United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2021

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

For the transition period From                                 to                                 .

Commission file number: 000-52613

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

7633 East 63rd Place, Suite 230

Tulsa, Oklahoma 74133-1246

(Address of principal executive offices)

(918) 249-2438

(Registrant's telephone number, including area code)

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

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

Yes ☑ No ☐

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

Large accelerated filer:  ☐	Accelerated filer:  ☐	Non-accelerated filer:  ☐	Smaller reporting company:  ☑
Emerging growth company:  ☐

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

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

Yes ☐       No ☑

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 8, 2021, the registrant had 8,661,696 shares of Class A common stock, .01 par value, outstanding and 101,102 shares of Class B common stock, .01 par value, outstanding.

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

FIRST TRINITY FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2021

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page Number
Item 1. Consolidated Financial Statements
Consolidated Statements of Financial Position as of September 30, 2021 (Unaudited) and December 31, 2020		3
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)		4
Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)		5
Consolidated Statements of Changes in Shareholders’ Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (Unaudited)		6
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020 (Unaudited)		7
Notes to Consolidated Financial Statements (Unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Item 4. Controls and Procedures		62
Part II. OTHER INFORMATION
Item 1. Legal Proceedings		62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		63
Item 3. Defaults upon Senior Securities		63
Item 4. Mine Safety Disclosures		63
Item 5. Other Information		63
Item 6. Exhibits		63
Signatures		64

Exhibit No. 31.1                                                                                                   

Exhibit No. 31.2                                                                                                   

Exhibit No. 32.1                                                                                                   

Exhibit No. 32.2

Exhibit No. 101.INS

Exhibit No. 101.SCH

Exhibit No. 101.CAL

Exhibit No. 101.DEF

Exhibit No. 101.LAB

Exhibit No. 101.PRE

2

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

	(Unaudited)
	September 30, 2021			December 31, 2020
Assets
Investments
Available-for-sale fixed maturity securities at fair value (amortized cost: $153,991,976 and $148,431,010 as of September 30, 2021 and December 31, 2020, respectively)	$	172,745,212		$	170,647,836
Available-for-sale preferred stock securities at fair value (amortized cost: $1,250,000 as of September 30, 2021)		1,234,000			-
Equity securities at fair value (cost: $285,412 and $183,219 as of September 30, 2021 and December 31, 2020, respectively)		340,754			203,003
Mortgage loans on real estate		170,647,657			174,909,062
Investment real estate		688,345			757,936
Policy loans		2,218,249			2,108,678
Short-term investments		1,674,777			3,309,020
Other long-term investments		66,700,899			71,025,133
Total investments		416,249,893			422,960,668
Cash and cash equivalents		63,024,968			40,230,095
Accrued investment income		4,913,923			5,370,508
Recoverable from reinsurers		1,053,179			1,234,221
Assets held in trust under coinsurance agreement		109,072,674			112,160,307
Agents' balances and due premiums		1,945,949			2,154,322
Deferred policy acquisition costs		48,664,102			44,513,669
Value of insurance business acquired		4,382,627			4,592,977
Other assets		12,152,845			10,378,502
Total assets	$	661,460,160		$	643,595,269
Liabilities and Shareholders' Equity
Policy liabilities
Policyholders' account balances	$	377,072,802		$	362,519,753
Future policy benefits		85,241,834			76,673,797
Policy claims		1,869,646			2,099,548
Other policy liabilities		113,157			119,699
Total policy liabilities		464,297,439			441,412,797
Funds withheld under coinsurance agreement		109,678,542			112,681,925
Deferred federal income taxes		9,079,407			9,220,905
Other liabilities		9,449,432			10,427,430
Total liabilities		592,504,820			573,743,057
Shareholders' equity
Class A common stock, par value $.01 per share (40,000,000 shares authorized as of September 30, 2021 and December 31, 2020, 8,909,276 issued as of September 30, 2021 and December 31, 2020, 8,661,696 outstanding as of September 30, 2021 and December 31, 2020)		89,093			89,093
Class B common stock, par value $.01 per share (10,000,000 shares authorized, 101,102 issued and outstanding as of September 30, 2021 and December 31, 2020)		1,011			1,011
Additional paid-in capital		39,078,485			39,078,485
Treasury stock, at cost (247,580 shares as of September 30, 2021 and December 31, 2020)		(893,947	)		(893,947	)
Accumulated other comprehensive income		14,794,261			17,518,858
Accumulated earnings		15,886,437			14,058,712
Total shareholders' equity		68,955,340			69,852,212
Total liabilities and shareholders' equity	$	661,460,160		$	643,595,269

See notes to consolidated financial statements (unaudited).

3

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Revenues
Premiums	$	8,323,522		$	7,166,641		$	23,182,831		$	19,971,741
Net investment income		5,757,862			5,749,175			17,979,206			17,895,091
Net realized investment gains		320,735			118,960			491,098			552,842
Service fees		12,245			23,212			191,833			41,108
Other income		13,793			17,681			73,134			136,472
Total revenues		14,428,157			13,075,669			41,918,102			38,597,254
Benefits, Claims and Expenses
Benefits and claims
Increase in future policy benefits		3,437,541			2,995,221			8,639,474			8,103,379
Death benefits		2,315,438			2,600,833			8,108,650			6,695,141
Surrenders		112,980			242,460			834,545			881,365
Interest credited to policyholders		3,279,558			3,071,581			9,487,050			9,191,808
Dividend, endowment and supplementary life contract benefits		82,600			69,984			225,666			223,202
Total benefits and claims		9,228,117			8,980,079			27,295,385			25,094,895
Policy acquisition costs deferred		(3,142,259	)		(3,056,211	)		(9,325,731	)		(8,134,182	)
Amortization of deferred policy acquisition costs		1,683,068			1,144,749			5,206,030			3,665,161
Amortization of value of insurance business acquired		67,030			73,778			210,350			227,328
Commissions		3,161,051			2,960,619			9,172,274			7,766,710
Other underwriting, insurance and acquisition expenses		2,085,184			1,908,840			6,946,126			7,285,760
Total expenses		3,854,074			3,031,775			12,209,049			10,810,777
Total benefits, claims and expenses		13,082,191			12,011,854			39,504,434			35,905,672
Income before total federal income tax expense		1,345,966			1,063,815			2,413,668			2,691,582
Current federal income tax expense		1,670			45,654			3,180			45,654
Deferred federal income tax expense		276,962			178,104			582,763			543,019
Total federal income tax expense		278,632			223,758			585,943			588,673
Net income	$	1,067,334		$	840,057		$	1,827,725		$	2,102,909
Net income per common share basic and diluted
Class A common stock	$	0.1220		$	0.0960		$	0.2089		$	0.2408
Class B common stock	$	0.1037		$	0.0816		$	0.1776		$	0.1670

See notes to consolidated financial statements (unaudited).

4

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Net income	$	1,067,334		$	840,057	$	1,827,725		$	2,102,909
Other comprehensive income (loss)
Total net unrealized investment gains (losses) arising during the period		(1,385,055	)		3,136,605		(3,353,993	)		5,845,923
Less net realized investment gains having no credit losses		21,932			111,674		125,597			429,813
Net unrealized investment gains (losses)		(1,406,987	)		3,024,931		(3,479,590	)		5,416,110
Less adjustment to deferred acquisition costs		(7,675	)		4,795		(30,732	)		14,613
Other comprehensive income (loss) before federal income tax expense (benefit)		(1,399,312	)		3,020,136		(3,448,858	)		5,401,497
Federal income tax expense (benefit)		(293,857	)		634,228		(724,261	)		1,134,314
Total other comprehensive income (loss)		(1,105,455	)		2,385,908		(2,724,597	)		4,267,183
Total comprehensive income (loss)	$	(38,121	)	$	3,225,965	$	(896,872	)	$	6,370,092

See notes to consolidated financial statements (unaudited).

5

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Three and Nine Months Ended September 30, 2021 and 2020

(Unaudited)

	Class A			Class B							Accumulated
	Common			Common		Additional					Other						Total
	Stock			Stock		Paid-in		Treasury			Comprehensive			Accumulated			Shareholders'
	$.01 Par Value			$.01 Par Value		Capital		Stock			Income			Earnings			Equity
Three months ended September 30, 2020
Balance as of July 1, 2020	$	81,179		$	1,011	$	30,429,150	$	(893,947	)	$	11,497,935		$	20,808,567		$	61,923,895
Comprehensive income:
Net income		-			-		-		-			-			840,057			840,057
Other comprehensive income		-			-		-		-			2,385,908			-			2,385,908
Balance as of September 30, 2020	$	81,179		$	1,011	$	30,429,150	$	(893,947	)	$	13,883,843		$	21,648,624		$	65,149,860
Nine months ended September 30, 2020
Balance as of January 1, 2020	$	80,502		$	-	$	28,684,598	$	(893,947	)	$	9,616,660		$	19,930,449		$	57,418,262
Comprehensive income:
Net income		-			-		-		-			-			2,102,909			2,102,909
Other comprehensive income		-			-		-		-			4,267,183			-			4,267,183
Shareholders' cash dividend		-			-		-		-			-			(384,734	)		(384,734	)
Acquisition of K-TENN Insurance Company		1,688			-		1,744,552		-			-			-			1,746,240
Recapitalization		(1,011	)		1,011		-		-			-			-			-
Balance as of September 30, 2020	$	81,179		$	1,011	$	30,429,150	$	(893,947	)	$	13,883,843		$	21,648,624		$	65,149,860
Three months ended September 30, 2021
Balance as of July 1, 2021	$	89,093		$	1,011	$	39,078,485	$	(893,947	)	$	15,899,716		$	14,819,103		$	68,993,461
Comprehensive loss:
Net income		-			-		-		-			-			1,067,334			1,067,334
Other comprehensive loss		-			-		-		-			(1,105,455	)		-			(1,105,455	)
Balance as of September 30, 2021	$	89,093		$	1,011	$	39,078,485	$	(893,947	)	$	14,794,261		$	15,886,437		$	68,955,340
Nine months ended September 30, 2021
Balance as of January 1, 2021	$	89,093		$	1,011	$	39,078,485	$	(893,947	)	$	17,518,858		$	14,058,712		$	69,852,212
Comprehensive loss:
Net income		-			-		-		-			-			1,827,725			1,827,725
Other comprehensive loss		-			-		-		-			(2,724,597	)		-			(2,724,597	)
Balance as of September 30, 2021	$	89,093		$	1,011	$	39,078,485	$	(893,947	)	$	14,794,261		$	15,886,437		$	68,955,340

See notes to consolidated financial statements (unaudited).

6

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows 

(Unaudited) 

	Nine Months Ended September 30,
	2021			2020
Operating activities
Net income	$	1,827,725		$	2,102,909
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for depreciation		-			109,116
Accretion of discount on investments		(3,600,202	)		(3,733,176	)
Net realized investment gains		(491,098	)		(552,842	)
Amortization of policy acquisition cost		5,206,030			3,665,161
Policy acquisition cost deferred		(9,325,731	)		(8,134,182	)
Amortization of loan origination fees		43,585			30,241
Amortization of value of insurance business acquired		210,350			227,328
Allowance for mortgage loan losses		94,911			36,800
Provision for deferred federal income tax expense		582,763			543,019
Interest credited to policyholders		9,487,050			9,191,808
Change in assets and liabilities:
Policy loans		(109,571	)		(44,658	)
Short-term investments		1,634,243			156,850
Accrued investment income		456,585			(177,486	)
Recoverable from reinsurers		181,042			50,021
Funds under coinsurance agreement		3,948,538			2,057,396
Agents' balances and due premiums		208,373			(802,590	)
Other assets (excludes change in receivable for securities sold of ($1,627,000) in 2020)		(1,774,343	)		(3,358,479	)
Future policy benefits		8,568,037			8,061,676
Policy claims		(229,902	)		408,900
Other policy liabilities		(6,542	)		819
Other liabilities (excludes change in payable for securities purchased of $1,561,417 and $313,188 in 2021 and 2020, respectively)		(2,539,415	)		(613,164	)
Net cash provided by operating activities		14,372,428			9,225,467
Investing activities
Purchases of fixed maturity securities		(12,760,202	)		(3,597,065	)
Maturities of fixed maturity securities		900,000			945,500
Sales of fixed maturity securities		6,049,876			14,977,950
Purchases of preferred stock securities		(1,250,000	)		-
Sales of preferred stock securities		-			50,000
Purchases of equity securities		(162,603	)		(68,198	)
Sales of equity securities		89			-
Acquisition of K-TENN Insurance Company		-			1,110,299
Joint venture distributions		60,410			66,511
Purchases of mortgage loans		(74,296,705	)		(58,751,393	)
Payments on mortgage loans		78,319,365			45,252,139
Purchases of other long-term investments		(882,026	)		(4,799,143	)
Payments on other long-term investments		8,863,095			8,440,078
Sale of real estate		818,018			682,945
Net change in receivable and payable for securities sold and purchased		1,561,417			(1,313,812	)
Net cash provided by investing activities		7,220,734			2,995,811
Financing activities
Policyholders' account deposits		25,215,132			17,030,797
Policyholders' account withdrawals		(24,013,421	)		(30,041,959	)
Shareholders' cash dividend		-			(384,734	)
Net cash provided by (used in) financing activities		1,201,711			(13,395,896	)
Increase (decrease) in cash and cash equivalents		22,794,873			(1,174,618	)
Cash and cash equivalents, beginning of period		40,230,095			23,212,170
Cash and cash equivalents, end of period	$	63,024,968		$	22,037,552

See notes to consolidated financial statements (unaudited).

7

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

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

(Unaudited)

During the nine months ended September 30, 2021 and 2020, the Company foreclosed on residential mortgage loans of real estate totaling $458,587 and $797,158, respectively and transferred that property to investment real estate that is now held for sale.

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

	Nine Months Ended			Nine Months Ended
	September 30, 2021			September 30, 2020
Reductions in mortgage loans due to foreclosure	$	458,587		$	797,158
Investment real estate held-for-sale acquired through foreclosure		(458,587	)		(797,158	)
Net cash used in investing activities	$	-		$	-

On January 1, 2020, the Company acquired K-TENN Insurance Company. The Company acquired assets of $1,916,281 (including cash) and assumed liabilities of $170,041.

In conjunction with this 2020 acquisition, the cash and non-cash impact on operating, investing and financing activities is summarized as follows.

	September 30, 2020
Cash used in acquisition of K-TENN Insurance Company	$	-
Cash provided in acquisition of K-TENN Insurance Company		1,110,299
Increase in cash from acquisition of K-TENN Insurance Company		1,110,299
Fair value of assets acquired in acquisition of K-TENN Insurance Company (excluding cash)
Available-for-sale fixed maturity securities		800,000
Policy loans		1,045
Accrued investment income		490
Due premiums		3,986
Other assets		461
Total fair value of assets acquired (excluding cash)		805,982
Fair value of liabilities assumed in acquisition of K-TENN Insurance Company
Future policy benefits		150,583
Other policy liabilities		9,212
Other liabilities		10,246
Total fair value of liabilities assumed		170,041
Fair value of net assets acquired in acquisition of K-TENN Insurance Company (excluding cash)		635,941
Fair value of net assets acquired in acquisition of K-TENN Insurance Company (including cash)	$	1,746,240

See notes to consolidated financial statements (unaudited).

8

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Organization and Significant Accounting Policies

Nature of Operations

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

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

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

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

Company Capitalization

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

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

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

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

9

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Company Recapitalization

On October 2, 2019, at the Company Annual Shareholders’ Meeting, FTFC’s shareholders approved the following proposals:

● An amendment and restatement of FTFC’s Certificate of Incorporation to authorize 40,000,000 shares of Class A common stock and 10,000,000 shares of Class B common stock and to establish the relative rights, preferences and privileges of, and the restrictions and limitations on, the Class A common stock and the Class B common stock.

● An amendment and restatement of FTFC’s Certificate of Incorporation to automatically reclassify each issued and outstanding share of our existing common stock as one (1) share of Class A common stock or, at the shareholder’s election, into one (1) share of new Class B common stock.

These proposals received Form A regulatory approval from the Oklahoma Insurance Department (“OID”) on February 27, 2020 and the Missouri Department of Commerce and Insurance (“MDCI”) on December 31, 2019, followed by formal adoption by FTFC’s Board of Directors on March 12, 2020. Effective March 12, 2020, FTFC’s Class B shareholders were entitled to elect a majority of FTFC’s Board of Directors (one-half plus one) but will only receive, compared to FTFC’s Class A shareholders, 85% of cash dividends, stock dividends or amounts due upon any FTFC merger, sale or liquidation event. FTFC’s Class B shareholders may also convert one share of FTFC’s Class B common stock for a .85 share of FTFC’s Class A common stock. FTFC’s Class A shareholders will elect the remaining Board of Directors members and will receive 100% of cash dividends, stock dividends or amounts due upon any Company merger, sale or liquidation event.

Acquisition of Other Companies

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

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

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

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

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

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

10

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

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

Basis of Presentation

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

The results of operations for the nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ended December 31, 2021 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to consolidated financial statements prepared in accordance with U.S. GAAP, but which is not required for interim reporting purposes, has been condensed or omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 2020.

Management continues to actively monitor the COVID-2019 pandemic, the new variants of the virus and the impact of the viruses on the Company’s operations. Although there appears to be recoveries in economic activity and output especially in the United States with the introduction of and inoculations of vaccines, should liquidity conditions worsen in the short-term, management will work with its financial institutions to assist with liquidity needs. The Company continues to adapt its operations and provide and perform all business activities despite the viruses and operates under the guidelines of the U.S. Centers for Disease Control and Prevention.

Principles of Consolidation

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

Reclassifications

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

Use of Estimates

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

Common Stock

Class A and Class B common stock are fully paid, non-assessable and has a par value of $.01 per share.

11

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Treasury Stock

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

Subsequent Events

Management has evaluated all events subsequent to September 30, 2021 through the date that these financial statements have been issued.

Recent Accounting Pronouncements

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

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

The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

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 was effective for reporting periods beginning after December 15, 2019. As a Smaller Reporting Company, the effective date was recently changed and the delayed effective date is now for reporting periods beginning after December 15, 2022. Early adoption is permitted for reporting periods beginning after December 15, 2018. Based on the financial instruments currently held by the Company, there would not be a material effect on the Company’s results of operations, financial position or liquidity if the new guidance had been adopted in the current accounting period. The impact on the Company’s results of operations, financial position or liquidity at the date of adoption of the updated guidance will be determined by the financial instruments held by the Company and the economic conditions at that time.

Intangibles - Goodwill and Other

In January 2017, the FASB issued updated guidance (Accounting Standards Update 2017-04) that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge by comparing a reporting unit’s fair value with its carrying amount and recognizing an impairment charge for the excess of the carrying amount over estimated fair value (i.e., Step 1 of current guidance).

12

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

The implied fair value of goodwill is currently determined in Step 2 by deducting the fair value of all assets and liabilities of the reporting unit (determined in the same manner as a business combination) from the reporting unit’s fair value as determined in Step 1 (including any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1). The updated guidance requires an entity to perform its annual, or interim, impairment test by either: (1) an initial qualitative assessment of factors (such as changes in management, key personnel, strategy, key technology or customers) that may impact a reporting unit’s fair value and lead to the determination that it is more likely than not that the reporting unit’s fair value is less than its carrying value, including goodwill (consistent with current guidance), or (2) applying Step 1.

The Company adopted this guidance in first quarter 2020. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

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

The updated guidance was effective for reporting periods beginning after December 15, 2020. As a Smaller Reporting Company, the effective date has been changed twice and the delayed effective date is now for reporting periods beginning after December 15, 2024. Early adoption is permitted but not elected by the Company. With respect to the liability for future policyholder benefits for traditional and limited-payment contracts and deferred acquisition costs, an insurance entity may elect to apply the amendments retrospectively as of the beginning of the earliest period presented.

With respect to the market risk benefits, an insurance entity should apply the amendments retrospectively as of the beginning of the earliest period presented. The Company expects that the impact on the Company’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2024 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

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

In August 2018, the FASB issued amendments (Accounting Standards Update 2018-13) to modify the disclosure requirements related to fair value measurements including the consideration of costs and benefits of producing the modified disclosures.

The Company adopted this guidance in first quarter 2020. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Income Taxes - Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The Company adopted this guidance in first quarter 2021. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

13

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued guidance (Accounting Standards Update 2021-08) for the accounting for revenue contracts with customers acquired in a business combination. The amendments in this Update address how to determine whether a contract liability is recognized by the acquirer in a business combination and provide specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments to this Update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification - Revenue from Contracts with Customers (“Topic 606”) at the acquisition date as if the acquirer had originated the contracts.

The amendments in this Update primarily address the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination. These amendments, however, also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply. The amendments in this Update do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606 whether in or not in a business combination.

The amendments in this Update are effective for the Company as a public business entity for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments retrospectively to all business for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and prospectively to all business combinations that occur on or after the date of initial application. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

14

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments

Investments in fixed maturity and preferred stock available-for-sale as of September 30, 2021 and December 31, 2020 are summarized as follows:

			Gross		Gross
	Amortized Cost		Unrealized		Unrealized		Fair
	or Cost		Gains		Losses		Value
	September 30, 2021 (Unaudited)
Fixed maturity securities
U.S. government and U.S. government agencies	$	428,879	$	1,391	$	450	$	429,820
States and political subdivisions		8,183,832		729,312		23,099		8,890,045
Residential mortgage-backed securities		11,373		13,947		-		25,320
Corporate bonds		114,124,130		14,221,882		97,550		128,248,462
Asset-backed securities		1,236,917		52,199		3,963		1,285,153
Exchange traded securities		523,780		-		5,780		518,000
Foreign bonds		29,083,065		3,865,750		14,233		32,934,582
Certificate of deposits		400,000		13,830		-		413,830
Total fixed maturity securities		153,991,976		18,898,311		145,075		172,745,212
Preferred stock securities		1,250,000		-		16,000		1,234,000
Total fixed maturity and preferred stock securities	$	155,241,976	$	18,898,311	$	161,075	$	173,979,212

	December 31, 2020
Fixed maturity securities
U.S. government and U.S. government agencies	$	430,735	$	3,568	$	-	$	434,303
States and political subdivisions		8,830,403		891,285		31,932		9,689,756
Residential mortgage-backed securities		14,022		14,420		-		28,442
Corporate bonds		106,387,417		16,859,782		111,840		123,135,359
Asset-backed securities		2,052,174		32,908		47,813		2,037,269
Exchange traded securities		500,000		-		200		499,800
Foreign bonds		29,616,259		4,641,338		59,230		34,198,367
Certificate of deposits		600,000		24,540		-		624,540
Total fixed maturity securities	$	148,431,010	$	22,467,841	$	251,015	$	170,647,836

15

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments (continued)

All securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of September 30, 2021 and December 31, 2020 are summarized as follows:

			Unrealized		Number of
	Fair Value		Loss		Securities
	September 30, 2021 (Unaudited)
Fixed maturity securities
Less than 12 months in an unrealized loss position
U.S. government and U.S. government agencies	$	303,420	$	450		2
States and political subdivisions		104,131		157		1
Corporate bonds		5,213,820		97,550		16
Exchange traded securities		518,000		5,780		2
Foreign bonds		547,400		14,233		1
Total less than 12 months in an unrealized loss position		6,686,771		118,170		22
More than 12 months in an unrealized loss position
States and political subdivisions		628,548		22,942		1
Asset-backed securities		357,543		3,963		1
Total more than 12 months in an unrealized loss position		986,091		26,905		2
Total fixed maturity securities in an unrealized loss position		7,672,862		145,075		24
Preferred stock securities, less than 12 months in an unrealized loss position		484,000		16,000		2
Total fixed maturity and preferred stock securities in an unrealized loss position	$	8,156,862	$	161,075	$	26

	December 31, 2020
Fixed maturity securities
Less than 12 months in an unrealized loss position
States and political subdivisions	$	625,098	$	31,932		1
Corporate bonds		878,716		41,508		3
Asset-backed securities		1,047,443		47,813		3
Exchange traded securities		499,800		200		2
Foreign bonds		285,569		28,282		4
Total less than 12 months in an unrealized loss position		3,336,626		149,735		13
More than 12 months in an unrealized loss position
Corporate bonds		1,084,205		70,332		3
Foreign bonds		532,875		30,948		1
Total more than 12 months in an unrealized loss position		1,617,080		101,280		4
Total fixed maturity securities in an unrealized loss position	$	4,953,706	$	251,015	$	17

16

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments (continued)

As of September 30, 2021, the Company held 24 available-for-sale fixed maturity securities with an unrealized loss of $145,075, fair value of $7,672,862 and amortized cost of $7,817,937. These unrealized losses were primarily due to the market interest rate movements in the bond market as of September 30, 2021. The ratio of the fair value to the amortized cost of these 24 securities is 98%.

As of December 31, 2020, the Company held 17 available-for-sale fixed maturity securities with an unrealized loss of $251,015, fair value of $4,953,706 and amortized cost of $5,204,721. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2020. The ratio of the fair value to the amortized cost of these 17 securities is 95%.

As of September 30, 2021, the Company held two available-for-sale preferred stock securities with an unrealized loss of $16,000, fair value of $484,000 and amortized cost of $500,000. The ratio of the fair value to the amortized cost of these two securities is 97%.

Fixed maturity securities were 91% and 97% investment grade as rated by Standard & Poor’s as of September 30, 2021 and December 31, 2020, respectively.

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

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

The Company recorded one other-than-temporary impairment during 2020.  During 2020, the Company impaired its bonds in an offshore drilling company with a total par value of $850,000 as a result of continuing unrealized losses. This impairment was considered fully credit-related, resulting in a charge to the statement of operations before tax of $801,340 for the year ended December 31, 2020. This charge represents the credit-related portion of 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 2020.

There were no impairments during the nine months ended September 30, 2021.

Management believes that the Company will fully recover its cost basis in the securities held as of September 30, 2021, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature.  The remaining temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment. 

17

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments (continued)

Net unrealized gains included in other comprehensive income for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the appreciation had been realized as of September 30, 2021 and December 31, 2020, are summarized as follows:

	(Unaudited)
	September 30, 2021			December 31, 2020
Unrealized appreciation on available-for-sale securities	$	18,737,236		$	22,216,826
Adjustment to deferred acquisition costs		(10,325	)		(41,057	)
Deferred income taxes		(3,932,650	)		(4,656,911	)
Net unrealized appreciation on available-for-sale securities	$	14,794,261		$	17,518,858

The Company’s investment in lottery prize cash flows categorized as other long-term investments in the statement of financial position was $66,700,899 and $71,025,133 as of September 30, 2021 and December 31, 2020, respectively. The lottery prize cash flows are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries.

The amortized cost and fair value of fixed maturity available-for-sale securities and other long-term investments as of September 30, 2021, by contractual maturity, are summarized as follows:

	September 30, 2021 (Unaudited)
	Fixed Maturity Available-For-Sale Securities				Other Long-Term Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	2,761,873	$	2,809,168	$	11,912,892	$	12,143,150
Due after one year through five years		38,330,774		40,464,311		34,083,825		38,421,632
Due after five years through ten years		39,538,177		43,676,601		14,819,938		19,748,660
Due after ten years		73,349,779		85,769,812		5,884,244		11,234,378
Due at multiple maturity dates		11,373		25,320		-		-
	$	153,991,976	$	172,745,212	$	66,700,899	$	81,547,820

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

18

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments (continued)

Proceeds and gross realized gains (losses) from the sales, calls and maturities of fixed maturity securities available-for-sale, equity securities, investment real estate, mortgage loans on real estate and preferred stock securities available-for-sale for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, (Unaudited)
	Fixed Maturity Securities						Investment Real Estate				Mortgage Loans on Real Estate				Preferred Stock Securities
	2021			2020			2021		2020		2021		2020		2021		2020
Proceeds	$	2,981,658		$	4,209,686		$	742,078	$	-	$	25,158,102	$	12,357,549	$	-	$	50,000
Gross realized gains		160,753			115,229			283,491		-		1,344		1		-		55
Gross realized losses		(138,821	)		(3,610	)		-		-		-		-		-		-

	Nine Months Ended September 30, (Unaudited)
	Fixed Maturity Securities						Equity Securities				Investment Real Estate				Mortgage Loans on Real Estate
	2021			2020			2021		2020		2021		2020		2021		2020
Proceeds	$	6,949,876		$	15,923,450		$	89	$	-	$	818,018	$	682,945	$	78,319,365	$	45,252,139
Gross realized gains		291,252			461,716			89		-		289,840		33,696		40,014		108,100
Gross realized losses		(165,655	)		(31,958	)		-		-		-		-		-		-

	Nine Months Ended September 30, (Unaudited)
	Preferred Stock Securities
	2021		2020
Proceeds	$	-	$	50,000
Gross realized gains		-		55
Gross realized losses		-		-

19

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments (continued)

The accumulated change in unrealized investment gains (losses) for fixed maturity and preferred stock available-for-sale for the three and nine months ended September 30, 2021 and 2020 and the amount of net realized investment gains (losses) on fixed maturity securities available-for-sale, equity securities, investment real estate, mortgage loans on real estate and preferred stock securities for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
	2021			2020			2021			2020
Change in unrealized investment gains (losses):
Available-for-sale securities:
Fixed maturity securities	$	(1,389,187	)	$	3,025,426		$	(3,463,590	)	$	5,418,065
Preferred stock		(17,800	)		(495	)		(16,000	)		(1,955	)
Net realized investment gains (losses):
Available-for-sale securities:
Fixed maturity securities		21,932			111,619			125,597			429,758
Equity securities, sale of securities		-			-			89			-
Equity securities, changes in fair value		13,968			7,285			35,558			(18,767	)
Investment real estate		283,491			-			289,840			33,696
Mortgage loans on real estate		1,344			1			40,014			108,100
Preferred stock securities		-			55			-			55

Major categories of net investment income for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
	2021			2020			2021			2020
Fixed maturity securities	$	1,737,661		$	1,930,697		$	5,161,051		$	5,443,419
Preferred stock and equity securities		37,732			22,946			81,136			79,015
Other long-term investments		1,151,057			1,275,834			3,656,131			3,927,257
Mortgage loans		3,517,394			3,503,652			10,743,701			10,870,548
Policy loans		40,461			37,985			118,036			113,814
Real estate		-			68,663			-			206,026
Short-term and other investments		20,854			38,662			65,227			92,479
Gross investment income		6,505,159			6,878,439			19,825,282			20,732,558
Investment expenses		(747,297	)		(1,129,264	)		(1,846,076	)		(2,837,467	)
Net investment income	$	5,757,862		$	5,749,175		$	17,979,206		$	17,895,091

TLIC and FBLIC are required to hold assets on deposit with various state insurance departments for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of September 30, 2021 and December 31, 2020, these required deposits, included in investment assets, had amortized costs that totaled $4,469,238 and $4,464,398, respectively. As of September 30, 2021 and December 31, 2020, these required deposits had fair values that totaled $4,517,846 and $4,531,967, respectively.

20

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

2. Investments (continued)

The Company’s mortgage loans by property type as of September 30, 2021 and December 31, 2020 are summarized as follows:

	(Unaudited)
	September 30, 2021		December 31, 2020
Residential mortgage loans	$	163,270,025	$	163,906,373
Commercial mortgage loans by property type
Apartment		175,417		-
Industrial		476,953		670,708
Lodging		282,896		290,889
Office building		2,844,637		4,596,331
Retail		3,597,729		5,444,761
Total commercial mortgage loans by property type		7,377,632		11,002,689
Total mortgage loans	$	170,647,657	$	174,909,062

There were 11 loans with a remaining principal balance of $2,211,689 that were more than 90 days past due as of September 30, 2021. There were 24 loans with a remaining principal balance of $3,979,997 that were more than 90 days past due as of December 31, 2020.

There were no mortgage loans in default and in the foreclosure process as of September 30, 2021. There were no mortgage loans in default or foreclosure as of December 31, 2020.

The Company’s investment real estate as of September 30, 2021 and December 31, 2020 is summarized as follows:

	(Unaudited)
	September 30, 2021		December 31, 2020
Land - held for investment	$	540,436	$	540,436
Residential real estate - held for sale		147,909		217,500
Investment real estate, net of accumulated depreciation	$	688,345	$	757,936

On November 16, 2020, TLIC sold a 20,000 square feet office building and approximately three acres of land located in Topeka, Kansas with an aggregate carrying value of $1,078,037. The Company recorded a gross realized investment gain on sale of $240,374 based on an aggregate sales price of $1,318,411.

TLIC owns approximately three acres of undeveloped land located in Topeka, Kansas with a carrying value of $409,436.

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

During 2021, the Company foreclosed on one residential mortgage loan of real estate totaling $458,587 and transferred the property to investment real estate held for sale. During 2021, the Company sold investment real estate property with an aggregate carrying value of $528,178. The Company recorded a gross realized investment gain on sale of $289,840 based on an aggregate sales price of $818,018.

During 2020, the Company foreclosed on residential mortgage loans of real estate totaling $797,158 and transferred those properties to investment real estate held for sale. During 2020, the Company sold investment real estate property with an aggregate carrying value of $791,704. The Company recorded a gross realized investment gain on sale of $106,665 based on an aggregate sales price of $898,369.

21

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

3. Fair Value Measurements

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

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

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

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

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

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in and out of the Level 3 category as of the beginning of the period in which the reclassifications occur.

22

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

3. Fair Value Measurements (continued)

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 is summarized as follows:

	Level 1		Level 2		Level 3		Total
	September 30, 2021 (Unaudited)
Fixed maturity securities, available-for-sale
U.S. government and U.S. government agencies	$	-	$	429,820	$	-	$	429,820
States and political subdivisions		-		8,890,045		-		8,890,045
Residential mortgage-backed securities		-		25,320		-		25,320
Corporate bonds		-		128,248,462		-		128,248,462
Asset-backed securities		-		1,285,153		-		1,285,153
Exchange traded securities		-		518,000		-		518,000
Foreign bonds		-		32,934,582		-		32,934,582
Certificate of deposits		-		413,830		-		413,830
Total fixed maturity securities	$	-	$	172,745,212	$	-	$	172,745,212
Preferred stock securities, available-for-sale	$	1,234,000	$	-	$	-	$	1,234,000
Equity securities
Mutual funds	$	-	$	80,888	$	-	$	80,888
Corporate common stock		196,589		-		63,277		259,866
Total equity securities	$	196,589	$	80,888	$	63,277	$	340,754

	December 31, 2020
Fixed maturity securities, available-for-sale
U.S. government and U.S. government agencies	$	-	$	434,303	$	-	$	434,303
States and political subdivisions		-		9,689,756		-		9,689,756
Residential mortgage-backed securities		-		28,442		-		28,442
Corporate bonds		-		123,135,359		-		123,135,359
Asset-backed securities		-		2,037,269		-		2,037,269
Exchange traded securities		-		499,800		-		499,800
Foreign bonds				34,198,367				34,198,367
Certificate of deposits		-		624,540		-		624,540
Total fixed maturity securities	$	-	$	170,647,836	$	-	$	170,647,836
Equity securities
Mutual funds	$	-	$	84,242	$	-	$	84,242
Corporate common stock		51,629		-		67,132		118,761
Total equity securities	$	51,629	$	84,242	$	67,132	$	203,003

As of September 30, 2021 and December 31, 2020, Level 3 financial instruments consisted of two private placement common stocks that have no active trading and a joint venture investment with a mortgage loan originator.

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

23

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

3. Fair Value Measurements (continued)

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

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

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

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

The change in the fair value of the Company’s Level 3 equity securities available-for-sale for the nine months ended September 30, 2021 and 2020 is summarized as follows:

	Unaudited
	Nine Months Ended September 30,
	2021			2020
Beginning balance	$	67,133		$	64,107
Joint venture net income		56,554			68,198
Joint venture distribution		(60,410	)		(66,511	)
Ending balance	$	63,277		$	65,794

24

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

3. Fair Value Measurements (continued)

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of September 30, 2021 and December 31, 2020, and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:

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

	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
	September 30, 2021 (Unaudited)
Financial assets
Mortgage loans on real estate
Commercial	$	7,377,632	$	8,171,057	$	-	$	-	$	8,171,057
Residential		163,270,025		185,575,474		-		-		185,575,474
Policy loans		2,218,249		2,218,249		-		-		2,218,249
Short-term investments		1,674,777		1,674,777		1,674,777		-		-
Other long-term investments		66,700,899		81,547,820		-		-		81,547,820
Cash and cash equivalents		63,024,968		63,024,968		63,024,968		-		-
Accrued investment income		4,913,923		4,913,923		-		-		4,913,923
Total financial assets	$	309,180,473	$	347,126,268	$	64,699,745	$	-	$	282,426,523
Financial liabilities
Policyholders' account balances	$	377,072,802	$	379,131,962	$	-	$	-	$	379,131,962
Policy claims		1,869,646		1,869,646		-		-		1,869,646
Total financial liabilities	$	378,942,448	$	381,001,608	$	-	$	-	$	381,001,608

	December 31, 2020
Financial assets
Mortgage loans on real estate
Commercial	$	11,002,689	$	11,085,406	$	-	$	-	$	11,085,406
Residential		163,906,373		184,802,993		-		-		184,802,993
Policy loans		2,108,678		2,108,678		-		-		2,108,678
Short-term investments		3,309,020		3,309,020		3,309,020		-		-
Other long-term investments		71,025,133		89,264,246		-		-		89,264,246
Cash and cash equivalents		40,230,095		40,230,095		40,230,095		-		-
Accrued investment income		5,370,508		5,370,508		-		-		5,370,508
Total financial assets	$	296,952,496	$	336,170,946	$	43,539,115	$	-	$	292,631,831
Financial liabilities
Policyholders' account balances	$	362,519,753	$	380,666,901	$	-	$	-	$	380,666,901
Policy claims		2,099,548		2,099,548		-		-		2,099,548
Total financial liabilities	$	364,619,301	$	382,766,449	$	-	$	-	$	382,766,449

25

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

3. Fair Value Measurements (continued)

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

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

Fixed Maturity Securities, Preferred Stock Securities and Equity Securities

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

Mortgage Loans on Real Estate

The fair values for mortgage loans are estimated using discounted cash flow analyses. For both residential and commercial mortgage loans, the discount rate used was indexed to the LIBOR yield curve adjusted for an appropriate credit spread.

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

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

Other Long-Term Investments

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

Investment Contracts – Policyholders’ Account Balances

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

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

Policy Claims

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

26

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

4. Segment Data

The Company has a life insurance segment, consisting of the life insurance operations of TLIC, FBLIC and TAI, an annuity segment, consisting of the annuity operations of TLIC, FBLIC and TAI and a corporate segment. Results for the parent company and the operations of TMC, after elimination of intercompany amounts, are allocated to the corporate segment. These segments as of September 30, 2021 and December 31, 2020 and for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2021		2020		2021			2020
Revenues:
Life insurance operations	$	9,404,804	$	8,201,655	$	26,468,275		$	23,044,336
Annuity operations		4,932,938		4,729,579		14,957,409			15,078,907
Corporate operations		90,415		144,435		492,418			474,011
Total	$	14,428,157	$	13,075,669	$	41,918,102		$	38,597,254
Income (loss) before income taxes:
Life insurance operations	$	923,202	$	141,246	$	808,447		$	(194,993	)
Annuity operations		385,534		795,043		1,645,473			2,506,220
Corporate operations		37,230		127,526		(40,252	)		380,355
Total	$	1,345,966	$	1,063,815	$	2,413,668		$	2,691,582
Depreciation and amortization expense:
Life insurance operations	$	1,270,992	$	1,013,517	$	4,353,884		$	3,197,814
Annuity operations		479,106		245,115		1,106,081			834,032
Total	$	1,750,098	$	1,258,632	$	5,459,965		$	4,031,846

	(Unaudited)
Assets:	September 30, 2021		December 31, 2020
Life insurance operations	$	138,602,579	$	120,484,734
Annuity operations		518,227,430		518,257,307
Corporate operations		4,630,151		4,853,228
Total	$	661,460,160	$	643,595,269

5. Federal Income Taxes

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

The Company has no known uncertain tax benefits within its provision for income taxes. In addition, the Company does not believe it would be subject to any penalties or interest relative to any open tax years and, therefore, has not accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions.  With the 2020 U.S. federal income tax return filed on October 13, 2021, the 2018 through 2020 U.S. federal tax years are now subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements.

27

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

6. Legal Matters and Contingent Liabilities

A lawsuit filed by the Company and Chairman, President and Chief Executive Officer, Gregg E. Zahn, in 2013 against former Company Board of Directors member Wayne Pettigrew and Mr. Pettigrew's company, Group & Pension Planners, Inc. (the "Defendants"), originally concluded on February 17, 2017. The lawsuit was filed in the District Court of Tulsa County, Oklahoma.  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.  Mr. Pettigrew denied the allegations.

The jury originally 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 original damages awarded by the jury, the Company and Mr. Zahn began to aggressively communicate the correction of the untrue statements to outside parties. 

Mr. Pettigrew appealed this decision.  In February 2020, the Court of Civil Appeals of the state of Oklahoma reversed the judgments entered by the trial court and remanded the case for a new trial. The Court of Appeals reversal, however, was not final.  The Company filed a Petition for Certiorari with the Oklahoma Supreme Court to request that it reverse and vacate the decision of the Court of Appeals. In December 2020, the Oklahoma Supreme Court declined to grant certiorari and remanded that the case be retried in the District Court of Tulsa County, Oklahoma.

It remains the Company’s intention to again vigorously prosecute this action against the Defendants for damages and for correction of the defamatory statements. In the opinion of the Company’s management, the ultimate resolution of any contingencies that may arise from this litigation is not considered material in relation to the financial position or results of operations of the Company.

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

7. Line of Credit

On September 15, 2021, the Company renewed its $1.5 million line of credit with a bank to provide working capital and funds for expansion.  The terms of the line of credit allows for advances, repayments and re-borrowings through a maturity date of September 15, 2022.  Any outstanding advances will 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 with a minimum interest rate floor of 4.5%. The non-utilized portion of the $1.5 million line of credit will be assessed a 1% non usage fee calculated in arrears and paid at the maturity date. No amounts were outstanding on this line of credit as of September 30, 2021 and December 31, 2020. 

28

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

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

The changes in the components of the Company’s accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, 2021 and 2020 (Unaudited)
	Unrealized
	Appreciation (Depreciation)						Accumulated
	on			Adjustment to			Other
	Available-For-Sale			Deferred Acquisition			Comprehensive
	Securities			Costs			Income (loss)
Balance as of July 1, 2021	$	15,913,922		$	(14,206	)	$	15,899,716
Other comprehensive loss before reclassifications, net of tax		(1,094,192	)		6,063			(1,088,129	)
Less amounts reclassified from accumulated other comprehensive income (loss) having no credit losses, net of tax		17,326			-			17,326
Other comprehensive loss		(1,111,518	)		6,063			(1,105,455	)
Balance as of September 30, 2021	$	14,802,404		$	(8,143	)	$	14,794,261
Balance as of July 1, 2020	$	11,521,354		$	(23,419	)	$	11,497,935
Other comprehensive income before reclassifications, net of tax		2,477,918			(3,788	)		2,474,130
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		88,222			-			88,222
Other comprehensive income		2,389,696			(3,788	)		2,385,908
Balance as of September 30, 2020	$	13,911,050		$	(27,207	)	$	13,883,843

	Nine Months Ended September 30, 2021 and 2020 (Unaudited)
	Unrealized
	Appreciation						Accumulated
	(Depreciation) on			Adjustment to			Other
	Available-For-Sale			Deferred Acquisition			Comprehensive
	Securities			Costs			Income (Loss)
Balance as of January 1, 2021	$	17,551,279		$	(32,421	)	$	17,518,858
Other comprehensive loss before reclassifications, net of tax		(2,649,654	)		24,278			(2,625,376	)
Less amounts reclassified from accumulated other comprehensive income (loss) having no credit losses, net of tax		99,221			-			99,221
Other comprehensive loss		(2,748,875	)		24,278			(2,724,597	)
Balance as of September 30, 2021	$	14,802,404		$	(8,143	)	$	14,794,261
Balance as of January 1, 2020	$	9,632,323		$	(15,663	)	$	9,616,660
Other comprehensive income before reclassifications, net of tax		4,618,279			(11,544	)		4,606,735
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		339,552			-			339,552
Other comprehensive income		4,278,727			(11,544	)		4,267,183
Balance as of September 30, 2020	$	13,911,050		$	(27,207	)	$	13,883,843

29

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

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

The pretax components of the Company’s other comprehensive income (loss) and the related income tax expense (benefit) for each component for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, 2021 (Unaudited)
				Income Tax
	Pretax			Expense (Benefit)			Net of Tax
Other comprehensive loss:
Change in net unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period	$	(1,385,055	)	$	(290,863	)	$	(1,094,192	)
Reclassification adjustment for net gains included in operations having no credit losses		21,932			4,606			17,326
Net unrealized losses on investments		(1,406,987	)		(295,469	)		(1,111,518	)
Adjustment to deferred acquisition costs		7,675			1,612			6,063
Total other comprehensive loss	$	(1,399,312	)	$	(293,857	)	$	(1,105,455	)

	Three Months Ended September 30, 2020 (Unaudited)
				Income Tax
	Pretax			Expense (Benefit)			Net of Tax
Other comprehensive income:
Change in net unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period	$	3,136,605		$	658,687		$	2,477,918
Reclassification adjustment for net gains included in operations having no credit losses		111,674			23,452			88,222
Net unrealized gains on investments		3,024,931			635,235			2,389,696
Adjustment to deferred acquisition costs		(4,795	)		(1,007	)		(3,788	)
Total other comprehensive income	$	3,020,136		$	634,228		$	2,385,908

	Nine Months Ended September 30, 2021 (Unaudited)
				Income Tax
	Pretax			Expense (Benefit)			Net of Tax
Other comprehensive loss:
Change in net unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period	$	(3,353,993	)	$	(704,339	)	$	(2,649,654	)
Reclassification adjustment for net gains included in operations having no credit losses		125,597			26,376			99,221
Net unrealized losses on investments		(3,479,590	)		(730,715	)		(2,748,875	)
Adjustment to deferred acquisition costs		30,732			6,454			24,278
Total other comprehensive loss	$	(3,448,858	)	$	(724,261	)	$	(2,724,597	)

	Nine Months Ended September 30, 2020 (Unaudited)
				Income Tax
	Pretax			Expense (Benefit)			Net of Tax
Other comprehensive income:
Change in net unrealized gains on available-for-sale securities:
Unrealized holding gains arising during the period	$	5,845,923		$	1,227,644		$	4,618,279
Reclassification adjustment for net gains included in operations having no credit losses		429,813			90,261			339,552
Net unrealized gains on investments		5,416,110			1,137,383			4,278,727
Adjustment to deferred acquisition costs		(14,613	)		(3,069	)		(11,544	)
Total other comprehensive income	$	5,401,497		$	1,134,314		$	4,267,183

30

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

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

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

The pretax and the related income tax components of the amounts reclassified from the Company’s accumulated other comprehensive income (loss) to the Company’s consolidated statement of operations for the three and nine months ended September 30, 2021 and 2020 are summarized as follows:

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
Reclassification Adjustments	2021		2020		2021		2020
Unrealized gains on available-for-sale securities having no credit losses:
Realized gains on sales of securities (a)	$	21,932	$	111,674	$	125,597	$	429,813
Income tax expense (b)		4,606		23,452		26,376		90,261
Total reclassification adjustments	$	17,326	$	88,222	$	99,221	$	339,552

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

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

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

The 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 the Company’s judgment, the known and inherent credit losses existing in the mortgage loan portfolio. The allowance, in the judgment of the Company, is necessary to reserve for estimated loan losses inherent in the 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 the Company utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the mortgage loan portfolio, the economy and changes in interest rates. The Company’s 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.

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

The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the mortgage loan 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.

31

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

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

As of September 30, 2021, $896,405 of independent residential mortgage loans on real estate is held in escrow by a third party for the benefit of the Company.   As of September 30, 2021, $676,788 of that escrow amount is available to the Company as additional collateral on $4,924,843 of advances to the loan originator. The remaining September 30, 2021 escrow amount of $219,617 is available to the Company as additional collateral on its investment of $43,923,482 in residential mortgage loans on real estate. In addition, the Company has an additional $636,805 allowance for possible loan losses in the remaining $126,724,175 of investments in mortgage loans on real estate as of September 30, 2021.

As of December 31, 2020, $766,667 of independent residential mortgage loans on real estate are held in escrow by a third party for the benefit of the Company.   As of December 31, 2020, $431,523 of that escrow amount is available to the Company as additional collateral on $4,996,358 of advances to the loan originator. The remaining December 31, 2020 escrow amount of $335,144 is available to the Company as additional collateral on its investment of $67,028,720 in residential mortgage loans on real estate. In addition, the Company has an additional $541,894 allowance for possible loan losses in the remaining $107,880,342 of investments in mortgage loans on real estate as of December 31, 2020.

The balances of and changes in the Company’s credit losses related to mortgage loans on real estate as of and for the three and nine months ended September 30, 2021 and 2020 are summarized as follows (excluding $43,923,482 and $67,306,217 of mortgage loans on real estate as of September 30, 2021 and 2020, respectively, with one loan originator where independent mortgage loan balances are held in escrow by a third party for the benefit of the Company):

	Unaudited
	Three Months Ended September 30,
	Residential Mortgage Loans				Commercial Mortgage Loans						Total
	2021		2020		2021			2020			2021		2020
Allowance, beginning	$	394,718	$	443,490	$	49,210		$	65,957		$	443,928	$	509,447
Charge offs		-		-		-			-			-		-
Recoveries		-		-		-			-			-		-
Provision		220,386		35,556		(27,509	)		(2,825	)		192,877		32,731
Allowance, ending	$	615,104	$	479,046	$	21,701		$	63,132		$	636,805	$	542,178
Allowance, ending:
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	-	$	-
Collectively evaluated for impairment	$	615,104	$	479,046	$	21,701		$	63,132		$	636,805	$	542,178
Carrying Values:
Individually evaluated for impairment	$	-	$	-	$	-		$	-		$	-	$	-
Collectively evaluated for impairment	$	119,346,543	$	95,511,234	$	7,377,632		$	12,563,167		$	126,724,175	$	108,074,401

32

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

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

	(Unaudited)
	Nine Months Ended September 30,
	Residential Mortgage Loans				Commercial Mortgage Loans					Total
	2021		2020		2021			2020		2021		2020
Allowance, beginning	$	486,604	$	443,057	$	55,290		$	62,321	$	541,894	$	505,378
Charge offs		-		-		-			-		-		-
Recoveries		-		-		-			-		-		-
Provision		128,500		35,989		(33,589	)		811		94,911		36,800
Allowance, ending	$	615,104	$	479,046	$	21,701		$	63,132	$	636,805	$	542,178
Allowance, ending:
Individually evaluated for impairment	$	-	$	-	$	-		$	-	$	-	$	-
Collectively evaluated for impairment	$	615,104	$	479,046	$	21,701		$	63,132	$	636,805	$	542,178
Carrying Values:
Individually evaluated for impairment	$	-	$	-	$	-		$	-	$	-	$	-
Collectively evaluated for impairment	$	119,346,543	$	95,511,234	$	7,377,632		$	12,563,167	$	126,724,175	$	108,074,401

The Company utilizes the ratio of the carrying value of individual mortgage loans compared to the individual appraisal value to evaluate the credit quality of its mortgage loans on real estate (commonly referred to as the loan-to-value ratio). The Company’s residential and commercial and industrial mortgage loans on real estate by credit quality using this ratio as of September 30, 2021 and December 31, 2020 are summarized as follows:

	Residential Mortgage Loans				Commercial Mortgage Loans				Total Mortgage Loans
	(Unaudited)				(Unaudited)				(Unaudited)
Loan-To-Value Ratio	September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020		September 30, 2021		December 31, 2020
Over 70% to 80%	$	52,689,828	$	53,905,657	$	-	$	-	$	52,689,828	$	53,905,657
Over 60% to 70%		48,048,306		50,752,236		1,363,115		1,608,934		49,411,421		52,361,170
Over 50% to 60%		25,556,047		27,493,242		1,909,979		2,391,856		27,466,026		29,885,098
Over 40% to 50%		16,966,344		13,875,675		449,270		786,143		17,415,614		14,661,818
Over 30% to 40%		7,766,184		7,846,306		1,146,515		1,176,419		8,912,699		9,022,725
Over 20% to 30%		8,846,299		5,538,886		1,928,589		2,774,020		10,774,888		8,312,906
Over 10% to 20%		2,625,418		3,699,228		580,164		2,072,994		3,205,582		5,772,222
10% or less		771,599		795,143		-		192,323		771,599		987,466
Total	$	163,270,025	$	163,906,373	$	7,377,632	$	11,002,689	$	170,647,657	$	174,909,062

33

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

September 30, 2021

(Unaudited)

10.  Coinsurance

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

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

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Item 2: 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.

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

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

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

Acquisitions

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

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

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

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

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

Company Recapitalization

On October 2, 2019, at the Company Annual Shareholders’ Meeting, FTFC’s shareholders approved the following proposals:

1. An amendment and restatement of FTFC’s Certificate of Incorporation to authorize 40,000,000 shares of Class A common stock and 10,000,000 shares of Class B common stock and to establish the relative rights, preferences and privileges of, and the restrictions and limitations on, the Class A common Stock and the Class B common stock.

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2. An amendment and restatement of FTFC’s Certificate of Incorporation to automatically reclassify each issued and outstanding share of our existing common stock as one (1) share of Class A common stock or, at the shareholder’s election, into one (1) share of new Class B common stock.

These proposals received Form A regulatory approval from the OID on February 27, 2020 and the MDCI on December 31, 2019, followed by formal adoption by FTFC’s Board of Directors on March 12, 2020.

Effective March 12, 2020, FTFC’s Class B shareholders were entitled to elect a majority of FTFC’s Board of Directors (one-half plus one) but will only receive, compared to FTFC’s Class A shareholders, 85% of cash dividends, stock dividends or amounts due upon any FTFC merger, sale or liquidation event. FTFC’s Class B shareholders may also convert one share of FTFC’s Class B common stock for a .85 share of FTFC’s Class A common stock. FTFC’s Class A shareholders will elect the remaining Board of Directors members and will receive 100% of cash dividends, stock dividends or amounts due upon any Company merger, sale or liquidation event.

Critical Accounting Policies and Estimates

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

For a description of the Company’s critical accounting policies and estimates, please refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.  The Company considers its most critical accounting estimates to be those applied to investments in fixed maturities, mortgage loans on real estate, deferred policy acquisition costs, value of insurance business acquired and future policy benefits. There have been no material changes to the Company’s critical accounting policies and estimates since December 31, 2020.

Recent Accounting Pronouncements

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

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

The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

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.

36

The updated guidance was effective for reporting periods beginning after December 15, 2019. As a Smaller Reporting Company, the effective date was recently changed and the delayed effective date is now for reporting periods beginning after December 15, 2022. Early adoption is permitted for reporting periods beginning after December 15, 2018. Based on the financial instruments currently held by the Company, there would not be a material effect on the Company’s results of operations, financial position or liquidity if the new guidance had been adopted in the current accounting period. The impact on the Company’s results of operations, financial position or liquidity at the date of adoption of the updated guidance will be determined by the financial instruments held by the Company and the economic conditions at that time.

Intangibles - Goodwill and Other

In January 2017, the FASB issued updated guidance (Accounting Standards Update 2017-04) that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge by comparing a reporting unit’s fair value with its carrying amount and recognizing an impairment charge for the excess of the carrying amount over estimated fair value (i.e., Step 1 of current guidance).

The implied fair value of goodwill is currently determined in Step 2 by deducting the fair value of all assets and liabilities of the reporting unit (determined in the same manner as a business combination) from the reporting unit’s fair value as determined in Step 1 (including any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1). The updated guidance requires an entity to perform its annual, or interim, impairment test by either: (1) an initial qualitative assessment of factors (such as changes in management, key personnel, strategy, key technology or customers) that may impact a reporting unit’s fair value and lead to the determination that it is more likely than not that the reporting unit’s fair value is less than its carrying value, including goodwill (consistent with current guidance), or (2) applying Step 1.

The Company adopted this guidance in first quarter 2020. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

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

The updated guidance was effective for reporting periods beginning after December 15, 2020. As a Smaller Reporting Company, the effective date has been changed twice and the delayed effective date is now for reporting periods beginning after December 15, 2024. Early adoption is permitted but not elected by the Company. With respect to the liability for future policyholder benefits for traditional and limited-payment contracts and deferred acquisition costs, an insurance entity may elect to apply the amendments retrospectively as of the beginning of the earliest period presented.

With respect to the market risk benefits, an insurance entity should apply the amendments retrospectively as of the beginning of the earliest period presented. The Company expects that the impact on the Company’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2024 will be determined by the long-duration contracts then held by the Company and the economic conditions at that time.

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

In August 2018, the FASB issued amendments (Accounting Standards Update 2018-13) to modify the disclosure requirements related to fair value measurements including the consideration of costs and benefits of producing the modified disclosures.

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The Company adopted this guidance in first quarter 2020. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Income Taxes - Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The Company adopted this guidance in first quarter 2021. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

Business Combinations – Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued guidance (Accounting Standards Update 2021-08) for the accounting for revenue contracts with customers acquired in a business combination. The amendments in this Update address how to determine whether a contract liability is recognized by the acquirer in a business combination and provide specific guidance on how to recognize and measure acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments to this Update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification - Revenue from Contracts with Customers (“Topic 606”) at the acquisition date as if the acquirer had originated the contracts.

The amendments in this Update primarily address the accounting for contract assets and contract liabilities from revenue contracts with customers in a business combination. These amendments, however, also apply to contract assets and contract liabilities from other contracts to which the provisions of Topic 606 apply. The amendments in this Update do not affect the accounting for other assets or liabilities that may arise from revenue contracts with customers in accordance with Topic 606 whether in or not in a business combination.

The amendments in this Update are effective for the Company as a public business entity for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments retrospectively to all business for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and prospectively to all business combinations that occur on or after the date of initial application. 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 Segments

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

Our business segments are as follows:

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

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

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

Please see below and Note 4 to the Consolidated Financial Statements for the three and nine months ended September 30, 2021 and 2020 and as of September 30, 2021 and December 31, 2020 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.

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FINANCIAL HIGHLIGHTS

Consolidated Condensed Results of Operations for the Three Months Ended September 30, 2021 and 2020

	(Unaudited)
	Three Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Premiums	$	8,323,522	$	7,166,641	$	1,156,881
Net investment income		5,757,862		5,749,175		8,687
Net realized investment gains		320,735		118,960		201,775
Service fees		12,245		23,212		(10,967	)
Other income		13,793		17,681		(3,888	)
Total revenues		14,428,157		13,075,669		1,352,488
Benefits and claims		9,228,117		8,980,079		248,038
Expenses		3,854,074		3,031,775		822,299
Total benefits, claims and expenses		13,082,191		12,011,854		1,070,337
Income before federal income tax expense		1,345,966		1,063,815		282,151
Federal income tax expense		278,632		223,758		54,874
Net income	$	1,067,334	$	840,057	$	227,277
Net income per common share basic and diluted
Class A common stock	$	0.1220	$	0.0960	$	0.0260
Class B common stock	$	0.1037	$	0.0816	$	0.0221

Consolidated Condensed Results of Operations for the Nine Months Ended September 30, 2021 and 2020

	(Unaudited)
	Nine Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Premiums	$	23,182,831	$	19,971,741	$	3,211,090
Net investment income		17,979,206		17,895,091		84,115
Net realized investment gains		491,098		552,842		(61,744	)
Service fees		191,833		41,108		150,725
Other income		73,134		136,472		(63,338	)
Total revenues		41,918,102		38,597,254		3,320,848
Benefits and claims		27,295,385		25,094,895		2,200,490
Expenses		12,209,049		10,810,777		1,398,272
Total benefits, claims and expenses		39,504,434		35,905,672		3,598,762
Income before federal income tax expense		2,413,668		2,691,582		(277,914	)
Federal income tax expense		585,943		588,673		(2,730	)
Net income	$	1,827,725	$	2,102,909	$	(275,184	)
Net income per common share basic and diluted
Class A common stock	$	0.2089	$	0.2408	$	(0.0319	)
Class B common stock	$	0.1776	$	0.1670	$	0.0106

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Consolidated Condensed Financial Position as of September 30, 2021 and December 31, 2020

	(Unaudited)				Amount Change
	September 30, 2021		December 31, 2020		2021 to 2020
Investment assets	$	416,249,893	$	422,960,668	$	(6,710,775	)
Assets held in trust under coinsurance agreement		109,072,674		112,160,307		(3,087,633	)
Other assets		136,137,593		108,474,294		27,663,299
Total assets	$	661,460,160	$	643,595,269	$	17,864,891
Policy liabilities	$	464,297,439	$	441,412,797	$	22,884,642
Funds withheld under coinsurance agreement		109,678,542		112,681,925		(3,003,383	)
Deferred federal income taxes		9,079,407		9,220,905		(141,498	)
Other liabilities		9,449,432		10,427,430		(977,998	)
Total liabilities		592,504,820		573,743,057		18,761,763
Shareholders' equity		68,955,340		69,852,212		(896,872	)
Total liabilities and shareholders' equity	$	661,460,160	$	643,595,269	$	17,864,891
Shareholders' equity per common share
Class A common stock	$	7.8827	$	7.9853	$	(0.1026	)
Class B common stock	$	6.7003	$	6.7875	$	(0.0872	)

Results of Operations – Three Months Ended September 30, 2021 and 2020

Revenues

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

Our revenues for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Premiums	$	8,323,522	$	7,166,641	$	1,156,881
Net investment income		5,757,862		5,749,175		8,687
Net realized investment gains		320,735		118,960		201,775
Service fees		12,245		23,212		(10,967	)
Other income		13,793		17,681		(3,888	)
Total revenues	$	14,428,157	$	13,075,669	$	1,352,488

The $1,352,488 increase in total revenues for the three months ended September 30, 2021 is discussed below.

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Premiums

Our premiums for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Ordinary life first year	$	521,628	$	378,729	$	142,899
Ordinary life renewal		1,031,007		903,553		127,454
Final expense first year		1,508,894		1,471,145		37,749
Final expense renewal		5,261,993		4,413,214		848,779
Total premiums	$	8,323,522	$	7,166,641	$	1,156,881

The $1,156,881 increase in premiums for the three months ended September 30, 2021 is primarily due to a $848,779 increase in final expense renewal premiums, $142,899 increase in ordinary life first year premiums and a $127,454 increase in ordinary life renewal premiums.

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

Net Investment Income

The major components of our net investment income for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,						Amount Change
	2021			2020			2021 less 2020
Fixed maturity securities	$	1,737,661		$	1,930,697		$	(193,036	)
Preferred stock and equity securities		37,732			22,946			14,786
Other long-term investments		1,151,057			1,275,834			(124,777	)
Mortgage loans		3,517,394			3,503,652			13,742
Policy loans		40,461			37,985			2,476
Real estate		-			68,663			(68,663	)
Short-term and other investments		20,854			38,662			(17,808	)
Gross investment income		6,505,159			6,878,439			(373,280	)
Investment expenses		(747,297	)		(1,129,264	)		(381,967	)
Net investment income	$	5,757,862		$	5,749,175		$	8,687

The $373,280 decrease in gross investment income for the three months ended September 30, 2021 is primarily due to $193,036 decrease in fixed maturity securities, $124,777 decrease in other long-term investments and $68,663 decrease in real estate. The $193,036 decline in fixed maturity securities is due to lower gross effective yields on fixed maturity securities purchased and held during third quarter 2021. The $124,777 decline in investment income from other long-term investments is due to decreased holdings in this investment category. The $68,663 decline in investment income from real estate is due the November 16, 2020 sale of an office building and land located in Topeka, Kansas.

41

The $381,967 decrease in investment expense for the three months ended September 30, 2021 primarily due to decreased mortgage loan acquisition expenses and the sale of the Topeka, Kansas office building and land on November 16, 2020.

Net Realized Investment Gains

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

Our net realized investment gains for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Fixed maturity securities available-for-sale:
Sale proceeds	$	2,981,658	$	4,209,686	$	(1,228,028	)
Amortized cost at sale date		2,959,726		4,098,067		(1,138,341	)
Net realized gains	$	21,932	$	111,619	$	(89,687	)
Investment real estate:
Sale proceeds	$	742,078	$	-	$	742,078
Carrying value at sale date		458,587		-		458,587
Net realized gains	$	283,491	$	-	$	283,491
Mortgage loans on real estate:
Sale proceeds	$	25,158,102	$	12,357,549	$	12,800,553
Carrying value at sale date		25,156,758		12,357,548		12,799,210
Net realized gains	$	1,344	$	1	$	1,343
Preferred stock securities available-for-sale:
Sale proceeds	$	-	$	50,000	$	(50,000	)
Amortized cost at sale date		-		49,945		(49,945	)
Net realized gains	$	-	$	55	$	(55	)
Equity securities, changes in fair value	$	13,968	$	7,285	$	6,683
Net realized investment gains	$	320,735	$	118,960	$	201,775

42

Total Benefits, Claims and Expenses

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

Our benefits, claims and expenses for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,						Amount Change
	2021			2020			2021 less 2020
Benefits and claims
Increase in future policy benefits	$	3,437,541		$	2,995,221		$	442,320
Death benefits		2,315,438			2,600,833			(285,395	)
Surrenders		112,980			242,460			(129,480	)
Interest credited to policyholders		3,279,558			3,071,581			207,977
Dividend, endowment and supplementary life contract benefits		82,600			69,984			12,616
Total benefits and claims		9,228,117			8,980,079			248,038
Expenses
Policy acquisition costs deferred		(3,142,259	)		(3,056,211	)		(86,048	)
Amortization of deferred policy acquisition costs		1,683,068			1,144,749			538,319
Amortization of value of insurance business acquired		67,030			73,778			(6,748	)
Commissions		3,161,051			2,960,619			200,432
Other underwriting, insurance and acquisition expenses		2,085,184			1,908,840			176,344
Total expenses		3,854,074			3,031,775			822,299
Total benefits, claims and expenses	$	13,082,191		$	12,011,854		$	1,070,337

The $1,070,337 increase in total benefits, claims and expenses for the three months ended September 30, 2021 is discussed below.

Benefits and Claims

The $248,038 increase in benefits and claims for the three months ended September 30, 2021 is primarily due to the following:

● $442,320 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

● $207,977 increase in interest credited to policyholders is primarily due to an increase of approximately $16.4 million in the amount of policyholders’ account balances in the consolidated statement of financial position (increased deposits and interest credited in excess of withdrawals) since September 30, 2020.

● $129,480 decrease in surrenders is based upon policyholder election.

● $285,395 decrease in death benefits is primarily due to approximately $477,000 of decreased ordinary life benefits that exceeded $192,000 of increased final expense benefits.

43

Deferral and Amortization of Deferred Acquisition Costs

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

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

For the three months ended September 30, 2021 and 2020, capitalized costs were $3,142,259 and $3,056,211, respectively. Amortization of deferred policy acquisition costs for the three months ended September 30, 2021 and 2020 were $1,683,068 and $1,144,749, respectively.

The $86,048 increase in the 2021 acquisition costs deferred primarily relates to increased final expense first year deferral of increased eligible commissions. There was a $538,319 increase in the 2021 amortization of deferred acquisition costs due to 2021 surrenders and withdrawal activity and the impact of mortality.

Amortization of Value of Insurance Business Acquired

The cost of acquiring insurance business is amortized over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. Amortization of the value of insurance business acquired was $67,030 and $73,778 for the three months ended September 30, 2021 and 2020, respectively, representing a $6,748 decrease.

Commissions

Our commissions for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Annuity	$	202,611	$	337,634	$	(135,023	)
Ordinary life first year		574,792		405,204		169,588
Ordinary life renewal		80,333		44,316		36,017
Final expense first year		1,795,193		1,748,223		46,970
Final expense renewal		508,122		425,242		82,880
Total commissions	$	3,161,051	$	2,960,619	$	200,432

The $200,432 increase in commissions for the three months ended September 30, 2021 is primarily due to a $169,588 increase in ordinary life first year commissions, $82,880 increase in final expense renewal commissions that exceeded a $135,023 decrease in annuity commissions that corresponded to a $142,899 increase in ordinary life first year premiums, a $848,779 increase in final expense renewal premiums and a $4,692,001 decrease in retained annuity deposits.

44

Other Underwriting, Insurance and Acquisition Expenses

There was a $176,344 increase in underwriting, insurance and acquisition expenses for the three months ended September 30, 2021 was primarily related to increased legal fees related to acquisition activities and increased third party administration fees primarily related to maintaining increased number of policies in force and increased service requests to the third party administrator.

Federal Income Taxes

FTFC filed its 2020 consolidated federal income tax return with TLIC, FBLIC and TMC on October 13, 2021. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes. For the three months ended September 30, 2021 and 2020, current income tax expense was $1,670 and $45,654, respectively. For the three months ended September 30, 2021 and 2020, deferred federal income tax expense was $276,962 and $178,104, respectively.

Net Income Per Common Share Basic and Diluted

For the three months ended September 30, 2021 and 2020, the net income allocated to the Class B shareholders is the total net income less shareholders’ cash dividends multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (8,747,633) of Class A shares (8,661,696) and Class B shares (85,937) as of the reporting date.

For the three months ended September 30, 2021, the net income allocated to the Class A shareholders of $1,056,848 is the total net income $1,067,334 less the net income allocated to the Class B shareholders $10,486. For the three months ended September 30, 2020, the net income allocated to the Class A shareholders $831,804 is the total net income $840,057 less the net income allocated to the Class B shareholders $8,253.

The weighted average outstanding common shares basic for the three months ended September 30, 2021 and 2020 were 8,661,696 for Class A shares and 101,102 for Class B shares. The weighted average Class A shares reflect the retrospective adjustment for the impacts of the 10% stock dividend declared by the Company on November 12, 2020 and issued to holders of Class A common stock shares of the Company as of November 12, 2020.

Business Segments

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

The revenues and income before federal income taxes from our business segments for the three months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Three Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Revenues:
Life insurance operations	$	9,404,804	$	8,201,655	$	1,203,149
Annuity operations		4,932,938		4,729,579		203,359
Corporate operations		90,415		144,435		(54,020	)
Total	$	14,428,157	$	13,075,669	$	1,352,488
Income (loss) before federal income taxes:
Life insurance operations	$	923,202	$	141,246	$	781,956
Annuity operations		385,534		795,043		(409,509	)
Corporate operations		37,230		127,526		(90,296	)
Total	$	1,345,966	$	1,063,815	$	282,151

45

The increases and decreases of revenues and profitability from our business segments for the three months ended September 30, 2021 and 2020 are summarized as follows:

	Life Insurance			Annuity			Corporate
	Operations			Operations			Operations			Total
Revenues
Premiums	$	1,156,881		$	-		$	-		$	1,156,881
Net invesment income		(36,647	)		92,002			(46,668	)		8,687
Net realized investment gains		60,478			141,297			-			201,775
Service fees and other income		22,437			(29,940	)		(7,352	)		(14,855	)
Total revenue		1,203,149			203,359			(54,020	)		1,352,488
Benefits and claims
Increase in future policy benefits		442,320			-			-			442,320
Death benefits		(285,395	)		-			-			(285,395	)
Surrenders		(129,480	)		-			-			(129,480	)
Interest credited to policyholders		-			207,977			-			207,977
Dividend, endowment and supplementary life contract benefits		12,616			-			-			12,616
Total benefits and claims		40,061			207,977			-			248,038
Expenses
Policy acquisition costs deferred net of amortization		3,555			448,716			-			452,271
Amortization of value of insurance business acquired		(3,374	)		(3,374	)		-			(6,748	)
Commissions		335,455			(135,023	)		-			200,432
Other underwriting, insurance and acquisition expenses		45,496			94,572			36,276			176,344
Total expenses		381,132			404,891			36,276			822,299
Total benefits, claims and expenses		421,193			612,868			36,276			1,070,337
Income (loss) before federal income taxes (benefits)	$	781,956		$	(409,509	)	$	(90,296	)	$	282,151

Results of Operations – Nine Months Ended September 30, 2021 and 2020

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 nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Premiums	$	23,182,831	$	19,971,741	$	3,211,090
Net investment income		17,979,206		17,895,091		84,115
Net realized investment gains		491,098		552,842		(61,744	)
Service fees		191,833		41,108		150,725
Other income		73,134		136,472		(63,338	)
Total revenues	$	41,918,102	$	38,597,254	$	3,320,848

The $3,320,848 increase in total revenues for the nine months ended September 30, 2021 is discussed below.

46

Premiums

Our premiums for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Ordinary life first year	$	1,300,290	$	1,074,637	$	225,653
Ordinary life renewal		2,667,323		2,228,261		439,062
Final expense first year		4,505,903		4,021,256		484,647
Final expense renewal		14,709,315		12,647,587		2,061,728
Total premiums	$	23,182,831	$	19,971,741	$	3,211,090

The $3,211,090 increase in premiums for the nine months ended September 30, 2021 is primarily due to the $2,061,728 increase in final expense renewal premiums, $484,647 increase in final expense first year premiums, $439,062 increase in ordinary life renewal premiums and $225,653 increase in ordinary life first year premiums.

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

Net Investment Income

The major components of our net investment income for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,						Amount Change
	2021			2020			2021 less 2020
Fixed maturity securities	$	5,161,051		$	5,443,419		$	(282,368	)
Preferred stock and equity securities		81,136			79,015			2,121
Other long-term investments		3,656,131			3,927,257			(271,126	)
Mortgage loans		10,743,701			10,870,548			(126,847	)
Policy loans		118,036			113,814			4,222
Real estate		-			206,026			(206,026	)
Short-term and other investments		65,227			92,479			(27,252	)
Gross investment income		19,825,282			20,732,558			(907,276	)
Investment expenses		(1,846,076	)		(2,837,467	)		(991,391	)
Net investment income	$	17,979,206		$	17,895,091		$	84,115

The $907,276 decrease in gross investment income for the nine months ended September 30, 2021 is primarily due to $282,368 decrease in fixed maturity securities, $271,126 decrease in other long-term investments, $206,026 decrease in real estate and $126,847 decrease in mortgage loans.

47

The $282,368 decline in fixed maturity securities is due to lower gross effective yields on fixed maturity securities purchased and held during 2021. The $271,126 decline in investment income from other long-term investments is due to decreased holdings in this investment category. The $206,026 decline in investment income from real estate is due the November 16, 2020 sale of an office building and land located in Topeka, Kansas. The $126,847 decline in mortgage loans investment income is due to decreased holdings of mortgage loans and lower gross effective yields on mortgage loan purchased.

The $991,391 decrease in investment expense for the nine months ended September 30, 2021 is primarily related to decreased mortgage loan acquisition expenses and the sale of the Topeka, Kansas office building and land on November 16, 2020.

Net Realized Investment Gains

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

Our net realized investment gains for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,					Amount Change
	2021		2020			2021 less 2020
Fixed maturity securities available-for-sale:
Sale proceeds	$	6,949,876	$	15,923,450		$	(8,973,574	)
Amortized cost at sale date		6,824,279		15,493,692			(8,669,413	)
Net realized gains	$	125,597	$	429,758		$	(304,161	)
Equity securities sold:
Sale proceeds	$	89	$	-		$	89
Cost at sale date		-		-			-
Net realized gains	$	89	$	-		$	89
Investment real estate:
Sale proceeds	$	818,018	$	682,945		$	135,073
Carrying value at sale date		528,178		649,249			(121,071	)
Net realized gains	$	289,840	$	33,696		$	256,144
Mortgage loans on real estate:
Sale proceeds	$	78,319,365	$	45,252,139		$	33,067,226
Carrying value at sale date		78,279,351		45,144,039			33,135,312
Net realized gains	$	40,014	$	108,100		$	(68,086	)
Preferred stock securities available-for-sale:
Sale proceeds	$	-	$	50,000		$	(50,000	)
Carrying value at sale date		-		49,945			(49,945	)
Net realized gains	$	-	$	55		$	(55	)
Equity securities, changes in fair value	$	35,558	$	(18,767	)	$	54,325
Net realized investment gains	$	491,098	$	552,842		$	(61,744	)

48

Service Fees

The $150,725 increase in service fees for the nine months ended September 30, 2021 is primarily due to an increase in fees from Trinity Mortgage Corporation brokering mortgage loans for a fee to third parties.

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 nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,						Amount Change
	2021			2020			2021 less 2020
Benefits and claims
Increase in future policy benefits	$	8,639,474		$	8,103,379		$	536,095
Death benefits		8,108,650			6,695,141			1,413,509
Surrenders		834,545			881,365			(46,820	)
Interest credited to policyholders		9,487,050			9,191,808			295,242
Dividend, endowment and supplementary life contract benefits		225,666			223,202			2,464
Total benefits and claims		27,295,385			25,094,895			2,200,490
Expenses
Policy acquisition costs deferred		(9,325,731	)		(8,134,182	)		(1,191,549	)
Amortization of deferred policy acquisition costs		5,206,030			3,665,161			1,540,869
Amortization of value of insurance business acquired		210,350			227,328			(16,978	)
Commissions		9,172,274			7,766,710			1,405,564
Other underwriting, insurance and acquisition expenses		6,946,126			7,285,760			(339,634	)
Total expenses		12,209,049			10,810,777			1,398,272
Total benefits, claims and expenses	$	39,504,434		$	35,905,672		$	3,598,762

The $3,598,762 increase in total benefits, claims and expenses for the nine months ended September 30, 2021 is discussed below.

Benefits and Claims

The $2,200,490 increase in benefits and claims for the nine months ended September 30, 2021 is primarily due to the following:

● $1,413,509 increase in death benefits is primarily due to approximately $2,051,000 of increased final expense benefits that exceeded a $638,000 decrease in ordinary life benefits.

● $536,095 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

● $295,242 increase in interest credited to policyholders is primarily due to an increase of approximately $16.4 million in the amount of policyholders’ account balances in the consolidated statement of financial position (increased deposits and interest credited in excess of withdrawals) since September 30, 2020.

49

Deferral and Amortization of Deferred Acquisition Costs

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

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

For the nine months ended September 30, 2021 and 2020, capitalized costs were $9,325,731 and $8,134,182, respectively. Amortization of deferred policy acquisition costs for the nine months ended September 30, 2021 and 2020 were $5,206,030 and $3,665,161, respectively.

The $1,191,549 increase in the 2021 acquisition costs deferred primarily relates to increased first year final expense premiums and annuity production and deferral of increased eligible commissions. There was an $1,540,869 increase in the 2021 amortization of deferred acquisition costs due to 2021 surrenders and withdrawal activity and the impact of mortality.

Amortization of Value of Insurance Business Acquired

The cost of acquiring insurance business is amortized over the emerging profit of the related policies using the same assumptions that were used in computing liabilities for future policy benefits. Amortization of the value of insurance business acquired was $210,350 and $227,328 for the nine months ended September 30, 2021 and 2020, respectively, representing a $16,978 decrease.

Commissions

Our commissions for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,				Amount Change
	2021		2020		2021 less 2020
Annuity	$	749,448	$	470,682	$	278,766
Ordinary life first year		1,426,788		1,183,716		243,072
Ordinary life renewal		208,935		105,211		103,724
Final expense first year		5,370,868		4,782,514		588,354
Final expense renewal		1,416,235		1,224,587		191,648
Total commissions	$	9,172,274	$	7,766,710	$	1,405,564

The $1,405,564 increase in commissions for the nine months ended September 30, 2021 is primarily due to a $588,354 increase in final expense first year commissions, $278,766 increase in annuity commissions and a $243,072 increase in ordinary life first year premiums that corresponded to a $484,647 increase in final expense first year premiums, $8,724,496 increase in retained annuity deposits and a $225,653 increase in ordinary life first year premiums.

Other Underwriting, Insurance and Acquisition Expenses

The $339,634 decrease in other underwriting, insurance and acquisition expenses for the nine months ended September 30, 2021 was primarily related to a decrease in the Company’s Chief Executive Officer bonus that exceeded increased legal fees related to acquisition activities and increased third party administration fees primarily related to maintaining increased number of policies in force and increased service requests to the third party administrator.

50

Federal Income Taxes

FTFC filed its 2020 consolidated federal income tax return with TLIC, FBLIC and TMC on October 13, 2021. 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 nine months ended September 30, 2021 and 2020, current income tax expense was $3,180 and $45,654, respectively. Deferred federal income tax expense was $582,763 and $543,019 for the nine months ended September 30, 2021 and 2020, respectively.

Net Income Per Common Share Basic and Diluted

For the nine months ended September 30, 2021 and 2020, the net income allocated to the Class B shareholders is the total net income less shareholders’ cash dividends multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (8,747,633) of Class A shares (8,661,696) and Class B shares (85,937) as of the reporting date.

For the nine months ended September 30, 2021, the net income allocated to the Class A shareholders of $1,809,769 is the total net income $1,827,725 less the net income allocated to the Class B shareholders $17,956. For the nine months ended September 30, 2020, the net income allocated to the Class A shareholders $2,086,030 is the total net income $2,102,909 less the net income allocated to the Class B shareholders $16,879.

The weighted average outstanding common shares basic for the nine months ended September 30, 2021 and 2020 were 8,661,696 for Class A shares and 101,102 for Class B shares. The weighted average Class A shares reflect the retrospective adjustment for the impacts of the 10% stock dividend declared by the Company on November 12, 2020 and issued to holders of Class A common stock shares of the Company as of November 12, 2020.

Business Segments

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

The revenues and income before federal income taxes from our business segments for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,						Amount Change
	2021			2020			2021 less 2020
Revenues:
Life insurance operations	$	26,468,275		$	23,044,336		$	3,423,939
Annuity operations		14,957,409			15,078,907			(121,498	)
Corporate operations		492,418			474,011			18,407
Total	$	41,918,102		$	38,597,254		$	3,320,848
Income (loss) before income taxes:
Life insurance operations	$	808,447		$	(194,993	)	$	1,003,440
Annuity operations		1,645,473			2,506,220			(860,747	)
Corporate operations		(40,252	)		380,355			(420,607	)
Total	$	2,413,668		$	2,691,582		$	(277,914	)

51

The increases and decreases of revenues and profitability from our business segments for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	Life Insurance			Annuity			Corporate
	Operations			Operations			Operations			Total
Revenues
Premiums	$	3,211,090		$	-		$	-		$	3,211,090
Net invesment income		144,454			(14,194	)		(46,145	)		84,115
Net realized investment gains		14,251			(75,995	)		-			(61,744	)
Service fees and other income		54,144			(31,309	)		64,552			87,387
Total revenue		3,423,939			(121,498	)		18,407			3,320,848
Benefits and claims
Increase in future policy benefits		536,095			-			-			536,095
Death benefits		1,413,509			-			-			1,413,509
Surrenders		(46,820	)		-			-			(46,820	)
Interest credited to policyholders		-			295,242			-			295,242
Dividend, endowment and supplementary life contract benefits		2,464			-			-			2,464
Total benefits and claims		1,905,248			295,242			-			2,200,490
Expenses
Policy acquisition costs deferred net of amortization		(223,334	)		572,654			-			349,320
Amortization of value of insurance business acquired		(8,489	)		(8,489	)		-			(16,978	)
Commissions		1,126,798			278,766			-			1,405,564
Other underwriting, insurance and acquisition expenses		(379,724	)		(398,924	)		439,014			(339,634	)
Total expenses		515,251			444,007			439,014			1,398,272
Total benefits, claims and expenses		2,420,499			739,249			439,014			3,598,762
Income (loss) before federal income taxes (benefits)	$	1,003,440		$	(860,747	)	$	(420,607	)	$	(277,914	)

Consolidated Financial Condition

Our invested assets as of September 30, 2021 and December 31, 2020 are summarized as follows:

	(Unaudited)				Amount Change
	September 30, 2021		December 31, 2020		2021 less 2020
Assets
Investments
Available-for-sale fixed maturity securities at fair value (amortized cost: $153,991,976 and $148,431,010 as of September 30, 2021 and December 31, 2020, respectively)	$	172,745,212	$	170,647,836	$	2,097,376
Available-for-sale preferred stock securities at fair value(amortized cost: $1,250,000 as of September 30, 2021)		1,234,000		-		1,234,000
Equity securities at fair value (cost: $285,412 and $183,219 as of September 30, 2021 and December 31, 2020, respectively)		340,754		203,003		137,751
Mortgage loans on real estate		170,647,657		174,909,062		(4,261,405	)
Investment real estate		688,345		757,936		(69,591	)
Policy loans		2,218,249		2,108,678		109,571
Short-term investments		1,674,777		3,309,020		(1,634,243	)
Other long-term investments		66,700,899		71,025,133		(4,324,234	)
Total investments	$	416,249,893	$	422,960,668	$	(6,710,775	)

52

The $2,097,376 increase and $6,106,764 decrease in fixed maturity available-for-sale securities for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Fixed maturity securities, available-for-sale, beginning	$	170,647,836		$	178,951,324
Purchases		12,760,202			3,597,065
Acquisition of K-TENN Insurance Company		-			800,000
Unrealized appreciation (depreciation)		(3,463,590	)		5,418,065
Net realized investment gains		125,597			429,758
Sales proceeds		(6,049,876	)		(14,977,950	)
Maturities		(900,000	)		(945,500	)
Premium amortization		(374,957	)		(428,202	)
Increase (decrease)		2,097,376			(6,106,764	)
Fixed maturity securities, available-for-sale, ending	$	172,745,212		$	172,844,560

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 $1,234,000 increase and $51,900 decrease in preferred stock available-for-sale for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Preferred stock, available-for-sale, beginning	$	-		$	51,900
Purchases		1,250,000			-
Unrealized depreciation		(16,000	)		(1,955	)
Net realized investment gain on sale		-			55
Sales proceeds		-			(50,000	)
Increase (decrease)		1,234,000			(51,900	)
Preferred stock, available-for-sale, ending	$	1,234,000		$	-

Preferred stock available-for-sale is 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).”

53

The $137,751 increase and $17,080 decrease in equity securities for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Equity securities, beginning	$	203,003		$	201,024
Purchases		162,603			68,198
Sales proceeds		(89	)		-
Joint venture distributions		(60,410	)		(66,511	)
Net realized investment gains, sale of securities		89			-
Net realized investment gains (losses), changes in fair value		35,558			(18,767	)
Increase (decrease)		137,751			(17,080	)
Equity securities, ending	$	340,754		$	183,944

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

The $4,261,405 decrease and $12,975,978 increase in mortgage loans on real estate for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Mortgage loans on real estate, beginning	$	174,909,062		$	162,404,640
Purchases		74,296,705			58,751,393
Discount accretion		318,324			232,823
Net realized investment gains		40,014			108,100
Payments		(78,319,365	)		(45,252,139	)
Foreclosed - transfer to real estate		(458,587	)		(797,158	)
Increase in allowance for bad debts		(94,911	)		(36,800	)
Amortization of loan origination fees		(43,585	)		(30,241	)
Increase (decrease)		(4,261,405	)		12,975,978
Mortgage loans on real estate, ending	$	170,647,657		$	175,380,618

The $69,591 decrease and $38,793 increase in investment real estate for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Investment real estate, beginning	$	757,936		$	1,951,759
Real estate acquired through mortgage loan foreclosure		458,587			797,158
Sales proceeds		(818,018	)		(682,945	)
Depreciation of building		-			(109,116	)
Net realized investment gains		289,840			33,696
Increase (decrease)		(69,591	)		38,793
Investment real estate, ending	$	688,345		$	1,990,552

54

The $4,324,234 decrease and $287,620 increase in other long-term investments (composed of lottery receivables) for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Other long-term investments, beginning	$	71,025,133		$	71,824,480
Purchases		882,026			4,799,143
Accretion of discount		3,656,835			3,928,555
Payments		(8,863,095	)		(8,440,078	)
Increase (decrease)		(4,324,234	)		287,620
Other long-term investments, ending	$	66,700,899		$	72,112,100

Our assets other than invested assets as of September 30, 2021 and December 31, 2020 are summarized as follows:

	(Unaudited)				Amount Change
	September 30, 2021		December 31, 2020		2021 less 2020
Cash and cash equivalents	$	63,024,968	$	40,230,095	$	22,794,873
Accrued investment income		4,913,923		5,370,508		(456,585	)
Recoverable from reinsurers		1,053,179		1,234,221		(181,042	)
Assets held in trust under coinsurance agreement		109,072,674		112,160,307		(3,087,633	)
Agents' balances and due premiums		1,945,949		2,154,322		(208,373	)
Deferred policy acquisition costs		48,664,102		44,513,669		4,150,433
Value of insurance business acquired		4,382,627		4,592,977		(210,350	)
Other assets		12,152,845		10,378,502		1,774,343
Assets other than investment assets	$	245,210,267	$	220,634,601	$	24,575,666

The $22,794,873 increase in cash and cash equivalents is discussed below in the “Liquidity and Capital Resources” section where cash flows are addressed.

The $3,087,633 decrease in assets held in trust under the coinsurance agreement is due to a reduction in assets under TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company that is administered on a funds withheld basis.

.

The increase in deferred policy acquisition costs for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Balance, beginning of year	$	44,513,669		$	38,005,639
Capitalization of commissions, sales and issue expenses		9,325,731			8,134,182
Amortization		(5,206,030	)		(3,665,161	)
Deferred acquisition costs allocated to investments		30,732			(14,613	)
Balance, end of period	$	48,664,102		$	42,460,047

55

Our other assets as of September 30, 2021 and December 31, 2020 are summarized as follows:

	(Unaudited)				Amount Change
	September 30, 2021		December 31, 2020		2021 less 2020
Advances to mortgage loan originator	$	4,924,843	$	4,996,358	$	(71,515	)
Federal and state income taxes recoverable		6,433,062		4,050,726		2,382,336
Lease asset - right to use		590,571		664,393		(73,822	)
Notes receivable		56,798		472,306		(415,508	)
Guaranty funds		53,185		63,869		(10,684	)
Other receivables, prepaid assets and deposits		94,386		130,850		(36,464	)
Total other assets	$	12,152,845	$	10,378,502	$	1,774,343

There was a $2,382,336 increase in federal and state income taxes recoverable primarily due to federal and state tax withholdings on lottery receivables. In addition, the Company is working with the Tax Advocate Office of the Internal Revenue Service to recover its 2019 refund of $1,019,705.

The $415,508 decline in notes receivable is primarily due to repayment of a $400,000 loan from the estate of the Company’s former chairman.

Our liabilities as of September 30, 2021 and December 31, 2020 are summarized as follows:

	(Unaudited)				Amount Change
	September 30, 2021		December 31, 2020		2021 less 2020
Policy liabilities
Policyholders' account balances	$	377,072,802	$	362,519,753	$	14,553,049
Future policy benefits		85,241,834		76,673,797		8,568,037
Policy claims		1,869,646		2,099,548		(229,902	)
Other policy liabilities		113,157		119,699		(6,542	)
Total policy liabilities		464,297,439		441,412,797		22,884,642
Funds withheld under coinsurance agreement		109,678,542		112,681,925		(3,003,383	)
Deferred federal income taxes		9,079,407		9,220,905		(141,498	)
Other liabilities		9,449,432		10,427,430		(977,998	)
Total liabilities	$	592,504,820	$	573,743,057	$	18,761,763

The $14,553,049 increase and $2,394,885 decrease in policyholders’ account balances for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,
	2021			2020
Policyholders' account balances, beginning	$	362,519,753		$	363,083,838
Deposits		25,215,132			17,030,797
Withdrawals		(24,013,421	)		(30,041,959	)
Funds under coinsurance agreement		3,864,288			1,424,469
Interest credited		9,487,050			9,191,808
Increase (decrease)		14,553,049			(2,394,885	)
Policyholders' account balances, ending	$	377,072,802		$	360,688,953

The $8,568,037 increase in future policy benefits during the nine months ended September 30, 2021 is primarily related to the production of new life insurance policies and the aging of existing policies.

56

The $141,498 decrease in deferred federal income taxes during the nine months ended September 30, 2021 was due to $724,261 of decreased deferred federal income taxes on the unrealized appreciation of fixed maturity securities and preferred stock available-for-sale and $582,763 of operating deferred federal tax expense.

The $3,003,383 decrease in funds withheld under coinsurance agreement is due to the liability related to TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company.

Our other liabilities as of September 30, 2021 and December 31, 2020 are summarized as follows:

	(Unaudited)						Amount Change
	September 30, 2021			December 31, 2020			2021 less 2020
Mortgage loans suspense	$	5,933,347		$	5,967,403		$	(34,056	)
Payable for securities purchased		1,939,463			378,046			1,561,417
Accrued expenses payable		662,000			748,000			(86,000	)
Lease liability		590,571			664,393			(73,822	)
Suspense accounts payable		234,632			2,555,255			(2,320,623	)
Unclaimed funds		128,172			79,946			48,226
Unearned investment income		85,721			71,325			14,396
Deferred revenue		66,000			-			66,000
Accounts payable		46,818			72,124			(25,306	)
Guaranty fund assessments		25,000			25,000			-
Other payables, withholdings and escrows		(262,292	)		(134,062	)		(128,230	)
Total other liabilities	$	9,449,432		$	10,427,430		$	(977,998	)

As of September 30, 2021, the Company had $1,939,463 in security purchases where the trade date and settlement date were in different financial reporting periods compared to $378,046 of security purchases overlapping financial reporting periods as of December 31, 2020.

The $128,230 decrease in other payables, withholdings and escrows is primarily due to an increase in escrow advances on mortgage loans.

The $2,320,623 decrease in suspense accounts payable is due to decreased deposits on policy applications that had not been issued as of the financial reporting date.

Liquidity and Capital Resources

Our operations have been financed primarily through the private placement of equity securities and intrastate public stock offerings. Through September 30, 2021, we have received $27,119,480 from the sale of our shares and recorded $1,746,240 from the exchange of our shares to acquire K-TENN in 2020.

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

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

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

57

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 September 30, 2021, we had cash and cash equivalents totaling $63,024,968. As of September 30, 2021, cash and cash equivalents of $21,573,022 and $39,289,745, respectively, totaling $60,862,767 were held by TLIC and FBLIC and may not be available for use by FTFC due to the required pre-approval by the OID and MDCI 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 $1,363,823 in 2021 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $1,025,933 in 2021 without prior approval. FBLIC has paid no dividends to TLIC in 2021 and 2020. Dividends paid by FBLIC would be eliminated in consolidation. TLIC has paid no dividends to FTFC in 2021 and 2020.

During 2020, FTFC paid a $0.05 per share cash dividend for a total of $393,178 to its Class A shareholders.

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 $51,472,898 and $32,645,110 as of September 30, 2021 and December 31, 2020, 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 15, 2021, the Company renewed its $1.5 million line of credit with a bank to provide working capital and funds for expansion.  The terms of the line of credit allows for advances, repayments and re-borrowings through a maturity date of September 15, 2022.  Any outstanding advances will 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 with a minimum interest rate floor of 4.5%. The non-utilized portion of the $1.5 million line of credit will be assessed a 1% non usage fee calculated in arrears and paid at the maturity date. No amounts were outstanding on this line of credit as of September 30, 2021 and December 31, 2020. 

Our cash flows for the nine months ended September 30, 2021 and 2020 are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,					Amount Change
	2021		2020			2021 less 2020
Net cash provided by operating activities	$	14,372,428	$	9,225,467		$	5,146,961
Net cash provided by investing activities		7,220,734		2,995,811			4,224,923
Net cash provided by (used in) financing activities		1,201,711		(13,395,896	)		14,597,607
Increase (decrease) in cash and cash equivalents		22,794,873		(1,174,618	)		23,969,491
Cash and cash equivalents, beginning of period		40,230,095		23,212,170			17,017,925
Cash and cash equivalents, end of period	$	63,024,968	$	22,037,552		$	40,987,416

58

The $14,372,428 and $9,225,467 provided by operating activities for the nine months ended September 30, 2021 and 2020, respectively, are summarized as follows:

	(Unaudited)
	Nine Months Ended September 30,						Amount Change
	2021			2020			2021 less 2020
Premiums collected	$	23,259,786		$	19,816,153		$	3,443,633
Net investment income collected		14,849,767			13,990,963			858,804
Service fees and other income collected		264,966			177,580			87,386
Death benefits paid		(8,157,510	)		(6,236,220	)		(1,921,290	)
Surrenders paid		(834,545	)		(881,365	)		46,820
Dividends and endowments paid		(227,341	)		(224,599	)		(2,742	)
Commissions paid		(9,045,723	)		(8,411,494	)		(634,229	)
Other underwriting, insurance and acquisition expenses paid		(6,509,023	)		(6,242,914	)		(266,109	)
Taxes paid		(2,385,516	)		(1,972,538	)		(412,978	)
(Increased) decreased advances to mortgage loan originator		71,515			(761,734	)		833,249
Increased (decreased) deposits of pending policy applications		(2,320,623	)		1,053,759			(3,374,382	)
Decreased funds under coinsurance agreement		3,948,538			2,057,396			1,891,142
Decreased short-term investments		1,634,243			156,850			1,477,393
Increased policy loans		(109,571	)		(44,658	)		(64,913	)
Increased (decreased) mortgage loan suspense		4,681			(3,210,009	)		3,214,690
Other		(71,216	)		(41,703	)		(29,513	)
Net cash provided by operating activities	$	14,372,428		$	9,225,467		$	5,146,961

Please see the statements of cash flows for the nine months ended September 30, 2021 and 2020 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 September 30, 2021 and December 31, 2020 is summarized as follows:

	(Unaudited)						Amount Change
	September 30, 2021			December 31, 2020			2021 less 2020
Shareholders' equity
Class A common stock, par value $.01 per share (40,000,000 shares authorized as of September 30, 2021 and December 31, 2020, 8,909,276 issued as of September 30, 2021 and December 31, 2020, 8,661,696 outstanding as of September 30, 2021 and December 31, 2020)	$	89,093		$	89,093		$	-
Class B common stock, par value $.01 per share (10,000,000 shares authorized, 101,102 issued and outstanding as of September 30, 2021 and December 31, 2020)		1,011			1,011			-
Additional paid-in capital		39,078,485			39,078,485			-
Treasury stock, at cost (247,580 shares as of September 30, 2021 and December 31, 2020)		(893,947	)		(893,947	)		-
Accumulated other comprehensive income		14,794,261			17,518,858			(2,724,597	)
Accumulated earnings		15,886,437			14,058,712			1,827,725
Total shareholders' equity	$	68,955,340		$	69,852,212		$	(896,872	)

The decrease in shareholders’ equity of $896,872 for the nine months ended September 30, 2021 is primarily due to a $2,724,597 decrease in accumulated other comprehensive income that exceeded 2021 net income of $1,827,725.

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 2021 or 2020. Our investments include marketable debt securities that could be readily converted to cash for liquidity needs.

59

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 $18,737,236 and $22,216,826 as of September 30, 2021 and December 31, 2020, respectively, prior to the impact of income taxes and deferred acquisition cost adjustments. An increase of $3,353,993 in unrealized losses arising for the nine months ended September 30, 2021 has been offset by 2021 net realized investment gains of $125,597 originating from the sale and call activity for fixed maturity securities available-for-sale resulting in net unrealized losses on investments of $3,479,590.

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 September 30, 2021, 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 17.16% 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 2020, 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.

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Effective January 1, 2019, the Company entered into a revised advance agreement with one loan originator. As of September 30, 2021, the Company has outstanding advances to this loan originator totaling $4,924,843. The advances are secured by $9,341,094 of residential mortgage loans on real estate that are assigned to the Company. The Company has committed to fund up to an additional $1,575,157 to the loan originator that would result in additional security in the form of residential mortgage loans on real estate to be assigned to the Company.

Effective January 1, 2019, the Company also entered into a revised escrow agreement with the same loan originator. According to the revised terms of the escrow agreement, as of September 30, 2021, $896,405 of additional and secured residential mortgage loan balances on real estate are held in escrow by the Company.  As of September 30, 2021, $676,788 of that escrow amount is available to the Company as additional collateral on $4,924,843 of advances to the loan originator. The remaining September 30, 2021 escrow amount of $219,617 is available to the Company as additional collateral on its investment of $43,923,482 in residential mortgage loans on real estate.

Management continues to actively monitor the COVID-2019 pandemic, the new variants of the virus and the impact of the viruses on the Company’s operations. Although there appears to be recoveries in economic activity and output especially in the United States with the introduction of and inoculations of vaccines, should liquidity conditions worsen in the short-term, management will work with its financial institutions to assist with liquidity needs. The Company continues to adapt its operations and provide and perform all business activities despite the viruses and operates under the guidelines of the U.S. Centers for Disease Control and Prevention.

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 September 30, 2021 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;

● 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;

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● ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks;

● the availability, affordability and adequacy of reinsurance protection;

● the effects of emerging claim and coverage issues;

● the cyclical nature of the insurance business;

● interest rate fluctuations;

● changes in our experiences related to deferred policy acquisition costs;

● the ability and willingness of counterparties to our reinsurance arrangements and derivative instruments to pay balances due to us;

● impact of medical epidemics and viruses;

● domestic or international military actions;

● the effects of extensive government regulation of the insurance industry;

● changes in tax and securities law;

● changes in statutory or U.S. generally accepted accounting principles (“GAAP”), practices or policies;

● regulatory or legislative changes or developments;

● the effects of unanticipated events on our disaster recovery and business continuity planning;

● failures or limitations of our computer, data security and administration systems;

● risks of employee error or misconduct;

● the assimilation of life insurance businesses we acquire and the sound management of these businesses;

● the availability of capital to expand our business; and

● Coronavirus disease impact on economic environment.

It is not our corporate policy to make specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. In addition, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable developments.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 as amended (“Exchange Act”) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is made known to management, including our Certifying Officers, as appropriate, to allow timely decisions regarding disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

Changes to Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

A lawsuit filed by the Company and Chairman, President and Chief Executive Officer, Gregg E. Zahn, in 2013 against former Company Board of Directors member Wayne Pettigrew and Mr. Pettigrew's company, Group & Pension Planners, Inc. (the "Defendants"), originally concluded on February 17, 2017. The lawsuit was filed in the District Court of Tulsa County, Oklahoma.  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.  Mr. Pettigrew denied the allegations.

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The jury originally 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 original damages awarded by the jury, the Company and Mr. Zahn began to aggressively communicate the correction of the untrue statements to outside parties. 

Mr. Pettigrew appealed this decision.  In February 2020, the Court of Civil Appeals of the state of Oklahoma reversed the judgments entered by the trial court and remanded the case for a new trial. The Court of Appeals reversal, however, was not final.  The Company filed a Petition for Certiorari with the Oklahoma Supreme Court to request that it reverse and vacate the decision of the Court of Appeals. In December 2020, the Oklahoma Supreme Court declined to grant certiorari and remanded that the case be retried in the District Court of Tulsa County, Oklahoma.

It remains the Company’s intention to again vigorously prosecute this action against the Defendants for damages and for correction of the defamatory statements. In the opinion of the Company’s management, the ultimate resolution of any contingencies that may arise from this litigation is not considered material in relation to the financial position or results of operations of the Company.

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer
101.INS**	Inline XBRL Instance
101.SCH**	Inline XBRL Taxonomy Extension Schema
101.CAL**	Inline XBRL Taxonomy Extension Calculation
101.DEF**	Inline XBRL Taxonomy Extension Definition
101.LAB**	Inline XBRL Taxonomy Extension Labels
101.PRE**	Inline XBRL Taxonomy Extension Presentation
104	Cover Page Interactive Data (formatted as Inline XBRL and continued in Exhibit 101)
**XBRL	Information is furnished and not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

In accordance with requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	FIRST TRINITY FINANCIAL CORPORATION
	an Oklahoma corporation
November 12, 2021	By:	/s/ Gregg E. Zahn
	Gregg E. Zahn, President and Chief Executive Officer
November 12, 2021	By:	/s/ Jeffrey J. Wood
	Jeffrey J. Wood, Chief Financial Officer

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