ATLANTIC AMERICAN CORP 10-K

Item 9A. Controls and Procedures As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer, concluded that disclosure controls and procedures were effective as of that date. Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. The Company’s internal control over financial reporting system has been designed to provide reasonable assurance regarding the reliability and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management recognizes that there are inherent limitations in the effectiveness of any internal control system. Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Furthermore, the application of any evaluations of effectiveness on future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021 based upon the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the updated 2013 Internal Control – Integrated Framework . Based on that evaluation, management believes that internal control over financial reporting as such term is defined in Exchange Act Rule 13a-15(f) was effective as of December 31, 2021. There were no changes in our internal control over financial reporting that occurred during the fourth quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to certain rules of the Securities and Exchange Commission that exempt non-accelerated filers, including the Company, from such requirement. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 51 Table of Contents PART III With the exception of certain information relating to the executive officers of the Company, which is provided in Part I hereof, the information relating to securities authorized for issuance under equity compensation plans and the information relating to the Company’s Code of Business Conduct and Ethics, each of which is included below, all information required by Part III (Items 10, 11, 12, 13 and 14 of Form 10-K) is incorporated by reference to the sections entitled “Election of Directors,” “Security Ownership of Certain Beneficial Owners and Management,” “Delinquent Section 16(a) Reports” (if applicable), “Executive Compensation,” “Certain Relationships and Related Transactions” and “Ratification of the Appointment of the Company’s Independent Registered Public Accounting Firm” to be contained in the Company’s definitive proxy statement in connection with the Company’s Annual Meeting of Shareholders to be held on or around May 24, 2022, to be filed with the SEC within 120 days of the Company’s fiscal year end. Equity Compensation Plan Information The following table sets forth, as of December 31, 2021, the number of securities issuable upon exercise of outstanding options, warrants and rights, the weighted average exercise price thereof and the number of securities remaining available for future issuance under the Company’s equity compensation plans: Plan Category Number of Securities to Be Issued Upon Exercise of Outstanding Options, Warrants and Rights Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in the First Column) Equity compensation plans approved by security holders — $ — 935,200 Equity compensation plans not approved by security holders (1) — — — Total — $ — 935,200 (1) All the Company’s equity compensation plans have been approved by the Company’s shareholders. Code of Business Conduct and Ethics The Company has adopted a Code of Business Conduct and Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or any persons performing similar functions, as well as its directors and other employees. A copy of this Code of Business Conduct and Ethics has been filed as an exhibit to this annual report on Form 10-K. 52 Table of Contents PART IV Item 15. Exhibits and Financial Statement Schedules (a) List of documents filed as part of this report: 1. Financial Statements: See Index to Financial Statements contained in Item 8 hereof. 2. Financial Statement Schedules: Schedule II - Condensed financial information of the registrant Schedule III - Supplementary insurance information of the registrant Schedule IV - Reinsurance information for the registrant Schedule VI - Supplemental information concerning property-casualty insurance operations of the registrant Schedules other than those listed above are omitted as they are not required or are not applicable, or the required information is shown in the financial statements or notes thereto. Columns omitted from schedules filed have been omitted because the information is not applicable. 3. Exhibits *: 3.1 Restated Articles of Incorporation of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 10-K for the year ended December 31, 2008]. 3.2 Restated Bylaws of the registrant, as amended [incorporated by reference to Exhibit 3.1 to the registrant’s Form 8-K filed on March 4, 2016]. 4.1 Description of the registrant’s common stock registered pursuant to section 12 of the Securities Exchange Act of 1934 [incorporated by reference to Exhibit 4.1 to the registrant’s Form 10-K filed on March 24, 2020]. 10.01 Management Agreement, dated July 1, 1993, between the registrant and Atlantic American Life Insurance Company and Bankers Fidelity Life Insurance Company [incorporated by reference to Exhibit 10.41 to the registrant’s Form 10-Q for the quarter ended September 30, 1993]. 10.02 Tax Allocation Agreement, dated as of January 4, 2016, between the registrant and the registrant’s subsidiaries [incorporated by reference to Exhibit 10.02 to the registrant’s Form 10-K for the year ended December 31, 2017]. 10.03** Atlantic American Corporation 2012 Nonqualified Stock Purchase Plan [incorporated by reference to Exhibit 99.1 to the registrant’s Form S-8 (File No. 333-183207) filed on August 10, 2012]. 10.04** Atlantic American Corporation 2012 Equity Incentive Plan [incorporated by reference to Exhibit 10.1 to the registrant’s Form 10-Q for the quarter ended March 31, 2013]. 10.05 Lease Agreement, dated as of November 1, 2007, between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company, Atlantic American Corporation and Delta Life Insurance Company [incorporated by reference to Exhibit 10.10 to the registrant’s Form 10-K for the year ended December 31, 2007]. 10.06 First Amendment to Lease Agreement, dated as of March 31, 2008, between Georgia Casualty & Surety Company, Bankers Fidelity Life Insurance Company, Atlantic American Corporation and Delta Life Insurance Company [incorporated by reference to Exhibit 10.2 to the registrant’s Form 10-Q for the quarter ended March 31, 2008]. 10.07** Employment and Transition Agreement with Fixed Determination Date, dated as of June 14, 2017 by and between John G. Sample, Jr. and the registrant [incorporated by reference to Exhibit 10.07 to the registrant’s Form 10-K for the year ended December 31, 2017]. 10.08 Revolving Credit Agreement, dated as of May 12, 2021, by and between Atlantic American Corporation and Truist Bank [incorporated by reference to Exhibit 10.1 to the registrant’s Form 8-K filed with the SEC on May 13, 2021]. 14.1 Code of Business Conduct and Ethics [incorporated by reference to Exhibit 14.1 to the registrant’s Form 10-K for the year ended December 31, 2003]. 21.1 Subsidiaries of the registrant [incorporated by reference to Exhibit 21.1 to the registrant’s Form 10-K for the year ended December 31, 2015]. 23.1 Consent of Dixon Hughes Goodman LLP, Independent Registered Public Accounting Firm. 31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 53 Table of Contents 31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema. 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase. 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase. 101.LAB Inline XBRL Taxonomy Extension Label Linkbase. 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase. 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). * The registrant agrees to furnish to the Commission upon request a copy of any instruments defining the rights of security holders of the registrant that may be omitted from filing in accordance with the Commission’s rules and regulations. ** Management contract, compensatory plan or arrangement required to be filed pursuant to Part IV, Item 15(c) of Form 10-K and Item 601 of Regulation S-K. Item 16. Form 10-K Summary None. 54 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATLANTIC AMERICAN CORPORATION (Registrant) By: /s/ J. Ross Franklin J. Ross Franklin Vice President and Chief Financial Officer Date: March 25, 2022 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Hilton H. Howell, Jr. President, Chief Executive Officer and Chairman of the Board (Principal Executive Officer) March 25, 2022 HILTON H. HOWELL, JR. /s/ J. Ross Franklin Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) March 25, 2022 J. ROSS FRANKLIN /s/ Robin R. Howell Director March 25, 2022 ROBIN R. HOWELL /s/ Mark E. Preisinger Director March 25, 2022 MARK E. PREISINGER /s/ Joseph M. Scheerer Director March 25, 2022 JOSEPH M. SCHEERER /s/ Scott G. Thompson Director March 25, 2022 SCOTT G. THOMPSON /s/ D. Keehln Wheeler Director March 25, 2022 D. KEEHLN WHEELER 55 Table of Contents Schedule II Page 1 of 3 CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) BALANCE SHEETS ASSETS December 31, 2021 2020 (In thousands) Cash and cash equivalents $ 1,718 $ 2,090 Investments 2,749 2,598 Investment in subsidiaries 164,535 172,996 Investments in unconsolidated trusts 1,238 1,238 Deferred tax asset, net 1,237 — Income taxes receivable from subsidiaries 2,171 1,683 Other assets 5,791 4,311 Total assets $ 179,439 $ 184,916 LIABILITIES AND SHAREHOLDERS’ EQUITY Deferred tax liability, net $ — $ 1,765 Other payables 4,415 4,353 Junior subordinated debentures 33,738 33,738 Total liabilities 38,153 39,856 Shareholders’ equity 141,286 145,060 Total liabilities and shareholders’ equity $ 179,439 $ 184,916 See accompanying report of independent registered public accounting firm. 56 Table of Contents Schedule II Page 2 of 3 CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) STATEMENTS OF OPERATIONS Year Ended December 31, 2021 2020 (In thousands) REVENUE Fee income from subsidiaries $ 7,380 $ 6,745 Distributed earnings from subsidiaries 8,400 3,900 Unrealized gains (losses) on equity securities, net 230 ( 191 ) Other ( 247 ) ( 784 ) Total revenue 15,763 9,670 GENERAL AND ADMINISTRATIVE EXPENSES 13,654 11,521 INTEREST EXPENSE 1,387 1,610 722 ( 3,461 ) INCOME TAX BENEFIT (1) ( 2,840 ) ( 3,623 ) 3,562 162 EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES, NET 719 12,007 NET INCOME $ 4,281 $ 12,169 (1) Under the terms of a tax-sharing agreement, income tax provisions for the subsidiary companies are computed on a separate company basis. Accordingly, the Company’s income tax benefit results from the utilization of the Parent’s separate return loss to reduce the consolidated taxable income of the Company. See accompanying report of independent registered public accounting firm. 57 Table of Contents Schedule II Page 3 of 3 CONDENSED FINANCIAL INFORMATION OF REGISTRANT ATLANTIC AMERICAN CORPORATION (Parent Company Only) STATEMENTS OF CASH FLOWS Year Ended December 31, 2021 2020 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 4,281 $ 12,169 Adjustments to reconcile net income to net cash provided by operating activities: Unrealized (gains) losses on equity securities, net ( 230 ) 191 Depreciation and amortization 538 594 Compensation expense related to share awards 211 437 Equity in undistributed earnings of subsidiaries, net ( 719 ) ( 12,007 ) (Increase) decrease in intercompany taxes ( 489 ) 622 Deferred income tax benefit ( 1,058 ) ( 2,446 ) Increase in accounts payable and accrued expenses 63 121 Other, net ( 1,966 ) 917 Net cash provided by operating activities 631 598 CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment ( 49 ) ( 95 ) Net cash used in investing activities ( 49 ) ( 95 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payment of dividends on Series D preferred stock ( 399 ) ( 399 ) Payment of dividends on common stock ( 408 ) — Proceeds from shares issued under stock plans 6 9 Treasury stock acquired — net employee share-based compensation ( 153 ) ( 91 ) Net cash used in financing activities ( 954 ) ( 481 ) Net (decrease) increase in cash ( 372 ) 22 Cash and cash equivalents at beginning of year 2,090 2,068 Cash and cash equivalents at end of year $ 1,718 $ 2,090 Supplemental disclosure: Cash paid for interest $ 1,389 $ 1,665 Cash paid for income taxes $ 3,202 $ 3,883 Intercompany tax settlement from subsidiaries $ 6,734 $ 1,798 See accompanying report of independent registered public accounting firm. 58 Table of Contents Schedule III Page 1 of 2 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION Segment Deferred Acquisition Costs Future Policy Benefits, Losses, Claims and Loss Reserves Unearned Premiums Other Policy Claims and Benefits Payable (In thousands) December 31, 2021 : Bankers Fidelity $ 36,308 $ 115,712 $ 3,689 $ 1,360 American Southern 2,390 57,256 23,780 — $ 38,698 $ 172,968 (1) $ 27,469 $ 1,360 December 31, 2020 : Bankers Fidelity $ 37,312 $ 115,136 $ 4,199 $ 1,526 American Southern 2,299 54,883 22,932 — $ 39,611 $ 170,019 (2) $ 27,131 $ 1,526 (1) Includes future policy benefits of $ 87,348 and losses and claims of $ 85,620 . (2) Includes future policy benefits of $ 90,872 and losses and claims of $ 79,147 . See accompanying report of independent registered public accounting firm. 59 Table of Contents Schedule III Page 2 of 2 ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTARY INSURANCE INFORMATION Segment Premium Revenue Net Investment Income Benefits, Claims, Losses and Settlement Expenses Amortization of Deferred Acquisition Costs Other Operating Expenses Casualty Premiums Written (In thousands) December 31, 2021 : Bankers Fidelity $ 116,234 $ 5,204 $ 87,261 $ 13,465 $ 21,250 $ — American Southern 67,982 3,570 44,433 10,599 9,544 69,403 Corporate & other — ( 246 ) — — 7,700 — $ 184,216 $ 8,528 $ 131,694 $ 24,064 $ 38,494 $ 69,403 December 31, 2020 : Bankers Fidelity $ 121,167 $ 4,971 $ 80,537 $ 9,803 $ 24,374 $ — American Southern 62,372 3,586 39,339 9,590 9,814 64,366 Corporate & other — ( 813 ) — — 6,388 — $ 183,539 $ 7,744 $ 119,876 $ 19,393 $ 40,576 $ 64,366 See accompanying report of independent registered public accounting firm. 60 Table of Contents Schedule IV ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES REINSURANCE INFORMATION Direct Amount Ceded to Other Companies Assumed From Other Companies Net Amounts Percentage of Amount Assumed to Net (Dollars in thousands) Year ended December 31, 2021: Life insurance in force $ 416,480 $ ( 9,487 ) $ — $ 406,993 Premiums — Bankers Fidelity $ 183,382 $ ( 67,155 ) $ 7 $ 116,234 0.0 % American Southern 52,424 ( 6,511 ) 22,069 67,982 32.5 % Total premiums $ 235,806 $ ( 73,666 ) $ 22,076 $ 184,216 12.0 % Year ended December 31, 2020: Life insurance in force $ 294,392 $ ( 11,032 ) $ — $ 283,360 Premiums — Bankers Fidelity $ 193,082 $ ( 71,924 ) $ 9 $ 121,167 0.0 % American Southern 45,127 ( 5,890 ) 23,135 62,372 37.1 % Total premiums $ 238,209 $ ( 77,814 ) $ 23,144 $ 183,539 12.6 % See accompanying report of independent registered public accounting firm. 61 Table of Contents Schedule VI ATLANTIC AMERICAN CORPORATION AND SUBSIDIARIES SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS Claims and Claim Adjustment Expenses Incurred Related To Year Ended Deferred Policy Acquisition Costs Reserves Unearned Premiums Earned Premiums Net Investment Income Current Year Prior Years Amortization of Deferred Acquisition Costs Paid Claims and Claim Adjustment Expenses Premiums Written (In thousands) December 31, 2021 $ 2,390 $ 57,256 $ 23,780 $ 67,982 $ 3,570 $ 48,678 $ ( 4,245 ) $ 10,599 $ 40,370 $ 69,403 December 31, 2020 $ 2,299 $ 54,883 $ 22,932 $ 62,372 $ 3,586 $ 39,859 $ ( 520 ) $ 9,590 $ 37,645 $ 64,366 See accompanying report of independent registered public accounting firm. 62