Q4 2019 Earnings Call

During today's call will be using non-gaap Financial measures to describe our operating performance our press release and webcast presentation are posted on a wise investor relations website and click reconciliations of these measures do the equivalent Gap measures forward-looking statements will also be made on today's call factors that could cause actual results to differ materially from expectations can be found in our webcast slides our filings with the SEC and on the HEI website and I'll now ask our CEO Connie how to begin with an overview. Thank you Julie and a low wage 2019 was a year of solid achievement for our companies from Financial to operational to environmental results. We achieve solid earnings at both our utility and life and grew Consolidated earnings 8% We strengthened our Consolidated return on Equity to 9.8% and improved earned r o e at the utility dead.

And maintained a strong.

Are we at the bank are utility continued to deliver on key priorities of its five-year plans? We're especially proud that Hawaiian Electric and the state of Hawaii jobs were recognized for their leadership and Transforming Our State to a clean energy carbon-neutral economy. Our state's leadership and Innovation and clean energy transformation highlighted in recent reports by the Rocky Mountain Institute and public utilities fortnightly and Hawaiian Electric was named 2019 utility of the Year by utility. That guy's American Savings Bank also performed well delivering 5.7% loan growth and maintaining a net interest margin above its peers excluding a one-time net gain on sale of properties the bank exited as it moved to its new Campus Bank earnings were up slightly from 2018 despite lower-than-expected wage.

interest rates

Our Pacific current team continue to focus on optimizing its existing project portfolio and pursuing additional sustainable investment opportunities with our continued financial performance and our confidence in our future prospects our board approved a second consecutive annual increase in the dividend raising the quarterly dividend per share from $0.32 to $0.33 or a dollar and $0.32 annually add Hawaiian Electric our 2019 accomplishments reflect goals and initiatives from our 2015-2020 strategic transformation plan, which focused on delivering a cost-effective clean energy portfolio, improving customer experiences and offer Innovative Energy Solutions, creating a modern grid and Technology platform strengthening stakeholder relationships and working with stakeholders to align Regulatory and marketing job.

with the transfer

Formation of our industry and Company improving company culture and ensuring we have the financial strength to deliver on this transformation and our state's and dishes energy bolt at our utility. We made great strides on each of these priorities and have great momentum into twenty-twenty on clean energy energy sales rep has reached 28% driven by new utility-scale solar and a nearly 5% increase in private rooftop solar. We experienced our largest single year increase in solar capacity. We secured puc approval of 7 purchased power agreements for the lowest-cost solar Plus Storage seem to date.

We launched our largest-ever stage two combined Renewables storage and good Services RFP which attracted more than 75 Bitters and were hard at work evaluating those bids. We also renegotiated the point of geothermal which if approved by the is expected to reduce Hawaii Island customer.

in our

Will request we've also proposed a shared-savings performance incentive.

We completed our company-owned Westlock solar project, which is now delivering the lowest cost solar in the state.

On customer experience, we achieve customer satisfaction scores in the top third of the industry. We continue to develop new programs for customers to participate in the clean energy transformation. This includes our project footprint campaign to inspire customers to adopt sustainable practices and contribute subah is renewable energy goal and it includes the approval of Hawaii's first community-based renewable energy project as we mentioned in the past with limited land, especially on a walk. We cannot achieve one hundred percent renewable energy without private rooftop solar and other customers cited resources in recognition of the importance of customer resources, we've reorganized and created a dedicated customer energy resources department to serve customers connecting to our grid with shuffler and other device.

You are ambitious renewable plans. We need modernized grids with enhanced Technologies capable of integrating large amounts of both utility-scale and customers cited renewable in 2019. We reached an important Milestone when the first phase of our grid modernization strategy was approved in March and we're now executing on that strategy with our expertise and developing an operating complex grids was recognized in October when we were awarded a competitively bid fifty year contract to own operate and maintain the Army's electric distribution says now serving 12 installations here on Oahu our request for approval of that contract is now pending with a PCM. We continue to work together with our communities and stakeholders to find the best ways to achieve a clean energy future that's affordable reliable and resilient dead.

There are two Hawaiian work.

That describe the way in which to what you must work to achieve a clean energy future. The first is cockle meaning it will take our whole Community working. It also must be done in a way that is poor know that is right and just for our communities

In 2019, we have focused on stakeholder engagement. This includes workshops to gain stakeholder input as we undertake our next phase of resource and grid planning or off grid planning. It also includes ongoing community-based resilience planning workshops on the windward side of Oahu.

Stakeholder engagement has also been Central to the evolution of our regulatory framework in 2019 the commission the utility and stakeholders began the design phase of performance-based Regulation or PBR which will be implemented in 2021 parties have submitted their PBR proposals and we look forward to continued collaboration with stake holders. We are encouraged that there have been no surprises as we progressed through the design phase. We also Advanced efforts to improve the utilities club and a key accomplishment in 2019 was completing consolidation of functions across all three of our utilities under are one company initiative.

finally

We continue to improve the Financial Health of our utility as earnings and earned r o e improved and we continue to pursue a number of class management initiative our bank also had a number of significant achievements in 2019. Although 2019 interest rate environment turned out to be very different from expectations. When we started the Year American performed. Well highlighting is stability and the consistency of its business and business model. Despite the challenges great environment Bank. Net income, excluding the gains from the property sales was slightly up from 2018, which was a record earnings year off and maintained and above. Net interest. Margin despite the low interest rate environment net interest margin of 3.85% for the year up slightly from 2018.

Is now operating and it's new state-of-the-art campus. This was an important move for our banks team members and the bank is focused on realizing the benefits of the consolidation wage base, including increased collaboration and deficiencies.

2019 was also a milestone year for Pacific current its first year with its own management team in place under their leadership Pacific current signed a contract to meet a portion of our Hamakua plants fuel supply with locally-sourced biodiesel. We are proud that pacific current is able to execute transactions that contribute to sustainability and energy independence of our Islands. We also launched the ever charged Hawaii joint venture to address the accessibility of EV charging multi-unit dwelling and high-rise Office Buildings to encourage broader electric vehicle adoption.

construction for the

Receive Hawaii solar Plus Storage projects also move forward and we will start seeing those projects become operational throughout the year. So as you can see we've had very active and productive year across our Enterprise unless Greg to update you on our 2019 Financial results and also our 2020 guidance office. Thanks Connie. It's showing on slide seven Hawaii's economy remains stable in 2019 and finish the year at a record level of visitors exceeding ten million for the year off. This represented a 5.4% increase over 2018 with visitor expenditures also up slightly unemployment remained low at 2.6% as of December below the national average.

Hawaii real estate sales volumes were up for single family homes and prices on Oahu were flat condo sales volumes were down while condo prices were up slightly off the prior-year. The state's Outlook is stable with moderate GDP growth expected at 9% and twenty 20% and 1.1% in 2021.

I would know.

We are also closely monitoring coronavirus developments and the potential impacts on our Hawaii economy and our businesses.

Turning to our results in 2019. We achieved solid Consolidated financial performance with good results at both the bank and the utility 2019 holiday do drains increased 8% 2 to approximately 218 million or a dollar ninety-nine per share or 2019 results included a 5.5 million gain on a sale net of associated cost of two former bank properties the year-over-year earnings grew at the bank, even when excluding the net gain from the property sales.

The holding company and other segments lost group primarily due to higher interest expense from incremental long-term debt issued in late 2018.

On the right side of the slide slide eight are Consolidated Roa for the last 12 months was 9.8% up 30 basis points from last year. You told me for the last 12 months improved twenty basis points while Bank r o e including the impact on of the gain on sale was comparable to last year.

Turning to slide nine ability. Net income grew 9% $257 million contributing a dollar forty $3 EPS. Well within our guidance for a dollar forty $2.47 on an after-tax basis the most significant net income drivers were 24 million Revenue increase from recovery under the Ram from rate increases from our investments to integrate more renewable energy improve customer reliability and increase system efficiency, eleven million dollars Revenue increase for Recovery of the Schofield generation project under the major project interim recovery mechanism, two million dollars of additional Revenue earned under performance package of incentives for procuring low-cost renewable energy for customers and achieving better reliability in call center performance.

And $2000000.

From lower interest expense due to death. Are you financing?

these were partially offset by fifteen million dollars higher operation maintenance expenses compared to 2018 primarily due to higher overhaul and maintenance maintenance log fences for generating facilities higher support costs from outside services for asset management and energy management systems enterprise resource planning software and support package cost related to grid modernization projects and the reset of pension costs included in rates on Oahu and in Maui County as part of great case decision

Also 9 million higher depreciation expense due to increasing Investments to integrate more renewable energy improve customer reliability and increase system efficiency and five million lower net income versus 2018 to favorable tax adjustments in 2018.

On slide ten Americans earnings grew about 1 million over 2018 when excluding the one-time net gain from property sales including the net gain the bank earned 89,000 contributing $0.81 to the Consolidated EPS within our guidance range of $79.85, which was also in which also included the net gain on sale off the most significant after tax drivers of the variance from 2018 were four million higher net interest income driven by growth and interest earning assets primarily from State Farm loan growth hire provision for loan losses reflecting additional reserves for the consumer loan portfolio and borrower specific circumstances require additional reserves on loans within the commercial and Commercial Real Estate portfolios.

13 million higher non-interest income primarily due to the ten point eight million pre-tax gain on sales of former properties and and increased Mortgage Banking income and six million increase in non-interest expense primarily due to higher compensation and benefit expenses as well as higher occupancy costs related to the campus move.

Turning to slide eleven American remains solidly profitable in 2019.

Including the impact on the net Cain and property sales return on assets was a hundred and twenty five basis points up from a hundred and five basis points in 2018 return on Equity continued to compare favorably to peers at at 13.5% equivalent to 28 feet.

Let's turn the key elements that drove net income and profitability on slide twelve.

Americans net interest margin is continued to perform well against both are similarly sized and hawaii-based peers that interest margin of 3.85% for the year of flat compared to 2018 and at the low end of our guidance range of 33.85% to 3.95%

Fourth-quarter net interest margin was 3.74% compared to 3.82% in the linked quarter and 3.95% in the fourth quarter of 2018 with a decline. We do to lower yields on interest-earning assets.

as you can see

Or fourth quarter interest earning asset yield of 4% was lower than both the linked and prior-year quarter's for the full year 2019 interest-earning assets yield was 4.15%

cost of funds has remained low as we continue to benefit from our disciplined approach and focus on relationship banking. Our cost of funds was 26 basis points in the fourth quarter of the low Pierce.

On slide thirteen total loans for 5.1 billion as of December 31st up 5.7% from the prior-year with retail loans up 4.1% off.

Total deposits grew to 6.3 billion is a December 31st and increase of 1.8% from the prior-year reflecting a strategic reduction in government. CD-ROM. Well core deposits grew a healthy 3.2%

net interest income for the year increased 2.2% over 2018 to 248.1 million dollars while fourth quarter 2019 net interest income of 60.9 million dollars with a slightly lower than the Linked In prior-year quarter's.

fourth-quarter and

Full-year non-interest income was elevated primarily due to 10.8 million in pretax gain on the sales of the former properties and as well as increased Mortgage Bank as we've stated before this resulted the sale resulted in a five point five million after-tax gain net of tax that cost.

And slide 14 credit quality remains sound due to prudent risk-management in the stable Hawaii economy the credit quality of a residential portfolio remains solid liquid collateral values and load default rates and our commercial and Commercial Real Estate portfolios are stable as previously mentioned to hire provision in 2019 related provision was related to Consumer the consumer loan portfolio and borrower specific circumstances for certain commercial and commercial real estate loans.

allowance for loan losses

Just a 53.4 million was 1.04% of outstanding loans at year-end equivalent to the linked quarter and modestly lower than the same quarter last year non-accrual lungs were five 8% down from the linked quarter and slightly above the same quarter last year.

Our net charge-off ratio increased to forty five basis points for the year compared to thirty four bases 2018 driven by the personal unsecured loan portfolio and the partial charge off of this commercial credit the net charge-off ratio for the fourth quarter was down from the linked quarter which included the partial charge of of just a partial charge off just mentioned.

Let's turn to our expectations for the future for future performance starting with our utility capex forecast in 2019. We invested four hundred and fifty million of wage. Well above our revised capex guidance for the year as we accelerated certain investment Investments originally planned for twenty twenty this included Baseline capex projects focused on a proven reliability resilience as well as grid modernization projects numbers.

24 cast of 360 million reflects the partial acceleration of capex into 2019 while it's difficult to perfectly time Capital expenditures over a year end. On average the 2019 and 2020 Investments are consistent with the four hundred million per year of Investments necessary to achieve our grid modernization resilience and reliable vehicles.

In 2021 to 2022. We expect capex to average approximately four hundred million per year the midpoint of R 350 to 450 million guidance office or about two times depreciation.

Or capex growth starting with 2018 as a baseline through the end of the forecast. Translates to an average annual rate based growth of 4 to 6% through 2023.

This is slightly lower than the five to seven per cent rate based growth guidance range. We provided in for the 2019 221. Due to the denial of the month to plant battery battery storage projects and a re-evaluation of future utility battery storage investment opportunities in light of those decisions.

our capital

Documents remain focused on maintaining reliability and resilience as we integrate more renewable energy and modernize our grid.

Importantly, we expect the utility to be able to continue to self fund its forecasted catbacks through 2020 if you have retained earnings and access to the debt Capital markets off.

On slide sixteen or financing outlook for 2020 reflects our strong financial conditions the bank which has long been self-funded and has continued to provide strong dividends given it's consistent performance in 2019 asps dividends to the holding company was fifty six million and in 2020, we expect that increased to increase to approximately $75 an increase of 33% from 2019.

You the utility is expected to be able to support a 65% industry average payout ratio to HEI and HEI plans to invest approximately $35 million of equity to support wine electrics capital investment program, and it's puc approved capital structure.

Within

Approved Cash distributions from the bank and utility do not anticipate the need to issue any external Equity twenty-twenty unless we identify significant additional accretive investment opportunities are improved earnings and cash flow Outlook has allowed us to grow the dividend while managing our capital structure to maintain our investment-grade rating on slide 17. We are initiating or 20/20 Consolidated earnings guidance of a dollar and $92.10 per share consisting of a dollar forty six $2.54 the utility

Seventy $0.03 to eighty cents at the bank and a loss of $27.29 of the holding company other companies segment.

Or Twenty twenty utility guidance assumes know changed or major regulatory recovery mechanisms as we await the PCS order expected a year-end approving the final design of PBR Taps. We also assume own an expense increasing at or below inflation and no material impacts from performance incentives penalties or rewards utility guidance office includes approximately a five million dollar net income impact from continued customer benefits or Bill reductions agreed to in the last Hawaiian Electric in Maui Electric great chaos as shown in Phoenix.

Our twenty-twenty pay Bank guidance reflects continued stability from the bank with earnings relatively consistent with 2019, excluding the one-time five point five million dollar gain from the property sales the banks the bank guidance reflects Americans disciplined approach to growth with earning asset growth targeted too. Low to mid-single digits did not reflect expectations for continued a continued low interest rate environment as well as needed technology Investments and upgrade to court systems as we continue to build out the Pacific current platform. We continue to expect that it will not contribute meaningfully to 2020 earnings money will make her closing remarks. Thanks Greg off the accomplishments and financial guidance. We've talked about today are part of our strategy to deliver sustainable long-term value for all of our stakeholders.

we've long viewed the success of our

And the value we delivered to shareholders as inextricably linked with the value. We deliver for our customers our employees and our communities and the health of our environment our economy and our state as a whole with all of our operations here in Hawaii and Island state with ambitious renewable energy carbon neutrality and clean truck rolls. We are very attuned to both the risks and also the opportunities presented by climate change last summer our board spent most of its strategic Retreat on climate change as well as other environmental social and governance or ESG considerations.

Since then we've been formally integrating climate change and ESG into our strategic planning Enterprise risk management and our disclosures. We've been a reporting on certain key metrics for some time since one of our core strategies is to help Hawaii transition to one hundred percent renewable energy will be expanding our office closures and are targeting to issue our first sustainability Accounting Standards Board or says be aligned report in 2020 and also plans to add tcfd or task force on climate-related financial disclosures thereafter.

to further along

Management incentives with our strategic goals. Our board has increased the proportion of performance-based executive compensation to include the achievement of renewable portfolio standard ahead of state-mandated timelines and you'll see that in our upcoming proxy. Our board is always focused on strong governance and in our proxy statement, you should also see our board's proposal to enhance our governance policies by adopting majority voting and declassifying the board over the next three years. We see if she is further enhancing our core strategies and governance profile across our companies to reflect best practices.

In summary 2019 financial performance was in line with expectations and guidance and we look forward to continuing to deliver consistent results in twenty-twenty off. Our utilities will continue to focus on achieving our state's one hundred percent clean energy and carbon-neutral economy goals while ensuring affordable reliable and Thursday and energy

Thanks continues to provide a strong platform to deliver stable sustained value for customers shareholders and our community's specific current is a promising platform and will continue pursuing further sustainable investment opportunities. Our company allows us to create value for our communities here in Hawaii while creating long-term sustainable value for our shareholders everywhere.

Finally before turning to Q&A. I want to welcome have a slot NACA to our board of directors as we announced yesterday of a joined our board from the value act spring fun as we believe that we and value act are committed to the same goals including Hawaii's ambitious renewable energy and carbon neutral goals and the desire to serve our customers and communities. Well with that said we're here today to discuss our 2019 results in twenty-twenty guidance and ask that you focus your questions on those topics.

finally

This is Alan oshima's last webcast. So I want to thank him for his amazing leadership of our utility during this time of great change Scott's you succeeds Alan on February 15th, and we are confident that he will continue our leading-edge work of helping our state as nice and beautiful.

And with that we look forward to your questions.

Do you want now begin the question-and-answer session to ask a question? You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your car up before pressing the keys if at anytime your question has been addressed or you would like to withdraw your question, please press * then two at this time. We will pause momentarily to assemble the roster.

And the first question today comes from Berkeley of Bank of America Merrill Lynch, please go ahead.

Hey.

Good afternoon. Thanks for taking my question.

Maybe first off I just wanted to check in for a SB. How should we think about average interest-earning asset growth? I see if it's about 1% per 2019. Could you just discuss the drivers there and expectations for that portfolio growth on a Ford basis? Yeah. We took this is Rich. Thanks for the question. We're targeting mid signal low-to-mid single-digit. So that'll be in the kind of three four percent range typically there and if you see what we did this year and I think Greg highlighted core deposit growth was about 3% last year, you know, we offset that with some wage reductions in some of the higher government CD that brought us back down to kind of the 1% overall. So we think we've that adjustments done. Yep.

it's kind of normal course, but

Just trying to keep that consistent. We've had it for multiple years at 3 to 5% percent range and that's through just everything we're doing around relationship expansion and and growing primary customer primary Bank customers.

Started so we should expect it to normalize back to the expectation for 20 20 at least within embedded within guidance has the normalization back towards that right? Okay, that's helpful. And it may be shifting to the utility a little bit. Could you just discuss the tactics Outlook a bit more. It seems like there was a bit of a wage increase there as well as on their rate based Outlook subsequently. Could you discuss the drivers towards the low and high-end I get that there was a little bit of a whole forward and 2:19 a.m. But it seems like twenty one and twenty two or lower relative to the prior 400 to 500 guidance. Yeah, we've revised the guidance range as you've seen a 350 to 450 on a Ford basis with a point estimate about three hundred sixty four twenty twenty. And as I as I highlighted mentioned previously, yep.

You've got to look at that in conjunction with.

A 2019 because you really you know q1 projects being accelerated and then the timing of those really puts you just slightly above $400 million and that's consistent with our our home a mid-point of our guidance range on a going forward basis that level that's down a bit from what we had previously been shown before four to five hundred million off as we look forward at the major Capital Investments across the system, which also included a couple of battery several actually battery energy storage projects that were on the planning board. As you know, that with two projects were declined this last year and we've I think conservatively re-evaluated how much of those projects we put into our Ford Edge as we think they some of them may be competitively procured versus utility build and we will update the forecast as we get clarity relative to the wage.

types of projects

Is that so those are they made you guys got certainly helpful. It seems like the battery storage is what would be towards the high-end presumably off of that range and Old Major, you know, any major projects they come in a bit lumpy and they've and that's why you have a range from year to year I've changed so and I said, what would a thrust this morning to the higher end of the range or like the acceleration of some of the project expenditures for example with the Army privatization, you know, we've got to schedule that with commission decision making and depending on when that decision comes out. We may be able to accelerate some of those expenditures and then also on the grid modernization we do put our best forecast forward but depending on you know, the pace of that project there could be some acceleration and you know as as you may know the grid modernization projects them.

Come in and one big chunk. They come in.

You know smoothly over the the. So we have some of that that could you know support the higher end of the range.

Got it. That's helpful address one more question before I pass it on perhaps so I know you mentioned a rooftop solar earlier in your conversation towards meeting the RPS goals. Could you just changed plans on integration broadly and how discussions there have been going around potential incentives with?

I don't maybe also ties into crit mods spend just given presumably need for Grandma to support the our integration. Thank you. This is Alan. I think we can just speak in generalities. We are dependent on an increased percentage of private rooftop solar given that are very small relative land base in Hawaii that's available for renewable projects. We've recently combined our our demand response mde our activities seeing the benefit of both awesome each other or complimenting each other. We look forward to increased penetration of rooftop private rooftop combined with behind-the-meter storage. So there there's so many moving parts to our total renewable efforts and we're looking at many different generating resources to get to our 100%

Does that answer your question?

Did you have a different question in my yeah, I was just wondering in addition to that just how discussions have been going around potential in like pins with them the performance incentive mechanisms for supporting our integration. I know that that was one of the pillars discussed.

So that's right. Hi, this is wondering if there's anything to point you.

This is jovial. I'm with the Regulatory Affairs at Hawaiian Electric. So as you've identified, that's correct. Currently the PVR docket is is in the face to as we call it the kind of the design phase. So the commission has asked all the parties to develop a proposed incentive mechanism specifically related to integration. So that's in process parties have been developing proposals. The point electric companies have said several other stakeholders have and the commission has indicated expects that have a decision on those proposals collectively in December of this year. So we're still we're waiting game.

Okay.

Thank you. Appreciate it. Thanks, Eric.

The next question today comes from Paul Patterson of Glen Rock Associates.

Morning. Well, I joined so I'm just a sort of follow up on that rate based question. I'm a little bit when you look at twenty twenty one month.

Before you just get you know, without going into all the capex timing and acceleration what-have-you repeats itself seems to be like substantially lower than what your expectations were before is that because of the battery if you could just clap why what's causing the substantial decrease in the expectation for 20 21?

Hi Paul, this is chane. Yeah, in terms of what's causing that decline. It was a battery energy storage projects for slated for completion in that time frame and what we had in the forecast and what you previously saw was about a hundred forty million dollars of Investments of battery storage here in Oahu so Paul if you remember that those were going to be a company's done projects and they were put into the competitive bid RFP.

Okay, I got you and then with respect to the constructive process that collaborative or stakeholder process that you guys have going on. Do you think there's a potential for a settlement money given where you are now or could you comment a little bit on that or just any more color on how that that's proceeding? Like this is Joe Viola again. So I'm not sure we're still a we just had a I just came over from a workshop today. So the the the scheduling the the doc calls for continuing exchange between the parties to better understand positions with the commission has encouraged both parties and stakeholders to focus on developing their own proposals. We certainly see many areas of alignment, but I don't know that we expect any type of settlement we expect to parties to do with commission has asked us to do to provide very comprehensible comprehensive detailed proposals to address the outcomes. They want to promote in this proceeding.

Okay, so Alan congratulations. I wanted to you know, I want to follow up on a good so a lot of these calls huh? So but but you know a few a few quarters ago, I think I asked you about the the potential for loss read increases with respect to you know, with with the transformation Etc. And it was a little too early. I think you guys felt comfortable in terms of commenting on what the potential weight increase or rate Outlook might be leaving Fuel and stuff out of the out of the picture and I'm just wondering given how how things have been coming in for just a month. Do you have an update on on how we should think about?

the

The rate impact you guys are looking at now with now that you're further along in the further along in your rate base and Outlook and what have you all this will be an unsatisfactory answer to a very good question. I don't think we have an update as Joe mentioned. We're still in TR we won't get the results of the full docket till the end of this year. We're seeing I think the most comforting aspect of the process is that the environmental utility Financial aspects are all being discussed off at the same time and there's some a true understanding of the totality of as Connie mentioned earlier how this has to be comical that is all together operating towards a very ambitious State energy policy, which we are fully committed to but underlying it is a realization and I think it's always been em, khong

so that's why our regular

It's one of the guiding principles and that is the financial Integrity of the utility because it is the grid that makes it all possible. So with that package as unsatisfactory is that maybe in terms of a metrics-driven answer? I don't think we can give any more color to it than that, but it's been a good process so far particularly. Yep, no problem. Then just finally on the coronavirus. I know that obviously the virus can travel and what have you guys have a substantial amount of Asian tourism, but how much money you have like off the top of your head the the percentage of Tourism that comes from from China as opposed to Asia in general? Yeah, we've looked at that as you know, we get about ten million visitors. Annually. We just broke through that threshold from mainland China and Hong Kong. It's approximately 1% or slightly below. So it's pretty minimal overall. So the things would be yep.

Turned it bad is travel in.

General people's willingness to get on planes and travel which, you know could impact the economy somewhat.

Okay, great. Thanks so much.

Thank you. Thanks for the next question comes from Charles Fishman of Morningstar.

Hi. Well first Alan good luck to you. Thank you very much. And then let me make sure I got these I'm thinking about this, right the bank would generate about 81 cents about a nickel of that was from the headquarters sale leaving Seventy-Six cents for this year or last year, which is about the midpoint of guidance office. So essentially excluding the gain the banks roughly flattish yet. You're projecting a dividend increase that is Faith Like a 1/3 higher. What? Can you give a little more color on that? What's going on?

Yeah, yeah, so thanks for the question. So if you'll notice our Capital levels picked up across the second half of the year, we were in a process, you know, we're adopting Cecil the new accounting standard for Provisions this year. And so we were retaining a little bit more Capital. So when that adjustment come through which is an adjustment to the provision level the one-time adjustment to the provision level offset to Capital that we end up in a in a good spot relative to our overall capitalization. And and so with that we we have the ability to Dividend up a little bit more of our earnings as we go through the year and stay in a good spot.

Okay, I'll just ask.

That so the bank will still be targeting what has been our longtime Target of about 8 and half percent on the Tier 1 leverage ratio. So is Rich just noted they had trended above that towards the end of 2019 and now they'll be coming back down to that. So the $75 dividend that you're projecting for 20 28 is pretty much a new base going forward. No. No, thank you, you know on an ongoing basis you'd expect our traditional levels Thursday about the right component of earnings that we would and we have a little bit of a an adjustment this year in 2020 projected as we reset to the the ongoing a ratio that we've been in the past to remember that we're anticipating consistent earnings performance through this period of time so they'll be some level of consistency to the Dead.

capabilities of the Bank coin

Got it. Thanks. That's helpful. Just another question on a question on the utility last quarter. We talked a lot about the capex, especially because of the month cycling of the the the diesel units and you know, and that's understandable with the I mean, you're sort of the canary here with what's going on with renewable in the in the country. If not the World Cup and you know hearing you talk about that was certainly a concern and of something that maybe nobody in the industry is fully appreciating at least on the analyst side. I didn't hear you talk about that this this time. In fact, you said on the guidance o&m at or below inflation? So is that something that was just a one-off A one-timer or you just didn't talk about it?

Well, we you know, so we did show it as an increase year-over-year increase 2018 219. So that was in some of our results this year. Ultimately. You're absolutely right, right. Those units have to be kept in good working order to backstop all of the renewable energy and it's a cycle. However, we have to operate in them. And if we cycle them higher higher levels, we have to have the the maintenance for those but I think prospectively we've gone through a series of periods with major overhauls and those the major overhauls don't have to be done. Annually. Is that right tank? Yes, ma'am. This is pink sticky more. So when we look at our overholser planned overhauls, and it depends on run hours and they can be lumpy in between years. And so and if you link it to see what we see from a recovery standpoint, I mean, it could also be a little lumpy as you look at it over a period of time as you look into twenty-twenty though, and yep.

To understand the onm forecast being at or below inflation, you know how to think about it? We did talk about our

Mission of our one company initiative where we restructured functions to allow more standardization and consistency of work and that will help us in terms of bringing more efficiencies to our utility as well as enabling us to do things like strategic sourcing in our purchasing area in in this forecast for 20 20. We also have embedded are benefits from use of our our new system using sap, which went live in the fourth quarter of 2018. Those efficiencies are also embedded in twenty-twenty as well. So you can see that's how we are allowed to forecast and o&m level of you know at or below inflation Charles ad 2018 said about the sap Erp savings because those are now fully ramped up they were ramping up over twenty nineteen. So they're fully ramped up now for the 20 20 year loan.

Okay, I forgot about that sap. That's right. Well, that's good to hear that. It's providing benefit. That's all I had. Thank you very much. Thanks Charles.

Last question today comes from Andy Levi of Exodus point.

And electricity i&e very quick one just woke up on Paul just on the coronavirus how specifically does it. I thought you guys would do a couple how would it affect your life. I mean, I understand the tourism part, but how does it affect the overly? Well it potentially through economic activity that could impact the commercial Enterprises where the bank has deployed little in in in his lending into the community. It could slow down commercial activities somewhat, that would be one concern. You know, we've also off keeping a close eye on the supply chain for procurement of our renewable projects, if that gets either constrained or the cost cost of those go up we haven't seen anything.

To date, but it's something continued to.

To monitor cuz you know bringing those projects online is very important to us more project-related back home. I would think so. Okay and then just for twenty twenty just in your forecasts of the utility. What are we are? We are you in bed in Europe. We haven't actually disclosed that but if you use the midpoint of the range, it would be a slight Improvement to where to where we're at today is, you know, we are closed at 7.8% that the year and we would see some some improvement over that is if we assuming the midpoint of the range, I would say a modest Improvement. We don't anticipate, you know, we do have a couple of rate cases going on. We have an interim decision on helko and the ongoing potential interim. We'll expect it interim here.

July time frame on the heco

Which may provide some benefit but beyond that for significant improvements in the achieved r o e we'll have to see how PBR place out in 20 and the implementation in 20 21. Okay. My last question just on the rate base light on 15. So June 18th that how it kind of work it is cuz we were trying to normalize the differentials between 9:20 and 6 also to align that with the guide how we had done our previous guidance range and using eighteen as a basis. Well for comparability, it's 3 to 5 off the nineteen forty-six 46 off of

18 okay, I guess that and thank you for moving the call to Wednesday afternoon. We did it just for you Andy. How's your Valentine's present? Andy is Valentine's present. I'd be happy. Thanks for dialing in. Thank you. This concludes the question and answer session. I would like to turn the conference back over to Julie salinsky for any closing remarks. Just thank you all for joining us today, and am most of all in the hollow and congratulations to Al-Anon your last webcast. Thank you, and hope you all have a great rest of the week. Thank you.

I'm Frances now concluded thank you for attending today's presentation. You may now disconnect.