BANKGUAM HOLDING CO Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following discussion provides information about the results of operations,
financial condition, liquidity, and capital resources of the Company and its
wholly-owned subsidiaries, the Bank and BGIS. This information is intended to
facilitate the understanding and assessment of significant changes and trends
related to our financial condition and the results of operations. This
discussion and analysis should be read in conjunction with our condensed
consolidated financial statements and the accompanying notes presented elsewhere
in this Quarterly Report.

Overview

BankGuam Holding Company (the "Company") is a Guam corporation organized on
October 29, 2010, to act as a holding company of Bank of Guam (the "Bank"), a
17-branch bank serving the communities in Guam, the Commonwealth of the Northern
Mariana Islands ("CNMI"), the Federated States of Micronesia ("FSM"), the
Republic of the Marshall Islands ("RMI"), the Republic of Palau ("ROP"), and San
Francisco, California. On August 15, 2011, the Company acquired all of the
outstanding common stock of the Bank in a holding company formation transaction.

In August 2015, the Company chartered a second subsidiary, BankGuam Investment
Services ("BGIS"), in an effort to enhance the options and opportunities of our
customers to build future income and wealth. BGIS is a registered investment
company, primarily involved in providing investment advisory services and
trading securities for its customers.

In May 2016, the Company entered into a Stock Purchase Agreement (the
"Agreement") to acquire up to 70% of ASC Trust LLC, formerly ASC Trust
Corporation, a Guam trust company. In July 2016, subsequent to the approval of
the Federal Reserve Bank of San Francisco in June 2016, the first purchase of
25% of ASC Trust LLC was completed. In July 2019, the Company completed the
second purchase of an additional 20% of ASC Trust LLC, bringing its ownership to
45%. As stated in Note 4 - Investment Securities, and with the approval of the
Federal Reserve Bank of San Francisco, an additional 25% of ASC Trust LLC was
purchased by the Company in July 2021. This transaction brought the Company's
ownership of ASC Trust LLC to 70%, and completes the transactions contemplated
by the Agreement. The Company evaluated its ownership in ASC Trust LLC after the
last transaction in accordance to ASC 810 - Consolidation, and determined that
the Company has control over ASC Trust LLC requiring consolidation. ASC Trust
LLC is primarily involved in administering 401(k) retirement plans and other
employee benefit programs for its customers.

Other than holding the shares of the Bank, BGIS and ASC Trust LLC, the Company
conducts no significant activities, although it is authorized, with the prior
approval of its principal regulator, the Board of Governors of the Federal
Reserve System, to engage in a variety of activities related to the business of
banking. Currently, substantially all of the Company's operations are conducted
and substantially all of its assets are owned by the Bank, which accounts for
substantially all of our consolidated revenues, expenses and operating income.
The Bank's headquarters is located in Hagåtña, Guam, and the Bank provides a
variety of financial services to individuals, businesses and government entities
through its branch network. The Bank's primary deposit products are demand
deposits, savings and time certificates of deposit, and its primary lending
products are consumer, commercial and real estate loans. The Bank also provides
many other financial services to its customers. In 2021, the Bank permanently
closed the Dededo, Harmon and Chalan Piao branches. The Bank has been adding
digital channels to its product delivery system for several years. The COVID-19
pandemic accelerated the adoption of those digital channels by our customers,
which was considered in our decision to close those branches.

The COVID-19 pandemic and resulting government responses have impacted our operations in 2021 and 2022. See “Note 2 – Summary of significant accounting policies – COVID-19” for further details.

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Summary of operating results

The following table provides unaudited comparative information with respect to
our results of operations for the three months ended March 31, 2022 and 2021,
respectively:

                                       Three Months Ended March 31,
                                      2022            2021          %
                                     Amount          Amount      Change
Interest income                    $   20,989       $ 20,513         2.3 %
Interest expense                          508            353        43.9 %
Net interest income, before
  provision for loan losses            20,481         20,160         1.6 %
Provision for loan losses               1,425          2,475       -42.4 %
Net interest income, after
  provision for loan losses            19,056         17,685         7.8 %
Non-interest income                     7,393          4,209        75.6 %
Non-interest expense                   22,120         17,870        23.8 %
Income before income taxes              4,329          4,024         7.6 %
Income tax expense                        815            729        11.8 %
Net income                         $    3,514       $  3,295         6.6 %

Earnings per common share (EPS):
Basic and diluted EPS              $     0.32       $   0.33



As the above table indicates, our net income increased in the three months ended
March 31, 2022, as compared to the corresponding periods in 2021. In the three
months ended March 31, 2022, we recorded net income after taxes of $3.5 million,
an increase of $219 thousand (or 6.7%) as compared to the same period in 2021.
The primary reasons for the increase were the $3.2 million increase in
non-interest income, a $1.1 million decrease in provision for loan losses, and a
$321 thousand increase in net interest income, partially offset by the $4.3
million increase in non-interest expense, and an $86 thousand increase in income
tax expense. The increase in non-interest income is largely due the $3.8 million
increase in service charges and fees, primarily due to the fee income from ASC
Trust LLC, and the $303 thousand increase in merchant and cardholder net income,
partially offset by the $564 thousand decrease in other income and $262 thousand
decrease in gain on sale of investment securities. The increase in non-interest
expense is due to the increase of $2.4 million in equipment and depreciation and
the $1.8 million additional expenses related to ASC Trust LLC.

The following table shows the decrease in our net interest margin in the three
months ended March 31, 2022, and it also indicates the impact that the increase
in our net income had on our annualized returns on average assets and average
equity. Our return on average equity decreased by 6.08% during the three months
ended March 31, 2022, as compared to the corresponding period in 2021, and our
return on average assets decreased by 3 basis points during the same comparative
period, primarily due to the increase in average assets:

                               Three Months Ended March 31,
                                2022                   2021
Net interest margin                  3.11 %                 3.48 %
Return on average assets             0.51 %                 0.54 %
Return on average equity             7.91 %                 7.68 %



Critical Accounting Policies

The Company's significant accounting policies are set forth in Note 2 in the
Notes to the Company's Annual Report on Form 10-K for 2021 filed with the SEC on
March 28, 2022, and Note 2 of Item 1 in this report. Our unaudited condensed
consolidated financial statements are prepared in accordance with generally
accepted accounting principles in the United States of America ("GAAP") and
general practices in the banking industry. Certain of those accounting policies
are considered critical accounting policies because they require us to make
assumptions and judgments regarding circumstances or trends that could affect
the carrying values of our material assets, such as assumptions regarding
economic conditions or trends that could impact our ability to fully collect our
outstanding loans or ultimately realize the carrying values of certain of our
other assets, such as securities that are available for sale. If adverse changes
were to occur in the events, trends or other circumstances on which our
assumptions or judgments have been based, or other unanticipated events were to
happen that might affect our operating results, it could become necessary under
GAAP for us to reduce the carrying values of the affected assets in our
condensed consolidated statements of financial condition. In addition, because
reductions in the carrying values of assets are sometimes effectuated by or
require charges to income, such reductions also may have the effect of reducing
our income.


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Operating results

Net interest income

Net interest income, the primary component of the Bank's income, refers to the
difference between the interest earned on loans, investment securities and other
interest-earning assets, and the interest paid on deposits and other borrowed
funds. Our interest income and interest expense are affected by a number of
factors, some of which are outside of our control, including national and local
economic conditions, the monetary policies of the Federal Reserve's Open Market
Committee which affect interest rates, competition in the marketplace for loans
and deposits, the demand for loans and the ability of borrowers to meet their
payment obligations. Net interest income, when expressed as a percentage of
average earning assets, is a banking organization's "net interest margin."

The following table sets forth our interest income, interest expense and net
interest income, and our annualized net interest margin for the three months
ended March 31, 2022 and 2021, respectively:

                          Three Months Ended March 31,
                                                       %
                         2022            2021       Change
Interest income           20,989       $ 20,513        2.32 %
Interest expense             508            353       43.91 %
Net interest income       20,481       $ 20,160        1.59 %

Net interest margin         3.11 %         3.48 %     -0.37 %


Net interest income increased by 1.59% for the quarter ended March 31, 2022 compared to the corresponding period in 2021.

For the three months ended March 31, 2022, net interest income increased by $321
thousand  as compared to the same period in 2021. Total interest income
increased by $476 thousand due to increases of $976 thousand in earnings on
investment securities and $112 thousand from short term investments, partially
offset by $612 thousand in interest income from loans during the three months
ended March 31, 2022, compared to the previous year. The decrease in interest
income from loans is largely due to the 150 basis points (1.50%) cut in the
federal funds rate in March 2020. The reduction in our net interest margin was
the result of a decrease of 0.35% in the yield on our average earning assets in
the three months ended March 31, 2022, as compared to the corresponding period
of 2021, the effect of which was partially offset by an increase in our average
earning assets of 13.6% compared to the same comparative period.

On March 3, 2020, the Federal Open Market Committee (FOMC) reduced the target
range for federal funds by 50 basis points to 1.00% - 1.25%. This rate was
further reduced to a target range of 0% - 0.25% on March 16, 2020. The economy
has since improved, and the FOMC increased the target range by 25bps to 0.25% -
0.50% on March 16, 2022, and 50bps to 0.75% - 1.00% on May 4, 2022. The increase
in interest rates will have a positive impact to the Company's net interest
income as loans and securities reprice.

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Average balances

Distribution, rate and yield

The following table sets forth information regarding our average balance sheet,
annualized yields on interest-earning assets and interest rates on
interest-bearing liabilities, the interest rate spread and the interest rate
margin for the three months ended March 31, 2022 and 2021:

                                                               Three Months Ended March 31,
                                                  2022                                              2021
                                Average         Interest          Average         Average         Interest          Average
                                Balance        Earned/Paid      Yield/Rate        Balance        Earned/Paid      Yield/Rate
Interest earning assets:
Short term investments1       $   461,217     $         179            0.16 %   $   333,876     $          67            0.08 %
Investment Securities²            850,497             3,175            1.49 %       557,885             2,199            1.58 %
Loans³                          1,319,790            17,635            5.34 %     1,424,496            18,247            5.12 %
Total earning assets            2,631,504            20,989            3.19 %     2,316,257            20,513            3.54 %
Noninterest earning assets        149,540                                           133,015
Total assets                  $ 2,781,044                                       $ 2,449,272
Interest-bearing
liabilities:
Interest-bearing checking
accounts                      $   401,473     $          10            0.01 %   $   320,382     $          24            0.03 %
Savings accounts                1,192,714                29            0.01 %     1,080,395                79            0.03 %
Certificates of deposit            28,991                 4            0.06 %        28,861                12            0.17 %
Subordinated debt                  34,411               465            5.41 %        14,781               238            6.44 %
Total interest-bearing
liabilities                     1,657,589               508            0.12 %     1,444,419               353            0.10 %
Non-interest bearing
liabilities                       945,715                                           833,203
Total liabilities               2,603,304                                         2,277,622
Stockholders' equity              177,740                                           171,650
Total liabilities and
  stockholders' equity        $ 2,781,044                                       $ 2,449,272

Net interest income                           $      20,481                                     $      20,160

Interest rate spread                                                   3.07 %                                            3.44 %
Net interest margin                                                    3.11 %                                            3.48 %


1 Short-term investments consist of interest-bearing deposits that we maintain

      with other financial institutions.


   2  Includes all investment securities in the Available-for-Sale and the
      Held-to-Maturity classifications. The Bank did not own any tax exempt
      securities during 2022 and 2021.

3 Loans include the average outstanding loan balance. Interest income on loans

includes loan fees $537,000 and $1.2 million within three months

finished March 31, 2022and 2021, respectively.


For the three months ended March 31, 2022, our total average earning assets
increased by $315.2 million, as compared to the same period in 2021. The
increase during the three months ended March 31, 2022, compared to the same
period in 2021, is attributed to the $127.3 million increase in our average
short term investments and a $292.6 million increase in our average investment
securities, partially offset by a $104.7 million decrease in our average loan
portfolio. Average noninterest earning assets increased by $16.5 million. In the
three months ended March 31, 2022, average total interest-bearing liabilities
increased by $213.2 million in comparison to the same period in 2021. In the
three months ended March 31, 2022, the increase was comprised of the $112.3
million increase in average savings accounts, an $81.1 million increase in
average interest-bearing checking accounts, a $19.6 million increase in
subordinated debt, and a $130 thousand increase in average certificate of
deposit accounts. The overall increase in average interest-bearing liabilities
resulted from an increase in our deposit base, primarily in consumer savings,
and government checking and savings accounts as result of the funds received by
depositors from the CARES Act. This was supplemented by an increase of $112.5
million in average non-interest bearing liabilities during the three months
ended March 31, 2022, compared to the same period in 2021, primarily in
traditional checking accounts, moderated an overall increase of $325.7 million
in average total liabilities. During the three months ended March 31, 2022,
average stockholders' equity increased by $6.1 million (3.6%)  in comparison to
the year-earlier period.

Our interest rate spread decreased by 37 basis points (10.94%), and our net
interest margin also decreased by 37 basis points (10.58%) in the three months
ended March 31, 2022, as compared to the same period in 2021. During the three
months ended March 31, 2022, the decrease in our interest rate spread is
attributed to the 35 basis points (9.9%) decrease in the average yield on our
interest earning assets, from 3.54% to 3.19%, and the increase in the average
rate on our interest-bearing liabilities by 2 basis points from 0.10% to 0.12%.
The decrease in our interest income is primarily due to the 150 basis point
(1.50%) rate cut in March 2020 by the Federal Open Market Committee. This
impacted our loan portfolio, investment securities, and short term deposits in
other banks, including the Federal Reserve Bank of San Francisco.


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The following table provides information regarding the changes in interest
income and interest expense, attributable to changes in rates and changes in
volumes, that contributed to the total change in net interest income for the
three months ended March 31, 2022, in comparison to the three months ended
March 31, 2021:

                                                        Three Months Ended March 31, 2022 vs. 2021
                                                                      (In thousands)
                                                  Net Change in                  Attributable to:
                                                    Interest              Change in            Change in
                                                 Income/Expense             Rate                Volume
Interest income:
Short term investments                          $             112       $         250       $          (138 )
Investment securities                                         976                (465 )               1,441
Loans                                                        (612 )             3,148                (3,760 )
Total interest income                                         476               2,933                (2,457 )

Interest expense:
Interest-bearing checking accounts                            (14 )               (64 )                  50
Savings accounts                                              (50 )              (211 )                 161
Certificates of deposit                                        (8 )               (32 )                  24
Other borrowings                                              227                (153 )                 380
Total interest expense                                        155                (460 )                 615

Net interest income                             $             321       $       3,393       $        (3,072 )




Provision for Loan Losses

We maintain allowances for probable loan losses that are incurred as a normal
part of the banking business. As more fully discussed in Note 5 of the notes to
the unaudited condensed consolidated financial statements in Item 1 of this
Quarterly Report on Form 10-Q, an allowance for loan losses has been established
by management in order to provide for those loans which, for a variety of
reasons, may not be repaid in their entirety. The allowance is maintained at a
level considered by management to be adequate to provide for probable losses
that are accrued as of the balance sheet date and based on methodologies applied
on a consistent basis with the prior year. Management's review of the adequacy
of the allowance includes, among other things, loan growth, changes in the
composition of the loan portfolio, an analysis of past loan loss experience and
management's evaluation of the loan portfolio under current economic conditions.

The allowance for loan losses is based on estimates, and ultimate losses will
vary from current estimates. The Bank recognizes that credit losses will be
experienced and the risk of loss will vary with, among other things: general
economic conditions; the type of loan being made; the credit worthiness of the
borrower over the term of the loan; and, in the case of a collateralized loan,
the quality and valuation of the collateral for such loan. The allowance for
loan losses represents the Bank's best estimate of the allowance necessary to
provide for probable losses in the portfolio as of the balance sheet date.

If management determines that it is necessary to increase the allowance for loan
losses, a provision for loan losses is recorded. For the three months ended
March 31, 2022, the Bank's provision for loan losses was $1.4 million, which was
$1.1 million lower than the corresponding period of 2021.  The decrease is
primarily due to the reduction in the monthly provision for loan losses from
$875 thousand to $475 thousand, which were due to the declining risk in the loan
portfolio resulting from the decrease in net charge offs, the decrease in the
delinquency ratio, and the decrease in non-accrual loans. In the three months
ended March 31, 2022, management adjusted the economic risk factors to
incorporate the current economic conditions, which includes fluctuations in
tourism and unemployment due to the COVID-19 pandemic.

Management believes that the provision recorded was sufficient to offset the
incremental risk of loss inherent in the gross loan portfolio of $1.33 billion
at March 31, 2022, an increase of $3.9 million from December 31, 2021. The
allowance for loan losses at March 31, 2022, was at $35.1 million or 2.65% of
total gross loans outstanding as of the balance sheet date, an increase of $677
thousand from December 31, 2021. We recorded net loan charge-offs of $748
thousand for the three months ended March 31, 2022. See "Analysis of Allowance
for Loan Losses" in the Financial Condition Section of Management's Discussion
and Analysis of Financial Condition and Results of Operations for more detailed
information.

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Non-interest income

The table below represents the main components of non-interest income and their variations for the three months ended March 31, 2022 and 2021:

                                                Three Months Ended March 31,
                                         2022        2021       Amount      Percent
                                        Amount      Amount      Change       Change
Non-interest income
Service charges and fees                $ 5,443     $ 1,670     $ 3,773        225.9 %
Gain on sale of investment securities        10         272        (262 )      -96.3 %
Income from merchant services, net          651         648           3          0.5 %
Income from cardholders, net                553         253         300        118.6 %
Trustee fees                                 86         152         (66 )      -43.4 %
Other income                                650       1,214        (564 )      -46.5 %
Total non-interest income               $ 7,393     $ 4,209     $ 3,184         75.6 %



For the three months ended March 31, 2022, non-interest income totaled $7.4
million, which represented an increase of $3.2 million (75.6%) as compared to
the three months ended March 31, 2021. The increase during the three months
ended March 31, 2022, is primarily attributed to the increases in income of $3.8
million from service charges and fees, and $300 thousand in net income from
cardholders, partially offset by a $564 thousand decrease in other income, a
$262 thousand decrease in gain on sale of investment securities, and a $66
thousand reduction from trustee fees. The increase in service charges and fees
is primarily due to the $2.7 million in fees generated by ASC Trust activities
and an increase in the Bank's service charges and fee income of $987 thousand.


Non-interest Expense

The table below represents the main components of non-interest expenses and the variations for the three months ended March 31, 2022 and 2021:

                                             Three Months Ended March 31,
                                      2022         2021       Amount      Percent
                                     Amount       Amount      Change       Change
Non-interest expense:
Salaries and employee benefits      $  9,225     $  8,696     $   529          6.1 %
Occupancy                              2,221        2,129          92          4.3 %
Equipment and depreciation             5,321        2,941       2,380         80.9 %
Insurance                                457          489         (32 )       -6.5 %
Telecommunications                       450          366          84         23.0 %
FDIC insurance assessment                322          344         (22 )       -6.4 %
Professional services                    803          565         238         42.1 %
Contract services                        448          621        (173 )      -27.9 %
Other real estate owned                   13           14          (1 )       -7.1 %
Stationery and supplies                  169          121          48         39.7 %
Training and education                   260           44         216        490.9 %
General, administrative and other      2,431        1,540         891         57.9 %
Total non-interest expense          $ 22,120     $ 17,870     $ 4,250         23.8 %



For the three months ended March 31, 2022, non-interest expense totaled $22.1
million, which was an increase of $4.3 million (23.8%) as compared to the same
period in 2021. The increase is attributed to the increases of $2.4 million in
equipment and depreciation, $529 thousand in salaries and employee benefits,
$238 thousand in professional services, $216 thousand in training and education,
and $891 thousand in general, administrative and other, partially offset by a
decrease of $173 thousand in contract services.

income tax expense

For the three months ended March 31, 2022, the Bank recorded income tax expenses
of $815 thousand, which was  $86 thousand higher than the income tax expense
recorded for the corresponding period in 2021.

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Financial condition

Assets

As of March 31, 2022, total assets were $2.73 billion, a decrease of 2.32% from
the $2.79 billion at December 31, 2021. This $64.7 million decrease was
comprised largely of the $115.4 million decrease in interest bearing deposits in
banks, partially offset by the $36.9 million increase in our net investment
securities portfolio, a $6.4 million increase in cash and due from banks, a $4.0
million increase in other assets, and a rise of $3.5 million in net loans. The
decrease in net loans and the increase in total assets resulted in the
proportion of net loans to total assets decreasing from 46.0% at December 31,
2021, to 47.2% at March 31, 2022. The reduction in assets was associated with
the $38.6 million increase in total deposits, a $3.1 million decrease in other
liabilities, a $25.3 million decrease in accumulated other comprehensive loss,
due to the increase in market rates, partially offset by a $2.2 million increase
in retained earnings.

Interest-Earning Assets

The following table shows the composition of our interest-earning assets as of
March 31, 2022 compared to December 31, 2021:

                                             March 31, 2022       December 31, 2021       Variance
Interest-earning deposits with financial
institutions (including
  restricted cash)                          $        405,487     $           520,893     $ (115,406 )
Federal Home Loan Bank stock, at cost                  3,318                   2,814            504
Investment securities available-for-sale             528,055                 499,366         28,689
Investment securities held-to-maturity               320,481                 312,294          8,187
Loans, gross                                       1,325,223               1,321,321          3,902
Total interest-earning assets               $      2,582,564     $         2,656,688     $  (74,124 )



Loans

Commercial & industrial loans are loans to businesses to finance capital
purchases and improvements, or to provide cash flow for operations. Commercial
mortgage loans include loans secured by real property for purposes such as the
purchase or improvement of that property, wherein repayment is derived from the
income generated by the real property or from business operations. Residential
mortgage loans are loans to consumers to finance the purchase, improvement, or
refinance of real property secured by 1-4 family housing units. Consumer loans
include loans to individuals to finance personal needs and are either closed- or
open-ended loans. Automobile loans fall under the consumer loan category, but
the bulk of consumer loans is typically unsecured extensions of credit such as
credit card debt and personal signature loans.

A summary of the balances of loans at March 31, 2022 and December 31, 2021,
follows:

                                       March 31, 2022             December 31, 2021
                                    Amount        Percent        Amount        Percent
Commercial
Commercial & industrial           $   299,431         22.6 %   $   295,835         22.4 %
Commercial mortgage                   693,172         52.3 %       699,269         52.9 %
Commercial construction                23,546          1.8 %        23,588          1.8 %
Commercial agriculture                    581          0.0 %           592          0.0 %
Total commercial                    1,016,730         76.7 %     1,019,284         77.1 %
Consumer
Residential mortgage                  139,139         10.5 %       135,377         10.2 %
Home equity                             2,211          0.2 %         2,232          0.2 %
Automobile                             17,523          1.3 %        18,220          1.4 %
Other consumer loans1                 149,620         11.3 %       146,208         11.1 %
Total consumer                        308,493         23.3 %       302,037         22.9 %
Gross loans                         1,325,223        100.0 %     1,321,321        100.0 %
Deferred loan (fees) costs, net        (2,968 )                     (3,223 )
Allowance for loan losses             (35,085 )                    (34,408 )
Loans, net                        $ 1,287,170                  $ 1,283,690



  1 Comprised of other revolving credit, installment loans, and overdrafts.


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At March 31, 2022, total gross loans increased by $3.9 million, to $1.325
billion, from $1.321 billion at December 31, 2021. The increase in loans was
attributed to a $6.5 million increase in consumer loans to $308.5 million at
March 31, 2022, from $302.0 million at December 31, 2021. The underlying
increase was primarily due to the increases of $3.8 million in residential
mortgage loans, and $3.4 million in other consumer loans, partially offset by
the decrease of $697 thousand in automobile. The increase in consumer loans was
partially offset by the $2.6 million decrease in commercial loans to $1.017
billion at March 31, 2022, from $1.019 billion at December 31, 2021. The
underlying decrease was primarily due to the decrease of $6.1 million in
commercial mortgage loans, partially offset by a $3.6 million increase in
commercial & industrial loans.

In recognition of the potential difficulties that may be faced by our
commercial, real estate and consumer customers due to the COVID-19 pandemic, the
Bank initiated a temporary program in March 2020 under which affected commercial
and consumer customers that may have their loan payments deferred or otherwise
adjusted for a period of up to 90 days. This temporary program ended on June 30,
2020. The Bank continues to process commercial and consumer deferral requests on
a case-by-case basis.

With the passage of the Paycheck Protection Program, administered by the Small
Business Administration, the Bank actively participated in assisting its
customers with applications for resources through the program. PPP loans have
either a two-year or five-year term and earn interest at 1%. The Bank believes
that the majority of these loans will ultimately be forgiven by the SBA in
accordance with the terms of the program. In 2020 and 2021, the Bank approved
and funded over $93.4 million and $56.6 million in PPP loans, respectively. At
March 31, 2022, the outstanding principal balance of PPP loans was at $17.6
million. As of May 5, 2021, a total of $141.3 million in PPP loans have been
forgiven, of which $133.6 million were forgiven in 2021 and $7.7 million in
2020. It is the Bank's understanding that loans funded through the PPP program
are fully guaranteed by the U.S. government. Should those circumstances change,
the Bank could be required to establish an additional allowance for loan loss
through additional credit loss expense charged to earnings.

To March 31, 2022outstanding loans consisted of approximately 69.70% floating rate loans and 30.30% fixed rate loans.

Since it first opened in 1972, the Bank has expanded its operations and its
branch network, first in Guam, then in the other islands of our region and in
San Francisco, California. In the interests of enhancing performance and
stability through market and industry diversification, the Bank has increased
its focus on growth in the San Francisco area in recent years, adding personnel
with experience and expertise in the Bay Area. The following table provides
figures for gross loans in the Bank's administrative regions for March 31, 2022
and December 31, 2021:

                                                   March 31, 2022       December 31, 2021
Guam                                              $        689,717     $           684,435
Commonwealth of the Northern Mariana Islands               135,228          

135 165

The Freely Associated States of Micronesia *                91,071                  89,523
California                                                 409,207                 412,198
Total                                             $      1,325,223     $         1,321,321


* The Freely Associated States (FAS) are made up of the Federated States of

Micronesia (Chuuk, Kosrae, Pohnpei and Yap), the Republic of Marshal

islands and Republic of Palau.


As the table indicates, the Bank's total gross loans increased by 0.3% during
the three months ended March 31, 2022. By way of comparison, loans in Guam
increased by $5.3 million, or 0.8%, during the three months ended March 31,
2022. Loans in the Commonwealth of the Northern Mariana Islands increased by $63
thousand or 0.1%, and the Freely Associated States of Micronesia increased by
$1.5 million, or 1.7%, during the same period. In the California region loans
decreased by $3.0 million, or 0.7%, during the three months ended March 31,
2022.

Remunerated deposits and investment securities

In the current lending and interest rate environment, and in order to maintain
sufficient liquidity in the ordinary course of business, and to account for
disbursement of the funds received from the CARES Act, the Bank held $405.3
million in unrestricted interest-earning deposits with financial institutions at
March 31, 2022, a decrease of $115.4 million, or 22.2%, from the $520.7 million
in such deposits at December 31, 2021. This significant decrease is the result
of the disbursement of various funds received from the CARES Act, which were
held in cash balances with the Federal Reserve Bank at the end of the reporting
period. From December 31, 2021, to March 31, 2022, the Bank's combined
investment portfolio increased by $37.0 million, or 4.6%, from $811.7 million to
$848.7 million. The growth in the investment portfolio was comprised of a $28.9
million increase in available-for-sale securities, which increased by 5.8%, from
$499.4 million to $528.2 million, and an $8.2 million increase in our holdings
of held-to-maturity securities, which increased by 2.6%, from $312.3 million to
$320.5 million. Management believes that the Bank maintains an adequate level of
liquidity.

                                       39

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Non-performing loans and other non-performing assets

Nonperforming loans consist of (i) loans on non-accrual status because we have
ceased accruing interest on these loans; (ii) loans 90 days or more past due and
still accruing interest; and (iii) restructured loans. Other nonperforming
assets consist of real estate properties (OREO) that have been acquired through
foreclosure or similar means and which management intends to offer for sale.
Loans are placed on non-accrual status when, in the opinion of management, the
full and timely collection of principal or interest is in doubt. Generally, the
accrual of interest is discontinued when principal or interest payment becomes
90 days past due, unless the loan is adequately collateralized and the loan is
in the process of collection. When a loan is placed in non-accrual status,
accrued but unpaid interest is reversed against current income. Subsequently,
when payments are received on such loans, the amounts are applied to reduce
principal, except when the ultimate collectability of principal is probable, in
which case accrued loans may be restored to accrual status when principal and
interest becomes current and full repayment is expected. Interest income is
recognized on an accrual basis for impaired loans not meeting the non-accrual
criteria.

The following table contains information on our non-performing assets as well as restructured loans at March 31, 2022 and December 31, 2021:

                                                   March 31, 2022       December 31, 2021
Non-accrual loans:
Commercial & industrial                           $          7,312     $             7,610
Commercial mortgage                                          6,548                   8,148
Residential mortgage                                         1,537                   1,660
Other consumer 1                                               120                     152
Total non-accrual loans                                     15,517                  17,570

Loans past due 90 days and still accruing:
Commercial & industrial                                        125                     106
Commercial mortgage                                            764                       -
Residential mortgage                                            12                      77
Automobile                                                      88                      41
Other consumer1                                              1,078                     866
Total loans past due 90 days and still accruing              2,067                   1,090
Total nonperforming loans                                   17,584                  18,660

Restructured loans:
Accruing loans                                    $         32,500     $            32,595
Non-accruing loans (included in nonaccrual
loans above)                                                 4,778                   6,083
Total restructured loans                          $         37,278     $            38,678



  1 Comprised of other revolving credit, installment loans, and overdrafts.


The above table indicates that nonperforming loans decreased by $1.1 million
during the three months ended March 31, 2022, which resulted from the decrease
in total non-accrual loans by $2.1 million, from $17.6 million to $15.5 million.
The decrease in total non-accrual loans were due to the decreases of $1.6
million in commercial mortgage, $298 thousand in commercial & industrial loans,
and $123 thousand in residential mortgage loans. These decreases were partially
offset by the $977 thousand increase in total loans past due 90 days and still
accruing from $1.1 million to $2.1 million. The increases were $764 thousand in
commercial mortgage loans, $212 thousand in other consumer loans, $47 thousand
in automobile, and $19 thousand in commercial & industrial loans, partially
offset by the decrease of $65 thousand in residential loans.

At March 31, 2022, the Bank's largest nonperforming loans are five commercial
mortgage loans totaling $6.1 million from five relationships of $3.22 million,
$939 thousand, $795 thousand, $642 thousand and $467 thousand, respectively, and
one commercial & industrial loan relationship totaling $6.9 million. These loans
were placed on non-accrual due to deficiencies in the underlying cash flow to
service the monthly loan payments and meet operating expenses. At this time,
management believes that the collateral and the allocated allowance for loan
losses is adequate to cover these loans; however, should property values
deteriorate, additional write-downs or additional provisions may be necessary.

                                       40

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Loan Loss Allowance Analysis

The provision for loan losses has been $35.1 millioni.e. 2.65% of gross outstanding loans, at March 31, 2022compared to $34.4 millioni.e. 2.60% of gross outstanding loans, at December 31, 2021.

Management maintains an allowance for loan losses to absorb estimated credit losses associated with the loan portfolio. The adequacy of the allowance is determined by management through ongoing quarterly loan quality assessments.

Management assesses the estimated credit losses inherent in the non-classified
and classified portions of our loan portfolio by considering a number of factors
or elements including:
  • Management's evaluation of the collectability of the loan portfolio;


  • Historical loss experience in the loan portfolio;

• Levels and trends of delinquencies, classified assets, non-performing and

bad loans;

• Effects of changes in underwriting standards and other changes in lending

policies, procedures and practices;

• Experience, capacity and depth of loan and other management

      staff;


   •  Local, regional, and national trends and conditions, including
      industry-specific conditions;


  • The effect of changes in credit concentration; and

• External factors such as competition, legal and regulatory conditions,

as well as typhoons, pandemics such as COVID-19 and other natural disasters.


Management determines the allowance for the classified loan portfolio and for
non-classified loans by applying a percentage loss estimate that is calculated
based on the above noted factors and trends. Management normally writes down
impaired loans after determining the loan collateral fair value versus the
outstanding loan balance. Our analysis of the adequacy of the allowance
incorporates the provisions made for our non-classified loans and classified
loans.

While management believes it uses the best information available for calculating
the allowance, the results of operation could be significantly affected if
circumstances differ substantially from the assumptions used in determining the
allowance. The current qualitative and quantitative factors used to calculate
the allowance are inherently subjective. The estimates and assumptions are
subject to changes in economic prospects and regulatory guidelines, and other
circumstances over which management has no control. The allowance may prove in
the future to be insufficient to cover all of the losses the Bank may incur and
it may be necessary to increase the allowance from time to time as a result of
monitoring its adequacy.

                                       41

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The following table summarizes the changes in our allowance for loan losses:

                                                            Residential
                                           Commercial        Mortgages       Consumer         Total
                                                             (Dollars in thousands)
Three Months Ended March 31, 2022
Allowance for loan losses:
Balance at beginning of period             $    22,860     $       2,304     $   9,244     $    34,408
Charge-offs                                       (190 )               -        (1,159 )        (1,349 )
Recoveries                                         102                 1           498             601
Provision                                          310               164           951           1,425
Balance at end of period                   $    23,082     $       2,469     $   9,534     $    35,085

Allowance balance at end of period
related to:
Loans individually evaluated for
impairment                                 $     3,508     $          39     $   1,136     $     4,683
Loans collectively evaluated for
impairment                                      19,574             2,430         8,398          30,402
Ending balance                             $    23,082     $       2,469     $   9,534     $    35,085

Loan balances at end of period:
Loans individually evaluated for
impairment                                 $    10,973     $      38,287     $   1,350     $    50,610
Loans collectively evaluated for
impairment                                   1,005,757           103,063       165,793       1,274,613
Ending balance                             $ 1,016,730     $     141,350     $ 167,143     $ 1,325,223

Three Months Ended March 31, 2021
Allowance for loan losses:
Balance at beginning of period             $    21,213     $       1,990     $  11,602     $    34,805
Charge-offs                                        (77 )              (4 )      (1,514 )        (1,595 )
Recoveries                                         124                 -           474             598
Provision                                        1,259               210         1,006           2,475
Ending balance                             $    22,519     $       2,196     $  11,568     $    36,283

Allowance balance at end of period
related to:
Loans individually evaluated for
impairment                                 $     3,502     $           1     $   1,578     $     5,081
Loans collectively evaluated for
impairment                                      19,017             2,195         9,990          31,202
Ending balance                             $    22,519     $       2,196     $  11,568     $    36,283

Loan balances at end of period:
Loans individually evaluated for
impairment                                 $    60,538     $       2,349     $   1,716     $    64,603
Loans collectively evaluated for
impairment                                   1,053,915           127,159       182,930       1,364,004
Ending balance                             $ 1,114,453     $     129,508     $ 184,646     $ 1,428,607

Year Ended December 31, 2021
Allowance for loan losses:
Balance at beginning of year               $    21,213     $       1,990     $  11,602     $    34,805
Charge-offs                                       (115 )             (99 )      (4,736 )        (4,950 )
Recoveries                                         578                 1         1,824           2,403
Provision                                        1,184               412           554           2,150
Ending balance                             $    22,860     $       2,304     $   9,244     $    34,408

Allowance balance at end of year related
to:
Loans individually evaluated for
impairment                                 $     3,510     $          50     $     941     $     4,501
Loans collectively evaluated for
impairment                                      19,350             2,254         8,303          29,907
Ending balance                             $    22,860     $       2,304     $   9,244     $    34,408

Loan balances at end of year:
Loans individually evaluated for
impairment                                 $    48,459     $       2,265     $   1,059     $    51,783
Loans collectively evaluated for
impairment                                     970,825           135,343       163,370       1,269,538
Ending balance                             $ 1,019,284     $     137,608     $ 164,429     $ 1,321,321

Management assesses all impaired loans at least quarterly in conjunction with our calculation and determination of the adequacy of the loan loss allowance.

                                       42
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The Bank has two significant borrowing relationships in bankruptcy totaling
$10.1 million at March 31, 2022. The Bank has calculated a specific reserve
within the allowance for one of the borrowing relationships in bankruptcy in the
amount of $3.5 million. In March 2022, a court ruling increased the availability
of assets for one of the borrowing relationships in bankruptcy to satisfy its
outstanding liabilities. The Bank believes it has sufficient collateral coverage
to protect its current exposure in these matters, however due to the
complexities of the bankruptcy cases and uncertainties surrounding ongoing
negotiations, the ultimate outcomes may result in losses.

Total cash and cash equivalents

Total cash and cash equivalents were $448.4 million and $557.4 million at
March 31, 2022 and December 31, 2021, respectively. The decrease is the result
of the disbursement of various funds received from the CARES Act. This balance,
which is comprised of cash and due from bank balances and interest-bearing
deposits that we maintain at other financial institutions (including the Federal
Reserve Bank of San Francisco, but excepting restricted cash), will vary
depending on daily cash settlement activities, the amount of highly liquid
assets needed based on known events such as the repayment of borrowings and
scheduled withdrawals, and actual cash on hand in the Bank's branches.

The following table shows the composition of our cash and cash equivalents balances as at March 31, 2022 and December 31, 2021:

                                              March 31, 2022       December 31, 2021       Variance
Cash and due from banks                      $         43,100     $            36,660     $    6,440
Interest-bearing deposits with financial
institutions                                          405,337                 520,743       (115,406 )
Total cash and cash equivalents              $        448,437     $           557,403     $ (108,966 )



Investment Securities

The Bank manages its securities portfolio to provide a source of both liquidity
and earnings. The Bank has an Asset/Liability Committee ("ALCO") that develops
and recommends current investment policies to the Board of Directors based on
its operating needs and market circumstances. The Bank's overall investment
policy is formally reviewed and approved annually by the Board of Directors, and
the Asset/Liability Committee is responsible for monitoring and reporting
compliance with the investment policy. Investment portfolio reports are provided
to the Board of Directors on a monthly basis.

                                       43
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At March 31, 2022, the carrying value of the investment securities portfolio
(excluding ASC Trust LLC stock and Federal Home Loan Bank stock) totaled $848.5
million, which represents a $36.8 million increase from the portfolio balance of
$811.7 million at December 31, 2021. The table below sets forth the amortized
cost and fair value of our investment securities portfolio, with gross
unrealized gains and losses, at March 31, 2022 and December 31, 2021:

                                                                  March 31, 2022
                                                             Gross            Gross
                                           Amortized       Unrealized       Unrealized       Estimated
                                              Cost           Gains            Losses         Fair Value
Securities Available-for-Sale
U.S. government agency and government
sponsored

corporate debt securities (GSE) $114,969 $- ($11,694) $103,275
WE government agency pool securities 29,066

               12             (260 )         28,818
U.S. government agency or GSE
residential
  mortgage-backed securities                  423,117                -          (27,155 )        395,962
Total                                      $  567,152     $         12     $    (39,109 )   $    528,055
Securities Held-to-Maturity
U.S. government agency and government
sponsored

corporate debt securities (GSE) $276,468 $- ($30,684) $245,784
WE government agency pool securities 2,386

                6              (64 )          2,328
U.S. government agency or GSE
residential
  mortgage-backed securities                   41,627               35           (2,545 )         39,117
Total                                      $  320,481     $         41     $    (33,293 )   $    287,229

                                                                 December 31, 2021
                                                             Gross            Gross
                                           Amortized       Unrealized       Unrealized       Estimated
                                              Cost           Gains            Losses         Fair Value
Securities Available-for-Sale
U.S. government agency and government
sponsored

corporate debt securities (GSE) $114,969 $- ($4,007) $110,962
WE government agency pool securities 21,106

                2             (247 )         20,861
U.S. government agency or GSE
residential
  mortgage-backed securities                  369,419            1,957           (3,833 )        367,543
Total                                      $  505,494     $      1,959     $     (8,087 )   $    499,366
Securities Held-to-Maturity
U.S. government agency and government
sponsored

corporate debt securities (GSE) $276,188 $- ($1,621) $274,567
WE government agency pool titles 3,028

                8              (45 )          2,991
U.S. government agency or GSE
residential
  mortgage-backed securities                   33,078              105             (369 )         32,814
Total                                      $  312,294     $        113     $     (2,035 )   $    310,372




At March 31, 2022 and December 31, 2021, investment securities with a carrying
value of $682.9 million and $558.8 million, respectively, were pledged to secure
various government deposits and other public requirements.

                                       44

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The amortized cost and fair value of investment securities by contractual maturity at March 31, 2022 and December 31, 2021follows:

                                                                 March 31, 2022
                                               Available-for-Sale               Held-to-Maturity
                                           Amortized       Estimated       Amortized       Estimated
                                              Cost         Fair Value         Cost         Fair Value
Due within one year                        $       26     $         26     $        -     $          -
Due after one but within five years             6,954            6,916          1,709            1,691
Due after five but within ten years           158,847          146,421         61,833           56,368
Due after ten years                           401,325          374,692        256,939          229,170
Total                                      $  567,152     $    528,055     $  320,481     $    287,229

                                                                December 31, 2021
                                               Available-for-Sale               Held-to-Maturity
                                           Amortized       Estimated       Amortized       Estimated
                                              Cost         Fair Value         Cost         Fair Value
Due within one year                        $      105     $        105     $        -     $          -
Due after one but within five years             8,331            8,377          1,228            1,246
Due after five but within ten years           151,682          148,389         62,925           62,257
Due after ten years                           345,376          342,495        248,141          246,869
Total                                      $  505,494     $    499,366     $  312,294     $    310,372




                                       45
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Temporarily impaired securities

The following table presents the gross unrealized losses and the fair value of investments with unrealized losses that are not considered to be permanently impaired, grouped by investment category and the length of time that the individual securities have been in a continuous position of unrealized loss. carried out at March 31, 2022 and December 31, 2021:

                                                                         March 31, 2022
                                  Less Than Twelve Months             More Than Twelve Months                     Total
                               Unrealized         Estimated        Unrealized         Estimated        Unrealized       Estimated
                                 Losses           Fair Value         Losses           Fair Value         Losses         Fair Value
Securities Available for
Sale
U.S. government agency and
  government sponsored
enterprise

(GSE) debt securities – $ – $ ($11,694) $103,275 ($11,694) $103,275
WE government agency pool titles

                            (170 )           15,443              (90 )           10,055             (260 )         25,498
U.S. government agency or
GSE

Residential

mortgage-backed securities         (26,475 )          389,126             (680 )            6,836          (27,155 )        395,962
Total                         $    (26,645 )     $    404,569     $    

(12,464) $120,166 ($39,109) $524,735

Securities Held to Maturity
US government agency and
sponsored Agencies (GSE)
debt securities               $    (15,566 )     $    106,613     $    

(15,118) $139,171 ($30,684) $245,784
WE government agency pool titles

                             (52 )            1,303              (12 )              106              (64 )          1,409
U.S. government agency or
GSE

Residential

mortgage-backed securities          (2,514 )           28,677              (31 )              281           (2,545 )         28,958
Total                         $    (18,132 )     $    136,593     $    (15,161 )     $    139,558     $    (33,293 )   $    276,151

                                                                        December 31, 2021
                                  Less Than Twelve Months             More Than Twelve Months                     Total
                               Unrealized         Estimated       

Not realized Estimated Not realized Estimated

                                 Losses           Fair Value         Losses           Fair Value         Losses         Fair Value
Securities Available for
Sale
U.S. government agency and
  government sponsored
enterprise

(GSE) debt securities ($2,824) $82,145 ($1,183) $28,817 ($4,007) $110,962
WE government agency pool titles

                             (71 )            5,127             (176 )           14,743             (247 )         19,870
U.S. government agency or
GSE

Residential

mortgage-backed securities          (3,833 )          290,573                -                  -           (3,833 )        290,573
Total                         $     (6,728 )     $    377,845     $     

(1,359) $43,560 ($8,087) $421,405

Securities Held to Maturity
U.S. government agency and
  government sponsored
enterprise

(GSE) debt securities ($1,395) $159,840 $ (226 ) $114,726 ($1,621) $274,566
WE government agency pool titles

                             (37 )            1,507               (8 )              403              (45 )          1,910
U.S. government agency or
GSE

Residential

mortgage-backed securities            (362 )           28,498               (7 )              529             (369 )         29,027
Total                         $     (1,794 )     $    189,845     $       (241 )     $    115,658     $     (2,035 )   $    305,503



The Company does not believe that any of the investment securities that were in
an unrealized loss position as of March 31, 2022, which included a total of 221
securities, were other-than-temporarily impaired. Specifically, the 221
securities were comprised of 34 Small Business Administration Pool securities,
26 agency securities issued by Federal Home Loan Bank (FHLB), 33
mortgaged-backed securities and 19 agency securities issued by Federal Home Loan
Mortgage Corporation (FHLMC), 71 mortgaged-backed securities and 1 agency
security issued by Federal National Mortgage Association (FNMA), 19
mortgaged-backed securities issued by Government National Mortgage Association
(GNMA) and 18 agency securities issued by Federal Farm Credit Banks (FFCB).

Total gross unrealized losses were primarily attributable to changes in interest
rates relative to when the investment securities were purchased, and not due to
changes in the credit quality of the investment securities. The Bank does not
intend to sell the investment

                                       46
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securities that are in an unrealized loss position and it is not likely that,
except as needed to fund our liquidity position, the Bank will be required to
sell the investment securities before recovery of their amortized cost bases,
which may be at maturity.

Deposits

At March 31, 2022, total deposit liabilities decreased by $38.6 million from
$2.53 billion at December 31, 2021. Non-interest bearing deposits decreased by
$99.2 million, to $882.3 million at March 31, 2022, compared to $981.5 million
at December 31, 2021, and interest bearing deposits increased by $60.6 million,
to $1.61 billion at March 31, 2022, from $1.55 billion at December 31, 2021. The
1.52% decrease in total deposits was primarily due to the disbursement of funds
from various COVID-19 federal relief programs.

The following table sets forth the composition of our interest-bearing deposit
portfolio with the balances and average interest rates at March 31, 2022 and
December 31, 2021, respectively:

                                          March 31, 2022               December 31, 2021
                                                      Average                       Average
                                       Balance         rate          Balance         rate
Interest-bearing checking accounts   $   401,835          0.01 %   $   401,753          0.03 %
Savings accounts                       1,185,632          0.01 %     1,123,499          0.03 %
Certificates of deposit                   24,870          0.06 %       

26,442 0.12% Total interest-bearing deposits $1,612,337 0.01% $1,551,694 0.03%



As mentioned earlier, the Bank has expanded its operations and its branch
network since it first opened in 1972, first in Guam, then in the other islands
of our region and in San Francisco, California. As time has passed, the Bank has
gathered market share in each of the islands. In recent years, in order to
diversify its geographic market, the Bank has increased its focus on growth in
the California region. The following table provides figures for deposits in the
Bank's administrative regions at March 31, 2022 and December 31, 2021:

                                                      March 31, 2022       December 31, 2021
Guam                                                 $      1,417,580     $ 

1,386,314

Commonwealth of the Northern Mariana Islands                  475,630       

529,750

The Freely Associated States of Micronesia                    551,325                 557,444
California                                                     50,118                  59,723
Total                                                $      2,494,653     $         2,533,231



During the three months ended March 31, 2022, the Bank's deposits decreased by
$38.6 million (1.5%) to $2.49 billion compared to December 31, 2021. During this
period the decrease in our deposits were in our CNMI branches by $54.1 million,
California region by $9.6 million, and FAS branches by $6.1 million. These
decreases were partially offset by the increase in our Guam branches by $31.3
million.

Borrowed Funds

The Bank has a variety of sources from which it may obtain secondary funding.
These sources include, among others, the Federal Reserve Bank of San Francisco,
the Federal Home Loan Bank of Des Moines, and credit lines established with our
correspondent banks. Borrowings are obtained for a variety of reasons which
include, but are not limited to, funding loan growth, the purchase of
investments in the absence of core deposits, and to provide additional liquidity
to meet the demands of depositors.

On June 29, 2021, the Company issued $20.0 million of its 4.75%
Fixed-to-Floating Rate Subordinated Notes, due July 1, 2031 (the "2031 Notes").
The 2031 Notes are intended to qualify as Tier 2 capital for regulatory capital
purposes for the Company. The 2031 Notes have a ten-year term and initially bear
interest at a fixed annual rate of 4.75%. Beginning July 1 2026, the interest
rate will reset quarterly to the then-current three-month SOFR plus 413 basis
points. On July 6, 2021, with the approval of the Federal Reserve Bank of San
Francisco, the Company used $6.2 million of the proceeds from the 2031 Notes to
acquire an additional 25% of the stock of ASC Trust LLC at the third and final
closing pursuant to the 2016 Stock Purchase Agreement between the Company and
David J. John. The Company intends to use the remainder of the proceeds from the
2031 Notes for general corporate purposes.

On June 27, 2019, the Company issued $15.0 million of its 6.35%
Fixed-to-Floating Rate Subordinated Notes, due June 30, 2029 (the "2029 Notes").
The 2029 Notes are intended to qualify as Tier 2 capital for regulatory capital
purposes for the Company. The 2029 Notes have a ten-year term and initially bear
interest at a fixed annual rate of 6.35%. Beginning June 30, 2024, the interest
rate will reset quarterly to the then-current three-month LIBOR plus 466 basis
points. On July 1, 2019, with the approval of the Federal Reserve Bank of San
Francisco, the Company used $4.1 million of the proceeds from the 2029 Notes to
acquire an additional 20% of the stock of ASC Trust LLC at the second closing
pursuant to the 2016 Stock Purchase Agreement between the Company and David J.
John. On July 5, 2019, $10.0 million of the balance of the proceeds from the
2029 Notes was also used to purchase ten (10) shares of Series B Common Stock
from the Bank, with a par value of $1.0 million per share, to support the Bank's
strategic growth.

                                       47

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To March 31, 2022 and to December 31, 2021the Company had no short-term borrowings.

Liquidity

We actively manage our liquidity to ensure that sufficient funds are available
to meet our needs for cash, including cash needed to fund new loans and to
accommodate deposit withdrawals and other transactions by our customers. We
project future sources and uses of funds, and maintain additional liquid funds
for unanticipated events. Our primary sources of cash include cash we have in
deposits at other financial institutions, the repayment of loans, proceeds from
the sale or maturity of investment securities, and increases in deposits. The
primary uses of cash include funding new loans and making advances on existing
lines of credit, purchasing investments, funding new residential mortgage loans,
funding deposit withdrawals, and paying operating expenses. From time to time,
we may maintain funds in overnight Federal Funds and other short-term
investments to provide for short-term liquidity needs. We also have established,
for contingency funding purposes, credit lines with the Federal Reserve Bank of
San Francisco, the Federal Home Loan Bank-Seattle, and correspondent commercial
banks in the U.S. We believe that our liquid assets, together with our available
credit lines, will be sufficient to meet normal operating requirements for at
least the next twelve months, including to enable us to meet any increase in
withdrawals from depository accounts that might occur in the foreseeable future.

At March 31, 2022, our liquid assets, which include cash and due from banks,
interest-earning deposits with financial institutions (excluding restricted
cash), and investment securities available-for-sale totaled $976.5 million, down
$80.3 million from $1.06 billion at December 31, 2021. This decrease is
comprised of a $115.4 million decrease in interest bearing deposits in banks,
partially offset by a $28.7 million increase in investment securities
available-for-sale, and a $6.4 million increase in cash and due from banks.

Management believes we have sufficient cash to meet the demands of the
distribution of funds under the CARES Act. However, we will monitor our vault
cash on a daily basis, and if the need arises we will acquire additional cash by
drawing down our deposits with other financial institutions, including the
Federal Bank of San Francisco.

Contractual obligations

The Bank uses facilities, equipment and land under various operating leases with terms, including renewal options, ranging from 1 to 99 years.

The following table provides the maturities of lease liabilities at March 31,
2022:

                                          Operating
                                          Leases (a)       Total
2022                                     $      1,733     $  1,733
2023                                            2,022        2,022
2024                                            1,910        1,910
2025                                            1,778        1,778
2026                                            1,544        1,544
After 2026                                     33,218       33,218
Total lease payments                           42,205       42,205
Less: Interest (b)                             21,040       21,040

Present value of rental debts (c) $21,165 $21,165

Note: For leases beginning before 2019, minimum lease payments exclude payments to landlords for property taxes and maintenance of common areas.

(a) Operating lease payments include $19.0 million regarding expansion options

rental conditions which it is reasonably certain will be exercised.

(b) Calculated using incremental borrowing rate based on lease term for

       each lease.


  (c) Includes the current portion of $1.5 million for operating leases.



The Bank leases certain facilities from two separate entities in which two of
its directors have separate ownership interests. Lease payments made to these
entities during the three months ended March 31, 2022 and 2021, approximated $65
thousand and $62 thousand, respectively.

Additionally, the Bank leases office space to third parties, with original lease
terms ranging from 1 to 3 years with option periods ranging up to 12 years. At
March 31, 2022, minimum future rents to be received under non-cancelable
operating sublease agreements were $31 thousand, and $26 thousand for the
periods ending December 31, 2022, and 2023, respectively.

                                       48

————————————————– ——————————

A summary of rental activity for the three months ended March 31, 2022respectively, is as follows:

                         Three Months Ended March 31,
                        2022                   2021
Rent expense         $       968         $          1,025
Total rent expense   $       968         $          1,025


Off-balance sheet arrangements

The Bank is a party to credit-related financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit, standby letters of credit and commercial letters of credit. Such
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount reflected in our condensed consolidated financial
statements.

The Bank's exposure to credit loss, in the event of nonperformance by the other
parties to financial instruments for loan commitments and letters of credit, is
represented by the contractual amount of these instruments. The Bank follows
essentially the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.

A summary of the financial instruments presenting an off-balance sheet risk at March 31, 2022
and December 31, 2021is as follows:

                                March 31, 2022       December 31, 2021
Commitments to extend credit   $        165,064     $           162,569

Letters of credit:
Standby letters of credit      $         48,890     $            43,239
Commercial letters of credit              2,048                   2,366
Total                          $         50,938     $            45,605



Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses, and may
require payment of a fee. The commitments for certain lines of credit may expire
without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained, if it is deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the customer.

Commercial and standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party or the
shipment of merchandise from a third party. Those letters of credit are
primarily issued to support public and private borrowing arrangements. Almost
all letters of credit issued have expiration dates within one year. The credit
risk involved in issuing letters of credit is effectively the same as that
involved in extending loan facilities to customers. The Bank generally holds
collateral supporting those commitments.

The Bank considers its standby and commercial letters of credit to be
guarantees. At March 31, 2022, the maximum undiscounted future payments that the
Bank could be required to make was $50.9 million. Almost all of these
arrangements mature within one year. The Bank generally has recourse to recover
from the customer any amounts paid under these guarantees. Most of the
guarantees are fully collateralized; however, several that are extended to the
Bank's most creditworthy customers are unsecured. The Bank has recorded $50
thousand in reserve liabilities associated with commitments to extend credit and
letters of credit at March 31, 2022.

Mortgage loans serviced for others are not included in the accompanying
condensed consolidated statements of financial condition. The unpaid principal
balances of mortgage loans serviced for others were $177.4 million and $181.1
million at March 31, 2022 and December 31, 2021, respectively. At March 31,
2022, and December 31, 2021, the Bank's mortgage servicing rights each totaled
$1.6 million.

Capital Resources

The Company and the Bank are subject to various regulatory capital requirements
administered by the United States federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's and the Bank's condensed consolidated
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company and the Bank must meet or
exceed specific capital guidelines that involve quantitative measures of their
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices.

                                       49
--------------------------------------------------------------------------------
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following table) of total and Tier 1 capital and Common Equity Tier
1 capital (as defined in the regulations) to risk-weighted assets (as defined)
and of Tier 1 capital (as defined) to average assets (as defined). As of
March 31, 2022 and December 31, 2021, the Bank met all capital adequacy
requirements to which it is subject.

As of March 31, 2022, the Bank's capital ratios each exceeded the Federal
Deposit Insurance Corporation's well capitalized standards under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
an institution must maintain minimum total risk-based, Tier 1 risk-based and
Tier 1 leverage ratios as set forth in the following table. There have been no
conditions or events since the most recent FDIC notification that management
believes have changed the Bank's category.

The required and actual capital amounts and ratios of the Company at March 31, 2022 and December 31, 2021were the following:

                                                                                           To Be Well Capitalized
                                                            For Capital Adequacy          Under Prompt Corrective
                                      Actual                      Purposes                   Action Provisions
                               Amount        Ratio          Amount          Ratio          Amount            Ratio
At March 31, 2022:
Total capital (to Risk
  Weighted Assets)            $ 225,236       15.038 %   $    119,819         8.000 %   $     149,773         10.000 %
Tier 1 capital (to Risk
  Weighted Assets)            $ 171,365       11.442 %   $     89,864         6.000 %   $     119,819          8.000 %
Tier 1 capital (to Average
  Assets)                     $ 171,365        6.165 %   $    111,184         4.000 %   $     138,980          5.000 %
Common Equity Tier 1
  Capital (to Risk Weighted
  Assets)                     $ 161,582       10.788 %   $     67,398         4.500 %   $      97,353          6.500 %

At December 31, 2021:
Total capital (to Risk
  Weighted Assets)            $ 222,493       15.161 %   $    117,403         8.000 %   $     146,753         10.000 %
Tier 1 capital (to Risk
  Weighted Assets)            $ 168,623       11.490 %   $     88,052         6.000 %   $     117,403          8.000 %
Tier 1 capital (to Average
  Assets)                     $ 168,623        5.792 %   $    116,461         4.000 %   $     145,577          5.000 %
Common Equity Tier 1
  Capital (to Risk Weighted
  Assets)                     $ 158,840       10.824 %   $     66,039         4.500 %   $      95,390          6.500 %



Since the formation of BankGuam Holding Company in 2011, our assets have grown
by 147.2% ($1.6 billion), while our stockholders' equity has increased by 77.7 %
($69.0 million, including $83.9 million in retained earnings). The growth in
equity has contributed to help keep the capital ratios to be well above the well
capitalized standards.

The Bank received a large influx of deposits from the federal relief programs
due to the COVID-19 pandemic, resulting in the growth of its balance sheet as
compared to 2020. As of March 31, 2022, approximately $164.1 million in COVID
related funds have yet to be disbursed. Although the Bank's average assets
decreased at March 31, 2022 to $2.78 billion from $2.91 billion in December 31,
2021, the growth resulting from the receipt of COVID funds has put pressure on
its ratio of Tier 1 capital to average assets. Management believes that the Bank
has the capacity to absorb the growth in total assets, and the tools needed to
move deposits off its balance through its Trust services to continue to be above
the well capitalized standards under the regulatory framework for prompt
corrective action.

Reverse stock split

On April 12, 2022, the Company's Board of Directors approved a 1-for-500 reverse
stock split of the Company's common stock, which remains subject to shareholder
approval and the receipt of regulatory approvals. If the reverse stock split is
effected, shareholders of the Company who own fewer than 500 shares of the
Company's common stock will receive a cash payment in lieu of a fraction of a
share, and will no longer be shareholders of the Company. Shareholders holding
500 or more shares of the Company's common stock will remain shareholders after
the reverse stock split, and will also be entitled to receive a cash payment in
lieu of receiving a fraction of a share. The Board of Directors determined that
$14.75 per share outstanding prior to the reverse stock split would be a fair
price to pay for shares that will be canceled in lieu of issuing a fraction of a
share in connection with the reverse stock split. The Board of Directors has
reserved the right to abandon the reverse stock split at any time if it believes
the reverse stock split is no longer in the Company's best interests. If
effected, the Company estimates that the aggregate amount of cash that would be
payable

                                       50
--------------------------------------------------------------------------------
to shareholders in lieu of fractional shares as a result of the reverse stock
split would be approximately $8.8 million, which would be paid by the Company
out of cash on hand.

Stock Purchase Plan

The Company's 2011 Employee Stock Purchase Plan (the "2011 Plan") was adopted by
the Company's Board of Directors and approved by the Company's Stockholders on
May 2, 2011, to replace the Company's 2001 Non-Statutory Stock Option Plan. This
plan was subsequently adopted by the Company after the reorganization. The 2011
Plan is open to all employees of the Company and its subsidiaries who have met
certain eligibility requirements.

Under the 2011 Plan, as amended and restated as of July 1, 2012, eligible
employees can purchase, through payroll deductions, shares of common stock at a
discount. The right to purchase stock is granted to eligible employees during a
quarterly offer period that is established from time to time by the Board of
Directors of the Company. Eligible employees cannot accrue the right to purchase
more than $25 thousand worth of stock at the fair market value at the beginning
of each offer period. Eligible employees also may not purchase more than one
thousand five hundred (1,500) shares of stock in any one offer period. The
shares are purchased at 85% of the fair market price of the stock on the
enrollment date.

In April 2022the company suspended the employee stock purchase plan as part of the company’s plans to implement a 1 for 500 stock consolidation, which remains subject to shareholder approval and approval. obtaining regulatory approvals.

Emergency planning and cybersecurity

The Bank has developed a comprehensive business continuity plan to manage
disruptions that affect customers or internal processes, whether caused by
man-made or natural events. In modern banking, technology has taken on an
increasingly important role, and the Bank also has a technology recovery
component incorporated into the business continuity plan that provides
procedures for recovering from a technology failure. The technology recovery
procedures are tested and implemented from time to time. The recovery time
objectives for the Bank's major technological processes range from eight hours
to 80 hours, with the goal of enabling the Bank to maintain or resume operations
with a minimum impact on its customers. As the results of testing are analyzed
and as technology continues to advance, improvements are made in the Bank's
processes and procedures as the plan evolves, although there can be no assurance
that business disruption or operational losses will not occur.

The rapid advances in computing and telecommunications technology over the past
several decades have brought with them increasingly sophisticated methods of
delivering financial services through electronic channels. Along with these
advances, though, have come risks regarding the integrity and privacy of data,
and these risks apply to banking, falling into the general classification of
cybersecurity. The Bank has made substantial investments in multiple systems to
ensure both the integrity of its data and the protection of the privacy of its
customers' personal financial and identity information. While it is not possible
for anyone to give an absolute guarantee that data will not be compromised, the
Bank strives to provide a reasonable assurance that the financial and personal
data that it holds are secure.

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About Franklin Bailey

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