THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 902(g) OF REGULATION S-T
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 September 30, 1995
Commission File Number 2-39729
COTTON STATES LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
GEORGIA 58-830929
(State or other jurisdictio (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 September 30, 1995, has 3,395,241 shares of
common stock outstanding. This number has been retroactively restated
to reflect the October 16, 1995 stock dividend.
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 September 30, 1995 and December 31,
1994 and statement of results for the nine months ended September 30,
1995 and 1994 have been made.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Balance Sheets
September 30, 1995 and December 31, 1994
ASSETS 1995 1994
Investments
Fixed maturities, held for investment, at amortized
cost (market value $32,006,231 in 1995 and
$31,336,004 in 1994) $31,833,431 $33,637,095
Fixed maturities, available for sale, at market
(amortized cost $53,923,174 in 1995 and
$46,039,255 in 1994) 55,257,143 44,450,362
First mortgage loans on real estate 5,254,890 5,916,625
Policy loans 6,576,993 6,543,751
Short-term investments 4,117,279 1,962,140
Total investments 103,039,736 92,509,973
Cash 1,241,901 2,173,651
Accrued investment income 1,524,795 1,439,721
Accounts receivable, principally premiums 2,310,903 3,007,599
Amount due from reinsurers 1,761,008 1,876,843
Deferred policy acquisition costs 23,627,104 21,953,463
Other assets 804,279 1,451,218
$134,309,726 $124,412,468
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $87,489,811 $84,687,257
Policy and contract claims 1,286,023 1,453,553
Federal income taxes 2,681,291 1,459,221
Other liabilities 4,681,842 3,255,617
Total liabilities 96,138,967 90,855,648
Stockholders' Equity:
Common Stock (1) 3,602,775 3,602,775
Additional paid-in capital (1) 573,667 575,367
Net unrealized gains (losses) on fixed maturities
available for sale 698,166 (1,128,107)
Retained earnings 34,558,694 31,791,715
Less treasury stock, at cost, (207,534 shares in
1995 and 213,839 in 1994) (1) (1,262,543) (1,284,930)
Total stockholders' equity 38,170,759 33,556,820
$134,309,726 $124,412,468
(1) All share and per share amounts have been adjusted for the October 16, 1995
twenty five percent stock dividend.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Summary of Earnings
<TABLE>
<CAPTION>
<S>
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
Income:
<S> <C> <C> <C> <C>
Premium income $5,614,812 $5,526,255 $1,862,046 $1,638,554
Mortality and expense charges earned 5,633,148 5,003,587 $2,054,567 1,719,713
Investment income 5,243,841 4,726,578 $1,815,385 1,595,412
Realized investment gains (losses) 45,560 (45,080) ($765) (5,325)
Brokerage and other income 922,135 673,532 $314,831 227,019
Total income 17,459,496 15,884,872 6,046,064 5,175,373
Benefits and expenses:
Life benefits and claims 6,214,640 5,423,025 2,259,034 2,281,575
A & H benefits and claims 1,788,620 2,258,657 551,561 564,823
Amortization of policy acquisition costs 1,336,455 1,026,485 564,108 344,504
Operating expenses 3,977,117 3,514,684 1,342,992 1,158,492
Total benefits and expenses 13,316,832 12,222,851 4,717,695 4,349,394
Earnings before income tax expense 4,142,664 3,662,021 1,328,369 825,979
Federal income taxes:
Current tax expense 441,639 700,234 197,259 173,772
Deferred tax expense 608,292 261,289 108,312 31,289
Total Federal income taxes 1,049,931 961,523 305,571 205,061
Net Earnings $3,092,733 $2,700,498 $1,022,798 $620,918
Earnings per share of common stock (1) $ 0.91 $ 0.83 $ 0.30 $ 0.19
Weighted average number of shares
used in computing earnings
per share (1) 3,391,085 3,238,656 3,391,085 3,238,656
</TABLE>
(1)All share and per share amounts have been adjusted for the October 16, 1995
twenty five percent stock dividend.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1995 and 1994
<TABLE>
<CAPTION>
<C> <C>
1995 1994
Cash flows from operating activities:
<S> <C> <C>
Net Earnings $3,092,733 $2,700,498
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Increase in policy liabilities and accruals 4,061,249 4,325,748
Increase in deferred policy acquisition costs (1,673,641) (1,787,415)
Change in Federal income taxes (80,000) 268,131
Decrease in accounts receivable and
amounts due from reinsurers 812,531 (703,210)
Other, net 338,032 991,846
Net cash provided from operating activities 6,550,904 5,795,598
Cash flows from investing activities:
Purchase of fixed maturities held for investment 0 (4,284,222)
Purchase of fixed maturities available for sale (26,444,353) (21,780,513)
Sale of fixed maturities available for sale 16,300,686 18,267,836
Proceeds from maturity and redemption of fixed
maturities held for investment 1,780,728 574,297
Proceeds from maturity and redemption of fixed
maturities available for sale 2,667,695 2,281,011
First mortgage loans originated 0 (830,637)
Principal collected on first mortgage loans 661,735 1,113,696
Policy Loans (33,242) (80,333)
Other, net 64,989 0
Net cash provided (used) in investing activities (5,001,762) (4,738,865)
Cash flows from financing activities:
Notes payable principal reduction 0 (561,072)
Proceeds from exercise of stock options 20,688 153,545
Cash dividends paid (325,753) (259,092)
Net cash (used) by financing activities (325,753) (666,619)
Net increase in cash and cash equivalents: $1,223,389 $390,114
Cash and cash equivalents:
Beginning of period 4,135,791 3,451,941
End of period $5,359,180 $3,842,055
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 September 30,
1995 and December 31, 1994 is:
No. of Loans Book Value
06/30/95 12/31/94 State 06/30/95 12/31/94
6 7 Alabama $382,567 $413,405
6 7 Florida 472,213 493,445
92 101 Georgia 4,400,110 5,009,775
104 115 $5,254,890 $5,916,625
The Company has a large concentration of loans in Georgia; however, only
three loans for $163,844 are past due more than three months. Because
the loan-to-value ratio on these delinquent loans is 47%, 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, is
up 2% year to date and up 14% 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 16% which will continue to fluctuate as premiums are based on
actual claims experience. 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
third quarter of 1995. Mortality and expense charges earned on these
deposits were up 13% year to date and up 19% for the third quarter.
Annuity contract deposits are down 19% 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 11% over the year earlier quarter, due primarily
to a 11% 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 37% year to date increase in brokerage income is in line with the
Company's expectations with regard 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 override
commissions. Additionally, CSI Brokerage Services, Inc. earned $23,000
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 5% year to date and decreased 10%
quarter to date. Traditional and universal life death benefits were
approximately $460,000 higher than 1994 levels year to date, but quarter
to date, death benefits were approximately $275,000 lower than 1994
levels. 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 21%
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 3% 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
The Company declared a 25% stock dividend that was distributed
October 16, 1995 to stockholders on record on October 2, 1995.
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: 11/13/95
Gary W. Meader
Chief Financial Officer-Treasurer
Date: 11/13/95
William J. Barlow
Vice President-Controller
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 55,257,143
<DEBT-CARRYING-VALUE> 31,833,431
<DEBT-MARKET-VALUE> 32,006,231
<EQUITIES> 0
<MORTGAGE> 5,254,890
<REAL-ESTATE> 0
<TOTAL-INVEST> 103,039,736
<CASH> 1,241,901
<RECOVER-REINSURE> 1,761,008
<DEFERRED-ACQUISITION> 23,627,104
<TOTAL-ASSETS> 134,309,726
<POLICY-LOSSES> 88,775,834
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 3,602,775
0
0
<OTHER-SE> 34,567,984
<TOTAL-LIABILITY-AND-EQUITY> 134,309,726
11,247,960
<INVESTMENT-INCOME> 5,243,841
<INVESTMENT-GAINS> 45,560
<OTHER-INCOME> 922,135
<BENEFITS> 8,003,260
<UNDERWRITING-AMORTIZATION> 1,336,455
<UNDERWRITING-OTHER> 3,977,117
<INCOME-PRETAX> 4,142,664
<INCOME-TAX> 1,049,931
<INCOME-CONTINUING> 3,092,733
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,092,733
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
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<PAYMENTS-PRIOR> 0
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<CUMULATIVE-DEFICIENCY> 0
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