What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-04 compared with 2021-08-04 · 149 added, 150 removed, 741 unchanged (29% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

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

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

Assets (Unaudited)

11 unchanged sentences

Accrued investment income 15,625 16,137

Receivable for securities 10,000 —

Reinsurance recoverable 13,724 5,753

7 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2021 | 10-Q 2

September 30, 2021 | 10-Q 2

CITIZENS, INC.

1 unchanged sentence

Consolidated Balance Sheets, Continued

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

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

Liabilities and Stockholders' Equity (Unaudited)

20 unchanged sentences

263,160 262,869

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

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

Accumulated deficit ( 83,702 ) ( 82,352 )

5 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2021 | 10-Q 3

September 30, 2021 | 10-Q 3

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Operations and Comprehensive Income (Loss)

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

Three Months Ended September 30, Nine Months Ended September 30,

(In thousands, except per share amounts)

34 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2021 | 10-Q 4

September 30, 2021 | 10-Q 4

CITIZENS, INC.

21 unchanged sentences

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

Comprehensive income (loss):

Net income (loss) — — ( 2,799 ) — — ( 2,799 )

Unrealized investment gains (losses), net — — — ( 1,395 ) — ( 1,395 )

Total comprehensive income (loss) — — ( 2,799 ) ( 1,395 ) — ( 4,194 )

Stock-based compensation 100 — — — — 100

Balance at September 30, 2021 $ 263,160 3,184 ( 83,702 ) 102,490 ( 20,101 ) 265,031

See accompanying Notes to Consolidated Financial Statements.

September 30, 2021 | 10-Q 5

CITIZENS, INC.

AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders' Equity, Continued

Common Stock Accumulated

deficit Accumulated other

comprehensive

income (loss) Treasury

Stock-holders'

(In thousands) Class A Class B

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

12 unchanged sentences

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

Comprehensive income (loss):

Net income (loss) — — ( 7,915 ) — — ( 7,915 )

Unrealized investment gains (losses), net — — — 14,110 — 14,110

Total comprehensive income (loss) — — ( 7,915 ) 14,110 — 6,195

Stock-based compensation 766 — — — — 766

Balance at September 30, 2020 $ 262,667 3,184 ( 83,890 ) 125,804 ( 11,011 ) 296,754

See accompanying Notes to Consolidated Financial Statements.

June 30, 2021 | 10-Q 5

September 30, 2021 | 10-Q 6

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

24 unchanged sentences

Principal payments on mortgage loans 7 9

Funding of mortgage loans ( 1,000 ) —

(Increase) decrease in policy loans, net 3,216 ( 1,957 )

1 unchanged sentence

Purchases of other long-term investments ( 27,514 ) ( 19,115 )

Sales of property and equipment 14 —

Purchases of property and equipment ( 847 ) ( 124 )

2 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

June 30, 2021 | 10-Q 6

September 30, 2021 | 10-Q 7

CITIZENS, INC.

1 unchanged sentence

Consolidated Statements of Cash Flows, Continued

Six Months Ended June 30,

Nine Months Ended September 30,

(In thousands)

9 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

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.

During the nine months ended September 30, 2021 and 2020, various fixed maturity issuers exchanged securities with book values of $ 10.9 million and $ 5.3 million, respectively, for securities of equal value.

The Company had $ 9.4 million net unsettled security trades at September 30, 2021 and $ 6.0 million at September 30, 2020.

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

None were recognized during the nine months ended September 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

June 30, 2021 | 10-Q 7

September 30, 2021 | 10-Q 8

CITIZENS, INC .

7 unchanged sentences

Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company", "we", "us" or "our".

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 balance sheets as of September 30, 2021, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and nine months ended September 30, 2021 and September 30, 2020 and the consolidated statements of cash flows for the nine months ended September 30, 2021 and September 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 September 30, 2021 and for comparative periods have been made.

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

12 unchanged sentences

Our 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.

Our products in this segment consist primarily of small face amount ordinary whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs as well as limited liability, named peril property policies covering dwelling and contents.

Our products in this segment consist primarily of small face amount ordinary whole life, industrial life and pre-need policies, which are designed to fund final expenses for the insured, primarily consisting of funeral and burial costs as well as property insurance policies, which are named peril property policies covering dwelling and contents.

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

The impact of this system conversion reflected in the accompanying consolidated financial statements as of and for the nine months ended September 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.

September 30, 2021 | 10-Q 9

CITIZENS, INC .

23 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

September 30, 2021 | 10-Q 10

CITIZENS, INC .

16 unchanged sentences

For calendar-year public companies, the changes will be effective on January 1, 2023, however, early adoption is permitted.

The Company is evaluating the impact of this new guidance, and it is expected to have a material impact on our consolidated financial statements.

While it is not possible to estimate the expected impact of adoption at this time, the Company believes there is a reasonable possibility that implementation of ASU No.

2018-12 may result in a material impact on our consolidated statements of stockholders' equity and future earnings patterns.

No other new accounting pronouncement issued or effective during the year had, or is expected to have, a material impact on our consolidated financial statements.

8 unchanged sentences

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.

Our 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 in Louisiana, Mississippi and Arkansas.

Our policies are sold and serviced through funeral homes and independent agents who sell policies, collect premiums and service policyholders.

To a lesser extent, our Home Service Insurance segment sells limited liability, named peril property policies covering dwelling and contents.

To a lesser extent, our Home Service Insurance segment also sells property insurance policies in Louisiana.

The Company also operates other non-insurance portions of the Company ("Other Non-Insurance Enterprises"), which primarily include the Company’s IT and Corporate-support functions that are included in the tables presented.

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

June 30, 2021 | 10-Q 10

September 30, 2021 | 10-Q 11

CITIZENS, INC .

5 unchanged sentences

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ 1,686 ( 4,099 ) ( 314 ) ( 2,727 )

June 30, 2021 | 10-Q 11

September 30, 2021 | 10-Q 12

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

(In thousands)

1 unchanged sentence

Net investment income 35,468 9,826 724 46,018

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

Realized investment gains (losses), net 5,741 393 1,143 7,277

Other income 2,142 3 — 2,145

13 unchanged sentences

Income (loss) before federal income tax expense $ 8,707 ( 4,319 ) ( 4,263 ) 125

June 30, 2021 | 10-Q 12

September 30, 2021 | 10-Q 13

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ 5,508 ( 1,026 ) ( 12,653 ) ( 8,171 )

June 30, 2021 | 10-Q 13

September 30, 2021 | 10-Q 14

CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ 9,713 ( 3,197 ) ( 16,484 ) ( 9,968 )

June 30, 2021 | 10-Q 14

September 30, 2021 | 10-Q 15

CITIZENS, INC .

3 unchanged sentences

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

Three Months Ended June 30, 2021 2020

Three Months Ended September 30, 2021 2020

(In thousands, except per share amounts)

9 unchanged sentences

Basic and diluted earnings (loss) per share of Class B common stock — ( 0.07 )

Six Months Ended June 30, 2021 2020

Nine Months Ended September 30, 2021 2020

(In thousands, except per share amounts)

13 unchanged sentences

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

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

June 30, 2021 | 10-Q 15

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

September 30, 2021 | 10-Q 16

CITIZENS, INC .

2 unchanged sentences

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

As of June 30, 2021, CICA Ltd.

As of September 30, 2021, CICA Ltd.

was above the TCL threshold.

6 unchanged sentences

(5) INVESTMENTS

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.

The Company invests primarily in fixed maturity securities, which totaled 89.7 % of total cash and invested assets at September 30, 2021, as shown below.

Carrying Value

(In thousands, except for %)

June 30, 2021 December 31, 2020

September 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.

June 30, 2021

September 30, 2021

(In thousands)

12 unchanged sentences

Total fixed maturity securities $ 1,324,307 135,061 2,674 1,456,694

June 30, 2021 | 10-Q 16

September 30, 2021 | 10-Q 17

CITIZENS, INC .

18 unchanged sentences

(In thousands)

June 30, 2021 December 31, 2020

September 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 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 recognized net realized losses of $ 0.4 million and net realized gains of $ 0.2 million on equity securities held for the three and nine months ended September 30, 2021 and gains of $ 0.4 million and $ 0.6 million for the same periods ended September 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 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

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

September 30, 2021 | 10-Q 18

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 June 30, 2021 and December 31, 2020.

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

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

(In thousands, except for # of securities) Fair

36 unchanged sentences

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

June 30, 2021 | 10-Q 18

September 30, 2021 | 10-Q 19

CITIZENS, INC .

2 unchanged sentences

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.

The amortized cost and fair value of fixed maturity securities at September 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.

June 30, 2021 Amortized

September 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 Six Months Ended

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

Three Months Ended Nine Months Ended

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

(In thousands) 2021 2020 2021 2020

2 unchanged sentences

Gross realized losses $ — 77 1 134

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.

The Company sold 10 and 28 AFS fixed maturity securities during the three and nine months ended September 30, 2021 and 18 and 24 during the three and nine months ended September 30, 2020, respectively.

The Company sold its former training facility near Austin, Texas during the third quarter 2021 for a gross sale 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 Other Non-Insurance Enterprises.

(6) FAIR VALUE MEASUREMENTS

4 unchanged sentences

Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market assumptions in the absence of observable market information.

We utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.

We utilize valuation techniques that maximize the use of

September 30, 2021 | 10-Q 20

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

observable inputs and minimize the use of unobservable inputs.

All assets and liabilities carried at fair value are required to be classified and disclosed in one of the following three categories:

2 unchanged sentences

quoted prices for identical or similar instruments in markets that are not active;

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.

and model-derived valuations whose inputs or whose significant value drivers are observable.

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

8 unchanged sentences

Real estate held-for-sale is in this category.

September 30, 2021 | 10-Q 21

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

June 30, 2021 Level 1 Level 2 Level 3 Total

September 30, 2021 Level 1 Level 2 Level 3 Total

(In thousands)

20 unchanged sentences

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

September 30, 2021 | 10-Q 22

CITIZENS, INC .

27 unchanged sentences

Fixed maturity securities, available-for-sale.

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.

At September 30, 2021, our fixed maturity securities, valued using a third-party pricing source, totaled $ 1.4 billion for Level 2 assets and comprised 95.8 % 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 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.

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

For the nine months ended September 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.

6 unchanged sentences

The Company recognized net realized gains

June 30, 2021 | 10-Q 21

September 30, 2021 | 10-Q 23

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

of $ 1.3 million and $ 5.8 million on limited partnerships held for the three and nine months ended September 30, 2021 and gains of $ 0.2 million for both the three and nine months ended September 30, 2020.

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

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Using NAV Per Share Unfunded Commit-

14 unchanged sentences

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 carried no limited partnership investments at cost at September 30, 2021 and $ 6.2 million of limited partnership investments at cost at December 31, 2020.

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 six months ended June 30, 2021 or 2020.

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

FINANCIAL INSTRUMENTS NOT CARRIED AT FAIR VALUE

1 unchanged sentence

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

September 30, 2021 | 10-Q 24

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:

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(In thousands) Carrying

2 unchanged sentences

Policy loans $ 80,102 80,102 83,318 83,318

Mortgage loans 152 171 157 195

Commercial mortgage loan 1,000 1,000 — —

Residential mortgage loans 150 169 157 195

Cash and cash equivalents 30,087 30,087 34,131 34,131

2 unchanged sentences

Policy loans.

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.

Policy loans had a weighted average annual interest rate of 7.7 % at September 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.

1 unchanged sentence

Therefore, the fair value of policy loans approximates the carrying value and policy loans are considered Level 3 assets in the fair value hierarchy.

Mortgage loans.

Commercial mortgage loan.

We financed $ 1.0 million of the sale of our training facility at a 6.0 % interest rate.

The loan is due in less than 1 year.

Due to the short-term nature of the loan, the carrying value approximates fair value.

Residential mortgage loans.

Mortgage loans are secured principally by residential properties.

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.

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

At September 30, 2021, maturities ranged from 5 to 18 years.

Management estimated the fair value using an annual interest rate of 6.25 % at September 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 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 the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at September 30, 2021 and December 31, 2020 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 0.19 % to 2.59 % 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.

September 30, 2021 | 10-Q 25

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other long-term investments.

3 unchanged sentences

(In thousands )

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Other long-term investments:

4 unchanged sentences

Total other long-term investments $ 34,013 27,293

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 FHLB.

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

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.

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, 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 September 30, 2021.

(7) COMMITMENTS AND CONTINGENCIES

4 unchanged sentences

persons, which were novated to CICA Ltd.

effective July 1, 2018 , may have inadvertently generated U.S.

effective July 1, 2018 , inadvertently generated U.S.

source income over time, which subjected the Company to certain tax withholding and information reporting requirements for the Company under Chapters 3 or 4 of the IRC.

9 unchanged sentences

CONTRACTUAL OBLIGATIONS

As of June 30, 2021, CICA Ltd.

As of September 30, 2021, CICA Ltd.

is committed to fund investments up to $ 63.0 million related to limited partnerships previously described and other investments.

September 30, 2021 | 10-Q 26

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CREDIT FACILITY

5 unchanged sentences

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.

As of September 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

7 unchanged sentences

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.

September 30, 2021 | 10-Q 27

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(8) INCOME TAXES

3 unchanged sentences

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

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.

For the nine months ended September 30, 2021, the Subpart F income inclusion generated $ 1.3 million of federal income tax expense.

A reconciliation between the U.S.

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

Three Months Ended June 30, 2021 2020

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

Federal income tax expense:

Expected tax expense (benefit) $ 1,176 21.0 % $ 92 21.0 %

Foreign income tax rate differential ( 1,408 ) ( 25.1 ) % ( 489 ) ( 111.6 ) %

Tax-exempt interest and dividends-received deduction ( 29 ) ( 0.5 ) % ( 38 ) ( 8.7 ) %

Annualized effective tax rate adjustment ( 316 ) ( 5.6 ) % 229 52.3 %

Adjustment of prior year taxes — — % ( 83 ) ( 18.9 ) %

Effect of uncertain tax position 613 10.9 % 1,028 234.7 %

Subpart F income 600 10.7 % 717 163.7 %

Nondeductible officer compensation 33 0.6 % — — %

Other ( 91 ) ( 1.6 ) % 9 2.1 %

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

Nine Months Ended September 30, 2021 2020

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

6 unchanged sentences

Effect of uncertain tax position 1,842 1,473.6 % 2,673 ( 26.8 ) %

Nondeductible costs to remediate tax compliance issue — — % ( 620 ) 6.2 %

Subpart F income 1,310 1,048.0 % 2,180 ( 21.9 ) %

Rate differential on net operating loss carryback claim 296 236.8 % — — %

Nondeductible officer compensation — — % 2,042 ( 20.5 ) %

2 unchanged sentences

Income tax expense consists of:

Three Months Ended Six Months Ended

June 30, June 30,

Nine Months Ended

September 30,

(In thousands) 2021 2020

3 unchanged sentences

Total federal income tax expense $ 1,475 2,558

June 30, 2021 | 10-Q 26

The Company previously accrued an uncertain tax position, most of which will be released during the fourth quarter of 2021 following the expiration of the statute of limitations on the tax year ended December 31, 2017.

This release will increase the carrying value of our Life Insurance segment and could potentially result in an impairment of goodwill in that segment upon the completion of our annual impairment analysis during the fourth quarter of 2021.

September 30, 2021 | 10-Q 28

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of deferred federal income taxes are as follows:

Net Deferred Tax Asset (Liability)

(In thousands)

June 30, 2021 December 31, 2020

Deferred tax assets:

Future policy benefit reserves $ 2,597 2,657

Net operating and capital loss carryforwards 1,565 1,395

Accrued policyholder dividends and expenses 143 124

Investments 239 147

Deferred intercompany loss 1,884 2,002

Fixed assets 576 420

Lease liability 2,387 2,514

Accrued compensation 396 513

Other 167 164

Total gross deferred tax assets 9,954 9,936

Deferred tax liabilities:

Deferred policy acquisition costs, cost of insurance acquired and intangible assets ( 8,708 ) ( 8,693 )

Unrealized gains on investments available-for-sale ( 5,125 ) ( 4,522 )

Tax reserves transition liability ( 3,362 ) ( 3,736 )

Right-of-use lease asset ( 2,387 ) ( 2,514 )

Other ( 33 ) ( 35 )

Total gross deferred tax liabilities ( 19,615 ) ( 19,500 )

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

(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 and six months ended June 30, 2021 and 2020, as indicated below.

Three Months Ended June 30, 2021 2020

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 nine months ended September 30, 2021 and 2020, as indicated below.

Three Months Ended September 30, 2021 2020

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

6 unchanged sentences

Other comprehensive income (loss) $ ( 1,666 ) 271 ( 1,395 ) 15,130 ( 1,020 ) 14,110

June 30, 2021 | 10-Q 27

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2021 2020

Nine Months Ended September 30, 2021 2020

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

8 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 six months ended June 30, 2021.

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

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

(11) SUBSEQUENT EVENTS

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

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

The Company has evaluated the impact of subsequent events as defined by the accounting guidance through the date this report was issued and determined that no significant subsequent events need to be recognized or disclosed.

September 30, 2021 | 10-Q 29

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