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”) 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 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 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, 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, 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

 

Our operations have been financed primarily through the private placement of equity securities and intrastate public stock offerings. Through December 31, 2017, 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.

 

Our operations have been profitable and have generated $13,890,213 of net income from operations since we were incorporated in 2004. 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 historic impact of these two stock dividend charges of $5,270,138 decreased the balance of accumulated earnings during 2011 and 2012 and resulted in a reported balance as of December 31, 2017 of $8,620,075, as shown in the accumulated earnings caption in the December 31, 2017 consolidated statement of financial position.

 

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 and others 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.

 

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.

 

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 and FBLIC;

●

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

●

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

 

Please see below and Note 11 to the Consolidated Financial Statements for the years ended December 31, 2017 and 2016 and as of December 31, 2017 and 2016 for additional information regarding segment information.

 

Life Insurance and Annuity Operations

 

Our Life Insurance and Annuity Operations consists of issuing ordinary whole life insurance, 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 is issued as either a simplified issue or as a graded benefit, determined by underwriting.

  

TLIC renewed its administrative services agreement with Investors Heritage Life Insurance Company (“IHLIC”) on September 1, 2017. Under the terms of this agreement, the services provided by IHLIC include underwriting, actuarial, 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 September 1, 2017 through August 31, 2022 and includes a provision that the agreement may be terminated at any time by either party with a 180 day prior notice.

 

FBLIC renewed its administrative services agreement with IHLIC on November 1, 2017. Under the terms of this agreement, the services provided by IHLIC include underwriting, actuarial, 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, 2017 through October 31, 2022 and includes a provision that the agreement may be terminated at any time by either party with a 180 day prior notice.

 

 

TLIC continues to seek to serve middle income households in the states of Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio, Oklahoma and Texas. TLIC markets its products through independent agents. 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.

 

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, 2017 and 2016, in accordance with statutory accounting practices prescribed by the states of domicile of TLIC and FBLIC.

 

 

		Year Ended December 31, 2017
		Life								Annuity
State		Premiums				Percentage				Considerations				Percentage
Arizona		$	61,364				0.38	%		$	401,702				0.72	%
Arkansas			238,372				1.48	%			406,520				0.72	%
Colorado			459,708				2.85	%			38,387				0.07	%
Georgia			474,792				2.94	%			534,626				0.95	%
Illinois			1,441,519				8.94	%			719,662				1.28	%
Indiana			534,599				3.32	%			59,299				0.11	%
Kansas			2,236,609				13.87	%			1,796,931				3.20	%
Kentucky			530,972				3.29	%			82,408				0.15	%
Louisiana			433,371				2.69	%			-				0.00	%
Michigan			263,984				1.64	%			2,381,477				4.24	%
Missouri			820,326				5.09	%			195,035				0.35	%
Nebraska			217,740				1.35	%			802,251				1.43	%
North Carolina			966,643				5.99	%			149,092				0.27	%
North Dakota			108,810				0.67	%			18,239,925				32.49	%
Ohio			2,003,162				12.42	%			1,431,925				2.55	%
Oklahoma			1,484,722				9.21	%			1,922,469				3.42	%
Pennsylvania			422,290				2.62	%			1,762,619				3.14	%
Tennessee			269,038				1.67	%			2,290,127				4.08	%
Texas			2,406,525				14.92	%			21,532,935				38.36	%
Virginia			195,474				1.21	%			40,017				0.07	%
All other states			555,891				3.45	%			1,344,979				2.40	%
Total direct collected premiums and considerations		$	16,125,911				100.00	%		$	56,132,386				100.00	%

 

 

		Year Ended December 31, 2016
		Life								Annuity
State		Premiums				Percentage				Considerations				Percentage
Arizona		$	22,587				0.18	%		$	301,465				0.56	%
Arkansas			161,096				1.26	%			259,162				0.49	%
Colorado			267,553				2.09	%			376,154				0.70	%
Georgia			288,856				2.26	%			794,230				1.49	%
Illinois			1,300,813				10.16	%			1,280,438				2.40	%
Indiana			338,717				2.65	%			381,349				0.71	%
Kansas			2,253,534				17.59	%			1,933,441				3.62	%
Kentucky			439,721				3.43	%			244,864				0.46	%
Louisiana			286,694				2.24	%			100,000				0.19	%
Michigan			153,541				1.20	%			1,244,644				2.33	%
Missouri			715,992				5.59	%			580,712				1.09	%
Nebraska			216,880				1.69	%			827,130				1.55	%
North Carolina			498,876				3.90	%			366,841				0.69	%
North Dakota			119,710				0.94	%			17,972,674				33.64	%
Ohio			1,514,308				11.83	%			382,893				0.72	%
Oklahoma			1,613,573				12.60	%			1,641,576				3.07	%
Pennsylvania			282,608				2.21	%			2,510,524				4.70	%
Tennessee			141,227				1.10	%			1,103,240				2.07	%
Texas			1,756,722				13.72	%			19,525,059				36.55	%
Virginia			94,680				0.74	%			466,108				0.87	%
All other states			335,044				2.62	%			1,121,001				2.10	%
Total direct collected premiums and considerations		$	12,802,732				100.00	%		$	53,413,505				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 $75,000 for individual life insurance with IHLIC, Optimum Re Insurance Company (“Optimum Re”) 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 $75,000. 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 $75,000 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.

  

 

Competition 

 

The U.S. life insurance industry is a mature industry that, in recent years, 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, respectively, are subject to regulation and supervision by the OID and the Missouri Department of Insurance (“MDOI”). The insurance laws of Oklahoma and Missouri give the OID and MDOI 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.

 

TLIC is subject to Oklahoma laws and FBLIC is subject to Missouri laws that limit the amount of dividends insurance companies can pay to stockholders without approval of the respective 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 capacity for TLIC to pay a dividend up to $1,124,823 in 2018 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $760,348 in 2018 without prior approval. FBLIC paid a dividend of $1,000,000 to TLIC in 2016 but none in 2017. Dividends paid by FBLIC are eliminated in consolidation. 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.

 

Premium Finance Operations

 

FTCC was incorporated in 2006 and 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.

 

Employees 

 

As of March 5, 2018, the Company had ten full-time employees and one part-time employee.

 

 

Item 2. Properties

 

The Company leases 6,769 square feet of office space pursuant to an original five-year lease that began October 1, 2010 and was amended on October 1, 2015 for another five-year term. Under the terms of the original home office lease, the monthly rent was $7,897 from October 1, 2010 through September 30, 2015. Under the terms of the amended home office lease, the monthly rent is $8,461 from October 1, 2015 through September 30, 2016, $8,630 from October 1, 2016 through September 30, 2017 and $8,805 from October 1, 2017 through September 30, 2018 with increases of two percent each twelve month period from October 1, 2018 through September 30, 2020. 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 $92,041 and $93,415 for the years ended December 31, 2017 and 2016, respectively, under this lease.

 

On January 1, 2011, the Company received a $120,000 leasehold improvement allowance from the lessor related to the original lease that was fully amortized by September 30, 2015. In accordance with the amended lease on October 1, 2015, the Company was provided an allowance of $54,152 for leasehold improvements. The leasehold improvement allowance is amortized over the remaining amended non-cancellable lease term and reduced rent expense by $14,491 and $8,627 for the years ended December 31, 2017 and 2016, respectively. The future minimum lease payments to be paid under the amended non-cancellable lease agreement are $106,189, $108,304 and $82,446 for the years 2018 through 2020, respectively.

 

TLIC owns approximately six and one-half acres of land located in Topeka, Kansas. A 20,000 square foot office building has been constructed on approximately one-fourth of this land.

 

TLIC executed a two year lease agreement effective January 1, 2015, for 7,500 square feet of its building in Topeka, Kansas. Effective January 1, 2017, this lease was renewed for two years. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance. The monthly lease payments are $8,696 for 2015, 2016, 2017 and 2018.

 

TLIC renewed a five year lease agreement effective June 1, 2011, for 10,000 square feet in the Topeka, Kansas office building. Beginning June 1, 2014, the lessee can terminate the lease with a 180 day written notice. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance with partial reimbursement from the lessee. The lease agreement calls for minimum monthly base lease payments of $17,750.

 

This 10,000 square feet lease was renewed for five years to be effective from June 1, 2016 through May 31, 2021, with an option for an additional five years from June 1, 2021 through May 31, 2026. Beginning June 1, 2021, the lessee can terminate the lease with a 120 day written notice. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance with partial reimbursement from the lessee. The lease agreement calls for a monthly lease payment of $16,598 from June 1, 2016 through June 30, 2016. Starting July 1, 2016, the lease agreement includes an $88,833 tenant improvement allowance that is amortized over 59 months with interest at 5.00%. The monthly lease payments are $18,299 from July 1, 2016 through June 30, 2017 and $18,376 from July 1, 2017 through May 31, 2021.

 

A five year lease agreement effective September 1, 2010 automatically renewed on 2,500 square feet of the Topeka, Kansas office building with a 90 day notice by the lessee to terminate the lease. This lease was renewed on September 1, 2015 to run through August 31, 2017 with an option for an additional three years through August 31, 2020. Beginning September 1, 2017, the lessee can terminate the lease with a 120 day written notice. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance with partial reimbursement from the lessee. The lease payments are $4,236 per month from September 1, 2015 through August 31, 2016, $4,242 from September 1, 2016 through September 30, 2017 and $4,263 from October 1, 2017 through December 31, 2017.

 

The future minimum lease payments to be received under the non-cancellable lease agreements are $324,858, $220,512, $220,512 and $91,880 for the years 2018 through 2021, respectively.

 

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

 

 

During 2017 the Company foreclosed on residential mortgage loans of real estate totaling $207,482 and transferred those properties to investment real estate held for sale. The Company’s policy is to reduce the carrying value of this residential real estate obtained through foreclosure to the lower of acquisition cost or net realizable value. During 2017, the Company sold investment real estate property with an aggregate carrying value of $185,701. The Company recorded a gross realized investment gain on sale of $4,382 based on an aggregate sales price of $190,083.

 

During 2016 the Company foreclosed on seven residential mortgage loans of real estate totaling $394,427 and transferred those properties to investment real estate held for sale. The Company’s policy is to reduce the carrying value of this residential real estate obtained through foreclosure to the lower of acquisition cost or net realizable value. During 2016 the Company sold investment real estate property with an aggregate carrying value of $63,931. The Company recorded a gross realized investment loss on sale of $20,662 based on an aggregate sales price of $43,269.

 

Item 3. Legal Proceedings

 

A lawsuit filed by the Company and Chairman, President and Chief Executive Officer, Gregg E. Zahn, against former Company Board of Directors member Wayne Pettigrew and Mr. Pettigrew's company, Group & Pension Planners, Inc. (the "Defendants"), concluded on February 17, 2017. The lawsuit was filed in the District Court of Tulsa County, Oklahoma (Case No. CJ-2013-03385). In the lawsuit, the Company alleged that Mr. Pettigrew had defamed the Company by making untrue statements to certain shareholders of the Company, to the press and to regulators of the state of Oklahoma and had breached his fiduciary duties.

 

The jury concluded that Mr. Pettigrew, while still a member of the Company’s Board of Directors, did, in fact, make untrue statements regarding the Company and Mr. Zahn and committed breaches of his fiduciary duties to the Company and the jury awarded the Company $800,000 of damages against Mr. Pettigrew. In addition, the jury found that Mr. Pettigrew had defamed Mr. Zahn and intentionally inflicted emotional distress on Mr. Zahn and awarded Mr. Zahn $3,500,000 of damages against Mr. Pettigrew. In addition to the damages awarded by the jury, the Company and Mr. Zahn have initiated steps to aggressively communicate the correction of the untrue statements to outside parties.

 

Mr. Pettigrew has appealed this decision but has failed to post an appeal bond. As a consequence, the Company and Mr. Zahn are in the process of executing on the judgments against Mr. Pettigrew’s assets. The Company and Mr. Zahn have so far collected some property and money in the execution process and will continue to execute on the judgments. Any money or property collected to date during the execution of the judgments are held in escrow by a third party, have not been reflected in the December 31, 2017 consolidated financial statements, would have to be returned to Mr. Pettigrew in the event the judgments are reversed by the appellate courts.

 

Prior to being acquired by TLIC, FBLIC developed, marketed, and sold life insurance products known as “Decreasing Term to 95” policies. On January 17, 2013, FBLIC’s Board of Directors voted that, effective March 1, 2013, it was not approving, and therefore was not providing, a dividend for the Decreasing Term to 95 policies. On November 22, 2013, a lawsuit was filed in the Circuit Court of Greene County, Missouri asserting claims against FBLIC relating to this decision. A trial was held November 27, 2017 through December 1, 2017 on the individual claims of two policyholders asserting fraud and negligent misrepresentation and on claims of a class of Missouri residents asking the Court to (1) find that the dividend provisions in the Decreasing Term to 95 policies violate Missouri law, specifically, § 376.360 RSMo.; (2) order that the policies are void ab initio and (3) order that FBLIC return all premiums collected under these policies, plus interest and attorneys’ fees.

 

Following the conclusion of the trial, subject to the approval of the Court, the parties reached a settlement resolving of both the individual and class claims. If approved by the Court, FBLIC will pay $1.85 million as accrued in the consolidated financial statements to resolve all class and individual claims and all active Decreasing Term to 95 policies for individuals in the class will be cancelled. A hearing date for approval of the settlement has not yet been scheduled.

 

Item 4. Mine Safety Disclosures

 

None

 

 

PART II

 

Item 5.

Market for Registrant’s 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 5, 2018, there were approximately 4,500 shareholders of the Company’s outstanding common stock.

 

(c)     Dividends

 

The Company has not paid any cash dividends since inception (April 19, 2004). The Board of Directors of the Company has not adopted a dividend payment policy; however, dividends must necessarily depend upon the Company's earnings and financial condition, applicable legal restrictions, and other factors relevant at the time the Board of Directors considers a dividend policy. Cash available for dividends to shareholders of the Company must initially come from income and capital gains earned on its investment portfolio and dividends paid by the Company’s subsidiaries.

 

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 that resulted in accumulated deficit being charged $2,428,328 with an offsetting credit of $2,428,328 to common stock and additional paid-in capital.

 

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 that resulted in accumulated deficit being charged $2,841,810 with an offsetting credit of $2,841,810 to common stock and additional paid-in capital.

 

(d)      Securities Authorized for Issuance Under Equity Compensation Plans

 

 There are no plans under which equity securities are authorized for issuance.

 

(e)       Performance Graph - Not Required

 

(f)       Purchases of Equity Securities by Issuer

 

The Company repurchased 185,313 shares of its common stock at a cost of $648,595 during 2012 from former members of the Board of Directors; repurchased 12,896 shares of its common stock at a cost of $45,136 from a former member of the Board of Directors and a charitable organization for which that former Director had donated 10,250 shares of the Company’s common stock during 2013, repurchased 39,946 shares of its common stock at a cost of $161,573 from a former agent, the former spouse of the Company’s Chairman, Chief Executive Officer and the former Chairman of the Board of Directors during 2014 and repurchased 9,425 shares of its common stock at a cost of $38,643 from the former Chairman of the Board of Directors during 2015.

 

 

Item 7. Management’s 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. We are no longer operating a premium finance company that financed casualty insurance premiums. As an insurance provider, we collect premiums and annuity considerations in the current period to pay future benefits to our policy and contract holders. Our core TLIC operations include issuing modified premium whole life insurance with a flexible premium deferred annuity, ordinary whole life, final expense and term products and annuity contracts to predominately middle income households in the states of Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio, Oklahoma and Texas through independent agents.

 

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.

 

We also realize revenues from our investment portfolio, which is a key component of our operations. The revenues and funds we collect as premiums and annuity considerations 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 and annuity considerations paid to the insurer between the time of receipt and the time benefits are paid out under our policies and contracts. 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.

 

Prior to June 30, 2012, we provided financing for casualty insurance premiums for individuals and companies through independent property and casualty insurance agents through our wholly owned subsidiary FTCC. FTCC 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.

 

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 First Life America Corporation for $2,500,000 and had additional acquisition related expenses of $195,234.

 

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

 

In late April 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.

 

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.

 

 

Investments in Fixed Maturities and Equity Securities

 

We hold fixed maturities and equity interests in a variety of companies. We continuously evaluate all of our investments based on current economic conditions, credit loss experience and other developments. We evaluate the difference between the cost/amortized cost and estimated fair value of our investments to determine whether any decline in fair value is other-than-temporary in nature. This determination involves a degree of uncertainty. If a decline in the fair value of a security is determined to be temporary, the decline is recognized in other comprehensive income (loss) within shareholders’ equity. If a decline in a security’s fair value is considered to be other-than-temporary, we then determine the proper treatment for the other-than-temporary impairment.

 

For fixed maturities, the amount of any other-than-temporary impairment related to a credit loss is recognized in earnings and reflected as a reduction in the cost basis of the security. The amount of any other-than-temporary impairment related to other factors is recognized in other comprehensive income (loss) with no change to the cost basis of the security. For equity securities, the amount of any other-than-temporary impairment is recognized in earnings and reflected as a reduction in the cost basis of the security.

 

The assessment of whether a decline in fair value is considered temporary or other-than-temporary includes management’s judgment as to the financial position and future prospects of the entity issuing the security. It is not possible to accurately predict when it may be determined that a specific security will become impaired. Future adverse changes in market conditions, poor operating results of underlying investments and defaults on interest and principal payments could result in losses or an inability to recover the current carrying value of the investments, thereby possibly requiring an impairment charge in the future.

 

In addition, if a change occurs in our intent to sell temporarily impaired securities prior to maturity or recovery in value, or if it becomes more likely than not that we will be required to sell such securities prior to recovery in value or maturity, a future impairment charge could result. If an other-than-temporary impairment related to a credit loss occurs with respect to a bond, we amortize the reduced book value back to the security’s expected recovery value over the remaining term of the bond. We continue to review the security for further impairment that would prompt another write-down in the book value.

 

Mortgage Loans on Real Estate

 

We carry mortgage loans on real estate at unpaid balances, net of unamortized premium or discounts. 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. We have established a valuation allowance for mortgage loans on real estate that are not supported by funds held in escrow.

 

This allowance for possible loan losses from investments in mortgage loans on real estate is a reserve established through a provision for possible loan losses charged to expense which represents, in our judgment, the known and inherent credit losses existing in the residential and commercial and industrial mortgage loan portfolio. This allowance, in our judgment, is necessary to reserve for estimated loan losses inherent in the residential and commercial and industrial mortgage loan portfolio and reduces the carrying value of investments in mortgage loans on real estate to the estimated net realizable value on the consolidated statement of financial position.

 

While we utilize our 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 and industrial mortgage loan portfolio, the economy and changes in interest rates. Our 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.

 

We consider mortgage loans on real estate impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the mortgage loan agreement. Factors that we consider 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.

 

 

We determine 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. Impairment is measured on a loan-by-loan basis.

 

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.

 

 

As of December 31, 2017 and 2016, there was $3,213,233 and $2,831,043, 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: $306,567 in 2018, $286,076 in 2019, $264,029 in 2020, $244,791 in 2021 and $227,007 in 2022.

 

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.

 

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. We evaluate historical experience for these factors when assessing the need for changing current assumptions.

 

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.

 

Recent Accounting Pronouncements

 

Revenue from Contracts with Customers

 

In May 2014, the FASB issued updated guidance to clarify the principles for recognizing revenue. While insurance contracts are not within the scope of this updated guidance, the Company's fee income related to providing services will be subject to this updated guidance. The updated guidance requires an entity to recognize revenue as performance obligations are met, in order to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

 

In July 2015, the FASB deferred the effective date of the updated guidance on revenue recognition by one year to the quarter ending March 31, 2018.  The adoption of this guidance is not expected to have a material effect on the Company’s result of operations, financial position or liquidity.

 

Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern

 

In August 2014, the FASB issued guidance to address the diversity in practice in determining when there is substantial doubt about an entity's ability to continue as a going concern and when an entity must disclose certain relevant conditions and events. The new guidance requires an entity to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued). The new guidance allows the entity to consider the mitigating effects of management's plans that will alleviate the substantial doubt and requires certain disclosures when substantial doubt is alleviated as a result of consideration of management's plans.

 

 

If conditions or events raise substantial doubt that is not alleviated, an entity should disclose that there is substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued (or available to be issued), along with the principal conditions or events that raise substantial doubt, management's evaluation of the significance of those conditions or events in relation to the entity's ability to meet its obligations and management's plans that are intended to mitigate those conditions. The guidance is effective for annual periods ending after December 15, 2016, and interim and annual periods thereafter. The adoption of this guidance did not have a material effect on the Company's results of operations, financial position or liquidity since there are no uncertainties about the Company’s ability to continue as a going concern.

 

Recognition and Measurement of Financial Assets and Financial Liabilities

 

In January 2016, the FASB issued updated guidance regarding financial instruments. This guidance intends to enhance reporting for financial instruments and addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. The significant amendments in this update generally require equity investments to be measured at fair value with changes in fair value recognized in net income, require the use of an exit price notion when measuring the fair value of financial instruments for disclosure purposes and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. This guidance also intends to enhance the presentation of certain fair value changes for financial liabilities measured at fair value. It also amends certain disclosure requirements associated with the fair value of financial instruments.

 

This guidance is effective for fiscal years beginning after December 15, 2017. The recognition and measurement provisions of this guidance will be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption and early adoption is not permitted. The Company is evaluating this guidance but expects the primary impact will be the recognition of unrealized gains and losses on available-for-sale equity securities in net income. Currently, all unrealized gains and losses on available-for-sale equity securities are recognized in other comprehensive income (loss). The effect of the adoption of this guidance on the Company’s results of operations, financial position and liquidity is primarily dependent on the fair value of the available-for-sale equity securities in future periods, the existence of a deferred tax asset related to available-for-sale securities in future periods and the economic conditions at the time of that future adoption.

 

Leases

 

In February 2016, the FASB issued updated guidance regarding leases that generally requires the lessee and lessor to recognize lease assets and lease liabilities on the statement of financial position. A lessee should recognize on the statement of financial position a liability to make lease payments and an asset representing its right-to-use the underlying assets for the lease term. Optional payments to extend the lease or purchase the underlying leased asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise the option(s).

 

If the lease has a term of 12 months or less, a lessee can make an election to recognize lease expenses for such leases on a straight-line basis over the lease term. There is a differentiation between finance leases and operating leases for the lessee in the statements of operations and cash flows. Finance leases recognize interest on the lease liability separately from the right-to-use the asset whereas an operating lease recognizes a single lease cost allocated over the lease term on a generally straight-line basis. All cash payments are within operating activities in the statement of cash flows except finance leases classify repayments of the principal portion of the lease liability within financing activities.

 

The accounting applied by the lessor is largely unchanged from that applied under previous U.S. GAAP. Key aspects of the lessor accounting model, however, were aligned with the revenue recognition guidance of Codification Topic 606. The previous accounting model for leverage leases continues to apply only to those leveraged leases that commenced before the effective date of Codification Update 2016-02 Leases (Topic 842).

 

Entities will generally continue to account for leases that commenced before the effective date of this update in accordance with previous U.S. GAAP unless the lease is modified. Lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimal rental payments that were tracked and disclosed under previous U.S. GAAP. The updated guidance is to be applied using a modified retrospective approach effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted.  The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

 

Investments — Equity Method and Joint Ventures:  Simplifying the Transition to the Equity Method of Accounting

 

In March 2016, the FASB issued updated guidance that eliminates the requirement to retroactively apply the equity method of accounting when an investment that was previously accounted for using another method of accounting becomes qualified to apply the equity method due to an increase in the level of ownership interest or degree of influence.  If the investment was previously accounted for as an available-for-sale security, any related unrealized gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for the equity method is recognized through earnings.  The updated guidance is effective for reporting periods beginning after December 15, 2016, and is to be applied prospectively. Early adoption was permitted.  The adoption of this guidance did not have an impact on the Company’s results of operations, financial position or liquidity.

 

Derivatives and Hedging:  Contingent Put and Call Options in Debt Instruments

 

In March 2016, the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument is contingently exercisable, the event that triggers the ability to exercise the option is considered to be clearly and closely related to the debt instrument (i.e., the economic characteristics and risks of the option are related to interest rates or credit risks) and the entity does not have to assess whether the option should be accounted for separately.

 

The updated guidance is effective for reporting periods beginning after December 15, 2016. Early adoption was permitted. The adoption of this guidance 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 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. mortgage loans and reinsurance amounts recoverable) 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.

 

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, the Company expects 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.

 

Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments

 

In August 2016, the FASB issued specific guidance to reduce the existing diversity in practice in how eight specific cash flow issues of certain cash receipts and cash payments are presented and classified in the statement of cash flows. The updated guidance is effective for annual and interim periods beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted.  The adoption of this guidance is not expected to have a material effect on the Company’s cash flows statement.

 

 

Consolidation – Interests Held through Related Parties that Are Under Common Control

 

In October 2016, the FASB issued further guidance that makes targeted amendments to consolidation accounting. This update changes how a reporting entity that is the primary beneficiary of a variable interest entity treats indirect interests in the entity held through related parties that are under common control with the reporting entity. The updated guidance is effective for annual and interim periods beginning after December 15, 2016, and is to be applied retrospectively. Early adoption was permitted.  The adoption of this guidance did not have an impact on the Company’s results of operations, financial position or liquidity.

 

Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments

 

In November 2016, the FASB issued specific guidance on the cash flow classification and presentation of changes in restricted cash or restricted cash equivalents when there are transfers between cash, cash equivalents and restricted cash or restricted cash equivalents and when there are direct cash receipts into restricted cash or restricted cash equivalents or direct cash payments made from restricted cash or restricted cash equivalents. The updated guidance is effective for annual and interim periods beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted.  The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

Business Combinations – Clarifying the Definition of a Business

 

In January 2017, the FASB issued guidance to clarify the definition of a business to assist reporting entities in evaluating whether transactions should be accounted for as an acquisition or disposal of assets or businesses. This update provides a screen to determine when an integrated set of assets or activities is not a business and the requirements to be met to be considered a business.

 

The updated guidance is effective for annual and interim periods beginning after December 15, 2017, and is to be applied retrospectively. Early adoption is permitted in certain situations.  The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

Intangibles – Goodwill and Other - Simplifying the Test for Goodwill Impairment

 

In January 2017, the FASB issued guidance to modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Reporting entities will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The updated guidance is effective for annual and interim periods beginning after December 15, 2017, 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.

 

Compensation — Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

 

In March 2017, the FASB issued updated guidance to improve the presentation of net periodic pension cost and net periodic post retirement cost (net benefit costs). Net benefit costs comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees.  The update requires that the employer service cost component be reported in the same lines as other employee compensation cost and that the other components (non-service costs) be presented separately from the service cost and outside of a subtotal of income from operations if one is presented.  The update also allows only the service cost component to be eligible for capitalization in assets when applicable.

 

The updated guidance is effective for reporting periods beginning after December 15, 2017. The update is to be applied retrospectively with respect to the presentation of service cost and non-service cost and prospectively with respect to applying the service cost only eligible for capitalization in assets guidance. Early adoption is permitted as of the first interim period of an annual period if an entity issues interim financial statements. This pronouncement will not impact the Company since it does not have any pension or postretirement benefit plans and has no intention to adopt such plans.

 

 

Compensation — Stock Compensation: Scope of Modification Accounting

 

In May 2017, the FASB issued updated guidance related to a change to the terms or conditions (modification) of a share-based payment award.  The updated guidance provides that an entity should account for the effects of a modification unless the fair value and vesting conditions of the modified award and the classification of the modified award (equity or liability instrument) are the same as the original award immediately before the modification.

 

The updated guidance is effective for the quarter ending March 31, 2018.  The update is to be applied prospectively to an award modified on or after the adoption date. Early adoption is permitted in any interim periods for which financial statements have not yet been made available for issuance. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

Target Improvement to Accounting for Hedging Activities

 

In August 2017, the FASB issued updated authoritative guidance for the application of hedge accounting. The updated guidance updates certain recognition and measurement requirements for hedge accounting. The objective of the guidance is to more closely align the economics of a company’s risk management activities in its financial results and reduce the complexity of applying hedge accounting. The updates include the expansion of hedging strategies that are eligible for hedge accounting, elimination of the separate measurement and reporting of hedge ineffectiveness, presentation of the changes in the fair value of the hedging instrument in the same consolidated statement of operations line as the earnings effect of the hedged item and simplification of hedge effectiveness assessments. This guidance also includes new disclosures and will be applied using a modified retrospective approach by recording a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption.

 

The updated guidance is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted for reporting periods beginning before December 15, 2018. The Company does not currently and does not intend to participate in hedging activities and there is therefore no impact on the Company’s results of operations, financial position or liquidity. This pronouncement would be adopted if the Company begins to participate in hedging activities in the future.

 

Business Segments

 

The 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 and FBLIC;

●

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

●

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

 

Please see below and Note 11 to the Consolidated Financial Statements for the years ended December 31, 2017 and 2016 and as of December 31, 2017 and 2016 for additional information regarding segment information.

 

 

The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources.

 

FINANCIAL HIGHLIGHTS

 

Consolidated Condensed Results of Operations for the Years Ended December 31, 2017 and 2016

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Premiums		$	15,855,686			$	12,870,483			$	2,985,203
Net investment income			16,710,408				13,190,643				3,519,765
Net realized investment gains			271,470				729,739				(458,269	)
Loss on other-than-temporary impairments			(224,250	)			(212,342	)			(11,908	)
Other income			116,523				139,967				(23,444	)
Total revenues			32,729,837				26,718,490				6,011,347
Benefits and claims			19,868,790				16,602,839				3,265,951
Expenses			10,518,164				7,695,869				2,822,295
Total benefits, claims and expenses			30,386,954				24,298,708				6,088,246
Income before federal income tax expense (benefit)			2,342,883				2,419,782				(76,899	)
Federal income tax expense (benefit)			1,373,519				(170,957	)			1,544,476
Net income		$	969,364			$	2,590,739			$	(1,621,375	)
Net income per common share basic and diluted		$	0.12			$	0.33			$	(0.21	)

 

 

Consolidated Condensed Financial Position as of December 31, 2017 and 2016

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 less 2016
Investment assets		$	313,257,430			$	255,214,510			$	58,042,920
Other assets			77,870,244				78,038,103				(167,859	)
Total assets		$	391,127,674			$	333,252,613			$	57,875,061
Policy liabilities		$	343,789,864			$	290,680,384			$	53,109,480
Deferred federal income taxes			2,961,929				693,470				2,268,459
Other liabilities			3,123,702				5,598,484				(2,474,782	)
Total liabilities			349,875,495				296,972,338				52,903,157
Shareholders' equity			41,252,179				36,280,275				4,971,904
Total liabilities and shareholders' equity		$	391,127,674			$	333,252,613			$	57,875,061
Shareholders' equity per common share		$	5.29			$	4.65			$	0.64

 

 

Results of Operations – Years Ended December 31, 2017 and 2016

 

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, 2017 and 2016 are summarized as follows:

 

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Premiums		$	15,855,686			$	12,870,483			$	2,985,203
Net investment income			16,710,408				13,190,643				3,519,765
Net realized investment gains			271,470				729,739				(458,269	)
Loss on other-than-temporary impairments			(224,250	)			(212,342	)			(11,908	)
Other income			116,523				139,967				(23,444	)
Total revenues		$	32,729,837			$	26,718,490			$	6,011,347

 

 

The $6,011,347 increase in total revenues for the year ended December 31, 2017 is discussed below.

 

Premiums

 

Our premiums for the years ended December 31, 2017 and 2016 are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Whole life and term first year		$	171,220			$	224,607			$	(53,387	)
Whole life and term renewal			2,292,825				2,478,252				(185,427	)
Final expense first year			4,694,380				3,521,136				1,173,244
Final expense renewal			8,658,393				6,267,914				2,390,479
Supplementary contracts with life contingencies			38,868				378,574				(339,706	)
Total premiums		$	15,855,686			$	12,870,483			$	2,985,203

 

The $2,985,203 increase in premiums for the year ended December 31, 2017 is primarily due to the following: $2,390,479 increase in final expense renewal premiums, $1,173,244 increase in final expense first year premiums and $339,706 decrease in supplementary contracts with life contingencies considerations.

 

The increase in final expense first year premiums represents management’s focus on expanding final expense production by contracting new, independent agents in expanded locations. The increase in final expense renewal premiums reflects the persistency of prior years’ final expense production. Our marketing efforts are focused on final expense and annuity production and we have not been focused on whole life and term production the past few years. The decrease in supplementary contracts with life contingencies reflects policyholder decisions to receive future payment streams during their remaining life instead of a lump sum payment.

 

 

Net Investment Income

 

The major components of our net investment income for the years ended December 31, 2017 and 2016 are summarized as follows:

 

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Fixed maturity securities		$	6,504,233			$	5,970,940			$	533,293
Equity securities			20,167				27,364				(7,197	)
Other long-term investments			3,645,043				2,685,639				959,404
Mortgage loans			8,364,448				5,774,229				2,590,219
Policy loans			114,246				107,541				6,705
Real estate			375,369				340,032				35,337
Short-term and other investments			141,259				44,013				97,246
Gross investment income			19,164,765				14,949,758				4,215,007
Investment expenses			(2,454,357	)			(1,759,115	)			695,242
Net investment income		$	16,710,408			$	13,190,643			$	3,519,765

 

The $4,215,007 increase in gross investment income for the year ended December 31, 2017 is primarily due to increases in investments in mortgage loans, other long-term investments and fixed maturity securities. In the twelve months since December 31, 2016, we have increased investments in mortgage loans on real estate by $28.1 million, available-for-sale fixed maturity securities by $20.4 million and other long-term investments by $9.0 million.

 

The $695,242 increase in investment expense is primarily related to increased production of investments in mortgage loans on real estate including the costs of the Company’s mortgage loan department that were fully assigned to investment expenses beginning in 2017.

 

 

Net Realized Investment Gains (Losses)

 

Our net realized investment gains (losses) result from sales of available–for-sale fixed maturity and equity securities, early payoffs of mortgage loans on real estate, sales of investment real estate and sales of other long-term investments.

 

Our net realized investment gains (losses) for the years ended December 31, 2017 and 2016 are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Fixed maturity securities available-for-sale:
Sale proceeds		$	20,230,756			$	20,532,968			$	(302,212	)
Amortized cost at sale date			20,025,943				19,954,481				71,462
Net realized gains		$	204,813			$	578,487			$	(373,674	)
Equity securities available-for-sale:
Sale proceeds		$	-			$	324,556			$	(324,556	)
Cost at sale date			-				225,155				(225,155	)
Net realized gains		$	-			$	99,401			$	(99,401	)
Mortgage loans on real estate:
Payments and sale proceeds on mortgage loans		$	25,670,590			$	17,550,870			$	8,119,720
Principal collections			25,670,590				17,478,357				8,192,233
Net realized gains		$	-			$	72,513			$	(72,513	)
Investment real estate:
Sale proceeds		$	190,083			$	43,269			$	146,814
Carrying value at sale date			185,701				63,931				121,770
Net realized gains (losses)		$	4,382			$	(20,662	)		$	25,044
Other long-term investments
Sale proceeds		$	792,012			$	-			$	792,012
Carrying value at sale date			729,737				-				729,737
Net realized gains (losses)		$	62,275			$	-			$	62,275
Net realized investment gains		$	271,470			$	729,739			$	(458,269	)

 

During 2017 and 2016 the Company foreclosed on residential mortgage loans of real estate totaling $207,482 and $394,427, respectively, and transferred those properties to investment real estate held for sale.

 

During 2017, the Company sold investment real estate property with an aggregate carrying value of $185,701. The Company recorded a gross realized investment gain on sale of $4,382 based on an aggregate sales price of $190,083.

 

During 2016, the Company sold investment real estate property with an aggregate carrying value of $63,931. The Company recorded a gross realized investment loss on this sale of $20,662 based on an aggregate sales price of $43,269.

 

Loss on Other-Than-Temporary Impairments

 

The Company has recorded other-than-temporary impairments on its available-for-sale fixed maturity investment in an energy corporation with a total par value of $650,000 as a result of continuing unrealized losses. During fourth quarter 2016 this security was initially impaired by a $207,450 charge to the statement of operations. During second quarter 2017 this security was further impaired by a $224,250 charge to the statement of operations. These impairments were considered fully credit-related and represent the difference between the amortized cost basis of the security and its fair value. The Company has experienced no additional other-than-temporary impairments on fixed maturity available-for-sale securities during 2017.

 

 

During 2016 management also impaired FBLIC’s one-half acre of undeveloped land located in Jefferson City, Missouri by $4,892 from its carrying value to its net realizable value expected at the time of ultimate resale.

 

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, 2017 and 2016 are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Benefits and claims
Increase in future policy benefits		$	5,402,902			$	4,786,377			$	616,525
Death benefits			4,463,854				3,814,049				649,805
Surrenders			878,361				728,122				150,239
Interest credited to policyholders			8,840,019				6,977,306				1,862,713
Dividend, endowment and supplementary life contract benefits			283,654				296,985				(13,331	)
Total benefits and claims			19,868,790				16,602,839				3,265,951
Expenses
Policy acquisition costs deferred			(9,321,726	)			(7,445,304	)			(1,876,422	)
Amortization of deferred policy acquisition costs			2,870,412				2,202,367				668,045
Amortization of value of insurance business acquired			382,190				379,365				2,825
Commissions			8,585,278				6,882,311				1,702,967
Other underwriting, insurance and acquisition expenses			8,002,010				5,677,130				2,324,880
Total expenses			10,518,164				7,695,869				2,822,295
Total benefits, claims and expenses		$	30,386,954			$	24,298,708			$	6,088,246

 

The $6,088,246 increase in total benefits, claims and expenses for the year ended December 31, 2017 is discussed below.

 

Benefits and Claims

 

The $3,265,951 increase in total benefits and claims for the year ended December 31, 2017 is primarily due to the following:

 

●

$1,862,713 increase in interest credited to policyholders is primarily due to an increase of approximately $47,600,000 in the amount of policyholders’ account balances in the consolidated statement of financial position (increased deposits and interest credited in excess of withdrawals) since December 31, 2016.

 

●

$649,805 increase in death benefits is primarily due to approximately $783,000 of increased final expense settlements, $119,000 of increased ordinary life settlements and $252,000 of increased ceded claims. The increase in final expense incurred claims is expected by the Company due to the continued growth in the number and amount of final expense policies in force.

 

●

$616,525 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

 

●

$150,239 increase in surrenders is based upon policyholder election and corresponds to the growth in the number of policies in force.

 

 

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 life insurance, 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, 2017 and 2016, capitalized costs were $9,321,726 and $7,445,304, respectively. During 2017, $8,009,758 of commissions (93.3% of total 2017 commissions of $8,585,278) and $1,311,968 of expenses (16.4% of total 2017 other underwriting, insurance and acquisition expenses of $8,002,010) were eligible for deferral and were capitalized. During 2016, $6,420,934 of commissions (93.3% of total 2016 commissions of $6,882,311) and $1,024,370 of expenses (18.0% of total 2016 other underwriting, insurance and acquisition expenses of $5,677,130) were eligible for deferral and were capitalized. The $1,876,422 increase in the 2017 acquisition costs deferred primarily relates to increased final expense and annuity production and deferral and capitalization of the increased eligible commissions and expenses.

 

Amortization of deferred policy acquisition costs for the years ended December 31, 2017 and 2016 were $2,870,412 and $2,202,367, respectively. The $668,045 increase in the 2017 amortization of deferred acquisition costs is primarily due to an increased number and amount of final expense policies and annuity contracts in force and lapsation of ordinary life policies reflected by increased death benefits, surrenders and annuity withdrawals.

 

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 $382,190 and $379,365 for the years ended December 31, 2017 and 2016, respectively.

 

Commissions

 

Our commissions for the years ended December 31, 2017 and 2016 are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Annuity		$	1,912,429			$	1,896,150			$	16,279
Whole life and term first year			151,739				125,467				26,272
Whole life and term renewal			81,295				100,247				(18,952	)
Final expense first year			5,612,755				4,195,896				1,416,859
Final expense renewal			827,060				564,551				262,509
Total commissions		$	8,585,278			$	6,882,311			$	1,702,967

 

The $1,702,967 increase in commissions for the year ended December 31, 2017 is primarily due to a $1,416,859 increase in final expense first year commissions that correspond to the $1,173,244 increase in final expense first year premiums and a $262,509 increase in final expense renewal commissions that corresponds to the $2,390,479 increase in final expense renewal premiums.

 

 

Other Underwriting, Insurance and Acquisition Expenses

 

The $2,324,880 increase in other underwriting, insurance and acquisition expenses for the year ended December 31, 2017 was primarily related to the accrual of a $1.85 million settlement of FBLIC Term to 95 lawsuit, increased acquisition and maintenance costs associated with increased final expense and annuity production, increased third party administration fees primarily related to the increased number of policies in force and increased service requests, increased salaries and benefits due to increased salary and bonus levels that exceeded the costs of the Company’s mortgage loan department that were fully assigned to investment expenses beginning in 2017 and the 2016 recording of bad debt expense against uncollectible receivables for financed casualty premiums for individuals and companies by FTCC.

 

Federal Income Taxes

 

FTFC files a consolidated federal income tax return with FTCC but does not file a consolidated tax return with TLIC or FBLIC. TLIC and FBLIC are taxed as life insurance companies under the provisions of the Internal Revenue Code. Life insurance companies must file separate tax returns until they have been a member of the consolidated filing group for five years. However, we filed consolidated life insurance company federal tax returns for TLIC and FBLIC for 2016 and 2015 and intend to also file a consolidated life insurance company federal tax return for TLIC and FBLIC for 2017 during 2018.

 

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, 2017 and 2016, current income tax expense was $105,696 and $37,404, respectively. Deferred federal income tax expense (benefit) was $1,267,823 and ($208,361) for the years ended December 31, 2017 and 2016, respectively.

 

Net Income Per Common Share Basic and Diluted

 

Net income was $969,364 ($0.12 per common share basic and diluted) and $2,590,739 ($0.33 per common share basic and diluted) for the years ended December 31, 2017 and 2016, respectively.

 

Net income per common share basic and diluted is calculated using the weighted average number of common shares outstanding and subscribed during the year. The weighted average outstanding and subscribed common shares basic and diluted were 7,802,593 for both of the years ended December 31, 2017 and 2016.

 

Business Segments

 

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

 

The revenues and income (loss) before federal income taxes from our business segments for the years ended December 31, 2017 and 2016 are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Revenues:
Life insurance operations		$	18,308,660			$	14,996,543			$	3,312,117
Annuity operations			14,061,953				11,135,950				2,926,003
Corporate operations			359,224				585,997				(226,773	)
Total		$	32,729,837			$	26,718,490			$	6,011,347
Income (loss) before federal income taxes:
Life insurance operations		$	(207,655	)		$	866,648			$	(1,074,303	)
Annuity operations			2,280,615				1,271,600				1,009,015
Corporate operations			269,923				281,534				(11,611	)
Total		$	2,342,883			$	2,419,782			$	(76,899	)

 

 

Life Insurance Operations

 

The $3,312,117 increase in revenues from Life Insurance Operations for the year ended December 31, 2017 is primarily due to the following:

 

●

$2,985,203 increase in premiums

 

●

$417,467 increase in net investment income

 

●

$17,209 decrease in other income

 

●

$73,344 decrease in net realized investment gains (that also includes a loss on other-than-temporary impairment)

 

The $1,074,303 decreased profitability from Life Insurance Operations for the year ended December 31, 2017 is primarily due to the following:

 

●

$2,778,377 increase in other underwriting, insurance and acquisition expenses

 

●

$1,686,688 increase in commissions

 

●

$649,805 increase in death benefits

 

●

$616,525 increase in future policy benefits

 

●

$150,239 increase in surrenders

 

●

$73,344 decrease in net realized investment gains (that also includes a loss on other-than-temporary impairment)

 

●

$17,209 decrease in other income

 

●

$1,413 increase in amortization of value of insurance business acquired

 

●

$13,331 decrease in dividend, endowment and supplementary life contract benefits

 

●

$417,467 increase in net investment income

 

●

$1,483,296 increase in policy acquisition costs deferred net of amortization

 

●

$2,985,203 increase in premiums

 

Annuity Operations

 

The $2,926,003 increase in revenues from Annuity Operations for the year ended December 31, 2017 is due to the following:

 

●

$3,322,836 increase in net investment income

 

●

$396,833 decrease in net realized investment gains (that also includes a loss on other-than-temporary impairment)

 

 

The $1,009,015 increased profitability from Annuity Operations for the year ended December 31, 2017 is due to the following:

 

●

$3,322,836 increase in net investment income

 

●

$238,335 decrease in other underwriting, insurance and acquisition expenses

 

●

$1,412 increase in amortization of value of insurance business acquired

 

●

$16,279 increase in commissions

 

●

$274,919 decrease in policy acquisition costs deferred net of amortization

 

●

$396,833 decrease in net realized investment gains (that also includes a loss on other-than-temporary impairment)

 

●

$1,862,713 increase in interest credited to policyholders

 

Corporate Operations

 

The $226,773 decrease in revenues from Corporate Operations for the year ended December 31, 2017 is primarily due to $220,538 decreased net investment income and $6,235 decreased other income.

 

The $11,611 decrease in Corporate Operations profitability for the year ended December 31, 2017 is primarily due to $220,538 decreased net investment income, $6,235 decreased other income and $215,162 decreased operating expenses.

 

Consolidated Financial Condition

 

Our invested assets as of December 31, 2017 and 2016 are summarized as follows:

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 less 2016
Assets
Investments
Available-for-sale fixed maturity securities at fair value (amortized cost: $143,621,947 and $128,310,625 as of December 31, 2017 and 2016, respectively)		$	149,683,139			$	129,311,155			$	20,371,984
Available-for-sale equity securities at fair value (cost: $602,864 and $599,400 as of December 31, 2017 and 2016, respectively)			672,147				638,407				33,740
Mortgage loans on real estate			102,496,451				74,371,286				28,125,165
Investment real estate			2,382,966				2,506,673				(123,707	)
Policy loans			1,660,175				1,598,116				62,059
Short-term investments			547,969				-				547,969
Other long-term investments			55,814,583				46,788,873				9,025,710
Total investments		$	313,257,430			$	255,214,510			$	58,042,920

 

 

The $20,371,984 increase and $5,244,872 decrease in fixed maturity available-for-sale securities for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,
		2017				2016
Fixed maturity securities, available-for-sale, beginning		$	129,311,155			$	134,556,027
Purchases			37,095,248				11,338,377
Unrealized appreciation			5,060,303				4,473,318
Net realized investment gains (losses)			(19,437	)			371,037
Sales proceeds			(12,389,756	)			(14,933,968	)
Maturities			(7,841,000	)			(5,599,000	)
Transfer to other long-term investments			(729,737	)			-
Premium amortization			(803,637	)			(894,636	)
Increase (decrease)			20,371,984				(5,244,872	)
Fixed maturity securities, available-for-sale, ending		$	149,683,139			$	129,311,155

 

Fixed maturity securities available-for-sale are reported at fair value with unrealized gains and losses, net of applicable income taxes, reflected as a separate component in shareholders' equity within “Accumulated Other Comprehensive Income (Loss).” The available-for-sale fixed maturity securities portfolio is invested primarily in a variety of companies, U. S. government and government agencies, states and political subdivisions and foreign securities.

 

The $33,740 increase and $254,393 decrease in equity securities available-for-sale for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,
		2017				2016
Equity securities, available-for-sale, beginning		$	638,407			$	892,800
Purchases			3,465				34,340
Sales proceeds			-				(324,556	)
Unrealized appreciation (depreciation)			30,275				(63,578	)
Net realized investment gains			-				99,401
Increase (decrease)			33,740				(254,393	)
Equity securities, available-for-sale, ending		$	672,147			$	638,407

 

Equity securities available-for-sale are also reported at fair value with unrealized gains and losses, net of applicable income taxes, reflected as a separate component in shareholders' equity within “Accumulated Other Comprehensive Income (Loss).” The available-for-sale equity securities portfolio is invested in a small number of companies.

 

 

The $28,125,165 and $15,596,368 increases in mortgage loans on real estate for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,
		2017				2016
Mortgage loans on real estate, beginning		$	74,371,286			$	58,774,918
Purchases			53,913,277				33,480,579
Capitalization of loan origination fees			-				4,531
Discount accretion			252,903				157,424
Net realized investment gains			-				72,513
Payments			(25,670,590	)			(17,550,870	)
Foreclosed - transferred to real estate			(207,482	)			(394,427	)
Increase in allowance for bad debts			(98,388	)			(61,079	)
Amortization of loan origination fees			(64,555	)			(112,303	)
Increase			28,125,165				15,596,368
Mortgage loans on real estate, ending		$	102,496,451			$	74,371,286

 

The $123,707 decrease and $180,115 increase in investment real estate for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,
		2017				2016
Investment real estate, beginning		$	2,506,673			$	2,326,558
Real estate acquired through mortgage loan foreclosure			207,482				394,427
Sales proceeds			(190,083	)			(43,269	)
Depreciation of building			(145,488	)			(145,489	)
Net realized investment gains (losses)			4,382				(25,554	)
Increase (decrease)			(123,707	)			180,115
Investment real estate, ending		$	2,382,966			$	2,506,673

 

The $9,025,710 and $15,221,946 increases in other long-term investments (comprised primarily of lottery receivables) for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,
		2017				2016
Other long-term investments, beginning		$	46,788,873			$	31,566,927
Purchases			14,036,082				17,973,300
Transfer from fixed maturity available for-sale securities			729,737				-
Accretion of discount			3,652,776				2,685,635
Net realized investment gains			62,275				-
Sales proceeds			(792,012	)			-
Payments			(8,663,148	)			(5,436,989	)
Increase			9,025,710				15,221,946
Other long-term investments, ending		$	55,814,583			$	46,788,873

 

 

The $547,969 increase in short-term investments is due to management’s decision to increase our investment in funds that have a maturity of more than 90 days but less than one year at the date of purchase.

 

Our assets other than invested assets as of December 31, 2017 and 2016 are summarized as follows:

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 to 2016
Cash and cash equivalents		$	31,496,159			$	34,223,945			$	(2,727,786	)
Accrued investment income			2,544,963				2,176,770				368,193
Recoverable from reinsurers			1,340,700				1,258,938				81,762
Agents' balances and due premiums			1,485,305				1,419,250				66,055
Deferred policy acquisition costs			24,555,902				18,191,990				6,363,912
Value of insurance business acquired			5,526,645				5,908,835				(382,190	)
Other assets			10,920,570				14,858,375				(3,937,805	)
Assets other than investment assets		$	77,870,244			$	78,038,103			$	(167,859	)

 

The $2,727,786 decrease in cash and cash equivalents for the year ended December 31, 2017 and the corresponding amount for the year ended December 31, 2016 are summarized in the Company’s consolidated statements of cash flows.

 

The increase in deferred policy acquisition costs for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		2017				2016
Balance, beginning of year		$	18,191,990			$	13,015,679
Capitalization of commissions, sales and issue expenses			9,321,726				7,445,304
Amortization			(2,870,412	)			(2,202,367	)
Deferred acquisition costs allocated to investments			(87,402	)			(66,626	)
Balance, end of year		$	24,555,902			$	18,191,990

 

The $368,193 increase (16.9% increase) in accrued investment income in 2017 corresponds to the $58,042,920 increase (22.7% increase) in invested assets during 2017.

 

Our other assets as of December 31, 2017 and December 31, 2016 are summarized as follows:

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 less 2016
Advances to mortgage loan originator		$	4,925,259			$	5,207,380			$	(282,121	)
Federal and state income taxes recoverable			2,504,494				2,220,566				283,928
Notes receivable			448,006				464,366				(16,360	)
Accrual of mortgage loan and long-term investment payments due			2,516,490				511,585				2,004,905
Receivable for securities sold			364,611				6,288,274				(5,923,663	)
Guaranty funds			73,151				78,711				(5,560	)
Other receivables, prepaid assets and deposits			88,559				87,493				1,066
Total other assets		$	10,920,570			$	14,858,375			$	(3,937,805	)

 

As of December 31, 2017, the Company had $364,611 in security sales where the trade date and settlement date were in different financial reporting periods compared to $6,288,274 of security sales overlapping financial reporting periods as of December 31, 2016.

 

There was a $282,121 decrease in advances to one mortgage loan originator who acquires residential mortgage loans for our life companies.   

 

 

There was a $283,928 increase in federal and state income taxes recoverable primarily due to federal and state tax withholdings on lottery receivables.

 

There was a $2,004,905 increase in the accrual of mortgage loans and long-term investment payments due based upon the scheduled timing of investment payments remitted by the third party servicers. Those cash payments were received in January 2018.

 

On April 15, 2017, the Company renewed its previous one-year loan of $400,000 to its former Chairman. The renewed loan also has a term of one year and a contractual interest rate of 5.00%. The loan is collateralized by 100,000 shares of the Company’s Class A Common stock owned by the former Chairman and is included in notes receivable.

 

Our liabilities as of December 31, 2017 and 2016 are summarized as follows:

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 less 2016
Policy liabilities
Policyholders' account balances		$	292,909,762			$	245,346,489			$	47,563,273
Future policy benefits			49,663,099				44,266,227				5,396,872
Policy claims			1,148,513				997,814				150,699
Other policy liabilities			68,490				69,854				(1,364	)
Total policy liabilities			343,789,864				290,680,384				53,109,480
Deferred federal income taxes			2,961,929				693,470				2,268,459
Other liabilities			3,123,702				5,598,484				(2,474,782	)
Total liabilities		$	349,875,495			$	296,972,338			$	52,903,157

 

The $47,563,273 and $47,657,873 increases in policyholders’ account balances for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,
		2017				2016
Policyholders' account balances, beginning		$	245,346,489			$	197,688,616
Deposits			56,666,113				53,989,462
Withdrawals			(17,942,859	)			(13,308,895	)
Interest credited			8,840,019				6,977,306
Increase			47,563,273				47,657,873
Policyholders' account balances, ending		$	292,909,762			$	245,346,489

 

The $5,396,872 increase in future policy benefits during the year ended December 31, 2017 is primarily related to the production of new life insurance policies, initial sales of policies to older age bands (resulting in increased mortality reserve charges) and the aging of existing policies.

 

The $2,268,459 increase in deferred federal income taxes during the year ended December 31, 2017 was due to $1,060,901 of increased deferred federal income taxes on the unrealized appreciation of fixed maturity and equity securities available-for-sale, $1,267,823 of operating deferred federal tax expense and $60,265 from a 1% change in the statutory tax rate to 21% compared to the 20% historically used to compute deferred federal income taxes on the unrealized appreciation (depreciation) of fixed maturity and equity securities available-for-sale.

 

 

Our other liabilities as of December 31, 2017 and December 31, 2016 are summarized as follows:

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 less 2016
Suspense accounts payable		$	42,901			$	4,684,726			$	(4,641,825	)
Accounts payable			1,898,817				-				1,898,817
Accrued expenses payable			776,000				527,938				248,062
Payable for securities purchased			462,598				234,225				228,373
Guaranty fund assessments			43,000				60,000				(17,000	)
Unearned investment income			62,326				48,466				13,860
Deferred revenue			29,784				29,632				152
Unclaimed funds			23,622				23,057				565
Other payables, withholdings and escrows			(215,346	)			(9,560	)			(205,786	)
Total other liabilities		$	3,123,702			$	5,598,484			$	(2,474,782	)

 

The $4,641,825 decrease in suspense accounts payable is primarily due to decreased deposits on policy applications that had not been issued as of the financial reporting date.

 

The $205,786 decline in other payables, withholdings and escrows is primarily due to an increase in escrows on commercial mortgage loans.

 

As of December 31, 2017, the Company had $462,598 in security purchases where the trade date and settlement date were in different financial reporting periods compared to $234,225 of security purchases overlapping financial reporting periods as of December 31, 2016.

 

The $248,062 increase in accrued expenses payable is primarily due to an increase in FBLIC Term to 95 lawsuit legal fees as of December 31, 2017.

 

The $1,898,817 increase in accounts payable is primarily due to the $1.85 million settlement of the FBLIC Term to 95 lawsuit.   

 

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, 2017, 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.

 

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

 

 

As of December 31, 2017, we had cash and cash equivalents totaling $31,496,159. As of December 31, 2017, cash and cash equivalents of $10,734,154 and $18,636,600, respectively, were held by FBLIC and TLIC and may not be available for use by FTFC due to the required pre-approval by the MDOI and 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 capacity for TLIC to pay a dividend up to $1,124,823 in 2018 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $760,348 in 2018 without prior approval. FBLIC paid dividends of $1,000,000 to TLIC in 2016 but none in 2017. Dividends paid by FBLIC are eliminated in consolidation. 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 $21,835,216 and $22,117,921 as of December 31, 2017 and December 31, 2016, 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.

 

On September 1, 2017, the Company agreed to a $1.0 million line of credit with a bank to provide working capital and funds for expansion.  The terms of the line of credit allow for advances, repayments and re-borrowings through the maturity date of July 1, 2018.  The outstanding advances incur interest at a variable interest rate of the prime rate set forth in the Wall Street Journal plus 1% per annum adjusting monthly based on a 360 day year.  This line of credit is subject to annual renewal based upon the discretion of both the Company and the bank.   The Company did not utilize the line of credit during 2017.

 

Our cash flows for the years ended December 31, 2017 and 2016 are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Net cash provided by operating activities		$	1,898,407			$	9,485,884			$	(7,587,477	)
Net cash used in investing activities			(43,349,447	)			(24,990,092	)			(18,359,355	)
Net cash provided by financing activities			38,723,254				40,680,567				(1,957,313	)
Increase (decrease) in cash			(2,727,786	)			25,176,359				(27,904,145	)
Cash and cash equivalents, beginning of period			34,223,945				9,047,586				25,176,359
Cash and cash equivalents, end of period		$	31,496,159			$	34,223,945			$	(2,727,786	)

 

 

The $1,898,407 and $9,485,884 of cash provided by operating activities for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:

 

		Years Ended December 31,								Amount Change
		2017				2016				2017 less 2016
Premiums collected		$	15,861,633			$	12,854,146			$	3,007,487
Net investment income collected			11,249,130				11,414,304				(165,174	)
Death benefits paid			(4,394,917	)			(3,546,483	)			(848,434	)
Surrenders paid			(878,361	)			(728,122	)			(150,239	)
Commissions paid			(8,656,921	)			(7,219,722	)			(1,437,199	)
Other underwriting, insurance and acquisition expenses paid			(5,747,916	)			(5,037,607	)			(710,309	)
Taxes paid			(389,622	)			(992,518	)			602,896
Increased (decreased) advances to mortgage loan originator			282,121				(2,112,317	)			2,394,438
Increased (decreased) deposits of pending policy applications			(4,641,825	)			4,509,592				(9,151,417	)
(Increased) decreased short-term investment			(547,969	)			599,855				(1,147,824	)
Other			(236,946	)			(255,244	)			18,298
Increase in cash provided by operating activities		$	1,898,407			$	9,485,884			$	(7,587,477	)

 

Please see the statements of cash flows for the years ended December 31, 2017 and 2016 for a summary of the components of net cash used in investing activities and net cash provided by financing activities.

 

Our shareholders’ equity as of December 31, 2017 and 2016 is summarized as follows:

 

										Amount Change
		December 31, 2017				December 31, 2016				2017 less 2016
Common stock, par value $.01 per share (20,000,000 shares authorized, 8,050,173 issued as of December 31, 2017 and 2016 and 7,802,593 outstanding as of December 31, 2017 and 2016)		$	80,502			$	80,502			$	-
Additional paid-in capital			28,684,598				28,684,598				-
Treasury stock, at cost (247,580 shares as of December 31, 2017 and 2016)			(893,947	)			(893,947	)			-
Accumulated other comprehensive income (loss)			4,760,951				818,676				3,942,275
Accumulated earnings			8,620,075				7,590,446				1,029,629
Total shareholders' equity		$	41,252,179			$	36,280,275			$	4,971,904

 

The increase in shareholders’ equity of $4,971,904 for the year ended December 31, 2017 is due to other comprehensive income of $3,942,275, net income of $969,364 and $60,265 for a 1% increase in the statutory tax rate to 21% compared to the 20% historically used to compute deferred federal income taxes on the unrealized appreciation (depreciation) of fixed maturity and equity securities available-for-sale. Shareholders’ equity per common share outstanding increased 13.8% from $4.65 per share as of December 31, 2016 to $5.29 per share as of December 31, 2017, based upon 7,802,593 common shares outstanding as of both December 31, 2016 and 2017.

 

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 2017 or 2016. 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 appreciation on available-for-sale securities of $6,130,475 and $1,039,897 as of December 31, 2017 and 2016, respectively, prior to the impact of income taxes and deferred acquisition cost adjustments. An increase of $5,071,141 in unrealized gains arising for the year ended December 31, 2017 includes 2017 net realized investment losses of $19,437 originating from the sale and call activity for fixed maturity and equity securities available-for-sale resulting in a net increase in net unrealized appreciation for the year ended December 31, 2017 of $5,090,578.

 

 

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

 

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

 

From an income perspective, we are exposed to rising interest rates which could be a significant risk, as TLIC's and FBLIC’s annuity business is impacted by changes in interest rates. Life insurance company policy liabilities bear fixed rates. From a liquidity perspective, our fixed rate policy liabilities are relatively insensitive to interest rate fluctuations. We believe gradual increases in interest rates do not present a significant liquidity exposure for the life insurance policies and annuity contracts. We maintain conservative durations in our fixed maturity portfolio.

 

As of December 31, 2017, 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 13.3% 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 2017, 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, 2017, the Company entered into a revised advance agreement with one loan originator. As of December 31, 2017, the Company has outstanding advances to this loan originator totaling $4,925,259. The advances are secured by $6,375,214 of residential mortgage loans on real estate that are assigned to the Company. The Company has committed to fund up to an additional $574,741 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, 2017, 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, 2017, $564,479 of additional and secured residential mortgage loan balances on real estate are held in escrow by the loan originator.  As of December 31, 2017, $394,978 of that escrow amount is available to the Company as additional collateral on $4,925,259 of advances to the loan originator. The remaining December 31, 2017 escrow amount of $169,501 is available to the Company as additional collateral on its investment of $33,900,260 in residential mortgage loans on real estate.

 

 

We are not aware of any commitments or unusual events that could materially affect our capital resources. We are not aware of any current recommendations by any regulatory authority which, if implemented, would have a material adverse effect on our liquidity, capital resources or operations. We believe that our existing cash and cash equivalents as of December 31, 2017 will be sufficient to fund our anticipated operating expenses.

 

Off-Balance Sheet Arrangements

 

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

 

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

 

 

Certain statements contained herein are forward-looking statements. The forward-looking statements are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and include estimates and assumptions related to economic, competitive and legislative developments. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning; and include, but are not limited to, statements regarding the outlook of our business and financial performance. These forward-looking statements are subject to change and uncertainty, which are, in many instances, beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect upon us. 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, including and in connection with our divestiture or winding down of businesses such as FTCC;

●

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.

 

 

FIRST TRINITY FINANCIAL CORPORATION AND SUBSIDIARIES

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

 

Consolidated Financial Statements	Page Numbers
Report of Independent Registered Public Accounting Firm	40
Consolidated Statements of Financial Position	41
Consolidated Statements of Operations	42
Consolidated Statements of Comprehensive Income	43
Consolidated Statements of Changes in Shareholders’ Equity	44
Consolidated Statements of Cash Flows	45
Notes to Consolidated Financial Statements	47

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and

Shareholders of First Trinity Financial Corporation

 

Opinion on the 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, 2017, 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, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 consolidated 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 consolidated 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.

 

/s/ Kerber, Eck & Braeckel LLP

 

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

 

Springfield, Illinois

March 7, 2018

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

 

 

See notes to consolidated financial statements.

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

 

 

 

See notes to consolidated financial statements.

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

 

 

 

See notes to consolidated financial statements.

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Years Ended December 31, 2017 and 2016

 

 

 

See notes to consolidated financial statements.

 

 

 First Trinity Financial Corporation and Subsidiaries

 Consolidated Statements of Cash Flows 

 

 

 

See notes to consolidated financial statements.

 

 

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

 

 

 

 

 

  

 

 

 

 

 

 

 

 

 

 

 

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

 

None

 

Item 9A. Controls and Procedures. (This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section).

 

Evaluation of Disclosure Controls and Procedures

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 as amended (“Exchange Act”) as of the end of the fiscal period covered by this Annual Report on Form 10-K. 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.

 

Management’s 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 Securities Exchange Act of 1934. 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, 2017.

 

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.

 

 

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 twelve months ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. Other Information

 

None

 

Part III

 

Item 10. Directors, Executive Officers and Corporate Governance

 

The information required by this Item is incorporated by reference from the Company’s proxy statement for the 2018 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

 

Item 11. Executive Compensation

 

The information required by this Item is incorporated by reference from the Company’s proxy statement for the 2018 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

The information required by this Item is incorporated by reference from the Company’s proxy statement for the 2018 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

 

Item 13. Certain Relationships and Related Transactions, and Director Independence

 

The information required by this Item is incorporated by reference from the Company’s proxy statement for the 2018 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

 

Item 14. Principal Accounting Fees and Services

 

The information required by this Item is incorporated by reference from the Company’s proxy statement for the 2018 annual meeting of shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934.

 

Item 15. Exhibits

 

The exhibits are listed in the Exhibit Index, which is incorporated herein by reference.

 

 

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 8, 2018	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 8, 2018	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 8, 2018
	Gregg E. Zahn
	Chairman of the Board, President, Chief Executive Officer and Director
By	/s/ William S. Lay		Date  March 8, 2018
	William S. Lay
	Vice President, Chief Investment Officer and Director
By	/s/ Bill H. Hill		Date  March 8, 2018
	Bill H. Hill, Director
By	/s/ Will W. Klein		Date  March 8, 2018
	Will W. Klein, Director
By	/s/ Gerald J. Kohout		Date  March 8, 2018
	Gerald J. Kohout, Director
By	/s/ Charles W, Owens		Date  March 8, 2018
	Charles W. Owens, Director
By	/s/ George E. Peintner		Date  March 8, 2018
	George E, Peintner, Director
By	/s/ Gary L. Sherrer		Date  March 8, 2018
	Gary L. Sherrer, Director

 

 

EXHIBIT INDEX

 

Exhibit Number		Description of Exhibit
	3.1	Amended Certificate of Incorporation, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed June 17, 2009.

 

3.2

By-laws, as amended and restated, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed May 1, 2009.

 

4.1

Specimen Stock Certificate, incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form 10SB12G filed April 30, 2007.

 

5.1

Opinion of Cooper & Newsome PLLP, incorporated by reference to Exhibit 5.1 of the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1/A filed June 23, 2010.

 

5.2

Opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., incorporated by reference to Exhibit 5.2 of the Pre-Effective Amendment No. 3 to the Registration Statement on Form POS AM filed March 31, 2011.

 

5.3

Opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., incorporated by reference to Exhibit 5.3 of the Pre-Effective Amendment No. 3 to the Registration Statement on Form POS AM filed April 3, 2012.

 

10.1

Administrative Service Agreement between TLIC (formerly FLAC) and Investors Heritage Life Insurance Company, incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 17, 2009.

 

10.2

Lease Agreement, incorporated by reference as Exhibit 10.2 to the Company’s Registration Statement on Form 10SB12G filed April 30, 2007.

 

10.3

Reinsurance Agreement with Investors Heritage Life Insurance Company is incorporated by reference as Exhibit 10.3 to the Company’s Registration Statement on Form 10SB12G/A filed July 23, 2007.

 

10.4

Reinsurance Agreement with Munich American Reinsurance Company is incorporated by reference as Exhibit 10.4 to the Company’s registration statement on Form 10SB12G/A filed July 23, 2007.

 

10.5

First Amendment to Lease Agreement between First Trinity Financial Corporation and Amejak Limited Partnership dated July 1, 2008, incorporated by reference as Exhibit 10.6 to the Company’s Annual report on Form 10-K filed April 14, 2009.

 

10.6

Supplemental Lease Agreement dated July 10, 2006 between First Life America Corporation and the United States of America, incorporated by reference as Exhibit 10.7 of the Company’s Annual Report on Form 10-K filed April 14, 2009.

 

10.7

Supplemental Lease Agreement dated August 2, 2006 between First Life America Corporation and the United States of America, incorporated by reference as Exhibit 10.8 of the Company’s Annual Report on Form 10-K filed April 14, 2009.

 

10.8

Employment Agreement of William S. Lay, dated April 18, 2009, incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed April 22, 2009.

 

10.9

Loan agreement between First Trinity Capital Corporation and First National Bank of Muskogee dated March 12, 2009, incorporated by reference as Exhibit 10.1 to the company’s Quarterly Report on Form 10-Q filed May 15, 2009.

 

 

EXHIBIT INDEX (continued)

 

Exhibit Number		Description of Exhibit
	10.10	Loan guaranty agreement between First Trinity Capital Corporation and First National Bank of Muskogee dated March 12, 2009, incorporated by reference as Exhibit 10.2 to the company’s Quarterly Report on Form 10-Q filed May 15, 2009.

 

10.11

Administrative Services Agreement between First Life America Corporation and Investors Heritage Life Insurance Company dated June 16, 2009, incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 17, 2009.

 

10.12

First Amendment to Administrative Services Agreement between Trinity Life Insurance Company and Investors Heritage Life Insurance Company incorporated by reference as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed June 17, 2009.

 

10.13

Amendment to Employment Agreement of William S. Lay dated April 23, 2010, incorporated by reference as Exhibit 10.1 of the Company’s Current Report on Form 8-K filed April 28, 2010.

 

10.14

Employment Agreement of Gregg E. Zahn, President, dated June 7, 2010, incorporated by reference as Exhibit 10.1 of the Company’s Current Report on Form 8-K filed June 11, 2010.

 

10.15

Second Amendment to Lease Agreement between First Trinity Financial Corporation and Amejak Limited Partnership dated June 16, 2010, incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed June 22, 2010.

 

10.16

Amendment to Employment Agreement of Gregg E. Zahn, President, dated December 8, 2011, incorporated by reference as Exhibit 10.6 of the Company’s Current Report on Form 8-K filed December 13, 2011.

 

10.17

Employment Agreement of William S. Lay, dated December 8, 2011, incorporated by reference as Exhibit 10.5 of the Company’s Current Report on Form 8-K filed December 13, 2011.

 

10.18

Employment Agreement of Jeffrey J. Wood, dated December 8, 2011, incorporated by reference as Exhibit 10.4 of the Company’s Current Report on Form 8-K filed December 13, 2011.

 

10.19

Not Used

 

10.20

Amendment to Employment Agreement of Gregg E. Zahn, President, dated April 9, 2013, incorporated by reference as Exhibit 10.20 of the Company’s Current Report on Form 8-K filed April 11, 2013.

 

10.21

Employment Agreement of Jeffrey J. Wood, dated April 9, 2013, incorporated by reference as Exhibit 10.21 of the Company’s Current Report on Form 8-K filed April 11, 2013.

 

10.22

Employment Agreement of William S. Lay, dated December 12, 2013, incorporated by reference as Exhibit 10.22 of the Company’s Current Report on Form 8-K filed December 12, 2013.

 

10.23

Employment Agreement of William S. Lay, dated December 12, 2015, incorporated by reference as Exhibit 10.23 of the Company’s Current Report on Form 8-K filed December 14, 2015.

 

10.24

Employment Agreement of Jeffrey J. Wood, dated December 23, 2015, incorporated by reference as Exhibit 10.24 of the Company’s Current Report on Form 8-K filed December 28, 2015.

 

 

EXHIBIT INDEX (continued)

 

Exhibit Number		Description of Exhibit
	10.25	Amendment to Employment Agreement of Jeffrey J. Wood, dated February 26, 2016, incorporated by reference as Exhibit 10.25 of the Company’s Current Report on Form 8-K filed February 29, 2016.

 

10.26

Amendment to Employment Agreement of Gregg E. Zahn, President, dated September 5, 2017, incorporated by reference as Exhibit 10.26 of the Company’s Current Report on Form 8-K filed September 8, 2017.

 

17.1

Resignation Letter of Board of Director Member Shannon B. Young dated August 5, 2012, incorporated by reference as Exhibit 17.1 of the Company’s Current Report on Form 8-K filed August 10, 2012.

 

17.2

Addendum 1 dated August 9, 2012 to Resignation Letter of Board of Director Member Shannon B. Young dated August 4, 2012, incorporated by reference as Exhibit 17.2 of the Company’s Current Report on Form 8-K/A filed August 10, 2012.

 

17.3

Addendum 2 dated August 10, 2012 to Resignation Letter of Board of Director Member Shannon B. Young dated August 5, 2012, incorporated by reference as Exhibit 17.3 of the Company’s Current Report on Form 8-K/A filed August 10, 2012.

 

17.4

Resignation Letter of Board of Director Member G. Wayne Pettigrew dated April 8, 2013 (received by mail on April 10, 2013), incorporated by reference as Exhibit 17.4 of the Company’s Current Report on Form 8-K filed April 15, 2013.

 

17.5

Addendum dated April 16, 2013 to Resignation Letter of Board of Director Member G. Wayne Pettigrew dated April 8, 2013 (received by mail on April 10, 2013), incorporated by reference as Exhibit 17.5 of the Company’s Current Report on Form 8-K/A filed April 17, 2013.

 

21.1*

Subsidiaries of First Trinity Financial Corporation.

 

21.2

Letter to Jeffrey Reidler, Division of Corporate Finance, United States Securities and Exchange Commission, incorporated by reference as Exhibit 21.2 of the Company’s Pre-Effective Amendment No. 4 to the Registration Statement on Form POS AM filed April 3, 2012.

 

23.1

Consent of Cooper & Newsome PLLP (included as part of its opinion), incorporated by reference as Exhibit 5.1 of the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1/A filed June 23, 2010.

 

23.2

Consent of Kerber, Eck and Braeckel, LLP, incorporated by reference as Exhibit 23.2 of the Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1/A filed May 17, 2010.

 

23.3

Consent of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., (included as part of its opinion), incorporated by reference as Exhibit 5.2 of the Pre-Effective Amendment No. 3 to the Registration Statement on Form POS AM filed March 31, 2011.

 

23.4

Consent of Kerber, Eck and Braeckel, LLP, incorporated by reference as Exhibit 23.4 of the Company’s Pre-Effective Amendment No. 3 to Registration Statement on Form POS AM filed March 31, 2011.

 

* Filed herewith

 

 

EXHIBIT INDEX (continued)

 

Exhibit Number		Description of Exhibit
	23.5	Consent of Seaver & Forck, CPAs, incorporated by reference to Exhibit 23.1 of the Company’s Current Report on Form 8-K/A filed March 9, 2012.

 

23.6

Consent of Kerber, Eck and Braeckel, LLP, incorporated by reference to Exhibit 23.4 of the Company’s Pre-Effective Amendment No. 4 to Registration Statement on Form POS AM filed April 3, 2012.

 

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.

 

99.1

Oklahoma Insurance Holding Company Disclaimer of Control of Gregg Zahn, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form 10SB12G filed on April 30, 2007.

 

99.2

Form of Promotional Shares Escrow Agreement (six year restriction), is incorporated by reference to Exhibit 99.2 to the Company’s Registration Statement on Form 10SB12G filed April 30, 2007.

 

99.3

Form of Promotional Shares Escrow Agreement (four year restriction), is incorporated by reference to Exhibit 99.3 to the Company’s Registration Statement on Form 10SB12G filed on April 30, 2007.

 

99.4

Termination of Oklahoma Insurance Holding Company Disclaimer of Control between the Oklahoma Department of Insurance and Gregg Earl Zahn dated August 2, 2007 is incorporated by reference to Exhibit 99.4 to the Company’s Form 10KSB filed on March 31, 2008.

 

99.5

First Life America Corporation unaudited financial statements for the period ending September 30, 2008, incorporated by reference to Exhibit 99.5 to the Company’s Form 10-K filed on April 14, 2009.

 

99.6

First Life America Corporation audited financial statements for the years ended December 31, 2007 and 2006, incorporated by reference to Exhibit 99.6 to the Company’s Form 10-K filed on April 14, 2009.

 

99.7

Pro forma condensed financial information for the acquisition of First Life America Corporation on December 23, 2008, incorporated by reference to Exhibit 99.7 to the Company’s Form 10-K filed on April 14, 2009.

 

99.8

Form R Oklahoma Redomestication Application of First Life America Corporation, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed June 17, 2009.

 

99.9

Completion of acquisition of First Life America Corporation, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed January 27, 2009.

 

* Filed herewith

 

 

EXHIBIT INDEX (continued)

 

Exhibit Number		Description of Exhibit
	99.10	Subscription Agreement, incorporated by reference to Exhibit 99.10 of the Pre-Effective Amendment No. 2 to the Registration Statement on Form S-1/A filed June 23, 2010.

 

99.11

Subscription Escrow Agreement, as amended on March 31, 2011, incorporated by reference to Exhibit 99.10 to the Company’s Form POS AM filed on March 31, 2011.

 

99.12

Form A Application Missouri Statement Regarding the Acquisition of Control or Merger of Domestic Insurer Family Benefit Life Insurance Company on August 25, 2011, incorporated by reference to Exhibit 99.13 to the Company’s Form 8-K filed on August 31, 2011.

 

99.13

Missouri Approval Regarding the Acquisition of Control or Merger of Domestic Insurer Family Benefit Life Insurance Company on October 14, 2011, incorporated by reference to the Company’s Form 8-K filed on October 19, 2011.

 

99.14

Completion of acquisition of Family Benefit Life Insurance Company, incorporated by reference to Exhibit 99.18 to the Company’s Current Report on Form 8-K filed December 28, 2011.

 

99.15

Family Benefit Life Insurance Company audited financial statements for the years ended December 31, 2010 and 2011, incorporated by reference to Exhibit 99.19 to the Company’s Form 8-K/A filed on March 9, 2012.

 

99.16

Unaudited Pro forma financial statements for the acquisition of Family Benefit Life Insurance Company as of and for the year ended December 31, 2011, incorporated by reference to Exhibit 99.20 to the Company’s Form 8-K/A filed on March 9, 2012.

 

101.INS**

XBRL Instance

 

101.SCH**

XBRL Taxonomy Extension Schema

 

101.CAL**

XBRL Taxonomy Extension Calculation

 

101.DEF**

XBRL Taxonomy Extension Definition

 

101.LAB**

XBRL Taxonomy Extension Labels

 

101.PRE**

XBRL Taxonomy Extension Presentation

 

**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.

 

89