Hawaiian Electric Industries, Inc.

Good afternoon and thank you for attending today's second quarter 2023 Hawaiian Industries Incorporated Earnings Conference Call. My name is Jason and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you'd like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to our host, Mateo Garcia.

Thank you, Jason. Welcome everyone to HEI's second quarter 2023 earnings call. Joining me today are Scott Siu, HEI President and CEO, Paul Ito, HEI CFO, Shelly Kimura, Hawaiian Electric President and CEO, and Tara Nishi, American Savings Bank President and CEO, and other members of senior management. Our earnings release and our presentation for this call are available 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, Scott will begin with his remarks.

Aloha kākou. Greetings, everyone. Thank you for joining us today. I'll give an overview of our results, update you on our businesses and the Hawaii economy, and then turned the call over to Paul to further discuss our financial results and guidance. Our combination of businesses continued to work well for us in the second quarter, as it has through many different business cycles and economic environments. Both operating companies delivered solid results in the quarter, and HEI generated net income of $54.6 million and earnings per share of 50 cents, compared to $52.5 million and 48 cents in the same quarter last year. Despite the headwinds the bank sector has seen this year, ASB's low-risk community banking model and the utility's execution within our new performance-based regulation, or PBR framework, both contributed to our earnings this quarter. Our utility grew net income to $45.3 million, and although there were elevated operations and maintenance expenses during the quarter, We expect this to moderate in the second half of the year, with full year expenses expected to be within annual revenue adjustment, or ARA, allowed levels. The utility has executed well on its capital plan this year, ensuring the reliability and resilience of our system as we continue to aggressively pursue our clean energy transition. The PBR framework continues to work well for us, and we've been pleased with the improved visibility and predictability the framework provides. Our bank grew net income to $20.2 million this quarter, despite industry-wide funding cost pressures impacting banking sector profitability. ASB's net interest margin compression in the quarter was relatively small compared to peers, and our primarily insured and mostly retail deposit base remained stable. credit quality remains excellent, supported by the continued stability of Hawaii's economy. Overall, our bank remains very well positioned to continue delivering value to our enterprise. I'm proud to say that ASB was recently named to Forbes America's Best in State Banks list, the only bank in Hawaii to receive this prestigious recognition this year. In addition, we recently received credit ratings upgrades at both the utility and HEI from Fitch. The upgrades were based on our utility's more predictable regulatory construct under PBR, management's ability to manage near-term renewable targets, and the bank's role as a low-risk, well-run institution providing stable dividends over time. Fitch also reaffirmed ASB's BBB rating with an outlook of stable. While ASB has been successful in maintaining deposit levels, we've seen a continuing shift to higher cost funding sources that is expected to persist for the remainder of the year. Last quarter, we mentioned that we'd revisit bank guidance this quarter, given some of the trends we thought were likely to play out. And as a result of continued funding cost pressures, we're revising guidance for the bank, which Paul will cover in more detail. Turning to the utility, We continue to advance our decarbonization initiatives while improving reliability, resilience, and affordability for our customers. Affordability has improved significantly since last year, with the average residential customer bill on O'ahu down 17% from last year's peak in September. In late May, we filed our final Integrated Grid Plan, or IGP, which proposes a clear path forward to meeting our state's clean energy goals while prioritizing reliability and affordability. The proposed plan would require significant investment in our transmission and distribution systems, as well as new firm and variable renewable generation. Our IGP is the result of industry-leading planning and analysis for a renewables-powered and highly distributed energy-reliant grid. The plan is the culmination of a robust stakeholder engagement effort over five years and includes a stakeholder-driven governance structure focused on technical, market, and social aspects. Our IGP is crucial to achieving our state's clean energy goals of net zero carbon emissions and 100% renewables by 2045. The utility is on track with milestones for the Stage 3 Renewable Energy Request for Proposals, or RFP. For the O'ahu, Hawaii Island, and Variable Generation portion of Maui RFPs, the utility is currently evaluating best and final offers from the selected priority list and will announce the selection of the final award group in late October. Proposals for the Firm Generation portion of the Maui RFP are due on August 17, 2023. The utility is bidding into the RFP. consistent with the reliability requirements under the competitive bid framework. The utility has submitted its best and final offer to provide firm renewable generation by repowering the Wai'ao Power Plant on O'ahu. The proposed project would replace six aging fossil fuel powered steam generators with smaller, more efficient, and fuel flexible units. The proposed new units can provide firm renewable generation to back up the expanding portfolio of variable resources on O'ahu's grid. The project has advanced to the selected priority list. My last highlight is that we're ahead of schedule on our system-wide smart meter deployment. We now have 285,000 smart meters deployed, serving about 60% of our customers. Advanced meters provide data and tools that help us operate our grid more efficiently, reliably, and affordably. They'll help us get distributed energy resources, or DER, connected to our system faster, contribute to our efforts to achieve the DER interconnection performance incentive mechanism, or PIM, and enable time of use rates, which are currently in a pilot phase and will further contribute to customer affordability. Turning to the bank on slide four. ASB continues to be well positioned compared to peers, despite the headwinds the sector has seen this year. We're performing well in a local banking market characterized by stability and customer loyalty. Our depositor base remains strong and stable, and 86% of deposits are FDIC insured or fully collateralized. Total deposits at the end of the second quarter were essentially flat compared to deposits at year end. down a modest eight basis points. ASB remains a consistent contributor to earnings and cash flow, and during the quarter paid HEI $11 million of dividends. We continue to see positive trends in credit quality, evidence of the stability of our economy, and financial health of our borrowers. Our high-quality loan book, most of which is Hawaii real estate secured, saw a continuation of low delinquency rates. and net charge-offs this quarter. ASB's capital position remains very strong, with excess liquidity of approximately three times the amount of uninsured or uncollateralized deposits. Turning to slide five, key indicators continue to point to a healthy Hawaii economy. The University of Hawaii Economic Research Organization, which provides regular forecasts of our state's economy is projecting growth in Hawaii in 2023, driven by continued strength in tourism, despite the delayed Japanese market recovery, and strong public sector construction spending. Hawaii's labor market has continued to strengthen throughout the year. Our state's unemployment rate was 3.0% in June, an improvement from 3.1% in May, and lower than the national average of 3.6%. Visitor arrivals have been hovering near pre-pandemic levels throughout 2023. In June, over 889,000 visitors arrived in Hawaii, an increase of 5.5% from last year, and reaching 94% of June 2019 levels. International arrivals were up over 60% compared to June of last year, and have nearly doubled year to date. Visitor spending remains robust, and year-to-date June expenditures were up 17% compared to last year. Hawaii's supply-constrained housing market continues to see prices near record levels, and while sales volumes have been lower this year given high mortgage rates, O'ahu's median prices are still over $1 million. Hawaii's housing market is a key focus of our state's policymakers, and in July, Governor Green signed an emergency proclamation on housing. The proclamation aims to streamline the development process and empower developers and stakeholders to contribute to the creation of more housing opportunities across our state. I'll now hand the call over to Paul to further discuss our financial results and outlook.