Hawaiian Electric Industries · NYSE:HE
Hawaiian Electric Industries — Q2 2022 Earnings Presentation
32 slides from Hawaiian Electric Industries's earnings presentation, Aug 8, 2022
Slide 1: HEI 2Q22 Financial Results
HEI 2Q22 Financial Results August 8, 2022
Slide 2: Solid Financial and Operational Results
Solid Financial and Operational Results Diluted EPS (GAAP) • Utility ‒ Performing well under PBR, although near-term $0.58 dynamics driving higher O&M $0.48 ‒ Focused on moderating customer bill impacts of $0.28 inflation and high fuel costs $0.16 • Bank $0.38 $0.40 ‒ Strong loan growth ‒ Expanding
Slide 3: 2Q22 Utility Highlights
2Q22 Utility Highlights Advancing Clean Energy, Managing Customer Bill Regulatory Progress Reliability & Resilience Dynamics • Ending coal use in Hawaii with • June order creates 3 new PIMs: • Affordability, efficiency and AES plant retirement Sept.1 − Generation reliability customer bill management
Slide 4: 2Q22 Bank Highlights
2Q22 Bank Highlights Solid Financial Performance as Digital Transformation Continues ✓ Strong loan growth and healthy pipeline ✓ Margin expansion in rising rate environment ✓ Return to more normalized provision to accommodate loan growth ✓ Continued focus on cost control in inflationary environment
Slide 5: Strengthening Hawaii Economy
Strengthening Hawaii Economy Unemployment Rate & Visitor Arrivals Monthly Visitor Arrivals (In thousands) Visitor Arrivals Unemployment Rate 2019 2021 2022 12,000 14 % YTD June 2022: 4.4M June 2022: 4.3% 12 1,000,000 10,000 10 800,000 8,000 8 6,000 600,000 6 4,000 400,000 4 2,000 2 200,000 - 0 0 Jan
Slide 6: 2Q22 Financial Performance
2Q22 Financial Performance Net Income ($M) EPS (GAAP) Consolidated LTM ROE $63.9 10.5% 10.4% $0.58 $52.5 $0.48 $30.3 $17.5 $0.28 $0.16 $41.9 $44.1 $0.38 $0.40 2021 2022 ($8.3) ($9.1) ($0.08) ($0.08) Utility 8.9% 8.2% 2Q21 2Q22 2Q21 2Q22 Bank1 12.1% 13.0% Utility Bank Holding Co. & Other Note: Column
Slide 7: 2Q22 Financial Highlights
2Q22 Financial Highlights $0.01 $0.10 $0.01 $0.01 $0.04 $0.07 $0.02 $0.01 $0.58 Total: ~($0.12) Total:1~$0.02 $0.48 2Q21 Net interest income Provision Noninterest income Noninterest expense ARA and MPIR Monthly Factor Depreciation O&M 2Q22 Timing Note: Columns may not foot due to rounding. 1. Utilit
Slide 8: Renewables, Reliability and Resilience Drive Capital Investment
Renewables, Reliability and Resilience Drive Capital Investment Capital Expenditures Forecast ($ in millions) $320-$430 $380-$420 $350-$400 Pending Approval Separate $315 Approved Recovery Low range includes baseline ARA capital and approved separately recovered projects. Approved ARA High range inc
Slide 9: Utility Outlook Drivers
Utility Outlook Drivers O&M Expense Dynamics PIMs Outlook • Higher O&M expected to continue this year • Potential moderate net penalty from PIMs due to: − Accelerated generating unit overhauls and − Maximum fuel cost risk sharing penalty maintenance to maintain reliability ahead of expected given hi
Slide 10: Net Interest Income Grew with Earning Assets Growth, Improved Margin
Net Interest Income Grew with Earning Assets Growth, Improved Margin Yield on Earning Assets (%) Cost of Funds (%)1 Net Interest Margin (%) 3.05 2.83 2.90 2.98 2.79 2.85 0.07 0.05 0.05 2Q21 1Q22 2Q22 2Q21 1Q22 2Q22 2Q21 1Q22 2Q22 Actual PPP Ex. PPP 1Q22 Reported NIM 2.79% 12.21% 2.73% Rate environme
Slide 11: Bank Outlook Drivers
Bank Outlook Drivers Stronger Net Interest Margin and Healthy Loan Pipeline Modest Expense Headwinds • Larger and faster rate increases compared to original expectations are expected to drive NIM expansion ‒ Minimal benefit from PPP fees as nearly all recognized • Healthy loan pipeline across portfo
Slide 12: 2022 EPS Guidance – Utility Strength and Bank Earnings Reset
2022 EPS Guidance1 – Utility Strength and Bank Earnings Reset Provide Base for Future Growth $1.68-$1.78 $2.00-$2.20 Key Assumptions: ➢ Full recovery of COVID-19 $0.59-$0.68 Additional Assumptions: expenses Key Assumptions: ➢ Holdco and other ➢ Capex of $350-$400M segment net loss of ➢ NIM: 2.70-2.8
Slide 13: Q&A
Q&A
Slide 14: Appendix
Appendix —_—e
Slide 15: COVID-19 Update
COVID-19 Update • 77% of Hawaii population fully vaccinated, 44% with boosters • Hawaii Safe Travels program restrictions on U.S. transpacific travelers and indoor mask mandate ended in March; no travel restrictions currently in place Hawaii Daily New Cases Average daily case rate in last 7 days, (S
Slide 16: HEI Financing Outlook 2022
HEI Financing Outlook 20221 • Both bank and utility remain net cash 2022 Holding Company Sources & Uses of Capital flow providers to holding company ($M) • No external equity required in 2022 ~$200M ~$200M • Balance sheet remains investment grade HC Expense ~$30 Debt Issuance ~$35 • Two investment g
Slide 17: Utility LTM ROE
Utility LTM ROE ROE (%) 9.5% 0.4% 0.2% 8.9% 0.5% 0.2% 8.2% 1 2 3 4 Allowed Non-recoverable Monthly factor ROE less Actual O&M, Others, Actual 2Q22 ROE items (e.g., change to days Structural depreciation and net Core ROE incentive comp., of month (timing Items Rate Base advertising, - HE & ME only) o
Slide 18: Performance Incentive Mechanisms (PIMs) Incentivize Achievement of Key Outcomes
Performance Incentive Mechanisms (PIMs) Incentivize Achievement of Key Outcomes PIM Description Max reward / (penalty) T&D SAIDI and SAIFI Incentivizes T&D reliability. Targets based on utility’s historical 10-year average with a deadband of one standard deviation ($6.8 million) Call Center Penalize
Slide 19: RPS-A PIM Rewards Accelerated Renewable Energy Growth
RPS-A PIM Rewards Accelerated Renewable Energy Growth 2021 Award Estimated Ranges for RPS-A PIM ($ millions) (Actual) (2022-2024) $10 $8 RPS-A PIM potential grows $5.2 - $8.0 $6 as more renewable energy projects come online $4 $2.0 - $6.0 • Projects approved or pending $2 approval have potential to
Slide 20: Fossil Fuel Cost Risk Sharing
Fossil Fuel Cost Risk Sharing • Symmetrical mechanism • Variations in fossil fuel price above or below baseline shared 98% customers / 2% utility • Applies to utility fossil fuel generation (not IPP generation or non-fossil fuels), includes fuel efficiency impacts • Baseline price: January fuel pric
Slide 21: Status of Key Open Dockets
Status of Key Open Dockets Subject and Description Docket # Latest Development Next Milestone Performance-based regulation 2018-0088 Jun. PUC D&O approved three new PIMs and modifications to an PUC order providing details on next steps for Proceeding to evolve regulatory framework to better align wi
Slide 22: Status of Key Open Dockets, Continued
Status of Key Open Dockets, Continued Subject and Description Docket # Latest Development Next Milestone COVID-19 Deferral Accounting Treatment 2020-0069 Deferral period ended Dec. 2021. Docket closed in May 2022. Request to defer costs associated with COVID-19 pandemic COVID-19 Deferred Cost Recove
Slide 23: Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends
Allowance for Credit Losses Reflects Loan Growth and Continued Favorable Credit Trends ALLOWANCE FOR CREDIT LOSSES (ACL)1 ($ in millions) $80 ACL: 1.30% ACL: 1.28% $0.0 $2.3 $70 $69.5 $67.2 $60 $50 ACL - 3/31/22 2Q NCOs 2Q Provision for Credit Losses ACL - 6/30/22 1Q22 2Q22 Beginning ACL balance $71
Slide 24: Bank Liquidity and Capital Remain Strong
Bank Liquidity and Capital Remain Strong Secured Funding Available ($M) $4,563 ASB has more than $218M of excess equity $4,366 $4,234 above the “well capitalized” level Capital Ratio Tier 1 leverage $2,289 $2,493 $2,264 As of 6/30/22 7.71% “Well capitalized” 5.00% $2,050 $2,049 $1,955 Minimum requir
Slide 25: ASB's Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment
ASB’s Asset Sensitive Balance Sheet Performs Better in a Rising Rate Environment Adjustable rate assets ($ in millions) ~$1,164 Timing of repricing following rate increase Consumer: $12 • Base case forecast for 2022 assumed four Fed rate >3 months -- increases; guidance range accommodates further <1
Slide 26: Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans
Bank Loan Portfolio: Conservative Profile, Concentrated in Real Estate-Secured Loans Loan portfolio characteristics Commercial & National Industrial Syndications Commercial 8.2% 4.0% ✓ ~85% of portfolio secured by real estate * Residential Wtd Avg LTV < 50%; CRE Wtd Avg LTV < 58% Construction Person
Slide 27: Quality Bank Balance Sheet and Loan Portfolio
Quality Bank Balance Sheet and Loan Portfolio ASB1 Investment Portfolio Investment Portfolio Average yield on earning assets 2.90% Sectors Ratings Average cost of funds 0.05% Return on avg. equity2 13.0%/12.2% Corporates Mortgage A- or higher Non-rated 1% Revenue Bonds 1% 1% 1% Loans 58% 100% of ASB
Slide 28: Pacific Current Provides Non-Regulated Platform for Sustainable Infrastructure Investment
Pacific Current Provides Non-Regulated Platform for Sustainable Infrastructure Investment Drivers Sectors Criteria Sustainability is the Technology driver of value (ESG) Renewable Transportation Power Electrification Contracted cashflows Climate adaptation Attractive after-tax and resilience unlever
Slide 29: Pacific Current – Initial Projects Advancing Hawaii's Sustainability
Pacific Current – Initial Projects Advancing Hawaii’s Sustainability • Focused on local partnerships and projects consistent with investment grade profile • Long-term strategy, with modest earnings impact while building Hawaii-based portfolio Mauō LLC – University of Hawaii Community Colleges 60MW H
Slide 30: 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, depen
Slide 31: 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 32: Cautionary Note Regarding Forward Looking Statements
Cautionary Note Regarding Forward Looking Statements ▪ failure to achieve remaining cost savings commitment related to the management audit committed savings of $33 million over the 2021 to 2025 multi-year rate period (MRP); ▪ federal, state, county and international governmental and regulatory acti
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