12.

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 Company’s trusts, which file separate Federal income tax returns as trusts, and Flushing Preferred Funding Corporation, which files a separate Federal income tax return as a real estate investment trust. Additionally, the Bank files New Jersey State tax returns.

Income tax provisions are summarized as follows:

	For the three months ended March 31,
(In thousands)	2017			2016

Federal:
Current	$	2,952		$	3,660
Deferred		1,797			1,087
Total federal tax provision		4,749			4,747
State and Local:
Current		(199	)		385
Deferred		704			483
Total state and local tax provision		505			868
Total income tax provision	$	5,254		$	5,615

The effective tax rate was

30.0%

and

37.0%

for the

three

months ended

March

31,

2017

and

2016,

respectively. The decrease in the effective tax rate reflects the impact of a change in the treatment of deductible stock compensation expense from prior years. In prior years the tax impact of deductible stock compensation expense flowed through additional paid-in-capital and did not have an impact on the Company’s effective tax rate, in contrast, in

2017

the impact is passed through the provision for income taxes.

The effective rates differ from the statutory federal income tax rate as follows:

	For the three months ended March 31,
(Dollars in thousands)	2017					2016

Taxes at federal statutory rate	$	6,130		35.0	%	$	5,312		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		328		1.9			564		3.7
Other		(1,204	)	(6.9	)		(261	)	(1.7	)
Taxes at effective rate	$	5,254		30.0	%	$	5,615		37.0	%

The Company has recorded a deferred tax asset of

$31.4

million at

March

31,

2017,

which is included in “Other assets” in the Consolidated Statements of Financial Condition. 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

fiscal 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

$16.9

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

March

31,

2017.