Other Side of Paradise

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Even in paradise, it isn't all paradise.

Certainly the state's credit unions call home one of the most beautiful places in the world, which is the big reason CUNA is bringing its Future Forum to the islands this week. When credit unions arrive they will find more than just deep blue waters and tropical warmth to envy, they will find a membership penetration rate that is nearly double the national average.

But Hawaii's credit unions are also confronting a host of native challenges, not the least of which is that more travelers aren't making like credit unions and visiting the state. There are also the same tensions as found on the mainland between large and small credit unions, and members who must labor long to find housing in one of the most expensive markets in the U.S.

But first, the good news, beginning with the fact 718,000 Hawaiians are also members of credit unions, which isn't bad in a state with a population of 1.2 million.

"As of June, we had one of the highest credit union penetrations in the nation," said Dennis Tanimoto, president of the Hawaii CU League, Honolulu. Certainly, there is some double-counting of people who belong to more than one credit union, he acknowledged, but still it's a feat worth celebrating considering the vast sea of competition that includes three major island banks.

He attributes much success to tradition.

"Many of our ancestors came to Hawaii for the sugar and pineapple plantations," Tanimoto told The Credit Union Journal, explaining that they brought with them the Asian concept of "tanomoshi" through which people pooled their funds together for safe-keeping and used the funds to make loans to the highest bidders. "That was the precursor to credit unions springing up throughout the islands. From those humble beginnings, we have been able to develop a financial network of credit unions here."

That doesn't mean the industry doesn't have its challenges. Like credit unions across the nation, Hawaii's numbers have dwindled significantly. Today there are 97 CUs, only three of which are state-chartered. In the late 1960s, more than 200 belonged to the Hawaii league. Tanimoto said the steep drop is likely due to the state's shift to tourism from an agriculture-based economy.

"The world market made it such that we can't compete in agriculture," Tanimoto said.

Still, the league's credit unions represent more than $3 billion in assets.

"When I was at the league in the 1970s, (credit unions) had $275 million," recalled Everett Kishimoto, president of Hotel & Travel Industry FCU, Honolulu. Kishimoto said ohana is what keeps island credit unions thriving today. "Here in Hawaii, which is such an isolated stake in the ocean, we are more family or ohana. We get along surprisingly well with the banks and other financial institutions."

Tanimoto agreed, saying that most of the island banks see credit unions as "valued customers of their respected institutions rather than fierce competitors." "Banks are competing more against other cooperatives to offer wholesale services to us," he said. "They've gone so far as to include item processing and cash management services for us. And one of the banks (Bank of Hawaii) even allows members of participating credit unions to make deposits there."

Competition Between Large, Small CUs

That said, CUs-particularly the smaller ones like Kishimoto's HTIFCU with $27 million in assets-are not without competitors. Kishimoto pointed at least one finger at the of the larger credit unions with community charters that he said are "robbing us of some of our members."

Since the passage of HR 1151, he said, members took advantage of more options joining one or more other credit unions at a time. "That kind of hurt us," he said. "Credit unions started cutting each other's throats." Then, in almost the same breath, Kishimoto added, "At least they are staying in the same (credit union) arena."

Certainly, the geographic isolation of the Hawaiian Islands combined with NCUA regulations effects the way CUs there conduct business.

"The NCUA presently has well-defined regulations that local communities can be no more than one county," Tanimoto said. "A single county in most cases in Hawaii would just be limited to one island. So, in terms of growth potential, we're fairly limited."

Kishimoto, who has served 32 years in credit unions, said recent world events haven't helped matters either. His CU, which serves unionized employees of some island hotels, has felt tremendous adverse impact after the reduction in travel following the Sept. 11 attacks.

"Our credit union got hit pretty bad," he said. "Employees of the hotels were laid off so the loans they had with us couldn't be paid back. We had a lot of bankruptcies in 2001 and 2002."

To be honest, Kishimoto said, HTIFCU has been struggling to gain stability since the first Gulf War in 1990, when tourism similarly plummeted.

"We are highly dependent on tourists from the mainland and Japan," Tanimoto said. "Because of our single engine economy, when people were traveling less and effected by security concerns, our hotels and business-supported industries such as the busses and tour companies were stranded. "

Many people were laid off, he said. Some companies didn't survive. Even credit unions that aren't directly tied to tourism have felt the repercussions.

"Indirectly, if tourism doesn't grow, we don't grow loans," said Scott Kaulukukui, Senior VP-communications with HawaiiUSA FCU, the island's second largest CU with $700-million in assets. It operates eight branches on the island of Oahu and one on the island of Maui. Shared branching is also available on all of the islands and at CU Service Centers located throughout the continental United States.

The good news is that tourism is improving.

"Luckily, (the drop in tourism) wasn't longstanding," Tanimoto said. "During the interim, a lot of credit unions had to take it on the chin as far as charge offs and having less net income than they were used to."

Kishimoto said the blow was hard enough for his board to start discussing a change in its FOM.

Cheryl Nakai, HTIFCU VP who will take the reins when Kishimoto retires at the end of the year, said there are several options.

"We can do it either through a community charter or through the trade industry that we already serve," she said. "Right now, we serve the travel industry that has a limited amount of hotels through the union."

Kishimoto added, "We have to do something in order to be around in the future, otherwise we'll be swallowed up by a bigger credit union."

HawaiiUSA, which serves the educational community and a number of SEGs, is fortunate in that it signs on about 1,000 new members every month.

"Most are people who have family members coming in," Kaulukukui said, noting that the CU has a business development team that focuses specifically on membership.

He conceded that twith 92,000 members, HawaiiUSA battles to maintain that personal touch. "It's especially hard when you bring in a thousand new members a month. It is a struggle when the lines get long at the branches."

He said the CU prides itself on hiring and training employees to be passionate about their work.

"From a marketing perspective, we can put out the best piece to drive them through the door, but if they don't get good service when they get here, they won't stay."

He said technology has helped the CU hang onto members who leave the island.

"We have a made a conscious effort to let members know they still have access to their accounts through CU service centers and shared branches," he said. "When the kids go off to college on the mainland, we want mom and dad to know they can still deposit money for the kids to access at shared branches."

One of the big misconceptions that Kaulukukui said he would like to dispel about Hawaiians in general: "I gotta say that people work really hard here."

Nice To Visit, Expensive To Live There

And, unlike the tourists who leave their woes behind when they travel to Hawaii, the people who call Hawaii their home aren't as fortunate. "The price of living in paradise is high," Tanimoto said. "With the good, you have to take some of the bad as well."

Not only is the cost of shipping goods to the islands high, housing prices are higher. The Hawaii league has partnered with a new agency called the Hawaii Homeownership Center to help first-time homebuyers.

"We have one of the lowest homeownership rates in the nation," Kaulukului said. "The government's affordable housing starts at $250,000."

To make matters even more challenging, Tanimoto said the salaries are "probably under the national median."

Kaulukukui said even rental properties are costly and scarce.

Not surprising to Kishimoto, just 40% of his members are homeowners.

"Somehow they find a way," he said, noting that many probably have multiple generations living together. "Ohana is taking care of each other."

Yet like the mainland, Hawaii also has its pockets of poverty stricken areas and through the CU industry, resources to help. Hawaii USA has taken on efforts to educate people about finances. "We operate four and are about to launch our fifth school-based credit union," Kaulukukui said. "They are all in public schools and not in affluent areas."

He said once those students who serve at the school credit unions get opportunities to work in other branches during their breaks.

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