Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q4 2018 Earnings Presentation
42 slides from Hawaiian Electric Industries's earnings presentation, Feb 15, 2019
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: Forward-looking statements (continued)
• the risks associated with increasing reliance on renewable energy, including the availability and cost of non-fossil fuel supplies for renewable energy generation and the operational impacts of adding intermittent sources of renewable energy to the electric grid; • the growing risk that energy pro
Slide 3: Fourth Quarter 2018 Financial Results and Outlook
Hawaiian Electric Industries, Inc. Fourth Quarter 2018 Financial Results and Outlook February 15, 2019
Slide 4: 2018 Highlights
2018 Highlights A year of performance across financial, operational, and environmental goals WHAT WE ACCOMPLISHED Solid consolidated earnings growth on both a GAAP (+22%) and core (+12%) basis Consolidated GAAP ROE improvement of 160 basis points and core ROE improvement of 90 basis points over
Slide 5: 2018 utility achievements
2018 utility achievements Delivering on transformation priorities HAWAIIAN ELECTRIC Cost-effective, clean • 27% of energy sales from renewable sources; #1 in the nation for rooftop solar adoption energy portfolio • Led state’s largest and lowest cost renewables procurement; filed PPAs for 262 MW of
Slide 6: 2018 ASB and Pacific Current accomplishments
2018 ASB and Pacific Current accomplishments AMERICAN SAVINGS BANK PACIFIC CURRENT Record results, positioned for continued growth Building on solid foundation • Achieved record earnings • Made second acquisition: 5 solar + storage projects across two islands • Disciplined approach to growth in heal
Slide 7: Hawaii economy remains healthy
Hawaii economy remains healthy While pace moderates, growth continues Year-over- December 2018 2018 year change Arrivals +3.4% +5.9% Tourism Expenditures -3.5% +6.8% Unemployment • December 2018 – Hawaii: 2.5%; U.S.: 3.9% • YTD December 2018 Oahu sales volume vs PY: – Single family homes, down 7.7%
Slide 8: Net income by segment
Net income by segment (in millions) GAAP Net Income Core Net Income1 $201.8 $201.8 +22% $179.5 +12% Full 1 $165.3 Year $143.7 $143.7 $120.0 $129.1 $67.0 $82.5 $66.0 $82.5 ($21.7) ($24.4) ($15.7) ($24.4) 2017 2018 2017 2018 $70.0 $49.6 $60.0 +7% $49.6 +53% $46.5 $50.0 $32.4 $35.3 $40.0 $35.3 Q4 $30.0
Slide 9: Sustained financial performance
Sustained financial performance DILUTED EPS (GAAP) CONSOLIDATED HEI ROE 22% increase in $1.85 +22% Twelve Months Ended December 31 reported net $1.52 income and EPS; $0.76 12% increase in $0.62 9.5% +90 bps Core/GAAP core net income 8.6% Core and EPS $1.32 $1.10 Continued bank ($0.20) ($0.22) 7.9% R
Slide 10: 2018 utility financial highlights
2018 utility financial highlights UTILITY NET INCOME KEY UTILITY EARNINGS DRIVERS, ($ IN MILLIONS) AFTER-TAX FAV/(UNFAV) 2018 vs 2017 GAAP Rate relief for Hawaiian Electric, Hawaii Electric 31 Light and Maui Electric RAM and MPIR revenues 26 $129.1 $143.7 Core Lower 2017 net income due to one-time t
Slide 11: Record high bank net income in 2018
Record high bank net income in 2018 Driven by higher net interest income and net positive impact of tax reform BANK NET INCOME ($ IN MILLIONS) Key bank earnings drivers, after-tax fav/(unfav) 2018 vs 2017 Net interest income 14 $82.5 Provision for loan losses (3) $67.0 Noninterest income (4) Noninte
Slide 12: Solid bank profitability
Solid bank profitability Return on assets (%) Return on average equity (%) 1.64 1.27 14.08 14.60 1.25 1.20 13.51 >1.10 10.33 Target ASB ASB Peers High Performing ASB ASB Peers High Performing 4Q18 2018 2018 Peers 2018 4Q18 2018 2018 Peers 2018 ASB Target ASB QTD Annualized ASB YTD Annualized Peers1
Slide 13: Strong net interest margin
Strong net interest margin Annual target: 3.7-3.8% ASSET YIELD NET INTEREST MARGIN (%) 4.5 4.00 4.0 4.22 3.5 3.98 3.99 4.06 3.75 3.88 3.0 4Q17 1Q18 2Q18 3Q18 4Q18 3.50 3.95 COST OF FUNDS (%) 3.81 1.2 3.76 3.76 3.68 3.25 0.8 0.4 3.00 0.21 0.23 0.24 0.26 0.28 4Q17 1Q18 2Q18 3Q18 4Q18 0.0 4Q17 1Q18 2Q1
Slide 14: Net interest income growth
Net interest income growth ($ in millions) 3.68% annualized loan growth, 4.55% annualized deposit growth* 8% net interest income growth Total loans $4,754 $4,843 $4,671 Net interest income and noninterest income Net interest income Noninterest income $76.4 $76.9 $72.0 $15.0 $15.3 $13.5 4Q17 3Q18 4Q1
Slide 15: Prudent credit quality management
Prudent credit quality management ($ in millions) Net charge-offs1 Nonaccrual loans2 0.57% 0.59% 0.40% 0.56% 0.37% 0.53% 0.51% 0.32% 0.26% 0.28% 0.14% 0.46% 0.41% 0.43% 0.42% 0.05% 0.05% 0.06% 0.11% 0.03% 0.38% 0.35% 0.31% 0.05% 0.06% 0.06% 0.33% 0.03% $27.2 $27.9 $27.3 $6.0 $25.1 $23.6 $4.7 $4.4 $3
Slide 16: Quality balance sheet and strong capital efficiency
Quality balance sheet and strong capital efficiency ASB1 PEER BANKS2 Average yield on earning assets 4.22% Median of average yield on earning assets 4.48% Average cost of funds 0.28% Median of average cost of funds 0.84% Return on average equity3 14.08% Return on average equity 11.00% 100% of Loans
Slide 17: Track record of improving bank efficiency
Track record of improving bank efficiency ASB efficiency ratio 64.9 ASB’s efficiency ratio has improved 220 bps since 2017 and 550 bps since 2015 61.9 61.6 550 bps improvement Continued improvement expected since 2015 through 2019 59.4 Targeting 100 basis points of annual improvement through 2
Slide 18: Clean and reliable energy drives capital investment
Clean and reliable energy drives capital investment Compound CAPITAL EXPENDITURES FORECAST RATE BASE FORECAST annual rate base ($ in millions) ($ in millions) growth of ~5-7% $600 $5,000 through 2021 as $400-500 $400-500 3-Year CAGR ~5-7%1 we invest in $401 $411 $400 $400 $3,720- renewables, $318 $3
Slide 19: HEI financing outlook 2019
HEI financing outlook 2019 (as of February 15, 2019) 2019 HOLDING COMPANY SOURCES & USES OF CAPITAL ($ in millions) Intend to maintain a ~$220M ~$220M consolidated investment Other HC Expense $30 grade profile Debt Issuance and Cash $60 Debt Maturities $30 HEI Investments in No external equity Utili
Slide 20: HEI 2019 EPS guidance
HEI 2018 EPS guidance (as of February 15, 2019) HEI EPS: $1.85 - $2.05 PER SHARE UTILITY EPS: $1.40 - $1.47 BANK EPS: $0.79 - $0.85 KEY ASSUMPTIONS: KEY ASSUMPTIONS: • No change to decoupling or recovery mechanisms • Low to mid-single digit earning asset growth • No material impact from PIM penaltie
Slide 21: Summary
Summary HEI • Place-based strategy continues to provide the financial resources to invest in our strategic growth and Hawaii’s sustainable future • 3.2% dividend increase enhances history of uninterrupted dividends since 1901 Hawaiian Electric Company • Continues to execute its comprehensive transfo
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Slide 23: Appendix
Appendix [EXET] Catalyst for a better Hawai‘i
Slide 24: 2018 utility ROE drivers
2018 utility ROE drivers (((1) 1 O&M over RAM cap is primarily due to the write off of preliminary engineering costs for LNG projects and smart grid costs 22
Slide 25: Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases
23 Customer benefit adjustments in the Hawaiian Electric and Maui Electric rate cases 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 (ROE) 2018 $5,250
Slide 26: Renewable energy is cost competitive in Hawaii
Renewable energy is cost competitive in Hawaii Oil UTILITY FOSSIL FUEL ENERGY COST CONTRACTED RENEWABLE ENERGY COST Subject to volatile oil prices Significant reduction in cost of utility-scale renewables Wind Energy Cost ($/kWh) 2016+ PPAs Pre-2016 PPAs 0.40 Proposed and Approved Solar 0.35 Biomass
Slide 27: Major project infrastructure recovery (MPIR) mechanism
Major project infrastructure recovery (MPIR) mechanism Hawaii PUC docket no. 2013-0141 MPIR adjustment mechanism established by PUC April 2017 Recovery of Schofield Generating Station (SGS) project • Allows recovery for eligible major projects in between rate cases through the revenue • Project capi
Slide 28: 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, multi- • Key dates: year rate plan (3-year rate case cycle), performance incentives - Initial technical workshop with stakeholders held Ju
Slide 29: Performance Incentive Mechanisms (PIMs)
Performance Incentive Mechanisms (PIMs) CURRENT PIMS1 ($ in millions) 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) ($3.3) ($3.3) ($2.0) ($4.0) Interruption Interruption Call Center Fuel Cost Risk Demand Renewable RF
Slide 30: 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 as part of the new
Slide 31: Hawaii Electric Light rate case: updates from latest filing
Hawaii Electric Light rate case: Updates from latest filing (latest filing versus most recent approved rate case) Hawaii PUC docket no. 2018-0368 Final D&O (2016 Test Year) Application (2019 Test Year) (6/29/18) (12/14/18) (eff. 10/1/18) Amount requested Commission approved final amount after $13.4M
Slide 32: Maui Electric rate case: 2018 test year
Maui Electric rate case: 2018 test year Hawaii PUC docket no. 2017-0150 June 2018 Settlement Interim D&O Application Adjustment for Tax Reform Approved New Depreciation (8/9/18) (10/12/17) (2/26/18) Rates (eff. 8/23/18) $21.2M $30.1M (6.5% increase over revenues $12.5M $12.5M Amount requested (9.3%
Slide 33: 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) Amount requested $106.4M Approximately $53.7M (at Approx
Slide 34: ASB peer group – 2018
ASB peer group – 2018 * 1st Source Corp. SRCE First Commonwealth Financial FCF OFG Bancorp OFG Ameris Bancorp ABCB First Financial Bancorp. FFBC Opus Bank OPB * Axos Financial. AX * First Financial Bankshares FFIN Pacific Premier Bancorp PPBI * BancFirst Corp. BANF * First Merchants Corp. FRME * Par
Slide 35: Explanation of HEI's use of certain unaudited non-GAAP measures
Explanation of HEI’s use of certain unaudited non-GAAP measures HEI and Hawaiian Electric Company management use certain non-GAAP measures to evaluate the performance of HEI and the utility. Management believes these non-GAAP measures provide useful information and are a better indicator of the comp
Slide 36: Reconciliation of GAAP to non-GAAP measures
Reconciliation of GAAP to non-GAAP measures RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES Hawaiian Electric Industries, Inc. and Subsidiaries (HEI) Unaudited Three months ended Years ended December 31 December 31 ($ in millions, except per share amounts) 2018 2017 2018 2017 2 HEI CONSOLIDATED BONUSES
Slide 37: 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 38: Forward-looking statements (continued)
• capacity and supply constraints or difficulties, especially if generating units (utility-owned or IPP-owned) fail or measures such as demand-side management, distributed generation (DG), combined heat and power or other firm capacity supply-side resources fall short of achieving their forecasted b
Slide 39: Forward-looking statements (continued)
• developments in laws, regulations and policies governing protections for historic, archaeological and cultural sites, and plant and animal species and habitats, as well as developments in the implementation and enforcement of such laws, regulations and policies; • discovery of conditions that may
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Slide 41: 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
Slide 42: Reconciliation of GAAP to non-GAAP measures: Hawaiian Electric
RECONCILIATION OF GAAP1 TO NON-GAAP MEASURES Hawaiian Electric Company, Inc. and Subsidiaries Unaudited Three months ended Years ended December 31 December 31 ($ in millions) 2018 2017 2018 2017 HAWAIIAN ELECTRIC CONSOLIDATED NET INCOME GAAP (as reported) $ 35.3 $ 25.4 $ 143.7 $ 120.0 Excluding spec
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