FINANCIAL INSTITUTIONS INC Income Taxes Disclosure
(17.) INCOME TAXES
The income tax expense (benefit) for the years ended December 31 consisted of the following (in thousands):
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
5,641 |
|
|
$ |
9,031 |
|
|
$ |
13,302 |
|
State |
|
|
(699 |
) |
|
|
(185 |
) |
|
|
835 |
|
Total current tax expense |
|
|
4,942 |
|
|
|
8,846 |
|
|
|
14,137 |
|
Deferred tax expense (benefit): |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
8,950 |
|
|
|
(26,987 |
) |
|
|
(1,136 |
) |
State |
|
|
2,595 |
|
|
|
(8,361 |
) |
|
|
(212 |
) |
Total deferred tax expense (benefit) |
|
|
11,545 |
|
|
|
(35,348 |
) |
|
|
(1,348 |
) |
Total income tax expense (benefit) |
|
$ |
16,487 |
|
|
$ |
(26,502 |
) |
|
$ |
12,789 |
|
The effective income tax rate differed from the U.S. federal statutory income tax rate for the years ended December 31 due to the following (dollars in thousands):
|
|
2025 |
|
|||||
|
|
Amount |
|
|
Percent |
|
||
Income before provision for income taxes |
|
$ |
91,354 |
|
|
|
|
|
|
|
|
|
|
|
|
||
Income tax expense (benefit) at U.S. federal statutory rate |
|
|
19,184 |
|
|
|
21.00 |
% |
State and local income tax, net of federal income tax effect (1) |
|
|
1,498 |
|
|
|
1.64 |
|
Tax credits: |
|
|
|
|
|
|
||
Low-income housing tax credits |
|
|
(2,140 |
) |
|
|
(2.24 |
) |
Historic tax credits |
|
|
(1,903 |
) |
|
|
(2.21 |
) |
Nontaxable and nondeductible items |
|
|
|
|
|
|
||
Company owned life insurance - Cash surrender value/premium |
|
|
(2,366 |
) |
|
|
(2.59 |
) |
Company owned life insurance - Surrender gain & MEC penalty |
|
|
2,634 |
|
|
|
2.88 |
|
Other nontaxable and nondeductible items |
|
|
(45 |
) |
|
|
(0.05 |
) |
Other adjustments |
|
|
(375 |
) |
|
|
(0.38 |
) |
Total |
|
$ |
16,487 |
|
|
|
18.05 |
% |
|
|
2024 |
|
|
2023 |
|
||
Federal statutory income tax |
|
|
(21.0 |
%) |
|
|
21.0 |
% |
Increase (decrease) resulting from: |
|
|
|
|
|
|
||
Tax exempt interest income |
|
|
(0.6 |
) |
|
|
(0.8 |
) |
Tax credits and adjustments |
|
|
(6.4 |
) |
|
|
(2.1 |
) |
Net non-taxable earnings on company owned life insurance |
|
|
(1.7 |
) |
|
|
0.9 |
|
State taxes, net of federal tax benefit |
|
|
(9.9 |
) |
|
|
0.8 |
|
Other, net |
|
|
0.7 |
|
|
|
0.5 |
|
Total |
|
|
(38.9 |
%) |
|
|
20.3 |
% |
Total income tax expense (benefit) was as follows for the years ended December 31 (in thousands):
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Income tax expense (benefit) |
|
$ |
16,487 |
|
|
$ |
(26,502 |
) |
|
$ |
12,789 |
|
Shareholders’ equity |
|
|
6,743 |
|
|
|
23,196 |
|
|
|
6,044 |
|
(17.) INCOME TAXES (Continued)
The Company recognizes deferred income taxes for the estimated future tax effects of differences between the tax and financial statement bases of assets and liabilities considering enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in other assets in the Company’s consolidated statements of financial condition. The Company also assesses the likelihood that deferred tax assets will be realizable based on, among other considerations, future taxable income and establishes, if necessary, a valuation allowance for those deferred tax assets determined to not likely be realizable. A deferred tax asset valuation allowance is recognized if, based on the weight of available evidence (both positive and negative), it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of deferred tax benefits depends upon the existence of sufficient taxable income within the carry-back and carry-forward periods. Management’s judgment is required in determining the appropriate recognition of deferred tax assets and liabilities, including projections of future taxable income.
Based upon the Company’s historical and projected future levels of pre-tax and taxable income, the scheduled reversals of taxable temporary differences to offset future deductible amounts, and prudent and feasible tax planning strategies, management believes it is more likely than not that the deferred tax assets will be realized. Therefore, no valuation allowance has been recorded as of December 31, 2025 and 2024.
In 2025 and 2024, the Company recognized the impact of its investments in limited partnerships and limited liability companies that generated qualifying tax credits resulting in a $4.5 million and $4.6 million reduction in income tax expense, respectively, and a $2.0 million and $775 thousand net loss recorded in noninterest income, respectively. See Note 1, Summary of Significant Accounting Policies, for the Company’s accounting policy for income taxes and these tax credit investments.
The Company’s net deferred tax asset is included in other assets in the consolidated statements of financial condition. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at December 31 (in thousands):
|
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Allowance for credit losses |
|
$ |
13,550 |
|
|
$ |
13,362 |
|
Leases–right of use obligations |
|
|
8,047 |
|
|
|
8,351 |
|
Deferred compensation |
|
|
1,689 |
|
|
|
1,168 |
|
Investments in limited partnerships |
|
|
1,069 |
|
|
|
1,369 |
|
SERP agreements |
|
|
25 |
|
|
|
45 |
|
Litigation settlement reserve |
|
|
- |
|
|
|
5,899 |
|
Share-based compensation |
|
|
1,070 |
|
|
|
793 |
|
Tax attribute carryforward benefit |
|
|
20,039 |
|
|
|
28,116 |
|
Net unrealized loss on securities available for sale |
|
|
9,164 |
|
|
|
15,823 |
|
Accrued pension costs |
|
|
389 |
|
|
|
463 |
|
Deferred loan origination costs |
|
|
862 |
|
|
|
178 |
|
Other |
|
|
1,424 |
|
|
|
1,219 |
|
Gross deferred tax assets |
|
|
57,328 |
|
|
|
76,786 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Leases–right of use assets |
|
|
7,404 |
|
|
|
7,738 |
|
Prepaid expenses |
|
|
859 |
|
|
|
1,015 |
|
Intangible assets |
|
|
2,778 |
|
|
|
2,523 |
|
Depreciation and amortization |
|
|
2,779 |
|
|
|
3,153 |
|
Loan servicing assets |
|
|
453 |
|
|
|
409 |
|
Other |
|
|
458 |
|
|
|
1,063 |
|
Gross deferred tax liabilities |
|
|
14,731 |
|
|
|
15,901 |
|
Net deferred tax asset |
|
$ |
42,597 |
|
|
$ |
60,885 |
|
The Company and its subsidiaries are primarily subject to federal and New York income taxes. The federal income tax years currently open for audit are . The New York income tax years currently open for audit are .
At December 31, 2025, the Company had tax attribute carryforward benefits totaling $20.0 million for federal and New York net operating losses and tax credit carryforwards generated in the fourth quarter of 2024, primarily due to the realized losses from the investment security repositioning. At December 31, 2025, the Company had a federal credit carryforward of $15.9 million that expires in 2044, and a New York net operating loss carryforward of $88.5 million that expires in 2044.
(17.) INCOME TAXES (Continued)
The Company’s unrecognized tax benefits and changes in unrecognized tax benefits were not significant as of or for the years ended December 31, 2025, 2024 and 2023. There were no material interest or penalties recorded in the income statement in income tax expense for the years ended December 31, 2025, 2024 and 2023. As of December 31, 2025 and 2024, there were no amounts accrued for interest or penalties related to uncertain tax positions.
During 2025, the Company made no income tax payments and received a refund of $17 thousand from New York.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 9, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 13, 2024 | |
| 2022 | Mar 9, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 15, 2021 | |
| 2019 | Mar 4, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 14, 2018 | |
| 2016 | Mar 7, 2017 | |
| 2015 | Mar 8, 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.