Note 11 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

11.  Income Taxes

The operations of SeaBright and its subsidiaries are included in a consolidated federal income tax return.

The following is a reconciliation of the difference between the “expected” federal income tax computed by applying the statutory income tax rate of 35% to income (loss) before taxes and the actual total income taxes reflected on the books for the years ended December 31, 2011, 2010, and 2009:

	Year Ended December 31,
	2011			2010			2009
	(In thousands)
Expected federal income tax expense (benefit) at statutory rate	$	(8,864	)	$	(2,219	)	$	5,805
State income tax benefit (expense)		(74	)		12			(68	)
Tax exempt bond interest income exclusion		(2,805	)		(3,360	)		(3,446	)
Other		733			846			558
Federal income tax (benefit) expense per books		(11,010	)		(4,721	)		2,849
State income tax (benefit) expense		210			(35	)		202
Total combined income tax (benefit) expense	$	(10,800	)	$	(4,756	)	$	3,051

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and those amounts used for income tax reporting purposes. The significant components of the deferred tax assets and liabilities at December 31, 2011 and 2010 were as follows:

	December 31,
	2011			2010
	(In thousands)
Federal deferred tax assets:
Unpaid loss and loss adjustment expenses	$	22,525		$	20,682
Unearned premium		7,917			9,824
Allowance for bad debts		360			228
Restricted stock grants		2,359			2,722
Amortizable assets		557			607
Accrued vacation and bonus		661			733
Guaranty fund payable		399			281
Net operating loss and tax credit carryovers		4,579			—
Other		984			979
		40,341			36,056
Federal deferred tax liabilities:
Prepaid expenses		(435	)		(404	)
Unrealized net gain on investment securities		(12,162	)		(2,573	)
State insurance licenses		(420	)		(420	)
Deferred acquisition costs		(7,642	)		(8,951	)
Other		(864	)		(984	)
		(21,523	)		(13,332	)
Federal net deferred tax assets		18,818			22,724
State deferred tax assets		415			734
Federal and state net deferred tax assets	$	19,233		$	23,458

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the taxes paid in prior years, the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historic taxable income and projections of future taxable income over the periods in which the deferred tax assets are deductible, management expects to realize the benefits of these deductible differences.

As of December 31, 2011, the Company had $11.7 million of net operating loss carryovers and $0.5 million of alternative minimum tax credit carryovers, both relating to federal income tax. The $11.7 million of net operating loss carryovers expires in 2031. The $0.5 million of alternative minimum tax credit carryovers has no expiration date. The Company had no carryovers as of December 31, 2010.

As of December 31, 2011 and 2010, the Company had no unrecognized tax benefits, and the Company does not expect to have any unrecognized tax benefits in the next 12 months. The Company files consolidated U.S. federal and state income tax returns, as well as separate company state income tax returns. The tax years that remain subject to examination by the Internal Revenue Service are the years ended December 31, 2008, 2009, 2010 and 2011.