A recent market study shows that Rhode Island’s largest and medium-sized banks were in good health last year, and only two of its small banks operated at a loss.
Yet because only 13 banks are based in Rhode Island, those two were enough for the state to have the lowest percentage of profitable banks in New England last year, according to a study by Bank Analysis Center, a Hartford-based banking industry consultant.
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The study said 85 percent of the state’s banks made money in 2005, compared with a 96-percent average for New England. However, the two unprofitable institutions had a greater impact on the Rhode Island average than they would have in larger states with more banks, said John S. Carusoni, president of Banking Analysis Center.
Still, the study highlights the performance of the state’s small banks, which have decreased in number in recent decades due to mergers and acquisitions. It also sheds light on how these lesser-known institutions are faring among giants such as Bank of America and Citizens Bank.
For starters, the state’s two unprofitable institutions were Freedom National Bank, which operates two branches in Smithfield and Cumberland, and Union Federal Savings Bank, a single-office bank in North Providence.
Freedom National last year lost $13,000 – much improved from the $337,000 it lost in 2004, according to the banking analysis.
“We had a good year last year,” said Frederick McDuff, Freedom National CEO, in an interview. “We’re confident that we’re going to continue our growth, adding new customers regularly.”
The bank’s deposits increased from $42.4 million to $57.4 million last year, according to Federal Deposit Insurance Corporation figures as of Dec. 31, 2005. Also, its loan volume rose last year from $32.7 million to $42.8 million.
McDuff said Freedom National specializes in business lending and banking, which have driven the bank’s growth. During the current fiscal quarter, he said, the bank plans to offer its business customers a remote deposit capture product.
“They are about on schedule for a four-year-old institution,” Carusoni said. “Typically, a startup institution breaks even in the third year. My guess is that they are at break-even.”
Union Federal, however, appears further away from operating in the black, according to Carusoni, who reported that the North Providence bank last year lost $370,000, topping its $362,000 loss in 2004.
William Sullivan, Union Federal’s CEO, was in Florida last week and unavailable for comment, according to a receptionist at the bank’s office, at 1565 Mineral Spring Ave.
According to FDIC figures, the bank’s deposits dipped from $36.6 million to $36 million in 2005, and its loan volume fell from $25.2 million to $20.7 million.
Carusoni said the fact that Union remains in the red in its fourth year is “somewhat unusual, but not unheard-of.”
Union and Freedom were among five banks in the state with less than $100 million in total assets, according to the report. The others, which reported profits through the third quarter last year, were Independence Bank in East Greenwich, Talbots Classics National Bank in Lincoln and Westerly Savings Bank.
Yet Westerly Savings merged with Newport Federal Savings Bank last year and no longer exists as a separate entity. And Talbots is a non-consumer operation that holds $10.8 million in deposits for the retailer. Independence operates from a single office at 1370 South County Trail.
Robert S. Catanzaro, chairman and CEO at Independence, said his privately owned bank has been profitable since its second year in business in 2004. The bank specializes in lending to small businesses.
Last year, Independence earned $323,000 in after-tax income compared with $258,000 during the same period in 2004, according to Banking Analysis Center.
Chartered in 2003, the bank had an existing loan portfolio carried over from Catanzaro’s former non-banking lending company called Enterprise Capital. The CEO said that having a loan portfolio in the state helped the bank become profitable more quickly.
“We’re pretty much ahead of the game,” Catanzaro said. “We’re not going to beat Bank of America, but we’re doing pretty good.”
Meanwhile, the study shows that for the first three quarters of 2005, the state’s banks outdid New England averages in other areas unrelated to its size.
In fact, banks based here outdid regional averages in categories such as return on assets (1.22 percent compared with 1.07 percent), return on equity (13.42 percent compared with 10.1 percent) and net interest margins (3.54 percent compared with 2.99 percent).
“Clearly, the [Rhode Island] banking industry is healthy and well-capitalized,” Carusoni said. “By far, the majority of the state’s institutions are quite profitable.”
