CITIZENS & NORTHERN CORP Income Taxes Disclosure
14. INCOME TAXES
The net deferred tax asset at December 31, 2025 and 2024 represents the following temporary difference components:
| December 31, | December 31, | ||||
(In Thousands) | | 2025 | | 2024 | ||
Deferred tax assets: | ||||||
Unrealized holding losses on securities | $ | 6,531 | $ | 10,459 | ||
Allowance for credit losses on loans | 6,765 | 4,400 | ||||
Purchase accounting adjustments on loans | 1,727 | 333 | ||||
Deferred compensation |
| 2,008 |
| 1,465 | ||
Operating leases liability |
| 780 |
| 692 | ||
Deferred loan origination fees |
| 712 |
| 697 | ||
Accrued incentive compensation | 735 | 678 | ||||
Net operating loss carryforward | 305 | 423 | ||||
Bank premises and equipment | 56 | 0 | ||||
Other deferred tax assets |
| 1,708 |
| 1,520 | ||
Total deferred tax assets |
| 21,327 |
| 20,667 | ||
Deferred tax liabilities: |
| |
| | ||
Core deposit intangibles |
| 2,522 |
| 456 | ||
Right-of-use assets from operating leases | 780 | 692 | ||||
Bank premises and equipment |
| 0 |
| 290 | ||
Mortgage servicing rights |
| 210 |
| 0 | ||
Defined benefit plans - ASC 835 |
| 97 |
| 90 | ||
Other deferred tax liabilities | 103 | 41 | ||||
Total deferred tax liabilities |
| 3,712 |
| 1,569 | ||
Deferred tax asset, net | $ | 17,615 | $ | 19,098 | ||
The provision for income taxes for the year ended December 31, 2025 includes the following:
(In Thousands) | | 2025 | |
Current expense: | $ | ||
Federal |
| 2,171 | |
State |
| 327 | |
Deferred expense: | |||
Federal | 2,705 | ||
State | 13 | ||
Total provision | $ | 5,216 | |
The Company operates exclusively in the United States and had no foreign income, foreign income tax expense, or foreign income taxes paid for the year ended December 31, 2025.
The provision for income taxes for the years ended December 31, 2024 and 2023 includes the following
(In Thousands) | | 2024 | 2023 | | |||
Currently payable | $ | 7,417 | $ | 5,499 | |||
Deferred |
| (1,504) | 836 | ||||
Total provision | $ | 5,913 | $ | 6,335 | |||
A reconciliation of income tax at the statutory rate to the Corporation’s effective rate is as follows:
| 2025 | 2024 | 2023 | ||||||||||||
(Dollars In Thousands) | | Amount | | % | Amount | | % | | Amount | | % | ||||
Federal at statutory rate | $ | 6,015 |
| 21.0 | $ | 6,693 |
| 21.0 | $ | 6,401 |
| 21.0 | |||
State income tax, net of federal benefit |
| 269 | (a) | 0.9 |
| 297 |
| 0.9 |
| 329 |
| 1.1 | |||
Nontaxable or nondeductible items: | |||||||||||||||
Tax-exempt interest income |
| (978) |
| (3.4) |
| (964) |
| (3.0) |
| (964) |
| (3.2) | |||
Increase in cash surrender value and other income from life insurance, net |
| (398) |
| (1.4) |
| (369) |
| (1.2) |
| (586) |
| (1.9) | |||
ESOP dividends |
| (150) |
| (0.5) |
| (144) |
| (0.5) |
| (143) |
| (0.5) | |||
Surrender of bank-owned life insurance | 0 | 0.0 | 0 | 0.0 | 950 | 3.1 | |||||||||
Nondeductible interest expense |
| 322 |
| 1.1 |
| 368 |
| 1.3 | 283 |
| 0.9 | ||||
Other, net |
| 136 |
| 0.5 |
| 32 |
| 0.1 |
| 65 |
| 0.3 | |||
Effective income tax provision | $ | 5,216 | 18.2 | $ | 5,913 |
| 18.6 | $ | 6,335 |
| 20.8 | ||||
(a) State taxes in New Jersey and New York State made up the majority (greater than 50 percent) of the tax effect in this category.
Income taxes paid by jurisdiction were as follows:
Year Ended | |||
December 31, | |||
(Dollars In Thousands) | | 2025 | |
Federal | | $ | 8,238 |
State: | |||
New Jersey |
| 340 | |
New York |
| 187 | |
Other |
| 30 | |
Total cash taxes paid | $ | 8,795 | |
The Corporation has a net operating loss (“NOL”) available to be carried forward against future federal taxable income. Availability of the NOL does not expire; however, the amount is subject to an annual limitation under Code Section 382 and further limited annually to no more than 80% of taxable income without regard to the NOL. At December 31, 2025, the unused amount of the NOL is $1.6 million.
The Corporation has no unrecognized tax benefits, nor pending examination issues related to tax positions taken in preparation of its income tax returns. The Corporation is generally no longer subject to examination for returns prior to 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 6, 2026 | Showing above |
| 2024 | Mar 6, 2025 | |
| 2023 | Mar 11, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Feb 20, 2020 | |
| 2018 | Feb 21, 2019 | |
| 2017 | Feb 15, 2018 | |
| 2016 | Feb 16, 2017 | |
| 2015 | Feb 18, 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.