##### 



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, 2003

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
incorporation or organization) |  | (I.R.S. Employer Identification Number)
|                                                               |  |                                        
|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 o

Indicate by check mark whether the registrant is an accelerated Filer (as
defined in Rule 126.2 of the Exchange Act).

YES o NO x

The Registrant as of June 30, 2003, has 6,322,737 shares of common stock
outstanding.





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##### 



COTTON STATES LIFE INSURANCE COMPANY

FORM 10-Q

FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003

INDEX

|                                                                                                                     |                                                                                                                            |  |      |   | 
|-------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------- |  | ---- | - | 
|                                                                                                                     |                                                                                                                            |  | Page
|                                                                                                                     |                                                                                                                            |  |     
|PART 1 - FINANCIAL INFORMATION                                                                                       |                                                                                                                            |  |      |  
|Item 1.
Financial Statements                                                                                         |                                                                                                                            |  | 1    |  
|Independent Accountants Review Report                                                                               |                                                                                                                            |  | 1    |  
|                                                                                                                     | Consolidated Condensed Balance Sheets as of
June 30, 2003 and December 31, 2002                                            |  |      | 2 | 
|                                                                                                                     | Consolidated Condensed Statements of Earnings for the
Three Months and Six Months Ended June 30, 2003 and 2002             |  |      | 3 | 
|                                                                                                                     | Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 2003 and 2002                            |  |      | 4 | 
|                                                                                                                     | Consolidated Condensed Statements of Comprehensive Income
for the Three Months and Six Months Ended June 30, 2003 and 2002 |  |      | 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 |                                                                                                                            |  | 11   |  
|Item 3. Quantitative and Qualitative Disclosures about Market Risk                                                   |                                                                                                                            |  | 19   |  
|Item 4. Controls and Procedures                                                                                      |                                                                                                                            |  | 20   |  
|PART II  OTHER INFORMATION                                                                                          |                                                                                                                            |  |      |  
|Item 1. Legal Proceedings                                                                                            |                                                                                                                            |  | 21   |  
|Item 2. Changes in Securities and Use of Proceeds                                                                    |                                                                                                                            |  | 21   |  
|Item 3. Defaults Upon Senior Securities                                                                              |                                                                                                                            |  | 21   |  
|Item 4. Submission of Matters to a Vote of Security Holders                                                          |                                                                                                                            |  | 21   |  
|Item 5. Other Information                                                                                            |                                                                                                                            |  | 21   |  
|Item 6. Exhibits and Reports on Form 8-K                                                                             |                                                                                                                            |  | 21   |  
|SIGNATURES                                                                                                           |                                                                                                                            |  | 21   |  





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##### 



INDEPENDENT ACCOUNTANTS REVIEW REPORT

To the Board of Directors and Shareholders of
Cotton States Life Insurance Company:

We have reviewed the accompanying consolidated condensed balance sheet of
Cotton States Life Insurance Company and subsidiaries as of June 30, 2003, and
the related consolidated condensed statements of earnings, comprehensive income
and cash flows for the three-month and six-month periods ended June 30, 2003.
These financial statements are the responsibility of the Companys management.
The consolidated condensed statements of earnings, comprehensive income and
cash flows for the three-month and six-month periods ended June 30, 2002 were
reviewed by other accountants whose report (dated August 6, 2002) stated that
they were not aware of any material modifications that should be made to those
statements for them to be in conformity with accounting principles generally
accepted in the United States.

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,
which will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.

Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated condensed financial statements at June
30, 2003, and for the three-month and six-month periods then ended for them to


be in conformity with accounting principles generally accepted in the United
States.

We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Cotton States
Life Insurance Company and subsidiaries as of December 31, 2002, and the
related consolidated statements of earnings, comprehensive income and cash
flows for the year then ended and in our report dated February 25, 2003, 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, 2002, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.



| | /s/ Ernst & Young LLP
| | ---------------------

Atlanta, Georgia
August 6, 2003

1



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##### 



COTTON STATES LIFE INSURANCE COMPANY

ITEM I. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

The following consolidated condensed financial statements have been prepared by management.
In managements opinion, all adjustments and reclassifications necessary for a fair statement
of financial position at June 30, 2003 and December 31, 2002 and the results of operations for the
three-months and six-months ended June 30, 2003 and 2002 have been made.

Consolidated Condensed Balance Sheets

|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |              |             |            |             | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------------------------- | ------------------------------------- | ----------- | ----------- | ----------- | ------------ | ----------- | ---------- | ----------- | 
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             | June 30,    |             | December 31,
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             | 2003        |             | 2002        
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             | (unaudited) |             |              |             |           
|ASSETS                                   |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|Investments:                             |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  | Fixed maturities, held for investment, at amortized
cost (fair value of $4,556,377 in 2003 and $7,324,373 in 2002)                                                                                                                                           |                                                                             | $                                     | 4,347,914   |             |             |              | 7,048,175   |           
|                                         |  | Fixed maturities, available for sale, at fair value (amortized
cost of $166,386,186 in 2003 and $146,159,339 in 2002)                                                                                                                                        |                                                                             |                                       | 175,171,159 |             |             |              | 152,307,406 |           
|                                         |  | Equity securities, at fair value (cost of $2,665,941 in 2003
and $2,984,720 in 2002)                                                                                                                                                                         |                                                                             |                                       | 2,779,285   |             |             |              | 2,519,895   |           
|                                         |  | First mortgage loans on real estate                                                                                                                                                                                                                          |                                                                             |                                       | 1,218,517   |             |             |              | 1,320,330   |           
|                                         |  | Policy loans                                                                                                                                                                                                                                                 |                                                                             |                                       | 10,474,348  |             |             |              | 10,425,612  |           
|                                         |  | Other invested assets                                                                                                                                                                                                                                        |                                                                             |                                       | 582,000     |             |             |              | 582,000     |           
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             | Total investments                     |             |             | 194,573,223 |              |             |            | 174,203,418 | 
|Cash and cash equivalents                |  |                                                                                                                                                                                                                                                              | 8,596,820                                                                   |                                       |             |             | 18,913,861  |             
|Accrued investment income                |  |                                                                                                                                                                                                                                                              | 2,427,246                                                                   |                                       |             |             | 2,406,298   |             
|Amounts receivable, principally premiums |  |                                                                                                                                                                                                                                                              | 3,859,064                                                                   |                                       |             |             | 3,777,671   |             
|Amount due from reinsurers               |  |                                                                                                                                                                                                                                                              | 4,577,467                                                                   |                                       |             |             | 4,263,828   |             
|Deferred policy acquisition costs        |  |                                                                                                                                                                                                                                                              | 60,597,752                                                                  |                                       |             |             | 57,686,410  |             
|Federal income tax receivable            |  |                                                                                                                                                                                                                                                              | 169,028                                                                     |                                       |             |             | 98,457      |             
|Other assets                             |  |                                                                                                                                                                                                                                                              | 645,930                                                                     |                                       |             |             | 460,061     |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  | $                                                                                                                                                                                                                                                            | 275,446,530                                                                 |                                       |             |             | 261,810,004 |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|LIABILITIES AND SHAREHOLDERS EQUITY     |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|Policy liabilities and accruals:         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  | Future policy benefits                                                                                                                                                                                                                                       |                                                                             | $                                     | 167,709,247 |             |             |              | 160,424,107 |           
|                                         |  | Policy claims and benefits payable                                                                                                                                                                                                                           |                                                                             |                                       | 2,734,694   |             |             |              | 3,241,343   |           
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             | Total policy liabilities and accruals |             |             | 170,443,941 |              |             |            | 163,665,450 | 
|Federal income taxes:                    |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  | Current                                                                                                                                                                                                                                                      |                                                                             |                                       |            |             |             |              |            |           
|                                         |  | Deferred                                                                                                                                                                                                                                                     |                                                                             |                                       | 12,741,536  |             |             |              | 11,181,184  |           
|                                         |  | Other liabilities                                                                                                                                                                                                                                            |                                                                             |                                       | 6,087,005   |             |             |              | 5,592,961   |           
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             | Total liabilities                     |             |             | 189,272,482 |              |             |            | 180,439,595 | 
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|Shareholders equity:                    |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  | Common stock of $1 par value. Authorized 20,000,000 shares;
issued: 6,987,331 shares in 2003 and 6,929,347 shares in 2002;
outstanding: 6,322,737 shares in 2003 and 6,328,737 shares in 2002;
restricted: 232,827 shares in 2003 and 174,843 shares in 2002 |                                                                             |                                       | 6,987,331   |             |             |              | 6,929,347   |           
|                                         |  | Additional paid-in capital                                                                                                                                                                                                                                   |                                                                             |                                       | 3,762,724   |             |             |              | 3,434,018   |           
|                                         |  | Accumulated other comprehensive income, net of tax                                                                                                                                                                                                           |                                                                             |                                       | 5,194,607   |             |             |              | 3,226,975   |           
|                                         |  | Retained earnings                                                                                                                                                                                                                                            |                                                                             |                                       | 74,658,151  |             |             |              | 72,035,550  |           
|                                         |  | Less:                                                                                                                                                                                                                                                        |                                                                             |                                       |             |             |             |              |             |           
|                                         |  |                                                                                                                                                                                                                                                              | Unearned compensation  restricted stock                                    |                                       |             | (880,701    | )           |              |             | (764,543   | )          
|                                         |  |                                                                                                                                                                                                                                                              | Treasury stock, at cost (431,767 shares in 2003 and
425,767 shares in 2002) |                                       |             | (3,548,064  | )           |              |             | (3,490,938 | )          
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             | Total shareholders equity            |             |             | 86,174,048  |              |             |            | 81,370,409  | 
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             
|                                         |  | $                                                                                                                                                                                                                                                            | 275,446,530                                                                 |                                       |             |             | 261,810,004 |             
|                                         |  |                                                                                                                                                                                                                                                              |                                                                             |                                       |             |             |             |             

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 ending June 30, 2003 and 2002

|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |           |            | 
|-------------------------------------------------------------------- | ---------------------------------------- | ------- | -------------------------- | --------- | ------------------ | ---------- | ---------------- | --------- | --------- | ---------- | --------- | ---------- | --------- | ---------- | --------- | ---------- | --------- | ---------- | 
|                                                                     |                                          |         |                            |           | Three months ended |            | Six months ended
|                                                                     |                                          |         |                            |           | June 30,           |            | June 30,        
|                                                                     |                                          |         |                            |           |                    |            |                 
|                                                                     |                                          |         |                            |           | 2003               |            | 2002             |           | 2003      |            | 2002     
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |          
|Revenue:                                                             |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |           
|                                                                     | Premiums                                 |         | $                          | 8,824,057 |                    |            |                  | 8,007,993 |           |            |           | 17,023,006 |           |            |           | 15,674,310 |          
|                                                                     | Investment income                        |         |                            | 2,136,131 |                    |            |                  | 2,427,037 |           |            |           | 4,456,668  |           |            |           | 4,898,973  |          
|                                                                     | Realized investment gains (losses)       |         |                            | 843,452   |                    |            |                  | (48,821   | )         |            |           | 1,235,899  |           |            |           | 108,151    |          
|                                                                     | Brokerage commissions                    |         |                            | 1,119,656 |                    |            |                  | 1,124,817 |           |            |           | 2,197,625  |           |            |           | 2,133,103  |          
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|                                                                     |                                          |         | Total revenue              |           |                    | 12,923,296 |                  |           |           | 11,511,026 |           |            |           | 24,913,198 |           |            |           | 22,814,537 | 
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|Benefits and expenses:                                               |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |           
|                                                                     | Benefits and claims                      |         |                            | 5,483,542 |                    |            |                  | 4,628,159 |           |            |           | 10,292,718 |           |            |           | 8,984,955  |          
|                                                                     | Interest credited                        |         |                            | 1,465,818 |                    |            |                  | 1,516,837 |           |            |           | 2,968,432  |           |            |           | 2,963,067  |          
|                                                                     | Amortization of policy acquisition costs |         |                            | 1,281,489 |                    |            |                  | 949,468   |           |            |           | 2,307,691  |           |            |           | 1,930,734  |          
|                                                                     | Operating expenses                       |         |                            | 2,391,136 |                    |            |                  | 2,132,222 |           |            |           | 4,774,556  |           |            |           | 4,422,525  |          
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|                                                                     |                                          |         | Total benefits and expense |           |                    | 10,621,985 |                  |           |           | 9,226,686  |           |            |           | 20,343,397 |           |            |           | 18,301,281 | 
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|                                                                     | Income before income tax expense         |         |                            | 2,301,311 |                    |            |                  | 2,284,340 |           |            |           | 4,569,801  |           |            |           | 4,513,256  |          
|                                                                     | Income tax expense                       |         |                            | 730,459   |                    |            |                  | 590,622   |           |            |           | 1,437,213  |           |            |           | 1,288,370  |          
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|Net income                                                           |                                          | $       | 1,570,852                  |           |                    |            | 1,693,718        |           |           |            | 3,132,588 |            |           |            | 3,224,886 |           
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|Basic income per share of common stock                               |                                          | $       | 0.25                       |           |                    |            | 0.27             |           |           |            | 0.50      |            |           |            | 0.51      |           
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|Diluted income per share of common stock                             |                                          | $       | 0.23                       |           |                    |            | 0.26             |           |           |            | 0.47      |            |           |            | 0.50      |           
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|Weighted average number of shares
used in computing income per share |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |           
|                                                                     |                                          | Basic   |                            |           | 6,323,363          |            |                  |           | 6,339,964 |            |           |            | 6,324,328 |            |           |            | 6,337,709 |           
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|                                                                     |                                          | Diluted |                            |           | 6,614,624          |            |                  |           | 6,501,457 |            |           |            | 6,615,016 |            |           |            | 6,498,206 |           
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          
|Dividends paid per share                                             |                                          | $       | 0.04                       |           |                    |            | 0.04             |           |           |            | 0.08      |            |           |            | 0.08      |           
|                                                                     |                                          |         |                            |           |                    |            |                  |           |           |            |           |            |           |            |           |            |          

See accompanying notes to unaudited consolidated condensed financial statements.

3



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##### 



COTTON STATES LIFE INSURANCE COMPANY

Unaudited Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 2003 and 2002

|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |            |   | 
|----------------------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------------------------------------------------- | ----------- | ----------- | ---------------- | - | --------- | ----------- | ---------- | - | 
|                                                      |                                                                                     |                                                                           |             |             | Six months ended
|                                                      |                                                                                     |                                                                           |             |             | June 30,        
|                                                      |                                                                                     |                                                                           |             |             |                 
|                                                      |                                                                                     |                                                                           |             |             | 2003             |   | 2002     
|                                                      |                                                                                     |                                                                           |             |             |                  |   |          
|Cash flows from operating activities:                 |                                                                                     |                                                                           |             |             |                  |   |           |            
|                                                      | Net income                                                                          |                                                                           | $           | 3,132,588   |                  |   |           | 3,224,886   |           
|                                                      | Adjustments to reconcile net income to net
cash provided from operating activities: |                                                                           |             |             |                  |   |           |             |           
|                                                      |                                                                                     | Realized investment gains                                                 |             |             | (1,235,899       | ) |           |             | (108,151   | )
|                                                      |                                                                                     | Increase in policy liabilities and accruals                               |             |             | 6,778,491        |   |           |             | 7,433,934  |  
|                                                      |                                                                                     | (Increase) in deferred policy acquisition costs                           |             |             | (2,677,528       | ) |           |             | (3,189,458 | )
|                                                      |                                                                                     | Increase in liability for income taxes                                    |             |             | 396,656          |   |           |             | 163,371    |  
|                                                      |                                                                                     | (Increase) decrease in amounts receivable and
amounts due from reinsurers |             |             | (395,032         | ) |           |             | 561,429    |  
|                                                      |                                                                                     | Increase (decrease) in amounts due affiliate                              |             |             | 246,230          |   |           |             | (485,657   | )
|                                                      |                                                                                     | Other, net                                                                |             |             | 723,890          |   |           |             | 34,113     |  
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|                                                      | Net cash provided from operating activities                                         |                                                                           |             | 6,969,396   |                  |   |           | 7,634,467   |           
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|Cash flows from investing activities:                 |                                                                                     |                                                                           |             |             |                  |   |           |            
|                                                      | Purchase of fixed maturities available for sale                                     |                                                                           |             | (72,369,150 | )                |   |           | (53,636,454 | )         
|                                                      | Purchase of equity securities                                                       |                                                                           |             | (451,021    | )                |   |           | (1,104,600  | )         
|                                                      | Sale of fixed maturities held for investment                                        |                                                                           |             |            |                  |   |           | 450,000     |           
|                                                      | Sale of fixed maturities available for sale                                         |                                                                           |             | 37,714,114  |                  |   |           | 38,777,033  |           
|                                                      | Sale of equity securities                                                           |                                                                           |             | 441,175     |                  |   |           | 1,084,643   |           
|                                                      | Proceeds from maturities of fixed
maturities held for investment                    |                                                                           |             | 2,700,000   |                  |   |           | 1,000,000   |           
|                                                      | Proceeds from maturity and redemption of fixed
maturities held for sale             |                                                                           |             | 15,456,245  |                  |   |           | 7,822,348   |           
|                                                      | Principal collected on first mortgage loans                                         |                                                                           |             | 101,813     |                  |   |           | 131,524     |           
|                                                      | Net increase in policy loans                                                        |                                                                           |             | (48,736     | )                |   |           | (284,514    | )         
|                                                      | Other, net                                                                          |                                                                           |             | (263,764    | )                |   |           | 73,563      |           
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|                                                      | Net cash used in investing activities                                               |                                                                           |             | (16,719,324 | )                |   |           | (5,686,457  | )         
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|Cash flows from financing activities:                 |                                                                                     |                                                                           |             |             |                  |   |           |            
|                                                      | Cash dividends paid                                                                 |                                                                           |             | (509,987    | )                |   |           | (509,987    | )         
|                                                      | Purchase of treasury stock                                                          |                                                                           |             | (57,126     | )                |   |           | (10,453     | )         
|                                                      | Stock issued under executive compensation plans                                     |                                                                           |             |            |                  |   |           | 65,232      |           
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|                                                      | Net cash used by financing activities                                               |                                                                           |             | (567,113    | )                |   |           | (455,208    | )         
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|Net (decrease) increase in cash and cash equivalents: |                                                                                     |                                                                           | (10,317,041 | )           |                  |   | 1,492,802 |            
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|Cash and cash equivalents:                            |                                                                                     |                                                                           |             |             |                  |   |           |            
|                                                      | Beginning of period                                                                 |                                                                           |             | 18,913,861  |                  |   |           | 13,187,601  |           
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           
|                                                      | End of period                                                                       |                                                                           | $           | 8,596,820   |                  |   |           | 14,680,403  |           
|                                                      |                                                                                     |                                                                           |             |             |                  |   |           |             |           

See accompanying notes to unaudited consolidated condensed financial statements.

4



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##### 



COTTON STATES LIFE INSURANCE
COMPANY

Unaudited Consolidated Condensed Statements of Comprehensive Income
Three Months and Six Months ended June 30, 2003 and 2002

|           |                                                                                |                                                     |           |                    |           |                  |           |           |           |      |           |            |           |  |           |          |           |  
|---------- | ------------------------------------------------------------------------------ | --------------------------------------------------- | --------- | ------------------ | --------- | ---------------- | --------- | --------- | --------- | ---- | --------- | ---------- | --------- |  | --------- | -------- | --------- | -
|           |                                                                                |                                                     |           | Three months ended |           | Six months ended
|           |                                                                                |                                                     |           | June 30,           |           | June 30,        
|           |                                                                                |                                                     |           |                    |           |                 
|           |                                                                                |                                                     |           | 2003               |           | 2002             |           | 2003      |           | 2002
|           |                                                                                |                                                     |           |                    |           |                  |           |           |           |     
|Net income |                                                                                | $                                                   | 1,570,852 |                    |           |                  | 1,693,718 |           |           |      | 3,132,588 |            |           |  | 3,224,886 |         
|           | Other comprehensive income (loss),
before tax:                                 |                                                     |           |                    |           |                  |           |           |           |      |           |            |           |  |           |          |          
|           | Change in fair value of securities
available for sale                          |                                                     |           | 3,149,407          |           |                  |           | 2,073,243 |           |      |           | 4,217,159  |           |  |           | 29,446   |          
|           | Reclassification adjustment for realized
(gains) losses included in net income |                                                     |           | (843,452           | )         |                  |           | 48,821    |           |      |           | (1,235,899 | )         |  |           | (108,151 | )        
|           |                                                                                |                                                     |           |                    |           |                  |           |           |           |      |           |            |           |  |           |         
|           |                                                                                | Total other comprehensive income
(loss), before tax |           |                    | 2,305,955 |                  |           |           | 2,122,064 |      |           |            | 2,981,260 |  |           |          | (78,705   | )
|           | Income tax expense related to
items of other comprehensive income              |                                                     |           | 784,024            |           |                  |           | 838,303   |           |      |           | 1,013,628  |           |  |           | 4,100    |          
|           |                                                                                |                                                     |           |                    |           |                  |           |           |           |      |           |            |           |  |           |         
|           | Other comprehensive income (loss),
net of tax                                  |                                                     |           | 1,521,931          |           |                  |           | 1,283,761 |           |      |           | 1,967,632  |           |  |           | (82,805  | )        
|           |                                                                                |                                                     |           |                    |           |                  |           |           |           |      |           |            |           |  |           |         
|           |                                                                                | Total comprehensive income                          |           | $                  | 3,092,783 |                  |           |           | 2,977,479 |      |           |            | 5,100,220 |  |           |          | 3,142,081 |  
|           |                                                                                |                                                     |           |                    |           |                  |           |           |           |      |           |            |           |  |           |         

See accompanying notes to unaudited consolidated condensed financial statements.

5



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##### 



Cotton States Life Insurance Company
Notes to Unaudited Consolidated Condensed Financial Statements
June 30, 2003

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, 2003 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, 2002.

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.

Certain prior year amounts in the accompanying consolidated condensed financial
statements have been reclassified in order to conform with current year
presentation.

Note 2  Stock-Based Compensation

In accordance with APB Opinion No. 25, $270,000 and $154,000 in compensation
expense was recorded in the six months ended June 30, 2003 and 2002,
respectively, for the various stock option and restricted stock awards granted.
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options and restricted stock awards under SFAS No.
123, Accounting for Stock-Based Compensation, the Companys net income, basic
net income per share, and diluted net income per share would have been reduced
to the pro forma amounts indicated below:

6



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##### 



Notes to Unaudited Condensed Consolidated Financial Statements
(continued)

|                              |             |             |   |                    |           |      |  |      |           | 
|----------------------------- | ----------- | ----------- | - | ------------------ | --------- | ---- |  | ---- | --------- | 
|                              |             |             |   | Three months ended
|                              |             |             |   | June 30,          
|                              |             |             |   |                   
|                              |             |             |   | 2003               |           | 2002
|                              |             |             |   |                    |           |     
|Net income:                   |             |             |   |                    |           |      |  |     
|                              |             | As reported |   | $                  | 1,570,852 |      |  |      | 1,693,718 | 
|                              |             |             |   |                    |           |      |  |     
|                              |             | Pro forma   |   | $                  | 1,555,466 |      |  |      | 1,678,332 | 
|                              |             |             |   |                    |           |      |  |     
|Basic net income per share:   |             |             |   |                    |           |      |  |     
|                              | As reported |             | $ | 0.25               |           |      |  | 0.27 |          
|                              |             |             |   |                    |           |      |  |     
|                              | Pro forma   |             | $ | 0.25               |           |      |  | 0.27 |          
|                              |             |             |   |                    |           |      |  |     
|Diluted net income per share: |             |             |   |                    |           |      |  |     
|                              |             | As reported |   | $                  | 0.23      |      |  |      | 0.26      | 
|                              |             |             |   |                    |           |      |  |     
|                              |             | Pro forma   |   | $                  | 0.23      |      |  |      | 0.25      | 
|                              |             |             |   |                    |           |      |  |     

|                              |             |             |   |                  |           |      |  |      |           | 
|----------------------------- | ----------- | ----------- | - | ---------------- | --------- | ---- |  | ---- | --------- | 
|                              |             |             |   | Six months ended
|                              |             |             |   | June 30,        
|                              |             |             |   |                 
|                              |             |             |   | 2003             |           | 2002
|                              |             |             |   |                  |           |     
|Net income:                   |             |             |   |                  |           |      |  |     
|                              |             | As reported |   | $                | 3,132,588 |      |  |      | 3,224,886 | 
|                              |             |             |   |                  |           |      |  |     
|                              |             | Pro forma   |   | $                | 3,101,816 |      |  |      | 3,194,114 | 
|                              |             |             |   |                  |           |      |  |     
|Basic net income per share:   |             |             |   |                  |           |      |  |     
|                              | As reported |             | $ | .50              |           |      |  | 0.51 |          
|                              |             |             |   |                  |           |      |  |     
|                              | Pro forma   |             | $ | .49              |           |      |  | 0.51 |          
|                              |             |             |   |                  |           |      |  |     
|Diluted net income per share: |             |             |   |                  |           |      |  |     
|                              |             | As reported |   | $                | .47       |      |  |      | 0.50      | 
|                              |             |             |   |                  |           |      |  |     
|                              |             | Pro forma   |   | $                | .47       |      |  |      | 0.49      | 
|                              |             |             |   |                  |           |      |  |     

The per share weighted-average fair value of stock options and restricted stock
granted was estimated using an option pricing model with the following
weighted-average assumptions: expected life of three years for restricted stock
awarded in 2003 and 2002; expected dividend yield of 1.67% for 2003 and 2002
grants; risk-free interest rate of 3.5% for 2003 and 2002; and an expected
volatility of 66% for 2003 grants and 2002 grants.

Note 3  Accounting Pronouncements

The Financial Accounting Standards Board issued SFAS No. 143 Accounting for
Asset Retirement Obligations, which is effective for fiscal years beginning
after June 15, 2002, with early adoption encouraged. SFAS
No. 143 applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees.
The adoption of SFAS No. 143 did not affect the Companys results of operations
or financial position.

7



---



##### 



The Financial Accounting Standards Board also issued SFAS No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets which supercedes SFAS No.
121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and the accounting and reporting provisions of APB
Opinion No. 30 Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, and is effective for fiscal
years beginning after December 15, 2001. SFAS No.144 establishes a single
accounting model for the disposal of long-lived assets. The adoption of SFAS
No.144 did not affect the Companys results of operations or financial
position.

The Financial Accounting Standards Board also issued SFAS No. 145 Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, which is effective for financial statements issued
after May 15, 2002. The adoption of SFAS No. 145 did not affect the Companys
results of operations or financial position.

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146
Accounting for Costs Associated with Exit or Disposal Activities, which is to
be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS No. 146 did not affect the Companys
results of operations or financial position.

In November 2002, the Financial Accounting Standards Board issued
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others, for which
accounting requirements are effective for guarantees issued or modified after
December 15, 2002. The adoption of Interpretation No. 45 did not affect the
Companys results of operations or financial position.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148
Accounting for Stock Based Compensation  Transition and Disclosure, which is
effective for financial statements issued after December 15, 2002. The
adoption of SFAS No. 148 did not affect the Companys results of operations or
financial position.

In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. There is no impact on
the Companys financial position or results of operations for the second
quarter of 2003 under FIN 46. The Company also expects no impact in future
periods under FIN 46.

Note 4  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.

8



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##### 



The Company does not group items on the consolidated condensed balance sheet
into segments, nor does it analyze those items by segment when making
management decisions. Investment income is allocated to the individual life
insurance and guaranteed and simplified issue life insurance segments based on
their respective average future policy benefit reserves. Investment income for
the brokerage operations segment is determined directly by each subsidiarys
investment portfolio.

Total revenue and net income by business segment are as follows:

|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |       |        | 
|----------------------------------------------- | ---------------------------------- | ------------- | ------ | ---------------------- | ----- | ---------------------- | ------ | ----- | ----- | ---- | ------ | ------ | ------ |  | ------ | ----- | ------ | 
|                                                |                                    |               |        | Three months ended     |       | Six months ended      
|                                                |                                    |               |        | March 31,              |       | June 30,              
|                                                |                                    |               |        | (Dollars in thousands) |       | (Dollars in thousands)
|                                                |                                    |               |        |                        |       |                       
|                                                |                                    |               |        | 2003                   |       | 2002                   |        | 2003  |       | 2002
|                                                |                                    |               |        |                        |       |                        |        |       |       |     
|Individual life insurance:                      |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                | Premiums                           |               | $      | 5,306                  |       |                        |        | 4,922 |       |      |        | 10,060 |        |  |        | 9,571 |       
|                                                | Investment income                  |               |        | 1,890                  |       |                        |        | 2,192 |       |      |        | 3,957  |        |  |        | 4,439 |       
|                                                | Realized investment (losses) gains |               |        | 749                    |       |                        |        | (44   | )     |      |        | 1,098  |        |  |        | 98    |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                |                                    | Total revenue |        | $                      | 7,945 |                        |        |       | 7,070 |      |        |        | 15,115 |  |        |       | 14,108 | 
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                | Net income                         |               | $      | 1,014                  |       |                        |        | 1,119 |       |      |        | 2,058  |        |  |        | 2,063 |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|Guaranteed and simplified issue
life insurance: |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                | Premiums                           |               | $      | 3,518                  |       |                        |        | 3,086 |       |      |        | 6,963  |        |  |        | 6,103 |       
|                                                | Investment income                  |               |        | 243                    |       |                        |        | 230   |       |      |        | 496    |        |  |        | 450   |       
|                                                | Realized investment (losses) gains |               |        | 95                     |       |                        |        | (5    | )     |      |        | 138    |        |  |        | 10    |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                |                                    | Total revenue |        | $                      | 3,856 |                        |        |       | 3,311 |      |        |        | 7,597  |  |        |       | 6,563  | 
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                | Net income                         |               | $      | 18                     |       |                        |        | 20    |       |      |        | 26     |        |  |        | 126   |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|Brokerage:                                      |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                | Commission income                  |               | $      | 1,120                  |       |                        |        | 1,125 |       |      |        | 2,198  |        |  |        | 2,133 |       
|                                                | Investment income                  |               |        | 2                      |       |                        |        | 5     |       |      |        | 3      |        |  |        | 10    |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                |                                    | Total revenue |        | $                      | 1,122 |                        |        |       | 1,130 |      |        |        | 2,201  |  |        |       | 2,143  | 
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|                                                | Net income                         |               | $      | 539                    |       |                        |        | 555   |       |      |        | 1,049  |        |  |        | 1,036 |       
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|Total revenue                                   |                                    | $             | 12,923 |                        |       |                        | 11,511 |       |       |      | 24,913 |        |        |  | 22,814 |      
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      
|Total net income                                |                                    | $             | 1,571  |                        |       |                        | 1,694  |       |       |      | 3,133  |        |        |  | 3,225  |      
|                                                |                                    |               |        |                        |       |                        |        |       |       |      |        |        |        |  |        |      

9



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##### 



Note 5  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 regarding $900,000 in reinsurance
coverage. A lawsuit was initiated by the Company in the third quarter 2001.
To date, the Company has received $475,000 and continues to seek additional
recoveries against reinsurance brokers through already existing legal channels.
The remaining amount outstanding is included in Amounts due from reinsurers
on the consolidated condensed balance sheet.

Note 6  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.

Note 7  Treasury Stock

During the six months ended June 30, 2003 the Company purchased 6,000 shares of
its common stock, which is held in treasury. For the same period, the Company
issued no shares of common stock out of treasury for its restricted stock
performance award program.

There were no changes in the Companys capital structure for the six months
ended June 30, 2003.

10



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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, the earnings and profitability of the
Companys activities, and the sufficiency of the Companys cash flows for
liquidity purposes.

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 differ 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) |       |      |       |         
|                                               |                  |                                 |       | 2003                   |       | 2002 |       | Increase
|                                               |                  |                                 |       |                        |       |      |       |         
|Premiums                                       |                  |                                 |       |                        |       |      |       |          |       |  |    |  
|Guaranteed and simplified
issue life insurance |                  | $                               | 3,518 |                        |       |      | 3,086 |          |       |  | 14 | %
|Individual life insurance:                     |                  |                                 |       |                        |       |      |       |          |       |  |    |  
|                                               | Traditional life |                                 |       | 1,906                  |       |      |       | 1,814    |       |  |    | 5 | % 
|                                               | Universal life   |                                 |       | 3,400                  |       |      |       | 3,108    |       |  |    | 9 | % 
|                                               |                  |                                 |       |                        |       |      |       |          |       |  |    |  
|                                               |                  | Total individual life insurance |       |                        | 5,306 |      |       |          | 4,922 |  |    |   | 8  | %
|                                               |                  |                                 |       |                        |       |      |       |          |       |  |    |  
|                                               |                  | Total premiums                  |       | $                      | 8,824 |      |       |          | 8,008 |  |    |   | 10 | %
|                                               |                  |                                 |       |                        |       |      |       |          |       |  |    |  

11



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##### 



|                                               |                  |                                 |       |                        |        |      |       |          |        |  |    |   |   |  
|---------------------------------------------- | ---------------- | ------------------------------- | ----- | ---------------------- | ------ | ---- | ----- | -------- | ------ |  | -- | - | - | -
|                                               |                  |                                 |       | Six months ended       |        |      |       |         
|                                               |                  |                                 |       | June 30,               |        |      |       |         
|                                               |                  |                                 |       | (Dollars in thousands) |        |      |       |         
|                                               |                  |                                 |       | 2003                   |        | 2002 |       | Increase
|                                               |                  |                                 |       |                        |        |      |       |         
|Premiums                                       |                  |                                 |       |                        |        |      |       |          |        |  |    |  
|Guaranteed and simplified
issue life insurance |                  | $                               | 6,963 |                        |        |      | 6,103 |          |        |  | 14 | %
|Individual life insurance:                     |                  |                                 |       |                        |        |      |       |          |        |  |    |  
|                                               | Traditional life |                                 |       | 3,495                  |        |      |       | 3,367    |        |  |    | 4 | %
|                                               | Universal life   |                                 |       | 6,565                  |        |      |       | 6,204    |        |  |    | 6 | %
|                                               |                  |                                 |       |                        |        |      |       |          |        |  |    |  
|                                               |                  | Total individual life insurance |       |                        | 10,060 |      |       |          | 9,571  |  |    |   | 5 | %
|                                               |                  |                                 |       |                        |        |      |       |          |        |  |    |  
|                                               |                  | Total premiums                  |       | $                      | 17,023 |      |       |          | 15,674 |  |    |   | 9 | %
|                                               |                  |                                 |       |                        |        |      |       |          |        |  |    |  

Guaranteed and simplified issue life insurance premiums continued to show
strong growth as a result of higher production by the independent agency force
which had approximately 4,500 and 4200 agents under contract at June 30, 2003
and 2002, respectively. 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. (www.cottonstatesinsurance.com).

Individual life insurance products are principally sold by the Companys
exclusive agent producers. Growth in individual life premiums largely reflects
the popularity of universal life products. The Company had 262 exclusive
agents under contract at June 30, 2003.

The rate of increases in premium growth has slowed during 2003 which the
Company believes to be caused by a weakened economy, unemployment rates and the
resulting alternative uses of potential customers resources.

Investment Income and Realized Gains and Losses

Investment income decreased 12% for the second quarter of fiscal 2003 as
compared to a 5% decrease in the second quarter of fiscal 2002. For the first
six months of 2003, investment income decreased 9% compared to a 4% decrease
for the same period of fiscal 2002. This decrease was primarily a result of a
decrease in the annualized average yield to 5.1% compared to 6.0% for the first
six-months of 2002, which occurred as a result of continued pressure on lower
interest rates.

During the first quarter of 2003 the Company realized a pre-tax investment loss
of $356,000 from the write-down of the carrying value of twelve equity
securities. These write-downs were the result of the Company determining that
an other-than-temporary impairment had occurred.

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

12



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##### 



The Company has procedures in place to monitor all debt and equity securities
for possible other-than-temporary impairments. Securities are tracked
comparing both unrealized losses as a percentage of original cost and length of
time the security has been below a predetermined percentage of cost. Monthly
discussions are held with Companys investment managers to gather information
and documentation as to their outlook for future recovery of the securities
making the Companys watch list. As of June 30, 2003 there were no debt or
equity securities whose unrealized losses would be deemed to be
other-than-temporary impairments.

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 13% with one carrier for the first six-months of
2003 compared to the first six-months of 2002 and met management expectations
for the quarter. This was partially offset by lower than expected override
commissions on multi-peril Federal crop insurance, mobile home insurance and
one other non-standard auto carrier. Brokerage commissions for the quarter
were flat compared to the prior period due to lower than expected overrides
from one non-standard auto carrier.

Benefits and Claims

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

|                                |                  |                                 |                           |       |                        |       |         |    |              |    |         |       |       |       |    |    |    |    |  
|------------------------------- | ---------------- | ------------------------------- | ------------------------- | ----- | ---------------------- | ----- | ------- | -- | ------------ | -- | ------- | ----- | ----- | ----- | -- | -- | -- | -- | -
|                                |                  |                                 |                           |       | Three months ended    
|                                |                  |                                 |                           |       | June 30,              
|                                |                  |                                 |                           |       | (Dollars in Thousands)
|                                |                  |                                 |                           |       | 2003                   |       | 2002   
|                                |                  |                                 |                           |       |                        |       |        
|                                |                  |                                 |                           |       | Benefits and           |       | % of    |    | Benefits and |    | % of   
|                                |                  |                                 |                           |       | Claims                 |       | Premium |    | Claims       |    | Premium
|                                |                  |                                 |                           |       |                        |       |         |    |              |    |        
|Benefits and Claims             |                  |                                 |                           |       |                        |       |         |    |              |    |         |       |       |       |    |   
|Guaranteed and
simplified issue |                  | $                               | 2,934                     |       |                        |       | 83      | %  |              |    | 2,356   |       |       |       | 76 | % 
|Individual life insurance       |                  |                                 |                           |       |                        |       |         |    |              |    |         |       |       |       |    |   
|                                | Traditional life |                                 |                           | 1,369 |                        |       |         | 72 | %            |    |         | 1,272 |       |       |    | 70 | % 
|                                | Universal life   |                                 |                           | 1,181 |                        |       |         | 35 | %            |    |         | 1,000 |       |       |    | 32 | % 
|                                |                  |                                 |                           |       |                        |       |         |    |              |    |         |       |       |       |    |   
|                                |                  | Total individual
life insurance |                           |       | 2,550                  |       |         |    | 48           | %  |         |       | 2,272 |       |    |    | 46 | % 
|                                |                  |                                 |                           |       |                        |       |         |    |              |    |         |       |       |       |    |   
|                                |                  |                                 | Total
benefits
and claims |       | $                      | 5,484 |         |    |              | 62 | %       |       |       | 4,628 |    |    |    | 58 | %
|                                |                  |                                 |                           |       |                        |       |         |    |              |    |         |       |       |       |    |   

13



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##### 



|                                |                  |                                 |                           |       |                        |        |         |    |              |    |         |       |       |       |    |    |    |    |  
|------------------------------- | ---------------- | ------------------------------- | ------------------------- | ----- | ---------------------- | ------ | ------- | -- | ------------ | -- | ------- | ----- | ----- | ----- | -- | -- | -- | -- | -
|                                |                  |                                 |                           |       | Six months ended      
|                                |                  |                                 |                           |       | June 30,              
|                                |                  |                                 |                           |       | (Dollars in Thousands)
|                                |                  |                                 |                           |       | 2003                   |        | 2002   
|                                |                  |                                 |                           |       |                        |        |        
|                                |                  |                                 |                           |       | Benefits and           |        | % of    |    | Benefits and |    | % of   
|                                |                  |                                 |                           |       | Claims                 |        | Premium |    | Claims       |    | Premium
|                                |                  |                                 |                           |       |                        |        |         |    |              |    |        
|Benefits and Claims             |                  |                                 |                           |       |                        |        |         |    |              |    |         |       |       |       |    |   
|Guaranteed and
simplified issue |                  | $                               | 5,645                     |       |                        |        | 81      | %  |              |    | 4,590   |       |       |       | 75 | % 
|Individual life insurance       |                  |                                 |                           |       |                        |        |         |    |              |    |         |       |       |       |    |   
|                                | Traditional life |                                 |                           | 2,477 |                        |        |         | 71 | %            |    |         | 2,273 |       |       |    | 68 | % 
|                                | Universal life   |                                 |                           | 2,171 |                        |        |         | 33 | %            |    |         | 2,122 |       |       |    | 34 | % 
|                                |                  |                                 |                           |       |                        |        |         |    |              |    |         |       |       |       |    |   
|                                |                  | Total individual
life insurance |                           |       | 4,648                  |        |         |    | 46           | %  |         |       | 4,395 |       |    |    | 46 | % 
|                                |                  |                                 |                           |       |                        |        |         |    |              |    |         |       |       |       |    |   
|                                |                  |                                 | Total
benefits
and claims |       | $                      | 10,293 |         |    |              | 60 | %       |       |       | 8,985 |    |    |    | 57 | %
|                                |                  |                                 |                           |       |                        |        |         |    |              |    |         |       |       |       |    |   

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
policyholders. Guaranteed and simplified issue experience in 2003 was slightly
higher than Company expectations but due to the Companys size fluctuations can
and do occur in any particular quarter. Individual life insurance claims were
up for the quarter as claims greater than the Companys retention level were
approximately $400,000 less than the first quarter. Year-to-date claims as a
percentage of premiums were flat compared to 2002. Overall benefits and claims
were within managements expectation. The Company offsets the effects of
annual mortality fluctuations by routinely purchasing annual aggregate stop
loss reinsurance coverage in excess of 120% of expected mortality.

Interest Credited to Policyholders

Interest credited to universal life contracts was flat for the first six months
of 2003 compared to 2002 and decreased 3% for the quarter ended June 30, 2003
as compared to the same quarter in 2002. The annual interest rate credited to
universal life contract accumulations was 5.75% for the first two months of
2003. Effective March 1, 2003 the annual interest rate credited to
policyholders was changed to 5.64%. The annual interest rate credited was
5.6% for the six month period ended June 30, 2003 and 6.2% for the comparable
period of 2002.

Amortization of Policy Acquisition Costs and Operating Expenses

The amortization of policy acquisition costs as a percentage of premiums was
14% for the six months ended June 30, 2003 compared to 12% for the same
period of 2002. 2003 and 2002 results are within the Companys expected range
of 12-14%. Amortization for the first six months reflects better than expected
mortality in the universal life line of business and a decrease in the annual
interest rate credited to policyholders. Amortization for the quarter ended
June 30, 2003 was higher compared to the same period of 2002 due to higher
lapses in the traditional lines of business which reflects increased term rate
competition in the market place.

Operating expenses as a percentage of premiums were 27% for the second quarter
of 2003 and 2002. For the six months ended June 30, 2003 and 2002 the
percentage was 28%. The Companys expectations for the fiscal year 2003 are
between 28-31%.

14



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##### 



Income Tax Expense

The effective tax rate for the first six months of 2003 was 31% compared to 29%
for the same period last year. The effective tax rate increased due to the
effects of the estimated phase out of the small life company deduction. The
effective rate reflects the Companys best estimate of the annual effective
rate.

Net Income

|                                |                |            |       |                        |       |      |       |            |       |  |     |          |    |   
|------------------------------- | -------------- | ---------- | ----- | ---------------------- | ----- | ---- | ----- | ---------- | ----- |  | --- | -------- | -- | --
|                                |                |            |       | Three months ended     |       |      |       |           
|                                |                |            |       | June 30                |       |      |       |           
|                                |                |            |       | (Dollars in Thousands) |       |      |       |           
|                                |                |            |       |                        |       |      |       |            |       |  |     | Increase
|                                |                |            |       | 2003                   |       | 2002 |       | (Decrease)
|                                |                |            |       |                        |       |      |       |           
|Net Income                      |                |            |       |                        |       |      |       |            |       |  |     |         
|Guaranteed and
simplified issue |                | $          | 18    |                        |       |      | 20    |            |       |  | (10 | %)      
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|Individual life insurance:      |                |            |       |                        |       |      |       |            |       |  |     |         
|                                | Traditional    |            |       | 292                    |       |      |       | 352        |       |  |     | (17      | %)
|                                | Universal life |            |       | 722                    |       |      |       | 767        |       |  |     | (6       | %)
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|Total individual life insurance |                |            | 1,014 |                        |       |      | 1,119 |            |       |  | 9   | %       
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|Brokerage operations            |                |            | 539   |                        |       |      | 555   |            |       |  | (3  | %)      
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|                                |                | Net Income |       | $                      | 1,571 |      |       |            | 1,694 |  |     |          | (7 | %)
|                                |                |            |       |                        |       |      |       |            |       |  |     |         

|                                |                |            |       |                        |       |      |       |            |       |  |     |          |    |   
|------------------------------- | -------------- | ---------- | ----- | ---------------------- | ----- | ---- | ----- | ---------- | ----- |  | --- | -------- | -- | --
|                                |                |            |       | Six months ended       |       |      |       |           
|                                |                |            |       | June 30                |       |      |       |           
|                                |                |            |       | (Dollars in Thousands) |       |      |       |           
|                                |                |            |       |                        |       |      |       |            |       |  |     | Increase
|                                |                |            |       | 2003                   |       | 2002 |       | (Decrease)
|                                |                |            |       |                        |       |      |       |           
|Net Income                      |                |            |       |                        |       |      |       |            |       |  |     |         
|Guaranteed and
simplified issue |                | $          | 26    |                        |       |      | 126   |            |       |  | (79 | %)      
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|Individual life insurance:      |                |            |       |                        |       |      |       |            |       |  |     |         
|                                | Traditional    |            |       | 575                    |       |      |       | 715        |       |  |     | (20      | )%
|                                | Universal life |            |       | 1,483                  |       |      |       | 1,348      |       |  |     | 10       | % 
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|Total individual life insurance |                |            | 2,058 |                        |       |      | 2,063 |            |       |  |    |         
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|Brokerage operations            |                |            | 1,049 |                        |       |      | 1,036 |            |       |  | 1   | %       
|                                |                |            |       |                        |       |      |       |            |       |  |     |         
|                                |                | Net Income |       | $                      | 3,133 |      |       |            | 3,225 |  |     |          | (3 | )%
|                                |                |            |       |                        |       |      |       |            |       |  |     |         

Net income for the quarter and six months decreased compared to the prior
periods primarily due to lower than expected sales believed to be caused by a
continued weakened economy, and slightly lower investment income due to
continued uncertainty with interest rates. These were partially offset by
positive contributions by the Companys subsidiaries and benefits and claim
costs that, although slightly higher were within managements expectations.

15



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##### 



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 assets 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.

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, 2003 and 2002, the Company experienced
emerged mortality of 101% and 86% of amounts 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.

16



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##### 



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.

Recent Accounting Pronouncements

The Financial Accounting Standards Board issued SFAS No. 143 Accounting for
Asset Retirement Obligations, which is effective for fiscal years beginning
after June 15, 2002, with early adoption encouraged. SFAS 143 applies to
legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and (or) the normal
operation of a long-lived asset, except for certain obligations of lessees.
The adoption of SFAS No. 143 did not affect the Companys results of operations
or financial position.

The Financial Accounting Standards Board also issued SFAS No. 144 Accounting
for the Impairment or Disposal of Long-Lived Assets which supercedes SFAS No.
121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, and the accounting and reporting provisions of APB
Opinion No. 30 Reporting the Results of Operations-Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions, and is effective for fiscal
years beginning after December 15, 2001. SFAS No.144 establishes a single
accounting model for the disposal of long-lived assets. The adoption of SFAS
No.144 did not affect the Companys results of operations or financial
position.

The Financial Accounting Standards Board also issued SFAS No. 145 Rescission
of FASB Statements No. 4,44 and 64, Amendment of FASB Statement No.13, and
Technical Corrections, which is effective for financial statements issued
after May 15, 2002. The adoption of SFAS No. 145 did not affect the Companys
results of operations or financial position.

In July 2002, the Financial Accounting Standards Board issued SFAS No. 146
Accounting for Costs Associated with Exit or Disposal Activities, which is to
be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The adoption of SFAS No. 146 did not affect the Companys
results of operations or financial position.

In November 2002 the Financial Accounting Standards Board issued Interpretation
NO. 45, Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees for Indebtedness of Others, for which accounting
requirements are effective for guarantees issued or modified after December 31,
2002 and disclosure requirements are effective for financial statements issued
after December 15, 2002. The adoption of Interpretation No. 45 did not affect
the Companys results of operations or financial position.

In December 2002, the Financial Accounting Standards Board issued SFAS No. 148
Accounting for Stock Based Compensation  Transition and Disclosure, which is
effective for financial statements issued after December 15, 2002. The
adoption of SFAS No. 148 did not affect the Companys results of operations or
financial position.

17



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##### 



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.
FIN 46 requires certain variable interest entities to be consolidated by the
primary beneficiary of the entity if the equity investors in the entity do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. FIN 46 is
effective for all new variable interest entities created or acquired after
January 31, 2003. For variable interest entities created or acquired prior to
February 1, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. There is no impact on
the Companys financial position or results of operations for the second
quarter of 2003 under FIN 46. The Company also expects no impact in future
periods under FIN 46.

Liquidity and Capital Resources

Cash Flow

As of June 30, 2003 the Companys insurance operations generated positive cash
flows in excess of its immediate needs. Cash flows provided by operations
were $7.0 million in the first six months of 2003 compared to $7.6 million for
the comparable period last year.

Operating cash flow is primarily used to purchase debt securities. The Company
received proceeds of $18.2 million from investment maturities and repayments in
2003, adding to available cash flows. Such proceeds were $8.8 million in 2002.
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 its assets and liabilities. Therefore,
dispositions before maturity can vary significantly from year to year.
Proceeds from sales prior to maturity were $37.7 million in 2003, and $39.2
million for the comparable period of 2002.

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 maximum
amount of dividends that may be paid in 2003 by the Company to its shareholders
without prior regulatory approval is approximately $2.9 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 for the next 12 months.

Investments

Since December 31, 2002, 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 87% of the holdings at June 30, 2003 and 91% in
December 31, 2002 are rated A or better by Standard & Poors Corporation.
For all fixed maturities, 13% in 2003 and 9% in 2002 are rated BBB. Ratings of
BBB- and higher are considered investment grade by the rating services.

18



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##### 



During the second quarter of 2002, the Company sold a security out of its
held-to-maturity portfolio due to evidence of a significant deterioration in
the issuers credit worthiness. At the time of the 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 collateral value on residential loans and no more than 75% of the
collateral value on commercial loans. The Company grants loans only to
employees (excluding officers and directors) and agents.

The geographic distribution of the loan portfolio is:

|                |    |              |  |       |    |                        |  |          |  |              |     |            |       |  |     |  |       | 
|--------------- | -- | ------------ |  | ----- | -- | ---------------------- |  | -------- |  | ------------ | --- | ---------- | ----- |  | --- |  | ----- | 
|                |    |              |  |       |    |                        |  |          |  |              |     | Book Value
|Number of Loans |    |              |  |       |    |                       
|                |    |              |  |       |    | (dollars in thousands)
|June 30,        |    | December 31, |  |       |    |                        |  | June 30, |  | December 31,
|2003            |    | 2002         |  | State |    | 2003                   |  | 2002    
|                |    |              |  |       |    |                        |  |         
|                | 2  |              |  |       | 2  |                        |  | Alabama  |  | $            | 96  |            |       |  | 100 | 
|                | 6  |              |  |       | 6  |                        |  | Florida  |  |              | 263 |            |       |  | 283 | 
|                | 24 |              |  |       | 25 |                        |  | Georgia  |  |              | 860 |            |       |  | 937 | 
|                |    |              |  |       |    |                        |  |          |  |              |     |            |       |  |     |  |       | 
|                | 32 |              |  |       | 33 |                        |  |          |  |              |     | $          | 1,219 |  |     |  | 1,320 | 
|                |    |              |  |       |    |                        |  |          |  |              |     |            |       |  |     |  |       | 

Three loans representing $89,000 in principal are over 30 days delinquent. The
loan-to-value ratio on delinquent loans is 18%.

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,
2003 and 2002.

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, 2003
and June 30, 2002 had an effective duration of 4.4 years and 4.3 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

19



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##### 



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
|                                       |          |   |                        |  |                   |                 |                  |  |               |         | Value After    |  | Increase  
|                                       |          |   |                        |  |                   |                 | Estimated Change |  | Hypothetical  |         | (Decrease) In 
|                                       |          |   | Estimated Value        |  | in Interest Rates |                 | Change in        |  | Shareholders'
|                                       |          |   | June 30, 2003          |  | (bp-Basis Points) |                 | Interest Rates   |  | Equity       
|                                       |          |   |                        |  |                   |                 |                  |  |              
|                                       |          |   | (dollars in thousands) |  |                   |                 |                  |  |               |         |                |  |            |      |             
|Fixed Maturities  Held
for Investment |          | $ | 4,556                  |  |                   | 100 bp decrease |                  |  | 4,738         |         |                |  | N/A        |     
|                                       |          |   |                        |  |                   | 100 bp increase |                  |  | 4,374         |         |                |  | N/A        |     
|Fixed Maturities  Available           |          | $ | 175,171                |  |                   | 100 bp decrease |                  |  | 182,178       |         |                |  | 8.1        | %   
|                                       | for Sale |   |                        |  |                   |                 | 100 bp increase  |  |               | 168,164 |                |  |            | (8.1 | )%          

ITEM 4. CONTROLS AND PROCEDURES

The Companys Chief Executive Officer and Chief Accounting Officer evaluated
the effectiveness of the Companys disclosure controls and procedures (as
defined in SEC Rule 13a-15(e)) as of June 30, 2003. Based on that evaluation,
such officers have concluded that the Companys disclosure controls and
procedures are effective.

During the quarter ended June 30, 2003, there was no change in the Companys
control over financial reporting (as defined in SEC Rule 13a-15(f)) that has
materially affected, or is reasonably likely to materially affect the Companys
internal control over financial reporting.

20



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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 in reinsurance
coverage. A lawsuit was initiated by the Company in the third quarter of 2001.
To date, the Company has received $475,000 and continues to seek additional
recoveries against the reinsurance brokers through already existing legal
channels. The remaining amount outstanding is included in Amounts due from
reinsurers on the consolidated condensed balance sheet.

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



| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company furnished a report on Form 8-K on August 7, 2003
pursuant to Item 12 of Form 8-K, Disclosures of Results of
Operations and Financial Condition as directed by the Securities and
Exchange commission in Release No. 23-47583.

Exhibit 11  Statement re: Computation of Per Share Earnings

Exhibit 15  Letter Regarding Unaudited Interim Financial Information

Exhibit 31.1  Section 302
Certification of Chief Executive Officer

Exhibit 31.2  Section 302
Certification of Vice President of Finance

Exhibit 32  Section 906
Certification of Chief Executive Officer and Vice President of Finance

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: 08/6/03 |  | /s/ J. Ridley Howard                                               
|              |  |                                                                    
|              |  | J. Ridley Howard, Chairman
President and Chief Executive Officer   
|              |  |                                                                    
|Date: 08/6/03 |  | /s/ William J. Barlow                                              
|              |  |                                                                    
|              |  | William J. Barlow
Vice President of Finance and Assistant Treasurer

21