10.

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 New Jersey State tax returns. The Company is undergoing examinations of its Federal income tax return for

2015,

New York State income tax returns for

2014,

2015

and

2016

and its New York City income tax return for

2014.

Additionally, the Company remains subject to examination for its Federal, New York State and New Jersey income tax returns for the years ending on or after

December 31, 2015.

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:

	2018			2017		2016
	(In thousands)
Federal:
Current	$	9,183		$	14,859	$	34,996
Deferred		(609	)		7,985		(1,416	)
Total federal tax provision		8,574			22,844		33,580
State and Local:
Current		3,876			1,419		7,647
Deferred		(2,055	)		750		(124	)
Total state and local tax provision		1,821			2,169		7,523
Total income tax provision	$	10,395		$	25,013	$	41,103

December 22, 2017,

the Tax Cuts and Jobs Act (the “TCJA”) was enacted, which among other things, reduced the federal income tax rate for corporations from

35%

21%

effective

January 1, 2018.

We recorded

$3.8

million in additional tax expense during

2017

from the revaluation of our net deferred tax assets, resulting from the TCJA.

The income tax provision in the Consolidated Statements of Income has been provided at effective rates of

15.9%,

37.8%

and

38.8%

for the years ended

December 31, 2018,

2017

and

2016,

respectively. The effective rates differ from the statutory federal income tax rate as follows for the years ended

December 31:

	2018					2017					2016
	(Dollars in thousands)
Taxes at federal statutory rate	$	13,752		21.0	%	$	23,147		35.0	%	$	37,106		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		1,439		2.2			1,410		2.1			4,890		4.6
TCJA		-		-			3,770		5.7			-		-
Tax exempt		(1,961	)	(3.0	)		(2,429	)	(3.7	)		(1,750	)	(1.7	)
Other		(2,835	)	(4.3	)		(885	)	(1.3	)		857		0.9
Taxes at effective rate	$	10,395		15.9	%	$	25,013		37.8	%	$	41,103		38.8	%

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

December 31:

	2018		2017
	(In thousands)
Deferred tax assets:
Postretirement benefits	$	6,489	$	6,047
Allowance for loan losses		6,490		6,414
Stock based compensation		2,717		2,808
Depreciation		615		1,057
Unrealized loss on securities available for sale		7,028		3,150
Fair value adjustment on financial assets carried at fair value		227		168
Fair value hedges		638		939
Adjustment required to recognize funded status of postretirement pension plans		751		2,068
Gain on sale of buildings		1,220		1,434
Other		3,113		299
Net operating loss (NYC)		928		-
Deferred tax assets		30,216		24,384

Deferred tax liabilities:
FPFC deferred income		2,263		1,916
Cashflow hedges		1,664		129
Fair value adjustment on financial liabilities carried at fair value		5,815		7,800
Entity specific fair value		382		-
Other		6,132		4,239
Deferred tax liabilities		16,256		14,084

Net deferred tax asset included in other assets	$	13,960	$	10,300

The Company has recorded a deferred tax asset of

$30.2

million. 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 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

$16.3

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,

valuation allowance was deemed necessary for the deferred tax asset at

December 31, 2018

and

2017.

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, 2018,

the Company did

not

recognize any material amounts of interest or penalties on income taxes.