HEI Fourth Quarter 2007 Earnings Improve Full Year Results

Business Wire, Feb 22, 2008

HONOLULU -- Hawaiian Electric Industries, Inc. (NYSE:HE) today reported 2007 net income of $84.8 million, or $1.03 per share, compared with $108.0 million, or $1.33 per share in 2006. Net income for the fourth quarter of 2007 was $40.6 million, or $0.49 per share, compared with $16.1 million, or $0.20 per share for the fourth quarter of 2006.

"While 2007 fourth quarter earnings improved, full-year 2007 earnings were down $23 million, driven primarily by a drop in utility net income," said Constance H. Lau, HEI's president and chief executive officer. "Interim rate increases approved by the Hawaii Public Utilities Commission (PUC) in 2007, which took effect mainly in the fourth quarter, helped to improve full-year earnings."

UTILITY RESULTS

Electric utility net income was $52.2 million in 2007 versus $74.9 million in 2006, down $22.8 million. "Interim rate relief in 2007 partially offset two charges related to rate case filings and higher year-over-year other operation, maintenance and depreciation expenses," said Lau. One of the charges related to a reserve for an expected $16 million refund ($9 million net of taxes), including interest, to Oahu customers resulting from a proposed final PUC decision and order in Hawaiian Electric Company's 2005 test year rate case. The other charge resulted from the write-off of $12 million ($6.7 million net of taxes) of Keahole power plant expansion costs pursuant to a settlement agreement with the State of Hawaii Office of Consumer Advocacy for Hawaii Electric Light Company's pending rate case.

Interim rate increases granted for the company's three utilities in 2007 resulted in $32 million more revenues in 2007 compared with 2006.

Other operation and maintenance expense (O&M) increased by $43.1 million in 2007 due to: 1) $11.9 million higher production maintenance expenses due primarily to higher generating plant maintenance and an increase in the scope and number of generating unit overhauls performed in the year; 2) $6.9 million higher demand-side management (DSM) costs that are recovered in electric rates; 3) $5.5 million of increased year-over-year employee benefits expenses; 4) $3.6 million higher transmission and distribution maintenance expenses resulting from higher substation maintenance and vegetation management; and 5) $15.2 million of higher costs to ensure reliable operations, including increased staffing.

Depreciation expense in 2007 increased $6.9 million over 2006 due to 2006 plant additions, including the Ford Island Substation and new Dispatch Center on Oahu, and the Maalaea M-18 generating unit addition on Maui.

Kilowatthour sales were basically flat year-over-year. While residential customer usage increased, commercial customer usage was down due largely to energy efficiency projects and customer conservation.

BANK RESULTS

Bank net income for 2007 was $53.1 million compared with $55.8 million for 2006. "We were pleased that 2007 bank earnings declined only 5% compared to 2006 given the challenging year for financial institutions in general," said Lau.

Bank net interest income decreased by $5.5 million in 2007 compared with 2006. Increased interest income primarily from higher rates and balances on loans was more than offset by increased funding costs and lower investment and mortgage-related securities balances. The bank's net interest margin decreased to 3.08% compared to 3.18% in 2006.

The bank provided $5.7 million for loan losses in 2007, compared to $1.4 million in 2006. "Overall credit quality remained strong in 2007 with most of the provision relating to a single commercial borrower," said Lau. "As a result of stable housing prices during 2007 and our focus on the prime residential loan market, our residential loan portfolio experienced low levels of delinquencies and no residential loan charge-offs in 2007," Lau added.

Noninterest income increased by $8.8 million in 2007, primarily due to higher fee income on deposits of $7.6 million.

Noninterest expense increased by $3.6 million year-over-year, primarily due to higher costs to strengthen the bank's risk management and compliance infrastructure and higher legal expenses, partially offset by an $8.8 million gain ($5.3 million net of taxes) recorded in the fourth quarter resulting from previously disclosed changes to the bank's defined benefit plan.

HOLDING AND OTHER COMPANIES' RESULTS

The holding and other companies' net loss was $20.5 million in 2007, compared with $22.7 million in 2006. Gains on the sale of non-strategic assets were partially offset by higher general and administrative and interest expenses in 2007 compared with 2006.

FOURTH QUARTER RESULTS

Consolidated net income for the fourth quarter of 2007 was $40.6 million, or $0.49 per share, compared with $16.1 million, or $0.20 per share, for the fourth quarter of 2006.

"Fourth quarter net income benefited from the receipt of interim rate relief for our three utilities and a gain resulting from changes to the bank's defined benefit plan," said Lau.

UTILITY RESULTS