UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 AND 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 ------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 0-16867 UNITED TRUST GROUP, INC. (Exact name of registrant as specified in its charter) ILLINOIS 37-1172848 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5250 SOUTH SIXTH STREET P.O. BOX 5147 SPRINGFIELD, IL 62705 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (217) 241-6300 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The number of shares outstanding of the registrant's common stock as of August 1, 2002, was 3,489,929. UNITED TRUST GROUP, INC. AND SUBSIDIARIES (The "Company") TABLE OF CONTENTS Part 1. Financial Information................................................3 ITEM 1. FINANCIAL STATEMENTS...............................................3 Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001.....3 Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001...................................4 Consolidated Statement of Changes in Shareholders' Equity for the six months ended June 30, 2002.............................5 Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001..............................................6 Notes to Consolidated Financial Statements................................7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.............................................14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........18 PART II. OTHER INFORMATION..................................................19 ITEM 1. LEGAL PROCEEDINGS.................................................19 ITEM 2. CHANGE IN SECURITIES..............................................19 ITEM 3. DEFAULTS UPON SENIOR SECURITIES...................................19 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...............19 ITEM 5. OTHER INFORMATION.................................................19 ITEM 6. EXHIBITS..........................................................19 SIGNATURES....................................................................21 PART 1. FINANCIAL INFORMATION Item 1. Financial Statements UNITED TRUST GROUP, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) - ------------------------------------------------------------------------------------------------------------------------- June 30, December 31, ASSETS 2002 2001 * ------------------ ------------------ Investments: Fixed maturities at amortized cost (market $70,854,992 and $77,725,410) $ 68,311,514 $ 75,005,395 Investments held for sale: Fixed maturities, at market (cost $105,030,168 and $97,584,094) 107,335,329 98,628,440 Equity securities, at market (cost $4,122,887 and $3,937,812) 4,942,004 3,852,716 Mortgage loans on real estate at amortized cost 24,347,747 23,386,895 Investment real estate, at cost, net of accumulated depreciation 17,600,947 18,226,451 Policy loans 13,638,718 13,608,456 Short-term investments 480,513 581,382 ------------------ ------------------ 236,656,772 233,289,735 Cash and cash equivalents 11,788,043 15,477,348 Accrued investment income 2,836,973 3,002,860 Reinsurance receivables: Future policy benefits 33,374,123 33,776,688 Policy claims and other benefits 3,821,278 4,042,779 Cost of insurance acquired 24,485,419 33,666,336 Deferred policy acquisition costs 2,733,703 3,107,919 Costs in excess of net assets purchased, net of accumulated amortization 0 345,779 Property and equipment, net of accumulated depreciation 2,325,621 2,459,117 Income taxes receivable, current 218,972 215,865 Other assets 2,730,238 139,245 ------------------ ------------------ Total assets $ 320,971,142 $ 329,523,671 ================== ================== LIABILITIES AND SHAREHOLDERS' EQUITY Policy liabilities and accruals: Future policy benefits $ 235,605,188 $ 236,449,241 Policy claims and benefits payable 2,515,669 2,781,920 Other policyholder funds 1,228,717 1,255,990 Dividend and endowment accumulations 12,725,453 13,055,024 Income taxes payable: Deferred 11,575,092 13,569,523 Notes payable 4,260,359 4,400,670 Other liabilities 6,349,776 5,465,896 ------------------ ------------------ Total liabilities 274,260,254 276,978,264 ------------------ ------------------ Minority interests in consolidated subsidiaries 0 7,771,793 ------------------ ------------------ Shareholders' equity: Common stock - no par value, stated value $.02 per share Authorized 7,000,000 shares - 3,492,644 and 3,549,791 shares issued after deducting treasury shares of 132,383 and 75,236 69,853 70,996 Additional paid-in capital 42,377,761 42,789,636 Retained earnings 2,203,951 1,004,238 Accumulated other comprehensive income 2,059,323 908,744 ------------------ ------------------ Total shareholders' equity 46,710,888 44,773,614 ------------------ ------------------ Total liabilities and shareholders' equity $ 320,971,142 $ 329,523,671 ================== ================== * Balance sheet audited at 12/31/01. UNITED TRUST GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 2002 2001 2002 2001 ---------------- ----------------- ----------------- ----------------- Revenues: Premiums and policy fees $ 4,955,669 $ 5,499,579 $ 9,949,896 $ 10,833,322 Reinsurance premiums and policy fees (567,385) (730,771) (1,284,751) (1,510,063) Net investment income 3,287,608 3,931,677 6,595,086 7,946,102 Realized investment gains, net 6,731 243,163 11,427 12,594 Other income 216,352 61,703 420,358 151,631 ---------------- ----------------- ----------------- ----------------- 7,898,975 9,005,351 15,692,016 17,433,586 Benefits and other expenses: Benefits, claims and settlement expenses: Life 5,082,676 5,346,928 10,411,490 10,323,613 Reinsurance benefits and claims (1,033,159) (711,403) (2,059,992) (1,305,682) Annuity 305,121 293,203 573,796 567,254 Dividends to policyholders 255,361 264,582 519,811 545,850 Commissions and amortization of deferred policy acquisition costs 193,590 222,912 496,111 753,355 Amortization of cost of insurance acquired 385,098 398,898 771,195 797,870 Operating expenses 1,649,134 1,768,758 3,179,567 3,282,873 Interest expense 61,394 97,806 133,604 136,420 ---------------- ----------------- ----------------- ----------------- 6,899,215 7,681,684 14,025,582 15,101,553 Income before income taxes, minority interest and equity in earnings of investees 999,760 1,323,667 1,666,434 2,332,033 Income tax expense (119,226) (112,269) (203,106) (703,442) Minority interest in income of consolidated subsidiaries (157,855) (236,106) (263,615) (309,441) ---------------- ----------------- ----------------- ----------------- Net income $ 722,679 $ 975,292 $ 1,199,713 $ 1,319,150 ================ ================= ================= ================= Basic earnings per share from continuing operations and net income $ 0.21 $ 0.27 $ 0.34 $ 0.34 ================ ================= ================= ================= Diluted earnings per share from continuing operations and net income $ 0.21 $ 0.27 $ 0.34 $ 0.34 ================ ================= ================= ================= Basic weighted average shares outstanding 3,500,212 3,647,828 3,514,246 3,909,991 ================ ================= ================= ================= Diluted weighted average shares outstanding 3,500,212 3,647,828 3,514,246 3,909,991 ================ ================= ================= ================= UNITED TRUST GROUP, INC. AND SUBSIDIARIES Consolidated Statement of Changes in Shareholders' Equity For the six months ended June 30, 2002 (Unaudited) - ------------------------------------------------------------------------------------------------------------------------ Common stock Balance, beginning of year $ 70,996 Issued during year 0 Purchase treasury shares (1,143) ------------------ Balance, end of period 69,853 ------------------ Additional paid-in capital Balance, beginning of year 42,789,636 Issued during year 0 Purchase treasury shares (411,875) ------------------ Balance, end of period 42,377,761 ------------------ Retained earnings Balance, beginning of year 1,004,238 Net income 1,199,713 $ 1,199,713 ------------------ ------------------ Balance, end of period 2,203,951 ------------------ Accumulated other comprehensive income Balance, beginning of year 908,744 Other comprehensive income Unrealized holding gain on securities net of minority interest and reclassification adjustment 1,150,579 1,150,579 ------------------ ------------------ Comprehensive income $ 2,350,292 ================== Balance, end of period 2,059,323 ------------------ Total shareholders' equity, end of period $ 46,710,888 ================== UNITED TRUST GROUP, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) - ------------------------------------------------------------------------------------------------------------ Six Months Ended June 30, June 30, 2002 2001 --------------- -------------- Increase (decrease) in cash and cash equivalents Cash flows from operating activities: Net income $ 1,199,713 $ 1,319,150 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization/accretion of fixed maturities 192,955 39,442 Realized investment gains, net of losses (11,427) (12,594) Policy acquisition costs deferred (43,000) (99,000) Amortization of deferred policy acquisition costs 417,216 563,289 Amortization of cost of insurance acquired 771,195 797,870 Amortization of costs in excess of net assets purchased 0 45,000 Depreciation 293,227 196,467 Minority interest 263,615 309,441 Change in accrued investment income 165,887 144,871 Change in reinsurance receivables 624,066 489,389 Change in policy liabilities and accruals (1,280,403) (1,181,770) Charges for mortality and administration of universal life and annuity products (4,412,958) (4,788,391) Interest credited to account balances 2,803,906 2,992,195 Change in income taxes payable 178,053 739,561 Change in other assets and liabilities, net (1,189,807) (983,461) --------------- -------------- Net cash provided by (used in) operating activities (27,762) 571,459 Cash flows from investing activities: Proceeds from investments sold and matured: Fixed maturities held for sale 8,770,000 11,750,000 Fixed maturities matured 13,248,311 24,409,028 Equity securities 0 1,240,967 Mortgage loans 3,390,918 8,332,743 Real estate 613,473 860,362 Policy loans 1,365,716 1,653,223 Short-term 100,869 2,054,528 --------------- -------------- Total proceeds from investments sold and matured 27,489,287 50,300,851 Cost of investments acquired: Fixed maturities held for sale (21,753,580) (39,140,907) Fixed maturities (3,053,805) (801,481) Equity securities (185,075) (91,925) Mortgage loans (4,351,770) (6,341,425) Real estate (127,386) (244,745) Policy loans (1,395,977) (1,282,560) Short-term 0 (1,122,131) --------------- -------------- Total cost of investments acquired (30,867,593) (49,025,174) Purchase of property and equipment (14,965) (60,627) Sale of property and equipment 0 201,064 --------------- -------------- Net cash provided by (used in) investing activities (3,393,271) 1,416,114 Cash flows from financing activities: Policyholder contract deposits 5,286,775 5,944,290 Policyholder contract withdrawals (3,864,468) (5,116,607) Purchase of stock of affiliates 0 (21,600) Proceeds from line of credit 1,350,000 0 Purchase of treasury stock (413,018) (1,046,833) Payments from FCC merger (1,137,250) 0 Payments of principal on notes payable (1,490,311) 0 --------------- -------------- Net cash used in financing activities (268,272) (240,750) --------------- -------------- Net increase (decrease) in cash and cash equivalents (3,689,305) 1,746,823 Cash and cash equivalents at beginning of period 15,477,348 15,065,076 --------------- -------------- Cash and cash equivalents at end of period $ 11,788,043 $ 16,811,899 =============== ============== UNITED TRUST GROUP, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements 1 Basis of Presentation The accompanying consolidated financial statements have been prepared by United Trust Group, Inc. ("UTG") and its consolidated subsidiaries ("Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes the disclosures are adequate to make the information presented not be misleading, it is suggested that these consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto presented in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2001. The information furnished reflects, in the opinion of the Company, all adjustments (which include only normal and recurring accruals) necessary for a fair presentation of the results of operations for the periods presented. Operating results for interim periods are not necessarily indicative of operating results to be expected for the year or of the Company's future financial condition. At June 30, 2002, consolidated subsidiaries of United Trust Group, Inc. were as depicted on the following organizational chart. In addition, this document may at times refer to Jesse Correll and his affiliated entities who own a majority of UTG's outstanding common stock. See note 9 to the consolidated financial statements regarding the June 12, 2002 merger of First Commonwealth Corporation ("FCC") into UTG.
2. INVESTMENTS At June 30, 2002 and December 31, 2001, fixed maturities and fixed maturities held for sale represented 74% of total invested assets, respectively. As prescribed by the various state insurance department statutes and regulations, the insurance companies' investment portfolio is required to be invested in investment grade securities to provide ample protection for policyholders. The Company does not invest in so-called "junk bonds" or similar investments. As of June 30 2002, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets or shareholders' equity. The investments held for sale are carried at market value, with changes in market value directly charged to shareholders' equity. To provide additional flexibility and liquidity, the Company has categorized almost all fixed maturity investments acquired since 2000 as available for sale. 3. NOTES PAYABLE At June 30, 2002 and December 31, 2001, the Company had $4,260,359 and $4,400,670 in long-term debt outstanding, respectively. The debt is comprised of the following components: 6/30/2002 12/31/2001 ------------- ------------- Subordinated 20 yr. Notes $ 401,562 $ 514,674 Other notes payable 3,108,797 3,885,996 Line of credit 750,000 0 ------------- ------------- $ 4,260,359 $ 4,400,670 ============= ============= A. Subordinated debt The subordinated debt was incurred June 16, 1992 as a part of the acquisition of the now dissolved Commonwealth Industries Corporation. These notes bear interest at the variable rate of 1% under prime per annum (paid quarterly). At June 30, 2002 the 1% under prime variable rate was 3.75%. In May 2002 a principal payment of $113,112 was made on the subordinated debt. Subsequent to June 30, 2002, the balance of the subordinated debt was retired with a $401,562 principal payment made on July 9, 2002. B. Other notes payable The other notes payable were incurred in April 2001 to facilitate the repurchase of common stock owned primarily by James E. Melville and Larry E. Ryherd, two former officers and directors of UTG, and members of their respective families. These notes bear interest at the fixed rate of 7% per annum (paid quarterly) with payments of principal to be made in five equal annual installments, the first principal payment of which, in the amount of $777,199, was made on March 31, 2002. The collective scheduled principal reductions on these notes for the next five years is as follows: Year Amount -------- ----------- 2002 $ 0 2003 777,199 2004 777,199 2005 777,199 2006 777,200 C. Lines of Credit On November 15, 2001, UTG was extended a $3,300,000 line of credit from the First National Bank of the Cumberlands located in Livingston, Tennessee. The First National Bank of the Cumberlands is owned by Millard V. Oakley, who is a Director of UTG. The line of credit will expire one-year from the date of issue. The interest rate on the line of credit is variable and indexed to be the lowest of the U.S. prime rates as published in the money section of the Wall Street Journal, with any interest rate adjustments to be made monthly. At June 30, 2002, the Company had outstanding borrowings of $750,000 attributable to this line of credit. Subsequent to June 30, 2002, an additional draw was taken in the amount of $250,000. The draws on this line of credit are being used to facilitate the payments due to the former shareholders of FCC as a result of, the June 12, 2002 merger of FCC with and into UTG, as further described in note 9 to the consolidated financial statements. On April 1, 2002, UTG was extended a $5,000,000 line of credit from an unaffiliated third party, Southwest Bank of St. Louis. The line of credit will expire one-year from the date of issue. The line was sought to provide UTG with additional liquidity for current operations and the growth of its business. Borrowings under the line of credit will bear interest at the rate of 0.25% in excess of Southwest Bank of St. Louis' prime rate. As collateral for any draws under the line of credit, the former FCC, which has now merged into UTG, pledged 100% of the common stock of its insurance subsidiary UG. At June 30, 2002, UTG had no borrowings attributable to this line of credit. Subsequent to June 30, 2002, a draw was taken in the amount of $400,000 to facilitate the repurchase of UTG common stock as it becomes available, as further described in note 4 to the consolidated financial statements. Borrowings made on the aforementioned lines of credit are expected to be repaid before year-end 2002, using a proposed dividend payment to UTG from its insurance subsidiary UG. 4. CAPITAL STOCK TRANSACTIONS A. Stock Repurchase Program On June 5, 2001, the board of directors of UTG authorized the repurchase from time to time in the open market or in privately negotiated transactions of up to $1 million of UTG's common stock. Repurchased shares under the program will be available for future issuance for general corporate purposes. Through July 31, 2002, UTG has spent $561,673 in the acquisition of 79,931 shares of its common stock under this program. B. Earnings Per Share Calculations Earnings per share are based on the weighted average number of common shares outstanding during each period, retroactively adjusted to give effect to all stock splits, in accordance with Statement of Financial Accounting Standards No. 128. At June 30, 2002 and June 30, 2001 diluted earnings per share were the same as basic earnings per share since the UTG had no dilutive instruments outstanding. C. Officer and Director Stock Purchase Program On March 26, 2002, the Board of Directors of UTG adopted, and on June 11, 2002, the shareholders of UTG approved, the United Trust Group, Inc. Employee and Director Stock Purchase Plan. The plan's purpose is to provide employees and directors of UTG and its subsidiaries an opportunity to invest in shares of UTG common stock. The plan will be administered by the Board of Directors of UTG, and is expected to begin in the third quarter of 2002. A total of 400,000 shares of common stock may be purchased under the plan, subject to appropriate adjustment for stock dividends, stock splits or similar recapitalizations resulting in a change in shares of UTG. The plan is not intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code. 5. COMMITMENTS AND CONTINGENCIES The insurance industry has experienced a number of civil jury verdicts which have been returned against life and health insurers in the jurisdictions in which the Company does business involving the insurers' sales practices, alleged agent misconduct, failure to properly supervise agents, and other matters. Some of the lawsuits have resulted in the award of substantial judgments against the insurer, including material amounts of punitive damages. In some states, juries have substantial discretion in awarding punitive damages in these circumstances. The Company cannot predict the effect that these lawsuits may have on the Company in the future. Under the insurance guaranty fund laws in most states, insurance companies doing business in a participating state can be assessed up to prescribed limits for policyholder losses incurred by insolvent or failed insurance companies. Although the Company cannot predict the amount of any future assessments, most insurance guaranty fund laws currently provide that an assessment may be excused or deferred if it would threaten an insurer's financial strength. Mandatory assessments may be partially recovered through a reduction in future premium tax in some states. The Company does not believe such assessments will be materially different from amounts already provided for in the financial statements, though the amount of any future assessments cannot be predicted with any degree of certainty. The State of Florida began an investigation of industrial life insurance policies in the fall of 1999 regarding policies with race-based premiums. This investigation has quickly spread to other states and to other types of small face amount policies and was expanded to consider the fairness of premiums for all small policies including policies which did not have race-based premiums. The NAIC historically has defined a "small face amount policy" as one with a face amount of $15,000 or less. Under current reviews, some states have increased this amount to policies of $25,000 or less. These states are attempting to force insurers to refund "excess premiums" to insureds or beneficiaries of insureds based on a prior settlement. The Company's insurance subsidiaries have no race-based premium products, but do have policies with face amounts under the above-scrutinized limitations. The outcome of this issue could be dramatic on the insurance industry as a whole as well as the Company itself. The Company will continue to monitor developments regarding this matter to determine to what extent, if any, the Company may be exposed. On November 20, 1998, First Southern Funding ("FSF"), an entity controlled by UTG's Chairman and Chief Executive Officer, Jesse T. Correll, and certain of its affiliates acquired 929,904 shares of common stock of UTG from UTG and certain UTG shareholders. As consideration for the shares, FSF paid UTG $10,999,995 and certain shareholders of UTG $999,990 in cash. Included in the stock acquisition agreement is an earnings covenant whereby UTG warrants UTG and its subsidiaries and affiliates will have future earnings of at least $30,000,000 for a five-year period beginning January 1, 1998. Such earnings are computed based on statutory results excluding inter-company activities such as inter-company dividends plus realized and unrealized gains and losses on real estate, mortgage loans and unaffiliated common stocks. At the end of the covenant period, an adjustment is to be made equal to the difference between the then market value and statutory carrying value of real estate still owned that existed at the beginning of the covenant period. Should UTG not meet the covenant requirements, any shortfall will first be reduced by the actual average tax rate for UTG for the period, then will be further reduced by one-half of the percentage, if any, representing UTG's ownership percentage of the insurance company subsidiaries. This result will then be reduced by $250,000. The remaining amount will be paid by UTG in the form of UTG common stock valued at $15.00 per share with a maximum number of shares to be issued of 500,000, though there is no limit on the number of shares that can be transferred to the extent that there are legal fees, settlements, damage payments or other losses as a result of certain legal actions taken. The price and number of shares shall be adjusted for any applicable stock splits, stock dividends or other recapitalizations. At June 30, 2002, the Company had total earnings of $16,512,582 applicable to this covenant. With less than one-year remaining on the covenant, it appears highly unlikely that UTG will meet the earnings requirements, resulting in UTG being required to issue additional shares to FSF or its assigns. Combining current results with management's expectation for the remainder of 2002, it appears probable at this time that UTG will be required to issue 500,000 shares of its common stock at December 31, 2002 to satisfy this covenant. On June 10, 2002 UTG and Fiserv Life Insurance Solutions ("Fiserv LIS") of Cedar Rapids, Iowa formed an alliance between their respective organizations to provide third party administration (TPA) services to insurance companies seeking business process outsourcing solutions. (See note 11 to the consolidated financial statements). In connection with this alliance UTG paid a license fee to use "ID3" which is a software system owned by Fiserv LIS to administer an array of life, health and annuity products in the insurance industry. UTG additionally contracted with Fiserv LIS to provide datacenter operations for business administered by UTG on the "ID3" system. UTG intends to convert its existing business to "ID3" as soon as practical. UTG has committed to a five-year contract regarding the maintenance and data center operations through Fiserv LIS. UTG projects these costs to be approximately $420,000 per year once fully converted to the "ID3" system. David A. Morlan, individually and on behalf of all others similarly situated v. Universal Guaranty Life Ins., United Trust Assurance Co., United Security Assurance Co., United Trust Group, Inc. and First Commonwealth Corporation, (U.S. Court of Appeals for the Seventh Circuit, Appeal No. 01-3795) As previously reported in UTG's Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2002, on April 26, 1999, the above lawsuit was filed by David Morlan and Louis Black in the Southern District of Illinois against Universal Guaranty Life Insurance Company ("UG") and United Trust Assurance Company ("UTAC") (merged into UG in 1992). After the lawsuit was filed, the plaintiffs, who were former insurance agents, amended their complaint, dropped Louis Black as a plaintiff, and added United Security Assurance Company ("USAC"), UTG and FCC as defendants. The plaintiffs are alleging that they were employees of UG, UTAC or USAC rather than independent contractors. The plaintiffs are seeking class action status and have asked to recover various employee benefits, costs and attorneys' fees, as well as monetary damages based on the defendants' alleged failure to withhold certain taxes. On September 18, 2001, the case was dismissed without prejudice because Morlan lacked standing to pursue the claims against defendants. The plaintiffs appealed the dismissal of the case to the United States Court of Appeals for the Seventh Circuit. Subsequent to the end of this reporting period, on July 26, 2002 the Seventh Circuit ruled in favor of the plaintiffs and directed the district court to reinstate the class action. The Company is petitioning the court for a rehearing on this appeal. In addition to the appeal, a second action was filed entitled; Julie Barrette Ahrens, David Dzuiban, William Milam, Dennis Schneiderman, individually and on behalf of all others similarly situated v Universal Guaranty Life, United Trust Assurance Company, United Security Assurance Company, (United States District Court for the Southern District of Illinois.; Case No: 01-4314-JPG). The Company continues to believe that it has meritorious grounds to defend both the original and related lawsuit, and it intends to defend the cases vigorously. It believes that the defense and ultimate resolution of these lawsuits should not have a material adverse effect upon the business, results of operations or financial condition of the Company. Nevertheless, if the plaintiffs' lawsuits were to be successful, it is likely that such resolution would have a material adverse effect on the Company's business, results of operations and financial condition. At June 30, 2002, the Company maintains a liability of $250,906 to cover estimated legal costs associated with the defense of this matter. UTG and its subsidiaries are named as defendants in a number of general legal actions arising as a part of the ordinary course of business relating primarily to claims made under insurance policies. Those actions have been considered in establishing the Company's liabilities. Management is of the opinion that the settlement of those actions will not have a material adverse effect on the Company's financial position or results of operations. 6. Other Cash Flow Disclosure On a cash basis, the Company paid $132,318 and $136,850 in interest expense during the first six months of 2002 and 2001, respectively. The Company paid $15,290 and $22,013 in federal income tax during the first six months of 2002 and 2001, respectively. At June 30, 2002, the Company sold $1,850,000 in fixed maturity investments for which the cash had not yet been received. The receivable for these securities is included in the line item "Other assets" on the consolidated balance sheet. 7. CONCENTRATION OF CREDIT RISK The Company maintains cash balances in financial institutions that at times may exceed federally insured limits. The Company maintains its primary operating cash accounts with First Southern National Bank, an affiliate of UTG, and its largest shareholder, Chairman and CEO, Jesse Correll. The Company 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. 8. COMPREHENSIVE INCOME Tax Before-Tax (Expense) Net of Tax June 30, 2002 Amount or Benefit Amount ---------------------------------------------- ---------------- ----------------- --------------- Unrealized holding gains during period $ 1,771,811 $ (620,134) $ 1,151,677 Less: reclassification adjustment for gains realized in net income (1,689) 591 (1,098) ---------------- ----------------- --------------- Net unrealized gains (619,543) 1,770,122 1,150,579 ---------------- ----------------- --------------- Other comprehensive income $ 1,770,122 $ (619,543) $ 1,150,579 ================ ================= =============== 9. MERGER OF UNITED TRUST GROUP, INC. AND FIRST COMMONWEALTH CORPORATION On May 21, 2002, at a special meeting of shareholders, the shareholders of FCC, then an 82% owned subsidiary of UTG, voted on and approved that certain Agreement and Plan of Reorganization and related Plan of Merger, each dated as of June 5, 2001, between UTG, and FCC (collectively, the "Merger Agreement"), and the merger contemplated thereby in which FCC would be merged with and into UTG, with UTG being the surviving corporation of the merger. The merger became effective on June 12, 2002. Pursuant to the terms and conditions of the Merger Agreement, each share of FCC stock outstanding at the effective time of the merger (other than shares held by UTG or shares held in treasury by FCC or by one of its subsidiaries) was at such time automatically converted into the right to receive $250 in cash per share. In the merger, UTG acquired the remaining common shares (approximately 18%) of FCC that UTG did not own prior to the effective time of the merger. The purchase price in the merger is comprised of the following components: Investments $ 41,475,198 Cash and cash equivalents 2,020,960 Accrued investment income 493,609 Reinsurance receivables 6,784,813 Cost of insurance acquired (1,371,740) Property and equipment 424,217 Other assets 314,974 ------------------ Total assets 50,142,031 Policy liabilities and accruals (45,981,006) Income taxes payable - current and deferred 1,063,735 Notes payable (1,958,373) Other liabilities (786,387) ------------------ Net purchase price $ 2,480,000 ================== The following table summarizes certain unaudited operating results of UTG as though the merger transaction had taken place at the beginning of the reporting periods ending on June 30, 2002 and December 31, 2001, respectively. June 30, 2002 December 31, 2001 -------------------- -------------------- Total revenues $ 15,656,056 $ 33,329,372 Total benefits and other expenses $ 14,025,582 $ 28,912,280 Operating income $ 1,630,474 $ 4,417,092 Net Income $ 1,164,053 $ 3,274,486 Basic earnings per share $ 0.33 $ 0.86 Diluted earnings per share $ 0.33 $ 0.86 10. PROPOSED CHARTER SALES OF SUBSIDIARIES The Charter of APPL is currently being marketed for sale through an outside broker. The Company intends to proceed with an assumption reinsurance transaction whereby all of the policies in force of APPL would be assumed by UG, an Ohio domiciled company. As a precursor, to a possible sale of its Charter, APPL was redomesticated from the State of West Virginia to the State of Ohio, effective June 1, 2002. The foregoing potential transactions will be subject to any required regulatory approvals and clearances. The Charter of ABE, is also currently being marketed for sale through an outside broker. Should the charter be sold, the Company would like to proceed with an assumption reinsurance transaction whereby most or all of the policies in force of ABE would be assumed by UG. The management of ABE and UG have no time constraints or necessity for completion of this transaction. Should a buyer for the ABE Charter be located, the transaction would be subject to any required regulatory approvals and clearances. 11. UTG ALLIANCE WITH FISERV LIS On June 10, 2002 UTG and Fiserv LIS formed an alliance between their respective organizations to provide third party administration (TPA) services to insurance companies seeking business process outsourcing solutions. Fiserv LIS will be responsible for the marketing and sales function for the alliance, as well as providing the operations processing service for UTG. UTG will staff the administration effort. To facilitate the alliance, UTG plans to convert its existing business and TPA clients to "ID3", a software system owned by Fiserv LIS to administer an array of life, health and annuity products in the insurance industry. Fiserv LIS is a unit of Fiserv, Inc. (Nasdaq: FISV) which is an independent, full-service provider of integrated data processing and information management systems to the financial industry, headquartered in Brookfield, Wisconsin. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The purpose of this section is to discuss and analyze the Company's consolidated results of operations, financial condition and liquidity and capital resources. This analysis should be read in conjunction with the consolidated financial statements and related notes that appear elsewhere in this report. The Company reports financial results on a consolidated basis. The consolidated financial statements include the accounts of UTG and its subsidiaries at June 30, 2002. Cautionary Statement Regarding Forward-Looking Statements - --------------------------------------------------------- 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: 1. Prevailing interest rate levels, which may affect the ability of the Company to sell its products, the market value of the Company's investments and the lapse ratio of the Company's policies, notwithstanding product design features intended to enhance persistency of the Company's products. 2. Changes in the federal income tax laws and regulations which may affect the relative tax advantages of the Company's products. 3. Changes in the regulation of financial services, including bank sales and underwriting of insurance products, which may affect the competitive environment for the Company's products. 4. Other factors affecting the performance of the Company, including, but not limited to, market conduct claims, insurance industry insolvencies, insurance regulatory initiatives and developments, stock market performance, an unfavorable outcome in pending litigation, and investment performance. Results of Operations - --------------------- (a) Revenues Premiums and policy fee revenues, net of reinsurance premiums and policy fees, decreased 7% when comparing the first six months of 2002 to the same period in 2001, and decreased 8% for the second quarter comparison. The Company currently writes little new business. A majority of the new business currently written is universal life insurance. Collected premiums on universal life and interest sensitive products is not reflected in premiums and policy revenues because accounting principles generally accepted in the United States of America requires that premiums collected on these types of products be treated as deposit liabilities rather than revenue. Unless the Company acquires a block of in-force business or significantly increases its marketing of traditional business, management expects premium revenue to continue to decline at a rate consistent with prior experience. During 2001, the Company implemented a conservation effort in an attempt to improve the persistency rate of Company policies. Several of the customer service representatives of the Company have become licensed insurance agents, allowing them to offer other products within the Company's portfolio to existing customers. Additionally, stronger efforts have been made in policy retention through more personal contact with the customer including telephone calls to discuss alternatives and reasons for a customer's request to surrender their policy. Previously, the Company's agency force was primarily responsible for conservation efforts. With the decline in the number of agents, the Company's ability to reach these customers diminished, making conservation efforts difficult. The conservation efforts described above are relatively new, but early results are generally positive. Management will continue to monitor these efforts and make adjustments as seen appropriate to enhance the future success of the program. The Company is currently exploring the introduction of a new product to be specifically used by the licensed customer service representatives as an alternative for the customer in the conservation efforts. The new product has yet to be marketed as of June 30, 2002. Introduction and the success of the new product will depend on the product competitiveness and profitability. Net investment income decreased 17% when comparing the first six months of 2002 to the same period in 2001, and decreased 16% for the second quarter comparison. The national prime rate ranged from a high of 9.50% to a low of 6.75% during the first six months of 2001, and was 4.75% during the first six months of 2002. This resulted in lower earnings on short-term funds as well as on longer-term investments acquired. 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. The Company monitors investment yields, and when necessary adjusts credited interest rates on its insurance products to preserve targeted interest spreads, ranging from 1% to 2%. It is expected that monitoring of the interest spreads by management will provide the necessary margin to adequately provide for associated costs on the insurance policies the Company currently has in force and will write in the future. At the March 2001 Board of Directors meeting, the Boards of the insurance subsidiaries lowered crediting rates one-half percent on all products that could be lowered. With this reduction, the vast majority of the Company's rate-adjustable products are now at their guaranteed minimum rates, and as such, cannot be lowered any further. 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. All of the Company's rate-adjustable products are now at their guaranteed minimum rates. The guaranteed minimum crediting rates on these products range from 3% to 5.5%. The Company had realized investment gains of $11,427 in the first six months of 2002 compared to net realized investment gains of $12,594 for the same period in 2001. The realized gains in 2002 consist of a $6,078 gain on bonds and a $5,349 gain on common stocks. Several significant items comprised the net realized gain in 2001. Net realized gains of $210,587 were attributable to real estate sales, primarily properties formerly owned by APPL in West Virginia, with offsetting net realized losses on bonds of $58,820, common stocks of $62,140 and the sale of certain mortgage loans of $77,033. A quarterly comparison shows realized investment gains of $6,731 for the quarterly period ended June 30, 2002, and $243,163 for the same period in 2001. The large net realized gain during the second quarter of 2001 is attributable to the Company's sale of certain common stock holdings. It should be noted that the Company sold a significant common stock holding at a realized loss of approximately $330,000 in the first quarter of 2001 which resulted in the subsequent net realized loss in common stock for the first six months of 2001. On June 1, 2001, the Company began performing administrative work as a third party administrator ("TPA") for an unaffiliated life insurance company. The business being administered is a closed block with approximately 260,000 policies, a majority of which are paid up. The Company receives monthly fees based on policy in force counts and certain other activity indicators such as number of premium collections performed. During the first six months of 2002, and during the second quarter of 2002, the Company received $231,535, and $106,900 for this work, respectively. These TPA revenue fees are included in the line item "other income" on the Company's consolidated statements of operations. The Company intends to pursue other TPA arrangements, and has recently entered into an alliance with Fiserv Life Insurance Solutions (Fiserv LIS), to provide TPA services to insurance companies seeking business process outsourcing solutions. Fiserv LIS will be responsible for the marketing and sales function for the alliance, as well as providing the datacenter operations. UTG will staff the administration effort. Although still in its early stages, management believes this alliance with Fiserv LIS positions the Company to generate additional revenues by utilizing the Company's strengths, current excess capacity, and efficient, customer oriented, administrative services. (b) Expenses Benefits, claims and settlement expenses net of reinsurance benefits and claims, decreased 7% in the first six months of 2002 compared to the same period in 2001, and decreased 11% for the second quarter comparison. Death benefit claims were approximately $154,000 and $165,000 less in the first six months of 2002 and for the second quarter of 2002 as compared to the same periods in 2001, respectively. Although death claims were less than the prior periods, there were a few high face amount death claims in 2002, which the Company had reinsured, to limit any potential liability in excess of $125,000 per life. Consequently, the reinsurance benefits and claims received, increased accordingly. Policy claims vary from year to year and therefore, fluctuations in mortality are to be expected and are not considered unusual by management. The reserve decreases on interest sensitive business in force is due to the reduction of interest crediting rates and decrease in death benefit claims. Reserves continue to increase on in-force policies as the age of the insureds increases. Commissions and amortization of deferred policy acquisition costs decreased 34% for the first sixth months of 2002 compared to the same period in 2001, and decreased 13% for the second quarter comparison. The most significant factor in the decrease is attributable to the Company paying fewer commissions, since the company writes very little new business and renewal premiums on existing business continue to decline. Another factor of the decrease is attributable to normal amortization of the deferred policy acquisition costs asset. The Company does review the recoverability of the asset based on current trends and known events compared to the assumptions used in the establishment of the original asset. No impairments were recorded in either of the periods reported. (c) Net income The Company had a net income of $1,199,713 in the first six months of 2002 compared to net income of $1,319,150 for the same period in 2001 and net income of $722,679 in the second quarter of 2002 as compared to $975,292 for the second quarter of 2001. The decrease in net income can be attributed to declining premium revenues and a significant decrease in net investment income which was partially offset by a collective net decrease in expenses the most significant of which was the offset to net claim expenses. Financial Condition - ------------------- Total shareholders' equity increased approximately $1,900,000 at June 30, 2002 compared to December 31, 2001. The increase was attributable to net income of approximately $1,200,000 and unrealized gains on investments of approximately $1,100,000, partially offset by the effect of purchasing treasury shares which amounted to approximately $400,000. Investments represent approximately 74% and 71% of total assets at June 30, 2002 and December 31, 2001, respectively. Accordingly, 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, the majority of the Company's investment portfolio is invested in high quality, low risk investments. The Company does not own any "junk bonds" or similar investments. As of June 30, 2002, the carrying value of fixed maturity securities in default as to principal or interest was immaterial in the context of consolidated assets or shareholders' equity of the Company. The Company has identified securities it may sell and classified them as "investments held for sale". Investments held for sale are carried at market, with changes in market value charged directly to shareholders' equity. To provide additional flexibility and liquidity, the Company has categorized almost all fixed maturity investments acquired since 2000 as available for sale. Liquidity and Capital Resources - ------------------------------- The Company has three principal needs for cash - the insurance companies' contractual obligations to policyholders, the payment of operating expenses and the servicing of its long-term debt. Cash and cash equivalents as a percentage of total assets were approximately 4% and 5% as of June 30, 2002, and December 31, 2001, respectively. Fixed maturities as a percentage of total invested assets were approximately 74% as of June 30, 2002 and December 31, 2001. Future policy benefits are primarily long-term in nature and therefore, the Company's investments are predominantly in long-term fixed maturity investments such as bonds and mortgage loans which provide sufficient return to cover these obligations. The Company has the ability and intent to hold these investments to maturity; consequently, the Company's investment in long-term fixed maturities held to maturity is reported in the financial statements at their amortized cost. The investments held for sale are carried at market value, with changes in market value directly charged to shareholders' equity. To provide additional flexibility and liquidity, the Company has categorized almost all fixed maturity investments acquired since 2000 as available for sale. Many of the Company's products contain surrender charges and other features which reward persistency and penalize the early withdrawal of funds. With respect to such products, surrender charges are generally sufficient to cover the Company's unamortized deferred policy acquisition costs with respect to the policy being surrendered. Net cash provided by (used in) operating activities was $(27,762) and $571,459 for the six month periods ending June 30, 2002 and June 30, 2001, respectively. The net cash provided by operating activities plus net policyholder contract deposits after the payment of policyholder withdrawals equaled $1,394,545 for the first six months of 2002 and $1,399,142 for the same period in 2001. Management utilizes this measurement of cash flows as an indicator of the performance of the Company's insurance operations, since reporting regulations require cash inflows and outflows from universal life insurance products to be shown as financing activities when reporting on cash flows. Net cash provided by (used in) investing activities was $(3,393,271) and $1,416,114, for the six month periods ending June 30, 2002 and June 30, 2001, respectively. The most significant aspect of cash provided by (used in) investing activities are the fixed maturity transactions. Fixed maturities account for 80% and 81% of the total cost of investments acquired in the first six months of 2002 and for the same period in 2001, respectively. The Company has not directed its investable funds to so-called "junk bonds" or similar investments. Net cash provided by (used in) financing activities was $(268,272) and $(240,750) for the six month periods ending June 30, 2002 and June 30, 2001, respectively. Policyholder contract deposits decreased 11% in the first six months of 2002 compared to the same period in 2001. Policyholder contract withdrawals decreased 25% in the first six months of 2002 of 2002 compared to the same period in 2001. In addition, as of June 30, 2002, the Company had purchased $413,018 in treasury stock under its stock repurchase program, and paid former FCC shareholders $1,137,250 pursuant to the merger of FCC with and into UTG on June 12, 2002. At June 30, 2002, the Company had a total of $4,260,359 in long-term debt outstanding. $3,108,797 is debt relating to the April 2001 purchase by UTG of the common stock owned primarily by James E. Melville and Larry E. Ryherd, two former officers and directors of the Company, and members of their respective families. Future principal payments of $777,199 are due annually over the next four years at an interest rate of 7% per annum (annual payments due April 12). Other debt of $401,562 bears interest at a floating rate of 1% below prime (paid quarterly) with no principal payments due until its maturity in 2012. Subsequent to June 30, 2002, this debt was retired with a $401,562 principal payment made on July 9, 2002. As of June 30, 2002 the Company had borrowings of $750,000 on a line of credit from the First National Bank of the Cumberlands at a floating rate equal to prime which is currently 4.75%. Subsequent to June 30, 2002, an additional draw was taken in the amount of $250,000. The draws on this line of credit are being used to facilitate the payment due to former FCC shareholders, following the June 12, 2002 merger of FCC with and into UTG. The amount of such payments was just slightly over $1,000,000 as of July 31, 2002. As of June 30, 2002 the Company had no outstanding borrowings attributable to a line of credit from Southwest Bank of St. Louis. Borrowings under this line of credit will bear interest at the rate of .25% in excess of Southwest Bank of St. Louis' prime rate. Subsequent to June 30, 2002, a draw was taken in the amount of $400,000 to facilitate the repurchase of shares of UTG common stock under UTG's stock repurchase program, as such shares become available. Management believes overall sources of cash available are more than adequate to service the Company's debt. These sources include current cash balances of UTG, expected future operating cashflows and repayment of affiliate receivables held by UTG. Borrowings made on the aforementioned lines of credit are expected to be repaid using a proposed dividend payment to UTG from the Company's insurance subsidiary UG. UTG is a holding company and pays the operating expenses for itself and its subsidiaries. Funds required to meet its expenses, are primarily provided through the receipt of management fees from its subsidiaries. At June 30, 2002, substantially all of the consolidated shareholders' equity represents net assets of its subsidiaries and receivables from its subsidiaries. The Company's insurance subsidiaries have maintained adequate statutory capital and surplus and have not used surplus relief or financial reinsurance, which have come under scrutiny by many state insurance departments. The payment of cash dividends to shareholders is not legally restricted. However, the state insurance department regulates insurance company dividend payments where the company is domiciled. UTG is the parent of UG. UG's dividend limitations are described below. Ohio domiciled insurance companies such as UG require five days prior notification to the insurance commissioner for the payment of an ordinary dividend. Ordinary dividends are defined as the greater of: a) prior year statutory earnings or b) 10% of statutory capital and surplus. For the year ended December 31, 2001, UG had a statutory gain from operations of $2,212,215. At December 31, 2001, UG's statutory capital and surplus amounted to $16,105,265. Extraordinary dividends (amounts in excess of ordinary dividend limitations) require prior approval of the insurance commissioner and are not restricted to a specific calculation. UG paid an ordinary dividend of $800,000 to UTG through the former FCC in April 2002. Management believes the overall sources of liquidity available will be sufficient to satisfy the Company's financial obligations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Market risk relates, broadly, to changes in the value of financial instruments that arise from adverse movements in interest rates, equity prices and foreign exchange rates. The Company is exposed principally to changes in interest rates, which affect the market prices of its fixed maturities available for sale and its variable rate debt outstanding. The Company's exposure to equity prices and foreign currency exchange rates is immaterial. The information presented below is in U.S. dollars, the Company's reporting currency. Interest rate risk The Company could experience economic losses if it were required to liquidate fixed income securities available for sale during periods of rising and/or volatile interest rates. The Company attempts to mitigate its exposure to adverse interest rate movements through a staggering of the maturities of its fixed maturity investments and through maintaining cash and other short term investments to assure sufficient liquidity to meet its obligations and to address reinvestment risk considerations. Tabular presentation The following table provides information about the Company's long term debt that is sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. The Company has no derivative financial instruments or interest rate swap contracts. - ------------------------------------------------------------------------------------------------------------------ June 30, 2002 - ------------------------------------------------------------------------------------------------------------------ Expected maturity date - ------------------------------------------------------------------------------------------------------------------ 2002 2003 2004 2005 2006 Thereafter Total Fair value - ------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ ------------- Long term debt - ------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ ------------- Fixed rate 0 777,199 777,199 777,199 777,200 0 3,108,797 3,250,204 - ------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ ------------- Avg. int. rate 0 7.0% 7.0% 7.0% 7.0% 0 7.0% - ------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ ------------- Variable rate 750,000 0 0 0 0 401,562 1,151,562 1,093,486 - ------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ ------------- Avg. int. rate 4.75% 0 0 0 0 3.75% 4.40% - ------------------ ---------- ---------- ---------- ---------- ---------- ------------- ------------ ------------- PART II. OTHER INFORMATION. ITEM 1. LEGAL PROCEEDINGS. See the Morlan and related case discussion in note 5 to the consolidated financial statements, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the Annual Meeting of Shareholders held on June 11, 2002, the following matters were submitted to the shareholders of UTG and voted on as indicated: 1. To elect nine directors to serve for a term of one year and until their successors are elected and qualified: - --------------------------- --------------- ---------------- --------------- DIRECTOR FOR WITHHELD AGAINST - --------------------------- --------------- ---------------- --------------- John S. Albin 2,556,428 22,977 366 - --------------------------- --------------- ---------------- --------------- Randall L. Attkisson 2,555,578 22,977 1,216 - --------------------------- --------------- ---------------- --------------- Jesse T. Correll 2,556,010 22,977 784 - --------------------------- --------------- ---------------- --------------- Ward F. Correll 2,556,550 22,977 244 - --------------------------- --------------- ---------------- --------------- Thomas F. Darden 2,556,062 22,977 732 - --------------------------- --------------- ---------------- --------------- Millard V. Oakley 2,556,508 22,977 286 - --------------------------- --------------- ---------------- --------------- William W. Perry 2,556,122 22,977 672 - --------------------------- --------------- ---------------- --------------- James P. Rousey 2,555,578 22,977 1,216 - --------------------------- --------------- ---------------- --------------- Robert W. Teater 2,556,232 22,977 562 - --------------------------- --------------- ---------------- --------------- 2. To approve and adopt the UTG Employee and Director Stock Purchase Plan: For 2,387,828 Against 55,296 Abstain 27,085 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS Exhibit Number Description 3.1 Articles of Incorporation of UTG and all amendments thereto. 3.2 Bylaws of UTG and all amendments thereto. 4.1 UTG's Agreement pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K with respect to long-term debt instruments. 10.1 United Trust Group, Inc. Employee and Director Stock Purchase Plan (incorporated by reference to Appendix A to the Definitive Proxy statement on Schedule 14A filed by UTG on May 9, 2002) (Commission No. 000-16867). 99.1 Certificate of Jesse T. Correll, Chief Executive Officer and Chairman of the Board of UTG, as required pursuant to 18 U.S.C. Section 1350 99.2 Certificate of Theodore C. Miller, Chief Financial Officer, Senior Vice President and Corporate Secretary of UTG, as required pursuant to 18 U.S.C. Section 1350 (B) REPORTS ON FORM 8-K On May 22, 2002, UTG filed a report dated May 21, 2002 on Form 8-K under item 5 "Other Events", relating to the proposed merger of FCC with and into UTG, which the respective shareholders of FCC voted on and approved on May 21, 2002. On June 10, 2002, UTG filed a report dated June 10, 2002 on Form 8-K under item 9 "Regulation FD Disclosure" announcing the formation of an alliance with FISERV LIS to provide business process outsourcing. On June 13, 2002, UTG filed a report dated June 12, 2002 on Form 8-K under item 5 "Other Events and Regulation FD Disclosure" relating to the press release announcing that the merger of FCC with and into UTG became effective on June 12, 2002. ITEMS 2, 3, AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNITED TRUST GROUP, INC. ------------------------ (Registrant) Date: August 12, 2002 By /s/ Randall L. Attkisson Randall L. Attkisson President, Chief Operating Officer and Director Date: August 12, 2002 By /s/ Theodore C. Miller Theodore C. Miller Senior Vice President and Chief Financial Officer