UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X]Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended March 31, 1996
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-16509
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-0755371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East Anderson Lane, Austin, Texas 78752
(Address of principal executive offices) (Zip Code)
(512) 837-7100
(Registrant's telephone number, including area code)
7801 North Interstate 35, Austin, Texas 78753
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
As of March 31, 1996, Registrant had 19,530,864 shares of
Class A common stock, No Par Value, outstanding and 621,049
shares of Class B common stock, No Par Value, outstanding.
CITIZENS, INC. AND SUBSIDIARIES
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Balance sheets, March 31, 1996
(Unaudited) and December 31, 1995 3
Statements of Operations, Three-Months
Ended March 31, 1996 and 1995
(Unaudited) 5
Statements of Cash Flows, Three-Months
Ended March 31, 1996 and 1995
(Unaudited) 6
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis
of Financial Conditions and Results
of Operations 90
Part Other Information 1517
II.
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Unaudited)
March 31, December 31,
1996 1995
Assets
Investments:
Fixed maturities held for investment,
at amortized cost (market $5,593,000
in 1996 and $5,700,000 in 1995) $5,634,403 $
5,636,785
Fixed maturities available for sale,
at lower of cost or market (cost
$101,596,068 in 1996 and $97,515,359 99,840,536 99,464,551
in 1995
Equity securities, at market (cost
$89,580 in 1996 and $23,329 in 1995) 66,252 0
Mortgage loans on real estate (net of
reserve of $145,080 in 1996 and 1,841,643 1,910,608
1995)
Policy loans 19,658,449 18,911,275
Guaranteed student loans (net of
reserve of $10,000 in 1996 and 1995) 306,749 333,387
Other long-term investments 671,890 679,436
Short-term investments 200,000 3,088,697
Total investments 128,219,922 130,024,739
Cash 2,992,452 4,160,156
Prepaid reinsurance 1,747,763 0
Reinsurance recoverable 1,690,246 1,857,900
Other receivables 802,341 1,219,107
Accrued investment income 1,731,577 2,022,809
Deferred policy acquisition costs 36,733,110 36,624,448
Cost of insurance acquired 7,368,810 7,522,827
Excess of cost over net assets 15,287,113 14,045,848
acquired
Other intangible assets 1,773,650 1,820,325
Property, plant and equipment 5,721,981 5,546,075
Other assets 616,860 642,013
Total assets 204,685,825 $205,486,247
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 1996 and December 31, 1995
(Unaudited)
March 31, December
1996 31,
1995
Liabilities and Stockholders' Equity
Liabilities:
Future policy benefit reserves 126,407,054 123,327,377
Dividend accumulations 3,878,904 3,602,706
Premium deposits 1,621,352 1,553,414
Policy claims payable 2,823,355 3,197,291
Other policyholders' funds 1,918,535 1,945,332
Total policy liabilities 136,649,200 133,626,120
Other liabilities 1,260,756 2,001,320
Commissions payable 773,200 692,578
Notes payable 735,814 772,834
Deferred Federal income tax 787,902 2,372,742
Federal income tax payable 0 1,025,106
Minority interest 14,954 14,954
Amounts held on deposit 204,232 267,603
Total liabilities 140,426,058 140,773,257
Stockholders' Equity:
Common stock:
Class A, no par value, 50,000,000
shares authorized, 21,609,411 shares
issued in 1996 and 19,178,515 in
1995, including shares in treasury
of 2,078,547 in 1996 and 2,198,175 45,695,198 44,007,339
in 1995
Class B, no par value, 1,000,000
shares
authorized, 621,049 shares 283,262 283,262
issued and outstanding in
1996 and 1995
Unrealized loss on investments (1,358,334) 1,267,747
Retained earnings 21,701,907 21,216,908
66,322,033 66,775,256
Treasury stock, at cost (2,062,266) (2,062,266)
Total stockholders' equity 64,259,767 64,712,990
Commitments and contingencies
Total liabilities and stockholders' 204,685,825 205,486,247
equity
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three-Months Ended March 31, 1996 and 1995
(Unaudited)
Three-months ended March
31,
1996 1995
Revenues:
Premiums $11,521,304 $9,273,129
Annuity and Universal life 95,148 85,072
considerations
Net investment income 2,078,688 1,503,937
13,695,140 10,862,138
Other income and expenses:
Other income 12,635 19,762
Realized gains (losses) on (8,928) (31,017)
investments
Interest expense (28,150) (17,152)
(24,443) (28,407)
Benefits and expenses:
Insurance benefits paid or provided:
Increase in future policy benefit 2,230,975 2,398,644
reserves
Policyholders' dividends 450,241 455,565
Claims and surrenders 5,529,339 4,314,556
Annuity expenses 230,448 82,950
8,441,003 7,251,715
Commissions 2,643,086 2,464,168
Underwriting, acquisition and 1,458,497 1,342,986
insurance expenses
Capitalization of deferred policy (2,489,597) (2,543,469)
acquisition costs
Amortization of deferred policy 2,380,935 1,889,997
acquisition costs
Amortization of cost of insurance
acquired and excess of cost over net 501,928 92,479
assets acquired
12,935,852 10,497,876
Income before federal income tax $734,845 $335,855
Federal income tax:
Federal income tax expense 249,848 62,972
Net Income $484,997 $272,883
Per Share Amounts:
Net income per share of common stock $0.03 $0.02
Weighted average shares outstanding 19,602,887 16,980,340
CITIZENS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended March 31, 1996 and 1995
(Unaudited)
Three-months ended March 31,
1996 1995
Cash flows from operating
activities:
Net gain $ 484,997 $272,883
Adjustments to reconcile net gain to
net cash provided by operating
activities:
Accrued investment income 291,232 294,733
Deferred policy acquisition costs (108,662) (653,472)
Amortization of cost of insurance
acquired and excess cost over net
assets acquired 501,928 92,479
Prepaid reinsurance (1,747,763) (1,737,919)
Reinsurance recoverable 167,654 (31,635)
Other receivables 416,766 162,153
Property, plant and equipment (175,906) 102,024
Future policy benefit reserves 3,079,677 2,398,644
Other policy liabilities (56,597) 279,858
Commissions payable and other (2,304,783) (595,590)
liabilities
Amounts paid out as trustee (63,371) (73,305)
Federal income tax payable (1,025,106) (1,066,004)
Other, net (739,506) (1,275,915)
Net cash provided (used) by operating
activities (1,279,440) (1,831,066)
Cash flows from investing
activities:
Maturity of fixed maturities 2,088,037 3,899,533
Sale of fixed maturities available for 9,921,092 7,444,040
sale
Purchase of fixed maturities available (14,321,294) (9,305,209)
for sale
Principal payments on mortgage loans 68,965 56,987
Net change in guaranteed student loans 26,638 (39,052)
Purchase of other long-term 0 (50,771)
investments
Cash from merger 78,436 0
Increase in policy loans (net) (747,174) (463,905)
Net cash provided (used)
by investing activities (2,885,300) 1,541,623
(Continued)
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three-Months Ended March 31, 1996 and 1995
(Unaudited)
Three-months ended March
31,
1996 1995
Cash flows from financing
activities:
Sale of stock 145,359 0
Repayment of note payable (37,020) (17,701)
Net cash provided (used) by financing
activities 108,339 (17,701)
Net decrease in cash and short-
term investments (4,056,401) (307,144)
Cash and short term investments at
beginning 7,248,853 4,259,887
of period
Cash and short term investments at end $3,192,452 $3,952,743
of period
CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
(1) Financial Statements
The balance sheet for March 31, 1996, the statements of
operations for the three-month periods ended March 31,
1996 and 1995, and the statements of cash flows for the
three-month periods then ended have been prepared by the
Company without audit. In the opinion of management, all
adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows
at March 31,1996 and for comparative periods presented
have been made.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted. It is suggested that these financial statements
be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1995
annual 10-K report filed with the Securities and Exchange
Commission. The results of operations for the period
ended March 31, 1996 are not necessarily indicative of the
operating results for the full year.
(2) Merger and Exchange
On December 9, 1995, Citizens announced that it had signed
definitive written agreements for the acquisition of
Insurance Investors & Holding Co., a Peoria, Illinois
based life insurance holding company. The agreement
provided that following the acquisition by Citizens,
Investors' shareholders will receive one share of
Citizens' Class A Common Stock for each eight shares of
Investors Common Stock owned. Additionally, Citizens will
acquire all shares of Central Investors Life Insurance
Company, a subsidiary of Insurance Investors & Holding,
not wholly-owned by Insurance Investors, based upon an
exchange ratio of one share of Citizens' Class A common
stock for each four shares of Central Investors owned.
Following approval by the Illinois Department of Insurance
and the stockholders of Investors and Central, closing
occurred on March 12, 1996. The transaction involved
issuance of approximately 171,000 of Citizens' Class A
shares and was accounted for as a purchase.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Three-months ended March 31, 1996 and 1995
Net income for the three-months ended March 31, 1996 was up 77.8%
to $484,997 from $272,833 for the same period in 1995. Revenues
increased to $13,695,1409,763,884, an increase of 26.1% over the
first three months of 1995 when revenues were $10,862,138. The
increase in revenues, which offset higher operating expenses and
surrender activity, accounts for the higher earnings in 1996.
Operating income (income before capital gains and federal income
taxes) was $743,773 for the first quarter of 1996 compared to
$366,872 for the same period in 1995, an increase of 102.7%.
Premium income for the first three months of 1996 was $11,521,303
compared to $9,273,129 for the same period in 1995. This 24.2 %
increase is the result of the acquisition of American Liberty
Financial Corporation ("ALFC") in 1995. ALFC contributed $1.9
million towards the first quarter premium income in 1996.
Production of new premiums by the agents of Citizens Insurance
Company of America ("CICA") was slightly lower during the first
quarter of 1996 than in the previous year. Management introduced
a new line of products and an enhanced marketing self-promotion
plan during April of 1996 as part of a re-emphasis of new
production. During the past two years, management had not
promoted new sales and recruiting so as to emphasize the growth
of capital through a Reg. S offering of stock and the
profitability of CICA on a statutory accounting basis. These new
programs will, in the opinion of management, have considerable
impact on new production once they are assimilated by the
marketing force. New submitted annualized premiums in April 1996
were a record $1.02 million.
Net investment income increased 38.2% in the first three months
of 1996 compared to the same period in 1995. Net investment
income for the three months ended March 31, 1996 was $2,078,688
compared to $1,503,937 in 1994. This increase reflects the
earnings on the growth in the Company's asset base that is
occurring, as well as the higher yields that have been available
in the bond market during the past year. Overall investment
return has been hampered because the growth in the Company's
asset base has occurred during a period of relatively low
investment returns.
Claims and surrenders expense increased from $4,314,556 at March
31, 1995 to $5,529,339 for the same period in 1996. Death claims
decreased slightly from $852,512 in 1995 to $804,901 in 1996.
Management is pleased with the lack of increase in this area
since the Company's block of business has grown dramatically in
recent years without corresponding increases in claims.
Additionally, the 1996 results include approximately $400,000 of
claims related to the ALFC block of business. Surrender expense
increased from $2,294,804 to $2,997,205. Management constantly
monitors this activity to insure that the Company's persistency
is holding at levels equal to or above assumptions. Coupons and
endowments increased to $1,074,425 in 1996 from $992,785 in 1995.
The endowment benefits are factored into the premium much like
dividends and therefor, the increase does not pose a threat to
future profitability. Management expects to see further
increases in this category in the future. Accident and Health
benefits were $457,917 in 1996, compared to $11,749 in 1995.
This increase is directly related to the ALFC block of business
which consists of a large block of scheduled benefit daily
indemnity policies. The remaining components of claims and
expenses, consisting of supplemental contracts and payments of
dividends and endowments previously earned and held at interest,
amounted to $194,891 in 1996, compared to $162,706 in 1995.
Commission expense increased to $2,643,086 from $2,464,168. This
increase relates to the addition of ALFC which increased such
expenses by $397,279. Deferred policy acquisition costs
capitalized in 1995 were $2,489,597 compared to $2,543,469 in the
prior year. The decline is related to the relatively flat level
of new sales during the quarter. Amortization of these costs was
$1,889,997 for the first quarter of 1995 compared to $2,380,935
for 1996. The increase in amortization relates to the larger
block of capitalized costs being written off.
Underwriting, acquisition and insurance expenses increased from
$1,342,986 in the first quarter of 1995 to $1,458,497. The
increase is primarily attributable to the absorption of the
operating expenses of ALFC until its operations and business can
be converted and commingled with that of the Company's other
subsidiaries, which management expects to achieve during the
third quarter of 1996. Approximately $644,000 of the expenses
for the first quarter of 1996 are related to ALFC's operations.
Management expects to achieve considerable reduction of these
expenses beginning in the third quarter.
Liquidity and Capital Resources
Stockholders' equity declined to $64,259,767 from $64,712,990 at
December 31, 1995. The earnings achieved in 1996, as well as a
$1.6 million increase from the acquisition of Insurance Investors
& Holding Co. for shares of the Company's stock were offset by a
decline in the market value of the Company's available for sale
fixed maturity portfolio as a result of a dramatic decline in
bond prices during the quarter.
On October 27, 1994, Citizens completed the offering of 916,375
shares of its Class A Common Stock under an exemption from
registration under the Securities Act of 1933. The offering was
made under Regulation S, which permits shares offered outside of
the United States to non-United Stated persons pursuant to its
guidelines may be resold in the United States by persons who are
not an issuer, underwriter or dealer following a certain period
after the close of the offering period. The offering price was
$7.00 per share. The closing market price of the Class A common
shares on the date of the offering commencement was $7.75 per
share (as reported by the American Stock Exchange). The Company
sold 916,375 shares, generating gross proceeds of more than $6.4
million, and net proceeds of approximately $5.4 million.
Management was pleased with the amount of capital generated
through the offering; however, it believes that the offering
period was too short in light of the manner in which business is
typically transacted overseas. Because of the success of the
offering in the limited time period, a second offering was
initiated in May 1995. As of December 31, 1995, approximately
95,500 shares had been purchased through the second Reg. S
offering, resulting in a net increase to capital of $638,980. At
March 31, 1996, a total of 117,650 shares had been sold, for a
net of $784,339.
Invested assets declined to $128,219,922 in 1996 from
$130,024,739 at December 31, 1995 primarily as the result of a
decline in the value of the Company's available for sale bond
portfolio. At March 31, 1996 and December 31, 1995, fixed
maturities have been categorized into two classifications: Fixed
maturities held to maturity, which are valued at amortized cost,
and fixed maturities available for sale which are valued at
market. The Company does not have a plan to make material
dispositions of fixed maturities during 1996; however, because of
continued uncertainty regarding long-term interest rates,
management cannot rule out sales during 1996. Fixed maturities
held to maturity, amounting to $5,634,403 at March 31, 1996 and
$5,636,785 at December 31, 1995 consist primarily of U.S.
Treasury securities. Management has the intent and believes the
Company has the ability to hold the securities to maturity.
The Company's mortgage loan portfolio, which constitutes 1.4% of
invested assets at March 31, 1996 and 1.5% at December 31, 1995,
has historically been composed of small residential loans in
Texas. At March 31, 1996 and December 31, 1995, one mortgage
loan was in default with a principal balance of approximately
$92,000. During 1995, the loan to an affiliate described below
was foreclosed. Management believes that in the event of
foreclosure there is more than adequate collateralization on both
loans to avoid exposure to loss. Management has established a
reserve of $145,080 (approximately 7.5% of the mortgage
portfolio's balance) to cover potential unforeseen losses in the
Company's mortgage portfolio.
Policy loans comprise 15.3% of invested assets at March 31, 1996
and 14.5% at December 31, 1995. These loans, which are secured
by the underlying policy values, have yields ranging from 5% to
10% percent and maturities that are related to the maturity or
termination of the applicable policies. Management believes that
the Company maintains more than adequate liquidity despite the
uncertain maturities of these loans.
Cash balances of the Company in its primary depository, Texas
Commerce Bank Austin, Texas, were significantly in excess of
Federal Deposit Insurance Corporation (FDIC) coverage at December
31, 1995. Management monitors the solvency of all financial
institutions in which it has funds to minimize the exposure for
loss. At March 31, 1996, management does not believe the Company
is at risk for such a loss. During 1996, the Company intends to
utilize short-term Treasury Bills and highly-rated commercial
paper as cash management tools to minimize excess cash balances
and enhance return.
In February 1992, the Company paid cash for an 80,000 square foot
office building in Austin, Texas to serve as its primary office.
This building will, in the opinion of management, provide
adequate space for the Company's operations for many years.
Renovation and remodeling of the property began in the third
quarter of 1992 and the Company relocated to the building in
September 1993. The Company occupies approximately 30,000 square
feet of space in the building. The Company's former office
property, consisting of approximately 13,000 square feet in
Austin, with a carrying value of $158,000 was leased to a third
party on a triple-net basis for three years during 1995.
CICA owned 1,955,457 shares of Citizens Class A common stock at
march 31, 1996 and December 31, 1995. For statutory accounting
purposes, CICA received written approval from the Colorado
Insurance Department to carry its investment in Citizens at 50%
of the fair market value limited to 8% of admitted assets
($8,678,000), which differs from prescribed statutory accounting
practices. Statutory accounting practices prescribed by Colorado
require that the Company carry its investment at market value
reduced by the percentage ownership of Citizens by CICA, limited
to 2% of admitted assets. As of December 31, 1995, that
permitted transaction increased statutory surplus by $4,077,000
over what it would have been had prescribed accounting practice
been followed. In the Citizens' consolidated financial
statements, this stock is shown as treasury stock. During 1995,
Citizens re-acquired 115,943 of these shares and retired them.
CICA had outstanding at March 31, 1996 and December 31, 1995, a
$533,000 surplus debenture payable to Citizens. For statutory
accounting purposes, this debenture is a component of surplus,
while for GAAP it is eliminated in consolidation. Citizens has
recognized a liability for its related obligation to a bank in a
like amount.
The NAICNational Association of Insurance Commissioners ("NAIC")
has established minimum capital requirements in the form of Risk-
Based Capital ("RBC"). Risk-based capital factors the type of
business written by a company, the quality of its assets, and
various other factors into account to develop a minimum level of
capital called "authorized control level risk-based capital" and
compares this level to an adjusted statutory capital that
includes capital and surplus as reported under Statutory
Accounting Principles, plus certain investment reserves. Should
the ratio of adjusted statutory capital to control level risk-
based capital fall below 200%, a series of actions by insurance
regulators begins. At December 31, 1995 and 1994, CICA's ratios
were 700.6% and 560.6%, respectively, well above minimum levels.
ALLIC's ratios were 939.6% and 1,000.8%, respectively, also well
above minimum levels.
The Deficit Reduction Act of 1984 added Section 807 to the
Internal Revenue Code ("IRC") which mandated the use of a new
method for computing tax reserves. In general, Section 807
provides that tax reserves can never exceed the amount taken into
account in computing statutory reserves. The applicable reserve
is the higher of the net surrender value of the contract or the
reserve determined by means of a formula. The term "net
surrender value" means the cash value of the policy reduced by
any penalty or charge imposed upon surrender.
The formula approach used in computing the reserve consists of
the following:
(1) The tax reserve method applicable to the contract -
generally the Commissioners' Reserve Valuation Method (CRVM) for
life insurance contracts, the Commissioners' Annuities Reserve
Valuation Method (CARVM) for annuity contracts, and the two-year
full preliminary term method for non-cancelable accident and
health contracts;
(2) The greater of the applicable Federal interest rate or the
prevailing state assumed interest rate which is the highest
assumed interest rate permitted by 26 states for computing
reserves of a life insurance or an annuity contract at the time
the contract is issued; and
(3) The most recent commissioner's standard table permitted
under the insurance laws of 26 states at the time the contract is
issued.
Generally, under prior law, a life insurance company's deduction
for increases in its reserves was based upon reserves required
for state law purposes which were computed using lower
conservative interest rate assumptions. The 1984 Act's required
use of higher interest rates results in substantially lower tax
reserves and lower increases in reserves, and thereby higher
levels of taxable income and tax.
The Budget Reconciliation Act of 1990 added IRC Section 848 which
requires insurance companies, beginning in 1990, to capitalize
and amortize policy acquisition expenses. For statutory
accounting purposes, these acquisition expenses are deducted in
the year incurred.
The enactment of the two provisions above has had a severe impact
upon the effective tax rate paid by CICA, resulting in effective
tax rates exceeding 100% in each of the last three years. The
impact of such high effective tax rates is that CICA is forced to
pay Federal income taxes out of surplus, rather than income,
thereby limiting the statutory surplus available for use in
writing new business. Although these provisions have little
effect on the Company's overall results on a GAAP basis as a
result of the recognition of deferred taxes, they do have a
considerable impact on the results under Statutory Accounting
Principles which do not recognize such items. For 1995, CICA
incurred tax expense on a Statutory basis at an effective tax
rate of 74% (eliminating intercompany capital gains). For the
year ended December 31, 1994, taxes were incurred at an effective
rate of approximately 289% of income before tax. For 1993, the
incurred rate was 131%. In the event that CICA was unable to
attract additional capital, as it did in 1994, its ability to
write new business would be severely limited due to the ongoing
drain on Statutory surplus. Management believes the Company has
adequate levels of capital on hand with the additional capital
infused during 1994 and 1995 to continue to expand the Company's
writing of new business.
Financial Accounting Standards
In December 1992, the FASB issued Statement 113 "Accounting
and Reporting for Reinsurance of Short-Duration and Long-Duration
Contracts" ("Statement 113"). Statement 113 eliminated the net
reporting of reinsurance amounts in the balance sheet previously
required by Statement 60 "Accounting by Insurance Enterprises."
Statement 113 also provides accounting guidance for ceding
enterprises as well as disclosure requirements and guidance on
assessing transfer of risk in reinsurance contracts.
Furthermore, it precludes immediate recognition of gains related
to reinsurance contracts unless the ceding enterprise's liability
to its policyholders is extinguished.
The Company adopted Statement 113 in the first quarter of
1993. There was no impact on the consolidated financial
statements due to implementation of the risk transfer provisions.
In May 1993, the FASB issued Statement 114 "Accounting by
Creditors for Impairment of a Loan" ("Statement 114"). Statement
114 requires impaired loans to be measured based on the present
value of expected future cash flows discounted at the loan's
effective interest rate or at the loan's observable market price
or the fair value of the collateral if the loan is collateral
dependent. Statement 114 is effective for years beginning after
December 15, 1994 Implementation did not have a material impact
on the Company's financial statements.
Also in 1993, the FASB issued Statement 115 "Accounting
for Certain Investments in Debt and Equity Securities"
("Statement 115"). Statement 115 requires the classification of
debt and equity securities as held to maturity, trading or
available for sale based on established criteria. Trading
securities are bought and held principally for the purpose of
resale in the near term. The Company had no investment
securities classified as trading at January 1, 1994, December 31,
1994 or December 31, 1995. Held-to-maturity securities are those
in which the Company has the ability and intent to hold the
security until maturity. All other securities not included in
trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at
fair value. Held-to-maturity securities are recorded at
amortized cost, adjusted for the amortization or accretion of
premiums or discounts. Unrealized holding gains and losses on
trading securities are included in earnings. Unrealized holding
gains and losses, net of the related tax effect, on available-for-
sale securities are excluded from earnings and are reported as a
separate component of stockholders' equity until realized.
Transfers of securities between categories are recorded at fair
value at the date of transfer. Unrealized holding gains and
losses are recognized in earnings for transfers into trading
securities. Unrealized holding gains or losses associated with
transfers of securities from held-to-maturity to available-for-
sale are recorded as a separate component of stockholders'
equity. The unrealized holding gains or losses included in the
separate component of equity for securities transferred from
available-for-sale to held-to-maturity are maintained and
amortized into earnings over the remaining life of the security
as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the
associated security.
A decline in the market value of any available-for-sale or
held-to-maturity security below cost that is deemed other than
temporary is charged to earnings resulting in the establishment
of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the
life of the related security as an adjustment to yield using the
effective interest method. Dividend and interest income are
recognized when earned. Realized gains and losses for securities
classified as available-for-sale and held-to-maturity are
included in earnings and are derived using the specific
identification method for determining the cost of securities
sold. The Company adopted Statement 115 at January 1, 1994. The
impact on the consolidated stockholders' equity due to the
implementation was $690,388 relating to the unrealized gains on
the available-for-sale portfolio, net of deferred tax.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2 Changes in Securities
None, other than disclosed in the Notes to the Financial
Statements or Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
The Annual meeting of stockholders will be held on
Tuesday, June 4, 1996, at 10:00 a.m. at the Company's
executive offices. The record date for the meeting was
April 17, 1996.
Item 6. Exhibits and Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
CITIZENS, INC.
By:/s/ Mark A. Oliver_____
Mark A. Oliver, FLMI
Executive Vice President
Secretary / Treasurer
Chief Financial Officer
Date: May 15, 1995May 24,1996
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