Citizens Earnings 2019-09-30

CIA 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

Comparables ($MM TTM)
Ticker	M Cap	Assets	Liab	Rev	G Profit	Net Inc	EBITDA	EV	G Margin	EV/EBITDA	ROA
SLF
AEB
MFC
PJH
GL
AEG		392,633	370,065	0	0	0	0	-3,725			0%
CIA		1,702	1,466	246	0	-25	5	-35	0%	-6.5	-1%
LFC		3,254,403	2,931,113	0	0	0	0	-50,792			0%
NWLI		12,613	10,558	679	0	136	165	-141	0%	-0.9	1%
ATH		138,980	126,615	12,072	0	1,964	2,023	-5,239	0%	-2.6	1%

10-Q 1 cia-201993010q.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 September 30, 2019

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

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.)

14231 Tandem Blvd, 2nd Floor
Austin, Texas	78728
(Address of principal executive offices)	(Zip Code)

	2900 Esperanza Crossing, 2nd Floor
(512) 837-7100	Austin, Texas 78758
(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	NYSE
(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 November 1, 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.

THIS PAGE INTENTIONALLY LEFT BLANK

TABLE OF CONTENTS



			Page Number
Part I. FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Statements of Financial Position, September 30, 2019 (Unaudited) and December 31, 2018	2

		Consolidated Statements of Comprehensive Income, Three Months Ended September 30, 2019 and 2018 (Unaudited)	4

		Consolidated Statements of Comprehensive Income, Nine Months Ended September 30, 2019 and 2018 (Unaudited)	5

		Consolidated Statements of Stockholders' Equity, Nine Months Ended September 30, 2019 and 2018 (Unaudited)	6

		Consolidated Statements of Cash Flows, Nine Months Ended September 30, 2019 and 2018 (Unaudited)	8

		Notes to Consolidated Financial Statements (Unaudited)	10

	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	56

	Item 4.	Controls and Procedures	57

Part II. OTHER INFORMATION

	Item 1.	Legal Proceedings	58

	Item 1A.	Risk Factors	59

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59

	Item 3.	Defaults Upon Senior Securities	59

	Item 4.	Mine Safety Disclosures	59

	Item 5.	Other Information	59

	Item 6.	Exhibits	60

September 30, 2019 Form | 10-Q 1

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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



(In thousands)	September 30, 2019		December 31, 2018
Assets	(Unaudited)
Investments:
Fixed maturities available-for-sale, at fair value (cost: $1,278,293 and $1,223,747 in 2019 and 2018, respectively)	$	1,369,648	1,231,039
Equity securities, at fair value	15,845		15,068
Mortgage loans on real estate	180		186
Policy loans	81,964		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	2,453		7,865
Total investments	1,472,683		1,342,206
Cash and cash equivalents	47,147		45,492
Accrued investment income	17,648		18,467
Reinsurance recoverable	3,596		3,664
Deferred policy acquisition costs	150,289		155,747
Cost of customer relationships acquired	13,741		15,225
Goodwill	12,624		12,624
Other intangible assets	953		956
Property and equipment, net	6,639		5,943
Due premiums, net (less $1,640 and $1,990 allowance for doubtful accounts in 2019 and 2018, respectively)	10,737		13,325
Prepaid expenses	983		284
Other assets	1,319		1,628
Total assets	$	1,738,359	1,615,561

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 2

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


(In thousands, except share amounts)	September 30, 2019			December 31, 2018
Liabilities and Stockholders' Equity	(Unaudited)
Liabilities:
Policy liabilities:
Future policy benefit reserves:
Life insurance	$	1,206,042		1,179,946
Annuities	76,427			76,377
Accident and health	997			944
Dividend accumulations	28,400			26,250
Premiums paid in advance	42,591			48,553
Policy claims payable	8,095			7,614
Other policyholders' funds	16,400			10,760
Total policy liabilities	1,378,952			1,350,444
Commissions payable	2,096			1,901
Current federal income tax payable	47,861			41,281
Deferred federal income tax payable	12,081			5,709
Payable for securities in process of settlement	6,030			—
Other liabilities	29,997			28,493
Total liabilities	1,477,017			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	261,346			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	(75,920		)	(69,599	)
Accumulated other comprehensive income:
Net unrealized gains on securities, net of tax	83,743			5,366
Treasury stock, at cost	(11,011		)	(11,011	)
Total stockholders' equity	261,342			187,733
Total liabilities and stockholders' equity	$	1,738,359		1,615,561

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 3

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

Three Months Ended September 30, (In thousands, except per share amounts)	2019			2018 (As Restated*)
Revenues:
Premiums:
Life insurance	$	44,502		45,898
Accident and health insurance	350			323
Property insurance	1,157			1,208
Net investment income	15,039			13,587
Realized investment gains (losses), net	72			(498	)
Other income	347			643
Total revenues	61,467			61,161
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders	28,751			25,076
Increase in future policy benefit reserves	6,409			1,653
Policyholders' dividends	1,560			1,595
Total insurance benefits paid or provided	36,720			28,324
Commissions	8,879			8,656
Other general expenses	11,530			12,402
Capitalization of deferred policy acquisition costs	(5,984		)	(5,561	)
Amortization of deferred policy acquisition costs	7,835			11,412
Amortization of cost of customer relationships acquired	355			366
Total benefits and expenses	59,335			55,599
Income before federal income tax	2,132			5,562
Federal income tax expense	86			12,671
Net income (loss)	2,046			(7,109	)
Per Share Amounts:
Basic and diluted earnings (losses) per share of Class A common stock	0.04			(0.14	)
Basic and diluted earnings (losses) per share of Class B common stock	0.02			(0.07	)
Other Comprehensive Income (Loss):
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized holding gains (losses) arising during period	24,201			(2,236	)
Reclassification adjustment for losses (gains) included in net income	(53		)	656
Unrealized gains (losses) on available-for-sale debt securities, net	24,148			(1,580	)
Income tax expense on unrealized gains (losses) on available-for-sale debt securities	1,627			454
Other comprehensive income (loss)	22,521			(2,034	)
Total comprehensive income (loss)	$	24,567		(9,143	)

* See Note 1 in the Notes to Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 4

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

Nine Months Ended September 30, (In thousands, except per share amounts)	2019			2018 (As Restated*)
Revenues:
Premiums:
Life insurance	$	127,795		133,058
Accident and health insurance	1,018			915
Property insurance	3,464			3,615
Net investment income	44,150			41,169
Realized investment gains (losses), net	3,164			(1,251	)
Other income	1,148			930
Total revenues	180,739			178,436
Benefits and Expenses:
Insurance benefits paid or provided:
Claims and surrenders	78,808			66,844
Increase in future policy benefit reserves	28,180			32,816
Policyholders' dividends	4,165			4,516
Total insurance benefits paid or provided	111,153			104,176
Commissions	25,147			26,284
Other general expenses	37,611			33,375
Capitalization of deferred policy acquisition costs	(16,224		)	(17,164	)
Amortization of deferred policy acquisition costs	21,043			26,218
Amortization of cost of customer relationships acquired	1,192			1,517
Total benefits and expenses	179,922			174,406
Income before federal income tax	817			4,030
Federal income tax expense	7,138			13,660
Net loss	(6,321		)	(9,630	)
Per Share Amounts:
Basic and diluted losses per share of Class A common stock	(0.13		)	(0.19	)
Basic and diluted losses per share of Class B common stock	(0.06		)	(0.10	)
Other Comprehensive Income (Loss):
Unrealized gains (losses) on available-for-sale debt securities:
Unrealized holding gains (losses) arising during period	84,222			(32,663	)
Reclassification adjustment for losses (gains) included in net income	(30		)	1,002
Unrealized gains (losses) on available-for-sale debt securities, net	84,192			(31,661	)
Income tax expense (benefit) on unrealized gains (losses) on available-for-sale debt securities	5,815			(5,852	)
Other comprehensive income (loss)	78,377			(25,809	)
Total comprehensive income (loss)	$	72,056		(35,439	)

* See Note 1 in the Notes to Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 5

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)

	Common Stock			Accumulated deficit		Accumulated other comprehensive income	Treasury stock		Total Stock-holders' equity
(In thousands)	Class A		Class B	Accumulated deficit		Accumulated other comprehensive income	Treasury stock		Total Stock-holders' equity

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
Comprehensive income:
Net income	—		—	2,046		—	—		2,046
Unrealized investment gains, net	—		—	—		22,521	—		22,521
Total comprehensive income	—		—	2,046		22,521	—		24,567
Stock-based compensation	343		—	—		—	—		343
Balance at September 30, 2019	$	261,346	3,184	(75,920	)	83,743	(11,011	)	261,342

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 6

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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Consolidated Statements of Stockholders' Equity, Continued
(Unaudited)

	Common Stock			Accumulated deficit		Accumulated other comprehensive income (loss)		Treasury stock		Total Stock-holders' equity
(In thousands)	Class A		Class B	Accumulated deficit		Accumulated other comprehensive income (loss)		Treasury stock		Total Stock-holders' equity

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
Comprehensive loss:
Net loss (as restated*)	—		—	(7,109	)	—		—		(7,109	)
Unrealized investment losses, net	—		—	—		(2,854	)	—		(2,854	)
Unrealized gain from held-to-maturity securities transferred to available-for-sale	—		—	—		820		—		820
Total comprehensive loss (as restated*)	—		—	(7,109	)	(2,034	)	—		(9,143	)
Stock-based compensation	97		—	—		—		—		97
Balance at September 30, 2018 (as restated*)	$	259,693	3,184	(68,167	)	4,685		(11,011	)	188,384

* See Note 1 in the Notes to Consolidated Financial Statements

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 7

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

Nine Months Ended September 30, (In thousands)	2019			2018 (As Restated*)
Cash flows from operating activities:
Net income (loss)	$	(6,321	)	(9,630	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized (gains) losses on sale of investments and other assets	(3,164		)	1,251
Net deferred policy acquisition costs	4,819			9,054
Amortization of cost of customer relationships acquired	1,192			1,517
Depreciation	1,269			921
Amortization of premiums and discounts on investments	10,422			12,781
Stock-based compensation	1,930			310
Deferred federal income tax benefit	560			59,329
Change in:
Accrued investment income	819			673
Reinsurance recoverable	68			89
Due premiums	2,588			427
Future policy benefit reserves	27,994			33,425
Other policyholders' liabilities	2,309			1,413
Federal income tax payable	6,580			(45,678	)
Commissions payable and other liabilities	1,699			558
Other, net	(1,851		)	(1,205	)
Net cash provided by operating activities	50,913			65,235
Cash flows from investing activities:
Purchase of fixed maturities, available-for-sale	(210,445		)	(109,642	)
Sale of fixed maturities, available-for-sale	39,708			1,084
Maturities and calls of fixed maturities, available-for-sale	111,757			51,190
Maturities and calls of fixed maturities, held-to-maturity	—			20,699
Purchase of equity securities	—			(9	)
Principal payments on mortgage loans	6			7
Increase in policy loans, net	(1,141		)	(5,277	)
Sale of other long-term investments and real estate	6,981			14
Sale of property and equipment	15			—
Purchase of property and equipment	(509		)	(437	)
Maturity of short-term investments	7,940			—
Purchase of short-term investments	(2,456		)	—
Net cash used in investing activities	(48,144		)	(42,371	)
* See Note 1 in the Notes to Consolidated Financial Statements
See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 8

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

Nine Months Ended September 30, (In thousands)	2019			2018 (As Restated*)
Cash flows from financing activities:
Annuity deposits	$	4,948		5,222
Annuity withdrawals	(5,685		)	(5,397	)
Other	(377		)	—
Net cash used in financing activities	(1,114		)	(175	)
Net increase in cash and cash equivalents	1,655			22,689
Cash and cash equivalents at beginning of year	45,492			46,064
Cash and cash equivalents at end of period	$	47,147		68,753
* See Note 1 in the Notes to Consolidated Financial Statements

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

During the nine months ended September 30, 2019 and 2018, various fixed maturity issuers exchanged securities with book values of $12.2 million and $2.5 million, respectively, for securities of equal value.

The Company had net unsettled security trades of $6.0 million at September 30, 2019 and none at September 30, 2018.

See accompanying Notes to Consolidated Financial Statements.

September 30, 2019 Form | 10-Q 9

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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"), Citizens National Life Insurance Company ("CNLIC"), CICA Life Ltd. ("CICA Ltd."), 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 September 30, 2019, the consolidated statements of comprehensive income and stockholders' equity for the three and nine months ended September 30, 2019 and September 30, 2018 and the consolidated statements of cash flows for the nine months ended September 30, 2019 and September 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 September 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, CNLIC, CICA Ltd., SPLIC and MGLIC. CICA and CNLIC issued ordinary whole-life policies, credit life and disability, and accident and health related policies, throughout the Midwest and southern U.S. until they ceased most domestic sales beginning January 1, 2017. 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. 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.

September 30, 2019 Form | 10-Q 10

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

We converted to a new actuarial valuation software solution impacting both the Home Service Insurance and Life Insurance segments, providing enhanced modeling capabilities for the ordinary whole life policies of SPLIC as of July 1, 2019 and the ordinary whole life and endowment policies of CICA and CICA Ltd. as of July 1, 2018. The total impact of these system conversions reflected in the accompanying consolidated financial statements as of and for the three and nine months ended September 30, 2019 and 2018 are summarized in the table below.



(In thousands)	September 30, 2019			September 30, 2018
Increase (Decrease)
Consolidated Statements of Financial Position
Deferred policy acquisition costs	$	(1,396	)	(4,339	)
Future policy benefit reserves:
Life insurance	(2,299		)	(10,197	)

Consolidated Statement of Comprehensive Income
Decrease in future policy benefit reserves	(2,299		)	(10,197	)
Amortization of deferred policy acquisition costs	1,396			4,339
Income before federal income tax	903			5,858
Federal income tax expense	190			1,230
Net income	$	713		4,628

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.

RESTATEMENT

As disclosed in Note 14. Quarterly Financial Information (Unaudited) in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018, the Company has restated its unaudited consolidated financial information as of and for the three and nine month periods ended September 30, 2018 to correct an immaterial error related to the accounting for the income tax effects of the novation of international insurance policies to our Bermuda-based subsidiary on July 1, 2018.

September 30, 2019 Form | 10-Q 11

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

Federal income tax expense and net income (loss) have been restated herein to properly reflect the reduction in federal income tax expense as compared to originally reported amounts. Basic & diluted earnings (losses) per share of Class A common stock and Class B common stock were also restated. The table below reflects the line items adjusted as a result of the restatement as of September 30, 2018 and for the three and nine months ended September 30, 2018.



(In thousands, except per share amounts)	As Previously Reported			Adjustments		As Restated
For the Three Months Ended September 30, 2018
Consolidated Statement of Comprehensive Income
Federal income expense (benefit)	$	20,316		(7,645	)	12,671
Net income (loss)	(14,754		)	7,645		(7,109	)
Basic and diluted earnings (losses) per share of Class A common stock	(0.30		)	0.16		(0.14	)
Basic and diluted earnings (losses) per share of Class B common stock	(0.14		)	0.07		(0.07	)
Total comprehensive income (loss)	(16,788		)	7,645		(9,143	)



For the Nine Months Ended September 30, 2018
Consolidated Statement of Comprehensive Income
Federal income expense (benefit)	$	21,305		(7,645	)	13,660
Net income (loss)	(17,275		)	7,645		(9,630	)
Basic and diluted earnings (losses) per share of Class A common stock	(0.35		)	0.16		(0.19	)
Basic and diluted earnings (losses) per share of Class B common stock	(0.17		)	0.07		(0.10	)
Total comprehensive income (loss)	(43,084		)	7,645		(35,439	)



As of September 30, 2018
Consolidated Statements of Stockholders' Equity
Balance at June 30, 2018	$	197,430		—	197,430
Net income (loss)	(14,754		)	7,645	(7,109	)
Total comprehensive income (loss)	(16,788		)	7,645	(9,143	)
Accumulated deficit	(75,812		)	7,645	(68,167	)
Balance at September 30, 2018	180,739			7,645	188,384



For the Nine Months Ended September 30, 2018
Consolidated Statements of Cash Flows
Net income (loss)	$	(17,275	)	7,645		(9,630	)
Deferred federal income tax (expense) benefit	67,040			(7,711	)	59,329
Federal income tax payable	(45,744		)	66		(45,678	)
Net cash provided by operating activities	65,235			—		65,235

SIGNIFICANT ACCOUNTING POLICIES

For a description of our 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.

September 30, 2019 Form | 10-Q 12

Table of Contents



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 adoption of this guidance as of January 1, 2019 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 as of January 1, 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 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.

September 30, 2019 Form | 10-Q 13

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

The Company has evaluated the impact this guidance will have on our consolidated financial statements and expects the impact to be immaterial.

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, 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

September 30, 2019 Form | 10-Q 14

Table of Contents



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 reportable 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 Insurance		Other Non-Insurance Enterprises		Consolidated
Three Months Ended September 30, 2019
(In thousands)

Revenues:
Premiums	$	34,385		11,624		—		46,009
Net investment income	11,340			3,309		390		15,039
Realized investment gains, net	61			3		8		72
Other income (loss)	349			(2	)	—		347
Total revenue	46,135			14,934		398		61,467
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	22,533			6,218		—		28,751
Increase in future policy benefit reserves	7,667			(1,258	)	—		6,409
Policyholders' dividends	1,551			9		—		1,560
Total insurance benefits paid or provided	31,751			4,969		—		36,720
Commissions	5,386			3,493		—		8,879
Other general expenses	5,358			4,669		1,503		11,530
Capitalization of deferred policy acquisition costs	(4,743		)	(1,241	)	—		(5,984	)
Amortization of deferred policy acquisition costs	5,960			1,875		—		7,835
Amortization of cost of customer relationships acquired	113			242		—		355
Total benefits and expenses	43,825			14,007		1,503		59,335
Income (loss) before income tax expense	$	2,310		927		(1,105	)	2,132

September 30, 2019 Form | 10-Q 15

Table of Contents



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



	Life Insurance			Home Service Insurance		Other Non-Insurance Enterprises		Consolidated
Nine Months Ended September 30, 2019
(In thousands)

Revenues:
Premiums	$	97,439		34,838		—		132,277
Net investment income	33,121			9,720		1,309		44,150
Realized investment gains (losses), net	5,586			639		(3,061	)	3,164
Other income	1,146			—		2		1,148
Total revenue	137,292			45,197		(1,750	)	180,739
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	61,011			17,797		—		78,808
Increase in future policy benefit reserves	27,499			681		—		28,180
Policyholders' dividends	4,136			29		—		4,165
Total insurance benefits paid or provided	92,646			18,507		—		111,153
Commissions	14,435			10,712		—		25,147
Other general expenses	18,021			15,071		4,519		37,611
Capitalization of deferred policy acquisition costs	(12,465		)	(3,759	)	—		(16,224	)
Amortization of deferred policy acquisition costs	17,454			3,589		—		21,043
Amortization of cost of customer relationships acquired	373			819		—		1,192
Total benefits and expenses	130,464			44,939		4,519		179,922
Income (loss) before federal income tax expense	$	6,828		258		(6,269	)	817

September 30, 2019 Form | 10-Q 16

Table of Contents



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



	Life Insurance			Home Service Insurance		Other Non-Insurance Enterprises		Consolidated
Three Months Ended September 30, 2018
(In thousands)

Revenues:
Premiums	$	35,784		11,645		—		47,429
Net investment income	10,062			3,276		249		13,587
Realized investment gains (losses), net	(475		)	(32	)	9		(498	)
Other income	643			—		—		643
Total revenue	46,014			14,889		258		61,161
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	19,212			5,864		—		25,076
Increase in future policy benefit reserves	544			1,109		—		1,653
Policyholders' dividends	1,581			14		—		1,595
Total insurance benefits paid or provided	21,337			6,987		—		28,324
Commissions	4,712			3,944		—		8,656
Other general expenses	6,583			4,502		1,317		12,402
Capitalization of deferred policy acquisition costs	(3,873		)	(1,688	)	—		(5,561	)
Amortization of deferred policy acquisition costs	10,132			1,280		—		11,412
Amortization of cost of customer relationships acquired	150			216		—		366
Total benefits and expenses	39,041			15,241		1,317		55,599
Income (loss) before income tax expense	$	6,973		(352	)	(1,059	)	5,562

September 30, 2019 Form | 10-Q 17

Table of Contents



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



	Life Insurance			Home Service Insurance		Other Non-Insurance Enterprises		Consolidated
Nine Months Ended September 30, 2018
(In thousands)

Revenues:
Premiums	$	102,537		35,051		—		137,588
Net investment income	30,331			9,894		944		41,169
Realized investment losses, net	(684		)	(535	)	(32	)	(1,251	)
Other income (loss)	931			(1	)	—		930
Total revenue	133,115			44,409		912		178,436
Benefits and expenses:
Insurance benefits paid or provided:
Claims and surrenders	49,522			17,322		—		66,844
Increase in future policy benefit reserves	29,509			3,307		—		32,816
Policyholders' dividends	4,483			33		—		4,516
Total insurance benefits paid or provided	83,514			20,662		—		104,176
Commissions	14,717			11,567		—		26,284
Other general expenses	12,607			15,438		5,330		33,375
Capitalization of deferred policy acquisition costs	(12,663		)	(4,501	)	—		(17,164	)
Amortization of deferred policy acquisition costs	22,912			3,306		—		26,218
Amortization of cost of customer relationships acquired	434			1,083		—		1,517
Total benefits and expenses	121,521			47,555		5,330		174,406
Income (loss) before federal income tax expense	$	11,594		(3,146	)	(4,418	)	4,030

September 30, 2019 Form | 10-Q 18

Table of Contents



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 September 30,	2019		2018 (As Restated*)
(In thousands, except per share amounts)	2019		2018 (As Restated*)

Basic and diluted earnings per share:
Numerator:
Net income (loss)	$	2,046	(7,109	)
Net income (loss) allocated to Class A common stock	$	2,026	(7,036	)
Net income (loss) allocated to Class B common stock	20		(73	)
Net income (loss)	$	2,046	(7,109	)

Denominator:
Weighted average shares of Class A outstanding - basic	49,229		49,080
Weighted average shares of Class A outstanding - diluted	49,327		49,127
Weighted average shares of Class B outstanding - basic and diluted	1,002		1,002
Basic and diluted earnings (loss) per share of Class A common stock	$	0.04	(0.14	)
Basic and diluted earnings (loss) per share of Class B common stock	0.02		(0.07	)

* See Note 1 in the Notes to Consolidated Financial Statements



Nine Months Ended September 30,	2019			2018 (As Restated*)
(In thousands, except per share amounts)	2019			2018 (As Restated*)

Basic and diluted earnings per share:
Numerator:
Net loss	$	(6,321	)	(9,630	)
Net loss allocated to Class A common stock	$	(6,257	)	(9,533	)
Net loss allocated to Class B common stock	(64		)	(97	)
Net loss	$	(6,321	)	(9,630	)

Denominator:
Weighted average shares of Class A outstanding - basic	49,229			49,080
Weighted average shares of Class A outstanding - diluted	49,327			49,127
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	$	(0.13	)	(0.19	)
Basic and diluted loss per share of Class B common stock	(0.06		)	(0.10	)

* See Note 1 in the Notes to Consolidated Financial Statements

September 30, 2019 Form | 10-Q 19

Table of Contents



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

(5) INVESTMENTS

The Company invests primarily in fixed maturity securities, which totaled 90.1% of total cash, cash equivalents and investments at September 30, 2019. The Company's cash, cash equivalents and investments are listed below.



Carrying Value (In thousands, except for %)	September 30, 2019				December 31, 2018
Carrying Value (In thousands, except for %)	Amount		%		Amount		%

Fixed maturity securities	$	1,369,648	90.1	%	$	1,231,039	88.7	%
Equity securities	15,845		1.0	%	15,068		1.1	%
Mortgage loans	180		—	%	186		—	%
Policy loans	81,964		5.4	%	80,825		5.8	%
Real estate and other long-term investments	2,593		0.2	%	7,223		0.5	%
Short-term investments	2,453		0.2	%	7,865		0.6	%
Cash and cash equivalents	47,147		3.1	%	45,492		3.3	%
Total cash, cash equivalents and investments	$	1,519,830	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
September 30, 2019
(In thousands)

Fixed maturities:
Available-for-sale:
U.S. Treasury securities	$	9,729	1,775	—	11,504
U.S. Government-sponsored enterprises	3,522		1,124	—	4,646
States and political subdivisions	567,551		29,392	125	596,818
Corporate	560,701		45,148	1,741	604,108
Commercial mortgage-backed	1,107		—	—	1,107
Residential mortgage-backed	118,101		15,787	23	133,865
Asset-backed	17,480		11	11	17,480

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$0.00	-0	$-0

10-Q	2019-11-06	Quarter: 2019-09-30
10-Q	2019-08-07	Quarter: 2019-06-30
10-Q	2019-05-10	Quarter: 2019-03-31
10-K	2019-03-26	Annual: 2018-12-31
10-Q	2018-11-07	Quarter: 2018-09-30
10-Q	2018-08-07	Quarter: 2018-06-30
10-Q	2018-05-04	Quarter: 2018-03-31
10-K	2018-03-29	Annual: 2017-12-31
10-Q	2017-11-07	Quarter: 2017-09-30
10-Q	2017-08-04	Quarter: 2017-06-30
10-Q	2017-05-09	Quarter: 2017-03-31
10-K	2017-04-27	Annual: 2016-12-31
10-Q	2016-11-07	Quarter: 2016-09-30
10-Q	2016-08-09	Quarter: 2016-06-30
10-Q	2016-05-03	Quarter: 2016-03-31
10-K	2016-03-24	Annual: 2015-12-31
10-Q	2015-11-09	Quarter: 2015-09-30
10-Q	2015-08-06	Quarter: 2015-06-30
10-Q	2015-05-06	Quarter: 2015-03-31
10-K	2015-04-06	Annual: 2014-12-31
10-Q	2014-11-05	Quarter: 2014-09-30
10-Q	2014-08-07	Quarter: 2014-06-30
10-Q	2014-05-06	Quarter: 2014-03-31
10-K	2014-03-11	Annual: 2013-12-31
10-Q	2013-11-06	Quarter: 2013-09-30
10-Q	2013-08-06	Quarter: 2013-06-30
10-Q	2013-05-02	Quarter: 2013-03-31
10-K	2013-03-12	Annual: 2012-12-31
10-Q	2012-11-06	Quarter: 2012-09-30
10-Q	2012-08-06	Quarter: 2012-06-30
10-Q	2012-05-07	Quarter: 2012-03-31
10-K	2012-03-12	Annual: 2011-12-31
10-Q	2011-11-03	Quarter: 2011-09-30
10-Q	2011-08-08	Quarter: 2011-06-30
10-Q	2011-05-06	Quarter: 2011-03-31
10-K	2011-03-11	Annual: 2010-12-31
10-Q	2010-11-05	Quarter: 2010-09-30
10-Q	2010-08-06	Quarter: 2010-06-30
10-Q	2010-05-07	Quarter: 2010-03-31
10-K	2010-03-12	Annual: 2009-12-31

8-K	2019-11-08	Officers
8-K	2019-09-20	Officers, Exhibits
8-K	2019-07-12	Other Events
8-K	2019-06-04	Shareholder Vote
8-K	2019-03-27	Officers
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

EX-31.1	cia-201993010qex311.htm
EX-31.2	cia-201993010qex312.htm
EX-32.1	cia-201993010qex321.htm
EX-32.2	cia-201993010qex322.htm