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Citizens, Inc. Reports Second Quarter and Six Months 2012 Results Investor Conference Call Scheduled for August 7, 2012 at 10 a.m. CDT

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.



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