Hawaiian Electric Industries, Inc. Reports Solid Second Quarter 2008 Performance

Hawaiian Electric Industries, Inc. (NYSE:HE) today reported consolidated net income for the second quarter of 2008 of $5.1 million, or $0.06 per share, compared to $17.5 million, or $0.21 per share for the second quarter of 2007. Second quarter 2008 results include $35.6 million ($0.42 cents per share) of previously-disclosed after-tax charges related to the successful strategic restructuring of its bank’s balance sheet in June. "Excluding the effects of the bank balance sheet restructuring, net income would have been $40.7 million, or $0.48 per share for the second quarter of 2008,” said Constance H. Lau, HEI president and chief executive officer. "All areas of the company contributed to solid performance in the quarter,” said Lau. "Our utilities continued to regain financial strength from interim rate relief after several tough quarters last year. Excluding the balance sheet restructuring charges, the bank’s earnings and profitability improved quarter-over-quarter. Additionally, holding and other company losses were lower due to lower interest and general and administrative expenses,” noted Lau. UTILITY RESULTS Electric utility net income for the second quarter of 2008 was $27.4 million compared with $10.7 million for the same quarter in 2007. "We are seeing recovery from unusually low earnings a year ago when our utilities were awaiting rate increases to earn a return on reliability investments and recover higher operating costs,” said Lau. At the same time, kilowatthour sales were down slightly compared with the same quarter of 2007 largely due to the effects of conservation and demand-side management programs more than offsetting the impact of mildly warmer temperatures. "Hawaii customers have been diligently seeking ways to conserve energy in response to the dramatic rise in the cost of fuel, which impacts the price of nearly all goods and services here in Hawaii,” said Lau. Other operations and maintenance (O&M) expenses were flat quarter-over-quarter, as higher operations expenses for customer efficiency programs and operations reliability were slightly more than offset by lower maintenance expense resulting primarily from the lower scope of unit overhauls and timing of vegetation management expenses. "However, we expect higher O&M expense levels for the second half of 2008 due to planned increases in production and transmission and distribution maintenance work,” noted Lau. The utility also recorded $1.1 million in higher quarter-over-quarter depreciation expenses due to 2007 plant additions. BANK RESULTS Bank net loss for the second quarter of 2008 was $18.1 million, compared to net income of $12.6 million for the same quarter last year. Results include after-tax charges of $35.6 million related to the balance sheet restructuring and the following other after-tax items: a $1.2 million previously-disclosed technology project write-off, a $2.6 million insurance recovery, and a $0.6 million gain on the sale of MasterCard stock. "Bank operations were strong in the second quarter,” said Lau. "We are excited that the balance sheet restructuring, along with product enhancements and productivity initiatives, have successfully positioned the bank for greater profitability.” Net interest income in the second quarter of 2008 was $52.6 million compared to $51.1 million in the second quarter of 2007. The impact of lower interest expense, primarily due to lower rates on deposits and borrowings and lower deposit balances, more than offset the decline in interest income, primarily due to lower yields on assets and lower investment balances. Net interest margin expanded to 3.39% in the second quarter of 2008, compared with 3.20% in the second quarter of 2007. In the second quarters of 2008 and 2007, the bank recorded $1.2 million in provision for loan losses. "The overall credit quality of the bank’s loan portfolio remains good. However, we remain cautious and are actively monitoring our loan portfolios as there are signs that the local economy and real estate market are slowing,” added Lau. Quarter-over-quarter bank noninterest income and noninterest expense were primarily impacted by the aforementioned balance sheet restructuring, technology project write-off, insurance recovery and gain on sale of MasterCard stock. Services expenses were lower by $3.7 million, primarily due to lower consulting and legal expenses. HOLDING AND OTHER COMPANIES’ RESULTS The holding and other companies’ net losses were $4.2 million in the second quarter of 2008 compared with $5.7 million in the second quarter of 2007. The quarter-over-quarter improvement was primarily due to lower interest and general and administrative expenses. WEBCAST AND TELECONFERENCE Hawaiian Electric Industries, Inc. will conduct a webcast and teleconference call to review its second quarter 2008 earnings on Tuesday, August 5, 2008, at 8:00 a.m. Hawaii Time (2:00 p.m. Eastern Time). The event can be accessed through HEI’s website at http://www.hei.com or by dialing (866) 510-0710, passcode: 57495087 for the teleconference call. 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 August 19, 2008, by dialing (888) 286-8010, passcode: 43538430. Representing management will be Constance H. Lau, president and chief executive officer, Hawaiian Electric Industries, Inc. and chairman, Hawaiian Electric Company, Inc.; and Timothy K. Schools, president, American Savings Bank, F. S. B. HEI supplies power to over 400,000 customers or 95% of Hawaii’s population through its electric utilities, Hawaiian Electric Company, Inc., Hawaii Electric Light Company, Inc. and Maui Electric Company, Ltd. and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, F.S.B., the state’s third largest financial institution based on 2007 year-end asset size. 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 (including future revenues, expenses, earnings or losses or growth rates), ongoing business strategies or prospects and possible future actions, which may be provided by management, 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 assumptions about 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” discussion (which is incorporated by reference herein) set forth on page iv of HEI’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2008, 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 this release. Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited)       Three months ended June 30,   Six months endedJune 30,   Twelve months endedJune 30, (in thousands, except per share amounts)     2008       2007       2008       2007       2008       2007   Revenues       Electric utility $ 688,121 $ 492,712 $ 1,312,010 $ 940,390 $ 2,477,934 $ 2,016,257 Bank 85,950 107,526 191,794 211,986 405,303 417,791 Other   (16 )   525     (132 )   2,410     2,067     1,711     774,055     600,763     1,503,672     1,154,786     2,885,304     2,435,759   Expenses Electric utility 632,725 463,923 1,205,631 898,609 2,282,751 1,893,184 Bank 116,942 87,832 199,423 173,864 367,044 344,285 Other   2,786     3,699     6,270     8,463     13,279     14,924     752,453     555,454     1,411,324     1,080,936     2,663,074     2,252,393   Operating income (loss) Electric utility 55,396 28,789 106,379 41,781 195,183 123,073 Bank (30,992 ) 19,694 (7,629 ) 38,122 38,259 73,506 Other   (2,802 )   (3,174 )   (6,402 )   (6,053 )   (11,212 )   (13,213 )   21,602     45,309     92,348     73,850     222,230     183,366   Interest expense–other than on deposit liabilities and other bank borrowings (18,186 ) (19,282 ) (37,435 ) (39,793 ) (76,198 ) (77,220 ) Allowance for borrowed funds used during construction 835 586 1,597 1,184 2,965 2,642 Preferred stock dividends of subsidiaries (473 ) (473 ) (946 ) (946 ) (1,890 ) (1,890 ) Allowance for equity funds used during construction   2,105     1,202     4,006     2,434     6,791     5,646   Income before income taxes 5,883 27,342 59,570 36,729 153,898 112,544 Income taxes   747     9,793     20,467     12,416     54,329     39,791   Net income $ 5,136   $ 17,549   $ 39,103   $ 24,313   $ 99,569   $ 72,753   Basic earnings per common share $ 0.06   $ 0.21   $ 0.47   $ 0.30   $ 1.20   $ 0.89   Diluted earnings per common share $ 0.06   $ 0.21   $ 0.47   $ 0.30   $ 1.20   $ 0.89   Dividends per common share $ 0.31   $ 0.31   $ 0.62   $ 0.62   $ 1.24   $ 1.24   Weighted-average number of common shares outstanding   84,052     81,907     83,762     81,679     83,249     81,461   Adjusted weighted-average shares   84,155     82,124     83,822     81,906     83,283     81,644     Net income (loss) by segment Electric utility $ 27,432 $ 10,650 $ 52,017 $ 11,103 $ 93,070 $ 47,776 Bank (18,093 ) 12,582 (3,517 ) 24,178 25,412 46,915 Other   (4,203 )   (5,683 )   (9,397 )   (10,968 )   (18,913 )   (21,938 ) Net income $ 5,136   $ 17,549   $ 39,103   $ 24,313   $ 99,569   $ 72,753   This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2007 (included in HEI’s Form 8-K dated February 21, 2008) 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, 2008 and June 30, 2008 (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 Company, Inc. (HECO) and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited)   Three months ended   Six months ended June 30, June 30, (in thousands)       2008       2007       2008       2007   Operating revenues $ 686,647     $ 491,249   $ 1,309,141     $ 938,046   Operating expenses Fuel oil 273,755 167,121 523,298 327,050 Purchased power 177,226 133,727 328,021 245,243 Other operation 59,422 53,643 115,001 100,836 Maintenance 23,990 29,869 47,603 57,205 Depreciation 35,401 34,272 70,835 68,539 Taxes, other than income taxes 62,371 44,903 119,857 87,450 Income taxes   17,094     6,492     32,472     10,998     649,259     470,027     1,237,087     897,321   Operating income   37,388     21,222     72,054     40,725   Other income Allowance for equity funds used during construction 2,105 1,202 4,006 2,434 Other, net   1,111     1,049     2,207     (5,149 )   3,216     2,251     6,213     (2,715 ) Income before interest and other charges   40,604     23,473     78,267     38,010   Interest and other charges Interest on long-term debt 11,810 11,390 23,534 22,886 Amortization of net bond premium and expense 639 646 1,270 1,192 Other interest charges 1,059 874 2,045 3,015 Allowance for borrowed funds used during construction (835 ) (586 ) (1,597 ) (1,184 ) Preferred stock dividends of subsidiaries   229     229     458     458     12,902     12,553     25,710     26,367   Income before preferred stock dividends of HECO 27,702 10,920 52,557 11,643 Preferred stock dividends of HECO   270     270     540     540   Net income for common stock $ 27,432   $ 10,650   $ 52,017   $ 11,103   OTHER ELECTRIC UTILITY INFORMATION Kilowatthour sales (millions) 2,476 2,501 4,885 4,905 Cooling degree days (Oahu) 1,295 1,255 2,249 2,100 Average fuel cost per barrel $ 104.78 $ 62.74 $ 99.29 $ 60.43   This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2007 (included in HECO Exhibit 99.1 to HECO's Form 8-K dated February 21, 2008) and the consolidated financial statements and the notes thereto in HECO's Quarterly Reports on SEC Form 10-Q for the quarters ended March 31, 2008 and June 30, 2008 (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. American Savings Bank, F.S.B. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME (Unaudited)   Three months ended   Six months ended June 30,   June 30, (in thousands)     2008       2007     2008       2007 Interest and dividend income     Interest and fees on loans $ 61,747 $ 60,093 $ 125,212 $ 120,374 Interest and dividends on investment and mortgage-related securities   22,729     30,428   47,180     58,593   84,476     90,521   172,392     178,967 Interest expense Interest on deposit liabilities 15,619 20,832 33,839 41,570 Interest on other borrowings   16,265     18,581   35,414     36,987   31,884     39,413   69,253     78,557 Net interest income 52,592 51,108 103,139 100,410 Provision for loan losses   1,155     1,200   2,055     1,200 Net interest income after provision for loan losses   51,437     49,908   101,084     99,210 Noninterest income Fees from other financial services 5,413 6,885 12,236 13,386 Fee income on deposit liabilities 6,767 6,457 13,561 12,512 Fee income on other financial products 1,639 1,856 3,443 3,868 Loss on sale of securities (18,323 ) - (17,388 ) - Other income   5,978     1,807   7,550     3,253   1,474     17,005   19,402     33,019 Noninterest expense Compensation and employee benefits 19,039 18,164 37,279 36,560 Occupancy 5,390 5,341 10,787 10,289 Equipment 3,221 3,785 6,335 7,263 Services 4,170 7,895 9,843 16,253 Data processing 2,609 2,646 5,225 5,203 Loss on early extinguishment of debt 39,843 - 39,843 - Other expense   9,653     9,336   18,847     18,516   83,925     47,167   128,159     94,084 Income before income taxes (31,014 ) 19,746 (7,673 ) 38,145 Income taxes   (12,921 )   7,164   (4,156 )   13,967 Net income $ (18,093 ) $ 12,582 $ (3,517 ) $ 24,178   Net interest margin (%) 3.39 3.20 3.27 3.14 This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2007 (included in HEI Exhibit 13 to HEI's Form 8-K dated February 21, 2008) 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, 2008 and June 30, 2008 (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.