CITIZENS, INC.
|
||||
(Exact name of registrant as specified in its charter)
|
||||
Colorado
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84-0755371
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(State of other jurisdiction of incorporation or organization
|
I.R.S. Employer Identification No.)
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|||
400 East Anderson Lane, Austin, TX
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78752
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(Address of principal executive offices)
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(Zip Code)
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(512) 837-7100
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N/A
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Large accelerated filer o | Accelerated filer x | Non-accelerated filer o | Smaller reporting company o |
Part I. | Financial Information | Page
Number
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||
Item 1. | Financial Statements | |||
2
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||||
4
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||||
5
|
||||
6
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||||
8
|
||||
Item 2.
|
28
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|||
Item 3.
|
48
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|||
Item 4.
|
49
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|||
Part II.
|
Other Information
|
|||
Item 1.
|
49
|
|||
Item 1A.
|
50
|
|||
Item 2.
|
50
|
|||
Item 3.
|
50
|
|||
Item 4.
|
50
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|||
Item 5.
|
50
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|||
Item 6.
|
51
|
Assets
|
September 30,
2011 |
December 31,
2010 |
||||||
(Unaudited)
|
||||||||
Investments:
|
||||||||
Fixed maturities available-for-sale, at fair value (cost: $536,537 and $578,412 in 2011 and 2010, respectively)
|
$ | 564,269 | 575,737 | |||||
Fixed maturities held-to-maturity, at amortized cost (fair value: $133,951 and $79,103 in 2011 and 2010, respectively)
|
131,820 | 80,232 | ||||||
Equity securities available-for-sale, at fair value (cost: $44,340 and $19,844 in 2011 and 2010, respectively)
|
45,366 | 23,304 | ||||||
Mortgage loans on real estate
|
1,453 | 1,489 | ||||||
Policy loans
|
38,075 | 35,585 | ||||||
Real estate held for investment (less $1,115 and $1,017 accumulated depreciation in 2011 and 2010, respectively)
|
9,126 | 9,200 | ||||||
Other long-term investments
|
141 | 148 | ||||||
Short-term investments
|
2,066 | - | ||||||
Total investments
|
792,316 | 725,695 | ||||||
Cash and cash equivalents
|
64,425 | 49,723 | ||||||
Accrued investment income
|
8,465 | 7,433 | ||||||
Reinsurance recoverable
|
9,890 | 9,729 | ||||||
Deferred policy acquisition costs
|
134,587 | 125,684 | ||||||
Cost of customer relationships acquired
|
29,108 | 31,631 | ||||||
Goodwill
|
17,160 | 17,160 | ||||||
Other intangible assets
|
913 | 1,019 | ||||||
Federal income tax receivable
|
344 | 1,914 | ||||||
Property and equipment, net
|
7,992 | 7,101 | ||||||
Due premiums, net (less $1,466 and $1,568 allowance for doubtful accounts in 2011 and 2010, respectively)
|
7,807 | 8,537 | ||||||
Prepaid expenses
|
1,027 | 474 | ||||||
Other assets
|
727 | 406 | ||||||
Total assets
|
$ | 1,074,761 | 986,506 |
See accompanying notes to consolidated financial statements
|
(Continued) |
Liabilities and Stockholders' Equity
|
September 30,
2011 |
December 31,
2010 |
||||||
(Unaudited)
|
||||||||
Liabilities:
|
||||||||
Policy liabilities:
|
|
|||||||
Future policy benefit reserves:
|
||||||||
Life insurance
|
$ | 679,257 | 637,140 | |||||
Annuities
|
45,891 | 42,096 | ||||||
Accident and health
|
5,553 | 5,910 | ||||||
Dividend accumulations
|
10,291 | 9,498 | ||||||
Premiums paid in advance
|
25,360 | 23,675 | ||||||
Policy claims payable
|
9,517 | 10,540 | ||||||
Other policyholders' funds
|
8,489 | 8,191 | ||||||
Total policy liabilities
|
784,358 | 737,050 | ||||||
Commissions payable
|
2,368 | 2,538 | ||||||
Deferred federal income tax
|
18,543 | 9,410 | ||||||
Payable for securities in process of settlement
|
6,654 | - | ||||||
Warrants outstanding
|
133 | 1,587 | ||||||
Other Liabilities
|
8,188 | 8,287 | ||||||
Total liabilities
|
820,244 | 758,872 | ||||||
Commitments and contingencies (Note 8)
|
||||||||
Stockholders' equity:
|
||||||||
Common stock:
|
||||||||
Class A, no par value, 100,000,000 shares authorized, 52,082,284 shares issued in 2011 and 51,822,497 shares issued in 2010, including shares in treasury of 3,135,738 in 2011 and 2010
|
258,496 | 256,703 | ||||||
Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2011 and 2010
|
3,184 | 3,184 | ||||||
Accumulated deficit
|
(15,337 | ) | (22,581 | ) | ||||
Accumulated other comprehensive income:
|
||||||||
Unrealized gains on securities, net of tax
|
19,185 | 1,339 | ||||||
Treasury stock, at cost
|
(11,011 | ) | (11,011 | ) | ||||
Total stockholders' equity
|
254,517 | 227,634 | ||||||
Total liabilities and stockholders' equity
|
$ | 1,074,761 | 986,506 |
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Premiums:
|
||||||||
Life insurance
|
$ | 38,639 | 36,433 | |||||
Accident and health insurance
|
383 | 392 | ||||||
Property insurance
|
1,277 | 1,230 | ||||||
Net investment income
|
7,693 | 7,272 | ||||||
Realized investment gains (losses), net
|
35 | (103 | ) | |||||
Decrease in fair value of warrants
|
239 | 128 | ||||||
Other income
|
282 | 103 | ||||||
Total revenues
|
48,548 | 45,455 | ||||||
Benefits and expenses:
|
||||||||
Insurance benefits paid or provided:
|
||||||||
Claims and surrenders
|
14,803 | 15,739 | ||||||
Increase in future policy benefit reserves
|
14,365 | 11,398 | ||||||
Policyholders' dividends
|
2,169 | 1,977 | ||||||
Total insurance benefits paid or provided
|
31,337 | 29,114 | ||||||
Commissions
|
9,224 | 9,229 | ||||||
Other general expenses
|
6,857 | 6,587 | ||||||
Capitalization of deferred policy acquisition costs
|
(7,121 | ) | (6,973 | ) | ||||
Amortization of deferred policy acquisition costs
|
4,500 | 3,800 | ||||||
Amortization of cost of customer relationships acquired
|
708 | 719 | ||||||
Total benefits and expenses
|
45,505 | 42,476 | ||||||
Income before federal income tax
|
3,043 | 2,979 | ||||||
Federal income tax expense
|
820 | 1,313 | ||||||
Net income
|
$ | 2,223 | 1,666 | |||||
|
||||||||
Per Share Amounts:
|
||||||||
Basic earnings per share of Class A common stock
|
$ | 0.05 | 0.03 | |||||
Basic earnings per share of Class B common stock
|
0.02 | 0.02 | ||||||
Diluted earnings per share of Class A common stock
|
0.05 | 0.03 | ||||||
Diluted earnings per share of Class B common stock
|
0.02 | 0.02 |
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Premiums:
|
||||||||
Life insurance
|
$ | 112,481 | 105,114 | |||||
Accident and health insurance
|
1,151 | 1,215 | ||||||
Property insurance
|
3,781 | 3,592 | ||||||
Net investment income
|
22,924 | 23,896 | ||||||
Realized investment gains, net
|
41 | 648 | ||||||
Decrease in fair value of warrants
|
1,454 | 380 | ||||||
Other income
|
509 | 602 | ||||||
Total revenues
|
142,341 | 135,447 | ||||||
Benefits and expenses:
|
||||||||
Insurance benefits paid or provided:
|
||||||||
Claims and surrenders
|
44,587 | 46,410 | ||||||
Increase in future policy benefit reserves
|
39,683 | 30,726 | ||||||
Policyholders' dividends
|
5,751 | 5,324 | ||||||
Total insurance benefits paid or provided
|
90,021 | 82,460 | ||||||
Commissions
|
28,226 | 26,385 | ||||||
Other general expenses
|
20,386 | 20,562 | ||||||
Capitalization of deferred policy acquisition costs
|
(22,170 | ) | (19,946 | ) | ||||
Amortization of deferred policy acquisition costs
|
13,249 | 13,962 | ||||||
Amortization of cost of customer relationships acquired
|
2,113 | 2,311 | ||||||
Total benefits and expenses
|
131,825 | 125,734 | ||||||
Income before federal income tax
|
10,516 | 9,713 | ||||||
Federal income tax expense
|
3,270 | 3,257 | ||||||
Net income
|
$ | 7,246 | 6,456 | |||||
Per Share Amounts:
|
||||||||
Basic earnings per share of Class A common stock
|
$ | 0.15 | 0.13 | |||||
Basic earnings per share of Class B common stock
|
0.07 | 0.07 | ||||||
Diluted earnings per share of Class A common stock
|
0.15 | 0.13 | ||||||
Diluted earnings per share of Class B common stock
|
0.07 | 0.07 |
2011
|
2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income
|
$ | 7,246 | 6,456 | |||||
Adjustments to reconcile net income to net cash
|
||||||||
provided by operating activities:
|
||||||||
Realized gains on sale of investments and other assets
|
(41 | ) | (648 | ) | ||||
Net deferred policy acquisition costs
|
(8,921 | ) | (5,984 | ) | ||||
Amortization of cost of customer relationships acquired
|
2,113 | 2,332 | ||||||
Decrease in fair value of warrants
|
(1,454 | ) | (380 | ) | ||||
Depreciation
|
753 | 787 | ||||||
Amortization of premiums and discounts on fixed maturities and short-term investments
|
3,208 | 2,548 | ||||||
Deferred federal income tax benefit
|
(567 | ) | (61 | ) | ||||
Change in:
|
||||||||
Accrued investment income
|
(1,032 | ) | (951 | ) | ||||
Reinsurance recoverable
|
(161 | ) | 1,176 | |||||
Due premiums and other receivables
|
730 | 1,736 | ||||||
Future policy benefit reserves
|
39,308 | 30,223 | ||||||
Other policyholders' liabilities
|
1,747 | 5,897 | ||||||
Federal income tax receivable
|
1,570 | 2,120 | ||||||
Commissions payable and other liabilities
|
(269 | ) | (4,754 | ) | ||||
Other, net
|
(668 | ) | (1,021 | ) | ||||
Net cash provided by operating activities
|
43,562 | 39,476 | ||||||
Cash flows from investing activities:
|
||||||||
Sale of fixed maturities, available-for-sale
|
- | 7,074 | ||||||
Maturity and calls of fixed maturities, available-for-sale
|
127,342 | 137,506 | ||||||
Maturity and calls of fixed maturities, held-to-maturity
|
52,900 | 150,350 | ||||||
Purchase of fixed maturities, available-for-sale
|
(82,184 | ) | (246,238 | ) | ||||
Purchase of fixed maturities, held-to-maturity
|
(104,466 | ) | (71,452 | ) | ||||
Sale of equity securities, available-for-sale
|
- | 591 | ||||||
Calls of equity securities, available-for-sale
|
682 | 100 | ||||||
Purchase of equity securities, available-for-sale
|
(25,000 | ) | (205 | ) | ||||
Principal payments on mortgage loans
|
36 | 33 | ||||||
Increase in policy loans
|
(2,464 | ) | (2,874 | ) | ||||
Sale of other long-term investments
|
5 | 42 | ||||||
Purchase of other long-term investments
|
(25 | ) | (1,799 | ) | ||||
Sale of property and equipment
|
2 | - | ||||||
Purchase of property and equipment
|
(1,662 | ) | - | |||||
Maturity of short-term investments
|
- | 2,500 | ||||||
Purchase of short-term investments
|
(2,066 | ) | - | |||||
Proceeds from assumption reinsurance agreement
|
4,550 | - | ||||||
Net cash used in investing activities
|
(32,350 | ) | (24,372 | ) |
See accompanying notes to consolidated financial statements.
|
(Continued) |
2011
|
2010
|
|||||||
Cash flows from financing activities:
|
||||||||
Warrants exercised
|
$ | 1,791 | - | |||||
Annuity deposits
|
4,818 | 4,041 | ||||||
Annuity withdrawals
|
(3,119 | ) | (2,404 | ) | ||||
Net cash provided by financing activities
|
3,490 | 1,637 | ||||||
Net increase in cash and cash equivalents
|
14,702 | 16,741 | ||||||
Cash and cash equivalents at beginning of year
|
49,723 | 48,625 | ||||||
Cash and cash equivalents at end of period
|
$ | 64,425 | 65,366 | |||||
Supplemental disclosures of operating activities:
|
||||||||
Cash paid during the period for income taxes
|
$ | 2,267 | 1,200 |
Three Months Ended September 30, 2011
|
||||||||||||||||
Life
Insurance |
Home
Service |
Other
Non-Insurance |
Consolidated
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenues:
|
|
|||||||||||||||
Premiums
|
$ | 29,491 | 10,808 | - | 40,299 | |||||||||||
Net investment income
|
4,309 | 3,178 | 206 | 7,693 | ||||||||||||
Realized investment gains, net
|
25 | 4 | 6 | 35 | ||||||||||||
Decrease in fair value of warrants
|
- | - | 239 | 239 | ||||||||||||
Other income
|
240 | 6 | 36 | 282 | ||||||||||||
Total revenue
|
34,065 | 13,996 | 487 | 48,548 | ||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
9,834 | 4,969 | - | 14,803 | ||||||||||||
Increase in future policy benefit reserves
|
13,133 | 1,232 | - | 14,365 | ||||||||||||
Policyholders' dividends
|
2,152 | 17 | - | 2,169 | ||||||||||||
Total insurance benefits paid or provided
|
25,119 | 6,218 | - | 31,337 | ||||||||||||
Commissions
|
5,516 | 3,708 | - | 9,224 | ||||||||||||
Other general expenses
|
2,983 | 3,233 | 641 | 6,857 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(5,484 | ) | (1,637 | ) | - | (7,121 | ) | |||||||||
Amortization of deferred policy acquisition costs
|
3,680 | 820 | - | 4,500 | ||||||||||||
Amortization of cost of customer relationships acquired
|
206 | 502 | - | 708 | ||||||||||||
Total benefits and expenses
|
32,020 | 12,844 | 641 | 45,505 | ||||||||||||
Income (loss) before income tax expense
|
$ | 2,045 | 1,152 | (154 | ) | 3,043 |
Nine Months Ended September 30, 2011
|
||||||||||||||||
Life
Insurance |
Home
Service |
Other
Non-Insurance |
Consolidated
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenues:
|
|
|||||||||||||||
Premiums
|
$ | 85,027 | 32,386 | - | 117,413 | |||||||||||
Net investment income
|
12,662 | 9,690 | 572 | 22,924 | ||||||||||||
Realized investment gains, net
|
29 | 6 | 6 | 41 | ||||||||||||
Decrease in fair value of warrants
|
- | - | 1,454 | 1,454 | ||||||||||||
Other income
|
404 | 20 | 85 | 509 | ||||||||||||
Total revenue
|
98,122 | 42,102 | 2,117 | 142,341 | ||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
29,691 | 14,896 | - | 44,587 | ||||||||||||
Increase in future policy benefit reserves
|
36,957 | 2,726 | - | 39,683 | ||||||||||||
Policyholders' dividends
|
5,696 | 55 | - | 5,751 | ||||||||||||
Total insurance benefits paid or provided
|
72,344 | 17,677 | - | 90,021 | ||||||||||||
Commissions
|
16,916 | 11,310 | - | 28,226 | ||||||||||||
Other general expenses
|
8,936 | 9,488 | 1,962 | 20,386 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(16,971 | ) | (5,199 | ) | - | (22,170 | ) | |||||||||
Amortization of deferred policy acquisition costs
|
11,290 | 1,959 | - | 13,249 | ||||||||||||
Amortization of cost of customer relationships acquired
|
705 | 1,408 | - | 2,113 | ||||||||||||
Total benefits and expenses
|
93,220 | 36,643 | 1,962 | 131,825 | ||||||||||||
Income before income tax expense
|
$ | 4,902 | 5,459 | 155 | 10,516 |
Three Months Ended September 30, 2010
|
||||||||||||||||
Life
Insurance |
Home
Service |
Other
Non-Insurance |
Consolidated
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenues:
|
|
|||||||||||||||
Premiums
|
$ | 27,514 | 10,541 | - | 38,055 | |||||||||||
Net investment income
|
3,893 | 3,244 | 135 | 7,272 | ||||||||||||
Realized investment gains (losses), net
|
1 | (96 | ) | (8 | ) | (103 | ) | |||||||||
Decrease in fair value of warrants
|
- | - | 128 | 128 | ||||||||||||
Other income
|
78 | 10 | 15 | 103 | ||||||||||||
Total revenue
|
31,486 | 13,699 | 270 | 45,455 | ||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
10,498 | 5,241 | - | 15,739 | ||||||||||||
Increase in future policy benefit reserves
|
10,688 | 710 | - | 11,398 | ||||||||||||
Policyholders' dividends
|
1,965 | 12 | - | 1,977 | ||||||||||||
Total insurance benefits paid or provided
|
23,151 | 5,963 | - | 29,114 | ||||||||||||
Commissions
|
5,572 | 3,657 | - | 9,229 | ||||||||||||
Other general expenses
|
2,603 | 3,529 | 455 | 6,587 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(5,414 | ) | (1,559 | ) | - | (6,973 | ) | |||||||||
Amortization of deferred policy acquisition costs
|
3,448 | 352 | - | 3,800 | ||||||||||||
Amortization of cost of customer relationships acquired
|
232 | 487 | - | 719 | ||||||||||||
Total benefits and expenses
|
29,592 | 12,429 | 455 | 42,476 | ||||||||||||
Income (loss) before income tax expense
|
$ | 1,894 | 1,270 | (185 | ) | 2,979 |
Nine Months Ended September 30, 2010
|
||||||||||||||||
Life
Insurance |
Home
Service |
Other
Non-Insurance |
Consolidated
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenues:
|
|
|||||||||||||||
Premiums
|
$ | 78,364 | 31,557 | - | 109,921 | |||||||||||
Net investment income
|
13,239 | 10,251 | 406 | 23,896 | ||||||||||||
Realized investment gains (losses), net
|
116 | 585 | (53 | ) | 648 | |||||||||||
Decrease in fair value of warrants
|
- | - | 380 | 380 | ||||||||||||
Other income
|
487 | 63 | 52 | 602 | ||||||||||||
Total revenue
|
92,206 | 42,456 | 785 | 135,447 | ||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
30,644 | 15,766 | - | 46,410 | ||||||||||||
Increase in future policy benefit reserves
|
28,123 | 2,603 | - | 30,726 | ||||||||||||
Policyholders' dividends
|
5,267 | 57 | - | 5,324 | ||||||||||||
Total insurance benefits paid or provided
|
64,034 | 18,426 | - | 82,460 | ||||||||||||
Commissions
|
15,316 | 11,069 | - | 26,385 | ||||||||||||
Other general expenses
|
8,234 | 10,964 | 1,364 | 20,562 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(15,097 | ) | (4,849 | ) | - | (19,946 | ) | |||||||||
Amortization of deferred policy acquisition costs
|
13,108 | 854 | - | 13,962 | ||||||||||||
Amoritzation of cost of customer relationships acquired
|
837 | 1,474 | - | 2,311 | ||||||||||||
Total benefits and expenses
|
86,432 | 37,938 | 1,364 | 125,734 | ||||||||||||
Income (loss) before income tax expense
|
$ | 5,774 | 4,518 | (579 | ) | 9,713 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
|
|
|||||||||||||||
Net income
|
$ | 2,223 | 1,666 | 7,246 | 6,456 | |||||||||||
Other comprehensive income net of effects of deferred acquisiton costs and taxes:
|
||||||||||||||||
Unrealized gains on available-for-sale securities
|
15,431 | 11,288 | 27,546 | 21,554 | ||||||||||||
Tax expense
|
(5,460 | ) | (2,700 | ) | (9,700 | ) | (7,135 | ) | ||||||||
Other comprehensive income
|
9,971 | 8,588 | 17,846 | 14,419 | ||||||||||||
Total comprehensive income
|
$ | 12,194 | 10,254 | 25,092 | 20,875 |
(5)
|
Earnings Per Share
|
|
The following tables set forth the computation of basic and diluted earnings per share.
|
Three Months Ended
September 30, |
||||||||
2011
|
2010
|
|||||||
(In thousands,
except per share amounts) |
||||||||
Basic and diluted earnings per share:
|
||||||||
Numerator:
|
|
|||||||
Net income
|
$ | 2,223 | 1,666 | |||||
Net income allocated to Class A common stock
|
$ | 2,200 | 1,649 | |||||
Net income allocated to Class B common stock
|
23 | 17 | ||||||
Net income available to common stockholders
|
$ | 2,223 | 1,666 | |||||
Denominator:
|
||||||||
Weighted average shares of Class A outstanding - basic and diluted
|
48,912 | 48,687 | ||||||
Weighted average shares of Class B outstanding - basic and diluted
|
1,002 | 1,002 | ||||||
Basic and diluted earnings per share of Class A common stock
|
$ | 0.05 | 0.03 | |||||
Basic and diluted earnings per share of Class B common stock
|
0.02 | 0.02 |
Nine Months Ended
September 30, |
||||||||
2011
|
2010
|
|||||||
(In thousands,
except per share amounts) |
||||||||
Basic and diluted earnings per share:
|
||||||||
Numerator:
|
|
|||||||
Net income
|
$ | 7,246 | 6,456 | |||||
Net income allocated to Class A common stock
|
$ | 7,172 | 6,390 | |||||
Net income allocated to Class B common stock
|
74 | 66 | ||||||
Net income available to common stockholders
|
$ | 7,246 | 6,456 | |||||
Denominator:
|
||||||||
Weighted average shares of Class A outstanding - basic
|
48,762 | 48,687 | ||||||
Weighted average shares of Class A outstanding - diluted
|
48,764 | 48,687 | ||||||
Weighted average shares of Class B outstanding - basic and diluted
|
1,002 | 1,002 | ||||||
Basic earnings per share of Class A common stock
|
$ | 0.15 | 0.13 | |||||
Basic earnings per share of Class B common stock
|
0.07 | 0.07 | ||||||
Diluted earnings per share of Class A common stock
|
0.15 | 0.13 | ||||||
Diluted earnings per share of Class B common stock
|
0.07 | 0.07 |
(6)
|
Investments
|
|
The Company invests primarily in fixed maturity securities, which totaled 81.2% of total investments and cash and cash equivalents at September 30, 2011.
|
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Value |
% of Total
Carrying Value |
Carrying
Value |
% of Total
Carrying Value |
|||||||||||||
(In thousands)
|
(In thousands)
|
|||||||||||||||
Fixed maturity securities
|
$ | 696,089 | 81.2 | $ | 655,969 | 84.6 | ||||||||||
Equity securities
|
45,366 | 5.3 | 23,304 | 3.0 | ||||||||||||
Mortgage loans
|
1,453 | 0.2 | 1,489 | 0.2 | ||||||||||||
Policy loans
|
38,075 | 4.4 | 35,585 | 4.6 | ||||||||||||
Real estate
|
9,126 | 1.1 | 9,200 | 1.2 | ||||||||||||
Other long-term investments
|
141 | - | 148 | - | ||||||||||||
Short-term investments
|
2,066 | 0.3 | - | - | ||||||||||||
Cash and cash equivalents
|
64,425 | 7.5 | 49,723 | 6.4 | ||||||||||||
Total cash, cash equivalents and investments
|
$ | 856,741 | 100.0 | $ | 775,418 | 100.0 |
|
During the nine months ended September 30, 2011, we reinvested $24.0 million of proceeds received from calls and prepayments of bonds in bond mutual funds. This resulted in a decrease of our fixed maturity holdings and an increase of our equity securities holdings as a percentage of total investments. Our cash balances fluctuate until excess available funds are invested.
|
September 30, 2011
|
||||||||||||||||
Cost or
Amortized |
Gross
Unrealized |
Gross
Unrealized |
Fair
Value |
|||||||||||||
(In thousands)
|
||||||||||||||||
Fixed maturities:
|
||||||||||||||||
Fixed maturities available-for-sale:
|
|
|||||||||||||||
U.S. Treasury securities
|
$ | 10,241 | 3,654 | - | 13,895 | |||||||||||
U.S. Government-sponsored enterprises
|
206,139 | 3,256 | 61 | 209,334 | ||||||||||||
States of the United States and political subdivisions of the states
|
139,253 | 9,424 | 1,660 | 147,017 | ||||||||||||
Foreign governments
|
105 | 39 | - | 144 | ||||||||||||
Corporate
|
171,472 | 14,221 | 1,732 | 183,961 | ||||||||||||
Securities not due at a single maturity date
|
9,327 | 598 | 7 | 9,918 | ||||||||||||
Total available-for-sale securities
|
536,537 | 31,192 | 3,460 | 564,269 | ||||||||||||
Held-to-maturity securities:
|
||||||||||||||||
U.S. Government-sponsored enterprises
|
84,588 | 426 | 43 | 84,971 | ||||||||||||
States of the United States and political subdivisions of the states
|
47,232 | 1,862 | 114 | 48,980 | ||||||||||||
Total held-to-maturity securities
|
131,820 | 2,288 | 157 | 133,951 | ||||||||||||
Total fixed maturities
|
$ | 668,357 | 33,480 | 3,617 | 698,220 | |||||||||||
Equity securities:
|
||||||||||||||||
Stock mutual funds
|
$ | 18,931 | 1,295 | 815 | 19,411 | |||||||||||
Bond mutual funds
|
24,000 | - | 68 | 23,932 | ||||||||||||
Common stock
|
17 | 10 | - | 27 | ||||||||||||
Preferred stock
|
1,392 | 604 | - | 1,996 | ||||||||||||
Total equity securities
|
$ | 44,340 | 1,909 | 883 | 45,366 |
December 31, 2010
|
||||||||||||||||
Cost or
Amortized |
Gross
Unrealized |
Gross
Unrealized |
Fair
Value |
|||||||||||||
(In thousands)
|
||||||||||||||||
Fixed maturities:
|
||||||||||||||||
Available-for-sale securities:
|
|
|||||||||||||||
U.S. Treasury securities
|
$ | 10,908 | 1,917 | - | 12,825 | |||||||||||
U.S. Government-sponsored enterprises
|
290,904 | 441 | 6,390 | 284,955 | ||||||||||||
States of the United States and political subdivisions of the states
|
107,214 | 539 | 6,034 | 101,719 | ||||||||||||
Foreign governments
|
106 | 26 | - | 132 | ||||||||||||
Corporate
|
155,277 | 7,237 | 1,216 | 161,298 | ||||||||||||
Securities not due at a single maturity dates
|
14,003 | 833 | 28 | 14,808 | ||||||||||||
Total available-for-sale securities
|
578,412 | 10,993 | 13,668 | 575,737 | ||||||||||||
Held-to-maturity securities:
|
||||||||||||||||
U.S. Government-sponsored enterprises
|
80,232 | 272 | 1,401 | 79,103 | ||||||||||||
Total fixed maturities
|
$ | 658,644 | 11,265 | 15,069 | 654,840 | |||||||||||
Equity securities:
|
||||||||||||||||
Stock mutual funds
|
$ | 17,931 | 2,566 | 19 | 20,478 | |||||||||||
Common stock
|
17 | 29 | - | 46 | ||||||||||||
Preferred stock
|
1,896 | 884 | - | 2,780 | ||||||||||||
Total equity securities
|
$ | 19,844 | 3,479 | 19 | 23,304 |
|
At September 30, 2011, the Company had $9.3 million of mortgage-backed security holdings based on amortized cost, of which $8.5 million, or 91.4%, were residential U.S. Government-sponsored issues. 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.
|
September 30, 2011
|
||||||||||||||||||||||||||||||||||||
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:
|
||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises
|
$ | 15,955 | 46 | 15 | 1,005 | 15 | 1 | 16,960 | 61 | 16 | ||||||||||||||||||||||||||
Securities issued by states and political subdivisions
|
4,653 | 54 | 7 | 10,778 | 1,606 | 8 | 15,431 | 1,660 | 15 | |||||||||||||||||||||||||||
Corporate
|
30,327 | 1,235 | 31 | 5,998 | 497 | 6 | 36,325 | 1,732 | 37 | |||||||||||||||||||||||||||
Securities not due at a single maturity date
|
563 | 2 | 1 | 70 | 5 | 2 | 633 | 7 | 3 | |||||||||||||||||||||||||||
Total available-for-sale securities
|
51,498 | 1,337 | 54 | 17,851 | 2,123 | 17 | 69,349 | 3,460 | 71 | |||||||||||||||||||||||||||
Held-to-maturity securities:
|
||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises
|
21,164 | 28 | 10 | 1,124 | 15 | 1 | 22,288 | 43 | 11 | |||||||||||||||||||||||||||
Securities issued by states and political subdivisions
|
5,783 | 114 | 6 | - | - | - | 5,783 | 114 | 6 | |||||||||||||||||||||||||||
Total held-to-maturity securities
|
26,947 | 142 | 16 | 1,124 | 15 | 1 | 28,071 | 157 | 17 | |||||||||||||||||||||||||||
Total fixed maturities
|
$ | 78,445 | 1,479 | 70 | 18,975 | 2,138 | 18 | 97,420 | 3,617 | 88 | ||||||||||||||||||||||||||
Equity securities:
|
||||||||||||||||||||||||||||||||||||
Stock mutual funds
|
$ | 9,649 | 815 | 3 | - | - | - | 9,649 | 815 | 3 | ||||||||||||||||||||||||||
Bond mutual funds
|
23,932 | 68 | 10 | - | - | - | 23,932 | 68 | 10 | |||||||||||||||||||||||||||
Total equity securities
|
$ | 33,581 | 883 | 13 | - | - | - | 33,581 | 883 | 13 |
December 31, 2010
|
||||||||||||||||||||||||||||||||||||
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:
|
||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises
|
$ | 234,994 | 6,390 | 170 | - | - | - | 234,994 | 6,390 | 170 | ||||||||||||||||||||||||||
Securities issued by states and political subdivisions
|
66,836 | 3,270 | 60 | 9,626 | 2,764 | 8 | 76,462 | 6,034 | 68 | |||||||||||||||||||||||||||
Corporate
|
28,072 | 1,040 | 21 | 2,443 | 176 | 7 | 30,515 | 1,216 | 28 | |||||||||||||||||||||||||||
Securities not due at a single maturity date
|
569 | 8 | 2 | 201 | 20 | 5 | 770 | 28 | 7 | |||||||||||||||||||||||||||
Total available-for-sale securities
|
330,471 | 10,708 | 253 | 12,270 | 2,960 | 20 | 342,741 | 13,668 | 273 | |||||||||||||||||||||||||||
Held-to-maturity securities:
|
||||||||||||||||||||||||||||||||||||
U.S. Government-sponsored enterprises
|
45,699 | 1,401 | 18 | - | - | - | 45,699 | 1,401 | 18 | |||||||||||||||||||||||||||
Total fixed maturities
|
$ | 376,170 | 12,109 | 271 | 12,270 | 2,960 | 20 | 388,440 | 15,069 | 291 | ||||||||||||||||||||||||||
Equity securities:
|
||||||||||||||||||||||||||||||||||||
Stock mutual funds
|
$ | 2,910 | 19 | 1 | - | - | - | 2,910 | 19 | 1 |
|
As of September 30, 2011, the Company had 17 available-for-sale securities and 1 held-to-maturity security that were in an unrealized loss position for greater than 12 months. These securities consisted of U.S. Government, municipals, corporate and mortgage-backed securities. We have reviewed these securities and determined that no other-than-temporary impairment exists based on our evaluation of the credit worthiness of the issuers and the fact that we do not intend to sell the investments nor is it likely that we will be required to sell the securities before recovery of their amortized cost bases which may be maturity. We continue to monitor all securities on an on-going basis, and future information may become available which could result in impairments being recorded.
|
|
The amortized cost and fair value of fixed maturity securities at September 30, 2011 by contractual maturity are shown in the table below. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. The Company has experienced significant issuer calls over the past two years as a result of the declining interest rate environment.
|
September 30, 2011
|
||||||||
Amortized
Cost |
Fair
Value |
|||||||
(In thousands)
|
||||||||
Available-for-sale securities:
|
||||||||
Due in one year or less
|
$ | 5,658 | 5,782 | |||||
Due after one year through five years
|
33,114 | 34,587 | ||||||
Due after five years through ten years
|
102,451 | 107,403 | ||||||
Due after ten years
|
385,987 | 406,579 | ||||||
Total available-for-sale securities
|
527,210 | 554,351 | ||||||
Held-to-maturity securities:
|
||||||||
Due after five years through ten years
|
18,381 | 19,065 | ||||||
Due after ten years
|
113,439 | 114,886 | ||||||
Total held-to-maturity securities
|
131,820 | 133,951 | ||||||
Securities not due at a single maturity date
|
9,327 | 9,918 | ||||||
Total fixed maturities
|
$ | 668,357 | 698,220 |
|
The securities not due at a single maturity date are primarily mortgage-backed obligations of U.S. Government-sponsored enterprises and corporate securities.
|
|
The Company uses the specific identification method of the individual security to determine the cost basis used in the calculation of realized gains and losses related to security sales. Proceeds and gross realized gains from sales of securities for the three and nine months ended September 30, 2011 and 2010 are summarized as follows.
|
Fixed Maturities Available-for-Sale
|
Equity Securities
|
|||||||||||||||||||||||||||||||
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||||||||||||||||
|
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
2011
|
2010
|
||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||
Proceeds
|
$ | - | 208 | - | 7,074 | - | - | - | 591 | |||||||||||||||||||||||
Gross realized gains
|
$ | - | 69 | - | 811 | - | - | - | 166 |
|
During the three and nine months ended September 30, 2011 and 2010, no securities were sold for realized losses nor were there any securities sold from the held-to-maturity portfolio.
|
(7)
|
Fair Value Measurements
|
|
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We hold available-for-sale fixed maturity securities and equity securities, which are carried at fair value.
|
|
Fair value measurements are generally based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information. We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:
|
|
·
|
Level 1 - Quoted prices for identical instruments in active markets.
|
|
·
|
Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs or whose significant value drivers are observable.
|
|
·
|
Level 3 - Instruments whose significant value drivers are unobservable.
|
September 30, 2011
|
||||||||||||||||
Available-for-sale investments
|
Level 1
|
Level 2
|
Level 3
|
Total
Fair Value |
||||||||||||
(In thousands)
|
||||||||||||||||
Financial assets:
|
|
|||||||||||||||
Fixed maturities:
|
||||||||||||||||
U.S. Treasury and U.S. Government-sponsored enterprises
|
$ | 13,895 | 209,334 | - | 223,229 | |||||||||||
Corporate
|
- | 183,961 | - | 183,961 | ||||||||||||
Municipal bonds
|
- | 147,017 | - | 147,017 | ||||||||||||
Mortgage-backed
|
- | 9,442 | 476 | 9,918 | ||||||||||||
Foreign governments
|
- | 144 | - | 144 | ||||||||||||
Total fixed maturities
|
13,895 | 549,898 | 476 | 564,269 | ||||||||||||
Equity securities:
|
||||||||||||||||
Stock mutual funds
|
19,411 | - | - | 19,411 | ||||||||||||
Bond mutual funds
|
23,932 | - | - | 23,932 | ||||||||||||
Common stock
|
27 | - | - | 27 | ||||||||||||
Preferred stock
|
1,996 | - | - | 1,996 | ||||||||||||
Total equity securities
|
45,366 | - | - | 45,366 | ||||||||||||
Total financial assets
|
$ | 59,261 | 549,898 | 476 | 609,635 | |||||||||||
Financial liabilities:
|
||||||||||||||||
Warrants outstanding
|
$ | - | 133 | - | 133 |
December 31, 2010
|
||||||||||||||||
Available-for-sale investments
|
Level 1
|
Level 2
|
Level 3
|
Total
Fair Value |
||||||||||||
(In thousands)
|
||||||||||||||||
Financial assets:
|
|
|||||||||||||||
Fixed maturities:
|
||||||||||||||||
U.S. Treasury and U.S. Government-sponsored enterprises
|
$ | 12,825 | 284,955 | - | 297,780 | |||||||||||
Corporate
|
- | 161,298 | - | 161,298 | ||||||||||||
Municipal bonds
|
- | 101,719 | - | 101,719 | ||||||||||||
Mortgage-backed
|
- | 14,289 | 519 | 14,808 | ||||||||||||
Foreign governments
|
- | 132 | - | 132 | ||||||||||||
Total fixed maturities
|
12,825 | 562,393 | 519 | 575,737 | ||||||||||||
Equity securities:
|
||||||||||||||||
Stock mutual funds
|
20,478 | - | - | 20,478 | ||||||||||||
Common stock
|
46 | - | - | 46 | ||||||||||||
Preferred stock
|
2,780 | - | - | 2,780 | ||||||||||||
Total equity securities
|
23,304 | - | - | 23,304 | ||||||||||||
Total financial assets
|
$ | 36,129 | 562,393 | 519 | 599,041 | |||||||||||
Financial liabilities:
|
||||||||||||||||
Warrants outstanding
|
$ | - | 1,587 | - | 1,587 |
|
Fixed maturity securities, available-for-sale. At September 30, 2011, our fixed maturity securities, valued using a third-party pricing source, totaled $549.9 million for Level 2 assets and comprised 90.2% of total reported fair value of our financial assets. Fair values for Level 3 assets are based upon unadjusted broker quotes that are non-binding. The Level 1 and Level 2 valuations are reviewed and updated quarterly through random testing by comparisons to separate pricing models, other third party pricing services, and back tested to recent trades. For the nine months ended September 30, 2011, there were no material changes to the valuation methods or assumptions used to determine fair values, and no broker or third party prices were changed from the values received.
|
|
Equity securities, available-for-sale. Our available-for-sale equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.
|
|
Warrants outstanding. Our outstanding warrants are classified as Level 2 liabilities as their fair values are based upon industry standard models that consider various observable inputs.
|
|
The following table presents additional information about fixed maturity securities measured at fair value on a recurring basis that are classified as Level 3 assets and for which we have utilized significant unobservable inputs to determine fair value.
|
September 30,
|
||||
2011
|
||||
(In thousands)
|
||||
Balance at beginning of period
|
$ | 519 | ||
Total realized and unrealized losses:
|
||||
Included in net income
|
- | |||
Included in other comprehensive income
|
7 | |||
Principal paydowns
|
(50 | ) | ||
Transfer in and (out) of Level 3
|
- | |||
Balance at end of period
|
$ | 476 |
|
We review the fair value hierarchy classifications each reporting period. Changes in the observability of the valuation attributes may result in a reclassification of certain financial assets. Such reclassifications are reported as transfers in and out of Level 3 at the beginning fair value for the reporting period in which the changes occur.
|
|
Financial Instruments not Carried at Fair Value
|
|
Estimates of fair values are made at a specific point in time, based on relevant market prices and information about the financial instruments. The estimated fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.
|
|
The carrying amount and fair value for the financial assets and liabilities on the consolidated balance sheets not otherwise disclosed for the periods indicated are as follows:
|
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Financial assets:
|
|
|||||||||||||||
Fixed maturities, held-to-maturity
|
$ | 131,820 | 133,951 | 80,232 | 79,103 | |||||||||||
Mortgage loans
|
1,453 | 1,392 | 1,489 | 1,433 | ||||||||||||
Policy loans
|
38,075 | 38,075 | 35,585 | 35,585 | ||||||||||||
Cash and cash equivalents
|
64,425 | 64,425 | 49,723 | 49,723 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Annuities
|
45,891 | 46,024 | 42,096 | 38,619 |
|
Mortgage loans are secured principally by residential and commercial properties. Weighted average interest rates for these loans were approximately 6.7% per year as of September 30, 2011 and December 31, 2010, with maturities ranging from one to thirty years. Fair value was estimated using a discount rate of 6.25% applied to current cash flows projected.
|
|
Policy loans had a weighted average annual interest rate of 7.7% as of both September 30, 2011 and December 31, 2010, and no specified maturity dates. The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets. These loans typically carry an interest rate that is at or above the crediting rate applied to the related policy and contract reserves. Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable. Therefore, the fair value of policy loans approximates the carrying value.
|
|
The fair value of the Company's liabilities under annuity contract policies was estimated at September 30, 2011, using discounted cash flows with an interest rate of 3.2%, which is based upon the 10-year treasury rate reduced for a non-performance risk adjustment. The fair value of liabilities under all insurance contracts are taken into consideration in the overall management of interest rate risk, which seeks to minimize exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.
|
(8)
|
Legal Proceedings
|
|
In addition to the legal proceeding described above, we may from time to time be subject to a variety of legal and regulatory actions relating to our business operations, including, but not limited to:
|
|
·
|
disputes over insurance coverage or claims adjudication;
|
|
·
|
regulatory compliance with insurance and securities laws;
|
|
·
|
disputes with our marketing firms, consultants and agents over compensation and termination of contracts and related claims;
|
|
·
|
disputes regarding our tax liabilities;
|
|
·
|
disputes relating to reinsurance and coinsurance agreements; and
|
|
·
|
disputes relating to businesses acquired and operated by us.
|
(9)
|
Convertible Preferred Stock: Warrants
|
|
In July 2004, the Company completed a private placement of Series A-1 Convertible Preferred Stock ("Series A-1 Preferred") to four unaffiliated institutional investors. The investors were also issued unit warrants to purchase Series A-2 Convertible Preferred Stock ("Series A-2 Preferred"). In 2005, three of the four investors exercised their right to purchase the Series A-2 Preferred. We also issued to the investors warrants to purchase shares of our Class A common stock at various exercise prices that range from $6.72 to $7.93, with most of them striking at $6.95. The conversion, exercise and redemption prices, along with the number of shares and warrants, were adjusted for stock dividends paid on December 31, 2004 and 2005.
|
|
On July 13, 2009, the Company converted all of its outstanding Series A-1 Preferred and Series A-2 Preferred into Class A common shares in accordance with the mandatory redemption provision of the preferred shareholder agreement dated July 12, 2004. The total amount of Class A common shares issued as part of the conversion was 1,706,682, inclusive of pro rata dividends due through the conversion date.
|
|
On July 12, 2011, 255,216 warrant shares were exercised for cash totaling $1.8 million. The remaining shares were exercised by a cashless provision that resulted in the issuance of 1,989 Class A shares by the Company to the warrant holders.
|
|
There are outstanding warrants to purchase the Company's stock at prices ranging from $6.72 to $7.93, which were issued to investors of the Series A-2 Preferred. These warrants are outstanding until 2012.
|
As of September 30, 2011
|
|||||||||||
Warrants
Outstanding |
Expiration Date
|
Strike
Price |
Fair
Value |
||||||||
|
(In thousands)
|
||||||||||
63,961 |
7/12/12
|
$ | 6.72 | $ | 57 | ||||||
55,963 |
9/30/12
|
7.93 | 37 | ||||||||
56,463 |
10/06/12
|
7.86 | 39 | ||||||||
176,387 | $ | 133 |
|
The fair value of the warrants is calculated using the Black-Scholes option pricing model and is classified as a liability on the balance sheet in the amount of $0.1 million and $1.6 million at September 30, 2011, and December 31, 2010, respectively. The change in fair value of warrants is reported as a component of revenue in the income statement. The change in fair value of warrants for the nine months ended September 30, 2011 and 2010 caused an increase in revenues of $1.5 million and $0.4 million, respectively.
|
(10)
|
Income Taxes
|
|
The effective tax rate was 26.9% and 44.1% for the third quarter of 2011 and 2010, respectively, and 31.1% and 33.5% for the nine months ended September 30, 2011 and 2010, respectively. In periods where our effective tax rate is lower than the statutory tax rate of 35%, the difference is primarily due to gains and losses from the change in fair value of outstanding warrants to purchase Class A common stock. The change in fair value of outstanding warrants, which is not taxable, resulted in an increase in income, as previously noted, of $1.5 million and $0.4 million for the nine months ended September 30, 2011 and 2010, respectively. In 2010, the tax rate was higher than the statutory rate due primarily to tax expense on Citizens' redemption of its stock that was held by its subsidiaries, generating taxable transactions resulting in $0.9 million and $1.4 million of tax expense during the three and nine months ended September 30, 2010, respectively. The effects of this tax expense were offset by releases of tax valuation allowances in the three and nine month periods ended September 30, 2010, respectively.
|
(11)
|
Related Party Transactions
|
|
The Company previously filed a plan of merger with the Departments of Insurance of Colorado and Indiana related to the planned merger of Integrity Capital Corporation and the merger of the down-line subsidiary Integrity Capital Insurance Company into CICA. The Company received approval from the respective state insurance departments to merge Integrity Capital Insurance Company into CICA as of April 1, 2011. The capital contribution did not impact the overall consolidated financial position or results of operations of the Company. However, the Company does anticipate the elimination of duplicative overhead and annual regulatory reporting expenses. Integrity Capital Corporation and Integrity Capital Insurance Company were merged into CICA as of April 1, 2011.
|
|
·
|
Changes in foreign and U.S. general economic, market, and political conditions, including the performance of financial markets and interest rates;
|
|
·
|
Changes in consumer behavior, which may affect the Company's ability to sell its products and retain business;
|
|
·
|
The timely development of and acceptance of new products of the Company and perceived overall value of these products and services by existing and potential customers;
|
|
·
|
Fluctuations in experience regarding current mortality, morbidity, persistency and interest rates relative to expected amounts used in pricing the Company's products;
|
|
·
|
The performance of our investment portfolio, which may be adversely affected by changes in interest rates, adverse developments and ratings of issuers whose debt securities we may hold, and other adverse macroeconomic events;
|
|
·
|
Results of litigation we may be involved in;
|
|
·
|
Changes in assumptions related to deferred acquisition costs and the value of any businesses we may acquire;
|
|
·
|
Regulatory, accounting or tax changes that may affect the cost of, or the demand for, the Company's products or services;
|
|
·
|
Our concentration of business from persons residing in Latin America and the Pacific Rim;
|
|
·
|
Our success at managing risks involved in the foregoing;
|
|
·
|
Changes in tax laws;
|
|
·
|
Effects of acquisitions and restructuring, including possible difficulties in integrating and realizing the projected results of acquisitions;
|
|
·
|
Changes in statutory or U.S. GAAP accounting principles, policies or practices; and
|
|
·
|
The risk factors discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 under the heading "Part II. - Item 1A - Risk Factors."
|
|
·
|
U.S. Dollar-denominated ordinary whole life insurance and endowment policies predominantly to high net worth, high income foreign residents, principally in Latin America and the Pacific Rim through independent marketing consultants;
|
|
·
|
ordinary whole life insurance policies to middle income households concentrated in the Midwest and southern United States through independent marketing consultants; and
|
|
·
|
final expense and limited liability property policies to middle and lower income households in Louisiana, Arkansas and Mississippi through employee and independent agents in our home service distribution channel.
|
|
·
|
Insurance revenues rose 5.9% and 6.8% for the three and nine month periods from $38.1 million and $109.9 million to $40.3 million and $117.4 million, respectively, primarily from sales in our life insurance segment, which increased $2.0 million and $6.7 million, respectively, from amounts reported in the same periods of 2010.
|
|
·
|
Net investment income increased 5.8% to $7.7 million for the three month period and decreased 4.1% to $22.9 million for the nine month period. For both the three and nine month periods, the average yield on the portfolio was lower than the comparable periods in 2010. For the three month period, the increase in the investment assets due to premium revenue was sufficient to offset the lower yield and resulted in an increase in net investment income.
|
|
·
|
Claims and surrenders expense decreased 5.9% and 3.9% for the comparable three and nine month periods, respectively, as a result of favorable development.
|
|
·
|
Life Insurance
|
|
·
|
Home Service Insurance
|
|
·
|
Other Non-Insurance Enterprises
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||
2011
|
2010
|
|||||||||||||||||||||||
Amount of
Insurance |
Number of
Policies |
Average Policy
Face Amount |
Amount of
Insurance |
Number of
Policies |
Average Policy
Face Amount |
|||||||||||||||||||
Life
|
$ | 265,605,986 | 4,181 | $ | 63,527 | $ | 244,734,829 | 3,802 | $ | 64,370 | ||||||||||||||
Home Service
|
152,408,350 | 21,285 | 7,160 | 149,400,287 | 20,040 | 7,455 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenues:
|
|
|||||||||||||||
Premiums:
|
||||||||||||||||
Life insurance
|
$ | 38,639 | 36,433 | 112,481 | 105,114 | |||||||||||
Accident and health insurance
|
383 | 392 | 1,151 | 1,215 | ||||||||||||
Property insurance
|
1,277 | 1,230 | 3,781 | 3,592 | ||||||||||||
Net investment income
|
7,693 | 7,272 | 22,924 | 23,896 | ||||||||||||
Realized investment gains (losses), net
|
35 | (103 | ) | 41 | 648 | |||||||||||
Decrease in fair value of warrants
|
239 | 128 | 1,454 | 380 | ||||||||||||
Other income
|
282 | 103 | 509 | 602 | ||||||||||||
Total revenues
|
48,548 | 45,455 | 142,341 | 135,447 | ||||||||||||
Exclude fair value adjustments
|
(239 | ) | (128 | ) | (1,454 | ) | (380 | ) | ||||||||
Total revenues excluding fair value adjustments
|
$ | 48,309 | 45,327 | 140,887 | 135,067 |
Nine Months Ended
September 30, |
Year Ended
December 31, |
Nine Months Ended
September 30, |
||||||||||
2011
|
2010
|
2010
|
||||||||||
(In thousands, except for %)
|
||||||||||||
Net investment income, annualized
|
$ | 30,565 | 30,077 | 31,861 | ||||||||
Average invested assets, at amortized cost
|
744,234 | 696,134 | 684,074 | |||||||||
Annualized yield on average invested assets
|
4.11 | % | 4.32 | % | 4.66 | % |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Gross investment income:
|
|
|||||||||||||||
Fixed maturity securities
|
$ | 6,740 | 6,478 | 19,990 | 21,425 | |||||||||||
Equity securities
|
311 | 162 | 886 | 494 | ||||||||||||
Mortgage loans
|
22 | 25 | 73 | 78 | ||||||||||||
Policy loans
|
756 | 683 | 2,175 | 1,996 | ||||||||||||
Long-term investments
|
61 | 36 | 168 | 186 | ||||||||||||
Other investment income
|
23 | 39 | 106 | 146 | ||||||||||||
Total investment income
|
7,913 | 7,423 | 23,398 | 24,325 | ||||||||||||
Investment expenses
|
(220 | ) | (151 | ) | (474 | ) | (429 | ) | ||||||||
Net investment income
|
$ | 7,693 | 7,272 | 22,924 | 23,896 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Benefits and expenses:
|
|
|||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
$ | 14,803 | 15,739 | 44,587 | 46,410 | |||||||||||
Increase in future policy benefit reserves
|
14,365 | 11,398 | 39,683 | 30,726 | ||||||||||||
Policyholders' dividends
|
2,169 | 1,977 | 5,751 | 5,324 | ||||||||||||
Total insurance benefits paid or provided
|
31,337 | 29,114 | 90,021 | 82,460 | ||||||||||||
Commissions
|
9,224 | 9,229 | 28,226 | 26,385 | ||||||||||||
Other general expenses
|
6,857 | 6,587 | 20,386 | 20,562 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(7,121 | ) | (6,973 | ) | (22,170 | ) | (19,946 | ) | ||||||||
Amortization of deferred policy acquisition costs
|
4,500 | 3,800 | 13,249 | 13,962 | ||||||||||||
Amortization of cost of customer relationships acquired
|
708 | 719 | 2,113 | 2,311 | ||||||||||||
Total benefits and expenses
|
$ | 45,505 | 42,476 | 131,825 | 125,734 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
|
||||||||||||||||
Death claims
|
$ | 4,917 | 5,977 | 15,531 | 17,912 | |||||||||||
Surrender benefits
|
5,166 | 5,126 | 14,915 | 14,863 | ||||||||||||
Endowments
|
3,576 | 3,616 | 10,595 | 10,446 | ||||||||||||
Property claims
|
586 | 469 | 1,601 | 1,340 | ||||||||||||
Accident and health benefits
|
79 | 98 | 334 | 485 | ||||||||||||
Other policy benefits
|
479 | 453 | 1,611 | 1,364 | ||||||||||||
Total claims and surrenders
|
$ | 14,803 | 15,739 | 44,587 | 46,410 |
Income (Loss) Before Income Taxes
|
||||||||||||||||
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
|
||||||||||||||||
Life Insurance
|
$ | 2,045 | 1,894 | 4,902 | 5,774 | |||||||||||
Home Service Insurance
|
1,152 | 1,270 | 5,459 | 4,518 | ||||||||||||
Other Non-Insurance Enterprises
|
(154 | ) | (185 | ) | 155 | (579 | ) | |||||||||
Total
|
$ | 3,043 | 2,979 | 10,516 | 9,713 |
|
·
|
larger face amount policies typically issued when compared to our U.S. operations, which results in lower underwriting and administrative costs per unit of coverage;
|
|
·
|
premiums typically paid annually rather than monthly or quarterly, which saves us administrative expenses, accelerates cash flow and results in lower policy lapse rates than premiums with more frequently scheduled payments; and
|
|
·
|
favorable persistency levels and mortality rates that are comparable to U.S. policies.
|
|
·
|
U.S. Dollar-denominated cash values that accumulate, beginning in the first policy year, to a policyholder during his or her lifetime;
|
|
·
|
premium rates that are competitive with or better than most foreign local companies;
|
|
·
|
a hedge against local currency inflation;
|
|
·
|
protection against devaluation of foreign currency;
|
|
·
|
capital investment in a more secure economic environment (i.e., the United States); and
|
|
·
|
lifetime income guarantees for an insured or for surviving beneficiaries.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Country
|
|
|||||||||||||||
Colombia
|
$ | 5,665 | 5,304 | 16,254 | 15,673 | |||||||||||
Venezuela
|
4,838 | 4,140 | 14,758 | 11,575 | ||||||||||||
Taiwan
|
3,291 | 3,586 | 11,459 | 11,067 | ||||||||||||
Ecuador
|
3,392 | 3,248 | 9,908 | 9,130 | ||||||||||||
Argentina
|
2,643 | 2,578 | 6,915 | 6,799 | ||||||||||||
Other Non-U.S.
|
8,117 | 7,649 | 22,010 | 20,238 | ||||||||||||
Total
|
$ | 27,946 | 26,505 | 81,304 | 74,482 |
|
·
|
cash accumulation/living benefits;
|
|
·
|
tax-deferred interest earnings;
|
|
·
|
guaranteed lifetime income or monthly income options for the policyowner or surviving family members;
|
|
·
|
accidental death benefit coverage options; and
|
|
·
|
an option to waive premium payments in the event of disability.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
State
|
|
|||||||||||||||
Texas
|
$ | 1,336 | 1,526 | 4,213 | 4,605 | |||||||||||
Indiana
|
375 | 491 | 1,334 | 1,470 | ||||||||||||
Missouri
|
295 | 338 | 1,089 | 1,220 | ||||||||||||
Kentucky
|
241 | 337 | 784 | 1,006 | ||||||||||||
Mississippi
|
265 | 274 | 818 | 909 | ||||||||||||
Other States
|
875 | 892 | 2,524 | 2,716 | ||||||||||||
Total
|
$ | 3,387 | 3,858 | 10,762 | 11,926 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenue:
|
|
|||||||||||||||
Premiums
|
$ | 29,491 | 27,514 | 85,027 | 78,364 | |||||||||||
Net investment income
|
4,309 | 3,893 | 12,662 | 13,239 | ||||||||||||
Realized investment gains, net
|
25 | 1 | 29 | 116 | ||||||||||||
Other income
|
240 | 78 | 404 | 487 | ||||||||||||
Total revenue
|
34,065 | 31,486 | 98,122 | 92,206 | ||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
9,834 | 10,498 | 29,691 | 30,644 | ||||||||||||
Increase in future policy benefit reserves
|
13,133 | 10,688 | 36,957 | 28,123 | ||||||||||||
Policyholders' dividends
|
2,152 | 1,965 | 5,696 | 5,267 | ||||||||||||
Total insurance benefits paid or provided
|
25,119 | 23,151 | 72,344 | 64,034 | ||||||||||||
Commissions | 5,516 | 5,572 | 16,916 | 15,316 | ||||||||||||
Other general expenses
|
2,983 | 2,603 | 8,936 | 8,234 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(5,484 | ) | (5,414 | ) | (16,971 | ) | (15,097 | ) | ||||||||
Amortization of deferred policy acquisition costs
|
3,680 | 3,448 | 11,290 | 13,108 | ||||||||||||
Amortization of cost of customer relationships acquired
|
206 | 232 | 705 | 837 | ||||||||||||
Total benefits and expenses
|
32,020 | 29,592 | 93,220 | 86,432 | ||||||||||||
Income before income tax expense
|
$ | 2,045 | 1,894 | 4,902 | 5,774 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Premiums:
|
|
|||||||||||||||
First year
|
$ | 3,957 | 4,172 | 12,678 | 11,396 | |||||||||||
Renewal
|
25,534 | 23,342 | 72,349 | 66,968 | ||||||||||||
Total premiums
|
$ | 29,491 | 27,514 | 85,027 | 78,364 |
Nine Months Ended
September 30, |
Year Ended
December 31, |
Nine Months Ended
September 30, |
||||||||||
2011
|
2010
|
2010
|
||||||||||
(In thousands, except for %)
|
||||||||||||
Net investment income, annualized
|
$ | 16,883 | 16,523 | 17,652 | ||||||||
Average invested assets, at amortized cost
|
$ | 426,027 | 396,360 | 387,955 | ||||||||
Annualized yield on average invested assets
|
3.96 | % | 4.17 | % | 4.55 | % |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
|
|
|||||||||||||||
Death claims
|
$ | 1,447 | 1,987 | 4,793 | 5,771 | |||||||||||
Surrender benefits
|
4,372 | 4,477 | 12,808 | 13,083 | ||||||||||||
Endowment benefits
|
3,573 | 3,611 | 10,587 | 10,427 | ||||||||||||
Accident and health benefits
|
64 | 65 | 221 | 348 | ||||||||||||
Other policy benefits
|
378 | 358 | 1,282 | 1,015 | ||||||||||||
Total claims and surrenders
|
$ | 9,834 | 10,498 | 29,691 | 30,644 |
|
·
|
Death claims expense was lower for the three and nine months in 2011 due to fewer reported claims. In addition, the nine months ended in 2011 includes a $0.2 million release of incurred but not reported liability related to our claim experience calculation. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.
|
|
·
|
Surrenders as a percent of ordinary whole life insurance in force decreased from 0.6% in the nine months of 2010 to 0.5% in the nine months of 2011. The majority of policy surrender benefits paid is attributable to our international business and was related to policies that have been in force over fifteen years, where surrender charges are no longer applicable.
|
|
·
|
Endowment benefit expense results from the election by policyholders of a product feature that provides an annual benefit. This is a fixed benefit over the life of the contract, and this expense will increase with new sales and improved persistency.
|
|
·
|
Other policy benefits increased in the current year due primarily to interest paid on premium deposits and dividend accumulations, as these policyholder liability accounts have increased.
|
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
|
|
|||||||||||||||
State
|
|
|
||||||||||||||
Louisiana
|
$ | 10,186 | 10,006 | 30,633 | 29,973 | |||||||||||
Arkansas
|
1,119 | 1,136 | 3,156 | 3,423 | ||||||||||||
Mississippi
|
91 | 83 | 269 | 248 | ||||||||||||
Other states
|
278 | 263 | 798 | 812 | ||||||||||||
Total
|
$ | 11,674 | 11,488 | 34,856 | 34,456 |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
Revenue:
|
|
|||||||||||||||
Premiums
|
$ | 10,808 | 10,541 | 32,386 | 31,557 | |||||||||||
Net investment income
|
3,178 | 3,244 | 9,690 | 10,251 | ||||||||||||
Realized investment gains (losses), net
|
4 | (96 | ) | 6 | 585 | |||||||||||
Other income
|
6 | 10 | 20 | 63 | ||||||||||||
Total revenue
|
13,996 | 13,699 | 42,102 | 42,456 | ||||||||||||
Benefits and expenses:
|
||||||||||||||||
Insurance benefits paid or provided:
|
||||||||||||||||
Claims and surrenders
|
4,969 | 5,241 | 14,896 | 15,766 | ||||||||||||
Increase in future policy benefit reserves
|
1,232 | 710 | 2,726 | 2,603 | ||||||||||||
Policyholders' dividends
|
17 | 12 | 55 | 57 | ||||||||||||
Total insurance benefits paid or provided
|
6,218 | 5,963 | 17,677 | 18,426 | ||||||||||||
Commissions
|
3,708 | 3,657 | 11,310 | 11,069 | ||||||||||||
Other general expenses
|
3,233 | 3,529 | 9,488 | 10,964 | ||||||||||||
Capitalization of deferred policy acquisition costs
|
(1,637 | ) | (1,559 | ) | (5,199 | ) | (4,849 | ) | ||||||||
Amortization of deferred policy acquisition costs
|
820 | 352 | 1,959 | 854 | ||||||||||||
Amortization of cost of customer relationships acquired
|
502 | 487 | 1,408 | 1,474 | ||||||||||||
Total benefits and expenses
|
12,844 | 12,429 | 36,643 | 37,938 | ||||||||||||
Income before income tax expense
|
$ | 1,152 | 1,270 | 5,459 | 4,518 |
Nine Months Ended
September 30, |
Year Ended
December 31, |
Nine Months Ended
September 30, |
||||||||||
2011
|
2010
|
2010
|
||||||||||
(In thousands, except for %)
|
||||||||||||
Net investment income, annualized
|
$ | 12,920 | 13,008 | 13,668 | ||||||||
Average invested assets, at amortized cost
|
284,886 | 279,682 | 279,199 | |||||||||
Annualized yield on average invested assets
|
4.54 | % | 4.65 | % | 4.90 | % |
Three Months Ended
September 30, |
Nine Months Ended
September 30, |
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
(In thousands)
|
||||||||||||||||
|
|
|||||||||||||||
Death claims
|
$ | 3,470 | 3,990 | 10,738 | 12,141 | |||||||||||
Surrender benefits
|
794 | 649 | 2,107 | 1,780 | ||||||||||||
Endowment benefits
|
3 | 5 | 8 | 19 | ||||||||||||
Property claims
|
586 | 469 | 1,601 | 1,340 | ||||||||||||
Accident and health benefits
|
15 | 33 | 113 | 137 | ||||||||||||
Other policy benefits
|
101 | 95 | 329 | 349 | ||||||||||||
Total claims and surrenders
|
$ | 4,969 | 5,241 | 14,896 | 15,766 |
|
·
|
Death claims expense was lower for the three and nine months in 2011 due to fewer reported claims. In addition, the nine months includes a $0.3 million incurred but not reported release of liability related to our claim experience calculation. Mortality experience is closely monitored by the Company as a key performance indicator and these amounts were within expected levels.
|
|
·
|
Surrender benefits have increased in the three and nine months ended September 30, 2011, compared to the same periods in 2010, which may be attributable to the current economic conditions.
|
|
·
|
Property claims increased for the three and nine moths of 2011 compared to the same periods in 2010, as 2010 claims reported were lower than historical experience.
|
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Value
|
% of Total
Carrying Value |
Carrying
Value |
% of Total
Carrying Value |
|||||||||||||
(In thousands)
|
(In thousands)
|
|||||||||||||||
Marketable securities:
|
|
|
||||||||||||||
U.S. Treasury and U.S. Government-sponsored enterprises
|
$ | 307,817 | 35.9 | $ | 378,012 | 48.8 | ||||||||||
Corporate
|
183,961 | 21.5 | 161,298 | 20.8 | ||||||||||||
Municipal bonds
|
194,249 | 22.7 | 101,719 | 13.1 | ||||||||||||
Mortgage-backed (1)
|
9,918 | 1.2 | 14,808 | 1.9 | ||||||||||||
Foreign governments
|
144 | - | 132 | - | ||||||||||||
Short-term investments
|
2,066 | 0.2 | - | - | ||||||||||||
Total marketable securities
|
698,155 | 81.5 | 655,969 | 84.6 | ||||||||||||
Cash and cash equivalents
|
64,425 | 7.5 | 49,723 | 6.4 | ||||||||||||
Other investments:
|
||||||||||||||||
Policy loans
|
38,075 | 4.4 | 35,585 | 4.6 | ||||||||||||
Equity securities
|
45,366 | 5.3 | 23,304 | 3.0 | ||||||||||||
Mortgage loans
|
1,453 | 0.2 | 1,489 | 0.2 | ||||||||||||
Real estate
|
9,126 | 1.1 | 9,200 | 1.2 | ||||||||||||
Other long-term investments
|
141 | - | 148 | - | ||||||||||||
Total cash, cash equivalents and investments
|
$ | 856,741 | 100.0 | $ | 775,418 | 100.0 |
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Value |
% of Total
Carrying Value |
Carrying
Value |
% of Total
Carrying Value |
|||||||||||||
(In thousands)
|
(In thousands)
|
|||||||||||||||
AAA
|
$ | 42,649 | 6.1 | $ | 428,194 | 65.3 | ||||||||||
AA
|
462,033 | 66.4 | 59,454 | 9.1 | ||||||||||||
A | 93,279 | 13.4 | 73,341 | 11.2 |
|
|||||||||||
BBB
|
80,483 | 11.6 | 84,489 | 12.9 | ||||||||||||
BB and other
|
17,645 | 2.5 | 10,491 | 1.5 | ||||||||||||
Totals
|
$ | 696,089 | 100.0 | $ | 655,969 | 100.0 |
Municipals shown including third party guarantees
|
|||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||
September 30, 2011
|
|||||||||||||||||||||||||||||||||
General Obligation
|
Special Revenue
|
Other
|
Total
|
||||||||||||||||||||||||||||||
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
||||||||||||||||||||||||||
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
||||||||||||||||||||||||||
(In thousands)
|
|||||||||||||||||||||||||||||||||
|
|||||||||||||||||||||||||||||||||
AAA
|
$ | 16,246 | 14,664 | 8,713 | 8,294 | - | - | 24,959 | 22,958 | ||||||||||||||||||||||||
AA
|
48,667 | 45,615 | 80,928 | 75,834 | 5,912 | 5,581 | 135,507 | 127,030 | |||||||||||||||||||||||||
A | 2,365 | 2,454 | 23,098 | 22,534 | - | - | 25,463 | 24,988 | |||||||||||||||||||||||||
BBB
|
513 | 517 | 4,365 | 4,755 | 921 | 1,046 | 5,799 | 6,318 | |||||||||||||||||||||||||
BB and other
|
- | - | 4,269 | 5,191 | - | - | 4,269 | 5,191 | |||||||||||||||||||||||||
Total
|
$ | 67,791 | 63,250 | 121,373 | 116,608 | 6,833 | 6,627 | 195,997 | 186,485 |
Municipals shown excluding third party guarantees | ||||||||||||||||||||||||||||||||
September 30, 2011
|
||||||||||||||||||||||||||||||||
General Obligation
|
Special Revenue
|
Other
|
Total
|
|||||||||||||||||||||||||||||
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
|||||||||||||||||||||||||
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
|||||||||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||||
AAA
|
$ | - | - | 8,713 | 8,294 | - | - | 8,713 | 8,294 | |||||||||||||||||||||||
AA
|
45,958 | 42,621 | 64,796 | 60,708 | 5,912 | 5,581 | 116,666 | 108,910 | ||||||||||||||||||||||||
A | 9,289 | 9,013 | 37,487 | 35,887 | - | - | 46,776 | 44,900 | ||||||||||||||||||||||||
BBB
|
513 | 517 | 5,607 | 6,028 | 921 | 1,046 | 7,041 | 7,591 | ||||||||||||||||||||||||
BB and other
|
12,031 | 11,099 | 4,770 | 5,691 | - | - | 16,801 | 16,790 | ||||||||||||||||||||||||
Total
|
$ | 67,791 | 63,250 | 121,373 | 116,608 | 6,833 | 6,627 | 195,997 | 186,485 |
September 30, 2011
|
||||||||||||
Fair Value
|
Amortized
Cost |
% of Total
Fair Value |
||||||||||
(In thousands)
|
||||||||||||
Public improvements
|
$ | 24,137 | 23,352 | 12.3 | % | |||||||
Refunding bonds and notes
|
24,681 | 23,887 | 12.6 | % |
Municipal Exposure by State | |||||||||||||||||||||||||||||||||
September 30, 2011
|
|||||||||||||||||||||||||||||||||
General Obligation
|
Special Revenue
|
Other
|
Total
|
||||||||||||||||||||||||||||||
Fair
Value |
Amortized
Cost
|
Fair
Value |
Amortized
Cost
|
Fair
Value |
Amortized
Cost
|
Fair
Value |
Amortized
Cost
|
||||||||||||||||||||||||||
(In thousands)
|
|||||||||||||||||||||||||||||||||
Louisiana securities including third party guarantees
|
|||||||||||||||||||||||||||||||||
AA
|
$ | 11,828 | 11,228 | 18,675 | 18,001 | - | - | 30,503 | 29,229 | ||||||||||||||||||||||||
A | 783 | 773 | 13,538 | 13,234 | - | - | 14,321 | 14,007 | |||||||||||||||||||||||||
BBB
|
513 | 517 | 4,365 | 4,755 | 921 | 1,046 | 5,799 | 6,318 | |||||||||||||||||||||||||
BB and other
|
- | - | 4,269 | 5,191 | - | - | 4,269 | 5,191 | |||||||||||||||||||||||||
Total
|
$ | 13,124 | 12,518 | 40,847 | 41,181 | 921 | 1,046 | 54,892 | 54,745 | ||||||||||||||||||||||||
Louisiana securities excluding third party guarantees
|
|||||||||||||||||||||||||||||||||
AA
|
$ | 9,507 | 8,984 | 13,015 | 12,583 | - | - | 22,522 | 21,567 | ||||||||||||||||||||||||
A | 3,104 | 3,017 | 17,455 | 16,879 | - | - | 20,559 | 19,896 | |||||||||||||||||||||||||
BBB
|
513 | 517 | 5,607 | 6,028 | 921 | 1,046 | 7,041 | 7,591 | |||||||||||||||||||||||||
BB and other
|
- | - | 4,770 | 5,691 | - | - | 4,770 | 5,691 | |||||||||||||||||||||||||
Total
|
$ | 13,124 | 12,518 | 40,847 | 41,181 | 921 | 1,046 | 54,892 | 54,745 | ||||||||||||||||||||||||
Texas securities including third party guarantees
|
AAA
|
$ | 16,246 | 14,664 | 4,354 | 4,043 | - | - | 20,600 | 18,707 | ||||||||||||||||||||||||
AA
|
6,655 | 6,232 | 5,664 | 5,496 | - | - | 12,319 | 11,728 | |||||||||||||||||||||||||
A | - | - | 3,241 | 3,301 | - | - | 3,241 | 3,301 | |||||||||||||||||||||||||
Total
|
$ | 22,901 | 20,896 | 13,259 | 12,840 | - | - | 36,160 | 33,736 | ||||||||||||||||||||||||
Texas securities excluding third party guarantees
|
AAA
|
$ | - | - | 4,354 | 4,043 | - | - | 4,354 | 4,043 | ||||||||||||||||||||||||
AA
|
21,807 | 19,884 | 5,664 | 5,496 | - | - | 27,471 | 25,380 | |||||||||||||||||||||||||
A | - | - | 3,241 | 3,301 | - | - | 3,241 | 3,301 | |||||||||||||||||||||||||
BBB
|
1,094 | 1,012 | - | - | - | - | 1,094 | 1,012 | |||||||||||||||||||||||||
Total
|
$ | 22,901 | 20,896 | 13,259 | 12,840 | - | - | 36,160 | 33,736 |
September 30,
2011 |
December 31,
2010 |
|||||||
CICA
|
973 | % | 858 | % | ||||
CNLIC
|
2,665 | % | 2,804 | % | ||||
SPFIC
|
318 | % | 311 | % | ||||
SPLIC
|
1,300 | % | 1,238 | % |
September 30, 2011
|
December 31, 2010
|
|||||||||||||||||||||||
Amortized
Cost |
Fair
Value |
Net
Unrealized |
Amortized
Cost |
Fair
Value |
Net
Unrealized |
|||||||||||||||||||
(In thousands)
|
||||||||||||||||||||||||
Fixed maturities, available-for-sale
|
$ | 536,537 | 564,269 | 27,732 | 578,412 | 575,737 | (2,675 | ) | ||||||||||||||||
Fixed maturities, held-to-maturity
|
131,820 | 133,951 | 2,131 | 80,232 | 79,103 | (1,129 | ) | |||||||||||||||||
Total fixed maturities
|
$ | 668,357 | 698,220 | 29,863 | 658,644 | 654,840 | (3,804 | ) | ||||||||||||||||
Total equity securities
|
$ | 44,340 | 45,366 | 1,026 | 19,844 | 23,304 | 3,460 |
In addition to the legal proceeding described above, we may from time to time be subject to a variety of legal and regulatory actions relating to our business operations, including, but not limited to:
|
Exhibit Number
|
The following exhibits are filed herewith:
|
3.1
|
Restated and Amended Articles of Incorporation (a)
|
3.2
|
Bylaws (b)
|
4.1
|
Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)
|
11
|
Statement re: Computation of per share earnings (see financial statements)
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act*
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act*
|
|
News Release reporting third quarter results issued on November 3, 2011 (furnished herewith).
|
|
101.INS
|
XBRL Instance Document (furnished herewith)
|
101.SCH
|
XBRL Taxonomy Extension Schema (furnished herewith)
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase (furnished herewith)
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase (furnished herewith)
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase (furnished herewith)
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase (furnished herewith)
|
_________________ | |
* Filed herewith.
|
|
(a)
|
Filed on March 15, 2004 with the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 2003 as Exhibit 3.1 and incorporated herein by reference.
|
(b)
|
Filed on March 31, 1999 with the Registrant's Annual Report on Form 10-K for the Year Ended December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.
|
(c)
|
Filed on July 15, 2004, with the Registrant's Current Report on Form 8-K as Exhibit 4.1, and incorporated herein by reference.
|
CITIZENS, INC.
|
|||
|
By:
|
/s/ Harold E. Riley | |
Harold E. Riley | |||
Chairman and Chief Executive Officer | |||
By: | /s/ Kay E. Osbourn | ||
Kay E. Osbourn | |||
Executive Vice President, Chief Financial Officer | |||
and Treasurer | |||
Date: November 3, 2011 |
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Citizens, Inc. ("registrant");
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
|
(a) All significant deficiencies and material weaknesses in the design of operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
By:
|
/s/ Harold E. Riley | |
Harold E. Riley | |||
Date: November 3, 2011 | Chairman and Chief Executive Officer |
1.
|
I have reviewed this Quarterly Report on Form 10-Q of Citizens, Inc. ("registrant");
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's Board of Directors (or persons performing the equivalent functions):
|
(a) All significant deficiencies and material weaknesses in the design of operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
|
By:
|
/s/ Kay E. Osbourn | |
Kay E. Osbourn | |||
Date: November 3, 2011 | Exec. Vice President, Chief Financial Officer and Treasurer |
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
/s/ Harold E. Riley | |
Name: | Harold E. Riley | ||
Title: | Chairman and Chief Executive Officer | ||
Date: | November 3, 2011 |
|
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
|
|
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
/s/ Kay E. Osbourn | |
Name: |
Kay E. Osbourn
|
||
Title: |
Executive Vice President, Chief Financial Officer and Treasurer
|
||
Date: | November 3, 2011 |
(In thousands, except per share amounts)
|
QTR11
|
QTR10
|
YTD11
|
YTD10
|
Premiums
|
40,299
|
38,055
|
117,413
|
109,921
|
Net investment income
|
7,693
|
7,272
|
22,924
|
23,896
|
Net realized investment gains (losses)
|
35
|
(103)
|
41
|
648
|
Decrease in fair value of warrants
|
239
|
128
|
1,454
|
380
|
Total revenues
|
48,548
|
45,455
|
142,341
|
135,447
|
Net income applicable to common stock
|
2,223
|
1,666
|
7,246
|
6,456
|
Net income per diluted share of Class A common stock
|
0.05
|
0.03
|
0.15
|
0.13
|
Weighted average shares of Class A common stock (diluted)
|
48,912
|
48,687
|
48,764
|
48,687
|
●
|
Total revenues – Total revenues increased 6.8% and 5.1% for the three and nine months ended September 30, 2011, primarily reflecting the growth in premiums. Excluding the change in fair value of warrants, revenues increased 6.6% and 4.3% for the same periods.
|
·
|
Net income – Net income increased 33.4% and 12.2% for the three and nine months ended September 30, 2011. Realized investment gains (losses), net of tax and change in the fair value of warrants combined to increase net income by $0.3 million, or $0.01 per share of diluted Class A common stock and $1.5 million, or $0.03 per share, for the quarter and year ending September 30, 2011. The effect of these items was insignificant for the third quarter of 2010 and increased net income by $1.0 million, or $0.02 per share, for the nine months of 2010.
|
·
|
Book value – Book value per share increased 6.9% to $5.10 at September 30, 2011, compared with $4.77 at September 30, 2010, reflecting net income and portfolio appreciation.
|
·
|
Life insurance – Total premiums increased 7.2% and 8.5% for the three and nine months of 2011 compared to the same periods in 2010. Income before income taxes for the nine month period declined primarily because of an increase in future policy benefit reserves expense and an increase in other general expenses due to an annual allocation review adjustment of expenses. For the nine months ended 2011, the decline also reflected lower investment income. Income for the three month period was up as investment income increased and claims and surrenders decreased.
|
o
|
Life first-year premiums declined approximately 5% in the third quarter while increasing approximately 11% for the nine months ended September 30, 2011. Sales remained strong internationally with Colombia, Venezuela and Taiwan continuing as the top producing countries. Premiums from Venezuela rose approximately 28% year to date with total direct premiums collected of $14.8 million compared to $11.6 million during the nine months of 2010. International persistency trends also remained favorable with renewals accounting for 85% of premiums for the nine months of 2011 and 2010.
|
o
|
Our international clients’ focus on contract guarantees is driving higher endowment sales, which now represent approximately 75% of international new business compared to 57% in 2010. The increase in future policy benefit reserves correlates to the increase in endowment sales, which produce a faster reserve build up than whole life products.
|
·
|
Home service – Premiums increased 2.5% and 2.6% for the three and nine month periods compared to 2010, as sales continued to pace at 2010 levels. Income before taxes for the third quarter decreased to $1.2 million compared to $1.3 million in third quarter of last year, primarily due to an increase in reserves and an increase in deferred policy acquisition costs amortization. Income before taxes for the nine months increased to $5.5 million compared with $4.5 million, due to favorable claim experience and a reduction in general expense allocations. The expense allocation adjustments were implemented at the beginning of the current year following a periodic review of assumptions.
|
o
|
Death claims were down 13.0% and 11.6% for the three and nine months in 2011 due to favorable experience. Property casualty losses for the three and nine month periods related to weather events in the Company’s home service markets were within normal levels. Property casualty claims reported in 2010 had lower than expected claim averages, which also affected comparability between periods.
|
·
|
Invested assets – Total invested assets grew to $792.3 million at September 30, 2011, from $725.7 million at December 31, 2010. Fixed maturity securities represent a significant percentage of the investment portfolio, accounting for approximately 88% of the investments at September 30, 2011.
|
|
o
|
Annualized yield on the investment portfolio was 4.11% for the first nine months of 2011 compared with 4.32% for full-year 2010.
|
|
o
|
Available-for-sale fixed maturity securities totaled approximately $564.3 million, or 71.2% of total investments. These securities are carried at market value with the fair value change reported as a component of Other Comprehensive Income. Increases in unrealized gains in the total available-for-sale portfolio were $15.7 million and $28.0 million in the three and nine months ended September 30, 2011, compared to unrealized gains of $11.4 million and $21.9 million for the same periods in 2010.
|
·
|
Investment income – Net investment income was down for the nine months as annualized yield on the portfolio declined to 4.11% from 4.66% a year ago due to lower prevailing interest rates. Investment income increased in the third quarter due to the growth in the portfolio assets reflecting new money from premiums invested. Yield rates by quarter appear to be leveling off primarily because of a shrinking differential between the rates on called securities and the rates available on new securities.
|
·
|
Realized investment gains and losses – Realized investment gains and losses in the portfolio during the first nine months of 2011 resulted from issuer calls. Net realized gains in 2010 totaled $0.6 million on the sale of available-for-sale securities of lower-rated issuers that had been part of an acquired portfolio. The Company recorded no other-than-temporary impairment charges in 2011 or 2010.
|
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Premiums:
|
||||||||
Life insurance
|
$ | 38,639 | 36,433 | |||||
Accident and health insurance
|
383 | 392 | ||||||
Property insurance
|
1,277 | 1,230 | ||||||
Net investment income
|
7,693 | 7,272 | ||||||
Realized investment gains (losses), net
|
35 | (103 | ) | |||||
Decrease in fair value of warrants
|
239 | 128 | ||||||
Other income
|
282 | 103 | ||||||
Total revenues
|
48,548 | 45,455 | ||||||
Benefits and expenses:
|
||||||||
Insurance benefits paid or provided:
|
||||||||
Claims and surrenders
|
14,803 | 15,739 | ||||||
Increase in future policy benefit reserves
|
14,365 | 11,398 | ||||||
Policyholders' dividends
|
2,169 | 1,977 | ||||||
Total insurance benefits paid or provided
|
31,337 | 29,114 | ||||||
Commissions
|
9,224 | 9,229 | ||||||
Other general expenses
|
6,857 | 6,587 | ||||||
Capitalization of deferred policy acquisition costs
|
(7,121 | ) | (6,973 | ) | ||||
Amortization of deferred policy acquisition costs
|
4,500 | 3,800 | ||||||
Amortization of cost of customer relationships acquired
|
708 | 719 | ||||||
Total benefits and expenses
|
45,505 | 42,476 | ||||||
Income before federal income tax
|
3,043 | 2,979 | ||||||
Federal income tax expense
|
820 | 1,313 | ||||||
Net income
|
$ | 2,223 | 1,666 | |||||
Per Share Amounts:
|
||||||||
Basic and diluted earnings per share of Class A common stock
|
$ | 0.05 | 0.03 | |||||
Basic and diluted earnings per share of Class B common stock
|
0.02 | 0.02 |
2011
|
2010
|
|||||||
Revenues:
|
||||||||
Premiums:
|
||||||||
Life insurance
|
$ | 112,481 | 105,114 | |||||
Accident and health insurance
|
1,151 | 1,215 | ||||||
Property insurance
|
3,781 | 3,592 | ||||||
Net investment income
|
22,924 | 23,896 | ||||||
Realized investment gains, net
|
41 | 648 | ||||||
Decrease in fair value of warrants
|
1,454 | 380 | ||||||
Other income
|
509 | 602 | ||||||
Total revenues
|
142,341 | 135,447 | ||||||
Benefits and expenses:
|
||||||||
Insurance benefits paid or provided:
|
||||||||
Claims and surrenders
|
44,587 | 46,410 | ||||||
Increase in future policy benefit reserves
|
39,683 | 30,726 | ||||||
Policyholders' dividends
|
5,751 | 5,324 | ||||||
Total insurance benefits paid or provided
|
90,021 | 82,460 | ||||||
Commissions
|
28,226 | 26,385 | ||||||
Other general expenses
|
20,386 | 20,562 | ||||||
Capitalization of deferred policy acquisition costs
|
(22,170 | ) | (19,946 | ) | ||||
Amortization of deferred policy acquisition costs
|
13,249 | 13,962 | ||||||
Amortization of cost of customer relationships acquired
|
2,113 | 2,311 | ||||||
Total benefits and expenses
|
131,825 | 125,734 | ||||||
Income before federal income tax
|
10,516 | 9,713 | ||||||
Federal income tax expense
|
3,270 | 3,257 | ||||||
Net income
|
$ | 7,246 | 6,456 | |||||
Per Share Amounts:
|
||||||||
Basic and diluted earnings per share of Class A common stock
|
$ | 0.15 | 0.13 | |||||
Basic and diluted earnings per share of Class B common stock
|
0.07 | 0.07 |
Assets
|
September 30,
2011 |
December 31,
2010 |
||||||
(Unaudited)
|
||||||||
Investments:
|
||||||||
Fixed maturities available-for-sale, at fair value
|
$ | 564,269 | 575,737 | |||||
Fixed maturities held-to-maturity, at amortized cost
|
131,820 | 80,232 | ||||||
Equity securities available-for-sale, at fair value
|
45,366 | 23,304 | ||||||
Mortgage loans on real estate
|
1,453 | 1,489 | ||||||
Policy loans
|
38,075 | 35,585 | ||||||
Real estate held for investment
|
9,126 | 9,200 | ||||||
Other long-term investments
|
141 | 148 | ||||||
Short-term investments
|
2,066 | - | ||||||
Total investments
|
792,316 | 725,695 | ||||||
Cash and cash equivalents
|
64,425 | 49,723 | ||||||
Accrued investment income
|
8,465 | 7,433 | ||||||
Reinsurance recoverable
|
9,890 | 9,729 | ||||||
Deferred policy acquisition costs
|
134,587 | 125,684 | ||||||
Cost of customer relationships acquired
|
29,108 | 31,631 | ||||||
Goodwill
|
17,160 | 17,160 | ||||||
Other intangible assets
|
913 | 1,019 | ||||||
Federal income tax receivable
|
344 | 1,914 | ||||||
Property and equipment, net
|
7,992 | 7,101 | ||||||
Due premiums, net
|
7,807 | 8,537 | ||||||
Prepaid expenses
|
1,027 | 474 | ||||||
Other assets
|
727 | 406 | ||||||
Total assets
|
$ | 1,074,761 | 986,506 |
Liabilities and Stockholders' Equity
|
September 30,
2011 |
December 31,
2010 |
||||||
(Unaudited)
|
||||||||
Liabilities:
|
||||||||
Policy liabilities:
|
|
|||||||
Future policy benefits reserves:
|
||||||||
Life insurance
|
$ | 679,257 | 637,140 | |||||
Annuities
|
45,891 | 42,096 | ||||||
Accident and health
|
5,553 | 5,910 | ||||||
Dividend accumulations
|
10,291 | 9,498 | ||||||
Premiums paid in advance
|
25,360 | 23,675 | ||||||
Policy claims payable
|
9,517 | 10,540 | ||||||
Other policyholders' funds
|
8,489 | 8,191 | ||||||
Total policy liabilities
|
784,358 | 737,050 | ||||||
Commissions payable
|
2,368 | 2,538 | ||||||
Deferred federal income tax
|
18,543 | 9,410 | ||||||
Payable for securities in process of settlement
|
6,654 | - | ||||||
Warrants outstanding
|
133 | 1,587 | ||||||
Other liabilities
|
8,188 | 8,287 | ||||||
Total liabilities
|
820,244 | 758,872 | ||||||
Commitments and contingencies
|
||||||||
Stockholders' equity:
|
||||||||
Common stock:
|
||||||||
Class A
|
258,496 | 256,703 | ||||||
Class B
|
3,184 | 3,184 | ||||||
Accumulated deficit
|
(15,337 | ) | (22,581 | ) | ||||
Accumulated other comprehensive income:
|
||||||||
Unrealized gains on securities, net of tax
|
19,185 | 1,339 | ||||||
265,528 | 238,645 | |||||||
Treasury stock, at cost
|
(11,011 | ) | (11,011 | ) | ||||
Total stockholders' equity
|
254,517 | 227,634 | ||||||
Total liabilities and stockholders' equity
|
$ | 1,074,761 | 986,506 |
Document And Entity Information (USD $) | 9 Months Ended | |||
---|---|---|---|---|
Sep. 30, 2011 | Jun. 30, 2010 | Nov. 01, 2011
Common Class A [Member] | Nov. 01, 2011
Common Class B [Member] | |
Entity Information [Line Items] | ||||
Entity Registrant Name | CITIZENS INC | |||
Entity Central Index Key | 0000024090 | |||
Current Fiscal Year End Date | --12-31 | |||
Entity Well-known Seasoned Issuer | No | |||
Entity Voluntary Filers | No | |||
Entity Current Reporting Status | Yes | |||
Entity Filer Category | Accelerated Filer | |||
Entity Public Float | $ 292,164,100 | |||
Entity Common Stock, Shares Outstanding | 48,946,546 | 1,001,714 | ||
Document Fiscal Year Focus | 2011 | |||
Document Fiscal Period Focus | Q3 | |||
Document Type | 10-Q | |||
Amendment Flag | false | |||
Document Period End Date | Sep. 30, 2011 |
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Fair Value Measurements | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund investments. Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes. These models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments. All significant inputs are observable, or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace. Financial instruments in this category primarily include corporate fixed maturity securities, U.S. Government-sponsored enterprise securities, municipal securities and certain mortgage and asset-backed securities. Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information. This category consists of two private placement mortgage-backed securities where we cannot corroborate the significant valuation inputs with market observable data. The following tables set forth our assets and liabilities that are measured at fair value on a recurring basis as of the dates indicated.
Financial Instruments Valuation
Fair values for fixed income securities are based on quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other assumptions, including a discount rate and estimates of future cash flows.
|
Segment Information | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | (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.
|
Convertible Preferred Stock Warrants | 9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Preferred Stock [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible Preferred Stock: Warrants |
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Income Taxes | 9 Months Ended | ||||
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Income Taxes [Abstract] | |||||
Income Taxes |
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Legal Proceedings | 9 Months Ended | ||||||||||||||||||||||
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Legal Proceedings [Abstract] | |||||||||||||||||||||||
Legal Proceedings |
We are a defendant in a lawsuit filed on August 6, 1999, in the Texas District Court, Austin, Texas, now styled Delia Bolanos Andrade, et al., Plaintiffs, v. Citizens Insurance Company of America, et al., Defendants in which a class was originally certified by the trial court and reversed by the Texas Supreme Court in 2007 with an order to the trial court to conduct further proceedings consistent with its ruling. The underlying lawsuit alleged that certain life insurance policies CICA made available to non-U.S. residents, when combined with a policy feature that allowed certain cash benefits to be assigned to two non-U.S. trusts for the purpose of accumulating ownership of our Class A common stock, along with allowing the policyholders to make additional contributions to the trusts, were actually offers and sales of securities that occurred in Texas by unregistered dealers in violation of the Texas securities laws. The remedy sought was rescission and return of the insurance premium payments. On December 9, 2009, the trial court denied the recertification of the class after conducting additional proceedings in accordance with the Texas Supreme Court's ruling. The remaining plaintiffs must now proceed individually, and not as a class, if they intend to pursue their claims against us. No individual cases have been pursued by the plaintiffs. The probability of the plaintiffs pursuing their cases individually is unknown. Further, an estimate of any possible loss or range of losses cannot be made at this time in regard to individuals pursuing claims. However, should the plaintiffs pursue their claims individually, we intend to vigorously defend any proceedings. SPFIC is a defendant in a statewide putative class action lawsuit in Louisiana styled The State of Louisiana v. AAA Insurance (the "Road Home Litigation"), which was filed in the Civil District Court for the Parish of Orleans on August 23, 2007. The Louisiana Attorney General filed the Road Home Litigation as a putative class action lawsuit in state court against SPFIC and approximately 200 other insurers on behalf of the State of Louisiana, as assignee, and on behalf of a class of Road Home fund recipients alleging that SPFIC and the other insurers have failed to pay all damages owed under their policies. The insurers removed the matter to federal court. The defendants filed a motion to dismiss, and in March 2009, the district court granted part of the defendants' motion, dismissing all of the extra-contractual claims, including the bad faith and breach of fiduciary duty claims. As a result, the remaining claims are for breach of contract and declaratory relief on the alleged underpayment of claims by the insurers. The court did not dismiss the class action allegations. The defendants also had moved to dismiss the complaint on grounds that the State had no standing to bring the lawsuit as an assignee of insureds because of anti-assignment language in the insurers' policies. The court denied the defendants' motion for reconsideration on the assignment issue but found the matter was ripe for consideration by the federal appellate court. The defendants filed a petition for permission to appeal to the Fifth Circuit. The Fifth Circuit accepted review. On July 20, 2011, the Fifth Circuit ruled, based on a ruling from the Louisiana Supreme Court, that there was no public policy which precludes an anti-assignment clause from applying to post loss assignments, but the language of the anti-assignment language must be evaluated on a policy by policy basis and clearly and unambiguously express that the non-assignment clause applies to post-loss assignments. We anticipate the State will vigorously pursue the matter in the district court and are uncertain as to the impact a case by case analysis of claims will have on SPFIC. An estimate of possible loss or range of loss cannot be made at this time as a result of the July 20, 2011 Fifth Circuit ruling. SPFIC intends to vigorously defend any remaining proceedings. SPFIC is vigorously defending a number of matters in various stages of development filed in the aftermath of Hurricane Katrina in addition to the Road Home Litigation, including a number of individual lawsuits, which are immaterial to the Company's financial statements.
In the absence of countervailing considerations, we would expect to defend any such claims vigorously. However, in doing so, we could incur significant defense costs, including attorneys' fees, other direct litigation costs and the expenditure of substantial amounts of management time that otherwise would be devoted to our business. If we suffer an adverse judgment as a result of any claim, it could have a material adverse effect on our business, results of operations and financial condition. |
Financial Statements | 9 Months Ended |
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Sep. 30, 2011 | |
Financial Statements [Abstract] | |
Financial Statements | (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"), Computing Technology, Inc. ("CTI"), Insurance Investors, Inc. ("III"), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), and Security Plan Fire Insurance Company ("SPFIC"). Integrity Capital Corporation and Integrity Capital Life Insurance Company were merged into CICA effective April 1, 2011. All significant inter-company accounts and transactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as "the Company," "we," "us" or "our." The consolidated statements of financial position for September 30, 2011, the consolidated statements of operations for the three and nine-month periods ended September 30, 2011 and 2010, and the consolidated statements of cash flows for the nine-month periods then ended 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 September 30, 2011, and for comparative periods have been made. We provide primarily life insurance and a small amount of health insurance policies through our insurance subsidiaries: CICA, SPLIC, and CNLIC. CICA and CNLIC issue ordinary whole-life policies, burial insurance, pre-need policies, and accident and health related policies, throughout the Midwest and southern United States. CICA also issues ordinary whole-life 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. 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 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. Acquisitions On August 1, 2011, SPLIC entered into assumption reinsurance agreements with Escude Life Insurance Company in Rehabilitation, and Benton Life Insurance Company in Rehabilitation. At the time the agreements were executed, both companies were under receivership with the Louisiana Department of Insurance. In total, SPLIC assumed approximately $4.5 million in reserve liabilities and received approximately $4.6 million in cash, with a minimal reinsurance ceding commission being paid. These transactions are not deemed material. Reclassification Reclassifications have been made in the current year related to certain prior year reported amounts to provide consistent presentation. The Company recorded reclassifications related to DAC amounts capitalized and amortized to properly reflect the amount used to develop the DAC asset balance and to provide consistent presentation with the current year. We recorded increases to DAC capitalized of $0.8 million and $2.5 million and an increase in amortization for the same amounts for the three and nine months ended September 30, 2010, respectively. Significant Accounting Policies For a description of significant accounting policies, see Note 1 of the Notes to Consolidated Financial Statements included in our 2010 Form 10-K Annual Report, which should be read in conjunction with these accompanying Consolidated Financial Statements. |
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Total Comprehensive Income [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total Comprehensive Income |
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Earnings per Share | 9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Earnings per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings per Share |
The diluted earnings per share calculation has assumptions regarding the exercise of warrants issued to certain investors as discussed below in Note 9 - Convertible Preferred Stock: Warrants. For the three months ended September 30, 2011, no dilution occurred. The calculation for the nine months ended September 30, 2011 assumes the issue of 1,851 additional shares with a reduction in net income of $0.1 million. |
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