Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q2 2020 Earnings Presentation
53 slides from Hawaiian Electric Industries's earnings presentation, Aug 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)
in response to the orders issued by the PUC, the PUC’s April 2014 statement of its inclinations on the future of Hawaii’s electric utilities and the vision, business strategies and regulatory policy changes required to align the Utilities’ business model with customer interests and the state’s publi
Slide 3: Cautionary Note Regarding Forward-Looking Statements (continued)
• the risks associated with the geographic concentration of HEI’s businesses and ASB’s loans, ASB’s concentration in a single product type (i.e., first mortgages) and ASB’s significant credit relationships (i.e., concentrations of large loans and/or credit lines with certain customers); • changes in
Slide 4: 2nd Quarter 2020 Financial Results & Outlook
Hawaiian Electric Industries, Inc. 2nd Quarter 2020 Financial Results & Outlook August 6, 2020
Slide 5: Strong foundation supports solid consolidated results
Strong foundation supports solid consolidated results QTD EPS (GAAP) Core business strengths $0.45 $0.39 • Consolidated enterprise comprised of stable operating subsidiaries in essential industries 2Q19 2Q20 • Fully decoupled utility, with good recovery mechanisms YTD EPS (GAAP) • Conservatively man
Slide 6: State economy reflects reopening and stimulus impacts
State economy reflects reopening and stimulus impacts • State working to address recent rise in COVID-19 cases • Hawaii has lowest mortality rate in nation • Reopened local economy and federal stimulus contributed to June improvement in unemployment rate to 13.9% (vs 23.8% in April) • Stimulus devel
Slide 7: Hawaiian Electric: Focusing on efficiency and affordability
Hawaiian Electric: Focusing on efficiency and affordability • Hawaii Electric Light 2019 rate case final D&O received July 28th − Outcome consistent with interim decision Plan for Achieving $25M Cost maintaining existing base rates Savings by YE 2022 • Hawaiian Electric 2020 rate case Cost savings t
Slide 8: Hawaiian Electric: Advancing regulatory and renewable energy transition
Hawaiian Electric: Advancing regulatory and renewable energy transition • PBR on track for December PUC decision; PUC to determine implementation timing • Advancing Hawaii’s largest utility-scale renewable energy and storage procurements − Stage 2 renewable energy RFP project selection announced in
Slide 9: ASB: Managing well through COVID uncertainty
ASB: Managing well through COVID uncertainty • Ensuring customer and employee safety ‒ Increased sanitation, purchases of PPE and protective supplies ‒ Introduced new Contactless Cards on July 1 for all debit card holders ‒ Purchased employee meals for those working at HQ and branches – protects emp
Slide 10: 2Q20 consolidated financial performance
2Q20 consolidated financial performance Net Income (GAAP) EPS (GAAP) Consolidated LTM ROE ($ in millions) $48.9 9.4% 9.4% $42.5 $0.45 $14.0 $0.39 $17.0 $0.13 $0.16 $42.3 $32.6 $0.39 $0.30 ($7.1) ($7.5) ($0.06) ($0.07) 2Q19 2Q20 Utility 7.8% 7.9% 2Q19 2Q20 2Q19 2Q20 Bank1 10.5% / 11.8% 8.0% / 8.6% Ut
Slide 11: 2Q20 utility financial highlights
2Q20 utility financial highlights ($ in millions) UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 2Q20 vs 2Q19 Operations and maintenance, including timing impacts and reclassification of 1Q20 bad debt 7 expense to regulatory asset RAM and MPIR revenues 5 $42.3 2019 adjustment
Slide 12: Utility outlook and drivers
Utility outlook and drivers • Focus on achieving cost savings to offset lack of base rate increase • HELCO final D&O received 7/28; in line with interim Cost savings − Base rates held flat; 9.5% allowed ROE; 58% total equity capitalization offsetting lack • Hawaiian Electric rate case settlement fil
Slide 13: Renewables, reliability and resilience drive capital investment
Renewables, reliability and resilience drive capital investment CAPITAL EXPENDITURES FORECAST1 RATE BASE FORECAST ($ millions) ($ millions) 4-Year CAGR ~4-6%2 $3,730- $4,010 $450 $350-450 $350-$450 $401 $411 $3,620- $360 3,700 $3,490- 3,560 $3,425 $3,212 $2,972 2017A 2018A 2019A 2020E 2021E 2022E Fo
Slide 14: 2Q20 bank financial highlights
2Q20 bank financial highlights ($ in millions) BANK NET INCOME KEY BANK EARNINGS DRIVERS, AFTER-TAX FAV/(UNFAV) 2Q20 2Q20 vs vs 2Q19 1Q20 Net interest income (4) (3) $17.0 $15.8 Provision for credit losses (5) (4) $14.0 Noninterest income1 6 7 Noninterest expense2 - (1) 2Q19 1Q20 2Q20 1 Noninterest
Slide 15: 2Q20 bank NIM impacted by lower rate environment and excess liquidity
2Q20 bank NIM impacted by lower rate environment and excess liquidity Excluding Net interest income & Net interest margin Actual PPP PPP ($ in millions) 1Q20 Reported NIM 3.72% N/A 3.72% $61.5 Impact of lower rate $61.1 environment and portfolio mix (0.34%) (0.04%) (0.30%) FAS 91 amortization impact
Slide 16: Bank NIM compression primarily driven by declining asset yield
Bank NIM compression primarily driven by declining asset yield despite low funding cost • Interest rates expected to remain low for remainder of year • Repricing of variable rate loans (38% of portfolio) largely complete; fixed rate loans reprice at more moderate pace • Lower interest rates increase
Slide 17: Additional provision reflects June 30 outlook
Additional provision reflects June 30 outlook Allowance for Credit Losses (ACL) ($ in millions) $90 ACL: 1.50% ACL: 1.49% $10.8 $81.3 $80 $77.1 $6.6 $77.1 $70 2Q provision includes $4.3 million for unfunded commitments, but the reserve $60 for unfunded commitments is classified in other liabilities
Slide 18: Modest requests for additional payment relief
Modest requests for additional payment relief • Modest number of borrowers (representing 3% of total portfolio) have requested further payment relief as initial 90-day deferment periods expire Criticized Loans ($ in millions) Special mention Classified $569 Deferred loans Balance % of (as of 6/30/20
Slide 19: 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 $260M above the “well funding capitalized” level Secured funding available ($ in millions) $3,213 $2,923 $3,000 $704 $931 $694 Capital Ratio1 ** 1 leverage2 Tier A
Slide 20: Enterprise-wide capital and liquidity position solid
Enterprise-wide capital and liquidity position solid Liquidity and balance sheet strong Modest debt maturities through 2021 enterprise-wide ($ in millions) Both utility and bank still expected to be self- funding in 2020, with strong stand-alone balance sheets and liquidity $52 Good access to ca
Slide 21: HEI financing outlook 2020
HEI financing outlook 2020 (as of August 6, 2020) 2020 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ 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 divide
Slide 22: HEI 2020 guidance
HEI 2020 guidance (as of August 6, 2020) UTILITY EPS: $1.46 - $1.54) BANK Pretax Pre-Provision (PTPP) Stable performance through supportive regulatory income: $90 - $110 million framework and focus on cost reductions Continued profitable operations with revisions to pre-provision elements KEY ASSUMP
Slide 23: Mahalo
Mahalo ——
Slide 24: Appendix
Appendix HEI Catalyst for a better Hawai'i _———_a
Slide 25: Hawaii COVID-19 case update
Hawaii COVID-19 case update Hawaii daily new cases Low cases and transmission rate • Total cases as of 8/3 = 2,448 210 • 1.7% positivity rate from COVID- 180 19 testing 150 State working to 120 address recent Hospital resources able to serve increase 90 current cases: • Last reported on 8/2: 60 − ~4
Slide 26: Hawaii economic update
Hawaii economic update June 2020 vs YTD 2020 vs June 2019 YTD 2019 Tourism Total arrivals -98.2% -58.5% Total expenditures N/A N/A Unemployment • June 2020 – Hawaii: 13.9%; U.S.: 11.1% • YTD June 2020 Oahu sales volume vs PY: – Single family homes, down 4.8%; Condominiums, down 22.0% Real Estate • Y
Slide 27: 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 305 Global financial crisis 275 303 245 294 215 273 185 248 155 189 125 Index 2000 Q1 = 100 95 2000 2001 2002 2003 2004 2005 2006 20
Slide 28: Hawaiian Electric—A source of strength as Hawaii recovers
Hawaiian Electric—A source of strength as Hawaii recovers CONSISTENTLY POWERING OUR STATE FOR OVER 127 YEARS Although impacted by COVID-19, utility is well-positioned to serve as a source of strength, supporting Hawaii’s recovery Fully decoupled, with revenues adjusted for load decline impacts G
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 September 1 • Mandatory work-from-home for all applicable
Slide 30: Utility LTM ROE
Utility LTM ROE 2Q20 CONSOLIDATED UTILITY ROE ROE (%) 1 2 3 4 5 6 7 8 9 Structural Lagged 27
Slide 31: Customer benefit adjustments: 2017 and 2018 rate cases
Customer benefit adjustments: Hawaiian Electric 2017 and Maui Electric 2018 rate cases ($ in millions) 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 (
Slide 32: Status of key open dockets
Status of key open dockets Subject and description Docket # Latest development Next milestone Performance-based regulation Parties filed initial statements of Reply statements of position Develop new regulations aimed at lowering electricity costs, improving customer service, position on 6/18/20 due
Slide 33: Performance-based regulation guiding principles and goals
Phase 1 PBR D&O established conceptual framework Conceptual framework established PBR structure • A customer-centric approach, including Revenue adjustment mechanisms Guiding principles immediate “day 1” savings Maintain revenue decoupling and existing cost trackers • Administrative efficiency to
Slide 34: Regulatory evolution: Performance-based regulation (PBR)
Regulatory evolution: Performance-based regulation (PBR) Current mechanisms Potential changes under PBR 3-year rate case cycle 5-year rate Multi-year rate plans with interim adjustments plan Sales decoupling Provides predictable revenue stream by fixing net revenues at level approved in last rate ca
Slide 35: PBR—Phase 2 continues collaborative approach
PBR—Phase 2 continues collaborative approach • Measured timeline shows PUC commitment to gradualism in implementing PBR • Collaborative format focused on thoughtful process that minimizes risk of unintended consequences • Annual revenue adjustment mechanism has potential to eliminate lag in current
Slide 36: 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)1 (6/22/18) (8/21/19) (eff. 9/1/18) Amount requested Commission approves Parties’ Stipulated $77.6 million Settlement Agreements filed on November 15, (4.1% increase over re
Slide 37: Hawaii Electric Light 2019 rate case status
Hawaii Electric Light 2019 rate case status Hawaii PUC docket no. 2018-0368 Application (2019 Test Year) Interim D&O (11/13/19) (Eff. 1/1/20)3, 4, 5 (12/14/18)1 Amount requested $13.4M $0M (3.4% increase over revenues at current effective (0.0% increase over revenues at current rates)2 effective rat
Slide 38: Major project interim recovery (MPIR) mechanism
Major project interim recovery (MPIR) mechanism Hawaii PUC Docket No. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Schofield Generating Station project • Allows recovery for eligible major projects in between rate cases through • Capital cost recovery approved June 2018 the reve
Slide 39: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) Current PIMs1 ($ in millions) Reliability Customer Fuel Cost Resource Acquisitions Service $4.0 $2.0 $3.1 $6.5 $1.4 $0.0 $0.0 ($1.4) $0.0 $0.0 $0.5 $0.0 ($2.0) ($3.4) ($3.4) ($3.1) ($4.0) Interruption Interruption Call Center Fossil Fuel Demand Renewable Durat
Slide 40: Fossil fuel cost risk sharing
Fossil fuel cost risk sharing Implemented at Hawaiian Electric and Maui Electric; approved in Hawaii Electric Light 2019 rate case • Hawaiian Electric: Final D&O in 2017 rate case established fossil fuel cost risk sharing Oahu January mechanism as part of Energy Cost Recovery Clause 2020 fuel price:
Slide 41: American Savings Bank—Conservatively managed bank with strong financial position
American Savings Bank—Conservatively managed bank with strong financial position SERVING HAWAII THROUGH 95 YEARS OF ECONOMIC CYCLES Prudent lending and risk management practices Earning assets 100% funded by low-cost deposits drive track record of above-peer NIM ASB Com. Loan portfolio predomina
Slide 42: Bank loan portfolio highly secured by real estate
Bank loan portfolio highly secured by real estate ($ in millions) $178 / $93 / $62 / $213 / 3.3% 1.7% 1.1% June 30, % of total 3.9% 2020 loans $370 / Residential mortgage 2,123 38.9% 6.8% Home equity 1,065 19.6% $2,123 / Commercial real estate 856 15.7% $491 / Commercial construction 93 1.7% 38.9% 9
Slide 43: Bank national syndication risk characteristics
Bank national syndication risk characteristics ($ in millions) Consumer Consumer BB / NR, $6 Disc Staples A- / $10 $27 $8 / 4% $5 / 2% Technology $15 / 7% BB+ / BBB+ / $35 $41 Industrial $16 / 8% Materials $20 / 9% $213 $213 ** Healthcare $24 / 11% REIT $125 / 59% BBB- / BBB / $69 $25 National syndi
Slide 44: 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: $90 to $110 million Historical loss experience applied to a $5B loan por
Slide 45: Quality bank balance sheet and loan portfolio
Quality bank balance sheet and loan portfolio ASB1 Investment Portfolio Sectors Average yield on earning assets 3.39% Corporates Mortgage Revenue 2% Bonds Average cost of funds 0.18% 2% Return on avg. equity2 8.00% Government Backed 96% Core 100% of ASB Loans Loans Deposits loans 73% 67% 80% Investm
Slide 46: Bank real estate secured portfolio characteristics
Bank real estate secured portfolio characteristics $225 / $93 / ($ in millions) $631 / 6% 2% Commercial real estate 15% $2,123 / Represents 16% of overall loan portfolio 51% $631M CRE investor & $225M CRE owner occupied Wtd avg LTV: 51.8% 92% of CRE portfolio is located in Hawaii $1,065 / 26
Slide 47: Bank consumer loan portfolio characteristics
Bank consumer loan portfolio characteristics ($ in millions) Consumer Portfolio Composition Personal Unsecured Loans 706 $250 704 $200 702 700 $150 74% 698 $100 696 $50 694 692 $- 6/30/2019 9/30/2019 12/31/2019 3/31/2020 6/30/2020 Personal unsecured loans Personal line of credit PUL - Balance ** PUL
Slide 48: Bank commercial & industrial portfolio characteristics
Bank commercial & industrial portfolio characteristics ($ in millions) Commercial & Industrial (ex. National Syndication) Health Care and Social Assistance • Commercial portfolio is well Construction diversified with highest concentration to Health Real Estate Rental and Leasing Care & Social Assist
Slide 49: LIBOR and Prime rates
LIBOR and Prime rates LIBOR and Prime lending rates (%) 6.00 Change in 1 month Libor Change in Prime 1H -1.60% 1H -1.50% 5.00 2Q -0.83% 2Q 0.00% 4.00 Prime floor of 3.25% 3.00 2.00 1.00 0.00 6/19 7/19 8/19 9/19 10/19 11/19 12/19 1/20 2/20 3/20 4/20 5/20 6/20 1 Mo LIBOR Prime lending rate 46
Slide 50: 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 51: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements This report and other presentations 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
Slide 52: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) and of the rules and regulations that the Dodd-Frank Act requires to be promulgated, as amended by the Economic Growth, Regulatory Relief and Co
Slide 53: Cautionary note regarding forward looking statements
Cautionary note regarding forward looking statements • failure to achieve cost savings consistent with the minimum $246 million in Enterprise Resource Planning/Enterprise Asset Management (ERP/EAM) project-related benefits (including $150 million in operation and maintenance (O&M) benefits) to be de
Hawaiian Electric Industries — Q2 2020 Earnings Presentation on 6ix