Note 2 - Investments

6 Months Ended

Jun. 30, 2023

Notes to Financial Statements

Investment Holdings [Text Block]

Note 2.    Investments

Fixed Maturity

The amortized cost and fair value of available for sale investments as of June 30, 2023 and December 31, 2022 is as follows:

	June 30, 2023
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
	(unaudited)
Available for sale:
Fixed maturities:
US Treasury securities	$	786,260	$	-	$	(59,515	)	$	726,745
Corporate bonds		19,286,073		3,993		(2,918,435	)		16,371,631
Municipal bonds		6,218,178		7,116		(596,541	)		5,628,753
Redeemable preferred stock		3,627,683		-		(411,828	)		3,215,855
Term loans		18,191,123		31,348		(157,149	)		18,065,322
Mortgage backed and asset backed securities		23,753,821		222,540		(1,178,450	)		22,797,911
Total available for sale	$	71,863,138	$	264,997	$	(5,321,918	)	$	66,806,217

	December 31, 2022
	Cost or		Gross		Gross
	Amortized		Unrealized		Unrealized
	Cost		Gains		Losses			Fair Value
Available for sale:
Fixed maturities:
US Treasury securities	$	993,805	$	36,313	$	(5,031	)	$	1,025,087
Corporate bonds		19,018,738		722		(3,150,382	)		15,869,078
Municipal bonds		6,228,636		-		(808,227	)		5,420,409
Redeemable preferred stock		3,875,526		-		(519,911	)		3,355,615
Term loans		18,086,124		209,989		(146,395	)		18,149,718
Mortgage backed and asset backed securities		22,412,895		157,795		(1,074,520	)		21,496,170
Total available for sale	$	70,615,724	$	404,819	$	(5,704,466	)	$	65,316,077

The amortized cost and fair value of debt securities as of June 30, 2023 and December 31, 2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	As of June 30, 2023				As of December 31, 2022
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(unaudited)
Amounts maturing in:
One year or less	$	-	$	-	$	442,846	$	450,461
After one year through five years		17,284,997		17,076,966		17,048,721		17,035,270
After five years through ten years		6,230,771		6,085,051		5,498,364		5,340,498
More than 10 years		20,965,866		17,630,434		21,337,372		17,638,063
Redeemable preferred stocks		3,627,683		3,215,855		3,875,526		3,355,615
Mortgage backed and asset backed securities		23,753,821		22,797,911		22,412,895		21,496,170
Total amortized cost and fair value	$	71,863,138	$	66,806,217	$	70,615,724	$	65,316,077

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Proceeds from the sale of securities, maturities, and asset paydowns in the six months ended June 30, 2023 and 2022 were $5,766,313 and $4,170,514, respectively. With the implementation of CECL, changes in the allowance for credit losses is included in net gains (losses).  Realized gains and losses related to the sale of securities and net credit losses recognized in income are summarized as follows:

	Six Months Ended June 30,
	(unaudited)
	2023			2022
Gross gains	$	9,857		$	3,164
Gross losses		(88,740	)		(2,541	)
Realized gains (losses)	$	(78,883	)	$	623
Mortgage loans on real estate		115,762			-
Decrease in allowance for credit losses	$	115,762		$	-

Proceeds from the sale of securities, maturities, and asset paydowns in the three months ended June 30, 2023 and 2022 were $4,030,195 and $1,128,044, respectively. With the implementation of CECL, changes in the allowance for credit losses is included in net gains (losses).  Realized gains and losses related to the sale of securities and net credit losses recognized in income are summarized as follows:

	Three Months Ended June 30,
	(unaudited)
	2023			2022
Gross gains	$	-		$	1,264
Gross losses		(263,968	)		-
Net security losses	$	(263,968	)	$	1,264
Mortgage loans on real estate		102,537			-
Decrease in allowance for credit losses	$	102,537		$	-

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Gross unrealized losses by duration are summarized as follows:

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
	(unaudited)
June 30, 2023
Available for sale:
Fixed maturities:
US Treasury securities	$	726,745	$	(59,515	)	$	-	$	-		$	726,745	$	(59,515	)
Corporate bonds		2,756,472		(182,014	)		13,107,572		(2,736,421	)		15,864,044		(2,918,435	)
Municipal bonds		2,184,086		(87,433	)		3,075,544		(509,108	)		5,259,630		(596,541	)
Redeemable preferred stock		209,131		(9,974	)		2,944,473		(401,854	)		3,153,604		(411,828	)
Term loans		8,701,430		(157,149	)		-		-			8,701,430		(157,149	)
Mortgage backed and asset backed securities		10,355,775		(439,055	)		4,186,792		(739,395	)		14,542,567		(1,178,450	)
Total fixed maturities	$	24,933,639	$	(935,140	)	$	23,314,381	$	(4,386,778	)	$	48,248,020	$	(5,321,918	)

	Less than 12 months					Greater than 12 months					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
December 31, 2022
Available for sale:
Fixed maturities:
US Treasury securities	$	398,375	$	(5,031	)	$	-	$	-		$	398,375	$	(5,031	)
Corporate bonds		12,378,486		(1,883,706	)		3,206,913		(1,266,676	)		15,585,399		(3,150,382	)
Municipal bonds		4,711,896		(587,053	)		708,514		(221,174	)		5,420,410		(808,227	)
Redeemable preferred stock		2,384,771		(363,193	)		970,844		(156,718	)		3,355,615		(519,911	)
Term loans		6,309,005		(146,395	)		-		-			6,309,005		(146,395	)
Mortgage backed and asset backed securities		10,358,560		(458,754	)		3,281,132		(615,766	)		13,639,692		(1,074,520	)
Total fixed maturities	$	36,541,093	$	(3,444,132	)	$	8,167,402	$	(2,260,334	)	$	44,708,495	$	(5,704,466	)

Unrealized losses occur from market price declines due to changes in interest rates.  The total number of available for sale fixed maturity securities in the investment portfolio in an unrealized loss position as of June 30, 2023 was 235, which represented an unrealized loss of $5,321,918 of the aggregate carrying value of those securities. The 235 securities breakdown as follows: 133 bonds, 75 mortgage and asset backed securities, 11 term loans, and 16 redeemable preferred stock. The total number of available for sale securities in the investment portfolio in an unrealized loss position as of December 31, 2022 was 230, which represented an unrealized loss of $5,704,466 of the aggregate carrying value of those securities. The 230 securities breakdown as follows: 131 bonds, 73 mortgage and asset backed securities, 10 term loans, and 16 redeemable preferred stock. 

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Mortgage Loans on Real Estate

The Company has invested in various mortgage loans through participation agreements with the original issuing entity.  The Company’s mortgage loans by property type as of June 30, 2023 and December 31, 2022 are summarized as follows:

	June 30, 2023			December 31, 2022
	(unaudited)
Commercial mortgage loans by property type
Condominium	$	1,776,547		$	1,696,975
Land		1,902,277			1,902,277
Multi-property		9,514,050			9,539,738
Multi-family		5,660,758			5,016,424
Retail/Office		5,475,714			5,634,659
Total commercial mortgages	$	24,329,346		$	23,790,073
Allowance for credit losses		(34,611	)		-
Carrying value	$	24,294,735		$	23,790,073

The Company utilizes loan-to-value of individual mortgage loans to evaluate the credit quality of its mortgage loan portfolio.  The loan-to-value measures the loan's carrying value to its appraised value.  The Company’s mortgage loans by loan-to-value ratio as of June 30, 2023 and December 31, 2022 are summarized as follows:

	June 30, 2023			December 31, 2022
	(unaudited)
Loan to value ratio
Over 70 to 80%	$	8,214,050		$	8,219,763
Over 60 to 70%		4,276,547			5,196,975
Over 50 to 60%		5,330,127			4,682,750
Over 40 to 50%		4,055,181			3,235,951
Over 20 to 30%		1,300,000			1,319,975
Over 10 to 20%		1,153,441			1,134,659
Total	$	24,329,346		$	23,790,073
Allowance for credit losses		(34,611	)		-
Carrying value	$	24,294,735		$	23,790,073

The Company’s mortgage loans by maturity date as of June 30, 2023 and December 31, 2022 are summarized as follows:

	June 30, 2023			December 31, 2022
	(unaudited)
Maturity Date
One year or less	$	19,523,001		$	15,354,542
After one year through five years		4,806,345			8,435,531
Total	$	24,329,346		$	23,790,073
Allowance for credit losses		(34,611	)		-
Carrying value	$	24,294,735		$	23,790,073

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

The Company evaluates its commercial mortgage loan portfolio for the establishment of a loan loss allowance by specific identification of impaired loans. A mortgage loan is impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. If the Company determines that the value of any specific mortgage loan is impaired, the carrying amount of the mortgage loan will be reduced to its fair value, based upon the present value of expected future cash flows from the loan discounted at the loan's effective interest rate, or the fair value of the underlying collateral less estimated costs to sell.  The Company had no mortgage loans that were on non-accrued status as of June 30, 2023 and December 31, 2022.  The were no mortgage loans delinquent on payments due the Company as of June 30, 2023 and December 31, 2022. 

The Company analyzes our commercial mortgage loan portfolio for the need of a general loan allowance for expected credit losses on all other loans on a quantitative and qualitative basis by grouping assets with similar risk characteristics when there is not a specific expectation of a loss for an individual loan. The amount of the general loan allowance is based upon management's evaluation of the collectability of the loan portfolio, historical loss experience, delinquencies, credit concentrations, underwriting standards and national and local economic conditions. The Company does not measure a credit loss allowance on accrued interest receivable as we write off any uncollectible accrued interest receivable balance to net investment income in a timely manner. The Company did not charge off any uncollectible accrued interest receivable on our commercial mortgage loan portfolio during the three and six month periods ended June 30, 2023 and June 30, 2022.

The Company's commercial mortgage loans are pooled by risk rating and property collateral type and an estimated loss ratio is applied against each risk pool. The loss ratios are generally based upon historical loss experience for each risk pool and are adjusted for current and forecasted economic factors management believes to be relevant and supportable. Economic factors are forecasted for two years with immediate reversion to historical experience.

The following table presents a roll-forward of our specific and general valuation allowances for our commercial mortgage loan portfolio:

	Six Months Ended June 30, 2023
	(unaudited)
	Specific Allowance		General Allowance
Beginning allowance balance	$	-	$	-
Cumulative adjustment for changes in accounting principle		-		150,373
Charge-offs		-		-
Recoveries		-		-
Change in provision for credit losses		-		(115,762	)
Ending Allowance	$	-	$	34,611

The specific allowance represents the total credit loss allowances on loans which are individually evaluated for impairment. The general allowance is for the group of loans discussed above which are collectively evaluated for impairment.

Charge-offs include allowances that have been established on loans that were satisfied either by taking ownership of the collateral or by some other means such as discounted pay-off or loan sale. When ownership of the property is taken it is recorded at the lower of the loan's carrying value or the property's fair value (based on appraised values) less estimated costs to sell. The real estate owned is recorded as a component of other investments and the loan is recorded as fully paid, with any allowance for credit loss that has been established charged off. Fair value of the real estate is determined by third party appraisal. Recoveries are situations where the Company has received a payment from the borrower in an amount greater than the carrying value of the loan (principal outstanding less specific allowance). The Company did not own any real estate related to our mortgage participations during the six months ended June 30, 2023 and 2022.

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)

Investment Income, Net of Expenses

The components of net investment income for the six months ended June 30, 2023 and 2022 are as follows:

	Six Months Ended June 30,
	2023			2022
	(unaudited)
Fixed maturities	$	2,895,537		$	559,262
Mortgages		1,003,013			116,350
Equity securities		394,800			312,498
Funds withheld		-			1,621,509
Other invested assets		100,865			-
Cash and cash equivalents		35,960			5,471
		4,430,175			2,615,090
Less investment expenses		(1,140,681	)		(44,403	)
	$	3,289,494		$	2,570,687

The components of net investment income for the three months ended June 30, 2023 and 2022 are as follows:

	Three Months Ended June 30,
	2023			2022
	(unaudited)
Fixed maturities	$	1,856,114		$	283,929
Mortgages		493,991			88,959
Equity securities		184,430			157,824
Funds withheld		-			921,201
Other invested assets		54,925			-
Cash and cash equivalents		21,939			5,011
		2,611,339			1,456,924
Less investment expenses		(827,515	)		(37,859	)
	$	1,783,884		$	1,419,065

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 six months ended June 30, 2023, net investment gains is comprised of $356,444 of unrealized gains on our equity portfolio, net realized gains including net credit losses recognized of $36,879, and a gain on the unrealized change in the fair value of our embedded derivative of $497,153. For the six months ended June 30, 2022, net investment losses is comprised of $1,463,629 of unrealized losses on our equity portfolio, net realized gains of $623 and a loss on the change in the fair value of our embedded derivative of $691,301.

For the three months ended June 30, 2023, net investment gains is comprised of $110,318 of unrealized gains on our equity portfolio, net realized losses including net credit losses recognized of $161,431, and a gain on the unrealized change in the fair value of our embedded derivative of $594,487. For the three months ended June 30, 2022, net investment losses is comprised of $1,013,834 of unrealized losses on our equity portfolio, net realized gains of $1,264 and a loss on the change in the fair value of our embedded derivative of $409,083.

US Alliance Corporation

Notes to Consolidated Financial Statements (unaudited)