Note 10 - Income Taxes

12 Months Ended

Dec. 31, 2016

10.

Income Taxes

Flushing Financial Corporation files consolidated Federal and combined New York State and New York City income tax returns with its subsidiaries, with the exception of the trusts, which file separate Federal income tax returns as trusts, and FPFC, which files a separate Federal income tax return as a real estate investment trust. Additionally, the Bank files New Jersey State tax returns. The Company remains subject to examination for its Federal, New York State and New Jersey income tax returns for the years ending on or after

December

31,

2013.

The Company is undergoing an examination of its New York City income tax returns for

2011,

2012

and

2013.

Income tax provisions are summarized as follows for the years ended

December

31:

	2016			2015			2014
	(In thousands)
Federal:
Current	$	34,996		$	25,319		$	18,052
Deferred		(1,416	)		(3,476	)		2,860
Total federal tax provision		33,580			21,843			20,912
State and Local:
Current		7,647			7,059			6,369
Deferred		(124	)		(1,735	)		1,292
Total state and local tax provision		7,523			5,324			7,661
Total income tax provision	$	41,103		$	27,167		$	28,573

The income tax provision in the Consolidated Statements of Income has been provided at effective rates of

38.8%,

37.0%

and

39.2%

for the years ended

December

31,

2016,

2015

and

2014,

respectively. The effective rates differ from the statutory federal income tax rate as follows for the years ended

December

31:

	2016					2015					2014
	(Dollars in thousands)
Taxes at federal statutory rate	$	37,106		35.0	%	$	25,681		35.0	%	$	25,484		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		4,890		4.6			3,461		4.7			4,980		6.8
Other		(893	)	(0.8	)		(1,975	)	(2.7	)		(1,891	)	(2.6	)
Taxes at effective rate	$	41,103		38.8	%	$	27,167		37.0	%	$	28,573		39.2	%

The components of the net deferred tax assets are as follows at

December

31:

	2016		2015
	(In thousands)
Deferred tax asset:
Postretirement benefits	$	7,800	$	6,798
Allowance for loan losses		9,518		9,437
Stock based compensation		3,525		3,404
Depreciation		2,135		1,941
Unrealized loss on securities available for sale		2,770		395
Derivative financial instruments		1,027		1,724
Adjustment required to recognize funded status of postretirement pension plans		3,246		3,833
Gain on sale of buildings		2,211		2,531
Other		2,434		2,460
Deferred tax asset		34,666		32,523

Deferred tax liability:
Fair value adjustment on financial assets carried at fair value		150		187
Fair value adjustment on financial liabilities carried at fair value		11,943		14,364
Other		4,684		3,411
Deferred tax liability		16,777		17,962

Net deferred tax asset included in other assets	$	17,889	$	14,561

The Company has recorded a deferred tax asset of

$34.7

million. This represents the anticipated net federal, state and local tax benefits expected to be realized in future years upon the utilization of the underlying tax attributes comprising this balance. The Company has reported taxable income for federal, state, and local tax purposes in each of the past

three

years. In management’s opinion, in view of the Company’s previous, current and projected future earnings trend, the probability that some of the Company’s

$16.8

million deferred tax liability can be used to offset a portion of the deferred tax asset, as well as certain tax planning strategies, it is more likely than not that the deferred tax asset will be fully realized. Accordingly,

valuation allowance was deemed necessary for the deferred tax asset at

December

31,

2016

and

2015.

The Company does not have uncertain tax positions that are deemed material. The Company’s policy is to recognize interest and penalties on income taxes in operating expenses. During the

three

years ended

December

31,

2016,

the Company did

not

recognize any material amounts of interest or penalties on income taxes.