Good afternoon. Thank you for attending today's Full Year and Q4 2021 Hawaiian Industries Incorporated Earnings Conference Call. My name is Amber, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with the opportunity to questions and answers at the end. [Operator Instructions] I would now like to pass the conference over to our host, Julie Smolinski, Vice President of Investor Relations and Corporate Sustainability with Hawaiian Electric Inc. Julie, please proceed.

Thank you, Amber. Welcome, everyone, to HEI's Full Year and Fourth Quarter 2021 Earnings Call. Our press release and the presentation we'll review on this call are available in the Investor Relations section of our website. During today's call, we'll be using certain non-GAAP financial measures to describe our operating performance. Our presentation contains reconciliations of these measures to the equivalent GAAP measures. 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 Seu, HEI President and CEO, will begin with his remarks.

Hello, everyone, and Mahalo. We thank you for joining us today. As you know, Connie Lau retired as HEI's CEO at year-end. I'm very excited to build on the strong foundation Connie handed to me and to take HEI forward with the help of our leadership team. With me on today's call are Greg Hazelton, HEI Executive Vice President and CFO, who will discuss our financial performance and earnings guidance; Shelee Kimura, who became Hawaiian Electric President and CEO on January 1 of this year; Ann Teranishi, who became American Savings Bank President and CEO last May; and other members of senior management. 2021 was a year of strong achievement for our companies for the customers who rely on us, for our communities and for the long-term health of our state. On the financial front, consolidated net income and earnings per share each rose 24% to $246 million in net income and earnings per share of $2.25. We exceeded the high end of our latest guidance range. Hawaiian Electric's hard work on cost efficiencies enabled us to deliver strong financial results for the utility while providing significant customer savings and advancing our ambitious climate change action plan. Improved credit quality and Hawaii's recovering economy drove bank earnings above initial expectations as we were able to release reserves for unrealized credit losses, resulting in significant negative provision for the year. Coupled with net interest income growth from earning asset expansion and PPP fees as well as strong execution on its digital transformation, our bank had a good year. Last week, we raised our annual dividend for the fourth year in a row. At the utility, we made significant progress on our 2021 to 2025 strategic plan, which centers on three pillars: creating customer value, strengthening our foundation and building a stronger…

Thank you, Scott. 2021 saw a significant improvement in the Hawaii economy as we've continued to adapt to the evolving COVID-19 environment and policies that have focused on safely keeping the economy open, supported by good health, healthcare capacity and low hospitalization rates. Visitor arrivals reached 2019 levels for a time last summer and travel over the holiday season was strong. The outlook for 2022 is promising as the state anticipates continued strong domestic travel demand and a gradual recovery of international travel. Unemployment in the state has continued to steadily improve, reporting 5.7% in December, improving 4.6% year-over-year and down markedly from its peak in April 2020 of nearly 24% while still lagging net national average of 3.9%. Hawaii's housing market has remained very strong. On Oahu, single-family home sales were up 17.9% in 2021. And the median prices for the year rose 19.3%. In December, the median Oahu home price was over $1 million. We've seen continued strength so far in 2022. While some pandemic uncertainty remains, we are cautiously optimistic regarding Hawaii's economic outlook. After an estimated 5.8% improvement in the state GDP in 2021, the University of Hawaii Economic Research Organization's December baseline forecast expects GDP to grow by 2.7% in 2022. Turning to our results on Slide 6. Solid execution at both the bank and utility during the fourth quarter contributed to our strong consolidated financial performance with full year 2021 earnings up 24% to $246.2 million or $2.25 per share. Utility earnings grew approximately 5% to $177.6 million. Our ability to control costs while pursuing ambitious carbon reduction strategies allowed Hawaiian Electric to provide the $8 million in customer savings Scott mentioned and established a $2 million customer bill credit program that wasn't previously included in our prior guidance. Full year adjusted O&M, excluding…

Mahalo, Greg, and Mahalo to all of you for joining us today. We're proud of our performance for our customers, our community and our shareholders in 2021, and we look forward to building on this momentum in 2022. With that, let's open up the call for questions.

[Operator Instructions] Our first question comes from Ryan Greenwald with Bank of America. Ryan, your line is now open.

Can you talk a bit more about what drives net interest margin to decline year-over-year? Appreciate the color around re-pricing of the portfolio and the 4 Fed rate increases embedded than guide, but any general sensitivities you could provide around the varying magnitude of rate hikes that might materialize here?

Sure. And we'll hand that off to Dane Teruya, our CFO at the bank.

Hi, Ryan. So for the fourth quarter, our margin was 2.79%. And so the 2.91% was an average for the 2021 year. So, we're starting the year a little bit lower on the lower end of the guidance range. So what our margin guidance range anticipates is four rate hikes, and obviously, we would benefit more on additional rate hikes beyond that if it were to materialize. Our balance sheet is asset sensitive. And so we have a bunch of loans and assets that will re-price upward as rates are higher throughout the year.

Got it. On the increase in fuel cost of late, how do you guys think about that potentially leading to an acceleration of any generation strategies in the state? And any opportunity here for repowering of the AES plans at this point?

Yes. Ryan, this is Scott. I'll start but open it up to Shelee Kimura and the utility team to add in as well. But in general, the fuel cost increases the volatility, especially -- I mean, it just fits in with the long-range plans for Hawai'i that we've been on for quite a while. We are chasing, getting off of fossil fuels as aggressively as we can. I think that there continues to be significant progress made, and we are ahead of goal with respect to the renewable portfolio standard. So I believe that seeing the fuel volatility will just continue to put the focus here in Hawaii across the board to continue that progress. I don't expect any material changes in policy other than keep going as aggressively as we can. And I would say that here in Hawaii, we've been doing that pretty consistently over the past several years. As far as the AES coal plant, whether or not that could be repowered, that did come up as a possibility in discussion last year. But at this stage, the utility actually has plans to initiate a firm renewable RFP this year. And any types of optionality for that AES plant would have to be within that framework. So, I'm not saying one way or the other whether or not that will be feasible. If ultimately it rises as a good option, then we'll consider it.

Scott, I think you covered that well, nothing to add.

Thanks, Shelee.

Our next question comes from Paul Patterson with Glenrock Associates. Paul, your line is now open.

Can you hear me?

Yes. Yes.

Just quickly on the, a couple of things. First of all, the PIM outlook for the RPSA rewards. It looked like you guys scaled it down a little bit maybe then from what the last numbers I saw on Slide 22. And I was wondering what's driving that.

Yes, Paul, I'll let Shelley fill in the blanks here. But in essence, this reflects the latest expectations we have for some of the renewable projects that are in the development pipeline. One of the things I mentioned earlier on the call was that we are starting to see some impacts of supply chain delays, some inflationary challenges to some of the projects. So what we are doing is just updating our anticipated commercial operation dates for some of the projects. So what that does is, of course, if a project is pushed into later commercial operations in the year, we're seeing less renewable energy come into play in the near term, and that, of course, directly impacts the amount of RPSA PIMs that we achieve.

Okay. Fair enough. And then on the action experience -- sorry, go ahead.

Paul, this is Shelee. I hope you're well. I would just add to that, that I think one of the good things that have come out of this because of the supply chain challenges that we're all seeing, there's been a really positive rallying of many stakeholders to try and make sure these projects get done. So the governor put together the powering pass coal task force, and that includes many representatives from government as well as all of the independent power producers and ourselves. And I think it really creates a a positive model going forward for Hawaii in terms of all the different players that have a part in ensuring these projects get done. So that is the positive side of what's come out of this situation.

That's great. And I just was wondering, I apologize if I sort of just don't know this, but what is the interconnection experience as far as -- I mean, what does that actually mean? Is that just a question of timing? Or when you guys have improved it, and obviously, it was a benefit for you guys. What did you guys do the -- how is the experience so much better? I guess what does that mean actually?

I can take that one, Scott. I think you're talking about the PAM, Paul. And so that one is based on number of days it takes us to complete the review process on our end. And so it looks at all the steps that are in our control, and we've been able to significantly reduce the number of days it takes for a customer to be able to energize their DER system. So this is focused on rooftop solar and distributed energy resources. This is not the utility scale resources. And we've been able to do that through changes in process also making sure that each division in our company that has a role in this has their respective goals to achieve in terms of days. Consistent monitoring on the number of days that it's taking within the process every week and reprioritizing work to make sure that we're achieving the goals that have been put in front of us.

It seems that depreciation increased significantly because of investments to integrate more renewable energy. How do you see that going forward in 2022? I apologize again if I missed it.

I'm going to ask Tayne to respond to that one.

Tayne, you want to take that?

Okay. Go ahead.

Tayne?

Paul, this is Tayne. In terms of the depreciation expense, we do have some investments related to our integrating more renewables, which also include making sure that we have a reliable grid looking forward. In addition to that, we do have other projects actually in the hopper to afford those renewables. And those include things like our grid modernization strategy. And then also things that are waiting at the commission relate to a couple of utility build battery energy storage projects that we're awaiting approval. So depreciation for our capital investments include not only our own utility build renewable sources but also the infrastructure needed to accommodate additional renewables. Does that answer your question, Paul?

Yes, I think I got it. And then just finally on the PPP income, it sounds to me like it was -- if I understood it correctly, it's $3 million that you anticipate for this year. And that will probably pretty much finish it. Is that correct?

Paul, this is Dane. Yes, that is correct.

There are currently no further questions registered at this time. [Operator Instructions] There are currently no questions in queue. So, I will hand the conference back over to our management team for closing remarks.

Thank you very much, Amber, and thank you, everyone, for joining us today. Please do reach out if you have any other questions, and have an excellent week.

That concludes the full year and Q4 2021 Hawaiian Electric Industries, Inc. Earnings Conference Call. You may now disconnect your lines.