Governor’s bank grew by $1 billion during pandemic, made money from increased deposits

The public health emergency has been bad for business, shuttering shops, laying off employees, reducing hours, and causing greater homelessness and poverty. But for the bank the governor owns, business has been booming. Kandit has undertaken an extensive investigation into whether the governor deliberately caused this to happen. After all, it is her signature that extends the public health emergency every 30 days; one that is now nearly three years in the making.

It is possible the bank that Gov. Lou Leon Guerrero owns would be making money from her decision to leave some $320 million in federal American Rescue Plan Act money there, according to information from the Federal Reserve Bank of San Francisco, under whose jurisdiction the Bank of Guam falls. And even if the bank is not making money off those deposits now, nothing stops that from changing after the election.

The Bank of Guam is the government of Guam’s main banker. The bank was selected through the procurement process under the previous administration. A new procurement process is scheduled to occur next year. As GovGuam’s banker, billions of dollars in local and federal cash flow in and out of the bank annually.

According to her budget director, Lester Carlson, Jr., the governor and the bank took deliberate action to avoid even the appearance of impropriety in the handling of federal funds. Documented evidence scattered throughout the bank’s filings with the U.S. Securities and Exchange Commission, however, show that as island residents have suffered tremendously throughout the pandemic, the governor’s bank has improved its financial position substantially.

“As the bank makes more loans, it has to keep more money on reserve,” the Federal Reserve Bank of San Francisco’s Marshall Eckblad told Kandit (as a general statement that does not specify any bank under the San Francisco Federal Reserve’s jurisdiction). “The Fed does pay interest on those reserves.”

The average total assets of the Bank of Guam, according to its September 30, 2021 (updated in December that year) filing to the Federal Deposit Insurance Corporation was more than $2.9 billion. According to the bank’s report filed two years earlier, Bank of Guam’s assets were a little more than $1.9 billion before the pandemic began, indicating the bank’s assets grew by $1 billion throughout the public health emergency. These numbers come directly from the bank’s quarterly Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices to the Federal Financial Institutions Examination Council (FFIEC) under the FDIC.

A senior banker from another local bank, who spoke to Kandit on condition of anonymity, said part of that increase may be from surge deposits. This banker explained that for most banks throughout the country during the pandemic, people – and especially corporations – became conservative with spending, and kept more money in their banks during the ‘rainy day’ that has been the pandemic.

By comparison, Bank of Guam’s assets grew by about $400 million during the four-year period preceding Ms. Leon Guerrero’s term as governor. This was during the economic boom of the second half of the Calvo administration, when the bank’s total assets grew from about $1.5 billion, to north of $1.8 billion.

Despite the dramatic increase in the bank’s assets and earnings, Bank of Guam was not issuing more loans during the pandemic, according to its reports.

“I called to set the record straight that the deposit at the Bank of Guam is not collateralized downstairs so that you’re paying interest so that you have to go out and make loans against it to offset the interest that you’re paying,” governor’s budget director Lester Carlson, Jr. told Kandit in an interview.

Mr. Carlson explained what he meant by “collateralized downstairs:” “Any bank, they have funds on deposit. They’re paying people, honestly it’s less than one percent. They have an obligation from a business standpoint to be able to lend against deposits so they make, let’s say six percent as opposed to the one percent they pay people. That’s just how banking works. So, the [rumor is basically that] the Bank of Guam benefitted by this large deposit and they’re making loans against it and, so, I called in just to set the record straight: that’s not true.”

Mr. Eckblad, from the Federal Reserve, confirmed that the more money a bank lends, the more money it must place in reserve in the Federal Reserve Bank. But the Bank of Guam has not seen an increase in lending. And despite the decrease in lending activity, it has managed to increase its earnings. The deposits into the bank, according to the senior banker, likely is the reason. In fact, 2021 was a banner year for the bank, with earnings of $17.3 million, while loans were shrinking. This year, the bank is in a position to make far greater earnings on its deposits because of the increase in the federal reserve interest rate to 3.15 percent, up from 0.15 percent last year. In November, according to the bank source, the Federal Reserve is expected to increase the Fed rate again, guaranteeing even more earnings potential for banks.

The questions become: Where will the bank invest GovGuam’s deposit of the nearly $300 million Ms. Leon Guerrero is saving for the medical campus she wants to build? And if it’s true that that money currently is not being invested to the benefit of her bank, who’s to say that won’t change as soon as the election is over? How can the governor and her family divorce themselves from this decision to use federal money to enrich themselves?

Congressman Michael San Nicolas, who sits on the U.S. House Financial Services Committee (which has banking oversight), said the ever-growing federal funds interest rate gives the Bank of Guam the opportunity to make millions more from government deposits. By his estimation, if the Bank of Guam parks the balance of federal pandemic funds in an account that earns the federal funds interest rate the Federal Reserve pays to banks, then the Bank of Guam would be making some $9 million annually in interest.

“What the Congress did not do, and what we did not anticipate would be such a practice today is, they did not anticipate that the banks would sit on that money; that the leadership would sit on that money and that that $300 million would be put into the Federal Reserve system or be invested in U.S. Treasuries,” Mr. San Nicolas said in an interview with Ms. Leon Guerrero’s opponent, former Gov. Felix Camacho. “That’s what banks do. They hold deposits, they invest it, and then they make even more interest on it. Right now, because of the Federal Reserve raising interest rates so high, [the Federal funds interest rate] is about 3.15 percent. And so, when you do the math, simple math: $300 million at 3.15 percent is over $9 million in bank earnings on that $300 million just by sitting on it and putting it into the Federal Reserve.”

Two entries on the bank’s quarterly FFIEC filings show how much money the Bank of Guam places in “other depository institutions,” to include the Federal Reserve, and how much money it banks in “Custody and Safekeeping Accounts.”

According to another senior banker, who spoke to Kandit on condition of anonymity, the ‘custody’ account entry is where the federal ARPA funds should have been entered if, indeed, Mr. Carlson’s claim is true that the bank was not using the money to make more money. The difference between the amounts entered in the ‘custody’ account from the amount entered in the “Balances due from Federal Reserve” entry, should then be similar to the unexpended balance of the federal ARPA funds.

At the time Mr. Carlson confirmed that the governor’s bank was not using the federal ARPA funds to make money, the difference in the balances between the two accounts indeed was around $300 million, the amount the administration is saving in the bank to help build a new hospital. The Bank of Guam FFIEC filings for December 31, 2021, March 30, 2022, and the latest filing on record – June 30, 2022, confirm Mr. Carlson was telling the truth.

In fact, the government’s director of administration, Ed Birn, confirmed that while the bank – at least for this period in question – did not make interest from the Federal Reserve on federal ARPA deposits, the government of Guam did make interest from the bank. “We have accumulated some interest,” Mr. Birn confirmed, “about $300,000 that goes back to the ARPA account.”

But that’s not where this story ends.

On June 30, 2022, the Bank of Guam had more than $584,591,000 in the custody account, and $286,331,000 parked in the Federal Reserve, according to its FFIEC report. That’s a difference of nearly $300 million, which jives with the administration’s claim, at least for that report.

On March 30, 2022, the Bank of Guam had more than $744,118,000 in the custody account, and $404,778,000 parked in the Federal Reserve, according to its FFIEC report. That’s a difference of nearly $340 million, which jives with the administration’s claim, at least for that report.

On December 31, 2021, the Bank of Guam had more than $808,120,000 in the custody account, and $518,871,000 parked in the Federal Reserve, according to its FFIEC report. That’s a difference of nearly $290 million, which is close to the administration’s claim, at least for that report.


For the two reports prior to that, the numbers tell a different story.

On September 30, 2021, the Bank of Guam reported in its FFIEC filing for that quarter, that more than $724,183,000 was in its custody account, and even more was deposited with the Federal Reserve, more than $763,756,000, suggesting that the government’s federal ARPA balance may have been making money for the bank.

The quarterly filing before that – June 30, 2021, shows a similar situation, with more than $795,153,000 in the custody account, and more than $751,111,000 parked in the Federal Reserve.

There is nothing illegal about this practice. The question is whether the governor or any of her representatives from the government had anything to do with decisions on where to place federal money in a bank, where she and her family have the controlling interest.

On May 21, 2021, the government of Guam received $553 million in federal discretionary funds resulting from the American Rescue Plan Act. Forty days later, on June 30, 2021, Bank of Guam’s FFIEC filing shows a deposit into the Federal Reserve of more than $751,111,000 – a nearly $500 million increase into that account from the previous report of $277,205,000 on March 31, 2021.

So, did the Bank of Guam make money off these deposits?

“It should not be in the lendable category,” Mr. Birn said, adding that the Leon Guerrero administration has been clear with the bank that it should not place the federal funds in an account that would allow the bank to make money off of loan interest. He said the postings in those two quarters could simply be a reporting error, and that he would need time to verify such.

“I did do the due diligence,” Mr. Birn said of the Leon Guerrero administration’s efforts to prevent any impropriety or even appearance of impropriety. “If this money is in a trust account, it is with a third party.”

At this point in the story, it is important to understand that, according to bank filings with the U.S. Securities and Exchange Commission, Gov. Lou Leon Guerrero and her family own 60 percent of the shares of the bank, with more than 41 percent under the control of the governor herself; control that temporarily is on hiatus while she is the governor. Prior to her assumption of office in January 2019, the governor placed her portion of shares in a trust, which she legally cannot steer while she is the governor. A portion of those shares belong to her husband in joint tenancy.

We asked the governor’s office for verbal confirmation that neither the governor, the first gentleman, the lieutenant governor, nor any member of her cabinet or staff has ever advised, instructed, or otherwise requested the Bank of Guam to place federal pandemic funds in accounts (ie the Federal Reserve) that would allow the bank the opportunity to make money either through interest income or through lending income. The governor’s office directed the question to Mr. Birn.

He responded to Kandit in writing:

“Department of Administration is responsible for carrying out Treasury activities for the Government of Guam as provided under the laws and regulations of the Territory of Guam. We pride ourselves on fair, ethical, transparent and fiscally sound management of Guam’s finances and prudent deposits of funds.

“Department of Administration has full responsibility for decision making and ensuring where and how ARPA or other federal fund advances are managed. To be clear, no one had given instructions to DOA as to where or how ARPA or any federal fund advance should be invested. DOA followed the law and invested in a fund, which in turn invests in federal obligations – this is considered a safe investment. This investment also provides our government with additional interest revenue that is rolled back into the ARPA fund for program use. DOA is concerned only that capital invested is secure and the resultant income is as high as such a risk-free investment will allow.

“The fund investment in question is not invested in Bank of Guam and therefore is not collateralized as a public deposit. Within five days of the receipt of the federal funding, a decision was made to move funds to this investment which is an independent and risk- free security because of the nature of the underlying fund, US Government federal obligations.”

The bank’s income numbers, while impossible to discern from the reports themselves the actual source of income, do show that the bank made money. The quarter following the September 30, 2021 report is when the bank posted its highest total interest income since the pandemic started: more than $82 million. This is the same period the bank posted its highest amount of total equity throughout the pandemic: More than $183 million.

This also was the same period the bank was a whisper away from $3 billion in total assets, or three times GovGuam’s General Fund and nearly all of the island’s entire gross domestic product.

And this was also the same period the bank paid out the greatest amount of dividends to its stockholders, and highest earnings.

Kandit asked Bank of Guam whether the governor or her husband have ever influenced decisions at the Bank of Guam since January 2019. We also asked whether they, or any person from the governor’s cabinet or staff have ever influenced bank decisions on where to place deposits of federal money. The bank has not responded to Kandit’s inquiry as of the publication of this story.

The bank’s quarterly FFIEC report to the FDIC was due September 30, 2022. According to the Central Data Repository, the report has yet to be publicly filed.

It is the governor’s decision – and the governor’s decision alone – to not expend nearly $300 million in federal funds for the foreseeable future. That decision keeps this money in the bank she owns. How the bank maneuvers its cash deposits and lending portfolio is entirely a private matter, and frankly, the very nature of business in the banking industry.

Kandit asked, and Mr. Birn has allowed us to inspect all public documents at DOA related to the investment account, where this money – according to him – has been invested. The results of that inspection will be part of this series of stories under this investigative report.


  • Ginger Cruz

      10/13/2022 at 7:44 AM

    The only thing that is unethical in this story is the false statement by Mike San Nicolas which is not only uninformed, it is not true. As you hear correctly from the Government officials – any interest earned by government money GOES to the GOVERNMENT – the People of Guam. Interest earned on any account does not go to the bank. It goes to the depositor. But then again, the accusation of financial impropriety is coming from someone who was criminally referred to DOJ for campaign finance improprieties and who is such a sore loser he is now resorting to lying to try and get back at the woman who beat him. Grow up. Be a man. What happened to the days where our elected officials acted with dignity and grace? Robert Underwood, Madeleine Bordallo, Carl Gutierrez. During COVID many people and companies saved more money in banks and more foreign investors came to Guam because we are a safe US destination for funds in a chaotic world. That has nothing to do with anything. Ed Birne, Lester Carlson, and this Administration have built the most solid fiscal foundation for Guam in generations. Under Felix it was a smoking disaster of deficit, loans, pay cuts, withheld tax refunds. People see the truth and they will judge. In fact they already have. I have faith in the People of Guam.

    • if your boss had any conscience she would have given the federal monies to some other bank so has to not create any conflict of interest as it does now. There is so much conspiracy from all those elected officials you mentioned. People of Guam, if you have any conscience left in your sound mind and body, do not vote these redundant names in Guam politics. THEY are the ones reaping the benefits of being in the loop of knowing what insights and grey areas they are in Guams coffers and organic act laws. YOU and I, people of Guam are the duds from these villainous politicians, their families and close knit cronies like the one commenting on the Governors bank account.

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