Hawaiian Electric Industries, Inc.

Good day and welcome to the Hawaiian Electric Industries, Inc. First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jolie Smolenski, Vice President of Investor Relations. Please go ahead, ma'am.

Thank you, Rocco. Welcome, everyone, to Hawaiian Electric Industries' first quarter 2021 earnings call. Joining me today are Connie Lau, HAI President and CEO, Greg Hazleton, HAI Executive Vice President and CFO, Scott Hsu, Hawaiian Electric President and CEO, Rich Wacker, American Savings Bank President and CEO, and other members of senior management. Our press release and presentation are posted in the investor relations section of our website. As a reminder, forward-looking statements will be made on today's call. Factors that could cause actual results to differ materially from expectations can be found in our presentation, our SEC filings, and in the investor relations section of our website. Now Connie will begin with her remarks.

Thank you, Julie, and aloha to everyone. Mahalo. Thank you for joining us today. We had a very strong start to the year with first quarter consolidated net income of $64.4 million and earnings per share of 59 cents. These results were 93% and 90% respectively above the same quarter last year and were driven by stronger earnings at both the utility and the bank. In the first quarter, Hawaiian Electric benefited from continued savings from the robust cost management program we started last year. The savings will be delivered to customers in rates beginning in June, and along with other timing elements, we expect the utility to remain within the four-year guidance range we announced in February. American's first quarter results reflect good execution in an environment that remains challenging for bank profitability. Our results benefited from a release of provision as we continue to conservatively manage credit in the improving Hawaii economy. As Greg will cover in more detail, we're increasing our bank guidance and consolidated HEI guidance for the year to reflect this improvement. We're seeing strengthening in the local economy as Hawaii continues to manage the virus well and the vaccine rollout continues. Unemployment declined to 9% in March. While still above the national average, it's headed in the right direction, having declined from a peak of nearly 24% a year ago. We've seen significant growth in tourism arrivals this year, and lately we've experienced multiple days where arrivals have approached pre-pandemic averages. At this point, almost all our arrivals are from the U.S. mainland, as the COVID situation and vaccinations abroad have been more challenging than domestically. Hawaii real estate fundamentals are strong and continue to support the conservative portfolio mix at the bank. Year-to-date, March, Oahu sales volumes are up 19% for single-family homes and 53% for condos. Medium prices are also up. 17% to $950,000 for single-family homes, and 4% to $450,000 for condos. In its March outlook, the University of Hawaii Economic Research Organization accelerated its forecast for the state's economic recovery by 18 months, with the GDP now expected to rise 3.7% in 2021 and and 3.1% in 2020. COVID-19 cases in Hawaii have remained far below the mainland. The seven-day rolling average was 94 for the state and is the fifth lowest per capita among U.S. states as of May 6. Forty percent of our residents are now fully vaccinated, and more than half have had at least one dose. While this is encouraging, We're mindful that we're still in the early stages of Hawaii's economic recovery, and there is still some uncertainty about the pandemic's course. At the utility, cost efficiency, our transition to the new PBR framework, and our clean energy future have been and continue to be our major focus. We and our stakeholders are all learning the new PBR framework. which is designed to align our interests as we work together to increase renewable energy and decarbonize our economy in a way that is affordable, reliable, resilient, and equitable. Our commitment to cost efficiency positions us well as we transition into PBR. The utility has been successful in implementing efficiencies and achieving savings to deliver on our management audit savings commitment and the customer dividend. We'll start returning these savings to customers through the annual revenue adjustment, or ARA, when PBR goes into effect June 1. Cost management will continue to be a focus as we operate under PBR. We've been working with stakeholders to finalize the new PBR performance incentive mechanisms, or PIMs, as well as the scorecards and metrics we'll report on going forward. We are expecting the PUC to issue an order setting forth the parameters of the new PIMS in the near future. As we've said before, reaching our collective clean energy and decarbonization goals must be done in a way that is kakou, a Hawaiian word that means it takes everyone working together. We're working to bring projects from Hawaii's largest ever renewable energy and storage procurement online as soon as possible. We are fully committed to this effort, which is no easy task given the number of projects, the scale of this procurement relative to our small system, community considerations, land constraints, and the need to ensure reliability on isolated island grids. We're actively working with independent power producers, government agencies, and other stakeholders to overcome obstacles to bring projects online faster. Last week, the PUC directed us to establish regulatory liabilities to track costs to customers resulting from delays in commercial operations of approved Stage 1, Stage 2, and CBRE Phase 1 projects. While we do not believe we are liable for any amounts, we believe the PUC's intention may be to track rather than record costs before a determination is made. so we will be seeking reconsideration or clarification. Last week, the POC also approved with conditions our agreement for the Kapolei Energy Storage Project, a standalone battery project that will help ensure reliability when the O'ahu coal plant retires and enable integration of more renewable energy. While technically an approval, the order imposes conditions that may prevent us and the developer from moving forward with this project. The regulatory process allows us to raise our concerns to the PUC, and we will be filing a motion for reconsideration on Monday. Another key focus is accelerating the addition of more distributed energy resources, or DERs, and demand response. On May 3rd, we filed our recommendations to achieve this acceleration while underscoring the importance of equity and fairness in how the programs are designed. We're advancing programs to benefit all customers, including expanding our community solar program, proposing a rooftop rental program, and procuring aggregated grid services from DERs. Grid monetization is key to facilitating faster deployment and effective use of demand response and DERs. In March, the PUC approved our proposal to shift from an opt-in to an opt-out approach for advanced meters in targeted areas, allowing us to deploy advanced meters more quickly and thus enabling operational efficiencies and more advanced rate programs. Turning to the bank, American continues to prevail well in a challenging environment. In the first quarter, we continued to have strong mortgage production and deployed an additional $150 million in ASB CARES or Paycheck Protection Program loans to support small businesses in round two of that program. Year to date, that amount has increased to over $170 million. Record deposit growth, in large part driven by federal stimulus, continues to outpace lending opportunities in this early stage of Hawaii's economic recovery. We're taking a balanced approach to managing our portfolio, optimizing fee income and loan portfolio growth in a low interest rate environment. While net interest margin is still pressured, record low funding costs and balance sheet growth are helping grow net interest income consistent with our expectations. Our first quarter release of reserves for credit losses reflects the resilience of our customers, as well as the moderating credit risk environment as Hawaii's economy begins to recover. We continue to manage our reserves for credit losses conservatively. American has also continued its cost control efforts, leading to lower non-interest expense in the first quarter, even as we invest in our anytime, anywhere banking transition. Improved profitability is also allowing the bank's dividend to HEI to increase. We're accelerating our digital transformation to enable customers to bank with us anytime and anywhere. Today, 44% of deposits are made through self-service channels such as ATMs and mobile, more than double pre-pandemic levels. And we've seen increased customer satisfaction across all channels over that time. We're enhancing our digital offerings to make banking even easier for customers. This includes providing new online financial wellness tools, upgrading our ATM fleet, strengthening our mobile app, expanding online capabilities, and opening new digital centers where our teammates will help customers with digital banking solutions. Now, Greg will discuss our financial results. Our outlook.