Citizens, Inc. Reports Second Quarter and Six Months 2013 Results

Investor Conference Call Scheduled for August 7, 2013, at 10:00 a.m. CDT

06 Aug, 2013, 16:30 ET from Citizens, Inc.

AUSTIN, Texas, Aug. 6, 2013 /PRNewswire/ -- Citizens, Inc. (NYSE: CIA) reported results today for the second quarter and six months ended June 30, 2013.

Rick D. Riley, Vice Chairman and President, said, "This was a healthy quarter for Citizens.  Total premiums rose 5.4% and 5.1% for the three and six month periods ending June 30, 2013.  Our new life segment international insurance sales growth reflects continued interest in endowment products, which rose 18.7% and 18.4% for the same periods. We also experienced lower reported claims in our life segment in the current year compared to 2012."

Riley added, "New premium income drove invested asset growth and the consolidated investment yield improved to 4.03% compared to 3.81% for the full year of 2012.  As a result, investment income rose 21.7% and 16.2% for the three and six month periods.  Book value per share of Class A common stock was $4.96 at June 30, 2013, reflecting interest-rate driven mark-to-market adjustments."

FOR THE PERIODS ENDED JUNE 30,

Q2 2013

Q2 2012

YTD 2013

YTD 2012

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

Premiums

$

43,834

41,596

84,774

80,692

Net investment income

9,265

7,612

17,654

15,189

Net realized investment gains

82

246

113

344

Change in fair value of warrants

37

73

Total revenue

53,608

49,602

103,154

96,507

Net income applicable to common stock

1,307

403

2,163

1,915

Net income per diluted share of Class A common stock

0.03

0.01

0.05

0.04

Diluted weighted average shares of Class A common stock

49,080

48,989

49,080

48,997

Operating income

$

1,254

206

2,090

1,618

 

"We are continuing to review potential acquisition targets and situations as they come to us," Riley noted, "and are optimistic relative to the current market for new deals."

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

FOR THE PERIODS ENDED JUNE 30,

Q2 2013

Q2 2012

YTD 2013

YTD 2012

(Unaudited, In thousands)

Net income

$

1,307

403

2,163

1,915

Items excluded in the calculation of operating income:

Net realized investment gains

(82)

(246)

(113)

(344)

Change in fair value of warrants

(37)

(73)

Pre-tax effect of exclusions

(82)

(283)

(113)

(417)

Tax effect at 35%

29

86

40

120

Operating income

$

1,254

206

2,090

1,618

 

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 independent marketing consultants, and domestically through independent marketing firms and consultants across the United States.
    • Premiums – Life insurance premium revenues increased for the three and six months of 2013, due to higher international renewal premiums, as we continue to experience strong persistency.  In addition, new sales increased 18.7% and 18.4% for the three and six months in 2013 compared to 2012.  Endowment sales continue to be the preferred product internationally representing approximately 77% of first year premiums in the three months ended June 30, 2013.  Top selling products were our endowment to age sixty-five and the twenty-year endowment offerings.
    • Benefits and expenses – Total life insurance benefits and expenses rose in line with premium growth for the three and six months of 2013 compared to the same period in 2012. Future policy benefit reserves increased as endowment products accumulate higher reserve balances on the front end when compared to whole life products.  We are also continuing to recognize the effect of the current low interest rate environment on reserves for policies issued. We have noted lower reported claims for the three and six months in 2013 compared to 2012 levels which is positively impacting earnings.  Commission expense increased as first year sales expanded and  renewal premium remained strong.
  • 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 employees and independent agents.
    • Premiums – Home service premiums remained flat for the three and six month periods ended in 2013 compared to 2012. We expect full-year 2013 sales levels for this business segment to be in line with the levels reported last year.
    • Benefits and expenses – Claims and surrenders decreased 2.0% for the three months and increased by 5.3% for the six months of 2013. The six months ended June 30, 2013 increase is due to weather related property claims in the first quarter of this year.  Further, last year's six month results included the release of an incurred but not reported liability of $0.5 million.  In addition, this segment reported increased amortization of deferred acquisition costs in the current year as the 2012 results included an adjustment of $0.4 million that lowered amortization costs in that year.

Results for the non-insurance segment have fluctuated over the past several years due to the change in fair value of warrants. 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 2012 as new premium revenues were invested in bonds while policy loans also rose.
    • Fixed maturity securities represented 88.2% of the investment portfolio at June 30, 2013, compared with 87.9% at year-end 2012.
    • Equity security holdings decreased to $52.7 million at June 30, 2013 from $53.7 million at year-end 2012 due to decreases in fair value of equity bond mutual funds as interest rates rose.
    • Cash and cash equivalents represented 4.3% of total cash, cash equivalents and invested assets at June 30, 2013, down from 5.9% at year-end 2012, reflecting the timing of calls of securities owned and of investment and reinvestment of new premium revenues and other available funds.
  • Investment income – Net investment income increased 21.7% and 16.2% for the three and six months ended June 30, 2013 compared to the same period in 2012. This is primarily due to an increase in overall invested assets from premium collections received and invested in fixed maturity bonds, and the increase in the overall consolidated portfolio yield by 26 basis points compared to the six months ended in 2012.  The policy loan asset balance increased by 6.6% in 2013, resulting in an increase in policy loan income, a component of investment income.
    • Yield – Average annualized yield was 4.03% for the six months of 2013 compared to 3.81% for the full year of 2012.
    • Duration – The average maturity of the fixed income bond portfolio was 12 years with an estimated effective maturity of 7 years as of June 30, 2013.

CICA Life, Citizens' largest life insurance subsidiary, was named to the 2013 Ward's 50 Top Performing Life-Health Insurance Companies List. Ward Group is a trusted leader of benchmarking and practices services for the insurance industry.  Based upon Ward's annual analysis of the life and health industry, CICA Life Insurance Company of America was recognized for achieving outstanding financial results in the areas of safety, consistency and performance over the five year period of 2005-2012 according to Ward's recent announcement (available at www.wardinc.com).  This was CICA Life's second consecutive year to be named to this prestigious list and Ward's 23rd consecutive year conducting this independent analysis.

INVESTOR CONFERENCE CALL

On Wednesday, August 7, 2013, Citizens will host a conference call to discuss operating results at 10:00 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, 2012, 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.

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

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

Three Months Ended June 30,

2013

2012

(Unaudited)

Revenues:

Premiums:

    Life insurance

$

42,223

39,945

    Accident and health insurance

406

417

    Property insurance

1,205

1,234

Net investment income

9,265

7,612

Realized investment gains, net

82

246

Decrease in fair value of warrants

37

Other income

427

111

Total revenues

53,608

49,602

Benefits and expenses:

Insurance benefits paid or provided:

    Claims and surrenders

16,660

16,109

    Increase in future policy benefit reserves

17,896

16,751

    Policyholders' dividends

2,235

2,281

Total insurance benefits paid or provided

36,791

35,141

Commissions

10,429

9,731

Other general expenses

7,342

6,342

Capitalization of deferred policy acquisition costs

(7,672)

(7,044)

Amortization of deferred policy acquisition costs

4,363

4,433

Amortization of cost of customer relationships acquired

560

660

Total benefits and expenses

51,813

49,263

Income before federal income tax

1,795

339

Federal income tax expense (benefit)

488

(64)

Net income

1,307

403

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.03

0.01

Basic earnings per share of Class B common stock

0.01

Diluted earnings per share of Class A common stock

0.03

0.01

Diluted earnings per share of Class B common stock

0.01

Other comprehensive income (loss):

Unrealized gains (losses) on available-for-sale securities:

    Unrealized holding gains (losses) arising during period

(25,544)

6,003

    Reclassification adjustment for gains included in net income

(73)

(121)

Unrealized gains (losses) on available-for-sale securities, net

(25,617)

5,882

Income tax expense (benefit) on unrealized gains (losses) on available-for-sale securities

(8,953)

2,063

Other comprehensive income (loss)

(16,664)

3,819

Comprehensive income (loss)

$

(15,357)

4,222

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In thousands, except per share amounts)

Six Months Ended June 30,

2013

2012

(Unaudited)

Revenues:

Premiums:

    Life insurance

$

81,637

77,351

    Accident and health insurance

755

830

    Property insurance

2,382

2,511

Net investment income

17,654

15,189

Realized investment gains, net

113

344

Decrease in fair value of warrants

73

Other income

613

209

Total revenues

103,154

96,507

Benefits and expenses:

Insurance benefits paid or provided:

    Claims and surrenders

31,466

30,863

    Increase in future policy benefit reserves

34,855

30,892

    Policyholders' dividends

4,309

4,155

Total insurance benefits paid or provided

70,630

65,910

Commissions

19,487

18,395

Other general expenses

14,041

12,958

Capitalization of deferred policy acquisition costs

(14,034)

(12,983)

Amortization of deferred policy acquisition costs

8,989

8,559

Amortization of cost of customer relationships acquired

1,138

1,236

Total benefits and expenses

100,251

94,075

Income before federal income tax

2,903

2,432

Federal income tax expense

740

517

Net income

2,163

1,915

Per Share Amounts:

Basic earnings per share of Class A common stock

$

0.05

0.04

Basic earnings per share of Class B common stock

0.02

0.02

Diluted earnings per share of Class A common stock

0.05

0.04

Diluted earnings per share of Class B common stock

0.02

0.02

Other comprehensive income (loss):

Unrealized gains (losses) on available-for-sale securities:

    Unrealized holding gains (losses) arising during period

(25,448)

8,564

    Reclassification adjustment for gains included in net income

(104)

(207)

Unrealized gains (losses) on available-for-sale securities, net

(25,552)

8,357

Income tax expense (benefit) on unrealized gains (losses) on available-for-sale securities

(8,926)

2,959

Other comprehensive income (loss)

(16,626)

5,398

Comprehensive income (loss)

$

(14,463)

7,313

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position

(In thousands)

June 30,

December 31,

2013

2012

(Unaudited)

Assets:

Investments:

    Fixed maturities available-for-sale, at fair value

$

649,109

604,520

    Fixed maturities held-to-maturity, at amortized cost

159,208

187,008

    Equity securities available-for-sale, at fair value

52,699

53,741

    Mortgage loans on real estate

687

1,509

    Policy loans

45,824

42,993

    Real estate held for investment

8,509

8,496

    Other long-term investments

56

57

    Short-term investments

2,340

Total investments

916,092

900,664

Cash and cash equivalents

41,013

56,299

Accrued investment income

11,378

10,304

Reinsurance recoverable

6,673

9,651

Deferred policy acquisition costs

140,787

135,569

Cost of customer relationships acquired

24,474

25,116

Goodwill

17,160

17,160

Other intangible assets

865

879

Federal income tax receivable

224

270

Property and equipment, net

7,138

7,383

Due premiums, net

10,443

10,527

Prepaid expenses

1,335

344

Other assets

962

782

Total assets

$

1,178,544

1,174,948

  

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Financial Position, Continued

(In thousands)

June 30,

2013

December 31,

2012

(Unaudited)

Liabilities:

Policy liabilities:

    Future policy benefit reserves:

        Life insurance

$

795,886

762,319

        Annuities

53,223

51,750

        Accident and health

2,712

5,491

    Dividend accumulations

12,821

11,962

    Premiums paid in advance

29,811

27,455

    Policy claims payable

8,809

11,015

    Other policyholders' funds

8,010

9,440

Total policy liabilities

911,272

879,432

Commissions payable

2,195

2,606

Federal income tax payable

Deferred federal income tax

6,796

17,301

Payable for securities in process of settlement

179

2,358

Other liabilities

9,457

10,143

Total liabilities

929,899

911,840

Stockholders' equity:

    Class A, common stock

259,383

259,383

    Class B, common stock

3,184

3,184

Accumulated deficit

(15,172)

(17,335)

Accumulated other comprehensive income:

    Unrealized gains on securities, net of tax

12,261

28,887

Treasury stock, at cost

(11,011)

(11,011)

Total stockholders' equity

248,645

263,108

Total liabilities and stockholders' equity

$

1,178,544

1,174,948

SOURCE Citizens, Inc.



RELATED LINKS

http://www.citizensinc.com