First Trinity Financial 10Q 2020 Q2 Quarterly report

United States

Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended June 30, 2020

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the transition period From to .

Commission file number: 000-52613

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

7633 East 63rd Place, Suite 230

Tulsa, Oklahoma 74133-1246

(Address of principal executive offices)

(918) 249-2438

(Registrant's telephone number, including area code)

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

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

Yes ☑ No ☐

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

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

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

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

Yes ☐ No ☑

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of August 10, 2020, the registrant had 7,867,145 shares of Class A common stock, .01 par value, outstanding and 104,314 shares of Class B common stock, .01 par value, outstanding.

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

FIRST TRINITY FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	Page Number

Item 1. Consolidated Financial Statements

Consolidated Statements of Financial Position as of June 30, 2020 (Unaudited) and December 31, 2019	3

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	4

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	5

Consolidated Statements of Changes in Shareholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)	6

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited)	7

Notes to Consolidated Financial Statements (Unaudited)	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 4. Controls and Procedures	65

Part II. OTHER INFORMATION

Item 1. Legal Proceedings	66

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66

Item 3. Defaults upon Senior Securities	66

Item 4. Mine Safety Disclosures	66

Item 5. Other Information	66

Item 6. Exhibits	66

Signatures	68

Exhibit No. 31.1
Exhibit No. 31.2
Exhibit No. 32.1
Exhibit No. 32.2
Exhibit No. 101.INS
Exhibit No. 101.SCH
Exhibit No. 101.CAL
Exhibit No. 101.DEF
Exhibit No. 101.LAB
Exhibit No. 101.PRE

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

First Trinity Financial Corporation and Subsidiaries
Consolidated Statements of Financial Position

	(Unaudited)
	June 30, 2020			December 31, 2019
Assets
Investments
Available-for-sale fixed maturity securities at fair value (amortized cost: $156,866,874 and $166,760,448 as of June 30, 2020 and December 31, 2019, respectively)	$	171,450,389		$	178,951,324
Available-for-sale preferred stock at fair value (cost: $49,945 as of June 30, 2020 and December 31, 2019)		50,440			51,900
Equity securities at fair value (cost: $178,224 and $180,194 as of June 30, 2020 and December 31, 2019, respectively)		173,002			201,024
Mortgage loans on real estate		166,927,369			162,404,640
Investment real estate		1,973,857			1,951,759
Policy loans		2,044,954			2,026,301
Short-term investments		2,949,229			1,831,087
Other long-term investments		72,877,350			71,824,480
Total investments		418,446,590			419,242,515
Cash and cash equivalents		17,051,412			23,212,170
Accrued investment income		5,475,458			5,207,823
Recoverable from reinsurers		1,221,856			1,244,733
Assets held in trust under coinsurance agreement		107,548,422			105,089,240
Agents' balances and due premiums		2,034,272			1,618,115
Deferred policy acquisition costs		40,553,380			38,005,639
Value of insurance business acquired		4,737,898			4,891,448
Other assets		15,123,435			6,424,691
Total assets	$	612,192,723		$	604,936,374
Liabilities and Shareholders' Equity
Policy liabilities
Policyholders' account balances	$	358,137,860		$	363,083,838
Future policy benefits		70,243,025			65,015,390
Policy claims		1,267,125			1,399,393
Other policy liabilities		136,988			132,975
Total policy liabilities		429,784,998			429,631,596
Funds withheld under coinsurance agreement		108,073,060			105,638,974
Deferred federal income taxes		7,210,919			6,345,918
Other liabilities		5,199,851			5,901,624
Total liabilities		550,268,828			547,518,112
Shareholders' equity
Class A common stock, par value $.01 per share (40,000,000 and 20,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively, 8,114,725 and 8,050,173 issued as of June 30, 2020 and December 31, 2019, respectively, 7,867,145 and 7,802,593 outstanding as of June 30, 2020 and December 31, 2019, respectively)		81,147			80,502
Class B common stock, par value $.01 per share (10,000,000 shares authorized, 104,314 issued and outstanding as of June 30, 2020)		1,043			-
Additional paid-in capital		30,429,150			28,684,598
Treasury stock, at cost (247,580 shares as of June 30, 2020 and December 31, 2019)		(893,947	)		(893,947	)
Accumulated other comprehensive income		11,497,935			9,616,660
Accumulated earnings		20,808,567			19,930,449
Total shareholders' equity		61,923,895			57,418,262
Total liabilities and shareholders' equity	$	612,192,723		$	604,936,374

See notes to consolidated financial statements (unaudited).

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues
Premiums	$	6,439,224		$	5,546,081		$	12,805,100		$	11,076,887
Net investment income		5,876,073			6,283,043			12,145,916			11,856,499
Net realized investment gains (losses)		410,380			(67,632	)		433,882			(13,912	)
Service fees		7,025			593,144			17,896			1,020,878
Other income		105,377			23,755			118,791			62,739
Total revenues		12,838,079			12,378,391			25,521,585			24,003,091
Benefits, Claims and Expenses
Benefits and claims
Increase in future policy benefits		2,467,039			2,029,177			5,108,158			4,180,777
Death benefits		2,482,528			1,474,125			4,094,308			3,106,905
Surrenders		228,541			246,074			638,905			596,481
Interest credited to policyholders		3,056,982			3,011,733			6,120,227			5,562,405
Dividend, endowment and supplementary life contract benefits		70,519			75,121			153,218			143,790
Total benefits and claims		8,305,609			6,836,230			16,114,816			13,590,358
Policy acquisition costs deferred		(2,693,003	)		(3,657,057	)		(5,077,971	)		(7,272,517	)
Amortization of deferred policy acquisition costs		1,307,138			1,077,534			2,520,412			1,841,880
Amortization of value of insurance business acquired		73,576			73,544			153,550			154,991
Commissions		2,497,928			3,723,265			4,806,091			7,295,837
Other underwriting, insurance and acquisition expenses		2,735,448			2,857,284			5,376,920			5,122,859
Total expenses		3,921,087			4,074,570			7,779,002			7,143,050
Total benefits, claims and expenses		12,226,696			10,910,800			23,893,818			20,733,408
Income before total federal income tax expense		611,383			1,467,591			1,627,767			3,269,683
Current federal income tax expense (benefit)		(46,575	)		398,052			-			701,054
Deferred federal income tax expense (benefit)		184,362			(64,027	)		364,915			12,867
Total federal income tax expense		137,787			334,025			364,915			713,921
Net income	$	473,596		$	1,133,566		$	1,262,852		$	2,555,762
Net income per common share basic and diluted
Class A common stock	$	0.0601		$	0.1453		$	0.1594		$	0.3276
Class B common stock	$	0.0095		$	-		$	0.0938		$	-

See notes to consolidated financial statements (unaudited).

First Trinity Financial Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2020		2019			2020		2019
Net income	$	473,596	$	1,133,566		$	1,262,852	$	2,555,762
Other comprehensive income
Total net unrealized investment gains arising during the period		15,880,590		6,494,324			2,709,318		11,621,574
Less net realized investment gains (losses) having no credit losses		256,220		(30,913	)		318,139		9,162
Net unrealized investment gains		15,624,370		6,525,237			2,391,179		11,612,412
Less adjustment to deferred acquisition costs		31,673		10,599			9,818		23,096
Other comprehensive income before federal income tax expense		15,592,697		6,514,638			2,381,361		11,589,316
Federal income tax expense		3,274,466		1,368,073			500,086		2,433,757
Total other comprehensive income		12,318,231		5,146,565			1,881,275		9,155,559
Total comprehensive income	$	12,791,827	$	6,280,131		$	3,144,127	$	11,711,321

See notes to consolidated financial statements (unaudited).

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Three and Six Months Ended June 30, 2020 and 2019

(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 (Loss)			Earnings			Equity
Three months ended June 30, 2019
Balance as of April 1, 2019	$	80,502		$	-		$	28,684,598	$	(893,947	)	$	1,432,363		$	15,252,925		$	44,556,441
Comprehensive income:
Net income		-			-			-		-			-			1,133,566			1,133,566
Other comprehensive income		-			-			-		-			5,146,565			-			5,146,565
Balance as of June 30, 2019	$	80,502		$	-		$	28,684,598	$	(893,947	)	$	6,578,928		$	16,386,491		$	50,836,572

Six months ended June 30, 2019
Balance as of January 1, 2019	$	80,502		$	-		$	28,684,598	$	(893,947	)	$	(2,576,631	)	$	13,830,729		$	39,125,251
Comprehensive income:
Net income		-			-			-		-			-			2,555,762			2,555,762
Other comprehensive income		-			-			-		-			9,155,559			-			9,155,559
Balance as of June 30, 2019	$	80,502		$	-		$	28,684,598	$	(893,947	)	$	6,578,928		$	16,386,491		$	50,836,572

Three months ended June 30, 2020
Balance as of April 1, 2020	$	81,025		$	1,165		$	30,429,150	$	(893,947	)	$	(820,296	)	$	20,719,705		$	49,516,802
Comprehensive income:
Net income		-			-			-		-			-			473,596			473,596
Other comprehensive income		-			-			-		-			12,318,231			-			12,318,231
Shareholders' cash dividend		-			-			-		-			-			(384,734	)		(384,734	)
Recapitalization		122			(122	)		-		-			-			-			-
Balance as of June 30, 2020	$	81,147		$	1,043		$	30,429,150	$	(893,947	)	$	11,497,935		$	20,808,567		$	61,923,895

Six months ended June 30, 2020
Balance as of January 1, 2020	$	80,502		$	-		$	28,684,598	$	(893,947	)	$	9,616,660		$	19,930,449		$	57,418,262
Comprehensive income:
Net income		-			-			-		-			-			1,262,852			1,262,852
Other comprehensive income		-			-			-		-		��	1,881,275			-			1,881,275
Shareholders' cash dividend		-			-			-		-			-			(384,734	)		(384,734	)
Acquisition of K-TENN Insurance Company		1,688			-			1,744,552		-			-			-			1,746,240
Recapitalization		(1,043	)		1,043			-		-			-			-			-
Balance as of June 30, 2020	$	81,147		$	1,043		$	30,429,150	$	(893,947	)	$	11,497,935		$	20,808,567		$	61,923,895

See notes to consolidated financial statements (unaudited).

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

	Six Months Ended June 30,
	2020			2019
Operating activities
Net income	$	1,262,852		$	2,555,762
Adjustments to reconcile net income to net cash used in operating activities:
Provision for depreciation		72,744			72,744
Accretion of discount on investments		(2,538,970	)		(2,255,182	)
Net realized investment (gains) losses		(433,882	)		13,912
Amortization of policy acquisition cost		2,520,412			1,841,880
Policy acquisition cost deferred		(5,077,971	)		(7,272,517	)
Amortization of loan origination fees		26,508			14,975
Amortization of value of insurance business acquired		153,550			154,991
Allowance for mortgage loan losses		4,069			85,935
Provision for deferred federal income tax expense		364,915			12,867
Interest credited to policyholders		6,120,227			5,562,405
Change in assets and liabilities:
Policy loans		(17,608	)		(81,011	)
Short-term investments		(1,118,142	)		(918,406	)
Accrued investment income		(267,145	)		(2,418,865	)
Recoverable from reinsurers		22,877			1,101,384
Assets held in trust under coinsurance agreement		(2,459,182	)		(67,483,048	)
Agents' balances and due premiums		(412,171	)		(268,807	)
Other assets (excludes change in receivable for securities sold of $33,600 in 2019)		(8,698,283	)		1,128,955
Future policy benefits		5,077,052			4,138,206
Policy claims		(132,268	)		100,581
Other policy liabilities		(5,199	)		3,112
Other liabilities (excludes change in payable for securities purchased of $333,156 and ($391,171) in 2020 and 2019, respectively)		(1,045,175	)		873,460
Net cash used in operating activities		(6,580,790	)		(63,036,667	)

Investing activities
Purchases of fixed maturity securities		(1,005,000	)		(64,687,943	)
Maturities of fixed maturity securities		548,500			3,450,000
Sales of fixed maturity securities		11,165,264			14,677,913
Purchases of equity securities		(47,963	)		(57,746	)
Sales of equity securities		-			19,370
Acquisition of K-TENN Insurance Company		1,110,299			-
Joint venture distributions		49,933			53,786
Purchases of mortgage loans		(37,894,403	)		(44,710,559	)
Payments on mortgage loans		32,894,590			18,955,492
Purchases of other long-term investments		(3,942,291	)		(8,750,363	)
Payments on other long-term investments		5,541,855			5,579,448
Sale of real estate		682,945			253,564
Net change in receivable and payable for securities sold and purchased		333,156			(357,571	)
Net cash provided by (used in) investing activities		9,436,885			(75,574,609	)

Financing activities
Policyholders' account deposits		6,012,739			153,716,133
Policyholders' account withdrawals		(14,644,858	)		(17,224,086	)
Shareholders' cash dividend		(384,734	)		-
Net cash provided by (used in) financing activities		(9,016,853	)		136,492,047

Decrease in cash and cash equivalents		(6,160,758	)		(2,119,229	)
Cash and cash equivalents, beginning of period		23,212,170			29,665,605
Cash and cash equivalents, end of period	$	17,051,412		$	27,546,376

See notes to consolidated financial statements (unaudited).

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

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

(Unaudited)

During the six months ended June 30, 2020 and 2019, the Company foreclosed on residential mortgage loans of real estate totaling $744,091 and $99,218, 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:

	Six Months Ended			Six Months Ended
	June 30, 2020			June 30, 2019
Reductions in mortgage loans due to foreclosure	$	744,091		$	99,218
Investment real estate held-for-sale acquired through foreclosure		(744,091	)		(99,218	)
Net cash used in investing activities	$	-		$	-

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

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

	June 30, 2020
Cash used in acquisition of K-TENN Insurance Company	$	-
Cash provided in acquisition of K-TENN Insurance Company		1,110,299

Increase in cash from acquisition of K-TENN Insurance Company		1,110,299

Fair value of assets acquired in acquisition of K-TENN Insurance Company (excluding cash)
Available-for-sale fixed maturity securities		800,000
Policy loans		1,045
Accrued investment income		490
Due premiums		3,986
Other assets		461

Total fair value of assets acquired (excluding cash)		805,982

Fair value of liabilities assumed in acquisition of K-TENN Insurance Company
Future policy benefits		150,583
Other policy liabilities		9,212
Other liabilities		10,246

Total fair value of liabilities assumed		170,041

Fair value of net assets acquired in acquisition of K-TENN Insurance Company (excluding cash)		635,941

Fair value of net assets acquired in acquisition of K-TENN Insurance Company (including cash)	$	1,746,240

See notes to consolidated financial statements (unaudited).

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Significant Accounting Policies

Nature of Operations

First Trinity Financial Corporation (the “Company” or “FTFC”) is the parent holding company of Trinity Life Insurance Company (“TLIC”), Family Benefit Life Insurance Company (“FBLIC”), First Trinity Capital Corporation (“FTCC”) 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 Illinois, Kansas, Kentucky, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Tennessee and Texas. FBLIC is licensed in the states of Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia and West Virginia.

The Company owns 100% of FTCC that was incorporated in 2006, and began operations in January 2007. FTCC provided financing for casualty insurance premiums for individuals and companies and was licensed to conduct premium financing business in the states of Alabama, Arkansas, Louisiana, Mississippi and Oklahoma. FTCC has made no premium financing loans since June 30, 2012.

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

Company Capitalization

The Company raised $1,450,000 from two private placement stock offerings during 2004 and $25,669,480 from two public stock offerings and one private placement stock offering from June 22, 2005 through February 23, 2007; June 29, 2010 through April 30, 2012 and August 15, 2012 through March 8, 2013. The Company issued 7,347,488 shares of its common stock and incurred $3,624,518 of offering costs during these private placements and public stock offerings. The Company also issued 702,685 shares of its common stock in connection with two stock dividends paid to shareholders in 2011 and 2012.

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

Acquisitions

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

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

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

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

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

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

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

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

Basis of Presentation

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

The results of operations for the six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ended December 31, 2020 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, 2019.

As a result of Coronavirus Disease 2019, which was declared a pandemic on March 11, 2020, the United States Federal, State and Local Governments, and other countries around the world have taken measures that continue to limit economic output. Due to the decline in economic activity, the Company is faced with uncertainty as of the date of this report on its operations when considering its revenue sources and potential future liquidity needs. Management is actively monitoring the situation and the impact to the Company’s operations. As the pandemic continues, should liquidity conditions worsen in the short-term, management will work with its financial institutions to assist with liquidity needs.

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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Reclassifications

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

Use of Estimates

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

Common Stock

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

On October 2, 2019, at the Company Annual Shareholders’ Meeting, FTFC’s shareholders approved the following proposals subject to regulatory approval and adoption by FTFC’s Board of Directors:

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

Treasury Stock

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

Subsequent Events

Management has evaluated all events subsequent to June 30, 2020 through the date that these financial statements have been issued.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Recent Accounting Pronouncements

Leases

In February 2016, the FASB issued updated guidance (Accounting Standards Update 2016-02) to require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months. The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease). Both lease classifications require the lessee to record the right-of-use asset and the lease liability based upon the present value of cash flows. Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset. Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease. The accounting by lessors is not significantly changed by the updated guidance. The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements.

In July 2018, the FASB amended the updated guidance on leases that was issued in February 2016 (Accounting Standards Update 2018-11) and provided an additional transition method with which to adopt the updated guidance. Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption.

Consequently, if this transition method is elected, an entity’s reporting for the comparative periods prior to adoption presented in the financial statements would continue to be in accordance with current lease guidance. The amendments also provide lessors with a practical expedient to combine non-lease components (e.g., a fee for common area maintenance when leasing office space) with the associated lease component rather than accounting for those components separately if certain criteria are met. The updated guidance requires entities to recognize a right-of-use asset and lease liability equal to the present value of lease payments for all leases other than those that are less than one year. The updated guidance, as amended, is effective for reporting periods beginning after December 15, 2018.

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

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

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

In June 2016, the FASB issued updated guidance (Accounting Standards Update 2016-13) for the accounting for credit losses for financial instruments. The updated guidance applies a new credit loss model (current expected credit losses or CECL) for determining credit-related impairments for financial instruments measured at amortized cost (e.g. reinsurance recoverables, including structured settlements that are recorded as part of reinsurance recoverables) and requires an entity to estimate the credit losses expected over the life of an exposure or pool of exposures. The estimate of expected credit losses should consider historical information, current information, as well as reasonable and supportable forecasts, including estimates of prepayments. The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

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

Intangibles - Goodwill and Other

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

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

The Company adopted this guidance in first quarter 2020. The adoption of this guidance in 2020 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 was recently changed and the delayed effective date is now for reporting periods beginning after December 15, 2023. Early adoption is permitted. With respect to the liability for future policyholder benefits for traditional and limited-payment contracts and deferred acquisition costs, an insurance entity may elect to apply the amendments retrospectively as of the beginning of the earliest period presented.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

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

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 updated guidance is effective for the quarter ending March 31, 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments

Investments in fixed maturity and preferred stock available-for-sale and equity securities as of June 30, 2020 and December 31, 2019 are summarized as follows:

			Gross		Gross
	Amortized Cost		Unrealized		Unrealized		Fair
	or Cost		Gains		Losses		Value
	June 30, 2020 (Unaudited)
Fixed maturity securities
U.S. government and U.S. government agencies	$	575,171	$	4,671	$	-	$	579,842
States and political subdivisions		9,299,232		758,439		38,152		10,019,519
Residential mortgage-backed securities		17,598		17,520		-		35,118
Corporate bonds		112,695,301		12,810,803		944,851		124,561,253
Asset-backed securities		2,074,459		28,530		191,755		1,911,234
Exchange traded securities		500,000		-		115,200		384,800
Foreign bonds		30,905,113		3,317,832		1,064,322		33,158,623
Certificate of deposits		800,000		-		-		800,000
Total fixed maturity securities		156,866,874		16,937,795		2,354,280		171,450,389

Preferred stock		49,945		495		-		50,440

Equity securities
Mutual funds		91,981		-		12,770		79,211
Corporate common stock		86,243		7,548		-		93,791
Total equity securities		178,224		7,548		12,770		173,002
Total fixed maturity, preferred stock and equity securities	$	157,095,043	$	16,945,838	$	2,367,050	$	171,673,831

	December 31, 2019
Fixed maturity securities
U.S. government and U.S. government agencies	$	1,679,731	$	431	$	11,129	$	1,669,033
States and political subdivisions		9,536,120		617,063		2,252		10,150,931
Residential mortgage-backed securities		20,289		22,167		-		42,456
Corporate bonds		121,143,923		9,528,168		144,337		130,527,754
Asset-backed securities		2,116,056		68,395		-		2,184,451
Exchange traded securities		500,000		48,400		-		548,400
Foreign bonds		31,764,329		2,427,523		363,553		33,828,299
Total fixed maturity securities		166,760,448		12,712,147		521,271		178,951,324

Preferred stock		49,945		1,955		-		51,900

Equity securities
Mutual funds		91,981		-		2,629		89,352
Corporate common stock		88,213		23,459		-		111,672
Total equity securities		180,194		23,459		2,629		201,024
Total fixed maturity, preferred stock and equity securities	$	166,990,587	$	12,737,561	$	523,900	$	179,204,248

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments (continued)

All securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of June 30, 2020 and December 31, 2019 are summarized as follows:

			Unrealized		Number of
	Fair Value		Loss		Securities
	June 30, 2020 (Unaudited)
Fixed maturity securities
Less than 12 months in an unrealized loss position
States and political subdivisions	$	622,488	$	38,152		1
Corporate bonds		8,338,880		622,600		27
Asset-backed securities		925,147		191,755		3
Exchange traded securities		384,800		115,200		2
Foreign bonds		3,135,319		228,743		8
Total less than 12 months in an unrealized loss position		13,406,634		1,196,450		41
More than 12 months in an unrealized loss position
Corporate bonds		1,359,685		322,251		6
Foreign bonds		587,385		835,579		4
Total more than 12 months in an unrealized loss position		1,947,070		1,157,830		10
Total fixed maturity securities in an unrealized loss position		15,353,704		2,354,280		51
Equity securities (mutual funds), less than 12 months in an unrealized loss position		79,211		12,770		1
Total fixed maturity, preferred stock and equity securities in an unrealized loss position	$	15,432,915	$	2,367,050	$	52

	December 31, 2019
Fixed maturity securities
Less than 12 months in an unrealized loss position
U.S. government and U.S. government agencies	$	1,097,626	$	6,841		3
States and political subdivisions		103,007		2,252		1
Corporate bonds		3,049,765		59,915		7
Foreign bonds		345,243		7,857		1
Total less than 12 months in an unrealized loss position		4,595,641		76,865		12
More than 12 months in an unrealized loss position
U.S. government and U.S. government agencies		445,943		4,288		2
Corporate bonds		1,245,410		84,422		6
Foreign bonds		1,070,459		355,696		4
Total more than 12 months in an unrealized loss position		2,761,812		444,406		12
Total fixed maturity securities in an unrealized loss position		7,357,453		521,271		24
Equity securities (mutual funds), greater than 12 months in an unrealized loss position		89,352		2,629		1
Total fixed maturity, preferred stock and equity securities in an unrealized loss position	$	7,446,805	$	523,900	$	25

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments (continued)

As of June 30, 2020, the Company held 51 available-for-sale fixed maturity securities with an unrealized loss of $2,354,280, fair value of $15,353,704 and amortized cost of $17,707,984. These unrealized losses were primarily due to the market interest rate movements in the bond market as of June 30, 2020. The ratio of the fair value to the amortized cost of these 51 securities is 87%.

As of December 31, 2019, the Company held 24 available-for-sale fixed maturity securities with an unrealized loss of $521,271, fair value of $7,357,453 and amortized cost of $7,878,724. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2019. The ratio of the fair value to the amortized cost of these 24 securities is 93%.

As of June 30, 2020, the Company held one equity security with an unrealized loss of $12,770, fair value of $79,211 and cost of $91,981. The ratio of fair value to cost of this security is 86%.

As of December 31, 2019, the Company held one equity security with an unrealized loss of $2,629, fair value of $89,352 and cost of $91,981. The ratio of fair value to cost of this security is 97%.

Fixed maturity securities were 96% and 97% investment grade as rated by Standard & Poor’s as of June 30, 2020 and December 31, 2019, respectively.

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

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

There were no impairments during the six months ended June 30, 2020 and 2019.

Management believes that the Company will fully recover its cost basis in the securities held as of June 30, 2020, 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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments (continued)

Net unrealized gains included in other comprehensive income for investments classified as available-for-sale, net of the effect of deferred income taxes and deferred acquisition costs assuming that the appreciation had been realized as of June 30, 2020 and December 31, 2019, are summarized as follows:

	(Unaudited)
	June 30, 2020			December 31, 2019
Unrealized appreciation on available-for-sale securities	$	14,584,010		$	12,192,831
Adjustment to deferred acquisition costs		(29,662	)		(19,844	)
Deferred income taxes		(3,056,413	)		(2,556,327	)
Net unrealized appreciation on available-for-sale securities	$	11,497,935		$	9,616,660

The Company’s investment in lottery prize cash flows categorized as other long-term investments in the statement of financial position was $72,877,350 and $71,824,480 as of June 30, 2020 and December 31, 2019, respectively. The lottery prize cash flows are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries.

The amortized cost and fair value of fixed maturity available-for-sale securities and other long-term investments as of June 30, 2020, by contractual maturity, are summarized as follows:

	June 30, 2020 (Unaudited)
	Fixed Maturity Available-For-Sale Securities				Other Long-Term Investments
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	1,799,108	$	1,819,722	$	11,819,627	$	12,064,365
Due after one year through five years		27,314,876		27,386,769		35,214,992		39,984,521
Due after five years through ten years		50,079,887		54,170,957		18,710,987		25,285,290
Due after ten years		59,487,350		67,594,322		7,131,744		13,875,106
Due at multiple maturity dates		18,185,653		20,478,619		-		-
	$	156,866,874	$	171,450,389	$	72,877,350	$	91,209,282

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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments (continued)

Proceeds and gross realized gains (losses) from the sales, calls and maturities of fixed maturity securities available-for-sale, equity securities, investment real estate and mortgage loans on real estate for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30, (Unaudited)
	Fixed Maturity Securities						Equity Securities				Investment Real Estate					Mortgage Loans on Real Estate
	2020			2019			2020		2019		2020		2019			2020		2019
Proceeds	$	6,162,777		$	14,728,067		$	-	$	19,370	$	682,945	$	253,564		$	18,649,805	$	-
Gross realized gains		281,178			227,024			-		12,372		33,696		5,158			108,099		-
Gross realized losses		(24,958	)		(257,937	)		-		-		-		(46,378	)		-		-

	Six Months Ended June 30, (Unaudited)
	Fixed Maturity Securities						Equity Securities				Investment Real Estate					Mortgage Loans on Real Estate
	2020			2019			2020		2019		2020		2019			2020		2019
Proceeds	$	11,713,764		$	18,127,913		$	-	$	19,370	$	682,945	$	253,564		$	32,894,590	$	-
Gross realized gains		346,487			271,579			-		12,372		33,696		5,158			108,099		-
Gross realized losses		(28,348	)		(262,417	)		-		-		-		(46,378	)		-		-

The accumulated change in unrealized investment gains (losses) for fixed maturity and preferred stock available-for-sale for the three and six months ended June 30, 2020 and 2019 and the amount of net realized investment gains (losses) on fixed maturity securities available-for-sale, equity securities, investment real estate and mortgage loans on real estate for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30, (Unaudited)					Six Months Ended June 30, (Unaudited)
	2020		2019			2020			2019
Change in unrealized investment gains (losses):
Available-for-sale securities:
Fixed maturity securities	$	15,623,530	$	6,525,157		$	2,392,639		$	11,602,512
Preferred stock		840		80			(1,460	)		9,900
Net realized investment gains (losses):
Available-for-sale securities:
Fixed maturity securities		256,220		(30,913	)		318,139			9,162
Equity securities, sale of securities		-		12,372			-			12,372
Equity securities, changes in fair value		12,365		(7,871	)		(26,052	)		5,774
Investment real estate		33,696		(41,220	)		33,696			(41,220	)
Mortgage loans on real estate		108,099		-			108,099			-

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments (continued)

Major categories of net investment income for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30, (Unaudited)						Six Months Ended June 30, (Unaudited)
	2020			2019			2020			2019
Fixed maturity securities	$	1,674,340		$	2,077,206		$	3,512,722		$	3,606,682
Preferred stock and equity securities		23,746			33,528			56,069			67,746
Other long-term investments		1,304,285			1,166,240			2,651,423			2,316,997
Mortgage loans		3,796,491			3,410,617			7,366,896			6,593,465
Policy loans		38,122			33,495			75,829			65,768
Real estate		68,681			67,514			137,363			131,810
Short-term and other investments		29,280			250,455			53,817			495,295
Gross investment income		6,934,945			7,039,055			13,854,119			13,277,763
Investment expenses		(1,058,872	)		(756,012	)		(1,708,203	)		(1,421,264	)
Net investment income	$	5,876,073		$	6,283,043		$	12,145,916		$	11,856,499

TLIC and FBLIC are required to hold assets on deposit with various state insurance departments for the benefit of policyholders and other special deposits in accordance with statutory rules and regulations. As of June 30, 2020 and December 31, 2019, these required deposits, included in investment assets, had amortized costs that totaled $4,540,543 and $4,434,662, respectively. As of June 30, 2020 and December 31, 2019, these required deposits had fair values that totaled $4,615,534 and $4,468,783, respectively.

The Company’s mortgage loans by property type as of June 30, 2020 and December 31, 2019 are summarized as follows:

	(Unaudited)
	June 30, 2020		December 31, 2019
Residential mortgage loans	$	153,801,921	$	150,002,865

Commercial mortgage loans by property type
Apartment		962,997		1,604,934
Industrial		1,067,772		1,619,250
Lodging		717,940		729,603
Office building		4,541,237		3,676,396
Retail		5,835,502		4,771,592
Total commercial mortgage loans by property type		13,125,448		12,401,775
Total mortgage loans	$	166,927,369	$	162,404,640

There were 25 loans with a remaining principal balance of $4,473,139 that were more than 90 days past due as of June 30, 2020. There were 23 loans with a remaining principal balance of $4,427,317 that were more than 90 days past due as of December 31, 2019.

There were no mortgage loans in default and in the foreclosure process as of June 30, 2020. There were $1,691,980 of mortgage loans in default and foreclosure as of December 31, 2019 and the Company estimates that it will not incur losses on these foreclosures due to the anticipated sales prices less disposal costs exceeding the carrying values of these foreclosed mortgage loans.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

2. Investments (continued)

The Company’s investment real estate as of June 30, 2020 and December 31, 2019 is summarized as follows:

	(Unaudited)
	June 30, 2020			December 31, 2019
Land - held for the production of income	$	213,160		$	213,160
Land - held for investment		745,155			745,155
Total land		958,315			958,315
Building - held for the production of income		2,267,557			2,267,557
Less - accumulated depreciation		(1,558,903	)		(1,486,159	)
Buildings net of accumulated depreciation		708,654			781,398
Residential real estate - held for sale		306,888			212,046
Total residential real estate		306,888			212,046
Investment real estate, net of accumulated depreciation	$	1,973,857		$	1,951,759

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

During 2020, the Company foreclosed on two residential mortgage loans of real estate totaling $744,091 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 $649,249. The Company recorded a gross realized investment gain on sale of $33,696 based on an aggregate sales price of $682,945.

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

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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(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, mortgage-backed securities, corporate bonds, asset-backed securities, exchange traded securities, foreign bonds and certificate of deposits.

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

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

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

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

3. Fair Value Measurements (continued)

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of June 30, 2020 and December 31, 2019 is summarized as follows:

	Level 1		Level 2		Level 3		Total
	June 30, 2020 (Unaudited)
Fixed maturity securities, available-for-sale
U.S. government and U.S. government agencies	$	-	$	579,842	$	-	$	579,842
States and political subdivisions		-		10,019,519		-		10,019,519
Residential mortgage-backed securities		-		35,118		-		35,118
Corporate bonds		-		124,561,253		-		124,561,253
Asset-backed securities		-		1,911,234		-		1,911,234
Exchange traded securities		-		384,800		-		384,800
Foreign bonds		-		33,158,623		-		33,158,623
Certificate of deposits		-		800,000		-		800,000
Total fixed maturity securities	$	-	$	171,450,389	$	-	$	171,450,389

Preferred stock, available-for-sale	$	50,440	$	-	$	-	$	50,440

Equity securities
Mutual funds	$	-	$	79,211	$	-	$	79,211
Corporate common stock		31,654		-		62,137		93,791
Total equity securities	$	31,654	$	79,211	$	62,137	$	173,002

	December 31, 2019
Fixed maturity securities, available-for-sale
U.S. government and U.S. government agencies	$	-	$	1,669,033	$	-	$	1,669,033
States and political subdivisions		-		10,150,931		-		10,150,931
Residential mortgage-backed securities		-		42,456		-		42,456
Corporate bonds		-		130,527,754		-		130,527,754
Asset-backed securities		-		2,184,451		-		2,184,451
Exchange traded securities		-		548,400		-		548,400
Foreign bonds		-		33,828,299		-		33,828,299
Total fixed maturity securities	$	-	$	178,951,324	$	-	$	178,951,324

Preferred stock, available-for-sale	$	51,900	$	-	$	-	$	51,900

Equity securities
Mutual funds	$	-	$	89,352	$	-	$	89,352
Corporate common stock		47,565		-		64,107		111,672
Total equity securities	$	47,565	$	89,352	$	64,107	$	201,024

As of June 30, 2020 and December 31, 2019, 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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

3. Fair Value Measurements (continued)

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

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

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

The Company’s fixed maturity and preferred stock available-for-sale 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 six months ended June 30, 2020 and 2019 is summarized as follows:

	Unaudited
	Six Months Ended June 30,
	2020			2019

Beginning balance	$	64,107		$	64,036
Joint venture net income		47,963			57,746
Joint venture distribution		(49,933	)		(53,786	)
Ending balance	$	62,137		$	67,996

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

3. Fair Value Measurements (continued)

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of June 30, 2020 and December 31, 2019, and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:

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

	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
	June 30, 2020 (Unaudited)
Financial assets
Mortgage loans on real estate
Commercial and Industrial	$	13,125,448	$	13,257,361	$	-	$	-	$	13,257,361
Residential		153,801,921		170,269,217		-		-		170,269,217
Policy loans		2,044,954		2,044,954		-		-		2,044,954
Short-term investments		2,949,229		2,949,229		2,949,229		-		-
Other long-term investments		72,877,350		91,209,282		-		-		91,209,282
Cash and cash equivalents		17,051,412		17,051,412		17,051,412		-		-
Accrued investment income		5,475,458		5,475,458		-		-		5,475,458
Total financial assets	$	267,325,772	$	302,256,913	$	20,000,641	$	-	$	282,256,272
Financial liabilities
Policyholders' account balances	$	358,137,860	$	382,256,280	$	-	$	-	$	382,256,280
Policy claims		1,267,125		1,267,125		-		-		1,267,125
Total financial liabilities	$	359,404,985	$	383,523,405	$	-	$	-	$	383,523,405

	December 31, 2019
Financial assets
Mortgage loans on real estate
Commercial	$	12,401,775	$	12,280,704	$	-	$	-	$	12,280,704
Residential		150,002,865		152,443,349		-		-		152,443,349
Policy loans		2,026,301		2,026,301		-		-		2,026,301
Short-term investments		1,831,087		1,831,087		1,831,087		-		-
Other long-term investments		71,824,480		88,235,019		-		-		88,235,019
Cash and cash equivalents		23,212,170		23,212,170		23,212,170		-		-
Accrued investment income		5,207,823		5,207,823		-		-		5,207,823
Total financial assets	$	266,506,501	$	285,236,453	$	25,043,257	$	-	$	260,193,196
Financial liabilities
Policyholders' account balances	$	363,083,838	$	355,557,123	$	-	$	-	$	355,557,123
Policy claims		1,399,393		1,399,393		-		-		1,399,393
Total financial liabilities	$	364,483,231	$	356,956,516	$	-	$	-	$	356,956,516

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(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 and Equity Securities

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

Mortgage Loans on Real Estate

The fair values for mortgage loans are estimated using discounted cash flow analyses. For residential mortgage loans, the discount rate used was indexed to the LIBOR yield curve adjusted for an appropriate credit spread. For commercial (includes apartment, industrial, lodging, office building and retail) mortgage loans, the discount rate used was assumed to be the interest rate on the last commercial mortgage acquired by the Company.

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.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

4. Segment Data

The Company has a life insurance segment, consisting of the life insurance operations of TLIC and FBLIC, an annuity segment, consisting of the annuity operations of TLIC and FBLIC and a corporate segment. Results for the parent company and the operations of FTCC, after elimination of intercompany amounts, are allocated to the corporate segment. These segments as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30, (Unaudited)					Six Months Ended June 30, (Unaudited)
	2020			2019		2020			2019
Revenues:
Life insurance operations	$	7,517,213		$	6,492,824	$	14,842,681		$	12,963,871
Annuity operations		5,129,076			5,710,825		10,349,328			10,680,857
Corporate operations		191,790			174,742		329,576			358,363
Total	$	12,838,079		$	12,378,391	$	25,521,585		$	24,003,091

Income (loss) before income taxes:
Life insurance operations	$	(400,643	)	$	66,906	$	(336,239	)	$	264,465
Annuity operations		799,259			1,246,058		1,711,177			2,748,670
Corporate operations		212,767			154,627		252,829			256,548
Total	$	611,383		$	1,467,591	$	1,627,767		$	3,269,683

Depreciation and amortization expense:
Life insurance operations	$	1,151,910		$	701,973	$	2,184,297		$	1,532,434
Annuity operations		286,567			492,992		588,917			552,156
Total	$	1,438,477		$	1,194,965	$	2,773,214		$	2,084,590

	(Unaudited)
Assets:	June 30, 2020		December 31, 2019
Life insurance operations	$	108,033,765	$	99,612,420
Annuity operations		499,686,857		500,738,949
Corporate operations		4,472,101		4,585,005
Total	$	612,192,723	$	604,936,374

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. The 2016 through 2019 U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(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"), concluded on February 17, 2017. The lawsuit was filed in the District Court of Tulsa County, Oklahoma (Case No. CJ-2013-03385). In the lawsuit, the Company alleged that Mr. Pettigrew had defamed the Company by making untrue statements to certain shareholders of the Company, to the press and to regulators of the state of Oklahoma and had breached his fiduciary duties. Mr. Pettigrew denied the allegations.

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

Mr. Pettigrew appealed this decision. On February 28, 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, is not final. The Company has 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 2013, the Company’s Board of Directors, represented by independent counsel, concluded that there was no action to be taken against Mr. Zahn and that the allegations by Mr. Pettigrew were without substance. The Company was also informed back in 2013 by the Oklahoma Insurance Department that it would take no action and was also informed in 2013 that the Oklahoma Department of Securities, after its investigation of the allegations, concluded that no proceedings were needed with respect to the alleged matters. It remains the Company’s intention to again vigorously prosecute this action against the Defendants for damages and for correction of the defamatory statements. In the opinion of the Company’s management, the ultimate resolution of any contingencies that may arise from this litigation is not considered material in relation to the financial position or results of operations of the Company.

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

7. Line of Credit

On November 8, 2019, 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, 2020. 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 5%. No amounts were outstanding on this line of credit as of June 30, 2020 and December 31, 2019.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

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

The changes in the components of the Company’s accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30, 2020 and 2019 (Unaudited)
	Unrealized
	Appreciation						Accumulated
	(Depreciation) on			Adjustment to			Other
	Available-For-Sale			Deferred Acquisition			Comprehensive
	Securities			Costs			Income (Loss)
Balance as of April 1, 2020	$	(821,898	)	$	1,602		$	(820,296	)
Other comprehensive income before reclassifications, net of tax		12,545,666			(25,021	)		12,520,645
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		202,414			-			202,414
Other comprehensive income		12,343,252			(25,021	)		12,318,231
Balance as of June 30, 2020	$	11,521,354		$	(23,419	)	$	11,497,935

Balance as of April 1, 2019	$	1,434,225		$	(1,862	)	$	1,432,363
Other comprehensive income before reclassifications, net of tax		5,130,516			(8,372	)		5,122,144
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		(24,421	)		-			(24,421	)
Other comprehensive income		5,154,937			(8,372	)		5,146,565
Balance as of June 30, 2019	$	6,589,162		$	(10,234	)	$	6,578,928

	Six Months Ended June 30, 2020 and 2019 (Unaudited)
	Unrealized
	Appreciation						Accumulated
	(Depreciation) on			Adjustment to			Other
	Available-For-Sale			Deferred Acquisition			Comprehensive
	Securities			Costs			Income (Loss)
Balance as of January 1, 2020	$	9,632,323		$	(15,663	)	$	9,616,660
Other comprehensive income before reclassifications, net of tax		2,140,361			(7,756	)		2,132,605
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		251,330			-			251,330
Other comprehensive income		1,889,031			(7,756	)		1,881,275
Balance as of June 30, 2020	$	11,521,354		$	(23,419	)	$	11,497,935

Balance as of January 1, 2019	$	(2,584,643	)	$	8,012		$	(2,576,631	)
Other comprehensive income before reclassifications, net of tax		9,181,043			(18,246	)		9,162,797
Less amounts reclassified from accumulated other comprehensive income having no credit losses, net of tax		7,238			-			7,238
Other comprehensive income		9,173,805			(18,246	)		9,155,559
Balance as of June 30, 2019	$	6,589,162		$	(10,234	)	$	6,578,928

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

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

The pretax components of the Company’s other comprehensive income and the related income tax expense (benefit) for each component for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 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	$	15,880,590		$	3,334,924		$	12,545,666
Reclassification adjustment for net gains included in operations having no credit losses		256,220			53,806			202,414
Net unrealized gains on investments		15,624,370			3,281,118			12,343,252
Adjustment to deferred acquisition costs		(31,673	)		(6,652	)		(25,021	)
Total other comprehensive income	$	15,592,697		$	3,274,466		$	12,318,231

	Three Months Ended June 30, 2019 (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	$	6,494,324		$	1,363,808		$	5,130,516
Reclassification adjustment for net losses included in operations having no credit losses		(30,913	)		(6,492	)		(24,421	)
Net unrealized gains on investments		6,525,237			1,370,300			5,154,937
Adjustment to deferred acquisition costs		(10,599	)		(2,227	)		(8,372	)
Total other comprehensive income	$	6,514,638		$	1,368,073		$	5,146,565

	Six Months Ended June 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	$	2,709,318		$	568,957		$	2,140,361
Reclassification adjustment for net gains included in operations having no credit losses		318,139			66,809			251,330
Net unrealized gains on investments		2,391,179			502,148			1,889,031
Adjustment to deferred acquisition costs		(9,818	)		(2,062	)		(7,756	)
Total other comprehensive income	$	2,381,361		$	500,086		$	1,881,275

	Six Months Ended June 30, 2019 (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	$	11,621,574		$	2,440,531		$	9,181,043
Reclassification adjustment for net gains included in operations having no credit losses		9,162			1,924			7,238
Net unrealized gains on investments		11,612,412			2,438,607			9,173,805
Adjustment to deferred acquisition costs		(23,096	)		(4,850	)		(18,246	)
Total other comprehensive income	$	11,589,316		$	2,433,757		$	9,155,559

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

8. Other Comprehensive Income 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 to the Company’s consolidated statement of operations for the three and six months ended June 30, 2020 and 2019 are summarized as follows:

	Three Months Ended June 30, (Unaudited)					Six Months Ended June 30, (Unaudited)
Reclassification Adjustments	2020		2019			2020		2019
Unrealized gains (losses) on available-for-sale securities having no credit losses:
Realized gains (losses) on sales of securities (a)	$	256,220	$	(30,913	)	$	318,139	$	9,162
Income tax expense (benefit) (b)		53,806		(6,492	)		66,809		1,924
Total reclassification adjustments	$	202,414	$	(24,421	)	$	251,330	$	7,238

(a) These items appear within net realized investment gains (losses) in the consolidated statements of operations.
(b) These items appear within federal income taxes in the consolidated statements of operations.

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

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

While the Company utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including the performance of the mortgage loan portfolio, the economy and changes in interest rates. The Company’s allowance for possible mortgage loan losses consists of specific valuation allowances established for probable losses on specific loans and a portfolio reserve for probable incurred but not specifically identified loans.

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

The Company determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the mortgage loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis.

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

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

As of June 30, 2020, $765,472 of independent residential mortgage loans on real estate is held in escrow by a third party for the benefit of the Company. As of June 30, 2020, $437,986 of that escrow amount is available to the Company as additional collateral on $5,057,229 of advances to the loan originator. The remaining June 30, 2020 escrow amount of $327,486 is available to the Company as additional collateral on its investment of $65,497,241 in residential mortgage loans on real estate. In addition, the Company has an additional $509,447 allowance for possible loan losses in the remaining $101,430,128 of investments in mortgage loans on real estate as of June 30, 2020.

As of December 31, 2019, $798,753 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, 2019, $489,965 of that escrow amount is available to the Company as additional collateral on $4,436,787 of advances to the loan originator. The remaining December 31, 2019 escrow amount of $308,788 is available to the Company as additional collateral on its investment of $61,757,602 in residential mortgage loans on real estate. In addition, the Company has an additional $505,378 allowance for possible loan losses in the remaining $100,647,038 of investments in mortgage loans on real estate as of December 31, 2019.

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 six months ended June 30, 2020 and 2019 are summarized as follows (excluding $65,497,241 and $53,517,364 of mortgage loans on real estate as of June 30, 2020 and 2019, 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 June 30,
	Residential Mortgage Loans				Commercial Mortgage Loans					Total
	2020		2019		2020			2019		2020		2019
Allowance, beginning	$	435,413	$	405,548	$	68,105		$	51,835	$	503,518	$	457,383
Charge offs		-		-		-			-		-		-
Recoveries		-		-		-			-		-		-
Provision		8,077		52,112		(2,148	)		606		5,929		52,718
Allowance, ending	$	443,490	$	457,660	$	65,957		$	52,441	$	509,447	$	510,101

Allowance, ending:
Individually evaluated for impairment	$	-	$	-	$	-		$	-	$	-	$	-
Collectively evaluated for impairment	$	443,490	$	457,660	$	65,957		$	52,441	$	509,447	$	510,101

Carrying Values:
Individually evaluated for impairment	$	-	$	-	$	-		$	-	$	-	$	-
Collectively evaluated for impairment	$	88,304,680	$	91,869,967	$	13,125,448		$	10,435,811	$	101,430,128	$	102,305,778

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(Unaudited)

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

	(Unaudited)
	Six Months Ended June 30,
	Residential Mortgage Loans				Commercial Mortgage Loans				Total
	2020		2019		2020		2019		2020		2019
Allowance, beginning	$	443,057	$	374,209	$	62,321	$	49,957	$	505,378	$	424,166
Charge offs		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-
Provision		433		83,451		3,636		2,484		4,069		85,935
Allowance, ending	$	443,490	$	457,660	$	65,957	$	52,441	$	509,447	$	510,101

Allowance, ending:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment	$	443,490	$	457,660	$	65,957	$	52,441	$	509,447	$	510,101

Carrying Values:
Individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-
Collectively evaluated for impairment	$	88,304,680	$	91,869,967	$	13,125,448	$	10,435,811	$	101,430,128	$	102,305,778

The Company utilizes the ratio of the carrying value of individual mortgage loans compared to the individual appraisal value to evaluate the credit quality of its mortgage loans on real estate (commonly referred to as the loan-to-value ratio). The Company’s residential and commercial and industrial mortgage loans on real estate by credit quality using this ratio as of June 30, 2020 and December 31, 2019 are summarized as follows:

	Residential Mortgage Loans				Commercial Mortgage Loans				Total Mortgage Loans
	(Unaudited)				(Unaudited)				(Unaudited)
Loan-To-Value Ratio	June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019		June 30, 2020		December 31, 2019
Over 70% to 80%	$	46,066,696	$	42,607,615	$	-	$	274,954	$	46,066,696	$	42,882,569
Over 60% to 70%		50,684,896		50,158,843		1,885,481		2,320,734		52,570,377		52,479,577
Over 50% to 60%		27,024,214		28,939,576		2,323,235		1,318,536		29,347,449		30,258,112
Over 40% to 50%		13,580,548		13,160,306		1,769,145		2,142,354		15,349,693		15,302,660
Over 30% to 40%		8,967,763		8,023,690		1,192,441		1,800,952		10,160,204		9,824,642
Over 20% to 30%		3,976,033		3,806,361		2,818,921		1,235,799		6,794,954		5,042,160
Over 10% to 20%		2,631,614		2,677,037		3,099,834		3,308,446		5,731,448		5,985,483
10% or less		870,157		629,437		36,391		-		906,548		629,437
Total	$	153,801,921	$	150,002,865	$	13,125,448	$	12,401,775	$	166,927,369	$	162,404,640

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2020

(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 with a corresponding funds withheld liability recorded. In addition, the assuming company maintains a trust related to this ceded business amounting to at least an additional 4% of assets above the required 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.

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.

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.

On October 2, 2019, at the Company Annual Shareholders’ Meeting, FTFC’s shareholders approved the following proposals subject to regulatory approval and adoption by FTFC’s Board of Directors:

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.

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

Critical Accounting Policies and Estimates

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

For a description of the Company’s critical accounting policies and estimates, please refer to “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The Company considers its most critical accounting estimates to be those applied to investments in fixed maturities, mortgage loans on real estate, deferred policy acquisition costs, value of insurance business acquired and future policy benefits. There have been no material changes to the Company’s critical accounting policies and estimates since December 31, 2019.

Recent Accounting Pronouncements

Leases

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

Intangibles - Goodwill and Other

Targeted Improvements to the Accounting for Long-Duration Contracts

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 in 2020 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

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 and FBLIC;

●

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

●

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

Please see below and Note 4 to the Consolidated Financial Statements for the three and six months ended June 30, 2020 and 2019 and as of June 30, 2020 and December 31, 2019 for additional information regarding segment information.

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

FINANCIAL HIGHLIGHTS

Consolidated Condensed Results of Operations for the Three Months Ended June 30, 2020 and 2019

	(Unaudited)
	Three Months Ended June 30,					Amount Change
	2020		2019			2020 less 2019
Premiums	$	6,439,224	$	5,546,081		$	893,143
Net investment income		5,876,073		6,283,043			(406,970	)
Net realized investment gains (losses)		410,380		(67,632	)		478,012
Service fees		7,025		593,144			(586,119	)
Other income		105,377		23,755			81,622
Total revenues		12,838,079		12,378,391			459,688
Benefits and claims		8,305,609		6,836,230			1,469,379
Expenses		3,921,087		4,074,570			(153,483	)
Total benefits, claims and expenses		12,226,696		10,910,800			1,315,896
Income before federal income tax expense		611,383		1,467,591			(856,208	)
Federal income tax expense		137,787		334,025			(196,238	)
Net income	$	473,596	$	1,133,566		$	(659,970	)
Net income per common share basic and duluted
Class A common stock	$	0.0601	$	0.1453		$	(0.0852	)
Class B common stock	$	0.0095	$	-		$	0.0095

Consolidated Condensed Results of Operations for the Six Months Ended June 30, 2020 and 2019

	(Unaudited)
	Six Months Ended June 30,					Amount Change
	2020		2019			2020 less 2019
Premiums	$	12,805,100	$	11,076,887		$	1,728,213
Net investment income		12,145,916		11,856,499			289,417
Net realized investment gains (losses)		433,882		(13,912	)		447,794
Service fees		17,896		1,020,878			(1,002,982	)
Other income		118,791		62,739			56,052
Total revenues		25,521,585		24,003,091			1,518,494
Benefits and claims		16,114,816		13,590,358			2,524,458
Expenses		7,779,002		7,143,050			635,952
Total benefits, claims and expenses		23,893,818		20,733,408			3,160,410
Income before federal income tax expense		1,627,767		3,269,683			(1,641,916	)
Federal income tax expense		364,915		713,921			(349,006	)
Net income	$	1,262,852	$	2,555,762		$	(1,292,910	)
Net income per common share basic and duluted
Class A common stock	$	0.1594	$	0.3276		$	(0.1682	)
Class B common stock	$	0.0938	$	-		$	0.0938

Consolidated Condensed Financial Position as of June 30, 2020 and December 31, 2019

	(Unaudited)				Amount Change
	June 30, 2020		December 31, 2019		2020 to 2019


Investment assets	$	418,446,590	$	419,242,515	$	(795,925	)
Assets held in trust under coinsurance agreement		107,548,422		105,089,240		2,459,182
Other assets		86,197,711		80,604,619		5,593,092
Total assets	$	612,192,723	$	604,936,374	$	7,256,349

Policy liabilities	$	429,784,998	$	429,631,596	$	153,402
Funds withheld under coinsurance agreement		108,073,060		105,638,974		2,434,086
Deferred federal income taxes		7,210,919		6,345,918		865,001
Other liabilities		5,199,851		5,901,624		(701,773	)
Total liabilities		550,268,828		547,518,112		2,750,716
Shareholders' equity		61,923,895		57,418,262		4,505,633
Total liabilities and shareholders' equity	$	612,192,723	$	604,936,374	$	7,256,349

Shareholders' equity per common share
Class A common stock	$	7.7835	$	7.3589	$	0.4246
Class B common stock	$	6.6160	$	-	$	6.6160

Results of Operations – Three Months Ended June 30, 2020 and 2019

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 June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,					Amount Change
	2020		2019			2020 less 2019
Premiums	$	6,439,224	$	5,546,081		$	893,143
Net investment income		5,876,073		6,283,043			(406,970	)
Net realized investment gains (losses)		410,380		(67,632	)		478,012
Service fees		7,025		593,144			(586,119	)
Other income		105,377		23,755			81,622
Total revenues	$	12,838,079	$	12,378,391		$	459,688

The $459,688 increase in total revenues for the three months ended June 30, 2020 is discussed below.

Premiums

Our premiums for the three months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,				Amount Change
	2020		2019		2020 less 2019
Ordinary life first year	$	258,661	$	358,636	$	(99,975	)
Ordinary life renewal		585,148		488,446		96,702
Final expense first year		1,351,060		1,177,340		173,720
Final expense renewal		4,244,355		3,521,659		722,696
Total premiums	$	6,439,224	$	5,546,081	$	893,143

The $893,143 increase in premiums for the three months ended June 30, 2020 is primarily due to a $722,696 increase in final expense renewal premiums and a $173,720 increase 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 final expense first year premiums represents management’s focus on expanding final expense production by contracting new, independent agents in expanded locations.

Net Investment Income

The major components of our net investment income for the three months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Fixed maturity securities	$	1,674,340		$	2,077,206		$	(402,866	)
Preferred stock and equity securities		23,746			33,528			(9,782	)
Other long-term investments		1,304,285			1,166,240			138,045
Mortgage loans		3,796,491			3,410,617			385,874
Policy loans		38,122			33,495			4,627
Real estate		68,681			67,514			1,167
Short-term and other investments		29,280			250,455			(221,175	)
Gross investment income		6,934,945			7,039,055			(104,110	)
Investment expenses		(1,058,872	)		(756,012	)		302,860
Net investment income	$	5,876,073		$	6,283,043		$	(406,970	)

The $104,110 decrease in gross investment income for the three months ended June 30, 2020 is primarily due to decreases in investments in fixed maturity securities that exceeded increases in investments in mortgage loans and other long-term investments. In the twelve months since June 30, 2019, the amortized cost of our investments in fixed maturity securities decreased by approximately $23.8 million, investment in mortgage loans increased approximately $11.1 million and other long term investments increased approximately $8.1 million. Short-term and other investments were sold to invest in mortgage loans and other long-term investments.

The $302,860 increase in investment expense for the three months ended June 30, 2020 is primarily related to increased staffing and increased system development expenses for future expansion of mortgage loan operations into originations, portfolio management and servicing.

Net Realized Investment Gains

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

Our net realized investment gains (losses) for the three months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,					Amount Change
	2020		2019			2020 less 2019
Fixed maturity securities available-for-sale:
Sale proceeds	$	6,162,777	$	14,728,067		$	(8,565,290	)
Amortized cost at sale date		5,906,557		14,758,980			(8,852,423	)
Net realized gains (losses)	$	256,220	$	(30,913	)	$	287,133
Equity securities sold:
Sale proceeds	$	-	$	19,370		$	(19,370	)
Cost at sale date		-		6,998			(6,998	)
Net realized gains	$	-	$	12,372		$	(12,372	)
Investment real estate:
Sale proceeds	$	682,945	$	253,564		$	429,381
Carrying value at sale date		649,249		294,784			354,465
Net realized gains (losses)	$	33,696	$	(41,220	)	$	74,916

Mortgage loans on real estate:
Sale proceeds	$	18,649,805	$	-		$	18,649,805
Carrying value at sale date		18,541,706		-			18,541,706
Net realized gains	$	108,099	$	-		$	108,099

Equity securities, changes in fair value	$	12,365	$	(7,871	)	$	20,236

Net realized investment gains (losses)	$	410,380	$	(67,632	)	$	478,012

Service Fees

The $586,119 decrease in service fees for the three months ended June 30, 2020 is primarily due to decreased TLIC annuity production resulting in the reduction of ceding fees associated with TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company.

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 June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Benefits and claims
Increase in future policy benefits	$	2,467,039		$	2,029,177		$	437,862
Death benefits		2,482,528			1,474,125			1,008,403
Surrenders		228,541			246,074			(17,533	)
Interest credited to policyholders		3,056,982			3,011,733			45,249
Dividend, endowment and supplementary life contract benefits		70,519			75,121			(4,602	)
Total benefits and claims		8,305,609			6,836,230			1,469,379
Expenses
Policy acquisition costs deferred		(2,693,003	)		(3,657,057	)		964,054
Amortization of deferred policy acquisition costs		1,307,138			1,077,534			229,604
Amortization of value of insurance business acquired		73,576			73,544			32
Commissions		2,497,928			3,723,265			(1,225,337	)
Other underwriting, insurance and acquisition expenses		2,735,448			2,857,284			(121,836	)
Total expenses		3,921,087			4,074,570			(153,483	)
Total benefits, claims and expenses	$	12,226,696		$	10,910,800		$	1,315,896

The $1,315,896 increase in total benefits, claims and expenses for the three months ended June 30, 2020 is discussed below.

Benefits and Claims

The $1,469,379 increase in benefits and claims for the three months ended June 30, 2020 is primarily due to the following:

●

$1,008,403 increase in death benefits is primarily due to approximately $707,000 of increased final expense benefits and $301,000 of increased ordinary life benefits.

●

$437,862 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

Deferral and Amortization of Deferred Acquisition Costs

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

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

For the three months ended June 30, 2020 and 2019, capitalized costs were $2,693,003 and $3,657,057, respectively. Amortization of deferred policy acquisition costs for the three months ended June 30, 2020 and 2019 were $1,307,138 and $1,077,534, respectively.

The $964,054 decrease in the 2020 acquisition costs deferred primarily relates to decreased annuity production and deferral of decreased eligible annuity commissions. There was a $229,604 increase in the 2020 amortization of deferred acquisition costs due to 2020 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 $73,576 and $73,544 for the three months ended June 30, 2020 and 2019, respectively, representing a $32 increase.

Commissions

Our commissions for the three months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,				Amount Change
	2020		2019		2020 less 2019
Annuity	$	109,897	$	1,572,151	$	(1,462,254	)
Ordinary life first year		331,610		386,659		(55,049	)
Ordinary life renewal		40,211		12,921		27,290
Final expense first year		1,605,951		1,404,303		201,648
Final expense renewal		410,259		347,231		63,028
Total commissions	$	2,497,928	$	3,723,265	$	(1,225,337	)

The $1,225,337 decrease in commissions for the three months ended June 30, 2020 is primarily due to a $1,462,254 decrease in annuity commissions that exceeded a $201,648 increase in final expense first year commissions that corresponded to a $39,699,323 decrease in retained annuity deposits and a $173,720 increase in final expense first year premiums.

Other Underwriting, Insurance and Acquisition Expenses

There was a slight decrease in underwriting, insurance and acquisition expenses for the three months ended June 30, 2020.

Federal Income Taxes

FTFC filed its 2018 consolidated federal income tax return with TLIC, FBLIC and FTCC. 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 June 30, 2020 and 2019, current income tax expense (benefit) was ($46,575) and $398,052, respectively. For the three months ended June 30, 2020 and 2019, deferred federal income tax expense (benefit) was $184,362 and ($64,027), respectively.

Net Income Per Common Share Basic and Diluted

For the three months ended June 30, 2020, the net income allocated to the Class B shareholders is the total net income less shareholders’ cash dividend multiplied by the right to receive dividends at 85% for Class B shares (97,332) as of the reporting date divided by the allocated total shares (7,954,283) of Class A shares (7,856,951) and Class B shares (97,332) as of the reporting date.

For the three months ended June 30, 2020, the net income allocated to the Class A shareholders is the total net income less the net income allocated to the Class B shareholders.

The weighted average outstanding common shares basic for the three months ended June 30, 2020 were 7,856,951 for Class A shares and 114,508 for Class B shares.

The weighted average outstanding common shares basic and diluted for the three months ended June 30, 2019 were 7,802,593.

Business Segments

The revenues and income before federal income taxes from our business segments for the three months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Three Months Ended June 30,					Amount Change
	2020			2019		2020 less 2019
Revenues:
Life insurance operations	$	7,517,213		$	6,492,824	$	1,024,389
Annuity operations		5,129,076			5,710,825		(581,749	)
Corporate operations		191,790			174,742		17,048
Total	$	12,838,079		$	12,378,391	$	459,688
Income (loss) before federal income taxes:
Life insurance operations	$	(400,643	)	$	66,906	$	(467,549	)
Annuity operations		799,259			1,246,058		(446,799	)
Corporate operations		212,767			154,627		58,140
Total	$	611,383		$	1,467,591	$	(856,208	)

Life Insurance Operations

The $1,024,389 increase in revenues from Life Insurance Operations for the three months ended June 30, 2020 is primarily due to the following:

●

$893,143 increase in premiums

●

$82,978 increase in net realized investment gains

●

$49,851 increase in net investment income

●

$1,583 decrease in service fees and other income

The $467,549 decreased profitability from Life Insurance Operations for the three months ended June 30, 2020 is primarily due to the following:

●

$1,008,403 increase in death benefits

●

$437,862 increase in future policy benefits

●

$236,917 increase in commissions

●

$1,583 decrease in service fees and other income

●

$16 increase in amortization of value of insurance business acquired

●

$4,602 decrease in dividend, endowment and supplementary life contract benefits

●

$17,533 decrease in surrenders

●

$49,851 increase in net investment income

●

$77,463 increase in policy acquisition costs deferred net of amortization

●

$82,978 increase in net realized investment gains

●

$91,662 decrease in other underwriting, insurance and acquisition expenses

●

$893,143 increase in premiums

Annuity Operations

The $581,749 decrease in revenues from Annuity Operations for the three months ended June 30, 2020 is due to the following:

●

$586,117 decrease in service fees and other income

●

$390,666 decrease in net investment income

●

$395,034 increase in net realized investment gains

The $446,799 decreased profitability from Annuity Operations for the three months ended June 30, 2020 is due to the following:

●

$1,271,121 decrease in policy acquisition costs deferred net of amortization

●

$586,117 decrease in service fees and other income

●

$390,666 decrease in net investment income

●

$45,249 increase in interest credited to policyholders

●

$10,918 increase in other underwriting, insurance and acquisition expenses

●

$16 increase in amortization of value of insurance business acquired

●

$395,034 increase in net realized investment gains

●

$1,462,254 decrease in commissions

Corporate Operations

The $17,048 increase in revenues from Corporate Operations for the three months ended June 30, 2020 is due to $83,203 of increased service fees and other income that exceeded $66,155 of decreased net investment income.

The $58,140 increase in Corporate Operations profitability for the three months ended June 30, 2020 is primarily due to $83,203 of increased service fees and other income and $41,092 of decreased operating expenses that exceeded $66,155 of decreased net investment income.

Results of Operations – Six Months Ended June 30, 2020 and 2019

Revenues

Our revenues for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,					Amount Change
	2020		2019			2020 less 2019
Premiums	$	12,805,100	$	11,076,887		$	1,728,213
Net investment income		12,145,916		11,856,499			289,417
Net realized investment gains (losses)		433,882		(13,912	)		447,794
Service fees		17,896		1,020,878			(1,002,982	)
Other income		118,791		62,739			56,052
Total revenues	$	25,521,585	$	24,003,091		$	1,518,494

The $1,518,494 increase in total revenues for the six months ended June 30, 2019 is discussed below.

Premiums

Our premiums for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,				Amount Change
	2020		2019		2020 less 2019
Ordinary life first year	$	695,907	$	703,521	$	(7,614	)
Ordinary life renewal		1,324,708		1,063,943		260,765
Final expense first year		2,550,112		2,341,646		208,466
Final expense renewal		8,234,373		6,840,286		1,394,087
Supplementary contracts with life contingencies		-		127,491		(127,491	)
Total premiums	$	12,805,100	$	11,076,887	$	1,728,213

The $1,728,213 increase in premiums for the six months ended June 30, 2020 is primarily due to the $1,394,087 increase in final expense renewal premiums, $260,765 increase in ordinary life renewal premiums and $208,466 increase in final expense first year premiums that exceeded $127,491 decrease in supplementary contracts with life contingencies.

The increase in final expense renewal premiums reflects the persistency of prior years’ final expense production. The increase in ordinary life renewal premiums primarily reflects ordinary life insurance policies sold in the international market that the Company started assuming in fourth quarter 2018. 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 decrease in supplementary contracts with life contingencies reflects policyholder decisions to receive future payment streams during their remaining life instead of a lump sum payment.

Net Investment Income

The major components of our net investment income for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Fixed maturity securities	$	3,512,722		$	3,606,682		$	(93,960	)
Preferred stock and equity securities		56,069			67,746			(11,677	)
Other long-term investments		2,651,423			2,316,997			334,426
Mortgage loans		7,366,896			6,593,465			773,431
Policy loans		75,829			65,768			10,061
Real estate		137,363			131,810			5,553
Short-term and other investments		53,817			495,295			(441,478	)
Gross investment income		13,854,119			13,277,763			576,356
Investment expenses		(1,708,203	)		(1,421,264	)		286,939
Net investment income	$	12,145,916		$	11,856,499		$	289,417

The $576,356 increase in gross investment income for the six months ended June 30, 2020 is primarily due to increases in investments in mortgage loans and other long-term investments. In the twelve months since June 30, 2019, our investments in mortgage loans have increased approximately $11.1 million and other long term investments have increased approximately $8.1 million. Short-term and other investments were also sold to invest in mortgage loans and other long-term investments to achieve higher investment yields.

The $286,939 increase in investment expense for the six months ended June 30, 2020 is primarily related to increased staffing and increased system development expenses for future expansion of mortgage loan operations into originations, portfolio management and servicing.

Net Realized Investment Gains

Our net realized investment gains (losses) for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Fixed maturity securities available-for-sale:
Sale proceeds	$	11,713,764		$	18,127,913		$	(6,414,149	)
Amortized cost at sale date		11,395,625			18,118,751			(6,723,126	)
Net realized gains	$	318,139		$	9,162		$	308,977
Equity securities sold:
Sale proceeds	$	-		$	19,370		$	(19,370	)
Cost at sale date		-			6,998			(6,998	)
Net realized gains	$	-		$	12,372		$	(12,372	)
Investment real estate:
Sale proceeds	$	682,945		$	253,564		$	429,381
Carrying value at sale date		649,249			294,784			354,465
Net realized gains (losses)	$	33,696		$	(41,220	)	$	74,916
Mortgage loans on real estate:
Sale proceeds	$	32,894,590		$	-		$	32,894,590
Carrying value at sale date		32,786,491			-			32,786,491
Net realized gains	$	108,099		$	-		$	108,099
Equity securities, changes in fair value	$	(26,052	)	$	5,774		$	(31,826	)

Net realized investment gains (losses)	$	433,882		$	(13,912	)	$	447,794

Service Fees

The $1,002,982 decrease in service fees for the six months ended June 30, 2020 is primarily due to decreased TLIC annuity production resulting in the reduction of ceding fees associated with TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company.

Total Benefits, Claims and Expenses

Our benefits, claims and expenses for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Benefits and claims
Increase in future policy benefits	$	5,108,158		$	4,180,777		$	927,381
Death benefits		4,094,308			3,106,905			987,403
Surrenders		638,905			596,481			42,424
Interest credited to policyholders		6,120,227			5,562,405			557,822
Dividend, endowment and supplementary life contract benefits		153,218			143,790			9,428
Total benefits and claims		16,114,816			13,590,358			2,524,458
Expenses
Policy acquisition costs deferred		(5,077,971	)		(7,272,517	)		2,194,546
Amortization of deferred policy acquisition costs		2,520,412			1,841,880			678,532
Amortization of value of insurance business acquired		153,550			154,991			(1,441	)
Commissions		4,806,091			7,295,837			(2,489,746	)
Other underwriting, insurance and acquisition expenses		5,376,920			5,122,859			254,061
Total expenses		7,779,002			7,143,050			635,952
Total benefits, claims and expenses	$	23,893,818		$	20,733,408		$	3,160,410

The $3,160,410 increase in total benefits, claims and expenses for the six months ended June 30, 2020 is discussed below.

Benefits and Claims

The $2,524,458 increase in benefits and claims for the six months ended June 30, 2020 is primarily due to the following:

●

$987,403 increase in death benefits is primarily due to approximately $802,000 of increased final expense benefits and $185,000 of increased ordinary life benefits.

●

$927,381 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.

●

$557,822 increase in interest credited to policyholders is primarily due to annuity considerations of $83 million received throughout the first six months of 2019 that was credited for the full six months in 2020.

Deferral and Amortization of Deferred Acquisition Costs

For the six months ended June 30, 2020 and 2019, capitalized costs were $5,077,971 and $7,272,517, respectively. Amortization of deferred policy acquisition costs for the six months ended June 30, 2020 and 2019 were $2,520,412 and $1,841,880, respectively.

The $2,194,546 decrease in the 2020 acquisition costs deferred primarily relates to decreased annuity production and deferral of decreased eligible annuity commissions. There was a $678,532 increase in the 2020 amortization of deferred acquisition costs due to 2020 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 $153,550 and $154,991 for the six months ended June 30, 2020 and 2019, respectively, representing a $1,441 decrease.

Commissions

Our commissions for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,				Amount Change
	2020		2019		2020 less 2019
Annuity	$	133,049	$	3,038,973	$	(2,905,924	)
Ordinary life first year		778,513		765,114		13,399
Ordinary life renewal		60,896		26,289		34,607
Final expense first year		3,034,289		2,791,546		242,743
Final expense renewal		799,344		673,915		125,429
Total commissions	$	4,806,091	$	7,295,837	$	(2,489,746	)

The $2,489,746 decrease in commissions for the six months ended June 30, 2020 is primarily due to a $2,905,924 decrease in annuity commissions that exceeded $242,743 increase in final expense first year commissions and a $125,429 increase in final expense renewal commissions that corresponded to a $80,880,077 decrease in retained annuity deposits, a $208,466 increase in final expense first year premiums and a $1,394,087 increase in final expense renewal premiums.

Other Underwriting, Insurance and Acquisition Expenses

The $254,061 increase in other underwriting, insurance and acquisition expenses for the six months ended June 30, 2020 was primarily related to increased third party administration fees primarily related to the increased number of policies in force and increased service requests and increased insurance department licenses and fees from licensing TLIC in additional states.

Federal Income Taxes

For the six months ended June 30, 2019, current income tax expense was $701,054. Deferred federal income tax expense was $364,915 and $12,867 for the six months ended June 30, 2020 and 2019, respectively.

Net Income Per Common Share Basic and Diluted

For the six months ended June 30, 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 (98,199) as of the reporting date divided by the allocated total shares (7,954,130) of Class A shares (7,855,931) and Class B shares (98,199) as of the reporting date.

For the six months ended June 30, 2020, the net income allocated to the Class A shareholders is the total net income less the net income allocated to the Class B shareholders.

The weighted average outstanding common shares basic for the six months ended June 30, 2020 were 7,855,931 for Class A shares and 115,528 for Class B shares.

The weighted average outstanding common shares basic and diluted for the six months ended June 30, 2019 were 7,802,593.

Business Segments

The revenues and income before federal income taxes from our business segments for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,					Amount Change
	2020			2019		2020 less 2019
Revenues:
Life insurance operations	$	14,842,681		$	12,963,871	$	1,878,810
Annuity operations		10,349,328			10,680,857		(331,529	)
Corporate operations		329,576			358,363		(28,787	)
Total	$	25,521,585		$	24,003,091	$	1,518,494
Income (loss) before income taxes:
Life insurance operations	$	(336,239	)	$	264,465	$	(600,704	)
Annuity operations		1,711,177			2,748,670		(1,037,493	)
Corporate operations		252,829			256,548		(3,719	)
Total	$	1,627,767		$	3,269,683	$	(1,641,916	)

Life Insurance Operations

The $1,878,810 increase in revenues from Life Insurance Operations for the six months ended June 30, 2020 is primarily due to the following:

●

$1,728,213 increase in premiums

●

$105,032 increase in net investment income

●

$73,606 increase in net realized investment gains

●

$28,041 decrease in service fees and other income

The $600,704 decreased profitability from Life Insurance Operations for the six months ended June 30, 2020 is primarily due to the following:

●

$987,403 increase in death benefits

●

$927,381 increase in future policy benefits

●

$416,178 increase in commissions

●

$111,717 decrease in policy acquisition costs deferred net of amortization

●

$42,424 increase in surrenders

●

$28,041 decrease in service fees and other income

●

$9,428 increase in dividend, endowment and supplementary life contract benefits

●

$721 decrease in amortization of value of insurance business acquired

●

$14,296 decrease in other underwriting, insurance and acquisition expenses

●

$73,606 increase in net realized investment gains

●

$105,032 increase in net investment income

●

$1,728,213 increase in premiums

Annuity Operations

The $331,529 decrease in revenues from Annuity Operations for the six months ended June 30, 2020 is due to the following:

●

$1,002,980 decrease in service fees and other income

●

$297,263 increase in net investment income

●

$374,188 increase in net realized investment gains

The $1,037,493 decreased profitability from Annuity Operations for the six months ended June 30, 2020 is due to the following:

●

$2,761,361 decrease in policy acquisition costs deferred net of amortization

●

$1,002,980 decrease in service fees and other income

●

$557,822 increase in interest credited to policyholders

●

$293,425 increase in other underwriting, insurance and acquisition expenses

●

$720 decrease in amortization of value of insurance business acquired

●

$297,263 increase in net investment income

●

$374,188 increase in net realized investment gains

●

$2,905,924 decrease in commissions

Corporate Operations

The $28,787 decrease in revenues from Corporate Operations for the six months ended June 30, 2020 is primarily due to $112,878 of decreased net investment income that exceeded $84,091 of increased service fees and other income.

The $3,719 decreased Corporate Operations profitability for the six months ended June 30, 2020 is primarily due to $112,878 of decreased net investment income that exceeded $84,091 of increased service fees and other income and $25,068 of decreased operating expenses.

Consolidated Financial Condition

Our invested assets as of June 30, 2020 and December 31, 2019 are summarized as follows:

	(Unaudited)				Amount Change
	June 30, 2020		December 31, 2019		2020 less 2019
Assets
Investments
Available-for-sale fixed maturity securities at fair value (amortized cost: $156,866,874 and $166,760,448 as of June 30, 2020 and December 31, 2019, respectively)	$	171,450,389	$	178,951,324	$	(7,500,935	)
Available-for-sale preferred stock at fair value (cost: $49,945 as of June 30, 2020 and December 31, 2019)		50,440		51,900		(1,460	)
Equity securities at fair value (cost: $178,224 and $180,194 as of June 30, 2020 and December 31, 2019, respectively)		173,002		201,024		(28,022	)
Mortgage loans on real estate		166,927,369		162,404,640		4,522,729
Investment real estate		1,973,857		1,951,759		22,098
Policy loans		2,044,954		2,026,301		18,653
Short-term investments		2,949,229		1,831,087		1,118,142
Other long-term investments		72,877,350		71,824,480		1,052,870
Total investments	$	418,446,590	$	419,242,515	$	(795,925	)

The $7,500,935 decrease and $57,889,747 increase in fixed maturity available-for-sale securities for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Fixed maturity securities, available-for-sale, beginning	$	178,951,324		$	131,152,199
Purchases		1,005,000			64,687,943
Acquisition of K-TENN Insurance Company		800,000			-
Unrealized appreciation		2,392,639			11,602,512
Net realized investment gains		318,139			9,162
Sales proceeds		(11,165,264	)		(14,677,913	)
Maturities		(548,500	)		(3,450,000	)
Premium amortization		(302,949	)		(281,957	)
Increase (decrease)		(7,500,935	)		57,889,747
Fixed maturity securities, available-for-sale, ending	$	171,450,389		$	189,041,946

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.” The available-for-sale fixed maturity securities portfolio is invested primarily in a variety of companies, U. S. government and government agencies, states and political subdivisions and foreign securities.

The $1,460 decrease and $9,900 increase in preferred stock available-for-sale for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Preferred stock, available-for-sale, beginning	$	51,900		$	90,580
Unrealized appreciation (depreciation)		(1,460	)		9,900
Increase (decrease)		(1,460	)		9,900
Preferred stock, available-for-sale, ending	$	50,440		$	100,480

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.”

The $28,022 decrease and $2,736 increase in equity securities for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Equity securities, beginning	$	201,024		$	198,668
Purchases		47,963			57,746
Sales proceeds		-			(19,370	)
Joint venture distributions		(49,933	)		(53,786	)
Net realized investment gains, sale of securities		-			12,372
Net realized investment gains (losses), changes in fair value		(26,052	)		5,774
Increase (decrease)		(28,022	)		2,736
Equity securities, ending	$	173,002		$	201,404

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

The $4,522,729 and $25,773,532 increases in mortgage loans on real estate for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Mortgage loans on real estate, beginning	$	162,404,640		$	130,049,610
Purchases		37,894,403			44,710,559
Discount accretion		189,485			218,593
Net realized investment gains		108,099			-
Payments		(32,894,590	)		(18,955,492	)
Foreclosed - transfer to real estate		(744,091	)		(99,218	)
Increase in allowance for bad debts		(4,069	)		(85,935	)
Amortization of loan origination fees		(26,508	)		(14,975	)
Increase		4,522,729			25,773,532
Mortgage loans on real estate, ending	$	166,927,369		$	155,823,142

The $22,098 increase and $268,310 decrease in investment real estate for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Investment real estate, beginning	$	1,951,759		$	2,392,031
Real estate acquired through mortgage loan foreclosure		744,091			99,218
Sales proceeds		(682,945	)		(253,564	)
Depreciation of building		(72,744	)		(72,744	)
Net realized investment gains (losses)		33,696			(41,220	)
Increase (decrease)		22,098			(268,310	)
Investment real estate, ending	$	1,973,857		$	2,123,721

The $1,052,870 and $5,489,461 increases in other long-term investments (composed of lottery receivables) for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Other long-term investments, beginning	$	71,824,480		$	59,255,477
Purchases		3,942,291			8,750,363
Accretion of discount		2,652,434			2,318,546
Payments		(5,541,855	)		(5,579,448	)
Increase		1,052,870			5,489,461
Other long-term investments, ending	$	72,877,350		$	64,744,938

Our assets other than invested assets as of June 30, 2020 and December 31, 2019 are summarized as follows:

	(Unaudited)				Amount Change
	June 30, 2020		December 31, 2019		2020 less 2019

Cash and cash equivalents	$	17,051,412	$	23,212,170	$	(6,160,758	)
Accrued investment income		5,475,458		5,207,823		267,635
Recoverable from reinsurers		1,221,856		1,244,733		(22,877	)
Assets held in trust under coinsurance agreement		107,548,422		105,089,240		2,459,182
Agents' balances and due premiums		2,034,272		1,618,115		416,157
Deferred policy acquisition costs		40,553,380		38,005,639		2,547,741
Value of insurance business acquired		4,737,898		4,891,448		(153,550	)
Other assets		15,123,435		6,424,691		8,698,744
Assets other than investment assets	$	193,746,133	$	185,693,859	$	8,052,274

The $6,160,758 decrease in cash and cash equivalents is discussed below in the “Liquidity and Capital Resources” section where cash flows are addressed.

The $2,459,182 increase in assets held in trust under the coinsurance agreement is due to assets acquired under TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company that is administered on a funds withheld basis.

The increase in deferred policy acquisition costs for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Balance, beginning of year	$	38,005,639		$	29,681,737
Capitalization of commissions, sales and issue expenses		5,077,971			7,272,517
Amortization		(2,520,412	)		(1,841,880	)
Deferred acquisition costs allocated to investments		(9,818	)		(23,096	)
Balance, end of period	$	40,553,380		$	35,089,278

Our other assets as of June 30, 2020 and December 31, 2019 are summarized as follows:

	(Unaudited)				Amount Change
	June 30, 2020		December 31, 2019		2020 less 2019
Advances to mortgage loan originator	$	5,057,229	$	4,436,787	$	620,442
Federal and state income taxes recoverable		2,844,753		1,301,868		1,542,885
Notes receivable		483,043		445,778		37,265
Long-term investment receivable		6,558,284		-		6,558,284
Guaranty funds		63,180		71,455		(8,275	)
Lease asset - right to use		25,570		76,711		(51,141	)
Other receivables, prepaid assets and deposits		91,376		92,092		(716	)
Total other assets	$	15,123,435	$	6,424,691	$	8,698,744

As of June 30, 2020, the Company had $6,558,284 in long-term investment purchases where the trade date and settlement date are in different financial reporting periods.

There was an $1,542,885 increase in federal and state income taxes recoverable primarily due to federal and state tax withholdings on lottery receivables.

There was a $620,442 increase in advances to one mortgage loan originator who acquires residential mortgage loans for our life companies.

The Company reported a lease asset of $25,570 as of June 30, 2020, in accordance with the lease guidance adopted in 2019.

On April 15, 2019, the Company renewed its previous one-year loan of $400,000 to its former Chairman. The renewed loan has a term of one year and a contractual interest rate of 5.00%. The loan is collateralized by 100,000 shares of the Company’s Class A Common stock owned by the former Chairman. As a result of Coronavirus Disease, the Company extended the maturity date of the loan by 90 days and collected the interest due by July 15, 2020.

Our liabilities as of June 30, 2020 and December 31, 2019 are summarized as follows:

	(Unaudited)				Amount Change
	June 30, 2020		December 31, 2019		2020 less 2019

Policy liabilities
Policyholders' account balances	$	358,137,860	$	363,083,838	$	(4,945,978	)
Future policy benefits		70,243,025		65,015,390		5,227,635
Policy claims		1,267,125		1,399,393		(132,268	)
Other policy liabilities		136,988		132,975		4,013
Total policy liabilities		429,784,998		429,631,596		153,402
Funds withheld under coinsurance agreement		108,073,060		105,638,974		2,434,086
Deferred federal income taxes		7,210,919		6,345,918		865,001
Other liabilities		5,199,851		5,901,624		(701,773	)
Total liabilities	$	550,268,828	$	547,518,112	$	2,750,716

The $4,945,978 decrease and $71,476,051 increase in policyholders’ account balances for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,
	2020			2019
Policyholders' account balances, beginning	$	363,083,838		$	297,168,411
Deposits		6,012,739			153,716,133
Withdrawals		(14,644,858	)		(17,224,086	)
Funds withheld under coinsurance agreement		(2,434,086	)		(70,578,401	)
Interest credited		6,120,227			5,562,405
Increase		(4,945,978	)		71,476,051
Policyholders' account balances, ending	$	358,137,860		$	368,644,462

The $5,227,635 increase in future policy benefits during the six months ended June 30, 2020 is primarily related to the production of new life insurance policies and the aging of existing policies.

The $865,001 increase in deferred federal income taxes during the six months ended June 30, 2020 was due to $500,086 of increased deferred federal income taxes on the unrealized appreciation of fixed maturity securities and preferred stock available-for-sale and $364,915 of operating deferred federal tax expense.

The $2,434,086 increase in funds withheld under coinsurance agreement is due to the liability related to TLIC’s annuity coinsurance agreement with an offshore annuity and life insurance company.

Our other liabilities as of June 30, 2020 and December 31, 2019 are summarized as follows:

	(Unaudited)						Amount Change
	June 30, 2020			December 31, 2019			2020 less 2019
Suspense accounts payable	$	2,361,579		$	20,166		$	2,341,413
Accounts payable		38,198			21,387			16,811
Accrued expenses payable		670,000			679,000			(9,000	)
Payable for securities purchased		333,721			564			333,157
Guaranty fund assessments		25,000			25,000			-
Unearned investment income		82,855			62,404			20,451
Deferred revenue		2,708			8,123			(5,415	)
Unclaimed funds		59,170			38,273			20,897
Lease liability		25,570			76,711			(51,141	)
Mortgage loans suspense		1,875,525			5,782,427			(3,906,902	)
Other payables, withholdings and escrows		(274,475	)		(812,431	)		537,956
Total other liabilities	$	5,199,851		$	5,901,624		$	(701,773	)

The reduction in mortgage loan suspense of $3,906,902 is primarily due to timing of principal loan payments on mortgage loans.

The $2,341,413 increase in suspense accounts payable is due to increased deposits on policy applications that had not been issued as of the financial reporting date.

The $537,956 increase in other payables, withholdings and escrows is primarily due to the reduction in escrow advances of $260,424 and an increase in other payables $287,528.

As of June 30, 2020, the Company had $333,721 in security purchases where the trade date and settlement date were in different financial reporting periods compared to $564 of security purchases overlapping financial reporting periods as of December 31, 2019.

The Company reported a lease liability of $25,570 as of June 30, 2020, in accordance with the lease guidance adopted in 2019.

Liquidity and Capital Resources

Our operations have been financed primarily through the private placement of equity securities and intrastate public stock offerings. Through June 30, 2020, we have received $27,119,480 from the sale of our shares.

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

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

As of June 30, 2020, we had cash and cash equivalents totaling $17,051,412. As of June 30, 2020, cash and cash equivalents of $9,502,428 and $5,694,585, respectively, totaling $15,197,013 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 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 $1,245,184 in 2020 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $918,511 in 2020 without prior approval. FBLIC has paid no dividends to TLIC in 2020 and 2019. TLIC has paid no dividends to FTFC in 2020 and 2019.

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 $11,654,539 and $18,089,331 as of June 30, 2020 and December 31, 2019, respectively. Other funds are invested in mutual funds that invest in U.S. government securities. We monitor the solvency of all financial institutions in which we have funds to minimize the exposure for loss. The Company has not experienced any losses in such accounts.

Our cash flows for the six months ended June 30, 2020 and 2019 are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Net cash used in operating activities	$	(6,580,790	)	$	(63,036,667	)	$	56,455,877
Net cash provided by (used in) investing activities		9,436,885			(75,574,609	)		85,011,494
Net cash provided by (used in) financing activities		(9,016,853	)		136,492,047			(145,508,900	)
Decrease in cash and cash equivalents		(6,160,758	)		(2,119,229	)		(4,041,529	)
Cash and cash equivalents, beginning of period		23,212,170			29,665,605			(6,453,435	)
Cash and cash equivalents, end of period	$	17,051,412		$	27,546,376		$	(10,494,964	)

The $6,580,790 and $63,036,667 cash used in operating activities for the six months ended June 30, 2020 and 2019, respectively, are summarized as follows:

	(Unaudited)
	Six Months Ended June 30,						Amount Change
	2020			2019			2020 less 2019
Premiums collected	$	12,785,842		$	11,040,521		$	1,745,321
Net investment income collected		9,360,252			7,205,292			2,154,960
Service fees and other income collected		136,687			1,083,618			(946,931	)
Death benefits paid		(4,203,699	)		(1,904,940	)		(2,298,759	)
Surrenders paid		(638,905	)		(596,481	)		(42,424	)
Dividends and endowments paid		(154,064	)		(144,464	)		(9,600	)
Commissions paid		(5,203,356	)		(7,525,540	)		2,322,184
Other underwriting, insurance and acquisition expenses paid		(4,750,409	)		(5,269,470	)		519,061
Taxes paid		(1,542,885	)		(1,069,999	)		(472,886	)
(Increased) decreased advances to mortgage loan originator		(620,442	)		707,203			(1,327,645	)
Increased (decreased) deposits of pending policy applications		2,341,413			(2,929,874	)		5,271,287
Increased assets held in trust under coinsurance agreement		(2,459,182	)		(67,483,048	)		65,023,866
Increased short-term investments		(1,118,142	)		(918,406	)		(199,736	)
Increased policy loans		(17,608	)		(81,011	)		63,403
Increased (decreased) mortgage loan suspense		(3,906,902	)		4,892,502			(8,799,404	)
Advances to investment vendor		(6,558,284	)		-			(6,558,284	)
Other		(31,106	)		(42,570	)		11,464
Cash used in operating activities	$	(6,580,790	)	$	(63,036,667	)	$	56,455,877

Please see the statements of cash flows for the six months ended June 30, 2020 and 2019 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 June 30, 2020 and December 31, 2019 is summarized as follows:

	(Unaudited)						Amount Change
	June 30, 2020			December 31, 2019			2020 less 2019

Class A common stock, par value $.01 per share (40,000,000 and 20,000,000 shares authorized as of June 30, 2020 and December 31, 2019, respectively, 8,114,725 and 8,050,173 issued as of June 30, 2020 and December 31, 2019, respectively, 7,867,145 and 7,802,593 outstanding as of June 30, 2020 and December 31, 2019, respectively)	$	81,147		$	80,502		$	645
Class B common stock, par value $.01 per share (10,000,000 shares authorized, 104,314 issued and outstanding as of June 30, 2020)		1,043			-			1,043
Additional paid-in capital		30,429,150			28,684,598			1,744,552
Treasury stock, at cost (247,580 shares as of June 30, 2020 and December 31, 2019)		(893,947	)		(893,947	)		-
Accumulated other comprehensive income (loss)		11,497,935			9,616,660			1,881,275
Accumulated earnings		20,808,567			19,930,449			878,118
Total shareholders' equity	$	61,923,895		$	57,418,262		$	4,505,633

The increase in shareholders’ equity of $4,505,633 for the six months ended June 30, 2020 is primarily due to $1,881,275 in other comprehensive income, $1,744,552 in additional paid-in capital (acquisition of K-TENN Insurance Company of $1,744,552) and $878,118 in accumulated earnings (net income of $1,262,852 that exceeded shareholders’ cash dividend of $384,734).

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 2020 or 2019. Our investments include marketable debt securities that could be readily converted to cash for liquidity needs.

We are subject to various market risks. The quality of our investment portfolio and the current level of shareholders’ equity continue to provide a sound financial base as we strive to expand our marketing to offer competitive products. Our investment portfolio had unrealized appreciation on available-for-sale securities of $14,584,010 and $12,192,831 as of June 30, 2020 and December 31, 2019, respectively, prior to the impact of income taxes and deferred acquisition cost adjustments. An increase of $2,709,318 in unrealized gains arising for the six months ended June 30, 2020 has been offset by 2020 net realized investment gains of $318,139 originating from the sale and call activity for fixed maturity securities available-for-sale resulting in net unrealized gains on investments of $2,391,179.

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 June 30, 2020, 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 7.9% 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 2019, the SVL also requires the Company to perform annual cash flow testing for TLIC and FBLIC. This testing is designed to ensure that statutory reserve levels will maintain adequate protection in a variety of potential interest rate scenarios. The Actuarial Standards Board of the American Academy of Actuaries also requires cash flow testing as a basis for the actuarial opinion on the adequacy of the reserves which is a required part of the annual statutory reporting process.

Our marketing plan could be modified to emphasize certain product types and reduce others. New business levels could be varied in order to find the optimum level. We believe that our current liquidity, current bond portfolio maturity distribution and cash position give us substantial resources to administer our existing business and fund growth generated by direct sales.

The operations of TLIC and FBLIC may require additional capital contributions to meet statutory capital and surplus requirements mandated by state insurance departments. Life insurance contract liabilities are generally long term in nature and are generally paid from future cash flows or existing assets and reserves. We will service other expenses and commitments by: (1) using available cash, (2) dividends from TLIC and FBLIC that are limited by law to the greater of prior year net operating income or 10% of prior year-end surplus unless specifically approved by the controlling insurance department, (3) public and private offerings of our common stock and (4) corporate borrowings, if necessary.

Effective January 1, 2019, the Company entered into a revised advance agreement with one loan originator. As of June 30, 2020, the Company has outstanding advances to this loan originator totaling $5,057,229. The advances are secured by $8,617,161 of residential mortgage loans on real estate that are assigned to the Company. The Company has committed to fund up to an additional $1,442,771 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 June 30, 2020, $765,472 of additional and secured residential mortgage loan balances on real estate are held in escrow by the Company. As of June 30, 2020, $437,986 of that escrow amount is available to the Company as additional collateral on $5,057,229 of advances to the loan originator. The remaining June 30, 2020 escrow amount of $327,486 is available to the Company as additional collateral on its investment of $65,497,241 in residential mortgage loans on real estate.

We are not aware of any commitments or unusual events that could materially affect our capital resources. We are not aware of any current recommendations by any regulatory authority which, if implemented, would have a material adverse effect on our liquidity, capital resources or operations. We believe that our existing cash and cash equivalents as of June 30, 2020 will be sufficient to fund our anticipated operating expenses.

Off-Balance Sheet Arrangements

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

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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

There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements. These factors include among others:

●

general economic conditions and financial factors, including the performance and fluctuations of fixed income, equity, real estate, credit capital and other financial markets;

●

differences between actual experience regarding mortality, morbidity, persistency, surrenders, investment returns, and our pricing assumptions establishing liabilities and reserves or for other purposes;

●

the effect of increased claims activity from natural or man-made catastrophes, pandemic disease, or other events resulting in catastrophic loss of life;

●

adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including and in connection with our divestiture or winding down of businesses such as FTCC;

●

inherent uncertainties in the determination of investment allowances and impairments and in the determination of the valuation allowance on the deferred income tax asset;

●

investment losses and defaults;

●

competition in our product lines;

●

attraction and retention of qualified employees and agents;

●

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

●

the availability, affordability and adequacy of reinsurance protection;

●

the effects of emerging claim and coverage issues;

●

the cyclical nature of the insurance business;

●

interest rate fluctuations;

●

changes in our experiences related to deferred policy acquisition costs;

●

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

●

impact of medical epidemics and viruses;

●

domestic or international military actions;

●

the effects of extensive government regulation of the insurance industry;

●

changes in tax and securities law;

●

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

●

regulatory or legislative changes or developments;

●

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

●

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

●

risks of employee error or misconduct;

●

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

●

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 June 30, 2020 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

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer

31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer

32.1	Section 1350 Certification of Principal Executive Officer

32.2	Section 1350 Certification of Principal Financial Officer

101.INS**

XBRL Instance

101.SCH**

XBRL Taxonomy Extension Schema

101.CAL**

XBRL Taxonomy Extension Calculation

101.DEF**

XBRL Taxonomy Extension Definition

101.LAB**

XBRL Taxonomy Extension Labels

101.PRE**

XBRL Taxonomy Extension Presentation

**XBRL

Information is furnished and not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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


August 13, 2020	By:	/s/ Gregg E. Zahn
	Gregg E. Zahn, President and Chief Executive Officer


August 13, 2020	By:	/s/ Jeffrey J. Wood
	Jeffrey J. Wood, Financial Officer

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First Trinity Financial (FTFC) 10-Q2020 Q2 Quarterly report

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