##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange act of 1934
 For the quarterly period ended September 30, 2010
 o
    
    Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For the transition period From  to .
 Commission file number: 000-52613
 FIRST TRINITY FINANCIAL CORPORATION
  Oklahoma
    
    34-1991436(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 7633 East 63rd Place, Suite 230
Tulsa, Oklahoma 74133
 (918) 249-2438
 þ o
 o o
  Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: þ
 o þ




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##### 



FIRST TRINITY FINANCIAL CORPORATION
 INDEX TO FORM 10-Q
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Consolidated Financial StatementsConsolidated Statements of Financial Position as of September 30, 2010 (Unaudited) and December 31, 2009
    
    
    3Consolidated Statements of Operations for the three months ended September 30, 2010 and 2009 (Unaudited)
    
    
    4Consolidated Statements of Operations for the nine months ended September 30, 2010 and 2009 (Unaudited)
    
    
    5Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (Unaudited)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 4T. Controls and Procedures
    
    
    39Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    40Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    40Item 3. Defaults upon Senior Securities
    
    
    40Item 4. (Removed and Reserved)
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40Signatures
    
    
    41Exhibit No. 31.1Exhibit No. 31.2Exhibit No. 32.1Exhibit No. 32.2
   2




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##### Table of Contents



Item 1. Consolidated Financial Statements
  
  September 30, 2010
    
    
    December 31, 2009(Unaudited)AssetsInvestmentsAvailable-for-sale fixed maturity securities at fair value
(amortized cost: $23,213,629 and
$19,772,497 as of September 30, 2010
and December 31, 2009, respectively)
    
    $
    27,601,246
    
    
    $
    22,510,660Available-for-sale equity securities at fair value
(cost: $392,818 and $350,318 as of
September 30, 2010 and December 31,
2009, respectively)
    
    
    569,044
    
    
    
    448,484Mortgage loans on real estate
    
    
    1,174,142
    
    
    
    1,365,953Investment real estate
    
    
    3,093,517
    
    
    
    3,146,944Policy loans
    
    
    355,320
    
    
    
    335,022Other long-term investments
    
    
    6,495,459
    
    
    
    4,975,188Total investments
    
    
    39,288,728
    
    
    
    32,782,251Cash and cash equivalents
($325,000 is restricted as to withdrawal as of December 31, 2009)
    
    
    10,016,408
    
    
    
    7,080,692Certificate of deposit (restricted)
    
    
    102,273
    
    
    
    102,273Accrued investment income
    
    
    401,958
    
    
    
    340,384Recoverable from reinsurers
    
    
    988,527
    
    
    
    870,294Accounts receivable
    
    
    356,321
    
    
    
    273,843Loans from premium financing
    
    
    1,274,433
    
    
    
    2,749,830Deferred policy acquisition costs
    
    
    2,749,157
    
    
    
    1,918,994Value of insurance business acquired
    
    
    2,568,489
    
    
    
    2,778,723Property and equipment
    
    
    222,301
    
    
    
    82,349Other assets
    
    
    1,042,718
    
    
    
    837,210Total assets
    
    $
    59,011,313
    
    
    $
    49,816,843Liabilities and Shareholders EquityPolicy liabilitiesPolicyholders account balances
    
    $
    28,829,577
    
    
    
    24,417,483Future policy benefits
    
    
    12,839,741
    
    
    
    11,349,640Policy claims
    
    
    379,449
    
    
    
    289,273Other policyholder funds
    
    
    45,530
    
    
    
    18,941Total policy liabilities
    
    
    42,094,297
    
    
    
    36,075,337Deferred federal income taxes
    
    
    537,894
    
    
    
    159,315Other liabilities
    
    
    398,025
    
    
    
    331,501Total liabilities
    
    
    43,030,216
    
    
    
    36,566,153Shareholders EquityCommon stock subscribed, par value $.01 per share, 281,878 shares
    
    
    2,819
    
    
    
    Common stock, par value $.01 per share, 20,000,000 shares authorized,
5,805,000 issued and outstanding
    
    
    58,050
    
    
    
    58,050Additional paid-in capital
    
    
    15,619,992
    
    
    
    13,806,503Accumulated other comprehensive income
    
    
    4,275,683
    
    
    
    2,867,044Accumulated deficit
    
    
    (3,975,447
    )
    
    
    (3,480,907
    )Total shareholders equity
    
    
    15,981,097
    
    
    
    13,250,690Total liabilities and shareholders equity
    
    $
    59,011,313
    
    
    $
    49,816,843
 See notes to consolidated financial statements.
  3




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##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009RevenuesPremiums
    
    $
    1,434,189
    
    
    $
    1,440,654Income from premium financing
    
    
    65,132
    
    
    
    169,885Net investment income
    
    
    596,840
    
    
    
    358,920Net realized investment lossesTotal other-than-temporary impairment losses
    
    
    
    
    
    
    (146,644
    )Other net realized investment losses
    
    
    
    
    
    
    (32,246
    )Net realized investment losses
    
    
    
    
    
    
    (178,890
    )Other income
    
    
    2,721
    
    
    
    8,884Total revenues
    
    
    2,098,882
    
    
    
    1,799,453Benefits, Claims and ExpensesBenefits and claims
    
    
    1,251,444
    
    
    
    711,574Acquisition costs deferred
    
    
    (364,826
    )
    
    
    (281,727
    )Amortization of deferred acquisition costs
    
    
    85,251
    
    
    
    31,923Amortization of value of insurance business
acquired
    
    
    71,953
    
    
    
    67,239Commissions
    
    
    384,979
    
    
    
    364,552Other underwriting, insurance and acquisition
expense
    
    
    784,549
    
    
    
    729,934Total benefits, claims and expenses
    
    
    2,213,350
    
    
    
    1,623,495Income (loss) before income tax expense (benefit)
    
    
    (114,468
    )
    
    
    175,958Provision for federal income taxesCurrent
    
    
    
    
    
    
    (26,127
    )Deferred
    
    
    24,884
    
    
    
    (15,700
    )Total federal income tax expense (benefit)
    
    
    24,884
    
    
    
    (41,827
    )Net income (loss)
    
    $
    (139,352
    )
    
    $
    217,785Net income (loss) per common share basic and diluted
    
    $
    (0.02
    )
    
    $
    0.04
 See notes to consolidated financial statements.
  4




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##### Table of Contents



Nine Months Ended September 30,2010
    
    
    2009RevenuesPremiums
    
    $
    4,418,752
    
    
    $
    4,303,746Income from premium financing
    
    
    258,636
    
    
    
    485,323Net investment income
    
    
    1,655,723
    
    
    
    1,494,531Net realized investment gains (losses)Total other-than-temporary impairment losses
    
    
    
    
    
    
    (155,923
    )Other net realized investment gains (losses)
    
    
    48,675
    
    
    
    (32,246
    )Net realized investment gains (losses)
    
    
    48,675
    
    
    
    (188,169
    )Other income
    
    
    25,035
    
    
    
    8,884Total revenues
    
    
    6,406,821
    
    
    
    6,104,315Benefits, Claims and ExpensesBenefits and claims
    
    
    3,702,816
    
    
    
    2,965,661Acquisition costs deferred
    
    
    (1,209,827
    )
    
    
    (857,883
    )Amortization of deferred acquisition costs
    
    
    379,340
    
    
    
    179,834Amortization of value of insurance business
acquired
    
    
    210,234
    
    
    
    201,718Commissions
    
    
    1,247,511
    
    
    
    1,031,379Other underwriting, insurance and acquisition
expense
    
    
    2,512,118
    
    
    
    2,746,208Total benefits, claims and expenses
    
    
    6,842,192
    
    
    
    6,266,917Loss before income tax expense
    
    
    (435,371
    )
    
    
    (162,602
    )Provision for federal income taxesCurrent
    
    
    
    
    
    
    Deferred
    
    
    59,169
    
    
    
    143,339Total federal income tax expense
    
    
    59,169
    
    
    
    143,339Net loss
    
    $
    (494,540
    )
    
    $
    (305,941
    )Net loss per common share basic and diluted
    
    $
    (0.08
    )
    
    $
    (0.05
    )
 See notes to consolidated financial statements.
  5




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Nine Months Ended September 30,2010
    
    
    2009Operating activitiesNet loss
    
    $
    (494,540
    )
    
    $
    (305,941
    )Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:Provision for depreciation
    
    
    62,006
    
    
    
    59,557Accretion of discount on investments
    
    
    (491,133
    )
    
    
    (412,262
    )Realized investment (gains) losses
    
    
    (48,675
    )
    
    
    188,169Amortization of policy acquisition cost
    
    
    379,340
    
    
    
    179,834Policy acquisition cost deferred
    
    
    (1,209,827
    )
    
    
    (857,883
    )Amortization of value of business acquired
    
    
    210,234
    
    
    
    201,718Provision for deferred federal income tax
    
    
    59,169
    
    
    
    143,339Interest credited on policyholder deposits
    
    
    895,535
    
    
    
    757,815Change in assets and liabilitiesAccrued investment income
    
    
    (61,574
    )
    
    
    (7,681
    )Policy loans
    
    
    (20,298
    )
    
    
    (59,996
    )Allowance for loan losses
    
    
    103,601
    
    
    
    263,941Recoverable from reinsurers
    
    
    (118,233
    )
    
    
    8,915Accounts receivable
    
    
    (82,478
    )
    
    
    (59,437
    )Other assets
    
    
    (205,508
    )
    
    
    (586,070
    )Future policy benefits
    
    
    1,490,101
    
    
    
    1,031,247Policy claims
    
    
    90,176
    
    
    
    58,524Other policyholder funds
    
    
    26,589
    
    
    
    48,362Other liabilities
    
    
    66,524
    
    
    
    (731,706
    )Net cash provided by (used in) operating
activities
    
    
    651,009
    
    
    
    (79,555
    )Investing activitiesPurchase of fixed maturity securities
    
    
    (4,060,409
    )
    
    
    (2,083,832
    )Sales and
maturity of fixed maturity securities
    
    
    881,055
    
    
    
    1,483,567Purchase of equity securities
    
    
    (42,500
    )
    
    
    (35,000
    )Purchase of mortgage loan
    
    
    
    
    
    
    (110,000
    )Reduction in mortgage loans
    
    
    193,673
    
    
    
    40,319Purchase of real estate
    
    
    (117,873
    )
    
    
    (49,400
    )Sale of real estate
    
    
    123,500
    
    
    
    Purchase of other long term investments
    
    
    (1,889,000
    )
    
    
    Payments on other long term investments
    
    
    645,758
    
    
    
    600,590Loans made for premiums financed
    
    
    (3,184,063
    )
    
    
    (8,615,093
    )Loans repaid for premiums financed
    
    
    4,555,859
    
    
    
    9,354,104Purchases of furniture and equipment
    
    
    (154,160
    )
    
    
    (78,122
    )Net cash provided by (used in) investing
activities
    
    
    (3,048,160
    )
    
    
    507,133Financing activitiesPolicyholder account deposits
    
    
    4,890,708
    
    
    
    2,866,570Policyholder account withdrawals
    
    
    (1,374,149
    )
    
    
    (1,203,486
    )Proceeds from public stock offering
    
    
    1,816,308
    
    
    
    Net cash provided by financing activities
    
    
    5,332,867
    
    
    
    1,663,084Increase in cash
    
    
    2,935,716
    
    
    
    2,090,662Cash and cash equivalents, beginning of period
    
    
    7,080,692
    
    
    
    5,669,795Cash and cash equivalents, end of period
    
    $
    10,016,408
    
    
    $
    7,760,457
 See notes to consolidated financial statements.
  6




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1. Organization and Significant Accounting Policies
 Nature of Operations
        7




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##### Table of Contents



1. Organization and Significant Accounting Policies
 Basis of Presentation
   Principles of Consolidation
  Reclassifications
  Use of Estimates
  Investments
    8




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##### Table of Contents



1. Organization and Significant Accounting Policies
           Deferred Policy Acquisition Costs
   9




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##### Table of Contents



1. Organization and Significant Accounting Policies
    Loans from Premium Financing
  Allowance for Loan Losses from Premium Financing
     10




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##### Table of Contents



1. Organization and Significant Accounting Policies
 Property and Equipment
  Reinsurance
  Value of Insurance Business Acquired
  Other Assets and Other Liabilities
  Policyholders Account Balances
   11




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1. Organization and Significant Accounting Policies
 Future Policy Benefits
  Policy Claims
  Common Stock
  Federal Income Taxes
  Revenues and Expenses
    Net Income (Loss) per Common Share
   12




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1. Organization and Significant Accounting Policies
 Accumulated Other Comprehensive Income
   Subsequent Events
  Recent Accounting Pronouncements
 Improving Disclosures
about Fair Value Measurements
 Accounting for Costs
Associated with Acquiring or Renewing Insurance Contracts
 1.
    
    Incremental direct costs of contract acquisition.
 2.
    
    The portion of an employees total compensation and payroll-related fringe benefits
related directly to acquisition activities for time spent performing underwriting, policy
issuance, policy processing, medical, inspection and sales force contract selling for a
contract that has actually been acquired.
 3.
    
    Other cost related directly to the acquisition activities described in point 2 above
that would not have been incurred by the insurance entity had the acquisition contract
transaction not occurred.
 4.
    
    Advertising cost that meet the capitalization criteria of Subtopic 340-20.
   13




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2. Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairSeptember 30, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueFixed maturity securitiesU.S. government agency
    
    $
    1,921,126
    
    
    $
    43,997
    
    
    $
    
    
    
    $
    1,965,123Residential mortgage-backed
securities
    
    
    161,141
    
    
    
    13,979
    
    
    
    
    
    
    
    175,120Corporate bonds
    
    
    20,922,686
    
    
    
    4,316,751
    
    
    
    
    
    
    
    25,239,437Foreign bonds
    
    
    208,676
    
    
    
    12,890
    
    
    
    
    
    
    
    221,566Total fixed maturity securities
    
    
    23,213,629
    
    
    
    4,387,617
    
    
    
    
    
    
    
    27,601,246Mutual funds
    
    
    52,000
    
    
    
    38,800
    
    
    
    
    
    
    
    90,800Corporate common stock
    
    
    340,818
    
    
    
    137,426
    
    
    
    
    
    
    
    478,244Total equity securities
    
    
    392,818
    
    
    
    176,226
    
    
    
    
    
    
    
    569,044Total fixed maturity and
equity securities
    
    $
    23,606,447
    
    
    $
    4,563,843
    
    
    $
    
    
    
    $
    28,170,290
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairDecember 31, 2009
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueFixed maturity securitiesU.S. government agency
    
    $
    1,921,463
    
    
    $
    7,955
    
    
    $
    51,235
    
    
    $
    1,878,183Residential mortgage-backed
securities
    
    
    182,835
    
    
    
    22,403
    
    
    
    
    
    
    
    205,238Corporate bonds
    
    
    17,668,199
    
    
    
    2,796,431
    
    
    
    37,391
    
    
    
    20,427,239Total fixed maturity securities
    
    
    19,772,497
    
    
    
    2,826,789
    
    
    
    88,626
    
    
    
    22,510,660Mutual funds
    
    
    52,000
    
    
    
    28,150
    
    
    
    
    
    
    
    80,150Corporate common stock
    
    
    298,318
    
    
    
    70,016
    
    
    
    
    
    
    
    368,334Total equity securities
    
    
    350,318
    
    
    
    98,166
    
    
    
    
    
    
    
    448,484Total fixed maturity and
equity securities
    
    $
    20,122,815
    
    
    $
    2,924,955
    
    
    $
    88,626
    
    
    $
    22,959,144
  14




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2. Investments
  Less than 12 MonthsUnrealized
    
    
    Number ofDecember 31, 2009
    
    Fair Value
    
    
    Loss
    
    
    SecuritiesFixed maturity securitiesLess than 12 monthsU.S. Government agency
    
    $
    1,676,246
    
    
    $
    51,235
    
    
    
    6Corporate bonds
    
    
    742,087
    
    
    
    37,391
    
    
    
    5Total fixed maturity securities
    
    $
    2,418,333
    
    
    $
    88,626
    
    
    
    11
       15




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2. Investments
   September 30, 2010
    
    
    December 31, 2009Unrealized appreciation on
available-for-sale securities
    
    $
    4,563,843
    
    
    $
    2,836,329Adjustment to deferred acquisition cost
    
    
    (4,607
    )
    
    
    (4,284
    )Deferred income taxes
    
    
    (283,553
    )
    
    
    34,999Net unrealized appreciation on
available-for-sale securities
    
    $
    4,275,683
    
    
    $
    2,867,044
  Available-for-SaleAmortized Cost
    
    
    Fair ValueDue in one year or less
    
    $
    722,551
    
    
    $
    776,014Due in one year through five years
    
    
    7,152,678
    
    
    
    8,361,966Due after five years through ten years
    
    
    9,998,104
    
    
    
    11,827,781Due after ten years
    
    
    5,179,155
    
    
    
    6,460,365Due at multiple maturity dates
    
    
    161,141
    
    
    
    175,120$
    23,213,629
    
    
    $
    27,601,246
   16




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2. Investments
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Proceeds
    
    $
    505,198
    
    
    $
    359,215
    
    
    $
    881,055
    
    
    $
    1,483,567Gross realized gains
    
    
    
    
    
    
    3,670
    
    
    
    49,112
    
    
    
    3,670Gross realized losses
    
    
    
    
    
    
    (35,916
    )
    
    
    (437
    )
    
    
    (35,916
    )Other than temporary
impairments
    
    
    
    
    
    
    (146,644
    )
    
    
    
    
    
    
    (155,923
    )
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Change in unrealized investment gainsAvailable-for-sale securitiesFixed maturity securities
    
    $
    801,957
    
    
    $
    1,536,965
    
    
    $
    1,649,454
    
    
    $
    2,679,404Equity securities
    
    
    59,222
    
    
    
    48,779
    
    
    
    78,060
    
    
    
    60,589Realized investment gains (losses)Fixed maturity securities
    
    
    
    
    
    
    (178,890
    )
    
    
    48,675
    
    
    
    (188,169
    )Equity securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  17




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2. Investments
  Three Months Ended Sepember 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Fixed maturity securities
    
    $
    529,005
    
    
    $
    405,375
    
    
    $
    1,536,087
    
    
    $
    1,367,481Equity securities
    
    
    4,064
    
    
    
    3,779
    
    
    
    10,232
    
    
    
    11,630Mortgage loans
    
    
    23,149
    
    
    
    49,456
    
    
    
    70,557
    
    
    
    99,998Real estate
    
    
    83,218
    
    
    
    60,428
    
    
    
    261,236
    
    
    
    181,611Short-term and other
investments
    
    
    22,101
    
    
    
    26,447
    
    
    
    50,018
    
    
    
    26,447Gross investment income
    
    
    661,537
    
    
    
    545,485
    
    
    
    1,928,130
    
    
    
    1,687,167Investment expenses
    
    
    (64,697
    )
    
    
    (186,565
    )
    
    
    (272,407
    )
    
    
    (192,636
    )Net investment income
    
    $
    596,840
    
    
    $
    358,920
    
    
    $
    1,655,723
    
    
    $
    1,494,531
 3. Fair Value Measurements
   Level 1
 Level 2
 Level 3
  18




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3. Fair Value Measurements
   September 30, 2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed maturity securities,
available-for-saleU.S. government agency
    
    $
    
    
    
    $
    1,965,123
    
    
    $
    
    
    
    $
    1,965,123Residential mortgage-backed securities
    
    
    
    
    
    
    175,120
    
    
    
    
    
    
    
    175,120Corporate bonds
    
    
    
    
    
    
    25,239,437
    
    
    
    
    
    
    
    25,239,437Foreign bonds
    
    
    
    
    
    
    221,566
    
    
    
    
    
    
    
    221,566Total fixed maturity securities
    
    $
    
    
    
    $
    27,601,246
    
    
    $
    
    
    
    $
    27,601,246Equity securities, available-for-saleMutual funds
    
    $
    90,800
    
    
    $
    
    
    
    $
    
    
    
    $
    90,800Corporate common stock
    
    
    400,744
    
    
    
    
    
    
    
    77,500
    
    
    
    478,244Total equity securities
    
    $
    491,544
    
    
    $
    
    
    
    $
    77,500
    
    
    $
    569,044
 December 31, 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed maturity securities,
available-for-saleU.S. government agency
    
    $
    
    
    
    $
    1,878,183
    
    
    $
    
    
    
    $
    1,878,183Residential mortgage-backed securities
    
    
    
    
    
    
    205,238
    
    
    
    
    
    
    
    205,238Corporate bonds
    
    
    
    
    
    
    20,427,239
    
    
    
    
    
    
    
    20,427,239Total fixed maturity securities
    
    $
    
    
    
    $
    22,510,660
    
    
    $
    
    
    
    $
    22,510,660Equity securities, available-for-saleMutual funds
    
    $
    80,150
    
    
    $
    
    
    
    $
    
    
    
    $
    80,150Corporate common stock
    
    
    333,334
    
    
    
    
    
    
    
    35,000
    
    
    
    368,334Total equity securities
    
    $
    413,484
    
    
    $
    
    
    
    $
    35,000
    
    
    $
    448,484
  19




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##### Table of Contents



3. Fair Value Measurements
      Three Months Ended September 30, 2010
    
    
    Nine Months Ended September 30, 2010Beginning balance
    
    $
    35,000
    
    
    $
    35,000Purchase
    
    
    42,500
    
    
    
    42,500Ending balance
    
    $
    77,500
    
    
    $
    77,500
   20




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##### Table of Contents



3. Fair Value Measurements
  September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueAssetsFixed maturity securities
    
    $
    27,601,246
    
    
    $
    27,601,246
    
    
    $
    22,510,660
    
    
    $
    22,510,660Equity securities
    
    
    569,044
    
    
    
    569,044
    
    
    
    448,484
    
    
    
    448,484Mortgage loans on real estateResidential
    
    
    
    
    
    
    
    
    
    
    110,000
    
    
    
    110,000Commercial
    
    
    1,174,142
    
    
    
    1,211,390
    
    
    
    1,255,953
    
    
    
    1,298,765Policy loans
    
    
    355,320
    
    
    
    355,320
    
    
    
    335,022
    
    
    
    335,022Other long-term investments
    
    
    6,495,459
    
    
    
    6,922,560
    
    
    
    4,975,188
    
    
    
    5,086,736Cash and cash equivalents
    
    
    10,118,681
    
    
    
    10,118,681
    
    
    
    7,080,692
    
    
    
    7,080,692Loans from premium financing
    
    
    1,274,433
    
    
    
    1,274,433
    
    
    
    2,749,830
    
    
    
    2,749,830LiabilitiesPolicyholders account
balances
    
    $
    28,829,577
    
    
    
    29,280,782
    
    
    $
    24,417,483
    
    
    
    22,822,580Policy claims
    
    
    379,449
    
    
    
    379,449
    
    
    
    289,273
    
    
    
    289,273
   Fixed Maturity and Equity Securities
  Mortgage Loans on Real Estate
  Cash and Cash Equivalents and Policy loans
  Other Long-Term Investments
   21




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##### Table of Contents



3. Fair Value Measurements
 Loans from Premium Financing
  Investment Contracts  Policyholders Account Balances
   Policy Claims
  4. Segment Data
   Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Life and annuity insurance
operations
    
    $
    2,030,789
    
    
    $
    1,623,620
    
    
    $
    6,124,085
    
    
    $
    5,612,353Premium finance operations
    
    
    66,813
    
    
    
    175,832
    
    
    
    281,426
    
    
    
    491,270Corporate operations
    
    
    1,280
    
    
    
    1
    
    
    
    1,310
    
    
    
    692Total
    
    $
    2,098,882
    
    
    $
    1,799,453
    
    
    $
    6,406,821
    
    
    $
    6,104,315Income (loss) before income taxes:Life and annuity insurance
operations
    
    $
    111,351
    
    
    $
    233,576
    
    
    $
    264,770
    
    
    $
    349,506Premium finance operations
    
    
    (114,556
    )
    
    
    12,224
    
    
    
    (357,912
    )
    
    
    (160,667
    )Corporate operations
    
    
    (111,263
    )
    
    
    (69,842
    )
    
    
    (342,229
    )
    
    
    (351,441
    )Total
    
    $
    (114,468
    )
    
    $
    175,958
    
    
    $
    (435,371
    )
    
    $
    (162,602
    )
  22




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##### Table of Contents



5. Allowance for Loss on Premium Finance Contracts
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Allowance at beginning of
period
    
    $
    393,446
    
    
    $
    191,067
    
    
    $
    318,826
    
    
    $
    21,305Additions charged to operations
    
    
    28,981
    
    
    
    (119,328
    )
    
    
    103,601
    
    
    
    33,786Direct write downs
    
    
    
    
    
    
    213,507
    
    
    
    
    
    
    
    230,155Allowance at end of period
    
    $
    422,427
    
    
    $
    285,246
    
    
    $
    422,427
    
    
    $
    285,246
 6. Federal Income Taxes
   7. Comprehensive Income
  Three Months Ended September 30,
    
    
    Nine Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Net loss
    
    $
    (139,352
    )
    
    $
    217,785
    
    
    $
    (494,540
    )
    
    $
    (305,941
    )Total net unrealized gains arising
during the period
    
    
    671,479
    
    
    
    1,090,195
    
    
    
    1,457,314
    
    
    
    2,004,406Less: Net realized investment
gains (losses)
    
    
    
    
    
    
    (178,890
    )
    
    
    48,675
    
    
    
    (188,169
    )Net unrealized gains
    
    
    671,479
    
    
    
    1,269,085
    
    
    
    1,408,639
    
    
    
    2,192,575Total comprehensive income
    
    $
    532,127
    
    
    $
    1,486,870
    
    
    $
    914,099
    
    
    $
    1,886,634
   23




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##### Table of Contents



8. Revolving Line of Credit
  9. Contingent Liabilities
   24




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
     Recent Acquisitions
   Critical Accounting Policies and Estimates
  Investments
   25




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##### Table of Contents



Deferred Policy Acquisition Costs
   26




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##### Table of Contents



Loans from Premium Financing
  Allowance for Loan Losses from Premium Financing
    Value of Insurance Business Acquired
   27




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##### Table of Contents



Policyholders Account Balances
  Future Policy Benefits
  Federal Income Taxes
  Recent Accounting Pronouncements
 Improving Disclosures
about Fair Value Measurements
 Accounting for Costs
Associated with Acquiring or Renewing Insurance Contracts
 1.
    
    Incremental direct costs of contract acquisition.
 2.
    
    The portion of an employees total compensation and payroll-related fringe benefits
related directly to acquisition activities for time spent performing underwriting, policy
issuance, policy processing, medical, inspection and sales force contract selling for a
contract that has actually been acquired.
 3.
    
    Other cost related directly to the acquisition activities described in point 2 above
that would not have been incurred by the insurance entity had the acquisition contract
transaction not occurred.
 4.
    
    Advertising cost that meet the capitalization criteria of Subtopic 340-20.
  28




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##### Table of Contents



Business Segments
  
    
    Life and annuity insurance operations, consisting of the operations of TLIC;
 
    
    Premium finance operations, consisting of the operations of FTCC and SIS; and
 
    
    Corporate operations, which includes the results of the parent company after the
elimination of intercompany amounts.
  Results of Operations
    Comparison  Three Months Ended September 30, 2010 and 2009
 Revenues
  Total Revenues
    29




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##### Table of Contents



Premiums
  Income from Premium Financing
  Net Investment Income
  Net Realized Investment Losses
  Other Income
  Total Benefits, Claims and Expenses
   Benefits and Claims
  Deferral and Amortization of Deferred Acquisition Costs
   30




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##### Table of Contents



Amortization of Value of Insurance Business Acquired
  Commissions
  Other Underwriting, Insurance and Acquisition Expenses
  Federal Income Taxes
  Net Income (Loss) and Net Income (Loss) per Common Share Basic and Diluted
  Business Segments
 Life and Annuity Insurance Operations
   31




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##### Table of Contents



Premium Finance Operations
   Corporate Operations
   Comparison  Nine Months Ended September 30, 2010 and 2009
 Revenues
  Total Revenues
   Premiums
   32




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##### Table of Contents



Income from Premium Financing
  Net Investment Income
  Net Realized Investment Gains (Losses)
  Other Income
  Total Benefits, Claims and Expenses
   Benefits and Claims
   33




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##### Table of Contents



Deferral and Amortization of Deferred Acquisition Costs
   Amortization of Value of Insurance Business Acquired
  Commissions
  Other Underwriting, Insurance and Acquisition Expenses
  Federal Income Taxes
   Net Loss and Net Loss per common share basic and diluted
   34




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##### Table of Contents



Business Segments
 Life and Annuity Insurance Operations
   Premium Finance Operations
   Corporate Operations
   Consolidated Financial Condition
      35




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##### Table of Contents



September 30, 2010
    
    
    December 31, 2009Balance, beginning of year
    
    $
    3,140,800
    
    
    $
    4,848,845Loans financed
    
    
    3,030,839
    
    
    
    9,313,585Unearned interest added to loans
    
    
    153,224
    
    
    
    493,647Capitalized fees and interest reversed
    
    
    (61,532
    )
    
    
    (53,176
    )Payment of loans and unearned interest
    
    
    (4,530,621
    )
    
    
    (11,462,101
    )Ending loan balance including unearned interest
    
    
    1,732,710
    
    
    
    3,140,800Unearned interest included in ending loan balances
    
    
    (35,850
    )
    
    
    (72,144
    )Loan balance net of unearned interest
    
    
    1,696,860
    
    
    
    3,068,656Less allowance for loan loss
    
    
    (422,427
    )
    
    
    (318,826
    )Loan balance net of unearned interest and
allowance for loan losses at the end of the year
    
    $
    1,274,433
    
    
    $
    2,749,830
    Liquidity and Capital Resources
    36




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##### Table of Contents



37




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##### Table of Contents



Forward Looking Information
    38




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##### Table of Contents



Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes to Internal Control over Financial Reporting
   39




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. (Removed and Reserved)
 
 Item 5. Other Information
  
 Item 6. Exhibits
 31.1
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer31.2
    
    
    Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer32.1
    
    
    Section 1350 Certification of Principal Executive Officer32.2
    
    
    Section 1350 Certification of Principal Financial Officer
  40




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##### Table of Contents



FIRST TRINITY FINANCIAL CORPORATION
an Oklahoma corporationNovember 12, 2010
    By:
    /s/ Gregg E. ZahnGregg E. Zahn, President and Chief Executive OfficerNovember 12, 2010
    By:
    /s/ Jeffrey J. WoodJeffrey J. Wood, Chief Financial Officer and Chief Accounting Officer  41