US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 1. Description of Business and Significant Accounting Policies

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

USAC has five wholly-owned operating subsidiaries. US Alliance Life and Security Company ("USALSC") was formed June 9, 2011, to serve as our life insurance company. US Alliance Marketing Corporation ("USAMC") was formed April 23, 2012, to serve as a marketing resource. US Alliance Investment Corporation ("USAIC") was formed April 23, 2012 to serve as investment manager for USAC. Dakota Capital Life Insurance Company (“DCLIC”) was acquired on August 1, 2017 when USAC merged with Northern Plains Capital Corporation (“NPCC”). US Alliance Life and Security Company - Montana ("USALSC-Montana") was acquired December 14, 2018. Both DCLIC and USALSC-Montana are wholly-owned subsidiaries of USALSC.

The Company terminated its 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 and subsequently to February 24, 2020. During the 4^th quarter of 2017, the Company began a private placement offering to accredited investors in the state of North Dakota.

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

Our business model also anticipates the acquisition 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 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 ~~March 31,~~September 30, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 2019 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, 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.

Area of Operation: USALSC is authorized to operate in the states of Kansas, North Dakota, Missouri, Nebraska and Oklahoma. DCLIC is authorized to operate in the states of North Dakota and South Dakota. USALSC-Montana is authorized to operate in the state of 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~~income/loss or equity.

Common stock and earnings (loss) per share: The par value for common stock is $0.10 per share with 20,000,000 shares authorized. As of ~~March 31,~~September 30, 2019, and December 31, 2018, the company had ~~7,693,408~~7,732,570 and 7,650,551 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 ~~March 31,~~September 30, 2019 and 2018 were ~~7,664,837~~7,715,583 and ~~7,326,345~~7,474,022 shares, respectively. The weighted average number of shares outstanding during the nine months ended September 30, 2019 and 2018 were 7,681,612 and 7,368,451 shares, respectively. Potential common shares are excluded from the computation when their effect is anti-dilutive. Basic and diluted net loss per common share is the same for the quarters and nine months ended ~~March 31,~~September 30, 2019 and 2018.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

New accounting standards

Revenue from Contracts with Customers

In May 2014, the Financial Accounting Standards Board (“FASB”) issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. However, the Company does not currently generate fee income. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services.

The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

In July 2015, the FASB deferred the effective date of the updated guidance on revenue recognition by one year to the quarter ending March 31, 2018. As an emerging growth company, the Company has chosen to defer implementation of this accounting standard until the year ending December 31, 2019 and interim reporting periods beginning after December 31, 2019. The adoption of this guidance is not expected to have a material effect on the Company’s result of operations, financial position or liquidity.

Recognition and Measurement of Financial Assets and Financial Liabilities

In January 2016, the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

This guidance is effective for fiscal years beginning after December 15, 2017. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The recognition and measurement provisions of this guidance was 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 adoption of this guidance did not have a material effect on the Company’s financial position or liquidity but does create additional volatility when comparing period to period results.

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~~US Alliance Corporation~~

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

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.~~2020. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Contingent Put and Call Options in Debt Instruments

In March 2016, the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument can accelerate the repayment of principal on the debt instrument, a reporting entity does not need to assess whether the contingent event that triggers the ability to exercise the call (put) option is related to interest rates or credit risk in determining whether the option should be accounted for separately. The updated guidance is effective for reporting periods beginning after December 15, 2016. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2017. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

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.~~2022. The Company will not be able to determine the impact that the updated guidance will have on its results of operations, financial position or liquidity until the updated guidance is adopted.

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~~US Alliance Corporation~~

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

Classification of Certain C~~ash~~ R~~eceipts~~Cash Receipts and Cash PPayment~~ayment~~

In August 2016, the FASB issued new guidance that clarifies the classification of certain cash receipts and cash payments in the statement of cash flows under eight different scenarios including, but not limited to: (i) debt prepayment or debt extinguishment costs; (ii) proceeds from the settlement of corporate-owned life insurance policies including bank-owned life insurance policies; (iii) distributions received from equity method investees; and (iv) separately identifiable cash flows and application of the predominance principle. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. As an emerging growth company, the Company elected to defer implementation of this standard to fiscal years beginning after December 15, 2018. The implementation of this standard did not have a material impact on the Company’s statement of cash flows.

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act). In February 2018, FASB issued guidance to address certain issues related to the Tax Cuts and Jobs Act. This new guidance allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. Consequently, the amendments eliminate the stranded tax effects resulting from the Tax Cuts and Jobs Act and will improve the usefulness of information reported to financial statement users. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The adoption of this guidance did not 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 in limited circumstances. ASU 2018-12 also requires new disclosures and is effective for fiscal years beginning after December 15, ~~2020,~~2023, with early adoption permitted. We are evaluating the effect this standard will have on our Consolidated Financial Statements.

All other new accounting standards and updates of existing standards issued through the date of this filing were considered by management and did not relate to accounting policies and procedures pertinent or material to the Company at this time.

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Note 2.2. Investments

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

	March 31, 2019									September 30, 2019
	Cost or		Gross		Gross					Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized					Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value		Cost		Gains		Losses			Fair Value
	(unaudited)									(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	599,481	$	2,330	$	(12,027	)	$	589,784	$	606,686	$	23,630	$	-		$	630,316
Corporate bonds		17,453,101		318,065		(387,999	)		17,383,167		17,755,495		1,629,401		(10,417	)		19,374,479
Municipal bonds		6,555,941		257,170		(13,071	)		6,800,040		6,542,899		743,660		-			7,286,559
Redeemable preferred stock		99,560		-		(360	)		99,200		99,560		7,360		-			106,920
Mortgage backed and asset backed securities		3,802,112		36,697		(39,252	)		3,799,557		3,632,856		96,244		(4,891	)		3,724,209
Total fixed maturities		28,510,195		614,262		(452,709	)		28,671,748		28,637,496		2,500,295		(15,308	)		31,122,483
Equities:
Equities		12,269,679		78,992		(453,205	)		11,895,466		11,987,770		135,371		(272,122	)		11,851,019
Total available for sale	$	40,779,874	$	693,254	$	(905,914	)	$	40,567,214	$	40,625,266	$	2,635,666	$	(287,430	)	$	42,973,502

	December 31, 2018
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	597,265	$	-	$	(27,325	)	$	569,940
Corporate bonds		16,847,623		43,051		(1,048,313	)		15,842,361
Municipal bonds		6,559,854		118,890		(80,631	)		6,598,113
Redeemable preferred stock		99,560		-		(8,720	)		90,840
Mortgage backed and asset backed securities		3,853,395		11,425		(83,835	)		3,780,985
Total fixed maturities		27,957,697		173,366		(1,248,824	)		26,882,239
Equities:
Equities		12,096,488		31,505		(1,140,454	)		10,987,539
Total available for sale	$	40,054,185	$	204,871	$	(2,389,278	)	$	37,869,778

The amortized cost and fair value of debt securities as of ~~March 31,~~September 30, 2019 and December 31, 2018, by contractual maturity, are shown in the following table. Equity securities do not have stated maturity dates and therefore are not included in the following maturity summary. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of September 30, 2019				As of December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Amounts maturing in:
One year or less	$	99,982	$	100,248	$	-	$	-
After one year through five years		1,373,790		1,417,814		1,472,228		1,462,745
After five years through ten years		3,336,835		3,624,467		2,101,676		2,055,173
More than 10 years		20,094,473		22,148,825		20,430,838		19,492,496
Redeemable preferred stocks		99,560		106,920		99,560		90,840
Mortgage backed and asset backed securities		3,632,856		3,724,209		3,853,395		3,780,985
Total amortized cost and fair value	$	28,637,496	$	31,122,483	$	27,957,697	$	26,882,239

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US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

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 nine months of 2019 and 2018 were $796,851and $248,077 respectively. Realized gains and losses related to the sale of securities are summarized as follows:

	Nine Months Ended September 30,
	(unaudited)
	2019			2018
Gross gains	$	4,601		$	530
Gross losses		(18,586	)		(857	)
Net security gains (losses)	$	(13,985	)	$	(327	)

Proceeds from the sale of securities, maturities, and asset paydowns for the ~~first~~ three months ofended September 30, 2019 and 2018 were ~~$52,582~~$135,587 and ~~$28,126~~$64,851 respectively. ~~There were no realized~~Realized gains and losses related to the sale of securities ~~for the periods ended March 31, 2019 and 2018.~~are summarized as follows:

	Three Months Ended September 30,
	(unaudited)
	2019			2018
Gross gains	$	650		$	-
Gross losses		(107	)		-
Net security gains	$	543		$	-

Gross unrealized losses by duration are summarized as follows:

	Less than 12 months					Greater than 12 months					Total					Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss			Value		Loss
March 31, 2019
	(unaudited)
September 30, 2019																					(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	-	$	-		$	267,814	$	(12,027	)	$	267,814	$	(12,027	)	$	-	$	-		$	-	$	-		$	-	$	-
Corporate bonds		811,628		(17,017	)		7,950,659		(370,982	)		8,762,287		(387,999	)		253,833		(2,170	)		562,791		(8,247	)		816,624		(10,417	)
Municipal bonds		-		-			844,658		(13,071	)		844,658		(13,071	)		-		-			-		-			-		-
Redeemable preferred stock		-		-			99,200		(360	)		99,200		(360	)		-		-			-		-			-		-
Mortgage backed and asset backed securities		-		-			2,437,299		(39,252	)		2,437,299		(39,252	)		50,349		(1,199	)		318,956		(3,692	)		369,305		(4,891	)
Total fixed maturities		811,628		(17,017	)		11,599,630		(435,692	)		12,411,258		(452,709	)		304,182		(3,369	)		881,747		(11,939	)		1,185,929		(15,308	)
Equities:
Equities		1,622,912		(34,956	)		8,745,952		(418,249	)		10,368,864		(453,205	)		991,555		(25,623	)		8,206,452		(246,499	)		9,198,007		(272,122	)
Total available for sale	$	2,434,540	$	(51,973	)	$	20,345,582	$	(853,941	)	$	22,780,122	$	(905,914	)	$	1,295,737	$	(28,992	)	$	9,088,199	$	(258,438	)	$	10,383,936	$	(287,430	)

Unrealized losses occur from market price declines that may be due to a number of factors, including economic downturns, changes in interest rates, competitive forces within an industry, issuer specific events, operational difficulties, lawsuits, and market pricing anomalies caused by factors such as temporary lack of liquidity.

The total number of securities in the investment portfolio in an unrealized loss position as of ~~March 31,~~September 30, 2019 was ~~87,~~22, which represented an unrealized loss of ~~$905,914~~$287,430 of the aggregate carrying value of those securities. The 8722 securities breakdown as follows: 535 bonds, 217 mortgage and asset backed securities, 41 preferred stocks, 2 high yield corporate bond funds, 2 preferred stock index funds, 1 senior loan fund, and 4 common stock. The total number of securities in the investment portfolio in an unrealized loss position as of December 31, 2018 was 140, which represented an unrealized loss of $2,389,278 of the aggregate carrying value of those securities. The 140 securities breakdown as follows: 97 bonds, 28 mortgage and asset backed securities, 7 common stocks, 3 preferred stocks, 2 high yield corporate bond funds, 2 preferred stock index funds, and 1 senior loan fund. The Company determined that no securities were considered to be other-than-temporarily impaired as of ~~March 31,~~September 30, 2019 and December 31, 2018.

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:~~accrued: The carrying amounts approximate fair value because of the short maturity of these instruments.

Policy loans: Policy loans are stated at unpaid principal balances. As these loans are fully collateralized by the cash surrender value of 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.

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

I~~TEM~~ITEM 2. M~~ANAGEMENT’S~~ D~~ISCUSSION~~MANAGEMENT’S DISCUSSION AND A~~NALYSIS~~ ANALYSIS OF F~~INANCIAL~~ C~~ONDITION~~ FINANCIAL CONDITION AND R~~ESULTS~~ RESULTS OF O~~PERATIONS~~ OPERATIONS

The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Form 10-Q. In connection with, and because we desire to take advantage of, the “safe harbor” 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.

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 five wholly-owned subsidiaries: USALSC, a life insurance corporation; DCLIC, a life insurance corporation; USALSC-Montana, a life insurance corporation; USAMC, an insurance marketing corporation; and USAIC, an investment management corporation.

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.

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 quarterly report.

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.

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.

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.~~income (loss).

Incremental direct costs, net of amounts ceded to reinsurers, that result directly from and are essential to a product sale and would not have been incurred by us had the sale not occurred, are capitalized, to the extent recoverable, and amortized over the life of the premiums produced. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense.

Value of business acquired (VOBA) 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.

Goodwill represents the excess of the amounts paid to acquire subsidiaries and other businesses over the fair value of their net assets at the date of acquisition. Goodwill is tested for impairment at least annually in the fourth quarter or more frequently if events or circumstances change that would indicate that a triggering event has occurred.

We assess the recoverability of indefinite-lived intangible assets at least annually or whenever events or circumstances suggest that the carrying value of an identifiable indefinite-lived intangible asset may exceed the sum of the future discounted cash flows expected to result from its use and eventual disposition. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset.

In the normal course of business, we seek to limit aggregate and single exposure to losses on risk by purchasing reinsurance. The amounts reported in the consolidated balance sheets as reinsurance recoverable include amounts billed to reinsurers on losses paid as well as estimates of amounts expected to be recovered from reinsurers on insurance liabilities that have not yet been paid. Reinsurance recoverable on unpaid losses are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. Insurance liabilities are reported gross of reinsurance recoverable. Management believes the recoverables are appropriately established. We diversify our credit risks related to reinsurance ceded. Reinsurance premiums are generally reflected in income in a manner consistent with the recognition of premiums on the reinsured contracts. Reinsurance does not extinguish our primary liability under the policies written. We regularly evaluate the financial condition of our reinsurers including their activities with respect to claim settlement practices and commutations, and establish allowances for uncollectible reinsurance recoverable as appropriate.

We establish liabilities for amounts payable under insurance policies, including traditional life insurance and annuities. Generally, amounts are payable over an extended period of time. Liabilities for future policy benefits of traditional life insurance have been computed by using a net level premium method based upon estimates at the time of issue for investment yields, mortality and withdrawals. These estimates include provisions for experience less favorable than initially expected. Mortality assumptions are based on industry experience expressed as a percentage of standard mortality tables. Such liabilities are reviewed quarterly by an independent consulting actuary.

Deferred tax assets are recorded based on the differences between the financial statement and tax basis of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are investments, insurance reserves, and deferred acquisition costs. A deferred tax asset valuation allowance is established when there is uncertainty that such assets would be realized. We have no uncertain tax positions that we believe are more-likely-than-not that the benefit will not to be realized.

Revenues on traditional life insurance products consist of direct and assumed premiums reported as earned when due.

Amounts received as payment for annuities are recognized as deposits to policyholder account balances and included in future insurance policy benefits. Revenues from these contracts are comprised of investment earnings of the deposits, which are recognized over the period of the contracts, and included in revenue. Deposits are shown as a financing activity in the Consolidated Statements of Cash Flows.

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.

A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. 78 of this quarterly report.

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

Insurance revenues for the three months ended September 30, 2019 and 2018 are summarized in the table below.

Our 2019 first ~~quarter~~nine months revenues grew to ~~$3,530,624,~~$9,265,506, an increase of ~~$777,722~~$1,539,752 from the 2018 first ~~quarter~~nine months revenues of ~~$2,752,902.~~$7,725,754. The Company was required to implement a new accounting standard in 2019 which results in unrealized gains and losses on equity securities being included in total income.

Premium revenue: Premium revenue for the first ~~three~~nine months of 2019 was ~~$2,392,976~~$6,983,705 compared to ~~$2,432,096~~$6,651,103 in the first ~~three~~nine months of 2018, ~~a decrease~~an increase of ~~$39,120. Our pre-need revenues were~~$332,602. The increase is driven by growth in direct, recurring premiums.

Premium revenue for the ~~lowest they have been since the 4~~^th ~~quarter~~three months ended September 30, 2019 was $2,063,015 compared to $1,776,623 in 2018, an increase of ~~2017. Factors which impact this decline include the weather~~$286,392. This growth was driven by growth in our direct, recurring premiums.

Direct, assumed and ~~a reduction in the average price for a pre-need policy. Even though it is a reduction in revenue,~~ ceded ~~premium increases reflect the growth of our group policy premiums as we focused on small companies to assist them with their employee benefits. Total~~ premiums for the ~~first quarter of~~nine months ended September 30, 2019 ~~increased by $229,928 or 16.4% when compared to~~and 2018 are summarized in the 4^th ~~quarter of 2018.~~following table.

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

The Company is pursuing new product and distribution opportunities to continue to increase premium production.

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

Net investment income for the first ~~three~~nine months of 2019 was ~~$397,646,~~$1,303,757, compared to ~~$311,560~~$1,047,330 in 2018, an increase of ~~$86,086~~$256,427 or ~~28%~~24%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income and annuity deposits, and an improvement in our book yield.

The components of net investment income for the three months ended September 30, 2019 and 2018 are as follows:

Net investment income for the three months ended September 30, 2019 was $442,719, compared to $370,207 in 2018, an increase of $72,512 or 20%. This increase in investment income is primarily a result of increased invested assets as a result of our premium income and annuity deposits, and an improvement in our book yield.

Net realized gains on investments: The Company had noa minimal amount of realized gains orand losses during the first ~~quarter~~nine months of 2019 orand 2018.

Unrealized gain on equity securities: The Company was required to implement a new accounting standard in the first quarter of 2019 which requires that the unrealized gains and losses on equity securities be reported as income on the Consolidated Statements of Comprehensive Income (Loss). This resulted in a first nine months of 2019 gain of $951,575 and a third quarter of 2019 gain of ~~$727,203.~~$105,758. This new required line item will introduce significant volatility to our results as short-term fluctuations in the value of our equity securities is required to be a part of the results of our operations.

Other income: Other income for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$12,799~~$40,454 compared to ~~$9,246~~$27,648 in 2018, an increase of ~~$3,553.~~$12,806. Other income for the three months ended September 30, 2019 was $15,396 compared to $11,654 in 2018, an increase of $3,742.

Expenses. Expenses for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 and 2018 are summarized in the table below.

Expenses for the three months ended September 30, 2019 and 2018 are summarized in the table below.

Death and other benefits: Death benefits were ~~$395,667~~$1,022,585 in the nine months ended September 30, 2019 compared to $633,206 in 2018, an increase of $389,379. 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 $298,269 in the three months ended ~~March 31,~~September 30, 2019 compared to ~~$235,374~~$228,994 in 2018, an increase of ~~$160,293.~~$69,275. This increase is attributable to our growing block of in-force life insurance policies. We expect these claims to grow as we continue to increase the size of our in-force business.

Policyholder benefits: Policyholder benefits were ~~$1,136,828~~$3,267,898 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 compared to ~~$1,127,682~~$3,056,358 in 2018, an increase of ~~$9,146.~~$211,540. The primary driver of this increase is ~~the growth of~~an increase in benefits assumed from Unified Life and an increase in interest credited on our ~~annuities.~~annuity contracts.

Policyholder benefits were $962,603 in the three months ended September 30, 2019 compared to $740,579 in 2018, an increase of $222,024. The primary driver of this increase is an increase in benefits assumed from Unified Life and an increase in interest credited on our annuity contracts.

Increase in policyholder reserves: Policyholder reserves increased ~~$680,560~~$1,997,786 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, compared to ~~$796,636~~$2,112,259 in 2018, a decrease of ~~$116,076.~~$114,473. The reduction in reserve increase is the result of ~~reduced pre-need sales and~~ the release of reserves to support claim payments.

Policyholder reserves increased $560,128 in the three months ended September 30, 2019, compared to $604,647 in 2018, a decrease of $44,519. The reduction in reserve increase is the result of the release of reserves to support claim payments.

Commissions, net of deferrals: The Company pays commissions to the ceding company on a block of assumed policies as well as commissions to agents on directly written business. Commissions, net of deferrals, were ~~$219,535~~$571,543 in the nine months ended September 30, 2019, compared to $440,391 in 2018, an increase of $131,152. This increase is driven by an increase in group premiums.

Commissions, net of deferrals, were $157,944 in the three months ended ~~March 31,~~September 30, 2019, compared to ~~$152,157~~$120,413 in 2018, an increase of ~~$67,378.~~$37,531. This increase is driven by an increase in group premiums.

Amortization of deferred acquisition costs: The amortization of deferred acquisition costs was ~~$62,902~~$293,032 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, compared to ~~$90,355~~$313,860 in 2018, a decrease of ~~$27,453.~~$20,828. The amortization decrease is attributable to a reduction in amortization of pre-need commissions and to reduced margins on our American Life block of policies.

The amortization of deferred acquisition costs was $112,305 in the three months ended September 30, 2019, compared to $103,246 in 2018, an increase of $9,059.

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

Salaries and ~~benefits~~:benefits: Salaries and benefits were ~~$251,832~~$773,400 for the nine months ended September 30, 2019, compared to $781,952 in 2018, a decrease of $8,552. Staffing costs are in line with the prior year.

Salaries and benefits were $270,673 for the three months ended ~~March 31,~~September 30, 2019, compared to ~~$274,848~~$238,612 in 2018, ~~a decrease~~an increase of ~~$23,016. Staffing costs decreased due to a reduction~~$32,061. The third quarter of 2018 salaries were the lowest in ~~the number of employees and a reduction in employee benefit costs.~~over two years.

Other expenses: Other operating expenses were ~~$402,356~~$940,502 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019, compared to ~~$473,532~~$1,155,973 in 2018, a decrease of ~~$71,176.~~$215,471. Operating costs were driven lower due to decreased information technology costs and decreased selling and marketing expenses and lower than expected costs associated with our USALSC-Montana acquisition.

Other operating expenses were $217,987 in the three months ended September 30, 2019, compared to $320,804 in 2018, a decrease of $102,817. Operating costs were driven lower due to decreased information technology costs and decreased selling and marketing expenses. We also recovered a loan balance from a producer that had been previously written off.

Net ~~Income~~:Income: Our net income was ~~$375,868~~$383,532 in the ~~three~~nine months ended ~~March 31,~~September 30, 2019 compared to a net loss of ~~$402,758~~$783,473 in the same period of 2018, an increase of ~~$778,626.~~$1,167,005. Our net income per share increased to $0.05 from a net loss of ~~$0.05~~$0.11 in 2018, basic and diluted. This increase is primarily attributable to income from unrealized gains on our equity securities. For the three months ended September 30, 2019, we experienced a net gain of $42,446 compared to a net loss of $203,887 in 2018. Net income per share was $0.01 for 2019 compared to a loss of $0.03 in 2018.

Assets. Assets have increased to ~~$47,586,418~~$52,677,372 as of ~~March 31,~~September 30, 2019, an increase of ~~$3,057,429~~$8,148,383 from December 31, 2018. This is primarily the result of the growth of our business and by an increase in the market value of our investments.

Available for sale fixed maturity securities: As of ~~March 31,~~September 30, 2019, we had available for sale fixed maturity assets of ~~$28,671,748,~~$31,122,483, an increase of ~~$1,789,509~~$4,240,244 from the December 31, 2018 balance of $26,882,239. The increase is driven by the purchase of additional assets and an increase in the market value of these securities.

Available for sale equity securities: As of ~~March 31,~~September 30, 2019, we had available for sale equity assets of ~~$11,895,466,~~$11,851,019, an increase of ~~$907,927~~$863,480 from the December 31, 2018 balance of $10,987,539. This growth is driven by an increase in the market value of our equity securities.

Policy loans: As of ~~March 31,~~September 30, 2019, our policy loans were ~~$57,435,~~$68,774, an increase of ~~$896~~$12,235 from the December 31, 2018 balance of $56,539. The increase is the result of normal loan activity.

Cash and cash equivalents: As of ~~March 31,~~September 30, 2019, we had cash and cash equivalent assets of ~~$2,485,374,~~$5,145,539, an increase of ~~$407,728~~$3,067,893 from the December 31, 2018 balance of $2,077,646. This increase is primarily the result of cash received from premium income.

Investment income due and accrued: As of ~~March 31,~~September 30, 2019, our investment income due and accrued was ~~$311,398~~$306,343 compared to $286,890 as of December 31, 2018. This increase is attributable to normal investment ~~activity and the growth of our invested assets.~~activity.

Reinsurance related assets: As of ~~March 31,~~September 30, 2019, our reinsurance related assets were ~~$101,315, a decrease~~$174,827, an increase of ~~$60,531~~$12,981 from the December 31, 2018 balance of $161,846. This decrease was driven by ~~a reduction~~an increase in the amounts receivable on our reinsurance business.

Deferred acquisition costs, net: As of ~~March 31,~~September 30, 2019, our deferred acquisition costs were ~~$2,769,464, an increase~~$2,719,094, a decrease of ~~$12,060~~$38,310 from the December 31, 2018 balance of $2,757,404. The ~~increase~~decrease is ~~the result of costs deferred on new business offset~~driven by amortization of costs deferred on our coinsurance agreement with ~~ALSC.~~ALSC offset by deferred acquisition costs on our direct business.

Value of business acquired, net: As of ~~March 31,~~September 30, 2019, our value of business acquired asset was ~~$575,221,~~$565,069, a decrease of ~~$5,076~~$15,228 from the December 31, 2018 balance of $580,297. This asset was established in the third quarter of 2017 as a result of our acquisition of DCLIC. The decrease is the result of amortization of the asset.

Goodwill: As of ~~March 31,~~September 30, 2019, our goodwill was $277,542 and was unchanged from the December 31, 2018 balance. Goodwill was established as a result of our merger with Northern Plains.

Property, equipment and software, net: As of ~~March 31,~~September 30, 2019, our property, equipment and software assets were ~~$51,519,~~$46,400, a decrease of ~~$2,559~~$7,678 from the December 31, 2018 balance of $54,078. This decrease is a result of normal amortization during the period.

Other assets: As of ~~March 31,~~September 30, 2019, our other assets were ~~$389,936,~~$400,282, a decrease of ~~$17,033~~$6,687 from the December 31, 2018 balance of $406,969. This decrease was the result of ~~a reduction~~an decrease in our pre-paid assets.

Liabilities. Our total liabilities were ~~$33,175,216~~$35,807,505 as of ~~March 31,~~September 30, 2019, an increase of ~~$1,278,893~~$3,911,182 from our December 31, 2018 liability of $31,896,323. This increase is driven by an increase in our policyholder liabilities.

Policy liabilities: Our total policy liabilities as of ~~March 31,~~September 30, 2019 were ~~$32,826,238,~~$35,686,231, an increase of ~~$1,269,709~~$4,129,702 from the December 31, 2018 balance of $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 ~~March 31,~~September 30, 2019, our accounts payable and accrued expenses were ~~$323,545, an increase~~$103,679, a decrease of ~~$12,463~~$207,403 from the December 31, 2018 balance of $311,082. This decrease is driven by the ~~result~~release of ~~normal operating activity.~~expense accruals associated with our USALSC-Montana acquisition.

Other liabilities: As of ~~March 31,~~September 30, 2019, our other liabilities were ~~$25,433,~~$17,595, a decrease of ~~$3,279~~$11,117 from the December 31, 2018 balance of $28,712.

Shareholders’ Equity. Our shareholders’ equity was ~~$14,411,202~~$16,869,867 as of ~~March 31,~~September 30, 2019, an increase of ~~1,778,536~~$4,237,201 from our December 31, 2018 shareholders’ equity of $12,632,666. The increase in shareholders’ equity was driven by an increase in other comprehensive income and our net income during the period. Other comprehensive income consists of the unrealized gains and losses on our fixed maturity portfolio.

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 ~~March 31,~~September 30, 2019 and December 31, 2018.

The total value of our investments and cash and cash equivalents increased to ~~$43,052,588~~$48,119,041 as of ~~March 31,~~September 30, 2019 from $39,947,424 at December 31, 2018, an increase of ~~$3,105,164.~~$8,171,617. Increases in investments are primarily attributable to premiums and annuity deposits received by USALSC and ~~DCLIC.~~DCLIC and an increase in the fair value of our invested assets.

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

Reflecting the high quality of securities maintained by us, 98.1% of all fixed maturity securities were investment grade as of December 31, 2018. As of ~~March 31,~~September 30, 2019, ~~98.2%~~98.3% of all fixed maturity securities were investment grade.

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

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 arises from the price sensitivity of investments to changes in interest rates. Interest represents the greatest portion of an investment's return for most fixed maturity securities in stable interest rate environments. The changes in the fair value of such investments are inversely related to changes in market interest rates. As interest rates fall, the interest and dividend streams of existing fixed-rate investments become more valuable and fair values rise. As interest rates rise, the opposite effect occurs.

We attempt to mitigate our exposure to adverse interest rate movements through laddering the maturities of the fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet our 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.

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.

~~Since inception, our operations have been financed primarily through the sale of voting common stock.~~ Our operations have ~~not been profitable and have~~ generated ~~significant~~ operating losses since we were incorporated in 2009. In the first nine months of 2019, USAC has been profitable.

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.

Net cash provided by operating activities was ~~$494,301~~$1,821,896 for the ~~three~~nine months ended ~~March 31,~~September 30, 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 ~~$737,233.~~$625,517. The primary use of cash was the purchase of available for sale securities. Cash provided by financing activities was ~~$650,660.~~$1,871,513. The primary sources of cash were receipts on deposit-type contracts and issuance of common stock.

At ~~March 31,~~September 30, 2019, we had cash and cash equivalents totaling ~~$2,485,374.~~$5,145,539. We believe that our existing cash and cash equivalents and premiums from our insurance operations will be sufficient to fund the anticipated operating expenses and capital expenditures 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. USALSC is a member of the Federal Home Loan Bank of Topeka which further increases the liquidity options available to the Company.

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.

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.

I~~TEM~~3. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company”, the Company does not provide disclosure pursuant to this item.

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 ~~three~~nine months ended ~~March 31,~~September 30, 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s control over financial reporting.

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.

As a “smaller reporting company”, the Company is not required to provide disclosure pursuant to this item.

During the quarter ended ~~March 31,~~September 30, 2019, the Company issued ~~19,587~~1,581 shares of common stock, for aggregate consideration of ~~$137,109,~~$11,067, pursuant to an offering to residents of the state of Kansas that was registered with the Kansas Securities Commissioner.

The offering of shares in 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 ~~March 31,~~September 30, 2019, the Company issued ~~23,270~~23,899 shares of common stock, for aggregate consideration of ~~$162,890,~~$167,293, pursuant to a private placement offering to residents of the state of North Dakota (the “North Dakota Offering”). Proceeds from the sale of shares in the North Dakota Offering were used to finance the growth of DCLIC and to provide working capital for the Company. The North Dakota Offering and sales of shares thereunder were not registered with the SEC in reliance on an exemption for registration under Rule 506(b) of Regulation 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.

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

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)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

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~~Income (Loss)	4

	Consolidated Statements of Changes in Shareholders' Equity	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	7

Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	1614

Item 3	Quantitative and Qualitative Disclosures About Market Risk	2523

Item 4	Controls and Procedures	2523

Part II - Other Information

Item	Item Description	Page
Item 1	Legal Proceedings	2524

Item 1A	Risk Factors	2624

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2624

Item 3	Defaults Upon Senior Securities	2624

Item 4	Mine Safety Disclosures	2624

Item 5	Other Information	2624

Item 6	Exhibits	2625

	Signatures	2726

								Accumulated																Accumulated
	Number of							Other									Number of							Other
	Shares of		Common		Additional			Comprehensive			Accumulated						Shares of		Common		Additional			Comprehensive			Accumulated
	Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total			Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total
Balance, December 31, 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		46,218		4,622		318,905			-			-			323,527			204,553		20,455		1,411,416			-			-			1,431,871
Costs associated with common stock issued		-		-		(119,716	)		-			-			(119,716	)		-		-		(417,088	)		-			-			(417,088	)
Other comprehensive loss		-		-		-			(988,946	)		-			(988,946	)		-		-		-			(1,647,536	)		-			(1,647,536	)
Net loss		-		-		-			-			(402,758	)		(402,758	)		-		-		-			-			(783,473	)		(783,473	)
Balance, March 31, 2018		7,357,157	$	735,717	$	21,479,626		$	(583,508	)	$	(8,884,026	)	$	12,747,809
Balance, September 30, 2018																		7,515,492	$	751,550	$	22,274,765		$	(1,242,098	)	$	(9,264,741	)	$	12,519,476

Balance, December 31, 2018		7,650,551	$	765,056	$	22,989,443		$	(2,184,429	)	$	(8,937,404	)	$	12,632,666			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			82,019		8,202		565,931			-			-			574,133
Costs associated with common stock issued		-		-		(143,109	)		-			-			(143,109	)		-		-		(300,981	)		-			-			(300,981	)
Cumulative effect, adoption of accounting guidance for equity sercurities		-		-		-			-			(1,098,760	)		(1,098,760	)		-		-		-			-			(1,098,760	)		(1,098,760	)
Other comprehensive income		-		-		-			2,344,538			-			2,344,538			-		-		-			4,679,277			-			4,679,277
Net income		-		-		-			-			375,868			375,868			-		-		-			-			383,532			383,532
Balance, March 31, 2019		7,693,408	$	769,342	$	23,142,047		$	160,109		$	(9,660,296	)	$	14,411,202
Balance, September 30, 2019																		7,732,570	$	773,258	$	23,254,393		$	2,494,848		$	(9,652,632	)	$	16,869,867

								Accumulated
	Number of							Other
	Shares of		Common		Additional			Comprehensive			Accumulated
	Common Stock		Stock		Paid-in Capital			Income / (Loss)			Deficit			Total
Balance, June 30, 2018		7,453,287	$	745,330	$	21,985,207		$	(1,098,682	)	$	(9,060,854	)	$	12,571,001
Common stock issued, $7 per share		62,205		6,221		429,215			-			-			435,435
Costs associated with common stock issued		-		-		(139,657	)		-			-			(139,657	)
Other comprehensive loss		-		-		-			(143,416	)		-			(143,416	)
Net loss		-		-		-			-			(203,887	)		(203,887	)
Balance, September 30, 2018		7,515,492	$	751,550	$	22,274,765		$	(1,242,098	)	$	(9,264,741	)	$	12,519,476

Balance, June 30, 2019		7,707,090	$	770,710	$	23,141,692		$	1,502,174		$	(9,695,078	)	$	15,719,498
Common stock issued, $7 per share		25,480		2,548		175,812			-			-			178,360
Costs associated with common stock issued		-		-		(63,111	)		-			-			(63,111	)
Cumulative effect, adoption of accounting guidance for equity sercurities		-		-		-			-			-			-
Other comprehensive income		-		-		-			992,674			-			992,674
Net income		-		-		-			-			42,446			42,446
Balance, September 30, 2019		7,732,570	$	773,258	$	23,254,393		$	2,494,848		$	(9,652,632	)	$	16,869,867

	Three Months Ended March 31,					Nine Months Ended September 30,						Three Months Ended September 30,
	2019		2018			2019			2018			2019			2018
	(unaudited)					(unaudited)						(unaudited)
Income:
Premium income	$	2,392,976	$	2,432,096		$	6,983,705		$	6,651,103		$	2,063,015		$	1,776,623
Net investment income		397,646		311,560			1,303,757			1,047,330			442,719			370,207
Net realized gain (loss) on sale of securities							(13,985	)		(327	)		543			-
Unrealized gain on equity securites		727,203		-			951,575			-			105,758			-
Other income		12,799		9,246			40,454			27,648			15,396			11,654
Total income		3,530,624		2,752,902			9,265,506			7,725,754			2,627,431			2,158,484

Expenses:
Death claims		395,667		235,374			1,022,585			633,206			298,269			228,994
Policyholder benefits		1,136,828		1,127,682			3,267,898			3,056,358			962,603			740,579
Increase in policyholder reserves		680,560		796,636			1,997,786			2,112,259			560,128			604,647
Commissions, net of deferrals		219,535		152,157			571,543			440,391			157,944			120,413
Amortization of deferred acquisition costs		62,902		90,355			293,032			313,860			112,305			103,246
Amortization of value of business acquired		5,076		5,076			15,228			15,228			5,076			5,076
Salaries & benefits		251,832		274,848			773,400			781,952			270,673			238,612
Other operating expenses		402,356		473,532			940,502			1,155,973			217,987			320,804
Total expense		3,154,756		3,155,660			8,881,974			8,509,227			2,584,985			2,362,371

Net lncome (loss)	$	375,868	$	(402,758	)	$	383,532		$	(783,473	)	$	42,446		$	(203,887	)

Net income (loss) per common share, basic and diluted	$	0.05	$	(0.05	)	$	0.05		$	(0.11	)	$	0.01		$	(0.03	)

Unrealized net holding gains (losses) arising during the period		1,245,778		(988,946	)		3,566,532			(1,647,863	)		993,217			(143,416	)
Cumulative effect, adoption of accounting guidance on equity securities		1,098,760		-			1,098,760			-			-			-
Reclassification adjustment for (gains) losses included in net loss							13,985			327			(543	)		-
Other comprehensive income (loss)		2,344,538		(988,946	)		4,679,277			(1,647,536	)		992,674			(143,416	)

Comprehensive income (loss)	$	2,720,406	$	(1,391,704	)	$	5,062,809		$	(2,431,009	)	$	1,035,120		$	(347,303	)

	Period Ended March 31,						Nine Months Ended September 30,
	2019			2018			2019			2018
	(unaudited)						(unaudited)
Cash Flows from Operating Activities:
Net income (loss)	$	375,868		$	(402,758	)	$	383,532		$	(783,473	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		2,559			8,805			7,678			26,606
Net realized losses on the sale of securities								13,985			327
Unrealized gain on equity securities		(727,203	)		-			(951,575	)		-
Amortization of investment securities, net		11,881			13,947			27,664			42,394
Deferred acquisition costs capitalized		(74,962	)		(64,638	)		(254,723	)		(216,426	)
Deferred acquisition costs amortized		62,903			90,355			293,033			313,860
Value of business acquired amortized		5,076			5,076			15,228			15,228
Interest credited on deposit type contracts		160,494			131,779			495,623			409,794
(Increase) decrease in operating assets:
Investment income due and accrued		(24,508	)		(22,934	)		(19,453	)		(50,768	)
Reinsurance related assets		60,531			66,976			(12,981	)		80,953
Other assets		17,033			33,164			6,687			65,573
Increase (decrease) in operating liabilities:
Policyowner benefit reserves		631,551			736,552			2,045,227			2,140,629
Dividend accumulation		(9,519	)		-
Dividend Accumulation								(49,481	)		-
Advance premiums		(6,587	)		58,942			39,972			37,426
Other liabilities		(3,279	)		6,833			(11,117	)		5,929
Accounts payable and accrued expenses		12,463			(624	)		(207,403	)		(9,031	)
Net cash provided by operating activities		494,301			661,475			1,821,896			2,079,021

Cash Flows from Investing Activities:
Available-for-sale securities
Purchase of fixed income investments		(615,289	)		(715,128	)		(1,230,636	)		(2,756,884	)
Purchase of equity investments		(173,630	)		(300,175	)		(179,496	)		(1,055,592	)
Proceeds from fixed income sales and repayments		52,582			28,126			528,750			248,077
Proceeds from equity sales and repayments								268,101			-
Interest on policy loans		(674	)		(619	)		(675	)		(1,842	)
Increase in policy loans		(222	)		1,330			(11,560	)		(6,619	)
Purchase of property, equipment and software								-			(5,334	)
Net cash used in investing activities		(737,233	)		(986,466	)		(625,516	)		(3,578,194	)

Cash Flows from Financing Activities:
Receipts on deposit-type contracts		965,438			1,064,900			2,779,027			2,969,466
Withdrawals on deposit-type contracts		(471,668	)		(424,178	)		(1,180,666	)		(1,155,056	)
Proceeds received from issuance of common stock, net of costs of issuance		156,890			203,811			273,152			1,014,783
Net cash provided by financing activities		650,660			844,533			1,871,513			2,829,193

Net increase in cash and cash equivalents		407,728			519,542			3,067,893			1,330,020

Cash and Cash Equivalents:
Beginning		2,077,646			651,809			2,077,646			651,809
Ending	$	2,485,374		$	1,171,351		$	5,145,539		$	1,981,829

	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

	December 31, 2018
	Total		Level 1		Level 2		Level 3
Available for sale:
Fixed maturities:
US Treasury securities	$	569,940	$	569,940	$	-	$	-
Corporate bonds		15,842,361		-		15,642,361		200,000
Municipal bonds		6,598,113		-		6,598,113		-
Redeemable preferred stock		90,840		-		90,840		-
Mortgage backed and asset backed securities		3,780,985		-		3,780,985		-
Total fixed maturities		26,882,239		569,940		26,112,299		200,000
Equities:
Equities		10,987,539		10,987,539		-		-
Total	$	37,869,778	$	11,557,479	$	26,112,299	$	200,000

	March 31, 2019				December 31, 2018				September 30, 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	$	2,485,374	$	2,485,374	$	2,077,646	$	2,077,646	$	5,145,539	$	5,145,539	$	2,077,646	$	2,077,646
Investment income due and accrued		311,398		311,398		286,890		286,890		306,343		306,343		286,890		286,890
Investments, at fair value		40,624,649		40,624,649		37,926,317		37,926,317
Total Financial Assets	$	43,421,421	$	43,421,421	$	40,290,853	$	40,290,853
Policy loans										68,774		68,774		56,539		56,539
Total Financial Assets (excluding available for sale investments)									$	5,520,656	$	5,520,656	$	2,421,075	$	2,421,075

Financial Liabilities:
Policyholder deposits in deposit-type contracts	$	17,280,482	$	16,197,221	$	16,626,218	$	15,361,164	$	18,720,202	$	18,540,934	$	16,626,218	$	15,361,164
Total Financial Liabilities	$	17,280,482	$	16,197,221	$	16,626,218	$	15,361,164	$	18,720,202	$	18,540,934	$	16,626,218	$	15,361,164

	Nine Months Ended September 30,
	2019			2018
	(unaudited)
Direct	$	3,868,350		$	3,401,876
Assumed		3,723,457			3,689,412
Ceded		(608,102	)		(440,185	)
Total	$	6,983,705		$	6,651,103

	Periods Ended March 31,
	2019			2018

Direct	$	1,191,780		$	1,139,367
Assumed		1,403,793			1,405,606
Ceded		(202,597	)		(112,877	)
Total	$	2,392,976		$	2,432,096

	Period Ended March 31,						Nine Months Ended September 30,
	2019			2018			2019			2018
							(unaudited)
Fixed maturities	$	302,294		$	229,643		$	873,443		$	712,841
Equity securities		114,586			100,705			440,426			387,221
Cash and short term investments		4,199			747			23,772			7,485
		421,079			331,095			1,337,641			1,107,547
Less investment expenses		(23,433	)		(19,535	)		(33,884	)		(60,217	)
	$	397,646		$	311,560		$	1,303,757		$	1,047,330

	Three Months Ended September 30,
	2019			2018
	(unaudited)
Fixed maturities	$	288,410		$	245,663
Equity securities		155,350			140,630
Cash and short term investments		9,794			4,524
		453,554			390,817
Less investment expenses		(10,835	)		(20,610	)
	$	442,719		$	370,207

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

3.1.1	First Amendment to 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

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

3.2.1	Amendment No. 1 to the Bylaws of US Alliance Corporation, filed as Exhibit 3.2.1 to the Company’s Current Report on Form 8-K filed on June 9, 2017 (File No. 000-55627), is incorporated herein by reference as Exhibit 3.1.1

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

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

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

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

101.INS**	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

Date

By	/s/ Jack H. Brier
	Jack H. Brier, President and Chairman