Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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-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, including those relating to the COVID-19 pandemic, and many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

Overview

USAC was formed as a Kansas corporation on April 24, 2009 to raise capital to form a new Kansas-based 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 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. 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. 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.

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 all of 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, mortgages, 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.

The Company evaluates commercial mortgage loans on a collective basis when similar risk characteristics exist and on an individual basis when such characteristics are not present. For individually evaluated loans where it is determined that it is not probable that all amounts due under the contractual terms will be collected, the Company measures expected credit losses based on the present value of expected future cash flows, discounted at the loan's original effective interest rate. If repayment is expected to be provided solely through the sale or operation of the collateral, expected credit losses are measured based on the fair value of the collateral, adjusted for estimated costs to sell when appropriate. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the loans to present the net carrying value expected to be collected. Changes in the allowance are recognized through earnings as credit loss expense. Loans are written off against the allowance when deemed uncollectible.

Any interest accrued or received on the net carrying amount of the impaired loan will be included in investment income or applied to the principal of the loan, depending on the assessment of the 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

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.

Future Policy Benefits

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

New Accounting Standards

A detailed discussion of new accounting standards is provided in Note 1 to Consolidated Financial Statements beginning on p. 7 of this quarterly report.

Discussion of Consolidated Results of Operations

Total Income.Insurance revenues are primarily generated from premium revenues and investment income. Total income for the nine months ended September 30, 2025 and 2024 are summarized in the table below.

		Nine Months Ended September 30,
		2025				2024
		(unaudited)
Income:
Premium income		$	12,982,213			$	11,299,100
Net investment income			5,366,335				5,306,212
Net investment (losses) gains			(66,088	)			568,778
Other income			375,601				455,741
Total income		$	18,658,061			$	17,629,831

In the first nine months of 2025, total income increased to $18,658,061, an increase of $1,028,230 or 6% from the 2024 first nine months total income of $17,629,831. The increase is driven by increased premium income. The Company records unrealized gains and losses on equity securities in total income in accordance with accounting standards. These standards continue to result in increased volatility in total income.

Total income for the three months ended September 30, 2025 and 2024 are summarized in the table below.

		Three Months Ended September 30,
		2025				2024
		(unaudited)
Income:
Premium income		$	4,428,002			$	3,544,213
Net investment income			1,650,945				1,310,732
Net investment gains (losses)			263,690				56,118
Other income			157,046				80,473
Total income		$	6,499,683			$	4,991,536

In the three months ended September 30, 2025, total income increased to $6,499,683, an increase of $1,508,147 or 30% from the total income of $4,991,536 for the same period in 2024. The increase was driven by higher premium income.

Premium income: Premium income for the first nine months of 2025 was $12,982,213 compared to $11,299,100 in the first nine months of 2024, an increase of $1,683,113 or 15%. 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 target small companies to assist them with their employee benefits.

Direct, assumed and ceded premiums for the nine months ended September 30, 2025 and 2024 are summarized in the following table.

		Nine Months Ended September 30,
		2025				2024
		(unaudited)
Direct		$	10,516,058			$	8,722,136
Assumed			4,045,315				3,754,250
Ceded			(1,579,160	)			(1,177,286	)
Total		$	12,982,213			$	11,299,100

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

Premium income for the three months ended September 30, 2025 was $4,428,002 compared to $3,544,213 in the same period of 2024, an increase of $883,789 or 25%. The increase was driven by an increase in direct single and recurring premiums.

Direct, assumed and ceded premiums for the three months ended September 30, 2025 and 2024 are summarized in the following table.

		Three Months ended September 30,
		2025				2024
		(unaudited)
Direct		$	3,862,001			$	2,966,996
Assumed			1,166,045				1,009,148
Ceded			(600,044	)			(431,931	)
Total		$	4,428,002			$	3,544,213

Investment income, net of expenses: The components of net investment income for the nine months ended September 30, 2025 and 2024 are as follows:

		Nine Months Ended September 30,
		2025				2024
		(unaudited)
Fixed maturities		$	4,150,095			$	4,366,080
Mortgages			1,587,153				915,208
Equity securities			198,266				239,092
Other invested assets			95,330				253,174
Cash and cash equivalents			138,031				255,426
			6,168,875				6,028,980
Less investment expenses			(802,540	)			(722,768	)
		$	5,366,335			$	5,306,212

Net investment income for the first nine months of 2025 was $5,366,335, compared to $5,306,212 for the same period in 2024, an increase of $60,123 or 1%. The increase in investment income is a result of increased mortgage loan income.

The components of net investment income for the three months ended September 30, 2025 and 2024 are as follows:

		Three Months Ended September 30,
		2025				2024
		(unaudited)
Fixed maturities		$	1,295,763			$	1,477,931
Mortgages			547,416				8,689
Equity securities			63,763				74,947
Other invested assets			33,217				194,360
Cash and cash equivalents			30,070				60,851
			1,970,229				1,816,778
Less investment expenses			(319,284	)			(506,046	)
		$	1,650,945			$	1,310,732

Net investment income for the three months ended September 30, 2025 was $1,650,945, compared to $1,310,732 for the same period in 2024, an increase of $340,213 or 26%. This increase in investment income is a result of increased mortgage loan income.

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 (loss). For the nine months ended September 30, 2025 and 2024, net investment gains are summarized in the following table.

		Nine Months Ended September 30,
		(unaudited)
		2025				2024
Recognized losses on sale of investments		$	64,845			$	(139,626	)
Realized loss on mortgage loan participation write downs			(420,013	)			-
Change in allowance for credit loss recognized in earnings			(50,400	)			(32,150	)
Unrealized net gains recognized in earnings			599,275				1,006,400
Embedded derivative			(259,795	)			(265,846	)
Net investment gains (losses)		$	(66,088	)		$	568,778

For the three months ended September 30, 2025 and 2024, net investment gains are summarized in the following table.

		Three Months Ended September 30,
		(unaudited)
		2025				2024
Recognized losses on sale of investments		$	145,722			$	(94,672	)
Realized loss on mortgage loan participation write downs			-				-
Change in allowance for credit loss recognized in earnings			(39,677	)			93,550
Unrealized net gains recognized in earnings			23,477				419,301
Embedded derivative			134,168				(362,061	)
Net investment gains		$	263,690			$	56,118

Realized gains and losses related to the sale of securities for the nine months ended September 30, 2025 and 2024 are summarized as follows:

		Nine Months Ended September 30,
		(unaudited)
		2025				2024
Gross gains		$	168,416			$	48,824
Gross losses			(523,584	)			(188,450	)
Net security losses		$	(355,168	)		$	(139,626	)
Mortgage loans on real estate			(50,400	)			(32,150	)
(Increase) Decrease in allowance for credit losses		$	(50,400	)		$	(32,150	)

Realized gains and losses related to the sale of securities for the three months ended September 30, 2025 and 2024 are summarized as follows:

		Three Months Ended September 30,
		(unaudited)
		2025				2024
Gross gains		$	168,416			$	26,754
Gross losses			(22,694	)			(121,426	)
Net security losses		$	145,722			$	(94,672	)
Fixed maturity securities			-				116,563
Mortgage loans on real estate			(39,677	)			(23,013	)
(Increase) Decrease in allowance for credit losses		$	(39,677	)		$	93,550

Other income: Other income for the nine months ended September 30, 2025 was $375,601 compared to $455,741 for the same period in 2024, a decrease of $80,140. The decrease was the result of reinsurance allowances received in 2024 which did not reoccur in 2025. Other income for the three months ended September 30, 2025 was $157,046 compared to $80,473 for the same period in 2024, an increase of $76,573. The increase was the result of reinsurance allowances on new products issued in 2025.

Expenses. Expenses for the nine months ended September 30, 2025 and 2024 are summarized in the table below.

		Nine Months Ended September 30,
		2025				2024
		(unaudited)
Expenses:
Death claims		$	3,935,880			$	2,938,512
Policyholder benefits			5,611,283				5,292,687
Increase in policyholder reserves			4,545,016				3,962,363
Commissions, net of deferrals			720,065				654,809
Amortization of deferred acquisition costs			1,007,517				1,046,775
Amortization of value of business acquired			69,315				69,315
Salaries & benefits			1,248,947				1,140,240
Other operating expenses			1,988,437				2,058,170
Total expenses		$	19,126,460			$	17,162,871

Expenses for the three months ended September 30, 2025 and 2024 are summarized in the table below.

		Three Months Ended September 30,
		2025				2024
		(unaudited)
Expenses:
Death claims		$	1,185,854			$	815,287
Policyholder benefits			1,688,433				1,530,753
Increase in policyholder reserves			1,762,710				1,474,839
Commissions, net of deferrals			274,927				218,441
Amortization of deferred acquisition costs			344,151				349,402
Amortization of value of business acquired			23,105				23,105
Salaries & benefits			430,717				431,837
Other operating expenses			636,458				623,378
Total expenses		$	6,346,355			$	5,467,042

Death claims: Death benefits were $3,935,880 in the nine months ended September 30, 2025 compared to $2,938,512 for the same period in 2024, an increase of $997,368 or 34%. 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.

Death benefits were $1,185,854 in the three months ended September 30, 2025, compared to $815,287 for the same period in 2024, an increase of $370,567 or 45%. 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 $5,611,283 in the nine months ended September 30, 2025 compared to $5,292,687 for the same period in 2024, an increase of $318,596 or 6%. The primary driver of this increase is an increase in assumed benefits.

Policyholder benefits were $1,688,433 in the three months ended September 30, 2025 compared to $1,530,753 for the same period in 2024, an increase of $157,680 or 10%. The primary driver of this increase is an increase in assumed benefits.

Increase in policyholder reserves: Policyholder reserves increased $4,545,016 in the nine months ended September 30, 2025, compared to $3,962,363 for the same period in 2024, an increase of $582,653 or 15%. The increase in reserve growth is driven by increased premiums.

Policyholder reserves increased $1,762,710 in the three months ended September 30, 2025, compared to $1,474,839 for the same period in 2024, an increase of $287,871 or 20%. The increase in reserve growth is driven by increased premiums.

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 $720,065 in the nine months ended September 30, 2025, compared to $654,809 for the same period in 2024, an increase of $65,256 or 10%. This increase is due to an increase in and changing mix of premiums.

Commissions, net of deferrals, were $274,927 in the three months ended September 30, 2025, compared to $218,441 for the same period in 2024, an increase of $56,486 or 26%. 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 $1,007,517 in the nine months ended September 30, 2025, compared to $1,046,775 for the same period in 2024, a decrease of $39,258 or 4%. The decrease is driven by a reduction in amortization on assumed business.

The amortization of deferred acquisition costs ("DAC") was $344,151 in the three months ended September 30, 2025, compared to $349,402 for the same period in 2024, a decrease of $5,251 or 2%. The decrease is driven by a reduction in amortization on assumed business.

Amortization of value of business acquired: The amortization of value of business acquired ("VOBA") was $69,315 in the nine months ended September 30, 2025 and 2024, respectively. VOBA is being amortized straight-line over 30 years. The amortization VOBA was $23,105 in the three months ended September 30, 2025 and 2024, respectively.

Salaries and benefits: Salaries and benefits were $1,248,947 for the nine months ended September 30, 2025, compared to $1,140,240 for the same period in 2024, an increase of $108,707 or 10%. The increase was driven by increased employee benefit costs and fluctuations in staffing levels.

Salaries and benefits were $430,717 for the three months ended September 30, 2025, compared to $431,837 for the same period in 2024, a decrease of $1,120 or 0.3%. The decrease was driven by fluctuations in staffing levels.

Other expenses: Other operating expenses were $1,988,437 in the nine months ended September 30, 2025, compared to $2,058,170 for the same period in 2024, a decrease of $69,733 or 3%. The decrease is driven by a decrease in audit costs.

Other operating expenses were $636,458 in the three months ended September 30, 2025, compared to $623,378 for the same period in 2024, an increase of $13,080 or 2%. The increase is driven by increased information technology costs.

Federal income tax expenses: Federal income tax benefit of $23,104 was recorded for the nine months ended September 30, 2025 compared to tax expense of $114,298 for the same period in 2024.

Federal income tax expense of $17,800 was recorded for the three months ended September 30, 2025 compared to a benefit of $103,134 for the same period of 2024.

Net Income: Our net loss was $445,295 in the nine months ended September 30, 2025 compared to net income of $352,662 for the same period in 2024, a decrease of $797,957. Our net loss per share was $0.06 compared to net income per share of $0.05 in 2024, basic and diluted. Our net income was $135,528 in the three months ended September 30, 2025 compared to net loss of $372,372 for the same period in 2024, an increase of $507,900. Our net income per share was $0.02 compared to net loss per share of $0.05 in 2024, basic and diluted.

Discussion of Consolidated Balance Sheet

Assets. Assets have decreased to $129,853,398 as of September 30, 2025, a decrease of $1,440,584 or 1% from December 31, 2024 assets of $131,293,892. This is primarily the result of a decrease in fixed maturity securities and cash and cash equivalents driven by planned surrenders of deposit-type contracts.

Available for sale fixed maturity securities: As of September 30, 2025, we had available for sale fixed maturity assets of $76,918,671, a decrease of $2,659,508 or 3% from the December 31, 2024 balance of $79,578,179. The decrease is driven by maturities during the first half of the year.

Equity securities, at fair value: As of September 30, 2025, we had equity assets of $3,298,835, a decrease of $577,250 or 15% from the December 31, 2024 balance of $3,876,085. This decrease is driven by the sale of equity securities.

Limited partnership interests: As of September 30, 2025, we had limited partnership interests of $1,160,515, an increase of $732,345 or 171% from our December 31, 2024 balance of $428,170. This is driven by additional investments in the Mutual Capital Investment Fund.

Mortgage loans on real estate: As of September 30, 2025, we had mortgage loans on real estate of $24,733,459, a decrease of $459,290 or 2% from the December 31, 2024 balance of $25,192,749. The decrease is the result of mortgage loan participations maturing.

Other invested assets: As of September 30, 2025, we had other invested assets of $1,234,463, an increase of $124,857 or 11% from the December 31, 2024 balance of $1,109,606.

Policy loans: As of September 30, 2025, our policy loans were $40,547, an increase of $8,802 or 28% from the December 31, 2024 balance of $31,745. The increase is a result of normal policy loan activity.

Real estate, net of depreciation: As of September 30, 2025, we had real estate assets of $1,611,623 related to our home office building, a decrease of $40,930 or 2% from the December 31, 2024 balance of $1,652,553. The decrease is the result of depreciation.

Cash and cash equivalents: As of September 30, 2025, we had cash and cash equivalent assets of $8,085,240, an increase of $1,181,457 or 17% from the December 31, 2024 balance of $6,903,783. This increase was the result of cash being prepared for deployment into invested assets.

Investment income due and accrued: As of September 30, 2025, our investment income due and accrued was $803,589 compared to $954,324 as of December 31, 2024, a decrease of $150,735 or 16%. This decrease is attributable to investment activity.

Reinsurance related assets: As of September 30, 2025, our reinsurance related assets were $794,925 compared to $522,142 as of December 31, 2024, an increase of $272,783 or 52%. This increase is the result of changes in the net settlement due to/from ALSC under our 2020 ALSC Agreement.

Deferred acquisition costs, net: As of September 30, 2025, our deferred acquisition costs were $3,753,316 compared to $3,908,636 as of December 31, 2024, a decrease of $155,320 or 4%. The decrease is the result of amortization on our assumed annuity block of business.

Value of business acquired, net: As of September 30, 2025 our value of business acquired asset was $2,264,238 compared to $2,333,553 as of December 31, 2024, a decrease of $69,315 or 3%. The decrease is the result of amortization of VOBA.

Property, equipment and software, net: As of September 30, 2025 our property, equipment and software assets were $126,334, a decrease of $10,019 from the December 31, 2024 balance of $136,353. The decrease is the result of depreciation.

Goodwill: As of September 30, 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 $3,841,260 as of September 30, 2025, an increase of $94,149 from the December 31, 2024 balance of $3,747,111. The increase is the result of deferred federal income tax benefits.

Other assets: As of September 30, 2025, our other assets were $730,754, an increase of $271,652 or 59% from the December 31, 2024 balance of $459,102. The increase is a result of additional pre-paid expenses.

Liabilities. Our total liabilities were $118,674,026 as of September 30, 2025, a decrease of $1,989,538 or 2% from our December 31, 2024 liabilities of $120,663,564. The decrease is driven by a decrease in our deposit-type contract liabilities.

Policy liabilities: Our total policy liabilities as of September 30, 2025 were $115,663,943 compared to $118,188,150 as of December 31, 2024, a decrease of $2,524,207 or 2%. This decrease is the result of surrenders of deposit-type contracts.

Accounts payable and accrued expenses: As of September 30, 2025, our accounts payable and accrued expenses were $1,713,125 compared to $1,133,521 as of December 31, 2024, an increase of $579,604 or 51%. The increase is driven by reinsurance settlement payables.

Federal Home Loan Bank advance: As of September 30, 2025 and December 31, 2024, respectively, the Company has outstanding advances of $1,250,000 with the Federal Home Loan Bank of Topeka.

Other liabilities: As of September 30, 2025, we had other liabilities of $46,958 compared to $91,893 as of December 31, 2024, a decrease of $44,935. The decrease is the result of changes in investment-related payables.

Shareholders'Equity. Our shareholders' equity was $11,179,372 as of September 30, 2025, an increase of $548,954 or 5% from our December 31, 2024 shareholders' equity of $10,630,418. The increase in shareholders' equity was driven by improved market values on our fixed maturity securities.

Investments

Our investment philosophy is reflected in 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 September 30, 2025 and December 31, 2024.

		September 30, 2025								December 31, 2024
		Carrying				Percent				Carrying				Percent
		Value				of Total				Value				of Total
		(unaudited)
Fixed maturities:
US Treasury securities		$	734,682				0.6	%		$	711,377				0.6	%
Corporate bonds			20,056,728				17.1	%			21,491,820				18.1	%
Municipal bonds			5,270,373				4.5	%			4,741,149				4.0	%
Redeemable preferred stocks			2,016,162				1.7	%			2,411,234				2.0	%
Term Loans			9,228,495				7.9	%			12,788,304				10.8	%
Mortgage backed and asset backed securities			39,612,231				33.7	%			37,434,295				31.4	%
Total fixed maturities			76,918,671				65.6	%			79,578,179				66.9	%
Mortgage loans			24,733,459				21.1	%			25,192,749				21.2	%
Other invested assets			1,234,463				1.1	%			1,109,606				0.9	%
Limited partnership interests			1,160,515				1.0	%			428,170				0.4	%
Equities:
Common stock			1,841,856				1.6	%			2,395,195				2.0	%
Preferred stock			1,456,979				1.2	%			1,480,890				1.2	%
Total equities			3,298,835				2.8	%			3,876,085				3.3	%
Real estate, net of depreciation			1,611,623				1.4	%			1,652,553				1.4	%
Cash and cash equivalents			8,085,240				6.9	%			6,903,783				5.8	%
Total		$	117,042,806				100.0	%		$	118,741,125				100.0	%

The total value of our investments and cash and cash equivalents decreased to $117,042,806 as of September 30, 2025 from $118,741,125 at December 31, 2024, a decrease of $1,698,319 or 1%. Decreases in investments are primarily attributable to annuity surrenders.

The following table shows the distribution of the credit ratings of our portfolio of fixed maturity securities by carrying value as of September 30, 2025 and December 31, 2024.

		September 30, 2025								December 31, 2024
		Fair				Percent				Fair				Percent
		Value				of Total				Value				of Total
		(unaudited)
AAA and U.S. Government		$	8,351,626				10.9	%		$	5,470,235				6.9	%
AA			15,165,879				19.7	%			10,469,465				13.1	%
A			12,446,897				16.2	%			15,174,048				19.1	%
BBB			26,472,422				34.4	%			35,807,023				45.0	%
BB			4,364,266				5.7	%			4,378,680				5.5	%
B			63,446				0.1	%			90,675				0.1	%
Not Rated - Private Placement			10,054,135				13.1	%			8,188,053				10.3	%
Total		$	76,918,671				100.0	%		$	79,578,179				100.0	%

The amortized cost and fair value of debt securities as of September 30, 2025 and December 31, 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 September 30, 2025								As of December 31, 2024
		Amortized Cost				Fair Value				Amortized Cost				Fair Value
		(unaudited)
Amounts maturing in:
One year or less		$	-			$	-			$	2,329,128			$	2,329,128
After one year through five years			14,012,095				14,094,849				18,590,198				18,410,081
After five years through ten years			4,744,891				4,650,391				2,032,061				1,967,540
More than 10 years			19,513,765				16,545,038				20,606,740				17,025,901
Redeemable preferred stocks			2,140,013				2,016,162				2,562,893				2,411,234
Mortgage backed and asset backed securities			39,768,588				39,612,231				37,664,287				37,434,295
Total amortized cost and fair value		$	80,179,352			$	76,918,671			$	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.

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. 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 $5,826,538 for the nine months ended September 30, 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 provided by investing activities was $4,198,459. The primary uses of cash was purchases of fixed maturity, mortgage, and equity investments and the primary sources of cash was from maturities and paydowns of assets. Cash used by financing activities was $8,843,540. The primary uses of cash were withdrawals on deposit-type contracts.

As of September 30, 2025, we had cash and cash equivalents totaling $8,085,240. 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.

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.