Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

Income Taxes

18. Income Taxes

Refer to Note 1 within the footnotes to the consolidated financial statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 for a detailed discussion of the accounting policy related to income taxes.  During interim periods, the Company calculates and reports an estimated annual effective income tax rate pursuant to ASC 740-270, “Income Taxes — Interim Reporting.”

The Company’s effective income tax rate for the three months ended June 30, 2011 of 10.7% resulted in an income tax benefit of approximately $1.3 million.  Non-deductible discrete items primarily associated with the write-off of goodwill related to the Equities division reduced the effective income tax rate by 32.6%.  The Company’s effective income tax rate excluding discrete items was 43.3% for the period which differs from the federal statutory tax rate of 35% primarily due to state and local taxes.

The Company recorded income tax expense of approximately $3.7 million for the six months ended June 30, 2011, which reflects the nondeductible nature of the write-off of goodwill related to the Equities division and a re-measurement of net deferred tax assets due to a change in estimate of our apportioned statutory income tax rate, partially offset by a benefit related to the ClearPoint bargain purchase gain.  The Company’s effective income tax rate, including discrete items, is not meaningful as the discrete items distort the effective rate due to pre-tax results being close to break-even for the period.  The Company’s effective income tax rate excluding discrete items was 43.9% for the period which differs from the federal statutory tax rate of 35% primarily due to state and local taxes.

During the three and six months ended June 30, 2010, the Company calculated its income tax provision using its actual year to date effective tax rate (“discrete rate”) rather than its estimated annual effective tax rate.  The Company used the discrete rate because a reliable estimate of the annual effective tax rate could not be calculated due to the magnitude of permanent items in relation to a range of possible outcomes of our operating results caused by continued market volatility. The Company’s effective income tax rate for the three months ended June 30, 2010 of 25.6% resulted in an income tax benefit of approximately $1.8 million.  The effective rate differed from the federal statutory rate of 35% due to the initial application of the discrete rate during the quarter, non-deductible preferred stock dividends, state and local income taxes and non-deductible meals and entertainment expense.

The Company’s effective income tax rate for the six months ended June 30, 2010 of 40.1% resulted in an income tax benefit of approximately $3.6 million.  The effective rate is calculated using the discrete rate and differed from the federal statutory rate of 35% primarily due to non-deductible preferred stock dividends, state and local income taxes and non-deductible meals and entertainment expense, partially offset by a benefit recorded in the first quarter of 2010 due to the reversal of prior year non-deductible stock based compensation previously granted to the Company’s former Chief Executive Officer (“CEO”).

The Company’s deferred tax assets decreased approximately $4.1 million during the six months ended June 30, 2011, primarily due to vestings and settlements of stock-based compensation awards, partially offset by stock-based compensation expense.  Refer to Note 19 herein for additional details.

There were no significant changes to the Company’s unrecognized tax benefits during the six months ended June 30, 2011.