FIRST OF LONG ISLAND CORP

NOTE G – INCOME TAXES

The Corporation, the Bank and the Bank’s subsidiaries, except for the REIT, file a consolidated federal income tax return. Income taxes charged to earnings in 2017, 2016 and 2015 had effective tax rates of 22.0%, 22.7% and 22.4%, respectively. The following table sets forth a reconciliation of the statutory federal income tax rate to the Corporation’s effective tax rate.



	Year Ended December 31,
	2017		2016		2015
Statutory federal income tax rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal income tax benefit	2.0		.9		2.1
Tax-exempt income, net of disallowed cost of funding	(10.2)		(11.8)		(14.0)
BOLI income	(1.2)		(.9)		(.9)
Excess tax benefit of stock-based compensation	(1.7)		(.9)		—
Impact of federal tax reform on deferred taxes	(2.0)		—		—
Other	.1		.4		.2
	22.0	%	22.7	%	22.4	%

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. The Corporation recorded a $909,000 credit to income tax expense in 2017, representing a 2.0% reduction in the effective tax rate, resulting from a decrease in the net deferred tax liability to reflect the change in federal tax law.

Provision for Income Taxes. The following table sets forth the components of the provision for income taxes.



	Year Ended December 31,
(in thousands)	2017		2016		2015
Current:
Federal	$	8,139	$	7,407	$	7,473
State and local		636		409		874
		8,775		7,816		8,347
Deferred:
Federal		335		1,114		(1,059)
State and local		779		119		178
		1,114		1,233		(881)
	$	9,889	$	9,049	$	7,466

Net Deferred Tax Liability. The following table sets forth the components of the Corporation’s net deferred tax liability.



	December 31,
(in thousands)	2017		2016
Deferred tax assets:
Allowance for loan losses and off-balance-sheet credit exposure	$	10,097	$	12,613
Interest on nonperforming loans		55		75
Accrued bonuses		—		622
Accrued legal settlement		12		21
Stock-based compensation		1,382		1,548
Supplemental executive retirement expense		17		24
Directors' retirement expense		47		66
Accrued rent expense		224		277
Depreciation		724		567
Other real estate owned valuation allowance and asset writedown		266		70
		12,824		15,883
Valuation allowance		—		—
		12,824		15,883
Deferred tax liabilities:
Prepaid pension		5,615		7,144
Unrealized gains on available-for-sale securities		1,259		1,101
Deferred loan costs		5,142		6,840
Prepaid expenses		146		141
REIT spillover dividend and other		3,043		725
		15,205		15,951
Net deferred tax liability	$	2,381	$	68

Unrecognized tax benefits at December 31, 2017 were immaterial. The Corporation had no unrecognized tax benefits at December 31, 2016 and 2015. The Corporation has not taken any tax positions for which it is reasonably possible that unrecognized tax benefits will significantly increase within the next twelve months.

The Corporation is subject to Federal, New York State, New York City, New Jersey and Connecticut income taxes. The Corporation did not incur any amounts for interest and penalties due taxing authorities for calendar years 2017, 2016 or 2015. The Corporation’s 2015 federal income tax return is currently under examination.