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 2012, 2011 and 2010 had effective tax rates of 19.7%, 20.3% and 22.6%, 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,
	2012			2011			2010
Statutory federal income tax rate		34.0	%		34.0	%		34.0	%
State and local income taxes, net of federal income tax benefit		3.1			3.1			2.9
Tax-exempt income, net of disallowed cost of funding		(17.5	)		(16.9	)		(14.6	)
Other		0.1			0.1			0.3
		19.7	%		20.3	%		22.6	%

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

	Year Ended December 31,
	2012		2011		2010
Current:	(in thousands)
Federal	$	1,575	$	3,168	$	4,772
State and local		607		1,033		1,211
		2,182		4,201		5,983
Deferred:
Federal		2,262		636		(459	)
State and local		573		107		(153	)
		2,835		743		(612	)
	$	5,017	$	4,944	$	5,371

Net Deferred Tax Asset or Liability. The following table sets forth the components of the Bank's net deferred tax asset or liability.

	December 31,
	2012			2011
	(in thousands)
Deferred tax assets:
Allowance for loan losses	$	7,312		$	6,335
Stock-based compensation		907			922
Supplemental executive retirement expense		19			18
Directors' retirement expense		71			75
Accrued rent expense		130			117
Other		51			30
		8,490			7,497
Valuation allowance		-			-
		8,490			7,497
Deferred tax liabilities:
Prepaid pension		4,210			2,318
Unrealized gains on available-for-sale securities		14,956			15,358
Deferred loan costs		1,558			-
Prepaid expenses		184			-
Depreciation		912			939
		21,820			18,615
Net deferred tax liability	$	(13,330	)	$	(11,118	)

The Corporation had no unrecognized tax benefits at December 31, 2012, 2011 and 2010, and does not expect to have any within the next twelve months.

The Corporation is subject to U.S. federal, New York State and New York City income taxes. The Corporation's federal income tax returns are subject to examination by the taxing authorities for years after 2008. The Corporation's New York State income tax returns are subject to examination for years after 2009. New York State recently completed an examination of the Corporation's and FNY's tax returns for calendar years 2007, 2008 and 2009 and proposed no changes to the returns. The Corporation's New York City income tax returns are subject to examination by taxing authorities for years after 2008. New York City recently completed an examination of the Corporation's tax returns for calendar years 2007 and 2008 and proposed no changes to the returns. The Corporation did not incur any amounts for interest and penalties due taxing authorities for calendar years 2010, 2011 and 2012.