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 THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001
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 September 30, 2001, has 6,336,428 shares of common stock
outstanding.
COTTON STATES LIFE INSURANCE COMPANY
FORM 10-Q
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2001
INDEX
PAGE
----
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Auditors' Review Report.....................................................1
Consolidated Condensed Balance Sheets as of September 30, 2001 and
December 31, 2000.......................................................................2
Consolidated Condensed Statements of Earnings for the Three Months
and Nine Months Ended September 30, 2001 and 2000.......................................3
Consolidated Condensed Statements of Cash Flows for the Three Months
and Nine Months Ended September 30, 2001 and 2000.......................................4
Consolidated Condensed Statements of Comprehensive Income For the
Three Months and Nine Months Ended September 30, 2001 and 2000..........................5
Notes to Unaudited Consolidated Condensed Financial Statements..........................6
Item 2. Management's Discussion and Analysis of Consolidated Condensed Financial
Condition and Results of Operations.....................................................8
Item 3. Quantitative and Qualitative Disclosures about Market Risk.............................13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings......................................................................14
Item 2. Changes in Securities and Use of Proceeds..............................................14
Item 3. Defaults Upon Senior Securities........................................................14
Item 4. Submission of Matters to a Vote of Security Holders....................................14
Item 5. Other Information......................................................................14
Item 6. Exhibits and Reports on Form 8-K.......................................................14
SIGNATURES...........................................................................................14
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
COTTON STATES LIFE INSURANCE COMPANY, INC.:
We have reviewed the consolidated condensed balance sheet of Cotton States Life
Insurance Company, Inc. as of September 30, 2001, and the related consolidated
condensed statements of earnings and comprehensive income for the three-month
and nine-month periods ended September 30, 2001 and 2000, and the consolidated
condensed statements of cash flows for the nine month periods ended September
30, 2001 and 2000. These consolidated condensed financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated condensed financial statements referred to above for
them to be in conformity with accounting principles generally accepted in the
United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Cotton States Life Insurance Company, Inc. as of December 31, 2000, and the
related consolidated statements of earnings, shareholders' equity, cash flows
and comprehensive income for the year then ended (not presented herein); and in
our report dated February 21, 2001, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated condensed balance sheet as of December 31, 2000,
is fairly stated in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/S/ KPMG LLP
November 10, 2001
Atlanta, Georgia
ITEM I - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
COTTON STATES LIFE INSURANCE COMPANY
Consolidated Condensed Balance Sheets
September 30, 2001 and December 31, 2000
(Amounts in Thousands)
2001 2000
--------- --------
(unaudited)
ASSETS
Investments:
Fixed maturities, held for investment, at amortized
cost (fair value $13,036 in 2001 and
$15,214 in 2000) $ 12,553 15,057
Fixed maturities, available for sale, at fair value
(amortized cost $132,784 in 2001 and
$119,813 in 2000) 135,827 116,584
Equity securities, at fair value (cost $3,730 in 2001
and $3,671 in 2000) 3,105 3,776
First mortgage loans on real estate 1,796 2,098
Policy loans 9,468 8,841
Other invested assets 1,000 1,000
--------- --------
TOTAL INVESTMENTS 163,749 147,356
Cash and cash equivalents 5,002 6,438
Accrued investment income 2,284 2,466
Premiums receivable 3,066 3,316
Reinsurance receivable 5,775 4,377
Deferred policy acquisition costs 50,068 46,857
Other assets 424 491
--------- --------
$ 230,368 211,301
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits 141,800 132,655
Policy and contract claims 3,023 2,298
Federal income taxes 8,338 6,266
Other liabilities 7,676 7,348
--------- --------
TOTAL LIABILITIES 160,837 148,567
--------- --------
Shareholders' equity:
Common stock 6,755 6,755
Additional paid-in capital 1,496 1,496
Accumulated other comprehensive income (loss) 1,292 (1,716)
Retained earnings 64,244 60,320
Less:
Unearned compensation-restricted stock (842) (794)
Treasury stock, at cost, (418 shares in 2001
and 409 in 2000) (3,414) (3,327)
--------- --------
TOTAL SHAREHOLDERS' EQUITY 69,531 62,734
--------- --------
$ 230,368 211,301
========= ========
See accompanying notes to unaudited consolidated condensed financial statements.
2
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Earnings
Three Months and Nine Months ending September 30, 2001 and 2000
(Amounts in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
-------- ------- ------ ------
Revenue:
Premiums $ 7,562 6,772 21,736 19,282
Investment income 2,689 2,524 7,804 7,425
Realized investment gains (losses) (69) (6) 20 237
Brokerage commissions 1,131 1,025 3,131 2,928
-------- ------- ------ ------
TOTAL REVENUE 11,313 10,315 32,691 29,872
-------- ------- ------ ------
Benefits and expenses:
Benefits and claims 4,229 3,928 12,729 10,066
Interest credited 1,401 1,304 4,034 3,839
Amortization of policy acquisition costs 1,238 466 3,360 2,166
Operating expenses 1,882 1,656 6,117 5,466
-------- ------- ------ ------
TOTAL BENEFITS AND EXPENSE 8,750 7,354 26,240 21,537
-------- ------- ------ ------
Income before income tax expense 2,563 2,961 6,451 8,335
Income tax expense 597 836 1,763 2,625
-------- ------- ------ ------
NET INCOME $ 1,966 2,125 4,688 5,710
======== ======= ====== ======
Basic income per share of common stock
Net Income $ 0.31 0.34 0.74 0.90
======== ======= ====== ======
Diluted income per share of common stock
Net income $ 0.30 0.33 0.72 0.88
======== ======= ====== ======
Weighted average number of shares
used in computing income per share
Basic 6,345 6,345 6,345 6,345
======== ======= ====== ======
Diluted 6,517 6,462 6,525 6,463
======== ======= ====== ======
See accompanying notes to unaudited consolidated condensed financial statements.
3
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Cash Flows
Nine months ended September 30, 2001 and 2000
(Amounts in Thousands)
2001 2000
-------- -------
Cash flows from operating activities:
Net income $ 4,688 5,710
Adjustments to reconcile net income to net
cash provided from operating activities:
Increase in policy liabilities and accruals 9,871 7,170
(Increase) in deferred policy acquisition costs (3,861) (4,727)
Increase in liability for income taxes 187 848
(Increase) in amounts receivable and
amounts due from reinsurers (1,148) (1,534)
Increase in amounts due affiliate 197 62
Increase in accounts payable and accruals 56 668
Other, net 450 266
-------- -------
Net cash provided from operating activities 10,440 8,463
-------- -------
Cash flows from investing activities:
Purchase of fixed maturities available for sale (58,361) (16,657)
Purchase of equity securities (1,742) (2,293)
Sale of fixed maturities available for sale 40,888 0
Sale of equity securities 1,683 1,207
Proceeds from maturities of fixed
maturities held for investment 2,500 1,010
Proceeds from maturity and redemption of fixed
maturities held for sale 4,437 6,154
Principal collected on first mortgage loans 301 623
Net increase in policy loans (627) (278)
Other, net (104) (173)
-------- -------
Net cash used in investing activities (11,025) (10,407)
-------- -------
Cash flows from financing activities:
Cash dividends paid (764) (764)
Purchase of treasury stock (87) (146)
Stock issued under executive compensation plans -- 135
-------- -------
Net cash used by financing activities (851) (775)
-------- -------
Net (decrease) in cash and cash equivalents: (1,436) (2,719)
Cash and cash equivalents:
Beginning of period 6,438 6,106
-------- -------
END OF PERIOD $ 5,002 3,387
======== =======
See accompanying notes to unaudited consolidated condensed financial statements.
4
COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Comprehensive Income
Three Months and Nine Months ending September 30, 2001 and 2000
(Amounts in Thousands)
Three months ended Nine months ended
September 30, September 30,
2001 2000 2001 2000
------ ----- ------ ------
Net income: $1,966 2,125 4,688 5,710
Other comprehensive income,
before tax:
Unrealized gains on securities
available for sale 3,598 929 4,912 943
Reclassification adjustment for realized
losses (gains) included in net income 69 6 (20) (237)
------ ----- ------ ------
TOTAL OTHER COMPREHENSIVE INCOME
BEFORE TAX 3,667 935 4,892 706
------ ----- ------ ------
Income tax expense related to
items of other comprehensive income 1,422 366 1,884 281
------ ----- ------ ------
Other comprehensive income,
net of tax 2,245 569 3,008 425
------ ----- ------ ------
TOTAL COMPREHENSIVE INCOME $4,211 2,694 7,696 6,135
====== ===== ====== ======
See accompanying notes to unaudited consolidated condensed financial statements.
5
COTTON STATES LIFE INSURANCE COMPANY
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements include the
accounts of Cotton States Life Insurance Company and its wholly owned
subsidiaries CSI Brokerage Services, Inc., and CS Marketing Resources, Inc.
Significant intercompany transactions and balances are eliminated in the
consolidation.
The consolidated condensed financial statements for the three months and nine
months ended September 30, 2001 are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to such rules
and regulations. These consolidated condensed financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes included in the Company's annual report on Form 10-K for the year
ended December 31, 2000.
In the opinion of management, all adjustments and reclassifications necessary to
present fairly the financial position and the results of operations and cash
flows for the interim periods have been made. All such adjustments are of a
normal and recurring nature. The results of operations are not necessarily
indicative of the results of operations that the Company may achieve for the
entire year.
NOTE 2 - ACCOUNTING PRONOUNCEMENTS
Financial Accounting Standards Board (FASB) Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities became effective beginning January 1, 2001. However, due to the
Company's limited use of derivative financial instruments, SFAS No. 133 had no
impact on the Company's consolidated financial position, results of operations
or cash flows.
The FASB also issued SFAS No. 140, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (a replacement of SFAS No.
125)" in September 2000. At this time, the Company does not expect this standard
to have a significant impact on the Company's financial position or income.
The FASB recently issued SFAS No. 141, "Business Combinations," and SFAS No.
142, "Goodwill and Other Intangible Assets," in June 2001. Based on current
information available, the Company does not expect these standards to have a
significant impact on the Company's financial position or income.
The FASB recently issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", and SFAS No. 144, "Accounting for Impairment or Disposal of
Long-Lived Assets (a replacement of SFAS No. 121). Based on current information
available, the Company does not expect these standards to have a significant
impact on the Company's financial position or income.
6
NOTE 3 - BUSINESS SEGMENTS
The Company's operations include the following three major segments,
differentiated primarily by their respective methods of distribution and the
nature of related products: individual life insurance, guaranteed and simplified
issue life insurance, and brokerage operations. The Company's operations in each
segment are concentrated within its southeastern state geographic market.
Individual life insurance products are distributed through the Company's
multi-line exclusive agents, guaranteed and simplified issue products are
distributed through independent agents as well as exclusive agents, and
brokerage operations all involve third party products distributed through the
Company's exclusive and independent agents.
Total revenue and net income by business segment are as follows:
Nine Months Ended
September 30,
(Dollars in thousands)
2001 2000
------- ------
Individual life insurance:
Premiums $14,027 13,440
Investment income 7,195 6,943
Realized investment gains 19 --
------- ------
Total revenue $21,241 20,383
======= ======
Net income $ 2,839 3,741
======= ======
Guaranteed and simplified issue life insurance:
Premiums $ 7,709 5,842
Investment income 567 374
Realized investment gains 1 --
------- ------
Total revenue $ 8,277 6,216
======= ======
Net income $ 307 370
======= ======
Brokerage:
Commission income $ 3,131 2,928
Investment income 42 108
Realized investment gains -- 237
------- ------
Total revenue $ 3,173 3,273
======= ======
Net income $ 1,542 1,599
======= ======
Total revenue $32,691 29,872
======= ======
Total net income $ 4,688 5,710
======= ======
NOTE 4 - CONTINGENCIES
The Company has initiated legal action to recover the proceeds of a $900,000
reinsurance policy. The Company expects that the ultimate recovery of the full
amount is very likely.
7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
CONDENSED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements made in the following discussion that states the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. Without limiting the foregoing,
forward-looking statements include statements which represent the Company's
beliefs concerning future levels of sales and redemption of the Company's
products, investment spreads and yields, or the earnings and profitability of
the Company's activities.
Forward-looking statements are necessarily based on estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Company's control
and many of which are subject to change. These uncertainties and contingencies
could cause actual results to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company. Whether or not
actual results differ materially from forward-looking statements may depend on
numerous foreseeable and unforeseeable developments. Some may be national in
scope, such as general economic conditions, changes in tax law and changes in
interest rates. Some may be related to the insurance industry generally, such as
pricing competition, regulatory developments and industry consolidation. Others
may relate to the Company specifically, such as credit, volatility and other
risks associated with the Company's investment portfolio. Investors are also
directed to consider other risks and uncertainties discussed in Form 10-K filed
by the Company with the Securities and Exchange Commission. If the Company's
assumptions and estimates are incorrect or do not come to fruition, or if the
Company does not achieve all of these key factors, then the Company's actual
performance could vary materially from the forward-looking statements made
herein. The Company disclaims any obligation to update forward-looking
information.
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
2001 2000 INCREASE
------- ----- --------
PREMIUMS
Guaranteed and simplified
issue life insurance $ 7,709 5,842 32%
Individual life insurance:
Traditional life 4,807 4,670
3%
Universal life 9,220 8,770 5%
------- ------
Total individual life insurance 14,027 13,440 4%
------- ------
TOTAL PREMIUMS $21,736 19,282 13%
======= ======
Guaranteed and simplified issue life insurance premiums continued to show
significant growth as a result of higher production by the independent agency
force which increased 13% to 4,400 agents under contract at September 30, 2001
compared to 3,900 at September 30, 2000. This product is also distributed by the
8
Company's multi-line exclusive agents and is available for purchase over the
Internet at the Company's home page.
Individual life insurance products are principally sold by the Company's
exclusive agent producers. Individual life premiums have increased 4% for the
nine month period ending September 30, 2001 compared to the same period last
year. The exclusive agency force of 294 as of September 30, 2001 increased 3%
compared to the same date last year.
INVESTMENT INCOME
Investment income increased 5% compared to the first nine months of 2000
reflecting growth in the average investment portfolio. The annualized average
yield decreased to 6.7% compared to 6.9% for the first nine months 2000 due to
lower interest rates.
BROKERAGE COMMISSIONS
Exclusive agents also sell products that the Cotton States Group does not
underwrite (both life and property and casualty). Property and casualty business
lines, principally non-standard auto, continue to show strong growth with
commissions increasing 15% compared to the first nine months of last year.
BENEFITS AND CLAIMS
Life benefits and claims, including reserve increases on traditional life and
guaranteed and simplified issue products are as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
2001 2000
---- ----
BENEFITS AND % OF BENEFITS AND % OF
CLAIMS PREMIUM CLAIMS PREMIUM
------- ------- ------------ -------
BENEFITS AND CLAIMS
Guaranteed and
simplified issue $ 5,599 73% 4,318 74%
Individual life insurance
Traditional life 3,876 81% 3,065 66%
Universal life 3,254 35% 2,683 31%
------- ------
Total individual life insurance 7,130 51% 5,748 43%
------- ------
TOTAL BENEFITS AND CLAIMS $12,729 59% 10,066 52%
======= ======
Although individual life benefits were consistent with management's expectations
for the quarter, they are up year to date compared to last year primarily due to
high mortality experienced during the first quarter of the year.
9
INTEREST CREDITED TO POLICYHOLDERS
Interest credited to universal life contracts increased 5% reflecting growth in
universal life policy accumulations. The annual interest rate credited to
universal life contract accumulations was 6.2% for both nine month periods of
2001 and 2000.
AMORTIZATION OF POLICY ACQUISITION COSTS AND OPERATING EXPENSES
The amortization of policy acquisition costs as a percentage of premiums was 15%
for the nine months ended September 2001. This is slightly higher than the
Company's expected range of 12-14% due to higher lapses in the traditional lines
of business which reflects increased term rate competition in the market place.
The amortization of policy acquisition costs for the third quarter of 2000
reflected a favorable adjustment from updating actuarial assumptions. This
adjustment represented the slow down of amortization as a result of higher
estimated future profits resulting from improvement in mortality levels on
universal life products. The after tax effect on net income for the three month
and nine month periods ended September 30, 2000 was $429 thousand and $.07 per
share.
Operating expense as a percentage of premiums remained at 28% for the first nine
months compared to the same period last year.
INCOME TAX EXPENSE
The effective tax rate for the first nine months of 2001 was 27% compared to 31%
for the same period last year. The 4 percentage point decrease is the result of
the decrease in pretax income and an increase in the allowable small company
deduction. The effective tax rate is based on the estimated annual rate.
NET INCOME
NINE MONTHS ENDED
SEPTEMBER 30,
(DOLLARS IN THOUSANDS)
2001 2000 DECREASE
------ ----- --------
NET INCOME
Guaranteed and
simplified issue $ 307 370 (17%)
------ -----
Individual life insurance:
Traditional 404 935 (57%)
Universal life 2,435 2,806 (13%)
------ -----
Total individual life insurance 2,839 3,741 (24%)
------ -----
Brokerage operations 1,542 1,599 (4%)
------ -----
Net Income $4,688 5,710 (18%)
====== =====
10
Despite continued growth in premiums and more normal expense and mortality costs
net income decreased for the quarter as third quarter 2000 results reflected a
nonrecurring favorable adjustment to the amortization of policy acquisition
costs.
Nine month results reflect higher first quarter mortality in comparison to the
prior year as well as a nonrecurring favorable adjustment to the amortization of
policy acquisition costs in 2000.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CREDIT RISK
Credit Risk is the risk that issuers of securities owned by the Company will
default, or other parties, including reinsurers, which owe the Company money,
will not pay. The Company attempts to minimize these risks by following a
conservative investment strategy and by contracting with reinsuring companies
that meet high standards for rating criteria and other qualifications. The
Company invests in government, governmental agency and high quality corporate
bonds having an A rating or better. The fixed maturity portfolio had an average
rating of AA- at September 30, 2001.
INTEREST RATE RISK
The Company's fixed maturity investments are subject to interest rate risk. The
Company manages the impact of interest rate fluctuation through cash flow
modeling. Liabilities for interest sensitive products are carried at full
account value. The fixed maturity portfolio at September 30, 2001 and December
31, 2000 had an effective duration of 4.4 years and 4.8 years, respectively.
The table below summarizes the Company's interest rate risk and shows the effect
of a hypothetical 100 basis point (bp) decrease and increase in interest rates
on the fair values of the fixed investment portfolio. The selection of a 100
basis point decrease and increase in interest rates should not be construed as a
prediction by the Company's management of future market events, but rather, to
illustrate the potential impact of such events. These calculations may not fully
capture the impact of the changes in the ratio of long-term rates to short-term
rates.
(AMOUNTS IN THOUSANDS)
ESTIMATED ESTIMATED FAIR VALUE
FAIR VALUE AFTER 100 BASIS POINT
FIXED MATURITIES SEPTEMBER 30, 2001 CHANGE IN INTEREST RATES
---------------- ------------------ ---------------------------------
Held for investment $ 13,036 100 bp decrease $ 13,237
100 bp increase $ 12,840
Available for sale $135,827 100 bp decrease $142,272
100 bp increase $129,464
11
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOW
Premiums and investment income are the Company's major sources of cash flow used
to meet its short-term and long-term cash requirements.
Short-term obligations consist primarily of operating expenses and policyholder
benefits. The Company has been able to meet these funding requirements out of
operating cash flow. The Company does not anticipate that it will become
necessary to sell long-term investments to meet short-term obligations.
The Company's principal long-term obligations are fixed contractual obligations
incurred in the sale of its life insurance products. The premiums billed for
these products are based on conservative and actuarially sound assumptions as to
mortality, persistency and interest. The Company believes these assumptions will
produce revenues sufficient to meet its future contractual benefit obligations
and operating expenses, and provide an adequate profit margin to finance future
growth without a major entry into the debt or equity markets.
INVESTMENTS
Since December 31, 2000, there has not been a material change in mix or credit
quality of the Company's investment portfolio. All purchases have been fixed
maturities available for sale and over 93% of the holdings at September 30, 2001
and December 31, 2000 are rated "A" or better. Due to lower interest rates the
Company experienced an increase in the fair value of bonds of approximately $6.6
million year to date.
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% of the value on
commercial loans. The Company grants loans only to employees (excluding officers
and directors) and agents.
The geographic distribution of the loan portfolio is:
NO. OF LOANS BOOK VALUE
------------ (AMOUNTS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
-------------- ------------ ------------- ------------
2001 2000 STATE 2001 2000
---- ---- ------- ------ -----
3 3 Alabama $ 117 130
6 6 Florida 329 354
31 36 Georgia 1,350 1,614
-- -- ------ -----
40 45 $1,796 2,098
== == ====== =====
Two loans representing $101 thousand in principal are over 30 days delinquent.
The loan-to-value ratio on delinquent loans is 27%.
12
SHAREHOLDERS' EQUITY
On September 18, 2001, the Company announced a stock repurchase program of up to
50,000 shares of the Company's common stock to be added to treasury shares for
director and employee stock plans and other corporate purposes. As of September
30, 2001, the Company has repurchased 9,000 shares under the program at an
average cost of $9.65 per share.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by item 305 of Regulation S-K is contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contained in this Form 10-Q.
13
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 result in any material loss to the Company.
The Company has initiated legal action to recover the proceeds of a $900,000
reinsurance policy. The Company expects that the ultimate recovery of the full
amount is very likely.
Item 2. Changes in Securities and Use of Proceeds
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Statement re: Computation of Per Share Earnings
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: 11/13/01 /s/ J. Ridley Howard
--------- -----------------------------------------
J. Ridley Howard, Chairman
President and Chief Executive Officer
Date: 11/13/01 /s/ Roger W. Fisher
-----------------------------------------
Roger W. Fisher
Senior Vice President, Chief Financial
Officer and Treasurer
14