FRANKLIN FINANCIAL SERVICES CORP /PA/ Income Taxes Disclosure
Pretax income is entirely related to domestic activities and the Corporation did not have any foreign operations.
The components of income taxes attributable to income from continuing operations were as follows:
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| For the Years Ended December 31 | ||||
(Dollars in thousands) |
| 2025 |
| 2024 | ||
Current tax expense (benefit) |
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Federal |
| $ | 5,496 |
| $ | 2,567 |
State |
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| 296 |
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| 122 |
Total current tax expense (benefit) |
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| 5,792 |
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| 2,689 |
Deferred tax expense (benefit) |
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Federal |
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| (698) |
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| (437) |
State |
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| (53) |
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| (36) |
Total deferred tax expense (benefit) |
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| (751) |
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| (473) |
Total income tax provision |
| $ | 5,041 |
| $ | 2,216 |
Income taxes paid were as follows:
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(Dollars in thousands) |
| 2025 |
| 2024 | ||
Federal |
| $ | 5,220 |
| $ | 1,700 |
Other |
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| 125 |
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| 159 |
Total |
| $ | 5,345 |
| $ | 1,859 |
The temporary differences which give rise to significant portions of deferred tax assets and liabilities at December 31 are as follows:
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(Dollars in thousands) |
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Deferred Tax Assets |
| 2025 |
| 2024 | ||
Allowance for credit losses |
| $ | 4,591 |
| $ | 3,810 |
Deferred compensation |
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| 1,014 |
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| 951 |
Purchase accounting |
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| — |
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| 20 |
Accumulated other comprehensive loss |
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| 5,739 |
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| 9,439 |
Lease liabilities |
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| 836 |
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| 920 |
Other |
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| 634 |
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| 605 |
Total gross deferred tax assets |
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| 12,814 |
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| 15,745 |
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Deferred Tax Liabilities |
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Depreciation |
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| 2,828 |
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| 2,936 |
Right-of-use asset |
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| 796 |
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| 886 |
Joint ventures and partnerships |
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| 56 |
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| 48 |
Pension |
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| 827 |
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| 663 |
Deferred loan fees and costs, net |
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| 426 |
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| 381 |
Total gross deferred tax liabilities |
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| 4,933 |
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| 4,914 |
Net deferred tax asset |
| $ | 7,881 |
| $ | 10,831 |
In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, Management believes it is more likely than not that the Bank will realize the benefits of these deferred tax assets other than those for which a valuation allowance has been recorded.
For the years ended December 31, 2025 and 2024, the income tax provisions are different from the tax expense which would be computed by applying the Federal statutory rate to pretax operating earnings. The Federal statutory rate was 21% for 2025 and 2024. A reconciliation between the tax provision at the statutory rate and the tax provision at the effective tax rate is as follows:
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| For the Years Ended December 31 | ||||||
(Dollars in thousands) |
| 2025 | % |
| 2024 | % | ||
Tax provision at statutory rate |
| $ | 5,516 | 21.0% |
| $ | 2,796 | 21.0% |
State income taxes, net of federal tax effect (1) |
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| 215 | 0.8% |
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| 81 | 0.6% |
Nontaxable or nondeductible items |
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Nontaxable interest income |
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| (831) | -3.2% |
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| (881) | -6.6% |
Appreciation in cash surrender value of life insurance |
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| (90) | -0.3% |
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| (107) | -0.8% |
Disallowed interest expense |
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| 290 | 1.1% |
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| 323 | 2.4% |
Share-based compensation |
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| (26) | -0.1% |
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| 12 | 0.1% |
Other nondeductible expenses |
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| (33) | -0.1% |
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| (8) | -0.1% |
Income tax provision |
| $ | 5,041 | 19.2% |
| $ | 2,216 | 16.6% |
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(1) The State of Maryland made up the majority (greater than 50%) of the tax effect in this category | ||||||||
The Corporation recognizes interest accrued related to unrecognized tax benefits and penalties in income tax expense for all periods presented. No penalties or interest were recognized in 2025 or 2024. The Corporation had no uncertain tax positions at December 31, 2025. The Corporation is no longer subject to U.S. Federal and state examinations by tax authorities for the years before 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 14, 2025 | |
| 2023 | Mar 11, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 11, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 18, 2019 | |
| 2017 | Mar 12, 2018 | |
| 2016 | Mar 10, 2017 | |
| 2015 | Mar 9, 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.