Citizens, Inc. Reports Second Quarter and Six Months 2012 Results

Investor Conference Call Scheduled for August 7, 2012 at 10 a.m. CDT

06 Aug, 2012, 16:33 ET from Citizens, Inc.

AUSTIN, Texas, Aug. 6, 2012 /PRNewswire/ -- Citizens, Inc. (NYSE: CIA) reported results today for the second quarter and six months ended June 30, 2012.

Rick D. Riley, Vice Chairman and President, said, "We are continuing to experience earnings compression, exacerbated by the sustained low interest rate environment. At the same time, we are continuing to see improved persistency in our life segment, which provides positive long-term encouragement.  The current year results reflect a higher level of insurance benefits compared to 2011, with increases in claims and surrender payments, as well as future policyholder benefit reserve additions, largely driven by higher endowment sales and partially by the higher persistency."

Net income for the three and six month periods ended in 2012 was $0.4 million and $1.9 million, or $0.01 and  $0.04 per diluted Class A share, respectively, compared to $3.0 million and $4.6 million, or $0.04 and $0.07 per diluted Class A share, respectively, for the same three and six months of 2011.

FOR THE PERIODS ENDED JUNE 30,

Q2 2012

Q2 2011

YTD 2012

YTD 2011

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

(As adjusted)

(As adjusted)

Premiums

$

41,596

39,886

80,692

77,114

Net investment income

7,612

7,503

15,189

14,803

Net realized investment gains (losses)

246

(13)

344

6

Change in fair value of warrants

37

816

73

1,215

Total revenue

49,602

48,296

96,507

93,365

Net income applicable to common stock

403

3,009

1,915

4,631

Net income per diluted share of Class A common stock

0.01

0.04

0.04

0.07

Diluted weighted average shares of Class A common stock

48,989

48,690

48,997

48,704

Operating income

$

206

2,201

1,618

3,412

Riley added, "Our total revenue increased 2.7% and 3.4% for the three and six months, driven by an increase of 4.3% and 4.6% in total premiums, largely due to continuing growth in renewal premiums.  Excluding the change in fair value of warrants, revenues increased 4.4% and 4.6% for the same periods.  Investment income increased for the quarter, benefiting from bond mutual funds purchased in the latter part of 2011 and interest received on policyholder loans.  Although higher premiums drove an increase in invested assets, the growth was offset by the effect of the low interest rate environment, as our portfolio yield decreased to 3.77% compared with 3.92% at year-end 2011."

"Book value per share of Class A common stock increased 2.8% to $5.11 at June 30, 2012.  Book value was up $0.14 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 had a positive effect on net income of $37,000 and $73,000 for the three and six months ended June 30, 2012, respectively. The number of outstanding warrants was reduced substantially during 2011. Approximately one-third of the remaining 159,997 warrants were exercised in July, and the remaining two-thirds either will be exercised or expire before year-end, eliminating this consideration from net income going forward."

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

FOR THE PERIODS ENDED JUNE 30,

Q2 2012

Q2 2011

YTD 2012

YTD 2011

(Unaudited, In thousands)

(As adjusted)

(As adjusted)

Net income

$

403

3,009

1,915

4,631

Items excluded in the calculation of operating income:

Net realized investment (gains) losses

(246)

13

(344)

(6)

Change in fair value of warrants

(37)

(816)

(73)

(1,215)

Pre-tax effect of exclusions

(283)

(803)

(417)

(1,221)

Tax effect at 35%

86

(5)

120

2

Operating income

$

206

2,201

1,618

3,412

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 second quarter of 2012, due to higher international renewal premiums, as we have experienced strong persistency.  First year premiums this quarter were below last year's volume.  However, we anticipate full year sales will be in line with sales volumes recorded in 2011. We have seen endowment sales continue to be the preferred product internationally.  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 5.6% from year-end 2011 and increased 11.8% from second quarter 2011.
    • Benefits and expenses – The Company is reporting an operating loss in the life segment for the three and six months ended June 30, 2012, as adjustments for actual experience and the current low interest rate environment are negatively impacting current results. The accounting guidance for the long duration contracts sold by the Company requires us to "lock in" the original assumptions such as mortality, interest, surrenders and expenses at the time the initial policies are written. Therefore, gains or losses attributable to actual experience that differ from the original assumptions flows through the income statement in the period that the differences occur. For the second quarter of 2012 compared to the same period of 2011, the Company reported a higher increase in policy benefit reserves due to three factors.  The most significant factor was the better than anticipated persistency.  In addition, we are recognizing the effect of the current low interest rate environment on reserves for policies issued in the last few years, which require higher reserves for new policies compared to prior issue years.  Further, we continue to experience growth in new sales of endowment products, which require higher initial reserve levels.  Commission expense decreased from the prior year as renewal premiums, which have lower commission rates, comprised a larger percentage of total premiums this year.
  • 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 1.6% from the six months of 2011, primarily due to premiums from a small block of business we acquired in the latter part of 2011 that is not included in results for the first six months of last year.  
    • Benefits and expenses – Home service benefits and expenses increased by 5.9% and 1.3% for the three and six months of 2012.  Claims and surrenders increased by 20.0% and 2.4% for the three and six months of 2012, primarily due to higher reported claims in the current year.  Additionally, we released $0.3 million of incurred but unreported death claims liability in the second quarter of 2011, which is skewing comparability.  In addition, this segment is reporting increased amortization of deferred acquisition costs, as persistency has declined compared to 2011.

The non-insurance segment reflected a loss in 2012 compared to income in 2011.  This segment represents the administrative support entities to the insurance operations whose revenues are primarily intercompany and have been eliminated in consolidation under GAAP.  The segment loss reported for the three and six months of 2012 was primarily due to significantly lower gains from the change in fair value of warrants.

INVESTMENTS

  • Invested assets – Total invested assets increased from year-end 2011 as new premium funds were invested in bonds and policy loans increased over the prior year amounts.
    • Fixed maturity securities represented 87.9% of the investment portfolio at June 30, 2012, compared with 88.4% at year-end 2011.
    • Equity security holdings increased slightly to $46.4 million at June 30, 2012 from $46.1 million at year-end 2011 due to increases in fair value.
    • Cash and cash equivalents represented 7.6% of total cash, cash equivalents and invested assets at June 30, 2012, up from 3.8% at year-end 2011, reflecting the timing of calls and reinvestment.
  • Investment income – Net investment income increased slightly for the quarter ended June 30, 2012 compared to the same period in 2011, primarily due to dividend income from bond mutual funds purchased in the second half of 2011.  The policy loan asset balance increased by 5.2% in 2012, resulting in an increase in policy loan income, a component of investment income.
    • Yield – During 2012, average invested assets increased slightly and average annualized yield decreased to 3.77% compared with 3.92% at year-end 2011.
    • Duration – The average maturity of the fixed income bond portfolio was 11.9 years with an estimated effective maturity of 6.2 years as of June 30, 2012.

INVESTOR CONFERENCE CALL

On Tuesday, August 7, Citizens will host a conference call to discuss operating results at 10 a.m. Central Daylight 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 June 30,

2012

2011*

(Unaudited)

Revenues:

Premiums:

Life insurance

$

39,945

38,231

Accident and health insurance

417

396

Property insurance

1,234

1,259

Net investment income

7,612

7,503

Realized investment gains (losses), net

246

(13)

Decrease in fair value of warrants

37

816

Other income

111

104

Total revenues

49,602

48,296

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders

16,109

14,905

Increase in future policy benefit reserves

16,751

13,000

Policyholders' dividends

2,281

1,920

Total insurance benefits paid or provided

35,141

29,825

Commissions

9,731

9,930

Other general expenses

6,342

6,698

Capitalization of deferred policy acquisition costs

(7,044)

(7,364)

Amortization of deferred policy acquisition costs

4,433

4,071

Amortization of cost of customer relationships acquired

660

758

Total benefits and expenses

49,263

43,918

Income before income tax expense

339

4,378

Income tax expense (benefit)

(64)

1,369

Net income

403

3,009

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.01

0.06

Basic earnings per share of Class B common stock

-

0.03

Diluted earnings per share of Class A common stock

0.01

0.04

Diluted earnings per share of Class B common stock

-

0.03

Other comprehensive income:

Unrealized gains on available-for-sale securities:

Unrealized holding gains arising during period

6,003

10,495

Reclassification adjustment for (gains) losses included in net income

(121)

13

Unrealized gains on available-for-sale securities, net

5,882

10,508

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

2,063

3,678

Other comprehensive income

3,819

6,830

Comprehensive Income

$

4,222

9,839

*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)

Six Months Ended June 30,

2012

2011*

(Unaudited)

Revenues:

Premiums:

Life insurance

$

77,351

73,842

Accident and health insurance

830

768

Property insurance

2,511

2,504

Net investment income

15,189

14,803

Realized investment gains, net

344

6

Decrease in fair value of warrants

73

1,215

Other income

209

227

Total revenues

96,507

93,365

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders

30,863

29,784

Increase in future policy benefit reserves

30,892

25,318

Policyholders' dividends

4,155

3,582

Total insurance benefits paid or provided

65,910

58,684

Commissions

18,395

19,002

Other general expenses

12,958

13,101

Capitalization of deferred policy acquisition costs

(12,983)

(14,005)

Amortization of deferred policy acquisition costs

8,559

8,309

Amortization of cost of customer relationships acquired

1,236

1,405

Total benefits and expenses

94,075

86,496

Income before income tax expense

2,432

6,869

Income tax expense

517

2,238

Net income

1,915

4,631

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.04

0.09

Basic earnings per share of Class B common stock

0.02

0.05

Diluted earnings per share of Class A common stock

0.04

0.07

Diluted earnings per share of Class B common stock

0.02

0.04

Other comprehensive income:

Unrealized gains on available-for-sale securities:

Unrealized holding gains arising during period

8,564

12,121

Reclassification adjustment for gains included in net income

(207)

(6)

Unrealized gains on available-for-sale securities, net

8,357

12,115

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

2,959

4,240

Other comprehensive income

5,398

7,875

Comprehensive Income

$

7,313

12,506

*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)

June 30, 2012

December 31, 2011*

(Unaudited)

Assets:

Investments:

Fixed maturities available-for-sale, at fair value

$ 551,076

514,253

Fixed maturities held-to-maturity, at amortized cost

189,821

227,500

Equity securities available-for-sale, at fair value

46,409

46,137

Mortgage loans on real estate

1,535

1,557

Policy loans

41,114

39,090

Real estate held for investment

8,565

8,539

Other long-term investments

94

105

Short-term investments

4,385

2,048

Total investments

842,999

839,229

Cash and cash equivalents

68,916

33,255

Accrued investment income

8,686

7,787

Receivable for securities in process of settlement

7,030

-

Reinsurance recoverable

9,086

9,562

Deferred policy acquisition costs

128,878

124,542

Cost of customer relationships acquired

26,560

27,945

Goodwill

17,160

17,160

Other intangible assets

892

906

Federal income tax receivable

81

901

Property and equipment, net

7,671

7,860

Due premiums, net

8,770

9,169

Prepaid expenses

1,946

396

Other assets

786

800

Total assets

$ 1,129,461

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)

June 30, 2012

December 31, 2011*

(Unaudited)

Liabilities:

Future policy benefit reserves:

Life insurance

$ 727,436

697,502

Annuities

49,369

47,060

Accident and health

5,521

5,612

Dividend accumulations

11,377

10,601

Premiums paid in advance

27,042

25,291

Policy claims payable

9,169

10,020

Other policyholders' funds

9,009

8,760

Total policy liabilities

838,923

804,846

Commissions payable

2,493

2,851

Deferred federal income taxes

15,220

13,940

Payable for securities in process of settlement

8,701

-

Warrants outstanding

378

451

Other liabilities

8,323

9,382

Total liabilities

874,038

831,470

Stockholders' equity:

Common stock:

Class A common stock

258,616

258,548

Class B common stock

3,184

3,184

Accumulated deficit

(19,936)

(21,851)

Accumulated other comprehensive income:

Unrealized gains on securities, net of tax

24,570

19,172

Treasury stock, at cost

(11,011)

(11,011)

Total stockholders' equity

255,423

248,042

Total liabilities and stockholders' equity

$ 1,129,461

1,079,512

*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.

     

    

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

SOURCE Citizens, Inc.



RELATED LINKS

http://www.citizensinc.com