Allied Life Financial: 10-Q for Quarter to 9/30/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 Commission File Number 0-22404 ALLIED Life Financial Corporation (Exact name of registrant as specified in its charter) Iowa (State or other jurisdiction of incorporation or organization) 42-1406716 (I.R.S. Employer Identification No.) 701 Fifth Avenue, Des Moines, Iowa (Address of principal executive offices) 50391-2003 (Zip Code) 515-280-4211 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] Indicate the number of outstanding shares of each of the issuer's classes of common stock, as of November 1, 1997: 4,395,669 shares of Common Stock. This document contains 16 pages. PART I Item 1. Financial Statements ALLIED Life Financial Corporation and Subsidiaries Consolidated Balance Sheets September 30, December 31, 1997 1996 Assets Investments Fixed maturities Held to maturity at amortized cost (fair value $0 in 1997 and $205,347,823 in 1996 - see note 6) $ -------- $199,208,835 Available for sale, at fair value (amortized cost $722,608,206 in 1997 and $492,686,241 in 1996 - see note 6) 746,302,390 500,289,070 Equity securities at fair value 10,284,460 6,406,552 Mortgage loans on real estate 1,009,684 1,456,688 Policy loans 10,970,441 10,306,724 Other invested assets 3,200,017 3,751,415 Short-term investments, at cost 5,117,108 919,687 Total investments 776,884,100 722,338,971 Accrued investment income 11,467,744 9,738,060 Accounts receivable 900,487 607,737 Reinsurance ceded receivables 6,346,885 5,786,434 Current income taxes recoverable 147,968 ------- Deferred policy acquisition costs 88,822,454 92,417,588 Other assets 9,442,544 4,710,933 Total assets $894,012,182 $835,599,723 See accompanying Notes to Interim Consolidated Financial Statements. 1 ALLIED Life Financial Corporation Subsidiaries Consolidated Balance Sheets September 30, December 31, 1997 1996 Liabilities Policy liabilities Policyholder account balances Annuity contracts $503,092,581 $467,504,991 Universal life contracts 193,246,785 182,726,695 Other 7,628,495 8,846,156 Future policy benefits 36,503,005 33,473,558 Policy and contract claims 3,843,756 3,735,623 Other policyholder funds 2,131,743 1,575,995 746,446,365 697,863,018 Checks drawn in excess of bank balances 1,985,748 3,163,318 Current income taxes payable -------- 940,576 Deferred income taxes 10,472,755 8,008,946 Indebtedness to affiliates (note 2) 3,785,006 2,188,068 Note payable (note 3) 15,340,000 20,470,000 Other liabilities 4,997,519 3,024,175 Total liabilities 783,027,393 735,658,101 Stockholders' equity Preferred stock, no par value, issuable in series, authorized 7,500,000 shares 6.75% Series, authorized 2,440,000 shares, issued and outstanding of 2,254,056 in 1997 and 2,143,691 in 1996 24,456,507 23,259,047 ESOP Series, authorized 300,000 shares, issued and outstanding of 106,332 in 1997 and 93,982 in 1996 1,555,020 1,327,186 Common stock, no par value, $1 stated value, authorized 25,000,000 shares, issued and outstanding of 4,389,958 in 1997 and 4,497,238 in 1996 (note 5) 4,389,958 4,497,238 Additional paid-in capital (note 5) 44,847,974 46,596,171 Retained earnings 27,308,547 21,751,088 Unrealized appreciation of investments, net 8,426,783 2,510,892 Total stockholders' equity 110,984,789 99,941,622 Total liabilities and stockholders' equity $894,012,182 $835,599,723 See accompanying Notes to Interim Consolidated Financial Statements. 2 ALLIED Life Financial Corporation and Subsidiaries Consolidated Statements of Income Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Revenues Insurance revenues Policyholder assessments on universal life contracts $ 5,514,761 $ 5,205,649 $ 16,327,976 $ 15,459,557 Surrender charges 765,062 501,338 1,989,811 1,697,709 Life insurance premiums 3,709,807 3,938,434 10,607,584 9,983,794 Other insurance income 1,373,468 1,033,109 3,950,104 2,725,356 Reinsurance premiums ceded (2,836,687) (2,059,834) (7,587,096) (6,327,458) Total insurance revenues 8,526,411 8,618,696 25,288,379 23,538,958 Investment income 13,223,359 11,826,527 38,758,081 35,513,401 Realized investment gains (losses) 857,447 (48,532) 605,128 (193,006) Other income 478,337 247,403 1,140,351 805,498 23,085,554 20,644,094 65,791,939 59,664,851 Benefits and Expenses Policyholder benefits Interest credited to policyholder account balances Annuity contracts 6,821,863 6,204,824 19,679,757 18,061,925 Universal life contracts 2,568,016 2,357,526 7,512,101 7,081,105 Other 138,058 100,855 353,488 272,624 Death benefits 3,404,794 3,543,015 8,289,260 7,906,412 Other policyholder benefits 1,312,179 2,373,358 3,855,735 5,805,959 Reinsurance recoveries (1,465,466) (1,618,997) (1,848,839) (3,601,772) Total policyholder benefits 12,779,444 12,960,581 37,841,502 35,526,253 Amortization of deferred policy acquisition costs 3,146,073 1,921,766 7,858,996 5,764,046 Commissions 1,069,295 889,565 2,953,592 2,366,136 Affiliated operating expenses 171,983 207,875 473,426 817,460 Other insurance operating expenses 1,681,965 1,555,593 5,220,016 4,396,960 18,848,760 17,535,380 54,347,532 48,870,855 Income before income taxes 4,236,794 3,108,714 11,444,407 10,793,996 Income Taxes Current 2,291,969 976,385 4,534,348 3,451,253 Deferred (881,158) 26,894 (721,670) 75,913 1,410,811 1,003,279 3,812,678 3,527,166 Net Income $ 2,825,983 $ 2,105,435 $ 7,631,729 $ 7,266,830 Net income applicable to common stock $ 2,393,128 $ 1,701,857 $ 6,352,881 $ 6,074,716 Earnings Per Common Share $ 0.55 $ 0.37 $ 1.43 $ 1.32 Weighted average number of common shares outstanding 4,380,847 4,559,259 4,442,423 4,609,230 See accompanying Notes to Interim Consolidated Financial Statements 3 ALLIED Life Financial Corpor ation and Subsidiaries Consolidated Statements of Cash Flows Nine Months Ended September 30, 1997 1996 Cash Flow From Operating Activities Net income $ 7,631,728 $ 7,266,830 Adjustments to reconcile net income to net cash provided by operating activities Policyholder assessments on universal life contracts (16,327,976) (15,459,557) Surrender charges (1,989,811) (1,697,709) Interest credited to policyholder account balances 27,545,346 25,415,654 Realized investment (gains) losses (605,128) 193,006 Change in Accrued investment income (1,729,684) (1,968,861) Reinsurance ceded receivables (560,451) 1,342,573 Deferred policy acquisition costs (4,735,434) (7,432,551) Liabilities for future policy benefits 3,029,447 4,240,501 Policy and contract claims and other policyholder funds 663,881 384,716 Current income taxes (1,088,544) 568,554 Deferred income taxes (721,670) 75,913 Other, net (1,333,098) (708,100) Net cash provided by operating activities 9,778,606 12,220,969 Cash Flows from Investing Activities Purchase of fixed maturities held to maturity (7,593,891) (13,500,000) Maturities, calls, and principal reductions of fixed maturities held to maturity 8,022,208 34,425,618 Purchase of fixed maturities available for sale (164,465,487) (103,686,214) Proceeds from sale of fixed maturities available for sale 109,456,992 31,635,277 Maturities, calls, and principal reductions of fixed maturities available for sale 24,523,676 8,870,970 Purchase of equity securities (3,821,338) (1,513,190) Proceeds from sale of equity securities 1,400,752 -------- Proceeds from repayment of mortgage loans 447,345 251,528 Change in other invested assets -------- (4,145,017) Change in policy loans, net (663,717) (752,418) Purchase of property, plant, and equipment (2,294,702) -------- Net cash used in investing activities (34,988,162) (48,413,446) Cash Flows from Financing Activities Change in checks drawn in excess of bank balances (1,177,571) (665,215) Deposits to policyholder account balances 88,058,880 79,631,368 Withdrawals from policyholder account balances (51,928,195) (38,335,589) Change in note payable, net (5,130,000) (3,125,000) Change in note payable from affiliates 2,088,312 1,750,000 Proceeds from issuance of stock, net 850,490 359,445 Repurchase of stock (2,478,131) (2,541,250) Dividends paid to stockholders (876,808) (736,341) Net cash provided by financing activities 29,406,977 36,337,418 Net Increase in Cash and Short-term Investments 4,197,421 144,941 Cash and short-term investments at beginning of year 919,687 721,612 Cash and short-term investments at end of quarter $ 5,117,108 $ 866,553 See accompanying Notes to Interim Consolidated Financial Statements 4 ALLIED Life Financial Corporation and Subsidiaries Notes to Interim Consolidated Financial Statements (1) Summary of Significant Accounting Policies The accompanying consolidated financial statements include the accounts of ALLIED Life Financial Corporation (the Company) and its subsidiaries on a consolidated basis. At September 30, 1997, ALLIED Mutual Insurance Company (ALLIED Mutual), an affiliated property-casualty insurance company, controlled 56% of the voting stock of the Company and the ALLIED Life Financial Corporation Employee Stock Ownership Trust owned 2%. The remainder was owned by public stockholders. The accompanying interim consolidated financial statements should be read in conjunction with the following notes and with the Notes to Consolidated Financial Statements included in the ALLIED Life Financial Corporation's Annual Report on 10K for the year ended December 31, 1996. The interim consolidated financial statements have been prepared in conformity with generally accepted accounting principles (GAAP) and include all adjustments which are in the opinion of management necessary for a fair presentation of the results for the interim periods. In the opinion of management, all such adjustments are of a normal and recurring nature. All significant intercompany balances and transactions have been eliminated. (2) Transactions with Affiliates The Company and its affiliates pool their excess cash pursuant to the Intercompany Cash Concentration Fund Agreement. The fund, administered by AID Finance Services, Inc. (an affiliate of the Company), also issues short-term loans (30 days or less) to affiliated companies in accordance with the current intercompany borrowing policy. At September 30, 1997, the Company had an investment balance in the intercompany fund of $3,079,693. Pursuant to the Agreement, AID Finance Services, Inc. receives a management fee of 5 basis points which the fund participants pay in the form of an additional 0.05% in the interest rate for borrowings and a 0.05% reduction in the interest rate on invested funds. The Company has various notes payable with ALLIED Mutual. At September 30, 1997 the outstanding balance of the notes payable was $3,705,660. (3) Note Payable to Nonaffiliates ALLIED Life Insurance Company, a wholly owned subsidiary, has a line of credit agreement with the Federal Home Loan Bank (FHLB) to make available borrowings of $25,000,000. Interest is payable at either an adjustable interest rate with the interest rate set and charged daily on the outstanding advance amount or at a fixed rate with the interest rate set at issuance. As of September 30, 1997, borrowings on this line of credit agreement were $15,340,000 at an interest rate of 6.49% per annum. All borrowings with the FHLB are secured by securities with a carrying value of $29,945,173. (4) New Accounting Standard In February 1997, the Financial Accounting Standards Board (FASB) Issued Statement of Financial Accounting Standards (SFAS) 128, "Earnings Per Share". SFAS 128 supersedes Opinion 15, "Earnings Per Share" 5 ALLIED Life Financial Corporation and Subsidiaries Notes to Interim Consolidated Financial Statements (continued) and specifies the computation, presentation, and disclosure requirements for earnings per share (EPS). It replaces the presentation of primary EPS and fully diluted EPS with basic EPS and diluted EPS. Basic EPS includes the weighted average number of common shares outstanding and excludes all dilutive securities. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stocks were exercised or converted into common stock. Diluted EPS is computed similarly to fully diluted EPS under APB 15. Statement 128 is effective for financial statements for both interim and annual periods ending after December 15, 1997. Management has determined that the implementation will not have a material effect on its earnings per share calculations. (5) Stock Repurchase Program Effective May 13, 1997, the Board of Directors approved a stock repurchase program to acquire up to 150,000 shares of the Company common stock on the open market pursuant to rule 10b-18 under the Securities Exchange Act of 1934. The Company completed the program during the second quarter of 1997 and repurchased and cancelled 150,000 shares at an average cost of $16.52 per share. (6) Transfer of Securities to Available For Sale Effective May 13, 1997, the Company transferred its remaining securities classified as held to maturity ($196 million) to available for sale. In accordance with SFAS 115 the Company now carries all of its securities at fair value and as a result a $1.2 million increase to stockholders' equity was made. The Company made the transfer to allow for more flexibility with regards to selling securities from its investment portfolio. The Company has no intent of putting future purchases in the held to maturity portfolio. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The following analysis of the consolidated results of operations and financial condition of the Company should be read in conjunction with the interim consolidated financial statements and related footnotes included elsewhere herein, and with the Company's Annual Report on Form 10-K for the year ended December 31, 1996. ALLIED Life Financial Corporation is an insurance holding company formed by ALLIED Mutual Insurance Company (ALLIED Mutual) in 1993. The financial statements include the accounts of ALLIED Life Insurance Company (ALLIED Life), ALLIED Life Brokerage Agency, Inc. (ALBA), and ALLIED Group Merchant Banking Corporation (AGMB). ALLIED Life accounts for substantially all of the Company's operations and sells primarily universal life insurance, term life insurance, and annuity products. The following table reflects ALLIED Life's production information and pretax operating results excluding realized investment gains (losses) and related amortization of deferred policy acquisition costs for the periods indicated. Life Insurance Operations Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 (Dollars in thousands) Production information Life insurance Face amount in force Directly produced by agents Universal Life $4,527,752 $4,263,599 Term life 4,464,484 4,090,843 Whole life 50,945 49,621 9,043,181 8,404,063 Other 380,282 376,255 $9,423,463 $8,780,318 Face amount of new life insurance sold Directly produced by agents Universal Life $ 131,121 $ 86,690 $ 430,467 $ 273,758 Term life 303,756 512,036 934,434 1,172,788 Whole life 1,248 1,233 5,727 3,392 436,125 599,959 1,370,628 1,449,938 Other 1,050 (2,821) 4,299 8,384 $ 437,175 $ 597,138 $ 1,374,927 $ 1,458,322 Termination rate Universal Life 7.5% 5.9% 6.9% 6.5% Term life 27.5% 18.2% 20.7% 17.6% Annuities Account balance $ 503,093 $ 450,679 First-year annuity premiums $ 22,268 $ 21,105 $ 55,225 $ 47,203 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Life Insurance Operations (Continued) Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 (Dollars in thousands) Profitability Investment income $13,204 $11,818 $38,716 $35,482 Interest credited on Annuities 6,822 6,205 19,680 18,062 Universal life 2,568 2,358 7,512 7,081 Other 138 100 353 273 Total interest expense 9,528 8,663 27,545 25,416 Investment spread 3,676 3,155 11,171 10,066 Fee income Universal life charges 6,099 5,603 17,768 16,788 Annuity surrender charges 180 104 550 369 Total fee income 6,279 5,707 18,318 17,157 Other insurance income 2,247 2,911 6,971 6,382 Adjusted insurance revenues 12,202 11,773 36,460 33,605 Other expenses Amortization of deferred policy acquisition costs (1) 2,708 1,946 7,629 5,840 Renewal commissions 739 742 2,232 1,901 Other operating expenses 1,687 1,647 5,256 4,908 Total acquisition and operating expenses 5,134 4,335 15,117 12,649 Death benefits, net 1,773 2,254 6,068 5,128 Other policyholder benefits, net 1,477 2,044 4,229 4,983 Total other expenses 8,384 8,633 25,414 22,760 Income before income taxes and realized investment gains (losses) from insurance operations $ 3,818 $ 3,140 $11,046 $10,845 (1) Excludes amortization of deferred policy acquisition costs resulting from net realized investment gains(losses). RESULTS OF OPERATIONS Consolidated revenues for the nine months ended September 30, 1997 were $65.8 million, a 10.3% increase over the $59.7 million reported for the first nine months of 1996. Investment income rose 9.1% to $38.8 million from $35.5 million. The company had realized investment gains of $605,000 in 1997 while in 1996 it had realized investment losses of $193,000. For the third quarter only, consolidated revenues grew 11.8% to $23.1 million in 1997 from $20.6 million in 1996. Investment income for the quarter grew 11.8% to $13.2 million from $11.8 million. For the quarter the Company had realized investment gains of $857,000 while for the third quarter 1996, the Company had realized investment losses of $49,000. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) Operating income increased to $11.1 million from $10.9 million for the nine months ended 1997 and 1996, respectively. Net income increased 5% to $7.6 million ($1.43 per common share) from $7.3 million ($1.32 per common share) for the same time periods. Operating earnings per common share for the first nine months of 1997 were $1.37 compared to $1.34 for the first nine months of 1996. For the third quarter only, operating income increased 21.9% to $3.8 million from $3.1 million. Net income increased to $2.8 million ($0.55 per common share) from $2.1 million ($0.37 per common share) for the same time periods. Operating earnings per common share for the third quarter of 1997 were $0.48 compared to $0.38 for the third quarter of 1996. Life Insurance Operations The following analysis of life insurance operations should be read with reference to the preceding tables. Total life insurance in force grew 7.3% to $9.4 billion at September 30, 1997 from $8.8 billion at September 30, 1996. Term life insurance sales were down as the market for this product line remains price competitive. The face amount of new life insurance sold directly by agents through September 30, 1997 decreased 5.5% to $1.37 billion from $1.45 billion through September 30, 1996. The primary factor was a 20.3% decrease in the face amount of new term life insurance sold to $934.4 million from $1.17 billion. For the third quarter only, the face amount of new term life insurance sold decreased 40.7% to $303.8 million from $512 million. ALLIED Life continues to sell mainly ten and twenty-year term policies within this product line. The face amount of new universal life insurance sold directly by agents increased 57.2% to $430.5 million through September 30, 1997 from $273.8 million through September 30, 1996. For the third quarter only, the face amount of new universal life insurance sold increased 51.3% to $131.1 million from $86.7 million. Universal life policyholder account balances were up 8.3% to $193.2 million from $178.4 million. First-year annuity premiums increased 17% to $55.2 million through September 30, 1997 from $47.2 million through September 30, 1996. For the third quarter only, first year annuity premiums increased 5.5% to $22.3 million from $21.1 million. The total annuity account balance increased 11.6% to $503.1 million at September 30, 1997 from $450.7 million at September 30, 1996. The increases in sales of universal life insurance and annuity premiums are the result of the improved agent recruiting efforts of the Company. Year to date they have signed 1,204 net new producer contracts, a 90.2% increase over 1996's year to date total of 633. Adjusted insurance revenues increased 8.5% to $36.5 million for the first nine months of 1997 from $33.6 million for the first nine months of 1996. The growth in life insurance in force and policyholder account balances permitted invested assets, on a cost basis, to increase 9.5% to $750.1 million at September 30, 1997 from $685.1 million at September 30, 1996, allowing investment income to increase by 9.1%. ALLIED Life's return on invested assets through September 30, 1997 decreased to 7.25% from 7.31% through September 30, 1996. Investment spread for the first nine months of 1997 and 1996 grew to $11.2 million from $10.1 million. For the third quarter only, the investment spread grew to $3.7 million from $3.2 million. Annual average interest- 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) credited rates on universal life contracts decreased to 5.32% from 5.44% and on annuities decreased to 5.44% from 5.61%. The ratio of investment spread to investment income increased to 28.9% from 28.4% despite the volatile interest rate environment. Amortization of deferred policy acquisition costs for the first nine months of 1997 and 1996 increased 30.6% to $7.6 million from $5.8 million. For the third quarter only, amortization of deferred policy acquisition costs increased 39.1% to $2.7 million from $1.9 million. Other operating expenses increased 7.1% to $5.3 million from $4.9 million. For the third quarter only, other operating expenses increased 2.4% to $1.7 million from $1.6 million. Death benefits net of reinsurance for the first nine months of 1997 and 1996 increased 18.3% to $6.1 million ($0.72 per common share) from $5.1 million ($0.61 per common share). For the third quarter only, death benefits net of reinsurance decreased 21.3% to $1.8 million ($0.22 per common share) from $2.3 million ($0.29 per common share). Other policyholder benefits net of reinsurance decreased 15.1% to $4.2 million from $5 million. For the third quarter only, they decreased 27.7% to $1.5 million from $2 million. ALLIED Life's operating income through September 30, 1997 and 1996 increased 1.9% to $11 million from $10.8 million. For the third quarter only, operating income increased 21.6% to $3.8 million from $3.1 million. For the year the Company has experienced higher death benefits and amortization of deferred policy acquisition costs. For the quarter, these were offset by higher investment spread and fee income revenues and lower increases in other policyholder benefits. Even though death benefits were higher for the year, they were down substantially for the quarter. LIQUIDITY AND CAPITAL RESOURCES Consolidated Life insurance companies generally produce a positive cash flow from operations. Its adequacy is measured by the companies' liquidity. There should be sufficient cash to meet benefit obligations to policyholders and normal operating expenses as they are incurred and sufficient excess to help meet future policy benefit payments and to write new business. ALLIED Life's liquidity position continued to be favorable for the third quarter 1997. Cash inflows were at levels sufficient to provide the grounds necessary to meet its obligations. The Company's cash inflows consist primarily of deposits to policyholder account balances, income from sales, maturities and calls of investments, and repayments of investment principal. The Company's cash outflows primarily are related to policyholder account withdrawals, investment purchases, policy acquisition costs, policyholder benefits, and current operating expenses. These outflows typically are met from normal annual premium and net investment cash inflows. For the first nine months of 1997 the Company operations provided cash inflows of $9.8 million and financing activities provided cash inflows of $29.4 million. For the first nine months of 1996 it was $12.2 million and $36.3 million, respectively. These inflows were used primarily to increase the Company's fixed maturity investment portfolio. Matching the investment portfolio maturities to the cash flow demands of the insurance coverages being provided is an important consideration. The Company continually monitors benefit and claims statistics to 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (Continued) project future cash requirements. As part of this monitoring process, the Company performs cash-flow testing of its assets and liabilities under various scenarios to evaluate the adequacy of reserves. In developing its investment strategy, the Company establishes a level of cash and securities that when combined with expected net cash inflows from operations, maturities of fixed-maturity investments, principal payments on mortgage-backed securities, and its insurance products is believed to be adequate to meet anticipated short-term and long-term benefit and expense payment obligations. A source of cash flows for the holding company is dividend payments from ALLIED Life. Through the third quarter of 1997, the Company paid cash dividends on common stock of $795,000. ALLIED Life paid to the Company dividends of $1.3 million to fund the Company's dividend requirements and its note payment on the indebtedness to affiliates. The Company has a line of credit agreement that provides additional liquidity. The agreement makes $25 million available through March 13, 1998. Interest is payable at a current rate upon issuance. From time to time, the Company has also borrowed funds from its affiliates on an arms-length basis. At September 30, 1997, the Company had outstanding borrowings of $15.3 million under the line of credit agreements and $3.7 million from affiliates. Management anticipates that funds to meet the Company's short-term and long-term capital expenditures, cash dividends, and operating cash needs will come from existing capital and internally generated funds and believes the total is adequate to meet expected cash obligations. As of September 30, 1997, the Company had no material commitments for capital expenditures. As additional capital needs arise, the Company will consider taking on additional debt or issuing equity. Specific methods for meeting such needs will depend upon financial market conditions at the time. 11 PART II Item 6. Exhibits and Reports on Form 8-K (a) 10.43 Promissory Note dated October 28, 1997 between ALLIED Mutual Insurance Company and ALLIED Life Financial Corporation. Exhibit 11 - Statement re Computation of Per Share Earnings. Exhibit 27 - Financial Data Schedule (b) There were no reports filed on Form 8-K during the third quarter of 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ALLIED Life Financial Corporation (Registrant) Date: November 13, 1997 By: /s/ Wendell P. Crosser Wendell P. Crosser, Vice President and Treasurer (Principal Financial Officer and Principal Accounting Officer) 12 PROMISSORY NOTE No. 013102897 Des Moines, Iowa October 28, 1997 $ 2,500,000 For value received, the undersigned promises to pay, to the order of ALLIED Mutual Insurance Company at its office in Des Moines, Iowa the sum of Two Million Five HundredThousand Dollars, with quarterly interest and principal payments beginning January 28, 1998 according to the attached loan amortization schedule. Final payment shall be due on October 28, 2000. Interest shall accrue at the rate of 6.50 % per annum from the date of loan and all interest shall be computed under the commercial loan method on the basis of a 360 day year with no penalty for prepayment and with a pro rata refund of any unearned finance charge. Principal and interest not paid when due shall earn interest at the rate of 1.5% per month during the period of delinquency. ALLIED Life Financial Corporation /s/ Wendell P. Crosser By Wendell P. Crosser, Vice President Exhibit 11 ALLIED Life Financial Corporation and Subsidiaries Computation of Per Share Earnings Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 Primary Net income $2,825,982 $2,105,435 $7,631,729 $7,266,830 Preferred stock dividends (432,855) (403,578) (1,278,848) (1,192,114) Adjusted net income $2,393,127 $1,701,857 $6,352,881 $6,074,716 Earnings per share $ 0.55 $ 0.37 $ 1.43 $ 1.32 Weighted average number of common shares outstanding 4,380,847 4,559,259 4,442,423 4,609,230 Fully Diluted Net income $2,825,982 $2,105,435 $7,631,729 $7,266,830 Preferred stock dividends (432,855) (403,578) (1,278,848) (1,192,114) Adjusted net income $2,393,127 $1,701,857 $6,352,881 $6,074,716 Earnings per share $ 0.55 $ 0.37 $ 1.43 $ 1.32 Weighted average number of common shares outstanding 4,380,847 4,559,259 4,442,423 4,609,230 END