Citizens, Inc. Reports Third Quarter and Nine Months 2012 Results

Investor Conference Call Scheduled for November 7, 2012, at 10 a.m. CST

06 Nov, 2012, 16:30 ET from Citizens, Inc.

AUSTIN, Texas, Nov. 6, 2012

/PRNewswire/ -- Citizens, Inc. (NYSE: CIA) reported results today for the third quarter and nine months ended September 30, 2012.

Rick D. Riley, Vice Chairman and President, said, "Our segments generated continued premium growth in the third quarter, led by new sales and strong persistency in our life insurance segment.  The higher premiums led to improved results, including growth in investment income.  Nonetheless, the low interest rate environment continues to offer challenges relative to our business and industry in general."

"Net income for the three and nine month periods ended in 2012 was $2.9 million and $4.8 million, or $0.06 and $0.10 per diluted Class A share, respectively, compared to $2.1 million and $6.7 million, or $0.04 and $0.13 per diluted Class A share, respectively, for the same three and nine months of 2011."

FOR THE PERIODS ENDED SEPTEMBER 30,

Q3 2012

Q3 2011

YTD 2012

YTD 2011

(Unaudited, In thousands, except for per share amounts)

(As adjusted)

(As adjusted)

Premiums

$

42,952

40,299

123,644

117,413

Net investment income

8,114

7,478

23,303

22,281

Net realized investment gains

763

35

1,107

41

Change in fair value of warrants

241

239

314

1,454

Total revenue

52,182

48,333

148,689

141,698

Net income applicable to common stock

2,911

2,053

4,826

6,684

Net income per diluted share of Class A common stock

0.06

0.04

0.10

0.13

Diluted weighted average shares of Class A common stock

49,030

48,912

48,972

48,764

Operating income

$

2,174

1,791

3,792

5,203

Riley added, "Our total revenue increased 8.0% and 4.9% for the three and nine months, driven by an increase of 6.6% and 5.3% in total premiums, largely due to continuing growth in renewal premiums.  Excluding the change in fair value of warrants, revenues increased 8.0% and 5.8% for the same periods.  Investment income increased for the quarter as premiums revenues increased the total invested asset portfolio.  The increase in invested assets more than offset the effect of the low interest rate environment, as our portfolio yield decreased to 3.74% compared with 3.92% at year-end 2011.  In addition, we are seeing positive contribution from dividends from bond mutual funds purchased in the latter part of 2011 and interest from policyholder loans."

"Book value per share of Class A common stock increased 6.0% to $5.27 at September 30, 2012.  Book value was up $0.30 from December 31, 2011, due primarily to fluctuations in the market values of bonds in our portfolio," Riley said.

Riley commented, "The change in the fair value of warrants added $241,000 and $314,000 to net income for the three and nine months ended September 30, 2012. In early October, the remaining 52,121 outstanding warrants were converted to 12,487 Class A shares by cashless exercise."

Reconciliation of Net Income to Operating Income (a non-GAAP measure)

FOR THE PERIODS ENDED SEPTEMBER 30,

Q3 2012

Q3 2011

YTD 2012

YTD 2011

(Unaudited, In thousands)

(As adjusted)

(As adjusted)

Net income

$

2,911

2,053

4,826

6,684

Items excluded in the calculation of operating income:

Net realized investment gains

(2763)

(35)

(1,107)

(41)

Change in fair value of warrants

(241)

(239)

(314)

(1,454)

Pre-tax effect of exclusions

(1,004)

(274)

(1,421)

(1,495)

Tax effect at 35%

267

12

387

14

Operating income

$

2,174

1,791

3,792

5,203

Non-GAAP Financial Measures - The table above reconciles Net Income to Operating Income. Operating Income is a "Non-GAAP" financial measure that is widely used in our industry to evaluate the performance of underwriting operations. Operating Income excludes the Fair Value Changes of Warrants and the after-tax net effects of Net Realized Investment Gains and Losses. We believe it presents a useful view of the performance of our insurance operations. While we believe disclosure of certain Non-GAAP information is appropriate, you should not consider this information without also considering the information we present in accordance with GAAP.

INSURANCE OPERATIONS

  • Life Insurance  Our Life Insurance segment primarily issues ordinary whole life insurance and endowments in U.S. Dollar-denominated amounts to foreign residents in approximately 30 countries through approximately 2,300 independent marketing consultants, and domestically through almost 300 independent marketing firms and consultants across the United States.
    • Premiums – Life insurance premium revenues increased for the third quarter of 2012, due to higher international renewal premiums, as we have experienced strong persistency.  In addition, new sales rebounded in the third quarter with first year premiums up 26.3% for the three months ended in 2012 compared to last year's third quarter.  As a result, year to date first year sales are in line with sales volumes recorded in 2011.  Endowment sales continue to be the preferred product internationally representing approximately 80% of first year premiums in the first nine months of 2012.  In addition, most of our life insurance policies contain a policy loan provision that allows the policyholder to utilize cash value of a policy to pay premiums and keep policies in force. The policy loan asset balance in the life insurance segment increased 10.1% from year-end 2011 and increased 12.8% from third quarter 2011.
    • Benefits and expenses – Total life insurance benefits and expenses increased for the third quarter 2012 compared to the same period in 2011 in line with premium growth. Future policy benefit reserves increased more rapidly for several reasons.  First, endowment products require accumulation of higher reserve balances on the front end when compared to whole life products.  In addition, we are reporting increased reserves as persistency has improved from the 2011 levels reported.  Finally, we are continuing to recognize the effect of the current low interest rate environment on reserves for policies issued in the past several years, which required higher reserves compared with policies issued in earlier years.  The accounting guidance for the long duration contracts sold by the company requires us to "lock in" assumptions and recognize gains or losses attributable to actual experience that differs from original assumptions in the period in which the difference occurs. Commission expense increased as first year sales increased and due to strong renewal premium experience.

 

  • Home Service – Our Home Service Insurance segment provides pre-need and final expense ordinary life insurance and annuities to middle and lower income individuals, primarily in Louisiana, Mississippi and Arkansas.  Our policies in this segment are sold and serviced through funeral homes and a home service marketing distribution system utilizing approximately 530 employees and independent agents.
    • Premiums – Home service premiums increased 1.9% from the nine months of 2011. Hurricane Isaac hit the Louisiana coastline on August 29, 2012.  The resulting state-wide flooding impacted our route premium collection as policyholders were temporarily displaced or unavailable.
    • Benefits and expenses – Claims and surrenders increased by 9.0% and 4.6% for the three and nine months of 2012, primarily due to higher reported property claims as a result of losses from Hurricane Isaac. In addition, this segment reported increased amortization of deferred acquisition costs, as persistency has declined compared to 2011.

Results for the non-insurance segment have fluctuated over the past several years due to the change in fair value of warrants but the segment made a positive contribution to net income for the three months ended September 30, 2012. This segment represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under GAAP. 

INVESTMENTS

  • Invested assets – Total invested assets increased from year-end 2011 as new premium revenues were invested in bonds and policy loans rose.
    • Fixed maturity securities represented 89.2% of the investment portfolio at September 30, 2012, compared with 88.6% at year-end 2011.
    • Equity security holdings decreased slightly to $44.1 million at September 30, 2012 from $46.1 million at year-end 2011 due to increases in fair value offset by the sale of an equity mutual fund.
    • Cash and cash equivalents represented 4.3% of total cash, cash equivalents and invested assets at September 30, 2012, up from 3.8% at year-end 2011, reflecting the timing of calls and reinvestment.

 

  • Investment income – Net investment income increased 8.5% and 4.6% for the three and nine months ended September 30, 2012 compared to the same period in 2011, primarily due to an increase in overall investment assets from premium collections received and invested in fixed maturity bonds as well as, due to dividend income from bond mutual funds purchased in the second half of 2011.  The policy loan asset balance increased by 9.4% in 2012, resulting in an increase in policy loan income, a component of investment income.
    • Yield – For the third consecutive quarter average annualized yield remained in the range of 3.74%. Yield for 2011 was 3.92%.
    • Duration – The average maturity of the fixed income bond portfolio was 12.2 years with an estimated effective maturity of 6.6 years as of September 30, 2012.

 

INVESTOR CONFERENCE CALL

On Wednesday, November 7, 2012, Citizens will host a conference call to discuss operating results at 10 a.m. Central Standard Time.  The conference call will be hosted by Rick D. Riley, Vice Chairman and President, Kay Osbourn, Chief Financial Officer, and other members of the Company's management team.  To participate, please dial 888-637-2456 and ask to join the Citizens, Inc. call.  We recommend accessing the call three to five minutes before the call is scheduled to begin.  A recording of the conference call will be available on Citizens' website at www.citizensinc.com in the Investor Information section under News Release & Publications following the call.

ABOUT CITIZENS, INC.

Citizens, Inc. is a financial services company listed on the New York Stock Exchange under the symbol CIA.  The Company utilizes a three-pronged strategy for growth based upon worldwide sales of U.S. Dollar-denominated whole life cash value insurance policies, life insurance product sales in the U.S. and the acquisition of other U.S. based life insurance companies.

SAFE HARBOR

Information herein contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which can be identified by words such as "may," "will," "expect," "anticipate" or "continue" or comparable words. In addition, all statements other than statements of historical facts that address activities that the Company expects or anticipates will or may occur in the future are forward-looking statements.  Readers are encouraged to read the SEC reports of the Company, particularly its Form 10-K for the fiscal year ended December 31, 2011, its quarterly reports on Form 10-Q and its current reports on Form 8-K, for the meaningful cautionary language disclosing why actual results may vary materially from those anticipated by management.  The Company undertakes no duty or obligation to update any forward-looking statements contained in this release as a result of new information, future events or changes in the Company's expectations.  The Company also disclaims any duty to comment upon or correct information that may be contained in reports published by the investment community.

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

Three Months Ended September 30,

2012

2011*

(Unaudited)

Revenues:

Premiums:

Life insurance

$

41,257

38,639

Accident and health insurance

414

383

Property insurance

1,281

1,277

Net investment income

8,114

7,478

Realized investment gains (losses), net

763

35

Decrease in fair value of warrants  

241

239

Other income

112

282

Total revenues

52,182

48,333

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders

15,627

14,803

Increase in future policy benefit reserves

16,901

14,365

Policyholders' dividends

2,600

2,169

Total insurance benefits paid or provided

35,128

31,337

Commissions

9,769

9,224

Other general expenses

6,055

6,642

Capitalization of deferred policy acquisition costs

(7,547)

(6,531)

Amortization of deferred policy acquisition costs

4,134

4,171

Amortization of cost of customer relationships acquired

598

708

Total benefits and expenses

48,137

45,551

Income before income tax expense 

4,045

2,782

Income tax expense (benefit)

1,134

729

Net income

2,911

2,053

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.06

0.04

Basic earnings per share of Class B common stock

0.03

0.02

Diluted earnings per share of Class A common stock

0.06

0.04

Diluted earnings per share of Class B common stock

0.03

0.02

Other comprehensive income:

Unrealized gains on available-for-sale securities:

Unrealized holding gains arising during period

8,542

15,431

Reclassification adjustment for (gains) losses included in net income

(708)

-

Unrealized gains on available-for-sale securities, net

7,834

15,431

Income tax expense on unrealized gains on available-for-sale securities

2,878

5,460

Other comprehensive income

4,956

9,971

Comprehensive Income

$

7,867

12,024

*Certain prior period amounts have been restated to reflect the retrospective adoption of revised accounting guidance for accounting for costs associated with deferred acquisition costs.

 

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

Nine Months Ended September 30,

2012

2011*

(Unaudited)

Revenues:

Premiums:

Life insurance

$

118,608

112,481

Accident and health insurance

1,244

1,151

Property insurance

3,792

3,781

Net investment income

23,303

22,281

Realized investment gains, net

1,107

41

Decrease in fair value of warrants  

314

1,454

Other income

321

509

Total revenues

148,689

141,698

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders

46,490

44,587

Increase in future policy benefit reserves

47,793

39,683

Policyholders' dividends

6,755

5,751

Total insurance benefits paid or provided

101,038

90,021

Commissions

28,164

28,226

Other general expenses

19,013

19,743

Capitalization of deferred policy acquisition costs

(20,530)

(20,536)

Amortization of deferred policy acquisition costs

12,693

12,480

Amortization of cost of customer relationships acquired

1,834

2,113

Total benefits and expenses

142,212

132,047

Income before income tax expense 

6,477

9,651

Income tax expense

1,651

2,967

Net income

4,826

6,684

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.10

0.13

Basic earnings per share of Class B common stock

0.05

0.07

Diluted earnings per share of Class A common stock

0.10

0.13

Diluted earnings per share of Class B common stock

0.05

0.07

Other comprehensive income:

Unrealized gains on available-for-sale securities:

Unrealized holding gains arising during period

17,106

27,546

Reclassification adjustment for gains included in net income

(915)

-

Unrealized gains on available-for-sale securities, net

16,191

27,546

Income tax expense on unrealized gains on available-for-sale securities

5,837

9,700

Other comprehensive income

10,354

17,846

Comprehensive Income

$

15,180

24,530

*Certain prior period amounts have been restated to reflect the retrospective adoption of revised accounting guidance for accounting for costs associated with deferred acquisition costs.

 

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands)

September 30, 2012

December 31, 2011*

(Unaudited)

Assets:

Investments:

Fixed maturities available-for-sale, at fair value

$         594,620

514,253

Fixed maturities held-to-maturity, at amortized cost

203,237

227,500

Equity securities available-for-sale, at fair value

44,091

46,137

Mortgage loans on real estate

1,521

1,557

Policy loans

42,784

39,090

Real estate held for investment

8,530

8,539

Other long-term investments

178

105

Short-term investments

2,356

2,048

Total investments

897,317

839,229

Cash and cash equivalents

39,830

33,255

Accrued investment income

10,178

7,787

Reinsurance recoverable

9,228

9,562

Deferred policy acquisition costs

132,206

124,542

Cost of customer relationships acquired

25,764

27,945

Goodwill

17,160

17,160

Other intangible assets

886

906

Federal income tax receivable

-

901

Property and equipment, net

7,450

7,860

Due premiums, net

9,693

9,169

Prepaid expenses

1,175

396

Other assets

832

800

Total assets

$      1,151,719

1,079,512

 (Continued) 

*Certain prior period amounts have been restated to reflect the retrospective adoption of revised accounting guidance for accounting for costs associated with deferred acquisition costs.

 

 

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands)

September 30, 2012

December 31, 2011*

(Unaudited)

Liabilities:

Future policy benefit reserves:

Life insurance 

$         743,845

697,502

Annuities

50,125

47,060

Accident and health

5,496

5,612

Dividend accumulations

11,717

10,601

Premiums paid in advance

27,003

25,291

Policy claims payable

9,514

10,020

Other policyholders' funds

9,463

8,760

Total policy liabilities

857,163

804,846

Commissions payable

1,920

2,851

Federal income tax payable

1,188

-

Deferred federal income taxes

17,545

13,940

Payable for securities in process of settlement

1,231

-

Warrants outstanding

137

451

Other liabilities

8,490

9,382

Total liabilities

887,674

831,470

Stockholders' equity:

Common stock:

Class A common stock

259,371

258,548

Class B common stock

3,184

3,184

Accumulated deficit

(17,025)

(21,851)

Accumulated other comprehensive income:

Unrealized gains on securities, net of tax

29,526

19,172

Treasury stock, at cost

(11,011)

(11,011)

Total stockholders' equity

264,045

248,042

Total liabilities and stockholders' equity

$      1,151,719

1,079,512

 

FOR FURTHER INFORMATION CONTACT: Kay Osbourn Chief Financial Officer (512) 837-7100 PR@citizensinc.com

SOURCE Citizens, Inc.



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