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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 Quarterly Period Ended March 31, 2005

Commission File Number 0-11773

ALFA CORPORATION

(Exact name of registrant as specified in its charter)

Registrant’s Telephone Number including Area Code (334) 288-3900

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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes  x    No  ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

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ALFA CORPORATION

INDEX

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PART I. FINANCIAL INFORMATION (CONSOLIDATED UNAUDITED)

ITEM 1. FINANCIAL STATEMENTS

ALFA CORPORATION

CONSOLIDATED BALANCE SHEETS

See accompanying Notes to Consolidated Financial Statements.

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ALFA CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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ALFA CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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ALFA CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying Notes to Consolidated Financial Statements.

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ALFA CORPORATION

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

March 31, 2005

1. Significant Accounting Policies

In the opinion of the Company, the accompanying consolidated unaudited financial statements contain all adjustments (consisting primarily of normal recurring accruals, except as explained in Note 2) necessary to present fairly its financial position, results of operations and cash flows. The accompanying financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America. A summary of the more significant accounting policies related to the Company’s business is set forth in the notes to its audited consolidated financial statements for the fiscal year ended December 31, 2004. The results of operations for the three-month period ended March 31, 2005 are not necessarily indicative of the results to be expected for the full year.

The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all related amendments to those reports are made available on its website at www.alfains.com by first selecting “Invest in Alfa” and then selecting “Financial Reports.” Also available on the website is the Company’s Code of Ethics titled “Principles of Business conduct” which can be accessed under such title.

Cash

Cash consists of demand deposits at a bank.

At March 31, 2005, The Vision Insurance Group, LLC (Vision) – (see Note 3) had a carrier contract requiring them to fund a collateral trust based on a percentage of written premiums. The primary purpose was to provide collateral for the payment of all obligations and performance of all duties set forth in the contract. The amount in the trust is reviewed on an annual basis and adjusted accordingly. The amount of cash restricted at March 31, 2005 was $942,920.

Accounts Receivable

Accounts receivable are primarily comprised of premium installment plan receivables from policyholders, insurance carrier receivables and amounts due from brokers. The Company’s allowance for doubtful accounts related to the insurance carrier receivables at March 31, 2005 was $45,000. The Company had no allowance for doubtful accounts at December 31, 2004.

Reclassifications

Certain amounts previously reported in the 2004 financial statements have been reclassified to conform to the current period’s presentation. Such reclassification did not impact earnings or total stockholders’ equity.

2. Pooling Agreement

Effective August 1, 1987, the Company’s property and casualty insurance subsidiaries entered into a reinsurance Pooling Agreement (the “Pooling Agreement”) with Alfa Mutual Insurance Company (Mutual), and other members of the Mutual Group. On January 1, 2001, Alfa Mutual Fire Insurance Company (Fire) and Alfa Specialty Insurance Corporation (Specialty), a subsidiary of Mutual, became participants in the Pooling Agreement. On January 1, 2005, Alfa Vision Insurance Corporation (AVIC), a subsidiary of the Company, became a participant in the Pooling Agreement. AVIC is a direct writer in Texas, Missouri, Indiana, Ohio, Virginia, Tennessee, Arkansas, Kentucky and Florida. In addition, the Quota Share Reinsurance Treaty between Virginia Mutual Insurance Company (Virginia Mutual), an affiliate of the Mutual Group, was added to the pool on January 1, 2005.

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The Mutual Group is a direct writer primarily of personal lines of property and casualty insurance in Alabama. The Company’s subsidiaries similarly are direct writers in Georgia and Mississippi. The Mutual Group, Virginia Mutual and the Company write preferred risk automobile, homeowner, farmowner and manufactured home insurance, fire and allied lines, standard risk automobile and homeowner insurance, and a limited amount of commercial insurance, including church and businessowner insurance. Specialty and AVIC are direct writers primarily of nonstandard risk automobile insurance. Under the terms of the Pooling Agreement, the Company cedes to Mutual all of its property and casualty business. Substantially all of the Mutual Group’s direct property and casualty business (together with the property and casualty business ceded by the Company) is included in the pool. Mutual currently retrocedes 65% of the pool to the Company and retains 35% within the Mutual Group including Specialty.

On October 1, 1996, the Pooling Agreement was amended in conjunction with the restructuring of the Alfa Insurance Group’s catastrophe protection program. Effective November 1, 1996, the allocation of catastrophe costs among the members of the pool was changed to better reflect the economics of catastrophe finance. The amendment limited Alfa Corporation’s participation in any single catastrophic event or series of disasters to its pool share (65%) of a lower catastrophe pool limit unless the loss exceeded an upper catastrophe pool limit. In cases where the upper catastrophe limit is exceeded on a 100% basis, the Company’s share in the loss would be based upon its amount of surplus relative to other members of the group. Lower and upper catastrophe pool limits are adjusted periodically due to increases in insured property risks. The limits and participation levels since inception of the program are summarized below:

The Boards of Directors of the Mutual Group and of the Company’s property and casualty insurance subsidiaries have established the pool participation percentages and must approve any changes in such participation. The Alabama Insurance Department reviewed the Pooling Agreement and the Department determined that the implementation of the Pooling Agreement did not require the Department’s approval.

A committee consisting of two members of the Boards of Directors of the Mutual Group, two members of the Board of Directors of Specialty, two members of the Board of Directors of the Company and Jerry A. Newby, as chairman of each such Board, has been established to review and approve any changes in the Pooling Agreement. The committee is responsible for matters involving actual or potential conflicts of interest between the Company, Specialty and the Mutual Group and for attempting to ensure that, in operation, the Pooling Agreement is equitable to all parties. Conflicts in geographic markets are currently minimal because the Mutual Group writes property and casualty insurance only in Alabama and at present all of such insurance written by the Company is outside of Alabama. The Pooling Agreement is intended to reduce conflicts which could arise in the selection of risks to be insured by the participants by making the results of each participant’s operations dependent on the results of all of the Pooled Business. Accordingly, the participants should have substantially identical underwriting ratios for the Pooled Business excluding catastrophes as long as the Pooling Agreement remains in effect. See the “Property and Casualty Insurance” section within Management’s Discussion and Analysis for more information on the impact of catastrophes.

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The participation of the Company in the Pooling Agreement may be changed or terminated without the consent or approval of the stockholders, and the Pooling Agreement may be terminated only by mutual agreement of the parties in writing. Any such termination, or a change in the Company’s allocated share of the pooled business, inclusion of riskier business or certain types of reinsurance assumed in the pool, or other changes to the Pooling Agreement, could have a material adverse impact on the Company’s earnings. Participants’ respective abilities to share in the pooled business are subject to regulatory capital requirements.

The following table sets forth the premiums and losses ceded to and assumed from the pool for the three-month periods ended March 31, 2005 and 2004:

The Company incurred $11.6 million of catastrophe losses in the first quarter of 2005. These losses resulted in reductions to the Company’s net income of approximately $0.09 per diluted share, after reinsurance and taxes. No catastrophe losses were incurred in the first quarter of 2004.

3. Business Combinations

On January 3, 2005, the Company completed the purchase of The Vision Insurance Group, LLC (Vision), a managing general agency, by acquiring all of the member’s equity of Vision for a total purchase price of $24.8 million. Vision’s results of operations have been included in the consolidated financial statements since the date of acquisition. The Company has deemed this acquisition to be immaterial to its overall financial position.

The aggregate purchase price of $24.8 million consisted of $15 million in cash, 325,035 shares of common stock valued at $5 million, equity settlement due to seller of $0.5 million and contingent consideration of $4.3 million.

Vision was founded in 1997 by John C. Russell, President, as a full-service managing general agency that currently writes nonstandard automobile insurance policies in nine states. The company is headquartered in Brentwood, Tennessee and provides all underwriting, claims, actuarial and financial services on behalf of its contracted carriers.

The Company views this acquisition as an opportunity to expand its personal lines business in new markets through Vision’s 2,500 independent agents. An insurance subsidiary, AVIC, was formed through which Vision will write its nonstandard automobile business. Vision operates in Texas, Missouri, Indiana, Ohio, Virginia, Tennessee, Arkansas, Kentucky, and Florida. Both Vision and AVIC are wholly-owned subsidiaries of the Company.

The Company has agreed to pay additional consideration in future periods, based upon the attainment of defined operating objectives by the acquired entity. At March 31, 2005, maximum potential future consideration pursuant to such arrangements, to be resolved over the following five years, is $14 million. The probable or expected contingency payout is recorded at $4.3 million and is included under the heading of “Other Liabilities” on the Company’s balance sheet at March 31, 2005.

Internal funds, short-term borrowings, and common stock financed the acquisition.

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4. Goodwill and Other Intangible Assets

The Company recorded goodwill related to the purchase of Vision in the amount of $13.8 million and other intangible assets in the amount of $9.2 million. These amounts are expected to be fully deductible for tax purposes.

The allocation of the purchase price is based on preliminary data and could change when final valuation of certain intangible assets is obtained.

Goodwill represents the excess cost over the fair value of the net assets acquired. Goodwill is not amortized but is subject to impairment testing at least annually. The impairment testing requires the Company to compare the fair value of its subsidiary to their carrying value to determine if there is potential impairment of goodwill. If the fair value of the subsidiary is less than its carrying value at the valuation date, an impairment loss would be recorded to the extent that the implied value of the goodwill is less than the recorded amount of goodwill. Fair value is estimated based on various valuation metrics. In the first quarter of 2005, the Company completed a quarterly impairment review that affirmed there was no impairment as of March 31.

Other intangible assets are classified into three categories:

As of March 31, 2005, other intangible assets by asset class are as follows:

The cost of other intangible assets is being amortized over a range of 5 to 20 years, with a weighted average original life of 17.5 years. Amortization expense for the three-month period ended March 31, 2005 is $172,325. Amortization expense for intangible assets for the years ending December 31, 2005, 2006, 2007, 2008, and 2009 is estimated to be $689,300 per year.

When impairment indicators arise or annually, the Company will assess the recoverability of its intangible assets through an analysis of expected cash flows.

5. Stockholders’ Equity

On January 1, 2005, the Company entered into a subscription agreement with John C. Russell, President and one of the owners of Vision, for the issuance of 325,035 non-registered shares of common stock related to the acquisition of Vision. The agreement places certain restrictions as to the sale, transfer, or disposal of such shares.

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6. Commercial Paper, Notes Payable and Hedging Activities

The Company uses variable-rate debt to partially fund its consumer loan and commercial lease portfolios. In particular, it has issued variable-rate long-term debt and commercial paper. These debt obligations expose the Company to variability in interest payments due to changes in interest rates. If interest rates increase, interest expense increases. Conversely, if interest rates decrease, interest expense also decreases. Short-term debt was $239.8 million and $220.2 million at March 31, 2005 and December 31, 2004, respectively, and long-term debt was $70 million at both March 31, 2005 and December 31, 2004.

Commercial Paper

The Company had approximately $223.9 million in commercial paper at a weighted average rate of 2.72% including rates ranging from 2.60% to 2.87% with maturities ranging from April 1, 2005 to May 17, 2005 outstanding at March 31, 2005. At December 31, 2004, the Company had approximately $204.3 million in commercial paper at a weighted average rate of 2.32% including rates ranging from 1.83% to 2.38% with maturities ranging from January 4, 2005 to February 2, 2005. The Company intends to continue to use the commercial paper program to fund its short-term needs. However, backup lines of credit are in place up to $300 million to cover up to $230 million in commercial paper and the $70 million variable-rate demand note described below. The backup lines agreements contain usual and customary covenants requiring the Company to meet certain operating levels. Included in the financial covenants are requirements that the Company maintain minimum levels of stockholders’ equity and perform at a level that produces acceptable ratios of credit losses to reserves and indebtedness to capitalization. The Company has maintained full compliance with all such covenants. The Company has A-1+ and P-1 commercial paper ratings from Standard & Poor’s and Moody’s Investors Service, respectively. The commercial paper is guaranteed by two affiliates, Mutual and Fire.

Notes Payable

The Company issued a variable-rate $70 million long-term obligation maturing on June 1, 2017 in the second quarter of 2002 as a means of funding the collateral loan and commercial lease portfolios. In addition, the Company had $15.9 million in short-term debt outstanding to affiliates at both March 31, 2005 and December 31, 2004, with interest payable monthly at rates established using the existing commercial paper rate and renewable for multiples of 30-day periods at the commercial paper rate then applicable. Due to the short-term nature of the Company’s borrowings, their fair values approximate their carrying values.

Hedging Activities

Management believes it is prudent to limit the variability of a portion of its interest payments on the $70 million long-term obligation. The Company’s objective is to hedge 100 percent of its variable-rate long-term interest payments over the first five years of the life of the debt obligation.

To meet this objective, management entered into an interest rate swap to manage fluctuations in cash flows resulting from interest rate risk. The interest rate swap changes the variable-rate cash flow exposure of the variable-rate long term debt obligation to fixed-rate cash flows by entering into a receive-variable, pay-fixed interest rate swap. Under the interest rate swap, the Company receives variable interest payments and makes fixed interest rate payments, thereby creating long-term debt with a fixed rate of 4.945%. During the first quarter of 2005, interest received ranged from 2.358% to 2.798%.

The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities.

The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company’s outstanding or forecasted debt obligations as well as the Company’s offsetting hedge position. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

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Changes in fair value of the interest rate swap designated as a hedging instrument of the variability of cash flows associated with floating-rate, long-term debt obligation are reported in accumulated other comprehensive income. The Company accounts for the hedging instrument using the short-cut method. The effectiveness of the interest rate swap is assessed quarterly. Based on this assessment, the Company has deemed the swap to be highly effective and has not reclassified any of the gains or losses to interest expense in the subsequent periods. The fair value of the interest rate swap contract decreased by $1,213,416 in the first quarter of 2005 prior to a tax benefit of $424,696.

If it is determined that the swap has ceased to be a highly effective hedge, is sold, or is terminated, the Company will discontinue hedge accounting prospectively. The change in fair value of the hedged item attributable to hedged risk, as has been reported in accumulated other comprehensive income, would be amortized to interest expense over the remaining life of the hedged item.

7. Contingent Liabilities

The property and casualty subsidiaries participate in a reinsurance pooling agreement with Mutual and its affiliates as discussed in Note 2. Should any member of the affiliated group be unable to meet its obligation on a claim for a policy written by the Company’s property and casualty subsidiaries, the obligation to pay the claim would remain with the Company’s subsidiaries.

The liability for estimated unpaid property and casualty losses and loss adjustment expenses is based on a detailed evaluation of reported losses and estimates of incurred but not reported losses. Adjustments to the liability based upon subsequent developments are included in current operations.

Certain legal proceedings are in process at March 31, 2005. Costs for these and similar legal proceedings, including accruals for outstanding cases, totaled approximately $381,000 and $658,000 for the first three months of 2005 and 2004, respectively. These proceedings involve alleged breaches of contract, torts, including bad faith and fraud claims, and miscellaneous other causes of action. These lawsuits involve claims for unspecified amounts of compensatory damages, mental anguish damages, and punitive damages.

Approximately 43 legal proceedings against Alfa Life Insurance Corporation (Life) were in process at March 31, 2005. Of the 43 proceedings, one was filed in 2005, 31 were filed in 2004, seven were filed in 2003, three were filed in 1999, and one was filed in 1996.

In addition, one purported class action lawsuit is pending against both Alfa Builders, Inc. and Fire. Additionally, three purported class action lawsuits are pending against the property and casualty companies involving a number of issues and allegations which could affect the Company because of a pooling agreement between the companies. Two purported class action lawsuits have been filed against Alfa Financial Corporation. These relate to OFC Capital leases with customers of NorVergence, a telecommunications provider who filed for Chapter 7 bankruptcy in July 2004. No class has been certified in any of these six purported class action cases. In the event a class is certified in any of these purported class actions, reserves may need to be adjusted.

Management believes adequate accruals have been established in these known cases. However, it should be noted that in Mississippi and Alabama, where the Company has substantial business, the likelihood of a judgment in any given suit, including a large mental anguish and/or punitive damage award by a jury, bearing little or no relation to actual damages, continues to exist, creating the potential for unpredictable material adverse financial results.

Based upon information presently available, management is unaware of any contingent liabilities arising from other threatened litigation that should be reserved or disclosed.

The Company’s property and casualty subsidiaries entered into an agreement with Fire in 2000 with respect to a loan guarantee on Fire’s part, on behalf of EastChase Land Company, LLC to Whitney Bank. Fire’s guarantee amount to Whitney Bank is $1,000,000. In the unlikely event of a guarantee call, the Company’s property and casualty subsidiaries would be liable to reimburse Fire a maximum of $200,000.

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Similarly, in 2003, the Company’s property and casualty subsidiaries entered into a second agreement with Fire which agreed to guarantee, on behalf of Alfa Ventures II, LLC, the lesser of $25,000,000 or 50% of the total obligations of The Shoppes at EastChase, LLC and EastChase Plaza, LLC with Columbus Bank & Trust Company (CB&T). This second guarantee is known as the “bucket” guarantee, and supercedes all previous CB&T guarantees for each of these EastChase entities. In the unlikely event of a guarantee call, the Company’s property and casualty subsidiaries would be liable to reimburse Fire a maximum of $5,000,000. During 2004, the Company’s property and casualty subsidiaries entered into a third agreement with Fire in which Fire agreed to guarantee, on behalf of EastChase Office, LLC, an amount of $3,180,077 to CB&T. In the unlikely event of a guarantee call, the property and casualty subsidiaries would be liable to reimburse Fire a maximum of $636,016.

The Company periodically invests in affordable housing tax credit partnerships. At March 31, 2005, the Company had legal and binding commitments to fund partnerships of this type in the amount of approximately $25.1 million. These commitments are included under the heading of “Other Liabilities” on the Company’s Balance Sheet at March 31, 2005.

8. Segment Information

In evaluating the performance of the Company’s segments, management believes operating income serves as a meaningful tool for assessing the profitability of the Company’s ongoing operations. Operating income, a non-GAAP financial measure, is defined by the Company as net income excluding net realized investment gains and losses, net of applicable taxes. Realized investment gains and losses are somewhat controllable by the Company through the timing of decisions to sell securities. Therefore, realized investment gains and losses are not indicative of future operating performance.

The table below summarizes net income by its components of operating income by segment, net realized gains and losses, and corporate expenses for the three-month periods ended March 31, 2005 and 2004:

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The following table sets forth the components of property and casualty insurance earned premiums, net underwriting income, GAAP basis loss, expense and combined ratios, underwriting margin, net investment income, other income, operating income, net realized investment gains and net income for the three-month periods ended March 31, 2005 and 2004:

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The following table sets forth life insurance premiums and policy charges, by type of policy, net investment income, benefits and expenses, amortization of deferred policy acquisition costs, life insurance operating income, net realized investment gains and losses, and net income for the three-month periods ended March 31, 2005 and 2004:

9. Accounting for Stock-Based Compensation

At March 31, 2005, the Company has a stock-based employee compensation plan, which is described more fully in the notes to the Company’s audited consolidated financial statements for the fiscal year ended December 31, 2004. The Company accounts for this plan under Statements of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, using the recognition and measurement principles of the intrinsic value method. Compensation cost on fixed awards with prorata vesting is recognized using the straight-line method.

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The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation, to stock-based employee compensation.

10. Stock Incentive Plan

On April 28, 2005, the Company’s stockholders approved the Alfa Corporation 2005 Amended and Restated Stock Incentive Plan (the “Plan”). The Plan replaced the Company’s previous stock option plan, which went into effect in 1993.

The Plan permits the grant of a variety of equity based incentives based upon the Company’s common stock, par value $1.00 per share. These include stock options, which may be either “incentive stock options” as that term is defined in Section 422 of the Internal Revenue Code of 1986, as amended or “nonqualified options”. The Plan also permits awards of stock appreciation rights, Restricted Shares, Restricted Share Units and Performance Shares.

11. Held for Sale Operations

During the fourth quarter of 2004, the Company committed to sell the OFC Capital commercial leasing division, which is included in the Noninsurance segment. The Company expects to sell this operation during the second quarter of 2005 and have reported them as held-for-sale under SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. No gain or loss is expected to be recognized and no amounts of revenue and pretax profit or loss have been reported in discontinued operations due to the Company’s significant continuing involvement in an equity method investment. At March 31, 2005, assets classified as held for sale consisted primarily of commercial leases.

12. Other Long-term Investments

Included in the Company’s “Other Long-term Investments” are investments in partnerships of $70,215,003 and $71,948,707 at March 31, 2005 and December 31, 2004, respectively.

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13. Supplemental Disclosure for Statement of Cash Flows

The following table presents the Company’s noncash investing and financing activities for the three-month periods ended March 31, 2005 and 2004: