Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q3 2021 Earnings Presentation
43 slides from Hawaiian Electric Industries's earnings presentation, Nov 5, 2021
Slide 1: 3rd Quarter 2021 Financial Results & Outlook
Hawaiian Electric Industries, Inc. 3rd Quarter 2021 Financial Results & Outlook November 5, 2021
Slide 2: Solid HEI consolidated results
Solid HEI consolidated results 3Q21 selected key drivers Net Income (GAAP) Diluted EPS (GAAP) ($ in millions) Utility $65.0 $63.4 $0.59 $0.58 $12.2 $0.11 • Lower revenues due to timing, with $19.3 $0.18 target revenues recognized for year Q3 unchanged $60.1 $0.55 $50.3 $0.46 • Higher O&M from additi
Slide 3: Hawaii economic update
Hawaii economic update Improved economic metrics; monitoring virus developments Unemployment Rate & YTD Visitor Arrivals Daily Arrivals (excludes flights from Canada) In thousands YTD visitor arrivals Unemployment rate 2021 2020 2019 10,000 12% 45,000 9,000 6.6% 40,000 8,000 10% 35,000 7,000 8% 30,0
Slide 4: Hawaiian Electric: Continued focus on affordability, decarbonization and PBR
Hawaiian Electric: Continued focus on affordability, decarbonization and PBR • 3Q21 was first full quarter of PBR; delivered $3 million in management Cost efficiencies audit savings to customers in 3Q21 • O&M and capital cost efficiencies remain core focus • Working with stakeholders toward retireme
Slide 5: Hawaiian Electric climate change action plan: A vision for 2030 and 2045
Hawaiian Electric climate change action plan: A vision for 2030 and 2045 ✓ 70% carbon emissions reduction by 2030 (vs 2005) ✓ Net-zero (or better) carbon emissions by 2045 ✓ Committed to set science-based targets 2030 Key steps in our 2030 plan Down payment on a decarbonized • Shutting down state’s
Slide 6: American Savings Bank: Solid profitability
American Savings Bank: Solid profitability Conservative credit approach continues to benefit bank • Prudent reserve levels served bank well through Delta surge • Modest release of reserves in 3Q21 • Stable and improving credit metrics Earning asset growth and PPP fees help offset margin pressure • D
Slide 7: Transition to Anytime, Anywhere Banking
Transition to Anytime, Anywhere Banking Accelerating digital transformation to meet customers where they are Customers continue adopting digital options at accelerated pace with high levels of satisfaction EVERFI Financial Wellness Learn Cumulative Users (index = February 2021) ▪ Launched new websit
Slide 8: 3Q21 financial performance
3Q21 financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) $65.0 $63.4 $0.59 $0.58 10.3% $12.2 $19.3 $0.11 9.4% $0.18 $60.1 $50.3 $0.55 $0.46 ($7.2) ($6.2) ($0.07) ($0.06) 2020 2021 3Q20 3Q21 3Q20 3Q21 Utility 8.4% 8.3% Bank1 6.8% 10.3% Utility Bank Holding Co. & Ot
Slide 9: 3Q21 utility financial highlights
3Q21 utility financial highlights ($ in millions) Key drivers vs 3Q20 ✓ Lower revenues from timing change in target revenue recognition methodology, and annual revenue adjustment mechanism − $3 million management audit savings delivered to customers ✓ Higher O&M expense: − More generating facility o
Slide 10: Utility outlook and drivers
Utility outlook and drivers • No material upside expected from new PBR PIMs in 2021 PIMs • Potential for reliability PIM penalties • Tracking downside sharing under fuel cost risk sharing mechanism COVID-19 • ~$29 million of COVID-related costs deferred as of quarter-end expense • PUC approved exten
Slide 11: Earnings primarily driven by 3 main sources under PBR
Earnings primarily driven by 3 main sources under PBR Annual Revenue Performance Incentive 1 Adjustment (ARA) 2 Separate Recovery 3 Mechanisms (PIMs) • Inflation less customer dividend • Exceptional Project Recovery • PBR PIMs provide opportunity • Keeping baseline O&M and Mechanism (EPRM), innovati
Slide 12: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST ($ in millions) $370-$480 Low range includes $450 $320-$440 baseline ARA capital $411 and approved $335 Separate separately recovered $290-$310 Recovery projects. High range includes ARA separately recovere
Slide 13: 3Q21 bank financial highlights
3Q21 bank financial highlights ($ in millions) Key drivers vs 2Q21 ✓ Lower release of reserves for credit losses ✓ Net interest income flat − Earning asset growth and PPP fees soften impact of margin pressures − Record low cost of funds ✓ Higher noninterest expense reflects strong performance (highe
Slide 14: PPP fees, lower cost of funds help soften impact of margin pressures
PPP fees, lower cost of funds help soften impact of margin pressures YIELD ON EARNING ASSETS (%) PPP ($ in millions) Loans Fees 3.25 3.05 2.96 Funded $ / count $551 / 6,300 $23 Forgiveness / paydowns to date $441 $17 3Q20 2Q21 3Q21 Balance (as of 9/30/21) $137 $6 COST OF FUNDS (%) Actual PPP Ex. PPP
Slide 15: Negative provision reflects upgrades in credit portfolio
Negative provision reflects upgrades in credit portfolio • Reserve levels continue to reflect pandemic uncertainty ALLOWANCE FOR CREDIT LOSSES (ACL) ($ in millions) ACL: 1.51% $100 ACL: 1.48% $90 $78.3 $0.3 $2.0 $80 $75.9 $70 $60 $50 ACL - 6/30/21 3Q NCOs 3Q Provision for Credit ACL - 9/30/21 2 Loss
Slide 16: Bank liquidity and capital remain strong
Bank liquidity and capital remain strong Access to large amounts of secured funding ASB has more than $245M of excess equity above the “well capitalized” level Secured funding available ($ in millions) $4,523 Capital Ratio Tier 1 leverage $3,686 $3,333 As of 9/30/21 7.99% $2,486 ** $1,576 “Well capi
Slide 17: HEI financing outlook 2021
HEI financing outlook 2021 (as of November 5, 2021) 2021 HOLDING COMPANY SOURCES & USES OF CAPITAL Both bank and utility ($ in millions) remain net cash flow providers to holding company ~$245 ~$245 HC Expense, No external equity ~$30 required in 2021 Debt Issuance, ~$75 HEI Investments Balance shee
Slide 18: HEI 2021 EPS guidance
HEI 2021 EPS guidance (as of November 5, 2021) HEI EPS: $2.10 - $2.20 PER SHARE [Previous $2.00 - $2.20] UTILITY EPS: $1.53 - $1.61 (Reaffirmed) BANK EPS: $0.79 - $0.94 (Reaffirmed) KEY ASSUMPTIONS: KEY ASSUMPTIONS: PBR fully implemented as of June 1, 2021; existing NIM (%) 2.80% - 3.00% cost tracke
Slide 19: Mahalo
Mahalo HEI Catalyst for a better Hawai'i a
Slide 20: Appendix
Appendix HEI Catalyst for a better Hawai'i a
Slide 21: Experienced, committed leadership team
Experienced, committed leadership team New HEI and Hawaiian Electric CEOs effective Jan. 1, 2022 Scott Seu Shelee Kimura Ann Teranishi Greg Hazelton Kurt Murao Hawaiian Electric Hawaiian Electric American Savings Bank HEI HEI President & CEO (HEI SVP, Customer Service & President & CEO EVP & Chief F
Slide 22: Further reopening as COVID cases decline
Further reopening as COVID cases decline • 7-day average of new cases declined to ~100 as of Nov. 3 from ~900 during Delta surge from Aug. 30 – Sept. 5 • Governor Ige announced Hawaii welcoming fully vaccinated travelers beginning Nov. 1 • No restrictions for outdoor activities at social establishme
Slide 23: ESG is in our DNA
ESG is in our DNA Focused on achieving aggressive climate goals in a way that is safe, reliable, resilient, equitable and affordable Embedded Investing in Hawaii’s economic growth; fostering innovation and in core entrepreneurship to diversify and expand state economy; advancing strategies affordabi
Slide 24: Continuing to drive toward 100% RPS as we pursue our carbon reduction goal
Continuing to drive toward 100% RPS as we pursue our carbon reduction goal Hawaii’s renewable portfolio standard (RPS) Exceeded 2020 RPS milestone of 30% milestones 2020 RPS = 34.5% 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 2013
Slide 25: New PBR framework
New PBR framework In full effect as of 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, custo
Slide 26: 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 27: New performance incentive (PIMs) and shared savings mechanisms (SSMs) create additional earnings opportunities
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 28: 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 TBD $3.5 PIM $3.0 $1.0 $1.4 $1.5 $2.0 $2.0 $0.0 - (
Slide 29: RPS-A PIM rewards accelerated renewable energy growth
RPS-A PIM rewards accelerated renewable energy growth RPS-A PIM potential grows as Stage 1 & Stage 2 RFP projects come online • Projects approved or pending approval have potential to add ~607 MW of solar and ~3 GWh of storage by ~2023 Statutory RPS1 PBR RPS-A3 ($ millions) Estimated ranges for RPS-
Slide 30: Utility LTM ROE
Utility LTM ROE 1 2 3 4 5 Structural Lagged 30
Slide 31: 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 $454 million Date A
Slide 32: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation 2018-0088 PUC issued an order on Sep. 17, 2021 including a proposed PUC Order on Nov. 2021 suspended the initial Proceeding to evolve regulatory framework to better align with n
Slide 33: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 34: Bank loan portfolio: Conservative profile, concentrated in real estate-secured
Bank loan portfolio: Conservative profile, concentrated in real estate-secured ($ in millions) Loan portfolio characteristics 2.1% 3.4% 0.3% ✓ ~83% of portfolio secured by real estate (85% excl. PPP) 11.4% ✓ C&I represent ~11% of total loans (9% excl. PPP) 42.8% 2.1% ✓ Personal unsecured loans repre
Slide 35: Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs
Bank real estate secured portfolio characteristics: Conservative profile w/ low LTVs As of 9/30/21 ($ in millions) CRE owner- Commercial construction occupied $224 / 5% $122 / 3% Commercial real estate $855M CRE investor & $224M CRE owner Residential mortgage ✓ Commercial investor $2,201 / 52% occup
Slide 36: Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries
Bank commercial & industrial portfolio: Modest exposure to highly-impacted industries ($ in millions) Commercial & Industrial (ex. National Syndication) • Commercial portfolio is Accommodation and Food Services well diversified with Real Estate Rental and Leasing highest concentration to Accommodati
Slide 37: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics Consumer Portfolio Composition ($ in millions) Personal Unsecured Loans 710 $150 705 59% 700 $100 695 $50 690 685 $- 12/31/2020 3/31/2021 6/30/2021 9/30/2021 Personal unsecured loans Personal line of credit ** PUL - Balance PUL - FICO Residential construc
Slide 38: Bank national syndication risk characteristics
Bank national syndication risk characteristics Other NR Manufacturing BB A- $6 / 3% $8 / 5% $15 / 9% $15 / 9% $13 / 7% BBB Retail $30 / 17% $28 / 16% $172 REIT $172 $87 / 51% BB+ $60 / 35% Healthcare BBB- $36 / 21% $46 / 27% National syndication ✓ Represents ~3% of overall loan portfolio ✓ 51% or ~$
Slide 39: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 2.96% Corporates Mortgage Revenue 1% Bonds Average cost of funds 0.06% 1% Return on avg. equity2 10.3% Government Backed 98% Core 100% of ASB Loans Loans Deposits loans 73% 56% 84% Investm
Slide 40: 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 41: 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 42: 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 43: 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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