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Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
INCOME TAXES

NOTE 12 – INCOME TAXES

The following table reconciles the statutory federal income tax rate to the Company’s effective tax rate for the years ended December 31, 2011, 2010 and 2009:

 

                         
    For the years ended December 31,  
      2011             2010             2009      

Statutory federal income tax rate

     35.0 %      35.0 %      35.0 % 

Increases (decreases) resulting from:

                        

Disallowed meals & entertainment

     0.6 %      0.3 %      0.3 % 

Disallowed compensation

     2.3 %      1.3 %      —    

State income tax, net of federal tax benefit (1)

     3.6 %      3.6 %      3.6 % 

Other, net

     -1.1 %      0.4 %      -1.3 % 
   

 

 

    

 

 

    

 

 

  

Effective tax rate (2)

     40.4 %      40.6 %      37.6 % 
   

 

 

    

 

 

    

 

 

  

 

(1) Included in income tax is Florida income tax at a statutory tax rate of 5.5%.
(2) Other represents true-ups recorded upon completion of prior years’ tax returns, partially offset by estimates of penalties and interest for current year underpayment of estimated taxes.

 

Deferred income taxes as of December 31, 2011 and 2010 represent the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. The tax effects of temporary differences are as follows:

 

                 
    As of December 31,  
    2011     2010  

Deferred income tax assets:

                

Unearned premiums

   $ 9,007     $ 8,274  

Advanced premiums

     1,451       1,460  

Unpaid losses

     3,139       2,194  

Regulatory assessments

     —         182  

Executive compensation

     —         1,312  

Stock option expense

     4,026       3,467  

Accrued wages

     958       357  

Allowance for uncollectible receivables

     276       43  

Additional tax basis of securities

     2,407       172  

Restricted stock grant

     315       —    

Recognition of OTTI

     —         307  

Unrealized losses on investments

     6,425       —    
   

 

 

    

 

 

  

Total deferred income tax assets

     28,004       17,768  
   

 

 

    

 

 

  

Deferred income tax liabilities:

                

Deferred policy acquisition costs, net

     (5,013 )      (3,644 ) 

Unrealized gains on investments

     —         (676 ) 
   

 

 

    

 

 

  

Total deferred income tax liabilities

     (5,013 )      (4,320 ) 
   

 

 

    

 

 

  
                 
   

 

 

    

 

 

  

Net deferred income tax asset

   $ 22,991     $ 13,448  
   

 

 

    

 

 

  

A valuation allowance is deemed unnecessary as of December 31, 2011 and December 31, 2010, respectively, because management believes it is probable that the Company will generate substantial taxable income sufficient to realize the tax benefits associated with the net deferred income tax asset shown above in the near future.

Liabilities for unrecognized tax benefits, if any, are recorded in accordance with issued FASB guidance on Accounting for Uncertainty in Income Taxes. The Company recognizes accruals for interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

The Company filed a consolidated federal income tax return for the fiscal years ended December 31, 2010, 2009, and 2008 and intends to file the same for the fiscal year ended December 31, 2011. The agreements between the Company and its statutory subsidiaries provide that they will incur income taxes based on a computation of taxes as if they were stand-alone taxpayers.

The 2006 consolidated federal income tax return for the Company and its subsidiaries was examined by the Internal Revenue Service in 2009. The audit was completed and settled in October 2009 with no major issues. The combination of positive and negative adjustments resulted in an agreed upon assessment of $3 thousand, which was paid by the Company in January 2010.

Tax years that remain open for purposes of examination of its income tax liability due to taxing authorities, include the years ended December 31, 2010, 2009 and 2008. The 2009 consolidated federal income tax return for the Company and its subsidiaries is currently under examination by the Internal Revenue Service.