UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 AND 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-5392
FIRST COMMONWEALTH CORPORATION
------------------------------
(Exact name of registrant as specified in its charter)
VIRGINIA 54-0832816
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5250 SOUTH SIXTH STREET
P.O. BOX 5147
SPRINGFIELD, IL 62705
---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (217) 241-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such 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 [X] No [ ]
The number of shares outstanding of the registrant's common stock as of October
31, 1999, was 54,538.
<PAGE>
FIRST COMMONWEALTH CORPORATION AND SUBSIDIARIES
(The "Company")
TABLE OF CONTENTS
Part 1. Financial Information...............................................3
ITEM 1. FINANCIAL STATEMENTS..............................................3
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998....................................................3
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1999 and 1998..........................................4
Consolidated Statement of Shareholders'equity for the Period Ended
September 30, 1999...................................................5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998..........................................6
Notes to Consolidated Financial Statements...............................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.....................................12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......18
PART II. OTHER INFORMATION.................................................19
ITEM 1. LEGAL PROCEEDINGS................................................19
ITEM 2. CHANGE IN SECURITIES.............................................19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............19
ITEM 5. OTHER INFORMATION................................................19
ITEM 6. EXHIBITS.........................................................19
SIGNATURES...................................................................20
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
FIRST COMMONWEALTH CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
September 30, December 31,
ASSETS 1999 1998
--------------- ---------------
<S> <C> <C>
Investments:
Fixed maturities at amortized cost
(market $148,925,191 and $179,885,379) $ 149,255,416 $ 174,240,848
Investments held for sale:
Fixed maturities, at market
(cost $27,670,119 and $1,494,636) 26,851,666 1,505,406
Equity securities, at market
(cost $2,886,315 and $2,725,061) 2,041,483 2,087,416
Mortgage loans on real estate at amortized cost 15,578,903 10,941,614
Investment real estate, at cost,
net of accumulated depreciation 6,757,667 8,979,183
Real estate acquired in satisfaction of debt 1,550,000 1,550,000
Policy loans 14,078,689 14,134,041
Other long-term investments 906,278 906,278
Short-term investments 1,300,000 1,036,251
--------------- ---------------
218,320,102 215,381,037
Cash and cash equivalents 19,430,853 25,752,842
Investment in parent 350,000 350,000
Receivable from affiliate, net 96,639 0
Accrued investment income 3,182,249 3,521,081
Reinsurance receivables:
Future policy benefits 36,359,944 36,965,938
Policy claims and other benefits 4,342,914 3,563,963
Income taxes receivable:
Current income taxes 332,686 0
Deferred income taxes 1,335,439 1,200,002
Cost of insurance acquired 16,921,415 17,628,369
Deferred policy acquisition costs 10,393,559 11,840,548
Costs in excess of net assets purchased,
net of accumulated amortization 8,245,914 8,736,807
Property and equipment,
net of accumulated depreciation 2,841,437 2,932,261
Other assets 651,174 907,483
--------------- ---------------
Total assets $ 322,804,325 $ 328,780,331
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Policy liabilities and accruals:
Future policy benefits $ 252,681,807 $ 254,386,798
Policy claims and benefits payable 2,998,489 2,183,434
Other policyholder funds 1,723,925 2,150,632
Dividend and endowment accumulations 14,429,032 15,137,048
Current income taxes payable 0 99,003
Notes payable 15,264,193 17,369,993
Indebtedness to affiliates, net 0 43,494
Other liabilities 4,191,857 4,877,007
--------------- ---------------
Total liabilities 291,289,303 296,247,409
--------------- ---------------
Minority interests in consolidated subsidiaries 1,537,436 1,710,538
--------------- ---------------
Shareholders' equity: Common stock - $1 par value per share.
Authorized 62,500 shares - 54,538 and 54,539 shares
issued after deducting treasury shares of 947 and 946 54,538 54,539
Additional paid-in capital 51,875,721 51,875,820
Accumulated deficit (20,309,881) (20,476,631)
Accumulated other comprehensive income (loss) (1,642,792) (631,344)
--------------- ---------------
Total shareholders' equity 29,977,586 30,822,384
--------------- ---------------
Total liabilities and shareholders' equity $ 322,804,325 $ 328,780,331
=============== ===============
</TABLE>
See accompanying notes.
3
<PAGE>
FIRST COMMONWEALTH CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Premiums and policy fees $ 6,414,356 $ 7,504,326 $ 20,116,924 $ 24,154,829
Reinsurance premiums and policy fees (1,077,236) (1,260,457) (3,067,023) (3,568,400)
Net investment income 3,615,934 3,802,812 10,841,853 11,330,661
Realized investment gains and (losses), net (44,635) (426,662) (384,290) (831,893)
Other income 28,499 17,529 144,748 59,572
--------------- ---------------- --------------- ----------------
8,936,918 9,637,548 27,652,212 31,144,769
Benefits and other expenses:
Benefits, claims and settlement expenses:
Life 5,854,234 5,904,412 18,139,749 18,491,002
Reinsurance benefits and claims (1,358,420) (961,260) (2,841,454) (2,058,693)
Annuity 358,796 353,286 1,059,957 1,096,020
Dividends to policyholders 253,155 781,429 913,819 2,706,633
Commissions and amortization of deferred
policy acquisition costs 826,863 960,516 2,797,360 3,134,751
Amortization of cost of insurance acquired 236,572 240,236 706,954 786,655
Operating expenses 1,784,267 2,023,484 5,661,708 6,596,310
Interest expense 329,242 399,133 1,010,710 1,191,119
--------------- ---------------- --------------- ----------------
8,284,709 9,701,236 27,448,803 31,943,797
Income (loss) before income taxes and
minority interest 652,209 (63,688) 203,409 (799,028)
Income tax credit 41,024 742,437 50,949 1,075,315
Minority interest in income of
consolidated subsidiaries (22,773) (25,016) (87,608) (61,135)
--------------- ---------------- --------------- ----------------
Net income $ 670,460 $ 653,733 $ 166,750 $ 215,152
=============== ================ =============== ================
Basic earnings per share from continuing
operations and net income $ 12.29 $ 11.99 $ 3.06 $ 3.94
=============== ================ =============== ================
Diluted earnings per share from continuing
operations and net income $ 12.29 $ 11.99 $ 3.06 $ 3.94
=============== ================ =============== ================
Basic weighted average shares outstanding 54,539 54,542 54,539 54,554
=============== ================ =============== ================
Diluted weighted average shares outstanding 54,539 54,542 54,539 54,554
=============== ================ =============== ================
</TABLE>
See accompanying notes.
4
<PAGE>
FIRST COMMONWEALTH CORPORATION
AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
For the Period ended September 30,1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common stock
Balance, beginning of year $ 54,539
Issued during year 0
Purchase treasury stock (1)
------------------
Balance, end of period 54,538
------------------
Additional paid-in capital
Balance, beginning of year 51,875,820
Issued during year 0
Purchase treasury stock (99)
------------------
Balance, end of period 51,875,721
------------------
Retained earnings (accumulated deficit)
Balance, beginning of year (20,476,631)
Net income 166,750 $ 166,750
------------------ ------------------
Balance, end of period (20,309,881)
------------------
Accumulated other comprehensive income (loss)
Balance, beginning of year (631,344)
Unrealized depreciation on securities (1,011,448)
Foreign currency translation adjustments 0
Minimum pension liability adjustment 0
------------------
Other comprehensive income (loss) (1,011,448) (1,011,448)
------------------ ------------------
Comprehensive income (loss) $ (844,698)
==================
Balance, end of period (1,642,792)
------------------
Total shareholder's equity, end of period $ 29,977,586
==================
</TABLE>
See accompanying notes.
5
<PAGE>
FIRST COMMONWEALTH CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, September 30,
1999 1998
------------- --------------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income $ 166,750 $ 215,152
Adjustments to reconcile net income to net cash provided by
(used in) operating activities net of changes in assets
and liabilities
resulting from the sales and purchases of subsidiaries:
Amortization/accretion of fixed maturities 400,693 467,716
Realized investment (gains) losses, net 384,290 831,893
Policy acquisition costs deferred (570,000) (650,000)
Amortization of deferred policy acquisition costs 2,016,989 2,041,879
Amortization of cost of insurance acquired 706,954 786,655
Amortization of costs in excess of net
assets purchased 331,634 332,748
Depreciation 363,265 350,268
Minority interest 87,608 61,135
Change in accrued investment income 338,832 (140,177)
Change in reinsurance receivables (172,957) 648,654
Change in policy liabilities and accruals (1,067,742) 785,074
Charges for mortality and administration of
universal life and annuity products (8,077,001) (8,116,570)
Interest credited to account balances 4,825,505 5,322,471
Change in income taxes payable (567,126) (1,085,870)
Change in indebtedness (to) from affiliates, net (140,133) 39,456
Change in other assets and liabilities, net (428,838) (351,807)
------------- --------------
Net cash provided by (used in) operating activities (1,401,277) 1,538,677
Cash flows from investing activities:
Proceeds from investments sold and matured:
Fixed maturities held for sale 1,430,000 164,097
Fixed maturities sold 0 0
Fixed maturities matured 26,259,579 32,371,454
Equity securities 0 450,000
Mortgage loans 5,482,076 943,156
Real estate 2,250,413 1,039,924
Policy loans 2,482,926 2,941,532
Short-term 1,236,251 1,573,531
------------- --------------
Total proceeds from investments sold and matured 39,141,245 39,483,694
Cost of investments acquired:
Fixed maturities held for sale (27,623,353) 0
Fixed maturities (1,643,871) (25,166,178)
Equity securities (161,256) (79,053)
Mortgage loans (10,119,365) (1,577,694)
Real estate (526,955) (941,618)
Policy loans (2,427,574) (2,706,606)
Other long-term investments 0 (66,212)
Short-term (1,500,000) 0
------------- --------------
Total cost of investments acquired (44,002,374) (30,537,361)
Purchase of property and equipment (171,775) (89,424)
------------- --------------
Net cash provided by (used in) investing activities (5,032,904) 8,856,909
Cash flows from financing activities:
Policyholder contract deposits 10,967,503 11,989,493
Policyholder contract withdrawals (8,672,924) (9,812,952)
Payments of principal on notes payable (2,105,800) (258,251)
Purchase of stock of subsidiaries (76,487) 0
Purchase of treasury stock (100) 0
------------- --------------
Net cash provided by (used in) financing activities 112,192 1,918,290
------------- --------------
Net increase (decrease) in cash and cash equivalents (6,321,989) 12,313,876
Cash and cash equivalents at beginning of period 25,752,842 15,704,573
------------- --------------
Cash and cash equivalents at end of period $ 19,430,853 $ 28,018,449
============= ==============
</TABLE>
See accompanying notes.
6
<PAGE>
FIRST COMMONWEALTH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by First
Commonwealth Corporation ("FCC") and its consolidated subsidiaries ("Company")
pursuant to the rules and regulations of the Securities and Exchange Commission.
Although the Company believes the disclosures are adequate to make the
information presented not be misleading, it is suggested that these consolidated
financial statements be read in conjunction with the consolidated financial
statements and the notes thereto presented in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for the year ended
December 31, 1998.
The information furnished reflects, in the opinion of the Company, all
adjustments (which include only normal and recurring accruals) necessary for a
fair presentation of the results of operations for the periods presented.
Operating results for interim periods are not necessarily indicative of
operating results to be expected for the year or of the Company's future
financial condition.
At September 30, 1999, the parent, significant subsidiaries and affiliates of
First Commonwealth Corporation were as depicted on the following organizational
chart.
ORGANIZATIONAL CHART
AS OF SEPTEMBER 30, 1999
United Trust Group, Inc. ("UTG") is the ultimate controlling company. UTG owns
81% of First Commonwealth Corporation ("FCC") and 100% of Roosevelt Equity
Corporation ("REC"). FCC owns 100% of Universal Guaranty Life Insurance Company
("UG"). UG owns 100% of United Security Assurance Company ("USA"). USA owns 86%
of Appalachian Life Insurance Company ("APPL") and APPL owns 100% of Abraham
Lincoln Insurance Company ("ABE").
7
<PAGE>
2. INVESTMENTS
As of September 30, 1999, fixed maturities and fixed maturities held for sale
represented 81% of total invested assets. As prescribed by the various state
insurance department statutes and regulations, the insurance companies'
investment portfolio is required to be invested in investment grade securities
to provide ample protection for policyholders. The Company does not invest in
so-called "junk bonds" or derivative investments. The liabilities of the
insurance companies are predominantly long-term in nature and therefore, the
companies invest primarily in long-term fixed maturity investments. The Company
has identified securities at the time of acquisition it may sell prior to
maturity and classified them as investments held for sale. The investments held
for sale are carried at market value. Management has the intent and ability to
hold its fixed maturity portfolio to maturity and as such carries these
securities at amortized cost. As of September 30, 1999, the carrying value of
fixed maturity securities in default as to principal or interest was immaterial
in the context of consolidated assets or shareholders' equity.
3. NOTES PAYABLE
At September 30, 1999 and December 31, 1998, the Company has $15,264,193 and
$17,369,993 in long-term debt outstanding, respectively. The debt is comprised
of the following components:
1999 1998
------------- -------------
Senior debt $ 25,000 $ 100,000
Affiliated subordinated 10 yr. Notes 0 1,427,067
Affiliated subordinated 20 yr. Notes 3,431,094 4,034,827
Affiliated notes payable 11,808,099 11,808,099
------------- -------------
$ 15,264,193 $ 17,369,993
============= =============
A. Nonaffiliated senior debt
The senior debt is through National City Bank (formerly First of America Bank -
Illinois NA) and is subject to a credit agreement. The debt bears interest at a
rate equal to the "base rate" plus nine-sixteenths of one percent. The Base rate
is defined as the floating daily, variable rate of interest determined and
announced by National City Bank from time to time as its "base lending rate."
The base rate at September 30, 1999 was 8.25%. Interest is paid quarterly.
During second quarter 1999 the Company prepaid a $75,000 principal payment. The
remaining balance of $25,000 will be payable on or before the debt maturity date
of May 8, 2005, and is being maintained to keep the Company's credit
relationship with National City Bank in place.
The credit agreement contains certain covenants with which the Company must
comply. These covenants contain provisions common to a loan of this type and
include such items as; a minimum consolidated net worth of FCC to be no less
than 400% of the outstanding balance of the debt; Statutory capital and surplus
of Universal Guaranty Life Insurance Company be maintained at no less than
$6,500,000; an earnings covenant requiring the sum of the pre-tax earnings of
Universal Guaranty Life Insurance Company and its subsidiaries (based on
Statutory Accounting Practices) and the after-tax earnings plus non-cash charges
of FCC (based on parent only GAAP practices) shall not be less than two hundred
percent (200%) of the Company's interest expense on all of its debt service. The
Company is in compliance with all of the covenants of the agreement.
B. Affiliated subordinated debt
The subordinated debt was incurred June 16, 1992 as a part of the acquisition
transactions of the now dissolved Commonwealth Industries Corporation, (CIC) and
is payable to UTG. The 10-year notes bear interest at the rate of 7 1/2% per
annum, payable semi-annually beginning December 16, 1992. These notes provide
for principal payments equal to 1/20th of the principal balance due with each
interest installment beginning December 16, 1997, with a final payment due June
8
<PAGE>
16, 2002. The original 20-year notes bear interest at the rate of 8 1/2% per
annum on $3,529,865 and 8.75% per annum on $504,962 payable semi-annually with a
lump sum principal payment due June 16, 2012. During second quarter, 1999, the
Company prepaid $2,030,800 of its nonaffiliated subordinated debt consisting of
the remaining 10 year notes, all of the twenty year notes with 8.75% interest
rates and $98,771 of the 8.5% 20 year notes.
C. Affiliated notes payable
Following the merger of UTI and UII on July 26, 1999 and subsequent liquidation
of UTG and name change of UTI to UTG, all affiliated notes payable of FCC are
due to its parent, UTG.
FCC has borrowings of $700,000 and $300,000. These notes bear interest at the
rate of 1% above the variable per annum rate of interest most recently published
by the Wall Street Journal as the prime rate. Interest is payable quarterly with
principal due at maturity on May 8, 2006. In February 1996, FCC borrowed an
additional $150,000 and $250,000 to provide additional cash for liquidity. These
notes bear interest at the rate of 1% over prime as published in the Wall Street
Journal, with interest payments due quarterly and principal due upon maturity of
the notes on June 30, 2002.
In November 1997 FCC borrowed $1,000,000 to facilitate the prepayment of the May
1998 principal payment due on the senior debt. . The note bears interest at the
rate of 1% over the prime rate of interest as published in the Wall Street
Journal, with interest payments due quarterly and principal due upon maturity of
the note on November 8, 2006.
In November 1998 FCC borrowed $2,608,099 to facilitate the prepayment of
principal on its subordinated 10-year debt. The note bears interest at the rate
of 7.50%, with interest payments due quarterly and principal due upon maturity
of the note on December 31, 2005. In addition, FCC borrowed $6,300,000 to
facilitate the prepayment of principal on the senior debt. This note bears
interest at the rate of 9/16% over the prime rate of interest as published in
the Wall Street Journal, with interest payments due quarterly and principal due
upon maturity of the note on December 31, 2006.
In December 1998 FCC borrowed $500,000 to facilitate an additional prepayment of
principal on its subordinated 10-year debt. The note bears interest at the rate
of 7.50%, with interest payments due quarterly and principal due upon maturity
of the notes, which has been extended to March 31, 2004.
Scheduled principal reductions on the Company's total outstanding debt for the
next five years is as follows:
Year Amount
---- ------
1999 $ 0
2000 0
2001 0
2002 400,000
2003 0
4. DEFERRED COMPENSATION PLAN
UTG and FCC established a deferred compensation plan during 1993 pursuant to
which an officer or agent of FCC or affiliates of UTG, could defer a portion of
their income over the next two and one-half years in return for a deferred
compensation payment payable at the end of seven years in the amount equal to
the total income deferred plus interest at a rate of approximately 8.5% per
annum and a stock option to purchase shares of common stock of UTG. At the
beginning of the deferral period an officer or agent received an immediately
exercisable option to purchase 2,300 shares of UTG common stock at $17.50 per
share for each $25,000 ($10,000 per year for two and one-half years) of total
income deferred. The option expires on December 31, 2000. A total of 105,000
options were granted in 1993 under this plan. As of September 30, 1999 no
options were exercised. At September 30, 1999 and December 31, 1998, the Company
held a liability of $1,588,332 and $1,494,520, respectively, relating to this
plan. At September 30, 1999, UTG common stock had a market price of $8.125 per
share.
9
<PAGE>
The following information applies to deferred compensation plan stock options
outstanding at September 30, 1999:
Number outstanding 105,000
Exercise price $17.50
Remaining contractual life 1.25 years
5. EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common shares
outstanding during each year, retroactively adjusted to give effect to all stock
splits, in accordance with Statement of Financial Accounting Standards No. 128.
The computation of diluted earnings per share is the same as basic earnings per
share since the Company has no dilutive instruments outstanding.
6. COMMITMENTS AND CONTINGENCIES
The insurance industry has experienced a number of civil jury verdicts which
have been returned against life and health insurers in the jurisdictions in
which the Company does business involving the insurers' sales practices, alleged
agent misconduct, failure to properly supervise agents, and other matters. Some
of the lawsuits have resulted in the award of substantial judgments against the
insurer, including material amounts of punitive damages. In some states, juries
have substantial discretion in awarding punitive damages in these circumstances.
Under the insurance guaranty fund laws in most states, insurance companies doing
business in a participating state can be assessed up to prescribed limits for
policyholder losses incurred by insolvent or failed insurance companies.
Although the Company cannot predict the amount of any future assessments, most
insurance guaranty fund laws currently provide that an assessment may be excused
or deferred if it would threaten an insurer's financial strength. Mandatory
assessments may be partially recovered through a reduction in future premium tax
in some states. The Company does not believe such assessments will be materially
different from amounts already provided for in the financial statements.
The Company and its subsidiaries are named as defendants in a number of legal
actions arising primarily from claims made under insurance policies. Those
actions have been considered in establishing the Company's liabilities.
Management is of the opinion that the settlement of those actions will not have
a material adverse effect on the Company's financial position or results of
operations.
7. OTHER CASH FLOW DISCLOSURE
On a cash basis, the Company paid $926,051 and $1,004,084 in interest expense
during the first nine months of 1999 and 1998, respectively. The Company paid
$516,177 and $10,555 in federal income tax during the first nine months of 1999
and 1998, respectively.
8. MERGER OF UNITED TRUST, INC. AND UNITED INCOME, INC.
On March 25, 1997, the Board of Directors of UTI and UII voted to recommend to
the shareholders a merger of the two companies. Under the Plan of Merger, UTI
would be the surviving entity with UTI issuing one share of its stock for each
share held by UII shareholders. A vote of the shareholders of UTI and UII
regarding the proposed merger occurred on July 26, 1999, with shareholders of
both companies approving the transaction. UTI issued 817,517 shares of its
authorized but unissued common stock to former UII shareholders, exclusive of
any dissenter shareholders, in the merger. Immediately following the merger,
United Trust Group, Inc. (UTG), which was then 100% owned by UTI, was liquidated
and UTI changed its name to United Trust Group, Inc.
10
<PAGE>
9. ACCOUNTING AND LEGAL DEVELOPMENTS
The FASB has issued SFAS 133 entitled, Accounting for Derivative Instruments and
hedging Activities, which is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137, which
delays the effective date of SFAS 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as a specific type of exposure
hedge. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. The adoption
of SFAS 133 is not expected to have a material effect on our financial position
or results of operations, since the Company has no derivative or hedging type
investments.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The purpose of this section is to discuss and analyze the Company's consolidated
results of operations, financial condition and liquidity and capital resources.
This analysis should be read in conjunction with the consolidated financial
statements and related notes that appear elsewhere in this report. The Company
reports financial results on a consolidated basis. The consolidated financial
statements include the accounts of FCC and its subsidiaries at September 30,
1999.
Cautionary Statement Regarding Forward-Looking Statements
- ---------------------------------------------------------
Any forward-looking statement contained herein or in any other oral or written
statement by the company or any of its officers, directors or employees is
qualified by the fact that actual results of the company may differ materially
from any such statement due to the following important factors, among other
risks and uncertainties inherent in the company's business:
1. Prevailing interest rate levels, which may affect the ability of the
company to sell its products, the market value of the company's
investments and the lapse ratio of the company's policies,
notwithstanding product design features intended to enhance persistency
of the company's products.
2. Changes in the federal income tax laws and regulations which may affect
the relative tax advantages of the company's products.
3. Changes in the regulation of financial services, including bank sales
and underwriting of insurance products, which may affect the
competitive environment for the company's products.
4. Other factors affecting the performance of the company, including, but
not limited to, market conduct claims, insurance industry insolvencies,
stock market performance, and investment performance.
Results of Operations
- ---------------------
(a) Revenues
Premiums and policy fee revenues, net of reinsurance premiums and policy fees,
decreased 17% when comparing the first nine months 1999 to 1998 and 15%
comparing third quarter only results. The Company currently writes little new
traditional business, consequently, traditional premiums will decrease as the
amount of traditional business in-force decreases. Collected premiums on
universal life and interest sensitive products are not reflected in premiums and
policy revenues because Generally Accepted Accounting Principles ("GAAP")
requires that premiums collected on these types of products be treated as
deposit liabilities rather than revenue. Unless the Company acquires a block of
in-force business or marketing changes its focus to traditional business,
premium revenue will continue to decline.
During 1998, the Boards of UG and USA approved a permanent premium reduction on
certain of its participating products in force commonly referred to as the
initial contract and the presidents plan. The premium reduction was generally
20% with 35% used on initial contract plans of UG with original issue ages less
than 56 years old. The dividends were also reduced, and the net effect to the
policyholder was a slightly lower net premium. This change became effective with
the 1999 policy anniversary. This action was taken by the Boards to ensure these
policyholders will be protected in future periods from potential dividend
reductions at least to the extent of the permanent premium reduction amount. By
reducing the required premium payment, it makes replacement activity by other
insurance companies more difficult as ongoing premium payments are compared from
the current policy to a potential replacement policy. This premium reduction
accounted for approximately 10% of the total premium revenue decline. A
corresponding decline is reflected in the policy benefits line item dividends to
policyholders.
12
<PAGE>
Net investment income decreased 4% when comparing the first nine months of 1999
to 1998 and 5% comparing third quarter results. The decrease in net investment
income is due to the decline of the national prime rate during September and
October of 1998. During September and October of 1998, the national prime rate
declined three quarters of one percent (.75%). This decline reduced the yields
on investments available in the marketplace in which the Company invests
primarily fixed maturities. The interest rate environment is improving in 1999.
The national prime rate rose a total of one half of one percent (.50%) in July
and August of 1999. Changes in the national prime rate may impact net investment
income in the future. Approximately 22.2% of the total fixed maturity portfolio
will mature within the next year, with another 58.0% maturing in the next two to
five years. The Company has recently begun looking at the mortgage loan market
for possible investments, due to our affiliation with First Southern Funding and
its affiliates ("FSF"). FSF is the largest shareholder of UTG. Our affiliation
with FSF provides additional resources in the mortgage loan market. FSF is in
the banking industry and has experience and expertise in underwriting commercial
and residential mortgage loans. The Company believes it can issue or acquire
loans, which will provide attractive yields while maintaining high quality and
low risk.
The Company's investments are generally managed to match related insurance and
policyholder liabilities. The comparison of investment return with insurance or
investment product crediting rates establishes an interest spread. The minimum
interest spread between earned and credited rates is 1% on the "Century 2000"
universal life insurance product, which currently is the Company's primary sales
product. The Company monitors investment yields, and when necessary adjusts
credited interest rates on its insurance products to preserve targeted interest
spreads. It is expected that monitoring of the interest spreads by management
will provide the necessary margin to adequately provide for associated costs on
the insurance policies the Company currently has in force and will write in the
future. At the March 1999 Board of Directors meeting, the Board lowered
crediting rates one half percent on all products that could be lowered. This
adjustment was in response to continued declines in interest rates in the
marketplace. The change will result in interest crediting reductions of
approximately $600,000 per year. Policy interest crediting rate changes become
effective on an individual policy basis on the next policy anniversary.
Therefore, it will take a full year from the time the change is determined for
the full impact of such change to be realized.
(b) Expenses
Life benefits, net of reinsurance benefits and claims, are 5% lower in 1999
compared to 1998 for the nine months results and 16% lower for the third quarter
results. Two events occurred in 1999, which differ from 1998 experience. The
decrease in premium revenues from normal policy terminations resulted in lower
benefit reserve increases in the current period. Additionally, the premium
reduction on certain participating policies resulted in a lower dividend to
policyholders expense than in the previous year. See discussion above in
premiums and policy fee revenues for a more detailed explanation of this event.
Policyholder benefits increased due to an increase in death benefit claims of
$531,000 from the prior year nine month period but declined $727,000 from the
prior third quarter period. There is no single event that caused the mortality
variances. Policy claims vary from year to year and therefore, fluctuations in
mortality are to be expected and are not considered unusual by management. At
the March 1999 Board of Directors meeting, the Board lowered crediting rates one
half percent on all products that could be lowered. This adjustment was in
response to continued declines in interest rates in the marketplace. The change
will result in interest crediting reductions of approximately $600,000 per year.
Policy interest crediting rate changes become effective on an individual policy
basis on the next policy anniversary. Therefore, it will take a full year from
the time the change determined for the full impact of such change to be
realized.
Operating expenses decreased 14% in 1999 compared to 1998 for the nine month
period and decreased 12% for the third quarter only period. The decrease in
operating expenses is due in part, to a decrease in salaries from staff
reduction. In most instances, the workload was absorbed into the remaining
workforce. First year sales production has shown a declining trend in the last
three years. The Company has tried a variety of solutions to bolster new sales
production including additional training, home office assistance in providing
leads on prospective clients and a review of current product offerings. First
year production in the first quarter of 1999 resulted in cash received from new
sales of only 54% of that received in first quarter 1998, or $560,000 less. With
continued declining new business, costs associated with supporting new business,
primarily salary costs, as a percentage of new business received continued to
grow. In March of 1999, the Company determined it could no longer continue to
support these fixed costs in light of the new business trend and no indication
it would reverse any time soon. It was determined these fixed costs should be
reduced to be commensurate with the level of new sales production activity
currently
13
<PAGE>
being experienced. As such, in March 1999 seven employees of the Company
(approximately 8% of the total staff) were terminated due to lack of business
activity. This action resulted in expense savings of approximately $275,000 per
year.
Interest expense decreased 15% in 1999 compared to 1998 in the first nine months
and decreased 18% for the third quarter only results. In November 1998, the
Company's ultimate parent, UTG, received approximately $11,000,000 from the
issuance of common stock to First Southern Funding and its affiliates. These
funds were used to retire nonaffiliated debt. Additionally, with the new capital
and expectations of future growth, management has formulated a plan to repay the
remaining nonaffiliated debt within the next two years. At September 30, 1999,
FCC had $15,264,193 in notes payable. Substantially all of the debt of FCC is
owed to its parent, UTG. At September 30, 1999, UTG and FCC combined had
approximately $3,791,000 of nonaffiliated debt that must eventually be repaid.
UTG's primary ability to retire its debt is through FCC debt payments owed to
UTG. The Company believes its nonaffiliated debt can be repaid within the next
two years through dividends from the subsidiaries, namely dividends to FCC from
UG and from expected operating cashflows. During second quarter 1999, UTG and
FCC retired $2,715,395 of nonaffiliated debt. This was accomplished through an
ordinary dividend from its subsidiary, UG of $2,000,000 and from operating cash
available.
The provision for income taxes reflected a significant change from the same
periods one-year ago. This is the result of changes in the deferred tax
liability. Deferred taxes are established to recognize future tax effects
attributable to temporary differences between the financial statements and the
tax return. As these differences are realized in the financial statement or tax
return, the deferred income tax established on the difference is recognized in
the financial statements as an income tax expense or credit. Several of the
companies within the group, including the life insurance companies, have federal
net operating loss carryforwards for tax purposes for which no deferred tax
asset is recognized in the financial statements as an allowance has been
established against this asset. In periods in which a portion of the tax loss
carryforward is utilized, no deferred tax expense is recorded due to this
allowance. The 1998 results utilized a larger portion of the tax loss
carryforwards than the 1999 results. Additionally, in 1999, the tax loss
carryforwards of some of the companies are fully utilized resulting in the
companies becoming taxable.
(c) Net income
The Company had a first nine month net gain of $166,750 in 1999 compared to
$215,152 in 1998, and a third quarter net gain of $670,460 in 1999 compared to
$653,733 in 1998. Increased death claim experience and an increase in income tax
expense, partially offset by lower interest expense costs from the retirement of
nonaffiliated debt, lower operating expenses and lower policy reserve increases,
contributed to the difference in earnings.
Financial Condition
- -------------------
Total shareholder's equity decreased approximately 3% when comparing September
30, 1999 to December 31, 1998. The unrealized depreciation of investments
available for sale resulted in the decline in equity. Most of the investments in
the available for sale category are fixed maturity investments acquired in the
first half of 1999. With the increase in interest rates in the marketplace in
July and August, the market value of these investments declined resulting in the
unrealized loss.
Investments represent approximately 68% and 66% of total assets at September 30,
1999 and December 31, 1998, respectively. Accordingly, investments are the
largest asset group of the Company. The Company's insurance subsidiaries are
regulated by insurance statutes and regulations as to the type of investments
that they are permitted to make and the amount of funds that may be used for any
one type of investment. In light of these statutes and regulations, and the
Company's business and investment strategy, the Company generally seeks to
invest in United States government and government agency securities and
corporate securities rated investment grade by established nationally recognized
rating organizations.
The liabilities are predominantly long-term in nature and therefore, the Company
invests in long-term fixed maturity investments that are reported in the
financial statements at their amortized cost. The Company has the ability and
intent to hold these investments to maturity; consequently, the Company does not
expect to realize any significant loss from these investments. The Company does
not own any derivative investments or "junk bonds". As of
14
<PAGE>
September 30, 1999, the carrying value of fixed maturity securities in default
as to principal or interest was immaterial in the context of consolidated assets
or shareholders' equity. The Company has identified securities at the time of
acquisition it may sell and classified them as "investments held for sale".
Investments held for sale are carried at market, with changes in market value
charged directly to shareholders' equity. To provide additional flexibility and
liquidity, the Company has categorized almost all fixed maturity investments
acquired in the first nine months of 1999 as available for sale. It was
determined it would be in the Company's best financial interest to classify
these new purchases as available for sale to provide additional liquidity. All
of the fixed maturity acquisitions in the first nine months of 1999 were U.S.
government, government agency or Federal National Mortgage Association ("FNMA")
securities.
The Company has recently begun looking at the mortgage loan market for possible
investments, due to our affiliation with First Southern Funding and its
affiliates ("FSF"). FSF is the largest shareholder of UTG. Our affiliation with
FSF provides additional resources in the mortgage loan market. FSF is in the
banking industry and has experience and expertise in underwriting commercial and
residential mortgage loans. The Company believes it can issue or acquire loans,
which will provide attractive yields while maintaining high quality and low
risk.
The Company has continued its efforts to significantly reduce and eventually
eliminate all nonaffiliated outstanding debt. In second quarter 1999, UTG and
FCC paid $2,715,395 in principal on the nonaffiliated debt. The Company may
reduce the debt another $1,000,000 to $1,500,000 before year end 1999. The
Company expects to achieve this through a dividend from UG of approximately
$1,200,000 and from operating cashflows.
Liquidity and Capital Resources
- -------------------------------
The Company has three principal needs for cash - the insurance companies'
contractual obligations to policyholders, the payment of operating expenses and
the servicing of its long-term debt. Cash and cash equivalents as a percentage
of total assets were 6% and 8% as of September 30, 1999, and December 31, 1998,
respectively. Fixed maturities as a percentage of total invested assets were 81%
and 82% as of September 30, 1999 and December 31, 1998, respectively.
Future policy benefits are primarily long-term in nature and therefore, the
Company's investments are predominantly in long-term fixed maturity investments
such as bonds and mortgage loans which provide sufficient return to cover these
obligations. The Company has the ability and intent to hold these investments to
maturity; consequently, the Company's investment in long-term fixed maturities
is reported in the financial statements at their amortized cost. To provide
additional flexibility and liquidity, the Company has categorized almost all
fixed maturity investments acquired in the first nine months of 1999 as
available for sale. It was determined it would be in the Company's best
financial interest to classify these new purchases as available for sale to
provide additional liquidity. All of the fixed maturity acquisitions in the
first nine months of 1999 were U.S. government, government agency or Federal
National Mortgage Association ("FNMA") securities. By increasing the amount of
investments carried in the available for sale category, the Company can invest a
larger percentage of its cash and cash equivalent holdings in long-term
investments.
Many of the Company's products contain surrender charges and other features
which reward persistency and penalize the early withdrawal of funds. With
respect to such products, surrender charges are generally sufficient to cover
the Company's unamortized deferred policy acquisition costs with respect to the
surrender of a policy.
Net cash provided by (used in) operating activities was $(1,401,277) and
$1,538,677 in 1999 and 1998, respectively. The change between periods is due to
the decline in premium revenues and an increase in death benefits. The net cash
provided by (used in) operating activities plus net policyholder contract
deposits after the payment of policyholder withdrawals equaled $893,302 in 1999
and $3,715,218 in 1998. Management utilizes this measurement of cash flows as an
indicator of the performance of the Company's insurance operations, since
reporting regulations require cash inflows and outflows from universal life
insurance products to be shown as financing activities when reporting on cash
flows.
Net cash provided by (used in) investing activities was $(5,032,904) and
$8,856,909 for 1999 and 1998, respectively. In 1999, the Company used cash to
acquire long-term investments. The Company acquired fixed
15
<PAGE>
maturities and mortgage loans. The most significant aspect of cash provided by
(used in) investing activities are the fixed maturity transactions. Fixed
maturities account for 67% and 83% of the total cost of investments acquired in
1999 and 1998, respectively. The Company has not directed its investable funds
to so-called "junk bonds" or derivative investments.
Net cash provided by financing activities was $112,192 and $1,918,290 for 1999
and 1998, respectively. Policyholder contract deposits decreased 9% in 1999
compared to 1998. Policyholder contract withdrawals decreased 12% in 1999
compared to 1998. During first quarter of 1999, the Company had a large annuity
contract surrender of approximately $400,000. Exclusive of this single policy
surrender, policyholder withdrawals were 16% less than the previous year.
At September 30, 1999, the Company had a total of $15,264,193 in long-term debt
outstanding. The long-term debt consists of $15,239,193 of affiliated notes
payable and $25,000 of nonaffiliated notes payable. The notes payable consist of
both fixed rate and variable rate notes. The average interest rate for fixed
rate notes is 8.02% and variable rate notes is 8.93%. FCC services this debt
through existing cash balances and management fees received from the insurance
subsidiaries. FCC is further able to service this debt through dividends it may
receive from UG. Please refer to the Notes to the Financial Statements for a
complete description of the debt structure.
During second quarter 1999 the Company prepaid its senior debt with a $75,000
principal payment. The remaining balance of $25,000 will be payable on or before
the debt maturity date of May 8, 2005, and is being maintained to keep the
Company's credit relationship with National City Bank in place.
During second quarter, 1999, the Company prepaid $2,030,800 of its affiliated
subordinated debt. The prepayment extinguished all of the ten-year subordinated
notes, all of the twenty-year subordinated notes with an interest rate of 8.75%
and $98,771 of the 8.5% twenty-year notes.
Following the merger of UTI and UII on July 26, 1999 and subsequent liquidation
of UTG and name change of UTI to UTG, all affiliated notes payable of FCC are
due to its parent, UTG.
Since FCC is a holding company, funds required to meet its debt service
requirements and other expenses are primarily provided by its subsidiaries. On a
parent only basis, FCC's cash flow is dependent on revenues from management and
cost sharing arrangements with its subsidiaries and affiliates and its earnings
received on invested assets and cash balances. At September 30, 1999,
substantially all of the consolidated shareholders equity represents net assets
of its subsidiaries. Cash requirements of FCC primarily relate to servicing its
long-term debt. The Company's insurance subsidiaries have maintained adequate
statutory capital and surplus and have not used surplus relief or financial
reinsurance, which have come under scrutiny by many state insurance departments.
The payment of cash dividends to shareholders is not legally restricted.
However, insurance company dividend payments are regulated by the state
insurance department where the insurance company is domiciled.
Ohio domiciled insurance companies require five days prior notification to the
insurance commissioner for the payment of an ordinary dividend. Ordinary
dividends are defined as the greater of: a) prior year statutory earnings or b)
10% of statutory capital and surplus. For the year ended December 31, 1998, UG
had a statutory gain from operations of $3,266,000. At December 31, 1998, UG's
statutory capital and surplus amounted to $15,281,000. Extraordinary dividends
(amounts in excess of ordinary dividend limitations) require prior approval of
the insurance commissioner and are not restricted to a specific calculation. UG
has paid $2,000,000 in dividends through September 30, 1999 to FCC. On October
1, 1999, UG paid an additional dividend of $1,266,000.
The Company is not aware of any litigation that will have a material adverse
effect on the financial position of the Company. In addition, the Company does
not believe that the regulatory initiatives currently under consideration by
various regulatory agencies will have a material adverse impact on the Company.
The Company is not aware of any material pending or threatened regulatory action
with respect to the Company or any of its subsidiaries. The Company does not
believe that any insurance guaranty fund assessments will be materially
different from amounts already provided for in the financial statements.
16
<PAGE>
As of September 30, 1999 the Company has a total of $49,624,002 of cash and cash
equivalents, short-term investments and investments held for sale in comparison
to $15,264,193 of notes payable. Management believes the overall sources of
liquidity available will be sufficient to satisfy its financial obligations.
Year 2000 Issue
- ---------------
The "Year 2000 Issue" is the inability of computers and computing technology to
recognize correctly the Year 2000 date change. The problem results from a
long-standing practice by programmers to save memory space by denoting years
using just two digits instead of four digits. Thus, systems that are not Year
2000 compliant may be unable to read dates correctly after the Year 1999 and can
return incorrect or unpredictable results. This could have a significant effect
on the Company's business/financial systems as well as products and services, if
not corrected.
The Company established a project to address year 2000 processing concerns in
September of 1996. In 1997 the Company completed the review of the Company's
internally and externally developed software, and made corrections to all year
2000 non-compliant processing. The Company also secured verification of current
and future year 2000 compliance from all major external software vendors. In
December of 1997, a separate computer operating environment was established with
the system dates advanced to December of 1999. A parallel model office was
established with all dates in the data advanced to December of 1999. Parallel
model office processing is being performed using dates from December of 1999 to
January of 2001, to insure all year 2000 processing errors have been corrected.
Testing was completed by the end of the first quarter of 1998. Periodic
regression testing is being performed to monitor continuing compliance. By
addressing year 2000 compliance in a timely manner, compliance has been achieved
using existing staff and without significant impact on the Company operationally
or financially.
Merger of United Trust, Inc. and United Income, Inc.
- ----------------------------------------------------
On March 25, 1997, the Board of Directors of UTI and UII voted to recommend to
the shareholders a merger of the two companies. Under the Plan of Merger, UTI
would be the surviving entity with UTI issuing one share of its stock for each
share held by UII shareholders. A vote of the shareholders of UTI and UII
regarding the proposed merger occurred on July 26, 1999, with shareholders of
both companies approving the transaction. UTI issued 817,517 shares of its
authorized but unissued common stock to former UII shareholders, exclusive of
any dissenter shareholders, in the merger. Immediately following the merger,
United Trust Group, Inc. (UTG), which was now 100% owned by UTI, was liquidated
and UTI changed its name to United Trust Group, Inc.
Accounting and Legal Developments
- ---------------------------------
The FASB has issued SFAS 133 entitled, Accounting for Derivative Instruments and
hedging Activities, which is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. In June 1999, the FASB issued SFAS 137, which
delays the effective date of SFAS 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as a specific type of exposure
hedge. The accounting for changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. The adoption
of SFAS 133 is not expected to have a material effect on our financial position
or results of operations, since the Company has no derivative or hedging type
investments.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Market risk relates, broadly, to changes in the value of financial instruments
that arise from adverse movements in interest rates, equity prices and foreign
exchange rates. The Company is exposed principally to changes in interest rates,
which affect the market prices of its fixed maturities available for sale and
its variable rate debt outstanding. The Company's exposure to equity prices and
foreign currency exchange rates is immaterial.
Interest rate risk
The Company could experience economic losses if it were required to liquidate
fixed income securities available for sale during periods of rising and/or
volatile interest rates. The Company attempts to mitigate its exposure to
adverse interest rate movements through a staggering of the maturities of its
fixed maturity investments and through maintaining cash and other short-term
investments to assure sufficient liquidity to meet its obligations and to
address reinvestment risk considerations.
Tabular presentation
The following table provides information about the Company's long term debt that
is sensitive to changes in interest rates. The table presents principal cash
flows and related weighted average interest rates by; expected maturity dates.
The Company has no derivative financial instruments or interest rate swap
contracts.
<TABLE>
<CAPTION>
September 30, 1999
- ------------------------------------------------------------------------------------------------------------------
Expected maturity date
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1999 2000 2001 2002 2003 Thereafter Total Fair value
Long term debt
Fixed rate 0 0 0 0 0 6,539,193 6,539,193 6,282,438
Avg. int. rate 0 0 0 0 0 8.02% 8.02%
Variable rate 0 0 0 400,000 0 8,325,000 8,725,000 8,725,000
Avg. int. rate 0 0 0 9.25% 0 8.92% 8.93%
</TABLE>
18
<PAGE>
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
NONE
ITEM 2. CHANGE IN SECURITIES.
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
ITEM 5. OTHER INFORMATION.
Merger of United Trust, Inc. and United Income, Inc.
- ----------------------------------------------------
On March 25, 1997, the Board of Directors of UTI and UII voted to recommend to
the shareholders a merger of the two companies. Under the Plan of Merger, UTI
would be the surviving entity with UTI issuing one share of its stock for each
share held by UII shareholders. A vote of the shareholders of UTI and UII
regarding the proposed merger occurred on July 26, 1999 at a special shareholder
meeting, with shareholders of both companies approving the transaction.
Immediately following the merger, United Trust Group, Inc. (UTG), which was now
100% owned by UTI, was liquidated and UTI changed its name to United Trust
Group, Inc.
ITEM 6. EXHIBITS
The Company hereby incorporates by reference the exhibits as reflected in the
Index to Exhibits of the Company's Form 10-K for the year ended December 31,
1998.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST COMMONWEALTH CORPORATION
------------------------------
(Registrant)
Date: November 8, 1999 By /s/ James E. Melville
- ------------------------ ---------------------
James E. Melville
President, Chief Operating Officer
and Director
Date: November 8, 1999 By /s/ Theodore C. Miller
- ------------------------ ----------------------
Theodore C. Miller
Senior Vice President
and Chief Financial Officer
20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> SEP-30-1998
<PERIOD-END> SEP-30-1999
<DEBT-HELD-FOR-SALE> 26,851,666
<DEBT-CARRYING-VALUE> 149,255,416
<DEBT-MARKET-VALUE> 148,925,191
<EQUITIES> 2,041,483
<MORTGAGE> 15,578,903
<REAL-ESTATE> 8,307,667
<TOTAL-INVEST> 218,320,102
<CASH> 19,430,853
<RECOVER-REINSURE> 40,702,858
<DEFERRED-ACQUISITION> 10,393,559
<TOTAL-ASSETS> 322,804,325
<POLICY-LOSSES> 0
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 252,681,807
<POLICY-HOLDER-FUNDS> 19,151,446
<NOTES-PAYABLE> 15,264,193
0
0
<COMMON> 54,538
<OTHER-SE> 29,923,048
<TOTAL-LIABILITY-AND-EQUITY> 322,804,325
17,049,901
<INVESTMENT-INCOME> 10,841,853
<INVESTMENT-GAINS> (384,290)
<OTHER-INCOME> 144,748
<BENEFITS> 17,272,071
<UNDERWRITING-AMORTIZATION> 826,863
<UNDERWRITING-OTHER> 7,379,372
<INCOME-PRETAX> 203,409
<INCOME-TAX> 50,949
<INCOME-CONTINUING> 166,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 166,750
<EPS-BASIC> 3.06
<EPS-DILUTED> 3.06
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
