UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember September 30, 20173.0
, 2019.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________________ to _________________________________
Commission File Number: 000-55627000-55627
US ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS | 26-4824142 | |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) | |
4123 SW Gage Center Drive, Suite 240, Topeka, Kansas | 66604 | |
(Address of principal executive offices) | (Zip Code) |
(785) 228-0200(785) 228-0200
(Registrant’sRegistrant’s telephone number, including area code)
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. [X] Yes [ ] No
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [ ] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer |
| |
Non-accelerated filer |
|
| ||
Smaller reporting company |
| |||
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)13(a) of the Exchange Act. [X[ ]
Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]Yes [ X ][X] No
IndicateIndicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Common stock, $0.10$0.10 par value
7,302,1927,732,682 shares outstanding
as of November 6, 20171, 2019
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
FORM 10-Q | ||||
TABLE OF CONTENTS | ||||
Part I - Financial Information |
Item | Item Description | Page | ||
Item 1 | 3 | |||
3 | ||||
4 | ||||
5 | ||||
6 | ||||
| ||||
| ||||
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
Item 3 | 23 | |||
Item 4 |
| |||
Part II - Other Information | ||||
Item | Item Description | Page | ||
Item 1 | 24 | |||
Item 1A | 24 | |||
Item 2 | 24 | |||
Item 3 |
| |||
Item 4 | 24 | |||
Item 5 | 24 | |||
Item 6 |
| |||
26 |
ITEM 1. 1. FINANCIAL STATEMENTS
US Alliance Corporation |
Consolidated Balance Sheets |
US Alliance Corporation
September 30, 2017 | December 31, 2016 | September 30, 2019 | December 31, 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Assets | ||||||||||||||||
Investments: | ||||||||||||||||
Available for sale fixed maturity securities (amortized cost: $14,911,919 and $10,318,164 as of September 30, 2017 and December 31, 2016, respectively) | $ | 15,153,824 | $ | 10,320,074 | ||||||||||||
Available for sale equity securities (cost: $7,615,226 and $4,905,953 as of September 30, 2017 and December 31, 2016, respectively) | 7,665,497 | 5,143,504 | ||||||||||||||
Available for sale fixed maturity securities (amortized cost: $28,637,496 and $27,957,697 as of September 30, 2019 and December 31, 2018, respectively) | $ | 31,122,483 | $ | 26,882,239 | ||||||||||||
Available for sale equity securities (cost: $11,987,770 and $12,096,488 as of September 30, 2019 and December 31, 2018, respectively) | 11,851,019 | 10,987,539 | ||||||||||||||
Policy loans | 68,774 | 56,539 | ||||||||||||||
Total investments | 22,819,321 | 15,463,578 | 43,042,276 | 37,926,317 | ||||||||||||
Cash and cash equivalents | 11,015,077 | 3,145,745 | 5,145,539 | 2,077,646 | ||||||||||||
Investment income due and accrued | 124,745 | 100,713 | 306,343 | 286,890 | ||||||||||||
Policy loans | 33,376 | - | ||||||||||||||
Reinsurance related assets | 315,702 | 31,390 | 174,827 | 161,846 | ||||||||||||
Deferred acquisition costs, net | 3,083,154 | 153,792 | 2,719,094 | 2,757,404 | ||||||||||||
Value of business acquired, net | 605,677 | - | 565,069 | 580,297 | ||||||||||||
Property, equipment and software, net | 229,939 | 244,849 | 46,400 | 54,078 | ||||||||||||
Goodwill | 277,542 | - | 277,542 | 277,542 | ||||||||||||
Other assets | 241,517 | 51,922 | 400,282 | 406,969 | ||||||||||||
Total assets | $ | 38,746,050 | $ | 19,191,989 | $ | 52,677,372 | $ | 44,528,989 | ||||||||
Liabilities and Shareholders' Equity | ||||||||||||||||
Liabilities: | ||||||||||||||||
Policy liabilities | ||||||||||||||||
Deposit-type contracts | $ | 12,749,556 | $ | 3,398,170 | $ | 18,720,202 | $ | 16,626,218 | ||||||||
Policyholder benefit reserves | 10,216,596 | 4,220,215 | 16,742,746 | 14,697,519 | ||||||||||||
Dividend accumulation | 126,575 | 176,056 | ||||||||||||||
Advance premiums | 836,805 | 121,944 | 96,708 | 56,736 | ||||||||||||
Total policy liabilities | 23,802,957 | 7,740,329 | 35,686,231 | 31,556,529 | ||||||||||||
Accounts payable and accrued expenses | 75,399 | 66,472 | 103,679 | 311,082 | ||||||||||||
Other liabilities | 551,485 | 4,205 | 17,595 | 28,712 | ||||||||||||
Total liabilities | 24,429,841 | 7,811,006 | 35,807,505 | 31,896,323 | ||||||||||||
Shareholders' Equity: | ||||||||||||||||
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,296,351 and 5,565,943 shares as of September 30, 2017 and December 31, 2016, respectively | 729,636 | 556,595 | ||||||||||||||
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,732,570 and 7,650,551 shares as of September 30, 2019 and December 31, 2018, respectively | 773,258 | 765,056 | ||||||||||||||
Additional paid-in capital | 21,319,758 | 18,017,163 | 23,254,393 | 22,989,443 | ||||||||||||
Accumulated deficit | (8,025,339 | ) | (7,432,236 | ) | (9,652,632 | ) | (8,937,404 | ) | ||||||||
Accumulated other comprehensive income | 292,154 | 239,461 | ||||||||||||||
Accumulated other comprehensive income (loss) | 2,494,848 | (2,184,429 | ) | |||||||||||||
Total shareholders' equity | 14,316,209 | 11,380,983 | 16,869,867 | 12,632,666 | ||||||||||||
Total liabilities and shareholders' equity | $ | 38,746,050 | $ | 19,191,989 | $ | 52,677,372 | $ | 44,528,989 |
See Notes to Consolidated Financial Statements (unaudited).Statements.
Consolidated Statements of Comprehensive Income (Loss) |
Nine Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||||||||
Income: | ||||||||||||||||||||||||||||||||
Premium income | $ | 8,902,208 | $ | 4,721,091 | $ | 5,169,638 | $ | 1,490,255 | $ | 6,983,705 | $ | 6,651,103 | $ | 2,063,015 | $ | 1,776,623 | ||||||||||||||||
Net investment income | 485,147 | 320,491 | 189,028 | 116,780 | 1,303,757 | 1,047,330 | 442,719 | 370,207 | ||||||||||||||||||||||||
Net realized gain on sale of securities | 435,392 | 40,653 | 226,890 | 29,889 | ||||||||||||||||||||||||||||
Net realized gain (loss) on sale of securities | (13,985 | ) | (327 | ) | 543 | - | ||||||||||||||||||||||||||
Unrealized gain on equity securites | 951,575 | - | 105,758 | - | ||||||||||||||||||||||||||||
Other income | 40,656 | 57,468 | 1,201 | 21,878 | 40,454 | 27,648 | 15,396 | 11,654 | ||||||||||||||||||||||||
Total income | 9,863,403 | 5,139,703 | 5,586,757 | 1,658,802 | 9,265,506 | 7,725,754 | 2,627,431 | 2,158,484 | ||||||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||||||||
Death claims | 624,864 | 355,151 | 152,234 | 119,700 | 1,022,585 | 633,206 | 298,269 | 228,994 | ||||||||||||||||||||||||
Policyholder benefits | 2,609,324 | 2,520,956 | 479,965 | 715,171 | 3,267,898 | 3,056,358 | 962,603 | 740,579 | ||||||||||||||||||||||||
Increase in policyholder reserves | 5,205,124 | 1,473,287 | 4,357,257 | 556,685 | 1,997,786 | 2,112,259 | 560,128 | 604,647 | ||||||||||||||||||||||||
Commissions, net of deferrals | 362,585 | 315,550 | 97,151 | 88,952 | 571,543 | 440,391 | 157,944 | 120,413 | ||||||||||||||||||||||||
Amortization of deferred acquisition costs | 136,709 | 128,540 | 52,484 | 39,441 | 293,032 | 313,860 | 112,305 | 103,246 | ||||||||||||||||||||||||
Amortization of value of business acquired | 3,384 | - | 3,384 | - | 15,228 | 15,228 | 5,076 | 5,076 | ||||||||||||||||||||||||
Salaries & benefits | 627,286 | 564,410 | 244,143 | 171,226 | 773,400 | 781,952 | 270,673 | 238,612 | ||||||||||||||||||||||||
Other operating expenses | 887,230 | 902,598 | 278,795 | 321,925 | 940,502 | 1,155,973 | 217,987 | 320,804 | ||||||||||||||||||||||||
Total expense | 10,456,506 | 6,260,492 | 5,665,413 | 2,013,100 | 8,881,974 | 8,509,227 | 2,584,985 | 2,362,371 | ||||||||||||||||||||||||
Net loss | $ | (593,103 | ) | $ | (1,120,789 | ) | $ | (78,656 | ) | $ | (354,298 | ) | ||||||||||||||||||||
Net lncome (loss) | $ | 383,532 | $ | (783,473 | ) | $ | 42,446 | $ | (203,887 | ) | ||||||||||||||||||||||
Net loss per common share, basic and diluted | $ | (0.10 | ) | $ | (0.21 | ) | $ | (0.01 | ) | $ | (0.06 | ) | ||||||||||||||||||||
Net income (loss) per common share, basic and diluted | $ | 0.05 | $ | (0.11 | ) | $ | 0.01 | $ | (0.03 | ) | ||||||||||||||||||||||
Unrealized net holding gains arising during the period | 488,085 | 855,203 | 19,839 | 168,793 | ||||||||||||||||||||||||||||
Unrealized net holding gains (losses) arising during the period | 3,566,532 | (1,647,863 | ) | 993,217 | (143,416 | ) | ||||||||||||||||||||||||||
Cumulative effect, adoption of accounting guidance on equity securities | 1,098,760 | - | - | - | ||||||||||||||||||||||||||||
Reclassification adjustment for (gains) losses included in net loss | (435,392 | ) | (40,653 | ) | (226,890 | ) | (29,889 | ) | 13,985 | 327 | (543 | ) | - | |||||||||||||||||||
Other comprehensive income (loss) | 52,693 | 814,550 | (207,051 | ) | 138,904 | 4,679,277 | (1,647,536 | ) | 992,674 | (143,416 | ) | |||||||||||||||||||||
Comprehensive loss | $ | (540,410 | ) | $ | (306,239 | ) | $ | (285,707 | ) | $ | (215,394 | ) | ||||||||||||||||||||
Comprehensive income (loss) | $ | 5,062,809 | $ | (2,431,009 | ) | $ | 1,035,120 | $ | (347,303 | ) |
See Notes to Consolidated Financial Statements (unaudited).Statements.
US Alliance Corporation
Consolidated Statements of Changes in Shareholders' Equity
Nine Months Ended September 30, 2017 and 2016
Consolidated Statements of Changes in Shareholders' Equity |
Periods Ended September 30, 2019 and 2018 (unaudited) |
Common | Accumulated | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Number of | Common | Stock | Other | Number of | Other | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares of | Common | Additional | Outstanding | Stock | Subscription | Comprehensive | Accumulated | Shares of | Common | Additional | Comprehensive | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||
Common Stock | Stock | Paid-in Capital | Warrants | Subscribed | Receivable | Income / (Loss) | Deficit | Total | Common Stock | Stock | Paid-in Capital | Income / (Loss) | Deficit | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2015 | 5,177,245 | $ | 517,725 | $ | 17,018,285 | $ | 15,876 | $ | 13,799 | $ | (827,952 | ) | $ | (100,477 | ) | $ | (6,146,463 | ) | $ | 10,490,793 | ||||||||||||||||||||||||||||||||||||||||
Common stock issued upon exercise of warrants, $6.00 per share | 372,003 | 37,200 | 2,210,694 | (15,876 | ) | - | - | - | - | 2,232,018 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2017 | 7,310,939 | $ | 731,095 | $ | 21,280,437 | $ | 405,438 | $ | (8,481,268 | ) | $ | 13,935,702 | ||||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued, $7 per share | 4,886 | 489 | 33,713 | - | - | - | - | - | 34,202 | 204,553 | 20,455 | 1,411,416 | - | - | 1,431,871 | |||||||||||||||||||||||||||||||||||||||||||||
Costs associated with common stock issued | - | - | (482,385 | ) | - | - | - | - | - | (482,385 | ) | - | - | (417,088 | ) | - | - | (417,088 | ) | |||||||||||||||||||||||||||||||||||||||||
Common stock subscribed | - | - | (814,153 | ) | - | (13,799 | ) | 827,952 | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 814,550 | - | 814,550 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | - | - | - | (1,647,536 | ) | - | (1,647,536 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (1,120,789 | ) | (1,120,789 | ) | - | - | - | - | (783,473 | ) | (783,473 | ) | |||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2016 | 5,554,134 | $ | 555,414 | $ | 17,966,154 | $ | - | $ | - | $ | - | $ | 714,073 | $ | (7,267,252 | ) | $ | 11,968,389 | ||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2018 | 7,515,492 | $ | 751,550 | $ | 22,274,765 | $ | (1,242,098 | ) | $ | (9,264,741 | ) | $ | 12,519,476 | |||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2016 | 5,565,943 | $ | 556,595 | $ | 18,017,163 | $ | - | $ | - | $ | - | $ | 239,461 | $ | (7,432,236 | ) | $ | 11,380,983 | ||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2018 | 7,650,551 | $ | 765,056 | $ | 22,989,443 | $ | (2,184,429 | ) | $ | (8,937,404 | ) | $ | 12,632,666 | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock issued, $7 per share | 85,950 | 8,595 | 593,055 | - | - | - | - | - | 601,650 | 82,019 | 8,202 | 565,931 | - | - | 574,133 | |||||||||||||||||||||||||||||||||||||||||||||
Costs associated with common stock issued | - | - | (223,394 | ) | - | - | - | - | - | (223,394 | ) | - | - | (300,981 | ) | - | - | (300,981 | ) | |||||||||||||||||||||||||||||||||||||||||
Common stock issued, Northern Plains Capital Corporation merger | 1,644,458 | 164,446 | 2,932,934 | 3,097,380 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative effect, adoption of accounting guidance for equity sercurities | - | - | - | - | (1,098,760 | ) | (1,098,760 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | - | - | 52,693 | - | 52,693 | - | - | - | 4,679,277 | - | 4,679,277 | |||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (593,103 | ) | (593,103 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2017 | 7,296,351 | $ | 729,636 | $ | 21,319,758 | $ | - | $ | - | $ | - | $ | 292,154 | $ | (8,025,339 | ) | $ | 14,316,209 | ||||||||||||||||||||||||||||||||||||||||||
Net income | - | - | - | - | 383,532 | 383,532 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2019 | 7,732,570 | $ | 773,258 | $ | 23,254,393 | $ | 2,494,848 | $ | (9,652,632 | ) | $ | 16,869,867 |
See Notes to Consolidated Financial Statements (unaudited).Statements.
Accumulated | ||||||||||||||||||||||||
Number of | Other | |||||||||||||||||||||||
Shares of | Common | Additional | Comprehensive | Accumulated | ||||||||||||||||||||
Common Stock | Stock | Paid-in Capital | Income / (Loss) | Deficit | Total | |||||||||||||||||||
Balance, June 30, 2018 | 7,453,287 | $ | 745,330 | $ | 21,985,207 | $ | (1,098,682 | ) | $ | (9,060,854 | ) | $ | 12,571,001 | |||||||||||
Common stock issued, $7 per share | 62,205 | 6,221 | 429,215 | - | - | 435,435 | ||||||||||||||||||
Costs associated with common stock issued | - | - | (139,657 | ) | - | - | (139,657 | ) | ||||||||||||||||
Other comprehensive loss | - | - | - | (143,416 | ) | - | (143,416 | ) | ||||||||||||||||
Net loss | - | - | - | - | (203,887 | ) | (203,887 | ) | ||||||||||||||||
Balance, September 30, 2018 | 7,515,492 | $ | 751,550 | $ | 22,274,765 | $ | (1,242,098 | ) | $ | (9,264,741 | ) | $ | 12,519,476 | |||||||||||
Balance, June 30, 2019 | 7,707,090 | $ | 770,710 | $ | 23,141,692 | $ | 1,502,174 | $ | (9,695,078 | ) | $ | 15,719,498 | ||||||||||||
Common stock issued, $7 per share | 25,480 | 2,548 | 175,812 | - | - | 178,360 | ||||||||||||||||||
Costs associated with common stock issued | - | - | (63,111 | ) | - | - | (63,111 | ) | ||||||||||||||||
Cumulative effect, adoption of accounting guidance for equity sercurities | - | - | - | - | - | - | ||||||||||||||||||
Other comprehensive income | - | - | - | 992,674 | - | 992,674 | ||||||||||||||||||
Net income | - | - | - | - | 42,446 | 42,446 | ||||||||||||||||||
Balance, September 30, 2019 | 7,732,570 | $ | 773,258 | $ | 23,254,393 | $ | 2,494,848 | $ | (9,652,632 | ) | $ | 16,869,867 |
See Notes to Consolidated Financial Statements.
US Alliance Corporation |
Consolidated Statements of Cash Flows |
Nine Months Ended September 30, | ||||||||||||||||
Nine Months Ended September 30, | 2019 | 2018 | ||||||||||||||
2017 | 2016 | (unaudited) | ||||||||||||||
Cash Flows from Operating Activities: | ||||||||||||||||
Net loss | $ | (593,103 | ) | $ | (1,120,789 | ) | ||||||||||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||||
Net income (loss) | $ | 383,532 | $ | (783,473 | ) | |||||||||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 26,031 | 29,074 | 7,678 | 26,606 | ||||||||||||
Net realized (gains) on the sale of securities | (435,392 | ) | (40,653 | ) | ||||||||||||
Net realized losses on the sale of securities | 13,985 | 327 | ||||||||||||||
Unrealized gain on equity securities | (951,575 | ) | - | |||||||||||||
Amortization of investment securities, net | 27,429 | 12,406 | 27,664 | 42,394 | ||||||||||||
Deferred acquisition costs capitalized | (204,620 | ) | (182,537 | ) | (254,723 | ) | (216,426 | ) | ||||||||
Deferred acquisition costs amortized | 136,709 | 128,540 | 293,033 | 313,860 | ||||||||||||
Value of business acquired amortized | 3,384 | - | 15,228 | 15,228 | ||||||||||||
Interest credited on deposit type contracts | 110,097 | 49,395 | 495,623 | 409,794 | ||||||||||||
(Increase) decrease in operating assets: | ||||||||||||||||
Investment income due and accrued | 9,315 | 3,097 | (19,453 | ) | (50,768 | ) | ||||||||||
Reinsurance related assets | (8,294 | ) | (51,893 | ) | (12,981 | ) | 80,953 | |||||||||
Other assets | (132,357 | ) | 91,353 | 6,687 | 65,573 | |||||||||||
Increase (decrease) in operating liabilities: | ||||||||||||||||
Policyowner benefit reserves | 1,284,750 | 1,497,064 | 2,045,227 | 2,140,629 | ||||||||||||
Dividend Accumulation | (49,481 | ) | - | |||||||||||||
Advance premiums | 92,016 | 41,297 | 39,972 | 37,426 | ||||||||||||
Other liabilities | 3,600 | 73,434 | (11,117 | ) | 5,929 | |||||||||||
Accounts payable and accrued expenses | (32,519 | ) | (16,609 | ) | (207,403 | ) | (9,031 | ) | ||||||||
Net cash provided by operating activities | 287,046 | 513,179 | 1,821,896 | 2,079,021 | ||||||||||||
Cash Flows from Investing Activities: | ||||||||||||||||
Available-for-sale securities | ||||||||||||||||
Purchase of fixed income investments | (4,629,966 | ) | (2,624,560 | ) | (1,230,636 | ) | (2,756,884 | ) | ||||||||
Purchase of equity investments | (4,669,164 | ) | (1,210,646 | ) | (179,496 | ) | (1,055,592 | ) | ||||||||
Proceeds from fixed income sales and repayments | 3,081,710 | 573,590 | 528,750 | 248,077 | ||||||||||||
Proceeds from equity sales and repayments | 4,439,235 | 190,583 | 268,101 | - | ||||||||||||
Acquisition of Northern Plains Capital Corporation | 1,079,627 | - | ||||||||||||||
Assumed reinsurance from American Life & Security Corporation | 6,895,145 | - | ||||||||||||||
Interest on policy loans | (675 | ) | (1,842 | ) | ||||||||||||
Increase in policy loans | (11,560 | ) | (6,619 | ) | ||||||||||||
Purchase of property, equipment and software | (11,121 | ) | - | - | (5,334 | ) | ||||||||||
Net cash provided by (used in) investing activities | 6,185,466 | (3,071,033 | ) | |||||||||||||
Net cash used in investing activities | (625,516 | ) | (3,578,194 | ) | ||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||
Receipts on deposit-type contracts | 1,368,680 | 1,485,628 | 2,779,027 | 2,969,466 | ||||||||||||
Withdrawals on deposit-type contracts | (350,116 | ) | (170,906 | ) | (1,180,666 | ) | (1,155,056 | ) | ||||||||
Proceeds received from issuance of common stock, net of costs of issuance | 378,256 | 1,783,835 | 273,152 | 1,014,783 | ||||||||||||
Net cash provided by financing activities | 1,396,820 | 3,098,557 | 1,871,513 | 2,829,193 | ||||||||||||
Net increase in cash and cash equivalents | 7,869,332 | 540,703 | 3,067,893 | 1,330,020 | ||||||||||||
Cash and Cash Equivalents: | ||||||||||||||||
Beginning | 3,145,745 | 2,466,526 | 2,077,646 | 651,809 | ||||||||||||
Ending | $ | 11,015,077 | $ | 3,007,229 | $ | 5,145,539 | $ | 1,981,829 |
See Notes to Consolidated Financial Statements (unaudited).
US Alliance CorporationSupplemental Cash Flow Information(unaudited)
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Supplemental Disclosure of Non-Cash Information | ||||||||
Common stock issued on the acquisition of Northern Plains | $ | 3,097,380 | $ | - | ||||
Cost of reinsurance deferred on coinsurance transaction with American Life & Security Corp | $ | 2,861,450 | $ | - |
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Note 1. Description of Business and Significant Accounting Policies
Description of business: US Alliance Corporation ("USAlliance" or “the Company”USAC") iswas formed as a Kansas corporation located in Topeka, Kansas. The Company was incorporatedon April 24, 2009 as a holding companyto raise capital to form own, operate and manage a new Kansas-based life insurance companycompany. Our offices are located at 4123 SW Gage Center Drive, Suite 240, Topeka, Kansas 66604. Our telephone number is 785-228-0200 and its marketing and investment affiliates. On June 9, 2011, the wholly owned subsidiary,our website address is www.usalliancecorporation.com.
USAC has five wholly-owned operating subsidiaries. US Alliance Life and Security Company (“USALSC”("USALSC") was incorporated. USALSC received its Certificate of Authority from the Kansas Insurance Department (KID) effective January 2, 2012. Onformed June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation (“USAIC”("USAIC") and US Alliance Marketing Corporationwas formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“USAMC”DCLIC”) were incorporated as wholly-owned subsidiaries of the Company to provide investment management and marketing services. Onwas acquired on August 1, 2017 the Company, through its wholly owned subsidiary,when USAC merged with Northern Plains Capital Corporation (“Northern Plains”NPCC”) with the Company being the ultimate surviving entity. As a result of this merger, the Company acquired Dakota Capital Life Insurance Company (“DCLIC”) which became a wholly owned subsidiary of. US Alliance Life and Security Company.Company - Montana ("USALSC-Montana") was acquired December 14, 2018. Both DCLIC and USALSC-Montana are wholly-owned subsidiaries of USALSC.
The Company terminatedits initial public offering on February 24, 2013. During the balance of 2013, the Company achieved approval of an array of life insurance and annuity products, began development of various distribution channels and commenced insurance operations and product sales. The Company sold its first insurance product on May 1, 2013. The Company continued to expand its product offerings and distribution channels throughout 2014 and 2015. On February 24, 2015, the Company commenced a warrant exercise offering set to expire on February 24, 2016. On February 24, 2016, the Company extended its currentthe offering until February 24, 2017 and made additional shares available for purchase. All outstanding warrants expired on April 1, 2016. The Company further extended this offering to February 24, 2018.2019 and subsequently to February 24, 2020. During the 4th quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota.
The Company began offering third party administrative (“TPA”) services in 2015. TPA agreements generate service fee income forUSALSC and DCLIC seek opportunities to develop and market additional products.
Our business model also anticipates the Company. The Company currently has one TPA agreement in place. The Company has been ableacquisition by USAC and/or USALSC of other insurance and insurance related companies, including third-party administrators, marketing organizations, and rights to perform its TPA services using existing resources.other blocks of insurance business through reinsurance or other transactions.
Basis of presentation: The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.
The results of operation for the three and nine months ended September 30, 20172019 are not necessarily indicative of the results to be expected for the year ended December 31, 20172019 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to financial statements prepared in accordance with US GAAP, but which are not required for interim reporting purposes, has been condensed or omitted. The accompanying financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form 10-K and amendments thereto for the year ended December 31, 2016.2018.
Principles of consolidation: The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.
Reclassifications: Certain reclassifications of a minor nature have been made to prior-period balances to conform to current-period presentation with no net impact to net loss/income or equity.
Area of OperationOperation:: USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, OklahomaNebraska and Nebraska.Oklahoma. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of North Dakota.Montana
US Alliance Corporation
Notesa minor nature have been made to Consolidated Financial Statements (unaudited)prior-year balances to conform to current-year presentation with no net impact to net income/loss or equity.
Common stock and earnings (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of September 30, 2017,2019, and December 31, 2016,2018, the company had 7,296,3517,732,570 and 5,565,9437,650,551 common shares issued and outstanding, respectively.
Earnings (loss) per share attributable to the Company’sCompany’s common stockholders were computed based on the net loss and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the quarters ended September 30, 20172019 and 20162018 were 6,181,4927,715,583 and 5,552,2277,474,022 shares, respectively. The weighted average number of shares outstanding during the nine months ended September 30, 20172019 and 20162018 were 5,698,5147,681,612 and 5,395,4567,368,451 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters and nine months ended September 30, 20172019 and 2016 because all warrants for common shares are anti-dilutive.2018.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
New accounting standards
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. However, the Company does not currently generate fee income. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.
The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, the entity satisfies a performance obligation.
In July 2015, the FASB deferred the effective date of the updated guidance on revenue recognition by one year to the quarter ending March 31, 2018. As an emerging growth company, the Company has chosen to defer implementation of this accounting standard until the year ending December 31, 2019 and interim reporting periods beginning after December 31, 2019. The adoption of this guidance is not expected to have a material effect on the Company’s result of operations, financial position or liquidity.
Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern
In August 2014, the FASB issued guidance to address the diversity in practice in determining when there is substantial doubt about an entity's ability to continue as a going concern and when an entity must disclose certain relevant conditions and events. The new guidance requires an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). The new guidance allows the entity to consider the mitigating effects of management's plans that will alleviate the substantial doubt and requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans.
If conditions or events raise substantial doubt that is not alleviated, an entity should disclose that there is substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), along with the principal conditions or events that raise substantial doubt, management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations and management's plans that are intended to mitigate those conditions.
The guidance is effective for annual periods ending after December 15, 2016, and interim and annual periods thereafter. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.
This guidance is effective for fiscal years beginning after December 15, 2017. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The recognition and measurement provisions of this guidance will bewas applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption and early adoption is not permitted. The Company is evaluating this guidance but expects the primary impact will be the recognition of unrealized gains and losses on available-for-sale equity securities in net income. Currently, all unrealized gains and losses on available-for-sale equity securities are recognized in other comprehensive income (loss).
The effect of the adoption of this guidance did not have a material effect on the Company’s results of operations,Company’s financial position andor liquidity is primarily dependent on the fair value of the available-for-sale equity securities in future periods and the existence of a deferred tax asset relatedbut does create additional volatility when comparing period to available-for-sale securities in future periods that have not yet been fully assessed.period results.
Leases
In February 2016, the FASB issued updated guidance to require lessees to recognize a right-to-use asset and a lease liability for leases with terms of more than 12 months. The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease). Both lease classifications require the lessee to record the right-to-use asset and the lease liability based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-to-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.
The updated guidance is effective for reporting periods beginning after December 15, 2018, and will require that the earliest comparative period presented include the measurement and recognition of existing leases with an adjustment to equity as if the updated guidance had always been applied. Early adoption is permitted. As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after December 15, 2020. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Contingent Put and Call Options in Debt Instruments
In March 2016, the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument can accelerate the repayment of principal on the debt instrument, a reporting entity does not need to assess whether the contingent event that triggers the ability to exercise the call (put) option is related to interest rates or credit risk in determining whether the option should be accounted for separately. The updated guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2017. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Measurement of Credit Losses on Financial Instruments
In June 2016, the FASB issued updated guidance for the accounting for credit losses for financial instruments. The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.
The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.
The updated guidance is effective for reporting periods beginning after December 15, 2019. Early adoption is permitted for reporting periods beginning after December 15, 2018. As an emerging growth company, the Company has elected to defer implementation of this standard to fiscal years beginning after December 15, 2022. The Company will not be able to determine the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.
Classification of Certain Cash ReceiptsCash Receipts and Cash PPaymentayment
In AugustAugust 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows under eight different scenarios including, but not limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The Companyimplementation of this standard did not have a material impact on the Company’s statement of cash flows.
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act). In February 2018, FASB issued guidance to address certain issues related to the Tax Cuts and Jobs Act. This new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. This guidance is currently evaluating the impacteffective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did not have a material effect on its statementthe Company’s results of operations, financial position or liquidity.
Targeted Improvements to the Accounting for Long-Duration Contracts
In August 2018, the FASB issued ASU 2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU 2018-12 requires periodic reassessment of actuarial and discount rate assumptions used in the valuation of policyholder liabilities and deferred acquisition costs arising from the issuance of long-duration insurance and reinsurance contracts, with the effects of the changes in cash flows.flow assumptions reflected in earnings and the effects of changes in discount rate assumptions reflected in other comprehensive income. Under current accounting guidance, the actuarial and discount rate assumptions are set at the contract inception date and not subsequently changed, except in limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.
All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent or material to the Company at this time.
Note 2. Acquisitions
On August 1, 2017 the Company acquired Northern Plains pursuant to a Plan and Agreement of Merger dated May 23, 2017 (the "Merger Agreement") under which Alliance Merger Sub, Inc. (“Acquisition”), a wholly owned subsidiary of the Company, merged with and into Northern Plains (“Merger”) with Acquisition being the surviving company. Pursuant to the Merger Agreement, the Company exchanged .5841 shares of the Company’s common stock for each share of Northern Plains common stock, or approximately 1,644,458 shares, as consideration for the Merger. Subsequent to the Merger, Acquisition was merged into the Company and the Company contributed its interest in DCLIC to USALSC.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
The Merger was accounted for under the acquisition method of accounting, which requires the consideration transferred and all assets and liabilities assumed to be recorded at fair value. The table on the following page summarizes the preliminary fair value of the consideration transferred and the preliminary fair value of Northern Plains’ assets acquired and liabilities assumed:
Fair value of US Alliance common stock issued as consideration | $ | 3,099,165 | ||
Preliminary amounts of indentifiable assets acquired and liablities assumed | ||||
Investment securities | $ | 4,623,449 | ||
Cash | 1,079,627 | |||
VOBA | 609,061 | |||
Other assets | 60,080 | |||
Policyholder reserves | (1,277,411 | ) | ||
Deposit type contracts | (2,029,138 | ) | ||
Other liabilities | (243,608 | ) | ||
Total indentifiable net assets | $ | 2,822,060 | ||
Goodwill | 277,105 | |||
Total | $ | 3,099,165 |
The fair value of the US Alliance common stock issued as consideration and the assets acquired and liabilities assumed from our Merger with Northern Plains was based on a preliminary valuation and our estimates and assumptions are subject to change within the measurement period. The primary areas that are not yet finalized are related to the fair value of US Alliance common stock issued and the fair value of value of business acquired ("VOBA"). Measurement period adjustments will be applied to the period that the adjustment is identified in our consolidated financial statements.
VOBA is being amortized on a straight-line basis over 30 years which approximates the earnings pattern of the related policies.
The following table presents unaudited pro forma consolidated total income and net loss as if the Merger had occurred as of January 1, 2016 (the earliest date presented).
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Income: |
| |||||||
Premium income | $ | 9,322,648 | $ | 5,231,372 | ||||
Net investment income | 544,477 | 396,697 | ||||||
Net realized gain (loss) on sale of securities | 483,130 | 16,031 | ||||||
Other income | 11,594 | 6,987 | ||||||
Total income | 10,361,849 | 5,651,087 | ||||||
Net Loss | $ | (745,970 | ) | $ | (1,508,555 | ) | ||
Net Loss per share | $ | (0.10 | ) | $ | (0.21 | ) |
The unaudited pro forma total income and net loss above was adjusted to eliminate the TPA fees paid by Northern Plains to the Company of $31,250 and $50,781 for the nine months ended September 30, 2017 and 2016, respectively; and eliminate the loss of $201,577 for acquisition related expenses that Northern Plains recorded for the nine months ended September 30, 2017 and also includes adjustments for the amortization of VOBA and elimination of DAC amortization for the nine months ending September 30, 2017 and 2016 of $78,379 and $21,498, respectively.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Note 3.2. Investments
The amortized cost and fair value of available for sale and held to maturity investments as of September 30, 20172019 and December 31, 20162018 is as follows:
September 30, 2017 | ||||||||||||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(Unaudited) | ||||||||||||||||
Available for sale: |
| |||||||||||||||
Fixed maturities: | ||||||||||||||||
US Treasury securities | $ | 269,529 | $ | - | $ | (29,054 | ) | $ | 240,475 | |||||||
Government agency bonds | 299,842 | - | (539 | ) | 299,303 | |||||||||||
Corporate bonds | 6,119,784 | 140,246 | (25,617 | ) | 6,234,413 | |||||||||||
Municipal bonds | 5,570,008 | 152,099 | (19,519 | ) | 5,702,588 | |||||||||||
Redeemable preferred stock | 99,560 | 480 | - | 100,040 | ||||||||||||
Mortgage backed and asset backed securities | 2,553,196 | 38,963 | (15,154 | ) | 2,577,005 | |||||||||||
Total fixed maturities | 14,911,919 | 331,788 | (89,883 | ) | 15,153,824 | |||||||||||
Equities: | ||||||||||||||||
Equities | 7,615,226 | 114,845 | (64,574 | ) | 7,665,497 | |||||||||||
Total available for sale | $ | 22,527,145 | $ | 446,633 | $ | (154,457 | ) | $ | 22,819,321 |
September 30, 2019 | ||||||||||||||||||||||||||||||||
December 31, 2016 | Cost or | Gross | Gross | |||||||||||||||||||||||||||||
Cost or | Gross | Gross | Amortized | Unrealized | Unrealized | |||||||||||||||||||||||||||
Amortized | Unrealized | Unrealized | Cost | Gains | Losses | Fair Value | ||||||||||||||||||||||||||
Cost | Gains | Losses | Fair Value | (unaudited) | ||||||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||||||||||
US Treasury securities | $ | 314,992 | $ | - | $ | (15,830 | ) | $ | 299,162 | $ | 606,686 | $ | 23,630 | $ | - | $ | 630,316 | |||||||||||||||
Corporate bonds | 3,828,418 | 62,712 | (45,234 | ) | 3,845,896 | 17,755,495 | 1,629,401 | (10,417 | ) | 19,374,479 | ||||||||||||||||||||||
Municipal bonds | 2,841,137 | 46,883 | (38,191 | ) | 2,849,829 | 6,542,899 | 743,660 | - | 7,286,559 | |||||||||||||||||||||||
Redeemable preferred stock | 99,560 | 7,360 | - | 106,920 | ||||||||||||||||||||||||||||
Mortgage backed and asset backed securities | 3,333,617 | 36,870 | (45,300 | ) | 3,325,187 | 3,632,856 | 96,244 | (4,891 | ) | 3,724,209 | ||||||||||||||||||||||
Total fixed maturities | 10,318,164 | 146,465 | (144,555 | ) | 10,320,074 | 28,637,496 | 2,500,295 | (15,308 | ) | 31,122,483 | ||||||||||||||||||||||
Equities: | ||||||||||||||||||||||||||||||||
Equities | 4,723,024 | 350,981 | (131,757 | ) | 4,942,248 | 11,987,770 | 135,371 | (272,122 | ) | 11,851,019 | ||||||||||||||||||||||
Other equity investments | 182,929 | 23,046 | (4,719 | ) | 201,256 | |||||||||||||||||||||||||||
Total equities | 4,905,953 | 374,027 | (136,476 | ) | 5,143,504 | |||||||||||||||||||||||||||
Total available for sale | $ | 15,224,117 | $ | 520,492 | $ | (281,031 | ) | $ | 15,463,578 | $ | 40,625,266 | $ | 2,635,666 | $ | (287,430 | ) | $ | 42,973,502 |
December 31, 2018 | ||||||||||||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
Available for sale: | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
US Treasury securities | $ | 597,265 | $ | - | $ | (27,325 | ) | $ | 569,940 | |||||||
Corporate bonds | 16,847,623 | 43,051 | (1,048,313 | ) | 15,842,361 | |||||||||||
Municipal bonds | 6,559,854 | 118,890 | (80,631 | ) | 6,598,113 | |||||||||||
Redeemable preferred stock | 99,560 | - | (8,720 | ) | 90,840 | |||||||||||
Mortgage backed and asset backed securities | 3,853,395 | 11,425 | (83,835 | ) | 3,780,985 | |||||||||||
Total fixed maturities | 27,957,697 | 173,366 | (1,248,824 | ) | 26,882,239 | |||||||||||
Equities: | ||||||||||||||||
Equities | 12,096,488 | 31,505 | (1,140,454 | ) | 10,987,539 | |||||||||||
Total available for sale | $ | 40,054,185 | $ | 204,871 | $ | (2,389,278 | ) | $ | 37,869,778 |
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
The amortized cost and fair value of debt securities as of September 30, 2017,2019 and December 31, 2018, by contractual maturity, are shown in the following table. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Amortized | ||||||||
September 30, 2017 | Cost | Fair Value | ||||||
(unaudited) | ||||||||
Amounts maturing in: |
| |||||||
One year or less | $ | 200,568 | $ | 200,473 | ||||
After one year through five years | 1,932,156 | 1,933,444 | ||||||
After five years through ten years | 2,490,661 | 2,517,547 | ||||||
More than 10 years | 7,635,778 | 7,825,315 | ||||||
Redeemable preferred stocks | 99,560 | 100,040 | ||||||
Mortgage backed and asset backed securities | 2,553,196 | 2,577,005 | ||||||
Total fixed maturities | $ | 14,911,919 | $ | 15,153,824 |
Proceeds from the sale of securities, maturities, and asset paydowns for the first nine months of 2017 and 2016 were $7,520,945and $764,173, respectively. Realized gains and losses related to the sale of securities are summarized as follows:
Nine Months Ended September 30, | ||||||||
(unaudited) | ||||||||
2017 | 2016 | |||||||
Gross gains | $ | 486,523 | $ | 42,719 | ||||
Gross losses | (51,131 | ) | (2,066 | ) | ||||
Net security gains | $ | 435,392 | $ | 40,653 |
Proceeds from the sale of securities, maturities, and asset paydowns for the three months ended September 30, 2017 and 2016 were $4,688,796and $204,422, respectively. Realized gains and losses related to the sale of securities for the three months ended September 30, 2017 and 2016 are summarized as follows:
Three Months Ended September 30, | ||||||||
(unaudited) | ||||||||
2017 | 2016 | |||||||
Gross gains | $ | 259,061 | $ | 29,889 | ||||
Gross losses | (32,171 | ) | - | |||||
Net security gains | $ | 226,890 | $ | 29,889 |
As of September 30, 2019 | As of December 31, 2018 | |||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||
| (unaudited) | |||||||||||||||
Amounts maturing in: | ||||||||||||||||
One year or less | $ | 99,982 | $ | 100,248 | $ | - | $ | - | ||||||||
After one year through five years | 1,373,790 | 1,417,814 | 1,472,228 | 1,462,745 | ||||||||||||
After five years through ten years | 3,336,835 | 3,624,467 | 2,101,676 | 2,055,173 | ||||||||||||
More than 10 years | 20,094,473 | 22,148,825 | 20,430,838 | 19,492,496 | ||||||||||||
Redeemable preferred stocks | 99,560 | 106,920 | 99,560 | 90,840 | ||||||||||||
Mortgage backed and asset backed securities | 3,632,856 | 3,724,209 | 3,853,395 | 3,780,985 | ||||||||||||
Total amortized cost and fair value | $ | 28,637,496 | $ | 31,122,483 | $ | 27,957,697 | $ | 26,882,239 |
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Proceeds from the sale of securities, maturities, and asset paydowns for the first nine months of 2019 and 2018 were $796,851and $248,077 respectively. Realized gains and losses related to the sale of securities are summarized as follows:
Nine Months Ended September 30, | ||||||||
(unaudited) | ||||||||
2019 | 2018 | |||||||
Gross gains | $ | 4,601 | $ | 530 | ||||
Gross losses | (18,586 | ) | (857 | ) | ||||
Net security gains (losses) | $ | (13,985 | ) | $ | (327 | ) |
Proceeds from the sale of securities, maturities, and asset paydowns for the three months ended September 30, 2019 and 2018 were $135,587and $64,851 respectively. Realized gains and losses related to the sale of securities are summarized as follows:
Three Months Ended September 30, | ||||||||
(unaudited) | ||||||||
2019 | 2018 | |||||||
Gross gains | $ | 650 | $ | - | ||||
Gross losses | (107 | ) | - | |||||
Net security gains | $ | 543 | $ | - |
Gross unrealized losses by duration are summarized as follows:
Less than 12 months | Greater than 12 months | Total | Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||||||||||||||||||||
September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
September 30, 2019 | (unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||||||||||||||||||||||||||
US Treasury securities | $ | 240,475 | $ | (29,054 | ) | $ | - | $ | - | $ | 240,475 | $ | (29,054 | ) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||
Government agency bonds | 299,303 | (539 | ) | - | - | 299,303 | (539 | ) | ||||||||||||||||||||||||||||||||||||||||
Corporate bonds | 1,734,089 | (14,488 | ) | 798,161 | (11,129 | ) | 2,532,250 | (25,617 | ) | 253,833 | (2,170 | ) | 562,791 | (8,247 | ) | 816,624 | (10,417 | ) | ||||||||||||||||||||||||||||||
Municipal bonds | 1,571,608 | (18,464 | ) | 98,945 | (1,055 | ) | 1,670,553 | (19,519 | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||||||||
Redeemable preferred stock | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
Mortgage backed and asset backed securities | 995,261 | (13,137 | ) | 92,315 | (2,017 | ) | 1,087,576 | (15,154 | ) | 50,349 | (1,199 | ) | 318,956 | (3,692 | ) | 369,305 | (4,891 | ) | ||||||||||||||||||||||||||||||
Total fixed maturities | 4,840,736 | (75,682 | ) | 989,421 | (14,201 | ) | 5,830,157 | (89,883 | ) | 304,182 | (3,369 | ) | 881,747 | (11,939 | ) | 1,185,929 | (15,308 | ) | ||||||||||||||||||||||||||||||
Equities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 1,283,438 | (4,999 | ) | 1,179,505 | (59,575 | ) | 2,462,943 | (64,574 | ) | 991,555 | (25,623 | ) | 8,206,452 | (246,499 | ) | 9,198,007 | (272,122 | ) | ||||||||||||||||||||||||||||||
Total available for sale | $ | 6,124,174 | $ | (80,681 | ) | $ | 2,168,926 | $ | (73,776 | ) | $ | 8,293,100 | $ | (154,457 | ) | $ | 1,295,737 | $ | (28,992 | ) | $ | 9,088,199 | $ | (258,438 | ) | $ | 10,383,936 | $ | (287,430 | ) |
Less than 12 months | Greater than 12 months | Total | Less than 12 months | Greater than 12 months | Total | |||||||||||||||||||||||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||||||||||||||||||||
Value | Loss | Value | Loss | Value | Loss | Value | Loss | Value | Loss | Value | Loss | |||||||||||||||||||||||||||||||||||||
December 31, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
December 31, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||||||||||||||||||||||||||
US Treasury securities | $ | 299,162 | $ | (15,830 | ) | $ | - | $ | - | $ | 299,162 | $ | (15,830 | ) | $ | 251,206 | $ | (27,325 | ) | $ | - | $ | - | $ | 251,206 | $ | (27,325 | ) | ||||||||||||||||||||
Corporate bonds | 1,897,000 | (42,994 | ) | 196,399 | (2,240 | ) | 2,093,399 | (45,234 | ) | 11,743,222 | (948,539 | ) | 830,239 | (99,774 | ) | 12,573,461 | (1,048,313 | ) | ||||||||||||||||||||||||||||||
Municipal bonds | 1,296,688 | (38,191 | ) | - | - | 1,296,688 | (38,191 | ) | 2,114,260 | (51,267 | ) | 859,305 | (29,364 | ) | 2,973,565 | (80,631 | ) | |||||||||||||||||||||||||||||||
Redeemable preferred stock | 90,840 | (8,720 | ) | - | - | 90,840 | (8,720 | ) | ||||||||||||||||||||||||||||||||||||||||
Mortgage backed and asset backed securities | 1,700,173 | (39,264 | ) | 134,090 | (6,036 | ) | 1,834,263 | (45,300 | ) | 544,714 | (6,656 | ) | 2,448,551 | (77,179 | ) | 2,993,265 | (83,835 | ) | ||||||||||||||||||||||||||||||
Total fixed maturities | 5,193,023 | (136,279 | ) | 330,489 | (8,276 | ) | 5,523,512 | (144,555 | ) | 14,744,242 | (1,042,507 | ) | 4,138,095 | (206,317 | ) | 18,882,337 | (1,248,824 | ) | ||||||||||||||||||||||||||||||
Equities: | ||||||||||||||||||||||||||||||||||||||||||||||||
Equities | 1,007,860 | (59,357 | ) | 1,063,959 | (72,400 | ) | 2,071,819 | (131,757 | ) | 3,312,528 | (228,148 | ) | 7,440,504 | (912,306 | ) | 10,753,032 | (1,140,454 | ) | ||||||||||||||||||||||||||||||
Other equity investments | 52,840 | (4,719 | ) | - | - | 52,840 | (4,719 | ) | ||||||||||||||||||||||||||||||||||||||||
Total equities | 1,060,700 | (64,076 | ) | 1,063,959 | (72,400 | ) | 2,124,659 | (136,476 | ) | |||||||||||||||||||||||||||||||||||||||
Total available for sale | $ | 6,253,723 | $ | (200,355 | ) | $ | 1,394,448 | $ | (80,676 | ) | $ | 7,648,170 | $ | (281,031 | ) | $ | 18,056,770 | $ | (1,270,655 | ) | $ | 11,578,599 | $ | (1,118,623 | ) | $ | 29,635,369 | $ | (2,389,278 | ) |
Unrealized losses occur from market price declines that may be due to a number of factors, including economic downturns, changes in interest rates, competitive forces within an industry, issuer specific events, operational difficulties, lawsuits, and market pricing anomalies caused by factors such as temporary lack of liquidity.
The total number of securities in the investment portfolio in an unrealized loss position as of September 30, 20172019 was 71,22, which represented an unrealized loss of $154,457$287,430 of the aggregate carrying value of those securities. The 71 22 securities breakdown as follows: 515 bonds, 147 mortgage and asset backed securities, 1 preferred stocks, 2 high yield corporate bond funds, 2 preferred stock index funds, 1 senior loan fund, and 4 common stock,stock. The total number of securities in the investment portfolio in an unrealized loss position as of December 31, 2018 was 140, which represented an unrealized loss of $2,389,278 of the aggregate carrying value of those securities. The 140 securities breakdown as follows: 97 bonds, 28 mortgage and asset backed securities, 7 common stocks, 3 preferred stocks, 2 high yield corporate bond funds, 2 preferred stock index funds, and 1 senior loan fund. The Company determined that no securities were considered to be other-than-temporarily impaired as of September 30, 20172019 and December 31, 2016. The unrealized gains on the remainder of the available for sale portfolio as of September 30, 2017 were $446,663. 2018.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Note 4.3. Fair Value Measurements
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. The Company uses a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
● | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement rate. |
● | Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
● | Level 3 inputs are unobservable for the asset or liability and reflect an |
Investments, available for sale: Investments in securities that are classified asFair values of available for sale fixed maturity securities are recorded atprovided by a third party pricing service. The pricing service uses a variety of sources to determine fair value utilizing Level 1of securities. The Company’s fixed maturity securities are highly liquid, which allows for a high percentage of the portfolio to be priced through pricing sources. Fair values for equity securities are also provided by a third party pricing service and Level 2 measurements.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)are derived from active trading on national market exchanges.
The following table presents the amounts of assets measured at fair value on a recurring basis as of September 30, 20172019 and December 31, 2016:2018:
September 30, 2017 | September 30, 2019 | |||||||||||||||||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||||
Available for sale: |
| |||||||||||||||||||||||||||||||
Fixed maturities: | ||||||||||||||||||||||||||||||||
US Treasury securities | $ | 240,475 | $ | 240,475 | $ | - | $ | - | $ | 630,316 | $ | 630,316 | $ | - | $ | - | ||||||||||||||||
Government agency bonds | 299,303 | - | 299,303 | - | ||||||||||||||||||||||||||||
Corporate bonds | 6,234,413 | - | 6,234,413 | - | 19,374,479 | - | 19,182,879 | 191,600 | ||||||||||||||||||||||||
Municipal bonds | 5,702,588 | - | 5,702,588 | - | 7,286,559 | - | 7,286,559 | - | ||||||||||||||||||||||||
Redeemable preferred stock | 100,040 | - | 100,040 | - | 106,920 | - | 106,920 | - | ||||||||||||||||||||||||
Mortgage backed and asset backed securities | 2,577,005 | - | 2,577,005 | - | 3,724,209 | - | 3,724,209 | - | ||||||||||||||||||||||||
Total fixed maturities | 15,153,824 | 240,475 | 14,913,349 | - | 31,122,483 | 630,316 | 30,300,567 | 191,600 | ||||||||||||||||||||||||
Equities: | ||||||||||||||||||||||||||||||||
Equities | 7,665,497 | 7,665,497 | - | - | 11,851,019 | 11,851,019 | - | - | ||||||||||||||||||||||||
Total | $ | 22,819,321 | $ | 7,905,972 | $ | 14,913,349 | $ | - | $ | 42,973,502 | $ | 12,481,335 | $ | 30,300,567 | $ | 191,600 |
December 31, 2018 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Available for sale: | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
US Treasury securities | $ | 569,940 | $ | 569,940 | $ | - | $ | - | ||||||||
Corporate bonds | 15,842,361 | - | 15,642,361 | 200,000 | ||||||||||||
Municipal bonds | 6,598,113 | - | 6,598,113 | - | ||||||||||||
Redeemable preferred stock | 90,840 | - | 90,840 | - | ||||||||||||
Mortgage backed and asset backed securities | 3,780,985 | - | 3,780,985 | - | ||||||||||||
Total fixed maturities | 26,882,239 | 569,940 | 26,112,299 | 200,000 | ||||||||||||
Equities: | ||||||||||||||||
Equities | 10,987,539 | 10,987,539 | - | - | ||||||||||||
Total | $ | 37,869,778 | $ | 11,557,479 | $ | 26,112,299 | $ | 200,000 |
December 31, 2016 | ||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Available for sale: | ||||||||||||||||
Fixed maturities: | ||||||||||||||||
US Treasury securities | $ | 299,162 | $ | 299,162 | $ | - | $ | - | ||||||||
Corporate bonds | 3,845,896 | - | 3,845,896 | - | ||||||||||||
Municipal bonds | 2,849,829 | - | 2,849,829 | - | ||||||||||||
Mortgage backed and asset backed securities | 3,325,187 | - | 3,325,187 | - | ||||||||||||
Total fixed maturities | 10,320,074 | 299,162 | 10,020,912 | - | ||||||||||||
Equities: | ||||||||||||||||
Equities | 4,942,248 | 4,942,248 | - | - | ||||||||||||
Other equity investments | 201,256 | 201,256 | - | - | ||||||||||||
Total equities | 5,143,504 | 5,143,504 | - | - | ||||||||||||
Total | $ | 15,463,578 | $ | 5,442,666 | $ | 10,020,912 | $ | - |
Note 3.Fair Value Measurements (Continued)
The Company discloses the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The estimated fair value approximates carrying value for accrued interest. The methodologies for other financial assets and financial liabilities are discussed below:
Cash and cash equivalents: The carrying amounts approximate fair value because of the short maturity of these instruments.
, investmentInvestment income due and accrued and policy loans: The carrying amounts approximate fair value because of the short maturity of these instruments.
Policy loans:Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of these financial instrumentsthe underlying insurance policies, the carrying value of the policy loans approximates their fair values. Cash and cash equivalents are included in Level 1 of the fair value hierarchy due to their highly liquid nature.value.
Policyholder deposits in deposit-type contracts: The fair value for policyholder deposits in deposit-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using the risk-free rates adjusted for credit risk
and the nonperformance risk of the liabilities.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
The estimated fair values of the Company’sCompany’s financial assets and liabilities at September 30, 20172019 and December 31, 20162018 are as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||||||||
September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | (unaudited) | ||||||||||||||||||||||||||||
(unaudited) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||||||||||
Financial Assets: |
| |||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 11,015,077 | $ | 11,015,077 | $ | 3,145,745 | $ | 3,145,745 | $ | 5,145,539 | $ | 5,145,539 | $ | 2,077,646 | $ | 2,077,646 | ||||||||||||||||
Investment income due and accrued | 124,745 | 124,745 | 100,713 | 100,713 | 306,343 | 306,343 | 286,890 | 286,890 | ||||||||||||||||||||||||
Policy loans | 33,376 | 33,376 | - | - | 68,774 | 68,774 | 56,539 | 56,539 | ||||||||||||||||||||||||
Investments, at fair value | 22,819,321 | 22,819,321 | 15,463,578 | 15,463,578 | ||||||||||||||||||||||||||||
Total Financial Assets | $ | 33,992,519 | $ | 33,992,519 | $ | 18,710,036 | $ | 18,710,036 | ||||||||||||||||||||||||
Total Financial Assets (excluding available for sale investments) | $ | 5,520,656 | $ | 5,520,656 | $ | 2,421,075 | $ | 2,421,075 | ||||||||||||||||||||||||
Financial Liabilities: | ||||||||||||||||||||||||||||||||
Policyholder deposits in deposit-type contracts | $ | 12,749,556 | $ | 11,950,167 | $ | 3,398,170 | $ | 3,260,086 | $ | 18,720,202 | $ | 18,540,934 | $ | 16,626,218 | $ | 15,361,164 | ||||||||||||||||
Total Financial Liabilities | $ | 12,749,556 | $ | 11,950,167 | $ | 3,398,170 | $ | 3,260,086 | $ | 18,720,202 | $ | 18,540,934 | $ | 16,626,218 | $ | 15,361,164 |
Note 5.4. Income Tax Provision
No income tax expense or (benefit) has been reflected for the quarters ended September 30, 2017 and 20162019 or 2018 due to the lack of taxable net income generated by the Company and the 100% valuation allowance pertaining to the deferred tax asset. The difference between the reported amount of income tax expense and the amount expected based upon statutory rates is primarily due to the increase in the valuation allowance on deferred taxes.
The net operating loss carryforwards for the Company are $6,500,000$11,960,960 and $5,050,176$12,938,533 as of September 30, 20172019 and December 31, 2016,2018, respectively. The September 30, 2017 net operating loss carryforward is estimated as the impact of the Merger with Northern Plains has not been finalized. The components of the deferred tax assets and liabilities due to book and tax differences are the following: fixed asset depreciation, net operating loss carryforward, net unrealized gains (losses) on investment securities, policyowner benefit reserves and deferred acquisition costs. The net deferred tax asset is offset 100 percent by the valuation allowance.
Note 6.Warrants
The Company conducted its public stock offering through the sale of units. Each unit was sold for $1,000 and consisted of 200 shares of common stock and a warrant to purchase an additional 200 shares of common stock at $6.00 per share. The warrants were originally scheduled to expire, if not exercised, on February 24, 2016. The board of directors of the Company extended the warrant expiration date to April 1, 2016. As of December 31, 2014 warrant-holders had the right to purchase 2,532,400 shares of common stock. On February 24, 2015, the Company registered a warrant exercise offering with the Kansas Securities Commissioner. During 2015, warrant-holders exercised warrants for the purchase of 944,845 shares of common stock. As of December 31, 2015 warrant-holders had the right to purchase 1,587,555 shares of common stock. During 2016, warrant-holders exercised their rights to purchase an additional 372,003 shares of common stock.
Management engaged the services of an experienced valuation firm to value the warrants as of February 24, 2013. The valuation performed valued the warrants to be worth $0.01 per share of common stock and management has allocated this amount from additional paid-in capital to the outstanding warrants. As the warrants have been exercised, the value allocated to the warrants exercised has been restored to additional paid-in capital. The value of outstanding warrants was reduced to zero at March 31, 2016.
US Alliance Corporation
Notes to Consolidated Financial Statements (unaudited)
Note 7.5. Subsequent Events
All of the effects of subsequent events that provide additional evidence about conditions that existed at the balance sheet date, including the estimates inherent in the process of preparing the consolidated financial statements, are recognized in the consolidated financial statements. The Company does not recognize subsequent events that provide evidence about conditions that did not exist at the balance sheet date but arose after, but before the consolidated financial statements are issued. In some cases, unrecognized subsequent events are disclosed to keep the consolidated financial statements from being misleading.
The Company has evaluated subsequent events through November 13, 2017,6, 2019, the date on which the consolidated financial statements were issued.
ITEMITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSMANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITIONAND RESULTSOF OPERATIONS
The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form 10-Q. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.
Overview
US Alliance Corporation (“USAC”) was formed as a Kansas corporation on April 24, 2009 for the purpose of raising capital to form a new Kansas-based life insurance company. We presently conduct our business through our fourfive wholly-owned subsidiaries: US Alliance Life and Security Company ("USALSC"),USALSC, a life insurance corporation; Dakota Capital Life Insurance Corporation ("DCLIC"),DCLIC, a life insurance corporation; US Alliance Marketing Corporation ("USAMC"),USALSC-Montana, a life insurance corporation; USAMC, an insurance marketing corporation; and US Alliance Investment Corporation ("USAIC"),USAIC, an investment management corporation.
On January 2, 2012, USALSC was issued a Certificate of Authority to conduct life insurance business in the State of Kansas. We began third party administrative services in 2015.
On August 1, 2017, the Company throught its wholly owned subsidiary, merged with Northern Plains Capital Corporation (“Northern Plains”) with the Company being the ultimate surviving entity. As a result of this merger, the Company acquired DCLIC,Dakota Capital Life Insurance Company which subsequently became a wholly owned subsidiary of USALSC.
On December 14, 2018, the Company acquired Great Western Life Insurance Company. Great Western Life Insurance Company was renamed US Alliance Life and Security Company – Montana and is a subsidiary of USALSC.
The Company assumes business under two reinsurance treaties. On January 1, 2013, the Company entered into an agreement to assume 20% of a certain block of health insurance policies from Unified Life Insurance Company. On September 30, 2017, the Company entered into a coinsurance agreement to assume 100% of a certain block of life insurance policies from American Life and Security Company.
Critical Accounting Policies and Estimates
Our accountingaccounting and reporting policies are in accordance with GAAP. Preparation of the consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. The following is an explanation of our accounting policies and the estimates considered most significant by management. These accounting policies inherently require significant judgment and assumptions and actual operating results could differ significantly from management’s estimates determined using these policies. We believe the following accounting policies, judgments and estimates are the most critical to the understanding of our results of operations and financial position. A detailed discussion of significant accounting policies is provided in this report in the Notes to Consolidated Financial Statements included with this Registration Statement.quarterly report.
Valuation of Investments
The Company's principal investments are in fixed maturity and equity securities. Fixed maturity and equity securities, classified as available for sale, are carried at their fair value in the consolidated balancebalance sheets, with unrealized gains or losses recorded in comprehensive income (loss). Our fixed income investment manager utilizes external independent third-party pricing services to determine the fair values of investment securities available for sale.
We have a policy and process in place to identify securities that could potentially have an impairment that is other-than-temporary. The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the declinedecline in fair value. We consider severity of impairment, duration of impairment, forecasted recovery period, industry outlook, financial condition of the issuer, issuer credit ratings and whether we intend to sell a security, or it is more likely than not that we would be required to sell a security, prior to the recovery of the amortized cost. New England Asset Management, our investment manager, provides support to the Company in making these determinations.
The recognition of other-than-temporary impairment losses on debt securities is dependent on the facts and circumstances related to the specific security. If we intendintend to sell a security or it is more likely than not that we would be required to sell a security prior to recovery of the amortized cost, the difference between amortized cost and fair value is recognized in the income statement as an other-than-temporary impairment. As it relates to debt securities, if we do not expect to recover the amortized basis, do not plan to sell the security and if it is not more likely than not that we would be required to sell a security before the recovery of its amortized cost, the other-than-temporary impairment would be recognized. We would recognize the credit loss portion through earnings in the income statement and the noncredit loss portion in accumulated other comprehensive loss.income (loss).
Deferred Acquisition Costs
Incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to a product sale and would not have been incurred by us had the sale not occurred, are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense.
Value of Business Acquired
Value of business acquired (VOBA) represents the estimated value assigned to purchased companies or insurance in force of the assumed policy obligations at the date of acquisition of a block of policies. At least annually, a review is performed of the models and the assumptions used to develop expected future profits, based upon management’smanagement’s current view of future events. VOBA is reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. Management’s view primarily reflects our experience but can also reflect emerging trends within the industry. Short-term deviations in experience affect the amortization of VOBA in the period, but do not necessarily indicate that a change to the long-term assumptions of future experience is warranted. If it is determined that it is appropriate to change the assumptions related to future experience, then an unlocking adjustment is recognized for the block of business being evaluated. Certain assumptions, such as interest spreads and surrender rates, may be interrelated. As such, unlocking adjustments often reflect revisions to multiple assumptions. The VOBA balance is immediately impacted by any assumption changes, with the change reflected through the statements of comprehensive income as an unlocking adjustment in the amount of VOBA amortized. These adjustments can be positive or negative with adjustments reducing amortization limited to amounts previously deferred plus interest accrued through the date of the adjustment.
In addition, we may consider refinements in estimates due to improved capabilities resulting from administrative or actuarial system upgrades. We consider such enhancements to determine whether and to what extent they are associated with prior periods or simply improvements in the projection of future expected gross profits due to improved functionality. To the extent they represent such improvements, these items are applied to the appropriate financial statement line items in a manner similar to unlocking adjustments.
VOBA is also reviewed on an ongoing basis to determine that the unamortized portion does not exceed the expected recoverable amounts. If it is determined from emerging experience that the premium margins or gross profits are less than the unamortized value of business acquired, then the asset will be adjusted downward with the adjustment recorded as an expense in the current period.
Goodwill
Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred.
We assess the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.asset.
Reinsurance
In the normal course of business, we seek to limit aggregate and single exposure to losses on risk by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. We diversify our credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish our primary liability under the policies written. We regularly evaluate the financial condition of our reinsurers including their activities with respect to claim settlement practices and commutations, and establish allowances for uncollectible reinsurance recoverable as appropriate.
Future Policy Benefits
We establish liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policypolicy benefits of traditional life insurance have been computed by using a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Such liabilities are reviewed quarterly by an independent consulting actuary.
Income Taxes
Deferred tax assets are recordedrecorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. We have no uncertain tax positions that we believe are more-likely-than-not that the benefit will not to be realized.
RecognitionRecognition of Revenues
Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.
Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of investment earnings of the deposits, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows.
Mergerand Acquisition Transactions
On May 23, 2017 the Company entered into a definitive merger agreement with Northern Plains.Plains Capital Corporation. The Mergermerger transaction closed on July 31, 2017. Northern Plains shareholders received .5841 shares of US Alliance Corporation stock for each share of Northern Plains stock owned. USAC issued 1,644,458 shares of common stock to holders of Northern Plains shares in consideration for the Merger.shares.
On October 11, 2018 the Company entered into a stock purchase agreement with Great Western Insurance Company to acquire Great Western Life Insurance Company. The transaction closed on December 14, 2018. USALSC paid $500,000 to acquire all of the outstanding shares of GWLIC.
New Accounting Standards
A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial StatementsStatements beginning on p. 8 of this quarterly report.
Discussion of Consolidated Results of Operations
Revenues.Revenues. Insurance revenues are primarily generated from premium revenues and investment income.income. Insurance revenues for the nine months ended September 30, 20172019 and 20162018 are summarized in the table below.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Income: |
| |||||||
Premium income | $ | 8,902,208 | $ | 4,721,091 | ||||
Net investment income | 485,147 | 320,491 | ||||||
Net realized gain (loss) on sale of securities | 435,392 | 40,653 | ||||||
Other income | 40,656 | 57,468 | ||||||
Total income | $ | 9,863,403 | $ | 5,139,703 |
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Income: | (unaudited) | |||||||
Premium income | $ | 6,983,705 | $ | 6,651,103 | ||||
Net investment income | 1,303,757 | 1,047,330 | ||||||
Net realized gain (loss) on sale of securities | (13,985 | ) | (327 | ) | ||||
Unrealized gain on equity securites | 951,575 | - | ||||||
Other income | 40,454 | 27,648 | ||||||
Total income | $ | 9,265,506 | $ | 7,725,754 |
Insurance revenues for the three months ended September 30, 20172019 and 20162018 are summarized in the table below.
Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Income: |
| |||||||||||||||
Premium income | $ | 5,169,638 | $ | 1,490,255 | $ | 2,063,015 | $ | 1,776,623 | ||||||||
Net investment income | 189,028 | 116,780 | 442,719 | 370,207 | ||||||||||||
Net realized gain (loss) on sale of securities | 226,890 | 29,889 | 543 | - | ||||||||||||
Unrealized gain on equity securites | 105,758 | - | ||||||||||||||
Other income | 1,201 | 21,878 | 15,396 | 11,654 | ||||||||||||
Total income | $ | 5,586,757 | $ | 1,658,802 | $ | 2,627,431 | $ | 2,158,484 |
Our 2019 first nine months revenues grew to $9,265,506, an increase of $1,539,752 from the 2018 first nine months revenues of $7,725,754. The Company was required to implement a new accounting standard in 2019 which results in unrealized gains and losses on equity securities being included in total income.
Premium revenue: Premium revenue for the first nine months of 20172019 was $8,902,208$6,983,705 compared to $4,721,091$6,651,103 in the first nine months of 2016,2018, an increase of $4,181,117. USALSC entered into a coinsurance transaction with American Life and Security Corporation (“ALSC”) effective$332,602. The increase is driven by growth in direct, recurring premiums.
Premium revenue for the three months ended September 30, 2017.2019 was $2,063,015 compared to $1,776,623 in 2018, an increase of $286,392. This agreement resultedgrowth was driven by growth in the immediate recognition of $3,854,902 of assumed premiums and is the primary driver of the increase inour direct, recurring premiums.
Direct, assumed and ceded premiums for the nine months ended September 30, 20172019 and 20162018 are summarized in the following table.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Direct | $ | 2,422,907 | $ | 2,048,060 | ||||
Assumed | 6,639,092 | 2,770,010 | ||||||
Ceded | (159,791 | ) | (96,979 | ) | ||||
Total | $ | 8,902,208 | $ | 4,721,091 |
Premium revenue for the third quarter of 2017 was $5,169,638 compared to $1,490,255 in 2016, an increase of $3,679,383. This growth is primarily attributable to the coinsurance transaction with ALSC.
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Direct | $ | 3,868,350 | $ | 3,401,876 | ||||
Assumed | 3,723,457 | 3,689,412 | ||||||
Ceded | (608,102 | ) | (440,185 | ) | ||||
Total | $ | 6,983,705 | $ | 6,651,103 |
Direct, assumed and ceded premiums for the three months ended September 30, 20172019 and 20162018 are summarized in the following table.
Three Months ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Direct | $ | 931,463 | $ | 747,100 | ||||
Assumed | 4,323,692 | 778,281 | ||||||
Ceded | (85,517 | ) | (35,126 | ) | ||||
Total | $ | 5,169,638 | $ | 1,490,255 |
Three Months ended September 30, | ||||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Direct | $ | 1,265,253 | $ | 1,093,272 | ||||
Assumed | 979,880 | 839,933 | ||||||
Ceded | (182,118 | ) | (156,582 | ) | ||||
Total | $ | 2,063,015 | $ | 1,776,623 |
The Company is pursuing new product and distribution opportunities to increase premium production. The acquisition of DCLIC and the reinsurance agreement with ALSC are both expectedcontinue to increase future premiums.
premium production.
Investment income, net of expenses: The components of net investment income for the nine months ended September 30, 20172019 and 20162018 are as follows:
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Fixed maturities | $ | 306,614 | $ | 225,790 | ||||
Equity securities | 213,920 | 126,571 | ||||||
Cash and short term investments | 3,730 | 1,527 | ||||||
524,264 | 353,888 | |||||||
Less investment expenses | (39,117 | ) | (33,397 | ) | ||||
$ | 485,147 | $ | 320,491 |
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Fixed maturities | $ | 873,443 | $ | 712,841 | ||||
Equity securities | 440,426 | 387,221 | ||||||
Cash and short term investments | 23,772 | 7,485 | ||||||
1,337,641 | 1,107,547 | |||||||
Less investment expenses | (33,884 | ) | (60,217 | ) | ||||
$ | 1,303,757 | $ | 1,047,330 |
Net investment income for the first nine months of 20172019 was $485,147,$1,303,757, compared to $320,491$1,047,330 in 2016,2018, an increase of $164,656.$256,427 or 24%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income and the Merger with Northern Plains, as well asannuity deposits, and an improvement in our book yield.
The components ofof net investment income for the three months ended September 30, 20172019 and 20162018 are as follows:
Three Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2019 | 2018 | |||||||||||||
(unaudited) | (unaudited) | |||||||||||||||
Fixed maturities | $ | 114,132 | $ | 80,174 | $ | 288,410 | $ | 245,663 | ||||||||
Equity securities | 91,228 | 48,130 | 155,350 | 140,630 | ||||||||||||
Cash and short term investments | 2,238 | 761 | 9,794 | 4,524 | ||||||||||||
207,598 | 129,065 | 453,554 | 390,817 | |||||||||||||
Less investment expenses | (18,570 | ) | (12,285 | ) | (10,835 | ) | (20,610 | ) | ||||||||
$ | 189,028 | $ | 116,780 | $ | 442,719 | $ | 370,207 |
Net investment income for the second quarter of 2017three months ended September 30, 2019 was $189,028,$442,719, compared to $116,780$370,207 in 2016,2018, an increase of $72,248.$72,512 or 20%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income and the Merger with Northern Plains as well asannuity deposits, and an improvement in our book yield.
Net realized gains on investments: The Company had a minimal amount of realized gains and losses during the first nine months of 2019 and 2018.
Net realized gainsUnrealized gain on investments: equity securities:Net realized gains on investments for The Company was required to implement a new accounting standard in the nine months ended September 30, 2017 were $435,392, compared to gainsfirst quarter of $40,653 in 2016, an increase of $394,739. The increase in realized gains is attributable to2019 which requires that the repositioning of an equity portfolio from a market return focus to an income focus. Additionally, during the third quarter we reduced our equity exposure in order to facilitate our coinsurance transaction with ALSC. Realizedunrealized gains and losses related toon equity securities be reported as income on the saleConsolidated Statements of securities for theComprehensive Income (Loss). This resulted in a first nine months ended September 30, 2017of 2019 gain of $951,575 and 2016 are summarized as follows:
Nine Months Ended September 30, | ||||||||
(unaudited) | ||||||||
2017 | 2016 | |||||||
Gross gains | $ | 486,523 | $ | 42,719 | ||||
Gross losses | (51,131 | ) | (2,066 | ) | ||||
Net security gains | $ | 435,392 | $ | 40,653 |
Net realized gains on investments for thea third quarter of 2017 were $226,890 compared2019 gain of $105,758. This new required line item will introduce significant volatility to gainsour results as short-term fluctuations in the value of $29,889 in 2016. Realized gains and losses relatedour equity securities is required to be a part of the saleresults of securities for the three months ended September 30, 2017 and 2016 are summarized as follows:our operations.
Three Months Ended September 30, | ||||||||
(unaudited) | ||||||||
2017 | 2016 | |||||||
Gross gains | $ | 259,061 | $ | 29,889 | ||||
Gross losses | (32,171 | ) | - | |||||
Net security gains | $ | 226,890 | $ | 29,889 |
Other income: Other income for the nine months ended September 30, 20172019 was $40,656$40,454 compared to $57,468$27,648 in 2016, a decrease2018, an increase of $16,812. This decrease is due to the acquisition of DCLIC who was previously a third party administration client.
$12,806. Other income for the third quarter of 2017three months ended September 30, 2019 was $1,201$15,396 compared to $21,878$11,654 in 2016, a decrease2018, an increase of $20,677. This decrease is due to the acquisition of DCLIC who was previously a third party administration client.$3,742.
Expenses. Expenses for the nine months ended September 30, 20172019 and 20162018 are summarized in the table below.
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Expenses: |
| |||||||
Death claims | $ | 624,864 | $ | 355,151 | ||||
Policyholder benefits | 2,609,324 | 2,520,956 | ||||||
Increase in policyholder reserves | 5,205,124 | 1,473,287 | ||||||
Commissions, net of deferrals | 362,585 | 315,550 | ||||||
Amortization of deferred acquisition costs | 136,709 | 128,540 | ||||||
Amortization of value of business acquired | 3,384 | - | ||||||
Salaries & benefits | 627,286 | 564,410 | ||||||
Other operating expenses | 887,230 | 902,598 | ||||||
Total expense | $ | 10,456,506 | $ | 6,260,492 |
Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Expenses: | (unaudited) | |||||||
Death claims | $ | 1,022,585 | $ | 633,206 | ||||
Policyholder benefits | 3,267,898 | 3,056,358 | ||||||
Increase in policyholder reserves | 1,997,786 | 2,112,259 | ||||||
Commissions, net of deferrals | 571,543 | 440,391 | ||||||
Amortization of deferred acquisition costs | 293,032 | 313,860 | ||||||
Amortization of value of business acquired | 15,228 | 15,228 | ||||||
Salaries & benefits | 773,400 | 781,952 | ||||||
Other operating expenses | 940,502 | 1,155,973 | ||||||
Total expense | $ | 8,881,974 | $ | 8,509,227 |
Expenses for the three months ended September 30, 20172019 and 20162018 are summarized in the table below.
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
(unaudited) | ||||||||
Expenses: |
| |||||||
Death claims | $ | 152,234 | $ | 119,700 | ||||
Policyholder benefits | 479,965 | 715,171 | ||||||
Increase in policyholder reserves | 4,357,257 | 556,685 | ||||||
Commissions, net of deferrals | 97,151 | 88,952 | ||||||
Amortization of deferred acquisition costs | 52,484 | 39,441 | ||||||
Amortization of value of business acquired | 3,384 | - | ||||||
Salaries & benefits | 244,143 | 171,226 | ||||||
Other operating expenses | 278,795 | 321,925 | ||||||
Total expense | $ | 5,665,413 | $ | 2,013,100 |
Three Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
(unaudited) | ||||||||
Expenses: | ||||||||
Death claims | $ | 298,269 | $ | 228,994 | ||||
Policyholder benefits | 962,603 | 740,579 | ||||||
Increase in policyholder reserves | 560,128 | 604,647 | ||||||
Commissions, net of deferrals | 157,944 | 120,413 | ||||||
Amortization of deferred acquisition costs | 112,305 | 103,246 | ||||||
Amortization of value of business acquired | 5,076 | 5,076 | ||||||
Salaries & benefits | 270,673 | 238,612 | ||||||
Other operating expenses | 217,987 | 320,804 | ||||||
Total expense | $ | 2,584,985 | $ | 2,362,371 |
Death and other benefits: Death benefits were $624,864$1,022,585 in the nine months ended September 30, 20172019 compared to $355,151$633,206 in 2016,2018, an increase of $269,713.$389,379. This increase is attributable to the growth of our in-forcegrowing block of life insurance policies. The majority of death claims paid from inception have been on pre-need policies. We expect these claims to grow as we continue to increase the size of our in-force pre-need business.
Death benefits were $152,234 for the three months ended September 30, 2017, compared to $119,700 for the same period in 2016, an increase of $32,534. This increase is attributable to the growth of our in-force block of life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force business.
Death benefits were $298,269 in the three months ended September 30, 2019 compared to $228,994 in 2018, an increase of $69,275. This increase is attributable to our growing block of in-force life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force business.
Policyholder benefits: Policyholder benefits were $2,609,324$3,267,898 in the nine months ended September 30, 20172019 compared to $2,520,956$3,056,358 in 2016,2018, an increase of $88,368.$211,540. The primary driver of this increase is the growth ofan increase in benefits assumed from Unified Life and an increase in interest credited on our assumed business with ULIC and is more than offset by the increased premiums associated with this block of assumed policies.annuity contracts.
Policyholder benefits were $479,965 during$962,603 in the third quarter of 2017,three months ended September 30, 2019 compared to $715,171$740,579 in the third quarter2018, an increase of 2016, a decrease of $235,206.$222,024. The primary driver of this decreaseincrease is reducedan increase in benefits paymentsassumed from Unified Life and an increase in interest credited on our assumed business with ULIC.annuity contracts.
Increase in policyholder reserves: Policyholder reserves increased $5,205,124$1,997,786 in the nine months ended September 30, 2017,2019, compared to $1,473,287$2,112,259 in 2016, an increase2018, a decrease of $3,731,837.$114,473. The increasereduction in policyholder reserves is driven by an assumed reserve increase is the result of $3,824,902 associated with our reinsurance transaction with ALSC.the release of reserves to support claim payments.
Policyholder reserves increased by $4,357,257$560,128 in the third quarter of 2017,three months ended September 30, 2019, compared to $556,685$604,647 in the third quarter2018, a decrease of 2016, an increase of $3,800,572.$44,519. The increasereduction in policyholder reserves is driven by an assumed reserve increase is the result of $3,824,902 associated with our reinsurance transaction with ALSC.the release of reserves to support claim payments.
Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies.policies as well as commissions to agents on directly written business. Commissions, net of deferrals, were $362,585$571,543 in the nine months ended September 30, 2017,2019, compared to $315,550$440,391 in 2016,2018, an increase of $47,035. This increase is due to an increase in assumed premiums.
Commissions were $97,151 in the third quarter of 2017, compared to $88,952 in the third quarter of 2016, an increase of $8,199.$131,152. This increase is driven by an increase in non-deferred commissions on direct writtengroup premiums.
Commissions, net of deferrals, were $157,944 in the three months ended September 30, 2019, compared to $120,413 in 2018, an increase of $37,531. This increase is driven by an increase in group premiums.
Amortization of deferred acquisition costs: The amortization of deferred acquisition costs was $136,709$293,032 in the nine months ended September 30, 2017,2019, compared to $128,540$313,860 in 2016, an increase2018, a decrease of $8,169.$20,828. The amortization increasedecrease is attributable to the growtha reduction in amortization of pre-need commissions and to reduced margins on our DAC asset and product margins.
The amortization of deferred acquisition costs was $52,484$112,305 in the third quarter of 2017,three months ended September 30, 2019, compared to $39,441$103,246 in the third quarter of 2016,2018, an increase of $13,043. The amortization increase is attributable to the growth of our DAC asset and product margins.$9,059.
Amortization of value of business acquired:acquired: The amortization of value of business acquired (“VOBA”) was $3,384$15,228 in the nine months ended September 30, 2017.30, 2019 and 2018. Our initial VOBA balance was established August 1, 2017 with acquisition of DCLIC. VOBA is being amortized straight-line over 30 years. The amortization of value of business acquired (“VOBA”) was $5,076 in the three months ended September 30, 2019 and 2018.
Salaries and benefits: Salaries and benefits were $627,286$773,400 for the nine months ended September 30, 2017,2019, compared to $564,410$781,952 in 2016, an increase2018, a decrease of $62,876.$8,552. Staffing costs have increased due to additional employees acquiredare in line with the Northern Plains Merger.prior year.
Salaries and benefits were $244,143$270,673 for the three months ended September 30, 2019, compared to $238,612 in the2018, an increase of $32,061. The third quarter of 2017, compared to $171,2262018 salaries were the lowest in the third quarter of 2016, an increase of $72,917. Staffing costs have increased due to additional employees acquired with the Northern Plains Merger.over two years.
Other expenses: Other operating expenses were $887,230$940,502 in the nine months ended September 30, 2017,2019, compared to $902,598$1,155,973 in 2017,2018, a decrease of $15,368.$215,471. Operating costs have remained in linewere driven lower due to decreased information technology costs and decreased selling and marketing expenses and lower than expected costs associated with the prior period.our USALSC-Montana acquisition.
Other operating expenses were $278,795 during$217,987 in the third quarter of 2017,three months ended September 30, 2019, compared to $321,925$320,804 in the third quarter of 2016,2018, a decrease of $43,130.
$102,817. Operating costs were driven lower due to decreased information technology costs and decreased selling and marketing expenses. We also recovered a loan balance from a producer that had been previously written off.
Net Loss:Income: Our net lossincome was $593,103$383,532 in the nine months ended September 30, 20172019 compared to a net loss of $1,120,789$783,473 in the same period of 2016,2018, an increase of $1,167,005. Our net income per share increased to $0.05 from a decreasenet loss of $527,686.$0.11 in 2018, basic and diluted. This decreaseincrease is primarily attributable to income from unrealized gains on our increased realized gains as well as growing product margins. Ourequity securities. For the three months ended September 30, 2019, we experienced a net gain of $42,446 compared to a net loss per share decreased to $0.10 from $0.21of $203,887 in 2016, basic and diluted.
Our net loss was $78,656 for the third quarter of 2017, compared to $354,298 for the same period in 2016, a decrease of $275,642. This decrease is primarily attributable to increased realized gains as well as improved product margins. Our net loss2018. Net income per share was $0.01 per share in the third quarter of 2017, basic and diluted,for 2019 compared to $0.06 neta loss per shareof $0.03 in the second quarter2018.
Discussion of Consolidated Balance Sheet
Assets. Assets have increased to $38,746,049$52,677,372 as of September 30, 2017,2019, an increase of $19,554,060$8,148,383 from December 31, 2016.2018. This is primarily the result of the Merger with Northern Plainsgrowth of our business and by an increase in the market value of our coinsurance agreement with ALSC.investments.
Available for sale fixed maturitymaturity securities: As of September 30, 2017,2019, we had available for sale fixed maturity assets of $15,153,824,$31,122,483, an increase of $4,833,750$4,240,244 from the December 31, 20162018 balance of $10,320,074. This growth$26,882,239. The increase is driven by our Merger with Northern Plainsthe purchase of additional assets and our premium income.an increase in the market value of these securities.
Available for sale equity securities: As of September 30, 2017,2019, we had available for sale equity assets of $7,665,497,$11,851,019, an increase of $2,521,993$863,480 from the December 31, 20162018 balance of $5,143,504.$10,987,539. This growth is driven by an increase in the market value of our Merger with Northern Plains andequity securities.
Policy loans: As of September 30, 2019, our premium income.policy loans were $68,774, an increase of $12,235 from the December 31, 2018 balance of $56,539. The increase is the result of normal loan activity.
Cash and cash equivalents: As of September 30, 2017,2019, we had cash and cash equivalent assets of $11,015,077,$5,145,539, an increase of $7,869,332$3,067,893 from the December 31, 20162018 balance of $3,145,745.$2,077,646. This increase is primarily the result of cash received upon entering into our coinsurance agreement with ALSC.from premium income.
Investment income due and accrued: As of September 30, 2017,2019, our investment income due and accrued was $124,745$306,343 compared to $100,713$286,890 as of December 31, 2016.2018. This increase is attributable to normal investment activity and the growth of our invested assets.activity.
Reinsurance related assets: As of September 30, 2017,2019, our reinsurance related assets were $315,702,$174,827, an increase of $284,312$12,981 from the December 31, 20162018 balance of $31,390.$161,846. This increasedecrease was driven by a $264,311an increase in the amounts receivable from ALSC related toon our coinsurance transaction.
Policy loans: As of September 30, our policy loans were $33,376. All of our policy loans were the result of our coinsurance agreement with ALSC and we had no policy loans prior to this transaction.reinsurance business.
Deferred acquisition costs, net: As of September 30, 2017,2019, our deferred acquisition costs were $3,083,154, an increase$2,719,094, a decrease of $2,929,362$38,310 from the December 31, 20162018 balance of $153,792.$2,757,404. The growthdecrease is the resultdriven by amortization of the cost of reinsurancecosts deferred on our coinsurance agreement with ALSC in the amount of $2,861,450.offset by deferred acquisition costs on our direct business.
Value of business acquired, net: As of September 30, 20172019, our value of business acquired asset was $605,677.$565,069, a decrease of $15,228 from the December 31, 2018 balance of $580,297. This asset was established in the third quarter of 2017 as a result of our acquisition of DCLIC. The decrease is the result of amortization of the asset.
Goodwill: As of September 30, 2017,2019, our goodwill was $277,542.$277,542 and was unchanged from the December 31, 2018 balance. Goodwill was established as a result of our merger with Northern Plains and we had no previous goodwill balances.Plains.
Property, equipment and software, net: As of September 30, 20172019, our property, equipment and software assets were $229,939,$46,400, a decrease of $14,910$7,678 from the December 31, 20162018 balance of $244,849.$54,078. This decrease is a result of normal amortization during the period. We did purchase additional office furniture and equipment in 2017.
Other assets: As of September 30, 2017,2019, our other assets were $241,517, an increase$400,282, a decrease of $189,595$6,687 from the December 31, 20162018 balance of $51,922.$406,969. This increasedecrease was the result of a receivable related to the recovery of merger related expenses andan decrease in our pre-paid insurance.assets.
Liabilities. Our total liabilities were $24,429,841$35,807,505 as of September 30, 2017,2019, an increase of $16,618,835$3,911,182 from our December 31, 20162018 liability of $7,811,006.$31,896,323. This increase is driven by an increase in our policyholder liabilities.
Policy liabilities: Our total policy liabilities as of September 30, 20172019 were $23,802,957,$35,686,231, an increase of $16,062,718$4,129,702 from the December 31, 20162018 balance of $7,740,239.$31,556,529. This increase is the result of our acquisition of DCLIC, our coinsurance agreement with ALSC, new policy sales and the growth of our in-force policies.
Accounts payable and accrued expenses: As of September 30, 2017,2019, our accounts payable and accrued expenses were $75,399, an increase$103,679, a decrease of $8,927$207,403 from the December 31, 20162018 balance of $66,472. The growth$311,082. This decrease is driven by the resultrelease of expenses accrued related toexpense accruals associated with our Merger with Northern Plains.USALSC-Montana acquisition.
Other liabilities: As of September 30, 2019, our other liabilities were $17,595, a decrease of $11,117 from the December 31, 2018 balance of $28,712.
Shareholders’Shareholders’ Equity. Our shareholders’ equity was $14,316,208$16,869,867 as of September 30, 2017,2019, an increase of $2,935,225$4,237,201 from our December 31, 20162018 shareholders’ equity of $11,380,983.$12,632,666. The growthincrease in shareholders’ equity was driven by our Merger with Northern Plains, the issuance of new shares of stock, and the growth of accumulatedan increase in other comprehensive income. This was partially offset byincome and our net lossincome during the period. Other comprehensive income consists of the unrealized gains and losses on our fixed maturity portfolio.
Investments and Cash and Cash Equivalents
Our overall investment philosophy is reflected inby the allocation of our investments. We emphasize investment grade debt securities with smaller holdings in equity securities and other investments. The following table shows the carrying value of our investmentsinvestments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of September 30, 20172019 and December 30, 2016.31, 2018.
September 30, 2017 | December 31, 2016 | |||||||||||||||
Fair | Percent | Fair | Percent | |||||||||||||
Value | of Total | Value | of Total | |||||||||||||
(unaudited) | ||||||||||||||||
Fixed maturities: |
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US Treasury securities | $ | 240,475 | 0.7 | % | $ | 299,162 | 1.6 | % | ||||||||
Government agency bonds | 299,303 | 0.9 | % | - | 0.0 | % | ||||||||||
Corporate bonds | 6,234,413 | 18.4 | % | 3,845,896 | 20.7 | % | ||||||||||
Municipal bonds | 5,702,588 | 16.9 | % | 2,849,829 | 15.3 | % | ||||||||||
Redeemable preferred stocks | 100,040 | 0.3 | % | - | 0.0 | % | ||||||||||
Mortgage backed and asset backed securities | 2,577,005 | 7.6 | % | 3,325,187 | 17.9 | % | ||||||||||
Total fixed maturities | 15,153,824 | 44.8 | % | 10,320,074 | 55.5 | % | ||||||||||
Equities: | ||||||||||||||||
Equities | 7,665,497 | 22.6 | % | 4,942,248 | 26.5 | % | ||||||||||
Other equity investments | - | 0.0 | % | 201,256 | 1.1 | % | ||||||||||
Total equities | 7,665,497 | 22.6 | % | 5,143,504 | 27.6 | % | ||||||||||
Cash and cash equivalents | 11,015,077 | 32.6 | % | 3,145,745 | 16.9 | % | ||||||||||
Total | $ | 33,834,398 | 100.0 | % | $ | 18,609,323 | 100.0 | % |
September 30, 2019 | December 31, 2018 | |||||||||||
Fair | Percent | Fair | Percent | |||||||||
Value | of Total | Value | of Total | |||||||||
| (unaudited) | |||||||||||
Fixed maturities: | ||||||||||||
US Treasury securities | $ | 630,316 | 1.3% | $ | 569,940 | 1.4% | ||||||
Corporate bonds | 19,374,479 | 40.4% | 15,842,361 | 39.7% | ||||||||
Municipal bonds | 7,286,559 | 15.1% | 6,598,113 | 16.5% | ||||||||
Redeemable preferred stocks | 106,920 | 0.2% | 90,840 | 0.2% | ||||||||
Mortgage backed and asset backed securities | 3,724,209 | 7.7% | 3,780,985 | 9.5% | ||||||||
Total fixed maturities | 31,122,483 | 64.7% | 26,882,239 | 67.3% | ||||||||
Equities | 11,851,019 | 24.6% | 10,987,539 | 27.5% | ||||||||
Cash and cash equivalents | 5,145,539 | 10.7% | 2,077,646 | 5.2% | ||||||||
Total | $ | 48,119,041 | 100.0% | $ | 39,947,424 | 100.0% |
The total value of our investments and cash and cash equivalents increased to $33,834,398$48,119,041 as of September 30, 20172019 from $18,609,323$39,947,424 at December 31, 2016,2018, an increase of $15,225,075.$8,171,617. Increases in investments are primarily attributable to our Merger with Northern Plains, our coinsurance agreement with American Life & Security Corporation, and premiums and annuity deposits received by USALSC and DCLIC.DCLIC and an increase in the fair value of our invested assets.
The following table shows the distributiondistribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of September 30, 20172019 and December 31, 2016.2018.
September 30, 2017 | December 31, 2016 | September 30, 2019 | December 31, 2018 | |||||||||||||||||||||||||
Fair | Percent | Fair | Percent | Fair | Percent | Fair | Percent | |||||||||||||||||||||
Value | of Total | Value | of Total | Value | of Total | Value | of Total | |||||||||||||||||||||
(unaudited) | (audited) | (unaudited) | (unaudited) | |||||||||||||||||||||||||
AAA and U.S. Government | $ | 903,776 | 6.0 | % | $ | 1,080,028 | 10.5 | % | $ | 1,191,475 | 3.8% | $ | 1,690,399 | 6.3% | ||||||||||||||
AA | 6,643,397 | 43.8 | % | 4,887,863 | 47.3 | % | 8,524,704 | 27.4% | 7,933,254 | 29.5% | ||||||||||||||||||
A | 3,845,353 | 25.4 | % | 1,961,311 | 19.0 | % | 7,777,510 | 25.0% | 6,173,746 | 23.0% | ||||||||||||||||||
BBB | 3,554,606 | 23.5 | % | 2,194,473 | 21.3 | % | 13,107,544 | 42.1% | 10,551,468 | 39.3% | ||||||||||||||||||
BB | 206,692 | 1.3 | % | 196,399 | 1.9 | % | 329,650 | 1.1% | 333,372 | 1.2% | ||||||||||||||||||
Not Rated - Private Placement | 191,600 | 0.6% | 200,000 | 0.7% | ||||||||||||||||||||||||
Total | $ | 15,153,824 | 100.0 | % | $ | 10,320,074 | 100.0 | % | $ | 31,122,483 | 100.0% | $ | 26,882,239 | 100.0% |
Reflecting the high quality of securities maintained by us, 98.1% of all fixed maturity securities were investment grade as of December 31, 2016.2018. As of September 30, 2017, 98.7%2019, 98.3% of all fixed maturity securities were investment grade.
The amortized cost and fair value of debt securities as of September 30, 20172019 and December 31, 2016,2018, by contractual maturity, are shown below. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
As of September 30, 2017 | As of December 31, 2016 | As of September 30, 2019 | As of December 31, 2018 | |||||||||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||||||||||||||||||||||
(unaudited) | (unaudited) | |||||||||||||||||||||||||||||||
Amounts maturing in: |
| |||||||||||||||||||||||||||||||
One year or less | $ | 200,568 | $ | 200,473 | $ | 49,915 | $ | 49,931 | $ | 99,982 | $ | 100,248 | $ | - | $ | - | ||||||||||||||||
After one year through five years | 1,932,156 | 1,933,444 | 1,819,437 | 1,809,470 | 1,373,790 | 1,417,814 | 1,472,228 | 1,462,745 | ||||||||||||||||||||||||
After five years through ten years | 2,490,661 | 2,517,547 | 1,646,576 | 1,643,823 | 3,336,835 | 3,624,467 | 2,101,676 | 2,055,173 | ||||||||||||||||||||||||
More than 10 years | 7,635,778 | 7,825,315 | 3,468,619 | 3,491,663 | 20,094,473 | 22,148,825 | 20,430,838 | 19,492,496 | ||||||||||||||||||||||||
Redeemable preferred stocks | 99,560 | 100,040 | - | - | 99,560 | 106,920 | 99,560 | 90,840 | ||||||||||||||||||||||||
Mortgage backed and asset backed securities | 2,553,196 | 2,577,005 | 3,333,617 | 3,325,187 | 3,632,856 | 3,724,209 | 3,853,395 | 3,780,985 | ||||||||||||||||||||||||
$ | 14,911,919 | $ | 15,153,824 | $ | 10,318,164 | $ | 10,320,074 | |||||||||||||||||||||||||
Total amortized cost and fair value | $ | 28,637,496 | $ | 31,122,483 | $ | 27,957,697 | $ | 26,882,239 |
Market Risk of Financial Instruments
We hold a diversified portfolio of investments that primarily includes cash, bonds and equity securities. Each of these investments is subject to market risks that can affect their return and their fair value. A majority of the investments are fixed maturity securities including debt issues of corporations, US Treasury securities, or securities issued by government agencies. The primary market risks affecting the investment portfolio are interest rate risk, credit risk, and equity risk.
Interest Rate Risk
Interest raterate risk arises from the price sensitivity of investments to changes in interest rates. Interest represents the greatest portion of an investment's return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs.
We attempt to mitigate our exposure to adverse interest rate movements through laddering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet our obligationsobligations and to address reinvestment risk considerations. Due to the composition of our book of insurance business, management believes it is unlikely that we would encounter large surrender activity due to an interest rate increase that would force the disposal of fixed maturities at a loss.
Credit Risk
We are exposed to credit risk through counterparties and within the investment portfolio. Credit risk relates to the uncertainty associated with an obligor's ability to make timely payments of principal andand interest in accordance with the contractual terms of an instrument or contract. We manage our credit risk through established investment policies and guidelines which address the quality of creditors and counterparties, concentration limits, diversification practices and acceptable risk levels. These policies and guidelines are regularly reviewed and approved by senior management and USAC's Board of Directors.
Liquidity and Capital Resources
Since inception, our operations have been financed primarily through the sale of voting common stock. Our operations have not been profitable and have generated significant operating losses since we were incorporated in 2009. In the first nine months of 2019, USAC has been profitable.
Aside from raising capital, which has funded the vast majority of our operations, premium income,Premium income, deposits to policyholder account balances, and investment income, and capital raising are the primary sources of funds while withdrawals of policyholder account balances, investment purchases, policy benefits in the form of claims, and operating expenses are the primary uses of funds. To ensure we will be able to pay future commitments, the funds received as premium payments and deposits are invested in primarily fixed income securities. Funds are invested with the intent that the income from investments, plus proceeds from maturities, will in the future meet our ongoing cash flow needs. The approach of matching asset and liability durations and yields requires an appropriate mix of investments. Our investments consist primarily of marketable debt securities that could be readily converted to cash for liquidity needs. Cash flow projections and cash flow tests under various market interest scenarios are also performed annually to assist in evaluating liquidity needs and adequacy.
Net cash provided by operating activities was $287,047$1,821,896 for the nine months ended September 30, 2017.2019. The primary sources of cash from operating activities were premiums and deposits received from policyholders. The primary uses of cash for operating activities were for payments of commissions to agents and settlement of policy liabilities. Net cash provided byused in investing activities was $6,185,465.$625,517. The primary sourceuse of cash was from our coinsurance agreement with ALSC, salesthe purchase of available for sale securities and the sale of the short-term investments. Offsetting this source of cash was our purchases of investments in available-for-sale securities. Cash provided by financing activities was $1,396,820.$1,871,513. The primary sources of cash were receipts on deposit-type contracts and issuance of common stock.
At September 30, 2017,2019, we had cash and cash equivalents totaling $11,015,077.$5,145,539. We believe that our existing cash and cash equivalents and premiums from our insurance operations will be sufficient to fund the anticipated operating expenses and capital expenditures through at least 2018.for the foreseeable future. We have based this estimate upon assumptions that may prove to be wrong and we could use our capital resources sooner than we currently expect. The growthUSALSC is a member of our insurance subsidiary is uncertain and will require additional capital if it continuesthe Federal Home Loan Bank of Topeka which further increases the liquidity options available to grow.the Company.
Impact of Inflation
Insurance premiums are established before the amount of losses, or the extent to which inflation may affect such losses and expenses, are known. We attempt, in establishing premiums, to anticipate thethe potential impact of inflation. If, for competitive reasons, premiums cannot be increased to anticipate inflation, this cost would be absorbed by us. Inflation also affects the rate of investment return on the investment portfolio with a corresponding effect on investment income.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, resultsresults of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM3. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company”, the Company isdoes not required to provide disclosure pursuant to this item.
ITEM4. ITEM 4. CONTROLS AND PROCEDURES
We have established disclosure controls and procedures to ensure, among other things, material information relating to our Company, including our consolidated subsidiaries, is made known to our officers who certify our financial reports and to the other membersmembers of our senior management and the Board of Directors.
As required by Exchange Act Rule 13a-15(b), management of the Company, including the Chief Executive Officer and the Executive Vice President of US Alliance Life and Security Company conducted an evaluation as of the end of the period covered by this report, of the effectiveness of the Company’s disclosure controls and procedures as defined in Exchange Act Rules 13a-15(e). Based upon an evaluation at the end of the period, the Chief Executive Officer and the Executive Vice President of US Alliance Life and Security Company concluded that the disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the exchange act.
There were no changes to the Company’sCompany’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the nine months ended September 30, 20172019 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.
Part II – Other Information
LEGAL PROCEEDINGSI
We are involved in litigation incidental to our operations from time to time. We are not presently a party to any legal proceedings other than litigation arising in the ordinary course of business, and we are not aware of any claims that could materiallymaterially affect our financial position or results of operation.
RISK FACTORSI
As a “smaller“smaller reporting company”, the Company is not required to provide disclosure pursuant to this item.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
During the quarter ended September 30, 2017,2019, the Company issued 27,8301,581 shares of common stock, for aggregate consideration of $194,810,$11,067, pursuant to an offering to residents of the state of Kansas that was registered with the Kansas Securities Commissioner.
The offering of shares in thethe above –describeddescribed transaction was self-underwritten and sold through agents of the Company licensed to sell securities in Kansas. Proceeds from the sale of common stock were used to finance the growth of the Company’s life insurance subsidiary and to provide working capital for the Company. The offer and sale of common stock was exempt from registration under Section 3(a)11 of the Securities Act of 1933 for securities offered and sold on a wholly intrastate basis. The shares of common stock were sold only to bona fide residents of the state of Kansas.
ITEM 3.During the quarter ended September 30, 2019, the Company issued 23,899 shares of common stock, for aggregate consideration of $167,293, pursuant to a private placement offering to residents of the state of North Dakota (the “North Dakota Offering”). Proceeds from the sale of shares in the North Dakota Offering were used to finance the growth of DCLIC and to provide working capital for the Company. The North Dakota Offering and sales of shares thereunder were not registered with the SEC in reliance on an exemption for registration under Rule 506(b) of Regulation DEFAULTS UPON SENIOR SECURITIES under this Securities Act of 1933 (“Reg D”). Shares were sold only to “accredited investors”, as that term is defined in Rule 501 of Reg D, and were not sold by any means of general advertisement or solicitation.
DEFAULTS UPON SENIOR SECURITIES |
None
MINE SAFETY DISCLOSURESI
Not Applicable
OTHER INFORMATIONI
None.
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101.SCH** |
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101.CAL** |
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101.DEF** |
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101.LAB** |
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101.PRE** |
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**XBRL | information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
**XLRB information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized
US Alliance Corporation (Registrant) |
Date | |||
By | /s/ Jack H. Brier | ||
Jack H. Brier, President and Chairman |
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