##### 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 March 31, 2008
 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 1.000-52613
 FIRST TRINITY FINANCIAL CORPORATION
  Oklahoma
    
    34-1991436(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Number)
 7633 East 63rd Place, Suite 230
    
    Tulsa, Oklahoma
    
    74133(Address of principal executive offices)
 (Registrants telephone number, including area code)
 þ o
  Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: þ
 o þ
 5,805,000 shares




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##### 



INDEX TO FORM 10-Q
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at
March 31, 2008 (Unaudited) and December 31, 2007
    
    
    3Condensed Consolidated Statements of Operations
for the three months ended March 31, 2008 and 2007 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 2008 and 2007 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    10Item 4T. Controls and Procedures
    
    
    16Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    16Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    16Item 3. Defaults upon Senior Securities
    
    
    17Item 4. Submission of Matters to a Vote of Security Holders
    
    
    17Item 5. Other Information
    
    
    17Item 6. Exhibits
    
    
    17Signatures
    
    
    18Exhibit No. 31.1Exhibit No. 31.2Exhibit No. 32.1Exhibit No. 32.2
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March 31,
    
    
    December 31,2008
    
    
    2007(Unaudited)AssetsInvestmentsAvailable-for-sale fixed maturities at fair value
(amortized cost: $626,802 and $627,167 at March 31, 2008 and
December 31, 2007, respectively)
    
    $
    634,500
    
    
    $
    628,570Total investments
    
    
    634,500
    
    
    
    628,570Cash and cash equivalents
    
    
    8,546,466
    
    
    
    9,021,411Accrued investment income
    
    
    7,543
    
    
    
    7,776Premiums receivable
    
    
    41,691
    
    
    
    17,508Advances to agents
    
    
    10,648
    
    
    
    10,720Reinsurance recoverable
    
    
    12,288
    
    
    
    12,020Deferred policy acquisition costs
    
    
    575,361
    
    
    
    459,515Office furniture and equipment
(net of accumulated depreciation:$20,874 and $18,349
at March 31, 2008 and December 31, 2007, respectively)
    
    
    55,501
    
    
    
    55,229Loans from premium financing
    
    
    2,798,979
    
    
    
    2,298,835Other assets
    
    
    10,027
    
    
    
    16,654Total assets
    
    $
    12,693,004
    
    
    $
    12,528,238Liabilities and Shareholders EquityPolicy liabilitiesBenefit reserves
    
    $
    730,209
    
    
    $
    533,048Liability for deposit type contracts
    
    
    97,484
    
    
    
    Policy claims
    
    
    25,064
    
    
    
    19,010Advance premiums
    
    
    1,622
    
    
    
    Deposits on pending policy applications
    
    
    128,509
    
    
    
    69,848Total policy liabilities
    
    
    982,888
    
    
    
    621,906Federal income tax deferred
    
    
    2,617
    
    
    
    1,309Accrued expenses and other liabilities
    
    
    86,030
    
    
    
    125,208Total liabilities
    
    
    1,071,535
    
    
    
    748,423Shareholders equityCommon stock, par value $.01 per share
8,000,000 shares authorized, 5,805,000 issued and
outstanding at March 31, 2008 and December 31, 2007
    
    
    58,050
    
    
    
    58,050Additional paid-in capital
    
    
    13,806,503
    
    
    
    13,806,503Accumulated other comprehensive income
    
    
    5,081
    
    
    
    926Accumulated deficit
    
    
    (2,248,165
    )
    
    
    (2,085,664
    )Total shareholders equity
    
    
    11,621,469
    
    
    
    11,779,815Total liabilities and shareholders equity
    
    $
    12,693,004
    
    
    $
    12,528,238
 See notes to consolidated financial statements.
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Three Months EndedMarch 31,2008
    
    
    2007RevenuesPremium income
    
    $
    334,939
    
    
    $
    Income from premium financing
    
    
    85,905
    
    
    
    11,589Net investment income
    
    
    71,115
    
    
    
    132,217Other Income
    
    
    
    
    
    
    3,000Total revenues
    
    
    491,959
    
    
    
    146,806ExpensesDeath benefits
    
    
    3,654
    
    
    
    Increase in benefit reserves
    
    
    199,293
    
    
    
    Acquisition costs deferred
    
    
    (127,611
    )
    
    
    Amortization of deferred acquisition
costs
    
    
    11,765
    
    
    
    Interest credited on premium deposit
funds
    
    
    941
    
    
    
    Commissions
    
    
    142,782
    
    
    
    Loan fees
    
    
    17,212
    
    
    
    Employee wages and benefits
    
    
    213,725
    
    
    
    191,304Professional fees
    
    
    25,660
    
    
    
    11,410Third party administration fees
    
    
    47,225
    
    
    
    20,000Other insurance and administrative
expenses
    
    
    120,645
    
    
    
    103,217Total expenses
    
    
    655,291
    
    
    
    325,931Loss before federal income taxes
    
    
    (163,332
    )
    
    
    (179,125
    )Provision for federal income taxesDeferred
    
    
    (832
    )
    
    
    Net loss
    
    $
    (162,500
    )
    
    $
    (179,125
    )Net loss per common share basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.03
    )
 See notes to consolidated financial statements.
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Three Months EndedMarch 31,2008
    
    
    2007Operating activitiesNet cash used in operating activities
    
    $
    (69,488
    )
    
    $
    (79,421
    )Investing activitiesLoans for premiums financed
    
    
    (500,144
    )
    
    
    (586,853
    )Purchases of furniture and
equipment
    
    
    (2,797
    )
    
    
    Net cash used in investing activities
    
    
    (502,941
    )
    
    
    (586,853
    )Financing activitiesProceeds from public stock
offering
    
    
    
    
    
    
    1,495,480Cost of stock offering
    
    
    
    
    
    
    (184,877
    )Deposit type contracts
    
    
    97,484
    
    
    
    Net cash provided by financing activities
    
    
    97,484
    
    
    
    1,310,603Increase (decrease) in cash
    
    
    (474,945
    )
    
    
    644,329Cash and cash equivalents, beginning of period
    
    
    9,021,411
    
    
    
    10,677,554Cash and cash equivalents, end of period
    
    $
    8,546,466
    
    
    $
    11,321,883
 See notes to consolidated financial statements.
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1.
    
    Organization and Accounting PoliciesNature of OperationsFirst Trinity Financial Corporation, (the Company) was incorporated in Oklahoma on April 19,
2004, for the primary purpose of organizing a life insurance subsidiary. The Company raised
$1,450,000 from two private placement stock offerings during 2004. On June 22, 2005 the
Companys intra-state public stock offering filed with the Oklahoma Department of Securities
for a $12,750,000 intrastate public stock offering, which included a 10% over-sale provision
(additional sales of $1,275,000), was declared effective. The offering was completed February
23, 2007. The Company raised $14,025,000 from this offering.The Company has two wholly owned subsidiaries domiciled in Oklahoma, First Trinity Capital
Corporation (FTCC) and Trinity Life Insurance Company (TLIC). FTCC was incorporated on
March 9, 2006 and began operations in January 2007. FTCC provides financing for casualty
insurance premiums and is licensed in the states of Arkansas, Louisiana, Mississippi and
Oklahoma. TLIC was incorporated on June 22, 2006 and commenced the sale of life insurance in
March 2007. TLIC was formed to be a life insurance company and operates in the state of
Oklahoma.Basis of PresentationThe accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and with the instructions to Form 10-Q. Accordingly, they do not
include all of the information and footnotes required by accounting principles generally
accepted in the United States of America (GAAP) for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation of the results for the interim periods have been included.
The results of operations for the three months ended March 31, 2008 are not necessarily
indicative of the results to be expected for the year ended December 31, 2008 or for any other
interim period or for any other future year.Certain financial information which is normally included in financial statements prepared in
accordance with GAAP, but which is not required for interim reporting purposes, has been
condensed or omitted. The accompanying condensed consolidated financial statements should be
read in conjunction with the financial statements and notes thereto included in the Companys
report on Form 10-KSB and amendment thereto for the fiscal year ended December 31, 2007.Principles of ConsolidationThe accompanying condensed consolidated financial statements include the accounts and
operations of the Company, FTCC from its date of organization on March 9, 2006 and TLIC from
its date of organization on June 22, 2006. All intercompany accounts and transactions are
eliminated in consolidation.ReclassificationsCertain reclassifications have been made in the prior year financial statements to conform to
current year classifications. These reclassifications had no effect on previously reported net
income or shareholders equity.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on managements knowledge of current
events and actions it may undertake in the future, they may ultimately differ from actual
results.
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2.
    
    Earnings per ShareNet loss per common share is calculated using the weighted average number of common shares
outstanding during the year. Shares sold during the public stock offering were treated as
outstanding and used in the computation of earnings per share, although certificates for the
 shares were not issued until after the offering was complete in February 2007. There were no
contingencies after October 2005 that prevented the shares from being issued. All shares sold
during the periods are considered to be outstanding for one half of the month in which they
were sold. The weighted average outstanding common shares for the three months ended March 31,
2008 and 2007 were 5,805,000 and 5,697,802, respectively.3.
    
    Segment DataSFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, requires a
management approach (how management internally evaluates the operating performance of its
business units) in the presentation of business segments. The segment data that follows has
been prepared in accordance with SFAS No. 131.The Company operates in three segments as shown in the following table. Given the limited
nature of each subsidiarys operations, the Company has a life insurance segment, consisting of
the operations of TLIC, and a premium financing segment, consisting of the operations of FTCC.
Results for the parent company, after elimination of intercompany amounts, are allocated to the
Corporate segment.
 Three Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007Revenues:Life and annuity insurance operations
    
    $
    351,210
    
    
    $
    22,396Premium finance operations
    
    
    87,246
    
    
    
    16,491Corporate operations
    
    
    53,503
    
    
    
    107,919Total
    
    $
    491,959
    
    
    $
    146,806Income (loss) from operations before federal income taxes:Life and annuity insurance operations
    
    $
    (64,187
    )
    
    $
    (29,925
    )Premium finance operations
    
    
    14,182
    
    
    
    (5,398
    )Corporate operations
    
    
    (113,327
    )
    
    
    (143,802
    )Total
    
    $
    (163,332
    )
    
    $
    (179,125
    )
 4.
    
    ReinsuranceTLIC retains up to $55,000 on each insured and cedes any excess risk beyond the amount retained
among a combination of two reinsurance companies. TLIC remains contingently liable on all
ceded insurance should any reinsurer be unable to meet their obligations.5.
    
    Federal Income TaxesThe provision (benefit) for federal income taxes is based on the estimated effective annual tax
rate. Deferred taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes.A valuation allowance has been established due to the uncertainty of loss carryforwards and unrealized
investment losses.
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5.
    
    Federal Income Taxes(continued)The Company has no known uncertain tax benefits within its provision for income taxes. In
addition, the Company does not believe it would be subject to any penalties or interest
relative to any open tax years and, therefore, have not accrued any such amounts. The Company
files U.S. federal income tax returns and income tax returns in various state
jurisdictions. The 2004 through 2007 U.S. federal tax years are subject to income tax
examination by tax authorities. The Company classifies any interest and penalties (if
applicable) as income tax expense in the financial statements.6.
    
    Comprehensive LossThe components of comprehensive loss, net of related federal income taxes, are as follows:
 Three Months EndedMarch 31,
    
    
    March 31,2008
    
    
    2007Net loss
    
    $
    (162,500
    )
    
    $
    (179,125
    )Unrealized gains (losses) on
available-for-sale securities,
net of federal income taxes of
$2,617 and $0 for the three
months ended March 31, 2008 and
2007, respectively
    
    
    4,155
    
    
    
    Other comprehensive income
    
    $
    (158,345
    )
    
    $
    (179,125
    )
 7.
    
    Fair Values of Financial InstrumentsEffective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value
and enhances disclosures about fair value measurements. Fair value is defined under SFAS No.
157 as the price that would be received to sell an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date. The Company
experienced no material financial impact as a result of the adoption of SFAS No. 157.The Company holds fixed maturities that are measured and reported at fair market value on the
balance sheet. The Company determines the fair market values of its financial instruments
based on the fair value hierarchy established in SFAS No. 157 that requires an entity to
maximize the use of observable inputs and minimize the use of unobservable inputs when
measuring fair value. The standard describes three levels of inputs that may be used to
measure fair value, as follows:Level 1  Quoted prices in active markets for identical assets or liabilities. Level 1
assets and liabilities include debt and equity securities that are traded in an active exchange
market, as well as certain U.S. Treasury securities that are highly liquid and are actively
traded in over-the-counter markets.Level 2  Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; quoted prices in markets that are not active; or other inputs
that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities. Level 2 assets and liabilities include debt securities with
quoted prices that are traded less frequently than exchange-traded instruments or assets and
liabilities whose value is determined using a pricing model with inputs that are observable in
the market or can be derived principally from or corroborated by observable market data. This
category generally includes U.S. Government and agency mortgage-backed debt securities and
corporate debt securities.
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Level 3  Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities. Level 3 assets and
liabilities include financial instruments whose value is determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires significant management judgment
or estimation. This category generally includes certain private equity investments and
asset-backed securities where independent pricing information was not able to be obtained for a
significant portion of the underlying assets.In accordance with SFAS No. 157, the Company has categorized its financial instruments, based
on the priority of the inputs to the valuation technique, into the three-level fair value
hierarchy. If the inputs used to measure the financial instruments fall within different
levels of the hierarchy, the categorization is based on the lowest level input that is
significant to the fair value measurement of the instrument. A review of fair value hierarchy
classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their
ability to be observed, may result in a reclassification for certain financial assets or
liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as
transfers in/out of the Level 3 category as of the beginning of the quarter in which the
reclassifications occur.The following table presents the Companys fair value hierarchy for those financial instruments
measured at fair value on a recurring basis as of March 31, 2008.
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssetsFixed maturities
    
    
    
    
    
    $
    634,500
    
    
    
    
    
    
    $
    634,500
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
  Forward Looking Information
        10




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Critical Accounting Policies and Significant Judgments and Estimate
  Investments in Fixed Maturities
   Loans from Premium Financing
    Allowance for Loan Losses
    11




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Deferred Acquisition Costs
  Policy Liabilities
  Income Taxes
  New Accounting Pronouncements
    12




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Consolidated Financial Condition
        March 31,
    
    
    December 31,2008
    
    
    2007Balance, beginning of period
    
    $
    2,366,165
    
    
    $
    Loans financed
    
    
    1,858,542
    
    
    
    4,556,216Unearned interest added to loans
    
    
    93,221
    
    
    
    234,744Payment of loans and unearned interest
    
    
    (1,434,655
    )
    
    
    (2,424,795
    )Ending loan balance including unearned interest
    
    
    2,883,273
    
    
    
    2,366,165Unearned interest included in ending loan balances
    
    
    (80,794
    )
    
    
    (63,830
    )Loan balance net of unearned interest
    
    
    2,802,479
    
    
    
    2,302,335Less:Allowance for loan loss
    
    
    (3,500
    )
    
    
    (3,500
    )Loan balance net of unearned interest and
allowance for loan losses at the end of the period
    
    $
    2,798,979
    
    
    $
    2,298,835
 Results of Operations
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Revenues
     Expenses
        14




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Business Segments
 Disclosures about Segments of an Enterprise and Related Information,
 
    
    Life and annuity insurance operations, consisting of the operations of TLIC;
 
    
    Premium finance operations, consisting of the operations of FTCC; and
 
    
    Corporate operations, which includes the results of the parent company after the
elimination of intercompany amounts.
  Liquidity and Capital Resources
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Off-Balance Sheet Arrangements
  
 Item 4T. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 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
  17




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FIRST TRINITY FINANCIAL CORPORATION
an Oklahoma corporationDated: May 14, 2008
    By:
    /s/ Gregg ZahnGregg Zahn, President and Chief Executive OfficerDated: May 14, 2008
    By:
    /s/ William LayWilliam Lay, Secretary, Treasurer andChief Financial Officer  18




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ExhibitNo.
    
    Description31.1
    
    
    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
  19