HEI warns quake will eat further into profits
HECO's parent reports a 13.8% third-quarter loss
Hawaiian Electric Industries Inc., forced to step up maintenance work on its electrical utility system last quarter to keep it "working reliably," said those costs may increase in the future as a result of the Oct. 15 earthquakes that rattled the state and caused a blackout on Oahu.
The company warned of the possible additional costs yesterday in releasing its third-quarter financial results. The figures showed HEI's net income was 13.8 percent lower than the same time last year, primarily due to investments that yielded $3.8 million less than a year earlier, and declining earnings of $2.4 million by its subsidiary American Savings Bank.
HEI said "other operation" and maintenance expenses were $7.2 million higher for the utility last quarter than the same time a year ago, and that generation reserve margins during peak periods continued to be strained.
"As a result," HEI said, "existing units are running harder, resulting in more frequent and more extensive maintenance. The rising cost and increased scope of generating unit overhauls and higher substation maintenance accounted for $4.3 million of the third-quarter increase in operation and maintenance expenses."
Still, HEI's utility unit, which services 95 percent of the state's power customers, posted a 4.8 percent increase in net income to $23.7 million from $22.6 million, while revenue grew 16 percent to $568.2 million from $489.9 million. Kilowatt-hour sales were up 0.2 percent from a year ago.
"While the number of customers continued to grow, usage was down, in large part to cooler, less humid weather and customer conservation," said Constance Lau, president and chief executive of HEI.
Overall, the parent company had net income of $32.3 million, or 40 cents a share, compared with $37.5 million, or 46 cents a share, a year earlier. That missed analysts' average estimate of 46 cents, according to Thomson Financial.
Revenue rose 13.1 percent to $673.9 million from $595.9 million a year ago.
American Savings Bank's net income fell 15.3 percent to $13.5 million from $15.9 million as customers sought out higher-yielding investments and interest margins were squeezed. The bank's net interest income, which reflects the difference between what it pays depositors and what it brings in from loans, fell 7 percent to $49.2 million from $52.9 million. Its net interest margin decreased to 3.10 percent from 3.33 percent.
Noninterest income, which includes revenue generated from service charges and fees, rose 11.9 percent to $15.6 million from $13.9 million. The noninterest income included a gain of $1.7 gain on the sale of securities. There were no similar gains in the year-earlier quarter.
The bank also said its noninterest expenses increased by $3.3 million during the quarter, partly due to higher litigation and other legal expenses. American Savings was hit with two lawsuits in August, one by an elderly woman who had hundreds of thousands of dollars taken from her account by a since-fired bank employee. The 91-year-old woman and the bank settled out of court for an undisclosed amount.
The other suit, characterized as a whistleblower case, was by the bank's former security director, who said he quit due to health reasons after alleging that the bank repeatedly tried to coerce him to conform and recharacterize reported losses from fraud as "potential losses" to keep the bank's total losses down.
He alleged in his suit that the bank started harassing him and stripped him of his authority because he was reporting fraudulent losses to state and federal authorities.