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Income Taxes
12 Months Ended
Dec. 31, 2020
Summary of Significant Accounting Policies.  
Income Taxes

11. 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. The Bank also files various other state tax returns. The Company is undergoing examinations of New York State income tax returns for 2014, 2015 and 2016. Additionally, the Company remains subject to examination for its Federal and various other states income tax returns for the years ending on or after December 31, 2017. The Company believes it has accrued for all potential amounts that may be due to all taxing authorities.

Income tax provisions are summarized as follows for the years ended December 31:

    

2020

    

2019

    

2018

(In thousands)

Federal:

 

  

 

  

 

  

Current

$

14,178

$

12,404

$

9,183

Deferred

 

(4,990)

 

(1,965)

 

(609)

Total federal tax provision

 

9,188

 

10,439

 

8,574

State and Local:

 

  

 

  

 

  

Current

 

967

 

3,543

 

3,876

Deferred

 

353

 

(1,930)

 

(2,055)

Total state and local tax provision

 

1,320

 

1,613

 

1,821

Total provision for income taxes

$

10,508

$

12,052

$

10,395

The income tax provision in the Consolidated Statements of Income has been provided at effective rates of 23.3%, 22.7% and 15.9% for the years ended December 31, 2020, 2019 and 2018, respectively. The effective rates differ from the statutory federal income tax rate as follows for the years ended December 31:

    

2020

    

2019

    

2018

 

(Dollars in thousands)

 

Taxes at federal statutory rate

$

9,489

 

21.0

%  

$

11,200

 

21.0

%  

$

13,752

 

21.0

%

Increase (reduction) in taxes resulting from:

 

  

 

  

 

  

 

  

 

  

 

  

State and local income tax, net of Federal income tax benefit

 

1,043

 

2.3

 

1,274

 

2.4

 

1,439

 

2.2

Tax exempt

 

(875)

 

(1.9)

 

(878)

 

(1.6)

 

(1,961)

 

(3.0)

Nondeductible merger expense

543

1.2

328

0.6

Other

 

308

 

0.7

 

128

 

0.3

 

(2,835)

 

(4.3)

Taxes at effective rate

$

10,508

 

23.3

%  

$

12,052

 

22.7

%  

$

10,395

 

15.9

%

The components of the net deferred tax assets are as follows at December 31:

    

2020

    

2019

(In thousands)

Deferred tax assets:

Postretirement benefits

$

7,600

$

7,188

Allowance for loan losses

 

13,886

 

6,782

Operating lease liabilities

18,175

12,863

Stock based compensation

 

2,845

 

2,950

Depreciation

 

2,002

 

1,875

Unrealized loss on securities available for sale

 

 

1,812

Fair value adjustment on financial assets carried at fair value

 

23

 

95

Fair value hedges

 

2,726

 

1,669

Adjustment required to recognize funded status of postretirement pension plans

 

837

 

447

Cashflow hedges

7,780

2,668

Deferred loan income

2,000

1,367

Fair Value of Loans from Empire acquisition

3,465

Net operating loss (NYS)

23

Net operating loss (NYC)

 

1,395

 

880

Other

 

3,412

 

1,690

Deferred tax assets

 

66,169

 

42,286

Deferred tax liabilities:

 

  

 

  

FPFC deferred income

 

2,084

 

2,256

Right of Use Asset

15,582

12,863

Fair value adjustment on financial liabilities carried at fair value

 

4,968

 

5,003

Entity specific fair value

 

821

 

456

Unrealized gains on securities

573

Deferred loan cost

6,426

5,994

Other

 

1,459

 

341

Deferred tax liabilities

 

31,913

 

26,913

Net deferred tax asset included in other assets

$

34,256

$

15,373

The deferred tax asset 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 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 $31.9 million deferred tax liability can be used to offset a portion of the deferred tax asset it is more likely than not that the deferred tax asset will be fully realized. Accordingly, no valuation allowance was deemed necessary for the deferred tax asset at December 31, 2020 and 2019.

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 tax expense. During the three years ended December 31, 2020, the Company did not recognize any material amounts of interest or penalties on income taxes.