Exhibit 21.1
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
Exhibit 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
3
PART 1 Item 1. Business
Business Development
First Trinity Financial Corporation (the “Company”) is the parent holding company of Trinity Life Insurance Company, Family Benefit Life Insurance Company, First Trinity Capital Corporation and Southern Insurance Services, LLC.
First Trinity Financial Corporation was incorporated in Oklahoma on April 19, 2004, for the primary purpose of organizing a life insurance subsidiary. The Company raised $1,450,000 from two private placement stock offerings during 2004. On June 22, 2005, the Company’s intrastate public stock offering filed with the Oklahoma Department of Securities for $12,750,000, which included a 10% "over-sale" provision (additional sales of $1,275,000), was declared effective. The offering was completed February 23, 2007. The Company raised $14,025,000 from this offering.
On June 29, 2010, the Company commenced a public offering of its common stock registered with the U.S. Securities and Exchange Commission and the Oklahoma Department of Securities. The public offering is for 1,333,334 shares of the Company’s common stock for $7.50 per share. All these shares were sold as of February 17, 2012 and the Company has now received $8.5 million after reduction for offering expenses and sales commissions. The Company has registered an additional 133,334 shares of its common stock to cover over subscriptions. The Company is now selling these oversubscriptions. The sale of all the additional shares would provide the Company with an additional $850,000 after reduction for offering expenses and sales commissions.
The offering was extended on June 28, 2011 and will end on June 28, 2012, unless all the Company’s shares are sold before then. As of December 31, 2011, the Company has received gross proceeds of $9,271,215 from the subscription of 1,236,162 shares of its common stock in this offering and incurred $1,404,300 in offering costs. The proceeds were originally deposited in an escrow account that was released from escrow by the Oklahoma Department of Securities in August 2010 after the offering exceeded $1,000,000 in gross proceeds. Proceeds from the sale of shares of the Company’s common stock in this public offering after August 2010 were available to the Company without being held in escrow.
The Company purchased First Life America Corporation (“FLAC”) on December 23, 2008. 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 Trinity Life Insurance Company (“TLIC”).
After the merger, the Company had two wholly owned subsidiaries, First Trinity Capital Corporation (“FTCC”) and TLIC, domiciled in Oklahoma.
TLIC is primarily engaged in the business of marketing, underwriting and distributing a broad range of individual life and annuity insurance products to individuals in eight states primarily in the Midwest. TLIC’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 products are sold through independent agents in the states of Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio, Oklahoma and Texas. The Company’s operations, prior to the acquisition of FLAC, involved the sale of a modified premium whole life insurance policy with a flexible premium deferred annuity rider through its subsidiary Old TLIC in the state of Oklahoma.
On October 20, 2011, Trinity Life Insurance Company announced that it had signed a transaction agreement to acquire Family Benefit Life Insurance Company, a life and annuity insurance company incorporated and domiciled in Missouri. Prior to October 20, 2011, the Company purchased 401,381 Family Benefit Life common shares. TLIC purchased all of the remaining 886,259 issued and outstanding shares of Family Benefit Life from its shareholders. The transaction price per share was $11.05 and was based on Family Benefit Life’s statutory capital and surplus (presented in accordance with statutory accounting principles) as of September 30, 2011 and the number of common shares issued and outstanding as of September 30, 2011 plus a premium of approximately $3.7 million. The transaction was subject to completion of due diligence, the continuation of Family Benefit Life’s business in the ordinary course and certain other conditions.
4
Closing of the Family Benefit Life acquisition occurred between December 13, 2011 and December 28, 2011 as Trinity Life Insurance Company purchased the Family Benefit Life’s remaining 886,259 issued and outstanding shares from the Company’s shareholders. Family Benefit Life is primarily engaged in the business of marketing, underwriting and distributing a broad range of individual life and annuity insurance products to individuals in seven states. Family Benefit Life’s current product portfolio consists of whole life, term, accidental death and dismemberment, annuity, endowment and group life insurance products. The products are sold through independent agents in the states of Arizona, Colorado, Kansas, Missouri, Nebraska, New Mexico and Oklahoma.
FTCC was incorporated in 2006, and began operations in January 2007 providing financing for casualty insurance premiums. FTCC provides financing for casualty insurance premiums for individuals and companies and is licensed to conduct premium financing business in the states of Alabama, Arkansas, Louisiana, Mississippi and Oklahoma.
The Company also owns 100% of Southern Insurance Services, LLC, (“SIS”), a limited liability company acquired in 2009, that operated a property and casualty insurance agency through 2010 but currently has no operations.
The Company was a development stage company until commencing operations in 2007. Net losses of $3,480,907 occurred from 2004 through 2009. Those losses resulted primarily from costs incurred while raising capital and establishing the subsidiary companies as well as losses resulting from issuing and administering new and renewal life insurance policies. The Company’s operations produced combined net income of $7,451,329 in 2010 and 2011. The Company has therefore had cumulative net income since inception of $3,850,422. The Company issued 323,777 shares in connection with a stock dividend paid to shareholders of record as of March 10, 2011, however, that resulted in accumulated earnings (deficit) being charged $2,428,328 with an offsetting credit of $2,428,328 to common stock and additional paid-in capital. The impact of this stock dividend charge of $2,428,328 to accumulated earnings (deficit) decreased the balance as of December 31, 2011 to $1,542,094.
Acquisition of Other Companies
On December 23, 2008, FTFC acquired 100% of the outstanding common stock of First Life America Corporation from an unaffiliated company (the “FLAC acquisition”). The FLAC acquisition was accounted for as a purchase. The aggregate purchase price for the FLAC acquisition was approximately $2,695,000 (including direct cost associated with the acquisition of approximately $195,000). The FLAC acquisition 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.
On December 28, 2011, TLIC acquired 100% of the outstanding common stock of Family Benefit Life from Family Benefit Life’s shareholders (the “Family Benefit Life acquisition”). The Family Benefit Life acquisition was accounted for as a purchase. The aggregate purchase price for the Family Benefit Life acquisition was $13,855,129.
TLIC acquired 100% ownership of Family Benefit Life for $13,855,129 paid in cash. The fair value of the net assets acquired in this transaction was $20,770,608. Since the fair value of the net assets acquired exceeded the purchase price for acquiring those net assets by $6,915,479, the residual was recorded in the consolidated statements of operations as a component of revenues captioned as “Gain from acquisition of Family Benefit Life” per the requirements of Financial Accounting Standards Board Codification Topic 805 “Business Combinations.” The reason for the gain from the acquisition of Family Benefit Life related primarily to that company’s management not being committed to wanting to rebuild the marketing force of that company in the current economic environment.
Financial Information about Segments
Our business is comprised of three primary operating business segments: Life and Annuity Insurance Operations, Premium Finance Operations and Corporate Operations. Results for the parent holding company, after elimination of intercompany amounts, are allocated to the corporate operations segment.
See Note 12 of the “Notes to Consolidated Financial Statements” for operating results of our segments for each of the years ended December 31, 2011 and 2010.
5
Our Life and Annuity Insurance Operations consists of issuing ordinary whole life insurance, modified premium whole life with an annuity rider, term, final expense, accidental death and dismemberment and annuity products. The policies can be issued with premiums fully guaranteed for the entire term period or with a limited premium guarantee. The final expense is issued as either a simplified issue or as a Graded Benefit, determined by underwriting.
Old TLIC entered into an administrative services agreement with Investors Heritage Life Insurance Company (“IHLIC”) on January 11, 2007. Under the terms of this agreement, IHLIC provided services that included underwriting, actuarial, policy issue, accounting, claims processing and other services incidental to the operations of OLD TLIC. The agreement was effective for a period of five (5) years. However, the agreement was terminated after the merger with FLAC and replaced with a new TLIC administrative services agreement dated May 28, 2009 that provides the same services as the terminated agreement with Old TLIC. The new agreement terminated on January 31, 2012 and is now on a month-to-month basis as a new agreement is being negotiated with virtually the same terms as the previous agreement that will likely include a provision that the agreement may be terminated at any time with a 180 day prior notice.
We seek to serve middle income households in the states of Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio, Oklahoma and Texas. The majority of our inforce business results from the acquisition of FLAC. We market our products through independent agents. The acquisition of Family Benefit Life will allow us to expand during 2012 into the additional states of Arizona, Colorado, Missouri and New Mexico.
The following table sets forth our direct collected premiums and annuity considerations by state, for each state in which we are licensed, for the years ended December 31, 2011 and 2010, in accordance with statutory accounting practices prescribed by the states of domicile of TLIC.
| |
|
2011
|
|
|
State
|
|
Life
|
|
|
|
|
|
Annuity
|
|
|
|
|
|
Illinois
|
|
$ |
662,596 |
|
|
|
10 |
% |
|
$ |
233,200 |
|
|
|
2 |
% |
|
Kansas
|
|
|
2,027,065 |
|
|
|
31 |
% |
|
|
4,416,651 |
|
|
|
29 |
% |
|
Kentucky
|
|
|
117,781 |
|
|
|
2 |
% |
|
|
- |
|
|
|
0 |
% |
|
Nebraska
|
|
|
127,653 |
|
|
|
2 |
% |
|
|
768,952 |
|
|
|
5 |
% |
|
North Dakota
|
|
|
141,904 |
|
|
|
2 |
% |
|
|
3,491,223 |
|
|
|
23 |
% |
|
Ohio
|
|
|
709,532 |
|
|
|
11 |
% |
|
|
25,600 |
|
|
|
0 |
% |
|
Oklahoma
|
|
|
1,615,111 |
|
|
|
24 |
% |
|
|
1,466,488 |
|
|
|
10 |
% |
|
Texas
|
|
|
1,090,481 |
|
|
|
17 |
% |
|
|
4,769,022 |
|
|
|
31 |
% |
|
All other
|
|
|
98,814 |
|
|
|
1 |
% |
|
|
65,508 |
|
|
|
0 |
% |
|
Total direct collected premium
|
|
$ |
6,590,937 |
|
|
|
100 |
% |
|
$ |
15,236,644 |
|
|
|
100 |
% |
2011
State
Life
Annuity
Illinois
Kansas
Kentucky
Nebraska
North Dakota
Ohio
Oklahoma
Texas
All other
Total direct collected premium
| |
|
2010
|
|
|
State
|
|
Life
|
|
|
|
|
|
Annuity
|
|
|
|
|
|
Illinois
|
|
$ |
504,128 |
|
|
|
8 |
% |
|
$ |
11,500 |
|
|
|
0 |
% |
|
Kansas
|
|
|
1,912,919 |
|
|
|
30 |
% |
|
|
2,596,393 |
|
|
|
42 |
% |
|
Kentucky
|
|
|
105,531 |
|
|
|
2 |
% |
|
|
- |
|
|
|
0 |
% |
|
Nebraska
|
|
|
108,450 |
|
|
|
2 |
% |
|
|
6,500 |
|
|
|
0 |
% |
|
North Dakota
|
|
|
120,800 |
|
|
|
2 |
% |
|
|
1,793,832 |
|
|
|
29 |
% |
|
Ohio
|
|
|
605,955 |
|
|
|
9 |
% |
|
|
600 |
|
|
|
0 |
% |
|
Oklahoma
|
|
|
1,836,252 |
|
|
|
29 |
% |
|
|
985,933 |
|
|
|
16 |
% |
|
Texas
|
|
|
1,027,304 |
|
|
|
16 |
% |
|
|
831,800 |
|
|
|
13 |
% |
|
All other
|
|
|
95,760 |
|
|
|
2 |
% |
|
|
12,185 |
|
|
|
0 |
% |
|
Total direct collected premium
|
|
$ |
6,317,099 |
|
|
|
100 |
% |
|
$ |
6,238,743 |
|
|
|
100 |
% |
2010