The future minimum lease payments to be received under the non-cancellable lease agreements are $324,858, $220,512, $220,512 and $91,880 for the years 2018 through 2021, respectively.
During 2017 the Company foreclosed on residential mortgage loans of real estate totaling $207,482 and transferred those properties to investment real estate held for sale. The Company’s policy is to reduce the carrying value of this residential real estate obtained through foreclosure to the lower of acquisition cost or net realizable value. During 2017, the Company sold investment real estate property with an aggregate carrying value of $185,701. The Company recorded a gross realized investment gain on sale of $4,382 based on an aggregate sales price of $190,083.
During 2016 the Company foreclosed on seven residential mortgage loans of real estate totaling $394,427 and transferred those properties to investment real estate held for sale. The Company’s policy is to reduce the carrying value of this residential real estate obtained through foreclosure to the lower of acquisition cost or net realizable value. During 2016 the Company sold investment real estate property with an aggregate carrying value of $63,931. The Company recorded a gross realized investment loss on sale of $20,662 based on an aggregate sales price of $43,269.
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. We are no longer operating a premium finance company that financed casualty insurance premiums. As an insurance provider, we collect premiums and annuity considerations in the current period to pay future benefits to our policy and contract holders. Our core TLIC operations include issuing modified premium whole life insurance with a flexible premium deferred annuity, ordinary whole life, final expense and term products and annuity contracts to predominately middle income households in the states of Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio, Oklahoma and Texas through independent agents.
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.
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 and industrial 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.
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.
Consolidation - Interests Held through Related Parties that Are Under Common Control
Please see below and Note 11 to the Consolidated Financial Statements for the years ended December 31, 2017 and 2016 and as of December 31, 2017 and 2016 for additional information regarding segment information.
Our premiums for the years ended December 31, 2017 and 2016 are summarized as follows:
The $2,985,203 increase in premiums for the year ended December 31, 2017 is primarily due to the following: $2,390,479 increase in final expense renewal premiums, $1,173,244 increase in final expense first year premiums and $339,706 decrease in supplementary contracts with life contingencies considerations.
The major components of our net investment income for the years ended December 31, 2017 and 2016 are summarized as follows:
The $4,215,007 increase in gross investment income for the year ended December 31, 2017 is primarily due to increases in investments in mortgage loans, other long-term investments and fixed maturity securities. In the twelve months since December 31, 2016, we have increased investments in mortgage loans on real estate by $28.1 million, available-for-sale fixed maturity securities by $20.4 million and other long-term investments by $9.0 million.
Our net realized investment gains (losses) for the years ended December 31, 2017 and 2016 are summarized as follows:
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, 2017 and 2016 are summarized as follows:
The $6,088,246 increase in total benefits, claims and expenses for the year ended December 31, 2017 is discussed below.
The $3,265,951 increase in total benefits and claims for the year ended December 31, 2017 is primarily due to the following:
$1,862,713 increase in interest credited to policyholders is primarily due to an increase of approximately $47,600,000 in the amount of policyholders’ account balances in the consolidated statement of financial position (increased deposits and interest credited in excess of withdrawals) since December 31, 2016.
$649,805 increase in death benefits is primarily due to approximately $783,000 of increased final expense settlements, $119,000 of increased ordinary life settlements and $252,000 of increased ceded claims. The increase in final expense incurred claims is expected by the Company due to the continued growth in the number and amount of final expense policies in force.
$616,525 increase in future policy benefits is primarily due to the increased number of life policies in force and the aging of existing life policies.
For the years ended December 31, 2017 and 2016, capitalized costs were $9,321,726 and $7,445,304, respectively. During 2017, $8,009,758 of commissions (93.3% of total 2017 commissions of $8,585,278) and $1,311,968 of expenses (16.4% of total 2017 other underwriting, insurance and acquisition expenses of $8,002,010) were eligible for deferral and were capitalized. During 2016, $6,420,934 of commissions (93.3% of total 2016 commissions of $6,882,311) and $1,024,370 of expenses (18.0% of total 2016 other underwriting, insurance and acquisition expenses of $5,677,130) were eligible for deferral and were capitalized. The $1,876,422 increase in the 2017 acquisition costs deferred primarily relates to increased final expense and annuity production and deferral and capitalization of the increased eligible commissions and expenses.
Amortization of deferred policy acquisition costs for the years ended December 31, 2017 and 2016 were $2,870,412 and $2,202,367, respectively. The $668,045 increase in the 2017 amortization of deferred acquisition costs is primarily due to an increased number and amount of final expense policies and annuity contracts in force and lapsation of ordinary life policies reflected by increased death benefits, surrenders and annuity withdrawals.
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 $382,190 and $379,365 for the years ended December 31, 2017 and 2016, respectively.
Our commissions for the years ended December 31, 2017 and 2016 are summarized as follows:
The $2,324,880 increase in other underwriting, insurance and acquisition expenses for the year ended December 31, 2017 was primarily related to the accrual of a $1.85 million settlement of FBLIC Term to 95 lawsuit, increased acquisition and maintenance costs associated with increased final expense and annuity production, increased third party administration fees primarily related to the increased number of policies in force and increased service requests, increased salaries and benefits due to increased salary and bonus levels that exceeded the costs of the Company’s mortgage loan department that were fully assigned to investment expenses beginning in 2017 and the 2016 recording of bad debt expense against uncollectible receivables for financed casualty premiums for individuals and companies by FTCC.
FTFC files a consolidated federal income tax return with FTCC but does not file a consolidated tax return with TLIC or FBLIC. TLIC and FBLIC are taxed as life insurance companies under the provisions of the Internal Revenue Code. Life insurance companies must file separate tax returns until they have been a member of the consolidated filing group for five years. However, we filed consolidated life insurance company federal tax returns for TLIC and FBLIC for 2016 and 2015 and intend to also file a consolidated life insurance company federal tax return for TLIC and FBLIC for 2017 during 2018.
Net income was $969,364 ($0.12 per common share basic and diluted) and $2,590,739 ($0.33 per common share basic and diluted) for the years ended December 31, 2017 and 2016, respectively.
The $3,312,117 increase in revenues from Life Insurance Operations for the year ended December 31, 2017 is primarily due to the following:
$396,833 decrease in net realized investment gains (that also includes a loss on other-than-temporary impairment)
The $226,773 decrease in revenues from Corporate Operations for the year ended December 31, 2017 is primarily due to $220,538 decreased net investment income and $6,235 decreased other income.
The $11,611 decrease in Corporate Operations profitability for the year ended December 31, 2017 is primarily due to $220,538 decreased net investment income, $6,235 decreased other income and $215,162 decreased operating expenses.
The $33,740 increase and $254,393 decrease in equity securities available-for-sale for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:
The $28,125,165 and $15,596,368 increases in mortgage loans on real estate for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:
The $123,707 decrease and $180,115 increase in investment real estate for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:
The $9,025,710 and $15,221,946 increases in other long-term investments (comprised primarily of lottery receivables) for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:
The $2,727,786 decrease in cash and cash equivalents for the year ended December 31, 2017 and the corresponding amount for the year ended December 31, 2016 are summarized in the Company’s consolidated statements of cash flows.
The $368,193 increase (16.9% increase) in accrued investment income in 2017 corresponds to the $58,042,920 increase (22.7% increase) in invested assets during 2017.
Our other assets as of December 31, 2017 and December 31, 2016 are summarized as follows:
There was a $283,928 increase in federal and state income taxes recoverable primarily due to federal and state tax withholdings on lottery receivables.
On April 15, 2017, the Company renewed its previous one-year loan of $400,000 to its former Chairman. The renewed loan also has a term of one year and a contractual interest rate of 5.00%. The loan is collateralized by 100,000 shares of the Company’s Class A Common stock owned by the former Chairman and is included in notes receivable.
The $2,268,459 increase in deferred federal income taxes during the year ended December 31, 2017 was due to $1,060,901 of increased deferred federal income taxes on the unrealized appreciation of fixed maturity and equity securities available-for-sale, $1,267,823 of operating deferred federal tax expense and $60,265 from a 1% change in the statutory tax rate to 21% compared to the 20% historically used to compute deferred federal income taxes on the unrealized appreciation (depreciation) of fixed maturity and equity securities available-for-sale.
Our other liabilities as of December 31, 2017 and December 31, 2016 are summarized as follows:
The $205,786 decline in other payables, withholdings and escrows is primarily due to an increase in escrows on commercial mortgage loans.
The $1,898,817 increase in accounts payable is primarily due to the $1.85 million settlement of the FBLIC Term to 95 lawsuit.
Cash dividends may only be paid out of surplus derived from realized net profits. Based on these limitations, there is capacity for TLIC to pay a dividend up to $1,124,823 in 2018 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $760,348 in 2018 without prior approval. FBLIC paid dividends of $1,000,000 to TLIC in 2016 but none in 2017. Dividends paid by FBLIC are eliminated in consolidation. TLIC has paid no dividends to FTFC.
On September 1, 2017, the Company agreed to a $1.0 million line of credit with a bank to provide working capital and funds for expansion. The terms of the line of credit allow for advances, repayments and re-borrowings through the maturity date of July 1, 2018. The outstanding advances incur 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. This line of credit is subject to annual renewal based upon the discretion of both the Company and the bank. The Company did not utilize the line of credit during 2017.
The $1,898,407 and $9,485,884 of cash provided by operating activities for the years ended December 31, 2017 and 2016, respectively, are summarized as follows:
The increase in shareholders’ equity of $4,971,904 for the year ended December 31, 2017 is due to other comprehensive income of $3,942,275, net income of $969,364 and $60,265 for a 1% increase in the statutory tax rate to 21% compared to the 20% historically used to compute deferred federal income taxes on the unrealized appreciation (depreciation) of fixed maturity and equity securities available-for-sale. Shareholders’ equity per common share outstanding increased 13.8% from $4.65 per share as of December 31, 2016 to $5.29 per share as of December 31, 2017, based upon 7,802,593 common shares outstanding as of both December 31, 2016 and 2017.
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.
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 2017, 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.
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, 2017 will be sufficient to fund our anticipated operating expenses.
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
We have audited the accompanying consolidated statements of financial position of First Trinity Financial Corporation and Subsidiaries (the Company) as of December 31, 2017, and the related consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
During 2017, the Company reclassified an available-for-sale fixed maturity security totaling $729,737 to other long-term investments due to a recent third party information change indicating the security does not qualify for available-for-sale treatment.
In conjunction with this reclassification, the non-cash impact on investing activities is summarized as follows:
During 2017 and 2016, the Company foreclosed on residential mortgage loans of real estate totaling $207,482 and $394,427, respectively, and transferred those properties to investment real estate that are now held for sale.
Other long term investments are comprised of lottery prize receivables and are carried at amortized cost, net of unamortized discount. Interest income and the accretion of discount are included in net investment income.
The allowance for possible loan losses from investments in mortgage loans on real estate and loans from premium financing is a reserve established through a provision for possible loan losses charged to expense which represents, in the Company’s judgment, the known and inherent credit losses existing in the residential and commercial and industrial mortgage loan and premium financing loan portfolios. The allowance, in the judgment of the Company, is necessary to reserve for estimated loan losses inherent in the residential and commercial and industrial mortgage loan and premium finance loan portfolios and reduces the carrying value of investments in mortgage loans on real estate and premium finance loans to the estimated net realizable value on the consolidated statement of financial position.
As of December 31, 2017 and 2016, there was $3,213,233 and $2,831,043, 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: $306,567 in 2018, $286,076 in 2019, $264,029 in 2020, $244,791 in 2021 and $227,007 in 2022.
Other assets consist primarily of advances to mortgage loan originator, receivable for securities sold, federal and state income taxes recoverable, accrual of mortgage loan and long-term investment payments due, guaranty funds, notes receivable, prepaid assets, deposits, other receivables, property and equipment and loans from premium financing.
The Company’s liability for policyholders’ account balances represents the contract value that has accrued to the benefit of the policyholder as of the financial statement date. This liability is generally equal to the accumulated account deposits plus interest credited less policyholders’ withdrawals and other charges assessed against the account balance. Interest crediting rates for individual annuities range from 2.25% to 4.50%. Interest crediting rates for deposit-type liabilities range from 2.50% to 4.00%.
Acquisition costs for traditional life insurance contracts are deferred to the extent deemed recoverable and are amortized over the premium paying period of the related policies using assumptions consistent with those used in computing future policy benefit liabilities. Traditional life insurance products are treated as long-duration contracts since they are ordinary whole life insurance products, which generally remain in force for the lifetime of the insured.
Management has evaluated all events subsequent to December 31, 2017 through the date that these financial statements have been issued.
Entities will generally continue to account for leases that commenced before the effective date of this update in accordance with previous U.S. GAAP unless the lease is modified. Lessees are required to recognize a right-of-use asset and a lease liability for all operating leases at each reporting date based on the present value of the remaining minimal rental payments that were tracked and disclosed under previous U.S. GAAP. The updated guidance is to be applied using a modified retrospective approach effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on the Company’s results of operations, financial position or liquidity.
The updated guidance is effective for reporting periods beginning after December 15, 2016. Early adoption was permitted. The adoption of this guidance did not have a material effect on the Company’s results of operations, financial position or liquidity.
In June 2016, the FASB issued updated guidance 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. mortgage loans and reinsurance amounts recoverable) 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.
In March 2017, the FASB issued updated guidance to improve the presentation of net periodic pension cost and net periodic post retirement cost (net benefit costs). Net benefit costs comprise several components that reflect different aspects of an employer’s financial arrangements as well as the cost of benefits provided to employees. The update requires that the employer service cost component be reported in the same lines as other employee compensation cost and that the other components (non-service costs) be presented separately from the service cost and outside of a subtotal of income from operations if one is presented. The update also allows only the service cost component to be eligible for capitalization in assets when applicable.
The updated guidance is effective for reporting periods beginning after December 15, 2017. The update is to be applied retrospectively with respect to the presentation of service cost and non-service cost and prospectively with respect to applying the service cost only eligible for capitalization in assets guidance. Early adoption is permitted as of the first interim period of an annual period if an entity issues interim financial statements. This pronouncement will not impact the Company since it does not have any pension or postretirement benefit plans and has no intention to adopt such plans.
The updated guidance is effective for reporting periods beginning after December 15, 2018. Early adoption is permitted for reporting periods beginning before December 15, 2018. The Company does not currently and does not intend to participate in hedging activities and there is therefore no impact on the Company’s results of operations, financial position or liquidity. This pronouncement would be adopted if the Company begins to participate in hedging activities in the future.
As of December 31, 2016, the Company had three available-for-sale equity securities with an unrealized loss of $6,454, fair value of $185,473 and cost of $191,927. The ratio of fair value to cost of these securities is 97%.
Fixed maturity securities were 93% and 92% investment grade as rated by Standard & Poor’s as of December 31, 2017 and December 31, 2016, respectively.
Management believes that the Company will fully recover its cost basis in the securities held as of December 31, 2017, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The remaining temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.
The Company’s mortgage loans by property type as of December 31, 2017 and 2016 are summarized as follows:
The outstanding principal balance of mortgage loans, by the most significant states, as of December 31, 2017 and 2016 are summarized as follows:
There were no mortgage loans in default and in the foreclosure process as of December 31, 2017 and 2016.
During 2017 the Company foreclosed on residential mortgage loans of real estate totaling $207,482 and transferred those properties to investment real estate held for sale. During 2016 the Company foreclosed on residential mortgage loans of real estate totaling $394,427 and transferred those properties to investment real estate held for sale.
The principal balances of the 755 residential mortgage loans owned by the Company as of December 31, 2016 that aggregated to $73,116,478 ranged from a low of $2,148 to a high of $864,562 and the interest rates ranged from 5.40% to 20.78%. The principal balances of the four commercial mortgage loans owned by the Company as of December 31, 2016 that aggregated to $1,254,808 ranged from a low of $180,386 to a high of $451,554 and the interest rates ranged from 5.75% to 8.25%.
TLIC owns approximately six and one-half acres of land located in Topeka, Kansas that includes a 20,000 square foot office building on approximately one-fourth of this land. This building and land on one of the four lots is held for the production of income. The other three lots of land owned in Topeka, Kansas are held for investment. In addition, FBLIC owns one-half acre of undeveloped land located in Jefferson City, Missouri. During 2016 management impaired the undeveloped land by $4,892 from its carrying value to its net realizable value expected at the time of ultimate resale.
The Company’s investment in lottery prize cash flows was $55,814,583 and $46,788,873 as of December 31, 2017 and 2016, respectively. The lottery prize cash flows are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries.
The amortized cost and estimated fair value of lottery prize cash flows, by contractual maturity, as of December 31, 2017 are summarized as follows:
The outstanding balance of lottery prize cash flows, by state lottery, as of December 31, 2017 and 2016 are summarized as follows:
Major categories of net investment income for the years ended December 31, 2017 and 2016 are summarized as follows:
The Company holds fixed maturity and equity securities that are measured and reported at fair market value on the consolidated statements of financial position. The Company determines the fair market values of its financial instruments based on the fair value hierarchy 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:
The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of December 31, 2017 and 2016 is summarized as follows:
As of December 31, 2017 and 2016, Level 3 financial instruments consisted of two private placement common stocks that have no active trading. During 2016, additional investments in one of the private placement common stocks were purchased.
These private placement stocks represent investments in small insurance holding companies. The fair value for these securities was determined through the use of unobservable assumptions about market participants. The Company has assumed a willing market participant would purchase the securities for the same price as the Company paid.
The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of December 31, 2017 and 2016, and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:
Through June 30, 2012, FTCC financed amounts up to 80% of the premium on property and casualty insurance policies after a 20% or greater down payment was made by the policy owner. The premiums financed were collateralized by the amount of the unearned premium of the insurance policy. Policies that became delinquent were submitted for cancellation and recovery of the unearned premium, up to the amount of the loan balance, 25 days after a payment became delinquent. As of December 31, 2016 the Company established a full allowance for uncollectible receivables against the premium financing asset. In late December of 2016, the Company wrote off the asset by netting the allowance for uncollectible receivables against the premium financing asset. The Company has made no premium financing loans since June 30, 2012.
The balances of and changes in the Company’s credit losses related to mortgage loans on real estate and loans from premium financing as of and for the years ended December 31, 2017 and 2016 are summarized as follows (excluding $33,900,260 and $25,523,757 of mortgage loans on real estate as of December 31, 2017 and 2016, respectively, with one loan originator where independent mortgage loan balances are held in escrow by a third party for the benefit of the Company):
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.
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. Significant components of the Company’s deferred tax liabilities and assets as of December 31, 2017 and 2016 are summarized as follows:
FTFC has net operating loss carryforwards of $5,035,767 expiring in 2024 through 2033. FTFC has capital loss carryforwards of $42,500 expiring in 2018 that are subject to a full valuation allowance as of December 31, 2017 and 2016 since it is not probable that the capital loss carryforwards will be utilized. During 2017, FTFC utilized $284,560 of the net operating loss carryforward existing as of January 1, 2017 to offset 2017 federal taxable income. During 2016, FTFC utilized $299,347 of the net operating loss carryforward existing as of January 1, 2016 to offset 2016 federal taxable income.
Due to FTFC’s taxable income generated in 2017, 2016, 2015 and 2014 and FTFC’s projected taxable income in future years, the valuation allowance on FTFC’s net operating loss carryforward was reduced by $1,699,953 during 2016 since it is probable the entire net operating loss carryforwards will be utilized.
During 2017, TLIC utilized the remaining $116,225 net operating loss carryforwards originated from the acquisition of FLAC and existing as of January 1, 2017 to offset a portion of 2017 federal taxable income. During 2016, TLIC utilized $135,000 of the net operating loss carryforward existing as of January 1, 2016 to offset a portion of 2016 federal taxable income.
The Company has no known uncertain tax benefits within its provision for income taxes beyond the $1,834,910 loss contingency accrued for a lawsuit settlement. 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 2015 through 2017 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.
Reinsurance assumed and ceded amounts for TLIC and FBLIC for 2017 and 2016 are summarized as follows:
On January 1, 2011, the Company received a $120,000 leasehold improvement allowance from the lessor related to the original lease that was fully amortized by September 30, 2015. In accordance with the amended lease on October 1, 2015, the Company was provided an allowance of $54,152 for leasehold improvements. The leasehold improvement allowance is amortized over the remaining amended non-cancellable lease term and reduced rent expense by $14,491, $8,627 and $1,250 for the years ended December 31, 2017, 2016 and 2015, respectively. The future minimum lease payments to be paid under the amended non-cancellable lease agreement are $106,189, $108,304 and $82,446 for the years 2018 through 2020, respectively.
TLIC executed a two year lease agreement effective January 1, 2015, for 7,500 square feet of its building in Topeka, Kansas. Effective January 1, 2017, this lease was renewed for two years. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance. The monthly lease payments are $8,696 for 2015, 2016, 2017 and 2018.
TLIC renewed a five year lease agreement effective June 1, 2011, for 10,000 square feet in the Topeka, Kansas office building. Beginning June 1, 2014, the lessee can terminate the lease with a 180 day written notice. The terms of the lease leave TLIC responsible for paying real estate taxes, building insurance and building and ground maintenance with partial reimbursement from the lessee. The lease agreement calls for minimum monthly base lease payments of $17,750.
TLIC is domiciled in Oklahoma and prepares its statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the OID. FBLIC is domiciled in Missouri and prepares its statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the Missouri Department of Insurance. Prescribed statutory accounting practices include publications of the National Association of Insurance Commissioners, state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing investments, deferred taxes, and certain assets on a different basis.
Following the conclusion of the trial, subject to the approval of the Court, the parties reached a settlement resolving of both the individual and class claims. If approved by the Court, FBLIC will pay $1.85 million as accrued in the consolidated financial statements to resolve all class and individual claims and all active Decreasing Term to 95 policies for individuals in the class will be cancelled. A hearing date for approval of the settlement has not yet been scheduled.
On April 15, 2017, the Company renewed its previous one-year loan of $400,000 to its former Chairman. The renewed loan has a term of one year and a contractual interest rate of 5.00%. The loan is collateralized by 100,000 shares of the Company’s Class A Common stock owned by the former Chairman. This loan is included in other assets in the consolidated statements of financial position.
The pretax components of the Company’s other comprehensive income and the related income tax expense (benefit) for each component for the years ended December 31, 2017 and 2016 are summarized as follows:
The pretax and the related income tax components of the amounts reclassified from the Company’s accumulated other comprehensive income (loss) to the Company’s consolidated statements of operations for the years ended December 31, 2017 and 2016 are summarized as follows: