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.

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 3^rd, 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 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 30^th, 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.

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 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 (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 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 last page of this release for a tabular reconciliation of GAAP to 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.

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 the last page.

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 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.

¹ Refer to the last page 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.