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

During the ~~nine~~three months ended ~~September 30,~~March 31, 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:

On January ~~1, 2020,~~4, 2022, the Company acquired ~~K-TENN~~Royalty Capital Life Insurance Company. The Company acquired assets of ~~$1,916,281~~$15,778,364 (including cash) and assumed liabilities of ~~$170,041.~~$11,181,600.

In conjunction with this ~~2020~~2022 acquisition, the cash and non-cash impact on operating, investing and financing activities is summarized as follows.

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, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Utah and West Virginia. FBLIC is licensed in the states of Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia and West Virginia.

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

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

The Company raised $1,450,000 from 2 private placement stock offerings during 2004 and $25,669,480 from 2 public stock offerings and 1 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 2 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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)

~~(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”~~("OID"). This surplus note is eliminated in consolidation.

On August 31, 2009, 2 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.

~~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.

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

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

The results of operations for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, ~~2021~~2022 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.~~2021.

~~Management continues~~
10
First Trinity Financial Corporation and Subsidiaries
Notes to ~~actively monitor the COVID-~~Consolidated Financial Statements
~~2019~~March 31, 2022
(Unaudited)
1. ~~pandemic, the new variants of the virus~~Organization 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.Significant Accounting Policies (continued)

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

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.
Coinsurance
In accordance with an annuity coinsurance agreement with an offshore annuity and life insurance company, TLIC holds assets and recognizes a funds withheld liability for the benefit of the assuming company in an amount at least equal to the annuity reserves in accordance with U.S. statutory accounting principles generated by this ceded business. In addition, the assuming company maintains a trust related to this ceded business amounting to at least an additional 4% of assets above the annuity reserve required under U.S. statutory accounting principles. This coinsurance agreement may be terminated for new business by either party at any time upon 30 days prior written notice to the other party.
In addition, in accordance with this annuity coinsurance agreement, investment income, investment expenses, other income and other expenses earned or incurred in relation to the operations of this annuity coinsurance agreement are not reported on the Company’s Consolidated Statements of Operations. The unrealized appreciation (depreciation) of fixed available-for-sale fixed maturity securities and the related income tax expense (benefit) is not reported as accumulated other comprehensive income in the shareholders’ equity section of the Company’s Consolidated Statements of Financial Position. Correspondingly, the net unrealized gains (losses) arising during the period, the net realized gains (losses) having no credit gains (losses) and the related income tax expense (benefit) associated with the available-for-sale fixed maturities held under this coinsurance agreement are not included in the computation of total other comprehensive income (loss) in the Company’s Consolidated Statement of Comprehensive Income (Loss).
11
First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)
1. Organization and Significant Accounting Policies (continued)
The Company’s Consolidated Statement of Cash Flows only includes the cash flow activities related to the assets and funds withheld under the coinsurance agreement in a one-line presentation and does not include those cash flow activities in the other financial captions and categories presented in that financial statement.
Subsequent Events

Management has evaluated all events subsequent to ~~September 30, 2021~~March 31, 2022 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~~Financial Accounting Standards Board (“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~~March 31, 2022
(Unaudited)
~~(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~~March 31, 2022
(Unaudited)
~~(Unaudited)~~

1. Organization and Significant Accounting Policies (continued)

~~Business Combinations~~ – ~~Accounting for Contract Assets~~Troubled Debt Restructurings and ~~Contract Liabilities from Contracts with Customers~~Vintage Disclosures

In ~~October 2021,~~March 2022, the FASB issued ~~guidance~~amendments (Accounting Standards Update ~~2021~~2022-082) for the accounting ~~for revenue contracts with customers acquired~~of troubled debt restructuring and disclosures. The amendments introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. The amendments promulgate that an entity must apply specific loan refinancing and restructuring guidance to determine whether a modification results in a ~~business combination.~~new loan or the continuation of an existing loan. The amendments also require that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases. 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~~and 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.prospectively. The adoption of this guidance isshould 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 securities as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

Gross

Gross

Gross

Gross

Amortized Cost

Unrealized

Unrealized

Fair

Amortized Cost

Unrealized

Unrealized

Fair

or Cost

Gains

Losses

Value

or Cost

Gains

Losses

Value

September 30, 2021 (Unaudited)

March 31, 2022 (Unaudited)

Fixed maturity securities

U.S. government and U.S. government agencies
$ 428,879 $ 1,391 $ 450 $ 429,820 $ 427,433 $ 275 $ 6,373 $ 421,335
States and political subdivisions
8,183,832 729,312 23,099 8,890,045 8,270,287 281,059 89,230 8,462,116
Commercial mortgage-backed securities
10,587,931 8,638 728,208 9,868,361
Residential mortgage-backed securities
11,373 13,947 0 25,320 11,119 12,138 0 23,257
Corporate bonds
114,124,130 14,221,882 97,550 128,248,462 104,984,657 2,951,103 1,748,087 106,187,673
Asset-backed securities
1,236,917 52,199 3,963 1,285,153 8,263,481 8,024 499,625 7,771,880
Exchange traded securities
523,780 0 5,780 518,000 577,442 0 70,042 507,400
Foreign bonds
29,083,065 3,865,750 14,233 32,934,582 29,522,752 752,810 684,522 29,591,040
Redeemable preferred securities
1,250,000 0 52,400 1,197,600
Certificate of deposits
400,000 13,830 0 413,830 400,000 5,328 0 405,328
Total fixed maturity securities
153,991,976 18,898,311 145,075 172,745,212 $ 164,295,102 $ 4,019,375 $ 3,878,487 $ 164,435,990

Preferred stock securities
1,250,000 0 16,000 1,234,000

Total fixed maturity and preferred stock securities
$ 155,241,976 $ 18,898,311 $ 161,075 $ 173,979,212
Fixed maturity securities held in trust under coinsurance agreement
$ 64,879,237 $ 727,578 $ 1,925,960 $ 63,680,855

December 31, 2020

December 31, 2021

Fixed maturity securities

U.S. government and U.S. government agencies
$ 430,735 $ 3,568 $ 0 $ 434,303 $ 428,153 $ 812 $ 1,952 $ 427,013
States and political subdivisions
8,830,403 891,285 31,932 9,689,756 8,463,941 689,564 24,553 9,128,952
Commercial mortgage-backed securities
3,458,408 252 34,265 3,424,395
Residential mortgage-backed securities
14,022 14,420 0 28,442 11,081 13,195 0 24,276
Corporate bonds
106,387,417 16,859,782 111,840 123,135,359 116,230,579 12,731,684 100,882 128,861,381
Asset-backed securities
2,052,174 32,908 47,813 2,037,269 5,278,819 57,290 17,806 5,318,303
Exchange traded securities
500,000 0 200 499,800 549,334 0 32,734 516,600
Foreign bonds
29,616,259 4,641,338 59,230 34,198,367 31,286,049 3,493,469 46,192 34,733,326
Redeemable preferred securities
1,250,000 0 17,600 1,232,400
Certificate of deposits
600,000 24,540 0 624,540 400,000 10,392 0 410,392
Total fixed maturity securities
$ 148,431,010 $ 22,467,841 $ 251,015 $ 170,647,836 $ 167,356,364 $ 16,996,658 $ 275,984 $ 184,077,038
Fixed maturity securities held in trust under coinsurance agreement
$ 65,269,544 $ 3,593,466 $ 115,477 $ 68,747,533

1514

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(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~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

Unrealized

Number of

Unrealized

Number of

Fair Value

Loss

Securities

Fair Value

Loss

Securities

September 30, 2021 (Unaudited)

March 31, 2022 (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 $ 296,058 $ 6,373 2
States and political subdivisions
104,131 157 1 553,452 45,570 4
Commercial mortgage-backed securities
7,523,901 728,208 19
Corporate bonds
5,213,820 97,550 16 30,231,450 1,748,087 85
Asset-backed securities
7,239,128 470,008 16
Exchange traded securities
518,000 5,780 2 507,400 70,042 2
Foreign bonds
547,400 14,233 1 11,557,401 630,415 25
Redeemable preferred securities
447,600 52,400 2
Total less than 12 months in an unrealized loss position
6,686,771 118,170 22 58,356,390 3,751,103 155
More than 12 months in an unrealized loss position

States and political subdivisions
628,548 22,942 1 604,020 43,660 1
Asset-backed securities
357,543 3,963 1 321,966 29,617 1
Foreign bonds
506,030 54,107 1
Total more than 12 months in an unrealized loss position
986,091 26,905 2 1,432,016 127,384 3
Total fixed maturity securities in an unrealized loss position
7,672,862 145,075 24 $ 59,788,406 $ 3,878,487 $ 158
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
Fixed maturity securities held in trust under coisnurance agreement

Total less than 12 months in an unrealized loss position
$ 29,513,144 $ 1,925,960 98
Total fixed maturity securities held in trust under coinsurance agreement in a unrealized loss position
$ 29,513,144 $ 1,925,960 98

December 31, 2020

December 31, 2021

Fixed maturity securities

Less than 12 months in an unrealized loss position

U.S. government and U.S. government agencies
$ 301,195 $ 1,952 2
States and political subdivisions
$ 625,098 $ 31,932 1 337,421 1,724 2
Commercial mortgage-backed securities
3,323,141 34,265 7
Corporate bonds
878,716 41,508 3 10,991,840 100,882 30
Asset-backed securities
1,047,443 47,813 3 3,475,854 9,544 8
Exchange traded securities
499,800 200 2 516,600 32,734 2
Redeemable preferred securities
482,400 17,600 2
Foreign bonds
285,569 28,282 4 2,408,472 46,192 6
Total less than 12 months in an unrealized loss position
3,336,626 149,735 13 21,836,923 244,893 59
More than 12 months in an unrealized loss position

Corporate bonds
1,084,205 70,332 3
Foreign bonds
532,875 30,948 1
States and political subdivisions
626,754 22,829 1
Asset-backed securities
345,299 8,262 1
Total more than 12 months in an unrealized loss position
1,617,080 101,280 4 972,053 31,091 2
Total fixed maturity securities in an unrealized loss position
$ 4,953,706 $ 251,015 $ 17 $ 22,808,976 $ 275,984 61
Fixed maturity securities held in trust under coisnurance agreement

Total less than 12 months in an unrealized loss position
$ 8,000,895 $ 115,477 21
Total fixed maturity securities held in trust under coinsurance agreement in a unrealized loss position
$ 8,000,895 $ 115,477 21

1615

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(Unaudited)~~

2. Investments (continued)

As of ~~September 30, 2021,~~March 31, 2022, the Company held 24158 available-for-sale fixed maturity securities with an unrealized loss of ~~$145,075,~~$3,878,487, fair value of ~~$7,672,862~~$59,788,406 and amortized cost of ~~$7,817,937.~~$63,666,893. These unrealized losses were primarily due to ~~the~~ market interest rate movements in the bond market as of ~~September 30, 2021.~~March 31, 2022. The ratio of the fair value to the amortized cost of these 24158 securities is ~~98%~~94%.

As of December 31, ~~2020,~~2021, the Company held 1761 available-for-sale fixed maturity securities with an unrealized loss of ~~$251,015,~~$275,984, fair value of ~~$4,953,706~~$22,808,976 and amortized cost of ~~$5,204,721.~~$23,084,960. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, ~~2020.~~2021. The ratio of the fair value to the amortized cost of these 1761 securities is ~~95%~~99%.
~~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~~There were no ~~additional~~ other-than-temporary ~~impairments on fixed maturity available-for-sale securities during~~ ~~2020.~~
~~There were 0~~ impairments during the ~~nine~~three months ended ~~September 30,~~ March 31, 2022 and 2021.

Management believes that the Company will fully recover its cost basis in the securities held as of ~~September 30, 2021,~~March 31, 2022, 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

16

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(Unaudited)~~

2. Investments (continued)

Net unrealized gains included in other comprehensive ~~income~~loss for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the appreciation (depreciation) had been realized as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, are summarized as follows:

(Unaudited)

(Unaudited)

September 30, 2021

December 31, 2020

March 31, 2022

December 31, 2021

Unrealized appreciation on available-for-sale securities
$ 18,737,236 $ 22,216,826 $ 140,888 $ 16,720,674
Adjustment to deferred acquisition costs
(10,325 ) (41,057 ) (56 ) (6,969 )
Deferred income taxes
(3,932,650 ) (4,656,911 ) (29,575 ) (3,509,878 )
Net unrealized appreciation on available-for-sale securities
$ 14,794,261 $ 17,518,858 $ 111,257 $ 13,203,827

Assets held in trust under coinsurance agreement

Unrealized appreciation (depreciation) on fixed maturity securities available-for-sale
$ (1,198,382 ) $ 3,477,989

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~~$65,225,309 and ~~$71,025,133~~$65,929,215 as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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,~~March 31, 2022, by contractual maturity, are summarized as follows:

September 30, 2021 (Unaudited)

March 31, 2022 (Unaudited)

Fixed Maturity Available-For-Sale Securities

Other Long-Term Investments

Fixed Maturity Available-For-Sale Securities

Other Long-Term Investments

Amortized Cost

Fair Value

Amortized Cost

Fair Value

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 $ 2,479,645 $ 2,489,671 $ 13,418,030 $ 13,724,837
Due after one year through five years
38,330,774 40,464,311 34,083,825 38,421,632 27,415,867 27,580,535 33,462,413 37,279,546
Due after five years through ten years
39,538,177 43,676,601 14,819,938 19,748,660 33,591,731 33,803,977 12,704,720 16,154,724
Due after ten years
73,349,779 85,769,812 5,884,244 11,234,378 88,958,809 89,472,591 5,640,146 9,659,374
Due at multiple maturity dates
11,373 25,320 0 0 11,849,050 11,089,216 0 0
$ 153,991,976 $ 172,745,212 $ 66,700,899 $ 81,547,820 $ 164,295,102 $ 164,435,990 $ 65,225,309 $ 76,818,481
17

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)
2. Investments (continued)
The amortized cost and fair value of fixed maturity available-for-sale securities held in trust under coinsurance agreement as of March 31, 2022, by contractual maturity, are summarized as follows:

March 31, 2022 (Unaudited)

Fixed Maturity Available-For-Sale Securities

Amortized Cost

Fair Value

Due after one year through five years
$ 28,378,737 $ 28,931,597
Due after five years through ten years
12,047,399 12,072,132
Due after ten years
21,596,802 19,999,262
Due at multiple maturity dates
2,856,299 2,677,864
$ 64,879,237 $ 63,680,855

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 and 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~~March 31, 2022 and ~~2020~~2021 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 $ 0 $ 25,158,102 $ 12,357,549 $ 0 $ 50,000
Gross realized gains
160,753 115,229 283,491 0 1,344 1 0 55
Gross realized losses
(138,821 ) (3,610 ) 0 0 0 0 0 0

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 $ 0 $ 818,018 $ 682,945 $ 78,319,365 $ 45,252,139
Gross realized gains
291,252 461,716 89 0 289,840 33,696 40,014 108,100
Gross realized losses
(165,655 ) (31,958 ) 0 0 0 0 0 0

Nine Months Ended September 30, (Unaudited)

Preferred Stock Securities

2021

2020

Proceeds
$ 0 $ 50,000
Gross realized gains
0 55
Gross realized losses
0 0
19

Three Months Ended March 31, (Unaudited)

Fixed Maturity Securities

Equity Securities

Investment Real Estate

2022

2021

2022

2021

2022

2021

Proceeds
$ 30,949,960 $ 2,419,079 $ 0 $ 88 $ 49,371 $ 0
Gross realized gains
1,224,914 64,150 0 89 0 0
Gross realized losses
(839 ) (26,499 ) (8,000 ) 0 (3,696 ) 0

~~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~~March 31, 2022 and ~~2020~~2021 and the amount of net realized investment gains (losses) on fixed maturity securities available-for-sale, equity securities and investment real estate ~~mortgage loans on real estate and preferred stock securities~~ for the three ~~and~~ ~~nine~~months ended ~~September 30, 2021~~March 31, 2022 and ~~2020~~2021 are summarized as follows:

Three Months Ended September 30, (Unaudited)

Nine Months Ended September 30, (Unaudited)

Three Months Ended March 31, (Unaudited)

2021

2020

2021

2020

2022

2021

Change in unrealized investment gains (losses):

Change in unrealized investment losses:

Available-for-sale securities:

Fixed maturity securities
$ (1,389,187 ) $ 3,025,426 $ (3,463,590 ) $ 5,418,065 $ (16,579,786 ) $ (6,761,082 )
Preferred stock
(17,800 ) (495 ) (16,000 ) (1,955 )
Fixed maturity securities held in trust under coinsurance agreement
(4,676,371 ) (4,031,298 )
Net realized investment gains (losses):

Available-for-sale securities:

Fixed maturity securities
21,932 111,619 125,597 429,758 1,224,075 37,651
Equity securities, sale of securities
0 0 89 0 (8,000 ) 89
Equity securities, changes in fair value
13,968 7,285 35,558 (18,767 ) 25,427 14,355
Investment real estate
283,491 0 289,840 33,696 (3,696 ) 0
Mortgage loans on real estate
1,344 1 40,014 108,100
Preferred stock securities
0 55 0 55

18
First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)
2. Investments (continued)
Major categories of net investment income for the three ~~and~~ ~~nine~~months ended ~~September 30, 2021~~March 31, 2022 and ~~2020~~2021 are summarized as follows:

Three Months Ended September 30, (Unaudited)

Nine Months Ended September 30, (Unaudited)

Three Months Ended March 31, (Unaudited)

2021

2020

2021

2020

2022

2021

Fixed maturity securities
$ 1,737,661 $ 1,930,697 $ 5,161,051 $ 5,443,419 $ 1,935,754 $ 1,695,894
Preferred stock and equity securities
37,732 22,946 81,136 79,015 65,073 16,999
Other long-term investments
1,151,057 1,275,834 3,656,131 3,927,257 1,311,694 1,282,894
Mortgage loans
3,517,394 3,503,652 10,743,701 10,870,548 3,778,025 3,748,232
Policy loans
40,461 37,985 118,036 113,814 43,322 38,618
Real estate
0 68,663 0 206,026
Short-term and other investments
20,854 38,662 65,227 92,479 21,272 9,295
Gross investment income
6,505,159 6,878,439 19,825,282 20,732,558 7,155,140 6,791,932
Investment expenses
(747,297 ) (1,129,264 ) (1,846,076 ) (2,837,467 ) (706,145 ) (643,090 )
Net investment income
$ 5,757,862 $ 5,749,175 $ 17,979,206 $ 17,895,091 $ 6,448,995 $ 6,148,842

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~~March 31, 2022 and December 31, ~~2020,~~2021, these required deposits, included in investment assets, had amortized costs that totaled ~~$4,469,238~~$6,178,952 and ~~$4,464,398,~~$4,673,271, respectively. As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, these required deposits had fair values that totaled ~~$4,517,846~~$6,185,211 and ~~$4,531,967,~~$4,715,350, respectively.
The Company’s mortgage loans by property type as of March 31, 2022 and December 31, 2021 are summarized as follows:

March 31, 2022

December 31, 2021

Residential mortgage loans
$ 177,718,296 $ 169,368,048
Commercial mortgage loans by property type

Agricultural
999,975 0
Apartment
1,910,311 175,121
Industrial
1,160,986 1,170,544
Lodging
277,376 280,836
Office building
5,176,363 2,285,403
Retail
4,333,571 4,228,099
Total commercial mortgage loans by property type
13,858,582 8,140,003
Total mortgage loans
$ 191,576,878 $ 177,508,051

Mortgage loans held in trust under coinsurance agreement

Residential mortgage loans
$ 3,678,125 $ 3,803,847
Commercial mortgage loans
29,435,932 30,013,132
Less unearned interest on mortgage loans
590,473 767,650
Total mortgage loans held in trust under coinsurance agreement
$ 32,523,584 $ 33,049,329

2019

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(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 0
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 1114 mortgage loans with a remaining principal balance of ~~$2,211,689~~$3,090,264 that were more than 90 days past due as of ~~September 30, 2021.~~March 31, 2022. There were 2410 mortgage loans with a remaining principal balance of ~~$3,979,997~~$1,717,496 that were more than 90 days past due as of December 31, ~~2020.~~2021.

There were 02 mortgage loans in default and in the foreclosure process with a remaining principal balance of $611,220 as of ~~September 30, 2021.~~March 31, 2022. There ~~were 0~~was 1 mortgage ~~loans~~loan in default orand in the foreclosure process with a remaining principal balance of $484,400 as of December 31, ~~2020.~~2021.

The Company’s investment real estate as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 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 3 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.

(Unaudited)

March 31, 2022

December 31, 2021

Land - held for investment
$ 540,436 $ 540,436
Residential real estate - held for sale
94,842 147,909
Total investment in real estate
$ 635,278 $ 688,345

TLIC owns approximately 3three 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 2022, the Company sold investment real estate property with an aggregate carrying value of $53,067. The Company recorded a gross realized investment loss on sale of $3,696 based on an aggregate sales price of $49,371.
During 2021, the Company foreclosed on ~~one~~residential mortgage ~~loan~~loans of real estate totaling $458,587 and transferred ~~the property~~those properties 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.

20
First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)
3. Fair Value Measurements (continued)
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. government, U.S. government agencies, state and political subdivisions, commercial and residential mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign bonds, redeemable preferred securities and certificate of ~~deposits.~~deposit.

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.

2221

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(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~~March 31, 2022 and December 31, ~~2020~~2021 is summarized as follows:

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

September 30, 2021 (Unaudited)

March 31, 2022 (Unaudited)

Fixed maturity securities, available-for-sale

U.S. government and U.S. government agencies
$ 0 $ 429,820 $ 0 $ 429,820 $ 0 $ 421,335 $ 0 $ 421,335
States and political subdivisions
0 8,890,045 0 8,890,045 0 8,462,116 0 8,462,116
Commercial mortgage-backed securities
0 9,868,361 0 9,868,361
Residential mortgage-backed securities
0 25,320 0 25,320 0 23,257 0 23,257
Corporate bonds
0 128,248,462 0 128,248,462 0 106,187,673 0 106,187,673
Asset-backed securities
0 1,285,153 0 1,285,153 0 7,771,880 0 7,771,880
Exchange traded securities
0 518,000 0 518,000 0 507,400 0 507,400
Foreign bonds
0 32,934,582 0 32,934,582 0 29,591,040 0 29,591,040
Certificate of deposits
0 413,830 0 413,830
Redeemable preferred securities
0 1,197,600 0 1,197,600
Certificate of deposit
0 405,328 0 405,328
Total fixed maturity securities
$ 0 $ 172,745,212 $ 0 $ 172,745,212 $ 0 $ 164,435,990 $ 0 $ 164,435,990

Preferred stock securities, available-for-sale
$ 1,234,000 $ 0 $ 0 $ 1,234,000

Fixed maturity securities, available-for-sale held in trust under coinsurance agreement
$ 0 $ 63,680,855 $ 0 63,680,855
Equity securities

Mutual funds
$ 0 $ 80,888 $ 0 $ 80,888 $ 0 $ 59,648 $ 0 $ 59,648
Corporate common stock
196,589 0 63,277 259,866 250,574 0 68,315 318,889
Total equity securities
$ 196,589 $ 80,888 $ 63,277 $ 340,754 $ 250,574 $ 59,648 $ 68,315 $ 378,537

December 31, 2020

December 31, 2021

Fixed maturity securities, available-for-sale

U.S. government and U.S. government agencies
$ 0 $ 434,303 $ 0 $ 434,303 $ 0 $ 427,013 $ 0 $ 427,013
States and political subdivisions
0 9,689,756 0 9,689,756 0 9,128,952 0 9,128,952
Commercial mortgage-backed securities
0 3,424,395 0 3,424,395
Residential mortgage-backed securities
0 28,442 0 28,442 0 24,276 0 24,276
Corporate bonds
0 123,135,359 0 123,135,359 0 128,861,381 0 128,861,381
Asset-backed securities
0 2,037,269 0 2,037,269 0 5,318,303 0 5,318,303
Exchange traded securities
0 499,800 0 499,800 0 516,600 0 516,600
Foreign bonds
34,198,367 34,198,367 0 34,733,326 0 34,733,326
Certificate of deposits
0 624,540 0 624,540
Redeemable preferred securities
0 1,232,400 0 1,232,400
Certificate of deposit
0 410,392 0 410,392
Total fixed maturity securities
$ 0 $ 170,647,836 $ 0 $ 170,647,836 $ 0 $ 184,077,038 $ 0 $ 184,077,038

Fixed maturity securities, available-for-sale held in trust under coinsurance agreement
$ 0 $ 68,747,533 $ 0 68,747,533
Equity securities

Mutual funds
$ 0 $ 84,242 $ 0 $ 84,242 $ 0 $ 76,816 $ 0 $ 76,816
Corporate common stock
51,629 0 67,132 118,761 207,979 0 63,423 271,402
Total equity securities
$ 51,629 $ 84,242 $ 67,132 $ 203,003 $ 207,979 $ 76,816 $ 63,423 $ 348,218

22

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)
3. Fair Value Measurements (continued)
As of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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, commercial and residential mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign bonds, redeemable preferred securities and certificate of ~~deposits.~~deposit.

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~~the equity securities classified as such is appropriate since they trade on a daily basis, are based on quoted market prices in active markets and are based upon unadjusted prices. Level 2 for those equity securities classified as such is appropriate since they are not actively traded.

The Company’s fixed maturity ~~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~~three months ended ~~September 30,~~March 31, 2022 and December 31, 2021 ~~and~~ ~~2020~~is summarized as follows:

Unaudited

Nine Months Ended September 30,

(Unaudited)

2021

2020

March 31, 2022

December 31, 2021

Beginning balance
$ 67,133 $ 64,107 $ 63,423 $ 67,132
Joint venture net income
56,554 68,198 43,414 75,195
Joint venture distribution
(60,410 ) (66,511 ) (30,522 ) (78,904 )
Net realized invemstment losses
(8,000 ) 0
Ending balance
$ 63,277 $ 65,794 $ 68,315 $ 63,423

2423

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(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~~March 31, 2022 and December 31, ~~2020,~~2021, 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

March 31, 2022 (Unaudited)

Financial assets

Mortgage loans on real estate

Commercial
$ 13,858,582 $ 15,314,329 $ 0 $ 0 $ 15,314,329
Residential
177,718,296 198,104,611 0 0 198,104,611
Policy loans
2,371,791 2,371,791 0 0 2,371,791
Short-term investments
4,853,512 4,853,512 4,853,512 0 0
Other long-term investments
65,225,309 76,818,481 0 0 76,818,481
Cash and cash equivalents
31,368,344 31,368,344 31,368,344 0 0
Accrued investment income
4,798,164 4,798,164 0 0 4,798,164
Total financial assets
$ 300,193,998 $ 333,629,232 $ 36,221,856 $ 0 $ 297,407,376
Held in trust under coinsurance agreement

Mortgage loans on real estate

Commercial
$ 29,435,932 $ 29,435,932 $ 0 $ 0 $ 29,435,932
Residential
3,678,125 3,678,125 0 0 3,678,125
Less unearned interest on mortgage loans
590,473 590,473 0 0 590,473
Cash and cash equivalents
5,122,812 5,122,812 5,122,812 0 0
Total financial assets held in trust under coinsurance agreement
$ 37,646,396 $ 37,646,396 $ 5,122,812 $ 0 $ 32,523,584
Financial liabilities

Policyholders' account balances
$ 371,324,479 $ 348,887,930 $ 0 $ 0 $ 348,887,930
Policy claims
3,417,916 3,417,916 0 0 3,417,916
Total financial liabilities
$ 374,742,395 $ 352,305,846 $ 0 $ 0 $ 352,305,846

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 $ 0 $ 0 $ 8,171,057
Residential
163,270,025 185,575,474 0 0 185,575,474
Policy loans
2,218,249 2,218,249 0 0 2,218,249
Short-term investments
1,674,777 1,674,777 1,674,777 0 0
Other long-term investments
66,700,899 81,547,820 0 0 81,547,820
Cash and cash equivalents
63,024,968 63,024,968 63,024,968 0 0
Accrued investment income
4,913,923 4,913,923 0 0 4,913,923
Total financial assets
$ 309,180,473 $ 347,126,268 $ 64,699,745 $ 0 $ 282,426,523
Financial liabilities

Policyholders' account balances
$ 377,072,802 $ 379,131,962 $ 0 $ 0 $ 379,131,962
Policy claims
1,869,646 1,869,646 0 0 1,869,646
Total financial liabilities
$ 378,942,448 $ 381,001,608 $ 0 $ 0 $ 381,001,608

December 31, 2020

December 31, 2021

Financial assets

Mortgage loans on real estate

Commercial
$ 11,002,689 $ 11,085,406 $ 0 $ 0 $ 11,085,406 $ 8,140,003 $ 8,917,023 $ 0 $ 0 $ 8,917,023
Residential
163,906,373 184,802,993 0 0 184,802,993 169,368,048 187,336,689 0 0 187,336,689
Policy loans
2,108,678 2,108,678 0 0 2,108,678 2,272,629 2,272,629 0 0 2,272,629
Short-term investments
3,309,020 3,309,020 3,309,020 0 0 3,296,838 3,296,838 3,296,838 0 0
Other long-term investments
71,025,133 89,264,246 0 0 89,264,246 65,929,215 80,667,966 0 0 80,667,966
Cash and cash equivalents
40,230,095 40,230,095 40,230,095 0 0 42,528,046 42,528,046 42,528,046 0 0
Accrued investment income
5,370,508 5,370,508 0 0 5,370,508 4,879,290 4,879,290 0 0 4,879,290
Total financial assets
$ 296,952,496 $ 336,170,946 $ 43,539,115 $ 0 $ 292,631,831 $ 296,414,069 $ 329,898,481 $ 45,824,884 $ 0 $ 284,073,597
Held in trust under coinsurance agreement

Mortgage loans on real estate

Commercial
$ 30,013,132 $ 30,013,132 $ 0 $ 0 $ 30,013,132
Residential
3,803,847 3,803,847 0 0 3,803,847
Less unearned interest on mortgage loans
767,650 767,650 0 0 767,650
Cash and cash equivalents
4,413,384 4,413,384 4,413,384 0 0
Total financial assets held in trust under coinsurance agreement
$ 37,462,713 $ 37,462,713 $ 4,413,384 $ 0 $ 33,049,329
Financial liabilities

Policyholders' account balances
$ 362,519,753 $ 380,666,901 $ 0 $ 0 $ 380,666,901 $ 373,647,869 $ 373,412,607 $ 0 $ 0 $ 373,412,607
Policy claims
2,099,548 2,099,548 0 0 2,099,548 2,381,183 2,381,183 0 0 2,381,183
Total financial liabilities
$ 364,619,301 $ 382,766,449 $ 0 $ 0 $ 382,766,449 $ 376,029,052 $ 375,793,790 $ 0 $ 0 $ 375,793,790

2524

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(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 secured overnight financing rate and LIBOR yield curve ~~adjusted for an appropriate credit spread.~~as of March 31, 2022 and December 31, 2021, respectively.

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.

2625

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements
~~September 30, 2021~~
March 31, 2022
(Unaudited)
~~(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~~March 31, 2022 and December 31, ~~2020~~2021 and for the three ~~and~~ ~~nine~~months ended ~~September 30, 2021~~March 31, 2022 and ~~2020~~2021 are summarized as follows:

Three Months Ended September 30, (Unaudited)

Nine Months Ended September 30, (Unaudited)

Three Months Ended March 31, (Unaudited)

2021

2020

2021

2020

2022

2021

Revenues:

Life insurance operations
$ 9,404,804 $ 8,201,655 $ 26,468,275 $ 23,044,336 $ 9,948,321 $ 8,036,885
Annuity operations
4,932,938 4,729,579 14,957,409 15,078,907 5,905,263 5,041,530
Corporate operations
90,415 144,435 492,418 474,011 178,036 214,159
Total
$ 14,428,157 $ 13,075,669 $ 41,918,102 $ 38,597,254 $ 16,031,620 $ 13,292,574
Income (loss) before income taxes:

Income before income taxes:

Life insurance operations
$ 923,202 $ 141,246 $ 808,447 $ (194,993 ) $ (80,665 ) $ (623,469 )
Annuity operations
385,534 795,043 1,645,473 2,506,220 1,075,636 205,990
Corporate operations
37,230 127,526 (40,252 ) 380,355 134,588 (101,965 )
Total
$ 1,345,966 $ 1,063,815 $ 2,413,668 $ 2,691,582 $ 1,129,559 $ (519,444 )
Depreciation and amortization expense:

Life insurance operations
$ 1,270,992 $ 1,013,517 $ 4,353,884 $ 3,197,814 $ 1,248,162 $ 1,541,194
Annuity operations
479,106 245,115 1,106,081 834,032 193,030 328,360
Total
$ 1,750,098 $ 1,258,632 $ 5,459,965 $ 4,031,846 $ 1,441,192 $ 1,869,554

(Unaudited)

(Unaudited)

March 31, 2022

December 31, 2021

Assets:

September 30, 2021

December 31, 2020

Life insurance operations
$ 138,602,579 $ 120,484,734 $ 144,023,240 $ 133,378,698
Annuity operations
518,227,430 518,257,307 500,224,825 521,742,643
Corporate operations
4,630,151 4,853,228 6,759,210 4,637,593
Total
$ 661,460,160 $ 643,595,269 $ 651,007,275 $ 659,758,934

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~~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
26

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements
~~September 30, 2021~~
March 31, 2022
(Unaudited)
~~(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.

27

First Trinity Financial Corporation and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2022
(Unaudited)

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. NaN 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)~~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~~March 31, 2022 and ~~2020~~2021 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 0 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 0 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

Three Months Ended March 31, 2022 and 2021 (Unaudited)

Unrealized

Appreciation

Accumulated

(Depreciation) on

Adjustment to

Other

Available-For-Sale

Deferred Acquisition

Comprehensive

Securities

Costs

Income

Balance as of January 1, 2022 $ 13,209,319 $ (5,492 ) $ 13,203,827
Other comprehensive loss before reclassifications, net of tax
(12,131,012 ) 5,461 (12,125,551 )
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax
967,019 0 967,019
Other comprehensive loss
(13,098,031 ) 5,461 (13,092,570 )
Balance as of March 31, 2022 $ 111,288 $ (31 ) $ 111,257

Balance as of January 1, 2022 $ 17,551,279 $ (32,421 ) $ 17,518,858
Other comprehensive loss before reclassifications, net of tax
(5,311,511 ) 12,425 (5,299,086 )
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax
29,744 0 29,744
Other comprehensive loss
(5,341,255 ) 12,425 (5,328,830 )
Balance as of March 31, 2022 $ 12,210,024 $ (19,996 ) $ 12,190,028

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 0 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 0 339,552
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)~~loss and the related income tax ~~expense (benefit)~~benefit for each component for the three ~~and~~ ~~nine~~months ended ~~September 30, 2021~~March 31, 2022 and ~~2020~~2021 are summarized as follows:

Three Months Ended September 30, 2021 (Unaudited)

Income Tax

Income Tax

Pretax

Benefit

Net of Tax

Pretax

Expense (Benefit)

Net of Tax

Three Months Ended March 31, 2022 (Unaudited)

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 ) $ (15,355,711 ) $ (3,224,699 ) $ (12,131,012 )
Reclassification adjustment for net gains included in operations having no credit losses
21,932 4,606 17,326 1,224,075 257,056 967,019
Net unrealized losses on investments
(1,406,987 ) (295,469 ) (1,111,518 ) (16,579,786 ) (3,481,755 ) (13,098,031 )
Adjustment to deferred acquisition costs
7,675 1,612 6,063 6,913 1,452 5,461
Total other comprehensive loss
$ (1,399,312 ) $ (293,857 ) $ (1,105,455 ) $ (16,572,873 ) $ (3,480,303 ) $ (13,092,570 )

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

Three Months Ended March 31, 2021 (Unaudited)

Other comprehensive loss:

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

Unrealized holding losses arising during the period
$ (6,723,431 ) $ (1,411,920 ) $ (5,311,511 )
Reclassification adjustment for net gains included in operations having no credit losses
37,651 7,907 29,744
Net unrealized losses on investments
(6,761,082 ) (1,419,827 ) (5,341,255 )
Adjustment to deferred acquisition costs
15,729 3,304 12,425
Total other comprehensive loss
$ (6,745,353 ) $ (1,416,523 ) $ (5,328,830 )

3028

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(Unaudited)~~

8.7. Other Comprehensive ~~Income (Loss)~~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~~March 31, 2022 and ~~2020~~2021 are summarized as follows:

Three Months Ended September 30, (Unaudited)
Nine Months Ended September 30, (Unaudited)
Three Months Ended March 31, (Unaudited)
Reclassification Adjustments

2021

2020

2021

2020

2022

2021

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 $ 1,224,075 $ 37,651
Income tax expense (b)
4,606 23,452 26,376 90,261 257,056 7,907
Total reclassification adjustments
$ 17,326 $ 88,222 $ 99,221 $ 339,552 $ 967,019 $ 29,744

(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.

9.8. 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.

3129

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(Unaudited)~~

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

As of ~~September 30, 2021,~~March 31, 2022, $~~896,405~~1,007,684 of independent residential mortgage loans on real estate isare held in escrow by a third party for the benefit of the Company. As of ~~September 30, 2021,~~March 31, 2022, $~~676,788~~836,067 of that escrow amount is available to the Company as additional collateral on ~~$4,924,843~~$4,553,106 of advances to the loan originator. The remaining ~~September 30, 2021~~March 31, 2022 escrow amount of ~~$219,617~~$171,617 is available to the Company as additional collateral on its investment of ~~$43,923,482~~$34,323,315 in residential mortgage loans on real estate. In addition, the Company has an additional ~~$636,805~~$790,219 allowance for possible loan losses in the remaining ~~$126,724,175~~$157,253,563 of investments in mortgage loans on real estate as of ~~September 30, 2021.~~March 31, 2022.

As of December 31, ~~2020,~~2021, $~~766,667~~795,730 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,~~2021, $~~431,523~~611,176 of that escrow amount is available to the Company as additional collateral on ~~$4,996,358~~$4,382,896 of advances to the loan originator. The remaining December 31, ~~2020~~2021 escrow amount of ~~$335,144~~$184,554 is available to the Company as additional collateral on its investment of ~~$67,028,720~~$36,910,814 in residential mortgage loans on real estate. In addition, the Company has an additional ~~$541,894~~$706,519 allowance for possible loan losses in the remaining ~~$107,880,342~~$140,597,237 of investments in mortgage loans on real estate as of December 31, ~~2020.~~2021.

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~~March 31, 2022 and ~~2020~~2021 are summarized as follows (excluding ~~$43,923,482~~$34,323,315 and ~~$67,306,217~~$68,522,660 of mortgage loans on real estate as of ~~September 30, 2021~~March 31, 2022 and ~~2020,~~2021, 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,

As of and for the Three Months Ended March 31, (Unaudited)

Residential Mortgage Loans

Commercial Mortgage Loans

Total

Residential Mortgage Loans

Commercial Mortgage Loans

Total

2021

2020

2021

2020

2021

2020

2022

2021

2022

2021

2022

2021

Allowance, beginning
$ 394,718 $ 443,490 $ 49,210 $ 65,957 $ 443,928 $ 509,447 $ 675,162 $ 486,604 $ 31,357 $ 55,290 $ 706,519 $ 541,894
Charge offs
0 0 0 0 0 0 0 0 0 0 0 0
Recoveries
0 0 0 0 0 0 0 0 0 0 0 0
Provision
220,386 35,556 (27,509 ) (2,825 ) 192,877 32,731 53,067 (23,830 ) 30,633 (6,884 ) 83,700 (30,714 )
Allowance, ending
$ 615,104 $ 479,046 $ 21,701 $ 63,132 $ 636,805 $ 542,178 $ 728,229 $ 462,774 $ 61,990 $ 48,406 $ 790,219 $ 511,180

Allowance, ending:

Individually evaluated for impairment
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Collectively evaluated for impairment
$ 615,104 $ 479,046 $ 21,701 $ 63,132 $ 636,805 $ 542,178 $ 728,229 $ 462,774 $ 61,990 $ 48,406 $ 790,219 $ 511,180

Carrying Values:

Individually evaluated for impairment
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Collectively evaluated for impairment
$ 119,346,543 $ 95,511,234 $ 7,377,632 $ 12,563,167 $ 126,724,175 $ 108,074,401
Individually evaluated for reserve allowance
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Collectively evaluated for reserve allowance
$ 143,394,981 $ 92,131,184 $ 13,858,582 $ 9,632,752 $ 157,253,563 $ 101,763,936

3230

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~September 30, 2021~~March 31, 2022
(Unaudited)
~~(Unaudited)~~

9.8. 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
0 0 0 0 0 0
Recoveries
0 0 0 0 0 0
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
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Collectively evaluated for impairment
$ 615,104 $ 479,046 $ 21,701 $ 63,132 $ 636,805 $ 542,178

Carrying Values:

Individually evaluated for impairment
$ 0 $ 0 $ 0 $ 0 $ 0 $ 0
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 residential and commercial 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~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

Residential Mortgage Loans

Commercial Mortgage Loans

Total Mortgage Loans

Residential Mortgage Loans

Commercial Mortgage Loans

Total Mortgage Loans

(Unaudited)

(Unaudited)

(Unaudited)

(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

March 31, 2022

December 31, 2021

March 31, 2022

December 31, 2021

March 31, 2022

December 31, 2021

Over 70% to 80%
$ 52,689,828 $ 53,905,657 $ 0 $ 0 $ 52,689,828 $ 53,905,657 $ 56,921,262 $ 52,292,906 $ 1,536,171 $ 1,069,973 $ 58,457,433 $ 53,362,879
Over 60% to 70%
48,048,306 50,752,236 1,363,115 1,608,934 49,411,421 52,361,170 49,876,153 50,445,981 2,009,307 1,359,831 51,885,460 51,805,812
Over 50% to 60%
25,556,047 27,493,242 1,909,979 2,391,856 27,466,026 29,885,098 29,746,368 26,492,616 1,491,347 1,496,664 31,237,715 27,989,280
Over 40% to 50%
16,966,344 13,875,675 449,270 786,143 17,415,614 14,661,818 20,856,693 19,235,027 312,339 312,648 21,169,032 19,547,675
Over 30% to 40%
7,766,184 7,846,306 1,146,515 1,176,419 8,912,699 9,022,725 8,453,662 7,843,501 3,782,920 1,471,023 12,236,582 9,314,524
Over 20% to 30%
8,846,299 5,538,886 1,928,589 2,774,020 10,774,888 8,312,906 8,053,485 9,482,943 1,444,387 1,916,446 9,497,872 11,399,389
Over 10% to 20%
2,625,418 3,699,228 580,164 2,072,994 3,205,582 5,772,222 2,502,301 2,737,111 3,282,111 513,418 5,784,412 3,250,529
10% or less
771,599 795,143 0 192,323 771,599 987,466 1,308,372 837,963 0 0 1,308,372 837,963
Total
$ 163,270,025 $ 163,906,373 $ 7,377,632 $ 11,002,689 $ 170,647,657 $ 174,909,062 $ 177,718,296 $ 169,368,048 $ 13,858,582 $ 8,140,003 $ 191,576,878 $ 177,508,051
9. 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. NaN amounts were outstanding on this line of credit as of March 31, 2022 and December 31, 2021.

3331

~~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.~~
34

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.

On January 4, 2022, FTFC acquired Royalty Capital Life Insurance 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~~(“RCLIC”) from Royalty Capital Corporation (“Royalty”) in exchange for 722,644 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.
35

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.~~stock issued to unrelated parties. Royalty was dissolved immediately after FTFC acquired RCLIC. On March 1, 2022, the Missouri Department of Commerce and Insurance approved FTFC’s ~~Class A shareholders will elect the remaining Board~~contribution and merger of ~~Directors members and will receive 100% of cash dividends, stock dividends or amounts due upon any Company merger, sale or liquidation event.~~RCLIC into FBLIC.

Critical Accounting Policies and Estimates

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

32
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.~~2021. The Company considers its most critical accounting estimates to be those applied to investments in fixed maturities securities, mortgage loans on real estate, deferred policy acquisition costs, value of insurance business acquired and future policy benefits. There have been no material changes to the Company’s critical accounting policies and estimates since December 31, ~~2020.~~2021.

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.
33

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.

37

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~~Troubled Debt Restructurings and ~~Contract Liabilities from Contracts with Customers~~Vintage Disclosures

In ~~October 2021,~~March 2022, the FASB issued ~~guidance~~amendments (Accounting Standards Update ~~2021-08)~~2022-2) for the accounting ~~for revenue contracts with customers acquired~~of troubled debt restructuring and disclosures. The amendments introduce new requirements related to certain modifications of receivables made to borrowers experiencing financial difficulties. The amendments promulgate that an entity must apply specific loam refinancing and restructuring guidance to determine whether a modification results in a ~~business combination.~~new loan or the continuation of an existing loan. The amendments also require that an entity disclose current-period gross writeoffs by year of origination for financing receivables and net investment in leases. 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~~and 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.prospectively. The adoption of ~~this~~his guidance isshould not ~~expected to~~ have a material effect on the Company’s results of operations, financial position or liquidity.
34

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,~~March 31, 2022 and 2021 ~~and 2020~~ and as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 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.

38

FINANCIAL HIGHLIGHTS

Consolidated Condensed Results of Operations for the Three Months Ended ~~September 30,~~March 31, 2022 and 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)

(Unaudited)

Nine Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Premiums
$ 23,182,831 $ 19,971,741 $ 3,211,090 $ 8,228,782 $ 6,979,876 $ 1,248,906
Net investment income
17,979,206 17,895,091 84,115 6,448,995 6,148,842 300,153
Net realized investment gains
491,098 552,842 (61,744 ) 1,237,806 52,095 1,185,711
Service fees
191,833 41,108 150,725 57,540 97,987 (40,447 )
Other income
73,134 136,472 (63,338 ) 58,497 13,774 44,723
Total revenues
41,918,102 38,597,254 3,320,848 16,031,620 13,292,574 2,739,046
Benefits and claims
27,295,385 25,094,895 2,200,490 10,789,536 9,219,254 1,570,282
Expenses
12,209,049 10,810,777 1,398,272 4,112,525 4,592,764 (480,239 )
Total benefits, claims and expenses
39,504,434 35,905,672 3,598,762 14,902,061 13,812,018 1,090,043
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

Income (loss) before federal income tax expense (benefit)
1,129,559 (519,444 ) 1,649,003
Federal income tax expense (benefit)
217,024 (58,792 ) 275,816
Net income (loss)
$ 912,535 $ (460,652 ) $ 1,373,187
Net income (loss) per common share basic and duluted

Class A common stock
$ 0.2089 $ 0.2408 $ (0.0319 ) $ 0.0964 $ (0.0527 ) $ 0.1491
Class B common stock
$ 0.1776 $ 0.1670 $ 0.0106 $ 0.0819 $ (0.0448 ) $ 0.1267

3935

Consolidated Condensed Financial Position as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021

(Unaudited)

Amount Change

(Unaudited)

Amount Change

March 31, 2022

December 31, 2021
2022 to 2021

September 30, 2021

December 31, 2020
2021 to 2020

Investment assets
$ 416,249,893 $ 422,960,668 $ (6,710,775 ) $ 429,477,295 $ 434,120,334 $ (4,643,039 )
Assets held in trust under coinsurance agreement
109,072,674 112,160,307 (3,087,633 ) 101,327,251 106,210,246 (4,882,995 )
Other assets
136,137,593 108,474,294 27,663,299 120,202,729 119,428,354 774,375
Total assets
$ 661,460,160 $ 643,595,269 $ 17,864,891 $ 651,007,275 $ 659,758,934 $ (8,751,659 )

Policy liabilities
$ 464,297,439 $ 441,412,797 $ 22,884,642 $ 474,931,540 $ 464,853,615 $ 10,077,925
Funds withheld under coinsurance agreement
109,678,542 112,681,925 (3,003,383 ) 101,508,074 106,586,633 (5,078,559 )
Deferred federal income taxes
9,079,407 9,220,905 (141,498 ) 5,694,754 8,966,303 (3,271,549 )
Other liabilities
9,449,432 10,427,430 (977,998 ) 8,061,627 10,957,832 (2,896,205 )
Total liabilities
592,504,820 573,743,057 18,761,763 590,195,995 591,364,383 (1,168,388 )
Shareholders' equity
68,955,340 69,852,212 (896,872 ) 60,811,280 68,394,551 (7,583,271 )
Total liabilities and shareholders' equity
$ 661,460,160 $ 643,595,269 $ 17,864,891 $ 651,007,275 $ 659,758,934 $ (8,751,659 )

Shareholders' equity per common share

Class A common stock
$ 7.8827 $ 7.9853 $ (0.1026 ) $ 6.4213 $ 7.8186 $ (1.3973 )
Class B common stock
$ 6.7003 $ 6.7875 $ (0.0872 ) $ 5.4581 $ 6.6458 $ (1.1877 )

Results of Operations – Three Months Ended ~~September 30,~~March 31, 2022 and 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,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Premiums
$ 8,323,522 $ 7,166,641 $ 1,156,881 $ 8,228,782 $ 6,979,876 $ 1,248,906
Net investment income
5,757,862 5,749,175 8,687 6,448,995 6,148,842 300,153
Net realized investment gains
320,735 118,960 201,775 1,237,806 52,095 1,185,711
Service fees
12,245 23,212 (10,967 ) 57,540 97,987 (40,447 )
Other income
13,793 17,681 (3,888 ) 58,497 13,774 44,723
Total revenues
$ 14,428,157 $ 13,075,669 $ 1,352,488 $ 16,031,620 $ 13,292,574 $ 2,739,046

The ~~$1,352,488~~$2,739,046 increase in total revenues for the three months ended ~~September 30, 2021~~March 31, 2022 is discussed below.

4036

Premiums

Our premiums for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Ordinary life first year
$ 521,628 $ 378,729 $ 142,899 $ 458,139 $ 305,591 $ 152,548
Ordinary life renewal
1,031,007 903,553 127,454 899,975 798,234 101,741
Final expense first year
1,508,894 1,471,145 37,749 1,236,375 1,425,313 (188,938 )
Final expense renewal
5,261,993 4,413,214 848,779 5,634,293 4,450,738 1,183,555
Total premiums
$ 8,323,522 $ 7,166,641 $ 1,156,881 $ 8,228,782 $ 6,979,876 $ 1,248,906

The ~~$1,156,881~~$1,248,906 increase in premiums for the three months ended ~~September 30, 2021~~March 31, 2022 is primarily due to a ~~$848,779~~$1,183,555 increase in final expense renewal premiums, ~~$142,899~~$152,548 increase in ordinary life first year premiums and a ~~$127,454~~$101,741 increase in ordinary life renewal premiums that exceeded a $188,938 decrease in final expense first year premiums.

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

Net Investment Income

The major components of our net investment income for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Fixed maturity securities
$ 1,737,661 $ 1,930,697 $ (193,036 ) $ 1,935,754 $ 1,695,894 $ 239,860
Preferred stock and equity securities
37,732 22,946 14,786 65,073 16,999 48,074
Other long-term investments
1,151,057 1,275,834 (124,777 ) 1,311,694 1,282,894 28,800
Mortgage loans
3,517,394 3,503,652 13,742 3,778,025 3,748,232 29,793
Policy loans
40,461 37,985 2,476 43,322 38,618 4,704
Real estate
- 68,663 (68,663 )
Short-term and other investments
20,854 38,662 (17,808 ) 21,272 9,295 11,977
Gross investment income
6,505,159 6,878,439 (373,280 ) 7,155,140 6,791,932 363,208
Investment expenses
(747,297 ) (1,129,264 ) (381,967 ) (706,145 ) (643,090 ) 63,055
Net investment income
$ 5,757,862 $ 5,749,175 $ 8,687 $ 6,448,995 $ 6,148,842 $ 300,153

The ~~$373,280 decrease~~$363,208 increase in gross investment income for the three months ended ~~September 30, 2021~~March 31, 2022 is primarily due to ~~$193,036 decrease~~the increased investments 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~~most of 2022 but sold during March 2022 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.~~acquire higher yielding investments.

4137

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 (Losses)

Our net realized investment gains result from sales of fixed maturity securities available-for-sale, investment real estate, ~~mortgage loans on real estate~~equity securities 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,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Fixed maturity securities available-for-sale:

Sale proceeds
$ 2,981,658 $ 4,209,686 $ (1,228,028 )
Sale proceeds / maturities
$ 30,949,960 $ 2,419,079 $ 28,530,881
Amortized cost at sale date
2,959,726 4,098,067 (1,138,341 ) 29,725,885 2,381,428 27,344,457
Net realized gains
$ 21,932 $ 111,619 $ (89,687 ) $ 1,224,075 $ 37,651 $ 1,186,424

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 )
Sales proceeds
$ 49,371 $ - $ 49,371
Cost at sale date
53,067 - 53,067
Net realized loss
$ (3,696 ) $ - $ (3,696 )

Equity securities at fair value:

Sales proceeds
$ - $ 88 $ (88 )
Cost at sale date
8,000 (1 ) 8,001
Net realized gains
$ - $ 55 $ (55 ) $ (8,000 ) $ 89 $ (8,089 )

Equity securities, changes in fair value
$ 13,968 $ 7,285 $ 6,683 $ 25,427 $ 14,355 $ 11,072

Net realized investment gains
$ 320,735 $ 118,960 $ 201,775 $ 1,237,806 $ 52,095 $ 1,185,711
Service Fees
The $40,447 decrease in service fees for the three months ended March 31, 2022 is primarily due to a decrease in fees from Trinity Mortgage Corporation brokering mortgage loans for a fee to third parties.

4238

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,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Benefits and claims

Increase in future policy benefits
$ 3,437,541 $ 2,995,221 $ 442,320 $ 3,214,973 $ 2,156,185 $ 1,058,788
Death benefits
2,315,438 2,600,833 (285,395 ) 4,006,240 3,523,718 482,522
Surrenders
112,980 242,460 (129,480 ) 315,390 348,906 (33,516 )
Interest credited to policyholders
3,279,558 3,071,581 207,977 3,176,136 3,118,535 57,601
Dividend, endowment and supplementary life contract benefits
82,600 69,984 12,616 76,797 71,910 4,887
Total benefits and claims
9,228,117 8,980,079 248,038 10,789,536 9,219,254 1,570,282
Expenses

Policy acquisition costs deferred
(3,142,259 ) (3,056,211 ) (86,048 ) (2,852,880 ) (2,829,473 ) (23,407 )
Amortization of deferred policy acquisition costs
1,683,068 1,144,749 538,319 1,368,983 1,789,823 (420,840 )
Amortization of value of insurance business acquired
67,030 73,778 (6,748 ) 72,209 75,169 (2,960 )
Commissions
3,161,051 2,960,619 200,432 2,661,129 2,872,583 (211,454 )
Other underwriting, insurance and acquisition expenses
2,085,184 1,908,840 176,344 2,863,084 2,684,662 178,422
Total expenses
3,854,074 3,031,775 822,299 4,112,525 4,592,764 (480,239 )
Total benefits, claims and expenses
$ 13,082,191 $ 12,011,854 $ 1,070,337 $ 14,902,061 $ 13,812,018 $ 1,090,043

The ~~$1,070,337~~$1,090,043 increase in total benefits, claims and expenses for the three months ended ~~September 30, 2021~~March 31, 2022 is discussed below.

Benefits and Claims

The ~~$248,038~~$1,570,282 increase in benefits and claims for the three months ended ~~September 30, 2021~~March 31, 2022 is primarily due to the following:

●
$~~442,320~~1,058,788 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~~482,522 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 death 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.

39
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,~~March 31, 2022 and 2021, ~~and 2020,~~ capitalized costs were ~~$3,142,259~~$2,852,880 and ~~$3,056,211,~~$2,829,473, respectively. Amortization of deferred policy acquisition costs for the three months ended ~~September 30,~~March 31, 2022 and 2021 were $1,368,983 and ~~2020 were $1,683,068 and $1,144,749,~~$1,789,823, 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~~$420,840 decrease in the ~~2021~~2022 amortization of deferred acquisition costs is primarily due to ~~2021 surrenders~~contacts and ~~withdrawal activity and the impact of mortality.~~polices no longer insured having minimal deferred cost.

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~~$72,209 and ~~$73,778~~$75,169 for the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, representing a $6,748 decrease.~~respectively.

Commissions

Our commissions for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Annuity
$ 202,611 $ 337,634 $ (135,023 ) $ 59,469 $ 344,706 $ (285,237 )
Ordinary life first year
574,792 405,204 169,588 492,800 330,720 162,080
Ordinary life renewal
80,333 44,316 36,017 89,929 69,813 20,116
Final expense first year
1,795,193 1,748,223 46,970 1,474,665 1,701,441 (226,776 )
Final expense renewal
508,122 425,242 82,880 544,266 425,903 118,363
Total commissions
$ 3,161,051 $ 2,960,619 $ 200,432 $ 2,661,129 $ 2,872,583 $ (211,454 )

The ~~$200,432 increase~~$211,454 decrease in commissions for the three months ended ~~September 30, 2021~~March 31, 2022 is primarily due to a ~~$169,588~~$285,237 decrease annuity commissions (corresponding to $5,436,865 of decrease annuity deposits retained) and a $226,776 decrease in final expense first year commissions (corresponding to $188,938 decreased final expense first year premiums) that exceed a $162,080 increase in ordinary life first year commissions ~~$82,880~~(corresponding to $152,548 increased ordinary life first year premiums) and a $118,363 increase in final expense renewal commissions ~~that exceeded a $135,023 decrease in annuity commissions that corresponded~~(corresponding to ~~a $142,899 increase in ordinary life first year premiums, a $848,779 increase in~~$1,183,555 increased final expense renewal ~~premiums and a $4,692,001 decrease in retained annuity deposits.~~premiums) .
44

Other Underwriting, Insurance and Acquisition Expenses

There was a ~~$176,344~~$178,422 increase in other underwriting, insurance and acquisition expenses for the three months ended ~~September 30, 2021 was primarily related~~March 31, 2022 is due 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.cost.

Federal Income Taxes

FTFC filed its 2020 consolidated federal income tax return with TLIC, FBLIC and ~~TMC on October 13, 2021.~~TMC. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes.
For the three months ended ~~September 30, 2021 and 2020,~~March 31, 2022, current federal income tax expense was ~~$1,670 and $45,654, respectively.~~$8,270. For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ deferred federal income tax expense (benefit) was ~~$276,962~~$208,754 and ~~$178,104,~~($58,792), respectively.
40

Net Income (Loss) Per Common Share Basic and Diluted

For the three months ended ~~September 30, 2021 and 2020,~~March 31, 2022, the net income allocated to the Class B shareholders is the total net income ~~less shareholders’ cash~~multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (9,470,277) of Class A shares (9,384,340) and Class B shares (85,937) as of the reporting date. For the three months ended March 31, 2021, the net income allocated to the Class B shareholders is the total net income multiplied by the right to receive dividends at 85% for Class B shares (85,937) as of the reporting date divided by the allocated total shares (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,~~March 31, 2022, the net income allocated to the Class A shareholders of ~~$1,056,848~~$904,254 is the total net income ~~$1,067,334~~$912,535 less the net income allocated to the Class B shareholders ~~$10,486.~~$8,281. For the three months ended ~~September 30, 2020,~~March 31, 2021, the net ~~income~~loss allocated to the Class A shareholders ~~$831,804~~$456,127 is the total net ~~income $840,057~~loss $460,652 less the net ~~income~~loss allocated to the Class B shareholders ~~$8,253.~~$4,525.

The weighted average outstanding common shares basic for the three months ended ~~September 30,~~March 31, 2022 and 2021 were 9,384,340 and ~~2020 were~~ 8,661,696 for Class A shares, respectively 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,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Revenues:

Life insurance operations
$ 9,404,804 $ 8,201,655 $ 1,203,149 $ 9,948,321 $ 8,036,885 $ 1,911,436
Annuity operations
4,932,938 4,729,579 203,359 5,905,263 5,041,530 863,733
Corporate operations
90,415 144,435 (54,020 ) 178,036 214,159 (36,123 )
Total
$ 14,428,157 $ 13,075,669 $ 1,352,488 $ 16,031,620 $ 13,292,574 $ 2,739,046
Income (loss) before federal income taxes:

Income before federal income taxes:

Life insurance operations
$ 923,202 $ 141,246 $ 781,956 $ (80,665 ) $ (623,469 ) $ 542,804
Annuity operations
385,534 795,043 (409,509 ) 1,075,636 205,990 869,646
Corporate operations
37,230 127,526 (90,296 ) 134,588 (101,965 ) 236,553
Total
$ 1,345,966 $ 1,063,815 $ 282,151 $ 1,129,559 $ (519,444 ) $ 1,649,003

4541

The increases and decreases of revenues and profitability from our business segments for the three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

Life Insurance

Annuity

Corporate

Life Insurance

Annuity

Corporate

Operations

Operations

Operations

Total

Operations

Operations

Operations

Total

Revenues

Premiums
$ 1,156,881 $ - $ - $ 1,156,881 $ 1,248,906 $ - $ - $ 1,248,906
Net invesment income
(36,647 ) 92,002 (46,668 ) 8,687
Net realized investment gains
60,478 141,297 - 201,775
Net investment income
341,936 (65,927 ) 24,144 300,153
Net realized investment gains (losses)
255,777 937,934 (8,000 ) 1,185,711
Service fees and other income
22,437 (29,940 ) (7,352 ) (14,855 ) 64,817 (8,274 ) (52,267 ) 4,276
Total revenue
1,203,149 203,359 (54,020 ) 1,352,488 1,911,436 863,733 (36,123 ) 2,739,046

Benefits and claims

Increase in future policy benefits
442,320 - - 442,320 1,058,788 - - 1,058,788
Death benefits
(285,395 ) - - (285,395 ) 482,522 - - 482,522
Surrenders
(129,480 ) - - (129,480 ) (33,516 ) - - (33,516 )
Interest credited to policyholders
- 207,977 - 207,977 - 57,601 - 57,601
Dividend, endowment and supplementary life contract benefits
12,616 - - 12,616 4,887 - - 4,887
Total benefits and claims
40,061 207,977 - 248,038 1,512,681 57,601 - 1,570,282
Expenses

Policy acquisition costs deferred net of amortization
3,555 448,716 - 452,271 (484,722 ) 40,475 - (444,247 )
Amortization of value of insurance business acquired
(3,374 ) (3,374 ) - (6,748 ) (1,481 ) (1,479 ) - (2,960 )
Commissions
335,455 (135,023 ) - 200,432 73,783 (285,237 ) - (211,454 )
Other underwriting, insurance and acquisition expenses
45,496 94,572 36,276 176,344 268,371 182,727 (272,676 ) 178,422
Total expenses
381,132 404,891 36,276 822,299 (144,049 ) (63,514 ) (272,676 ) (480,239 )
Total benefits, claims and expenses
421,193 612,868 36,276 1,070,337 1,368,632 (5,913 ) (272,676 ) 1,090,043
Income (loss) before federal income taxes (benefits)
$ 781,956 $ (409,509 ) $ (90,296 ) $ 282,151 $ 542,804 $ 869,646 $ 236,553 $ 1,649,003

~~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~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

(Unaudited)

Amount Change

(Unaudited)

Amount Change

September 30, 2021

December 31, 2020

2021 less 2020

March 31, 2022

December 31, 2021

2022 less 2021

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
Available-for-sale fixed maturity securities at fair value (amortized cost: $164,295,102 and $167,356,364 as of March 31, 2022 and December 31, 2021, respectively)
$ 164,435,990 $ 184,077,038 $ (19,641,048 )
Equity securities at fair value (cost: $290,450 and $285,558 as of March 31, 2022 and December 31, 2021, respectively)
378,537 348,218 30,319
Mortgage loans on real estate
170,647,657 174,909,062 (4,261,405 ) 191,576,878 177,508,051 14,068,827
Investment real estate
688,345 757,936 (69,591 ) 635,278 688,345 (53,067 )
Policy loans
2,218,249 2,108,678 109,571 2,371,791 2,272,629 99,162
Short-term investments
1,674,777 3,309,020 (1,634,243 ) 4,853,512 3,296,838 1,556,674
Other long-term investments
66,700,899 71,025,133 (4,324,234 ) 65,225,309 65,929,215 (703,906 )
Total investments
$ 416,249,893 $ 422,960,668 $ (6,710,775 ) $ 429,477,295 $ 434,120,334 $ (4,643,039 )

5242

The ~~$2,097,376 increase~~$19,641,048 and ~~$6,106,764 decrease~~$5,275,168 decreases in fixed maturity available-for-sale securities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, are summarized as follows:

(Unaudited)

Three Months Ended March 31,

Nine Months Ended September 30,

2022

2021

2021

2020

Amount

Amount

Fixed maturity securities, available-for-sale, beginning
$ 170,647,836 $ 178,951,324 $ 184,077,038 $ 170,647,836
Purchases
12,760,202 3,597,065 26,767,100 4,004,267
Acquisition of K-TENN Insurance Company
- 800,000
Unrealized appreciation (depreciation)
(3,463,590 ) 5,418,065
Unrealized depreciation
(16,579,786 ) (6,761,082 )
Net realized investment gains
125,597 429,758 1,224,075 37,651
Sales proceeds
(6,049,876 ) (14,977,950 ) (30,399,960 ) (2,019,079 )
Maturities
(900,000 ) (945,500 ) (550,000 ) (400,000 )
Premium amortization
(374,957 ) (428,202 ) (102,477 ) (136,925 )
Increase (decrease)
2,097,376 (6,106,764 )
Decrease
(19,641,048 ) (5,275,168 )
Fixed maturity securities, available-for-sale, ending
$ 172,745,212 $ 172,844,560 $ 164,435,990 $ 165,372,668

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)~~Income”.” The available-for-sale fixed maturity securities portfolio is invested primarily in a variety of ~~companies, U. S.~~U.S. government, ~~and~~U.S. government agencies, ~~states~~state and political subdivisions, commercial and residential mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign ~~securities.~~bonds, redeemable preferred securities and certificate of deposit.

The ~~$1,234,000 increase~~$30,319 and ~~$51,900 decrease~~$10,301 increases in ~~preferred stock available-for-sale~~equity securities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 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)

(Unaudited)

Three Months Ended March 31,

Nine Months Ended September 30,

2022

2021

2021

2020

Amount

Amount

Equity securities, beginning
$ 203,003 $ 201,024 $ 348,218 $ 203,003
Purchases
162,603 68,198 43,414 14,640
Joint venture distributions
(30,522 ) (18,695 )
Net realized investment gains (losses)
(8,000 ) 89
Sales proceeds
(89 ) - - (88 )
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 )
Net realized investment gains, changes in fair value
25,427 14,355
Increase
30,319 10,301
Equity securities, ending
$ 340,754 $ 183,944 $ 378,537 $ 213,304

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
5443

The ~~$4,324,234~~$14,068,827 increase and $4,622,466 decrease in mortgage loans on real estate for the three months ended March 31, 2022 and 2021, respectively, are summarized as follows:

(Unaudited)

Three Months Ended March 31,

2022

2021

Amount

Amount

Mortgage loans on real estate, beginning
$ 177,508,051 $ 174,909,062
Purchases
32,447,546 14,954,163
Discount accretion (premium amortization)
(3,476 ) 167,480
Payments
(18,291,543 ) (19,311,674 )
Foreclosed - transferred to real estate
- (458,587 )
(Increase) decrease in allowance for bad debts
(83,700 ) 30,714
Amortization of loan origination fees
- (4,562 )
Increase (decrease)
14,068,827 (4,622,466 )
Mortgage loans on real estate, ending
$ 191,576,878 $ 170,286,596
The $53,067 decrease and ~~$287,620~~$458,587 increase in investment real estate for the three months ended March 31, 2022 and 2021, respectively, are summarized as follows:

(Unaudited)

Three Months Ended March 31,

2022

2021

Amount

Amount

Investment real estate, beginning
$ 688,345 $ 757,936
Real estate acquired through

Mortgage loan foreclosure
- 458,587
Sales proceeds
(49,371 ) -
Net realized investment losses
(3,696 ) -
Increase (decrease)
(53,067 ) 458,587
Investment real estate, ending
$ 635,278 $ 1,216,523
The $703,906 and $1,130,460 decreases in other long-term investments (composed of lottery receivables) for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended March 31,

Nine Months Ended September 30,

2022

2021

2021

2020

Amount

Amount

Other long-term investments, beginning
$ 71,025,133 $ 71,824,480 $ 65,929,215 $ 71,025,133
Purchases
882,026 4,799,143 2,671,200 882,027
Accretion of discount
3,656,835 3,928,555 1,311,709 1,283,147
Payments
(8,863,095 ) (8,440,078 ) (4,686,815 ) (3,295,634 )
Increase (decrease)
(4,324,234 ) 287,620
Decrease
(703,906 ) (1,130,460 )
Other long-term investments, ending
$ 66,700,899 $ 72,112,100 $ 65,225,309 $ 69,894,673
44

Our assets other than invested assets as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

(Unaudited)

Amount Change

(Unaudited)

Amount Change

September 30, 2021

December 31, 2020

2021 less 2020

March 31, 2022

December 31, 2021

2022 less 2021

Cash and cash equivalents
$ 63,024,968 $ 40,230,095 $ 22,794,873 $ 31,368,344 $ 42,528,046 $ (11,159,702 )
Accrued investment income
4,913,923 5,370,508 (456,585 ) 4,798,164 4,879,290 (81,126 )
Recoverable from reinsurers
1,053,179 1,234,221 (181,042 ) 11,718,681 1,046,381 10,672,300
Assets held in trust under coinsurance agreement
109,072,674 112,160,307 (3,087,633 ) 101,327,251 106,210,246 (4,882,995 )
Agents' balances and due premiums
1,945,949 2,154,322 (208,373 ) 1,515,227 1,713,050 (197,823 )
Deferred policy acquisition costs
48,664,102 44,513,669 4,150,433 51,208,133 49,717,323 1,490,810
Value of insurance business acquired
4,382,627 4,592,977 (210,350 ) 4,246,290 4,318,499 (72,209 )
Other assets
12,152,845 10,378,502 1,774,343 15,347,890 15,225,765 122,125
Assets other than investment assets
$ 245,210,267 $ 220,634,601 $ 24,575,666 $ 221,529,980 $ 225,638,600 $ (4,108,620 )

The ~~$22,794,873 increase~~$11,159,702 decrease in cash and cash equivalents is discussed below in the “Liquidity and Capital Resources” section where cash flows are addressed.

The ~~$3,087,633~~$10,672,300 increase in recoverable from reinsurers is primarily due to the acquisition of Royalty Capital Life Insurance Company.
The $4,882,995 decrease in assets held in trust under the coinsurance agreement is due to a ~~reduction~~decrease in assets held under TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company that is administered on a ~~funds~~fund withheld basis. The decrease is primarily related to a decrease in the fair value of available-for-sale fixed maturity securities.
.
The ~~increase~~$1,490,810 and $1,055,379 increases in deferred policy acquisition costs for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, are summarized as follows:

(Unaudited)

(Unaudited)

Nine Months Ended September 30,

Three Months Ended March 31,

2021

2020

2022

2021

Balance, beginning of year
$ 44,513,669 $ 38,005,639 $ 49,717,323 $ 44,513,669
Capitalization of commissions, sales and issue expenses
9,325,731 8,134,182 2,852,880 2,829,473
Amortization
(5,206,030 ) (3,665,161 ) (1,368,983 ) (1,789,823 )
Deferred acquisition costs allocated to investments
30,732 (14,613 ) 6,913 15,729
Balance, end of period
$ 48,664,102 $ 42,460,047
Increase
1,490,810 1,055,379
Balance, end of year
$ 51,208,133 $ 45,569,048
Our other assets as of March 31, 2022 and December 31, 2021 are summarized as follows:

(Unaudited)

Amount Change

March 31, 2022

December 31, 2021

2022 less 2021

Federal and state income taxes recoverable
$ 7,130,190 $ 7,104,791 $ 25,399
Advances to mortgage loan originator
4,553,106 4,382,896 170,210
Advances to private equity company
3,000,000 3,000,000 -
Lease asset - right to use
541,357 565,964 (24,607 )
Other receivables, prepaid assets and deposits
83,414 81,571 1,843
Guaranty funds
39,823 49,256 (9,433 )
Notes receivable
- 41,287 (41,287 )
Total other assets
$ 15,347,890 $ 15,225,765 $ 122,125

5545

~~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~~$170,210 increase in ~~federal and state income taxes recoverable primarily due~~advances 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~~one mortgage loan ~~from the estate of the Company’s former chairman.~~originator who acquires residential mortgage loans for our life companies.

Our liabilities as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

(Unaudited)

Amount Change

(Unaudited)

Amount Change

September 30, 2021

December 31, 2020

2021 less 2020

March 31, 2022

December 31, 2021

2022 less 2021

Policy liabilities

Policyholders' account balances
$ 377,072,802 $ 362,519,753 $ 14,553,049 $ 371,324,479 $ 373,647,869 $ (2,323,390 )
Future policy benefits
85,241,834 76,673,797 8,568,037 100,009,920 88,735,716 11,274,204
Policy claims
1,869,646 2,099,548 (229,902 ) 3,417,916 2,381,183 1,036,733
Other policy liabilities
113,157 119,699 (6,542 ) 179,225 88,847 90,378
Total policy liabilities
464,297,439 441,412,797 22,884,642 474,931,540 464,853,615 10,077,925
Funds withheld under coinsurance agreement
109,678,542 112,681,925 (3,003,383 ) 101,508,074 106,586,633 (5,078,559 )
Deferred federal income taxes
9,079,407 9,220,905 (141,498 ) 5,694,754 8,966,303 (3,271,549 )
Other liabilities
9,449,432 10,427,430 (977,998 ) 8,061,627 10,957,832 (2,896,205 )
Total liabilities
$ 592,504,820 $ 573,743,057 $ 18,761,763 $ 590,195,995 $ 591,364,383 $ (1,168,388 )

The ~~$14,553,049~~$2,323,390 decrease and $7,963,624 increase ~~and $2,394,885 decrease~~ in policyholders’ account balances for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, are summarized as follows:

(Unaudited)

(Unaudited)

Three Months Ended March 31,

Nine Months Ended September 30,

2022

2021

2021

2020

Amount

Amount

Policyholders' account balances, beginning
$ 362,519,753 $ 363,083,838 $ 373,647,869 $ 362,519,753
Deposits
25,215,132 17,030,797 5,912,187 11,445,347
Withdrawals
(24,013,421 ) (30,041,959 ) (15,909,047 ) (8,013,057 )
Funds under coinsurance agreement
3,864,288 1,424,469
Change in funds withheld under coinsurance agreement
1,477,724 1,412,799
Acquisition of Royalty Capital Life Insurance Company
3,019,610 -
Interest credited
9,487,050 9,191,808 3,176,136 3,118,535
Increase (decrease)
14,553,049 (2,394,885 ) (2,323,390 ) 7,963,624
Policyholders' account balances, ending
$ 377,072,802 $ 360,688,953 $ 371,324,479 $ 370,483,377

The ~~$8,568,037~~$11,274,204 increase in future policy benefits during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 is primarily related to the acquisition of Royalty Capital Life Insurance Company of $8,102,093, the production of new life insurance policies and the aging of existing ~~policies.~~policies an additional year.
56

The ~~$141,498~~$3,271,549 decrease in deferred federal income taxes during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 was due to ~~$724,261~~$3,480,303 of decreased deferred federal income taxes on the unrealized appreciation of fixed maturity securities ~~and preferred stock~~ available-for-sale ~~and $582,763~~that exceeded $208,754 of operating deferred federal ~~tax expense.~~tax.

The ~~$3,003,383~~$5,078,559 decrease in funds withheld under coinsurance agreement is due to the ~~liability related to TLIC’s annuity~~Company owing the reinsurer less under the coinsurance agreement with an offshore annuity and life insurance company.

46
Our other liabilities as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 are summarized as follows:

(Unaudited)

Amount Change

(Unaudited)

Amount Change

September 30, 2021

December 31, 2020

2021 less 2020

March 31, 2022

December 31, 2021

2022 less 2021

Mortgage loans suspense
$ 5,933,347 $ 5,967,403 $ (34,056 ) $ 3,612,586 $ 7,533,274 $ (3,920,688 )
Payable for securities purchased
1,939,463 378,046 1,561,417 2,619,981 1,465,173 1,154,808
Accrued expenses payable
662,000 748,000 (86,000 ) 600,399 728,000 (127,601 )
Lease liability
590,571 664,393 (73,822 ) 541,357 565,964 (24,607 )
Suspense accounts payable
234,632 2,555,255 (2,320,623 ) 329,284 435,471 (106,187 )
Unclaimed funds
128,172 79,946 48,226 272,825 159,627 113,198
Accounts payable
108,951 61,307 47,644
Unearned investment income
85,721 71,325 14,396 96,474 91,206 5,268
Deferred revenue
66,000 - 66,000 60,500 63,250 (2,750 )
Accounts payable
46,818 72,124 (25,306 )
Guaranty fund assessments
25,000 25,000 - 21,000 21,000 -
Other payables, withholdings and escrows
(262,292 ) (134,062 ) (128,230 ) (201,730 ) (166,440 ) (35,290 )
Total other liabilities
$ 9,449,432 $ 10,427,430 $ (977,998 ) $ 8,061,627 $ 10,957,832 $ (2,896,205 )
The reduction in mortgage loan suspense of $3,920,688 is primarily due to timing of principal loan payments on mortgage loans.

As of ~~September 30, 2021,~~March 31, 2022, the Company had ~~$1,939,463~~$2,619,981 in security purchases where the trade date and settlement date were in different financial reporting periods compared to ~~$378,046~~$1,465,173 of security purchases overlapping financial reporting periods as of December 31, ~~2020.~~2021.

~~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,~~March 31, 2022, 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.~~shares.

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

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

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

57

~~The~~During 2012, 2013, 2014 and 2015, the Company ~~has also purchased~~repurchased 247,580 shares of ~~treasury~~its common stock at a total 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 current 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.

47
As of ~~September 30, 2021,~~March 31, 2022, we had cash and cash equivalents totaling ~~$63,024,968.~~$31,368,344. As of ~~September 30, 2021,~~March 31, 2022, cash and cash equivalents of ~~$21,573,022~~$6,966,723 and ~~$39,289,745,~~$19,695,529, respectively, totaling ~~$60,862,767~~$26,662,252 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~~Missouri Department of Commerce and Insurance 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~~$1,430,596 in ~~2021~~2022 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to ~~$1,025,933~~$1,495,631 in ~~2021~~2022 without prior approval. FBLIC has paid no dividends to TLIC in ~~2021~~2022 and ~~2020.~~2021. 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.~~FTFC.

The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures interest and non-interest bearing accounts up to $250,000. Uninsured balances aggregate ~~$51,472,898~~$13,938,494 and ~~$32,645,110~~$40,431,952 as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, 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~~March 31, 2022 and December 31, ~~2020.~~2021.

Our cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ are summarized as follows:

(Unaudited)

(Unaudited)

Nine Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

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) operating activities
$ 2,077,650 $ (3,340,643 ) $ 5,418,293
Net cash provided by (used in) investing activities
(3,240,492 ) 5,162,811 (8,403,303 )
Net cash provided by (used in) financing activities
1,201,711 (13,395,896 ) 14,597,607 (9,996,860 ) 3,432,290 (13,429,150 )
Increase (decrease) in cash and cash equivalents
22,794,873 (1,174,618 ) 23,969,491 (11,159,702 ) 5,254,458 (16,414,160 )
Cash and cash equivalents, beginning of period
40,230,095 23,212,170 17,017,925 42,528,046 40,230,095 2,297,951
Cash and cash equivalents, end of period
$ 63,024,968 $ 22,037,552 $ 40,987,416 $ 31,368,344 $ 45,484,553 $ (14,116,209 )

5848

The ~~$14,372,428 and $9,225,467~~$2,077,650 of cash provided by operating activities and 3,340,643 of cash used in operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively, are summarized as follows:

(Unaudited)

(Unaudited)

Nine Months Ended September 30,

Amount Change

Three Months Ended March 31,

Amount Change

2021

2020

2021 less 2020

2022

2021

2022 less 2021

Premiums collected
$ 23,259,786 $ 19,816,153 $ 3,443,633 $ 8,392,587 $ 7,089,101 $ 1,303,486
Net investment income collected
14,849,767 13,990,963 858,804 5,329,641 4,998,801 330,840
Service fees and other income collected
264,966 177,580 87,386 116,037 111,761 4,276
Death benefits paid
(8,157,510 ) (6,236,220 ) (1,921,290 ) (3,058,446 ) (3,679,692 ) 621,246
Surrenders paid
(834,545 ) (881,365 ) 46,820 (315,390 ) (348,909 ) 33,519
Dividends and endowments paid
(227,341 ) (224,599 ) (2,742 ) (76,424 ) (72,816 ) (3,608 )
Commissions paid
(9,045,723 ) (8,411,494 ) (634,229 ) (2,511,921 ) (2,861,834 ) 349,913
Other underwriting, insurance and acquisition expenses paid
(6,509,023 ) (6,242,914 ) (266,109 ) (2,753,083 ) (2,952,680 ) 199,597
Taxes paid
(2,385,516 ) (1,972,538 ) (412,978 ) (33,670 ) (912,318 ) 878,648
Decreased assets held in trust under coinsurance agreement
1,282,160 814,210 467,950
Decreased mortgage loan suspense
(3,905,417 ) (2,046,144 ) (1,859,273 )
Increased mortgage loan receivable
- (2,460,170 ) 2,460,170
(Increased) decreased advances to mortgage loan originator
71,515 (761,734 ) 833,249 (170,210 ) 997,326 (1,167,536 )
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 deposits of pending policy applications
(106,186 ) (2,007,725 ) 1,901,539
Decreased short-term investments
1,634,243 156,850 1,477,393 29,993 3,957 26,036
Increased policy loans
(109,571 ) (44,658 ) (64,913 )
Increased (decreased) mortgage loan suspense
4,681 (3,210,009 ) 3,214,690
(Increased) decreased policy loans
(99,162 ) 27,128 (126,290 )
Other
(71,216 ) (41,703 ) (29,513 ) (42,859 ) (40,639 ) (2,220 )
Net cash provided by operating activities
$ 14,372,428 $ 9,225,467 $ 5,146,961
Cash provided by (used in) operating activities
$ 2,077,650 $ (3,340,643 ) $ 5,418,293

Please see the statements of cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and 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~~March 31, 2022 and December 31, ~~2020~~2021 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 )

(Unaudited)

Amount Change

March 31, 2022

December 31, 2021

2022 less 2021

Shareholders' equity

Class A common stock, par value $.01 per share (40,000,000 shares authorized as of March 31, 2022 and December 31, 2021, 9,631,920 and 8,909,276 issued as of March 31, 2022 and December 31, 2021, respectively, 9,384,340 and 8,661,696 outstanding as of March 31, 2022 and December 31, 2021, respectively)
$ 96,319 $ 89,093 $ 7,226
Class B common stock, par value $.01 per share (10,000,000 shares authorized, 101,102 issued and outstanding as of March 31, 2022 and December 31, 2021)
1,011 1,011 -
Additional paid-in capital
43,668,023 39,078,485 4,589,538
Treasury stock, at cost (247,580 shares as of March 31, 2022 and December 31, 2021)
(893,947 ) (893,947 ) -
Accumulated other comprehensive income
111,257 13,203,827 (13,092,570 )
Accumulated earnings
17,828,617 16,916,082 912,535
Total shareholders' equity
$ 60,811,280 $ 68,394,551 $ (7,583,271 )

The decrease in shareholders’ equity of ~~$896,872~~$7,583,271 for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 is ~~primarily~~ due to ~~a $2,724,597 decrease~~$13,092,570 in ~~accumulated~~ other comprehensive ~~income~~loss that exceeded ~~2021~~an increase in additional paid-in capital of $4,589,538 (acquisition of Royalty Capital Life Insurance Company) and $912,535 in net ~~income of $1,827,725.~~income.
49

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~~2022 or ~~2020.~~2021. 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~~$140,888 and ~~$22,216,826~~$16,720,674 as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively, prior to the impact of income taxes and deferred acquisition cost adjustments. An increase of ~~$3,353,993~~$15,355,711 in unrealized losses arising for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 has been ~~offset~~impacted by ~~2021~~2022 net realized investment gains of ~~$125,597~~$1,224,075 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.~~$16,579,786.

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,~~March 31, 2022, 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%~~11.0% 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,~~2021, 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.

50
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.

60

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~~March 31, 2022 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;
61

●
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;
51

●
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~~March 31, 2022 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.
62

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.

52
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
~~31.2~~
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1
~~32.1~~
Section 1350 Certification of Principal Executive Officer
32.2
~~32.2~~
Section 1350 Certification of Principal Financial Officer
101.INS**
101.INS**
Inline XBRL Instance
101.SCH**
101.SCH**
Inline XBRL Taxonomy Extension Schema
101.CAL**
101.CAL**
Inline XBRL Taxonomy Extension Calculation
101.DEF**
101.DEF**
Inline XBRL Taxonomy Extension Definition
101.LAB**
101.LAB**
Inline XBRL Taxonomy Extension Labels
101.PRE**
101.PRE**
Inline XBRL Taxonomy Extension Presentation
104
~~104~~
Cover Page Interactive Data ~~(formatted as~~File (embedded within the Inline XBRL and ~~continued~~contained 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.

6353

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
May 13, 2022
By
/s/ Gregg E. Zahn
Gregg E. Zahn, President and Chief Executive Officer

~~November 12, 2021~~May 13, 2022 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

6454

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

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

PART I. FINANCIAL INFORMATION	Page Number

Item 1. Consolidated Financial Statements

Consolidated Statements of Financial Position as of ~~September 30, 2021~~March 31, 2022 (Unaudited) and December 31, ~~2020~~	2021	3

Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		4

Consolidated Statements of Comprehensive ~~Income (Loss)~~Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		5

Consolidated Statements of Changes in Shareholders’ Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2022 and 2021 ~~and 2020~~ (Unaudited)		6

Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2022 and 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		3532

Item 4. Controls and Procedures		6252

Part II. OTHER INFORMATION

Item 1. Legal Proceedings		6252

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		6353

Item 3. Defaults upon Senior Securities		6353

Item 4. Mine Safety Disclosures		6353

Item 5. Other Information		6353

Item 6. Exhibits		6353

Signatures		6454

	September 30, 2020

Cash used in acquisition of K-TENN Insurance Company	$	0
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

	March 31, 2022
Cash used in acquisition of Royalty Capital Life Insurance Company	$	0
Cash provided in acquisition of Royalty Capital Life Insurance Company		3,525,749

Increase in cash from acquisition of Royalty Capital Life Insurance Company		3,525,749

Fair value of assets acquired in acquisition of Royalty Capital Life Insurance Company (excluding cash)
Short-term investments		1,586,667
Recoverable from reinsurers		10,634,753
Accrued investment income		8
Due premiums		25,187
Other assets		6,000

Total fair value of assets acquired (excluding cash)		12,252,615

Fair value of liabilities assumed in acquisition of Royalty Capital Life Insurance Company
Future policy benefits		8,102,093
Policyholders' account balance		3,019,610
Policy claims		51,392
Other liabilities		8,505

Total fair value of liabilities assumed		11,181,600

Fair value of net assets acquired in acquisition of Royalty Capital Life Insurance Company (excluding cash)		1,071,015

Fair value of net assets acquired in acquisition of Royalty Capital Life Insurance Company (including cash)	$	4,596,764

First Trinity Financial Corporation and Subsidiaries
Consolidated Statements of Financial Position

	(Unaudited)						(Unaudited)
	September 30, 2021			December 31, 2020			March 31, 2022			December 31, 2021
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			0
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
Available-for-sale fixed maturity securities at fair value (amortized cost: $164,295,102 and $167,356,364 as of March 31, 2022 and December 31, 2021, respectively)							$	164,435,990		$	184,077,038
Equity securities at fair value (cost: $290,450 and $285,558 as of March 31, 2022 and December 31, 2021, respectively)								378,537			348,218
Mortgage loans on real estate		170,647,657			174,909,062			191,576,878			177,508,051
Investment real estate		688,345			757,936			635,278			688,345
Policy loans		2,218,249			2,108,678			2,371,791			2,272,629
Short-term investments		1,674,777			3,309,020			4,853,512			3,296,838
Other long-term investments		66,700,899			71,025,133			65,225,309			65,929,215
Total investments		416,249,893			422,960,668			429,477,295			434,120,334
Cash and cash equivalents		63,024,968			40,230,095			31,368,344			42,528,046
Accrued investment income		4,913,923			5,370,508			4,798,164			4,879,290
Recoverable from reinsurers		1,053,179			1,234,221			11,718,681			1,046,381
Assets held in trust under coinsurance agreement		109,072,674			112,160,307
Available-for-sale fixed maturity securities at fair value (amortized cost: $64,879,237 and $65,269,544 as of March 31, 2022 and December 31, 2021, respectively)								63,680,855			68,747,533
Mortgage loans on real estate								32,523,584			33,049,329
Cash and cash equivalents								5,122,812			4,413,384
Total assets held in trust under coinsurance agreement								101,327,251			106,210,246
Agents' balances and due premiums		1,945,949			2,154,322			1,515,227			1,713,050
Deferred policy acquisition costs		48,664,102			44,513,669			51,208,133			49,717,323
Value of insurance business acquired		4,382,627			4,592,977			4,246,290			4,318,499
Other assets		12,152,845			10,378,502			15,347,890			15,225,765
Total assets	$	661,460,160		$	643,595,269		$	651,007,275		$	659,758,934
Liabilities and Shareholders' Equity
Policy liabilities
Policyholders' account balances	$	377,072,802		$	362,519,753		$	371,324,479		$	373,647,869
Future policy benefits		85,241,834			76,673,797			100,009,920			88,735,716
Policy claims		1,869,646			2,099,548			3,417,916			2,381,183
Other policy liabilities		113,157			119,699			179,225			88,847
Total policy liabilities		464,297,439			441,412,797			474,931,540			464,853,615
Funds withheld under coinsurance agreement		109,678,542			112,681,925			101,508,074			106,586,633
Deferred federal income taxes		9,079,407			9,220,905			5,694,754			8,966,303
Other liabilities		9,449,432			10,427,430			8,061,627			10,957,832
Total liabilities		592,504,820			573,743,057			590,195,995			591,364,383
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
Class A common stock, par value $.01 per share (40,000,000 shares authorized as of March 31, 2022 and December 31, 2021, 9,631,920 and 8,909,276 issued as of March 31, 2022 and December 31, 2021, respectively, 9,384,340 and 8,661,696 outstanding as of March 31, 2022 and December 31, 2021, respectively)								96,319			89,093
Class B common stock, par value $.01 per share (10,000,000 shares authorized, 101,102 issued and outstanding as of March 31, 2022 and December 31, 2021)								1,011			1,011
Additional paid-in capital		39,078,485			39,078,485			43,668,023			39,078,485
Treasury stock, at cost (247,580 shares as of September 30, 2021 and December 31, 2020)		(893,947	)		(893,947	)
Treasury stock, at cost (247,580 shares as of March 31, 2022 and December 31, 2021)								(893,947	)		(893,947	)
Accumulated other comprehensive income		14,794,261			17,518,858			111,257			13,203,827
Accumulated earnings		15,886,437			14,058,712			17,828,617			16,916,082
Total shareholders' equity		68,955,340			69,852,212			60,811,280			68,394,551
Total liabilities and shareholders' equity	$	661,460,160		$	643,595,269		$	651,007,275		$	659,758,934

~~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

~~First Trinity Financial Corporation and Subsidiaries~~
~~Consolidated Statements of Comprehensive Income (Loss)~~
~~(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		0			0		0		0				0			840,057			840,057
Other comprehensive income		0			0		0		0				2,385,908			0			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		$	0	$	28,684,598	$	(893,947	)		$	9,616,660		$	19,930,449		$	57,418,262
Comprehensive income:
Net income		0			0		0		0				0			2,102,909			2,102,909
Other comprehensive income		0			0		0		0				4,267,183			0			4,267,183
Shareholders' cash dividend		0			0		0		0				0			(384,734	)		(384,734	)
Acquisition of K-TENN Insurance Company		1,688			0		1,744,552		0				0			0			1,746,240
Recapitalization		(1,011	)		1,011		0		0				0			0			0
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		0			0		0		0				0			1,067,334			1,067,334
Other comprehensive loss		0			0		0		0				(1,105,455	)		0			(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		0			0		0		0				0			1,827,725			1,827,725
Other comprehensive loss		0			0		0		0				(2,724,597	)		0			(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

~~First Trinity Financial Corporation and Subsidiaries~~
~~Consolidated Statements of Cash Flows~~
~~(Unaudited)~~

	Nine Months Ended September 30,						Three Months Ended March 31,
	2021			2020			2022			2021
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		0			109,116
Net income (loss)							$	912,535		$	(460,652	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Accretion of discount on investments		(3,600,202	)		(3,733,176	)		(1,205,756	)		(1,313,702	)
Net realized investment gains		(491,098	)		(552,842	)		(1,237,806	)		(52,095	)
Amortization of policy acquisition cost		5,206,030			3,665,161			1,368,983			1,789,823
Policy acquisition cost deferred		(9,325,731	)		(8,134,182	)		(2,852,880	)		(2,829,473	)
Amortization of loan origination fees		43,585			30,241			0			4,562
Amortization of value of insurance business acquired		210,350			227,328			72,209			75,169
Allowance for mortgage loan losses		94,911			36,800			83,700			(30,714	)
Provision for deferred federal income tax expense		582,763			543,019
Provision for deferred federal income tax expense (benefit)								208,754			(58,792	)
Interest credited to policyholders		9,487,050			9,191,808			3,176,136			3,118,535
Change in assets and liabilities:
Policy loans		(109,571	)		(44,658	)		(99,162	)		27,128
Short-term investments		1,634,243			156,850			29,993			3,957
Accrued investment income		456,585			(177,486	)		81,134			156,027
Recoverable from reinsurers		181,042			50,021			(37,547	)		69,712
Funds under coinsurance agreement		3,948,538			2,057,396
Assets held in trust under coinsurance agreement								1,282,160			814,210
Agents' balances and due premiums		208,373			(802,590	)		223,010			112,807
Other assets (excludes change in receivable for securities sold of ($1,627,000) in 2020)		(1,774,343	)		(3,358,479	)
Other assets								(116,125	)		(2,307,709	)
Future policy benefits		8,568,037			8,061,676			3,172,111			2,115,546
Policy claims		(229,902	)		408,900			985,341			(225,686	)
Other policy liabilities		(6,542	)		819			90,378			6,261
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
Other liabilities (exclude change in payable for securities purchased of $1,154,808 and ($27,262) in 2022 and 2021, respectively)								(4,059,518	)		(4,355,557	)
Net cash provided by (used in) operating activities								2,077,650			(3,340,643	)

Investing activities
Purchases of fixed maturity securities		(12,760,202	)		(3,597,065	)		(26,767,100	)		(4,004,267	)
Maturities of fixed maturity securities		900,000			945,500			550,000			400,000
Sales of fixed maturity securities		6,049,876			14,977,950			30,399,960			2,019,079
Purchases of preferred stock securities		(1,250,000	)		0
Sales of preferred stock securities		0			50,000
Purchases of equity securities		(162,603	)		(68,198	)		(43,414	)		(14,640	)
Acquisition of Royalty Capital Life Insurance Company								3,525,749			0
Sales of equity securities		89			0			0			88
Acquisition of K-TENN Insurance Company		0			1,110,299
Joint venture distributions		60,410			66,511
Joint venture distribution								30,522			18,695
Purchases of mortgage loans		(74,296,705	)		(58,751,393	)		(32,447,546	)		(14,954,163	)
Payments on mortgage loans		78,319,365			45,252,139			18,291,543			19,311,674
Purchases of other long-term investments		(882,026	)		(4,799,143	)		(2,671,200	)		(882,027	)
Payments on other long-term investments		8,863,095			8,440,078			4,686,815			3,295,634
Sale of real estate		818,018			682,945			49,371			0
Net change in receivable and payable for securities sold and purchased		1,561,417			(1,313,812	)		1,154,808			(27,262	)
Net cash provided by investing activities		7,220,734			2,995,811
Net cash provided by (used in) investing activities								(3,240,492	)		5,162,811

Financing activities
Policyholders' account deposits		25,215,132			17,030,797			5,912,187			11,445,347
Policyholders' account withdrawals		(24,013,421	)		(30,041,959	)		(15,909,047	)		(8,013,057	)
Shareholders' cash dividend		0			(384,734	)
Net cash provided by (used in) financing activities		1,201,711			(13,395,896	)		(9,996,860	)		3,432,290

Increase (decrease) in cash and cash equivalents		22,794,873			(1,174,618	)		(11,159,702	)		5,254,458
Cash and cash equivalents, beginning of period		40,230,095			23,212,170			42,528,046			40,230,095
Cash and cash equivalents, end of period	$	63,024,968		$	22,037,552		$	31,368,344		$	45,484,553

	Nine Months Ended			Nine Months Ended			Three Months Ended
	September 30, 2021			September 30, 2020			March 31, 2021
Reductions in mortgage loans due to foreclosure	$	458,587		$	797,158		$	458,587
Investment real estate held-for-sale acquired through foreclosure		(458,587	)		(797,158	)		(458,587	)
Net cash used in investing activities	$	0		$	0		$	0

			Gross		Gross						Gross		Gross
	Amortized Cost		Unrealized		Unrealized		Fair		Amortized Cost		Unrealized		Unrealized		Fair
	or Cost		Gains		Losses		Value		or Cost		Gains		Losses		Value
	September 30, 2021 (Unaudited)								March 31, 2022 (Unaudited)
Fixed maturity securities
U.S. government and U.S. government agencies	$	428,879	$	1,391	$	450	$	429,820	$	427,433	$	275	$	6,373	$	421,335
States and political subdivisions		8,183,832		729,312		23,099		8,890,045		8,270,287		281,059		89,230		8,462,116
Commercial mortgage-backed securities										10,587,931		8,638		728,208		9,868,361
Residential mortgage-backed securities		11,373		13,947		0		25,320		11,119		12,138		0		23,257
Corporate bonds		114,124,130		14,221,882		97,550		128,248,462		104,984,657		2,951,103		1,748,087		106,187,673
Asset-backed securities		1,236,917		52,199		3,963		1,285,153		8,263,481		8,024		499,625		7,771,880
Exchange traded securities		523,780		0		5,780		518,000		577,442		0		70,042		507,400
Foreign bonds		29,083,065		3,865,750		14,233		32,934,582		29,522,752		752,810		684,522		29,591,040
Redeemable preferred securities										1,250,000		0		52,400		1,197,600
Certificate of deposits		400,000		13,830		0		413,830		400,000		5,328		0		405,328
Total fixed maturity securities		153,991,976		18,898,311		145,075		172,745,212	$	164,295,102	$	4,019,375	$	3,878,487	$	164,435,990

Preferred stock securities		1,250,000		0		16,000		1,234,000

Total fixed maturity and preferred stock securities	$	155,241,976	$	18,898,311	$	161,075	$	173,979,212
Fixed maturity securities held in trust under coinsurance agreement									$	64,879,237	$	727,578	$	1,925,960	$	63,680,855

			Unrealized		Number of				Unrealized		Number of
	Fair Value		Loss		Securities		Fair Value		Loss		Securities
	September 30, 2021 (Unaudited)						March 31, 2022 (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	$	296,058	$	6,373		2
States and political subdivisions		104,131		157		1		553,452		45,570		4
Commercial mortgage-backed securities								7,523,901		728,208		19
Corporate bonds		5,213,820		97,550		16		30,231,450		1,748,087		85
Asset-backed securities								7,239,128		470,008		16
Exchange traded securities		518,000		5,780		2		507,400		70,042		2
Foreign bonds		547,400		14,233		1		11,557,401		630,415		25
Redeemable preferred securities								447,600		52,400		2
Total less than 12 months in an unrealized loss position		6,686,771		118,170		22		58,356,390		3,751,103		155
More than 12 months in an unrealized loss position
States and political subdivisions		628,548		22,942		1		604,020		43,660		1
Asset-backed securities		357,543		3,963		1		321,966		29,617		1
Foreign bonds								506,030		54,107		1
Total more than 12 months in an unrealized loss position		986,091		26,905		2		1,432,016		127,384		3
Total fixed maturity securities in an unrealized loss position		7,672,862		145,075		24	$	59,788,406	$	3,878,487	$	158
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
Fixed maturity securities held in trust under coisnurance agreement
Total less than 12 months in an unrealized loss position							$	29,513,144	$	1,925,960		98
Total fixed maturity securities held in trust under coinsurance agreement in a unrealized loss position							$	29,513,144	$	1,925,960		98

	September 30, 2021 (Unaudited)								March 31, 2022 (Unaudited)
	Fixed Maturity Available-For-Sale Securities				Other Long-Term Investments				Fixed Maturity Available-For-Sale Securities				Other Long-Term Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		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	$	2,479,645	$	2,489,671	$	13,418,030	$	13,724,837
Due after one year through five years		38,330,774		40,464,311		34,083,825		38,421,632		27,415,867		27,580,535		33,462,413		37,279,546
Due after five years through ten years		39,538,177		43,676,601		14,819,938		19,748,660		33,591,731		33,803,977		12,704,720		16,154,724
Due after ten years		73,349,779		85,769,812		5,884,244		11,234,378		88,958,809		89,472,591		5,640,146		9,659,374
Due at multiple maturity dates		11,373		25,320		0		0		11,849,050		11,089,216		0		0
	$	153,991,976	$	172,745,212	$	66,700,899	$	81,547,820	$	164,295,102	$	164,435,990	$	65,225,309	$	76,818,481

	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	$	0	$	25,158,102	$	12,357,549	$	0	$	50,000
Gross realized gains		160,753			115,229			283,491		0		1,344		1		0		55
Gross realized losses		(138,821	)		(3,610	)		0		0		0		0		0		0

	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	$	0	$	818,018	$	682,945	$	78,319,365	$	45,252,139
Gross realized gains		291,252			461,716			89		0		289,840		33,696		40,014		108,100
Gross realized losses		(165,655	)		(31,958	)		0		0		0		0		0		0

	Three Months Ended March 31, (Unaudited)
	Fixed Maturity Securities						Equity Securities					Investment Real Estate
	2022			2021			2022			2021		2022			2021
Proceeds	$	30,949,960		$	2,419,079		$	0		$	88	$	49,371		$	0
Gross realized gains		1,224,914			64,150			0			89		0			0
Gross realized losses		(839	)		(26,499	)		(8,000	)		0		(3,696	)		0

	March 31, 2022		December 31, 2021
Residential mortgage loans	$	177,718,296	$	169,368,048
Commercial mortgage loans by property type
Agricultural		999,975		0
Apartment		1,910,311		175,121
Industrial		1,160,986		1,170,544
Lodging		277,376		280,836
Office building		5,176,363		2,285,403
Retail		4,333,571		4,228,099
Total commercial mortgage loans by property type		13,858,582		8,140,003
Total mortgage loans	$	191,576,878	$	177,508,051

Mortgage loans held in trust under coinsurance agreement
Residential mortgage loans	$	3,678,125	$	3,803,847
Commercial mortgage loans		29,435,932		30,013,132
Less unearned interest on mortgage loans		590,473		767,650
Total mortgage loans held in trust under coinsurance agreement	$	32,523,584	$	33,049,329

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	September 30, 2021 (Unaudited)								March 31, 2022 (Unaudited)
Fixed maturity securities, available-for-sale
U.S. government and U.S. government agencies	$	0	$	429,820	$	0	$	429,820	$	0	$	421,335	$	0	$	421,335
States and political subdivisions		0		8,890,045		0		8,890,045		0		8,462,116		0		8,462,116
Commercial mortgage-backed securities										0		9,868,361		0		9,868,361
Residential mortgage-backed securities		0		25,320		0		25,320		0		23,257		0		23,257
Corporate bonds		0		128,248,462		0		128,248,462		0		106,187,673		0		106,187,673
Asset-backed securities		0		1,285,153		0		1,285,153		0		7,771,880		0		7,771,880
Exchange traded securities		0		518,000		0		518,000		0		507,400		0		507,400
Foreign bonds		0		32,934,582		0		32,934,582		0		29,591,040		0		29,591,040
Certificate of deposits		0		413,830		0		413,830
Redeemable preferred securities										0		1,197,600		0		1,197,600
Certificate of deposit										0		405,328		0		405,328
Total fixed maturity securities	$	0	$	172,745,212	$	0	$	172,745,212	$	0	$	164,435,990	$	0	$	164,435,990

Preferred stock securities, available-for-sale	$	1,234,000	$	0	$	0	$	1,234,000

Fixed maturity securities, available-for-sale held in trust under coinsurance agreement									$	0	$	63,680,855	$	0		63,680,855
Equity securities
Mutual funds	$	0	$	80,888	$	0	$	80,888	$	0	$	59,648	$	0	$	59,648
Corporate common stock		196,589		0		63,277		259,866		250,574		0		68,315		318,889
Total equity securities	$	196,589	$	80,888	$	63,277	$	340,754	$	250,574	$	59,648	$	68,315	$	378,537

	Unaudited
	Nine Months Ended September 30,						(Unaudited)
	2021			2020			March 31, 2022			December 31, 2021

Beginning balance	$	67,133		$	64,107		$	63,423		$	67,132
Joint venture net income		56,554			68,198			43,414			75,195
Joint venture distribution		(60,410	)		(66,511	)		(30,522	)		(78,904	)
Net realized invemstment losses								(8,000	)		0
Ending balance	$	63,277		$	65,794		$	68,315		$	63,423

	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
	March 31, 2022 (Unaudited)
Financial assets
Mortgage loans on real estate
Commercial	$	13,858,582	$	15,314,329	$	0	$	0	$	15,314,329
Residential		177,718,296		198,104,611		0		0		198,104,611
Policy loans		2,371,791		2,371,791		0		0		2,371,791
Short-term investments		4,853,512		4,853,512		4,853,512		0		0
Other long-term investments		65,225,309		76,818,481		0		0		76,818,481
Cash and cash equivalents		31,368,344		31,368,344		31,368,344		0		0
Accrued investment income		4,798,164		4,798,164		0		0		4,798,164
Total financial assets	$	300,193,998	$	333,629,232	$	36,221,856	$	0	$	297,407,376
Held in trust under coinsurance agreement
Mortgage loans on real estate
Commercial	$	29,435,932	$	29,435,932	$	0	$	0	$	29,435,932
Residential		3,678,125		3,678,125		0		0		3,678,125
Less unearned interest on mortgage loans		590,473		590,473		0		0		590,473
Cash and cash equivalents		5,122,812		5,122,812		5,122,812		0		0
Total financial assets held in trust under coinsurance agreement	$	37,646,396	$	37,646,396	$	5,122,812	$	0	$	32,523,584
Financial liabilities
Policyholders' account balances	$	371,324,479	$	348,887,930	$	0	$	0	$	348,887,930
Policy claims		3,417,916		3,417,916		0		0		3,417,916
Total financial liabilities	$	374,742,395	$	352,305,846	$	0	$	0	$	352,305,846

	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			0			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			0			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

	Three Months Ended March 31, 2022 and 2021 (Unaudited)
	Unrealized
	Appreciation						Accumulated
	(Depreciation) on			Adjustment to			Other
	Available-For-Sale			Deferred Acquisition			Comprehensive
	Securities			Costs			Income
Balance as of January 1, 2022	$	13,209,319		$	(5,492	)	$	13,203,827
Other comprehensive loss before reclassifications, net of tax		(12,131,012	)		5,461			(12,125,551	)
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		967,019			0			967,019
Other comprehensive loss		(13,098,031	)		5,461			(13,092,570	)
Balance as of March 31, 2022	$	111,288		$	(31	)	$	111,257

Balance as of January 1, 2022	$	17,551,279		$	(32,421	)	$	17,518,858
Other comprehensive loss before reclassifications, net of tax		(5,311,511	)		12,425			(5,299,086	)
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		29,744			0			29,744
Other comprehensive loss		(5,341,255	)		12,425			(5,328,830	)
Balance as of March 31, 2022	$	12,210,024		$	(19,996	)	$	12,190,028

	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			0			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			0			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

	Three Months Ended September 30, 2021 (Unaudited)												Income Tax
				Income Tax						Pretax			Benefit			Net of Tax
	Pretax			Expense (Benefit)			Net of Tax			Three Months Ended March 31, 2022 (Unaudited)
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	)	$	(15,355,711	)	$	(3,224,699	)	$	(12,131,012	)
Reclassification adjustment for net gains included in operations having no credit losses		21,932			4,606			17,326			1,224,075			257,056			967,019
Net unrealized losses on investments		(1,406,987	)		(295,469	)		(1,111,518	)		(16,579,786	)		(3,481,755	)		(13,098,031	)
Adjustment to deferred acquisition costs		7,675			1,612			6,063			6,913			1,452			5,461
Total other comprehensive loss	$	(1,399,312	)	$	(293,857	)	$	(1,105,455	)	$	(16,572,873	)	$	(3,480,303	)	$	(13,092,570	)

	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

	Three Months Ended March 31, 2021 (Unaudited)
Other comprehensive loss:
Change in net unrealized losses on available-for-sale securities:
Unrealized holding losses arising during the period	$	(6,723,431	)	$	(1,411,920	)	$	(5,311,511	)
Reclassification adjustment for net gains included in operations having no credit losses		37,651			7,907			29,744
Net unrealized losses on investments		(6,761,082	)		(1,419,827	)		(5,341,255	)
Adjustment to deferred acquisition costs		15,729			3,304			12,425
Total other comprehensive loss	$	(6,745,353	)	$	(1,416,523	)	$	(5,328,830	)

	Unaudited
	Three Months Ended September 30,														As of and for the Three Months Ended March 31, (Unaudited)
	Residential Mortgage Loans				Commercial Mortgage Loans						Total				Residential Mortgage Loans					Commercial Mortgage Loans					Total
	2021		2020		2021			2020			2021		2020		2022		2021			2022		2021			2022		2021
Allowance, beginning	$	394,718	$	443,490	$	49,210		$	65,957		$	443,928	$	509,447	$	675,162	$	486,604		$	31,357	$	55,290		$	706,519	$	541,894
Charge offs		0		0		0			0			0		0		0		0			0		0			0		0
Recoveries		0		0		0			0			0		0		0		0			0		0			0		0
Provision		220,386		35,556		(27,509	)		(2,825	)		192,877		32,731		53,067		(23,830	)		30,633		(6,884	)		83,700		(30,714	)
Allowance, ending	$	615,104	$	479,046	$	21,701		$	63,132		$	636,805	$	542,178	$	728,229	$	462,774		$	61,990	$	48,406		$	790,219	$	511,180

Allowance, ending:
Individually evaluated for impairment	$	0	$	0	$	0		$	0		$	0	$	0	$	0	$	0		$	0	$	0		$	0	$	0
Collectively evaluated for impairment	$	615,104	$	479,046	$	21,701		$	63,132		$	636,805	$	542,178	$	728,229	$	462,774		$	61,990	$	48,406		$	790,219	$	511,180

Carrying Values:
Individually evaluated for impairment	$	0	$	0	$	0		$	0		$	0	$	0
Collectively evaluated for impairment	$	119,346,543	$	95,511,234	$	7,377,632		$	12,563,167		$	126,724,175	$	108,074,401
Individually evaluated for reserve allowance															$	0	$	0		$	0	$	0		$	0	$	0
Collectively evaluated for reserve allowance															$	143,394,981	$	92,131,184		$	13,858,582	$	9,632,752		$	157,253,563	$	101,763,936

	(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

	Life Insurance			Annuity			Corporate						Life Insurance			Annuity			Corporate
	Operations			Operations			Operations			Total			Operations			Operations			Operations			Total
Revenues
Premiums	$	1,156,881		$	-		$	-		$	1,156,881		$	1,248,906		$	-		$	-		$	1,248,906
Net invesment income		(36,647	)		92,002			(46,668	)		8,687
Net realized investment gains		60,478			141,297			-			201,775
Net investment income														341,936			(65,927	)		24,144			300,153
Net realized investment gains (losses)														255,777			937,934			(8,000	)		1,185,711
Service fees and other income		22,437			(29,940	)		(7,352	)		(14,855	)		64,817			(8,274	)		(52,267	)		4,276
Total revenue		1,203,149			203,359			(54,020	)		1,352,488			1,911,436			863,733			(36,123	)		2,739,046

Benefits and claims
Increase in future policy benefits		442,320			-			-			442,320			1,058,788			-			-			1,058,788
Death benefits		(285,395	)		-			-			(285,395	)		482,522			-			-			482,522
Surrenders		(129,480	)		-			-			(129,480	)		(33,516	)		-			-			(33,516	)
Interest credited to policyholders		-			207,977			-			207,977			-			57,601			-			57,601
Dividend, endowment and supplementary life contract benefits		12,616			-			-			12,616			4,887			-			-			4,887
Total benefits and claims		40,061			207,977			-			248,038			1,512,681			57,601			-			1,570,282
Expenses
Policy acquisition costs deferred net of amortization		3,555			448,716			-			452,271			(484,722	)		40,475			-			(444,247	)
Amortization of value of insurance business acquired		(3,374	)		(3,374	)		-			(6,748	)		(1,481	)		(1,479	)		-			(2,960	)
Commissions		335,455			(135,023	)		-			200,432			73,783			(285,237	)		-			(211,454	)
Other underwriting, insurance and acquisition expenses		45,496			94,572			36,276			176,344			268,371			182,727			(272,676	)		178,422
Total expenses		381,132			404,891			36,276			822,299			(144,049	)		(63,514	)		(272,676	)		(480,239	)
Total benefits, claims and expenses		421,193			612,868			36,276			1,070,337			1,368,632			(5,913	)		(272,676	)		1,090,043
Income (loss) before federal income taxes (benefits)	$	781,956		$	(409,509	)	$	(90,296	)	$	282,151		$	542,804		$	869,646		$	236,553		$	1,649,003