Note 12 - Income Taxes

3 Months Ended

Mar. 31, 2015

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,
	2015		2014
	(In thousands)
Federal:
Current	$	2,914	$	2,737
Deferred		1,338		2,021
Total federal tax provision		4,252		4,758
State and Local:
Current		707		1,266
Deferred		587		903
Total state and local tax provision		1,294		2,169
Total income tax provision	$	5,546	$	6,927

The effective tax rate was 38.8% and 40.2% for the three months ended March 31, 2015 and 2014, respectively. The decrease in the effective tax rate was primarily due to the prior year being affected by changes in New York State tax code passed on March 31, 2014, which resulted in a reduction in the Company’s deferred tax assets and a corresponding increase in tax expense during the three months ended March 31, 2014.

On April 13, 2015, the Governor of New York signed the New York State 2015 budget, which included changes to the New York City tax code. The approved budget changes the manner in which the Bank’s tax liability is calculated for New York City. Based on our review of the changes to the New York City tax code, we do not anticipate a significant change to the Company’s tax expense.

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

	For the three months ended March 31,
(dollars in thousands)	2015					2014
Taxes at federal statutory rate	$	4,998		35.0	%	$	6,028		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		841		5.9			1,410		8.2
Other		(293	)	(2.1	)		(511	)	(3.0	)
Taxes at effective rate	$	5,546		38.8	%	$	6,927		40.2	%

The Company has recorded a deferred tax asset of $27.8 million at March 31, 2015, 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 $25.9 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, no valuation allowance was deemed necessary for the deferred tax asset at March 31, 2015.

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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