<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ --------------------------
For the Quarter Ended September 30, 1995 Commission file number 2-40019.
-------------------- -------
SOUTHLAND NATIONAL INSURANCE CORPORATION
- - -------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Alabama 63-0572745
- - -------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1812 University Blvd., Tuscaloosa, AL 35401
- - ---------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number, including area code) (205) 345-7410
------------------------------
None
- - --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
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 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock $6 par value - 250,453
-----------------------------------
<PAGE> 2
PART I FINANCIAL INFORMATION
<PAGE> 3
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
Investments:
Fixed maturities: (Note B)
Held to maturity at amortized cost $ 7,784,542 $ 4,481,733
(fair value: 1995-$8,046,440 1994-$4,332,753)
Available for sale at fair value (amortized
cost: 1995-$11,729,889 1994-$11,704,691) 11,868,989 10,905,261
Equity securities:
Available for sale at fair value
(cost: 1995-$3,371,770 1994-$3,992,223) 3,758,335 3,792,104
Mortgage loans on real estate 376,013 479,539
Policy loans 226,680 217,588
Student loans 257,462 320,448
Short-term investments 1,357,591 435,153
------------ ------------
Total Investments 25,629,612 20,631,826
Cash 684,065 1,115,876
Accrued Investment Income 342,534
309,464
Accounts Receivable:
Income tax receivable --- 101,358
Uncollected premium 20,541 15,716
Receivable from reinsurers 8,469 15,137
Other receivables and agents' balances (net of
$50,000 allowed for uncollectible accounts) 117,305 129,856
------- ------------ ------------
Total Accounts Receivable 146,315 262,067
Deferred Policy Acquisition Costs 2,593,519 2,618,627
Total Property & Equipment, at cost 2,001,685 1,976,455
Less: Accumulated Depreciation 1,389,406 1,333,025
------------ ------------
Net Property & Equipment 612,279 643,430
Deferred Income Taxes --- 228,548
------------ ------------
TOTAL ASSETS $ 30,008,324 $ 25,809,838
============ ============
</TABLE>
<PAGE> 4
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED BALANCE SHEETS
- - --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Life insurance $ 21,232,114 $ 19,240,889
Accident and health 3,177 3,177
Accrued claims payable 256,243 204,665
Unearned Premiums 482,307 459,047
------------ ------------
Total Policy Liabilities and Accruals 21,973,841 19,907,778
Other Policyholders' funds 105,552 105,802
Deferred Income Taxes 3,823
Other liabilities 257,518 275,799
------------ ------------
Total Liabilities 22,340,734 20,289,379
------------ ------------
Stockholders' Equity:
Common Stock, $6 par value, 1,250,000 shares
authorized, 250,453 shares issued and
outstanding in 1995 and 1994 1,502,718 1,502,718
Capital in excess of par value 269,331 269,331
Unrealized investment gains (losses) 381,491 (829,626)
Retained earnings:
Appropriated - asset valuation reserve 570,000 474,981
Unappropriated 4,944,050 4,103,055
------------ ------------
Stockholders' Equity 7,667,590 5,520,459
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 30,008,324 $ 25,809,838
============ ============
</TABLE>
<PAGE> 5
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1995
and the Year Ended December 31, 1994
<TABLE>
<CAPTION>
Common Stock Capital Net Unrealized Retained Earnings
------------ Excess of Investments -----------------
Shares Amount Par Value Gains/(Losses) Appropriated Unappropriated Total
------ ------ --------- -------------- ------------ -------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,1994 250,453 $1,001,812 $770,237 $ 207,188 $569,711 $3,336,180 $5,885,128
Change in Par Value 500,906 (500,906)
Cash Dividends
($.16 per share) (40,072) (40,072)
Increase (Decrease) in
unrealized investments
gains or (losses) (1,212,044) (1,212,044)
Cumulative effect of change
in Accounting Principle
(Note B) 175,230 175,230
Increase (Decrease) in
securities valuation
reserve (94,730) 94,730
Net Income for the year 712,217 712,217
---------------------------------------------------------------------------------------------
Balance, December 31,1994 250,453 $1,502,718 $269,331 $ (829,626) $474,981 $4,103,055 $5,520,459
Increase (Decrease) in
unrealized investments
gains or (losses) 1,211,117 1,211,117
Increase (Decrease) in
securities valuation
reserve 95,019 (95,019)
Cash Dividends
($.09 per share) (22,541) (22,541)
Net Income for the nine
months ended September 30,1995 958,555 958,555
---------------------------------------------------------------------------------------------
Balance, September 30,1995 250,453 $1,502,718 $269,331 $ 381,491 $570,000 $4,944,050 $7,667,590
=============================================================================================
</TABLE>
<PAGE> 6
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Nine Months Ended
September 30, September 30,
1995 1994
------------- ------------
(Unaudited)
<S> <C> <C>
Revenues:
Premiums and policy fees $ 3,516,874 $ 2,438,465
Net investment income 1,210,886 921,749
Other income:
Realized gains (losses) on investments 51,993 (119,449)
Claims administration fees 1,859,067 1,804,012
Commissions 24,493 19,296
----------- -----------
Total Revenues 6,663,313 5,064,073
Benefits, Losses and Expenses:
Benefits, claims, losses and settlement expenses:
Death and other benefits 1,114,334 951,204
Increase in future policy benefits 1,882,990 1,277,874
----------- -----------
2,997,324 2,229,078
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs 278,883 190,188
Commissions 491,108 376,457
Other Operating expenses 1,744,229 1,584,150
----------- -----------
2,514,220 2,150,795
----------- -----------
Income before Income Tax Expense 1,151,769 684,200
Income Tax Expense:
Currently payable 208,902 141,781
Deferred taxes (15,688) ---
----------- -----------
193,214 141,781
----------- -----------
NET INCOME $ 958,555 $ 542,419
=========== ===========
Earnings Per Share:
NET INCOME $ 3.83 $ 2.17
=========== ===========
</TABLE>
<PAGE> 7
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Nine Months ended
September 30, September 30,
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
Operating Activities:
Net income $ 958,555 $ 524,419
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) Decrease in accrued investment income (34,046) (25,356)
(Increase) Decrease in accounts receivable and
agents balances, and reinsurance recoverable 115,752 (70,477)
Increase (Decrease) in future policy benefits 1,991,225 1,268,500
Increase (Decrease) in accrued claims 51,578 67,701
Increase (Decrease) in other policyholders' funds 30,443 48,505
Increase (Decrease) in accrued expenses and other
liabilities (25,702) (277,656)
Policy acquisition costs deferred (253,775) (247,303)
Amortization of policy acquisition costs 278,883 190,188
Provision for depreciation 70,183 83,810
Provision for deferred income tax (15,688) ---
Net realized (gains) losses on investments 51,993 119,449
Other --- 43,417
---------- -----------
Net Cash Provided(Used) by Operation Activities 3,115,415 1,743,197
Investing Activities:
Purchases of investments and loans made (8,648,915) (10,676,690)
Sales, maturities and repayments of investments
and loans 6,080,715 8,271,038
Purchase of property and equipment (34,047) (43,973)
(Increase) Decrease in short term investments (922,438) 756,270
---------- -----------
Net Cash (Used) by Investing Activities (3,524,685) (1,693,355)
Financing Activities:
Dividends to shareholders (22,541) (40,072)
Payments on capital lease obligation --- (10,967)
---------- -----------
Net Cash Provided (Used) by Financing
Activities (22,541) (51,039)
---------- -----------
Increase (Decrease) in Cash (431,811) (1,197)
Cash at beginning of year 1,115,876 694,755
---------- -----------
Cash at end of period $ 684,065 $ 693,558
========== ===========
</TABLE>
<PAGE> 8
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Rule 10-01
of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine month period ended September 30, 1995, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1995. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1994.
NOTE B -- CHANGES IN ACCOUNTING PRINCIPLES AND POLICIES
In 1993 the Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" which is effective for fiscal years
beginning after December 15, 1993. The primary impact of this standard is to
require companies to classify their securities into categories based upon the
company's intent and ability to hold the securities to maturity. As of
December 31, 1993, the Company reported all fixed maturity securities at
amortized cost and all equity securities at fair value, with unrealized gains
and losses on equity securities reported as a separate component of
stockholders' equity. Adoption of SFAS No. 115 was implemented during the
first quarter of 1994. The schedule attached shows the classification of fixed
maturity securities under SFAS No. 115. The adoption of SFAS No. 115 will
expose the Company's stockholders' equity to greater volatility due to changes
in market interest rates.
Fair values for fixed maturity securities are based on quoted market prices,
where available. For fixed maturity securities not actively traded or in the
case of private placements, fair values are estimated using values obtained
from independent pricing services.
<PAGE> 9
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B -- Continued
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities at
September 30, 1995:
Fixed maturity securities:
Corporate bonds $ 4,495,585 $ 120,143 $ 24,243 $ 4,591,485
U. S. Government bonds 2,273,853 25,094 7,729 2,291,218
State and municipal bonds 430,240 4,284 5,170 429,354
Public utility bonds 1,549,804 43,103 7,745 1,585,162
Mortgage-backed bonds 2,980,407 54,263 62,900 2,971,770
------------ --------- --------- ------------
Total 11,729,889 246,887 107,787 11,868,989
Equity securities:
Preferred stock 2,685,099 56,066 50,958 2,690,207
Common stock 686,671 443,393 61,936 1,068,128
------------ --------- --------- ------------
Total $ 15,101,659 $ 746,346 $ 220,681 $ 15,627,324
============ ========= ========= ============
Held-to-maturity securities at
September 30, 1995:
Fixed maturity securities:
Corporate bonds $ 5,524,795 $ 181,284 $ 23,972 $ 5,682,107
U. S. Government bonds 183,086 4,421 2,041 185,466
State and municipal bonds 298,092 5,387 1,751 301,728
Public utility bonds 927,774 40,068 1,767 966,075
Mortgage-backed bonds 850,795 64,003 3,734 911,064
------------ --------- --------- ------------
Total $ 7,784,542 $ 295,163 $ 33,265 $ 8,046,440
============ ========= ========= ============
</TABLE>
<PAGE> 10
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE B -- Continued
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities at
December 31, 1994:
Fixed maturity securities:
Corporate bonds $ 3,530,765 $ 16,254 $ (238,155) $ 3,308,864
U. S. Government bonds 3,970,065 475 (156,488) 3,814,052
State and municipal bonds 430,240 --- (43,253) 386,987
Public utility bonds 1,443,336 2,574 (121,255) 1,324,655
Mortgage-backed bonds 2,330,285 4,450 (264,032) 2,070,703
------------ ----------- ------------ -------------
Total 11,704,691 23,753 (823,183) 10,905,261
Equity securities:
Preferred stock 2,823,961 21,555 (269,138) 2,576,378
Common stock 1,168,262 202,264 (154,800) 1,215,726
------------ ----------- ------------ -------------
Total $ 15,696,914 $ 247,572 $ (1,247,121) $ 14,697,365
============ =========== ============ =============
Held-to-maturity securities at
December 31, 1994:
Fixed maturity securities:
Corporate bonds $ 2,907,220 $ 30,683 $ (152,615) $ 2,785,288
U. S. Government bonds 49,541 959 --- 50,500
State and municipal bonds 144,857 --- (12,722) 132,135
Public utility bonds 719,920 11,684 (39,441) 692,163
Mortgage-backed bonds 660,195 32,849 (20,377) 672,667
------------ ----------- ------------ -------------
Total $ 4,481,733 $ 76,175 $ (225,155) $ 4,332,753
============ =========== ============ =============
</TABLE>
<PAGE> 11
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE PERIOD OF NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994.
The first nine months of 1995 produced a record net profit of $958,555 compared
to $542,419 for the first nine months of 1994, also compared to the previous
nine month record of $824,174 in 1993. This is due to increased revenues.
Every area of revenue increased for the first nine months of 1995 compared to
the first nine months of 1994, which resulted in an increase in total revenues
of approximately 32%. Premium and policy fee revenues increased approximately
44% because of increased pre-need premiums. Third quarter revenues were
slightly higher than the first three months of 1995 and up over 22% from the
third quarter of 1994. Second quarter premiums more than doubled over the
first three months of 1995 because of a pre-need rollover of trust funds into
Southland's life insurance policies. While this transaction also relates to
increases in future policy benefits, commissions, and certain expenses, the
overall effect was the primary reason for the record results.
Revenues attributable to TPA claim administration services provided by SIMA,
the Company's wholly owned subsidiary, increased slightly from $523,864 to
$526,048 for the nine months of 1994 and 1995 respectively. Claim
administration revenues related to the Company's agreement with the Public
Education Health Insurance Board ("PEHIP") increased 4% as a result of an
increase in the number of insureds covered under the contract. This contract
has been renewed October 1, 1995 for a period of three years. Under the terms
of the new contract, future revenues will be lower than in prior periods even
though the number of insureds covered under the contract continues to grow.
Although this will not effect 1995 results, it could have an effect in future
years. Management intends to offset this claim fee reduction by generating
additional sales in pre-need markets along with increases in SIMA TPA services.
Total benefits, losses, and expenses increased approximately 26% from
$4,379,873 to $5,511,544 for the first nine months of 1994 and 1995
respectively. The largest increase was in future policy benefits which is the
increase in policy reserves due to additional business being generated. Death
claim benefits increased 17% due to increases in pre-need and higher mortality
in the universal life lines of business.
Net investment income increased as cash and invested assets increased from
$21,762,998 at September 30, 1994 to $26,174,577 at September 30, 1995 before
any adjustment to market value as described in Note B of the Notes to
Consolidated Financial Statements of the Company and its subsidiaries, which
appear elsewhere herein. Overall, the Company maintains a conservative
approach to investing, which has enabled it to provide a quality portfolio
without sacrificing overall yield. No provision has been made for investment
or loan losses as the Company has not had a history of losses nor does it
expect to incur any significant losses in the future. Cash flow from
operations is such that the Company does not expect to be forced to sell fixed
maturity investments prior to their maturity which could cause an unexpected
gain or loss. Cash flow from operations is more than adequate to fund current
operating needs.
Management continues to be concerned about the impact of SFAS Number 115,
issued by the Financial Accounting Standards Board, on stockholders' equity.
When SFAS 115 was implemented by the Company during 1994 the bond market was at
one of its lowest levels, which resulted in a reduction to stockholders' equity
of $1,212,044 because of the mark to market rule. During the first nine months
of 1995, the bond market has shown significant improvement, thus an increase to
stockholders' equity of $1,211,117 was the result of the mark to market rule.
Management's concern is that the volatility shown in stockholders' equity is
unrepresentative of the way the Company is managed and the impact of economic
events on overall operations. Certain investment portfolio management
practices of the Company are not expected to change to minimize this
volatility; however, the Company continues to review and study the impact of
certain classifications of investments upon the financial statements as a
whole, and possible solutions such as hedging transactions to possibly relieve
some of the fluctuation in stockholders' equity.
<PAGE> 12
SIGNATURE
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.
SOUTHLAND NATIONAL INSURANCE CORPORATION
----------------------------------------
Date: 11/07/95 By: /s/ William H. Lanford
------------------------------------- --------------------------
W.H. Lanford
President
Date: 11/07/95 By: /s/ Ronald J. Koch
------------------------------------- --------------------------
Ronald J. Koch
Secretary
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1995 - 10QSB AND IS QUALFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 11,868,989
<DEBT-CARRYING-VALUE> 7,784,542
<DEBT-MARKET-VALUE> 8,046,440
<EQUITIES> 3,758,335
<MORTGAGE> 376,013
<REAL-ESTATE> 0
<TOTAL-INVEST> 25,629,612
<CASH> 684,065
<RECOVER-REINSURE> 8,649
<DEFERRED-ACQUISITION> 2,593,519
<TOTAL-ASSETS> 30,008,324
<POLICY-LOSSES> 21,232,114
<UNEARNED-PREMIUMS> 482,307
<POLICY-OTHER> 256,243
<POLICY-HOLDER-FUNDS> 105,552
<NOTES-PAYABLE> 0
<COMMON> 1,502,718
0
0
<OTHER-SE> 6,164,872
<TOTAL-LIABILITY-AND-EQUITY> 30,008,324
3,516,874
<INVESTMENT-INCOME> 1,210,886
<INVESTMENT-GAINS> 51,993
<OTHER-INCOME> 1,859,067
<BENEFITS> 2,997,324
<UNDERWRITING-AMORTIZATION> 278,883
<UNDERWRITING-OTHER> 2,235,337
<INCOME-PRETAX> 1,151,769
<INCOME-TAX> 193,214
<INCOME-CONTINUING> 958,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 958,555
<EPS-PRIMARY> 3.83
<EPS-DILUTED> 3.83
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
