US bank goodwill impairments reach 13-year high in 2023

US bank goodwill impairment charges surged to their highest point in over a decade in 2023.

Twelve US banks recorded $10.23 billion in goodwill impairment last year, the highest yearly total since 2010. The surge came during a tumultuous year in which industry experts say stock price pressure, a liquidity crunch and preliminary credit cracks forced more banks to conduct interim tests outside of their usual annual schedule.

Goodwill impairment tests begin by evaluating internal and external qualitative factors that could cause fair value and carrying value to diverge. If a bank finds reason to believe its goodwill is impaired, it then conducts a full quantitative analysis to determine if the fair value of the reporting unit is below the carrying value. One major factor in the qualitative analysis is a bank's stock price, and the massive declines some banks faced last year led to the rise in goodwill impairment charges.

Q4 2023 surge

The vast majority of the year's goodwill impairment charge total came in the last quarter of 2023: US banks had only taken $1.72 billion in impairment charges through Sept. 30, 2023.

Truist Financial Corp. accounted for most of that increase when it took a $6.08 billion goodwill impairment charge in the final period of 2023. It was also the highest impairment charge taken by any bank all year.

The bank discovered the impairment after conducting its annual test Oct. 1.

"There are, I mean, thousands and thousands of factors that go into this work," CFO Michael Maguire said during the company's earnings call in January. "If you think about it, the factors that are significant that we cited in our prepared remarks, is that you've had degradation in operating conditions for the industry. You had a significant decline in, broadly speaking, bank stock valuations."

Most banks felt stock price pain in 2023. Truist's stock price fell 14.2% during the year. Even after impairing the $6.08 billion, Truist had the fourth-most goodwill among US banks at year-end 2023 at $20.90 billion.

Embattled New York Community Bancorp Inc. took the second-largest impairment charge of the year during the 2023 fourth quarter at $2.43 billion. The company originally reported fourth-quarter 2023 results without the charge, but disclosed in its Form 10-K that it amended its results after identifying a "triggering event" and conducting a test that found all of its goodwill from previous transactions was impaired.

HarborOne Bancorp Inc. and Amerant Bancorp Inc. also took goodwill impairment charges in the 2023 fourth quarter of $10.8 million and $1.3 million, respectively.

HarborOne's entire charge was related to its subsidiary HarborOne Mortgage, whose goodwill was fully impaired due to the tough conditions facing the mortgage market in recent years, the company disclosed in a Form 8-K. The majority of Amerant's impairment charge was also related to its mortgage subsidiary.

Market reaction

Goodwill impairment charges often are nonevents, as they do not impact a bank's financial metrics other than sometimes leading to a net loss for the quarter. All but two of the 12 banks that took goodwill impairment charges in 2023 also reported net losses in the quarters in which they took them.

However, the headline of taking a goodwill impairment charge can cause a knee-jerk reaction among investors and further weigh on the bank's stock price. It is therefore important for banks to properly communicate the impact, or lack thereof, from an impairment charge, experts have said.

Most of the banks that booked goodwill impairment charges stressed in either their earnings call or earnings release, or both, that the charge will have no impact on the companies' liquidity, regulatory capital ratios or ability to do business.