INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2012

Summary of provision for income tax benefit

A summary of the provision for income tax expense (benefit) is as follows.

	Years Ended December 31,
	2012		2011			2010
	(Dollars in Thousands)
Federal
Current	$	63	$	310		$	(1,701	)
Deferred		2,052		(490	)		(1,928	)
Provision for Federal income tax expense (benefit)		2,115		(180	)		(3,629	)
State
Current		-		-			-
Deferred		320		(390	)		(330	)
Provision for state income tax expense (benefit)		320		(390	)		(330	)
Provision for income tax expense (benefit)	$	2,435	$	(570	)	$	(3,959	)

Components of effective federal and state tax rates to income before provision for income tax benefit

The actual income tax expense (benefit) differs from the "expected" income tax expense (benefit) (computed by applying the combined applicable effective federal and state tax rates to income before provision for income tax expense (benefit) as follows.

	Years Ended December 31,
	2012			2011			2010
	(Dollars in Thousands)

Computed expected tax expense (benefit) provision, at federal rate	$	2,294		$	(341	)	$	(4,065	)
State tax, net of federal deduction expense (benefit)		245			(36	)		(434	)
Tax-exempt interest		(26	)		(41	)		(211	)
Dividend received deduction		(88	)		(80	)		(99	)
Stock option expense and other permanent differences		72			87			114
Intercompany		-			-			223
AMT tax credit		(113	)		-			-
Other		51			(159	)		513
Provision for income tax expense (benefit)	$	2,435		$	(570	)	$	(3,959	)

Components of net deferred tax asset

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our net deferred tax asset are as follows.

	Years Ended December 31,
	2012			2011
Deferred tax assets:
Unpaid losses and loss adjustment expenses	$	1,725		$	2,385
Unearned premiums		2,629			1,950
Discount on advance premiums		167			195
Allowance for credit losses		31			34
Allowance for impairments		91			317
FIGA Guaranty Assessment		306			-
Depreciation & amortization		366			317
Reserve for claims settlements		809			809
NOL Carryforward		3,259			5,696
AMT credit		253			-
Stock option expense per ASC 718		432			410
Total deferred tax assets		10,068			12,113
Deferred tax liabilities:

Deferred acquisition costs, net		(3,191	)		(2,905	)
Dividends Collected vs. Earned		(18	)		-
Regulatory assessments		(67	)		(67	)
Unrealized Gain on investment securities		(2,454	)		(529	)
Total deferred tax liabilities		(5,730	)		(3,501	)
Net deferred tax asset	$	4,338		$	8,612