INCOME TAXES

3 Months Ended

Mar. 31, 2021

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 net deferred tax asset positions of $776,000 at March 31, 2021 and $706,000 at December 31, 2020.

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



($ in thousands)	As of March 31, 2021		As of December 31, 2020
General expenses	$	1,456	$	1,448
Unearned premiums	1,395		1,313
Claims liabilities	685		698


NOL carryforward	296		632
Impairment on real estate owned	147		147


Unrealized loss on interest rate swaps	—		130
Deferred tax assets	3,979		4,368

Unrealized gains on trading securities	(1)		(3)
Depreciation	(93)		(95)
Deferred policy acquisition costs	(1,551)		(1,555)
Pre-1984 policyholder surplus account	(314)		(331)
Unrealized gains on securities available-for-sale	(649)		(1,083)
Unrealized gains on equity securities	(595)		(595)
Deferred tax liabilities	(3,203)		(3,662)

Net deferred tax asset	$	776	$	706

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


($ in thousands)	Three months ended March 31,
	2021		2020
Deferred policy acquisition costs	$	(4)	$	(30)
Other-than-temporary impairments	—		(40)

Trading securities	(2)		(6)
Unearned premiums	(82)		(30)
General expenses	(8)		108
Depreciation	(2)		(2)
Claims liabilities	13		30


Impact of repeal of special provision on pre-1984 policyholder surplus	(17)		(16)
NOL carryforward	336		—
Unrealized gains (losses) on equity securities	—		(126)

Deferred income tax expense (benefit)	$	234	$	(112)

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:


	Three months ended March 31,
	2021		2020
Federal income tax rate applied to pre-tax income (loss)	21.0	%	21.0	%
Dividends received deduction and tax-exempt interest	(0.3)	%	0.3	%
Company owned life insurance	1.3	%	(5.1)	%





Other, net	(0.1)	%	(0.1)	%
Effective federal income tax rate	21.9	%	16.1	%

- 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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