Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in this Form 10-K. 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, including those relating to the Covid-19 pandemic, 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

USAC was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new life insurance company. We presently conduct our business through our four wholly-owned subsidiaries: USALSC, 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. USALSC re-domesticated to North Dakota in 2023. USALSC is currently authorized to conduct business in 18 states.

On August 1, 2017, the Company merged with Northern Plains Capital Corporation with the Company being the surviving entity. As a result of the merger, the Company acquired Dakota Capital Life Insurance Company which became a wholly owned subsidiary of USALSC. In 2023, Dakota Capital Life Insurance Company was merged into 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 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. This agreement was terminated on December 31, 2025. On September 30, 2017, the Company entered into an agreement (the "2017 ALSC Agreement") to assume 100% of a certain block of life insurance policies from American Life & Security Company ("ALSC"). On April 15, 2020, with an effective date of January 1, 2020, the Company entered into an agreement with ALSC (the "2020 ALSC Agreement ") to assume a quota share percentage of a block of annuity policies. Effective December 31, 2020 USALSC entered into an agreement with ALSC, which provided for ALSC to recapture all reserves previously ceded to USALSC with respect to a portion of the 2017 ALSC Agreement.

On December 31, 2023 USALSC entered into an agreement with Lewer Life Insurance LLIC to assume a block of life and annuity policies.

On October 1, 2025, USALSC-Montana entered into an agreement with the Montana Funeral Trust, resulting in the issuance of $17,354,974 of annuity contracts.

Mergers and Acquisitions

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

Effective December 31, 2020, DCLIC acquired a block of life insurance policies according to the terms of an assumption agreement with ALSC. The Company acquired fixed maturity securities and cash of $9,181,100, assumed liabilities of $10,972,785 and recorded VOBA of $2,163,541.

On December 31, 2023, DCLIC was merged into its parent company, USALSC.

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 quarterly report.

Valuation of Investments

The Company's principal investments are in fixed maturity, mortgage participations, and equity securities. Fixed maturity, 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. Equity securities are carried at their fair value in the consolidated balance sheets, with unrealized gains or losses recorded in net income. Mortgages, including mortgage loan participations, are carried at unpaid principal balances, net of any unamortized premium or discount and valuation allowances.

The recognition of credit losses on debt securities is dependent on the facts and circumstances related to the specific security. If we determine a credit loss exists, the difference between amortized cost and fair value is recognized in the consolidated statements of comprehensive income. Our membership in the Federal Home Loan Bank ("FHLB") provides additional liquidity which further reduces the likelihood that we would be required to sell a security prior to recovery for liquidity purposes.

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

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

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

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

Other invested assets include collateral loans and private credit investments. The collateral loans and private credit investments are carried at fair value. The inputs used to measure these assets are classified as Level 3 within the fair value hierarchy.

Limited partnership interests consist of an investment in Mutual Capital Investment Fund. Limited partnerships interests are carried at net asset value as determined by a third-party valuation.

Deferred Acquisition Costs

The Company capitalizes and amortizes over the life of the premiums produced incremental direct costs that result directly from and are essential to the contract acquisition transaction and would not have been incurred by the Company had the contract acquisition not occurred. An entity may defer incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or employees as well as the portion of employee compensation and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts. Additionally, an entity may capitalize as a deferred acquisition cost only those advertising costs meeting the capitalization criteria for direct-response advertising. Our insurance contracts are grouped by product type and contract issue year into cohorts consistent with the grouping used to estimate the related contract liabilities. DAC is amortized on a constant level basis over the life of the policy. For all products, in-force volume metrics are used as the constant level basis. The lapse and mortality assumptions used to amortize DAC are consistent with the assumptions used to estimate the liability for future policy benefits. The underlying assumptions used to determine DAC amortization are updated concurrently with any related assumption changes for the liability for future policy benefits and changes in estimates are recognized prospectively over the remaining expected term of the related contracts. An experience adjustment is applied if actual terminations are greater than expected.

Policyholder Benefits

Liabilities for future policy benefits represent the cost of claims that we estimate we will eventually pay to our policyholders which includes policy liabilities for claims not yet incurred and for claims that have been incurred or are estimated to have been incurred but not yet reported to us. The liability for future policy benefits is calculated based on the present value of the estimated future policy benefits less the present value of estimated future net premiums collected. Net premiums represent the portion of the gross premium required to provide for all benefits and expenses, excluding acquisition costs or any costs that are required to be charged to expense as incurred. In calculating the liability for future policy benefits, our long-duration contracts are grouped into cohorts by product type, contract issue year for direct business, and assumption year for assumed business.

The calculation of the liability for future policy benefits involves numerous assumptions including assumptions related to discount rate, lapses, mortality, and morbidity. Effective January 1, 2025, the Company has adopted an accounting pronouncement related to targeted improvements to to the accounting for long-duration contracts ("LDTI"), with a January 1, 2024 transition date (the "LDTI Transition Date"). The discount rate assumptions were initially set based on the expected investment yield of the assets supporting the reserves at the LDTI Transition Date, for policies originally issued on or before the LDTI Transition Date. The discount rate assumptions for new cohorts established after the transition date, are initially set based on the policy issuance date or policy renewal date, and are based on an upper-medium grade fixed-income instrument, which is generally equivalent to a single-A interest rate matched to the duration of our insurance liabilities. The initial, also referred to as the original, discount rate assumptions established for each cohort are used to determine interest accretion which is reported as a component of policy benefits on the statements of comprehensive income. After policy issuance or policy renewal, the discount rate assumptions are updated quarterly and used to update the liability at each reporting date to the current discount rate, with the corresponding change reflected as the change in the effect of discount rate assumptions on the liability for future policy benefits, net of reinsurance, on the statement of changes in other comprehensive income (loss). According to actuarial sensitivity tests, a 1% increase or decrease in interest rates is estimated to decrease or increase our policyholder benefit reserve by approximately $3 million. A 5% change in mortality is estimated to change our policyholder benefit reserve by approximately $70,000.

New Accounting Standards

A detailed discussion of new accounting standards is provided in the Notes to Consolidated Financial Statements beginning on p. F-7 of this annual report.

Discussion of Consolidated Results of Operations

Total Income.Insurance revenues are primarily generated from premium revenues and investment income. Total income for the years ended December 31, 2025 and 2024 are summarized in the table below.

		Years Ended December 31,
		2025				2024
Income:
Premium income		$	17,347,856			$	15,338,053
Net investment income			7,308,468				7,597,762
Net investment (losses) gains			(491,476	)			283,423
Other income			408,590				553,035
Total income			24,573,438				23,772,273

Our 2025 total income increased to $24,573,438, an increase of $801,165 or 3% from the 2024 total income of $23,772,273. The increase is driven by increases in premium income. The Company records unrealized gains and losses on equity securities in total income in accordance with accounting standards. This standard continues to result in increased volatility in total income.

The following graph summarizes our five-year trend of total income:

Premium income: Premium income for 2025 was $17,347,856 compared to $15,338,053 in 2024, an increase of $2,009,803 or 13%. The increase was driven by an increase in direct single and recurring premiums. 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.

Direct, assumed and ceded premiums for the years ended December 31, 2025 and 2024 are summarized in the following table:

		Years Ended December 31,
		2025				2024
Direct		$	13,750,097			$	11,928,460
Assumed			5,193,631				4,956,205
Ceded			(1,595,872	)			(1,546,612	)
Total		$	17,347,856			$	15,338,053

The Company continuously searches for new product and distribution opportunities to continue to increase premium production on a direct and assumed basis.

Investment income, net of expenses: The components of net investment income for the years ended December 31, 2025 and 2024 are as follows:

		Years Ended December 31,
		2025				2024
Fixed maturities		$	5,460,250			$	5,985,869
Mortgages			2,067,165				1,680,515
Equity securities			257,693				313,416
Other invested assets			128,994				197,760
Cash and cash equivalents			284,938				322,841
			8,199,040				8,500,401
Less investment expenses			(890,572	)			(902,639	)
		$	7,308,468			$	7,597,762

Net investment income for 2025 was $7,308,468, compared to $7,597,762 in 2024, a decrease of $289,294, or 4%. The decrease is due to reduced income on fixed maturity securities.

Net investment gains (losses): Accounting standards require that the unrealized gains and losses on equity securities be reported as income on the consolidated statements of comprehensive income. For the years ended December 31, 2025 and 2024, net investment gains (losses) are summarized in the following table.

		Years Ended December 31,
		2025				2024
Recognized gains on sale of investments		$	143,823			$	13,031
Realized loss on charge offs of investments			(1,065,246	)			-
Change in allowance for credit loss recognized in earnings			(43,433	)			(34,041	)
Unrealized net gains recognized in earnings			742,754				8,414
Embedded derivative			(269,374	)			296,019
Net investment (losses) gains		$	(491,476	)		$	283,423

Net investment losses for 2025 were $491,476 compared to gains of $283,423 in 2024, a decrease of $774,899 or 273%. The decrease was driven by realized losses on investment write-downs.

Realized gains (losses): Realized gains and losses related to the sale of securities and mortgage loan participations for the years ended December 31, 2025 and 2024 are summarized as follows:

		Years Ended December 31,
		2025				2024
Gross gains		$	355,547			$	201,481
Gross losses			(1,276,970	)			(188,450	)
Net security losses		$	(921,423	)		$	13,031
Mortgage loans on real estate			(43,433	)			(34,041	)
(Increase) Decrease in allowance for credit losses		$	(43,433	)		$	(34,041	)

The net security losses were driven by realized losses on charge-offs of investments in 2025.

Other income: Other income for the year ended December 31, 2025 was $408,590 compared to $553,035 in 2024, a decrease of $144,445 or 26%. The decrease was the result of implementation fees for a third-party administration agreement in 2024 which did not recur in 2025.

Expenses. Expenses for the year ended December 31, 2025 and 2024 are summarized in the table below. With the implementation of LDTI, 2024 results have been restated from those previously reported in our 10-K for the year ended December 31, 2024 to comply with the new accounting standard. Please see the notes in the financial statement beginning on page F-7 for more details on the impact of this implementation.

		Years Ended December 31,
		2025				2024
Expenses:
Death claims			5,252,801				3,983,405
Policyholder benefits			7,324,481				6,883,283
Increase in policyholder reserves			6,705,244				5,973,329
Commissions, net of deferrals			962,231				947,548
Amortization of deferred acquisition costs			748,446				945,922
Amortization of value of business acquired			92,420				92,420
Salaries & benefits			1,839,528				1,701,745
Other operating expenses			2,753,822				2,624,371
Total expenses			25,678,973				23,152,023

The following chart and graph summarizes our five-year expense trend:

Year		Increase in Policyholder Reserves				Other Policy-related Expenses				Operating Expenses				Total Expenses				% of Operating Expense to Total Expense
2021			4,063,488				10,627,532				3,244,412				17,935,432				18%
2022			4,207,703				11,623,423				3,480,212				19,311,338				18%
2023			4,589,538				12,111,905				3,586,886				20,288,329				18%
2024			5,566,210				13,347,176				4,326,116				23,239,502				19%
2025			6,705,244				14,380,379				4,593,350				25,678,973				18%

Increases in policyholder reserves represents funds that we maintain and invest for the future benefit of our policyholders. Other policy-related expenses represent the other expenses associated with fulfilling our obligations to our policyholders and producers. Operating expenses represent the costs to operate the company and consists of salaries and benefits and other operating expenses.

Death claims: Death benefits were $5,252,801 in the year ended December 31, 2025 compared to $3,983,405 for 2024, an increase of $1,269,396 or 32%. This increase is attributable to our growing block of in-force pre-need 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 $7,324,481 in the year ended December 31, 2025 compared to $6,883,283 in 2024, an increase of $441,198 or 6%. The primary driver of this increase is interest credited on our annuity contracts.

Increase in policyholder reserves: Policyholder reserves increased $6,705,244 in the year ended December 31, 2025, compared to $5,973,329, as adjusted, in 2024, an increase of $731,915 or 12%. The growth in reserves is the result of increased pre-need in-force policies.

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 $962,231 in the year ended December 31, 2025, compared to $947,548 in 2024, an increase of $14,683 or 2%. This increase is due to an increase in and changing mix of premiums.

Amortization of deferred acquisition costs: The amortization of deferred acquisition costs ("DAC") was $748,446 in the year ended December 31, 2025, compared to $9945,922, as adjusted, in 2024, a decrease of $197,476 or 21%. The decrease is the result of amortization changes driven by the LDTI implementation.

Amortization of value of business acquired: The amortization of value of business acquired ("VOBA") was $92,420 in the years ended December 31, 2025 and 2024, respectively. VOBA is being amortized straight-line over 30 years.

Salaries and benefits: Salaries and benefits were $1,839,528 for the year ended December 31, 2025, compared to $1,701,745 in 2024, an increase of $137,783 or 8%. The increase was driven by increased employee compensation costs and additional team members.

Other expenses: Other operating expenses were $2,753,822 in the year ended December 31, 2025, compared to $2,624,371 in 2024, an increase of $129,451 or 5%. The increase is driven by increased actuarial and information technology ("IT") expenses.

Federal income tax (expense) benefit: In the year ended December 31, 2025, the Company recognized federal income tax benefit of $318,693. In the year ended December 31, 2024, as adjusted, the Company recognized a federal income tax expense of $79,878. These are the result of changes in the deferred tax asset and deferred tax asset valuation allowance and due to current income tax expense.

Net Income: Our net loss was $786,842 in the year ended December 31, 2025 compared to net income of $540,372, as adjusted, in 2024, a decrease of $1,327,214. Our net loss per share was $0.10 compared to net income per share of $0.07, as adjusted, in 2024, basic and diluted.

The following graph illustrates our five-year trend of net income (loss) per share:

Discussion of Consolidated Balance Sheet

Assets. Assets have increased to $148,680,102 as of December 31, 2025, an increase of $17,509,970 or 13% from December 31, 2024 assets of $131,170,132. This is primarily the result of an increase in cash and fixed maturity securities.

Available for sale fixed maturity securities: As of December 31, 2025, we had available for sale fixed maturity assets of $86,534,704, an increase of $6,956,525 or 9% from the December 31, 2024 balance of $79,578,179. The increase is driven by new purchases.

Equity securities, at fair value: As of December 31, 2025, we had equity assets of $3,542,412, a decrease of $333,673 or 9% from the December 31, 2024 balance of $3,876,085. This decrease is driven by the sales of equity securities partially offset by improved market values.

Limited partnership interests: As of December 31, 2025, we had limited partnership interests of $1,293,005, an increase of 864,835 or 202% from the December 31, 2024 balance of $428,170. This is related to our investment in the Mutual Capital Investment Fund.

Mortgage loans on real estate: As of December 31, 2025, we had mortgage loans on real estate of $23,645,037, a decrease of $1,547,712 or 6% from the December 31, 2024 balance of $25,192,749. The decrease results from maturing mortgage loan participations.

Other invested assets: As of December 31, 2025, we had other invested assets of $1,018,640, a decrease of $90,966 or 8% from the December 31, 2024 balance of $1,109,606. The decrease was driven by fluctuations in the value of our other invested assets.

Policy loans: As of December 31, 2025, our policy loans were $41,314, an increase of $9,569 or 30% from the December 31, 2024 balance of $31,745. The increase is a result of new policy loan activity.

Real estate, net of depreciation: As of December 31, 2025, we had real estate assets of $1,597,979 related to our home office building, a decrease of $54,574 or 3% from the December 31, 2024 balance of $1,652,553. The decrease is the result of building depreciation.

Cash and cash equivalents: As of December 31, 2025, we had cash and cash equivalent assets of $18,036,904, an increase of $11,133,121 or 161% from the December 31, 2024 balance of $6,903,783. This increase was the result of cash inflows in the fourth quarter from our Montana Funeral Trust partnership.

Investment income due and accrued: As of December 31, 2025, our investment income due and accrued was $860,697 compared to $954,324 as of December 31, 2024, a decrease of $93,627 or 10%. This decrease is attributable to a reduction in accrued income due to interest payments.

Reinsurance related assets: As of December 31, 2025, our reinsurance related assets were $1,177,656 compared to $788,886 as of December 31, 2024, an increase of $388,770 or 49%. This increase is the result of pending claim reimbursements from our reinsurers.

Deferred acquisition costs, net: As of December 31, 2025, our deferred acquisition costs were $4,739,627 compared to $4,402,996 as of December 31, 2024, an increase of $336,631 or 8%. The increase is the result of changing amortization of DAC related to the new LDTI accounting standard.

Value of business acquired, net: As of December 31, 2025 our value of business acquired asset was $2,241,133 compared to $2,333,553 as of December 31, 2024, a decrease of $92,420 or 4%. The decrease is the result of amortization of VOBA.

Property, equipment and software, net: As of December 31, 2025 our property, equipment and software assets were $119,068, a decrease of $17,285 or 13% from the December 31, 2024 balance of $136,353. This decrease is the result of depreciation.

Goodwill: As of December 31, 2025 and December 31, 2024, our goodwill was $277,542. Goodwill was established as a result of our merger with NPCC. We have determined that there has been no impairment to our goodwill balance.

Deferred tax asset, net of valuation allowance: The Company had a net deferred tax asset of $3,000,912 as of December 31, 2025, an increase of $138,755 or 5% from the December 31, 2024 balance of $2,862,157. The increase is the result of deferred federal income tax benefits.

Other assets: As of December 31, 2025, our other assets were $518,100, an increase of $58,998 or 12% from the December 31, 2024 balance of $459,102. This increase is the result of normal business activity.

Liabilities. Our total liabilities were $135,682,748 as of December 31, 2025, an increase of $18,472,382 or 16% from our December 31, 2024 liabilities of $117,210,366. This increase is driven by an increase in our policy liabilities.

Policy liabilities: Our total policy liabilities as of December 31, 2025 were $132,757,740 compared to $114,734,952 as of December 31, 2024, an increase of $18,022,788 or 16%. This increase is the result of the growth of our in-force business.

Accounts payable and accrued expenses: As of December 31, 2025, our accounts payable and accrued expenses were $1,575,654 compared to $1,133,521 as of December 31, 2024, an increase of $442,133 or 39%. The increase is driven by changes in amounts due to our reinsurers.

Federal Home Loan Bank advance: As of December 31, 2025 and 2024, the Company's outstanding advances were $1,250,000.

Other liabilities: As of December 31, 2025, we had other liabilities of $99,354 compared to $91,863 as of December 31, 2024, an increase of $7,461 or 8%. The increase is the result of normal business activity.

Shareholders'Equity. Our shareholders' equity was $12,997,354 as of December 31, 2025, a decrease of $962,412 or 7% from our December 31, 2024 shareholders' equity of $13,959,766. The decrease in shareholders' equity was driven by our net loss.

Investments

Our investment philosophy is reflected by the allocation of our investments. We emphasize investment grade debt securities with smaller holdings in equity securities, mortgages 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 December 31, 2025 and December 31, 2024.

		December 31, 2025								December 31, 2024
		Carrying				Percent				Carrying				Percent
		Value				of Total				Value				of Total
Fixed maturities:
US Treasury securities		$	732,892				0.5%			$	711,377				0.6%
Corporate bonds			28,299,216				20.9%				21,491,820				18.1%
Municipal bonds			5,807,136				4.3%				4,741,149				4.0%
Redeemable preferred stocks			1,998,438				1.5%				2,411,234				2.0%
Term Loans			11,005,804				8.1%				12,788,304				10.8%
Mortgage backed and asset backed securities			38,691,218				28.4%				37,434,295				31.4%
Total fixed maturities			86,534,704				63.7%				79,578,179				66.9%
Mortgage loans			23,645,037				17.4%				25,192,749				21.2%
Other invested assets			1,018,640				0.8%				1,109,606				0.9%
Limited partnership interests			1,293,005				1.0%				428,170				0.4%
Equities:
Common stock			2,097,203				1.5%				2,395,195				2.0%
Preferred stock			1,445,209				1.1%				1,480,890				1.2%
Total equities			3,542,412				2.6%				3,876,085				3.3%
Real estate, net of depreciation			1,597,979				1.2%				1,652,553				1.4%
Cash and cash equivalents			18,036,904				13.3%				6,903,783				5.8%
Total		$	135,668,681				100.0%			$	118,741,125				100.0%

The total value of our investments and cash and cash equivalents increased to $135,668,681 as of December 31, 2025 from $118,741,125 at December 31, 2024, an increase of $16,927,556 or 14%. Increases in investments are primarily attributable to premium income and improved market values.

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of December 31, 2025 and December 31, 2024.

		December 31, 2025								December 31, 2024
		Fair				Percent				Fair				Percent
		Value				of Total				Value				of Total
AAA and U.S. Government		$	8,939,711				10.3%			$	5,470,235				6.9%
AA			13,834,491				16.0%				10,469,465				13.1%
A			11,839,821				13.7%				15,174,048				19.1%
BBB			30,102,608				34.8%				35,807,023				45.0%
BB			2,965,831				3.4%				4,378,680				5.5%
B			1,236,377				1.4%				90,675				0.1%
Not Rated - Certificates of Deposit			8,650,000				10.0%				-				0.0%
Not Rated - Private Placement			8,965,865				10.4%				8,188,053				10.3%
Total		$	86,534,704				100.0%			$	79,578,179				100.0%

The amortized cost and fair value of debt securities as of December 31, 2025 and 2024, 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 December 31, 2025								As of December 31, 2024
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
Amounts maturing in:
One year or less		$	1,074,089			$	1,072,360			$	2,329,128			$	2,329,128
After one year through five years			23,367,252				23,263,307				18,590,198				18,410,081
After five years through ten years			4,878,273				4,797,585				2,032,061				1,967,540
More than 10 years			19,722,631				16,711,796				20,606,740				17,025,901
Redeemable preferred stocks			2,142,141				1,998,438				2,562,893				2,411,234
Mortgage backed and asset backed securities			38,852,468				38,691,218				37,664,287				37,434,295
Total amortized cost and fair value		$	90,036,854			$	86,534,704			$	83,785,307			$	79,578,179

Market Risk of Financial Instruments

We hold a diversified portfolio of investments that primarily includes cash, bonds, equity securities, mortgage loans, and other invested assets. Each of these investments is subject to market risks that can affect their return and their fair value. 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. Changes in fair value of our fixed maturity securities due to interest rates are reflected through accumulated other comprehensive income. Significant fluctuations may result in material volatility of accumulated other comprehensive income.

We work 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, we believe 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. Additionally, USALSC is a member of the FHLB of Topeka, which provides access to liquidity and further reduces the likelihood of disposing 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

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. The Company has two past due loans with principal net of allowances in the amount of $815,757. The Company does not anticipate this to have a material impact on our financial condition or liquidity. As a member of the Federal Home Loan Bank, USALSC has immediate access to additional cash liquidity, if needed.

Net cash provided by operating activities was $8,885,836 for the year ended December 31, 2025. The primary sources of cash from operating activities were premiums received from policyholders as well as investment income. 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 $5,570,136. The primary uses of cash was purchases of fixed maturity, mortgage, and equity investments. Cash provided by financing activities was $7,817,421. The primary sources of cash were receipts on deposit-type contracts.

At December 31, 2025, we had cash and cash equivalents totaling $18,036,904. We believe that our existing cash and cash equivalents are 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 USALSC, our primary insurance subsidiary, is uncertain and may require additional capital as it continues to grow.

Cash flow from insurance activities is a non-GAAP financial measure. Cash flow from insurance activities combines cash flow from operations with the net cash received from deposit type contracts to show the impact of our insurance operations on our cash flows. Cash flow from deposit type contracts is primarily made up of funds received into our annuity products. The following table reconciles cash flow from operations to cash flow from insurance activities:

Year		Cash Flow From Operations				Net Cash Flow From Deposit Type Contracts				Cash Flow from Insurance Activities
2021			3,411,873				2,050,078			$	5,461,951
2022			4,787,903				2,145,995			$	6,933,898
2023			7,441,585				(3,942,581	)		$	3,499,004
2024			9,175,556				(2,034,236	)		$	7,141,320
2025			8,885,836				7,777,877			$	16,663,713

The following chart and graph illustrate our five-year trend of cash flow from insurance activities:

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.