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United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934

 

For the quarterly period ended June 30, 2024

 

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period From to .

 

Commission file number: 000-52613

 

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Oklahoma 34-1991436
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

 

7633 East 63rd Place, Suite 230

Tulsa, Oklahoma 74133-1246

(Address of principal executive offices)

 

(918) 249-2438

(Registrant's telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer:  ☐ 

Accelerated filer:  ☐

Non-accelerated filer:  ☐

Smaller reporting company:  

Emerging growth company: 

 

   

 

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

 

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

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 12, 2024, the registrant had 9,384,340 shares of Class A common stock, .01 par value, outstanding and 101,102 shares of Class B common stock, .01 par value, outstanding.

 

Securities registered pursuant to section 12(b) of the Act: None.

 

 

  

 

FIRST TRINITY FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2024

 

TABLE OF CONTENTS

 

 

PART I.  FINANCIAL INFORMATION

Page Number

   

Item 1. Consolidated Financial Statements

 
   

Consolidated Statements of Financial Position as of June 30, 2024 (Unaudited) and December 31, 2023

3

   

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)

4

   

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)

5

   

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited)

6

   

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)

7

   

Notes to Consolidated Financial Statements (Unaudited)

9

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

   

Item 4.  Controls and Procedures

65

   

Part II.  OTHER INFORMATION

 
   

Item 1.  Legal Proceedings

66

   

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

66

   

Item 3.  Defaults upon Senior Securities

66

   

Item 4.  Mine Safety Disclosures

66

   

Item 5.  Other Information

67

   

Item 6.  Exhibits

67

   

Signatures

68

   
Exhibit No. 31.1    
Exhibit No. 31.2  
Exhibit No. 32.1   
Exhibit No. 32.2  
Exhibit No. 101.INS  
Exhibit No. 101.SCH  
Exhibit No. 101.CAL  
Exhibit No. 101.DEF  
Exhibit No. 101.LAB  
Exhibit No. 101.PRE  

 

2

  

 

PART I FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 

Assets

               

Investments

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $165,509,608 and $161,908,230 as of June 30, 2024 and December 31, 2023, respectively)

  $ 151,753,077     $ 149,700,948  

Equity securities at fair value (cost: $279,508 and $287,375 as of June 30, 2024 and December 31, 2023, respectively)

    447,028       419,530  

Mortgage loans on real estate

    203,916,971       239,831,447  

Investment real estate

    1,739,048       1,305,403  

Policy loans

    3,742,282       3,474,116  

Short-term investments

    -       298,257  

Other long-term investments

    60,810,561       61,487,939  

Total investments

    422,408,967       456,517,640  

Cash and cash equivalents

    61,812,030       33,839,741  

Accrued investment income

    5,599,372       6,214,459  

Recoverable from reinsurers

    10,085,589       10,353,674  

Assets held in trust under coinsurance agreement

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $29,585,588 and $56,824,160 as of June 30, 2024 and December 31, 2023, respectively)

    24,496,982       51,651,259  

Mortgage loans on real estate

    16,721,330       27,581,881  

Payable for securities

    (8,454 )     (4,414 )

Cash and cash equivalents

    143,740       711,733  

Total assets held in trust under coinsurance agreement

    41,353,598       79,940,459  

Agents' balances and due premiums

    1,455,189       1,284,003  

Deferred policy acquisition costs

    63,065,004       60,795,108  

Value of insurance business acquired

    3,682,177       3,777,353  

Other assets

    10,669,295       19,299,098  

Total assets

  $ 620,131,221     $ 672,021,535  

Liabilities and Shareholders' Equity

               

Policy liabilities

               

Policyholders' account balances

  $ 361,873,240     $ 391,247,676  

Future policy benefits

    129,982,551       123,729,530  

Policy claims

    2,467,191       2,410,243  

Other policy liabilities

    307,688       250,294  

Total policy liabilities

    494,630,670       517,637,743  

Funds withheld under coinsurance agreement

    37,035,560       77,257,253  

Deferred federal income taxes

    4,387,671       4,228,189  

Other liabilities

    18,100,812       8,882,142  

Total liabilities

    554,154,713       608,005,327  

Shareholders' equity

               

Class A common stock, par value $.01 per share (40,000,000 shares authorized as of June 30, 2024 and December 31, 2023, 9,631,920 issued as of June 30, 2024 and December 31, 2023, 9,384,340 outstanding as of June 30, 2024 and December 31, 2023)

    96,319       96,319  

Class B common stock, par value $.01 per share (10,000,000 shares authorized, 101,102 issued and outstanding as of June 30, 2024 and December 31, 2023)

    1,011       1,011  

Additional paid-in capital

    43,668,023       43,668,023  

Treasury stock, at cost (247,580 shares as of June 30, 2024 and December 31, 2023)

    (893,947 )     (893,947 )

Accumulated other comprehensive loss

    (10,865,141 )     (9,641,308 )

Accumulated earnings

    33,970,243       30,786,110  

Total shareholders' equity

    65,976,508       64,016,208  

Total liabilities and shareholders' equity

  $ 620,131,221     $ 672,021,535  

 

See notes to consolidated financial statements.

 

3

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Revenues

                               

Premiums

  $ 10,302,404     $ 9,599,539     $ 19,953,409     $ 18,707,848  

Net investment income

    7,668,417       7,446,396       15,626,294       15,074,212  

Net realized investment losses

    (159,965 )     (112,070 )     (119,904 )     (143,521 )

Loss on impairments

    (129,436 )     -       (129,436 )     -  

Service fees

    498,484       1,110,994       746,166       2,093,842  

Other income

    (36,774 )     8,014       608,809       8,433  

Total revenues

    18,143,130       18,052,873       36,685,338       35,740,814  

Benefits, Claims and Expenses

                               

Benefits and claims

                               

Increase in future policy benefits

    3,835,769       3,195,351       6,416,784       6,483,015  

Death benefits

    3,370,887       3,156,135       6,881,640       7,109,297  

Surrenders

    581,841       668,266       1,159,198       1,101,132  

Interest credited to policyholders

    3,600,321       3,805,863       7,267,805       7,421,969  

Dividend, endowment and supplementary life contract benefits

    95,642       87,510       180,658       168,782  

Total benefits and claims

    11,484,460       10,913,125       21,906,085       22,284,195  

Policy acquisition costs deferred

    (4,341,346 )     (3,664,613 )     (7,266,639 )     (7,400,224 )

Amortization of deferred policy acquisition costs

    2,671,126       2,258,279       4,996,837       4,279,690  

Amortization of value of insurance business acquired

    43,839       73,257       95,176       141,499  

Commissions

    4,030,610       3,433,682       6,812,337       6,993,690  

Other underwriting, insurance and acquisition expenses

    2,466,099       3,139,947       6,075,598       6,294,841  

Total expenses

    4,870,328       5,240,552       10,713,309       10,309,496  

Total benefits, claims and expenses

    16,354,788       16,153,677       32,619,394       32,593,691  

Income before total federal income tax expense

    1,788,342       1,899,196       4,065,944       3,147,123  

Current federal income tax expense

    263,435       109,128       397,007       255,001  

Deferred federal income tax expense

    134,927       288,159       484,804       375,117  

Total federal income tax expense

    398,362       397,287       881,811       630,118  

Net income

  $ 1,389,980     $ 1,501,909     $ 3,184,133     $ 2,517,005  

Net income per common share

                               

Class A common stock

  $ 0.1468     $ 0.1586     $ 0.3362     $ 0.2658  

Class B common stock

  $ 0.1248     $ 0.1348     $ 0.2858     $ 0.2259  

 

See notes to consolidated financial statements (unaudited).

 

4

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income 

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2024

   

2023

   

2024

   

2023

 

Net income

  $ 1,389,980     $ 1,501,909     $ 3,184,133     $ 2,517,005  

Other comprehensive income (loss)

                               

Total net unrealized investment gains (losses) arising during the period

    (895,539 )     (1,865,053 )     (1,593,362 )     1,711,883  

Less net realized investment losses having no credit losses

    (42,415 )     (31,281 )     (44,113 )     (49,603 )

Net unrealized investment gains (losses)

    (853,124 )     (1,833,772 )     (1,549,249 )     1,761,486  

Less adjustment to deferred acquisition costs

    (191 )     (363 )     (94 )     728  

Other comprehensive income (loss) before federal income tax expense (benefit)

    (852,933 )     (1,833,409 )     (1,549,155 )     1,760,758  

Federal income tax expense (benefit)

    (179,116 )     (385,017 )     (325,322 )     369,759  

Total other comprehensive income (loss)

    (673,817 )     (1,448,392 )     (1,223,833 )     1,390,999  

Total comprehensive income

  $ 716,163     $ 53,517     $ 1,960,300     $ 3,908,004  

 

See notes to consolidated financial statements (unaudited).

 

5

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Three and Six Months Ended June 30, 2024 and 2023

(Unaudited)

 

   

Class A

   

Class B

                   

Accumulated

                 
   

Common

   

Common

   

Additional

           

Other

           

Total

 
   

Stock

   

Stock

   

Paid-in

   

Treasury

   

Comprehensive

   

Accumulated

   

Shareholders'

 
   

$.01 Par Value

   

$.01 Par Value

   

Capital

   

Stock

   

Loss

   

Earnings

   

Equity

 

Three months ended June 30, 2023

                                                       

Balance as of April 1, 2023

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (11,250,252 )   $ 23,885,845     $ 55,506,999  

Comprehensive income (loss):

                                                       

Net income

    -       -       -       -       -       1,501,909       1,501,909  

Other comprehensive loss

    -       -       -       -       (1,448,392 )     -       (1,448,392 )

Balance as of June 30, 2023

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (12,698,644 )   $ 25,387,754     $ 55,560,516  
                                                         

Six months ended June 30, 2023

                                                       

Balance as of January 1, 2023

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (14,319,679 )   $ 23,100,785     $ 51,652,512  

Cumulative effect adjustment as of January 1, 2023:

                                                       

Accumulated credit loss January 1, 2023

    -       -       -       -       230,036       (230,036 )     -  

Adjusted balance as of January 1, 2023

    96,319       1,011       43,668,023       (893,947 )     (14,089,643 )     22,870,749       51,652,512  

Comprehensive income:

                                                       

Net income

    -       -       -       -       -       2,517,005       2,517,005  

Other comprehensive income

    -       -       -       -       1,390,999       -       1,390,999  

Balance as of June 30, 2023

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (12,698,644 )   $ 25,387,754     $ 55,560,516  
                                                         

Three months ended June 30, 2024

                                                       

Balance as of April 1, 2024

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (10,191,324 )   $ 32,580,263     $ 65,260,345  

Comprehensive income (loss):

                                                       

Net income

    -       -       -       -       -       1,389,980       1,389,980  

Other comprehensive loss

    -       -       -       -       (673,817 )     -       (673,817 )

Balance as of June 30, 2024

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (10,865,141 )   $ 33,970,243     $ 65,976,508  
                                                         

Six months ended June 30, 2023

                                                       

Balance as of January 1, 2024

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (9,641,308 )   $ 30,786,110     $ 64,016,208  

Comprehensive income (loss):

                                                       

Net income

    -       -       -       -       -       3,184,133       3,184,133  

Other comprehensive income loss

    -       -       -       -       (1,223,833 )     -       (1,223,833 )

Balance as of June 30, 2024

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (10,865,141 )   $ 33,970,243     $ 65,976,508  

 

See notes to consolidated financial statements (unaudited).

 

6

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows 

(Unaudited) 

 

   

Six Months Ended June 30,

 
   

2024

   

2023

 

Operating activities

               

Net income

  $ 3,184,133     $ 2,517,005  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Accretion of discount on investments

    (2,346,688 )     (2,518,435 )

Net realized investment losses

    119,904       143,521  

Loss on impairments

    129,436       -  

Amortization of policy acquisition cost

    4,996,837       4,279,690  

Policy acquisition cost deferred

    (7,266,639 )     (7,400,224 )

Amortization of value of insurance business acquired

    95,176       141,499  

Allowance for mortgage loan losses

    (158,346 )     39,426  

Provision for deferred federal income tax expense

    484,804       375,117  

Interest credited to policyholders

    7,267,805       7,421,969  

Change in assets and liabilities:

               

Accrued investment income

    615,087       (767,410 )

Recoverable from reinsurers

    268,085       427,815  

Assets held in trust under coinsurance agreement

    39,968,624       7,141,323  

Agents' balances and due premiums

    (171,186 )     (44,479 )

Other assets

    8,629,803       (12,705,521 )

Future policy benefits

    6,253,021       6,141,203  

Policy claims

    56,948       (601,375 )

Other policy liabilities

    57,394       151,565  

Other liabilities (excludes change in payable for securities purchased of $538,068 and $756,933 in 2024 and 2023, respectively)

    8,680,602       (3,044,312 )

Net cash provided by operating activities

    70,864,800       1,698,377  
                 

Investing activities

               

Purchases of fixed maturity securities

    (7,196,831 )     (223,594 )

Maturities of fixed maturity securities

    1,400,000       355,000  

Sales of fixed maturity securities

    2,051,501       2,158,558  

Purchases of equity securities

    (45,542 )     (63,479 )

Joint venture distributions

    53,409       49,646  

Purchases of mortgage loans

    (37,309,014 )     (74,416,806 )

Payments on mortgage loans

    72,861,854       71,963,905  

Purchases of other long-term investments

    (4,932,676 )     (5,523,698 )

Payments on other long-term investments

    7,902,326       7,683,912  

Net change in policy loans

    (268,166 )     (234,498 )

Net change in short-term investments

    298,257       (239,904 )

Net change in receivable and payable for securities sold and purchased

    538,068       756,933  

Net cash provided by investing activities

    35,353,186       2,265,975  
                 

Financing activities

               

Policyholders' account deposits

    47,417,280       57,781,005  

Policyholders' account withdrawals

    (125,662,977 )     (52,345,302 )

Net cash provided by (used in) financing activities

    (78,245,697 )     5,435,703  
                 

Increase in cash and cash equivalents

    27,972,289       9,400,055  

Cash and cash equivalents, beginning of period

    33,839,741       33,542,725  

Cash and cash equivalents, end of period

  $ 61,812,030     $ 42,942,780  

 

See notes to consolidated financial statements (unaudited).

 

7

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

Supplemental Disclosure – Cash and Non-Cash Impact on Investing Activities

(Unaudited)

 

During the six months ended June 30, 2024, the Company foreclosed on residential mortgage loans of real estate totaling $563,081 and transferred that property to investment real estate that is now held for sale.

 

In conjunction with this foreclosure, the non-cash impact on investing activities is summarized as follows:

 

   

Six Months Ended

 
   

June 30, 2024

 

Reductions in mortgage loans due to foreclosure

  $ 563,081  

Investment real estate held-for-sale acquired through foreclosure

    (563,081 )

Net cash used in investing activities

  $ -  

 

See notes to consolidated financial statements (unaudited).

 

8

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

 

1. Organization and Significant Accounting Policies

 

Nature of Operations

 

First Trinity Financial Corporation (the “Company” or “FTFC”) is the parent holding company of Trinity Life Insurance Company (“TLIC”), Family Benefit Life Insurance Company (“FBLIC”), Trinity Mortgage Corporation (“TMC”) and Trinity American, Inc. (“TAI”). The Company was incorporated in Oklahoma on April 19, 2004, for the primary purpose of organizing a life insurance subsidiary.

 

The Company owns 100% of TLIC. TLIC owns 100% of FBLIC. TLIC and FBLIC are primarily engaged in the business of marketing, underwriting and distributing a broad range of individual life insurance and annuity products to individuals. TLIC’s and FBLIC’s current product portfolio consists of a modified premium whole life insurance policy with a flexible premium deferred annuity rider, whole life, term, final expense, accidental death and dismemberment and annuity products. The term products are both renewable and convertible and issued for 10, 15, 20 and 30 years. They can be issued with premiums fully guaranteed for the entire term period or with a limited premium guarantee. The final expense product is issued as either a simplified issue or as a graded benefit, determined by underwriting. The TLIC and FBLIC products are sold through independent agents. TLIC is licensed in the states of Alabama, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah and West Virginia. FBLIC is licensed in the states of Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia and West Virginia.

 

The Company owns 100% of TMC that was incorporated in 2006 and began operations in January 2007. TMC’s primary focus changed during 2020 from premium financing loans to originating, brokering and administrating residential and commercial mortgage loans for third parties.

 

The Company owns 100% of TAI. TAI was incorporated in Barbados, West Indies on March 24, 2016 for the primary purpose of forming a life insurance company producing United States of America (U.S.) dollar denominated life insurance policies and annuity contracts outside of the United States and Barbados. TAI is licensed as an Exempt Insurance Company under the Exempt Insurance Act of Barbados. TAI was initially involved in developing life insurance and annuity contracts through an association with distribution channels but is now issuing life insurance policies and annuity contracts. The Company’s acquisition of TAI was formally approved by Barbados regulators and the certifications were received in 2019.

 

Company Capitalization

 

The Company raised $1,450,000 from two private placement stock offerings during 2004 and $25,669,480 from two public stock offerings and one private placement stock offering from June 22, 2005 through February 23, 2007; June 29, 2010 through April 30, 2012 and August 15, 2012 through March 8, 2013. The Company issued 7,347,488 shares of its common stock and incurred $3,624,518 of offering costs during these private placements and public stock offerings. On January 1, 2020, the Company issued 168,866 shares in connection with its acquisition of K-TENN Insurance Company (“K-TENN”).

 

The Company also issued 702,685 shares of its common stock in connection with two stock dividends paid to shareholders in 2011 and 2012 that resulted in accumulated earnings being charged $5,270,138 with an offsetting credit of $5,270,138 to common stock and additional paid-in capital. In 2020, the Company paid a $0.05 per share cash dividend for a total of $393,178 and issued 791,339 shares of Class A common stock in connection with a 10% stock dividend to its Class A shareholders. The 10% stock dividend resulted in accumulated earnings being charged $8,657,249 with an offsetting credit of $8,657,249 to common stock and additional paid-in capital.

 

The Company has also purchased 247,580 shares of treasury stock at a cost of $893,947 from former members of the Board of Directors including the former Chairman of the Board of Directors, a former agent, the former spouse of the Company’s Chairman, Chief Executive Officer and President and a charitable organization where a former member of the Board of Directors had donated shares of the Company’s common stock.

 

9

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

Acquisition of Other Companies

 

On December 23, 2008, FTFC acquired 100% of the outstanding common stock of First Life America Corporation (“FLAC”) from an unaffiliated company. The acquisition of FLAC was accounted for as a purchase. The aggregate purchase price for FLAC was $2,695,234 including direct costs associated with the acquisition of $195,234. The acquisition of FLAC was financed with the working capital of FTFC.

 

On December 31, 2008, FTFC made FLAC a 15 year loan in the form of a surplus note in the amount of $250,000 with an interest rate of 6% payable monthly, that was approved by the Oklahoma Insurance Department (“OID”). This surplus note is eliminated in consolidation.

 

On August 31, 2009, two of the Company’s subsidiaries, Trinity Life Insurance Company (“Old TLIC”) and FLAC, were merged, with FLAC being the surviving company. Immediately following the merger, FLAC changed its name to TLIC.

 

On December 28, 2011, TLIC acquired 100% of the outstanding common stock of FBLIC from FBLIC’s shareholders. The acquisition of FBLIC was accounted for as a purchase. The aggregate purchase price for the acquisition of FBLIC was $13,855,129. The acquisition of FBLIC was financed with the working capital of TLIC.

 

On April 28, 2015, the Company acquired a block of life insurance policies and annuity contracts according to the terms of an assumption reinsurance agreement. The Company acquired assets of $3,644,839, assumed liabilities of $3,055,916 and recorded a gain on reinsurance assumption of $588,923.

 

On April 3, 2018, FTFC acquired 100% of the outstanding stock of TAI domiciled in Barbados, West Indies. The Barbados regulators approved the acquisition and supplied certifications during 2019. The aggregate purchase price for the acquisition of TAI was $250,000. The acquisition of TAI was financed with the working capital of FTFC.

 

Effective January 1, 2020, the Company acquired 100% of the outstanding common stock of K-TENN insurance company (“K-TENN”) from its sole shareholder in exchange for 168,866 shares of FTFC’s common stock. The acquisition of K-TENN was accounted for as a purchase. The aggregate purchase price of K-TENN was $1,746,240. Immediately subsequent to this acquisition, the $1,746,240 of net assets and liabilities of K-TENN along with the related life insurance business operations were contributed to TLIC.

 

On January 4, 2022, FTFC acquired Royalty Capital Life Insurance Company (“RCLIC”) from Royalty Capital Corporation (“Royalty”) in exchange for 722,644 shares of FTFC’s Class A common stock issued to unrelated parties. Royalty was dissolved immediately after FTFC acquired RCLIC. On March 1, 2022, the Missouri Department of Commerce and Insurance approved FTFC’s contribution and merger of RCLIC into FBLIC.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

 

The results of operations for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ended December 31, 2024 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to consolidated financial statements prepared in accordance with U.S. GAAP, but which is not required for interim reporting purposes, has been condensed or omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 2023.

 

10

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

In first quarter 2023, the Company adopted Accounting Standards Update 2016-13 Financial Instruments Credit Losses: Measurement of Credit Losses on Financial Instruments and all related guidance dealing with the FASB’s pronouncements dealing with changes in accounting for and recognizing credit losses.

 

Fixed maturity securities comprised of bonds and redeemable preferred securities are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of applicable income taxes, reported in accumulated other comprehensive income. The amortized cost of fixed maturity securities available-for-sale is adjusted for amortization of premium and accretion of discount to maturity.

 

Interest income on fixed maturity securities, as well as the related amortization of premium and accretion of discount, is included in net investment income under the effective yield method. Dividend income on redeemable preferred securities are recognized in net investment income when declared. The amortized cost of fixed maturity securities available-for-sale are written down to fair value when a decline in value is considered to be other-than-temporary.

 

The Company evaluates the difference between the cost or amortized cost and estimated fair value of its fixed maturity securities to determine whether any decline in value is the result of a credit loss or other factors. An allowance for credit losses is recorded against available-for-sale securities to reflect the amount of an unrealized loss attributed to credit. This impairment is limited by the amount that the fair value is less than the amortized cost basis. Any remaining unrealized loss is recognized in other comprehensive income (loss) with no change to the cost basis of the security. This determination involves a degree of uncertainty. Changes in the allowance for credit losses are recognized in earnings. 

 

The assessment and determination of whether or not a credit loss exists is based on consideration of the cash flows expected to be collected from the fixed maturity security. The Company develops those expectations after considering various factors such as agency ratings, the financial condition of the issuer or underlying obligors, payment history, payment structure of the security, industry and market conditions, underlying collateral, and other factors that may be relevant based on the facts and circumstances pertaining to individual securities.

 

If the Company intends to sell the fixed maturity security or will be more likely than not be required to sell the fixed maturity security before recovery of its amortized cost basis, then any allowance for credit losses, if previously recorded is written off and the fixed maturity security’s amortized cost is written down to the security’s fair value as of the reporting date with any incremental impairment recorded as a charge to noninterest income.

 

Equity securities are comprised of mutual funds and common stocks and are carried at fair value. The associated unrealized gains and losses are included in net realized investment gains (losses). Dividends from these investments are recognized in net investment income when declared.

 

Mortgage loans are carried at unpaid balances, net of unamortized premium or discounts. This measurement of mortgage loans on an amortized cost basis is reduced by an allowance for credit losses representing a valuation allowance that is deducted from the amortized costs basis of mortgage loans to present the net carrying value at the amount expected to be collected on the mortgage loans.

 

Interest income and the amortization of premiums or discounts are included in net investment income. Mortgage loan fees, certain direct loan origination costs, and purchase premiums and discounts on loans are recognized as an adjustment of yield by the interest method based on the contractual terms of the loan. In certain circumstances, prepayments may be anticipated.

 

11

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

The statement of operations reflects the measurement of credit losses for newly recognized mortgage loans as well as the expected increases or decreases of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported mortgage loan balances. The Company uses judgment in determining the relevant information and estimation methods that are appropriate in establishing the valuation allowance for credit losses. The allowance for credit losses for mortgage loans with a more-than-insignificant amount of credit determination since origination is determined and the initial allowance for credit losses should be added to the purchase price of mortgage loans rather than being reported as a credit loss expenses.

 

The Company, however, has established and will continue to establish a valuation allowance for mortgage loans on real estate that are not supported by funds held in escrow based on historical patterns. The Company’s foreclosed properties have not resulted in accumulated losses and due to the low loan-to-value the Company holds with respect to its mortgage loans, the Company has not recorded and does not expect to record the addition to the purchase price of mortgage loans an initial allowance for credit losses to be amortized over the life of the mortgage loans. The Company will continue to record credit losses for mortgage loans not supported by funds held in escrow in accordance with its valuation policy for mortgage loans on real estate followed before 2023.

 

While the Company utilizes its best judgment and information available, the ultimate adequacy of this allowance is dependent upon a variety of factors beyond our control, including the performance of the residential and commercial mortgage loan portfolio, the economy and changes in interest rates. The allowance for possible mortgage loan losses consists of specific valuation allowances established for probable losses on specific loans and a portfolio reserve for probable incurred but not specifically identified loans.

 

The Company considers mortgage loans on real estate impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the mortgage loan agreement. Impairment is measured on a loan-by-loan basis. Factors that the Company considers in determining impairment include payment status, collateral value of the real estate subject to the mortgage loan and the probability of collecting scheduled principal and interest payments when due. Mortgage loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

 

The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the mortgage loan on real estate and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

 

Investment real estate in land held for both the production of income and for sale is carried at cost. Investment real estate obtained through foreclosure on mortgage loans on real estate is carried at the lower of acquisition cost or net realizable value.

 

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned.

 

Other long-term investments are comprised of lottery prize receivables and are carried at amortized cost. Interest income and the accretion of discount are included in net investment income. These investments are backed by the lottery departments at the various states by U.S. Treasury Bonds and Notes or in the case of Pennsylvania, by annuities purchased from a highly rated life insurance company. Given this support to lottery prize receivables, the Company has not recorded and does not expect to incur any current estimated credit losses on its investments in lottery prize receivables.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

 

12

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

Reclassifications

 

Certain reclassifications have been made in the prior year and prior quarter financial statements to conform to current year and current quarter classifications. These reclassifications had no effect on previously reported net income or shareholders' equity.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

 

Common Stock and Treasury Stock

 

Class A and Class B common stock are both fully paid, non-assessable and has a par value of $.01 per share. Class B shareholders are entitled to elect a majority of FTFC’s Board of Directors (one-half plus one) but will only receive, compared to FTFC’s Class A shareholders, 85% of cash dividends, stock dividends or amounts due upon any FTFC merger, sale or liquidation event. FTFC’s Class B shareholders may also convert one share of FTFC’s Class B common stock for a .85 share of FTFC’s Class A common stock. FTFC’s Class A shareholders will elect the remaining Board of Directors members and will receive 100% of cash dividends, stock dividends or amounts due upon any Company merger, sale or liquidation event.

 

Treasury stock, representing shares of the Company’s common stock that have been reacquired after having been issued and fully paid, is recorded at the reacquisition cost and the shares are no longer outstanding.

 

Funds Withheld Coinsurance

 

In accordance with an annuity coinsurance agreement with an offshore annuity and life insurance company, TLIC holds assets and recognizes a funds withheld liability for the benefit of the assuming company in an amount at least equal to the annuity reserves in accordance with U.S. statutory accounting principles generated by this ceded business. In addition, the assuming company maintains a trust related to this ceded business amounting to at least an additional 4% of assets above the annuity reserve required under U.S. statutory accounting principles. This coinsurance agreement may be terminated for new business by either party at any time upon 30 days prior written notice to the other party.

 

In addition, in accordance with this annuity coinsurance agreement, investment income, investment expenses, other income and other expenses earned or incurred in relation to the operations of this annuity coinsurance agreement are not reported on the Company’s Consolidated Statements of Operations. The unrealized appreciation (depreciation) of fixed available-for-sale fixed maturity securities and the related income tax expense (benefit) is not reported as accumulated other comprehensive income in the shareholders’ equity section of the Company’s Consolidated Statements of Financial Position. Correspondingly, the net unrealized gains (losses) arising during the period, the net realized gains (losses) having no credit gains (losses) and the related income tax expense (benefit) associated with the available-for-sale fixed maturities held under this coinsurance agreement are not included in the computation of total other comprehensive income (loss) in the Company’s Consolidated Statement of Comprehensive Loss.

 

The Company’s Consolidated Statement of Cash Flows only includes the cash flow activities related to the assets and funds withheld under the coinsurance agreement in a one-line presentation and does not include those cash flow activities in the other financial captions and categories presented in that financial statement.

 

13

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

Cybersecurity

 

The Company has established and continues to enhance its cybersecurity enterprise risk management program. The Company’s executive team meets formally at least monthly, and informally as needed, to set and maintain a strategy focused on achieving a high level of cybersecurity protection. The Company’s executive management team makes quarterly reports to the Company’s Board of Directors and Audit Committee.

 

The Company’s executive management team is enhanced by the inclusion of an information technology external consultant to advise the Company’s executive management team and to focus on developing and maintaining external and internal cybersecurity. Working with Company executives and staff, the information technology consultant advises and helps the Company implement its strategy with respect to:

 

 

Computer hardware and software,

 

Security access, logging and user termination,

 

In house and remote user access – user accounts, password protection, authentication, monitoring usage, intrusion detection, incident identification and related controls,

 

Encryption,

 

System change control,

 

Data back up and remote sites,

 

Data recovery,

 

And Disaster recovery

 

The Company also utilizes training to foster an environment of information security awareness, training and education. Beyond making employees aware of its cybersecurity risk management program, strategy and governance, this training also introduces all employees to many types of cybersecurity risks to introduce skepticism and enhance skills to identify and report potential situations encountered to the executive management team for further assessment.

 

Subsequent Events

 

Management has evaluated all events subsequent to June 30, 2024 through the date that these financial statements have been issued.

 

Adopted Accounting Standards

 

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments

 

In June 2016, the FASB issued updated guidance (Accounting Standards Update 2016-13) for the accounting for credit losses for financial instruments. The updated guidance applied a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables, including structured settlements that are recorded as part of reinsurance recoverables) and required an entity to estimate the credit losses expected over the life of an exposure or pool of exposures.

 

The estimate of expected credit losses considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

 

14

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

The updated guidance also amended the current other-than-temporary impairment model for available-for-sale debt securities and requires the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The Company adopted this standard in first quarter 2023 on a modified retrospective basis. The cumulative effect adjustment to January 1, 2023 accumulated earnings for the adoption of this standard was a charge of $230,036.

 

Troubled Debt Restructurings and Vintage Disclosures

 

In March 2022, the FASB issued amendments (Accounting Standards Update 2022-2) for the accounting of troubled debt restructuring and disclosures. The amendments introduced new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. The amendments promulgated that an entity must apply specific loan refinancing and restructuring guidance to determine whether a modification results in a new loan or the continuation of an existing loan. The amendments also required that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company adopted the amendments in this standard in first quarter 2023. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

 

Recent Accounting Pronouncements

 

Targeted Improvements to the Accounting for Long-Duration Contracts

 

In August 2018, the FASB issued updated guidance (Accounting Standards Update 2018-12) to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. This update improves the timeliness of recognizing changes in the liability for future policy benefits, modifies the rate used to discount future cash flows, simplifies and improves accounting for certain market-based options or guarantees associated with deposit (i.e., account balance) contracts, simplifies the amortization of deferred acquisitions costs and expands required disclosures. The expanded disclosure requires an insurance entity to provide disaggregated roll forwards of beginning to ending balances of the following: liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities and deferred acquisition costs including disclosure about, changes to and effect of changes for significant inputs, judgments, assumptions and methods used in measurements.

 

The updated guidance was effective for reporting periods beginning after December 15, 2020. As a Smaller Reporting Company, the effective date has been changed twice and the delayed effective date is now for reporting periods beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted but not likely to be elected by the Company. With respect to the liability for future policyholder benefits for traditional and limited-payment contracts and deferred acquisition costs, an insurance entity may elect to apply the amendments retrospectively as of the beginning of the earliest period presented. With respect to the market risk benefits, an insurance entity should apply the amendments retrospectively as of the beginning of the earliest period presented. The Company expects that the impact on the Company’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2025 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

 

15

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

Transition for Sold Contracts

 

In December 2022, the FASB issued amendments (Accounting Standards Update 2022-5) to Accounting Standards Update 2018-12 (Targeted Improvements for Long-Duration Contracts) that originally required an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early application was elected. This updated guidance reduces implementation costs and complexity associated with the adoption of targeted improvements in accounting for long-duration contracts that have been derecognized in accordance with Accounting Standards Update 2018-12 before the delayed effective date. Without the amendments in this Update, an insurance entity would be required to reclassify a portion of gains or losses previously recognized in the sale or disposal of insurance contracts or legal entities because of the adoption of a new accounting standard. Because there is no effect on an insurance entity’s future cash flows, this reclassification may not be useful to users of financial information.

 

The amendments in this guidance are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted but not likely to be elected by the Company. The Company expects that the impact on the Company’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2025 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

 

Improvements to Reportable Segment Disclosures

 

In November 2023, the FASB issued amendments (Accounting Standards Update 2023-07) to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The amendments require public entities to follow the significant expense principle and disclose on an annual and interim basis significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) with additional disclosure of the CODM’s title, position and how the reported measure(s) of segment profit or loss are used in assessing segment performance and allocating resources. In addition, amounts for other segment items are required to be disclosed including a description of its composition. If the COMD uses more than one measure in assessing segment performance and allocating resources, at least one of the measures should be consistent with the corresponding amounts utilized in the public entity’s consolidated financial statements.

 

The amendments in this guidance are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company anticipates adopting and disclosing this Update for year-end reporting in 2024 and for interim periods beginning in 2025.

 

Improvements to Income Tax Disclosures

 

In December 2023, the FASB issued amendments (Accounting Standards Update 2023-09) to enhance the transparency and decision usefulness of income tax disclosures. The amendments require that public business entities on an annual basis disclose information about taxes paid and a tabular reconciliation using both percentages and amounts of specific categories in the rate reconciliation. In addition, separate disclosure is required for any reconciling item equal to or greater than five (5) percent of the amount computed by multiplying the income or loss from continuing operations before income taxes by the statutory income tax rate. If not otherwise evident, a public business entity is required to provide an explanation of the individual reconciling items such as the nature, effect and causes of the reconciling items.

 

The amendments in this guidance are effective for public companies for fiscal years beginning after December 15, 2024. This guidance should be applied on a prospective basis but retrospective application is permitted. Early adoption is permitted. The Company anticipates adopting and disclosing this Update for year-end reporting in 2025.

 

16

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

1. Organization and Significant Accounting Policies (continued)

 

Cybersecurity Risk Management, Strategy, Governance and Incident Disclosures by Public Companies

 

On July 26, 2023, the U.S. Securities and Exchange Commission adopted this Final Rule (the “Cybersecurity Final Rule”) enhancing disclosure requirements for registered companies covering cybersecurity risk and management. The Cybersecurity Final Rule requires registrants to disclose material cybersecurity incidents on Form 8-K within four business days of a determination that a cybersecurity incident is material, and such materiality determination must be made without unreasonable delay.

 

The rule also requires periodic disclosures of, among other things, details on the company’s processes to assess, identify, and manage cybersecurity risks, cybersecurity governance, and management’s role in overseeing such a compliance program, including the board of directors’ oversight of cybersecurity risks. Certain reporting requirements under the Cybersecurity Final Rule become effective as early as December 2023.

 

The Company has never had a material cyber security incident but will follow the Cybersecurity Final Rule regarding timely disclosure of a material cyber security incident. The Company has also disclosed its strategy and governance with respect to its cybersecurity risk management program in this June 30, 2024 Form 10-Q.

 

17

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

 

2. Investments

 

Investments in fixed maturity available-for-sale securities as of June 30, 2024 and December 31, 2023 are summarized as follows: 

 

           

Gross

   

Gross

         
   

Amortized Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

or Cost

   

Gains

   

Losses

   

Value

 
   

June 30, 2024 (Unaudited)

 

Fixed maturity securities

                               

U.S. government and U.S. government agencies

  $ 5,489,746     $ -     $ 20,668     $ 5,469,078  

States and political subdivisions

    9,177,048       7,424       455,468       8,729,004  

U.S. government agency mortgage backed securities

    10,868,391       17,543       45,058       10,840,876  

Commercial mortgage-backed securities

    11,156,574       -       1,686,459       9,470,115  

Residential mortgage-backed securities

    9,967       3,673       -       13,640  

Corporate bonds

    85,727,225       49,985       7,724,799       78,052,411  

Asset-backed securities

    13,270,957       5,222       895,230       12,380,949  

Exchange traded securities

    1,017,916       -       537,916       480,000  

Foreign bonds

    27,541,784       4,231       2,240,911       25,305,104  

Redeemable preferred securities

    1,250,000       -       238,100       1,011,900  

Total fixed maturity securities

  $ 165,509,608     $ 88,078     $ 13,844,609     $ 151,753,077  

Fixed maturity securities held in trust under coinsurance agreement

  $ 29,585,588     $ 10,972     $ 5,099,578     $ 24,496,982  
                                 
    December 31, 2023  

Fixed maturity securities

                               

U.S. government and U.S. government agencies

  $ 3,806,419     $ 14,360     $ 22,495     $ 3,798,284  

States and political subdivisions

    9,773,549       97,215       338,894       9,531,870  

U.S. government agency mortgage backed securities

    10,097,479       208,985       -       10,306,464  

Commercial mortgage-backed securities

    10,629,003       -       2,157,465       8,471,538  

Residential mortgage-backed securities

    9,986       4,328       -       14,314  

Corporate bonds

    85,901,454       65,239       6,625,386       79,341,307  

Asset-backed securities

    12,466,601       43,424       1,017,529       11,492,496  

Exchange traded securities

    882,631       -       406,631       476,000  

Foreign bonds

    27,091,108       24,186       1,902,619       25,212,675  

Redeemable preferred securities

    1,250,000       -       194,000       1,056,000  

Total fixed maturity securities

  $ 161,908,230     $ 457,737     $ 12,665,019     $ 149,700,948  

Fixed maturity securities held in trust under coinsurance agreement

  $ 56,824,160     $ 53,496     $ 5,226,397     $ 51,651,259  

   

18

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

All securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

           

Unrealized

   

Number of

 
   

Fair Value

   

Loss

   

Securities

 
   

June 30, 2024 (Unaudited)

 

Fixed maturity securities

                       

Less than 12 months in an unrealized loss position

                       

U.S. government and U.S. government agencies

  $ 3,442,746     $ 11,681       3  

States and political subdivisions

    3,498,230       67,846       10  

U.S. government agency mortgage backed securities

    5,480,766       45,058       9  

Commercial mortgage-backed securities

    514,505       481       1  

Corporate bonds

    3,898,459       48,359       14  

Asset-backed securities

    2,759,813       3,907       5  

Foreign bonds

    1,223,378       16,023       3  

Redeemable preferred securities

    682,500       67,500       2  

Total less than 12 months in an unrealized loss position

    21,500,397       260,855       47  

More than 12 months in an unrealized loss position

                       

U.S. government and U.S. government agencies

    2,026,332       8,987       3  

States and political subdivisions

    4,353,954       387,622       21  

Commercial mortgage-backed securities

    8,955,610       1,685,978       24  

Corporate bonds

    70,284,350       7,676,440       215  

Asset-backed securities

    7,454,269       891,323       21  

Exchange traded securities

    480,000       537,916       2  

Foreign bonds

    23,783,598       2,224,888       63  

Redeemable preferred securities

    329,400       170,600       2  

Total more than 12 months in an unrealized loss position

    117,667,513       13,583,754       351  

Total fixed maturity securities in an unrealized loss position

  $ 139,167,910     $ 13,844,609       398  

Fixed maturity securities held in trust under coinsurance agreement

                       

Total less than 12 months in an unrealized loss position

  $ 534,820     $ 9,659       4  

Total more than 12 months in an unrealized loss position

    22,942,534       5,089,919       94  

Total fixed maturity securities held in trust under coinsurance agreement in a unrealized loss position

  $ 23,477,354     $ 5,099,578       98  
                         
    December 31, 2023  

Fixed maturity securities

                       

Less than 12 months in an unrealized loss position

                       

U.S. government and U.S. government agencies

  $ 231,010     $ 100       1  

States and political subdivisions

    120,734       588       1  

Corporate bonds

    3,762,988       78,589       14  

Foreign bonds

    502,835       8,573       2  

Total less than 12 months in an unrealized loss position

    4,617,567       87,850       18  

More than 12 months in an unrealized loss position

                       

U.S. government and U.S. government agencies

    1,876,612       22,395       3  

States and political subdivisions

    4,411,017       338,306       21  

Commercial mortgage-backed securities

    8,471,538       2,157,465       24  

Corporate bonds

    72,550,042       6,546,797       214  

Asset-backed securities

    7,390,830       1,017,529       20  

Exchange traded securities

    476,000       406,631       2  

Foreign bonds

    23,164,587       1,894,046       61  

Redeemable preferred securities

    306,000       194,000       2  

Total more than 12 months in an unrealized loss position

    118,646,626       12,577,169       347  

Total fixed maturity securities in an unrealized loss position

  $ 123,264,193     $ 12,665,019       365  

Fixed maturity securities held in trust under coinsurance agreement

                       

Total less than 12 months in an unrealized loss position

  $ 1,400,820     $ 5,810       7  

Total more than 12 months in an unrealized loss position

    47,082,945       5,220,587       180  

Total fixed maturity securities held in trust under coinsurance agreement in a unrealized loss position

  $ 48,483,765     $ 5,226,397       187  

 

 

19

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

As of June 30, 2024, the Company held 398 available-for-sale fixed maturity securities with an unrealized loss of $13,844,609, fair value of $139,167,910 and amortized cost of $153,012,519. These unrealized losses were primarily due to the market interest rate movements in the bond market as of June 30, 2024. The ratio of the fair value to the amortized cost of these 398 securities is 91%.

 

As of December 31, 2023, the Company held 365 available-for-sale fixed maturity securities with an unrealized loss of $12,665,019, fair value of $123,264,193 and amortized cost of $135,929,212. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2023. The ratio of the fair value to the amortized cost of these 365 securities is 91%.

 

The change in the current estimate of credit losses on fixed maturity available-for-sale securities for the six months ended June 30, 2024 and December 31, 2023, are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 
                 

Beginning balance

  $ (430,470 )   $ -  

Cumulative adjustment to accumulated earnings as of January 1, 2023

    -       (291,185 )

Current estimate of credit losses

    (136,572 )     (139,285 )

Ending balance

  $ (567,042 )   $ (430,470 )

 

Net unrealized losses included in other comprehensive income (loss) for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the depreciation had been realized as of June 30, 2024 and December 31, 2023, are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 

Unrealized depreciation on available-for-sale securities

  $ (13,756,531 )   $ (12,207,282 )

Adjustment to deferred acquisition costs

    3,188       3,094  

Deferred income taxes

    2,888,202       2,562,880  

Net unrealized depreciation on available-for-sale securities

  $ (10,865,141 )   $ (9,641,308 )
                 

Assets held in trust under coinsurance agreement

               

Unrealized depreciation on fixed maturity securities available-for-sale

  $ (5,088,606 )   $ (5,172,901 )

 

The Company’s investment in lottery prize cash flows categorized as other long-term investments in the statement of financial position was $60,810,561 and $61,487,939 as of June 30, 2024 and December 31, 2023, respectively. The lottery prize cash flows are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries.

 

20

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

The amortized cost and fair value of fixed maturity available-for-sale securities and other long-term investments as of June 30, 2024, by contractual maturity, are summarized as follows:

 

   

June 30, 2024 (Unaudited)

 
   

Fixed Maturity Available-For-Sale Securities

   

Other Long-Term Investments

 
   

Amortized Cost

   

Fair Value

   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 2,579,084     $ 2,642,253     $ 13,901,762     $ 14,086,179  

Due after one year through five years

    40,794,663       38,795,181       31,122,970       33,030,861  

Due after five years through ten years

    21,054,382       19,784,075       10,845,771       12,637,392  

Due after ten years

    88,664,939       80,035,915       4,940,058       6,545,072  

Due at multiple maturity dates

    12,416,540       10,495,653       -       -  
    $ 165,509,608     $ 151,753,077     $ 60,810,561     $ 66,299,504  

 

The amortized cost and fair value of fixed maturity available-for-sale securities held in trust under coinsurance agreement as of June 30, 2024, by contractual maturity, are summarized as follows:

 

   

June 30, 2024 (Unaudited)

 
   

Fixed Maturity Available-For-Sale Securities

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 279,709     $ 275,520  

Due after one year through five years

    6,476,911       6,184,065  

Due after five years through ten years

    2,722,501       2,752,358  

Due after ten years

    17,305,574       12,883,235  

Due at multiple maturity dates

    2,800,893       2,401,804  
    $ 29,585,588     $ 24,496,982  

 

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

21

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

Proceeds and gross realized gains (losses) from the sales, calls and maturities of fixed maturity securities available-for-sale, mortgage loans on real estate and investment real estate for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

 
   

Fixed Maturity Securities

   

Mortgage Loans on Real Estate

   

Investment Real Estate

 
   

2024

   

2023

   

2024

   

2023

   

2024

   

2023

 

Proceeds

  $ 2,418,152     $ 730,108     $ 36,322,107     $ -     $ -     $ -  

Gross realized gains

    24,791       2,062       -       -       -       -  

Gross realized losses

    (67,206 )     (33,343 )     (34,442 )     -       -       -  

Loss on impairments

    -       -       -       -       (129,436 )     -  

 

   

Six Months Ended June 30, (Unaudited)

 
   

Fixed Maturity Securities

   

Mortgage Loans on Real Estate

   

Investment Real Estate

 
   

2024

   

2023

   

2024

   

2023

   

2024

   

2023

 

Proceeds

  $ 3,451,501     $ 2,513,558     $ 72,861,854     $ -     $ -     $ -  

Gross realized gains

    25,165       17,961       59,858       -       -       -  

Gross realized losses

    (69,278 )     (67,564 )     (34,442 )     -       -       -  

Loss on impairments

    -       -       -       -       (129,436 )     -  

 

The accumulated change in unrealized investment gains (losses) for fixed maturity available-for-sale securities for the three and six months ended June 30, 2024 and 2023 and the amount of net realized investment gains (losses) on fixed maturity securities available-for-sale, equity securities and mortgage loans on real estate for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2024

   

2023

   

2024

   

2023

 

Change in unrealized investment gains (losses):

                               

Available-for-sale securities:

                               

Fixed maturity securities

  $ (853,124 )   $ (1,833,772 )   $ (1,549,249 )   $ 1,761,486  

Fixed maturity securities held in trust under coinsurance agreement

    124,551       (471,798 )     84,295       585,982  
                                 

Net realized investment gains (losses):

                               

Available-for-sale securities:

                               

Fixed maturity securities

    (42,415 )     (31,281 )     (44,113 )     (49,603 )

Fixed maturity securities credit losses

    (79,477 )     (76,709 )     (136,572 )     (83,632 )

Equity securities, changes in fair value

    (3,631 )     (4,080 )     35,365       (10,286 )

Mortgage loans on real estate

    (34,442 )     -       25,416       -  

 

22

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

Major categories of net investment income for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2024

   

2023

   

2024

   

2023

 

Fixed maturity securities

  $ 1,908,083     $ 1,473,021     $ 3,670,108     $ 3,033,054  

Equity securities

    38,118       77,860       52,752       106,115  

Other long-term investments

    1,124,968       1,287,139       2,292,211       2,647,469  

Mortgage loans

    4,490,460       4,594,059       9,437,977       9,318,415  

Policy loans

    66,039       57,384       134,790       113,960  

Short-term and other investments

    662,925       774,735       1,135,364       1,269,413  

Gross investment income

    8,290,593       8,264,198       16,723,202       16,488,426  

Investment expenses

    (622,176 )     (817,802 )     (1,096,908 )     (1,414,214 )

Net investment income

  $ 7,668,417     $ 7,446,396     $ 15,626,294     $ 15,074,212  

 

TLIC and FBLIC are required to hold assets on deposit with various state insurance departments for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of June 30, 2024 and December 31, 2023, these required deposits, included in investment assets, had amortized costs that totaled $6,291,641 and $4,609,927, respectively. As of June 30, 2024 and December 31, 2023, these required deposits had fair values that totaled $6,252,290 and $4,596,130, respectively.

 

23

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

The Company’s mortgage loans by property type as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 

Residential mortgage loans

  $ 189,541,335     $ 224,258,534  

Commercial mortgage loans by property type

               

Agricultural

    981,698       986,207  

Apartment

    2,318,071       3,108,829  

Industrial

    377,221       1,267,264  

Lodging

    24,300       24,727  

Office building

    5,748,515       5,652,487  

Retail

    4,925,831       4,533,399  

Total commercial mortgage loans by property type

    14,375,636       15,572,913  

Total mortgage loans

  $ 203,916,971     $ 239,831,447  
                 

Mortgage loans held in trust under coinsurance agreement

               

Commercial mortgage loans

  $ 16,725,674     $ 27,714,891  

Less unearned interest on mortgage loans

    4,344       133,010  

Total mortgage loans held in trust under coinsurance agreement

  $ 16,721,330     $ 27,581,881  

 

There were 27 mortgage loans with a remaining principal balance of $7,375,244 that were more than 90 days past due as of June 30, 2024. There were 22 mortgage loans with a remaining principal balance of $6,027,499 that were more than 90 days past due as of June 30, 2023.

 

There were 11 mortgage loans in default and in the foreclosure process with a remaining principal balance of $4,130,357 as of June 30, 2024. There were seven mortgage loans in default and in the foreclosure process with a remaining principal balance of $1,780,274 as of June 30, 2023.

 

The Company’s investment real estate as of June 30, 2024 and December 31, 2023 is summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 

Land - held for investment

  $ 411,000     $ 540,436  

Residential real estate - held for sale

    1,328,048       764,967  

Total investment in real estate

  $ 1,739,048     $ 1,305,403  

 

TLIC owns approximately three acres of undeveloped land located in Topeka, Kansas with a carrying value of $280,000. During 2024, the company recognized an impairment loss of $129,436 from a market value appraisal that resulted in fair value estimation less than the carrying value.

 

FBLIC owns approximately one-half acre of undeveloped land located in Jefferson City, Missouri with a carrying value of $131,000.

 

During 2024, the Company foreclosed on residential mortgage loans of real estate totaling $563,081 and transferred those properties to investment real estate held for sale.

 

24

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

2. Investments (continued)

 

During 2023, the Company foreclosed on residential mortgage loans of real estate totaling $764,967 and transferred those properties to investment real estate held for sale.

 

 

3. Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) on the measurement date.  The Company also considers the impact on fair value of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity.

 

The Company holds fixed maturity and equity securities that are measured and reported at fair market value on the statement of financial position. The Company determines the fair market values of its financial instruments based on the fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value, as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets include equity securities that are traded in an active exchange market.

 

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government and U.S. government agencies, state and political subdivisions, U.S. government agency mortgage backed securities, commercial and residential mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign bonds and redeemable preferred stocks.

 

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The Company’s Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes certain private equity investments where independent pricing information was not able to be obtained for a significant portion of the underlying assets.

 

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in and out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

 

25

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

3. Fair Value Measurements (continued)

 

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023 is summarized as follows:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

June 30, 2024 (Unaudited)

 

Fixed maturity securities, available-for-sale

                               

U.S. government and U.S. government agencies

  $ -     $ 5,469,078     $ -     $ 5,469,078  

States and political subdivisions

    -       8,729,004       -       8,729,004  

U.S. government agency mortgage backed securities

            10,840,876               10,840,876  

Commercial mortgage-backed securities

    -       9,470,115       -       9,470,115  

Residential mortgage-backed securities

    -       13,640       -       13,640  

Corporate bonds

    -       78,052,411       -       78,052,411  

Asset-backed securities

    -       12,380,949       -       12,380,949  

Exchange traded securities

    -       480,000       -       480,000  

Foreign bonds

    -       25,305,104       -       25,305,104  

Redeemable preferred securities

    -       1,011,900       -       1,011,900  

Total fixed maturity securities

  $ -     $ 151,753,077     $ -     $ 151,753,077  

Fixed maturity securities, available-for-sale held in trust under coinsurance agreement

  $ -     $ 24,496,982     $ -     $ 24,496,982  

Equity securities

                               

Mutual funds

  $ -     $ 50,625     $ -     $ 50,625  

Corporate common stock

    339,030       -       57,373       396,403  

Total equity securities

  $ 339,030     $ 50,625     $ 57,373     $ 447,028  
                                 
    December 31, 2023  

Fixed maturity securities, available-for-sale

                               

U.S. government and U.S. government agencies

  $ -     $ 3,798,284     $ -     $ 3,798,284  

States and political subdivisions

    -       9,531,870       -       9,531,870  

U.S. government agency mortgage backed securities

    -       10,306,464       -       10,306,464  

Commercial mortgage-backed securities

    -       8,471,538       -       8,471,538  

Residential mortgage-backed securities

    -       14,314       -       14,314  

Corporate bonds

    -       79,341,307       -       79,341,307  

Asset-backed securities

    -       11,492,496       -       11,492,496  

Exchange traded securities

    -       476,000       -       476,000  

Foreign bonds

    -       25,212,675       -       25,212,675  

Redeemable preferred securities

    -       1,056,000       -       1,056,000  

Total fixed maturity securities

  $ -     $ 149,700,948     $ -     $ 149,700,948  

Fixed maturity securities, available-for-sale held in trust under coinsurance agreement

  $ -     $ 51,651,259     $ -     $ 51,651,259  

Equity securities

                               

Mutual funds

  $ -     $ 50,226     $ -     $ 50,226  

Corporate common stock

    304,064       -       65,240       369,304  

Total equity securities

  $ 304,064     $ 50,226     $ 65,240     $ 419,530  

 

 

26

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

3. Fair Value Measurements (continued)

 

As of June 30, 2024 and December 31, 2023, Level 3 financial instruments consisted of a private placement common stock that has no active trading and a joint venture investment with a mortgage loan originator.

 

This private placement common stock represents an investment in a small insurance holding company. The fair value for this security was determined through the use of unobservable assumptions about market participants. The Company has assumed a willing market participant would purchase the security for the same price as the Company paid until such time as this small insurance holding company commences significant operations. The joint venture investment with a mortgage loan originator is accounted for under the equity method of accounting.

 

Fair values for Level 1 and Level 2 assets for the Company’s fixed maturity available-for-sale and equity securities are primarily based on prices supplied by a third party investment service. The third party investment service provides quoted prices in the market which use observable inputs in developing such rates.

 

The Company analyzes market valuations received to verify reasonableness and to understand the key assumptions used and the sources. Since the fixed maturity securities owned by the Company do not trade on a daily basis, the third party investment service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings and matrix pricing. As the fair value estimates of the Company’s fixed maturity securities are based on observable market information rather than market quotes, the estimates of fair value on these fixed maturity securities are included in Level 2 of the hierarchy. The Company’s Level 2 investments include obligations of U.S. government and U.S. government agencies, state and political subdivisions, U.S. government agency mortgage backed securities, commercial and residential mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign bonds and redeemable preferred stocks.

 

The Company’s equity securities are included in Level 1 and Level 2 and the private placement common stocks and joint venture investment are included in Level 3. Level 1 for the equity securities classified as such is appropriate since they trade on a daily basis, are based on quoted market prices in active markets and are based upon unadjusted prices. Level 2 for those equity securities classified as such is appropriate since they are not actively traded.

 

The Company’s fixed maturity available-for-sale securities and equity securities are highly liquid and allows for a high percentage of the portfolio to be priced through pricing services.

 

The change in the fair value of the Company’s Level 3 equity securities available-for-sale for the six months ended June 30, 2024 and December 31, 2023 is summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 
                 

Beginning balance

  $ 65,240     $ 53,996  

Joint venture net income

    45,542       130,550  

Joint venture distribution

    (53,409 )     (119,306 )

Ending balance

  $ 57,373     $ 65,240  

 

27

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

3. Fair Value Measurements (continued)

 

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of June 30, 2024 and December 31, 2023, and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:

 

Financial instruments disclosed, but not carried, at fair value:

 

   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 
   

June 30, 2024 (Unaudited)

 

Financial assets

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 14,375,636     $ 13,759,141     $ -     $ -     $ 13,759,141  

Residential

    189,541,335       159,908,924       -       -       159,908,924  

Policy loans

    3,742,282       3,742,282       -       -       3,742,282  

Short-term investments

    -       -       -       -       -  

Other long-term investments

    60,810,561       66,299,504       -       -       66,299,504  

Cash and cash equivalents

    61,812,030       61,812,030       61,812,030       -       -  

Accrued investment income

    5,599,372       5,599,372       -       -       5,599,372  

Total financial assets

  $ 335,881,216     $ 311,121,253     $ 61,812,030     $ -     $ 249,309,223  

Held in trust under coinsurance agreement

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 16,725,674     $ 16,725,674     $ -     $ -     $ 16,725,674  

Less unearned interest on mortgage loans

    4,344       4,344       -       -       4,344  

Cash and cash equivalents

    143,740       143,740       143,740       -       -  

Total financial assets held in trust under coinsurance agreement

  $ 16,865,070     $ 16,865,070     $ 143,740     $ -     $ 16,721,330  
                                         

Policyholders' account balances

  $ 361,873,240     $ 309,068,671     $ -     $ -     $ 309,068,671  

Policy claims

    2,467,191       2,467,191       -       -       2,467,191  

Total financial liabilities

  $ 364,340,431     $ 311,535,862     $ -     $ -     $ 311,535,862  
                                         
    December 31, 2023  

Financial assets

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 15,572,913     $ 14,803,724     $ -     $ -     $ 14,803,724  

Residential

    224,258,534       196,514,414       -       -       196,514,414  

Policy loans

    3,474,116       3,474,116       -       -       3,474,116  

Short-term investments

    298,257       298,257       298,257       -       -  

Other long-term investments

    61,487,939       68,023,717       -       -       68,023,717  

Cash and cash equivalents

    33,839,741       33,839,741       33,839,741       -       -  

Accrued investment income

    6,214,459       6,214,459       -       -       6,214,459  

Total financial assets

  $ 345,145,959     $ 323,168,428     $ 34,137,998     $ -     $ 289,030,430  

Held in trust under coinsurance agreement

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 27,714,891     $ 27,714,891     $ -     $ -     $ 27,714,891  

Less unearned interest on mortgage loans

    133,010       133,010       -       -       133,010  

Cash and cash equivalents

    711,733       711,733       711,733       -       -  

Total financial assets held in trust under coinsurance agreement

  $ 28,293,614     $ 28,293,614     $ 711,733     $ -     $ 27,581,881  

Financial liabilities

                                       

Policyholders' account balances

  $ 391,247,676     $ 344,806,580     $ -     $ -     $ 344,806,580  

Policy claims

    2,410,243       2,410,243       -       -       2,410,243  

Total financial liabilities

  $ 393,657,919     $ 347,216,823     $ -     $ -     $ 347,216,823  

 

 

28

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

3. Fair Value Measurements (continued)

 

The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment was required to interpret market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the fair value amounts.

 

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying financial statements and notes thereto:

 

Fixed Maturity and Equity Securities

 

The fair value of fixed maturity securities and equity securities are based on the principles previously discussed as Level 1, Level 2 and Level 3.

 

Mortgage Loans on Real Estate

 

The fair values for mortgage loans are estimated using discounted cash flow analyses. For both residential and commercial mortgage loans, the discount rate used was indexed to the Secured Overnight Financing Rate.

 

Cash and Cash Equivalents, Short-Term Investments, Accrued Investment Income and Policy Loans

 

The carrying value of these financial instruments approximates their fair values. Cash and cash equivalents and short-term investments are included in Level 1 of the fair value hierarchy due to their highly liquid nature.

 

Other Long-Term Investments

 

Other long-term investments are comprised of lottery prize receivables and fair value is derived by using a discounted cash flow approach. Projected cash flows are discounted using the average FTSE Pension Liability Index in effect at the end of each period.

 

Investment Contracts Policyholders Account Balances

 

The fair value for liabilities under investment-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach.  Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

 

The fair values for insurance contracts other than investment-type contracts are not required to be disclosed.

 

Policy Claims

 

The carrying amounts reported for these liabilities approximate their fair value.

 

29

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

 

4. Segment Data

 

The Company has a life insurance segment, consisting of the life insurance operations of TLIC, FBLIC and TAI, an annuity segment, consisting of the annuity operations of TLIC, FBLIC and TAI and a corporate segment. Results for the parent company and the operations of TMC, after elimination of intercompany amounts, are allocated to the corporate segment. These segments as of June 30, 2024 and December 31, 2023 and for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2024

   

2023

   

2024

   

2023

 

Revenues:

                               

Life insurance operations

  $ 12,282,831     $ 11,252,874     $ 24,133,009     $ 22,078,689  

Annuity operations

    5,265,190       5,708,580       11,443,705       11,789,734  

Corporate operations

    595,109       1,091,419       1,108,624       1,872,391  

Total

  $ 18,143,130     $ 18,052,873     $ 36,685,338     $ 35,740,814  

Income (loss) before income taxes:

                               

Life insurance operations

  $ 1,039,421     $ 941,086     $ 2,927,650     $ 692,811  

Annuity operations

    161,114       158,696       768,716       1,168,394  

Corporate operations

    587,807       799,414       369,578       1,285,918  

Total

  $ 1,788,342     $ 1,899,196     $ 4,065,944     $ 3,147,123  

Depreciation and amortization expense:

                               

Life insurance operations

  $ 2,262,786     $ 1,933,322     $ 4,286,093     $ 3,689,837  

Annuity operations

    452,179       398,214       805,920       731,352  

Total

  $ 2,714,965     $ 2,331,536     $ 5,092,013     $ 4,421,189  

 

   

(Unaudited)

         
   

June 30, 2024

   

December 31, 2023

 

Assets:

               

Life insurance operations

  $ 163,941,549     $ 164,653,497  

Annuity operations

    444,913,161       495,979,724  

Corporate operations

    11,276,511       11,388,314  

Total

  $ 620,131,221     $ 672,021,535  

  

 

5. Federal Income Taxes

 

The provision for federal income taxes is based on the asset and liability method of accounting for income taxes. Deferred income taxes are provided for the cumulative temporary differences between balances of assets and liabilities determined under GAAP and the balances using tax bases.

 

The Company has no known uncertain tax benefits within its provision for income taxes. In addition, the Company does not believe it would be subject to any penalties or interest relative to any open tax years and, therefore, has not accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions.  The 2020 through 2022 U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements.

 

30

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

 

6. Contingent Liabilities

 

From time to time, we are a party to various legal proceedings in the ordinary course of business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from them will not have a material effect on the Company’s financial position, results of operations or cash flow. We are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any material threatened litigation. As summarized below, the Company is currently involved in three pending lawsuits.

 

A lawsuit filed by the Company and its Chairman and Chief Executive Officer, Gregg E. Zahn (“Mr. Zahn”) styled First Trinity Financial Corporation and Gregg E. Zahn vs. C. Wayne Pettigrew and Group & Pension Planners was originally filed in 2013 in the District Court of Tulsa County, Oklahoma against former Company Board of Director, C. Wayne Pettigrew (“Mr. Pettigrew”). The Company and Mr. Zahn alleged that Mr. Pettigrew defamed Mr. Zahn and the Company and that Mr. Pettigrew breached his fiduciary duties to the Company by making untrue statements about the Company and Mr. Zahn to the press, state regulators and to certain shareholders.

 

In February 2017, the lawsuit resulted in a jury verdict in favor of the Company and Mr. Zahn, with the jury awarding damages of $800,000 to the Company and $3,500,000 to Mr. Zahn. In February 2020, the Oklahoma Court of Civil Appeals, upon an appeal by Mr. Pettigrew, reversed the judgment and remanded the case for a new trial. A Petition for Certiorari review with the Oklahoma Supreme Court by the Company and Mr. Zahn was declined in December, 2020. The case is now scheduled to be retried in the District Court once a trial date is set. The Company is vigorously prosecuting this case. The Company faces no exposure in connection with this action since there were no counterclaims or cross claims made against the Company. Management believes that this lawsuit is not material in relation to the Company’s financial position or results of operations.

 

The Company, through its life insurance subsidiary, TLIC, commenced two lawsuits as plaintiff, both in the New York Supreme Court, New York County, one on June 29, 2020 and another on March 4, 2022, for breach of contract against a company for failure to advance funding to lottery ticket winners to the detriment of TLIC and against various of that company’s associated persons for unjust enrichment and fraud perpetuated on TLIC. The cases are entitled “Trinity Life Insurance Company v. Advance Funding LLC, Dan Cevallos, and Monica L. Ray, Index No. 652780/2020” (New York Supreme Court, New York County) and “Trinity Life Insurance Company v. Advance Funding LLC, Dan Cevallos, Julie Casal, and Monica L. Ray, Index No. 651023/2022” (New York Supreme Court, New York County). The Company is vigorously prosecuting this case against the defendants. The Company faces no exposure in connection with either action since no counterclaims or cross claims have been made against the Company. Management believes that these lawsuits are not material in relation to the Company’s financial position or results of operations.

 

Guaranty fund assessments, brought about by the insolvency of life and health insurers, are levied at the discretion of the various state guaranty fund associations to cover association obligations. In most states, guaranty fund assessments may be taken as a credit against premium taxes, typically over a five-year period.

 

31

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

 

 

7. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

 

The changes in the components of the Company’s accumulated other comprehensive loss for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, 2024 and 2023 (Unaudited)

 
                         
   

Unrealized

           

Accumulated

 
   

Depreciation on

   

Adjustment to

   

Other

 
   

Available-For-Sale

   

Deferred Acquisition

   

Comprehensive

 
   

Securities

   

Costs

   

Loss

 

Balance as of April 1, 2024

  $ (10,193,705 )   $ 2,381     $ (10,191,324 )

Other comprehensive loss before reclassifications, net of tax

    (707,476 )     151       (707,325 )

Less amounts reclassified from accumulated other comprehensive loss having no credit losses, net of tax

    (33,508 )     -       (33,508 )

Other comprehensive loss

    (673,968 )     151       (673,817 )

Balance as of June 30, 2024

  $ (10,867,673 )   $ 2,532     $ (10,865,141 )
                         

Balance as of April 1, 2023

  $ (11,253,426 )   $ 3,174     $ (11,250,252 )

Other comprehensive loss before reclassifications, net of tax

    (1,473,391 )     287       (1,473,104 )

Less amounts reclassified from accumulated other comprehensive loss having no credit losses, net of tax

    (24,712 )     -       (24,712 )

Other comprehensive loss

    (1,448,679 )     287       (1,448,392 )

Balance as of June 30, 2023

  $ (12,702,105 )   $ 3,461     $ (12,698,644 )

  

   

Six Months Ended June 30, 2024 and 2023 (Unaudited)

 
                         
   

Unrealized

           

Accumulated

 
   

Depreciation on

   

Adjustment to

   

Other

 
   

Available-For-Sale

   

Deferred Acquisition

   

Comprehensive

 
   

Securities

   

Costs

   

Loss

 

Balance as of January 1, 2024

  $ (9,643,766 )   $ 2,458     $ (9,641,308 )

Other comprehensive loss before reclassifications, net of tax

    (1,258,756 )     74       (1,258,682 )

Less amounts reclassified from accumulated other comprehensive loss having no credit losses, net of tax

    (34,849 )     -       (34,849 )

Other comprehensive loss

    (1,223,907 )     74       (1,223,833 )

Balance as of June 30, 2024

  $ (10,867,673 )   $ 2,532     $ (10,865,141 )
                         

Balance as of January 1, 2023

  $ (14,323,715 )   $ 4,036     $ (14,319,679 )

Cumulative effect adjustment as of January 1, 2023

                       

Accumulated credit loss January 1, 2023

    230,036       -       230,036  

Other comprehensive income before reclassifications, net of tax

    1,352,388       (575 )     1,351,813  

Less amounts reclassified from accumulated other comprehensive loss having no credit losses, net of tax

    (39,186 )     -       (39,186 )

Other comprehensive income

    1,391,574       (575 )     1,390,999  

Balance as of June 30, 2023

  $ (12,702,105 )   $ 3,461     $ (12,698,644 )

 

32

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

7. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss (continued)

 

The pretax components of the Company’s other comprehensive income (loss) and the related income tax expense (benefit) for each component for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, 2024 (Unaudited)

 
           

Income Tax

         
   

Pretax

   

Expense (Benefit)

   

Net of Tax

 

Other comprehensive loss:

                       

Change in net unrealized losses on available-for-sale securities:

                       

Unrealized holding losses arising during the period

  $ (895,539 )   $ (188,063 )   $ (707,476 )

Reclassification adjustment for net losses included in operations having no credit losses

    (42,415 )     (8,907 )     (33,508 )

Net unrealized losses on investments

    (853,124 )     (179,156 )     (673,968 )

Adjustment to deferred acquisition costs

    191       40       151  

Total other comprehensive loss

  $ (852,933 )   $ (179,116 )   $ (673,817 )

 

   

Three Months Ended June 30, 2023 (Unaudited)

 
           

Income Tax

         
   

Pretax

   

Expense (Benefit)

   

Net of Tax

 

Other comprehensive loss:

                       

Change in net unrealized losses on available-for-sale securities:

                       

Unrealized holding losses arising during the period

  $ (1,865,053 )   $ (391,662 )   $ (1,473,391 )

Reclassification adjustment for net losses included in operations having no credit losses

    (31,281 )     (6,569 )     (24,712 )

Net unrealized losses on investments

    (1,833,772 )     (385,093 )     (1,448,679 )

Adjustment to deferred acquisition costs

    363       76       287  

Total other comprehensive loss

  $ (1,833,409 )   $ (385,017 )   $ (1,448,392 )

 

   

Six Months Ended June 30, 2024 (Unaudited)

 
           

Income Tax

         
   

Pretax

   

Expense (Benefit)

   

Net of Tax

 

Other comprehensive loss:

                       

Change in net unrealized losses on available-for-sale securities:

                       

Unrealized holding losses arising during the period

  $ (1,593,362 )   $ (334,606 )   $ (1,258,756 )

Reclassification adjustment for net losses included in operations having no credit losses

    (44,113 )     (9,264 )     (34,849 )

Net unrealized losses on investments

    (1,549,249 )     (325,342 )     (1,223,907 )

Adjustment to deferred acquisition costs

    94       20       74  

Total other comprehensive loss

  $ (1,549,155 )   $ (325,322 )   $ (1,223,833 )

 

   

Six Months Ended June 30, 2023 (Unaudited)

 
           

Income Tax

         
   

Pretax

   

Expense (Benefit)

   

Net of Tax

 

Other comprehensive income:

                       

Change in net unrealized losses on available-for-sale securities:

                       

Unrealized holding gains arising during the period

  $ 1,711,883     $ 359,495     $ 1,352,388  

Reclassification adjustment for net losses included in operations having no credit losses

    (49,603 )     (10,417 )     (39,186 )

Net unrealized gains on investments

    1,761,486       369,912       1,391,574  

Adjustment to deferred acquisition costs

    (728 )     (153 )     (575 )

Total other comprehensive income

  $ 1,760,758     $ 369,759     $ 1,390,999  

 

33

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

7. Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss (continued)

 

Realized gains and losses on the sales of investments are determined based upon the specific identification method and include provisions for other-than-temporary impairments where appropriate.

 

The pretax and the related income tax components of the amounts reclassified from the Company’s accumulated other comprehensive loss to the Company’s consolidated statement of operations for the three and six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 

Reclassification Adjustments

 

2024

   

2023

   

2024

   

2023

 

Unrealized losses on available-for-sale securities having no credit losses:

                               

Realized losses on sales of securities (a)

  $ (42,415 )   $ (31,281 )   $ (44,113 )   $ (49,603 )

Income tax benefit (b)

    (8,907 )     (6,569 )     (9,264 )     (10,417 )

Total reclassification adjustments

  $ (33,508 )   $ (24,712 )   $ (34,849 )   $ (39,186 )

 

(a)

These items appear within net realized investment(losses in the consolidated statements of operations.

(b)

These items appear within federal income taxes in the consolidated statements of operations.

  

 

8. Allowance for Loan Losses from Mortgage Loans on Real Estate

 

As of June 30, 2024, $865,299 of independent residential mortgage loans on real estate is held in escrow by a third party for the benefit of the Company.   As of June 30, 2024, $846,442 of that escrow amount is available to the Company as additional collateral on $4,866,574 of advances to the loan originator. The remaining June 30, 2024 escrow amount of $18,857 is available to the Company as additional collateral on its investment of $3,771,488 in residential mortgage loans on real estate. In addition, the Company has an additional $1,005,756 allowance for possible loan losses in the remaining $200,145,483 of investments in mortgage loans on real estate as of June 30, 2024.

 

As of December 31, 2023, $890,915 of independent residential mortgage loans on real estate are held in escrow by a third party for the benefit of the Company.   As of December 31, 2023, $850,039 of that escrow amount is available to the Company as additional collateral on $4,487,715 of advances to the loan originator. The remaining December 31, 2023 escrow amount of $40,876 is available to the Company as additional collateral on its investment of $8,175,212 in mortgage loans on real estate. In addition, the Company has an additional $1,164,102 allowance for possible loan losses in the remaining $231,656,235 of investments in mortgage loans on real estate as of December 31, 2023.

 

As of June 30, 2024, the Company’s Chairman, President and Chief Executive Officer has provided approximately $2,040,000 of loans to this mortgage loan originator.

 

34

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

8. Allowance for Loan Losses from Mortgage Loans on Real Estate (continued)

 

The balances of and changes in the Company’s credit losses related to mortgage loans on real estate as of and for the three and six months ended June 30, 2024 and 2023 are summarized as follows (excluding $3,771,488 and $13,887,039 of mortgage loans on real estate as of June 30, 2024 and 2023, respectively, with one loan originator where independent mortgage loan balances are held in escrow by a third party for the benefit of the Company):

 

   

Unaudited

 
   

Three Months Ended June 30,

 
   

Residential Mortgage Loans

   

Commercial Mortgage Loans

   

Total

 
   

2024

   

2023

   

2024

   

2023

   

2024

   

2023

 

Allowance, beginning

  $ 983,456     $ 996,924     $ 68,505     $ 89,242     $ 1,051,961     $ 1,086,166  

Charge offs

    -       -       -       -       -       -  

Recoveries

    -       -       -       -       -       -  

Provision

    (49,939 )     79,704       3,734       (5,996 )     (46,205 )     73,708  

Allowance, ending

  $ 933,517     $ 1,076,628     $ 72,239     $ 83,246     $ 1,005,756     $ 1,159,874  
                                                 

Allowance, ending:

                                               

Individually evaluated for impairment

  $ -     $ -     $ -     $ -     $ -     $ -  

Collectively evaluated for impairment

  $ 933,517     $ 1,076,628     $ 72,239     $ 83,246     $ 1,005,756     $ 1,159,874  
                                                 

Carrying Values:

                                               

Individually evaluated for reserve allowance

  $ -     $ -     $ -     $ -     $ -     $ -  

Collectively evaluated for reserve allowance

  $ 185,769,847     $ 214,249,269     $ 14,375,636     $ 16,565,890     $ 200,145,483     $ 230,815,159  

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

Residential Mortgage Loans

   

Commercial Mortgage Loans

   

Total

 
   

2024

   

2023

   

2024

   

2023

   

2024

   

2023

 

Allowance, beginning

  $ 1,085,919     $ 1,030,424     $ 78,183     $ 90,024     $ 1,164,102     $ 1,120,448  

Charge offs

    -       -       -       -       -       -  

Recoveries

    -       -       -       -       -       -  

Provision

    (152,402 )     46,204       (5,944 )     (6,778 )     (158,346 )     39,426  

Allowance, ending

  $ 933,517     $ 1,076,628     $ 72,239     $ 83,246     $ 1,005,756     $ 1,159,874  
                                                 

Allowance, ending:

                                               

Individually evaluated for impairment

  $ -     $ -     $ -     $ -     $ -     $ -  

Collectively evaluated for impairment

  $ 933,517     $ 1,076,628     $ 72,239     $ 83,246     $ 1,005,756     $ 1,159,874  
                                                 

Carrying Values:

                                               

Individually evaluated for reserve allowance

  $ -     $ -     $ -     $ -     $ -     $ -  

Collectively evaluated for reserve allowance

  $ 185,769,847     $ 214,249,269     $ 14,375,636     $ 16,565,890     $ 200,145,483     $ 230,815,159  

 

35

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

  

8. Allowance for Loan Losses from Mortgage Loans on Real Estate (continued)

 

The Company utilizes the ratio of the carrying value of individual mortgage loans compared to the individual appraisal value to evaluate the credit quality of its mortgage loans on real estate (commonly referred to as the loan-to-value ratio). The Company’s residential and commercial mortgage loans on real estate by credit quality using this ratio as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

Residential Mortgage Loans

   

Commercial Mortgage Loans

   

Total Mortgage Loans

 
   

(Unaudited)

           

(Unaudited)

           

(Unaudited)

         

Loan-To-Value Ratio

 

June 30,

2024

   

December 31,

2023

   

June 30,

2024

   

December 31,

2023

   

June 30,

2024

   

December 31,

2023

 

Over 70% to 80%

  $ 65,094,146     $ 75,718,654     $ 2,095,208     $ 2,099,950     $ 67,189,354     $ 77,818,604  

Over 60% to 70%

    54,075,432       65,525,308       1,487,939       2,958,186       55,563,371       68,483,494  

Over 50% to 60%

    30,306,310       38,548,660       1,310,257       1,809,817       31,616,567       40,358,477  

Over 40% to 50%

    22,187,339       22,283,148       4,051,050       2,394,557       26,238,389       24,677,705  

Over 30% to 40%

    8,891,350       10,056,308       3,367,121       3,817,212       12,258,471       13,873,520  

Over 20% to 30%

    4,982,893       7,929,094       770,322       463,856       5,753,215       8,392,950  

Over 10% to 20%

    3,172,296       3,178,001       447,989       1,714,394       3,620,285       4,892,395  

10% or less

    831,569       1,019,361       845,750       314,941       1,677,319       1,334,302  

Total

  $ 189,541,335     $ 224,258,534     $ 14,375,636     $ 15,572,913     $ 203,916,971     $ 239,831,447  

 

36

  

 

Item 2: Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Overview

 

First Trinity Financial Corporation (“we” “us”, “our”, “FTFC” or the “Company”) conducts operations as an insurance holding company emphasizing ordinary life insurance products and annuity contracts in niche markets.

 

As an insurance provider, we collect premiums in the current period to pay future benefits to our policy and contract holders. Our core TLIC and FBLIC operations include issuing modified premium whole life insurance with a flexible premium deferred annuity, ordinary whole life, final expense, term and annuity products to predominately middle income households in the states of Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia and West Virginia through independent agents.

 

We also realize revenues from our investment portfolio, which is a key component of our operations. The revenues we collect as premiums from policyholders are invested to ensure future benefit payments under the policy contracts. Life insurance companies earn profits on the investment spread, which reflects the investment income earned on the premiums paid to the insurer between the time of receipt and the time benefits are paid out under policies. Changes in interest rates, changes in economic conditions and volatility in the capital markets can all impact the amount of earnings that we realize from our investment portfolio.

 

Acquisitions

 

The Company expects to facilitate growth through acquisitions of other life insurance companies and/or blocks of life insurance and annuity business. In late December 2008, the Company completed its acquisition of 100% of the outstanding stock of FLAC for $2,500,000 and had additional acquisition related expenses of $195,234.

 

In late December 2011, the Company completed its acquisition of 100% of the outstanding stock of FBLIC for $13,855,129.

 

On April 28, 2015, the Company acquired a block of life insurance policies and annuity contracts according to the terms of an assumption reinsurance agreement and assumed liabilities of $3,055,916.

 

In 2019, FTFC’s acquisition of TAI for $250,000 was approved by the Barbados, West Indies regulators.

 

Effective January 1, 2020, the Company acquired 100% of the outstanding common stock of K-TENN Insurance Company (“K-TENN”) from its sole shareholder in exchange for 168,866 shares of FTFC’s common stock. The aggregate purchase price of K-TENN was $1,746,240.

 

On January 4, 2022, FTFC acquired RCLIC from Royalty in exchange for 722,644 shares of FTFC’s Class A common stock issued to unrelated parties. Royalty was dissolved immediately after FTFC acquired RCLIC. On March 1, 2022, the Missouri Department of Commerce and Insurance approved FTFC’s contribution and merger of RCLIC into FBLIC.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition, results of operations and liquidity and capital resources is based on our consolidated financial statements that have been prepared in accordance with U.S. GAAP. Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates and assumptions continually, including those related to investments, deferred acquisition costs, allowance for loan losses from mortgages, value of insurance business acquired, policy liabilities, regulatory requirements, contingencies and litigation. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

 

37

 

For a description of the Company’s critical accounting policies and estimates, please refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.  The Company considers its most critical accounting estimates to be those applied to investments in fixed maturities securities, mortgage loans on real estate, deferred policy acquisition costs, value of insurance business acquired and future policy benefits. There have been no material changes to the Company’s critical accounting policies and estimates since December 31, 2023.

 

Cybersecurity

 

The Company has established and continues to enhance its cybersecurity enterprise risk management program. The Company’s executive team meets formally at least monthly, and informally as needed, to set and maintain a strategy focused on achieving a high level of cybersecurity protection. The Company’s executive management team makes quarterly reports to the Company’s Board of Directors and Audit Committee.

 

The Company’s executive management team is enhanced by the inclusion of an information technology external consultant to advise the Company’s executive management team and to focus on developing and maintaining external and internal cybersecurity. Working with Company executives and staff, the information technology consultant advises and helps the Company implement its strategy with respect to:

 

 

Computer hardware and software,

 

Security access, logging and user termination,

 

In house and remote user access – user accounts, password protection, authentication, monitoring usage, intrusion detection, incident identification and related controls,

 

Encryption,

 

System change control,

 

Data back up and remote sites,

 

Data recovery,

 

And Disaster recovery

 

The Company also utilizes training to foster an environment of information security awareness, training and education. Beyond making employees aware of its cybersecurity risk management program, strategy and governance, this training also introduces all employees to many types of cybersecurity risks to introduce skepticism and enhance skills to identify and report potential situations encountered to the executive management team for further assessment.

 

Adopted Accounting Standards

 

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments

 

In June 2016, the FASB issued updated guidance (Accounting Standards Update 2016-13) for the accounting for credit losses for financial instruments. The updated guidance applied a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables, including structured settlements that are recorded as part of reinsurance recoverables) and required an entity to estimate the credit losses expected over the life of an exposure or pool of exposures.

 

The estimate of expected credit losses considers historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, are recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

 

38

 

The updated guidance also amended the current other-than-temporary impairment model for available-for-sale debt securities and requires the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists. The Company adopted this standard in first quarter 2023 on a modified retrospective basis. The cumulative effect adjustment to January 1, 2023 accumulated earnings for the adoption of this standard was a charge of $230,036.

 

Troubled Debt Restructurings and Vintage Disclosures

 

In March 2022, the FASB issued amendments (Accounting Standards Update 2022-2) for the accounting of troubled debt restructuring and disclosures. The amendments introduced new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. The amendments promulgated that an entity must apply specific loan refinancing and restructuring guidance to determine whether a modification results in a new loan or the continuation of an existing loan. The amendments also required that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. The Company adopted the amendments in this standard in first quarter 2023. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

 

Recent Accounting Pronouncements

 

Targeted Improvements to the Accounting for Long-Duration Contracts

 

In August 2018, the FASB issued updated guidance (Accounting Standards Update 2018-12) to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. This update improves the timeliness of recognizing changes in the liability for future policy benefits, modifies the rate used to discount future cash flows, simplifies and improves accounting for certain market-based options or guarantees associated with deposit (i.e., account balance) contracts, simplifies the amortization of deferred acquisitions costs and expands required disclosures. The expanded disclosure requires an insurance entity to provide disaggregated roll forwards of beginning to ending balances of the following: liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities and deferred acquisition costs including disclosure about, changes to and effect of changes for significant inputs, judgments, assumptions and methods used in measurements.

 

The updated guidance was effective for reporting periods beginning after December 15, 2020. As a Smaller Reporting Company, the effective date has been changed twice and the delayed effective date is now for reporting periods beginning after December 15, 2024 and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted but not likely to be elected by the Company. With respect to the liability for future policyholder benefits for traditional and limited-payment contracts and deferred acquisition costs, an insurance entity may elect to apply the amendments retrospectively as of the beginning of the earliest period presented. With respect to the market risk benefits, an insurance entity should apply the amendments retrospectively as of the beginning of the earliest period presented. The Company expects that the impact on the Company’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2025 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

 

Transition for Sold Contracts

 

In December 2022, the FASB issued amendments (Accounting Standards Update 2022-5) to Accounting Standards Update 2018-12 (Targeted Improvements for Long-Duration Contracts) that originally required an insurance entity to apply a retrospective transition method as of the beginning of the earliest period presented or the beginning of the prior fiscal year if early application was elected. This updated guidance reduces implementation costs and complexity associated with the adoption of targeted improvements in accounting for long-duration contracts that have been derecognized in accordance with Accounting Standards Update 2018-12 before the delayed effective date. Without the amendments in this Update, an insurance entity would be required to reclassify a portion of gains or losses previously recognized in the sale or disposal of insurance contracts or legal entities because of the adoption of a new accounting standard. Because there is no effect on an insurance entity’s future cash flows, this reclassification may not be useful to users of financial information.

 

39

 

The amendments in this guidance are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted but not likely to be elected by the Company. The Company expects that the impact on the Company’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2025 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

 

Improvements to Reportable Segment Disclosures

 

In November 2023, the FASB issued amendments (Accounting Standards Update 2023-07) to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses on both an annual and interim basis. The amendments require public entities to follow the significant expense principle and disclose on an annual and interim basis significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) with additional disclosure of the CODM’s title, position and how the reported measure(s) of segment profit or loss are used in assessing segment performance and allocating resources. In addition, amounts for other segment items are required to be disclosed including a description of its composition. If the COMD uses more than one measure in assessing segment performance and allocating resources, at least one of the measures should be consistent with the corresponding amounts utilized in the public entity’s consolidated financial statements.

 

The amendments in this guidance are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company anticipates adopting and disclosing this Update for year-end reporting in 2024 and for interim periods beginning in 2025.

 

Improvements to Income Tax Disclosures

 

In December 2023, the FASB issued amendments (Accounting Standards Update 2023-09) to enhance the transparency and decision usefulness of income tax disclosures. The amendments require that public business entities on an annual basis disclose information about taxes paid and a tabular reconciliation using both percentages and amounts of specific categories in the rate reconciliation. In addition, separate disclosure is required for any reconciling item equal to or greater than five (5) percent of the amount computed by multiplying the income or loss from continuing operations before income taxes by the statutory income tax rate. If not otherwise evident, a public business entity is required to provide an explanation of the individual reconciling items such as the nature, effect and causes of the reconciling items.

 

The amendments in this guidance are effective for public companies for fiscal years beginning after December 15, 2024. This guidance should be applied on a prospective basis but retrospective application is permitted. Early adoption is permitted. The Company anticipates adopting and disclosing this Update for year-end reporting in 2025.

 

Cybersecurity Risk Management, Strategy, Governance and Incident Disclosures by Public Companies

 

On July 26, 2023, the U.S. Securities and Exchange Commission adopted this Final Rule (the “Cybersecurity Final Rule”) enhancing disclosure requirements for registered companies covering cybersecurity risk and management. The Cybersecurity Final Rule requires registrants to disclose material cybersecurity incidents on Form 8-K within four business days of a determination that a cybersecurity incident is material, and such materiality determination must be made without unreasonable delay.

 

The rule also requires periodic disclosures of, among other things, details on the company’s processes to assess, identify, and manage cybersecurity risks, cybersecurity governance, and management’s role in overseeing such a compliance program, including the board of directors’ oversight of cybersecurity risks. Certain reporting requirements under the Cybersecurity Final Rule become effective as early as December 2023.

 

The Company has never had a material cyber security incident but will follow the Cybersecurity Final Rule regarding timely disclosure of a material cyber security incident. The Company has also disclosed its strategy and governance with respect to its cybersecurity risk management program in this June 30, 2024 Form 10-Q.

 

40

 

Business Segments

 

FASB guidance requires a "management approach" in the presentation of business segments based on how management internally evaluates the operating performance of business units. The discussion of segment operating results that follows is being provided based on segment data prepared in accordance with this methodology.

 

Our business segments are as follows:

 

Life insurance operations, consisting of the life insurance operations of TLIC, FBLIC and TAI;

 

Annuity operations, consisting of the annuity operations of TLIC, FBLIC and TAI and

 

Corporate operations, which includes the results of the parent company and TMC after the elimination of intercompany amounts.

 

Please see below and Note 4 to the Consolidated Financial Statements for the three months and six months ended June 30, 2024 and 2023 and as of June 30, 2024 and December 31, 2023 for additional information regarding segment information.

 

FINANCIAL HIGHLIGHTS

Consolidated Condensed Results of Operations for the Three Months Ended June 30, 2024 and 2023

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums

  $ 10,302,404     $ 9,599,539     $ 702,865  

Net investment income

    7,668,417       7,446,396       222,021  

Net realized investment losses

    (159,965 )     (112,070 )     (47,895 )

Loss on impairments

    (129,436 )     -       (129,436 )

Service fees

    498,484       1,110,994       (612,510 )

Other income

    (36,774 )     8,014       (44,788 )

Total revenues

    18,143,130       18,052,873       90,257  

Benefits and claims

    11,484,460       10,913,125       571,335  

Expenses

    4,870,328       5,240,552       (370,224 )

Total benefits, claims and expenses

    16,354,788       16,153,677       201,111  

Income before federal income tax expense

    1,788,342       1,899,196       (110,854 )

Federal income tax expense

    398,362       397,287       1,075  

Net income

  $ 1,389,980     $ 1,501,909     $ (111,929 )

Net income per common share

                       

Class A common stock

  $ 0.1468     $ 0.1586     $ (0.0118 )

Class B common stock

  $ 0.1248     $ 0.1348     $ (0.0100 )

 

41

 

Consolidated Condensed Results of Operations for the Six Months Ended June 30, 2024 and 2023

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums

  $ 19,953,409     $ 18,707,848     $ 1,245,561  

Net investment income

    15,626,294       15,074,212       552,082  

Net realized investment losses

    (119,904 )     (143,521 )     23,617  

Loss on impairments

    (129,436 )     -       (129,436 )

Service fees

    746,166       2,093,842       (1,347,676 )

Other income

    608,809       8,433       600,376  

Total revenues

    36,685,338       35,740,814       944,524  

Benefits and claims

    21,906,085       22,284,195       (378,110 )

Expenses

    10,713,309       10,309,496       403,813  

Total benefits, claims and expenses

    32,619,394       32,593,691       25,703  

Income before federal income tax expense

    4,065,944       3,147,123       918,821  

Federal income tax expense

    881,811       630,118       251,693  

Net income

  $ 3,184,133     $ 2,517,005     $ 667,128  

Net income per common share

                       

Class A common stock

  $ 0.3362     $ 0.2658     $ 0.0704  

Class B common stock

  $ 0.2858     $ 0.2259     $ 0.0599  

 

Consolidated Condensed Financial Position as of June 30, 2024 and December 31, 2023

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 to 2023

 
                         

Investment assets

  $ 422,408,967     $ 456,517,640     $ (34,108,673 )

Assets held in trust under coinsurance agreement

    41,353,598       79,940,459       (38,586,861 )

Other assets

    156,368,656       135,563,436       20,805,220  

Total assets

  $ 620,131,221     $ 672,021,535     $ (51,890,314 )
                         

Policy liabilities

  $ 494,630,670     $ 517,637,743     $ (23,007,073 )

Funds withheld under coinsurance agreement

    37,035,560       77,257,253       (40,221,693 )

Deferred federal income taxes

    4,387,671       4,228,189       159,482  

Other liabilities

    18,100,812       8,882,142       9,218,670  

Total liabilities

    554,154,713       608,005,327       (53,850,614 )

Shareholders' equity

    65,976,508       64,016,208       1,960,300  

Total liabilities and shareholders' equity

  $ 620,131,221     $ 672,021,535     $ (51,890,314 )
                         

Shareholders' equity per common share

                       

Class A common stock

  $ 6.9667     $ 6.7597     $ 0.2070  

Class B common stock

  $ 5.9217     $ 5.7457     $ 0.1760  

 

42

 

Results of Operations Three Months Ended June 30, 2024 and 2023

 

Revenues

 

Our primary sources of revenue are life insurance premium income and investment income. Premium payments are classified as first-year, renewal and single. In addition, realized gains and losses on investment holdings can significantly impact revenues from period to period.

 

Our revenues for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums

  $ 10,302,404     $ 9,599,539     $ 702,865  

Net investment income

    7,668,417       7,446,396       222,021  

Net realized investment losses

    (159,965 )     (112,070 )     (47,895 )

Loss on impairments

    (129,436 )     -       (129,436 )

Service fees

    498,484       1,110,994       (612,510 )

Other income

    (36,774 )     8,014       (44,788 )

Total revenues

  $ 18,143,130     $ 18,052,873     $ 90,257  

 

The $90,257 increase in total revenues for the three months ended June 30, 2024 is discussed below.

 

Premiums

 

Our premiums for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Ordinary life first year

  $ 812,019     $ 768,890     $ 43,129  

Ordinary life renewal

    2,180,739       1,667,965       512,774  

Final expense first year

    863,409       884,738       (21,329 )

Final expense renewal

    6,446,237       6,277,946       168,291  

Total premiums

  $ 10,302,404     $ 9,599,539     $ 702,865  

 

The $702,865 increase in premiums for the three months ended June 30, 2024 is primarily due to a $512,774 increase in ordinary life renewal premiums, $168,291 increase in final expense renewal premiums and a $43,129 increase in ordinary life first year premiums that exceeded a $21,329 decrease in final expense first year premiums.

 

The increase in ordinary life renewal premiums and ordinary life first year premiums primarily reflects ordinary dollar denominated life insurance policies sold in the international market by TAI. The increase in final expense renewal premiums reflects the persistency of prior years’ final expense production. The decrease in final expense first year premiums reflects changes in competitor underwriting guidelines.

 

43

 

Net Investment Income

 

The major components of our net investment income for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Fixed maturity securities

  $ 1,908,083     $ 1,473,021     $ 435,062  

Equity securities

    38,118       77,860       (39,742 )

Other long-term investments

    1,124,968       1,287,139       (162,171 )

Mortgage loans

    4,490,460       4,594,059       (103,599 )

Policy loans

    66,039       57,384       8,655  

Short-term and other investments

    662,925       774,735       (111,810 )

Gross investment income

    8,290,593       8,264,198       26,395  

Investment expenses

    (622,176 )     (817,802 )     (195,626 )

Net investment income

  $ 7,668,417     $ 7,446,396     $ 222,021  

 

The $26,395 increase in gross investment income for the three months ended June 30, 2024 is primarily due to $435,062 increase in fixed maturity securities that exceeded $103,599 decrease in mortgage loans, $111,810 decrease in short-term and other investments and a $162,171 decrease in other long-term investments.

 

The increase in fixed maturity securities investment income is primarily due to increased fixed maturity securities investments of $25.9 million since June 30, 2023. The decrease in mortgage loans investment income is primarily due to a decrease in mortgage loans average quarterly holdings offset by an increase in the gross yield of 8.51% in 2024 compared to 7.65% in 2023. The decline in short-term and other investments is primarily due to a decreased gross yield of 4.75% in 2024 compared to 6.48% in 2023. The decrease in other long-term investment income is primarily due to a decline in other long-term investments of $7.2 million since June 30, 2023.

 

The $195,626 decrease in investment expense for the three months ended June 30, 2024 is primarily due to decreased mortgage loan costs.

 

44

 

Net Realized Investment Losses

 

Our net realized investment losses result from sales of fixed maturity securities available-for-sale, mortgage loans on real estate, changes in fair value of equity securities and changes in estimate of credit losses.

 

Our net realized investment gains for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Fixed maturity securities available-for-sale:

                       

Sale proceeds

  $ 2,418,152     $ 730,108     $ 1,688,044  

Amortized cost at sale date

    2,460,567       761,389       1,699,178  

Net realized losses

  $ (42,415 )   $ (31,281 )   $ (11,134 )

Mortgage loans on real estate

                       

Payment and sale proceeds on mortgage loans

  $ 36,322,107     $ -     $ 36,322,107  

Principal collections

    36,356,549       -       36,356,549  

Net realized losses

  $ (34,442 )   $ -     $ (34,442 )
                         

Equity securities, changes in fair value

  $ (3,631 )   $ (4,080 )   $ 449  

Changes in current estimate of credit losses

  $ (79,477 )   $ (76,709 )   $ (2,768 )

Net realized investment losses

  $ (159,965 )   $ (112,070 )   $ (47,895 )

 

Loss on Impairments

 

During 2024, management impaired TLIC’s three acres of undeveloped land located in Topeka, Kansas by $129,436 from its carrying value to its net realizable value expected at the time of ultimate resale based on a third party appraisal.

 

Service Fees

 

The $612,510 decrease in service fees for the three months ended June 30, 2024 is primarily due to a decrease in fees from Trinity Mortgage Corporation brokering mortgage loans for a fee to third parties.

 

45

 

Total Benefits, Claims and Expenses

 

Our benefits, claims and expenses are primarily generated from benefit payments, surrenders, interest credited to policyholders, change in reserves, commissions and other underwriting, insurance and acquisition expenses. Benefit payments can significantly impact expenses from period to period.

 

Our benefits, claims and expenses for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Benefits and claims

                       

Increase in future policy benefits

  $ 3,835,769     $ 3,195,351     $ 640,418  

Death benefits

    3,370,887       3,156,135       214,752  

Surrenders

    581,841       668,266       (86,425 )

Interest credited to policyholders

    3,600,321       3,805,863       (205,542 )

Dividend, endowment and supplementary life contract benefits

    95,642       87,510       8,132  

Total benefits and claims

    11,484,460       10,913,125       571,335  

Expenses

                       

Policy acquisition costs deferred

    (4,341,346 )     (3,664,613 )     (676,733 )

Amortization of deferred policy acquisition costs

    2,671,126       2,258,279       412,847  

Amortization of value of insurance business acquired

    43,839       73,257       (29,418 )

Commissions

    4,030,610       3,433,682       596,928  

Other underwriting, insurance and acquisition expenses

    2,466,099       3,139,947       (673,848 )

Total expenses

    4,870,328       5,240,552       (370,224 )

Total benefits, claims and expenses

  $ 16,354,788     $ 16,153,677     $ 201,111  

 

The $201,111 increase in total benefits, claims and expenses for the three months ended June 30, 2024 is discussed below.

 

Benefits and Claims

 

The $571,335 increase in benefits and claims for the three months ended June 30, 2024 is primarily due to the following:

 

 

$640,418 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

 

 

$214,752 increase in death benefits is primarily due to approximately $395,000 of increased ordinary life benefits that exceeded $180,000 of decreased final expense benefits.

 

 

$86,425 decrease in surrenders is based upon policyholder election.

 

 

$205,542 decrease in interest credited to policyholders is primarily due to a decrease of approximately $49.8 million in the amount of policyholders’ account balance in the consolidated statement of financial position since June 30, 2023.

 

46

 

Deferral and Amortization of Deferred Acquisition Costs

 

Certain costs related to the successful acquisition of traditional life insurance policies are capitalized and amortized over the premium-paying period of the policies. Certain costs related to the successful acquisition of insurance and annuity policies that subject us to mortality or morbidity risk over a period that extends beyond the period or periods in which premiums are collected and that have terms that are fixed and guaranteed (i.e., limited-payment long-duration annuity contracts) are capitalized and amortized in relation to the present value of actual and expected gross profits on the policies.

 

These acquisition costs, which are referred to as deferred policy acquisition costs, include commissions and other successful costs of acquiring policies and contracts, which vary with, and are primarily related to, the successful production of new and renewal life insurance policies and annuity contracts.

 

For the three months ended June 30, 2024 and 2023, capitalized costs were $4,341,346 and $3,664,613, respectively. Amortization of deferred policy acquisition costs for the three months ended June 30, 2024 and 2023 were $2,671,126 and $2,258,279, respectively.

 

There was a $676,633 increase in 2024 acquisition costs deferred primarily relates to increased annuity production with a corresponding increase in deferral of eligible annuity commissions. There was a $412,847 increase in the 2024 amortization of deferred acquisition costs due to 2024 surrenders and withdrawal activity and the impact of mortality.

 

Amortization of Value of Insurance Business Acquired

 

The cost of acquiring insurance business is amortized over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. Amortization of the value of insurance business acquired was $43,839 and $73,257 for the three months ended June 30, 2024 and 2023, respectively, representing a $29,418 decrease.

 

Commissions

 

Our commissions for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Annuity

  $ 1,324,229     $ 786,243     $ 537,986  

Ordinary life first year

    855,150       803,820       51,330  

Ordinary life renewal

    241,687       179,631       62,056  

Final expense first year

    1,013,512       1,073,214       (59,702 )

Final expense renewal

    596,032       590,774       5,258  

Total commissions

  $ 4,030,610     $ 3,433,682     $ 596,928  

 

The $596,928 increase in commissions for the three months ended June 30, 2024 is primarily due to a $537,986 increase annuity commissions (corresponding to $14,902,438 of increased annuity deposits retained), $62,056 increase in ordinary life renewal commissions (corresponding to $512,774 increased ordinary life renewal premiums) and a $51,330 increase in ordinary life first year commissions (corresponding to $43,129 increased ordinary life first year premiums) that exceed a $59,702 decrease in final expense first year commissions (corresponding to $21,329 decreased final expense first year premiums).

 

Other Underwriting, Insurance and Acquisition Expenses

 

The $673,848 decrease in other underwriting, insurance and acquisition expenses for the three months ended June 30, 2024 was primarily related to a decrease in advisor fees and legal fees.

 

47

 

Federal Income Taxes

 

FTFC filed its 2022 consolidated federal income tax return with TLIC, FBLIC and TMC. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes.

 

For the three months ended June 30, 2024 and 2023, current income tax expense was $263,435 and $109,128, respectively. For the three months ended June 30, 2024 and 2023, deferred federal income tax expense was $134,927 and $288,159, respectively.

 

Net Income Per Common Share Basic

 

For the three months ended June 30, 2024 and 2023, the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (9,470,277) of Class A shares (9,384,340) and Class B shares (85,937) as of the reporting date.

 

For the three months ended June 30, 2024, the net income allocated to the Class A shareholders of $1,377,367 is the total net income $1,389,980 less the net income allocated to the Class B shareholders $12,613. For the three months ended June 30, 2023, the net income allocated to the Class A shareholders of $1,488,280 is the total net income $1,501,909 less the net income allocated to the Class B shareholders $13,629.

 

The weighted average outstanding common shares basic for the three months ended June 30, 2024 and 2023 were 9,384,340 for Class A shares and 101,102 for Class B shares.

 

Business Segments

 

The Company has a life insurance segment, consisting of the life insurance operations of TLIC, FBLIC and TAI, an annuity segment, consisting of the annuity operations of TLIC, FBLIC and TAI and a corporate segment. Results for the parent company and the operations of TMC, after elimination of intercompany amounts, are allocated to the corporate segment.

 

The revenues and income before federal income taxes from our business segments for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Three Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Revenues:

                       

Life insurance operations

  $ 12,282,831     $ 11,252,874     $ 1,029,957  

Annuity operations

    5,265,190       5,708,580       (443,390 )

Corporate operations

    595,109       1,091,419       (496,310 )

Total

  $ 18,143,130     $ 18,052,873     $ 90,257  

Income (loss) before federal income taxes:

                       

Life insurance operations

  $ 1,039,421     $ 941,086     $ 98,335  

Annuity operations

    161,114       158,696       2,418  

Corporate operations

    587,807       799,414       (211,607 )

Total

  $ 1,788,342     $ 1,899,196     $ (110,854 )

 

48

 

The increases and decreases of revenues and profitability from our business segments for the three months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Life Insurance

   

Annuity

   

Corporate

         
   

Operations

   

Operations

   

Operations

   

Total

 

Revenues

                               

Premiums

  $ 702,865     $ -     $ -     $ 702,865  

Net investment income

    378,352       (309,841 )     153,510       222,021  

Net realized investment losses

    (55,918 )     (121,413 )     -       (177,331 )

Service fees and other income

    4,658       (12,136 )     (649,820 )     (657,298 )

Total revenue

    1,029,957       (443,390 )     (496,310 )     90,257  
                                 

Benefits and claims

                               

Increase in future policy benefits

    640,418       -       -       640,418  

Death benefits

    214,752       -       -       214,752  

Surrenders

    (86,425 )     -       -       (86,425 )

Interest credited to policyholders

    -       (205,542 )     -       (205,542 )

Dividend, endowment and supplementary life contract benefits

    8,132       -       -       8,132  

Total benefits and claims

    776,877       (205,542 )     -       571,335  

Expenses

                               

Policy acquisition costs deferred net of amortization

    99,328       (363,214 )     -       (263,886 )

Amortization of value of insurance business acquired

    (14,709 )     (14,709 )     -       (29,418 )

Commissions

    58,942       537,986       -       596,928  

Other underwriting, insurance and acquisition expenses

    11,184       (400,329 )     (284,703 )     (673,848 )

Total expenses

    154,745       (240,266 )     (284,703 )     (370,224 )

Total benefits, claims and expenses

    931,622       (445,808 )     (284,703 )     201,111  

Income (loss) before federal income taxes (benefits)

  $ 98,335     $ 2,418     $ (211,607 )   $ (110,854 )

 

Results of Operations Six Months Ended June 30, 2024 and 2023

 

Revenues

 

Our primary sources of revenue are life insurance premium income and investment income. Premium payments are classified as first-year, renewal and single. In addition, realized gains and losses on investment holdings can significantly impact revenues from period to period.

 

Our revenues for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums

  $ 19,953,409     $ 18,707,848     $ 1,245,561  

Net investment income

    15,626,294       15,074,212       552,082  

Net realized investment gains (losses)

    (119,904 )     (143,521 )     23,617  

Loss on impairments

    (129,436 )     -       (129,436 )

Service fees

    746,166       2,093,842       (1,347,676 )

Other income

    608,809       8,433       600,376  

Total revenues

  $ 36,685,338     $ 35,740,814     $ 944,524  

 

The $944,524 increase in total revenues for the six months ended June 30, 2024 is discussed below.

 

49

 

Premiums

 

Our premiums for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Ordinary life first year

  $ 1,601,572     $ 1,427,505     $ 174,067  

Ordinary life renewal

    3,864,120       3,007,378       856,742  

Final expense first year

    1,709,773       1,765,819       (56,046 )

Final expense renewal

    12,777,944       12,507,146       270,798  

Total premiums

  $ 19,953,409     $ 18,707,848     $ 1,245,561  

 

The $1,245,561 increase in premiums for the six months ended June 30, 2024 is primarily due to a $856,742 increase in ordinary life renewal premiums, $270,798 increase in final expense renewal premiums and a $174,067 increase in ordinary life first year premiums that exceeded a $56,046 decrease in final expense first year premiums.

 

The increase in ordinary life renewal premiums and ordinary life first year premiums primarily reflects ordinary dollar denominated life insurance policies sold in the international market by TAI. The increase in final expense renewal premiums reflects the persistency of prior years’ final expense production. The decrease in final expense first year premiums reflects changes in competitor underwriting guidelines.

 

Net Investment Income

 

The major components of our net investment income for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Fixed maturity securities

  $ 3,670,108     $ 3,033,054     $ 637,054  

Equity securities

    52,752       106,115       (53,363 )

Other long-term investments

    2,292,211       2,647,469       (355,258 )

Mortgage loans

    9,437,977       9,318,415       119,562  

Policy loans

    134,790       113,960       20,830  

Short-term and other investments

    1,135,364       1,269,413       (134,049 )

Gross investment income

    16,723,202       16,488,426       234,776  

Investment expenses

    (1,096,908 )     (1,414,214 )     (317,306 )

Net investment income

  $ 15,626,294     $ 15,074,212     $ 552,082  

 

The $234,776 increase in gross investment income for the six months ended June 30, 2024 is primarily due $637,054 increase in fixed maturity securities and a $119,562 increase in mortgage loans that exceeded a $134,049 decrease in short-term and other investments and $355,258 decrease in other long-term investments.

 

The increase in fixed maturity securities investment income is primarily due to increased fixed maturity securities investments of $25.9 million since June 30, 2023. The increase in mortgage loans investment income is primarily due to increased gross yields of 8.51% in 2024 compared to 7.65% in 2023. The decline in short-term and other investments is primarily due to decreased gross yield of 4.75% in 2024 compared to 6.48% in 2023. The decrease in other long-term investment income is primarily due to a decline in other long-term investments of $7.2 million since June 30, 2023.

 

50

 

The $317,306 decrease in investment expense for the six months ended June 30, 2024 is primarily due to decreased mortgage loan costs.

 

Net Realized Investment Losses

 

Our net realized investment losses result from sales of fixed maturity securities available-for-sale, equity securities, mortgage loans on real estate, changes in fair value of equity securities and changes in estimate of credit losses.

 

Our net realized investment gains for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Fixed maturity securities available-for-sale:

                       

Sale proceeds

  $ 3,451,501     $ 2,513,558     $ 937,943  

Amortized cost at sale date

    3,495,614       2,563,161       932,453  

Net realized gains (losses)

  $ (44,113 )   $ (49,603 )   $ 5,490  

Mortgage loans on real estate

                       

Payment and sale proceeds on mortgage loans

  $ 72,861,854     $ -     $ 72,861,854  

Principal collections

    72,836,438       -       72,836,438  

Net realized losses

  $ 25,416     $ -     $ 25,416  

Equity securities, changes in fair value

  $ 35,365     $ (10,286 )   $ 45,651  

Changes in current estimate of credit losses

  $ (136,572 )   $ (83,632 )   $ (52,940 )
                         

Net realized investment losses

  $ (119,904 )   $ (143,521 )   $ 23,617  

 

Loss on Impairments

 

During 2024, management impaired TLIC’s three acres of undeveloped land located in Topeka, Kansas by $129,436 from its carrying value to its net realizable value expected at the time of ultimate resale based on a third party appraisal.

 

Service Fees

 

The $1,347,676 decrease in service fees for the six months ended June 30, 2024 is primarily due to a decrease in fees from Trinity Mortgage Corporation brokering mortgage loans for a fee to third parties.

 

Other Income

 

The $600,376 increase in other income is primarily due to interest amounting to $602,307 from the Internal Revenue Service on a federal income tax refund of $8,087,076 for the tax years 2020, 2021 and 2022.

 

51

 

Total Benefits, Claims and Expenses

 

Our benefits, claims and expenses are primarily generated from benefit payments, surrenders, interest credited to policyholders, change in reserves, commissions and other underwriting, insurance and acquisition expenses. Benefit payments can significantly impact expenses from period to period.

 

Our benefits, claims and expenses for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Benefits and claims

                       

Increase in future policy benefits

  $ 6,416,784     $ 6,483,015     $ (66,231 )

Death benefits

    6,881,640       7,109,297       (227,657 )

Surrenders

    1,159,198       1,101,132       58,066  

Interest credited to policyholders

    7,267,805       7,421,969       (154,164 )

Dividend, endowment and supplementary life contract benefits

    180,658       168,782       11,876  

Total benefits and claims

    21,906,085       22,284,195       (378,110 )

Expenses

                       

Policy acquisition costs deferred

    (7,266,639 )     (7,400,224 )     133,585  

Amortization of deferred policy acquisition costs

    4,996,837       4,279,690       717,147  

Amortization of value of insurance business acquired

    95,176       141,499       (46,323 )

Commissions

    6,812,337       6,993,690       (181,353 )

Other underwriting, insurance and acquisition expenses

    6,075,598       6,294,841       (219,243 )

Total expenses

    10,713,309       10,309,496       403,813  

Total benefits, claims and expenses

  $ 32,619,394     $ 32,593,691     $ 25,703  

 

The $25,703 increase in total benefits, claims and expenses for the six months ended June 30, 2024 is discussed below.

 

Benefits and Claims

 

The $378,110 decrease in benefits and claims for the six months ended June 30, 2024 is primarily due to the following:

 

 

$227,657 decrease in death benefits is primarily due to approximately $265,000 of decreased final expense benefit that exceeded $39,000 of increased ordinary life benefits.

 

 

$154,164 decrease in interest credited to policyholders is primarily due to a decrease of approximately $49.8 million in the amount of policyholders’ account balance in the consolidated statement of financial position since June 30, 2023.

 

 

 $66,231 decrease in future policy benefits is primarily due to a slight decrease in the average value of the life policies in force and the aging of existing life policies.

 

 

$58,066 increase in surrenders is based upon policyholder election and corresponds to the growth in the number of policies in force.

 

52

 

Deferral and Amortization of Deferred Acquisition Costs

 

Certain costs related to the successful acquisition of traditional life insurance policies are capitalized and amortized over the premium-paying period of the policies. Certain costs related to the successful acquisition of insurance and annuity policies that subject us to mortality or morbidity risk over a period that extends beyond the period or periods in which premiums are collected and that have terms that are fixed and guaranteed (i.e., limited-payment long-duration annuity contracts) are capitalized and amortized in relation to the present value of actual and expected gross profits on the policies.

 

These acquisition costs, which are referred to as deferred policy acquisition costs, include commissions and other successful costs of acquiring policies and contracts, which vary with, and are primarily related to, the successful production of new and renewal insurance and annuity contracts.

 

For the six months ended June 30, 2024 and 2023, capitalized costs were $7,266,639 and $7,400,224, respectively. Amortization of deferred policy acquisition costs for the six months ended June 30, 2024 and 2023 were $4,996,837 and $4,279,690, respectively.

 

There was a $133,585 decrease in 2024 acquisition costs deferred primarily relates to decreased annuity and final expense first year production with a corresponding decrease in deferral of eligible annuity and final expense first year commissions. There was a $717,147 increase in the 2024 amortization of deferred acquisition costs due to 2024 surrenders and withdrawal activity and the impact of mortality.

 

Amortization of Value of Insurance Business Acquired

 

The cost of acquiring insurance business is amortized over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. Amortization of the value of insurance business acquired was $95,176 and $141,499 for the six months ended June 30, 2024 and 2023, respectively, representing a $46,323 decrease.

 

Commissions

 

Our commissions for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Annuity

  $ 1,498,366     $ 1,867,527     $ (369,161 )

Ordinary life first year

    1,691,054       1,469,260       221,794  

Ordinary life renewal

    433,549       320,776       112,773  

Final expense first year

    2,006,366       2,147,025       (140,659 )

Final expense renewal

    1,183,002       1,189,102       (6,100 )

Total commissions

  $ 6,812,337     $ 6,993,690     $ (181,353 )

 

The $181,353 decrease in commissions for the six months ended June 30, 2024 is primarily due to a $369,161 decrease annuity commissions (corresponding to $10,592,315 of decreased annuity deposits retained) and a $140,659 decrease in final expense first year commissions (corresponding to $56,046 decreased final expense first year premiums) that exceed a $221,794 increase in ordinary life first year commissions (corresponding to $174,067 increased ordinary life first year premiums) and a $112,773 increase in ordinary life renewal commissions (corresponding to $856,742 increased ordinary life renewal premiums).

 

Underwriting, Insurance and Acquisition Expenses

 

The $219,243 decrease in other underwriting, insurance and acquisition expenses for the six months ended June 30, 2024 was primarily related to a decrease in advisor fees and legal fees.

 

53

 

Federal Income Taxes

 

FTFC filed its 2022 consolidated federal income tax return with TLIC, FBLIC and TMC. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes.

 

For the six months ended June 30, 2024 and June 30, 2023, current income tax expense was $397,007 and $255,001. Deferred federal income tax expense was $484,804 and $375,117 for the six months ended June 30, 2024 and 2023, respectively.

 

Net Income Per Common Share Basic

 

For the six months ended June 30, 2024 and 2023, the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (9,470,277) of Class A shares (9,384,340) and Class B shares (85,937) as of the reporting date.

 

For the six months ended June 30, 2024, the net income allocated to the Class A shareholders of $3,155,239 is the total net income $3,184,133 less the net income allocated to the Class B shareholders $28,894. For the six months ended June 30, 2023, the net income allocated to the Class A shareholders of $2,494,165 is the total net income $2,517,005 less the net income allocated to the Class B shareholders $22,840.

 

The weighted average outstanding common shares basic for the six months ended June 30, 2024 and 2023 were 9,384,340 for Class A shares and 101,102 for Class B shares.

 

Business Segments

 

The Company has a life insurance segment, consisting of the life insurance operations of TLIC, FBLIC and TAI, an annuity segment, consisting of the annuity operations of TLIC, FBLIC and TAI and a corporate segment. Results for the parent company and the operations of TMC, after elimination of intercompany amounts, are allocated to the corporate segment.

 

The revenues and income before federal income taxes from our business segments for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Revenues:

                       

Life insurance operations

  $ 24,133,009     $ 22,078,689     $ 2,054,320  

Annuity operations

    11,443,705       11,789,734       (346,029 )

Corporate operations

    1,108,624       1,872,391       (763,767 )

Total

  $ 36,685,338     $ 35,740,814     $ 944,524  

Income (loss) before income taxes:

                       

Life insurance operations

  $ 2,927,650     $ 692,811     $ 2,234,839  

Annuity operations

    768,716       1,168,394       (399,678 )

Corporate operations

    369,578       1,285,918       (916,340 )

Total

  $ 4,065,944     $ 3,147,123     $ 918,821  

 

54

 

The increases and decreases of revenues and profitability from our business segments for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

Life Insurance

Operations

   

Annuity

Operations

   

Corporate

Operations

   

Total

 

Revenues

                               

Premiums

  $ 1,245,561     $ -     $ -     $ 1,245,561  

Net investment income

    770,020       (352,904 )     134,966       552,082  

Net realized investment losses

    (34,103 )     (71,716 )     -       (105,819 )

Service fees and other income

    72,842       78,591       (898,733 )     (747,300 )

Total revenue

    2,054,320       (346,029 )     (763,767 )     944,524  
                                 

Benefits and claims

                               

Increase in future policy benefits

    (66,231 )     -       -       (66,231 )

Death benefits

    (227,657 )     -       -       (227,657 )

Surrenders

    58,066       -       -       58,066  

Interest credited to policyholders

    -       (154,164 )     -       (154,164 )

Dividend, endowment and supplementary life contract benefits

    11,876       -       -       11,876  

Total benefits and claims

    (223,946 )     (154,164 )     -       (378,110 )

Expenses

                               

Policy acquisition costs deferred net of amortization

    129,682       721,050       -       850,732  

Amortization of value of insurance business acquired

    (23,161 )     (23,162 )     -       (46,323 )

Commissions

    187,808       (369,161 )     -       (181,353 )

Other underwriting, insurance and acquisition expenses

    (250,902 )     (120,914 )     152,573       (219,243 )

Total expenses

    43,427       207,813       152,573       403,813  

Total benefits, claims and expenses

    (180,519 )     53,649       152,573       25,703  

Income (loss) before federal income taxes (benefits)

  $ 2,234,839     $ (399,678 )   $ (916,340 )   $ 918,821  

 

Consolidated Financial Condition

 

Our invested assets as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 less 2023

 

Assets

                       

Investments

                       

Available-for-sale fixed maturity securities at fair value (amortized cost: $165,509,608 and $161,908,230 as of June 30, 2024 and December 31, 2023, respectively)

  $ 151,753,077     $ 149,700,948     $ 2,052,129  

Equity securities at fair value (cost: $279,508 and $287,375 as of June 30, 2024 and December 31, 2023, respectively)

    447,028       419,530       27,498  

Mortgage loans on real estate

    203,916,971       239,831,447       (35,914,476 )

Investment real estate

    1,739,048       1,305,403       433,645  

Policy loans

    3,742,282       3,474,116       268,166  

Short-term investments

    -       298,257       (298,257 )

Other long-term investments

    60,810,561       61,487,939       (677,378 )

Total investments

  $ 422,408,967     $ 456,517,640     $ (34,108,673 )

 

55

 

The increase and decrease in fixed maturity available-for-sale securities for the six months ended June 30, 2024 and 2023, respectively, are summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Fixed maturity securities, available-for-sale, beginning

  $ 149,700,948     $ 126,612,890  

Purchases

    7,196,831       223,594  

Unrealized apprciation (depreciation)

    (1,549,249 )     1,761,486  

Net realized investment losses

    (180,685 )     (133,235 )

Sales proceeds

    (2,051,501 )     (2,158,558 )

Maturities

    (1,400,000 )     (355,000 )

Accretion of discount (premium amortization)

    36,733       (103,768 )

Increase (decrease)

    2,052,129       (765,481 )

Fixed maturity securities, available-for-sale, ending

  $ 151,753,077     $ 125,847,409  

 

Fixed maturity securities available-for-sale are reported at fair value with unrealized gains and losses, net of applicable income taxes, reflected as a separate component in shareholders' equity within “Accumulated Other Comprehensive Income (Loss).” The available-for-sale fixed maturity securities portfolio is invested primarily in a variety of U.S. government and U.S. government agencies, state and political subdivisions, U.S. government agency mortgage backed securities, commercial and residential mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign bonds and redeemable preferred stocks.

 

The increase in equity securities for the six months ended June 30, 2024 and 2023, are summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Equity securities, beginning

  $ 419,530     $ 399,633  

Purchases

    45,542       63,479  

Joint venture distributions

    (53,409 )     (49,646 )

Net realized investment gains (losses), changes in fair value

    35,365       (10,286 )

Increase

    27,498       3,547  

Equity securities, ending

  $ 447,028     $ 403,180  

 

Equity securities are reported at fair value with the change in fair value reflected in “Net realized investment losses” within the consolidated statements of operations.

 

56

 

The decrease and increase in mortgage loans on real estate for the six months ended June 30, 2024 and 2023, respectively, are summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Mortgage loans on real estate, beginning

  $ 239,831,447     $ 242,314,128  

Purchases

    37,309,014       74,416,806  

Accretion of discounts (premium amortization)

    17,683       (25,405 )

Net realized investment gains

    25,416       -  

Payments

    (72,861,854 )     (71,963,905 )

Foreclosed - transferred to real estate

    (563,081 )     -  

(Increase) decrease in allowance for bad debts

    158,346       (39,426 )

Increase (decrease)

    (35,914,476 )     2,388,070  

Mortgage loans on real estate, ending

  $ 203,916,971     $ 244,702,198  

 

The increase in investment real estate for the six months ended June 30, 2024, is summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Investment real estate, beginning

  $ 1,305,403     $ 540,436  

Real estate acquired through mortgage loan foreclosures

    563,081       -  

Loss on impairments

    (129,436 )     -  

Increase

    433,645       -  

Investment real estate, ending

  $ 1,739,048     $ 540,436  

 

The increase and decrease in other long-term investments (composed of lottery receivables) for the six months ended June 30, 2024 and 2023, respectively, are summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Other long-term investments, beginning

  $ 61,487,939     $ 67,500,783  

Purchases

    4,932,676       5,523,698  

Accretion of discount

    2,292,272       2,647,608  

Payments

    (7,902,326 )     (7,683,912 )

Increase (decrease)

    (677,378 )     487,394  

Other long-term investments, ending

  $ 60,810,561     $ 67,988,177  

 

57

 

Our assets other than invested assets as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 less 2023

 
                         

Cash and cash equivalents

  $ 61,812,030     $ 33,839,741     $ 27,972,289  

Accrued investment income

    5,599,372       6,214,459       (615,087 )

Recoverable from reinsurers

    10,085,589       10,353,674       (268,085 )

Assets held in trust under coinsurance agreement

    41,353,598       79,940,459       (38,586,861 )

Agents' balances and due premiums

    1,455,189       1,284,003       171,186  

Deferred policy acquisition costs

    63,065,004       60,795,108       2,269,896  

Value of insurance business acquired

    3,682,177       3,777,353       (95,176 )

Other assets

    10,669,295       19,299,098       (8,629,803 )

Assets other than investment assets

  $ 197,722,254     $ 215,503,895     $ (17,781,641 )

 

The $27,972,289 increase in cash and cash equivalents is discussed below in the “Liquidity and Capital Resources” section where cash flows are addressed.

 

The $38,586,861 decrease in assets held in trust under the coinsurance agreement is due to a reduction in assets under TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company that is administered on a funds withheld basis.

 

The increase in deferred policy acquisition costs for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Balance, beginning of year

  $ 60,795,108     $ 56,183,785  

Capitalization of commissions, sales and issue expenses

    7,266,639       7,400,224  

Amortization

    (4,996,837 )     (4,279,690 )

Deferred acquisition costs allocated to investments

    94       (728 )

Increase

    2,269,896       3,119,806  

Balance, end of period

  $ 63,065,004     $ 59,303,591  

 

58

 

Our other assets as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 less 2023

 

Advances to mortgage loan originator

  $ 4,866,574     $ 4,487,715     $ 378,859  

Federal and state income taxes recoverable

    4,175,932       10,845,790       (6,669,858 )

Guaranty funds

    718,185       723,767       (5,582 )

Accrued management fee

    383,942       345,148       38,794  

Lease asset - right to use

    319,893       369,107       (49,214 )

Prepaid assets and deposits

    121,576       141,172       (19,596 )

Receivables from lottery vendor

    39,012       278,207       (239,195 )

Notes receivable

    36,739       44,319       (7,580 )

Other receivables

    7,442       18,682       (11,240 )

Advances to an independently owned investment firm

    -       2,045,191       (2,045,191 )

Total other assets

  $ 10,669,295     $ 19,299,098     $ (8,629,803 )

 

There was a $6,669,858 decrease in federal and state income taxes recoverable primarily due to receiving a federal income tax refund of $8,087,076 for the tax years 2020, 2021 and 2022.

 

There was a $2,045,191 decrease in advances to an independently owned investment firm due to the full repayment of a promissory note.

 

There was a $239,195 decrease in receivables from a lottery vendor.

 

There was a $378,859 increase in advances to one mortgage loan originator who acquires residential mortgage loans for our life companies.

 

Our liabilities as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 less 2023

 
                         

Policy liabilities

                       

Policyholders' account balances

  $ 361,873,240     $ 391,247,676     $ (29,374,436 )

Future policy benefits

    129,982,551       123,729,530       6,253,021  

Policy claims

    2,467,191       2,410,243       56,948  

Other policy liabilities

    307,688       250,294       57,394  

Total policy liabilities

    494,630,670       517,637,743       (23,007,073 )

Funds withheld under coinsurance agreement

    37,035,560       77,257,253       (40,221,693 )

Deferred federal income taxes

    4,387,671       4,228,189       159,482  

Other liabilities

    18,100,812       8,882,142       9,218,670  

Total liabilities

  $ 554,154,713     $ 608,005,327     $ (53,850,614 )

 

59

 

The increase and decrease in policyholders’ account balances for the six months ended June 30, 2024 and 2023, respectively, are summarized as follows:

 

   

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2024

   

2023

 

Policyholders' account balances, beginning

  $ 391,247,676     $ 391,359,944  

Deposits

    47,417,280       57,781,005  

Withdrawals

    (125,662,977 )     (52,345,302 )

Change in funds withheld under coinsurance agreement

    41,603,456       7,418,082  

Interest credited

    7,267,805       7,421,969  

Increase (decrease)

    (29,374,436 )     20,275,754  

Policyholders' account balances, ending

  $ 361,873,240     $ 411,635,698  

 

The $40,221,693 decrease in funds withheld under coinsurance agreement is due to significant 2024 surrenders of coinsured annuity contracts under coinsurance agreement with an offshore annuity and life insurance company.

 

The $6,253,021 increase in future policy benefits during the six months ended June 30, 2024 is primarily related to the production of new life insurance policies and the aging of existing policies an additional year.

 

The $159,482 increase in deferred federal income taxes during the six months ended June 30, 2024 was due to $484,804 of operating deferred federal tax expense that exceeded a $325,322 increase in deferred federal income taxes on the unrealized depreciation of fixed maturity securities and preferred stock securities available-for-sale.

 

Our other liabilities as of June 30, 2024 and December 31, 2023 are summarized as follows:

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 less 2023

 

Suspense accounts payable

  $ 12,644,919     $ 800,262     $ 11,844,657  

Mortgage loans suspense

    2,366,790       5,841,113       (3,474,323 )

Accrued expenses payable

    785,000       696,000       89,000  

Guaranty fund assessments

    713,000       713,000       -  

Payable for securities purchased

    545,150       7,082       538,068  

Unclaimed funds

    503,522       488,492       15,030  

Lease liability

    319,893       369,107       (49,214 )

Accounts payable

    210,470       53,804       156,666  

Unearned investment income

    127,405       115,166       12,239  

Deferred revenue

    35,750       41,250       (5,500 )

Other payables, withholdings and escrows

    (151,087 )     (243,134 )     92,047  

Total other liabilities

  $ 18,100,812     $ 8,882,142     $ 9,218,670  

 

The $11,844,657 increase in suspense accounts payable is due to increased deposits on policy applications that had not been issued as of the financial reporting date.

 

As of June 30, 2024, the Company had $545,150 in security purchases where the trade date and settlement date were in different financial reporting periods compared to $7,082 of security purchases overlapping financial reporting periods as of December 31, 2023.

 

The $156,666 increase in account payable is primarily amounts owed to a lottery vendor.

 

The decrease in mortgage loan suspense of $3,474,323 is primarily due to timing of principal loan payments on mortgage loans.

 

60

 

Liquidity and Capital Resources

 

Our operations have been financed primarily through the private placement of equity securities and intrastate public stock offerings. Through June 30, 2024, we have received $27,119,480 from the sale of our shares.

 

The Company raised $1,450,000 from two private placements during 2004 and $25,669,480 from two public stock offerings and one private placement stock offering from June 22, 2005 through February 23, 2007; June 29, 2010 through April 30, 2012; and August 15, 2012 through March 8, 2013. The Company issued 7,347,488 shares of its common stock and incurred $3,624,518 of offering costs during these private placements and public stock offerings.

 

The Company also issued 702,685 shares of its common stock in connection with two stock dividends paid to shareholders in 2011 and 2012 that resulted in accumulated earnings being charged $5,270,138 with an offsetting credit of $5,270,138 to common stock and additional paid-in capital.

 

In 2020, the Company paid a $0.05 per share cash dividend for a total of $393,178 and issued 791,339 shares of class A common stock in connection with a 10% stock dividend to its Class A shareholders. The 10% stock dividend resulted in accumulated earnings being charged $8,657,249 with an offsetting credit of $8,657,249 to common stock and additional paid-in capital.

 

The Company has also purchased 247,580 shares of treasury stock at a cost of $893,947 from former members of the Board of Directors including the former Chairman of the Board of Directors, a former agent, the former spouse of the Company’s Chairman, Chief Executive Officer and President and a charitable organization where a former member of the Board of Directors had donated shares of the Company’s common stock.

 

As of June 30, 2024, we had cash and cash equivalents totaling $61,812,030. As of June 30, 2024, cash and cash equivalents of $38,492,895 and $14,246,842, respectively, totaling $52,739,737 were held by TLIC and FBLIC and may not be available for use by FTFC due to the required pre-approval by the Oklahoma Insurance Department of any dividend or intercompany transaction to transfer funds to FTFC. The maximum dividend, which may be paid in any twelve-month period without notification or approval, is limited to the greater of 10% of statutory surplus as of December 31 of the preceding year or the net gain from operations of the preceding calendar year.

 

Cash dividends may only be paid out of surplus derived from realized net profits. Based on these limitations, there is no capacity for TLIC to pay a dividend due to a negative unassigned surplus of $2,247,082 as of December 31, 2023. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $1,373,511 in 2024 without prior approval. FBLIC has paid no dividends to TLIC in 2024 and 2023. TLIC has paid no dividends to FTFC in 2024 and 2023.

 

The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures interest and non-interest bearing accounts up to $250,000. Uninsured balances aggregate $33,377,711 and $26,017,084 as of June 30, 2024 and December 31, 2023, respectively. Other funds are invested in mutual funds that invest in U.S. government securities. We monitor the solvency of all financial institutions in which we have funds to minimize the exposure for loss. The Company has not experienced any losses in such accounts.

 

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Our cash flows for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Net cash provided by operating activities

  $ 70,864,800     $ 1,698,377     $ 69,166,423  

Net cash provided by investing activities

    35,353,186       2,265,975       33,087,211  

Net cash provided by (used in) financing activities

    (78,245,697 )     5,435,703       (83,681,400 )

Increase in cash and cash equivalents

    27,972,289       9,400,055       18,572,234  

Cash and cash equivalents, beginning of period

    33,839,741       33,542,725       297,016  

Cash and cash equivalents, end of period

  $ 61,812,030     $ 42,942,780     $ 18,869,250  

 

The cash provided by operating activities for the six months ended June 30, 2024 and 2023 are summarized as follows:

 

   

(Unaudited)

         
   

Six Months Ended June 30,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums collected

  $ 20,001,882     $ 18,571,933     $ 1,429,949  

Net investment income collected

    13,906,933       11,790,418       2,116,515  

Service fees and other income collected

    1,316,180       2,102,276       (786,096 )

Death benefits paid

    (6,556,607 )     (7,282,857 )     726,250  

Surrenders paid

    (1,159,198 )     (1,101,132 )     (58,066 )

Dividends and endowments paid

    (181,790 )     (169,724 )     (12,066 )

Commissions paid

    (6,973,470 )     (6,985,640 )     12,170  

Other underwriting, insurance and acquisition expenses paid

    (5,858,385 )     (6,228,053 )     369,668  

Taxes received (paid)

    6,272,851       (2,080,865 )     8,353,716  

Increased advances to mortgage loan originator

    (378,859 )     (842,001 )     463,142  

Decreased advances to independently owned investment firm

    2,045,191       -       2,045,191  

(Increased) decreased advances to investment vendor

    254,878       (10,076,477 )     10,331,355  

Decreased funds under coinsurance agreement

    39,968,624       7,141,323       32,827,301  

Increased (decreased) deposits of pending policy applications

    11,844,657       (6,933,724 )     18,778,381  

Increased (decreased) mortgage loan suspense

    (3,474,324 )     3,898,819       (7,373,143 )

Other

    (163,763 )     (105,919 )     (57,844 )

Cash provided by operating activities

  $ 70,864,800     $ 1,698,377     $ 69,166,423  

 

Please see the statements of cash flows for the six months ended June 30, 2024 and 2023 for a summary of the components of net cash used in investing activities and net cash provided by financing activities.

 

62

 

Our shareholders’ equity as of June 30, 2024 and December 31, 2023 is summarized as follows:

 

   

(Unaudited)

           

Amount Change

 
   

June 30, 2024

   

December 31, 2023

   

2024 less 2023

 
                         

Shareholders' equity

                       

Class A common stock, par value $.01 per share (40,000,000 shares authorized as of June 30, 2024 and December 31, 2023, 9,631,920 issued as of June 30, 2024 and December 31, 2023, 9,384,340 outstanding as of June 30, 2024 and December 31, 2023)

  $ 96,319     $ 96,319     $ -  

Class B common stock, par value $.01 per share (10,000,000 shares authorized, 101,102 issued and outstanding as of June 30, 2024 and December 31, 2023)

    1,011       1,011       -  

Additional paid-in capital

    43,668,023       43,668,023       -  

Treasury stock, at cost (247,580 shares as of June 30, 2024 and December 31, 2023)

    (893,947 )     (893,947 )     -  

Accumulated other comprehensive loss

    (10,865,141 )     (9,641,308 )     (1,223,833 )

Accumulated earnings

    33,970,243       30,786,110       3,184,133  

Total shareholders' equity

  $ 65,976,508     $ 64,016,208     $ 1,960,300  

 

The increase in shareholders’ equity of $1,960,300 for the six months ended June 30, 2024 is due to $3,184,133 in net income and a $1,223,833 increase in accumulated other comprehensive loss.

 

The liquidity requirements of our life insurance companies are met primarily by funds provided from operations. Premium and annuity consideration deposits, investment income and investment maturities are the primary sources of funds, while investment purchases, policy benefits, and operating expenses are the primary uses of funds. There were no liquidity issues in 2024 or 2023. Our investments include marketable debt securities that could be readily converted to cash for liquidity needs.

 

We are subject to various market risks. The quality of our investment portfolio and the current level of shareholders’ equity continue to provide a sound financial base as we strive to expand our marketing to offer competitive products. Our investment portfolio had unrealized depreciation on available-for-sale securities of $13,756,531 and ($12,207,282) as of June 30, 2024 and December 31, 2023, respectively, prior to the impact of income taxes and deferred acquisition cost adjustments. An increase of $1,593,362 in unrealized losses arising for the six months ended June 30, 2024 has been offset by 2024 net realized investment losses of $44,113 originating from the sale and call activity for fixed maturity securities available-for-sale resulting in net unrealized losses on investments of $1,549,249.

 

A primary liquidity concern is the risk of an extraordinary level of early policyholder withdrawals. We include provisions within our insurance policies, such as surrender charges, that help limit and discourage early withdrawals. Individual life insurance policies are less susceptible to withdrawal than annuity reserves and deposit liabilities because policyholders may incur surrender charges and undergo a new underwriting process in order to obtain a new insurance policy. Cash flow projections and cash flow tests under various market interest rate scenarios are also performed annually to assist in evaluating liquidity needs and adequacy. We currently anticipate that available liquidity sources and future cash flows will be adequate to meet our needs for funds.

 

One of our significant risks relates to the fluctuations in interest rates. Regarding interest rates, the value of our available-for-sale fixed maturity securities investment portfolio will increase or decrease in an inverse relationship with fluctuations in interest rates, while net investment income earned on newly acquired available-for-sale fixed maturity securities increases or decreases in direct relationship with interest rate changes.

 

From an income perspective, we are exposed to rising interest rates which could be a significant risk, as TLIC's and FBLIC’s annuity business is impacted by changes in interest rates. Life insurance company policy liabilities bear fixed rates. From a liquidity perspective, our fixed rate policy liabilities are relatively insensitive to interest rate fluctuations.

 

We believe gradual increases in interest rates do not present a significant liquidity exposure for the life insurance policies and annuity contracts. We maintain conservative durations in our fixed maturity portfolio.

 

As of June 30, 2024, cash and cash equivalents, short-term investments, the fair value of fixed maturity available-for-sale securities with maturities of less than one year and the fair value of lottery receivables with maturities of less than one year equaled 15.9% of total policy liabilities. If interest rates rise significantly in a short time frame, there can be no assurance that the life insurance industry, including the Company, would not experience increased levels of surrenders and reduced sales, and thereby be materially adversely affected.

 

63

 

In addition to the measures described above, TLIC and FBLIC must comply with the National Association of Insurance Commissioners promulgated Standard Valuation Law ("SVL") which specifies minimum reserve levels and prescribes methods for determining them, with the intent of enhancing solvency. Upon meeting certain tests, which TLIC and FBLIC met during 2023, the SVL also requires the Company to perform annual cash flow testing for TLIC and FBLIC. This testing is designed to ensure that statutory reserve levels will maintain adequate protection in a variety of potential interest rate scenarios. The Actuarial Standards Board of the American Academy of Actuaries also requires cash flow testing as a basis for the actuarial opinion on the adequacy of the reserves which is a required part of the annual statutory reporting process.

 

Our marketing plan could be modified to emphasize certain product types and reduce others. New business levels could be varied in order to find the optimum level. We believe that our current liquidity, current bond portfolio maturity distribution and cash position give us substantial resources to administer our existing business and fund growth generated by direct sales.

 

The operations of TLIC and FBLIC may require additional capital contributions to meet statutory capital and surplus requirements mandated by state insurance departments. Life insurance contract liabilities are generally long term in nature and are generally paid from future cash flows or existing assets and reserves. We will service other expenses and commitments by: (1) using available cash, (2) dividends from TLIC and FBLIC that are limited by law to the greater of prior year net operating income or 10% of prior year‑end surplus unless specifically approved by the controlling insurance department, (3) public and private offerings of our common stock and (4) corporate borrowings, if necessary.

 

Effective January 1, 2019, the Company entered into a revised advance agreement with one loan originator. As of June 30, 2024, the Company has outstanding advances to this loan originator totaling $4,866,574. The advances are secured by $8,006,273 of residential mortgage loans on real estate that are assigned to the Company. The Company has committed to fund up to an additional $1,133,426 to the loan originator that would result in additional security in the form of residential mortgage loans on real estate to be assigned to the Company.

 

Effective January 1, 2019, the Company also entered into a revised escrow agreement with the same loan originator. According to the revised terms of the escrow agreement, as of June 30, 2024, $865,299 of additional and secured residential mortgage loan balances on real estate are held in escrow by the Company.  As of June 30, 2024, $846,442 of that escrow amount is available to the Company as additional collateral on $4,866,574 of advances to the loan originator. The remaining June 30, 2024 escrow amount of $18,857 is available to the Company as additional collateral on its investment of $3,771,488 in residential mortgage loans on real estate.

 

We are not aware of any commitments or unusual events that could materially affect our capital resources. We are not aware of any current recommendations by any regulatory authority which, if implemented, would have a material adverse effect on our liquidity, capital resources or operations. We believe that our existing cash and cash equivalents as of June 30, 2024 will be sufficient to fund our anticipated operating expenses.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements.

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

Certain statements contained herein are forward-looking statements. The forward-looking statements are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and include estimates and assumptions related to economic, competitive and legislative developments. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning; and include, but are not limited to, statements regarding the outlook of our business and financial performance. These forward-looking statements are subject to change and uncertainty, which are, in many instances, beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect upon us.

 

64

 

There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. These factors include among others:

 

 

general economic conditions and financial factors, including the performance and fluctuations of fixed income, equity, real estate, credit capital and other financial markets;

 

differences between actual experience regarding mortality, morbidity, persistency, surrenders, investment returns, and our pricing assumptions establishing liabilities and reserves or for other purposes;

 

the effect of increased claims activity from natural or man-made catastrophes, pandemic disease, or other events resulting in catastrophic loss of life;

 

adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities;

 

inherent uncertainties in the determination of investment allowances and impairments and in the determination of the valuation allowance on the deferred income tax asset;

 

investment losses and defaults;

 

competition in our product lines;

 

attraction and retention of qualified employees and agents;

 

ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks;

 

the availability, affordability and adequacy of reinsurance protection;

 

the effects of emerging claim and coverage issues;

 

the cyclical nature of the insurance business;

 

interest rate fluctuations;

 

changes in our experiences related to deferred policy acquisition costs;

 

the ability and willingness of counterparties to our reinsurance arrangements and derivative instruments to pay balances due to us;

 

impact of medical epidemics and viruses;

 

domestic or international military actions;

 

the effects of extensive government regulation of the insurance industry;

 

changes in tax and securities law;

 

changes in statutory or U.S. generally accepted accounting principles (“GAAP”), practices or policies;

 

regulatory or legislative changes or developments;

 

the effects of unanticipated events on our disaster recovery and business continuity planning;

 

failures or limitations of our computer, data security and administration systems;

 

risks of employee error or misconduct;

 

the assimilation of life insurance businesses we acquire and the sound management of these businesses;

 

the availability of capital to expand our business; and

 

Coronavirus disease impact on economic environment.

 

It is not our corporate policy to make specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. In addition, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable developments.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 as amended (“Exchange Act”) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is made known to management, including our Certifying Officers, as appropriate, to allow timely decisions regarding disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

65

 

Changes to Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the three months ended June 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we are a party to various legal proceedings in the ordinary course of business. While management is unable to predict the ultimate outcome of these actions, it believes that any ultimate liability arising from them will not have a material effect on the Company’s financial position, results of operations or cash flow. We are not currently a party to any bankruptcy, receivership, reorganization, adjustment or similar proceeding, and we are not aware of any material threatened litigation. As summarized below, the Company is currently involved in three pending lawsuits.

 

A lawsuit filed by the Company and its Chairman and Chief Executive Officer, Gregg E. Zahn (“Mr. Zahn”) styled First Trinity Financial Corporation and Gregg E. Zahn vs. C. Wayne Pettigrew and Group & Pension Planners was originally filed in 2013 in the District Court of Tulsa County, Oklahoma against former Company Board of Director, C. Wayne Pettigrew (“Mr. Pettigrew”). The Company and Mr. Zahn alleged that Mr. Pettigrew defamed Mr. Zahn and the Company and that Mr. Pettigrew breached his fiduciary duties to the Company by making untrue statements about the Company and Mr. Zahn to the press, state regulators and to certain shareholders.

 

In February 2017, the lawsuit resulted in a jury verdict in favor of the Company and Mr. Zahn, with the jury awarding damages of $800,000 to the Company and $3,500,000 to Mr. Zahn. In February 2020, the Oklahoma Court of Civil Appeals, upon an appeal by Mr. Pettigrew, reversed the judgment and remanded the case for a new trial. A Petition for Certiorari review with the Oklahoma Supreme Court by the Company and Mr. Zahn was declined in December, 2020. The case is now scheduled to be retried in the District Court once a trial date is set. The Company is vigorously prosecuting this case. The Company faces no exposure in connection with this action since there were no counterclaims or cross claims made against the Company. Management believes that this lawsuit is not material in relation to the Company’s financial position or results of operations.

 

The Company, through its life insurance subsidiary, TLIC, commenced two lawsuits as plaintiff, both in the New York Supreme Court, New York County, one on June 29, 2020 and another on March 4, 2022, for breach of contract against a company for failure to advance funding to lottery ticket winners to the detriment of TLIC and against various of that company’s associated persons for unjust enrichment and fraud perpetuated on TLIC. The cases are entitled “Trinity Life Insurance Company v. Advance Funding LLC, Dan Cevallos, and Monica L. Ray, Index No. 652780/2020” (New York Supreme Court, New York County) and “Trinity Life Insurance Company v. Advance Funding LLC, Dan Cevallos, Julie Casal, and Monica L. Ray, Index No. 651023/2022” (New York Supreme Court, New York County). The Company is vigorously prosecuting this case against the defendants. The Company faces no exposure in connection with either action since no counterclaims or cross claims have been made against the Company. Management believes that this lawsuit is not material in relation to the Company’s financial position or results of operations.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3. Defaults Upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

None

 

66

 

 

Item 5. Other Information

 

None

 

 

Item 6. Exhibits

 

31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
   
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
   
32.1 Section 1350 Certification of Principal Executive Officer
   
32.2 Section 1350 Certification of Principal Financial Officer
   
101.INS** Inline XBRL Instance
   
101.SCH** Inline XBRL Taxonomy Extension Schema
   
101.CAL** Inline XBRL Taxonomy Extension Calculation
   
101.DEF** Inline XBRL Taxonomy Extension Definition
   
101.LAB** Inline XBRL Taxonomy Extension Labels
   
101.PRE** Inline XBRL Taxonomy Extension Presentation
   
104 Cover Page Interactive Data (formatted as Inline XBRL and continued in Exhibit 101)
   
**XBRL  Information is furnished and not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

67

 

SIGNATURES

 

In accordance with requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

FIRST TRINITY FINANCIAL CORPORATION

 

  an Oklahoma corporation  

 

 

 

 

 

 

 

 

August 13, 2024 

By:

/s/ Gregg E. Zahn

 

 

Gregg E. Zahn, President and Chief Executive Officer

 

 

 

 

 

       
       
August 13, 2024 By: Jeffrey J. Wood  
  Jeffrey J. Wood, Chief Financial Officer  

  

68