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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 six months ended June 30, 2002

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 June 30, 2002, has 6,339,837 shares of common stock
outstanding.





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TABLE OF CONTENTS



|                                                   |                                                                                                                       |                                                                                                                              |  |  |  |  |  | 
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|                                                   | ITEM I  CONSOLIDATED FINANCIAL STATEMENTS                                                                           
|                                                   |                                                                                                                       | Consolidated Condensed Balance Sheets June 30, 2002 and December 31, 2001                                                   
|                                                   |                                                                                                                       | Unaudited Consolidated Condensed Statements of Earnings Three Months and Six Months ended June 30, 2002 and 2001            
|                                                   |                                                                                                                       | Unaudited Consolidated Condensed Statements of Cash Flows Six months ended June 30, 2002 and 2001                           
|                                                   |                                                                                                                       | Unaudited Consolidated Condensed Statements of Comprehensive Income Three Months and Six Months ended June 30, 2002 and 2001
|                                                   |                                                                                                                       | Notes to Unaudited Consolidated Condensed Financial Statements                                                              
|                                                   | ITEM 2  MANAGEMENTS DISCUSSION AND ANALYSIS OF CONSOLIDATED CONDENSED FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                   | ITEM 3  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                  
|PART II  OTHER INFORMATION                       
|                                                   | Item 1. Legal Proceedings                                                                                            
|                                                   | Item 2. Changes in Securities and Use of Proceeds                                                                    
|                                                   | Item 3. Defaults Upon Senior Securities                                                                              
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                                          
|                                                   | Item 5. Other Information                                                                                            
|                                                   | Item 6. Exhibits and Reports on Form 8-K                                                                             
|STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS   
|LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION
|SECTION 906 CERTIFICATION OF THE CEO AND CFO      



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COTTON STATES LIFE INSURANCE COMPANY

FORM 10-Q

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002

INDEX

|                               |  |                                                                                                                            |  |  |    |      |    | 
|------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------- |  |  | -- | ---- | -- | 
|                               |  |                                                                                                                            |  |  |    | Page
|                               |  |                                                                                                                            |  |  |    |     
|                               |  |                                                                                                                            |  | 
|PART 1 - FINANCIAL INFORMATION |  |                                                                                                                            |  | 
|                               |  |                                                                                                                            |  |  |    |      |    | 
|Item 1                         |  | Financial Statements                                                                                                       |  |  |    |     
|                               |  | Independent Auditors' Review Report                                                                                        |  |  | 1  |     
|                               |  | Consolidated Condensed Balance Sheets as of June 30, 2002 and December 31, 2001                                            |  |  | 2  |     
|                               |  | Consolidated Condensed Statements of Earnings for the Three Months and Six Months Ended June 30, 2002 and 2001             |  |  | 3  |     
|                               |  | Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001                            |  |  | 4  |     
|                               |  | Consolidated Condensed Statements of Comprehensive Income for the Three Months and Six Months Ended June 30, 2002 and 2001 |  |  | 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                                                                 |  |  | 15 |     
|                               |  |                                                                                                                            |  |  |    |      |    | 
|PART II  OTHER INFORMATION    |  |                                                                                                                            |  | 
|                               |  |                                                                                                                            |  |  |    |      |    | 
|Item 1                         |  | Legal Proceedings                                                                                                          |  |  | 17 |     
|Item 2                         |  | Changes in Securities and Use of Proceeds                                                                                  |  |  | 17 |     
|Item 3                         |  | Defaults Upon Senior Securities                                                                                            |  |  | 17 |     
|Item 4                         |  | Submission of Matters to a Vote of Security Holders                                                                        |  |  | 17 |     
|Item 5                         |  | Other Information                                                                                                          |  |  | 17 |     
|Item 6                         |  | Exhibits and Reports on Form 8-K                                                                                           |  |  | 17 |     
|                               |  |                                                                                                                            |  |  |    |      |    | 
|SIGNATURES                     |  |                                                                                                                            |  |  |    |      | 17 | 





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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 June 30, 2002, and the related consolidated
condensed statements of earnings and comprehensive income for the three-month
and six-month periods ended June 30, 2002 and 2001, and the consolidated
condensed statements of cash flows for the six-month periods ended June 30,
2002 and 2001. 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, 2001, 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 26, 2002, 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, 2001, is fairly stated in all material respects, in relation to the
consolidated balance sheet from which it has been derived.



| | /S/ KPMG LLP
| | ------------

August 6, 2002
Atlanta, Georgia

1



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##### Table of Contents









ITEM I  CONSOLIDATED FINANCIAL STATEMENTS

COTTON STATES LIFE INSURANCE COMPANY
Consolidated Condensed Balance Sheets
June 30, 2002 and December 31, 2001

|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |             |             |            |             | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------ | -------------------------------------- | --------------------------------------------------------------------- | -------------------------- | ----------- | ----------- | ----------- | ----------- | ----------- | ---------- | ----------- | 
|                                     |                                                                                                                    |                                        |                                                                       |                            |             | 2002        |             | 2001       
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     |                                                                                                                    |                                        |                                                                       |                            |             | (unaudited) |             |             |             |           
|ASSETS                               |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|Investments                          |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     | Fixed maturities, held for investment, at amortized
cost (fair value $10,424,785 in 2002 and
$11,960,104 in 2001)  |                                        | $                                                                     | 10,050,211                 |             |             |             | 11,552,200  |            
|                                     | Fixed maturities, available for sale, at fair value
(amortized cost $137,335,743 in 2002 and
$130,303,801 in 2001) |                                        |                                                                       | 139,507,247                |             |             |             | 131,964,810 |            
|                                     | Equity securities, at fair value (cost $3,693,616 in 2002
and $3,673,660 in 2001)                                  |                                        |                                                                       | 2,969,125                  |             |             |             | 3,471,722   |            
|                                     | First mortgage loans on real estate                                                                                |                                        |                                                                       | 1,540,465                  |             |             |             | 1,671,989   |            
|                                     | Policy loans                                                                                                       |                                        |                                                                       | 9,945,761                  |             |             |             | 9,661,247   |            
|                                     | Other invested assets                                                                                              |                                        |                                                                       | 1,000,000                  |             |             |             | 1,000,000   |            
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     |                                                                                                                    |                                        |                                                                       | Total Investments          |             |             | 165,012,809 |             |             |            | 159,321,968 | 
|                                     | Cash and cash equivalents                                                                                          |                                        |                                                                       | 14,680,403                 |             |             |             | 13,187,601  |            
|                                     | Accrued investment income                                                                                          |                                        |                                                                       | 2,643,755                  |             |             |             | 2,592,977   |            
|                                     | Premiums receivable                                                                                                |                                        |                                                                       | 2,938,704                  |             |             |             | 3,298,052   |            
|                                     | Reinsurance receivable                                                                                             |                                        |                                                                       | 4,030,965                  |             |             |             | 4,233,046   |            
|                                     | Deferred policy acquisition costs                                                                                  |                                        |                                                                       | 54,775,419                 |             |             |             | 51,660,808  |            
|                                     | Other assets                                                                                                       |                                        |                                                                       | 777,817                    |             |             |             | 485,886     |            
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     |                                                                                                                    | $                                      | 244,859,872                                                           |                            |             |             | 234,780,338 |            
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|LIABILITIES AND SHAREHOLDERS EQUITY |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     | Policy liabilities and accruals:                                                                                   |                                        |                                                                       |                            |             |             |             |             |            
|                                     |                                                                                                                    | Future policy benefits                 |                                                                       | $                          | 153,104,665 |             |             |             | 145,737,310 |           
|                                     |                                                                                                                    | Policy and contract claims             |                                                                       |                            | 2,263,199   |             |             |             | 2,196,620   |           
|                                     | Federal income taxes                                                                                               |                                        |                                                                       | 8,669,908                  |             |             |             | 8,537,875   |            
|                                     | Other liabilities                                                                                                  |                                        |                                                                       | 7,438,873                  |             |             |             | 7,774,011   |            
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     |                                                                                                                    |                                        |                                                                       | Total Liabilities          |             |             | 171,476,645 |             |             |            | 164,245,816 | 
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     | Shareholders equity:                                                                                              |                                        |                                                                       |                            |             |             |             |             |            
|                                     |                                                                                                                    | Common Stock                           |                                                                       |                            | 6,754,504   |             |             |             | 6,754,504   |           
|                                     |                                                                                                                    | Additional paid-in capital             |                                                                       |                            | 1,539,882   |             |             |             | 1,496,417   |           
|                                     |                                                                                                                    | Accumulated other comprehensive income |                                                                       |                            | 735,915     |             |             |             | 818,720     |           
|                                     |                                                                                                                    | Retained earnings                      |                                                                       |                            | 68,461,549  |             |             |             | 65,746,656  |           
|                                     |                                                                                                                    | Less:                                  |                                                                       |                            |             |             |             |             |             |           
|                                     |                                                                                                                    |                                        | Unearned compensation-restricted stock                                |                            |             | (724,181    | )           |             |             | (858,781   | )          
|                                     |                                                                                                                    |                                        | Treasury stock, at cost, (414,667 shares in
2002 and 419,076 in 2001) |                            |             | (3,384,442  | )           |             |             | (3,422,994 | )          
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     |                                                                                                                    |                                        |                                                                       | Total Shareholders Equity |             |             | 73,383,227  |             |             |            | 70,534,522  | 
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            
|                                     |                                                                                                                    | $                                      | 244,859,872                                                           |                            |             |             | 234,780,338 |            
|                                     |                                                                                                                    |                                        |                                                                       |                            |             |             |             |            

See accompanying notes to unaudited consolidated condensed financial statements.

2



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COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Earnings
Three Months and Six Months ended June 30, 2002 and 2001

|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            |  |            |           |            | 
|---------------------- | -------------------------------------------------------------------- | ---------------------------------------- | --------- | -------------------------- | --------- | ------------------ | ---------- | ---------------- | --------- | --------- | ---------- | ---- | ---------- | --------- | ---------- |  | ---------- | --------- | ---------- | 
|                       |                                                                      |                                          |           |                            |           | Three months ended |            | Six months ended
|                       |                                                                      |                                          |           |                            |           | June 30,           |            | June 30,        
|                       |                                                                      |                                          |           |                            |           |                    |            |                 
|                       |                                                                      |                                          |           |                            |           | 2002               |            | 2001             |           | 2002      |            | 2001
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |     
|Revenue:               |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      | Premiums                                 |           | $                          | 8,007,993 |                    |            |                  | 7,142,797 |           |            |      | 15,674,310 |           |            |  | 14,174,150 |          
|                       |                                                                      | Investment income                        |           |                            | 2,427,037 |                    |            |                  | 2,566,579 |           |            |      | 4,898,973  |           |            |  | 5,114,971  |          
|                       |                                                                      | Realized investment gains (losses)       |           |                            | (48,821   | )                  |            |                  | 79,962    |           |            |      | 108,151    |           |            |  | 88,947     |          
|                       |                                                                      | Brokerage commissions                    |           |                            | 1,124,817 |                    |            |                  | 1,096,564 |           |            |      | 2,133,103  |           |            |  | 1,999,726  |          
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      |                                          |           | Total Revenue              |           |                    | 11,511,026 |                  |           |           | 10,885,902 |      |            |           | 22,814,537 |  |            |           | 21,377,794 | 
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|Benefits and expenses: |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      | Benefits and claims                      |           |                            | 4,628,159 |                    |            |                  | 3,782,044 |           |            |      | 8,984,955  |           |            |  | 8,499,815  |          
|                       |                                                                      | Interest credited                        |           |                            | 1,516,837 |                    |            |                  | 1,416,305 |           |            |      | 2,963,067  |           |            |  | 2,633,149  |          
|                       |                                                                      | Amortization of policy acquisition costs |           |                            | 949,468   |                    |            |                  | 1,194,550 |           |            |      | 1,930,734  |           |            |  | 2,122,344  |          
|                       |                                                                      | Operating expenses                       |           |                            | 2,132,222 |                    |            |                  | 2,202,366 |           |            |      | 4,422,525  |           |            |  | 4,234,405  |          
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      |                                          |           | Total Benefits and Expense |           |                    | 9,226,686  |                  |           |           | 8,595,265  |      |            |           | 18,301,281 |  |            |           | 17,489,713 | 
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      | Income before income tax expense         |           |                            | 2,284,340 |                    |            |                  | 2,290,637 |           |            |      | 4,513,256  |           |            |  | 3,888,081  |          
|                       |                                                                      | Income tax expense                       |           |                            | 590,622   |                    |            |                  | 589,517   |           |            |      | 1,288,370  |           |            |  | 1,165,907  |          
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|Net Income             |                                                                      | $                                        | 1,693,718 |                            |           |                    | 1,701,120  |                  |           |           | 3,224,886  |      |            |           | 2,722,174  | 
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      | Basic income per share of common stock   |           | $                          | 0.27      |                    |            |                  | 0.27      |           |            |      | 0.51       |           |            |  | 0.43       |          
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      | Diluted income per share of common stock |           | $                          | 0.26      |                    |            |                  | 0.26      |           |            |      | 0.50       |           |            |  | 0.42       |          
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       | Weighted average number of shares
used in computing income per share |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            |  |           
|                       |                                                                      |                                          | Basic     |                            |           | 6,339,964          |            |                  |           | 6,345,428 |            |      |            | 6,337,709 |            |  |            | 6,345,428 |           
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 
|                       |                                                                      |                                          | Diluted   |                            |           | 6,501,457          |            |                  |           | 6,531,870 |            |      |            | 6,498,206 |            |  |            | 6,529,740 |           
|                       |                                                                      |                                          |           |                            |           |                    |            |                  |           |           |            |      |            |           |            | 

See accompanying notes to unaudited consolidated condensed financial statements.

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COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 2002 and 2001

|                                                      |                                                                                     |                                                                           |           |             |            |      |          |             |            |  
|----------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | --------- | ----------- | ---------- | ---- | -------- | ----------- | ---------- | -
|                                                      |                                                                                     |                                                                           |           | 2002        |            | 2001
|                                                      |                                                                                     |                                                                           |           |             |            |     
|Cash flows from operating activities:                 |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Net income                                                                          |                                                                           | $         | 3,224,886   |            |      |          | 2,722,174   |           
|                                                      | Adjustments to reconcile net income to net
cash provided from operating activities: |                                                                           |           |             |            |      |          |             |           
|                                                      |                                                                                     | Increase in policy liabilities and accruals                               |           |             | 7,433,934  |      |          |             | 7,997,388  |  
|                                                      |                                                                                     | (Increase) in deferred policy acquisition costs                           |           |             | (3,189,458 | )    |          |             | (2,711,123 | )
|                                                      |                                                                                     | Increase in liability for income taxes                                    |           |             | 163,371    |      |          |             | 174,870    |  
|                                                      |                                                                                     | Decrease (Increase) in amounts receivable and
amounts due from reinsurers |           |             | 561,429    |      |          |             | (1,813,303 | )
|                                                      |                                                                                     | (Decrease) Increase in amounts due affiliate                              |           |             | (485,657   | )    |          |             | 583,804    |  
|                                                      |                                                                                     | Other, net                                                                |           |             | 34,113     |      |          |             | (499,127   | )
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Net cash provided from operating activities                                         |                                                                           |           | 7,742,618   |            |      |          | 6,454,683   |           
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|Cash flows from investing activities:                 |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Purchase of fixed maturities available for sale                                     |                                                                           |           | (53,636,454 | )          |      |          | (35,332,883 | )         
|                                                      | Purchase of equity securities                                                       |                                                                           |           | (1,104,600  | )          |      |          | (1,536,260  | )         
|                                                      | Sale of fixed maturities held for investment                                        |                                                                           |           | 450,000     |            |      |          |            |           
|                                                      | Sale of fixed maturities available for sale                                         |                                                                           |           | 38,668,882  |            |      |          | 24,924,666  |           
|                                                      | Sale of equity securities                                                           |                                                                           |           | 1,084,643   |            |      |          | 1,399,018   |           
|                                                      | Proceeds from maturities of fixed
maturities held for investment                    |                                                                           |           | 1,000,000   |            |      |          | 1,300,000   |           
|                                                      | Proceeds from maturity and redemption of fixed
maturities held for sale             |                                                                           |           | 7,822,348   |            |      |          | 2,650,598   |           
|                                                      | Principal collected on first mortgage loans                                         |                                                                           |           | 131,524     |            |      |          | 191,637     |           
|                                                      | Net increase in policy loans                                                        |                                                                           |           | (284,514    | )          |      |          | (334,580    | )         
|                                                      | Other, net                                                                          |                                                                           |           | 73,563      |            |      |          | (58,137     | )         
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Net cash used in investing activities                                               |                                                                           |           | (5,794,608  | )          |      |          | (6,795,941  | )         
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|Cash flows from financing activities:                 |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Cash dividends paid                                                                 |                                                                           |           | (509,987    | )          |      |          | (509,554    | )         
|                                                      | Purchase of treasury stock                                                          |                                                                           |           | (10,453     | )          |      |          |            |           
|                                                      | Stock issued under executive compensation plans                                     |                                                                           |           | 65,232      |            |      |          |            |           
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Net cash used by financing activities                                               |                                                                           |           | (455,208    | )          |      |          | (509,554    | )         
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|Net increase (decrease) in cash and cash equivalents: |                                                                                     |                                                                           | 1,492,802 |             |            |      | (850,812 | )          
|Cash and cash equivalents:                            |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | Beginning of period                                                                 |                                                                           |           | 13,187,601  |            |      |          | 6,437,904   |           
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            
|                                                      | End of period                                                                       |                                                                           | $         | 14,680,403  |            |      |          | 5,587,092   |           
|                                                      |                                                                                     |                                                                           |           |             |            |      |          |            

See accompanying notes to unaudited consolidated condensed financial statements.

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COTTON STATES LIFE INSURANCE COMPANY
Unaudited Consolidated Condensed Statements of Comprehensive Income
Three Months and Six Months ended June 30, 2002 and 2001

|                                               |                                                                                |                                                     |           |                    |           |                  |           |          |           |      |           |          |           |   |           |           |           | 
|---------------------------------------------- | ------------------------------------------------------------------------------ | --------------------------------------------------- | --------- | ------------------ | --------- | ---------------- | --------- | -------- | --------- | ---- | --------- | -------- | --------- | - | --------- | --------- | --------- | 
|                                               |                                                                                |                                                     |           | Three months ended |           | Six months ended
|                                               |                                                                                |                                                     |           | June 30,           |           | June 30,        
|                                               |                                                                                |                                                     |           |                    |           |                 
|                                               |                                                                                |                                                     |           | 2002               |           | 2001             |           | 2002     |           | 2001
|                                               |                                                                                |                                                     |           |                    |           |                  |           |          |           |     
|Net income                                     |                                                                                | $                                                   | 1,693,718 |                    |           |                  | 1,701,120 |          |           |      | 3,224,886 |          |           |   | 2,722,174 |          
|Other comprehensive income (loss),
before tax: |                                                                                |                                                     |           |                    |           |                  |           |          |           |      |           |          |           |   |           |          
|                                               | Change in fair value of securities
available for sale                          |                                                     |           | 2,073,243          |           |                  |           | (830,062 | )         |      |           | 29,446   |           |   |           | 1,313,789 |          
|                                               | Reclassification adjustment for realized
losses (gains) included in net income |                                                     |           | 48,821             |           |                  |           | (79,962  | )         |      |           | (108,151 | )         |   |           | (88,947   | )        
|                                               |                                                                                |                                                     |           |                    |           |                  |           |          |           |      |           |          |           |   |           |          
|                                               |                                                                                | Total Other Comprehensive Income
(Loss), Before Tax |           |                    | 2,122,064 |                  |           |          | (910,024  | )    |           |          | (78,705   | ) |           |           | 1,224,842 | 
|                                               | Income tax expense (benefit) related to
items of other comprehensive income    |                                                     |           | 838,303            |           |                  |           | (353,967 | )         |      |           | 4,100    |           |   |           | 461,925   |          
|                                               |                                                                                |                                                     |           |                    |           |                  |           |          |           |      |           |          |           |   |           |          
|                                               | Other comprehensive income (loss),
net of tax                                  |                                                     |           | 1,283,761          |           |                  |           | (556,057 | )         |      |           | (82,805  | )         |   |           | 762,917   |          
|                                               |                                                                                |                                                     |           |                    |           |                  |           |          |           |      |           |          |           |   |           |          
|                                               |                                                                                | Total Comprehensive Income                          |           | $                  | 2,977,479 |                  |           |          | 1,145,063 |      |           |          | 3,142,081 |   |           |           | 3,485,091 | 
|                                               |                                                                                |                                                     |           |                    |           |                  |           |          |           |      |           |          |           |   |           |          

See accompanying notes to unaudited consolidated condensed financial statements.

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##### Table of Contents






Cotton States Life Insurance Company
Notes to Unaudited Consolidated Condensed Financial Statements
June 30, 2002 and December 31, 2001

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 six
months ended June 30, 2002 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, 2001.

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 for any interim period
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, as amended, 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 issued four new accounting standards in 2001. SFAS No. 141, SFAS No.
142, SFAS No. 143, and SFAS No. 144 primarily address the accounting for
goodwill, business combinations, and the impairment and disposition of
long-lived assets. The adoption of these standards in 2002 either did not or
will not have a material impact on the Companys financial position or results
of operations.

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##### Table of Contents



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:

|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |       |        | 
|----------------------------------------------- | ---------------------------------- | ------------- | ------ | ---------------------- | ----- | ---------------------- | ------ | ----- | ----- | ---- | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                                |                                    |               |        | Three Months Ended     |       | Six Months Ended      
|                                                |                                    |               |        | June 30,               |       | June 30,              
|                                                |                                    |               |        | (Dollars in thousands) |       | (Dollars in thousands)
|                                                |                                    |               |        |                        |       |                       
|                                                |                                    |               |        | 2002                   |       | 2001                   |        | 2002  |       | 2001
|                                                |                                    |               |        |                        |       |                        |        |       |       |     
|Individual life insurance:                      |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                | Premiums                           |               | $      | 4,922                  |       |                        |        | 4,584 |       |      |        | 9,571 |        |  |        | 9,155 |       
|                                                | Investment income                  |               |        | 2,192                  |       |                        |        | 2,366 |       |      |        | 4,439 |        |  |        | 4,723 |       
|                                                | Realized investment (losses) gains |               |        | (44                    | )     |                        |        | 74    |       |      |        | 98    |        |  |        | 82    |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                |                                    | Total revenue |        | $                      | 7,070 |                        |        |       | 7,024 |      |        |       | 14,108 |  |        |       | 13,960 | 
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                | Net income                         |               | $      | 1,119                  |       |                        |        | 1,027 |       |      |        | 2,063 |        |  |        | 1,521 |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|Guaranteed and simplified issue
life insurance: |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                | Premiums                           |               | $      | 3,086                  |       |                        |        | 2,559 |       |      |        | 6,103 |        |  |        | 5,019 |       
|                                                | Investment income                  |               |        | 230                    |       |                        |        | 215   |       |      |        | 450   |        |  |        | 386   |       
|                                                | Realized investment (losses) gains |               |        | (5                     | )     |                        |        | 6     |       |      |        | 10    |        |  |        | 7     |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                |                                    | Total revenue |        | $                      | 3,311 |                        |        |       | 2,780 |      |        |       | 6,563  |  |        |       | 5,412  | 
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                | Net income                         |               | $      | 20                     |       |                        |        | 154   |       |      |        | 126   |        |  |        | 243   |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|Brokerage:                                      |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                | Commission income                  |               | $      | 1,125                  |       |                        |        | 1,070 |       |      |        | 2,133 |        |  |        | 1,974 |       
|                                                | Investment income                  |               |        | 5                      |       |                        |        | 12    |       |      |        | 10    |        |  |        | 32    |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                |                                    | Total revenue |        | $                      | 1,130 |                        |        |       | 1,082 |      |        |       | 2,143  |  |        |       | 2,006  | 
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|                                                | Net income                         |               | $      | 555                    |       |                        |        | 520   |       |      |        | 1,036 |        |  |        | 958   |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|Total revenue                                   |                                    | $             | 11,511 |                        |       |                        | 10,886 |       |       |      | 22,814 |       |        |  | 21,378 |      
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      
|Total net income                                |                                    | $             | 1,694  |                        |       |                        | 1,701  |       |       |      | 3,225  |       |        |  | 2,722  |      
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |       |        |  |        |      

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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 state 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

|                                               |                  |                                 |                |       |                        |       |       |       |          |       |    |    |   |    |  
|---------------------------------------------- | ---------------- | ------------------------------- | -------------- | ----- | ---------------------- | ----- | ----- | ----- | -------- | ----- | -- | -- | - | -- | -
|                                               |                  |                                 |                |       | Three Months Ended    
|                                               |                  |                                 |                |       | June 30,              
|                                               |                  |                                 |                |       | (Dollars in thousands)
|                                               |                  |                                 |                |       | 2002                   |       | 2001  |       | Increase
|                                               |                  |                                 |                |       |                        |       |       |       |         
|Premiums                                       |                  |                                 |                |       |                        |       |       |       |          |       |    |   
|Guaranteed and simplified
issue life insurance |                  | $                               | 3,086          |       |                        |       | 2,559 |       |          |       | 21 | % 
|Individual life insurance:                     |                  |                                 |                |       |                        |       |       |       |          |       |    |   
|                                               | Traditional life |                                 |                | 1,814 |                        |       |       | 1,560 |          |       |    | 16 | %
|                                               | Universal life   |                                 |                | 3,108 |                        |       |       | 3,024 |          |       |    | 3  | %
|                                               |                  |                                 |                |       |                        |       |       |       |          |       |    |   
|                                               |                  | Total individual life insurance |                |       | 4,922                  |       |       |       | 4,584    |       |    |    | 7 | % 
|                                               |                  |                                 |                |       |                        |       |       |       |          |       |    |   
|                                               |                  |                                 | Total premiums |       | $                      | 8,008 |       |       |          | 7,143 |    |    |   | 12 | %
|                                               |                  |                                 |                |       |                        |       |       |       |          |       |    |   

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|                                               |                  |                                 |       |       |                        |  |       |       |          |  |    |   |    |   | 
|---------------------------------------------- | ---------------- | ------------------------------- | ----- | ----- | ---------------------- |  | ----- | ----- | -------- |  | -- | - | -- | - | 
|                                               |                  |                                 |       |       | Six Months Ended      
|                                               |                  |                                 |       |       | June 30,              
|                                               |                  |                                 |       |       | (Dollars in thousands)
|                                               |                  |                                 |       |       | 2002                   |  | 2001  |       | Increase
|                                               |                  |                                 |       |       |                        |  |       |       |         
|Premiums                                       |                  |                                 |       |       |                        |  |       |       |          |  |    |  
|Guaranteed and simplified
issue life insurance |                  | $                               | 6,103 |       |                        |  | 5,019 |       |          |  | 22 | %
|Individual life insurance:                     |                  |                                 |       |       |                        |  |       |       |          |  |    |  
|                                               | Traditional life |                                 |       | 3,367 |                        |  |       | 3,150 |          |  |    | 7 | % 
|                                               | Universal life   |                                 |       | 6,204 |                        |  |       | 6,005 |          |  |    | 3 | % 
|                                               |                  |                                 |       |       |                        |  |       |       |          |  |    |  
|                                               |                  | Total individual life insurance |       |       | 9,571                  |  |       |       | 9,155    |  |    |   | 5  | %
|                                               |                  |                                 |       |       |                        |  |       |       |          |  |    |  
|                                               |                  | Total premiums                  |       | $     | 15,674                 |  |       |       | 14,174   |  |    |   | 11 | %
|                                               |                  |                                 |       |       |                        |  |       |       |          |  |    |  

Guaranteed and simplified issue life insurance premiums continued to show
significant growth as a result of higher production by the independent agency
force which had 4,200 agents under contract at June 30, 2002 and 2001. This
product is also distributed by the 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. Growth in individual life premiums largely reflects
the popularity of annual renewable term and universal life payroll deduction
products. The exclusive agency force of 272 as of June 30, 2002 increased 4%
compared to the same date last year.

Investment Income and Realized Gains and Losses

Investment income decreased 5% for the quarter and 4% compared to the first six
months of 2001 due to a decrease in the annualized average yield to 6.0%
compared to 6.6% for the first six months of 2001 due to lower interest rates.

During the second quarter of 2002 the Company realized an pre-tax investment
loss of $850,000 from the write-down of the carrying value of a WorldCom, Inc.
debt security. This write-down was the result of the Company determining that
an other-than-temporary impairment had occurred.

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 17% compared to the first six months of last year
and met management expectations for the quarter.

Benefits and Claims

Life benefits and claims, including reserve increases on traditional life and
guaranteed and simplified issue products are as follows:

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|                                |                  |                                 |       |                        |       |         |    |             |    |         |       |       |       |  |    |    |    |  
|------------------------------- | ---------------- | ------------------------------- | ----- | ---------------------- | ----- | ------- | -- | ----------- | -- | ------- | ----- | ----- | ----- |  | -- | -- | -- | -
|                                |                  |                                 |       | Three Months Ended    
|                                |                  |                                 |       | June 30,              
|                                |                  |                                 |       | (Dollars in Thousands)
|                                |                  |                                 |       | 2002                   |       |         |    |             |    | 2001    |       |       |       | 
|                                |                  |                                 |       | Benefits and           |       | % of    |    | Benefit and |    | % of   
|                                |                  |                                 |       | Claims                 |       | Premium |    | Claim       |    | Premium
|                                |                  |                                 |       |                        |       |         |    |             |    |        
|Benefits and Claims             |                  |                                 |       |                        |       |         |    |             |    |         |       |       |       |  |    |   
|Guaranteed and
simplified issue |                  | $                               | 2,356 |                        |       |         | 76 | %           |    |         | 1,777 |       |       |  | 69 | % 
|Individual life insurance       |                  |                                 |       |                        |       |         |    |             |    |         |       |       |       |  |    |   
|                                | Traditional life |                                 |       | 1,272                  |       |         |    | 70          | %  |         |       | 1,110 |       |  |    | 71 | % 
|                                | Universal life   |                                 |       | 1,000                  |       |         |    | 32          | %  |         |       | 895   |       |  |    | 30 | % 
|                                |                  |                                 |       |                        |       |         |    |             |    |         |       |       |       |  |    |   
|                                |                  | Total individual life insurance |       |                        | 2,272 |         |    |             | 46 | %       |       |       | 2,005 |  |    |    | 44 | %
|                                |                  |                                 |       |                        |       |         |    |             |    |         |       |       |       |  |    |   
|                                |                  | Total benefits and claims       |       | $                      | 4,628 |         |    |             | 58 | %       |       |       | 3,782 |  |    |    | 53 | %
|                                |                  |                                 |       |                        |       |         |    |             |    |         |       |       |       |  |    |   

|                                |                  |                                 |                           |       |              |       |          |    |                        |    |         |       |       |       |    |    |    |    |  
|------------------------------- | ---------------- | ------------------------------- | ------------------------- | ----- | ------------ | ----- | -------- | -- | ---------------------- | -- | ------- | ----- | ----- | ----- | -- | -- | -- | -- | -
|                                |                  |                                 |                           |       |              |       |          |    | Six Months Ended       |    |         |       |      
|                                |                  |                                 |                           |       |              |       |          |    | June 30,               |    |         |       |      
|                                |                  |                                 |                           |       |              |       |          |    | (Dollars in Thousands) |    |         |       |      
|                                |                  |                                 |                           |       | 2002         |       |          |    |                        |    | 2001    |       |       |       |   
|                                |                  |                                 |                           |       | Benefits and |       | % of     |    | Benefits and           |    | % of   
|                                |                  |                                 |                           |       | Claims       |       | Premiums |    | Claims                 |    | Premium
|                                |                  |                                 |                           |       |              |       |          |    |                        |    |        
|Benefits and Claims             |                  |                                 |                           |       |              |       |          |    |                        |    |         |       |       |       |    |   
|Guaranteed and
simplified issue |                  | $                               | 4,590                     |       |              |       | 75       | %  |                        |    | 3,584   |       |       |       | 71 | % 
|Individual life insurance       |                  |                                 |                           |       |              |       |          |    |                        |    |         |       |       |       |    |   
|                                | Traditional life |                                 |                           | 2,273 |              |       |          | 68 | %                      |    |         | 2,485 |       |       |    | 79 | % 
|                                | Universal life   |                                 |                           | 2,122 |              |       |          | 34 | %                      |    |         | 2,431 |       |       |    | 40 | % 
|                                |                  |                                 |                           |       |              |       |          |    |                        |    |         |       |       |       |    |   
|                                |                  | Total individual
life insurance |                           |       | 4,395        |       |          |    | 46                     | %  |         |       | 4,916 |       |    |    | 54 | % 
|                                |                  |                                 |                           |       |              |       |          |    |                        |    |         |       |       |       |    |   
|                                |                  |                                 | Total
benefits
and claims |       | $            | 8,985 |          |    |                        | 57 | %       |       |       | 8,500 |    |    |    | 60 | %
|                                |                  |                                 |                           |       |              |       |          |    |                        |    |         |       |       |       |    |   

Benefits and claims as a percentage of premium fluctuate within a normal range
reflecting volatility in mortality, changes in mix of business, and age of
policy holders. Guaranteed and simplified issue experience in 2002 and 2001 is
more indicative of the Companys expectations as the block of business matures.
Individual life insurance benefits and claims improved significantly in 2002
and met managements expectations for the three month and six month periods.
The first quarter of 2001 reflected an unusual increase in mortality. Due to
the Companys small size, quarterly fluctuations do and will occur. The
Company offsets the effects of annual mortality fluctuations by routinely
purchasing annual aggregate stop loss reinsurance coverage in excess of $10
million.

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Interest Credited to Policyholders

Interest credited to universal life contracts increased 13% for the six month
period and 7% for the quarter reflecting strong growth in universal life policy
accumulations. The annual interest rate credited to universal life contract
accumulations was 6.2% for both the three month and six month periods of 2002
and 2001.

Amortization of Policy Acquisition Costs and Operating Expenses

The amortization of policy acquisition costs as a percentage of premiums was
12% for the three month and six months ended June 30, 2002 and 15% for the six
months ended June 30, 2001 and 17% for the three months ended June 30, 2001.
2002 results are within the Companys expected range of 12-14%. 2001 results
were slightly higher than the Companys expected range due to higher lapses in
the traditional lines of business which reflected increased term rate
competition in the market place.

Operating expense as a percentage of premiums were 28% for the first six months
of 2002 compared to 30% for the same period last year. For the quarter,
operating expenses as a percentage of premium were 27% compared to 31% for the
comparable period of 2001. The Companys expectations are between 28-31%.

Income Tax Expense

The effective tax rate for the first six months of 2002 was 29% compared to 30%
for the same period last year. The effective tax rate is based on the
estimated annual rate.

Net Income

|                                |                                 |                |            |       |                        |       |      |       |            |       |     |    |          |    | 
|------------------------------- | ------------------------------- | -------------- | ---------- | ----- | ---------------------- | ----- | ---- | ----- | ---------- | ----- | --- | -- | -------- | -- | 
|                                |                                 |                |            |       | Three Months Ended    
|                                |                                 |                |            |       | June 30,              
|                                |                                 |                |            |       | (Dollars in Thousands)
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |    | Increase
|                                |                                 |                |            |       | 2002                   |       | 2001 |       | (Decrease)
|                                |                                 |                |            |       |                        |       |      |       |           
|Net Income                      |                                 |                |            |       |                        |       |      |       |            |       |     |   
|Guaranteed and
simplified issue |                                 | $              | 20         |       |                        |       | 154  |       |            |       | (87 | )%
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|Individual life insurance:      |                                 |                |            |       |                        |       |      |       |            |       |     |   
|                                |                                 | Traditional    |            |       | 352                    |       |      |       | 216        |       |     |    | 63       | % 
|                                |                                 | Universal life |            |       | 767                    |       |      |       | 811        |       |     |    | (5       | )%
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|                                | Total individual life insurance |                |            | 1,119 |                        |       |      | 1,027 |            |       |     | 9  | %       
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|Brokerage operations            |                                 |                | 555        |       |                        |       | 520  |       |            |       | 7   | % 
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|                                |                                 |                | Net Income |       | $                      | 1,694 |      |       |            | 1,701 |     |    |          |   | 
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   

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|                                |                                 |                |            |       |                        |       |      |       |            |       |     |    |          |    |  
|------------------------------- | ------------------------------- | -------------- | ---------- | ----- | ---------------------- | ----- | ---- | ----- | ---------- | ----- | --- | -- | -------- | -- | -
|                                |                                 |                |            |       | Six Months Ended      
|                                |                                 |                |            |       | June 30,              
|                                |                                 |                |            |       | (Dollars in Thousands)
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |    | Increase
|                                |                                 |                |            |       | 2002                   |       | 2001 |       | (Decrease)
|                                |                                 |                |            |       |                        |       |      |       |           
|Net Income                      |                                 |                |            |       |                        |       |      |       |            |       |     |   
|Guaranteed and
simplified issue |                                 | $              | 126        |       |                        |       | 243  |       |            |       | (48 | )%
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|Individual life insurance:      |                                 |                |            |       |                        |       |      |       |            |       |     |   
|                                |                                 | Traditional    |            |       | 715                    |       |      |       | 286        |       |     |    | 150      | % 
|                                |                                 | Universal life |            |       | 1,348                  |       |      |       | 1,235      |       |     |    | 9        | % 
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|                                | Total individual life insurance |                |            | 2,063 |                        |       |      | 1,521 |            |       |     | 36 | %       
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|Brokerage operations            |                                 |                | 1,036      |       |                        |       | 958  |       |            |       | 8   | % 
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   
|                                |                                 |                | Net Income |       | $                      | 3,225 |      |       |            | 2,722 |     |    |          | 18 | %
|                                |                                 |                |            |       |                        |       |      |       |            |       |     |   

Continued strong growth in premiums and mortality levels that met managements
expectations and showed marked improvement over the first six months of 2001
accounted for the increase in net income for the first six months of 2002.
Net income for the quarter ended June 30, 2002 compared to June 30, 2001 was
flat due to a slight decrease in investment income and, although they met
managements expectations, mortality levels were higher than the second quarter
of 2001.

Critical Accounting Policies

The accounting policies described below are those the Company considers
critical in preparing its consolidated financial statements. These polices
include significant estimates made by management using information available at
the time the estimates are made. However, as described below, these estimates
could change materially if different information or assumptions were used.

Insurance Related Assets and Liabilities

The Company establishes an insurance related asset for deferred policy
acquisition costs, and insurance related liabilities for future policy benefits
and claims relating to its insurance policies under contract. Such asset and
liabilities are developed using actuarial principles and assumptions which
consider a number of factors, including: investment yields, withdrawal rates,
mortality and morbidity. The Company accounts for its traditional individual
life insurance policies using a net level premium method and assumptions as to
the factors enumerated above. Generally, the Companys earnings in any given
calendar year will not be impacted by differences in emerging experience on its
traditional individual business unless such differences are severe enough to
call into question the profitability of the entire block of traditional life
business.

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The Company does, however, experience fluctuations in its earnings as a result
of current mortality experience differing from that expected in any given year.
For the six months ended June 30, 2002 and 2001, the Company experienced
emerged mortality of 86% and 95% of expected, respectively, related to its
traditional individual life insurance business. The Company routinely
purchases annual aggregate stop loss reinsurance coverage which limits
experience to 120% of expected mortality in any one year.

The Company accounts for its interest-sensitive and universal life insurance
polices and annuities under the provisions of SFAS No. 97, Accounting and
Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for
Realized Gains and Losses from the Sale of Investments. SFAS No. 97 requires
the remeasurement of the Companys deferred acquisition costs each period in a
manner that amortizes such deferred costs as a level percentage of actual
emerged profit over the expected gross profits.

Each period, the Company estimates the relevant factors, based primarily on its
emerging experience and uses this information to determine the assumptions
underlying its asset and liability calculations. An extensive degree of
judgment is used in this estimation process.

Any adjustments required to properly state insurance assets and liabilities are
charged or credited to benefit expense in the period in which the need for the
adjustment becomes known.

Accounting for Income Taxes

The Company accounts for income taxes using the asset and liability method
prescribed by SFAS No. 109, Accounting for Income Taxes. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities,
and their respective tax basis. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which these temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.

Income tax expense recognized by the Company in any one year is impacted by the
extent to which the Company qualifies for the small life company deduction.
The small life company deduction is 60% of life insurance company taxable
income up to a maximum taxable income of $3 million. This deduction is phased
out on taxable income above $3 million up to and including a maximum of $15
million. To the extent, if any, that the Companys taxable income exceeds $3
million, its effective Federal income tax rate will increase.

Liquidity and Capital Resources

Cash Flow

The Companys insurance operations generate positive cash flows in excess of
its immediate needs. Cash flows provided by operations were $7.7 million in
the first six months of 2002 compared to $6.5 million for the comparable period
last year.

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Operating cash flow is primarily used to purchase debt securities. The Company
received proceeds of $8.8 million from investment maturities and repayments in
2002, adding to available cash flows. Such proceeds were $4.0 million in 2001.
When market opportunities arise, the Company disposes of selected debt
securities available for sale to improve future investment yields and/or
improve duration matching of our assets and liabilities. Therefore,
dispositions before maturity can vary significantly from year to year.
Proceeds from sales prior to maturity were $39.1 million in 2002, and $24.9
million for the comparable period of 2001.

The Companys principal financing activity is payment of dividends to the
Companys shareholders. Dividends are normally declared quarterly and must be
approved by the Board of Directors. Under regulatory requirements, the amount
of dividends that may be paid in 2002 by the Company to its shareholders
without prior regulatory approval is approximately $3.0 million.

Other than noted above, the Company does not have any debt, lease obligations,
purchase obligations, lines of credit, guarantees, off-balance sheet
arrangements, trading activities involving non-exchange traded contracts
accounted for at fair value or relationships with persons or entities that
derive benefits from a non-independent relationship with the Company or the
Companys related parties.

Liquidity

Liquidity pertains to a companys ability to meet the demand for cash
requirements of its business operations and financial obligations. The
Companys two sources of short-term liquidity include its positive cash flow
from operations and its portfolio of marketable securities as described above.
The Company believes that these sources are sufficient to meet its liquidity
needs in fiscal year 2002.

Investments

Since December 31, 2001, there has not been a material change in mix or credit
quality of the Companys investment portfolio. All bond purchases have been
available for sale and over 88% of the holdings at June 30, 2002 and 91% in
2001 are rated A or better by Standard & Poors Corporation. For all fixed
maturities, 12% in 2002 and 9% in 2001 are rated BBB. Ratings of BBB and
higher are considered investment grade by the rating services. Due to
improvement in bond market conditions, the Company experienced an increase in
the fair value of bonds of approximately $337,000, net of deferred taxes, in
2002.

During 2002 the Company sold a security out of its held-to-maturity portfolio
due to evidence of a significant deterioration in the issuers
creditworthiness. At the time of sale the security had an amortized cost of
$499,768. The Company realized a loss of $49,768 on the transaction.

Mortgage Loans

The Companys mortgage loan policy limits the amounts of loans to 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.

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The geographic distribution of the loan portfolio is:

|                |    |              |  |       |  |                        |         |          |   |              |   |            |   |       |   |       |  | 
|--------------- | -- | ------------ |  | ----- |  | ---------------------- | ------- | -------- | - | ------------ | - | ---------- | - | ----- | - | ----- |  | 
|                |    |              |  |       |  |                        |         |          |   |              |   | Book Value
|Number of Loans |    |              |  |       |  |                       
|                |    |              |  |       |  | (dollars in thousands)
|June 30,        |    | December 31, |  |       |  |                        |         | June 30, |   | December 31,
|2002            |    | 2001         |  | State |  | 2002                   |         | 2001    
|                |    |              |  |       |  |                        |         |         
|                | 3  |              |  | 3     |  |                        | Alabama |          | $ | 137          |   |            | $ | 113   |  
|                | 6  |              |  | 6     |  |                        | Florida |          |   | 302          |   |            |   | 320   |  
|                | 28 |              |  | 30    |  |                        | Georgia |          |   | 1,101        |   |            |   | 1,239 |  
|                |    |              |  |       |  |                        |         |          |   |              |   |            |   |       |   |      
|                | 37 |              |  | 39    |  |                        |         |          |   |              | $ | 1,540      |   |       | $ | 1,672 | 
|                |    |              |  |       |  |                        |         |          |   |              |   |            |   |       |   |      

Two loans representing $91,000 in principal are over 30 days delinquent. The
loan-to-value ratio on delinquent loans is 25%.

Recent Accounting Pronouncements

Financial Accounting Standards Board (FASB) SFAS No. 133, as amended,
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 did not impact the Companys
consolidated financial position, results of operations or cash flows in 2001.

The FASB issued four new accounting standards in 2001. SFAS No. 141, SFAS No.
142, SFAS No. 143 and SFAS No. 144 primarily address the accounting for
goodwill, business combinations, and the impairment and disposition of
long-lived assets. The adoption of these standards in 2002 will not have a
material impact on the Companys financial position or results of operations.




ITEM 3  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 principally 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- as rated by Standard & Poors Corporation at June 30,
2002 and 2001.

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##### Table of Contents



Interest Rate Risk

Interest rate risk is the risk that interest rates will change and cause a
decrease in the value of an insurers investments. The Companys fixed
maturity investments are subject to interest rate risk. The Company seeks to
manage the impact of interest rate fluctuation through cash flow modeling,
which attempts to match the maturity schedule of its assets with expected
payout of its liabilities. Liabilities for interest sensitive products are
carried at full account value. The fixed maturity portfolio at June 30, 2002
and June 30, 2001 had an effective duration of 4.3 years and 4.6 years,
respectively.

The table below summarizes the Companys interest rate risk and shows the
effect of a hypothetical 100 basis point increase/decrease in interest rates on
the fair values of the fixed investment portfolio. The selection of 100 basis
point increases/decrease 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.

|                                       |          |   |                        |  |                   |                 |                     |  |               |         |                |  |                     |      |              |  | 
|-------------------------------------- | -------- | - | ---------------------- |  | ----------------- | --------------- | ------------------- |  | ------------- | ------- | -------------- |  | ------------------- | ---- | ------------ |  | 
|                                       |          |   |                        |  |                   |                 |                     |  |               |         |                |  |                     |      | Hypothetical
|                                       |          |   |                        |  |                   |                 |                     |  |               |         | Estimated Fair |  | Percentage Increase
|                                       |          |   |                        |  |                   |                 | Estimated Change in |  | Value After   |         | (Decrease) In 
|                                       |          |   | Estimated Value        |  | Interest Rates    |                 | Hypothetical Change |  | Shareholders'
|                                       |          |   | June 30, 2002          |  | (bp-Basis Points) |                 | in Interest Rates   |  | Equity       
|                                       |          |   |                        |  |                   |                 |                     |  |              
|                                       |          |   | (dollars in thousands) |  |                   |                 |                     |  |               |         |                |  |                     |      |             
|Fixed Maturities  Held
for Investment |          | $ | 10,425                 |  |                   | 100 bp decrease |                     |  | 10,542        |         |                |  | N/A                 |     
|                                       |          |   |                        |  |                   | 100 bp increase |                     |  | 10,310        |         |                |  | N/A                 |     
|Fixed Maturities  Available           |          | $ | 139,507                |  |                   | 100 bp decrease |                     |  | 145,869       |         |                |  | 8.7                 | %   
|                                       | for Sale |   |                        |  |                   |                 | 100 bp increase     |  |               | 133,243 |                |  |                     | (8.5 | )%          

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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 reached partial settlement of a $900,000 reinsurance policy law
suit initiated in the third quarter of 2001. To date, the Company has
received $475,000 and continues to seek additional recoveries through already
existing legal channels.




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

Exhibit 15  Letter Regarding Unaudited Interim Financial Information

Exhibit 99  Certification Pursuant to §906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C.§1350)

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: 08/12/02 |  | /s/ J. Ridley Howard                             
|               |  |                                                  
|               |  | J. Ridley Howard, Chairman                       
|               |  | President and Chief Executive Officer            
|               |  |                                                  
|Date: 08/12/02 |  | /s/ William J. Barlow                            
|               |  |                                                  
|               |  | William J. Barlow                                
|               |  | Vice President of Finance and Assistant Treasurer

17