CITIZENS FINANCIAL SERVICES INCCZFS

CITIZENS FINANCIAL SERVICES INC Income Taxes Disclosure

10-KFiled Mar 6, 20253 min read
12. INCOME TAXES


The provision for income taxes consists of the following (in thousands):

Year Ended December 31,
  
 
2024
  
2023
  
2022
  
Currently payable
  
$
4,094
    
$
3,109
    
$
6,471
  
Deferred tax liability (asset)
    
1,771
      
595
      
(36
)
Provision for income taxes
  
$
5,865
    
$
3,704
    
$
6,435
  


The following temporary differences gave rise to the net deferred tax asset and liabilities at December 31, 2024 and 2023, respectively (in thousands):

   
2024
    
2023
  
Deferred tax assets:            
Allowance for credit losses
  
$
5,449
    
$
5,868
  
Deferred compensation
    
648
      
597
  
Allowance for losses on available-for-sale securities
    
130
      
147
  
Pension and other retirement obligation
    
-
      
166
  
Interest on non-accrual loans
    
1,588
      
1,263
  
Incentive plan accruals
    
682
      
662
  
Other real estate owned
    
16
      
16
  
Unrealized losses on available-for-sale securities
     7,061       7,506  
Low income housing tax credits
    
15
      
44
  
NOL carry forward
    
1,458
      
2,468
  
Unrealized losses on equity securities
    -       24  
Non-PCD loan interest rate
    4,200       4,795  
Right of use asset
    
2,120
      
2,349
  
Accrued vacation
    
308
      
281
  
Other
    
334
      
428
  
Total
  
$
24,009
    
$
26,614
  
                 
Deferred tax liabilities:
            
Premises and equipment
  
$
(745
)
  
$
(679
)
Investment securities accretion
    
(611
)
    
(432
)
Loan fees and costs
    
(933
)
    
(859
)
Goodwill and core deposit intangibles
    
(2,804
)
    
(2,889
)
Pension and other retirement obligation
    (152 )     -  
Mortgage servicing rights
    
(160
)
    
(201
)
Unrealized gains on equity securities
     (3 )     -  
Unrealized gains on interest rate swap
     (890 )     (1,143 )
Borrowings fair value adjustment
    (254 )     (511 )
Right of use asset
     (2,093 )     (2,334 )
Other
    
(165
)
    
(227
)
Total
    
(8,810
)
    
(9,275
)
Deferred tax (liability) asset, net
  
$
15,199
    
$
17,339
  



No valuation allowance was established at December 31, 2024 and 2023, due to the certain tax strategies and anticipated future taxable income as evidenced by the Company’s earnings potential.


The total provision for income taxes is different from that computed at the statutory rates due to the following items (dollars in thousands):

 
Year Ended December 31,
  
   
2024
    
2023
    
2022
  
Provision at statutory rates on pre-tax income
 
$
7,070
    
$
4,514
    
$
7,450
  
Effect of tax-exempt income
    
(854
)
    
(895
)
    
(835
)
Low income housing tax credits
    
(688
)
    
(585
)
    
(141
)
Low income housing expense
    339       399       -  
Bank owned life insurance
    
(354
)
    
(263
)
    
(179
)
Nondeductible interest
    
308
      
251
      
74
  
Nondeductible merger and acquisition expenses
    
-
      
247
      
61
  
Change in tax rate
    -       -       -  
Other items
    
44
      
36
      
5
  
Provision for income taxes
  
$
5,865
    
$
3,704
    
$
6,435
  
Statutory tax rates
    
21
%
    
21
%
    
21
%
Effective tax rates
    
17.4
%
    
17.2
%
    
18.1
%



The Company prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. With limited exception, the Company’s federal and state income tax returns for taxable years through 2020 have been closed for purposes of examination by the federal and state taxing authorities.
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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.

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