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 September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Federal income tax provision at statutory rate of 35%	$	110		$	127		$	717		$	1,947
Dividends-received deduction		(25	)		(21	)		(71	)		(75	)
Small life insurance company deduction		-			51			-			(572	)
Other permanent differences		12			9			45			29
Adjustment for prior years’ estimates to actual		71			(39	)		71			(39	)
Income tax expense	$	168		$	127		$	762		$	1,290

The components of income tax expense were:

	Three Months Ended September 30,					Nine Months Ended September 30,
	2016		2015			2016		2015
Current - Federal	$	11	$	(532	)	$	601	$	587
Deferred - Federal		157		659			161		703
Total	$	168	$	127		$	762	$	1,290

The primary difference between the effective tax rate and the federal statutory income tax rate for the three month and nine month periods ended September 30, 2016 resulted from the provision-to-filed return adjustments, as described below and the dividends-received deduction (“DRD”). 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 primary differences between the effective tax rate and the federal statutory income tax rate for the three month and nine month periods ended September 30, 2015 resulted from the DRD and the small life insurance company deduction (“SLD”). 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 provision-to-filed return adjustments are generally updated at the completion of the third quarter of each fiscal year and were $71 and $39 in the three month and nine month periods ended September 30, 2016 and 2015, respectively.