Pago Pago, AMERICAN SAMOA — Last week Wednesday, the House Government Operations committee held a hearing to review issues that are concerning the community about the future of banking in American Samoa, what with the yet unannounced departure of ANZ Bank from the territory rumored, and the Territorial Bank of American Samoa’s (TBAS) dismal 2021 audited financial report, showing TBAS’ largest loss to date, occurred in FY2020, after errors were corrected in FY2019 and FY2020.

Called to appear before the House committee to answer faipule concerns were David Buehler, CEO of TBAS, Tuisivi John Marsh, Commissioner of the Office of Financial Institutions (OFI) and Jason Mitchell, Chief Legal Counsel to the Governor.

The hearing was chaired by committee chair, Rep. Faimealelei Anthony Fu’e Allen.

The purpose of the hearing was to discuss the 2021 TBAS Audited Financial Statement and TBAS finances; and, ANZ Bank leaving and what are ASG plans for this eventuality.

ANZ LEAVING

Faipule Sanitoa asked the TBAS CEO whether the American Samoa Government (ASG) has a plan for when ANZ Bank leaves the territory. He also asked if there are any local and federal laws that can delay or prevent the bank’s departure.

In response, Buehler said that there have been discussions about this issue, however at this time, “we haven’t receive any formal notification from them (ANZ) about their departure.”

“Does that mean we don’t have a plan?” Sanitoa asked, adding that the reason for his query is that he wanted to know if there are any federal or local laws that could stop or delay ANZ from leaving.

Buehler said he isn’t aware of any statute in the territory restricting any private business from closure.

“So the answer to your question is there’s nothing to stop them if their business plan to operate here is not working,” Buehler said, adding that ANZ lost $2 million in 2020 between Guam and American Samoa.

He further stated that he was advised that the corporate policy is that they don’t want to be in U.S territories any more and that’s nothing to do with American Samoa (AS) as a culture or Guam — “it’s a business decision”.

Sanitoa also raised the concern about the long-term affect of the statute establishing TBAS as a bank.

According to Sanitoa, the law basically says that TBAS will not have to pay corporate tax like ANZ and BoH, it isn’t required to have FDIC insurance and all ASG authorities and government are required to bank at TBAS.

“Why would a bank want to do business in AS given this type of playing field? Who wants to invest in AS banking if we have this statute in there,” Sanitoa asked, adding that “we need to revisit the statute or this will make it very difficult for anybody to come here to compete.”

Buehler replied, “That is also a contributing factor to their (ANZ) decision to leave. There is a government owned bank, which has benefits that they don’t have.”

Sanitoa said that we have a lot of non-profit organizations here that have grants that are required to be in a FDIC bank. He said that is a huge concern for lawmakers. He said the importance of the banking industry is our development here in the territory.

In reply to the question about whether or not TBAS is ready to take the load with bank accounts if ANZ Bank leaves, Buehler said that he checked with their system provider and they have no problem in handling additional accounts.

Based on the information received by the House of Representatives, TBAS is handling about 12,000 accounts, while the ANZ Bank, which is rumored to be readying to pull out, has over 20,000 accounts.

Buehler said that they are aware of the situation with ANZ and they are ready to serve the people whenever they need.

He assured members of the committee that TBAS can handle all the bank accounts ANZ has if they leave the territory.

“We are going to have more staff and we probably will hire those employed by ANZ Bank if they’re leaving so that we can have enough workforce to do the work,” Buehler noted.

He commented in regards to the FDIC issue that “You are the lawmakers for AS and you can consider either to change the statute or sell TBAS to a private entity and level the playing field and then both that bank and if there is a new one will all be paying taxes and will all have the same rules to follow — then you will have a new owner and probably get FDIC insurance.”

When asked about the status of the issue of FDIC for TBAS, Buehler said that discussion is still going on with the FDIC insurance main office in San Francisco.

He explained that a non FDIC institution, whether a bank or a finance company or just a funds transfer company, to become a member of the FDIC reserve system is very detailed, because they don’t want any bad players in the system.

RESTATING FY2019 AND FY2019 FINANCIAL STATEMENTS IN FY2021

TBAS’ Financial Statement and Audit for Fiscal Year 2021 was circulated before the hearing. Samoa News was able to attain a copy of the audited financial statement for review.

Of note, it shows that TBAS is not making money and has in fact, “restated” it’s FY2019 and FY2020 in its FY2021 financial statement, pointing to the largest loss in the bank’s five-year history occurring in FY2020 — where it had recorded a profit of around $648,000, and after restatement, it now shows 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.

(When Buehler appeared before the same House committee in March 2021, Buehler predicted that the bank would have a profit of “between $700,000 to one million or two” for fiscal year 2020.)

“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 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 continued to experience 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).

Interestingly, 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.)

OFI Commissioner Marsh was asked why TBAS has not been put on probation or its operations suspended like financial regulators in the US would do. He replied that he has declined to sanction or impose penalties on TBAS.

OVERALL LOOK AT TBAS

Since its inception, ASG has invested $16.35Mil (cash & asset transfers) into TBAS, and the financials basically show that the value of this investment has dropped to 47% of the accumulated total. That’s less that one-half of what ASG invested.

All in all, the bank has lost a cumulative total of $8,152,325 or an average loss of $1,630,465 per year. Given its historical rate trend, the bank will be worth nothing in less than five years, unless it can change course.

It’s not all bad news though, in review of its FY2021 financials, it should be pointed out that there was a slow, consistent and healthy growth in its deposits, which accounts for a significant growth in its bank services, i.e. ATMs, debit cards, new location in Tafuna, etc.

And a look at revenues show that TBAS earned $1.6Mil of interest income on loans it made in FY2021, with the remainder of its revenue or approximately 61% of it was earned from fees charged to customers. (Not great news if you remember its supposed to be “The people’s bank”.)

Compared to the prior year, interest income remained flat while fee income increased by 69%. Meanwhile, the Territorial Bank paid $27,521 of interest to customers on almost $120 million of deposits in fiscal year 2021.

Fiscal year 2021 deposits and loans equaled $120 million and $49 million, respectively. Compared to fiscal year 2020, deposits were up a strong 23% while loans decreased by almost the same amount or 21%. The bank’s loan-to-deposit ratio or its level of liquidity dropped to 37%.

While this level is comparable, to ANZ American Samoa’s rate, the low level of loan activity is the major reason ANZ is being rumored to depart the Territory. (It should be noted that this was also one of the same reasons rumored for BoH’s departure.)

One of the notes in the TBAS audited FY2021 statement explains that while there was “significant growth in banking services, however decreases in its loan portfolio despite offering new loan programs through partnerships with local dealerships, the ASG DOC EDRLFP, and US federal SBA PPP Loan program” overshadows it. It also points to deposit growth correlating with COVID grants to American Samoa and that these grants are winding down.

Expenses for fiscal year 2021 came in at $6,026,029 and were approximately the same as the prior year.

Meanwhile, revenue for fiscal year 2021 equaled $5,271,374 and amounted to a 37% decrease over the restated fiscal year 2020 amount. The fiscal year 2020 restated revenues of $1,569,357 were 35% lower than the revenues that were originally reported in the fiscal year 2020 audit.

At the end of the hearing held last Wednesday, Sanitoa thanked Bueller for all his work at the bank.