Investment real estate Commercial $ 2,294,687 23% Residential development $ 3,960,882 39% Foreclosed real estate $ 1,550,000 15% ----------- --- $ 7,805,569 77% -----------
Total investment real estate holdings represent approximately 2% of the total assets of the Company net of accumulated depreciation of $1,824,484 and $1,696,428 at year-end 1999 and 1998 respectively. The Company owns an office complex in Springfield, Illinois, which houses the primary insurance operations. The office buildings contain 57,000 square feet of office and warehouse space. The properties are carried at $2,211,718. In addition, an insurance subsidiary owns a home office building in Huntington, West Virginia. The building has 15,000 square feet and is carried at $156,217. The facilities occupied by the Company are adequate relative to the Company's present operations.
Any forward-looking statement contained herein or in any other oral or written statement by the company or any of its officers, directors or employees is qualified by the fact that actual results of the company may differ materially from any such statement due to the following important factors, among other risks and uncertainties inherent in the company's business:
2. Changes in the federal income tax laws and regulations, which may affect the relative tax advantages of the company's products.
The increase in investment income in 1998 is the result of a combination of factors. The Company changed banks during 1997, which provided an improvement in yield on cash balances. In late 1998, the Company again transferred most of its cash balances to another bank, First Southern National Bank, an affiliate of First Southern Funding, LLC. This transfer resulted in an increase in earning rates on cash balances of approximately one quarter of one percent (.25%) over those previously received. During 1998, the Company directed a greater percentage of its investing activity to mortgage loans. These new loans provide an investment yield approximately 3% higher or $110,000 more than can be obtained from quality fixed maturities currently available. During September and October of 1998, the national prime rate declined three quarters of one percent (.75%). This decline reduced yields on investments available in the marketplace in which the Company invests primarily fixed maturities. The decline had an immediate impact on the earnings rates of the Company's cash and cash equivalents balances.
The overall investment yields for 1999, 1998 and 1997, are 6.46%, 6.72% and 6.70%, respectively. Cash generated from the sales of universal life insurance products, has been invested primarily in fixed maturities.
one half percent on all products that could be lowered. The change will result in interest crediting reductions of approximately $600,000 per year. These adjustments were in response to continued declines in interest rates in the marketplace. Policy interest crediting rate changes become effective on an individual policy basis on the next policy anniversary. Therefore, it will take a full year from the time the change is determined for the full impact of such change to be realized.
Commissions and amortization of deferred policy acquisition costs decreased 47% in 1999 compared to 1998 and increased 64% in 1998 compared to 1997. At year-end 1998, the Company recorded an impairment write off of deferred policy acquisition costs of $2,983,000. The Company performs actuarial analysis of the recoverability of the asset based on current trends and known events compared to assumptions used in the establishment of the original asset. The impairment in 1998 was the result of declines in interest rates in the marketplace combined with lower than expected new policy writings left the Company with greater per policy costs as a result of fixed costs being spread over fewer policies.
Operating expenses decreased 31% in 1999 compared to 1998 and increased 18% in 1998 compared to 1997. Included in operating expenses in 1998 is $2,367,474 from the release of discounts associated with the Company's notes payable. The Company's subordinated debt was issued at rates considered favorable to the Company at time of issue, therefore the notes were discounted to reflect an effective interest rate of 15%. With the payment of part of this debt in November 1998, the unamortized discount was written off. Management's plan to repay the remaining debt in a much shorter period of time from required repayment resulted in the determination to write off the entire remaining note discount. See information contained below in interest expense analysis for further details regarding debt retirement. Excluding the note discount write off, operating expenses decreased 8% in 1998 compared to 1997 attributable primarily to reduced salary and employee benefit costs in 1998, as a result of natural attrition. The decrease in operating expenses in 1999 is due in part, to a decrease in salaries from staff reduction. In most instances, the workload was absorbed into the remaining workforce. First year sales production has shown a declining trend in the last three years. The Company has tried a variety of solutions to bolster new sales production including additional training, home office assistance in providing leads on prospective clients and a review of current product offerings. First year production in the first quarter of 1999 resulted in cash received from new sales of only 54% of that received in first quarter 1998, or $560,000 less. With continued declining new business, costs associated with supporting new business, primarily salary costs, as a percentage of new business received continued to grow. In March of 1999, the Company determined it could no longer continue to support these fixed costs in light of the new business trend and no indication it would reverse any time soon. It was determined these fixed costs should be reduced to be commensurate with the level of new sales production activity currently being experienced. As such, in March 1999 seven employees of the Company (approximately 8% of the total staff), were terminated due to lack of business activity. This action resulted in expense savings of approximately $275,000 per year.
Interest expense declined 17% from 1998 to 1999 and remained consistent when comparing 1998 to 1997. In November 1998, the Company's ultimate parent, UTG, received approximately $11,000,000 from the issuance of common stock to First Southern Funding and its affiliates. These funds were used to retire outside debt. On November 23, 1998, the Company paid a $6,300,000 principal payment on its senior debt, and paid a $2,608,099 principal payment on its 10 year subordinated debt through intercompany borrowings from UTG. On December 16, 1998 the Company paid an additional $500,000 principal payment on its 10 year subordinated debt through an intercompany borrowing from UII. In total these transactions retired $9,408,099 of outside debt and replaced it with intercompany debt, which provides the Company with increased flexibility when it comes to repayment options. With the new capital and expectations of future growth, management has formulated a plan to repay the remaining outside debt within the next two years. At December 31, 1999, FCC had $14,864,193 in notes payable, of which only $25,000 is debt owed to outside parties. During 1999 FCC repaid $2,505,800 of its debt through dividends received from its insurance subsidiary, UG.
The provision for income taxes reflected a significant change from the same period one year ago. This is the result of changes in the deferred tax liability. Deferred taxes are established to recognize future tax effects attributable to temporary differences between the financial statements and the tax return. As these differences are realized in the financial statement or tax return, the deferred income tax established on the difference is recognized in the financial statements as an income tax expense or credit. During 1999 and 1997, the insurance subsidiaries incurred a loss on their federal income tax return that was carried forward to future periods. A tax benefit was not incurred in the financial statements for the 1997 loss as a corresponding allowance was established against the deferred tax asset attributable to the tax loss carryforward. The Company did not establish an allowance against the 1999 tax loss as the Company's recent history demonstrates the loss will most likely be fully utilized before expiration. In 1998, the insurance company subsidiaries incurred taxable income for federal income tax purposes which was offset through utilization of federal tax loss carryforwards. Since these carryforwards had an allowance established against them for deferred tax purposes, no corresponding expense was incurred in the financial statements. Additionally, the Company incurred deferred tax credits of $1,872,666 in 1998 from the deferred policy acquisition costs impairment and the notes payable discounts write-offs.
The Company had a net loss of $377,957, $1,949,825 and $1,845,062 in 1999, 1998 and 1997 respectively. The Company continues to show steady improvement in its results. The 1998 results included one time charges for a deferred policy acquisition costs impairment write down and the write off of the remaining discounts associated with notes payable. The Company continues to monitor and adjust those items within its control to continue the trend and anticipates a return to profitability.
Investments are the largest asset group of the Company. The Company's insurance subsidiaries are regulated by insurance statutes and regulations as to the type of investments that they are permitted to make and the amount of funds that may be used for any one type of investment. In light of these statutes and regulations, and the Company's business and investment strategy, the Company generally seeks to invest in United States government and government agency securities, corporate securities rated investment grade by established nationally recognized rating organizations and other high quality low risk investments.
The Company has recently begun looking at the mortgage loan market for possible investments, due to the affiliation with First Southern Funding and its affiliates ("FSF"). FSF is the largest shareholder of UTG. The affiliation with FSF provides additional resources in the mortgage loan market. FSF is in the banking industry and has experience and expertise in underwriting commercial and residential mortgage loans. The Company believes it can issue or acquire loans, which will provide attractive yields while maintaining high quality and low risk. All mortgage loans held by the Company are first position loans. The Company has no loans that are in default and in the process of foreclosure at December 31, 1999.
Cost of insurance acquired decreased 6% in 1999 compared to 1998. At December 31, 1999, cost of insurance acquired was $16,555,596 and amortization totaled $1,072,773 for the year. When an insurance company is acquired, the Company assigns a portion of its cost to the right to receive future cash flows from insurance contracts existing at the date of the acquisition. The cost of policies purchased represents the actuarially determined present value of the projected future cash flows from the acquired policies. 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.
Total liabilities decreased 2% in 1999 compared to 1998. Policy liabilities and accruals, which represents approximately 93% of total liabilities decreased slightly from the prior year. The decline is attributable to a shrinking policy base and declining new business production.
Notes payable decreased 14% in 1999 compared to 1998. In November 1998, the Company's ultimate parent, UTG, received approximately $11,000,000 from the issuance of common stock to First Southern Funding and its affiliates. These funds were used to retire outside debt. On November 23, 1998, the Company paid a $6,300,000 principal payment on its senior debt, and paid a $2,608,099 principal payment on its 10 year subordinated debt through intercompany borrowings from UTI. On December 16, 1998 the Company paid an additional $500,000 principal payment on its 10 year subordinated debt through an intercompany borrowing from UII. In total these transactions retired $9,408,099 of outside debt and replaced it with intercompany debt, which provides the Company with increased flexibility when it comes to repayment options. With the new capital and expectations of future growth, management has formulated a plan to repay the remaining outside debt within the next two years. At December 31, 1999, FCC had $14,269,574 in notes payable, of which only $25,000 is debt owed to outside parties.
Cash provided by (used in) operating activities was $(1,381,527), $1,865,417 and $(199,230) in 1999, 1998 and 1997, respectively. Reporting regulations require cash inflows and outflows from universal life insurance products to be shown as financing activities when reporting on cash flows. The net cash provided by operating activities plus policyholder contract deposits less policyholder contract withdrawals equaled $1,571,847 in 1999, $4,943,632 in 1998 and $3,190,440 in 1997. Management utilizes this measurement of cash flows as an indicator of the performance of the Company's insurance operations.
Net cash provided by financing activities was $370,651, $2,625,897 and $2,097,167 for 1999, 1998 and 1997, respectively. The Company continues to pay down on its outstanding debt. Such payments are included within this category.
Policyholder contract deposits decreased 8% in 1999 compared to 1998, and decreased 14% in 1998 when compared to 1997. The decrease in policyholder contract deposits relates to the decline in new business production experienced in the last few years by the Company. Policyholder contract withdrawals has decreased 10% in 1999 compared to 1998, and decreased 15% in 1998 compared to 1997. The change in policyholder contract withdrawals is not attributable to any one significant event. Factors that influence policyholder contract withdrawals are fluctuation of interest rates, competition and other economic factors.
As of December 31, 1999 the Company has a total $54,324,376 of cash and cash equivalents, short-term investments and investments held for sale in comparison to $14,864,193 of notes payable. FCC is able to service this debt through existing cash balances and management fees received from the insurance subsidiaries. FCC is further able to service this debt through dividends it may receive from UG. See Note 2 in the notes to the consolidated financial statements for additional information regarding dividends.
The levels and ratios are as follows: Ratio of Total Adjusted Capital to Authorized Control Level RBC Regulatory Event (Less Than or Equal to) ---------------- ---------------------------
At December 31, 1999, each of the insurance subsidiaries has a Ratio that is in excess of 4, which is 400% of the authorized control level; accordingly the insurance subsidiaries meet the RBC requirements.
A task force of the NAIC is currently undertaking a project to codify a comprehensive set of statutory insurance accounting rules and regulations. Project results were recently approved by the NAIC with an implementation date of January 1, 2001. Individual states in which the Company does business must implement these new rules for them to become effective. Specific recommendations have been set forth in papers issued by the NAIC. The NAIC continues to modify and amend these papers. The Company is monitoring the process, and is not aware of any new requirements that would result in a material financial impact on the Company's financial position or results of operations. The Company will continue to monitor this issue as changes and new proposals are made.
Additional Statements of Financial Accounting Standards have been issued; none of which has direct applicability to the Company.
We have audited the accompanying consolidated balance sheets of First Commonwealth Corporation (a Virginia corporation) and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
FIRST COMMONWEALTH CORPORATION CONSOLIDATED BALANCE SHEETS As of December 31, 1999 and 1998
A. ORGANIZATION - At December 31, 1999, the parent, significant majority-owned subsidiaries and affiliates of First Commonwealth Corporation were as depicted on the following organizational chart.
During 1999, the Company made several significant changes to streamline and simplify its corporate structure. Throughout the Notes to the Consolidated Financial Statements references will be made to these changes. Prior to these changes there were four holding companies which controlled four life insurance companies. However, in 1999 there were two mergers and a liquidation, reducing the number of holding companies to two and the number of life insurance companies to three (refer to the organizational chart in note 1A). The first merger and Company liquidation took place in July of 1999. Prior to July 1999, UTG was known as United Trust, Inc. ("UTI"). UTI and United Income, Inc. ("UII") owned 100% of the former United Trust Group, Inc., (which was formed in February of 1992 and liquidated in July of 1999 - referred to as "UTGL99"). Through a shareholder vote and special meeting on July 26, 1999, UII merged into UTI, and simultaneously with the merger, UTGL99 was liquidated and UTI changed its corporate name to United Trust Group, Inc. ("UTG"). The second merger occurred on December 29, 1999, when UG was the survivor to a merger with its 100% owned subsidiary United Security Assurance Company ("USA").
2000 $ 374,000 $ 2,425,000 $ 2,051,000 2001 334,000 2,121,000 1,787,000 2002 297,000 1,841,000 1,544,000 2003 265,000 1,585,000 1,320,000 2004 237,000 1,352,000 1,115,000
N. PROPERTY AND EQUIPMENT - Company-occupied property, data processing equipment and furniture and office equipment are stated at cost less accumulated depreciation of $4,688,815 and $4,336,366 at December 31, 1999 and 1998, respectively. Depreciation is computed on a straight-line basis for financial reporting purposes using estimated useful lives of three to 30 years. Depreciation expense was $352,449 and $334,372 for the years ended December 31, 1999 and 1998, respectively.
S. PARTICIPATING INSURANCE - Participating business represents 31% and 34% of the ordinary life insurance in force at December 31, 1999 and 1998, respectively. Premium income from participating business represents 29%, 39%, and 50% of total premiums for the years ended December 31, 1999, 1998 and 1997, respectively. The amount of dividends to be paid is determined annually by the respective insurance subsidiary's Board of Directors. Earnings allocable to participating policyholders are based on legal requirements, which vary by state.
At December 31, 1999, substantially all of consolidated shareholders' equity represents net assets of FCC's subsidiaries. The payment of cash dividends to shareholders by FCC is not legally restricted. However, insurance company dividend payments are regulated by the state insurance department where the company is domiciled. UG's dividend limitations are described below.
The life insurance company subsidiaries file a consolidated federal income tax return. The holding companies of the group file separate returns.
UG FCC ------------- --------------- 2007 $ 0 $ 184,343 2008 0 4,595 2009 0 168,800 2010 0 19,112 2012 397,317 0 2019 3,869,664 0 ------------- --------------- TOTAL $ 4,266,981 $ 376,850 ============= ===============
The Company has established a deferred tax asset of $1,625,341 for its operating loss carryforwards and has established an allowance of $270,958. UG must average approximately $200,000 of taxable income per year to fully realize the net operating loss carryforward for which no allowance is established. Management believes future earnings of UG will be sufficient to fully utilize this net operating loss carryforward.
The total allowances established on deferred tax assets increased $470,023 in 1999.
1999 1998 ---------------- --------------- Investments $ (269,500) $ (182,000) Deferred policy acquisition costs 3,422,138 4,144,192 Cost of insurance acquired 5,794,459 6,169,929 Agent balances (20,381) (22,257) Property and equipment (75,250) (82,250) Due premiums (982,451) (1,047,735) Future policy benefits (4,840,859) (7,194,930) Net operating loss carryforward (1,354,382) 0 Other liabilities (839,045) (902,734) Federal tax DAC (1,864,715) (2,082,217) ---------------- --------------- Deferred tax liability (asset) $ (1,029,986) $ (1,200,002) ================ ===============
Estimated Fixed Maturities Held to Maturity Amortized Market December 31, 1999 Cost Value - ---------------------------------------- -------------- -------------- Due in one year or less $ 19,204,261 $ 19,248,545 Due after one year through five years 77,160,894 76,756,898 Due after five years through ten years 37,642,780 36,063,606 Due after ten years 5,850,482 5,681,633 Collateralized mortgage obligations 4,892,694 4,924,337 -------------- -------------- Total $ 144,751,111 $ 142,675,019 ============== ==============
C. INVESTMENTS ON DEPOSIT - At December 31, 1999, investments carried at approximately $14,791,000 were on deposit with various state insurance departments.
The financial statements include various estimated fair value information at December 31, 1999 and 1998, as required by Statement of Financial Accounting Standards 107, Disclosure about Fair Value of Financial Instruments ("SFAS 107"). Such information, which pertains to the Company's financial instruments, is based on the requirements set forth in that Statement and does not purport to represent the aggregate net fair value of the Company.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument required to be valued by SFAS 107 for which it is practicable to estimate that value:
The fair values of mortgage loans are estimated using discounted cash flow analysis and interest rates being offered for similar loans to borrowers with similar credit ratings.
It is not practicable to estimate the fair value of policy loans, as they have no stated maturity and their rates are set at a fixed spread to related policy liability rates. Policy loans are carried at the aggregate unpaid principal balances in the consolidated balance sheets, and earn interest at rates ranging from 4% to 8%. Individual policy liabilities in all cases equal or exceed outstanding policy loan balances.
For short-term instruments, the carrying amount is a reasonable estimate of fair value. Short-term instruments represent collateral notes and certificates of deposit with various banks that are protected under FDIC.
For borrowings subject to floating rates of interest, carrying value is a reasonable estimate of fair value. For fixed interest rate borrowings fair value was determined based on the borrowing rates currently available to the Company for loans with similar terms and maturities.
The Company's insurance subsidiaries are domiciled in Ohio, Illinois and West Virginia and prepare their statutory-based financial statements in accordance with accounting practices prescribed or permitted by the respective insurance department. These principles differ significantly from generally accepted accounting principles. "Prescribed" statutory accounting practices include state laws, regulations, and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners ("NAIC"). "Permitted" statutory accounting practices encompass all accounting practices that are not prescribed; such practices may differ from state to state, from company to company within a state, and may change in the future. The NAIC currently is in the process of codifying statutory accounting practices, the result of which is expected to constitute the only source of "prescribed" statutory accounting practices. Accordingly, that project, which becomes effective for most states January 1, 2001, will likely change prescribed statutory accounting practices and may result in changes to the accounting practices that insurance enterprises use to prepare their statutory financial statements. The Company is not aware of any new requirements that would result in a material financial impact on the Company's financial position or results of operations. UG's total statutory shareholders' equity was $15,022,234 and $15,280,577 at December 31, 1999 and 1998, respectively. The Company's life insurance subsidiaries reported combined statutory operating income before taxes (exclusive of intercompany dividends) of $3,843,000, $5,485,000 and $2,067,000 for 1999, 1998 and 1997, respectively.
The Company has reinsured approximately $831 million, $924 million and $1.022 billion in face amount of life insurance risks with other insurers for 1999, 1998 and 1997, respectively. Reinsurance receivables for future policy benefits were $36,117,010 and $36,965,938 at December 31, 1999 and 1998, respectively, for estimated recoveries under reinsurance treaties. Should any reinsurer be unable to meet its obligation at the time of a claim, obligation to pay such claim would remain with the Company.
USA paid $677,807, $835,345 and $989,295 under their agreement with UII for 1999, 1998 and 1997, respectively. UII paid $223,753, $501,207 and $593,577 under their agreement with UTG for 1999, 1998 and 1997, respectively. Additionally, UII paid FCC $30,000, $0 and $150,000 in 1999, 1998 and 1997, respectively for reimbursement of costs attributed to UII. UTG paid FCC $600,000, $0 and $575,000 in 1999, 1998 and 1997, respectively for reimbursement of costs attributed to UTG. These reimbursements are reflected as a credit to general expenses.
APPL has a management fee agreement with FCC whereby FCC provides certain administrative duties, primarily data processing and investment advice. APPL paid fees of $300,000 in 1999, 1998 and 1997, under this agreement.
Mr. Correll is a member of the Board of Directors of UTG and currently UTG's largest shareholder through his ownership control of FSF and its affiliates. Mr. Correll is the majority shareholder of FSF, which is an affiliate of First Southern Bancorp, Inc., a bank holding company that operates out of 14 locations in central Kentucky. Following the above transaction, as of December 31, 1999, Mr. Correll owns or controls directly and indirectly approximately 46% of UTG.
On July 26, 1999, the shareholders of UTG and UII approved a merger transaction of the two companies. Prior to the merger, UTG owned 53% of UTGL99 (refers to the former United Trust Group, Inc., which was formed in February of 1992 and liquidated in July of 1999) an insurance holding company, and UII owned 47% of UTGL99. Additionally, UTG held an equity investment in UII. At the time the decision to merge was made, neither UTG nor UII had any other significant holdings or business dealings. The Board of Directors of each company thus concluded a merger of the two companies would be in the best interests of the shareholders by creating a larger more viable life insurance
On January 16, 1998, UTG acquired 7,579 shares of its common stock from the estate of Robert Webb, a former director, for $26,527 and a promissory note valued at $41,819 due January 16, 2005. The note was paid in full on November 23, 1998.
On September 23, 1997, UTG acquired 10,056 shares of its common stock from Paul Lovell, a director, for $35,000 and a promissory note valued at $61,000 due September 23, 2004. The note was paid in full on November 23, 1998. Simultaneous with the stock purchase, Mr. Lovell resigned his position on the UTG board.
Approximately $1,048,000 of the cash received from the issuance of the convertible notes was used to acquire stock holdings of UTG and United Income, Inc. of Mr. Morrow and to acquire a portion of the UTG holdings of Larry E. Ryherd and his family. The remaining cash received will be used by UTG to provide additional operating liquidity and for future acquisitions of life insurance companies. On July 31, 1997, UTG acquired a total of 126,921 shares of its common stock and 47,250 shares of United Income, Inc. common stock from Thomas F. Morrow and his family. Mr. Morrow simultaneously retired as an executive officer of the Company. In exchange for his stock, Mr. Morrow and his family received approximately $348,000 in cash, promissory notes valued at $140,000 due in eighteen months, and promissory notes valued at $1,030,000 due January 31, 2005. These notes bear interest at a rate of 1% over prime, with interest due quarterly and principal due upon maturity. The notes do not contain any conversion privileges. Additionally, on July 31, 1997, UTG acquired a total of 97,499 shares of its common stock from Larry E. Ryherd and his family. Mr. Ryherd and his family received approximately $700,000 in cash and a promissory note valued at $251,000 due January 31, 2005. The acquisition of approximately 16% of Mr. Ryherd's stock holdings in UTG was completed as a prerequisite to the convertible notes placed by other management personnel to reduce the total holdings of Mr. Ryherd and his family in the Company to make the stock more attractive to the investment community. Following the transaction, Mr. Ryherd and his family owned approximately 31% of the outstanding common stock of UTG. The market price of UTG common stock on July 31, 1997 was $6.00 per share. The stock acquired in the above transaction was from the largest two shareholders of UTG stock. There were no additional stated or unstated items or agreements relating to the stock purchase. The promissory notes to Mr. Morrow and his family and Mr. Ryherd and his family were paid in full on November 23, 1998.
1999 1998 ------------- ------------- Nonaffiliated senior debt $ 25,000 $ 100,000 Affiliated subordinated 10 yr. Notes 0 1,427,067 Affiliated subordinated 20 yr. Notes 3,431,094 4,034,827 Other affiliated notes payable 11,408,099 11,808,099 ------------- ------------- $ 14,864,193 $ 17,369,993 ============= =============
The senior debt is through National City Bank (formerly First of America Bank - Illinois NA) and is subject to a credit agreement. The debt bears interest at a rate equal to the "base rate" plus nine-sixteenths of one percent. The Base rate is defined as the floating daily, variable rate of interest determined and announced by National City Bank from time to time as its "base lending rate." The base rate at December 31, 1999 was 8.50%. Interest is paid quarterly. During second quarter 1999, the Company prepaid a $75,000 principal payment. The remaining balance of $25,000 will be payable on or before the debt maturity date of May 8, 2005, and is being maintained to keep the Company's credit relationship with National City Bank in place.
The original 20-year notes bear interest at the rate of 8 1/2% per annum on $3,529,865 and 8.75% per annum on $504,962 payable semi-annually with a lump sum principal payment due June 16, 2012. During second quarter, 1999, the Company prepaid subordinated debt consisting of all of the 20-year notes with 8.75% interest rates and $98,771 of the 8.5% 20-year notes.
FCC has borrowings of $700,000 and $300,000. These notes bear interest at the rate of 1% above the variable per annum rate of interest most recently published by the Wall Street Journal as the prime rate. Interest is payable
In December 1998, FCC borrowed $500,000 to facilitate an additional prepayment of principal on its subordinated 10-year debt. The note bears interest at the rate of 7.50%, with interest payments due quarterly and principal due upon maturity of the notes, on March 31, 2004.
Year Amount ----------------------- --------------------- 2000 $ 0 2001 0 2002 0 2003 0 2004 500,000
UTG and FCC established a deferred compensation plan during 1993 pursuant to which an officer or agent of FCC or affiliates of UTG, could defer a portion of their income over the next two and one-half years in return for a deferred compensation payment payable at the end of seven years in the amount equal to the total income deferred plus interest at a rate of approximately 8.5% per annum and a stock option to purchase shares of common stock of UTG. At the beginning of the deferral period an officer or agent received an immediately exercisable option to purchase 2,300 shares of UTG common stock at $17.50 per share for each $25,000 ($10,000 per year for two and one-half years) of total income deferred. The option expires on December 31, 2000. A total of 105,000 options were granted in 1993 under this plan. As Of December 31, 1999, no options were exercised. At December 31, 1999 and December 31, 1998, the Company held a liability of $1,283,399 and $1,494,520, respectively, relating to this plan. At December 31, 1999, UTG common stock had a market price of $8.125 per share.
The following information applies to deferred compensation plan stock options outstanding at December 31, 1999:
On May 13, 1997, FCC effected a 1 for 400 reverse stock split. Fractional shares received a cash payment based on $.25 for each old share. FCC maintained a significant number of shareholder accounts with less than $100 of market value of stock. The reverse stock split enabled these smaller shareholders to receive cash for their shares without incurring broker costs and will save the Company administrative costs associated with maintaining these small accounts.
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 First Southern Funding, LLC, the largest shareholder of UTG. One of these accounts holds approximately $5,000,000 for which there are no pledges or guarantees outside FDIC insurance limits. 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.