##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2010
 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
 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.)400 East Anderson Lane, Austin, Texas
    
    78752(Address of principal executive offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report.)
 þ o
 o
Yes o No
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o
 o þ




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##### 



TABLE OF CONTENTS
 PageNumberPart I. Financial InformationItem 1. Financial StatementsConsolidated Statements of Financial Position, March 31,
2010 (Unaudited) and December 31, 2009
    
    
    2Consolidated Statements of Operations, Three Months
Ended March 31, 2010 and 2009 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows, Three Months
Ended March 31, 2010 and 2009 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    35Item 4. Controls and Procedures
    
    
    36Part II. Other InformationItem 1. Legal Proceedings
    
    
    37Item 1A. Risk Factors
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    38Item 3. Defaults Upon Senior Securities
    
    
    38Item 4. (Reserved)
    
    
    38Item 5. Other Information
    
    
    38Item 6. Exhibits
    
    
    38Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1 . FINANCIAL STATEMENTS
 CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Financial Position
 (In thousands)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)AssetsInvestments:Fixed maturities available-for-sale, at fair value
(cost: $402,697 and $389,195 in
2010 and 2009, respectively)
    
    $
    404,330
    
    
    
    385,579Fixed maturities held-to-maturity, at amortized cost
(fair value: $201,128 and $199,676
in 2010 and 2009, respectively)
    
    
    202,938
    
    
    
    206,909Equity securities available-for-sale, at fair value
(cost: $25,868 and $25,899 in 2010
and 2009, respectively)
    
    
    34,721
    
    
    
    33,477Mortgage loans on real estate
    
    
    1,622
    
    
    
    1,533Policy loans
    
    
    33,082
    
    
    
    32,096Real estate held for sale
    
    
    2,719
    
    
    
    2,825Real estate held for investment
(less $397 and $374 accumulated
depreciation in 2010 and 2009, respectively)
    
    
    6,452
    
    
    
    6,305Other long-term investments
    
    
    41
    
    
    
    86Short-term investments
    
    
    
    
    
    
    2,510Total investments
    
    
    685,905
    
    
    
    671,320Cash and cash equivalents
    
    
    48,023
    
    
    
    48,625Accrued investment income
    
    
    8,682
    
    
    
    7,455Reinsurance recoverable
    
    
    11,346
    
    
    
    11,587Deferred policy acquisition costs
    
    
    116,614
    
    
    
    115,570Cost of customer relationships acquired
    
    
    33,829
    
    
    
    34,728Goodwill
    
    
    17,160
    
    
    
    17,160Other intangible assets
    
    
    1,039
    
    
    
    1,046Federal income tax receivable
    
    
    1,390
    
    
    
    4,023Property and equipment, net
    
    
    6,432
    
    
    
    6,018Due premiums, net
(less $1,532 and $1,644 allowance
for doubtful accounts in 2010 and 2009, respectively)
    
    
    8,400
    
    
    
    8,960Prepaid expenses
    
    
    907
    
    
    
    Other assets
    
    
    645
    
    
    
    834Total assets
    
    $
    940,372
    
    
    
    927,326
 (Continued)
  2




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Financial Position, Continued
(In thousands, except share amounts)
 March 31,
    
    
    December 31,2010
    
    
    2009(Unaudited)Liabilities and Stockholders EquityLiabilities:Policy liabilities:Future policy benefit reserves:Life insurance
    
    $
    601,506
    
    
    
    592,358Annuities
    
    
    38,698
    
    
    
    37,882Accident and health
    
    
    6,206
    
    
    
    6,399Dividend accumulations
    
    
    5,698
    
    
    
    5,621Premiums paid in advance
    
    
    21,263
    
    
    
    20,373Policy claims payable
    
    
    10,767
    
    
    
    10,222Other policyholders funds
    
    
    7,994
    
    
    
    8,105Total policy liabilities
    
    
    692,132
    
    
    
    680,960Commissions payable
    
    
    2,118
    
    
    
    2,434Deferred federal and state income tax
    
    
    8,846
    
    
    
    8,052Payable for securities in process of settlement
    
    
    1,753
    
    
    
    6,000Warrants outstanding
    
    
    1,933
    
    
    
    1,819Other liabilities
    
    
    11,248
    
    
    
    11,986Total liabilities
    
    
    718,030
    
    
    
    711,251Commitments and contingencies (Note 8)Stockholders equity:Common stock:Class A, no par value, 100,000,000 shares authorized,
51,822,497 shares issued in 2010 and 2009,
including shares in treasury of 3,135,738 in
2010 and 2009
    
    
    256,703
    
    
    
    256,703Class B, no par value, 2,000,000 shares authorized, 1,001,714
shares issued and outstanding in 2010 and 2009
    
    
    3,184
    
    
    
    3,184Retained deficit
    
    
    (36,487
    )
    
    
    (38,092
    )Accumulated other comprehensive income:Unrealized gains on securities, net of tax
    
    
    9,953
    
    
    
    5,291233,353
    
    
    
    227,086Treasury stock, at cost
    
    
    (11,011
    )
    
    
    (11,011
    )Total stockholders equity
    
    
    222,342
    
    
    
    216,075Total liabilities and stockholders equity
    
    $
    940,372
    
    
    
    927,326
   3




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Operations
 Three Months Ended March 31,
 (In thousands, except per share amounts)
 (Unaudited)
 2010
    
    
    2009Revenues:Premiums:Life insurance
    
    $
    33,596
    
    
    
    32,683Accident and health insurance
    
    
    414
    
    
    
    396Property insurance
    
    
    1,180
    
    
    
    1,148Net investment income
    
    
    8,349
    
    
    
    7,742Realized gains, net
    
    
    59
    
    
    
    301Decrease (increase) in fair value of warrants
    
    
    (114
    )
    
    
    2,105Other income
    
    
    348
    
    
    
    283Total revenues
    
    
    43,832
    
    
    
    44,658Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    15,457
    
    
    
    14,807Increase in future policy benefit reserves
    
    
    9,545
    
    
    
    7,758Policyholders dividends
    
    
    1,570
    
    
    
    1,462Total insurance benefits paid or provided
    
    
    26,572
    
    
    
    24,027Commissions
    
    
    8,128
    
    
    
    8,035Other underwriting, acquisition and insurance expenses
    
    
    6,973
    
    
    
    7,309Capitalization of deferred policy acquisition costs
    
    
    (5,383
    )
    
    
    (5,057
    )Amortization of deferred policy acquisition costs
    
    
    4,332
    
    
    
    3,692Amortization of cost of customer relationships acquired
and other intangibles
    
    
    838
    
    
    
    866Total benefits and expenses
    
    
    41,460
    
    
    
    38,872Income before Federal income tax
    
    
    2,372
    
    
    
    5,786Federal income tax expense
    
    
    767
    
    
    
    1,409Net income
    
    $
    1,605
    
    
    
    4,377Net income applicable to
common stockholders
    
    $
    1,605
    
    
    
    3,199Per Share Amounts:Basic earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.07Basic earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.03Diluted earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.03Diluted earnings per share of Class A common stock
    
    $
    0.02
    
    
    
    0.01
   4




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 Three Months Ended March 31,
 (In thousands)
 (Unaudited)
 2010
    
    
    2009Cash flows from operating activities:Net income
    
    $
    1,605
    
    
    
    4,377Adjustments to reconcile net income to net cash
provided by operating activities:Realized gains on sale of investments
and other assets
    
    
    (59
    )
    
    
    (301
    )Net deferred policy acquisition costs
    
    
    (1,051
    )
    
    
    (1,365
    )Amortization of cost of customer relationships
acquired and other intangibles
    
    
    838
    
    
    
    866Increase (decrease) in fair value of warrants
    
    
    114
    
    
    
    (2,105
    )Depreciation
    
    
    274
    
    
    
    326Amortization of premiums and discounts on
fixed maturities and short-term investments
    
    
    585
    
    
    
    402Deferred Federal income tax expense (benefit)
    
    
    (995
    )
    
    
    330Change in:Accrued investment income
    
    
    (1,227
    )
    
    
    883Reinsurance recoverable
    
    
    241
    
    
    
    611Due premiums and other receivables
    
    
    560
    
    
    
    (102
    )Future policy benefit reserves
    
    
    9,339
    
    
    
    7,391Other policyholders liabilities
    
    
    1,401
    
    
    
    520Federal income tax receivable
    
    
    2,633
    
    
    
    1,015Commissions payable and other liabilities
    
    
    (1,054
    )
    
    
    (1,873
    )Other, net
    
    
    (590
    )
    
    
    (1,650
    )Net cash provided by operating activities
    
    
    12,614
    
    
    
    9,325Cash flows from investing activities:Sale of fixed maturities, available-for-sale
    
    
    2,126
    
    
    
    8,040Maturity and calls of fixed maturities, available-for-sale
    
    
    29,216
    
    
    
    61,488Calls of fixed maturities, held-to-maturity
    
    
    8,000
    
    
    
    Purchase of fixed maturities, available-for-sale
    
    
    (49,643
    )
    
    
    (91,330
    )Purchase of fixed maturities, held-to-maturity
    
    
    (4,095
    )
    
    
    Sale of equity securities, available-for-sale
    
    
    104
    
    
    
    663Purchase of equity securities, available-for-sale
    
    
    (49
    )
    
    
    (122
    )Principal payments on mortgage loans
    
    
    13
    
    
    
    8Increase in policy loans
    
    
    (986
    )
    
    
    (1,139
    )Sale of other long-term investments and property
and equipment
    
    
    
    
    
    
    18Purchase of other long-term investments and property and
equipment
    
    
    (834
    )
    
    
    (182
    )Maturity of short-term investments
    
    
    2,500
    
    
    
    1,250Purchase of short-term investments
    
    
    
    
    
    
    (2,605
    )Cash acquired in acquisition
    
    
    
    
    
    
    9,773Net cash used in investing activities
    
    
    (13,648
    )
    
    
    (14,138
    )
 See accompanying notes to consolidated financial statements.
    
    (Continued)
  5




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 Consolidated Statements of Cash Flows, Continued
Three Months Ended March 31,
(In thousands)
(Unaudited)
 2010
    
    
    2009Cash flows from financing activities:Warrants exercised
    
    $
    
    
    
    
    69Annuity deposits
    
    
    1,197
    
    
    
    1,535Annuity withdrawals
    
    
    (765
    )
    
    
    (667
    )Net cash provided by financing activities
    
    
    432
    
    
    
    937Net decrease in cash and cash equivalents
    
    
    (602
    )
    
    
    (3,876
    )Cash and cash equivalents at beginning of period
    
    
    48,625
    
    
    
    63,792Cash and cash equivalents at end of period
    
    $
    48,023
    
    
    
    59,916Supplemental disclosures of operating activities:Cash paid (received) during the period for income taxes
    
    $
    (871
    )
    
    
    86
 Supplemental Disclosure of Non-Cash Investing Activities:
  
  Supplemental Disclosures of Non-Cash Financing Activities:
    6




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 March 31, 2010
 (Unaudited)
 (1)
    
    Financial Statements
 Basis of Presentation and Consolidation
 The accompanying consolidated financial statements of the Company and its wholly owned
subsidiaries have been prepared in conformity with U.S. Generally Accepted Accounting
Principles (U.S. GAAP).
 The consolidated financial statements include the accounts and operations of Citizens, Inc.
(Citizens), a Colorado company, and its wholly-owned subsidiaries, CICA Life Insurance
Company of America (CICA), Computing Technology, Inc. (CTI), Funeral Homes of America,
Inc. (FHA), Insurance Investors, Inc. (III), Citizens National Life Insurance Company
(CNLIC), Integrity Capital Corporation (ICC), Integrity Capital Life Insurance Company
(ICIC), Security Plan Life Insurance Company (SPLIC) and Security Plan Fire Insurance
Company (SPFIC). All significant inter-company accounts and transactions have been
eliminated. Citizens and its wholly owned consolidated subsidiaries are collectively
referred to as the Company, we, or our.
 The Company completed its acquisition of ICC in exchange for 1,294,000 shares of its Class A
common stock in the first quarter of 2009. ICC is the parent of ICIC, an Indiana life
insurance company. The transaction was valued at $9.0 million on the closing date of
February 27, 2009. On October 30, 2009, FHA completed the sale of its business assets
consisting primarily of funeral home assets. The transaction was valued at approximately
$600,000.
 We provide life and health insurance policies through four of our subsidiaries  CICA, SPLIC,
CNLIC and ICIC. CICA, CNLIC and ICIC issue ordinary whole-life policies, burial insurance,
pre-need policies, and accident and health related policies, throughout the midwest and
southern United States. CICA also issues 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.
 CTI provides data processing systems and services as well as furniture and equipment to the
Company. III provides aviation transportation to the Company. FHA was a funeral home
operator before the sale of its assets in 2009.
 Use of Estimates
 The preparation of 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 financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
 The most significant estimates include those used in the evaluation of other-than-temporary
impairments on available-for-sale securities and valuation allowances on investments,
goodwill impairment, valuation allowance on deferred tax assets, 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 of the Notes to Consolidated
Financial Statements included in our 2009 Form 10-K Annual Report, which should be read in
conjunction with these accompanying Condensed Consolidated Financial Statements.
  7




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 (2)
    
    Accounting Pronouncements
 Accounting Standards Recently Adopted
 In January 2010, the Financial Accounting Standards Board (FASB) updated Accounting
Standards Codification (ASC) Topic 820, requiring additional disclosures about fair value
measurements regarding transfers between fair value categories as well as purchases, sales,
issuances and settlements related to fair value measurements of financial instruments with
non-observable inputs. This update was effective for interim and annual periods beginning
after December 15, 2009 except for disclosures about purchases, sales, issuances and
settlements of financial instruments with non-observable inputs, which are effective for
years beginning after December 15, 2010. The additional disclosures required by this update
are included in the note on fair value measurements upon adoption. The additional
disclosures did not have a material impact on our financial condition or results of
operations.
 (3)
    
    Segment Information
 The Company has three reportable segments: Life Insurance, Home Service Insurance, and Other
Non-Insurance Enterprises. The accounting policies of the segments are 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 three reportable segments.
 The Company has no reportable differences between segments and consolidated operations.
  8




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 Three Months Ended March 31, 2010Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    24,769
    
    
    
    10,421
    
    
    
    
    
    
    
    35,190Net investment income
    
    
    4,711
    
    
    
    3,532
    
    
    
    106
    
    
    
    8,349Realized gains (losses), net
    
    
    (29
    )
    
    
    133
    
    
    
    (45
    )
    
    
    59Increase in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    (114
    )
    
    
    (114
    )Other income
    
    
    277
    
    
    
    49
    
    
    
    22
    
    
    
    348Total revenue
    
    
    29,728
    
    
    
    14,135
    
    
    
    (31
    )
    
    
    43,832Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    9,779
    
    
    
    5,678
    
    
    
    
    
    
    
    15,457Increase in future policy benefit reserves
    
    
    8,662
    
    
    
    883
    
    
    
    
    
    
    
    9,545Policyholders dividends
    
    
    1,542
    
    
    
    28
    
    
    
    
    
    
    
    1,570Total insurance benefits paid or provided
    
    
    19,983
    
    
    
    6,589
    
    
    
    
    
    
    
    26,572Commissions
    
    
    4,505
    
    
    
    3,623
    
    
    
    
    
    
    
    8,128Other underwriting, acquisition and insurance
expenses
    
    
    3,097
    
    
    
    3,641
    
    
    
    235
    
    
    
    6,973Capitalization of deferred policy acquisition costs
    
    
    (3,687
    )
    
    
    (1,696
    )
    
    
    
    
    
    
    (5,383
    )Amortization of deferred policy acquisition costs
    
    
    3,882
    
    
    
    450
    
    
    
    
    
    
    
    4,332Amortization of cost of customer relationships
acquired and other intangibles
    
    
    330
    
    
    
    508
    
    
    
    
    
    
    
    838Total benefits and expenses
    
    
    28,110
    
    
    
    13,115
    
    
    
    235
    
    
    
    41,460Income (loss) before income tax expense
    
    $
    1,618
    
    
    
    1,020
    
    
    
    (266
    )
    
    
    2,372
  9




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 Three Months Ended March 31, 2009Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    
    Insurance
    
    
    Enterprises
    
    
    Consolidated(In thousands)Revenues:Premiums
    
    $
    24,055
    
    
    
    10,172
    
    
    
    
    
    
    
    34,227Net investment income
    
    
    4,257
    
    
    
    3,402
    
    
    
    83
    
    
    
    7,742Realized gains, net
    
    
    60
    
    
    
    241
    
    
    
    
    
    
    
    301Decrease in fair value of warrants
    
    
    
    
    
    
    
    
    
    
    2,105
    
    
    
    2,105Other income
    
    
    88
    
    
    
    18
    
    
    
    177
    
    
    
    283Total revenue
    
    
    28,460
    
    
    
    13,833
    
    
    
    2,365
    
    
    
    44,658Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    9,710
    
    
    
    5,097
    
    
    
    
    
    
    
    14,807Increase in future policy
benefit reserves
    
    
    7,290
    
    
    
    468
    
    
    
    
    
    
    
    7,758Policyholders dividends
    
    
    1,443
    
    
    
    19
    
    
    
    
    
    
    
    1,462Total insurance benefits paid or provided
    
    
    18,443
    
    
    
    5,584
    
    
    
    
    
    
    
    24,027Commissions
    
    
    4,457
    
    
    
    3,578
    
    
    
    
    
    
    
    8,035Other underwriting, acquisition and insurance
expenses
    
    
    2,603
    
    
    
    3,954
    
    
    
    752
    
    
    
    7,309Capitalization of deferred policy acquisition costs
    
    
    (3,757
    )
    
    
    (1,300
    )
    
    
    
    
    
    
    (5,057
    )Amortization of deferred policy acquisition costs
    
    
    3,352
    
    
    
    340
    
    
    
    
    
    
    
    3,692Amortization of cost of customer relationships
acquired and other intangibles
    
    
    268
    
    
    
    598
    
    
    
    
    
    
    
    866Total benefits and expenses
    
    
    25,366
    
    
    
    12,754
    
    
    
    752
    
    
    
    38,872Income before income tax expense
    
    $
    3,094
    
    
    
    1,079
    
    
    
    1,613
    
    
    
    5,786
 (4)
    
    Total Comprehensive Income (Loss)
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Net income
    
    $
    1,605
    
    
    
    4,377Other comprehensive income (loss) net of effects of
deferred acquisition costs and taxes:Unrealized gains (losses) on
available-for-sale securities
    
    
    6,451
    
    
    
    (5,847
    )Tax benefit (expense)
    
    
    (1,789
    )
    
    
    693Other comprehensive income (loss)
    
    
    4,662
    
    
    
    (5,154
    )Total comprehensive income (loss)
    
    $
    6,267
    
    
    
    (777
    )
  10




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 (5)
    
    Earnings per Share
 The following table sets forth the computation of basic and diluted earnings per share:
 Three Months Ended March 31,2010
    
    
    2009(In thousands, except per share amounts)Basic and diluted earnings per share:Numerator:Net income
    
    $
    1,605
    
    
    
    4,377Less: Preferred stock dividend
    
    
    
    
    
    
    (105
    )Accretion of deferred issuance costs and
discounts on preferred stock
    
    
    
    
    
    
    (1,073
    )Net income available to common stockholders
    
    $
    1,605
    
    
    
    3,199Net income allocated to Class A common stock
    
    $
    1,589
    
    
    
    3,165Net income allocated to Class B common stock
    
    
    16
    
    
    
    34Net income available to common stockholders
    
    $
    1,605
    
    
    
    3,199Denominator:Weighted average shares of Class A outstanding -
basic and diluted
    
    
    48,686
    
    
    
    46,112Weighted average shares of Class B outstanding -
basic and diluted
    
    
    1,002
    
    
    
    1,002Total weighted average shares outstanding -
basic and diluted
    
    
    49,688
    
    
    
    47,114Basic earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.07Basic earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.03Diluted earnings per share of Class A common stock
    
    $
    0.03
    
    
    
    0.03Diluted earnings per share of Class B common stock
    
    $
    0.02
    
    
    
    0.01
 For the three months ended March 31, 2010, the warrants associated with the Convertible
Preferred Stock portfolio were anti-dilutive. As such, the diluted weighted average shares
of Class A common stock outstanding for the period was 48,686,000.
 For the three months ended March 31, 2009, certain warrants in the Convertible Preferred
Stock portfolio became dilutive. As such, the weighted average shares of Class A common
stock for the period was 46,228,000. Total diluted weighted average shares was 47,230,000.
  11




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 (6)
    
    Investments
 Financial stability and the prevention of capital erosion are important investment
considerations for the Company. A primary investment goal is the conservation of assets due
to the long-term nature of a significant portion our liabilities. The Company invests
primarily in fixed maturity securities, which totaled 82.7% of total investments and cash and
cash equivalents at March 31, 2010.
 March 31, 2010
    
    

December 31, 2009Carrying
    
    
    % of Total
    
    
    Carrying
    
    
    % of TotalValue
    
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value(In thousands)
    
    
    
    
    
    
    (In thousands)Fixed maturity securities
    
    $
    607,268
    
    
    
    82.7
    %
    
    $
    592,488
    
    
    
    82.3
    %Equity securities
    
    
    34,721
    
    
    
    4.7
    
    
    
    33,477
    
    
    
    4.6Mortgage loans
    
    
    1,622
    
    
    
    0.2
    
    
    
    1,533
    
    
    
    0.2Policy loans
    
    
    33,082
    
    
    
    4.5
    
    
    
    32,096
    
    
    
    4.5Real estate and other long-term
investments
    
    
    9,212
    
    
    
    1.3
    
    
    
    9,216
    
    
    
    1.3Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    0.3Cash and cash equivalents
    
    
    48,023
    
    
    
    6.6
    
    
    
    48,625
    
    
    
    6.8Total cash, cash equivalents and
investments
    
    $
    733,928
    
    
    
    100.0
    %
    
    $
    719,945
    
    
    
    100.0
    %
 The following tables represent gross unrealized gains and losses for fixed maturity and
equity securities as of the periods indicated.
 March 31, 2010Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    Value(In thousands)Fixed Maturities Available-for-Sale:U.S. Treasury securities
    
    $
    11,096
    
    
    
    1,396
    
    
    
    
    
    
    
    12,492U.S. Government-sponsored enterprises
    
    
    187,012
    
    
    
    435
    
    
    
    (1,255
    )
    
    
    186,192States of the United States and political
subdivisions of the states
    
    
    59,165
    
    
    
    363
    
    
    
    (3,006
    )
    
    
    56,522Foreign governments
    
    
    105
    
    
    
    19
    
    
    
    
    
    
    
    124Corporate
    
    
    127,822
    
    
    
    4,483
    
    
    
    (1,412
    )
    
    
    130,893Securities not due at a single maturity date
    
    
    17,497
    
    
    
    654
    
    
    
    (44
    )
    
    
    18,107Total fixed maturities available-for-sale
    
    
    402,697
    
    
    
    7,350
    
    
    
    (5,717
    )
    
    
    404,330Fixed Maturities Held-to-Maturity:U.S. Government-sponsored enterprises
    
    
    202,938
    
    
    
    246
    
    
    
    (2,056
    )
    
    
    201,128Total Fixed Maturities
    
    $
    605,635
    
    
    
    7,596
    
    
    
    (7,773
    )
    
    
    605,458Total Equity Securities
    
    $
    25,868
    
    
    
    8,853
    
    
    
    
    
    
    
    34,721
  12




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 December 31, 2009Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    (Losses)
    
    
    Value(In thousands)Fixed Maturities Available-for-Sale:U.S. Treasury securities
    
    $
    11,110
    
    
    
    1,324
    
    
    
    
    
    
    
    12,434U.S. Government-sponsored enterprises
    
    
    184,797
    
    
    
    96
    
    
    
    (4,610
    )
    
    
    180,283States of the United States and political
subdivisions of the states
    
    
    60,070
    
    
    
    321
    
    
    
    (3,199
    )
    
    
    57,192Foreign governments
    
    
    105
    
    
    
    15
    
    
    
    
    
    
    
    120Corporate
    
    
    114,175
    
    
    
    3,726
    
    
    
    (1,803
    )
    
    
    116,098Securities not due at a single maturity date
    
    
    18,938
    
    
    
    556
    
    
    
    (42
    )
    
    
    19,452Total fixed maturities available-for-sale
    
    
    389,195
    
    
    
    6,038
    
    
    
    (9,654
    )
    
    
    385,579Fixed Maturities Held-to-Maturity:U.S. Government-sponsored enterprises
    
    
    206,909
    
    
    
    18
    
    
    
    (7,251
    )
    
    
    199,676Total Fixed Maturities
    
    $
    596,104
    
    
    
    6,056
    
    
    
    (16,905
    )
    
    
    585,25533477Total Equity Securities
    
    $
    25,899
    
    
    
    7,578
    
    
    
    
    
    
    
    33,477
 Valuation of Investments in Fixed Maturity and Equity Securities
 We evaluate the carrying value of our fixed maturity and equity securities at least
quarterly. The Company monitors all debt and equity 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 impairments have
occurred is based on a case-by-case evaluation of underlying reasons for the decline in fair
value. The Company determines other-than-temporary impairment by reviewing all 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 other-than-temporary impairment has occurred, the amount of the other-than-temporary
impairment 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 basis. If 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 basis, the
other-than-temporary impairment is recognized in earnings equal to the entire difference
between the investments cost and its fair value at the balance sheet date. If the Company
does not intend to sell the security and it is not more likely than not that the Company will
be required to sell the security before recovery of its amortized cost basis, the
other-than-temporary impairment 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
other-than-temporary impairment related to the credit loss is recognized in earnings. The
amount of the total other-than-temporary impairment related to other factors is recognized in
other comprehensive income, net of applicable taxes. The previous amortized cost basis less
the other-than-temporary impairment 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.
  13




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 The Company evaluates whether a credit impairment exists for debt 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 extent 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 that incorporates information received from third-party
sources along with certain internal assumptions and judgments regarding the future
performance of the security. 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.
 The primary factors considered in evaluating whether an impairment exists for an equity
security include, but are not limited to: (a) the length of time and the extent to which the
fair value has been less than the cost of the security, (b) changes in the financial
condition, credit rating and near-term prospects of the issuer, (c) whether the issuer is
current on contractually obligated payments, and (d) the intent and ability of the Company to
retain the investment for a period of time sufficient to allow for recovery.
 The Company did not recognize any other-than-temporary impairments (OTTI) during the
quarter ended March 31, 2010. OTTI items were recognized in the first quarter of 2009
relating to credit losses totaling $111,000.
 The tables below present the fair values and gross unrealized losses of fixed maturities that
have remained in a continuous unrealized loss position for the periods indicated.
 March 31, 2010Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    94,231
    
    
    
    (933
    )
    
    
    119
    
    
    
    17,020
    
    
    
    (322
    )
    
    
    18
    
    
    
    111,251
    
    
    
    (1,255
    )
    
    
    137Securities issued by states and
political subdivisions
    
    
    14,908
    
    
    
    (251
    )
    
    
    15
    
    
    
    14,062
    
    
    
    (2,755
    )
    
    
    14
    
    
    
    28,970
    
    
    
    (3,006
    )
    
    
    29Corporate
    
    
    34,672
    
    
    
    (582
    )
    
    
    34
    
    
    
    11,320
    
    
    
    (830
    )
    
    
    14
    
    
    
    45,992
    
    
    
    (1,412
    )
    
    
    48Securities not due at a single
maturity date
    
    
    1,324
    
    
    
    (8
    )
    
    
    2
    
    
    
    493
    
    
    
    (36
    )
    
    
    7
    
    
    
    1,817
    
    
    
    (44
    )
    
    
    9Total available-for-sale
    
    
    145,135
    
    
    
    (1,774
    )
    
    
    170
    
    
    
    42,895
    
    
    
    (3,943
    )
    
    
    53
    
    
    
    188,030
    
    
    
    (5,717
    )
    
    
    223Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    98,356
    
    
    
    (2,056
    )
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,356
    
    
    
    (2,056
    )
    
    
    41Total fixed maturities
    
    $
    243,491
    
    
    
    (3,830
    )
    
    
    211
    
    
    
    42,895
    
    
    
    (3,943
    )
    
    
    53
    
    
    
    286,386
    
    
    
    (7,773
    )
    
    
    264
  14




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 December 31, 2009Less than 12 months
    
    
    Greater than 12 months
    
    
    TotalFair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # of
    
    
    Fair
    
    
    Unrealized
    
    
    # ofValue
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities
    
    
    Value
    
    
    Losses
    
    
    Securities(In thousands, except for # of securities)Available-for-sale securities:U.S. Government-sponsored
enterprises
    
    $
    169,514
    
    
    
    (4,610
    )
    
    
    213
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,514
    
    
    
    (4,610
    )
    
    
    213Securities issued by states and
political subdivisions
    
    
    19,055
    
    
    
    (343
    )
    
    
    19
    
    
    
    14,995
    
    
    
    (2,856
    )
    
    
    15
    
    
    
    34,050
    
    
    
    (3,199
    )
    
    
    34Corporate
    
    
    36,342
    
    
    
    (541
    )
    
    
    21
    
    
    
    12,857
    
    
    
    (1,261
    )
    
    
    12
    
    
    
    49,199
    
    
    
    (1,802
    )
    
    
    33Securities not due at a single
maturity date
    
    
    179
    
    
    
    (1
    )
    
    
    1
    
    
    
    637
    
    
    
    (42
    )
    
    
    8
    
    
    
    816
    
    
    
    (43
    )
    
    
    9Total available-for-sale
    
    
    225,090
    
    
    
    (5,495
    )
    
    
    254
    
    
    
    28,489
    
    
    
    (4,159
    )
    
    
    35
    
    
    
    253,579
    
    
    
    (9,654
    )
    
    
    289Held-to-maturity securities:U.S. Government-sponsored
enterprises
    
    
    185,659
    
    
    
    (7,251
    )
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,659
    
    
    
    (7,251
    )
    
    
    81Total fixed maturities
    
    $
    410,749
    
    
    
    (12,746
    )
    
    
    335
    
    
    
    28,489
    
    
    
    (4,159
    )
    
    
    35
    
    
    
    439,238
    
    
    
    (16,905
    )
    
    
    370
 As of March 31, 2010, the Company had 53 available-for-sale securities in an unrealized
loss position for greater than 12 months, which were primarily municipal, corporate and
mortgage-backed securities. The Company has reviewed these securities and determined that no
other-than-temporary impairment exists, based on our evaluations of the credit worthiness of
the issuers and due to the fact that we do not intend to sell the investment, nor is it
likely that we would be required to sell these investments before recovery of their amortized
cost bases, which may be maturity.
 The amortized cost and fair value of fixed maturity securities at March 31, 2010 by
contractual maturity are shown 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.
 March 31, 2010Amortized
    
    
    FairCost
    
    
    Value(In thousands)Available-for-sale securities:Due in one year or less
    
    $
    15,852
    
    
    
    16,109Due after one year through five years
    
    
    34,272
    
    
    
    35,411Due after five years through ten years
    
    
    50,330
    
    
    
    51,115Due after ten years
    
    
    284,746
    
    
    
    283,588Total available-for-sale securities
    
    
    385,200
    
    
    
    386,223Held-to-maturity securities:Due after ten years
    
    
    202,938
    
    
    
    201,128Securities not due at a single maturity date
    
    
    17,497
    
    
    
    18,107Total fixed maturities
    
    $
    605,635
    
    
    
    605,458
  15




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 The securities not due at a single maturity date are primarily mortgage-backed obligations of
U.S. Government-sponsored enterprises and corporate securities.
 The Company uses the specific identification method related to security sales. There were no
securities sold from the held-to-maturity portfolio during the three months ended March 31,
2010. Proceeds and gross realized gains from sales of securities for the three months ended
March 31, 2010 and 2009 are summarized as follows:
 Fixed MaturitiesAvailable-for-Sale
    
    
    Equity SecuritiesThree Months Ended
    
    
    Three Months EndedMarch 31,
    
    
    March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009(In thousands)
    
    
    (In thousands)Proceeds
    
    $
    2,126
    
    
    
    8,040
    
    
    $
    104
    
    
    
    663Gross realized gains
    
    $
    127
    
    
    
    301
    
    
    $
    25
    
    
    
    182
 No securities were sold for realized losses for the periods reported.
 (7)
    
    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 fixed maturity and equity securities, which are carried at fair value.
 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 stock and mutual fund
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 fixed maturity 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. This category consists of two
private placement mortgage-backed securities where we cannot corroborate the significant
valuation inputs with market observable data.
  16




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 The following table sets forth our assets that are measured at fair value on a recurring
basis as of the date indicated:
 Fair Value MeasurementsMarch 31, 2010TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Financial assets:Fixed maturities available-for-sale:U.S. Treasury and U.S. Government-sponsored enterprises
    
    $
    12,492
    
    
    
    186,192
    
    
    
    
    
    
    
    198,684Corporate
    
    
    
    
    
    
    130,331
    
    
    
    562
    
    
    
    130,893Municipal bonds
    
    
    
    
    
    
    56,522
    
    
    
    
    
    
    
    56,522Mortgage-backed
    
    
    
    
    
    
    18,107
    
    
    
    
    
    
    
    18,107Foreign governments
    
    
    
    
    
    
    124
    
    
    
    
    
    
    
    124Total fixed maturities, available-for-sale
    
    
    12,492
    
    
    
    391,276
    
    
    
    562
    
    
    
    404,330Total equity securities, available-for-sale
    
    
    34,721
    
    
    
    
    
    
    
    
    
    
    
    34,721Total financial assets
    
    $
    47,213
    
    
    
    391,276
    
    
    
    562
    
    
    
    439,051Financial liabilities:Warrants outstanding
    
    $
    
    
    
    
    1,933
    
    
    
    
    
    
    
    1,933
 December 31, 2009TotalLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Fair Value(In thousands)Financial assets:Fixed maturities available-for-sale:U.S. Treasury and U.S. Government-sponsored enterprises
    
    $
    12,434
    
    
    
    180,283
    
    
    
    
    
    
    
    192,717Corporate
    
    
    
    
    
    
    18,875
    
    
    
    577
    
    
    
    19,452Municipal bonds
    
    
    
    
    
    
    116,098
    
    
    
    
    
    
    
    116,098Mortgage-backed
    
    
    
    
    
    
    57,192
    
    
    
    
    
    
    
    57,192Foreign governments
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    120Total fixed maturities, available-for-sale
    
    
    12,434
    
    
    
    372,568
    
    
    
    577
    
    
    
    385,579Total equity securities, available-for-sale
    
    
    33,477
    
    
    
    
    
    
    
    
    
    
    
    33,477Total financial assets
    
    $
    45,911
    
    
    
    372,568
    
    
    
    577
    
    
    
    419,056Financial liabilities:Warrants outstanding
    
    $
    
    
    
    
    1,819
    
    
    
    
    
    
    
    1,819
 Financial Instruments Valuation
 Fixed maturity securities, available-for-sale. At March 31, 2010, the fixed maturities valued
using an independent pricing source totaled $391.3 million for Level 2 assets and comprised
96.8% of total reported fair value. Fair values for Level 3 assets are based upon unadjusted
broker quotes that are non-binding. The valuations are reviewed and validated quarterly
through random testing by comparisons to independent pricing models, other third party
pricing services, and back tested to recent trades. For the three months ended March 31,
2010, there were no material changes to the valuation methods or assumptions used to
determine fair values, and no broker or third party prices were changed from the values
received.
  17




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 Equity securities, available-for-sale. Fair values of these securities are based upon quoted
market price and are classified as Level 1 assets.
 Short-term investments. The fair values for short-term investments are determined using an
independent pricing source. These assets are classified as Level 2.
 Warrants outstanding.Fair value of our warrants are based upon industry standard models that
consider various observable inputs and are classified as Level 2.
 The following table presents additional information about fixed maturity securities measured
at fair value on a recurring basis and for which we have utilized significant unobservable
(Level 3) inputs to determine fair value:
 March 31, 2010(In thousands)Beginning balance at December 31, 2009
    
    $
    577Total realized and unrealized losses:Included in net income
    
    
    Included in other comprehensive income
    
    
    (1
    )Principal paydowns
    
    
    (14
    )Transfer in and (out) of Level 3
    
    
    Ending balance at March 31, 2010
    
    $
    562
 We review the fair value hierarchy classifications each reporting period. Changes in the
observability of the valuation attributes may result in a reclassification of certain
financial assets. Such reclassifications are reported as transfers in and out of Level 3 at
the beginning fair value for the reporting period in which the changes occur.
 Financial Instruments not Carried at Fair Value
 Estimates of fair values are made at a specific point in time, based on relevant market
prices and information about the financial instruments. The estimated fair values of
financial instruments presented below are not necessarily indicative of the amounts the
Company might realize in actual market transactions. The carrying amount and fair value for
the financial assets and liabilities on the consolidated balance sheets for the periods
indicated are as follows:
 March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    Fair
    
    
    Carrying
    
    
    FairValue
    
    
    Value
    
    
    Value
    
    
    Value(In thousands)Financial assets:Fixed maturities, held-to-maturity
    
    $
    202,938
    
    
    
    201,128
    
    
    
    206,909
    
    
    
    199,676Mortgage loans
    
    
    1,622
    
    
    
    1,577
    
    
    
    1,533
    
    
    
    1,484Policy loans
    
    
    33,082
    
    
    
    33,082
    
    
    
    32,096
    
    
    
    32,096Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    2,512Cash and cash equivalents
    
    
    48,023
    
    
    
    48,023
    
    
    
    48,625
    
    
    
    48,625Financial liabilities:Annuities
    
    
    38,698
    
    
    
    34,345
    
    
    
    37,882
    
    
    
    33,980
  18




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 Fair values for fixed income securities are based on quoted market prices. In
cases where quoted market prices are not available, fair values are based on estimates using
present value or other assumptions, including the discount rate and estimates of future cash
flows.
 Mortgage loans are secured principally by residential properties and commercial properties.
Weighted average interest rates for these loans were approximately 6.7% per year as of
March 31, 2010 and December 31, 2009, with maturities ranging from one to thirty years.
Management estimated the fair value using an annual interest rate of 6.25% at March 31,
2010 and December 31, 2009.
 Policy loans have a weighted average annual interest rate of 7.6% as of March 31, 2010 and
December 31, 2009, and have no specified maturity dates. The aggregate fair value of
policy loans approximates the carrying value reflected on the consolidated balance sheet.
These loans typically carry an interest rate that is tied to the crediting rate applied
to the related policy and contract reserves. Policy loans are an integral part of the
life insurance policies that we have in force and cannot be valued separately and are not
marketable; therefore, a fair value is not calculated.
 For cash and cash equivalents, accrued investment income, reinsurance recoverable, other
assets, Federal income tax payable and receivable, dividend accumulations, commissions
payable, amounts held on deposit, and other liabilities, the carrying amounts approximate
fair value because of the short maturity of such financial instruments.
 The fair value of the Companys liabilities under annuity contract policies were estimated at
March 31, 2010 using December 31, 2009 discounted cash flows using a risk free rate plus a
component for non-performance risk and interest rate risk. The fair value of liabilities
under all insurance contracts are taken into consideration in the overall management of
interest rate risk, which seeks to minimize exposure to changing interest rates through the
matching of investment maturities with amounts due under insurance contracts.
 (8)
    
    Legal Proceedings
 We are a defendant in a lawsuit filed on August 6, 1999 in the Texas District Court, Austin,
Texas, now styled Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley and
Mark A. Oliver, Petitioners v. Fernando Hakim Daccach, Respondent, in which a class was
originally certified by the trial court and reversed by the Texas Supreme Court in 2007 with
an order to the trial court to conduct further proceedings consistent with its ruling. The
underlying lawsuit
alleged that certain life insurance policies CICA made available to non-U.S. residents, when
combined with a policy feature that allowed certain cash benefits to be assigned to two
non-U.S. trusts for the purpose of accumulating ownership of our Class A common stock, along
with allowing the policyholders to make additional contributions to the trusts, were actually
offers and sales of securities that occurred in Texas by unregistered dealers in violation of
the Texas securities laws. The remedy sought was rescission and return of the insurance
premium payments. On December 9, 2009, the trial court denied the recertification of the
class after conducting additional proceedings in accordance with the Texas Supreme Courts
ruling. The remaining plaintiffs must now proceed individually, and not as a class, if they
intend to pursue their cases against us. We intend to maintain a vigorous defense in any
remaining proceedings.
 In addition to the legal proceeding described above, we may from time to time be subject to a
variety of legal and regulatory actions relating to our future, current and past business
operations, including, but not limited to:
 
    
    disputes over insurance coverage or claims adjudication;
 
    
    regulatory compliance with insurance and securities laws in the United States and
in foreign countries;
 
    
    disputes with our marketing firms, consultants and employee agents over
compensation and termination of
 contracts and related claims;
 
    
    disputes regarding our tax liabilities;
 
    
    disputes relative to reinsurance and coinsurance agreements; and
 
    
    disputes relating to businesses acquired and operated by us.
  19




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
March 31, 2010
(Unaudited)
 In the absence of countervailing considerations, we would expect to defend any such claims
vigorously. However, in doing so, we could incur significant defense costs, including not
only attorneys fees and other direct litigation costs, but also the expenditure of
substantial amounts of management time that otherwise would be devoted to our business. If we
suffer an adverse judgment as a result of any claim, it could have a material adverse effect
on our business, results of operations and financial condition.
 (9)
    
    Convertible Preferred Stock
 In July 2004, the Company completed a private placement of Series A-1 Convertible Preferred
Stock (Series A-1 Preferred) to four unaffiliated institutional investors. We also issued
to the investors warrants to purchase shares of our Class A common stock, at an exercise
price of $6.95 per share, and unit warrants to purchase Series A-2 Convertible Preferred
Stock (Series A-2 Preferred). The conversion, exercise and redemption prices, along with
the number of shares and warrants, were adjusted for stock dividends paid on December 31,
2004 and 2005.
 On July 13, 2009, the Company converted all of its outstanding Series A-1 and Series A-2
Convertible Preferred Stock into Class A common shares in accordance with the mandatory
redemption provision of the preferred shareholder agreement dated July 12, 2004. The total
amount of Class A common shares issued as part of the conversion was 1,706,682, inclusive of
pro rata dividends due through the conversion date. Warrants are still outstanding until July
2011 and 2012.
 (10)
    
    Income Taxes
 The effective tax rate was 32% and 24% for the first quarter of 2010 and 2009, respectively.
The 2009 rate was lower, primarily due to a gain on the change in fair value of outstanding
warrants for purchase of Class A common stock of $2.1 million that was not taxable. The
Company reduced the valuation allowance on deferred tax assets related to unrealized losses
on equity securities in the first quarter of 2010 by $468,000, which was reflected in other
comprehensive income.
 The Company recognized an additional valuation allowance of $1,799,000 in the first quarter
of 2009 due to deferred tax assets generated by other-than-temporary impairments on
investment securities recorded in the quarter and additional unrealized losses occurring on
the equity portfolio in 2009. Of this amount, $135,000 was recorded as tax expense,
$1,410,000 was recorded in other comprehensive loss, and $254,000 was additional goodwill
from the 2008 acquisition of ONLIC.
  20




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FORWARD-LOOKING STATEMENTS
 Certain statements contained in this Quarterly Report on Form 10-Q are not statements of historical
fact and constitute forward-looking statements within the meaning of the Private Securities
Litigation Reform Act (the  Act  ), including, without limitation, statements specifically
identified as forward-looking statements within this document. Many of these statements contain
risk factors as well. In addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, in press releases, and in oral and written statements made by
us or with the approval of the Company, which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of forward-looking statements,
include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or non-payment of dividends, capital structure, and other financial items, (ii)
statements of our plans and objectives by our management or Board of Directors including those
relating to products or services, (iii) statements of future economic performance and (iv)
statements of assumptions underlying such statements. Words such as  believes,   anticipates,  assumes, estimates, plans, projects, could,  expects,   intends,   targeted,  may,  will  and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements.
 Forward-looking statements are subject to known and unknown risks, uncertainties and other factors
that may cause actual results to differ materially from those contemplated by the forward-looking
statements. Factors that could cause the Companys future results to differ materially from
expected results include, but are not limited to:
 
    
    Changes in foreign and U.S. general economic, market, and political conditions,
including the performance of financial markets and interest rates, particularly in light of
the severe economic conditions and the severe stress experienced by the global financial
markets in recent years;
 
    
    Changes in consumer behavior, which may affect the Companys ability to sell its
products and retain business;
 
    
    The timely development of and acceptance of new products of the Company and perceived
overall value of these products and services by existing potential customers;
 
    
    Fluctuations in experience regarding current mortality, morbidity, persistency and
interest rates relative to expected amounts used in pricing the Companys products;
 
    
    Results of litigation we may be involved in;
 
    
    Changes in assumptions related to deferred acquisition costs and the value of any
businesses we may acquire;
 
    
    Regulatory, accounting or tax changes that may affect the cost of, or the demand for,
the Companys products or services;
 
    
    Our concentration of business from persons residing in Latin America and the Pacific Rim;
 
    
    Our success at managing risks involved in the foregoing;
 
    
    Changes in tax laws;
    
    Effects of acquisitions and restructuring, including possible difficulties in
integrating and realizing the projected results of acquisitions; and
 
    
    Changes in statutory or U.S. GAAP accounting principles, policies or practices.
 Such forward-looking statements speak only as of the date on which such statements are made, and
the Company undertakes no obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made to reflect the occurrence of
unanticipated events.
 We make available, free of charge, through our Internet website (http://www.citizensinc.com), our
Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, Section 16
reports filed by officers and directors, news releases, and, if applicable, amendments to those
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after we electronically file such reports with, or furnish
such reports to, the Securities and Exchange Commission. We are not including any of the
information contained on our website as part of, or incorporating it by reference into, this
Quarterly Report on Form 10-Q.
  21




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Overview
  
    
    U.S. Dollar-denominated ordinary whole life insurance and endowment policies
predominantly to high net worth, high income foreign residents, located principally in
Latin America and the Pacific Rim, through independent marketing consultants;
 
    
    ordinary whole life insurance policies to middle income households in the midwest and
the southern United States through independent marketing consultants; and
 
    
    final expense and limited liability property policies to middle and lower income
households in Louisiana, Mississippi and Arkansas through employee and independent agents
in our home service distribution channel.
 Life Insurance
  Home Service Insurance
 Recent Acquisitions
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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Consolidated Results of Operations
 Note: All discussion below compares or states 2010 results for the first quarter compared to 2009
results.
 Revenues
  Three Months Ended March 31,2010
    
    
    2009(In thousands)Revenues:Premiums:Life insurance
    
    $
    33,596
    
    
    
    32,683Accident and health insurance
    
    
    414
    
    
    
    396Property insurance
    
    
    1,180
    
    
    
    1,148Net investment income
    
    
    8,349
    
    
    
    7,742Realized gains, net
    
    
    59
    
    
    
    301Decrease (increase) in fair value of warrants
    
    
    (114
    )
    
    
    2,105Other income
    
    
    348
    
    
    
    283Total revenues
    
    
    43,832
    
    
    
    44,658Exclude increase (decrease) in fair value
of warrants
    
    
    114
    
    
    
    (2,105
    )Total revenues excluding fair value adjustments
    
    $
    43,946
    
    
    
    42,553
 Premium Income
 Net Investment Income
  23




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Gross investment income:Debt securities
    
    $
    7,386
    
    
    
    6,517Equity securities
    
    
    149
    
    
    
    269Mortgage loans
    
    
    18
    
    
    
    6Policy loans
    
    
    656
    
    
    
    585Other investment income
    
    
    490
    
    
    
    752Total investment income
    
    
    8,699
    
    
    
    8,129Less investment expenses
    
    
    350
    
    
    
    387Net investment income
    
    $
    8,349
    
    
    
    7,742
   Realized Gains, Net
 Change in Fair Value of Warrants
  24




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Benefits and Expenses
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    $
    15,457
    
    
    
    14,807Increase in future policy benefit reserves
    
    
    9,545
    
    
    
    7,758Policyholders dividends
    
    
    1,570
    
    
    
    1,462Total insurance benefits paid or provided
    
    
    26,572
    
    
    
    24,027Commissions
    
    
    8,128
    
    
    
    8,035Other underwriting, acquisition and insurance expenses
    
    
    6,973
    
    
    
    7,309Capitalization of deferred policy acquisition costs
    
    
    (5,383
    )
    
    
    (5,057
    )Amortization of deferred policy acquisition costs
    
    
    4,332
    
    
    
    3,692Amortization of cost of customer relationships
acquired and other intangibles
    
    
    838
    
    
    
    866Total benefits and expenses
    
    $
    41,460
    
    
    
    38,872
 Claims and Surrenders
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Death claims
    
    $
    6,135
    
    
    
    6,135Surrender benefits
    
    
    4,894
    
    
    
    4,473Endowments
    
    
    3,291
    
    
    
    3,024Property claims
    
    
    564
    
    
    
    497Accident and health benefits
    
    
    140
    
    
    
    140Other policy benefits
    
    
    433
    
    
    
    538Total claims and surrenders
    
    $
    15,457
    
    
    
    14,807
   Policyholder Dividends
 Commissions
 Other Underwriting, Acquisition and Insurance Expenses
  25




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Federal Income Tax
 Segment Operations
  Home
    
    
    OtherLife
    
    
    Service
    
    
    Non-InsuranceInsurance
    
    

Insurance
    
    
    Enterprises
    
    
    Total(In thousands)Income (loss) before income tax expenseMarch 31, 2010
    
    $
    1,618
    
    
    
    1,020
    
    
    
    (266
    )
    
    
    2,372March 31, 2009
    
    
    3,094
    
    
    
    1,079
    
    
    
    1,613
    
    
    
    5,786
 Life Insurance
  Three Months Ended March 31,2010
    
    
    2009(In thousands)Revenue:Premiums
    
    $
    24,769
    
    
    
    24,055Net investment income
    
    
    4,711
    
    
    
    4,257Realized gains (losses), net
    
    
    (29
    )
    
    
    60Other income
    
    
    277
    
    
    
    88Total revenue
    
    
    29,728
    
    
    
    28,460Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    9,779
    
    
    
    9,710Increase in future policy benefit reserves
    
    
    8,662
    
    
    
    7,290Policyholders dividends
    
    
    1,542
    
    
    
    1,443Total insurance benefits paid or provided
    
    
    19,983
    
    
    
    18,443Commissions
    
    
    4,505
    
    
    
    4,457Other underwriting, acquisition and insurance expenses
expenses
    
    
    3,097
    
    
    
    2,603Capitalization of deferred policy acquisition costs
    
    
    (3,687
    )
    
    
    (3,757
    )Amortization of deferred policy acquisition costs
    
    
    3,882
    
    
    
    3,352Amortization of cost of customer relationships
acquired and other intangibles
    
    
    330
    
    
    
    268Total benefits and expenses
    
    
    28,110
    
    
    
    25,366Income before income tax expense
    
    $
    1,618
    
    
    
    3,094
  26




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Premiums
  Three Months Ended March 31,2010
    
    
    2009(In thousands)Premiums:First year
    
    $
    3,212
    
    
    
    3,117Renewal
    
    
    21,557
    
    
    
    20,938Total premiums
    
    $
    24,769
    
    
    
    24,055
 Net Investment Income
 Claims and Surrenders
 Three Months Ended March 31,2010
    
    
    2009(In thousands)Death claims
    
    $
    1,743
    
    
    
    2,154Surrender benefits
    
    
    4,363
    
    
    
    4,061Endowment benefits
    
    
    3,284
    
    
    
    3,020Accident and health benefits
    
    
    74
    
    
    
    81Other policy benefits
    
    
    315
    
    
    
    394Total claims and surrenders
    
    $
    9,779
    
    
    
    9,710
   Commissions
  27




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Home Service Insurance
  Three Months Ended March 31,2010
    
    
    2009(In thousands)Revenue:Premiums
    
    $
    10,421
    
    
    
    10,172Net investment income
    
    
    3,532
    
    
    
    3,402Realized gains, net
    
    
    133
    
    
    
    241Other income
    
    
    49
    
    
    
    18Total revenue
    
    
    14,135
    
    
    
    13,833Benefits and expenses:Insurance benefits paid or provided:Claims and surrenders
    
    
    5,678
    
    
    
    5,097Increase in future policy benefit reserves
    
    
    883
    
    
    
    468Policyholders dividends
    
    
    28
    
    
    
    19Total insurance benefits paid or provided
    
    
    6,589
    
    
    
    5,584Commissions
    
    
    3,623
    
    
    
    3,578Other underwriting, acquisition and insurance
expenses
    
    
    3,641
    
    
    
    3,954Capitalization of deferred policy acquisition costs
    
    
    (1,696
    )
    
    
    (1,300
    )Amortization of deferred policy acquisition costs
    
    
    450
    
    
    
    340Amortization of cost of customer relationship
acquired and other intangibles
    
    
    508
    
    
    
    598Total benefits and expenses
    
    
    13,115
    
    
    
    12,754Income before income tax expense
    
    $
    1,020
    
    
    
    1,079
 Premiums
 Net Investment Income
 Realized Gains, Net
  28




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Claims and Surrenders
 For the Three Months
Ended March 31,2009
    
    
    2008(In thousands)Death claims
    
    $
    4,392
    
    
    
    3,981Surrender benefits
    
    
    531
    
    
    
    412Endowment benefits
    
    
    7
    
    
    
    4Property claims
    
    
    564
    
    
    
    497Accident and health benefits
    
    
    66
    
    
    
    59Other policy benefits
    
    
    118
    
    
    
    144Total claims and surrenders
    
    $
    5,678
    
    
    
    5,097
 Other Underwriting, Acquisition and Insurance Expenses
 Other Non-Insurance Enterprises
  Investments
   29




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
  March 31, 2010
    
    
    December 31, 2009Carrying
    
    
    % of Total
    
    
    Carrying
    
    
    % of TotalValue
    
    
    Carrying Value
    
    
    Value
    
    
    Carrying Value(In thousands)
    
    
    
    
    
    
    (In thousands)Fixed maturity securities:U.S. Treasury and U.S. Government-sponsored enterprises
    
    $
    401,622
    
    
    
    54.7
    %
    
    $
    399,626
    
    
    
    55.6
    %Corporate
    
    
    130,893
    
    
    
    17.8
    
    
    
    116,098
    
    
    
    16.1Municipal bonds
    
    
    56,522
    
    
    
    7.7
    
    
    
    57,192
    
    
    
    7.9Mortgage-backed (1)
    
    
    18,107
    
    
    
    2.5
    
    
    
    19,452
    
    
    
    2.7Foreign governments
    
    
    124
    
    
    
    
    
    
    
    120
    
    
    
    Total fixed maturity securities
    
    
    607,268
    
    
    
    82.7
    
    
    
    592,488
    
    
    
    82.3Cash and cash equivalents
    
    
    48,023
    
    
    
    6.6
    
    
    
    48,625
    
    
    
    6.8Short-term investments
    
    
    
    
    
    
    
    
    
    
    2,510
    
    
    
    0.3Policy loans
    
    
    33,082
    
    
    
    4.5
    
    
    
    32,096
    
    
    
    4.5Equity securities
    
    
    34,721
    
    
    
    4.8
    
    
    
    33,477
    
    
    
    4.6Mortgage loans
    
    
    1,622
    
    
    
    0.2
    
    
    
    1,533
    
    
    
    0.2Real estate and other long-term investments
    
    
    9,212
    
    
    
    1.2
    
    
    
    9,216
    
    
    
    1.3Total cash, cash equivalents and investments
    
    $
    733,928
    
    
    
    100.0
    %
    
    $
    719,945
    
    
    
    100.0
    %
 (1)
    
    Includes $15.5 million and $16.2 million of U.S. Government-sponsored enterprises at March 31,
2010 and December 31, 2009, respectively.    March 31, 2010
    
    
    December 31, 2009Carrying Value
    
    
    %
    
    
    Carrying Value
    
    
    %(In thousands)
    
    
    
    
    
    
    (In thousands)AAA and U.S. Government
    
    $
    442,450
    
    
    
    72.9
    %
    
    $
    442,160
    
    
    
    74.6
    %AA
    
    
    25,471
    
    
    
    4.2
    
    
    
    26,613
    
    
    
    4.5A
    
    
    71,679
    
    
    
    11.8
    
    
    
    69,934
    
    
    
    11.8BBB
    
    
    58,719
    
    
    
    9.7
    
    
    
    48,311
    
    
    
    8.2BB and other
    
    
    8,949
    
    
    
    1.4
    
    
    
    5,470
    
    
    
    0.9Totals
    
    $
    607,268
    
    
    
    100.0
    %
    
    $
    592,488
    
    
    
    100.0
    %
  30




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
  Valuation of Investments
    Liquidity and Capital Resources
      31




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
  Contractual obligations and off-balance sheet arrangements.
  Parent Company Liquidity and Capital Resources
  Critical Accounting Policies
  Policy Liabilities
   32




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
  Deferred Policy Acquisition Costs
     Cost of Customer Relationships Acquired
    33




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Goodwill
    Valuation of Investments in Fixed Maturity and Equity Securities
      34




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
  Premium Revenue and Related Expenses
   Tax Accounting
  
 Item 3 . QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 General
  Market Risk Related to Interest Rates
   35




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 March 31, 2010
    
    
    December 31, 2009Net
    
    
    
    
    
    
    
    
    
    
    NetUnrealized
    
    
    
    
    
    
    
    
    
    
    UnrealizedAmortized
    
    
    Fair
    
    
    Gains
    
    
    Amortized
    
    
    Fair
    
    
    GainsCost
    
    
    Value
    
    
    (Losses)
    
    
    Cost
    
    
    Value
    
    
    (Losses)(In thousands)Fixed maturities,
available-for-sale
    
    $
    402,697
    
    
    
    404,330
    
    
    
    1,633
    
    
    
    389,195
    
    
    
    385,579
    
    
    
    (3,616
    )Fixed maturities,
held-to-maturity
    
    
    202,938
    
    
    
    201,128
    
    
    
    (1,810
    )
    
    
    206,909
    
    
    
    199,676
    
    
    
    (7,233
    )Total fixed maturities
    
    $
    605,635
    
    
    
    605,458
    
    
    
    (177
    )
    
    
    596,104
    
    
    
    585,255
    
    
    
    (10,849
    )Total equity securities
    
    $
    25,868
    
    
    
    34,721
    
    
    
    8,853
    
    
    
    25,899
    
    
    
    33,477
    
    
    
    7,578
    Market Risk Related to Equity Prices
  
 Item 4 . CONTROLS AND PROCEDURES
    36




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
  
 PART II. OTHER INFORMATION
 
 Item 1 . LEGAL PROCEEDINGS
 Citizens Insurance Company of America, Citizens, Inc., Harold E. Riley and Mark A.
Oliver, Petitioners v. Fernando Hakim Daccach Respondent
  
    
    disputes over insurance coverage or claims adjudication;
    
    regulatory compliance with insurance and securities laws in the United States and in
foreign countries;
    
    disputes with our marketing firms, consultants and employee agents over compensation
and termination of contracts and related claims;
    
    disputes regarding our tax liabilities;
    
    disputes relative to reinsurance and coinsurance agreements; and
    
    disputes relating to businesses acquired and operated by us.
  
 Item 1A . RISK FACTORS
  Control of our Company, through the ownership of our Class B Common Stock, may one day be held by a
501(c)(3) charitable foundation and we cannot determine whether any change in our management or
operations will occur as a result of the ownership change.
   37




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 
 Item 2 . UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 None.
 
 Item 3 . DEFAULTS UPON SENIOR SECURITIES
  
 Item 4 . (RESERVED)
 
 Item 5 . OTHER INFORMATION
 None.
 
 Item 6 . EXHIBITS
 Exhibit Number
    
    The following exhibits are filed herewith:3.1
    
    
    Restated and Amended Articles of Incorporation (a)3.2
    
    
    Bylaws (b)4.1
    
    
    Amendment to State Series A-1 and A-2 Senior Convertible Preferred Stock (c)10.1
    
    
    Self-Administered Automatic Reinsurance Agreement  Citizens Insurance Company of America and
Riunione Adriatica di Sicurta, S.p.A. (d)10.2
    
    
    Bulk Accidental Death Benefit Reinsurance Agreement between Connecticut General Life
Insurance Company and Citizens Insurance Company of America, as amended (e)10.3
    
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Citizens Insurance Company of America and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Citizens Insurance Company of America, Texas International Life Insurance Company and
Wells Fargo Bank, N.A. (f)10.4
    
    
    Coinsurance Reinsurance Agreement, Assumption Reinsurance Agreement, Administrative Services
Agreement dated March 9, 2004, between Combined Underwriters Life Insurance Company and Texas
International Life Insurance Company, Reinsurance Trust Agreement dated March 9, 2004, by and
among Combined Underwriters Life Insurance Company, Texas International Life Insurance Company
and Wells Fargo Bank, N.A. (g)10.5
    (a)
    
    Securities Purchase Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5
    (b)
    
    Registration Rights Agreement dated July 12, 2004 among Citizens, Inc., Mainfield
Enterprises, Inc., Steelhead Investments Ltd., Portside Growth and Opportunity Fund, and
Smithfield Fiduciary LLC (h)10.5
    (c)
    
    Unit Warrant dated July 12, 2004, to Mainfield Enterprises, Inc. (h)10.5
    (d)
    
    Unit Warrant dated July 12, 2004, to Steelhead Investments Ltd. (h)
  38




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##### Table of Contents



CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 Exhibit Number
    
    The following exhibits are filed herewith:
    10.5
    (e)
    
    Unit Warrant dated July 12, 2004, to Portside Growth and Opportunity Fund (h)

10.5
    (f)
    
    Unit Warrant dated July 12, 2004, to Smithfield Fiduciary LLC (h)10.5
    (g)
    
    Warrant to Purchase Class A Common Stock to Mainfield Enterprises, Inc. (h)10.5
    (h)
    
    Warrant to Purchase Class A Common Stock to Steelhead Investments Ltd. (h)10.5
    (i)
    
    Warrant to Purchase Class A Common Stock to Portside Growth and Opportunity Fund (h)10.5
    (j)
    
    Warrant to Purchase Class A Common Stock to Smithfield Fiduciary LLC (h)10.5
    (k)
    
    Subordination Agreement among Regions Bank, the Purchasers and Citizens, Inc. dated July 12, 2004 (h)10.5
    (l)
    
    Non-Exclusive Finders Agreement dated September 29, 2003, between Citizens, Inc. and the
Shemano Group, Inc. (h)10.6
    
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Converium Reinsurance (Germany) Ltd. (i)10.7
    
    
    Self-Administered Automatic Reinsurance Agreement between Citizens Insurance Company of
America and Scottish Re Worldwide (England) (j)10.8
    
    
    Self-Administered Automatic Reinsurance Agreement  CICA Life Insurance Company of America
and Scor Global Life U.S. Re Insurance Company (k)10.9
    
    
    Self-Administered Automatic Reinsurance Agreement  CICA Life Insurance Company of America
and Mapfre Re Compania de Reaseguros, S.A. (l)11
    
    
    Statement re: Computation of per share earnings (see financial statements)21
    
    
    Subsidiaries of the Registrant*31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act*31.2
    
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act*32.1
    
    
    Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*32.2
    
    
    Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act*
 
 *
    
    Filed herewith.(a)
    
    Filed on March 15, 2004 with the Registrants Annual Report on Form 10-K for the
Year Ended December 31, 2003 as Exhibit 3.1, and incorporated herein by reference.(b)
    
    Filed on March 31, 1999 with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 1998, as Exhibit 3.2, and incorporated herein by reference.(c)
    
    Filed on July 15, 2004, with the Registrants Current Report on Form 8-K as Exhibit 4.1, and
incorporated herein by reference.(d)
    
    Filed as Exhibit 10.8 with the Registration Statement on Form S-4, SEC File No. 333-16163, on
November 14, 1996 and incorporated herein by reference.(e)
    
    Filed on April 9, 1997 as Exhibit 10.9 with the Registrants Annual Report on Form 10-K for
the Year Ended December 31, 1996, Amendment No. 1, and incorporated herein by reference.  39




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CITIZENS, INC. AND CONSOLIDATED SUBSIDIARIES
March 31, 2010
 (f)
    
    Filed on March 22, 2004 as Exhibit 10.8 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(g)
    
    Filed on March 22, 2004 as Exhibit 10.9 of the Registrants Current Report on Form 8-K, and
incorporated herein by reference.(h)
    
    Filed on July 15, 2004 as part of Exhibit 10.12 with the Registrants Current Report on Form
8-K, and incorporated herein by reference.(i)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(m), and incorporated herein by reference.(j)
    
    Filed on March 31, 2005, with the Registrants Annual Report on Form 10-K for the Year Ended
December 31, 2004, as Exhibit 10.10(n), and incorporated herein by reference.(k)
    
    Filed on November 6, 2009, with the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2009, as Exhibit 10.8(k), and incorporated herein by reference.(l)
    
    Filed on November 6, 2009, with the Registrants Quarterly Report on Form 10-Q for the
Quarter Ended September 30, 2009, as Exhibit 10.9(l), and incorporated herein by reference.  40




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##### Table of Contents



SIGNATURES
  CITIZENS, INC.By:
    /s/ Harold E. RileyHarold E. RileyChairman and Chief
Executive OfficerBy:
    /s/ Kay E. OsbournKay E. OsbournExecutive Vice President,
Chief Financial Officer
and Treasurer   41