Welcome to the Neighborhood

Finance Factors targets high-yield areas with Manoa and Liliha branches

October, 2007

On a parcel near corner of East Manoa Road and Lowrey Avenue in Manoa, there are green signs and banners heralding the coming arrival of Finance Factors. Similar signs mark a busy spot in Liliha, on the corner of Liliha and Kuakini. In both neighborhoods, residents might be scratching their heads and wondering why?

The Manoa site has seen better days. Only a tiny portion of the former 7-11 store is now being used by a Korean restaurant, Ducky’s, and drivers need to be careful not to hit the now-unused gas-pump island jutting out of the parking lot. The Liliha site recently saw the departure of Masu’s Massive Plate Lunch.

But by the spring of next year, the company plans to have developed strategically located branches at each site and have fully launched a brand new Hawaii initiative for the more than 55-year-old finance company.

Development of the two sites is part of Finance Factors’ new strategy of owning sites and renting space on the same property to tenants, says Steven J. Teruya, president and chief operating officer of Finance Factors Ltd. The financial services company first tested this strategy two years ago in Guam by buying a commercial building, renovating it, then allocating a third for a Finance Factors branch and renting out the rest. That arrangement more than covers Finance Factors’ costs, Teruya says, noting that the bank borrows at wholesale rates. The improvements in Manoa and Liliha are expected to cost about $500,000 each.

The strategy also targets areas that Finance Factors identifies as “rich in deposits.” Using publicly available FDIC reports that show the value of deposits at each branch of every bank nationwide, Finance Factors identified three such areas: Manoa, Nuuanu-Liliha and Kaimuki-Kahala. Finance Factors is actively looking into a location along the Kapahulu corridor. In the Manoa ZIP code, 96822, five banks share a total of $313.4 million in deposits, according to the FDIC’s June 2006 report, the latest available. The Nuuanu-Liliha area is more difficult to define. But just down the road on Liliha Street, a single branch of competitor American Savings Bank held $144 million in deposits, according to the same report. “We own that property,” Teruya says, smiling ruefully.

“It’s very easy to tell where the money is,” he says. “If we don’t have a branch there, we should have a branch.”

Finance Factors was founded in 1952 by a group of prominent local businessmen. Today the depository financial-services loan company operates 11 branches and four mortgage centers and had $41.7 million in sales in 2006. Earlier this year, the company’s board recommended converting to a commercial bank. However, Teruya says that initiative is on hold until Finance Factors’ holding company, Finance Enterprises Ltd., can reach an agreement with a number of shareholders, including descendants of founders Hiram Fong and Clifford Yee.

Finance Factors owns the Liliha site outright, while the Manoa site is owned by a sister company, Waipono Investment Corp. Development of both sites is expected to be completed near the end of the first quarter of 2008. Finance Factors plans to keep Ducky’s and add two other commercial tenants in Manoa. It will occupy a new building perpendicular to the original building. The Liliha site will continue to house long-time business Cut-Rite Barber Shop (without raising the rent), and the existing second-floor apartments will be renovated as they become available, Teruya says.

The new strategy makes good sense, says Dana Alden, a marketing professor at the Shidler School of Business at the University of Hawaii at Manoa. Having tenants offsets fixed costs, and the two locations are likely to serve the financial institution well. “A lot of things are going on in Manoa,” he says, citing the many sports activities at Manoa Recreation Center, schools in the area and shopping at Manoa Marketplace. “That whole area gets a lot of traffic that’s not just Manoa [residents].” As for Liliha, Finance Factors will give residents in the densely populated area another option.

“I can see that it’s kind of counter to the bigger trend of banks having fewer fixed locations,” says Alden. But Manoa residents tend to be older, and there is a segment of the market that prefers to walk into banks and other businesses. Teruya says the median age of Finance Factors’ customers is about 58 and rising.

Finance Factors hopes its Liliha Branch will enhance the feeling of community in the area by making the building inviting for walk-in business and incorporating a large clock on the building’s corner, due in part to a suggestion by state Rep. Corinne Ching. “That’s the Corinne Ching clock,” Teruya jokes. “We hope the building will anchor the top side of Liliha.” Focusing on small details also, the bank is installing a new, though old-fashioned, barber pole to the Cut-Rite shop, he says.

Although its emphasis on community may sound quaint, Finance Factors doesn’t have its eyes on the past. The new branches are designed to also appeal to younger customers, with lounge areas, plasma TVs and personal-computer access. Teruya says Finance Factors hopes to expand into financial planning to aid in the transfer of wealth from one generation to the next.


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