Note 13 - Income Taxes

3 Months Ended

Mar. 31, 2016

13. 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)	2016		2015

Federal:
Current	$	3,660	$	2,914
Deferred		1,087		1,338
Total federal tax provision		4,747		4,252
State and Local:
Current		385		707
Deferred		483		587
Total state and local tax provision		868		1,294
Total income tax provision	$	5,615	$	5,546

The effective tax rate was 37.0% and 38.8% for the three months ended March 31, 2016 and 2015, respectively. The decrease in the effective tax rate reflects the greater impact that preferential tax items had on the Company’s tax liability during the three months ended March 31, 2016 compared to the three months ended March 31, 2015 and changes in New York City tax law signed into law on April 13, 2015.

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

	For the three months ended March 31,
(Dollars in thousands)	2016					2015

Taxes at federal statutory rate	$	5,312		35.0	%	$	4,998		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		564		3.7			841		5.9
Other		(261	)	(1.7	)		(293	)	(2.1	)
Taxes at effective rate	$	5,615		37.0	%	$	5,546		38.8	%

The Company has recorded a deferred tax asset of $31.3 million at March 31, 2016, 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 $23.5 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, 2016.