UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange act of 1934

For the quarterly period ended ~~June~~September 30, 2022

☐	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number: 000-55621

TEXAS REPUBLIC CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

Texas		45-5311713
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock $0.01 par	-	None

13215 Bee Cave Parkway, Ste. A120

Austin, Texas 78738

(Address of principal executive offices)

(512) 330-0099

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☐	Smaller reporting company ☒
Emerging growth company ☐

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 provide pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: Common stock .01 par value as of ~~August~~November 1, 2022: 14,813,177 shares

TEXAS REPUBLIC CAPITAL CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR QUARTERLY PERIOD ENDED ~~JUNE~~SEPTEMBER 30, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		Page Number

Item 1. Consolidated Financial Statements

Consolidated Statements of Financial Position as of ~~June~~September 30, 2022 (Unaudited) and December 31, 2021		3

Consolidated Statements of Operations for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021 (Unaudited)		4

Consolidated Statements of Comprehensive Loss for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021 (Unaudited)		5

Consolidated Statements of Changes in Shareholders’ Equity for the Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021 (Unaudited)		6

Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021 (Unaudited)		7

Notes to Consolidated Financial Statements (Unaudited)		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		22

Item 4. Controls and Procedures		28

Part II. OTHER INFORMATION

Item 1. Legal Proceedings		29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		29

Item 3. Defaults upon Senior Securities		29

Item 4. Mine Safety Disclosures		29

Item 5. Other Information		29

Item 6. Exhibits		29

Signatures		30

Exhibit No. 31.1

Exhibit No. 31.2

Exhibit No. 32.1

Exhibit No. 32.2

Exhibit No. 101.INS

Exhibit No. 101.SCH

Exhibit No. 101.CAL

Exhibit No. 101.DEF

Exhibit No. 101.LAB

Exhibit No. 101.PRE

Exhibit No. 104. FIL

PART I – FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Financial Position

	June 30, 2022 (Unaudited)			December 31, 2021			September 30, 2022 (Unaudited)			December 31, 2021
Assets
Available-for-sale fixed maturity securities at fair value (Amortized cost: $7,152,357 and $8,244,018 as of June 30, 2022 and December 31, 2021, respectively)	$	6,846,417		$	9,042,091
Available-for-sale fixed maturity securities at fair value (Amortized cost: $8,608,801 and $8,244,018 as of September 30, 2022 and December 31, 2021, respectively)							$	7,985,016		$	9,042,091
Mortgage loans, net of allowance		13,807,591			13,149,073			15,966,178			13,149,073
Other long-term investments		3,023,852			2,980,325			3,634,396			2,980,325
Total investments		23,677,860			25,171,489			27,585,590			25,171,489
Cash and cash equivalents		6,060,147			8,224,914			7,889,620			8,224,914
Accrued investment income		184,396			190,299			224,417			190,299
Due premium		26,893			19,664			47,077			19,664
Deferred policy acquisition costs		1,952,250			1,518,260			2,223,723			1,518,260
Deferred sales inducement costs		569,358			716,153			507,602			716,153
Advances and notes receivable, net of allowance		123,739			267,301			110,517			267,301
Leased property - right to use		41,383			82,766			457,116			82,766
Prepaid assets		96,041			14,661			68,461			14,661
Intangible assets, net of accumulated amortization		298,819			321,806			287,326			321,806
Furniture and equipment, net		13,443			17,505			11,831			17,505
Other assets		3,650,661			837,115			992,363			837,115
Total assets	$	36,694,990		$	37,381,933		$	40,405,643		$	37,381,933

Liabilities and Shareholders’ Equity
Policy liabilities
Policyholders’ account balances	$	28,832,134		$	28,603,861		$	28,951,508		$	28,603,861
Future policy benefits		1,537,583			1,214,014			1,678,099			1,214,014
Policy claims and other benefits		168,043			537,214			170,751			537,214
Liability for deposit-type contracts		296,945			68,770			285,838			68,770
Other policyholder liabilities		27,984			57,178			12,239			57,178
Total policy liabilities		30,862,689			30,481,037			31,098,435			30,481,037
Lease liability		41,383			82,766			457,116			82,766
Other liabilities		307,635			206,161			260,014			206,161
Total liabilities		31,211,707			30,769,964			31,815,565			30,769,964

Shareholders’ equity
Common stock, par value $.01 per share, 25,000,000 shares authorized, 14,867,097 issued as of June 30, 2022 and December 31, 2021, 14,813,177 and 14,801,027 outstanding as of June 30, 2022 and December 31, 2021, respectively, and 162,540 subscribed as of June 30, 2022		150,296			148,671
Common stock, par value $.01 per share, 25,000,000 shares authorized, 14,867,097 issued as of September 30, 2022 and December 31, 2021, 14,813,177 and 14,801,027 outstanding as of September 30, 2022 and December 31, 2021, respectively, and 733,442 subscribed as of September 30, 2022								156,005			148,671
Additional paid-in capital		18,512,233			17,538,618			21,854,321			17,538,618
Treasury stock, at cost (53,920 and 66,070 shares as of June 30, 2022 and December 31, 2021, respectively)		(52,130	)		(64,280	)
Treasury stock, at cost (53,920 and 66,070 shares as of September 30, 2022 and December 31, 2021, respectively)								(52,130	)		(64,280	)
Accumulated other comprehensive income (loss)		(305,940	)		798,073			(623,785	)		798,073
Accumulated deficit		(12,821,176	)		(11,809,113	)		(12,744,333	)		(11,809,113	)
Total shareholders’ equity		5,483,283			6,611,969			8,590,078			6,611,969
Total liabilities and shareholders’ equity	$	36,694,990		$	37,381,933		$	40,405,643		$	37,381,933

See notes to consolidated financial statements (unaudited).

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021			2022			2021
Revenues
Premiums and other considerations	$	507,849		$	161,105		$	937,529		$	330,721		$	451,366		$	129,557		$	1,388,895		$	460,278
Net investment income		444,853			301,776			808,311			592,744			420,901			256,010			1,229,212			848,754
Net realized gains (losses) on investments		(669	)		7,554			17,635			6,679
Net realized gains on investments														-			13,104			17,635			19,783
Commission income		38,703			55,956			66,969			65,207			427,048			124,799			494,017			190,006
Total revenues		990,736			526,391			1,830,444			995,351			1,299,315			523,470			3,129,759			1,518,821
Benefits, claims and expenses
Increase in future policy benefits		65,672			62,248			274,531			94,454			69,654			192,724			344,185			287,178
Death and other benefits		141,173			(25,243	)		217,616			(39,335	)		72,510			125,044			290,126			85,709
Interest credited to policyholders		265,310			293,464			536,421			657,097			293,086			180,255			829,507			837,352
Total benefits and claims		472,155			330,469			1,028,568			712,216			435,250			498,023			1,463,818			1,210,239
Policy acquisition costs deferred		(496,065	)		(85,582	)		(690,545	)		(217,949	)		(373,834	)		(135,999	)		(1,064,379	)		(353,948	)
Policy acquisition costs amortized		208,630			3,655			256,555			128,849			102,361			24,294			358,916			153,143
Commissions		480,080			150,185			774,601			323,329			411,321			167,494			1,185,922			490,823
Salaries and employee benefits		399,076			324,968			767,995			651,814			475,219			320,958			1,243,214			972,772
Office rent		22,107			23,092			46,106			46,810			23,841			23,764			69,947			70,574
Third-party administration fees		18,279			19,023			85,989			46,392			634			51,260			86,623			97,652
Travel, meals, and entertainment		24,811			15,469			47,586			28,423			(7,326	)		13,906			40,260			42,329
Professional fees		120,896			124,046			315,805			262,928			86,769			255,135			402,574			518,063
Other general and administrative expenses		115,969			95,390			209,847			145,652			68,237			59,274			278,084			204,926
Total benefits, claims and expenses		1,365,938			1,000,715			2,842,507			2,128,464			1,222,472			1,278,109			4,064,979			3,406,573

Net loss	$	(375,202	)	$	(474,324	)	$	(1,012,063	)	$	(1,133,113	)
Net income (loss)													$	76,843		$	(754,639	)	$	(935,220	)	$	(1,887,752	)

Net loss per common share outstanding	$	(0.03	)	$	(0.03	)	$	(0.07	)	$	(0.08	)
Net income (loss) per common share outstanding													$	0.01		$	(0.05	)	$	(0.06	)	$	(0.13	)

See notes to consolidated financial statements (unaudited).

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Comprehensive Loss

(Unaudited)

Three Months Ended
June 30,

Six Months Ended
June 30,

2022

2021

2022

2021

Net loss
$ (375,202
)
$ (474,324
)
$ (1,012,063
)
$ (1,133,113
)
Other comprehensive income (loss)

Total net unrealized gains (losses) arising during the period
(462,480
)
204,894 (1,086,378
)
(116,396
)
Less net realized investment gains (losses)
(669
)
7,554 17,635 6,679
Net unrealized investment gains (losses)
(461,811
)
197,340 (1,104,013
)
(123,075
)
Total other comprehensive income (loss)
(461,811
)
197,340 (1,104,013
)
(123,075
)
Total comprehensive loss
$ (837,013
)
$ (276,984
)
$ (2,116,076
)
$ (1,256,188
)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021

Net income (loss)	$	76,843		$	(754,639	)	$	(935,220	)	$	(1,887,752	)
Other comprehensive loss
Total net unrealized losses arising during the period		(317,845	)		(79,088	)		(1,404,223	)		(195,484	)
Less net realized investment gains		-			13,104			17,635			19,783
Net unrealized investment losses		(317,845	)		(92,192	)		(1,421,858	)		(215,267	)
Total other comprehensive loss		(317,845	)		(92,192	)		(1,421,858	)		(215,267	)
Total comprehensive loss	$	(241,002	)	$	(846,831	)	$	(2,357,078	)	$	(2,103,019	)

See notes to consolidated financial statements (unaudited).

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Shareholders’ Equity

~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Unaudited)

	Common Stock $.01 Par Value		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Shareholders’ Equity			Common Stock $.01 Par Value		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Shareholders’ Equity
Balance as of January 1, 2021	$	148,671	$	17,538,618	$	(86,600	)	$	1,166,306		$	(9,724,528	)	$	9,042,467		$	148,671	$	17,538,618	$	(86,600	)	$	1,166,306		$	(9,724,528	)	$	9,042,467
Treasury shares issued		-		-		3,320			-			-			3,320			-		-		3,320			-			-			3,320
Other comprehensive loss		-		-		-			(123,075	)		-			(123,075	)		-		-		-			(215,267	)		-			(215,267	)
Net loss		-		-		-			-			(1,133,113	)		(1,133,113	)		-		-		-			-			(1,887,752	)		(1,887,752	)
Balance as of June 30, 2021	$	148,671	$	17,538,618	$	(83,280	)	$	1,043,231		$	(10,857,641	)	$	7,789,599
Balance as of September 30, 2021																	$	148,671	$	17,538,618	$	(83,280	)	$	951,039		$	(11,612,280	)	$	6,942,768

Balance as of January 1, 2022	$	148,671	$	17,538,618	$	(64,280	)	$	798,073		$	(11,809,113	)	$	6,611,969		$	148,671	$	17,538,618	$	(64,280	)	$	798,073		$	(11,809,113	)	$	6,611,969
Common stock shares subscribed		1,625		973,615		-			-			-			975,240			7,334		4,315,703		-			-			-			4,323,037
Treasury shares issued		-		-		12,150			-			-			12,150			-		-		12,150			-			-			12,150
Other comprehensive loss		-		-		-			(1,104,013	)		-			(1,104,013	)		-		-		-			(1,421,858	)		-			(1,421,858	)
Net loss		-		-		-			-			(1,012,063	)		(1,012,063	)		-		-		-			-			(935,220	)		(935,220	)
Balance as of June 30, 2022	$	150,296	$	18,512,233	$	(52,130	)	$	(305,940	)	$	(12,821,176	)	$	5,483,283
Balance as of September 30, 2022																	$	156,005	$	21,854,321	$	(52,130	)	$	(623,785	)	$	(12,744,333	)	$	8,590,078

Three Months Ended ~~June~~September 30, 2022 and 2021

(Unaudited)

Common Stock $.01
Par Value

Additional Paid-in
Capital

Treasury
Stock

Accumulated Other Comprehensive
Income (Loss)

Accumulated
Deficit

Total
Shareholders’ Equity

Balance as of April 1, 2021
$ 148,671 $ 17,538,618 $ (86,490
)
$ 845,891 $ (10,383,317
)
$ 8,063,373
Treasury shares issued
- - 3,210 - - 3,210
Other comprehensive income
- - - 197,340 - 197,340
Net loss
- - - - (474,324
)
(474,324
)
Balance as of June 30, 2021
$ 148,671 $ 17,538,618 $ (83,280
)
$ 1,043,231 $ (10,857,641
)
$ 7,789,599

Balance as of April 1, 2022
$ 148,671 $ 17,538,618 $ (59,280
)
$ 155,871 $ (12,445,974
)
$ 5,337,906
Common stock shares subscribed
1,625 973,615 - - - 975,240
Treasury shares issued
- - 7,150 - - 7,150
Other comprehensive loss
- - - (461,811
)
- (461,811
)
Net loss
- - - - (375,202
)
(375,202
)
Balance as of June 30, 2022
$ 150,296 $ 18,512,233 $ (52,130
)
$ (305,940
)
$ (12,821,176
)
$ 5,483,283

	Common Stock $.01 Par Value		Additional Paid-in Capital		Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Shareholders’ Equity
Balance as of July 1, 2021	$	148,671	$	17,538,618	$	(83,280	)	$	1,043,231		$	(10,857,641	)	$	7,789.599
Other comprehensive loss		-		-		-			(92,192	)		-			(92,192	)
Net loss		-		-		-			-			(754,639	)		(754,639	)
Balance as of September 30, 2021	$	148,671	$	17,538,618	$	(83,280	)	$	951,039		$	(11,612,280	)	$	6,942,768

Balance as of July 1, 2022	$	150,296	$	18,512,233	$	(52,130	)	$	(305,940	)	$	(12,821,176	)	$	5,483,283
Common stock shares subscribed		5,709		3,342,088		-			-			-			3,347,797
Other comprehensive loss		-		-		-			(317,845	)		-			(317,845	)
Net income		-		-		-			-			76,843			76,843
Balance as of September 30, 2022	$	156,005	$	21,854,321	$	(52,130	)	$	(623,785	)	$	(12,744,333	)	$	8,590,078

See notes to consolidated financial statements(unaudited).

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Operating activities
Net loss	$	(1,012,063	)	$	(1,133,113	)	$	(935,220	)	$	(1,887,752	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net accretion of discount and amortization of premium on investments		(146,208	)		(137,803	)		(215,086	)		(207,112	)
Net realized capital gains		(17,635	)		(6,679	)		(17,635	)		(19,783	)
Provision for depreciation and amortization		27,049			6,743			40,153			9,027
Policy acquisition costs deferred		(690,545	)		(217,949	)		(1,064,379	)		(353,948	)
Policy acquisition costs amortized		256,555			128,849			358,916			153,143
Amortization of mortgage loan origination fees		35,282			30,412			35,800			41,139
Provision for estimated mortgage loan losses		3,486			(4,927	)		14,336			976
Provision for estimated uncollectible advances and notes receivable		(472	)		(3,921	)		(4,313	)		(25,696	)
Interest credited to policyholders		536,421			657,097			829,507			837,352
Non-cash salary expense		12,150			3,320			12,150			3,320
Change in assets and liabilities:
Accrued investment income		5,903			(51,956	)		(34,118	)		6,520
Due premium		(7,229	)		(19,694	)		(27,413	)		(6,002	)
Advances and notes receivable		144,034			(13,954	)		161,097			25,906
Prepaid assets		(81,380	)		(38,430	)		(53,800	)		(45,978	)
Other assets		(2,485,946	)		(113,909	)		(126,243	)		(320,443	)
Future policy benefits		323,569			202,811			464,085			457,166
Policy claims		(369,171	)		(356,024	)		(366,463	)		(277,075	)
Other policy liabilities		(29,194	)		(85,749	)		(44,939	)		(92,726	)
Other liabilities		101,474			137,364			53,853			208,945
Net cash used in operating activities		(3,393,920	)		(1,017,512	)		(919,712	)		(1,493,021	)

Investing activities
Purchases of furniture and equipment		-			(2,381	)		-			(2,381	)
Purchases of available for sale securities		-			(12,122	)		(1,461,639	)		(12,122	)
Sales of available for sale securities		1,105,980			231,580			1,111,464			502,236
Purchases of mortgage loans		(7,738,300	)		(572,994	)		(12,526,255	)		(2,289,337	)
Payments on mortgage loans		7,069,992			1,579,779			9,689,967			2,119,193
Purchase of other long-term investments		(374,036	)		-			(1,256,050	)		-
Payments on other long-term investments		451,055			375,276			789,139			683,213
Net cash provided by investing activities		514,691			1,599,138
Net cash provided by (used in) investing activities								(3,653,374	)		1,000,802

Financing activities
Proceeds from the subscription of common stock		647,640			-			4,294,033			-
Policyholder deposits		383,738			1,836,446			434,609			2,678,963
Policyholder withdrawals		(545,091	)		(116,295	)		(707,918	)		(107,082	)
Deposit-type contracts - deposits		255,228			-			255,517			-
Deposit-type contracts - withdrawals		(27,053	)		(5,310	)		(38,449	)		(5,273	)
Net cash provided by financing activities		714,462			1,714,841			4,237,792			2,566,608

(Decrease) increase in cash and cash equivalents		(2,164,767	)		2,296,467			(335,294	)		2,074,389
Cash and cash equivalents, beginning of period		8,224,914			10,985,917			8,224,914			10,985,917
Cash and cash equivalents, end of period	$	6,060,147		$	13,282,384		$	7,889,620		$	13,060,306
Supplemental disclosure of non-cash financing activities
Treasury stock issued as compensation	$	12,150		$	3,320		$	12,150		$	3,320
Subscriptions receivable for common stock		327,600			-			29,004			-

See notes to consolidated financial statements (unaudited).

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

1. Organization and Significant Accounting Policies

Nature of Operations

Texas Republic Capital Corporation (the “Company”) is the parent holding company of Texas Republic Life Insurance Company (“TRLIC”), Texas Republic Life Solutions, Inc. (“TRLS”), and Axis Insurance Solutions, LLC (“AIS”). The Company was incorporated in Texas on May 15, 2012, for the primary purpose of forming and capitalizing a life insurance company subsidiary.

The Texas Department of Insurance approved TRLIC’s life insurance charter on August 1, 2016. The Company capitalized TRLIC with $3,000,000 and owns 100% of TRLIC. TRLIC began insurance operations on April 3, 2017 and is currently selling life and annuity products in the state of Texas. In 2018 the Company made additional capital contributions totaling $2,750,000 for the entire year. In 2019 the Company made two more capital contributions to TRLIC. The first contribution consisted of mortgage loans valued at $857,133 and the second one was a $1,300,000 cash contribution. In 2021, the Company made additional total capital contributions of $2,100,000. During the first ~~half~~nine months of 2022, the Company made ~~$1,000,000~~$1,500,000 in total capital contributions. Total capitalization of TRLIC was ~~$11,007,133~~$11,507,133 at ~~June~~September 30, 2022.

TRLS, a life and health insurance agency, was incorporated February 1, 2017. The Company capitalized TRLS with $50,000 and owns 100% of TRLS. In 2018 and 2020 the Company made additional capital contributions of $100,000 and $200,000, respectively. In 2021, the Company made additional total capital contributions of $50,000. During the first ~~quarter~~nine months of 2022, the Company made ~~a $100,000~~$150,000 in total capital ~~contribution.~~contributions. Total capitalization of TRLS was ~~$500,000~~$550,000 at ~~June~~September 30, 2022.

AIS, a property & casualty insurance agency, was formed on April 6, 2021. The Company capitalized AIS with $25,000 and owns 100% of AIS.

From incorporation through April 2, 2017 the Company was involved in the sale of common stock to provide working capital. During this time, the Company completed an organizational offering, 3three private placement stock offerings and an intrastate public stock offering in the state of Texas. The Company raised $10,336,500 and incurred $1,215,569 of offering costs through the issuance of 12,865,000 shares from the organizational offering and 3three private placement offerings. The intrastate public stock offering was registered to raise $25,000,000 by offering 5,000,000 shares of its common stock and ended on April 2, 2017. Through this offering the Company raised an additional $10,010,485 and incurred another $1,444,127 of offering costs through the sale of 2,002,097 shares of common stock.

On May 31, 2022, the Company began a rights offering to existing shareholders only. ~~As of June~~The rights offering ended on September 30, ~~2022,~~2022. Through this rights offering, the Company ~~has~~ raised ~~$975,240~~$4,400,652 and incurred $77,615 of offering costs through the subscription of ~~162,540~~733,442 shares of its common stock. The offering is currently ongoing and is set to end after the Company raises $3,000,000 in total capital proceeds, or one year has surpassed since the beginning of the offering, whichever occurs first. The Company has the options to increase the total capital proceeds raised due to oversubscription and extend the rights offering for an additional period of time.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting primarily of normal recurring accruals) considered necessary for a fair presentation of the results for the interim periods have been included.

The results of operations for the three and ~~six~~nine months ended ~~June~~September 30, 2022 are not necessarily indicative of the results to be expected for the year ended December 31, 2022 or for any other interim period or for any other future year. Certain financial information which is normally included in notes to consolidated financial statements prepared in accordance with U.S. GAAP, but which is not required for interim reporting purposes, has been condensed or omitted. The accompanying consolidated financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s report on Form 10-K for the year ended December 31, 2021.

Principles of Consolidation

The consolidated financial statements include the accounts and operations of the Company and its subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although these estimates are based on management’s knowledge of current events and actions it may undertake in the future, they may ultimately differ from actual results.

Reclassifications

Certain reclassifications have been made in the prior year financial statements to conform to current year classifications. These reclassifications had no effect on the previously reported net loss or shareholders’ equity.

Investments

Fixed maturity securities are comprised of bonds that are classified as available-for-sale and are carried at fair value with unrealized gains and losses, net of applicable income taxes, reported in accumulated other comprehensive income (loss). The amortized cost of fixed maturity securities available-for-sale is generally adjusted for amortization of premium and accretion of discount.

Interest income, as well as the related amortization of premium and accretion of discount, is included in net investment income under the effective yield method. The amortized cost of fixed maturity securities available-for-sale is written down to fair value when a decline in value is considered to be other-than-temporary.

The Company evaluates the difference between the cost or amortized cost and estimated fair value of its investments to determine whether any decline in value is other-than-temporary in nature. This determination involves a degree of uncertainty. If a decline in the fair value of a security is determined to be temporary, the decline is recorded as an unrealized loss in shareholders’ equity. If a decline in a security’s fair value is considered to be other-than-temporary, the Company then determines the proper treatment for the other-than-temporary impairment. For fixed maturity securities, available-for-sale, 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; and 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 investments and defaults on mortgage loan payments could result in losses or an inability to recover the current carrying value of the investments, thereby possibly requiring an impairment charge in the future.

Likewise, if a change occurs in the Company’s intent to sell temporarily impaired securities prior to maturity or recovery in value, or if it becomes more likely than not that the Company 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 bond, the Company amortizes the reduced book value back to the security’s expected recovery value over the remaining term of the bond. The Company continues to review the security for further impairment that would prompt another write-down in the value.

Purchases and sales of securities are recorded on a trade-date basis. Interest earned on investments is recorded on the accrual basis and is included in net investment income.

The Company’s mortgage loan portfolio is comprised entirely of residential properties with loan to appraised value ratios below 90%. Mortgage loans are carried at current book value. A mortgage loan allowance has been established for any unforeseen losses using an industry approach, which establishes a reserve for possible loan losses charged to expense which represents, in the Company’s judgement, the known and estimated credit losses existing in the loan portfolio. This reserve reduces the carrying value of investment in mortgage loans on the consolidated statement of financial position. The fair values for mortgage loans are estimated using discounted cash flow analysis. The discount rate used to calculate fair values was indexed to the LIBOR yield curve adjusted for an appropriate credit spread.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

The Company’s other long-term investments are comprised of lottery prize cash flows holdings held at amortized cost. These investments are categorized as other long-term investments in the statement of financial position and are assignments of the future rights from lottery winners purchased at a discounted price. Payments on these investments are made by state run lotteries.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and money market instruments.

Deferred Policy Acquisition Costs

Costs that relate to and vary with the successful production of new business are deferred over the life of the policy. Deferred acquisition costs (“DAC”) consist of commissions and policy issuance, underwriting and agency expenses. DAC expenses are amortized primarily over the premium-paying period of life policies and as profits emerge on annuity products. Amortization uses the same assumptions as were used in computing liabilities for future policy benefits. There was ~~$690,545~~$1,064,379 of DAC deferred and ~~$256,555~~$358,916 of DAC amortized for the ~~six~~nine months ended ~~June~~September 30, 2022. For the three months ended ~~June~~September 30, 2022, there was ~~$496,065~~$373,834 of DAC deferred and ~~$208,630~~$102,361 of DAC amortized. There was ~~$217,949~~$353,948 of DAC deferred and ~~$128,849~~$153,143 of DAC amortized for the ~~six~~nine months ended ~~June~~September 30, 2021. For the three months ended ~~June~~September 30, 2021, there was ~~$85,582~~$135,999 of DAC deferred and ~~$3,655~~$24,294 of DAC amortized.

Deferred Sales Inducement Costs

Sales inducement costs (“SIC”) are related to policy bonuses issued on some of the Company’s annuity products. SIC is deferred at the issuance of the policy and amortized over the bonus period on a straight-line basis. The amount deferred is based on the difference between the fund value with the bonus and the fund value without the bonus. There was ~~$569,358~~$507,602 and $716,153 of SIC deferred at ~~June~~September 30, 2022 and December 31, 2021, respectively. There was $0 of SIC deferred and ~~$146,795~~$208,551 of SIC amortized for the ~~six~~nine months ended ~~June~~September 30, 2022. For the three months ended ~~June~~September 30, 2022, there was $0 of SIC deferred and ~~$83,020~~$61,756 of SIC amortized. There was ~~$70,868~~$86,341 of SIC deferred and ~~$158,658~~$222,758 SIC amortized for the ~~six~~nine months ended ~~June~~September 30, 2021. For the three months ended ~~June~~September 30, 2021, there was ~~$30,008~~$15,473 of SIC deferred and ~~$62,189~~$64,100 of SIC amortized.

Advances and Notes Receivable

Advances and notes receivable are recorded at unpaid principal balances. Management evaluates the collectability of advances and notes receivable on the specific identification basis. Management had an allowance for possible uncollectable agent balances of ~~$53,513~~$49,672 and $53,985 as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

Leased Property – Right to Use Asset

In February 2016, the FASB issued ASU 2016-02, Lease Accounting (Topic 842) (“ASU 2016-02”). Under ASU 2016-02, a lessee is required to recognize assets and liabilities for leases with lease terms of more than twelve months. The Company’s home office lease had an original term greater than one year, and the Company recognizes on the balance sheet a right of use (“ROU”) operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. The Company has a lease asset and liability of ~~$41,383~~$457,116 as of ~~June~~September 30, 2022 compared to $82,766 as of December 31, 2021.

Intangible assets

Intangible assets are stated at cost less accumulated amortization and reflect amounts paid for the Company’s computer software costs during the application development stage. The software costs placed in service during 2021 are amortized using the straight-line method over the seven-year estimated useful life of the software. The asset is tested for impairment at least annually. Subsequent modifications or upgrades to internal-use software are capitalized only to the extent that additional functionality is provided.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Furniture and Equipment

Furniture and equipment are carried at cost less accumulated depreciation or amortization. Office furniture, equipment and EDP equipment are recorded at cost or fair value at acquisition less accumulated depreciation or amortization using the straight-line method over a period that approximates the estimated useful life of the respective assets of three to seven years. Expenditures for improvements are capitalized, and expenditures for maintenance and repairs are expensed as incurred. Upon sale or retirement, the cost and related accumulated depreciation and amortization is removed from the related accounts, and the resulting gain or loss, if any, is reflected in income.

Policyholders’ Account Balances

The Company’s liability for policyholders’ account balances represents the contract value that has accrued to the benefit of the policyholder as of the financial statement date. This liability is generally equal to the accumulated account deposits plus applicable bonus and interest credited less policyholders’ withdrawals and other charges assessed against the account balance. Interest crediting rates for individual annuities range from 1.55% to 5.125%.

Future Policy Benefits

Future policy benefit reserves have been computed by the net level premium method with assumptions as to investment yields, mortality and withdrawals based upon the Company’s experience. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amount of policy liabilities and the increase in future policy benefit reserves. Management’s judgments and estimates for future policy benefit reserves provide for possible unfavorable deviation. Actual experience may emerge differently from that originally estimated. Any such difference would be recognized in the current year’s consolidated statement of operations.

Common Stock

Common stock is fully paid, non-assessable and has a par value of $.01 per share.

Treasury Stock

Treasury stock, representing shares of the Company’s common stock that have been reacquired after having been issued and fully paid, are recorded at cost.

Federal Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are provided for cumulative temporary differences between balances of assets and liabilities determined under GAAP and balances determined using tax basis.

Net Loss Per Common Share Outstanding and Subscribed

Net loss per common share is calculated using the weighted average number of common shares outstanding and subscribed during the year. The weighted average common shares outstanding and subscribed were ~~14,822,135~~14,962,247 and ~~14,779,039~~14,780,035 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The weighted average common shares outstanding and subscribed were ~~14,839,075~~15,242,473 and ~~14,779,352~~14,782,027 for the three months ended ~~June~~September 30, 2022 and 2021, respectively.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

1. Organization and Significant Accounting Policies (continued)

Related Party Transactions

The Company entered into an agreement with First Trinity Financial Corporation (FTFC) where FTFC will use its resources to source mortgage loans on real estate and lottery bonds. FTFC will present to the Company investments based on criteria the Company has established. The Company has the option to purchase the presented investment assets directly from the seller or to decline the purchase based on the Company’s analysis of the investment. All mortgage loans and lottery bonds that were purchased by the Company in 2020 were obtained through this agreement. The Chairman of the Company is also the Chairman, President, and Chief Executive Officer of FTFC. The Company paid $12,665 to FTFC for the ~~six~~nine months ending ~~June~~September 30, 2022. No such purchases were made or fees paid for the year ending December 31, 2021.

The Company entered into a coinsurance reinsurance agreement with Family Benefit Life Insurance Company (FBLIC), which is a subsidiary of FTFC. The Company will cede a portion of new business from our TrueFlex product related to specific groups to FBLIC as mutually agreed upon in advance. This new agreement became effective on January 1, 2022, and as of ~~June~~September 30, 2022 there has ~~only~~ been ~~one group~~three groups covered under this agreement.

Subsequent Events

Management has evaluated subsequent events for recognition and disclosure in the financial statements through the date the financial statements were available to be issued. The Company did not identify any subsequent events requiring recognition or disclosure.

Recently Issued Accounting Pronouncements

In September 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 will change the way entities recognize impairment of financial assets by requiring immediate recognition of estimated credit losses expected to occur over the remaining life of many financial assets, including, among others, held-to-maturity debt securities, mortgage loans, lottery prize receivables, trade receivables, and reinsurance recoverables. ASU 2016-13 requires a valuation allowance to be calculated on these financial assets and that they be presented on the financial statements net of the valuation allowance. This methodology is referred to as the current expected credit loss model. ASU 2016-13 had an original effective date for fiscal years beginning after December 15, 2019, including interim periods within those annual periods. The FASB recently delayed the effective date of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and results of operations.

In August 2018, the FASB issued ASU 2018-12 Financial Services-Insurance (Topic 944) - Targeted Improvements to the Accounting for Long-Duration Contracts. This update is aimed at improving the Codification related to long-duration contracts which will improve the timeliness of recognizing changes in the liability for future policy benefits, simplify accounting for certain market-based options, simplify the amortization of deferred acquisition costs, and improve the effectiveness of required disclosures. The amendments require an insurance entity to review and update assumptions used to measure cash flows at least annually and to update discount rate assumption at each reporting date. The amendment requires an insurance entity to measure all market risk benefits associated with deposit contracts at fair value, with change in fair value attributable to change in instrument-specific credit risk recognized in other comprehensive income. Additionally, the amendment will simplify amortization of deferred acquisition costs and other balances amortized in proportion to premiums, gross profits, or gross margins and require those balances be amortized on constant level basis over the expected term of the related contract. Deferred acquisition costs are required to be written off for unexpected contract terminations but are not subject to impairment test. The amendment further requires an insurance entity to add disclosures of disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits, separate account liabilities, and deferred acquisition costs. The insurance entity must also disclose information about significant inputs, judgments, assumptions, and methods used in measurement, including changes in those inputs, judgments, and assumptions, and the effect of those changes on measurement. These updates were originally required to be applied retrospectively to the earliest period presented in the financial statements for periods beginning after December 15, 2020. The FASB recently delayed the effective date of ASU 2018-12 to periods beginning after December 15, 2024 for smaller reporting companies, with early adoption permitted. The Company is currently evaluating the impact of this guidance on the Company’s financial condition and results of operations.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

2. Investments

Fixed Maturity Securities Available-For-Sale

Investments in fixed maturity securities available-for-sale as of ~~June~~September 30, 2022 and December 31, 2021 are summarized as follows:

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
June 30, 2022 (Unaudited)	Cost		Gains		Losses		Value
September 30, 2022 (Unaudited)									Cost		Gains		Losses		Value
Fixed maturity securities
Corporate bonds	$	7,152,357	$	29,355	$	335,295	$	6,846,417	$	7,145,725	$	-	$	622,324	$	6,523,401
U.S. Treasury securities										1,463,076		-		1,461		1,461,615
Total fixed maturity securities	$	7,152,357	$	29,355	$	335,295	$	6,846,417	$	8,608,801	$	-	$	623,785	$	7,985,016

			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
December 31, 2021	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
Fixed maturity securities
Corporate bonds	$	8,244,018	$	798,073	$	-	$	9,042,091	$	8,244,018	$	798,073	$	-	$	9,042,091
U.S. Treasury securities										-		-		-		-
Total fixed maturity securities	$	8,244,018	$	798,073	$	-	$	9,042,091	$	8,244,018	$	798,073	$	-	$	9,042,091

For securities in an unrealized loss position as of the financial statement dates, the estimated fair value, pre-tax gross unrealized loss and number of securities by length of time that those securities have been continuously in an unrealized loss position as of ~~June~~September 30, 2022 and December 31, 2021 are summarized as follows:

			Unrealized		Number of				Unrealized		Number of
June 30, 2022 (Unaudited)	Fair Value		Loss		Securities
September 30, 2022 (Unaudited)							Fair Value		Loss		Securities
Fixed maturity securities
Less than 12 months
Corporate bonds	$	4,984,289	$	335,295		41	$	6,523,401	$	622,324		49
U.S. Treasury securities								1,461,615		1,461		1

Greater than 12 months
Corporate bonds		-		-		-		-		-		-
Total fixed maturity securities	$	4,984,289		335,295		41	$	7,985,016		623,785		50

Unrealized

Number of

December 31, 2021

Fair Value

Loss

Securities

Fixed maturity securities

Less than 12 months

Corporate bonds

Greater than 12 months

Corporate bonds

Total fixed maturity securities

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

2. Investments (continued)

As of ~~June~~September 30, 2022, the fixed maturity securities in a less than 12-month loss position had an average fair value to amortized cost ratio of ~~94.2%~~92.8%. As of December 31, 2021, there were no fixed maturity securities in an unrealized loss position.

As of ~~June~~September 30, 2022 and December 31, 2021, 0% of total fair value of fixed maturity securities were below investment grade as rated by taking the median of Fitch’s, Moody’s, and Standard and Poor’s ratings, respectively.

The Company’s decision to record an impairment loss is primarily based on whether the security’s fair value is likely to remain significantly below its book value based on all the factors considered. Factors that are considered include the length of time the security’s fair value has been below its carrying amount, the severity of the decline in value, the credit worthiness of the issuer and the coupon and/or dividend payment history of the issuer. The Company also assesses whether it intends to sell or whether it is more likely than not that it may be required to sell the security prior to its recovery in value.

For any fixed maturity securities that are other-than-temporarily impaired, the Company determines the portion of the other-than-temporary impairment that is credit-related and the portion that is related to other factors. The credit-related portion is the difference between the expected future cash flows and the amortized cost basis of the fixed maturity security, and that difference is charged to earnings. The non-credit-related portion representing the remaining difference to fair value is recognized in other comprehensive income (loss).

Only in the case of a credit-related impairment where management has the intent to sell the security, or it is more likely than not that it will be required to sell the security before recovery of its cost basis, is a fixed maturity security adjusted to fair value and the resulting losses recognized in realized gains (losses) in the consolidated statements of operations.

Based on management’s review, the Company experienced no other-than-temporary impairments during the ~~six~~nine months ended ~~June~~September 30, 2022 or during the year ended December 31, 2021.

Management believes that the Company will fully recover its cost basis in the securities held as of ~~June~~September 30, 2022, and management does not have the intent to sell nor is it more likely than not that the Company will be required to sell such securities until they recover or mature. The temporary impairments shown herein are primarily the result of the current interest rate environment rather than credit factors that would imply other-than-temporary impairment.

Net unrealized gains (losses) included in accumulated other comprehensive income for investments classified as available-for-sale are summarized as follows:

	(Unaudited)					(Unaudited)
	June 30, 2022			December 31, 2021		September 30, 2022			December 31, 2021
Unrealized appreciation (depreciation) on available-for-sale securities	$	(305,940	)	$	798,073	$	(623,785	)	$	798,073
Net unrealized appreciation (depreciation) on available-for-sale securities	$	(305,940	)	$	798,073	$	(623,785	)	$	798,073

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

2. Investments (continued)

The amortized cost and fair value of fixed maturity available-for-sale securities as of ~~June~~September 30, 2022, by contractual maturity, are summarized as follows:

	(Unaudited)				(Unaudited)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	548,494	$	550,975	$	2,262,234	$	2,258,039
Due after one year through five years		3,111,219		3,063,362		3,048,159		2,913,164
Due after five years through ten years		1,546,358		1,488,810		1,353,281		1,224,076
Due after ten years		1,946,286		1,743,270		1,945,127		1,589,737
Total fixed maturity securities	$	7,152,357	$	6,846,417	$	8,608,801	$	7,985,016

For the ~~six~~nine months ended ~~June~~September 30, 2022, the Company received ~~$1,105,980~~$1,111,464 of proceeds from sales and maturities of investments in available-for-sale securities and had $20,643 and $3,008 of gross gains and gross losses realized, respectively. For the year ended December 31, 2021, the Company received $1,407,864 of proceeds from sales and maturities of investments in available-for-sale securities and had $84,088 of gross gains.

Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

The amortized cost and fair value of other long-term investments (which consists of lottery prize cash flows) as of ~~June~~September 30, 2022, by contractual maturity, are summarized as follows:

	(Unaudited)				(Unaudited)
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	983,134	$	1,012,812	$	1,026,363	$	1,070,343
Due after one year through five years		1,722,650		1,908,183		2,259,859		2,410,585
Due after five years through ten years		311,969		404,086		342,020		379,898
Due after ten years		6,099		8,367		6,154		7,207
Total other long-term investments	$	3,023,852	$	3,333,448	$	3,634,396	$	3,868,033

Other long-term investments by geographic distribution:

	(Unaudited)										(Unaudited)
	June 30, 2022		%			December 31, 2021		%			September 30, 2022		%			December 31, 2021		%
California	$	358,624		11.9	%	$	405,727		13.6	%	$	511,316		14.1	%	$	405,727		13.6	%
Florida		322,542		10.7			231,746		7.8			317,042		8.7			231,746		7.8
Georgia		311,060		10.3			269,316		9.0			299,303		8.2			269,316		9.0
Indiana		273,896		9.0			285,263		9.6			179,642		4.9			285,263		9.6
Massachusetts		666,340		22.0			712,006		23.9			1,249,411		34.4			712,006		23.9
New York		635,585		21.0			550,414		18.5			633,693		17.5			550,414		18.5
Ohio		123,051		4.1			141,692		4.7			124,630		3.4			141,692		4.7
Oregon		88,473		2.9			108,798		3.7			89,202		2.5			108,798		3.7
Pennsylvania		244,281		8.1			275,363		9.2			230,157		6.3			275,363		9.2
Total	$	3,023,852		100.0	%	$	2,980,325		100.0	%	$	3,634,396		100.0	%	$	2,980,325		100.0	%

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

2. Investments (continued)

Mortgage Loans on Real Estate

The Company utilizes the ratio of the carrying value of individual mortgage loans compared to the individual appraisal value to evaluate the credit quality of its mortgage loans on real estate (commonly referred to as the loan-to-value ratio). Currently, all of the Company’s mortgage loans are loans on residential properties. The Company’s mortgage loans on real estate by credit quality using this ratio as of ~~June~~September 30, 2022 and December 31, 2021 are summarized as follows:

Loan-To-Value-Ratio	(Unaudited) June 30, 2022		December 31, 2021		(Unaudited) September 30, 2022		December 31, 2021
80% to 90%	$	542,352	$	573,500	$	542,351	$	573,500
70% to 80%		6,067,803		4,409,139		7,051,001		4,409,139
60% to 70%		4,874,861		5,796,932		5,744,753		5,796,932
50% to 60%		1,713,623		1,872,626		1,943,761		1,872,626
Less than 50%		608,952		496,876		684,312		496,876
Total	$	13,807,591	$	13,149,073	$	15,966,178	$	13,149,073

Mortgage loans by geographic distribution:

State	(Unaudited) June 30, 2022		%			December 31, 2021		%			(Unaudited) September 30, 2022		%			December 31, 2021		%
Alabama	$	562,672		4.1	%	$	237,805		1.8	%	$	979,085		6.1	%	$	237,805		1.8	%
Arkansas		210,194		1.5			210,194		1.6			210,194		1.3			210,194		1.6
California		183,552		1.3			185,403		1.4			182,958		1.2			185,403		1.4
Colorado		-		-			200,175		1.5			-		-			200,175		1.5
Connecticut		-		-			217,559		1.7			-		-			217,559		1.7
Florida		498,179		3.6			830,643		6.3			496,138		3.1			830,643		6.3
Georgia		295,400		2.1			485,060		3.7			892,652		5.6			485,060		3.7
Illinois		679,418		4.9			684,694		5.2			735,514		4.6			684,694		5.2
Indiana		341,428		2.5			245,821		1.9			495,905		3.1			245,821		1.9
Kansas		-		-			87,063		0.7			189,100		1.2			87,063		0.7
Kentucky		102,139		0.7			104,631		0.8			101,290		0.6			104,631		0.8
Louisiana		309,651		2.3			95,809		0.7			309,045		1.9			95,809		0.7
Maryland		239,297		1.7			239,298		1.8			239,297		1.5			239,298		1.8
Michigan		182,941		1.3			182,941		1.4			182,941		1.2			182,941		1.4
Missouri		2,884,335		20.9			3,307,900		25.2			2,932,855		18.3			3,307,900		25.2
North Carolina		253,725		1.9			248,889		1.9			530,957		3.3			248,889		1.9
Ohio		242,034		1.8			242,034		1.9			-		-			242,034		1.9
Pennsylvania		398,667		2.9			446,327		3.4			398,667		2.5			446,327		3.4
South Carolina		152,267		1.1			200,899		1.5			330,900		2.1			200,899		1.5
Tennessee		5,286,831		38.3			2,752,328		20.9			5,537,260		34.7			2,752,328		20.9
Texas		941,568		6.8			1,801,152		13.7			1,034,100		6.5			1,801,152		13.7
Wisconsin		43,293		0.3			142,448		1.0			187,320		1.2			142,448		1.0
Total	$	13,807,591		100.0	%	$	13,149,073		100.0	%	$	15,966,178		100.0	%	$	13,149,073		100.0	%

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

2. Investments (continued)

There were 32 mortgage loans with a principal balance of ~~$189,932~~$117,991 that were 90 days or more past due and still accruing interest as of ~~June~~September 30, 2022. One of those 32 mortgage loans had a principal balance of $42,609 and was in the process of foreclosure as of ~~June~~September 30, 2022. The Company expects to fully recover the principal balance outstanding plus any accrued interest along with all fees and expenses. There were 3 mortgage loans with a principal balance of $190,049 that were 90 days or more past due and still accruing interest as of December 31, 2021. The Company had a mortgage loan allowance of ~~$69,061~~$79,911 and $65,575 as of ~~June~~September 30, 2022 and December 31, 2021, respectively.

	(Unaudited) June 30, 2022		December 31, 2021		(Unaudited) September 30, 2022		December 31, 2021
Beginning of year: mortgage loan allowance balance	$	65,575	$	37,963	$	65,575	$	37,963
Current year change in provision of estimated mortgage loan losses		3,486		27,612		14,336		27,612
End of year: mortgage loan allowance balance	$	69,061	$	65,575	$	79,911	$	65,575

Major categories of net investment income for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 are summarized as follows:

	(Unaudited)						(Unaudited)						(Unaudited)						(Unaudited)
	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021			2022			2021			2022			2021

Fixed maturity securities	$	77,271		$	96,131		$	163,159		$	211,559		$	77,001		$	98,347		$	240,160		$	309,906
Other long-term assets		53,658			67,821			120,547			122,559			66,612			68,423			187,159			190,982
Mortgage loans		289,570			151,053			576,865			302,857			283,821			122,645			860,686			425,502
Short-term and other investments		75,475			210			100,381			400			5,683			201			106,064			601
Gross investment income		495,974			315,215			960,952			637,375			433,117			289,616			1,394,069			926,991
Investment expenses		(51,121	)		(13,439	)		(152,641	)		(44,631	)		(12,216	)		(33,606	)		(164,857	)		(78,237	)
Net investment income	$	444,853		$	301,776		$	808,311		$	592,744		$	420,901		$	256,010		$	1,229,212		$	848,754

3. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) on the measurement date. The Company also considers the impact on fair value of a significant decrease in volume and level of activity for an asset or liability when compared with normal activity.

The Company holds fixed maturity securities that are measured and reported at fair market value on the statement of financial position. The Company determines the fair market values of its financial instruments based on the fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities. The Company has no Level 1 assets that would include securities traded in an active exchange market.

Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. The Company’s Level 2 assets and liabilities include fixed maturity securities with quoted prices that are traded less frequently than exchange-traded instruments or assets and liabilities whose value is determined using a pricing model with inputs that are observable in the market or can be derived principally from or corroborated by observable market data. This category generally includes U.S. Government and agency mortgage-backed debt securities and corporate debt securities.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

3. Fair Value Measurements (continued)

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. This category generally includes investments where independent pricing information was not able to be obtained for a significant portion of the underlying assets.

The Company has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into the three-level fair value hierarchy. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the valuation inputs, or their ability to be observed, may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting the levels of the fair value hierarchy are reported as transfers in and out of the specific level category as of the beginning of the period in which the reclassifications occur.

The Company’s fair value hierarchy for those financial instruments measured at fair value on a recurring basis as of ~~June~~September 30, 2022 and December 31, 2021 are summarized as follows:

June 30, 2022 (Unaudited)	Level 1		Level 2		Level 3		Total
September 30, 2022 (Unaudited)									Level 1		Level 2		Level 3		Total
Fixed maturity securities, available-for-sale
Corporate bonds	$	-	$	6,846,417	$	-	$	6,846,417	$	-	$	6,523,401	$	-	$	6,523,401
U.S. Treasury securities										-		1,461,615		-		1,461,615
Total fixed maturity securities	$	-	$	6,846,417	$	-	$	6,846,417	$	-	$	7,985,016	$	-	$	7,985,016

December 31, 2021	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Fixed maturity securities, available-for-sale
Corporate bonds	$	-	$	9,042,091	$	-	$	9,042,091	$	-	$	9,042,091	$	-	$	9,042,091
U.S. Treasury securities										-		-		-		-
Total fixed maturity securities	$	-	$	9,042,091	$	-	$	9,042,091	$	-	$	9,042,091	$	-	$	9,042,091

Fair values for Level 2 assets for the Company’s fixed maturity securities available-for-sale are primarily based on prices supplied by a third-party investment service. The third-party investment service provides quoted prices which use observable inputs in developing such rates.

The Company analyzes market valuations received to verify reasonableness and to understand the key assumptions used and the sources. Since the fixed maturity securities owned by the Company do not trade on a daily basis, the third-party investment service prepares estimates of fair value measurements using relevant market data, benchmark curves, sector groupings, and matrix pricing. As the fair value estimates of the Company’s fixed maturity securities are based on observable market information rather than market quotes, the estimates of fair value on these fixed maturity securities are included in Level 2 of the hierarchy. The Company’s Level 2 investments include corporate ~~bonds.~~bonds and U.S. treasury securities.

The Company’s fixed maturity securities available-for-sale portfolio is highly liquid and allows for substantially all of the portfolio to be priced through pricing services.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

3. Fair Value Measurements (continued)

Fair Value of Financial Instruments

The carrying amount and fair value of the Company’s financial assets and financial liabilities disclosed, but not carried, at fair value as of ~~June~~September 30, 2022 and December 31, 2021 and the level within the fair value hierarchy at which such assets and liabilities are measured on a recurring basis are summarized as follows:

Financial Instruments Disclosed, But Not Carried, at Fair Value:

	June 30, 2022 (Unaudited)										September 30, 2022 (Unaudited)
	Carrying		Fair								Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	6,060,147	$	6,060,147	$	6,060,147	$	-	$	-	$	7,889,620	$	7,889,620	$	7,889,620	$	-	$	-
Mortgages on real estate		13,807,591		13,321,205		-		-		13,321,205		15,966,178		15,300,054		-		-		15,300,054
Other long-term investments		3,023,852		3,333,448		-		-		3,333,448		3,634,396		3,868,033		-		-		3,868,033
Accrued investment income		184,396		184,396		-		-		184,396		224,417		224,417		-		-		224,417
Advances and notes receivable		123,739		123,739		-		-		123,739		110,517		110,517		-		-		110,517
Total financial assets	$	23,199,725	$	23,022,935	$	6,060,147	$	-	$	16,962,788	$	27,825,128	$	27,392,641	$	7,889,620	$	-	$	19,503,021

Financial liabilities
Policyholders’ account balances	$	28,832,134	$	19,579,382	$	-	$	-	$	19,579,382	$	28,951,508	$	18,343,078	$	-	$	-	$	18,343,078
Policy claims and other benefits		168,043		168,043		-		-		168,043		170,751		170,751		-		-		170,751
Total financial liabilities	$	29,000,177	$	19,747,425	$	-	$	-	$	19,747,425	$	29,122,259	$	18,513,829	$	-	$	-	$	18,513,829

	December 31, 2021
	Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	8,224,914	$	8,224,914	$	8,224,914	$	-	$	-
Mortgages on real estate		13,149,073		13,496,013		-		-		13,496,013
Other long-term investments		2,980,325		3,367,307		-		-		3,367,307
Accrued investment income		190,299		190,299		-		-		190,299
Advances and notes receivable		267,301		267,301		-		-		267,301
Total financial assets	$	24,811,912	$	25,545,834	$	8,224,914	$	-	$	17,320,920

Financial liabilities
Policyholders’ account balances	$	28,603,861	$	26,098,410	$	-	$	-	$	26,098,410
Policy claims and other benefits		537,214		537,214		-		-		537,214
Total financial liabilities	$	29,141,075	$	26,635,624	$	-	$	-	$	26,635,624

The estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment was required to interpret market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts which could be realized in a current market exchange. The use of different market assumptions or estimation methodologies may have a material effect on the fair value amounts.

The following methods and assumptions were used in estimating the fair value disclosures for financial instruments in the accompanying financial statements and notes thereto:

Fixed Maturity Securities

The fair value of fixed maturity securities is based on the principles previously discussed as Level 1, Level 2 and Level 3.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

3. Fair Value Measurements (continued)

Cash and Cash Equivalents, Accrued Investment Income and Advances and Notes Receivable

The carrying value of these financial instruments approximates their fair values due to the expected short-term nature until the cash settlement of these items. Cash and cash equivalents are included in Level 1 of the fair value hierarchy due to their highly liquid nature. Accrued investment income and advances and notes receivable are included in Level 3 of the fair value hierarchy due to little or no availability of market activity for these types of assets.

Mortgage loans on Real Estate

The Company’s mortgage loan portfolio is comprised of residential properties with loan to appraised value ratios at or below 90%. The fair values for mortgage loans are estimated using discounted cash flow analyses. For residential mortgage loans, the discount rate used was indexed to the LIBOR yield curve adjusted for an appropriate credit spread.

Other Long-Term Investments

Other long-term investments are comprised of lottery prize receivables and fair value is derived by using a discounted cash flow approach. Projected cash flows are discounted using the average FTSE Pension Liability Index in effect at the end of each period.

Policyholders’ Account Balances

The fair value for liabilities under investment-type insurance contracts (accumulation annuities) is calculated using a discounted cash flow approach. Cash flows are projected using actuarial assumptions and discounted to the valuation date using risk-free rates adjusted for credit risk and the nonperformance risk of the liabilities.

The fair values for insurance contracts other than investment-type contracts are not required to be disclosed.

Policy Claims and other benefits

The carrying amounts reported for these liabilities approximate their fair value.

4. Income Taxes

The Company files a consolidated return with its subsidiaries TRLS and AIS. The Company’s other subsidiary TRLIC files a separate federal return for life insurance companies. TRLIC is taxed as a life insurance company under the provisions of the Internal Revenue Code. Life insurance companies must file separate tax returns until they have been a member of the consolidated filing group for five years. Certain items included in income reported for financial statement purposes are not included in taxable income for the current period, resulting in deferred income taxes.

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates. A valuation allowance is recorded against deferred tax assets if it is more likely than not that some or all of the deferred tax assets will not be realized. The Company cannot currently conclude that it is more likely than not that the remaining deferred tax assets will be utilized. Therefore, the Company’s deferred tax assets have been fully offset by a valuation allowance. As a result, our effective tax rate from continuing operations was zero percent for the quarter ended ~~June~~September 30, 2022. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences will become deductible. For the purpose of federal income tax, the Company has net operating loss carryforwards as of ~~June~~September 30, 2022, which expire between 2031 and 2037. Net operating losses generated in 2018 and beyond do not expire and annual utilizations are limited to 80% of taxable income. The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020, repeals the 80% limitation for taxable years beginning before January 1, 2021.

Table of Contents

Texas Republic Capital Corporation and Subsidiaries

Notes to Consolidated Financial Statements

~~June~~September 30, 2022

(Unaudited)

4. Income Taxes (continued)

The Company and its subsidiaries have no known uncertain tax benefits within its provision for income taxes. In addition, the Company does not believe it would be subject to any penalties or interest relative to any open tax years and, therefore, have not accrued any such amounts. The Company files U.S. federal income tax returns and income tax returns in various state jurisdictions. The ~~2018~~2019 through ~~2020~~2021 U.S. federal tax years are subject to income tax examination by tax authorities. The Company classifies any interest and penalties (if applicable) as income tax expense in the financial statements.

5. Concentrations of Credit Risk

The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures non-interest-bearing accounts up to $250,000. Uninsured balances aggregate ~~$5,069,727~~$2,926,946 as of ~~June~~September 30, 2022. The Company monitors the solvency of all financial institutions in which it has funds to minimize the exposure for loss. The Company has not experienced any losses in these accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

6. Stock Incentive Plan

The Company’s life subsidiary, TRLIC had an Agent Stock Incentive Plan (“ASIP”). The plan was approved in August 2018 by the Texas State Securities Board. The plan was suspended by the Company in April 2022. The plan awarded shares of Texas Republic Capital Corporation common stock to agents based on certain production levels achieved in sales of life and annuity products. Calculation of awards at December 31, 2021 are based on production for the period of January through December 2021. 12,150 shares were issued in 2022. The ASIP issued 7,150 shares in 2022 based on 2021 production. The ASIP issued 3,320 shares in 2021 based on 2020 production. In addition, the Company granted 5,000 and 19,000 total shares in 2022 and 2021, respectively, as part of employment agreements and/or bonuses to employees.

7. Lease Commitment

The Company rents office space for its administrative operations under an agreement that expires in December 2022. The lease includes an option to extend or renew the lease term. The operating lease liability includes lease payments related to options to extend or renew the lease term only if the Company is reasonably certain of exercising those options. ~~The exercise of the renewal option is at the Company's discretion; at this time there is uncertainty as to~~On September 21, 2022, the Company ~~exercising~~exercised its renewal option soand extended its lease for an additional five years with the ~~option is not~~new lease term ending on November 30, 2027. Therefore, the renewal terms have been included in the determination of the present value calculation. In determining the present value of lease payments, the Company uses its incremental borrowing rate obtained from its main commercial bank.

Future payments under operating lease arrangements accounted for under ASC Topic 842 as of ~~June~~September 30, 2022 are as follows:

2022	$	48,298
2022 (remaining)				$	24,073
2023					95,922
2024					98,810
2025					101,773
2026					104,831
2027					98,723
Total operating lease payments, undiscounted	$	48,298		$	524,132
Less: interest		(6,915	)		(67,016	)
Lease liability, at present value	$	41,383		$	457,116

Table of Contents

Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Texas Republic Capital Corporation (“we” “us”, “our”, “TRCC” or the “Company”) was incorporated in May 2012 as a financial services holding company. We own and operate insurance subsidiaries: a life insurance company, a life insurance agency, and a property & casualty insurance agency. We sell and issue life insurance products and annuity contracts as part of the insurance company. As an insurance provider, we collect premiums and annuity considerations in the current period to pay future benefits to our policy and contract holders. Currently, we only issue our products in the state of Texas. As a life insurance agency and a property & casualty insurance agency, we sell and place insurance products for other insurance carriers. If our life insurance company does not offer products that suit our client’s needs, then we can meet their needs through other carrier products sold by our life agency. In addition, we have ability to cross-sell all current and prospective client’s property and casualty insurance through the other agency, or the possibility of driving growth for the Company in other markets where participants are not seeking life insurance. The agencies collect commissions on the sale of those products.

We also realize revenues from our investment portfolio, which is a key component of our operations. The revenues and funds we collect as premiums and annuity considerations 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 and annuity considerations paid to the insurer between the time of receipt and the time benefits are paid out under our policies and contracts. 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.

The Company continues to incur overall losses since inception. These losses were fully expected, planned for, and fell within an expected range when considering the necessary start-up, infrastructure, distribution, and policy issuance costs of a new life insurance company. These losses have resulted from the costs incurred while raising capital and starting a new company, which involves investing in people, technology, infrastructure, marketing, brand awareness, distribution channels, regulatory and filing fees, legal costs, and other overhead expenses related to our operations. We expect to continue to incur operating losses until we achieve a volume of in-force life insurance policies that provides premiums and the associated investment income which are sufficient to cover our operating costs.

In addition, the Company is aware that the evolving COVID-19 pandemic may impact the Company’s results of operations, although the magnitude in not known at this time. The Company has not yet experienced any uptick in claim experience or significant adverse conditions to operations due to COVID-19.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. On a continuing basis, we evaluate our estimates and assumptions.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances. The results of these estimates 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

Table of Contents

If a decline in a security’s fair value is considered to be other-than-temporary, the Company then determines the proper treatment for the other-than-temporary impairment. For fixed maturity securities available-for-sale, 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; and 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.

Purchases and sales of securities are recorded on a trade-date basis. Interest earned on investments is recorded on the accrual basis and is included in net investment income.

The Company’s mortgage loan portfolio is comprised entirely of residential properties with loan to appraised value ratios below 90%. Mortgage loans are carried at amortized book value. A mortgage loan allowance has been established for any unforeseen losses using an industry approach. 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 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 losses but not for specifically identified loans. The fair values for mortgage loans are estimated using discounted cash flow analysis. The discount rate used to calculate fair values was indexed to the LIBOR yield curve adjusted for an appropriate credit spread.

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.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and money market instruments.

Deferred Policy Acquisition Costs

Costs that relate to and vary with the successful production of new business are deferred over life of the policy. Deferred acquisition costs (DAC) consist of commissions and policy issuance, underwriting and agency expenses. DAC expenses are amortized primarily over the premium-paying period of life policies and as profits emerge on the annuity products, using the same assumptions as were used in computing liabilities for future policy benefits.

Deferred Sales Inducement Costs

Sales inducement costs (SIC) are related to policy bonuses issued on some of the Company’s annuity products. SIC is deferred at the issuance of the policy and amortized over the bonus period on a straight-line basis. The amount deferred is based on the difference between the fund value with the bonus and the fund value without the bonus.

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Policyholders’ Account Balances

Future Policy Benefits

Recently Adopted and Issued Accounting Pronouncements

Please refer to the applicable paragraphs in Note 1 of the Notes to Consolidated Financial Statements.

Income Taxes

We evaluate our deferred income tax assets, which partially offset our deferred tax liabilities, for any necessary valuation allowances. In doing so, we consider our ability and potential for recovering income taxes associated with such assets, which involve significant judgment. Revisions to the assumptions associated with any necessary valuation allowances would be recognized in the financial statements in the period in which such revisions are made.

Results of Operations – Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

Revenues

Revenues are primarily from life insurance premium income, investment income, and ~~investment~~commission income. Realized gains and losses on investment holdings can significantly impact revenues from period to period.

	Three Months Ended June 30,					Six Months Ended June 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022			2021		2022		2021		2022		2021		2022		2021
Revenues
Premiums and other considerations	$	507,849		$	161,105	$	937,529	$	330,721	$	451,366	$	129,557	$	1,388,895	$	460,278
Net investment income		444,853			301,776		808,311		592,744		420,901		256,010		1,229,212		848,754
Net realized gains (losses) on investments		(669	)		7,554		17,635		6,679
Net realized gains on investments											-		13,104		17,635		19,783
Commission income		38,703			55,956		66,969		65,207		427,048		124,799		494,017		190,006
Total revenues	$	990,736		$	526,391	$	1,830,444	$	995,351	$	1,299,315	$	523,470	$	3,129,759	$	1,518,821

Total revenues increased by ~~$464,345~~$775,845 and ~~$835,093~~$1,610,938 for the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to the three and ~~six~~nine months ended ~~June~~September 30, 2021. These increases were primarily a result of increased new policy sales and additional investment income earned through further investments in fixed maturity securities, mortgage loans, and other long-term investments. ~~In addition, we had increased net realized investment gains in 2022 compared to 2021.~~ Also, there was a ~~marginal~~significant increase in commission income compared to the prior year. The Company also accepted annuity considerations during 2022 and 2021. Annuity considerations contribute to additional net investment income through increased investments but are not classified as premiums and other considerations under total revenues for GAAP reporting.

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Expenses

Our expenses relate to operating a financial services holding company, a life insurance company, and two insurance agencies.

Expenses were ~~$1,365,938~~$1,222,472 and ~~$2,842,507~~$4,064,979 for the three and ~~six~~nine months ended ~~June~~September 30, 2022, ~~increases~~a decrease of ~~$365,223~~$55,637 and ~~$714,043~~an increase of $658,406 from ~~$1,000,715~~$1,278,109 and ~~$2,128,464~~$3,406,573 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. Significant expense categories are discussed below.

Total Benefits and Claims – Increases to policyholder liabilities increased benefits and claims expense by ~~$141,686 and $316,352~~$57,007 for the ~~three and six~~nine months ended ~~June~~September 30, 2022 compared to the same period in the prior year. Expenses were ~~$472,155~~$435,250 and ~~$1,028,568~~$1,463,818 for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and ~~$330,469~~$498,023 and ~~$712,216~~$1,210,239 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. The ~~increases were~~increase for the full nine months compared to the same period in the prior was primarily due to increases in future policy benefits and benefit payments. Those two increases are to be expected based on new sales production, increased insurance volume, number of insureds covered, and the passage of time since policy issuance. This coincides with the decrease in interest credited to policyholders as the Company looks to sell more life products and less annuity policies. Also, benefit payments can significantly impact expenses from period to period. There ~~were increases~~was an increase in benefit payments of ~~$166,416 and $256,951~~$204,417 for the ~~three and six~~nine months ended ~~June~~September 30, 2022 compared to the same ~~periods~~period in the prior year. Total benefits and claims expenses decreased for the three months ended September 30, 2022 compared to the same period in the prior year due to the timing of new business issued, death and other benefits, and other activity.

Commissions – Commission expenses were ~~$480,080~~$411,321 and ~~$774,601~~$1,185,922 for the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to ~~$150,185~~$167,494 and ~~$323,329~~$490,823 for the three and ~~six~~nine months ended ~~June~~September 30, 2021, respectively. These increases are consistent with the amounts of new business issued and renewal commissions paid on previously issued business, net of any applicable commission recaptured. The commission in the first year of policy issuance is typically significantly greater than the subsequent years.

Salaries and Employee Benefits – Salary and employee benefits expense increased ~~$74,108~~$154,261 and ~~$116,181~~$270,442 for the three and ~~six~~nine months ended ~~June~~September 30, 2022 compared to the same periods in the prior year. These increases are primarily related to the increased costs associated with new employee hires, wage increases, and increasing benefits costs consistent with the price increases seen due to inflation pressures over the last year. The Company hired five new employees in 2022. Alternatively, the Company continues to use more external consultants as opposed to hiring new employees for certain tasks and roles. This decision allows us to save on benefit costs, payroll taxes, other employee overhead expenses, and allows us to pay for their time as needed. This decision has helped to reduce the overall increases in salaries and employee benefits.

Other Expenses – Third-party administration fees ~~increased $39,597 for the six months ended June 30, 2022 compared to the same period in the prior year. That increase was due to new sales production~~ and ~~the continued growth of our book of business. Professional~~professional fees continue to be ~~one~~two of the larger contributing expenses to the overall total expenses. The Company anticipates that these fees along with other general and administrative expenses will continue to increase over time due to new sales production, increased growth in the overall book of business, and the continued growth of the Company. The professional fees will continue to increase due to additional public accounting firm fees, consulting actuarial fees, and the external consultants mentioned above in the salaries and employee benefits section. ~~Professional fees increased $52,877 for the six months ended June 30, 2022 compared to the same period in the prior year.~~

Net Loss

The net loss was ~~$1,012,063,~~$935,220, or ~~$(0.07)~~$(0.06) per share, for the ~~six~~nine months ended ~~June~~September 30, 2022 compared to a net loss of ~~$1,133,113~~$1,887,752 or ~~$(0.08)~~$(0.13) per share, for the ~~six~~nine months ended ~~June~~September 30, 2021. For the three months ending ~~June~~September 30, the net ~~loss~~income was ~~$375,202~~$76,843 or ~~$(0.03)~~$0.01 per share in 2022 ~~and $474,324~~compared to a net loss of $754,639 or ~~$(0.03)~~$(0.05) per share in 2021. The improvement of the net loss for the three- and ~~six-~~nine- months ending ~~June~~September 30, 2022, was primarily attributable to the increases in revenues and expenses described above.

The weighted average common shares outstanding and subscribed were ~~14,822,135~~14,962,247 and ~~14,779,039~~14,780,035 for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, respectively. The weighted average common shares outstanding and subscribed were ~~14,839,075~~15,242,473 and ~~14,779,352~~14,782,027 for the three months ended ~~June~~September 30, 2022 and 2021, respectively.

Financial Position – As of ~~June~~September 30, 2022 and December 31, 2021

Total assets of the Company ~~decreased~~increased from $37,381,933 as of December 31, 2021 to ~~$36,694,990~~$40,405,643 as of ~~June~~September 30, 2022, ~~a decrease~~an increase of ~~$686,943.~~$3,023,710. Assets that increased or decreased materially in 2022 were fixed maturity securities, mortgage loans, ~~cash~~other long-term investments, and ~~cash equivalents,~~ deferred policy acquisition ~~costs, and other assets.~~costs. The Company received ~~proceeds~~funds from ~~payments or sales of invested assets along with~~raising addition capital, funds from investment income, and premium receipts and commission income from policies ~~and~~that it continues to use a majority of those funds to invest in new mortgage loans and other investments to increase the overall investment yield of the portfolio and to increase net investment income. In addition, deferred policy acquisition costs increased as the Company continues to successfully sell more new business. ~~Other~~Overall assets increased ~~due to the timing of cash collections for transactions completed at the end of the quarter. The cash~~even though that increase was ~~subsequently received in the following month after the quarter end. Overall assets decreased though primarily~~offset due to the change in net unrealized losses in the fixed maturity securities as interest rates have increased in the market as a result of inflation and other economic factors.

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Total investments ~~decreased~~increased by ~~$1,493,629,~~$2,414,101, or ~~5.9%~~9.6%. This ~~decrease~~increase was due to ~~sells, payoffs,~~the Company’s continued efforts to maximize investment income by finding and ~~maturities in~~making suitable investments. This increase was offset by the ~~investment portfolio as well as the above mentioned~~ reduction in fixed maturity ~~securities.~~securities based on interest rate movements that was previously mentioned. The Company continues to reinvest and deploy more of our cash into higher yielding invested assets as we try to maximize our net investment income to boost total revenues. All non-operating cash is held in interest bearing cash equivalent accounts.

The Company sold fixed maturity securities at net realized gains and received proceeds from prepayments, maturities, and sinking fund payments from fixed maturity securities and other long-term investments to allocate more funds into mortgage loan investments and other long-term investments at higher investment yields. Mortgage loans and other long-term investments increased by ~~$658,518~~$2,817,105 and $654,071 from the prior year ended December 31, ~~2021.~~2021, respectively. This reallocation of the investment portfolio should provide meaningful increases to net investment income over the upcoming years. Similarly, new cash receipts from annuity considerations and premiums plan to be allocated in a similar manner to maximize total revenues. We continue to invest our excess cash in higher yielding investments as suitable options become available.

Policyholder liabilities include benefit reserves for both life and annuity policies, claim reserves, deposit funds and advance premiums. Policyholder liabilities increased by ~~$381,652~~$617,398 at ~~June~~September 30, 2022 compared to December 31, 2021. That increase is primarily related to new sales production, increased insurance volume, number of insureds covered, and the passage of time since policy issuance.

Total shareholders’ equity of the Company ~~decreased~~increased from $6,611,969 as of December 31, 2021 to ~~$5,483,283~~$8,590,078 as of ~~June~~September 30, 2022, ~~a decrease~~an increase of ~~$1,128,686.~~$1,978,109. The ~~decrease~~increase is mainly due to the recently completed rights offering and the additional capital raised. That increase was primarily offset by a negative change of ~~$1,104,013~~$1,421,858 in unrealized losses in the investment portfolio at ~~June~~September 30, 2022 compared to December 31, 2021 because of interest rate increases in the market and the net loss for the ~~six~~nine months ended ~~June~~September 30, 2022. The Company ~~began a rights offering during the second quarter of 2022 and received $975,240 in proceeds from the issuance of common stock during that period. Those proceeds plus the~~issued $12,150 of its treasury shares ~~issued~~ in 2022 which increased total shareholders’ equity and helped ~~offset~~contribute to the ~~decreases~~overall increase mentioned above.

Liquidity and Capital Resources

Since inception, our operations have been financed primarily through an organizational offering, three private placement offerings, an intrastate public stock offering, and a rights offering to existing shareholders only. Through ~~June~~September 30, 2022, we received ~~$21,322,225~~$24,747,637 from the sale of ~~15,029,637~~15,546,619 shares and incurred offering costs of ~~$2,659,696.~~$2,737,311. Since inception through December 31, 2018, the Company purchased 3,000 shares of the Company’s common stock for $15,000 held as treasury stock. Additionally, TRLIC has purchased another 111,000 shares of TRCC common stock at a cost of $118,210 since 2018. The shares were purchased to compensate agents under TRLIC’s Agent Stock Incentive Plan (“ASIP”). The Company has issued 16,080 treasury shares under the ASIP since inception of the plan and another 44,000 treasury shares as part of employment agreements and/or bonuses to employees. The remaining 50,920 shares held by TRLIC and the 3,000 shares held by TRCC total 53,920 shares. These shares are held as treasury shares in the consolidated financial statements.

We had cash and cash equivalents totaling ~~$6,060,147~~$7,889,620 as of ~~June~~September 30, 2022. The Company maintains cash and cash equivalents at multiple institutions. The Federal Deposit Insurance Corporation insures interest and non-interest-bearing accounts up to $250,000. Uninsured balances aggregate ~~$5,069,727~~$2,926,946 as of ~~June~~September 30, 2022. Other funds are invested in mutual funds that invest in U.S. government securities. We monitor the solvency of all financial institutions in which we have funds to minimize the exposure for loss. The Company has not experienced any losses in such accounts.

Capital provided from the previous offerings and current offering will provide a considerable amount of operating funds for current and future operations of TRCC. The operations of TRLIC should provide ample cash flows from premium income and investment income to meet operating requirements once a sufficient book of business has been established, or new policy sales are turned off, whichever happens first. Life insurance contract liabilities are generally long term in nature and are generally paid from future cash flows. The operations of TRLS and AIS should provide sufficient cash flows from commission income to meet their operating requirements. TRLS and AIS are also less capital intensive than TRLIC since it does not retain any of the policy risks or capital requirements.

We believe that our existing cash and cash equivalents will be sufficient to fund our anticipated operating expenses and capital expenditures for at least the next 12 months. We have based this estimate upon assumptions that may prove to be wrong, and we could use our capital resources sooner than we currently expect. We are not aware of any commitments or unusual events that could materially affect our capital resources. We are not aware of any current recommendations by any regulatory authority which, if implemented, would have a material adverse effect on our liquidity, capital resources or operations.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements.

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SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS

Certain statements contained herein are forward-looking statements. The forward-looking statements are made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, and include estimates and assumptions related to economic, competitive and legislative developments. Forward-looking statements may be identified by words such as “expects,” “intends,” “anticipates,” “plans,” “believes,” “estimates,” “will” or words of similar meaning; and include, but are not limited to, statements regarding the outlook of our business and financial performance. These forward-looking statements are subject to change and uncertainty, which are, in many instances, beyond our control and have been made based upon our expectations and beliefs concerning future developments and their potential effect upon us.

There can be no assurance that future developments will be in accordance with our expectations, or that the effect of future developments on us will be as anticipated. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties. There are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements.

These factors include among others:

	•		general economic conditions and financial factors, including the performance and fluctuations of fixed income, equity, real estate, credit capital and other financial markets;
	•		differences between actual experience regarding mortality, morbidity, persistency, surrenders, investment returns, and our pricing assumptions establishing liabilities and reserves or for other purposes;
	•		the effect of increased claims activity from natural or man-made catastrophes, pandemic disease, or other events resulting in catastrophic loss of life;
	•		inherent uncertainties in the determination of investment allowances and impairments and in the determination of the valuation allowance on the deferred income tax asset;
	•		investment losses and defaults;
	•		competition in our product lines;
	•		attraction and retention of qualified employees and agents;
	•		ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks;
	•		the availability, affordability and adequacy of reinsurance protection;
	•		the effects of emerging claim and coverage issues;
	•		the cyclical nature of the insurance business;
	•		interest rate fluctuations;
	•		changes in our experiences related to deferred policy acquisition costs;
	•		the ability and willingness of counterparties to our reinsurance arrangements and derivative instruments to pay balances due to us;
	•		rating agencies’ actions;
	•		domestic or international military actions;
	•		the effects of extensive government regulation of the insurance industry;
	•		changes in tax and securities law;
	•		changes in statutory or U.S. generally accepted accounting principles (“GAAP”), practices or policies;
	•		regulatory or legislative changes or developments;
	•		the effects of unanticipated events on our disaster recovery and business continuity planning;
	•		failures or limitations of our computer, data security and administration systems;
	•		risks of employee error or misconduct;
	•		the introduction of alternative healthcare solutions;
	•		the assimilation of life insurance businesses we acquire and the sound management of these businesses;
	•		the availability of capital to expand our business; and
	•		Coronavirus Disease impact on the economic environment.

It is not our corporate policy to make specific projections relating to future earnings, and we do not endorse any projections regarding future performance made by others. In addition, we do not publicly update or revise forward-looking statements based on the outcome of various foreseeable or unforeseeable developments.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (“Certifying Officers”), has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934 as amended (“Exchange Act”) as of the end of the fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Certifying Officers have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is made known to management, including our Certifying Officers, as appropriate, to allow timely decisions regarding disclosure and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operating, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes to Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the ~~second~~third quarter ended ~~June~~September 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The Company sold 4,375,000 common shares at $.02 per share to its organizing shareholders in May of 2012 for total proceeds of $87,500. Subsequently, the Company completed three private placement stock offerings which raised $10,249,000 through the issuance of 8,490,000 shares from the private placement offerings in 2012 and 2013, including a private placement of 2,000,000 shares for $5,000,000 between February and November 2013. The Company incurred $1,215,569 in offering costs to issue these shares. On May 31, 2022, the Company began a rights offering to existing shareholders only. ~~As of June~~The rights offering ended on September 30, ~~2022,~~2022. Through this rights offering, the Company ~~has~~ raised ~~$975,240~~$4,400,652 and incurred $77,615 of offering costs through the subscription of ~~162,540~~733,442 shares of its common stock. The offering is currently ongoing and is set to end after the Company raises $3,000,000 in total capital proceeds, or one year has surpassed since the beginning of the offering, whichever occurs first. These shares were sold in reliance on the exemption from the registration requirements of the Securities Act of 1933 (the “1933 Act”) contained in Securities and Exchange Commission (“SEC”) Regulation D, Rule 506. No underwriter was involved in connection with the issuance of these shares, and we paid no finder’s fees in the private placements.

On April 2, 2014, the Company commenced an offering of 5,000,000 shares of common stock at $5.00 per share ($25,000,000 maximum) with a 10% over sale provision, in an intrastate public offering registered with the Texas State Securities Board. This offering ended on April 2, 2017 and was sold only to Texas residents pursuant to an exemption from the 1933 Act contained in Section 3(a)(11) of the 1933 Act and Rule 147 promulgated by the SEC. It was sold by issuer agents registered with the Texas State Securities Board. The Company raised $10,010,485 and incurred offering costs of $1,444,127 from the sale of 2,002,097 shares in this offering. Proceeds have been used for working capital and the capitalization of a life insurance company and insurance agencies. Through ~~June~~September 30, 2022 the Company paid $133,210 for 114,000 shares of the Company’s common stock (treasury stock). Subsequently, 16,080 shares have been redistributed to agents under the ASIP and 44,000 shares were issued as part of employment agreements and/or bonuses to employees.

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer

101.INS**	Inline XBRL Instance
101.SCH**	Inline XBRL Taxonomy Extension Schema
101.CAL**	Inline XBRL Taxonomy Extension Calculation
101.DEF**	Inline XBRL Taxonomy Extension Definition
101.LAB**	Inline XBRL Taxonomy Extension Labels
101.PRE**	Inline XBRL Taxonomy Extension Presentation
104.FIL**	Inline XBRL Cover Page Interactive Data File
**XBRL	Information is furnished and not filed as part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

In accordance with requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	TEXAS REPUBLIC CAPITAL CORPORATION a Texas corporation

~~August 11,~~November 10, 2022	By:	/s/ Timothy R. Miller
		Timothy R. Miller, President and Chief Executive Officer


~~August 11,~~
November 10, 2022	By:	/s/ Shane S. Mitchell
		Shane S. Mitchell, Chief Financial Officer

iso4217:USD xbrli:shares