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EX-32.2 - EXHIBIT 32.2 - First Trinity Financial CORPex32-2.htm
EX-32.1 - EXHIBIT 32.1 - First Trinity Financial CORPex32-1.htm
EX-31.2 - EXHIBIT 31.2 - First Trinity Financial CORPex31-2.htm
EX-31.1 - EXHIBIT 31.1 - First Trinity Financial CORPex31-1.htm

United States

Securities and Exchange Commission

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

[ X ]

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

 

For the quarterly period ended June 30, 2017

 

[    ]

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

Yes ☑ No ☐

 

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

 

Large accelerated filer:  ☐ 

Accelerated filer:  ☐

Non-accelerated filer:  ☐

Smaller reporting company:  

Emerging growth company:   ☐

 

   

 

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

 

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

Yes ☐       No ☑

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: Common stock .01 par value as of August 7, 2017: 7,802,593 shares

  

 
 

 

 

FIRST TRINITY FINANCIAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED JUNE 30, 2017

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION  Page Number
     

Item 1. Consolidated Financial Statements

   
     

Consolidated Statements of Financial Position as of June 30, 2017 (Unaudited) and December 31, 2016

 

3

   

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)

 

4

   

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)

 

5

   

 

Consolidated Statements of Changes in Shareholders’ Equity for the Six Months Ended June 30, 2017 and 2016 (Unaudited)

 

6

   

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (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

 

65

   

 

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

 

68

   

 

Item 3. Defaults upon Senior Securities

 

68

   

 

Item 4. Mine Safety Disclosures

 

68

   

 

Item 5. Other Information

 

68

   

Item 6. Exhibits

 

68

     
Signatures   69

 

Exhibit No. 31.1

Exhibit No. 31.2

Exhibit No. 32.1

Exhibit No. 32.2

Exhibit No. 101.INS

Exhibit No. 101.SCH

Exhibit No. 101.CAL

Exhibit No. 101.DEF

Exhibit No. 101.LAB

Exhibit No. 101.PRE

 

 
2

 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Financial Position

 

   

(Unaudited)

         
   

June 30, 2017

   

December 31, 2016

 

Assets

               

Investments

               

Available-for-sale fixed maturity securities at fair value (amortized cost: $146,815,391 and $128,310,265 as of June 30, 2017 and December 31, 2016, respectively)

  $ 151,551,123     $ 129,311,155  

Available-for-sale equity securities at fair value (cost: $601,207 and $599,400 as of June 30, 2017 and December 31, 2016, respectively)

    658,952       638,407  

Mortgage loans on real estate

    100,337,059       74,371,286  

Investment real estate

    2,248,228       2,506,673  

Policy loans

    1,604,260       1,598,116  

Other long-term investments

    57,895,580       46,788,873  

Total investments

    314,295,202       255,214,510  

Cash and cash equivalents

    17,541,778       34,223,945  

Accrued investment income

    2,517,930       2,176,770  

Recoverable from reinsurers

    1,230,910       1,258,938  

Agents' balances and due premiums

    1,643,690       1,419,250  

Deferred policy acquisition costs

    21,695,607       18,191,990  

Value of insurance business acquired

    5,699,371       5,908,835  

Other assets

    13,628,298       14,858,375  

Total assets

  $ 378,252,786     $ 333,252,613  

Liabilities and Shareholders' Equity

               

Policy liabilities

               

Policyholders' account balances

  $ 285,235,552     $ 245,346,489  

Future policy benefits

    46,708,192       44,266,227  

Policy claims

    915,170       997,814  

Other policy liabilities

    77,758       69,854  

Total policy liabilities

    332,936,672       290,680,384  

Deferred federal income taxes

    1,637,491       693,470  

Other liabilities

    3,639,385       5,598,484  

Total liabilities

    338,213,548       296,972,338  

Shareholders' equity

               

Common stock, par value $.01 per share (20,000,000 shares authorized, 8,050,173 issued as of June 30, 2017 and December 31, 2016 and 7,802,593 outstanding as of June 30, 2017 and December 31, 2016)

    80,502       80,502  

Additional paid-in capital

    28,684,598       28,684,598  

Treasury stock, at cost (247,580 shares as of June 30, 2017 and December 31, 2016)

    (893,947 )     (893,947 )

Accumulated other comprehensive income

    3,766,117       818,676  

Accumulated earnings

    8,401,968       7,590,446  

Total shareholders' equity

    40,039,238       36,280,275  

Total liabilities and shareholders' equity

  $ 378,252,786     $ 333,252,613  

 

See notes to consolidated financial statements (unaudited).

 

 
3

 

  

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Revenues

                               

Premiums

  $ 3,880,345     $ 3,037,033     $ 7,502,035     $ 6,229,575  

Net investment income

    3,995,064       3,258,634       7,664,935       6,618,837  

Net realized investment gains

    91,088       166,093       257,594       146,942  

Loss on other-than-temporary impairments

    (224,250 )     -       (224,250 )     -  

Other income

    17,235       7,893       67,127       15,206  

Total revenues

    7,759,482       6,469,653       15,267,441       13,010,560  

Benefits, Claims and Expenses

                               

Benefits and claims

                               

Increase in future policy benefits

    1,482,159       1,279,874       2,441,964       2,638,018  

Death benefits

    887,745       1,034,230       2,433,581       1,986,288  

Surrenders

    248,212       198,643       531,588       336,369  

Interest credited to policyholders

    2,201,930       1,681,501       4,236,984       3,335,221  

Dividend, endowment and supplementary life contract benefits

    64,795       67,454       131,768       133,512  

Total benefits and claims

    4,884,841       4,261,702       9,775,885       8,429,408  

Policy acquisition costs deferred

    (2,586,318 )     (1,542,926 )     (5,001,037 )     (3,119,135 )

Amortization of deferred policy acquisition costs

    747,306       355,491       1,428,142       1,052,037  

Amortization of value of insurance business acquired

    107,296       99,078       209,464       189,210  

Commissions

    2,345,063       1,548,635       4,589,973       2,828,721  

Other underwriting, insurance and acquisition expenses

    1,572,220       1,345,086       3,226,423       2,879,526  

Total expenses

    2,185,567       1,805,364       4,452,965       3,830,359  

Total benefits, claims and expenses

    7,070,408       6,067,066       14,228,850       12,259,767  

Income before total federal income tax expense

    689,074       402,587       1,038,591       750,793  

Current federal income tax expense

    19,909       34,212       19,909       37,510  

Deferred federal income tax expense

    119,121       30,276       207,160       79,871  

Total federal income tax expense

    139,030       64,488       227,069       117,381  

Net income

  $ 550,044     $ 338,099     $ 811,522     $ 633,412  

Net income per common share basic and diluted

  $ 0.07     $ 0.04     $ 0.10     $ 0.08  

 

See notes to consolidated financial statements (unaudited).

 

 
4

 

  

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Net income

  $ 550,044     $ 338,099     $ 811,522     $ 633,412  

Other comprehensive income

                               

Total net unrealized investment gains arising during the period

    2,477,183       4,602,854       3,720,267       8,382,376  

Less net realized investment gains (losses)

    (197,332 )     151,677       (33,313 )     128,951  

Net unrealized investment gains

    2,674,515       4,451,177       3,753,580       8,253,425  

Less adjustment to deferred acquisition costs

    49,778       67,083       69,278       127,213  

Other comprehensive income before federal income tax expense

    2,624,737       4,384,094       3,684,302       8,126,212  

Federal income tax expense

    524,948       876,817       736,861       1,625,240  

Total other comprehensive income

    2,099,789       3,507,277       2,947,441       6,500,972  

Total comprehensive income

  $ 2,649,833     $ 3,845,376     $ 3,758,963     $ 7,134,384  

 

See notes to consolidated financial statements (unaudited).

 

 
5

 

  

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders' Equity

Six Months Ended June 30, 2017 and 2016

(Unaudited)

 

                           

Accumulated

                 
   

Common

   

Additional

           

Other

           

Total

 
   

Stock

   

Paid-in

   

Treasury

   

Comprehensive

   

Accumulated

   

Shareholders'

 
   

$.01 Par Value

   

Capital

   

Stock

   

Income (Loss)

   

Earnings

   

Equity

 

Balance as of January 1, 2016

  $ 80,502     $ 28,684,598     $ (893,947 )   $ (2,655,817 )   $ 4,999,707     $ 30,215,043  

Comprehensive income:

                                               

Net income

    -       -       -       -       633,412       633,412  

Other comprehensive income

    -       -       -       6,500,972       -       6,500,972  

Balance as of June 30, 2016

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 3,845,155     $ 5,633,119     $ 37,349,427  
                                                 

Balance as of January 1, 2017

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 818,676     $ 7,590,446     $ 36,280,275  

Comprehensive income:

                                               

Net income

    -       -       -       -       811,522       811,522  

Other comprehensive income

    -       -       -       2,947,441       -       2,947,441  

Balance as of June 30, 2017

  $ 80,502     $ 28,684,598     $ (893,947 )   $ 3,766,117     $ 8,401,968     $ 40,039,238  

 

 

See notes to consolidated financial statements (unaudited).

 

 
6

 

 

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows 

(Unaudited) 

 

   

Six Months Ended June 30,

 
   

2017

   

2016

 

Operating activities

               

Net income

  $ 811,522     $ 633,412  

Adjustments to reconcile net income to net cash provided by operating activities:

               

Provision for depreciation

    73,063       73,060  

Accretion of discount on investments

    (1,386,429 )     (797,906 )

Net realized investment gains

    (257,594 )     (146,942 )

Loss on other-than-temporary impairment

    224,250       -  

Amortization of policy acquisition cost

    1,428,142       1,052,037  

Policy acquisition cost deferred

    (5,001,037 )     (3,119,135 )

Mortgage loan origination fees deferred

    -       (4,531 )

Amortization of loan origination fees

    23,408       22,784  

Amortization of value of insurance business acquired

    209,464       189,210  

Allowance for mortgage loan losses

    101,031       14,516  

Provision for deferred federal income tax expense

    207,160       79,871  

Interest credited to policyholders

    4,236,984       3,335,221  

Change in assets and liabilities:

               

Accrued investment income

    (341,160 )     23,481  

Policy loans

    (6,144 )     (35,875 )

Short-term investments

    -       549,822  

Recoverable from reinsurers

    28,028       (18,218 )

Agents' balances and due premiums

    (224,440 )     (193,879 )

Other assets (excludes depreciation of $320 in 2017 and change in receivable for securities sold of $609,014 and ($2,588,281) in 2017 and 2016, respectively).

    620,743       (1,811,870 )

Future policy benefits

    2,441,965       2,645,718  

Policy claims

    (82,644 )     144,812  

Other policy liabilities

    7,904       (7,869 )

Other liabilities (excludes change in payable for securities purchased of ($80,176) and $499 in 2017 and 2016, respectively).

    (1,878,923 )     2,156,346  

Net cash provided by operating activities

    1,235,293       4,784,065  
                 

Investing activities

               

Purchases of fixed maturity securities

    (32,301,685 )     (3,936,924 )

Maturities of fixed maturity securities

    4,868,000       3,554,000  

Sales of fixed maturity securities

    7,735,249       3,940,211  

Purchases of equity securities

    (1,807 )     (8,990 )

Sales of equity securities

    -       128,010  

Purchases of mortgage loans

    (36,741,329 )     (9,362,778 )

Payments on mortgage loans

    10,724,113       3,661,522  

Purchases of other long-term investments

    (13,362,692 )     (7,101,665 )

Payments on other long-term investments

    3,999,678       1,948,073  

Sale on other long-term investments

    792,012       -  

Purchase of real estate

    -       (198,622 )

Sale of real estate

    190,084        -  

Net change in receivable and payable for securities sold and purchased

    528,838       (2,587,782 )

Net cash used in investing activities

    (53,569,539 )     (9,964,945 )
                 

Financing activities

               

Policyholders' account deposits

    45,682,170       14,145,326  

Policyholders' account withdrawals

    (10,030,091 )     (7,205,527 )

Net cash provided by financing activities

    35,652,079       6,939,799  
                 

Increase (decrease) in cash

    (16,682,167 )     1,758,919  

Cash and cash equivalents, beginning of period

    34,223,945       9,047,586  

Cash and cash equivalents, end of period

  $ 17,541,778     $ 10,806,505  

 

See notes to consolidated financial statements (unaudited).

 

 
7

 

  

First Trinity Financial Corporation and Subsidiaries

Consolidated Statements of Cash Flows (continued)

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

(Unaudited)

 

 

During 2017 the Company reclassified an available-for-sale fixed maturity security totaling $729,737 to other long-term investments as recent third party information indicated the security does not qualify for available-for-sale treatment.

 

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

 

   

Six Months Ended

 
   

June 30, 2017

 

Reduction in available-for-securities fixed maturity securities

  $ 729,737  

Other long-term invesments

    (729,737 )

Net cash provided (used) in investing activities

  $ -  

  

 
8

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

1. Organization and Significant Accounting Policies

 

Nature of Operations

 

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

 

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

 

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

 

Company Capitalization

 

The Company raised $1,450,000 from two private placement stock offerings during 2004 and $25,669,480 from two public stock offerings and one private placement stock offering from June 22, 2005 through February 23, 2007; June 29, 2010 through April 30, 2012 and August 15, 2012 through March 8, 2013. The Company issued 7,347,488 shares of its common stock and incurred $3,624,518 of offering costs during these private placements and public stock offerings. The Company also issued 702,685 shares of its common stock in connection with two stock dividends paid to shareholders in 2011 and 2012 that resulted in accumulated earnings being charged $5,270,138 with an offsetting credit of $5,270,138 to common stock and additional paid-in capital.

 

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

 

Acquisitions

 

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

 

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

 

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

 

 
9

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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

 

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

 

Basis of Presentation

 

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

 

The results of operations for the six months ended June 30, 2017 are not necessarily indicative of the results to be expected for the year ended December 31, 2017 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 consolidated financial statements and notes thereto included in the Company's report on Form 10-K for the year ended December 31, 2016.

 

Principles of Consolidation

 

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

 

Reclassifications

 

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

 

Use of Estimates

 

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

 

Common Stock

 

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

 

Treasury Stock

 

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

 

 
10

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

Subsequent Events

 

Management has evaluated all events subsequent to June 30, 2017 through the date that these financial statements have been issued.

 

Recent Accounting Pronouncements

 

Revenue from Contracts with Customers

 

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

 

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

 

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

 

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

 

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

 

Recognition and Measurement of Financial Assets and Financial Liabilities

 

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

  

 
11

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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

 

Leases

 

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

 

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

 

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

 

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

 

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

 

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

 

 
12

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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

 

In March 2016, the FASB issued updated guidance clarifying that when a call (put) option in a debt instrument is contingently exercisable, the event that triggers the ability to exercise the option is considered to be clearly and closely related to the debt instrument (i.e., the economic characteristics and risks of the option are related to interest rates or credit risks) and the entity does not have to assess whether the option should be accounted for separately. The updated guidance is effective for reporting periods beginning after December 15, 2016. Early adoption was permitted. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 
13

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

1. Organization and Significant Accounting Policies (continued)

 

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

 

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

 

Business Combinations – Clarifying the Definition of a Business

 

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

 

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

 

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

 

In January 2017, the FASB issued guidance to modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value. Reporting entities will no longer determine goodwill impairment by calculating the implied fair value of goodwill by assigning the fair value of a reporting unit to all of its assets and liabilities as if that reporting unit had been acquired in a business combination. The updated guidance is effective for annual and interim periods beginning after December 15, 2017, and is to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.  The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.

 

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

 

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

 

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

 

 
14

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

2. Investments

 

Fixed Maturity and Equity Securities Available-For-Sale

 

Investments in fixed maturity and equity securities available-for-sale as of June 30, 2017 and December 31, 2016 are summarized as follows:

 

           

Gross

   

Gross

         
   

Amortized Cost

   

Unrealized

   

Unrealized

   

Fair

 
   

or Cost

   

Gains

   

Losses

   

Value

 
   

June 30, 2017 (Unaudited)

 

Fixed maturity securities

                               

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

  $ 3,513,372     $ 76,996     $ 57,654     $ 3,532,714  

States and political subdivisions

    9,403,827       268,163       33,354       9,638,636  

Residential mortgage-backed securities

    32,278       39,442       -       71,720  

Corporate bonds

    112,783,805       4,279,059       712,679       116,350,185  

Foreign bonds

    21,082,109       986,298       110,539       21,957,868  
                                 

Total fixed maturity securities

    146,815,391       5,649,958       914,226       151,551,123  
                                 

Equity securities

                               

Mutual funds

    346,284       1,044       -       347,328  

Corporate preferred stock

    99,945       2,033       40       101,938  

Corporate common stock

    154,978       54,708       -       209,686  
                                 

Total equity securities

    601,207       57,785       40       658,952  
                                 

Total fixed maturity and equity securities

  $ 147,416,598     $ 5,707,743     $ 914,266     $ 152,210,075  
                                 
   

December 31, 2016

 

Fixed maturity securities

                               

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

  $ 3,157,889     $ 99,086     $ 71,592     $ 3,185,383  

States and political subdivisions

    9,172,533       144,947       66,584       9,250,896  

Residential mortgage-backed securities

    33,970       36,757       -       70,727  

Corporate bonds

    100,268,424       2,324,712       1,613,095       100,980,041  

Foreign bonds

    15,677,449       394,742       248,083       15,824,108  
                                 

Total fixed maturity securities

    128,310,265       3,000,244       1,999,354       129,311,155  
                                 

Equity securities

                               

Mutual funds

    344,783       -       2,869       341,914  

Corporate preferred stock

    99,945       -       3,585       96,360  

Corporate common stock

    154,672       45,461       -       200,133  
                                 

Total equity securities

    599,400       45,461       6,454       638,407  
                                 

Total fixed maturity and equity securities

  $ 128,909,665     $ 3,045,705     $ 2,005,808     $ 129,949,562  

  

 
15

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(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, 2017 and December 31, 2016 are summarized as follows:

 

           

Unrealized

   

Number of

 
   

Fair Value

   

Loss

   

Securities

 
   

June 30, 2017 (Unaudited)

 

Fixed maturity securities

                       

Less than 12 months

                       

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

  $ 1,887,412     $ 42,684       7  

States and political subdivisions

    1,970,827       33,354       11  

Corporate bonds

    6,613,829       104,812       22  

Foreign bonds

    1,104,060       34,248       5  

Total less than 12 months

    11,576,128       215,098       45  

More than 12 months

                       

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

    335,031       14,970       1  

Corporate bonds

    5,925,592       607,867       27  

Foreign bonds

    502,375       76,291       3  

Total more than 12 months

    6,762,998       699,128       31  
                         

Total fixed maturity securities in an unrealized loss position

    18,339,126       914,226       76  

Equity securities

                       

Less than 12 months

                       

Corporate preferred stock

    49,960       40       1  

Total less than 12 months

    49,960       40       1  
                         

Total equity securities in an unrealized loss position

    49,960       40       1  
                         

Total fixed maturity and equity securities in an unrealized loss position

  $ 18,389,086     $ 914,266       77  
                         
   

December 31, 2016

 

Fixed maturity securities

                       

Less than 12 months

                       

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

  $ 1,878,308     $ 71,592       6  

States and political subdivisions

    2,532,653       66,584       14  

Corporate bonds

    23,721,217       696,066       92  

Foreign bonds

    5,087,133       155,833       16  

Total less than 12 months

    33,219,311       990,075       128  

More than 12 months

                       

Corporate bonds

    8,004,923       917,029       36  

Foreign bonds

    1,024,548       92,250       6  

Total more than 12 months

    9,029,471       1,009,279       42  

Total fixed maturity securities in an unrealized loss position

    42,248,782       1,999,354       170  
                         

Equity securities

                       

Less than 12 months

                       

Corporate preferred stock

    96,360       3,585       2  

Total less than 12 months

    96,360       3,585       2  

More than 12 months

                       

Mutual funds

    89,113       2,869       1  
                         

Total more than 12 months

    89,113       2,869       1  
                         

Total equity securities in an unrealized loss position

    185,473       6,454       3  

Total fixed maturity and equity securities in an unrealized loss position

  $ 42,434,255     $ 2,005,808       173  

 

 
16

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

2. Investments (continued)

 

As of June 30, 2017, the Company held 76 available-for-sale fixed maturity securities with an unrealized loss of $914,226, fair value of $18,339,126 and amortized cost of $19,253,352. These unrealized losses were primarily due to market interest rate movements in the bond market as of June 30, 2017. The ratio of the fair value to the amortized cost of these 76 securities is 95%.

 

As of December 31, 2016, the Company held 170 available-for-sale fixed maturity securities with an unrealized loss of $1,999,354, fair value of $42,248,782 and amortized cost of $44,248,136. These unrealized losses were primarily due to market interest rate movements in the bond market as of December 31, 2016. The ratio of the fair value to the amortized cost of these 170 securities is 95%.

 

As of June 30, 2017, the Company had one available-for-sale equity security with an unrealized loss of $40, fair value of $49,960 and cost of $50,000. The ratio of fair value to cost of this security is 99.9%.

 

As of December 31, 2016, the Company had three available-for-sale equity securities with an unrealized loss of $6,454, fair value of $185,473 and cost of $191,927. The ratio of fair value to cost of these securities is 97%.

 

Fixed maturity securities were 93% and 92% investment grade as rated by Standard & Poor’s as of June 30, 2017 and December 31, 2016, respectively.

 

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

 

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

 

The Company has recorded other-than-temporary impairments on its fixed maturity available-for-sale investment in an energy corporation with a total par value of $650,000 as a result of continuing unrealized losses. During fourth quarter 2016 this security was initially impaired by a $207,450 charge to the statement of operations. During second quarter 2017 this security was further impaired by a $224,250 charge to the statement of operations. These impairments were considered fully credit-related and represent the difference between the amortized cost basis of the security and its fair value. The Company experienced no additional other-than-temporary impairments on fixed maturity available-for-sale securities for the three and six months ended June 30, 2017 and the year ended December 31, 2016.

 

Management believes that the Company will fully recover its cost basis in the securities held as of June 30, 2017, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature.  The remaining temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment. 

 

 
17

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(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, 2017 and December 31, 2016, are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2017

   

December 31, 2016

 

Unrealized appreciation on available-for-sale securities

  $ 4,793,477     $ 1,039,897  

Adjustment to deferred acquisition costs

    (85,831 )     (16,553 )

Deferred income taxes

    (941,529 )     (204,668 )

Net unrealized appreciation on available-for-sale securities

  $ 3,766,117     $ 818,676  

 

The Company’s investment in lottery prize cash flows categorized as other long-term investments in the statement of financial position was $57,895,580 and $46,788,873 as of June 30, 2017 and December 31, 2016, 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, 2017, by contractual maturity, are summarized as follows:

 

   

June 30, 2017 (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

  $ 9,129,356     $ 9,228,487     $ 8,369,492     $ 8,501,590  

Due after one year through five years

    30,195,177       31,184,027       23,279,727       25,343,966  

Due after five years through ten years

    40,929,284       42,130,385       16,234,072       19,781,009  

Due after ten years

    66,529,296       68,936,504       10,012,289       15,992,575  

Due at multiple maturity dates

    32,278       71,720       -       -  
                                 
    $ 146,815,391     $ 151,551,123     $ 57,895,580     $ 69,619,140  

 

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

 

 
18

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(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 available-for-sale, mortgage loans on real estate, investment real estate and other long-term investments for the three and six months ended June 30, 2017 and 2016 are summarized as follows:

 

 

   

Three Months Ended June 30, (Unaudited)

 
   

Fixed Maturity Securities

   

Equity Securities

   

Mortgage Loans on Real Estate

   

Investment Real Estate

 
   

2017

   

2016

   

2017

   

2016

   

2017

   

2016

   

2017

   

2016

 

Proceeds

  $ 8,154,018     $ 5,219,798     $ -     $ 19,210     $ 5,598,724     $ 2,089,278     $ 82,917     $ -  

Gross realized gains

    356,147       155,956       -       8,711       -       14,416       3,563       -  

Gross realized losses

    (329,229 )     (12,990 )     -       -       -       -       (1,668 )     -  

Loss on other-than-temporary impairment

    (224,250 )     -       -       -       -       -       -       -  

 

   

Three Months Ended June 30, (Unaudited)

 
   

Other Long-Term Investments

 
   

2017

   

2016

 

Proceeds

  $ 792,012     $ -  

Gross realized gains

    62,275       -  

Gross realized losses

    -       -  

Loss on other-than-temporary impairment

    -       -  

 

 

   

Six Months Ended June 30, (Unaudited)

 
   

Fixed Maturity Securities

   

Equity Securities

   

Mortgage Loans on Real Estate

   

Investment Real Estate

 
   

2017

   

2016

   

2017

   

2016

   

2017

   

2016

   

2017

   

2016

 

Proceeds

  $ 12,603,249     $ 7,494,211     $ -     $ 128,010     $ 10,724,113     $ 3,661,522     $ 190,084     $ -  

Gross realized gains

    527,252       163,050       -       8,711       -       17,991       6,050       -  

Gross realized losses

    (336,315 )     (41,342 )     -       (1,468 )     -       -       (1,668 )     -  

Loss on other-than-temporary impairment

    (224,250 )     -       -       -       -       -       -       -  

 

   

Six Months Ended June 30, (Unaudited)

 
   

Other Long-Term Investments

 
   

2017

   

2016

 

Proceeds

  $ 792,012     $ -  

Gross realized gains

    62,275       -  

Gross realized losses

    -       -  

Loss on other-than-temporary impairment

    -       -  

 

 
19

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

2. Investments (continued)

 

The accumulated change in net unrealized investment gains (losses) for fixed maturity and equity securities available-for-sale for the three and six months ended June 30, 2017 and 2016 and the amount of realized investment gains on fixed maturity securities available-for-sale, equity securities available-for-sale, mortgage loans on real estate, investment real estate and other long-term investments for the three and six months ended June 30, 2017 and 2016 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2017

   

2016

   

2017

   

2016

 

Change in unrealized investment gains (losses):

                               
                                 

Available-for-sale securities:

                               

Fixed maturity securities

  $ 2,673,801     $ 4,452,781     $ 3,734,842     $ 8,260,179  

Equity securities

    714       (1,604 )     18,738       (6,754 )

Net realized investment gains:

                               

Available-for-sale securities:

                               

Fixed maturity securities

    26,918       142,966       190,937       121,708  

Equity securities

    -       8,711       -       7,243  

Mortgage loans on real estate

    -       14,416       -       17,991  

Investment real estate

    1,895       -       4,382       -  

Other long-term investments

    62,275        -       62,275        -  

 

Major categories of net investment income for the three and six months ended June 30, 2017 and 2016 are summarized as follows:

 

   

Three Months Ended June 30, (Unaudited)

   

Six Months Ended June 30, (Unaudited)

 
   

2017

   

2016

   

2017

   

2016

 

Fixed maturity securities

  $ 1,665,525     $ 1,533,301     $ 3,155,895     $ 3,100,519  

Equity securities

    5,086       6,658       10,158       13,840  

Other long-term investments

    882,009       622,502       1,739,479       1,170,324  

Mortgage loans

    1,876,637       1,328,427       3,544,031       2,681,498  

Policy loans

    28,453       26,491       56,017       52,589  

Real estate

    93,712       91,968       187,423       183,936  

Short-term and other investments

    112,798       69,874       223,084       142,144  

Gross investment income

    4,664,220       3,679,221       8,916,087       7,344,850  

Investment expenses

    (669,156 )     (420,587 )     (1,251,152 )     (726,013 )

Net investment income

  $ 3,995,064     $ 3,258,634     $ 7,664,935     $ 6,618,837  

 

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, 2017 and December 31, 2016, these required deposits, included in investment assets, had amortized costs that totaled $4,117,454 and $4,099,405, respectively. As of June 30, 2017 and December 31, 2016, these required deposits had fair values that totaled $4,155,323 and $4,125,116, respectively.

 

 
20

 

 

First Trinity Financial Corporation and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2017

(Unaudited)

 

2. Investments (continued)

 

The Company’s mortgage loans by property type as of June 30, 2017 and December 31, 2016 are summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2017

   

December 31, 2016

 

Commercial and industrial mortgage loans

               
                 

Retail stores

  $ 1,271,853     $ 1,075,324  

Office buildings

    139,198       179,484  

Industrial

    435,200       -  
                 

Total commercial and industrial mortgage loans

    1,846,251       1,254,808  
                 

Residential mortgage loans

    98,490,808       73,116,478  
                 

Total mortgage loans

  $ 100,337,059     $ 74,371,286  

 

The Company’s investment real estate as of June 30, 2017 and December 31, 2016 is summarized as follows:

 

   

(Unaudited)

         
   

June 30, 2017

   

December 31, 2016

 

Land - held for the production of income

  $ 213,160     $ 213,160