INCOME TAXES

6 Months Ended

Jun. 30, 2020

The Company recognizes tax-related interest and penalties as a component of tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is not subject to examinations by authorities related to its U.S. federal or state income tax filings for years prior to 2014. Tax returns have been filed through the year 2018.

Net deferred tax liabilities are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of the enacted tax laws. Management believes that, based on its historical pattern of taxable income, the Company will produce sufficient income in the future to realize its deferred tax assets. The Company recognized a net deferred tax liability positions of $130,000 at June 30, 2020 and $96,000 at December 31, 2019.

The tax effect of significant differences representing deferred tax assets and liabilities are as follows:



($ in thousands)	As of June 30, 2020		As of December 31, 2019
General expenses	$	1,249	$	1,269
Unearned premiums	1,407		1,288
Claims liabilities	633		645



Impairment on real estate owned	109		119
Unrealized losses on trading securities	1		—

Unrealized loss on interest rate swaps	178		14
Deferred tax assets	3,577		3,335

Unrealized gains on trading securities	—		(1)
Depreciation	(90)		(93)
Deferred policy acquisition costs	(1,630)		(1,610)
Pre-1984 policyholder surplus account	(364)		(397)
Unrealized gains on securities available-for-sale	(1,060)		(663)
Unrealized gains on equity securities	(563)		(667)
Deferred tax liabilities	(3,707)		(3,431)

Net deferred tax liability	$	(130)	$	(96)

The appropriate income tax effects of changes in temporary differences are as follows:


($ in thousands)	Six months ended June 30,
	2020		2019
Deferred policy acquisition costs	$	20	$	13
Other-than-temporary impairments	10		—

Trading securities	(2)		1
Unearned premiums	(119)		(91)
General expenses	20		(75)
Depreciation	(3)		(4)
Claims liabilities	12		(13)


Impact of repeal of special provision on pre-1984 policyholder surplus	(33)		(33)
Unrealized gains (losses) on equity securities	(104)		32

Deferred income tax benefit	$	(199)	$	(170)

Total income tax expense (benefit) varies from amounts computed by applying current federal income tax rates to income or loss before income taxes. The reasons for these differences and the approximate tax effects are as follows:


	Six months ended June 30,
	2020		2019
Federal income tax rate applied to pre-tax income (loss)	21.0	%	21.0	%
Dividends received deduction and tax-exempt interest	0.1	%	(0.5)	%
Company owned life insurance	0.1	%	(24.3)	%





Other, net	0.3	%	(0.2)	%
Effective federal income tax rate	21.5	%	(4.0)	%

- Definition

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

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