Hawaiian Electric Industries Inc. reported a modest increase in first-quarter profits in an environment that included regulatory challenges for its electric utility and revenue declines at its banking unit.

HEI reported net income of $28.5 million, or 30 cents a share, in the January-through-March period compared with $27.1 million, or 29 cents a share, in first quarter of 2010.

"This was a solid quarter for HEI. We achieved another significant milestone in the implementation of our new regulatory model at our largest utility, advanced several clean energy projects, and delivered continued strong performance at the bank," Constance Lau, HEI president and CEO, said in a news release.

Hawaiian Electric Co. reported net income of $19.2 million compared with $18.1 million in the first quarter of 2010. Higher electricity sales due to unseasonably humid weather and rate increases on Maui and Hawaii island helped boost income, according to HEI.

Lau said earnings and return on equity at HECO "remain depressed" pending a decision by regulators on the utility’s rate hike request for Oahu.

In addition, the first quarter marked the implementation of a new rate-setting mechanism known as "decoupling," Lau noted. The system is designed to encourage the development of renewable energy and energy conservation by eliminating the economic incentive on the part of the utility to sell more electricity. Decoupling essentially guarantees utilities enough revenue to cover their fixed costs even if their electricity sales decline.

HEI’s American Savings Bank subsidiary reported net income of $13.9 million in the first quarter compared with $13.7 million a year earlier.

The bank said it was able to reduce noninterest expenses by $2 million following the completion of a "performance improvement" project. Those savings were offset, however, by regulatory changes that reduced inflows from overdraft fees; a drop in net interest income due to lower yields and lower earning assets mainly in its residential loan portfolio.

Return on assets, a key measure of bank profitability, rose to 1.15 percent in the first quarter from 1.12 percent a year earlier. An ROA over 1 percent is considered solid.

American Savings’ net interest margin, the difference between the interest rate it charges and what it pays depositors, narrowed slightly to 4.16 percent from 4.18 percent. The bank’s credit costs fell and its loan volume grew for the second consecutive quarter.

HEI shares closed up 9 cents at $26.09 on the New York Stock Exchange.