UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period endedSeptember 30~~, 20~~20. 30, 2021.

☐ 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-~~55627~~000-55627

US ALLIANCE CORPORATION

(Exact name of registrant as specified in its charter)

~~KANSAS~~ Kansas	26-4824142
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

~~4123~~ 1303 SW ~~Gage Center Drive,~~First American Pl, Suite ~~240,~~200, Topeka, Kansas	66604
(Address of principal executive offices)	(Zip Code)

(~~785~~) ~~228~~-~~0200~~(785) 228-0200

(Registrant’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. ☒ 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). ☒ 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 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

☑

~~Emerging growth~~

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

~~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~~section 13(a) of the ~~Exchange Act.~~exchange act. ☐

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

Indicate 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 par value

~~7,741,401~~7,745,404 shares outstanding

as of ~~November 4, 2020~~October 26, 2021

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

~~Title of each class~~	~~Trading Symbol~~	~~Name of each exchange on which registered~~
~~N/A~~	~~N/A~~	~~N/A~~

Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 1.Description of Business and Significant Accounting Policies

Description of business: US Alliance Corporation ("USAC") was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new Kansas-based life insurance company. Our offices are located at ~~4123~~1303 SW ~~Gage Center Drive,~~First American Place, Suite ~~240,~~200, Topeka, Kansas 66604. Our telephone number is ~~785-228-0200~~785-228-0200 and our website address is www.usalliancecorporation.com.

USAC has five ~~direct and indirect~~ wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed 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") was formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”), was acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”). US Alliance Life and Security Company - Montana (USALSC-Montana), was acquired December 14, 2018. Both DCLIC and USALSC-Montana are wholly-owned subsidiaries of USALSC.

Unless the context indicates otherwise, ~~indicates,~~ references ~~in this report~~herein to ~~"we," "us," "our," or~~ the "Company" refer ~~collectively~~ to USAC and its consolidated subsidiaries.

~~USAC~~The Company terminated its initial public offering on February 24, 2013. During the balance of 2013, ~~USAC~~ 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. ~~USAC~~The Company sold its first insurance product on May 1, 2013. ~~USAC~~The Company continued to expand its product offerings and distribution channels throughout 2014 and 2015. On February 24, 2015, ~~USAC~~the Company commenced a warrant exercise offering set to expire on February 24, 2016. On February 24, 2016, ~~USAC~~the Company extended the offering until February 24, 2017 and made additional shares available for purchase. All outstanding warrants expired on April 1, 2016. ~~USAC has~~The Company further extended this offering to February 24, ~~2021.~~ 2022. During the 4th quarter of 2017, ~~USAC~~ the Company began a private placement offering to accredited investors in the state of North Dakota.

USALSC received a Certificate of Authority from the Kansas Insurance Department ("KID") effective January 2, 2012, and sold its first insurance product on May 1, 2013. DCLIC received a Certificate of Authority from the North Dakota Insurance Department ("NDID") effective January 24, 2012.

USALSC and DCLIC seek opportunities to develop and market additional products.

~~Our~~The Company’s business model also anticipates the acquisition by USAC and/or USALSC of other insurance and insurance related companies, including ~~third-party~~third-party administrators, marketing organizations, and rights to 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~~10-Q and Article 10 of Regulation ~~S-X.~~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, ~~2020~~ 2021 are not necessarily indicative of the results to be expected for the year ended December 31, ~~2020~~ 2021 or for any other interim period or for any other future year. Certain financial information which is normally included in ~~the~~ 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 USAC’s report on Form ~~10-K~~10-K and amendments thereto for the year ended December 31, ~~2019.~~2020.

Principles of consolidation: The consolidated financial statements include the accounts of ~~USAC~~the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated from the consolidated financial statements.

Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Area of Operation: ~~USALSC~~ US Alliance Life and Security Company is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska, Oklahoma, and Wyoming. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of ~~Montana~~Montana.

Reclassifications: Certain reclassifications of a minor nature have been made to prior-year balances to conform to current-year presentation with no net impact to net loss/income or equity.

Common stock and income (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of September 30, ~~2020,~~ 2021, and December 31, ~~2019,~~ 2020, USAC had ~~7,741,358~~7,745,404 and ~~7,734,004~~7,741,487 common shares issued and outstanding, respectively.

Income (loss) per share attributable to USAC’s common stockholders ~~were~~was computed based on the net income (loss) and the weighted average number of shares outstanding during each year. The weighted average number of shares outstanding during the ~~quarters~~nine months ended September 30, ~~2020~~ 2021 and ~~2019~~2020 were ~~7,741,272~~7,742,894 and ~~7,715,583~~7,738,179 shares, respectively. The weighted average number of shares outstanding during the ~~nine~~three months ended September 30, ~~2020~~ 2021 and ~~2019~~2020 were ~~7,738,179~~7,745,404 and ~~7,681,612~~7,741,272 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net ~~loss~~income (loss) per common share is the same for the ~~quarters~~nine months and ~~nine~~three months ended September 30, ~~2020~~ 2021 and ~~2019.~~2020.

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. 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.standards:

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 chose to defer implementation of this accounting standard until the year ending December 31, 2019. The adoption of this guidance did not have a material effect on the Company’s result of operations, financial position or liquidity.

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 was effective for the Company for the year ended December 31, 2019 and required a cumulative effect adjustment to opening retained earnings to be recorded for equity investments with readily determinable fair values. As of the adoption date, the Company held publicly traded equity investments with a fair value of $10,987,539 million in a net unrealized gain position of $ 1,098,760 million. The Company has recorded a cumulative-effect adjustment of $ 1,098,760 to decrease Accumulated Other Comprehensive Income (AOCI) with a corresponding increase to accumulated deficit for unrealized gains as of the beginning of fiscal year 2019. As a result of the implementation of ASU 2016-01, unrealized gains and losses in equity investments with readily determinable fair values are recorded on the Consolidated Statements of Comprehensive Income (Loss) within net investment gains (losses). The Company recorded a gain in net investment gains (losses) of $1.1 million for year ended December 31, 2019 as a result of adopting this standard. The implementation of this guidance is expected to increase volatility in our net income as the volatility previously recorded in Comprehensive Income (OCI) related to changes in the fair market value of available-for-sale equity investments will now be reflected in net income effective with the adoption date.

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.~~ 2021. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance is effective for the quarters ending and after March 31, 2021. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

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 C~~~~ash~~ R~~eceipts and~~ ~~Cash P~~~~ayment~~

In August 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. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The implementation 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 effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

In August 2018, the FASB issued ASU ~~2018-12~~2018-12 “Targeted Improvements to the Accounting for Long-Duration Contracts.” ASU ~~2018-12~~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 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~~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.

This guidance is part of the FASB’s disclosure framework project and eliminates certain disclosure requirements for fair value measurement, requires entities to disclose new information and modifies existing disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

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.

The Company’s significant accounting policies are discussed in Note 1 “Description of Business and Significant Accounting Policies” of the 2019 Annual Report. The significant accounting policies below reflect the impact of new transactions involving funds withheld under a coinsurance agreement and the issuance of mortgage loans.

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

~~Funds Withheld under Coinsurance Agreement~~: Funds withheld under coinsurance agreement represent amounts contractually withheld by American Life and Security Corporation in accordance with a reinsurance agreement entered into in 2020. For agreements written on a coinsurance funds withheld basis, assets that support the net statutory reserves or as defined by the treaty, are withheld and legally owned by the ceding company. Interest is recorded in net investment income, net of related expenses in the consolidated statements of income (loss). Funds withheld under coinsurance agreement are presented net of the embedded derivative, discussed below.

~~Embedded Derivatives~~: The Company has entered into coinsurance funds withheld arrangement which contains an embedded derivative. Under ASC 815, the Company assesses whether the embedded derivative is clearly and closely related to the host contract. The Company bifurcates embedded derivatives from the host instrument for measurement purposes when the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument. Embedded derivatives, which are reported with the host instrument on the consolidated balance sheets in funds withheld under coinsurance agreement, are reported at fair value with changes in fair value recognized in the consolidated statements of comprehensive income (loss) in net investment gains (losses).

~~Mortgage Loans on Real Estate~~:Mortgage loans on real estate are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances. Interest income is accrued on the principal amount of the mortgage loans based on its contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. The Company accrues interest on loans until probable the Company will not receive interest or the loan is 90 days past due. Interest income, amortization of premiums, accretion of discounts and prepayment fees are reported in investment income, net of related expenses in the consolidated statements of comprehensive income (loss).

A mortgage loan is considered to be impaired when, based on the current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the mortgage agreement.

Valuation allowances on mortgage loans are established based upon inherent losses expected by management to be realized in connection with future dispositions or settlement of mortgage loans, including foreclosures. The Company establishes valuation allowances for estimated impairments on an individual loan basis as of the balance sheet date. Such valuation allowances are based on the excess carrying value of the loan over the present value of expected future cash flows discounted at the loan’s original effective interest rate, the value of the loan’s collateral if the loan is in the process of foreclosure or is otherwise collateral-dependent, or the loan’s market value if the loan is being sold. These evaluations are revised as conditions change and new information becomes available. In addition to historical experience, management considers qualitative factors that include the impact of changing macro-economic conditions, which may not be currently reflected in the loan portfolio performance, and the quality of the loan portfolio.

Any interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the collectibility of the loan. Mortgage loans deemed to be uncollectible or that have been foreclosed are charged off against the valuation allowances and subsequent recoveries, if any, are credited to the valuation allowances. Changes in valuation allowances are reported in investment related gains (losses), net on the consolidated statements of income (loss).

The Company evaluates whether a mortgage loan modification represents a troubled debt restructuring. In a troubled debt restructuring, the Company grants concessions related to the borrower’s financial difficulties. Generally, the types of concessions include: reduction of the contractual interest rate, extension of the maturity date at an interest rate lower than current market interest rates and/or a reduction of accrued interest. The Company considers the amount, timing and extent of the concession granted in determining any impairment or changes in the specific valuation allowance recorded in connection with the troubled debt restructuring. Through the continuous monitoring process, the Company may have recorded a specific valuation allowance prior to when the mortgage loan is modified in a troubled debt restructuring. Accordingly, the carrying value (after specific valuation allowance) before and after modification through a troubled debt restructuring may not change significantly, or may increase if the expected recovery is higher than the pre-modification recovery assessment.

~~Table of Contents~~

~~US Alliance Corporation~~

~~Notes to Consolidated Financial Statements (unaudited)~~

Note 2.2. Investments

Fixed ~~Maturities~~Maturity

The amortized cost and fair value of available for sale investments as of September 30, ~~2020~~ 2021 and December 31, ~~2019~~2020 is as follows:

	September 30, 2020									September 30, 2021
	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)									(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	573,979	$	122,953	$	-		$	696,932	$	577,795	$	124,964	$	0		$	702,759
Corporate bonds		19,128,008		3,086,100		(111,683	)		22,102,425		19,569,139		2,145,250		(194,441	)		21,519,948
Municipal bonds		5,951,127		920,148		(103	)		6,871,172		6,311,889		669,965		(15,738	)		6,966,116
Redeemable preferred stock		3,015,598		16,473		(48,985	)		2,983,086		3,071,658		54,358		(1,377	)		3,124,639
Mortgage backed and asset backed securities		3,919,039		106,252		(11,179	)		4,014,112		5,576,509		37,054		(35,429	)		5,578,134
Total available for sale	$	32,587,751	$	4,251,926	$	(171,950	)	$	36,667,727	$	35,106,990	$	3,031,591	$	(246,985	)	$	37,891,596

	December 31, 2019									December 31, 2020
	Cost or		Gross		Gross					Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	608,477	$	24,162	$	-		$	632,639	$	574,935	$	127,981	$	0		$	702,916
Corporate bonds		18,407,211		1,697,265		(20,079	)		20,084,397		20,126,836		2,821,508		(533	)		22,947,811
Municipal bonds		6,538,883		518,059		(1,883	)		7,055,059		5,992,707		804,443		(496	)		6,796,654
Redeemable preferred stock		2,097,206		36,687		-			2,133,893		2,900,330		90,085		(200	)		2,990,215
Mortgage backed and asset backed securities		3,171,620		77,593		(2,309	)		3,246,904		4,189,710		50,274		(2	)		4,239,982
Total available for sale	$	30,823,397	$	2,353,766	$	(24,271	)	$	33,152,892	$	33,784,518	$	3,894,291	$	(1,231	)	$	37,677,578

The amortized cost and fair value of debt securities as of September 30, ~~2020~~ 2021 and December 31, ~~2019,~~ 2020, by contractual maturity, are shown ~~in the following table.~~below. 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, 2020				As of December 31, 2019				As of September 30, 2021				As of December 31, 2020
	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	$	100,957	$	103,352	$	99,987	$	100,239	$	274,728	$	275,215	$	373,590	$	379,823
After one year through five years		1,625,522		1,747,976		1,424,337		1,471,552		1,500,272		1,582,461		1,540,931		1,641,749
After five years through ten years		2,885,723		3,367,585		3,286,937		3,574,191		2,911,714		3,264,721		2,887,066		3,379,930
More than 10 years		21,040,912		24,451,616		20,743,310		22,626,113		21,772,109		24,066,426		21,892,891		25,045,879
Redeemable preferred stocks		3,015,598		2,983,086		2,097,206		2,133,893		3,071,658		3,124,639		2,900,330		2,990,215
Mortgage backed and asset backed securities		3,919,039		4,014,112		3,171,620		3,246,904		5,576,509		5,578,134		4,189,710		4,239,982
Total amortized cost and fair value	$	32,587,751	$	36,667,727	$	30,823,397	$	33,152,892	$	35,106,990	$	37,891,596	$	33,784,518	$	37,677,578

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Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Proceeds from the sale of securities, maturities, and asset paydowns ~~for~~in the ~~first~~ nine months ~~of 2020~~ ended September 30, 2021 and ~~2019~~2020 were ~~$5,371,229~~$3,371,416 and ~~$796,851~~$5,371,229, respectively. Realized gains and losses related to the sale of securities are summarized ~~below:~~as follows:

	Nine Months Ended September 30,						Nine Months Ended September 30,
	(unaudited)						(unaudited)
	2020			2019			2021			2020
Gross gains	$	119,173		$	4,601		$	218,411		$	119,173
Gross losses		(291,524	)		(18,586	)		(398	)		(291,524	)
Net security losses	$	(172,351	)	$	(13,985	)
Net realized gains (losses)							$	218,013		$	(172,351	)

Proceeds from the sale of securities, maturities, and asset paydowns ~~for~~in the three months ended September 30, ~~2020~~ 2021 and ~~2019~~2020 were ~~$766,220~~$460,583 and ~~$135,587~~$766,220, respectively. Realized gains and losses related to the sale of securities are summarized ~~below:~~as follows:

	Three Months Ended September 30,						Three Months Ended September 30,
	(unaudited)						(unaudited)
	2020			2019			2021		2020
Gross gains	$	54,266		$	650		$	2,400	$	54,266
Gross losses		(1,739	)		(107	)		0		(1,739	)
Net security gains	$	52,527		$	543
Net realized gains (losses)							$	2,400	$	52,527

Gross unrealized losses by duration ~~for available for sale securities~~ 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, 2020	(unaudited)
September 30, 2021																September 30, 2021
																	(unaudited)
Available for sale:
Fixed maturities:
Corporate bonds	$	1,379,313	$	(106,717	)	$	45,000	$	(4,966	)	$	1,424,313	$	(111,683	)		$	4,428,031	$	(194,441	)	$	0	$	0	$	4,428,031	$	(194,441	)
Municipal bonds		47,844		(103	)		-		-			47,844		(103	)			1,028,561		(15,738	)		0		0		1,028,561		(15,738	)
Redeemable preferred stock		2,280,348		(48,985	)		-		-			2,280,348		(48,985	)			540,975		(1,377	)		0		0		540,975		(1,377	)
Mortgage backed and asset backed securities		316,327		(11,179	)		-		-			316,327		(11,179	)			3,605,242		(35,429	)		0		0		3,605,242		(35,429	)
Total fixed maturities	$	4,023,832	$	(166,984	)	$	45,000	$	(4,966	)	$	4,068,832	$	(171,950	)		$	9,602,808	$	(246,985	)	$	0	$	0	$	9,602,808	$	(246,985	)

	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, 2019
December 31, 2020																December 31, 2020
Available for sale:
Fixed maturities:
Corporate bonds	$	967,848	$	(20,079	)	$	-	$	-		$	967,848	$	(20,079	)		$	210,625	$	(2	)	$	49,438	$	(531	)	$	260,063	$	(533	)
Municipal bonds		46,646		(1,883	)		-		-			46,646		(1,883	)			47,249		(496	)		0		0			47,249		(496	)
Redeemable preferred stock																		77,918		(200	)		0		0			77,918		(200	)
Mortgage backed and asset backed securities		-		-			296,576		(2,309	)		296,576		(2,309	)			309,144		(2	)		0		0			309,144		(2	)
Total fixed maturities	$	1,014,494	$	(21,962	)	$	296,576	$	(2,309	)	$	1,311,070	$	(24,271	)		$	644,936	$	(700	)	$	49,438	$	(531	)	$	694,374	$	(1,231	)

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 available for sale securities in the investment portfolio in an unrealized loss position as of September 30, ~~2020~~ 2021 was ~~22,~~62, which represented an unrealized loss of ~~$171,950~~$246,985 of the aggregate carrying value of those securities. The 2262 securities breakdown as follows: 729 bonds, 631 mortgage and asset backed securities, and 92 redeemable preferred ~~stocks.~~stock. The Company determined that no0 securities were considered to be other-than-temporarily impaired as of September 30, ~~2020~~ 2021 and December 31, ~~2019.~~2020.

1412

Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The Company has invested in various mortgage loans through participation agreements with the original issuing entity. The Company’s mortgage loans by property type as of September 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 are summarized as follows:

The Company utilizes loan-to-value of individual mortgage loans to evaluate the credit quality of its mortgage loan portfolio. The loan-to-value measures the loan's carrying value to its appraised value. The Company’s mortgage loans by loan-to-value ratio as of September 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 are summarized as follows:

The Company’s mortgage loans by maturity date as of September 30, ~~2020~~ 2021 and December 31, ~~2019~~ 2020 are summarized as follows:

The Company had 0 mortgage loans that were on non-accrued status as of September 30, 2021 and December 31, 2020. The were 0 mortgage loans delinquent on payments due the Company as of September 30, 2021 and December 31, 2020. In addition, the Company did not establish a valuation allowance on any mortgage loans.

The components of net investment income for the nine months ended September 30, ~~2020~~ 2021 and ~~2019~~2020 are as follows:

The components of net investment income for the three months ended September 30, ~~2020~~ 2021 and ~~2019~~2020 are as follows:

Accounting standards require that the unrealized gains and losses on equity securities be reported as income on the consolidated statements of comprehensive income (loss). For the nine months ended September 30, 2021, net investment losses is comprised of $63,119 of unrealized gains on our equity portfolio, net realized gains of $218,013, and a loss on the change in the fair value of our embedded derivative on funds withheld of $483,874. For the nine months ended September 30, 2020, net investment losses is comprised of $126,205 of unrealized losses on our equity portfolio, net realized losses of $172,351, and a loss on the change in the fair value of our embedded derivative on funds withheld of $138,529. For the three months ended September 30, 2021, net investment losses is comprised of $40,178 of unrealized losses on our equity portfolio, net realized gains of $2,400, and a loss on the change in the fair value of our embedded derivative on funds withheld of $238,754. For the three months ended September 30, 2020, net investment gains is comprised of $730,964 of unrealized gains on our equity portfolio, net realized gains of $52,527 and a gain on the change in the fair value of our embedded derivative on funds withheld of $138,529.

Note 3.3. Derivative Instruments

~~Accounting for Derivative Instruments~~

~~See Note 1 for a detailed description of the accounting treatment for derivative instruments, including embedded derivatives.~~

Types of Derivatives used by the Company

The Company’s derivatives ~~consists~~consist solely of embedded derivatives on funds withheld on coinsurance assets.

Summary of ~~Derivat~~iveDerivative Positions

The fair value of the Company’s derivative financial instruments on the consolidated balance sheets is as follows:

September 30, 2021

December 31, 2020

September 30, 2020

December 31, 2019

(unaudited)

Derivative

Balance

Derivative

Balance

Asset

Liability

Asset

Liability

Reported In

Asset

Liability

Asset

Liability

Reported In

(unaudited)

Derivatives:

Embedded derivatives:

Funds withheld embedded derivative

138,529

Funds withheld

169,420

653,294

Funds withheld

The following table shows the change in the fair value of the derivative financial instruments in the consolidated statements of comprehensive income:

Nine Months Ending

Balance

Period Ending

Balance

September 30,2020

September 30,2019

Reported In

September 30, 2021

September 30, 2020

Reported In

(unaudited)

(unaudited)

Derivatives:

Embedded derivatives:

Change in funds withheld embedded derivative

(138,529

)

Net investment gains (losses)

(483,874

)

(138,529

)

Net investment losses

~~Table of Contents~~

~~US Alliance Corporation~~

~~Notes to Consolidated Financial Statements (unaudited)~~

The ~~following~~ table below presents the amounts of assets measured at fair value on a recurring basis as of September 30, ~~2020~~ 2021 and December 31, ~~2019:~~2020:

The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3)3) are as follows:

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.

Investment income due and accrued: The carrying amounts approximate fair value because of the short maturity of these instruments.

Mortgage loans on real estate: Mortgage loans are carried at their unpaid principal value as that is considered the fair market values for these loans.

Funds withheld: The carrying value of funds withheld at interest approximates fair value as funds are specifically identified in the agreement. The fair value of the specified funds is based on the fair value of the underlying assets that are held by the ceding company. The ceding company uses a variety of sources and pricing methodologies, which are not transparent to the Company and may include significant unobservable inputs to value the securities held in distinct portfolios, therefore the valuation of these funds withheld assets are considered Level 3 in the fair value hierarchy.

Policy loans:Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of the underlying insurance policies, the carrying value of the policy loans approximates their fair value.

Federal Home Loan Bank Advances: FHLB advances are stated at the outstanding principal balances and the carrying value approximates fair 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 risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

The estimated fair values of the Company’s financial assets and liabilities at September 30, 2021 and December 31, 2020 are as follows:

I~~TEM~~ITEM 2. MANAGEMENT’M~~ANAGEMENT’S~~ D~~ISCUSSION~~S DISCUSSION AND A~~NALYSIS~~ ANALYSIS OF F~~INANCIAL~~ C~~ONDITION~~ FINANCIAL CONDITION AND R~~ESULTS~~ RESULTS OF O~~PERATIONS~~ 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”~~“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, including those relating to the ~~Covid-19~~COVID-19 pandemic, and 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.

~~US Alliance Corporation (“USAC”)~~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 five wholly-owned subsidiaries: USALSC, a life insurance corporation; DCLIC, a life insurance corporation; USALSC-Montana, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation. Unless the context indicates otherwise, ~~indicates,~~ references ~~in this report~~herein to ~~“we”, “us”, “our”, or~~ the ~~“Company”~~"Company" refer ~~collectively~~ to USAC and its consolidated subsidiaries.

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~~USAC merged with Northern Plains Capital Corporation ~~(“Northern Plains”)~~ with ~~the Company~~USAC being the ultimate surviving entity. As a result of this merger, the Company acquired Dakota Capital Life Insurance Company which became a wholly owned subsidiary of USALSC.

On December 14, 2018, ~~the Company~~USALSC 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 three 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, ~~2018,~~2017, the Company entered into a coinsurance agreement with American Life and Security Corporation ("ALSC") to assume 100% of a certain block of life insurance policies from ~~American Life and Security Company (“ALSC”~~ALSC (the “2017 ALSC Agreement”). On April 15, 2020, with an effective date of January 1, 2020, the Company entered into a second coinsurance agreement with ALSC (the “2020 ALSC Agreement”) to assume a quota share percentage of a block of annuity policies. As of ~~September 30,~~December 31, 2020, the Company had assumed ~~$50.2~~$50.1 million in annuity deposits under the 2020 ALSC Agreement. Effective December 31, 2020, USALSC entered into an agreement with ALSC to amend the 2017 ALSC Agreement, which provided for ALSC to recapture all reserves previously ceded to USALSC with respect to a portion of the 2017 ALSC Agreement. USALSC and ASLC agreed that the commuted business shall be discharged by USALSC’s transfer of invested assets and cash in the amount of $9,181,100. As part of the transaction the Company released $10,972,785 in reserve liabilities and $1,146,156 of deferred acquisition costs, resulting in a commutation gain of $543,794, which is recorded in other income.

Our accounting and reporting policies are in accordance with GAAP. ~~Our estimates may vary as more information about the extent to which Covid-19 and the resulting impact on economic conditions and the financial markets become known.~~ 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 quarterly report.

The Company's principal investments are in fixed maturity, mortgages, and equity securities. ~~Fixed maturity securities, classified as available~~Available for sale ~~and equity~~fixed maturity securities are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in comprehensive ~~income (loss).~~income. Our fixed income investment ~~manager utilizes~~managers, New England Asset Management, Inc. and 1505 Capital LLC, utilize 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 decline 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~~Our investment ~~manager, provides~~managers, provide 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 intend 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. Our membership in the Federal Home Loan Bank ("FHLB") provides additional liquidity which further reduces the likelihood that we would be required to sell a security prior to recovery. 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 ~~income.~~loss.

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 ~~(VOBA)~~("VOBA") represents the estimated value assigned to purchased companies or insurance inin- force of the assumed policy obligations at the date of acquisition of a block of policies. At least annually, a review is performed onof the models and the assumptions used to develop expected future profits, based upon management’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 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.

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.

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 policy 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.

Deferred tax assets are recorded 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.

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.

The Company has entered into coinsurance funds withheld arrangement with ALSC which contains an embedded derivative. Under ASC 815, the Company assesses whether the embedded derivative is clearly and closely related to the host contract. The Company bifurcates embedded derivatives from the host instrument for measurement purposes when the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract and a separate instrument with the same terms would qualify as a derivative instrument. Embedded derivatives, which are reported with the host instrument on the consolidated balance sheets in funds withheld under coinsurance agreement, are reported at fair value with changes in fair value recognized in the consolidated statements of comprehensive income (loss) in net investment gains (losses).

Funds withheld under coinsurance agreement represent amounts contractually withheld by a ceding company in accordance with ~~a reinsurance agreement entered into in 2020.~~the 2020 ALSC Agreement. For agreements written on a coinsurance funds withheld basis, assets that support the net statutory reserves or as defined by the treaty, are withheld and legally owned by the ceding company. Interest is recorded in net investment income, net of related expenses, in the consolidated statements of ~~income (loss).~~income. Funds withheld under coinsurance agreement are presented net of the embedded ~~Derivative,~~derivative, discussed above. Under the terms of the ~~coinsurance agreement~~2020 ALSC Agreement, the Company may assume custody of the assets in the funds withheld account once the Company attains its "Qualified Institutional Buyer" designation (as that term is defined in Rule 144A under the Securities Act of 1933, as ~~amended,~~amended), which is currently anticipated to be achieved in the ~~first~~fourth quarter of 2021. The Company will record the funds withheld assets at fair value on the date of transfer, which will eliminate the embedded derivative component associated with the ~~coinsurance agreement.~~2020 ALSC Agreement.

Mortgage loans on real estate are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances. Interest income is accrued on the principal amount of the mortgage loans based on its contractual interest rate. Amortization of premiums and discounts is recorded using the effective yield method. The Company accrues interest on loans until probable the Company will not receive interest or the loan is 90 days past due. Interest income, amortization of premiums, accretion of discounts and prepayment fees are reported in investment income, net of related expenses in the consolidated statements of comprehensive income (loss).

Any interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the collectibility of the loan. Mortgage loans deemed to be uncollectible or that have been foreclosed are charged off against the valuation allowances and subsequent recoveries, if any, are credited to the valuation allowances. Changes in valuation allowances are reported in net investment gains (losses) on the consolidated statements of comprehensive income (loss).

On May 23, 2017 ~~the Company~~USAC entered into a definitive merger agreement with Northern Plains Capital Corporation. The merger transaction closed on July 31, 2017. ~~Northern Plains~~NPCC shareholders received .5841 shares of US Alliance Corporation stock for each share of ~~Northern Plains~~NPCC stock owned. USAC issued 1,644,458 shares of common stock to holders of ~~Northern Plains~~NPCC shares.

On October 11, 2018 ~~the Company~~USALSC 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.

Effective December 31, 2020, the DCLIC acquired a block of life insurance policies according to the terms of an assumption agreement with ALSC. The Company acquired fixed maturity securities and cash of $9,181,100, assumed liabilities of $10,972,785 and recorded VOBA of $2,163,542.

A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. 9 of this quarterly report.

~~Revenues~~.Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 are summarized in the table below.

US ALLIANCE CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Part I - Financial Information

Item	Item Description	Page
Item 1	Financial Statements	3

	Consolidated Balance Sheets	3

	Consolidated Statements of Comprehensive Income (Loss)	4

	Consolidated Statements of Changes in Shareholders' Equity	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	8

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	21

Item 3	Quantitative and Qualitative Disclosures About Market Risk	3435

Item 4	Controls and Procedures	3435

Part II - Other Information

Item	Item Description	Page
Item 1	Legal Proceedings	3536

Item 1A	Risk Factors	3536

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3536

Item 3	Defaults Upon Senior Securities	3536

Item 4	Mine Safety Disclosures	3536

Item 5	Other Information	35

~~Item 6~~	~~Exhibits~~	36

Item 6	~~Signatures~~Exhibits	3736

	Signatures	37

	September 30, 2020			December 31, 2019			September 30, 2021			December 31, 2020
		(unaudited)					(unaudited)
Assets
Investments:
Available for sale fixed maturity securities (amortized cost: $32,587,751 and $30,823,397 as of September 30, 2020 and December 31, 2019, respectively)	$	36,667,727		$	33,152,892
Available for sale fixed maturity securities (amortized cost: $35,106,990 and $33,784,518 as of September 30, 2021 and December 31, 2020, respectively)							$	37,891,596		$	37,677,578
Equity securities, at fair value		10,123,484			10,141,503			9,722,640			9,221,574
Mortgage loans on real estate		2,311,931			-			3,775,432			3,166,136
Funds withheld under coinsurance agreement, at fair value		45,330,710			-			48,074,917			46,830,076
Policy loans		163,725			118,930			178,545			163,725
Real estate, net of depreciation								1,410,493			1,415,743
Total investments		94,597,577			43,413,325			101,053,623			98,474,832

Cash and cash equivalents		5,184,510			6,678,805			7,678,829			4,320,759
Investment income due and accrued		370,342			321,362			632,825			423,036
Reinsurance related assets		62,498			188,382			0			165,082
Deferred acquisition costs, net		8,394,478			2,652,674			6,533,590			7,105,890
Value of business acquired, net		544,767			559,994			2,633,918			2,703,233
Property, equipment and software, net		36,163			43,841			95,194			37,818
Goodwill		277,542			277,542			277,542			277,542
Deferred tax asset, net of valuation allowance		431,158			431,158			243,257			243,257
Other assets		722,840			372,166			662,049			1,635,647
Total assets	$	110,621,875		$	54,939,249		$	119,810,827		$	115,387,096


Liabilities and Shareholders' Equity
Liabilities:
Policy liabilities:
Policy liabilities
Deposit-type contracts	$	71,662,245		$	19,396,614		$	75,107,753		$	72,082,207
Policyholder benefit reserves		19,921,816			17,326,524			24,451,244			21,158,568
Dividend accumulation		115,205			123,038			118,943			116,127
Advance premiums		122,415			78,709			127,046			102,178
Total policy liabilities		91,821,681			36,924,885			99,804,986			93,459,080

Accounts payable and accrued expenses		143,522			122,981			151,668			1,507,756
Federal Home Loan Bank advance		2,000,000			1,000,000			2,000,000			2,000,000
Other liabilities		180,976			15,186			839,290			15,469
Total liabilities		94,146,179			38,063,052			102,795,944			96,982,305

Shareholders' Equity:
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,741,358 and 7,734,004 shares as of September 30, 2020 and December 31, 2019, respectively		774,137			773,401
Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,745,404 and 7,741,487 shares as of September 30, 2021 and December 31, 2020, respectively								774,541			774,150
Additional paid-in capital		23,116,136			23,210,257			22,964,592			23,063,273
Accumulated deficit		(11,494,544	)		(9,436,956	)		(9,185,872	)		(8,997,507	)
Accumulated other comprehensive income		4,079,967			2,329,495			2,461,622			3,564,875
Total shareholders' equity		16,475,696			16,876,197			17,014,883			18,404,791

Total liabilities and shareholders' equity	$	110,621,875		$	54,939,249		$	119,810,827		$	115,387,096

	Nine Months Ended September 30,					Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,
	2020			2019		2020			2019			2021			2020			2021			2020
	(unaudited)					(unaudited)						(unaudited)						(unaudited)
Income:
Premium income	$	7,631,621		$	6,983,705	$	2,547,843		$	2,063,015		$	9,212,137		$	7,631,621		$	2,860,039		$	2,547,843
Net investment income		2,322,169			1,303,757		1,066,158			442,719			4,143,127			2,322,169			1,511,555			1,066,158
Net investment gains (losses)		(437,085	)		937,590		922,020			106,301			(202,742	)		(437,085	)		(276,532	)		922,020
Other income		48,232			40,454		20,524			15,396			237,901			48,232			80,497			20,524
Total income		9,564,937			9,265,506		4,556,545			2,627,431			13,390,423			9,564,937			4,175,559			4,556,545

Expenses:
Death claims		1,316,831			1,022,585		394,175			298,269			1,702,615			1,316,831			600,819			394,175
Policyholder benefits		3,949,421			3,267,898		1,301,716			962,603			4,783,193			3,949,421			1,334,405			1,301,716
Increase in policyholder reserves		2,574,776			1,997,786		962,083			560,128			3,310,238			2,574,776			977,997			962,083
Commissions, net of deferrals		536,257			571,543		164,687			157,944			542,536			536,257			169,075			164,687
Amortization of deferred acquisition costs		757,333			293,032		9,961			112,305			916,698			757,333			361,833			9,961
Amortization of value of business acquired		15,227			15,228		5,076			5,076			69,315			15,227			23,105			5,076
Salaries & benefits		780,626			773,400		263,541			270,673			890,615			780,626			352,421			263,541
Other operating expenses		1,692,054			940,502		383,151			217,987			1,363,578			1,692,054			422,753			383,151
Total expense		11,622,525			8,881,974		3,484,390			2,584,985			13,578,788			11,622,525			4,242,408			3,484,390


Net income (loss)	$	(2,057,588	)	$	383,532	$	1,072,155		$	42,446		$	(188,365	)	$	(2,057,588	)	$	(66,849	)	$	1,072,155

Net income (loss) per common share, basic and diluted	$	(0.27	)	$	0.05	$	0.14		$	0.01		$	(0.02	)	$	(0.27	)	$	(0.01	)	$	0.14

Unrealized net holding gains arising during the period		1,819,318			2,480,863		571,875			993,217
Reclassification adjustment for (gains) losses included in net loss		(68,846	)		13,985		(9,157	)		(543	)
Unrealized net holding gains (losses) arising during the period													(987,801	)		1,819,318			(201,627	)		571,875
Reclassification adjustment for gains included in net income (loss)													(115,452	)		(68,846	)		(2,403	)		(9,157	)

Other comprehensive income		1,750,472			2,494,848		562,718			992,674
Other comprehensive income (loss)													(1,103,253	)		1,750,472			(204,030	)		562,718

Comprehensive income (loss)	$	(307,116	)	$	2,878,380	$	1,634,873		$	1,035,120		$	(1,291,618	)	$	(307,116	)	$	(270,879	)	$	1,634,873

								Accumulated
	Number of							Other
	Shares of		Common		Additional			Comprehensive			Accumulated
	Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total
Balance, December 31, 2019		7,734,004	$	773,401	$	23,210,257		$	2,329,495		$	(9,436,956	)	$	16,876,197
Common stock issued, $7 per share		7,354		736		50,742			0			0			51,478
Costs associated with common stock issued		-		0		(144,863	)		0			0			(144,863	)
Other comprehensive income		-		0		0			1,750,472			0			1,750,472
Net loss		-		0		0			0			(2,057,588	)		(2,057,588	)
Balance, September 30, 2020		7,741,358	$	774,137	$	23,116,136		$	4,079,967		$	(11,494,544	)	$	16,475,696

Balance, December 31, 2020		7,741,487	$	774,150	$	23,063,273		$	3,564,875		$	(8,997,507	)	$	18,404,791
Common stock issued, $7 per share		3,917		391		27,028			0			0			27,419
Costs associated with common stock issued		-		0		(125,709	)		0			0			(125,709	)
Other comprehensive loss		-		0		0			(1,103,253	)		0			(1,103,253	)
Net loss		-		0		0			0			(188,365	)		(188,365	)
Balance, September 30, 2021		7,745,404	$	774,541	$	22,964,592		$	2,461,622		$	(9,185,872	)	$	17,014,883

								Accumulated																Accumulated
	Number of							Other									Number of							Other
	Shares of		Common		Additional			Comprehensive			Accumulated						Shares of		Common		Additional			Comprehensive			Accumulated
	Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total			Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total
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		82,019		8,202		565,931			-			-			574,133
Costs associated with common stock issued		-		-		(300,981	)		-			-			(300,981	)
Cumulative effect, adoption of accounting guidance for equity securities		-		-		-			1,098,760			(1,098,760	)		-
Other comprehensive income		-		-		-			3,580,517			-			3,580,517
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

Balance, December 31, 2019		7,734,004	$	773,401	$	23,210,257		$	2,329,495		$	(9,436,956	)	$	16,876,197
Balance, June 30, 2020																		7,741,229	$	774,124	$	23,161,098		$	3,517,249		$	(12,566,699	)	$	14,885,772
Common stock issued, $7 per share		7,354		736		50,742			-			-			51,478			129		13		890			0			0			903
Costs associated with common stock issued		-		-		(144,863	)		-			-			(144,863	)		-		0		(45,852	)		0			0			(45,852	)
Other comprehensive income		-		-		-			1,750,472			-			1,750,472			-		0		0			562,718			0			562,718
Net income																		-		0		0			0			1,072,155			1,072,155
Balance, September 30, 2020																		7,741,358	$	774,137	$	23,116,136		$	4,079,967		$	(11,494,544	)	$	16,475,696

Balance, June 30, 2021																		7,745,404	$	774,541	$	22,998,144		$	2,665,652		$	(9,119,023	)	$	17,319,314
Common stock issued, $7 per share																		-		0		0			0			0			0
Costs associated with common stock issued																		-		0		(33,552	)		0			0			(33,552	)
Other comprehensive loss																		-		0		0			(204,030	)		0			(204,030	)
Net loss		-		-		-			-			(2,057,588	)		(2,057,588	)		-		0		0			0			(66,849	)		(66,849	)
Balance, September 30, 2020		7,741,358	$	774,137	$	23,116,136		$	4,079,967		$	(11,494,544	)	$	16,475,696
Balance, September 30, 2021																		7,745,404	$	774,541	$	22,964,592		$	2,461,622		$	(9,185,872	)	$	17,014,883

	September 30,2020		December 31, 2019		September 30, 2021		December 31, 2020
	(unaudited)				(unaudited)
Commercial mortgage loans by property type
Student housing	$	781,512	$	-	$	0	$	781,512
Condominium		1,352,435		-		2,003,705		1,874,445
Multi-property						1,235,750		332,195
Multi-family		177,984		-		535,977		177,984
Total commercial mortgages	$	2,311,931	$	-	$	3,775,432	$	3,166,136

	Nine Months Ended September 30,
	2020			2019
	(unaudited)
Fixed maturities	$	889,563		$	873,443
Mortgages		61,438			-
Equity securities		487,777			440,426
Funds withheld		962,023			-
Cash and cash equivalents		12,240			23,772
		2,413,041			1,337,641
Less investment expenses		(90,872	)		(33,884	)
	$	2,322,169		$	1,303,757

	Nine Months Ended September 30,
	2021			2020
	(unaudited)
Fixed maturities	$	834,464		$	889,563
Mortgages		281,718			61,438
Equity securities		453,809			487,777
Funds withheld		2,675,956			962,023
Cash and cash equivalents		1,285			12,240
		4,247,232			2,413,041
Less investment expenses		(104,105	)		(90,872	)
	$	4,143,127		$	2,322,169

	Three Months Ended September 30,
	2021			2020
	(unaudited)
Fixed maturities	$	280,823		$	272,145
Mortgages		92,459			55,587
Equity securities		151,168			198,327
Funds withheld		1,026,680			597,990
Cash and cash equivalents		417			864
		1,551,547			1,124,913
Less investment expenses		(39,992	)		(58,755	)
	$	1,511,555		$	1,066,158

	December 31, 2020
	Total		Level 1		Level 2		Level 3

Fixed maturities:
US Treasury securities	$	702,916	$	702,916	$	0	$	0
Corporate bonds		22,947,811		0		22,761,011		186,800
Municipal bonds		6,796,654		0		6,796,654		0
Redeemable preferred stock		2,990,215		0		2,990,215		0
Mortgage backed and asset backed securities		4,239,982		0		4,239,982		0
Total fixed maturities		37,677,578		702,916		36,787,862		186,800
Equities:
Common stock		6,808,944		6,717,144		91,800		0
Preferred stock		2,412,630		0		2,412,630		0
Total equities		9,221,574		6,717,144		2,504,430		0
Funds withheld embedded derivative		653,294		0		0		653,294
Total	$	47,552,446	$	7,420,060	$	39,292,292	$	840,094

For the Nine Months Ended September 30, 2020	Corporate			Funds
	Bonds			Withheld
Fair value, beginning of period	$	191,600		$	-
Principal payment		(4,800	)		-
Investment related (losses), net		-			(138,529	)
Fair value, end of period	$	186,800		$	(138,529	)

For the Three Months Ended September 30, 2020	Corporate			Funds
For the Nine Months Ended September 30, 2021							Corporate			Funds
	Bonds			Withheld			Bonds			Withheld
Fair value, beginning of period	$	191,600		$	(637,033	)	$	186,800		$	653,294
Principal payment		(4,800	)		-			(5,200	)		0
Investment related gains (losses), net		-			498,504
Investment related losses								0			(483,874	)
Fair value, end of period	$	186,800		$	(138,529	)	$	181,600		$	169,420

	December 31, 2019

	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Financial Assets:
Cash and cash equivalents	$	6,678,805	$	6,678,805	$	6,678,805	$	-	$	-
Investment income due and accrued		321,362		321,362		-		321,362		-
Policy loans		118,930		118,930		-		-		118,930
Total Financial Assets (excluding available for sale investments)	$	7,119,097	$	7,119,097	$	6,678,805	$	321,362	$	118,930

Financial Liabilities:
Federal Home Loan Bank advance	$	1,000,000	$	1,000,000	$	-	$	-	$	1,000,000
Policyholder deposits in deposit-type contracts		19,396,614		19,186,265		-		-		19,186,265
Total Financial Liabilities	$	20,396,614	$	20,186,265	$	-	$	-	$	20,186,265

	Three Months ended September 30,
	2020			2019
	(unaudited)
Direct	$	1,824,908		$	1,265,253
Assumed		955,873			979,880
Ceded		(232,938	)		(182,118	)
Total	$	2,547,843		$	2,063,015

	September 30, 2020					December 31, 2019
	Fair		Percent			Fair		Percent
	Value		of Total			Value		of Total
	(unaudited)
Fixed maturities:
US Treasury securities	$	696,932		0.7	%	$	632,639		1.3	%
Corporate bonds		22,102,425		22.2	%		20,084,397		40.2	%
Municipal bonds		6,871,172		6.9	%		7,055,059		14.1	%
Redeemable preferred stocks		2,983,086		3.0	%		2,133,893		4.3	%
Mortgage backed and asset backed securities		4,014,112		4.0	%		3,246,904		6.5	%
Total fixed maturities		36,667,727		36.8	%		33,152,892		66.3	%
Mortgage loans		2,311,931		2.3	%		-		0.0	%
Equities:
Common stock		7,876,172		7.9	%		9,214,694		18.4	%
Preferred stock		2,247,312		2.3	%		926,809		1.9	%
Total equities		10,123,484		10.2	%		10,141,503		20.3	%
Funds withheld		45,330,710		45.5	%		-		0.0	%
Cash and cash equivalents		5,184,510		5.2	%		6,678,805		13.4	%
Total	$	99,618,362		100.0	%	$	49,973,200		100.0	%

	September 30, 2021					December 31, 2020
	Carrying		Percent			Carrying		Percent
	Value		of Total			Value		of Total
	(unaudited)
Fixed maturities:
US Treasury securities	$	702,759		0.6	%	$	702,916		0.7	%
Corporate bonds		21,519,948		19.8	%		22,947,811		22.4	%
Municipal bonds		6,966,116		6.4	%		6,796,654		6.6	%
Redeemable preferred stocks		3,124,639		2.9	%		2,990,215		2.9	%
Mortgage backed and asset backed securities		5,578,134		5.1	%		4,239,982		4.1	%
Total fixed maturities		37,891,596		34.8	%		37,677,578		36.7	%
Mortgage loans		3,775,432		3.5	%		3,166,136		3.1	%
Equities:
Common stock		7,254,692		6.7	%		6,808,944		6.6	%
Preferred stock		2,467,948		2.3	%		2,412,630		2.4	%
Total equities		9,722,640		9.0	%		9,221,574		9.0	%
Funds withheld		48,074,917		44.3	%		46,830,076		45.6	%
Real estate, net of depreciation		1,410,493		1.3	%		1,415,743		1.4	%
Cash and cash equivalents		7,678,829		7.1	%		4,320,759		4.2	%
Total	$	108,553,907		100.0	%	$	102,631,866		100.0	%

~~ITEM 6.~~	~~EXHIBITS~~

3.1	Articles of Incorporation of US Alliance Corporation (filed as Exhibit 3.1 to the Company’s Registration Statement on Form 10 filed on May 2, 2016 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1)

3.1.1	First Amendment to Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.1 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference a Exhibit 3.1.1.

3.1.2	Second Amendment to Articles of Incorporation of US Alliance Corporation, filed as Exhibit 3.1.2 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1.2.

3.2	Bylaws of US Alliance Corporation (filed as Exhibit 3.2 to the Company’s Registration Statement on Form 10 filed on May 2, 2016 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.2).

3.2.1	Amendment No. 1. to the bylaws of US Alliance Corporation, filed as Exhibit 3.2.1 to the Company's Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.2.1.

10.1*	Employment Agreement dated September 28, 2021 between US Alliance Corporation and Jack Brown, filed as Exhibit 10.1 to the Company's current Report on Form 8-K filed on October 1, 2021 (File No. 000-55627), is incorporated herein by reference as Exhibit 10.1.

31.1**	Certification of Chief Executive Officer of US Alliance Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2**	Certification of Principal Financial Officer of US Alliance Corporation pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**	Certifications of the Chief Executive Officer of US Alliance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**	Certifications of the Principal Financial Officer of US Alliance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS***	Inline XBRL Instance

101.SCH***	Inline XBRL Taxonomy Extension Schema

101.CAL***	Inline XBRL Taxonomy Extension Calculation

101.DEF***	Inline XBRL Taxonomy Extension Definition

101.LAB***	Inline XBRL Taxonomy Extension Labels

101.PRE***	Inline XBRL Taxonomy ~~Extention~~Extension Presentation

104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)