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Income Taxes

12 Months Ended

Dec. 31, 2019

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 New York State income tax returns for 2014, 2015 and 2016. Additionally, the Company remains subject to examination for its New York City income tax returns for years ending on or after December 31, 2015 and for its Federal, New York State and New Jersey income tax returns for the years ending on or after December 31, 2016. 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:


	2019		2018		2017
	(In thousands)
Federal:
Current	$	12,404	$	9,183	$	14,859
Deferred		(1,965)		(609)		7,985
Total federal tax provision		10,439		8,574		22,844
State and Local:
Current		3,543		3,876		1,419
Deferred		(1,930)		(2,055)		750
Total state and local tax provision		1,613		1,821		2,169
Total income tax provision	$	12,052	$	10,395	$	25,013

On 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% to 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 22.7%, 15.9% and 37.8% for the years ended December 31, 2019, 2018 and 2017, respectively. The effective rates differ from the statutory federal income tax rate as follows for the years ended December 31:


	2019				2018				2017
	(Dollars in thousands)
Taxes at federal statutory rate	$	11,200	21.0	%	$	13,752	21.0	%	$	23,147	35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		1,274	2.4			1,439	2.2			1,410	2.1
TCJA		—	—			—	—			3,770	5.7
Tax exempt		(878)	(1.6)			(1,961)	(3.0)			(2,429)	(3.7)
Other		456	0.9			(2,835)	(4.3)			(885)	(1.3)
Taxes at effective rate	$	12,052	22.7	%	$	10,395	15.9	%	$	25,013	37.8	%

The components of the net deferred tax assets are as follows at December 31:


	2019		2018
	(In thousands)
Deferred tax assets:
Postretirement benefits	$	7,188	$	6,489
Allowance for loan losses		6,782		6,490
Operating lease liabilities		12,863		—
Stock based compensation		2,950		2,717
Depreciation		1,875		615
Unrealized loss on securities available for sale		1,812		7,028
Fair value adjustment on financial assets carried at fair value		95		227
Fair value hedges		1,669		638
Adjustment required to recognize funded status of postretirement pension plans		447		751
Gain on sale of buildings		—		1,220
Cashflow hedges		2,668		—
Other		3,057		3,113
Net operating loss (NYC)		880		928
Deferred tax assets		42,286		30,216

Deferred tax liabilities:
FPFC deferred income		2,256		2,263
Right of Use Asset		12,863		—
Cashflow hedges		—		1,664
Fair value adjustment on financial liabilities carried at fair value		5,003		5,815
Entity specific fair value		456		382
Other		6,335		6,132
Deferred tax liabilities		26,913		16,256

Net deferred tax asset included in other assets	$	15,373	$	13,960

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 $26.9 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, 2019 and 2018.

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, 2019, the Company did not recognize any material amounts of interest or penalties on income taxes.