NORWOOD FINANCIAL CORP Income Taxes Disclosure
The components of the provision for federal income taxes are as follows:
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| Years Ended December 31, | ||||
| 2025 |
| 2024 | ||
| (In Thousands) | ||||
Current | $ | 7,358 |
| $ | 27 |
Deferred |
| (94) |
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| (125) |
| $ | 7,264 |
| $ | (98) |
Deferred income taxes reflect temporary differences in the recognition of revenue and expenses for tax reporting and financial statement purposes, principally because certain items, such as the allowance for credit losses and loan fees are recognized in different periods for financial reporting and tax return purposes. As of December 31, 2025, the Company had a $2,458,000 net operating loss carryforward that will begin to expire by December 31, 2035. As of December 31, 2025, the Company had a $0 net operating loss carryforward that has no expiration date. A valuation allowance has not been established for deferred tax assets. Realization of the deferred tax assets is dependent on generating sufficient taxable income. Although realization is not assured, management believes it is more likely than not that all of the deferred tax asset will be realized. Deferred tax assets are recorded in other assets.
Income tax expense of the Company is less than the amounts computed by applying statutory federal income tax rates to income before income taxes because of the following:
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| Percentage of Income |
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| Before Income Taxes |
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| Year Ended December 31, |
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| 2025 |
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| Amount | Percent |
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U.S. federal statutory tax rate | $ | 7,354 | 21.0 | % |
State and local income taxes, net of federal income tax effect (a) |
| 51 | 0.1 |
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Nontaxable or nondeductible items |
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Tax exempt interest income, net of interest expense disallowance |
| (436) | (1.2) |
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Earnings and proceeds on life insurance |
| (228) | (0.7) |
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Nondeductible merger costs |
| 178 | 0.5 |
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Other |
| 62 | 0.2 |
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Effect of changes in tax laws or rates enacted in the current period |
| — | — |
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Other adjustments |
| 283 | 0.8 |
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| $ | 7,264 | 20.7 | % |
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(a) State taxes in New York made up the majority (greater than 50 percent) of the tax effect in this category | ||||
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| Percentage of Income |
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| Before Income Taxes |
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| Year Ended December 31, |
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| 2024 |
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Tax at statutory rates | 21.0 | % |
Tax exempt interest income, net of interest expense disallowance | 157.0 |
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Earnings and proceeds on life insurance | 86.0 |
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State tax expense | (193.5) |
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Other | (32.5) |
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| 38.0 | % |
The net deferred tax asset included in other assets in the accompanying Consolidated Balance Sheets includes the following amounts of deferred tax assets and liabilities:
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| 2025 |
| 2024 | ||
| (In Thousands) | ||||
Deferred tax assets: |
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Allowance for credit losses | $ | 4,748 |
| $ | 4,751 |
Deferred compensation |
| 862 |
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| 860 |
Core deposit intangible |
| 117 |
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| 145 |
Pension liability |
| 317 |
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| 292 |
Net operating loss carryforward |
| 579 |
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| 745 |
Current year net operating loss carry forward |
| — |
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| 1,125 |
Purchase price adjustment |
| 925 |
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| 954 |
Operating lease liability |
| 802 |
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| — |
Net unrealized loss on securities |
| 5,819 |
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| 8,913 |
Other |
| 3,478 |
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| 2,966 |
Total Deferred Tax Assets |
| 17,647 |
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| 20,751 |
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Deferred tax liabilities: |
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Premises and equipment |
| 1,278 |
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| 1,451 |
Deferred loan fees |
| 719 |
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| 1,495 |
ROU asset |
| 777 |
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| — |
Net unrealized gain on pension liability |
| 152 |
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| 109 |
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| 67 |
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| — |
Total Deferred Tax Liabilities |
| 2,993 |
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| 3,055 |
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Net Deferred Tax Asset | $ | 14,654 |
| $ | 17,696 |
Income taxes paid (net of refunds received) disaggregated by federal and state jurisdictions are as follows:
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| For the years ended | |||
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| December 31, | |||
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| 2025 |
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| 2024 |
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Tax summary |
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($ in thousands) |
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US federal | $ | 2,750 |
| $ | 2,360 |
State: |
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New York |
| 265 |
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| 226 |
Pennsylvania |
| 6 |
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| 31 |
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Total cash paid for income taxes (net of refunds) | $ | 3,021 |
| $ | 2,617 |
The Company’s federal and state income tax returns for taxable years through 2022 have been closed for purposes of examination by the Internal Revenue Service and the Pennsylvania Department of Revenue.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 13, 2026 | Showing above |
| 2024 | Mar 14, 2025 | |
| 2022 | Mar 17, 2023 | |
| 2020 | Mar 9, 2021 | |
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.