ASG injected $1.85 million into TBAS without Fono appropriation
Pago Pago, AMERICAN SAMOA — According to their fiscal year 2018 audit, the Territorial Bank of American Samoa or TBAS received a $1.85 million capital infusion from the American Samoa Government in FY 2018, without it being brought to the Fono by the administration for legislative appropriation.
The Fono has long maintained that any public funds to be used by the government must come through them for legislative appropriation — that being one of the foundations of American Samoa’s constitutional government.
Of note, without the cash infusion, the Bank would have fallen below its minimum capital requirement. Section 28.0216 of the statute establishing TBAS says, “The initial capital for the Bank shall be no less than $10,000,000.”
(Capital requirements are put into place to ensure that financial institutions do not take on excess leverage and become insolvent.)
The addition of the most recent cash infusion brings the Government’s total investment into TBAS to $15.35 million.
Prior to the fiscal year 2018 cash infusion, the ASG provided TBAS with $10 million of initial capital and $3.5 million of start-up funding. These funds were raised as part of a $23 million 2015 general revenue bond offering with an all-in interest rate of 14.1%.
As of September 30, 2018, TBAS’s net position or book value was $11,638,927, according to the audit documents. This amount is considerably less than the $15.35 million invested by ASG thus far.
This comparison does not include the interest the government has paid on the bond. The government, and as a result, the taxpayers, would incur a substantial loss if the Bank were sold today.
It should also be noted that TBAS is not responsible for servicing the debt incurred to create it. However, if it were responsible for repaying the borrowed funds, the Bank’s annual loss would increase by over $700,000.
Since its inception on October 3, 2016 through September 30, 2018, TBAS lost a total of $3,218,032. An additional $493,041 was lost prior to the Bank opening its doors; bringing its cumulative deficit to $3,711,073. This amount easily exceeds the $3.5 million of start-up capital provided by the Government.
During his TBAS Board confirmation hearing, Steve Watson said, “If we increase our revenues, TBAS expects to be in the black” by July 2019. This is a point of view repeated in the cover letter of the audit from the Office of Financial Institution, Division of the Department of Treasury to Bond Investors, dated Nov. 30, 2018, from Robert Ho Chee, OFI Commissioner. It further notes that “operational results since opening is expected of a start-up,” and that “in the meantime, TBAS has adequate capital for a $60 million bank… The loss to date is absorbed by bond proceeds and infrastructure gift from Bank of Hawaii.”
This level of performance would see TBAS’s fiscal year 2018 loss of $1,426,996 eliminated within six-months. By comparison, TBAS’s fiscal year 2018 loss was a slight improvement over the Bank’s fiscal year 2017 loss of $1,791,036.
In fiscal year 2018, TBAS had revenue of $1,118,672. The amount was a substantial increase over their first year’s revenue of $371,854. Non-interest expenses were $2,382,586 in fiscal year 2018 as opposed to $2,078,176 or a 14.6% increase.
Personnel expenses increased by 8.4% to $818,047 in fiscal year 2018 from $754,643 the previous fiscal year. Meanwhile, premises and equipment expenses rose 11.7% to $653,864 in fiscal year 2018 from $585,340 in fiscal year 2017.
After a long wait, the American Banking Association issued a routing transit number to TBAS in January 2018. TBAS will open its second branch when it assumes the lease on Bank of Hawaii’s Tafuna Branch and inherit Bankoh’s ATMs.
No timeframe has been given for TBAS securing FDIC deposit insurance. Until then, deposits at the Bank are secured by the good faith and credit of the American Samoa Government.
Bank of Hawaii will close is operations in American Samoa on August 16, 2019.