Utg Inc 10-Q for FY2022 Q1
Utg Inc (UTGN)
10-Q
2022-05-13
For: 2022-03-31
View Original
Added on
April 06, 2026
About this 10-Q
Utg Inc filed this 10-Q on May 13, 2022, covering the quarter ended March 31, 2022 (FY2022 Q1).
Headline figures
Quarter ended March 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $18.96M
- down 21.3% from $24.09M a year earlier
- Net income
- $9.19M
- down 35.1% from net income of $14.17M a year earlier
- Diluted EPS
- $2.90
- down 35.0% from $4.46 a year earlier
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, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _____________ to ____________
Commission File No. 000-16867
(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:
Title 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, 2022 was 3,172,895 .
UTG, Inc.
(The “Company”)
TABLE OF CONTENTS
PART I. Financial Information |
4 |
Item 1. Financial Statements |
4 |
Condensed Consolidated Balance Sheets |
4 |
Condensed Consolidated Statements of Operations |
5 |
Condensed Consolidated Statements of Comprehensive Income (Loss) |
6 |
Condensed Consolidated Statements of Shareholders’ Equity |
7 |
Condensed Consolidated Statements of Cash Flows |
8 |
Notes to Condensed Consolidated Financial Statements |
9 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 4. Controls and Procedures |
29 |
PART II. Other Information |
29 |
Item 1. Legal Proceedings |
29 |
Item 1A. Risk Factors |
29 |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
29 |
Item 3. Defaults Upon Senior Securities |
29 |
Item 4. Mine Safety Disclosures |
29 |
Item 5. Other Information |
29 |
Item 6. Exhibits |
29 |
Signatures |
30 |
Part 1. Financial Information.
Item 1. Financial Statements.
UTG, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 2022 |
December 31, 2021* |
|||||||
ASSETS |
||||||||
Investments: |
||||||||
Investments available for sale: |
||||||||
Fixed maturities, at fair value (amortized cost $ |
$ |
$ |
||||||
Equity securities, at fair value (cost $ |
||||||||
Equity securities, at cost |
||||||||
Mortgage loans on real estate at amortized cost |
||||||||
Investment real estate |
||||||||
Notes receivable |
||||||||
Policy loans |
||||||||
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 |
||||||||
Income taxes payable |
||||||||
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 income |
||||||||
Total UTG shareholders' equity |
||||||||
Noncontrolling interests |
||||||||
Total shareholders' equity |
||||||||
Total liabilities and shareholders' equity |
$ |
$ |
||||||
* Balance sheet audited at December 31, 2021.
See accompanying notes.
UTG, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended |
||||||||
March 31, |
March 31, |
|||||||
2022 |
2021 |
|||||||
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 before income taxes |
||||||||
Income tax expense |
||||||||
Net income |
||||||||
Net income attributable to noncontrolling interests |
( |
) |
( |
) |
||||
Net income attributable to common shareholders |
$ |
$ |
||||||
Amounts attributable to common shareholders |
||||||||
Basic income per share |
$ |
$ |
||||||
Diluted income 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, |
|||||||
2022 |
2021 |
|||||||
Net income |
$ |
$ |
||||||
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) losses included in net income |
( |
) |
||||||
Tax expense (benefit) for gains included in net income (loss) |
||||||||
Reclassification adjustment for (gains) losses 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 attributable to UTG, Inc. |
$ |
$ |
||||||
See accompanying notes.
UTG, Inc.
Condensed Consolidated Statements of Shareholders' Equity (Unaudited)
Three Months Ended March 31, 2022 |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Noncontrolling Interest |
Total Shareholders' Equity |
||||||||||||||||||
Balance at December 31, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Common stock issued during year |
||||||||||||||||||||||||
Treasury shares acquired |
( |
) |
( |
) |
( |
) |
||||||||||||||||||
Net income (loss) attributable to common shareholders |
||||||||||||||||||||||||
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes |
( |
) |
( |
) |
||||||||||||||||||||
Contributions |
||||||||||||||||||||||||
Distributions |
( |
) |
( |
) |
||||||||||||||||||||
Gain attributable to noncontrolling interest |
||||||||||||||||||||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Three Months Ended March 31, 2021 |
Common Stock |
Additional Paid-In Capital |
Retained Earnings |
Accumulated Other Comprehensive Income |
Noncontrolling Interest |
Total Shareholders' Equity |
||||||||||||||||||
Balance at December 31, 2020 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
Common stock issued during year |
||||||||||||||||||||||||
Treasury shares acquired |
( |
) |
( |
) |
( |
) |
||||||||||||||||||
Net income attributable to common shareholders |
||||||||||||||||||||||||
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes |
( |
) |
( |
) |
||||||||||||||||||||
Contributions |
||||||||||||||||||||||||
Distributions |
||||||||||||||||||||||||
Gain attributable to noncontrolling interest |
||||||||||||||||||||||||
Balance at March 31, 2021 |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||
See accompanying notes.
UTG, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended |
|||||
March 31, |
March 31, |
||||
2022 |
2021 |
||||
Cash flows from operating activities: |
|||||
Net income (loss) |
$ |
$ |
|||
Adjustments to reconcile net income to net cash used in operating activities: |
|||||
Amortization (accretion) of investments |
( |
( |
|||
Realized investment gains (losses), net |
( |
( |
|||
Change in fair value of equity securities |
( |
( |
|||
Unrealized trading (gains) losses included in income |
( |
||||
Realized trading (gains) losses included in income |
( |
||||
Amortization of cost of insurance acquired |
|||||
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 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 |
|||||
Total proceeds from investments sold and matured |
|||||
Cost of investments acquired: |
|||||
Fixed maturities available for sale |
( |
( |
|||
Equity securities |
( |
( |
|||
Trading securities |
( |
( |
|||
Mortgage loans |
( |
( |
|||
Real estate |
( |
( |
|||
Notes receivable |
( |
||||
Policy loans |
( |
( |
|||
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 |
( |
( |
|||
Non controlling contributions (distributions) of consolidated subsidiary |
( |
||||
Net cash used in financing activities |
( |
( |
|||
Net increase (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.
UTG, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 – Basis of Presentation
The accompanying Condensed Consolidated Balance Sheet as of March 31, 2022, which has been derived from audited consolidated financial statements, and the unaudited interim Condensed Consolidated Financial Statements include the accounts of UTG, Inc. (the “Parent”) and its subsidiaries (collectively with the Parent, the “Company”). All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for audited annual financial statements. The information furnished includes all adjustments and accruals of a normal recurring nature, which in the opinion of Management, are necessary for a fair presentation of the results for the interim periods. The unaudited Condensed Consolidated Financial Statements included herein and these related notes should be read in conjunction with the Company’s consolidated financial statements, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company’s results of operations for the three-months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or for any other future period.
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S. and globally, accelerating during the first half of March, as federal, state, and local governments reacted to the public health crisis, creating significant uncertainties in the U.S. economy. The Company has not experienced a slow-down in activities, however government restrictions and client-imposed delays are evaluated regularly and this could change. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The Company cannot at this time predict the ultimate impact the pandemic will have on its results of operations, financial position, liquidity, or capital resources but such impact could be material.
This document at times will refer to the Registrant’s largest shareholder, Mr. Jesse T. Correll and certain companies controlled by Mr. Correll. Mr. Correll holds a majority ownership of First Southern Funding, LLC (“FSF”), a Kentucky corporation, and First Southern Bancorp, Inc. (“FSBI”), a financial services holding company. FSBI operates through its 100 % owned subsidiary bank, First Southern National Bank (“FSNB”). Banking activities are conducted through multiple locations within south-central and western Kentucky. Mr. Correll is Chief Executive Officer and Chairman of the Board of Directors of UTG and is currently UTG’s largest shareholder through his ownership control of FSF, FSBI and affiliates. At March 31, 2022, Mr. Correll owns or controls directly and indirectly approximately 65.22 % 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, 2022, there were no additions to or changes in the critical accounting policies disclosed in the 2021 Form 10-K.
Note 3 – Investments
Available for Sale Securities – Fixed Maturity Securities
The Company’s insurance subsidiary is regulated by insurance statutes and regulations as to the type of investments they are permitted to make, and the amount of funds that may be used for any one type of investment.
Investments in available for sale securities are summarized as follows:
March 31, 2022 |
Original or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Investments available for sale: |
||||||||||||||||
Fixed maturities |
||||||||||||||||
U.S. Government and govt. agencies and authorities |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
U.S. special revenue and assessments |
||||||||||||||||
All other corporate bonds |
( |
) |
||||||||||||||
$ |
$ |
$ |
( |
) |
$ |
|||||||||||
December 31, 2021 |
Original or Amortized Cost |
Gross Unrealized Gains |
Gross Unrealized Losses |
Fair Value |
||||||||||||
Investments available for sale: |
||||||||||||||||
Fixed maturities |
||||||||||||||||
U.S. Government and govt. agencies and authorities |
$ |
$ |
$ |
( |
) |
$ |
||||||||||
U.S. special revenue and assessments |
||||||||||||||||
All other corporate bonds |
||||||||||||||||
$ |
$ |
$ |
( |
) |
$ |
|||||||||||
The amortized cost and estimated market value of debt securities at March 31, 2022, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Fixed Maturities Available for Sale March 31, 2022 |
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 |
$ |
$ |
||||||
The fair value of investments with sustained gross unrealized losses are as follows:
March 31, 2022 |
Less than 12 months |
12 months or longer |
Total |
|||||||||||||||||||||
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
|||||||||||||||||||
U.S. Government and govt. agencies and authorities |
$ |
( |
) |
$ |
( |
) |
||||||||||||||||||
All other corporate bonds |
( |
) |
( |
) |
||||||||||||||||||||
Total fixed maturities |
$ |
( |
) |
$ |
( |
) |
||||||||||||||||||
December 31, 2021 |
Less than 12 months |
12 months or longer |
Total |
|||||||||||||||||||||
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
Fair value |
Unrealized losses |
|||||||||||||||||||
U.S. Government and govt. agencies and authorities |
$ |
( |
) |
$ |
( |
) |
||||||||||||||||||
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, 2022 |
||||||||||||
Fixed maturities |
||||||||||||
As of December 31, 2021 |
||||||||||||
Fixed maturities |
||||||||||||
Substantially all of the unrealized losses on fixed maturities at March 31, 2022 and December 31, 2021 are attributable to changes in market interest rates and general disruptions in the credit market subsequent to purchase. The Company does not currently intend to sell nor does it expect to be required to sell any of the securities in an unrealized loss position. Based upon the Company’s expected continuation of receipt of contractually required principal and interest payments and its intent and ability to retain the securities until price recovery, as well as the Company’s evaluation of other relevant factors, the Company deems these securities to be temporarily impaired as of March 31, 2022 and December 31, 2021.
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, |
||||||||
2022 |
2021 |
|||||||
Realized gains: |
||||||||
Sales of fixed maturities |
$ |
$ |
||||||
Sales of equity securities |
||||||||
Sales of real estate |
||||||||
Total realized gains |
||||||||
Realized losses: |
||||||||
Sales of equity securities |
( |
) |
( |
) |
||||
Total realized losses |
( |
) |
( |
) |
||||
Net realized investment gains (losses) |
||||||||
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) |
$ |
( |
) |
$ |
( |
) |
||
Other-Than-Temporary Impairments
The Company regularly reviews its investment securities for factors that may indicate that a decline in fair value of an investment is other than temporary. The factors considered by Management in its regular review to identify and recognize other-than-temporary impairment losses on fixed maturities include, but are not limited to: the length of time and extent to which the fair value has been less than cost; the Company’s intent to sell, or be required to sell, the debt security before the anticipated recovery of its remaining amortized cost basis; the financial condition and near-term prospects of the issuer; adverse changes in ratings announced by one or more rating agencies; subordinated credit support, whether the issuer of a debt security has remained current on principal and interest payments; current expected cash flows; whether the decline in fair value appears to be issuer specific or, alternatively, a reflection of general market or industry conditions, including the effect of changes in market interest rates. If the Company intends to sell a debt security, or it is more likely than not that it would be required to sell a debt security before the recovery of its amortized cost basis, the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date would be recognized by a charge to other-than-temporary losses in the Condensed Consolidated Statements of Operations.
Management regularly reviews its real estate portfolio in comparison to appraisal valuations and current market conditions for indications of other-than-temporary impairments. If a decline in value is judged by Management to be other-than-temporary, a loss is recognized by a charge to other-than-temporary impairment losses in the Condensed Consolidated Statements of Operations.
The Company did not recognize any other-than-temporary impairments during the three month periods ended March 31, 2022 and 2021.
Cost Method Investments
The Company held equity investments with an aggregate cost of $14,543,343 at March 31, 2022 and December 31, 2021. These equity investments were not reported at fair value because it is not practicable to estimate their fair values due to insufficient information being available. Management did not identify any events or changes in circumstances that might have a significant adverse effect on the reported value of those investments. Based on Management’s evaluation of the expected cash flow of the investments, and the Company’s ability and intent to hold the investments for a reasonable period of time, the Company does not deem an other-than-temporary impairment necessary at March 31, 2022.
Trading Securities
Securities designated as trading securities are reported at fair value, with gains or losses resulting from changes in fair value recognized in net investment income on the Condensed Consolidated Statements of Operations. Trading securities include exchange-traded equities and exchange-traded options. Trading securities carried as liabilities are securities sold short. A gain, limited to the price at which the security was sold short, or a loss, potentially unlimited in size, will be recognized upon the termination of the short sale. The fair value of derivatives included in trading security assets and trading security liabilities as of March 31, 2022 was $0 and $5,291 , respectively. The fair value of derivatives included in trading security assets and trading security liabilities as of December 31, 2021 was $0 and $1,116 , respectively. Earnings from trading securities are classified in cash flows from operating activities. The derivatives held by the Company are for income generation purposes only.
Trading revenue charged to net investment income from trading securities was:
Three Months Ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
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, 2022 and 2021, the Company acquired $1,546,165 and $387,039 in mortgage loans, respectively. FSNB services the majority of the Company’s mortgage loan portfolio. The Company pays FSNB a 0.25 % servicing fee on these loans and a one-time fee at loan origination of 0.50 % of the original loan cost to cover costs incurred by FSNB relating to the processing and establishment of the loan.
During 2022 and 2021, the maximum and minimum lending rates for mortgage loans were:
2022 |
2021 |
|||||||||||||||
Maximum rate |
Minimum rate |
Maximum rate |
Minimum rate |
|||||||||||||
Farm Loans |
% |
% |
% |
% |
||||||||||||
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 along with a brief description of what steps are being taken to resolve the delinquency. All loans 90 days or more past due are placed on a non-performing status and classified as delinquent loans. Quarterly, coinciding with external financial reporting, the Company reviews each delinquent loan and determines how each delinquent loan should be classified. Management believes the current internal controls surrounding the mortgage loan selection process provide a quality portfolio with minimal risk of foreclosure and/or negative financial impact.
Changes in the current economy could have a negative impact on the loans, including the financial stability of the borrowers, the borrowers’ ability to pay or to refinance, the value of the property held as collateral and the ability to find purchasers at favorable prices. Interest accruals are analyzed based on the likelihood of repayment. In no event will interest continue to accrue when accrued interest along with the outstanding principal exceeds the net realizable value of the property. The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status.
A mortgage loan reserve is established and adjusted based on Management’s quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value. The mortgage loan reserve was $0
The following table summarizes the mortgage loan holdings of the Company for the periods ended:
March 31, 2022 |
December 31, 2021 |
|||||||
In good standing |
$ |
$ |
||||||
Overdue interest over 90 days |
||||||||
Total mortgage loans |
$ |
$ |
||||||
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, 2022, 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, 2022 |
December 31, 2021 |
|||||||
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, 2022 and December 31, 2021, investments in oil and gas royalties represented 42 % and 43 %, 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, 2022 and 2021, the Company acquired $1,680,959 and $780,781 of investment real estate, respectively.
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. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected. The valuation allowance as of March 31, 2022 and December 31, 2021 was $0 2,060,657 and $0 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 several of 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.
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, 2022 |
Level 1 |
Level 2 |
Level 3 |
Net Asset Value |
Total |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Fixed maturities available for sale: |
||||||||||||||||||||
U.S. Government and government agencies and authorities |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
U.S. special revenue and assessments |
||||||||||||||||||||
Corporate securities |
||||||||||||||||||||
Total fixed maturities |
||||||||||||||||||||
Equity securities: |
||||||||||||||||||||
Common stocks |
||||||||||||||||||||
Preferred stocks |
||||||||||||||||||||
Total equity securities |
||||||||||||||||||||
Total financial assets |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
Liabilities |
||||||||||||||||||||
Trading securities |
$ |
( |
) |
$ |
$ |
$ |
$ |
( |
) |
|||||||||||
December 31, 2021 |
Level 1 |
Level 2 |
Level 3 |
Net Asset Value |
Total |
|||||||||||||||
Financial assets: |
||||||||||||||||||||
Fixed maturities available for sale: |
||||||||||||||||||||
U.S. Government and government agencies and authorities |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
U.S. special revenue and assessments |
||||||||||||||||||||
Corporate securities |
||||||||||||||||||||
Total fixed maturities |
||||||||||||||||||||
Equity securities: |
||||||||||||||||||||
Common stocks |
||||||||||||||||||||
Preferred stocks |
||||||||||||||||||||
Total equity securities |
||||||||||||||||||||
Total financial assets |
$ |
$ |
$ |
$ |
$ |
|||||||||||||||
Liabilities |
||||||||||||||||||||
Trading securities |
$ |
( |
) |
$ |
$ |
$ |
$ |
( |
) |
|||||||||||
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, 2022.
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 standard generally accepted in the United States.
Equity Securities at Fair Value
Equity securities consist of common stocks 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.
Equity Securities at Net Asset Value
Certain equity securities carried at fair value, which do not have readily determinable fair values, use net asset value (“NAV”) and are excluded from the fair value hierarchy. These investments are generally not readily redeemable by the investee. See Note 7 – Commitments and Contingencies for additional information regarding unfunded commitments.
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 Level 3 Recurring Fair Value Measurements
The following table presents the changes in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities.
Equity Securities at Fair Value |
Equity Securities at Net Asset Value |
Total |
||||||||||
Balance at December 31, 2021 |
$ |
$ |
$ |
|||||||||
Realized gains (losses) |
||||||||||||
Unrealized gains (losses) |
||||||||||||
Purchases |
||||||||||||
Sales |
( |
) |
( |
) |
||||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
|||||||||
Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at March 31, 2022 and December 31, 2021 may include changes in fair value that were attributable to both observable and unobservable inputs.
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 include 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, 2022 |
Fair Value at December 31, 2021 |
Valuation Technique |
||||||
Equities |
$ |
$ |
Net Asset Value |
||||||
Equities |
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
Investment Company |
Fair Value at March 31, 2022 |
Unfunded Commitments |
Redemption Frequency |
Redemption Notice Period |
||||||||||||
Common Stocks |
||||||||||||||||
Growth Equity |
||||||||||||||||
Redeemable |
$ |
$ |
||||||||||||||
Non-Redeemable |
n/a |
n/a |
||||||||||||||
Total |
$ |
$ |
||||||||||||||
Investment Company |
Fair Value at December 31, 2021 |
Unfunded Commitments |
Redemption Frequency |
Redemption Notice Period |
||||||||||||
Common Stocks |
||||||||||||||||
Growth Equity |
||||||||||||||||
Redeemable |
$ |
$ |
Quarterly |
|||||||||||||
Non-Redeemable |
n/a |
n/a |
||||||||||||||
Total |
$ |
$ |
||||||||||||||
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 Condensed Consolidated Financial Statements. The Company did not recognize any re-measurements or impairments of financial instruments at March 31, 2022 or December 31, 2021.
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 Condensed 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, 2022 |
Amount |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets |
||||||||||||||||||||
Common stock, at cost |
$ |
|||||||||||||||||||
Preferred stock, at cost |
||||||||||||||||||||
Mortgage loans on real estate |
||||||||||||||||||||
Investment real estate |
||||||||||||||||||||
Notes receivable |
||||||||||||||||||||
Policy loans |
||||||||||||||||||||
Liabilities |
||||||||||||||||||||
Notes payable |
||||||||||||||||||||
Carrying |
Estimated |
|||||||||||||||||||
December 31, 2021 |
Amount |
Fair Value |
Level 1 |
Level 2 |
Level 3 |
|||||||||||||||
Assets |
||||||||||||||||||||
Common stock, at cost |
$ |
|||||||||||||||||||
Preferred stock, at cost |
||||||||||||||||||||
Mortgage loans on real estate |
||||||||||||||||||||
Investment real estate |
||||||||||||||||||||
Notes receivable |
||||||||||||||||||||
Policy loans |
||||||||||||||||||||
Liabilities |
||||||||||||||||||||
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.
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.
A portion of the mortgage loans balance consists of discounted mortgage loans. The Company has historically purchased non-performing discounted mortgage loans at a deep discount through an auction process led by the Federal Government. In general, the discounted loans are non-performing and there is a significant amount of uncertainty surrounding the timing and amount of cash flows to be received by the Company. Accordingly, the Company records its investment in the discounted loans at its original purchase price, which Management believes approximates fair value. The inputs used to measure the fair value of our discounted mortgage loans 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.
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.
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.
Note 5 – Credit Arrangements
Instrument |
Issue Date |
Maturity Date |
Revolving Credit Limit |
December 31, 2021 |
Borrowings |
Repayments |
March 31, 2022 |
||||||||||
Lines of Credit: |
|||||||||||||||||
UTG |
$ |
$ |
|||||||||||||||
UG - CMA |
|||||||||||||||||
UG - REPO |
|||||||||||||||||
The UTG line of credit carries interest at a fixed rate of 3.750 % and is payable monthly . As collateral, UTG has pledged 100 % of the common voting stock of its wholly owned subsidiary, Universal Guaranty Life Insurance Company.
During October of 2021, the Federal Home Loan Bank approved UG's Cash Management Advance ("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 $20,201,749 . During May of 2022, the Company borrowed an additional $9.5 million on the CMA and Management will utilize the funds for investing activities. The interest rate on the borrowed funds is variable and currently is 0.76 %.
The CMA is a source of overnight liquidity utilized to address the day-to-day cash needs of a Company. In order to provide the Company with multiple lending options, Management also applied for, and the FHLB approved, the Company's Repurchase ("REPO") Advance Application for $25 million. The REPO Advance requires a minimum borrowing of $15 million and provides financing for one day to one year at a fixed rate of interest. The Company has enough qualifying investments for collateral pledging of $25 million total against these two borrowing vehicles.
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. At a meeting of the Board of Directors in March of 2022, the Board of Directors of UTG authorized the repurchase of up to an additional $2 million of UTG’s common stock, for a total 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, 2022, the Company repurchased 9,849 shares through the stock repurchase program for $267,433 . Through March 31, 2022, UTG has spent $18,891,063 in the acquisition of 1,311,754 shares under this program.
During 2022, the Company issued 17,963 shares of stock to management and employees as compensation at a cost of $486,797 . 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, 2022 and 2021, 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 condensed consolidated financial statements, though the Company has no control over such assessments.
The following table represents the total funding commitments and the unfunded commitment as of March 31, 2022 related to certain investments:
Total Funding Commitment |
Unfunded Commitment |
|||||||
RLF III, LLC |
$ |
$ |
||||||
Sovereign’s Capital, LP Fund I |
||||||||
Sovereign's Capital, LP Fund II |
||||||||
Sovereign's Capital, LP Fund III |
||||||||
Macritchie Storage II, LP |
||||||||
Garden City Companies, LLC |
||||||||
Carrizo Springs Music, LLC |
||||||||
Legacy Venture X, LLC |
||||||||
QCC Investment Co., LLC |
||||||||
Great American Media Group, LLC |
||||||||
Sovereign's Capital Evergreen Fund I, LLC |
||||||||
PBEX, LLC |
||||||||
Sovereign's Capital Lower Middle Market Fund II, LP |
||||||||
During 2006, the Company committed to invest in RLF III, LLC (“RLF”), which makes land-based investments in undervalued assets. RLF makes capital calls as funds are needed for continued land purchases.
During 2012, the Company committed to invest in Sovereign’s Capital, LP Fund I (“Sovereign’s”), which invests in companies in emerging markets. Sovereign’s makes capital calls to investors as funds are needed.
During 2015, the Company committed to invest in Sovereign’s Capital, LP Fund II (“Sovereign’s II”), which invests in companies in emerging markets. Sovereign’s II makes capital calls to investors as funds are needed.
During 2018, the Company committed to invest in Sovereign’s Capital, LP Fund III (“Sovereign’s III”), which invests in companies in emerging markets. Sovereign’s III makes capital calls to investors as funds are needed.
During 2018, the Company committed to fund a mortgage loan for Macritchie Storage II, LP (“Macritchie”). Macritchie makes draw requests on the loan as funds are needed to fund the construction project.
During 2020, the Company committed to invest in Garden City Companies, LLC (“Garden City”), which invests primarily in companies in the healthcare, inspection/testing services and maintenance service arena. Garden City makes capital calls to investors as funds are needed.
During 2020, the Company committed to invest in Carrizo Springs Music, LLC (“Carrizo”), which invests in music royalties. Carrizo makes capital calls to its investors as funds are needed to acquire the royalty rights.
During 2020, the Company committed to invest in Legacy Venture X, LLC (“Legacy Venture X”), which is a fund of funds. Legacy Venture X makes capital calls to its investors as funds are needed.
During 2021, the Company committed to invest in QCC Investment Co., LLC (“QCC”). The funds are being utilized to purchase a manufacturing entity. QCC makes capital calls to its investors as funds are needed.
During 2021, the Company committed to fund a collateral loan for Great American Media Group, LLC (“GAM”). GAM makes draw requests on the loan as funds are needed to fund the operating needs of the Company.
During 2021, the Company committed to invest in Sovereign's Capital Evergreen Fund I, LLC ("Evergreen"), which invests in companies in emerging markets. Evergreen makes capital calls to investors as funds are needed.
During 2022, the Company committed to fund a collateral loan for PBEX, LLC (“PBEX"). PBEX makes draw requests on the loan as funds are needed to fund the operating needs of the Company.
During 2022, the Company committed to invest in Sovereign's Capital Lower Middle Market Fund II, LP ("Sovereign's LMM"), which invests in companies in emerging markets. Sovereign's LMM makes capital calls to investors as funds are needed.
Note 8 – Other Cash Flow Disclosures
On a cash basis, the Company paid the following expenses:
Three Months Ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
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 four states, the ability of our customers to pay their insurance premiums is impacted by the economic conditions in these areas. As of March 31, 2022 and 2021, approximately 50 % and 57 %, respectively, of the Company’s total direct premium was collected from Illinois, Ohio, Texas and West Virginia. 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, 2022 and December 31, 2021, respectively. Insurance ceded represented 38 % and 33 % of premium income for the three months ended March 31, 2022 and 2021, 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 25 % and 22 % of the Company’s total invested assets as of March 31, 2022 and December 31, 2021, respectively. The following table provides an allocation of the oil and gas investments by type.
March 31, 2022 |
Land, Minerals & Royalty Interests |
Exploration |
Total |
|||||||||
Fixed maturities, at fair value |
$ |
$ |
$ |
|||||||||
Equity securities, at fair value |
||||||||||||
Investment real estate |
||||||||||||
Notes receivable |
||||||||||||
Total |
$ |
$ |
$ |
|||||||||
December 31, 2021 |
Land, Minerals & Royalty Interests |
Exploration |
Total |
|||||||||
Fixed maturities, at fair value |
$ |
$ |
$ |
|||||||||
Equity securities, at fair value |
||||||||||||
Investment real estate |
||||||||||||
Notes receivable |
||||||||||||
Total |
$ |
$ |
$ |
|||||||||
At March 31, 2022 and December 31, 2021, the Company owned two 52 % and 53 %, 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, 2021, 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 and the administration and processing of life insurance business for other entities. The Company's focus for the future includes growing the administrative portion of the business.
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, 2021. 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, 2022, there were no additions to or changes in the critical accounting policies disclosed in the 2021 Form 10-K.
Results of Operations
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (COVID-19). The pandemic has significantly impacted the economic conditions in the U.S. and globally, accelerating during the first half of March, as federal, state, and local governments reacted to the public health crisis, creating significant uncertainties in the U.S. economy. The Company has not experienced a slow-down in activities, however government restrictions and client-imposed delays are evaluated regularly, and this could change. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The Company cannot at this time predict the ultimate impact the pandemic will have on its results of operations, financial position, liquidity, or capital resources but such impact could be material. During 2022 Company incurred 39 COVID claims totaling approximately $765,000 through March 31, 2022. The Company incurred 160 claims totaling approximately $1.2 million during the year ended December 31, 2021.
On a consolidated basis, the Company reported net income attributable to common shareholders of approximately $9.2 million and $14.2 million for the three-month period ended March 31, 2022 and 2021, respectively.
Revenues
For the three-month period ended March 31, 2022, the Company reported total revenues of approximately $19 million and for the same period in 2021 total revenues of approximately $24.1 million. The variance in total revenue between periods is primarily the result of a decrease in the change in the fair value of equity securities. This line item is material to the results reported in the consolidated statements of operations. This line item can also be extremely volatile, reflecting changes in the stock market. While both three-month periods within 2022 and 2021 reflected positive results, 2021 results were more than double that of 2022. 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 $6 million and $3.8 million for the three month periods ended March 31, 2022 and 2021, respectively. Revenue before net investment gains (losses) increased primarily due to an increase in net investment income when comparing current year and prior year results.
Premium and policy fee revenues, net of reinsurance, declined 12% for the three-months ended March 31, 2022 and 2021. The Company writes minimal new business. Unless the Company acquires a new company or a block of in-force business, Management expects premium revenue to continue to decline on the existing block of business at a rate consistent with prior experience. Premium and policy fee revenues, net of reinsurance, was reported at approximately $1.5 million and $1.7 million for the three-months ended March 31, 2022, and 2021.
The following table summarizes the Company's investment performance.
Three Months Ended March 31, |
||||||||
2022 |
2021 |
|||||||
Net investment income |
$ |
4,459,368 |
$ |
1,959,667 |
||||
Net investment gains (losses) |
$ |
4,780,149 |
$ |
145,046 |
||||
Change in net unrealized investment gains (losses) on available-for-sale securities, pre-tax |
$ |
8,154,629 |
$ |
20,179,879 |
||||
The following table reflects net investment income of the Company:
Three Months Ended |
||||||||
March 31, |
||||||||
2022 |
2021 |
|||||||
Fixed maturities available for sale |
$ |
1,066,980 |
$ |
1,203,482 |
||||
Equity securities |
383,208 |
297,599 |
||||||
Trading securities |
(2,986 |
) |
13,688 |
|||||
Mortgage loans |
288,218 |
269,804 |
||||||
Real estate |
3,193,085 |
554,724 |
||||||
Notes receivable |
256,562 |
193,871 |
||||||
Policy loans |
106,723 |
132,794 |
||||||
Cash and cash equivalents |
712 |
562 |
||||||
Total consolidated investment income |
5,292,502 |
2,666,524 |
||||||
Investment expenses |
(833,134 |
) |
(706,857 |
) |
||||
Consolidated net investment income |
$ |
4,459,368 |
$ |
1,959,667 |
||||
Net investment income represented 74% and 52% of the Company's revenue before net investment gains (losses) as of March 31, 2022 and 2021, respectively. When comparing current and prior year results, net investment income was comparable in a majority of the investment categories outside of the real estate investment portfolio. Investment income earned by the real estate investment portfolio for the three months ended March 31, 2022, was materially larger than prior periods due to distributions from specific real estate investments, primarily related to the oil, gas and timber industries. Investment income earned by the fixed maturities, equity securities, and real estate investment portfolios represented approximately 87% and 77% of the total consolidated investment income for the three months ended March 31, 2022 and 2021, respectively.
In March 2020, with the onset of the pandemic in America, financial markets became jittery experiencing a significant drop in the major market indices. In response, the Federal Reserve dropped interest rates to near zero. This action resulted in a drop in all other interest rates in the marketplace. While this increased the fair value of the Company’s current fixed income holdings, it made finding investments to acquire with any type of historic yield nearly impossible. In recent periods our economy has heated up with inflation running at higher than desired levels by Federal Reserve standards. In this regard, there has been a lot of talk of rate increases in the coming months. We have already experienced two increases totaling .75% with discussions of continued increases the remainder of the year. This has already resulted in an increase in the yields available in the bond market.
When comparing earnings from the fixed maturities portfolio for the three months ended March 31, 2022 and 2021 income was down approximately 11% or $137,000. This decrease can be primarily attributed to the maturity of several investments that were not replaced within the portfolio. Rather the proceeds were used to pay down the Company’s outstanding debt or reinvested in a different asset class. Fixed maturities continue to represent one of the largest investment types and asset classes owned by the Company. As of March 31, 2022 and 2021, fixed maturities represented 34% and 44%, respectively, of the total investments owned by the Company.
Earnings from the equity securities investment portfolio represented approximately 7% and 11% of the total consolidated investment income report by the Company during the three months ended March 31, 2022 and 2021, respectively. Income from the equity securities portfolio was up approximately 29% or $86,000 when comparing 2022 and 2021 results. This increase is primarily due to a dividend increase by a specific dividend paying security during 2022.
The earnings reported by the real estate investment portfolio represented 60% and 21% of the total consolidated investment income reported by the Company during the three months ended March 31, 2022 and 2021, respectively. Earnings from the real estate investment portfolio were up approximately 476% or $2.6 million when comparing 2022 and 2021 results. The earnings from the real estate investment portfolio are expected to vary depending on the real estate activities and the potential distributions that may occur. The earnings reported by the real estate investment portfolio are primarily related to the oil & gas and timber industries. With the world economies beginning to reopen, demand for oil and gas and other commodities has substantially increased, which in turn has resulted in increases in prices in the marketplace. Add to this the issues related to the Russian invasion of Ukraine; even more upward price pressure is being felt. The Company holds several long-term investments within these industries that have benefitted in recent periods from a rise in prices seen both in real estate in general, but specifically within the Company’s concentrated industries. Oil has increased to over $100 per barrel in 2022 compared to an average price of $42 in 2020 and $70 in 2021. This change has significantly increased the cashflow the Company is receiving from the royalty interests it holds.
The earnings reported by the mortgage loan investment portfolio represented 5% and 10% of the total consolidated investment income reported by the Company during the three months ended March 31, 2022 and 2021, respectively. Earnings from the mortgage loan investment portfolio were up approximately 7% or $18,000 when comparing 2022 and 2021 results. The earnings from the mortgage loan portfolio have increased due to the increase in size of the portfolio. The mortgage loan investment portfolio increased by approximately 4% when comparing the three months ended March 31, 2022 and 2021, respectively. With the low investment rates currently available in the bond market, the Company has placed more emphasis on loans to improve investment yields.
The following table reflects net realized investment gains (losses) for the three months ended March 31:
2022 |
2021 |
|||
Fixed maturities available for sale |
$ |
4,369 |
$ |
0 |
Equity securities |
317,338 |
8,987 |
||
Real estate |
4,458,442 |
136,059 |
||
Consolidated net realized investment gains (losses) |
4,780,149 |
145,046 |
||
Change in fair value of equity securities |
8,154,629 |
20,179,879 |
||
Net investment gains (losses) |
$ |
12,934,778 |
$ |
20,324,925 |
Realized investment gains are the result of one-time events and are expected to vary during a given reporting period.
The sale of one equity security represents approximately $370,000 of the realized investment gains from equity securities during 2022, this gain was offset by the sale for a realized loss of a few smaller equity securities resulting in the net realized gain of approximately $317,000.
The 2022 real estate gains are the result of the sales of real estate in Kentucky and Georgia. The sale of a land parcel in Kentucky produced a gain of approximately $3.5 million and represented approximately 78% of the net investment gains from real estate. The Company sold a real estate parcel located in Georgia that produced gains of approximately $812,000 and represented 18% of the net investment gains from real estate. The Company also sold a few additional smaller properties in Kentucky that produced gains of approximately $172,000 in gains.
The Company reported a change in fair value of equity securities of approximately $8.2 million and $20.2 million for the three months ended March 31, 2022, and 2021, respectively. This line item is material to the results reported in the consolidated statements of operations. This line item can also be extremely volatile, reflecting changes in the stock market. While both three-month periods within 2022 and 2021 reflected positive results, 2021 results were more than double of that of 2022. 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.
While the Company has seen significant positive results on its equity investments in the last two years, a pull back or downward market adjustment could slow these gains or even result in losses in future periods. 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 $7.1 million for the three-month period ended March 31, 2022, an increase of approximately 15% from the same period in 2021. Benefits, claims and settlement expenses represented approximately 57% and 65% of the Company's total expenses for the three-month periods ended March 31, 2022 and 2021, respectively. The other major expense category of the Company is operating expenses, which represented approximately 41% and 34% of the Company's total expenses for the three-month periods ended March 31, 2022 and 2021, respectively.
Life benefits, claims and settlement expenses, net of reinsurance benefits and claims were up approximately 17% or $666,000 when comparing the three months ended March 31, 2022, and 2021. Policy claims vary from period to period and therefore, fluctuations in mortality are to be expected and are not considered unusual by Management.
Early in the COVID-19 pandemic, the Company implemented a process to monitor death claims resulting from COVID-19. Prior to the pandemic, death benefits were $12,624,000, $12,831,000 and $12,403,000 in 2017, 2018 and 2019, respectively. During the two plus years of the pandemic, total death benefits were $14,293,000 and $15,985,000 in 2020 and 2021, respectively. First quarter 2022 continued with higher than historic claims of $4,298,000 including total COVID related deaths of approximately $765,000. Death benefits of the Company have been higher than recent past experience, even when adjusting for the identified COVID-19 claims. This anomaly is showing throughout the entire U.S. insurance industry. Industry experts believe this increase in death benefits while not always directly related to COVID-19, are caused indirectly by the pandemic due to delays in medical care as a result of the lockdown in 2020 and then later, people’s fears of seeking out treatment and trouble making up appointments. This is further compounded by depression from isolation. While we hope the worst of the pandemic is behind us, it is too early to determine with certainty.
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. The surrender process has been impacted by temporary state rulings that were implemented as a result of COVID-19 and in some cases did not allow life insurance companies to lapse policies temporarily. The rulings varied by state and had all expired by July 1, 2021.
Operating expenses increased approximately 39% in the three-month period ended March 31, 2022 as compared to the same period in 2021. This increase is primarily due to increased charitable contribution accruals based upon the Company’s taxable income from first quarter which was significantly higher in 2022 compared to 2021. Additionally, the Company incurred a large maintenance expense relating to the Company’s partially owned aircraft. Expenses in the remaining categories are largely comparable between years.
Effective January 1, 2017, the Company and FSNB began sharing certain services. The shared services focuses on departments commonly utilized by both organizations such as financial accounting, human resources and information technology. The shared services did not initially make a noticeable difference in operating expenses, but provides a larger team, which enhances capabilities and quality.
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 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 86% and 85% of the Company’s total assets as of March 31, 2022, and December 31, 2021, respectively. Fixed maturities consistently represented a substantial portion, 34% and 38%, respectively, of the total investments during 2022 and 2021. The overall investment mix, as a percentage of total investments, remained fairly consistent when comparing the respective investments held as of March 31, 2022 and December 31, 2021.
As of March 31, 2022, 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 $(7.3) and $(5.9) million as of March 31, 2022 and 2021, 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 2% as of March 31, 2022, compared to December 31, 2021. 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.
The Company's investments are predominately in fixed maturity investments such as bonds, which provide sufficient return to cover future obligations. The Company carries all of its fixed maturity holdings as available for sale, which are reported in the Condensed Consolidated Financial Statements at their market value.
The Company had $10 million and $24 million of debt outstanding as of March 31, 2022 and December 31, 2021 respectively.
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, 2022, and December 31, 2021, substantially all of the consolidated shareholders’ equity represents net assets of its subsidiaries. As of March 31, 2022, the Parent company has received no dividends from its insurance subsidiary compared to $5 million received in 2021. Certain restrictions exist on the payment of dividends from the insurance subsidiary to the Parent company. 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.
UG is an Ohio domiciled insurance company, which requires notification within five business days to the insurance commissioner following the declaration of any ordinary dividend and at least ten calendar days prior to payment of such dividend. Ordinary dividends are defined as the greater of: a) prior year statutory net income or b) 10% of statutory capital and surplus. For the year ended December 31, 2021, UG had statutory net income of approximately $451,000. At December 31, 2021 UG's statutory capital and surplus amounted to approximately $64.7 million. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. During 2021, UG paid UTG ordinary dividends of $5 million. No dividends have been paid in 2022. UTG used the dividends received during 2021 to purchase outstanding shares of UTG stock and for general operations of the Company.
Short-Term Borrowings - During the fourth quarter of 2021, Management made the business decision to pledge additional collateral to the Federal Home Loan Bank in order to increase the Company's borrowing capacity. The Company submitted, and the Federal Home Loan Bank approved, a new Cash Management Advance (CMA) with a collateral lendable value of $25 million This CMA replaces the CMA that was approved in May of 2021 for $10 million. During the fourth quarter 2021, the Company borrowed $24 million on the CMA and Management utilized the funds for investing activities. The interest rate on the borrowed funds is variable. During first quarter of 2022 the Company repaid $14 million on the CMA leaving $10 million outstanding. In May of 2022, the Company again borrowed $9.5 million to fund new investment opportunities
The CMA is a source of overnight liquidity utilized to address the day-to-day cash needs of a Company. In order to provide the Company with multiple lending options, Management also applied for, and the FHLB approved, the Company's Repurchase (REPO) Advance Application for $25 million. The REPO Advance requires a minimum borrowing of $15 million and provides financing for one day to one year at a fixed rate of interest. The Company has enough qualifying investments for collateral pledging of $19.5 million total against these two borrowing vehicles.
Consolidated Liquidity
Cash used in operating activities was approximately $2.2 million and $3.7 million in 2022 and 2021, respectively. 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 2022 and 2021, the Company’s investing activities provided net cash of approximately $10.1 million and used cash of approximately $6.4 million. The Company recognized proceeds of approximately $20 million and $3.4 million from investments sold and matured in 2022 and 2021, respectively. The Company used approximately $9.5 million and $10 million to acquire investments during 2022 and 2021, respectively. The net cash provided by 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 $14.4 million and $738,000 during 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company had $10 million and $24 million in debt outstanding with third parties.
The Company had cash and cash equivalents of approximately $24.3 million and $30.8 million as of March 31, 2022 and December 31, 2021, 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 $125.9 million and $141 million at March 31, 2022 and December 31, 2021, respectively. 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
NONE
ITEM 6. EXHIBITS
Exhibit Number |
Description |
*31.1 |
Certification of Jesse T. Correll, Chief Executive Officer and Chairman of the Board 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 Corporate Secretary of UTG, as required pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
*32.1 |
Certificate of Jesse T. Correll, Chief Executive Officer and Chairman of the Board of UTG, as required pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
*32.2 |
Certificate of Theodore C. Miller, Chief Financial Officer, Senior Vice President and Corporate Secretary 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, 2022, 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, 2022 |
By |
/s/ James P. Rousey |
|
James P. Rousey |
||||
President and Director |
Date: |
May 13, 2022 |
By |
/s/ Theodore C. Miller |
|
Theodore C. Miller |
||||
Senior Vice President |
||||
and Chief Financial Officer |
|
Exhibit 31.1
CERTIFICATIONS
|
|||||||
|
I, Jesse T. Correll, Chairman of the Board and Chief Executive Officer of UTG, Inc., certify that:
|
|||||||
|
1.
|
I have reviewed this quarterly report on Form 10-Q of the registrant, UTG, Inc.;
|
||||||
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
||||||
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
||||||
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)) for the registrant and have:
|
||||||
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
||||||
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
||||||
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
||||||
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
||||||
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
||||||
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
||||||
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls
over financial reporting.
|
||||||
|
Date:
|
May 13, 2022 |
By:
|
/s/ Jesse T. Correll
|
|
Chairman of the Board and
|
|||
|
Chief Executive Officer
|
|||
|
Exhibit 31.2
CERTIFICATIONS
|
||||||||
|
I, Theodore C. Miller, Senior Vice President and Chief Financial Officer of UTG, Inc., certify that:
|
||||||||
|
1.
|
I have reviewed this quarterly report on Form 10-Q of the registrant, UTG, Inc.;
|
|||||||
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|||||||
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|||||||
|
4.
|
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)and 15d-15(f)) for the registrant and have:
|
|||||||
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|||||||
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|||||||
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|||||||
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|||||||
|
5.
|
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
|||||||
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|||||||
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls
over financial reporting.
|
|||||||
|
Date:
|
May 13, 2022 |
By:
|
/s/ Theodore C. Miller
|
|
Senior Vice President and
|
|||
|
Chief Financial Officer
|
|||
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on
Form 10-Q of UTG, Inc. (the "Company") for the period ended March 31, 2022, as filed with the Securities and
Exchange Commission on the date hereof (the "Report") I, Jesse T. Correll, Chairman of the Board and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of my knowledge:
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company
|
|
Date:
|
May 13, 2022
|
By:
|
/s/ Jesse T. Correll
|
|
Jesse T. Correll
|
|||
|
Chairman of the Board and
|
|||
|
Chief Executive Officer
|
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on
Form 10-Q of UTG, Inc. (the "Company") for the period ended March 31, 2022, as
filed with the Securities and Exchange Commission on the date hereof (the "Report") I, Jesse T. Correll, Chairman of the Board and Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to §
906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
|
(1)
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company
|
|
Date:
|
May 13, 2022 |
By:
|
/s/ Theodore C. Miller
|
|
Theodore C. Miller
|
|||
|
Senior Vice President and
|
|||
|
Chief Financial Officer
|