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The Honolulu Advertiser
Posted on: Sunday, October 7, 2007

Hawaii's No. 4 bank shakes up tradition

By Rick Daysog
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser

Clint Arnoldus, center, and CPB executives rang the bell at the New York Stock Exchange last year.

Central Pacific Bank photo

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CENTRAL PACIFIC FINANCIAL CORP.

Size: Hawai'i's fourth-largest financial institution

Assets: $5.6 billion

Deposits: $3.91 billion

Loans and leases: $3.89 billion

ATMs: More than 90

Chief executive officer: Clint Arnoldus

Founded: 1954

Branches: 39

Employees: 1,000

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Hawaii news photo - The Honolulu Advertiser

Clint Arnoldus

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Clint Arnoldus likes to upset the apple cart.

In 2004, Central Pacific Bank's chief executive office shook up the local banking industry when his company acquired rival City Bank in a $420 million deal.

Now, his bank is trying to lure away his competitors' business with a checking account featuring a 4.55 percent annual interest rate.

"We want to run hard against our competition," Arnoldus said.

"We're the fourth-largest financial institution in the state. We have to run hard. We have to differentiate ourselves through products like this."

The competition might want to run away from this kind of offering.

Greg McBride, senior financial analyst with Florida-based personal finance Web site bankrate.com, said a checking account that offers customers an interest rate of 4 percent or more is virtually unheard of with a traditional bank. It even exceeds the rates offered by Internet banks, whose rates have been the most competitive.

According to McBride, the national average for an interest checking account at traditional banks is 0.3 percent.

"The concept of high interest and checking accounts is almost an oxymoron in the brick-and-mortar banking world," McBride said.

"Checking accounts by and large are not interest-rate sensitive and the yields are at rock-bottom levels."

The plan, dubbed "choice checking," carries an interest rate that's as high as some of the highest rates offered locally for a 12-month certificate of deposit.

But unlike a CD, your money isn't tied up for six months or a year, Central Pacific executives said.

There's a minimum opening balance of $50 and customers must make 15 check-card purchases each month. They are required to make a monthly automatic deposit and a monthly automatic bill payment.

Customers also access their bank accounts once a month and must use the Central Pacific check safekeeping program once a month.

If the customer does not meet all of these conditions, the interest rate drops way down to .05 percent. The interest rate also falls to 0.5 percent on checking account balances above $25,000.

"I think all of my checking accounts are under 1 percent," said Kane'ohe resident Diane Shimabukuro. "This is very aggressive for this market."

According to Arnoldus, the program is the first of its kind in Hawai'i and is designed to build market share in a highly competitive market.

He said similar programs initiated on the Mainland have been received well by consumers.

Honolulu resident Susana Choy said she's intrigued by the offering. Choy said most banks offer less than that.

"I don't expect much from a checking account. Traditionally they don't give you that much," Choy said.

"You have to go out of your way to get any interest on your checking account."

Founded in 1954, Central Pacific is the state's No. 4 bank, behind the $12.5 billion-in-assets First Hawaiian Bank; Bank of Hawaii, which lists $10.7 billion in assets; and American Savings Bank, which has $6.8 billion in assets.

Central Pacific has $5.6 billion in assets.

Since its 2004 merger with City Bank, Central Pacific has taken a number of steps to increase its presence in the local market. They include:

  • The company's purchase of Hawaii HomeLoans Inc. in 2005. The acquisition expanded Central Pacific's position in the residential lending market.

  • Central Pacific beefed up its cash management operations for small business customers last year when it began offering a remote deposit service. The program allows customers to scan checks and transfer them electronically to their bank accounts.

  • The company also added four bank branches and 13 new automated teller machines. The bank now operates 39 branches and 98 ATMs.

    "I think of them as the No. 4 player trying to be bigger and do something to stand out in the market and try to get their name heard," said Joe Morford, bank stock analyst with RBC Capital Markets in San Francisco.

    "I think they're a very viable competitor and alternative to the other majors."

    To be sure, the high interest rate on the checking account will increase the bank's costs. But Arnoldus believes the program will create opportunities for cross selling and will increase the bank's deposit base.

    "There isn't any easy money out there any more," Arnoldus said.

    "For most the history of banking there has been easy and cheap money. That's gone, and in my opinion it's not going to return. We just have to look at our world a lot more differently than we have traditionally."

    Reach Rick Daysog at rdaysog@honoluluadvertiser.com.