UTGN 10-Q
Utg Inc (UTGN)
10-Q
2024-05-13
For: 2024-03-31
View Original
Added on
April 06, 2026
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 March 31, 2024
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
(Exact name of registrant as specified in its charter) |
||
(State or other jurisdiction of |
(I.R.S. Employer |
|
incorporation or organization) |
Identification No.) |
|
(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:
of class
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 □ |
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 April 30, 2024 was 3,169,527 .
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 |
9 |
Notes to Condensed Consolidated Financial Statements |
10 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
25 |
Item 4. Controls and Procedures |
33 |
Part II. Other Information |
33 |
Item 1. Legal Proceedings |
33 |
Item 1A. Risk Factors |
33 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
33 |
Item 3. Defaults Upon Senior Securities |
33 |
Item 4. Mine Safety Disclosures |
33 |
Item 5. Other Information |
33 |
Item 6. Exhibits |
33 |
Signatures |
34 |
Part 1. Financial Information.
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2024 |
December 31, 2023* |
|||||||
ASSETS |
||||||||
Investments: |
||||||||
Investments, available for sale: |
||||||||
Fixed maturities, at fair value (amortized cost $ |
$ |
$ |
||||||
Held to maturity redeemable preferred stock, at amortized cost |
||||||||
Equity securities, at fair value (cost $ |
||||||||
Equity securities, at cost |
||||||||
Mortgage loans on real estate, at amortized cost (net of credit loss reserve of $ |
||||||||
Notes receivable (net of credit loss reserve of $ |
||||||||
Investment real estate, net |
||||||||
Policy loans |
||||||||
Short-term investments |
||||||||
Total investments |
||||||||
Cash and cash equivalents |
||||||||
Accrued investment income |
||||||||
Reinsurance receivables: |
||||||||
Future policy benefits |
||||||||
Policy claims and other benefits |
||||||||
Cost of insurance acquired |
||||||||
Income tax receivable |
||||||||
Other assets |
||||||||
Total assets |
$ |
$ |
||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||||
Liabilities: |
||||||||
Policy liabilities and accruals: |
||||||||
Future policyholder benefits |
$ |
$ |
||||||
Policy claims and benefits payable |
||||||||
Other policyholder funds |
||||||||
Dividend and endowment accumulations |
||||||||
Deferred income taxes |
||||||||
Notes payable |
||||||||
Trading securities, at fair value (proceeds $ |
||||||||
Other liabilities |
||||||||
Total liabilities |
||||||||
Shareholders' equity: |
||||||||
Common stock - |
||||||||
Additional paid-in capital |
||||||||
Retained earnings |
||||||||
Accumulated other comprehensive loss |
( |
) |
( |
) |
||||
Total UTG shareholders' equity |
||||||||
Noncontrolling interests |
||||||||
Total shareholders' equity |
||||||||
Total liabilities and shareholders' equity |
$ |
$ |
||||||
* Balance sheet audited at December 31, 2023.
See accompanying notes.
UTG, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended |
||||||||
March 31, |
March 31, |
|||||||
2024 |
2023 |
|||||||
Revenue: |
||||||||
Premiums and policy fees |
$ |
$ |
||||||
Ceded reinsurance premiums and policy fees |
( |
) |
( |
) |
||||
Net investment income |
||||||||
Other income |
||||||||
Revenue before net investment gains (losses) |
||||||||
Net investment gains (losses): |
||||||||
Other realized investment gains, net |
||||||||
Change in fair value of equity securities |
( |
) |
||||||
Total net investment gains (losses) |
( |
) |
||||||
Total revenue |
( |
) |
||||||
Benefits and other expenses: |
||||||||
Benefits, claims and settlement expenses: |
||||||||
Life |
||||||||
Ceded reinsurance benefits and claims |
( |
) |
( |
) |
||||
Annuity |
||||||||
Dividends to policyholders |
||||||||
Commissions and amortization of deferred policy acquisition costs |
( |
) |
( |
) |
||||
Amortization of cost of insurance acquired |
||||||||
Operating expenses |
||||||||
Interest expense |
||||||||
Total benefits and other expenses |
||||||||
Income (loss) before income taxes |
( |
) |
||||||
Income tax expense (benefit) |
( |
) |
||||||
Net income (loss) |
( |
) |
||||||
Net income attributable to noncontrolling interests |
( |
) |
( |
) |
||||
Net income (loss) attributable to common shareholders |
$ |
$ |
( |
) |
||||
Amounts attributable to common shareholders |
||||||||
Basic income (loss) per share |
$ |
$ |
( |
) |
||||
Diluted income (loss) per share |
$ |
$ |
( |
) |
||||
Basic weighted average shares outstanding |
||||||||
Diluted weighted average shares outstanding |
||||||||
See accompanying notes.
UTG, Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended |
||||||||
March 31, |
March 31, |
|||||||
2024 |
2023 |
|||||||
Net income (loss) |
$ |
$ |
( |
) |
||||
Other comprehensive income (loss): |
||||||||
Unrealized holding gains (losses) arising during period, pre-tax |
( |
) |
||||||
Tax (expense) benefit on unrealized holding gains (losses) arising during the period |
( |
) |
||||||
Unrealized holding gains (losses) arising during period, net of tax |
( |
) |
||||||
Less reclassification adjustment for gains included in net income |
( |
) |
||||||
Tax expense for gains included in net income (loss) |
||||||||
Reclassification adjustment for gains included in net income, net of tax |
( |
) |
||||||
Subtotal: Other comprehensive income (loss), net of tax |
( |
) |
||||||
Comprehensive income (loss) |
( |
) |
||||||
Less comprehensive income attributable to noncontrolling interests |
( |
) |
( |
) |
||||
Comprehensive income (loss) attributable to UTG, Inc. |
$ |
$ |
( |
) |
||||
See accompanying notes.
UTG, Inc.
Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
Three Months Ended March 31, 2024 |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interest |
Total Shareholders' Equity |
||||||||||||||||||
Balance at January 1, 2024 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||
Common stock issued during year |
||||||||||||||||||||||||
Treasury shares acquired |
( |
) |
( |
) |
( |
) |
||||||||||||||||||
Net income attributable to common shareholders |
||||||||||||||||||||||||
Unrealized holding loss on securities net of noncontrolling interest and reclassification adjustment and taxes |
( |
) |
( |
) |
||||||||||||||||||||
Gain attributable to noncontrolling interest |
||||||||||||||||||||||||
Balance at March 31, 2024 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||
Three Months Ended March 31, 2023 |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interest |
Total Shareholders' Equity |
||||||||||||||||||
Balance at January 1, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||
Adoption of new accounting standard |
( |
) |
( |
) |
||||||||||||||||||||
( |
) |
|||||||||||||||||||||||
Common stock issued during year |
||||||||||||||||||||||||
Treasury shares acquired |
( |
) |
( |
) |
( |
) |
||||||||||||||||||
Net loss attributable to common shareholders |
( |
) |
( |
) |
||||||||||||||||||||
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes |
||||||||||||||||||||||||
Gain attributable to noncontrolling interest |
||||||||||||||||||||||||
Balance at March 31, 2023 |
$ |
$ |
$ |
$ |
( |
) |
$ |
$ |
||||||||||||||||
See accompanying notes.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended |
||||||||
March 31, |
March 31, |
|||||||
2024 |
2023 |
|||||||
Cash flows from operating activities: |
||||||||
Net income (loss) |
$ |
$ |
( |
) |
||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
Accretion of investments |
( |
) |
( |
) |
||||
Realized investment gains, net |
( |
) |
( |
) |
||||
Change in fair value of equity securities |
( |
) |
||||||
Unrealized trading losses included in income |
||||||||
Amortization of cost of insurance acquired |
||||||||
Provision for deferred income taxes |
( |
) |
||||||
Depreciation and depletion |
||||||||
Stock-based compensation |
||||||||
Charges for mortality and administration of universal life and annuity products |
( |
) |
( |
) |
||||
Interest credited to account balances |
||||||||
Change in accrued investment income |
||||||||
Change in reinsurance receivables |
||||||||
Change in policy liabilities and accruals |
( |
) |
( |
) |
||||
Change in income taxes receivable (payable) |
( |
) |
||||||
Change in other assets and liabilities, net |
( |
) |
||||||
Net cash provided by (used in) operating activities |
( |
) |
||||||
Cash flows from investing activities: |
||||||||
Proceeds from investments sold and matured: |
||||||||
Fixed maturities available for sale |
||||||||
Equity securities |
||||||||
Trading securities |
||||||||
Mortgage loans |
||||||||
Real estate |
||||||||
Notes receivable |
||||||||
Policy loans |
||||||||
Short-term investments |
||||||||
Total proceeds from investments sold and matured |
||||||||
Cost of investments acquired: |
||||||||
Equity securities |
( |
) |
( |
) |
||||
Mortgage loans |
( |
) |
||||||
Real estate |
( |
) |
( |
) |
||||
Notes receivable |
( |
) |
( |
) |
||||
Policy loans |
( |
) |
( |
) |
||||
Short-term investments |
( |
) |
||||||
Total cost of investments acquired |
( |
) |
( |
) |
||||
Net cash provided by (used in) investing activities |
( |
) |
||||||
Cash flows from financing activities: |
||||||||
Policyholder contract deposits |
||||||||
Policyholder contract withdrawals |
( |
) |
( |
) |
||||
Payments of principal on notes payable/line of credit |
( |
) |
( |
) |
||||
Purchase of treasury stock |
( |
) |
( |
) |
||||
Net cash used in financing activities |
( |
) |
( |
) |
||||
Net decrease in cash and cash equivalents |
( |
) |
( |
) |
||||
Cash and cash equivalents at beginning of period |
||||||||
Cash and cash equivalents at end of period |
$ |
$ |
||||||
See accompanying notes.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of Presentation
The accompanying Condensed Consolidated Balance Sheet as of March 31, 2024, 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, 2023. The Company’s results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024 or for any other future period.
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 Chairman of the Board of Directors, Chief Executive Officer, President, and a Director of UTG and is currently UTG’s largest shareholder through his ownership control of FSF, FSBI and affiliates. At March 31, 2024, Mr. Correll owns or controls directly and indirectly approximately 65.89 % 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.
Certain amounts in prior periods have been reclassified to conform with the current period presentation.
Note 2 – Recently Issued Accounting Standards
During the three months ended March 31, 2024, there were no additions to or changes in the critical accounting policies disclosed in the 2023 Form 10-K.
Note 3 – Investments
Investment in 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 fixed maturity securities are summarized by type as follows:
March 31, 2024 |
Original or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
U.S. Government and govt. agencies and authorities |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
U.S. special revenue and assessments |
( |
) |
||||||||||||||
All other corporate bonds |
( |
) |
||||||||||||||
Redeemable preferred stock |
||||||||||||||||
Total |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
December 31, 2023 |
Original or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
U.S. Government and govt. agencies and authorities |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
U.S. special revenue and assessments |
( |
) |
||||||||||||||
All other corporate bonds |
( |
) |
||||||||||||||
Redeemable preferred stock |
||||||||||||||||
Total |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
The amortized cost and estimated market value of fixed maturity securities at March 31, 2024, by contractual maturity, is shown below.
Fixed Maturity Securities March 31, 2024 |
Amortized Cost |
Fair Value |
||||||
Due in one year or less |
$ |
$ |
||||||
Due after one year through five years |
||||||||
Due after five years through ten years |
||||||||
Due after ten years |
||||||||
Fixed maturities with no single maturity date |
||||||||
Total |
$ |
$ |
||||||
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options.
By insurance statute, the majority of the Company’s investment portfolio is invested in investment grade securities to provide ample protection for policyholders.
Below investment grade debt securities generally provide higher yields and involve greater risks than investment grade debt securities because their issuers typically are more highly leveraged and more vulnerable to adverse economic conditions than investment grade issuers. In addition, the trading market for these securities is usually more limited than for investment grade debt securities. Debt securities classified as below-investment grade are those that receive a Standard & Poor’s rating of BB+ or below.
The Company held below investment grade investments with an estimated market value of $0 as of March 31, 2024 and December 31, 2023.
The following tables present the estimated fair value and gross unrealized losses of fixed maturity securities in an unrealized loss position:
March 31, 2024 |
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 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||||||||||||||
U.S. Special Revenue and Assessments |
( |
) |
( |
) |
||||||||||||||||||||
All other corporate bonds |
( |
) |
( |
) |
( |
) |
||||||||||||||||||
Total fixed maturities |
$ |
( |
) |
( |
) |
$ |
( |
) |
||||||||||||||||
December 31, 2023 |
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 |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||||||||||||||
U.S. special revenue and assessments |
( |
) |
( |
) |
||||||||||||||||||||
All other corporate bonds |
( |
) |
( |
) |
( |
) |
||||||||||||||||||
Total fixed maturities |
$ |
( |
) |
$ |
( |
) |
$ |
( |
) |
|||||||||||||||
Additional information regarding investments in an unrealized loss position is as follows:
Less than 12 months |
12 months or longer |
Total |
||||||||||
As of March 31, 2024 |
||||||||||||
Fixed maturities |
||||||||||||
As of December 31, 2023 |
||||||||||||
Fixed maturities |
||||||||||||
Allowance for Credit Loss - Available for Sale Securities
Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause of the decline in the estimated fair value of the security and in assessing the prospects for near-term recovery. Inherent in management’s evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential. Considerations used in the credit loss evaluation process include, but are not limited to: (1) the extent to which the estimated fair value has been below amortized cost, (2) adverse conditions specifically related to a security, an industry sector, adverse change in the financial condition of the issuer of the security, (3) payment structure of the security and likelihood of the issuer being able to make payments, (4) failure of the issuer to make scheduled interest and principal payments, (5) whether the issuer, or series of issuers or an industry has suffered a catastrophic loss or has exhausted natural resources, (6) whether the Company has the intent to sell or will more likely than not be required to sell a particular security before the decline in estimated fair value below amortized cost recovers, (7) changes in the rating of the security by a rating agency, and (8) other subjective factors.
Substantially all of the unrealized losses on fixed maturity securities at March 31, 2024 and December 31, 2023 are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. At March 31, 2024, the Company did not intend to sell its securities in an unrealized loss position, and it was not more likely than not that the Company would be required to sell these securities before the anticipated recovery of the remaining amortized cost. Therefore, the Company concluded that these securities had not incurred a credit loss and should not have an allowance for credit loss at March 31, 2024.
Future provisions for credit loss will depend primarily on economic fundamentals, issuer performance, and changes in credit ratings.
Net unrealized losses included in other comprehensive income (loss) for investments classifies as available-for-sale, net of the effect of deferred income taxes, assuming that the depreciation had been realized as of March 31, 2024 and December 31, 2023:
March 31, 2024 |
December 31, 2023 |
|||||||
Unrealized appreciation (depreciation) on available-for-sale securities |
$ |
( |
) |
$ |
( |
) |
||
Deferred income taxes |
||||||||
Net unrealized appreciation (depreciation) on available-for-sale securities |
$ |
( |
) |
$ |
( |
) |
||
Cost Method Equity Investments
The Company held equity investments with an aggregate cost of $15,816,798 and $15,977,368 at March 31, 2024 and December 31, 2023, respectively. 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 reviews and considers events or changes in circumstances that might have a significant adverse effect on the reported value of those investments. Management did not identify any events or changes in circumstances that might have a significant adverse effect on the reported value of those investments.
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 Consolidated Statements of Operations. Trading Securities included exchange-traded equities and exchange-traded options. Trading securities carried as liabilities were 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 March 31, 2024 was $0 and $110,000 , respectively. The fair value of derivatives included in trading security assets and trading security liabilities as of December 31, 2023 was $0
Trading revenue charged to net investment income from trading securities was:
Three Months Ended |
||||||||
March 31, |
||||||||
2024 |
2023 |
|||||||
Net unrealized gains (losses) |
$ |
( |
) |
$ |
||||
Net realized gains (losses) |
||||||||
Net unrealized and realized gains (losses) |
$ |
( |
) |
$ |
||||
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 three months ended March 31, 2024 and 2023, the Company acquired $599,189 and $0 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 2024 and 2023, the maximum and minimum lending rates for mortgage loans were:
2024 |
2023 |
|||||||||||||||
Maximum rate |
Minimum rate |
Maximum rate |
Minimum rate |
|||||||||||||
Farm Loans |
% |
% |
% |
% |
||||||||||||
Commercial Loans |
% |
% |
% |
% |
||||||||||||
Residential Loans |
% |
% |
% |
% |
||||||||||||
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. 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.
The following table summarizes the mortgage loan holdings of the Company:
March 31, 2024 |
December 31, 2023 |
|||||||
In good standing |
$ |
$ |
||||||
Total mortgage loans |
$ |
$ |
||||||
The following is a summary of the mortgage loans outstanding and the related allowance for credit losses:
March 31, 2024 |
December 31, 2023 |
|||||||
Farm |
$ |
$ |
||||||
Commercial |
||||||||
Residential |
||||||||
Total mortgage loans |
||||||||
Less allowance for credit losses |
( |
) |
( |
) |
||||
Total mortgage loans, net |
$ |
$ |
||||||
There were no
Notes Receivable
Notes receivable represent collateral loans and promissory notes issued by the Company and are reported at their unpaid principal balances, adjusted for valuation allowances. Interest accruals are analyzed based on the likelihood of repayment. The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status. During the three months ended March 31, 2024 and 2023 the Company acquired $800,000 and $1,478,100 of notes receivable, respectively.
Before a new note is issued, the applicant is subject to certain criteria set forth by Company Management to ensure quality control. Once the note is approved, the Company directly funds the note to the borrower. Several of the notes have participation agreements in place, whereas the Company has reduced its investment in the note receivable by participating a portion of the note to a third party.
Similar to the mortgage loans, FSNB services the notes receivable. The Company, and the participants in the notes, share in the risk of loss associated with the terms of the note with the borrower, based upon their ownership percentage in the note. The Company has in place a monitoring system to provide Management with information regarding potential troubled loans.
The following is a summary of the notes receivable outstanding and the related allowance for credit losses:
March 31, 2024 |
December 31, 2023 |
|||||||
Notes receivable |
$ |
$ |
||||||
Less allowance for credit losses |
( |
) |
( |
) |
||||
Total notes receivable, net |
$ |
$ |
||||||
Allowance for Credit Loss - Loans
The allowance for credit loss ("ACL") is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when Management believes the uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
The allowance for credit losses represents Management's estimate of lifetime credit losses inherent in loans as of the balance sheet date. The allowance for credit losses is estimated by Management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.
The Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company has identified the following portfolio segments - mortgage loans on real estate and notes receivable.
The allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for risk tolerance, loan review and audit results, asset quality and portfolio trends, industry concentrations, external factors and economic conditions.
Loans that do not share risk characteristics are evaluated on an individual basis. When Management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date unadjusted for selling costs as appropriate.
Allowance for Credit Loss - Unfunded Commitments
Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.
The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to extend credit are unconditionally cancelable, through a charge to provision for unfunded commitments in the Company's income statements. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur as well a any third-party guarantees. The allowance for unfunded commitments as of March 31, 2024 and December 31, 2023 was $36,000 and $51,000 , respectively, and is included in other liabilities on the Company's Condensed Consolidated Balance Sheets.
Allowance for Credit Loss - Accrued Interest
Accrued interest is not included in the ACL and if deemed uncollectible, it is charged against interest income when determined to be uncollectible.
Investment Real Estate
Real estate held-for-investment is stated at cost less accumulated depreciation. Depreciation is computed on a straight-line basis for financial reporting purposes using estimated useful lives of 3 to 30 years . The Company periodically reviews its real estate held-for-investment for impairment and tests for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable. During the three months ended March 31, 2024, no impairments were recognized on the investment real estate.
Note 4 - Fair Value Measurements of the Condensed Consolidated Financial Statements provides further information regarding the fair value of financial instruments that are not measured at fair value. The investment real estate owned by the Company is included in this portion of the Note 4 - Fair Value Measurements disclosure.
The following table provides an allocation of the Company’s investment real estate by type:
March 31, 2024 |
December 31, 2023 |
|||||||
Raw land |
$ |
$ |
||||||
Commercial |
||||||||
Residential |
||||||||
Land, minerals and royalty interests |
||||||||
Total investment real estate |
$ |
$ |
||||||
The Company’s investment real estate portfolio includes ownership in oil and gas royalties. As of March 31, 2024 and December 31, 2023, investments in oil and gas royalties represented 33 % and 34 %, respectively, of the total investment real estate portfolio. See Note 9 – Concentrations of Credit Risk of the Condensed Consolidated Financial Statements for additional information regarding the allocation of the oil and gas investment real estate holdings by industry type.
Gains and losses recognized on the disposition of the properties are recorded as realized gains and losses in the Condensed Consolidated Statements of Operations. During the three months ended March 31, 2024 and 2023, the Company acquired $545,180 and $1,375,010 of investment real estate, respectively.
Short-Term Investments
Short-term investments have remaining maturities exceeding three months and under 12 months at the time of purchase and are stated at amortized cost, which approximates fair value. The short-term investments consist of United States Treasury securities.
During 2024 and 2023, the Company acquired $0 and $9,701,297 , respectively, in short-term investments.
Net Investment Gains (Losses)
The following table presents net investment gains (losses) and the change in net unrealized gains on available-for-sale investments.
Three Months Ended |
||||||||
March 31, |
||||||||
2024 |
2023 |
|||||||
Realized gains: |
||||||||
Sales of fixed maturities |
$ |
$ |
||||||
Sales of equity securities |
||||||||
Sales of real estate |
||||||||
Sales of short-term investments |
||||||||
Total realized gains |
||||||||
Realized losses: |
||||||||
Sales of equity securities |
||||||||
Total realized losses |
||||||||
Net realized investment gains |
||||||||
Change in fair value of equity securities: |
||||||||
Change in fair value of equity securities held at the end of the period |
( |
) |
||||||
Change in fair value of equity securities |
( |
) |
||||||
Net investment gains (losses) |
$ |
$ |
( |
) |
||||
Change in net unrealized gains (losses) on available-for-sale investments included in other comprehensive income: |
||||||||
Fixed maturities |
$ |
( |
) |
$ |
||||
Net increase (decrease) |
$ |
( |
) |
$ |
||||
Note 4 – Fair Value Measurements
Fair Value Measurements on a Recurring Basis
Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three levels based on the observability of valuation inputs:
Level 1 – Valuation is based upon quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Valuation methodologies include quoted prices for similar assets and liabilities in active markets or quoted prices for identical, quoted prices for identical or similar assets or liabilities in markets that are not active, or the Company may use various valuation techniques or pricing models that use observable inputs to measure fair value.
Level 3 – Valuation is based upon unobservable inputs that are supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:
March 31, 2024 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Fixed maturitity securities: |
||||||||||||||||
U.S. Government and government agencies and authorities |
$ |
$ |
$ |
$ |
||||||||||||
U.S. special revenue and assessments |
||||||||||||||||
Corporate securities |
||||||||||||||||
Total fixed maturities |
||||||||||||||||
Equity securities: |
||||||||||||||||
Common stocks |
||||||||||||||||
Limited liability companies |
||||||||||||||||
Total equity securities |
||||||||||||||||
Short-term investments |
||||||||||||||||
Total financial assets |
$ |
$ |
$ |
$ |
||||||||||||
Liabilities: |
||||||||||||||||
Trading securities |
$ |
$ |
$ |
$ |
||||||||||||
December 31, 2023 |
Level 1 |
Level 2 |
Level 3 |
Total |
||||||||||||
Fixed maturitity securities: |
||||||||||||||||
U.S. Government and government agencies and authorities |
$ |
$ |
$ |
$ |
||||||||||||
U.S. special revenue and assessments |
||||||||||||||||
Corporate securities |
||||||||||||||||
Total fixed maturities |
||||||||||||||||
Equity securities: |
||||||||||||||||
Common stocks |
||||||||||||||||
Limited liability companies |
||||||||||||||||
Total equity securities |
||||||||||||||||
Short-term investments |
||||||||||||||||
Total financial assets |
$ |
$ |
$ |
$ |
||||||||||||
Total assets included in the fair value hierarchy exclude certain equity securities that were measured at estimated fair value using the net asset value (“NAV”) per share practical expedient. At March 31, 2024 and December 31, 2023, the estimated fair value of such investments was $62,081,456 and $54,989,319 , respectively. These investments are generally not readily redeemable by the investee.
The following is a description of the valuation techniques used the by Company to measure assets reported at fair value on a recurring basis. There have been no significant changes in the valuation techniques utilized by the Company for the three months ended March 31, 2024.
Available for Sale Securities
Securities classified as available for sale are recorded at fair value on a recurring basis. Securities classified as Level 1 utilized fair value measurements based upon quoted market prices, when available. If quoted market prices are not available, the Company obtains fair value measurements from recently executed transactions, market price quotations, benchmark yields and issuer spreads to value Level 2 securities. In certain instances where Level 1 or Level 2 inputs are not available, securities are classified within Level 3 of the hierarchy. Fair value determinations for Level 3 measurements are estimated on a quarterly basis where assumptions used are reviewed to ensure the estimated fair value complies with accounting standards generally accepted in the United States.
Equity Securities at Fair Value
Equity securities consist of common and preferred stocks and limited liability companies mainly in private equity investments, financial institutions and publicly traded corporations. Equity securities for which there is sufficient market data are categorized as Level 1 or 2 in the fair value hierarchy. For the equity securities in which quoted market prices are not available, the Company uses industry standard pricing methodologies, including discounted cash flow models that may incorporate various inputs such as payment expectations, risk of the investment, market data, and health of the underlying company. The inputs are based upon Management’s assumptions and available market information. When evidence is believed to support a change to the carrying value from the transaction price, adjustments are made to reflect the expected cash flows, material events and market data. These investments are included in Level 3 of the fair value hierarchy.
Trading Securities
Trading securities are recorded at fair value. They are classified as Level 1 and utilize fair value measurements based upon quoted market prices.
Change in Recurring Fair Value Measurements
The following table presents the changes in Level 3 equity securities measured at fair value on a recurring basis, and the and related to the Level 3 equity securities.
Investments in |
||||||||||||
Investments in Common Stocks |
Limited Liability Companies |
Total |
||||||||||
Balance at December 31, 2023 |
$ |
$ |
$ |
|||||||||
Realized gains (losses) |
||||||||||||
Unrealized gains (losses) |
||||||||||||
Purchases |
||||||||||||
Sales |
||||||||||||
Balance at March 31, 2024 |
$ |
$ |
$ |
|||||||||
Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the table above. As a result, the unrealized gains (losses) on instruments held at March 31, 2024 and December 31, 2023 may include changes in fair value that were attributable to both observable and unobservable inputs.
Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable.
Quantitative Information About Level 3 Fair Value Measurements
The following table presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments and includes only those instruments for which information about the inputs is reasonably available to the Company, such as data from independent third-party valuation service providers and from internal valuation models.
Financial Assets |
Fair Value at March 31, 2024 |
Fair Value at December 31, 2023 |
Valuation Technique |
||||||
Common stocks |
$ |
$ |
Pricing Model |
||||||
Limited liability companies |
Pricing Model |
||||||||
Total |
$ |
$ |
|||||||
Uncertainty of Fair Value Measurements
The significant unobservable inputs used in the determination of the fair value of assets classified as Level 3 have an inherent measurement uncertainty that if changed could result in higher or lower fair value measurements of these assets as of the reporting date.
Equity Securities at Fair Value
Fair market value for equity securities is derived based on unobservable inputs, such as projected normalized revenues and industry standard multiples of revenue for the equity securities valued using pricing model. Significant increases (decreases) in either of those inputs in isolation would result in a significantly higher (lower) fair value measurement.
Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share
The Company holds certain equity securities that are measured at estimated fair value using the NAV per share practical expedient. These investments are generally not readily redeemable by the investee. The following tables provide additional information regarding the assets carried at NAV.
Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share
Investment Category |
Fair Value at March 31, 2024 |
Unfunded Commitments |
Redemption Frequency |
Redemption Notice Period |
||||||||||||
Equity securities |
||||||||||||||||
Growth Equity |
||||||||||||||||
Redeemable |
||||||||||||||||
Limited partnership |
$ |
$ |
||||||||||||||
Non-redeemable |
||||||||||||||||
Limited liability companies |
||||||||||||||||
Limited partnerships |
n/a |
n/a |
||||||||||||||
Total |
$ |
$ |
n/a |
n/a |
||||||||||||
Investment Category |
Fair Value at December 31, 2022 |
Unfunded Commitments |
Redemption Frequency |
Redemption Notice Period |
||||||||||||
Equity securities |
||||||||||||||||
Growth Equity |
||||||||||||||||
Redeemable |
||||||||||||||||
Limited partnership |
$ |
$ |
||||||||||||||
Non-redeemable |
||||||||||||||||
Limited liability companies |
n/a |
n/a |
||||||||||||||
Limited partnerships |
n/a |
n/a |
||||||||||||||
Total |
$ |
$ |
||||||||||||||
The following are descriptions of the Company's assets held at NAV.
The Company invested in a limited partnership that was formed under the laws of the State of Delaware on October 5, 1999, as a Delaware limited partnership (“LP”). The Limited Partnership Agreement provides for the Fund to continue until dissolved. There are significant restrictions to the dissolution process, which are outlined in the LP Agreement. The Fund invests in listed equity and fixed income securities as well as non-listed securities, including direct-owned minerals and other royalties. In 2013, UG entered into an irrevocable subscription agreement to invest in the LP.
The Company invested in a Limited Liability Company ("LLC") that was formed under the laws of the state of Delaware in 2020. The LLC agreement provides for the Company to continue until dissolved. There are significant restrictions to the dissolution process, which are outlined in the LLC Agreement. The LLC Company was formed for the purpose of acquiring, making investments in, and owning, holding, and growing operating businesses through the United States. In 2020, UG entered into a LLC Agreement to invest in this LLC.
The Company invested in a Limited Liability Company ("LLC") that was formed under the laws of the state of Delaware. The LLC was formed on October 15, 2020 to provide long-term investment returns. The Company will continue to operate until December 31, 2032, or until each of the investment funds in which the LLC invests terminates, unless terminated earlier or extended in accordance with the Operating Agreement. In 2020, UG completed the Subscription Agreement to become an investor in this LLC.
The Company invested in a Limited Liability Company ("LLC") that was formed under the laws of the state of Delaware. The LLC was formed on July 1, 2022 to amplify philanthropy by primarily investing in venture capital investment funds and in direct venture capital investments of operating companies. The Company will continue to operate until December 31, 2034, or until each of the investment funds in which the LLC invests terminates, unless terminated earlier or extended in accordance with the Operating Agreement. In 2022, the Company completed the Subscription Agreement to become an investor in this LLC.
The Company invested in a Limited Liability Company ("LLC") that was formed under the laws of the state of Delaware. The LLC was organized solely for the purpose owning, managing, supervising and disposing of the investment. The Partnership will continue in existence for the investment period (subject to extension), unless sooner terminated by operation of law or pursuant to any provision of the Limited Partnership Agreement. In 2022, the Company entered into a Limited Partnership Agreement to invest in this LP.
The Company invested in a closed-end LP fund that was formed pursuant to the laws of the State of Delaware under a limited partners agreement (the “Agreement”) on April 6, 2015 and is scheduled to terminate on the tenth anniversary of the final closing date, unless terminated sooner or extended in accordance with the Agreement. The purpose of the LP is to make investments in and pursue targets that educate, train, and inspire men and women in the United States and around the world to value free enterprise, business, and economics to improve the quality of their lives and the lives and the lives of those in their communities. In 2015, the Company entered into a Limited Partnership Agreement to invest in this LP.
The Company invested in a closed-end LP fund that was formed pursuant to the laws of the State of Delaware under a limited partners agreement (the “Agreement”) on September 5, 2018 (the “Agreement”), and is scheduled to terminate on the twelfth anniversary of the Final Closing Date, unless terminated sooner or extended in accordance with the Agreement. The purpose of the Partnership is to make investments in and pursue targets that educate, train, and inspire men and women in the United States and around the world to value free enterprise, business, and economics to improve the quality of their lives and the lives and the lives of those in their communities. In 2018, the Company entered into a Limited Partnership Agreement to invest in this LP.
The Company invested in a Limited Liability Company ("LLC") that was formed under the laws of the state of Delaware. The LLC was formed September 29, 2021 for the purpose of investing in companies located in emerging markets. The Limited Liability Company Agreement provides for LLC to continue until dissolved, unless terminated earlier through terms specified in the Operating Agreement. In 2021, the Company entered into a Limited Liability Company Agreement to invest in the LLC.
The Company invested in a LP that was formed pursuant to the laws of the state of Delaware under a limited partnership agreement on October 27, 2021 (the “Agreement”) and is scheduled to terminate on the tenth anniversary of the Final Closing Date, unless terminated sooner or extended in accordance with the Agreement. The Partnership is organized for the principal purposes of acquiring, holding, supervising, managing and disposing of investment in recapitalization, management buyouts, and corporate divestitures of Portfolio Companies operating in various segments of the U.S. lower middle markets. In 2022, the Company entered into a Limited Partnership Agreement to invest in this LP.
The Company invested in a LLC that was formed as an Alabama Limited Liability Company on April 6, 2022. The Limited Liability Company Agreement provides for the LLC to continue until dissolved, unless terminated earlier through terms specified in the Operating Agreement. The purpose of Trivela is to (1) acquire, own and operate football (soccer) clubs (each a “Target Company”) (2) establish investment vehicles for the acquisition of Target Companies (3) sponsor private placements of securities on behalf of each investment vehicle (4) manage the operations of each investment vehicle & Target Company on a fee for services basis (5) engage in any lawful act or activity incidental to the Business as reasonably determined by the managers. The Company entered into a Limited Liability Company Agreement to invest in Trivela Group, LLC.
The Company invested in a LP that was formed as a Delaware Limited Partnership on September 22, 2023. The Limited Partnership Agreement states that the LP shall continue, unless the Partnership is sooner dissolved , until the fifteenth (15th) anniversary of the final closing, provided, that the General Partner may further extend the term of the Partnership beyond the aforementioned term with the approval of a majority in interest of the limited partners for up to two consecutive period of five years. The nature of the business to be conducted and promoted by the partnership is to: (1) acquire, own, and operate one or more clubs, (2) establish subsidiaries for the acquisition of clubs and club ownership interests, (3) pursue and exploit business, investment or real estate opportunities related or incidental to clubs, their stadiums or any other sport or entertainment activities, and (4) engage in any lawful act or activity incidental to the foregoing purposes, as determined by the general partner.
Fair Value Measurements on a Nonrecurring Basis
Certain assets are not carried at fair value on a recurring basis. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to re-measurement at fair value after initial recognition and the resulting re-measurement is reflected in the Consolidated Financial Statements. The Company did not recognize any re-measurements or impairments of financial instruments at March 31, 2024 or December 31, 2023.
Fair Value Information About Financial Instruments Not Measured at Fair Value
Certain assets are not carried at fair value on a recurring basis. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to re-measurement at fair value after initial recognition and the resulting re-measurement is reflected in the Consolidated Financial Statements.
The following table presents the carrying amount and estimated fair values of the Company’s financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:
Carrying |
Estimated |
|||||||||||||||||||
March 31, 2024 |
Amount |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets |
||||||||||||||||||||
Held to maturity redeemable preferred stock |
$ |
|||||||||||||||||||
Equity securities, at cost |
||||||||||||||||||||
Mortgage loans on real estate |
||||||||||||||||||||
Notes receivable |
||||||||||||||||||||
Investment real estate |
||||||||||||||||||||
Policy loans |
||||||||||||||||||||
Accrued investment income |
||||||||||||||||||||
Liabilities |
||||||||||||||||||||
Policy claims and benefits payable |
||||||||||||||||||||
Dividend and endowment accumulations |
||||||||||||||||||||
Carrying |
Estimated |
|||||||||||||||||||
December 31, 2023 |
Amount |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets |
||||||||||||||||||||
Held to maturity redeemable preferred stock |
$ |
|||||||||||||||||||
Equity securities, at cost |
||||||||||||||||||||
Mortgage loans on real estate |
||||||||||||||||||||
Notes receivable |
||||||||||||||||||||
Investment real estate |
||||||||||||||||||||
Policy loans |
||||||||||||||||||||
Accrued investment income |
||||||||||||||||||||
Liabilities |
||||||||||||||||||||
Policy claims and benefits payable |
||||||||||||||||||||
Dividend and endowment accumulations |
||||||||||||||||||||
Notes payable |
||||||||||||||||||||
The above estimated fair value amounts have been determined based upon the following valuation methodologies. Considerable judgment was required to interpret market data in order to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the fair value amounts.
Held to maturity redeemable preferred stock is carried at cost, which approximates fair value.
Certain equity securities are reported at their cost basis, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. It is not practicable to estimate their fair values due to insufficient information being available.
The fair values of mortgage loans on real estate are estimated using discounted cash flow analyses and interest rates being offered for similar loans to borrowers with similar credit ratings. The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 3 within the fair value hierarchy.
The fair values of notes receivable are estimated using discounted cash flow analyses and interest rates being offered for similar loans to borrowers with similar credit ratings. The inputs used to measure the fair value of the notes receivable are classified as Level 3 within the fair value hierarchy.
Investment real estate is recorded at the lower of the net investment in the real estate or the fair value of the real estate less costs to sell. The determination of fair value assessments are performed on a periodic, non-recurring basis by external appraisal and assessment of property values by Management. The inputs used to measure the fair value of our investment real estate are classified as Level 3 within the fair value hierarchy.
Policy loans are carried at the aggregate unpaid principal balances in the Condensed Consolidated Balance Sheets which approximate fair value, and earn interest at rates ranging from 4 % to 8 %. Individual policy liabilities in all cases equal or exceed outstanding policy loan balances. The inputs used to measure the fair value of our policy loans are classified as Level 3 within the fair value hierarchy.
The carrying value of accrued investment income approximates its fair value.
The carrying amounts reported for policy claims and benefits payable approximates fair value.
The carrying value for dividend and endowment accumulations approximates fair value.
The carrying value for notes payable is a reasonable estimate of fair value subject to floating rates of interest. The fair value of notes payable with fixed rate borrowings is determined based on the borrowing rates currently available to the Company for loans with similar terms and average maturities. The inputs used to measure the fair value of notes payable are classified as Level 2 within the fair value hierarchy.
Note 5 – Credit Arrangements
Instrument |
Issue Date |
Maturity Date |
Revolving Credit Limit |
December 31, 2023 |
Borrowings |
Repayments |
March 31, 2024 |
||||||||||
Lines of Credit: |
|||||||||||||||||
UTG |
$ |
$ |
|||||||||||||||
UG - CMA |
|||||||||||||||||
UTG has a variable rate revolving line of credit. As collateral, UTG has pledged 100 % of the common voting stock of its wholly owned subsidiary, Universal Guaranty Life Insurance Company. UTG is in the process of renewing this line of credit.
During October of 2023, the Federal Home Loan Bank approved UG’s Cash Management Advance Application (“CMA”). The CMA gives the Company the option of selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. The variable rate CMA is prepayable at any time without a fee, while the fixed CMA is not prepayable prior to maturity. The Company has pledged bonds with a collateral lendable value of $19,698,879 . During the first quarter of 2024, the Company repaid the entire outstanding principal balance.
Note 6 – Shareholders’ Equity
Stock Repurchase Program – The Board of Directors of UTG has authorized the repurchase in the open market or in privately negotiated transactions of UTG’s common stock. The Board of Directors of UTG authorized the repurchase of up to $22 million of UTG’s common stock in the open market or in privately negotiated transactions. Company Management has broad authority to operate the program, including the discretion of whether to purchase shares and the ability to suspend or terminate the program. Open market purchases are made based on the last available market price but may be limited. During the three months ended March 31, 2024, the Company repurchased 3,598 shares through the stock repurchase program for $108,914 . Through March 31, 2024, UTG has spent $20,300,317 in the acquisition of 1,360,457 shares under this program.
During 2024, the Company issued 9,944 shares of stock to management and employees as compensation at a cost of $299,314 . These awards are determined at the discretion of the Board of Directors.
Earnings Per Share Calculations
Earnings per share are based on the weighted average number of common shares outstanding during each period. For the three months ended March 31, 2024 and 2023, diluted earnings per share were the same as basic earnings per share since the Company had no
Note 7 – Commitments and Contingencies
The insurance industry has experienced a number of civil jury verdicts which have been returned against life and health insurers in the jurisdictions in which the Company does business involving the insurers’ sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Some of the lawsuits have resulted in the award of substantial judgments against the insurer, including material amounts of punitive damages. In some states, juries have substantial discretion in awarding punitive damages in these circumstances. In the normal course of business, the Company is involved from time to time in various legal actions and other state and federal proceedings. Management is of the opinion that the ultimate disposition of the matters will not have a materially adverse effect on the Company’s results of operations or financial position.
Under the insurance guaranty fund laws in most states, insurance companies doing business in a participating state can be assessed up to prescribed limits for policyholder losses incurred by insolvent or failed insurance companies. Although the Company cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer’s financial strength. Mandatory assessments may be partially recovered through a reduction in future premium tax in some states. The Company does not believe such assessments will be materially different from amounts already provided for in the consolidated financial statements, though the Company has no control over such assessments.
Mortgage Loan Commitments - The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $278,944 and $878,132 at March 31, 2024 and December 31, 2023, respectively.
Notes Receivable Commitments - The Company commits to lend funds under notes receivable funding commitments. The amounts of these notes receivable commitments were $2,000,000 and $2,800,000 at March 31, 2024 and December 31, 2023, respectively.
Commitments to Fund Limited Liability Company and Limited Partnership Investments - The Company commits to fund investments in limited liability companies and limited partnership. The amounts of the unfunded commitments were $15,718,682 and $16,153,903 at March 31, 2024 and December 31, 2023, respectively.
Note 8 – Other Cash Flow Disclosures
On a cash basis, the Company paid the following expenses:
Three Months Ended |
||||||||
March 31, |
||||||||
2024 |
2023 |
|||||||
Interest |
$ |
$ |
||||||
Federal income tax |
||||||||
Note 9 – Concentrations of Credit Risk
The Company maintains cash balances in financial institutions that at times may exceed federally insured limits. The Company maintains its primary operating cash accounts with First Southern National Bank, an affiliate of the largest shareholder of UTG, Mr. Jesse Correll, the Company’s CEO and Chairman. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Because UTG serves primarily individuals located in three states, the ability of the Company's customers to pay their insurance premiums is impacted by the economic conditions in these areas. As of March 31, 2024 and 2023, approximately 49 % and 50 %, respectively, of the Company’s total direct premium was collected from Illinois, Ohio, and Texas. Thus, results of operations are heavily dependent upon the strength of these economies.
The Company reinsures that portion of insurance risk which is in excess of its retention limits. Retention limits range up to $125,000 per life. Life insurance ceded represented 21 % and 20 % of total life insurance in force at March 31, 2024 and December 31, 2023, respectively. Insurance ceded represented 31 % and 29 % of premium income for the three months ended March 31, 2024 and 2023, respectively. The Company would be liable for the reinsured risks ceded to other companies to the extent that such reinsuring companies are unable to meet their obligations.
The Company owns a variety of investments associated with the oil and gas industry. These investments represent approximately 30 % and 28 % of the Company’s total invested assets as of March 31, 2024 and December 31, 2023, respectively. The following table provides an allocation of the oil and gas investments by type.
March 31, 2024 |
Land, Minerals & Royalty Interests |
Exploration |
Total |
|||||||||
Fixed maturities, at fair value |
$ |
$ |
$ |
|||||||||
Equity securities, at fair value |
||||||||||||
Equity securities, at cost |
||||||||||||
Investment real estate |
||||||||||||
Notes receivable |
||||||||||||
Total |
$ |
$ |
$ |
|||||||||
December 31, 2023 |
Land, Minerals & Royalty Interests |
Exploration |
Total |
|||||||||
Fixed maturities, at fair value |
$ |
$ |
$ |
|||||||||
Equity securities, at fair value |
||||||||||||
Equity securities, at cost |
||||||||||||
Investment real estate |
||||||||||||
Notes receivable |
||||||||||||
Total |
$ |
$ |
$ |
|||||||||
At March 31, 2024 and December 31, 2023, the Company owned 4 75 % and 73 %, respectively, of the total investments associated with the oil and gas industry.
The Company’s results of operations and financial condition have in the past been, and may in the future be, adversely affected by the degree of certain industry specific concentrations in the Company’s investment portfolio. The Company has significant exposure to investments associated with the oil and gas industry. Events or developments that have a negative effect on the oil and gas industry may adversely affect the valuation of our investments in this specific industry. The Company’s ability to sell its investments associated with the oil and gas industry may be limited.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is Management's discussion and analysis of the financial condition and results of operations of UTG, Inc. and its subsidiaries (collectively with the Parent, the "Company"). The following discussion of the financial condition and results of operations of the Company should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements of the Company and the related Notes thereto appearing in the Company's annual report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.
Cautionary Statement Regarding Forward-Looking Statements
This report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. We have based our forward-looking statements on our current expectations and projections about future events. Our forward-looking statements include information about possible or assumed future results of operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as the growth of our business and operations, our business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward-looking statements. Also, when we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably,” or similar expressions, we are making forward-looking statements.
Numerous risks and uncertainties may impact the matters addressed by our forward-looking statements, any of which could negatively and materially affect our future financial results and performance.
Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this report, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. In light of these risks, uncertainties and assumptions, any forward-looking event discussed in this report may not occur. Our forward-looking statements speak only as of the date made, and we undertake no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments, unless the securities laws require us to do so.
Overview
UTG, Inc., a Delaware corporation, is a life insurance holding company. The Company’s dominant business is individual life insurance, which includes the servicing of existing insurance policies in-force, the acquisition of other companies in the life insurance business, the acquisition of blocks of business and the administration and processing of life insurance business for other entities.
UTG has a strong philanthropic program. The Company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to Christ-centered organizations or organizations that help the weak or poor. The Company also encourages its staff to be involved on a personal level through monetary giving, volunteerism and use of their talents to assist those less fortunate than themselves. Through these efforts, the Company hopes to make a positive difference in the local community, state, nation and world.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates. The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability. The Company's critical accounting policies and the related estimates considered most significant by Management are disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. Management has identified the accounting policies related to cost of insurance acquired, assumptions and judgments utilized in determining if declines in fair values of investments are other-than-temporary, and valuation methods for investments that are not actively traded as those, due to the judgments, estimates and assumptions inherent in those policies, are critical to an understanding of the Company's Condensed Consolidated Financial Statements and this Management's Discussion and Analysis.
During the three-months ended March 31, 2024, there were no additions to or changes in the critical accounting policies disclosed in the 2023 Form 10-K.
Results of Operations
On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $9.1 million for the three-month period ended March 31, 2024.
For the three-month period ended March 31, 2023, the Company reported a net loss attributable to common shareholders of approximately $(6.9) million.
Revenues
For the three-month period ended March 31, 2024, the Company reported total revenues of approximately $16.6 million and for the same period in 2023 total revenues of approximately $(3.0) million.
The variance in total revenue between first quarter 2023 and 2024 results is primarily the result of the change in the fair value of equity securities. The Company reported a year-to-date 2024 gain in the change in the fair value of equity securities of approximately $12.0 million and a first quarter 2023 loss of approximately $(8.6) million. The stock markets have experienced volatility in recent periods, which in general, should always be expected.
This line item is material to the results reported in the Condensed Consolidated Statements of Operations, and this line item can also be extremely volatile, as it reflects changes in the stock market. While these results can be material and volatile, most of the equity holdings of the Company were acquired with a long-term view, thus making these intermediate changes in value of less concern to Management. Management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment.
The Company reported revenue before net investment gains (losses) of approximately $4.6 million and $4.9 million for the three-month-periods ended March 31, 2024 and 2023, respectively. The decline in the 2024 results, when compared to 2023, are the result of a decline in net investment income in the first quarter.
The following table summarizes the Company's investment performance.
Three Months Ended March 31, |
||||||||
2024 |
2023 |
|||||||
Net investment income |
$ |
3,048,789 |
$ |
3,318,165 |
||||
Net investment gains |
$ |
37,470 |
$ |
716,300 |
||||
Change in net unrealized investment gains (losses) on equity securities, pre-tax |
$ |
12,020,406 |
$ |
(8,645,474 |
) |
|||
The following table reflects net investment income of the Company:
Three Months Ended |
||||||||
March 31, |
||||||||
2024 |
2023 |
|||||||
Fixed maturities |
$ |
1,037,852 |
$ |
1,055,308 |
||||
Equity securities |
421,674 |
961,267 |
||||||
Trading securities |
(7,301 |
) |
0 |
|||||
Mortgage loans |
208,856 |
338,409 |
||||||
Real estate |
1,754,841 |
1,613,907 |
||||||
Notes receivable |
311,422 |
445,318 |
||||||
Policy loans |
100,958 |
107,363 |
||||||
Short-term investments |
332,605 |
57,376 |
||||||
Cash and cash equivalents |
304,827 |
157,873 |
||||||
Total consolidated investment income |
4,465,734 |
4,736,821 |
||||||
Investment expenses |
(1,416,945 |
) |
(1,418,656 |
) |
||||
Consolidated net investment income |
$ |
3,048,789 |
$ |
3,318,165 |
||||
Net investment income represented 66% and 68% of the Company's revenue before net investment gains (losses) as of March 31, 2024 and 2023, respectively. When comparing current and prior year results, net investment income was comparable in a majority of the investment categories outside of the equity securities, mortgage loans, notes receivable and short term, cash and cash equivalents investment portfolios.
Beginning in March 2022 and ending in July 2023, the Federal Open Market Committee (“FOMC”) aggressively raised interest rates to fight inflation. During this time period, the interest rate environment experienced eleven rate increases totaling 5.25%, including four increases during the first part of 2023. While these actions had a negative impact on some of our investments currently owned, this has also allowed for better yields on cash balances and recent investments acquired as investments mature.
Earnings from the equity securities investment portfolio represented approximately 9% and 20% of the total consolidated investment income reported by the Company during the three-month periods ended March 31, 2024 and 2023, respectively. Income from the equity securities portfolio was down approximately 56% or $540,000 when comparing first quarter 2024 and 2023 results. The majority of the decline in equity securities earnings is the result of lower dividends received on certain oil and gas equity holdings. Oil prices were high during much of 2022 and returned to more normalized levels during 2023 and has remained relatively stable into 2024. In early 2023, the dividends received on these investments remained elevated compared to recent history as the cash flows from the higher prices worked their way through the entities and out to investors through dividends. After first quarter 2023, the Company saw dividends from oil and gas equity investments decline with the change in the price of oil.
Mortgage loan investment income declined approximately 38%, or $130,000 when comparing first quarter 2024 to 2023. This is the result of a large pay-off on a mortgage loan in the latter part of 2023.
The earnings reported by the cash and short-term investments represented 14% and 5% of the total consolidated investment income reported by the Company during the three-month periods ended March 31, 2024 and 2023, respectively. The increase in earnings in this category is the result of a combination of higher cash and short-term holdings in 2024 and from increased interest rates received from banks and other deposit institutions in 2024 compared to 2023.
The following table reflects net realized investment gains (losses) for the three months ended March 31:
2024 |
2023 |
|||||||
Fixed maturities available for sale |
$ |
0 |
$ |
20,833 |
||||
Equity securities |
0 |
85,184 |
||||||
Real estate |
37,461 |
586,774 |
||||||
Short-term investments |
9 |
23,509 |
||||||
Consolidated net realized investment gains |
37,470 |
716,300 |
||||||
Change in fair value of equity securities |
12,020,406 |
(8,645,474 |
) |
|||||
Net investment gains (losses) |
$ |
12,057,876 |
$ |
(7,929,174 |
) |
|||
Realized investment gains are the result of one-time events and are expected to vary from year to year.
The sale of one small equity security holding represents all the realized investment gains from equity securities during 2023. During the first quarter of 2024, the Company did not sell any of its equity holdings.
In first quarter 2024, the Company reported realized gains on real estate of $37,461. This was the result of the sale of two smaller parcels of property located in Kentucky. The 2023 real estate gains are the result of sales of real estate in Kentucky that included a land parcel that produced a gain of approximately $480,000.
The Company reported a change in the fair value of equity securities of approximately $12.0 million and $(8.6) million for the threee-month periods ended March 31, 2024, and 2023, respectively. This line item is material to the results reported in the Condensed Consolidated Statements of Operations, and this line item can also be extremely volatile, as it reflects changes in the stock market. While these results can be material and volatile, most of the equity holdings of the Company were acquired with a long-term view, thus making these intermediate changes in value of less concern to Management. Management monitors its equity holdings looking more at the specific entity and market it is in relative to performance and less to changes due to general market swings that occur over the holding period of the investment.
Equity investments primarily in the oil and gas area represent almost all the unrealized gains reported in 2024 and unrealized losses reported in 2023. For 2023, most all of the negative results occurred in the first quarter. Since that time, we started to recognize a slight rebound, and it appears to be the result of market stabilization. Periodic pull backs and rallies are expected by Management. Management believes its current equity investments continue to be solid investments for the Company and have further growth potential; however, changes in market conditions could cause volatility in market prices.
In summary, the Company’s basis for future revenue is expected to come from the following primary sources: Conservation of business currently in-force, the maximization of investment earnings and the acquisition of other companies or policy blocks in the life insurance business. Management has placed a significant emphasis on the development of these revenue sources to enhance these opportunities.
Expenses
The Company reported total benefits and other expenses of approximately $5.0 million for the three-month period ended March 31, 2024, a decrease of approximately 13% from the same period in 2023. Benefits, claims and settlement expenses represented approximately 56% and 58% of the Company's total expenses for the three-month periods ended March 31, 2024 and 2023, respectively. The other major expense category of the Company is operating expenses, which represented approximately 41% and 39% of the Company's total expenses for the three-month periods ended March 31, 2024 and 2023, respectively.
Life benefits, claims and settlement expenses, net of reinsurance benefits and claims were down approximately 17% when comparing the three-month periods ended March 31, 2024, and 2023. Policy claims net of reinsurance were approximately $557,000 less in the first quarter 2024 compared to first quarter 2023. Policy claims vary from period to period and therefore, fluctuations in mortality are to be expected and are not considered unusual by Management.
Changes in policyholder reserves, or future policy benefits, also impact this line item. Reserves are calculated on an individual policy basis and generally increase over the life of the policy as a result of additional premium payments and acknowledgment of increased risk as the insured continues to age.
The short-term impact of policy surrenders is negligible since a reserve for future policy benefits payable is held which is, at a minimum, equal to and generally greater than the cash surrender value of a policy. The benefit of fewer policy surrenders is primarily received over a longer time period through the retention of the Company’s asset base.
Operating expenses decreased approximately 8% in the three-month period ended March 31, 2024 as compared to the same period in 2023. There are two expense items that comprise the majority of the decrease in operating expenses, salary and charitable contributions. Salary expense was approximately $77,000 less in first quarter 2024 compared to 2023 and charitable expense was $85,000 less in first quarter 2024 compared to 2023. Charitable expense fluctuates based on reported taxable income of the Company. Expenses in the remaining categories are comparable between years.
As mentioned above in the Overview section of the Management Discussion and Analysis, UTG has a strong philanthropic program. The Company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to Christ-centered organizations or organizations that help the weak or poor. Charitable contributions made by the Company are expected to vary from year to year depending on the earnings of the Company.
Net amortization of cost of insurance acquired decreased approximately 4% when comparing current and prior year activity. Cost of insurance acquired is established when an insurance company is acquired or when the Company acquires a block of in-force business. The Company assigns a portion of its cost to the right to receive future profits from insurance contracts existing at the date of the acquisition. Cost of insurance acquired is amortized with interest in relation to expected future profits, including direct charge-offs for any excess of the unamortized asset over the projected future profits. The interest rates may vary due to risk analysis performed at the time of acquisition on the business acquired. The Company utilizes a 12% discount rate on the remaining unamortized business. The amortization is adjusted retrospectively when estimates of current or future gross profits to be realized from a group of products are revised. Amortization of cost of insurance acquired is particularly sensitive to changes in interest rate spreads and persistency of certain blocks of insurance in-force. This expense is expected to decrease unless the Company acquires a new block of business.
Management continues to place significant emphasis on expense monitoring and cost containment. Maintaining administrative efficiencies directly impacts net income.
Financial Condition
Investment Information
Investments are the largest asset group of the Company. 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.
The following table reflects, by investment category, the investments held by the Company:
March 31, 2024 |
As a % of Total Investments |
As a % of Total Assets |
||||||||||
Fixed maturities |
$ |
96,982,142 |
28 |
% |
23 |
% |
||||||
Held to maturity redeemable preferred stock |
2,500,000 |
1 |
% |
1 |
% |
|||||||
Equity securities, at fair value |
168,319,975 |
47 |
% |
39 |
% |
|||||||
Equity securities, at cost |
15,816,798 |
4 |
% |
4 |
% |
|||||||
Mortgage loans |
15,702,437 |
4 |
% |
4 |
% |
|||||||
Notes receivable |
14,379,379 |
4 |
% |
3 |
% |
|||||||
Real estate |
21,371,982 |
6 |
% |
5 |
% |
|||||||
Policy loans |
5,994,931 |
2 |
% |
1 |
% |
|||||||
Short-term investments |
13,714,840 |
4 |
% |
3 |
% |
|||||||
Total investments |
$ |
354,782,484 |
100 |
% |
83 |
% |
||||||
December 31, 2023 |
As a % of Total Investments |
As a % of Total Assets |
||||||||||
Fixed maturities |
$ |
103,409,836 |
29 |
% |
24 |
% |
||||||
Held to maturity redeemable preferred stock |
2,500,000 |
1 |
% |
1 |
% |
|||||||
Equity securities, at fair value |
156,550,812 |
43 |
% |
35 |
% |
|||||||
Equity securities, at cost |
15,977,368 |
4 |
% |
4 |
% |
|||||||
Mortgage loans |
15,318,176 |
4 |
% |
3 |
% |
|||||||
Notes receivable |
14,009,225 |
4 |
% |
3 |
% |
|||||||
Real estate |
21,975,120 |
6 |
% |
5 |
% |
|||||||
Policy loans |
6,018,248 |
2 |
% |
1 |
% |
|||||||
Short-term investments |
29,132,236 |
7 |
% |
7 |
% |
|||||||
Total investments |
$ |
364,891,021 |
100 |
% |
83 |
% |
||||||
The Company's investments are generally managed to match related insurance and policyholder liabilities. The comparison of investment return with insurance or investment product crediting rates establishes an interest spread. Interest crediting rates on adjustable-rate policies have been reduced to their guaranteed minimum rates, and as such, cannot be lowered any further. Policy interest crediting rate changes and expense load changes become effective on an individual policy basis on the next policy anniversary. Therefore, it takes a full year from the time the change was determined for the full impact of such change to be realized. If interest rates decline in the future, the Company will not be able to lower rates and both net investment income and net income will be impacted negatively.
The Company’s total investments represented 83% of the Company’s total assets as of March 31, 2024 and December 31, 2023, respectively. Fixed maturities and equity securities consistently represented a substantial portion, 80% and 77%, of the total investments during 2024 and 2023, respectively. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of March 31, 2024 and December 31, 2023.
As of March 31, 2024, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets, shareholders’ equity or results from operations. To provide additional flexibility and liquidity, the Company has identified all fixed maturity securities as "investments available for sale". Investments available for sale are carried at market value, with changes in market value charged directly to the other comprehensive component of shareholders' equity. Changes in the market value of available for sale securities resulted in net unrealized gains (losses) of approximately $(1.1) million and $2.2 million as of March 31, 2024 and December 31, 2023, respectively. The variance in the net unrealized gains and losses is the result of normal market fluctuations mainly related to changes in interest rates in the marketplace.
Management continues to view the Company’s investment portfolio with utmost priority. Significant time has been spent internally researching the Company’s risk and communicating with outside investment advisors about the current investment environment and ways to ensure preservation of capital and mitigate losses. Management has put extensive efforts into evaluating the investment holdings. Additionally, members of the Company’s Board of Directors and investment committee have been solicited for advice and provided with information. Management reviews the Company’s entire portfolio on a security level basis to be sure all understand our holdings, potential risks and underlying credit supporting the investments. Management intends to continue its close monitoring of its bond holdings and other investments for possible deterioration or market condition changes. Future events may result in Management’s determination that certain current investment holdings may need to be sold which could result in gains or losses in future periods. Such future events could also result in other than temporary declines in value that could result in future period impairment losses.
There are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if impairment is other-than-temporary. These risks and uncertainties related to Management’s assessment of other-than-temporary declines in value include but are not limited to: the risk that Company's assessment of an issuer's ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer; the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated; the risk that fraudulent information could be provided to the Company's investment professionals who determine the fair value estimates.
Capital Resources
Total shareholders' equity increased by approximately 5% as of March 31, 2024, compared to December 31, 2023. The increase is mainly attributable to an increase in retained earnings, which is the result of the current year net income reported by the Company partially offset by the decline in market value of the available for sale fixed maturities portfolio.
Liquidity
Liquidity provides the Company with the ability to meet on demand the cash commitments required by its business operations and financial obligations. The Company’s liquidity is primarily derived from cash balances, a portfolio of marketable securities and line of credit facilities. The Company has two principal needs for cash – the insurance company’s contractual obligations to policyholders and the payment of operating expenses.
Parent Company Liquidity
UTG is a holding company that has no day-to-day operations of its own. Cash flows from UTG’s insurance subsidiary, UG, are used to pay costs associated with maintaining the Company in good standing with states in which it does business and purchasing outstanding shares of UTG stock. UTG's cash flow is dependent on management fees received from its insurance subsidiary, stockholder dividends from its subsidiary and earnings received on cash balances. As of March 31, 2024, and December 31, 2023, substantially all of the consolidated shareholders’ equity represents net assets of its subsidiaries. As of March 31, 2024, the Parent company has received no dividends from its insurance subsidiary. Certain restrictions exist on the payment of dividends from the insurance subsidiary to the Parent company. For further information regarding the restrictions on the payment of dividends by the insurance subsidiary, see Note 6 – Shareholders’ Equity in the Notes to the Condensed Consolidated Financial Statements. Although these restrictions exist, dividend availability from the insurance subsidiary has historically been sufficient to meet the cash flow needs of the Parent company.
Insurance Subsidiary Liquidity
Sources of cash flows for the insurance subsidiary primarily consist of premium and investment income. Cash outflows from operations include policy benefit payments, administrative expenses, taxes and dividends to the Parent company.
Short-Term Borrowings
During October of 2023, the Federal Home Loan Bank approved the renewal of UG’s Cash Management Advance Application (“CMA”). The CMA is a source of overnight liquidity utilized to address the day-to-day cash needs of a Company. The CMA gives the company the option of selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. The variable rate CMA is prepayable at any time without a fee, while the fixed CMA is not prepayable prior to maturity. The Company has pledged bonds with a collateral lendable value of $19.7 million as of March 31, 2024. During the fourth quarter of 2023, the Company borrowed $19 million and planned to utilize the funds for investing activities. During the first quarter of 2024, the Company repaid the entire outstanding principal balance.
Consolidated Liquidity
Cash used in operating activities was approximately $2 million in 2024 and cash provided by operating activities was approximately $2 million in 2023. Sources of operating cash flows of the Company, as with most insurance entities, is comprised primarily of premiums received on life insurance products and income earned on investments. Uses of operating cash flows consist primarily of payments of benefits to policyholders and beneficiaries and operating expenses. The Company has not marketed any significant new products for several years. As such, premium revenues continue to decline. Management anticipates future cash flows from operations to remain similar to historic trends.
During 2024, the Company’s investing activities provided net cash of approximately $20.7 million and used net cash of approximately $58,000 in 2023. The Company recognized proceeds of approximately $26.0 million and $14.1 million from investments sold and matured in 2024 and 2023, respectively. The Company used approximately $5.3 million and $14.2 million to acquire investments during 2024 and 2023, respectively. The net cash provided by or used in investing activities is expected to vary from year to year depending on market conditions and management’s ability to find and negotiate favorable investment contracts.
Net cash used in financing activities was approximately $19 million during the first quarter of 2024 and 2023. As of March 31, 2024 and 2023, the Company had no debt outstanding with third parties.
The Company had cash and cash equivalents of approximately $40.8 million and $41.2 million as of March 31, 2024 and December 31, 2023, respectively. The Company has a portfolio of marketable fixed maturity securities that could be sold, if an unexpected event were to occur. These securities had a fair value of approximately $99.5 million at March 31, 2024. However, the strong cash flows from investing activities, investment maturities and the availability of the line of credit facilities make it unlikely that the Company would need to sell securities for liquidity purposes.
Management believes the overall sources of liquidity available will be sufficient to satisfy its financial obligations.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains a set of disclosure controls and procedures designed to ensure that information required to be disclosed in reports that it files or submits under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. In addition, the disclosure controls and procedures ensure that information required to be disclosed is accumulated and communicated to Management, including the principal executive officer and principal financial officer, allowing timely decisions regarding required disclosure. Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 1A. RISK FACTORS
NONE
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. MINE SAFETY DISCLOSURES
NONE
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit Number |
Description |
*31.1 |
Certification of Jesse T. Correll, Chairman of the Board, Chief Executive Officer and President of UTG, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*31.2 |
Certification of Theodore C. Miller, Chief Financial Officer, Senior Vice President and Chief Financial Officer of UTG, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*32.1 |
Certification of Jesse T. Correll, Chairman of the Board, Chief Executive Officer and President of UTG, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
*32.2 |
Certification of Theodore C. Miller, Chief Financial Officer, Senior Vice President and Chief Financial Officer of UTG, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
**101 |
The following financial statements from the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Shareholders' Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) Notes to the Condensed Consolidated Financial Statements (detail tagged). |
**104 |
Cover Page Interactive Data File (formatted in iXBRL and included in exhibit 101). |
* Filed herewith
SIGNATURES
Pursuant to the requirements 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.
UTG, INC.
(Registrant)
Date: |
May 13, 2024 |
By |
/s/ Jesse T. Correll |
|
Jesse T. Correll |
||||
Chairman of the Board, Chief Executive Officer, President, and Director (Principal Executive Officer) |
Date: |
May 13, 2024 |
By |
/s/ Theodore C. Miller |
|
Theodore C. Miller |
||||
Chief Financial Officer and Senior Vice President (Principal Financial and Accounting Officer) |