<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 June 30, 1996
-------------------------------------------------
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 June 30, 1996 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
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -------------
(Unaudited)
<S> <C> <C>
Investments:
Securities available-for-sale, at fair value:
Fixed maturities (amortized cost: 1996-
$24,723,670 1995-$20,879,649) $24,443,506 $21,704,485
Equity securities (cost: 1996-$3,149,635
1995-$3,501,948) 3,485,009 3,991,788
Mortgage loans on real estate 331,244 370,056
Policy loans 214,221 226,739
Student loans 143,630 198,392
Short-term investments 810,938 969,696
Restricted short-term investments 325,257 225,257
----------- -----------
Total Investments 29,753,805 27,686,413
Cash 808,209 870,166
Accrued Investment Income 421,758 358,503
Accounts Receivable:
Uncollected premium 20,038 26,549
Receivable from reinsurers 201,184 227,243
Other receivables and agents' balances (net of
$50,000 allowed for uncollectible accounts) 90,826 104,690
----------- -----------
Total Accounts Receivable 312,048 358,482
Deferred Policy Acquisition Costs 2,598,406 2,588,049
Deferred Income Tax 56,078 ---
Property & Equipment(net) 584,495 584,032
Other 66,028 66,042
----------- -----------
TOTAL ASSETS $34,600,827 $32,511,687
=========== ===========
</TABLE>
<PAGE> 3
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- -----------
<S> <C> <C>
(Unaudited)
Liabilities:
Policy liabilities and accruals:
Future policy benefits:
Life insurance $25,158,310 $22,300,051
Accident and health 3,124 3,124
Accrued claims payable 293,259 300,197
Unearned Premiums 24,013 20,694
----------- -----------
Total Policy Liabilities and Accruals 25,478,706 22,624,066
Annuity deposits 1,046,963 1,017,394
Other Policyholders' funds 139,784 104,526
Income tax payable 36,533 17,580
Deferred Income Taxes --- 112,456
Other liabilities 219,447 284,353
----------- -----------
Total Liabilities 26,921,433 24,160,375
----------- -----------
Stockholders' Equity:
Common Stock, $6 par value, 1,250,000 shares
authorized, 250,453 shares issued and
outstanding in 1996 and 1995 1,502,718 1,502,718
Capital in excess of par value 269,331 269,331
Unrealized investment gains (losses)-net of
deferred income taxes of $8,499 and
$223,495 at June 30, 1996 and December 31,
1995, respectively 46,711 1,091,181
Retained earnings 5,860,634 5,488,082
----------- -----------
Stockholders' Equity 7,679,394 8,351,312
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $34,600,827 $32,511,687
=========== ===========
</TABLE>
<PAGE> 4
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996 and the Year Ended December 31, 1995
<TABLE>
<CAPTION>
Common Stock
------------ Capital Net Unrealized
Excess of Investments Retained
Shares Amount Par Value Gains/(Losses) Earnings Total
------ ------ --------- -------------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995 250,453 $1,502,718 $269,331 $(829,626) $4,578,036 $5,520,459
Cash Dividends
($.09 per share) (22,541) (22,541)
Reclassification of held-
to-maturity investments to
available-for-sale, net of
deferred income taxes of
$71,531 349,240 349,240
Increase (Decrease) in
unrealized investments
gains or (losses), net
of deferred income taxes
of $321,887 1,571,567 1,571,567
Net Income for the year 932,587 932,587
------- ---------- -------- ----------- ---------- ----------
Balance, December 31, 1995 250,453 $1,502,718 $269,331 $1,091,181 $5,488,082 $8,351,312
Increase (Decrease) in
unrealized investments
gains or (losses)-net of
deferred income taxes of
($214,996) (1,044,470) (1,044,470)
Cash Dividends
($.10 per share) (25,045) (25,045)
Net Income for the six
months ended June 30, 1996 397,597 397,597
------- ---------- -------- ----------- ---------- ----------
Balance, June 30, 1996 250,453 $1,502,718 $269,331 $ 46,711 $5,860,634 $7,679,394
======= ========== ======== =========== ========== ==========
</TABLE>
<PAGE> 5
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF INCOME
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, June 30,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Revenues:
Traditional life and other premiums $ 3,753,551 $ 2,377,947
Universal life policy charges 298,822 314,507
Net investment income 917,341 771,916
Other income:
Realized gains (losses) on investments 5,793 (10,037)
Claims administration fees 1,146,040 1,239,383
Miscellaneous income 52,754 17,512
----------- -----------
Total Revenues 6,174,301 4,711,228
Benefits, Losses and Expenses:
Benefits, claims, losses and settlement expenses:
Death and other benefits 984,933 631,341
Increase in future policy benefits 2,810,961 1,498,765
----------- -----------
3,795,894 2,130,106
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs 123,838 184,782
Commissions 376,797 380,937
Other Operating expenses 1,333,269 1,172,398
----------- -----------
1,833,904 1,738,117
----------- -----------
Income before Income Tax Expense 544,503 843,005
Income Tax Expense (Benefit):
Currently 100,444 162,066
Deferred 46,462 (11,762)
----------- -----------
146,906 150,304
----------- -----------
NET INCOME $ 397,597 $ 692,701
=========== ===========
NET INCOME PER SHARE $ 1.59 $ 2.77
=========== ===========
Dividends Declared PER SHARE $ .10 $ .09
=========== ==========
</TABLE>
<PAGE> 6
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months ended
June 30, June 30,
1996 1995
------------ -----------
(Unaudited)
<S> <C> <C>
Operating Activities:
Net income $ 397,597 $ 692,701
Adjustments to reconcile net income to net cash
provided by operating activities:
(Increase) Decrease in accrued investment income (63,193) (4,987)
(Increase) Decrease in accounts receivable and
agents balances, and reinsurance recoverable 46,434 115,545
Increase (Decrease) in future policy benefits 2,865,747 1,576,562
Increase (Decrease) in accrued claims (6,938) 11,473
Increase (Decrease) in other policyholders' funds 60,658 30,032
Increase (Decrease) in accrued expenses and other
liabilities (45,941) (15,468)
Policy acquisition costs deferred (134,195) (162,699)
Amortization of policy acquisition costs 123,838 184,782
Provision for depreciation 41,359 46,470
Provision for deferred income tax 46,462 (11,762)
Net realized (gains) losses on investments (5,793) 10,037
----------- -----------
Net Cash Provided(Used) by Operation Activities 3,326,035 2,472,686
Investing Activities:
Purchases of investments and loans made (6,352,853) (5,718,693)
Sales, maturities and repayments of investments
and loans 2,972,971 3,988,718
Purchase of property and equipment (41,823) (28,404)
(Increase) Decrease in short term investments 58,758 (1,018,512)
----------- ------------
Net Cash (Used) by Investing Activities (3,362,947) (2,776,891)
Financing Activities:
Dividends to shareholders (25,045) (22,541)
----------- -----------
Net Cash Provided (Used) by Financing
Activities (25,045) (22,541)
----------- -----------
Increase (Decrease) in Cash (61,957) (326,746)
Cash at beginning of year 870,166 1,115,876
----------- -----------
Cash at end of period $ 808,209 $ 789,130
=========== ===========
</TABLE>
<PAGE> 7
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 of Southland
National Insurance Corporation and subsidiaries are 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 six month period ended June 30, 1996, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. 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, 1995.
NOTE B -- CHANGES IN ACCOUNTING PRINCIPLES AND POLICIES
The amortized cost and estimated market values of the Company's investments are
shown on the following page.
Fair values are based on quoted market prices, where available. For securities
not actively traded or in the case of private placements, fair values are
estimated using values obtained from independent pricing services.
<PAGE> 8
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
NOTE B -- Continued
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale securities at
June 30, 1996:
Fixed maturity securities:
Corporate bonds $ 10,248,360 $ 162,968 $ (204,538) $ 10,206,790
U.S. Government bonds 7,479,023 30,782 (160,015) 7,349,790
State and municipal bonds 753,119 4,897 (11,677) 746,339
Public utility bonds 2,721,393 37,393 (53,034) 2,705,752
Mortgage-backed bonds 3,521,775 50,664 (137,604) 3,434,835
------------ ------------- ----------- --------------
Total 24,723,670 286,704 (566,868) 24,443,506
Equity securities:
Common stock 497,561 416,664 (31,030) 883,195
Preferred stock 2,652,074 25,238 (75,498) 2,601,814
------------ ------------- ----------- -------------
Total $ 27,873,305 $ 728,606 $ (673,396) $ 27,928,515
============ ============= =========== =============
Available-for-sale securities at
December 31, 1995:
Fixed maturity securities:
Corporate bonds $ 9,924,289 $ 472,530 $ (24,263) $ 10,372,556
U. S. Government bonds 4,774,146 112,811 (1,337) 4,885,620
State and municipal bonds 728,160 30,755 (677) 758,238
Public utility bonds 2,311,433 141,368 (3,309) 2,449,492
Mortgage-backed bonds 3,141,621 117,314 (20,356) 3,238,579
----------- ------------- ---------- -----------
Total 20,879,649 874,778 (49,942) 21,704,485
Equity securities:
Common stock 549,039 479,001 (53,931) 974,109
Preferred stock 2,952,909 96,661 (31,891) 3,017,679
----------- ------------ ---------- ------------
Total $24,381,597 $ 1,450,440 $ (135,764) $ 25,696,273
=========== ============ =========== ============
</TABLE>
<PAGE> 9
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE PERIOD OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
The first six months of 1996 produced a net profit of $397,597 compared to net
income of $692,701 for the first six months of 1995. Although total revenues
increased 31%, total expenses increased 45% primarily because of increases in
future policy benefits and death benefits, resulting in lower profits.
Premium and policy fee revenues for the first six months of 1996 increased
approximately 44% over the first six months of 1995, due to increased premiums
in the pre-need line of business. Second quarter premium revenues increased
45% over the first three months of 1996 due to increased sales as both first
year and renewal premium increased. This more than offset reductions in group
life premiums, where our group contracts were terminated during the first
quarter, and reductions in claim administration revenues.
Revenues attributable to TPA claim administration services provided by SIMA,
the Company's wholly owned subsidiary, decreased approximately 2% to $343,814
from $350,038 for the six months of 1996 and 1995, respectively. Claim
administration revenues related to the Company's agreement with the Public
Education Health Insurance Board ("PEHIP") decreased 10% to $802,226 from
$889,345 for the six months of 1996 and 1995, respectively, as a result of a
new fee structure upon renewal of the contract in October 1995.
Total benefits, losses, and expenses increased approximately 45% to $5,629,798
from $3,868,223 for the first six months of 1996 and 1995, respectively. Death
and other policy benefits increased 56% due to higher than expected mortality
in the pre-need line of business along with an increase in surrender benefits
paid for the first six months of 1996 compared to the same time period of 1995.
Future policy benefits and other operating expenses increased as a result of
an increased volume of sales. Operating expenses for SIMA increased
approximately 15% due primarily to increased marketing activities related to
obtaining and keeping market share. Management has made a conscious effort to
increase market share. While this effort has started to result in increased
business, expenses in the short run have also increased. The Company has been
accepted to do business in Arkansas by the Arkansas Insurance Department, with
an application still pending in North Carolina.
Net investment income increased approximately 19% as cash and invested assets
increased 12% for the six month period from $27,241,903 at December 31, 1995
to $30,506,804 at June 30, 1996, 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. Cash flow from
operations is adequate to fund current operating needs.
On July 26, 1996, Southland National Insurance Corporation (Southland)
announced an agreement in principle, providing for the acquisition of Southland
by Collateral Investment Corp. (CIC). The acquisition will be accomplished
through a merger of Southwide Life, a Birmingham, Alabama-based insurance
company subsidiary of CIC, into Southland. Southland will become a wholly owned
subsidiary of CIC. In the merger, each of the approximately 250,000 outstanding
shares of Southland common stock will be exchanged for $38.00 per share in
cash. The News Release is being filed as an exhibit to this 10QSB report and
is hereby incorporated by reference.
<PAGE> 10
SOUTHLAND NATIONAL INSURANCE CORPORATION AND SUBSIDIARIES
Tuscaloosa, Alabama
PART II
ITEM 5
On July 26, 1996, the Board of Directors of Southland National Insurance
Corporation (Southland) announced an agreement in principle, providing for the
acquisition of Southland by Collateral Investment Corp.(CIC). The acquisition
will be accomplished through a merger of Southwide Life, a Birmingham,
Alabama-based insurance company subsidiary of Collateral Investment Corp., into
Southland. Southland will become a wholly owned subsidiary of CIC. In the
merger, each of the approximately 250,000 outstanding shares of Southland
common stock will be exchanged for $38.00 per share in cash. The News Release
is being filed as an exhibit to this report, as indicated below.
Exhibit 10(c) News Release dated July 26, 1996, regarding proposed acquisition
of Southland National Insurance Corporation by Collateral Investment Corp.
Exhibit 27 Financial Data Schedule (for SEC use only).
<PAGE> 11
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: 7/31/96 By: /s/ William H. Lanford
-------------------------------- ---------------------------------
W.H. Lanford
President
Date: 7/31/96 By: /s/ Ronald J. Koch
-------------------------------- ---------------------------------
Ronald J. Koch
Secretary
<PAGE> 1
EXHIBIT 10(c)
NEWS RELEASE
SOUTHLAND NATIONAL INSURANCE CORPORATION
1812 University Boulevard, Tuscaloosa, Alabama 35401
Contact: William H. Lanford
Southland National Insurance Corporation
Phone: (205)345-7410
Contact: David W. Whitehurst
Collateral Investment Corp.
Phone: (205)951-4433
FOR IMMEDIATE RELEASE
SOUTHLAND NATIONAL INSURANCE CORPORATION
AND COLLATERAL INVESTMENT CORP.,
ANNOUNCE PROPOSED MERGER
TUSCALOOSA, ALABAMA - July 26, 1996 - David W. Whitehurst, Executive Vice
President of Collateral Investment Corp. (CIC) and William H. Lanford,President
and CEO of Southland National Insurance Corporation (Southland), today announced
that the companies had reached an agreement in principle providing for the
acquisition of Southland by Collateral Investment Corp. The acquisition will be
accomplished through a merger of Southwide Life, a Birmingham, Alabama-based
insurance company subsidiary of Collateral Investment Corp., into Southland.
Southland will become a wholly owned subsidiary of CIC. In the merger each of
the approximately 250,000 outstanding shares of Southland common stock will be
exchanged for $38.00 per share in cash.
The merger is subject to various conditions, including the execution of a
definitive acquisition agreement approved by both Boards of Directors, insurance
regulatory approvals, and approval by the Southland shareholders. Mr. Whitehurst
and Mr. Lanford stated that the parties intend to enter into a definitive
acquisition agreement as soon as possible and that a meeting of the Southland
shareholders to vote on the merger will be held as soon as practicable
thereafter. It is anticipated that the merger will be completed no later than
November 30, 1996.
Headquartered in Tuscaloosa, Alabama, Southland is engaged in the sale of
"preneed" funeral insurance policies marketed through funeral homes.
Southland also offers claims administration services and is engaged in the
insurance agency and brokerage business. Southwide Life is also engaged in the
sale of "preneed" insurance products. Collateral Investment Corp., a privately
held insurance holding company, is affiliated with Birmingham based Collateral
Mortgage, Ltd. and New South Federal Savings Bank.
Southland's Mr. Lanford stated: "We are extremely pleased with this opportunity
to join forces with such a fine organization as Collateral Investment Corp. and
to provide a very attractive return to our shareholders." Collateral
Investment Corp.'s Mr. Whitehurst added: "We have been interested for some time
in expanding our insurance operations into selected niche markets. We are very
impressed with Southland's focus on its markets, its employees and its positive
results. We look forward to building Southland's strengths and expanding both
its preneed insurance market and its servicing operation throughout the South."
-END-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1996 - FORM 10QSB AND DECEMBER 31, 1995 - FORM 10KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 24,443,506
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 3,485,009
<MORTGAGE> 331,244
<REAL-ESTATE> 0
<TOTAL-INVEST> 29,753,805
<CASH> 808,209
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 2,598,406
<TOTAL-ASSETS> 34,600,827
<POLICY-LOSSES> 25,454,693
<UNEARNED-PREMIUMS> 24,013
<POLICY-OTHER> 1,046,963
<POLICY-HOLDER-FUNDS> 139,784
<NOTES-PAYABLE> 0
<COMMON> 1,502,718
0
0
<OTHER-SE> 6,176,676
<TOTAL-LIABILITY-AND-EQUITY> 34,600,827
4,052,373
<INVESTMENT-INCOME> 917,341
<INVESTMENT-GAINS> 5,793
<OTHER-INCOME> 1,198,794
<BENEFITS> 3,795,894
<UNDERWRITING-AMORTIZATION> 123,838
<UNDERWRITING-OTHER> 1,710,066
<INCOME-PRETAX> 544,503
<INCOME-TAX> 146,906
<INCOME-CONTINUING> 397,597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 397,597
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
