ATLANTIC AMERICAN CORP

Previous wording

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) as of and for three month period ended March 31, 2024. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).

Current wording

The following is management’s discussion and analysis of the financial condition and results of operations of Atlantic American Corporation (“Atlantic American” or the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”) as of and for the three month and six month periods ended June 30, 2024. This discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere herein, as well as with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”).

Previous wording

The following presents the Company’s revenue, expenses and net loss for the three month period ended March 31, 2024 and the comparable period in 2023:

Current wording

The following presents the Company’s revenue, expenses and net income (loss) for the three month and six month periods ended June 30, 2024 and the comparable periods in 2023:

Previous wording

Management also considers and evaluates performance by analyzing the non-GAAP measure operating income (loss), and believes it is a useful metric for investors, potential investors, securities analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as taxes, which are subject to timing, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized investment gains, which are not a part of the Company’s primary operations and are, to a limited extent, subject to discretion in terms of timing of realization).

Current wording

In addition to measures of operating performance determined in accordance with GAAP, management also considers and evaluates performance by analyzing the non-GAAP measure operating income (loss). We define operating income (loss) as net income (loss) excluding: (i) income tax expense (benefit); (ii) realized investment (gains) losses, net; and (iii) unrealized (gains) losses on equity securities, net. Management believes operating income (loss) is a useful metric for investors, potential investors, securities analysts and others because it isolates the “core” operating results of the Company before considering certain items that are either beyond the control of management (such as taxes, which are subject to timing, regulatory and rate changes depending on the timing of the associated revenues and expenses) or are not expected to regularly impact the Company’s operational results (such as any realized and unrealized investment gains, which are not a part of the Company’s primary operations and are, to a limited extent, subject to discretion in terms of timing of realization).

Previous wording

A reconciliation of net loss to operating income (loss) for the three month period ended March 31, 2024 and the comparable period in 2023 is as follows:

Current wording

A reconciliation of net income (loss) to operating income (loss) for the three month and six month periods ended June 30, 2024 and the comparable periods in 2023 is as follows:

Previous wording

On a consolidated basis, the Company had net loss of $2.0 million, or $(0.10) per diluted share, for the three month period ended March 31, 2024, compared to net loss of $1.4 million, or $(0.08) per diluted share, for the three month period ended March 31, 2023. The increase in net loss for the first quarter of 2024 was primarily the result of a decrease in premium revenue in the life and health operations coupled with unfavorable loss experience in the life and health operations.

Current wording

On a consolidated basis, the Company had net loss of $0.7 million, or $(0.04) per diluted share, for the three month period ended June 30, 2024, compared to net income of $1.7 million, or $0.08 per diluted share, for the three month period ended June 30, 2023. The Company had net loss of $2.7 million, or $(0.14) per diluted share, for the six month period ended June 30, 2024, compared to net income of $0.3 million, or $0.00 per diluted share, for the six month period ended June 30, 2023. The increase in net loss for the three month and six month periods ended June 30, 2024 was primarily the result of unfavorable loss experience in the life and health operations, as well as in the property and casualty operations, from the comparable periods in 2023, coupled with a decrease in premium revenue in the life and health operations. Partially offsetting this increase in net loss for the three month and six month periods ended June 30, 2024 was a decrease in commissions and underwriting expenses primarily due to the variable commission structure in the property and casualty operations, coupled with a decrease in commission expenses within the life and health operations. Also, partially offsetting the increase in net loss was an increase in unrealized gains on equity securities during the six month period ended June 30, 2024.

Previous wording

Premium revenue for the three month period ended March 31, 2024 decreased $1.5 million, or 3.4%, to $44.6 million from $46.1 million in the three month period ended March 31, 2023. The decrease in premium revenue was primarily attributable to a decrease in the Medicare supplement insurance premiums in the life and health operations.

Current wording

For the three month period ended June 30, 2024, premium revenue decreased $1.1 million, or 2.3%, to $45.0 million from $46.1 million in the comparable period in 2023. For the six month period ended June 30, 2024, premium revenue decreased $2.6 million, or 2.8%, to $89.5 million from $92.2 million in the comparable period in 2023. The decrease in premium revenue during the three month and six month periods ended June 30, 2024 was primarily attributable to a decrease in the Medicare supplement insurance premiums in the life and health operations. Also contributing to this decrease during the three month period ended June 30, 2024 was a decline in insurance premiums in the automobile physical damage line of business due to an overall decline in the trucking industry in the property and casualty operations.

Previous wording

Operating income decreased $2.9 million in the three month period ended March 31, 2024 from the three month period ended March 31, 2023. The decrease in operating income was primarily due to unfavorable loss experience in the life and health operations due to an increase in incurred losses in the group life and Medicare supplement lines of business.

Current wording

Operating income decreased $2.8 million in the three month period ended June 30, 2024 from the three month period ended June 30, 2023. For the six month period ended June 30, 2024, operating income decreased $5.7 million from the comparable period in 2023. The decrease in operating income for the three month and six month periods ended June 30, 2024 was primarily the result of an unfavorable loss experience in the life and health operations due to an increase in incurred losses in the group life and Medicare supplement lines of business. Also contributing to the decrease in operating income was an unfavorable loss experience in the property and casualty operations due to the frequency and severity of claims in the automobile liability line of business.

Previous wording

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month period ended March 31, 2024 and the comparable period in 2023:

Current wording

The following summarizes American Southern’s premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, 2024 and the comparable periods in 2023:

Previous wording

Gross written premiums at American Southern decreased $1.0 million, or 10.2%, during the three month period ended March 31, 2024 from the comparable period in 2023. The decrease in gross written premiums was primarily attributable to the decrease in premiums written in the automobile physical damage line of business due to an overall decline in the trucking industry. Partially offsetting the decrease in gross written premiums was an increase in premiums written in the automobile liability line of business resulting from retrospective premium adjustments.

Current wording

Gross written premiums at American Southern decreased $1.6 million, or 4.1%, during the three month period ended June 30, 2024 and decreased $2.5 million, or 5.3%, during the six month period ended June 30, 2024, from the comparable periods in 2023. The decrease in gross written premiums during the three month and six month periods ended June 30, 2024 was primarily attributable to the decrease in premiums written in the automobile physical damage line of business due to an overall decline in the trucking industry. Also contributing to the decrease in gross written premiums was a decrease in premiums written in the surety line of business due to construction slowdowns in certain regions.

Previous wording

Ceded premiums decreased slightly during the three month period ended March 31, 2024 from the comparable period in 2023. American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally increase or decrease as earned premiums increase or decrease.

Current wording

Ceded premiums increased slightly during the three month period ended June 30, 2024 and decreased slightly during the six month period ended June 30, 2024, from the comparable periods in 2023. American Southern’s ceded premiums are typically determined as a percentage of earned premiums and generally fluctuate as earned premiums increase or decrease or retentions levels change.

Previous wording

The following presents American Southern’s net earned premiums by line of business for the three month period ended March 31, 2024 and the comparable period in 2023:

Current wording

The following presents American Southern’s net earned premiums by line of business for the three month and six month periods ended June 30, 2024 and the comparable periods in 2023:

Previous wording

Net earned premiums increased $0.7 million, or 3.9%, during the three month period ended March 31, 2024 over the comparable period in 2023. The increase in net earned premiums was primarily attributable to an increase in earned premiums in the automobile liability line of business due to an increase in the number of programs. Partially offsetting the increase in net earned premiums was a decrease in earned premiums in the automobile physical damage line of business due to an overall decline in the trucking industry as previously mentioned. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

Current wording

Net earned premiums decreased $0.3 million, or 1.9%, during the three month period ended June 30, 2024, and increased $0.3 million, or 0.9%, during the six month period ended June 30, 2024, over the comparable periods in 2023. The decrease in net earned premiums during the three month period ended June 30, 2024 was primarily attributable to a decrease in earned premiums in the automobile physical damage line of business due to an overall decline in the trucking industry as previously mentioned. The increase in net earned premiums during the six month period ended June 30, 2024 was primarily attributable to an increase in earned premiums in the automobile liability line of business due to an increase in the number of programs. Premiums are earned ratably over their respective policy terms, and therefore premiums earned in the current year are related to policies written during both the current year and immediately preceding year.

Previous wording

Insurance benefits and losses incurred at American Southern increased $0.2 million, or 1.2%, during the three month period ended March 31, 2024 over the comparable period in 2023. As a percentage of earned premiums, insurance benefits and losses incurred were 71.7% in the three month period ended March 31, 2024, compared to 73.6% in the three month period ended March 31, 2023. The decrease in the loss ratio during the three month period ended March 31, 2024 was primarily due to a decrease in losses in the general liability line of business, resulting from favorable reserve development. Also contributing to the decrease in the loss ratio was a decrease in loss adjustment expenses related to a decline in claims costs, as well as a decline in the surety line of business resulting from the loss of one program. Partially offsetting the decrease was an increase in the frequency and severity of claims in the automobile liability line of business.

Current wording

Insurance benefits and losses incurred at American Southern increased $0.7 million, or 5.0%, during the three month period ended June 30, 2024, and increased $0.8 million, or 3.2%, during the six month period ended June 30, 2024, over the comparable periods in 2023. As a percentage of earned premiums, insurance benefits and losses incurred were 81.1% in the three month period ended June 30, 2024, compared to 75.8% in the three month period ended June 30, 2023. For the six month period ended June 30, 2024, this ratio increased to 76.3% from 74.7% in the comparable period in 2023. The increase in the loss ratio during the three month and six month periods ended June 30, 2024 was mainly due to an increase in the frequency and severity of claims in the automobile liability line of business, as well as in the surety line of business. Partially offsetting the increase in the loss ratio was a decrease in loss adjustment expenses related to a decline in claims costs.

Previous wording

Commissions and underwriting expenses increased $0.3 million, or 8.3%, during the three month period ended March 31, 2024, over the comparable period in 2023. As a percentage of earned premiums, underwriting expenses were 25.4% in the three month period ended March 31, 2024, compared to 24.3% in the three month period ended March 31, 2023. The increase in the expense ratio during the three month period ended March 31, 2024 was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write. During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease. During the three month period ended March 31, 2024, variable commissions at American Southern increased by $0.3 million from the comparable period in 2023 due to a favorable loss experience from accounts subject to variable commissions.

Current wording

Commissions and underwriting expenses decreased $0.8 million, or 19.1%, during the three month period ended June 30, 2024, and $0.5 million, or 5.7% during the six month period ended June 30, 2024, over the comparable periods in 2023. As a percentage of earned premiums, underwriting expenses were 20.2% in the three month period ended June 30, 2024, compared to 24.5% in the three month period ended June 30, 2023. For the six month period ended June 30, 2024, this ratio decreased to 22.8% from 24.4% in the comparable period in 2023. The decrease in the expense ratio during the three month and six month periods ended June 30, 2024 was primarily due to American Southern’s use of a variable commission structure with certain agents, which compensates the participating agents in relation to the loss ratios of the business they write. During periods in which the loss ratio decreases, commissions and underwriting expenses will generally increase, and conversely, during periods in which the loss ratio increases, commissions and underwriting expenses will generally decrease. During the three month and six month periods ended June 30, 2024, variable commissions at American Southern decreased by $0.6 million and $0.9 million, respectively, from the comparable periods in 2023 due to an unfavorable loss experience from accounts subject to variable commissions.

Previous wording

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month period ended March 31, 2024 and the comparable period in 2023:

Current wording

The following summarizes Bankers Fidelity’s earned premiums, losses, expenses and underwriting ratios for the three month and six month periods ended June 30, 2024 and the comparable periods in 2023:

Previous wording

Net earned premium revenue at Bankers Fidelity decreased $2.2 million, or 7.7%, during the three month period ended March 31, 2024, from the comparable period in 2023. Gross earned premiums from the Medicare supplement line of business decreased $2.9 million, or 8.6%, during the three month period ended March 31, 2024, due primarily to non-renewals exceeding the level of new business writings as the existing block of business has incurred rate increases. Other health product premiums decreased $0.1 million, or 3.8%, during the three month period ended March 31, 2024, over the comparable period in 2023, primarily as a result of a decline in new sales of the company’s group health products, partially offset by an increase in new sales of the company's individual cancer product. Gross earned premiums from the life insurance line of business decreased $0.2 million, or 4.1%, during the three month period ended March 31, 2024 over the comparable period in 2023 due to a decrease in the individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual life sales. Premiums ceded decreased $1.1 million, or 7.6%, during the three month period ended March 31, 2024, from the comparable period in 2023. The decrease in ceded premiums for the three month period ended March 31, 2024 was due to a decrease in Medicare supplement premiums subject to reinsurance.

Current wording

Net earned premium revenue at Bankers Fidelity decreased $0.7 million, or 2.6%, during the three month period ended June 30, 2024, and $2.9 million, or 5.2%, during the six month period ended June 30, 2024, from the comparable periods in 2023. Gross earned premiums from the Medicare supplement line of business decreased $2.7 million, or 8.2%, during the three month period ended June 30, 2024, and $5.7 million, or 8.4%, during the six month period ended June 30, 2024, due primarily to non-renewals exceeding the level of new business writings. Other health product premiums increased $0.2 million, or 4.7%, during the three month period ended June 30, 2024, and $0.1 million, or 0.9%, during the six month period ended June 30, 2024, over the comparable periods in 2023, primarily due to new sales in the group accident and health products. Gross earned premiums from the life insurance line of business increased $0.9 million, or 19.9%, during the three month period ended June 30, 2024, and increased $0.7 million, or 6.6%, during the six month period ended June 30, 2024, over the comparable periods in 2023, primarily due to an increase in the group life products premium. Partially offsetting this increase was a decrease in individual life products premium, resulting from the redemption and settlement of existing individual life policy obligations exceeding the level of new individual life sales. Ceded premiums decreased $0.9 million, or 6.6%, during the three month period ended June 30, 2024 and $2.0 million, or 7.1%, during the six month period ended June 30, 2024, from the comparable periods in 2023. The decrease in ceded premiums for the three month and six month periods ended June 30, 2024 was due to a decrease in Medicare supplement premiums subject to reinsurance.

Previous wording

Commissions and underwriting expenses decreased $0.4 million, or 3.5%, during the three month period ended March 31, 2024, over the comparable period in 2023. As a percentage of earned premiums, underwriting expenses were 38.8% in the three month period ended March 31, 2024, compared to 37.1% in the three month period ended March 31, 2023. The increase in the expense ratio was primarily due to an increase in administrative costs related to the group and individual health lines of business.

Current wording

Commissions and underwriting expenses decreased $0.4 million, or 3.8%, during the three month period ended June 30, 2024, and $0.8 million, or 3.6%, during the six month period ended June 30, 2024, over the comparable periods in 2023. As a percentage of earned premiums, underwriting expenses were 38.0% in the three month period ended June 30, 2024, compared to 38.5% in the three month period ended June 30, 2023. For the six month period ended June 30, 2024, this ratio increased to 38.4% from 37.8% in the comparable period in 2023. The decrease in the expense ratio for the three month period ended June 30, 2024 was primarily due to a decrease in commission expenses in the group life line of business, coupled with a decrease in the Medicare supplement line of business as a result of non-renewals exceeding the level of new business writings, as previously mentioned. The increase in the expense ratio for the six month period ended June 30, 2024 was due to an increase in administrative costs related to the growth in the group lines of business.

Previous wording

The Company had no net realized investment gains during each of the three month periods ended March 31, 2024 and 2023. Management continually evaluates the Company’s investment portfolio and makes adjustments for impairments and/or divests investments as may be determined to be appropriate.

Current wording

The Company had net realized investment gains of less than $0.1 million during the three month period ended June 30, 2024, compared to net realized investment gains of $0.1 million during the three month period ended June 30, 2023. The Company had net realized investment gains of less than $0.1 million during the six month period ended June 30, 2024 and net realized investment gains of $0.1 million during the six month period ended June 30, 2023. The net realized investment gains during the three month and six month periods ended June 30, 2023 resulted primarily from the redemption of several of the Company’s investments in fixed maturity securities. Management continually evaluates the Company’s investment portfolio and makes adjustments for credit losses and/or divests investments as may be determined to be appropriate.

Previous wording

Investments in equity securities are measured at fair value at the end of the reporting period, with any changes in fair value reported in net income during the period. The Company recognized net unrealized losses on equity securities of $0.1 million during the three month period ended March 31, 2024 and unrealized losses on equity securities of $2.4 million during the three month period ended March 31, 2023. Changes in unrealized gains (losses) on equity securities for the applicable periods are primarily the result of fluctuations in the market value of certain of the Company’s equity securities.

Current wording

Investments in equity securities are measured at fair value at the end of the reporting period, with any changes in fair value reported in net income during the period. The Company recognized net unrealized gains on equity securities of $0.2 million during the three month period ended June 30, 2024 and unrealized gains on equity securities of $0.5 million during the three month period ended June 30, 2023. The Company recognized net unrealized gains on equity securities of $0.1 million during the six month period ended June 30, 2024 and unrealized losses on equity securities of $1.9 million during the six month period ended June 30, 2023. Changes in unrealized gains (losses) on equity securities for the applicable periods are the result of fluctuations in the market value of the Company’s equity securities.

Previous wording

Interest expense increased $0.1 million, or 14.0%, during the three month period ended March 31, 2024, from the comparable period in 2023. Changes in interest expense were primarily due to changes in the Secured Overnight Financing Rate (“SOFR”) published by CME Group Benchmark Administration Limited, as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) and the revolving credit facility are directly related to SOFR.

Current wording

Interest expense increased $0.1 million, or 7.4%, during the three month period ended June 30, 2024, and $0.2 million, or 10.6%, during the six month period ended June 30, 2024, from the comparable periods in 2023. Changes in interest expense were primarily due to changes in the Secured Overnight Financing Rate (“SOFR”) published by CME Group Benchmark Administration Limited, as the interest rates on the Company’s outstanding junior subordinated deferrable interest debentures (“Junior Subordinated Debentures”) and the revolving credit facility are directly related to SOFR.

Previous wording

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At March 31, 2024, the Parent had approximately $5.9 million of unrestricted cash and investments.

Current wording

Cash flows at the Parent are derived from dividends, management fees, and tax-sharing payments, as described below, from the subsidiaries. The principal cash needs of the Parent are for the payment of operating expenses, the acquisition of capital assets and debt service requirements, as well as the repurchase of shares and payments of any dividends as may be authorized and approved by the Company’s board of directors from time to time. At June 30, 2024, the Parent had approximately $6.3 million of unrestricted cash and investments.

Previous wording

The Parent’s insurance subsidiaries reported statutory net loss of $1.6 million for the three month period ended March 31, 2024, compared to statutory net income of $1.1 million for the three month period ended March 31, 2023. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Current wording

The Parent’s insurance subsidiaries reported statutory net loss of $0.4 million for the six month period ended June 30, 2024, compared to statutory net income of $4.1 million for the six month period ended June 30, 2023. Statutory results are impacted by the recognition of all costs of acquiring business. In periods in which the Company’s first year premiums increase, statutory results are generally lower than results determined under GAAP. Statutory results for the Company’s property and casualty operations may differ from the Company’s results of operations under GAAP due to the deferral of acquisition costs for financial reporting purposes. The Company’s life and health operations’ statutory results may differ from GAAP results primarily due to the deferral of acquisition costs for financial reporting purposes, as well as the use of different reserving methods.

Previous wording

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At March 31, 2024, American Southern had $52.4 million of statutory capital and surplus and Bankers Fidelity had $32.6 million of statutory capital and surplus. In 2024, dividend payments by the Parent’s insurance subsidiaries in excess of $8.8 million would require prior approval. Through March 31, 2024, the Parent received dividends of $2.7 million from its subsidiaries.

Current wording

Over 90% of the invested assets of the Parent’s insurance subsidiaries are invested in marketable securities that can be converted into cash, if required; however, the use of such assets by the Company is limited by state insurance regulations. Dividend payments to a parent corporation by its wholly owned insurance subsidiaries are subject to annual limitations and are restricted to 10% of statutory surplus or statutory earnings before recognizing realized investment gains of the individual insurance subsidiaries. At June 30, 2024, American Southern had $52.0 million of statutory capital and surplus and Bankers Fidelity had $32.7 million of statutory capital and surplus. In 2024, dividend payments by the Parent’s insurance subsidiaries in excess of $8.8 million would require prior approval. Through June 30, 2024, the Parent received dividends of $5.4 million from its subsidiaries.

Previous wording

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of 3-month CME Term SOFR plus applicable tenor spread of 0.26161 percent plus an applicable margin. The margin ranges from 4.00% to 4.10%. At March 31, 2024, the effective interest rate was 9.64%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. As of March 31, 2024, the Company has not made such an election.

Current wording

The Company has two statutory trusts which exist for the exclusive purpose of issuing trust preferred securities representing undivided beneficial interests in the assets of the trusts and investing the gross proceeds of the trust preferred securities in Junior Subordinated Debentures. The outstanding $18.0 million and $15.7 million of Junior Subordinated Debentures mature on December 4, 2032 and May 15, 2033, respectively, are callable quarterly, in whole or in part, only at the option of the Company, and have an interest rate of 3-month CME Term SOFR plus applicable tenor spread of 0.26161 percent plus an applicable margin. The margin ranges from 4.00% to 4.10%. At June 30, 2024, the effective interest rate was 9.65%. The obligations of the Company with respect to the issuances of the trust preferred securities represent a full and unconditional guarantee by the Parent of each trust’s obligations with respect to the trust preferred securities. Subject to certain exceptions and limitations, the Company may elect from time to time to defer Junior Subordinated Debenture interest payments, which would result in a deferral of distribution payments on the related trust preferred securities. As of June 30, 2024, the Company has not made such an election.

Previous wording

At March 31, 2024, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. At March 31, 2024, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.1 million.

Current wording

At June 30, 2024, the Company had 55,000 shares of Series D preferred stock (“Series D Preferred Stock”) outstanding. All of the shares of Series D Preferred Stock are held by an affiliate of the Company’s controlling shareholder. The outstanding shares of Series D Preferred Stock have a stated value of $100 per share; accrue annual dividends at a rate of $7.25 per share (payable in cash or shares of the Company’s common stock at the option of the board of directors of the Company) and are cumulative. In certain circumstances, the shares of the Series D Preferred Stock may be convertible into an aggregate of approximately 1,378,000 shares of the Company’s common stock, subject to certain adjustments and provided that such adjustments do not result in the Company issuing more than approximately 2,703,000 shares of common stock without obtaining prior shareholder approval; and are redeemable solely at the Company’s option. The Series D Preferred Stock is not currently convertible. At June 30, 2024, the Company had accrued but unpaid dividends on the Series D Preferred Stock totaling $0.2 million.

Previous wording

Bankers Fidelity Life Insurance Company (''BFLIC") is a member of the Federal Home Loan Bank of Atlanta ("FHLB"), for the primary purpose of enhancing financial flexibility. As a member, BFLIC can obtain access to low-cost funding and also receive dividends on FHLB stock. The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.2 million, as of March 31, 2024. Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB. As of March 31, 2024, BFLIC has pledged bonds having an amortized cost of $9.5 million to the FHLB. BFLIC may be required to post additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB. As of March 31, 2024, BFLIC does not have any outstanding borrowings from the FHLB.

Current wording

Bankers Fidelity Life Insurance Company (‘‘BFLIC”) is a member of the Federal Home Loan Bank of Atlanta (“FHLB”), for the primary purpose of enhancing financial flexibility. As a member, BFLIC can obtain access to low-cost funding and also receive dividends on FHLB stock. The membership arrangement provides for credit availability of five percent of statutory admitted assets, or approximately $8.2 million, as of June 30, 2024. Additional FHLB stock purchases may be required based upon the amount of funds borrowed from the FHLB. As of June 30, 2024, BFLIC has pledged bonds having an amortized cost of $9.4 million to the FHLB. BFLIC may be required to post additional acceptable forms of collateral for any borrowings that it makes in the future from the FHLB. As of June 30, 2024, BFLIC does not have any outstanding borrowings from the FHLB.

Previous wording

On May 12, 2021, the Company entered into a Revolving Credit Agreement with Truist Bank as the lender (the “Lender”). The Revolving Credit Agreement provides for an unsecured $10.0 million revolving credit facility that originally matured on April 12, 2024. On March 22, 2024, the Company entered into a First Amendment (the "Amendment") to its Revolving Credit Agreement (as amended, the “Credit Agreement”) with the Lender. The Amendment, among other things, (a) updates the interest rate provisions to memorialize that the Company pays interest on the unpaid principal balance of outstanding revolving loans at the Adjusted Term SOFR rate (as defined in the Credit Agreement), plus 2.00%, (b) extends the maturity date of the revolving credit facility to March 22, 2027, and (c) requires that the Company maintain a consolidated net worth of not less than $64.2 million. Except as modified by the Amendment, the existing terms of the original Credit Agreement remain in effect.

Current wording

On May 12, 2021, the Company entered into a Revolving Credit Agreement with Truist Bank as the lender (the “Lender”). The Revolving Credit Agreement provides for an unsecured $10.0 million revolving credit facility that originally matured on April 12, 2024. On March 22, 2024, the Company entered into a First Amendment (the “Amendment”) to its Revolving Credit Agreement (as amended, the “Credit Agreement”) with the Lender. The Amendment, among other things, (a) updates the interest rate provisions to memorialize that the Company pays interest on the unpaid principal balance of outstanding revolving loans at the Adjusted Term SOFR rate (as defined in the Credit Agreement), plus 2.00%, (b) extends the maturity date of the revolving credit facility to March 22, 2027, (c) requires the monthly payment of an unused commitment fee of $0.2% of the unused facility amount, and (d) requires that the Company maintain a consolidated net worth of not less than $64.2 million. Except as modified by the Amendment, the existing terms of the original Credit Agreement remain in effect.

Previous wording

The Credit Agreement requires the Company to comply with certain covenants, including a debt to capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35% of the Company’s consolidated capitalization at any time and maintained a minimum consolidated net worth, as previously mentioned. The Credit Agreement also contains customary representations and warranties and events of default. Events of default include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of March 31, 2024 and December 31, 2023, the Company had outstanding borrowings including accrued interest of $4.0 million and $3.0 million, respectively, under the Credit Agreement.

Current wording

The Credit Agreement requires the Company to comply with certain covenants, including a debt to capital ratio that restricts the Company from incurring consolidated indebtedness that exceeds 35% of the Company’s consolidated capitalization at any time and maintaining a minimum consolidated net worth, as previously mentioned. The Credit Agreement also contains customary representations and warranties and events of default. Events of default include, among others, (a) the failure by the Company to pay any amounts owed under the Credit Agreement when due, (b) the failure to perform and not timely remedy certain covenants, (c) a change in control of the Company and (d) the occurrence of bankruptcy or insolvency events. Upon an event of default, the Lender may, among other things, declare all obligations under the Credit Agreement immediately due and payable and terminate the revolving commitments. As of June 30, 2024 and December 31, 2023, the Company had outstanding borrowings of $4.0 and $3.0 million, respectively, under the Credit Agreement.

Previous wording

Cash and cash equivalents decreased from $28.3 million at December 31, 2023 to $21.2 million at March 31, 2024. The decrease in cash and cash equivalents during the three month period ended March 31, 2024 was primarily attributable to net cash used in operating activities of $5.3 million. Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $2.8 million primarily as a result of investment purchases exceeding investment sales and maturity of securities. Partially offsetting the decrease in cash and cash equivalents was net cash provided by financing activities of $1.0 million primarily as a result of proceeds from bank financing.

Current wording

Cash and cash equivalents decreased from $28.3 million at December 31, 2023 to $21.2 million at June 30, 2024. The decrease in cash and cash equivalents during the six month period ended June 30, 2024 was primarily attributable to net cash used in operating activities of $4.9 million. Also contributing to the decrease in cash and cash equivalents was net cash used in investing activities of $2.8 million primarily as a result of investment purchases exceeding investment sales and maturity of securities. Partially offsetting the decrease in cash and cash equivalents was net cash provided by financing activities of $0.6 million primarily as a result of proceeds from bank financing.