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 March 31, 1996
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 (770) 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 March 31, 1996, has 3,396,164 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 certain
reclassifications necessary to a fair statement of the results for
the three months ended March 31, 1996 and 1995 have been made.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Balance Sheets
March 31, 1996 and December 31, 1995
ASSETS 1996 1995
Investments
Fixed maturities, held for investment, at amortized
cost (market value $20,121,074 in 1996 and
$21,476,766 in 1995) $20,075,616 $20,632,468
Fixed maturities, available for sale, at market
(amortized cost $73,975,798 in 1996 and
$67,779,213 in 1995) 74,397,661 70,328,172
First mortgage loans on real estate 5,323,215 5,424,472
Policy loans 6,900,159 6,675,954
Short-term investments 1,559,846 3,774,989
Total investments 108,256,497 106,836,055
Cash 335,454 1,721,911
Accrued investment income 1,705,283 1,637,817
Accounts receivable, principally premiums 2,307,545 2,076,227
Amount due from reinsurers 1,816,484 1,885,779
Deferred policy acquisition costs 24,894,889 24,171,011
Other assets 619,184 1,053,179
$139,935,336 $139,381,979
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $91,150,295 $89,532,469
Policy and contract claims 1,239,309 1,774,740
Federal income taxes 2,606,397 3,292,476
Other liabilities 5,243,957 5,095,257
Total liabilities 100,239,958 99,694,942
Stockholders' Equity:
Common Stock 3,602,775 3,602,775
Additional paid-in capital 1,291,423 1,292,207
Net unrealized (losses) on fixed maturities
available for sale 220,889 1,354,897
Retained earnings 35,820,597 34,680,468
Less treasury stock, at cost, (206,611shares in
1996 and 207,011 in 1995) (1,240,306) (1,243,310)
Total stockholders' equity 39,695,378 39,687,037
$139,935,336 $139,381,979
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Summary of Earnings
Three months ended
March 31,
1996 1995
Income:
Premium income $1,373,288 $1,906,915
Mortality and expense charges earned 2,144,976 1,614,811
Investment income 1,845,614 1,754,849
Realized investment gains (losses) 54,284 3,585
Brokerage and other income 344,556 310,801
Total income 5,762,718 5,590,961
Benefits and expenses:
Life benefits and claims 2,216,271 1,952,435
A & H benefits and claims 21,678 647,440
Amortization of policy acquisition costs 632,005 211,555
Operating expenses 1,255,083 1,324,164
Total benefits and expenses 4,125,037 4,135,594
Earnings before income tax expense 1,637,681 1,455,367
Federal income taxes:
Current tax expense 277,924 154,271
Deferred tax expense 83,785 252,650
Total Federal income taxes 361,709 406,921
Net Earnings $1,275,972 $1,048,446
Earnings per share of common stock $0.37 $0.31
Weighted average number of shares
used in computing earnings per share 3,396,129 3,388,958
** 1995 share and per share amounts have been adjusted for the October
1995 five-for-four stock split.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Statements of Cash Flows
Three months ended March 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net Earnings $1,275,972 $1,048,446
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Increase in policy liabilities and accruals 1,231,095 979,232
Increase in deferred policy acquisition costs (723,878) (608,556)
Change in Federal income taxes 307,785 123,440
Decrease (increase) in accounts receivable and
amounts due from reinsurers (162,023) 1,074,497
Other, net 365,751 187,473
Net cash provided from operating activities 2,294,702 2,804,532
Cash flows from investing activities:
Purchase of fixed maturities available for sale (8,106,411) (7,535,855)
Sale of fixed maturities available for sale 1,009,332 12,091,683
Proceeds from maturity and redemption of fixed
maturities held for investment 550,000 510,728
Proceeds from maturity and redemption of fixed
maturities available for sale 876,302 800,797
First mortgage loans originated 0 0
Principal collected on first mortgage loans 101,257 175,930
Policy Loans (224,205) 56,791
Other, net 31,045 23,832
Net cash provided (used) in investing activities (5,762,680) 6,123,906
Cash flows from financing activities:
Cash dividends paid (135,842) (108,446)
Proceeds from exercise of stock options 2,220 0
Net cash (used) by financing activities (133,622) (108,446)
Net increase (decrease) in cash and cash equivalents: ($3,601,600) $8,819,992
Cash and cash equivalents:
Beginning of period 5,496,900 4,135,791
End of period $1,895,300 $12,955,783
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, 1995. As reported in the Company's
Annual Report to its stockholders for the year ended December 31,
1995, 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 March 31,
1996 and December 31, 1995 is:
No. of Loans Book Value
03/31/96 12/31/95 State 03/31/96 12/31/95
6 6 Alabama $478,187 $483,325
7 7 Florida 557,878 564,237
93 93 Georgia 4,287,150 4,376,910
106 106 $5,323,215 $5,424,472
The Company has a large concentration of loans in Georgia; however,
only three loans for $159,907 are past due more than three months.
Because the loan-to-value ratio on these delinquent loans is 46%, the
Company does not anticipate any loss should it choose to foreclose.
The Company has forclosed on only one loan since 1985 and incurred no
loss on the sale of the underlying collateral.
Results of Operations
Premium Income
As of January 1, 1996 the Company ceased writing group health
insurance on it's agents and employees thus causing a decrease in
both premium income and benefits relating to this line. As discussed
in the Company's 1995 Form 10-K, the decrease in group premiums has
no effect on the Company's earnings because these premiums were based
on actual claim experience plus a modest expense allowance. The
Company expects to report a decrease in group premiums and benefits
for all of 1996 of approximately $2,000,000. As a result, total
premium income was down 28% when compared to the first quarter of
1995. Traditional premium income is up 17% as compared to the first
quarter of 1995 due to continued sales of the Company's relatively
new participating whole life policy as well as two new simplified
issue whole life insurance products. The individual accident and
health premiums are down 11% from last year. This block continues to
run off as the Company ceased writing new individual A&H policies in
1988.
Mortality and expense charges earned
Universal Life contract deposits increased 8% from the first quarter
of 1995. Mortality and expense charges earned on these deposits
increased 33%. Mortality and expense charges earned on the Company's
payroll deduction universal life product continue to grow as new
cases are added and other inforce cases mature through
re-enrollments. As indicated in the Company's Form 10-K, certain
reclassifications were made between mortality and expense charges
earned and benefits and expenses relating to unearned expense charges
and amortization of deferred policy acquisition costs. These
reclassifications had no effect on reported earnings but will
influence quarterly comparisons throughout 1996 versus 1995 until
December 31. On an overall annual basis, the Company expects
increases in the 8% to 10% range. Annuity contract deposits continue
to decrease as the Company does not actively solicit annuity
business.
Investment Income
Investment income was up 5% over the year earlier quarter. The
downturn in the bond market during the first quarter of 1996
influenced overall investment performance.
Realized Investment Gains and Losses
The small amount of realized investment gains resulted from the sale
of selected bonds triggered by responses to general market
conditions.
Brokerage Income
The 11% increase in brokerage income over the year earlier quarter 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.
Benefits and Operating Expenses
Ordinary benefits as a percentage of premium income and mortality and
expense charges earned decreased 5% over the year earlier quarter.
Traditional and universal life death benefits were approximately
$200,000 lower than 1995 levels. As previously discussed, group
accident and health benefits and premiums are expected to be zero for
the year as the Company ceased writing this coverage at January 1,
1996. The small amount of accident and health benefits is due to the
runoff of individual accident and health that the Company ceased
writing in 1988. Expenses (including amortization of policy
acquisition costs) as a percentage of premium income, mortality and
expense charges and brokerage income increased 9% over the first
quarter of 1995. The increase is due to increased amortization of
policy acquisition costs. General operating expenses decreased
$70,000 evidencing continued cost controls.
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
On April 22, 1996 the Board of Directors increased the quarterly
dividend to $.05 per share from $.04 per share for shareholders
of record June 14, 1996 and payable on July 1, 1996.
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: 05/14/96 Gary W. Meader
Sr. Vice President/Chief Financial Officer/
Treasurer
Date: 05/14/96 William J. Barlow
Vice President/Controller
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