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Hawaiian Electric Industries, Inc. (NYSE:HE) today reported net income for the quarter ended September 30, 2007 of $19.9 million, or $0.24 per share, compared with $32.3 million, or $0.40 per share for the same quarter of 2006. “Third quarter results were significantly impacted by the recognition of a reserve for a potential refund to Oahu electric customers of $15.0 million ($8.3 million net of taxes or $0.10 per share) resulting from an amended proposed decision and order on Hawaiian Electric Company’s 2005 test year rate case,” said Constance H. Lau, HEI’s president and chief executive officer. “Results were also down quarter-over-quarter as our utility continued to incur higher costs to provide reliable electric services and our bank continued to experience margin compression and increased its loss reserve primarily due to commercial loans to a single borrower,” said Lau. UTILITY RESULTS Electric utility net income for the third quarter of 2007 was $12.9 million compared with $23.7 million for the same quarter in 2006. “Reserves made for the potential rate case refund to Oahu customers and higher quarter-over-quarter other operation and maintenance (O&M) costs more than offset the impacts of the interim rate relief received for our Hawaii Island utility,” said Lau. As previously disclosed, the potential refund resulted from the exclusion of a prepaid pension asset from rate base in the Hawaii Public Utilities Commission’s (PUC) proposed decision and order on HECO’s 2005 rate case. In its interim decision on the case, the PUC had allowed HECO to include the prepaid pension asset in rate base. Kilowatthour sales were essentially flat compared with the same quarter in 2006. Lower consumption by large commercial customers was partially offset by new load growth and warmer weather. Other O&M expenses for the quarter were higher by $12.4 million due primarily to $5.4 million of production maintenance expenses resulting from higher generating station maintenance and the increased number and scope of generating unit overhauls and $1.7 million of increased employee benefits expenses. The remaining increase in O&M expenses of $5.3 million includes costs to execute energy efficient programs and ensure reliable operations. Depreciation and amortization expenses were higher by $1.7 million quarter-over-quarter due to 2006 additions to plant in service, including Hawaiian Electric Company’s new dispatch center, the Ford Island substation, and Maui Electric Company’s 18-megawatt steam turbine. Recovery of increased O&M expenses and capital expenditures were primary reasons all three utilities—Hawaiian Electric Company, Hawaii Electric Light Company and Maui Electric Company—have filed rate cases with the Hawaii Public Utilities Commission. BANK RESULTS Bank net income was $11.7 million in the third quarter of 2007 compared to $13.5 million for the same quarter last year. “The volatility in the capital markets from the housing market slowdown and liquidity issues in the third quarter made it a difficult environment for financial institutions. Fortunately, we were fairly well-insulated from the deteriorating credit conditions that have impacted many banks during the quarter,” said Lau. “The interest rate environment remained challenging and results for the quarter were impacted by increased funding costs due to the continued shift in mix from lower costing deposit accounts to higher costing CDs and other borrowings, as well as higher provision expenses primarily related to a single commercial borrower,” Lau added. Net interest income in the third quarter of 2007 was $47.7 million compared to $49.2 million in the third quarter of 2006. Increased interest income, primarily due to higher balances on loans and other investments, was more than offset by increased interest expense due to higher rates on deposits and higher balances of other borrowings. Net interest margin was 3.01% in the third quarter of 2007, compared with 3.10% in the third quarter of 2006. The bank provided $2.7 million for possible loan losses in the third quarter of 2007 compared to no provision in the third quarter of 2006. “The bank’s overall credit quality remained good during the third quarter. The provision recorded in the quarter was primarily attributable to the commercial borrower for which we provisioned last quarter, and is not reflective of a trend in the overall credit quality of the loan portfolio,” said Lau. Noninterest income in the third quarter increased $1.6 million compared to the third quarter of 2006, due primarily to higher fee income on deposits. In addition, noninterest income in the third quarter of 2006 included a $1.7 million gain on sale of securities. There were no similar gains in the third quarter of 2007. Noninterest expense decreased slightly quarter-over-quarter. HOLDING AND OTHER COMPANIES’ RESULTS The holding and other companies’ net losses were $4.7 million in the third quarter of 2007 and $4.8 million in the third quarter of 2006. WEBCAST AND TELECONFERENCE Hawaiian Electric Industries, Inc. will conduct a webcast and teleconference call to review its third quarter on Friday, November 2, 2007, at 7:00 a.m. Hawaii Time (1:00 p.m. Eastern Time). An online replay of the webcast will be available at the same website beginning about two hours after the event. Replays of the teleconference call will also be available approximately two hours after the event through November 16, 2007, by dialing (888) 286-8010, passcode: 62187695. Representing management will be Constance H. Lau, president and chief executive officer, Hawaiian Electric Industries, Inc., chairman, Hawaiian Electric Company, Inc. and chairman, president and chief executive officer, American Savings Bank, F.S.B.; T. Michael May, president and chief executive officer, Hawaiian Electric Company, Inc.; Timothy K. Schools, chief operating officer, American Savings Bank, F.S.B.; and Eric K. Yeaman, financial vice president, treasurer and chief financial officer, Hawaiian Electric Industries, Inc. HEI supplies power to over 400,000 customers or 95% of Hawaii’s population through its electric utilities, Hawaiian Electric Company, Hawaii Electric Light Company and Maui Electric Company, and provides a wide array of banking and other financial services to consumers and businesses through American Savings Bank, the state’s third largest financial institution based on year-end asset size. FORWARD-LOOKING STATEMENTS This release may contain “forward-looking statements,” which include statements that are predictive in nature, depend upon or refer to future events or conditions, and usually include words such as expects, anticipates, intends, plans, believes, predicts, estimates or similar expressions. In addition, any statements concerning future financial performance (including future revenues, expenses, earnings or losses or growth rates), ongoing business strategies or prospects and possible future actions, which may be provided by management, are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties and assumptions about HEI and its subsidiaries, the performance of the industries in which they do business and economic and market factors, among other things. These forward-looking statements are not guarantees of future performance.
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