Company Quick10K Filing
UTG
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 3 $103
10-Q 2019-11-12 Quarter: 2019-09-30
10-Q 2019-08-12 Quarter: 2019-06-30
10-Q 2019-05-14 Quarter: 2019-03-31
10-K 2019-03-26 Annual: 2018-12-31
10-Q 2018-11-09 Quarter: 2018-09-30
10-Q 2018-08-13 Quarter: 2018-06-30
10-Q 2018-05-14 Quarter: 2018-03-31
10-K 2018-03-26 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-08-10 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-28 Annual: 2016-12-31
10-Q 2016-11-14 Quarter: 2016-09-30
10-Q 2016-08-12 Quarter: 2016-06-30
10-Q 2016-05-12 Quarter: 2016-03-31
10-K 2016-03-25 Annual: 2015-12-31
10-Q 2015-11-12 Quarter: 2015-09-30
10-Q 2015-08-12 Quarter: 2015-06-30
10-Q 2015-05-12 Quarter: 2015-03-31
10-K 2015-03-25 Annual: 2014-12-31
10-Q 2014-11-12 Quarter: 2014-09-30
10-Q 2014-08-12 Quarter: 2014-06-30
10-Q 2014-05-12 Quarter: 2014-03-31
10-K 2014-03-25 Annual: 2013-12-31
10-Q 2013-11-08 Quarter: 2013-09-30
10-Q 2013-08-09 Quarter: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-K 2013-03-28 Annual: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-08 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-K 2012-03-26 Annual: 2011-12-31
10-Q 2011-11-14 Quarter: 2011-09-30
10-Q 2011-08-11 Quarter: 2011-06-30
10-Q 2011-05-11 Quarter: 2011-03-31
10-K 2011-03-30 Annual: 2010-12-31
10-Q 2010-11-12 Quarter: 2010-09-30
10-Q 2010-08-13 Quarter: 2010-06-30
10-Q 2010-05-14 Quarter: 2010-03-31
10-K 2010-03-31 Annual: 2009-12-31
8-K 2019-06-12 Shareholder Vote
8-K 2019-02-05 Officers
8-K 2018-12-06 Officers
8-K 2018-12-06 Officers
8-K 2018-06-13 Shareholder Vote
8-K 2018-01-30 Officers
UTGN 2019-09-30
Part 1. Financial Information.
Item 1. Financial Statements.
Note 1 - Basis of Presentation
Note 2 - Recently Issued Accounting Standards
Note 3 - Investments
Note 4 - Fair Value Measurements
Note 5 - Credit Arrangements
Note 6 - Shareholders' Equity
Note 7 - Commitments and Contingencies
Note 8 - Other Cash Flow Disclosures
Note 9 - Concentrations of Credit Risk
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 q3exhibit311.htm
EX-31.2 q3exhibit312.htm
EX-32.1 q3exhibit321.htm
EX-32.2 q3exhibit322.htm

UTG Earnings 2019-09-30

UTGN 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CCGN 106 2 11 2 2 -4 -4 106 87% -26.4 -195%
FXA 106 102 0 2 0 1 1 -39 0% -34.7 1%
BAYK 105 1,094 972 0 0 5 21 81 3.8 0%
EPSN 103 93 19 7 0 5 8 86 0% 11.2 6%
FXNC 103 778 706 4 0 9 17 80 0% 4.7 1%
UTGN 103 419 291 46 0 16 26 78 0% 3.0 4%
CLDB 101 691 620 0 0 7 14 77 5.7 1%
ZDPY 101 8 2 1 0 -0 0 102 0% 389.6 -2%
MOBQ 100 21 10 5 2 -30 -29 99 44% -3.4 -148%
JUVF 100 662 590 0 0 6 10 119 11.6 1%

10-Q 1 utg19q3.htm UTG19Q3  
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 September 30, 2019

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. 0-16867

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

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

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

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock as of October 31, 2019 was 3,275,880.


UTG, Inc.
(The “Company”)

TABLE OF CONTENTS

PART I.   Financial Information
3
Item 1.  Financial Statements
3
Condensed Consolidated Balance Sheets
3
Condensed Consolidated Statements of Operations
4
Condensed Consolidated Statements of Comprehensive Income (Loss)
5
Condensed Consolidated Statements of Shareholders' Equity
6
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
18
Item 4.  Controls and Procedures
23
 
PART II.  Other Information
 
23
Item 1.  Legal Proceedings
23
Item 1A. Risk Factors
23
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
23
Item 3.  Defaults Upon Senior Securities
23
Item 4.  Mine Safety Disclosures
23
Item 5.  Other Information
23
Item 6.  Exhibits
23
 
Exhibit Index
 
24
 
Signatures
 
24

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

UTG, Inc.

Condensed Consolidated Balance Sheets (Unaudited)

   
September 30, 2019
   
December 31, 2018*
 
ASSETS
 
Investments:
           
Investments available for sale:
           
Fixed maturities, at fair value (amortized cost $163,291,888 and $160,895,869)
 
$
176,002,451
   
$
160,960,784
 
    Equity securities, at fair value (cost $32,549,036 and $34,885,107)
   
76,939,974
     
67,664,482
 
Equity securities, at cost
   
11,289,805
     
12,118,617
 
Mortgage loans on real estate at amortized cost
   
8,526,598
     
9,069,111
 
Investment real estate
   
45,796,423
     
52,518,577
 
Notes receivable
   
27,953,110
     
23,717,312
 
Policy loans
   
8,853,633
     
9,204,222
 
Total investments
   
355,361,994
     
335,253,105
 
                 
Cash and cash equivalents
   
25,728,799
     
20,150,162
 
Accrued investment income
   
1,744,076
     
2,119,882
 
Reinsurance receivables:
               
Future policy benefits
   
25,741,028
     
26,117,936
 
Policy claims and other benefits
   
3,970,131
     
4,053,882
 
Cost of insurance acquired
   
5,040,297
     
5,622,227
 
Property and equipment, net of accumulated depreciation
   
447,905
     
688,567
 
Income tax receivable
   
200,595
     
279,333
 
Other assets
   
636,478
     
1,263,242
 
Total assets
 
$
418,871,303
   
$
395,548,336
 
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Liabilities:
               
Policy liabilities and accruals:
               
Future policyholder benefits
 
$
250,008,948
   
$
253,852,368
 
Policy claims and benefits payable
   
3,769,383
     
4,267,481
 
Other policyholder funds
   
407,283
     
372,072
 
Dividend and endowment accumulations
   
14,649,215
     
14,608,838
 
Deferred income taxes
   
14,264,938
     
9,113,480
 
Other liabilities
   
6,763,117
     
6,257,387
 
Total liabilities
   
289,862,884
     
288,471,626
 
                 
Shareholders' equity:
               
Common stock - no par value, stated value $.001 per share.  Authorized 7,000,000 shares - 3,276,560 and 3,295,870 shares outstanding
   
3,277
     
3,296
 
Additional paid-in capital
   
35,965,153
     
36,567,865
 
Retained earnings
   
82,949,194
     
69,708,901
 
Accumulated other comprehensive income
   
9,597,996
     
62,495
 
Total UTG shareholders' equity
   
128,515,620
     
106,342,557
 
Noncontrolling interests
   
492,799
     
734,153
 
Total shareholders' equity
   
129,008,419
     
107,076,710
 
Total liabilities and shareholders' equity
 
$
418,871,303
   
$
395,548,336
 

* Balance sheet audited at December 31, 2018.
See accompanying notes.

UTG, Inc.

Condensed Consolidated Statements of Operations (Unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2019
   
2018
   
2019
   
2018
 
Revenue:
                       
Premiums and policy fees
 
$
2,385,113
   
$
2,469,322
   
$
7,319,807
   
$
7,659,198
 
Ceded reinsurance premiums and policy fees
   
(678,941
)
   
(652,418
)
   
(2,009,252
)
   
(2,164,581
)
Net investment income
   
2,818,669
     
2,309,470
     
8,632,402
     
8,996,566
 
Other income
   
95,141
     
128,059
     
254,898
     
308,616
 
      Revenue before net investment gains (losses)
   
4,619,982
     
4,254,433
     
14,197,855
     
14,799,799
 
Net investment gains (losses):
                               
Other-than-temporary impairments
   
-
     
(300,000
)
   
-
     
(300,000
)
Other realized investment gains, net
   
3,727,538
     
12,074,120
     
10,143,014
     
12,723,566
 
Change in fair value of equity securities
   
(4,046,457
)
   
6,689,533
     
10,838,322
     
22,050,489
 
      Total net investment gains (losses)
   
(318,919
)
   
18,463,653
     
20,981,336
     
34,474,055
 
Total revenue
   
4,301,063
     
22,718,086
     
35,179,191
     
49,273,854
 
                                 
Benefits and other expenses:
                               
Benefits, claims and settlement expenses:
                               
Life
   
4,029,261
     
4,388,733
     
12,047,346
     
12,927,216
 
Ceded reinsurance benefits and claims
   
(501,184
)
   
(1,044,894
)
   
(1,583,345
)
   
(1,996,044
)
Annuity
   
265,413
     
252,260
     
770,452
     
783,724
 
Dividends to policyholders
   
74,864
     
77,489
     
274,516
     
301,779
 
Commissions and amortization of deferred policy acquisition costs
   
(39,665
)
   
(34,464
)
   
(102,784
)
   
(110,920
)
Amortization of cost of insurance acquired
   
193,977
     
201,516
     
581,930
     
604,549
 
Operating expenses
   
1,940,795
     
3,401,169
     
5,875,135
     
7,271,820
 
Total benefits and other expenses
   
5,963,461
     
7,241,809
     
17,863,250
     
19,782,124
 
                                 
Income (loss) before income taxes
   
(1,662,398
)
   
15,476,277
     
17,315,941
     
29,491,730
 
Income tax (benefit) expense
   
(578,549
)
   
3,506,656
     
3,781,340
     
6,563,628
 
                                 
Net income (loss)
   
(1,083,849
)
   
11,969,621
     
13,534,601
     
22,928,102
 
                                 
Net income attributable to noncontrolling interests
   
(32,795
)
   
(32,078
)
   
(294,308
)
   
(184,565
)
                                 
Net income (loss) attributable to common shareholders
 
$
$ (1,116,644
)
 
$
11,937,543
   
$
13,240,293
   
$
22,743,537
 
                                 
Amounts attributable to common shareholders
                               
Basic income (loss) per share
 
$
$ (0.34
)
 
$
3.62
   
$
4.03
   
$
6.87
 
                                 
Diluted income (loss) per share
 
$
$ (0.34
)
 
$
3.62
   
$
4.03
   
$
6.87
 
                                 
Basic weighted average shares outstanding
   
3,279,684
     
3,299,615
     
3,289,133
     
3,311,912
 
                                 
Diluted weighted average shares outstanding
   
3,279,684
     
3,299,615
     
3,289,133
     
3,311,912
 

See accompanying notes.


UTG, Inc.

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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2019
   
2018
   
2019
   
2018
 
Net income (loss)
 
$
(1,083,849
)
 
$
11,969,621
   
$
13,534,601
   
$
22,928,102
 
                                 
Other comprehensive income (loss):
                               
                                 
Unrealized holding gains (losses) arising during period, pre-tax
   
3,184,769
     
1,244,302
     
12,044,690
     
(4,982,237
)
Tax (expense) benefit on unrealized holding gains (losses) arising during the period
   
(668,802
)
   
(261,303
)
   
(2,529,385
)
   
1,046,270
 
Unrealized holding gains (losses) arising during period, net of tax
   
2,515,967
     
982,999
     
9,515,305
     
(3,935,967
)
                                 
Less reclassification adjustment for gains (losses) included in net income
   
30,793
     
(11,018,710
)
   
25,564
     
(11,133,914
)
Tax (expense) benefit for gains included in net income
   
(6,466
)
   
2,313,929
     
(5,368
)
   
2,338,122
 
Reclassification adjustment for gains (losses) included in net income, net of tax
   
24,327
     
(8,704,781
)
   
20,196
     
(8,795,792
)
Subtotal:  Other comprehensive income (loss), net of tax
   
2,540,294
     
(7,721,782
)
   
9,535,501
     
(12,731,759
)
                                 
Comprehensive income (loss)
   
1,456,445
     
4,247,839
     
23,070,102
     
10,196,343
 
                                 
Less comprehensive income attributable to noncontrolling interests
   
(32,795
)
   
(32,078
)
   
(294,308
)
   
(184,565
)
                                 
Comprehensive income (loss) attributable to UTG, Inc.
 
$
1,423,650
   
$
4,215,761
   
$
22,775,794
   
$
10,011,778
 

See accompanying notes.


UTG, Inc.

Condensed Consolidated Statements of Shareholders' Equity (Unaudited)

Three Months Ended September 30, 2019
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders' Equity
 
                                     
Balance at June 30, 2019
 
$
3,286
   
$
36,253,067
   
$
84,065,838
   
$
7,057,702
   
$
749,916
   
$
128,129,809
 
Common stock issued during year
   
-
     
-
     
-
     
-
     
-
     
-
 
Treasury shares acquired
   
(9
)
   
(287,914
)
   
-
     
-
     
-
     
(287,923
)
Net income attributable to common shareholders
   
-
     
-
     
(1,116,644
)
   
-
     
-
     
(1,116,644
)
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
-
     
-
     
-
     
2,540,294
     
-
     
2,540,294
 
Contributions
   
-
     
-
     
-
     
-
     
-
     
-
 
Distributions
   
-
     
-
     
-
     
-
     
(289,912
)
   
(289,912
)
Gain attributable to noncontrolling interest
   
-
     
-
     
-
     
-
     
32,795
     
32,795
 
Balance at September 30, 2019
 
$
3,277
   
$
35,965,153
   
$
82,949,194
   
$
9,597,996
   
$
492,799
   
$
129,008,419
 

Nine Months Ended September 30, 2019
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders' Equity
 
                                     
Balance at December 31, 2018
 
$
3,296
   
$
36,567,865
   
$
69,708,901
   
$
62,495
   
$
734,153
   
$
107,076,710
 
Common stock issued during year
   
7
     
246,527
     
-
     
-
     
-
     
246,534
 
Treasury shares acquired
   
(26
)
   
(849,239
)
   
-
     
-
     
-
     
(849,265
)
Net income attributable to common shareholders
   
-
     
-
     
13,240,293
     
-
     
-
     
13,240,293
 
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
-
     
-
     
-
     
9,535,501
     
-
     
9,535,501
 
Contributions
   
-
     
-
     
-
     
-
     
-
     
-
 
Distributions
   
-
     
-
     
-
     
-
     
(535,662
)
   
(535,662
)
Gain attributable to noncontrolling interest
   
-
     
-
     
-
     
-
     
294,308
     
294,308
 
Balance at September 30, 2019
 
$
3,277
   
$
35,965,153
   
$
82,949,194
   
$
9,597,996
   
$
492,799
   
$
129,008,419
 

See accompanying notes.




UTG, Inc.

Condensed Consolidated Statements of Shareholders' Equity (Unaudited)

Three Months Ended September 30, 2018
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders' Equity
 
                                     
Balance at June 30, 2018
 
$
3,305
   
$
36,829,530
   
$
68,123,778
   
$
9,665,033
   
$
804,122
   
$
115,425,768
 
Common stock issued during year
   
-
     
-
     
-
     
-
     
-
     
-
 
Treasury shares acquired
   
(9
)
   
(264,374
)
   
-
     
-
     
-
     
(264,383
)
Net income attributable to common shareholders
   
-
     
-
     
11,937,543
     
-
     
-
     
11,937,543
 
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
-
     
-
     
-
     
(7,721,782
)
   
-
     
(7,721,782
)
Contributions
   
-
     
-
     
-
     
-
     
-
     
-
 
Distributions
   
-
     
-
     
-
     
-
     
-
     
-
 
Gain attributable to noncontrolling interest
   
-
     
-
     
-
     
-
     
32,078
     
32,078
 
Balance at September 30, 2018
 
$
3,296
   
$
36,565,156
   
$
80,061,321
   
$
1,943,251
   
$
836,200
   
$
119,409,224
 

Nine Months Ended September 30, 2018
 
Common Stock
   
Additional Paid-In Capital
   
Retained Earnings
   
Accumulated Other Comprehensive Income
   
Noncontrolling Interest
   
Total Shareholders' Equity
 
                                     
Balance at December 31, 2017
 
$
3,333
   
$
37,536,164
   
$
39,040,456
   
$
32,952,338
   
$
899,227
   
$
110,431,518
 
Adoption of Accounting Standards Update No 2016-01
   
-
     
-
     
18,277,328
     
(18,277,328
)
   
-
     
-
 
January 1, 2018
   
3,333
     
37,536,164
     
57,317,784
     
14,675,010
     
899,227
     
110,431,518
 
Common stock issued during year
   
10
     
246,747
     
-
     
-
     
-
     
246,757
 
Treasury shares acquired
   
(47
)
   
(1,217,755
)
   
-
     
-
     
-
     
(1,217,802
)
Net income attributable to common shareholders
   
-
     
-
     
22,743,537
     
-
     
-
     
22,743,537
 
Unrealized holding income on securities net of noncontrolling interest and reclassification adjustment and taxes
   
-
     
-
     
-
     
(12,731,759
)
   
-
     
(12,731,759
)
Contributions
   
-
     
-
     
-
     
-
     
-
     
-
 
Distributions
   
-
     
-
     
-
     
-
     
(247,592
)
   
(247,592
)
Gain attributable to noncontrolling interest
   
-
     
-
     
-
     
-
     
184,565
     
184,565
 
Balance at September 30, 2018
 
$
3,296
   
$
36,565,156
   
$
80,061,321
   
$
1,943,251
   
$
836,200
   
$
119,409,224
 

See accompanying notes.


UTG, Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2019
   
2018
 
Cash flows from operating activities:
           
Net income
 
$
13,534,601
   
$
22,928,102
 
Adjustments to reconcile net income to net cash used in operating activities:
               
Amortization (accretion) of investments
   
28,936
     
137,899
 
         Other-than-temporary impairments     -
      300,00
 
Realized investment gains, net
   
(10,143,014
)
   
(12,723,566
)
Change in fair value of equity securities
   
(10,838,322
)
   
(22,050,489
)
Amortization of cost of insurance acquired
   
581,930
     
604,549
 
Depreciation
   
868,630
     
814,202
 
Stock-based compensation
   
246,534
     
246,757
 
Charges for mortality and administration of universal life and annuity products
   
(4,839,551
)
   
(4,948,332
)
Interest credited to account balances
   
3,068,614
     
3,177,834
 
Change in accrued investment income
   
375,806
     
42,511
 
Change in reinsurance receivables
   
460,659
     
91,579
 
Change in policy liabilities and accruals
   
(2,458,575
)
   
(2,613,125
)
Change in income taxes receivable (payable)
   
78,738
     
2,221,052
 
       Change in other assets and liabilities, net
   
3,749,194
     
9,987,926
 
Net cash used in operating activities
   
(5,285,820
)
   
(1,783,101
)
                 
Cash flows from investing activities:
               
     Proceeds from investments sold and matured:
               
Fixed maturities available for sale
   
8,563,966
     
54,220,638
 
Equity securities
   
10,219,197
     
843,260
 
Mortgage loans
   
4,824,430
     
4,496,554
 
Real estate
   
11,620,038
     
12,783,088
 
Notes receivable
   
4,296,998
     
2,559,264
 
Policy loans
   
1,324,183
     
1,423,014
 
Short-term investments
   
-
     
2,114,000
 
Total proceeds from investments sold and matured
   
40,848,812
     
78,439,818
 
Cost of investments acquired:
               
Fixed maturities available for sale
   
(11,655,148
)
   
(42,955,401
)
Equity securities
   
(1,323,310
)
   
(9,538,853
)
Trading securities
   
(132,518
)
   
-
 
Mortgage loans
   
(4,216,644
)
   
(16,453
)
Real estate
   
(1,729,000
)
   
(10,113,852
)
Notes receivable
   
(8,532,796
)
   
(4,000,000
)
Policy loans
   
(973,594
)
   
(1,244,976
)
Short-term investments
   
-
     
(7,549,076
)
Total cost of investments acquired
   
(28,563,010
)
   
(75,418,611
)
Net cash provided by investing activities
   
12,285,802
     
3,021,207
 
                 
Cash flows from financing activities:
               
Policyholder contract deposits
   
3,542,562
     
3,548,809
 
Policyholder contract withdrawals
   
(3,578,980
)
   
(2,849,310
)
Purchase of treasury stock
   
(849,265
)
   
(1,217,802
)
Non controlling contributions (distributions) of consolidated subsidiary
   
(535,662
)
   
(247,592
)
Net cash used in financing activities
   
(1,421,345
)
   
(765,895
)
                 
Net increase in cash and cash equivalents
   
5,578,637
     
472,211
 
Cash and cash equivalents at beginning of period
   
20,150,162
     
25,434,199
 
Cash and cash equivalents at end of period
 
$
25,728,799
   
$
25,906,410
 

See accompanying notes.

UTG, Inc.

Notes to Condensed Consolidated Financial Statements

Note 1 – Basis of Presentation

The accompanying Condensed Consolidated Balance Sheet as of December 31, 2018, 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, 2018.  The Company’s results of operations for the three and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 or for any other future period.

This document at times will refer to the Registrant’s largest shareholder, Mr. Jesse T. Correll and certain companies controlled by Mr. Correll.  Mr. Correll holds a majority ownership of First Southern Funding, LLC (“FSF”), a Kentucky corporation, and First Southern Bancorp, Inc. (“FSBI”), a financial services holding company.  FSBI operates through its 100% owned subsidiary bank, First Southern National Bank (“FSNB”).  Banking activities are conducted through multiple locations within south-central and western Kentucky.  Mr. Correll is 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 September 30, 2019, Mr. Correll owns or controls directly and indirectly approximately  65.66% 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 nine months ended September 30, 2019, there were no additions to or changes in the critical accounting policies disclosed in the 2018 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:

September 30, 2019
 
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
 
$
35,283,800
   
$
483,968
   
$
(333
)
 
$
35,767,435
 
U.S. special revenue and assessments
   
14,376,048
     
1,002,030
     
(99
)
   
15,377,979
 
All other corporate bonds
   
113,632,040
     
11,224,997
     
-
     
124,857,037
 
   
$
163,291,888
   
$
12,710,995
   
$
(432
)
 
$
176,002,451
 

December 31, 2018
 
Original or Amortized Cost
   
Gross Unrealized Gains
   
Gross Unrealized Losses
   
Fair Value
 
Investments available for sale:
                       
Fixed maturities
                       
U.S. Government and govt. agencies and authorities
 
$
25,649,410
   
$
149,006
   
$
(138,222
)
 
$
25,660,194
 
U.S. special revenue and assessments
   
16,350,486
     
334,300
     
(4,406
)
   
16,680,380
 
All other corporate bonds
   
118,895,973
     
2,569,287
     
(2,845,050
)
   
118,620,210
 
   
$
160,895,869
   
$
3,052,593
   
$
(2,987,678
)
 
$
160,960,784
 

The amortized cost and estimated market value of debt securities at September 30, 2019, 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
September 30, 2019
 
Amortized Cost
   
Fair Value
 
Due in one year or less
 
$
2,500,083
   
$
2,499,750
 
Due after one year through five years
   
62,005,611
     
64,052,446
 
Due after five years through ten years
   
50,915,439
     
56,800,689
 
Due after ten years
   
47,870,755
     
52,649,566
 
Total
 
$
163,291,888
   
$
176,002,451
 

The fair value of investments with sustained gross unrealized losses at September 30, 2019 and December 31, 2018 are as follows:

September 30, 2019
 
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
 
$
-
     
-
     
2,499,750
     
(333
)
   
2,499,750
   
$
(333
)
U.S. special revenue and assessments
   
2,027,140
      (99)
   
-
     
-
     
2,027,140
     
(99)
 
Total fixed maturities
 
$
2,027,140
     
(99
)
   
2,499,750
     
(333
)
   
4,526,890
   
$
(432
)
                                                 

December 31, 2018
 
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
 
$
6,429,700
     
(49,904
)
   
1,592,679
     
(88,318
)
   
8,022,379
   
$
(138,222
)
U.S. special revenue and assessments
   
4,023,920
     
(4,406
)
   
-
     
-
     
4,023,920
     
(4,406
)
All other corporate bonds
   
49,270,729
     
(2,033,507
)
   
15,337,739
     
(811,543
)
   
64,608,468
     
(2,845,050
)
Total fixed maturities
 
$
59,724,349
     
(2,087,817
)
   
16,930,418
     
(899,861
)
   
76,654,767
   
$
(2,987,678
)
                                                 

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

Less than 12 months
 
12 months or longer
 
Total
As of September 30, 2019
         
Fixed maturities
1
 
1
 
2
As of December 31, 2018
         
Fixed maturities
30
 
10
 
40

Substantially all of the unrealized losses on fixed maturities at September 30, 2019 and December 31, 2018 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  September 30, 2019 and December 31, 2018.
 
Net Investment Gains (Losses)

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

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2019
   
2018
   
2019
   
2018
 
Realized gains:
                       
Sales of fixed maturities
 
$
-
   
$
11,018,711
   
$
116,690
   
$
11,392,373
 
Sales of equity securities
   
3,738,333
     
-
     
6,504,246
     
-
 
Sales of real estate
   
20,000
     
1,055,409
     
3,796,850
     
1,589,651
 
Other
   
-
     
-
     
-
     
-
 
Total realized gains
   
3,758,333
     
12,074,120
     
10,417,786
     
12,982,024
 
Realized losses:
                               
Sales of fixed maturities
   
(30,795
)
   
-
     
(142,254
)
   
(258,458
)
Sales of equity securities
   
-
     
-
     
-
     
-
 
 Sales of real estate
   
-
     
-
     
-
     
-
 
 Other-than-temporary impairments
   
-
     
(300,000
)
   
-
     
(300,000
)
 Other
   
-
     
-
     
(132,518
)
   
-
 
Total realized losses
   
(30,795
)
   
(300,000
)
   
(274,772
)
   
(558,458
)
Net realized investment gains (losses)
   
3,727,538
     
11,774,120
     
10,143,014
     
12,423,566
 
Change in fair value of equity securities:
                               
Change in fair value of equity securities held at the end of the period
   
(4,046,457
)
   
6,689,533
     
10,838,322
     
22,050,489
 
Change in fair value of equity securities
   
(4,046,457
)
   
6,689,533
     
10,838,322
     
22,050,489
 
Net investment gains (losses)
 
$
(318,919
)
 
$
18,463,653
   
$
20,981,336
   
$
34,474,055
 
Change in net unrealized gains (losses) on available-for-sale investments included in other comprehensive income:
                               
Fixed maturities
 
$
3,184,769
   
$
1,244,302
   
$
12,044,690
   
$
(4,982,237
)
Equity securities
   
-
     
-
     
-
     
-
 
Net increase (decrease)
 
$
3,184,769
   
$
1,244,302
   
$
12,044,690
   
$
(4,982,237
)


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 Consolidated Statements of Operations.

The Company did not recognize any other-than-temporary impairments during the nine months ended September 30, 2019. During the third quarter of 2018, the Company recognized an other-than-temporary impairment on real estate. The other-than-temporary impairment was taken as a result of Management's assessment and determination of value of the real estate. The real estate was written down to better reflect its current expected value.

Cost Method Investments

The Company held equity investments with an aggregate cost of $11,289,805 and $12,118,617 at September 30, 2019 and December 31, 2018, respectively.  These equity investments were not reported at fair value because it is not practicable to estimate their fair values due to insufficient information being available. Management 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 September 30, 2019.

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 nine months ended September 30, 2019 and 2018, the Company acquired $4,216,644 and $16,453 in mortgage loans, respectively.  FSNB services the majority of the Company’s mortgage loan portfolio.  The Company pays FSNB a .25% servicing fee on these loans and a one-time fee at loan origination of .50% of the original loan cost to cover costs incurred by FSNB relating to the processing and establishment of the loan.

During 2019 and 2018, the maximum and minimum lending rates for mortgage loans were:

2019
 
2018
 
Maximum rate
 
Minimum rate
 
Maximum rate
 
Minimum rate
Farm Loans
5.00%
 
5.00%
 
5.00%
 
5.00%
Commercial Loans
7.50%
 
4.82%
 
7.50%
 
4.00%
Residential Loans
5.50%
 
5.50%
 
8.00%
 
8.00%

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

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

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

A mortgage loan reserve is established and adjusted based on Management's quarterly analysis of the portfolio and any deterioration in value of the underlying property which would reduce the net realizable value of the property below its current carrying value.  The mortgage loan reserve was $0 at September 30, 2019 and December 31, 2018.

The following table summarizes the mortgage loan holdings of the Company for the periods ended:

   
September 30, 2019
   
December 31, 2018
 
In good standing
 
$
6,695,892
   
$
7,169,272
 
Overdue interest over 90 days
   
1,830,706
     
1,899,839
 
Total mortgage loans
 
$
8,526,598
   
$
9,069,111
 

Investment Real Estate

Real estate acquired through foreclosure, consisting of properties obtained through foreclosure proceedings or acceptance of a deed in lieu of foreclosure, is reported on an individual asset basis at the lower of cost or fair value, less disposal costs. Fair value is determined on the basis of current appraisals, comparable sales, and other estimates of value obtained principally from independent sources. When properties are acquired through foreclosure, any excess of the loan balance at the time of foreclosure over the fair value of the real estate held as collateral is recognized and charged to the Consolidated Statements of Operations. Based upon Management’s evaluation of the real estate acquired through foreclosure, additional expense is recorded when necessary in an amount sufficient to reflect any declines in estimated fair value. Gains and losses recognized on the disposition of the properties are recorded as realized gains and losses in the Condensed Consolidated Statements of Operations.

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  September 30, 2019 and December 31, 2018 was $0. Interest accruals are analyzed based on the likelihood of repayment.  The Company does not utilize a specified number of days delinquent to cause an automatic non-accrual status. During the nine months ended September 30, 2019 and 2018 the Company acquired $8,532,796 and $4,000,000, 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

The Company measures its assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets based on the framework set forth in the GAAP fair value accounting guidance.  The framework establishes a fair value hierarchy of three levels based upon the transparency of information used in measuring the fair value of assets or liabilities as of the measurement date.  The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three categories.

Level 1 – Valuation is based upon quoted prices for identical assets or liabilities in active markets that the Company is able to access.  Level 1 fair value is not subject to valuation adjustments.

Level 2 – Valuation is based upon quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active. In addition, 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.

The Company determines the existence of an active market for an asset or liability based on its judgment as to whether transactions for the asset or liability occur in such market with sufficient frequency and volume to provide reliable pricing information.  If the Company concludes that there has been a significant decrease in the volume and level of activity for an investment in relation to normal market activity for such investment, adjustments to transactions and quoted prices are made to estimate fair value.

The inputs used in the valuation techniques employed by the Company are provided by nationally recognized pricing services, external investment managers and internal resources.  To assess these inputs, the Company’s review process includes, but is not limited to, quantitative analysis including benchmarking, initial and ongoing evaluations of methodologies used by external parties to calculate fair value, and ongoing evaluations of fair value estimates based on the Company’s knowledge and monitoring of market conditions.

The Company periodically reviews the pricing service provider’s policies and procedures for valuing securities.  The assumptions underlying the valuations from external service providers, including unobservable inputs, are generally not readily available as this information is often deemed proprietary.  Accordingly, the Company is unable to obtain comprehensive information regarding these assumptions and methodologies.

The Company’s investments in fixed maturity securities available for sale, equity securities and trading securities assets and liabilities are carried at fair value.  The following are the Company’s methodologies and valuation techniques for assets and liabilities measured at fair value.

Fixed maturities available for sale mainly consist of U.S. treasury securities and corporate debt securities. The Company employs a market approach to the valuation of securities where there are sufficient market transactions involving identical or comparable assets. If sufficient market data is not available for identical or comparable assets, the Company uses an income approach to valuation. The majority of the financial instruments included in fixed maturity securities available for sale are evaluated utilizing observable inputs; accordingly, they are categorized in either Level 1 or Level 2 of the fair value hierarchy. However, in instances where significant inputs utilized in valuation of the securities are unobservable, the securities are categorized in Level 3 of the fair value hierarchy.

Corporate securities primarily include fixed rate corporate bonds. Inputs utilized in connection with the Company’s valuation techniques relating to this class of securities include recently executed transactions, market price quotations, benchmark yields and issuer spreads. Corporate securities are categorized in Level 2 of the fair value hierarchy.

U.S. treasury securities are based on quoted prices in active markets and are generally categorized in Level 1 of the fair value hierarchy.

Equity securities consist of common and preferred 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.


The following table presents the Company’s assets and liabilities measured at fair value in the Condensed Consolidated Balance Sheet on a recurring basis as of September 30, 2019.

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Fixed Maturities, available for sale
 
$
35,767,435
   
$
139,812,089
   
$
422,927
   
$
176,002,451
 
Equity Securities
   
29,232,731
     
14,328,980
     
33,378,263
     
76,939,974
 
Total
 
$
65,000,166
   
$
154,141,069
   
$
33,801,190
   
$
252,942,425
 

The following table presents the Company’s assets and liabilities measured at fair value in the Condensed Consolidated Balance Sheet on a recurring basis as of December 31, 2018.

   
Level 1
   
Level 2
   
Level 3
   
Total
 
Assets
                       
Fixed Maturities, available for sale
 
$
25,660,194
   
$
134,865,746
   
$
434,844
   
$
160,960,784
 
Equity Securities
   
27,634,283
     
10,557,031
     
29,473,168
     
67,664,482
 
Total
 
$
53,294,477
   
$
145,422,777
   
$
29,908,012
   
$
228,625,266
 

The following table provides reconciliations for Level 3 assets measured at fair value on a recurring basis. Transfers into and out of Level 3 are recognized as of the end of the quarter in which they occur.

   
Fixed Maturities,
Available for Sale
   
Equity Securities
   
Total
 
Balance at December 31, 2018
 
$
434,844
   
$
29,473,168
   
$
29,908,012
 
Total unrealized gain or (losses):
                       
Included in net income (loss)
   
-
     
5,937,050
     
5,937,050
 
Included in other comprehensive income
   
-
     
-
     
-
 
Purchases
   
-
     
275,720
     
275,720
 
Sales
   
(11,917
)
   
(2,307,675
)
   
(2,319,592
)
Balance at September 30, 2019
 
$
422,927
   
$
33,378,263
   
$
33,801,190
 

   
September 30, 2019
   
December 31, 2018
 
Change in fair value of equity securities included in net income (loss) relating to assets held
 
$
5,937,050
   
$
4,633,751
 

The Level 3 securities include collateralized debt obligations of trust preferred securities issued by banks and insurance companies and certain equity securities with unobservable inputs. The Company computed fair value of Level 3 equity investments based on a review of current financial information, earnings trends and similar companies in the same industries.

There were no transfers in or out of Level 3 as of September 30, 2019.  Transfers occur when there is a change in the availability of observable market information.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans and policy loans. Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to re-measurement at fair value after initial recognition and the resulting re-measurement is reflected in the Consolidated Financial Statements.

The carrying values and estimated fair values of certain of the Company’s financial instruments not recorded at fair value in the Consolidated Balance Sheets are shown below. Because the fair value for all Consolidated Balance Sheet items are not required to be disclosed, the aggregate fair value amounts presented below are not reflective of the underlying value of the Company.

   
September 30, 2019
   
December 31, 2018
 
Assets
 
Carrying Amount
   
Estimated Fair Value
   
Carrying Amount
   
Estimated Fair Value
 
Equity securities
 
$
11,289,805
   
$
11,289,805
   
$
12,118,617
   
$
12,118,617
 
Mortgage loans on real estate
   
8,526,598
     
8,526,598
     
9,069,111
     
9,069,111
 
Investment real estate
   
45,796,423
     
45,796,423
     
52,518,577
     
52,518,577
 
Notes receivable
   
27,953,110
     
27,953,110
     
23,717,312
     
23,717,312
 
Policy loans
   
8,853,633
     
8,853,633
     
9,204,222
     
9,204,222
 
Cash and cash equivalents
   
25,728,799
     
25,728,799
     
20,150,162
     
20,150,162
 

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.

Notes receivable are carried at their unpaid principal balances, which approximates fair value. The inputs used to measure the fair value of the loans are classified as Level 3 within the fair value hierarchy.

Policy loans are carried at the aggregate unpaid principal balances in the Condensed Consolidated Balance Sheets which approximate fair value, and earn interest at rates ranging from 4% to 8%. Individual policy liabilities in all cases equal or exceed outstanding policy loan balances.  The inputs used to measure the fair value of our policy loans are classified as Level 3 within the fair value hierarchy.

The carrying amount of cash and cash equivalents in the Condensed Consolidated Balance Sheets approximates fair value given the highly liquid nature of the instruments.  The inputs used to measure the fair value of our cash and cash equivalents are classified as Level 1 within the fair value hierarchy.

The carrying amount of short term investments in the Condensed Consolidated Balance Sheets approximates fair value.  The inputs used to measure the fair value of our short term investments are classified as Level 3 within the fair value hierarchy.

Note 5 – Credit Arrangements

Instrument
Issue Date
Maturity Date
 
Revolving Credit Limit
   
December 31, 2018
   
Borrowings
   
Repayments
   
September 30, 2019
 
Lines of Credit:
                               
UTG
11/20/2013
11/20/2019
 
$
8,000,000
     
-
     
-
     
-
     
-
 
UG
6/2/2015
5/8/2020
   
10,000,000
     
-
     
-
     
-
     
-
 

The UTG line of credit carries interest at a fixed rate of  5.125% 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 May of 2019, the Federal Home Loan Bank approved UG’s Cash Management Advance Application (“CMA”). The CMA gives the Company the option of selecting a variable rate of interest for up to 90 days or a fixed rate for a maximum of 30 days. The variable rate CMA is prepayable at any time without a fee, while the fixed CMA is not prepayable prior to maturity. The Company is currently in the process of renewing the CMA.

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 June of 2019, the Board of Directors of UTG authorized the repurchase of up to an additional $2.5 million of UTG's common stock, for a total  repurchase of up to $18.5 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 nine months ended September 30, 2019, the Company repurchased 27,498 shares through the stock repurchase program for $849,265. Through September 30, 2019, UTG has spent $14,712,994 in the acquisition of 1,167,604 shares under this program.

During 2019, the Company issued 8,188 shares of stock to management and employees as compensation at a cost of $246,534. 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 nine months ended September 30, 2019 and 2018, diluted earnings per share were the same as basic earnings per share since the Company had no dilutive instruments outstanding.

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 September 30, 2019 related to certain investments:

   
Total Funding
Commitment
   
Unfunded
Commitment
 
RLF III, LLC
 
$
4,000,000
   
$
398,120
 
Sovereign’s Capital, LP Fund I
   
500,000
     
24,493
 
Sovereign's Capital, LP Fund II
   
1,000,000
     
158,596
 
Sovereign's Capital, LP Fund III
   
1,000,000
     
800,000
 
Barton Springs Music, LLC
   
1,750,000
     
1,064,750
 

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 invest in Barton Springs Music, LLC (“Barton”), which invests in music royalties.  Barton makes capital calls to its investors as funds are needed to acquire the royalty rights.


Note 8 – Other Cash Flow Disclosures

On a cash basis, the Company paid the following expenses:

 
Three Months Ended
 
 
September 30,
 
 
2019
 
2018
 
Interest
 
$
-
   
$
-
 
Federal income tax
   
-
     
-
 

 
Nine Months Ended
 
 
September 30,
 
 
2019
 
2018
 
Interest
 
$
-
   
$
-
 
Federal income tax
   
1,106,000
     
67,000
 

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  September 30, 2019 and 2018 , approximately 56% and 55%, 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 20% of total life insurance in force at September 30, 2019 and  December 31, 2018.  Insurance ceded represented 37% and 33% of premium income for the three months ended September 30, 2019 and 2018, 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 24% and 25% of the Company's total invested assets as of September 30, 2019 and December 31, 2018, respectively.

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, 2018, as filed with the Securities and Exchange Commission, and our unaudited Condensed Consolidated Financial Statements and related Notes thereto appearing elsewhere in this quarterly report.

Cautionary Statement Regarding Forward-Looking Statements

This report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by those laws. We have based our forward-looking statements on our current expectations and projections about future events. Our forward-looking statements include information about possible or assumed future results of operations. All statements, other than statements of historical facts, included or incorporated by reference in this report that address activities, events or developments that we expect or anticipate may occur in the future, including such things as the growth of our business and operations, our business strategy, competitive strengths, goals, plans, future capital expenditures and references to future successes may be considered forward-looking statements. Also, when we use words such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “probably,” or similar expressions, we are making forward-looking statements.

Numerous risks and uncertainties may impact the matters addressed by our forward-looking statements, any of which could negatively and materially affect our future financial results and performance.

Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of these assumptions, and, therefore, the forward-looking statements based on these assumptions, could themselves prove to be inaccurate. In light of the significant uncertainties inherent in the forward-looking statements that are included in this report, our inclusion of this information is not a representation by us or any other person that our objectives and plans will be achieved. In light of these risks, uncertainties and assumptions, any forward-looking event discussed in this report may not occur.  Our forward-looking statements speak only as of the date made, and we undertake no obligation to update or review any forward-looking statement, whether as a result of new information, future events or other developments, unless the securities laws require us to do so.

Overview

UTG, Inc., a Delaware corporation, is a life insurance holding company.  The Company’s dominant business is individual life insurance, which includes the servicing of existing insurance policies in force, the acquisition of other companies in the life insurance business, the acquisition of blocks of business and the administration and processing of life insurance business for other entities.

UTG has a strong philanthropic program.  The Company generally allocates a portion of its earnings to be used for its philanthropic efforts primarily targeted to Christ-centered organizations or organizations that help the weak or poor.  The Company also encourages its staff to be involved on a personal level through monetary giving, volunteerism, and use of their talents to assist those less fortunate than themselves. Through these efforts, the Company hopes to make a positive difference in the local community, state, nation and world.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ significantly from those estimates.  The Company has identified certain estimates that involve a higher degree of judgment and are subject to a significant degree of variability.  The Company’s critical accounting policies and the related estimates considered most significant by Management are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.  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 nine months ended September 30, 2019, there were no additions to or changes in the critical accounting policies disclosed in the 2018 Form 10-K.

Results of Operations

On a consolidated basis, the Company reported net income attributable to common shareholders’ of approximately $13.2 million for the nine-month period ended September 30, 2019 and a net loss attributable to common shareholders’ of approximately ($1.1) million for the three-month period ended September 30, 2019.  For the nine-month period ended September 30, 2018, the Company reported net income attributable to common shareholders’ of approximately $22.7 million and net income attributable to common shareholders’ of approximately $12 million for the three-month period ended September 30, 2018.

Revenues

The Company reported total revenues of approximately $35.2 million for the nine months ended September 30, 2019, a decrease of approximately $14.1 million as compared to the same period in 2018. The Company reported total revenues of approximately $4.3 million for the three months ended September 30, 2019, a decrease of approximately $18.4 million as compared to the three month period ended September 30, 2018.  The variance in the total revenues for the third quarter and year to date 2019, as compared to the prior year, are mainly attributable to the amounts reported for realized investment gains and losses and the change in the fair value of equity securities.The variance in total revenues from the prior year to the current year is mainly attributable to approximately $11.2 million of unrealized losses related to the change in the fair value of equity securities combined with $2.6 million less in net realized gains.  For the quarter, the fluctuations relate to the sale of certain stocks that resulted in $3.7 million of realized gains combined with the change in the fair value of equity securities.

Premium and policy fee revenues, net of reinsurance, decreased approximately 3% when comparing the nine-month period ended September 30, 2019 to the same period in 2018.  Premium and policy fee revenues, net of reinsurance, decreased by approximately 6% when comparing the third quarter of 2019 to the same quarter in 2018.  The Company writes minimal new business.  Premium and policy fee revenues, net of reinsurance, represented 15% and 11% of the Company’s revenues as of September 30, 2019 and 2018, respectively.

The following table summarizes our investment performance.

 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
 
 
2019
 
2018
 
2019
 
2018
 
Net investment income
 
$