Note E - Income Taxes

Deferred income taxes are calculated to account for the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:

	2016			2015
Deferred tax liabilities:
Unrealized gain on fixed income and equity security investments	$	18,335		$	20,959
Deferred acquisition costs		874			877
Loss and loss expense reserves		1,198			2,305
Limited partnership investments		2,274			1,771
Accelerated depreciation		1,037			897
Other		1,251			1,024
Total deferred tax liabilities		24,969			27,833

Deferred tax assets:
Loss and loss expense reserves		9,467			9,349
Unearned premiums discount		1,295			1,593
Other-than-temporary investment declines		858			3,437
Deferred compensation		1,097			1,699
Deferred ceding commission		464			371
Other		376			186
Total deferred tax assets		13,557			16,635

Net deferred tax liabilities	$	(11,412	)	$	(11,198	)

A summary of the difference between federal income tax expense computed at the statutory rate and that reported in the consolidated financial statements is as follows:

	2016			2015			2014

Statutory federal income rate applied to pretax income	$	15,069		$	11,883		$	15,539
Tax effect of (deduction):
Tax-exempt investment income		(938	)		(919	)		(924	)
Other		(22	)		(295	)		66
Federal income tax expense	$	14,109		$	10,669		$	14,681

Federal income tax expense consists of the following:
	2016			2015				2014
Taxes (benefit) on pre-tax income:
Current		$	11,271		$	12,488			$	13,041
Deferred			2,838			(1,819	)			1,640
		$	14,109		$	10,669			$	14,681

	2016			2015			2014
Limited partnerships	$	503		$	(2,865	)	$	2,025
Discounts of loss and loss expense reserves		(114	)		1,526			113
Reserves - salvage and subrogation and other		(1,110	)		29			(280	)
Unearned premium discount		298			608			(38	)
Deferred compensation		595			(127	)		(685	)
Other-than-temporary investment declines		2,320			(1,416	)		(19	)
Deferred acquisitions costs and ceding commission		(95	)		(287	)		(20	)
Other		441			713			544
Provision for deferred federal income tax	$	2,838		$	(1,819	)	$	1,640

Cash flows related to federal income taxes paid, net of refunds received, for 2016, 2015 and 2014 were $10,173, $14,500 and $11,619, respectively.

The Company is required to establish a valuation allowance for any portion of the gross deferred tax asset that management believes will not be realized. Management has determined that no such valuation allowance is necessary at December 31, 2016 or 2015. As of December 31, 2016, calendar years 2015 and 2014 remain subject to examination by the IRS.

The Company has no uncertain tax positions as of December 31, 2016 or 2015. The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits in income tax expense and changes in such accruals would impact the Company's effective tax rate. There were no amounts accrued for the payment of interest at December 31, 2016, 2015 and 2014.