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, 1997
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
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The Registrant, as of March 31, 1997, has 4,267,093 shares of common stock
outstanding. All shares and per share amounts have been retroactively
restated to reflect the April 30, 1997 five for four stock dividend.
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, 1997 and 1996 have been made.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Balance Sheets
March 31, 1997 and December 31, 1996
ASSETS 1997 1996
Investments
Fixed maturities, held for investment, at amortized
cost (market value $19,927,203 in 1997 and
$20,397,039 in 1996) $20,139,649 $20,245,783
Fixed maturities, available for sale, at market
(amortized cost $81,485,893 in 1997 and
$80,071,698 in 1996) 80,354,254 80,622,249
First mortgage loans on real estate 4,624,456 4,770,277
Policy loans 7,201,656 7,037,745
Short-term investments 2,990,881 2,250,551
Total investments 115,310,896 114,926,605
Cash 298,590 279,742
Accrued investment income 1,750,076 1,791,048
Accounts receivable, principally premiums 2,446,583 2,371,562
Amount due from reinsurers 1,879,593 2,027,229
Deferred policy acquisition costs 27,647,943 26,790,307
Other assets 499,262 637,694
$149,832,943 $148,824,187
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits $98,217,251 $96,935,660
Policy and contract claims 1,264,697 1,319,416
Federal income taxes 2,189,947 2,650,383
Other liabilities 4,878,215 5,004,876
Total liabilities 106,550,110 105,910,335
Stockholders' Equity:
Common Stock 4,503,469 4,503,469
Additional paid-in capital 1,283,969 1,283,969
Net unrealized gains (losses) on fixed maturities
available for sale (594,032) 297,609
Retained earnings 39,225,098 37,964,476
Less treasury stock, at cost, (236,376 shares in
1997 and 236,376 in 1996) (1,135,671) (1,135,671)
Total stockholders' equity 43,282,833 42,913,852
$149,832,943 $148,824,187
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Summary of Earnings
Three months ended
March 31,
1997 1996
Income:
Premium income $1,778,758 $1,373,288
Mortality and expense charges earned 2,317,145 2,144,976
Investment income 1,943,397 1,845,614
Realized investment gains 0 54,284
Brokerage and other income 377,797 344,556
Total income 6,417,097 5,762,718
Benefits and expenses:
Life benefits and claims 2,481,072 2,216,271
A & H benefits and claims 79,596 21,678
Amortization of policy acquisition costs 638,805 632,005
Operating expenses 1,406,990 1,255,083
Total benefits and expenses 4,606,463 4,125,037
Earnings before income tax expense 1,810,634 1,637,681
Federal income taxes:
Current tax expense 267,829 277,924
Deferred tax expense 111,505 83,785
Total Federal income taxes 379,334 361,709
Net Earnings $1,431,300 $1,275,972
Earnings per share of common stock * $0.34 $0.30
Weighted average number of shares
used in computing earnings per share 4,267,093 4,245,161
* 1997 and 1996 share and per share amounts have been adjusted for the
April 30, 1997 five-for-four stock dividend.
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Statements of Cash Flows
Three months ended March 31, 1997 and 1996
1997 1996
Cash flows from operating activities:
Net Earnings $1,431,300 $1,275,972
Adjustments to reconcile net earnings to net
cash provided from operating activities:
Increase in policy liabilities and accruals 1,226,872 1,231,095
Increase in deferred policy acquisition costs (638,843) (723,878)
Change in Federal income taxes 97,379 307,785
Decrease (increase) in accounts receivable and 187,180 (162,023)
amounts due from reinsurers
Other, net 27,161 365,751
Net cash provided from operating activities 2,331,049 2,294,702
Cash flows from investing activities:
Purchase of fixed maturities available for sale (3,011,444) (8,106,411)
Sale of fixed maturities available for sale 0 1,009,332
Proceeds from maturity and redemption of fixed
maturities held for investment 100,000 550,000
Proceeds from maturity and redemption of fixed
maturities available for sale 1,576,838 876,302
First mortgage loans originated 0 0
Principal collected on first mortgage loans 145,821 101,257
Policy Loans (163,911) (224,205)
Other, net (48,498) 31,045
Net cash provided (used) in investing activities (1,401,194) (5,762,680)
Cash flows from financing activities:
Cash dividends paid (170,677) (135,842)
Proceeds from exercise of stock options 0 2,220
Net cash (used) by financing activities (170,677) (133,622)
Net increase (decrease) in cash and cash equivalents: $759,178 ($3,601,600)
Cash and cash equivalents:
Beginning of period 2,530,293 5,496,900
End of period $3,289,471 $1,895,300
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources Operations
There have been no material changes in the Company's financial condition since
December 31, 1996. As reported in the Company's Annual Report to its
stockholders for the year-ended December 31, 1996, the Company does not
anticipate the necessity of entering the debt or equity market in order to
meet short-term obligations.
Mortgage Loans
The Company's mortgage loan policy stipulates that the Company will loan no
more than 80% of the value on residential loans and no more than 75% on
commercial loans. For the past five years, the Company has granted loans only
to employees (excluding officers and directors), agents, agents' relatives,
employees of Gold Kist, Inc. ( a related party), and current mortgagees.
The geographic distribution of the loan portfolio as of March 31, 1997 and
December 31, 1996 is:
No. of Loans Book Value
03/31/97 12/31/96 State 03/31/97 12/31/96
5 5 Alabama 275,631 313,697
6 6 Florida 437,430 443,165
79 81 Georgia 3,911,395 4,013,415
90 92 4,624,456 4,770,277
The Company has a large concentration of loans in Georgia. Because the
loan-to-value ratio on delinquent loans in 45%, 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 was up 30% when compared to the first quarter of 1996.
The increase is attributable to increased sales of the Company's new
guaranteed-issue-simplified issue and participating whole life policies.
Individual accident and health premiums are down 5% when compared to 1996.
The Company has not written any new individual health premiums since 1988
and anticipates continued declines on this closed block of business.
Mortality and Expense Charges Earned
Universal Life contract deposits increased 4.3% from the first quarter of
1996. Mortality and expense charges earned on these deposits increased 8%.
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. 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 increase is
due to a larger investment portfolio.
Brokerage Income
The 10% 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 the receipt of the
overrides.
Benefits and Operating Expenses
Ordinary benefits as a percentage of premium income and mortality and expense
charges earned decreased 2% over the year earlier quarter. Traditional and
universal life death benefits were approximately $175,000 higher than 1996
levels. 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 expenses charges and brokerage
income decreased 1% from the first quarter of 1996. Continued emphasis on
cost controls enables the Company to keep this ratio flat.
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
At the annual meeting of shareholders held on April 28, 1997, the following
directors were elected for three year terms expiring in 2000.
W. W. Gaston
R. C. McMahan
T. A. Harris
In addition, the shareholders approved an amendment to the Company's charter
increasing the
number of shares authorized from 5,000,000 to 10,000,000.
Item 5. Other Information
On March 24, 1997, the Company declared a 25% stock dividend to be distributed
to stockholders of record as of April 15, 1997.
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:03/14/97
Gary W. Meader
Chief Financial Officer/Treasurer
Date:03/14/97
William J. Barlow
Vice President/Controller
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