The quirk affects how banks value what are known as deferred tax assets, which are generally the value of tax deductions that banks carry on their books before they are actually claimed. Due to the change in tax law, those anticipated deductions are worth less.
The end result for banks is a write down that eats into earnings. But over the longer term, the banks said, the law’s cut in the corporate tax rate will lead to better financial performance
Here are the fourth-quarter results for Mid Penn Bancorp Inc., F.N.B. Corp and Franklin Financial Services Corp., all taken from filings with the U.S. Securities and Exchange Commission.
The Millersburg-based bank has been on a growth spurt lately, wrapping up the acquisition earlier this year of a bank in western Pennsylvania and announcing its purchase of another in the Philadelphia suburbs.
Still, its net income slid thanks to the effect of the tax law on deferred tax assets.
Mid Penn saw net income of $501,000 for the fourth quarter of 2017, down from nearly $2.1 million for the same quarter in 2016.
Its assets rose to $1.17 billion, up from $1.03 billion.
The Pittsburgh-based parent of First National Bank of Pennsylvania posted net income of $22.1 million for the last quarter of 2017, down from $49.3 million for the same period in 2016.
Like other banks, its earnings were crimped by the devaluation of its deferred tax assets.
F.N.B. has assets of $31 billion and offices in Pennsylvania, Ohio, Maryland, West Virginia, North Carolina and South Carolina.
The Chambersburg-based parent of F&M Trust Corp. took a double hit to earnings in the fourth quarter of 2017.
The first hit came from the reduction in value of its deferred tax assets.
The second reflected a $10 million pre-tax charge related to the pending settlement of a class-action lawsuit stemming from a trust company the bank purchased in 2008.
The end result was a net loss of $7.3 million for the quarter, down from profits of $1.7 million for the fourth quarter of 2016.
Other indicators were in positive territory. Franklin Financial’s net interest income, for example – which reflects the core bank business of making loans and taking deposits – was $9.6 million in fourth-quarter 2017, up from just under $9 million for the same period in 2016.
Assets rose to $1.18 billion, up from nearly $1.13 billion at the end of 2016