EX-99 2 dex99.htm NEWS RELEASE, DATED NOVEMBER 2, 2009 News release, dated November 2, 2009

HEI Exhibit 99

November 2, 2009

 

Contact:

    Shelee M.T. Kimura   (808) 543-7384 Telephone
   Manager, Investor Relations & Strategic Planning   (808) 203-1164 Facsimile
     E-mail: skimura@hei.com

 

 

AGGRESSIVE COST CONTROL HELPS HEI’S THIRD QUARTER EARNINGS

HONOLULU — Hawaiian Electric Industries, Inc. (NYSE—HE) today reported consolidated net income for common stock for the third quarter of 2009 of $33.5 million, or $0.37 per share, compared to $37.3 million, or $0.44 cents per share for the third quarter of 2008.

“Given our expectations at the outset of the quarter for continued difficult economic conditions and delays in the regulatory process, our operating companies instituted disciplined efforts to control costs which contributed commendably to mitigating these effects and we are pleased with our companies’ overall performance,” said Constance H. Lau, HEI president and chief executive officer.

“At the utility, predominately short-term cost deferrals and reductions are helping us offset these challenges. In addition, kilowatthour sales benefited from more normal weather conditions than we saw in the first half of the year. At the bank, net income was down quarter over quarter but up significantly from the second quarter of 2009. In addition, the bank continued to make significant strides in its performance improvement initiative to reduce its cost structure that are helping offset elevated credit expenses during this difficult credit cycle,” said Lau.

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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UTILITY RESULTS

Electric utility net income for common stock for the third quarter of 2009 was $26.5 million compared with $25.9 million in the third quarter of 2008. “Interim rate relief and cost control efforts enabled the utility to produce slightly better results quarter over quarter, although returns remain significantly below allowed returns,” said Lau.

On August 3rd, the Public Utilities Commission of the State of Hawaii (PUC) approved the implementation of a partial interim increase of $61.1 million, or 4.7%, in HECO’s 2009 test year rate case proceeding, which contributed $5.8 million quarter over quarter to utility net income.

Kilowatthour sales were down 0.8% compared with the same quarter of 2008, reducing utility net income by an estimated $1.1 million. “Sales continue to be impacted by difficult economic conditions and continuing positive efforts by Hawaii residents and businesses to conserve energy, partly offset by warmer and more humid weather,” said Lau.

Operations and maintenance expenses (O&M) were up $0.4 million or 0.4% quarter over quarter. Included in third quarter 2008 O&M were $9.5 million of demand-side management program (DSM) costs that were recovered through a surcharge. The energy efficiency DSM programs were transferred to a third-party administrator at the end of the second quarter of 2009, and thus, there was only $2.4 million in costs related to DSM programs in the third quarter of 2009. The remaining difference in quarter over quarter O&M includes operating costs for the new Oahu CT-1 unit, increased spending in support of renewable initiatives, expenses to support our aging infrastructure and higher employee benefit costs. “Due to short-term, aggressive cost containment measures and

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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project deferrals taken in the third quarter in response to delays in the regulatory process, the year-to-date O&M increase of 8% compared favorably with the 10% annual increase we estimated at the end of the second quarter. We now expect O&M for 2009 to increase by approximately 6% compared with 2008, improved from the 13% and 10% annual increases we estimated at the end of the first and second quarters, respectively. While a small portion of these reductions are sustainable, the majority of the reductions are temporary cost containment efforts which cannot be sustained long-term without impacting operations,” said Lau.

On September 30th, the company’s Maui County subsidiary filed a 2010 test year rate case, requesting an overall revenue increase of $28.2 million, or 9.7%. The request is based on a 10.75% return on common equity and 8.57% return on rate base. Based on the filing date, the statutory deadline for an interim decision from the Hawaii PUC expires in the third quarter of 2010.

BANK RESULTS

Bank net income for the third quarter of 2009 was $11.3 million, compared to $4.0 million in the second quarter of 2009 and $15.4 million for the same quarter last year.

“This has been a challenging year for financial institutions and our bank’s results continue to be impacted by the difficult credit cycle. We continue to make significant strides in our performance improvement initiative, helping offset currently elevated credit expenses and improve the bank’s cost structure and earnings power in the long-term. In addition, the bank continues to be well capitalized with a strong Tier-1 core leverage ratio of 9.1% at the end of the quarter,” said Lau.

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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Net interest income in the third quarter of 2009 was $50.5 million compared to $52.3 million in the third quarter of 2008. Lower average earning asset balances and yields were partially offset by lower funding costs. Net interest margin grew to 4.23% in the third quarter of 2009, compared with 4.16% in the second quarter of 2009 and 4.08% in the third quarter of 2008.

The bank recorded a $5.2 million provision for loan losses for the third quarter of 2009 compared with $13.5 million in the second quarter of 2009 and $2.0 million in the third quarter of 2008. The majority of the provision in the third quarter of 2009 reflected an increase in nonperforming residential lot loans and 1-4 family mortgages. A large component of the second quarter 2009 provision related to a large single commercial credit which was partially charged-off. This credit was sold in September 2009 for a pre-tax gain of $3.0 million and was included in bank noninterest income.

Noninterest income for the third quarter of 2009 was $11.9 million, compared with $13.0 million for the second quarter of 2009 and $16.7 million in the third quarter of 2008. Third quarter 2009 noninterest income was reduced by $9.9 million for the other-than-temporary-impairment of certain private-issue mortgage-related securities, compared with $5.6 million in the second quarter of 2009 and none in the third quarter of 2008. Excluding the effects of the other-than-temporary impairment charges in the third and second quarters of 2009 and the gain on sale of a single commercial credit in the third quarter of 2009, the increases in adjusted noninterest income were 13% quarter over quarter and 1% over the

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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second quarter1. These increases reflect increases in deposit fees and gains on sales of residential loans.

Noninterest expense for the third quarter of 2009 was $39.6 million, compared with $44.4 million in the second quarter of 2009 and $42.4 million for the same period in 2008. On an adjusted basis, noninterest expense decreased by $5.1 million quarter over quarter and $1.8 million over the second quarter of 2009, reflecting progress in the bank’s efforts to reduce its cost structure.1 “The bank’s performance improvement project remains on track toward its goal of reducing annualized adjusted noninterest expense to $140-$145 million by the end of 2010,” said Lau.1

HOLDING AND OTHER COMPANIES’ RESULTS

The holding and other companies’ net losses were $4.4 million in the third quarter of 2009, relatively flat compared with $4.1 million in the third quarter of 2008.

WEBCAST AND TELECONFERENCE

Hawaiian Electric Industries, Inc. will conduct a webcast and teleconference call to review its third quarter 2009 earnings on Monday, November 2, 2009, at 3:00 a.m. Hawaii time (8:00 a.m. Eastern time). The event can be accessed through HEI’s website at http://www.hei.com or by dialing (800) 659-2032, passcode: 86467264 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 November 16, 2009, by dialing

 

1 Refer to page 18 of the accompanying schedules of this release for a reconciliation of noninterest income and expense based on U.S. generally accepted accounting principles to adjusted noninterest income and expense.

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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(888) 286-8010, passcode: 44997988.

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, Limited and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, F.S.B., one of Hawaii’s largest financial institutions.

EXPLANATION OF HEI’S USE OF CERTAIN UNAUDITED NON-GAAP FINANCIAL MEASURES

HEI and bank management use certain non-GAAP measures in their evaluation of the bank’s performance and believe the presentations of such financial measures on this basis provide useful supplemental information and a clearer picture of the bank’s operating performance, and are a better indicator of the bank’s ongoing core operating activities. Management also uses such measures to assist investors/analysts in better understanding the bank’s progress on the execution of its process improvement initiative. These measures are also useful in understanding performance trends and facilitate comparisons with the performance of others in the financial services industry.

Management utilizes non-GAAP financial measures of noninterest income and expense in the calculation of certain of the bank’s metrics/ratios, such as (i) efficiency, (ii) pretax, preprovision income, and (iii) return on average assets to analyze on a consistent basis and over a longer period of time the performance of the bank’s core operating activities. Management also annualizes the non-GAAP measure of noninterest expense by multiplying such measure by 4 to develop an estimate of adjusted noninterest expense for a year-long

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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period. This annualized adjusted noninterest expense metric (non-GAAP measure) may not reflect actual results.

Certain reconciling items—real estate transactions, professional services, FISERV conversion costs, severance, technology write-offs, prepayment penalty on early extinguishment of debt, and a loss on sale of Bishop Insurance Agency—are being incurred pursuant to the bank management’s performance improvement initiative which was announced in June 2008 and is expected to conclude by the end of 2010. These costs are being incurred with the objective of increasing the bank’s operating efficiency and profitability. Accordingly, bank management believes that these costs will remain temporarily elevated while the performance improvement project is being executed and will be reduced or eliminated once the project has ended. See schedule on page 18 of this release for a tabular reconciliation between the bank’s GAAP and non-GAAP measures.

Reported noninterest income is being adjusted by a gain on sale of a commercial loan. Bank management believes that it would not be appropriate to assume that the bank would realize material gains on a quarterly basis.

Likewise, bank management also adds back to noninterest income charges related to the other-than-temporary impairment (OTTI) of mortgage-related securities because of the material nature of the charge and the unpredictability of when those charges might occur in the future. The bank incurred material OTTI in the fourth quarter of 2008 and the second and third quarters of 2009, impacting the comparability of noninterest income for those quarters with the linked quarters and the same quarters of the previous year. Management believes that adjusting noninterest income to exclude the effects of OTTI helps the comparability of noninterest income quarter to quarter and quarter over quarter.

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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Lastly, management adjusts noninterest expense to exclude a special assessment levied by the Federal Deposit Insurance Corporation (FDIC) pursuant to the FDIC’s plan to recapitalize the deposit insurance fund. While the FDIC may make future special assessments pursuant to this plan, in September 2009, it proposed a restoration plan that requires banks to prepay estimated quarterly assessments for the fourth quarter of 2009 and for all of 2010, 2011 and 2012. Such prepaid assessments would be amortized over these periods. In any event, bank management believes that it would not be appropriate to assume that the bank would incur these special assessments on a quarterly basis. Further, excluding the FDIC charge is consistent with the financial measures used by other banks and enhances the comparison of operating performance.

Limitations associated with utilizing non-GAAP measures are the risks of disagreement over the appropriateness of adjustments comprising these measures and that other companies might calculate these measures differently. Management addresses these limitations by providing detailed reconciliations between GAAP information and non-GAAP measures. See reconciliation on page 18.

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

Hawaiian Electric Industries, Inc. News Release

November 2, 2009

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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 pages iv and v of HEI’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2009, 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.

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Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

      Three months
ended September 30,		     Nine months
ended September 30, 		    Twelve months
ended September 30,		  

(in thousands, except per share amounts)

    2009     2008     2009     2008     2009     2008  

Revenues

             

Electric utility

    $ 548,440      $ 827,788      $ 1,460,654      $ 2,139,798      $ 2,181,206      $ 2,738,107   

Bank

      71,947        87,675        229,478        279,469        308,562        387,471   

Other

      (74 )      (32 )      (121 )      (164 )      60        1,696   
                                                
     620,313        915,431        1,690,011        2,419,103        2,489,828        3,127,274   
                                                

Expenses

             

Electric utility

      494,268        775,941        1,343,250        1,981,572        2,030,669        2,522,443   

Bank

      54,258        62,983        189,162        262,406        258,357        343,067   

Other

      3,148        2,378        9,247        8,648        14,770        13,422   
                                                
     551,674        841,302        1,541,659        2,252,626        2,303,796        2,878,932   
                                                

Operating income (loss)

             

Electric utility

      54,172        51,847        117,404        158,226        150,537        215,664   

Bank

      17,689        24,692        40,316        17,063        50,205        44,404   

Other

      (3,222 )      (2,410 )      (9,368 )      (8,812 )      (14,710 )      (11,726 ) 
                                                
     68,639        74,129        148,352        166,477        186,032        248,342   
                                                

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

      (19,678 )      (19,345 )      (55,421 )      (56,780 )      (74,783 )      (75,954 ) 

Allowance for borrowed funds used during construction

      1,118        967        4,467        2,564        5,644        3,276   

Allowance for equity funds used during construction

      2,628        2,426        10,353        6,432        13,311        7,881   
                                                

Income before income taxes

      52,707        58,177        107,751        118,693        130,204        183,545   

Income taxes

      18,753        20,425        36,977        40,892        45,063        64,689   
                                                

Net income

      33,954        37,752        70,774        77,801        85,141        118,856   

Less net income attributable to noncontrolling interest-preferred stock of subsidiaries

      471        471        1,417        1,417        1,890        1,887   
                                                

Net income for common stock

    $ 33,483      $ 37,281      $ 69,357      $ 76,384      $ 83,251      $ 116,969   
                                                

Basic earnings per common share

    $ 0.37      $ 0.44      $ 0.76      $ 0.91      $ 0.93      $ 1.40   
                                                

Diluted earnings per common share

    $ 0.37      $ 0.44      $ 0.76      $ 0.91      $ 0.92      $ 1.39   
                                                

Dividends per common share

    $ 0.31      $ 0.31      $ 0.93      $ 0.93      $ 1.24      $ 1.24   
                                                

Weighted-average number of common shares outstanding

      91,522        84,625        91,173        84,052        89,959        83,788   
                                                

Adjusted weighted-average shares

      91,653        84,842        91,278        84,182        90,072        83,906   
                                                

Income (loss) by segment

             

Electric utility

    $ 26,514      $ 25,932      $ 56,141      $ 77,949      $ 70,167      $ 106,127   

Bank

      11,323        15,405        26,226        11,888        32,165        29,086   

Other

      (4,354 )      (4,056 )      (13,010 )      (13,453 )      (19,081 )      (18,244 ) 
                                                

Net income for common stock

    $ 33,483      $ 37,281      $ 69,357      $ 76,384      $ 83,251      $ 116,969   
                                                

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (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.

 

10

Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(dollars in thousands)

    September 30,
2009		     December 31,
2008		  

Assets

     

Cash and equivalents

    $ 257,331      $ 182,903   

Federal funds sold

      1,708        532   

Accounts receivable and unbilled revenues, net

      252,186        300,666   

Available-for-sale investment and mortgage-related securities

      623,104        657,717   

Investment in stock of Federal Home Loan Bank of Seattle

      97,764        97,764   

Loans receivable, net

      3,758,898        4,206,492   

Property, plant and equipment, net of accumulated depreciation of $1,918,984 and $1,851,813

      3,052,209        2,907,376   

Regulatory assets

      535,287        530,619   

Other

      344,336        328,823   

Goodwill, net

      82,190        82,190   
                
   $ 9,005,013      $ 9,295,082   
                

Liabilities and stockholders’ equity

     

Liabilities

     

Accounts payable

    $ 182,943      $ 183,584   

Deposit liabilities

      4,047,940        4,180,175   

Other bank borrowings

      367,884        680,973   

Long-term debt, net—other than bank

      1,364,784        1,211,501   

Deferred income taxes

      162,452        143,308   

Regulatory liabilities

      282,239        288,602   

Contributions in aid of construction

      315,455        311,716   

Other

      825,115        871,476   
                
     7,548,812        7,871,335   
                

Stockholders’ equity

     

Common stock, no par value, authorized 200,000,000 shares; issued and outstanding: 92,014,738 shares and 90,515,573 shares

      1,254,893        1,231,629   

Retained earnings

      199,118        210,840   

Accumulated other comprehensive loss, net of tax benefits

      (32,103 )      (53,015 ) 
                

Common stock equity

      1,421,908        1,389,454   

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

      —          —     

Noncontrolling interest: cumulative preferred stock of subsidiaries - not subject to mandatory redemption

      34,293        34,293   
                
     1,456,201        1,423,747   
                
   $ 9,005,013      $ 9,295,082   
                

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (when filed).

 

11

Hawaiian Electric Industries, Inc. (HEI) and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

Nine months ended September 30

    2009     2008  
(in thousands)             

Cash flows from operating activities

     

Net income

    $ 70,774      $ 77,801   

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

     

Depreciation of property, plant and equipment

      113,916        113,423   

Other amortization

      4,037        3,927   

Provision for loan losses

      27,000        4,034   

Loans receivable originated and purchased, held for sale

      (368,880 )      (159,327 ) 

Proceeds from sale of loans receivable, held for sale

      400,213        157,293   

Net loss (gain) on sale of investment and mortgage-related securities

      (44 )      17,388   

Other-than-temporary impairment of available-for-sale mortgage-related securities

      15,444        —     

Changes in deferred income taxes

      2,958        12,186   

Changes in excess tax benefits from share-based payment arrangements

      324        (572 ) 

Allowance for equity funds used during construction

      (10,353 )      (6,432 ) 

Changes in assets and liabilities

     

Decrease (increase) in accounts receivable and unbilled revenues, net

      48,480        (76,034 ) 

Decrease (increase) in fuel oil stock

      9,826        (79,693 ) 

Increase (decrease) in accounts payable

      (641 )      54,460   

Changes in prepaid and accrued income taxes and utility revenue taxes

      (50,514 )      (29,640 ) 

Changes in other assets and liabilities

      (35,561 )      (13,278 ) 
                

Net cash provided by operating activities

      226,979        75,536   
                

Cash flows from investing activities

     

Available-for-sale investment and mortgage-related securities purchased

      (247,425 )      (411,658 ) 

Principal repayments on available-for-sale investment and mortgage-related securities

      304,728        489,740   

Proceeds from sale of available-for-sale investment and mortgage-related securities

      44        1,291,609   

Net decrease (increase) in loans held for investment

      396,706        (55,828 ) 

Capital expenditures

      (239,441 )      (172,948 ) 

Contributions in aid of construction

      7,472        12,266   

Other

      426        724   
                

Net cash provided by investing activities

      222,510        1,153,905   
                

Cash flows from financing activities

     

Net decrease in deposit liabilities

      (132,234 )      (164,612 ) 

Net increase in short-term borrowings with original maturities of three months or less

      —          138,786   

Net decrease in retail repurchase agreements

      (18,573 )      (23,290 ) 

Proceeds from other bank borrowings

      310,000        1,719,085   

Repayments of other bank borrowings

      (604,517 )      (2,820,119 ) 

Proceeds from issuance of long-term debt

      153,186        18,707   

Repayment of long-term debt

      —          (50,000 ) 

Changes in excess tax benefits from share-based payment arrangements

      (324 )      572   

Net proceeds from issuance of common stock

      11,004        21,067   

Common stock dividends

      (73,931 )      (62,493 ) 

Preferred stock dividends of noncontrolling interest

      (1,417 )      (1,417 ) 

Decrease in cash overdraft

      (9,847 )      (8,582 ) 

Other

      (7,232 )      (5,252 ) 
                

Net cash used in financing activities

      (373,885 )      (1,237,548 ) 
                

Net increase (decrease) in cash and equivalents and federal funds sold

      75,604        (8,107 ) 

Cash and equivalents and federal funds sold, beginning of period

      183,435        209,855   
                

Cash and equivalents and federal funds sold, end of period

    $ 259,039      $ 201,748   
                

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (when filed).

 

12

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three months ended
September 30,		     Nine months ended
September 30,		  

(dollars in thousands, except per barrel amounts)

    2009     2008     2009     2008  

Operating revenues

   $ 546,502      $ 826,124      $ 1,453,623      $ 2,135,265   
                                

Operating expenses

         

Fuel oil

      186,719        377,157        463,893        900,455   

Purchased power

      134,447        202,125        364,120        530,146   

Other operation

      61,173        61,599        186,751        176,600   

Maintenance

      25,968        25,174        81,562        72,777   

Depreciation

      35,557        35,419        108,406        106,254   

Taxes, other than income taxes

      50,031        74,201        137,741        194,058   

Income taxes

      15,957        15,035        33,228        47,507   
                                
     509,852        790,710        1,375,701        2,027,797   
                                

Operating income

     36,650        35,414        77,922        107,468   
                                

Other income

         

Allowance for equity funds used during construction

      2,628        2,426        10,353        6,432   

Other, net

      1,657        1,486        6,493        3,693   
                                
     4,285        3,912        16,846        10,125   
                                

Interest and other charges

         

Interest on long-term debt

      13,601        11,879        37,458        35,413   

Amortization of net bond premium and expense

      735        632        2,092        1,902   

Other interest charges

      705        1,352        2,048        3,397   

Allowance for borrowed funds used during construction

      (1,118 )      (967 )      (4,467 )      (2,564 ) 
                                
     13,923        12,896        37,131        38,148   
                                

Net income

      27,012        26,430        57,637        79,445   

Less net income attributable to noncontrolling interest— preferred stock of subsidiaries

      228        228        686        686   
                                

Net income attributable to HECO

      26,784        26,202        56,951        78,759   

Preferred stock dividends of HECO

      270        270        810        810   
                                

Net income for common stock

   $ 26,514      $ 25,932      $ 56,141      $ 77,949   
                                

OTHER ELECTRIC UTILITY INFORMATION

         

Kilowatthour sales (millions)

      2,572        2,593        7,203        7,478   

Wet-bulb temperature (Oahu average; degrees Fahrenheit)

      71.5        70.7        68.5        68.6   

Cooling degree days (Oahu)

      1,588        1,530        3,591        3,779   

Average fuel oil cost per barrel

    $ 66.40      $ 133.99      $ 59.21      $ 111.37   
     Twelve months ended
September 30, 2009		              
     Allowed %1     Actual %              

Return on average common equity

         

(rate-making, simple average method)

         

HECO

      10.50        6.52       

HELCO

      10.70        6.17       

MECO

      10.70        4.74       

 

1

Based on interim decisions which are subject to final PUC decisions. Allowed ROACEs for HECO, HELCO and MECO based on their last final rate case decisions were 10.70, 11.50 and 10.94, respectively.

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HECO Exhibit 99.2 to HECO’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (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.

 

13

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

(in thousands, except par value)

    September 30,
2009		     December 31,
2008		  

Assets

     

Utility plant, at cost

     

Land

    $ 51,401      $ 42,541   

Plant and equipment

      4,612,113        4,277,499   

Less accumulated depreciation

      (1,822,860 )      (1,741,453 ) 

Construction in progress

      155,465        266,628   
                

Net utility plant

      2,996,119        2,845,215   
                

Current assets

     

Cash and equivalents

      6,486        6,901   

Customer accounts receivable, net

      133,709        166,422   

Accrued unbilled revenues, net

      92,361        106,544   

Other accounts receivable, net

      8,208        7,918   

Fuel oil stock, at average cost

      67,889        77,715   

Materials and supplies, at average cost

      36,357        34,532   

Prepayments and other

      13,879        12,626   
                

Total current assets

      358,889        412,658   
                

Other long-term assets

     

Regulatory assets

      535,287        530,619   

Unamortized debt expense

      15,184        14,503   

Other

      69,400        53,114   
                

Total other long-term assets

      619,871        598,236   
                
   $ 3,974,879      $ 3,856,109   
                

Capitalization and liabilities

     

Capitalization

     

Common stock, $6 2/3 par value, authorized 50,000 shares; outstanding 12,806 shares

    $ 85,387      $ 85,387   

Premium on capital stock

      299,207        299,214   

Retained earnings

      825,975        802,590   

Accumulated other comprehensive income, net of income taxes

      1,824        1,651   
                

Common stock equity

      1,212,393        1,188,842   

Cumulative preferred stock – not subject to mandatory redemption

      22,293        22,293   

Noncontrolling interest – cumulative preferred stock of subsidiaries – not subject to mandatory redemption

      12,000        12,000   
                

Stockholders’ equity

      1,246,686        1,223,135   

Long-term debt, net

      1,057,784        904,501   
                

Total capitalization

      2,304,470        2,127,636   
                

Current liabilities

     

Short-term borrowings–affiliate

      10,700        41,550   

Accounts payable

      118,042        122,994   

Interest and preferred dividends payable

      21,096        15,397   

Taxes accrued

      155,211        220,046   

Other

      48,389        55,268   
                

Total current liabilities

      353,438        455,255   
                

Deferred credits and other liabilities

     

Deferred income taxes

      178,336        166,310   

Regulatory liabilities

      282,239        288,602   

Unamortized tax credits

      57,885        58,796   

Retirement benefits liability

      399,539        392,845   

Other

      83,517        54,949   
                

Total deferred credits and other liabilities

      1,001,516        961,502   
                

Contributions in aid of construction

      315,455        311,716   
                
   $ 3,974,879      $ 3,856,109   
                

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HECO Exhibit 99.2 to HECO’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (when filed).

 

14

Hawaiian Electric Company, Inc. (HECO) and Subsidiaries

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 

Nine months ended September 30

    2009     2008  
(in thousands)             

Cash flows from operating activities

     

Net income

    $ 57,637      $ 79,445   

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

     

Depreciation of property, plant and equipment

      108,406        106,254   

Other amortization

      7,702        6,426   

Changes in deferred income taxes

      12,532        6,588   

Changes in tax credits, net

      (501 )      1,503   

Allowance for equity funds used during construction

      (10,353 )      (6,432 ) 

Changes in assets and liabilities

     

Decrease (increase) in accounts receivable

      32,423        (59,551 ) 

Decrease (increase) in accrued unbilled revenues

      14,183        (23,394 ) 

Decrease (increase) in fuel oil stock

      9,826        (79,693 ) 

Increase in materials and supplies

      (1,825 )      (3,435 ) 

Increase in regulatory assets

      (13,829 )      (28 ) 

Increase (decrease) in accounts payable

      (4,952 )      46,324   

Changes in prepaid and accrued income and utility revenue taxes

      (62,388 )      (7,969 ) 

Changes in other assets and liabilities

      3,360        (5,386 ) 
                

Net cash provided by operating activities

      152,221        60,652   
                

Cash flows from investing activities

     

Capital expenditures

      (237,664 )      (170,321 ) 

Contributions in aid of construction

      7,472        12,266   

Other

      340        749   
                

Net cash used in investing activities

      (229,852 )      (157,306 ) 
                

Cash flows from financing activities

     

Common stock dividends

      (32,756 )      (14,088 ) 

Preferred stock dividends

      (1,496 )      (1,496 ) 

Proceeds from issuance of long-term debt

      153,186        18,707   

Net increase (decrease) in short-term borrowings from nonaffiliates and affiliate with original maturities of three months or less

      (30,850 )      112,204   

Decrease in cash overdraft

      (9,847 )      (8,582 ) 

Other

      (1,021 )      —     
                

Net cash provided by financing activities

      77,216        106,745   
                

Net increase (decrease) in cash and equivalents

      (415 )      10,091   

Cash and equivalents, beginning of period

      6,901        4,678   
                

Cash and equivalents, end of period

    $ 6,486      $ 14,769   
                

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HECO Exhibit 99.2 to HECO’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (when filed).

 

15

American Savings Bank, F.S.B. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

 

     Three months ended    Nine months ended
September 30,		  
     September 30,
2009 		    June 30,
2009		     September 30,
2008 		  

(dollars in thousands)

           2009     2008  

Interest and dividend income

            

Interest and fees on loans

    $ 53,080      $ 55,363      $ 61,100    $ 166,535      $ 186,312   

Interest and dividends on investment and mortgage-related securities

      6,943        7,143        9,898      21,762        57,078   
                                       
     60,023        62,506        70,998      188,297        243,390   
                                       

Interest expense

            

Interest on deposit liabilities

      7,286        9,902        14,070      28,753        47,909   

Interest on other borrowings

      2,205        2,241        4,616      7,710        40,030   
                                       
     9,491        12,143        18,686      36,463        87,939   
                                       

Net interest income

      50,532        50,363        52,312      151,834        155,451   

Provision for loan losses

      5,200        13,500        1,979      27,000        4,034   
                                       

Net interest income after provision for loan losses

     45,332        36,863        50,333      124,834        151,417   
                                       

Noninterest income

            

Fee income on deposit liabilities

      8,211        7,462        7,328      22,384        20,889   

Fees from other financial services

      6,385        6,443        6,318      18,747        18,554   

Fee income on other financial products

      1,613        1,628        1,771      4,285        5,214   

Net losses on available-for-sale securities *

      (9,863 )      (5,537 )      —        (15,400 )      (17,388 ) 

(includes impairment losses of $9,863 and $15,444, consisting of $13,645 and $32,167 of total other-than-temporary impairment losses, net of $3,782 and $16,723 of non-credit losses, recognized in other comprehensive income, for the quarter and nine months ended September 30, 2009, respectively)

            

Other income

      5,578        2,997        1,260      11,165        8,810   
                                       
     11,924        12,993        16,677      41,181        36,079   
                                       

Noninterest expense

            

Compensation and employee benefits

      17,721        17,991        19,172      55,072        56,451   

Occupancy

      4,905        5,922        5,489      15,956        16,276   

Data processing

      3,684        3,481        2,794      10,352        8,019   

Services

      2,437        3,801        3,688      9,656        13,531   

Equipment

      1,782        2,540        3,175      7,112        9,510   

Loss on early extinguishment of debt *

      —          60        —        101        39,843   

Other expense

      9,062        10,579        8,085      27,527        26,932   
                                       
     39,591        44,374        42,403      125,776        170,562   
                                       

Income before income taxes

      17,665        5,482        24,607      40,239        16,934   

Income taxes *

      6,342        1,461        9,202      14,013        5,046   
                                       

Net income

   $ 11,323      $ 4,021      $ 15,405    $ 26,226      $ 11,888   
                                       

OTHER BANK INFORMATION (%)

            

Return on average assets

      0.89        0.31        1.11      0.68        0.25   

Return on average equity

      9.40        3.41        11.09      7.35        2.73   

Net interest margin

      4.23        4.16        4.08      4.17        3.49   

Net charge-offs to average loans outstanding (annualized)

      0.19        1.31        0.07      0.56        0.08   

Efficiency ratio

      63        70        61      65        89   

As of period end

            

Nonperforming assets to loans outstanding and real estate owned **

      1.61        1.55        0.25     

Allowance for loan losses to loans outstanding

      1.21        1.09        0.75     

Tier-1 leverage ratio

      9.1        8.7        8.4     

 

* Net income included a $35.6 million after-tax charge related to ASB’s balance sheet restructuring in June 2008. The $35.6 million is comprised of: (1) realized losses on the sale of mortgage-related securities and agency notes of $19.3 million included in “Noninterest income-Net losses on available-for-sale securities,” (2) fees associated with the early retirement of other bank borrowings of $39.8 million included in “Noninterest expense-Loss on early extinguishment of debt” and (3) income tax benefits of $23.5 million included in “Income taxes.”
** Regulatory basis

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI Exhibit 13 to HEI’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (when filed). Results of operations for interim periods are not necessarily indicative of future interim periods or the results to be expected for full year.

 

16

American Savings Bank, F.S.B. and Subsidiaries

CONSOLIDATED BALANCE SHEETS DATA

(Unaudited)

 

(in thousands)

    September 30,
2009		     December 31,
2008		  

Assets

     

Cash and equivalents

    $ 222,286      $ 168,766   

Federal funds sold

      1,708        532   

Available-for-sale investment and mortgage-related securities

      623,104        657,717   

Investment in stock of Federal Home Loan Bank of Seattle

      97,764        97,764   

Loans receivable, net

      3,758,898        4,206,492   

Other

      211,773        223,659   

Goodwill, net

      82,190        82,190   
                
   $ 4,997,723      $ 5,437,120   
                

Liabilities and stockholder’s equity

     

Deposit liabilities–noninterest-bearing

    $ 751,893      $ 701,090   

Deposit liabilities–interest-bearing

      3,296,047        3,479,085   

Other borrowings

      367,884        680,973   

Other

      91,643        98,598   
                
     4,507,467        4,959,746   
                

Common stock

      329,292        328,162   

Retained earnings

      188,437        197,235   

Accumulated other comprehensive loss, net of tax benefits

      (27,473 )      (48,023 ) 
                
     490,256        477,374   
                
   $ 4,997,723      $ 5,437,120   
                

This information should be read in conjunction with the consolidated financial statements and the notes thereto for the year ended December 31, 2008 (included in HEI Exhibit 13 to HEI’s Form 8-K dated June 9, 2009) 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, 2009, June 30, 2009 and September 30, 2009 (when filed).

 

17

American Savings Bank, F.S.B. and Subsidiaries

RECONCILIATION OF GAAP TO NON-GAAP MEASURES

(Unaudited)

 

(in thousands)

    3Q08     4Q08     1Q09     2Q09     3Q09  

Noninterest income

           

Per income statement—GAAP

    $ 16,677      $ 10,056      $ 16,264      $ 12,993      $ 11,924   

Other-than-temporary impairment of mortgage-related securities

      —          7,764        —          5,581        9,863   

Gain on sale of a commercial loan

      —          —          —          —          (2,951 ) 
                                        

Adjusted noninterest income

    $ 16,677      $ 17,820      $ 16,264      $ 18,574      $ 18,836   
                                        

Noninterest expense

           

Per income statement—GAAP

    $ 42,403      $ 45,442      $ 41,811      $ 44,374      $ 39,591   

Real estate transactions

      —          —          —          (1,180 )      (1,076 ) 

Professional services

      —          —          (616 )      (1,238 )      (600 ) 

FISERV conversion costs

      —          —          —          (159 )      (572 ) 

Severance

      (222 )      (1,560 )      (673 )      (393 )      (301 ) 

FDIC special assessment

      —          —          —          (2,338 )      —     

Technology write-offs

      —          —          —          (145 )      —     

Prepayment penalty on early extinguishment of debt

      —          —          (41 )      (60 )      —     

Bishop Insurance Agency sale

      —          (890 )      —          —          —     
                                        

Adjusted noninterest expense

    $ 42,181      $ 42,992      $ 40,481      $ 38,861      $ 37,042   
                                        

Other bank information

           

Noninterest expense (annualized)

           

Reported

    $ 169,612      $ 181,768      $ 167,244      $ 177,496      $ 158,364   

Adjusted

    $ 168,724      $ 171,968      $ 161,924      $ 155,444      $ 148,168   

Efficiency ratio

           

Reported

      61 %      74 %      62 %      70 %      63 % 

Adjusted

      61 %      62 %      60 %      56 %      53 % 

Pretax, preprovision income (annualized)

           

Reported

    $ 106,344      $ 64,628      $ 101,568      $ 75,928      $ 91,460   

Adjusted

      107,232        105,484        106,888        120,304        129,304   

Return on average assets

           

Reported

      1.11 %      0.44 %      0.82 %      0.31 %      0.89 % 

Adjusted

      1.12 %      0.92 %      0.88 %      0.83 %      1.34 % 

 

18