PLFE Presidential Life Corp. (MM)

Presidential Life Corporation (“Presidential Life” or the “Company”) (NASDAQ: PLFE) today announced results for the second quarter and six months ended June 30, 2012. Presidential Life, through its wholly owned subsidiary, Presidential Life Insurance Company, is engaged in the sale of individual fixed deferred and immediate annuities, life insurance and accident and health insurance products.

Net income for the six months ended June 30, 2012 was $6.9 million or $0.23 per share, compared with net income of $21.3 million or $0.72 per share for the six months ended June 30, 2011. Second quarter 2012 net income was $3.1 million or $0.11 per share, compared with net income of $13.8 million or $0.47 per share for the comparable quarter in 2011. Income before income taxes was $4.7 million and $21.1 million for the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $16.4 million. The decline in income before income taxes of $16.4 million is principally due to a decrease in net realized investment gains of $15.1 million, a decrease in net investment income of $2.2 million, and an increase in general expenses of $1.3 million partially offset by decreases in other-than-temporary impairment (“OTTI”) losses of $1.7 million and the change in policy acquisition costs of $1.1 million. Income taxes were $1.6 million and $7.3 million for the second quarter of 2012 and 2011, respectively, a decline of $5.7 million.

Total revenues in the second quarter of 2012 were $60.4 million, a decrease of 18.7% or $13.9 million from $74.3 million in the second quarter 2011. Total revenues for the six months ended June 30, 2012 were $117.1 million, a decrease of 15.9% or $22.1 million from $139.2 million for the six months ended June 30, 2011. The decrease in revenues of $13.9 million for the second quarter was principally attributable to the aforementioned decline in net realized investment gains of $15.1 million.

“As we announced on July 13, 2012, Presidential Life entered into an agreement with Athene Holding Ltd. to be acquired at $14 per common share. In the intervening months leading to the closing of this transaction, management will be focusing its efforts on a smooth transition so that Presidential Life continues to deliver the high quality of service to its customers that our employees have taken pride in providing for over 40 years,” said Donald Barnes, Vice Chairman of the Board, CEO and President.

Key Items for the Second Quarter Results

• Our investment spread margin1 totaled 0.70% for the six months ended June 30, 2012 compared to 2.06% for the six months ended June 30, 2011. The decline primarily relates to the effect of lower net realized investment gains and higher OTTI losses in the first six months of 2012 relative to 2011. Net realized investment gains and OTTI losses tend to fluctuate from period-to-period as a result of changing economic conditions.
• Total annuity sales2 were $19.0 million and $20.1 million in the second quarters 2012 of 2011, respectively, a decrease of $1.1 million or 5.7% compared to 2011 levels as the low interest rate environment continues to challenge sales of fixed annuity products.
• Deferred annuity surrenders were $20.6 million in the second quarter of 2012 compared to $27.2 million for the same period in 2011, a 24.3% decrease, representing average surrender rates of 1.03% and 1.33% for the second quarters of 2012 and 2011, respectively.
• Our capital base remains strong at June 30, 2012 with our estimated Risk-Based Capital ratio3 at 527% compared with 556% at December 31, 2011.

Discussion of Second Quarter 2012 and Year-to-Date Financial and Operating Results

As previously discussed, total revenues were $60.4 million and $74.3 million in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $13.9 million or 18.7%, and were $117.1 million and $139.2 million for the six months ended June 30, 2012 and 2011, respectively, a decrease of $22.1 million or 15.9%. The decreases from the prior periods were largely attributable to a decline in net realized investment gains of $15.1 million for the quarter and $17.5 million year-to-date as there was a gain from one hedge fund redemption of $10.6 million in the second quarter of 2011.

Total insurance revenues were $7.9 million and $7.5 million in the second quarters of 2012 and 2011, respectively, a period-over-period increase of $0.4 million or 6.1%, and were $16.8 million and $13.4 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period increase of $3.4 million or 25.9%. Immediate annuity considerations with life contingencies were $3.8 million and $3.0 million in the second quarters of 2012 and 2011, respectively, a period-over-period increase of $0.8 million or 26.0%, and were $8.5 million and $4.4 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period increase of $4.1 million or 94.3%. Life insurance and accident and health premiums were $4.1 million and $4.4 million in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $0.3 million or 7.5%, and were $8.3 million and $9.0 million for the six ended June 30, 2012 and 2011, respectively, a period-over-period decrease of $0.7 million or 7.6%.

Sales of deferred annuities and immediate annuities without life contingencies were $15.2 million and $17.1 million in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $1.9 million or 11.3%, and were $32.2 million and $29.5 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period increase of $2.7 million or 9.4%. The year-to-date increase was primarily due to a successful sales effort with recent retirees of a targeted company during 2012.

Net investment income was $46.7 million and $48.9 in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $2.2 million or 4.4%, and was $93.2 million and $98.3 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period decrease of $5.1 million or 5.2%. Excluding the return on the Company’s limited partnership investments and other realized gains, the investment yields for the six months ended June 30, 2012 and 2011 were 5.66% and 5.96%, respectively.

Net realized investment gains, including OTTI, were $3.6 million and $16.9 million in the second quarters of 2012 and 2011, respectively, a period-over-period reduction of $13.3 million, and were $2.8 million and $21.8 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period decrease of $19.0 million. The year-to-date decrease in net realized gains was due to $12.4 million of decreases in net realized investment gains within our limited partnership portfolio, primarily due to a gain from one hedge fund redemption of $10.6 million in the second quarter 2011, a decrease in net realized investment gains within our bond and stock portfolios of $4.6 million, $1.5 million increase in realized losses related to other-than-temporary impairments and a greater decrease in the fair value of payor swaptions of $0.5 million.

Interest credited and benefits paid and accrued to policyholders were $45.6 million and $43.1 million in the second quarters of 2012 and 2011, respectively, a period-over-period increase of $2.5 million or 5.9%, and were $89.5 million and $88.0 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period increase of $1.5 million or 1.7%. The increases are principally due to the increase in liabilities for immediate annuities with life contingencies in 2012 compared to 2011 related to the increase in sales of this product in 2012.

Commissions to agents, net were $1.0 million and $1.2 in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $0.2 million or 17.1%, and were $2.4 million and $2.4 million for the six months ended June 30, 2012 and 2011, respectively. Commission expense declined slightly in the second quarter 2012 relative to 2011 due to lower annuity sales compared to the previous year. The net expense from changes in the deferred policy acquisition costs was $0.9 million and $2.0 in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $1.1 million or 54.9%, and was $1.2 million and $3.2 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period decrease of $2.0 million or 61.1%, principally related to lower amortization of DAC on annuity sales due to lower realized gains. Deferred costs were reduced by $0.4 million for the first six months of 2012 relative to 2011 primarily due to a reduction in deferred costs resulting from the prospective adoption of a new accounting principle in 2012 that reduced the scope of deferrable costs to those directly linked to successful sales efforts.

General expenses and taxes were $8.2 million and $6.9 million in the second quarters of 2012 and 2011, respectively, a period-over-period increase of $1.3 million or 19.3%, and were $13.5 million and $13.1 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period increase of $0.4 million or 3.0%. The second quarter increase was primarily due to higher non-recurring charges in 2012 relative to 2011. With respect to second quarter 2012, transaction costs incurred in connection with the sale of the Company were approximately $2.7 million. With respect to the second quarter 2011, non-recurring charges included severance costs and legal and accounting expenses associated with Company’s financial restatements.

The Company recorded income tax expenses of $1.6 million and $7.3 million in the second quarters of 2012 and 2011, respectively, a period-over-period decrease of $5.7 million. Income tax expense was $3.5 million and $11.2 million for the six months ended June 30, 2012 and 2011, respectively, a period-over-period decrease of $7.7 million. The decrease in income tax expense for 2012 relative to 2011 was primarily due to lower pre-tax income. In addition, the effective tax rate was 33.6% and 34.5% for the six months ended June 30, 2012 and 2011, respectively, a decline of 0.9%.

Cautionary statement regarding forward-looking statements

This press release contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements include, but are not limited to, quotations from management, statements about our future plans and business strategy, and expected or anticipated future events or performance.

These forward-looking statements involve risks and uncertainties that are discussed in our filings with the Securities and Exchange Commission, including economic, competitive, legal and other factors. Accordingly, there is no assurance that our plans, strategy and expectations will be realized. Actual future events and results may differ materially from those expressed or implied in forward-looking statements.

About Presidential Life

Presidential Life Corporation, through its wholly owned subsidiary Presidential Life Insurance Company, is a provider of fixed deferred and immediate annuities, life insurance and accident & health insurance products to financial service professionals and their clients. Headquartered in Nyack, New York, the Company was founded in 1969 and markets its products in 50 states and the District of Columbia. For more information, visit our website www.presidentiallife.com.

  PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands)

 

  June 30,   December 31, 2012 2011 ASSETS: (Unaudited) Investments: Fixed maturities: Available for sale at market (Amortized cost of $3,202,170 and $3,206,884 respectively) $ 3,572,710 $ 3,520,755 Common stocks (Cost of $748 and $748, respectively) 1,382 1,302 Derivative instruments, at fair value 2,210 3,358 Real estate 415 415 Policy loans 19,225 18,442 Short-term investments 115,312 61,233 Limited Partnerships   176,890   166,923 Total Investments $ 3,888,144 $ 3,772,428   Cash and cash equivalents 5,276 47,110 Accrued investment income 46,944 47,289 Deferred policy acquisition costs 39,128 41,746 Furniture and equipment, net 1,578 1,065 Amounts due from reinsurers 19,575 19,116 Amounts due from investment transactions 475 23,880 Federal income taxes recoverable 2,208 - Other assets   1,417   1,649 TOTAL ASSETS $ 4,004,745 $ 3,954,283   LIABILITIES AND SHAREHOLDERS' EQUITY: Liabilities: Policy Liabilities: Policyholders' account balances $ 2,305,505 $ 2,323,364 Annuity 624,771 634,397 Life and accident and health 85,698 83,855 Other policy liabilities   19,448   20,633 Total Policy Liabilities $ 3,035,422 $ 3,062,249 Deposits on policies to be issued 520 490 General expenses and taxes accrued 5,654 2,521 Federal income taxes payable - 1,411 Deferred federal income taxes, net 104,397 82,355 Amounts due for investment transactions 5,114 268 Other liabilities   17,546   17,045 Total Liabilities $ 3,168,653 $ 3,166,339   Commitments and Contingencies   Shareholders’ Equity: Capital stock ($.01 par value; authorized 100,000,000 shares outstanding, 29,591,739 and 29,574,697 shares, respectively) $ 296 $ 296 Additional paid in capital 7,493 7,408 Accumulated other comprehensive income 237,642 192,815 Retained earnings   590,661   587,425 Total Shareholders’ Equity   836,092   787,944 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 4,004,745 $ 3,954,283     PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands, except share data)               THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, (Unaudited) (Unaudited) REVENUES: 2012 2011 2012 2011 Insurance Revenues: Premiums $ 4,110 $ 4,443 $ 8,281 $ 8,961 Annuity considerations 3,820 3,033 8,542 4,397 Universal life and investment type policy fee income 815 867 1,649 1,798 Equity in earnings (losses) on limited partnerships 546 (176 ) 1,130 1,964 Net investment income 46,722 48,885 93,227 98,343 Net realized investment gains (losses): Total Other-than-temporary impairment ("OTTI") losses $ (1,000 ) $ (5,776 ) $ (5,073 ) $ (6,716 ) OTTI losses recognized in other comprehensive income -   3,088   -   3,088   Net OTTI losses recognized in earnings $ (1,000 ) $ (2,688 ) $ (5,073 ) $ (3,628 ) Net realized capital gains, excluding OTTI losses 4,566 19,630 7,916 25,411 Other income   862     305     1,433     1,944   TOTAL REVENUES $ 60,441   $ 74,299   $ 117,105   $ 139,190     BENEFITS AND EXPENSES: Death and other life insurance benefits $ 4,398 $ 4,432 $ 8,697 $ 8,916 Annuity benefits 19,821 20,430 39,841 41,858 Interest credited to policyholders' account balances 24,618 25,550 49,166 51,026 Other interest and other charges 284 448 678 707 Decrease in liability for future policy benefits (3,522 ) (7,807 ) (8,858 ) (14,457 ) Commissions to agents, net 1,004 1,211 2,384 2,364 General expenses and taxes 8,241 6,905 13,521 13,123 Change in deferred policy acquisition costs   917     2,031     1,231     3,162   TOTAL BENEFITS AND EXPENSES $ 55,761   $ 53,200   $ 106,660   $ 106,699     Income before income taxes $ 4,680   $ 21,099   $ 10,445   $ 32,491     Provision (benefit) for income taxes: Current $ 2,947 $ 3,240 $ 5,606 $ 2,290 Deferred (1,380 ) 4,038   (2,096 ) 8,919   $ 1,567   $ 7,278   $ 3,510   $ 11,209     NET INCOME $ 3,113   $ 13,821   $ 6,935   $ 21,282     OTHER COMPREHENSIVE INCOME (after tax) Net unrealized investment gains from available for sale securities, net of income tax expense of $24,138 and $18,581, respectively. $ 37,301   $ 20,846   $ 44,827   $ 34,508   TOTAL OTHER COMPREHENSIVE INCOME $ 37,301   $ 20,846   $ 44,827   $ 34,508   TOTAL COMPREHENSIVE INCOME $ 40,414   $ 34,667   $ 51,762   $ 55,790     Earnings per common share, basic $ 0.11   $ 0.47   $ 0.23   $ 0.72   Earnings per common share, diluted $ 0.11   $ 0.47   $ 0.23   $ 0.72     Weighted average number of shares outstanding during the period, basic   29,591,739     29,574,697     29,586,121     29,574,697   Weighted average number of shares outstanding during the period, diluted   29,593,383     29,576,541     29,590,464     29,574,697  

1 Defined as the yield on invested assets over the cost of money on annuity liabilities. Yield is inclusive of realized capital gains/ (losses), other-than-temporary-impairments and equity in earnings/(losses) on limited partnerships.

2 In accordance with Generally Accepted Accounting Principles (“GAAP”), sales of deferred annuities and immediate annuities without life contingencies ($15.2 million) are not reported as insurance revenues, but rather as additions to policyholder account balances. In addition, sales of immediate annuities with life contingencies, which are reported as insurance revenues under GAAP, totaled $3.8 million.

3 Risk-Based Capital (“RBC”) refers to the ratio of adjusted statutory surplus divided by Company Action Level capital that triggers regulatory involvement, as those terms are defined by the National Association of Insurance Commissioners (“NAIC”).