Page 1 of 19 Pages
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter Ended September 30, 1996
Commission File Number 1-11482
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Transition Period from to
FIRST COLONY CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1200334
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
RIVERFRONT PLAZA, WEST TOWER SUITE 1350
901 EAST BYRD STREET
RICHMOND, VIRGINIA 23219
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code - (804) 775-
0300
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
(or for such shorter period that the registrant was required to
file such reports); and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Number of shares of common stock, no par value, outstanding as of
October 31, 1996: 49,304,481
FIRST COLONY CORPORATION
I N D E X
Page
Number
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 3 - 4
Consolidated Statements of Income
Three Months and Nine Months Ended
September 30, 1996 and 1995 5
Consolidated Statements of Shareholders' Equity
Nine Months Ended September 30, 1996 and 1995 6
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1996 and 1995 7
Notes to Consolidated Financial Statements 8 - 10
ITEM 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 11-17
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
FIRST COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(1996 Unaudited)
September 30 December 31
1996 1995
Investments:
Fixed maturities held to maturity, at
amortized cost:
Bonds (Fair value: 1996 $4,341,824;
1995, $4,660,947) $ 4,044,780 $ 4,070,476
Fixed maturities available for sale,
at fair value:
Bonds (Amortized cost: 1996, $4,793,171;
1995, $4,242,361) 4,833,115 4,602,319
Preferred stock, redeemable (Amortized
cost: 1996, $73,473; 1995, $77,465) 80,952 96,479
Equity securities, at market value
Preferred stock, nonredeemable (cost: 1996,
$222,227; 1995, $274,328) 250,815 321,118
Common stock (cost: 1996, $30,230;
1995, $28,476) 38,368 32,935
Policy loans 219,099 207,854
Other long-term investments 38,260 40,637
Short-term investments 19,862 14,160
Total investments 9,525,251 9,385,978
Cash and cash equivalents 35,998 46,125
Accrued investment income 175,055 161,689
Deferred policy acquisition costs 998,346 874,586
Reinsurance receivable 131,872 115,344
Property and equipment, less
accumulated depreciation 44,907 44,697
Goodwill, less accumulated amortization 30,491 31,385
Other assets 62,863 60,805
Total assets $11,004,783 $10,720,609
See accompanying notes to consolidated financial statements.
FIRST COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(1996 Unaudited)
September 30 December 31
LIABILITIES AND SHAREHOLDERS' EQUITY 1996 1995
Liabilities:
Policy liabilities:
Future policy benefits $ 6,300,954 $ 5,932,338
Claims 52,370 52,569
Total policy liabilities and accruals 6,353,324 5,984,907
Deposits on investment contracts 2,656,647 2,521,657
Other policyholder funds 111,867 132,678
Other liabilities 109,128 93,881
Long-term debt 174,856 174,843
Deferred income taxes 218,958 328,238
Total liabilities 9,624,780 9,236,204
Shareholders' equity:
Preferred stock - No par value; authorized
15,000 shares; issued and outstanding,
3,200 80,000 80,000
Common stock - No par value; authorized
150,000 shares; issued and outstanding
49,304 shares 312,940 312,888
Net unrealized appreciation of
fixed maturities 17,506 208,288
Net unrealized appreciation of equity securities 25,204 34,644
Retained earnings 944,353 848,585
Total shareholders' equity 1,380,003 1,484,405
Total liabilities and shareholders' equity $11,004,783 $10,720,609
See accompanying notes to consolidated financial statements.
FIRST COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands except per share amounts)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
Revenues:
Life insurance premiums $ 94,650 $ 85,880 $ 283,618 $ 249,868
Life contingent annuity premiums 51,804 100,173 216,043 286,964
Total premiums 146,454 186,053 499,661 536,832
Net investment income 200,130 191,507 595,286 555,029
Mortality, surrender &
administrative charges 30,564 26,916 87,461 78,400
Realized gains (losses)
on investments (235) 4,669 21,074 37,046
Total revenues 376,913 409,145 1,203,482 1,207,307
Benefits:
Life and annuity benefits paid 130,706 119,571 395,547 359,927
Increase in reserves 147,540 197,161 497,296 563,594
Total benefits 278,246 316,732 892,843 923,521
Expenses:
Commissions 8,053 10,530 24,678 28,382
General and administrative and
other expenses 17,374 14,670 52,756 46,951
Amortization of intangible assets 16,513 11,387 45,653 31,210
Debt service cost 3,042 3,043 9,163 9,092
Total expenses 44,982 39,630 132,250 115,635
Total benefits and expenses 323,228 356,362 1,025,093 1,039,156
Income before income taxes 53,685 52,783 178,389 168,151
Income taxes 18,815 18,434 62,891 59,106
Net income 34,870 34,349 115,498 109,045
Dividends on preferred stock 897 714 2,720 2,460
Earnings available for common
shareholders $ 33,973 $ 33,635 112,778 106,585
Net income per share of common
stock $ 0.68 $ 0.68 $ 2.27 $ 2.16
Cash dividends paid per share of
common stock $ 0.115 $ 0.10 $ 0.345 $ 0.30
Shares used to compute net income
per share of common stock 49,713 49,414 49,712 49,414
See accompanying notes to consolidated financial statements.
FIRST COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
1996 1995
Shares Amounts Shares Amounts
Preferred Stock, no par value
(authorized 15,000 shares
issued and outstanding 3,200)
Beginning and ending balance 3,200 $ 80,000 3,200 $ 80,000
Common Stock, no par value
(authorized 150,000 shares
issued and outstanding 49,304
in 1996 and 49,302 in 1995)
Beginning balance 49,302 $ 312,888 49,301 $ 312,879
Exercise of stock options 2 52 1 9
Ending balance 49,304 312,940 49,302 312,888
Net unrealized appreciation
of fixed maturities:
Beginning balance 208,288 (114,937)
Net change in unrealized gains or
losses net of (i) deferred
taxes (benefit) of ($102,729) in 1996
and $113,363 in 1995; (ii) deferred
policy acquisition costs of($35,300)
in 1996 and $53,100 in 1995 (190,782) 210,531
Ending balance, net of (i)
deferred taxes of $9,426 in
1996 and $51,474 in 1995; (ii)
deferred policy acquisition
costs of $13,500 in 1996 and
$26,100 in 1995. 17,506 95,594
Net unrealized appreciation of
equity securities:
Beginning balance 34,644 16,293
Net change in unrealized gains or
losses net of deferred taxes
(benefit) of ($5,083) in 1996 and
$12,580 in 1995. (9,440) 23,364
Ending balance, net of deferred
taxes of $11,522 in 1996 and
$19,304 in 1995. 25,204 39,657
Retained earnings:
Beginning balance 848,585 720,307
Net income 115,498 109,045
Cash dividends to shareholders:
Preferred stock (2,720) (2,460)
Common stock (17,010) (14,791)
Ending balance 944,353 812,101
Total shareholders' equity $ 1,380,003 $1,340,240
See accompanying notes to consolidated financial statements.
FIRST COLONY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Nine Months Ended
September 30
1996 1995
Cash and cash equivalents at beginning of period $ 46,125 $ 54,817
Cash flows from operating activities:
Net income 115,498 109,045
Adjustments to reconcile net income to cash
provided from operating activities:
Increase in policy liabilities
and accruals 292,599 359,484
Depreciation, depletion and amortization 49,927 35,317
Federal income taxes 4,408 27,614
Change in other policyholders' funds (22,630) 11,293
Accrual of discounts on fixed maturities (77,441) (73,210)
Deferred policy acquisition costs (132,694) (145,344)
Change in reinsurance recoverable (16,528) (16,472)
Realized gains on investments (21,074) (37,046)
Other (2,642) (4,670)
Net cash provided from
operating activities 189,423 266,011
Cash flows used in investing activities
Fixed maturities available-for-sale:
Purchases (914,016) (893,600)
Sales 185,060 300,245
Maturities, calls and redemptions 211,199 95,621
Fixed maturities held-to-maturity:
Purchases (101,052) (328,345)
Sales 3,747
Maturities, calls and redemptions 186,306 94,160
Purchase of other investments (4,371) (36,409)
Sale or maturity of other investments 73,482 97,972
Other (20,590) (31,463)
Net cash used by
investing activities (383,982) (698,072)
Cash flows from financing activities:
Investment contracts 138,076 297,351
Universal life contracts 60,403 119,439
Dividend to shareholders (14,110) (17,314)
Other 63 9
Net cash provided from
financing activities 184,432 399,485
Decrease in cash and cash equivalents (10,127) (32,576)
Cash and cash equivalents at end of period $ 35,998 $ 22,241
See accompanying notes to consolidated financial statements.
FIRST COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to Form
10-Q and in conformity with generally accepted accounting
principles and reflect all adjustments which are, in the opinion
of management, necessary for a fair presentation of the interim
periods. All such adjustments are of a normal recurring nature.
The results for the nine-month period ended September 30, 1996
are not necessarily indicative of the results to be expected for
the full year ending December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes
included in the Company's annual report on Form 10-K for the year
ended December 31, 1995.
The accompanying consolidated financial statements of First
Colony Corporation (First Colony or the Company) include the
accounts of the Company and its wholly-owned subsidiary, First
Colony Life Insurance Company (First Colony Life), and its
wholly-owned subsidiaries, American Mayflower Life Insurance
Company of New York (American Mayflower) and
Jamestown Life Insurance Company (Jamestown). First Colony
Life, American Mayflower, and Jamestown are life insurance
companies and are referred to collectively as the "Insurance
Companies."
2. For the quarters ended September 30, 1996 and 1995, the
effective tax rate increased to 35.0%, up from 34.9%. For the
nine months ended September 30, 1996 and 1995, the effective tax
rate increased to 35.3%, up from 35.2%.
Income tax payments totalled $8,184 and $58,484 for the
three and nine month periods ended September 30, 1996, compared
to $14,137 and $31,492 for the three and nine-month periods ended
September 30, 1995.
3. Interest paid on indebtedness was $5,797 and $11,594 for the
three and nine months ended September 30, 1996 and 1995.
FIRST COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
(Unaudited)
4. The effect of reinsurance on premiums and expenses is as
follows:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Direct Premiums $151,355 $179,510 $504,019 $533,030
Reinsurance assumed 17,350 26,515 62,729 61,200
Reinsurance ceded (22,251) (19,972) (67,087) (57,398)
Total net premiums $146,454 $186,053 $499,661 $536,832
Ceded reinsurance netted
against benefits and expenses $ 25,905 $ 29,000 $ 87,664 $102,456
Net reinsurance (costs) for
universal life contracts $ (4,801) $ (4,320) $(14,149) $(12,437)
Components of the reinsurance recoverable asset are as follows:
September 30 December 31
1996 1995
Ceded reserves $ 112,327 $ 94,102
Ceded claims liability 11,133 12,468
Ceded - Other 8,412 8,774
Total $ 131,872 $ 115,344
5. Acquisition
On August 5, 1996, the Company and General Electric Capital Corporation
announced the signing of a definitive agreement for the sale of the
Company to GE Capital. The Company's principal subsidiaries, First
Colony Life Insurance Company and American Mayflower Life Insurance
Company of New York, will become subsidiaries of GE Capital Assurance,
a GE Capital Company.
The cash purchase price will be $36.15 per share of the Company's common
stock for a total value to First Colony Shareholders of approximately
$1.8 billion. Following regulatory and shareholder approval, the
transaction is expected to close by year-end.
The Company has issued a proxy statement dated October 28, 1996, in
conjunction with the announcement of a special meeting of shareholders
to vote on the proposed merger with GE Capital. The special meeting of
shareholders is scheduled for November 25, 1996, and will be held at the
headquarters of First Colony Life Insurance in Lynchburg, Virginia.
FIRST COLONY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)
Unaudited
6. During the quarter ended September 30, 1995, the Company sold $4,989 of
a single issuer from the held-to-maturity portfolio, resulting in a
realized loss of $1,242. There was a significant deterioration in the
issuer's creditworthiness based on a downgrade by Moody's in July
1995 and the "Creditwatch with negative implications" report issued
by Standard & Poor's in August 1995.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following is management's discussion and analysis of certain
significant factors which have affected the Company's results of operations
during the periods included in the accompanying consolidated statements of
income and changes in the Company's financial condition since year-end
1995.
RESULTS OF OPERATIONS
First Colony operates principally in a single business segment selling
individual life and annuity products. For the purpose of analyzing
operating results it splits the segment into three lines: annual life
insurance, single premium immediate annuities (SPIAs), and accumulation
products.
Following is an analysis of income before income taxes (in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
Pretax operating income $53,663 $47,392 $156,543 $130,515
Realized gains (losses)
on investments (235) 4,669 21,074 37,046
Amortization effects related to
realized gains on investments 257 722 772 590
Income before income taxes $53,685 $52,783 $178,389 $168,151
Pretax operating income is defined as income before income taxes excluding
net realized gains or losses on investments and the effect of related
amortization. Pretax operating income was $53.6 million for the quarter
ended September 30, 1996, up 13% over the same period last year. Pretax
operating income was $156.5 million for the nine months ended September 30,
1996, up 20% from the same period a year ago. Pretax operating income for
the quarter and the nine months benefited from the earnings on the growing
life and immediate annuity in force business and relatively better life
insurance and annuity mortality costs.
Realized gains are not included as part of the Company's operating income
for analytical purposes. Realized gains on fixed maturities are an
accelerated source of profit and the "amortization effects" related to
these gains refer to the amortization of deferred policy acquisition costs.
In accordance with generally accepted accounting principles, the
amortization of deferred policy acquisition costs for certain products is
based on estimated gross profits, including profits from investment gains,
prepayment speeds of principal underlying investments in CMOs and
mortality. Changes in market interest rates affect bond calls and CMO
prepayment speeds, which affect the amount and timing of the receipt of the
investment income from these investments. Periodically, the gross profit
and the cumulative amortization for the books of business are re-estimated
and adjusted by a cumulative charge or credit to the statement of income.
The following table sets forth revenues, income before income taxes and
assets for the periods indicated for each of the lines of business.
Operating revenues include premiums, net investment income, mortality,
surrender and administrative charges and exclude realized gains on
investments. Assets, investment income, net realized gains and certain
expense elements are allocated to a line of business on bases that
management considers reasonable.
Dollars in millions Three months ended Nine months ended
September 30 September 30
1996 1995 1996 1995
Revenues:
Annual Life Insurance
- Operating $ 150.0 $ 135.1 $ 443.4 $ 391.5
- Net realized gains (losses) (0.2) 1.3 2.6 16.4
- Total 149.8 136.4 446.0 407.9
SPIA
- Operating 170.5 212.7 568.7 612.6
- Net realized gains 0.3 5.2 22.1 19.5
- Total 170.8 217.9 590.8 632.1
Accumulation Products
- Operating 56.6 56.7 170.3 166.2
- Net realized gains (losses) (0.3) (1.9) (3.6) 1.1
- Total 56.3 54.8 166.7 167.3
Total
- Operating 377.1 404.5 1,182.4 1,170.3
- Net realized gains (losses) (0.2) 4.6 21.1 37.0
- Total $ 376.9 $ 409.1 1,203.5 1,207.3
Income before income taxes:
Annual Life Insurance
- Operating $ 31.2 $ 25.9 $ 83.7 $ 67.7
- Net realized gains (losses) (0.2) 1.3 2.6 16.4
- Amortization effects 0.1 (0.2) 0.3 0.1
- Total 31.1 27.0 86.6 84.2
SPIA
- Operating 9.8 11.0 34.1 32.3
- Net realized gains 0.3 5.2 22.1 19.5
- Amortization effects 0.0 0.0 0.0 0.0
- Total 10.1 16.2 56.2 51.8
Accumulation Products
- Operating 12.6 10.5 38.7 30.5
- Net realized gains (losses) (0.3) (1.9) (3.6) 1.1
- Amortization effects 0.2 0.9 0.5 0.5
- Total 12.5 9.5 35.6 32.1
Total
- Operating 53.6 47.4 156.5 130.5
- Net realized gains (losses) (0.2) 4.6 21.1 37.0
- Amortization effects 0.3 0.7 0.8 0.6
- Total $ 53.7 $ 52.7 $ 178.4 $ 168.1
Assets:
Annual Life Insurance $2,349.5 $2,018.5 $2,349.5 $2,018.5
SPIA 5,988.0 5,538.5 5,988.0 5,538.5
Accumulation Products 2,667.3 2,760.6 2,667.3 2,760.6
Total $11,004.8 $10,317.6 $11,004.8 $10,317.6
PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
Total revenues for the quarter ended September 30, 1996 decreased 8%
compared to the third quarter of 1995. The decrease for the quarter is due
principally to lower premium revenues from life-contingent SPIA's, offset
by higher premium revenues from life insurance and higher net investment
income. For the nine months ended September 30, 1996, revenues were slightly
lower than last year. The nine month period was effected by higher premium
revenues from life insurance and higher net investment income, offset by
lower premium revenues from life contingent SPIA's.
Premiums. Premiums for the quarter ended September 30, 1996, were
$146.5 million, a decrease of 21% from the third quarter of 1995. Life
insurance premiums increased to $94.6 million, up 10% from the prior year.
Life contingent SPIA premiums of $51.9 million for the quarter decreased
48% compared to the third quarter of 1995.
For the nine months ended September 30, 1996, premiums of $499.7 million
were 7% lower than last year. Life insurance premiums increased to $283.6
million, up 13% from 1995. Life insurance premiums for both the quarter
and nine months reflect new sales and renewal premiums on the in-force
business. Annuity premiums of $216.1 million for the nine months were 25%
lower than 1995. The decrease for both the quarter and nine months is due to
lower sales of life contingent single premium immediate annuities.
Net Investment Income. Net investment income increased to $200.1
million for the quarter ended September 30, 1996, up 4% over the comparable
1995 period. The increase reflects primarily a 7% growth of invested
assets, excluding FASB 115, from September 30, 1995 due primarily to new
deposits on investment contracts, premium income and reinvestment of
interest income. For the quarter, higher CMO prepayment speeds generated
higher investment income of $0.7 million compared to no acceleration effect
in 1995.
For the nine months ended September 30, 1996, net investment income of
$595.3 million was 7% higher than last year, reflecting primarily growth of
invested assets, up $625 million from September 30, 1995. New deposits on
investment contracts and premium income account for the increase in
invested assets. Higher CMO prepayment speeds generated higher investment
income for the nine months of $3.9 million while lower CMO prepayment
speeds in 1995 generated lower investment income of $0.2 million. The
effective yield on invested assets was 8.86% for the nine months ended
September 30, 1996, compared to 9.04% for the nine months ended September
30, 1995.
Mortality, Surrender and Administrative Charges. Mortality, surrender
and administrative charges increased to $30.5 million for the quarter ended
September 30, 1996, up 13% over the comparable 1995 period. For the nine
months ended September 30, 1996, mortality, surrender and administrative
charges increased to $87.4 million, up 11% over 1995. Both the quarter and
year-to-date periods benefited from higher mortality and administrative
charges for universal life products due to new sales and retention of the
in-force business.
Total Benefits. Total benefits for the quarter ended September 30,
1996, decreased to $278.2 million, down 12% from the third quarter of 1995.
Life insurance benefits for the quarter increased to $86.0 million, up 7%
over the comparable 1995 period. The increase was primarily the result of
higher life mortality benefits on the growing in force business, up to
$47.5 million in 1996, and higher life policy reserves and other life
benefits which increased 1%, to $38.5 million in 1996. For the quarter,
SPIA benefits and reserves decreased to $153.8 million, down 21% from 1995.
The decrease is due principally to lower initial reserves as a result of a
decline in sales of life contingent SPIAs. Accumulation product benefits
decreased to $38.4 million, down 9% from 1995, reflecting $3.7 million
lower reserves and other benefit costs.
Total benefits for the nine months ended September 30, 1996 decreased to
$892.8 million, down 3% from 1995. Life insurance benefits increased to
$264.3 million, up 9% over 1995, reflecting $13.5 million higher life
mortality benefits and $9.3 million higher life policy reserves and other
life benefits. The increase in policy benefits is attributable to a 17%
growth of the in-force business. Life insurance mortality for the quarter
and nine months was lower than assumed in pricing and lower relative to
1995's mortality for the comparable periods. Year-to-date, SPIA benefits
and reserves decreased to $512.0 million, down 8% from 1995, reflecting
lower sales of life contingent SPIA's. Accumulation product benefits for
the nine months decreased to $116.5 million, down 7% from 1995, reflecting
primarily $8.3 million in lower reserves and other benefit costs.
Total Expenses. Total expenses for the quarter ended September 30,
1996 increased to $45.0 million, up 13% from last year. Commissions net of
deferral decreased to $8.1 million for the quarter, down 23%. Amortization
of intangible assets increased to $16.5 million for the quarter ended
September 30, 1996, up 45% from the comparable 1995 period. The increase
is due to $5.2 million higher amortization of deferred policy acquisition
costs related to the growing life insurance in force.
Total expenses for the nine months ended September 30, 1996 increased to
$132.3 million, up 14% from 1995. Commissions net of deferral decreased to
$24.7 million, down 13% from last year. The decrease to commissions for
the quarter and year is attributable to lower sales of life contingent
SPIAs. Amortization of intangible assets increased to $45.7 million, up 47%
from last year. The increase is due to an $14.6 million increase in
amortization of deferred policy acquisition costs related principally to
the growing life insurance in force.
Income Before Income Taxes. Income before income taxes, which
includes realized investment gains and the effect of related amortization
was $53.7 million for the quarter ended September 30, 1996, up slightly
from the comparable 1995 period. Income before income taxes for the nine
months ended September 30, 1996 was $178.4 million, up 6% from 1995.
Pretax operating income, which excludes realized investment gains and the
effect of related amortization, was $53.6 million for the quarter, up 13%
from 1995. For the nine months ended September 30, 1996, pretax operating
income of $156.5 million was up 20% from the comparable 1995 period.
Pretax operating income for the quarter and year-to-date benefited from the
earnings on the growing life and immediate annuity in force business and
relatively better life insurance and immediate annuity mortality.
Income Taxes. Income taxes were $18.8 million for the quarter ended
September 30, 1996, up slightly from the comparable 1995 period. For the
nine months ended September 30, 1996, income taxes increased to $62.9
million, up 6% compared to 1995. Both the quarter and year to date were
affected by higher operating earnings offset by lower realized investment
gains. The effective tax rate for the nine month period was 35.3%, up
slightly from 35.2% for the same period in 1995.
Realized Gains on Investments. After tax realized investment gains
including the effect of related amortization during the quarter ended
September 30, 1996 were $21 thousand. This compares to $3.5 million for the
comparable 1995 period. After tax realized investment gains including the
effect of related amortization were $14.1 million for the nine months ended
September 30, 1996, compared to $24.3 million in 1995. The decrease is due
primarily to the Company's election to take capital gains in the common stock
portfolio during 1995, which was not repeated in 1996.
Net income. Net income was $34.9 million for the quarter ended
September 30, 1996, up slightly from $34.3 million in 1995. For the nine
months ended September 30, 1996, net income increased to $115.5 million, up
6% from the comparable 1995 period. The increase for the first nine months of
1996 is principally due to higher net operating earnings offset by lower
investment gains.
FINANCIAL CONDITION
Liquidity and Capital Resources. First Colony Life's businesses produce
positive cash flows which are invested primarily in investment grade bonds
with maturities closely matched with future cash flow needs. Principal
sources of funds at First Colony Life are premiums and other considerations
received, net investment income received and proceeds from investments
called, matured, redeemed or sold. The principal uses of these funds by
First Colony Life are the payment of benefits on life insurance and annuity
policies, operating expenses and the purchase of investments.
Net cash provided by operating activities was $189.4 million and $266.0
million in the nine months ended September 30, 1996 and 1995, respectively.
Cash provided by operating activities was lower in the current period due
primarily to lower cash flows from new sales of life contingent immediate
annuities.
First Colony Life's financing activities relate primarily to its
universal life insurance and annuity products with benefits payable for a
stated period. First Colony Life's cash management strategy occasionally
results in the need for short term borrowing to meet current commitments.
The net cash provided by financing activities amounted to $184.4 million
and $399.5 million for the nine months ended September 30, 1996 and 1995,
respectively. The 1996 period reflects lower sales of single premium
universal life and investment contracts.
Net cash used by investing activities was $384.0 million and $698.1
million in the nine months ended September 30, 1996 and 1995, respectively.
The cash used by investing activities in the current period was lower than
last year principally as a result of lower sales of immediate and deferred
annuities and lower realized investment gains.
First Colony is an insurance holding company and its principal
sources of cash are dividends from and an investment management and
services agreement with First Colony Life. The Company's primary uses of
cash have been for common and preferred shareholder dividends, debt
service, operating expenses and a common stock investment portfolio.
Cash requirements for the remainder of the year will be primarily for debt
service cost on the Company's Senior Notes, dividends on the Variable Term
Preferred Stock, common shareholder dividends and operating expenses.
Given First Colony's cash flow and current financial results,
management of the Company believes that the cash flow for the remainder of
the year will provide sufficient liquidity for the operations of the
Company, as well as provide sufficient funds so that the Company will be
able to make dividend payments, satisfy debt service obligations and pay
other operating expenses as anticipated.
First Colony Life's investment portfolio consists of high quality
assets which produce a reasonable rate of return with maturities closely
matched to future cash flow needs. At September 30, 1996, the bond
portfolio had an average Moody's rating of A-1. At September 30, 1996,
bonds below investment grade represented 2.4% of the bond portfolio based
on par value.
The mark-to-market requirements of FASB 115 for the available-for-sale
portfolio resulted in unrealized gains of $17.5 million (net of the related
effect of deferred policy acquisition costs and deferred income taxes) or
$0.35 per share at September 30, 1996, compared to unrealized gains of
$208.3 million, or $4.22 per share at December 31, 1995. Market values
decreased during the nine month period as a result of rising yields and falling
prices in the bond market. Fixed maturity investments in the held-to-maturity
category represented approximately 46% of the fixed maturity portfolio. The
Company does not have a trading portfolio, nor does it invest in derivative
financial instruments.
At September 30, 1996, approximately 15% of First Colony's investment
portfolio was invested in mortgage-backed obligations, 99% of which are
collateralized mortgage obligations (CMOs) secured by residential
mortgages. Certain of these CMOs are subject to prepayment risk in a
falling interest rate environment which impacts total yield but does not
affect the recoverability of principal. During the first nine months of
1996, cash payments of principal received on CMOs were $158.7 million
versus $55.3 million last year. Future levels of CMO prepayments are
dependent principally upon the direction of future interest rates.
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
SIGNATURES
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.
FIRST COLONY CORPORATION
(Registrant)
Date: November 14, 1996 By: s/Ronald V. Dolan
President
Date: November 14, 1996 By: s/Peter W. Karras, CPA
Secretary and Treasurer
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheets and Consolidated Statements of Income
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 4,914,067
<DEBT-CARRYING-VALUE> 4,044,780
<DEBT-MARKET-VALUE> 4,341,824
<EQUITIES> 289,183
<MORTGAGE> 239
<REAL-ESTATE> 1,573
<TOTAL-INVEST> 9,525,251
<CASH> 35,998
<RECOVER-REINSURE> 131,872
<DEFERRED-ACQUISITION> 998,346
<TOTAL-ASSETS> 11,004,783
<POLICY-LOSSES> 8,957,367
<UNEARNED-PREMIUMS> 234
<POLICY-OTHER> 52,370
<POLICY-HOLDER-FUNDS> 111,867
<NOTES-PAYABLE> 187,207
0
80,000
<COMMON> 312,940
<OTHER-SE> 987,063
<TOTAL-LIABILITY-AND-EQUITY> 11,004,783
499,661
<INVESTMENT-INCOME> 595,286
<INVESTMENT-GAINS> 21,074
<OTHER-INCOME> 87,461
<BENEFITS> 892,843
<UNDERWRITING-AMORTIZATION> 44,234
<UNDERWRITING-OTHER> 88,016
<INCOME-PRETAX> 178,389
<INCOME-TAX> 62,891
<INCOME-CONTINUING> 115,498
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,498
<EPS-PRIMARY> 2.27
<EPS-DILUTED> 2.27
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
