What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-05 · 245 added, 130 removed, 593 unchanged (39% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

(In thousands) March 31, 2022 December 31, 2021

(In thousands) June 30, 2022 December 31, 2021

Assets (Unaudited)

18 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2022 | 10-Q 2

June 30, 2022 | 10-Q 2

CITIZENS, INC.

1 unchanged sentence

Consolidated Balance Sheets, Continued

(In thousands, except share amounts) March 31, 2022 December 31, 2021

(In thousands, except share amounts) June 30, 2022 December 31, 2021

Liabilities and Stockholders' Equity (Unaudited)

17 unchanged sentences

Common stock:

Class A, no par value, 100,000,000 shares authorized, 53,532,873 and 53,170,413 shares issued and outstanding in 2022 and 2021, respectively, including shares in treasury of 3,135,738 in 2022 and 2021

Class A, no par value, 100,000,000 shares authorized, 53,742,067 and 53,170,413 shares issued and outstanding in 2022 and 2021, respectively, including shares in treasury of 3,527,821 in 2022 and 3,135,738 in 2021

267,850 265,561

7 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2022 | 10-Q 3

June 30, 2022 | 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)

2022 2021 2022 2021

Life insurance $ 40,761 41,438 78,507 79,080

32 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2022 | 10-Q 4

June 30, 2022 | 10-Q 4

CITIZENS, INC.

5 unchanged sentences

income (loss) Treasury

Stock-holders'

(In thousands) Class A Class B

7 unchanged sentences

Balance at March 31, 2022 267,442 3,184 ( 46,898 ) ( 6,725 ) ( 20,101 ) 196,902

Comprehensive income (loss):

Net income (loss) — — ( 3,548 ) — — ( 3,548 )

Unrealized investment gains (losses), net — — — ( 116,223 ) — ( 116,223 )

Total comprehensive income (loss) — — ( 3,548 ) ( 116,223 ) — ( 119,771 )

Common stock issuance 455 — — — — 455

Acquisition of treasury stock — — — — ( 1,300 ) ( 1,300 )

Stock-based compensation ( 47 ) — — — — ( 47 )

Balance at June 30, 2022 $ 267,850 3,184 ( 50,446 ) ( 122,948 ) ( 21,401 ) 76,239

Balance at December 31, 2020 $ 262,869 3,184 ( 82,352 ) 128,255 ( 11,011 ) 300,945

5 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

See accompanying Notes to Consolidated Financial Statements.

March 31, 2022 | 10-Q 5

June 30, 2022 | 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)

30 unchanged sentences

See accompanying Notes to Consolidated Financial Statements.

March 31, 2022 | 10-Q 6

June 30, 2022 | 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)

10 unchanged sentences

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the three months ended March 31, 2022 and 2021, various fixed maturity issuers exchanged securities with book values of $ 0.6 million and $ 2.0 million, respectively, for securities of equal value.

The Company had $ 3.8 million net unsettled security trades at March 31, 2022 and $ 0.7 million at March 31, 2021.

The Company accrued purchases of property and equipment of $ 0.8 million as of March 31, 2021 and recorded none as of March 31, 2022.

The Company recognized right-of-use assets of $ 0.4 million in exchange for new operating lease liabilities during the three months ended March 31, 2022 and none during the three months ended March 31, 2021.

During the six months ended June 30, 2022 and 2021, various fixed maturity issuers exchanged securities with book values of $ 6.1 million and $ 6.4 million, respectively, for securities of equal value.

The Company had $ 3.3 million net unsettled security trades at June 30, 2022 and $ 0.9 million at June 30, 2021.

The Company recognized right-of-use assets of $ 0.4 million in exchange for new operating lease liabilities during the six months ended June 30, 2022 and none during the six months ended June 30, 2021.

See accompanying Notes to Consolidated Financial Statements.

March 31, 2022 | 10-Q 7

June 30, 2022 | 10-Q 7

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CITIZENS, INC .

7 unchanged sentences

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

The consolidated balance sheet as of March 31, 2022, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three months ended March 31, 2022 and March 31, 2021 and the consolidated statements of cash flows for the three months ended March 31, 2022 and March 31, 2021 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 March 31, 2022 and for comparative periods have been made.

The consolidated balance sheet as of June 30, 2022, the consolidated statements of operations and comprehensive income (loss) and stockholders' equity for the three and six months ended June 30, 2022 and June 30, 2021 and the consolidated statements of cash flows for the six months ended June 30, 2022 and June 30, 2021 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, 2022 and for comparative periods have been made.

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

9 unchanged sentences

Our domestic life insurance business operates through CICA and CNLIC.

CICA issues credit life and disability policies and CNLIC issues ordinary whole life policies mainly in Texas and Florida and services whole life and accident and health policies primarily in the Southern U.S., Midwest and Mountain West.

CICA issues credit life and disability policies and CNLIC issues ordinary whole life policies mainly in Texas and Florida and both companies service whole life and accident and health policies primarily in the Southern U.S., Midwest and Mountain West.

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 property insurance policies, which cover 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 critical illness and property insurance policies, which cover 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, 2022 | 10-Q 8

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

USE OF ESTIMATES

2 unchanged sentences

Actual results could differ from those estimates.

March 31, 2022 | 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 and valuation allowance on deferred tax assets.

22 unchanged sentences

We continue to make progress in our implementation process that includes, but is not limited to, making significant accounting policy decisions, employing appropriate internal controls, building and updating actuarial models and systems, revising reporting processes and developing informative qualitative and quantitative disclosures.

In 2022, we will begin the process of calculating our transition adjustments and preparing for the restatement of applicable periods.

In 2022, we have begun the process of calculating our transition adjustments and preparing for the restatement of applicable periods.

We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations and will be able to better assess the effects as we progress with our implementation efforts.

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 this ASU may result in a material impact to accumulated other comprehensive income and future earnings patterns.

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

March 31, 2022 | 10-Q 9

While it is not possible to estimate the expected impact of adoption at this

June 30, 2022 | 10-Q 9

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

time, the Company believes there is a reasonable possibility that implementing this ASU may result in a material impact to accumulated other comprehensive income and future earnings patterns.

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

(3) SEGMENT INFORMATION

2 unchanged sentences

Our Life Insurance segment primarily issues endowment contracts, which are principally accumulation contracts that incorporate an element of life insurance protection and ordinary whole life insurance, to non-U.S.

residents through CICA International These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations.

CICA issues credit life and disability and accident and health related policies throughout the Midwest and southern U.S.

CNLIC issues ordinary whole life in Florida.

residents through CICA International.

These contracts are designed to provide a fixed amount of insurance coverage over the life of the insured and may utilize rider benefits to provide additional coverage and annuity benefits to enhance accumulations.

CICA issues credit life, credit disability and accident and health related policies throughout the Midwest and southern U.S.

CNLIC issues ordinary whole life and critical illness products in Florida and Texas.

3 unchanged sentences

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 below to properly reconcile the segment information with the consolidated financial statements of the Company.

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

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

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

2 unchanged sentences

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

March 31, 2022 | 10-Q 10

June 30, 2022 | 10-Q 10

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CITIZENS, INC .

1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ ( 2,363 ) 106 ( 1,372 ) ( 3,629 )

March 31, 2022 | 10-Q 11

June 30, 2022 | 10-Q 11

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1 unchanged sentence

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Three Months Ended March 31, 2021

Six Months Ended June 30, 2022

(In thousands)

17 unchanged sentences

Income (loss) before federal income tax expense $ ( 1,333 ) ( 1,134 ) ( 2,136 ) ( 4,603 )

March 31, 2022 | 10-Q 12

June 30, 2022 | 10-Q 12

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Investment related 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, 2022 | 10-Q 13

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Life Insurance Home Service Insurance Other Non-Insurance Enterprises Consolidated

Six Months Ended June 30, 2021

(In thousands)

Premiums $ 57,201 24,657 — 81,858

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

Investment related gains (losses), 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, 2022 | 10-Q 14

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) STOCKHOLDERS' EQUITY AND RESTRICTIONS

5 unchanged sentences

Citizens has never issued any preferred stock.

A summary of the change in gross number of shares of Class A and Class B common stock and treasury stock is as follows:

Six Months Ended June 30,

(In thousands) Common Stock Treasury Common Stock Treasury

Class A Class B Stock Class A Class B Stock

Balance at beginning of year 53,170 1,002 4,138 52,654 1,002 3,136

Stock issued under stock investment plan 475 — — — — —

Stock issued for compensation 81 — — 112 — —

Acquisition of Class A shares — — 392 — — —

Acquisition of Class B shares — — — — — 1,002

Other share issuance 16 — — — — —

Balance at end of period 53,742 1,002 4,530 52,766 1,002 4,138

June 30, 2022 | 10-Q 15

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

EARNINGS PER SHARE

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

Three Months Ended March 31, 2022 2021

Three Months Ended June 30, 2022 2021

(In thousands, except per share amounts)

9 unchanged sentences

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

Six Months Ended June 30, 2022 2021

(In thousands, except per share amounts)

Basic and diluted earnings (loss) per share:

Net income (loss) $ ( 4,881 ) 1,449

Net income (loss) allocated to Class A common stock $ ( 4,881 ) 1,441

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

Net income (loss) $ ( 4,881 ) 1,449

Weighted average shares of Class A outstanding - basic 50,278 49,578

Weighted average shares of Class A outstanding - diluted 50,970 50,145

Weighted average shares of Class B outstanding - basic and diluted — 572

Basic and diluted earnings (loss) per share of Class A common stock $ ( 0.10 ) 0.03

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

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, 2022.

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.

All insurance subsidiaries exceeded the minimum capital requirements at June 30, 2022.

June 30, 2022 | 10-Q 16

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

company’s enhanced capital requirement.

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

As of March 31, 2022, CICA International was above the TCL threshold.

As of June 30, 2022, CICA International was above the TCL threshold.

At the request of the BMA, on April 15, 2021, Citizens and CICA International entered into a Keep Well Agreement.

1 unchanged sentence

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

March 31, 2022 | 10-Q 13

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 88.4 % of total cash and invested assets at March 31, 2022, as shown below.

The Company invests primarily in fixed maturity securities, which totaled 87.4 % of total cash and invested assets at June 30, 2022, as shown below.

Carrying Value

(In thousands, except for %)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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, 2022

June 30, 2022

(In thousands)

6 unchanged sentences

Consumer 238,842 1,781 31,996 208,627

Utilities 110,093 191 17,654 92,630

Energy 75,292 21 8,884 66,429

4 unchanged sentences

Total fixed maturity securities $ 1,362,404 10,621 136,021 1,237,004

March 31, 2022 | 10-Q 14

June 30, 2022 | 10-Q 17

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CITIZENS, INC .

9 unchanged sentences

Consumer 219,223 23,658 900 241,981

Utilities 105,738 7,358 801 112,295

Energy 76,989 7,334 68 84,255

6 unchanged sentences

(In thousands)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

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 investment related losses of $ 0.8 million on equity securities held for the three months ended March 31, 2022 and gains of $ 0.3 million for the same period ended March 31, 2021.

The Company recognized net investment related losses of $ 1.2 million and $ 2.0 million on equity securities held for the three and six months ended June 30, 2022 and gains of $ 0.3 million and $ 0.6 million for the same periods ended June 30, 2021, respectively.

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, 2022 and 2021, the Company recorded no credit valuation losses on fixed maturity securities.

March 31, 2022 | 10-Q 15

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

For the three and six months ended June 30, 2022 and 2021, the Company recorded no credit valuation losses on fixed maturity securities.

June 30, 2022 | 10-Q 18

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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, 2022 and December 31, 2021.

March 31, 2022 Less than 12 months Greater than 12 months Total

June 30, 2022 Less than 12 months Greater than 12 months Total

(In thousands, except for # of securities) Fair

10 unchanged sentences

Consumer 175,856 30,776 213 2,842 1,220 7 178,698 31,996 220

Utilities 83,987 15,311 132 4,986 2,343 5 88,973 17,654 137

Energy 64,778 8,884 77 — — — 64,778 8,884 77

12 unchanged sentences

Available-for-sale securities:

Government-sponsored enterprises $ 72 1 2 — — — 72 1 2

Treasury securities $ 72 1 2 — — — 72 1 2

States and political subdivisions 21,715 692 15 — — — 21,715 692 15

1 unchanged sentence

Consumer 29,494 777 28 2,419 123 1 31,913 900 29

Utilities 19,072 401 14 4,523 400 4 23,595 801 18

Energy 7,381 68 8 — — — 7,381 68 8

4 unchanged sentences

In each category of our fixed maturity securities described above, we do not intend to sell our investments and it is not more likely than not that the Company will be required to sell the investments before recovery of their amortized cost bases.

These unrealized losses on fixed maturity securities are due to noncredit-related factors, including interest rate sensitivity and other market conditions, which have little bearing on the recoverability of our investments, hence they are not recognized as credit losses.

The fair value is expected to recover as the securities approach maturity or if market yields for such investments decline.

While the losses are currently unrealized, we

March 31, 2022 | 10-Q 16

These unrealized losses on fixed maturity securities are due to noncredit-related factors, including widening credit spreads and rising interest rates since purchase, which have little bearing on the recoverability of

June 30, 2022 | 10-Q 19

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

continue to monitor all fixed maturity securities on an ongoing basis as future information may become available which could result in an allowance being recorded.

The amortized cost and fair value of fixed maturity securities at March 31, 2022 by contractual maturity are shown in the table below.

our investments, hence they are not recognized as credit losses.

The fair value is expected to recover as the securities approach maturity or if market yields for such investments decline.

As of June 30, 2022 and December 31, 2021, 97.6 % and 98.0 %, respectively, of the fair value of our fixed maturity securities portfolio was rated investment grade.

While the losses are currently unrealized, we continue to monitor all fixed maturity securities on an ongoing basis as future information may become available which could result in an allowance being recorded.

The amortized cost and fair value of fixed maturity securities at June 30, 2022 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, 2022 Amortized

June 30, 2022 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

June 30, June 30,

(In thousands) 2022 2021 2022 2021

Fixed maturity securities, available-for-sale:

Proceeds $ 27,728 — 28,828 7,254

1 unchanged sentence

Gross realized losses $ ( 102 ) — ( 102 ) 1

The Company sold 1 and 18 AFS fixed maturity securities during the three months ended March 31, 2022 and 2021, respectively.

The Company sold 16 and 17 AFS fixed maturity securities during the three and six months ended June 30, 2022 and 0 and 18 during the three and six months ended June 30, 2021, respectively.

(6) FAIR VALUE MEASUREMENTS

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

We hold AFS fixed maturity securities, which are carried at fair value.

We also report our equity securities and other long-term investments at fair value with changes in fair value reported through the consolidated statements of operations and comprehensive income (loss).

We hold AFS fixed maturity securities, which are carried at fair value with changes in fair value reported through comprehensive income (loss).

We also report our equity securities and other long-term investments at fair value with changes in fair value reported through the consolidated statements of operations.

Fair value measurements are generally based upon observable and unobservable inputs.

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

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

We utilize valuation techniques that maximize the use of

June 30, 2022 | 10-Q 20

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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

March 31, 2022 | 10-Q 17

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

We have no investments in this category.

June 30, 2022 | 10-Q 21

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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.

March 31, 2022 Level 1 Level 2 Level 3 Total

June 30, 2022 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.

March 31, 2022 | 10-Q 18

June 30, 2022 | 10-Q 22

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26 unchanged sentences

Fixed maturity securities, available-for-sale.

At March 31, 2022, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.3 billion for Level 2 assets and comprised 93.9 % of total reported fair value of our financial assets.

At June 30, 2022, fixed maturity securities, valued using a third-party pricing source, totaled $ 1.2 billion for Level 2 assets and comprised 93.3 % 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, 2022.

For the three months ended March 31, 2022, 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, 2022.

For the six months ended June 30, 2022, 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.

5 unchanged sentences

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

The Company recognized net investment

March 31, 2022 | 10-Q 19

The Company recognized net investment related losses of $ 4.4 million and $ 5.2 million on limited partnerships held for the three and six months ended June 30, 2022 and net realized gains of $ 4.0 million and $ 4.5 million for the three and six months ended June 30,

June 30, 2022 | 10-Q 23

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

related losses of $ 0.8 million on limited partnerships held for the three months ended March 31, 2022.

2021, respectively.

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

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Using NAV Per Share Unfunded Commit-

5 unchanged sentences

Global equity fund Investments in common stocks of U.S., international developed and emerging markets with a focus on long-term capital growth 8,707 — 0 10,607 — 0

Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 21,564 7,256 6 20,468 4,459 6

Late-stage growth Investments in private late-stage, established companies seeking capital to accelerate growth prior to an IPO or sale 19,314 27,256 5 to 7

20,468 4,459 6

Infrastructure Investments in climate infrastructure assets, focusing on renewable power generation in wind and solar energy 4,935 14,988 11 3,016 16,653 12

5 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 no limited partnership investments at cost at March 31, 2022 and December 31, 2021.

We carried no limited partnership investments at cost at June 30, 2022 and December 31, 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, 2022 or 2021.

There were no transfers in or out of Level 3 during the six months ended June 30, 2022 or 2021.

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.

March 31, 2022 | 10-Q 20

June 30, 2022 | 10-Q 24

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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, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(In thousands) Carrying

8 unchanged sentences

Policy loans.

Policy loans had a weighted average annual interest rate of 7.7 % at March 31, 2022 and December 31, 2021 and no specified maturity dates.

Policy loans had a weighted average annual interest rate of 7.7 % at June 30, 2022 and December 31, 2021 and no specified maturity dates.

Policy loans are an integral part of the life insurance policies we have in force, cannot be valued separately and are not marketable.

6 unchanged sentences

Mortgage loans are secured principally by residential properties.

Weighted average interest rates for these loans were approximately 6.4 % at March 31, 2022 and December 31, 2021.

At March 31, 2022, maturities ranged from 5 to 18 years.

Management estimated the fair value using an annual interest rate of 6.25 % at March 31, 2022.

Weighted average interest rates for these loans were approximately 7.0 % at June 30, 2022 and 6.4 % at December 31, 2021.

At June 30, 2022, the remaining loan matures in 6 years.

Management estimated the fair value using an annual interest rate of 6.25 % at June 30, 2022.

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, 2022 and December 31, 2021 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 1.57 % to 3.23 % and 0.50 % to 2.63 %, respectively.

The fair value of the Company's liabilities under annuity contract policies, which are considered Level 3 liabilities, was estimated at June 30, 2022 and December 31, 2021 using discounted cash flows based upon spot rates adjusted for various risk adjustments ranging from 2.60 % to 3.99 % and 0.50 % to 2.63 %, 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.

March 31, 2022 | 10-Q 21

June 30, 2022 | 10-Q 25

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CITIZENS, INC .

5 unchanged sentences

(In thousands )

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Other long-term investments:

12 unchanged sentences

CONTRACTUAL OBLIGATIONS

As of March 31, 2022, CICA International is committed to fund investments up to $ 36.8 million related to limited partnerships previously described and other investments.

As of June 30, 2022, CICA International is committed to fund investments up to $ 50.6 million related to limited partnerships previously described and other investments.

CREDIT FACILITY

7 unchanged sentences

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 March 31, 2022, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

March 31, 2022 | 10-Q 22

As of June 30, 2022, the Company had no t borrowed any funds against the Credit Facility and was not in violation of any covenants.

June 30, 2022 | 10-Q 26

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CITIZENS, INC .

1 unchanged sentence

(8) INCOME TAXES

CICA International, a wholly owned subsidiary of Citizens, is considered a controlled foreign corporation for federal tax purposes.

As a result, the insurance activity of CICA International is subject to Subpart F of the IRC and is included in Citizens’ taxable income.

Due to the 0% enacted tax rate in Bermuda, there are no deferred taxes recorded for CICA International's temporary differences.

For the three months ended March 31, 2022 and March 31, 2021, the Subpart F income inclusion generated $ 0.8 million and $ 0.4 million, respectively, 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 March 31, 2022 2021

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

Federal income tax expense:

Expected tax expense (benefit) $ ( 205 ) 21.0 % $ ( 577 ) 21.0 %

Foreign income tax rate differential ( 299 ) 30.7 % ( 152 ) 5.5 %

Tax-exempt interest and dividends-received deduction ( 25 ) 2.6 % ( 30 ) 1.1 %

Annualized effective tax rate adjustment 97 ( 10.0 ) % 655 ( 23.8 ) %

Effect of uncertain tax position 12 ( 1.2 ) % 603 ( 21.9 ) %

CICA International Subpart F income 754 ( 77.4 ) % 392 ( 14.3 ) %

Nondeductible officer compensation 21 ( 2.2 ) % ( 73 ) 2.7 %

Other 4 ( 0.4 ) % 7 ( 0.3 ) %

Total federal income tax expense (benefit) $ 359 ( 36.9 ) % $ 825 ( 30.0 ) %

Income tax expense consists of:

Three Months Ended

(In thousands) 2022 2021

Federal income tax expense:

Current $ 172 1,257

Deferred 187 ( 432 )

Total federal income tax expense $ 359 825

March 31, 2022 | 10-Q 23

CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The effective tax rate is the ratio of tax expense (benefit) over pre-tax income (loss).

The effective tax rate was 2.3 % and ( 6.0 )% for the three and six months ended June 30, 2022, respectively, compared to 10.4 % and 49.2 %, respectively, for the same periods in 2021.

CICA International is considered a controlled foreign corporation for federal tax purposes.

As a result, the insurance activity of CICA International is subject to Subpart F of the Internal Revenue Code and is included in Citizens’ taxable income.

The effective tax rate varies from the prevailing corporate federal income tax rate of 21.0% mainly due to the impact of Subpart F and uncertain tax positions.

At June 30, 2022, we determined it was more likely than not that a portion of our capital deferred tax assets would not be realized in their entirety.

The Company recorded a valuation allowance of $ 3.3 million through Other Comprehensive Income.

(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, 2022 and 2021, as indicated below.

Three Months Ended March 31, 2022 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, 2022 and 2021, as indicated below.

Three Months Ended June 30, 2022 2021

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

6 unchanged sentences

Other comprehensive income (loss) $ ( 120,958 ) 4,735 ( 116,223 ) 31,802 346 32,148

Six Months Ended June 30, 2022 2021

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

Unrealized gains (losses):

Unrealized holding gains (losses) arising during the period $ ( 252,296 ) 13,392 ( 238,904 ) ( 26,188 ) 1,955 ( 24,233 )

Reclassification adjustment for (gains) losses included in net income 35 ( 7 ) 28 11 ( 3 ) 8

Effects on deferred policy acquisition costs 1,154 ( 242 ) 912 3,706 ( 2,540 ) 1,166

Effects on cost of insurance acquired 443 ( 93 ) 350 277 ( 58 ) 219

Effects on unearned revenue reserves ( 3,577 ) 751 ( 2,826 ) ( 1,937 ) 407 ( 1,530 )

Other comprehensive income (loss) $ ( 254,241 ) 13,801 ( 240,440 ) ( 24,131 ) ( 239 ) ( 24,370 )

June 30, 2022 | 10-Q 27

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CITIZENS, INC .

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(10) RELATED PARTY TRANSACTIONS

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, 2022.

There were no changes related to these relationships during the six months ended June 30, 2022.

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 and determined that no significant subsequent events need to be recognized or disclosed.

March 31, 2022 | 10-Q 24

June 30, 2022 | 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