 1.18 ~3.7 - 3.8 3.63 >1.10 Target ASB ASB Peers YTD Target ASB ASB Peers YTD 3Q18 YTD 3Q18 YTD ASB Target ASB QTD Annualized ASB YTD Annualized Peers1 High Performing Peers1 Source for peer data: SNL
Slide 15: Strong net interest margin
Strong net interest margin Asset Yield (%) Net Interest Margin (%) 4.50 4.00 4.00 3.50 3.98 3.99 4.06 3.88 3.88 3.00 3Q17 4Q17 1Q18 2Q18 3Q18 3.50 Cost of Funds (%) 3.81 1.20 3.76 3.76 3.69 3.68 0.80 0.40 0.20 0.21 0.23 0.24 0.26 0.00 3.00 3Q17 4Q17 1Q18 2Q18 3Q18 3Q17 4Q17 1Q18 2Q18 3Q18 1 2 Source
Slide 16: Net interest income growth
Net interest income growth ($ in millions) Driven by good deposit growth that funds earning asset growth YTD 9/30/18: 2.4% annualized loan growth, 5.4% annualized deposit growth* Total loans $4,678 $4,775 $4,755 Net interest income and noninterest income Net interest income Noninterest income $7
Slide 17: Prudent credit quality management
Prudent credit quality management ($ in millions) Net charge-offs1 Nonaccrual loans2 0.59% 0.40% 0.57% 0.53% 0.51% 0.32% 0.32% 0.50% 0.28% 0.49% 0.26% 0.46% 0.42% 0.14% 0.43% 0.08% 0.11% 0.05% 0.05% 0.39% 0.38% 0.03% 0.07% 0.35% 0.05% 0.06% 0.33% 0.03% $27.2 $27.9 $25.1 $6.0 $23.4 $23.6 $4.7 $3.8 $3
Slide 18: Focused on maintaining a quality balance sheet and capital efficiency
Focused on maintaining a quality balance sheet and capital efficiency Peer Banks1 ASB2 Median of average yield on earning assets 4.29% Average yield on earning assets 4.06% Median of average cost of funds 0.74% Average cost of funds 0.26% 100% of Loans Core Deposits ASB loans 72% 62% Loans Core Depo
Slide 19: Clean and reliable energy drives capital investment strategy
Clean and reliable energy drives capital investment strategy Year End Rate Base Forecast (in millions) = Top of Range $4,000 = Bottom of Range $3,600 $3,380 $100 $3,500 $3,180 $90 $30 $3,000 $2,500 $3,500 $3,150 $3,290 $2,833 $2,972 $2,000 $1,500 2016 2017 2018 2019 2020 1 Rate Base Growth 4% 5% 6-7
Slide 20: HEI 2018 EPS guidance
HEI 2018 EPS guidance (as of November 7, 2018) HEI EPS: $1.80 - $2.00 per share Utility EPS: $1.33 - $1.46 Bank EPS: $0.68 - $0.74 Key Assumptions: Key Assumptions: No change to decoupling or recovery mechanisms Low to mid-single digit earning asset growth Schofield Generating Station investme
Slide 21: Summary
Summary Focused on enterprise-wide mission to be a catalyst for a better Hawaii Hawaiian Electric – Advancing 100% renewable energy and grid modernization – Moving forward together with our communities, ensuring all customers have access to affordable, reliable renewable energy – Creating resili
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Slide 23: Appendices
Appendices 20
Slide 24: Utility LTM ROE reflects triennial rate case transition
Utility LTM ROE reflects triennial rate case transition LTM 9/30/18 Consolidated Utility ROE Core ROE GAAP ROE Structural Lagged Items One-time 21
Slide 25: Strong progress toward Hawaii's renewable energy goals
Strong progress toward Hawaii’s renewable energy goals Hawaii’s 100% by 2045 RPS goal is among the most On course to exceed ambitious in the nation 2020 target of 30% 35.0% 30.0% 25.8%26.8% 25.0% 23.2% 21.3% 20.0% 18.2% 13.9% 15.0% 12.0% 9.4% 9.5% 9.5% 10.0% 5.0% 0.0% 2008 2009 2010 2011 2012 2013 2
Slide 26: Utility regulatory mechanisms provide financial stability during renewable transition
Utility regulatory mechanisms provide financial stability during renewable transition Mechanisms What they do Provides predictable revenue stream by fixing net revenues at level approved in last rate case Sales decoupling (revenues not linked to kWh sales) Revenue adjustment mechanism Annually adjus
Slide 27: Performance-based regulation (PBR) proceeding
Performance-based regulation (PBR) proceeding Hawaii PUC Docket No. 2018-0088 (opened 4/18/18) Aspects of traditional PBR already in effect include decoupling, 3-year rate case cycle, performance incentives relating to reliability, customer service, demand response and renewable energy procurement
Slide 28: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) Current PIMs1 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) ($2.0) ($3.3) ($3.3) ($4.0) Interuption Interuption Call Center Fuel Cost Risk Demand Renewable RFP Duration Frequen
Slide 29: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing Part of Hawaiian Electric 2017 Test Year Rate Case Final Decision & Order (D&O) Hawaii PUC Docket No. 2016-0328 As part of the Final D&O in Hawaiian Electric’s 2017 rate case, the Commission established a new fossil fuel cost risk sharing mechanism to be part of the n
Slide 30: 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 31: Grid Modernization Strategy update
Grid Modernization Strategy update Hawaii PUC Docket No. 2017-0226 In February 2018 the PUC directed the Companies to implement the grid modernization strategy with project applications to follow Customer and stakeholder engagement used to define grid modernization goals; engagement to continue
Slide 32: 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 define and develop plans;
Slide 33: 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 34: Maui Electric Rate Case: 2018 Test Year
Maui Electric Rate Case: 2018 Test Year Hawaii PUC Docket No. 2017-0150 June 2018 Adjustment for Tax Interim D&O Application Settlement Reform (8/9/18) (10/12/17) Approved New (2/26/18) (eff. 8/23/18) Depreciation Rates $21.2M $30.1M (6.5% increase over $12.5M $12.5M (9.3% increase over revenues at
Slide 35: 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) Approximately $53.7M (at Approximately $36.0M (at $106.4
Slide 36: Hawaii Electric Light Rate Case: 2016 Test Year
Hawaii Electric Light Rate Case: 2016 Test Year Hawaii PUC Docket No. 2015-0170 Adjustment to Interim Final D&O Application Settlement Interim D&O Increase (6/29/18) (9/19/16) (7/11/17) (eff. 8/31/17) (eff 5/1/18) (eff. 10/1/18) Approximately $9.9M (at Approximately $9.9M (at $19.3M 9.5% ROE)-$11.1M
Slide 37: Low-risk loan mix
Low-risk loan mix Total loans at 9/30/18 - $4.8B1 HELOC, 20%2 Fixed-rate Residential 1-4, 44% mortgage Consumer 5% Residential construction & lot loans 1% Commercial markets 12% Commercial real estate Commercial construction 16% 2% 1 Before deferred fees, discounts and allowance for loan losses 2 Bo
Slide 38: ASB peer group – 2018
ASB peer group – 2018 * 1st Source Corp. SRCE First Commonwealth Financial FCF OFG Bancorp OFG Ameris Bancorp ABCB First Financial Bancorp. FFBC Opus Bank OPB * BancFirst Corp. BANF * First Financial Bankshares FFIN Pacific Premier Bancorp PPBI Bancorp Inc TBBK * First Merchants Corp. FRME * Park Na
Slide 39: HEI financing outlook 2018
HEI financing outlook 2018* 2018 holding company sources & uses of capital (in millions) ~$305M ~$305M Other HC Exp. $20 Intend to maintain a Debt Maturities consolidated investment $50 grade profile Debt Issuance and Cash $155 No new equity required HEI Investments in Utility $100 Utility Divid
Slide 40: Visitor expenditures
September 2018 Hawaii visitor arrivals up 3.5% and visitor expenditures up 6.4% 1400 30.0% Year vs. Year % Change Year vs. Year % Change 1200 15.0% Visitor arrivals (in thousands) 1000 0.0% 800 -15.0% 600 -30.0% Monthly Visitor Arrivals Yr-Yr% Change Visitor Arrivals 400 -45.0% Jul-15 Jul-16 Sep-17
Slide 41: Hawaii unemployment rate remains low at 2.2%
Hawaii unemployment rate remains low at 2.2% 12 Seasonally adjusted 8 Hawaii U.S. US: 3.7% 4 Hawaii: 2.2% 0 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 12 Not seasonally adjusted Not seasonally adjusted Honolulu County 8 Maui County Hawaii County: 3.0% Hawaii County
Slide 42: Hawaii real estate market remains strong
Hawaii real estate market remains strong Oahu Number of Sales and Median Sales Price $1,000,000 400 $800,000 Number of sales 300 Median price $600,000 200 $400,000 100 $200,000 $0 0 Sep-09 Sep-10 Sep-11 Sep-12 Sep-13 Sep-14 Sep-15 Sep-16 Sep-17 Sep-18 Number of Sales Median Sales Price Median Sales
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Slide 44: 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
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