UTG INC - Annual Report: 2021 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 FORM 10-K

(Mark One)

Commission File Number 000-16867

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

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

Common Stock, stated value $.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes ☐    No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.   Yes ☐    No ☒

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 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 has filed a report on and attestation to its management’s assessment of the effectiveness of internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.  ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).  Yes ☐    No ☒

As of June 30, 2021, shares of the Registrant’s common stock held by non-affiliates (based upon the price of the last sale of $31.00 per share), had an aggregate market value of approximately $29,565,258.

At January 31, 2022 the Registrant had 3,165,631 outstanding shares of common stock, stated value $.001 per share.

Documents incorporated by reference: None

UTG, Inc.

Form 10-K

Year Ended December 31, 2021

TABLE OF CONTENTS

Forward-Looking Statements

This report on Form 10-K 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.

PART I

Item 1. Business

General

The Holding Company - UTG, Inc. (the “Registrant”, “Company” or “UTG”) is an insurance holding company incorporated in the state of Delaware in 2005 and headquartered in Stanford, KY. The Company’s principal subsidiary is Universal Guaranty Life Insurance Company (“UG”). The Registrant and its primary subsidiary have only one significant segment, insurance.

The holding company has no significant business operations of its own and relies on fees, dividends and other distributions from its operating subsidiary as the principal source of cash flows to meet its obligations.  The Company may explore supplemental sources of income in the future. The cash outlays of the Company mainly consist of operational costs and the costs of repurchasing Company common stock.

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, a Kentucky corporation, (“FSF”) 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 December 31, 2021, Mr. Correll owns or controls directly and indirectly approximately 65% of UTG’s outstanding stock.

At December 31, 2021, the Company had consolidated assets of $438 million, consolidated liabilities of $297 million and total shareholders’ equity of $141 million. The Company’s consolidated liabilities include policyholder liabilities and accruals of $254 million.

The Company’s principal executive office is located at 205 North Depot Street, Stanford, Kentucky 40484. The Company’s telephone number is 217-241-6300.

The Insurance Company - Universal Guaranty Life Insurance Company is an Ohio domiciled life insurance company and is licensed in 37 states.  The Company’s dominant business is individual life insurance, which includes the servicing of existing insurance business in-force, the acquisition of other companies in the insurance business, and the administration processing of life insurance business for other entities. The Insurance Company’s operations are conducted through its administrative office located in Stanford, Kentucky.

UG has several wholly owned and majority-owned subsidiaries.  The subsidiaries were formed to hold certain real estate and other investments.  The investments were placed into the limited liability companies and partnerships to provide additional protection to the policyholders and to UG.

Reinsurance - As is customary in the insurance industry, the insurance subsidiary cedes insurance to, and assumes insurance from, other insurance companies under reinsurance agreements.  Reinsurance agreements are intended to limit a life insurer’s maximum loss on a large or unusually hazardous risk or to obtain a greater diversification of risk.  The ceding insurance company remains primarily liable with respect to ceded insurance should any reinsurer be unable to meet the obligations assumed by it.  However, it is the practice of insurers to reduce their exposure to loss to the extent that they have been reinsured with other insurance companies.  The Company sets a limit on the amount of insurance retained on the life of any one person.  The Company will not retain more than $125,000, including accidental death benefits, on any one life.

Reserves - The applicable insurance laws under which the insurance subsidiary operates require that the insurance company report policy reserves as liabilities to meet future obligations on the policies in-force.  These reserves are the amounts which, with the additional premiums to be received and interest thereon compounded annually at certain assumed rates, are calculated in accordance with applicable laws to be sufficient to meet the various policy and contract obligations as they mature.  These laws specify that the reserves shall not be less than reserves calculated using certain mortality tables and interest rates.

The liabilities for traditional life insurance and accident and health insurance policy benefits are computed using a net level method.  These liabilities include assumptions as to investment yields, mortality, withdrawals, and other assumptions based on the life insurance subsidiary’s experience adjusted to reflect anticipated trends and to include provisions for possible unfavorable deviations.  The Company makes these assumptions at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date.  Future policy benefits for individual life insurance and annuity policies are computed using interest rates ranging from 2% to 6% for life insurance and 2.5% to 7.5% for annuities.  Benefit reserves for traditional life insurance policies include certain deferred profits on limited-payment policies that are being recognized in income over the policy term.  Policy benefit claims are charged to expense in the period that the claims are incurred.  The mortality rate assumptions for policies currently issued by the Company are based on 2017 CSO Ultimate tables.  Withdrawal rate assumptions are based upon Linton B or Linton C, which are industry standard actuarial tables for forecasting assumed policy lapse rates.

Benefit reserves for universal life insurance and interest sensitive life insurance products are computed under a retrospective deposit method and represent policy account balances before applicable surrender charges.  Policy benefits and claims that are charged to expense include benefit claims in excess of related policy account balances.

Business Strategy

UG’s product portfolio consists of a limited number of life insurance product offerings. All of the products are individual life insurance products, with design variations from each other to provide choices to the customer. These variations generally center around the length of the premium paying period, length of the coverage period and whether the product accumulates cash value or not.

For the past several years the Company has not actively sold new policies. In 2022, the Company will begin actively marketing its annuity product through an affiliated entity, First Southern National Bank.

Tradition – The Tradition policy is a fixed premium whole life insurance policy. Premiums are level and payable for life.  Issue ages are 0-75. The minimum face amount is the greater of $10,000 or the amount of coverage provided by a $100 annual premium.

Annuity - The annuity product is a 5-year, single premium product. The product offers a guaranteed minimum rate of 1% and the rate can be adjusted at any time. The maximum surrender charge is 5% and subject to waiver for certain qualifying events. The annuity product offers a 10% free withdrawal each year beginning in year 2.

Business Concentrations

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 T. 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 UG 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 December 31, 2021 and 2020, respectively, approximately 55% and 56% 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 majority of the investments included in the Consolidated Balance Sheets are owned by UTG’s subsidiary, UG. As an insurance company, UG is subject to applicable state insurance laws and regulations, which limit the concentration of investments in any one category or class and further limit the investment in any one issuer.  Generally, these limitations are imposed as a percentage of statutory assets or percentage of statutory capital and surplus of each company.

The Company owns a variety of investments associated with the oil and gas industry.  These investments represented approximately 22% and 20% of the Company’s total invested assets at December 31, 2021 and 2020, respectively.

The Company’s investment real estate portfolio includes ownership in oil and gas royalties. As of December 31, 2021 and 2020, investments in oil and gas royalties represented 43% and 48%, respectively, of the total investment real estate portfolio.

See Note 13 - Concentrations of the Consolidated Financial Statements for additional disclosures regarding concentrations that have been identified by the Company.

Competition

The insurance business is a highly competitive industry and there are a number of other companies, both stock and mutual, doing business in areas where the Company operates.  Many of these competing insurers are larger, have more diversified and established lines of insurance coverage, have substantially greater financial resources and brand recognition, as well as a greater number of agents.  Other significant competitive factors in the insurance industry include policyholder benefits, service to policyholders, and premium rates.

For the past several years the Company has not actively sold new policies. In 2022, the Company will begin actively marketing its annuity product through an affiliated entity, First Southern National Bank.

The Company performs administrative work as a third-party administrator (“TPA”) for unaffiliated life insurance companies.  The Company provides TPA services to insurance companies seeking business process outsourcing solutions. Revenue generated from TPA services is considered insignificant to the overall financial statements.

Human Capital

As of December 31, 2021, UTG and its subsidiaries had 40 full-time employees located in Kentucky and Illinois.  These individuals are further supported by certain employees of First Southern National Bank (an affiliate entity) through a shared services arrangement.  Under this arrangement, the two entities utilize the services of the other’s staff in certain instances for the betterment of both entities.  Personnel within departments such as accounting, human resources and information technology are shared between the entities.  UTG’s operations are headquartered in Stanford, Kentucky. The Company respects, values and invites diversity in our team members, customers, suppliers, and community.  We seek to recognize the unique contribution each individual brings to our Company, and we are fully committed to supporting a rich culture of diversity as a cornerstone to our success.  The Company strives to attract, develop, and retain talented individuals.  To attract such individuals, we provide professional and personal development opportunities to team members. In addition, we seek to improve retention, development, and job satisfaction of team members from diverse groups by providing career skills training, peer mentoring and opportunities to interact with senior leaders.  We encourage our team members to take initiative, accept challenges and achieve goals, all of which enables our team to work efficiently while providing excellent customer service which supports the Company’s strong performance.

UTG offers competitive compensation and benefits.  Our pay for performance compensation philosophy is designed to reward employees for achievement and to align employee interests with the Company’s long-term growth.  The Company’s benefits program includes health care, wellness initiatives, retirement offerings and paid time off.

Workplace health and safety is a vital aspect of running our business.  We believe that safety must always be an integral part of any function or service performed, and the protection of our employees and visitors is our utmost priority.  We have a business continuity plan in place that allows us to respond to threats to our health and safety, while ensuring that we can continue to provide quality service to our clients and shareholders at all times.  During the COVID-19 pandemic that erupted in early 2020, we adopted a work-from-home model for many of our employees to safeguard their health and safety without a disruption to customer service.

Code of Ethics

The Board of Directors has adopted a code of ethics for directors, officers, and financial personnel.

Regulation

Holding Company - States have enacted legislation requiring registration and periodic reporting by insurance companies domiciled within their respective jurisdictions that control or are controlled by other corporations so as to constitute a holding company system. Insurance holding company system statutes and regulations impose various limitations on investments in subsidiaries and may require prior regulatory approval for material transactions between insurers and affiliates and for the payment of certain dividends and other distributions.

Insurance - Insurance companies are subject to regulation and supervision in the states in which they do business.  Generally the state supervisory agencies have broad administrative powers relating to granting and revoking licenses to transact business, licensing agents, approving policy forms, regulating trade practices, approving certain premium rates, setting minimum reserve and loss ratio requirements, determining the form and content of required financial statements, and prescribing the type and amount of investments permitted.  Insurance companies are also required to file detailed annual reports with supervisory agencies, and records of their business are subject to examination at any time.  Under the rules of the National Association of Insurance Commissioners (“NAIC”), insurance companies are examined periodically by one or more of the supervisory agencies.

Statutory Restrictions – Restrictions exist on the flow of funds to UTG from its insurance subsidiary.  Statutory regulations require life insurance subsidiaries to maintain certain minimum amounts of capital and surplus. UG is required to maintain minimum statutory surplus of $2,500,000. At December 31, 2021, substantially all of the consolidated shareholders’ equity represents net assets of UTG’s subsidiaries.

Risk-Based Capital - The NAIC requires a risk-based capital formula be applied to all life and health insurers. The risk-based capital formula is a threshold formula rather than a target capital formula. It is designed only to identify companies that require regulatory attention and is not to be used to rate or rank companies that are adequately capitalized. UTG’s insurance subsidiary, UG, is more than adequately capitalized under the risk-based capital formula.

Guaranty Assessments – State guaranty laws provide for assessments from insurance companies to be placed into a fund which is used, in the event of failure or insolvency of an insurance company, to fulfill the obligations of that company to its policyholders.  The amount which a company is assessed is determined according to the extent of these unsatisfied obligations in each state.  Assessments are recoverable to a great extent as offsets against state premium taxes.

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 September of 2020, the Board of Directors of UTG authorized the repurchase of up to an additional $1.5 million of UTG’s common stock, for a total repurchase of $20 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 2021, the Company repurchased 19,640 shares through the stock repurchase program for $537,379. Through December 31, 2021, UTG has spent $18,623,628 in the acquisition of 1,301,905 shares under this program.

Transactions with Affiliates

The articles of incorporation of UG contain the following language under item 12 relative to related party transactions:

A director shall not be disqualified from-dealing with or contracting with the corporation as vendor, purchaser; employee, agent or otherwise; nor, in the absence of fraud, shall any transaction or contract or act of this corporation be void or in any way affected or invalidated by the fact that any director or any firm of which any director is a member or any corporation of which any director is a shareholder, director or officer is in any way interested in such transaction or contract or act, provided the fact that such director or such firm or such corporation so interested shall be disclosed or shall be known to the Board of Directors or such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such contract or transaction or act shall be taken: nor shall any such director be accountable .or responsible to the company for or in respect to such transaction or contract or act of. this corporation or for any gains or profits realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer is interested in such action or contract; and any such director may be counted in determining the existence of a quorum of any meeting of the Board of Directors of the company which shall authorize or take action in respect to any such contract or transaction or act and may vote thereat to authorize, ratify, or approve any such contract or transaction or act, with like force and effect as if he or any firm of which he is a member or any corporation of which he is a shareholder, director or officer were not interested in such transaction or contract or act.

Note 11 – Related Party Transactions of the Consolidated Financial Statements provides disclosures regarding transactions with related parties.

Anti-Money Laundering Laws

A series of laws and regulations beginning with the Bank Secrecy Act of 1970 require financial institutions to prevent, detect, and report illicit or illegal financial activities to the federal government to prevent money laundering, international drug trafficking, and terrorism. Under the US PATRIOT Act of 2001, financial institutions are subject to prohibitions against specified financial transactions and account relationships, requirements regarding the Customer Identification Program, as well as enhanced due diligence and “know your customer” standards in their dealings with high risk customer, foreign financial institutions, and foreign individuals and entities. These rules also mandate a variety of record keeping, reporting and employee training requirements.

Data Security

Increased global IT security threats and more sophisticated and targeted computer crime pose a risk to the security of systems and networks and the confidentiality, availability and integrity of data.  Although the Company makes efforts to maintain the security and integrity of the networks and systems, there can be no assurance that the security efforts will be effective or that attempted security breaches or disruptions would not be successful or damaging.  In the event a security breach or failure results in the disclosure of sensitive third-party data or the transmission of harmful/malicious code to third parties, the Company could be subject to liability claims.  Depending on their nature and scope, such threats also could potentially lead to improper use of our systems and networks, manipulation and destruction of data, loss of trade secrets, system downtimes and operational disruptions, which in turn, could adversely affect our reputation, competitiveness and results of operations.

Available Information

The Company files annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports with the Securities and Exchange Commission (“SEC”) pursuant to section 13(a) or 15(d) of the Securities and Exchange Act of 1934.

The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC on its website at www.sec.gov. The Company’s website is www.utgins.com.

Item 1A. Risk Factors

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K, the Company has elected to comply with certain scaled disclosure reporting obligations, and therefore does not have to provide the information required by this item.

Item 1B. Unresolved Staff Comments

Not applicable.

Item 2. Properties

The Company owned an office complex in Springfield, Illinois, which housed a portion of the insurance operations. The Company sold this office complex during the fourth quarter of 2021. The employees located in Illinois now work from home.

The Company leases space in Stanford, KY from an affiliate, FSNB, to house insurance operations.  The Company rents approximately 8,000 square feet of office space and pays $2,000 per month in rent.

Item 3. Legal Proceedings

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 these matters will not have a material adverse effect on the Company’s results of operations or financial position.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Registrant is a public company whose common stock is traded in the over-the-counter market.  Over-the-counter quotations can be obtained using the UTGN stock symbol.

The following table shows the high and low closing prices for each quarterly period during the past two years, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.  The quotations below were acquired from the Yahoo Finance web site, which also provides quotes for over-the-counter traded securities such as UTG.

UTG has not declared or paid any dividends on its common stock in the past two fiscal years, and has no current plans to pay dividends on its common stock as it intends to retain all earnings for investment in and growth of the Company’s business.  See Note 9 – Shareholders’ Equity in the Notes to the Consolidated Financial Statements for information regarding dividend restrictions, including applicable restrictions on the ability of the Company’s life insurance subsidiary to pay dividends.

As of January 31, 2022 there were 4,507 record holders of UTG common stock.

Purchases of Equity Securities

The following table provides information with respect to purchases we made of our common stock during the three months ended December 31, 2021 and total repurchases:

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 September of 2020, the Board of Directors of UTG authorized the repurchase of up to an additional $1.5 million of UTG’s common stock, for a total repurchase of $20 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 2021, the Company repurchased 19,640 shares through the stock repurchase program for $537,379. Through December 31, 2021, UTG has spent $18,623,628 in the acquisition of 1,301,905 shares under this program.

During the third quarter of 2020, the Company purchased 88,341 shares from Cumberland Lake Shell, Inc. at a price of $29 per share for a total cost of $2,561,889.

Stock Performance Graph

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K, the Company has elected to comply with certain scaled disclosure reporting obligations, and therefore does not have to provide the information required by this item.

Item 6. Reserved

Item 7. 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”) for the years ended December 31, 2021 and 2020. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this report.

Cautionary Statement Regarding Forward-Looking Statements

This report on Form 10-K 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

We have identified the accounting policies below as critical to the understanding of our results of operations and our financial condition.  The application of these critical accounting policies in preparing our consolidated financial statements requires Management to use significant judgments and estimates concerning future results or other developments including the likelihood, timing or amount of one or more future transactions or amounts.  Actual results may differ from these estimates under different assumptions or conditions.  On an on-going basis, we evaluate our estimates, assumptions and judgments based upon historical experience and various other information that we believe to be reasonable under the circumstances.  For a detailed discussion of other significant accounting policies, see Note 1 – Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.

Future Policy Benefits – Because of the long-term nature of insurance contracts, the insurance company is liable for policy benefit payments that will be made in the future.  The liability for future policy benefits is determined by standard actuarial procedures common to the life insurance industry.  The accounting policies for determining this liability are disclosed in Note 1 – Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.

Cost of Insurance Acquired – The costs of acquiring blocks of insurance from other companies or through the acquisition of other companies are deferred and recorded as deferred acquisition costs. The deferred amounts are recorded as an asset and amortized to expense in a systematic manner as indicated in Note 1 – Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.

Valuation of Securities – The Company’s investment portfolio consists of fixed maturities, equity securities, trading securities, mortgage loans, notes receivable and real estate to provide funding of future policy contractual obligations.  The Company’s fixed maturities are classified as available-for-sale.  Available-for-sale fixed maturity investments are carried at fair value with unrealized gains and losses reported in accumulated other comprehensive income (loss) in the Consolidated Balance Sheets.

Equity securities reported at fair value, which include common and preferred stocks, are reported at fair value with unrealized gains and losses reported as a component of net income (loss).

Equity securities reported at cost are reported at their cost basis, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

Mortgage loans on real estate are carried at their unpaid principal balances, adjusted for amortization of premium or discount and valuation allowances. Valuation allowances are established for impaired loans when it is probable that contractual principal and interest will not be collected.

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 test for recoverability whenever events or changes in circumstances indicate the carrying value may not be recoverable. Real estate for which the Company commits to a plan to sell within one year and actively markets in its current condition, for a reasonable price, in comparison to its estimated fair value, is classified as held-for-sale. Real estate held-for-sale is stated at lower of depreciated cost or estimated fair value less expected disposition costs and is not depreciated.

Notes receivable 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. 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.

The Company’s trading securities and equity securities are carried at fair value with unrealized gains and losses reported in income in the Consolidated Statements of Operations. Fair value is the price that the Company would expect to receive upon sale of the asset in an orderly transaction.

While the available-for-sale fixed maturity securities are generally expected to be held to maturity, they are classified as available-for-sale and are sold periodically to manage risk. Although all of the fixed maturity securities are classified as available-for-sale, the Company has the ability and intent to hold the securities until maturity. See Note 2 – Investments in the Notes to the Consolidated Financial Statements for detailed disclosures regarding the Company’s investment portfolio.

Impairment of Investments – The Company continually monitors the investment portfolio for investments that have become impaired in value; where fair value has declined below carrying value.  While the value of the investments in the Company’s portfolio continuously fluctuate due to market conditions, an other-than-temporary impairment charge is recorded only when a security has experienced a decline in fair market value which is deemed to be other than temporary.  The policies and procedures the Company uses to evaluate and account for impairments of investments are disclosed in Note 1 – Summary of Significant Accounting Policies and Note 2 – Investments in the Notes to the Consolidated Financial Statements. The Company makes every effort to appropriately assess the status and value of the securities with the information available regarding an other-than-temporary impairment. However, it is difficult to predict the future prospects of a distressed or impaired security.

Deferred Income Taxes – The provision for deferred income taxes is based on the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recognized by applying enacted statutory tax rates to temporary differences between amounts reported in the Consolidated Financial Statements and the tax basis of existing assets and liabilities. A valuation allowance is recognized for the portion of deferred tax assets that, in Management’s judgment, is not likely to be realized.

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.

On a consolidated basis, the Company had net income attributable to common shareholders of approximately $9.7 million and $2.1 million in 2021 and 2020, respectively.  In 2021, income before income taxes was approximately $11.8 million compared to $2.6 million in 2020.  Total revenues were approximately $35.6 million in 2021 and $27.3 million in 2020.

One-time events, primarily reflected in realized gains, comprise a substantial portion of the net income and revenue reported by the Company during 2021 and 2020.  The magnitude of realized investment gains and losses in a given year is a function of the timing of trades of investments relative to the markets themselves as well as the recognition of any impairments on investments.  Future earnings will be significantly negatively impacted should earnings from these one-time items not be realizable in a future period.  While Management believes there remain additional investments with such one-time earnings, when or if realized remains uncertain.

The Company reported a change in fair value of equity securities of approximately $14.1 million and $6.2 million for the years ended December 31, 2021 and 2020, 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 2020 and 2021 reflected positive results, 2021 results were more than double of that of 2020.  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.

Total benefits and other expenses paid in 2021 were approximately $23.8 million compared to $24.7 million in 2020.

For the past several years the Company has not actively sold new policies. In 2022, the Company will begin actively marketing its annuity product through an affiliated entity, First Southern National Bank. The annuity product is a 5-year, single premium product. The product offers a guaranteed minimum rate of 1% and the rate can be adjusted at any time. The maximum surrender charge is 5% and is subject to waiver for certain qualifying events. The annuity product offers a 10% free withdrawal each year beginning in year 2. While management hopes this product will be successful in this marketplace, it remains too early to tell how well the product will sell. 

Revenues

Premiums and policy fee revenues, net of reinsurance premiums and policy fees, declined approximately 2% when comparing 2021 to 2020.  The Company writes very little 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. The Company’s average persistency rate for all policies in-force for 2021 and 2020 was approximately 95.7% and 98%, respectively.  Persistency is a measure of insurance in-force retained in relation to the previous year.

The following table summarizes the Company’s investment performance for the years ended December 31:

The following table reflects net investment income of the Company for the years ended December 31:

Net investment income represented approximately 25% and 35% of the Company's total revenues as of December 31, 2021 and 2020, respectively. When comparing current and prior year results, net investment income was comparable in a majority of the investment categories. Investment income earned by the fixed maturities, equity securities, real estate, and notes receivable investment portfolios represented approximately 89% and 87% of the total consolidated investment income for the years ended December 31, 2021 and 2020, 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. The stock markets have experienced a rebound since that time; however, interest rates remain at historic low levels with short term rates at or near zero. Longer term bonds have experienced rate increases later in 2020 and into early 2021, but still remain below recent historic rates. Should rates remain at these levels, it will become increasingly more difficult for the Company to maintain its historic net investment income levels as existing investments mature and are replaced with lower yielding investments.

Since the start of 2022, we have seen more volatility in the U.S. markets in general and have seen a slight increase in bonds yields as the Federal Open Market Committee (“FOMC”) discusses the possibility of rate increases starting in March of 2022 as they attempt to control rising inflation currently being experienced.  While some of these actions could have a negative impact on certain of our investments, we currently own, it would also allow for better yields on future investments acquired as current investments mature.  At this time, it is uncertain as to the amount of rate increases and how many may occur if any.

Income from the fixed maturities investment portfolio represented 38% and 44% of the total consolidated investment income for the years ended December 31, 2021 and 2020, respectively. When comparing earnings from the fixed maturities portfolio for the years ended December 31, 2021 and 2020 income was down approximately 14% or $743,000. This decrease is due to the sale and maturity of certain fixed maturity investments during 2021. The Company’s investment in fixed maturities continues to decline as we have, for the most part, chosen not to reinvest in fixed maturities and any reinvestment has been at lower rates.  Fixed maturities continue to represent the largest investment type and asset class owned by the company. As of December 31, 2021 and 2020, fixed maturities represented 38% and 48%, respectively, of the total investments owned by the Company.

Earnings from the equity securities investment portfolio represented approximately 11% and 15% of the total consolidated investment income reported by the Company during 2021 and 2020, respectively. Income from the equity securities portfolio were down approximately 27% or $481,000 when comparing 2021 and 2020 results.  The decrease in income from the equity securities portfolio is mainly due to the sale of a substantial holding in a certain dividend paying equity security during 2021.  The equity securities investment portfolio represents 37% and 27% of the total investment portfolio as of December 31, 2021 and 2020, respectively.

The earnings reported by the real estate investment portfolio represented 27% and 18% of the total consolidated investment income reported by the Company during 2021 and 2020, respectively. Earnings from the real estate investment portfolio were up approximately 46% or $1 million when comparing 2021 and 2020 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 real estate investment portfolio represents 11% of the total investment portfolio as of December 31, 2021 and 2020.

Income from the notes receivable investment portfolio represented approximately 13% and 10% of the total consolidated investment income for the years ended 2021 and 2020, respectively. Income from the notes receivable portfolio is up approximately 26% from the prior year and is mainly the result of acquiring new loans with higher rates of interest. In recent periods, the Company has moved away from fixed maturities towards notes receivable as they are providing a more attractive yield in the current market environment.

The following table reflects net realized investment gains (losses) for the years ended December 31:

Realized investment gains are the result of one-time events and are expected to vary from year to year.

The sales of fixed maturities available for sale produced net realized gains of approximately $56,000 in 2021 and $704,000 in 2020.

The 2021 real estate gains are mainly the result of the sale of real estate located in Illinois and Florida. During 2021, the Company sold its home office building located in Springfield, IL. The sale of this property produced a gain of approximately $1 million and represented approximately 36% of the investment gains from real estate. The Company sold real estate in Florida and recognized a gain of approximately $1.3 million, which represents approximately 44% of the gains reported for the real estate investment portfolio.

The 2020 real estate gains are the result of the sales of real estate in Alabama, Florida and Georgia. The sale of the property in Alabama produced a gain of approximately $2 million and represented approximately 45% of the net investment gains from real estate. The Company sold three real estate parcels located in Georgia that produced gains of approximately $2.2 million and represented 51% of the net investment gains from real estate.

Realized gains and losses from equity securities represent the difference between the fair value at the beginning of the reporting period and the fair value at the time of sale. The Company reported net realized gains of approximately $3.1 million for 2021 and realized losses of approximately $(406,000) in 2020 from the sales of equity securities. The sale of one equity security represented approximately $2.2 million of the realized gains for the year ended December 31, 2021. The Company sold 2,500 shares of this common stock associated with the oil and gas industry. During the year ended December 31, 2021, the Company also reported additional gains of approximately $851,000 from the sales of the music royalties.

The sale of one common stock represented almost 100% of the realized losses on equity securities during 2020. The Company sold 10,000 shares of this common stock holding that is associated with the oil and gas industry. While this security produced a realized loss in 2020, overall, the sale of this security produced a significant gain for the Company over the period it was held. The other component of this transaction flows through the change in the fair value of equity securities and will be further discussed below.

The Company reported a change in fair value of equity securities of approximately $14.1 million and $6.2 million for the years ended December 31, 2021 and 2020, 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 2020 and 2021 reflected positive results, 2021 results were more than double of that of 2020.  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 $23.8 million and $24.7 million for the years ended December 31, 2021 and 2020, respectively. Benefits, claims and settlement expenses represented approximately 68% and 66% of the Company’s total expenses for 2021 and 2020, respectively.  The other major expense category of the Company is operating expenses, which represented 30% and 32% of the Company’s total expenses for 2021 and 2020, respectively.

Benefits, claims and settlement expenses, net of reinsurance benefits, were comparable for 2021 and 2020.  Policy claims vary from year to year 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 years of the pandemic, total death benefits were $14,293,000 and $15,985,000 in 2020 and 2021, respectively. 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 is 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, if 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 was impacted by temporary state rulings that had been implemented as a result of COVID-19 and in some cases would not allow life insurance companies to lapse policies temporarily. The rulings varied by state and had all expired by July 1, 2021.

Operating expenses decreased approximately 10% in 2021 compared to that of the same period in 2020.  Expenses were comparable in all of the major categories for 2021 and 2020.

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 following table reflects, by investment category, the investments held by the Company as of December 31:

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 85% and 82% of the Company’s total assets as of December 31, 2021 and 2020, respectively. Fixed maturities consistently represented a substantial portion, 38% and 48%, respectively, of the total investments during 2021 and 2020.

During 2021, the Company sold a number of fixed maturity investments to fund equity security, and mortgage loan investments. In recent periods, the Company has moved away from fixed maturities towards notes receivable as they are providing a more attractive yield in the current market environment.

As of December 31, 2021, 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 income component of shareholders' equity.  Changes in the market value of available for sale securities resulted in net unrealized gains (losses) of approximately $(7.1) million and $9.1 million as of December 31, 2021 and 2020, 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.

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 December 31, 2021 and 2020, substantially all of the consolidated shareholders’ equity represents net assets of its subsidiaries.  In 2021, the Parent company received $5 million in dividends from its insurance subsidiary and $4 million in 2020. Certain restrictions exist on the payment of dividends from the insurance subsidiary to the Parent company.  For further information regarding the restrictions on the payment of dividends by the insurance subsidiary, see Note 9 – Shareholders’ Equity in the Notes to the Consolidated Financial Statements.  Although these restrictions exist, dividend availability from the insurance subsidiary has historically been sufficient to meet the cash flow needs of the Parent company.

Insurance Subsidiary Liquidity

Sources of cash flows for the insurance subsidiary primarily consist of premium and investment income.  Cash outflows from operations include policy benefit payments, administrative expenses, taxes and dividends to the Parent company.

Short-Term Borrowings

During 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 and currently is 0.23%. During the first quarter of 2022, the Company repaid $14 million of the outstanding principal balance.

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.

Consolidated Liquidity

Cash used in operating activities was approximately $12.5 million and $13.2 million in 2021 and 2020, 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 2021 and 2020, the Company’s investing activities provided (used) net cash of approximately $(18.1) million and $27 million, respectively. The Company recognized proceeds of approximately $59.3 million and $80 million from investments sold and matured in 2021 and 2020, respectively.  The Company used approximately $78.7 million and $53 million to acquire investments during 2021 and 2020, 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 provided by (used in) financing activities was approximately $22.3 million and $(3.4) million during 2021 and 2020, respectively. As of December 31, 2021 and 2020, the Company had $24 million and $0 in debt outstanding with third parties respectively.

The Company had cash and cash equivalents of approximately $30.8 million and $39 million as of December 31, 2021 and 2020, 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 $141 million and $165.8 million at December 31, 2021 and 2020, 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.  See Note 2 – Investments in the Notes to the Consolidated Financial Statements for detailed disclosures regarding the Company’s investment portfolio.

Management believes the overall sources of liquidity available will be sufficient to satisfy its financial obligations.

Capital Resources

The Company’s capital structure consists of available short-term debt, long-term debt and shareholders’ equity. A complete analysis and description of the short-term and long-term debt issues available as of December 31, 2021 and 2020 are presented in Note 7 – Credit Arrangements in the Notes to the Consolidated Financial Statements.

The Company had $24 million and $0 debt outstanding as of December 31, 2021 and 2020, respectively.

The NAIC's risk-based capital requirements require insurance companies to calculate and report information under a risk-based capital formula.  The risk-based capital (RBC) formula measures the adequacy of statutory capital and surplus in relation to investment and insurance risks such as asset quality, mortality and morbidity, asset and liability matching and other business factors.  The RBC formula is used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized.

At December 31, 2021, UG has a ratio of approximately 5.17, which is 517% of the authorized control level.  Accordingly, the Company meets the RBC requirements.

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 September of 2020, the Board of Directors of UTG authorized the repurchase of up to an additional $1.5 million of UTG’s common stock, for a total repurchase of $20 million. Repurchased shares are available for future issuance for general corporate purposes. 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 2021, the Company repurchased 19,640 shares through the stock repurchase program for approximately $537,379. Through December 31, 2021, UTG has spent approximately $18,622,328 in the acquisition of 1,301,905 shares under this program.

Shareholders’ equity was approximately $140.8 million and $136.7 million as of December 31, 2021 and 2020, respectively. Total shareholders' equity increased approximately 3% in 2021 compared to 2020.  The increase is primarily attributable to net income from operations. As of December 31, 2021 and 2020, the Company reported accumulated other comprehensive income of approximately $10.3 million and $15.6 million, respectively.

For the periods ended December 31, 2021 and 2020, the increase (decrease) in accumulated other comprehensive income was approximately $(5.3) million and $6.6 million, respectively, as a result of unrealized gains and losses on fixed maturity securities. 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.

The Company's investments 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 Consolidated Financial Statements at their fair value.

New Accounting Pronouncements

See Note 1 – Summary of Significant Account Policies in the Notes to the Consolidated Financial Statements for information regarding new accounting pronouncements.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements, financing activities or other relationships with unconsolidated entities or other persons.

Contractual Obligations

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K, the Company has elected to comply with certain scaled disclosure reporting obligations, and therefore does not have to provide the information required by this item.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K, the Company has elected to comply with certain scaled disclosure reporting obligations, and therefore does not have to provide the information required by this item.

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

UTG, Inc. and Subsidiaries

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of UTG, Inc. and Subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes to the consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement, whether due to error or fraud, of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Future Policy Benefits

Critical Audit Matter Description

The estimated valuation of future policy benefits is measured based on actuarial methodologies and underlying economic and future policyholder behavior assumptions. The Company makes these assumptions at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date.

As described in Note 1, the liability for future policy benefits on traditional life insurance products and accident and health insurance policy benefits are calculated using a net level method, including assumptions as to investment yields, mortality, withdrawals and other assumptions based on the Company’s experience. The liability for future policy benefits for universal life contracts is calculated using a retrospective deposit method and represents the policy account balances.

Auditing estimates for future policy benefits required a high degree of judgment, including the need to involve an actuarial specialist, due to the nature of the data utilized in the complex actuarial models and the significant amount of judgment applied by management in determining these liabilities.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the liability for future policy benefits included the following procedures, among others:

•	We obtained an understanding and evaluated the design of controls, including those related to the performance of experience studies and the setting of best estimate assumptions.

•

Procedures also included, among others, testing the completeness and accuracy of data provided by management and the involvement of professionals with specialized skill and knowledge to assist in evaluating the appropriateness of management’s actuarial techniques and evaluating the reasonableness of assumptions used in those techniques.

•	Engaging an independent actuarial specialist to evaluate whether the methodologies and assumptions used by management in developing the liabilities were appropriate and reasonable.

Valuation of Non-Marketable Investments Reported at Fair Value

Critical Audit Matter Description

The Company holds certain investments that are not actively traded and are classified as Level 3 assets. These investments include equity securities, valued using either the Company’s pricing models to estimate future cash flows or net asset value. Since such securities trade infrequently and have little or no price transparency, the Company’s techniques for determining the estimated fair value of such securities rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. The determination of these unobservable inputs involves significant management judgment and estimation and typically cannot be supported by reference to market activity.

The principal considerations for our determination that performing procedures relating to the valuation of Level 3 investments is a critical audit matter are that there was significant judgment by management to determine the fair value of these Level 3 investments, which included significant unobservable inputs related to comparable market data and discount rates.

Auditing of unobservable inputs used by management to estimate the fair value of Level 3 securities required a high degree of auditor judgement, subjectivity and an increased extent of effort.

How the Critical Audit Matter was Addressed in the Audit

Our audit procedures related to the proprietary models and unobservable inputs used by management to estimate the fair value of Level 3 securities included the following, among others:

•	We obtained an understanding and evaluated the appropriateness of the Company’s pricing sources.

•	We tested the completeness, accuracy, reliability, and relevance of key data used in the models.

•	We assessed the consistency by which management has applied significant unobservable valuation assumptions.

•	For a selection of securities, we compared the accuracy of the Company’s estimated fair value price to a price independently developed by the audit team.

We have served as the Company’s auditor since 2005.

/s/ Armanino LLP

St. Louis, Missouri

March 25, 2022

UTG, Inc.

As of December 31, 2021 and 2020

See accompanying notes.

UTG, Inc.

Consolidated Statements of Operations

For the Years Ended December 31, 2021 and 2020

See accompanying notes.

UTG, Inc.

Consolidated Statements of Comprehensive Income (Loss)

For the Years Ended December 31, 2021 and 2020

See accompanying notes.

UTG, Inc.

Consolidated Statements of Shareholders’ Equity

See accompanying notes.

UTG, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2021 and 2020

See accompanying notes.

UTG, Inc.

Notes to Consolidated Financial Statements

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

2020		Original or Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Estimated Fair Value
Investments available for sale:
Fixed maturities
U.S. Government and govt. agencies and authorities		$	36,285,535			$	1,186,999			$	0			$	37,472,534
U.S. special revenue and assessments			11,556,980				1,382,164				0				12,939,144
All other corporate bonds			98,175,349				17,604,617				(411,647	)			115,368,319
Total		$	146,017,864			$	20,173,780			$	(411,647	)		$	165,779,997

Fixed Maturities Available for Sale December 31, 2021		Amortized Cost			Estimated Fair Value
Due in one year or less		$	13,013,136		$	13,149,867
Due after one year through five years			45,292,927			47,621,088
Due after five years through ten years			20,642,013			23,253,284
Due after ten years			22,169,876			25,273,390
Fixed maturities with no single maturity date			26,832,011			31,666,252
Total		$	127,949,963		$	140,963,881

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

2020		Less than 12 months					12 months or longer					Total
		Fair value			Unrealized losses		Fair value			Unrealized losses		Fair value			Unrealized losses
All other corporate bonds		$	4,937		(63)		$	0		(411,584)		$	4,937		(411,647)
Total fixed maturities		$	4,937		(63)		$	0		(411,584)		$	4,937		(411,647)

	Less than 12 months		12 months or longer		Total
As of December 31, 2021
Fixed maturities	3		0		3
As of December 31, 2020
Fixed maturities	1		1		2

		2021				2020
Net unrealized gains (losses)		$	2,059			$	(973	)
Net realized gains (losses)			20,509				3,894
Net unrealized and realized gains (losses)		$	22,568			$	2,921

	2021				2020
	Maximum rate		Minimum rate		Maximum rate		Minimum rate
Farm loans	6.00 %		4.50 %		4.50 %		4.50 %
Commercial loans	5.50 %		4.10 %		5.25 %		4.24 %
Residential loans	5.00 %		4.15 %		4.95 %		4.95 %

		2021				2020
In good standing		$	27,102,789			$	18,704,351
Overdue interest over 90 days			2,080,773				2,098,014
Total mortgage loans		$	29,183,562			$	20,802,365
Total foreclosed loans during the year		$	0			$	0

		2021				2020
Raw land		$	14,538,507			$	11,727,103
Commercial			4,347,423				3,530,064
Residential			3,813,936				2,797,648
Land, minerals and royalty interests			17,048,395				20,031,576
Total investment real estate		$	39,748,261			$	38,086,391

		2021				2020
Fixed maturities		$	4,566,293			$	5,309,028
Equity securities			1,274,147				1,754,958
Trading securities			22,568				2,921
Mortgage loans			706,883				709,604
Real estate			3,241,689				2,212,851
Notes receivable			1,558,406				1,233,148
Policy loans			606,347				599,897
Cash and cash equivalents			2,567				53,880
Short-term			0				167,599
Total consolidated investment income			11,978,900				12,043,886
Investment expenses			(2,928,575	)			(2,514,938	)
Consolidated net investment income		$	9,050,325			$	9,528,948

		2021			2020
Realized gains:
Sales of fixed maturities		$	55,867		$	768,511
Sales of equity securities			3,142,720			0
Sales of real estate			2,877,808			4,347,705
Total realized gains			6,076,395			5,116,216
Realized losses:
Sales of fixed maturities			0			(64,992)
Sales of equity securities			(54,742)			(405,525)
Other-than-temporary impairments			(393,455)			0
Total realized losses			(448,197)			(470,517)
Net realized investment gains			5,628,198			4,645,699
Change in fair value of equity securities:
Change in fair value of equity securities held at the end of the period			14,121,883			6,208,148
Change in fair value of equity securities			14,121,883			6,208,148
Net investment gains		$	19,750,081		$	10,853,847
Change in net unrealized gains (losses) on available-for-sale investments included in other comprehensive income:
Fixed maturities		$	(7,085,803)		$	9,065,958
Net increase (decrease)		$	(7,085,803)		$	9,065,958

	2021			2020
Other than temporary impairments:
Fixed maturities	$	393,455		$	0
Total other than temporary impairments	$	393,455		$	0

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		$	25,650,903			$	0			$	0			$	0			$	25,650,903
U.S. special revenue and assessments			0				8,523,535				0				0				8,523,535
Corporate securities			0				106,789,443				0				0				106,789,443
Total fixed maturities			25,650,903				115,312,978				0				0				140,963,881
Equity securities:
Common stocks			40,784,660				16,711,180				5,861,486				57,603,597				120,960,923
Preferred stocks			0				21,198				1,247,000				0				1,268,198
Total equity securities			40,784,660				16,732,378				7,108,486				57,603,597				122,229,121
Total financial assets		$	66,435,563			$	132,045,356			$	7,108,486			$	57,603,597			$	263,193,002
Liabilities
Trading Securities		$	(1,116	)		$	0			$	0			$	0			$	(1,116	)

2020		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		$	37,472,534			$	0			$	0			$	0			$	37,472,534
U.S. special revenue and assessments			0				12,939,144				0				0				12,939,144
Corporate securities			0				115,368,319				0				0				115,368,319
Total fixed maturities			37,472,534				128,307,463				0				0				165,779,997
Equity securities:
Common stocks			28,477,005				15,922,869				3,161,120				30,496,625				78,057,619
Preferred stocks			0				17,568				0				0				17,568
Total equity securities			28,477,005				15,940,437				3,161,120				30,496,625				78,075,187
Total financial assets		$	65,949,539			$	144,247,900			$	3,161,120			$	30,496,625			$	243,855,184
Liabilities
Trading Securities		$	(12,219	)		$	0			$	0			$	0			$	(12,219	)

		Equity Securities, Fair Value				Equity Securities, Net Asset Value				Total
Balance at December 31, 2020		$	3,161,120			$	30,496,625			$	33,657,745
Realized gains (losses)			851,307				0				851,307
Unrealized gains (losses)			(237,803	)			6,642,410				6,404,607
Purchases			4,185,169				20,542,073				24,727,242
Sales			(851,307	)			(77,511	)			(928,818	)
Balance at December 31, 2021		$	7,108,486			$	57,603,597			$	64,712,083

Financial Assets			Fair Value at December 31, 2021			Fair Value at December 31, 2020	Valuation Technique
Common stocks		$	57,603,597		$	30,496,625	Net Asset Value
Common stocks			7,108,486			3,161,120	Pricing Model
Total		$	64,712,083		$	33,657,745

Investment Category			Fair Value at December 31, 2021			Unfunded Commitments		Redemption Frequency		Redemption Notice Period
Common stocks
Growth equity
Redeemable		$	28,546,227		$	0		Quarterly		45 days
Non-redeemable			29,057,370			5,288,967		n/a		n/a
Total		$	57,603,597		$	5,288,967

Investment Category			Fair Value at December 31, 2020			Unfunded Commitments		Redemption Frequency		Redemption Notice Period
Common stocks
Growth equity
Redeemable		$	21,713,727		$	0		Quarterly		45 days
Non-redeemable			8,782,898			6,856,072		n/a		n/a
Total		$	30,496,625		$	6,856,072