Note 6.

Income Taxes

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

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Federal income tax provision at statutory rate of 35%	$	1,466		$	345		$	1,820		$	693
Dividends-received deduction		(27	)		(30	)		(54	)		(61	)
Small life insurance company deduction		(605	)		(45	)		(623	)		(161	)
Other permanent differences		10			9			20			19
Change in asset valuation allowance due to change in judgment relating to realizability of deferred tax assets		-			(170	)		-			(208	)
Income tax expense	$	844		$	109		$	1,163		$	282

The components of income tax expense were:

	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015		2014
Current - Federal	$	1,108		$	66		$	1,119	$	129
Deferred - Federal		(264	)		213			44		361
Change in deferred tax asset valuation allowance		-			(170	)		-		(208	)
Total	$	844		$	109		$	1,163	$	282

The primary differences between the effective tax rate and the federal statutory income tax rate for the three month and six month periods ended June 30, 2015 resulted from the dividends-received deduction (“DRD”) and the small life insurance company deduction (“SLD”). 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 primary differences between the effective tax rate and the federal statutory income tax rate for the three month and six month periods ended June 30, 2014 resulted from the DRD, the SLD and the change in deferred tax asset valuation allowance. The change in deferred tax asset valuation allowance was due to the utilization of certain capital loss carryforward benefits that had been previously reduced to zero through an existing valuation allowance reserve. All unused capital loss carryforwards expired at the end of 2014.