Company Quick10K Filing
Quick10K
Citizens
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$6.84 50 $344
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-12 Other Events
8-K 2019-06-04 Shareholder Vote
8-K 2019-01-23 Officers, Exhibits
8-K 2019-01-23 Officers, Exhibits
8-K 2019-01-18 Officers, Exhibits
8-K 2018-08-22 Other Events
8-K 2018-08-16 Officers
8-K 2018-06-11 Officers, Exhibits
8-K 2018-06-05 Shareholder Vote, Exhibits
8-K 2018-05-29 Other Events, Exhibits
8-K 2018-04-25 Other Events
8-K 2018-01-22 Officers, Exhibits
UAL United Continental Holdings 22,130
FLR Fluor 4,190
CTB Cooper Tire & Rubber 1,460
WTRE Watford Holdings 564
MRUS Merus 321
SD Sandridge Energy 292
FFNW First Financial Northwest 172
UG United Guardian 87
EDR Education Realty Trust 0
TLSRP Telos 0
CIA 2019-06-30
Part I. Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 cia-201963010qex311.htm
EX-31.2 cia-201963010qex312.htm
EX-32.1 cia-201963010qex321.htm
EX-32.2 cia-201963010qex322.htm

Citizens Earnings 2019-06-30

CIA 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 cia-201963010q.htm 10-Q Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549
FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2019
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
COMMISSION FILE NUMBER:  000-16509
citizenslogoa34.jpg
CITIZENS, INC.
(Exact name of registrant as specified in its charter)
Colorado
84-0755371
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
2900 Esperanza Crossing, 2nd Floor
 
Austin, Texas
78758
(Address of principal executive offices)
(Zip Code)
 
 
(512) 837-7100
N/A
(Registrant's telephone number, including area code:)
(Former name, former address and former fiscal year,
if changed since last report:)
Securities registered pursuant to Section 12(b) of the Act
 
Class A Common Stock
CIA 
New York Stock Exchange
(Title of Each Class)
(Trading Symbol(s))
(Name of Each Exchange on Which Registered)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o  No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act:
 
Large accelerated
filer o
Accelerated
filer x
Non-accelerated
filer o
Smaller reporting
company o
Emerging growth
company o
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No
As of August 2, 2019, the Registrant had 52,364,993 shares of Class A common stock, no par value, outstanding and 1,001,714 shares of Class B common stock, no par value, outstanding.































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citizenslogoa34.jpg

TABLE OF CONTENTS
 
 
 
Page Number
Part I. FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
Part II. OTHER INFORMATION
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.



June 30, 2019 Form 10-Q 1


PART I.  FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position
 
 
 
 
 
 
 
 
(In thousands)
June 30, 2019
 
December 31, 2018
Assets
(Unaudited)
 
 
Investments:
 
 
 
Fixed maturities available-for-sale, at fair value (cost: $1,274,085 and $1,223,747 in 2019 and 2018, respectively)
$
1,341,339

 
1,231,039

Equity securities, at fair value
15,827

 
15,068

Mortgage loans on real estate
182

 
186

Policy loans
81,545

 
80,825

Real estate held for investment (less $1,284 accumulated depreciation in 2018)

 
5,718

Real estate held-for-sale (less $1,325 and $4,411 accumulated depreciation in 2019 and 2018, respectively)
2,571

 
1,483

Other long-term investments
22

 
22

Short-term investments
2,455

 
7,865

Total investments
1,443,941

 
1,342,206

Cash and cash equivalents
34,568

 
45,492

Accrued investment income
18,920

 
18,467

Reinsurance recoverable
3,456

 
3,664

Deferred policy acquisition costs
152,313

 
155,747

Cost of customer relationships acquired
14,169

 
15,225

Goodwill
12,624

 
12,624

Other intangible assets
954

 
956

Property and equipment, net
7,147

 
5,943

Due premiums, net (less $1,607 and $1,990 allowance for doubtful accounts in 2019 and 2018, respectively)
10,557

 
13,325

Prepaid expenses
1,472

 
284

Other assets
2,039

 
1,628

Total assets
$
1,702,160

 
1,615,561


See accompanying Notes to Consolidated Financial Statements.



June 30, 2019 Form 10-Q 2


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Financial Position, Continued

 
 
 
 
(In thousands, except share amounts)
June 30, 2019
 
December 31, 2018
Liabilities and Stockholders' Equity
(Unaudited)
 
 
Liabilities:
 
 
 
Policy liabilities:
 
 
 
Future policy benefit reserves:
 
 
 
Life insurance
$
1,200,277

 
1,179,946

Annuities
76,302

 
76,377

Accident and health
970

 
944

Dividend accumulations
27,668

 
26,250

Premiums paid in advance
43,795

 
48,553

Policy claims payable
7,747

 
7,614

Other policyholders' funds
15,655

 
10,760

Total policy liabilities
1,372,414

 
1,350,444

Commissions payable
2,191

 
1,901

Current federal income tax payable
48,426

 
41,281

Deferred federal income tax payable
9,803

 
5,709

Payable for securities in process of settlement
4,975

 

Other liabilities
27,919

 
28,493

Total liabilities
1,465,728

 
1,427,828

Commitments and contingencies (Note 7)


 


Stockholders' equity:
 

 
 

Class A, no par value, 100,000,000 shares authorized, 52,364,993 and 52,215,852 shares issued and outstanding in 2019 and 2018, respectively, including shares in treasury of 3,135,738 in 2019 and 2018
261,003

 
259,793

Class B, no par value, 2,000,000 shares authorized, 1,001,714 shares issued and outstanding in 2019 and 2018
3,184

 
3,184

Accumulated deficit
(77,966
)
 
(69,599
)
Accumulated other comprehensive income:
 

 
 

Net unrealized gains on securities, net of tax
61,222

 
5,366

Treasury stock, at cost
(11,011
)
 
(11,011
)
Total stockholders' equity
236,432

 
187,733

Total liabilities and stockholders' equity
$
1,702,160

 
1,615,561


See accompanying Notes to Consolidated Financial Statements.




June 30, 2019 Form 10-Q 3


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)

Three Months Ended June 30,
(In thousands, except per share data)
2019
 
2018
Revenues:
 
 
 
Premiums:
 
 
 
Life insurance
$
42,313

 
44,631

Accident and health insurance
345

 
301

Property insurance
1,146

 
1,198

Net investment income
15,315

 
13,811

Realized investment losses, net
(2,869
)
 
(178
)
Other income
616

 
79

Total revenues
56,866

 
59,842

Benefits and Expenses:
 

 
 

Insurance benefits paid or provided:
 

 
 

Claims and surrenders
27,024

 
20,617

Increase in future policy benefit reserves
9,472

 
16,555

Policyholders' dividends
1,423

 
1,614

Total insurance benefits paid or provided
37,919

 
38,786

Commissions
8,384

 
8,669

Other general expenses
11,949

 
14,466

Capitalization of deferred policy acquisition costs
(5,412
)
 
(5,640
)
Amortization of deferred policy acquisition costs
6,931

 
7,200

Amortization of cost of customer relationships acquired
418

 
472

Total benefits and expenses
60,189

 
63,953

Income before federal income tax
(3,323
)
 
(4,111
)
Federal income tax expense (benefit)
1,242

 
(1,553
)
Net loss
(4,565
)
 
(2,558
)
Per Share Amounts:
 

 
 

Basic and diluted losses per share of Class A common stock
(0.09
)
 
(0.05
)
Basic and diluted losses per share of Class B common stock
(0.04
)
 
(0.03
)
Other Comprehensive Income (Loss):
 

 
 

Unrealized gains (losses) on available-for-sale debt securities:
 

 
 

Unrealized holding gains (losses) arising during period
31,220

 
(12,329
)
Reclassification adjustment for losses (gains) included in net income
(81
)
 
87

Unrealized gains (losses) on available-for-sale debt securities, net
31,139

 
(12,242
)
Income tax expense (benefit) on unrealized gains (losses) on available-for-sale debt securities
2,163

 
(2,571
)
Other comprehensive income (loss)
28,976

 
(9,671
)
Total comprehensive income (loss)
$
24,411

 
(12,229
)

See accompanying Notes to Consolidated Financial Statements.




June 30, 2019 Form 10-Q 4


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)

Six Months Ended June 30,
(In thousands, except per share data)
2019
 
2018
Revenues:
 
 
 
Premiums:
 
 
 
Life insurance
$
83,293

 
87,160

Accident and health insurance
668

 
592

Property insurance
2,307

 
2,407

Net investment income
29,111

 
27,582

Realized investment gains (losses), net
3,092

 
(753
)
Other income
801

 
287

Total revenues
119,272

 
117,275

Benefits and Expenses:
 

 
 

Insurance benefits paid or provided:
 

 
 

Claims and surrenders
50,057

 
41,768

Increase in future policy benefit reserves
21,771

 
31,163

Policyholders' dividends
2,605

 
2,921

Total insurance benefits paid or provided
74,433

 
75,852

Commissions
16,268

 
17,628

Other general expenses
26,081

 
20,973

Capitalization of deferred policy acquisition costs
(10,240
)
 
(11,603
)
Amortization of deferred policy acquisition costs
13,208

 
14,806

Amortization of cost of customer relationships acquired
837

 
1,151

Total benefits and expenses
120,587

 
118,807

Income before federal income tax
(1,315
)
 
(1,532
)
Federal income tax expense
7,052

 
989

Net loss
(8,367
)
 
(2,521
)
Per Share Amounts:
 

 
 

Basic and diluted losses per share of Class A common stock
(0.17
)
 
(0.05
)
Basic and diluted losses per share of Class B common stock
(0.08
)
 
(0.03
)
Other Comprehensive Income (Loss):
 

 
 

Unrealized gains (losses) on available-for-sale debt securities:
 

 
 

Unrealized holding gains (losses) arising during period
60,021

 
(30,427
)
Reclassification adjustment for losses included in net income
23

 
346

Unrealized gains (losses) on available-for-sale debt securities, net
60,044

 
(30,081
)
Income tax expense (benefit) on unrealized gains (losses) on available-for-sale debt securities
4,188

 
(6,306
)
Other comprehensive income (loss)
55,856

 
(23,775
)
Total comprehensive income (loss)
$
47,489

 
(26,296
)

See accompanying Notes to Consolidated Financial Statements.




June 30, 2019 Form 10-Q 5


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Accumulated
deficit
 
Accumulated other comprehensive income (loss)
 
Treasury
stock
 
Total
Stock-holders'
equity
(In thousands)
Class A
 
Class B
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
$
259,793

 
3,184

 
(69,599
)
 
5,366

 
(11,011
)
 
187,733

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net loss

 

 
(3,802
)
 

 

 
(3,802
)
Unrealized investment gains, net

 

 

 
26,880

 

 
26,880

Total comprehensive income

 

 
(3,802
)
 
26,880

 

 
23,078

Stock-based compensation
1,083

 

 

 

 

 
1,083

Balance at March 31, 2019
260,876

 
3,184

 
(73,401
)
 
32,246

 
(11,011
)
 
211,894

Comprehensive income:
 

 
 

 
 

 
 

 
 

 
 

Net loss

 

 
(4,565
)
 

 

 
(4,565
)
Unrealized investment gains, net

 

 

 
28,976

 

 
28,976

Total comprehensive income

 

 
(4,565
)
 
28,976

 

 
24,411

Stock-based compensation
127

 

 

 

 

 
127

Balance at June 30, 2019
$
261,003

 
3,184

 
(77,966
)
 
61,222

 
(11,011
)
 
236,432


Balance at December 31, 2017
$
259,383

 
3,184

 
(54,375
)
 
26,332

 
(11,011
)
 
223,513

Accounting standards adopted January 1, 2018

 

 
(4,162
)
 
4,162

 

 

Balance at January 1, 2018
259,383

 
3,184

 
(58,537
)
 
30,494

 
(11,011
)
 
223,513

Comprehensive loss:
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
37

 

 

 
37

Unrealized investment losses, net

 

 

 
(14,104
)
 

 
(14,104
)
Total comprehensive loss

 

 
37

 
(14,104
)
 

 
(14,067
)
Balance at March 31, 2018
259,383

 
3,184

 
(58,500
)

16,390

 
(11,011
)
 
209,446

Comprehensive loss:
 

 
 

 
 

 
 

 
 

 
 

Net loss

 

 
(2,558
)
 

 

 
(2,558
)
Unrealized investment losses, net

 

 

 
(9,671
)
 

 
(9,671
)
Total comprehensive loss

 

 
(2,558
)
 
(9,671
)
 

 
(12,229
)
Stock-based compensation
213

 

 

 

 

 
213

Balance at June 30, 2018
$
259,596

 
3,184

 
(61,058
)
 
6,719

 
(11,011
)
 
197,430


See accompanying Notes to Consolidated Financial Statements.





June 30, 2019 Form 10-Q 6


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)

Six Months Ended June 30,
(In thousands)
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(8,367
)
 
(2,521
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 

 
 

Realized (gains) losses on sale of investments and other assets
(3,092
)
 
753

Net deferred policy acquisition costs
2,968

 
3,203

Amortization of cost of customer relationships acquired
837

 
1,151

Depreciation
848

 
708

Amortization of premiums and discounts on investments
7,288

 
8,332

Stock-based compensation
1,587

 
213

Deferred federal income tax benefit
(94
)
 
(2,869
)
Change in:
 

 
 

Accrued investment income
(453
)
 
(179
)
Reinsurance recoverable
208

 
(256
)
Due premiums
2,768

 
974

Future policy benefit reserves
21,629

 
31,665

Other policyholders' liabilities
1,688

 
4,420

Federal income tax payable
7,146

 
3,858

Commissions payable and other liabilities
(284
)
 
(6,062
)
Other, net
(3,271
)
 
(1,404
)
Net cash provided by operating activities
31,406

 
41,986

Cash flows from investing activities:
 

 
 

Purchase of fixed maturities, available-for-sale
(111,729
)
 
(76,003
)
Sale of fixed maturities, available-for-sale
10,414

 

Maturities and calls of fixed maturities, available-for-sale
48,568

 
37,646

Maturities and calls of fixed maturities, held-to-maturity

 
17,549

Purchase of equity securities

 
(9
)
Principal payments on mortgage loans
4

 
5

Increase in policy loans, net
(721
)
 
(3,842
)
Sale of other long-term investments and real estate
6,996

 
1

Purchase of property and equipment
(388
)
 
(211
)
Maturity of short-term investments
7,940

 

Purchase of short-term investments
(2,455
)
 

Net cash used in investing activities
(41,371
)
 
(24,864
)
 
 
 
 
 
 
 
 

See accompanying Notes to Consolidated Financial Statements.
 



June 30, 2019 Form 10-Q 7


CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
(Unaudited)

Six Months Ended June 30,
(In thousands)
2019
 
2018
Cash flows from financing activities:
 

 
 

Annuity deposits
$
3,053

 
3,605

Annuity withdrawals
(3,635
)
 
(3,458
)
Other
(377
)
 

Net cash provided by (used in) financing activities
(959
)
 
147

Net increase (decrease) in cash and cash equivalents
(10,924
)
 
17,269

Cash and cash equivalents at beginning of year
45,492

 
46,064

Cash and cash equivalents at end of period
$
34,568

 
63,333




SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the six months ended June 30, 2019 and 2018, various fixed maturity issuers exchanged securities with book values of $11.9 million and $2.5 million, respectively, for securities of equal value.

The Company had net unsettled security trades of $5.0 million at June 30, 2019 and $0 at June 30, 2018.


See accompanying Notes to Consolidated Financial Statements.




June 30, 2019 Form 10-Q 8


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 


(1) FINANCIAL STATEMENTS

BASIS OF PRESENTATION AND CONSOLIDATION

The consolidated financial statements include the accounts and operations of Citizens, Inc. ("Citizens"), a Colorado corporation, and its wholly-owned subsidiaries, CICA Life Insurance Company of America ("CICA"), CICA Life Ltd. ("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. ("CTI"). All significant inter-company accounts and interactions have been eliminated. Citizens and its wholly-owned subsidiaries are collectively referred to as the "Company", "we", "us" or "our".

The consolidated statements of financial position as of June 30, 2019, the consolidated statements of comprehensive income and stockholders' equity for the three and six months ended June 30, 2019 and June 30, 2018 and the consolidated statements of cash flows for the six months ended June 30, 2019 and June 30, 2018 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 June 30, 2019 and for comparative periods have been made.  The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission ("SEC").  Accordingly, the consolidated financial statements do not include all the information and footnotes required for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.  Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

We provide primarily life insurance and a small amount of health insurance policies through our insurance subsidiaries - CICA, CICA Ltd., SPLIC, MGLIC and CNLIC.  CICA Ltd. primarily issues endowment and ordinary whole-life policies to non-U.S. residents. SPLIC offers final expense and home service life insurance in Louisiana, Arkansas and Mississippi, and SPFIC, a wholly-owned subsidiary of SPLIC, writes a limited amount of property insurance in Louisiana. MGLIC provides industrial life policies through independent funeral homes in Mississippi.

CTI provides data processing systems and services to the Company.
 
USE OF ESTIMATES

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Significant estimates include those used in the evaluation of other-than-temporary impairments on debt and equity securities, actuarially determined assets and liabilities and assumptions, tests of goodwill impairment, valuation allowance on deferred tax assets, valuation of uncertain tax positions and contingencies relating to litigation and regulatory matters.  Certain of these estimates are particularly sensitive to market conditions, and deterioration and/or volatility in the worldwide debt or equity markets could have a material impact on the consolidated financial statements.

SIGNIFICANT ACCOUNTING POLICIES

For a description of significant accounting policies, see Note 1. Summary of Significant Accounting Policies in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, which should be read in conjunction with these accompanying consolidated financial statements.




June 30, 2019 Form 10-Q 9


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

(2) ACCOUNTING PRONOUNCEMENTS

ACCOUNTING STANDARDS RECENTLY ADOPTED

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842). The ASU requires organizations that lease assets, referred to as "lessees," to recognize on the consolidated statement of financial position the rights and obligations created by those leases. The ASU also requires disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the consolidated financial statements. The ASU on leases became effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

The Company has several lease agreements, such as district office locations related to our Home Service Insurance segment. The Company adopted this standard effective January 1, 2019 and recognizes these lease agreements on the consolidated statements of financial position as a right-of-use asset and a corresponding lease liability. See Note 9. Leases for further discussion.

In March 2017, the FASB issued ASU No. 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this ASU shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The Company has a large portfolio of callable debt securities purchased at a premium. As such, the Company had already been amortizing the premium to the earliest call date (yield to worst), thus this guidance did not have a material impact on our consolidated financial statements. For public business entities, the amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with the accounting for employee share-based compensation. This ASU is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We adopted the provisions of this ASU in the first quarter of 2019. This guidance did not have a material impact on our consolidated financial statements.

ACCOUNTING STANDARDS NOT YET ADOPTED

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), with the main objective to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU requires a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. Credit losses on available-for-sale debt securities should be measured in a manner similar to current U.S. GAAP; however, the credit losses are recorded through an allowance for credit losses rather than as a write-down. This approach is an improvement to current U.S. GAAP because an entity will be able to record reversals of credit losses (in situations in which the estimate of credit losses declines) in current period net income, which in turn should align the income statement recognition of credit losses with the reporting period in which changes occur. Current U.S. GAAP prohibits reflecting those improvements in current-period earnings. For public business entities, the amendments in this ASU will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is evaluating the impact this guidance will have on our consolidated financial statements. This guidance could have a material impact on the Company's consolidated financial statements.



June 30, 2019 Form 10-Q 10


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 


In August 2018, the FASB issued ASU No. 2018-12, Financial Services-Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts. This ASU amends four key areas of the accounting and impacts disclosures for long-duration insurance and investment contracts:

Requires updated assumptions for liability measurement. Assumptions used to measure the liability for traditional insurance contracts, which are typically determined at contract inception, will now be reviewed at least annually, and, if there is a change, updated, with the effect recorded in net income;
Standardizes the liability discount rate. The liability discount rate will be a market-observable discount rate (upper-medium grade fixed-income instrument yield), with the effect of rate changes recorded in other comprehensive income;
Provides greater consistency in measurement of market risk benefits. The two previous measurement models have been reduced to one measurement model (fair value), resulting in greater uniformity across similar market-based benefits and better alignment with the fair value measurement of derivatives used to hedge capital market risk;
Simplifies amortization of deferred acquisition costs. Previous earnings-based amortization methods have been replaced with a more level amortization basis; and
Requires enhanced disclosures. The new disclosures include rollforwards and information about significant assumptions and the effects of changes in those assumptions.

For calendar-year public companies, the changes will be effective on January 1, 2021. In July 2019, the FASB tentatively agreed to defer the original effective date by one year. If finalized, the new guidance will be effective for annual and interim reporting periods beginning January 1, 2022. The Company is evaluating the impact this guidance will have on our consolidated financial statements. This new guidance is expected to have a material impact on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This ASU will be effective for interim and annual reporting periods beginning after December 15, 2019; however, early adoption is permitted. Entities are also allowed to elect early adoption of the eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As this ASU only revises disclosure requirements, it is not expected to have a material impact on the Company’s consolidated financial statements.

In September 2018, the FASB issued ASU No. 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This ASU requires an entity in a cloud computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which implementation costs to capitalize as assets or expense as incurred. Capitalized implementation costs should be presented in the same line item on the balance sheet as amounts prepaid for the hosted service, if any (generally as an "other asset"). The capitalized costs will be amortized over the term of the hosting arrangement, with the amortization expense being presented in the same income statement line item as the fees paid for the hosted service. This ASU will be effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. We are evaluating the impact of this guidance on our limited cloud computing arrangements and our consolidated financial statements.

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.

(3) SEGMENT INFORMATION

The Company has two reportable segments:  Life Insurance and Home Service Insurance.  The Life Insurance and



June 30, 2019 Form 10-Q 11


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

Home Service Insurance portions of the Company constitute separate businesses. CICA, CICA Ltd. and CNLIC constitute the Life Insurance segment, and SPLIC, SPFIC and MGLIC constitute the Home Service Insurance segment. In addition to the Life Insurance and Home Service Insurance business, the Company also operates other non-insurance ("Other Non-Insurance Enterprises") portions of the Company, which primarily include the Company's IT and Corporate-support functions, and are included in the tables presented below to properly reconcile the segment information with the consolidated financial statements of the Company.

The accounting policies of the segments and Other Non-Insurance Enterprises are presented in accordance with U.S. GAAP and are the same as those used in the preparation of the consolidated financial statements.  The Company evaluates profit and loss performance based on U.S. GAAP income before federal income taxes for its two reportable segments.

The Company's Other Non-Insurance Enterprises are the only reportable difference between segments and consolidated operations.
 
Life Insurance
 
Home Service
 
Non-Insurance Enterprises
 
Consolidated
Three Months Ended June 30, 2019
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Premiums
$
32,140

 
11,664

 

 
43,804

Net investment income
11,612

 
3,325

 
378

 
15,315

Realized investment gains (losses), net
68

 
152

 
(3,089
)
 
(2,869
)
Other income
614

 
1

 
1

 
616

Total revenue
44,434

 
15,142

 
(2,710
)
 
56,866

Benefits and expenses:
 
 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
21,316

 
5,708

 

 
27,024

Increase in future policy benefit reserves
8,519

 
953

 

 
9,472

Policyholders' dividends
1,413

 
10

 

 
1,423

Total insurance benefits paid or provided
31,248

 
6,671

 

 
37,919

Commissions
4,676

 
3,708

 

 
8,384

Other general expenses
6,458

 
5,332

 
159

 
11,949

Capitalization of deferred policy acquisition costs
(4,020
)
 
(1,392
)
 

 
(5,412
)
Amortization of deferred policy acquisition costs
6,053

 
878

 

 
6,931

Amortization of cost of customer relationships acquired
138

 
280

 

 
418

Total benefits and expenses
44,553

 
15,477

 
159

 
60,189

Loss before income tax expense
$
(119
)
 
(335
)
 
(2,869
)
 
(3,323
)



June 30, 2019 Form 10-Q 12


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

 
Life Insurance
 
Home Service
 
Non-Insurance Enterprises
 
Consolidated
Six Months Ended June 30, 2019
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Premiums
$
63,054

 
23,214

 

 
86,268

Net investment income
21,781

 
6,411

 
919

 
29,111

Realized investment gains (losses), net
5,525

 
636

 
(3,069
)
 
3,092

Other income
797

 
2

 
2

 
801

Total revenue
91,157

 
30,263

 
(2,148
)
 
119,272

Benefits and expenses:
 
 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
38,478

 
11,579

 

 
50,057

Increase in future policy benefit reserves
19,832

 
1,939

 

 
21,771

Policyholders' dividends
2,585

 
20

 

 
2,605

Total insurance benefits paid or provided
60,895

 
13,538

 

 
74,433

Commissions
9,049

 
7,219

 

 
16,268

Other general expenses
12,663

 
10,402

 
3,016

 
26,081

Capitalization of deferred policy acquisition costs
(7,722
)
 
(2,518
)
 

 
(10,240
)
Amortization of deferred policy acquisition costs
11,494

 
1,714

 

 
13,208

Amortization of cost of customer relationships acquired
260

 
577

 

 
837

Total benefits and expenses
86,639

 
30,932

 
3,016

 
120,587

Income (loss) before federal income tax expense
$
4,518

 
(669
)
 
(5,164
)
 
(1,315
)




June 30, 2019 Form 10-Q 13


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

 
Life Insurance
 
Home Service
 
Non-Insurance Enterprises
 
Consolidated
Three Months Ended June 30, 2018
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Premiums
$
34,393

 
11,737

 

 
46,130

Net investment income
10,139

 
3,316

 
356

 
13,811

Realized investment losses, net
(24
)
 
(151
)
 
(3
)
 
(178
)
Other income
79

 

 

 
79

Total revenue
44,587

 
14,902

 
353

 
59,842

Benefits and expenses:
 

 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
15,019

 
5,598

 

 
20,617

Increase in future policy benefit reserves
15,383

 
1,172

 

 
16,555

Policyholders' dividends
1,605

 
9

 

 
1,614

Total insurance benefits paid or provided
32,007

 
6,779

 

 
38,786

Commissions
4,777

 
3,892

 

 
8,669

Other general expenses
6,908

 
5,392

 
2,166

 
14,466

Capitalization of deferred policy acquisition costs
(4,150
)
 
(1,490
)
 

 
(5,640
)
Amortization of deferred policy acquisition costs
6,240

 
960

 

 
7,200

Amortization of cost of customer relationships acquired
132

 
340

 

 
472

Total benefits and expenses
45,914

 
15,873

 
2,166

 
63,953

Loss before income tax expense
$
(1,327
)
 
(971
)
 
(1,813
)
 
(4,111
)




June 30, 2019 Form 10-Q 14


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

 
Life Insurance
 
Home Service
 
Non-Insurance Enterprises
 
Consolidated
Six Months Ended June 30, 2018
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
Premiums
$
66,753

 
23,406

 

 
90,159

Net investment income
20,269

 
6,618

 
695

 
27,582

Realized investment losses, net
(209
)
 
(503
)
 
(41
)
 
(753
)
Other income (loss)
288

 
(1
)
 

 
287

Total revenue
87,101

 
29,520

 
654

 
117,275

Benefits and expenses:
 

 
 

 
 

 
 

Insurance benefits paid or provided:
 

 
 

 
 

 
 

Claims and surrenders
30,310

 
11,458

 

 
41,768

Increase in future policy benefit reserves
28,965

 
2,198

 

 
31,163

Policyholders' dividends
2,902

 
19

 

 
2,921

Total insurance benefits paid or provided
62,177

 
13,675

 

 
75,852

Commissions
10,005

 
7,623

 

 
17,628

Other general expenses(1)
6,024

 
10,936

 
4,013

 
20,973

Capitalization of deferred policy acquisition costs
(8,790
)
 
(2,813
)
 

 
(11,603
)
Amortization of deferred policy acquisition costs
12,780

 
2,026

 

 
14,806

Amortization of cost of customer relationships acquired
284

 
867

 

 
1,151

Total benefits and expenses
82,480

 
32,314

 
4,013

 
118,807

Income (loss) before federal income tax expense
$
4,621

 
(2,794
)
 
(3,359
)
 
(1,532
)




June 30, 2019 Form 10-Q 15


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

(4) EARNINGS PER SHARE

The following tables set forth the computation of basic and diluted earnings per share.
Three Months Ended June 30,
2019
 
2018
(In thousands, except per share amounts)
 
 
 
 
 
Basic and diluted earnings per share:
 
 
 
Numerator:
 
 
 
Net loss
$
(4,565
)
 
(2,558
)
Net loss allocated to Class A common stock
$
(4,519
)
 
(2,532
)
Net loss allocated to Class B common stock
(46
)
 
(26
)
Net loss
$
(4,565
)
 
(2,558
)
 
 
 
 
Denominator:
 
 
 
Weighted average shares of Class A outstanding - basic
49,229

 
49,080

Weighted average shares of Class A outstanding - diluted
49,280

 
49,109

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

 
1,002

Basic and diluted loss per share of Class A common stock
$
(0.09
)
 
(0.05
)
Basic and diluted loss per share of Class B common stock
(0.04
)
 
(0.03
)

Six Months Ended June 30,
2019
 
2018
(In thousands, except per share amounts)
 
 
 
 
 
Basic and diluted earnings per share:
 
 
 
Numerator:
 
 
 
Net loss
$
(8,367
)
 
(2,521
)
Net loss allocated to Class A common stock
$
(8,283
)
 
(2,496
)
Net loss allocated to Class B common stock
(84
)
 
(25
)
Net loss
$
(8,367
)
 
(2,521
)
 
 
 
 
Denominator:
 
 
 
Weighted average shares of Class A outstanding - basic
49,229

 
49,080

Weighted average shares of Class A outstanding - diluted
49,280

 
49,109

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

 
1,002

Basic and diluted loss per share of Class A common stock
$
(0.17
)
 
(0.05
)
Basic and diluted loss per share of Class B common stock
(0.08
)
 
(0.03
)




June 30, 2019 Form 10-Q 16


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 90.7% of total cash, cash equivalents and investments at June 30, 2019. The Company's cash, cash equivalents and investments are listed below.

Carrying Value
(In thousands, except for %)
June 30, 2019
 
December 31, 2018
Amount
 
%
 
Amount
 
%
 
 
 
 
 
 
 
 
Fixed maturity securities
$
1,341,339

 
90.7
%
 
$
1,231,039

 
88.7
%
Equity securities
15,827

 
1.1
%
 
15,068

 
1.1
%
Mortgage loans
182

 
%
 
186

 
%
Policy loans
81,545

 
5.5
%
 
80,825

 
5.8
%
Real estate and other long-term investments
2,593

 
0.2
%
 
7,223

 
0.5
%
Short-term investments
2,455

 
0.2
%
 
7,865

 
0.6
%
Cash and cash equivalents
34,568

 
2.3
%
 
45,492

 
3.3
%
Total cash, cash equivalents and investments
$
1,478,509

 
100.0
%
 
$
1,387,698

 
100.0
%

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

 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
June 30, 2019
 
 
 
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale:
 
 
 
 
 
 
 
U.S. Treasury securities
$
9,749

 
1,733

 

 
11,482

U.S. Government-sponsored enterprises
3,528

 
1,015

 

 
4,543

States and political subdivisions
651,598

 
25,193

 
351

 
676,440

Corporate
481,406

 
30,533

 
2,171

 
509,768

Commercial mortgage-backed
1,109

 
2

 

 
1,111

Residential mortgage-backed
116,364

 
11,280

 
2

 
127,642

Asset-backed
10,229

 
5

 
1

 
10,233

Foreign governments
102

 
18

 

 
120

Total fixed maturities
$
1,274,085

 
69,779

 
2,525

 
1,341,339





June 30, 2019 Form 10-Q 17


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
December 31, 2018
 
 
 
(In thousands)
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
U.S. Treasury securities
$
9,864

 
1,410

 

 
11,274

U.S. Government-sponsored enterprises
3,540

 
740

 

 
4,280

States and political subdivisions
713,991

 
7,614

 
1,490

 
720,115

Corporate
384,817

 
6,725

 
9,746

 
381,796

Commercial mortgage-backed
39,694

 
386

 
66

 
40,014

Residential mortgage-backed
66,960

 
1,726

 
2

 
68,684

Asset-backed
4,764


1


8


4,757

Foreign governments
117

 
2

 

 
119

Total fixed maturities
$
1,223,747

 
18,604

 
11,312

 
1,231,039

 
Most of the Company's equity securities are diversified stock and bond mutual funds.
 
Fair Value
(In thousands)
June 30, 2019
 
December 31, 2018
 
 
 
 
Equity securities:
 
 
 
Stock mutual funds
$
3,142

 
2,906

Bond mutual funds
12,255

 
11,774

Common stock
120

 
94

Non-redeemable preferred stock
310

 
294

Total equity securities
$
15,827

 
15,068


VALUATION OF INVESTMENTS

Available-for-sale securities are reported in the consolidated financial statements at fair value. Equity securities are measured at fair value with the change in fair value recorded through net income. The Company recognized net realized gains of $155,000 and $757,000 on equity securities held for the three and six months ended June 30, 2019 and losses of $86,000 and $388,000 for the same periods ended June 30, 2018, respectively. An impairment loss of $3.1 million was recorded during the second quarter of 2019 related to our Citizens Academy training facility property located near Austin, Texas. It was determined during the quarter that the property met the held-for-sale criteria. As a result, this investment was reclassified from real estate held for investment to real estate held-for-sale. This resulted in an impairment loss of $3.1 million as the carrying amount of the property was written down to the net realizable value. This investment is considered a Level 3 asset in the fair value hierarchy.

The Company monitors all debt securities on an on-going basis relative to changes in credit ratings, market prices, earnings trends and financial performance, in addition to specific region or industry reviews.  The assessment of whether other-than-temporary impairments ("OTTI") have occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair value.  The Company determines OTTI by reviewing relevant evidence related to the specific security issuer as well as the Company's intent to sell the security, or if it is more likely than not that the Company would be required to sell a security before recovery of its amortized cost.

When an OTTI has occurred, the amount of the OTTI recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost



June 30, 2019 Form 10-Q 18


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

basis.  If the Company intends to sell the security or it is more likely that the Company will be required to sell the security before recovery of its amortized cost basis, the OTTI is recognized in earnings equal to the entire difference between the investment's amortized cost and its fair value at the balance sheet date.  If the Company does not intend to sell the security and it is more likely than not that the Company will not be required to sell the security before recovery of its amortized cost basis, the OTTI is separated into the following: (a) the amount representing the credit loss; and (b) the amount related to all other factors.  The amount of the total OTTI related to the credit loss is recognized in earnings.  The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes.  The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.  The new amortized cost basis is not adjusted for subsequent recoveries in fair value.

The Company evaluates whether a credit impairment exists for fixed maturity securities by considering primarily the following factors: (a) changes in the financial condition of the security's underlying collateral; (b) whether the issuer is current on contractually obligated interest and principal payments; (c) changes in the financial condition, credit rating and near-term prospects of the issuer; (d) the length of time to which the fair value has been less than the amortized cost of the security; and (e) the payment structure of the security.  The Company's best estimate of expected future cash flows used to determine the credit loss amount is a quantitative and qualitative process.  Quantitative review includes information received from third party sources such as financial statements, pricing and rating changes, liquidity and other statistical information.  Qualitative factors include judgments related to business strategies, economic impacts on the issuer and overall judgment related to estimates and industry factors.  The Company's best estimate of future cash flows involves assumptions including, but not limited to, various performance indicators, such as historical and projected default and recovery rates, credit ratings, and current delinquency rates.  These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries, which may include estimating the underlying collateral value.  In addition, projections of expected future debt security cash flows may change based upon new information regarding the performance of the issuer.

No fixed maturity investment impairments were recognized for the three and six months ended June 30, 2019 or the three months ended June 30, 2018.  OTTI of $225,000 was recognized on one fixed maturity security issuer for the six months ended June 30, 2018.

The following tables present the fair values and gross unrealized losses of fixed maturity securities that have remained in a continuous unrealized loss position for the periods indicated.

June 30, 2019
Less than 12 months
Greater than 12 months
Total
(In thousands, except for # of securities)
Fair
Value
Unrealized
Losses
# of
Securities
Fair
Value
Unrealized
Losses
# of
Securities
Fair
Value
Unrealized
Losses
# of
Securities
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
44,983

198

39

24,021

153

33

69,004

351

72

Corporate
57,128

1,868

39

10,304

303

12

67,432

2,171

51

Residential mortgage-backed



94

2

4

94

2

4

Asset-backed
1,345

1

2




1,345

1

2

Total fixed maturities
$
103,456

2,067

80

34,419

458

49

137,875

2,525

129





June 30, 2019 Form 10-Q 19


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

December 31, 2018
Less than 12 months
Greater than 12 months
Total
(In thousands, except for # of securities)
Fair
Value
Unrealized
Losses
# of
Securities
Fair
Value
Unrealized
Losses
# of
Securities
Fair
Value
Unrealized
Losses
# of
Securities
 
 
 
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
 
 
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
States and political subdivisions
$
227,132

883

233

33,891

607

46

261,023

1,490

279

Corporate
230,030

8,770

191

9,936

976

8

239,966

9,746

199

Commercial mortgage-backed
14,992

66

11




14,992

66

11

Residential mortgage-backed
18


3

98

2

4

116

2

7

Asset-backed
3,747

8

4




3,747

8

4

Total fixed maturities
$
475,919

9,727

442

43,925

1,585

58

519,844

11,312

500

 
We have reviewed the securities in an unrealized loss position for the periods ended June 30, 2019 and December 31, 2018 and determined that no OTTI exists that have not been recognized based on our evaluation of the credit worthiness of the issuers and the fact that we do not intend to sell the investments nor is it likely that we will be required to sell the securities before recovery of their amortized cost bases which may be maturity.  We continue to monitor all securities on an on-going basis and future information may become available which could result in other-than-temporary impairments being recorded.

The amortized cost and fair value of fixed maturity securities at June 30, 2019 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, 2019
Amortized
Cost
 
Fair
Value
(In thousands)
 
Fixed maturity securities:
 
 
 
Due in one year or less
$
102,787

 
103,200

Due after one year through five years
131,248

 
136,348

Due after five years through ten years
214,674

 
226,791

Due after ten years
825,376

 
875,000

Total fixed maturity securities
$
1,274,085

 
1,341,339





June 30, 2019 Form 10-Q 20


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)
 
 
 

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.  
 
Fixed Maturities, Available-for-Sale
 
Equity Securities
 
Three Months Ended
 
Six Months Ended
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
June 30,
 
June 30,
(In thousands)
2019
2018
 
2019
2018
 
2019
2018
 
2019
2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Proceeds
$
2,755


 
10,414


 


 


Gross realized gains
$
107


 
109


 


 


Gross realized losses
$
182


 
365


 


 



There were sales of ten and twenty available-for-sale fixed maturity securities for the three and six months ended June 30, 2019, respectively. No available-for-sale fixed maturity securities were sold during the three and six months ended June 30, 2018. No equity securities were sold during the three and six months ended June 30, 2019 and 2018.

(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 available-for-sale fixed maturity securities, which are carried at fair value. We also report our equity securities at fair value with changes in fair value reported through the consolidated statements of comprehensive income.

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

Level 1 - Quoted prices for identical instruments in active markets.
Level 2 - Quoted prices for similar instruments in active markets; 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.
Level 3 - Instruments whose significant value drivers are unobservable.

Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as U.S. Treasury securities and actively traded mutual fund and stock investments.

Level 2 includes those financial instruments that are valued by independent pricing services or broker quotes.  These models are primarily industry-standard models that consider various inputs, such as interest rates, credit spreads and foreign exchange rates for the underlying financial instruments.  All significant inputs are observable or derived from observable information in the marketplace or are supported by observable levels at which transactions are executed in the marketplace.  Financial instruments in this category primarily include corporate securities, U.S. Government-sponsored enterprise securities, municipal securities and certain mortgage and asset-backed securities.

Level 3 is comprised of financial instruments whose fair value is estimated based on non-binding broker prices utilizing significant inputs not based on or corroborated by readily available market information.  There were no securities in this category at June 30, 2019.




June 30, 2019 Form 10-Q 21


CITIZENS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
(Unaudited)