Company Quick10K Filing
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First Trinity Financial
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-10-02 Shareholder Vote
8-K 2019-08-15 Code of Ethics
8-K 2019-04-26 Other Events
8-K 2019-03-18 Enter Agreement, Officers, Exhibits, Exhibits
8-K 2018-12-07 Enter Agreement, Officers, Exhibits, Exhibits
8-K 2018-05-16 Shareholder Vote
CPTP Capital Properties 96
MATR Mattersight 88
GDSI Global Digital Solutions 6
EVTN Enviro Technologies 2
GRTD Gratitude Health 1
AVNI Arvana 0
C765 Global Macro Trust 0
BHAT Blue Hat Interactive 0
AVU Vectren Utility Holdings 0
AGP Atlas Growth Partners 0
FTFC 2019-06-30
Part I - Financial Information
Item 1. Consolidated Financial Statements
Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 ex_153757.htm
EX-31.2 ex_153758.htm
EX-32.1 ex_153759.htm
EX-32.2 ex_153760.htm

First Trinity Financial Earnings 2019-06-30

FTFC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 ftfc20190630_10q.htm FORM 10-Q ftfc20190630_10q.htm
 

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

[ X ]

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

   
  For the quarterly period ended June 30, 2019

 

[    ]

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

   
  For the transition period From                                 to                                   .

 

Commission file number: 000-52613

 

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

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

                             

7633 East 63rd Place, Suite 230

Tulsa, Oklahoma 74133-1246

(Address of principal executive offices)

 

(918) 249-2438

(Registrant's telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer:  ☐ 

Accelerated filer:  ☐

Non-accelerated filer:  ☐

Smaller reporting company:  ☑

Emerging growth company:  ☐

 

   

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).

Yes ☐       No ☑

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: Common stock .01 par value as of August 5, 2019: 7,802,593 shares

 

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

 

 

 
 

 

FIRST TRINITY FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2019

 

TABLE OF CONTENTS

 

PART I.  FINANCIAL INFORMATION

Page Number

   

Item 1. Consolidated Financial Statements

 
   

Consolidated Statements of Financial Position as of June 30, 2019 (Unaudited) and December 31, 2018

3

   

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

4

   

Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

5

   

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2019 and 2018 (Unaudited)

6

   

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (Unaudited)

7

   

Notes to Consolidated Financial Statements (Unaudited)

9

   

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

34

   

Item 4.  Controls and Procedures

63

   

Part II.  OTHER INFORMATION

 
   

Item 1.  Legal Proceedings

63

   

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

64

   

Item 3.  Defaults upon Senior Securities

64

   

Item 4.  Mine Safety Disclosures

64

   

Item 5.  Other Information

64

   

Item 6.  Exhibits

64

   

Signatures

66

 

Exhibit No. 31.1                                                       

Exhibit No. 31.2                                                       

Exhibit No. 32.1                                                       

Exhibit No. 32.2

Exhibit No. 101.INS

Exhibit No. 101.SCH

Exhibit No. 101.CAL

Exhibit No. 101.DEF

Exhibit No. 101.LAB

Exhibit No. 101.PRE

 

2

 
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

   

(Unaudited)

         
   

June 30, 2019

   

December 31, 2018

 

Assets

               

Investments

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $180,701,752 and $134,414,517 as of June 30, 2019 and December 31, 2018, respectively)

  $ 189,041,946     $ 131,152,199  

Available-for-sale preferred stock at fair value (cost: $99,945 as of June 30, 2019 and December 31, 2018)

    100,480       90,580  

Equity securities at fair value (cost: $184,084 and $187,122 as of June 30, 2019 and December 31, 2018, respectively)

    201,404       198,668  

Mortgage loans on real estate

    155,823,142       130,049,610  

Investment real estate

    2,123,721       2,392,031  

Policy loans

    1,890,350       1,809,339  

Short-term investments

    1,814,777       896,371  

Other long-term investments

    64,744,938       59,255,477  

Total investments

    415,740,758       325,844,275  

Cash and cash equivalents

    27,546,376       29,665,605  

Accrued investment income

    5,091,843       2,672,978  

Recoverable from reinsurers

    1,221,773       2,323,157  

Assets held in trust under coinsurance agreement

    92,977,748       25,494,700  

Agents' balances and due premiums

    1,687,723       1,418,916  

Deferred policy acquisition costs

    35,089,278       29,681,737  

Value of insurance business acquired

    5,030,879       5,185,870  

Other assets

    10,057,057       11,219,612  

Total assets

  $ 594,443,435     $ 433,506,850  

Liabilities and Shareholders' Equity

               

Policy liabilities

               

Policyholders' account balances

  $ 368,644,462     $ 297,168,411  

Future policy benefits

    60,399,713       56,261,507  

Policy claims

    1,202,838       1,102,257  

Other policy liabilities

    75,671       72,559  

Total policy liabilities

    430,322,684       354,604,734  

Funds withheld under coinsurance agreement

    99,863,520       29,285,119  

Deferred federal income taxes

    4,820,102       2,373,478  

Other liabilities

    8,600,557       8,118,268  

Total liabilities

    543,606,863       394,381,599  

Shareholders' equity

               

Common stock, par value $.01 per share (20,000,000 shares authorized, 8,050,173 issued as of June 30, 2019 and December 31, 2018 and 7,802,593 outstanding as of June 30, 2019 and December 31, 2018)

    80,502       80,502  

Additional paid-in capital

    28,684,598       28,684,598  

Treasury stock, at cost (247,580 shares as of June 30, 2019 and December 31, 2018)

    (893,947 )     (893,947 )

Accumulated other comprehensive income (loss)

    6,578,928       (2,576,631 )

Accumulated earnings

    16,386,491       13,830,729  

Total shareholders' equity

    50,836,572       39,125,251  

Total liabilities and shareholders' equity

  $ 594,443,435     $ 433,506,850  

 

See notes to consolidated financial statements (unaudited).

 

3

 
 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 
   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Revenues

                               

Premiums

  $ 5,546,081     $ 4,572,872     $ 11,076,887     $ 9,059,607  

Net investment income

    6,283,043       5,038,141       11,856,499       9,722,383  

Net realized investment gains (losses)

    (67,632 )     49,256       (13,912 )     24,472  

Service fees

    593,144       230,161       1,020,878       233,561  

Other income

    23,755       28,345       62,739       46,172  

Total revenues

    12,378,391       9,918,775       24,003,091       19,086,195  

Benefits, Claims and Expenses

                               

Benefits and claims

                               

Increase in future policy benefits

    2,029,177       1,526,060       4,180,777       2,965,651  

Death benefits

    1,474,125       1,525,130       3,106,905       3,087,186  

Surrenders

    246,074       235,172       596,481       462,841  

Interest credited to policyholders

    3,011,733       2,304,102       5,562,405       4,611,433  

Dividend, endowment and supplementary life contract benefits

    75,121       65,010       143,790       132,695  

Total benefits and claims

    6,836,230       5,655,474       13,590,358       11,259,806  

Policy acquisition costs deferred

    (3,657,057 )     (2,180,425 )     (7,272,517 )     (4,488,458 )

Amortization of deferred policy acquisition costs

    1,077,534       1,172,075       1,841,880       1,995,623  

Amortization of value of insurance business acquired

    73,544       81,878       154,991       171,489  

Commissions

    3,723,265       1,926,536       7,295,837       4,029,658  

Other underwriting, insurance and acquisition expenses

    2,857,284       1,488,635       5,122,859       3,132,028  

Total expenses

    4,074,570       2,488,699       7,143,050       4,840,340  

Total benefits, claims and expenses

    10,910,800       8,144,173       20,733,408       16,100,146  

Income before total federal income tax expense

    1,467,591       1,774,602       3,269,683       2,986,049  

Current federal income tax expense

    398,052       -       701,054       -  

Deferred federal income tax expense (benefit)

    (64,027 )     375,225       12,867       646,291  

Total federal income tax expense

    334,025       375,225       713,921       646,291  

Net income

  $ 1,133,566     $ 1,399,377     $ 2,555,762     $ 2,339,758  

Net income per common share basic and diluted

  $ 0.15     $ 0.18     $ 0.33     $ 0.30  

 

See notes to consolidated financial statements (unaudited).

 

4

 
 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 
   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net income

  $ 1,133,566     $ 1,399,377     $ 2,555,762     $ 2,339,758  

Other comprehensive income (loss)

                               

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

    6,494,324       (2,433,022 )     11,621,574       (6,813,812 )

Cumulative effect, adoption of accounting guidance for equity securities

    -       -       -       (68,508 )

Less net realized investment gains (losses) having no credit losses

    (30,913 )     40,647       9,162       39,477  

Net unrealized investment gains (losses)

    6,525,237       (2,473,669 )     11,612,412       (6,921,797 )

Less adjustment to deferred acquisition costs

    10,599       (42,316 )     23,096       (118,006 )

Other comprehensive income (loss) before federal income tax expense

    6,514,638       (2,431,353 )     11,589,316       (6,803,791 )

Federal income tax expense (benefit)

    1,368,073       (510,583 )     2,433,757       (1,428,795 )

Total other comprehensive income (loss)

    5,146,565       (1,920,770 )     9,155,559       (5,374,996 )

Total comprehensive income (loss)

  $ 6,280,131     $ (521,393 )   $ 11,711,321     $ (3,035,238 )

 

See notes to consolidated financial statements (unaudited).

  

5

 
 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Three and Six Months Ended June 30, 2019 and 2018

(Unaudited)

 
                           

Accumulated

                 
   

Common

   

Additional

           

Other

           

Total

 
   

Stock

   

Paid-in

   

Treasury

   

Comprehensive

   

Accumulated

   

Shareholders'

 
   

$.01 Par Value

   

Capital

   

Stock

   

Income (Loss)

   

Earnings

   

Equity

 

Three months ended June 30, 2018

                                               

Balance as of April 1, 2018

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 1,306,725     $ 9,628,964     $ 38,806,842  

Comprehensive loss:

                                               

Net income

    -       -       -       -       1,399,377       1,399,377  

Other comprehensive loss

    -       -       -       (1,920,770 )     -       (1,920,770 )

Balance as of June 30, 2018

  $ 80,502     $ 28,684,598     $ (893,947 )   $ (614,045 )   $ 11,028,341     $ 38,285,449  
                                                 

Six months ended June 30, 2018

                                               

Balance as of January 1, 2018

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 4,760,951     $ 8,620,075     $ 41,252,179  

Comprehensive loss:

                                               

Net income

    -       -       -       -       2,339,758       2,339,758  

Cumulative effect, adoption of accounting guidance for equity securities

    -       -       -       -       68,508       68,508  

Other comprehensive loss

    -       -       -       (5,374,996 )     -       (5,374,996 )

Balance as of June 30, 2018

  $ 80,502     $ 28,684,598     $ (893,947 )   $ (614,045 )   $ 11,028,341     $ 38,285,449  
                                                 

Three months ended June 30, 2019

                                               

Balance as of April 1, 2019

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 1,432,363     $ 15,252,925     $ 44,556,441  

Comprehensive income:

                                               

Net income

    -       -       -       -       1,133,566       1,133,566  

Other comprehensive income

    -       -       -       5,146,565       -       5,146,565  

Balance as of June 30, 2019

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 6,578,928     $ 16,386,491     $ 50,836,572  
                                                 

Six months ended June 30, 2019

                                               

Balance as of January 1, 2019

  $ 80,502     $ 28,684,598     $ (893,947 )   $ (2,576,631 )   $ 13,830,729     $ 39,125,251  

Comprehensive income:

                                               

Net income

    -       -       -       -       2,555,762       2,555,762  

Other comprehensive income

    -       -       -       9,155,559       -       9,155,559  

Balance as of June 30, 2019

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 6,578,928     $ 16,386,491     $ 50,836,572  

 

See notes to consolidated financial statements (unaudited).

 

6

 
 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 
   

Six Months Ended June 30,

 
   

2019

   

2018

 

Operating activities

               

Net income

  $ 2,555,762     $ 2,339,758  

Adjustments to reconcile net income to net cash used in operating activities:

               

Provision for depreciation

    72,744       72,744  

Accretion of discount on investments

    (2,255,182 )     (1,877,352 )

Net realized investment gains (losses)

    13,912       (24,472 )

Amortization of policy acquisition cost

    1,841,880       1,995,623  

Policy acquisition cost deferred

    (7,272,517 )     (4,488,458 )

Amortization of loan origination fees

    14,975       20,955  

Amortization of value of insurance business acquired

    154,991       171,489  

Allowance for mortgage loan losses

    85,935       67,481  

Provision for deferred federal income tax expense

    12,867       646,291  

Interest credited to policyholders

    5,562,405       4,611,433  

Change in assets and liabilities:

               

Policy loans

    (81,011 )     (23,569 )

Short-term investments

    (918,406 )     (137,929 )

Accrued investment income

    (2,418,865 )     (162,738 )

Recoverable from reinsurers

    1,101,384       (318,998 )

Assets held in trust under coinsurance agreement

    (67,483,048 )     (7,464,922 )

Agents' balances and due premiums

    (268,807 )     (14,985 )

Other assets (excludes change in receivable for securities sold of $33,600 and $674,416 in 2019 and 2018, respectively)

    1,128,955       62,629  

Future policy benefits

    4,138,206       2,938,075  

Policy claims

    100,581       38,561  

Other policy liabilities

    3,112       (2,045 )

Other liabilities (excludes change in payable for securities purchased of ($391,171) and ($99,611) in 2019 and 2018, respectively)

    873,460       (66,640 )

Net cash used in operating activities

    (63,036,667 )     (1,617,069 )
                 

Investing activities

               

Purchases of fixed maturity securities

    (64,687,943 )     (10,665,969 )

Maturities of fixed maturity securities

    3,450,000       4,500,000  

Sales of fixed maturity securities

    14,677,913       3,988,932  

Purchases of equity securities

    (57,746 )     (25,876 )

Sales of equity securities

    19,370       15,412  

Joint venture distribution

    53,786       -  

Purchases of mortgage loans

    (44,710,559 )     (34,435,782 )

Payments on mortgage loans

    18,955,492       16,655,627  

Purchases of other long-term investments

    (8,750,363 )     (5,877,273 )

Payments on other long-term investments

    5,579,448       4,769,093  

Sale of real estate

    253,564       54,853  

Net change in receivable and payable for securities sold and purchased

    (357,571 )     (574,805 )

Net cash used in investing activities

    (75,574,609 )     (21,595,788 )
                 

Financing activities

               

Policyholders' account deposits

    153,716,133       21,557,499  

Policyholders' account withdrawals

    (17,224,086 )     (13,254,810 )

Net cash provided by financing activities

    136,492,047       8,302,689  
                 

Decrease in cash and cash equivalents

    (2,119,229 )     (14,910,168 )

Cash and cash equivalents, beginning of period

    29,665,605       31,496,159  

Cash and cash equivalents, end of period

  $ 27,546,376     $ 16,585,991  

 

See notes to consolidated financial statements (unaudited).

 

7

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

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

(Unaudited)

 

 

 

During 2019 and 2018 the Company foreclosed on residential mortgage loans of real estate totaling $99,218 and $378,411, respectively and transferred those properties to investment real estate that are now held for sale.

 

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

 

   

Six Months Ended June 30,

 
   

2019

   

2018

 

Reductions in mortgage loans due to foreclosure

  $ 99,218     $ 378,411  

Investment real estate held-for-sale acquired through foreclosure

    (99,218 )     (378,411 )

Net cash provided (used) in investing activities

  $ -     $ -  

 

See notes to consolidated financial statements (unaudited).

 

8

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited) 

 

 

1. Organization and Significant Accounting Policies

 

Nature of Operations

 

First Trinity Financial Corporation (the “Company” or “FTFC”) is the parent holding company of Trinity Life Insurance Company (“TLIC”), Family Benefit Life Insurance Company (“FBLIC”) and First Trinity Capital Corporation (“FTCC”). 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 Illinois, Kansas, Kentucky, Montana, Nebraska, North Dakota, Ohio, Oklahoma and Texas. 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 FTCC that was incorporated in 2006, and began operations in January 2007. FTCC provided financing for casualty insurance premiums for individuals and companies and was licensed to conduct premium financing business in the states of Alabama, Arkansas, Louisiana, Mississippi and Oklahoma. FTCC has made no premium financing loans since June 30, 2012.

 

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.

 

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 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.

 

9

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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.

 

Basis of Presentation

 

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

 

The results of operations for the six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ended December 31, 2019 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to consolidated financial statements prepared in accordance with U.S. GAAP, but which is not required for interim reporting purposes, has been condensed or omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 2018.

 

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

 

Use of Estimates

 

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

 

Common Stock

 

Common stock is fully paid, non-assessable and has a par value of $.01 per share.

 

Treasury Stock

 

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.

 

10

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Subsequent Events

 

Management has evaluated all events subsequent to June 30, 2019 through the date that these financial statements have been issued.

 

Recent Accounting Pronouncements

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance (Accounting Standards Update 2018-11) to require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months. The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease). Both lease classifications require the lessee to record the right-of-use asset and the lease liability based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.

 

In July 2018, the FASB amended the updated guidance on leases that was issued in February 2016 (Accounting Standards Update 2018-11) and provided an additional transition method with which to adopt the updated guidance. Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. Consequently, if this transition method is elected, an entity’s reporting for the comparative periods prior to adoption presented in the financial statements would continue to be in accordance with current lease guidance. The amendments also provide lessors with a practical expedient to combine non-lease components (e.g., a fee for common area maintenance when leasing office space) with the associated lease component rather than accounting for those components separately if certain criteria are met. The updated guidance requires entities to recognize a right-of-use asset and lease liability equal to the present value of lease payments for all leases other than those that are less than one year. The updated guidance, as amended, is effective for reporting periods beginning after December 15, 2018.

 

In December 2018, the FASB issued additional guidance (Accounting Standards Update 2018-20) that permits an accounting policy election for lessors to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. A lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration of the contract all collections from lessees of certain sales taxes and other similar taxes and to provide certain disclosures.

 

The Company adopted this guidance in first quarter 2019. The adoption of this guidance in 2019 did not have a material effect on the Company’s results of operations, financial position or liquidity.

 

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 applies 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 requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider 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, will be 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.

 

11

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring 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 updated guidance is effective for reporting periods beginning after December 15, 2019. Early adoption is permitted for reporting periods beginning after December 15, 2018. Based on the financial instruments currently held by the Company, there would not be a material effect on the Company’s results of operations, financial position or liquidity if the new guidance were able to be adopted in the current accounting period. The impact on the Company’s results of operations, financial position or liquidity at the date of adoption of the updated guidance will be determined by the financial instruments held by the Company and the economic conditions at that time.

 

Intangibles - Goodwill and Other

 

In January 2017, the FASB issued updated guidance (Accounting Standards Update 2017-04) that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge by comparing a reporting unit’s fair value with its carrying amount and recognizing an impairment charge for the excess of the carrying amount over estimated fair value (i.e., Step 1 of current guidance). The implied fair value of goodwill is currently determined in Step 2 by deducting the fair value of all assets and liabilities of the reporting unit (determined in the same manner as a business combination) from the reporting unit’s fair value as determined in Step 1 (including any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1). The updated guidance requires an entity to perform its annual, or interim, impairment test by either: (1) an initial qualitative assessment of factors (such as changes in management, key personnel, strategy, key technology or customers) that may impact a reporting unit’s fair value and lead to the determination that it is more likely than not that the reporting unit’s fair value is less than its carrying value, including goodwill (consistent with current guidance), or (2) applying Step 1.

 

The updated guidance is effective for reporting periods beginning after December 15, 2019 and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

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 is effective for reporting periods beginning after December 15, 2020. Early adoption is permitted. 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 2021 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

 

12

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

 

In August 2018, the FASB issued amendments (Accounting Standards Update 2018-13) to modify the disclosure requirements related to fair value measurements including the consideration of costs and benefits of producing the modified disclosures. The updated guidance is effective for reporting periods beginning after December 15, 2019. Early adoption is permitted and an entity is permitted to early adopt any removed or modified disclosures upon issuance and delay adoption of the additional disclosures until their effective date. The adoption of this guidance in 2020 is not expected to have a material effect on the Company's results of operations, financial position or liquidity.

 

13

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

 

2. Investments

 

Investments in fixed maturity and preferred stock available-for-sale and equity securities as of June 30, 2019 and December 31, 2018 are summarized as follows:

 

           

Gross

   

Gross

         
   

Amortized Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

or Cost

   

Gains

   

Losses

   

Value

 
   

June 30, 2019 (Unaudited)

 

Fixed maturity securities

                               

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

  $ 1,802,981     $ 1,168     $ 23,525     $ 1,780,624  

States and political subdivisions

    9,926,526       565,535       2,932       10,489,129  

Residential mortgage-backed securities

    20,394       25,314       -       45,708  

Corporate bonds

    133,067,979       6,739,108       270,469       139,536,618  

Asset-backed

    2,209,421       59,384       -       2,268,805  

Foreign bonds

    33,674,451       1,549,114       302,503       34,921,062  

Total fixed maturity securities

    180,701,752       8,939,623       599,429       189,041,946  
                                 

Preferred stock

    99,945       955       420       100,480  
                                 

Equity securities

                               

Mutual funds

    91,982       -       8,937       83,045  

Corporate common stock

    92,102       26,257       -       118,359  

Total equity securities

    184,084       26,257       8,937       201,404  

Total fixed maturity, preferred stock and equity securities

  $ 180,985,781     $ 8,966,835     $ 608,786     $ 189,343,830  

 

   

December 31, 2018

 

Fixed maturity securities

                               

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

  $ 2,793,681     $ 2,769     $ 91,739     $ 2,704,711  

States and political subdivisions

    9,295,973       215,000       32,941       9,478,032  

Residential mortgage-backed securities

    23,694       27,461       -       51,155  

Corporate bonds

    100,360,468       823,991       3,220,268       97,964,191  

Asset-backed

    253,598       7,820       -       261,418  

Foreign bonds

    21,687,103       75,525       1,069,936       20,692,692  

Total fixed maturity securities

    134,414,517       1,152,566       4,414,884       131,152,199  
                                 

Preferred stock

    99,945       -       9,365       90,580  
                                 

Equity securities

                               

Mutual funds

    91,981       -       17,082       74,899  

Corporate common stock

    95,141       28,628       -       123,769  

Total equity securities

    187,122       28,628       17,082       198,668  

Total fixed maturity, preferred stock and equity securities

  $ 134,701,584     $ 1,181,194     $ 4,441,331     $ 131,441,447  

 

14

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

2. Investments (continued)

 

All securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of June 30, 2019 and December 31, 2018 are summarized as follows:

 

           

Unrealized

   

Number of

 
   

Fair Value

   

Loss

   

Securities

 
   

June 30, 2019 (Unaudited)

 

Fixed maturity securities

                       

Less than 12 months in an unrealized loss position

                       

Corporate bonds

  $ 3,187,478     $ 90,186       10  

Foreign bonds

    631,101       4,612       2  

Total less than 12 months in an unrealized loss position

    3,818,579       94,798       12  

More than 12 months in an unrealized loss position

                       

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

    1,531,336       23,525       5  

States and political subdivisions

    102,593       2,932       1  

Corporate bonds

    3,592,035       180,283       16  

Foreign bonds

    4,349,645       297,891       14  

Total more than 12 months in an unrealized loss position

    9,575,609       504,631       36  

Total fixed maturity securities in an unrealized loss position

    13,394,188       599,429       48  

Preferred stock, less than 12 months in an unrealized loss position

    49,580       420       1  

Equity securities (mutual funds), less than 12 months in an unrealized loss position

    83,044       8,937       1  

Total fixed maturity, preferred stock and equity securities in an unrealized loss position

  $ 13,526,812     $ 608,786     $ 50  

 

   

December 31, 2018

 

Fixed maturity securities

                       

Less than 12 months in an unrealized loss position

                       

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

  $ 991,660     $ 2,419       1  

States and political subdivisions

    1,066,743       7,948       6  

Corporate bonds

    58,506,980       2,154,898       215  

Foreign bonds

    14,554,291       852,120       50  

Total less than 12 months in an unrealized loss position

    75,119,674       3,017,385       272  

More than 12 months in an unrealized loss position

                       

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

    1,590,655       89,320       6  

States and political subdivisions

    518,969       24,993       4  

Corporate bonds

    7,107,831       1,065,370       30  

Foreign bonds

    1,376,680       217,816       5  

Total more than 12 months in an unrealized loss position

    10,594,135       1,397,499       45  

Total fixed maturity securities in an unrealized loss position

    85,713,809       4,414,884       317  

Preferred stock, less than 12 months in an unrealized loss position

    90,580       9,365       2  

Equity securities (mutual funds), less than 12 months in an unrealized loss position

    74,899       17,082       1  

Total fixed maturity, preferred stock and equity securities in an unrealized loss position

  $ 85,879,288     $ 4,441,331     $ 320  

 

15

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

2. Investments (continued)

 

As of June 30, 2019, the Company held 48 available-for-sale fixed maturity securities with an unrealized loss of $599,429, fair value of $13,394,188 and amortized cost of $13,993,617. These unrealized losses were primarily due to market interest rate movements in the bond market as of June 30, 2019. The ratio of the fair value to the amortized cost of these 48 securities is 96%.

 

As of December 31, 2018, the Company held 317 available-for-sale fixed maturity securities with an unrealized loss of $4,414,884, fair value of $85,713,809 and amortized cost of $90,128,693. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2018. The ratio of the fair value to the amortized cost of these 317 securities is 95%.

 

As of June 30, 2019, the Company held one equity security with an unrealized loss of $8,937, fair value of $83,044 and cost of $91,981. The ratio of fair value to cost of this security is 90%.

 

As of December 31, 2018, the Company held one equity security with an unrealized loss of $17,082, fair value of $74,899 and cost of $91,981. The ratio of fair value to cost of this security is 81%.

 

As of June 30, 2019, the Company held one preferred stock with an unrealized loss of $420, fair value of $49,580 and cost of $50,000. The ratio of fair value to cost of this preferred stock is 99%.

 

As of December 31, 2018, the Company held two preferred stocks with an unrealized loss of $9,365, fair value of $90,580 and cost of $99,945. The ratio of fair value to cost of these two preferred stocks is 91%.

 

Fixed maturity securities were 97% and 96% investment grade as rated by Standard & Poor’s as of June 30, 2019 and December 31, 2018, respectively.

 

The Company’s decision to record an impairment loss is primarily based on whether the security’s fair value is likely to remain significantly below its book value based on all of the factors considered. Factors that are considered include the length of time the security’s fair value has been below its carrying amount, the severity of the decline in value, the credit worthiness of the issuer, and the coupon and/or dividend payment history of the issuer. The Company also assesses whether it intends to sell or whether it is more likely than not that it may be required to sell the security prior to its recovery in value.

 

For any fixed maturity securities that are other-than-temporarily impaired, the Company determines the portion of the other-than-temporary impairment that is credit-related and the portion that is related to other factors. The credit-related portion is the difference between the expected future cash flows and the amortized cost basis of the fixed maturity security, and that difference is charged to earnings. The non-credit-related portion representing the remaining difference to fair value is recognized in other comprehensive income (loss). Only in the case of a credit-related impairment where management has the intent to sell the security, or it is more likely than not that it will be required to sell the security before recovery of its cost basis, is a fixed maturity security adjusted to fair value and the resulting losses recognized in realized gains (losses) in the consolidated statements of operations. Any other-than-temporary impairments on equity securities are recorded in the consolidated statements of operations in the periods incurred as the difference between fair value and cost.

 

There were no impairments during the six months ended June 30, 2019 and 2018.

 

Management believes that the Company will fully recover its cost basis in the securities held as of June 30, 2019, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature.  The remaining temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment. 

 

16

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

2. Investments (continued)

 

Net unrealized gains (losses) included in other comprehensive income (loss) for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the appreciation (depreciation) had been realized as of June 30, 2019 and December 31, 2018, are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2019

   

December 31, 2018

 

Unrealized appreciation (depreciation) on available-for-sale securities

  $ 8,340,729     $ (3,271,683 )

Adjustment to deferred acquisition costs

    (12,972 )     10,124  

Deferred income taxes

    (1,748,829 )     684,928  

Net unrealized appreciation (depreciation) on available-for-sale securities

  $ 6,578,928     $ (2,576,631 )

 

The Company’s investment in lottery prize cash flows categorized as other long-term investments in the statement of financial position was $64,744,938 and $59,255,477 as of June 30, 2019 and December 31, 2018, 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 fair value of fixed maturity available-for-sale securities and other long-term investments as of June 30, 2019, by contractual maturity, are summarized as follows:

 

   

June 30, 2019 (Unaudited)

 
   

Fixed Maturity Available-For-Sale Securities

   

Other Long-Term Investments

 
   

Amortized Cost

   

Fair Value

   

Amortized Cost

   

Fair Value

 

Due in one year or less

  $ 2,546,048     $ 2,568,063     $ 9,176,021     $ 9,342,976  

Due after one year through five years

    27,494,110       28,339,997       28,834,511       32,063,303  

Due after five years through ten years

    63,556,447       66,174,339       18,458,398       23,800,321  

Due after ten years

    87,084,753       91,913,839       8,276,008       14,123,844  

Due at multiple maturity dates

    20,394       45,708       -       -  
    $ 180,701,752     $ 189,041,946     $ 64,744,938     $ 79,330,444  

 

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.

 

17

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

2. Investments (continued)

 

Proceeds and gross realized gains (losses) from the sales, calls and maturities of fixed maturity securities available-for-sale, equity securities and investment real estate for the three and six months ended June 30, 2019 and 2018 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

 
   

Fixed Maturity Securities

   

Equity Securities

   

Investment Real Estate

 
   

2019

   

2018

   

2019

   

2018

   

2019

   

2018

 

Proceeds

  $ 14,728,067     $ 5,909,141     $ 19,370     $ 15,000     $ 253,564     $ 54,853  

Gross realized gains

    227,024       74,419       12,372       1       5,158       -  

Gross realized losses

    (257,937 )     (33,772 )     -       -       (46,378 )     (1,322 )

 

   

Six Months Ended June 30, (Unaudited)

 
   

Fixed Maturity Securities

   

Equity Securities

   

Investment Real Estate

 
   

2019

   

2018

   

2019

   

2018

   

2019

   

2018

 

Proceeds

  $ 18,127,913     $ 8,488,932     $ 19,370     $ 15,412     $ 253,564     $ 54,853  

Gross realized gains

    271,579       80,520       12,372       107       5,158       -  

Gross realized losses

    (262,417 )     (41,043 )     -       -       (46,378 )     (1,322 )

 

The accumulated change in unrealized investment gains (losses) for fixed maturity and preferred stock available-for-sale for the three and six months ended June 30, 2019 and 2018 and the amount of net realized investment gains (losses) on fixed maturity securities available-for-sale, equity securities and investment real estate for the three and six months ended June 30, 2019 and 2018 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2019

   

2018

   

2019

   

2018

 

Change in unrealized investment gains (losses):

                               

Available-for-sale securities:

                               

Fixed maturity securities

  $ 6,525,157     $ (2,475,749 )   $ 11,602,512     $ (6,851,589 )

Preferred stock

    80       2,080       9,900       (1,700 )

Net realized investment gains (losses):

                               

Available-for-sale securities:

                               

Fixed maturity securities

    (30,913 )     40,647       9,162       39,477  

Equity securities, sale of securities

    12,372       1       12,372       107  

Equity securities, changes in fair value

    (7,871 )     9,930       5,774       (13,790 )

Investment real estate

    (41,220 )     (1,322 )     (41,220 )     (1,322 )

 

18

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

2. Investments (continued)

 

Major categories of net investment income for the three and six months ended June 30, 2019 and 2018 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2019

   

2018

   

2019

   

2018

 

Fixed maturity securities

  $ 2,077,206     $ 1,669,950     $ 3,606,682     $ 3,300,424  

Preferred stock and equity securities

    33,528       28,034       67,746       33,117  

Other long-term investments

    1,166,240       1,009,007       2,316,997       1,979,063  

Mortgage loans

    3,410,617       2,887,505       6,593,465       5,375,918  

Policy loans

    33,495       30,342       65,768       59,425  

Real estate

    67,514       94,003       131,810       188,006  

Short-term and other investments

    250,455       25,939       495,295       67,681  

Gross investment income

    7,039,055       5,744,780       13,277,763       11,003,634  

Investment expenses

    (756,012 )     (706,639 )     (1,421,264 )     (1,281,251 )

Net investment income

  $ 6,283,043     $ 5,038,141     $ 11,856,499     $ 9,722,383  

 

TLIC and FBLIC are required to hold assets on deposit with various state insurance departments for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of June 30, 2019 and December 31, 2018, these required deposits, included in investment assets, had amortized costs that totaled $4,389,300 and $4,376,463, respectively. As of June 30, 2019 and December 31, 2018, these required deposits had fair values that totaled $4,403,962 and $4,292,657, respectively.

 

The Company’s mortgage loans by property type as of June 30, 2019 and December 31, 2018 are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2019

   

December 31, 2018

 

Residential mortgage loans

  $ 145,387,331     $ 120,108,297  

Commercial mortgage loans by property type

               

Apartment

    1,607,405       1,816,870  

Industrial

    1,139,226       1,156,157  

Lodging

    111,812       112,494  

Office building

    3,684,442       2,348,639  

Retail

    3,892,926       4,507,153  

Total commercial mortgage loans by property type

    10,435,811       9,941,313  

Total mortgage loans

  $ 155,823,142     $ 130,049,610  

 

There were 18 loans with a remaining principal balance of $3,647,871 that were more than 90 days past due as of June 30, 2019. There were 11 loans with a remaining principal balance of $2,233,575 that were more than 90 days past due as of December 31, 2018.

 

There were no mortgage loans in default and in the foreclosure process as of June 30, 2019 and December 31, 2018.

 

19

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

2. Investments (continued)

 

The Company’s investment real estate as of June 30, 2019 and December 31, 2018 is summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2019

   

December 31, 2018

 

Land - held for the production of income

  $ 213,160     $ 213,160  

Land - held for investment

    745,155       745,155  

Total land

    958,315       958,315  

Building - held for the production of income

    2,267,557       2,267,557  

Less - accumulated depreciation

    (1,413,415 )     (1,340,671 )

Buildings net of accumulated depreciation

    854,142       926,886  

Residential real estate - held for sale

    311,264       506,830  

Total residential real estate

    311,264       506,830  

Investment real estate, net of accumulated depreciation

  $ 2,123,721     $ 2,392,031  

 

TLIC owns approximately six and one-half acres of land located in Topeka, Kansas that includes a 20,000 square foot office building on approximately one-fourth of this land. This building and land on one of the four lots is held for the production of income. The other three lots of land owned in Topeka, Kansas are held for investment. In addition, FBLIC owns one-half acre of undeveloped land located in Jefferson City, Missouri.

 

During 2019, the Company foreclosed on one residential mortgage loans of real estate totaling $99,218 and transferred that property to investment real estate that is now held for sale. During 2019, the Company sold investment real estate property with an aggregate carrying value of $294,784. The Company recorded a gross realized investment loss on sale of $41,220 based on an aggregate sales price of $253,564.

 

During 2018 the Company foreclosed on residential mortgage loans of real estate totaling $378,411 and transferred those properties to investment real estate held for sale. During 2018, the Company sold investment real estate property with an aggregate carrying value of $56,175. The Company recorded a gross realized investment loss on sale of $1,322 based on an aggregate sales price of $54,853.

 

 

 

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, preferred stock 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 preferred stock and equity securities that are traded in an active exchange market.

 

20

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

3. Fair Value Measurements (continued)

 

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 agency mortgage-backed debt securities, state and political subdivision securities, corporate debt securities, asset-backed and foreign debt securities.

 

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.

 

21

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

3. Fair Value Measurements (continued)

 

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2019 and December 31, 2018 is summarized as follows:

 

   

Level 1

   

Level 2

   

Level 3

   

Total

 
   

June 30, 2019 (Unaudited)

 

Fixed maturity securities, available-for-sale

                               

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

  $ -     $ 1,780,624     $ -     $ 1,780,624  

States and political subdivisions

    -       10,489,129       -       10,489,129  

Residential mortgage-backed securities

    -       45,708       -       45,708  

Corporate bonds

    -       139,536,618       -       139,536,618  

Asset-backed

    -       2,268,805       -       2,268,805  

Foreign bonds

    -       34,921,062       -       34,921,062  

Total fixed maturity securities

  $ -     $ 189,041,946     $ -     $ 189,041,946  
                                 

Preferred stock, available-for-sale

  $ 100,480     $ -     $ -     $ 100,480  
                                 

Equity securities

                               

Mutual funds

  $ -     $ 83,045     $ -     $ 83,045  

Corporate common stock

    50,363       -       67,996       118,359  

Total equity securities

  $ 50,363     $ 83,045     $ 67,996     $ 201,404  

 

   

December 31, 2018

 

Fixed maturity securities, available-for-sale

                               

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

  $ -     $ 2,704,711     $ -     $ 2,704,711  

States and political subdivisions

    -       9,478,032       -       9,478,032  

Residential mortgage-backed securities

    -       51,155       -       51,155  

Corporate bonds

    -       97,964,191       -       97,964,191  

Asset-backed

    -       261,418       -       261,418  

Foreign bonds

    -       20,692,692       -       20,692,692  

Total fixed maturity securities

  $ -     $ 131,152,199     $ -     $ 131,152,199  
                                 

Preferred stock, available-for-sale

  $ 90,580     $ -     $ -     $ 90,580  

Equity securities

                               

Mutual funds

  $ -     $ 74,899     $ -     $ 74,899  

Corporate common stock

    59,733       -       64,036       123,769  

Total equity securities

  $ 59,733     $ 74,899     $ 64,036     $ 198,668  

 

As of June 30, 2019 and December 31, 2018, Level 3 financial instruments consisted of two private placement common stocks that have no active trading and a joint venture investment with a mortgage loan originator.

 

These private placement stocks represent investments in small insurance holding companies. The fair value for these securities was determined through the use of unobservable assumptions about market participants. The Company has assumed a willing market participant would purchase the securities for the same price as the Company paid until such time as these small insurance holding companies commence significant operations. The joint venture investment with a mortgage loan originator is accounted for under the equity method of accounting.

 

22

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

3. Fair Value Measurements (continued)

 

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

 

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

 

The Company’s preferred stock is included in Level 1 and 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 preferred stock and those 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 and preferred stock available-for-sale and equity securities portfolio is highly liquid and allows for a high percentage of the portfolio to be priced through pricing services.

 

The change in the fair value of the Company’s Level 3 equity securities available-for-sale for the six months ended June 30, 2019 and 2018 is summarized as follows:

 

   

Unaudited

 
   

Six Months Ended June 30,

 
   

2019

   

2018

 
                 

Beginning balance

  $ 64,036     $ 61,500  

Joint venture net income

    57,746       23,627  

Joint venture distribution

    (53,786 )     -  

Equity security sale

    -       (15,000 )

Ending balance

  $ 67,996     $ 70,127  

 

23

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2019

(Unaudited)

 

3. Fair Value Measurements (continued)

 

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of June 30, 2019 and December 31, 2018, and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:

 

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

 

   

Carrying

   

Fair

                         
   

Amount

   

Value

   

Level 1

   

Level 2

   

Level 3

 
   

June 30, 2019 (Unaudited)

 

Financial assets

                                       

Mortgage loans on real estate

                                       

Commercial and Industrial

  $ 10,435,811     $ 11,245,412     $ -     $ -     $ 11,245,412  

Residential

    145,387,331       145,795,555       -       -       145,795,555  

Policy loans

    1,890,350       1,890,350       -       -       1,890,350  

Short-term investments

    1,814,777       1,814,777       1,814,777       -       -  

Other long-term investments

    64,744,938       79,330,444       -       -       79,330,444  

Cash and cash equivalents

    27,546,376       27,546,376       27,546,376       -       -  

Accrued investment income

    5,091,843       5,091,843       -       -       5,091,843  

Total financial assets

  $ 256,911,426     $ 272,714,757     $ 29,361,153     $ -     $ 243,353,604  

Financial liabilities

                                       

Policyholders' account balances

  $ 368,644,462     $ 360,652,246     $ -     $ -     $ 360,652,246  

Policy claims

    1,202,838       1,202,838       -       -       1,202,838  

Total financial liabilities

  $ 369,847,300     $ 361,855,084     $ -     $ -     $ 361,855,084  

 

   

December 31, 2018

 

Financial assets

                                       

Mortgage loans on real estate

                                       

Commercial

  $ 9,941,313     $ 9,698,226     $ -     $ -     $ 9,698,226  

Residential

    120,108,297       115,788,967       -       -       115,788,967  

Policy loans

    1,809,339       1,809,339       -       -       1,809,339  

Short-term investments

    896,371       896,371       896,371       -       -  

Other long-term investments

    59,255,477       69,641,358       -       -       69,641,358  

Cash and cash equivalents

    29,665,605       29,665,605       29,665,605       -       -  

Accrued investment income

    2,672,978       2,672,978       -       -       2,672,978  

Total financial assets

  $ 224,349,380     $ 230,172,844     $ 30,561,976     $ -