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.