Bank of Hawaii earnings posts earnings decline after settling lawsuit, but increases dividend for second time this year

Bank of Hawaii Corp.’s net income fell 8.6% in the third quarter after increasing its legal reserve by $6 million due to the tentative settlment of a class-action lawsuit regarding the company’s overdraft practices.

The state’s second-largest bank said today it had earnings of $52.1 million, or $1.29 a share, to fall 9 cents short of analysts’ earnings estimate of $1.38. In the year-earlier quarter, Bankoh earned $56.9 million, or $1.36 a share.

The lawsuit, which was filed by a Bankoh customer on Sept. 9, 2016, alleged that Bankoh’s practice of determining whether consumer deposit accounts were overdrawn based on “available balance” was not properly applied or disclosed to customers. Less than two week ago, the bank reached a tentative settlement subject to court approvals. The settlement provides for forgiveness of certain related and previously charged off overdraft fees, and a payment by the bank of $8 million into a class settlement fund to refund class members, pay attorneys’ fees, and administrative and other costs, in exchange for a complete release of all claims asserted against the bank. Bankoh previously had established a $2 million reserve relating to the claim but increased the reserve by $6 million, to $8 million, as of Sept. 30.

Despite the lower net income, the bank boosted loans 6.4% in the quarter to $10.88 billion from the year-earlier period and increased deposits 3.4% to $15.34 billion.

Its net interest income, the difference between what it collects on loans and what it pays for deposits, edged up 1.6% to $124.4 million but its net interest margin, which has been squeezed by lower interest rates, fell 6 basis points to 3.01%. The bank’s noninterest income, which includes service charges and fees, jumped 12.1% to $46.5 million. The noninterest income was bolstered by mortgage banking income that more than doubled in the quarter to $4.9 million from $2 million.

The bank also raised its quarterly dividend 2 cents to 67 cents a share. It will be payable Dec. 13 to shareholders of record at the close of business on Nov. 29. It is the second time this year that the bank has increased its dividend.