INCOME TAXES

12 Months Ended

Dec. 31, 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 2015. Tax returns have been filed through the year 2019.

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 asset position of $706,000 at December 31, 2020 and a net deferred tax liability $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 December 31, 2020		As of December 31, 2019
General expenses	$	1,448	$	1,269
Unearned premiums	1,313		1,288
Claims liabilities	698		645


NOL carryforward	632		—
Impairment on real estate owned	147		119


Unrealized loss on interest rate swaps	130		14
Deferred tax assets	4,368		3,335

Unrealized gains on trading securities	(3)		(1)
Depreciation	(95)		(93)
Deferred policy acquisition costs	(1,555)		(1,610)
Pre-1984 policyholder surplus account	(331)		(397)
Unrealized gains on securities available-for-sale	(1,083)		(663)
Unrealized gains on equity securities	(595)		(667)
Deferred tax liabilities	(3,662)		(3,431)

Net deferred tax asset (liability)	$	706	$	(96)

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


($ in thousands)	Year ended December 31,
	2020		2019
Deferred policy acquisition costs	$	(55)	$	(35)
Other-than-temporary impairments	(28)		—

Trading securities	2		1
Unearned premiums	(25)		(23)
General expenses	(179)		(202)
Depreciation	2		14
Claims liabilities	(53)		(93)


Impact of repeal of special provision on pre-1984 policyholder surplus	(66)		(66)
NOL carryforward	(632)		—
Unrealized gains (losses) on equity securities	(72)		149

Deferred income tax benefit	$	(1,106)	$	(255)

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:


	Year ended December 31,
	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	%	(0.3)	%
Company owned life insurance	0.7	%	(9.6)	%





Other, net	—	%	0.1	%
Effective federal income tax rate	21.8	%	11.2	%

- 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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