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Note 17 - Income Taxes | 12 Months Ended
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Dec. 31, 2025
Income Tax Disclosure [Abstract] |
Income Tax Disclosure [Text Block] | 17. Income Taxes The components of the Company’s income tax expense (benefit) are as follows:
|  | December 31, |
|  | 2025 |  |  | 2024 |  |  | 2023 |
|  | ($ in thousands) |
Current: |  |  |  |  |  |  |  |  |
Federal |  | $ | 53,318 |  |  | $ | 31,006 |  |  | $ | 26,756 |
State |  |  | 960 |  |  |  | 554 |  |  |  | 511 |
Total Current |  |  | 54,278 |  |  |  | 31,560 |  |  |  | 27,267 |
Deferred: |  |  |  |  |  |  |  |  |
Federal |  |  | 2,003 |  |  |  | 1,997 |  |  |  | (2,900 | )
State |  |  | 39 |  |  |  | 66 |  |  |  | 74 |
Total Deferred |  |  | 2,042 |  |  |  | 2,063 |  |  |  | (2,826 | )
Income tax expense |  | $ | 56,320 |  |  | $ | 33,623 |  |  | $ | 24,441 |
As of December 31, 2025 and 2024, significant components of the Company’s deferred tax assets and liabilities were as follows:
|  | December 31, |
|  | 2025 |  |  | 2024 |
|  | ($ in thousands) |
Deferred tax assets: |  |  |  |  |  |
Losses and LAE reserve discount |  | $ | 3,445 |  |  | $ | 1,711 |
State tax net operating losses |  |  | 3,271 |  |  |  | 3,372 |
Deferred Intercompany |  |  | 533 |  |  |  | 605 |
Unearned premiums |  |  | 27,017 |  |  |  | 19,550 |
Capitalized organizational costs |  |  | 94 |  |  |  | 124 |
Unrealized losses on investments |  |  | — |  |  |  | 5,134 |
Deferred compensation |  |  | 3,152 |  |  |  | 2,533 |
Lease Liability |  |  | 1,489 |  |  |  | 1,631 |
Other |  |  | 1,487 |  |  |  | 2,230 |
Total deferred tax assets |  | $ | 40,488 |  |  | $ | 36,890 |
Deferred tax liabilities: |  |  |  |  |  |
Deferred acquisition costs |  | $ | (26,824 | ) |  | $ | (19,929 | )
Unrealized gains on investments |  |  | (2,800 | ) |  |  | — |
Internally developed software |  |  | (3,027 | ) |  |  | (1,118 | )
State deferred tax liability |  |  | (1,255 | ) |  |  | (1,216 | )
Right-of-use Asset |  |  | (1,445 | ) |  |  | (1,604 | )
Other |  |  | (1,104 | ) |  |  | (837 | )
Total deferred tax liabilities |  |  | (36,455 | ) |  |  | (24,704 | )
Net deferred tax asset before valuation allowance |  |  | 4,033 |  |  |  | 12,186 |
Valuation allowance |  |  | (3,272 | ) |  |  | (3,372 | )
Total net deferred tax assets |  | $ | 761 |  |  | $ | 8,814 |
The above valuation allowance relates to state net operating losses (“NOL”) carryforwards. The change in the valuation allowance impacting the effective tax rate was approximately $0.1 million, or 0.04%. Due to the limited carryforward period these do not meet the “more likely than not” criteria and it is necessary to maintain a valuation allowance on these items. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period change or if objective negative evidence in the form of cumulative losses is no longer present. As of December 31, 2025, there are no federal net operating loss or tax credit carryforwards for tax purposes. The Company has $3.3 million of state NOLs (tax-effected, net of federal benefit) set to expire beginning in 2025 over various periods. There are $1.1 million of tax capital loss carryforwards which will begin to expire in 2029. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the tax years ended December 31, 2025, 2024 and 2023:
|  | Years Ended December 31, |
|  | 2025 |  |  | 2024 |  |  | 2023 |
|  | ($ in thousands) |
Expense computed at federal tax rate |  | $ | 53,212 |  |  |  | 21.00 | % |  | $ | 31,750 |  |  |  | 21.00 | % |  | $ | 21,765 |  |  |  | 21.00 | %
State and local income tax, net of federal (national) income tax effect (1) (2) |  |  | 1,027 |  |  |  | 0.41 | % |  |  | 488 |  |  |  | 0.32 | % |  |  | 719 |  |  |  | 0.69 | %
Nontaxable or nondeductible items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stock-based compensation |  |  | 553 |  |  |  | 0.22 | % |  |  | 429 |  |  |  | 0.28 | % |  |  | 1,523 |  |  |  | 1.47 | %
Dividend received deduction and tax‑exempt interest |  |  | (95 | ) |  |  | (0.04 | )% |  |  | (90 | ) |  |  | (0.06 | )% |  |  | (96 | ) |  |  | (0.09 | )%
Meals & entertainment, penalties & parking |  |  | 447 |  |  |  | 0.18 | % |  |  | 291 |  |  |  | 0.19 | % |  |  | 261 |  |  |  | 0.25 | %
Other |  |  | 1,176 |  |  |  | 0.45 | % |  |  | 755 |  |  |  | 0.50 | % |  |  | 269 |  |  |  | 0.26 | %
Income tax expense |  | $ | 56,320 |  |  |  | 22.22 | % |  | $ | 33,623 |  |  |  | 22.23 | % |  | $ | 24,441 |  |  |  | 23.58 | %
(1) State taxes in California, Oregon, and Illinois made up the majority (greater than 50%) of the tax effect in this category. (2) Certain prior year amounts have been reclassified to conform to the current year presentation. Such reclassifications had no impact on net income. As of December 31, 2025, the amount of income taxes paid is as follows:
|  | December 31, |
|  | 2025 |  |  | 2024 |
|  | ($ in thousands) |
Income taxes paid |  |  |  |  |  |
Federal |  | $ | 57,961 |  |  | $ | 37,810 |
State |  |  | 1,124 |  |  |  | 644 |
Total income taxes paid |  | $ | 59,085 |  |  | $ | 38,454 |
For the year ended December 31, 2025, 2024, and 2023, the difference relates primarily to Section 162(m) limitations on executive compensation deductions, the permanent component of employee stock option exercises, state taxes, and valuation allowance set against state attributes. As of December 31, 2025 and 2024, the Company had no uncertain tax positions that required either recognition or disclosure in the consolidated financial statements. This is not expected to change significantly during the next twelve months. The Company classifies interest and penalties, if any, related to the liability for unrecognized tax benefits as a component of the provision for income taxes. The Company’s federal income tax returns for 2019 and 2021 through 2024 and its state income tax returns for 2021 through 2024 remain subject to examination by the tax authorities. The 2025 income tax return is expected to be filed in 2026 and is subject to examination when filed. Under Pillar Two/GloBE rules, certain countries have agreed to enact a jurisdictional-level minimum tax system with a minimum effective tax rate (ETR) of 15%. The Bermuda Corporate Income Tax Act of 2023 also established a 15% income tax regime. Companies with annual revenue above 750 million Euros will be within the scope of Pillar Two and the Bermuda CIT. As of December 31, 2025, Palomar is not within this revenue threshold and hence not an in-scope entity. Subsequent financial years will be assessed for these rules. On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted into law. The OBBBA extends or makes permanent various tax provisions that were originally enacted in the 2017 Tax Cuts and Jobs Act and were set to expire at the end of 2025. While the enactment of OBBBA did not materially impact the Company's overall income tax expense, the provision for internally developed software expenses lowered the Company's federal income tax by $2.5 million for the year ended December 31, 2025.

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