The Washington Trust Co. moved to the top of the list in profits in 2013 among 10 Rhode Island-based banks, while the previous year’s most profitable, RBS Citizens Financial Group, dropped to the bottom, according to the latest Federal Deposit Insurance Corp. industry report.
Westerly-based Washington Trust’s earnings were $36.9 million in 2013, compared to $36 million the previous year.
Providence-based RBS Citizens reported a $3 billion noncash loss in 2013, following a profit of $560.4 million in 2012, according to the Feb. 26 FDIC report. RBS Citizens said the drop was an adjustment for “goodwill impairment.”
Banking institutions are required to review goodwill reported on financial statements annually, and to test annually for impairment, according to Bryant University finance professor Peter J. Nigro.
“If a financial institution’s fair value exceeds total book value (including goodwill), no impairment exists,” he said. “If fair value is less than total book value, then impairment may exist. The sustained depressed share price, poor macro conditions as well as poor industry and market conditions [forced] them to take this impairment.”
According to RBS Citizens’ statement for the FDIC’s Consolidated Reports of Condition and Income, or Call Report, “During the second quarter of 2013, RBS Citizens, N.A. recorded a $3.663 billion pre-tax goodwill impairment charge, which resulted in a $3.238 billion net loss for the six months ended June 30, 2013. The impairment charge was recorded in its retail banking reporting unit, and is a result of the prolonged delay in the full recovery of the U.S. economy and the impact of that delay on earnings estimates.”
RBS Citizens spokesman Jim Hughes insists the bank remains in strong financial shape.
“Excluding this noncash adjustment on our balance sheet, we increased net income by $11 million in 2013. This adjustment had a minimal impact on our liquidity and we remain one of the best-capitalized banks in the country, with a Tier One Capital Ratio of more than 13 percent,” he said.
Both Fitch Ratings and Standard & Poor’s Ratings Service in September agreed the charge doesn’t negatively impact the bank’s financial position.
“Although the charge is quite large, it does not affect Citizens’ regulatory capital ratios and does not alter our view of the company’s strong capital position and satisfactory core earnings and asset quality trends,” said Standard & Poor’s on Sept. 13.