Good afternoon. Thank you for attending today's Q1 2023 Hawaiian Electric Industries Inc. Earnings Conference Call. My name is Alexis, and I will be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to Mateo Garcia, Director of Investor Relations. You may proceed.

Thank you, Alexis. Welcome everyone to HEI's first quarter 2023 earnings call. Joining me today are Scott Seu, HEI President and CEO; Paul Ito, HEI CFO; Shelee Kimura, Hawaiian Electric President and CEO; and 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 under the Investor Relations section of our website. Now, Scott will begin with his remarks.

Aloha kakou. 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 turn the call over to Paul to further discuss our financial results and guidance. Our combination of businesses continued to deliver solid results in the first quarter. ASB's low-risk community banking model, supported by a strong primarily retail deposit franchise showed its resilience. And with 86% of deposits from our retail customers and 85% of total deposits F.D.I.C. insured or fully collateralized ASB is a very different bank than the banks that have experienced challenges in recent months. The utility continues to show its ability to deliver consistent performance under performance-based regulation or PBR and operate efficiently to deliver earnings growth. Our consolidated first quarter earnings of $54.7 million, and earnings per share of $0.50 reflects strong execution from across our enterprise. The utility executed well growing net income to $47 million despite elevated costs from storms during the quarter. And ASB grew net income over the fourth quarter of last year generating net income of $18.6 million. As a reminder, last year's first quarter results included a $0.06 per share gain on sale in the holding company and other segment. Turning to the utility. We continue to progress key initiatives to integrate more renewables while improving the reliability and resilience of our grids. In late March, we filed our draft Integrated Grid Plan or IGP which proposes a clear plan forward to meeting our state's clean energy goals, while prioritizing reliability and affordability. The draft IGP identifies four key objectives within the next five years, including stabilizing utility rates and advancing energy equity growing the marketplace for customer scale and large-scale renewables creating a modern and resilient grid, and securing reliability…

Thank you, Scott. I'll start with our results for the quarter. We generated consolidated net income of $54.7 million and EPS of $0.50 compared to $69.2 million and EPS of $0.63 last year. As a reminder, our results in the prior year's quarter included a $0.06 per share gain on the sale of the EverCharge equity investment recorded at Pacific Current and also reflected bank earnings that were elevated by a net benefit from the release of reserves. Our consolidated last 12 months ROE remains healthy at 10% which is down from 10.9% last year due to lower bank earnings and the previously mentioned gain at Pacific Current in the prior year. Utility ROE continues to improve and increased 10 basis points to 8.2%. And bank ROE on an annualized basis was up 180 basis points compared to the same quarter last year given the impacts of unrealized losses in the investment securities portfolio on shareholders' equity. On slide 7 we show major variances across the enterprise compared to the first quarter of last year. Lower bank net income was primarily due to higher non-interest expense which was driven by higher compensation and benefits costs, a higher provision compared to the negative provision recorded in the first quarter of last year and lower non-interest income due to a gain on sale of real estate recorded in the fourth quarter of last year. These items were partially offset by higher net interest income primarily due to higher interest and dividend income partially offset by higher interest expense. On the utility side on an after-tax basis we saw $7 million in higher annual revenue adjustment or ARA revenues, $1 million higher AFUDC and $1 million higher major project interim recovery mechanism revenues. These were partially offset by higher O&M primarily from higher…

Mahalo Paul, and mahalo to all of you for joining us today. In summary, we had a solid quarter. The utility continues to execute well under performance-based regulation and we've already hit important milestones this year in our clean energy transition. ASB's conservative business model with our mostly retail and largely insured deposit base continues to prove its benefits. Our bank remains a low-risk, reliable and consistent contributor to earnings and cash flow. We continue to see strong value and consistent results from our combination of businesses. With that, let's open up the call for questions.

Absolutely. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from the line of Julien Dumoulin-Smith with Bank of America. You may proceed.

Mahalo. Good afternoon. Thank you team for taking this time, I appreciate it. Can you guys hear me?

Hey Julien. Yeah, we can.

Hey. Thank you so much. Appreciate it. Hey, I was just curious, with respect -- or first of kicking it off. I know you talked about overall not seeing too many changes on the bank deposit side but, have you seen any change in behavior for the uninsured deposits within the quarter, just talking about that component of the deposits?

No. We've not seen any unusual, nothing like that Julien.

Okay. Excellent. Thank you. And then, maybe more substantively can you talk about some of the offsets to the reduced NIM and higher non-interest expense? Obviously, a few different pieces moving around, you described it in the prepared remarks. But what are the offsets keeping within the range? And then related here, if you can talk about that NIM percentage and the confidence that you have that will be unchanged for the balance of 2023. I think in particular ASB has been offering additional CD promotions since 3/31. Just what gives you that confidence on NIM as it stands under -- as you described it today?

Yeah. Hi Julien, this is Paul. Thanks for the question. So what we're looking at in terms of offsetting some of that NIM pressure is of course managing non-interest expenses. And then, the other key factor is what provision will look like for the balance of the year. So maybe I'll start with provision. So currently in Hawaii, we feel pretty optimistic about the rest of the year. We haven't been seeing weakness in the economy. As you know, Yujiro [ph] had put out a report earlier and I think there's one slated to be released soon. But they continue to have confidence in the Hawaii economy again, given the strong construction sector that we expect in 2023 as well as the International Tourism Recovery that we're slowly seeing this year. So I think the backdrop is favorable for fairly good in terms of credit quality going forward here, but that's a key assumption. Again, we do expect continuing favorable credit trends. And then on the non-interest expense side we're closely looking at expenses and how we can be more efficient. We've been taking a number of steps to reduce expenses across the organization. And so we've identified a number of cost-saving opportunities that we'll be executing on. So those two things are what gives, us confidence in terms of achieving that NIM range. Now of course there -- it depends on how things play out for the rest of the year right in terms of the economy in terms of credit quality. But at the moment we're feeling pretty confident about those items.

Got it. All right. Excellent. And how are core deposits and CDs trended just even of late right in terms of post-quarter close?

Yeah. So we have seen -- after quarter end, we have seen average deposits decline. It was about $76 million in April. And April is I would say a little bit more of a vault to month in terms of deposits. It is the month where a lot of tax payments go out. So that wasn't unexpected. I think historically, we've seen deposits compared to March, in April typically go down in general. What we saw was continued shift from core to sort of money market actually went up, so we continue to see that. So nothing, I would say, unusual, but we are continuing to see that trend overtime.

Excellent. Well thank you guys very much for the questions. Appreciate it and best of luck. We will see soon.

All right. Thanks Julien.

Thank you for your question. The next question comes from the line of Paul Patterson with Glenrock Associates. You may proceed.

Hi. Good morning.

Hi Paul.

Can you hear me?

Yeah.

Hi. How are you doing? Okay. Just on the CD thing what's the rate differential that you guys are providing for CDs now versus regular deposits?

So, it's about 1.25% difference between CD rates and deposits.

Okay. And what's the absolute number, I guess?

So just to clarify and maybe I'll just have Dane. He has the numbers in front of him.

Dane Teruya, is the CFO of American Savings Bank.

Hi, Bring up CD REITs, in the range of about 3.75.

Okay. And then on Slide 10, you have -- and I apologize for missing this, I must have been a little distracted. What is this 10-year deposit, for 10 years? What does that refer to? Could you just -- I apologize for missing this. Could you elaborate a little bit on that again?

Okay. I'm sorry, we're going...

While Paul brings up that slide, Paul what we're trying to focus on is the fact that at American Savings, many of our deposits have very long duration with us. So these are not deposits or customers that are coming in and out, and that's what we're trying to stress. We'll get that point across there.

So I mean, in other words you said that 10-year CDs, with you guys?

No, no, no. This is -- their relationship with the bank. So, having been a customer for the bank.

Yes, that just underscores the retail -- the heavy retail base that we have here at ASB.

Okay. I'm a little bit like wow. Okay. That's, helpful. Yes, I guess that makes sense. And I just was wondering, if there's talk about doubling the FDIC insurance to 500, if that were to happen what would happen to that 1.2 -- the 15%? Do you have any -- I mean in other words what would the uninsured rate be? What would be the percentage of deposits that would be uninsured if they were to double it?

Yes. Paul, this is Ann, Ann Teranishi. So the 15% would dip far lower. Our average retail deposit amount is 16,000 and our overall average is 18,000. So it just gives you a sense of the size and scope of our retail deposit base. So yes, we imagine that that amount would go down further. We haven't done specific calculations around that $500,000 amount.

Yes. And Paul, I'd just reiterate an interesting factoid which is ASB in terms of its amount of insured deposits at 85%, actually is one of the highest performing banks in the entire country from that perspective. So we would see -- we would continue to have that view.

Yes. No, it looks -- I mean and the commercial looks -- and you guys highlighted, this very diverse. I was just wondering, are you seeing any vacancy issues or -- within any of the areas that you've got exposure to?

Nothing significant. In fact, the overall occupancy here in Hawaii, has been fairly strong considering both office and retail. Most of the activity that you're seeing in some of the other cities like San Francisco, and other locations Hawaii, is doing much better than those locations in terms of vacancy.

Yes. And Paul, this is Ann. The other thing I would add is, we are not oversupplied in the state on office. So office supply is much less than in some of those other metropolitan areas.

Great. Thanks a lot, guys. Thanks so much. Appreciate it.

Thanks, Paul

Thank you for your questions. [Operator Instructions] There are currently no further questions waiting at this time. So I'll now, pass the line back to Scott Seu, for any closing or additional remarks.

So, I just want to thank everybody again, for joining us today. We look forward to another quarter of solid results, supported by stable efficient and reliable performance at the utility and our bank. So again, thank you everybody.

That concludes the Q1 2023 Hawaiian Electric Industries Inc. earnings conference call. Thank you for your participation. You may now disconnect your line.