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, 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 (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: (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 September 30, 1996, has 3,413,674 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 September 30, 1996 and December 31, 1995 and statement
of results for the nine months ended September 30, 1996 and 1995 have been made.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Balance Sheets
September 30, 1996 and December 31, 1995
ASSETS 1996 1995
Investments:
Fixed maturities, held for investment, at amortized
cost (market value $20,494,469 in 1996 and
$21,476,766 in 1995) $20,533,100 $20,632,468
Fixed maturities, available for sale, at market
(amortized cost $76,869,621 in 1996 and
$67,779,213 in 1995) 76,521,928 70,328,172
First mortgage loans on real estate 4,893,194 5,424,472
Policy loans 6,993,680 6,675,954
Short-term investments 2,740,816 3,774,989
Total investments 111,682,718 106,836,055
Cash 412,187 1,721,911
Accrued investment income 1,747,325 1,637,817
Accounts receivable, principally premiums 2,453,743 2,076,227
Amount due from reinsurers 2,037,552 1,885,779
Deferred policy acquisition costs 26,103,676 24,171,011
Other assets 556,716 1,053,179
$144,993,917 $139,381,979
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $95,060,523 $89,532,469
Policy and contract claims 1,285,605 1,774,740
Federal income taxes 2,434,671 3,292,476
Other liabilities 4,921,495 5,095,257
Total liabilities 103,702,294 99,694,942
Stockholders' Equity:
Common Stock 3,602,775 3,602,775
Additional paid-in capital 1,283,969 1,292,207
Net unrealized gains (losses) on fixed maturities
available for sale (273,772) 1,354,897
Retained earnings 37,814,322 34,680,468
Less treasury stock, at cost, (189,101 shares in
1996 and 207,011 in 1995) (1,135,671) (1,243,310)
Total stockholders' equity 41,291,623 39,687,037
$144,993,917 $139,381,979
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Summary of Earnings
Nine months ended Three months ended
September 30, September 30,
1996 1995* 1996 1995*
Income:
Premium income $4,334,934 $5,614,812 $1,585,757 $1,862,046
Mortality and expense charges
earned 6,507,896 5,261,003 2,265,965 1,941,909
Investment income 5,663,378 5,243,841 1,912,940 1,815,385
Realized investment gains (losses 105,776 45,560 51,130 (765)
Brokerage and other income 1,017,041 922,135 343,674 314,831
Total income 17,629,025 17,087,351 6,159,466 5,933,406
Benefits and expenses:
Life benefits and claims 7,265,548 6,214,640 2,635,763 2,259,034
A & H benefits and claims 110,100 1,788,620 42,438 551,561
Amortization of policy acquisition
costs 1,825,233 964,310 591,252 451,450
Operating expenses 3,762,052 3,977,117 1,213,596 1,342,992
Total benefits and expenses 12,962,933 12,944,687 4,483,049 4,605,037
Earnings before income tax expense 4,666,092 4,142,664 1,676,417 1,328,369
Federal income taxes:
Current tax expense 781,333 441,639 236,874 197,259
Deferred tax expense 273,707 608,292 209,885 108,312
Total Federal income taxes 1,055,040 1,049,931 446,759 305,571
Net Earnings $3,611,052 $3,092,733 $1,229,658 $1,022,798
Earnings per share of costs $1.06 $ 0.91 $ 0.36 $ 0.30
Weighted average number of shares
used in computing earnings
per share 3,405,550 3,391,085 3,405,550 3,391,085
* 1995 share and per share amounts have been adjusted for the October 1995 five
for four stock
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net Earnings $3,611,052 $3,092,733
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Increase in policy liabilities and accruals 4,865,157 4,061,249
Increase in deferred policy acquisition costs (1,932,665)(1,673,641)
Change in Federal income taxes 353,056 (80,000)
Increase in accounts receivable and
amounts due from reinsurers (529,282) 812,531
Other, net 444,969 338,032
Net cash provided from operating activities 6,812,287 6,550,904
Cash flows from investing activities:
Purchase of fixed maturities held for investment (1,495,781) 0
Purchase of fixed maturities available for sale (16,158,364)(26,444,353)
Sale of fixed maturities available for sale 1,009,332 16,300,686
Proceeds from maturity and redemption of fixed
maturities held for investment 1,575,581 1,780,728
Proceeds from maturity and redemption of fixed
maturities available for sale 5,987,328 2,667,695
Principal collected on first mortgage loans 531,278 661,735
Policy Loans (317,726) (33,242)
Other, net 90,865 64,989
Net cash used in investing activities (8,777,487)(5,001,762)
Cash flows from financing activities:
Cash dividends paid (477,197) (325,753)
Proceeds from exercise of stock options 99,400 20,688
Net cash (used) by financing activities (377,797) 20,688
Net increase <decrease> in cash and cash equivalents: ($2,342,997) $1,569,830
Cash and cash equivalents:
Beginning of period 5,496,000 4,135,791
End of period $3,153,003 $5,705,621
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 lend 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, 1996
and December 31, 1995 is:
No. of Loans Book Value
09/30/96 12/31/95 State 35,338 35,064
6 6 Alabama 465,608 483,325
7 7 Florida 544,795 564,237
84 93 Georgia 3,882,791 4,376,910
97 106 4,893,194 5,424,472
The Company has a large concentration of loans in Georgia; however, only seven
loans for $545,348 are past due more than three months. Because the loan-to-
value ratio on these delinquent loans is 48%, 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
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 health premiums does not affect 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 health
premiums and benefits for all of 1996 of approximately $2,000,000. As a
result, total premium income was down 15% when compared to the third quarter
of 1995.
Traditional premium income is up 23% as compared to the third 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 21% 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 3% from the third quarter of 1995.
Mortality and expense charges earned on these deposits increased 17% for the
quarter and 23% year-to- date. 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. A larger
investment portfolio and improved yields 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 9% increase in brokerage income over the year earlier quarter and year-to-
date 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 1% from the year earlier quarter. Traditional and
universal life death benefits were approximately $5,000 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 decreased 1% over the third quarter of 1995 and increased 5% year-to-
date. The year-to- date increase is due to higher levels of amortization of
deferred policy acquisition costs. General operating expenses decreased
$215,000 year-to-date 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 defendant 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
Date11/15/96 Gary W. Meader
Sr. Vice President/Chief
Financial Officer/Treasurer
Date11/15/96 William J. Barlow
Vice President/Controller
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