

Delaware		63-1020300
(State or Other Jurisdiction of Incorporation or Organization)		(IRS Employer Identification No.)

661 East Davis Street ~~Elba, Alabama~~		~~36323~~
Elba,	Alabama	36323
(Address of principal executive offices)		(Zip-Code)

Registrant’s Telephone Number including Area Code (334) 897-2273

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $1.00 per share	NSEC	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, ~~(as defined~~a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in ~~rule~~Rule 12b-2 of the ~~Act). (Check One) :~~ Exchange Act.

Large accelerated filer o Accelerated filer o☐

Non-accelerated filer o þ Smaller reporting company þ☑

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No þ


Class						Outstanding November 13, 2020

Common Stock $1.00 par value						2,530,370 shares

Table of ~~November 13, 2017, there were 2,522,312 shares, $1.00 par value, of the registrant’s common stock outstanding.~~Contents

THE NATIONAL SECURITY GROUP, INC.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION
			Page No.
	Item 1. Financial Statements

		Condensed Consolidated Balance Sheets(UNAUDITED EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)	46
		Condensed Consolidated Statements of Operations (UNAUDITED)	57
		Condensed Consolidated Statements of Comprehensive Income (Loss) (UNAUDITED)	68
		Condensed Consolidated Statements of Changes in Shareholders’ Equity (UNAUDITED)	79
		Condensed Consolidated Statements of Cash Flows (UNAUDITED)	811
		Notes to Condensed Consolidated Financial Statements(UNAUDITED EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)	912
		Review Report of Independent Registered Public Accounting Firm	3236

	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3337

	Item 3. Quantitative and Qualitative Disclosures about Market Risk		4754

	Item 4. Controls and Procedures		4855


PART II. OTHER INFORMATION

	Item 1. Legal Proceedings		4855
	Item 1A. Risk Factors		4855
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities		4856
	Item 3. Defaults Upon Senior Securities		4856
	Item 4. Mine Safety Disclosures		4856
	Item 5. Other Information		4856
	Item 6. Exhibits		4956

SIGNATURE			4957

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Cautionary Statement Regarding Forward-Looking Statements

Any statement contained in this report which is not a historical fact, or which might otherwise be considered an opinion or projection concerning the Company or its business, whether expressed or implied, is meant as and should be considered a forward-looking statement as that term is defined in the Private Securities Litigation Reform Act of 1995. The following report contains forward-looking statements that are not strictly historical and that involve risks and uncertainties. Such statements include any statements containing the words “expect,” “plan,” “estimate,” “anticipate” or other words of a similar nature. Management cautions investors about forward-looking statements. Forward-looking statements involve certain evaluation criteria, such as risks, uncertainties, estimates, and/or assumptions made by individuals informed of the Company and industries in which we operate. Any variation in the preceding evaluation criteria could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These risks and uncertainties include, without limitation, the following:


▪	The insurance industry is highly competitive and the Company encounters significant competition in all lines of business from other insurance companies. Many of the competing companies have more abundant financial resources than the Company.


▪	~~Insurance is a highly regulated industry. It is possible that legislation may be enacted which would have an adverse effect on the Company's business.~~

▪

The Company is subject to regulation by state governments for each of the states in which it conducts business. The Company cannot predict the subject of any future regulatory initiative(s) or its (their) impact on the Company's business. Company insurance rates are also subject to approval by state insurance departments in each of these states. We are often limited in the level of rate increases we can obtain.


▪	The Company is rated by various insurance rating agencies. If a rating is downgraded from its current level by one of these agencies, sales of the Company's products and stock price could be adversely impacted.


▪	~~The Company's financial results are adversely affected by increases in policy claims received by the Company. While we consider this a manageable risk, this fluctuation is unpredictable.~~


▪	The Company's investments are subject to a variety of risks. Investments are subject to defaults and changes in market value. Market value can be affected by changes in interest rates, market performance and the economy.

▪

The Company mitigates risk associated with life policies through implementing effective underwriting and reinsurance strategies. These factors mitigate, not eliminate, risk related to mortality and morbidity exposure. The Company has established reserves for claims and future policy benefits based on amounts determined by independent actuaries. There is no assurance that these estimated reserves will prove to be sufficient or that the Company will not incur claims exceeding reserves, which could result in operating losses and loss of capital.

▪

The Company mitigates risk associated with property and casualty policies through implementing effective underwriting and reinsurance strategies. The Company obtains reinsurance which increases underwriting capacity and limits the risk associated with policy claims. The Company is subject to credit risk with regard to reinsurers as reinsurance does not alleviate the Company's liability to its insured's for the ceded risks. The Company utilizes a third-party to develop a reinsurance treaty with reinsurers who are reliable and financially stable. However, there is no guarantee that booked reinsurance recoverable will actually be recovered. A reinsurer's insolvency or inability to make payments due could have a material adverse impact on the financial condition of the Company.

▪

The Company's ability to continue to pay dividends to shareholders is contingent upon profitability and capital adequacy of the insurance subsidiaries. The insurance subsidiaries operate under regulatory restrictions that could limit the ability to fund future dividend payments of the Company. An adverse event or series of events could materially impact the ability of the insurance subsidiaries to fund future dividends, and consequently, the Board of Directors would have to suspend the declaration of dividends to shareholders.


▪	The Company is subject to the risk of adverse settlements or judgments resulting from litigation of contested claims. It is difficult to predict or quantify the expected results of litigation because the outcome depends on decisions of the court and jury that are based on facts and legal arguments presented at the trial.

▪The insurance industry is highly competitive and the Company encounters significant competition in all lines of business from other insurance companies. Many of the competing companies have more abundant financial resources than the Company.

▪Insurance is a highly regulated industry. It is possible that legislation may be enacted which would have an adverse effect on the Company's business.

▪The Company is subject to regulation by state governments for each of the states in which it conducts business. The Company cannot predict the subject of any future regulatory initiative(s) or its (their) impact on the Company's business. Company insurance rates are also subject to approval by state insurance departments in each of these states. We are often limited in the level of rate increases we can obtain.

▪The Company is rated by various insurance rating agencies. If a rating is downgraded from its current level by one of these agencies, sales of the Company's products and stock price could be adversely impacted.

▪The Company's financial results can be adversely affected by increases in frequency and severity of policy claims. While a generally manageable risk, frequency and severity can cause significant earnings volatility. Increased claims frequency is typically driven by increases in severe weather outbreaks while severity can be driven by inflation, increased claims settlement cost and litigation related expenses.

▪The Company's investments are subject to a variety of risks. Investments are subject to defaults and changes in market value. Market value can be affected by changes in interest rates, market performance and the economy.

▪The Company mitigates risk associated with life policies through implementing effective underwriting and reinsurance strategies. These factors mitigate, not eliminate, risk related to mortality and morbidity exposure. The Company has established reserves for claims and future policy benefits based on amounts determined by independent actuaries. There is no assurance that these estimated reserves will prove to be sufficient or that the Company will not incur claims exceeding reserves, which could result in operating losses and loss of capital.

▪The Company mitigates risk associated with property and casualty policies through implementing effective underwriting and reinsurance strategies. The Company obtains reinsurance which increases underwriting capacity and limits the risk associated with policy claims from catastrophe events. The Company is subject to credit risk with regard to reinsurers as reinsurance does not alleviate the Company's liability to its insured's for the ceded risks. The Company utilizes a third-party to develop a reinsurance treaty with reinsurers who are reliable and financially stable. However, there is no guarantee that booked reinsurance recoverable will actually be recovered. A reinsurer's insolvency or inability to make payments due could have a material adverse impact on the financial condition of the Company.

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▪The Company's ability to continue to pay dividends to shareholders is contingent upon profitability and capital adequacy of the insurance subsidiaries, along with liquidity at the holding company level. The insurance subsidiaries operate under regulatory restrictions that could limit the ability to fund future dividend payments of the Company. An adverse event or series of events could materially impact the ability of the insurance subsidiaries to fund future dividends, and consequently, the Board of Directors would have to suspend the declaration of dividends to shareholders.

▪The Company is subject to the risk of adverse settlements or judgments resulting from litigation of contested claims. It is difficult to predict or quantify the expected results of litigation because the outcome depends on decisions of the court and jury that are based on facts and legal arguments presented at the trial.

Table of Contents

PART ~~I. Financial Information~~I

Item 1. Financial Statements

THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS ~~(In thousands)~~


	September 30, 2017		December 31, 2016
($ in thousands)					($ in thousands)	September 30, 2020		December 31, 2019
	(UNAUDITED)
ASSETS					ASSETS	(UNAUDITED)
Investments					Investments
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2017 - $1,729; 2016 - $1,930)	$	1,684	$	1,890
Fixed maturities available-for-sale, at estimated fair value (cost: 2017 - $91,410; 2016 - $92,837)	92,823		92,792
Equity securities available-for-sale, at estimated fair value (cost: 2017 - $2,044; 2016 - $2,343)	4,790		4,943
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2020 - $1,107; 2019 - $1,345)					Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2020 - $1,107; 2019 - $1,345)	$	1,019	$	1,290
Fixed maturities available-for-sale, at estimated fair value (cost: 2020 - $82,532; 2019 - $97,102)					Fixed maturities available-for-sale, at estimated fair value (cost: 2020 - $82,532; 2019 - $97,102)	86,967		100,260
Equity securities, at estimated fair value (cost: 2020 - $2,127; 2019 - $2,127)					Equity securities, at estimated fair value (cost: 2020 - $2,127; 2019 - $2,127)	5,030		5,303
Trading securities	107		107		Trading securities	151		149
Receivable for securities sold	—		499		Receivable for securities sold	3		56
Mortgage loans on real estate, at cost	163		174		Mortgage loans on real estate, at cost	145		147
Investment real estate, at book value	3,221		3,221		Investment real estate, at book value	2,934		2,934
Policy loans	1,768		1,708		Policy loans	1,857		1,895
Company owned life insurance	4,959		4,864		Company owned life insurance	4,820		4,655
Other invested assets	2,688		2,958		Other invested assets	2,053		2,280
Total Investments	112,203		113,156		Total Investments	104,979		118,969
Cash and cash equivalents	9,770		7,368		Cash and cash equivalents	15,057		11,809
Accrued investment income	815		776		Accrued investment income	701		706
Policy receivables and agents' balances, net	12,880		11,434		Policy receivables and agents' balances, net	13,605		12,028
Reinsurance recoverable	503		1,780		Reinsurance recoverable	9,363		276
Deferred policy acquisition costs	8,448		8,351		Deferred policy acquisition costs	7,711		7,666
Property and equipment, net	1,810		1,880		Property and equipment, net	1,577		1,630
Accrued income tax recoverable	1,451		941
Income tax recoverable					Income tax recoverable	1,317		0
Deferred income tax asset, net	2,613		2,402		Deferred income tax asset, net	214		0
Other assets	822		491		Other assets	1,032		850
Total Assets	$	151,315	$	148,579	Total Assets	$	155,556	$	153,934
LIABILITIES AND SHAREHOLDERS' EQUITY					LIABILITIES AND SHAREHOLDERS' EQUITY
Property and casualty benefit and loss reserves	$	8,897	$	7,531	Property and casualty benefit and loss reserves	$	10,823	$	7,199
Accident and health benefit and loss reserves	3,480		3,405		Accident and health benefit and loss reserves	4,075		4,046
Life and annuity benefit and loss reserves	33,110		32,633		Life and annuity benefit and loss reserves	34,667		34,269
Unearned premiums	32,594		29,968		Unearned premiums	33,765		30,555
Policy and contract claims	923		1,008		Policy and contract claims	1,135		1,053
Other policyholder funds	1,683		1,629		Other policyholder funds	1,341		1,350
Short-term notes payable and current portion of long-term debt	1,300		1,800		Short-term notes payable and current portion of long-term debt	500		500

Long-term debt	15,335		15,326		Long-term debt	13,674		13,664
Accrued income taxes					Accrued income taxes	0		226
Deferred income tax liability					Deferred income tax liability	0		96
Other liabilities	6,877		7,227		Other liabilities	8,514		7,515
Total Liabilities	104,199		100,527		Total Liabilities	108,494		100,473
Contingencies					Contingencies
Shareholders' equity					Shareholders' equity
Common stock	2,522		2,517		Common stock	2,533		2,532
Additional paid-in capital	5,483		5,412		Additional paid-in capital	5,626		5,602
Accumulated other comprehensive income	2,245		1,007		Accumulated other comprehensive income	2,872		2,443
Retained earnings	36,866		39,116		Retained earnings	36,072		42,891
Treasury stock, at cost					Treasury stock, at cost	(41)		(7)
Total Shareholders' Equity	47,116		48,052		Total Shareholders' Equity	47,062		53,461
Total Liabilities and Shareholders' Equity	$	151,315	$	148,579	Total Liabilities and Shareholders' Equity	$	155,556	$	153,934

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

~~(In thousands, except per share amounts)~~


($ in thousands, except per share)	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019
REVENUES
Net premiums earned	$	15,289	$	15,209	$	45,416	$	44,917
Net investment income	884		989		2,809		2,908
Investment gains (losses)	1,430		(117)		988		2,120

Other income	162		148		450		440
Total Revenues	17,765		16,229		49,663		50,385
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits and settlement expenses	13,303		9,750		40,622		29,673
Amortization of deferred policy acquisition costs	836		805		2,749		2,624
Commissions	1,493		2,006		5,615		6,017
General and administrative expenses	2,312		2,226		6,199		6,974

Taxes, licenses and fees	604		604		1,919		1,890
Interest expense	200		293		660		879
Total Benefits, Losses and Expenses	18,748		15,684		57,764		48,057

Income (Loss) Before Income Taxes	(983)		545		(8,101)		2,328

INCOME TAX EXPENSE (BENEFIT)
Current	21		190		(1,312)		287
Deferred	(226)		(75)		(425)		(245)
	(205)		115		(1,737)		42

Net Income (Loss)	$	(778)	$	430	$	(6,364)	$	2,286

INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED	$	(0.30)	$	0.17	$	(2.51)	$	0.90

DIVIDENDS DECLARED PER SHARE	$	0.06	$	0.05	$	0.18	$	0.15

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016
REVENUES
Net premiums earned $ 15,467
$ 15,675
$ 45,838
$ 46,067
Net investment income 939
1,005
2,795
3,025
Net realized investment gains 75
287
312
536
Other income 150
152
447
456
Total Revenues 16,631
17,119
49,392
50,084
BENEFITS, LOSSES AND EXPENSES

Policyholder benefits and settlement expenses 11,184
10,082
34,911
27,991
Amortization of deferred policy acquisition costs 706
758
2,470
2,451
Commissions 2,096
2,088
5,947
6,313
General and administrative expenses 2,398
2,026
6,410
6,313
Taxes, licenses and fees 709
529
1,915
1,703
Interest expense 320
339
969
1,017
Total Benefits, Losses and Expenses 17,413
15,822
52,622
45,788

Income (Loss) Before Income Taxes (782 ) 1,297
(3,230 ) 4,296

INCOME TAX EXPENSE (BENEFIT)

Current 387
238
(510 ) 858
Deferred (612 ) 129
(848 ) 271
(225 ) 367
(1,358 ) 1,129

Net Income (Loss) $ (557 ) $ 930
$ (1,872 ) $ 3,167

INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED $ (0.22 ) $ 0.37
$ (0.74 ) $ 1.26

DIVIDENDS DECLARED PER SHARE $ 0.05
$ 0.045
$ 0.15
$ 0.135

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

~~(In thousands)~~


($ in thousands)	Three months ended September 30,				Nine months ended September 30,
	2020		2019		2020		2019

Net income (loss)	$	(778)	$	430	$	(6,364)	$	2,286

Other comprehensive income (loss), net of tax
Changes in:
Unrealized gains (losses) on securities, net of reclassification adjustment of $1,063 and $(7) for 2020 and 2019, respectively	(486)		735		1,009		4,221
Unrealized gain (loss) on interest rate swap	39		47		(580)		92

Other comprehensive income (loss), net of tax	(447)		782		429		4,313

Comprehensive income (loss)	$	(1,225)	$	1,212	$	(5,935)	$	6,599

Three months ended
September 30, Nine months ended
September 30,
2017 2016 2017 2016

Net income (loss) $ (557 ) $ 930
$ (1,872 ) $ 3,167

Other comprehensive income (loss), net of tax
Changes in:
Unrealized gains on securities, net of reclassification adjustment of $205 and $223 for 2017 and 2016, respectively 212
69
1,058
2,357
Unrealized gain on interest rate swap 70
134
180
53

Other comprehensive income, net of tax 282
203
1,238
2,410

Comprehensive income (loss) $ (275 ) $ 1,133
$ (634 ) $ 5,577

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

~~(In thousands)~~

For the nine months ended September 30, 2020


($ in thousands)	Total		Retained Earnings		Accumulated Other Comprehensive Income		Common Stock		Additional Paid-in Capital		Treasury Stock


















Balance at December 31, 2019	$	53,461	$	42,891	$	2,443	$	2,532	$	5,602	$	(7)

Common stock reacquired	(34)		—		—		—		—		(34)



Comprehensive loss:

Net loss for September 30, 2020	(6,364)		(6,364)		—		—		—		—





Other comprehensive income (net of tax)	429		—		429		—		—		—






Common stock issued	25		—		—		1		24		—

Cash dividends	(455)		(455)		—		—		—		—

Balance at September 30, 2020	$	47,062	$	36,072	$	2,872	$	2,533	$	5,626	$	(41)

For the three months ended September 30, 2020


($ in thousands)	Total		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Additional Paid-in Capital		Treasury Stock
Balance at June 30, 2020	$	48,451	$	37,001	$	3,319	$	2,533	$	5,626	$	(28)

Common stock reacquired	(13)		—		—		—		—		(13)

Comprehensive loss:

Net loss for September 30, 2020	(778)		(778)		—		—		—		—

Other comprehensive loss (net of tax)	(447)		—		(447)		—		—		—



Cash dividends	(151)		(151)		—		—		—		—

Balance at September 30, 2020	$	47,062	$	36,072	$	2,872	$	2,533	$	5,626	$	(41)

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Total
Retained
Earnings

Accumulated
Other
Comprehensive
Income

Common
Stock

Additional
Paid-in
Capital
Balance at December 31, 2016 (AUDITED)
$ 48,052
$ 39,116
$ 1,007
$ 2,517
$ 5,412

Net loss for September 30, 2017 (1,872 ) (1,872 ) —
—
—

Other comprehensive income (net of tax) 1,238
—
1,238
—
—

Common stock issued 76
—
—
5
71

Cash dividends (378 ) (378 ) —
—
—

Balance at September 30, 2017 $ 47,116
$ 36,866
$ 2,245
$ 2,522
$ 5,483
THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

For the nine months ended September 30, 2019


($ in thousands)	Total		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Common Stock		Additional Paid-in Capital		Treasury Stock
Balance at December 31, 2018	$	45,866	$	39,355	$	(1,570)	$	2,527	$	5,554	$	0

Comprehensive income:

Net income for September 30, 2019	2,286		2,286		—		—		—		—

Other comprehensive income (net of tax)	4,313		—		4,313		—		—		—

Common stock issued	53		—		—		5		48		—

Cash dividends	(379)		(379)		—		—		—		—

Balance at September 30, 2019	$	52,139	$	41,262	$	2,743	$	2,532	$	5,602	$	0

For the three months ended September 30, 2019


($ in thousands)	Total		Retained Earnings		Accumulated Other Comprehensive Income		Common Stock		Additional Paid-in Capital		Treasury Stock
Balance at June 30, 2019	$	51,053	$	40,958	$	1,961	$	2,532	$	5,602	$	0

Comprehensive income:

Net loss for September 30, 2019	430		430		—		—		—		—

Other comprehensive income (net of tax)	782		—		782		—		—		—



Cash dividends	(126)		(126)		—		—		—		—

Balance at September 30, 2019	$	52,139	$	41,262	$	2,743	$	2,532	$	5,602	$	0

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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THE NATIONAL SECURITY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

~~(In thousands)~~


($ in thousands)	Nine months ended September 30,
	2020		2019
Cash Flows from Operating Activities
Net income (loss)	$	(6,364)	$	2,286
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation expense and amortization/accretion, net	221		201

Net gains on investments	(988)		(2,120)

Deferred income taxes	(425)		(245)
Amortization of deferred policy acquisition costs	2,749		2,624
Changes in assets and liabilities:
Change in receivable for securities sold	53		(41)
Change in accrued investment income	5		(2)
Change in reinsurance recoverable	(9,087)		1,456
Policy acquisition costs deferred	(2,794)		(2,705)
Change in accrued income taxes	(1,543)		661
Change in net policy liabilities and claims	5,762		442
Change in other assets/liabilities, net	220		859

Other, net	(29)		9
Net cash provided by (used in) operating activities	(12,220)		3,425
Cash Flows from Investing Activities
Purchase of:

Available-for-sale securities	(16,068)		(12,198)
Trading securities and short-term investments	(2)		(26)

Property and equipment	(32)		(56)
Proceeds from sale or maturities of:
Held-to-maturity securities	295		105
Available-for-sale securities	31,697		10,510

Real estate held for investment	3		11


Other invested assets, net	39		2,039
Net cash provided by investing activities	15,932		385
Cash Flows from Financing Activities
Change in other policyholder funds	(9)		(22)



Dividends paid	(455)		(379)
Net cash used in financing activities	(464)		(401)
Net change in cash and cash equivalents	3,248		3,409
Cash and cash equivalents, beginning of year	11,809		5,676
Cash and cash equivalents, end of period	$	15,057	$	9,085

Nine months ended
September 30,
2017 2016
Cash Flows from Operating Activities
Net income (loss) $ (1,872 ) $ 3,167
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense and amortization/accretion, net 390
255
Decrease in cash surrender value of company owned life insurance (95 ) (80 )
Net realized gains on investments (312 ) (536 )
Deferred income taxes (848 ) 271
Amortization of deferred policy acquisition costs 2,470
2,451
Changes in assets and liabilities:
Change in receivable for securities sold 499
—
Change in accrued investment income (39 ) (73 )
Change in reinsurance recoverable 1,277
1,133
Policy acquisition costs deferred (2,567 ) (2,679 )
Change in accrued income taxes (510 ) (43 )
Change in net policy liabilities and claims 3,007
(116 )
Change in other assets/liabilities, net (63 ) 699
Other, net 5
7
Net cash provided by operating activities 1,342
4,456
Cash Flows from Investing Activities
Purchase of:
Available-for-sale securities (12,118 ) (23,357 )
Property and equipment (51 ) (84 )
Proceeds from sale or maturities of:
Held-to-maturity securities 205
383
Available-for-sale securities 13,895
18,384
Property and equipment 2
—
Other invested assets, net (49 ) (34 )
Net cash provided by (used in) investing activities 1,884
(4,708 )
Cash Flows from Financing Activities

Change in other policyholder funds 54
53
Repayments of long-term debt —
(700 )
Change in short-term notes payable (500 ) —
Dividends paid (378 ) (339 )
Net cash used in financing activities (824 ) (986 )
Net change in cash and cash equivalents 2,402
(1,238 )
Cash and cash equivalents, beginning of year 7,368
6,763
Cash and cash equivalents, end of period $ 9,770
$ 5,525

The Notes to Condensed Consolidated Financial Statements are an integral part of these statements.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, ~~2016~~2019 AMOUNTS)

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

Principles of Consolidation and Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of The National Security Group, Inc. (the Company) and its wholly-owned subsidiaries: National Security Insurance Company (NSIC), National Security Fire and Casualty Company (NSFC) and NATSCO, Inc. (NATSCO). NSFC includes a wholly-owned subsidiary, Omega One Insurance Company (Omega). The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ~~of America~~ (GAAP). In the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the condensed consolidated financial statements have been included. All significant intercompany transactions and accounts have been ~~eliminated.~~eliminated in the condensed consolidated financial statements. The financial information presented herein should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, which includes information and disclosures not presented herein.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Among the more significant estimates included in these condensed consolidated financial statements are reserves for future life insurance policy benefits, liabilities for losses and loss adjustment expenses, reinsurance recoverable associated with loss and loss adjustment expense liabilities, deferred policy acquisition costs, deferred income tax assets and liabilities, assessments of other-than-temporary impairments on investments and accruals for contingencies. Actual results could differ from the estimates used in preparing these ~~estimates.~~condensed consolidated financial statements.

Earnings Per Share

Earnings per share of common stock is based on the weighted average number of shares outstanding during each year. The adjusted weighted average shares outstanding were ~~2,519,798~~2,530,736 at September 30, ~~2017~~2020 and ~~2,514,828~~2,529,352 at September 30, ~~2016.~~2019. The Company did ~~not~~0t have any dilutive securities as of September 30, ~~2017~~2020 and ~~2016.~~2019.

Reclassifications

Certain ~~2016~~2019 amounts have been reclassified from the prior year condensed consolidated financial statements to conform to the ~~2017~~2020 presentation.

Concentration of Credit Risk

The Company maintains cash balances which are generally held in non-interest bearing demand deposit accounts subject to FDIC insured limits of $250,000 per entity. At September 30, ~~2017,~~2020, the net amount exceeding FDIC insured limits was ~~$5,524,000~~$6,775,000 at ~~two~~three financial institutions. The Company has not experienced any losses in such accounts. Management of the Company reviews financial information of financial institutions on a quarterly basis and believes the Company is not exposed to any significant credit risk on cash and cash equivalents.

Policy receivables are reported at unpaid balances. Policy receivables are generally offset by associated unearned premium liabilities and are not subject to significant credit risk. Receivables from agents, less provision for credit losses, are composed of balances due from independent agents. At September 30, ~~2017,~~2020, the single largest balance due from one agent totaled ~~$757,000.~~$561,000.

Reinsurance contracts do not relieve the Company of its obligations to policyholders. A failure of a reinsurer to meet its obligation could result in losses to the insurance subsidiaries. Allowances for losses on reinsurance recoverables are established if amounts are believed to be uncollectible. At September 30, ~~2017~~2020 and December 31, ~~2016, no~~2019, 0 amounts were deemed uncollectible. The Company, at least annually, evaluates the financial condition of all reinsurers and evaluates any potential concentrations of credit risk. At September 30, ~~2017,~~2020, management does not believe the Company is exposed to any significant credit risk related to its reinsurance program.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, ~~2016~~2019 AMOUNTS)

Accounting Changes Not Yet Adopted

~~Revenue from Contracts with Customers~~Reference Rate Reform

In ~~May 2014,~~March 2020, the Financial Accounting Standards Board (FASB) issued guidance that provides temporary optional expedients and exceptions to the current guidance on ~~a comprehensive new revenue recognition standard. This standard will not impact~~contract modifications and hedge accounting ~~for insurance contracts, leases,~~to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. The Company has exposure to LIBOR based financial instruments through its subordinated debentures. The contracts with respect to these borrowings contain alternative reference rates that would automatically take effect upon the phasing out of LIBOR and ~~guarantees. For those contracts that are impacted by~~would not materially change the ~~new~~liability exposure. The guidance was effective upon issuance and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. The Company is evaluating the optional expedients and exceptions in the guidance will require an entity to recognize revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to, in exchange for those goods or services. The guidance requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. In August 2015, the FASB issued a deferral of the effective date by one year. This guidance is effective retrospectively for fiscal years beginning after December 15, 2017 and interim periods within those years. Early adoption of this standard is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Although insurance contracts are specifically scoped out of this new guidance, the Company has minor services that may be subject to the new revenue recognition guidance andbut does not expect the adoption of this guidance to have a material impact on its ~~condensed consolidated~~ financial ~~statements.~~position or results of operations.

~~Recognition and Measurement of Financial Assets and Financial Liabilities~~Simplifying the Accounting for Income Taxes

In ~~January 2016,~~December 2019, the FASB issued guidance ~~that requires equity investments (except those accounted~~to simplify the accounting for ~~under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.~~income taxes. The guidance ~~requires entities~~removes certain exceptions to ~~use~~general principles in the ~~exit price notion when measuring the fair value of financial instruments for disclosure purposes~~income tax guidance and ~~requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset.~~amends existing guidance to improve consistent application. The guidance eliminates the requirement for public companies to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. This guidance is effective for fiscal years beginning after December 15, ~~2017 and interim periods within those fiscal years.~~2020. The Company is currently evaluating the impact of this new guidance. The Company does not expect the adoption to have a material impact on its financial position ~~however,~~or results of operations.

Targeted Improvements to the Accounting for Long-Duration Contracts

In August 2018, the FASB issued guidance to improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The guidance improves timeliness of recognizing changes in the liability for future policy benefits and modifies the rate used to discount future cash flows. The guidance will simplify and improve accounting for certain market-based options or guarantees associated with deposit type contracts and simplify the amortization of deferred policy acquisition costs. The guidance also introduces certain financial statement presentation requirements, as well as significant additional quantitative and qualitative disclosures. The guidance is effective for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years beginning after December 15, 2025. Early adoption is permitted. The Company ~~does expect~~is currently evaluating the impact of this new guidance. Due to the nature and extent of the changes required to the Company’s life insurance operations, the adoption of this ~~guidance~~standard is expected to ~~increase variability in our results of operations as changes in unrealized gains and losses~~have a material impact on ~~equity investments will be reflected in~~the consolidated ~~statements of operations.~~financial statements.

~~Leases~~Financial Instruments - Credit Losses

In ~~February~~June 2016, the FASB issued guidance that replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires ~~lessees (for capital~~consideration of a broader range of reasonable and ~~operating leases)~~supportable information to ~~recognize the lease liability and right-of-use asset at the commencement date of the lease.~~inform credit loss estimates. The FASB released additional guidance in November 2018 that provides scope clarification. This guidance is effective for fiscal years beginning after December 15, ~~2018,~~2022, including interim periods within those years. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

Recently Adopted Accounting Standards

Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued guidance that removes, modifies and adds to the disclosure requirements related to fair value measurements. The guidance removes the requirements to disclose the amount and reasons for transfers between Level 1 and Level 2 assets, the policy for timing and transfers between levels and the valuation process for Level 3 fair value measurements. The guidance modifies disclosure requirements for investments in certain entities that calculate net asset value and clarifies the purpose of the measurement uncertainty disclosure. The guidance adds requirements to disclose changes in unrealized gains or losses included in other comprehensive income for recurring Level 3 fair value measurements and to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company adopted this guidance on January 1, 2020. The adoption of this guidance did not have a material impact on its financial position or results of operations.

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THE NATIONAL SECURITY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2019 AMOUNTS)

Contingent Put and Call Options in Debt Instruments

In March 2016, the FASB issued guidance that clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company ~~does~~adopted this guidance on January 1, 2020. The adoption of this guidance did not ~~expect the adoption to~~ have a material impact on its financial position or results of operations.

~~Financial Instruments - Credit Losses~~

In June 2016, the FASB issued guidance that replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for fiscal years beginning after December 15, 2019, including interim periods within those years. The Company does not expect the adoption to have a material impact on its financial position or results of operations.

~~Classification of Certain Cash Receipts and Cash Payments~~

In August 2016, the FASB issued guidance that clarifies how certain cash receipts and cash payments shall be presented and classified in the statement of cash flows. This guidance addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The guidance is effective for annual and interim reporting periods beginning

~~THE NATIONAL SECURITY GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2016 AMOUNTS)~~

~~after December 15, 2017. The Company does not expect the adoption of this new guidance to have a significant impact on our financial position, results of operations or cash flows.~~

~~Receivables - Nonrefundable Fees and Other Costs~~

In March 2017, the FASB issued guidance that shortens the amortization period for certain callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The guidance is effective for fiscal years beginning after December 15, 2018 and interim reporting periods within those fiscal years. The Company does not expect the adoption of this new guidance to have a significant impact on our financial position, results of operations or cash flows.

~~Compensation - Stock Compensation~~

In May 2017, the FASB issued guidance to provide clarity and reduce diversity in practice as well as cost and complexity when there is a change in the terms or conditions of a share-based payment award. The guidance is effective for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years. The Company does not expect adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

~~Derivatives and Hedging~~

In August 2017, the FASB guidance that amends and simplifies hedge accounting guidance in order to enable entities to better portray the economic results of their risk management activities. The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The Company is currently evaluating the impact of the standard on its consolidated financial statements and related disclosures.

~~Recently Adopted Accounting Standards~~

~~None~~

NOTE 2 – VARIABLE INTEREST ENTITIES

The Company holds a passive ~~interest~~interests in a limited ~~partnership~~partnerships that isare considered to be a Variable Interest ~~Entity~~Entities (VIE) under the provisions of ASC 810 Consolidation. The Company is not the primary beneficiary of the ~~entity~~entities and is not required to consolidate under ASC 810. The ~~entity is a~~entities are private placement investment ~~fund~~funds formed for the purpose of investing in private equity investments. The Company owns less than 1% of the limited ~~partnership.~~partnerships. The carrying value of the ~~investment~~investments totals ~~$228,000~~$387,000 and is included as a component of Other Invested Assets in the accompanying condensed consolidated balance sheets.

In December 2005, the Company formed National Security Capital Trust I, a statutory trust created under the Delaware Statutory Trust Act, for the sole purpose of issuing, in private placement transactions, ~~$9,000,000~~$9,000,000 of trust preferred securities (TPS) and using the proceeds thereof, together with the equity proceeds received from the Company in the initial formation of the Trust, to purchase ~~$9,279,000~~$9,279,000 of variable rate subordinated debentures issued by the Company. The Company owns all voting securities of the Trust and the subordinated debentures are the sole assets of the Trust. The Trust will meet the obligations of the TPS with the interest and principal paid on the subordinated debentures. The Company received net proceeds from the TPS transactions, after commissions and other costs of issuance, of ~~$9,005,000~~.$9,005,000. The Company also holds all the voting securities issued by the Trust and such trusts are considered to be VIE's. The Trust is not consolidated because the Company is not the primary beneficiary of the trust. The Subordinated Debentures, disclosed in Note 7, are reported in the accompanying condensed consolidated balance sheets as a component of long-term debt. The Company's equity investments in the Trust total ~~$279,000~~$279,000 and are included in Other Assets in the accompanying condensed consolidated balance sheets.

In June 2007, the Company formed National Security Capital Trust II for the sole purpose of issuing, in private placement transactions, ~~$3,000,000~~$3,000,000 of trust preferred securities ~~(TPS)~~ and using the proceeds thereof, together with the equity proceeds received from the Company in the initial formation of the Trust, to purchase ~~$3,093,000~~$3,093,000 unsecured junior subordinated deferrable interest debentures. The Company owns all voting securities of the Trust and the subordinated debentures are the sole assets of the Trust. The Trust will meet the obligations of the TPS with the interest and principal paid on the subordinated debentures. The Company received net proceeds from the TPS transactions, after

~~THE NATIONAL SECURITY GROUP, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED AMOUNTS EXCEPT FOR DECEMBER 31, 2016 AMOUNTS)~~

Table of ~~2017 due to a reduction in short-term debt outstanding. The improvement of balance sheet strength through reduction of debt continues to be a primary focus of management.~~Contents

Shareholders' Equity:

Shareholders' equity as of September 30, ~~2017~~2020 was ~~$47,116,000,~~$47,062,000, down ~~$936,000,~~$6,399,000, compared to December 31, ~~2016~~2019 Shareholders' equity of ~~$48,052,000.~~$53,461,000. Book value per share was ~~$18.68~~$18.59 at September 30, ~~2017,~~2020, compared to ~~$19.09~~$21.12 per share at December 31, ~~2016,~~2019; a ~~decrease~~decline of ~~$0.41. Despite~~12.0% or $2.53 per share. The primary factors contributing to the ~~adverse impact of multiple catastrophe events in 2017, as well as Hurricane Irma losses, the Company had only a 2.1%~~ decrease in both book value per share and ~~a 1.9% decrease in Shareholders' Equity during the first nine months of 2017. The primary factor contributing to the decrease in~~ Shareholders' equity ~~was~~were a net loss of ~~$1,872,000. In addition, Shareholders' equity was also reduced by~~$6,364,000 and shareholder dividends paid of ~~$378,000. Offsetting the~~$455,000. Partially offsetting these decreases was ~~an increase in~~ accumulated other comprehensive income of ~~$1,238,000.~~$429,000. The ~~increase in~~ accumulated ~~other~~ comprehensive income was primarily driven by increases in market ~~values~~value of ~~available-for-sale investment securities.~~our corporate bond investments available-for-sale.

Release of Information on Fourth Quarter Events - Hurricane Delta and Hurricane Zeta Catastrophe Claims:

In addition to our third quarter earnings release, we are releasing our preliminary loss estimates from Hurricane Delta and Hurricane Zeta which will impact our fourth quarter earnings. We emphasize that no provision for losses from Hurricane Delta and Hurricane Zeta catastrophe claims have been made in our third quarter results presented above as these events occurred in the fourth quarter of 2020.

On October 9, 2020, Hurricane Delta made landfall near Creole, Louisiana in Cameron Parish as a category 2 storm. This was the second hurricane landfall in Cameron Parish in 2020 as Hurricane Laura made landfall less than 15 miles west in late August. Hurricane Delta had maximum sustained winds of 100 mph at landfall and was a record tenth tropical cyclone to impact the continental U.S. during the 2020 Atlantic hurricane season. As of November 10, 2020, Hurricane Delta has produced 436 claims totaling $2,488,000. Net of reinsurance recoveries, we expect pre-tax losses from Hurricane Delta to be in the range of $2,500,000 to $3,000,000.

On October 28, 2020, Hurricane Zeta made landfall near Cocodrie, Louisiana, in Terrebonne Parish as a category 2 storm. Hurricane Zeta had maximum sustained winds of 110 mph at landfall and became the fifth named storm to impact Louisiana in 2020. Hurricane Zeta was fast moving over land and maintained category 1 strength through Mississippi and parts of Alabama. As of November 10, 2020, Hurricane Zeta has produced 1,057 claims totaling $4,177,000. We expect pre-tax gross losses from Hurricane Zeta to be in the range of $5,500,000 to $6,500,000. Net of reinsurance recoveries, our pre-tax losses from Hurricane Zeta will be $4,000,000.

Table of Contents

Three ~~month period ended~~Months Ended September 30, ~~2017~~2020 compared to ~~three month period ended~~Three Months Ended September 30, ~~2016~~2019

Premium Revenue:

The table below provides earned premium revenue by segment for the three months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


($ in thousands)	Three months ended September 30,				Percent
	2020		2019		increase (decrease)
Life, accident and health segment premiums earned:
Traditional life insurance	$	978	$	1,008	(3.0)	%
Accident and health insurance	539		584		(7.7)	%
Gross life, accident and health	1,517		1,592		(4.7)	%
Reinsurance premium ceded	(14)		(11)		27.3	%
Net life, accident and health premiums earned	$	1,503	$	1,581	(4.9)	%

Property and Casualty segment premiums earned:
Dwelling fire & extended coverage	$	10,103	$	9,644	4.8	%
Homeowners (Including mobile homeowners)	5,120		5,178		(1.1)	%
Other liability	562		560		0.4	%
Gross property and casualty	15,785		15,382		2.6	%
Reinsurance premium ceded	(1,999)		(1,754)		14.0	%
Net property and casualty premiums earned	$	13,786	$	13,628	1.2	%

Consolidated gross premiums earned	$	17,302	$	16,974	1.9	%
Reinsurance premium ceded	(2,013)		(1,765)		14.1	%
Consolidated net premiums earned	$	15,289	$	15,209	0.5	%

Three months ended
September 30,
Percent
(dollars in thousands) 2017 2016 increase (decrease)
Life, accident and health operations premiums earned:
Traditional life insurance $ 1,049
$ 1,108
(5.3 )%
Accident and health insurance 548
561
(2.3 )%
Gross life, accident and health 1,597
1,669
(4.3 )%
     Reinsurance premium ceded (23 ) (10 ) 130.0 %
Net life, accident and health premiums earned $ 1,574
$ 1,659
(5.1 )%

Property and Casualty operations premiums earned:
Dwelling fire & extended coverage $ 9,218
$ 8,941
3.1 %
Homeowners (Including mobile homeowners) 5,715
5,923
(3.5 )%
Other liability 532
515
3.3 %
Gross property and casualty 15,465
15,379
0.6 %
     Reinsurance premium ceded (1,572 ) (1,363 ) 15.3 %
Net property and casualty premiums earned $ 13,893
$ 14,016
(0.9 )%

Consolidated gross premiums earned $ 17,062
$ 17,048
0.1 %
     Reinsurance premium ceded (1,595 ) (1,373 ) 16.2 %
Consolidated net premiums earned $ 15,467
$ 15,675
(1.3 )%

Consolidated net premium earned was ~~down 1.3%~~up 0.5% for the quarter ended September 30, ~~2017,~~2020, at ~~$15,467,000~~$15,289,000 compared to ~~$15,675,000~~$15,209,000 for the ~~quarter ended September 30, 2016.~~same period last year. The ~~decrease~~increase in net premium earned was due to a 5.1% decrease in net premium earned in the life segment coupled with a 0.9% decrease in net premium earned in the P&C segment. Growth in P&C premium revenue has moderated as we have placed increased focus on rate adequacy and rate increases over the past three years has slowed our rate of premium growth. A 15.3%1.2% increase ~~in catastrophe reinsurance cost in the P&C segment also contributed to the decline~~ in net premium earned in the P&C segment. The increase in ~~catastrophe reinsurance cost~~P&C segment net earned premium was ~~due~~primarily attributable to a ~~5.5% catastrophe reinsurance rate~~4.8% increase in gross earned premium in our ~~2017 calendar year contract renewal.~~dwelling fire program. Rate increases implemented in areas impacted by increased severe weather over the past five years was the primary driver of the increase in premium revenue.

Investment Income:

The table below provides the major categories of investment income, primarily dividend and interest income, for the three months ended September 30, 2020 and 2019:


($ in thousands)	Three months ended September 30,
		2020		2019
Fixed maturities		$	824	$	960
Equity securities		30		19
Mortgage loans on real estate		1		2

Policy loans		36		37

Other		28		6
		919		1,024
Less: Investment expenses		35		35
Net investment income		$	884	$	989

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For the three months ended September 30, ~~2017,~~2020, net investment income was ~~$939,000~~$884,000 compared to ~~$1,005,000~~$989,000 for the same period in ~~2016;~~2019; a decrease of ~~$66,000~~$105,000 or ~~6.6%~~10.6%. ~~While investment yields have increased moderately~~Lower interest rates coupled with a decrease in ~~2017, overall reinvestment rates for fixed income securities continue~~invested assets in 2020 was the primary contributor to ~~be below~~ the ~~rates obtained on maturing investments, especially~~decline in ~~our life segment, which puts moderate downward pressure on our book yield on our investment portfolio.~~interest income.

~~Realized~~ Investment Gains (Losses):

The table below provides investment gains and ~~Losses:~~losses for the three months ended September 30, 2020 and 2019:

~~Realized~~


($ in thousands)	Three months ended September 30,
		2020		2019
Realized gains (losses) on fixed maturities		$	1,091	$	(24)

Gains on trading securities		5		1
Change in fair value of equity securities		223		(80)
Change in surrender value of company owned life insurance		125		(14)

Other losses principally real estate		(14)		—

Net investment gains (losses)		$	1,430	$	(117)

Net investment gains, for the three months ended September 30, ~~2017,~~2020, were ~~$75,000~~$1,430,000 compared to ~~$287,000~~net investment losses of $117,000 for the same period in ~~2016. The realization~~2019; an increase of ~~capital~~$1,547,000. A primary reason for the increase in third quarter 2020 investment gains, compared to third quarter 2019 investment losses was gains on fixed maturities totaling $1,091,000 compared to losses on fixed maturities totaling $24,000, in the ~~investment portfolio is influenced by both market conditions and liquidity requirements and therefore can vary significantly from~~third quarter of 2019. In addition, an increase in value of our equity investments totaled $223,000, in the third quarter of 2020, compared to unrealized losses on equity investments of $80,000, in the third quarter ~~and year to year. Other activities, such as tax planning strategies, may also lead to significant variation in realized capital~~of 2019. In third quarter 2020, we had investment gains from ~~year~~an increase in underlying investments in our COLI of $125,000 compared to a loss of $14,000 for the same period last year.

Other Income:

Other income was comparable at ~~$150,000~~$162,000 for the three months ended September 30, ~~2017,~~2020, compared to ~~$152,000~~$148,000 for the same period ~~in 2016; a decrease~~last year; an increase of ~~$2,000.~~$14,000. Other income consists primarily of fees related to the issuance of our property insurance policies as well as other miscellaneous income. ~~As a percent of total revenue, other income was 0.9% for the third quarter of 2017 and 2016.~~

Policyholder Benefits:

Policyholder claims were ~~$11,184,000~~$13,303,000 for the ~~three months ended September 30, 2017,~~third quarter of 2020, compared to ~~$10,082,000~~$9,750,000 for the ~~three months ended September 30, 2016;~~same period last year; an increase of ~~$1,102,000~~$3,553,000 or ~~10.9%~~36.4%. Claims as a percentage of premium earned was ~~72.3%~~87.0% in the third quarter of ~~2017~~2020 compared to ~~64.3%~~64.1% in the third quarter of ~~2016. A significant increase in catastrophe losses generated from Hurricane Irma was the~~2019. The primary ~~factor contributing to~~reason for the increase in ~~policyholder benefits in the third quarter of 2017. Offsetting the Hurricane Irma losses~~claims was a ~~decline~~$4,746,000 increase in P&C segment reported weather related claims. This increase was partially offset by a decrease in fire claims totaling $1,030,000.

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Weather related losses ~~totaling $1,365,000 for~~consistently create the ~~third quarter of 2017 compared~~most significant variability in our loss and loss adjustment expense payments from year to ~~the same period~~year in ~~2016.~~

our P&C segment. The following table ~~below~~ provides a recap of P&C segment gross reported losses and LAE by catastrophe event and non-catastrophe wind and hail losses and LAE for the three ~~months~~month periods ended September 30, ~~2017~~2020 and 2016 (dollars in thousands). (Note: this table includes both reported claims from catastrophe events incurred in the third quarter and development of first and second quarter catastrophe events from claims reported in the third quarter of each year):2019:

For the three months ended September 30, 2017 For the three months ended September 30, 2016
Cat Event
Reported
Losses & LAE
Claim Count Cat Event
Reported
Losses & LAE
Claim Count
Cat 11 (Jan 1-3) $ (1 ) —
Cat 16 (Feb 22-24) $ (12 ) 1
Cat 13 (Jan 18-22) 16
3
Cat 17 (Mar 5-11) (6 ) —
Cat 19 (Feb 28-Mar 2) 11
3
Cat 22 (Mar 30-Apr 1) 5
2
Cat 20 (Mar 6-9) —
—
Cat 27 (Apr 25-28) (10 ) (1 )
Cat 21 (Mar 21-22) 18
7
Cat 28 (Apr 29-May 3) 47
11
Cat 22 (Mar 26-28) 10
3
Cat 29 (May 7-10) 53
4
Cat 24 (Apr 2-3) 6
3
Cat 31 (May 16-19) 30
1
Cat 25 (Apr 4-6) 59
13
Cat 32 (May 26-28) (1 ) 2
Cat 28 (Apr 21-25) 27
5
Cat 35 (Jun 16-18) 85
7
Cat 30 (Apr 28-May 1) 36
10
Cat 40 (July 13-15) 311
87
Cat 31 (May 3-5) 21
6
Cat 44 (Aug 11-13) 647
262
Cat 32 (May 8-11) 20
6
Cat 46 (Aug 31-Sept 4) 357
114
Cat 33 (May 15-18) 58
6

Cat 34 (May 27-28) 37
6

Cat 38 (June 2-4) 7
11

T.S. Cindy (June 21-25) 155
12

Cat 42 (Aug 5-8) 120
42

Cat 43 (Aug 25-31) 288
73

Cat 44 (Sept 11-15) 2,718
832

Misc cats less than $100k 20
1
Misc cats less than $100k 136
44
Total Cat losses $ 3,626
1,042
Total Cat losses $ 1,642
534

Non-cat wind & hail $ 1,862
584
Non-cat wind & hail $ 1,574
538


For the three months ended September 30, 2020				For the three months ended Septmber 30, 2019
($ in thousands) Catastrophe event	Reported Losses & LAE		Claim Count	Catastrophe event	Reported Losses & LAE		Claim Count
Cat 2012 (Jan 10-12)	$	(15)	1	Cat 1916 (Feb 23-26)	$	(4)	3
Cat 2014 (Feb 5-8)	1		2	Cat 1918 (Mar 3-4)	22		3
Cat 2016 (Mar 2-4)	26		5	Cat 1920 (Mar 23-25)	72		16
Cat 2018 (Mar 27-30)	29		4	Cat 1923 (Apr 12-15)	7		2
Cat 2019 (Apr 7-9)	25		4	Cat 1924 (Apr 17-20)	14		6
Cat 2020 (Apr 10-14)	120		18	Cat 1926 (Apr 30-May 2)	36		13
Cat 2021 (Apr 18-20)	47		9	Cat 1927 (May 7-10)	95		17
Cat 2022 (Apr 21-24)	66		8	Cat 1931 (May 20-22)	155		41
Cat 2024 (Apr 27-30)	23		5	Cat 1943 (July 10-18)	995		242
Cat 2025 (May 2-3)	(1)		1	Cat 1954 (Aug 28-Sept 6)	464		128
Cat 2026 (May 4-5)	141		34
Cat 2027 (May 7-8)	4		1
Cat 2028 (May 13-15)	34		3
Cat 2030 (May 20-24)	58		6
Cat 2037 (June 6-9)	40		3
Cat 2040 (July 10-12)	519		68
Cat 2044 (July 30-Aug 4)	104		25
Cat 2050 (Aug 26-28)	11,476		758
Cat 2063 (Sept 14-16)	2,418		543
Misc cats less than $100k	26		4	Misc cats less than $100k	86		23
Total Before Reinsurance	$	15,141	1,502	Total Cat Losses	$	1,942	494
Less: Reinsurance Recoveries	(9,822)
Total Net Cat Losses	$	5,319

Non-Cat Wind & Hail	$	2,976	621	Non-Cat Wind & Hail	$	1,607	382

During the third quarter of 2017, the P&C segment was impacted by three catastrophe events and development on 21 catastrophe events from first and second quarter of 2017 totaling $3,626,000 from 1,042 claims. Net of tax, these losses reduced third quarter net income by $2,393,000 or $0.95 per share. Third quarter 2017 catastrophe events and first and second quarter 2017 cat event development contributed 25.8 percentage points to the third quarter P&C combined ratio. In comparison,2020, the P&C segment was impacted by five catastrophe events and development on 1320 catastrophe events from first and second quarter of ~~2016~~2020 producing 1,502 policyholder claims totaling ~~$1,642,000 from 534 claims. Net~~$5,319,000, net of ~~tax, these losses reduced~~reinsurance recoveries. In comparison, the P&C segment was impacted by three catastrophe events during the third quarter ~~2016 net income by $1,084,000 or $0.43 per share. Third quarter 2016~~of 2019 and development on 16 catastrophe events ~~and~~from first and second quarter ~~2016 cat event development contributed 11.6~~2019 from 494 claims totaling $1,942,000. During the third quarter of 2020, NSFC was negatively impacted by Hurricane Laura (Cat 2050) and Hurricane Sally (Cat 2063). Hurricane Laura primarily impacted policyholders in Louisiana while Hurricane Sally primarily impacted policyholders in Alabama. These two hurricanes generated $13,894,000 in gross insured losses ($4,072,000 net of reinsurance) during the third quarter of 2020 from 1,301 reported claims through September 30, 2020. Hurricane Laura and Hurricane Sally added 29.2 percentage points to the third quarter ~~2016~~2020 P&C combined ~~ratio.~~

Inratio and accounted for 76.6% of all reported losses from catastrophe events during the third quarter of ~~2017, our catastrophe~~2020. In comparison, in the third quarter of 2019, we incurred losses ~~were above normal with the increase primarily driven by losses incurred~~ from Hurricane ~~Irma. According~~Barry (Cat 1943) and Hurricane Dorian (Cat 1954) totaling $1,459,000 from 370 reported claims. The reported losses from Hurricane Barry and Hurricane Dorian added 10.6 percentage points to the ~~National Hurricane Center, Hurricane Irma was one~~third quarter 2019 P&C combined ratio and accounted for 75.1% of the strongest Atlantic basin hurricanes ever recorded. At its peak, Hurricane Irma registered wind speeds of 185 miles per hour, making it an intense Category 5 storm. On September 10, 2017, Hurricane Irma made landfall in the Florida Keys as a Category 4 storm. After moving north through the Florida peninsula, Hurricane Irma impacted our policyholders in Alabama, Georgia, South Carolina and Tennessee. Georgia was the primary state in our coverage area impacted by Hurricane Irma comprising over 85% of reported claims to date. Hurricane Irma contributed $2,718,000 inall reported losses ~~in the P&C segment~~from catastrophe events during the third quarter ~~from 832 claims. In addition to reported claims, the Company recorded an additional $500,000 reserve estimate for claims incurred but not yet reported associated with Hurricane Irma.~~of 2019.

Non-catastrophe wind and hail claims reported in the third quarter of ~~2017~~2020 totaled ~~$1,862,000~~$2,976,000 compared to non-catastrophe wind and hail claims reported in the third quarter of ~~2016~~2019 totaling ~~$1,574,000;~~$1,607,000; an increase of ~~$288,000 or 18.3%.~~$1,369,000. During the ~~three months ended September 30, 2017,~~third quarter of 2020, the P&C segment had ~~584~~621 non-cat wind and hail claims reported (an

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average of ~~$3,200~~$4,800 per claim) compared to ~~538~~382 non-cat wind and hail claims reported during the ~~three months ended September 30, 2016~~third quarter of 2019 (an average of ~~$2,900~~$4,200 per claim). Non-cat wind and hail claims reported during the third quarter of ~~2017~~2020 accounted for ~~18.9%~~25.1% of total P&C segment incurred losses in the current ~~year.~~year and added 21.3 percentage points to the 2020 P&C segment combined ratio. Non-cat wind and hail claims reported during the third quarter of ~~2016~~2019 accounted for ~~18.6%~~18.8% of total P&C segment incurred losses in ~~2016.~~2019 and added 11.7 percentage points to the 2019 P&C segment combined ratio.

~~While overall policyholder benefit payments were up in the property and casualty segment due to a higher frequency of cat event losses and non-cat wind and hail losses,~~Reported fire losses ~~reported~~ in the third quarter of ~~2017~~2020 were down ~~$1,365,000~~$1,030,000 or ~~31.6%~~30.3% compared to fire losses reported during the third quarter of ~~2016.~~2019. The P&C segment had ~~102~~93 fire losses reported in the third quarter of ~~2017~~2020 totaling ~~$2,949,000~~$2,371,000 compared to ~~138~~128 claims reported in the third quarter of ~~2016~~2019 totaling ~~$4,314,000.~~$3,401,000. The average cost per claim was ~~$28,900~~$25,500 for fire losses reported in the third quarter of ~~2017~~2020 compared to ~~$31,300~~$26,600 for fire losses reported in the third quarter of ~~2016.~~2019. Fire losses reported during the third quarter of 2020 added 17.0 percentage points to the P&C segment combined ratio while fire losses reported during the third quarter of 2019 added 24.7 percentage points to the P&C segment combined ratio.

Policy Acquisition Cost (Commissions and Amortization of Deferred Acquisition Cost):

For the three months ended September 30, ~~2017,~~2020, policy acquisition costs were ~~$2,802,000~~$2,329,000 compared to ~~$2,846,000~~$2,811,000 for the same period ~~in 2016;~~last year; a decrease of ~~$44,000 or 1.5%.~~$482,000. Policy acquisition costs consist of amortization of previously capitalized distribution costs and current commission payments to agents. As a percentage of premium revenue, policy acquisition costs were ~~18.1%~~comparable at 15.2% in the third quarter of ~~2017~~2020 compared to ~~18.2%~~18.5% for the same period last year. The primary reason for the decrease in ~~2016.~~the third quarter of 2020 compared to the third quarter of 2019 was the reduction of bonus commissions to agents.

General Expenses:

General and administrative expenses were ~~$2,398,000~~comparable at $2,312,000 in the third quarter of ~~2017~~2020, compared to ~~$2,026,000 in~~$2,226,000 for the ~~third quarter of 2016; a $372,000 or 18.4% increase.~~same period last year. As a percent of ~~net~~earned premium, general and administrative expenses were ~~15.5% in third~~15.1% and 14.6% at September 30, 2020 and 2019, respectively.

Taxes, Licenses and Fees:

For the quarter ~~2017 compared to 12.9% in third quarter 2016. The primary reason for the increase in general~~ended September 30, 2020 and ~~administrative expense~~2019, insurance taxes, licenses and fees were $604,000. As a percent of earned premium, insurance taxes, licenses and fees were 4.0% in the third quarter of ~~2017 compared to the same period in the prior year~~2020 and 2019.

Interest Expense:

Interest expense was ~~an increase in actuarial fees in the P&C segment primarily associated with increased rate development expenses.~~

~~Taxes, Licenses and Fees:~~

~~Insurance taxes, licenses and fees were $709,000~~$200,000 for the three months ended September 30, ~~2017,~~2020, compared to ~~$529,000 for the same period in 2016. As a percentage of net premiums earned, insurance taxes, licenses and fees were 4.6%~~$293,000 for the three months ended September 30, 2017 compared to 3.4% for the three months ended September 30, 2016. The primary reason for the increase is taxes, licenses and fees in the third quarter of 2017 compared to the third quarter of 2016 was a one time charge for state taxes in the P&C segment totaling $185,000.

~~Interest Expense:~~

~~Interest expense for the third quarter of 2017 was $320,000 compared to $339,000 for the same period in 2016.~~2019. A reduction in total debt outstanding and a decrease in interest on long-term debt over the past twelve months was the primary factor contributing to the ~~$19,000~~$93,000 decrease.

Income ~~Taxes:~~Taxes (Benefits):

For the three ~~month period~~months ended September 30, ~~2017,~~2020, the Company had a ~~pretax~~ loss before income taxes of ~~$782,000~~$983,000 compared to ~~pretax~~ income before income taxes of ~~$1,297,000~~$545,000 for the same period ~~in 2016.~~last year. The ~~$225,000~~$205,000 tax benefit for the third quarter of ~~2017~~2020 consisted of current tax expense of ~~$387,000~~$21,000 and deferred tax benefit of ~~$612,000.~~$226,000. The ~~$367,000~~$115,000 tax expense for ~~the third quarter of 2016~~2019 consisted of current tax expense of ~~$238,000~~$190,000 and deferred tax ~~expense~~benefit of ~~$129,000.~~$75,000. The effective tax rate for the third quarter of 2020 was 20.9% compared to 21.1% for the third quarter of 2019.

Net Income (Loss):

The Company ended the third quarter of ~~2017~~2020 with a net loss of ~~$557,000~~$778,000 compared to net income of ~~$930,000~~$430,000 for the same period last year. The primary factor contributing to the $1,208,000 decrease was the $3,553,000 increase in ~~2016. As~~third quarter 2020 policyholder benefits and settlement expenses, primarily in the P&C segment, discussed in detail ~~above,~~in the ~~primary reason for the third quarter 2017 net loss~~preceding commentary in this discussion.

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Nine Months Ended September 30, 2020 compared to ~~third quarter 2016 net income was an increase in cat event losses in the P&C segment; primarily related to Hurricane Irma.~~

Nine ~~month period ended~~Months Ended September 30, ~~2017 compared to nine month period ended September 30, 2016:~~2019

Premium Revenue:

The table below provides earned premium revenue by segment for the nine months ended September 30, ~~2017~~2020 and ~~2016:~~2019:


($ in thousands)	Nine months ended September 30,				Percent
	2020		2019		increase (decrease)
Life, accident and health operations premiums earned:
Traditional life insurance	$	3,165	$	3,249	(2.6)	%
Accident and health insurance	1,326		1,376		(3.6)	%
Gross life, accident and health	4,491		4,625		(2.9)	%
Reinsurance premium ceded	(71)		(64)		10.9	%
Net life, accident and health premiums earned	$	4,420	$	4,561	(3.1)	%

Property and Casualty operations premiums earned:
Dwelling fire & extended coverage	$	29,591	$	28,401	4.2	%
Homeowners (Including mobile homeowners)	15,281		15,585		(2.0)	%
Other liability	1,671		1,654		1.0	%
Gross property and casualty	46,543		45,640		2.0	%
Reinsurance premium ceded	(5,547)		(5,284)		5.0	%
Net property and casualty premiums earned	$	40,996	$	40,356	1.6	%

Consolidated gross premiums earned	$	51,034	$	50,265	1.5	%
Reinsurance premium ceded	(5,618)		(5,348)		5.0	%
Consolidated net premiums earned	$	45,416	$	44,917	1.1	%

Nine months ended
September 30,
Percent
(dollars in thousands) 2017 2016 increase (decrease)
Life, accident and health operations premiums earned:
Traditional life insurance $ 3,395
$ 3,475
(2.3 )%
Accident and health insurance 1,378
1,387
(0.6 )%
Gross life, accident and health 4,773
4,862
(1.8 )%
     Reinsurance premium ceded (66 ) (58 ) 13.8 %
Net life, accident and health premiums earned $ 4,707
$ 4,804
(2.0 )%

Property and Casualty operations premiums earned:
Dwelling fire & extended coverage $ 27,066
$ 26,410
2.5 %
Homeowners (Including mobile homeowners) 17,179
17,710
(3.0 )%
Other liability 1,572
1,511
4.0 %
Gross property and casualty 45,817
45,631
0.4 %
     Reinsurance premium ceded (4,686 ) (4,368 ) 7.3 %
Net property and casualty premiums earned $ 41,131
$ 41,263
(0.3 )%

Consolidated gross premiums earned $ 50,590
$ 50,493
0.2 %
     Reinsurance premium ceded (4,752 ) (4,426 ) 7.4 %
Consolidated net premiums earned $ 45,838
$ 46,067
(0.5 )%

Consolidated net premium earned was ~~down 0.5%~~up 1.1% for the ~~year~~nine month period ended September 30, ~~2017,~~2020, at ~~$45,838,000~~$45,416,000 compared to ~~$46,067,000~~$44,917,000 for the ~~year ended September 30, 2016; a decrease of $229,000.~~same period last year. The ~~decrease~~increase in net premium earned was due to a ~~2.0% decrease in net premium earned in the life segment coupled with a 0.3% decrease in net premium earned in the P&C segment. A 7.3%~~1.6% increase ~~in catastrophe reinsurance cost in the P&C segment also contributed to the decline~~ in net premium earned in the P&C segment. The increase in ~~catastrophe reinsurance cost~~P&C segment net earned premium was ~~due~~primarily attributable to a ~~5.5% catastrophe reinsurance rate~~4.2% increase in ~~our 2017 calendar year contract renewal.~~

~~An increased focus on rate adequacy~~gross earned premium in our P&C segment over the past four years has decreased our rate of growth in gross premium earned. This focus on rate adequacy has resulted in rate increases across most states and lines of business in which we operate. However, as more of our programs in various states are reaching rate adequacy, we will likely be able to implement moderate rate reductions in some of our programs beginning in late 2017, which we expect to improve our gross written premium growth. In addition, it should be noted that we are experiencing some increases in competitive pressures in our markets but we will not be overly aggressive in chasing market share at rates that are inadequate to maintain long-term underwriting profitability. While our 2017 results to date have been disappointing, we believe that our focus on rate adequacy mitigated the impact on our underwriting results and was a primary factor in maintaining our strong capital position despite the increased frequency of 2017 catastrophe losses.dwelling fire program.

The Company maintains catastrophe reinsurance coverage to mitigate loss exposure from catastrophic events. With our ~~2017~~2020 catastrophe contract placement, our single event catastrophe retention remained unchanged from ~~last~~the prior year at $4 million. In our 2020 contract, we maintained our underlying second event layer of $2 million ~~and, also~~in excess of $2 million. This additional coverage effectively lowers our second event retention to $2 million. Also unchanged from last year, we maintain catastrophe reinsurance covering incurred claims of a single catastrophe event up to $72.5 million. Our catastrophe reinsurance has a reinstatement provision for one event and covers the cost of a second event up to the same $72.5 million upper limit. In our reinsurance structure, management attempts to limit the impact on pretax earnings of a single modeled 100 year cat event to no more than $4 million (net

of reinsurance). It is noted, however, that hurricane models are subject to significant risk and are only a tool to estimate the impact of catastrophe events. The Company also has risk associated with multiple smaller catastrophe events ~~such as those experienced in 2017,~~ that individually may not exceed our $4 million retention and would not be covered under our catastrophe reinsurance contract. ~~While 2017 has a high frequency of catastrophe related losses, no single event approached our $4 million retention under~~

To summarize our catastrophe reinsurance ~~coverage.~~

~~Under~~structure, under the catastrophe reinsurance program in ~~2017,~~2020, the Company retains the first ~~$4,000,000~~$4 million in losses from ~~each~~a first event (exceeding $4 million in insured losses) and $2 million in losses from a second event.

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Reinsurance coverage is maintained in three layers as follows:



Layer			Reinsurers' Limits of Liability
First Layer			100% of $13,500,000 in excess of $4,000,000 retention
Second Layer			100% of $25,000,000 in excess of $17,500,000
Third Layer			100% of $30,000,000 in excess of $42,500,000
Catastrophe Aggregate			100% of $2,000,000 in excess of $2,000,000 aggregate annual deductible

Additional details regarding the structure of our 2020 catastrophe reinsurance program can be found in Note 9 to the Consolidated Financial Statements.

Investment Income:

The table below provides the major categories of investment income, primarily dividend and interest income, for the nine months ended September 30, 2020 and 2019:


($ in thousands)	Nine months ended September 30,
		2020		2019
Fixed maturities		$	2,696	$	2,831
Equity securities		102		66
Mortgage loans on real estate		5		6
Investment real estate		1		3
Policy loans		108		106

Other		6		13
		2,918		3,025
Less: Investment expenses		109		117
Net investment income		$	2,809	$	2,908

For the nine months ended September 30, ~~2017,~~2020, net investment income was ~~$2,795,000~~$2,809,000 compared to ~~$3,025,000~~$2,908,000 for the same period in ~~2016;~~2019; a decrease of $230,000. The primary reason for the decrease in net investment income in the first nine months of 2017 compared to the same period in 2016 was a decline in fixed income investments in the P&C segment associated with reductions in cash flow from increased storm activity over the last twelve months.$99,000 or 3.4%.

~~Realized~~ Investment Gains (Losses):

The table below provides investment gains and ~~Losses:~~

For the nine months ended September 30, 2017, the Company had net realized capital gains totaling $312,000 compared to $536,000 for the same period in 2016. The $224,000 decrease was primarily associated with sales of fixed income investments. The realization of capital gains in the investment portfolio is influenced by both market conditions and liquidity requirements and therefore can vary significantly from quarter to quarter and year to year. Other activities, such as tax planning strategies, may also lead to significant variation in realized capital gains from year to year.

~~Other Income~~:

~~Other income was $447,000~~losses for the nine months ended September 30, ~~2017,~~2020 and 2019:


($ in thousands)	Nine months ended September 30,
		2020		2019
Realized gains (losses) on fixed maturities		$	1,107	$	(9)

Gains (losses) on trading securities		(1)		9
Change in fair value of equity securities		(272)		72
Change in surrender value of company owned life insurance		165		256
Realized gain on company owned life insurance		—		1,792
Other losses principally real estate		(11)		—

Net investment gains		$	988	$	2,120

Net investment gains, for the nine months ended September 30, 2020, were $988,000 compared to ~~$456,000~~net investment gains of $2,120,000 for the same period in ~~2016;~~2019; a decrease of ~~$9,000.~~$1,132,000. The primary reason for 2020 investment gains, was a gain on available-for-sale fixed maturities of $1,107,000 compared to a loss on available-for-sale fixed maturities of $9,000 for the same period last year. In the first nine months of 2020, an increase in value of COLI investments totaled $165,000 compared to an increase of $256,000 for the same period last year. Offsetting the net investment gains, in the first nine months of 2020, were unrealized losses due to change in market value of equity investments totaling $272,000 compared to unrealized gains in equity investments of $72,000 in the first nine months of 2019. Investment gains in 2019 were also positively impacted by a realized gain on COLI of $1,792,000.

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Other Income:

Other income was comparable at $450,000 for the nine months ended September 30, 2020, compared to $440,000 for the same period last year; an increase of $10,000. Other income consists primarily of fees related to the issuance of our property insurance policies as well as other miscellaneous income. ~~As a percentage of total revenue, other income was 0.9% in 2017 and 2016.~~

Policyholder Benefits:

Policyholder claims were ~~$34,911,000~~$40,622,000 for the nine months ended September 30, ~~2017,~~2020, compared to ~~$27,991,000~~$29,673,000 for the ~~nine months ended September 30, 2016;~~same period last year; an increase of ~~$6,920,000~~$10,949,000 or ~~24.7%~~36.9%. Claims as a percentage of premium earned was ~~76.2%~~89.4% in ~~2017~~2020 compared to ~~60.8%~~66.1% in ~~2016. Policyholder benefits were up due to an~~2019. The primary reason for the increase in claims was a $12,505,000 increase in P&C segment catastrophe weather claims. This increase was partially offset by decreases in reported non-catastrophe weather claims and reported fire losses totaling $227,000 and $1,416,000, respectively.

Weather related losses consistently create the most significant variability in ~~the first nine months of 2017 compared~~our loss and loss adjustment expense payments from year to ~~the same period~~year in ~~2016. The increase in~~our P&C segment claims were from a $7,679,000 increase in reported catastrophe event losses. However, offsetting the increase in cat losses were a decline in reported fire claims totaling $1,444,000 in the P&C segment.

The following table ~~below~~ provides a recap of P&C segment gross reported losses and LAE by catastrophe event and non-catastrophe wind and hail losses and LAE for the ~~nine months~~nine-month periods ended September 30, ~~2017~~2020 and ~~2016 (dollars in thousands):~~2019:

For the nine months ended September 30, 2017 For the nine months ended September 30, 2016
Cat event
Reported
Losses & LAE
Claim Count Cat event
Reported
Losses & LAE
Claim Count
Cat 11 (Jan 1-3) $ 800
180
Cat 16 (Feb 22-24) $ 1,042
240
Cat 13 (Jan 18-22) 2,141
370
Cat 17 (Mar 5-11) 323
101
Cat 19 (Feb 28-Mar 2) 558
145
Cat 22 (Mar 30-Apr 1) 209
57
Cat 20 (Mar 6-9) 128
43
Cat 27 (Apr 25-28) 189
47
Cat 21 (Mar 21-22) 306
76
Cat 28 (Apr 29-May 3) 593
120
Cat 22 (Mar 26-28) 424
75
Cat 29 (May 7-10) 255
28
Cat 24 (Apr 2-3) 774
153
Cat 31 (May 16-19) 170
31
Cat 25 (Apr 4-6) 671
165
Cat 32 (May 26-28) 143
15
Cat 28 (Apr 21-25) 434
68
Cat 35 (Jun 16-18) 438
99
Cat 30 (Apr 28-May 1) 798
179
Cat 40 (July 13-15) 311
87
Cat 31 (May 3-5) 504
103
Cat 44 (Aug 11-13) 647
262
Cat 32 (May 8-11) 275
53
Cat 46 (Aug 31-Sept 4) 357
114
Cat 33 (May 15-18) 342
54

Cat 34 (May 27-28) 633
83

Cat 38 (June 2-4) 154
52

T.S. Cindy (June 21-25) 517
102

Cat 42 (Aug 5-8) 120
42

Cat 43 (Aug 25-31) 288
73

Cat 44 (Sept 11-15) 2,718
832

Misc cats less than $100k 219
50
Misc cats less than $100k 448
135
Total Cat losses $ 12,804
2,898
Total Cat losses $ 5,125
1,336

Non-cat wind & hail $ 4,802
1,311
Non-cat wind & hail $ 4,833
1,513


For the nine months ended September 30, 2020				For the nine months ended September 30, 2019
($ in thousands) Catastrophe event	Reported Losses & LAE		Claim Count	Catastrophe event	Reported Losses & LAE		Claim Count
Cat 2012 (Jan 10-12)	$	1,337	314	Cat 1916 (Feb 23-26)	$	292	84
Cat 2014 (Feb 5-8)	631		161	Cat 1918 (Mar 3-4)	741		75
Cat 2016 (Mar 2-4)	335		76	Cat 1920 (Mar 23-25)	147		29
Cat 2018 (Mar 27-30)	386		39	Cat 1923 (Apr 12-15)	569		120
Cat 2019 (Apr 7-9)	202		34	Cat 1924 (Apr 17-20)	317		75
Cat 2020 (Apr 10-14)	3,928		561	Cat 1926 (Apr 30-May 2)	209		35
Cat 2021 (Apr 18-20)	1,962		303	Cat 1927 (May 7-10)	601		102
Cat 2022 (Apr 21-24)	1,739		229	Cat 1931 (May 20-22)	155		41
Cat 2024 (Apr 27-30)	156		31	Cat 1943 (July 10-18)	995		242
Cat 2025 (May 2-3)	219		31	Cat 1954 (Aug 28-Sept 6)	464		128
Cat 2026 (May 4-5)	610		112
Cat 2027 (May 7-8)	101		21
Cat 2028 (May 13-15)	144		28
Cat 2030 (May 20-24)	285		57
Cat 2037 (June 6-9)	318		61
Cat 2040 (July 10-12)	519		68
Cat 2044 (July 30-Aug 4)	104		25
Cat 2050 (Aug 26-28)	11,476		758
Cat 2063 (Sept 14-16)	2,418		543
Misc cats less than $100k	262		52	Misc cats less than $100k	315		82
Total Before Reinsurance	$	27,132	3,504	Total Cat Losses	$	4,805	1,013
Less: Reinsurance Recoveries	(9,822)
Total Net Cat Losses	$	17,310

Non-Cat Wind & Hail	$	6,564	1,437	Non-Cat Wind & Hail	$	6,791	1,672

During the first nine months of ~~2017,~~2020, the P&C segment was impacted by 2425 catastrophe events producing ~~2,898~~3,504 policyholder claims totaling ~~$12,804,000. Net~~$17,310,000 net of ~~tax, these losses reduced 2017 net income by $8,451,000 or $3.36 per share.~~reinsurance recoveries. In comparison, the P&C segment was impacted by 1819 catastrophe events ~~from 1,336 claims totaling $5,125,000. Net of tax, 2016 catastrophe losses reduced net income for the nine month period ended September 30, 2016 by $3,383,000 or $1.35 per share.~~

The primary reason for the $7,679,000 increase in reported catastrophe losses, in 2017 compared to 2016, was the impact of Hurricane Irma in September 2017 coupled with the significant increase in reported cat event losses from an active spring storm season. Hurricane Irma contributed $2,718,000 in reported losses in 2017 from 832 claims. Hurricane Irma impacted our policyholders in Alabama, Georgia, South Carolina and Tennessee. Georgia was the primary state in our coverage area impacted by Hurricane Irma comprising over 85% of reported claims to date.

~~During the current year, the P&C segment was heavily impacted by numerous catastrophic storms with $12,804,000 in cat event claims reported in~~during the first nine months of ~~2017. Georgia~~2019 from 1,013 claims totaling $4,805,000. During 2020, the P&C segment had multiple severe weather events that contributed to elevated insured losses due to damage from strong winds, hail and ~~Alabama were~~tornadoes. Reported losses from the ~~primary source~~three largest non-hurricane catastrophe events (all occurring in April) coupled with reported losses from Hurricane Laura (Cat 2050) and

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Hurricane Sally (Cat 2063) totaled $11,701,000, net of reinsurance recoveries. The three April 2020 cat events accounted for 44.1% of all reported catastrophe event claims through September 30, 2020 and added 18.4 percentage points to the current year P&C segment combined ratio. Net of reinsurance, Hurricane Laura and Hurricane Sally accounted for 23.5% of all reported ~~cat~~catastrophe event claims through September 30, 2020 and added 9.8 percentage points to the 2020 P&C segment combined ratio. In comparison, reported losses in the ~~current year accounting for 36.0%~~P&C segment from Hurricane Barry (Cat 1943) and ~~22.0%; respectively. Louisiana~~Hurricane Dorian (Cat 1954), in 2019, totaled $1,459,000 and ~~Oklahoma were the primary source of the $5,125,000 in reported cat event claims during 2016. Louisiana~~ accounted for 24.3% of reported cat losses in 2016 at $1,247,000 while Oklahoma accounted for 18.5% of reported cat losses in 2016 at $949,000. The 2017 cat event claims reported from Georgia and Alabama accounted for 58.0%30.4% of all reported ~~cat~~catastrophe event claims ~~in 2017. In 2016,~~through September 30, 2019. Hurricane Barry and Hurricane Dorian added 3.6 percentage points to the ~~cat event claims reported in Louisiana and Oklahoma accounted for 42.8% of all reported cat event claims.~~2019 P&C segment combined ratio.

Non-catastrophe wind and hail claims reported in ~~the first nine months of 2017~~2020 totaled ~~$4,802,000~~$6,564,000 compared to non-catastrophe wind and hail claims reported in ~~the first nine months of 2016~~2019 totaling ~~$4,833,000;~~$6,791,000; a decrease of ~~$31,000 or 0.6%.~~$227,000. During the first nine months of ~~2017,~~2020, the P&C segment had ~~1,311~~1,437 non-cat wind and hail claims reported (an average of ~~$3,700~~$4,600 per claim) compared to ~~1,513 claims reported during the first nine months of 2016 (an average of $3,200 per claim). Non-cat~~1,672 non-cat wind and hail claims reported during the first nine months of ~~2017~~2019 (an average of $4,100 per claim). Non-cat wind and hail claims reported during 2020 accounted for ~~15.5%~~17.6% of total P&C segment incurred losses ~~and LAE~~ in the current ~~year.~~year and added 15.8 percentage points to the 2020 P&C segment combined ratio. Non-cat wind and hail claims reported during ~~the first nine months of 2016~~2019 accounted for ~~20.2%~~26.0% of total P&C segment incurred losses in 2019 and ~~LAE in 2016.~~added 16.7 percentage points to the 2019 P&C segment combined ratio.

Year to date policyholder benefit payments were up in the property and casualty segment due to an increase in frequency of reported losses from catastrophe events; however, reported fire losses were down in 2017 compared to 2016.

Reported fire losses in the first nine months of 2020 were down ~~$1,444,000~~$1,416,000 or ~~12.8% in 2017~~13.7% compared to fire losses reported during the first nine months of ~~2016.~~2019. The P&C segment had ~~359~~292 fire losses reported ~~for the nine-month period ended September 30, 2017,~~in 2020 totaling ~~$9,855,000~~$8,930,000 compared to ~~380 fire~~363 claims reported ~~for the same period~~ in ~~2016~~2019 totaling ~~$11,299,000.~~$10,346,000. The average cost per claim was ~~$27,500~~$30,600 for fire losses reported in ~~2017~~2020 compared to ~~$29,700~~$28,500 for fire losses reported in ~~2016.~~2019. Fire losses reported during 2020 added 21.5 percentage points to the P&C segment combined ratio while fire losses reported during 2019 added 25.4 percentage points to the P&C segment combined ratio.

Policy Acquisition Cost (Commissions and Amortization of Deferred Acquisition Cost):

For the nine months ended September 30, ~~2017,~~2020, policy acquisition costs were ~~$8,417,000~~$8,364,000 compared to ~~$8,764,000~~$8,641,000 for the same period ~~in 2016;~~last year; a decrease of ~~$347,000.~~$277,000. Policy acquisition costs consist of amortization of previously capitalized distribution costs and current commission payments to agents. As a percentage of premium revenue, policy acquisition costs were comparable at 18.4% in the first nine months of ~~2017~~2020 compared to ~~19.0%~~19.2% for the same period last year. A decline in ~~2016. Policy~~agent contingent commissions was the primary factor contributing to the decline in policy acquisition ~~cost are down due to a reduction in our estimate of 2017 contingent commission payments to agents due to underwriting losses generated by increased catastrophe losses in the P&C segment.~~cost.

General Expenses:

~~Year~~General and administrative expenses were $6,199,000 in 2020 compared to ~~date~~$6,974,000 for the same period last year. As a percent of earned premium, general and administrative expenses ~~totaled $6,410,000 in 2017 compared to $6,313,000 in 2016; a 1.5% increase.~~were 13.6% and 15.5% at September 30, 2020 and 2019, respectively. The ~~primary reason for the $97,000 increase~~$775,000 decrease in general and administrative expenses, in ~~2017~~2020 compared to ~~2016~~2019, was ~~an increase~~primarily due to a decline in the company's liability in deferred compensation plans coupled with a decrease in actuarial ~~fees paid associated with rate filings in the P&C segment.~~fees.

Taxes, Licenses and Fees:

Insurance taxes, licenses and fees were ~~$1,915,000~~comparable at $1,919,000 for the nine months ended September 30, ~~2017,~~2020, compared to ~~$1,703,000~~$1,890,000 for the same period in ~~2016.~~2019; an increase of $29,000. As a ~~percentage~~percent of ~~net premiums~~ earned premium, insurance taxes, licenses and fees were 4.2% ~~for~~in the first nine months ~~ended September 30, 2017, compared to 3.7% for the nine months ended September 30, 2016. The primary reason for the increase in taxes, licenses~~of 2020 and ~~fees in 2017 compared to 2016 was a one time charge for state taxes in the P&C segment totaling $185,000.~~2019.

Interest Expense:

Interest expense for the first nine months of ~~2017~~2020 was ~~$969,000~~$660,000 compared to ~~$1,017,000~~$879,000 for the same period in ~~2016;~~2019; a decrease of ~~4.7%~~24.9%. ~~The primary reason for the $48,000 decrease was a~~A reduction in total debt ~~outstanding.~~outstanding over the past twelve months, coupled with a decline in our interest rate on long-term debt, was the primary factor contributing to the $219,000 decrease.

Income ~~Taxes:~~Taxes (Benefits):

For the ~~nine-month period~~nine months ended September 30, ~~2017,~~2020, the Company had a ~~pretax~~ loss before income taxes of ~~$3,230,000~~$8,101,000 compared to ~~pretax~~ income before income taxes of ~~$4,296,000~~$2,328,000 for the same period ~~in 2016.~~last year. The ~~$1,358,000~~$1,737,000 tax benefit for ~~2017~~2020 consisted of current tax benefit of $1,312,000 and deferred tax benefit of $425,000. The $42,000 tax expense for 2019 consisted of current tax expense of ~~$510,000~~$287,000 and deferred tax benefit of ~~$848,000.~~$245,000. The ~~$1,129,000~~effective tax ~~expense~~rate for ~~2016 consisted~~2019 was significantly lower compared to 2020 due to the gain on COLI benefits received in 2019 which is not subject to federal income tax.

Table of ~~current tax expense of $858,000 and deferred tax expense of $271,000.~~Contents

Net Income (Loss):

The Company ended the first nine months of ~~2017~~2020 with a net loss of ~~$1,872,000~~$6,364,000 compared to net income of ~~$3,167,000~~$2,286,000 for the same period ~~in 2016.~~last year. The primary factor contributing to the ~~$5,039,000~~$8,650,000 decrease ~~in net income~~ was ~~a $5,068,000 (net of tax)~~the $10,949,000 increase in ~~reported losses from cat events~~policyholder benefits and settlement expenses, primarily in ~~2017 compared to 2016.~~the P&C segment, mentioned previously.

Liquidity and Capital Resources:

Due to regulatory restrictions, the majority of the Company's cash is required to be invested primarily in investment-grade securities to provide protection for policyholders. The liabilities of the property and casualty insurance subsidiaries are of various terms, and therefore, those subsidiaries invest in securities with various effective maturities spread over periods usually not exceeding 10 years with an average portfolio duration typically of less than 5 years. The liabilities of the life insurance subsidiary are typically of a longer duration, and therefore, a higher percentage of securities in the life insurance subsidiary are invested for periods exceeding 10 years.

The liquidity requirements for the Company are primarily met by funds generated from operations of the life insurance and ~~property/~~property and casualty insurance subsidiaries. All operations and virtually all investments are maintained by the insurance subsidiaries. Premium and investment income as well as maturities and sales of invested assets provide the primary sources of cash for both the life and property/casualty businesses, while applications of cash are applied by both businesses to the payment of policy benefits, the cost of acquiring new business (principally commissions), operating expenses, purchases of new investments, and in the case of life insurance, policy loans.

Virtually all invested assets of the Company are held in the insurance subsidiaries. As of September 30, ~~2017,~~2020, the contractual maturity schedule for all bonds and notes held by the Company, stated at amortized cost, was as ~~follows (dollars in thousands):~~follows:


Maturity	Available- for-Sale		Held-to-Maturity		Total		Percentage of Total
($ in thousands) Maturity									($ in thousands) Maturity	Available- for-Sale		Held-to-Maturity		Total		Percentage of Total
Maturity in less than 1 year	$	1,160	$	6	$	1,166	1.25	%	Maturity in less than 1 year	$	260	$	—	$	260	0.31	%
Maturity in 1-5 years	16,753		1		16,754		18.00	%	Maturity in 1-5 years	18,449		20		18,469		22.11	%
Maturity in 5-10 years	30,876		65		30,941		33.24	%	Maturity in 5-10 years	26,124		3		26,127		31.27	%
Maturity after 10 years	42,621		1,612		44,233		47.51	%	Maturity after 10 years	37,699		996		38,695		46.31	%
	$	91,410	$	1,684	$	93,094	100.00	%		$	82,532	$	1,019	$	83,551	100.00	%

It should be noted that the above table represents maturities based on stated/contractual maturity. Due to call and prepayment features inherent in some ~~debt securities and principal pay-downs on mortgage backed~~fixed maturity securities, actual repayment, or effective maturities, will differ from stated maturities. The Company routinely evaluates the impact of changing interest rates on the projected maturities of bonds in the portfolio and actively manages the portfolio in order to minimize the impact of interest rate risk. However, due to other factors, both regulatory and those associated with good investment management practices associated with asset/liability matching, we do have exposure to changes in market values of securities due to changes in interest rates. Currently, a 100 basis point immediate increase in interest rates ~~(represented by a parallel shift in the yield curve)~~ would generate approximately a ~~$5,278,000,~~$4,258,000, or ~~5.8%~~4.9%, decline in the market value of fixed ~~income~~maturity investments. Alternatively, a 100 basis point decrease in interest rates will generate approximately ~~$5,171,000,~~$4,134,000, or ~~5.6%~~4.8%, increase in market value of fixed income investments. Management has attempted, to the extent possible, to reduce risk in a rising rate environment. However, due to ~~asset~~ asset/liability matching requirements, particularly in the life subsidiary portfolio, interest rate risk can not be eliminated and exposure to market volatility can cause some variability in our accumulated other comprehensive income, total return on investments, total shareholders' equity and book value per share.

At September 30, ~~2017,~~2020, the Company had aggregate equity capital, unrealized investment gains (net of income taxes) and retained earnings of ~~$47,116,000,~~$47,062,000, down ~~$936,000~~$6,399,000, compared to ~~$48,052,000~~$53,461,000 at December 31, ~~2016. Components of~~2019. During the ~~change in~~nine months ended September 30, 2020, shareholders' equity ~~were~~was decreased by a net loss of ~~$1,872,000, increase~~$6,364,000, comprehensive income due to changes in ~~accumulated unrealized gains on investments~~value of ~~$1,058,000,~~fixed maturity securities of $1,009,000 and a ~~net unrealized gain~~comprehensive loss of ~~$180,000~~$580,000 related to change in value of interest rate ~~swaps~~swaps. Equity was also increased by common stock issued of $25,000. Equity was reduced $34,000 by the purchase of 2,364 common stock shares held as treasury stock and by cash dividends paid totaling ~~$378,000.~~$455,000.

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As discussed above, changing interest rates can have a significant impact on the market value of fixed ~~income securities.~~maturity investments. Fixed ~~income~~maturity securities classified as available-for-sale increase the liquidity resources of the Company as they can be sold at any time to pay claims or meet other Company obligations. However, these securities are required to be carried at market value with net of tax change in accumulated unrealized gains and losses directly impacting shareholder's equity. While the increase in interest rates causes near term declines in the value of fixed income securities, we are able to reap the benefit of reinvesting at higher rates as current fixed income investments are called, amortized (mortgage backed securities) or reach contractual maturity. Over the next twelve months, based on cash flow projection modeling that considers such factors as anticipated principal payments on mortgage backed securities, likelihood of call provisions being enacted and regular contractual maturities, we expect approximately 4%9% of our current fixed income portfolio to be reinvested or otherwise available to meet Company obligations.

The Company, primarily through its insurance subsidiaries, had ~~$9,770,000~~$15,057,000 in cash and cash equivalents at September 30, ~~2017,~~2020, compared to ~~$5,525,000~~$9,085,000 at September 30, ~~2016.~~2019. Cash ~~provided by~~used in operating activities ~~increased~~decreased cash by ~~$1,342,000~~$12,220,000 during the nine months ended September 30, ~~2017.~~2020. The ~~increase~~decrease in cash from operating activities was primarily related to ~~collections of reinsurance recoverable balances associated with Hurricane Matthew. For~~the net loss for the period which was triggered by an increase in claims and claims related expenses in the P&C segment from spring storms during the second quarter and hurricane losses during the third quarter. Cash provided by operating activities increased cash by $3,425,000 for the nine months ended September 30, ~~2016,~~2019. The increase in cash ~~provided by~~from operating activities ~~totaled $4,456,000 and~~ was ~~primarily~~ driven by ~~net~~refunds of federal income ~~from operations~~tax overpayment along with changes in other assets and ~~recovery of~~ reinsurance ~~balances receivable.~~

recoveries. Net cash provided by investing activities totaled ~~$1,884,000~~$15,932,000 for the period ended September 30, 2017, compared to cash used of $4,708,000 for the same period last year. Cash provided by investing activities was utilized to offset reduced cash from operations due to increased storm activity and to reduce debt during the nine months ended September 30, ~~2017. Also, the increased claims payments adversely impacted~~2020, compared to $385,000 in 2019. The increase in cash ~~available~~from investing activities was related to ~~fund investment growth~~maturities, some increases in prepayments on mortgage backed securities and sales of investments to maintain adequate liquidity to settle P&C segment hurricane claims. Net cash provided by investing activities in 2019 primarily consisted of maturities of investments in which reinvestment was delayed in order to increase liquidity during the period. For the nine months ended September 30, 2016, the investment of cash generated from operations and reinvestment of maturing fixed income securities were the primary cash related investment activities.

hurricane season. Net cash used in financing activities totaled ~~$824,000~~$464,000 for the nine months ended September 30, ~~2017,~~2020, compared to ~~$986,000~~$401,000 for the same period last year. During the nine months ended September 30, ~~2017,~~2020, the Company ~~repaid $1,000,000~~paid $455,000 in ~~long-term debt and drew down $500,000 from an operating line of credit.~~ dividends to shareholders.

The Holding Company ~~maintains a $1,000,000 operating line of credit which matures~~had $1,995,000 in ~~September 2018, as well as a $700,000 line of credit which matures in March of 2018. Between the two lines of credit, $1,200,000 was available~~cash at September 30, ~~2017.~~2020. The Holding Company primarily relies on cash from subsidiaries to meet its obligations, including payment of dividends to shareholders along with interest and principal on outstanding debt. Currently the Holding Company has adequate liquidity on hand to meet its anticipated obligations through 2021. Cash and cash equivalents held by the insurance subsidiaries at September 30, 2020 totaled $5,620,000 for the P&C subsidiary and $7,367,000 for the Life subsidiary.

The Company had a total of ~~$15,335,000~~$13,674,000 of long-term debt outstanding as of September 30, ~~2017,~~2020, compared to ~~$15,326,000~~$13,664,000 at December 31, ~~2016,~~2019, which includes $12,372,000 in trust preferred securities issued by the Company in addition to the installment note. Current year and prior year amounts were reduced by the unamortized portion of the placement fees associated with the issuance of the trust preferred securities, ~~$237,000~~$198,000 and ~~$246,000,~~$208,000, respectively.

The ability of the Company to meet its commitments for timely payment of claims and other expenses depends, in addition to current cash flow, on the liquidity of its investments. The Company has relatively little exposure to below investment grade fixed income investments, which might be especially subject to liquidity problems due to thinly traded markets.

The Company's liquidity requirements are primarily met by funds provided from operations of the insurance subsidiaries. The Company receives funds from its subsidiaries through payment of dividends, management fees, reimbursements for federal income taxes and reimbursement of expenses incurred at the corporate level for the subsidiaries. These funds are used to pay stockholder dividends, principal and interest on debt, corporate administrative expenses, federal income taxes, and for funding investments in the subsidiaries. The Company ~~maintains minimal liquidity in order to maximize liquidity within the insurance subsidiaries in order to support ongoing insurance operations. The Company~~ has no separate source of revenue other than dividends and fees from the insurance subsidiaries. Also, dividends from the insurance subsidiaries are subject to regulatory restrictions and, therefore, are limited depending on capital levels and earnings of the subsidiaries.

Our P&C segment is the primary source of dividends to the holding company. Consideration of insurance subsidiary growth opportunities, regulatory capital adequacy, rating agency impact and holding company debt reduction, among other items, are factors that influence our subsidiary dividend requirements. While we have made significant progress ~~over the past five~~in recent years, continued strengthening capital levels in the insurance subsidiaries and

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reduction of debt remains a top priority. However, a decline in regulatory capital in our P&C subsidiary in 2020 due to increased catastrophe loss frequency will limit our ability to prepay any debt obligations beyond what is required for at least the next two years.

Dividends paid from the insurance subsidiaries are subject to regulatory restrictions and prior approval of the Alabama Department of Insurance. As disclosed in Note 12 to the audited consolidated financial statements included in our ~~2016~~2019 Annual Report on Form 10-K, the amount that The National Security Group's insurance subsidiaries can transfer in the form of dividends to the parent company during ~~2017~~2020 is statutorily limited to ~~$1,642,000~~$1,624,000 in the life insurance subsidiary and ~~$3,524,000~~$3,626,000 in the property/casualty insurance subsidiary. Dividends are limited to the greater of net income (operating income for life subsidiary) or 10% of statutory capital, and regulators consider dividends paid within the preceding twelve months when calculating the available dividend capacity. Therefore, all of the above referenced dividend capacity will not be available for consideration of payment until dividends paid in the preceding twelve months have been considered on a rolling basis. The Company also has to continuously evaluate other factors such as subsidiary operating performance, subsidiary capital requirements and potential impact by rating agencies in making decisions on how much capital can be released from insurance subsidiaries for payment of dividends to NSG. These factors are considered along with the goal of growing year over year statutory surplus in the subsidiaries, and these considerations along with potential adverse impacts on regulatory surplus, will likely lead to dividend payments to NSG substantially below the above referenced regulatory maximums. The Company ~~received $500,000~~did not receive any dividends from its subsidiaries during the nine months ended September 30, ~~2017.~~2020. Due to a decline in statutory surplus in our P&C subsidiaries over the first nine months of 2020 due to an increase in catastrophe losses, we do not expect to pay any dividends from these subsidiaries for at least the next twelve months as our primary focus will be on rebuilding statutory surplus.

The Company’s subsidiaries require cash in order to fund policy acquisition costs, claims, other policy benefits, interest expense, general expenses, and dividends to the Company. Premium and investment income, as well as maturities, calls, and sales of invested assets, provide the primary sources of cash for both subsidiaries. A significant portion of

the Company’s investment portfolio, which is held by the insurance subsidiaries, consists of readily marketable securities, which can be sold for cash.

The Company continues to monitor liquidity and subsidiary capital closely. ~~Improved underwriting results stemming from the discontinuation of unprofitable lines of business, favorable tropical~~Despite challenging weather patterns ~~streamlining of products offered combined with enhancements to the Company's rate development process and improvements~~ in the ~~Company's catastrophe reinsurance structure have reduced~~property and casualty subsidiaries over the ~~pressure on subsidiary capital levels.~~past three years, the insurance subsidiaries are well capitalized. However, ~~continuing to strengthen~~further strengthening of subsidiary capital continues to be a top priority for management.

Except as discussed above, the Company is unaware of any known trends, events, or uncertainties reasonably likely to have a material effect on its liquidity, capital resources, or operations. Additionally, the Company has not been made aware of any recommendations of regulatory authorities, which if implemented, would have such an effect.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Under smaller reporting company rules we are not required to disclose information required under Item 3. However, in order to provide information to our investors, we have elected to provide information related to market risk.

The Company's primary objectives in managing its investment portfolio are to maximize investment income and total investment returns while minimizing overall credit risk. Investment strategies are developed based on many factors including changes in interest rates, overall market conditions, underwriting results, regulatory requirements and tax position. Investment decisions are made by management and reviewed by the Board of Directors. Market risk represents the potential for loss due to adverse changes in fair value of securities. The three potential risks related to the Company's fixed maturity portfolio are interest rate risk, prepayment risk and default risk. The primary risk related to the Company's equity portfolio is equity price risk.

Since the Company's assets and liabilities are largely monetary in nature, the Company's financial position and earnings are subject to risks resulting from changes in interest rates at varying maturities, changes in spreads over U.S. Treasuries on new investment opportunities and changes in the yield curve and equity pricing risks.

The Company is exposed to equity price risk on its equity securities. The Company holds common stock with a fair value of ~~$4,790,000.~~$5,030,000. Our portfolio has historically been highly correlated to the S&P 500 with regard to market risk. Based on an evaluation of the historical risk measure of our portfolio relative to the S&P 500, if the market value of

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the S&P 500 Index decreased 10% from its September 30, ~~2017~~2020 value, the fair value of the Company's common stock investments would decrease by approximately ~~$479,000.~~$503,000.

Certain fixed interest rate market risk sensitive instruments may not give rise to incremental income or loss during the period illustrated but may be subject to changes in fair values. Note 4 in the condensed consolidated financial statements present additional disclosures concerning fair values of Financial Assets and Financial Liabilities and are incorporated by reference herein.

The Company limits the extent of its market risk by purchasing securities that are backed by entities considered to be financially stable, the majority of the assets are issued by U.S. government sponsored entities or corporate entities with debt considered to be "investment grade". Also, the majority of all of the subsidiaries' CMO's are Planned Amortization Class (PAC) bonds. PAC bonds are typically the lowest risk CMO's, and provide greater cash flow predictability. Such securities with reduced risk typically have a lower yield, but higher liquidity, than higher-risk mortgage backed bonds. To reduce the risk of losing principal should prepayments exceed expectations, the Company generally does not purchase mortgage backed securities at significant premiums over par value.

The Company's investment approach in the equity markets is based primarily on a fundamental analysis of value. This approach requires the investment committee to invest in well managed, primarily dividend paying companies, which have a low debt to capital ratio, above average return on capital for a sustained period of time, and low volatility rating (beta) relative to the market. The dividends provide a steady cash flow to help pay current claim liabilities, and it has been the Company's experience that by following this investment strategy, long-term investment results have been superior to those offered by bonds, while keeping the risk of loss of capital to a minimum relative to the overall equity market.

As for shifts in investment allocations, the Company has used improved cash flows from insurance operations to increase allocations to ~~corporate~~fixed maturity securities in order to limit volatility of statutory capital of the insurance subsidiaries.

It should be noted that the impact of the COVID-19 pandemic has added a new element of uncertainty surrounding market risk in our investment portfolio. The extent of short and ~~U.S. Government bonds.~~long term economic damage from the global shutdown due to this pandemic remains unknown due to uncertainty surrounding both the duration of the pandemic and speed at which the US and global economies can fully resume some level of normalcy. The increased risk associated with the COVID-19 pandemic continues to be difficult to quantify due to these uncertainties.

Item 4. Controls and Procedures

Our management carried out an evaluation, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures as of September 30, ~~2017.~~2020. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13A-15(d) under the Exchange Act that occurred during the ~~nine-month period~~nine months ended September 30, ~~2017,~~2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part ~~II. Other Information~~II

Item 1. Legal Proceedings

Please refer to Note 1314 to the condensed consolidated financial statements included herein, and the ~~2016~~2019

Annual Report filed on Form 10-K.

Item 1A. Risk Factors

There has been no material change in risk factors previously disclosed under Item 1A. of the Company’s

Annual Report for ~~2016~~2019 on Form 10-K.

Risks related to the COVID-19 pandemic continue to evolve. Additional commentary is included in Part I, Item 2. - Management's Discussion and Analysis of Financial Condition and Results of Operations and Item 3. - Quantitative and Qualitative Disclosures About Market Risk.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds and Issuer Repurchases of Equity Securities

~~None~~

The following table sets forth information regarding the repurchase of shares of our common stock during the nine months ended September 30, 2020:


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (a)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (a)
Jan. 1 - Jan. 31, 2020	349	$	15.80	785	$	987,870
Feb. 1 - Feb. 29, 2020	—	—		785	$	987,870
Mar. 1 - Mar. 31, 2020	89	11.01		874	$	986,890
Apr. 1- Apr. 30, 2020	812	15.09		1,686	$	974,639
May 1 - May 21, 2020	33	14.74		1,719	$	974,153
Jun. 1 - Jun. 30, 2020	148	15.15		1,867	$	497,758
Jul. 1 - Jul. 21, 2020	779	14.60		2,646	$	486,385
Aug. 1 - Aug. 31, 2020	—	—		2,646	$	486,385
Sep. 1 - Sep. 30, 2020	154	11.98		2,800	$	484,540

(a) On November 20, 2019, our Board of Directors authorized the repurchase of up to $1,000,000 of common stock. Under the repurchase program, the Company is authorized to repurchase shares in open market purchases as well as in privately negotiated transactions from time to time through May 31, 2020. On May 22, 2020, our Board of Directors authorized the repurchase of up to $500,000 of common stock. Under the repurchase program, the Company is authorized to repurchase shares in open market purchases as well as in privately negotiated transactions from time to time through November 30, 2020. Stock purchased under this program will be held as treasury stock and will be available for general corporate purposes. The repurchase program’s terms will comply with applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The program is also subject to market conditions, applicable legal requirements, alternative cash needs that may arise and other factors, as determined by Company management. The repurchase program does not obligate the Company to acquire a specific number of shares and may be suspended or terminated at any time. Repurchases of the Company’s common stock will be financed primarily through free cash flow.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

a. Exhibits



31.1			Certification Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2			Certification Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1			Certification Pursuant to 18 U. S. C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS			XBRL Instance Document
101.SCH			XBRL Taxonomy Extension Schema Document
101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			XBRL Taxonomy Extension Label Linkbase Document
101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document

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b. During the last fiscal quarter of the period covered by this Report, the Company filed the following Current

Reports on Form 8-K:

Date of Report

Date Filed

Description

July ~~13, 2017~~17, 2020

Press release, dated July ~~13, 2017,~~17, 2020, issued by The National Security Group, Inc.

July ~~22, 2017~~20, 2020

July ~~24, 2017~~20, 2020

Press release, dated July ~~24, 2017,~~20 , 2020, issued by The National Security Group, Inc.

~~August 11, 2017~~July 17, 2020

~~August 11, 2017~~July 21, 2020

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

August 13, 2020

Press release, dated ~~August 11, 2017,~~A ugust 1 3 , 2020, issued by The National Security Group, Inc.

September ~~18, 2017~~15, 2020

September ~~19, 2017~~15, 2020

Press release, dated ~~September 18, 2017,~~Septe mber 1 5 , 2020, issued by The National Security Group, Inc.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned duly authorized officer, on its behalf and in the capacity indicated.

The National Security Group, Inc.



/s/ Brian R. McLeod						/s/ William L. Brunson, Jr.
Brian R. McLeod						William L. Brunson, Jr.
Chief Financial Officer and Treasurer and Director						President, Chief Executive Officer and Director

Date: November 13, ~~2017~~2020



Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	38,448	$	1,244	$	555	$	39,137
Mortgage backed securities	9,882		128		181		9,829
Private label asset backed securities	9,917		329		13		10,233
Obligations of states and political subdivisions	14,153		476		77		14,552
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	19,010		276		214		19,072
Total fixed maturities	91,410		2,453		1,040		92,823
Equity securities	2,044		2,746		—		4,790
Total	$	93,454	$	5,199	$	1,040	$	97,613



Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Corporate debt securities	$	40,533	$	748	$	878	$	40,403
Mortgage backed securities	10,970		134		173		10,931
Private label asset backed securities	7,910		29		165		7,774
Obligations of states and political subdivisions	14,806		507		147		15,166
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	18,618		208		308		18,518
Total fixed maturities	92,837		1,626		1,671		92,792
Equity securities	2,343		2,628		28		4,943
Total	$	95,180	$	4,254	$	1,699	$	97,735


($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	4,527	$	343	$	0	$	4,870


Agency mortgage backed securities	23,769		1,033		88		24,714
Asset backed securities	9,456		123		349		9,230
Private label mortgage backed securities	1,429		47		11		1,465
Corporate bonds	37,441		3,351		265		40,527

States, municipalities and political subdivisions	5,069		163		30		5,202
Foreign governments	841		118		0		959
Total Fixed Maturities	82,532		5,178		743		86,967
Equity securities	2,127		2,924		21		5,030
Total	$	84,659	$	8,102	$	764	$	91,997


($ in thousands) Available-for-sale securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government corporations and agencies	$	4,131	$	150	$	0	$	4,281
Agency mortgage backed securities	32,283		861		157		32,987
Asset backed securities	10,307		71		104		10,274
Private label mortgage backed securities	6,815		441		4		7,252
Corporate bonds	36,074		1,816		70		37,820
States, municipalities and political subdivisions	6,669		109		1		6,777
Foreign governments	823		46		0		869
Total Fixed Maturities	97,102		3,494		336		100,260
Equity securities	2,127		3,176		0		5,303
Total	$	99,229	$	6,670	$	336	$	105,563



(Dollars in Thousands)	Amortized Cost		Fair Value
Available-for-sale securities:
Due in one year or less	$	1,160	$	1,168
Due after one year through five years	16,753		17,015
Due after five years through ten years	30,876		31,471
Due after ten years	42,621		43,169
Total	$	91,410	$	92,823

Held-to-maturity securities:
Due in one year or less	$	6	$	6
Due after one year through five years	1		1
Due after five years through ten years	65		70
Due after ten years	1,612		1,652
Total	$	1,684	$	1,729



þ☑			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



o☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	Three months ended September 30,					Nine months ended September 30,
	2017			2016		2017			2016
REVENUES
Net premiums earned	$	15,467		$	15,675	$	45,838		$	46,067
Net investment income	939			1,005		2,795			3,025
Net realized investment gains	75			287		312			536
Other income	150			152		447			456
Total Revenues	16,631			17,119		49,392			50,084
BENEFITS, LOSSES AND EXPENSES
Policyholder benefits and settlement expenses	11,184			10,082		34,911			27,991
Amortization of deferred policy acquisition costs	706			758		2,470			2,451
Commissions	2,096			2,088		5,947			6,313
General and administrative expenses	2,398			2,026		6,410			6,313
Taxes, licenses and fees	709			529		1,915			1,703
Interest expense	320			339		969			1,017
Total Benefits, Losses and Expenses	17,413			15,822		52,622			45,788

Income (Loss) Before Income Taxes	(782		)	1,297		(3,230		)	4,296

INCOME TAX EXPENSE (BENEFIT)
Current	387			238		(510		)	858
Deferred	(612		)	129		(848		)	271
	(225		)	367		(1,358		)	1,129

Net Income (Loss)	$	(557	)	$	930	$	(1,872	)	$	3,167

INCOME (LOSS) PER COMMON SHARE BASIC AND DILUTED	$	(0.22	)	$	0.37	$	(0.74	)	$	1.26

DIVIDENDS DECLARED PER SHARE	$	0.05		$	0.045	$	0.15		$	0.135


($ in thousands) Held-to-maturity securities:	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Agency mortgage backed securities	$	1,019	$	88	$	0	$	1,107



Total	$	1,019	$	88	$	0	$	1,107


($ in thousands)	Less than 12 months				12 months or longer				Total
September 30, 2020	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Total Securities in a Loss Position

Agency mortgage backed securities	$	4,896	$	80	$	4	$	8	$	4,900	$	88	10
Asset backed securities	3,529		143		1,770		206		5,299		349		7
Private label mortgage backed securities	924		11		0		0		924		11		1
Corporate bonds	4,366		256		491		9		4,857		265		9



States, municipalities and political subdivisions	778		30		0		0		778		30		1


Equity securities	137		21		0		0		137		21		2
	$	14,630	$	541	$	2,265	$	223	$	16,895	$	764	30


($ in thousands)	September 30, 2020		September 30, 2019
Fixed maturities	$	1,277	$	5,343
Deferred income tax	(268)		(1,122)
Change in net unrealized gains on available-for-sale securities	$	1,009	$	4,221



	September 30, 2017			December 31, 2016
Net change in unrealized appreciation on available-for-sale securities before deferred tax	$	1,603		$	343
Deferred income tax	(545		)	(117		)
Net change in unrealized appreciation on available-for-sale securities	$	1,058		$	226



	Fair Value Measurements at Reporting Date Using
Description	Total			Level 1		Level 2		Level 3
Financial Assets
Fixed maturities available-for-sale
Corporate debt securities	$	39,137		$	—	$	39,137	$	—
Mortgage backed securities	9,829			—		9,829		—
Private label asset backed securities	10,233			—		10,233		—
Obligations of states and political subdivisions	14,552			—		14,552		—
U.S. Treasury securities and obligations of U.S. Government corporations and agencies	19,072			19,072		—		—
Trading securities	107			107		—		—
Equity securities available-for-sale	4,790			3,717		—		1,073
Total Financial Assets	$	97,720		$	22,896	$	73,751	$	1,073
Financial Liabilities
Interest rate swap	$	(757	)	$	—	$	—	$	(757	)
Total Financial Liabilities	$	(757	)	$	—	$	—	$	(757	)


($ in thousands) For the nine months ended September 30, 2020	Equity Securities		Interest Rate Swap
Beginning balance	$	1,315	$	(65)
Total gains or losses (realized and unrealized):
Included in earnings	123		0
Included in other comprehensive income	0		(734)
Purchases:	0		0
Sales:	0		0
Issuances:	0		0
Settlements:	0		0
Transfers in/(out) of Level 3	0		0
Ending balance	$	1,438	$	(799)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of September 30, 2020:	$	0	$	0


($ in thousands) For the year ended December 31, 2019	Equity Securities Available-for-Sale		Interest Rate Swap
Beginning balance	$	1,125	$	(234)
Total gains or losses (realized and unrealized):
Included in earnings	645		0
Included in other comprehensive income	0		169
Purchases:	0		0
Sales:	(455)		0
Issuances:	0		0
Settlements:	0		0
Transfers in/(out) of Level 3	0		0
Ending balance	$	1,315	$	(65)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of December 31, 2019:	$	0	$	0



For the year ended December 31, 2016	Equity Securities Available-for-Sale		Interest Rate Swap
Beginning balance	$	1,173	$	(1,419	)
Total gains or losses (realized and unrealized):
Included in earnings	—		—
Included in other comprehensive income	85		389
Purchases:	—		—
Sales:	—		—
Issuances:	—		—
Settlements:	—		—
Transfers in/(out) of Level 3	—		—
Ending balance	$	1,258	$	(1,030	)
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held as of December 31, 2016:	$	—	$	—



	September 30, 2017				December 31, 2016
Assets and related instruments	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Held-to-maturity securities	$	1,684	$	1,729	$	1,890	$	1,930
Mortgage loans	163		163		174		174
Policy loans	1,768		1,768		1,708		1,708
Company owned life insurance	4,959		4,959		4,864		4,864
Other invested assets	2,688		2,688		2,958		2,958
Liabilities and related instruments
Other policyholder funds	1,683		1,683		1,629		1,629
Short-term notes payable and current portion of long-term debt	1,300		1,300		1,800		1,800
Long-term debt	15,335		15,335		15,326		15,326



	September 30, 2017		December 31, 2016
Building and improvements	$	3,379	$	3,348
Electronic data processing equipment	1,559		1,548
Furniture and fixtures	508		515
	5,446		5,411
Less accumulated depreciation	3,636		3,531
Property and equipment, net	$	1,810	$	1,880



	As of September 30, 2017			As of December 31, 2016
General expenses	$	1,691		$	1,685
Unearned premiums	2,225			2,046
Claims liabilities	782			746
AMT credit	1,390			1,230
NOL carryforward	500			—
Impairment on real estate owned	187			187
Unrealized loss on interest rate swaps	258			350
Deferred tax assets	7,033			6,244

Depreciation	(135		)	(135		)
Deferred policy acquisition costs	(2,872		)	(2,839		)
Unrealized gains on securities available-for-sale	(1,413		)	(868		)
Deferred tax liabilities	(4,420		)	(3,842		)
Net deferred tax asset	$	2,613		$	2,402



($ in thousands)	As of September 30, 2020		As of December 31, 2019
General expenses	$	1,320	$	1,269
Unearned premiums	1,423		1,288
Claims liabilities	662		645


NOL carryforward	131		0
Impairment on real estate owned	109		119


Unrealized loss on interest rate swaps	167		14
Deferred tax assets	3,812		3,335

Unrealized gains on trading securities	0		(1)
Depreciation	(91)		(93)
Deferred policy acquisition costs	(1,619)		(1,610)
Pre-1984 policyholder surplus account	(347)		(397)
Unrealized gains on securities available-for-sale	(931)		(663)
Unrealized gains on equity securities	(610)		(667)
Deferred tax liabilities	(3,598)		(3,431)

Net deferred tax asset (liability)	$	214	$	(96)


($ in thousands)	September 30,		December 31,
	2020		2019


Current portion of installment note payable due in November with variable interest rate equal to the WSJ prime rate plus 0.5%, with a 4.75% floor. Unsecured.	$	500	$	500


	$	500	$	500


	September 30, 2020
	Authorized	Issued	Treasury	Outstanding
Preferred Stock, $1 par value	500,000	0	—	0
Class A Common Stock, $1 par value	2,000,000	0	—	0
Common Stock, $1 par value	3,000,000	2,533,315	2,800	2,530,515


($ in thousands) Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income		Affected Line Item in the Statement Where Net Income is Presented








Unrealized Gains and Losses on Available-for-Sale Securities	$	1,345	Net investment gains
	1,345		Total before tax
	(282)		Tax (expense) or benefit
	$	1,063	Net of Tax



Details about Accumulated Other Comprehensive Income Components	Amounts Reclassified from Accumulated Other Comprehensive Income			Affected Line Item in the Statement Where Net Income is Presented
Unrealized Gains and Losses on Available-for-Sale Securities	$	310		Net realized investment gains
	310			Total before tax
	(105		)	Tax (expense) or benefit
	$	205		Net of Tax


($ in thousands) Assets by industry segment	Total		P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations

September 30, 2020	$	155,556	$	84,280	$	65,566	$	5,710

December 31, 2019	$	153,934	$	83,917	$	65,605	$	4,412



Three months ended September 30, 2017	Total			P&C Insurance Operations			Life Insurance Operations		Non-Insurance Operations
REVENUE
Net premiums earned	$	15,467		$	13,893		$	1,574	$	—
Net investment income	939			417			505		17
Net realized investment gains (losses)	75			63			12		—
Other income	150			149			1		—
	16,631			14,522			2,092		17
BENEFITS AND EXPENSES
Policyholder benefits paid	11,184			9,865			1,319		—
Amortization of deferred policy acquisition costs	706			694			12		—
Commissions	2,096			2,015			81		—
General and administrative expenses	2,398			1,634			547		217
Taxes, licenses and fees	709			669			40		—
Interest expense	320			—			13		307
	17,413			14,877			2,012		524
Income (Loss) Before Income Taxes	$	(782	)	$	(355	)	$	80	$	(507	)


($ in thousands) Three months ended September 30, 2020	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter- company Eliminations		Total
REVENUE
Net premiums earned	$	13,786	$	1,503	$	0	$	0	$	15,289
Net investment income	389		614		16		(135)		884
Investment gains	678		747		5		0		1,430

Other income	162		334		274		(608)		162
	15,015		3,198		295		(743)		17,765
BENEFITS AND EXPENSES
Policyholder benefits paid	11,851		1,646		0		(194)		13,303
Amortization of deferred policy acquisition costs	681		155		0		0		836
Commissions	1,431		62		0		0		1,493
General and administrative expenses	2,027		554		280		(549)		2,312

Taxes, licenses and fees	564		40		0		0		604
Interest expense	0		10		190		0		200
	16,554		2,467		470		(743)		18,748
Income (Loss) Before Income Taxes	(1,539)		731		(175)		0		(983)
INCOME TAX EXPENSE (BENEFIT)	(347)		179		(37)		0		(205)
Net Income (Loss)	$	(1,192)	$	552	$	(138)	$	0	$	(778)



Three months ended September 30, 2016	Total		P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations
REVENUE
Net premiums earned	$	15,675	$	14,016	$	1,659	$	—
Net investment income	1,005		449		540		16
Net realized investment gains	287		81		206		—
Other income	152		151		1		—
	17,119		14,697		2,406		16
BENEFITS AND EXPENSES
Policyholder benefits paid	10,082		8,466		1,616		—
Amortization of deferred policy acquisition costs	758		696		62		—
Commissions	2,088		1,999		89		—
General and administrative expenses	2,026		1,428		400		198
Taxes, licenses and fees	529		482		47		—
Interest expense	339		—		19		320
	15,822		13,071		2,233		518
Income (Loss) Before Income Taxes	$	1,297	$	1,626	$	173	$	(502	)



Nine months ended September 30, 2017	Total			P&C Insurance Operations			Life Insurance Operations		Non-Insurance Operations
REVENUE
Net premiums earned	$	45,838		$	41,131		$	4,707	$	—
Net investment income	2,795			1,195			1,551		49
Net realized investment gains (losses)	312			123			189		—
Other income	447			444			3		—
	49,392			42,893			6,450		49
BENEFITS AND EXPENSES
Policyholder benefits paid	34,911			31,057			3,854		—
Amortization of deferred policy acquisition costs	2,470			2,083			387		—
Commissions	5,947			5,728			219		—
General and administrative expenses	6,410			4,511			1,165		734
Taxes, licenses and fees	1,915			1,736			179		—
Interest expense	969			—			52		917
	52,622			45,115			5,856		1,651
Income (Loss) Before Income Taxes	$	(3,230	)	$	(2,222	)	$	594	$	(1,602	)


($ in thousands) Nine months ended September 30, 2020	P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations		Inter- company Eliminations		Total
REVENUE
Net premiums earned	$	40,996	$	4,420	$	0	$	0	$	45,416
Net investment income	1,169		2,003		42		(405)		2,809
Investment gains (losses)	693		296		(1)		0		988

Other income	449		921		796		(1,716)		450
	43,307		7,640		837		(2,121)		49,663
BENEFITS AND EXPENSES
Policyholder benefits paid	37,264		3,908		0		(550)		40,622
Amortization of deferred policy acquisition costs	2,043		706		0		0		2,749
Commissions	5,411		204		0		0		5,615
General and administrative expenses	5,913		1,396		461		(1,571)		6,199

Taxes, licenses and fees	1,740		179		0		0		1,919
Interest expense	0		29		631		0		660
	52,371		6,422		1,092		(2,121)		57,764
Income (Loss) Before Income Taxes	(9,064)		1,218		(255)		0		(8,101)
INCOME TAX EXPENSE (BENEFIT)	(1,937)		254		(54)		0		(1,737)
Net Income (Loss)	$	(7,127)	$	964	$	(201)	$	0	$	(6,364)



Nine months ended September 30, 2016	Total		P&C Insurance Operations		Life Insurance Operations		Non-Insurance Operations
REVENUE
Net premiums earned	$	46,067	$	41,263	$	4,804	$	—
Net investment income	3,025		1,357		1,620		48
Net realized investment gains	536		266		270		—
Other income	456		454		2		—
	50,084		43,340		6,696		48
BENEFITS AND EXPENSES
Policyholder benefits paid	27,991		23,905		4,086		—
Amortization of deferred policy acquisition costs	2,451		2,087		364		—
Commissions	6,313		6,035		278		—
General and administrative expenses	6,313		4,553		1,215		545
Taxes, licenses and fees	1,703		1,546		157		—
Interest expense	1,017		—		57		960
	45,788		38,126		6,157		1,505
Income (Loss) Before Income Taxes	$	4,296	$	5,214	$	539	$	(1,457	)



/s/ Warren Averett, LLC

Birmingham, Alabama

November 13, ~~2017~~			2020


Unaudited Consolidated Financial Summary	Three months ended September 30,				Nine months ended September 30,
($ in thousands, except per share)	2020		2019		2020		2019

Gross premiums written	$	17,618	$	17,408	$	53,806	$	52,634
Net premiums written	$	15,605	$	15,467	$	48,188	$	47,415

Net premiums earned	$	15,289	$	15,209	$	45,416	$	44,917
Net investment income	884		989		2,809		2,908
Net investment gains (losses)	1,430		(117)		988		2,120

Other income	162		148		450		440
Total Revenues	17,765		16,229		49,663		50,385

Policyholder benefits and settlement expenses	13,303		9,750		40,622		29,673
Amortization of deferred policy acquisition costs	836		805		2,749		2,624
Commissions	1,493		2,006		5,615		6,017
General and administrative expenses	2,312		2,226		6,199		6,974

Taxes, licenses and fees	604		604		1,919		1,890
Interest expense	200		293		660		879
Total Benefits, Losses and Expenses	18,748		15,684		57,764		48,057


Income (Loss) Before Income Taxes	(983)		545		(8,101)		2,328




Income tax expense (benefit)	(205)		115		(1,737)		42

Net Income (Loss)	$	(778)	$	430	$	(6,364)	$	2,286


Income (Loss) Per Common Share	$	(0.30)	$	0.17	$	(2.51)	$	0.90




Reconciliation of Net Income (Loss) to non-GAAP Measurement

Net income (loss)	$	(778)	$	430	$	(6,364)	$	2,286
Income tax expense (benefit)	(205)		115		(1,737)		42
Investment (gains) losses, net	(1,430)		117		(988)		(2,120)

Pretax Income (Loss) From Operations	$	(2,413)	$	662	$	(9,089)	$	208



Consolidated Financial Summary	Three months ended September 30,						Nine months ended September 30,
(dollars in thousands)	2017			2016			2017			2016
Gross premiums written	$	17,246		$	17,166		$	52,953		$	52,623
Net premiums written	$	15,499		$	15,640		$	48,354		$	48,350

Net premiums earned	$	15,467		$	15,675		$	45,838		$	46,067
Net investment income	939			1,005			2,795			3,025
Net realized investment gains	75			287			312			536
Other income	150			152			447			456
Total Revenues	16,631			17,119			49,392			50,084
Policyholder benefits and settlement expenses	11,184			10,082			34,911			27,991
Amortization of deferred policy acquisition costs	706			758			2,470			2,451
Commissions	2,096			2,088			5,947			6,313
General and administrative expenses	2,398			2,026			6,410			6,313
Taxes, licenses and fees	709			529			1,915			1,703
Interest expense	320			339			969			1,017
Total Benefits, Losses and Expenses	17,413			15,822			52,622			45,788
Income (Loss) Before Income Taxes	(782		)	1,297			(3,230		)	4,296
Income tax expense (benefit)	(225		)	367			(1,358		)	1,129
Net Income (Loss)	$	(557	)	$	930		$	(1,872	)	$	3,167
Income (Loss) Per Common Share	$	(0.22	)	$	0.37		$	(0.74	)	$	1.26
Reconciliation of Net Income (Loss) to non-GAAP Measurement
Net income (loss)	$	(557	)	$	930		$	(1,872	)	$	3,167
Income tax expense (benefit)	(225		)	367			(1,358		)	1,129
Realized investment gains, net	(75		)	(287		)	(312		)	(536		)
Pretax Income (Loss) From Operations	$	(857	)	$	1,010		$	(3,542	)	$	3,760


Selected Balance Sheet Highlights	September 30, 2017		December 31, 2016		Selected Balance Sheet Highlights	September 30, 2020		December 31, 2019
(dollars in thousands)	(UNAUDITED)
($ in thousands, except per share)					($ in thousands, except per share)	UNAUDITED
Invested Assets	$	112,203	$	113,156	Invested Assets	$	104,979	$	118,969
Cash	$	9,770	$	7,368	Cash	$	15,057	$	11,809
Total Assets	$	151,315	$	148,579	Total Assets	$	155,556	$	153,934
Policy Liabilities	$	80,687	$	76,174	Policy Liabilities	$	85,806	$	78,472
Total Debt	$	16,635	$	17,126	Total Debt	$	14,174	$	14,164
Accumulated Other Comprehensive Income	$	2,245	$	1,007	Accumulated Other Comprehensive Income	$	2,872	$	2,443
Shareholders' Equity	$	47,116	$	48,052	Shareholders' Equity	$	47,062	$	53,461
Book Value Per Share	$	18.68	$	19.09	Book Value Per Share	$	18.59	$	21.12