Note 5.

Income Taxes

Total income taxes were allocated as follows:

	2017		2016
Total tax expense on income	$	828	$	888

Tax expense on components of shareholders’ equity:
Net unrealized gains on investment securities		2,111		671
Total tax expense	$	2,939	$	1,559

A reconciliation of the differences between income taxes computed at the federal statutory income tax rate and the income tax expense is as follows:

	2017			2016
Federal income tax provision at statutory rate of 35%	$	1,875		$	1,233
Dividends-received deduction		(92	)		(95	)
Small life insurance company deduction		(613	)		(376	)
Other		72			55
Remeasurement of deferred taxes due to tax reform enactment		(395	)		—
Adjustment for prior years’ estimates to actual		(19	)		71
Income tax expense	$	828		$	888
Effective tax rate		15.5	%		25.2	%

The primary differences between the effective tax rate and the federal statutory income tax rate for 2017 and 2016 resulted from the dividends-received deduction (“DRD”), the small life insurance company deduction (“SLD”) and the remeasurement of deferred taxes. The current estimated DRD is adjusted as underlying factors change and can vary from estimates based on, but not limited to, actual distributions from investments as well as the amount of the Company’s taxable income. The SLD varies in amount and is determined at a rate of 60 percent of the tentative life insurance company taxable income (“LICTI”). The SLD for any taxable year is reduced (but not below zero) by 15 percent of the tentative LICTI for such taxable year as it exceeds $3,000 and is ultimately phased out at $15,000. The remeasurement of deferred taxes resulted from legislated tax reform enacted on December 22, 2017. The tax reform reduced the federal tax rate applied to the Company’s deferred tax balances from 35% to 21% on enactment.

Deferred tax liabilities and assets at December 31, 2017 and 2016 were comprised of the following:

	2017			2016
Deferred tax liabilities:
Deferred acquisition costs	$	(1,200	)	$	(2,345	)
Deferred and uncollected premiums		(377	)		(654	)
Net unrealized investment gains		(3,150	)		(3,140	)
Other		(331	)		(666	)
Total deferred tax liabilities		(5,058	)		(6,805	)
Deferred tax assets:
Insurance reserves		3,216			4,589
Impaired assets		869			1,454
Alternative minimum tax credit		—			282
Bad debts and other		380			640
Total deferred tax assets		4,465			6,965
Net deferred tax asset (liability)	$	(593	)	$	160

The components of income tax expense were:

	2017			2016
Current - Federal	$	2,186		$	890
Deferred - Federal		(1,358	)		(2	)
Total	$	828		$	888

The Company has formal tax-sharing agreements, and files a consolidated income tax return, with its subsidiaries. Tax years prior to 2012 have been audited by the Internal Revenue Service and are closed.