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United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2024

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period Fromto.

 

Commission file number 000-52613

 

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of small business issuer as specified in its charter)

 

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

 

7633 East 63rd Place, Suite 230 Tulsa, Oklahoma 74133-1246

(Address of principal executive offices)

 

(918) 249-2438

(Issuer's telephone number)

 

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

Title of Each Class

None

 

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

Title of Each Class

Class A Common Stock, $0.01 Par Value

Class B Common Stock, $0.01 Par Value

 

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

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒  No ☐

 

1

 

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

 

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

 

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

 

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 aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

Because of the absence of an established trading market for the common stock, the registrant is unable to calculate the aggregate market value of the voting stock held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. As of March 10, 2025, the registrant had 9,384,340 shares of Class A common stock, 0.01 par value, outstanding and 101,102 shares of Class B common stock, 0.01 par value, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s definitive Proxy Statement to be used in connection with its 2025 Annual Meeting of Shareholders, which is expected to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K, are incorporated by reference into Part III of this report.

 

2

  

 

FIRST TRINITY FINANCIAL CORPORATION

 

TABLE OF CONTENTS

 

Part I    
     
Item 1. Business 4
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Mine Safety Disclosures 11
     
Part II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities 11
Item 6 Reserved 12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 8. Financial Statements 36
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure 85
Item 9A. Controls and Procedures 85
Item 9B. Other Information 86
     
Part III    
     
Item 10. Directors, Executive Officers and Corporate Governance 87
Item 11. Executive Compensation 91
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

97
Item 13. Certain Relationships and Related Transactions, and Director Independence 98
Item 14. Principal Accounting Fees and Services. 99
Item 15. Exhibits 100
Item 16. Form 10-K Summary 100
Exhibit index 101
Signatures 102

 

 

Exhibit 21.1

Exhibit 31.1

Exhibit 31.2

Exhibit 32.1

Exhibit 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

 

3

  

 

PART I

 

Item 1. Business

 

Business Development

 

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 and operating 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 products and annuity contracts 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 policies and annuity contracts. 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 policies are 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 (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 contracts but is now issuing life insurance policies and annuity contracts through an association with distribution channels. The Company’s acquisition of TAI was formally approved by Barbados regulators and the certifications were received in 2019.

 

Company Capitalization

 

Our operations have been financed primarily through the private placement of equity securities and intrastate public stock offerings. Through December 31, 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 Class A common stock and additional paid-in capital.

 

4

 

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.

 

Acquisitions

 

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 cost 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 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 (including cash), 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. The acquisition of RCLIC was accounted for as a purchase and the net acquisition consideration was recorded at $4,596,764. 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.

 

Financial Information about Segments

 

The Financial Accounting Standards Board (“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.

 

5

 

Please see Item 8 below and Note 11 to the consolidated financial statements as of and for the years ended December 31, 2024 and 2023 for additional information regarding segment information.

 

Life Insurance and Annuity Operations

 

Our Life Insurance and Annuity Operations consists of issuing ordinary whole life insurance, endowments, modified premium whole life with an annuity rider, term, final expense and accidental death and dismemberment policies and annuity contracts. The policies can be issued with premiums fully guaranteed for the entire term period or with a limited premium guarantee. The final expense policies are issued as either a simplified issue or as a graded benefit, determined by underwriting. Our products are marketed through independent agents.

 

FBLIC renewed its administrative services agreement with Investors Heritage Life Insurance Company (“IHLIC”) on November 1, 2022. Under the terms of this agreement, the services provided by IHLIC include underwriting, policy issue, accounting, claims processing and other services incidental to the operations of FBLIC. The agreement is effective for a period of five (5) years from November 1, 2022 through October 31, 2027 and includes a provision that the agreement may be terminated at any time by either party with a 12 month written notice.

 

FBLIC executed an actuarial consulting services agreement with IHLIC on November 1, 2022. Under the terms of this agreement, the services provided by IHLIC include actuarial services for the operations of FBLIC. The agreement is effective for a period of five (5) years from November 1, 2022 through October 31, 2027 and includes a provision that the agreement may be terminated at any time by either party with a 12 month written notice.

 

TLIC renewed its administrative services agreement with IHLIC on November 1, 2022, after a written extension of the previous administrative services agreement. Under the terms of this agreement, the services provided by IHLIC include underwriting, policy issue, accounting, claims processing and other services incidental to the operations of TLIC. The agreement is effective for a period of five (5) years from November 1, 2022 through October 31, 2027 and includes a provision that the agreement may be terminated at any time by either party with a 12 month written notice.

 

TLIC executed an actuarial consulting services agreement with IHLIC on November 1, 2022. Under the terms of this agreement, the services provided by IHLIC include actuarial services for the operations of TLIC. The agreement is effective for a period of five (5) years from November 1, 2022 through October 31, 2027 and includes a provision that the agreement may be terminated at any time by either party with a 12 month written notice.

 

TLIC continues to seek to serve middle income households and markets its products through independent agents. TLIC was originally licensed in Oklahoma and with the acquisition of FLAC in late 2008, expanded into Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio and Texas. With the acquisition of FBLIC in late 2011, we expanded into Arizona, Colorado, Missouri and New Mexico. FBLIC also had initial licenses in Kansas, Nebraska and Oklahoma where TLIC was also licensed. In late 2012, FBLIC was licensed in Arkansas, Indiana, Kentucky, North Dakota, South Dakota, Texas and West Virginia. In 2013, FBLIC was licensed in Illinois and Pennsylvania. In 2014, FBLIC was licensed in Georgia, Louisiana, Michigan, Mississippi, North Carolina, Ohio, Tennessee and Virginia. In 2015, FBLIC was licensed in Alabama and Utah. In 2018, FBLIC and TLIC were licensed in Montana. In 2019, TLIC was licensed in Tennessee. In 2020, TLIC was licensed in Alabama, Indiana, Louisiana, Mississippi, New Mexico, South Dakota and Utah. In 2021, TLIC was licensed in Georgia and West Virginia.

 

6

 

The following tables sets forth our direct collected life insurance premiums and annuity considerations by the policyholder’s state of residence at the time of premium collection and annuity consideration, for the most significant states in which we are licensed, for the years ended December 31, 2024 and 2023, in accordance with statutory accounting practices prescribed by the states of domicile of TLIC and FBLIC.

 

 

   

Year Ended December 31, 2024

 
   

Life

   

Annuity

 

State

 

Premiums

   

Percentage

   

Considerations

   

Percentage

 

Alabama

  $ 940,009       2.93 %   $ 22,306       0.02 %

Arizona

    555,660       1.73 %     1,209,314       0.86 %

Arkansas

    703,355       2.19 %     190,258       0.14 %

Colorado

    1,015,152       3.17 %     909       0.00 %

Florida

    89,843       0.28 %     1,550,448       1.11 %

Georgia

    1,711,581       5.34 %     3,185,002       2.27 %

Illinois

    1,950,364       6.09 %     1,205,801       0.86 %

Indiana

    1,318,628       4.11 %     6,494,206       4.64 %

Kansas

    1,624,449       5.07 %     6,474,856       4.62 %

Kentucky

    1,012,984       3.16 %     526,578       0.38 %

Louisiana

    977,336       3.05 %     -       0.00 %

Michigan

    723,454       2.26 %     2,302,557       1.64 %

Minnesota

    5,344       0.02 %     1,018,473       0.73 %

Mississippi

    527,418       1.65 %     707,675       0.51 %

Missouri

    1,592,662       4.97 %     1,993,787       1.42 %

Nebraska

    410,874       1.28 %     11,620,434       8.30 %

North Carolina

    3,604,383       11.25 %     26,167,970       18.68 %

North Dakota

    77,322       0.24 %     25,914,663       18.50 %

Ohio

    3,332,358       10.40 %     2,196,163       1.57 %

Oklahoma

    1,012,009       3.16 %     6,358,136       4.54 %

Pennsylvania

    1,097,077       3.42 %     1,606,370       1.15 %

South Carolina

    38,131       0.12 %     791,246       0.56 %

South Dakota

    14,725       0.05 %     900,236       0.64 %

Tennessee

    1,226,524       3.83 %     1,005,778       0.72 %

Texas

    4,799,546       14.96 %     33,003,935       23.55 %

Virginia

    1,044,554       3.26 %     2,458,685       1.76 %

All other states

    645,640       2.01 %     1,163,091       0.83 %

Total direct collected premiums and considerations

  $ 32,051,382       100.00 %   $ 140,068,877       100.00 %

 

7

 

   

Year Ended December 31, 2023

 
   

Life

   

Annuity

 

State

 

Premiums

   

Percentage

   

Considerations

   

Percentage

 

Alabama

  $ 925,134       2.93 %   $ -       0.00 %

Arizona

    535,611       1.69 %     824,122       1.22 %

Arkansas

    631,492       2.00 %     5,002       0.01 %

Colorado

    964,553       3.05 %     53,067       0.08 %

Florida

    86,616       0.27 %     6,462       0.01 %

Georgia

    1,708,051       5.40 %     1,046,986       1.54 %

Illinois

    1,991,234       6.30 %     137,150       0.20 %

Indiana

    1,286,901       4.07 %     3,380,944       4.99 %

Kansas

    1,716,912       5.43 %     1,952,140       2.88 %

Kentucky

    1,009,116       3.19 %     -       0.00 %

Louisiana

    892,269       2.82 %     49,900       0.07 %

Michigan

    677,515       2.14 %     255,029       0.38 %

Minnesota

    6,906       0.02 %     235,977       0.35 %

Mississippi

    454,247       1.44 %     11,650       0.02 %

Missouri

    1,626,367       5.15 %     286,550       0.42 %

Nebraska

    392,476       1.24 %     5,953,567       8.78 %

North Carolina

    3,441,716       10.89 %     12,118,420       17.87 %

North Dakota

    75,454       0.24 %     15,384,458       22.68 %

Ohio

    3,419,283       10.82 %     1,725       0.00 %

Oklahoma

    1,044,670       3.31 %     680,666       1.00 %

Pennsylvania

    1,211,847       3.83 %     505,058       0.74 %

South Carolina

    34,346       0.11 %     997,303       1.47 %

South Dakota

    10,615       0.03 %     179,360       0.26 %

Tennessee

    1,170,322       3.70 %     343,350       0.51 %

Texas

    4,750,577       15.05 %     21,485,887       31.68 %

Virginia

    933,283       2.95 %     1,166,022       1.72 %

All other states

    609,880       1.93 %     758,074       1.12 %

Total direct collected premiums and considerations

  $ 31,607,393       100.00 %   $ 67,818,869       100.00 %

 

Reinsurance

 

TLIC cedes reinsurance under various agreements allowing management to control exposure to potential losses arising from large risks and providing additional capacity for growth and risk diversification. TLIC reinsures all amounts of risk on any one life in excess of $100,000 for individual life insurance with IHLIC, Optimum Re Insurance Company (“Optimum Re”), RGA Reinsurance Company and Wilton Reassurance Company (“Wilton Re”).

 

The Company also assumes reinsurance under various agreements allowing management to increase growth in assets and profitability. TLIC is a party to an Automatic Retrocession Pool Agreement (the “Reinsurance Pool”) with Optimum Re, Catholic Order of Foresters, American Home Life Insurance Company and Woodmen of the World. The agreement provides for automatic retrocession of coverage in excess of Optimum Re’s retention on business ceded to Optimum Re by the other parties to the Reinsurance Pool. TLIC’s maximum exposure on any one insured under the Reinsurance Pool is $100,000. As of January 1, 2008, the Reinsurance Pool stopped accepting new cessions.

 

Effective September 29, 2005, FLAC and Wilton Re executed a binding letter of intent whereby both parties agreed that FLAC would cede the simplified issue version of its Golden Eagle Whole Life (Final Expense) product to Wilton Re on a 50/50 quota share original term coinsurance basis. The letter of intent was executed on a retroactive basis to cover all applicable business issued by FLAC subsequent to January 1, 2005. Wilton Re agreed to provide various commission and expense allowances to FLAC in exchange for FLAC ceding 50% of the applicable premiums to Wilton Re as they were collected. As of June 24, 2006, Wilton Re terminated the reinsurance agreement for new business issued after the termination date.

 

FBLIC also participates in reinsurance in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large amounts of risk. FBLIC reinsures initial amounts of risk on any one life in excess of $100,000 for individual life insurance with Optimum Re. TLIC and FBLIC also reinsure its accidental death benefit portion of their life policies under a bulk agreement with Optimum Re. To the extent that the reinsurance companies are unable to meet their obligations under the reinsurance agreements, TLIC and FBLIC remain primarily liable for the entire amount at risk.

 

8

 

Coinsurance

 

Effective January 1, 2018, TLIC entered into an annuity coinsurance agreement with an offshore annuity and life insurance company whereby 90% of TLIC’s annuity considerations originated after December 31, 2017 were ceded to the assuming company. The assuming company contractually reimburses TLIC for the related commissions, withdrawals, settlements, interest credited, submission costs, maintenance costs, marketing costs, excise taxes and other costs plus a placement fee. Effective April 1, 2020, the Company and an offshore annuity and life insurance company mutually agreed that the Quota Share under its existing reinsurance agreement shall be 0% for future business instead of the original contractual amount of 90%.

 

In accordance with this annuity coinsurance agreement, 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 2019, TLIC entered into a life insurance coinsurance agreement with TAI, effective October 1, 2018, whereby 100% of TAI’s life insurance policies and annuity contracts issued after September 30, 2018 were ceded to TLIC. TLIC contractually reimburses TAI for the related commissions, submission costs, maintenance costs, marketing costs and other costs related to the production of life insurance policies and annuity contracts.

 

In 2022, FBLIC entered into group life insurance coinsurance agreement with Texas Republic Life Insurance Company (“TRLIC”), whereby generally 50% of TRLIC group life insurance policies and premiums were ceded to FBLIC. FBLIC contractually reimburses TRLIC for generally 50% of the related commissions, submission costs, maintenance costs, marketing costs and other costs related to the production of group life insurance policies.

 

Competition

 

The U.S. life insurance industry is a mature industry that has experienced little to no growth. Competition is intense because the life insurance industry is consolidating, with larger, more efficient and more effective organizations emerging from consolidation. In addition, legislation became effective in the United States that permits commercial banks, insurance companies and investment banks to combine. These factors have increased competitive pressures in general.

 

Many domestic life insurance companies have significantly greater financial, marketing and other resources, longer business histories and more diversified lines of insurance products than we do. We also face competition from companies marketing in person as well as with direct mail and internet sales campaigns. Although we may be at a competitive disadvantage to these entities, we believe that our premium rates, policy features, marketing approaches and policyholder services are generally competitive with those of other life insurance companies selling similar types of products and provide us with niche marketing opportunities not actively pursued by other life insurance companies.

 

Governmental Regulation

 

TLIC and FBLIC are subject to regulation and supervision by the OID. The insurance laws of Oklahoma give the OID broad regulatory authority, including powers to: (i) grant and revoke licenses to transact business; (ii) regulate and supervise trade practices and market conduct; (iii) establish guaranty associations; (iv) license agents; (v) approve policy forms; (vi) approve premium rates for some lines of business; (vii) establish reserve requirements; (viii) prescribe the form and content of required financial statements and reports; (ix) determine the reasonableness and adequacy of statutory capital and surplus and (x) regulate the type and amount of permitted investments. TLIC and FBLIC can be required, under the solvency or guaranty laws of most states in which they do business, to pay assessments (up to prescribed limits) to fund policyholder losses or liabilities of other insurance companies that become insolvent. These assessments may be deferred or foregone under most guaranty laws if they would threaten an insurer’s financial strength and, in certain instances, may be offset against future premium taxes.

 

9

 

TLIC and FBLIC are subject to Oklahoma laws that limit the amount of dividends insurance companies can pay to stockholders without approval of the Departments of Insurance. 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 $7,079,124 as of December 31, 2024. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $1,067,766 in 2025 without prior approval. FBLIC paid no dividends to TLIC in 2024 and 2023. TLIC has paid no dividends to FTFC.

 

There are certain factors particular to the life insurance business which may have an adverse effect on the statutory operating results of TLIC and FBLIC. One such factor is that the costs associated with issuing a new policy in force is usually greater than the first year’s policy premium. Accordingly, in the early years of a new life insurance company, these initial costs and the required provisions for reserves often have an adverse effect on statutory operating results.

 

Employees

 

As of March 10, 2025, the Company had nineteen full-time employees.

 

Item 2. Properties

 

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 sold investment real estate property with an aggregate carrying value of $265,705. The Company recorded a gross realized investment gain on sale of $11,251 based on an aggregate sales price of $276,956.

 

During 2024, the Company foreclosed on residential mortgage loans of real estate totaling $1,441,287 and transferred those properties to investment real estate held for sale. 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.

 

Item 3. 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 are 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.

 

10

 

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.

 

Item 4. Mine Safety Disclosures

 

None

 

PART II

 

Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities

 

(a)

Market Information

 

 

Trading of the Company’s common stock is limited and an established public market does not exist.

 

(b)

Holders

 

 

As of March 7, 2025, there were approximately 7,800 shareholders of the Company’s outstanding common stock.

 

 

FTFC has authorized 40,000,000 shares of Class A common stock and 10,000,000 shares of Class B common stock. 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.

 

(c)

Dividends

 

 

Prior to 2020, we had never declared or paid cash dividends on our common stock. In 2020, our Board of Directors declared and paid a $0.05 per share cash dividend (amounting to $393,178) on our Class A common stock.

 

 

The Board of Directors of the Company has not adopted a formal dividend payment policy. The timing, declaration and payment of future dividends to holders of our common stock fall within the discretion of our Board of Directors and will depend on our operating results, earnings, financial condition, the capital requirements of our business and other factors.

 

 

Provisions of the Oklahoma Insurance Code relating to insurance holding companies subject transactions between the Company and TLIC and the Company and FBLIC, including dividend payments, to certain standards generally intended to prevent such transactions from adversely affecting the adequacy of life insurance subsidiaries’ capital and surplus available to support policyholder obligations. In addition, under the Oklahoma General Corporation Act, the Company may not pay dividends if, after giving effect to a dividend, it would not be able to pay its debts as they become due in the usual course of business or if its total liabilities would exceed its total assets.

 

 

On January 10, 2011, the Company’s Board of Directors approved a 5% share dividend by which shareholders received a share of common stock for each 20 shares of common stock of the Company they hold. The dividend was payable to the holders of shares of the Corporation as of March 10, 2011. Fractional shares were rounded to the nearest whole number of shares. The Company issued 323,777 shares in connection with the stock dividend.

 

11

 

 

On January 11, 2012, the Company’s Board of Directors approved another 5% share dividend by which shareholders received a share of common stock for each 20 shares of common stock of the Company they hold. The dividend was payable to the holders of shares of the Corporation as of March 10, 2012. Fractional shares were rounded to the nearest whole number of shares. The Company issued 378,908 shares in connection with the stock dividend.

 

 

On November 12, 2020, the Company’s Board of Directors approved a 10% share dividend by which shareholders received a share of Class A common stock for each 10 shares of Class A common stock of the Company they hold. The dividend was payable to the holders of shares of the Corporation as of November 12, 2020. Fractional shares were rounded up to the nearest whole number of shares. The Company issued 791,339 shares in connection with the stock dividend.

 

(d)

Securities Authorized for Issuance Under Equity Compensation Plans

 

 

In March 2020, our Board formally adopted the 2019 Equity Incentive Plan which had been previously approved by our shareholders in 2019. Under the Plan, up to 1,000,000 shares of Class A Common Stock are authorized for issuance. No awards have been granted or shares issued pursuant to the Plan.

 

(e)

Performance Graph – Not Required

 

(f)

Purchases of Equity Securities by Issuer

 

 

The Company did not repurchase any of its shares of common stock during 2024 or 2023.

 

Item 6. Reserved

 

Item 7. 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.

 

Our profitability in the life insurance and annuity segments is a function of our ability to accurately price the policies that we write, adequately value life insurance business acquired, administer life insurance company acquisitions at an expense level that validates the acquisition cost and invest the premiums and annuity considerations in assets that earn investment income with a positive spread.

 

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.

 

12

 

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 accounting principles generally accepted in the United States (“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, value of insurance business acquired and policy liabilities. 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. We believe the following accounting policies, judgments and estimates are the most critical to the preparation of our consolidated financial statements.

 

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.

 

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.

 

Investments in Fixed Maturity Securities

 

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. 

 

13

 

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.

 

Mortgage Loans on Real Estate

 

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.

 

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.

 

14

 

Deferred Policy Acquisition Costs

 

Commissions and other acquisition costs which vary with and are primarily related to the successful production of new and renewal insurance contracts are deferred and amortized in a systematic manner based on the related contract revenues or gross profits as appropriate. The recovery of deferred acquisition costs is dependent on the future profitability of the underlying business for which acquisition costs were incurred. Each reporting period, we evaluate the recoverability of the unamortized balance of deferred acquisition costs. We consider estimated future gross profits or future premiums; expected mortality or morbidity; interest earned and credited rates; persistency and expenses in determining whether the balance is recoverable.

 

If we determine a portion of the unamortized balance is not recoverable, it is immediately charged to amortization expense. The assumptions we use to amortize and evaluate the recoverability of the deferred acquisition costs involve significant judgment. A revision to these assumptions may impact future financial results. Deferred acquisition costs related to the successful production of new and renewal insurance business for traditional life insurance contracts are deferred to the extent deemed recoverable and amortized over the premium paying period of the related policies using assumptions consistent with those used in computing future policy benefit liabilities.

 

Deferred acquisition costs related to the successful production of new and renewal insurance and annuity products 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 deferred to the extent deemed recoverable and amortized in relation to the present value of actual and expected gross profits on the policies. To the extent that realized gains and losses on securities result in adjustments to deferred acquisition costs related to insurance and annuity products, such adjustments are reflected as a component of the amortization of deferred acquisition costs.

 

Deferred acquisition costs related to limited-payment long-duration insurance and annuity contracts are also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from securities had actually been realized. This adjustment is included in the change in net unrealized appreciation (depreciation) on available-for-sale securities, a component of “Accumulated Other Comprehensive Income (Loss)” in the shareholders’ equity section of the statement of financial position.

 

Value of Insurance Business Acquired

 

As a result of our purchases of FLAC and FBLIC, an asset was recorded in the application of purchase accounting to recognize the value of acquired insurance in force.  The Company’s value of acquired insurance in force is an intangible asset with a definite life and is amortized under FASB guidance. The value of acquired insurance in force is amortized primarily over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. The recovery of the value of insurance business acquired is dependent on the future profitability of the underlying business that was initially recorded in the purchases of FLAC and FBLIC. Each reporting period, we evaluate the recoverability of the unamortized balance of the value of insurance business acquired.

 

For the amortization of the value of acquired insurance in force, the Company reviews its estimates of gross profits each reporting period. The most significant assumptions involved in the estimation of gross profits include interest rate spreads; future financial market performance; business surrender and lapse rates; mortality and morbidity; expenses and the impact of realized investment gains and losses. In the event actual experience differs significantly from assumptions or assumptions are significantly revised, the Company is required to record a charge or credit to amortization expense for the period in which an adjustment is made.

 

Future Policy Benefits

 

Our liability for future policy benefits is primarily comprised of the present value of estimated future payments to or on behalf of policyholders, where the timing and amount of payment depends on policyholder mortality or morbidity, less the present value of future net premiums. For life insurance and annuity products, expected mortality and morbidity is generally based on the Company’s historical experience or standard industry tables including a provision for the risk of adverse deviation.

 

15

 

Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality and morbidity and interest rate assumptions are “locked-in” upon the issuance of new insurance with fixed and guaranteed terms, significant changes in experience or assumptions may require the Company to provide for expected future losses on a product by establishing premium deficiency reserves.

 

Estimating liabilities for our long-duration insurance contracts requires management to make various assumptions, including policyholder persistency, mortality rates, investment yields, discretionary benefit increases, new business pricing and operating expense levels.

 

Since many of these factors are interdependent and subject to short-term volatility during the long-duration contract period, substantial judgment is required. Actual experience may emerge differently from that originally estimated. Any such difference would be recognized in the current year’s consolidated statement of operations.

 

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.

 

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.

 

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.

 

16

 

 

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 adopted this Update for year-end reporting in 2024 and will adopt for interim periods beginning 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 became effective in 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 December 31, 2024 Form 10-K.

 

 

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.

 

17

 

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 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 the information required by this Update for year-end reporting in 2025.

 

Expense Disaggregation Disclosures

 

In November 2024, the FASB issued amendments (Accounting Standards Update 2024-03) to disclose more granular information about costs of sales and general and administrative expenses including employee compensation to improve the disclosure about a public enterprise’s expenses by providing more detailed information about the types of expenses commonly presented in expense captions such as costs of sales and general and administrative expenses.

 

The amendments in this Update require disclosing, in the notes to the financial statements, the following specified information about costs and expenses included in general captions on the face of the financial statements at each interim and annual reporting period of the entity: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization and (e)  depreciation, depletion and amortization recognized as part of oil and gas producing activities or other amounts of depletion expenses.

 

An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information.  In addition, the amendments in this Update do not change or remove current expense disclosure requirements including those of specialized industries.

 

The amendments to this Update are effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027.  Early adoption is permitted.  The Company anticipates adopting and disclosing the information required by this Update for year-end reporting in 2027 and interim reporting beginning in first quarter 2028.

 

18

 

Debt With Conversion and Other Options

 

In November 2024, the FASB issued amendments (Accounting Standards Update 2024-04) to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted as an induced conversion.  Under this Update, an inducement offer is required to provide the debt holder with, at a minimum, the consideration in form and amount issuable under the conversion privileges provided in the instrument.   If the convertible debt instrument has been exchanged, modified or deemed not substantially different within the one-year period before the settlement date, the current inducement offer should be compared to the inducement offer that existed one-year before the settlement date.

 

In addition, the incorporation, elimination or modification of a volume weighted average price formula does not automatically cause a settlement to be accounted for as an extinguishment; there is instead a need to assess whether the form and amount of the conversion consideration is preserves using the fair value of the shares as of the settlement date.  This induced conversion guidance applies to convertible debt instruments that are not currently convertible as long as there was a substantive conversion feature as of its issuance date or settlement date.

 

The amendments to this Update are effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within that annual reporting period.  Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06.  The amendments in this Update permit an entity to apply the new guidance on either a prospective or a retrospective basis.  The Company does not have or anticipate having any debt instruments and anticipates never being required to adopt the information required by this Update.

 

 

FINANCIAL HIGHLIGHTS

 

Consolidated Condensed Results of Operations for the Years Ended December 31, 2024 and 2023

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums

  $ 41,878,896     $ 38,912,934     $ 2,965,962  

Net investment income

    30,522,580       31,655,321       (1,132,741 )

Net realized investment gains (losses)

    264,821       (180,152 )     444,973  

Loss on impairments

    (129,436 )     -       (129,436 )

Service fees

    3,161,535       4,701,960       (1,540,425 )

Other income

    652,793       666,409       (13,616 )

Total revenues

    76,351,189       75,756,472       594,717  

Benefits and claims

    46,482,298       46,141,488       340,810  

Expenses

    21,792,600       19,552,536       2,240,064  

Total benefits, claims and expenses

    68,274,898       65,694,024       2,580,874  

Income before federal income tax expense

    8,076,291       10,062,448       (1,986,157 )

Federal income tax expense

    1,659,500       2,147,087       (487,587 )

Net income

  $ 6,416,791     $ 7,915,361     $ (1,498,570 )

Net income per common share

                       

Class A common stock

  $ 0.6776     $ 0.8358     $ (0.1582 )

Class B common stock

  $ 0.5759     $ 0.7104     $ (0.1345 )

 

19

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 
                         
                         

Investment assets

  $ 493,388,984     $ 456,517,640     $ 36,871,344  

Assets held in trust under coinsurance agreement

    31,176,310       79,940,459       (48,764,149 )

Other assets

    161,883,604       135,563,436       26,320,168  

Total assets

  $ 686,448,898     $ 672,021,535     $ 14,427,363  
                         

Policy liabilities

  $ 571,922,942     $ 517,637,743     $ 54,285,199  

Funds withheld under coinsurance agreement

    31,032,174       77,257,253       (46,225,079 )

Deferred federal income taxes

    4,023,492       4,228,189       (204,697 )

Other liabilities

    10,420,062       8,882,142       1,537,920  

Total liabilities

    617,398,670       608,005,327       9,393,343  

Shareholders' equity

    69,050,228       64,016,208       5,034,020  

Total liabilities and shareholders' equity

  $ 686,448,898     $ 672,021,535     $ 14,427,363  
                         

Shareholders' equity per common share

                       

Class A common stock

  $ 7.2913     $ 6.7597     $ 0.5316  

Class B common stock

  $ 6.1976     $ 5.7457     $ 0.4519  

 

Results of Operations Years Ended December 31, 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 years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums

  $ 41,878,896     $ 38,912,934     $ 2,965,962  

Net investment income

    30,522,580       31,655,321       (1,132,741 )

Net realized investment gains (losses)

    264,821       (180,152 )     444,973  

Loss on impairments

    (129,436 )     -       (129,436 )

Service fees

    3,161,535       4,701,960       (1,540,425 )

Other income

    652,793       666,409       (13,616 )

Total revenues

  $ 76,351,189     $ 75,756,472     $ 594,717  

 

The $594,717 increase in total revenues for the year ended December 31, 2024 is discussed below.

 

20

 

Premiums

 

Our premiums for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Ordinary life first year

  $ 3,742,607     $ 3,074,078     $ 668,529  

Ordinary life renewal

    8,874,166       7,130,477       1,743,689  

Final expense first year

    3,423,413       3,498,043       (74,630 )

Final expense renewal

    25,838,710       25,210,336       628,374  

Total premiums

  $ 41,878,896     $ 38,912,934     $ 2,965,962  

 

The $2,965,962 increase in premiums for the year ended December 31, 2024 is primarily due to the $1,743,689 increase in ordinary life renewal premiums, $668,529 increase in ordinary life first year premiums and $628,374 increase in final expense renewal premiums that exceeded a $74,630 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 that are relaxed compared to our restricted underwriting standards.

 

Net Investment Income

 

The major components of our net investment income for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Fixed maturity securities

  $ 8,534,951     $ 6,550,360     $ 1,984,591  

Equity securities

    135,911       118,780       17,131  

Other long-term investments

    4,444,639       4,948,734       (504,095 )

Mortgage loans

    17,079,731       19,678,014       (2,598,283 )

Policy loans

    291,170       240,385       50,785  

Short-term and other investments

    2,531,767       2,600,099       (68,332 )

Gross investment income

    33,018,169       34,136,372       (1,118,203 )

Investment expenses

    (2,495,589 )     (2,481,051 )     14,538  

Net investment income

  $ 30,522,580     $ 31,655,321     $ (1,132,741 )

 

The $1,118,203 decrease in gross investment income for the year ended December 31, 2024 is primarily due to $2,598,283 decrease in mortgage loans and a $504,095 decrease in other long-term investments that exceeded a $1,984,591 increase in fixed maturity securities.

 

The decrease in mortgage loans investment income is primarily due to decreased mortgage loans investments of $30.5 million since December 31, 2023. The decrease in other long-term investment is primarily due to decreased other long-term investment of $3.3 million since December 31, 2023. The increase in fixed maturity securities investment income is primarily due to increased fixed maturity securities investments of $64.0 million since December 31, 2023.

 

21

 

Net Realized Investment Gains (Losses)

 

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

 

Our net realized investment gains (losses) for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Fixed maturity securities available-for-sale:

                       

Sale proceeds and maturities

  $ 15,179,021     $ 5,287,601     $ 9,891,420  

Amortized cost at sale date

    15,278,204       5,339,617       9,938,587  

Net realized losses

  $ (99,183 )   $ (52,016 )   $ (47,167 )

Equity securities at fair value:

                       

Sale proceeds

  $ 5     $ -     $ 5  

Cost at sale date

    9       -       9  

Net realized losses

  $ (4 )   $ -     $ (4 )

Mortgage loans on real estate:

                       

Payment and sale proceeds on mortgage loans

  $ 173,048,603     $ 132,634,814     $ 40,413,789  

Cost at sale date

    172,348,722       132,632,318       39,716,404  

Net realized gains

  $ 699,881     $ 2,496     $ 697,385  

Other long-term investments:

                       

Sales proceeds

  $ 17,288,490     $ -     $ 17,288,490  

Cost at sale date

    17,242,840       -       17,242,840  

Net realized gains

  $ 45,650     $ -     $ 45,650  

Investment real estate:

                       

Sale proceeds

  $ 276,956     $ -     $ 276,956  

Carrying value at sale date

    265,705       -       265,705  

Net realized gains

  $ 11,251     $ -     $ 11,251  
                         

Equity securities, changes in fair value

  $ (97,284 )   $ 8,653     $ (105,937 )

Changes in current estimate of credit losses

  $ (295,490 )   $ (139,285 )   $ (156,205 )
                         

Net realized investment gains (losses)

  $ 264,821     $ (180,152 )   $ 444,973  

 

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 $1,540,425 decrease in service fees for the year ended December 31, 2024 is primarily due to a decrease in fees from Trinity Mortgage Corporation brokering mortgage loans for a fee to third parties.

 

22

 

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 years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Benefits and claims

                       

Increase in future policy benefits

  $ 14,565,010     $ 14,212,615     $ 352,395  

Death benefits

    13,176,508       14,298,818       (1,122,310 )

Surrenders

    2,471,376       2,173,694       297,682  

Interest credited to policyholders

    15,880,681       15,093,685       786,996  

Dividend, endowment and supplementary life contract benefits

    388,723       362,676       26,047  

Total benefits and claims

    46,482,298       46,141,488       340,810  

Expenses

                       

Policy acquisition costs deferred

    (16,620,462 )     (13,476,834 )     (3,143,628 )

Amortization of deferred policy acquisition costs

    10,775,374       8,863,514       1,911,860  

Amortization of value of insurance business acquired

    183,913       270,752       (86,839 )

Commissions

    16,030,481       12,803,764       3,226,717  

Other underwriting, insurance and acquisition expenses

    11,423,294       11,091,340       331,954  

Total expenses

    21,792,600       19,552,536       2,240,064  

Total benefits, claims and expenses

  $ 68,274,898     $ 65,694,024     $ 2,580,874  

 

The $2,580,874 increase in total benefits, claims and expenses for the year ended December 31, 2024 is discussed below.

 

Benefits and Claims

 

The $340,810 increase in total benefits and claims for the year ended December 31, 2024 is primarily due to the following:

 

 

$786,996 increase in interest credited to policyholders is primarily due to an increase in the crediting rate on new annuity contracts issued during 2024 compared to annuity contracts surrendered during 2024.

 

 

$352,395 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

 

 

$297,682 increase in surrenders is based upon policyholder election.

 

 

$1,122,310 decrease in death benefits is primarily due to approximately $658,000 of decreased ordinary life benefits and $464,000 of decreased final expense benefits.

 

23

 

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 years ended December 31, 2024 and 2023, capitalized costs were $16,620,462 and $13,476,834, respectively. Amortization of deferred policy acquisition costs for the years ended December 31, 2024 and 2023 were $10,775,374 and $8,863,514.

 

The $3,143,628 increase in the 2024 acquisition costs deferred primarily relates to increased annuity production with a corresponding increase in deferral of eligible annuity commissions. There was a $1,911,860 increase in the 2024 amortization of deferred acquisition costs primarily due to 2024 annuity surrenders and withdrawal activity.

 

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 $183,913 and $270,752 for the years ended December 31, 2024 and 2023, respectively.

 

Commissions

 

Our commissions for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Annuity

  $ 4,637,570     $ 2,204,946     $ 2,432,624  

Ordinary life first year

    3,977,122       3,224,247       752,875  

Ordinary life renewal

    999,372       750,566       248,806  

Final expense first year

    4,033,281       4,245,077       (211,796 )

Final expense renewal

    2,383,136       2,378,928       4,208  

Total commissions

  $ 16,030,481     $ 12,803,764     $ 3,226,717  

 

The $3,226,717 increase in commissions for the year ended December 31, 2024 is primarily due to a $2,432,624 increase annuity commissions (corresponding to $71,630,897 of increased annuity deposits retained) and a $752,875 increase in ordinary life first year commissions (corresponding to $668,529 increased ordinary life first year premiums) and a $248,806 increase in ordinary life renewal commissions (corresponding to $1,743,689 increased ordinary life renewal premiums).

 

Other Underwriting, Insurance and Acquisition Expenses

 

The $331,954 increase in other underwriting, insurance and acquisition expenses for the year ended December 31, 2024 was primarily related to an increase in guaranty fund assessment fees and third party administrative fees.

 

24

 

Federal Income Taxes

 

FTFC files a 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 years ended December 31, 2024 and 2023, current income tax expense was $1,496,626 and $1,778,778, respectively. Deferred federal income tax expense was $162,874 and $368,309 for the years ended December 31, 2024 and 2023, respectively.

 

Net Income Per Common Share Basic

 

For the year ended December 31, 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 year ended December 31, 2024, the net income allocated to the Class A shareholders of $6,358,563 is the total net income $6,416,791 less the net income allocated to the Class B shareholders $58,228. For the year ended December 31, 2023, the net income allocated to the Class A shareholders of $7,843,534 is the total net income $7,915,361 less the net income allocated to the Class B shareholders $71,827.

 

The weighted average outstanding common shares basic for the year ended December 31, 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 years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Revenues:

                       

Life insurance operations

  $ 49,727,760     $ 46,859,649     $ 2,868,111  

Annuity operations

    24,102,511       24,531,347       (428,836 )

Corporate operations

    2,520,918       4,365,476       (1,844,558 )

Total

  $ 76,351,189     $ 75,756,472     $ 594,717  

Income before federal income taxes:

                       

Life insurance operations

  $ 5,897,565     $ 3,463,203     $ 2,434,362  

Annuity operations

    945,053       3,453,174       (2,508,121 )

Corporate operations

    1,233,673       3,146,071       (1,912,398 )

Total

  $ 8,076,291     $ 10,062,448     $ (1,986,157 )

 

25

 

The increases and decreases of revenues and profitability from our business segments for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Life Insurance

   

Annuity

   

Corporate

         
   

Operations

   

Operations

   

Operations

   

Total

 

Revenues

                               

Premiums

  $ 2,965,962     $ -     $ -     $ 2,965,962  

Net invesment income

    (337,189 )     (1,135,787 )     340,235       (1,132,741 )

Net realized investment gains less impairments

    80,881       234,656       -       315,537  

Service fees and other income

    158,457       472,295       (2,184,793 )     (1,554,041 )

Total revenue

    2,868,111       (428,836 )     (1,844,558 )     594,717  
                                 

Benefits and claims

                               

Increase in future policy benefits

    352,395       -       -       352,395  

Death benefits

    (1,122,310 )     -       -       (1,122,310 )

Surrenders

    297,682       -       -       297,682  

Interest credited to policyholders

    -       786,996       -       786,996  

Dividend, endowment and supplementary life contract benefits

    26,047       -       -       26,047  

Total benefits and claims

    (446,186 )     786,996       -       340,810  

Expenses

                               

Policy acquisition costs deferred net of amortization

    135,701       (1,367,469 )     -       (1,231,768 )

Amortization of value of insurance business acquired

    (43,420 )     (43,419 )     -       (86,839 )

Commissions

    794,093       2,432,624       -       3,226,717  

Other underwriting, insurance and acquisition expenses

    (6,439 )     270,553       67,840       331,954  

Total expenses

    879,935       1,292,289       67,840       2,240,064  

Total benefits, claims and expenses

    433,749       2,079,285       67,840       2,580,874  

Income (loss) before federal income tax expense (benefit)

  $ 2,434,362     $ (2,508,121 )   $ (1,912,398 )   $ (1,986,157 )

 

Consolidated Financial Condition

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 
                         
Assets                         

Investments

                       

Available-for-sale fixed maturity securities at fair value (amortized cost: $227,703,702 and $161,908,230 as of December 31, 2024 and 2023, respectively)

  $ 213,745,821     $ 149,700,948     $ 64,044,873  

Equity securities at fair value (cost: $5,301,191 and $287,375 as of December 31, 2024 and 2023, respectively)

    5,336,062       419,530       4,916,532  

Mortgage loans on real estate

    209,364,504       239,831,447       (30,466,943 )

Investment real estate

    2,351,549       1,305,403       1,046,146  

Policy loans

    4,367,534       3,474,116       893,418  

Short-term investments

    -       298,257       (298,257 )

Other long-term investments

    58,223,514       61,487,939       (3,264,425 )

Total investments

  $ 493,388,984     $ 456,517,640     $ 36,871,344  

 

26

 

The increase in fixed maturity available-for-sale securities for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Fixed maturity securities, available-for-sale, beginning

  $ 149,700,948     $ 126,612,890  

Purchases

    81,180,014       23,059,491  

Unrealized appreciation (depreciation)

    (1,750,599 )     5,632,801  

Net realized investment losses

    (394,673 )     (191,301 )

Sales proceeds

    (11,744,021 )     (457,601 )

Maturities

    (3,435,000 )     (4,830,000 )

Accretion of discounts (premium amortization)

    189,152       (125,332 )

Increase

    64,044,873       23,088,058  

Fixed maturity securities, available-for-sale, ending

  $ 213,745,821     $ 149,700,948  

 

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 loss. The available-for-sale fixed maturity securities portfolio is invested in 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 available-for-sale for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Equity securities, available-for-sale, beginning

  $ 419,530     $ 399,633  

Purchases

    5,129,196       130,550  

Sales proceeds

    (5 )     -  

Joint venture distribution

    (115,371 )     (119,306 )

Net realized investment loss, sale of securities

    (4 )     -  

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

    (97,284 )     8,653  

Increase

    4,916,532       19,897  

Equity securities, available-for-sale, ending

  $ 5,336,062     $ 419,530  

 

Equity securities are reported at fair value with the change in fair value reflected in net realized investment gains (losses) within the consolidated statements of operations.

 

27

 

The decrease in mortgage loans on real estate for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Mortgage loans on real estate, beginning

  $ 239,831,447     $ 242,314,128  

Purchases

    143,991,455       130,956,402  

Accretion of discounts (premium amortization)

    (796,526 )     1,856  

Net realized investment gains

    699,881       2,496  

Payments

    (173,048,603 )     (132,634,814 )

Foreclosed - transferred to real estate

    (1,441,287 )     (764,967 )

(Increase) decrese in allowance for bad debts

    128,137       (43,654 )

Decrease

    (30,466,943 )     (2,482,681 )

Mortgage loans on real estate, ending

  $ 209,364,504     $ 239,831,447  

 

The increase in investment real estate for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Investment real estate, beginning

  $ 1,305,403     $ 540,436  

Real estate acquired through mortgage loan foreclosure

    1,441,287       764,967  

Net realized investment gains

    11,251          

Sales proceeds

    (276,956 )     -  

Loss on impairments

    (129,436 )     -  

Increase

    1,046,146       764,967  

Investment real estate, ending

  $ 2,351,549     $ 1,305,403  

 

The decrease in other long-term investments (comprised of lottery receivables and co-op loans) for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Other long-term investments, beginning

  $ 61,487,939     $ 67,500,783  

Purchases

    9,470,507       7,385,062  

Discount accretion

    4,507,908       4,948,951  

Net realized investment gains

    45,650       -  

Payments

    (17,288,490 )     (18,346,857 )

Decrease

    (3,264,425 )     (6,012,844 )

Other long-term investments, ending

  $ 58,223,514     $ 61,487,939  

 

28

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 
                         

Cash and cash equivalents

  $ 64,344,122     $ 33,839,741     $ 30,504,381  

Accrued investment income

    5,746,167       6,214,459       (468,292 )

Recoverable from reinsurers

    9,845,838       10,353,674       (507,836 )

Assets held in trust under coinsurance agreement

    31,176,310       79,940,459       (48,764,149 )

Agents' balances and due premiums

    1,393,277       1,284,003       109,274  

Deferred policy acquisition costs

    66,640,453       60,795,108       5,845,345  

Value of insurance business acquired

    3,593,440       3,777,353       (183,913 )

Other assets

    10,320,307       19,299,098       (8,978,791 )

Assets other than investment assets

  $ 193,059,914     $ 215,503,895     $ (22,443,981 )

 

The $30,504,381 increase in cash and cash equivalents for the year ended December 31, 2024 and the corresponding increase of $297,016 for the year ended December 31, 2023 are summarized in the Company’s consolidated statements of cash flows.

 

The $48,764,149 decrease in assets held in trust under the coinsurance agreement is due to a reduction in assets from the significant surrenders of annuity contracts 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 years ended December 31, 2024 and 2023, respectively, are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Balance, beginning of year

  $ 60,795,108     $ 56,183,785  

Capitalization of commissions, sales and issue expenses

    16,620,462       13,476,834  

Amortization

    (10,775,374 )     (8,863,514 )

Deferred acquisition costs allocated to investments

    257       (1,997 )

Balance, end of year

  $ 66,640,453     $ 60,795,108  

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 

Federal and state income taxes recoverable

  $ 4,708,718     $ 10,845,790     $ (6,137,072 )

Advances to mortgage loan originator

    4,746,638       4,487,715       258,923  

Accrued management fee

    393,159       345,148       48,011  

Lease asset - right to use

    270,679       369,107       (98,428 )

Other receivables, prepaid assets and deposits

    171,032       159,854       11,178  

Notes receivable

    30,081       44,319       (14,238 )

Receivables from lottery vendor

    -       278,207       (278,207 )

Guaranty funds

    -       723,767       (723,767 )

Advances to an independently owned investment firm

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

Total other assets

  $ 10,320,307     $ 19,299,098     $ (8,978,791 )

 

There was a $6,137,072 decrease in federal and state income taxes recoverable in 2024 primarily due to receiving a federal income tax refund of $8,087,076 for the tax years 2020, 2021 and 2022 that exceeded federal and state tax withholdings on lottery receivables.

 

29

 

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 $723,767 decrease in the guaranty fund primarily due to a reduction in the premium tax credit. A large portion of the guaranty fund assessment was derived from annuity products, however most states do not assess premium taxes on annuity business.

 

There was a $278,207 decrease in receivables from a lottery vendor.

 

There was a $258,923 increase in advances to one mortgage loan originator who acquires mortgage loans for our life companies.

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 
                         

Policy liabilities

                       

Policyholders' account balances

  $ 431,190,092     $ 391,247,676     $ 39,942,416  

Future policy benefits

    138,027,832       123,729,530       14,298,302  

Policy claims

    2,478,465       2,410,243       68,222  

Other policy liabilities

    226,553       250,294       (23,741 )

Total policy liabilities

    571,922,942       517,637,743       54,285,199  

Funds withheld under coinsurance agreement

    31,032,174       77,257,253       (46,225,079 )

Deferred federal income taxes

    4,023,492       4,228,189       (204,697 )

Other liabilities

    10,420,062       8,882,142       1,537,920  

Total liabilities

  $ 617,398,670     $ 608,005,327     $ 9,393,343  

 

The $14,298,302 increase in future policy benefits is primarily related to the production of new life insurance policies and the aging of existing policies an additional year.

 

The decrease and increase in policyholders’ account balances for the years ended December 31, 2024 and 2023, respectively, are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Policyholders' account balances, beginning

  $ 391,247,676     $ 391,359,944  

Deposits

    141,387,484       69,082,635  

Withdrawals

    (166,419,069 )     (104,579,076 )

Funds withheld under coinsurance agreement

    49,093,320       20,290,488  

Interest credited

    15,880,681       15,093,685  

Increase (decrease)

    39,942,416       (112,268 )

Policyholders' account balances, ending

  $ 431,190,092     $ 391,247,676  

 

The $204,697 decrease in deferred federal income taxes was due to $367,571 of decreased deferred federal income taxes on the unrealized depreciation of fixed maturity securities available-for-sale and $162,874 of operating deferred federal tax expense.

 

The $46,225,079 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.

 

30

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 

Mortgage loans suspense

  $ 5,910,871     $ 5,841,113     $ 69,758  

Suspense accounts payable

    2,695,069       800,262       1,894,807  

Accrued expenses payable

    611,000       696,000       (85,000 )

Unclaimed funds

    582,040       488,492       93,548  

Accounts payable

    274,493       53,804       220,689  

Lease liability

    270,679       369,107       (98,428 )

Unearned investment income

    148,233       115,166       33,067  

Guaranty fund assessments

    86,000       713,000       (627,000 )

Deferred revenue

    30,250       41,250       (11,000 )

Payable for securities purchased

    6,179       7,082       (903 )

Other payables, withholdings and escrows

    (194,751 )     (243,134 )     48,383  

Total other liabilities

  $ 10,420,062     $ 8,882,142     $ 1,537,920  

 

The $1,894,807 increase in suspense accounts payable is due to increased deposits on policy applications that had not been issued as of the financial reporting date.

 

The $220,689 increase in account payable is primarily amounts owed to a lottery vendor.

 

The $627,000 decrease in the guaranty fund assessments is primarily due to a reduction in potential assessments in the event insurance entities become insolvent or default on other insurance obligations.

 

Liquidity and Capital Resources

 

Our operations have been financed primarily through the private placement of equity securities and intrastate public stock offerings. Through December 31, 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.

 

31

 

As of December 31, 2024, we had cash and cash equivalents totaling $64,344,122. As of December 31, 2024, cash and cash equivalents of $35,799,002 and $22,206,273, respectively, totaling $58,005,275 were held by TLIC and FBLIC and may not be available for use by FTFC due to the required pre-approval by the OID 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 $7,079,124 as of December 31, 2024. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $1,067,766 in 2025 without prior approval. FBLIC has paid no dividends to TLIC in 2024 and 2023. TLIC has paid no dividends to FTFC.

 

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 $50,995,135 and $26,017,084 as of December 31, 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.

 

Our cash flows for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Net cash provided by operating activities

  $ 90,007,676     $ 40,390,718     $ 49,616,958  

Net cash used in investing activities

    (34,471,710 )     (4,597,261 )     (29,874,449 )

Net cash used in financing activities

    (25,031,585 )     (35,496,441 )     10,464,856  

Increase in cash

    30,504,381       297,016       30,207,365  

Cash and cash equivalents, beginning of period

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

Cash and cash equivalents, end of period

  $ 64,344,122     $ 33,839,741     $ 30,504,381  

 

The cash provided by operating activities for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

   

Amount Change

 
   

2024

   

2023

   

2024 less 2023

 

Premiums collected

  $ 41,852,394     $ 38,693,776     $ 3,158,618  

Net investment income collected

    27,123,406       26,205,489       917,917  

Service fees and other income collected

    3,766,316       5,135,220       (1,368,904 )

Death benefits paid

    (12,600,450 )     (13,680,462 )     1,080,012  

Surrenders paid

    (2,471,376 )     (2,173,694 )     (297,682 )

Dividends and endowments paid

    (390,831 )     (365,276 )     (25,555 )

Commissions paid

    (16,134,886 )     (12,744,748 )     (3,390,138 )

Other underwriting, insurance and acquisition expenses paid

    (11,190,335 )     (11,217,061 )     26,726  

Taxes received (paid)

    4,640,446       (3,736,959 )     8,377,405  

(Increased) decreased advances to a mortgage loan originator

    (258,923 )     255,326       (514,249 )

Decreased advances to independently owned investment firm

    2,045,191       2,954,809       (909,618 )

Decreased (increased) advances to an investment vendor

    296,477       (296,477 )     592,954  

Decreased funds under coinsurance agreement

    51,632,390       17,340,015       34,292,375  

Increased (decreased) deposits of pending policy applications

    1,894,807       (8,905,801 )     10,800,608  

Increased mortgage loan suspense

    69,757       3,185,928       (3,116,171 )

Other

    (266,707 )     (259,367 )     (7,340 )

Cash provided by operating activities

  $ 90,007,676     $ 40,390,718     $ 49,616,958  

 

Please see the consolidated statements of cash flows for the years ended December 31, 2024 and 2023 for a summary of the components of net cash used in investing activities and financing activities.

 

32

 

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

 

                   

Amount Change

 
   

December 31, 2024

   

December 31, 2023

   

2024 less 2023

 
                         

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

    1,011       1,011       -  

Additional paid-in capital

    43,668,023       43,668,023       -  

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

    (893,947 )     (893,947 )     -  

Accumulated other comprehensive loss

    (11,024,079 )     (9,641,308 )     (1,382,771 )

Accumulated earnings

    37,202,901       30,786,110       6,416,791  

Total shareholders' equity

  $ 69,050,228     $ 64,016,208     $ 5,034,020  

 

The increase in shareholders’ equity of $5,034,020 for the year ended December 31, 2024 is primarily due to $6,416,791 in net income and $1,382,771 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 ($13,957,881) and ($12,207,282) as of December 31, 2024 and 2023, respectively, prior to the impact of income taxes and deferred acquisition cost adjustments. An increase of $1,849,782 in unrealized losses arising for year ended December 31, 2024 has been increased by 2024 net realized investment losses of $99,183 originating from the sale, calls and maturities for fixed maturity securities available-for-sale resulting in net unrealized losses on investments of $1,750,599.

 

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.

 

33

 

As of December 31, 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 14.5% 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.

 

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 2024, 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 December 31, 2024, the Company has outstanding advances to this loan originator totaling $4,746,638. The advances are secured by $9,542,484 of residential mortgage loans on real estate that are assigned to the Company. The Company has committed to fund up to an additional $1,253,362 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 December 31, 2024, $754,448 of additional and secured residential mortgage loan balances on real estate are held in escrow by the loan originator.  As of December 31, 2024, $738,411 of that escrow amount is available to the Company as additional collateral on $4,746,638 of advances to the loan originator. The remaining December 31, 2024 escrow amount of $16,037 is available to the Company as additional collateral on its investment of $3,207,399 in 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 December 31, 2024 will be sufficient to fund our anticipated operating expenses.

 

Off-Balance Sheet Arrangements

 

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

 

34

 

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.

 

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; and

 

the availability of capital to expand our business.

 

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.

 

35

 

 

Item 8. Financial Statements

 

 

 

FIRST TRINITY FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023

 

 

Consolidated Financial Statements

Page 

Numbers

   

Report of Independent Registered Public Accounting Firm (PCAOB ID 718)

37
   

Consolidated Statements of Financial Position

39
   

Consolidated Statements of Operations

40
   

Consolidated Statements of Comprehensive Income

41
   

Consolidated Statements of Changes in Shareholders’ Equity

42
   

Consolidated Statements of Cash Flows

43
   

Notes to Consolidated Financial Statements

45

 

36

 

Report of Independent Registered Public Accounting Firm


 

To the Board of Directors and

Shareholders of First Trinity Financial Corporation

 

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated statements of financial position of First Trinity Financial Corporation and Subsidiaries (the Company) as of December 31, 2024 and 2023, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2024, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.

 

Basis for Opinion

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

 

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

 

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

 

Critical Audit Matters

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

 

Amortization of Deferred Policy Acquisition Costs Refer to Notes 1 and 6

Critical Audit Matter Description

 

The Company’s products include traditional life insurance contracts and annuities in which certain acquisition costs are capitalized and the expenses are deferred into future periods. Management amortizes the capitalized costs of traditional life insurance products over the premium paying period of the products based on assumptions developed and consistent with assumptions used in determining the products future policy benefit liabilities. Amortization of annuity products and certain limited payment life insurance products are amortized based on actual and expected future gross profits. The unamortized deferred policy acquisition cost asset was $66.6 million as of December 31, 2024.

 

37

 

The recovery of the unamortized deferred policy acquisition cost asset is dependent on the future profitability of the related products. Management periodically reviews the recoverability by developing an actuarial study of the present value of future profits of the products, and reduces the asset when the asset is shown to not be recoverable.

 

As a result, the audit of this area requires a high degree of judgment due to the complex nature of determining the amortization for the period and creation of actuarial studies for recoverability.

 

How the Critical Audit Matter was Addressed in the Audit

 

Our audit procedures related to the amortization of the unamortized deferred policy acquisition cost asset and consideration of the recoverability of the asset included, among others, the following:

 

 

We gained an understanding of the processes utilized and controls implemented in amortizing the deferred policy acquisition

 

We obtained previous actuarial recoverability studies, and any current updates to the studies

 

We tested data utilized by management for completeness and accuracy

 

We engaged an independent actuarial specialist to assist with the testing of amortization and the review and evaluation of the assumptions and methodologies used by management for the study of recoverability

 

Future Policy Benefits Refer to Note 1

Critical Audit Matter Description

 

Liabilities for amounts payable under the Company’s life insurance products are recorded as future policy benefits liabilities. Such liabilities are established based on actuarial assumptions at the time policies are issued. Management applies considerable judgment in developing the actuarial assumptions based on expectations of future economic conditions and policyholder behavior. These assumptions are developed at the time the contracts are issued, or in the case of a business combination, at the time the contracts are purchased. If actual experience is adverse in nature when compared to the original assumptions in developing the future policy benefits liability, management may be required to establish premium deficiency reserves. The Company’s future policy benefits liability was $138.0 million as of December 31, 2024.

 

The audit of future policy benefits requires a high degree of auditor judgment when considering the complex actuarial assumptions and models management utilizes.

 

How the Critical Audit Matter was Addressed in the Audit

 

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

 

 

We gained an understanding of the processes utilized and controls implemented in determining the valuation of future policy benefits

 

We tested the underlying data used by management in developing the valuation and the completeness and accuracy of the data

 

We obtained original assumption information and subsequent experience studies

 

We engaged an independent actuarial specialist to evaluate the actuarial assumptions and methodologies for reasonableness, to develop an independent estimate of future policy benefits on a sample basis and to evaluate management’s development of experience studies.

 

/s/ Kerber, Eck & Braeckel LLP

 

We have served as the Company’s auditor since 2004.

 

Springfield, Illinois

March 11, 2025

 

38

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

   

December 31, 2024

   

December 31, 2023

 

Assets

               

Investments

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $227,703,702 and $161,908,230 as of December 31, 2024 and 2023, respectively)

  $ 213,745,821     $ 149,700,948  

Equity securities at fair value (cost: $5,301,191 and $287,375 as of December 31, 2024 and 2023, respectively)

    5,336,062       419,530  

Mortgage loans on real estate

    209,364,504       239,831,447  

Investment real estate

    2,351,549       1,305,403  

Policy loans

    4,367,534       3,474,116  

Short-term investments

    -       298,257  

Other long-term investments

    58,223,514       61,487,939  

Total investments

    493,388,984       456,517,640  

Cash and cash equivalents

    64,344,122       33,839,741  

Accrued investment income

    5,746,167       6,214,459  

Recoverable from reinsurers

    9,845,838       10,353,674  

Assets held in trust under coinsurance agreement

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $22,559,107 and $56,824,160 as of December 31, 2024 and 2023, respectively)

    17,932,297       51,651,259  

Mortgage loans on real estate

    12,660,117       27,581,881  

Receivable for securities

    674,405       -  

Payable for securities

    (783 )     (4,414 )

Cash and cash equivalents (overdraft)

    (89,726 )     711,733  

Total assets held in trust under coinsurance agreement

    31,176,310       79,940,459  

Agents' balances and due premiums

    1,393,277       1,284,003  

Deferred policy acquisition costs

    66,640,453       60,795,108  

Value of insurance business acquired

    3,593,440       3,777,353  

Other assets

    10,320,307       19,299,098  

Total assets

  $ 686,448,898     $ 672,021,535  

Liabilities and Shareholders' Equity

               

Policy liabilities

               

Policyholders' account balances

  $ 431,190,092     $ 391,247,676  

Future policy benefits

    138,027,832       123,729,530  

Policy claims

    2,478,465       2,410,243  

Other policy liabilities

    226,553       250,294  

Total policy liabilities

    571,922,942       517,637,743  

Funds withheld under coinsurance agreement

    31,032,174       77,257,253  

Deferred federal income taxes

    4,023,492       4,228,189  

Other liabilities

    10,420,062       8,882,142  

Total liabilities

    617,398,670       608,005,327  

Shareholders' equity

               

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

    1,011       1,011  

Additional paid-in capital

    43,668,023       43,668,023  

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

    (893,947 )     (893,947 )

Accumulated other comprehensive loss

    (11,024,079 )     (9,641,308 )

Accumulated earnings

    37,202,901       30,786,110  

Total shareholders' equity

    69,050,228       64,016,208  

Total liabilities and shareholders' equity

  $ 686,448,898     $ 672,021,535  

 

See notes to consolidated financial statements.

 

39

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Revenues

               

Premiums

  $ 41,878,896     $ 38,912,934  

Net investment income

    30,522,580       31,655,321  

Net realized investment gains (losses)

    264,821       (180,152 )

Loss on impairments

    (129,436 )     -  

Service fees

    3,161,535       4,701,960  

Other income

    652,793       666,409  

Total revenues

    76,351,189       75,756,472  

Benefits, Claims and Expenses

               

Benefits and claims

               

Increase in future policy benefits

    14,565,010       14,212,615  

Death benefits

    13,176,508       14,298,818  

Surrenders

    2,471,376       2,173,694  

Interest credited to policyholders

    15,880,681       15,093,685  

Dividend, endowment and supplementary life contract benefits

    388,723       362,676  

Total benefits and claims

    46,482,298       46,141,488  

Policy acquisition costs deferred

    (16,620,462 )     (13,476,834 )

Amortization of deferred policy acquisition costs

    10,775,374       8,863,514  

Amortization of value of insurance business acquired

    183,913       270,752  

Commissions

    16,030,481       12,803,764  

Other underwriting, insurance and acquisition expenses

    11,423,294       11,091,340  

Total expenses

    21,792,600       19,552,536  

Total benefits, claims and expenses

    68,274,898       65,694,024  

Income before total federal income tax expense

    8,076,291       10,062,448  

Current federal income tax expense

    1,496,626       1,778,778  

Deferred federal income tax expense

    162,874       368,309  

Total federal income tax expense

    1,659,500       2,147,087  

Net income

  $ 6,416,791     $ 7,915,361  

Net income per common share

               

Class A common stock

  $ 0.6776     $ 0.8358  

Class B common stock

  $ 0.5759     $ 0.7104  

 

See notes to consolidated financial statements.

 

40

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income 

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Net income

  $ 6,416,791     $ 7,915,361  

Other comprehensive income (loss)

               

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

    (1,849,782 )     5,580,785  

Less net realized investment losses

    (99,183 )     (52,016 )

Net unrealized investment gains (losses)

    (1,750,599 )     5,632,801  

Adjustment to deferred acquisition costs

    (257 )     1,997  

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

    (1,750,342 )     5,630,804  

Federal income tax expense (benefit)

    (367,571 )     1,182,469  

Total other comprehensive income (loss)

    (1,382,771 )     4,448,335  

Total comprehensive income

  $ 5,034,020     $ 12,363,696  

 

See notes to consolidated financial statements.

 

41

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Years Ended December 31, 2024 and 2023

 

   

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

 

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

    -       -       -       -       -       7,915,361       7,915,361  

Other comprehensive income

    -       -       -       -       4,448,335       -       4,448,335  

Balance as of December 31, 2023

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

Comprehensive income:

                                                       

Net income

    -       -       -       -       -       6,416,791       6,416,791  

Other comprehensive loss

    -       -       -       -       (1,382,771 )     -       (1,382,771 )

Balance as of December 31, 2024

  $ 96,319     $ 1,011     $ 43,668,023     $ (893,947 )   $ (11,024,079 )   $ 37,202,901     $ 69,050,228  

 

See notes to consolidated financial statements.

 

42

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Operating activities

               

Net income

  $ 6,416,791     $ 7,915,361  

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

               

Accretion of discount on investments

    (3,900,534 )     (4,825,475 )

Net realized investment (gains) losses

    (264,821 )     180,152  

Loss on impairments

    129,436       -  

Amortization of policy acquisition cost

    10,775,374       8,863,514  

Policy acquisition cost deferred

    (16,620,462 )     (13,476,834 )

Amortization of value of insurance business acquired

    183,913       270,752  

Allowance for mortgage loan losses

    (128,137 )     43,654  

Provision for deferred federal income tax expense

    162,874       368,309  

Interest credited to policyholders

    15,880,681       15,093,685  

Change in assets and liabilities:

               

Accrued investment income

    468,292       (634,284 )

Recoverable from reinsurers

    507,836       749,201  

Assets held in trust under coinsurance agreement

    51,632,390       17,340,012  

Agents' balances and due premiums

    (109,274 )     (30,926 )

Other assets (excludes change in receivable for securities sold of $12,920 in 2024)

    8,991,711       751,093  

Future policy benefits

    14,298,302       13,717,356  

Policy claims

    68,222       (130,845 )

Other policy liabilities

    (23,741 )     104,077  

Other liabilities (excludes change in payable of securities purchased of ($903) and ($383,426) in 2024 and 2023, respectively)

    1,538,823       (5,908,084 )

Net cash provided by operating activities

    90,007,676       40,390,718  
                 

Investing activities

               

Purchases of fixed maturity securities

    (81,180,014 )     (23,059,491 )

Maturities of fixed maturity securities

    3,435,000       4,830,000  

Sales of fixed maturity securities

    11,744,021       457,601  

Purchases of equity securities

    (5,129,196 )     (130,550 )

Sale of equity securities

    5       -  

Joint venture distribution

    115,371       119,306  

Purchases of mortgage loans

    (143,991,455 )     (130,956,402 )

Payments on mortgage loans

    173,048,603       132,634,814  

Purchases of other long-term investments

    (9,470,507 )     (7,385,062 )

Collections on other long-term investments

    17,288,490       18,346,857  

Sales of real estate

    276,956       -  

Policy loans

    (893,418 )     (633,229 )

Short-term investments

    298,257       1,562,321  

Net change in receivable and payable for securities sold and purchased

    (13,823 )     (383,426 )

Net cash used in investing activities

    (34,471,710 )     (4,597,261 )
                 

Financing activities

               

Policyholders' account deposits

    141,387,484       69,082,635  

Policyholders' account withdrawals

    (166,419,069 )     (104,579,076 )

Net cash used in financing activities

    (25,031,585 )     (35,496,441 )
                 

Increase in cash and cash equivalents

    30,504,381       297,016  

Cash and cash equivalents, beginning of period

    33,839,741       33,542,725  

Cash and cash equivalents, end of period

  $ 64,344,122     $ 33,839,741  

 

See notes to consolidated financial statements.

 

43

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

Supplemental Disclosure – Cash and Non-Cash Impact on Operating, Investing and Financing Activities

 

 

During 2024 and 2023, the Company foreclosed on residential mortgage loans of real estate totaling $1,441,287 and $764,967, respectively and transferred the 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:

 

   

Year Ended

   

Year Ended

 
   

December 31, 2024

   

December 31, 2023

 

Reductions in mortgage loans due to foreclosure

  $ 1,441,287     $ 764,967  

Investment real estate held-for-sale acquired through foreclosure

    (1,441,287 )     (764,967 )

Net cash used in investing activities

  $ -     $ -  

 

See notes to consolidated financial statements.

 

 

44

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

1. Organization and Significant Accounting Policies

 

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 (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 contracts but is now issuing life insurance policies and annuity contracts through an association with distribution channels. 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.

 

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.

 

45

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

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 consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

 

Investments

 

Change in significant Accounting Policies – Credit Losses on Investments and Allowance for Loan Losses from Mortgage Loans

 

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.

 

46

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

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.

 

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.

 

47

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

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.

 

Reclassifications

 

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

 

48

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

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.

 

Cash and Cash Equivalents

 

Cash and cash equivalents include cash on hand, amounts due from banks and money market instruments.

 

Short-term investments

 

Short-term investments include funds that have a maturity of more than 90 days but less than one year at the date of purchase.

 

Investment Income and Realized Gains and Losses on Sales of Investments

 

Interest and dividends earned on investments are included in net investment income. Realized gains and losses on sales of investments are recognized in operations on the specific identification basis.

 

Deferred Policy Acquisition Costs

 

Commissions and other acquisition costs which vary with and are primarily related to the successful production of new business are deferred and amortized in a systematic manner based on the related contract revenues or gross profits as appropriate. Recoverability of deferred acquisition costs is evaluated periodically by comparing the current estimate of the present value of expected pretax future profits to the unamortized asset balance. If this current estimate is less than the existing balance, the difference is charged to expense.

 

Deferred acquisition costs for the successful production of traditional life insurance contracts are deferred to the extent deemed recoverable and amortized over the premium paying period of the related policies using assumptions consistent with those used in computing future policy benefit liabilities. Deferred acquisition costs related to the successful production of insurance and annuity products that subject the Company 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 deferred to the extent deemed recoverable and amortized in relation to the present value of actual and expected gross profits on the policies.

 

49

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

To the extent that realized gains and losses on fixed income securities result in adjustments to deferred acquisition costs related to insurance and annuity products, such adjustments are reflected as a component of the amortization of deferred acquisition costs. Deferred acquisition costs related to limited-payment long-duration insurance and annuity contracts are also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from available-for-sale securities had actually been realized. This adjustment is included in the change in net unrealized appreciation (depreciation) on available-for-sale securities, a component of “Accumulated Other Comprehensive Income (Loss)” in the shareholders’ equity section of the statement of financial position.

 

Property and Equipment

 

Property and equipment are carried at cost less accumulated depreciation or amortization. Office furniture, equipment and computer software is recorded at cost or fair value at acquisition less accumulated depreciation or amortization using the straight-line method over the estimated useful life of the respective assets of three to ten years. Leasehold improvements are recorded at cost and depreciated over the remaining non-cancellable lease term.

 

Reinsurance

 

The Company cedes reinsurance under various agreements allowing management to control exposure to potential losses arising from large risks and providing additional capacity for growth. Estimated reinsurance recoverable balances are reported as assets and are recognized in a manner consistent with the liabilities related to the underlying reinsured ceded contracts. The Company also assumes reinsurance under various agreements allowing management to increase growth in assets and profitability. Estimated reinsurance payable balances are reported as liabilities and are recognized in a manner consistent with the assets related to the underlying assumed reinsurance contracts.

 

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.

 

Value of Insurance Business Acquired

 

As a result of the Company’s purchases of FLAC and FBLIC, an asset was recorded in the application of purchase accounting to recognize the value of acquired insurance in force.  The Company’s value of acquired insurance in force is an intangible asset with a definite life and is amortized under Financial Accounting Standards Board (“FASB”) guidance.  The value of acquired insurance in force is amortized primarily over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits.

 

50

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

For the amortization of the value of acquired insurance in force, the Company periodically reviews its estimates of gross profits. The most significant assumptions involved in the estimation of gross profits include interest rate spreads, future financial market performance, business surrender/lapse rates, mortality and morbidity, expenses and the impact of realized investment gains and losses. In the event actual experience differs significantly from assumptions or assumptions are significantly revised, the Company is required to record a charge or credit to amortization expense for the period in which an adjustment is made.

 

As of December 31, 2024 and 2023, there was $5,146,438 and $4,962,525, respectively, of accumulated amortization of the value of insurance business acquired due to the purchases of FLAC and FBLIC. The Company expects to amortize the value of insurance business acquired by the following amounts over the next five years:, $156,102 in 2025, $142,645 in 2026, $149,467 in 2027, $144,043 in 2028 and $148,414 in 2029.

 

Other Assets and Other Liabilities

 

Other assets consist primarily of advances to mortgage loan originator, receivable for securities sold, federal and state income taxes recoverable, guaranty funds, notes receivable, prepaid assets, deposits, other receivables and property and equipment.

 

Other liabilities consist primarily of accrued expenses payable, accounts payable, remittance and suspense items not allocated, payable for securities purchased, guaranty fund assessments, unclaimed funds, deferred revenue, unearned investment income, withholdings, escrows and other payables.

 

Policyholders Account Balances

 

The Company’s liability for policyholders’ account balances represents the contract value that has accrued to the benefit of the policyholder as of the financial statement date. This liability is generally equal to the accumulated account deposits plus interest credited less policyholders’ withdrawals and other charges assessed against the account balance. Interest crediting rates for individual annuities range from 2.25% to 5.75%. Interest crediting rates for deposit-type liabilities range from 2.50% to 4.00%.

 

Future Policy Benefits

 

The Company’s liability for future policy benefits is primarily comprised of the present value of estimated future payments to or on behalf of policyholders, where the timing and amount of payment depends on policyholder mortality or morbidity, less the present value of future net premiums. For life insurance and annuity products, expected mortality and morbidity is generally based on the Company’s historical experience or standard industry tables including a provision for the risk of adverse deviation. Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality, morbidity and interest rate assumptions are “locked-in” upon the issuance of new insurance with fixed and guaranteed terms, significant changes in experience or assumptions may require the Company to provide for expected future losses by establishing premium deficiency reserves.

 

Policy Claims

 

Policy claim liabilities represent the estimated liabilities for claims reported plus estimated incurred but not yet reported claims developed from trends of historical market data applied to current exposure.

 

Federal Income Taxes

 

The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are provided for cumulative temporary differences between balances of assets and liabilities determined under U.S. GAAP and balances determined using tax bases. A valuation allowance is established for the amount of the deferred tax asset that exceeds the amount of the estimated future taxable income needed to utilize the future tax benefits.

 

51

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

Accumulated Other Comprehensive Income (Loss)

 

FASB guidance requires the inclusion of unrealized gains or losses on available-for-sale securities, net of tax, as a component of other comprehensive income (loss).  Unrealized gains and losses recognized in accumulated other comprehensive income (loss) that are later recognized in net income through a reclassification adjustment are identified on the specific identification method. In addition, deferred acquisition costs related to limited-payment long-duration insurance and annuity contracts are also adjusted, net of tax, for the change in amortization that would have been recorded if the unrealized gains (losses) from available-for-sale securities had actually been realized. This adjustment is included in the change in net unrealized appreciation (depreciation) on available-for-sale securities, a component of “Accumulated Other Comprehensive Income (Loss)” in the shareholders’ equity section of the statement of financial position.

 

Revenues and Expenses

 

Revenues on traditional life insurance products consist of direct premiums reported as earned when due. Liabilities for future policy benefits are provided and acquisition costs are amortized in a systematic manner based on the related contract revenues or gross profits as appropriate.

 

The Company generates fee income and recognizes revenue from providing contractual services to third parties that are outside traditional life insurance sources of revenues.  This fee income is recognized as revenue in the Service Fees caption of the Statement of Operations for the years ended December 31, 2024 and 2023.  The primary source of this fee income during 2024 and 2023 was the recognition of fee income from providing residential mortgage loan on real estate lending opportunities to third parties through the introduction of qualified borrowers identified and provided by the Company.  This fee income is associated with a single performance obligation and is not recognized as revenue until the point in time the third party issues a residential mortgage loan on real estate to a qualified borrower identified and provided by the Company.  Additional fee income with one specific third party is recognized by the Company as contractual revenues for the Company being available to provide and providing services to manage brokered residential mortgage loans on real estate during the period that the obligations are held by the third party for the qualified borrower identified and provided by the Company.

 

Acquisition costs for traditional life insurance contracts are deferred to the extent deemed recoverable and are amortized over the premium paying period of the related policies using assumptions consistent with those used in computing future policy benefit liabilities. Traditional life insurance products are treated as long-duration contracts since they generally remain in force for the lifetime of the insured.

 

Deferred acquisition costs related to insurance and annuity products that subject the Company 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 are deferred to the extent deemed recoverable and amortized in relation to the present value of actual and expected gross profits on the policies. These types of insurance and annuity contracts are treated as long-duration insurance contracts since they generally remain in force for an extended period.

 

Net Income Per Common Share Basic

 

For the year ended December 31, 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 year ended December 31, 2024, the net income allocated to the Class A shareholders of $6,358,563 is the total net income $6,416,791 less the net income allocated to the Class B shareholders $58,228. For the year ended December 31, 2023, the net income allocated to the Class A shareholders of $7,843,534 is the total net income $7,915,361 less the net income allocated to the Class B shareholders $71,827.

 

52

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

The weighted average outstanding common shares basic for the year ended December 31, 2024 and 2023 were 9,384,340 for Class A shares and 101,102 for Class B shares.

 

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 December 31, 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.

 

53

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

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.

 

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 adopted this Update for year-end reporting in 2024 and will adopt for interim periods beginning 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 became effective in 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 December 31, 2024 Form 10-K.

 

54

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

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.

 

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.

 

55

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

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 the information required by this Update for year-end reporting in 2025.

 

Expense Disaggregation Disclosures

 

In November 2024, the FASB issued amendments (Accounting Standards Update 2024-03) to disclose more granular information about costs of sales and general and administrative expenses including employee compensation to improve the disclosure about a public enterprise’s expenses by providing more detailed information about the types of expenses commonly presented in expense captions such as costs of sales and general and administrative expenses.

 

The amendments in this Update require disclosing, in the notes to the financial statements, the following specified information about costs and expenses included in general captions on the face of the financial statements at each interim and annual reporting period of the entity: (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization and (e) depreciation, depletion and amortization recognized as part of oil and gas producing activities or other amounts of depletion expenses.

 

An entity is not precluded from providing additional voluntary disclosures that may provide investors with additional decision-useful information. In addition, the amendments in this Update do not change or remove current expense disclosure requirements including those of specialized industries.

 

The amendments to this Update are effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027. Early adoption is permitted. The Company anticipates adopting and disclosing the information required by this Update for year-end reporting in 2027 and interim reporting beginning in first quarter 2028.

 

Debt With Conversion and Other Options

 

In November 2024, the FASB issued amendments (Accounting Standards Update 2024-04) to clarify the requirements for determining whether certain settlements of convertible debt instruments should be accounted as an induced conversion. Under this Update, an inducement offer is required to provide the debt holder with, at a minimum, the consideration in form and amount issuable under the conversion privileges provided in the instrument. If the convertible debt instrument has been exchanged, modified or deemed not substantially different within the one-year period before the settlement date, the current inducement offer should be compared to the inducement offer that existed one-year before the settlement date.

 

In addition, the incorporation, elimination or modification of a volume weighted average price formula does not automatically cause a settlement to be accounted for as an extinguishment; there is instead a need to assess whether the form and amount of the conversion consideration is preserves using the fair value of the shares as of the settlement date. This induced conversion guidance applies to convertible debt instruments that are not currently convertible as long as there was a substantive conversion feature as of its issuance date or settlement date.

 

56

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

1. Organization and Significant Accounting Policies (continued)

 

The amendments to this Update are effective for annual reporting periods beginning after December 15, 2025 and interim reporting periods within that annual reporting period. Early adoption is permitted for all entities that have adopted the amendments in Update 2020-06. The amendments in this Update permit an entity to apply the new guidance on either a prospective or a retrospective basis. The Company does not have or anticipate having any debt instruments and anticipates never being required to adopt the information required by this Update.

 

57

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

2. Investments

 

Fixed Maturity Securities

 

Investments in fixed maturity securities as of December 31, 2024 and 2023 are summarized as follows:

 

           

Gross

   

Gross

         
   

Amortized Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

or Cost

   

Gains

   

Losses

   

Value

 
   

December 31, 2024

 

Fixed maturity securities

                               

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

  $ 4,263,791     $ 12,654     $ 480     $ 4,275,965  

States and political subdivisions

    8,156,851       173       463,791       7,693,233  

U.S. government agency mortgage backed securities

    41,085,693       20,347       870,659       40,235,381  

Commercial mortgage-backed securities

    19,999,386       5,070       1,505,058       18,499,398  

Residential mortgage-backed securities

    9,750       4,361       -       14,111  

Corporate bonds

    106,678,530       28,519       7,350,495       99,356,554  

Asset-backed securities

    15,628,104       67,390       796,910       14,898,584  

Exchange traded securities

    1,184,560       -       687,760       496,800  

Foreign bonds

    29,447,037       5,683       2,212,925       27,239,795  

Redeemable preferred securities

    1,250,000       -       214,000       1,036,000  

Total fixed maturity securities

  $ 227,703,702     $ 144,197     $ 14,102,078     $ 213,745,821  

Fixed maturity securities held in trust under coinsurance agreement

  $ 22,559,107     $ 21,034     $ 4,647,844     $ 17,932,297  

 

   

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  

 

58

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

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 December 31, 2024 and 2023 are summarized as follows:

 

           

Unrealized

   

Number of

 
   

Fair Value

   

Loss

   

Securities

 
   

December 31, 2024

 

Fixed maturity securities

                       

Less than 12 months in an unrealized loss position

                       

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

  $ 810,291     $ 480       4  

States and political subdivisions

    4,350,258       95,994       12  

U.S. government agency mortgage backed securities

    35,821,510       870,659       52  

Commercial mortgage-backed securities

    9,319,025       91,842       15  

Corporate bonds

    33,196,771       810,633       84  

Asset-backed securities

    1,811,793       29,633       6  

Foreign bonds

    5,707,531       185,096       11  

Total less than 12 months in an unrealized loss position

    91,017,179       2,084,337       184  

More than 12 months in an unrealized loss position

                       

States and political subdivisions

    3,102,931       367,797       18  

Commercial mortgage-backed securities

    7,541,167       1,413,216       21  

Corporate bonds

    61,587,904       6,539,862       182  

Asset-backed securities

    7,391,463       767,277       21  

Exchange traded securities

    496,800       687,760       2  

Foreign bonds

    20,747,051       2,027,829       55  

Redeemable preferred securities

    1,036,000       214,000       4  

Total more than 12 months in an unrealized loss position

    101,903,316       12,017,741       303  

Total fixed maturity securities in an unrealized loss position

  $ 192,920,495     $ 14,102,078       487  

Fixed maturity securities held in trust under coinsurance agreement

                       

Total less than 12 months in an unrealized loss position

  $ 110,506     $ 616       1  

Total more than 12 months in an unrealized loss position

    15,142,397       4,647,228       67  

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

  $ 15,252,903     $ 4,647,844       68  

 

   

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  

 

59

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

As of December 31, 2024, the Company held 487 available-for-sale fixed maturity securities with an unrealized loss of $14,102,078, fair value of $192,920,495 and amortized cost of $207,022,573. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2024. The ratio of the fair value to the amortized cost of these 487 securities is 93%.

 

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 year ended December 31, 2024 and 2023, are summarized as follows:

   

December 31, 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

    (295,490 )     (139,285 )

Ending balance

  $ (725,960 )   $ (430,470 )

 

Net unrealized losses included in other comprehensive 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 December 31, 2024 and 2023 are summarized as follows:

 

   

December 31, 2024

   

December 31, 2023

 

Unrealized depreciation on available-for-sale securities

  $ (13,957,881 )   $ (12,207,282 )

Adjustment to deferred acquisition costs

    3,351       3,094  

Deferred income taxes

    2,930,451       2,562,880  

Net unrealized depreciation on available-for-sale securities

  $ (11,024,079 )   $ (9,641,308 )

Assets held in trust under coinsurance agreement

               

Unrealized depreciation on fixed maturity securities available-for-sale

  $ (4,626,810 )   $ (5,172,901 )

 

60

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

The amortized cost and fair value of fixed maturity available-for-sale securities as of December 31, 2024, by contractual maturity, are summarized as follows:

 

   

December 31, 2024

 
   

Fixed Maturities Available-For-Sale Securities

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 4,763,309     $ 4,760,688  

Due in one year through five years

    42,505,354       40,711,256  

Due after five years through ten years

    42,007,924       39,132,467  

Due after ten years

    117,167,979       109,591,901  

Due at multiple maturity dates

    21,259,136       19,549,509  
    $ 227,703,702     $ 213,745,821  

 

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.

 

The amortized cost and fair value of fixed maturity available-for-sale securities held in trust under coinsurance agreement as of December 31, 2024, by contractual maturity, are summarized as follows:

 

   

December 31, 2024

 
   

Fixed Maturity Available-For-Sale Securities

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 449,835     $ 448,424  

Due after one year through five years

    1,536,033       1,505,670  

Due after five years through ten years

    3,412,424       3,270,622  

Due after ten years

    14,372,598       10,249,874  

Due at multiple maturity dates

    2,788,217       2,457,707  
    $ 22,559,107     $ 17,932,297  

 

61

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

Proceeds and gross realized gains (losses) from the sales, calls and maturities of fixed maturity securities available-for-sale, equity securities, investment real estate, mortgage loans on real estate and other long-term investments for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

Fixed Maturity Securities

   

Equity Securities

   

Investment Real Estate

 
   

2024

   

2023

   

2024

   

2023

   

2024

   

2023

 

Proceeds

  $ 15,179,021     $ 5,287,601     $ 5     $ -     $ 276,956     $ -  

Gross realized gains

    26,198       265,625       -       -       11,251       -  

Gross realized losses

    (125,381 )     (317,641 )     (4 )     -       -       -  

Loss on impairments

    -       -       -       -       (129,436 )        

 

   

Years Ended December 31,

 
   

Mortgage Loans on Real Estate

   

Other Long-Term Investments

 
   

2024

   

2023

   

2024

   

2023

 

Proceeds

  $ 173,048,603     $ 132,634,814     $ 17,288,490     $ -  

Gross realized gains

    734,323       2,496       45,650       -  

Gross realized losses

    (34,442 )     -       -       -  

Loss on impairments

    -       -       -       -  

 

The accumulated change in net unrealized investment gains (losses) for fixed maturity available-for-sale securities for the years ended December 31, 2024 and 2023 and the amount of net realized investment gains (losses) on fixed maturity securities available-for-sale, equity securities, investment real estate, mortgage loans on real estate and other long-term investments for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Change in unrealized investment gains (losses):

               

Available-for-sale securities:

               

Fixed maturity securities

  $ (1,750,599 )   $ 5,632,801  

Fixed maturity securities held in trust under coinsurance agreement

    546,091       2,268,050  

Net realized investment gains (losses):

               

Available-for-sale securities:

               

Fixed maturity securities

    (99,183 )     (52,016 )

Fixed maturity securities credit losses

    (295,490 )     (139,285 )

Equity securities, sale of securities

    (4 )     -  

Equity securities, changes in fair value

    (97,284 )     8,653  

Investment real estate

    11,251       -  

Mortgage loans on real estate

    699,881       2,496  

Other long-term investments

    45,650       -  

 

62

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

Mortgage Loans on Real Estate

 

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

 

   

December 31, 2024

   

December 31, 2023

 
                 

Residential mortgage loans

  $ 195,050,397     $ 224,258,534  

Commercial mortgage loans by property type

               

Agricultural

    244,253       986,207  

Apartment

    4,634,586       3,108,829  

Industrial

    357,193       1,267,264  

Lodging

    -       24,727  

Office building

    4,120,057       5,652,487  

Retail

    4,958,018       4,533,399  

Total commercial mortgage loans by property type

    14,314,107       15,572,913  

Total mortgage loans

  $ 209,364,504     $ 239,831,447  
                 

Mortgage loans held in trust under coinsurance agreement

               

Commercial mortgage loans

  $ 12,660,117     $ 27,714,891  

Less unearned interest on mortgage loans

    -       133,010  

Total mortgage loans held in trust under coinsurance agreement

  $ 12,660,117     $ 27,581,881  

 

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 (includes agricultural, apartment, industrial, lodging, office building and retail) mortgage loans on real estate by credit quality using this ratio as of December 31, 2024 and 2023 are summarized as follows:

 

   

December 31,

 
   

Residential Mortgage Loans

   

Commercial Mortgage Loans

   

Total Mortgage Loans

 

Loan-To-Value Ratio

 

2024

   

2023

   

2024

   

2023

   

2024

   

2023

 

Over 70% to 80%

  $ 59,821,794     $ 75,718,654     $ 3,119,335     $ 2,099,950     $ 62,941,129     $ 77,818,604  

Over 60% to 70%

    55,743,022       65,525,308       2,178,948       2,958,186       57,921,970       68,483,494  

Over 50% to 60%

    36,901,362       38,548,660       2,754,800       1,809,817       39,656,162       40,358,477  

Over 40% to 50%

    23,308,719       22,283,148       3,020,985       2,394,557       26,329,704       24,677,705  

Over 30% to 40%

    10,242,789       10,056,308       1,094,274       3,817,212       11,337,063       13,873,520  

Over 20% to 30%

    4,944,666       7,929,094       1,232,344       463,856       6,177,010       8,392,950  

Over 10% to 20%

    3,052,985       3,178,001       420,896       1,714,394       3,473,881       4,892,395  

10% or less

    1,035,060       1,019,361       492,525       314,941       1,527,585       1,334,302  

Total

  $ 195,050,397     $ 224,258,534     $ 14,314,107     $ 15,572,913     $ 209,364,504     $ 239,831,447  

 

63

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

The outstanding principal balance of mortgage loans, by state, as of December 31, 2024 and 2023 are summarized as follows:

 

   

December 31, 2024

   

December 31, 2023

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 

Alabama

  $ 198,930       0.10 %   $ 516,657       0.22 %

Arizona

    1,738,410       0.83 %     2,564,148       1.07 %

Arkansas

    583,289       0.28 %     792,495       0.33 %

California

    27,618,504       13.19 %     15,612,618       6.51 %

Colorado

    1,085,111       0.52 %     1,420,410       0.59 %

Connecticut

    980,186       0.47 %     1,301,749       0.54 %

Delaware

    416,918       0.20 %     360,334       0.15 %

District of Columbia

    52,366       0.03 %     53,031       0.02 %

Florida

    56,399,835       26.92 %     88,891,627       37.07 %

Georgia

    6,969,271       3.33 %     6,302,274       2.63 %

Hawaii

    720,594       0.34 %     473,360       0.20 %

Idaho

    115,280       0.06 %     115,286       0.05 %

Illinois

    1,674,682       0.80 %     2,562,076       1.07 %

Indiana

    151,162       0.07 %     622,476       0.26 %

Kansas

    176,949       0.08 %     153,307       0.06 %

Kentucky

    182,733       0.09 %     192,485       0.08 %

Louisiana

    313,061       0.15 %     177,027       0.07 %

Maine

    116,181       0.06 %     118,911       0.05 %

Maryland

    1,343,155       0.64 %     1,357,240       0.57 %

Massachusetts

    1,913,534       0.91 %     1,858,981       0.78 %

Michigan

    555,564       0.27 %     591,204       0.25 %

Minnesota

    946,318       0.45 %     908,114       0.38 %

Mississippi

    52,819       0.03 %     54,560       0.02 %

Missouri

    1,953,587       0.93 %     4,233,592       1.77 %

Nevada

    1,124,018       0.54 %     696,957       0.29 %

New Jersey

    11,308,858       5.40 %     12,610,602       5.26 %

New Mexico

    172,157       0.08 %     79,122       0.03 %

New York

    27,423,733       13.10 %     28,845,873       12.03 %

North Carolina

    6,479,633       3.09 %     4,250,466       1.77 %

Ohio

    9,993,304       4.77 %     10,048,860       4.19 %

Oklahoma

    513,490       0.25 %     438,268       0.18 %

Oregon

    490,002       0.23 %     648,535       0.27 %

Pennsylvania

    2,155,957       1.03 %     1,904,171       0.79 %

Rhode Island

    750,266       0.36 %     232,866       0.10 %

South Carolina

    2,114,480       1.01 %     1,227,942       0.51 %

South Dakota

    162,000       0.08 %     -       0.00 %

Tennessee

    1,916,828       0.92 %     3,863,355       1.61 %

Texas

    34,797,777       16.62 %     40,130,295       16.73 %

Utah

    407,721       0.19 %     409,443       0.17 %

Vermont

    22,540       0.01 %     200,295       0.08 %

Virginia

    2,486,671       1.19 %     2,307,904       0.96 %

Washington

    1,616,854       0.77 %     1,320,541       0.55 %

Wisconsin

    160,167       0.08 %     499,987       0.21 %

West Virginia

    45,574       0.02 %     46,105       0.02 %

Mortgage loan allowance

    (1,035,965 )     -0.49 %     (1,164,102 )     -0.49 %
    $ 209,364,504       100.00 %   $ 239,831,447       100.00 %

 

64

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

During 2024, the Company foreclosed on residential mortgage loans of real estate totaling $1,441,287 and transferred those properties to investment real estate held for sale. 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.

 

The principal balances of the 1,858 residential mortgage loans owned by the Company as of December 31, 2024 that aggregated to $195,050,397 ranged from a low of $329 to a high of $2,399,053 and the interest rates ranged from 3.427% to 16.00%. The principal balances of the 37 commercial (includes agricultural, apartment, industrial, lodging, office building and retail) mortgage loans owned by the Company as of December 31, 2024 that aggregated to $14,314,107 ranged from a low of $10,682 to a high of $1,984,500 and the interest rates ranged from 6.29% to 16.01%.

 

The principal balances of the 1,870 residential mortgage loans owned by the Company as of December 31, 2023 that aggregated to $224,258,534 ranged from a low of $286 to a high of $1,650,000 and the interest rates ranged from 3.43% to 16.00%. The principal balances of the 37 commercial (includes agricultural, apartment, industrial, lodging, office building and retail) mortgage loans owned by the Company as of December 31, 2023 that aggregated to $15,572,913 ranged from a low of $14,478 to a high of $1,493,157 and the interest rates ranged from 5.50% to 10.51%.

 

There were 30 mortgage loans with a remaining principal balance of $8,120,666 that were more than 90 days past due as of December 31, 2024. There were 14 mortgage loans in default and in the foreclosure process with a remaining principal balance of $4,111,940 as of December 31, 2024.

 

There were 18 mortgage loans with a remaining principal balance of $6,043,282 that were more than 90 days past due as of December 31, 2023. There were six mortgage loans in default and in the foreclosure process with a remaining principal balance of $2,129,576 as of December 31, 2023.

 

There are allowances for losses on mortgage loans of $1,035,965 and $1,164,102 as of December 31, 2024 and 2023, respectively. As of December 31, 2024, $754,448 of independent mortgage loan balances are held in escrow by a third party for the benefit of the Company related to its investment in mortgage loans on real estate with one loan originator. As of December 31, 2023, $890,915 of independent mortgage loan balances are held in escrow by a third party for the benefit of the Company related to its investment in mortgage loans on real estate with one loan originator.

 

Investment real estate

 

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 $1,441,287 and transferred those properties to investment real estate held for sale.

 

During 2024, the Company sold investment real estate property with an aggregate carrying value of $265,705. The Company recorded a gross realized investment gain on sale of $11,251 based on an aggregate sales price of $276,956.

 

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.

 

65

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

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

 

   

December 31,

 
   

2024

   

2023

 

Land - held for investment

  $ 411,000     $ 540,436  

Residential real estate - held for sale

    1,940,549       764,967  

Total investment in real estate

  $ 2,351,549     $ 1,305,403  

 

Other Long-Term Investments

 

The Company’s investment in co-op loans was $760,833 as of December 31, 2024. A co-op ownership is represented by shares of stock in a corporation that owns the real estate. Co-op loans use the shares of stock and not the real estate to secure the debt.

 

The Company’s investment in lottery prize cash flows was $57,462,681 and $61,487,939 as of December 31, 2024 and 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.

 

The amortized cost and estimated fair value of lottery prize cash flows, by contractual maturity, as of December 31, 2024 are summarized as follows:

 

   

December 31, 2024

 
   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 13,582,946     $ 13,727,065  

Due in one year through five years

    28,887,987       30,563,019  

Due after five years through ten years

    9,991,780       11,512,044  

Due after ten years

    4,999,968       6,499,102  
    $ 57,462,681     $ 62,301,230  

 

66

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

2. Investments (continued)

 

The outstanding balance of lottery prize cash flows, by state lottery, as of December 31, 2024 and 2023 are summarized as follows:

 

   

December 31, 2024

   

December 31, 2023

 
   

Amount

   

Percentage

   

Amount

   

Percentage

 

Arizona

  $ 255,903       0.45 %   $ 301,299       0.49 %

California

    6,366,945       11.08 %     7,327,724       11.92 %

Connecticut

    2,600,183       4.52 %     2,285,266       3.72 %

Florida

    3,304,344       5.75 %     529,803       0.86 %

Georgia

    3,316,521       5.77 %     3,947,186       6.42 %

Illinois

    3,323,336       5.78 %     2,587,537       4.21 %

Indiana

    3,675,764       6.40 %     4,229,571       6.88 %

Massachusetts

    10,772,405       18.75 %     13,632,982       22.17 %

Michigan

    168,551       0.29 %     190,457       0.31 %

Missouri

    51,776       0.09 %     62,782       0.10 %

New Jersey

    35,894       0.06 %     68,823       0.11 %

New York

    16,430,600       28.59 %     19,004,811       30.90 %

Ohio

    4,177,016       7.27 %     3,755,995       6.11 %

Oregon

    15,253       0.03 %     29,272       0.05 %

Pennsylvania

    728,145       1.27 %     935,798       1.52 %

Texas

    1,421,319       2.47 %     1,774,744       2.89 %

Virginia

    -       0.00 %     17,774       0.03 %

Vermont

    571,856       1.00 %     550,235       0.89 %

Washington

    246,870       0.43 %     255,880       0.42 %
    $ 57,462,681       100.00 %   $ 61,487,939       100.00 %

 

Major categories of net investment income for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 
                 

Fixed maturity securities

  $ 8,534,951     $ 6,550,360  

Equity securities

    135,911       118,780  

Other long-term investments

    4,444,639       4,948,734  

Mortgage loans

    17,079,731       19,678,014  

Policy loans

    291,170       240,385  

Short-term and other investments

    2,531,767       2,600,099  

Gross investment income

    33,018,169       34,136,372  

Investment expenses

    (2,495,589 )     (2,481,051 )

Net investment income

  $ 30,522,580     $ 31,655,321  

 

67

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

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.

 

68

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

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 December 31, 2024 and 2023 is summarized as follows:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

December 31, 2024

 

Fixed maturity securities, available-for-sale

                               

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

  $ -     $ 4,275,965     $ -     $ 4,275,965  

States and political subdivisions

    -       7,693,233       -       7,693,233  

U.S. government agency mortgage backed securities

    -       40,235,381       -       40,235,381  

Commercial mortgage-backed securities

    -       18,499,398       -       18,499,398  

Residential mortgage-backed securities

    -       14,111       -       14,111  

Corporate bonds

    -       99,356,554       -       99,356,554  

Asset-backed securities

    -       14,898,584       -       14,898,584  

Exchange traded securities

    -       496,800       -       496,800  

Foreign bonds

    -       27,239,795       -       27,239,795  

Redeemable preferred securities

    -       1,036,000       -       1,036,000  

Total fixed maturity securities

  $ -     $ 213,745,821     $ -     $ 213,745,821  

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

  $ -     $ 17,932,297     $ -     $ 17,932,297  

Equity securities

                               

Mutual funds

  $ -     $ 48,375     $ -     $ 48,375  

Corporate common stock

    232,365       4,999,414       55,908       5,287,687  

Total equity securities

  $ 232,365     $ 5,047,789     $ 55,908     $ 5,336,062  

 

   

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  

 

69

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

3. Fair Value Measurements (continued)

 

As of December 31, 2024 and 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 securities 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 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 years ended December 31, 2024 and 2023 is summarized as follows:

 

   

December 31,

 
   

2024

   

2023

 
                 

Beginning balance

  $ 65,240     $ 53,996  

Joint venture net income

    106,039       130,550  

Joint venture distribution

    (115,371 )     (119,306 )

Net realized investment losses

    -       -  

Ending balance

  $ 55,908     $ 65,240  

 

70

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

3. Fair Value Measurements (continued)

 

Fair Value of Financial Instruments

 

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of December 31, 2024 and 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:

 

   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 
   

December 31, 2024

 

Financial assets

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 14,314,107     $ 14,724,122     $ -     $ -     $ 14,724,122  

Residential

    195,050,397       211,590,742       -       -       211,590,742  

Policy loans

    4,367,534       4,367,534       -       -       4,367,534  

Other long-term investments

    58,223,514       63,062,063       -       -       63,062,063  

Cash and cash equivalents

    64,344,122       64,344,122       64,344,122       -       -  

Accrued investment income

    5,746,167       5,746,167       -       -       5,746,167  

Total financial assets

  $ 342,045,841     $ 363,834,750     $ 64,344,122     $ -     $ 299,490,628  

Held in trust under coinsurance agreement

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 12,660,117     $ 12,660,117     $ -     $ -     $ 12,660,117  

Overdraft

    (89,726 )     (89,726 )     (89,726 )     -       -  

Total financial assets held in trust under coinsurance agreement

  $ 12,570,391     $ 12,570,391     $ (89,726 )   $ -     $ 12,660,117  

Financial liabilities

                                       

Policyholders' account balances

  $ 431,190,092     $ 365,288,900     $ -     $ -     $ 365,288,900  

Policy claims

    2,478,465       2,478,465       -       -       2,478,465  

Total financial liabilities

  $ 433,668,557     $ 367,767,365     $ -     $ -     $ 367,767,365  

 

   

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  

 

71

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

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 Securities 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.

 

 

4. Special Deposits

 

TLIC and FBLIC are required to hold assets on deposit for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of December 31, 2024 and 2023, these required deposits had amortized costs that totaled $6,740,988 and $4,609,927, respectively. As of December 31, 2024 and 2023, these required deposits had fair values that totaled $6,735,209 and $4,596,130, respectively.

 

72

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

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

 

As of December 31, 2024, $754,448 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, 2024, $738,411 of that escrow amount is available to the Company as additional collateral on $4,746,638 of advances to the loan originator. The remaining December 31, 2024 escrow amount of $16,037 is available to the Company as additional collateral on its investment of $3,207,399 in mortgage loans on real estate. In addition, the Company has an additional $1,035,965 allowance for possible loan losses in the remaining $206,157,105 of investments in mortgage loans on real estate as of December 31, 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 December 31, 2024, the Company’s Chairman, President and Chief Executive Officer has provided approximately $2,500,000 of loans to this mortgage loan originator and with Board of Directors approval, may provide an additional amount of $500,000 so not to exceed $3.0 million in the aggregate.

 

The balances of and changes in the Company’s credit losses related to residential and commercial (includes agricultural, apartment, industrial, lodging, office building and retail) mortgage loans on real estate as of and for the years ended December 31, 2024 and 2023 are summarized as follows (excluding $3,207,399 and $8,175,212 of mortgage loans on real estate as of December 31, 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):

 

   

Years Ended December 31,

 
   

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

    (121,884 )     55,495       (6,253 )     (11,841 )     (128,137 )     43,654  

Allowance, ending

  $ 964,035     $ 1,085,919     $ 71,930     $ 78,183     $ 1,035,965     $ 1,164,102  
                                                 

Allowance, ending:

                                               

Individually evaluated for impairment

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

Collectively evaluated for impairment

  $ 964,035     $ 1,085,919     $ 71,930     $ 78,183     $ 1,035,965     $ 1,164,102  
                                                 

Carrying Values:

                                               

Individually evaluated for reserve allowance

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

Collectively evaluated for reserve allowance

  $ 191,842,998     $ 216,097,800     $ 14,314,107     $ 15,558,435     $ 206,157,105     $ 231,656,235  

 

73

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

6. Deferred Policy Acquisition Costs

 

The balances of and changes in deferred acquisition costs as of and for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

2024

   

2023

 

Balance, beginning of year

  $ 60,795,108     $ 56,183,785  

Capitalization of commissions, sales and issue expenses

    16,620,462       13,476,834  

Amortization

    (10,775,374 )     (8,863,514 )

Deferred acquisition costs allocated to investments

    257       (1,997 )

Balance, end of year

  $ 66,640,453     $ 60,795,108  

  

 

7. Federal Income Taxes

 

FTFC filed 2023 and 2022 consolidated federal income tax returns that included TLIC, FBLIC, FTFC and TMC since all companies had been members of a consolidated group for over five years.

 

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.

 

A reconciliation of federal income tax expense computed by applying the federal income tax rate of 21% to income before federal income tax expense for the years ended December 31, 2024 and 2023, respectively, are summarized as follows:

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Expected tax expense

  $ 1,696,021     $ 2,113,114  

Future policy benefits

    (126,131 )     116,934  

Reinsurance recoverable (payable)

    (102,745 )     (158,863 )

Difference in unapplied cash receipts

    (99,571 )     7,466  

Adjustment of prior years' taxes

    (23,759 )     36,495  

Unearned investment income

    (10,413 )     (23,446 )

Premium amortization

    (10,381 )     (47,081 )

Difference in book versus tax basis of available-for-sale securities

    32,865       (3,341 )

Non taxable international losses

    47,007       44,775  

Capital gains taxes

    262,248       28,398  

Other

    (5,641 )     32,636  

Total income tax expense

  $ 1,659,500     $ 2,147,087  

 

74

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

7. Federal Income Taxes (continued)

 

Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2024 and 2023 are summarized as follows:

 

   

December 31,

 
   

2024

   

2023

 

Deferred tax liabilities:

               

Deferred policy acquisition costs

  $ 11,859,261     $ 10,880,652  

Value of insurance business acquired

    754,622       793,244  

Reinsurance recoverable

    241,766       260,169  

Due premiums

    105,280       104,257  

Other

    -       12  

Total deferred tax liabilities

    12,960,929       12,038,334  

Deferred tax assets:

               

Policyholders' account balances and future policy benefits

  $ 5,640,897     $ 5,027,661  

Net unrealized investment losses

    2,930,451       2,562,880  

Mortgage loans

    210,691       241,819  

Available-for-sale fixed maturity securities

    104,293       76,016  

Unearned investment income

    23,945       24,186  

Available-for-sale fixed equity securities

    17,695       (2,734 )

Other liabilities

    5,709       (104,516 )

Investment real estate

    3,756       (23,425 )

Dividend liability

    -       8,258  

Total deferred tax assets

    8,937,437       7,810,145  

Net deferred tax liabilities

  $ 4,023,492     $ 4,228,189  

 

FTFC, TLIC, FBLIC and TMC have no remaining net operating loss carryforwards as of December 31, 2024 and December 31, 2023. During 2023, FTFC utilized its remaining $748,067 net operating loss carryforwards existing as of January 1, 2023 to offset 2023 federal taxable income

 

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 2021 through 2024 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.

 

75

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

8. Reinsurance

 

Statutory reinsurance assumed and ceded amounts for TLIC and FBLIC for 2024 and 2023 are summarized as follows:

 

   

2024

   

2023

 

Premiums assumed

  $ 11,429,232     $ 9,272,154  

Commissions and expense allowances assumed

    4,655,697       3,652,842  

Benefits assumed

    365,345       229,729  

Reserve credits assumed

    19,607,266       14,087,640  

In force amount assumed

    330,534,332       249,019,338  
                 

Premiums ceded

    446,138       532,288  

Commissions and expense allowances ceded

    8,994       11,180  

Benefits ceded

    3,773,887       5,070,456  

Reserve credits ceded

    45,161,575       92,309,889  

In force amount ceded

    64,646,723       64,278,984  

 

TLIC participates in ceded and assumed reinsurance in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large risks. TLIC reinsures all amounts of risk on any one life in excess of $100,000 for individual life insurance with Investors Heritage Life Insurance Company, Optimum Re Insurance Company (“Optimum Re”), RGA Reinsurance Company and Wilton Reassurance Company (“Wilton Re”).

 

TLIC is a party to an Automatic Retrocession Pool Agreement (the “Reinsurance Pool”) with Optimum Re, Catholic Order of Foresters, American Home Life Insurance Company and Woodmen of the World. The agreement provides for automatic retrocession of coverage in excess of Optimum Re’s retention on business ceded to Optimum Re by the other parties to the Reinsurance Pool. TLIC’s maximum exposure on any one insured under the Reinsurance Pool is $100,000. As of January 1, 2008, the Reinsurance Pool stopped accepting new cessions.

 

Effective September 29, 2005, FLAC and Wilton Re executed a binding letter of intent whereby both parties agreed that FLAC would cede the simplified issue version of its Golden Eagle Whole Life (Final Expense) product to Wilton Re on a 50/50 quota share original term coinsurance basis. The letter of intent was executed on a retroactive basis to cover all applicable business issued by FLAC subsequent to January 1, 2005. Wilton Re agreed to provide various commission and expense allowances to FLAC in exchange for FLAC ceding 50% of the applicable premiums to Wilton Re as they were collected. As of June 24, 2006, Wilton Re terminated the reinsurance agreement for new business issued after the termination date.

 

FBLIC also participates in reinsurance in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large risks. FBLIC reinsures initial amounts of risk on any one life in excess of $100,000 for individual life insurance with Optimum Re. TLIC and FBLIC also reinsure the accidental death benefit portion of their life policies under a bulk agreement with Optimum Re.

 

To the extent that the reinsurance companies are unable to meet their obligations under the reinsurance agreements, TLIC and FBLIC remain primarily liable for the entire amount at risk.

 

Effective January 1, 2018, TLIC entered into an annuity coinsurance agreement with an offshore annuity and life insurance company whereby 90% of TLIC’s annuity considerations originated after December 31, 2017 were ceded to the assuming company. The assuming company contractually reimburses TLIC for the related commissions, withdrawals, settlements, interest credited, submission costs, maintenance costs, marketing costs, excise taxes and other costs plus a placement fee. Effective April 1, 2020, the Company and an offshore annuity and life insurance company mutually agreed that the Quota Share under its existing reinsurance agreement shall be 0% for future business instead of the original contractual amount of 90%.

 

76

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

 

8. Reinsurance (continued)

 

In accordance with this annuity coinsurance agreement, 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 2019, TLIC entered into a life insurance coinsurance agreement with TAI, effective October 1, 2018, whereby 100% of TAI’s life insurance policies and annuity contracts issued after September 30, 2018 were ceded to TLIC. TLIC contractually reimburses TAI for the related commissions, submission costs, maintenance costs, marketing costs and other costs related to the production of life insurance policies and annuity contracts. These transactions are eliminated in consolidation.

 

In 2022, FBLIC entered into group life insurance coinsurance agreement with Texas Republic Life Insurance Company (“TRLIC”), whereby generally 50% of TRLIC group life insurance policies and premiums were ceded to FBLIC. FBLIC contractually reimburses TRLIC for generally 50% of the related commissions, submission costs, maintenance costs, marketing costs and other costs related to the production of group life insurance policies.

 

With the acquisition of RCLIC in 2022, FBLIC reinsures individual life insurance and annuity contracts with Security National Life Insurance Company (”SNLIC”). In addition, an agreement was established with SNLIC in which all funds associated with the reinsurance agreement are held in a trust by SNLIC. There are no cash transfers between FBLIC and SNLIC associated with this agreement. Under the trust agreement, FBLIC would have access to the funds to satisfy policy obligations in the event SNLIC’s inability to meet policy obligations.

 

 

9. Leases

 

The Company leases 7,302 square feet of office space in Tulsa, Oklahoma. The lease began on October 1, 2015 and ended on September 30, 2020. The Company signed an amended lease agreement effective August 1, 2020 and ending on September 30, 2027. The amended lease agreement provides for the expansion of the existing premises from 6,769 square feet to 7,302 square feet. The Company incurred rent expense (including charges for the lessor’s building operating expenses above those specified in the lease agreement less monthly amortization of the leasehold improvement allowance received from the lessor) of $115,309 and $111,755 for the years ended December 31, 2024 and 2023, respectively.

 

In accordance with the current lease, the Company was provided an allowance of $54,152 for leasehold improvements. For the amended lease, the Company was provided allowance of $77,000 for leasehold improvements. The leasehold improvement allowance is amortized over the non-cancellable lease term and reduced rent expense by $11,000 for the years ended December 31, 2024 and 2023. The future minimum lease payments to be paid under the non-cancellable lease agreement are $123,130, $125,576 and $95,620 for the years 2025, 2026 and 2027, respectively.

 

77

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

10. Shareholders Equity and Statutory Accounting Practices

 

FBLIC and TLIC are domiciled in Oklahoma and prepares their statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the OID. Prescribed statutory accounting practices include publications of the National Association of Insurance Commissioners, state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing investments, deferred taxes, and certain assets on a different basis.

 

The statutory net losses for TLIC amounted to ($1,726,700) and ($249,030) for the years ended December 31, 2024 and 2023, respectively. The statutory capital and surplus of TLIC was $13,148,069 and $17,980,111 as of December 31, 2024 and 2023, respectively. The statutory net income (loss) for FBLIC amounted to ($2,596,050) and $1,027,432 for the years ended December 31, 2024 and 2023, respectively. The statutory capital and surplus of FBLIC was $10,677,658 and $13,735,110 as of December 31, 2024 and 2023, respectively.

 

TLIC and FBLIC are subject to Oklahoma laws that limit the amount of dividends insurance companies can pay to stockholders without approval of the Oklahoma Department of Insurance. 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 $7,079,124 as of December 31, 2024. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $1,067,766 in 2025 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.

 

78

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

11. 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 and for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Year Ended December 31,

 
   

2024

   

2023

 

Revenues:

               

Life insurance operations

  $ 49,727,760     $ 46,859,649  

Annuity operations

    24,102,511       24,531,347  

Corporate operations

    2,520,918       4,365,476  

Total

  $ 76,351,189     $ 75,756,472  

Income before income taxes:

               

Life insurance operations

  $ 5,897,565     $ 3,463,203  

Annuity operations

    945,053       3,453,174  

Corporate operations

    1,233,673       3,146,071  

Total

  $ 8,076,291     $ 10,062,448  

Amortization expense:

               

Life insurance operations

  $ 9,038,552     $ 7,705,997  

Annuity operations

    1,920,735       1,428,269  

Total

  $ 10,959,287     $ 9,134,266  

 

   

December 31,

 
   

2024

   

2023

 

Assets:

               

Life insurance operations

  $ 165,925,854     $ 164,653,497  

Annuity operations

    506,980,782       495,979,724  

Corporate operations

    13,542,262       11,388,314  

Total

  $ 686,448,898     $ 672,021,535  

  

79

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

 

11. Segment Data (continued)

 

The increases and decreases of revenues and profitability from our business segments for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Life Insurance

   

Annuity

   

Corporate

         
   

Operations

   

Operations

   

Operations

   

Total

 

Revenues

                               

Premiums

  $ 2,965,962     $ -     $ -     $ 2,965,962  

Net invesment income

    (337,189 )     (1,135,787 )     340,235       (1,132,741 )

Net realized investment gains less impairments

    80,881       234,656       -       315,537  

Service fees and other income

    158,457       472,295       (2,184,793 )     (1,554,041 )

Total revenue

    2,868,111       (428,836 )     (1,844,558 )     594,717  
                                 

Benefits and claims

                               

Increase in future policy benefits

    352,395       -       -       352,395  

Death benefits

    (1,122,310 )     -       -       (1,122,310 )

Surrenders

    297,682       -       -       297,682  

Interest credited to policyholders

    -       786,996       -       786,996  

Dividend, endowment and supplementary life contract benefits

    26,047       -       -       26,047  

Total benefits and claims

    (446,186 )     786,996       -       340,810  

Expenses

                               

Policy acquisition costs deferred net of amortization

    135,701       (1,367,469 )     -       (1,231,768 )

Amortization of value of insurance business acquired

    (43,420 )     (43,419 )     -       (86,839 )

Commissions

    794,093       2,432,624       -       3,226,717  

Other underwriting, insurance and acquisition expenses

    (6,439 )     270,553       67,840       331,954  

Total expenses

    879,935       1,292,289       67,840       2,240,064  

Total benefits, claims and expenses

    433,749       2,079,285       67,840       2,580,874  

Income (loss) before federal income tax expense (benefit)

  $ 2,434,362     $ (2,508,121 )   $ (1,912,398 )   $ (1,986,157 )

 

The Company conducts and manages its business through three reporting business segments. The two reporting segments representing the major lines of business, are: (1) Life Insurance Operations and (2) Annuity Operations. The third reporting business segment is Corporate Operations that represents the activities of the financial holding companies that own all consolidated subsidiaries and include excess assets that are invested primarily in mortgage loan activities. The Company allocates the impact of corporate-level transactions to all three reporting segments, consistent with the basis for management's evaluation of the results of those reporting segments.

 

The accounting policies of the reporting segments are the same as those described in Note 1 - Organization and Significant Accounting Policies. Business segment allocations are based on certain assumptions and estimates primarily related to asset and liability holdings and revenue and cost activity with methodologies applied consistently from year-to-year. Stated segment operating results would change if different methods were applied.

 

The Company’s Chief Executive Officer is the chief operating decision maker (CODM), responsible for reviewing financial performance and making decisions regarding the allocation of resources for the reporting segments. The Company measures and analyzes segment performance based on earnings focused on investment yield, mortality of life insurance operations, interest assumptions inherent in life insurance future policy benefits, policyholders’ balances interest crediting rates and relative ratios of commission to life insurance premiums and annuity deposits as presented in our consolidated statements of operations. FTFC believes that U.S. GAAP earnings before federal income taxes is an appropriate indicator of the profitability and underlying trends in our life insurance and annuity business. The CODM considers actual-to-budget variances in U.S. GAAP earnings on a quarterly basis when making decisions about allocating capital and personnel to segments and evaluating product pricing.

 

80

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

 

11. Segment Data (continued)

 

Disaggregated financial information for these segments, as regularly provided to the CODM, as of December 31, 2024 and 2023 is summarized as follows:

 

Year ended December 31, 2024:

 

Life Insurance

   

Annuity

   

Corporate

         
   

Operations

   

Operations

   

Operations

   

Total

 

Revenues

                               

Premiums

  $ 41,878,896     $ -     $ -     $ 41,878,896  

Net invesment income

    7,241,867       22,218,578       1,062,135       30,522,580  

Net realized investment gains less impairments

    34,380       101,005       -       135,385  

Service fees and other income

    572,617       1,782,928       1,458,783       3,814,328  

Total revenue

    49,727,760       24,102,511       2,520,918       76,351,189  
                                 

Benefits and claims

                               

Increase in future policy benefits

    14,565,010       -       -       14,565,010  

Death benefits

    13,176,508       -       -       13,176,508  

Surrenders

    2,471,376       -       -       2,471,376  

Interest credited to policyholders

    -       15,880,681       -       15,880,681  

Dividend, endowment and supplementary life contract benefits

    388,723       -       -       388,723  

Total benefits and claims

    30,601,617       15,880,681       -       46,482,298  

Expenses

                               

Policy acquisition costs deferred net of amortization

    (3,436,238 )     (2,408,850 )     -       (5,845,088 )

Amortization of value of insurance business acquired

    91,956       91,957       -       183,913  

Commissions

    11,392,911       4,637,570       -       16,030,481  

Other underwriting, insurance and acquisition expenses

    5,179,949       4,956,100       1,287,245       11,423,294  

Total expenses

    13,228,578       7,276,777       1,287,245       21,792,600  

Total benefits, claims and expenses

    43,830,195       23,157,458       1,287,245       68,274,898  

Income before federal income tax expense (benefit)

  $ 5,897,565     $ 945,053     $ 1,233,673     $ 8,076,291  

 

 

Year ended December 31, 2023:

 

Life Insurance

   

Annuity

   

Corporate

         
   

Operations

   

Operations

   

Operations

   

Total

 

Revenues

                               

Premiums

  $ 38,912,934     $ -     $ -     $ 38,912,934  

Net invesment income

    7,579,056       23,354,365       721,900       31,655,321  

Net realized investment gains less impairments

    (46,501 )     (133,651 )     -       (180,152 )

Service fees and other income

    414,160       1,310,633       3,643,576       5,368,369  

Total revenue

    46,859,649       24,531,347       4,365,476       75,756,472  
                                 

Benefits and claims

                               

Increase in future policy benefits

    14,212,615       -       -       14,212,615  

Death benefits

    14,298,818       -       -       14,298,818  

Surrenders

    2,173,694       -       -       2,173,694  

Interest credited to policyholders

    -       15,093,685       -       15,093,685  

Dividend, endowment and supplementary life contract benefits

    362,676       -       -       362,676  

Total benefits and claims

    31,047,803       15,093,685       -       46,141,488  

Expenses

                               

Policy acquisition costs deferred net of amortization

    (3,571,939 )     (1,041,381 )     -       (4,613,320 )

Amortization of value of insurance business acquired

    135,376       135,376       -       270,752  

Commissions

    10,598,818       2,204,946       -       12,803,764  

Other underwriting, insurance and acquisition expenses

    5,186,388       4,685,547       1,219,405       11,091,340  

Total expenses

    12,348,643       5,984,488       1,219,405       19,552,536  

Total benefits, claims and expenses

    43,396,446       21,078,173       1,219,405       65,694,024  

Income before federal income tax expense (benefit)

  $ 3,463,203     $ 3,453,174     $ 3,146,071     $ 10,062,448  

 

81

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

 

 

12. Concentrations of Credit Risk

 

Credit risk is limited by diversifying the Company’s investments. The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures accounts up to $250,000. Uninsured balances aggregate $50,995,135 as of December 31, 2024. Other funds are invested in mutual funds that invest in U.S. government securities. The Company monitors the solvency of all financial institutions in which it has funds to minimize the exposure for loss. The Company has not experienced any losses in such accounts.

 

The Company’s lottery prize receivables due from various states and the geographical distribution of the Company’s mortgage loans by state are summarized in Note 2.

 

 

13. 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 are 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.

 

82

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023

  

 

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

 

The changes in the components of the Company’s accumulated other comprehensive loss for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Unrealized

           

Accumulated

 
   

Depreciation on

   

Adjustment to

   

Other

 
   

Available-For-Sale

   

Deferred Acquisition

   

Comprehensive

 
   

Securities

   

Costs

   

Loss

 
   

Year Ended December 31, 2024

 
                         

Balance as of January 1, 2024

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

Other comprehensive loss before reclassifications, net of tax

    (1,461,329 )     203       (1,461,126 )

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

    (78,355 )     -       (78,355 )

Other comprehensive loss

    (1,382,974 )     203       (1,382,771 )

Balance as of December 31, 2024

  $ (11,026,740 )   $ 2,661     $ (11,024,079 )

 

   

Year Ended December 31, 2023

 
                         

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

    4,408,820       (1,578 )     4,407,242  

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

    (41,093 )     -       (41,093 )

Other comprehensive income

    4,449,913       (1,578 )     4,448,335  

Balance as of December 31, 2023

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

 

83

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2024 and 2023
 

14. 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 years ended December 31, 2024 and 2023 are summarized as follows:

 

           

Income Tax

         
           

Expense

         
   

Pretax

   

(Benefit)

   

Net of Tax

 
   

Year Ended December 31, 2024

 

Other comprehensive loss:

                       

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

                       

Unrealized holding losses arising during the period

  $ (1,849,782 )   $ (388,453 )   $ (1,461,329 )

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

    (99,183 )     (20,828 )     (78,355 )

Net unrealized losses on investments

    (1,750,599 )     (367,625 )     (1,382,974 )

Adjustment to deferred acquisition costs

    257       54       203  

Total other comprehensive loss

  $ (1,750,342 )   $ (367,571 )   $ (1,382,771 )

 

   

Year Ended December 31, 2023

 

Other comprehensive income:

                       

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

                       

Unrealized holding gains arising during the period

  $ 5,580,785     $ 1,171,965     $ 4,408,820  

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

    (52,016 )     (10,923 )     (41,093 )

Net unrealized gains on investments

    5,632,801       1,182,888       4,449,913  

Adjustment to deferred acquisition costs

    (1,997 )     (419 )     (1,578 )

Total other comprehensive income

  $ 5,630,804     $ 1,182,469     $ 4,448,335  

 

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 statements of operations for the years ended December 31, 2024 and 2023 are summarized as follows:

 

   

Years Ended December 31,

 

Reclassification Adjustments

 

2024

   

2023

 

Realized losses on sales of securities (a)

  $ (99,183 )   $ (52,016 )

Income tax benefit (b)

    (20,828 )     (10,923 )

Total reclassification adjustments

  $ (78,355 )   $ (41,093 )

 

(a)

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

 

(b)

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

 

84

  

 

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None

 

Item 9A. 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 Exchange Act of 1934 as amended (“Exchange Act”) as of the end of the fiscal period covered by this Annual Report on Form 10-K (“Annual Report”). 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.

 

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operating, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Managements Report on Internal Control over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. As of the end of the period covered by this Annual Report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Certifying Officers, of the effectiveness of the design and operation of the Company’s internal controls over financial reporting as defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act. The standard measures adopted by management in making its evaluation are the measures in the Internal-Control Integrated Framework (2013) published by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon such evaluation, management has determined that internal control over financial reporting was effective as of December 31, 2024.

 

This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

 

Limitations on the Effectiveness of Controls

 

The Company’s management, including the Certifying Officers, does not expect that the disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

 

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

 

85

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Changes to Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the fiscal year ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

Item 9B. Other Information

 

None

 

 

86

 

Part III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Directors

 

The following sets forth certain information regarding the current Class A Directors of First Trinity Financial Corporation (“FTFC”) including age, position with the Company, principal occupation and term of service. The Company Class A Directors serve until the next Annual Meeting of Shareholders or until their successors are duly elected and qualified.

 

     

Director

Name of Nominee

Age

Position/Principal Occupation

Since

Gregg E. Zahn (4)

63

Director; Chairman, President and Chief Executive Officer of First Trinity

2004

Charles W. Owens (3) (4)

70

Director; Insurance and Marketing Services

2004

George E. Peintner (2) (4)

71

Director; Marketing Company

2004

Francine M. Zahn (3) (4)

64

Sales Representative, Account Manager

2024

 

(1)

Member Audit Committee

(2)

Member Compensation Committee

(3)

Member Nominating and Corporate Governance Committee

(4)

Member Investment Committee

 

The following is a brief description of the business backgrounds of the Class A directors.

 

Gregg E. Zahn has been a member of the Board of Directors since inception in 2004. He is President, Chief Executive Officer and Chairman of the Board of Directors of First Trinity. He has been President and Chief Executive Officer since October 2007 and became Chairman in 2011. From 2004 until October 2007, he was First Trinity’s Director of Training and Recruiting. He is President, Chief Executive Officer, Chairman and Director of Trinity Life Insurance Company (“TLIC”) and Trinity Mortgage Corporation (“TMC”) and has served in those positions since October 2007. He was Executive Vice President of First Life America Corporation of Topeka, Kansas (acquired in 2008 and merged with TLIC in 2009) from December 2008 until August 2009. He became Chairman, Chief Executive Officer and Director of Family Benefit Life Insurance Company (“FBLIC”) in December 2011. He became Chairman of Texas Republic Capital Corporation (“TRCC”) in 2012. He also was Chairman of Royalty Capital Corporation (“RCC”) from its inception in 2013 through its dissolution in 2022 when RCC’s life insurance subsidiary, Royalty Capital Life Insurance Company (“RCLIC”), was sold to FTFC. Between 1997 and March 2004, Mr. Zahn served as Marketing Vice President of First Alliance Insurance Company of Lexington, Kentucky and as Assistant to the President of First Alliance Corporation and Mid-American Alliance Corporation. He was President of Alliance Insurance Management from 2001 to 2003.

 

Charles W. Owens has been a member of the Board of Directors since inception in 2004. He is a Director of TLIC, FBLIC and TMC. Mr. Owens has served as the President and Owner of Tinker Owens Insurance and Marketing Services since its inception in 1988.

 

George E. Peintner has been a member of the Board of Directors since inception in 2004. He is a Director of TLIC, FBLIC and TMC. Mr. Peintner is the Owner of Peintner Enterprises. Peintner Enterprises is a Marketing Company established in 1980.

 

Francine M. Zahn is currently a Sales Representative/Account Manager, PROAMPAC/TULSACK (March 2008-Present). Other positions include Executive Assistant, FTFC, Tulsa OK (May 2005-March 2008) and Agency Assistant for Independent Health Insurance Agent, ANTHEM BlueCross and BlueShield, Lexington KY (January 2003-April 2004). Her education includes Undergraduate Studies, Education, BA, Hammond, LA (August 1979-December 1983), Graduate Studies, Special Education, Lexington, KY (January 2004-April 2004) and Professional Career Development Institute, Medical Billing, Home Study, January 2005-May 2005.

 

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The following sets forth certain information regarding the current directors that were appointed by a vote of the Class B shareholders including age, position with the Company, principal occupation and term of service. The Company’s Class A Directors serve until the next Annual Meeting of Shareholders or until their successors are duly elected and qualified.

 

     

Director

Name of Nominee

Age

Position/Principal Occupation

Since

William S. Lay (3) (4)

85

Director; Former Vice President and Chief Investment Officer of FTFC

2007

Bill H. Hill (1) (2)

84

Director; Former President of Eastern Oklahoma State College

2004

Gary L. Sherrer (1) (3)

76

Director; Former Assistant Vice President, Division of Agricultural Sciences and Natural Resources for Oklahoma State University Foundation

2004

Will W. Klein (1) (2)

92

Director; Insurance Company Chief Executive Officer

2011

Gerald J. Kohout (1) (2)

84

Director; Former Officer and Director of Life and Health Insurance Companies

2015

 

(1)

Member Audit Committee

(2)

Member Compensation Committee

(3)

Member Nominating and Corporate Governance Committee

(4)

Member Investment Committee

 

The following is a brief description of the business backgrounds of the current directors that were appointed by a vote of the Class B shareholders.

 

Bill H. Hill has been a member of the Board of Directors since inception in 2004. He also serves as a Director of TLIC, FBLIC and TMC. He was President of Eastern Oklahoma State College, in Wilburton, OK from 1986-2000. He retired in 2000 and has been a rancher since that time.

 

Will W. Klein has been a member of the Board of Directors since 2011. He also serves as a Director of TLIC, FBLIC and TMC. He has been Chief Executive Officer of SkyMed International, Inc. since 1993. Mr. Klein was named to The Order of Canada in 1983, the country’s highest civilian honor.

 

Gerald J. Kohout has been a member of the FBLIC Board of Directors since 2013. He also has served as a Director of FTFC, TLIC and TMC since 2015 and TRCC since 2021. He is a retired officer and director of numerous life and health insurance companies spanning a period of several decades. Mr. Kohout has extensive experience in the administrative operations of life and health insurance companies with significant experience in business mergers, acquisitions, logistics and reorganizations.

 

William S. Lay has been a member of the Board of Directors since 2007. He was FTFC’s Vice President, Chief Investment Officer from March 2011 through is retirement in December 2022 and served as Chief Financial Officer from April of 2007 through June 2010 and Secretary and Treasurer from April 2007 through March 2011. He continues to serve as a Director of TLIC, FBLIC, TMC and TRCC. Mr. Lay was a director of RCC from its inception in 2013 through its dissolution in 2022 when RCC’s life insurance subsidiary, RCLIC, was sold to FTFC. Prior to his retirement, Mr. Lays was a financial officer and business consultant, specializing in corporate financial and consulting services for small-sized entrepreneurial companies. Prior to that, Mr. Lay was an officer and director of numerous life insurance companies and has experience in business acquisitions, mergers and reorganizations.

 

Gary L. Sherrer has been a member of the Board of Directors since inception in 2004 and in 2017 was appointed the Company’s Oklahoma Legislative Liaison. He is a Director of TLIC, FBLIC and TMC. He retired from Oklahoma State University where he was serving as Assistant Vice President for External Affairs for the Division of Agricultural Sciences and Natural Resources.

 

Mr. Sherrer previously was Assistant Chief Executive Officer of KAMO Power, Oklahoma’s first Secretary of Agriculture, Oklahoma’s Commissioner of Agriculture, Oklahoma’s second and sixth Secretary of Environment and Director of Oklahoma’s Water Resources Board. He also served for four terms in the Oklahoma House of Representatives and in the United States Army as a combat medic in Vietnam.

 

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Director Compensation

 

Effective January 1, 2020, Directors who are not employees of the Company receive a $9,500 annual retainer, paid monthly, $5,500 plus expenses for each Board of Directors meeting attended in person, telephonically or electronically and $500 for any committee meeting they attend not held in conjunction with a Board of Directors’ meeting. Committee Chairman receive an additional $9,500 annual retainer paid monthly. In addition, effective January 1, 2020, Directors who are not employees, would have the following increases in directors compensation: for each $100,000,000 in asset growth of the Company beyond $600,000,000, there will be an annual retainer increase of $1,000, a meeting attendance in person increase of $500 and an increase in the annual retainer of committee chairmen of $1,000.

 

The Director Compensation Table for 2024 is set forth below.

 

DIRECTOR COMPENSATION TABLE

 

Name

 

Fees Earned

or Paid in

Cash ($)

   

Stock

Awards

($)

   

Option

Awards

($)

   

Non-Equity Incentive Plan Compensation

($)

   

Change in

Pension value

and

Nonqualified Deferred Compensation Earnings

($)

   

All Other Compensation

( $)

   

Total

($)

 

Bill H. Hill

    37,000       -       -       -       -       -       37,000  

Will W. Klein

    46,500       -       -       -       -       -       46,500  

Gerald J. Kohout

    37,000       -       -       -       -       -       37,000  

William S. Lay

    32,500       -       -       -       -       -       32,500  

Charles W. Owens

    41,500       -       -       -       -       -       41,500  

George E. Peintner

    43,000       -       -       -       -       -       43,000  

Gary L. Sherrer

    45,500       -       -       -       -       -       45,500  

Francine M. Zahn

    22,438       -       -       -       -       -       22,438  

 

Executive Officers

 

The following sets forts information regarding the current executive officers of FTFC including age, current and prior positions with the Company and terms of service. The Company’s Executive Officers serve a term of one year as elected by the Board of Directors or until their successors are duly elected and qualified.

 

     

Employee

Name of Officer

Age

Position/Principal Occupation

Since

Gregg E. Zahn (1)

63

Chairman, President and Chief Executive Officer

2004

Jeffrey J. Wood (2)

71

Chief Financial Officer, Secretary and Treasurer

2010

 

(1)

Mr. Zahn was elected President and Chief Executive Officer in October 2007 and Chairman in May 2011 and previously served as Director of Training and Recruiting from 2004 through October 2007.

(2)

Mr. Wood was elected Chief Financial Officer in June 2010 and Secretary and Treasurer in March 2011.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act (“Section 16(a)”) requires the Company’s executive officers and directors, and certain persons who own more than 10% of a registered class of the Company’s equity securities (“10% Stockholders”), to file reports of ownership on Form 3 and changes in ownership on Forms 4 or 5 with the SEC. Such executive officers, directors and 10% Stockholders are also required by SEC rules to furnish the Company with copies of all Section 16(a) forms they file.

 

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Based solely on its review of the copies of such reports furnished to the Company and written representations that no other reports were required to be filed during 2024, the Company believes that its executive officers, directors and 10% Stockholders have complied with all Section 16(a) filing requirements applicable to them.

 

Corporate Governance

 

The Company has a Code of Conduct and Ethics (“Code”) applicable to all directors and employees, including our Chairman of the Board, Chief Executive Officer and other senior executives, to help ensure that our business is conducted in accordance with high standards of ethical behavior. The Code is published on our website at www.firsttrinityfinancial.com under “Corporate Governance” and may be obtained free of charge by contacting our corporate offices at (918) 249-2438 or requesting a copy in writing to 7633 East 63rd Place, Suite 230, Tulsa, Oklahoma 74113-1246. The Company will post amendments to or waivers from the Code of Business Conduct and Ethics (to the extent applicable to the Company’s principal executive officer, principal financial officer or principal accounting officer or controller) on its website.

 

The Company’s Board of Directors, Executive Officers, Officers and Management annually complete and verify biographical affidavits, questionnaires and conflict and interest forms to document compliance with the Code.

 

The Company has four major committees to ensure that First Trinity Financial Corporation’s activities, decisions and transactions are subject to review and scrutiny.

 

Audit Committee

 

The Audit Committee of the Board of Directors is currently composed of four directors: Will W. Klein (chairman), Bill H. Hill, Gerald J. Kohout and Gary L. Sherrer, each of whom is determined to be an independent director as the term is defined by the NASDAQ listing standards. The Board of Directors has also determined that Mr. Klein qualifies as an "audit committee financial expert," as defined in applicable SEC rules.

 

The Audit Committee was established by the Board of Directors in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934 to oversee the Company's financial reporting process, the system of internal financial controls and audits of its financial statements. The Audit Committee (1) provides oversight of the Company’s accounting and financial reporting processes and the audit of the Company’s financial statements, (2) assists the Board of Directors in oversight of the integrity of the Company’s financial statements, the Company’s compliance with legal and regulatory requirements, the independent public accounting firm’s qualifications, independence and performance, and the Company’s internal accounting and financial controls and (3) provides to the Board of Directors such information and materials as it may deem necessary to make the Board of Directors aware of significant financial matters that require the attention of the Board of Directors. The Audit Committee acts pursuant to a written charter adopted by the Board of Directors, which is available in the “Corporate Governance” section of the Company’s website at www.firsttrinityfinancial.com.

 

Compensation Committee

 

The Compensation Committee is currently composed of four directors: George E. Peintner (chairman), Bill H. Hill, Gerald J. Kohout and Will W. Klein, each of whom is determined to be an independent director as the term is defined by the NASDAQ listing standards. The Compensation Committee reviews and approves the compensation and benefits for the Company’s executive officers and performs such other duties as may from time to time be determined by the Board of Directors. The Compensation committee acts pursuant to a written Charter adopted by the Board of Directors, which is available in the “Corporate Governance” section of the Company’s website at www.firsttrinityfinancial.com.

 

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Nominating and Corporate Governance Committee

 

The Board of Directors has a Nominating and Corporate Governance Committee. This committee meets on call and submits recommendations to the Board of Directors for the number of members to be included in the Company’s Board of Directors, the individuals to be submitted to the shareholders for election for the Company’s Board of Directors and coordinates the corporate governance activities of the Company. The Nominating and Corporate Governance Committee currently consists of four independent directors Charles W. Owens (Chairman), William S. Lay, Gary L. Sherrer and Francine M. Zahn. The Nominating and Corporate Governance committee acts pursuant to a written Charter adopted by the Board of Directors, which is available in the “Corporate Governance” section of the Company’s website at www.firsttrinityfinancial.com.

 

Investment Committee

 

The Investment Committee of the Board of Directors is currently composed of five directors: Gregg E. Zahn (chairman), William S. Lay, Charles W. Owens, George E. Peintner and Francine M. Zahn. The Investment Committee (1) reviews and approves investment transactions on at least a quarterly basis, (2) establishes the Company’s investment policy, (3) provides specific guidelines for the allocation of the Company’s available funds for investments and other purposes and (4) monitors those guidelines to ensure that available funds are properly allocated into investment categories consistent with the Company’s investment policies.

 

ITEM 11. EXECUTIVE COMPENSATION

 

Executive Compensation

 

The Compensation Committee assists the Board of Directors in overseeing the management of the Company’s compensation and benefits program, chief executive officer performance and executive development and succession efforts. In addition, the Compensation Committee oversees the evaluation of management and compensation of the officers of the Company.

 

The primary objective of our compensation program is to offer executive officers competitive compensation packages that will permit the Company to attract and retain individuals with superior abilities and to motivate and reward these individuals in an appropriate manner in the long-term interest of the Company and its shareholders. Management provides recommendations to the Compensation Committee regarding most compensation matters, including executive compensation; however, the Compensation Committee does not delegate any of its functions to others in setting compensation. The Company does not currently engage any consultant related to executive compensation.

 

The Company’s compensation program for executive officers consists of base salary, consideration for annual bonuses, 401(k) plan and life, health and dental insurance coverage. These elements are intended to provide an overall compensation package that is commensurate with the Company’s financial resources, that is appropriate to assure the retention of experienced management personnel and that aligns their financial interest with those of our shareholders.

 

Base Salary: Salary levels recommended by the Compensation Committee are intended to be competitive with salary levels of similarly situated companies, commensurate with the executive officers' respective duties and responsibilities, and reflect the financial performance of the Company. Annual salary increases are considered based on the same criteria.

 

Cash Bonuses: Bonus amounts are based on individual performance and are intended to reward superior performance. The Compensation Committee may also consider additional considerations that it deems appropriate. Bonuses are discretionary and there is no formal bonus plan in place except for Gregg E. Zahn’s asset and net profit bonuses discussed below.

 

The following Summary Compensation Table sets forth the compensation of the executive officers’ that exceeded $100,000.

 

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Summary Compensation Table

 

                     

All Other

         
     

Salary

   

Bonus

   

Compensation

   

Total

 

Name and Principal Position

Year

 

($)

   

($)

   

($) (3)

   

($)

 
                                   

Gregg E. Zahn (1)

2024

    603,961       395,768       24,000       1,023,729  

President and Chief Executive Officer

2023

    569,775       309,235       24,000       903,010  
                                   

Jeffrey J. Wood (2)

2024

    323,027       35,000       -       358,027  

Chief Financial Officer, Secretary and Treasurer

2023

    313,617       25,000       -       338,617  

 

 

(1)

Mr. Zahn was elected President and Chief Executive Officer on October 4, 2007.

 

(2)

Mr. Wood was elected Chief Financial Officer in June 2010 and Secretary and Treasurer in March 2011.

 

(3)

Represents annual auto allowance of $24,000 in 2024 and 2023.

 

Employment Agreements

 

Gregg E. Zahn entered into an employment agreement with FTFC on June 7, 2010, with amendments on December 8, 2011, October 8, 2012 and April 9, 2013, September 5, 2017 and May 23, 2022.  The employment agreement and amendments were reported by the Company in its Reports on Form 8-K filed on June 11, 2010, December 13, 2011, October 10, 2012, April 11, 2013, September 8, 2017 and May 25, 2022, respectively. The employment agreement dated June 7, 2010, contained the terms and conditions of the agreement.

 

The most recent amended agreement is continuous with automatic monthly extensions on the first day of each month, provides health, dental and vision benefits for a three year-period following the date of separation, grosses up federal and state taxes for separation payments up to three years of salary following the date of separation and is subject to earlier termination based on disability, death or termination by the Company, with or without cause.

 

Under the May 23, 2022, amendment:

In the event the Company undergoes a Change in Control, and so long as Employee is employed with the Company immediately before the Change in Control, Employee will receive a payment (the “Change in Control Payment”), subject to applicable withholdings and deductions, equal to the greater of (a) 2.99 times the average of Employee’s W-2 compensation (as reported in box 1) for the three completed years that immediately precede the Change in Control; and (b) three million nine hundred fifty thousand dollars ($3,950,000). The Change in Control Payment will be paid to Employee no later than sixty (60) days after the effective date of the Change in Control.

 

Under the September 5, 2017, amendment:

 

 

Mr. Zahn's annual salary of $300,000 increased annually on January 1st of each year by 6% (retroactive to January 1, 2013) during 2013 and in subsequent years as follows: 2013 - $318,000; 2014 - $337,080; 2015 - $357,304; 2016 - $378,743; 2017 - $401,467, 2018 - $425,556, 2019 - $451,089, 2020 - $478,154, 2021 - $506,843, 2022 - $537,254 and 2023 - $569,775.

 

 

Mr. Zahn will receive an asset growth bonus (with assets measured using the U.S. GAAP basis of accounting) as follows: $200,000 bonus when the Company’s assets reach $200,000,000; $250,000 bonus when the Company’s assets reach $250,000,000; $300,000 bonus when the Company’s assets reach $300,000,000; $350,000 bonus when the Company’s assets reach $350,000,000; $400,000 bonus when the Company’s assets reach $400,000,000; $450,000 bonus when the Company’s assets reach $450,000,000 and $500,000 bonus when the Company’s assets reach $500,000,000. More than one asset growth bonus can be reached in any given year. Mr. Zahn’s asset growth bonus is being revisited since the Company’s assets exceed $500,000,000 but Mr. Zahn was granted a $600,000 bonus at the discretion of the Board of Directors in 2020 when the Company’s assets exceeded $600,000,000.

 

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Mr. Zahn will receive a net profit bonus of 5% of the net income (with operating results measured using the U.S. GAAP basis of accounting) of the Company each year after completion of the annual audit and the filing of the Company’s Form 10-K. The net profit bonus will be capped at 200% of Mr. Zahn’s base salary for the year the net profit bonus was calculated. The initial net profit bonus was calculated for the year ended December 31, 2012.

 

Mr. Zahn also received a monthly auto allowance of $1,100 through March 31, 2020 that was increased to a monthly auto allowance of $1,500 effective April 1, 2020 and $2,000 effective April, 1, 2021.  He is entitled to participate in the Company’s employee benefit plans available to other executives.  Amounts payable, as of December 31, 2024, in the event of Mr. Zahn’s termination of employment by the Company not for cause or for good reason (including salaries, bonus, auto allowance, benefits and tax rate adjustment for 2.99 years) is $3,950,000.

 

Jeffrey J. Wood entered into an employment agreement dated December 8, 2011 with the Company, effective and retroactive to August 1, 2011.  The agreement was for a term through December 31, 2013 with automatic one-year extensions each year on December 31 and is subject to earlier termination based on disability, death, termination by the Company, with or without cause.  Mr. Wood’s base salary of $200,000 effective August 1, 2011 was increased to $225,000 per year pursuant to an amendment to his employment agreement as of April 9, 2013, and effective as of January 1, 2013. The amendment was reported in the Company's Report on Form 8-K filed on April 11, 2013.

 

Mr. Wood’s base salary of $225,000 retroactively effective January 1, 2013 was increased to $240,000 per year pursuant to an amendment to his employment agreement as of December 23, 2015, and effective as of January 1, 2015. The amendment was reported in the Company's Report on Form 8-K filed on December 28, 2015.

 

Mr. Wood’s base salary of $240,000 retroactively effective to January 1, 2015 was increased to $255,000 per year pursuant to an amendment to his employment agreement as of February 26, 2016, and effective as of January 1, 2016. This annual salary of $255,000 will increase annually beginning January 1, 2017 by 3%. The amendment was reported in the Company's Report on Form 8-K filed on February 29, 2016.

 

A further amended agreement dated March 18, 2019 and reported in the Company’s Form 8-K filed on March 20, 2019 requires a continuous employment agreement with automatic monthly extensions on the first day of each month.

 

The most recent amended agreement dated August 15, 2024 and reported in the Company’s Form 8-K filed on August 20, 2014 provides a 6% annual salary increase beginning January 1, 2025 2.50% times the average of Mr. Wood’sW-2 compensation for the two completed years immediately preceding any date of separation and is subject to earlier termination based on disability, death, termination by the Company, with or without cause. He is entitled to participate in the Company’s employee benefit plans available to other executives.  He is eligible for a bonus at the discretion of the Compensation Committee and the Board of Directors, based on performance.  Amounts payable, as of December 31, 2024, in the event of Mr. Wood’s termination of employment by the Company, not for cause or for good reason (including salary and bonus) is $870,808.

 

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First Trinity Financial Corporation pay versus performance table is summarized as follows:

 

Year

 

Summary Compensation

Table Total for Principal

Executive Officer ("PEO")

($)

   

Compensation

Actually Paid

to PEO

($)

   

Average Summary

Compensation Table Total

for Named Executive Officers

("NEOs") Excluding PEO

($)

   

Average Compensation

Actually Paid to

NEOs Excluding PEO

($)

 

Value of Initial Fixed $100

Investment Based On

Total Shareholder Return

($) (1)

 

Net Income

($)

 
                                           

2024

    1,023,729       1,023,729       358,027       358,027         6,416,791  

2023

    903,010       903,010       338,617       338,617         7,915,361  

2022

    774,623       774,623       329,484       329,484         6,184,703  

 

(1) First Trinity Financial Corporation is a small reporting company and is not required to provide this information. Gregg E. Zahn is the Company's PEO and Jeffrey J. Wood is the Company's NEO, Non-PEO. Mr. Zahn's contractual base compensation increases each year by six percent.  Mr. Zahn also receives a contractual profitability bonus of five percent of annual audited U.S. GAAP net income. Mr. Wood's contractual base compensation increased by three percent in 2022, 2023 and 2024.  Mr. Wood is also eligible for a discretionary bonus based on performance.

 

2024 Compensation Disclosure Ratio of the Median Annual Total Compensation of All Company Employees to the Annual Total Compensation of the Companys Chief Executive Officer

 

The 2024 compensation disclosure ratio of the median annual total compensation of all Company employees to the annual total compensation of the Company’s chief executive officer is as follows:

 

   

2024

 
   

Total Compensation

 

Category

 

and Ratio

 

Median annual total compensation of all employees (excluding Gregg E. Zahn)

  $ 80,000  

Annual total compensation of Gregg E. Zahn, Chief Executive Officer

  $ 1,023,729  

Ratio of the median annual total compensation of all employees to the annual total compensation of Gregg Zahn, Chief Executive Officer

    7.81 %

 

COMPENSATION DISCUSSION AND ANALYSIS (CD&A)

 

The following Compensation Discussion and Analysis ("CD&A") describes the material elements of compensation for executive officers identified in the Summary Compensation Table.

 

Compensation Philosophy

 

The Compensation Committee, composed of four independent directors, is responsible for implementing our compensation philosophy for directors, executive officers and employees. Our goal is to ensure we employ qualified, experienced executive officers whose financial interests are aligned with that of our shareholders. Because we do believe a systematic pattern exists between executive compensation and performance, our compensation philosophy is structured to "motivate" managerial behaviors through a combination of base and incentive compensation.

 

Another of our objectives is to acquire and retain people of integrity who take pride in delivering positive results. The final objective, due to our philosophy to outsource many functions and retain a low number of full-time and part-time employees, requires us to have executive officers that are able to perform and have an intimate knowledge of a combination of executive, actuarial, accounting, operating and other understandings inherent in supervising and growing a successful life insurance company.

 

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Overview of Compensation Program

 

Our compensation consists of salary, bonuses, allowances and benefit plans generally administered equally for all qualified Company employees. The Compensation Committee establishes a salary for each senior executive based on long-term corporate objectives, competitive industry practices and each executive officer's contributions. The Compensation Committee seeks to ensure executive compensation is reasonable, fair and competitive. In order to make this determination, after the end of each calendar year and when financial results for the year are finalized and affirmed by the issuance of an unqualified opinion by the Company’s independent registered public accounting firm, the Compensation Committee generally evaluates the Company's performance and then conducts a similar exercise with respect to a group of comparable companies.

 

"Say-on-Pay" and "Say-When-on-Pay"

 

We believe our compensation philosophy and structure is fair for our executive officers. Shareholders will not find complex compensation formulas to evaluate and approve. However, to retain our limited number of corporate executives, we generally allow a minimum of two- and one-half years to a maximum of 2.99 years of compensation in the event of termination of employment by the Company not for cause or for good reason.

 

Our straightforward and simplified approach to executive compensation insulates our shareholders from the types of corporate excesses which led to the enactment of "Say-on-Pay" and "Say-When-on Pay." We believe our compensation solution favorably serves our shareholders on matters of executive pay.

 

Compensation Performance Analysis

 

Our executive management team is led by Gregg E. Zahn and Jeffrey J. Wood who are full-time employees. The Compensation Committee conducted a review of the performance of Gregg E. Zahn and Jeffrey J. Wood for the year 2024. This review included an evaluation of the progress made towards the attainment of our corporate objectives and the role these individuals played in meeting those objectives. The review also included a broad-based comparison of salaries with senior executives of other publicly traded life insurance companies.

 

Due to being a smaller public reporting company and that our Class A common stock is not publicly traded, it is difficult to find public life insurance companies that are comparable to us. With our life insurance business achieving investment opportunities with positive yields and pursuing acquisition and growth opportunities, the Company reported increased assets of $14,427,363 from $672,021,535 as of December 31, 2023 to $686,448,898 as of December 31, 2024 and increased shareholders’ equity of $5,034,020 from $64,016,208 as of December 31, 2023 to $69,050,228 as of December 31, 2024. The Company also achieved increased revenues of $594,717 from $75,756,472 in 2023 to $76,351,189 in 2024 and decreased net income of $1,498,570 from $7,915,361 in 2023 to $6,416,791 in 2024.

 

The Company's performance in 2024 reflected the business philosophy and leadership primarily of Gregg E. Zahn supported by Jeffrey J. Wood. Considering these factors, the Compensation Committee was encouraged by executive management's demonstrated leadership. The Compensation Committee considers Gregg E. Zahn and

Jeffrey J. Wood to be valuable executive officers in implementing our corporate objectives.

 

Gregg E. Zahn continues to lead the Company in accordance with the ideals and philosophies of acquisition of companies, organic growth of the life insurance and annuity business and pursuit of secure, attractive yielding investment returns coupled with the ultimate goal of either establishing a publicly traded stock or inclusion by an already established company with attractive liquidity settlements for FTFC’s shareholders.

 

Jeffrey J. Wood reports to Gregg E. Zahn and leads the daily financial and related operations of the Company in accordance with those same ideals and philosophies.

 

In 2024, Gregg E. Zahn and Jeffrey J. Wood met the subjective expectations of our Board of Directors and shareholders.

 

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The Compensation Committee remains cautious about its responsibility to shareholders in setting executive compensation and has asked executive management to focus on continued asset growth and profitability. Gregg E. Zahn received a 6.00% increase in base salary to $603,961 in 2024, received a $395,768 bonus in 2024 representing 5.00% of FTFC’s U.S. GAAP net income of $7,915,361 and also received an automobile allowance of $24,000. Jeffrey J. Wood received a 3.00% increase in base salary to $323,027 in 2024 and received a bonus of $35,000 in 2024. Mr. Wood’s base salary will increase by 6% in 2025 in accordance with his amended employment contract.

 

Compensation Studies

 

To assist in evaluating the compensation for 2024 and establishing compensation for future years, the Compensation Committee utilized independent sources in a formal study to identify the total compensation within the life insurance industry of individuals with the position title chief financial officer. This independent study was not done for the position title chief executive officer but the Compensation Committee will utilize the chief financial officer independent study as a guideline in evaluating the compensation within the life insurance industry of its two executive officers. We believe an independent study is a point of reference for measurement, but not the determinative factor for the compensation of our two executives' officers. Because a formal study of chief financial officer compensation in the life insurance industry by independent sources is one of several analytic tools used in setting executive compensation, the Compensation Committee has discretion in determining the manner and extent of its use.

 

The specific formal study of total compensation for the position title of chief financial officer within the life insurance industry was performed by an independent source in the investment banking industry in the spring of 2024 and included twenty-three (23) life insurance companies’ information for 2021, 2022 and 2023.

 

Data obtained on each comparable chief financial officer compensation within the life insurance industry included base salaries, bonuses, other incentives, deferred compensation, non-cash compensations, stock incentive plans, change-in-control amounts and any other fees paid to the chief financial officer within the life insurance industry.

 

Comparative Compensation Analysis

 

The overall results of the above independent study of the chief financial officer position within twenty-three (23) life insurance companies within the life insurance industry provided additional information for the Compensation Committee to consider. As noted above, the Compensation Committee reviewed a number of factors within this independent study; however, with the focus on total compensation (base salaries, bonuses and all other compensation).

 

Based on the Compensation Committee's analysis, the recommended 2024 base salary compensation for Gregg E. Zahn, our President and Chief Executive Officer, and Jeffrey J. Wood, our Chief Financial Officer, Secretary and Treasurer, was determined to be low by the Compensation Committee, especially with the many roles that they perform for our Company. These amounts are below the lowest of the total compensation for the chief financial officer position compared to the companies in the independent survey. This also shows that the total compensation for the chief executive officer is probably low compared to other companies in the life insurance industry.

 

The reason for this low compensation for its two executive officers within the life insurance industry is that the Compensation Committee and the Board of Directors have motivated these two executive officers with employment contracts that result in change-in-control payments to produce a liquidation event or nationally exchanged traded security for the Company shareholders at per share amounts in excess of the Company’s shareholder’s investment in its Class A and Class B common stock.. In addition, the Company’s Compensation Committee and Board of Directors realize that its Class A common stock is subject to the regulations of the United States Securities and Exchange Commission but has not been publicly traded on a national exchange during the Company’s history.

 

In analyzing all these factors, the Compensation Committee concluded that it has two talented executive officers that are working diligently to continue the Company’s growth and profitability, continue protecting the Company’s and shareholders’ valuable investments and are seeking a liquidation event or exchange traded national security for the Company whereby the shareholders will be rewarded and the executive officers compensated.

 

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The Compensation Committee believes that through the use of current and appropriate base salaries, bonuses and other incentives including a change-in-control employment contract feature focused on creating a positive liquidity event or nationally exchanged traded security for the Company, these compensation shortages can be managed most efficiently and effectively using Company asset growth and profitability, protection of shareholders and the desire for shareholders to receive a return on their investments as measurement and motivation standards for the many roles that these executive officers fulfill for the Company.

 

Board Process and Conclusion

 

The Board of Directors discussed the Compensation Committee's recommended 2024 compensation and adopted the recommendations as proposed. The Compensation Committee of the Company has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement, which the Board of Directors approved.

 

COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS

 

George E. Peintner, Chairman

Bill H. Hill

Will W. Klein

Gerald J. Kohout

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The following table sets forth the beneficial ownership of the Company’s Class A and Class B common stock as of March 10, 2025 (i) by all persons known to the Company, based on statements filed by such persons pursuant to Section 13(d) or 13(g) of the exchange act, to be the beneficial owners of more than 5% of FTFC’s common stock, (ii) by the executive officers named in the Summary Compensation Table under “Executive Compensation”, (iii) by each director, and (iv) by all current directors and executive officers as a group.

 

   

Class A

   

Percentage

 
   

Common Stock

   

Beneficially

 

Name

 

Beneficially Owned (1)

   

Owned (1)

 

Gregg E. Zahn

    636,366       6.78%  

Francine M. Zahn

    284,741       3.03%  

Gary L. Sherrer

    57,042       *  

George E. Peintner

    53,191       *  

Charles W. Owens (2)

    52,957       *  

Bill H. Hill

    36,989       *  

William S. Lay

    30,027       *  

Will W. Klein

    13,021       *  

Jeffrey J. Wood

    5,189       *  

Gerald J. Kohout

    3,121       *  

All directors and executive officers as a group (10 persons)

    1,172,644       12.50%  

 

*

represents less than 1%

 

(1)

As of March 6, 2023, there were 9,384,340 Class A shares issued and outstanding and entitled to vote.

(2)

Includes 4,626 shares jointly owned by Mr. Owens and his children.

 

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Class A

   

Percentage

 
   

Common Stock

   

Beneficially

 

Name

 

Beneficially Owned (1)

   

Owned (1)

 

Gregg E. Zahn

    100,000       98.91 %

Francine M. Zahn

    -       -  

Gary L. Sherrer

    -       -  

George E. Peintner

    -       -  

Charles W. Owens (2)

    -       -  

Bill H. Hill

    -       -  

William S. Lay

    -       -  

Will W. Klein

    -       -  

Jeffrey J. Wood

    -       -  

Gerald J. Kohout

    -       -  

All directors and executive officers as a group (10 persons)

    100,000       98.91 %

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Procedures for Reviewing Certain Transactions

 

We have adopted a written policy for the review, approval or ratification of related party transactions. All of our officers, Directors and employees are subject to the policy. Under this policy, the Audit Committee will review all related party transactions for potential conflict of interest situations. Generally, our policy defines a “related party transaction” as a transaction in which we are a participant and in which a related party has an interest. A “related party” is:

 

 

any of our Directors, Officers or employees or a nominee to become a Director;

 

an owner of more than 5% of our outstanding common stock;

 

certain family members of any of the above persons; and

 

any entity in which any of the above persons is employed or is a partner or principal or in which such person has a 5% or greater ownership interest.

 

Approval Procedures

 

Before entering into a related party transaction, the related party or our department responsible for the potential transaction must notify the Audit Committee of the facts and circumstances of the proposed transaction.  If the amount involved is equal to or less than $100,000, generally the proposed transaction will be exempt from this approval policy. If the amount involved exceeds $100,000, in general the proposed transaction will be submitted to the Audit Committee.  Matters to be submitted will include:

 

 

the related party’s relationship to us and interest in the transaction; 

 

the material terms of the proposed transaction;

 

the benefits to us of the proposed transaction;

 

the availability of other sources of comparable properties or services; and

 

whether the proposed transaction is on terms comparable to terms available to an unrelated third party or to employees generally.

 

The Audit Committee will then consider all of the relevant facts and circumstances available, including the matters described above and, if applicable, the impact on a Director’s independence.  No member of the Audit Committee is permitted to participate in any review, consideration or approval of any related party transaction if such person or any of his or her immediate family members is the related party. After review, the Audit Committee, as applicable, may approve, modify or disapprove the proposed transaction. Only those related party transactions that are in, or are not inconsistent with, our best interests and that of our shareholders will be approved.

 

98

 

Ratification Procedures

 

If one of our officers or Directors becomes aware of a related party transaction that has not been previously approved or ratified by the Audit Committee, if the transaction is pending or ongoing, the transaction must be submitted, based on the amount involved, to the Audit Committee to consider the matters described above. Based on the conclusions reached, the Audit Committee will evaluate all options, including ratification, amendment or termination of the related party transaction. If the transaction is completed, the Audit Committee will (i) evaluate the transaction, taking into account the same factors as described above, to determine if rescission of the transaction or any disciplinary action is appropriate; and (ii) will request that we evaluate our controls and procedures to determine the reason the transaction was not submitted to the Audit Committee for prior approval, and whether any changes to the procedures are recommended.

 

We did not have any related party transactions in 2024 with our officers or Directors.

 

Director Independence

 

Although our common stock is not traded on a stock exchange or quotation system, we maintain a Board with a majority of independent directors. The Board has determined that each of the following eight members of the Board are “independent” within the meaning of applicable listing standards of the Nasdaq Stock Market and as set forth in our Corporate Governance Policy: Bill H. Hill, Will W. Klein, Gerald J. Kohout, William S. Lay, Charles W. Owens, George E. Peinter, Gary L. Sherrer and Francine M. Zahn. The Board has made an affirmative determination that each of Directors named above satisfies these categorical standards. In making its determination, the Board examined relationships between Directors or their affiliates with us and our affiliates and determined that each such relationship, if any, did not impair the Director’s independence. A copy of our governance policy is available at our website, https://firsttrinityfinancial.com/company-charters-corporate-governance. 

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

The Audit Committee has reviewed and discussed the audited financial statements for the year ended December 31, 2024 with the Company’s management. The Company’s management has primary responsibility for the Company’s financial reporting process and internal controls as well as preparation of the Company’s consolidated financial statements. The independent registered public accounting firm is responsible for performing an audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) to obtain reasonable assurance that the Company’s consolidated financial statements are free from material misstatement and expressing an opinion on the conformity of such financial statements with accounting principles generally accepted in the United States. The Audit Committee is responsible for overseeing and monitoring the independent registered accounting firm’s audit process on behalf of the Board of Directors.

 

The Audit Committee has discussed with KEB, the Company’s independent registered public accounting firm for the year ended December 31, 2024, the matters required to be discussed by PCAOB Auditing Standard No. 1301, “Communications with Audit Committees” as amended and adopted by PCAOB. PCAOB Auditing Standard No. 1301 requires an auditor to discuss with the Audit Committee, among other things, the auditor’s judgments about the quality, not just the acceptability, of the accounting principles applied in the Company’s financial reporting. The Audit Committee has also received the written disclosures and the letter from KEB required by PCAOB Rule 3526, “Communication with Audit Committees Concerning Independence,” and has discussed with KEB its independence from FTFC.

 

Based on the review and discussions referred to above, the Audit Committee recommended to FTFC’s Board of Directors and the Company’s Board of Directors approved the recommendation that the audited financial statements were properly included in FTFC’s Annual Report on Form 10-K for the year ended December 31, 2024, for filing with the Securities and Exchange Commission.

 

99

 

AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

 

Will W. Klein, Chairman         

Bill H. Hill

Gerald J. Kohout

Gary L. Sherrer

 

Principal Accounting Fees and Service

 

The following table shows the fees paid or accrued by the Company for the audit and other services provided by its independent registered public accounting firm, Kerber, Eck & Braeckel LLP.

 

   

Years Ended December 31,

 
   

2024

   

2023

 

Audit Fees (including expenses)

  $ 173,000     $ 161,737  

Audit Related Fees

    52,755       47,700  

Tax Fees

    12,750       12,000  

All Other Fees

    668       1,290  

Total

  $ 239,173     $ 222,727  

 

Audit fees primarily represent fees for financial services provided in connection with the audit of the Company’s consolidated financial statements, statutory financial statements of TLIC and FBLIC and Securities and Exchange Commission Form 10-K. Audit related services primarily represent fees for financial services in connection with the review of the Company’s quarterly reports and Securities and Exchange Commission Form 10-Q. The tax fees are related to the filing of the Company’s annual tax return with the Internal Revenue Service.

 

Item 15. Exhibits

 

The exhibits are listed in the Exhibit Index, which is incorporated herein by reference.

 

Item 16. Form 10-K Summary

 

None

 

100

 

EXHIBIT INDEX

 

Exhibit

Number 

 

Description of Exhibit

     
3.1   Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed March 30, 2020.
     
3.2   Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 6, 2021.
     
10.1   Amended and Restated Employment Agreement of Gregg E. Zahn, president, dated May 23, 2022, incorporated by reference as Exhibit 10.8 of the Company’s Current Report on Form 8-K filed May 25, 2022.
     
10.2   Amended and Restated Employment Agreement of Jeffrey J. Wood, dated August 15, 2024, incorporated by reference as Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 20, 2024.
     
10.3   2019 Long-Term Incentive Plan, incorporated by reference as Exhibit 10.15 of the Company’s Current Report on Form 8-K filed March 13, 2020.
     
21.1*   Subsidiaries of First Trinity Financial Corporation.
     
24.1*   Powers of Attorney (included in the signature pages hereto and incorporated herein by reference).
     
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.

 

 * Filed herewith

 

101

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

FIRST TRINITY FINANCIAL CORPORATION 

 

 

 

 

 

 

 

 

 

Date: March 13, 2025 

By

/s/ Gregg E. Zahn

 

 

 

Gregg E. Zahn 

 

 

 

President, Chief Executive Officer and Director 

 

 

 

In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

FIRST TRINITY FINANCIAL CORPORATION 

 

 

 

 

 

 

 

 

 

Date: March 13, 2025 

By

/s/ Jeffrey J. Wood

 

 

 

Jeffrey J. Wood 

 

 

 

Chief Financial Officer 

 

 

 

SIGNATURES

 

In accordance with the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

By /s/ Gregg E. Zahn   Date: March 13, 2025
  Gregg E. Zahn    
  Chairman of the Board, President, Chief Executive Officer and Director  
       
By /s/ William S. Lay   Date: March 13, 2025
  William S. Lay, Director    
       
By /s/ Bill H. Hill   Date: March 13, 2025
  Bill H. Hill, Director    
       
By /s/ Will W. Klein   Date: March 13, 2025
  Will W. Klein, Director    
       
By /s/ Gerald J. Kohout   Date: March 13, 2025
  Gerald J. Kohout, Director    
       
By /s/ Charles W. Owens   Date: March 13, 2025
  Charles W. Owens, Director    
       
By /s/ George E. Peintner   Date: March 13, 2025
  George E. Peintner, Director    
       
By /s/ Gary L. Sherrer   Date: March 13, 2025
  Gary L. Sherrer, Director    
       
By /s/ Francine M. Zahn   Date: March 13, 2025
  Francine M Zahn, Director    

 

102