HEI Reports Third Quarter 2011 Earnings & Declares Dividend Diluted Earnings Per Share $0.50 in 3Q 2011 vs $0.35 in 3Q 2010

Interim Rate Relief Helps Financial Repair

Bank Continues Solid Performance

Board of Directors Declares Dividend of $0.31 Per Share

HONOLULU, Nov. 3, 2011 /PRNewswire/ -- Hawaiian Electric Industries, Inc. (NYSE - HE) (HEI) today reported consolidated net income for common stock for the third quarter 2011 of $48.4 million, or $0.50 diluted earnings per share (EPS), compared to $32.4 million, or $0.35 diluted EPS for the third quarter 2010.  

"While utility earnings are recovering from the depressed levels of  2010, returns will continue to fall short of those allowed by the Hawaii Public Utilities Commission.  Continued regulatory support to recover our investments in a timely manner is essential to our success in attracting the significant capital needed to fund our utilities' reliability and clean energy plans.  Our bank continues to be a consistent source of capital for HEI and maintained its strong performance. This marks the fourth consecutive quarter of loan growth and we continue to maintain strong profitability metrics and healthy capital levels," said Constance H. Lau, HEI president and chief executive officer.

UTILITY EARNINGS IMPROVE AND EXPENSE MANAGEMENT REMAINS A PRIORITY FOCUS

Electric utility net income for the third quarter 2011 was $38.0 million compared to $22.0 million in the third quarter 2010.  The $16.0 million net income improvement resulted primarily from regulatory action and continued cost management.  The significant increases over the prior year were (on an after-tax basis):

  • $6 million of rate relief granted to all three utilities;
  • $5 million net decoupling revenue adjustments recorded for our Oahu utility;
  • $2 million higher fuel efficiency savings at our Hawaii Island and Maui County utilities; and
  • $1 million lower depreciation expense primarily from the change in depreciation rates and methods.

These increases were partially offset by $1 million lower kilowatthour sales at the Hawaii Island and Maui County utilities. Kilowatthour sales were down 0.5% and 3.0% for Hawaii Island and Maui County, respectively, primarily due to increased customer conservation.

O&M expenses(1) were flat compared to the same quarter last year. Higher bad debt expense of $4 million, primarily due to two large commercial accounts, and $2 million higher maintenance expense to safely and responsibly operate our systems were largely offset by $3 million lower administrative and general expense from a regulatory change in the capitalization of costs and by $2 million lower claims reserves. We expect total 2011 O&M, which would have been flat compared to 2010, to be 3% higher due to externalities such as bad debt.

(1) Excludes demand side management (DSM) program costs.  DSM program costs were $1 million in the third quarter of 2010 and 2011.  DSM program costs are recovered through a surcharge.

CONTINUED SOLID BANK PERFORMANCE AND MODERATE LOAN GROWTH

Bank net income for the third quarter 2011 was $15.5 million, essentially even with $15.2 million in the second, or linked, quarter 2011 and $15.3 million in the third quarter 2010.

Loan growth continued for the fourth consecutive quarter with an increase in loans of $40 million in the third quarter 2011.  Loan growth was driven primarily by home equity and commercial loans which more than offset the decline in residential mortgages resulting from the low interest rate environment.  Year-to-date, total loans increased by $129 million or 3.6%, meeting our target for mid-single digit loan growth.  

Net interest margin was 4.11% in the third quarter 2011, up from 4.07% in the linked quarter but down from 4.31% in the third quarter 2010.  The improvement in net interest margin from the linked quarter was primarily attributable to the recognition of deferred loan fees due to higher loan prepayments from residential mortgage refinancings and slightly lower cost of funds.  The third quarter 2010 was higher primarily due to higher yields on earning assets in 2010 and the recognition of deferred loan fees from the refinancing wave in the second half of 2010.

Provision for loan losses (pretax) was $3.8 million in the third quarter 2011 compared to $6.0 million in the third quarter 2010 and $2.6 million in the linked quarter.  With year-to-date provision expense of $10.9 million, the company expects full-year provision expense to be in the lower end of the guidance range of $15 to $20 million.

The third quarter 2011 net charge-off ratio was 0.54%.  This is up slightly from 0.45% reported in the linked quarter and from 0.53% in the third quarter last year, but remains low compared to our peers.  The increase from the linked quarter is primarily due to the partial charge-offs of two commercial credits.

Noninterest expense (pretax) for the third quarter 2011 of $35.6 million improved from $36.2 million in the linked quarter and $36.3 million in the third quarter 2010.  2011 annual noninterest expense is on track to meet our target of $145 million

The bank remains well-capitalized with a Tier 1 leverage ratio of 9.1% and total risk-based capital ratio of 13.0% as of the end of the third quarter 2011.

HOLDING AND OTHER COMPANIES

The holding and other companies' net losses were $5.0 million in the third quarter 2011 compared to $4.8 million in the third quarter 2010.

BOARD DECLARES QUARTERLY DIVIDEND

On November 2, 2011, the board of directors of HEI maintained the regular quarterly cash dividend of 31 cents per share, payable on December 13, 2011, to shareholders of record at the close of business on November 21, 2011 (ex-dividend date is November 17, 2011).  The dividend is equivalent to an annual rate of $1.24 per share.

Dividends have been paid continuously since 1901.  At the indicated annual dividend rate and the closing share price on November 2, 2011 of $25.36, HEI's yield is 4.9%.

WEBCAST AND TELECONFERENCE

Hawaiian Electric Industries, Inc. will conduct a webcast and teleconference call to review its third quarter 2011 earnings on Thursday, November 3, 2011, at 8:00 a.m. Hawaii time (2:00 p.m. Eastern time).  The event can be accessed through HEI's website at www.hei.com or by dialing (800) 299-7635, passcode:  75157227 for the teleconference call.  The presentation for the webcast will be on HEI’s website under the headings “Investor Relations”, “News & Events” and “Presentations & Webcasts”.  HEI and Hawaiian Electric Company, Inc. (HECO) intend to continue to use HEI's website, www.hei.com, as a means of disclosing additional information.  Such disclosures will be included on HEI's website in the Investor Relations section.  Accordingly, investors should routinely monitor such portions of HEI's website, in addition to following HEI's, HECO's and American Savings Bank, F.S.B.'s (ASB) press releases, SEC filings and public conference calls and webcasts.  The information on HEI's website is not incorporated by reference in this document or in the Company's SEC filings unless, and except to the extent, specifically incorporated by reference.  Investors may also wish to refer to the PUC website at dms.puc.hawaii.gov/dms in order to review documents filed with and issued by the PUC.  No information on the PUC website is incorporated by reference in this document or in the Company's SEC filings.

An online replay of the webcast will be available at the same website beginning about two hours after the event.  Replays of the teleconference call will also be available approximately two hours after the event through November 17, 2011, by dialing (888) 286-8010, passcode: 80767105.

HEI supplies power to over 400,000 customers or 95% of Hawaii's population through its electric utilities, HECO, Hawaii Electric Light Company, Inc. and Maui Electric Company, Limited and provides a wide array of banking and other financial services to consumers and businesses through ASB, one of Hawaii's largest financial institutions.

FORWARD-LOOKING STATEMENTS

This release may contain "forward-looking statements," which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as "expects", "anticipates", "intends", "plans", "believes", "predicts", "estimates" or similar expressions.  In addition, any statements concerning future financial performance, ongoing business strategies or prospects or possible future actions are also forward-looking statements.  Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and the accuracy of assumptions concerning HEI and its subsidiaries, the performance of the industries in which they do business and economic and market factors, among other things.  These forward-looking statements are not guarantees of future performance.

Forward-looking statements in this release should be read in conjunction with the "Forward-Looking Statements" discussions (which are incorporated by reference herein) set forth on pages iv and v of HEI's Quarterly Reports on Form 10-Q for the quarters ended June 30, 2011 and September 30, 2011 (when filed), and in HEI's future periodic reports that discuss important factors that could cause HEI's results to differ materially from those anticipated in such statements.  Forward-looking statements speak only as of the date of the report, presentation or filing in which they are made.  Except to the extent required by the federal securities laws, HEI, HECO, ASB and their subsidiaries undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Contact:

Shelee M.T. Kimura



Manager, Investor Relations &

Telephone: (808) 543-7384


Strategic Planning

E-mail:  skimura@hei.com



Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


Three months


Nine months





ended September 30,


ended September 30,

(in thousands, except per share amounts)


2011


2010


2011


2010

Revenues









Electric utility


$    820,254


$    623,126


$    2,194,327


$    1,755,332

Bank



66,100


71,429


197,731


213,975

Other



1


(14)


(751)


(62)





886,355


694,541


2,391,307


1,969,245

Expenses








Electric utility


745,298


571,783


2,031,645


1,619,945

Bank



42,931


47,040


128,988


142,040

Other



3,636


3,087


9,148


10,291





791,865


621,910


2,169,781


1,772,276

Operating income (loss)








Electric utility


74,956


51,343


162,682


135,387

Bank



23,169


24,389


68,743


71,935

Other



(3,635)


(3,101)


(9,899)


(10,353)





94,490


72,631


221,526


196,969










Interest expense–other than on deposit liabilities and other bank borrowings


(19,949)


(21,015)


(64,266)


(61,916)

Allowance for borrowed funds used during construction


658


492


1,731


2,061

Allowance for equity funds used during construction


1,570


1,197


4,131


4,817

Income before income taxes


76,769


53,305


163,122


141,931

Income taxes


27,894


20,385


57,700


51,677

Net income


48,875


32,920


105,422


90,254

Preferred stock dividends of subsidiaries


471


471


1,417


1,417

Net income for common stock


$      48,404


$      32,449


$       104,005


$         88,837

Basic earnings per common share


$          0.50


$          0.35


$             1.09


$             0.95

Diluted earnings per common share


$          0.50


$          0.35


$             1.09


$             0.95

Dividends per common share


$          0.31


$          0.31


$             0.93


$             0.93

Weighted-average number of common shares outstanding


95,873


93,699


95,365


93,148

Adjusted weighted-average shares


96,100


93,891


95,671


93,405












Income (loss) by segment









   Electric utility


$      37,959


$      21,980


$         74,172


$         57,674

   Bank


15,457


15,293


44,503


45,160

   Other


(5,012)


(4,824)


(14,670)


(13,997)

Net income for common stock


$      48,404


$      32,449


$       104,005


$         88,837












This information should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference and included in HEI's Annual Report on SEC Form 10-K for the year ended December 31, 2010 and the consolidated financial statements and the notes thereto in HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011 (when filed). Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.



Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries



CONSOLIDATED BALANCE SHEETS



(Unaudited)




September 30,

December 31,

(dollars in thousands)

2011

2010

Assets



Cash and cash equivalents

$       283,483

$      330,651

Accounts receivable and unbilled revenues, net

342,901

266,996

Available-for-sale investment and mortgage-related securities

571,045

678,152

Investment in stock of Federal Home Loan Bank of Seattle

97,764

97,764

Loans receivable held for investment, net

3,622,181

3,489,880

Loans held for sale, at lower of cost or fair value

25,016

7,849

Property, plant and equipment, net of accumulated depreciation of



   $2,033,576 in 2011 and $2,037,598 in 2010

3,248,658

3,165,918

Regulatory assets

494,487

478,330

Other

496,638

487,614

Goodwill

82,190

82,190

    Total assets

$    9,264,363

$   9,085,344

Liabilities and shareholders' equity



Liabilities



Accounts payable

$       165,909

$      202,446

Interest and dividends payable

28,010

27,814

Deposit liabilities

4,062,801

3,975,372

Short-term borrowings—other than bank

51,195

24,923

Other bank borrowings

237,934

237,319

Long-term debt, net—other than bank

1,340,038

1,364,942

Deferred income taxes

342,232

278,958

Regulatory liabilities

313,299

296,797

Contributions in aid of construction

344,110

335,364

Other

806,784

823,479

    Total liabilities

7,692,312

7,567,414




Preferred stock of subsidiaries - not subject to mandatory redemption

34,293

34,293




Shareholders' equity



Preferred stock, no par value, authorized 10,000,000 shares; issued:  none

-

-

Common stock, no par value, authorized 200,000,000 shares; issued



   and outstanding:  95,975,524 shares in 2011 and 94,690,932 shares in 2010

1,347,255

1,314,199

Retained earnings

197,165

181,910

Accumulated other comprehensive loss, net of tax benefits

(6,662)

(12,472)

    Total shareholders' equity

1,537,758

1,483,637

    Total liabilities and shareholders' equity

$    9,264,363

$   9,085,344




This information should be read in conjunction with the consolidated financial statements and the notes thereto incorporated by reference and included in HEI's Annual Report on SEC Form 10-K for the year ended December 31, 2010 and the consolidated financial statements and the notes thereto in HEI's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011 (when filed). Results of operations for interim periods are not necessarily indicative of results to be expected for future interim periods or the full year.



Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Unaudited)



Nine months ended September 30,

2011

2010

(in thousands)



Cash flows from operating activities



Net income

$ 105,422

$  90,254

Adjustments to reconcile net income to net cash provided by operating activities



     Depreciation of property, plant and equipment

111,516

117,109

     Other amortization

14,552

2,995

     Provision for loan losses

10,927

12,310

     Loans receivable originated and purchased, held for sale

(137,507)

(286,950)

     Proceeds from sale of loans receivable, held for sale

127,163

306,587

     Changes in deferred income taxes

60,957

75,821

     Changes in excess tax benefits from share-based payment arrangements

(39)

56

     Allowance for equity funds used during construction

(4,131)

(4,817)

     Change in cash overdraft

(2,688)

884

     Changes in assets and liabilities



          Increase in accounts receivable and unbilled revenues, net

(75,905)

(18,016)

          Increase in fuel oil stock