Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 Hawaiian Electric Industries Earnings Conference Call. My name is Darcel, and I will be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Ms. Shelee Kimura, Manager of Investor Relations and Strategic Planning. Please proceed.

Thank you, Darcel, and welcome, everyone, to Hawaiian Electric Industry's Third 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 an update on our strategy. Jim will then update you on Hawaii's economy, our financial results for the quarter and outlook for the remainder of the year. Then we will conclude with questions 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.

Thanks, Shelee, and aloha to everyone, and hope to see many of you at the HEI financial conference. We had a strong quarter as we continue to execute on our strategies and improve the fundamentals of our businesses. This quarter marked the first full quarter of decoupling at all 3 utilities, and thus the start of more stable and predictable utility revenues. After several years of repair, the utilities ROE has notably improved although we recognize there is still more to do. Our bank continued to perform well in a tough rate environment through disciplined loan growth and market share gains, including in our mortgage banking activities. In addition, asset quality continued to improve, consistent with Hawaii's gradual economic recovery. On a consolidated basis, our unique business structure and combination of utility and banking businesses continues to serve us well, and we achieved a consolidated 10.1% ROE for the trailing 12 months, up from 8.5% 1 year ago. We continue to make progress on our strategies and believe we are well-positioned to continue to deliver attractive and stable earnings growth to our investors. Third quarter 2012 earnings were $0.49 per share compared to $0.50 per share in the same quarter last year. The utility continues to make significant progress in implementing its clean energy strategies. The Hawaii PUC has issued several important decisions this year, all of which are key steps to supporting Hawaii's efforts to reduce our dependence on oil and ensure reliability for customers. Through September 30, the utilities have achieved a renewable portfolio standard measure of more than 13%, primarily through a comprehensive portfolio of renewable energy power purchase agreement, net energy metering programs and biofuel. Our 2012 capital projects are on track for the year. Year-to-date, the utilities have invested approximately $240 million of their $300…

Thank you, Connie. As a backdrop to our results and outlook, I'll briefly comment on Hawaii's economy, which continues its gradual improvement. Tourism industry, a significant driver of Hawaii's economy, maintained a positive growth trend. Visitor spending has grown year-over-year for 29 consecutive months. Year-to-date, visitor arrivals were up 9.6% and expenditures are up 19.5% compared to last year. In the 2012 outlook the visitor industry remains positive. Local economists expect construction to begin to recover in 2013 due to an increase in nonresidential and public sector projects. Statewide unemployment is at 5.7% in September, and remains low compared to the national average of 7.8%. Overall, we continue to expect modest improvement in the Hawaii economy. However, the gains of tourism sector have largely not spilled over to the rest of the economy. Turning to the financial highlights. At utility, net income for the third quarter of 2012 was $38.4 million compared to $38 million in the third quarter of 2011. And looking at changes in utility revenues between periods, we focus on net revenues. The net revenues as shown on this slide refer to operating revenues, net of fuel oil, purchase power and taxes other than income taxes. In the quarter, net revenues after-tax were $5 million higher than the same quarter last year, largely driven by on an after-tax basis, $6 million of additional recovery of costs, which is attributable to the Oahu 2011 and Maui County 2012 rate cases and the implementation of the decoupling for our Maui County and Hawaii island utilities in the second quarter of 2012, and of $3 million overstatement of revenues in the third quarter of last year, which was corrected in the following quarter. This was offset by $2 million lower heat rate earnings, which are driven both by the regulatory…

Thanks, Jim. In summary, we've made significant progress on our strategies. All 3 of the utilities are now decoupled, and they continue to focus on fulfilling their clean energy mandate for Hawaii. The bank has continued to deliver solid results. And in this interest rate environment, we are focused on disciplined loan growth and controlled spending to strengthen our core franchise and position the bank for more growth as conditions improve. Our dividend yield remains attractive relative to the average for our utility peers. As of yesterday's close, our dividend yield was 4.9%. 2012 marks our 111th year of paying continuous dividends. We believe we are well positioned to continue to deliver a unique investment combination of attractive and stable earnings growth, with reduced risks and volatility and an above-average dividend yield. With that, we look forward to hearing your questions.

[Operator Instructions] Your first question comes from the line of Andrew Weisel with Macquarie Capital.

Just a few questions. If you could elaborate a bit on the O&M. It sounds like there's some timing within 2012, but then the full year -- the forecast was dropped from 6% to 4%. I'm wondering, is that likely -- how much of that is going to spill into 2013 versus ways to avoid certain O&M costs?

Let me ask Dick if he you would address that question for you.

Andrew, this is Dick Rosenblum. Some of the reduced O&M is associated with delayed decisions coming out of the PUC, that would drive us doing some studies. So that we would expect to carry over into 2013. Some other part of it, and I'm going to arbitrarily say it's roughly half-and-half, would be associated with true efficiencies and reduced costs in the utility.

Okay, great that's helpful. And then on the bank side, you got a bit of help as you have in the past few quarters from gains of sale of the new residential mortgages. I understand that's all related to refinancings. Just wondering if you have any sense in the outlook of how sustainable these gains are and kind of just what you think you are in terms of future mortgage gains?

Yes, Andrew, I think you hit it in the head. It really is related very much to the interest rate environment. And so what we're seeing is that the environment is likely to continue to encourage refis at least through the end of the year and maybe into part of the first quarter. And then I'll let Rich address some of the things that he's been doing in the mortgage banking operations that has significantly increased the volumes of production from that team. Rich?

Yes, thanks, Connie. Yes, Andrew, so our pipeline is pretty good right now and so I think that supports the outlook Connie gave you. We've been able to gain share by keeping the cycle times on our underwriting and approval process is pretty low. We've been bringing in some good new originators and also guys that we think have a chance to help us grow our share on the purchase side as the purchase business picks up in the future. So we've seen a little bit of lift on the purchase market on Oahu. And we know that when the refis turn down, it should be because the economy is improving and the purchase market is improving, so we're trying to position for that a little bit ahead.

Great. And then my last question, I'm not sure if you have any thoughts on bit of back-and-forth recently between the FDIC and one your competitors Central Pacific Financial, any thoughts on your own kind of compliance systems, as well as any potential to get market share from one of your competitors being distracted?

We're complying with everything we know to do. And we're trying to gain market share as we just described. So we're hopeful that we can continue to do what we've been doing.

[Operator Instructions] And there are no further questions at this time.

Thank you, everybody, for joining us today. We look forward to seeing many of you next week at EEI. If you have questions before then, please, as always, feel free to reach out to me. Thanks so much. Bye.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.