LIHUE, Kauai — Gather Federal Credit Union, Kauai’s largest credit union, is planning to open a new branch in Kilauea on the island’s North Shore — part of a strategy to preserve its independence in an era in which credit union mergers have dramatically reduced the numbers of such institutions statewide.
While the pace of such mergers has apparently slowed slightly in the last three years or so, according to the Hawaii Credit Union League, the industry remains preoccupied by the twin pressures of regulatory changes that have tightened credit union rules and the need to match expensive online and other electronic services that competing large banks offer.
The new branch will be the fourth operated by Gather, originally formed in 1954 by 10 pineapple growers who decided to pool $595 after they were unable to receiving financing from banks or other credit unions.
“I think credit unions want to keep their independence as long as they can,” said Tess Shimabukuro, Gather’s CEO. “The industry we’re in is so heavily regulated and, at a lot of these smaller credit unions, the manager does everything. But because of all the regulations, they have to be an expert in all of those, so it’s really a challenge for small credit unions.
“Then, coupled with the fact that a lot of CEOs of small credit unions are now reaching retirement age, that’s what’s going on in our entire industry. So the succession plan might include a merger.”
So far, Honolulu-based credit unions have moved cautiously in terms of seeking acquisitions on other islands. Merger activity has been modest on Maui and Hawaii Island and Kauai is only starting to experience the type of consolidation that has characterized the banking sector of the economy for decades.
On Kauai, last year, the Honolulu-based Aloha Pacific Federal Credit Union took over the Kekaha Credit union and, though it left the smaller organization’s name, Kekaha became Aloha Pacific’s first Kauai location. It also has branches on Maui and in Las Vegas, where it tries to serve the large community of relocated Hawaii residents.
As Kekaha was being eyed by Aloha Pacific, Shimbukuro said there were also reports that gigantic Virginia-based Pentagon Federal Credit Union was also considering bidding. She said Gather considered acquiring the Kekaha entity but decided not to proceed. PenFed did not respond to questions from Civil Beat regarding its merger plans or whether it tried to acquire Kekaha, in particular.
There have also been persistent rumors that Hawaii USA Federal Credit Union, also based in Honolulu, is looking for merger targets or to expand on Kauai. Hawaii USA also did not respond to questions from Civil Beat.
“About 10 years ago, Hawaii had 100 credit unions,” Shimabukuro said. “Today, I think we’re down to 53.”
Just recently, Aloha Pacific announced it was merging with Hawaii Pacific Federal Credit Union, pending approval by Hawaii Pacific’s members.
Dennis Tanimoto, president of the Hawaii Credit Union League, said the number of mergers has actually slowed in the last five years—but probably because few very small credit unions are left in the state to be acquired. For example, he said in 2015 there were six credit union mergers in Hawaii. The numbers dropped to four in 2018 and there has just been one so far this year.
Shimabukuro said that reality may mean that larger national players, like PenFed, will start to eye medium- to large-sized credit unions in Hawaii. Should things take that direction, it would mirror what’s occurred in commercial banking over the last two or three decades.
“In Hawaii’s case, it’s interesting,” Tanimoto said. “If you go back a few decades, a lot of the sugar and pineapple plantations have gone out of business.”
Many of the plantations had credit unions for their own employees. One of those, McBryde Federal Credit Union, survives on Kauai, with its membership restricted to people who live in the immediate area formerly occupied by the large sugar plantation of the same name. Some of those members are still former McBryde employees.
“A small credit union may not offer competitive products and services” as larger credit unions now do, Tanimoto said. “You need to have a certain critical mass of members to offer these kinds of services.”
Tanimoto agreed that regulatory requirements have been a key obstacle to the continued independence of small credit unions. He and Shimabukuro agreed that the proliferation of services like online account access, transfers, mobile deposits and apps that bring nearly all banking services directly to customers’ phones — which have been pioneered by large commercial banks — are now seen as simply expected components of any financial institution.
To the extent that small credit unions have not been in a position to afford to be competitive, many of them have disappeared in mergers.
“We’re not just out there to expand for the sake of expansion,” said Vince Otsuka, CEO of Aloha Pacific. “Expansion is tough, particularly in the regulatory environment that we’re in. It’s not like it was before. You have to have infrastructure and staff.”
Otsuka said Aloha Pacific approached its Kekaha merger cautiously, opting to retain the credit union’s original name. “We understand that, coming from Oahu, we may as well be from the mainland” in terms of the perception of being outsiders.
To minimize that type of community reaction, he said, Kekaha is staffed entirely by Kauai people, virtually all of whom reside on the west side of the island.
“We want them to succeed as Kekaha,” he said.
Aloha Pacific, with about $1 billion in assets, is the second largest credit union in Hawaii. PenFed, by contrast, has about $2 billion in assets. Although Gather is large as independent credit unions with a base on a single island go, its assets of about $500 million make it relatively small compared to statewide and national competitors.
Shimabukuro said that in addition to the high cost of adding web-based and other electronic products, smaller credit unions find it increasingly difficult to keep up with the times in terms of cyber security — a field in which large banks excel.
“It’s such an expensive game,” she said. “We pride ourselves in giving dividends back to our members, but today we can’t give it all back in dividends because it costs so much more to do business. We have to stay within the market.”
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