Good day, ladies and gentlemen, and welcome to the 2011 and Fourth Quarter Hawaiian Electric Industries Earnings Conference Call. My name is Alisha, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instruction) As a reminder, this conference is being recorded for replay purposes. I would now like to introduce Ms. Shelee Kimura, Manager of Investor Relations and Strategic Planning. Please proceed Ma’am.

Thank you, Alisha, and welcome to Hawaiian Electric Industries’ 2011 yearend and fourth quarter earnings conference call. I am Shelee Kimura, and 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 President and Chief Executive Officer; and Rich Wacker, American Savings Bank President and Chief Executive Officer, as well as other members of senior management. 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.

Thank you, Shelee and aloha to everyone. I’m pleased to report that 2011 was a strong year for the company. Earnings per share was up 19% for the year. Similarly our 2011 consolidate ROE improved to 9.2% from 7.8% in 2010. The bank’s strong ROE of 12% contributed to the consolidated results as the utilities’ ROE of 7.3% continues to improve. The regulatory restructuring for our Oahu utility was largely completed this year. But we also recognize there is more to do. Our bank continued to deliver strong performance and increased earnings in a challenging regulatory and economic environment. Profitability metrics remains strong, credit quality improved and our loan portfolio improved. Our bank is one of the better performing banks in its class across the country. Other result HE achieved a 22% total return to shareholders in 2011. We believe we are well positioned to continue to deliver attractive risk adjusted returns, good yield and earnings growth to our investors in 2012 and beyond. Turning to slide three, our utilities worked with Hawaaii Public Utilities Commission to achieve several key milestones in 2011. We initiated the regulatory restructuring needed to align with the state’s clean energy policy with the commencement of the decoupling for our Oahu utility in March 2011. In July, we were granted an interim rate increase in our Oahu 2011 rate case. Under the three years cycle instituted under the couplings Oahu will not file for another rate case until the 2014 test year. Our Maui utility filed a 2012 rate case and we are currently preparing to file the 2013 rate case this summer for our Hawaii Island facility. Late yesterday we received HELCO’s final decision for its 2010 rate case, which included the following key items. Approval of the couplings and allowed ROE of 10%…

Thanks, Connie. As a backdrop to our results and outlook we are cautiously optimistic about the Hawaii economy. Tourism industry, a significant driver of Hawaii’s economy maintained a positive growth trend in 2011. December visitor arrivals rose to 7.8% and visitor expenditure grew an outstanding 20.5% compared to the same month last year. This marks the 20th straight month of increases in visitor expenditures and the highest one month total on record. December strong performance resulted in the full year visitor expenditures increasing for the second highest level of visitor spending in the Ireland just short of the 2007 peak. For the full year 2011, visitor arrivals were up 3.8%, with double-digit performance gains from Canada and Australia that enjoyed favorable exchange rate. 2012 outlook for the visitor industry remains positive. Hawaii’s unemployment rate of 6.6% continues to attract significantly better than the national rate of 8.5% in December. In Honolulu County, December unemployment rate dipped to 5.3% from 5.7% in November. December residential home prices were up and sales volumes were down on most island. Overall despite the downside risk in Mainland, U.S. and Europe Hawaii economists expect modest growth of the Hawaii economy in 2012. Turning to our earnings results on slide 10, full year 2011 EPS was $1.44 up 19% compared to $1.21 in 2010. Fourth quarter 2011 EPS was $0.36 per share compared to $0.26 per share in the same quarter last year. At the holding company quarter fourth quarter included the $3 million contribution by the holding company with the HEI Charitable Foundation in 2011. On a net income basis HEI earned $138 million in 2011, $45 million higher than 2010. On slide 11, utility net income for the fourth quarter of 2011 was $25.8 million compared to $18.9 million in the fourth quarter of…

Thanks Jim. In summary, we have made significant strategic progress and it is now being reflected in our financial results. The utility continues to focus on successfully fulfilling our clean energy role in the state and achieving returns that will enable us to compete for capital and fund the upfront investments necessary to support Hawaii’s move to clear energy. At the bank, despite the significant challenges posed by the interest rate and regulatory environment, we continue to perform as a higher performing community bank and are focus on modest long growth. Our dividend yield remains attractive and above the average for utility peers. As of yesterday our dividend yield was 4.7%. 2011 marked our 110th year of paying continuous dividends. Overall, we believe we are well positioned to continue to deliver attractive earnings growth with reduced risk and volatility and an above average dividend yield. And with that we look forward to hearing your questions.

Ladies and gentlemen (Operator Instructions) The first question comes from the line of Ashar Khan with Visium. Please proceed. Ashar Khan – Visium: Good morning Connie and the group.

Good morning. Ashar Khan – Visium: I want to go through Connie, I guess one think which you don’t give us like the EPS and I was just trying if you can just from the data that you’ve provided if I can, if you can just correct me, my different assumptions as we go along from the slides. One thing I heard at the end was that bank earnings could be like if I heard 3% to 5% lower than 2011 is that correct?

Yes. That’s correct. Ashar Khan – Visium: So that would be something like on average around $0.20 to $0.30?

That’s correct, Ashar, it’s Jim Ajello, right. Ashar Khan – Visium: Okay. Then just going back to, Jim and I’m just trying to use this as a kind of like a guide and tell me if I’m doing this wrong or right. You mentioned the utility ROE improved from 5.8 to 7.3 from 2010 to 2011 and if I’m right utility net income went up by like $0.22 unlike a 150 basis points improvement. Correct? If I’m doing my numbers right.

Okay. Ashar Khan – Visium: So I’m just trying to imitate a similar kind of a relationship if I’m not right that say we’re going from 7.3 to now 8.5, that would be like a 130 bps which could imply if I use the same math like an $0.18 increase in utility earnings. If I use the same kind o f mathematical relationship that happened last year 2010 or 2011, am I end up rough ballparks or am I doing something wrong crazy in terms of interpolating one to the other?

I will start – Ashar, I will look to attain for some support on the topic. It’s not quite so correlated with that. There are different levels of expenditures some year-over-year that you got to take into account. For example we guided here that O&M expenditures would be up $6 million. We mentioned a number of things. For example the continuation of expenditures on the customer information system that is not in a – right now on a recovery mode. So it is not exactly easy to extrapolate between the two points that you gave and get any sense of increase in earnings straight forwardly.

Yeah. And Ashar this is Connie really just to add in too, that if you recall we’re now on a three year cycle for rate cases under the annuity company model and so it depends also on which utility is going in that year because the Oahu utility is so much larger than the other utility. Ashar Khan – Visium: Okay. So, Connie what you are saying is because of the higher O&M and certain other stuffs that might be because of the cycles, it’s harder to achieve this higher level but then I guess, it gets normalized as we go toward but this might be a year where because of these expenses and everything, it could be harder to achieve that level. Am I missing something?

No, that’s absolutely correct and particularly in this year as Jim pointed out, our customer information system, the software project is expected to go live in summer and of course, ASVDC would stop at that point and then we’ll have to get recovery and also as Jim pointed out in his remarks that recovery at the moment absent some software rate adjustment mechanism around would come in with each utilities rate case. Ashar Khan – Visium: Okay. Okay. And then, Connie how should we look with this CapEx thing if I’m right, the projects you’ve kind of like mentioned, right, there are not all approved and yet which are supporting the higher capital growth rate, is that correct? Or how should we look at the timeline with this forecast really sound, is there like dates, which you kind of tell us how we should monitor it in terms of the CapEx?

No. There are not. I mean particularly with the environmental cost, as you know that’s really watching what the legislation is, of course our forecast are anticipating that we would have to meet the most aggressive deadlines under the legislation that could change.

Yeah, Ashar, I’ll point out one other thing too. There is a very large amount of expenditures we generation for new generation here and I’ll reemphasize that this is subject to competitive bidding. Our utility may or may not win some are all of the requirements. So that’s $600 million to $800 million into the schedule.

And on that you would see the RFP go out for the competitive bid on the generation and then there would a schedule and you could then track that. But of course, it’s too early for those RFPs. Ashar Khan – Visium: Okay. And then, can I just ask if I can end up with you mentioned your CapEx regarding the thing, so should we kind of like – sorry, the cash flow statement that you provided, how much grip is going on. So I’m assuming than that if we have to fund this higher CapEx we would then require more equity right, I’m taking to this correctly?

Yes, that’s correct.

Right, but we’ve mentioned that Ashar is that we would not need to issue equity through 2012. Ashar Khan – Visium: I understand, I understand but then you have CapEx is like doubling in some of the – further years. I’m just trying to understand that then we have to issue equity in those years to support that CapEx rate because we don’t get immediate recovery of some of these investments or I’m missing something.

You’re not missing something there will definitely need to be other than direct equity issue to support the CapEx plans has been around 2015. Ashar Khan – Visium: Okay.

We’ll be doing the same thing that you’re doing which is watching the capital expenditures watching the development of the environmental regulation, going through the competitive bidding process and when we know what the actual CapEx will be then that will also determine whether we have to issue new equity or not for that particular year, because what we will do is we will always manage to balance capital structure.

Right. And we have not issued equity since 2008, that’s the other benchmark. Ashar Khan – Visium: I understand, I understand. Thank you so much. I’m sorry I took so much time.

Thank you.

The next question comes from the line of Andrew Weisel with Macquarie Capital. Please proceed. Andrew Weisel – Macquarie Capital: Hi, good morning, guys. Couple of quick ones on the utility, first I want to make sure I heard you right. Did you say that HELCO got decoupling approved last night?

Yes, correct. Andrew Weisel – Macquarie Capital: Okay, great. Congratulations. And then MECO you expect a positive 1% growth in kilowatt hour sales in 2012 versus 2011, just curious what gives you that kind of optimism after a decline in 2011?

This is Dick Rosenblum. Really we see a significant rebound in tourism and the economy and that’s primarily what we are looking to. Andrew Weisel – Macquarie Capital: Okay, great. And then just two quick one down on the bank, if I’m doing my math right, the return on tangible equity in 2011 improved to about 14.5%?

No, I think that’s too high. We are going to be pretty comparable to where we are now.

There is only about $80 million of goodwill in the equity number. Andrew Weisel – Macquarie Capital: Okay. So what is that return then?

We will get back to you Andrew on that. Andrew Weisel – Macquarie Capital: Okay. That’s fine. And then lastly as far as market share dynamics, are you seeing any changes as far as share losses from first Hawaiian giving pressure for the apparent company or share gains from central pacific as they try to regain some share.

I think there is definitely pressure in the market because our market is not a fast growth – fast loan growth market. It’s fairly stable, so I think everyone has good liquidity and is quite interested to show that they are putting that liquidity to use. So we’re seeing competition out there. We think that we’ll be able to do the modest asset growth that we said at the net interest margin levels that we’ve indicated. So we’re trying to make sure that competition while healthy stays doesn’t damage the economics of the market.

Andrew, I’d just add, Hawaii has a long history of being a pretty disciplined banking market and so we are hoping that that continues forward, although as you noted it’s getting more competitive. But certainly on our side we will maintain our disciplined process of underwriting. Andrew Weisel – Macquarie Capital: Great. Thank you very much.

The next question comes from the line of Bryce Rowe with Robert W. Baird. Please proceed. Bryce Rowe – Robert W. Baird: Hi, thanks. Few questions on the bank here. Obviously showing some nice growth in loans in 2011. The C&I growth that we saw, are there some syndicated loans within that bucket?

Yeah, right. About half of the growth came out of the local market, about half came out of the shared national credit participations that we’ve done in there. Bryce Rowe – Robert W. Baird: Okay. And what is the absolute level of the shared national credits now?

I think it’s $132 million. Bryce Rowe – Robert W. Baird: Okay. And I think that you continue to see some level of pressure on the 1-to-4 family mortgage book. What kind of pressure that you see there in the fourth quarter on that portfolio?

Well, when you say pressured which aspect? We saw... Bryce Rowe – Robert W. Baird: From a volume perspective or the prepayments.

Volume remained – our volume quarter-over-quarter was up strongly. We are not portfolio-ing has much because of the levels of rate. So we ended up selling more that’s one of the reasons we had a very good gain on sale number, we’re up I think about $1.6 in gains compared to third quarter as we sold stuff. Our total volume, the residential mortgage portfolio was down I think $80 million quarter-over-quarter.

One second, Andrew.

The total residential book was down $64 million because we added very little to the portfolio at these rates. So we continue – over 2012 we think we’ll hold that decline to somewhere in the range of 100 million. We’ll try to manage the decline of that on – we wanted to be a smaller proportion of our book, but we need to make sure that that decline is not too rapid.

Yeah. And Andrew as Rich just mentioned remember that we are from a long-term strategic standpoint shifting our asset mix, because we are coming out of the thrift background that was very heavy in the mortgage portfolio. And so we have really been building the shorter duration, higher yielding asset that will move when interest rates move up so that from equity loans to C&I loans is what you’re seeing and focus on and just holding residential portfolio to a slight decline. Bryce Rowe – Robert W. Baird: Right. I certainly understand that. As far as the prepayment within – the prepayment impact within the net interest margin, Jim do you have the basis point impact that helped the margin for the quarter.

We had four basis points that came from the accelerated recognition of the fees associated with those pay downs. Bryce Rowe – Robert W. Baird: Okay. And were there any bond sale gains in the quarter?

No. Bryce Rowe – Robert W. Baird: Okay, great. Thank you guys. I appreciate it.

Next question comes from the line of David Paz with Bank of America Merrill Lynch. Please proceed. David Paz – Bank of America Merrill Lynch: Hi, guys.

Hi, David. David Paz – Bank of America Merrill Lynch: Just a few questions, just on the 2010 ROE target, that’s for the full year, right. So the average – that’s on average equity number, correct.

That’s correct and that’s for Oahu. David Paz – Bank of America Merrill Lynch: Correct, okay. And are you guys assuming in that target that those – I guess items that you have on slide 14 are fixed or not or resolve I guess is the better way of putting it. So that’s as if nothing has status quote.

Yes, that’s correct. David Paz – Bank of America Merrill Lynch: Okay, all right. And then on L&M growth of 6%, how much of that gets recovered through the decoupling I guess the tartars that you have in place for labor and non-labor?

David, this is Connie. Of that amount I would say maybe about half gets covered and remember now the RAM mechanism has a five months delay. And then also we have to be aware of rate cases which we get interim decisions half the year. So, with that I would say about half of it. David Paz – Bank of America Merrill Lynch: Got it. All right. And then just beyond 2012 if – I guess you are not – you guys aren’t – you didn’t bring up the 2014 target that you had I guess earlier last year. Any – I guess a good way of putting it is when do you expect to earn you allowed ROE at HECO and then now I guess HELCO and that now that you have decoupling.

David I don’t think we had put out guidance previously for 2014. But what we have said and this continues to be true is that the items that are typically disallowed things like incentive compensation are around 40 basis points to 50 basis points for the Oahu utility and 10 basis point to 15 basis points towards the neighbor island utilities. We now have as you know decoupling came in with the (inaudible) way on the ramp and so that’s worth another 50 basis points, roughly. And then, also as you know, our rate case cycle does not give us an interim decision until approximately another five months delay within a particular test year and that’s worth roughly another 50 basis points. So that’s going to kind of either cycle depending on which utility is in for rate case in that calendar year. David Paz – Bank of America Merrill Lynch: Okay. Okay. And then, on just yearend 2011, what were the equity – what was the equity ratio at each of the utilities?

Yearend equity ratio for each of the utilities. David Paz – Bank of America Merrill Lynch: I can follow up later on that.

Yes. Shelee can give you a call back on that. David Paz – Bank of America Merrill Lynch: Yeah. On just turning to equity, Jim, I know you’re discussing this; I missed some of the discussion you had earlier with Ashar. But I mean, just should we be expecting, you guys are saying no equity needs through 2012, we see this ramp up in CapEx, means we don’t assume that 2013 will be the year you start looking in at equity needs?

It really depends on whether the 2013 or 2014 schedule. I mean, we’re reasonably confident about the 2012 schedules, right. It’s right before us that you see there. But you see a pretty big slope slow building in 2013 to 2014, so it is not an unreasonable assumption to expect it will be required at that point of time. That’s really when the larger amount of expenditures increase.

David, we really will manage through that balanced capital structure and with the drift that gives us a lot of flexibility you know as we saw us last year we turned it off for the last two quarters, it’s back on again now. But we will dial the capital ratios to balance capital structure.

Our reply here also assumes that the bank continues at a steady level, because the bank is contributing significantly even in 2012 with lower amount of dividends I’ve cited, so that’s a significant support to the overall capitalization of the company and our ability to support the utilities rate base growth. David Paz – Bank of America Merrill Lynch: And conversely we also are expecting and targeting the bank at a mid-single digit loan growth, if the economy happens to pick up and there is more that’s available, we’ve always said that we will support the growth of the bank, as you know it’s a very high performing bank, doing well and so we’ll take advantage of that upward swing in the economy should it come.

Okay. And then the last question, Jim just to clarify your comments on the dividends, are you saying that you guys are going to keep the yield competitive did – I maybe I missed, can you just clarify what’s there around the dividend.

Sure, David. You know what I said was really a response to many questions we get so I thought I would simply reply all in one thought for everybody here and which is to say that we don’t expect to change the dividend until we’re consistently producing a 65% payout ratio, I’m assuming basic utility industry payout ratios. I’ll just as a side step say that 4.7% yield in the banking sector and we’re 40% back is a very and very unusual number. So our yield is 4.7 is quite stout right now I think you’d say either as compared to the mid-cap utility for considering the composition of the businesses. But bottom line is we’ll keep it where it is until we consistently produce a 65% payout ratio. And then we get to that point, I expect we’ll have some capital allocation choices. If we look at relative yields, which is actually what I said and we’ll look at further capital needs. There may be an opportunity to fund more growth at the utility as well. So there’ll be a number of options available to us and I will correct you that actually. David Paz – Bank of America Merrill Lynch: Great, all right. Thank you so much.

The next question comes from the line of Jim Krapfel with Morningstar. Please proceed. Jim Krapfel – Morningstar: Hi, good morning to you and Hawaii.

Very good morning. Jim Krapfel – Morningstar: So the 8.5% how did you have for ROE for HECO that’s 210 basis points higher than what you achieved in 2011. Is that primarily coming from then the NOI’s affect of the rate increase and then incremental RAM revenue or the other things in there as well that drive that increase?

I think your qualitative statements are correct. The actual numbers are a little bit different because our 8.5% target is solely for Hawaii, which is the largest utility. So the numbers don’t quite match out but you are correct that the qualitative reasons you gave are the right ones. Jim Krapfel – Morningstar: Okay. You did 6.4% though in 2011, right?

6.4% is for Oahu is that what you’re looking at? Jim Krapfel – Morningstar: Yes.

Compared to the 8.5 guidance, so that is.

Yes.

Yes. That’s correct. Jim Krapfel – Morningstar: Okay. That’s all I have. Thank you.

Thanks.

Your next question comes from the like of Jackie Shemara with KBW. Please proceed. Jackie Shemara – KBW: Hi, good morning everyone.

Hi. Jackie Shemara – KBW: I had a question about the home equity loan growth that you saw in the quarter. Was that from a new customer base or are you seeing higher utilization rates from existing customers?

Predominantly new account generation. We’re increasing the utilization over the year we saw utilization pick up about 3 points. Jackie Shemara – KBW: Okay.

That was good for us but we’re continuing to generate new accounts and new customers for the bank. Jackie Shemara – KBW: And is that more marketing on your part to diversify the portfolio or is it more of being able to take market share within, just an increasing demand in general?

I think in general the lending’s going up that’s we’re leading the market on this, but they’ll look the home equity lending is going up for all the major participants there. Jackie Shemara – KBW: Okay.

Jackie, if you remember it wasn’t just marketing, but Rich has been retooling all of the back office processes so that we can give very quick loan approvals, so it’s a whole combination that is making them much more competitive in the marketplace. Jackie Shemara – KBW: Okay.

Well, reviewed loan approvals.

Yes. Quick loan review. Jackie Shemara – KBW: Yes. No I’m not concerned about your credits, so I assume that your under writing standards are definitely above par.

And Jackie it’s Jim. I just wanted to follow up, that you said in the quarter the stats that we presented about our growth in HELOC you know were excellent the yearly stats.

Yeah. Jackie Shemara – KBW: Okay. So that the three point increase in utilization is from a year ago. Okay.

Across the year.

And the growth rate as well overall as a percentage. Jackie Shemara – KBW: Okay, thank you for that clarification. And looking to the loan to deposit ratio, I am calculating that around 90%, is that a level that you’re comfortable with or would you also allow it to go higher?

We like that level. We don’t want to be bidding up deposit cost. We think we’re in a – it’s very good level for us overall from our HELCO strategy. So we like it. Jackie Shemara – KBW: Okay. So you would assume that net deposit that net deposit growth will batch loan growth over the coming year?

Yes. Jackie Shemara – KBW: Okay. And did you see, you had mentioned the interchanged income effects in the next year I believe in your prepared remarks, did you have an effect from Durban in the fourth quarter?

There is the indirect effect coming around. So the interchange networks also within in Durban beyond the cap, there we’re changes in the rules on who could direct transactions to which networks and things. So the merchants have more decision making around where they’re directing and that’s resulting in price completion among the networks. And so we continue to periodically get price updates from the carriers and recently the recent visa price changes that come in for April are reductions in the rates on signature particularly and so we are seeing – that’s what’s driving the pressure on them. Jackie Shemara – KBW: Okay. So they did manage to find that loophole for the sub 10 billion bank, but it’s sounds like.

Yeah.

The (inaudible) Jackie Shemara – KBW: I figure that they would, I did not figure it would happen this quickly so.

Right.

We’ve been saying since the initiation of this rule exactly that that the indirect economic effect could occur, but this- this time they’re starting to show off. Jackie Shemara – KBW: Yeah. I had expected it, but this is a little sooner than I would have anticipated. So, okay, great. Thank you for the additional color. I appreciate it.

There are no more questions in the queue at this time.

We have just one another point for Andrew on the response and the return on tangible equity. We would look based on the fact that we’re going to be retaining a little bit more capital as we grow. We would view that that return level probably be a shade under 2014 as we come into 2012.

So we do have one follow up question from the line of David Paz with Bank of America Merrill Lynch. Please proceed, sir. David Paz – Bank of America Merrill Lynch: Hi, sorry. Just want to ask quick question on the $226 million of CapEx since 2011, how much of that was allocated to HECO as opposed to the other two?

David, this is Connie. I think that $226 million you are referring to is from our statement of cash flow, right? David Paz – Bank of America Merrill Lynch: Right.

Yeah, I just wanted to add in that, this item is, we take out some – I’d back out non-cash items. So you remember back in the third quarter we guided all of you that we would under spending by about 10% and 270 was our CapEx. I just wanted to point out that the 270 where we ended up with that 284 and how the 284 relate to the 226, as we back out non-cash items related to things like accruals for invoices or equity portion of ASVDC projecting non-cash items. So I just wanted to ask to make that point, that’s point number one. Now in terms of HECO it’s roughly about 70% of that relates to Oahu. David Paz – Bank of America Merrill Lynch: Okay. Great. Thank you.

Those are the questions that we have, sir.

Thank you everybody for joining us today and please free to call me as if have additional questions. Aloha.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect. Have a great day.