0000832480-22-000018.txt : 20220812 0000832480-22-000018.hdr.sgml : 20220812 20220812113847 ACCESSION NUMBER: 0000832480-22-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 59 CONFORMED PERIOD OF REPORT: 20220630 FILED AS OF DATE: 20220812 DATE AS OF CHANGE: 20220812 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UTG INC CENTRAL INDEX KEY: 0000832480 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 202907892 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16867 FILM NUMBER: 221158746 BUSINESS ADDRESS: STREET 1: 205 NORTH DEPOT STREET CITY: STANFORD STATE: KY ZIP: 40484 BUSINESS PHONE: 2173236300 MAIL ADDRESS: STREET 1: 205 NORTH DEPOT STREET CITY: STANFORD STATE: KY ZIP: 40484 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TRUST GROUP INC DATE OF NAME CHANGE: 20001206 FORMER COMPANY: FORMER CONFORMED NAME: UNITED TRUST INC /IL/ DATE OF NAME CHANGE: 19920703 10-Q 1 utg22q2.htm UTG22Q2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to ____________

Commission File No. 000-16867

 
UTG, INC.
 
 
(Exact name of registrant as specified in its charter)
 
     
Delaware
 
20-2907892
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
 
205 North Depot Street
 
 
Stanford, KY 40484
 
 
(Address of principal executive offices) (Zip Code)
 

Registrant’s telephone number, including area code: (217) 241-6300

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Name of each exchange on which registered
       None
                             None

Securities registered pursuant to Section 12(g) of the Act:

Title of class
Common Stock, stated value $.001 per share

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company.  See the definitions of “large accelerated filer,” accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
Accelerated filer
 
 
Non-accelerated filer 
Smaller reporting company
 
 
 
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

The number of shares outstanding of the registrant’s common stock as of July 31, 2022 was 3,167,698.



UTG, Inc.
(The “Company”)

TABLE OF CONTENTS

PART I.   Financial Information
4
Item 1.  Financial Statements
4
Condensed Consolidated Balance Sheets
4
Condensed Consolidated Statements of Operations
5
Condensed Consolidated Statements of Comprehensive Income (Loss)
6
Condensed Consolidated Statements of Shareholders’ Equity
7
Condensed Consolidated Statements of Cash Flows
8
Notes to Condensed Consolidated Financial Statements
9
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
Item 4.  Controls and Procedures
29
 
PART II.  Other Information
 
29
Item 1.  Legal Proceedings
29
Item 1A. Risk Factors
29
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
29
Item 3.  Defaults Upon Senior Securities
29
Item 4.  Mine Safety Disclosures
29
Item 5.  Other Information
29
Item 6.  Exhibits
29
 
Signatures
 
30



Part 1.   Financial Information.
Item 1.  Financial Statements.

UTG, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

 
June 30, 2022
   
December 31, 2021*
 
ASSETS
 
Investments:
           
Investments available for sale:
           
Fixed maturities, at fair value (amortized cost $121,435,668 and $127,949,963)
 
$
118,136,543
   
$
140,963,881
 
    Equity securities, at fair value (cost $72,291,234 and $68,403,168)
   
133,462,075
     
122,229,121
 
Equity securities, at cost
   
14,543,343
     
14,543,343
 
Mortgage loans on real estate at amortized cost
   
29,787,180
     
29,183,562
 
Investment real estate
   
37,879,631
     
39,748,261
 
Notes receivable
   
17,712,550
     
17,722,976
 
Policy loans
   
7,322,454
     
7,390,497
 
Total investments
   
358,843,776
     
371,781,641
 
                 
Cash and cash equivalents
   
19,049,190
     
30,787,278
 
Accrued investment income
   
1,278,020
     
1,264,159
 
Reinsurance receivables:
               
Future policy benefits
   
24,446,269
     
24,740,562
 
Policy claims and other benefits
   
3,889,077
     
4,426,997
 
Cost of insurance acquired
   
3,042,327
     
3,386,501
 
Income tax receivable
   
908,638
     
975,373
 
Other assets
   
567,633
     
1,097,246
 
Total assets
 
$
412,024,930
   
$
438,459,757
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Liabilities:
               
Policy liabilities and accruals:
               
Future policyholder benefits
 
$
232,537,561
   
$
235,367,680
 
Policy claims and benefits payable
   
3,517,179
     
3,941,305
 
Other policyholder funds
   
340,253
     
345,248
 
Dividend and endowment accumulations
   
14,746,845
     
14,686,166
 
Deferred income taxes
   
11,560,222
     
13,680,396
 
Notes payable
   
7,000,000
     
24,000,000
 
Trading securities, at fair value (proceeds $0 and $2,202)
   
0
     
1,116
 
Other liabilities
   
5,410,367
     
5,193,039
 
Total liabilities
   
275,112,427
     
297,214,950
 
                 
Shareholders' equity:
               
Common stock - no par value, stated value $0.001 per share.  Authorized 7,000,000 shares - 3,169,243 and 3,166,669 shares outstanding
   
3,170
     
3,167
 
Additional paid-in capital
   
32,854,050
     
32,780,587
 
Retained earnings
   
106,158,464
     
97,731,347
 
Accumulated other comprehensive income
   
(2,634,157
)
   
10,253,151
 
Total UTG shareholders' equity
   
136,381,527
     
140,768,252
 
Noncontrolling interests
   
530,976
     
476,555
 
Total shareholders' equity
   
136,912,503
     
141,244,807
 
Total liabilities and shareholders' equity
 
$
412,024,930
   
$
438,459,757
 

* Balance sheet audited at December 31, 2021.

See accompanying notes.



UTG, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

 
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Revenue:
                       
Premiums and policy fees
 
$
2,155,643
   
$
2,296,481
   
$
4,308,704
   
$
4,595,544
 
Ceded reinsurance premiums and policy fees
   
(721,650
)
   
(696,061
)
   
(1,367,799
)
   
(1,288,535
)
Net investment income
   
4,440,186
     
2,082,359
     
8,899,554
     
4,042,026
 
Other income
   
93,713
     
94,470
     
155,036
     
189,205
 
      Revenue before net investment gains (losses)
   
5,967,892
     
3,777,249
     
11,995,495
     
7,538,240
 
Net investment gains (losses):
                               
Other-than-temporary impairments
   
0
     
(411,584
)
   
0
     
(411,584
)
Other realized investment gains, net
   
79,109
     
4,287,461
     
4,859,258
     
4,432,507
 
Change in fair value of equity securities
   
(790,338
)
   
195,136
     
7,364,291
     
20,375,015
 
      Total net investment gains (losses)
   
(711,229
)
   
4,071,013
     
12,223,549
     
24,395,938
 
Total revenue
   
5,256,663
     
7,848,262
     
24,219,044
     
31,934,178
 
                                 
Benefits and other expenses:
                               
Benefits, claims and settlement expenses:
                               
Life
   
3,609,121
     
4,025,758
     
8,269,918
     
8,020,609
 
Ceded reinsurance benefits and claims
   
245,841
     
(577,515
)
   
(741,590
)
   
(986,666
)
Annuity
   
256,188
     
255,538
     
519,230
     
493,093
 
Dividends to policyholders
   
85,933
     
86,476
     
173,092
     
174,284
 
Commissions and amortization of deferred policy acquisition costs
   
(26,290
)
   
(30,754
)
   
(51,959
)
   
(56,908
)
Amortization of cost of insurance acquired
   
172,087
     
179,102
     
344,174
     
357,845
 
Operating expenses
   
1,899,338
     
1,734,156
     
4,817,661
     
3,837,533
 
Interest expense
   
23,306
     
0
     
35,280
     
0
 
Total benefits and other expenses
   
6,265,524
     
5,672,761
     
13,365,806
     
11,839,790
 
                                 
Income before income taxes
   
(1,008,861
)
   
2,175,501
     
10,853,238
     
20,094,388
 
Income tax expense (benefit)
   
(270,762
)
   
350,499
     
2,372,300
     
4,070,667
 
                                 
Net income (loss)
   
(738,099
)
   
1,825,002
     
8,480,938
     
16,023,721
 
                                 
Net income attributable to noncontrolling interests
   
(27,107
)
   
(26,502
)
   
(53,821
)
   
(56,255
)
                                 
Net income (loss) attributable to common shareholders
 
$
(765,206
)
 
$
1,798,500
   
$
8,427,117
   
$
15,967,466
 
                                 
Amounts attributable to common shareholders
                               
Basic income (loss) per share
 
$
(0.24
)
 
$
0.57
   
$
2.66
   
$
5.03
 
                                 
Diluted income (loss) per share
 
$
(0.24
)
 
$
0.57
   
$
2.66
   
$
5.03
 
                                 
Basic weighted average shares outstanding
   
3,172,243
     
3,175,027
     
3,171,667
     
3,176,012
 
                                 
Diluted weighted average shares outstanding
   
3,172,243
     
3,175,027
     
3,171,667
     
3,176,012
 


See accompanying notes.




UTG, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

 
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Net income (loss)
 
$
(738,099
)
 
$
1,825,002
   
$
8,480,938
   
$
16,023,721
 
                                 
Other comprehensive income (loss):
                               
                                 
Unrealized holding gains (losses) arising during period, pre-tax
   
(7,129,016
)
   
2,505,067
     
(16,313,575
)
   
(4,975,001
)
Tax (expense) benefit on unrealized holding gains (losses) arising during the period
   
1,497,094
     
(526,064
)
   
3,425,851
     
1,044,750
 
Unrealized holding gains (losses) arising during period, net of tax
   
(5,631,922
)
   
1,979,003
     
(12,887,724
)
   
(3,930,251
)
                                 
Less reclassification adjustment for (gains) losses included in net income
   
4,896
     
377,348
     
527
     
377,348
 
Tax expense (benefit) for gains included in net income (loss)
   
(1,029
)
   
(79,243
)
   
(111
)
   
(79,243
)
Reclassification adjustment for (gains) losses included in net income, net of tax
   
3,867
     
298,105
     
416
     
298,105
 
Subtotal: Other comprehensive income (loss), net of tax
   
(5,628,055
)
   
2,277,108
     
(12,887,308
)
   
(3,632,146
)
                                 
Comprehensive income (loss)
   
(6,366,154
)
   
4,102,110
     
(4,406,370
)
   
12,391,575
 
                                 
Less comprehensive income attributable to noncontrolling interests
   
(27,107
)
   
(26,502
)
   
(53,821
)
   
(56,255
)
                                 
Comprehensive income (loss) attributable to UTG, Inc.
 
$
(6,393,261
)
 
$
4,075,608
   
$
(4,460,191
)
 
$
12,335,320
 


See accompanying notes.




UTG, Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

Three Months Ended June 30, 2022
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other
Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders’ Equity
 
                                     
Balance at March 31, 2022
 
$
3,176
   
$
32,999,942
   
$
106,923,670
   
$
2,993,898
   
$
503,266
   
$
143,423,952
 
Common stock issued during year
   
0
     
0
     
0
     
0
     
0
     
0
 
Treasury shares acquired
   
(6
)
   
(145,892
)
   
0
     
0
     
0
     
(145,898
)
Net income (loss) attributable to common shareholders
   
0
     
0
     
(765,206
)
   
0
     
0
     
(765,206
)
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
0
     
0
     
0
     
(5,628,055
)
   
0
     
(5,628,055
)
Contributions
   
0
     
0
     
0
     
0
     
0
     
0
 
Distributions
   
0
     
0
     
0
     
0
     
603
     
603
 
Gain attributable to noncontrolling interest
   
0
     
0
     
0
     
0
     
27,107
     
27,107
 
Balance at June 30, 2022
 
$
3,170
   
$
32,854,050
   
$
106,158,464
   
$
(2,634,157
)
 
$
530,976
   
$
136,912,503
 

Six Months Ended June 30, 2022
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other
Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders’ Equity
 
                                     
Balance at December 31, 2021
 
$
3,167
   
$
32,780,587
   
$
97,731,347
   
$
10,253,151
   
$
476,555
   
$
141,244,807
 
Common stock issued during year
   
18
     
486,779
     
0
     
0
     
0
     
486,797
 
Treasury shares acquired
   
(15
)
   
(413,316
)
   
0
     
0
     
0
     
(413,331
)
Net income (loss) attributable to common shareholders
   
0
     
0
     
8,427,117
     
0
     
0
     
8,427,117
 
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
0
     
0
     
0
     
(12,887,308
)
   
0
     
(12,887,308
)
Contributions
   
0
     
0
     
0
     
0
     
0
     
0
 
Distributions
   
0
     
0
     
0
     
0
     
600
     
600
 
Gain attributable to noncontrolling interest
   
0
     
0
     
0
     
0
     
53,821
     
53,821
 
Balance at June 30, 2022
 
$
3,170
   
$
32,854,050
   
$
106,158,464
   
$
(2,634,157
)
 
$
530,976
   
$
136,912,503
 

See accompanying notes.




UTG, Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

Three Months Ended June 30, 2021
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other
Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders’ Equity
 
                                     
Balance at March 31, 2021
 
$
3,178
   
$
33,065,925
   
$
102,237,250
   
$
9,674,987
   
$
490,525
   
$
145,471,865
 
Common stock issued during year
   
1
     
16,772
     
0
     
0
     
0
     
16,773
 
Treasury shares acquired
   
(5
)
   
(126,110
)
   
0
     
0
     
0
     
(126,115
)
Net income attributable to common shareholders
   
0
     
0
     
1,798,500
     
0
     
0
     
1,798,500
 
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
0
     
0
     
0
     
2,277,108
     
0
     
2,277,108
 
Contributions
   
0
     
0
     
0
     
0
     
0
     
0
 
Distributions
   
0
     
0
     
0
     
0
     
0
     
0
 
Gain attributable to noncontrolling interest
   
0
     
0
     
0
     
0
     
26,502
     
26,502
 
Balance at June 30, 2021
 
$
3,174
   
$
32,956,587
   
$
104,035,750
   
$
11,952,095
   
$
517,027
   
$
149,464,633
 

Six Months Ended June 30, 2021
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other
Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders’ Equity
 
                                     
Balance at December 31, 2020
 
$
3,176
   
$
33,025,018
   
$
88,068,284
   
$
15,584,241
   
$
460,772
   
$
137,141,491
 
Common stock issued during year
   
7
     
170,531
     
0
     
0
     
0
     
170,538
 
Treasury shares acquired
   
(9
)
   
(238,962
)
   
0
     
0
     
0
     
(238,971
)
Net income attributable to common shareholders
   
0
     
0
     
15,967,466
     
0
     
0
     
15,967,466
 
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
0
     
0
     
0
     
(3,632,146
)
   
0
     
(3,632,146
)
Contributions
   
0
     
0
     
0
     
0
     
0
     
0
 
Distributions
   
0
     
0
     
0
     
0
     
0
     
0
 
Gain attributable to noncontrolling interest
   
0
     
0
     
0
     
0
     
56,255
     
56,255
 
Balance at June 30, 2021
 
$
3,174
   
$
32,956,587
   
$
104,035,750
   
$
11,952,095
   
$
517,027
   
$
149,464,633
 


See accompanying notes.





UTG, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

 
Six Months Ended
 
June 30,
 
June 30,
 
2022
 
2021
Cash flows from operating activities:
         
Net income (loss)
$
8,480,938
 
$
16,023,721
Adjustments to reconcile net income to net cash used in operating activities:
         
Amortization (accretion) of investments
 
(6,865)
   
27,843
Other-than-temporary impairments
 
0
   
411,584
Realized investment gains (losses), net
 
(4,859,258)
   
(4,432,507)
Change in fair value of equity securities
 
(7,364,291)
   
(20,375,015)
Unrealized trading (gains) losses included in income
 
0
   
(950)
Realized trading (gains) losses included in income
 
13,283
   
(18,304)
Amortization of cost of insurance acquired
 
344,174
   
357,845
Depreciation and depletion
 
918,168
   
1,260,915
Stock-based compensation
 
486,797
   
170,538
Charges for mortality and administration of universal life and annuity products
 
(2,995,235)
   
(3,216,269)
Interest credited to account balances
 
1,891,086
   
1,970,895
Change in accrued investment income
 
(13,861)
   
14,833
Change in reinsurance receivables
 
832,213
   
246,433
Change in policy liabilities and accruals
 
(2,016,166)
   
(2,293,954)
Change in income taxes receivable (payable)
 
66,735
   
(1,071,762)
Change in other assets and liabilities, net
 
2,052,502
   
4,632,604
Net cash used in operating activities
 
(2,169,780)
   
(6,291,550)
           
Cash flows from investing activities:
         
Proceeds from investments sold and matured:
         
Fixed maturities available for sale
 
7,628,136
   
14,542,087
Equity securities
 
2,806,561
   
5,161,155
Trading securities
 
17,983
   
241
Mortgage loans
 
961,672
   
7,569,346
Real estate
 
8,794,081
   
4,350,324
Notes receivable
 
3,921,082
   
581,329
Policy loans
 
591,084
   
559,398
Total proceeds from investments sold and matured
 
24,720,599
   
32,763,880
Cost of investments acquired:
         
Fixed maturities available for sale
 
(1,112,505)
   
(20,000)
Equity securities
 
(6,387,281)
   
(24,990,946)
Trading securities
 
(32,382)
   
(358)
Mortgage loans
 
(1,560,291)
   
(747,941)
Real estate
 
(3,271,775)
   
(1,402,593)
Notes receivable
 
(3,910,657)
   
(6,000,000)
Policy loans
 
(523,039)
   
(452,004)
Total cost of investments acquired
 
(16,797,930)
   
(33,613,842)
Net cash provided by (used in) investing activities
 
7,922,669
   
(849,962)
           
Cash flows from financing activities:
         
Policyholder contract deposits
 
2,444,662
   
2,343,191
Policyholder contract withdrawals
 
(2,522,908)
   
(3,007,581)
Proceeds from notes payable/line of credit
 
9,500,000
   
0
Payments of principal on notes payable/line of credit
 
(26,500,000)
   
0
Purchase of treasury stock
 
(413,331)
   
(238,971)
   Non controlling contributions (distributions) of consolidated subsidiary
 
600
   
0
Net cash used in financing activities
 
(17,490,977)
   
(903,361)
Net increase (decrease) in cash and cash equivalents
 
(11,738,088)
   
(8,044,873)
Cash and cash equivalents at beginning of period
 
30,787,278
   
39,025,754
Cash and cash equivalents at end of period
$
19,049,190
 
$
30,980,881

See accompanying notes.



UTG, Inc.

Notes to Condensed Consolidated Financial Statements
 (Unaudited)

Note 1 – Basis of Presentation

The accompanying Condensed Consolidated Balance Sheet as of June 30, 2022, which has been derived from audited consolidated financial statements, and the unaudited interim Condensed Consolidated Financial Statements include the accounts of UTG, Inc. (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”).  All significant intercompany accounts and transactions have been eliminated in consolidation.  The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of regulation S-X.  Accordingly, they do not include all of the information and notes required by GAAP for audited annual financial statements.  The information furnished includes all adjustments and accruals of a normal recurring nature, which in the opinion of Management, are necessary for a fair presentation of the results for the interim periods.  The unaudited Condensed Consolidated Financial Statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021The Company’s results of operations for the six-months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 or for any other future period.

During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S. and globally, accelerating during the first half of March, as federal, state, and local governments reacted to the public health crisis, creating significant uncertainties in the U.S. economy. The Company has not experienced a slow-down in activities, however government restrictions and client-imposed delays are evaluated regularly and this could change. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The Company cannot at this time predict the ultimate impact the pandemic will have on its results of operations, financial position, liquidity, or capital resources but such impact could be material.

This document at times will refer to the Registrant’s largest shareholder, Mr. Jesse T. Correll and certain companies controlled by Mr. Correll.  Mr. Correll holds a majority ownership of First Southern Funding, LLC (“FSF”), a Kentucky corporation, and First Southern Bancorp, Inc. (“FSBI”), a financial services holding company.  FSBI operates through its 100% owned subsidiary bank, First Southern National Bank (“FSNB”).  Banking activities are conducted through multiple locations within south-central and western Kentucky.  Mr. Correll is Chief Executive Officer and Chairman of the Board of Directors of UTG and is currently UTG’s largest shareholder through his ownership control of FSF, FSBI and affiliates. At June 30, 2022, Mr. Correll owns or controls directly and indirectly approximately 65.33% of UTG’s outstanding stock.

UTG’s life insurance subsidiary, Universal Guaranty Life Insurance Company (“UG”), has several wholly-owned and majority-owned subsidiaries.  The subsidiaries were formed to hold certain real estate investments.  The real estate investments were placed into the limited liability companies and partnerships to provide additional protection to the policyholders and to UG.


Note 2 – Recently Issued Accounting Standards

During the six months ended June 30, 2022, there were no additions to or changes in the critical accounting policies disclosed in the 2021 Form 10-K.

Note 3 – Investments

Available for Sale Securities – Fixed Maturity Securities

The Company’s insurance subsidiary is regulated by insurance statutes and regulations as to the type of investments they are permitted to make, and the amount of funds that may be used for any one type of investment.

Investments in available for sale securities are summarized as follows:

June 30, 2022
 
Original or Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
Investments available for sale:
                       
Fixed maturities
                       
U.S. Government and govt. agencies and authorities
 
$
21,312,711
   
$
0
   
$
(726,455
)
 
$
20,586,256
 
U.S. special revenue and assessments
   
7,537,981
     
985,555
     
0
     
8,523,536
 
All other corporate bonds
   
92,584,976
     
322,474
     
(3,880,699
)
   
89,026,751
 
   
$
121,435,668
   
$
1,308,029
   
$
(4,607,154
)
 
$
118,136,543
 

December 31, 2021
 
Original or Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
Investments available for sale:
                       
Fixed maturities
                       
U.S. Government and govt. agencies and authorities
 
$
25,312,358
   
$
355,623
   
$
(17,078
)
 
$
25,650,903
 
U.S. special revenue and assessments
   
7,540,867
     
982,668
     
0
     
8,523,535
 
All other corporate bonds
   
95,096,738
     
11,692,705
     
0
     
106,789,443
 
   
$
127,949,963
   
$
13,030,996
   
$
(17,078
)
 
$
140,963,881
 

The amortized cost and estimated market value of debt securities at June 30, 2022, by contractual maturity, is shown below.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Fixed Maturities Available for Sale
June 30, 2022
 
Amortized Cost
   
Fair Value
 
Due in one year or less
 
$
7,501,776
   
$
7,494,055
 
Due after one year through five years
   
44,835,101
     
44,068,821
 
Due after five years through ten years
   
20,027,750
     
20,942,277
 
Due after ten years
   
22,092,801
     
20,516,755
 
Fixed maturities with no single maturity date
   
26,978,240
     
25,114,635
 
Total
 
$
121,435,668
   
$
118,136,543
 

The fair value of investments with sustained gross unrealized losses are as follows:

June 30, 2022
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
 
U.S. Government and govt. agencies and authorities
 
$
20,586,256
     
(726,455
)
   
0
     
0
     
20,586,256
   
$
(726,455
)
All other corporate bonds
   
74,322,835
     
(3,880,699
)
   
0
     
0
     
74,322,835
     
(3,880,699
)
Total fixed maturities
 
$
94,909,091
     
(4,607,154
)
   
0
     
0
     
94,909,091
   
$
(4,607,154
)

December 31, 2021
Less than 12 months
 
12 months or longer
 
Total
 
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
 
Fair value
 
Unrealized losses
 
U.S. Government and govt. agencies and authorities
 
$
4,042,825
     
(17,078
)
   
0
     
0
     
4,042,825
   
$
(17,078
)
Total fixed maturities
 
$
4,042,825
     
(17,078
)
   
0
     
0
     
4,042,825
   
$
(17,078
)

Additional information regarding investments in an unrealized loss position is as follows:

 
Less than 12 months
   
12 months or longer
   
Total
 
As of June 30, 2022
                 
Fixed maturities
   
47
     
0
     
47
 
As of December 31, 2021
                       
Fixed maturities
   
3
     
0
     
3
 

Substantially all of the unrealized losses on fixed maturities at June 30, 2022 and December 31, 2021 are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase.  The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position.  Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, the Company deems these securities to be temporarily impaired as of  June 30, 2022 and December 31, 2021.

Net Investment Gains (Losses)

The following table presents net investment gains (losses) and the change in net unrealized gains (losses) on investments. 

 
Three Months Ended
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2022
   
2021
   
2022
   
2021
 
Realized gains:
                       
Sales of fixed maturities
 
$
314
   
$
34,236
   
$
4,683
   
$
34,236
 
Sales of equity securities
   
12,223
     
3,006,835
     
397,581
     
3,019,207
 
Sales of real estate
   
113,398
     
1,247,193
     
4,571,840
     
1,383,252
 
Total realized gains
   
125,935
     
4,288,264
     
4,974,104
     
4,436,695
 
Realized losses:
                               
Sales of fixed maturities
   
(5,210
)
   
0
     
(5,210
)
   
0
 
Sales of equity securities
   
(41,616
)
   
(803
)
   
(109,636
)
   
(4,188
)
 Other-than-temporary impairments
   
0
     
(411,584
)
   
0
     
(411,584
)
Total realized losses
   
(46,826
)
   
(412,387
)
   
(114,846
)
   
(415,772
)
Net realized investment gains (losses)
   
79,109
     
3,875,877
     
4,859,258
     
4,020,923
 
Change in fair value of equity securities:
                               
Change in fair value of equity securities held at the end of the period
   
(790,338
)
   
195,136
     
7,364,291
     
20,375,015
 
Change in fair value of equity securities
   
(790,338
)
   
195,136
     
7,364,291
     
20,375,015
 
Net investment gains (losses)
 
$
(711,229
)
 
$
4,071,013
   
$
12,223,549
   
$
24,395,938
 
Change in net unrealized gains (losses) on available-for-sale investments included in other comprehensive income:
                               
Fixed maturities
 
$
(7,129,016
)
 
$
2,505,067
   
$
(16,313,575
)
 
$
(4,975,001
)
Net increase (decrease)
 
$
(7,129,016
)
 
$
2,505,067
   
$
(16,313,575
)
 
$
(4,975,001
)

Other-Than-Temporary Impairments

The Company regularly reviews its investment securities for factors that may indicate that a decline in fair value of an investment is other than temporary.  The factors considered by Management in its regular review to identify and recognize other-than-temporary impairment losses on fixed maturities include, but are not limited to: the length of time and extent to which the fair value has been less than cost; the Company’s intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support, whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions, including the effect of changes in market interest rates.  If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to other-than-temporary losses in the Condensed Consolidated Statements of Operations.

Management regularly reviews its real estate portfolio in comparison to appraisal valuations and current market conditions for indications of other-than-temporary impairments. If a decline in value is judged by Management to be other-than-temporary, a loss is recognized by a charge to other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations.

The Company did not recognize any other-than-temporary impairments during the six-month period ended June 30, 2022. The Company recognized an other-than-temporary impairment on one fixed maturing secuirty during the second quarter of 2021. The other-than-temporary impairment was recognized due to the length of time the investment remained in an unrealized loss position.

Cost Method Investments

The Company held equity investments with an aggregate cost of $14,543,343 at June 30, 2022 and December 31, 2021.  These equity investments were not reported at fair value because it is not practicable to estimate their fair values due to insufficient information being available. Management did not identify any events or changes in circumstances that might have a significant adverse effect on the reported value of those investments.  Based on Management’s evaluation of the expected cash flow of the investments, and the Company’s ability and intent to hold the investments for a reasonable period of time, the Company does not deem an other-than-temporary impairment necessary at June 30, 2022.

Trading Securities

Securities designated as trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized in net investment income on the Condensed Consolidated Statements of Operations.  Trading securities include exchange-traded equities and exchange-traded options.  Trading securities carried as liabilities are securities sold short. A gain, limited to the price at which the security was sold short, or a loss, potentially unlimited in size, will be recognized upon the termination of the short sale.  The fair value of derivatives included in trading security assets and trading security liabilities as of June 30, 2022 was $0. The fair value of derivatives included in trading security assets and trading security liabilities as of  December 31, 2021 was $0 and $1,116, respectively.  Earnings from trading securities are classified in cash flows from operating activities. The derivatives held by the Company are for income generation purposes only.

Trading revenue charged to net investment income from trading securities was:

 
Three Months Ended
 
   
June 30,
 
   
2022
   
2021
 
Net unrealized gains (losses)
 
$
0
   
$
(1,784
)
Net realized gains (losses)
   
(10,767
)
   
7,350
 
Net unrealized and realized gains (losses)
 
$
(10,767
)
 
$
5,566
 

 
Six Months Ended
 
   
June 30,
 
   
2022
   
2021
 
Net unrealized gains (losses)
 
$
0
   
$
950
 
Net realized gains (losses)
   
(13,283
)
   
18,304
 
Net unrealized and realized gains (losses)
 
$
(13,283
)
 
$
19,254
 

Mortgage Loans

The Company, from time to time, acquires mortgage loans through participation agreements with FSNB.  FSNB has been able to provide the Company with additional expertise and experience in underwriting commercial and residential mortgage loans, which provide more attractive yields than the traditional bond market.  The Company is able to receive participations from FSNB for three primary reasons:  1) FSNB has already reached its maximum lending limit to a single borrower, but the borrower is still considered a suitable risk; 2) the interest rate on a particular loan may be fixed for a long period that is more suitable for UG given its asset-liability structure; and 3) FSNB’s loan growth might at times outpace its deposit growth, resulting in FSNB participating such excess loan growth rather than turning customers away.  For originated loans, the Company’s Management is responsible for the final approval of such loans after evaluation.  Before a new loan is issued, the applicant is subject to certain criteria set forth by Company Management to ensure quality control.  These criteria include, but are not limited to, a credit report, personal financial information such as outstanding debt, sources of income, and personal equity.  Once the loan is approved, the Company directly funds the loan to the borrower.  The Company bears all risk of loss associated with the terms of the mortgage with the borrower.

During the six months ended June 30, 2022 and 2021, the Company acquired $1,560,291 and $747,941 in mortgage loans, respectively.  FSNB services the majority of the Company’s mortgage loan portfolio.  The Company pays FSNB a 0.25% servicing fee on these loans and a one-time fee at loan origination of 0.50% of the original loan cost to cover costs incurred by FSNB relating to the processing and establishment of the loan.

During 2022 and 2021, the maximum and minimum lending rates for mortgage loans were:

 
2022
   
2021
 
   
Maximum rate
   
Minimum rate
   
Maximum rate
   
Minimum rate
 
Farm Loans
   
6.00
%
   
4.50
%
   
6.00
%
   
4.50
%
Commercial Loans
   
6.00
%
   
4.10
%
   
5.50
%
   
4.10
%
Residential Loans
   
5.00
%
   
4.15
%
   
5.00
%
   
4.15
%

Most mortgage loans are first position loans.  Loans issued are generally limited to no more than 80% of the appraised value of the property.

The Company has in place a monitoring system to provide Management with information regarding potential troubled loans.  Letters are sent to each mortgagee when the loan becomes 30 days or more delinquent.  Management is provided with a monthly listing of loans that are 60 days or more past due along with a brief description of what steps are being taken to resolve the delinquency.  All loans 90 days or more past due are placed on a non-performing status and classified as delinquent loans.  Quarterly, coinciding with external financial reporting, the Company reviews each delinquent loan and determines how each delinquent loan should be classified.  Management believes the current internal controls surrounding the mortgage loan selection process provide a quality portfolio with minimal risk of foreclosure and/or negative financial impact.

Changes in the current economy could have a negative impact on the loans, including the financial stability of the borrowers, the borrowers’ ability to pay or to refinance, the value of the property held as collateral and the ability to find purchasers at favorable prices.  Interest accruals are analyzed based on the likelihood of repayment.  In no event will interest continue to accrue when accrued interest along with the outstanding principal exceeds the net realizable value of the property.  The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status.

A mortgage loan reserve is established and adjusted based on Management’s quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value.  The mortgage loan reserve was $0 at June 30, 2022 and December 31, 2021.