Note 9 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

9. 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 and New York State income tax return as a real estate investment trust. The Company remains subject to examination for its Federal income tax returns for the years ending on or after December 31, 2008, and for its New York State income tax returns for years ending on or after December 31, 2010. The Company recently underwent an examination of its New York City income tax returns for 2009 and 2010 for which it is waiting for a final determination. During the three years ended December 31, 2011, the Company did not recognize any material amounts of interest or penalties on income taxes.

The Company’s annual tax liability for New York State and New York City was the greater of a tax based on “entire net income,” “alternative entire net income,” “taxable assets” or a minimum tax. For the years ended December 31, 2011 and 2010, the Company’s state and city tax were based on “entire net income.” For the year ended December 31, 2009, the Company’s state and city tax was based on “alternative entire net income.”

In September 2010, the New York State legislature passed a significant change to New York State and City tax law for thrifts, such as the Savings Bank, by eliminating the long-standing "percentage of taxable income" as a method for determining bad debt deductions. The change in the tax law also eliminated the requirement to recapture tax bad debt reserves if a thrift failed to meet the definition of a thrift institution under New York State and City tax law.

The Savings Bank had historically reported in its New York State and City income tax returns a deduction for bad debts based on the amount allowed under the percentage of taxable income method. This amount has historically exceeded actual bad debts incurred by the Savings Bank. Since the Savings Bank has consistently stated its intention to convert to a more “commercial-like” bank, which would have previously required the Savings Bank to recapture this excess bad debt reserve if it failed to meet the definition of a thrift under the New York State and City tax law, the Savings Bank has, in prior periods, recorded the tax liability related to the possible recapture of the excess tax bad debt reserve. As a result of the legislation passed by the New York State legislature, this tax liability will no longer be required to be recaptured. As a result, the Savings Bank reversed approximately $5.5 million of net tax liabilities through income, during the year ended December 31, 2010.

Income tax provisions are summarized as follows for the years ended December 31:

	2011		2010			2009
	(In thousands)
Federal:
Current	$	17,314	$	18,205		$	6,767
Deferred		435		1,138			5,420
Total federal tax provision		17,749		19,343			12,187
State and Local:
Current		5,470		5,777			1,131
Deferred		250		(9,179	)		2,453
Total state and local tax provision		5,720		(3,402	)		3,584
Total income tax provision	$	23,469	$	15,941		$	15,771

The income tax provision in the Consolidated Statements of Income has been provided at effective rates of 39.9%, 29.1% and 38.2% for the years ended December 31, 2011, 2010 and 2009, respectively. The effective rates differ from the statutory federal income tax rate as follows for the years ended December 31:

	2011					2010					2009
	(Dollars in thousands)
Taxes at federal statutory rate	$	20,586		35.0	%	$	19,172		35.0	%	$	14,466		35.0	%
Increase (reduction) in taxes resulting from:
State and local income tax, net of Federal income tax benefit		3,718		6.3			(2,211	)	(4.0	)		2,330		5.6
Other		(835	)	(1.4	)		(1,020	)	(1.9	)		(1,025	)	(2.4	)
Taxes at effective rate	$	23,469		39.9	%	$	15,941		29.1	%	$	15,771		38.2	%

The components of the income taxes attributable to income from operations and changes in equity are as follows for the years ended December 31:

	2011			2010			2009
	(In thousands)
Income from operations	$	23,469		$	15,941		$	15,771
Equity:
Change in fair value of securities available for sale		8,398			2,714			10,225
Current year actuarial losses of postretirement plans		(1,932	)		(513	)		(690	)
Amortization of net actuarial losses and prior service credits		223			120			156
Effect of change in measurement date of postretirement plans		-			-			-
Compensation expense for tax purposes in (excess) or less than that recognized for financial reporting purposes		(292	)		(12	)		184
Total income taxes	$	29,866		$	18,250		$	25,646

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

	2011		2010
	(In thousands)
Deferred tax asset:
Postretirement benefits	$	3,658	$	4,024
Allowance for loan losses		13,305		12,189
Stock based compensation		1,942		2,010
Depreciation		1,041		772
Fair value adjustment on financial assets carried at fair value		4,024		3,082
Other-than-temporary impairment charges		3,035		3,085
Adjustment required to recognize funded status of postretirement pension plans		5,362		3,653
Other		1,871		1,951
Deferred tax asset		34,238		30,766
Deferred tax liability:
Core deposit intangibles		411		618
Valuation differences resulting from acquired assets and liabilities		2,898		2,949
Fair value adjustment on financial liabilities carried at fair value		15,776		13,230
Unrealized gains on securities available for sale		9,120		722
Other		1,993		1,840
Deferred tax liability		30,198		19,359
Net deferred tax asset included in other assets	$	4,040	$	11,407

The Company has recorded a deferred tax asset of $34.2 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 federal, state, and local tax purposes in 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 $30.2 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 December 31, 2011 and 2010.

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 operating expenses. During the three years ended December 31, 2011, the Company did not recognize any material amounts of interest or penalties on income taxes.