Table of Contents

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 ended SeptemberMarch 301, 20189.

 

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: 000-55627

 

US ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)

US ALLIANCE CORPORATION

KANSAS
26-4824142

(Exact name of registrant as specified in its charter)

KANSAS

26-4824142

(State or other jurisdiction of incorporation or organization)

(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

(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. [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 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) of the Exchange Act. [   ]

 

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ]Yes [ X ] 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

7,609,4237,700,322 shares outstanding

as of November 2, 2018May 8, 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

 

1

 

 

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 Loss

 

4

     
  

Consolidated Statements of Changes in Shareholders' Equity

 

5

     
  

Consolidated Statements of Cash Flows

 

6

     
  

Supplemental Cash Flow Disclosure

7

Notes to Consolidated Financial Statements

 

87

     

Item 2

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

1716

     

Item 3

 

Quantitative and Qualitative Disclosures About Market Risk

 

2825

     

Item 4

 

Controls and Procedures

 

2825

     

Part II - Other Information

     

Item

 

Item Description

 

Page

Item 1

 

Legal Proceedings

 

2925

     

Item 1A

 

Risk Factors

 

2926

     

Item 2

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

2926

     

Item 3

 

Defaults Upon Senior Securities

 

2926

     

Item 4

 

Mine Safety Disclosures

 

2926

     

Item 5

 

Other Information

 

2926

     

Item 6

 

Exhibits

 

3026

     
  

Signatures

 

3027

 

2

 

 

ITEM 1.      FINANCIAL STATEMENTS

 

US Alliance Corporation

Consolidated Balance Sheets

 

 

September 30, 2018

  

December 31, 2017

  

March 31, 2019

  

December 31, 2018

 
 

(unaudited)

      

(unaudited)

     

Assets

             

Investments:

                

Available for sale fixed maturity securities (amortized cost: $25,080,788 and $22,439,705 as of September 30, 2018 and December 31, 2017, respectively)

 $24,135,704  $22,945,700 

Available for sale equity securities (cost: $11,818,671 and $10,764,072 as of September 30, 2018 and December 31, 2017, respectively)

  11,521,657   10,663,515 

Available for sale fixed maturity securities (amortized cost: $28,510,195 and $27,957,697 as of March 31, 2019 and December 31, 2018, respectively)

 $28,671,748  $26,882,239 

Available for sale equity securities (cost: $12,269,679 and $12,096,488 as of March 31, 2019 and December 31, 2018, respectively)

  11,895,466   10,987,539 

Policy loans

  42,436   33,975   57,435   56,539 

Total investments

  35,699,797   33,643,190   40,624,649   37,926,317 
                

Cash and cash equivalents

  1,981,829   651,809   2,485,374   2,077,646 

Investment income due and accrued

  265,766   214,998   311,398   286,890 

Reinsurance related assets

  168,926   249,879   101,315   161,846 

Deferred acquisition costs, net

  2,829,688   2,963,057   2,769,464   2,757,404 

Value of business acquired, net

  585,373   600,601   575,221   580,297 

Property, equipment and software, net

  199,804   221,077   51,519   54,078 

Goodwill

  277,542   277,542   277,542   277,542 

Other assets

  100,611   166,184   389,936   406,969 

Total assets

 $42,109,336  $38,988,337  $47,586,418  $44,528,989 
                
                

Liabilities and Shareholders' Equity

                

Liabilities:

                

Policy liabilities

                

Deposit-type contracts

 $15,637,161  $13,448,891  $17,280,482  $16,626,218 

Policyholder benefit reserves

  13,629,608   11,488,979   15,329,070   14,697,519 

Dividend accumulation

  166,537   176,056 

Advance premiums

  44,933   7,507   50,149   56,736 

Total policy liabilities

  29,311,702   24,945,377   32,826,238   31,556,529 
                

Accounts payable and accrued expenses

  89,351   98,382   323,545   311,082 

Other liabilities

  188,807   8,876   25,433   28,712 

Total liabilities

  29,589,860   25,052,635   33,175,216   31,896,323 
                

Shareholders' Equity:

                

Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,515,492 and 7,310,939 shares as of September 30, 2018 and December 31, 2017, respectively

  751,550   731,095 

Common stock, $0.10 par value. Authorized 20,000,000 shares; issued and outstanding 7,693,408 and 7,650,551 shares as of March 31, 2019 and December 31, 2018, respectively

  769,342   765,056 

Additional paid-in capital

  22,274,765   21,280,437   23,142,047   22,989,443 

Accumulated deficit

  (9,264,741)  (8,481,268)  (9,660,296)  (8,937,404)

Accumulated other comprehensive income

  (1,242,098)  405,438 

Accumulated other comprehensive income (loss)

  160,109   (2,184,429)

Total shareholders' equity

  12,519,476   13,935,702   14,411,202   12,632,666 
                

Total liabilities and shareholders' equity

 $42,109,336  $38,988,337  $47,586,418  $44,528,989 

 

See Notes to Consolidated Financial Statements (unaudited).Statements.

 

3

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US Alliance Corporation

Consolidated Statements of Comprehensive LossIncome (Loss)

 

 

Nine Months Ended September 30,

  

Three Months Ended September 30,

  

Three Months Ended March 31,

 
 

2018

  

2017

  

2018

  

2017

  

2019

  

2018

 
 (unaudited) (unaudited)  (unaudited) 

Income:

 

 

  

 

    

Premium income

 $6,651,103  $8,902,208  $1,776,623  $5,169,638  $2,392,976  $2,432,096 

Net investment income

  1,047,330   485,147   370,207   189,028   397,646   311,560 

Net realized gain (loss) on sale of securities

  (327)  435,392   -   226,890 

Unrealized gain on equity securites

  727,203   - 

Other income

  27,648   40,656   11,654   1,201   12,799   9,246 

Total income

  7,725,754   9,863,403   2,158,484   5,586,757   3,530,624   2,752,902 
                        

Expenses:

                        

Death claims

  633,206   624,864   228,994   152,234   395,667   235,374 

Policyholder benefits

  3,056,358   2,609,324   740,579   479,965   1,136,828   1,127,682 

Increase in policyholder reserves

  2,112,259   5,205,124   604,647   4,357,257   680,560   796,636 

Commissions, net of deferrals

  440,391   362,585   120,413   97,151   219,535   152,157 

Amortization of deferred acquisition costs

  313,860   136,709   103,246   52,484   62,902   90,355 

Amortization of value of business acquired

  15,228   3,384   5,076   3,384   5,076   5,076 

Salaries & benefits

  781,952   627,286   238,612   244,143   251,832   274,848 

Other operating expenses

  1,155,973   887,230   320,804   278,795   402,356   473,532 

Total expense

  8,509,227   10,456,506   2,362,371   5,665,413   3,154,756   3,155,660 
                        

Net loss

 $(783,473) $(593,103) $(203,887) $(78,656)

Net lncome (loss)

 $375,868  $(402,758)
                        

Net loss per common share, basic and diluted

 $(0.11) $(0.10) $(0.03) $(0.01)

Net income (loss) per common share, basic and diluted

 $0.05  $(0.05)
                        

Unrealized net holding gains (losses) arising during the period

  (1,647,863)  488,085   (143,416)  19,839   1,245,778   (988,946)

Reclassification adjustment for (gains) losses included in net loss

  327   (435,392)  -   (226,890)

Cumulative effect, adoption of accounting guidance on equity securities

  1,098,760   - 

Other comprehensive income (loss)

  (1,647,536)  52,693   (143,416)  (207,051)  2,344,538   (988,946)
                        

Comprehensive loss

 $(2,431,009) $(540,410) $(347,303) $(285,707)

Comprehensive income (loss)

 $2,720,406  $(1,391,704)

 

See Notes to Consolidated Financial Statements (unaudited).Statements.

 

4

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US Alliance Corporation

Consolidated Statements of Changes in Shareholders' Equity

Nine MonthsPeriods Ended September 30,March 31, 2019 and 2018 and 2017 (Unaudited)(unaudited)

 

             

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

 

Balance, December 31, 2016

  5,565,943  $556,595  $18,017,163  $239,461  $(7,432,236) $11,380,983 

Common stock issued, $7 per share

  85,950   8,595   593,055   -   -   601,650 

Costs associated with common stock issued

  -   -   (223,394)  -   -   (223,394)

Common Stock issued, Northern Plains Capital Corporation merger

  1,644,458   164,446   2,932,934           3,097,380 

Other comprehensive income

  -   -   -   52,693   -   52,693 

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 
                         

Common Stock

  

Stock

  

Paid-in Capital

  

Income / (Loss)

  

Deficit

  

Total

 

Balance, December 31, 2017

  7,310,939  $731,095  $21,280,437  $405,438  $(8,481,268) $13,935,702   7,310,939  $731,095  $21,280,437  $405,438  $(8,481,268) $13,935,702 

Common stock issued, $7 per share

  204,553   20,455   1,411,416   -   -   1,431,871   46,218   4,622   318,905   -   -   323,527 

Costs associated with common stock issued

  -   -   (417,088)  -   -   (417,088)  -   -   (119,716)  -   -   (119,716)

Other comprehensive loss

  -   -   -   (1,647,536)  -   (1,647,536)  -   -   -   (988,946)  -   (988,946)

Net loss

  -   -   -   -   (783,473)  (783,473)  -   -   -   -   (402,758)  (402,758)

Balance, September 30, 2018

  7,515,492  $751,550  $22,274,765  $(1,242,098) $(9,264,741) $12,519,476 

Balance, March 31, 2018

  7,357,157  $735,717  $21,479,626  $(583,508) $(8,884,026) $12,747,809 
                        

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

  42,857   4,286   295,713   -   -   299,999 

Costs associated with common stock issued

  -   -   (143,109)  -   -   (143,109)

Cumulative effect, adoption of accounting guidance for equity sercurities

  -   -   -   -   (1,098,760)  (1,098,760)

Other comprehensive income

  -   -   -   2,344,538   -   2,344,538 

Net income

  -   -   -   -   375,868   375,868 

Balance, March 31, 2019

  7,693,408  $769,342  $23,142,047  $160,109  $(9,660,296) $14,411,202 

 

See Notes to Consolidated Financial Statements (unaudited).Statements.

 

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US Alliance Corporation

Consolidated Statements of Cash Flows

 

 

Nine Months Ended September 30,

  

Period Ended March 31,

 
 

2018

  

2017

  

2019

  

2018

 
 (unaudited)  

(unaudited)

 

Cash Flows from Operating Activities:

 

 

         

Net loss

 $(783,473) $(593,103)

Adjustments to reconcile net loss to net cash provided by operating activities:

        

Net income (loss)

 $375,868  $(402,758)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Depreciation and amortization

  26,606   26,031   2,559   8,805 

Net realized (gains) losses on the sale of securities

  327   (435,392)

Unrealized gain on equity securities

  (727,203)  - 

Amortization of investment securities, net

  42,394   27,429   11,881   13,947 

Deferred acquisition costs capitalized

  (216,426)  (204,620)  (74,962)  (64,638)

Deferred acquisition costs amortized

  313,860   136,709   62,903   90,355 

Value of business acquired amortized

  15,228   3,384   5,076   5,076 

Interest credited on deposit type contracts

  409,794   110,097   160,494   131,779 

(Increase) decrease in operating assets:

                

Investment income due and accrued

  (50,768)  9,315   (24,508)  (22,934)

Reinsurance related assets

  80,953   (8,294)  60,531   66,976 

Other assets

  65,573   (132,357)  17,033   33,164 

Increase (decrease) in operating liabilities:

                

Policyowner benefit reserves

  2,140,629   1,284,750   631,551   736,552 

Dividend accumulation

  (9,519)  - 

Advance premiums

  37,426   92,016   (6,587)  58,942 

Other liabilities

  5,929   3,600   (3,279)  6,833 

Accounts payable and accrued expenses

  (9,031)  (32,519)  12,463   (624)

Net cash provided by operating activities

  2,079,021   287,046   494,301   661,475 
                

Cash Flows from Investing Activities:

                

Available-for-sale securities

                

Purchase of fixed income investments

  (2,756,884)  (4,629,966)  (615,289)  (715,128)

Purchase of equity investments

  (1,055,592)  (4,669,164)  (173,630)  (300,175)

Proceeds from fixed income sales and repayments

  248,077   3,081,710   52,582   28,126 

Proceeds from equity sales and repayments

  -   4,439,235 

Interest on policy loans

  (1,842)  -   (674)  (619)

Increase in policy loans

  (6,619)  -   (222)  1,330 

Acquisition of Northern Plains Capital Corporation

  -   1,079,627 

Assumed reinsurance from American Life & Security Corporation

  -   6,895,145 

Purchase of property, equipment and software

  (5,334)  (11,121)

Net cash provided by (used in) investing activities

  (3,578,194)  6,185,466 

Net cash used in investing activities

  (737,233)  (986,466)
                

Cash Flows from Financing Activities:

                

Receipts on deposit-type contracts

  2,969,466   1,368,680   965,438   1,064,900 

Withdrawals on deposit-type contracts

  (1,155,056)  (350,116)  (471,668)  (424,178)

Proceeds received from issuance of common stock, net of costs of issuance

  1,014,783   378,256   156,890   203,811 

Net cash provided by financing activities

  2,829,193   1,396,820   650,660   844,533 
                

Net increase in cash and cash equivalents

  1,330,020   7,869,332   407,728   519,542 
                

Cash and Cash Equivalents:

                

Beginning

  651,809   3,145,745   2,077,646   651,809 

Ending

 $1,981,829  $11,015,077  $2,485,374  $1,171,351 

 

See Notes to Consolidated Financial Statements (unaudited).

 

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US Alliance Corporation

Supplemental Cash Flow Information

  

Nine Months Ended September 30,

 
  

2018

  

2017

 

Supplemental Disclosure of Non-Cash Information

        

Common stock issued on the acquisition of Northern Plains

 $-  $3,097,380 

Fixed maturity securities acquired with the Northern Plains acquisition

  -   3,006,552 

Equity securities acquired with the Northern Plains acquisition

  -   1,616,897 

Deposit-type contract liabilities acquired with the Northern Plains acquisition

  -   2,029,138 

Deposit-type contract liabilities assumed from American Life & Security Corp

  -   6,193,587 

Cost of reinsurance deferred on coinsurance transaction with American Life & Security Corp

  -   2,861,450 

7

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 (“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 Corporation (“USAMC”) were incorporatedwas formed April 23, 2012 to serve as wholly-owned subsidiaries of the Company to provide investment management and marketing services.

On August 1, 2017, the Company merged with Northern Plains Capital Corporation (“Northern Plains”) with the Company being the ultimate surviving entity. As a result of this merger, the Company acquiredmanager for USAC. Dakota Capital Life Insurance Company (“DCLIC”) which became a wholly owned subsidiary ofwas acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”). 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 the 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, 2019.2019 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 fee income forUSALSC and DCLIC seek opportunities to develop and market additional products.

Our business model also anticipates the Company. The Company had a TPA agreement in place with DCLICacquisition by USAC and/or USALSC of other insurance and insurance related companies, including third-party administrators, marketing organizations, and rights to other blocks of insurance business through August 1, 2017, when the Company purchased DCLIC. While the agreement is still in place, the agreement is intercompany subsequent to the purchase and is eliminated as a part of the consolidation of the financial statements of the companies.   The Company has been able to perform its TPA services using existing resources.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, 2018March 31, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 20182019 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, 2017.2018.

 

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:: US Alliance Life and Security Company USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, Oklahoma,Nebraska and Nebraska. Dakota Capital Life Insurance CompanyOklahoma. 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

 

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

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 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, 2018,March 31, 2019, and December 31, 2017,2018, the company had 7,515,4927,693,408 and 7,310,9397,650,551 common shares issued and outstanding, respectively.

 

Earnings (loss) per share attributable to the Company’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,March 31, 2019 and 2018 were 7,664,837 and 2017 were 7,474,022 and 6,181,492 shares, respectively. The weighted average number of shares outstanding during the nine months ended September 30, 2018 and 2017 were 7,368,451 and 5,698,5147,326,345 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 ended March 31, 2019 and nine months ended September 30, 2018 and 2017.2018.

 

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. 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.

 

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 has 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 evaluatingadoption of this guidance did not have a material effect on the Company’s financial position or liquidity 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).does create additional volatility when comparing period to period results.

 

98

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The effect of the adoption of this guidance on the Company’s results of operations, financial position and 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 related to available-for-sale securities in future periods that have not yet been fully assessed.

 

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, 2019. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

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 has 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 for the nine months ended September 30, 2018.liquidity.

 

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, 2020. 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.

 

109

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Classification of Certain Cash Receipts and Cash Payment

 

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. 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, 2018. The Company is currently evaluating the impactimplementation of this guidancestandard did not have a material impact on itsthe 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. Early adoption is permitted. The adoption of this guidance isdid not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

Intangibles – Goodwill and Other - Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued guidance to modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Reporting entities will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The updated guidance is effective for annual and interim periods beginning after December 15, 2019, and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The adoption of this guidance is not expected to have a material effect on the 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 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 underin limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, 2020, 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.

 

1110

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

 

Note 2.     Investments

 

The amortized cost and fair value of available for sale and held to maturity investments as of September 30, 2018March 31, 2019 and December 31, 20172018 is as follows:

 

 

March 31, 2019

 
 

September 30, 2018

  

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:

 

(unaudited)

    

Fixed maturities:

                                

US Treasury securities

 $277,558  $-  $(26,952) $250,606  $599,481  $2,330  $(12,027) $589,784 

Corporate bonds

  14,210,555   40,570   (737,343)  13,513,782   17,453,101   318,065   (387,999)  17,383,167 

Municipal bonds

  6,563,729   76,687   (173,557)  6,466,859   6,555,941   257,170   (13,071)  6,800,040 

Redeemable preferred stock

  99,560   -   (5,560)  94,000   99,560   -   (360)  99,200 

Mortgage backed and asset backed securities

  3,929,386   8,899   (127,828)  3,810,457   3,802,112   36,697   (39,252)  3,799,557 

Total fixed maturities

  25,080,788   126,156   (1,071,240)  24,135,704   28,510,195   614,262   (452,709)  28,671,748 

Equities:

                                

Equities

  11,818,671   69,437   (366,451)  11,521,657   12,269,679   78,992   (453,205)  11,895,466 

Total available for sale

 $36,899,459  $195,593  $(1,437,691) $35,657,361  $40,779,874  $693,254  $(905,914) $40,567,214 

 

 

December 31, 2017

  

December 31, 2018

 
 

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

 $271,620  $-  $(20,870) $250,750  $597,265  $-  $(27,325) $569,940 

Corporate bonds

  11,857,191   309,754   (10,720)  12,156,225   16,847,623   43,051   (1,048,313)  15,842,361 

Municipal bonds

  6,134,323   230,842   (12,721)  6,352,444   6,559,854   118,890   (80,631)  6,598,113 

Redeemable preferred stock

  99,560   960   -   100,520   99,560   -   (8,720)  90,840 

Mortgage backed and asset backed securities

  4,077,011   32,726   (23,976)  4,085,761   3,853,395   11,425   (83,835)  3,780,985 

Total fixed maturities

  22,439,705   574,282   (68,287)  22,945,700   27,957,697   173,366   (1,248,824)  26,882,239 

Equities:

                                

Equities

  10,764,072   83,346   (183,903)  10,663,515   12,096,488   31,505   (1,140,454)  10,987,539 

Total available for sale

 $33,203,777  $657,628  $(252,190) $33,609,215  $40,054,185  $204,871  $(2,389,278) $37,869,778 

 

The amortized cost and fair value of debt securities as of September 30, 2018March 31, 2019 and December 31, 2017,2018, 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.

 

  

As of September 30, 2018

  

As of December 31, 2017

 
  

Amortized Cost

  

Fair Value

  

Amortized Cost

  

Fair Value

 
  (unaudited)         

Amounts maturing in:

 

 

         

After one year through five years

 $858,351  $847,014  $612,088  $617,562 

After five years through ten years

  1,804,441   1,753,743   1,910,307   1,945,454 

More than 10 years

  18,389,050   17,630,490   15,740,739   16,196,403 

Redeemable preferred stocks

  99,560   94,000   99,560   100,520 

Mortgage backed and asset backed securities

  3,929,386   3,810,457   4,077,011   4,085,761 
  $25,080,788  $24,135,704  $22,439,705  $22,945,700 

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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 the first nine months of 2018 and 2017 were $248,077and $7,520,945 respectively. Realized gains and losses related to the sale of securities are summarized as follows:

  

Nine Months Ended September 30,

 
  

(unaudited)

 
  

2018

  

2017

 

Gross gains

 $530  $486,523 

Gross losses

  (857)  (51,131)

Net security gains (losses)

 $(327) $435,392 
  

As of March 31, 2019

  

As of December 31, 2018

 
  

Amortized Cost

  

Fair Value

  

Amortized Cost

  

Fair Value

 
  

(unaudited)

         
Amounts maturing in:                

After one year through five years

 $1,573,995  $1,591,192  $1,472,228  $1,462,745 

After five years through ten years

  2,142,756   2,181,773   2,101,676   2,055,173 

More than 10 years

  20,891,772   21,000,026   20,430,838   19,492,496 

Redeemable preferred stocks

  99,560   99,200   99,560   90,840 

Mortgage backed and asset backed securities

  3,802,112   3,799,557   3,853,395   3,780,985 

Total amortized cost and fair value

 $28,510,195  $28,671,748  $27,957,697  $26,882,239 

 

 

Proceeds from the sale of securities, maturities, and asset paydowns for the first three months ended September 30,of 2019 and 2018 and 2017 were $64,851$52,582 and $4,688,796$28,126 respectively. RealizedThere were no realized gains and losses related to the sale of securities are summarized as follows:for the periods ended March 31, 2019 and 2018.

  

Three Months Ended September 30,

 
  

(unaudited)

 
  

2018

  

2017

 

Gross gains

 $-  $259,061 

Gross losses

  -   (32,171)

Net security gains

 $-  $226,890 

 

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, 2018

 

March 31, 2019

March 31, 2019

 
 (unaudited)  (unaudited) 

Available for sale:

 

 

    

Fixed maturities:

                                                

US Treasury securities

 $250,606  $(26,952) $-  $-  $250,606  $(26,952) $-  $-  $267,814  $(12,027) $267,814  $(12,027)

Corporate bonds

  11,573,963   (716,537)  217,784   (20,806)  11,791,747   (737,343)  811,628   (17,017)  7,950,659   (370,982)  8,762,287   (387,999)

Municipal bonds

  3,649,017   (149,490)  328,873   (24,067)  3,977,890   (173,557)  -   -   844,658   (13,071)  844,658   (13,071)

Redeemable preferred stock

  94,000   (5,560)  -   -   94,000   (5,560)  -   -   99,200   (360)  99,200   (360)

Mortgage backed and asset backed securities

  2,406,729   (75,309)  966,887   (52,519)  3,373,616   (127,828)  -   -   2,437,299   (39,252)  2,437,299   (39,252)

Total fixed maturities

  17,974,315   (973,848)  1,513,544   (97,392)  19,487,859   (1,071,240)  811,628   (17,017)  11,599,630   (435,692)  12,411,258   (452,709)

Equities:

                                                

Equities

  7,378,410   (219,272)  2,380,223   (147,179)  9,758,633   (366,451)  1,622,912   (34,956)  8,745,952   (418,249)  10,368,864   (453,205)

Total available for sale

 $25,352,725  $(1,193,120) $3,893,767  $(244,571) $29,246,492  $(1,437,691) $2,434,540  $(51,973) $20,345,582  $(853,941) $22,780,122  $(905,914)

 

 

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, 2017

 

December 31, 2018

December 31, 2018

 

Available for sale:

                                                

Fixed maturities:

                                                

US Treasury securities

 $250,750  $(20,870) $-  $-  $250,750  $(20,870) $251,206  $(27,325) $-  $-  $251,206  $(27,325)

Corporate bonds

  848,853   (5,733)  121,718   (4,987)  970,571   (10,720)  11,743,222   (948,539)  830,239   (99,774)  12,573,461   (1,048,313)

Municipal bonds

  735,257   (5,683)  192,962   (7,038)  928,219   (12,721)  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

  2,056,887   (6,970)  654,936   (17,006)  2,711,823   (23,976)  544,714   (6,656)  2,448,551   (77,179)  2,993,265   (83,835)

Total fixed maturities

  3,891,747   (39,256)  969,616   (29,031)  4,861,363   (68,287)  14,744,242   (1,042,507)  4,138,095   (206,317)  18,882,337   (1,248,824)

Equities:

                                                

Equities

  7,971,440   (105,946)  1,161,121   (77,957)  9,132,561   (183,903)  3,312,528   (228,148)  7,440,504   (912,306)  10,753,032   (1,140,454)

Total available for sale

 $11,863,187  $(145,202) $2,130,737  $(106,988) $13,993,924  $(252,190) $18,056,770  $(1,270,655) $11,578,599  $(1,118,623) $29,635,369  $(2,389,278)

 

13

Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

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.

 

12

Table of Contents

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The total number of securities in the investment portfolio in an unrealized loss position as of September 30, 2018March 31, 2019 was 143,87, which represented an unrealized loss of $1,437,691$905,914 of the aggregate carrying value of those securities. The 14387 securities breakdown as follows: 10053 bonds, 3321 mortgage and asset backed securities, 4 preferred stocks, 2 high yield corporate bond funds, 2 preferred stock index funds, 1 senior loan fund, and 14 common stock. The Company determined that no securities were considered to be other-than-temporarily impaired as of September 30, 2018March 31, 2019 and December 31, 2017.2018.

 

 

Note 43.     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 entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

 

Investments, available for sale: Fair values of available for sale fixed maturity securities are provided by a third party pricing service. The pricing service uses a variety of sources to determine fair value of 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 are derived from active trading on national market exchanges.

 

1413

 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

 

Note 43.     Fair Value Measurements (Continued)

 

The following table presents the amounts of assets measured at fair value on a recurring basis as of September 30, 2018March 31, 2019 and December 31, 2017:2018:

 

 

September 30, 2018

  

March 31, 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

 $250,606  $250,606  $-  $-  $589,784  $589,784  $-  $- 

Corporate bonds

  13,513,782   -   13,313,782   200,000   17,383,167   -   17,187,167   196,000 

Municipal bonds

  6,466,859   -   6,466,859   -   6,800,040   -   6,800,040   - 

Redeemable preferred stock

  94,000   -   94,000   -   99,200   -   99,200   - 

Mortgage backed and asset backed securities

  3,810,457   -   3,810,457   -   3,799,557   -   3,799,557   - 

Total fixed maturities

  24,135,704   250,606   23,685,098   200,000   28,671,748   589,784   27,885,964   196,000 

Equities:

                                

Equities

  11,521,657   11,521,657   -   -   11,895,466   11,895,466   -   - 

Total

 $35,657,361  $11,772,263  $23,685,098  $200,000  $40,567,214  $12,485,250  $27,885,964  $196,000 

 

 

December 31, 2017

  

December 31, 2018

 
 

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

 

Available for sale:

                                

Fixed maturities:

                                

US Treasury securities

 $250,750  $250,750  $-  $-  $569,940  $569,940  $-  $- 

Corporate bonds

  12,156,225   -   11,956,225   200,000   15,842,361   -   15,642,361   200,000 

Municipal bonds

  6,352,444   -   6,352,444   -   6,598,113   -   6,598,113   - 

Redeemable preferred stock

  100,520   -   100,520   -   90,840   -   90,840   - 

Mortgage backed and asset backed securities

  4,085,761   -   4,085,761   -   3,780,985   -   3,780,985   - 

Total fixed maturities

  22,945,700   250,750   22,494,950   200,000   26,882,239   569,940   26,112,299   200,000 

Equities:

                                

Equities

  10,663,515   10,663,515   -   -   10,987,539   10,987,539   -   - 

Total

 $33,609,215  $10,914,265  $22,494,950  $200,000  $37,869,778  $11,557,479  $26,112,299  $200,000 

 

 

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.

 

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

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.

 

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.

 

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The estimated fair values of the Company’s financial assets and liabilities at September 30, 2018March 31, 2019 and December 31, 20172018 are as follows:

 

September 30, 2018

  

December 31, 2017

  

March 31, 2019

  

December 31, 2018

 
 

(unaudited)

          

(unaudited)

         
 

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

  

Carrying Value

  

Fair Value

 

Financial Assets:

                                

Cash and cash equivalents

 $1,981,829  $1,981,829  $651,809  $651,809  $2,485,374  $2,485,374  $2,077,646  $2,077,646 

Investment income due and accrued

  265,766   265,766   214,998   214,998   311,398   311,398   286,890   286,890 

Investments, at fair value

  35,699,797   35,699,797   33,643,190   33,643,190   40,624,649   40,624,649   37,926,317   37,926,317 

Total Financial Assets

 $37,947,392  $37,947,392  $34,509,997  $34,509,997  $43,421,421  $43,421,421  $40,290,853  $40,290,853 
                                

Financial Liabilities:

                                

Policyholder deposits in deposit-type contracts

 $15,637,161  $13,745,313  $13,448,891  $12,508,470  $17,280,482  $16,197,221  $16,626,218  $15,361,164 

Total Financial Liabilities

 $15,637,161  $13,745,313  $13,448,891  $12,508,470  $17,280,482  $16,197,221  $16,626,218  $15,361,164 

 

 

 

Note 54.     Income Tax Provision

 

No income tax expense or (benefit) has been reflected for the quarters ended September 30,March 31, 2019 or 2018 and 2017 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 $12,161,905$13,178,265 and $11,886,891$12,938,533 as of September 30, 2018March 31, 2019 and December 31, 2017,2018, respectively. 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 65.   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.

 

On October 11, 2018 the Company entered into a Stock Purchase Agreement to purchase all of the outstanding shares of Great Western Life Insurance Company (“GWLIC”) from Great Western Insurance Company, a wholly-owned subsidiary of American Enterprise Group, Inc. Pending Montana regulatory approval this transaction will provide our group of companies with a Montana domiciled life insurance company which has not issued any life insurance policies since 1974. GWLIC has total assets of approximately $2.2 million and statutory capital and surplus of approximately $1.7 million. The Company will pay $500,000 to acquire the outstanding shares of GWLIC.

The Company has evaluated subsequent events through November 9, 2018,May 13, 2019, the date on which the consolidated financial statements were issued.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 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: 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.

 

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 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 Dakota Capital Life Insurance Company which 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 accounting 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 balance 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.

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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 investment manager, provides support to the Company in making these determinations.

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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. 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.

 

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’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.

 

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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.

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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.

 

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 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.

 

Income Taxes

 

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.

 

Recognition 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.

 

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Mergerand Acquisition Transactions

 

On May 23, 2017 the Company entered into a definitive merger agreement with Northern Plains Capital Corporation. The merger 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.

 

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 Statements beginning on p. 97 of this quarterly report.

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Discussion of Consolidated Results of Operations

 

Revenues. Insurance revenues are primarily generated from premium revenues and investment income. Insurance revenues for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 are summarized in the table below.

 

 

Nine Months Ended September 30,

 
 

2018

  

2017

  

Three Months Ended March 31,

 
 (unaudited)  

2019

  

2018

 

Income:

 

 

         

Premium income

 $6,651,103  $8,902,208  $2,392,976  $2,432,096 

Net investment income

  1,047,330   485,147   397,646   311,560 

Net realized gain (loss) on sale of securities

  (327)  435,392 

Unrealized gain on equity sercurites

  727,203   - 

Other income

  27,648   40,656   12,799   9,246 

Total income

 $7,725,754  $9,863,403  $3,530,624  $2,752,902 

 

 

USALSC entered intoOur 2019 first quarter revenues grew to $3,530,624, an increase of $777,722 from the 2018 first quarter revenues of $2,752,902. The Company was required to implement a coinsurance transaction with American Lifenew accounting standard in 2019 which results in unrealized gains and Security Corporation (“ALSC”) effective September 30, 2017. The agreement resultedlosses on equity securities being included in a one-time premium revenue of approximately $3.9 million in the third quarter of 2017, which is the driver of this decrease in revenue for the same period in 2018. Absent this one-time revenue in 2017, our 2018 revenues increased by $1,717,253 or 29% as compared to 2017.

Insurance revenues for the three months ended September 30, 2018 and 2017 are summarized in the table below.

  

Three Months Ended September 30,

 
  

2018

  

2017

 
  (unaudited) 

Income:

 

 

 

Premium income

 $1,776,623  $5,169,638 

Net investment income

  370,207   189,028 

Net realized gain on sale of securities

  -   226,890 

Other income

  11,654   1,201 

Total income

 $2,158,484  $5,586,757 

Absent the one-time premium revenue associated with our ALSC agreement in 2017, our third quarter 2018 revenues increased by $461,887, or 35%, as compared to third quarter of 2017 revenues.total income.

 

Premium revenue: Premium revenue for the first ninethree months of 2019 was $2,392,976 compared to $2,432,096 in the first three months of 2018, was $6,651,103 compared to $8,902,208 in the first nine months of 2017, a decrease of $2,251,105. The ALSC agreement resulted$39,120. Our pre-need revenues were the lowest they have been since the 4th quarter of 2017. Factors which impact this decline include the weather and a reduction in the average price for a one-timepre-need policy. Even though it is a reduction in revenue, ceded premium revenue of approximately $3.9 million in 2017, which is the driver of this decrease in revenue. The decrease is offset byincreases reflect the growth of our direct and on-going assumed premiums. Absent this one-time premium in 2017, ourgroup policy premiums during the first nine months of 2018 increased by $1,603,797, or 32%, as comparedwe focused on small companies to 2017.

Direct, assumed and cededassist them with their employee benefits. Total premiums for the nine months ended September 30, 2018 and 2017 are summarized in the following table.

  

Nine Months Ended September 30,

 
  

2018

  

2017

 
  

(unaudited)

 

Direct

 $3,401,876  $2,422,907 

Assumed

  3,689,412   6,639,092 

Ceded

  (440,185)  (159,791)

Total

 $6,651,103  $8,902,208 

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Premium revenue for the thirdfirst quarter of 2018 was $1,776,6232019 increased by $229,928 or 16.4% when compared to $5,169,638 in the third4th quarter of 2017, a decrease of $3,393,015. The ALSC agreement resulted in a one-time premium revenue of approximately $3.9 million in 2017. The decrease is offset by the growth of our direct and on-going assumed premiums. Absent this one-time premium in 2017, our third quarter 2018 premiums increased by $461,889, or 52%, as compared to 2017.2018.

 

Direct, assumed and ceded premiums for the three months ended September 30,March 31, 2019 and 2018 and 2017 are summarized in the following table.

 

 

Three Months ended September 30,

  

Periods Ended March 31,

 
 

2018

  

2017

  

2019

  

2018

 
 

(unaudited)

         

Direct

 $1,093,272  $931,463  $1,191,780  $1,139,367 

Assumed

  839,933   4,323,692   1,403,793   1,405,606 

Ceded

  (156,582)  (85,517)  (202,597)  (112,877)

Total

 $1,776,623  $5,169,638  $2,392,976  $2,432,096 

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The Company is pursuing new product and distribution opportunities to continue to increase premium production. The acquisition of DCLIC and the reinsurance agreement with ALSC both increase future premiums.

 

Investment income, net of expenses: The components of net investment income for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 are as follows:

 

 

Nine Months Ended September 30,

  

Period Ended March 31,

 
 

2018

  

2017

  

2019

  

2018

 
 

(unaudited)

         

Fixed maturities

 $712,841  $306,614  $302,294  $229,643 

Equity securities

  387,221   213,920   114,586   100,705 

Cash and short term investments

  7,485   3,730   4,199   747 
  1,107,547   524,264   421,079   331,095 

Less investment expenses

  (60,217)  (39,117)  (23,433)  (19,535)
 $1,047,330  $485,147  $397,646  $311,560 

 

Net investment income for the first ninethree months of 20182019 was $1,047,330,$397,646, compared to $485,147$311,560 in 2017,2018, an increase of $562,183$86,086 or 116%28%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income the Merger with Northern Plains, and our coinsurance agreement with ALSC,annuity deposits, and an improvement in our book yield.

The components of net investment income for the three months ended September 30, 2018 and 2017 are as follows:

  

Three Months Ended September 30,

 
  

2018

  

2017

 
  

(unaudited)

 

Fixed maturities

 $245,663  $114,132 

Equity securities

  140,630   91,228 

Cash and short term investments

  4,524   2,238 
   390,817   207,598 

Less investment expenses

  (20,610)  (18,570)
  $370,207  $189,028 

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Net investment income for the third quarter of 2018 was $370,207 compared to $189,028 in 2017, an increase of $181,179. This increase in investment income is primarily a result of increased invested assets as a result of our premium income, the Merger with Northern Plains, and our coinsurance agreement with ALSC, as well as an improvement in our book yield.

 

Net realized gains (losses) on investments: Net realized losses on investments for the nine months ended September 30, 2018 were $327, compared to gains of $435,392 in 2017, a decrease of $435,719. The decrease inCompany had no realized gains is attributableor losses during the first quarter of 2019 or 2018.

Unrealized gain on equity securities: The Company was required to implement a new accounting standard in the repositioningfirst quarter of an equity portfolio from a market return focus to an income focus in 2017 as well as liquidating an equity portfolio to fund2019 which requires that the ALSC transaction in 2017. There was not a similar activity in 2018. Realizedunrealized gains and losses relatedon equity securities be reported as income on the Consolidated Statements of Comprehensive Income (Loss). This resulted in a first quarter of 2019 gain of $727,203. This new required line item will introduce significant volatility to our results as short-term fluctuations in the salevalue of our equity securities for the nine months ended September 30, 2018 and 2017 are summarized as follows:

  

Nine Months Ended September 30,

 
  

(unaudited)

 
  

2018

  

2017

 

Gross gains

 $530  $486,523 

Gross losses

  (857)  (51,131)

Net security gains (losses)

 $(327) $435,392 

There were no net realized gains on investments for the three months ended September 30, 2018, comparedis required to gains of $226,890 in 2017,be a decrease of $226,890. The decrease in realized gains is attributable to the repositioningpart of the DCLIC portfolio acquired in 2017. Realized gains and losses related to the saleresults of securities for the three months ended September 30, 2018 and 2017 are summarized as follows:

  

Three Months Ended September 30,

 
  

(unaudited)

 
  

2018

  

2017

 

Gross gains

 $-  $259,061 

Gross losses

  -   (32,171)

Net security gains

 $-  $226,890 

our operations.

 

Other income: Other income for the nine months ended September 30, 2018 was $27,648 compared to $40,656 in 2017, a decrease of $13,008. This decrease is due to the acquisition of DCLIC who was previously a third party administration client. Other income for the three months ended September 30, 2018March 31, 2019 was $11,654$12,799 compared to $1,201$9,246 in 2017,2018, an increase of $10,453.$3,553.

 

Expenses. Expenses for the ninethree months ended September 30,March 31, 2019 and 2018 and 2017 are summarized in the table below.

 

 

Nine Months Ended September 30,

 
 

2018

  

2017

  

Three Months Ended March 31,

 
 (unaudited)  

2019

  

2018

 

Expenses:

 

 

         

Death claims

 $633,206  $624,864  $395,667  $235,374 

Policyholder benefits

  3,056,358   2,609,324   1,136,828   1,127,682 

Increase in policyholder reserves

  2,112,259   5,205,124   680,560   796,636 

Commissions, net of deferrals

  440,391   362,585   219,535   152,157 

Amortization of deferred acquisition costs

  313,860   136,709   62,902   90,355 

Amortization of value of business acquired

  15,228   3,384   5,076   5,076 

Salaries & benefits

  781,952   627,286   251,832   274,848 

Other operating expenses

  1,155,973   887,230   402,356   473,532 

Total expense

 $8,509,227  $10,456,506  $3,154,756  $3,155,660 

 

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Expenses for the three months ended September 30, 2018 and 2017 are summarized in the table below.

  

Three Months Ended September 30,

 
  

2018

  

2017

 
  (unaudited) 

Expenses:

 

 

 

Death claims

 $228,994  $152,234 

Policyholder benefits

  740,579   479,965 

Increase in policyholder reserves

  604,647   4,357,257 

Commissions, net of deferrals

  120,413   97,151 

Amortization of deferred acquisition costs

  103,246   52,484 

Amortization of value of business acquired

  5,076   3,384 

Salaries & benefits

  238,612   244,143 

Other operating expenses

  320,804   278,795 

Total expense

 $2,362,371  $5,665,413 

 

Death and other benefits: Death benefits were $633,206 in the nine months ended September 30, 2018 compared to $624,864 in 2017, an increase of $8,342. 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.

Death benefits were $228,994$395,667 in the three months ended September 30, 2018March 31, 2019 compared to $152,234$235,374 in 2017,2018, an increase of $76,760.$160,293. 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 $3,056,358$1,136,828 in the ninethree months ended September 30, 2018March 31, 2019 compared to $2,609,324$1,127,682 in 2017,2018, an increase of $447,034.$9,146. The primary driver of this increase is the growth of interest credited on annuities from ALSC and acquired with Dakota Capital Life.

Policyholder benefits were $740,579 in the three months ended September 30, 2018 compared to $479,965 in 2017, an increase of $260,614. The primary driver of this increase is the growth of interest credited on annuities assumed from ALSC and acquired with Dakota Capital Life as well as the growth in benefits from Unified Life.our annuities.

 

Increase in policyholder reserves: Policyholder reserves increased $2,112,259 in the nine months ended September 30, 2018, compared to $5,205,124 in 2017, a decrease of $3,092,865. The decrease is driven by a one-time increase in reserves of approximately $3.9 million in 2017 as a result of our ALSC coinsurance transaction and is fully offset by the one-time assumed premium revenue associated with this transaction.

Policyholder reserves increased $604,647$680,560 in the three months ended September 30, 2018,March 31, 2019, compared to $4,357,257$796,636 in 2017,2018, a decrease of $3,752,610.$116,076. The decreasereduction in reserve increase is driven by a one-time increase in reserves of approximately $3.9 million in 2017 as athe result of our ALSC coinsurance transactionreduced pre-need sales and is fully offset by the one-time assumed premium revenue associated with this transaction.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 as well as commissions to agents on directly written business. Commissions, net of deferrals, were $440,391 in the nine months ended September 30, 2018, compared to $362,585 in 2017, an increase of $77,806. This increase is due to an increase in premiums.

Commissions, net of deferrals, were $120,413$219,535 in the three months ended September 30, 2018,March 31, 2019, compared to $97,151$152,157 in 2017,2018, an increase of $23,262.$67,378. This increase is due todriven by an increase in group premiums.

 

Amortization of deferred acquisition costs: The amortization of deferred acquisition costs was $313,860 in the nine months ended September 30, 2018, compared to $136,709 in 2017, an increase of $177,151. The amortization increase is attributable to the growth of our deferred acquisition cost asset related to our reinsurance transaction with ALSC.


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The amortization of deferred acquisition costs was $103,246$62,902 in the three months ended September 30, 2018,March 31, 2019, compared to $52,484$90,355 in 2017, an increase2018, a decrease of $50,762.$27,453. The amortization increasedecrease is attributable to the growtha reduction in amortization of pre-need commissions and to reduced margins on our deferred acquisition cost asset related to our reinsurance transaction with ALSC.American Life block of policies.

 

Amortization of value of business acquired: The amortization of value of business acquired (“VOBA”) was $15,228$5,076 in the ninethree months ended September 30,March 31, 2019 and 2018. Our 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 was $5,076 in the three months ended September 30, 2018.

 

Salaries and benefits: Salaries and benefits were $781,952 for the nine months ended September 30, 2018, compared to $627,286 in 2017, an increase of $154,666. Staffing costs increased due to additional staffing acquired with the Northern Plains Merger and the growth of our customer service team.

Salaries and benefits were $238,612$251,832 for the three months ended September 30, 2018,March 31, 2019, compared to $244,143$274,848 in 2017,2018, a decrease of $5,531. There was no significant change from$23,016. Staffing costs decreased due to a reduction in the prior period.number of employees and a reduction in employee benefit costs.

 

Other expenses: Other operating expenses were $1,155,973 in the nine months ended September 30, 2018, compared to $887,230 in 2017, an increase of $268,743. Operating costs have increased due to expenses associated with the DCLIC acquisition, including additional auditing and actuarial fees, increased information technology costs, and selling and marketing expenses.

Other operating expenses were $320,804$402,356 in the three months ended September 30, 2018,March 31, 2019, compared to $278,795$473,532 in 2017, an increase2018, a decrease of $42,009.$71,176. Operating costs have increasedwere driven lower due to expenses associated with the DCLIC acquisition, including additional auditing and actuarial fees, and increaseddecreased information technology costs and decreased selling and marketing expenses.

 

Net Loss:Income: Our net lossincome was $783,473$375,868 in the ninethree months ended September 30, 2018March 31, 2019 compared to a net loss of $593,103$402,758 in the same period of 2017,2018, an increase of $190,370.$778,626. Our net lossincome per share increased to $0.11$0.05 from $0.10a net loss of $0.05 in 2017,2018, basic and diluted. This increase is primarily attributable to capitalincome from unrealized gains realized in 2017 and no similar gains in 2018 partially offset by increasing margins on our life insurance business. The 2017 capital gains were attributable to the repositioning of an equity portfolio from a market return focus to an income focus and liquidating an equity portfolio to fund the ALSC transaction. Without capital gains, our 2017 loss per share would have been $0.19.

Our net loss was $203,887 in the three months ended September 30, 2018 compared to net loss of $78,656 in the same period of 2017, an increase of $125,231. Our net loss per share increased to $0.03 from $0.01 in 2017, basic and diluted. This increase is primarily attributable to capital gains realized in 2017 and no similar gains in 2018 partially offset by increasing margins on our life insurance business. The 2017 capital gains were attributable to liquidating an equity portfolio to fund the ALSC transaction. Without capital gains, our third quarter 2017 loss per share would have been $0.05.

securities.

 

Discussion of Consolidated Balance Sheet

 

Assets. Assets have increased to $42,109,336$47,586,418 as of September 30, 2018,March 31, 2019, an increase of $3,120,999$3,057,429 from December 31, 2017.2018. This is primarily the result of the growth of our business offsetand by a decreasean increase in the market value of our fixed income securities.investments.

 

Available for sale fixed maturity securities: As of September 30, 2018,March 31, 2019, we had available for sale fixed maturity assets of $24,135,704,$28,671,748, an increase of $1,190,004$1,789,509 from the December 31, 20172018 balance of $22,945,700.$26,882,239. The increase is driven by the purchase of additional assets. Theassets and an increase is offset by higher interest rates, which lowersin the market value of these securities. If we hold our fixed maturity securities to maturity, as we intend to do, any changes in market value is temporary.   

 

Available for sale equity securities: As of September 30, 2018,March 31, 2019, we had available for sale equity assets of $11,521,657,$11,895,466, an increase of $858,142$907,927 from the December 31, 20172018 balance of $10,663,515.$10,987,539. This growth is driven by purchasesan increase in the market value of our equity securities with premium income.securities.

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Policy loans: As of September 30, 2018,March 31, 2019, our policy loans were $42,436,$57,435, an increase of $8,461$896 from the December 31, 20172018 balance of $33,975.$56,539. The increase is the result of normal loan activity. All of our policy loans were the result of our coinsurance agreement with ALSC and we had no policy loans prior to this transaction.

 

Cash and cash equivalents: As of September 30, 2018,March 31, 2019, we had cash and cash equivalent assets of $1,981,829,$2,485,374, an increase of $1,330,020$407,728 from the December 31, 20172018 balance of $651,809.$2,077,646. This increase is primarily the result of cash received from premium income.

 

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Investment income due and accrued: As of September 30, 2018,March 31, 2019, our investment income due and accrued was $265,766$311,398 compared to $214,998$286,890 as of December 31, 2017.2018. This increase is attributable to normal investment activity and the growth of our invested assets.

 

Reinsurance related assets: As of September 30, 2018,March 31, 2019, our reinsurance related assets were $168,926,$101,315, a decrease of $80,953$60,531 from the December 31, 20172018 balance of $249,879.$161,846. This decrease was driven by a reduction in the amounts receivable on our reinsurance business.

 

Deferred acquisition costs, net: As of September 30, 2018,March 31, 2019, our deferred acquisition costs were $2,829,688, a decrease$2,769,464, an increase of $133,369$12,060 from the December 31, 20172018 balance of $2,963,057.$2,757,404. The decreaseincrease is the result of costs deferred on new business offset by amortization of costs deferred on our coinsurance agreement with ALSC.

 

Value of business acquired, net: As of September 30, 2018,March 31, 2019, our value of business acquired asset was $585,373,$575,221, a decrease of $15,228$5,076 from the December 31, 20172018 balance of $600,601.$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, 2018,March 31, 2019, our goodwill was $277,542 and was unchanged from the December 31, 20172018 balance. Goodwill was established as a result of our Mergermerger with Northern Plains.

 

Property, equipment and software, net: As of September 30, 2018,March 31, 2019, our property, equipment and software assets were $199,804,$51,519, a decrease of $21,273$2,559 from the December 31, 20172018 balance of $221,077.$54,078. This decrease is a result of normal amortization during the period, offset by equipment purchased in the second quarter.period.

 

Other assets: As of September 30, 2018,March 31, 2019, our other assets were $100,611,$389,936, a decrease of $65,573$17,033 from the December 31, 20172018 balance of $166,184.$406,969. This decrease was the result of a reduction in our pre-paid assets.

 

Liabilities. Our total liabilities were $29,589,860$33,175,216 as of September 30, 2018,March 31, 2019, an increase of $4,537,225$1,278,893 from our December 31, 20172018 liability of $25,052,635.$31,896,323. This increase is driven by an increase in our policyholder liabilities.

 

Policy liabilities: Our total policy liabilities as of September 30, 2018March 31, 2019 were $29,311,702,$32,826,238, an increase of $4,366,325$1,269,709 from the December 31, 20172018 balance of $24,945,377.$31,556,529. This increase is the result new policy sales and the growth of our in-force policies.

 

Accounts payable and accrued expenses: As of September 30, 2018,March 31, 2019, our accounts payable and accrued expenses were $89,351, a decrease$323,545, an increase of $9,031$12,463 from the December 31, 20172018 balance of $98,382.$311,082. This decrease is the result of normal operating activity.

 

Other liabilities: As of September 30, 2018,March 31, 2019, our other liabilities were $188,807, an increase$25,433, a decrease of $179,931$3,279 from the December 31, 20172018 balance of $8,876. This increase is the result of a securities payable at September 30, 2018.$28,712.

 

Shareholders’ Equity. Our shareholders’ equity was $12,519,476$14,411,202 as of September 30, 2018, a decreaseMarch 31, 2019, an increase of $1,416,2261,778,536 from our December 31, 20172018 shareholders’ equity of $13,935,702.$12,632,666. The reductionincrease in shareholders’ equity was driven by a reductionan increase in other comprehensive income and our net lossincome during the period. Other comprehensive income consists of the unrealized gains and losses on our investment portfolio. The reduction in other comprehensive income is the result of higher interest rates which lowers the market value of our fixed maturity securities.portfolio.

 

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Investments and Cash and Cash Equivalents

 

Our investment philosophy is reflected by 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 investments by investment category and cash and cash equivalents, and the percentage of each to total invested assets as of September 30, 2018March 31, 2019 and December 31, 2017.2018.

 

  

September 30, 2018

  

December 31, 2017

 
  

Fair

  

Percent

  

Fair

  

Percent

 
  

Value

  

of Total

  

Value

  

of Total

 

Fixed maturities:

 

(unaudited)

         

US Treasury securities

 $250,606   0.7% $250,750   0.7%

Corporate bonds

  13,513,782   35.9%  12,156,225   35.6%

Municipal bonds

  6,466,859   17.2%  6,352,444   18.5%

Redeemable preferred stocks

  94,000   0.2%  100,520   0.3%

Mortgage backed and asset backed securities

  3,810,457   10.1%  4,085,761   11.9%

Total fixed maturities

  24,135,704   64.1%  22,945,700   67.0%

Equities:

                

Equities

  11,521,657   30.6%  10,663,515   31.1%

Total equities

  11,521,657   30.6%  10,663,515   31.1%

Cash and cash equivalents

  1,981,829   5.3%  651,809   1.9%

Total

 $37,639,190   100.0% $34,261,024   100.0%

  

March 31, 2019

  

December 31, 2018

 
  

Fair

  

Percent

  

Fair

  

Percent

 
  

Value

  

of Total

  

Value

  

of Total

 

Fixed maturities:

 

(unaudited)

         

US Treasury securities

 $589,784   1.4% $569,940   1.4%

Corporate bonds

  17,383,167   40.4%  15,842,361   39.7%

Municipal bonds

  6,800,040   15.8%  6,598,113   16.5%

Redeemable preferred stocks

  99,200   0.2%  90,840   0.2%

Mortgage backed and asset backed securities

  3,799,557   8.8%  3,780,985   9.5%

Total fixed maturities

  28,671,748   66.6%  26,882,239   67.3%

Equities

  11,895,466   27.6%  10,987,539   27.5%

Cash and cash equivalents

  2,485,374   5.8%  2,077,646   5.2%

Total

 $43,052,588   100.0% $39,947,424   100.0%

 

The total value of our investments and cash and cash equivalents increased to $37,639,190$43,052,588 as of September 30, 2018March 31, 2019 from $34,261,024$39,947,424 at December 31, 2017,2018, an increase of $3,378,166.$3,105,164. Increases in investments are primarily attributable to premiums and annuity deposits received by USALSC and DCLIC.

 

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of September 30, 2018March 31, 2019 and December 31, 2017.2018.

 

 

September 30, 2018

  

December 31, 2017

  

March 31, 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)

  

(unaudited)

  

(unaudited)

  

(unaudited)

 

AAA and U.S. Government

 $1,159,858   4.8% $1,185,345   5.2% $1,219,621   4.3% $1,690,399   6.3%

AA

  7,864,998   32.6%  8,225,461   35.8%  8,161,413   28.5%  7,933,254   29.5%

A

  4,735,191   19.6%  4,961,276   21.6%  6,857,328   23.9%  6,173,746   23.0%

BBB

  9,930,761   41.2%  8,108,313   35.3%  11,936,155   41.5%  10,551,468   39.3%

BB

  244,896   1.0%  265,305   1.2%  301,231   1.1%  333,372   1.2%

Not Rated - Private Placement

  200,000   0.8%  200,000   0.9%  196,000   0.7%  200,000   0.7%

Total

 $24,135,704   100.0% $22,945,700   100.0% $28,671,748   100.0% $26,882,239   100.0%

 

Reflecting the high quality of securities maintained by us, 97.9%98.1% of all fixed maturity securities were investment grade as of December 31, 2017.2018. As of September 30, 2018,March 31, 2019, 98.2% of all fixed maturity securities were investment grade.

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The amortized cost and fair value of debt securities as of September 30, 2018March 31, 2019 and December 31, 2017,2018, 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, 2018

  

As of December 31, 2017

 
  

Amortized Cost

  

Fair Value

  

Amortized Cost

  

Fair Value

 

Amounts maturing in:

 

(unaudited)

         

After one year through five years

 $858,351  $847,014  $612,088  $617,562 

After five years through ten years

  1,804,441   1,753,743   1,910,307   1,945,454 

More than 10 years

  18,389,050   17,630,490   15,740,739   16,196,403 

Redeemable preferred stocks

  99,560   94,000   99,560   100,520 

Mortgage backed and asset backed securities

  3,929,386   3,810,457   4,077,011   4,085,761 
  $25,080,788  $24,135,704  $22,439,705  $22,945,700 
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As of March 31, 2019

  

As of December 31, 2018

 
  

Amortized Cost

  

Fair Value

  

Amortized Cost

  

Fair Value

 
  (unaudited)         

Amounts maturing in:

 

 

         

After one year through five years

 $1,573,995  $1,591,192  $1,472,228  $1,462,745 

After five years through ten years

  2,142,756   2,181,773   2,101,676   2,055,173 

More than 10 years

  20,891,772   21,000,026   20,430,838   19,492,496 

Redeemable preferred stocks

  99,560   99,200   99,560   90,840 

Mortgage backed and asset backed securities

  3,802,112   3,799,557   3,853,395   3,780,985 

Total amortized cost and fair value

 $28,510,195  $28,671,748  $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 rate 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 structuringmaturities of ourthe fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet our obligations 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 and 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.

 

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Premium income, deposits to policyholder account balances, 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.

 

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Net cash provided by operating activities was $2,079,021$494,301 for the ninethree months ended September 30, 2018.March 31, 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 used in investing activities was $3,578,194.$737,233. The primary use of cash was the purchase of available for sale securities. Cash provided by financing activities was $2,829,193.$650,660. The primary sources of cash were receipts on deposit-type contracts and issuance of common stock.

 

At September 30, 2018,March 31, 2019, we had cash and cash equivalents totaling $1,981,829.$2,485,374. 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 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 growth of our insurance subsidiary is uncertain and will require additional capital if it continues to grow.

 

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 the 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, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

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.

 

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 members 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’s internal control over financial reporting as defined in Exchange Act Rule 13a-15(f) during the ninethree months ended September 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.

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Part II – Other Information

 

ITEM 1. LEGAL PROCEEDINGS

 

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 materially affect our financial position or results of operation.

 

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ITEM 1A.  RISK FACTORS

 

   As a “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, 2018,March 31, 2019, the Company issued 12,06519,587 shares of common stock, for aggregate consideration of $84,455,$137,109, pursuant to an offering to residents of the state of Kansas that was registered with the Kansas Securities Commissioner.

 

The offering of shares in the above described 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.

 

During the quarter ended September 30, 2018,March 31, 2019, the Company issued 50,14023,270 shares of common stock, for aggregate consideration of $350,980,$162,890, 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 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 D 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. 

 

 

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

 None

 None

 

ITEM 4.    MINE SAFETY DISCLOSURES

 

Not Applicable

 

ITEM 5.    OTHER INFORMATION

 

None.

 

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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)

 

 

3.1.1First Amendment to the 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 as Exhibit 3.1.1
3.1.2Second Amendment to the 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.

3.2.13.2

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).

3.2.23.2.1Amendment No. 1 to the Bylaws of US Alliance Corporation, dated June 4, 2018 (filedfiled as Exhibit 3.13.2.1 to the Company'sCompany’s Current Report on Form 8-K filed on June 7, 20189, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.2.2.3.1.1
  
10.1Stock Purchase Agreement dated October 11, 2018 between the Company and Great Western Insurance Company (filed as Exhibit 10.1 to the Company's Curretn Report of Form 8-K filed on October 16, 2018 (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.

26

Table of Contents

 

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**

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

101.INS** XBRL Instance

101.SCH** XBRL Taxonomy Extension Schema

101.CAL** XBRL Taxonomy Extension Calculation

101.DEF** XBRL Taxonomy Extension Definition

101.LAB** XBRL Taxonomy Extension Labels

101.PRE** XBRL Taxonomy Extention Presentation

 

**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.

 

 

SIGNATURES

 

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//s/ Jack H. Brier                                                                                                      

      Jack H. Brier, President and Chairman

 

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