Good afternoon, and thank you for attending today's Q3 2022 Hawaiian Electric Industries, Inc. Earnings Conference Call. My name is Austin, and I shall be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for 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. Julie, please go ahead.

Thank you, Austin. Welcome, everyone, to HEI's third quarter 2022 Earnings Call. Joining me today are Scott Seu, HEI President and CEO and Paul Ito, Interim HEI CFO; Shelee Kimura, Hawaiian Electric President and CEO; Ann Teranishi, 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.

Greetings, everyone. Thank you for joining us today. I'll give an overview of our results and outlook, update you on the whole economy and our businesses and then turn the call over to Paul to further discuss our financials. We're pleased with our consolidated third quarter earnings of $62.1 million and earnings per share of $0.57, which reflect good performance and the benefits of our combination of companies. The utility's performance was steady, and we were able to offset some of the pressures we've seen related to inflation, interest rates, O&M and fuel costs. Our utility outlook for the year has improved since our last webcast. We now expect the utility to end the year closer to the midpoint of its guidance range, better than the lower end than we had forecast last quarter. The bank had another strong quarter, continuing to demonstrate its strength in a rising rate environment. Bank results have benefited from higher interest rates, strong loan growth and continued favorable credit trends. Given year-to-date performance and expected continued positive trends the rest of the year, we're raising our bank 2022 guidance range to $0.72 to $0.76. We're increasing the bottom end of our consolidated 2022 EPS guidance range by $0.08 with our updated range now $2.08 to $2.20 for the year. Turning to the economy. Hawaii's [ph] economy has continued to show signs of strength and we believe it remains well positioned to weather broader economic headwinds. Hawaii's unemployment rate was down to 3.5% in September, on par with the national average. Unemployment here has fared comparatively well during downturns, performing better than the national average during the financial crisis. The housing market continues to perform well. While we've seen slower sales activity with higher interest rates, prices remain strong. The median Oahu single-family home price…

Thank you, Scott. Turning to Slide 6. In the third quarter, we generated consolidated net income of $62.1 million and diluted earnings per share of $0.57 compared to net income of $63.4 million and diluted EPS of $0.58 in the same quarter last year. Bank net income was up to $20.8 million compared to $19.3 million last year, while utility net income was almost flat at $49.8 million compared to $50.3 million last year. Consolidated last 12 months return on equity remained healthy at 10.5%. Utility ROE was in line with expectations despite impacts from higher fuel prices, O&M and other pressures. Notably, approximately 50 basis points of ROE drag was due to the impacts of elevated fuel prices. Bank ROE remained strong at 14.2% on a last 12 months basis. On Slide 7, we show the major variances across our enterprise compared to the third quarter of last year. Higher bank net income was primarily driven by higher net interest income, partially offset by a smaller negative provision and lower non-interest income. Net interest income of $65.7 million was up 9% due primarily to higher average earning asset balances and higher yields, partially offset by lower Paycheck Protection Program, or PPP, fee income as PPP loans continue to pay down. Non-interest income was down $1.8 million to $13 million, primarily due to lower bank-owned life insurance income and lower mortgage banking income as the higher interest rate environment has impacted production. The bank's non-interest expense was flat with lower deferred compensation expense from market fluctuations offsetting higher compensation and benefit costs. Overall, the bank continues to manage expenses well as is invest in its digital transformation. On the utility side, we saw $6 million more in ARA revenues and $1 million from lower penalties for fuel efficiency on Hawaii…

Thank you, Paul. So overall, we're pleased with the quarter's results and forecast a good outcome for the year. Our economy is healthy and is well positioned to weather a potential slowdown. Our utility is managing costs against near-term headwinds, and we remain confident in our ability to perform well under PBR. As we push forward on our clean energy transition, both our customers and our company are poised to benefit. The bank's high quality continues to be demonstrated through its strong performance and the benefits of the combined HEI enterprise through different economic environments is again being proven. Overall, we're confident in the future of our enterprise. Mahalo [ph] and we look forward to your questions.

Hey, good afternoon. Good morning, team. Thank you for the time. Appreciate it. Mahalo to you guys. Listen, I suppose, well, I appreciate the time. Listen, well done on managing the cost environment here. I mean, clearly, nicely done around the utility and the prospects and turning that around here as well as the bank. To that end, I wanted to inquire how are you thinking about these O&M efforts sort of pairing with improvements here for PIMs year-over-year into '23, to what extent have you - to the extent to which you've been able to move it from the low end to the midpoint of the range on the utility, does that bode favorably going into '23 as you get to run rate on some of these O&M cost-saving efforts? Or are there continued O&M pressures that you're seeing going into '23 that these are really offsetting? Is this sort of a net positive year-over-year as you think about it? Or is this just fighting the inflationary impacts going into '23 as you think about these more aggressive efforts you put in place this quarter?

Hi, Julien, this is Scott. There are going to continue to be some cost pressures on the utility going forward even into 2023. With this high inflation, that is impacting overall costs. But as we mentioned, what the utility has been able to do so far is they have ramped up their - some of their O&M work to be able to provide the reliable service as we transition to more renewable, we're expecting to see continued pressures on the generation O&M side. But what the utility has been able to do so far is really help offset some of those pressures by some of the measures we described, how we use outside services, how we manage labor, even things like how we are looking at leased office spaces. So - it's an ongoing effort by the utility. So far, they've been able to perform pretty well, and they're going to continue those efforts going forward into 2023.

Got it. Excellent. What about PIMs here as a positive, as well as how do you think about the sort of the trend, if you will, the exit run rate coming out of '22on the bank, obviously, noticing the uptick in bank segment guidance here as well. How do you think about those contributing into next year as well? Again, I understand that the backdrop on inflation, obviously something you're managing on the utility side?

Yeah. Let me answer first off on your PIMs question. So the biggest factors affecting our 2022 outlook for PIMs have been the fuel cost risk-sharing penalty due to the higher fuel costs that are really being seen globally. And then also, as we said, we're not forecasting any meaningful RPS-A PIM reward this year due to delays in some of those new renewable projects. As we look into next year, as you can see on one of our slides there, we do forecast now getting into the positive in terms of the RPS-A as we see these renewable projects coming online. And just to reiterate, right, we are expecting a number of these new solar-plus-storage projects coming online in early next year with more to come in '24. So specifically, we'll provide more details towards our outlook when we address our '23 guidance in February. As far as the bank is concerned, as long as the inflation environment is high and the interest rates are high, then the bank will continue to see benefit. So that's to my earlier point, having the bank and the utility as part of the HEI enterprise does help to really mitigate the pressures that any one company has seen in these varying economic situation. So that's what we expect to see continue going forward.

Got it, right. But there could be a nice swing from '22, given the - as you say, the moderate downside from a PIM penalty in the '22 year into both an RPS and a fuel benefit in '23, right? And I know you have this comment from '22 to '24 on earnings guidance, but really the PIMs inflection really could be most acute from '22 to '23?

Yes, considering we're...

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Growth for this year.

Right. Right, indeed. Thank you, guys. Well, I will leave it there for others to jump in, but I appreciate your time. All the best.

Thanks, Julien.

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

Good morning.

Hey, Paul.

Can you guys hear me? Okay.

Yeah.

Okay. So just to sort of follow up on the bank. The decline in provisions, could you give us a little bit more flavor as to what you're seeing there?

Yeah. So very high level, there is actually two factors happening in tandem you know, with the bank's loan growth, of course, they do have to provide for additional provisioning as that loan portfolio grows. But that has been offset by release of provisioning because of some of the improving credit quality trends here in Hawaii. So I think that's actually been helpful. That's why we've gone from the zero million to $10 million projection that we had earlier to now a negative 3 to positive 3.

Okay. And then just on the deposit rate. I think you guys said it was in line with your competitors. And I'm just sort of wondering it would seem to me, I guess, building on Julien's question that there might be some momentum with respect to the NIM in 2023 or how should we think about that deposit? I mean the rate seems very low. I'm just sort of wondering how sustainable all that is or how we should think about those trends?

Yeah, Paul, this is Paul. So we - obviously, the higher interest rate environment does increase our cost of funds, but our deposit betas have been very low in past cycles, and we expect it to remain relatively low in this cycle. So we will see net interest margin expansion as rates are increased. We are seeing some more rate-sensitive customers, commercial customers, and we've adjusted rates to accommodate some of those. But in general, our core deposit, which is 85% is pretty resilient and - in terms of - not as rate sensitive. Again, we do expect that we'll have an expansion of NIM as rates increase. So we have - we feel good about that.

Okay. That's it for me. Thanks, again.

Thanks, Paul.

At this time, there are no further questions. [Operator Instructions] There are no further questions. So I'll pass the conference back to the management team for any closing remarks.

Thank you all for your time, and we look forward to seeing many of you at EEI next week. Have a great rest of the week.

Thank you, all.

That concludes today's call. Thank you for your participation. You may now disconnect your line.