As filed with the Securities and Exchange Commission on October 22, 2021

Registration No. 333-________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

FIRST TRINITY FINANCIAL CORPORATION

(Exact name of Registrant as specified in its charter)

FIRST TRINITY FINANCIAL CORPORATION

7633 E. 63^rd Place, Suite 730

Tulsa, Oklahoma 74133

(918) 249-2438

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Gregg E. Zahn

Chief Executive Officer

7633 E. 63^rd Place, Suite 730

Tulsa, Oklahoma 74133

(918) 249-2438

(Name, address, including zip code, and telephone number, including area code, of agent for service)

COPIES TO:

Approximate date of commencement of proposed sale to the public: Upon consummation of the share exchange described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)                           ☐

Exchange Act Rule 14d-1(d) (Cross-Border Issuer Third Party Tender Offer)      ☐

CALCULATION OF REGISTRATION FEE

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

THE INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. FIRST TRINITY FINANCIAL CORPORATION MAY NOT ISSUE FIRST TRINITY FINANCIAL CORPORATION CLASS A COMMON STOCK TO ROYALTY CAPITAL CORPORATION PURSUANT TO THE PURCHASE AND SALE AGREEMENT UNTIL THE REGISTRATION STATEMENT ON FORM S-4 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION CONTAINING THIS PROXY STATEMENT/PROSPECTUS IS EFFECTIVE AND CERTAIN OTHER CONDITIONS ARE SATISFIED. THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL FIRST TRINITY FINANCIAL CORPORATION’S CLASS A COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY FIRST TRINITY FINANCIAL CORPORATION’S CLASS A COMMON STOCK TO ANY INDIVIDUAL SHAREHOLDER OF ROYALTY CAPITAL CORPORATION OR IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

SUBJECT TO COMPLETION, DATED OCTOBER 22, 2021

ROYALTY CAPITAL CORPORATION

Dear Royalty Capital Corporation Shareholder:

You are cordially invited to attend a special meeting (the “special meeting”) of shareholders of Royalty Capital Corporation, an Illinois corporation (“RCC”), to be held on [            ], 2021 at [            ] local time via videoconference. At the special meeting, RCC is seeking your approval of (i) the exchange of the capital stock (“share exchange”) of Royalty Capital Life Insurance Company (“RCLIC”), a wholly-owned Missouri subsidiary of RCC, to First Trinity Financial Corporation, an Oklahoma corporation (“FTFC”), set forth in the Purchase and Sale Agreement (in the form of Annex A to this proxy statement/prospectus), and (ii) the dissolution of RCC through the adoption of the Plan of Liquidation and Dissolution (in the form of Annex B to this proxy statement/prospectus) (the “Plan of Liquidation and Dissolution”). The capital stock of RCLIC constitutes substantially all of the assets of RCC and substantially all of its operations are conducted through RCLIC. After the share exchange, there will be no reason for RCC to continue to exist and it will be dissolved.

In consideration for the shares of RCLIC, RCC will receive 745,730 shares of FTFC’s Class A Common Stock. The shares of FTFC Class A Common Stock have been valued by the parties at $8.06 per share for purposes of the share exchange.

There is no public trading market in FTFC’s Class A Common Stock; therefore, the value ascribed to FTFC’s Class A Common Stock for purposes of the share exchange may not reflect their intrinsic value or the value an independent third-party purchaser might pay for such shares (either of which could be considerably less than the assumed share exchange value). In connection with the share exchange, RCC intends to transfer its cash and minor assets and minor liabilities to RCLIC immediately prior to the share exchange and settle any other liabilities and obligations, if any, in accordance with applicable law and the Plan of Liquidation and Dissolution. The remaining assets, comprised only of shares of FTFC Class A Common Stock, would be available for pro rata distribution to RCC shareholders. Based upon the assumptions described below under the “Plan of Liquidation and Dissolution,” RCC believes that each holder of RCC common stock could receive one (1) share of FTFC Class A Common Stock for each approximately thirty-four (34) shares of RCC common stock owned by such holder. However, if such assumptions prove to be incorrect, the shares that RCC’s shareholders may receive may be substantially less than anticipated. RCC does not plan to resolicit shareholder approval for the Plan of Liquidation and Dissolution, even if the consideration to be distributed to shareholders materially changes from the foregoing estimate.

After due consideration of all other alternatives available to RCC at this time, including the liquidation and cessation of RCC’s business and extending the search for alternative transactions, RCC’s board of directors concluded the completion of the share exchange and implementation of the Plan of Liquidation and Dissolution was advisable and in the best interests of RCC and its shareholders. The other directors and I urge you to vote FOR each of the proposals in this proxy statement/prospectus, which we have approved after careful consideration. Your vote is extremely important, and your early response will be greatly appreciated.

If you have any questions or need assistance voting your shares, please call RCC at (708) 995-7748 or write to Royalty Capital Corporation, 19250 Everett Lane, Mokena, Illinois 60448, Attention: Corporate Secretary.

Mokena, Illinois

[             ], 2021

For a discussion of significant matters that should be considered before voting at the special meeting, see “Risk Factors” beginning on page 12.

Neither FTFC’s nor RCC’s common stock is traded on any national securities exchange or recognized over-the-counter markets. Thus, trades are made only in isolated, sporadic instances between private parties.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the FTFC’s Class A Common Stock issuable to RCC as part of the share exchange or determined whether this proxy statement/prospectus is accurate or adequate. Any representation to the contrary is a criminal offense.

This proxy statement/prospectus is dated [                       ], 2021, and is first being mailed to shareholders of RCC on or about [                       ], 2021.

ROYALTY CAPITAL CORPORATION

19250 Everett Lane Suite 201

Mokena, Illinois 60448

NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS

To Be Held on [                       ], 2021

TO THE SHAREHOLDERS OF ROYALTY CAPITAL CORPORATION:

NOTICE IS HEREBY GIVEN that a special meeting (the “special meeting”) of the shareholders of Royalty Capital Corporation, an Illinois corporation (“RCC”), will be held on [            ], 2021 at [            ] local time at [            ] for the following purposes:

1.         To approve the exchange (the “share exchange”) of all of the issued and outstanding capital stock of Royalty Capital Life Insurance Company (“RCLIC”), a wholly-owned subsidiary of RCC, to First Trinity Financial Corporation, an Oklahoma corporation (“FTFC”), pursuant to the Purchase and Sale Agreement (the “Purchase and Sale Agreement”), dated as of September 29, 2021, in the form of Annex A attached to the proxy statement/prospectus accompanying this Notice (“Proposal 1”).

2.         To approve and adopt the Plan of Liquidation and Dissolution of RCC and the transactions contemplated thereby, including the liquidation and dissolution of RCC, in the form of Annex B attached to the proxy statement/prospectus accompanying this Notice (the “Plan of Liquidation and Dissolution”) (“Proposal 2”).

3.         To approve one or more adjournments of the special meeting, if necessary or appropriate, to permit further solicitation of proxies if necessary to establish a quorum or to obtain additional votes in favor of the foregoing items (“Proposal 3”).

The foregoing items of business are more completely described in the proxy statement/prospectus accompanying this Notice. Your vote is very important. Under the terms of the Purchase and Sale Agreement, RCC, RCLIC, and FTFC are obligated to complete the transactions contemplated by the Purchase and Sale Agreement only if the shareholders of RCC, by the affirmative vote of at least a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock, approve each of Proposals 1 and 2 above and certain other conditions are met. In addition, the Plan of Liquidation and Dissolution will only be implemented if the Purchase and Sale Agreement is approved by the shareholders of RCC. Accordingly, failure to approve the Plan of Liquidation and Dissolution will have the effect of preventing the completion of Purchase and Sale Agreement, and failure to approve the Purchase and Sale Agreement will have the effect of preventing the completion of the liquidation and dissolution of RCC. Approval of Proposal 3 requires that the votes cast in favor of the proposal at the special meeting exceed the votes cast opposing the proposal at the special meeting.

The RCC board of directors has approved and adopted the Purchase and Sale Agreement, has determined that the transactions contemplated by the Purchase and Sale Agreement, including the share exchange, each on the terms and conditions set forth in the Purchase and Sale Agreement, are in the best interests of RCC and its shareholders and recommends that you vote in favor of each of Proposals 1, 2 and 3 above.

As required by the Illinois Business Corporation Act of 1983 (the “IBCA”), RCC is hereby notifying all shareholders entitled to vote on the share exchange that you are or may be entitled to assert dissenters’ rights under the dissenters’ rights chapter of the IBCA. A copy of the dissenters’ rights chapter is included with the enclosed proxy statement/prospectus as Annex C.

The enclosed proxy statement/prospectus provides a detailed description of the special meeting, the share exchange, the proposals to be voted on at the special meeting and other related matters. We urge you to read the proxy statement/prospectus, including any documents incorporated in the proxy statement/prospectus by reference, and its annexes carefully and in their entirety.

The board of directors of RCC has fixed the close of business on [                       ], 2021 as the record date for the determination of shareholders entitled to notice of and to vote at the special meeting and at any adjournment or postponement thereof.

Mokena, Illinois

[              ], 2021

ALL RCC SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON, WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE SPECIAL MEETING. PLEASE NOTE, HOWEVER, THAT ATTENDANCE AT THE SPECIAL MEETING WILL NOT BY ITSELF REVOKE A PROXY. FURTHERMORE, IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE SPECIAL MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.

TABLE OF CONTENTS

Annexes:

Annex A – Purchase and Sale Agreement

Annex B – Plan of Liquidation and Dissolution

Annex C – Illinois Appraisal (Dissenter’s) Rights

QUESTIONS AND ANSWERS

The following are relevant questions and answers about (i) the exchange of the capital stock (“share exchange”) of Royalty Capital Life Insurance Company (“RCLIC”), a wholly-owned subsidiary of Royalty Capital Corporation (“RCC”), to First Trinity Financial Corporation, an Oklahoma corporation (“FTFC”), pursuant to the Purchase and Sale Agreement, dated September 29, 2021 (the “Purchase and Sale Agreement”), by and among FTFC, RCC and RCLIC, and (ii) the Plan of Liquidation and Dissolution of RCC (the “Plan of Liquidation and Dissolution”). For ease of exposition, we refer to the Plan of Liquidation and Dissolution as the “dissolution,” and the special meeting of the shareholders of RCC as the “special meeting.”

FORWARD-LOOKING INFORMATION

All statements, other than statements of historical fact, included in this proxy statement/prospectus, including the annexes hereto, are “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The words “believe,” “anticipate,” “expect,” “may,” “will,” “assume,” “should,” “predict,” “could,” “would,” “intend,” “targets,” “estimates,” “projects,” “plans,” “potential,” and other similar words and expressions of the future are intended to identify such forward-looking statements, but other statements not based on historical information may also be considered forward-looking. These forward-looking statements include, among others, statements regarding the shares of FTFC Class A Common Stock expected to be payable to RCC upon the closing of the Purchase and Sale Agreement, the expected timeline of the share exchange, the dissolution and the timing of distributions to be made to RCC shareholders in connection with the dissolution. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ materially. For a detailed discussion of these risks and uncertainties, see the “Risk Factors” section of this proxy statement/prospectus. These and many other factors could affect the future financial and operating results of FTFC.

FTFC and RCC urge you to consider all of these risks, uncertainties and other factors carefully in evaluating all such forward-looking statements made in this proxy statement/prospectus. As a result of these and other matters, including changes in facts, assumptions not being realized or other factors, the actual results relating to the subject matter of any forward-looking statement may differ materially from the anticipated results expressed or implied in that forward-looking statement. Any forward-looking statement made in this proxy statement/prospectus or made by FTFC or RCC in any report, filing, document or information incorporated by reference in this proxy statement/prospectus, speaks only as of the date on which it is made. Neither FTFC nor RCC undertakes any obligation to update any such forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

A forward-looking statement may include a statement of the assumptions or bases underlying the forward-looking statement. We believe that these assumptions or bases have been chosen in good faith and that they are reasonable. However, we caution you that assumptions as to future occurrences or results almost always vary from actual future occurrences or results, and the differences between assumptions and actual occurrences and results can be material. Therefore, we caution you not to place undue reliance on the forward-looking statements contained in this proxy statement/prospectus or incorporated by reference herein.

SUMMARY OF THE PROXY STATEMENT/PROSPECTUS

This summary, together with the matters discussed under “Questions and Answers,” highlights the material terms of the transaction and may not contain all of the information that is important to you. You should read carefully this entire proxy statement/prospectus and the documents referred to in this proxy statement/prospectus for a more complete description of the matters on which you are being asked to vote. The Purchase and Sale Agreement is attached as Annex A to this proxy statement/prospectus. You are encouraged to read the Purchase and Sale Agreement as it is the legal document that governs the share exchange on which you are being asked to vote. The Plan of Liquidation and Dissolution of RCC is attached to this proxy statement/prospectus as Annex B. You are encouraged to read the Plan of Liquidation and Dissolution as it is the legal document that would govern the dissolution of RCC that you are being asked to approve. Also, attached as Annex C includes the full text of those sections of the Illinois Business Corporation Act (the “IBCA”) applicable to dissenters’ rights. You are encouraged to read those materials as well. This summary is qualified in its entirety by the Purchase and Sale Agreement, the Plan of Liquidation and Dissolution, the sections of the IBCA and the more detailed information appearing elsewhere in this document. This summary includes page references in parentheses to direct you to a more complete description of the topics presented in this summary.

FTFC has supplied all information contained in this proxy statement/prospectus relating to FTFC and its subsidiaries and RCC has supplied all information contained in this proxy statement/prospectus relating to RCC and RCLIC. Unless otherwise indicated, references to FTFC include FTFC and its subsidiaries.

The Companies

Royalty Capital Corporation

19250 Everett Lane, Suite 201

Mokena, Illinois 60448

708-995-7748

First Trinity Financial Corporation

7633 East 63^rd Place, Suite 230

Tulsa, Oklahoma 74133

918-249-2438

FTFC is an insurance holding company based in Tulsa, Oklahoma. FTFC operates two wholly-owned life insurance subsidiaries. FTFC’s insurance operations began in early 2007 marketing one product in the State of Oklahoma. It is now licensed to sell several insurance products in 27 states.

RCC, incorporated in Illinois on August 6, 2013, conducts a life insurance business through its wholly-owned subsidiary RCLIC, which was licensed to sell insurance products in Illinois, Missouri and Kansas.

Reasons for the Purchase and Sale Agreement

FTFC

FTFC’s board of directors determined that the acquisition of the capital stock of RCLIC from RCC is consistent with and in furtherance of the long-term business strategy of FTFC and fair to, and in the best interests of, FTFC and its shareholders, and has unanimously approved the Purchase and Sale Agreement. In reaching its determination, FTFC’s board of directors considered a number of factors, including the following:

RCC

RCC’s board of directors (with Messrs. Zahn and Lay, directors and officers of FTFC abstaining) has determined that the share exchange and the Purchase and Sale Agreement are fair to and in the best interests of RCC and its shareholders, and has approved the Purchase and Sale Agreement and the share exchange. In reaching its determination, RCC’s board of directors considered a number of factors, including the following:

Conditions to the Share Exchange

The obligations of each of FTFC and RCC to complete the share exchange are subject to the satisfaction of specified conditions set forth in the Purchase and Sale Agreement, including the approval of the share exchange by the affirmative vote of at least a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock at the special meeting.

Termination of the Purchase and Sale Agreement

Each of FTFC and RCC is entitled to terminate the Purchase and Sale Agreement under specified conditions, including, among others, mutual written consent of the parties; if the share exchange has not been completed by 180 days from the date of the Purchase and Sale Agreement (September 29, 2021); if a court or governmental entity issues a final and nonappealable order that prohibits the share exchange; if the RCC shareholders do not approve the share exchange or holders of more than 10% of RCC’s common stock properly exercise their dissenter’s rights; or in the case of certain breaches of the Purchase and Sale Agreement by either party.

Limitation on Considering Other Proposals

RCC has agreed not to consider a sale of assets, a business combination or other similar transaction with another party while the share exchange is pending.

Expenses

The Purchase and Sale Agreement provides that regardless of whether the share exchange is completed, all expenses incurred by the parties shall be borne by the party incurring such expenses.

Material Federal Income Tax Consequences

The share exchange should qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”). A U.S. holder (as defined below in the section titled “Material Terms of the Purchase and Sale Agreement - Material Federal Income Tax Consequences”) of RCC common stock will not recognize any gain or loss for federal income tax purposes upon the deemed exchange of the holder’s shares of RCC common stock solely for shares of FTFC Class A Common Stock in the share exchange. Please carefully review the information set forth in the section titled “Material Terms of the Purchase and Sale Agreement - Material Federal Income Tax Consequences” beginning on page [ • ] for a description of the material federal income tax consequences of the share exchange.

Tax matters can be complicated and the tax consequences of the transaction discussed in this proxy statement/prospectus to you will depend on the facts of your own situation. You should consult with your own tax advisor to fully understand the tax consequences of the share exchange and dissolution of RCC to you.

Anticipated Accounting Treatment

The share exchange is expected to be accounted for by FTFC as a business combination for U.S. GAAP purposes and a merger for statutory accounting purposes. Under the U.S. GAAP method, the purchase price will be allocated to the identifiable assets acquired and will be recorded on FTFC’s books at their respective fair values. Any remaining purchase price will be recorded as an intangible assets and goodwill. Under the statutory accounting merger method, the insurance companies’ assets, liabilities and operations will be combined as if the insurance companies were one entity since the beginning of RCLIC’s operations with beginning of the period balances restated.

Regulatory Matters Relating to the Share Exchange

Other than approval of the Director of the Missouri Department of Commerce and Insurance, which is presently being sought, neither RCC nor FTFC is aware of any other regulatory or governmental approvals required to complete the share exchange, except clearance by the SEC of RCC’s proxy statement and SEC effectiveness of FTFC’s registration statement registering the shares of its Class A Common Stock to be issued to RCC pursuant to the Purchase and Sale Agreement.

Regulatory Matters Relating to the Dissolution

Other than customary corporate filings with the Illinois Secretary of State, RCC is not aware of any other regulatory or governmental requirements that must be complied with or approvals that must be obtained in connection with the dissolution.

SUMMARY OF SELECTED FINANCIAL DATA

The tables below set forth in summary certain selected financial data of FTFC and RCC.

FTFC financial data at or for the six months ended June 30, 2021 and 2020, is derived from the unaudited consolidated financial statements of FTFC and subsidiaries for the six months ended as of such date included elsewhere in this proxy statement/prospectus. FTFC financial data at or for the years ended December 31, 2020 and 2019, is derived from audited consolidated financial statements of FTFC and subsidiaries included elsewhere in this proxy statement/prospectus.

RCC financial data at or for the six months ended June 30, 2021 and 2020 is derived from the unaudited consolidated financial statements of RCC and subsidiary for the six months ended as of such date included elsewhere in this proxy statement/prospectus. RCC financial data at or for the years ended December 31, 2020 and 2019 is derived from audited consolidated financial statements of RCC and subsidiary included elsewhere in this proxy statement/prospectus.

First Trinity Financial Corporation:

RCC:

RISK FACTORS

When you decide whether to vote for approval of the share exchange and the dissolution, you should consider the following factors in conjunction with the other information included in this proxy statement/prospectus. The following are important factors which could cause actual results or events to differ materially from those contained in any forward-looking statements made by or on behalf of FTFC or RCC.

Risks Relating to the Share Exchange and the Dissolution of RCC

RCC cannot determine the exact timing of any FTFC share distributions that will be made to its shareholders because there are many factors, some of which are outside of RCC’s control, that could affect RCC’s ability to make distributions to its shareholders.

RCC cannot determine at this time exactly when it will be able to make any FTFC share distributions to its shareholders because that determination depends on a variety of factors, including, but not limited to, whether the share exchange closes, the timing of the closing, general business and economic conditions and other matters.

If the Purchase and Sale Agreement is terminated, RCC will incur costs.

If the Purchase and Sale Agreement is terminated, RCC will be obligated to pay its legal, accounting and other expenses associated with the Purchase and Sale Agreement. See “Material Terms of the Purchase and Sale Agreement.”

If the share exchange is not completed, and if RCC were unable to secure an alternative source of working capital or to enter into an alternative business combination transaction, RCC likely would be forced to curtail operations or resort to bankruptcy protection, in which case there may be no assets available for distribution to RCC shareholders.

If the share exchange is not completed and RCC is unable to identify an alternative source of working capital or to enter into an alternative business combination transaction, RCC believes that it is likely that it will curtail operations and perhaps file or be forced to resort to bankruptcy protection. In this event, it is extremely unlikely that RCC would be able to pay, or provide for the payment of, all of its liabilities and obligations, and, therefore, there would be no assets available for distribution to RCC’s shareholders. Moreover, given RCLIC’s losses from operations, regulatory authorities could force it to either quickly obtain additional capital surplus, curtail operations or sell its life insurance policies to another insurance company.

Even if RCC’s shareholders approve the share exchange, the share exchange may not be completed.

The completion of the share exchange is subject to numerous conditions. Even if shareholders of RCC holding at least a majority of the outstanding shares of RCC’s common stock entitled to vote to approve the share exchange and the dissolution, RCC cannot guarantee that the share exchange will be completed. For example, the closing conditions of the share exchange include approval of the Missouri Department of Commerce and Insurance, accuracy of RCC’s representations and warranties made in the Purchase and Sale Agreement, and the holders of fewer than 10% of RCC’s shares properly exercise their rights to dissent to the share exchange pursuant to the IBCA.

RCC shareholders will have a significantly reduced ownership and voting interest after the share exchange and dissolution and will exercise little influence over FTFC management.

Immediately after the completion of the share exchange and dissolution, it is expected that former RCC shareholders, who collectively own 100% of RCC, will own approximately 7.7% of FTFC’s Class A Common Stock, based on the number of shares of FTFC outstanding as of August 31, 2021. This percentage excludes approximately 23,086 shares that FTFC will receive in the dissolution of RCC that will be held by FTFC as treasury shares. Moreover, holders of FTFC’s Class B Common Stock have the right to elect a majority of FTFC’s board of directors and to vote as a separate class on certain significant corporate matters thereby further reducing the future influence of former holders of RCC common stock.

The Purchase and Sale Agreement limits RCC’s ability to pursue alternatives to the share exchange.

The Purchase and Sale Agreement includes the prohibition of RCC from soliciting any acquisition proposal or offer for a competing transaction while the share exchange is pending. FTFC required RCC to agree to this provision as a condition to FTFC’s willingness to enter into the Purchase and Sale Agreement. This provision, however, might discourage a third party that might have an interest in acquiring all or a significant part of RCC from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher value than the current consideration offered by FTFC.

Significant transaction-related charges will be incurred.

FTFC and RCC estimate that, as a result of the share exchange and dissolution, the companies expect to incur related expenses of approximately $200,000 consisting of legal and accounting fees and printing, mailing, transfer agent and other related charges. The foregoing amount is a preliminary estimate and the actual amount may be materially higher or lower. Moreover, FTFC is likely to incur additional expenses in future periods in connection with the integration of RCLIC’s business.

RCC’s board of directors may abandon or delay the dissolution even if it is approved by RCC’s shareholders.

RCC’s board of directors has approved the Plan of Liquidation and Dissolution for the winding-up and dissolution of RCC following the share exchange closing; however, even if the Plan of Liquidation and Dissolution is approved by RCC’s shareholders, RCC’s board of directors has reserved the right, in its discretion, to abandon or delay the dissolution for various reasons, primarily in connection with its fiduciary duties to RCC’s shareholders. See “Plan of Liquidation and Dissolution.”

RCC’s shareholders may be liable to creditors of RCC for an amount up to the amount received from RCC if RCC’s provisions for payments to creditors are inadequate.

If the Plan of Liquidation and Dissolution is approved by RCC’s shareholders, and the board of directors of RCC determines to proceed with the dissolution of RCC, articles of dissolution will be filed with the Illinois Secretary of State. After the articles of dissolution are filed, RCC’s operations will be limited to winding-up its business and affairs and distributing to its shareholders the shares of FTFC Class A Common Stock. The Purchase and Sale Agreement provides that all assets of RCC (except the shares of RCLIC) and all liabilities of RCC will be assigned to RCLIC prior to closing of the share exchange. However, in certain circumstances, a claimant against RCC that has not been fully paid in the dissolution process, could enforce its unpaid claim (1) against RCC to the extent of undistributed assets or (2) if all RCC’s assets have been distributed in liquidation, against a shareholder of RCC to the extent of that shareholder’s pro rata share of the claim or the corporate assets distributed to the shareholder in liquidation, whichever is less, but such shareholder’s total liability for all such claims cannot exceed the total amount of assets distributed to the shareholder. Accordingly, in such circumstances, a shareholder could lose the amount of assets distributed to such shareholder in the dissolution process. 

Messrs. Zahn and Lay may have a potential conflict of interest in the share exchange.

Mr. Zahn is a consultant and Chairman of RCC and is also a Chairman, Chief Executive Officer and shareholder (both Class A and Class B shares) of FTFC, Mr. Lay is an officer and director of RCC and of FTFC. FTFC, Messrs. Zahn and Lay and their affiliates and other directors and officers of FTFC own, collectively, approximately 4,501,200 shares, or approximately 17.60% of RCC’s presently outstanding common stock. FTFC, Messrs. Zahn and Lay and their affiliates also own approximately 3,651,803 shares or 14.28% of RCC have agreed to vote their shares of RCC in accordance with the majority of votes cast on Proposals 1 and 2 by shareholders other than themselves.

The share exchange and dissolution of RCC may be held to be a taxable event.

The Internal Revenue Service (the “IRS”) could assert, and a court could sustain, that the share exchange and subsequent liquidation constitutes a taxable transaction in the year of the exchange, rather than a tax-deferred “reorganization” with the meaning of Section 368(a) of the Internal Revenue Code.

Risks Relating to the Business of FTFC

FTFC faces many significant risks in the operation of its business and may face significant unforeseen risks as well. FTFC faces the material risks set forth below, but there may be additional risks that it does not anticipate, which could materially adversely affect the value of the FTFC Class A Common Stock to be received by RCC shareholders.  An investment in FTFC’s Class A Common Stock should be considered speculative.

Conditions in the economy generally could adversely affect FTFC’s business, results of operations and financial condition.

FTFC’s results of operations are materially affected by conditions in the U.S. economy. Adverse economic conditions may result in a decline in revenues and/or erosion of its profit margins. In addition, in the event of extreme prolonged market events and economic downturns FTFC could incur significant losses. Even in the absence of a market downturn FTFC is exposed to substantial risk of loss due to market volatility.

Factors such as consumer spending, business investment, government spending, the volatility and strength of the capital markets, investor and consumer confidence, foreign currency exchange rates and inflation levels all affect the business and economic environment and, ultimately, the amount and profitability of its business. In an economic downturn characterized by higher unemployment, lower family income, negative investor sentiment and lower consumer spending, the demand for FTFC’s insurance products could be adversely affected. Under such conditions, FTFC may also experience an elevated incidence of policy lapses, policy loans, withdrawals and surrenders. In addition, FTFC’s investments, including investments in mortgage-backed securities, could be adversely affected as a result of deteriorating financial and business conditions affecting the issuers of the securities in its investment portfolio.

The COVID-19 pandemic, including the measures that international, federal, state and local public health and other governmental authorities implement to address it, may adversely affect our business, financial condition, and results of operations.

On March 11, 2020, the World Health Organization characterized the outbreak of the coronavirus (with its variants “COVID-19”) as a global pandemic and recommended certain containment and mitigation measures. On March 13, 2020, the United States declared a national emergency concerning the outbreak, and the vast majority of states and many municipalities declared public health emergencies or took similar actions. Along with these declarations, there have been extraordinary and wide-ranging actions taken by international, federal, state and local public health and governmental authorities to contain and combat the COVID-19 pandemic in regions across the United States and around the world. These actions include quarantines and “stat-at-home” or “shelter-in-place” orders, social distancing measures, travel restrictions, school closures and similar mandates for many individuals in order to substantially restrict daily activities and orders for many businesses to curtain or cease normal operations, unless their work is critical, essential, or life-sustaining.

The global spread of the COVID-19 pandemic and the responses thereto are complex and rapidly evolving, and the extent to which the pandemic impacts our business, financial condition and results of operations, including the duration and magnitude of such impacts, will depend on numerous evolving factors that require anticipation of future circumstances we may not be able to accurately predict or assess. COVID-19, and the volatile regional and global economic conditions stemming from it, as well as reactions to future pandemics or resurgences of COVID-19, could also precipitate or aggravate other risk factors. In particular, the current pandemic or its variants could materially and adversely affect our actuarial assumptions, predicable policyholder and customer behavior and results of our risk and portfolio management policies and procedures all or any of which could have a material adverse effect on our financial position and results of operations. As a result, we cannot assure you that if COVID-19 continues to spread or resurges, it would not have a highly material adverse impact on our business, financial condition and results of operations.

Concentration in certain states for the distribution of FTFC’s products may subject it to losses attributable to economic downturns or catastrophes in those states.

FTFC’s top six states for the distribution of its products are Kansas, Illinois, North Carolina, Ohio, Oklahoma and Texas. Any adverse economic developments or catastrophes in these states could have an adverse impact on its business.

FTFC may be unable to expand insurance operations to other states to any significant degree.

FTFC may be unable to expand the ability of its insurance company subsidiaries to sell insurance in substantially more states. At present, FTFC is licensed to sell insurance in 27 states. FTFC intends to expand this number by up to an additional 19 states. FTFC cannot assure you that its efforts will be successful and therefore, to the extent they are not, its ability to achieve product scale and significant sales will be significantly adversely affected. FTFC’s results of operations will in turn be adversely affected and the value of its Class A Common Stock will likely decrease.

FTFC’s future success depends, in part, on the continued service of its management team.

FTFC’s success is dependent in part upon the availability its senior personnel, particularly Gregg E. Zahn (Chairman, CEO and President), Jeffrey J. Wood (Chief Financial Officer) and William S. Lay (Vice President and Chief Investment Officer). The loss or unavailability to FTFC of any of these people could have a material adverse effect on its business, prospects, financial condition and operating results. It may be difficult for FTFC to find adequate replacements for these key individuals. FTFC has employment agreements with all three of these individuals and has a $1.0 million policy on the life of its Chairman and CEO, Gregg E. Zahn.

The amount of statutory capital that FTFC’s insurance subsidiaries have and the amount of statutory capital that they must hold to maintain their financial strength ratings and meet other requirements can vary significantly from time to time due to a number of factors outside of its control.

The financial strength ratings of FTFC’s insurance company subsidiaries are significantly influenced by their statutory surplus amounts and capital adequacy ratios. In any particular year, statutory surplus amounts and risk-based capital (“RBC”) ratios may increase or decrease depending on a variety of factors, most of which are outside of its control, including, but not limited to, the following:

Rating agencies may also implement changes to their internal models, which differ from the RBC capital model and could result in FTFC’s insurance company subsidiaries increasing or decreasing the amount of statutory capital they must hold in order to maintain their current ratings. In addition, rating agencies may downgrade the investments held in its portfolio, which could result in a reduction of its capital and surplus and its RBC ratio. To the extent that an insurance company subsidiary’s RBC ratio is deemed to be insufficient, FTFC may take actions either to increase the capitalization of the insurer or to reduce the capitalization requirements. If FTFC is unable to take such actions, the rating agencies may view this as a reason for a ratings downgrade.

FTFC is a holding company and has no ability to generate revenues other than payments from its insurance company subsidiaries which may be restricted by law.

FTFC is a holding company whose only revenues are from its insurance company subsidiaries. FTFC depends on reimbursement of costs from its insurance company subsidiaries but has no other source of material revenue. If there is not a substantial expansion of the insurance company subsidiaries’ business, they may not be able to provide funds to FTFC to enable it to meet FTFC’s obligations as they become due. In addition, the insurance company subsidiaries may not be able to, or may not be permitted to by insurance regulators, make distributions to enable FTFC to meet its obligations and pay dividends. Each subsidiary is a distinct legal entity and legal and contractual restrictions may also limit its ability to obtain cash from its subsidiaries.

The insurance industry is subject to numerous laws and regulations, and compliance costs and/or changes in the regulatory environment could adversely affect FTFC’s business.

FTFC’s insurance operations are subject to government regulation in each of the states in which it conducts business. Such regulatory authority is vested in state agencies having broad administrative power dealing with all aspects of the insurance business, including premium rates, policy forms, and capital adequacy, and is concerned primarily with the protection of policyholders rather than shareholders.  The NAIC and state insurance regulators reexamine existing laws and regulations on an ongoing basis, and focus on insurance company investments and solvency issues, RBC guidelines, interpretations of existing laws, the development of new laws, the implementation of non-statutory guidelines and the circumstances under which dividends may be paid. Future NAIC initiatives, and other regulatory changes, could have a material adverse impact on FTFC’s insurance business. There can be no assurance that FTFC’s insurance company subsidiaries will be able to satisfy the regulatory requirements of the relevant states.

Individual state guaranty associations assess insurance companies to pay benefits to policyholders of insolvent or failed insurance companies. The impact of such assessments may be partly offset by credits against future state premium taxes. FTFC cannot predict the amount of any future assessments, nor has it attempted to estimate the amount of assessments to be made from known insolvencies.

Impairment or negative performance of other financial institutions could adversely affect FTFC.

FTFC has exposure to many different industries and counterparties, and it routinely executes transactions with counterparties in the financial services industry. The operations of U.S. and global financial services institutions are interconnected and a decline in the financial condition of one or more financial services institutions may expose FTFC to credit losses or defaults, limit its access to liquidity or otherwise disrupt its business operations.

FTFC operates in a highly competitive industry, and its business will suffer if it is unable to compete effectively.

The operating results of life insurance companies are subject to significant fluctuations due to competition, economic conditions, interest rates, investment performance, maintenance of insurance ratings from rating agencies such as A.M. Best and other factors. The insurance business is intensely competitive and the U.S. life insurance industry is a mature industry that has experienced little to no growth. FTFC’s ability to compete with other insurance companies is dependent upon, among other things, its ability to attract and retain agents to market its insurance products, its ability to develop competitive and profitable products and its ability to obtain acceptable ratings. In connection with the development and sale of products, FTFC encounters competition from other insurance companies, most of whom have financial and human resources substantially greater than its insurance subsidiaries, as well as competition from other investment alternatives available to potential policyholders.

FTFC’s insurance business competes with more than 800 other life insurance companies in the United States. Many life insurance companies have greater financial resources, longer business histories, and more diversified lines of insurance coverage than FTFC. These larger companies also generally have large sales forces. FTFC also faces competition from direct mail and email sales campaigns.

Development of life, annuity and other insurance products involves the use of certain assumptions, and the inaccuracy of these assumptions could adversely affect profitability.

In FTFC’s life, annuity and other insurance business, it must make certain assumptions as to expected mortality, lapse rates and other factors in developing the pricing and other terms of life and annuity products. These assumptions are based on industry experience and are reviewed and revised regularly to reflect actual experience on a current basis. However, variation of actual experience from that assumed in developing such terms may affect a product’s profitability or sales volume and in turn adversely impact FTFC’s revenues.

If FTFC underestimates its liability for future policy benefits, its results of operations could suffer.

Liabilities established for future life insurance policy benefits are based upon a number of factors, including certain assumptions, such as mortality, morbidity, lapse rates and crediting rates. If FTFC underestimate future policy benefits, it would incur additional expenses at the time it becomes aware of the inadequacy. As a result, losses would increase and its ability to achieve profits would suffer.

Fluctuations in interest rates could adversely affect FTFC’s business.

Interest rate fluctuations could impair an insurance company’s ability to pay policyholder benefits with operating and investment cash flows, cash on hand and other cash sources. FTFC’s annuity product exposes it to the risk that changes in interest rates will reduce any spread, or the difference between the amounts that its insurance company subsidiaries are required to pay under the contracts and the amounts its insurance company subsidiaries are able to earn on their investments intended to support their obligations under the contracts. Spread is a key component of revenues.

To the extent that interest rates credited are less than those generally available in the marketplace, policyholder lapses, policy loans and surrenders, and withdrawals of life insurance policies and annuity contracts may increase as contract holders seek to purchase products with perceived higher returns. This process may result in cash outflows requiring that FTFC’s insurance company subsidiaries sell investments at a time when the prices of those investments are adversely affected by the increase in market interest rates, which may result in realized investment losses.

Increases in market interest rates may also negatively affect profitability. In periods of increasing interest rates, FTFC may not be able to replace invested assets with higher yielding assets needed to fund the higher crediting rates that may be necessary to keep interest sensitive products competitive. The insurance company subsidiaries therefore may have to accept a lower spread and thus lower profitability or face a decline in sales and greater loss of existing contracts.

FTFC’s investments are subject to risks of default and reductions in market values.

FTFC is subject to credit risk in its investment portfolio. Defaults by third parties in the payment or performance of their obligations under these securities, bankruptcy filings and other events could reduce its investment income and realized investment gains or result in the recognition of investment losses and restrict its access to cash and investments. The value of its investments may be materially adversely affected by increases in interest rates, downgrades in bonds included in its portfolio, financial market performance, general economic conditions, and by other factors that may result in the recognition of other-than-temporary impairments. Each of these events may cause FTFC to reduce the carrying value of its investment portfolio and may adversely affect its results of operations.

FTFC’s valuation of investments and the determinations of the amounts of allowances and impairments taken on its investments may include methodologies, estimates and assumptions which are subject to differing interpretations and, if changed, could materially adversely affect its results of operations or financial condition.

Fixed maturities and equity securities represent the majority of total cash and invested assets reported at fair value on FTFC’s consolidated balance sheets. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). Fair value estimates are made based on available market information and judgments about the financial instrument at a specific point in time. Expectations that FTFC’s investments will continue to perform in accordance with their contractual terms are based on evidence gathered through its normal credit surveillance process and on assumptions a market participant would use in determining the current fair value.

The determination of other than temporary impairment (OTTI) varies by investment type and is based upon its periodic evaluation and assessment of known and inherent risks associated with the respective asset class. FTFC’s management considers a wide range of factors about the instrument issuer (e.g., operations of the issuer, future earnings potential) and uses their best judgment in evaluating the cause of the decline in the estimated fair value of the instrument and in assessing the prospects for recovery. Such evaluations and assessments require significant judgment and are revised as conditions change and new information becomes available. Additional impairments may need to be taken in the future, and the ultimate loss may exceed management’s current estimate of impairment amounts.

The value and performance of certain of FTFC’s assets are dependent upon the performance of collateral underlying these investments. It is possible the collateral will not meet performance expectations leading to adverse changes in the cash flows on its holdings of these types of securities.

FTFC is subject to the credit risk of its counterparties, including companies with whom it has reinsurance agreements.

FTFC’s insurance company subsidiaries cede amounts of insurance and transfer related assets and certain liabilities to other insurance companies through reinsurance. Accordingly, it bears credit risk with respect to the reinsurers. The failure, insolvency, inability or unwillingness of any reinsurer to pay under the terms of reinsurance agreements with FTFC’s insurance company subsidiaries could materially adversely affect FTFC’s business, financial condition and results of operations.

FTFC may be the target of future litigation, law enforcement investigations or increased scrutiny which may affect its financial strength or reduce profitability.

FTFC, like other financial services companies, are involved in litigation and arbitration in the ordinary course of business. FTFC operates in an industry in which various practices are subject to scrutiny and potential litigation, including class actions. In addition, FTFC sells its products through independent agents, whose activities may be difficult to monitor. Civil jury verdicts have been returned against insurers and other financial services companies involving sales, underwriting practices, product design, product disclosure, administration, denial or delay of benefits, charging excessive or impermissible fees, recommending unsuitable products to customers, breaching fiduciary or other duties to customers, refund or claims practices, alleged agent misconduct, failure to properly supervise representatives, relationships with agents or other persons with whom the insurer does business, payment of sales or other contingent commissions and other matters. Such lawsuits can result in substantial judgments and damage to its reputation that is disproportionate to the actual damages, including material amounts of punitive non-economic compensatory damages. In some states, juries, judges and arbitrators have substantial discretion in awarding punitive and non-economic compensatory damages, which creates the potential for unpredictable material adverse judgments or awards in any given lawsuit or arbitration. Arbitration awards are subject to very limited appellate review. In addition, in some class action and other lawsuits, financial services companies have made material settlement payments.

If FTFC fails to maintain an effective system of internal controls, it may not be able to accurately report its financial results.

FTFC is not required to comply with Section 404 of the Sarbanes-Oxley Act, which requires, among other things, that companies maintain disclosure controls and procedures to ensure timely disclosure of material information, and that management review the effectiveness of those controls on a quarterly basis. Effective internal controls are necessary for FTFC to provide reliable financial reports and to help prevent fraud, and its management and other personnel devote a substantial amount of time to these compliance requirements. Moreover, FTFC’s independent auditor is not required to audit FTFC’s internal controls over financial reporting. If FTFC fails to maintain effective internal controls, it might be subject to sanctions or investigation by regulatory authorities, such as the SEC. Any such action could adversely affect its financial results and may also result in delayed filings with the SEC.

A financial strength ratings downgrade, potential downgrade, or any other negative action by a rating agency, could make FTFC’s product offerings less attractive and increase its cost of capital, and thereby adversely affect its financial condition and results of operations.

Various nationally recognized rating agencies review the financial performance and condition of insurers, including FTFC’s insurance company subsidiaries, and publish their financial strength ratings as indicators of an insurer’s ability to meet policyholder and contract holder obligations. These ratings are important to maintaining public confidence in FTFC’s products, its ability to market its products and its competitive position. Any downgrade or other negative action by a rating agency could have a materially adverse effect on FTFC in many ways, including the following:         

FTFC’s insurance company subsidiaries’ ability to grow depends in large part upon the continued availability of capital.

FTFC’s insurance company subsidiaries’ long-term strategic capital requirements will depend on many factors, including their accumulated statutory earnings and the relationship between their statutory capital and surplus and various elements of required capital. To support long-term capital requirements, FTFC and its insurance company subsidiaries may need to increase or maintain statutory capital and surplus through financings, which could include debt, equity, financing arrangements or other surplus relief transactions. Adverse market conditions have affected and continue to affect the availability and cost of capital from external sources. FTFC is not obligated, may choose not, or may not be able to provide financing or make capital contributions to its insurance subsidiaries. Consequently, financings, if available at all, may be available only on terms that are not favorable to FTFC or its insurance company subsidiaries. If FTFC’s insurance company subsidiaries cannot maintain adequate capital, they may be required to limit growth in sales of new policies, and such action could materially adversely affect FTFC’s business, operations and financial condition.

If FTFC is unable to attract and retain independent agents, sales of its products may be reduced.

FTFC must attract and retain its network of independent agents to sell its products. Insurance companies compete vigorously for productive agents. FTFC competes with other life insurance companies for marketers and agents primarily on the basis of its financial position, support services, compensation and product features. Such marketers and agents may promote products offered by other life insurance companies that offer a larger variety of products than FTFC. If FTFC is unable to attract and retain a sufficient number of marketers and agents to sell its products, its ability to compete and its revenues would suffer.

Changes in the tax laws could adversely affect FTFC’s business.

Congress has from time to time considered possible legislation that would eliminate the deferral of taxation on the accretion of value within certain annuities and life insurance products. This and similar legislation, including a simplified “flat tax” income tax structure with an exemption from taxation for investment income, could adversely affect the sale of life insurance and annuities compared with other financial products if such legislation were to be enacted. There can be no assurance as to whether such legislation will be enacted or, if enacted, whether such legislation would contain provisions with possible adverse effects on any annuity and life insurance products that FTFC develops.

Under the Internal Revenue Code, income taxes payable by policyholders on investment earnings is deferred during the accumulation period of certain life insurance and annuity products. This favorable tax treatment may give certain insurance products a competitive advantage over other non-insurance products. To the extent that the Internal Revenue Code may be revised to reduce the tax-deferred status of life insurance and annuity products, or to increase the tax-deferred status of competing products, Insurance company subsidiaries and its industry as a whole would be adversely affected with respect to their ability to sell products. In addition, life insurance products are often used to fund estate tax obligations. FTFC cannot predict what future tax initiatives may be proposed with respect to the estate tax or other taxes which may materially adversely affect FTFC.

Policy lapses in excess of those actuarially anticipated would have a negative impact on FTFC’s financial performance.

FTFC’s profitability would likely be reduced if its lapse and surrender rates were to exceed the assumptions upon which it priced its insurance policies.

The insurance industry is highly regulated and FTFC’s activities are restricted as a result. FTFC spends substantial amounts of time and incurs significant expenses in connection with complying with applicable regulations, and it is subject to the risk that more burdensome regulations could be imposed on it.

Compliance with insurance regulation by FTFC is costly and time consuming. Insurance companies in the U.S. are subject to extensive regulation in the states where they do business. This regulation primarily protects policyholders rather than stockholders. The regulations require:

The insurance company subsidiaries are subject to this regulation in each state in the U.S. in which it is licensed to do business. This regulation involves significant costs and restricts operations. FTFC cannot predict the form of any future regulatory initiatives.

In addition, as the owner of a life insurance subsidiaries, FTFC is regulated by various state insurance regulatory agencies under the Uniform Insurance Holding Company Act. Certain “extraordinary” intercorporate transfers of assets and dividend payments from Insurance company subsidiaries require prior approval by the applicable state insurance regulator.  FTFC also files detailed annual reports with the states in which it is licensed. In addition, the business and accounts of its insurance company subsidiaries are subject to examinations, as well as inquiries including investigations by the various insurance regulatory authorities of the states in which the insurance company subsidiaries are licensed.

Security breaches or interference with FTFC’s technology infrastructure could harm its business.

FTFC’s business is dependent upon technology systems and networks to conduct its business. Maintaining the integrity of its technology is critical to the success of its business operations, including product development, insurance policy sales, oversight, financial reporting and analysis and to the protection of its proprietary information and clients’ personal information. Any failures by FTFC’s technology or future security breaches or interference to its technology systems that may occur in the future could have a material adverse impact on its business. Moreover, any unauthorized access to or the disclosure or loss of FTFC’s proprietary information or its clients' personal information may result in legal claims, damage to reputation, the incurrence of costs to eliminate or mitigate further exposure, or other damage to its business. Despite measures taken to address and mitigate these risks, FTFC cannot assure that its systems and networks will not be subject to breaches or interference. FTFC maintains insurance for data breaches seeking to cover the cost of any such breach, but such insurance may not be adequate to cover all liabilities resulting from data breaches.

FTFC may execute an acquisition strategy, which could cause its business and future growth prospects to suffer.

FTFC may from time to time pursue acquisitions of insurance related companies. If it were to pursue acquisitions, it would compete with other companies, most of which have greater financial and other resources than FTFC. Further, if FTFC succeeds in consummating acquisitions, its business, financial condition and results of operations may be negatively affected because:

Risks Relating to FTFC Stock Ownership

Ownership of shares of FTFC Class A Common Stock involves significant risk, and the value of those shares may be significantly reduced.

The reorganization of FTFC’s common stock into a dual class structure was approved on October 2, 2019. The long-term effects of the reorganization are unknown. No assurance can be given that any of the potential benefits envisioned by the reorganization will prove to be available to FTFC’s shareholders, nor can any assurance be given as to the financial return, if any, which may result from ownership of FTFC’s Class A Common Stock. The value of shares of Class A Common Stock may be significantly reduced due to, among other things the dual class structure of FTFC’s common stock.

Holders of Class A Common Stock will not be able to control FTFC.

If the share exchange and dissolution is approved, RCC shareholders will receive shares of FTFC Class A Common Stock as consideration for the transaction. As noted elsewhere in the proxy statement/prospectus, holders of the Class A Common Stock have the right to elect only a minority of the members of the FTFC’s Board of Directors, while holders of FTFC’s Class B Common Stock have the right to elect a majority of directors. Gregg E. Zahn, FTFC’s President, CEO and Chairman, holds 98.9% of the outstanding shares of the Class B Common Stock. Thus, Mr. Zahn controls FTFC and the Class A Common shareholders have little ability to affect the decision making of FTFC. In addition, the lack of voting control may adversely affect the value of the Class A Common Stock.

The holders of Class B Common Stock also have the right to vote as a class on certain transactions such as mergers, consolidations and other significant corporate transactions.

There is no active trading market or other liquidity for holders of FTFC’s Class A Common Stock; RCC shareholders will continue to have no liquidity with their shareholdings in FTFC.

FTFC’s common stock is not traded on any stock exchange or recognized quotation system. Thus, there is no active trading market for FTFC’s Class A Common Stock. It is not anticipated that any market will develop for FTFC’s Class A Common Stock as a result of the transactions described in this proxy statement/prospectus. Although FTFC may seek an exchange or over-the-counter listing for its Class A Common Stock, no assurance can be given when, if at all, any such listing will be accomplished. Even if a listing is obtained, there can be no assurance that the market would provide any significant liquidity for FTFC shareholders or that any such market would reflect the prices that FTFC shareholders would consider fair and reasonable. Accordingly, RCC shareholders may have to hold their shares of FTFC Class A Common Stock indefinitely; and it may not be possible for them to liquidate their investment in FTFC.

FTFC does not intend to declare cash dividends on shares of its Class A Common Stock.

FTFC does not anticipate paying cash dividends in the foreseeable future. It intends to retain available funds to be used for operations. Moreover, FTFC is a holding company without independent operations and generates limited cash flow from its operations. You should not expect FTFC will pay cash dividends on its Class A Common Stock.

There are a substantial number of shares of FTFC Class A Common Stock eligible for future sale in the public market.

There were 8,661,696 shares of FTFC Class A Common Stock outstanding as of August 31, 2021. As of that date, nearly all outstanding shares may be sold without restriction. The potential sale of these shares, called market overhang, likely would have a significant negative and depressive effect on the market value of the shares, if any future market for the shares of FTFC Class A Common Stock were to develop in the future.

THE SPECIAL MEETING OF RCC SHAREHOLDERS

When and Where the Special Meeting Will Be Held

This proxy statement/prospectus is being furnished to RCC shareholders as part of the solicitation of proxies by the RCC board of directors for use at the special meeting to be held on [            ], 2021 at [            ] local time via online videoconference, or at any adjournment or postponement thereof, for the purposes set forth in this proxy statement/prospectus and in the accompanying notice of special meeting.

What Will Be Voted Upon

The special meeting is to be held for the following purposes:

The RCC board of directors does not currently intend to bring any business before the special meeting other than the specific proposals referred to above and specified in the notice of the special meeting. The RCC board of directors knows of no other matters that are to be brought before the special meeting. If any other business properly comes before the special meeting, it is the intention of the persons named in the enclosed form of proxy to vote the shares they represent as the RCC board of directors may recommend.

The matters to be considered at the special meeting are of great importance to the shareholders of RCC. Accordingly, shareholders are urged to read and carefully consider the information presented in this proxy statement/prospectus, and to complete, date, sign, and promptly return the enclosed proxy in the enclosed postage-paid envelope.

Which Shareholders May Vote

The RCC board of directors has fixed the close of business on [                    ], 2021 as the record date for determining the RCC shareholders entitled to receive notice of and to vote at the special meeting. As of the record date, there were 25,574,679 shares of RCC common stock outstanding and entitled to vote at the special meeting held by approximately 1,114 shareholders of record. Each share of RCC common stock entitles the holder to one vote at the special meeting on each proposal to be considered at the special meeting. The presence at the special meeting, in person or by proxy, of holders of a majority of the outstanding shares of RCC common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business. All shares of RCC common stock present in person or represented by proxy, including abstentions and broker non-votes, if any, will be treated as present for purposes of determining the presence or absence of a quorum for all matters voted on at the special meeting, including any adjournment thereof (unless a new record date is or must be set for the adjourned meeting).

How Do RCC Shareholders Vote?

The RCC proxy card accompanying this prospectus/proxy statement is solicited on behalf of the RCC board of directors for use at the special meeting. RCC shareholders are requested to complete, date and sign the accompanying proxy card and promptly return it in the accompanying envelope or otherwise mail it to RCC. All proxies that are properly executed and returned, and that are not revoked, will be voted at the special meeting in accordance with the instructions indicated thereon. Executed but unmarked proxies will be voted FOR approval and adoption of all of the matters listed on the proxy card.

Abstentions; Broker Non-Votes

The inspector of elections will treat abstentions and shares represented by proxies that reflect abstentions as shares that are present and entitled to vote for the purpose of determining the presence of a quorum. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker, or other nominee how to vote with respect to Proposals 1 and 2, it will have the same effect as a vote “AGAINST” the proposals. If you mark “ABSTAIN” on your proxy card, fail to submit a proxy card or vote in person at the special meeting, or fail to instruct your bank, broker or other nominee how to vote with respect to Proposal 3, so long as a quorum is present, it will have no effect on the proposal.

Broker non-votes are shares held by a bank, broker, or other nominee that are represented at the special meeting, but with respect to which the bank, broker, or nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal and the bank, broker, or other nominee does not have discretionary voting power on such proposal. If your bank, broker or other nominee holds your shares of RCC common stock in “street name,” your bank, broker or other nominee will vote your shares only if you provide instructions on how to vote by filling out the voter instruction form sent to you by your bank, broker, or other nominee with this proxy statement/prospectus. RCC believes that the share exchange proposal (Proposal 1) and the dissolution of RCC proposal (Proposal 2) to be presented at the special meeting are “non-routine” proposals, and your bank, broker, or other nominee may not vote your shares without your specific voting instructions. Therefore, if you are a RCC shareholder and you fail to direct your bank, broker, or other nominee to vote your shares, it could have the same effect as voting against Proposals 1 and 2 and, if a quorum is present, no effect on the adjournment proposal (Proposal 3).

Vote Required to Approve Each Proposal

FTFC, Messrs. Zahn, Lay and their affiliates own approximately 3,651,803 shares or 14.28% of RCC’s common stock outstanding. These persons have agreed to vote their shares of RCC in accordance with the votes cast on Proposals 1 and 2 by shareholders of RCC other than themselves.

Under the articles of incorporation of RCC, approval of Proposal 1 and Proposal 2 requires the affirmative vote of at least a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock. Under Illinois law and the articles of incorporation and bylaws of RCC, approval of Proposal 3 requires that the votes cast in favor of the proposal at the special meeting exceed the votes cast opposing the proposal at the special meeting.

Voting by RCC’s Executive Officers and Directors

RCC’s executive officers, directors and their affiliates beneficially own a total of approximately 8,955,267 shares or 35.02% of RCC common stock outstanding as of the date of this proxy statement/prospectus. Of these shares, directors and executive officers of RCC other than Messrs. Zahn and Lay and their affiliates own a total of 5,968,027 shares or 23.34% of RCC common stock outstanding and these persons intend to vote for approval of Proposals 1, 2, and 3.

Revocability of Proxies

If you hold your shares of RCC common stock in your name as a shareholder of record, you may revoke any proxy at any time before it is voted by (1) signing and returning a proxy card with a later date, (2) delivering a written revocation letter to RCC’s President, or (3) attending the special meeting in person, notifying the President, and voting by ballot at the special meeting. Any shareholder entitled to vote in person at the special meeting may vote in person regardless of whether a proxy has been previously given, but the mere presence (without notifying RCC’ President and actually voting in person) of a shareholder at the special meeting will not constitute revocation of a previously given proxy. Written notices of revocation and other communications about revoking your proxy card should be addressed to:

Solicitation of Proxies and Expenses of Solicitation

RCC will bear the cost of solicitation of proxies, including preparation, assembly, printing and mailing of this proxy statement/prospectus, the proxy card and any additional information furnished to shareholders. Copies of solicitation materials will be furnished to banks, brokerage houses, fiduciaries and custodians holding in their names shares of RCC common stock beneficially owned by others to forward to such beneficial owners. RCC may reimburse persons representing beneficial owners of RCC common stock for their costs of forwarding solicitation materials to such beneficial owners. Original solicitation of proxies by mail may be supplemented by telephone, telegram or personal solicitation by directors, officers or other regular employees of RCC. No additional compensation will be paid to RCC or FTFC directors, officers or other regular employees for such services.

Rights of Dissenting Shareholders

Under Illinois law, holders of shares of RCC common stock who deliver written notice of their intent to dissent and do not vote in favor of the share exchange proposal have the right to dissent and receive the fair value of their RCC common stock in cash. RCC shareholders electing to exercise dissenters’ rights must comply with the provisions of the IBCA in order to perfect their rights. A copy of Sections 11.65 and 11.70 of the IBCA is attached as Annex C to this proxy statement/prospectus. See “Rights of Dissenting RCC Shareholders” for further details.

PROPOSAL 1: THE SHARE EXCHANGE

This section of the proxy statement/prospectus describes material aspects of the share exchange. While RCC and FTFC believe that the description covers the material terms of the share exchange, this summary may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus for a more complete understanding of the share exchange. Unless otherwise indicated, references to RCC include its subsidiaries, including RCLIC.

General

The RCC board of directors is proposing that the exchange of all outstanding shares of RCLIC pursuant to the terms of the Purchase and Sale Agreement, be approved by its shareholders at the special meeting. The Purchase and Sale Agreement is attached as Annex A to this proxy statement/prospectus.

On September 29, 2021, the board of directors of RCC authorized the execution of the Purchase of Sale Agreement under which FTFC will acquire all of the issued and outstanding shares of RCLIC in consideration for the issuance by FTFC of 745,730 shares of its Class A Common Stock. There is no assurance that this share exchange will be completed. Certain material features of the Purchase, and Sale Agreement are summarized below under “Material Terms of the Purchase and Sale Agreement.” RCC shareholders should read the Purchase and Sale Agreement in its entirety.

Background of the Share Exchange

FTFC and its officers have been involved in the operations of RCC since before its inception and RCLIC before its acquisition by RCC. The FTFC officers associated with RCC are Gregg E. Zahn, Chairman of FTFC, RCC and RCLIC, William S. Lay, Assistant Treasurer of FTFC and a director, Treasurer and Secretary of RCC and RCLIC and Michael J. McArthur, Controller of FTFC and Chief Financial Officer of RCC and RCLIC.

In addition, Jeffrey J. Wood, Treasurer, Secretary and Chief Financial Officer of FTFC, served as a consultant to RCC and RCLIC and maintained RCC’s and RCLIC’s financial books and records and prepared RCC and RCLIC financial statements through December 31, 2017 with Mr. McArthur assuming those responsibilities and title of RCC’s and RCLIC’s Chief Financial Officer on January 1, 2018.

In 2012, John C. Todd, then a sales representative of FTFC and FTFC’s wholly owned life insurance companies, Trinity Life Insurance Company (“TLIC”) and Family Benefit Life Insurance Company (“FBLIC”) approached Gregg Zahn and suggested that he, John Todd, was considering organizing a developmental stage financial services holding company in the state of Illinois with the primary purpose of forming or acquiring a life insurance company, insurance related company or other financial services business.

Mr. Todd, given his experience as a successful sales representative of FTFC, TLIC and FBLIC, stated that he would appreciate Mr. Zahn’s involvement in the formation of such an entity and hoping to duplicate the success that Mr. Zahn had achieved in the formation, growth, success and profitability of FTFC, TLIC and FBLIC. Mr. Zahn agreed to participate and indicated that he would personally fund the initial expenses until the incorporation of a developmental stage financial services holding company in Illinois and until sufficient initial investors and potential board of director candidates were located that resided in Illinois.

Throughout 2013 and until early October 2013, Mr. Todd and Mr. Zahn pursued initial investors, potential board of director members and conducted surveys throughout the counties of Illinois to identify community leaders and successful businesses and Illinois residents with strong principles of integrity, ethics and spirituality. In addition, Mr. Zahn and Mr. Todd pursued candidates to serve as the sales force and identified three individuals that were qualified and had the professional training and background to lead the sale of intra state securities to accredited investors. RCC was incorporated on August 6, 2013 and held its initial Board of Directors meeting in early October 2013.

At the initial meeting of the Board of Directors, several customary motions were made and approved including the appointment of officers and a motion to reimburse Mr. Zahn for his payment of expenses related to the formation of RCC through the initial meeting of the RCC Board of Directors. Mr. Zahn presented receipts to document the reimbursement. The initial RCC Board of Directors included Mr. Zahn, Mr. Todd and Mr. Lay and five other directors (Messrs. Eilering, Gaynor, Howard, McNitt and Murphy). The RCC Board of Directors elected Mr. Zahn as Chairman, Mr. Todd as President and Chief Executive Officer and Mr. Lay as Secretary and Treasurer.

RCC was initially funded in August 2013 and October 2013 with subscriptions from accredited investors for $222,000 in the aggregate, by the following two private offerings:

3,200,000 shares at $0.02 per share = $64,000.

1,580,000 shares at $0.10 per share = $158,000.

From October 2013 through March 2021, FTFC hoped that RCC would become financially successful. But during those seven and one-half years, FTFC observed the following situation at RCC which ultimately resulted in RCC’s Board of Directors asking FTFC to make a preliminary presentation about the possibility of RCC, RCLIC or both being acquired by FTFC. A summary of these seven and one-half years is below:

From October 2013 through February 2017, RCC offered and sold the following number of its shares of common stock and raised the corresponding amount of funds, in private offerings directed to accredited investors only:

4,000,000 shares at $1.25 per share = $5,000,000

1,326,400 shares at $2.50 per share = $3,316,000

At the end of February, 2017, RCC acquired Inspire Capital Corporation’s (“ICC”) 5,197,300 shares of common stock for 5,197,300 shares of RCC common stock and based upon the relative book values per share of RCC ($0.54666580) and ICC ($0.27619212), RCC’s shares were increased by a forward stock split (1.97929544 shares of RCC common stock for each share of RCC common stock before the acquisition of ICC) thereby increasing its outstanding shares of common stock from 10,106,400 shares to 20,003,874 shares (including fractional shares). This resulted in the following number of shares and accumulated contributions of capital immediately after the acquisition of ICC:

RCC continued to raise capital from March 1, 2017 through September 30, 2018 and offered and sold the following additional shares, in private offerings directed to accredited investors only, with the corresponding contributions to capital:

Adding the proceeds of the last two capital raises to the February 28, 2017 totals results in the following number of shares subscribed and accumulated contribution of capital:

RCC incurred $1,999,319 of cost in raising this capital which was recorded as a reduction in contributed capital. In addition, as of September 30, 2018 RCC had incurred four years and eleven and one-half months of losses since its incorporation in August 2013, amounting to an accumulated deficit of $3,335,190. Therefore, RCC entered the life insurance business in October 2018 with shareholders’ equity (excluding accumulated other comprehensive income / loss) of $7,003,744 ($12,338,253 - $1,999,319 - $3,335,190).

RCC through RCLIC proceeded to develop an “accumulator” product that had life insurance features with a side annuity fund as its initial and primary product. If this proved successful, RCC / RCLIC management’s strategy was to then pursue a pre-need product based upon its success with funeral home and senior citizens throughout Illinois and Missouri.

As the product was developed, RCLIC was not successful in developing a significant captive agency force. RCLIC used its captive insurance agents to market the accumulator product to its shareholder base in 2018 and 2019 of over 1,000 shareholders but had little success.

RCC then contracted with an Illinois- and Missouri-based insurance agency to sell its accumulator life insurance product with a side annuity fund. This agency and its agents, however, continued its focus on its crop hail insurance marketing in Midwestern states with which they were most familiar. Given that focus, these agents sold little of RCC’s accumulator product in 2018 and 2019.

RCC’s next step was to contract in mid-2019 with an individual who was familiar with the accumulator product and had led successful marketing of this product with other companies. That individual focused on accumulator production for the remainder of 2019 but was not able to build a sufficient agency force in late 2019 and 2020 and therefore did not produce significant sales of the accumulator life insurance product with the side annuity fund.

This was the status of RCLIC operations in mid-March 2020 when the COVID-19 pandemic hit the United States. RCLIC was forced to cease face-to-face presentations to potential policyholders. RCLIC attempted to market using videoconference and telephonic presentations through the remainder of 2020 with little success. Going into 2021, RCLIC had issued only 94 accumulator life insurance policies with the annuity side fund. From October 2018 through December 31, 2020, RCC had lost an additional $1,834,799 over 27 months, resulting in an accumulated deficit as of December 31, 2020 of $5,169,989.

During first quarter of 2021, RCC was not able to produce sufficient accumulator sales given the continuing COVID-19 pandemic, with vaccinations just beginning. RCC lost an additional $139,159 during the three months ended March 31, 2021 resulting in an accumulated deficit of $5,309,148 that further decreased shareholders’ equity to $4,982,786 excluding $342,275 of accumulated other comprehensive income.

In mid-March 2021, FTFC gave an informal presentation to the RCC Board of Directors. The Board of Directors instructed RCC management to approach FTFC early in the second quarter of 2021 to request an initial presentation of FTFC’s interest in and ability to acquire RCC, RCLIC or both. FTFC was one of two presenters regarding the potential acquisition of RCC, RCLIC or both. FTFC prepared and made its presentation on July 28, 2021 to the RCC Board of Directors through a videoconference meeting arranged by RCC personnel.

In early third quarter 2021, FTFC was again approached by RCC to determine FTFC’s interest in making a formal presentation including specifics about FTFC’s possible acquisition of RCC, RCLIC or both. FTFC was informed that another finalist would be making a presentation either before or after FTFC’s presentation.

FTFC made its formal presentation to the RCC Board of Directors regarding FTFC’s potential purchase of RCC, RCLIC or both in July 2021. In that presentation, FTFC explained the many advantages of an affiliation with FTFC including its years of producing positive U.S. GAAP operating results since 2010 and its strategy for continuing growth. FTFC suggested an exchange with RCC whereby FTFC would purchase RCLIC and shortly before closing, RCC would contribute its financial assets and financial liabilities (that would result in a net financial asset of approximately $5.2 million) for 745,730 shares of FTFC’s Class A common stock. FTFC stated that the number of shares would remain at that amount and would not be adjusted at closing.

The RCC Board of Directors voted and accepted FTFC’s proposal with Messrs. Zahn and Lay abstaining. The purchase proposal letter was signed on RCC’s behalf by President and Chief Executive Officer John C. Todd and on FTFC’s behalf by Secretary, Treasurer and Chief Financial Officer Jeffrey J. Wood.

On September 29, 2021, a Purchase and Sale Agreement among RCC, RCLIC and FTFC was signed on RCC’s behalf by President and Chief Executive Officer John C. Todd and on FTFC’s behalf by Secretary, Treasurer and Chief Financial Officer Jeffrey J. Wood.

All parties to the Agreement began working diligently to comply with insurance and securities regulations to close the contemplated transaction in 2021, if possible.

FTFC’s Reasons for Entering Into the Stock Purchase and Sale Agreement

The following discussion of the reasons for the share exchange contains a number of forward-looking statements that reflect the views of FTFC only as of the date of this proxy statement/prospectus with respect to future events that may have an effect on their financial performance. The benefits of the transaction considered by the board of directors of FTFC may not be achieved. Forward-looking statements are subject to risks and uncertainties. Actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. Cautionary statements that identify important factors that could cause or contribute to differences in results and outcomes include those discussed in “Forward-Looking Information” and “Risk Factors.”

FTFC’s board of directors determined that the acquisition of stock of RCLIC from RCC would be consistent with and in furtherance of the long-term business strategy of FTFC and fair to, and in the best interests of, FTFC and its shareholders, and unanimously approved the Purchase and Sale Agreement.

In reaching its determination, FTFC’s board of directors considered the following positive factors:

In addition, FTFC’s board of directors considered the following potentially negative factors in its deliberations concerning the Purchase and Sale Agreement:

The foregoing discussion of these factors includes all material factors considered by FTFC’s board of directors. The board of directors of FTFC did not quantify or attach any weight to the various factors that they considered in reaching their determination that the Purchase and Sale Agreement are fair to and in the best interests of FTFC and its shareholders. Rather, FTFC’s board of directors viewed its proposed action as being based upon its business judgment considering FTFC’s financial position and the totality of the information presented and considered, and the overall effect of the stock exchange.

RCC’s Reasons for the Share Exchange and Dissolution and Recommendation of the RCC Board of Directors’

The RCC board of directors, after consultation with RCC senior management as well as RCC’s legal counsel, has determined that the terms of the Purchase and Sale Agreement and Plan of Liquidation Dissolution are fair to and in the best interests of RCC and its shareholders, and has approved the Purchase and Sale and Agreement and the Plan of Liquidation and Dissolution.

In reaching its determination, the RCC board of directors considered the following positive factors:

The RCC board of directors also considered the following potentially negative factors in its deliberations concerning the overall transaction:

The foregoing positive and negative factors together comprise the RCC board’s material considerations in entering into the share exchange.

Based on the factors listed above, the RCC board of directors determined that the share exchange and subsequent dissolution of RCC would likely return the greatest value to RCC shareholders as compared to other alternatives. If the share exchange and dissolution of RCC is not approved by the shareholders of RCC at the special meeting, the RCC board of directors will continue to explore what, if any, alternatives are available for the future of RCC. The RCC board of directors does not believe, however, that there are viable alternatives to the Purchase and Sale Agreement and the Plan of Liquidation and Dissolution

The foregoing discussion of these factors includes all the material factors considered by the RCC board of directors. The board of directors of RCC did not quantify or attach any particular weight to the various factors that they considered in reaching their determination that the terms of the share exchange and dissolution of RCC are fair to and in the best interests of RCC and its shareholders. Rather, the RCC board of directors viewed its recommendation as being based upon its business judgment in light of RCC’s financial position and the totality of the information presented and considered, and the overall effect of the share exchange and the dissolution of RCC on the shareholders of RCC compared to continuing the business of RCC or seeking other potential parties to effect an investment in or other business combination or acquisition transaction with RCC.

Determination of the Exchange Ratio

FTFC is acquiring RCLIC from RCC immediately after the remaining RCC net financial assets are transferred to RCLIC in order to provide liquidity to FTFC, a financial services holding company that qualifies as a public company under the Securities Exchange Act of 1934, as amended.

FTFC has spent the past few years seeking a capital infusion from third parties to grow its business. FTFC undertook a recapitalization and reorganization in 2019 completed in 2020 to have two classes of shares. The Class B shares elect a majority of the members (one-half plus one) of the Board of Directors annually but only receive 85% of any cash or stock dividends or liquidation paid to holders of Class A common stock. The holders of the Class A common stock elect the remaining members of the Board of Directors. The primary purpose of this change, that was approved by the shareholders, the Oklahoma Insurance Department (“OID”), the Missouri Department of Commerce and Insurance (“MDCI”) and the FTFC Board of Directors and became effective in March 2020, the [as consolidated capital surplus] was to guard against hostile takeovers or an unwelcome acquirer.

FTFC has not been successful in its efforts to obtain capital infusion. However, FTFC needs to maintain its life insurance regulatory Risk-Based Capital (“RBC”) significantly above minimum levels to satisfy the OID, MDCI and the National Association of Insurance Commissioners (“NAIC”). In addition, it is expected that TLIC and FBLIC will need to increase its RBC if those life insurance companies are to continue to grow and as the NAIC may change RBC to be even more restrictive. The approximate $5,000,000 that FTFC will receive [as consolidated capital surplus] in acquiring RCLIC from RCC by issuing 745,730 shares, less $500,000 to be retained by FBLIC to support RCLIC accumulator life reserves of $200,000, will provide FTFC with $4,500,000 to provide safety for its life insurance operations and provide some but not extensive growth opportunities.

FTFC and RCC concluded to perform the following in determining an exchange ratio between FTFC and RCC with FTFC purchasing RCLIC and shortly before closing, RCC contributing its remaining financial asset and financial liabilities (that will result in a net financial asset of $5,200,000). This determination was used since neither company is publicly traded or has an objective market value. In addition, a fully independent third party valuation of FTFC and RCC would likely have cost $100,000 to perhaps $300,000 for a transaction that has an arguable value of just $5.0 million. This is not a cost-effective use

More specifically, the relative exchange ratio calculation was based upon the following items:

1.     RCC’s U.S. GAAP Shareholders’ Equity per share of Common Stock as of March 31, 2021.

2.     FTFC’s U.S. GAAP Shareholders’ Equity per share of Class A Common Stock as of March 31, 2021.

3.     The estimated present value of FTFC’s U.S. GAAP net income after taxes from March 31, 2021 through December 31, 2041 discounted to March 31, 2021 at a 12% annual discount rate divided by the number of FTFC’s Class A Common Stock shares outstanding as of March 31, 2021.

4.     The percentage increase of item 3 above over item 2 above. Both RCC’s and FTFC’s U.S. GAAP Shareholders’ Equity as of March 31, 2021 were both increased by this same percentage increase in computing the relative exchange ratio.

5.     The Insurance Company’s three Certificates of Authority in Missouri, Illinois and Kansas.

The U.S. GAAP amount of Shareholders’ Equity of RCC and Consolidated Subsidiary was $5,325,061 as of March 31, 2021. In addition, RCC had 25,574,679 shares of Common Stock outstanding as of March 31, 2021, resulting in U.S. GAAP Book Value per Common Stock share outstanding of $0.20821614 as of March 31, 2021.

The U.S. GAAP amount of FTFC’s Shareholders’ Equity allocated to its Class A Common Stock shareholders was $63,433,376 (total of $64,062,730 less $629,354 allocated to the Class B Common Stock shareholders) as of March 31, 2021. FTFC had 8,661,696 shares of Class A Common Stock outstanding as of March 31, 2021. This results in a FTFC U.S. GAAP Book Value per Class A Common Stock share outstanding of $7.32343596 as of March 31, 2021.

The estimated present value of FTFC’s U.S. GAAP net income after taxes from March 31, 2021 through December 31, 2041 discounted to March 31, 2021 at a 12% discount rate allocated to the Class A shareholders was $69,840,783 (total of $70,533,708 less $692,925 allocated to the Class B shareholders). This resulted in an estimated U.S. GAAP Discounted Present Value per Class A Common Stock per share outstanding of $8.06317643 as of March 31, 2021.

The percentage increase referred to above in item 4 is as follows:

6.     The estimated FTFC U.S. GAAP Discounted Present Value per Class A Common Stock per share outstanding of $8.06317643 as of March 31, 2021.

7.     The FTFC U.S. GAAP Book Value per Class A Common Stock share outstanding of $7.32343596 as of March 31, 2021.

8.     The percentage increase of Item 6 divided by item 7 is $8.06317643 / $7.32343596 and equals 10.1010383% or an increase factor of 1.101010383.

For purposes of the exchange ratio, FTFC and RCC made the following calculation to estimate RCC’s U.S. GAAP Value per share of common stock:

9.      The RCC U.S. GAAP Shareholders’ equity as of March 31, 2021 was $5,325,061.

10.     The percentage increase of Item 6 divided by item 7 is $8.06317643 / $7.32343596 and equals 10.1010383% or a value increase factor of 1.101010383.

11.     RCLIC’s three Certificates of Authority in Missouri, Illinois and Kansas were valued at $150,000 ($50,000 per Certificate of Authority).

12.     RCC had 25,574,679 shares of Common Stock outstanding as of March 31, 2021.

13.     The estimated RCC U.S. GAAP Value per share of Common Stock is equal to Item 9 times Item 10 plus $150,000 = $5,325,061 x 1.101010383 + $150,000 = $6,012,947 / 25,574,679 shares of Common Stock outstanding = $0.23511329.

Based upon the above calculations, the exchange rate of the shares between FTFC and RCC will be one share of FTFC Class A Common Stock for every 34.29485602 ($8.06317643 / $0.23511329) shares of RCC Common Stock or 745,730 shares of FTFC Class A Stock.

FTFC and RCC believe that there is little reason to use a third party to perform an independent valuation. The reason for this is that using historical relationships from 2012 through 2020 to conservatively produce U.S. GAAP financial statements from March 31, 2021 through December 31, 2041 discounted at 12% back to March 31, 2021 reflected a valuation estimate of FTFC’s shareholders’ equity as of that date. This valuation produced a FTFC Class A Common Stock per share valuation of $8.06. Using a projected U.S. GAAP after-tax statement of operations for over 20 years limits the impact of capitalization and amortization of deferred acquisition costs and value of insurance businesses acquired so that this methodology approximates a cash flow approach and EBITDA with far less effort and costs. In addition, FTFC feels that the inclusion of current and deferred tax expenses (benefits) is essential to computing the valuation.

MATERIAL TERMS OF THE PURCHASE AND SALE AGREEMENT

The following describes the material terms of, and is qualified in its entirety by reference to, the Purchase and Sale Agreement. The full text of the Purchase and Sale Agreement is attached as Annex A to this proxy statement/prospectus and is incorporated by reference herein. You are encouraged to read the Purchase and Sale Agreement in its entirety.

The Purchase and Sale Agreement

The Purchase and Sale Agreement provides that FTFC will acquire all of the issued and outstanding capital stock of RCLIC, a wholly-owned subsidiary of RCC.

Consideration to be Received by RCC

If the share exchange is completed, RCC will receive an aggregate of 745,730 shares of FTFC’s Class A Common Stock. See “Risk Factors,” “Information Concerning FTFC” and “Description of FTFC Capital Stock”.

Consideration to be Received by FTFC

If the share exchange is completed, FTFC will receive 100% of the issued and outstanding shares of RCLIC. RCLIC will also acquire at closing the financial assets of RCC (primarily cash) and assume the remaining liabilities of RCC.

Representations and Warranties

The Purchase and Sale Agreement contains various representations and warranties made as of the date of the Purchase and Sale Agreement and as of the closing date by the parties thereto regarding aspects related to their respective assets, business, financial condition, structure and other facts pertinent to the share exchange and the dissolution. The following list summarizes the material representations and warranties made by each party.

Representations and Warranties of RCC

The representations and warranties made by RCC relate to:

Representations and Warranties of FTFC

The representations and warranties made by FTFC relate to:

Conduct of RCC’s and RCLIC’s Business Prior to the Closing of the Share Exchange’’

During the period from the date of the execution of the Purchase and Sale Agreement until the closing, RCC and RCLIC have agreed to:

During the period from the date of the execution of the Purchase and Sale Agreement until the closing, unless otherwise approved by FTFC (which consent shall not be unreasonably withheld), RCC and RCLIC have agreed not to:

However, FTFC does not have, directly or indirectly, the right to control or direct the operation of the business of RCC or RCLIC prior to closing. Nothing contained in Purchase and Sale Agreement shall limit the ability of RCC an RCLIC, prior to closing, to exercise, consistent with the terms and conditions of Purchase and Sale Agreement, complete control and supervision of the operations of the business of RCC and RCLIC.

Non-Solicitation

RCC has agreed, for a period for two years following the closing, RCC will not and will cause its key officers to not, directly or indirectly, without prior written consent of FTFC, hire or solicit services of any employee; however, RCC and its key officers are not prohibited from offering employment or employing a person who:

RCC and RCLIC also agreed that they and any of their representatives shall immediately terminate any discussions or negotiations with any person regarding a proposal that would be contrary or detrimental to the transactions contemplated by the Purchase and Sale Agreement and make commercially reasonable efforts to have all copies of confidential information provided to such persons either returned or destroyed.

In addition, RCC and RCLIC agreed that they and their representatives shall not:

RCC Shareholder Meeting

RCC has agreed to hold a meeting of its shareholders as promptly as practicable after the effectiveness of the registration statement, of which this proxy statement/prospectus is a part, to vote on the share exchange and dissolution of RCC, and that its board of directors will recommend to the shareholders that they vote in favor of each of the above matters.

Other Covenants

The parties agreed to certain additional covenants in the Purchase and Sale Agreement, including covenants regarding the treatment of continuing employees, public disclosure regarding the subject matter of the Purchase and Sale Agreement, access to books and records, preparation of this proxy statement/prospectus and the registration statement of which they are a part, and the maintenance by RCC of directors and officer’s liability insurance, and other matters.

The parties agreed to, as soon as practicable following the date of the Purchase and Sale Agreement, to prepare and file this proxy statement/prospectus, and FTFC has agreed to prepare and file the registration statement of which it is a part. In that regard, the parties agreed to use their best efforts to have the registration statement declared effective under the Securities Act as promptly as practicable after such filing and keep the registration statement effective for as long as necessary to consummate the transactions contemplated by the Purchase and Sale Agreement. FTFC and RCC will insure this proxy statement/prospectus is mailed to RCC shareholders as soon as practicable after the registration statement is declared effective under the Securities Act.

Finally, RCC has covenanted, as soon as reasonably practicable after closing, it will undertake to consummate the Plan of Liquidation and Dissolution, specifically including the dissolution of RCC and the distribution of shares of FTFC’s Class A Common Stock acquired pursuant to the Purchase and Sale Agreement, on a pro-rata basis to its shareholders.

Conditions to Closing

The obligations of RCC and FTFC to complete the share exchange are subject to the satisfaction or waiver of the following conditions:

The obligations of FTFC to complete the share exchange are subject to the satisfaction or waiver of the following additional conditions:

The obligations of RCC to complete the share exchange are subject to the satisfaction or waiver of the following additional conditions:

Indemnification

RCC is required to indemnify FTFC and related parties for losses suffered by them as a result of, among other things, inaccuracies and breaches of any representation or warranty made by RCC under the Purchase and Sale Agreement and any breach of the covenants and agreements made by RCC under the Purchase and Sale Agreement. FTFC is required to indemnify RCC and related parties for losses suffered by them as a result of, among other things, inaccuracies and breaches of any representation or warranty made by FTFC under the Purchase and Sale Agreement and any breach of the covenants and agreements made by FTFC under the Purchase and Sale Agreement.

The indemnification obligation of each party with respect to breaches of its representations and warranties survives until the earlier of 12 months after the closing; or upon the completion by RCC of the Plan of Liquidation and Dissolution.

There is no limitation period with respect to certain fundamental representations and warranties.

The indemnification provisions are complex and have certain minimum claim baskets and maximum liability provisions, specific indemnification notices and the claim procedures that must be followed. Given the intended dissolution of RCC soon after closing, the indemnification provisions are expected to be of little importance after closing. In any event, both parties retain their rights and remedies under applicable law against the other party for any inaccuracy in or breach of a fundamental representation or any fraud, criminal activity of willful misconduct.

Indemnification under the Purchase and Sale Agreement shall be each indemnified party’s exclusive remedy for any claims against an indemnifying party pursuant to the Purchase and Sale Agreement except claims based on fraud, criminal activity or willful misconduct.

Termination of the Purchase and Sale Agreement

FTFC and RCC can agree by mutual written consent to terminate the Purchase and Sale Agreement at any time prior to closing. In addition, either party may terminate the Purchase and Sale Agreement if:

In addition, FTFC may terminate the Purchase and Sale Agreement if any of the following events occurs:

Expenses

The Purchase and Sale Agreement generally provides that FTFC and RCC will pay their own respective costs and expenses incurred in connection with the agreement and the transactions contemplated thereby.

Amendment; Waiver

The Purchase and Sale Agreement may only be amended by a written instrument signed on behalf of all parties thereto.

Expected Timing of the Share Exchange

The parties expect that the share exchange will close as soon as possible after the necessary shareholder approval has been obtained and each other condition to closing has been satisfied or waived. Such conditions include the final approval of the Missouri Department of Insurance. RCC anticipates that any such approval, if such approval is forthcoming, would occur within several days after the approval of RCC’s shareholders. The parties anticipate that the share exchange will close as promptly as practicable following shareholder approval; provided that each of the closing conditions contained in the Purchase and Sale Agreement, including the approval of the share exchange and Plan of Liquidation and Dissolution by RCC’s shareholders, has been satisfied or waived at the conclusion of the special meeting. If any of the closing conditions are not met or waived, the anticipated timing of the closing of the share exchange would be subsequently delayed. The Purchase and Sale Agreement provides that if the closing has not occurred within 180 days after the date of the Purchase and Sale Agreement, then, subject to certain conditions described more fully in this proxy statement/prospectus, either party may terminate the agreement.

Interests of RCC Officers and Directors in the Share Exchange and Dissolution of RCC

As more fully discussed above under “The Special Meeting of Shareholders – Vote Required to Approve Each Proposal” and “Voting by RCC’s Executive Officers and Directors,” FTFC and two directors common to each of FTFC and RCC own shares of RCC and will participate with RCC shareholders, on a pro rata basis, in the acquisition of FTFC shares in the Liquidation and Dissolution of RCC.

Material Federal Income Tax Consequences

The discussion set forth below summarizes the material federal income tax considerations that may be relevant to U.S. shareholders (as defined below) of RCC common stock in connection with the share exchange and subsequent dissolution, who hold their shares of RCC common stock as a “capital asset” within the meaning of Section 1221 of the Internal Revenue Code (generally, property held for investment). This discussion is based on currently existing provisions of the Internal Revenue Code, existing and proposed Treasury regulations thereunder and current administrative rulings and court decisions, all of which are subject to change. Any such change, which may or may not be retroactive, could alter the tax consequences to RCC and its shareholders as described herein.

In addition, RCC shareholders should be aware that this discussion does not deal with all federal income tax considerations that may be relevant to particular RCC shareholders in light of their particular circumstances or that may be applicable to a RCC shareholder if that shareholder is subject to special treatment under the federal income tax laws, including if such shareholder is:

In addition, this discussion does not address any alternative minimum tax or any state, local, or foreign tax consequences of the share exchange, nor does it address any other U.S. federal tax consequences (such as gift or estate taxes) including any tax consequences arising under the unearned income Medicare contribution tax pursuant to Section 1411 of the Internal Revenue Code. Determining the actual tax consequences of the share exchange to a RCC shareholder may be complex. They will depend on a RCC shareholder’s specific situation and on factors that are not within the control of FTFC or RCC. RCC shareholders are encouraged to consult with their own tax advisors as to the tax consequences of the share exchange in their particular circumstances.

For purposes of this discussion, the term “U.S. holder” means a beneficial owner of RCC common stock that is for U.S. federal income tax purposes (i) an individual citizen or resident of the United States; (ii) a corporation, or entity treated as a corporation, organized in or under the laws of the United States or any state thereof or the District of Columbia; (iii) a trust if (a) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) such trust has made a valid election to be treated as a U.S. person for U.S. federal income tax purposes; or (iv) an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

The federal income tax consequences to a partner in an entity or arrangement that is treated as a partnership for federal income tax purposes and that holds RCC common stock generally will depend on the status of the partner and the activities of the partnership. Partners in a partnership holding RCC common stock are encouraged to consult their own tax advisors.

Tax Consequences of the Share Exchange Generally

Subject to the limitations, assumptions, and qualifications described herein, the share exchange will be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code. FTFC and RCC have not sought and will not seek any ruling from the IRS regarding any matters relating to the share exchange, and as a result, there can be no assurance that the IRS will not assert, or that a court would not sustain, a position contrary to any of the conclusions set forth below.

Tax Consequences to FTFC and RCC

Each of FTFC and RCC will be a “party to the reorganization” within the meaning of Section 368(b) of the Internal Revenue Code, and neither FTFC nor RCC will recognize any gain or loss as a result of the share exchange and subsequent liquidation.

Tax Consequences to U.S. Holders of RCC Common Stock

Subject to the qualifications and limitations set forth above, the material federal income tax consequences of the share exchange to U.S. holders of RCC common stock will be as follows:

In the case of a U.S. holder of RCC common stock who holds shares of RCC common stock with different tax bases and/or holding periods, the preceding rules must be applied to each identifiable block of RCC common stock.

Reporting Requirements

All holders of RCC common stock will be required to retain records pertaining to the share exchange and may be required to file with the holder’s federal income tax return for the year in which the share exchange takes place a statement setting forth certain facts relating to the share exchange.

THIS DISCUSSION IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY OF THE MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE SHARE EXCHANGE AND A SUBSEQUENT LIQUIDATION. THIS DISCUSSION IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THESE TRANSACTIONS. THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES. IN ADDITION, IT DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF THE TRANSACTIONS. ACCORDINGLY, EACH RCC SHAREHOLDER IS URGED TO CONSULT WITH A TAX ADVISOR TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES OF THE SHARE EXCHANGE AND A RCC DISSOLUTION TO SUCH SHAREHOLDER.

Accounting Treatment

The share exchange is expected to be accounted for by FTFC as a business combination for U.S. GAAP purposes and a merger for Statutory Accounting purposes. Under the U.S. GAAP method, the purchase price will be allocated to the identifiable assets acquired and will be recorded on FTFC’s books at their respective fair values. Any remaining purchase price will be recorded as an intangible assets and goodwill. Under the Statutory Accounting merger method, the insurance companies’ assets, liabilities and operations will be combined as if the insurance companies were one entity since the beginning of RCLIC’s operations with beginning of the period balances restated.

Approval

Approval of the share exchange proposal requires the affirmative vote of at least a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock at the special meeting. Under the terms of the Purchase and Sale Agreement, RCC, RCLIC, and FTFC are obligated to complete the transactions contemplated by the Purchase and Sale Agreement only if the shareholders of RCC, by the affirmative vote of a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock, approve each of Proposals 1 and 2 above and certain other conditions are met. In addition, the Plan of Liquidation and Dissolution will only be implemented if the Purchase and Sale Agreement is approved by the shareholders of RCC. Accordingly, failure to approve the Plan of Liquidation and Dissolution will have the effect of preventing the completion of Purchase and Sale Agreement, and failure to approve the Purchase and Sale Agreement will have the effect of preventing the completion of the liquidation and dissolution of RCC.

RCC’S BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE SHARE EXCHANGE PROPOSAL (PROPOSAL 1).

PROPOSAL 2: THE PLAN OF LIQUIDATION AND DISSOLUTION

This section of the proxy statement/prospectus describes material aspects of the Plan of Liquidation and Dissolution of RCC. While RCC believes that the description covers the material terms of the Plan of Liquidation and Dissolution, this summary may not contain all of the information that is important to you. You should carefully read this entire proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus for a more complete understanding of the dissolution, including the Plan of Liquidation and Dissolution attached hereto as Annex B.

At the special meeting, you also will be asked to consider and act upon the ultimate dissolution of RCC and the distribution of its assets to the shareholders of RCC. The RCC board of directors deems it advisable and in the best interests of RCC to and to adopt a plan of dissolution in the form attached as Annex B then dissolve RCC by filing articles of dissolution with the Illinois Secretary of State.

In accordance with the IBCA, after the share exchange, RCC plans to implement the voluntary dissolution procedures allowed by Illinois law beginning with the filing of articles of dissolution, which will include the plan of dissolution, with the Illinois Secretary of State. After the articles of dissolution are filed, RCC’s operations will be limited to winding-up its business and affairs, RCC will, immediately prior to closing, (a) assign its minor assets (which excludes the shares of FTFC Class A common stock) to FTFC and FTFC will assume RCC’s minor liabilities, and (b) then after closing, distribute the shares of FTFC’s Class A Common Stock on a pro rata basis to its shareholders. RCC may dispose of any other known claims against RCC in accordance with the procedures set forth in the IBCA.

In certain circumstances, a claimant against RCC that is not fully paid in the dissolution process, could enforce its unpaid claim (1) against RCC to the extent of undistributed assets or (2) if all RCC’s assets have been distributed in liquidation, against a shareholder of RCC to the extent of that shareholder’s pro rata share of the claim or the corporate assets distributed to the shareholder in liquidation, whichever is less, but such shareholder’s total liability for all such claims cannot exceed the total amount of assets distributed to the shareholder. Accordingly, in such circumstances, a shareholder could lose the amount of assets distributed to such shareholder in the dissolution process. RCC intends to exercise caution in making distributions to shareholders in order to minimize this type of risk.

Upon completion of the winding-up of RCC’s business and affairs as contemplated above, RCC would file articles of dissolution with the Illinois Secretary of State, which will terminate the corporate existence of RCC.

Approval of the dissolution proposal requires the affirmative vote of at least a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock. Under the terms of the Purchase and Sale Agreement, RCC, RCLIC, and FTFC are obligated to complete the transactions contemplated by the Purchase and Sale Agreement only if the shareholders of RCC, by the affirmative vote of at least a majority of all the votes entitled to be cast by the holders of outstanding shares of RCC common stock, approve each of Proposals 1 and 2 above and certain other conditions are met. In addition, the Plan of Liquidation and Dissolution will only be implemented if the Purchase and Sale Agreement is approved by the shareholders of RCC. Accordingly, failure to approve the Plan of Liquidation and Dissolution will have the effect of preventing the completion of Purchase and Sale Agreement, and failure to approve the Purchase and Sale Agreement will have the effect of preventing the completion of the liquidation and dissolution of RCC.

RCC’S BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE DISSOLUTION PROPOSAL (PROPOSAL 2).

PROPOSAL 3: THE ADJOURNMENT

The special meeting may be adjourned to another time or place, if necessary or appropriate, to permit, among other things, further solicitation of proxies or to obtain additional votes in favor of the Proposals 1 and 2.

If, at the special meeting, the number of shares of our common stock, present or represented and voting in favor of the above proposals is not sufficient to approve such proposals, we intend to move to adjourn the special meeting in order to enable to the board of directors to solicit additional proxies for approval of such proposals.

In the adjournment proposal, we are asking shareholders to authorize the holder of any proxy solicited by the RCC board of directors to vote in favor of granting discretionary authority to the proxyholders, and each of them individually, to adjourn the special meeting to another time and place for the purpose of soliciting additional proxies. If the RCC shareholders approve the adjournment proposal, we could adjourn the special meeting and use the additional time to solicit additional proxies, including the solicitation of proxies from RCC shareholders who have previously voted.

Except as required by the IBCA or RCC’s bylaws, the RCC board of directors is not required to fix a new record date to determine the RCC shareholders entitled to vote at the adjourned special meeting. At the adjourned special meeting, any business may be transacted which might have been transacted at the special meeting. If the RCC board of directors does not fix a new record date, it is not necessary to give any notice of the time and place of the adjourned special meeting other than an announcement at the special meeting at which the adjournment is taken, unless the adjournment is for more than four months after the date fixed for the original special meeting. If the adjournment is for more than 30 days, or if a new record date is fixed, notice of the adjourned special meeting shall be given as in the case of an original special meeting.

Approval of the adjournment proposal requires that the votes cast in favor of such proposal exceed the votes cast against such proposal.

RCC’S BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” THE APPROVAL OF THE ADJOURNMENT PROPOSAL (PROPOSAL 3).

Other Matters to Come before the Special Meeting

No other matters are intended to be brought before the special meeting by RCC, and we do not know of any matters to be brought before the meeting by others. If, however, any other matters properly come before the special meeting, the persons named in the proxy will vote the shares represented thereby in accordance with the judgment of management on any such matter.

INFORMATION CONCERNING FTFC

Business Development

First Trinity Financial Corporation (the “Company” or “FTFC”) is the parent holding company of Trinity Life Insurance Company (“TLIC”), Family Benefit Life Insurance Company (“FBLIC”), Trinity Mortgage Corporation (“TMC”), formerly known as First Trinity Capital Corporation and Trinity American, Inc. (“TAI”). The Company was incorporated in Oklahoma on April 19, 2004, for the primary purpose of organizing a life insurance subsidiary.

The Company owns 100% of TLIC. TLIC owns 100% of FBLIC. TLIC and FBLIC are primarily engaged in the business of marketing, underwriting and distributing a broad range of individual life insurance products and annuity contracts to individuals.

TLIC’s and FBLIC’s current product portfolio consists of a modified premium whole life insurance policy with a flexible premium deferred annuity rider, whole life, term, final expense, accidental death and dismemberment policies and annuity contracts. The term products are both renewable and convertible and issued for 10, 15, 20 and 30 years. They can be issued with premiums fully guaranteed for the entire term period or with a limited premium guarantee. The final expense is issued as either a simplified issue or as a graded benefit, determined by underwriting. The TLIC and FBLIC products are sold through independent agents.

TLIC is licensed in the states of Alabama, Illinois, Indiana, Kansas, Kentucky, Louisiana, Mississippi, Montana, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas and Utah. FBLIC is licensed in the states of Alabama, Arizona, Arkansas, Colorado, Georgia, Illinois, Indiana, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Dakota, Tennessee, Texas, Utah, Virginia and West Virginia.

The Company owns 100% of TMC, which was incorporated in 2006, and began operations in January 2007. TMC’s primary focus changed from premium financing loans to originating, brokering and administrating residential and commercial mortgage loans for third parties.

The Company owns 100% of TAI (formerly known as Citizens American Life, Inc.). TAI was incorporated in Barbados, West Indies on March 24, 2016 for the primary purpose of forming a life insurance company producing United States (U.S.) dollar denominated life insurance policies and annuity contracts outside of the United States and Barbados. TAI is licensed as an Exempt Insurance Company under the Exempt Insurance Act of Barbados. TAI was initially involved in developing life insurance and annuity contracts through an association with distribution channels but is now issuing life insurance policies and annuity contracts. The Company’s acquisition of TAI was formally approved by Barbados regulators and the certifications were received in 2019.   

Company Recapitalization

On October 2, 2019, at the Company Annual Shareholders’ Meeting, FTFC’s shareholders approved the following proposals:

These proposals received Form A regulatory approval from the Oklahoma Insurance Department (“OID”) on February 27, 2020 and the Missouri Department of Commerce and Insurance (“MDCI”) on December 31, 2019, followed by formal adoption by FTFC’s Board of Directors on March 12, 2020. Effective March 12, 2020, FTFC’s Class B shareholders were entitled to elect a majority of FTFC’s Board of Directors (one-half plus one) but will only receive, compared to FTFC’s Class A shareholders, 85% of cash dividends, stock dividends or amounts due upon any FTFC merger, sale or liquidation event. FTFC’s Class B shareholders may also convert one share of FTFC’s Class B common stock for a 0.85 share of FTFC’s Class A common stock. FTFC’s Class A shareholders will elect the remaining Board of Directors members and will receive 100% of cash dividends, stock dividends or amounts due upon any Company merger, sale or liquidation event.

Financial Information about Segments  

The Financial Accounting Standards Board (“FASB”) guidance requires a "management approach" in the presentation of business segments based on how management internally evaluates the operating performance of business units. The discussion of segment operating results that follows is being provided based on segment data prepared in accordance with this methodology.

Our business segments are as follows:

Life Insurance and Annuity Operations  

Our Life Insurance and Annuity Operations consists of issuing ordinary whole life insurance, endowments, modified premium whole life with an annuity rider, term, final expense and accidental death and dismemberment policies and annuity contracts. The policies can be issued with premiums fully guaranteed for the entire term period or with a limited premium guarantee. The final expense is issued as either a simplified issue or as a graded benefit, determined by underwriting. Our products are marketed through independent agents.

TLIC renewed its administrative services agreement with Investors Heritage Life Insurance Company (“IHLIC”) on September 1, 2017. Under the terms of this agreement, the services provided by IHLIC include underwriting, actuarial, policy issue, accounting, claims processing and other services incidental to the operations of TLIC. The agreement is effective for a period of five (5) years from September 1, 2017 through August 31, 2022 and includes a provision that the agreement may be terminated at any time by either party with a 180 day prior notice.

FBLIC renewed its administrative services agreement with IHLIC on November 1, 2017. Under the terms of this agreement, the services provided by IHLIC include underwriting, actuarial, policy issue, accounting, claims processing and other services incidental to the operations of FBLIC. The agreement is effective for a period of five (5) years from November 1, 2017 through October 31, 2022 and includes a provision that the agreement may be terminated at any time by either party with a 180 day prior notice.

TLIC continues to seek to serve middle income households and markets its products through independent agents. TLIC was originally licensed in Oklahoma and with the acquisition of FLAC in late 2008, expanded into Illinois, Kansas, Kentucky, Nebraska, North Dakota, Ohio and Texas. With the acquisition of FBLIC in late 2011, we expanded into Arizona, Colorado, Missouri and New Mexico. FBLIC also had initial licenses in Kansas, Nebraska and Oklahoma where TLIC was also licensed. In late 2012, FBLIC was licensed in Arkansas, Indiana, Kentucky, North Dakota, South Dakota, Texas and West Virginia. In 2013, FBLIC was licensed in Illinois and Pennsylvania. In 2014, FBLIC was licensed in Georgia, Louisiana, Michigan, Mississippi, North Carolina, Ohio, Tennessee and Virginia. In 2015, FBLIC was licensed in Alabama and Utah. In 2018, FBLIC and TLIC were licensed in Montana. In 2019, TLIC was licensed in Tennessee. In 2020, TLIC was licensed in Alabama, Indiana, Louisiana, Mississippi, New Mexico, South Dakota and Utah.

The following tables sets forth our direct collected life insurance premiums and annuity considerations by the policyholder’s state of residence at the time of premium collection and annuity consideration, for the most significant states in which we are licensed, for the years ended December 31, 2020 and 2019, in accordance with statutory accounting practices prescribed by the states of domicile of TLIC and FBLIC.

Reinsurance 

TLIC cedes reinsurance under various agreements allowing management to control exposure to potential losses arising from large risks and providing additional capacity for growth and risk diversification. TLIC reinsures all amounts of risk on any one life in excess of $100,000 for individual life insurance with IHLIC, Optimum Re Insurance Company (“Optimum Re”), RGA Reinsurance Company and Wilton Reassurance Company (“Wilton Re”).

FTFC also assumes reinsurance under various agreements allowing management to increase growth in assets and profitability. TLIC is a party to an Automatic Retrocession Pool Agreement (the “Reinsurance Pool”) with Optimum Re, Catholic Order of Foresters, American Home Life Insurance Company and Woodmen of the World. The agreement provides for automatic retrocession of coverage in excess of Optimum Re’s retention on business ceded to Optimum Re by the other parties to the Reinsurance Pool. TLIC’s maximum exposure on any one insured under the Reinsurance Pool is $100,000. As of January 1, 2008, the Reinsurance Pool stopped accepting new cessions.

FBLIC also participates in reinsurance in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large amounts of risk. FBLIC reinsures initial amounts of risk on any one life in excess of $100,000 for individual life insurance with Optimum Re. TLIC and FBLIC also reinsure its accidental death benefit portion of their life policies under a bulk agreement with Optimum Re. To the extent that the reinsurance companies are unable to meet their obligations under the reinsurance agreements, TLIC and FBLIC remain primarily liable for the entire amount at risk.

Coinsurance

Effective January 1, 2018, TLIC entered into an annuity coinsurance agreement with an offshore annuity and life insurance company whereby 90% of TLIC’s annuity considerations originated after December 31, 2017 were ceded to the assuming company. The assuming company contractually reimburses TLIC for the related commissions, withdrawals, settlements, interest credited, submission costs, maintenance costs, marketing costs, excise taxes and other costs plus a placement fee. Effective April 1, 2020, the Company and an offshore annuity and life insurance company mutually agreed that the Quota Share under its existing reinsurance agreement shall be 0% for future business instead of the original contractual amount of 90%.

In accordance with this annuity coinsurance agreement, TLIC holds assets and recognizes a funds withheld liability for the benefit of the assuming company in an amount at least equal to the annuity reserves, in accordance with U.S. statutory accounting principles, generated by this ceded business. In addition, the assuming company maintains a trust related to this ceded business amounting to at least an additional 4% of assets above the annuity reserve required under U.S. statutory accounting principles. This coinsurance agreement may be terminated for new business by either party at any time upon 30 days prior written notice to the other party.

In 2019, TLIC entered into a life insurance coinsurance agreement with TAI, effective October 1, 2018, whereby 100% of TAI’s life insurance policies and annuity contracts issued after September 30, 2018 were ceded to TLIC. TLIC contractually reimburses TAI for the related commissions, submission costs, maintenance costs, marketing costs and other costs related to the production of life insurance policies and annuity contracts.

Competition 

The U.S. life insurance industry is a mature industry that has experienced little to no growth in recent years. Competition is intense because the life insurance industry is consolidating, with larger, more efficient and more effective organizations emerging from consolidation. In addition, legislation became effective in the United States that permits commercial banks, insurance companies and investment banks to combine. These factors have increased competitive pressures in general.

Many domestic life insurance companies have significantly greater financial, marketing and other resources, longer business histories and more diversified lines of insurance products than we do. We also face competition from companies marketing in person as well as with direct mail and internet sales campaigns. Although we may be at a competitive disadvantage to these entities, we believe that our premium rates, policy features, marketing approaches and policyholder services are generally competitive with those of other life insurance companies selling similar types of products and provide us with niche marketing opportunities not actively pursued by other life insurance companies.

Governmental Regulation 

TLIC and FBLIC, respectively, are subject to regulation and supervision by the Oklahoma Insurance Department (“OID”) and the Missouri Department of Commerce and Insurance (“MDCI”). The insurance laws of Oklahoma and Missouri give the OID and MDCI broad regulatory authority, including powers to: (i) grant and revoke licenses to transact business; (ii) regulate and supervise trade practices and market conduct; (iii) establish guaranty associations; (iv) license agents; (v) approve policy forms; (vi) approve premium rates for some lines of business; (vii) establish reserve requirements; (viii) prescribe the form and content of required financial statements and reports; (ix) determine the reasonableness and adequacy of statutory capital and surplus and (x) regulate the type and amount of permitted investments. TLIC and FBLIC can be required, under the solvency or guaranty laws of most states in which they do business, to pay assessments (up to prescribed limits) to fund policyholder losses or liabilities of other insurance companies that become insolvent. These assessments may be deferred or foregone under most guaranty laws if they would threaten an insurer's financial strength and, in certain instances, may be offset against future premium taxes.

TLIC is subject to Oklahoma laws and FBLIC is subject to Missouri laws that limit the amount of dividends insurance companies can pay to stockholders without approval of the respective Departments of Insurance. The maximum dividend, which may be paid in any twelve-month period without notification or approval, is limited to the greater of 10% of statutory surplus as of December 31 of the preceding year or the net gain from operations of the preceding calendar year. Cash dividends may only be paid out of surplus derived from realized net profits. Based on these limitations, there is capacity for TLIC to pay a dividend up to $1,363,823 in 2021 without prior approval. In addition, based on those limitations, there is the capacity for FBLIC to pay a dividend up to $1,025,933 in 2021 without prior approval. FBLIC paid no dividends to TLIC in 2020 and 2019. These dividends would be eliminated in consolidation. TLIC has paid no dividends to FTFC.

There are certain factors particular to the life insurance business which may have an adverse effect on the statutory operating results of TLIC and FBLIC. One such factor is that the costs associated with issuing a new policy in force is usually greater than the first year’s policy premium. Accordingly, in the early years of a new life insurance company, these initial costs and the required provisions for reserves often have an adverse effect on statutory operating results.

Employees 

As of August 30, 2021, FTFC had 13 full-time employees and 1 part-time employee.

Market Price and Dividend Information

FTFC’s common stock is not traded on any national securities exchange or recognized over-the-counter markets. Thus, an established public market price or history does not exist and trades are made only in isolated, sporadic instances between private parties.

As of August 31, 2021, there were approximately 6,500 shareholders of FTFC’s outstanding common stock.

Prior to 2020, FTFC had never declared or paid cash dividends on its common stock. In 2020, our Board of Directors declared and paid cash dividends of $0.05 per share on our Class A Common Stock. Although this cash dividend was paid to FTFC Class A shareholders in 2020, the Board of Directors of FTFC has not adopted a dividend payment policy; however, dividends must necessarily depend upon FTFC's earnings and financial condition, applicable legal restrictions, and other factors relevant at the time the Board of Directors considers the declaration of a cash dividend.  Cash available for dividends to shareholders of FTFC must initially come from income and capital gains earned on its investment portfolio and dividends paid by FTFC’s subsidiaries.

Provisions of the Oklahoma Insurance Code relating to insurance holding companies subject transactions between FTFC and TLIC and FTFC and FBLIC, including dividend payments, to certain standards generally intended to prevent such transactions from adversely affecting the adequacy of life insurance subsidiaries' capital and surplus available to support policyholder obligations.  In addition, under the Oklahoma General Corporation Act, FTFC may not pay dividends if, after giving effect to a dividend, it would not be able to pay its debts as they become due in the usual course of business or if its total liabilities would exceed its total assets.

On November 12, 2020, FTFC’s Board of Directors approved a 10% share dividend by which shareholders received a share of Class A common stock for each 10 shares of Class A common stock of FTFC they hold.  The dividend was payable to the holders of shares of the Corporation as of November 12, 2020.  Fractional shares were rounded up to the nearest whole number of shares.  FTFC issued 791,339 shares in connection with the stock dividend.

One million shares of the Company’s common stock are reserved for issuance under FTFC’s 2019 Long Term Incentive Plan. No equity award grants have been made.

FTFC MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following should be read in connection with FTFC’s audited financial statements as of and the for years ended December 31, 2020 and 2019 included under “Introduction to Financial Statements.”

Information concerning FTFC’s financial position and results of operations for the six month periods ended June 30, 2021 and 2020 including Management’s Discussion and Analysis of Financial Condition and Results of Operations for those periods, can be found under “Introduction to Financial Statements.”

Overview

FTFC (“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. 

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

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

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

Acquisitions

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

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

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

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

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

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition, results of operations and liquidity and capital resources is based on our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). Preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. We evaluate our estimates and assumptions continually, including those related to investments, deferred acquisition costs, value of insurance business acquired and policy liabilities. We base our estimates on historical experience and on various other factors and assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.  We believe the following accounting policies, judgments and estimates are the most critical to the preparation of our consolidated financial statements.

Investments in Fixed Maturity Securities

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

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

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

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

Mortgage Loans on Real Estate

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

This allowance for possible loan losses from investments in mortgage loans on real estate is a reserve established through a provision for possible loan losses charged to expense which represents, in our judgment, the known and inherent credit losses existing in the residential and commercial and industrial mortgage loan portfolio.  This allowance, in our judgment, is necessary to reserve for estimated loan losses inherent in the residential and commercial and industrial mortgage loan portfolio and reduces the carrying value of investments in mortgage loans on real estate to the estimated net realizable value on the consolidated statement of financial position.

While we utilize our best judgment and information available, the ultimate adequacy of this allowance is dependent upon a variety of factors beyond our control, including the performance of the residential and commercial mortgage loan portfolio, the economy and changes in interest rates.  Our allowance for possible mortgage loan losses consists of specific valuation allowances established for probable losses on specific loans and a portfolio reserve for probable incurred but not specifically identified loans.

We consider mortgage loans on real estate impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the mortgage loan agreement. Impairment is measured on a loan-by-loan basis.  Factors that we consider in determining impairment include payment status, collateral value of the real estate subject to the mortgage loan and the probability of collecting scheduled principal and interest payments when due.  Mortgage loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

We determine the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the mortgage loan on real estate and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. 

Deferred Policy Acquisition Costs

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

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

Deferred acquisition costs related to the successful production of new and renewal insurance and annuity products that subject us to mortality or morbidity risk over a period that extends beyond the period or periods in which premiums are collected and that have terms that are fixed and guaranteed (i.e., limited-payment long-duration annuity contracts) are deferred to the extent deemed recoverable and amortized in relation to the present value of actual and expected gross profits on the policies.  To the extent that realized gains and losses on securities result in adjustments to deferred acquisition costs related to insurance and annuity products, such adjustments are reflected as a component of the amortization of deferred acquisition costs.

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

Value of Insurance Business Acquired

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

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

As of December 31, 2020 and 2019, there was $4,146,901 and $3,848,430, respectively, of accumulated amortization of the value of insurance business acquired due to the purchases of FLAC and FBLIC.  FTFC expects to amortize the value of insurance business acquired by the following amounts over the next five years: $272,004 in 2021, $229,910 in 2022, $219,350 in 2023, $201,304 in 2024 and $212,373 in 2025.

Future Policy Benefits

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

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

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

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

Recent Accounting Pronouncements

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued updated guidance (Accounting Standards Update 2016-02) to require lessees to recognize a right-of-use asset and a lease liability for leases with terms of more than 12 months.  The updated guidance retains the two classifications of a lease as either an operating or finance lease (previously referred to as a capital lease).  Both lease classifications require the lessee to record the right-of-use asset and the lease liability based upon the present value of cash flows.  Finance leases will reflect the financial arrangement by recognizing interest expense on the lease liability separately from the amortization expense of the right-of-use asset.  Operating leases will recognize lease expense (with no separate recognition of interest expense) on a straight-line basis over the term of the lease.  The accounting by lessors is not significantly changed by the updated guidance.  The updated guidance requires expanded qualitative and quantitative disclosures, including additional information about the amounts recorded in the financial statements. 

In July 2018, the FASB amended the updated guidance on leases that was issued in February 2016 (Accounting Standards Update 2018-11) and provided an additional transition method with which to adopt the updated guidance.  Under the additional transition method, entities may elect to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption.

Consequently, if this transition method is elected, an entity’s reporting for the comparative periods prior to adoption presented in the financial statements would continue to be in accordance with current lease guidance. The amendments also provide lessors with a practical expedient to combine non-lease components (e.g., a fee for common area maintenance when leasing office space) with the associated lease component rather than accounting for those components separately if certain criteria are met. The updated guidance requires entities to recognize a right-of-use asset and lease liability equal to the present value of lease payments for all leases other than those that are less than one year.  The updated guidance, as amended, is effective for reporting periods beginning after December 15, 2018.

In December 2018, the FASB issued additional guidance (Accounting Standards Update 2018-20) that permits an accounting policy election for lessors to not evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs.  A lessor making this election will exclude from the consideration in the contract and from variable payments not included in the consideration of the contract all collections from lessees of certain sales taxes and other similar taxes and to provide certain disclosures.

FTFC adopted this guidance in first quarter 2019.  The adoption of this guidance did not have a material effect on FTFC’s results of operations, financial position or liquidity.

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

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

The expected credit losses, and subsequent adjustments to such losses, will be recorded through an allowance account that is deducted from the amortized cost basis of the financial asset, with the net carrying value of the financial asset presented on the consolidated balance sheet at the amount expected to be collected.

The updated guidance also amends the current other-than-temporary impairment model for available-for-sale debt securities by requiring the recognition of impairments relating to credit losses through an allowance account and limits the amount of credit loss to the difference between a security’s amortized cost basis and its fair value. In addition, the length of time a security has been in an unrealized loss position will no longer impact the determination of whether a credit loss exists.

The updated guidance was effective for reporting periods beginning after December 15, 2019.  As a Smaller Reporting Company, the effective date was recently changed and the delayed effective date is now for reporting periods beginning after December 15, 2022.  Early adoption is permitted for reporting periods beginning after December 15, 2018. Based on the financial instruments currently held by FTFC, there would not be a material effect on FTFC’s results of operations, financial position or liquidity if the new guidance had been adopted in the current accounting period. The impact on FTFC’s results of operations, financial position or liquidity at the date of adoption of the updated guidance will be determined by the financial instruments held by FTFC and the economic conditions at that time.

Intangibles - Goodwill and Other

In January 2017, the FASB issued updated guidance (Accounting Standards Update 2017-04) that eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge.  Instead, entities will record an impairment charge by comparing a reporting unit’s fair value with its carrying amount and recognizing an impairment charge for the excess of the carrying amount over estimated fair value (i.e., Step 1 of current guidance).

The implied fair value of goodwill is currently determined in Step 2 by deducting the fair value of all assets and liabilities of the reporting unit (determined in the same manner as a business combination) from the reporting unit’s fair value as determined in Step 1 (including any corporate-level assets or liabilities that were included in the determination of the carrying amount and fair value of the reporting unit in Step 1).  The updated guidance requires an entity to perform its annual, or interim, impairment test by either: (1) an initial qualitative assessment of factors (such as changes in management, key personnel, strategy, key technology or customers) that may impact a reporting unit’s fair value and lead to the determination that it is more likely than not that the reporting unit’s fair value is less than its carrying value, including goodwill (consistent with current guidance), or (2) applying Step 1.

FTFC adopted this guidance in first quarter 2020.  The adoption of this guidance did not have a material effect on FTFC’s results of operations, financial position or liquidity.

Targeted Improvements to the Accounting for Long-Duration Contracts

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

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

With respect to the market risk benefits, an insurance entity should apply the amendments retrospectively as of the beginning of the earliest period presented.  FTFC expects that the impact on FTFC’s results of operations, financial position and liquidity at the date of adoption of the updated guidance in 2024 will be determined by the long-duration contracts then held by FTFC and the economic conditions at that time.

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement

In August 2018, the FASB issued amendments (Accounting Standards Update 2018-13) to modify the disclosure requirements related to fair value measurements including the consideration of costs and benefits of producing the modified disclosures.

FTFC adopted this guidance in first quarter 2020.  The adoption of this guidance did not have a material effect on FTFC’s results of operations, financial position or liquidity.

Income Taxes - Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued updated guidance (Accounting Standards Update 2019-12) for the accounting for income taxes. The updated guidance is intended to simplify the accounting for income taxes by removing several exceptions contained in existing guidance and amending other existing guidance to simplify several other income tax accounting matters. The updated guidance is effective for the quarter ending March 31, 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a material effect on FTFC’s results of operations, financial position or liquidity.

Business Segments

The FASB guidance requires a "management approach" in the presentation of business segments based on how management internally evaluates the operating performance of business units.  The discussion of segment operating results that follows is being provided based on segment data prepared in accordance with this methodology. 

Our business segments are as follows:

Please see below and Note 11 to the consolidated financial statements as of and for the years ended December 31, 2020 and 2019 for additional information regarding segment information.

The following is a discussion and analysis of our financial condition, results of operations and liquidity and capital resources.

FINANCIAL HIGHLIGHTS

Consolidated Condensed Results of Operations for the Years Ended December 31, 2020 and 2019

Consolidated Condensed Financial Position as of December 31, 2020 and 2019

Results of Operations – Years Ended December 31, 2020 and 2019

Revenues

Our primary sources of revenue are life insurance premium income and investment income.  Premium payments are classified as first-year, renewal and single.  In addition, realized gains and losses on investment holdings can significantly impact revenues from period to period.

Our revenues for the years ended December 31, 2020 and 2019 are summarized as follows:

The $3,014,310 increase in total revenues for the year ended December 31, 2020 is discussed below.

Premiums

Our premiums for the years ended December 31, 2020 and 2019 are summarized as follows:

The $4,922,417 increase in premiums for the year ended December 31, 2020 is primarily due to a $3,099,485 increase in final expense renewal premiums, $998,648 increase in ordinary life renewal premiums and a $949,644 increase in final expense first year premiums.    

The increase in final expense renewal premiums reflects the persistency of prior years’ final expense production.  The increase in ordinary life renewal premiums primarily reflects ordinary life insurance policies sold in the international market by TAI. The increase in final expense first year premiums represents management’s focus on expanding final expense production by contracting new, independent agents in expanded locations.

Net Investment Income

The major components of our net investment income for the years ended December 31, 2020 and 2019 are summarized as follows: