CIA-2015.6.30-10Q
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q
___________________________

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2015
or
¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from  _____ to _____
Commission File Number:  000-16509
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
Colorado
84-0755371
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
400 East Anderson Lane, Austin, TX
78752
(Address of principal executive offices)
(Zip Code)
 
(512) 837-7100
 
(Registrant's telephone number, including area code)
 
N/A
 
(Former name, former address and former fiscal year, if changed since last report)
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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨
Accelerated filer x
Non-accelerated filer ¨
Smaller reporting company ¨
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

As of July 31, 2015, the Registrant had 49,080,114 shares of Class A common stock, no par value, outstanding and 1,001,714 shares of Class B common stock outstanding.



 



























THIS PAGE INTENTIONALLY LEFT BLANK



TABLE OF CONTENTS
 
 
 
Page Number
Part I.
Financial Information
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
Part II.
Other Information
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.


1

Table of Contents

PART I.  FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position
(In thousands)
 
 
 
 
 
 
 
 
 
June 30, 2015
 
December 31, 2014
Assets
(Unaudited)
 
 
Investments:
 
 
 
Fixed maturities available-for-sale, at fair value (cost:  $702,655 and $667,966 in 2015 and 2014, respectively)
$
730,507

 
707,227

Fixed maturities held-to-maturity, at amortized cost (fair value:  $241,689 and $232,891 in 2015 and 2014, respectively)
236,186

 
224,932

Equity securities available-for-sale, at fair value (cost:  $69,242 and $68,787 in 2015 and 2014, respectively)
69,809

 
69,879

Mortgage loans on real estate
610

 
628

Policy loans
56,652

 
54,032

Real estate held for investment (less $1,648 and $1,575 accumulated depreciation in 2015 and 2014, respectively)
8,043

 
8,131

Other long-term investments
77

 
135

Total investments
1,101,884

 
1,064,964

Cash and cash equivalents
37,820

 
50,708

Accrued investment income
14,427

 
13,457

Reinsurance recoverable
4,362

 
4,425

Deferred policy acquisition costs
161,502

 
157,468

Cost of customer relationships acquired
22,616

 
23,542

Goodwill
17,255

 
17,255

Other intangible assets
974

 
976

Deferred tax asset
69,417

 
66,269

Property and equipment, net
6,176

 
6,352

Due premiums, net (less $1,417 and $1,364 allowance for doubtful accounts in 2015 and 2014, respectively)
11,144

 
10,777

Prepaid expenses
1,374

 
301

Other assets
1,233

 
1,061

Total assets
$
1,450,184

 
1,417,555


(Continued)

See accompanying notes to consolidated financial statements.

2

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position
(In thousands, except share amounts)
 
 
 
 
 
 
 
 
 
June 30, 2015
 
December 31, 2014
Liabilities and Stockholders' Equity
(Unaudited)
 
 
Liabilities:
 
 
 
Policy liabilities:
 
 
 
Future policy benefit reserves:
 
 
 
Life insurance
$
956,067

 
920,149

Annuities
62,260

 
59,727

Accident and health
1,241

 
1,216

Dividend accumulations
17,043

 
15,974

Premiums paid in advance
42,875

 
39,712

Policy claims payable
10,798

 
9,560

Other policyholders' funds
7,466

 
7,551

Total policy liabilities
1,097,750

 
1,053,889

Commissions payable
2,422

 
3,284

Federal income tax payable
75,562

 
78,818

Payable for securities in process of settlement
582

 

Other liabilities
24,621

 
23,205

Total liabilities
1,200,937

 
1,159,196

Commitments and contingencies (Note 7)


 


Stockholders' equity:
 

 
 

Class A, no par value, 100,000,000 shares authorized, 52,215,852 shares issued and outstanding in 2015 and 2014, including shares in treasury of 3,135,738 in 2015 and 2014
259,383

 
259,383

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2015 and 2014
3,184

 
3,184

Accumulated deficit
(20,536
)
 
(19,047
)
Accumulated other comprehensive income:
 

 
 

Unrealized gains on securities, net of tax
18,227

 
25,850

Treasury stock, at cost
(11,011
)
 
(11,011
)
Total stockholders' equity
249,247

 
258,359

Total liabilities and stockholders' equity
$
1,450,184

 
1,417,555



See accompanying notes to consolidated financial statements.


3

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Three Months Ended June 30,
(In thousands, except per share amounts)
(Unaudited)


 
2015
 
2014
Revenues:
 
 
 
Premiums:
 
 
 
 
 
Life insurance
 
 
$
46,748

 
 
 
44,667

Accident and health insurance
 
 
421

 
 
 
390

Property insurance
 
 
1,291

 
 
 
1,272

Net investment income
 
 
11,201

 
 
 
10,083

Realized investment losses, net
 
 
(8
)
 
 
 
(73
)
Other income
 
 
426

 
 
 
163

Total revenues
 
 
60,079

 
 
 
56,502

Benefits and expenses:
 
 
 

 
 
 
 

Insurance benefits paid or provided:
 
 
 
 
 
 
 
Claims and surrenders
 
 
19,240

 
 
 
16,668

Increase in future policy benefit reserves
 
 
19,760

 
 
 
19,979

Policyholders' dividends
 
 
2,540

 
 
 
2,412

Total insurance benefits paid or provided
 
 
41,540

 
 
 
39,059

Commissions
 
 
10,805

 
 
 
10,403

Other general expenses
 
 
10,445

 
 
 
7,448

Capitalization of deferred policy acquisition costs
 
 
(8,036
)
 
 
 
(7,423
)
Amortization of deferred policy acquisition costs
 
 
5,647

 
 
 
4,893

Amortization of cost of customer relationships acquired
 
 
516

 
 
 
614

Total benefits and expenses
 
 
60,917

 
 
 
54,994

Income (loss) before federal income tax
 
 
(838
)
 
 
 
1,508

Federal income tax expense
 
 
1,076

 
 
 
358

Net income (loss)
 
 
(1,914
)
 
 
 
1,150

Per Share Amounts:
 
 
 

 
 

 
 

Basic earnings (losses) per share of Class A common stock
$
(0.04
)
 
 

 
0.03

 
 

Basic earnings (losses) per share of Class B common stock
(0.02
)
 
 

 
0.01

 
 

Diluted earnings (losses) per share of Class A common stock
(0.04
)
 
 

 
0.03

 
 

Diluted earnings (losses) per share of Class B common stock
(0.02
)
 
 

 
0.01

 
 

Other comprehensive income (loss):
 
 
 

 
 

 
 

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

 
 

 
 

 
 

Unrealized holding gains (losses) arising during period
 

 
(16,778
)
 
 

 
12,296

Reclassification adjustment for losses included in net income
 

 
8

 
 

 
73

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

 
(16,770
)
 
 

 
12,369

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

 
(5,869
)
 
 

 
4,340

Other comprehensive income (loss)
 

 
(10,901
)
 
 

 
8,029

Comprehensive income (loss)
 

 
$
(12,815
)
 
 

 
9,179

 
 
 
 
 
 
 
 

4

Table of Contents


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Six Months Ended June 30,
(In thousands, except per share amounts)
(Unaudited)

 
2015
 
2014
Revenues:
 
 
 
 
 
Premiums:
 
 
 
 
 
 
 
Life insurance
 
 
$
89,647

 
 
 
86,064

Accident and health insurance
 
 
796

 
 
 
741

Property insurance
 
 
2,583

 
 
 
2,537

Net investment income
 
 
22,270

 
 
 
19,989

Realized investment losses, net
 
 
(79
)
 
 
 
(129
)
Other income
 
 
722

 
 
 
332

Total revenues
 
 
115,939

 
 
 
109,534

Benefits and expenses:
 
 
 

 
 
 
 

Insurance benefits paid or provided:
 
 
 

 
 
 
 

Claims and surrenders
 
 
38,643

 
 
 
33,125

Increase in future policy benefit reserves
 
 
37,058

 
 
 
37,677

Policyholders' dividends
 
 
4,849

 
 
 
4,514

Total insurance benefits paid or provided
 
 
80,550

 
 
 
75,316

Commissions
 
 
20,664

 
 
 
20,313

Other general expenses
 
 
17,996

 
 
 
13,950

Capitalization of deferred policy acquisition costs
 
 
(14,892
)
 
 
 
(14,491
)
Amortization of deferred policy acquisition costs
 
 
10,946

 
 
 
10,102

Amortization of cost of customer relationships acquired
 
 
1,163

 
 
 
1,145

Total benefits and expenses
 
 
116,427

 
 
 
106,335

Income (loss) before federal income tax
 
 
(488
)
 
 
 
3,199

Federal income tax expense
 
 
1,001

 
 
 
852

Net income (loss)
 
 
(1,489
)
 
 
 
2,347

Per Share Amounts:
 
 
 

 
 

 
 

Basic earnings (losses) per share of Class A common stock
$
(0.03
)
 
 

 
$
0.05

 
 

Basic earnings (losses) per share of Class B common stock
(0.02
)
 
 

 
0.02

 
 

Diluted earnings (losses) per share of Class A common stock
(0.03
)
 
 

 
0.05

 
 

Diluted earnings (losses) per share of Class B common stock
(0.02
)
 
 

 
0.02

 
 

Other comprehensive income (loss):
 

 
 

 
 

 
 

Unrealized gains on available-for-sale securities:
 

 
 

 
 

 
 

Unrealized holding gains (losses) arising during period
 

 
(11,771
)
 
 

 
26,392

Reclassification adjustment for losses included in net income
 

 
44

 
 

 
105

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

 
(11,727
)
 
 

 
26,497

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

 
(4,104
)
 
 

 
9,294

Other comprehensive income (loss)
 

 
(7,623
)
 
 

 
17,203

Comprehensive income (loss)
 

 
$
(9,112
)
 
 

 
19,550

See accompanying notes to consolidated financial statements.

5

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30,
(In thousands)
(Unaudited)
 
 
 
 
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(1,489
)
 
2,347

Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Realized losses on sale of investments and other assets
79

 
129

Net deferred policy acquisition costs
(3,946
)
 
(4,389
)
Amortization of cost of customer relationships acquired
1,163

 
1,145

Depreciation
386

 
745

Amortization of premiums and discounts on investments
5,583

 
4,505

Deferred federal income tax expense (benefit)
957

 
(1,438
)
Change in:
 

 
 

Accrued investment income
(970
)
 
(530
)
Reinsurance recoverable
63

 
(336
)
Due premiums
(367
)
 
1,129

Future policy benefit reserves
36,925

 
37,657

Other policyholders' liabilities
5,385

 
3,252

Federal income tax receivable
(3,256
)
 
33

Commissions payable and other liabilities
554

 
1,229

Other, net
(1,244
)
 
(2,055
)
Net cash provided by operating activities
39,823

 
43,423

Cash flows from investing activities:
 

 
 

Sale of fixed maturities, available-for-sale

 
580

Maturities and calls of fixed maturities, available-for-sale
19,024

 
23,530

Maturities and calls of fixed maturities, held-to-maturity
9,975

 
8,374

Purchase of fixed maturities, available-for-sale
(57,065
)
 
(47,239
)
Purchase of fixed maturities, held-to-maturity
(22,959
)
 
(11,586
)
Sale of equity securities, available-for-sale

 
11,105

Calls of equity securities, available-for-sale
150

 
200

Purchase of equity securities, available-for-sale
(602
)
 
(17,283
)
Principal payments on mortgage loans
18

 
21

Increase in policy loans, net
(2,620
)
 
(3,133
)
Sale of other long-term investments
58

 
1

Purchase of other long-term investments

 
(4
)
Purchase of property and equipment
(123
)
 
(340
)
Net cash used in acquisition

 
(4,810
)
Net cash used in investing activities
(54,144
)
 
(40,584
)

6

Table of Contents

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Six Months Ended June 30,
(In thousands)
(Unaudited)
 
2015
 
2014
Cash flows from financing activities:
 
 
 
Annuity deposits
$
3,995

 
2,587

Annuity withdrawals
(2,562
)
 
(2,582
)
Net cash provided by financing activities
1,433

 
5

Net increase (decrease) in cash and cash equivalents
(12,888
)
 
2,844

Cash and cash equivalents at beginning of year
50,708

 
54,593

Cash and cash equivalents at end of period
$
37,820

 
57,437

Supplemental disclosures of operating activities:
 

 
 

Cash paid during the period for income taxes, net
$
3,300

 
2,213


Supplemental Disclosures of Non-Cash Investing Activities:
None.

See accompanying notes to consolidated financial statements.


7

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2015
(Unaudited)


(1) Financial Statements

Basis of Presentation and Consolidation

The accompanying consolidated financial statements of Citizens, Inc. and its wholly-owned subsidiaries have been prepared in conformity with U.S. generally accepted accounting principles ("U.S. GAAP").

The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Citizens National Life Insurance Company ("CNLIC"), Magnolia Guaranty Life Insurance Company ("MGLIC"), Computing Technology, Inc. ("CTI") and Insurance Investors, Inc. ("III").  Citizens and its wholly-owned subsidiaries are collectively referred to as "the Company," "we," "us" or "our."

The consolidated statements of financial position for June 30, 2015, and the consolidated statements of comprehensive income and cash flows for the three and six months ended June 30, 2015 and 2014 and cash flows for the six-month periods ended June 30, 2015 and 2014, have been prepared by the Company without audit.  In the opinion of management, all adjustments to present fairly the financial position, results of operations, and changes in cash flows at June 30, 2015 and for comparative periods have been made.  The consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”).  Accordingly, the financial statements do not include all of the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements, and notes thereto, for the year ended December 31, 2014.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

We provide primarily life insurance and a small amount of health insurance policies through our insurance subsidiaries:  CICA, SPLIC, MGLIC and CNLIC.  CICA and CNLIC issue ordinary whole-life policies, credit life and disability, burial insurance, pre-need policies, and accident and health related policies, throughout the Midwest and southern United States.  CICA also issues ordinary whole-life and endowment policies to non-U.S. residents.  SPLIC offers final expense and home service life insurance in Louisiana, Arkansas and Mississippi, and SPFIC, a wholly-owned subsidiary of SPLIC, writes a limited amount of property insurance in Louisiana. MGLIC provides industrial life policies through independent funeral homes in Mississippi.

CTI provides data processing systems and services, as well as furniture and equipment, to the Company.  III provides aviation transportation to the Company.

Use of Estimates

The preparation of financial statements, in conformity with U.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

The most significant estimates include those used in the evaluation of other-than-temporary impairments on debt and equity securities and valuation allowances on investments, actuarially determined assets and liabilities and assumptions, goodwill impairment, valuation allowance on deferred tax assets, and contingencies relating to litigation and regulatory matters.  Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.



8

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

Significant Accounting Policies

For a description of significant accounting policies, see Note 1 of the notes to consolidated financial statements included in our 2014 Form 10-K Annual Report, which should be read in conjunction with these accompanying consolidated financial statements.

(2) Accounting Pronouncements

Accounting Standards Recently Adopted

None.

Accounting Standards Not Yet Adopted

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides a five-step process to achieve that core principle. ASU 2014-09 requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two retrospective application methods. Early application is not permitted. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.


9

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

(3) Segment Information

The Company has three reportable segments:  Life Insurance, Home Service Insurance, and Other Non-Insurance Enterprises.  The accounting policies of the segments are in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial statements.  The Company evaluates profit and loss performance based on U.S. GAAP income before federal income taxes for its three reportable segments.

The Company has no reportable differences between segments and consolidated operations.
 
Three Months Ended
 
June 30, 2015
 
Life
Insurance
 
Home
Service
Insurance
 
Other
Non-Insurance
Enterprises
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Premiums
$
36,707

 
11,753

 

 
48,460

Net investment income
7,387

 
3,441

 
373

 
11,201

Realized investment losses, net
(2
)
 
(6
)
 

 
(8
)
Other income
160

 
22

 
244

 
426

Total revenue
44,252

 
15,210

 
617

 
60,079

Benefits and expenses:
 
 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
13,465

 
5,775

 

 
19,240

Increase in future policy benefit reserves
18,490

 
1,270

 

 
19,760

Policyholders' dividends
2,527

 
13

 

 
2,540

Total insurance benefits paid or provided
34,482

 
7,058

 

 
41,540

Commissions
6,815

 
3,990

 

 
10,805

Other general expenses
4,872

 
4,459

 
1,114

 
10,445

Capitalization of deferred policy acquisition costs
(6,423
)
 
(1,613
)
 

 
(8,036
)
Amortization of deferred policy acquisition costs
4,941

 
706

 

 
5,647

Amortization of cost of customer relationships acquired
122

 
394

 

 
516

Total benefits and expenses
44,809

 
14,994

 
1,114

 
60,917

Income (loss) before income tax expense
$
(557
)
 
$
216

 
$
(497
)
 
$
(838
)

10

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)


 
Six Months Ended
 
June 30, 2015
 
Life
Insurance
 
Home
Service
Insurance
 
Other
Non-Insurance
Enterprises
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Premiums
$
69,686

 
23,340

 

 
93,026

Net investment income
14,618

 
6,905

 
747

 
22,270

Realized investment losses, net
(58
)
 
(21
)
 

 
(79
)
Other income
374

 
70

 
278

 
722

Total revenue
84,620

 
30,294

 
1,025

 
115,939

Benefits and expenses:
 
 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
27,025

 
11,618

 

 
38,643

Increase in future policy benefit reserves
34,627

 
2,431

 

 
37,058

Policyholders' dividends
4,822

 
27

 

 
4,849

Total insurance benefits paid or provided
66,474

 
14,076

 

 
80,550

Commissions
12,841

 
7,823

 

 
20,664

Other general expenses
8,031

 
8,289

 
1,676

 
17,996

Capitalization of deferred policy acquisition costs
(11,766
)
 
(3,126
)
 

 
(14,892
)
Amortization of deferred policy acquisition costs
9,490

 
1,456

 

 
10,946

Amortization of cost of customer relationships acquired
322

 
841

 

 
1,163

Total benefits and expenses
85,392

 
29,359

 
1,676

 
116,427

Income (loss) before income tax expense
$
(772
)
 
935

 
(651
)
 
(488
)





11

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

 
Three Months Ended
 
June 30, 2014
 
Life
Insurance
 
Home
Service
Insurance
 
Other
Non-Insurance
Enterprises
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Premiums
$
34,569

 
11,760

 

 
46,329

Net investment income
6,466

 
3,282

 
335

 
10,083

Realized investment gains (losses), net
(48
)
 
(26
)
 
1

 
(73
)
Other income
133

 
3

 
27

 
163

Total revenue
41,120

 
15,019

 
363

 
56,502

Benefits and expenses:
 

 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
11,163

 
5,505

 

 
16,668

Increase in future policy benefit reserves
18,849

 
1,130

 

 
19,979

Policyholders' dividends
2,397

 
15

 

 
2,412

Total insurance benefits paid or provided
32,409

 
6,650

 

 
39,059

Commissions
6,484

 
3,919

 

 
10,403

Other general expenses
2,965

 
3,499

 
984

 
7,448

Capitalization of deferred policy acquisition costs
(5,848
)
 
(1,575
)
 

 
(7,423
)
Amortization of deferred policy acquisition costs
4,205

 
688

 

 
4,893

Amortization of cost of customer relationships acquired
120

 
494

 

 
614

Total benefits and expenses
40,335

 
13,675

 
984

 
54,994

Income (loss) before income tax expense
$
785

 
1,344

 
(621
)
 
1,508



12

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

 
Six Months Ended
 
June 30, 2014
 
Life
Insurance
 
Home
Service
Insurance
 
Other
Non-Insurance
Enterprises
 
Consolidated
 
(In thousands)
Revenues:
 
 
 
 
 
 
 
Premiums
$
66,380

 
22,962

 

 
89,342

Net investment income
12,749

 
6,569

 
671

 
19,989

Realized investment gains (losses), net
(112
)
 
(18
)
 
1

 
(129
)
Other income
276

 
4

 
52

 
332

Total revenue
79,293

 
29,517

 
724

 
109,534

Benefits and expenses:
 

 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
21,978

 
11,147

 

 
33,125

Increase in future policy benefit reserves
35,825

 
1,852

 

 
37,677

Policyholders' dividends
4,483

 
31

 

 
4,514

Total insurance benefits paid or provided
62,286

 
13,030

 

 
75,316

Commissions
12,722

 
7,591

 

 
20,313

Other general expenses
5,805

 
6,668

 
1,477

 
13,950

Capitalization of deferred policy acquisition costs
(11,507
)
 
(2,984
)
 

 
(14,491
)
Amortization of deferred policy acquisition costs
8,612

 
1,490

 

 
10,102

Amortization of cost of customer relationships acquired
291

 
854

 

 
1,145

Total benefits and expenses
78,209

 
26,649

 
1,477

 
106,335

Income (loss) before income tax expense
$
1,084

 
2,868

 
(753
)
 
3,199





13

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)


(4) Earnings Per Share

The following tables set forth the computation of basic and diluted earnings per share.
 
Three Months Ended
 
June 30, 2015
 
June 30, 2014
 
(In thousands,
except per share amounts)
Basic and diluted earnings per share:
 
 
 
Numerator:
 
 
 
 Net income (loss)
$
(1,914
)
 
1,150

 Net income (loss) allocated to Class A common stock
(1,895
)
 
1,138

 Net income (loss) allocated to Class B common stock
(19
)
 
12

 Net income (loss)
$
(1,914
)
 
1,150

Denominator:
 
 
 
 Weighted average shares of Class A outstanding - basic
49,080

 
49,080

 Weighted average shares of Class A outstanding - diluted
49,080

 
49,080

 Weighted average shares of Class B outstanding - basic and diluted
1,002

 
1,002

Basic earnings (losses) per share of Class A common stock
$
(0.04
)
 
0.03

Basic earnings (losses) per share of Class B common stock
(0.02
)
 
0.01

Diluted earnings (losses) per share of Class A common stock
(0.04
)
 
0.03

Diluted earnings (losses) per share of Class B common stock
(0.02
)
 
0.01


 
Six Months Ended
 
June 30, 2015
 
June 30, 2014
 
(In thousands,
except per share amounts)
Basic and diluted earnings per share:
 
 
 
Numerator:
 
 
 
Net income (loss)
$
(1,489
)
 
2,347

Net income (loss) allocated to Class A common stock
$
(1,474
)
 
2,323

Net income (loss) allocated to Class B common stock
(15
)
 
24

Net income (loss)
$
(1,489
)
 
2,347

Denominator:
 
 
 
Weighted average shares of Class A outstanding - basic
49,080

 
49,080

Weighted average shares of Class A outstanding - diluted
49,080

 
49,080

Weighted average shares of Class B outstanding - basic and diluted
1,002

 
1,002

Basic earnings (losses) per share of Class A common stock
$
(0.03
)
 
0.05

Basic earnings (losses) per share of Class B common stock
(0.02
)
 
0.02

Diluted earnings (losses) per share of Class A common stock
(0.03
)
 
0.05

Diluted earnings (losses) per share of Class B common stock
(0.02
)
 
0.02



14

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

(5) Investments

The Company invests primarily in fixed maturity securities, which totaled 84.8% of total cash, cash equivalents and investments at June 30, 2015.
 
June 30, 2015
 
December 31, 2014
 
Carrying
Value
 
% of Total
Carrying Value
 
Carrying
Value
 
% of Total
Carrying Value
 
($ In thousands)
Fixed maturity securities
$
966,693

 
84.8
%
 
$
932,159

 
83.6
%
Equity securities
69,809

 
6.1
%
 
69,879

 
6.3
%
Mortgage loans
610

 
0.1
%
 
628

 
0.1
%
Policy loans
56,652

 
5.0
%
 
54,032

 
4.8
%
Real estate and other long-term investments
8,120

 
0.7
%
 
8,266

 
0.7
%
Cash and cash equivalents
37,820

 
3.3
%
 
50,708

 
4.5
%
Total cash, cash equivalents and investments
$
1,139,704

 
100.0
%
 
$
1,115,672

 
100.0
%


15

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)


The following tables represent the cost, gross unrealized gains and losses and fair value for fixed maturities and equity securities as of the periods indicated.
 
June 30, 2015
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
10,026

 
2,694

 

 
12,720

U.S. Government-sponsored enterprises
36,589

 
1,461

 

 
38,050

States and political subdivisions
440,526

 
15,741

 
3,854

 
452,413

Foreign governments
104

 
28

 

 
132

Corporate
212,342

 
13,343

 
1,809

 
223,876

Commercial mortgage-backed
183

 
7

 

 
190

Residential mortgage-backed
2,885

 
243

 
2

 
3,126

Total available-for-sale securities
702,655

 
33,517

 
5,665

 
730,507

Held-to-maturity securities:
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
2,013

 
149

 

 
2,162

States and political subdivisions
207,346

 
6,336

 
1,096

 
212,586

Corporate
26,827

 
739

 
625

 
26,941

Total held-to-maturity securities
236,186

 
7,224

 
1,721

 
241,689

Total fixed maturities
$
938,841

 
40,741

 
7,386

 
972,196

Equity securities:
 

 
 

 
 

 
 

Stock mutual funds
$
16,007

 
1,715

 
133

 
17,589

Bond mutual funds
51,576

 
2

 
1,243

 
50,335

Common stock
65

 

 
16

 
49

Preferred stock
1,594

 
244

 
2

 
1,836

Total equity securities
$
69,242

 
1,961

 
1,394

 
69,809



16

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

 
December 31, 2014
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
 
(In thousands)
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
10,056

 
2,924

 

 
12,980

U.S. Government-sponsored enterprises
38,312

 
1,937

 

 
40,249

States and political subdivisions
404,657

 
19,146

 
1,448

 
422,355

Foreign governments
104

 
31

 

 
135

Corporate
211,410

 
17,441

 
1,024

 
227,827

Commercial mortgage-backed
223

 
8

 

 
231

Residential mortgage-backed
3,204

 
249

 
3

 
3,450

Total available-for-sale securities
667,966

 
41,736

 
2,475

 
707,227

Held-to-maturity securities:
 

 
 

 
 

 
 

U.S. Government-sponsored enterprises
2,017

 
178

 

 
2,195

States and political subdivisions
192,875

 
7,782

 
388

 
200,269

Corporate
30,040

 
947

 
560

 
30,427

Total held-to-maturity securities
224,932

 
8,907

 
948

 
232,891

Total fixed maturity securities
$
892,898

 
50,643

 
3,423

 
940,118

Equity securities:
 

 
 

 
 

 
 

Stock mutual funds
$
16,005

 
1,657

 
66

 
17,596

Bond mutual funds
50,976

 
60

 
796

 
50,240

Common stock
65

 

 
14

 
51

Preferred stock
1,741

 
253

 
2

 
1,992

Total equity securities
$
68,787

 
1,970

 
878

 
69,879

 
Mortgage-backed securities are also referred to as securities not due at a single maturity date throughout this report.  The majority of the Company's equity securities are diversified stock and bond mutual funds.
 
Valuation of Investments in Fixed Maturity and Equity Securities

Held-to-maturity securities are reported in the financial statements at amortized cost and available-for-sale securities are reported at fair value.

The Company monitors all debt and equity securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews.  The assessment of whether impairments have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value.  The Company determines other-than-temporary impairment by reviewing relevant evidence related to the specific security issuer as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

When an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis.  If the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the investment's cost and its fair value at the balance sheet date.  If the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before recovery of its amortized

17

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

cost basis, the other-than-temporary impairment is separated into the following: (a) the amount representing the credit loss; and (b) the amount related to all other factors.  The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings.  The amount of the total other-than-temporary impairment related to other factors is recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the other-than-temporary impairment recognized in earnings becomes the new amortized cost basis of the investment.  The new amortized cost basis is not adjusted for subsequent recoveries in fair value.

The Company evaluates whether a credit impairment exists for debt securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; (d) the length of time to which the fair value has been less than the amortized cost of the security; and (e) the payment structure of the security.  The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process.  Quantitative review includes information received from third party sources such as financial statements, pricing and rating changes, liquidity and other statistical information.  Qualitative factors include judgments related to business strategies, economic impacts on the issuer and overall judgment related to estimates and industry factors.  The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates.  These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value.  In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer.

The primary factors considered in evaluating whether an impairment exists for an equity security include, but are not limited to: (a) the length of time and the extent to which the fair value has been less than the cost of the security; (b) changes in the financial condition, credit rating and near-term prospects of the issuer; (c) whether the issuer is current on contractually obligated payments; and (d) the intent and ability of the Company to retain the investment for a period of time sufficient to allow for recovery.

No other-than-temporary impairments were recognized during the three and six months ended June 30, 2015 or 2014.


18

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

The following tables present the fair values and gross unrealized losses of fixed maturities and equity securities that have remained in a continuous unrealized loss position for the periods indicated.
 
June 30, 2015
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
(In thousands, except for # of securities)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
139,803

 
1,956

 
98

 
19,524

 
1,898

 
10

 
159,327

 
3,854

 
108

Corporate
45,000

 
1,644

 
26

 
3,670

 
165

 
2

 
48,670

 
1,809

 
28

Residential mortgage-backed
2

 

 
1

 
141

 
2

 
3

 
143

 
2

 
4

Total available-for-sale securities
184,805

 
3,600

 
125

 
23,335

 
2,065

 
15

 
208,140

 
5,665

 
140

Held-to-maturity securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
53,064

 
963

 
37

 
7,582

 
133

 
7

 
60,646

 
1,096

 
44

Corporate
3,225

 
254

 
2

 
5,190

 
371

 
2

 
8,415

 
625

 
4

Total held-to-maturity securities
56,289

 
1,217

 
39

 
12,772

 
504

 
9

 
69,061

 
1,721

 
48

Total fixed maturities
$
241,094

 
4,817

 
164

 
36,107

 
2,569

 
24

 
277,201

 
7,386

 
188

Equity securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Stock mutual funds
$
5,409

 
133

 
4

 

 

 

 
5,409

 
133

 
4

Bond mutual funds
50,070

 
1,243

 
6

 

 

 

 
50,070

 
1,243

 
6

Common stocks
46

 
1

 
2

 
2

 
15

 
9

 
48

 
16

 
11

   Preferred stocks
75

 
2

 
2

 

 

 

 
75

 
2

 
2

Total equities
$
55,600

 
1,379

 
14

 
2

 
15

 
9

 
55,602

 
1,394

 
23


As of June 30, 2015, the Company had 15 available-for-sale fixed maturity securities and 9 held-to-maturity fixed maturity securities that were in an unrealized loss position for greater than 12 months. We reported 9 common stock holding in an unrealized loss position for greater than 12 months as of June 30, 2015.


19

Table of Contents
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
June 30, 2015
(Unaudited)

 
December 31, 2014
 
Less than 12 months
 
Greater than 12 months
 
Total
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
Fair
Value
 
Unrealized
Losses
 
# of
Securities
 
(In thousands, except for # of securities)
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
43,776

 
318

 
47

 
33,716

 
1,130

 
24

 
77,492

 
1,448

 
71

Corporate
26,671

 
780

 
24

 
2,530

 
244

 
2

 
29,201

 
1,024

 
26

Residential mortgage-backed
159

 
2

 
5

 
33

 
1

 
1

 
192

 
3

 
6

Total available-for-sale securities
70,606

 
1,100

 
76

 
36,279

 
1,375

 
27

 
106,885

 
2,475

 
103

Held-to-maturity securities:
 

 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

States and political subdivisions
21,233

 
74

 
16

 
15,429

 
314

 
21

 
36,662

 
388

 
37

Corporate
3,866

 
285

 
4

 
2,746

 
275

 
2

 
6,612

 
560

 
6

Total held-to-maturity securities
25,099

 
359

 
20

 
18,175

 
589

 
23

 
43,274

 
948

 
43

Total fixed maturities
$
95,705

 
1,459

 
96

 
54,454

 
1,964

 
50

 
150,159

 
3,423

 
146

Equity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Stock mutual funds
$
5,224

 
66

 
4

 

 

 

 
5,224

 
66

 
4

Bond mutual funds
26,228

 
796

 
4

 

 

 

 
26,228

 
796

 
4

Preferred stocks
234

 
2

 
4

 

 

 

 
234

 
2

 
4

Common stock
46

 
1

 
2

 
4

 
13

 
9

 
50

 
14

 
11

Total equities
$
31,732

 
865

 
14</