COMMUNITY FINANCIAL SYSTEM, INC. Income Taxes Disclosure
NOTE J: INCOME TAXES
The provision for income taxes for the years ended December 31 is as follows:
(000’s omitted) | | 2025 | | 2024 | | 2023 | |||
Current: |
| |
| |
| | |||
Federal | $ | 33,423 | $ | 30,170 | $ | 35,346 | |||
State and other |
| 12,565 |
| 13,711 |
| 7,193 | |||
Deferred: |
|
|
| ||||||
Federal |
| 10,653 |
| (2,836) |
| (4,877) | |||
State and other |
| 1,016 |
| 3,510 |
| (2,626) | |||
Amortization of investments in LIHTC and solar energy partnerships | 7,282 | 9,669 | 1,271 | ||||||
Provision for income taxes | $ | 64,939 | $ | 54,224 | $ | 36,307 | |||
Components of the net deferred tax asset, included in other assets, as of December 31, 2025 and 2024 are as follows:
(000’s omitted) | | 2025 | | 2024 | ||
Investment securities | $ | 115,819 | $ | 158,596 | ||
Allowance for credit losses | 22,389 | 20,206 | ||||
Employee benefits |
| 15,725 |
| 14,430 | ||
Lease liabilities |
| 14,348 |
| 12,424 | ||
Other, net |
| 4,915 |
| 5,650 | ||
Deferred tax asset |
| 173,196 |
| 211,306 | ||
Goodwill and intangibles |
| 38,500 |
| 39,467 | ||
Lease right-of-use assets |
| 13,448 |
| 11,737 | ||
Loan origination costs |
| 12,399 |
| 11,579 | ||
Depreciation |
| 6,926 |
| 623 | ||
Mortgage servicing rights |
| 529 |
| 561 | ||
Pension |
| 38,702 |
| 33,289 | ||
Deferred tax liability |
| 110,504 |
| 97,256 | ||
Net deferred tax asset | $ | 62,692 | $ | 114,050 | ||
The Company has determined that no valuation allowance is necessary as it is more likely than not that the gross deferred tax assets will be realized through future reversals of existing temporary differences and through future taxable income.
A reconciliation of the differences between the federal statutory income tax rate and the effective tax rate for the years ended December 31 is shown in the following table:
(000's omitted except rates) | | 2025 | | 2024 | | 2023 |
| |||||||||||
U.S. federal statutory income tax rate |
| $ | 57,833 | 21.0 | % | $ | 49,708 | 21.0 | % | $ | 35,329 | 21.0 | % | |||||
|
|
| ||||||||||||||||
10,578 | 3.8 | 6,787 | 2.9 | 3,425 | 2.1 | |||||||||||||
Foreign tax effects, net of federal income tax effect | 336 | 0.1 | 342 | 0.2 | 224 | 0.1 | ||||||||||||
Tax credits, net of amortization | (466) | (0.2) | (1,341) | (0.6) | (993) | (0.5) | ||||||||||||
Nontaxable or nondeductible items: | ||||||||||||||||||
Tax exempt income | (2,180) | (0.8) | (2,278) | (1.0) | (2,911) | (1.7) | ||||||||||||
Other | (1,162) | (0.3) | (1,465) | (0.6) | 1,233 | 0.6 | ||||||||||||
Changes in unrecognized tax benefits | 0 | 0.0 | 2,471 | 1.0 | 0 | 0.0 | ||||||||||||
| $ | 64,939 | 23.6 | % | $ | 54,224 | 22.9 | % | $ | 36,307 | 21.6 | % | ||||||
(a) State taxes in New York made up the majority (greater than 50 percent) of the tax effect in this category.
The Company has unrecognized tax benefits representing tax positions for which a liability has been established. A reconciliation of the unrecognized tax benefits for the years ended December 31 is shown in the following table:
(000’s omitted) | | 2025 | | 2024 | | 2023 | |||
Unrecognized tax benefits at beginning of year | $ | 2,471 | $ | 0 | $ | 0 | |||
Changes related to: |
| |
| |
| | |||
Increases as a result of tax positions taken during a prior period |
| 0 |
| 3,802 |
| 0 | |||
Decreases as a result of settlements with taxing authorities |
| 0 |
| (1,331) |
| 0 | |||
Unrecognized tax benefits at end of year | $ | 2,471 | $ | 2,471 | $ | 0 | |||
All of the unrecognized tax benefits would impact the Company’s effective tax rate if recognized. During the years ended December 2025 and 2024, the Company recognized $0.4 million and $1.0 million of accrued interest related to unrecognized tax benefits in income taxes in the consolidated statements of income, respectively. It is reasonably possible that the amount of unrecognized tax benefits could change in the next twelve months as a result of various examinations.
The following table presents the amount of income taxes paid (net of refunds received) disaggregated by federal, state and foreign jurisdictions for the years ended December 31:
(000’s omitted) | | 2025 | | 2024 | 2023 | ||||
Federal | $ | 28,000 | $ | 32,000 | $ | 37,000 | |||
State: |
|
|
| ||||||
New York | 8,983 | 9,495 | 2,000 | ||||||
Other states(a) | 3,084 | 1,786 | 2,505 | ||||||
Total state | 12,067 | 11,281 | 4,505 | ||||||
Foreign |
| 432 |
| 447 |
| 156 | |||
Cash paid for income taxes | $ | 40,499 | $ | 43,728 | $ | 41,661 | |||
| (a) | No individual state in this category represents greater than 5% of the total cash paid for income taxes. |
The Company’s federal and state income tax returns are routinely subject to examination from various governmental taxing authorities. Such examinations may result in challenges to the tax return treatment applied by the Company to specific transactions. Management believes that the assumptions and judgment used to record tax-related assets or liabilities have been appropriate. Future examinations by taxing authorities of the Company’s federal or state tax returns could have a material impact on the Company’s results of operations. The Company’s federal income tax returns for years after 2021 may still be examined by the Internal Revenue Service. The Company’s New York State income tax returns are currently under examination by the New York Department of Taxation and Finance in connection with tax years 2018 to 2020. The Company has not received notice of proposed adjustments from these examinations, and it is not possible to estimate if and when those examinations may be completed. New York State income tax returns for years after 2020 may still be examined by the New York Department of Taxation and Finance.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 28, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Mar 1, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.