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, 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 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 June 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 June 30, 1996 and December 31, 1995 and
statement of results for the six months ended June 30, 1996 and 1995 have
been made.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Balance Sheets
June 30, 1996 and December 31, 1995
ASSETS 1996 1995
Investments
Fixed maturities, held for investment, at amortized
cost (market value $20,866,410 in 1996 and
$21,476,766 in 1995) $21,064,903 $20,632,468
Fixed maturities, available for sale, at market
(amortized cost $73,316,238 in 1996 and
$67,779,213 in 1995) 72,871,612 70,328,172
First mortgage loans on real estate 5,012,353 5,424,472
Policy loans 6,905,559 6,675,954
Short-term investments 3,095,376 3,774,989
Total investments 108,949,803 106,836,055
Cash 352,147 1,721,911
Accrued investment income 1,795,021 1,637,817
Accounts receivable, principally premiums 2,400,549 2,076,227
Amount due from reinsurers 2,327,524 1,885,779
Deferred policy acquisition costs 25,484,501 24,171,011
Other assets 583,765 1,053,179
$141,893,310 $139,381,979
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $93,114,337 $89,532,469
Policy and contract claims 1,568,702 1,774,740
Federal income taxes 2,120,828 3,292,476
Other liabilities 4,935,332 5,095,257
Total liabilities 101,739,199 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 (352,303) 1,354,897
Retained earnings 36,755,341 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 40,154,111 39,687,037
$141,893,310 $139,381,979
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Summary of Earnings
<TABLE>
<S>
Six months ended Three months ended
June 30, June 30,
<C> <C> <C> <C>
1996 1995 1996 1995
Income:
<S> <C> <S> <C> <C> <C> <C>
Premium income $2,749,177 $3,752,766 $1,375,889 $1,845,851
Mortality and expense charges earned (1) 4,241,931 3,319,094 2,096,955 1,704,283
Investment income 3,750,438 3,428,456 1,904,824 1,673,607
Realized investment gains (losses) 54,646 46,325 362 42,740
Brokerage and other income 673,367 607,304 328,811 296,503
Total income (1) 11,469,559 11,153,945 5,706,841 5,562,984
Benefits and expenses:
Life benefits and claims 4,629,785 3,955,606 2,413,514 2,003,171
A & H benefits and claims 67,662 1,237,059 45,984 589,619
Amortization of policy acquisition costs (1) 1,233,981 512,860 601,976 301,305
Operating expenses 2,548,456 2,634,125 1,293,373 1,309,961
Total benefits and expenses (1) 8,479,884 8,339,650 4,354,847 4,204,056
Earnings before income tax expense 2,989,675 2,814,295 1,351,994 1,358,928
Federal income taxes:
Current tax expense 544,459 244,380 266,535 90,109
Deferred tax expense 63,822 499,980 (19,963) 247,330
Total Federal income taxes 608,281 744,360 246,572 337,439
Net Earnings $2,381,394 $2,069,935 $1,105,422 $1,021,489
Earnings per share of common stock $.70 $.61 $.33 $.30
Weighted average number of shares
used in computing earnings per share 3,401,488 3,390,284 3,401,488 3,390,284
</TABLE>
* 1995 share and per share amounts have been adjusted for the October 1995 five
for four stock split.
(1) Differs from amounts previously reported due to reclassifications.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net Earnings $2,381,394 $2,069,935
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Increase in policy liabilities and accruals 3,215,905 1,472,010
Increase in deferred policy acquisition costs (1,313,490) (1,052,088)
Change in Federal income taxes 72,171 (62,264)
Decrease in accounts receivable and
amounts due from reinsurers (766,067) 1,404,289
Other, net 354,774 (236,025)
Net cash provided from operating activities 3,944,687 3,595,857
Cash flows from investing activities:
Purchase of fixed maturities held for investment (1,495,781) 0
Purchase of fixed maturities available for sale (11,133,129) (21,409,763)
Sale of fixed maturities available for sale 1,009,332 15,279,459
Proceeds from maturity and redemption of fixed
maturities held for investment 1,050,000 719,402
Proceeds from maturity and redemption of fixed
maturities available for sale 4,537,449 1,736,730
Principal collected on first mortgage loans 412,119 378,599
Policy Loans (229,605) 36,848
Other, net 62,671 43,606
Net cash used in investing activities (5,786,944) (3,215,119)
Cash flows from financing activities:
Cash dividends paid (306,520) (217,102)
Proceeds from exercise of stock options 99,400 0
Net cash (used) by financing activities (207,120) (217,102)
Net increase <decrease> in cash and cash equivalents: ($2,049,377) $163,636
Cash and cash equivalents:
Beginning of period 5,496,900 4,135,791
End of period $3,447,523 $4,299,427
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 June 30, 1996 and
December 31, 1995 is:
No. of Loans Book Value
06/30/96 12/31/95 State 06/30/96 12/31/95
6 6 Alabama $472,048 $483,325
7 7 Florida 551,751 564,237
87 93 Georgia 3,988,554 4,376,910
100 106 $5,012,353 $5,424,472
The Company has a large concentration of loans in Georgia; however, only
five loans for $233,750 are past due more than three months. Because the
loan-to-value ratio on these delinquent loans is 41%, 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 25% when compared
to the second quarter of 1995. Traditional premium income is up 15% as
compared to the second 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 24% 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 11% from the second quarter of
1995. Mortality and expense charges earned on these deposits increased
23%. 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 12% 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 11% 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 increased 3% over the year earlier quarter.
Traditional and universal life death benefits were approximately $125,000
higher 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 8% over the
second quarter of 1995. The increase is due to increased amortization of
policy acquisition costs. General operating expenses decreased $86,000
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 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
At the annual meeting of shareholders held on April 22, 1996, the
following directors were elected for three (3) year terms expiring
in 1999.
Gaylord Coan
Champney McNair
E. Jenner Wood, III
The shareholders also approved a Directors' Discounted Stock Option
Plan and an employee Performance Share Awards Plan.
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: 08/08/96
Gary W. Meader
Sr. Vice President/Chief Financial Officer/Treasurer
Date: 08/08/96
William J. Barlow
Vice President/Controller
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 72,871,612
<DEBT-CARRYING-VALUE> 21,064,903
<DEBT-MARKET-VALUE> 20,866,410
<EQUITIES> 0
<MORTGAGE> 5,012,353
<REAL-ESTATE> 0
<TOTAL-INVEST> 108,949,803
<CASH> 352,14724
<RECOVER-REINSURE> 2,327,5241
<DEFERRED-ACQUISITION> 25,484,5010
<TOTAL-ASSETS> 141,893,310
<POLICY-LOSSES> 94,683,039
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 3,602,775
<OTHER-SE> 36,551,336
<TOTAL-LIABILITY-AND-EQUITY> 141,893,310
6,991,108
<INVESTMENT-INCOME> 3,750,438
<INVESTMENT-GAINS> 54,646
<OTHER-INCOME> 673,367
<BENEFITS> 4,697,447
<UNDERWRITING-AMORTIZATION> 1,233,981
<UNDERWRITING-OTHER> 2,548,456
<INCOME-PRETAX> 2,989,675
<INCOME-TAX> 608,281
<INCOME-CONTINUING> 2,381,394
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,381,394
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
