Hawaiian Electric Industries' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Hawaiian Electric Industries Inc. (HE)

Q2 2012 Earnings Call

August 03, 2012 02:00 pm ET

Executives

Shelee Kimura - Manager, IR and Strategic Planning

Connie Lau - President & CEO, HEI

Jim Ajello - EVP & CFO, HEI

Rich Wacker - President & CEO, American Savings Bank

Analysts

Paul Patterson - Glenrock Associates

James Bellessa - D.A. Davidson & Company

Charles Fishman - Morningstar

Presentation

Operator

Good day ladies and gentlemen, and welcome to the second quarter 2012 Hawaiian Electric Industries, Inc. earnings conference call. My name is Jasmine and I’ll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call Ms. Shelee Kimura, Manager of Investor Relations and Strategic Planning. You may begin.

Shelee Kimura

Thank you Jasmine and welcome to Hawaiian Electric Industries’ second quarter 2012 earnings conference call. Joining me today are Connie Lau HEI President and Chief Executive Officer, Jim Ajello HEI Executive Vice President, Chief financial officer and Treasurer, Dick Rosenblum, Hawaiian Electric Company's President and Chief Executive Officer and Rich Wacker, American Savings Bank, President and Chief Executive Officer as well as other members of senior management.

Connie will provide an overview of the quarter and update on our strategies. Jim will then update you on Hawaii's economy, our financial results for the quarter and outlook for the remainder of the year and then we will conclude with question and answers. Forward-looking statements will be made on today’s call. Please reference the accompanying disclosure to the webcast slides located on our website. I’ll now turn the call over to our CEO, Connie Lau.

Connie Lau

Thank you, Shelee and aloha to everyone. We closed the first half of the year with strong results and consistent with our 2012 objectives. Many constructive regulatory milestones were achieved during the first half of the year. Most significantly all three utilities are now decoupled under Hawaii's new regulatory framework. Our bank continued to perform well in this very low interest rate environment with steady loan growth for a 7th consecutive quarter.

In addition credit and asset quality continued to improve consistent with Hawaii's gradual economic recovery. We continue to make progress on our strategies and believe we are well positioned to continue to the deliver attractive and stable earnings growth to our investors. Second quarter 2012 earnings were $0.40 per share consistent with $0.40 in the linked quarter and $0.28 per share in the same quarter last year.

This increase from last year was largely driven by the recovery of costs for our Oahu utility which commenced in July of last year for its 2011 test year. As we close the first half of the year, we are pleased with the utility’s strategic progress. During the second quarter, the Hawaii Public Utilities Commission rendered over 50 decisions that affected our company including issuing the 2011 Oahu final decision and order and Maui County’s 2012 interim decision and order. With these decisions, all three utilities are fully decoupled and each will go in for a rate case one every three years.

Under the new regulatory model, our utilities received annual revenue balancing account RBA and RAM rate adjustment mechanism, adjustments between rate cases among other changes. Our 2012 capital projects are on track for the year. In 2012, these continue to be routine capital expenditures critical to strengthening our grid and integrating more renewalable sources. On the clean energy front, our adoption rate of additional renewable energy has continued to grow. Year-to-date through June 30, over 13% of our electric sale came from renewable sources ahead of our projections.

In addition the procurement process for an additional 200 megawatts of renewable energy for Oahu from renewable developers is progressing and is scheduled to be launched in the second half of the year. Turning to the bank we are on track to meet our 2012 performance targets. While margins are gradually eroding in a very low and challenging interest rate environment, we continue to grow our loan portfolio at a steady and disciplined rate. Year-to-date annualized return on asset was 1.22% and year-to-date annualized ROE was 12.1%.

While the bank's efficiency ratio and non-interest expense rose in this quarter, this was largely due timing of project expenses. The first half run rate for expenses remains consistent with our annual target of $145 million. Year-to-date bank's earning to $30 million is in line with our expectations.

We continue to believe 2012 full-year earnings will be 3% to 5% lower than 2011 as this extremely low interest rate environment will continue to exert downward pressure on net interest margins during the second half of the year. Overall the bank continues to maintain its low risk profile, strong balance sheet, terrific funding base and straight forward business model.

Jim, will now discuss the details of our second quarter results and drivers for the year.

Jim Ajello

Thanks, Connie. As a backdrop to our results and outlook, I'll briefly comment on Hawaii's economy which continues its gradual improvement. The tourism industry, a significant driver of Hawaii's economy posted record arrivals and spending in the month of June. Visitor spending has grown year-over-year for 26 consecutive months.

Year-to-date visitor arrival were up 10.2% and expenditures were up 21.4% compared to last year. In the 2012 outlook, the visitor industry remains very positive. Local economists expect construction to begin to recover in 2013 due to an increase in non-residential and public sector projects.

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