Editor’s Note: Joaquin P.L.G. Cook is president and CEO of the Bank of Guam, a position he rose to in March 2019. He is also vice chairman of the BankGuam Holding Co. board of directors. He previously was vice president at bank of Guam and has been with the bank since 2001. He is a member of the board of directors of Bank of Guam, of ASC Trust LLC and a member of the management committee of Isla Petroleum & Energy LLC
Cook holds a 2001 bachelor’s of science from the University of California, San Diego and a 2006 master’s in business administration from the University of San Diego. He is a graduate of the Pacific Coast School of Banking.
Q: What are your thoughts on the past year at Bank of Guam? What has been your major concern?
A: 2021 was another very interesting year. We saw heavy branch traffic due to multiple stimulus packages, both local and federal, designed to put money in the hands of the people to go out and activate the economy.
The first half of the year we saw many businesses doing well, especially those in the food and beverage industry. Some restaurants even saw revenues back to pre-pandemic levels. The second half of the year saw a steep drop in activity as the Delta variant made its way to Guam and our healthcare facilities were overwhelmed. By the time the holidays came around, much of the community spread had fallen off but people were not out spending like they were during the first half. This was partly due to the surge experienced in the third quarter, but also due to the end of the public unemployment assistance program.
The decision to ride the vaccine wave and not revert to a lock down was good for Guam’s small business community. The worst thing that could, and did, happen to small businesses is a total shutdown, even if only for a couple weeks. Keeping businesses open meant employees kept jobs and people had places to eat, shop and be entertained. Even though the economy remains at a crawl, there is some activity due to the local market, plus the port visits of U.S. Navy vessels and military training.
My major concern is the level of loan activity we are seeing.
Consumer lending: Across the financial sector, we have seen a decrease in consumer loans due to a decline in demand for loans. Based on market information, the island’s total consumer loans dropped from a peak of just under $1 billion in September 2019 to about $750 million as of June 2021 (most recent data made available by Guam Banker’s Association). I believe that the uncertainty about future employment, limited ways to spend money (no travel) and the federal assistance coming in, contributed to weakened loan demand in the last 18 months. I expect to see this return later this year as jobs stabilize and the local and military markets continue to support the economy (knock on wood). I hope the worst is behind us and the new variant, Omicron, presents the last surge before the Corona virus becomes an endemic.
Real estate: Real estate activity has seen an uptick due to the low interest rate environment. Many homeowners took advantage of extremely low fixed rates to refinance and take equity out of their homes. Many of these homeowners are sitting on cash while some have purchased other properties or simply invested in the markets. We aren’t seeing much new construction, though, with the cost of construction still quite high due to the number of military and other federal contracts ongoing and the shortage of labor in the construction industry.
Commercial: Without the Paycheck Protection Program loans that we saw in the second and third quarters of 2020 and again at the beginning of 2021, there was not much business loan activity going on. Many small businesses were in survival mode, doing their best to stay afloat and keep employees working without the support of our tourism industry. The PPP loans definitely played a large role in maintaining many business operations. Almost all PPP loans were forgiven and paid off, as designed, throughout 2021. We still have a small residual balance but expect those to all be paid by the end of the first quarter 2022.
Until our source markets relax their strict quarantine requirements, we will probably not see any significant return of visitors to our region. Without that vital part of our economy, we will continue to see limited activity. The military exercises planned for this year as well as the continued work happening on the bases will continue to play an important role in maintaining the level of economic activity we have. That together with our local market is enough to keep things going but, of course, we want to see things get better.
Q: In general, how have your clients been doing? Have you seen some small businesses close or encounter significant difficulties?
A: Many of our small business customers experienced difficulties and we had to work with many of them to prevent them from closing down. We saw a small number of permanent closures. Some operators opted to shut down temporarily and weather the storm. Others decided to stay open and streamline operations to levels where they could get by on the limited economic support available. And others did extremely well and experienced record years.
So, the answer to this question is, it is a mixed bag. At Bank of Guam our teams worked around the clock to make sure our local businesses were able to get PPP funds when the program was first launched. In addition, we worked with many of our customers granting payment deferrals and loan modifications to help them through the tough time. We did what we could to make sure that most businesses did not close. The mass closure of businesses is the last thing anyone wants to see, and for the most part, we didn’t experience that.
Q: Have federal and local loans helped them?
A: Yes, all federal programs, loans and grants, were very helpful and avoided a series of business closures. As mentioned above, the PPP loan program was a life saver for many small businesses. In addition to that program, several other federal assistance programs such as the Shuttered Venue Operator Grant and the Restaurant Relief Fund were extremely helpful to those businesses that were able to get a piece. The problem with grants, as opposed to PPP, is that the funds were distributed so fast and many businesses that qualified did not get to the pot in time.
Q: What industries make up your client base and roughly what percentage are business clients?
A: Our current account base is 95% retail and 5% commercial customers. Of our commercial customer base, the top industries include government, real estate, food and beverage, construction, fisheries, enterprise companies, insurance agencies and brokerages and supermarkets and grocery stores.
Q: Please comment on private and business clients and any trends you have seen.
A: We have seen growth in deposits overall in both private (I’m assuming you mean retail) and public sectors. Deposits regionwide have grown because of the federal money coming in. Loan trends were discussed earlier and continue to remain that way as of right now.
We have seen a slight shift in how individuals spend, using cards and other electronic means instead of cash. This was catalyzed by the requirement to receive federal funds, particularly PUA, via ACH (electronic deposit). We continue to work with the local agencies to keep this momentum going and migrate more payments to electronic means. It is easier for all, safer and more convenient.
Q: Despite COVID and the omicron variant, other jurisdictions besides Guam and the NMI have seen government anxious to keep the economy running — as few tourist restrictions and as much encouragement to businesses to stay fully open, as well as community events — albeit with COVID testing. Please comment on what governments in our region could similarly do.
A: While I am a little biased, I feel that the local government has done all it could to help businesses stay open. Guam no longer has any entry requirements for negative tests or quarantine if the travelers are vaccinated. So there really are no local restrictions that would apply to tourists coming to visit. All the restrictions that are making it difficult to travel are with the source markets. Both Japan and South Korea have quarantines in place upon entry into the countries. While this is the case, we will not see any significant growth in our arrivals.
As far as local mandates and restrictions, these are in line with most other places. If you go out to eat, to a movie, the mall, or anywhere really, there are people out driving our economy. The best thing we can do is to help support this activity by going out and patronizing local businesses. There has been no discussion of reversion to further restrictions or any talk of a lock down. I believe that we are doing what we should to navigate through this current surge.
Vaccination rates in Guam are in the top throughout the nation and it has been shown that the vaccine reduces chances of severe illness and death. That protection is what we need to rely on to keep our businesses open and eventually promote Guam as a safe destination for visitors when they are ready to travel again.
Q: How has uptake of internet banking and financial services been at your organization?
A: We experienced a big spike in online migration at the onset of the pandemic in 2020. In 2021, that growth slowed to about 5% in new enrollments and an increase in online transactions by 13%. Loan growth has slowed on both the consumer and commercial sides with an uptick in mortgage lending. Branch over-the-counter transactions, including check cashing and deposits continue a downward trend as we see a corresponding increase in ATMs and mobile deposits.
Q: A small number of financial institutions are moving to accept cash deposits at ATMs. Is yours one of them?
A: Yes, we have the largest network of ATMs in the region. This year, we completed the upgrade and replacement of a new fleet for Guam and the NMI, with plans to complete the installation of our ATMs throughout the neighboring islands in the first part of 2022. With our newly upgraded fleet, customers can expect a user interface that’s intuitive, easy to use, complete with enhanced anti-skimming technologies, the deposit taking feature and customized denominations. Additionally, in December, we rolled out our new Mobile ATM Van – taking money on the go. This new van features two embedded ATMS, one cash dispensing and a full function machine that will accept deposits.
Q: How long will it take before long lines at financial institutions are significantly reduced as more people bank remotely? A decade?
A: We hope that the shift in behavior will occur quicker than that. Most of the change will depend heavily on how our local governments and businesses conduct their payments. A large majority of the customers we see in our branches are there to cash and deposit checks. If payments — including payroll, tax refunds and government stimulus shift to ACH deposits, the need to visit a branch will drastically be reduced. We see this today, with lines growing on days when child tax credits or bulk tax refunds are paid. These lines last for a few days and die down until the next issuance of similar payments. mbj