Here comes Walter Dods.

Walter Dods keeps a dog outside his office. Not a live dog, but a modest-sized sculpture of one that the bank purchased from a local artist. The vaguely oriental-looking animal wears a curious expression. It almost seems to be smiling, yet the look also suggests tenacity. Not everyone at the

If you were to spend three days observing and trying to keep up with the fast-moving chairman and chief executive officer of First Hawaiian, Inc., you might sense that the sculpture and its caretaker are kindred spirits.

The man who will be president of the American Bankers Association for the next 12 months is an affable, down-to-earth fellow who is at home speaking with anyone. At the same time, he is by all indications an aggressive competitor, a hands-on manager with an almost uncanny grasp of detail, and a boss who gives his subordinates free rein to innovate, but also holds them accountable. Thus, like the sculpture outside his office, there's a certain yin and yang to Walter Dods--personable yet demanding.

Because an organization reflects its CEO, attention to detail permeates the culture at First Hawaiian. In an $8 billion-assets organization scattered over four states and the island of Guam, senior managers can't know everything, of course, and they don't. But FHI managers--Dods first and foremost--know a great deal of what's going on in the organization. One big reason why is because they talk to each other a lot. "There's no such thing as overcommunication," says Dods. He insists on frequent communication of ideas, problems, and successes among the different divisions to avoid the "silo" mentality that plagues many large organizations.

This detail-oriented, communicative culture has served the bank well during the four-year recession that Hawaii is just emerging from. While the bank saw its nonperforming loans rise during that period, it suffered relatively few outright losses, and remained profitable the whole time (ROA never fell lower than 1%).

Open communication also encourages innovation, which is something Dods is particularly proud of. First Hawaiian was the first bank to put customers' photos on bank cards, for example. Likewise it offers auto loans of any duration-27, 33, 52 months, anything up to 60 months--rather than forcing customers to conform to fixed schedules.

Hawaiian Horatio Alger

Walter A. Dods, Jr., 55, is the oldest of seven children. His father was a policeman and his mother worked as a cashier at a Waikiki restaurant--both are retired now.

A 1970 Honolulu magazine article about Dods (he was then 29 and a newly minted First Hawaiian VP), described the Dods family as very close. Everyone learned to hustle early because, as Dods put it, "The last one to the table got the leftovers." That hustle has never left him.

Beginning at about 14, Dods paid his own way working nights and weekends at service stations, Chinese restaurants, a pineapple cannery--sometimes one place during the day and another at night in the summer months.

True, some of Dods' earnings went toward souping up cars--the policeman's son even admits to some hot rodding and drag racing as a teenager. He's long since rechanneled that energy, but an interest in cars remains. He owns a 1957 Ford Thunderbird (the type with "portholes" in the hardtop), which he bought from James MacArthur of the "Hawaii Five-O" television show.

When Dods graduated high school, his father urged him to go to college. But, says Dods, "I was too 'smart' to go to school, so I went to work instead." His first full-time job was as dead files clerk at First Insurance Co. Gradually Dods realized his mistake and began taking night classes to get a college degree.

Doris also did a five-year stint in community relations and advertising at Dillingham Construction Co. before answering an ad for public relations director at First Hawaiian Bank. He landed the job and was promoted four times within 23 months, becoming vice-president for advertising, public relations, and business development by age 29. In the process he caught the attention of First Hawaiian CEO John Bellinger.

Always give back to the community

One of the defining moments of Dods' life came when he was just 21 and still working at the insurance company. He was invited by a co-worker to a Junior Chamber of Commerce meeting. Dods didn't want to go, but went anyway. The Jaycees are very active in community service and this activity hooked Dods right away.

"One of my first projects was the beautification of the Nimitz Highway," Dods recalls. The project introduced him to fundraising: he had to convince store owners along the route to help cover the cost of planting trees. Then he helped plant the trees.

Since then, Dods says he's worked with just about every community agency in the state, but it was the Jaycees that got him started. "Two things the Jaycees instilled in me have stayed with me my entire life," says Dods: "the study of leadership--how to get people motivated--and community service."

As CEO of an $8 billion-assets institution, Dods is not doing much tree planting now, but he remains active in an advisory capacity to numerous Hawaii organizations. Dods dislikes tooting his own horn and is quick to point out that most bankers are very active in their communities. It's something he believes gets little recognition, however.

Too many cheap shots

"Banks are responsible for growing their communities," Dods observes; "They make the loan to the guy who's starting a business, and they help raise funds to expand the community center. That kind of banking goes on every day in America," says Dods, "but banks are not acknowledged for their critical role in the free enterprise system. Instead a lot of cheap shots are aimed at banks, which tarnish the industry's image."

While "image" has sometimes been regarded by bankers as a secondary issue compared to other issues they face, Dods has noticed that recently it's moved up several notches. The attacks on ATM surcharges left bankers feeling angry and misunderstood, he says.

"Some self-appointed consumer leaders go around complaining about a problem often far in excess of what the problem really is," says Dods. "What consumerists don't point out is that there is a choice. If you don't like the fees your bank is charging, talk to the bank or thrift down the street. There are so many financial services companies, one might charge for ATM use, another might not, so you can vote with your pocketbook."

On the whole, Dods believes most bank fees are a fair price for a good service, but he thinks the industry could do a better job of explaining the value customers get for the service charges they pay.

Slugging it out in paradise

The Hawaii banking market is unique in the U.S. There are eight separately controlled banks in the state, but two banks control 80% of the deposit market. Bank of Hawaii, the largest bank in the state, at $14 billion in assets, controls 40% and First Hawaiian controls 40%. Branching has long been permitted on the islands which is one reason for the relatively few banks. Also, there have been numerous intra-island mergers and acquisitions over the years. First Hawaiian has had its share: it acquired Pioneer Federal Savings & Loan in 1993 and First Interstate Bank of Hawaii (a franchise of the former First Interstate Bancorp of Los Angeles) in 1991.

After these acquisitions, First Hawaiian's market share pretty much peaked in Hawaii, according to Dods. "We slug it out in the streets with Bank of Hawaii every day," he says: "We'll take one account from them, they'll take one account from us." Both banks also have a presence on the U.S. territory of Guam, situated about 2,500 miles to the southwest of Hawaii.

Because Hawaii's economy had basically been booming since statehood in 1959, and because until recently, state law made it nearly impossible for mainland banks to gain a foothold on the islands, there was not much reason for the Hawaiian banks to consider expansion out of state, other than Guam.

The recession beginning in 1992 changed all that for First Hawaiian. That year both Japan and southern California went into deep recessions simultaneously, effectively choking off most of Hawaii's all-important tourist trade.

Thanks to a lean cost structure and conservative credit underwriting standards, FHI remained profitable throughout the downturn. Nevertheless, the company realized it could no longer count on Hawaii alone to propel earnings growth. As a result, FHI has embarked on several U.S. Mainland diversification moves.

Eastward Ho One diversification move came under the direction of John "Jack" Tsui, First Hawaiian's president and chief credit officer. Tsui, who had previously worked as a senior executive at The Bank of New York and at Bank of Hawaii, has directed the successful development of a Mainland lending effort with a special emphasis on media-company lending.

"In Hawaii," says Tsui, "we can lend to anybody, because we know them." Because of that, he says, the bank can afford to take higher risk in its home market--which commercially is all middle-market-- and get compensated for that risk. "On the Mainland," Tsui continues, "we only go after the best credits." While margins naturally are thinner, he says, the business is profitable.

A second Mainland diversification came when FHI set up a dealer-loan operation in southern California in 1995 to capitalize on the company's indirect auto lending success in its home state where it has the leading bank share. The new unit has been doing very well, according to Dods.

First Hawaiian's most recent diversification move brings it smack into consumer and middle-market banking on the Mainland. In June, the bank completed the acquisition of 31 branches from U.S. Bancorp of Portland, Ore. U.S. Bancorp acquired West One Bank last year and as part of the deal it divested certain branches. First Hawaiian regarded the Pacific Northwest as a highly attractive and logical spot to enter the Mainland with full service banking. Dods and his team figured that because First Hawaiian was an out-of-area competitor, it would have an edge in the bidding. This turned out to be the case. First Hawaiian was not the highest bidder.

First Hawaiian organized the acquired branches in Oregon as Pacific One Bank. They have been immediately profitable.

In July, First Hawaiian completed the acquisition of American National Bank, a $75 million-assets community bank in Kennewick, Wash. FHI plans to merge the Washington state branches it acquired from U.S. Bancorp with the American National offices. The combined Washington operation will be called Pacific One Bank, N.A.

No slash and burn

How FHI handled the integration of the acquired branches says a great deal about the company and its chairman. The new CEO of Pacific One, Bill Williamson, was a First Hawaiian executive, but he was the only top management "outsider" brought in (Dods and Tsui are directors). All employees of the branches were retained. Dods personally visited each of the acquired branches and told the employees, "I'm going to answer all your questions, but don't ask me, 'Do I have a job?' and 'Is my pay going to be cut?' The answer is, you have a job and we're not touching your pay, and we're going to let you keep your seniority in our system."

"Loyalty," Dods continues "is a two-way street. You can't put a price tag on that, but over time I believe that loyalty will make up any difference in what the bank could save by laying off people," which, he maintains, on a more global basis has been bad for banking.

First Hawaiian routinely keeps an eye on costs--but is not fixated by them. Dods' goal is to keep the company's cost ratio below 60%, but he doesn't think that is a magic number.

Banks and thrifts as one

First Hawaiian's decision to fold Pioneer Federal Savings & Loan into its lead bank was not strictly cost driven. Dods says that the main reason was that "it's very clear to me that there is only going to be one industry."

Precisely when and under what terms that will happen he couldn't venture to say at the time he was interviewed for this article. Plans to recapitalize the Savings Association Insurance Fund have had more plot twists than a Tom Clancy novel, and could well have been passed or buried by the time Dods becomes ABA president on Oct. 6.

As ABA First Vice-President last year and President-Elect this year, Dods has been intimately involved in the marathon efforts of the association to stay ahead of and favorably influence the fast-moving issue.

Dods is extremely pleased--almost shocked--that the industry was able to prevent a FICO (Financing Corp) bond fix being shoved down its throat for months, saving banks $2 million a day in the process. Then, relates Dods, the industry came together over the summer and said in effect, "Okay, we've kept a solution from being imposed on us, now let's resolve it." The terms of that resolution could involve merging the bank and thrift charters and the deposit insurance funds. But the playing field between banks and thrifts has to be level, Dods says, for any combination to be agreed to.

Even if nothing happened this session, Dods believes that within a year or two, the industries, archrivals for so long, but with basically a common purpose, will merge. "Adding our retail consumer expertise to a great industry that's done much for the ability of Americans to own homes would be a great combination," says Dods. "Can you imagine how powerful we'd be if banks and thrifts spoke with one voice?"

Incremental powers

In addition to the thrift-related issues, Dods has been a close witness this year and last to the travails of proposals for broad financial modernization, which mostly came to naught. He believes modernization--such as removal of the Glass-Steagall restrictions--will come, but he says that banks will have to attempt change incrementally rather than as sweeping legislation. "In politics everybody is uncomfortable with dramatic shifts," Dods observes; "that includes banking bills."

Another thing Dods has observed is that many bankers are starting to say for the first time that the industry is better off in the courts than in Congress. The Valic, Barnett, and other rulings by the Supreme Court--all favorable to banks--have stimulated this shift.

Help me and I'll help you

Had the Glass-Steagall Act been repealed this year, First Hawaiian wouldn't have done much with the new powers, because they don't fit its current business mix. Nevertheless, Dods regards the lack of repeal as a setback for the industry.

"One of the major things I hope to accomplish is to have big banks understand small-bank problems and small banks understand big-bank problems," says Dods. "It's a tragedy to have a split." Obviously Glass-Steagall, like most issues, does not affect all banks equally, maintains Dods. But small banks ought to help big banks when they need something, and vice versa. One reason this pays off, he adds, is that many small banks will not always be small. "When I started at this bank we were $350 million in assets. Now we're $8 billion and many of the powers that the industry leaders fought for years ago are helpful to us now."

Some community bankers might say to Dods, "If we help repeal Glass-Steagall, will the big banks help us level the playing field with credit unions ?"

Dods can't speak for other large banks, but his own bank's actions speak strongly of what might be possible. As an ABA officer, Dods has made numerous speeches in which he targets the credit union industry for abusing its tax exempt status and common bond rules. As word of this got back to Hawaii, local credit unions--which make more car loans than anyone else in the state-- have pulled their deposits out of First Hawaiian. Says Dods, "I decided that that's the price I've got to pay to take a leadership position."

Dods has no problems with credit unions used for their original purpose--single-company credit unions, for example. He does have a problem when they say, "You live in the state of Hawaii, so you meet our common bond."

Office at 40,000 feet

A long flight is not a bad price to pay for a vacation in the beautiful Aloha state, most travelers would probably agree. But those who've made the trip, particularly the overnight leg to the East Coast, may wonder what would possess Walter Dods to spend three years repeatedly making that trip. "I wonder myself sometimes," jokes Dods.

In 1992, part-way through his term on the ABA Board of Directors, Dods was asked if he would consider becoming first vice-president, the first step in a three-year ladder to the presidency. "My wife, Diane, and I thought long and hard about that because of the distance, not because I didn't want to do my part," Dods relates. "My whole life I've believed in stepping up to the plate when asked." As for the travel, say Dods, it wouldn't have been feasible except for FHI's corporate jet.

Before being elected to the ABA board, Dods had represented his state at the association's Banking Leadership Conference and served on ABA's Government Relations Council. He also served on the board of the Bank Marketing Association in the 1970s, before it became part of the ABA. Serving with him on the BMA board was Richard Rosenberg, recently retired CEO of Bank of America. The two have been friends for years. Marketing in his veins Like Dick Rosenberg, Walter Dods' first love is marketing. One of the most enduring marketing themes in banking--First Hawaiian's "Yes" theme --was created when Dods was running the bank's advertising department. Although characteristically he gives credit for the initial slogan--"The bank that says yes"--to an ad agency executive, it was Dods who directed the effort and then sold the idea to senior management.

Today, more than 25 years later, First Hawaiian is still known as Hawaii's "Yes" bank. The theme embodies a can-do attitude; the idea that "Yes, the bank will do all it can to work something out for you." Though he's steeped in marketing, Dods is a full-fledged banker with experience in lending, retail, operations, and most other areas of commercial banking. His mentor, the late CEO John Bellinger, made sure of that. Yet the marketing experience lends Dods a helpful perspective.

For one thing, marketing tends to draw on skills and ideas from all industries, not just banking. To be effective, though, marketing requires good communications. "I see many companies where management wants to go one way and employees think another way because open communication hasn't occurred," says Dods. Which is why he works hard to keep people talking to each other in the bank.

A political mover

The marketing and communication skills Dods has put to work for the bank have also seen good use in the political arena.

A self-described "political junkie," Dods found years ago that although he had no particular interest in running for office himself, he liked helping other people get elected. He has worked on several campaigns for Sen. Daniel Inouye and on all three campaigns of former Hawaii Governor George Ariyoshi, among others, all Democrats.

With his heavier work load now, Dods doesn't take an active role in campaigns anymore, but he still advises people. The experience in politics has come in handy as a banker, he says, because he feels some of the best advertising and marketing techniques come from politics.

Dods has great admiration for the political apparatus ABA has in place, which comprises three main components. One is the professional staff which he says has "great institutional knowledge of Washington."

The second is a tremendous grassroots program. "ABA sends out a fax and within an hour hundreds of bankers are talking to their congressmen or senators," Dods states.

The third component is ABA's alliance with the state bankers associations. "They have a powerful voice," says Dods, "and we listen."

Partners in politics and building

Within his own household, Dods has no monopoly on political experience. His wife, Diane, formerly was Sen. Inouye's press secretary on Capitol Hill. Later, she returned to Hawaii to be press secretary for Governor Ariyoshi. Diane left the workplace several years ago to raise three sons and a daughter. More recently, she's been supervising the building of a new home.

The sons are now all in college--Walter A. III ("Trippy") at Stanford Law School, Chris at Trinity (Conn.), and Peter a freshman at the University of Pennsylvania. Daughter Lauren, 12 and in seventh grade, has the Dods' new home more or less to herself.

Situated just east of Diamond Head in a quiet community on Oahu's south shore, the Dods' new home was constructed about the same time as First Hawaiian was completing its new headquarters in downtown Honolulu. When talking to Dods about the two projects it's difficult to tell which he's more proud of.

First Hawaiian's new headquarters, the tallest building in the state at 30 stories and 438 feet, is set to open in stages beginning in October. It would take a separate article to describe its many features, but one of the most unusual ones is the art museum on its second floor. The museum, which stretches the length of a city block, is the downtown gallery of the Contemporary Museum. It exhibits works of native Hawaii artists as well as artists in residence in Hawaii.

Whither banking?

Like most CEOs, Dods spends considerable time looking at what the future will bring for his institution--and for banking as a whole.

Bank consolidation does not worry him much. For one thing, FHI's unusual ownership (see "Bank for a Kingdom," p. 42) would help it resist an unfriendly bid. For another, he doesn't subscribe to the notion that to survive, mid-sized regionals will have to merge.

Nor does Dods think community banks need fear consolidation. Certainly many want to sell at one point or another, he says, but often that's because of family succession problems. "The fact is, there's room for large and small banks in this country, and new community banks keep being formed."

What does concern Dods is bankers not keeping up with technology. All banks need to stay up with it, he says, but "the beauty of technology is that any size bank can buy an advanced personal computer for not much money, and with some good programs it can compete with Citicorp, Bank of America, and NationsBank in home banking."

First Hawaiian chose that route earlier this year when it rolled out a home banking product using both the Quicken home banking program from Intuit Corp. and the Money program from Microsoft.

For all that, Dods remains a big believer in the basic push-button telephone. First Hawaiian's 24-hour call center has been operating for about three and a half years and is a huge success. The center is fielding about five million calls, on an annual basis, the vast majority handled by an automated voice response system.

Despite his enthusiasm for what technology can do, Dods is by no means a believer in branchless banking. "Branches are still going to be the heart and soul of banking," he says. "But branches will have to change to become much more sales- and service-oriented. Many banks, ours included, have already removed the 'back shop' functions from branches."

What is hoped for

Each ABA president brings a unique set of skills and experiences to the job. Walter Dods hopes that his skills will help continue the progress on several government relations fronts; bridge the gap between small banks and large; bring together on an equitable footing the banking and thrift industries; and improve the public perception of banks.

Based on what he has accomplished in his native state, he won't lack for energy, enthusiasm, or commitment toward those goals.

But in return he will ask for the same commitment from each banker he meets. For he knows that no one person alone can effect change.