Pago Pago, AMERICAN SAMOA — The Territorial Bank of American Samoa (TBAS) has published its audited financial statements for fiscal year 2022, revealing a solid performance despite a delay that caused the Government's audit to be qualified. Although the bank's financial statements were not included in the American Samoa Government’s FY2022 audited financial statements due to incomplete submission, TBAS has now released its comprehensive report.

During ASEDA's Annual Investor Call on June 21, 2020, it was revealed that the 2022 audit by TBAS's auditor Crowe had encountered delays. This was attributed to Crowe's refusal to accept an internal review of a complaint, insisting on a third-party review instead.

Of interest, there is no mention that a third-party review happened, but Crowe did not complete TBAS’s final FY2022 audit — JLS Accounting Solutions LLC out of Scottsdale, Arizona did.

JLS in their opinion notes that “the financial statements of the Bank as of September 30, 2021, were audited by other auditors whose report dated February 24, 2022, expressed an unqualified opinion on those statements.”

 And in their opinion, “the accompanying 2022 financial statements present fairly, in all material respects, the financial position of the Bank as of September 30, 2022, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America (“GAAP”).”

TBAS reported a significant increase in capital and total deposits between FY2021 and FY2022. Capital surged from $7,704,634 to $9,071,480, while total deposits witnessed an impressive growth from $119,919,248 to $274,134,255, representing an increase of over 129%, according to JLS.

It further points out that this surge in deposits was fueled by the infusion of cash into the local economy through Federal programs such as the CARES Act and the American Rescue Plan Act (ARPA), which provided Economic Impact Payments (EIP) and Advanced Child Tax Credit (ACTC) payments to all citizens in American Samoa.

Total assets soared by 123% from FY2021, which is primarily attributed to the increase in debt securities, which surged to $125,701,931 in FY2022 from zero in the previous fiscal year.

Investment income also experienced a substantial leap, reaching $759,811 in FY2022 from $24,638 in FY2021.

For the first time in its history, TBAS reported an annual profit in FY2022, with the net position swinging from a loss of $754,655 to a profit of $1,366,846 during the same period. Additionally, TBAS’ return on equity (ROE) of 15% exceeded industry standards in 2022, where the banking industry standard ranged between 11.5% and 12.5%.

However, according to JLS, TBAS’ “healthy liquidity and deposit growth was overshadowed by the decrease in net loan receivables which ended the year with a decrease of 14% from FY2021.”

Put simply, despite the positive financial results, TBAS faced challenges in its loan portfolio.

Net loan receivables decreased by 14% from FY2021 to $38,107,142, primarily due to declines in secured purchased pooled loans portfolios and the Small Business Administration (SBA) Paycheck Protection Program (PPP) loans by 41% and 80%, respectively. The conclusion of the SBA PPP loan program at the end of FY2022 further contributed to the decrease in the total balance of this loan category.

Consequently, interest income from loans of $4,190,790 barely exceed non-interest income like charges and fees of $4,008,452.

The bank's loan-to-deposit ratio, a standard measure of a bank's liquidity, plummeted to 14% for FY2022 from 38% in the previous year.

Typically, the ideal loan-to-deposit ratio falls between 80% to 90%, indicating a healthy balance between loans and deposits.

BACKGROUND

Samoa News points out that problems with the pools of equipment-secured commercial loans from a loan originator in Utah, U.S., for re-sale in the U.S. secondary market purposes caused losses due to COVID, and was the reason for “restating” its financial statements in FY2021, after errors were corrected in FY2019 and FY2020.

RESTATING FY2019 AND FY2019 FINANCIAL STATEMENTS IN FY2021

TBAS’ Financial Statement and Audit for Fiscal Year 2021 showed that TBAS was not making money and had to “restate” its FY2019 and FY2020 financial statements in its FY2021 financial statement.

The restatement pointed to the largest loss in the bank’s five-year history occurring in FY2020 — where it had originally recorded a profit of around $648,000. After restatement, it showed a loss of around 2.3 million, that’s a negative swing of almost $3 million.

 For fiscal year 2021, the bank continued to hemorrhage money reporting a loss of $754,655.

“Restating” a prior year’s financial statement is, according to the Financial Accounting Standards Board (FASB), a revision of a previously issued financial statement to correct an error.

Restatements are required when it is determined that a previous statement contains “material” inaccuracy, it says. The purpose is to advise statement users of erroneous information in previously released statements and provide corrected documents.

The restatements are due, according to notes contained in the FY2021 financial report, to material inaccuracies in the reporting of the value of its losses in its loan portfolio.

Apparently, TBAS had an agreement with a US-based company — Dedicated Funding (DF) — out of Utah, that dealt mainly in loans that were equipment leases that originated in the US, and the borrowers experienced economic hardships due to the COVID pandemic.

It was “unidentified loan delinquencies” that led to TBAS having to restate its allowances for loan losses — Sept 30, 2020 and 2019 respectively.

“…Loss on sale of loans totaling $43, 958 relating to July 2020 loan sales were identified and reported to the Bank during the year ended Sept 30, 2021. Hence, TBAS restated its outstanding loans at Sept 30, 2020 to correct this previously unidentified transaction,” one of report’s notes explains.

It’s further noted that in 2021, TBAS “terminated its agreement with DF and effective Oct. 1, 2021 is performing loan collections internally or through directly engaged collections agencies and attorneys.”

Of interest, is the fact that ASG through ASEDA refinanced the Series 2015 bonds in 2021 based on TBAS’ erroneous FY2019 and perhaps the FY2020.

For a clearer picture of what happened, the financials show the following: 

For 2019: In terms of Net Position — Profit/Loss — TBAS originally declared a loss of around $1.6Mil, and after it was “restated” the loss was declared at around $1.9Mil (change of around $249,00).

In terms of Net Position — Retained Earnings — TBAS recorded around $11Mil, and after “restated”, it fell to around $10.7Mil (change of around $249,00)

For 2020: In terms of Net Position — Profit/Loss — TBAS originally declared a profit of around $648,000, and after it was “restated” a loss of around $2.3Mil was declared (change of around a negative $3Mil).

In terms of Net Position — Retained Earnings — TBAS recorded around $11.6Mil, and after “restated”, it fell to around $8.5Mil (change of around $3.1Mil)

By looking at its Retained Earnings, it can be seen the bank’s worth was in 2020, at $8.5Mil and in 2021 a further drop to $7.7Mil is reported — this puts both years under the statutory minimum which states the initial capital for the Bank shall not be less than $10Mil (ASCA- Section 28.0216).

Noted, ASG did not make any capital contributions into TBAS for 2020 and 2021, which happens to also be the two years that the bank has not been able to maintain its statutory minimum. (And a review of ASG’s contributions in the years prior to 2019 shows that TBAS met the statutory minimum only because of ASG’s contribution.)

(Sources: TBAS Financial Statements- At September 30, 2022 and 2021 and for the Years Then Ended, and Samoa News archives.