Note 13 - Income Taxes

9 Months Ended

Sep. 30, 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 September 30,						For the nine months ended September 30,
(In thousands)	2016			2015			2016			2015
Federal:
Current	$	6,474		$	6,195		$	26,362		$	20,262
Deferred		(906	)		(820	)		(844	)		(3,480	)
Total federal tax provision		5,568			5,375			25,518			16,782
State and Local:
Current		1,492			1,635			7,853			6,490
Deferred		(405	)		(349	)		(384	)		(1,544	)
Total state and local tax provision		1,087			1,286			7,469			4,946

Total income tax provision	$	6,655		$	6,661		$	32,987		$	21,728

The effective tax rate was 38.5% and 37.7% for the three months ended September 30, 2016 and 2015, respectively, and 39.5% and 38.6% for the nine months ended September 30, 2016 and 2015, respectively. The increase in the effective tax rate reflects the reduced impact of preferential tax items, as a result of the gain on sale of one of our properties in Flushing, Queens recorded during the nine months ended September 30, 2016.

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

	For the three months ended September 30,										For the nine months ended September 30,
(dollars in thousands)	2016					2015					2016					2015

Taxes at federal statutory rate	$	6,051		35.0	%	$	6,184		35.0	%	$	29,266		35.0	%	$	19,706		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		707		4.1			836		4.7			4,855		5.8			3,215		5.7
Other		(103	)	(0.6	)		(359	)	(2.0	)		(1,134	)	(1.3	)		(1,193	)	(2.1	)
Taxes at effective rate	$	6,655		38.5	%	$	6,661		37.7	%	$	32,987		39.5	%	$	21,728		38.6	%

The Company has recorded a deferred tax asset of $34.8 million at September 30, 2016, which is included in “Other assets” in the Consolidated Statements of Financial Condition. This represents the 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 $23.3 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 September 30, 2016.