What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 242 added, 141 removed, 649 unchanged (37% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands) March 31, 2021 December 31, 2020

(In thousands) June 30, 2021 December 31, 2020

Assets (Unaudited)

11 unchanged sentences

Accrued investment income 16,301 16,137

Receivable for securities 2,808 —

Reinsurance recoverable 4,822 5,753

7 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2021 | 10-Q 2

June 30, 2021 | 10-Q 2

CITIZENS, INC.

1 unchanged sentence

Consolidated Balance Sheets, Continued

(In thousands, except share amounts) March 31, 2021 December 31, 2020

(In thousands, except share amounts) June 30, 2021 December 31, 2020

Liabilities and Stockholders' Equity (Unaudited)

20 unchanged sentences

263,060 262,869

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2021 and 2020

Class B, no par value, 2,000,000 shares authorized, 0 and 1,001,714 shares issued and outstanding in 2021 and 2020, respectively, including shares in treasury of 1,001,714 in 2021

Accumulated deficit ( 80,903 ) ( 82,352 )

5 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2021 | 10-Q 3

June 30, 2021 | 10-Q 3

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Income (Loss)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

(In thousands, except per share amounts)

2021 2020 2021 2020

Life insurance $ 41,438 40,185 79,080 80,131

24 unchanged sentences

Other Comprehensive Income (Loss):

Unrealized losses on fixed maturity securities:

Unrealized holding losses arising during period ( 55,898 ) ( 42,929 )

Unrealized gains (losses) on fixed maturity securities:

Unrealized holding gains (losses) arising during period 31,756 80,508 ( 24,142 ) 37,579

Reclassification adjustment for losses (gains) included in net income (loss) 46 ( 87 ) 11 45

Unrealized losses on fixed maturity securities, net ( 55,933 ) ( 42,797 )

Income tax expense (benefit) on unrealized losses on fixed maturity securities 585 ( 2,727 )

Other comprehensive loss ( 56,518 ) ( 40,070 )

Total comprehensive loss $ ( 60,091 ) ( 43,654 )

Unrealized gains (losses) on fixed maturity securities, net 31,802 80,421 ( 24,131 ) 37,624

Income tax expense (benefit) on unrealized gains (losses) on fixed maturity securities ( 346 ) 5,774 239 3,047

Other comprehensive income (loss) 32,148 74,647 ( 24,370 ) 34,577

Total comprehensive income (loss) $ 37,170 73,620 ( 22,921 ) 29,966

See accompanying Notes to Consolidated Financial Statements.

March 31, 2021 | 10-Q 4

June 30, 2021 | 10-Q 4

CITIZENS, INC.

14 unchanged sentences

Balance at March 31, 2021 262,855 3,184 ( 85,925 ) 71,737 ( 11,011 ) 240,840

Comprehensive income (loss):

Net income (loss) — — 5,022 — — 5,022

Unrealized investment gains (losses), net — — — 32,148 — 32,148

Total comprehensive income (loss) — — 5,022 32,148 — 37,170

Acquisition of treasury stock — — — — ( 9,090 ) ( 9,090 )

Stock-based compensation 205 — — — — 205

Balance at June 30, 2021 $ 263,060 3,184 ( 80,903 ) 103,885 ( 20,101 ) 269,125

Balance at December 31, 2019 $ 261,515 3,184 ( 70,969 ) 77,117 ( 11,011 ) 259,836

6 unchanged sentences

Balance at March 31, 2020 261,462 3,184 ( 74,948 ) 37,047 ( 11,011 ) 215,734

Comprehensive income (loss):

Net income (loss) — — ( 1,027 ) — — ( 1,027 )

Unrealized investment gains (losses), net — — — 74,647 — 74,647

Total comprehensive income (loss) — — ( 1,027 ) 74,647 — 73,620

Stock-based compensation 439 — — — — 439

Balance at June 30, 2020 $ 261,901 3,184 ( 75,975 ) 111,694 ( 11,011 ) 289,793

See accompanying Notes to Consolidated Financial Statements.

March 31, 2021 | 10-Q 5

June 30, 2021 | 10-Q 5

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

1 unchanged sentence

Net income (loss) $ 1,449 ( 4,611 )

Adjustments to reconcile net gain (loss) to net cash provided by operating activities:

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Realized investment (gains) losses on sale of investments and other assets ( 5,151 ) ( 142 )

25 unchanged sentences

Maturities of short-term investments — 1,300

Purchases of short-term investments — ( 45 )

Net cash provided by (used in) investing activities ( 4,211 ) ( 22,819 )

See accompanying Notes to Consolidated Financial Statements.

March 31, 2021 | 10-Q 6

June 30, 2021 | 10-Q 6

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows, Continued

Three Months Ended March 31,

Six Months Ended June 30,

(In thousands)

2 unchanged sentences

Annuity withdrawals ( 4,113 ) ( 2,245 )

Purchase of treasury stock ( 9,090 ) —

Acquisition of treasury stock ( 9,090 ) —

Other ( 363 ) ( 246 )

4 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended March 31, 2021 and 2020, various fixed maturity issuers exchanged securities with book values of $ 2.0 million and $ 3.1 million, respectively, for securities of equal value.

The Company accrued purchases of property and equipment of $ 0.8 million as of March 31, 2021, which is reflected in other liabilities on the consolidated Balance Sheets and recorded none as of March 31, 2020.

The Company had $ 0.7 million net unsettled security trades at March 31, 2021 and $ 3.4 million at March 31, 2020.

During the six months ended June 30, 2021 and 2020, various fixed maturity issuers exchanged securities with book values of $ 6.4 million and $ 3.1 million, respectively, for securities of equal value.

The Company had $ 0.9 million net unsettled security trades at June 30, 2021 and $ 1.8 million at June 30, 2020.

The Company recognized right-of-use assets of $ 12.0 million in exchange for new operating lease liabilities during the six months ended June 30, 2020.

None were recognized during the six months ended June 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

March 31, 2021 | 10-Q 7

June 30, 2021 | 10-Q 7

CITIZENS, INC .

5 unchanged sentences

("CICA Ltd."), Citizens National Life Insurance Company ("CNLIC"), Security Plan Life Insurance Company ("SPLIC"), Security Plan Fire Insurance Company ("SPFIC"), Magnolia Guaranty Life Insurance Company ("MGLIC") and Computing Technology, Inc.

All significant inter-company accounts and interactions have been eliminated.

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 balance sheets as of March 31, 2021 and the consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for the three months ended March 31, 2021 and March 31, 2020 have been prepared by the Company without audit.

In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at March 31, 2021 and for comparative periods have been made.

The consolidated balance sheet as of June 30, 2021, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 2021 and June 30, 2020 and the consolidated statements of cash flows for the six months ended June 30, 2021 and June 30, 2020 have been prepared by the Company without audit and are not subject to audit.

In the opinion of management, all normal and recurring adjustments to present fairly the financial position, results of operations, and changes in cash flows at June 30, 2021 and for comparative periods have been made.

The consolidated financial statements have been prepared in accordance with U.S.

14 unchanged sentences

CTI provides data processing systems and services to the Company.

We converted the small block of ordinary whole life policies of CNLIC from a legacy platform to our new actuarial valuation software solution which provides enhanced modeling capabilities as of April 1, 2021.

The impact of this system conversion reflected in the accompanying consolidated financial statements as of and for the three and six months ended June 30, 2021 was an increase to pretax income of $ 0.7 million consisting of a reduced increase in future policy benefit reserves of $ 0.8 million and increased amortization of deferred policy acquisition costs of $ 0.1 million.

June 30, 2021 | 10-Q 8

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USE OF ESTIMATES

2 unchanged sentences

Actual results could differ from those estimates.

March 31, 2021 | 10-Q 8

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Significant estimates include those used in the evaluation of credit allowances on fixed maturity securities, actuarially determined assets and liabilities and assumptions, tests of goodwill impairment and valuation allowance on deferred tax assets.

17 unchanged sentences

The adoption resulted in an increase in accumulated deficit of $ 0.4 million related to agents' debit balance collectability.

June 30, 2021 | 10-Q 9

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTING STANDARDS NOT YET ADOPTED

11 unchanged sentences

Previous earnings-based amortization methods have been replaced with a more level amortization basis;

March 31, 2021 | 10-Q 9

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Requires enhanced disclosures.

11 unchanged sentences

until they ceased most domestic sales beginning January 1, 2017.

We restarted domestic sales in Florida in 2021.

We restarted marketing domestically in Florida in 2021.

Our domestic Home Service Insurance segment operates through our subsidiaries SPLIC, MGLIC and SPFIC, and focuses on the life insurance needs of the middle- and lower-income markets, primarily in Louisiana, Mississippi and Arkansas.

3 unchanged sentences

The Company's Other Non-Insurance Enterprises are the only reportable difference between segments and consolidated operations.

June 30, 2021 | 10-Q 10

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accounting policies of the reportable segments and Other Non-Insurance Enterprises are presented in accordance with U.S.

2 unchanged sentences

GAAP income before federal income taxes for its two reportable segments.

March 31, 2021 | 10-Q 10

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2021

(In thousands)

Premiums $ 30,138 12,688 — 42,826

Net investment income 11,879 3,243 198 15,320

Realized investment gains (losses), net 4,644 206 9 4,859

Other income 553 — — 553

Total revenues 47,214 16,137 207 63,558

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 23,531 5,765 — 29,296

Increase in future policy benefit reserves 4,054 2,233 — 6,287

Policyholders' dividends 1,466 9 — 1,475

Total insurance benefits paid or provided 29,051 8,007 — 37,058

Commissions 4,398 4,403 — 8,801

Other general expenses 5,147 4,084 2,272 11,503

Capitalization of deferred policy acquisition costs ( 3,816 ) ( 1,971 ) — ( 5,787 )

Amortization of deferred policy acquisition costs 5,200 874 — 6,074

Amortization of cost of insurance acquired 107 202 — 309

Total benefits and expenses 40,087 15,599 2,272 57,958

Income (loss) before federal income tax expense $ 7,127 538 ( 2,065 ) 5,600

June 30, 2021 | 10-Q 11

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended March 31, 2021

Six Months Ended June 30, 2021

(In thousands)

1 unchanged sentence

Net investment income 23,477 6,588 499 30,564

Realized investment gains, net 4,536 429 186 5,151

Other income 1,466 2 — 1,468

Total revenues 86,680 31,676 685 119,041

Benefits and expenses:

Insurance benefits paid or provided:

Claims and surrenders 46,801 13,084 — 59,885

Increase in future policy benefit reserves 7,712 3,807 — 11,519

Policyholders' dividends 2,762 19 — 2,781

Total insurance benefits paid or provided 57,275 16,910 — 74,185

Commissions 8,629 8,329 — 16,958

Other general expenses 10,373 7,878 4,634 22,885

Capitalization of deferred policy acquisition costs ( 7,377 ) ( 3,395 ) — ( 10,772 )

Amortization of deferred policy acquisition costs 10,548 1,709 — 12,257

Amortization of cost of insurance acquired 211 465 — 676

Total benefits and expenses 79,659 31,896 4,634 116,189

Income (loss) before federal income tax expense $ 7,021 ( 220 ) ( 3,949 ) 2,852

June 30, 2021 | 10-Q 12

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2020

(In thousands)

Premiums $ 30,062 11,434 — 41,496

Net investment income 11,345 3,256 314 14,915

Realized investment gains (losses), net 391 924 133 1,448

13 unchanged sentences

Total benefits and expenses 40,161 15,640 2,102 57,903

Loss before federal income tax expense $ ( 106 ) ( 758 ) ( 1,884 ) ( 2,748 )

March 31, 2021 | 10-Q 11

Income (loss) before federal income tax expense $ 2,119 ( 26 ) ( 1,655 ) 438

June 30, 2021 | 10-Q 13

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ 4,205 ( 2,171 ) ( 3,831 ) ( 1,797 )

March 31, 2021 | 10-Q 12

June 30, 2021 | 10-Q 14

CITIZENS, INC .

3 unchanged sentences

The following tables set forth the computation of basic and diluted earnings (loss) per share.

Three Months Ended March 31, 2021 2020

Three Months Ended June 30, 2021 2020

(In thousands, except per share amounts)

9 unchanged sentences

Basic and diluted earnings (loss) per share of Class B common stock 0.05 ( 0.01 )

Six Months Ended June 30, 2021 2020

(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:

Net income (loss) $ 1,449 ( 4,611 )

Net income (loss) allocated to Class A common stock $ 1,441 ( 4,565 )

Net income (loss) allocated to Class B common stock 8 ( 46 )

Net income (loss) $ 1,449 ( 4,611 )

Weighted average shares of Class A outstanding - basic 49,578 49,322

Weighted average shares of Class A outstanding - diluted 50,145 49,506

Weighted average shares of Class B outstanding - basic and diluted 572 1,002

Basic and diluted earnings (loss) per share of Class A common stock $ 0.03 ( 0.09 )

Basic and diluted earnings (loss) per share of Class B common stock 0.01 ( 0.05 )

CAPITAL AND SURPLUS

2 unchanged sentences

National Association of Insurance Commissioners ("NAIC") and the Bermuda Monetary Authority ("BMA").

All insurance subsidiaries exceeded the minimum capital requirements at March 31, 2021.

All insurance subsidiaries exceeded the minimum capital requirements at June 30, 2021.

June 30, 2021 | 10-Q 15

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In order to minimize the risk of a shortfall in capital arising from an unexpected adverse deviation or excess risk, the BMA has established a threshold capital level (termed the Target Capital Level ("TCL")), which is set at 120% of a company’s enhanced capital requirement.

The TCL serves as an early warning tool for the BMA.

As of March 31, 2021, CICA Ltd.

As of June 30, 2021, CICA Ltd.

was above the TCL threshold.

5 unchanged sentences

Since CICA Ltd.’s capital level currently exceeds 120 %, Citizens is not currently required to make a capital contribution.

March 31, 2021 | 10-Q 13

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 90.8 % of total cash and invested assets at March 31, 2021, as shown below.

The Company invests primarily in fixed maturity securities, which totaled 90.1 % of total cash and invested assets at June 30, 2021, as shown below.

Carrying Value

(In thousands, except for %)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Amount % Amount %

7 unchanged sentences

The following tables represent the amortized cost, gross unrealized gains and losses and fair value of fixed maturity securities as of the dates indicated.

March 31, 2021

June 30, 2021

(In thousands)

12 unchanged sentences

Total fixed maturity securities $ 1,325,717 144,317 2,267 1,467,767

March 31, 2021 | 10-Q 14

June 30, 2021 | 10-Q 16

CITIZENS, INC .

18 unchanged sentences

(In thousands)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Equity securities:

8 unchanged sentences

Equity securities are measured at fair value with the change in fair value recorded through net income.

The Company recognized net realized gains of $ 0.3 million on equity securities held for the three months ended March 31, 2021 and losses of $ 1.1 million for the same period ended March 31, 2020.

The Company recognized net realized gains of $ 0.3 million and $ 0.6 million on equity securities held for the three and six months ended June 30, 2021 and gains of $ 1.3 million and $ 0.2 million for the same period ended June 30, 2020.

The Company considers several factors in its review and evaluation of individual investments, using the process described in Part IV, Item 15, Note 2.

Investments in the notes to the consolidated financial statements of our Form 10-K to determine whether a credit loss impairment exists.

For the three months ended March 31, 2021 and 2020, the Company recorded no credit valuation losses on fixed maturity securities.

March 31, 2021 | 10-Q 15

For the three and six months ended June 30, 2021 and 2020, the Company recorded no credit valuation losses on fixed maturity securities.

June 30, 2021 | 10-Q 17

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present the fair values and gross unrealized losses of fixed maturity securities that are not deemed to have credit losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position at March 31, 2021 and December 31, 2020.

March 31, 2021 Less than 12 months Greater than 12 months Total

June 30, 2021 Less than 12 months Greater than 12 months Total

(In thousands, except for # of securities) Fair

6 unchanged sentences

Available-for-sale securities:

Treasury securities $ 73 — 2 $ — — — $ 73 — 2

States and political subdivisions 10,873 257 15 — — — 10,873 257 15

26 unchanged sentences

We did not recognize credit losses on securities with unrealized losses that were due to interest rate sensitivity and changes in credit spreads.

We believe that fluctuations caused by movements in interest rates and credit spreads have little bearing on the recoverability of our investments.

The fair value is expected to recover as the securities approach maturity.

March 31, 2021 | 10-Q 16

We believe that fluctuations caused by movements in interest rates and credit spreads

June 30, 2021 | 10-Q 18

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amortized cost and fair value of fixed maturity securities at March 31, 2021 by contractual maturity are shown in the table below.

have little bearing on the recoverability of our investments.

The fair value is expected to recover as the securities approach maturity.

The amortized cost and fair value of fixed maturity securities at June 30, 2021 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.

Securities not due at a single maturity date have been reflected based upon final stated maturity.

March 31, 2021 Amortized

June 30, 2021 Amortized

(In thousands)

6 unchanged sentences

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.

Three Months Ended

Fixed Maturity Securities, Available-for-Sale March 31,

Three Months Ended Six Months Ended

Fixed Maturity Securities, Available-for-Sale June 30, June 30,

(In thousands) 2021 2020 2021 2020

2 unchanged sentences

Gross realized losses $ — 19 1 57

The Company sold 18 and 1 AFS fixed maturity securities during the three months ended March 31, 2021 and 2020, respectively.

No equity securities were sold during the three months ended March 31, 2021 and 2020.

The Company sold 0 and 18 AFS fixed maturity securities during the three and six months ended June 30, 2021 and 5 and 6 during the three and six months ended June 30, 2020, respectively.

(6) FAIR VALUE MEASUREMENTS

9 unchanged sentences

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.

and model-derived valuations whose inputs or

June 30, 2021 | 10-Q 19

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

whose significant value drivers are observable.

• Level 3 - Instruments whose significant value drivers are unobservable.

1 unchanged sentence

Treasury securities and actively traded mutual fund and stock investments.

March 31, 2021 | 10-Q 17

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes.

6 unchanged sentences

The following tables set forth our assets that are measured at fair value on a recurring basis as of the dates indicated.

March 31, 2021 Level 1 Level 2 Level 3 Total

June 30, 2021 Level 1 Level 2 Level 3 Total

(In thousands)

18 unchanged sentences

Total financial assets $ 33,692 1,456,732 — 1,516,447

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet.

March 31, 2021 | 10-Q 18

(1) In accordance with Subtopic 820-10, certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient are not classified in the fair value hierarchy.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

June 30, 2021 | 10-Q 20

CITIZENS, INC .

22 unchanged sentences

Total financial assets $ 33,480 1,478,005 — 1,523,408

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the balance sheet.

The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

FINANCIAL INSTRUMENTS VALUATION

1 unchanged sentence

Fixed maturity securities, available-for-sale.

At March 31, 2021, our fixed maturity securities, valued using a third-party pricing source, totaled $ 1.4 billion for Level 2 assets and comprised 96.5 % of total reported fair value of our financial assets.

At June 30, 2021, our fixed maturity securities, valued using a third-party pricing source, totaled $ 1.5 billion for Level 2 assets and comprised 96.1 % of total reported fair value of our financial assets.

The Level 1 and Level 2 valuations are reviewed and updated quarterly through testing by comparisons to separate pricing models, other third-party pricing services, and back tested to recent trades.

In addition, we obtain information annually relative to the third-party pricing models and review model parameters for reasonableness.

There were no Level 3 assets at March 31, 2021.

For the three months ended March 31, 2021, 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.

There were no Level 3 assets at June 30, 2021.

For the six months ended June 30, 2021, 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.

Our equity securities are classified as Level 1 assets as their fair values are based upon quoted market prices.

Private equity funds.

Limited partnerships.

The Company considers the net asset value ("NAV") to represent the value of the investment fund and is measured by the total value of assets minus the total value of liabilities.

The following tables include information related to our investments in private equity funds that calculate NAV per share.

For these investments,

March 31, 2021 | 10-Q 19

The following tables include information related to our investments in limited partnerships that calculate NAV per share.

For these investments, which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value.

Changes in the NAV of our limited partnerships are recorded through net income.

The Company recognized net realized gains

June 30, 2021 | 10-Q 21

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which are measured at fair value on a recurring basis, we use the NAV per share to measure fair value.

of $ 4.0 million and $ 4.5 million on limited partnerships held for the three and six months ended June 30, 2021 and losses of $ 0.1 million for both the three and six months ended June 30, 2020.

These investments are included in other long-term investments on the consolidated balance sheets.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Using NAV Per Share Unfunded Commit-

2 unchanged sentences

(In thousands, except years)

Private equity funds

Middle market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 8,457 31,777 10 $ 10,542 29,783 10

liquidity facility Investments in a facility established by the U.S.

Limited partnerships

market Investments in privately-originated, performing senior secured debt primarily in North America-based companies $ 11,119 29,205 10 $ 10,542 29,783 10

facility Investments in a facility established by the U.S.

Federal Reserve that provides financing to U.S.

2 unchanged sentences

Infrastructure Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy 1,948 18,652 12 — 17,497 12

Total private equity funds $ 16,982 63,460 $ 11,923 63,571

Our private equity fund investments are not redeemable because distributions from the funds will be received when the underlying investments of the funds are liquidated.

Total limited partnerships $ 26,023 59,059 $ 11,923 63,571

Our limited partnership investments are not redeemable because distributions will be received when the underlying investments of the partnerships are liquidated.

The life spans indicated above may be shortened or extended at the fund manager's discretion, typically in one or two-year increments.

We initially estimate the fair value of investments in private equity funds by reference to the transaction price.

We initially estimate the fair value of investments in limited partnerships by reference to the transaction price.

Subsequently, we obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are audited annually.

We carried $ 6.2 million of limited partnerships investments at cost at December 31, 2020.

None were carried at cost at June 30, 2021.

We review the fair value hierarchy classifications each reporting period.

1 unchanged sentence

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.

There were no transfers in or out of Level 3 during the three months ended March 31, 2021.

There were no transfers in or out of Level 3 during the six months ended June 30, 2021 or 2020.

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.

March 31, 2021 | 10-Q 20

The fair values of financial instruments presented below are not necessarily indicative of the amounts the Company might realize in actual market transactions.

June 30, 2021 | 10-Q 22

CITIZENS, INC .

1 unchanged sentence

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:

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(In thousands) Carrying

7 unchanged sentences

Policy loans.

Policy loans had a weighted average annual interest rate of 7.7 % at March 31, 2021 and December 31, 2020, and no specified maturity dates.

Policy loans had a weighted average annual interest rate of 7.7 % at June 30, 2021 and December 31, 2020, and no specified maturity dates.

The aggregate fair value of policy loans approximates the carrying value reflected on the consolidated balance sheets.

3 unchanged sentences

Mortgage loans are secured principally by residential properties.

Weighted average interest rates for these loans were approximately 6.4 % at March 31, 2021 and December 31, 2020.

At March 31, 2021, maturities ranged from 7 to 19 years.

Management estimated the fair value using an annual interest rate of 6.25 % at March 31, 2021.

Weighted average interest rates for these loans were approximately 6.4 % at June 30, 2021 and December 31, 2020.

At June 30, 2021, maturities ranged from 5 to 19 years.

Management estimated the fair value using an annual interest rate of 6.25 % at June 30, 2021.

Our mortgage loans are considered Level 3 assets in the fair value hierarchy and are included in other long-term investments on the consolidated balance sheets.

2 unchanged sentences

Annuity liabilities.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at March 31, 2021 and December 31, 2020 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 0.20 % to 2.86 % and 0.22 % to 2.34 %, respectively.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at June 30, 2021 and December 31, 2020 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 0.21 % to 2.55 % and 0.22 % to 2.34 %, respectively.

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.

4 unchanged sentences

(In thousands )

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Other long-term investments:

Private equity funds $ 16,982 18,135

Limited partnerships $ 26,023 18,135

FHLB common stock 192 190

2 unchanged sentences

Total other long-term investments $ 26,388 27,293

March 31, 2021 | 10-Q 21

June 30, 2021 | 10-Q 23

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We are a member of the Federal Home Loan Bank ("FHLB") of Dallas and such membership requires members to own stock in the FHLB.

We are a member of the Federal Home Loan Bank ("FHLB") of Dallas and such membership requires members to own stock in FHLB.

Our FHLB stock is carried at amortized cost, which approximates fair value.

Included in all other investments in 2020 was a Rabbi Trust holding $ 8.8 million for the benefit of our former Chief Executive Officer, Geoffrey Kolander, which represented his severance payment under the terms of his employment agreement in connection with his resignation following a change in control of the Company, that was paid during the first quarter of 2021.

Included in all other investments at December 31, 2020 was a Rabbi Trust holding $ 8.8 million for the benefit of our former Chief Executive Officer, Geoffrey Kolander, which we were required to hold for his severance payment under the terms of his employment agreement in connection with his resignation following a change in control of the Company.

This amount was paid to him during the first quarter of 2021 and thus is not reflected in all other investments at June 30, 2021.

(7) COMMITMENTS AND CONTINGENCIES

16 unchanged sentences

CONTRACTUAL OBLIGATIONS

As of March 31, 2021, CICA Ltd.

is committed to fund investments up to $ 68.5 million related to private equity funds and other investments.

As of June 30, 2021, CICA Ltd.

is committed to fund investments up to $ 64.1 million related to limited partnerships previously described and other investments.

CREDIT FACILITY

On May 5, 2021, the Company entered into a $ 20 million senior secured revolving credit facility with Regions Bank (the “Credit Facility”).

The Credit Facility has a three-year term and allows the Company to borrow up to $ 20 million for working capital purposes, capital expenditures and other lawful corporate purposes.

The Credit Facility is secured by a first priority lien on most of Citizens’ assets, excluding its ownership interests in all of the regulated insurance subsidiaries and contains standard representations, warranties and covenants.

For a more detailed description of the Credit Facility, see the Company’s Current Report on Form 8-K filed on May 5, 2021.

As of May 5, 2021, the Company had not borrowed any funds against the Credit Facility.

March 31, 2021 | 10-Q 22

On May 5, 2021, the Company entered into a $ 20 million senior secured revolving credit facility (the “Credit Facility”) with Regions Bank ("Regions").

The Credit Facility has a three-year term, maturing on May 5, 2024, and allows the Company to borrow up to $ 20 million for working capital purposes, capital expenditures and other corporate purposes.

Revolving loans may be requested by the Company in aggregate minimum principal amounts of $ 0.5 million per loan.

At the Company's election, the revolving loans may either bear a base rate, which is 1.75 % plus a base rate (a fluctuating rate per annum) equal to the greatest of (a) Regions' prime rate, (b) the federal funds rate plus 0.50 %, (c) the one-month LIBOR rate plus 1 %, and (d) 0.75 %;

or an adjusted LIBOR rate, which is 2.75 % plus an adjusted LIBOR rate but cannot be less than 0.75 %.

The Company is required to pay Regions a quarterly commitment fee of 0.375 % of the unused portion of the Credit Facility, which the Company expenses as it is incurred.

Obligations under the Credit Facility are secured by substantially all of the assets of the Company other than the equity interests in all of the regulated insurance subsidiaries, real estate owned by the Company, and other limited

June 30, 2021 | 10-Q 24

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Credit Facility contains customary events of default and financial, affirmative and negative covenants, including but not limited to restrictions on indebtedness, liens, investments, asset dispositions and restricted payments.

As of June 30, 2021, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

CHANGE IN CONTROL

As previously disclosed, on February 5, 2021, Citizens, Inc.

(the “Company”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with the Harold E.

Riley Foundation (the “Foundation”) to purchase 100% of the Company’s Class B common stock (the “Class B Shares”) from the Foundation at an aggregate purchase price of $ 9.1 million (the “Class B Transaction”).

Because the Class B Shares have the right to elect a simple majority of the Board, the Foundation was able to exercise control over the Company as the holder of 100% of the Class B Shares.

Thus, in order to consummate the Class B Transaction, the Company and the Foundation were required to obtain regulatory approvals by the insurance regulators in Colorado, Louisiana, Mississippi, Texas and Bermuda, the jurisdictions in which the Company and its insurance subsidiaries are domiciled.

On April 12, 2021, the Company and the Foundation received the last of the regulatory approvals required for the Foundation to divest control of the Company and thus all of the Foundation’s Class B Shares were transferred to the Company as of such date.

In accordance with Colorado law, the Class B Shares are now classified as authorized, but unissued shares.

On March 9, 2021, the Board passed a resolution stating that as long as the Class B Shares are being held as unissued shares, the Company will not vote, nor permit any other person or entity to exercise any voting rights or other rights, with respect to the Class B Shares.

(8) INCOME TAXES

3 unchanged sentences

is subject to Subpart F of the IRC and is included in Citizens’ taxable income.

For the three months ended March 31, 2021, the Subpart F income inclusion generated $ 0.4 million of federal income tax expense.

For the three and six months ended June 30, 2021, the Subpart F income inclusion generated $ 0.6 million and $ 1.0 million of federal income tax expense, respectively.

A reconciliation between the U.S.

corporate income tax rate and the effective income tax rate is as follows:

Three Months Ended March 31, 2021 2020

Three Months Ended June 30, 2021 2020

(In thousands, except for %) Amount % Amount %

10 unchanged sentences

Total federal income tax expense (benefit) $ 578 10.4 % $ 1,465 334.6 %

June 30, 2021 | 10-Q 25

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2021 2020

(In thousands, except for %) Amount % Amount %

Federal income tax expense:

Expected tax expense (benefit) $ 599 21.0 % $ ( 377 ) 21.0 %

Foreign income tax rate differential ( 1,560 ) ( 54.7 ) % ( 1,039 ) 57.8 %

Tax-exempt interest and dividends-received deduction ( 59 ) ( 2.1 ) % ( 78 ) 4.3 %

Annualized effective tax rate adjustment 339 11.9 % 846 ( 47.1 ) %

Adjustment of prior year taxes — — % ( 88 ) 4.9 %

Effect of uncertain tax position 1,216 42.6 % 2,043 ( 113.7 ) %

Subpart F income 992 34.8 % 1,392 ( 77.5 ) %

Nondeductible officer compensation ( 40 ) ( 1.4 ) % — — %

Other ( 84 ) ( 2.9 ) % 115 ( 6.4 ) %

Total federal income tax expense (benefit) $ 1,403 49.2 % $ 2,814 ( 156.7 ) %

Income tax expense consists of:

Three Months Ended March 31, 2021 2020

Three Months Ended Six Months Ended

June 30, June 30,

(In thousands) 2021 2020 2021 2020

3 unchanged sentences

Total federal income tax expense $ 578 1,465 1,403 2,814

March 31, 2021 | 10-Q 23

June 30, 2021 | 10-Q 26

CITIZENS, INC .

3 unchanged sentences

(In thousands)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Deferred tax assets:

17 unchanged sentences

Net deferred tax liability $ ( 9,661 ) ( 9,564 )

March 31, 2021 | 10-Q 24

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(9) OTHER COMPREHENSIVE INCOME

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three months ended March 31, 2021 and 2020, as indicated below.

(In thousands) Amount Tax Effect Total

Three months ended March 31, 2021

The changes in the components of other comprehensive income (loss) are reported net of the effects of income taxes of 21% as of the three and six months ended June 30, 2021 and 2020, as indicated below.

Three Months Ended June 30, 2021 2020

(In thousands) Amount Tax Effect Total Amount Tax Effect Total

Unrealized gains (losses):

5 unchanged sentences

Other comprehensive income (loss) $ 31,802 346 32,148 80,421 ( 5,774 ) 74,647

Three months ended March 31, 2020

June 30, 2021 | 10-Q 27

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2021 2020

(In thousands) Amount Tax Effect Total Amount Tax Effect Total

Unrealized gains (losses):

7 unchanged sentences

The Company has various routine related party transactions in conjunction with our holding company structure, such as a management service agreement related to costs incurred, a tax sharing agreement between entities, and inter-company dividends and capital contributions.

There were no changes related to these relationships during the three months ended March 31, 2021.

There were no changes related to these relationships during the six months ended June 30, 2021.

See our Form 10-K for a comprehensive discussion of related party transactions.

1 unchanged sentence

The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued.

CHANGE IN CONTROL

As previously disclosed, on February 5, 2021, Citizens, Inc.

(the “Company”) entered into a Purchase and Sale Agreement (the “Purchase Agreement”) with the Harold E.

In accordance with the Purchase Agreement, the purchase price was paid to the Foundation on March 5, 2021 and is reported within other assets rather than treasury stock on the consolidated balance sheets as all regulatory approvals had not been received as of March 31, 2021.

March 31, 2021 | 10-Q 25

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Because the Class B Shares have the right to elect a simple majority of the Board, the Foundation was able to exercise control over the Company as the holder of 100% of the Class B Shares.

In accordance with Colorado law, the Class B Shares are now classified as authorized, but unissued shares.

Accordingly, there is no party that now controls the Company.

March 31, 2021 | 10-Q 26

On July 30, 2021, the Company sold our Citizens Academy Training Facility located near Austin, Texas for a gross sales price of $ 3.8 million, resulting in a gain on the sale of $ 1.0 million.

The facility was owned by Citizens and was held in our Other Non-Insurance Enterprises.

June 30, 2021 | 10-Q 28

CITIZENS, INC.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements