FIRST TRINITY FINANCIAL CORP – 10-K – 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.



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



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



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



Acquisitions



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

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

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

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

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



On January 4, 2022, FTFC acquired RCLIC from Royalty in exchange for 722,644
shares of FTFC's Class A common stock issued to unrelated parties. Royalty was
dissolved immediately after FTFC acquired RCLIC. On March 1, 2022, the Missouri
Department of Commerce and Insurance approved FTFC's contribution and merger of
RCLIC into FBLIC.

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 accounting principles
generally accepted in the United States ("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, value of insurance business acquired
and policy liabilities. 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. We believe the following accounting policies,
judgments and estimates are the most critical to the preparation of our
consolidated financial statements.



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Investments in Fixed Maturity Securities

We hold fixed maturity interests in a variety of companies. We continuously
evaluate all of our fixed maturity investments based on current economic
conditions, credit loss experience and other developments. We evaluate the
difference between the amortized cost and estimated fair value of our fixed
maturity investments to determine whether any decline in fair value is
other-than-temporary in nature. This determination involves a degree of
uncertainty. If a decline in the fair value of a fixed maturity security is
determined to be temporary, the decline is recognized in other comprehensive
income (loss) within shareholders' equity. If a decline in a security's fair
value is considered to be other-than-temporary, we then determine the proper
treatment for the other-than-temporary impairment.



For fixed maturity securities, the amount of any other-than-temporary impairment
related to a credit loss is recognized in earnings and reflected as a reduction
in the cost basis of the security. The amount of any other-than-temporary
impairment related to other factors is recognized in other comprehensive income
(loss) with no change to the cost basis of the security.



The assessment of whether a decline in fair value is considered temporary or
other-than-temporary includes management's judgment as to the financial position
and future prospects of the entity issuing the security. It is not possible to
accurately predict when it may be determined that a specific security will
become impaired. Future adverse changes in market conditions, poor operating
results of underlying fixed maturity investments and defaults on interest and
principal payments could result in losses or an inability to recover the current
carrying value of the fixed maturity investments, thereby possibly requiring an
impairment charge in the future.



In addition, if a change occurs in our intent to sell temporarily impaired fixed
maturity securities prior to maturity or recovery in value, or if it becomes
more likely than not that we will be required to sell such securities prior to
recovery in value or maturity, a future impairment charge could result. If an
other-than-temporary impairment related to a credit loss occurs with respect to
a fixed maturity security, we amortize the reduced book value back to the
security's expected recovery value over the remaining term of the fixed maturity
investment. We continue to review the fixed maturity security for further
impairment that would prompt another write-down in the book value.



Mortgage Loans on Real Estate



We carry mortgage loans on real estate at unpaid balances, net of unamortized
premium or discounts. Interest income and the amortization of premiums or
discounts are included in net investment income. Mortgage loan fees, certain
direct loan origination costs and purchase premiums and discounts on loans are
recognized as an adjustment of yield by the interest method based on the
contractual terms of the loan. In certain circumstances, prepayments may be
anticipated. We have established a valuation allowance for mortgage loans on
real estate that are not supported by funds held in escrow.



This 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 our judgment, the known and
inherent credit losses existing in the residential and commercial mortgage loan
portfolio. This allowance, in our judgment, is necessary to reserve for
estimated loan losses inherent in the residential and commercial 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 we utilize our best judgment and information available, the ultimate
adequacy of this allowance is dependent upon a variety of factors beyond our
control, including the performance of the residential and commercial mortgage
loan portfolio, the economy and changes in interest rates. Our 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.



We consider mortgage loans on real estate impaired when, based on current
information and events, it is probable that we will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the mortgage loan agreement. Impairment is measured on a
loan-by-loan basis. Factors that we consider 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.



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We determine 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 on real estate 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.

Deferred Policy Acquisition Costs

Commissions and other acquisition costs which vary with and are primarily
related to the successful production of new and renewal insurance contracts are
deferred and amortized in a systematic manner based on the related contract
revenues or gross profits as appropriate. The recovery of deferred acquisition
costs is dependent on the future profitability of the underlying business for
which acquisition costs were incurred. Each reporting period, we evaluate the
recoverability of the unamortized balance of deferred acquisition costs. We
consider estimated future gross profits or future premiums; expected mortality
or morbidity; interest earned and credited rates; persistency and expenses in
determining whether the balance is recoverable.



If we determine a portion of the unamortized balance is not recoverable, it is
immediately charged to amortization expense. The assumptions we use to amortize
and evaluate the recoverability of the deferred acquisition costs involve
significant judgment. A revision to these assumptions may impact future
financial results. Deferred acquisition costs related to the successful
production of new and renewal insurance business for traditional life insurance
contracts are deferred to the extent deemed recoverable and amortized over the
premium paying period of the related policies using assumptions consistent with
those used in computing future policy benefit liabilities.



Deferred acquisition costs related to the successful production of new and
renewal insurance and annuity products 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 deferred to the extent
deemed recoverable and amortized in relation to the present value of actual and
expected gross profits on the policies. To the extent that realized gains and
losses on securities result in adjustments to deferred acquisition costs related
to insurance and annuity products, such adjustments are reflected as a component
of the amortization of deferred acquisition costs.



Deferred acquisition costs related to limited-payment long-duration insurance
and annuity contracts are also adjusted, net of tax, for the change in
amortization that would have been recorded if the unrealized gains (losses) from
securities had actually been realized. This adjustment is included in the change
in net unrealized appreciation (depreciation) on available-for-sale securities,
a component of "Accumulated Other Comprehensive Income (Loss)" in the
shareholders' equity section of the statement of financial position.

Value of Insurance Business Acquired

As a result of our purchases of FLAC and FBLIC, an asset was recorded in the
application of purchase accounting to recognize the value of acquired insurance
in force.  The Company's value of acquired insurance in force is an intangible
asset with a definite life and is amortized under FASB guidance. The value of
acquired insurance in force is amortized primarily over the emerging profit of
the related policies using the same assumptions that were used in computing
liabilities for future policy benefits. The recovery of the value of insurance
business acquired is dependent on the future profitability of the underlying
business that was initially recorded in the purchases of FLAC and FBLIC. Each
reporting period, we evaluate the recoverability of the unamortized balance of
the value of insurance business acquired.



For the amortization of the value of acquired insurance in force, the Company
reviews its estimates of gross profits each reporting period. The most
significant assumptions involved in the estimation of gross profits include
interest rate spreads; future financial market performance; business surrender
and lapse rates; mortality and morbidity; expenses and the impact of realized
investment gains and losses. In the event actual experience differs
significantly from assumptions or assumptions are significantly revised, the
Company is required to record a charge or credit to amortization expense for the
period in which an adjustment is made.



As of December 31, 2022 and 2021, there was $4,691,773 and $4,421,379,
respectively, of accumulated amortization of the value of insurance business
acquired due to the purchases of FLAC and FBLIC. The Company expects to amortize
the value of insurance business acquired by the following amounts over the next
five years:, $257,470 in 2023, $215,134 in 2024, $202,009 in 2025, $176,859 in
2026 and $170,026 in 2027.



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Future Policy Benefits



Our liability for future policy benefits is primarily comprised of the present
value of estimated future payments to or on behalf of policyholders, where the
timing and amount of payment depends on policyholder mortality or morbidity,
less the present value of future net premiums. For life insurance and annuity
products, expected mortality and morbidity is generally based on the Company's
historical experience or standard industry tables including a provision for the
risk of adverse deviation.



Interest rate assumptions are based on factors such as market conditions and
expected investment returns. Although mortality and morbidity and interest rate
assumptions are "locked-in" upon the issuance of new insurance with fixed and
guaranteed terms, significant changes in experience or assumptions may require
the Company to provide for expected future losses on a product by establishing
premium deficiency reserves.

Estimating liabilities for our long-duration insurance contracts requires
management to make various assumptions, including policyholder persistency,
mortality rates, investment yields, discretionary benefit increases, new
business pricing and operating expense levels.

Since many of these factors are interdependent and subject to short-term
volatility during the long-duration contract period, substantial judgment is
required. Actual experience may emerge differently from that originally
estimated. Any such difference would be recognized in the current year's
consolidated statement of operations.

Recent Accounting Pronouncements

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

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



The expected credit losses, and subsequent adjustments to such losses, will be
recorded through an allowance account that is deducted from the amortized cost
basis of the financial asset, with the net carrying value of the financial asset
presented on the consolidated balance sheet at the amount expected to be
collected. The updated guidance also amends the current other-than-temporary
impairment model for available-for-sale debt securities by requiring the
recognition of impairments relating to credit losses through an allowance
account and limits the amount of credit loss to the difference between a
security's amortized cost basis and its fair value. In addition, the length of
time a security has been in an unrealized loss position will no longer impact
the determination of whether a credit loss exists.

The updated guidance was effective for reporting periods beginning after
December 15, 2019. As a Smaller Reporting Company, the effective date was
recently changed and the delayed effective date is now for reporting periods
beginning after December 15, 2022.

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



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Targeted Improvements to the Accounting for Long-Duration Contracts

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



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



With respect to the market risk benefits, an insurance entity should apply the
amendments retrospectively as of the beginning of the earliest period presented.
The Company expects that the impact on the Company's results of operations,
financial position and liquidity at the date of adoption of the updated guidance
in 2025 will be determined by the long-duration contracts then held by the
Company and the economic conditions at that time.

Income Taxes - Simplifying the Accounting for Income Taxes

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

Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued amendments (Accounting Standards Update 2022-2)
for the accounting of troubled debt restructuring and disclosures. The
amendments introduce new requirements related to certain modifications of
receivables made to borrowers experiencing financial difficulties. The
amendments promulgate that an entity must apply specific loan refinancing and
restructuring guidance to determine whether a modification results in a new loan
or the continuation of an existing loan. The amendments also require that an
entity disclose current-period gross write-offs by year of origination for
financing receivables and net investment in leases. The amendments in this
guidance are effective for fiscal years beginning after December 15, 2022,
including interim periods and should be applied prospectively. The adoption of
this guidance should not have a material effect on the Company's results of
operations, financial position or liquidity.

Transition for Sold Contracts

In December 2022, the FASB issued amendments (Accounting Standards Update
2022-5) to Accounting Standards Update 2018-12 (Targeted Improvements for
Long-Duration Contracts) that originally required an insurance entity to apply a
retrospective transition method as of the beginning of the earliest period
presented or the beginning of the prior fiscal year if early application was
elected. This updated guidance reduces implementation costs and complexity
associated with the adoption of targeted improvements in accounting for
long-duration contracts that have been derecognized in accordance with
Accounting Standards Update 2018-12 before the delayed effective date.



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Without the amendments in this Update, an insurance entity would be required to
reclassify a portion of gains or losses previously recognized in the sale or
disposal of insurance contacts or legal entities because of the adoption of a
new accounting standard. Because there is no effect on an insurance entity's
future cash flows, this reclassification may not be useful to users of financial
information. The amendments in this guidance are effective for fiscal years
beginning after December 15, 2024. Early adoption is permitted but not likely to
be elected by the Company. 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 2025 will be determined by the long-duration
contracts then held by the Company and the economic conditions at that time.



FINANCIAL HIGHLIGHTS



Consolidated Condensed Results of Operations for the Years Ended December 31,
2022 and 2021



                                               Years Ended December 31,           Amount Change
                                                2022               2021          2022 less 2021
Premiums                                   $   35,705,560     $   31,922,288     $     3,783,272
Net investment income                          26,221,172         23,984,188           2,236,984
Net realized investment gains                     544,217            898,551            (354,334 )
Service fees                                    3,004,324            228,597           2,775,727
Other income                                       83,826             82,617               1,209
Total revenues                                 65,559,099         57,116,241           8,442,858
Benefits and claims                            41,171,820         37,354,646           3,817,174
Expenses                                       16,416,627         16,088,307             328,320
Total benefits, claims and expenses            57,588,447         53,442,953           4,145,494
Income before federal income tax expense        7,970,652          3,673,288           4,297,364
Federal income tax expense                      1,785,949            815,918             970,031
Net income                                 $    6,184,703     $    2,857,370     $     3,327,333
Net income per common share
Class A common stock                       $       0.6531     $       0.3266     $        0.3265
Class B common stock                       $       0.5551     $       0.2776     $        0.2775

Consolidated Condensed Financial Position as of December 31, 2022 and 2021

                                                                                        Amount Change
                                        December 31, 2022       December 31, 2021       2022 less 2021


Investment assets                      $       442,069,335     $       434,120,334     $      7,949,001
Assets held in trust under
coinsurance agreement                           92,033,769             106,210,246          (14,176,477 )
Other assets                                   131,760,933             119,428,354           12,332,579
Total assets                           $       665,864,037     $       659,758,934     $      6,105,103

Policy liabilities                     $       504,059,423     $       464,853,615     $     39,205,808
Funds withheld under coinsurance
agreement                                       92,301,039             106,586,633          (14,285,594 )
Deferred federal income taxes                    2,677,411               8,966,303           (6,288,892 )
Other liabilities                               15,173,652              10,957,832            4,215,820
Total liabilities                              614,211,525             591,364,383           22,847,142
Shareholders' equity                            51,652,512              68,394,551          (16,742,039 )
Total liabilities and shareholders'
equity                                 $       665,864,037     $       

659,758,934 $ 6,105,103

Shareholders' equity per common
share
Class A common stock                   $            5.4542     $            7.8186     $        (2.3644 )
Class B common stock                   $            4.6360     $            6.6458     $        (2.0098 )




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Results of Operations - Years Ended December 31, 2022 and 2021

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 years ended December 31, 2022 and 2021 are summarized as
follows:



                                  Years Ended December 31,         Amount Change
                                    2022             2021         2022 less 2021
Premiums                        $ 35,705,560     $ 31,922,288     $     3,783,272
Net investment income             26,221,172       23,984,188           2,236,984
Net realized investment gains        544,217          898,551            (354,334 )
Service fees                       3,004,324          228,597           2,775,727
Other income                          83,826           82,617               1,209
Total revenues                  $ 65,559,099     $ 57,116,241     $     8,442,858

The $8,442,858 increase in total revenues for the year ended December 31, 2022
is discussed below.

Premiums



Our premiums for the years ended December 31, 2022 and 2021 are summarized as
follows:



                             Years Ended December 31,         Amount Change
                               2022             2021         2022 less 2021
Ordinary life first year   $  2,654,456     $  1,781,561     $       872,895
Ordinary life renewal         4,958,248        3,937,981           1,020,267
Final expense first year      4,314,119        5,907,114          (1,592,995 )
Final expense renewal        23,778,737       20,295,632           3,483,105
Total premiums             $ 35,705,560     $ 31,922,288     $     3,783,272

The $3,783,272 increase in premiums for the year ended December 31, 2022 is
primarily due to a $3,483,105 increase in final expense renewal premiums,
$1,020,267 increase in ordinary life renewal premiums, $872,895 increase in
ordinary life first year premiums that exceeded a $1,592,995 decrease in final
expense first year premiums.

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



Service Fees

The $2,775,727 increase in service fees for the year ended December 31, 2022 is
primarily due to brokering mortgage loans for a fee to third parties.

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Net Investment Income

The major components of our net investment income for the years ended December
31, 2022 and 2021 are summarized as follows:

                                     Years Ended December 31,         Amount Change
                                       2022             2021         2022 less 2021
Fixed maturity securities          $  7,061,501     $  7,121,593     $       (60,092 )
Equity securities                       211,290          121,585              89,705
Other long-term investments           4,975,205        4,806,506             168,699
Mortgage loans                       16,850,320       14,263,706           2,586,614
Policy loans                            194,814          163,893              30,921
Short-term and other investments        243,315          107,221             136,094
Gross investment income              29,536,445       26,584,504           2,951,941

Investment expenses                  (3,315,273 )     (2,600,316 )           714,957
Net investment income              $ 26,221,172     $ 23,984,188     $     2,236,984




The $2,951,941 increase in gross investment income for the year ended December
31, 2022 is primarily due to $2,586,614 increase in mortgage loans, $168,699
increase in other long-term investments and a $136,094 increase in short-term
and other investments.



In twelve months since December 31, 2021, our investments in mortgage loans
increased approximately $64.8 million. In twelve months since December 31, 2021,
our investments in other long-term investments increased approximately $1.6
million. The increase in short-term and other investment is due to higher gross
effective yields on securities held in the portfolio and an increase in other
investments.

The $714,957 increase in investment expense for the year ended December 31, 2022
is primarily related to increased mortgage loan acquisition expenses.

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Net Realized Investment Gains

Our net realized investment gains result from sales of fixed maturity
securities, mortgage loans on real estate, investment real estate, equity
securities, other long-term investments and changes in the fair value of equity
securities.

Our net realized investment gains for the years ended December 31, 2022 and 2021
are summarized as follows:



                                             Years Ended December 31,          Amount Change
                                              2022              2021          2022 less 2021
Fixed maturity securities
available-for-sale:
Sale proceeds and maturities              $  58,393,624     $  14,374,511     $    44,019,113
Amortized cost at sale date                  57,531,842        13,760,736          43,771,106
Net realized gains                        $     861,782     $     613,775     $       248,007

Mortgage loans on real estate:
Sale proceeds                             $           -     $  28,966,890     $   (28,966,890 )
Cost at sale date                                     -        28,931,580         (28,931,580 )
Net realized gains                        $           -     $      35,310     $       (35,310 )

Investment real estate:
Sale proceeds                             $     200,080     $     818,018     $      (617,938 )
Carrying value at sale date                     147,909           528,178            (380,269 )
Net realized gains                        $      52,171     $     289,840     $      (237,669 )

Equity securities at fair value:
Sale proceeds                             $           -     $          89     $           (89 )
Cost at sale date                                 8,000                 -               8,000
Net realized gains (losses)               $      (8,000 )   $          89   

$ (8,089 )

Other long-term investments:
Sale proceeds                             $  16,308,664     $  12,812,964     $     3,495,700
Carrying value at sale date                  16,731,242        12,896,303   

3,834,939

Net realized losses                       $    (422,578 )   $     (83,339 ) 

$ (339,239 )

Equity securities, changes in fair
value                                     $      60,842     $      42,876   

$ 17,966

Net realized investment gains             $     544,217     $     898,551     $      (354,334 )




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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 years ended December 31, 2022 and 2021
are summarized as follows:



                                             Years Ended December 31,          Amount Change
                                              2022              2021          2022 less 2021
Benefits and claims
Increase in future policy benefits        $  13,713,452     $  12,121,912     $     1,591,540
Death benefits                               12,998,679        11,054,856           1,943,823
Surrenders                                    1,414,622         1,198,363             216,259
Interest credited to policyholders           12,714,469        12,663,112              51,357
Dividend, endowment and supplementary
life contract benefits                          330,598           316,403              14,195
Total benefits and claims                    41,171,820        37,354,646           3,817,174

Expenses
Policy acquisition costs deferred           (13,734,859 )     (12,102,070 )        (1,632,789 )
Amortization of deferred policy
acquisition costs                             7,280,457         6,932,504   

347,953

Amortization of value of insurance
business acquired                               270,394           274,478              (4,084 )
Commissions                                  12,776,046        12,069,749   

706,297

Other underwriting, insurance and
acquisition expenses                          9,824,589         8,913,646   

910,943

Total expenses                               16,416,627        16,088,307   

328,320

Total benefits, claims and expenses $ 57,588,447 $ 53,442,953

  $     4,145,494

The $4,145,494 increase in total benefits, claims and expenses for the year
ended December 31, 2022 is discussed below.

Benefits and Claims

The $3,817,174 increase in total benefits and claims for the year ended December
31, 2022 is primarily due to the following:

? $1,943,823 increase in death benefits is primarily due to approximately

$1,700,000 of increased final expense benefits and $244,000 of increased

    ordinary life benefits.




  ? $1,591,540 increase in future policy benefits is primarily due to the

increased number of life policies in force and the aging of existing life

    policies.

? $216,259 increase in surrenders is based upon policyholder election on life

    insurance 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.



                                       22

--------------------------------------------------------------------------------




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

For the years ended December 31, 2022 and 2021, capitalized costs were
$13,734,859 and $12,102,070, respectively. Amortization of deferred policy
acquisition costs for the years ended December 31, 2022 and 2021 were $7,280,457
and $6,932,504.

The $1,632,789 increase in the 2022 acquisition costs deferred primarily relates
to increased ordinary life first year and annuity production and deferral of
increased eligible commissions and expenses. There was an $347,953 increase in
the 2022 amortization of deferred acquisition costs due to 2022 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 $270,394 and $274,478 for the years ended December 31,
2022 and 2021, respectively.



Commissions



Our commissions for the years ended December 31, 2022 and 2021 are summarized as
follows:



                             Years Ended December 31,         Amount Change
                               2022             2021         2022 less 2021
Annuity                    $  2,099,439     $    807,782     $     1,291,657
Ordinary life first year      2,760,258        1,958,212             802,046
Ordinary life renewal           440,973          307,789             133,184
Final expense first year      5,180,713        7,039,287          (1,858,574 )
Final expense renewal         2,294,663        1,956,679             337,984
Total commissions          $ 12,776,046     $ 12,069,749     $       706,297




The $706,297 increase in commissions for the year ended December 31, 2022 is
primarily due to a $1,291,657 increase in annuity commissions that correspond to
a $39,331,353 increase in retained annuity deposits, $802,046 increase in
ordinary life first year commissions that corresponds to an $872,895 increase in
ordinary life first year premiums, $337,984 increase in final expense renewal
commissions that correspond to a $3,483,105 increase in final expense renewal
premiums, $133,184 increase in ordinary life renewal commissions that correspond
to a $1,020,267 increase in ordinary life renewal premiums that exceeded a
$1,858,574 decrease in final expense first year commissions that corresponded to
a $1,592,995 decrease in final expense first year premiums.

Other Underwriting, Insurance and Acquisition Expenses

The $910,943 increase in other underwriting, insurance and acquisition expenses
for the year ended December 31, 2022 was primarily related to increased
staffing, board fees, third party administration fees primarily related to
maintaining increased number of policies in force, increased service requests to
the third party administrator and the conversion of RCLIC.



Federal Income Taxes



FTFC files a consolidated federal income tax return with TLIC, FBLIC and TMC.
Certain items included in income reported for financial statement purposes are
not included in taxable income for the current period, resulting in deferred
income taxes.



                                       23

--------------------------------------------------------------------------------




For the years ended December 31, 2022 and 2021, current income tax expense
(benefit) was $758,465 and ($76,513), respectively. Deferred federal income tax
expense was $1,027,484 and $892,431 for the years ended December 31, 2022 and
2021, respectively.

Net Income Per Common Share Basic

For the year ended December 31, 2022, the net income allocated to the Class B
shareholders is the total net income multiplied by the right to receive
dividends at 85% for Class B shares (85,937) as of the reporting date divided by
the allocated total shares (9,470,277) of Class A shares (9,384,340) and Class B
shares (85,937) as of the reporting date. For the year ended December 31, 2021,
the net income allocated to the Class B shareholders is the total net income
multiplied by the right to receive dividends at 85% for Class B shares (85,937)
as of the reporting date divided by the allocated total shares (8,747,633) of
Class A shares (8,661,696) and Class B shares (85,937) as of the reporting date.



For the year ended December 31, 2022, the net income allocated to the Class A
shareholders of $6,128,581 is the total net income $6,184,703 less the net
income allocated to the Class B shareholders $56,122. For the year ended
December 31, 2021, the net income allocated to the Class A shareholders
$2,829,299 is the total net income $2,857,370 less the net income allocated to
the Class B shareholders $28,071.



The weighted average outstanding common shares basic for the year ended December
31, 2022 and 2021 were 9,384,340 and 8,661,696 for Class A shares, respectively
and 101,102 for Class B shares.



Business Segments

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

The revenues and income before federal income taxes from our business segments
for the years ended December 31, 2022 and 2021 are summarized as follows:

                                        Years Ended December 31,         Amount Change
                                          2022             2021         2022 less 2021
Revenues:
Life insurance operations             $ 41,826,391     $ 36,680,116     $     5,146,275
Annuity operations                      21,351,816       19,842,580           1,509,236
Corporate operations                     2,380,892          593,545           1,787,347
Total                                 $ 65,559,099     $ 57,116,241     $     8,442,858

Income before federal income taxes:
Life insurance operations             $  3,139,886     $  2,498,832     $       641,054
Annuity operations                       3,028,852        1,110,528           1,918,324
Corporate operations                     1,801,914           63,928           1,737,986
Total                                 $  7,970,652     $  3,673,288     $     4,297,364




                                       24

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The increases and decreases of revenues and profitability from our business
segments for the years ended December 31, 2022 and 2021 are summarized as
follows:



                                         Life Insurance        Annuity         Corporate
                                           Operations         Operations      Operations         Total
Revenues
Premiums                                $      3,783,272     $          -     $         -     $  3,783,272
Net invesment income                           1,157,320          820,372         259,292        2,236,984
Net realized investment gains                    (51,284 )       (295,050 )        (8,000 )       (354,334 )
Service fees and other income                    256,967          983,914       1,536,055        2,776,936
Total revenue                                  5,146,275        1,509,236       1,787,347        8,442,858

Benefits and claims
Increase in future policy benefits             1,591,540                -               -        1,591,540
Death benefits                                 1,943,823                -               -        1,943,823
Surrenders                                       216,259                -               -          216,259
Interest credited to policyholders                     -           51,357               -           51,357
Dividend, endowment and supplementary
life contract benefits                            14,195                -               -           14,195
Total benefits and claims                      3,765,817           51,357               -        3,817,174

Expenses

Policy acquisition costs deferred net
of amortization                                  960,368       (2,245,204 )             -       (1,284,836 )
Amortization of value of insurance
business acquired                                 (2,042 )         (2,042 )             -           (4,084 )
Commissions                                     (585,360 )      1,291,657               -          706,297
Other underwriting, insurance and
acquisition expenses                             366,438          495,144          49,361          910,943
Total expenses                                   739,404         (460,445 )        49,361          328,320
Total benefits, claims and expenses            4,505,221         (409,088 )        49,361        4,145,494
Income (loss) before federal income
taxes (benefits)                        $        641,054     $  1,918,324     $ 1,737,986     $  4,297,364

Consolidated Financial Condition

Our invested assets as of December 31, 2022 and 2021 are summarized as follows:



                                                                                             Amount Change
                                             December 31, 2022       December 31, 2021      2022 less 2021

Assets

Investments

Available-for-sale fixed maturity
securities at fair value (amortized cost:
$144,744,158 and $167,356,364 as of
December 31, 2022 and 2021, respectively)   $       126,612,890     $       184,077,038     $   (57,464,148 )
Equity securities at fair value (cost:
$276,131 and $285,558 as of December 31,
2022 and 2021, respectively)                            399,633                 348,218              51,415
Mortgage loans on real estate                       242,314,128             177,508,051          64,806,077
Investment real estate                                  540,436                 688,345            (147,909 )
Policy loans                                          2,840,887               2,272,629             568,258
Short-term investments                                1,860,578               3,296,838          (1,436,260 )
Other long-term investments                          67,500,783              65,929,215           1,571,568
Total investments                           $       442,069,335     $       434,120,334     $     7,949,001




                                       25

--------------------------------------------------------------------------------

The $57,464,148 decrease and $13,429,202 increase in fixed maturity
available-for-sale securities for the years ended December 31, 2022 and 2021,
respectively, are summarized as follows:

                                                        Years Ended December 31,
                                                         2022               2021
Fixed maturity securities, available-for-sale,
beginning                                           $  184,077,038     $  170,647,836
Purchases                                               35,249,421         33,163,143
Unrealized depreciation                                (34,851,942 )       (5,496,152 )
Net realized investment gains                              861,782            613,775
Sales proceeds                                         (57,441,624 )      (13,224,511 )
Maturities                                                (952,000 )       (1,150,000 )
Premium amortization                                      (329,785 )         (477,053 )
Increase (decrease)                                    (57,464,148 )       13,429,202
Fixed maturity securities, available-for-sale,
ending                                              $  126,612,890     $  184,077,038




Fixed maturity securities available-for-sale are reported at fair value with
unrealized gains and losses, net of applicable income taxes, reflected as a
separate component in shareholders' equity within accumulated other
comprehensive income (loss). The available-for-sale fixed maturity securities
portfolio is invested in U.S. government, U.S. government agencies, state and
political subdivisions, commercial and residential mortgage-backed securities,
corporate bonds, asset-backed securities, exchange traded securities, foreign
bonds, redeemable preferred securities and certificate of deposit.



The $51,415 and $145,215 increases in equity securities available-for-sale for
the years ended December 31, 2022 and 2021, respectively, are summarized as
follows:



                                                         Years Ended December 31,
                                                         2022                 2021

Equity securities, available-for-sale, beginning $ 348,218 $

    203,003
Purchases                                                   215,470             181,243
Sales proceeds                                                    -                 (89 )
Joint venture distribution                                 (216,897 )           (78,904 )
Net realized investment gains (loss), sale of
securities                                                   (8,000 )       

89

Net realized investment gains, changes in fair
value                                                        60,842         

42,876

Increase                                                     51,415         

145,215

Equity securities, available-for-sale, ending $ 399,633 $

    348,218

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

                                       26
--------------------------------------------------------------------------------

The $64,806,077 and $2,598,989 increases in mortgage loans on real estate for
the years ended December 31, 2022 and 2021, respectively, are summarized as
follows:

                                               Years Ended December 31,
                                                2022               2021
Mortgage loans on real estate, beginning   $  177,508,051     $  174,909,062
Purchases                                     183,102,781        107,238,975
Discount accretion                                250,089            428,411
Net realized investment gains                           -             

35,310

Payments                                     (118,132,864 )     (104,436,910 )
Foreclosed - transferred to real estate                 -           (458,587 )
Increase in allowance for bad debts              (413,929 )         (164,625 )
Amortization of loan origination fees                   -            (43,585 )
Increase                                       64,806,077          

2,598,989

Mortgage loans on real estate, ending $ 242,314,128 $ 177,508,051

The $147,909 and $69,591 decreases in investment real estate for the years ended
December 31, 2022 and 2021, respectively, are summarized as follows:

                                                              Years Ended December 31,
                                                              2022                 2021
Investment real estate, beginning                        $       688,345      $      757,936
Real estate acquired through mortgage loan foreclosure                 -    

458,587

Sales proceeds                                                  (200,080 )          (818,018 )
Net realized investment gains                                     52,171    

289,840

Decrease                                                        (147,909 )           (69,591 )
Investment real estate, ending                           $       540,436      $      688,345




The $1,571,568 increase and $5,095,918 decrease in other long-term investments
(comprised of lottery receivables) for the years ended December 31, 2022 and
2021, respectively, are summarized as follows:



                                            Years Ended December 31,
                                             2022              2021

Other long-term investments, beginning $ 65,929,215 $ 71,025,133
Purchases

                                   13,327,014         2,993,805
Discount accretion                           4,975,796         4,806,580
Net realized investment losses                (422,578 )         (83,339 )
Payments                                   (16,308,664 )     (12,812,964 )
Increase (decrease)                          1,571,568        (5,095,918 )

Other long-term investments, ending $ 67,500,783 $ 65,929,215

                                       27
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Our assets other than invested assets as of December 31, 2022 and 2021 are
summarized as follows:



                                                                                        Amount Change
                                        December 31, 2022       December

31, 2021 2022 less 2021

Cash and cash equivalents              $        33,542,725     $        42,528,046     $     (8,985,321 )
Accrued investment income                        5,580,175               4,879,290              700,885
Recoverable from reinsurers                     11,102,875               1,046,381           10,056,494
Assets held in trust under
coinsurance agreement                           92,033,769             106,210,246          (14,176,477 )
Agents' balances and due premiums                1,253,077               1,713,050             (459,973 )
Deferred policy acquisition costs               56,183,785              49,717,323            6,466,462
Value of insurance business acquired             4,048,105               4,318,499             (270,394 )
Other assets                                    20,050,191              15,225,765            4,824,426

Assets other than investment assets $ 223,794,702 $ 225,638,600 $ (1,843,898 )

The $8,985,321 decrease in cash and cash equivalents for the year ended December
31, 2022 and the corresponding increase of $2,297,951 for the year ended
December 31, 2021 are summarized in the Company's consolidated statements of
cash flows.



The $14,176,477 decrease in assets held in trust under the coinsurance agreement
is due to annuity surrenders on ceded business 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 years ended December
31, 2022 and 2021, respectively, are summarized as follows:

                                                              Years Ended December 31,
                                                               2022               2021
Balance, beginning of year                                $   49,717,323     $   44,513,669
Capitalization of commissions, sales and issue expenses       13,734,859    

12,102,070

Amortization                                                  (7,280,457 )       (6,932,504 )
Deferred acquisition costs allocated to investments               12,060             34,088

Balance, end of year                                      $   56,183,785     $   49,717,323




Our other assets as of December 31, 2022 and December 31, 2021 are summarized as
follows:



                                                                                 Amount Change
                                            December 31,      December 31,
                                                2022              2021          2022 less 2021
Federal and state income taxes
recoverable                                 $   8,887,609     $   7,104,791     $     1,782,818
Advances to an independently owned
investment firm                                 5,000,000                 - 

5,000,000

Advances to mortgage loan originator            4,743,041         4,382,896             360,145
Advances to private equity company                      -         3,000,000          (3,000,000 )
Guaranty funds                                    699,865            49,256             650,609
Lease asset - right to use                        467,536           565,964             (98,428 )
Other receivables, prepaid assets and
deposits                                          194,737            81,571             113,166
Notes receivable                                   57,403            41,287              16,116
Total other assets                          $  20,050,191     $  15,225,765     $     4,824,426

There was a $1,782,818 increase in federal and state income taxes recoverable
primarily due to federal and state tax withholdings on lottery receivables.

                                       28
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The $5,000,000 increase in advances is due to the Company making a promissory
note to an independently owned investment firm. The promissory note bears
interest and is collateralized by structured settlement receivables, lottery
receivables and annuity payment receivables.

During 2022, a private equity company repaid advances of $3,000,000 to the
Company with interest.

There was a $360,145 increase in advances to one mortgage loan originator who
acquires residential mortgage loans for our life insurance companies.

There was a $650,609 increase in the guaranty fund from increased insolvency of
life insurance companies.

Our liabilities as of December 31, 2022 and 2021 are summarized as follows:

                                                                                              Amount Change
                                              December 31, 2022      

December 31, 2021 2022 less 2021

Policy liabilities
Policyholders' account balances              $       391,359,944     $       373,647,869     $    17,712,075
Future policy benefits                               110,012,174              88,735,716          21,276,458
Policy claims                                          2,541,088               2,381,183             159,905
Other policy liabilities                                 146,217                  88,847              57,370
Total policy liabilities                             504,059,423             464,853,615          39,205,808
Funds withheld under coinsurance agreement            92,301,039             106,586,633         (14,285,594 )
Deferred federal income taxes                          2,677,411               8,966,303          (6,288,892 )
Other liabilities                                     15,173,652              10,957,832           4,215,820
Total liabilities                            $       614,211,525     $       591,364,383     $    22,847,142

The $21,276,458 increase in future policy benefits is primarily related to the
production of new life insurance policies and the aging of existing policies.

The $17,712,075 and $11,128,116 increases in policyholders' account balances for
the years ended December 31, 2022 and 2021, respectively, are summarized as
follows:



                                                            Years Ended December 31,
                                                             2022              2021
Policyholders' account balances, beginning               $ 373,647,869     $ 362,519,753
Deposits                                                    67,308,368        28,708,203
Withdrawals                                                (72,595,697 )     (35,383,965 )
Funds withheld under coinsurance agreement                   7,265,325      

5,140,766

Acquisition of Royalty Capital Life Insurance Company 3,019,610

           -
Interest credited                                           12,714,469        12,663,112
Increase                                                    17,712,075        11,128,116
Policyholders' account balances, ending                  $ 391,359,944     $ 373,647,869




The $6,288,892 decrease in deferred federal income taxes was due to $7,316,376
of decreased deferred federal income taxes on the unrealized appreciation of
fixed maturity securities available-for-sale and $1,027,484 of operating
deferred federal tax expense.



The $14,285,594 decrease in funds withheld under coinsurance agreement is due to
a decrease in annuity surrenders on ceded business related to TLIC's annuity
coinsurance agreement with an offshore annuity and life insurance company.

The $159,905 increase in policy claims is due to an increase in the number of
final expense claims.

                                       29
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Our other liabilities as of December 31, 2022 and December 31, 2021 are
summarized as follows:



                                                                                            Amount Change
                                            December 31, 2022       December 31, 2021      2022 less 2021
Suspense accounts payable                  $         9,706,063     $           435,471     $     9,270,592
Mortgage loans suspense                              2,655,185               7,533,274          (4,878,089 )
Accrued expenses payable                               830,000                 728,000             102,000
Guaranty fund assessments                              681,000                  21,000             660,000
Lease liability                                        467,536                 565,964             (98,428 )
Payable for securities purchased                       390,508               1,465,173          (1,074,665 )
Unclaimed funds                                        338,204                 159,627             178,577
Unearned investment income                             105,236                  91,206              14,030
Accounts payable                                        80,964                  61,307              19,657
Deferred revenue                                        52,250                  63,250             (11,000 )
Other payables, withholdings and escrows              (133,294 )              (166,440 )            33,146
Total other liabilities                    $        15,173,652     $        10,957,832     $     4,215,820




The $9,270,592 increase in suspense accounts payable is due to increased annuity
deposits on policy applications that had not been issued as of the financial
reporting date.

The decrease in mortgage loan suspense of $4,878,089 is primarily due to timing
of principal loan payments on mortgage loans.

There was a $660,000 increase in the guaranty fund assessments from increased
insolvency of life insurance companies.

As of December 31, 2022, the Company had $390,508 in security purchases where
the trade date and settlement date were in different financial reporting periods
compared to $1,465,173 of security purchases overlapping financial reporting
periods as of December 31, 2021.

The increase in unclaimed funds of $178,577 is due to increased outstanding
checks that will be escheated to the states.

Liquidity and Capital Resources

Our operations have been financed primarily through the private placement of
equity securities and intrastate public stock offerings. Through December 31,
2022, we have received $27,119,480 from the sale of our shares and recorded
$1,746,240 from the exchange of our shares to acquire K-TENN in 2020.



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

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

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



                                       30
--------------------------------------------------------------------------------




During 2012, 2013, 2014 and 2015, the Company repurchased 247,580 shares of its
common stock at a total cost of $893,947 from former members of the Board of
Directors including the former Chairman of the Board of Directors, a former
agent, the former spouse of the Company's current Chairman, Chief Executive
Officer and President and a charitable organization where a former member of the
Board of Directors had donated shares of the Company's common stock.



As of December 31, 2022, we had cash and cash equivalents totaling $33,542,725.
As of December 31, 2022, cash and cash equivalents of $14,642,786 and
$13,038,325, respectively, totaling $27,681,111 were held by TLIC and FBLIC and
may not be available for use by FTFC due to the required pre-approval by the OID
and MDCI of any dividend or intercompany transaction to transfer funds to FTFC.
The maximum dividend, which may be paid in any twelve-month period without
notification or approval, is limited to the greater of 10% of statutory surplus
as of December 31 of the preceding year or the net gain from operations of the
preceding calendar year.



Cash dividends may only be paid out of surplus derived from realized net
profits. Based on these limitations, there is no capacity for TLIC to pay a
dividend due to a negative unassigned surplus of $3,633,769 as of December 31,
2022. In addition, based on those limitations, there is the capacity for FBLIC
to pay a dividend up to $1,237,769 in 2023 without prior approval. In 2022,
FBLIC paid a $3,200,000 dividend to TLIC, of which $1,495,631 was considered
ordinary and $1,704,369 was considered extraordinary. Dividends paid by FBLIC to
TLIC are eliminated in consolidation. TLIC has paid no dividends to FTFC. In
2022, TLIC returned $2,200,000 in capital to FTFC. This return of capital by
TLIC to FTFC is eliminated in consolidation.



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 $32,933,850 and
$40,431,952 as of December 31, 2022 and December 31, 2021, respectively. Other
funds are invested in mutual funds that invest in U.S. government securities. We
monitor the solvency of all financial institutions in which we have funds to
minimize the exposure for loss. The Company has not experienced any losses in
such accounts.



On September 15, 2022, the Company did not renew its $1.5 million line of credit
with a bank to provide working capital and funds for expansion. For the one-year
period ending September 15, 2022, the Company's line of credit with a bank
allowed for advances, repayments and re-borrowings. Any outstanding advances
would have incurred 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 5.75%. The non-utilized
portion of the $1.5 million line of credit would have been assessed a 1%
non-usage fee calculated in arrears and paid at the maturity date. No amounts
were outstanding on this line of credit during the years it was available.



Our cash flows for the years ended December 31, 2022 and 2021 are summarized as
follows:



                                           Years Ended December 31,           Amount Change
                                            2022               2021           2022 less 2021
Net cash provided by operating
activities                             $   30,038,812     $   19,094,125     $     10,944,687
Net cash used in investing
activities                                (33,736,804 )      (10,120,412 )        (23,616,392 )
Net cash used in financing
activities                                 (5,287,329 )       (6,675,762 )          1,388,433
Increase (decrease) in cash                (8,985,321 )        2,297,951          (11,283,272 )
Cash and cash equivalents, beginning
of period                                  42,528,046         40,230,095    

2,297,951

Cash and cash equivalents, end of
period                                 $   33,542,725     $   42,528,046     $     (8,985,321 )




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The $30,038,812 and $19,094,125 cash provided by operating activities for the
years ended December 31, 2022 and 2021, respectively, are summarized as follows:



                                               Years Ended December 31,          Amount Change
                                                2022              2021          2022 less 2021
Premiums collected                          $  35,760,183     $  31,934,472     $     3,825,711
Net investment income collected                20,638,225        19,737,349             900,876
Service fees and other income collected         3,027,055           311,214           2,715,841
Death benefits paid                           (12,311,907 )     (10,585,381 )        (1,726,526 )
Surrenders paid                                (1,414,622 )      (1,198,363 )          (216,259 )
Dividends and endowments paid                    (331,245 )        (318,630 )           (12,615 )
Commissions paid                              (12,287,493 )     (11,669,284 )          (618,209 )
Other underwriting, insurance and
acquisition expenses paid                      (9,075,210 )      (8,158,256 )          (916,954 )
Taxes paid                                     (2,541,283 )      (2,977,551 )           436,268
(Increased) decreased advances to
mortgage loan originator                         (411,050 )         613,462          (1,024,512 )
(Increased) decreased advances to private
equity company                                  3,000,000        (3,000,000 )         6,000,000
Increased advances to independently owned
investment firm                                (5,000,000 )               -          (5,000,000 )
Decreased funds under coinsurance
agreement                                       7,156,208         4,995,535 

2,160,673

Increased (decreased) deposits of pending
policy applications                             9,270,592        (2,119,784 )        11,390,376
Increased (decreased) mortgage loan
suspense                                       (4,901,553 )       1,589,336          (6,490,889 )
Other                                            (539,088 )         (59,994 )          (479,094 )
Cash provided by operating activities       $  30,038,812     $  19,094,125     $    10,944,687

Please see the consolidated statements of cash flows for the years ended
December 31, 2022 and 2021 for a summary of the components of net cash used in
investing activities and financing activities.

Our shareholders' equity as of December 31, 2022 and 2021 is summarized as
follows:



                                                                                       Amount Change
                                                                    December 31,
                                             December 31, 2022          2021          2022 less 2021

Class A common stock, par value $.01 per
share (40,000,000 shares authorized as of
December 31, 2022 and 2021, 9,631,920 and
8,909,276 issued as of December 31, 2022
and 2021, respectively, 9,384,340 and
8,661,696 outstanding as of December 31,
2022 and 2021, respectively)                $            96,319     $      89,093     $         7,226
Class B common stock, par value $.01 per
share (10,000,000 shares authorized,
101,102 issued and outstanding as of
December 31, 2022 and 2021)                               1,011             1,011                   -
Additional paid-in capital                           43,668,023        39,078,485           4,589,538
Treasury stock, at cost (247,580 shares
as of December 31, 2022 and 2021)                      (893,947 )        (893,947 )                 -
Accumulated other comprehensive income
(loss)                                              (14,319,679 )      13,203,827         (27,523,506 )
Accumulated earnings                                 23,100,785        16,916,082           6,184,703
Total shareholders' equity                  $        51,652,512     $  68,394,551     $   (16,742,039 )




The decrease in shareholders' equity of $16,742,039 for the year ended December
31, 2022 is due to a $27,523,506 decrease in accumulated other comprehensive
income (loss) that exceeded net income of $6,184,703 and an increase in
additional paid-in capital and Class A common stock of $4,596,764 related to the
acquisition of RCLIC.



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 2022 or 2021. 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.



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Our investment portfolio had unrealized appreciation (depreciation) on
available-for-sale securities of ($18,131,268) and $16,720,674 as of December
31, 2022 and 2021, respectively, prior to the impact of income taxes and
deferred acquisition cost adjustments. A decrease of $33,990,160 in unrealized
gains arising for year ended December 31, 2022 and 2021 net realized investment
gains of $861,782 originating from the sale, calls and maturities for fixed
maturity securities available-for-sale resulting in net unrealized losses on
investments of $34,851,942.



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 December 31, 2022, cash and cash equivalents, short-term investments, the
fair value of fixed maturity available-for-sale securities with maturities of
less than one year and the fair value of lottery receivables with maturities of
less than one year equaled 10.2% 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 2022, 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 year­end 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 December 31, 2022, the Company has outstanding
advances to this loan originator totaling $4,743,041. The advances are secured
by $9,016,158 of residential mortgage loans on real estate that are assigned to
the Company. The Company has committed to fund up to an additional $1,756,959 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.



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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 December 31, 2022, $753,648 of additional and secured
residential mortgage loan balances on real estate are held in escrow by the loan
originator.  As of December 31, 2022, $656,924 of that escrow amount is
available to the Company as additional collateral on $4,743,041 of advances to
the loan originator. The remaining December 31, 2022 escrow amount of $96,724 is
available to the Company as additional collateral on its investment of
$19,344,898 in 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 December 31, 2022 will be sufficient to
fund our anticipated operating expenses.

Off-Balance Sheet Arrangements

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

SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

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



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

? general economic conditions and financial factors, including the performance

and fluctuations of fixed income, equity, real estate, credit capital and

    other financial markets;


  ? differences between actual experience regarding mortality, morbidity,

persistency, surrenders, investment returns, and our pricing assumptions

establishing liabilities and reserves or for other purposes;

? the effect of increased claims activity from natural or man-made catastrophes,

pandemic disease, or other events resulting in catastrophic loss of life;

? adverse determinations in litigation or regulatory matters and our exposure to

contingent liabilities;

? inherent uncertainties in the determination of investment allowances and

    impairments and in the determination of the valuation allowance on the
    deferred income tax asset;


  ? investment losses and defaults;


  ? competition in our product lines;


  ? attraction and retention of qualified employees and agents;

? 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;

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  ? 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.



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