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Analyzing the TBAS FY 2023 Audited Financial Statements: A Focus on Declining Loan Balances


Pago Pago, AMERICAN SAMOA — The Territorial Bank of American Samoa (TBAS) recently published its audited financial statements for the fiscal year ending September 30, 2023. These statements, which adhere to generally accepted accounting principles (GAAP), reveal critical financial metrics and trends. One of the most notable concerns highlighted in these documents is the significant decline in the bank’s loan balances over the past four years.

A detailed comparison of TBAS's loan balances from 2020 to 2023 shows a persistent downward trend:

FY 2020: $56.65 million; FY 2021: $44.81 million; FY 2022: $38.11 million; and, FY 2023: $29.36 million.

This represents a decline of approximately 48% from 2020 to 2023, raising questions about the underlying causes and future implications for the bank.

Several key factors have contributed to this decline in loan balances. TBAS discontinued multiple loan programs, such as the Dedicated Funding, SBA, and SMI programs. This strategic move reduced the volume of new loans, significantly impacting the loan portfolio.

Both local and global economic conditions have played a role. While American Samoa’s local economy has remained relatively stable, global economic uncertainties, inflationary pressures, and the aftereffects of the COVID-19 pandemic have likely affected borrowers’ ability and willingness to take on new loans.

The financial statements indicate a decrease in purchased vehicle loans and commercial equipment loans, suggesting higher repayment rates and potential charge-offs. These reductions have further contributed to the overall decline in loan balances.

(Samoa News should point out that off-island car loans from financial institutions for US military veterans is also available with much lower interest rates than what is offered at TBAS and car dealerships.)

Another critical metric impacted by the decline in loan balances is the loan-to-deposit (LTD) ratio. This ratio measures the proportion of the bank’s loans to its deposits and is a key indicator of liquidity and lending practices.

Here is the trend in the LTD ratio from 2020 to 2023:

FY 2020: 58.3% (calculated as $56.65 million in loans/ $97.15 million in deposits);  FY 2021: 46.1% (calculated as $44.81 million in loans/ $97.26 million in deposits;) FY 2022: 41.0% (calculated as $38.11 million in loans/ $93.05 million in deposits); and, FY 2023: 24.5% (calculated as $29.36 million in loans/ $119.92 million in deposits.)

The significant drop in the LTD ratio from 58.3% in 2020 to 24.5% in 2023 underscores the bank’s reduced lending activities relatvie to its growing deposit base. For context, the average LTD ratio for banks in the United States typically ranges from 80% to 90%. TBAS’s LTD ratio is substantially below this industry standard, indicating a more conservative approach to lending or potential challenges in generating loan demand.

As a government-owned bank, TBAS was established with the mission to inject liquidity into the American Samoa economy through active lending.

The bank was expected to provide essential banking services and facilitate economic growth by offering loans to individuals, businesses, and government entities within the territory. However, the low LTD ratio reflects a significant underperformance in this regard.

The bank's inability to maintain a robust lending porfolio means it has not fully capitalized on its role as a financial catalyst for the local economy.

This failure to inject sufficient liquidity through loans has broader implications for economic growth, business support, and community impact.

Loans are critical for funding business expansions, consumer spending, and infrastructure projects. The decline in TBAS’s loan porfolio suggests a missed opportunity to stimulate local economic growth and development.

Local businesses rely on loans for working capital, investments in new projects, and overcoming financial challenges. The reduction in available credit from TBAS may have limited these opportunities, potentially stunting business growth and innovation.

For individuals, access to loans can mean the difference between purchasing a home, starting a small business, or funding education. TBAS’s reduced lending activities have likely impacted the financial well- being and opportunities available to the residents of American Samoa.

Compounding the issue of declining loan balances, TBAS has increasingly allocated a substantial portion of its customer deposits to investments outside of American Samoa instead of making local loans. This strategic decision, while aimed at managing risk and seeking higher returns, has had significant implications.

By directing funds away from local lending opportunities, TBAS has not fulfilled its intended role of supporting local economic activities. This has likely contributed to the economic stagnation and limited growth opportunities within the territory.

The financial statements reveal that TBAS has increased its investments in U.S. Treasury securities and other financial instruments outside of American Samoa. While these investments may offer stability and returns, they do not contribute directly to the local economy's liquidity or growth.

The decision to invest customer deposits externally can impact the community's perception of TBAS. Customers may feel that their deposits are not being used to support local development, potentially undermining trust and the bank’s reputation as a community-focused institution.

The decrease in loan balances has several implications for TBAS’s financial performance.

Loans are a primary source of interest income. With fewer outstanding loans, TBAS’s interest income from loans has decreased. In FY 2023, interest income from loans was reported at $3.71 million, down from $4.19 million in FY 2022.

This decline directly impacts the bank’s profitability.

Despite the decline in loan balances, TBAS managed to increase its net interest income to $12.39 million in FY 2023 from $5.44 million in FY 2022, primarily due to effective interest rate management and a significant increase in interest income from investments. However, maintaining a healthy net interest margin will be challenging if the loan portfolio continues to shrink.

The stability of non-performing loans at 2.9% of total loans indicates prudent credit risk management. Nevertheless, the bank must remain vigilant in its risk assessment processes, particularly given potential economic uncertainties that could affect loan performance.

To address the decline in loan balances and sustain growth, TBAS has implemented several strategic initiatives. TBAS plans to introduce innovative financial products tailored to meet the evolving needs of its customers, which could help attract new borrowers and revitalize the loan portfolio.

Enhancements to the digital banking platform aim to provide seamless online and mobile banking experiences. This initiative has already led to increased digital transactions and improved customer engagement, which could support future lending activities.

TBAS continues to focus on community development initiatives, including support for local businesses and financial inclusion efforts. Strengthening its ties with the community can foster loyalty and potentially drive loan growth.