##### 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, 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
 Rule 12b-2 of the Exchange Act.
(Check one):
 Large accelerated filer: o
    
    Accelerated filer: o
    
    Non-accelerated filer: o
    
    Smaller reporting company: þ
 o þ




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##### 



INDEX TO FORM 10-Q
 Page NumberPART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance Sheets at March 31, 2010 (Unaudited) and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operationsfor the three months ended March 31, 2010 and 2009 (Unaudited)
    
    
    4Condensed Consolidated Statements of Cash Flowsfor the three months ended March 31, 2010 and 2009 (Unaudited)
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 4T. Controls and Procedures
    
    
    28Part II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults upon Senior Securities
    
    
    29Item 4. (Removed and Reserved)
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    30Exhibit No. 31.1Exhibit No. 31.2Exhibit No. 32.1Exhibit No. 32.2




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##### Table of Contents



Item 1. Financial Statements
  
  March 31,
    
    
    December 31,2010
    
    
    2009(unaudited)AssetsInvestmentsAvailable-for-sale fixed maturities at fair value
(amortized cost: $19,530,252 and $19,772,497 at March 31, 2010
and December 31, 2009, respectively)
    
    $
    22,739,988
    
    
    $
    22,510,660Equity securities
(cost: $350,318 March 31, 2010 and December 31, 2009)
    
    
    514,341
    
    
    
    448,484Mortgage loans on real estate
    
    
    1,222,173
    
    
    
    1,365,953Investment real estate
    
    
    3,248,690
    
    
    
    3,146,944Policy loans
    
    
    331,786
    
    
    
    335,022Other long-term investments
    
    
    5,234,558
    
    
    
    4,975,188Total investments
    
    
    33,291,536
    
    
    
    32,782,251Cash and cash equivalents
($325,000 is restricted as to withdrawal at December 31, 2009)
    
    
    9,319,286
    
    
    
    7,080,692Certificate of deposit (restricted)
    
    
    102,273
    
    
    
    102,273Accrued investment income
    
    
    344,419
    
    
    
    340,384Recoverable from reinsurers
    
    
    905,657
    
    
    
    870,294Accounts receivable
    
    
    307,748
    
    
    
    273,843Loans from premium financing
    
    
    2,258,302
    
    
    
    2,749,830Deferred policy acquisition costs
    
    
    2,201,307
    
    
    
    1,918,994Value of insurance business acquired
    
    
    2,701,410
    
    
    
    2,778,723Property and equipment
    
    
    83,840
    
    
    
    82,349Other assets
    
    
    926,912
    
    
    
    837,210Total assets
    
    $
    52,442,690
    
    
    $
    49,816,843Liabilities and Shareholders EquityPolicy liabilitiesPolicyholders account balances
    
    $
    25,641,521
    
    
    $
    24,417,483Future policy benefits
    
    
    11,898,933
    
    
    
    11,349,640Policy claims
    
    
    295,087
    
    
    
    289,273Other policyholder funds
    
    
    340,452
    
    
    
    100,731Total policy liabilities
    
    
    38,175,993
    
    
    
    36,157,127Deferred federal income taxes
    
    
    280,214
    
    
    
    159,315Other liabilities
    
    
    358,731
    
    
    
    249,711Total liabilities
    
    
    38,814,938
    
    
    
    36,566,153Shareholders EquityCommon stock, par value $.01 per share

8,000,000 shares authorized, 5,805,000 issued and outstanding
    
    
    58,050
    
    
    
    58,050Additional paid-in capital
    
    
    13,806,503
    
    
    
    13,806,503Accumulated other comprehensive income
    
    
    3,337,695
    
    
    
    2,867,044Accumulated deficit
    
    
    (3,574,496
    )
    
    
    (3,480,907
    )Total shareholders equity
    
    
    13,627,752
    
    
    
    13,250,690Total liabilities and shareholders equity
    
    $
    52,442,690
    
    
    $
    49,816,843
 See notes to condensed consolidated financial statements.
  3




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Three Months EndedMarch 31,2010
    
    
    2009RevenuesPremiums
    
    $
    1,666,554
    
    
    $
    1,543,529Income from premium financing
    
    
    101,235
    
    
    
    140,531Net investment income
    
    
    577,871
    
    
    
    575,078Realized investment gains
    
    
    49,112
    
    
    
    Other income
    
    
    2,826
    
    
    
    Total revenues
    
    
    2,397,598
    
    
    
    2,259,138Benefits, Losses and ExpensesBenefits and claims
    
    
    1,268,816
    
    
    
    1,146,417Acquisition costs deferred
    
    
    (499,381
    )
    
    
    (300,509
    )Amortization of deferred acquisition costs
    
    
    216,950
    
    
    
    56,217Amortization of value of insurance business acquired
    
    
    77,313
    
    
    
    67,239Commissions
    
    
    442,480
    
    
    
    326,207Other underwriting, insurance and acquisition expense
    
    
    931,630
    
    
    
    847,261Total benefits, losses and expenses
    
    
    2,437,808
    
    
    
    2,142,832Income (loss) before income tax expense
    
    
    (40,210
    )
    
    
    116,306Provision for federal income taxesDeferred
    
    
    53,379
    
    
    
    100,526Net income (loss)
    
    $
    (93,589
    )
    
    $
    15,780Net income (loss) per common share basic and diluted
    
    $
    (0.02
    )
    
    $
    0.00
 See notes to condensed consolidated financial statements.
  4




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Three Months EndedMarch 31,2010
    
    
    2009Net cash provided by (used in) operating activities
    
    $
    737,566
    
    
    $
    (262,589
    )Investing activitiesSales and maturity of fixed maturities
    
    
    364,670
    
    
    
    509,907Reductions in mortgage loans
    
    
    144,401
    
    
    
    21,918Purchase of other long term investments
    
    
    (469,000
    )
    
    
    Payments on other long term investments
    
    
    310,077
    
    
    
    233,825Loans made for premiums financed
    
    
    (1,418,443
    )
    
    
    (3,232,709
    )Loans repaid for premiums financed
    
    
    1,848,501
    
    
    
    3,000,508Purchase of real estate
    
    
    (117,872
    )
    
    
    Purchases of property and equipment
    
    
    (5,932
    )
    
    
    Net cash provided by investing activities
    
    
    656,402
    
    
    
    533,449Financing activitiesPolicyholders account deposits
    
    
    1,269,005
    
    
    
    817,058Policyholders account withdrawals
    
    
    (424,379
    )
    
    
    (393,517
    )Net cash provided by financing activities
    
    
    844,626
    
    
    
    423,541Increase in cash
    
    
    2,238,594
    
    
    
    694,401Cash and cash equivalents, beginning of period
    
    
    7,080,692
    
    
    
    5,669,795Cash and cash equivalents, end of period
    
    $
    9,319,286
    
    
    $
    6,364,196
 See notes to condensed consolidated financial statements.
  5




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1. Organization and Significant Accounting Policies
 Nature of Operations
     Basis of Presentation
    6




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1. Organization and Significant Accounting Policies (
 Principles of Consolidation
  Reclassifications
  Use of Estimates
  Investments
       7




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##### Table of Contents



1. Organization and Significant Accounting Policies (
        Deferred Policy Acquisition Costs
    Loans from Premium Financing
   8




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##### Table of Contents



1. Organization and Significant Accounting Policies (
 Allowance for Loan Losses from Premium Financing
    Property and Equipment
  Reinsurance
  Value of Insurance Business Acquired
   9




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##### Table of Contents



1. Organization and Significant Accounting Policies (
 Other Assets and Other liabilities
  Policyholders Account Balances
  Future Policy Benefits
  Policy Claims
  Common Stock
  Federal Income Taxes
  Revenues and Expenses
    10




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##### Table of Contents



1. Organization and Significant Accounting Policies (
 Net Loss per Common Share
  Accumulated Other Comprehensive Income
  Subsequent Events
  Recent Accounting Pronouncements
 Improving Disclosures
about Fair Value Measurements
  11




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2. Investments
  Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairMarch 31, 2010
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueFixed maturity securitiesU.S. Government Agency
    
    $
    1,921,344
    
    
    $
    8,460
    
    
    $
    3,724
    
    
    $
    1,926,080Residential mortgage-backed securities
    
    
    174,625
    
    
    
    1,271
    
    
    
    161
    
    
    
    175,735Corporate bonds
    
    
    17,434,283
    
    
    
    3,239,861
    
    
    
    35,971
    
    
    
    20,638,173Total fixed maturity securities
    
    
    19,530,252
    
    
    
    3,249,592
    
    
    
    39,856
    
    
    
    22,739,988Equity securities
    
    
    350,318
    
    
    
    164,023
    
    
    
    
    
    
    
    514,341Total
    
    $
    19,880,570
    
    
    $
    3,413,615
    
    
    $
    39,856
    
    
    $
    23,254,329
 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
    
    
    
    22,510,660Equity securities
    
    
    350,318
    
    
    
    98,166
    
    
    
    
    
    
    
    448,484Total
    
    $
    20,122,815
    
    
    $
    2,924,955
    
    
    $
    88,626
    
    
    $
    22,959,144
  Unrealized
    
    
    Number ofMarch 31, 2010
    
    Fair Value
    
    
    Loss
    
    
    SecuritiesFixed maturity securitiesLess than 12 monthsU.S. Government agency
    
    
    545,941
    
    
    
    3,563
    
    
    
    2Residential MBS
    
    
    126,490
    
    
    
    161
    
    
    
    1Greater than 12 monthsU.S. Government agency
    
    
    104,813
    
    
    
    161
    
    
    
    1Corporate bonds
    
    
    629,684
    
    
    
    35,971
    
    
    
    4Total fixed maturity securities
    
    $
    1,406,928
    
    
    $
    39,856
    
    
    $
    8
 Unrealized
    
    
    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
   12




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2. Investments
    March 31,
    
    
    December 31,2010
    
    
    2009Unrealized appreciation on
available-for-sale securities
    
    $
    3,373,759
    
    
    $
    2,836,329Adjustment to deferred acquisition cost
    
    
    (4,402
    )
    
    
    (4,284
    )Deferred income taxes
    
    
    (31,662
    )
    
    
    34,999Net unrealized appreciation on
available-for-sale securities
    
    $
    3,337,695
    
    
    $
    2,867,044
  Available-for-SaleAmortized
    
    
    FairCost
    
    
    ValueDue in one year or less
    
    $
    504,572
    
    
    $
    578,096Due in one year through five years
    
    
    5,605,534
    
    
    
    6,601,406Due after five years through ten years
    
    
    8,005,634
    
    
    
    9,302,685Due after ten years
    
    
    5,239,887
    
    
    
    6,082,066Due at multiple maturity dates
    
    
    174,625
    
    
    
    175,735$
    19,530,252
    
    
    $
    22,739,988
  13




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2. Investments
   Three Months Ended March 31,2010
    
    
    2009Change in unrealized investment gains and (losses)Available-for-sale securitiesFixed maturities
    
    $
    471,573
    
    
    $
    (287,474
    )Equity securities
    
    
    65,857
    
    
    
    (23,922
    )Realized investment gains and lossesFixed maturities
    
    
    49,112
    
    
    
    Equity securities
    
    
    
    
    
    
    
  Three Months Ended March 31,2010
    
    
    2009Fixed maturities
    
    $
    506,284
    
    
    $
    402,927Equity securities
    
    
    2,144
    
    
    
    4,103Mortgage loans
    
    
    23,868
    
    
    
    25,566Real estate
    
    
    86,985
    
    
    
    60,587Short-term and other investments
    
    
    17,414
    
    
    
    84,442Gross investment income
    
    
    636,695
    
    
    
    577,625Investment expenses
    
    
    (58,824
    )
    
    
    (2,547
    )Net investment income
    
    $
    577,871
    
    
    $
    575,078
 3. Fair Value Measurements
   Level 1
  14




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3. Fair Value Measurements
 Level 2
 Level 3
   March 31, 2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed maturities, available for saleU.S. government agency
    
    $
    
    
    
    $
    1,926,080
    
    
    $
    
    
    
    $
    1,926,080Corporate
    
    
    
    
    
    
    20,638,173
    
    
    
    
    
    
    
    20,638,173Residential MBS
    
    
    
    
    
    
    175,735
    
    
    
    
    
    
    
    175,735Total fixed maturities
    
    $
    
    
    
    $
    22,739,988
    
    
    $
    
    
    
    $
    22,739,988Equity securitiesMutual funds
    
    $
    81,850
    
    
    $
    
    
    
    $
    
    
    
    $
    81,850Corporate common stock
    
    
    397,491
    
    
    
    
    
    
    
    35,000
    
    
    
    432,491Total equity securities
    
    $
    479,341
    
    
    $
    
    
    
    $
    35,000
    
    
    $
    514,341
 December 31, 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFixed maturities, available for saleU.S. government agency
    
    $
    
    
    
    $
    1,878,183
    
    
    $
    
    
    
    $
    1,878,183Corporate
    
    
    
    
    
    
    20,427,239
    
    
    
    
    
    
    
    20,427,239Residential MBS
    
    
    
    
    
    
    205,238
    
    
    
    
    
    
    
    205,238Total fixed maturities
    
    $
    
    
    
    $
    22,510,660
    
    
    $
    
    
    
    $
    22,510,660Equity securitiesMutual funds
    
    $
    80,150
    
    
    $
    
    
    
    $
    
    
    
    $
    80,150Corporate common stock
    
    
    333,334
    
    
    
    
    
    
    
    35,000
    
    
    
    368,334Total equity securities
    
    $
    413,484
    
    
    $
    
    
    
    $
    35,000
    
    
    $
    448,484
  15




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3. Fair Value Measurements
    Fair Value of Financial Instruments
  March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    ValueAssetsFixed maturities
    
    $
    22,739,988
    
    
    $
    22,739,988
    
    
    $
    22,510,660
    
    
    $
    22,510,660Equity securities
    
    
    514,341
    
    
    
    514,341
    
    
    
    448,484
    
    
    
    448,484Mortgage loans on real estateResidential
    
    
    
    
    
    
    
    
    
    
    110,000
    
    
    
    110,000Commercial
    
    
    1,222,173
    
    
    
    1,263,200
    
    
    
    1,255,953
    
    
    
    1,298,765Policy loans
    
    
    331,786
    
    
    
    331,786
    
    
    
    335,022
    
    
    
    335,022Other long-term investments
    
    
    5,234,558
    
    
    
    5,299,875
    
    
    
    4,975,188
    
    
    
    5,086,736Cash and cash equivalents
    
    
    9,391,286
    
    
    
    9,319,286
    
    
    
    7,080,692
    
    
    
    7,080,692Loans from premium financing
    
    
    2,258,302
    
    
    
    2,258,302
    
    
    
    2,749,830
    
    
    
    2,749,830LiabilitiesPolicyholders account balances
    
    $
    25,641,521
    
    
    
    24,204,163
    
    
    $
    24,417,483
    
    
    
    22,730,469Policy claims
    
    
    295,087
    
    
    
    295,087
    
    
    
    289,273
    
    
    
    289,273
  Fixed Maturities and Equity Securities
   16




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3. Fair Value Measurements
 Mortgage Loans on Real Estate
  Cash and Cash Equivalents and Policy loans
  Other Long-Term Investments
  Loans from Premium Financing
  Investment Contracts  Policyholders Account Balances
   Policy Claims
   17




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##### Table of Contents



4. Segment Data
  For the three months
ended March 31,2010
    
    
    2009Revenues:Life and annuity insurance operations
    
    $
    2,294,318
    
    
    $
    2,114,208Premium finance operations
    
    
    103,260
    
    
    
    140,531Corporate operations
    
    
    20
    
    
    
    4,399Total
    
    $
    2,397,598
    
    
    $
    2,259,138Income (loss) before income taxes:Life and annuity insurance operations
    
    $
    238,861
    
    
    $
    221,542Premium finance operations
    
    
    (162,741
    )
    
    
    (25,311
    )Corporate operations
    
    
    (116,330
    )
    
    
    (79,925
    )Total
    
    $
    (40,210
    )
    
    $
    116,306
 5. Allowance for Loss on Premium Finance Contracts
  March 31,2010
    
    
    2009Allowance at beginning of period
    
    $
    318,826
    
    
    $
    21,305Additions charged to operations
    
    
    61,470
    
    
    
    18,979Allowance at end of period
    
    $
    380,296
    
    
    $
    40,284
 6. Federal Income Taxes
     18




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7. Comprehensive Income (Loss)
  Three Months Ended March 31,2010
    
    
    2009Net income (loss)
    
    $
    (93,589
    )
    
    $
    15,780Total net unrealized gains and losses
arising during the period
    
    
    519,763
    
    
    
    (250,330
    )Less: Net realized investment gains
    
    
    49,112
    
    
    
    Net unrealized gains and losses
    
    
    470,651
    
    
    
    (250,330
    )Total comprehensive income (loss)
    
    $
    377,062
    
    
    $
    (234,550
    )
  8. Revolving Line of Credit
  9. Contingent Liabilities
   19




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Overview
     Recent Acquisitions
   Critical Accounting Policies and Estimates
  Investments
   20




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Deferred Policy Acquisition Costs
   21




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##### Table of Contents



Loans from Premium Financing
  Allowance for Loan Losses from Premium Financing
    Value of Insurance Business Acquired
   22




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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
 Business Segments
  
    
    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.
   23




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##### Table of Contents



Results of Operations
     Revenues
   Life and Annuity Insurance Operations
  Premium Finance Operations
  Corporate Operations
  Net Investment Income
   24




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##### Table of Contents



Net Realized Investment Gains
  Benefits, Losses and Expenses
        Consolidated Financial Condition
     25




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##### Table of Contents



March 31,
    
    
    December 31,2010
    
    
    2009Balance, beginning of year
    
    $
    3,140,800
    
    
    $
    4,848,845Loans financed
    
    
    1,346,819
    
    
    
    9,313,585Unearned interest added to loans
    
    
    71,624
    
    
    
    493,647Capitalized fees and interest reversed
    
    
    (51,091
    )
    
    
    (53,176
    )Payment of loans and unearned interest
    
    
    (1,807,034
    )
    
    
    (11,462,101
    )Ending loan balance including unearned interest
    
    
    2,701,118
    
    
    
    3,140,800Unearned interest included in ending loan balances
    
    
    (62,520
    )
    
    
    (72,144
    )Loan balance net of unearned interest
    
    
    2,638,598
    
    
    
    3,068,656Less:Allowance for loan loss
    
    
    (380,296
    )
    
    
    (318,826
    )Loan balance net of unearned interest and
allowance for loan losses at the end of the year
    
    $
    2,258,302
    
    
    $
    2,749,830
    Liquidity and Capital Resources
      26




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##### Table of Contents



Forward Looking Information
   27




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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
   28




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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
  29




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##### Table of Contents



FIRST TRINITY FINANCIAL CORPORATION
an Oklahoma corporationMay 26, 2010
    By:
    /s/ Gregg ZahnGregg Zahn, President and Chief Executive OfficerMay 26, 2010
    By:
    /s/ William LayWilliam Lay, Treasurer and Chief Financial Officer  30