FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended June 30, 1995
Commission File Number 2-39729
COTTON STATES LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-0830929
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
244 Perimeter Center Parkway, N. E., Atlanta, Georgia 30346
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (404) 391-8600
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 twelve months (or for such
shorter period that the Registrant was required to file such reports)
and (2) has been subject to the filing requirements for at least the
past 90 days.
YES___X___ NO______
The Registrant, as of June 30, 1995, has 2,714,130 shares of common
stock outstanding.
PART I - CONSOLIDATED FINANCIAL STATEMENTS
The following consolidated statements have been prepared by
management. In management's opinion, all adjustments and
reclassifications necessary to a fair statement of position at June
30, 1995 and December 31, 1994 and statement of results for the six
months ended June 30, 1995 and 1994 have been made.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Balance Sheets
June 30, 1995 and December 31, 1994
ASSETS 1995 1994
Investments
Fixed maturities, held for investment, at amortized
cost (market value $33,007,275 in 1995 and
$31,336,004 in 1994) $32,902,320 $33,637,095
Fixed maturities, available for sale, at market
(amortized cost $50,854,601 in 1995 and
$46,039,255 in 1994) 51,976,142 44,450,362
First mortgage loans on real estate 5,538,026 5,916,625
Policy loans 6,580,599 6,543,751
Short-term investments 3,660,739 1,962,140
Total investments 100,657,826 92,509,973
Cash 638,688 2,173,651
Accrued investment income 1,494,857 1,439,721
Accounts receivable, principally premiums 1,652,702 3,007,599
Amount due from reinsurers 1,827,451 1,876,843
Deferred policy acquisition costs 23,110,713 21,953,463
Other assets 1,902,129 1,451,218
$131,284,366 $124,412,468
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $86,172,484 $84,687,257
Policy and contract claims 1,440,336 1,453,553
Federal income taxes 2,835,555 1,459,221
Other liabilities 3,997,689 3,255,617
Total liabilities 94,446,064 90,855,648
Stockholders' Equity:
Common Stock 2,882,220 2,882,220
Additional paid-in capital 1,294,222 1,295,922
Net unrealized gains(losses) on fixed maturities
available for sale 279,792 (1,128,107)
Retained earnings 33,644,611 31,791,715
Less treasury stock, at cost, (168,090 shares in
1995 and 171,071 in 1994) (1,262,543) (1,284,930)
Total stockholders' equity 36,838,302 33,556,820
$131,284,366 $124,412,468
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Summary of Earnings
<TABLE>
<CAPTION>
Six months ended Three months ended
June 30, June 30,
<C> <C> <C> <C>
1995 1994 1995 1994
Income:
<S> <C> <C> <C> <C>
Premium income $3,752,766 $3,887,701 $1,845,851 $1,829,691
Mortality and expense charges earned 3,578,581 3,283,874 $1,832,072 1,585,543
Investment income 3,428,456 3,131,166 $1,673,607 1,582,811
Realized investment gains (losses) 46,325 (39,755) $42,740 0
Brokerage and other income 607,304 446,513 $296,503 254,465
Total income 11,413,432 10,709,499 5,690,773 5,252,510
Benefits and expenses:
Life benefits and claims 3,955,606 3,141,450 2,003,171 1,333,582
A & H benefits and claims 1,237,059 1,693,834 589,619 735,406
Amortization of policy acquisition costs 772,347 681,981 429,094 340,797
Operating expenses 2,634,125 2,356,192 1,309,961 1,207,215
Total benefits and expenses 8,599,137 7,873,457 4,331,845 3,617,000
Earnings before income tax expense 2,814,295 2,836,042 1,358,928 1,635,510
Federal income taxes:
Current tax expense 244,380 526,462 90,109 312,793
Deferred tax expense 499,980 230,000 247,330 170,907
Total Federal income taxes 744,360 756,462 337,439 483,700
Net Earnings
$2,069,935 $2,079,580 $1,021,489 $1,151,810
Earnings per share of common stock 0.76 $ 0.80 $ 0.37 $ 0.44
Weighted average number of shares
used in computing earnings per share 2,712,227 2,590,925 2,712,227 2,590,925
</TABLE>
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 1995 and 1994
1995 1994
Cash flows from operating activities:
Net Earnings $2,069,935 $2,079,580
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Increase in policy liabilities and accruals 1,472,010 2,737,999
Increase in deferred policy acquisition costs (1,052,088) (1,256,831)
Change in Federal income taxes (62,264) 174,999
Decrease in accounts receivable and
amounts due from reinsurers 1,404,289 113,903
Other, net (236,025) 775,259
Net cash provided from operating activities 3,595,857 4,624,909
Cash flows from investing activities:
Purchase of fixed maturities held for investment 0 (4,284,222)
Purchase of fixed maturities available for sale (21,409,763) (14,690,821)
Sale of fixed maturities available for sale 15,279,459 17,791,176
Proceeds from maturity and redemption of fixed
maturities held for investment 719,402 566,858
Proceeds from maturity and redemption of fixed
maturities available for sale 1,736,730 1,965,634
First mortgage loans originated (819,500)
Principal collected on first mortgage loans 378,599 728,380
Policy Loans 36,848 (137,869)
Other, net 43,606 430,509
Net cash provided (used) in investing activities (3,215,119) 1,550,145
Cash flows from financing activities:
Notes payable principal reduction 0 (500,000)
Cash dividends paid (217,102) (155,456)
Net cash (used) by financing activities (217,102) (655,456)
Net increase in cash and cash equivalents: $163,636 $5,519,598
Cash and cash equivalents:
Beginning of period 4,135,791 3,451,941
End of period $4,299,427 $8,971,539
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
There have been no material changes in the Company's financial
condition since December 31, 1994. As reported in the Company's
Annual Report to its stockholders for the year ended December 31,
1994, the Company does not anticipate the necessity of entering the
debt or equity market in order to meet short-term or long-term
obligations.
Mortgage Loans
The Company's mortgage loan policy stipulates that the Company will
loan no more than 80% of the value of residential loans and no more
than 75% of the value on commercial loans. For the past five years,
the Company has granted loans only to employees (excluding officers
and directors), agents, agent's relatives, employees of Gold Kist,
Inc. (a related party) and current mortgagees.
The geographic distribution of the loan portfolio as of June 30, 1995
and December 31, 1994 is:
No. of Loans Book Value
06/30/9 12/31/94 State 06/30/95 12/31/94
6 7 Alabama $388,253 $413,405
6 7 Florida 478,337 493,445
96 101 Georgia 4,671,436 5,009,775
108 115 $5,538,026 $5,916,625
The Company has a large concentration of loans in Georgia; however,
only three loans for $245,896 are past due more than three months.
Because the loan-to-value ratio on these delinquent loans is 43%, the
Company does not anticipate any loss should it choose to foreclose.
The Company has foreclosed on only one loan since 1985 and incurred no
loss on the sale of the underlying collateral.
Results of Operations
Premium Income
Total premium income, which includes traditional and A & H premiums,
was down 3% year to date and up 1% quarter to date. Traditional
premium income is up 15% year to date due to continued sale of the
Company's new participating whole life policy, but is offset by a
decrease in group A&H premiums of 23% which will continue to fluctuate
as premiums are based on actual claims experience. Traditionally, the
second quarter has been strong for premium growth as the Company's
major sales campaign (the "President's Campaign") ends on March 31
with a majority of the business being issued and inforced during the
second quarter. The Company's only group A&H plans cover employees
and the Company's agents. No other group insurance is solicited.
Individual A&H premiums will continue to fluctuate as this is a closed
block of run-off business.
Mortality and expense charges earned
Universal life contract deposits are up 13% year to date and 3% for
the second quarter of 1995. Mortality and expense charges earned on
these deposits were up 9% year to date and up 16% for the second
quarter. The disproportionate increase in mortality and expense
charges earned versus increase in deposits is due to the leveling of
reinsurance credits classified as mortality and expense charges
earned. As previously discussed, both the first and second quarters
traditionally reflect the results of the "President's Campaign" sales
contest. Annuity contract deposits are down 18% from 1994. The
Company does not actively solicit annuity business and has held
credited interest rates lower than competitive rates.
Investment Income
Investment income was up 9% over the year earlier quarter, due
primarily to a 12% increase in total invested assets and improved
overall bond market conditions.
Realized Investment Gains and Losses
The small amount of realized investment gains and losses resulted from
the sale of selected bonds triggered by responses to general market
conditions.
Brokerage Income
The 36% year to date and 17% quarter to date increase in brokerage
income is in line with the Company's expectations with regards to the
Company's subsidiaries, CSI Brokerage Services, Inc. and CS Marketing
Resources, Inc. Both Companies receive override commissions from
other insurance carriers and their revenues may fluctuate based on the
timing of receipt of the overrides. Additionally, CSI Brokerage
Services, Inc. earned $15,000 of interest income from an advance to an
affiliated company. The Company expects other income to fluctuate as
this advance is paid down.
Benefits and Operating Expenses
Ordinary benefits as a percentage of premium income and mortality and
expense charges earned increased 10% year to date and 15% quarter to
date. Traditional and universal life death benefits were
approximately $735,000 higher than 1994 levels. The second quarter of
1994 exhibited one of the best quarters of mortality experience in the
Company's history. The Company indicated that it did not expect
mortality rates to continue that trend. Past financial results have
indicated that death claims can and will fluctuate due to the
Company's size and can dramatically impact reported quarterly
earnings. Accident and health benefits decreased 28% and will
continue to fluctuate as experience and related premium income are
generally based on actual claims experience. Expenses (including
amortization of policy acquisition costs) as a percentage of premium
income, mortality and expense charges and brokerage income increased
3% year to date and 2% quarter to date. The Company continues to
emphasize expense controls, but minor fluctuations are still expected.
Federal Income Taxes
Current taxes are provided based on estimates of the projected
effective annual tax rate. Deferred taxes are provided on the basis of
SFAS 109 adopted January 1, 1993.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a defendent in various actions incidental to the
conduct of its business. The Company intends to vigorously defend
the litigation and while the ultimate outcome of these matters
cannot be estimated with certainty, management does not believe the
actions will results in any material loss to the Company.
Item 2. Changes 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
NONE
Item 6. Exhibits and Reports on Form 8-K.
NONE
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.
COTTON STATES LIFE INSURANCE COMPANY
Registrant
Date: 08/10/95
Gary W. Meader
Chief Financial Officer-Treasurer
Date: 08/10/95
William J. Barlow
Vice President-Controller
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<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 51,976,142
<DEBT-CARRYING-VALUE> 32,902,320
<DEBT-MARKET-VALUE> 33,007,275
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<MORTGAGE> 5,538,026
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<TOTAL-INVEST> 100,657,826
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<RECOVER-REINSURE> 1,827,451
<DEFERRED-ACQUISITION> 23,110,713
<TOTAL-ASSETS> 131,284,366
<POLICY-LOSSES> 87,612,820
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<UNDERWRITING-AMORTIZATION> 772,347
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<INCOME-TAX> 744,360
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