Community Bank of American Samoa (CBAS) has proposed to the Lolo Administration a joint working relationship in an effort to get a second bank up and running by this summer, for the local market that, according the CBAS chair — can only be served by two banks.

To achieve this joint venture, CBAS, which has a pending application with the U.S. Federal Depository Insurance Corporation (FDIC), is proposing certain changes to the administration’s bill now before the Fono allowing the government to set up a Charter Bank, says Avamua Dave Haleck, chairman of the CBAS board in a letter to Gov. Lolo Matalasi Moliga after a meeting last month.

“...the work completed to date by the board and executive team of CBAS and ASG has placed us jointly in a very strong position to open a new bank in a reasonably short time frame,” Avamua wrote. “We have already dedicated significant resources to the project.”

“Working together, we can accomplish our mutual goal very soon. CBAS would be in a very strong position to meet the ultimate objective of gaining FDIC insurance in a few years,” he said.

Avamua, along with an official of CBAS had met with the governor to discuss the current banking crisis confronting local residents and to find solutions which “utilize local resources, people and skills to ensure we will be in control of our own destiny moving forward,” the letter states.

Avamua recalled in the letter that CBAS has been taking an active interest in ASG’s activity with the introduction of legislation to set up the Charter Bank, saying that while the move will impact CBAS’s own activities, “we can fully understand why our government would see a need to take matters into its own hands as our own progress in seeking regulatory approval to establish CBAS has dragged on for longer than anyone expected.”

However, he says the Charter Bank concept “further restricts our ability to progress our application further” due to the Charter Bank effectively becoming a competitor and he emphasized that federal regulators “have been very clear in expressing concerns regarding the ability of CBAS to be competitive in a two-bank market” — and therefore the establishment of a third bank would inevitably increase this concern.

He said it is CBAS’ understanding that the Charter Bank will be accessing the existing Bank of Hawaii premises in Utulei and Tafuna. Avamua said these premises were identified for the CBAS operations, and they are now left with no easily identifiable and suitable premises from which to operate.

Further, the inevitably of the establishment of a Charter Bank would require the banking business of ASG and all semi-autonomous agencies to be conducted with Charter Bank.

“The deposit business of ASG formed a cornerstone of the market opportunity available to CBAS, and its removal creates a hole in the business opportunity that is difficult to fill to the satisfaction of the regulators,” he said.

As a results of these concerns, Avamua said the CBAS board considers the likelihood of gaining regulatory approval to be “extremely unlikely” and suggests that “we should join forces to accomplish our mutual goal rather than continue to work at cross-purposes.”

Under this new approach, Avamua said, CBAS would be authorized to operate under a modified version of the charter bank bill pending in the Fono.

He noted that the level of work already completed by CBAS has substantial value and it has a dedicated team that has already lodged one detailed application with the regulator and is well advanced on further enhancing a follow-up application.

“This is a complex process, comprising a high level of detail designed to ensure that the bank is able to conduct its business from day one at a required level of professionalism that will continue to pass muster with the regulators moving forward,” he said and explained that some key completed work includes access to capital of up to $8 million committed from the American Samoan community. CBAS believes this amount would increase once regulatory approval was forthcoming, with an expected opening capital base forecast at $12.5 million.

Other completed work includes access to the Automated Clearing House for all US and international transactions; formation of a robust Business Strategy document; a detailed set of budgets and forecasts covering the initial seven years of operation; establishment of all required Policies and Procedures, specifically designed for the American Samoa market; and completion of a detailed market assessment, including a consumer and commercial market survey.

He also says that substantial work has been undertaken in identification of a suitable operating system and agreement on the required system configurations to suit the local environment. This includes access to a state-of-the-art online banking platform.

“Most importantly, our approach would place the risk of the venture entirely on private capital rather than on the ASG,” he said, adding that the bond—which is the ASG seed money to start the charter bank—could be re-directed to other efforts to strengthen the local economy.

While CBAS believes it is well placed to move quickly towards a potential opening date of a new bank by June/July 2015, he said, this would require some changes to the proposed legislation as it is currently worded.

Among the changes, would be to allow for “private capital” in the charter bank, to be called Territorial Bank of American Samoa (TBAS), which will be overseen by a new ASG entity, the Territorial Bancorp.

Avamua suggests removing a provision of the bill, which requires that 4 to 7 board members are to be ASG representatives. He said the current language of the bill does not contemplate external shareholding with resultant board representation.

He also says that TBAS is to be exempt from taxes and will distribute dividends to ASG. “As a private entity CBAS fully expects to pay taxes on its profits and eventually to distribute dividends to its shareholders, who will pay additional taxes on those dividends,” he said and suggests removal of this provision.

“These changes would enable us to capitalize on the strong level of investor interest and proceed quickly toward an early opening date,” he added.