UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549  FORM 10-Q  ýQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended June 30, 2007Commission file number   0-5486  Presidential Life Corporation  Delaware13-2652144(State of incorporation)(IRS Employer Identification No.)69 Lydecker Street, Nyack, NY10960(Address of principal executive offices)(Zip Code)Registrants telephone number, including area code:(845) 358-2300  Securities registered pursuant to Section 12(b) of the Act: Not applicable.  Securities registered pursuant to Section 12(g) of the Act: Title of Each ClassName of each exchange on which registeredCommon Stock, par value $.01 per shareNasdaq   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.  Yes  ý    No  o  Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):  Large accelerated filer ̈Accelerated filerxNon-accelerated filer ̈  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes  o    No  ý  The number of shares outstanding of the Registrant’s common stock as of August 6, 2007 was 29,534,425.


INDEX Part IFinancial InformationPage No.Item 1.Condensed Consolidated Financial StatementsCondensed Consolidated Balance SheetsJune 30, 2007 (Unaudited) and December 31, 20063Condensed Consolidated Statements of Income (Unaudited)For the Six months ended June 30, 2007 and 20064Condensed Consolidated Statements of Income (Unaudited)For the Three months ended June 30, 2007 and 20065Condensed Consolidated Statements of Shareholders'Equity (Unaudited) - For the Six months endedJune 30, 2007 and 20066Condensed Consolidated Statements of Cash Flows (Unaudited) -For the Six months ended June 30, 2007 and 20067Notes to Condensed Consolidated Financial Statements (Unaudited)8-16Item 2.Management's Discussion and Analysis of17-27Financial Condition and Results of OperationsItem 3.Quantitative and Qualitative Disclosures About Market Risk28Item 4.Controls and Procedures28Part II -Other Information29Item 1.Legal ProceedingsItem 1A.Risk FactorsItem 2.Unregistered Sales of Equity Securities and Use of ProceedsItem 3.Defaults Upon Senior SecuritiesItem 4.Submission of Matters to a Vote of Security HoldersItem 5.Other InformationItem 6.ExhibitsSignatures30-31Certification of Chief Executive Officer
Certification of Chief Financial Officer
Certification of Chief Executive Officer
Certification of Chief Financial Officer32333435   2   PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)  June 30,
2007
(Unaudited)December 31,
2006ASSETS:Investments:Fixed maturities:Available for sale at market (Amortized cost of$3,253,938 and $3,123,677 respectively)$              3,311,410$                3,261,817Common stocks (Cost of $39,769 and$31,560, respectively)56,69645,266Derivative instruments, at fair value19,4949,784Real estate415415Policy loans19,15917,965Short-term investments563,052839,535Other long-term investments308,829267,975Total Investments4,279,0554,442,757Cash and cash equivalents4,98219,844Accrued investment income48,28746,514Amounts due from security transactions3,6325,564Federal income tax recoverable1,1995,716Deferred policy acquisition costs86,24181,069Furniture and equipment, net564446Amounts due from reinsurers13,94913,682Other assets1,6221,772Assets held in separate account4512,008TOTAL ASSETS$                4,439,982$                 4,619,372LIABILITIES AND SHAREHOLDERS' EQUITY:Liabilities:Policy Liabilities:Policyholders' account balances$                2,812,444$                 2,969,434Future policy benefits:Annuity647,462649,110Life and accident and health67,52066,355Other policy liabilities10,09810,406Total Policy Liabilities3,537,5243,695,305Short-term note payable50,00050,000Notes payable100,000100,000Deferred federal income taxes, net66,20676,190Deposits on policies to be issued3,5735,522General expenses and taxes accrued4,6405,082Other liabilities24,82945,678Liabilities related to separate account4512,008Total Liabilities3,787,2233,979,785Commitments and ContingenciesShareholders Equity:Capital stock ($.01 par value; authorized100,000,000 shares outstanding,29,532,300 and 29,469,072 shares, respectively295294Additional paid in capital3,6932,314Accumulated other comprehensive gain94,562118,444Retained earnings554,209518,535Total Shareholders Equity652,759639,587TOTAL LIABILITIES AND SHAREHOLDERSEQUITY$               4,439,982$                4,619,372The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.   3     PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)   SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)REVENUES:20072006Insurance Revenues:Premiums$                   6,728$                   6,043Annuity considerations14,06015,405Universal life and investment type policy fee income1,2231,582Net investment income149,488151,388Realized investment gains32,60624,867Other income727911TOTAL REVENUES204,832200,196BENEFITS AND EXPENSES:Death and other life insurance benefits6,2185,971Annuity benefits38,70037,654Interest credited to policyholders' account balances66,47577,802Interest expense on notes payable5,1065,009Other interest and other charges460383Decrease in liability for future policy benefits(539)(947)Commissions to agents, net5,4664,684General expenses and taxes8,1296,825Change in deferred policy acquisition costs6,0134,768TOTAL BENEFIT AND EXPENSES136,028142,149Income before income taxes68,80458,047Provision for income taxesCurrent20,68113,636Deferred3,0566,39023,73720,026NET INCOME$                 45,067$                 38,021Earnings per common share, basic$                     1.53$                     1.29Earnings per common share, diluted$                     1.52$                     1.28Weighted average number of shares outstanding during the period, basic29,507,40529,435,671Weighted average number of shares outstanding during the period, diluted29,656,65729,695,503The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.             4   PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)   THREE MONTHS ENDED
JUNE 30,
(UNAUDITED)REVENUES:20072006Insurance Revenues:Premiums$                 3,427$                   3,014Annuity considerations6,7307,966Universal life and investment type policy fee income488764Net investment income73,63971,290Realized investment gains18,97714,039Other income192546TOTAL REVENUES103,45397,619BENEFITS AND EXPENSES:Death and other life insurance benefits3,1052,761Annuity benefits19,46918,958Interest credited to policyholders' account balances33,24338,420Interest expense on notes payable2,6952,677Other interest and other charges214207Decrease in liability for future policy benefits(860)(266)Commissions to agents, net2,7662,580General expenses and taxes4,0103,833Change in deferred policy acquisition costs2,2281,637TOTAL BENEFIT AND EXPENSES66,87070,807Income before income taxes36,58326,812Provision for income taxesCurrent9,5054,176Deferred3,1165,03312,6219,209NET INCOME$                 23,962$                 17,603Earnings per common share, basic$                       .81$                       .60Earnings per common share, diluted$                       .81$                       .59Weighted average number of shares outstanding during the period, basic29,514,13629,441,964Weighted average number of shares outstanding during the period, diluted29,644,17229,724,988The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.   5    PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006 (in thousands, except per share data) (unaudited)   Capital StockAdditional
Paid-in-
CapitalRetained
EarningsAccumulated
Other
Comprehensive
IncomeTotalBalance at
January 1, 2006$        294$          1,207$      480,606$           144,389$       626,496Comprehensive Income:Net Income38,02138,021Rate Lock Adjustment(1,791)(1,791)Net Unrealized Investment Losses(85,801)(85,801)Comprehensive Income(49,571)Issuance of Shares Under stock option plan316316Share Based Compensation239239Dividends Paid to
Shareholders ($.10 per share)(5,888)(5,888)Balance at
June 30, 2006$        294$          1,762$      512,739$           56,797$       571,592Balance at
January 1, 2007$        294$          2,314$      518,535$           118,444$       639,587Cumulative effect of adoption of FIN 48(2,036)(2,036)Balance at
January 1, 2007, as adjusted2942,314516,499118,444637,551Comprehensive Income:Net Income45,06745,067Rate Lock Adjustment(1,119)(1,119)Net Unrealized Investment Losses(22,763)(22,763)Comprehensive Income21,185Issuance of Shares
Under stock option plan1827828Share Based Compensation552552Dividends paid to Shareholders ($.125 per share)(7,357)(7,357)Balance at
June 30, 2007$        295$          3,693$      554,209$         94,562$       652,759  The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.  6   PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)  SIX MONTHS ENDED
JUNE 30,
(UNAUDITED)20072006OPERATING ACTIVITIES:Net Income$               45,067$               38,021Adjustments to reconcile net income to net cash provided by operating          activities:Provision for deferred income taxes3,0566,390Depreciation and amortization499473Stock option expense552239Net accrual of discount on fixed maturities(8,658)(14,142)Realized investment gains(32,606)(24,867)Changes in:Accrued investment income(1,773)2,810Deferred policy acquisition cost6,0134,768Federal income tax payable2,48113,386Liability for future policy benefits(483)(844)Liability for amounts due brokers(13,416)13,407Other items(438)(11,860)Net Cash Provided By Operating Activities$                   294$               27,781INVESTING ACTIVITIES:Fixed Maturities:Available for Sale:Acquisitions(432,229)(9,680)Maturities, calls and repayments8,79421,628Sales324,19495,486Common Stocks:Acquisitions(19,377)(21,096)Sales11,75332,620Derivative Instruments:Acquisitions(6,156)-Sales6,051-Increase (Decrease) in short-term investments and policy loans275,289(22,723)Other long-term investments:Additions to other long-term investments(44,972)(39,502)Distributions from other long-term investments33,11545,527Amount due from security transactions1,932(3,252)Net Cash Provided By Investing Activities$             158,394$               99,008FINANCING ACTIVITIES:Decrease in policyholders account balances(156,990)(118,818)Bank overdrafts(8,081)(2,671)Deposits on policies to be issued(1,949)981Issuance of common stock827316Dividends paid to shareholders(7,357)(5,888)Net Cash Used In Financing Activities$            (173,550)$            (126,080)(Decrease) Increase in Cash and Cash Equivalents(14,862)709Cash and Cash Equivalents at Beginning of Period19,8446,656Cash and Cash Equivalents at End of Period$                 4,982$                7,365Supplemental Cash Flow Disclosure:Income Taxes Paid$               18,708$                    250Interest Paid$                 5,397$                 5,215  The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.  7   PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  A. Business  Presidential Life Corporation (the Company or the Corporation), through its wholly-owned subsidiary, Presidential Life Insurance Company (Insurance Company), is engaged in the sale of life insurance and annuities.  B. Basis of Presentation and Principles of Consolidation  The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") applicable to stock life insurance companies for interim financial statements and in accordance with the requirements of Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP applicable to stock life insurance companies for complete financial statements.  In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Interim results for the six months ended June 30, 2007 are not necessarily indicative of the results that may be expected for the year ending December 31, 2007. Management believes that, although the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2006, as filed with the Securities and Exchange Commission on Form 10-K on March 14, 2007.  We manage and report our business as a single segment in accordance with the provisions of Statement of Financial Accounting Standards (SFAS 131), which views certain qualitative and quantitative criteria for determining whether different lines of business should be aggregated for financial reporting purposes.  Substantially all of the Companys business is divided between annuities (approximately 88%) and life insurance (approximately 12%).  The nature of these two product lines is sufficiently similar to permit their aggregation as a single reporting segment.  Approximately 73% of our life insurance liabilities reflect single premium universal life policies, which bear similar economic and business characteristics to our single premium deferred annuity products.  Both products are funded by initial single premiums, both maintain accreting fund values credited with interest as earned, both are surrenderable before maturity with surrender charges in the early years and the Company does not take mortality charges on either product.  Moreover, the two products carry similar risks of early surrender by the product holder.  Both are marketed and distributed by the same independent agents.  The products are administered and managed within the same administrative facility with overlapping administrative functions.  The products are also directed at a similar market, namely mature consumers seeking financial protection for secure future cash streams for themselves and their heirs and associated tax benefits.  The regulatory frameworks for the products are also substantially the same, as both the Insurance Company and its independent agents sell these products under single licenses issued by various state insurance departments.  The remaining business of the Company is not material to the overall performance of the Company.  C. Investments  Fixed maturity investments available for sale represent investments that may be sold in response to changes in various economic conditions.  These investments are carried at fair value and net unrealized gains (losses), net of the effects of amortization of deferred policy acquisition costs and deferred federal income taxes are credited or charged directly to shareholders equity, unless a decline in market value is considered to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.  Equity securities include common stocks and non-redeemable preferred stocks and are carried at market value, with the related unrealized gains and losses, net of deferred federal income tax effect, if any, charged or credited directly to shareholders equity, unless a decline in market value is deemed to be other than temporary in which case the investment is reduced to its fair value and the loss is recorded in the income statement.  Other long-term investments are recorded using the equity method and primarily include interests in limited partnerships, which principally are engaged in real estate, international opportunities, acquisitions of private growth companies, debt restructuring and merchant banking and substantially all of their investments are at fair value.  In general, risks associated with such limited partnerships include those related to their underlying investments  (i.e., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the practice of many of the partnerships, with the exception of hedge fund limited partnerships, to typically make quarterly distributions (to the extent that distributions are available) of partnership earnings.  Investment income from limited partnerships is recorded based on the Companys share of earnings reported in the partnerships most recent audited financial statements and income distributed by the partnerships.  Management considers the quarterly financial information received from the limited partnerships to be unreliable or insufficient to record investment income, other than from distributions, on a quarterly basis.  Management estimates the classification of cash distributions received between investment income and return of capital based on correspondence from the respective partnerships.  The Company adjusts its estimate of investment income recorded during the year to the actual realized gains and other income reported in the limited partnerships most recent annual audited financial statements, which are generally received in the second quarter of the subsequent year.  As a result, there is generally a reporting lag of up to one year for recording investment income that is not distributed during the year, which may result in significant adjustments in the subsequent year.  The adjustments to its estimates of investment income recorded during the preceding year (true-up) for the six month periods ended June 30, 2007 and 2006 amounted to approximately $9.0 million and  8   $300,000 respectively.  The Company records its share of net unrealized gains and losses (net of taxes) from the audited financial statements of the limited partnerships.  As a result, there is also generally a one-year reporting lag for reporting unrealized gains and losses, which may result in significant adjustments to other comprehensive income in 2007.  Net unrealized gains (after tax effects) totaled approximately $52.2 million at June 30, 2007 and $33.4 million at December 31, 2006 and are included in the balance sheet under other comprehensive income.  To evaluate the appropriateness of the carrying value of a limited partnership interest, management maintains ongoing discussions with the investment manager and considers the limited partnerships operation, its current and near term projected financial condition, earnings capacity, and distributions received by the Company during the year. Because it is not practicable to obtain an independent valuation for each limited partnership interest, for purposes of disclosure the market value of a limited partnership interest is estimated at book value based on the most recent available audited financial statements.  Management believes that the net realizable value of such limited partnership interests, in the aggregate, exceeds their related carrying value as of June 30, 2007 and December 31, 2006.  As of June 30, 2007, the Company was committed to contribute, if called upon, an aggregate of approximately $172.2 million of additional capital to certain of these limited partnerships.  $14.2 million in commitments will expire in 2007, $10.0 million in 2008, $5.0 million in 2009, $11.4 million in 2010, $53.1 million in 2011 and $78.6 million in 2012.  The commitment expirations are estimates based upon the commitment periods of each of the partnerships.  Certain partnerships provide, however, that in the event capital from the investments are returned to the limited partners prior to the end of the commitment period (generally 3-5 years) the capital may be recalled.  In evaluating whether an investment security or other investment has suffered an impairment in value that is deemed to be other than temporary, management considers all available evidence.  When a decline in the value of an investment security or other investment is considered to be other than temporary, the investment is reduced to its fair value (which contemplates the price that can be obtained from the sale of such asset in the ordinary course of business), which becomes the new cost basis.  The amount of reduction is recorded in the income statement as a realized loss. A recovery from the adjusted cost basis is recognized as a realized gain only at sale.  Realized gains and losses on disposal of investments are determined for fixed maturities, other long-term investments and equity securities by the specific-identification method.  Investments in short-term securities, which consist primarily of United States Treasury Notes and corporate debt issues maturing in less than one year, are recorded at amortized cost, which approximates market value.  Policy loans are stated at their unpaid principal balance.  The Company's investments in real estate consist of two buildings in Nyack, New York, which are occupied entirely by the Company.  The investments are carried at cost less accumulated depreciation.  Both buildings are fully depreciated and have no depreciation expense.  The Company accounts for its derivative financial instruments under SFAS No. 133, Accounting for Derivative Instrument and Hedging Activities.  SFAS No. 133 requires all derivative instruments to be recorded in the balance sheet at fair value.  Changes in the fair value of derivative instruments are recorded as other income (loss) in the period in which they arise.  The Company has not designated its derivatives related to marketable securities as hedges, in accordance with SFAS No. 133.  Accordingly, the change in fair value of derivatives is recognized as a component of realized investment gains and losses in earnings as described above.  The Company does not hold or issue any derivative financial instruments for speculative trading purposes.  D. Deferred Policy Acquisition Costs  The costs of acquiring new business (principally commissions and certain underwriting, agency and policy issue expenses), all of which vary with the production of new business, have been deferred.  Deferred policy acquisition costs are subject to recoverability testing at time of policy issue and loss recognition testing at the end of each year.  For immediate annuities with life contingencies, deferred policy acquisition costs are amortized over the life of the contract in proportion to expected future benefit payments.  For traditional life policies, deferred policy acquisition costs are amortized over the premium paying periods of the related policies using assumptions that are consistent with those used in computing the liability for future policy benefits.  Assumptions as to anticipated premiums are estimated at the date of policy issue and are consistently applied during the life of the contracts.  For these contracts, the amortization periods generally are for the scheduled life of the policy, not to exceed 30 years.  For investment type contracts, deferred policy acquisition costs are amortized over a period ranging from 15 to 25 years, but not beyond the life of the underlying contract.  These costs are amortized as a constant percentage of estimated gross profits arising principally from surrender charges and interest and mortality margins based on historical and anticipated future experience, updated regularly.    Revisions to reflect actual experience on previous amortization of deferred policy acquisition costs are reflected in earnings in the period estimated gross profits are revised, subject to the limitation that the outstanding DAC asset can never exceed the original DAC plus accrued interest.  For that portion of the business where acquisition costs are not deferred (i.e., medical stop loss business), management believes the expensing of policy acquisition costs is immaterial.  9   E. Future Policy Benefits  Future policy benefits for traditional life insurance policies are computed using a net level premium method on the basis of actuarial assumptions as to mortality, persistency and interest established at policy issue.  Assumptions established at policy issue as to mortality and persistency are based on anticipated experience, which, together with interest and expense assumptions, provide a margin for adverse deviation.  Benefit liabilities for deferred annuities during the accumulation period are equal to accumulated contract holders' fund balances and, after annuitization, are equal to the present value of expected future payments.  F. Policyholders' Account Balances  Policyholders' account balances for universal life and investment-type contracts are equal to the policy account values.  The policy account values represent an accumulation of gross premium payments plus credited interest less mortality and expense charges and withdrawals.  G. Federal Income Taxes  The Company and its subsidiaries file a consolidated federal income tax return. The asset and liability method in recording income taxes on all transactions that have been recognized in the financial statements is used. SFAS 109 provides that deferred income taxes are adjusted to reflect tax rates at which future tax liabilities or assets are expected to be settled or realized.  H. Earnings Per Common Share  (EPS)  Basic EPS is computed based upon the weighted average number of common shares outstanding during the quarter.  Diluted EPS is computed based upon the weighted average number of common shares including contingently issuable shares and other dilutive items.  The weighted average number of common shares used to compute diluted EPS for the six months ended June 30, 2007 and 2006 was 29,656,657 and 29,695,503, respectively.  The dilution from the potential exercise of stock options outstanding reduced the EPS by $.01 for the six months ended at both June 30, 2007 and June 30, 2006.  I. New Accounting Pronouncements  In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities(SFAS 159).  SFAS 159 permits all entities the option to measure most financial instruments and certain other items at fair value at specified election dates and to report related unrealized gains and losses in earnings. The fair value option will generally be applied on an instrument-by-instrument basis and is generally an irrevocable election. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company is evaluating which eligible financial instruments, if any, it will elect to account for at fair value under SFAS 159 and the related impact on the Companys consolidated financial statements.  In September 2006, FASB issued SFAS 157 Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements. Accordingly, this Statement does not require any new fair value measurements, but will potentially require additional disclosures regarding existing fair value measurements we currently report. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently determining the effect, if any, this pronouncement will have on its financial statements.  In September 2006, the SEC issued Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements (SAB 108). SAB 108 provides interpretive guidance on how the effects of prior-year uncorrected misstatements should be considered when quantifying misstatements in the current year financial statements. SAB 108 requires registrants to quantify misstatements using both an income statement (rollover) and balance sheet (iron curtain) approach and evaluate whether either approach results in a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. If prior year errors that had been previously considered immaterial now are considered material based on either approach, no restatement is required so long as management properly applied its previous approach and all relevant facts and circumstances were considered. If prior years are not restated, the cumulative effect adjustment is recorded in opening accumulated earnings (deficit) as of the beginning of the fiscal year of adoption. SAB 108 is effective for fiscal years ending on or after November 15, 2006, and did not have a material impact on the Companys consolidated financial statement, as we have not discovered material errors in prior years with material effect as of the reporting date.  In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 requires that we recognize in the financial statements the impact of a tax position if that position more likely than not will be sustained on an audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures, and transition provisions. Any transition adjustment recognized on the date of adoption will be recorded as an adjustment to retained earnings as of the beginning of the adoption period. We adopted FIN 48 on January 1, 2007. See Note 7 - Income Taxes for a discussion of the impact of FIN 48.  10    In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets  An Amendment of FASB Statement No. 140 (SFAS 156).  If practicable, SFAS 156 requires that all separately recognized servicing assets and servicing liabilities be initially measured at fair value. The statement permits, but does not require, the subsequent measurement of servicing assets and servicing liabilities at fair value. Specifically, the new Standard addresses the recognition and measurement of separately recognized servicing assets and liabilities and provides an approach to simplify efforts to obtain hedge-like (offset) accounting.  SFAS 156 is effective as of the beginning of an entitys first fiscal year that begins after September 15, 2006, which, for the Company, is the beginning of fiscal 2007. The adoption of SFAS 156 did not have an effect on the Companys consolidated financial statements.  On February 16, 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments.  This statement removes an exception from the requirement to bifurcate an embedded derivative feature from a beneficial interest in securitized financial assets.  This statement also provides an election, on an instrument-by-instrument basis, to measure at fair value the entire hybrid financial instrument that contains an embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis.  The Company adopted this guidance effective January 1, 2007, and it did not have a material effect on the Company's consolidated financial statements.  In November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments (FSP 115-1), which provides guidance on determining when investments in certain debt and equity securities are consider impaired, whether that impairment is other-than-temporary, and how to measure such impairment loss.  FSP 115-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.  FSP 115-1 supersedes Emerging Issues Task Force ("EITF") Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments ("EITF 03-1") and EITF Topic D-44, Recognition of Other-Than-Temporary Impairment on the Planned Sale of a Security Whose Cost Exceeds Fair Value ("Topic D-44") and nullifies the accounting guidance on the determination of whether an investment is other-than-temporarily impaired as set forth in EITF 03-1. FSP 115-1 is required to be applied to reporting periods beginning after December 15, 2005.  Adoption of this statement did not have an impact on the Companys consolidated financial statements.  In September 2005, the Accounting Standards Executive Committee (AcSEC) of the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The Company adopted SOP 05-01 effective January 1, 2007, and at this time, it has no effect on the Company's consolidated financial statements.  In June 2005, the EITF reached consensus on Issue No. 04-5, Determining whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights ("EITF 04-5"). EITF 04-5 provides a framework for determining whether a general partner controls and should consolidate a limited partnership or a similar entity in light of certain rights held by the limited partners. The consensus also provides additional guidance on substantive rights. EITF 04-5 is effective after June 29, 2005 for all newly formed partnerships and for any pre-existing limited partnerships that modify their partnership agreements after that date. EITF 04-5 must be adopted by January 1, 2006 for all other limited partnerships through a cumulative effect of a change in accounting principle recorded in opening equity or it may be applied retrospectively by adjusting prior period financial statements. EITF 04-5 did not have a material impact on the Company's consolidated financial statements.  In June 2005, the FASB issued Statement No. 133 Implementation Issue No. B39, Embedded Derivatives: Application of Paragraph 13(b) to Call Options That are Exercisable Only by the Debtor. Implementation Issue No. B39 indicates that debt instruments where the right to accelerate the settlement of debt can be exercised only by the debtor do not meet the criteria of Paragraph 13(b) of Statement No. 133, and therefore should not individually lead to such options being considered embedded derivatives. Such options must still be evaluated under paragraph 13(a) of Statement No. 133. This implementation guidance is effective for the first fiscal quarter beginning after December 15, 2005. The Companys adoption of this guidance effective January 1, 2006 did not have a material effect on the Companys consolidated financial position or results of operations as the guidance is consistent with the Companys existing accounting policy.  In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections ("SFAS 154"), a replacement of Accounting Principles Board ("APB") Opinion No. 20 and SFAS No. 3. The statement is a result of a broader effort by the FASB to converge standards with the International Accounting Standards Board ("IASB"). Unless it is impracticable, the statement requires retrospective application to prior periods' financial statements for a voluntary change in accounting principle. It also requires that a change in method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate rather than a change in accounting principle. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. SFAS 154 did not have a material impact on the Company's consolidated financial statements.  11    In December 2004, FASB issued SFAS No. 123R, Share Based Payment. SFAS 123R supercedes APB No. 25, FAS No. 123, as amended by FAS No. 148, and related interpretations.  In March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB 107), which expresses views of the SEC staff regarding interaction between SFAS 123R and certain SEC rules and regulations and provides the staffs views regarding the valuation of share-based payment arrangements for public companies.  SFAS 123R provides additional guidance on determining whether certain financial instruments awarded in share-based payment transactions are liabilities.  SFAS 123R also requires that the fair value of all share-based transactions be recorded in the financial statements.  The adoption of SFAS No. 123(R) in 2006 did not have a material impact on the Companys consolidated financial statements.  2. INVESTMENTS  There were no investments in any one issuer that totaled 10% or more of Shareholders Equity as of June 30, 2007.  The following information summarizes the components of net investment income:  For the six months ended
June 30, 2007
(in thousands)For the six months ended
June 30, 2006
(in thousands)Fixed maturities$              110,551$                127,313Limited Partnerships24,80418,121Common stocks1,722464Short-term investments14,7507,429Other investment income973819152,800154,146Less investment expenses3,3122,758Net investment income$              149,488$                151,388   The following table presents fair value and gross unrealized losses for securities where the estimated fair value had declined and remained below amortized cost at June 30, 2007:  Less Than 12 Months12 Months or MoreTotalFair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized LossesDescription of Securities(in thousands)US Treasury obligations and direct obligations of US Government Agencies$     50,324$        343$   195,507$     6,987$    245,831$   7,330Corporate Bonds543,0567,218905,25153,8701,448,30761,088Preferred Stocks35,0671,33529,3852,91364,4524,248Subtotal Fixed Maturities628,4478,8961,130,14363,7701,758,59072,666Common Stock5,498725--5,498725Total Temporarily Impaired Securities$    633,945$    9,621$ 1,130,143$   63,770$ 1,764,088$ 73,391   12    The following table presents the fair value and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at December 31, 2006:  Less Than 12 Months12 Months or MoreTotalFair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized LossesDescription of Securities(in thousands)US Treasury obligations and direct obligations of US Government Agencies$     37,588$         886$  179,604$      4,443$    217,192$      5,329Corporate Bonds164,0192,539883,52039,5881,047,53942,127Preferred Stocks19,81338223,07736542,890747Subtotal Fixed Maturities221,4203,8071,086,20144,3961,307,62148,203Common Stock4,652555--4,652555Total Temporarily Impaired Securities$  226,072$      4,362$1,086,201$    44,396$ 1,312,273$    48,758   The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by June 30, 2007. Gross Unrealized Losses% Of
Total(in thousands)Less than twelve months$       8,89612.24Twelve months or more63,77087.76Total$     72,666100.00 The following table presents the total gross unrealized losses for fixed maturities where the estimated fair value had declined and remained below amortized cost by December 31, 2006.  Gross Unrealized Losses% Of
Total(in thousands)Less than twelve months$       3,8077.90Twelve months or more44,39692.10Total$     48,203100.00   13    As of June 30, 2007 and December 31, 2006, the Company had approximately $130.1 million and $186.3 million, respectively, of gross unrealized gains in fixed maturities.  The Companys investments are primarily concentrated in fixed income securities that are exposed to a variety of risks, including interest rate and credit risk, each of which can significantly impact fluctuations in overall market valuation. During the first half of 2007, the portfolio experienced a decline in market value caused by a rise in interest rates, as the 10-year Treasury yield increased from 4.70% on December 31, 2006 to 5.04% as of June 30, 2007. This represented a decrease in the market value of the benchmark 10-year Treasury by approximately 2.43%. Credit spreads were relatively stable, as the 10-year spread of A-rated industrial bonds over Treasuries increased by only 4 basis points during the first half of 2007. The Companys book value will generally increase when interest rates decrease and decrease when interest rates increase. Presidential Life Corporations book value per share increased from $21.68 at December 31, 2006 to $22.10 at June 30, 2007, as operating earnings and increased unrealized capital gains on the Companys limited partnership investments offset the rise in interest rates.  Management evaluates whether temporary or other than temporary impairments have occurred on a case-by-case basis.  Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause and decline in the estimated fair value of the security and in assessing the prospects for near-term recovery.  Inherent in managements evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential.  Considerations used by the Company in the other than temporary impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) whether the issuer is experiencing significant financial difficulties; (iii) financial difficulties being experienced by an entire industry sector or sub-sector; (iv) economically depressed geographic locations; (v) situations where the issuer, series of issuers or industry has a catastrophic type of loss or has exhausted natural resources; (vi) in situations where it is determined that an impairment is attributable to changes in market interest rates, the Corporations ability and intent to hold impaired securities until recovery of fair value at or above cost; and (vii) other subjective factors, including concentrations and information obtained from regulators and rating agencies.  As of June 30, 2007, the Company has concluded that securities with unrealized losses totaling $73.4 million, are not other than temporarily impaired.  3. NOTES PAYABLE  Notes payable at June 30, 2007 and December 31, 2006 consist of $100 million, 7 7/8% Senior Notes (Senior Notes) due February 15, 2009.  Interest is payable February 15 and August 15.  Debt issue costs are being amortized on the interest method over the term of the notes.  As of June 30, 2007, unamortized costs were $369,000.  The total principal is due on February 15, 2009.  In addition, the Company had deferred losses of approximately $1.1 million recorded in accumulated other comprehensive income as of June 30, 2007, related to an interest rate lock agreement used to hedge the issuance of the Senior Notes.  The Company amortizes the deferred loss from accumulated other comprehensive income to income over the term of the notes.  The Company expects to amortize approximately $672,000 into earnings during 2007.  The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company.  In the event the Company violates such covenants as defined in the indenture, the Company may be obligated to offer to repurchase the entire outstanding principal amount of such notes. As of June 30, 2007, the Company believes that it is in compliance with all of the covenants.  The short-term note payable relates to a bank line of credit with JPMorgan Chase Bank in the amount of $50,000,000 (Bank Line) and provides for interest on borrowings based on market indices.  At both June 30, 2007 and December 31, 2006 the Company had $50,000,000 outstanding. The Bank Line was up for renewal on July 31, 2007, however, on July 9, 2007, the Company paid down the full $50,000,000 Bank Line with available cash.  The proceeds from the Bank Line had previously been used as an arbitrage facility to purchase higher yielding investments.  The Company decided to pay off the Bank Line because due to the increased cost of the Bank Line it no longer provided a positive spread to the Company.  The Insurance Company holds a senior note payable of the Corporation with a par value of $9.8 million and a book value of $9.6 million.  The value of such note was not eliminated in the consolidated financial statements.  The Insurance Company holds the note as an asset in its financial statements, while the Corporation holds the note as a liability with no net effect in the consolidated financial statements.   4. SHAREHOLDERS' EQUITY  In February 2007, the Company's Board of Directors approved an increase in the quarterly dividend rate to $.125 per share from $.10 per share.  The Company is authorized pursuant to a resolution of the Board of Directors to repurchase 385,000 shares of its common stock.  14    5. NET UNREALIZED INVESTMENT (LOSSES)/GAINS Pre Tax
AmountTax
(Expense)/
BenefitAfter-Tax
AmountFor the Six months ended June 30, 2007:(in thousands)Net unrealized losses on investment securities:Net unrealized holding losses arising during year$      (56,324)$          19,713$      (36,611)Plus: reclassification adjustment for gains realized in net income32,606(11,412)21,194Change related to deferred policy acquisition costs(11,302)3,956(7,346)Net unrealized investment losses$      (35,020)$          12,257$      (22,763)For the Six months ended June 30, 2006:Net unrealized losses on investment securities:Net unrealized holding losses arising during year$    (129,423)$          45,298$      (84,125)Plus: reclassification adjustment for gains realized in net income24,867(8,703)16,164Change related to deferred policy acquisition costs(27,446)9,606(17,840)Net unrealized investment losses$    (132,002)$          46,201$      (85,801)  6. EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS  Employee Savings Plan  The Company adopted an Internal Revenue Code (IRC) Section 401(k) plan for its employees effective January 1, 1992. Under the plan, participants may contribute up to the dollar limit as prescribed by IRC Section 415(d).  In January 2005, the Companys Board of Directors approved an annual contribution to the 401(k) plan equal to 4% of all employees salaries, allocated to each of the Companys employees without regard to the amounts, if any, contributed to the plan by the employees.  The Company contribution is subject to a vesting schedule.  The Company contributed approximately $143,700 and $141,600 into this plan during the six months ended June 30, 2007 and June 30, 2006, respectively.  7. INCOME TAXES  Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, (b) operating loss carry forwards and (c) a valuation allowance.  The Company files income tax returns in the United States federal jurisdiction and various state jurisdictions.  In the United States, the Company is no longer subject to federal income tax examinations by tax authorities, generally for the years prior to 2000.  From 2000 through 2003, however, the Company may be subject to tax examinations because the IRS is performing audits on partnership returns in which the Company has investments.  While the Company cannot predict the outcome of the current IRS examination, any adjustments are not expected to be material.  The examination is expected to be concluded during 2007.  In order to calculate income tax expense the Company estimates an annual effective income tax rate based on projected results for the year and applies this projected rate to income before taxes to calculate income tax expense. Any refinements made, due to subsequent information that affects the estimated annual effective income tax rate, are reflected as adjustments in the current period.  The Company currently estimates the annual effective income tax rate from continuing operations as of June 30, 2007 to be 34.5%.  The Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No.109 (FIN 48), on January 1, 2007.  As a result of the implementation of FIN 48, the Company recognized a $2,000,000 increase to the liability for uncertain tax positions, which was accounted for as an adjustment to the beginning balance of retained earnings.   The balance of the unrecognized tax benefits was $2,036,000 at both January 1, 2007 and June 30, 2007. If recognized, this entire adjustment would impact the effective tax rate.  The Company recognizes interest and penalties accrued on unrecognized tax benefits as well as interest received from favorable settlements within income tax expense.  The total amount of accrued interest and penalties included in the FIN 48 liability above as of January 1, 2007 and June 30, 2007 was $185,000.  As of June 30, 2007, the Company is not aware of any positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next 12 months.   15    8. COMMITMENTS AND CONTINGENCIES  From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.  As of June 30, 2007, the Company is not a party to any legal proceedings, the adverse outcome of which, in management's opinion, individually or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations.  9. SUBSEQUENT EVENTS  None  16    Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations  General  Presidential Life Corporation (the Company or Corporation), through its wholly-owned subsidiary, Presidential Life Insurance Company (Insurance Company), is engaged in the sale of insurance products with two primary lines of business: individual annuities and individual life insurance.  Our revenues are derived primarily from premiums received from the sale of annuity contracts and universal life insurance policies, premiums received for whole life and term life insurance products and gains (or losses) from our investment portfolio.  For financial statement purposes, our revenues from the sale of whole life and term life insurance products and annuity contracts with life contingencies are treated differently from our revenues from the sale of annuity contracts without life contingencies, deferred annuities and universal life insurance products.  Premiums from the sale of whole or term life insurance products and life contingency annuities are reported as premium income on our financial statements.  Premiums from the sale of deferred annuities, universal life insurance products and annuities without life contingencies are not reported as premium revenues, but rather are reported as additions to policyholders account balances.  From these products, revenues are recognized over time in the form of policy fee income, surrender charges and mortality and other charges deducted from policyholders account balances.  Profitability in the Insurance Companys individual annuities and individual life insurance depends largely on the size of its inforce block, the adequacy of product pricing and underwriting discipline, the efficiency of its claims and expense management, and the performance of the investment portfolio.  When we use the term We, Us and Our we mean Presidential Life Corporation, a Delaware Corporation, and its consolidated subsidiaries.  In this discussion we have included statements that may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are not historical facts but instead represent only our beliefs regarding future events, many of which, by their nature, are inherently uncertain and beyond our control.  These statements may relate to our future plans and objectives.  By identifying these statements for you in this manner, we are alerting you to the possibility that our actual results may differ, possibly materially, from the results indicated in these forward-looking statements.  Executive Overview  Results  Basic earnings per share were $1.53 and $1.29 for the six-month periods ended June 30, 2007 and 2006, respectively.  Our total revenues in the first six months of 2007 and 2006 were approximately $204.8 million and approximately $200.2 million, respectively. The increase from 2006 to 2007 was primarily due to an increase in realized investment gains of approximately $7.7 million, partially offset by a decrease in investment income of approximately $1.9 million.  Pricing  Management believes that the Company is able to offer its products at competitive prices to its targeted markets as a result of: (i) maintaining relatively low issuance costs by selling through the independent general agency system; (ii) minimizing home office administrative costs; and (iii) utilizing appropriate underwriting guidelines.  The long-term profitability of sales of life and most annuity products depends on the degree of margin of the actuarial assumptions that underlie the pricing of such products.  Actuarial calculations for such products, and the ultimate profitability of sales of such products, are based on four major factors: (i) persistency; (ii) rate of return on cash invested during the life of the policy or contract; (iii) expenses of acquiring and administering the policy or contract; and (iv) mortality.  Persistency is the rate at which insurance policies remain in force, expressed as a percentage of the number of policies remaining in force over the previous year. Policyholders sometimes do not pay premiums, thus causing their policies to lapse.  The assumed rate of return on invested cash and desired spreads during the period that insurance policies or annuity contracts are in force also affects pricing of products and currently includes an assumption by the Company of a specified rate of return and/or spread on its investments for each year that such insurance or annuity product is in force.  17    Investments  The Company¢s principal investments are in fixed maturities, all of which are exposed to at least one of three primary sources of investment risk: credit, interest rate and market valuation.  The financial statement risks are those associated with the recognition of impairments and income, as well as the determination of fair values.Management evaluates whether temporary or other than temporary impairments have occurred on a case-by-case basis.  Management considers a wide range of factors about the security issuer and uses its best judgment in evaluating the cause and decline in the estimated fair value of the security and in assessing the prospects for near-term recovery.  Inherent in managements evaluation of the security are assumptions and estimates about the operations of the issuer and its future earnings potential.  Considerations used by the Company in the other than temporary impairment evaluation process include, but are not limited to: (i) the length of time and the extent to which the market value has been below amortized cost; (ii) whether the issuer is experiencing significant financial difficulties; (iii) financial difficulties being experienced by an entire industry sector or sub-sector; (iv) economically depressed geographic locations; (v) situations where the issuer, series of issuers or industry  has a catastrophic type of loss or has exhausted natural resources; (vi) in situations where it is determined that an impairment is attributable to changes in market interest rates, the Corporations ability and intent to hold impaired securities until recovery of fair value at or above cost; and (vii) other subjective factors, including concentrations and information obtained from regulators and rating agencies. In addition, the earnings on certain investments are dependent upon market conditions, which could result in prepayments and changes in amounts to be earned due to changing interest rates or equity markets.  The determination of fair values in the absence of quoted market values is based on valuation methodologies, securities the Company deems to be comparable, and assumptions deemed appropriate given the circumstances.  The use of different methodologies and assumptions may have a material effect on the estimated fair value amounts.  The Company derives a substantial portion of its total revenues from investment income. The Company manages most of its investments internally.  All investments made on behalf of the Company are governed by the general requirements and guidelines established and approved by the Company's investment committee (the Investment Committee) and by qualitative and quantitative limits prescribed by applicable insurance laws and regulations.  The Investment Committee meets regularly to set and review investment policy and to approve current investment plans.  The actions of the Investment Committee are subject to review and approval by the Board of Directors of the Insurance Company.  The Company's investment policy must comply with New York State Insurance Department (NYSID) regulations and the regulations of other applicable regulatory bodies.  The Company's investment philosophy generally focuses on purchasing investment grade securities with the intention of holding such securities to maturity.  The Company's investment philosophy is focused on the intermediate to longer-term horizon and is not oriented towards trading.  However, as market opportunities, liquidity, or regulatory considerations may dictate, securities may be sold prior to maturity.  The Company has categorized all fixed maturity securities as available for sale and carries such investments at market value.  The Company manages its investment portfolio to meet the diversification, yield and liquidity requirements of its insurance policy and annuity contract obligations. The Company's liquidity requirements are monitored regularly so that cash flow needs are sufficiently satisfied.  Adjustments are made periodically to the Company's investment policies to reflect changes in the Company's short and long-term cash needs, as well as changing business and economic conditions.  The Company seeks to manage its investment portfolio in part to reduce its exposure to interest rate fluctuations.  In general, the market value of the Company's fixed maturity portfolio increases or decreases in an inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship with interest rate changes.  For example, if interest rates decline, the Company's fixed maturity investments generally will increase in market value, while net investment income will decrease as fixed income investments mature or are sold and proceeds are reinvested at the declining rates.  Management is aware that prevailing market interest rates frequently shift and, accordingly, the Company has adopted strategies that are designed to address either an increase or decrease in prevailing rates.  The primary market risk in the Companys investment portfolio is interest rate risk and to a lesser degree, equity price risk.  The Company's exposure to foreign exchange risk is not significant.  The Company has no direct commodity risk.  Changes in interest rates can potentially impact the Companys profitability.  In certain scenarios where interest rates are volatile, the Company could be exposed to disintermediation risk and reduction in net interest rate spread or profit margin.  To help address this risk, the Company has entered into a series of Payor Swaption investments designed to protect the Company against an instantaneous rise in the interest rates of 300 basis points.  (See the discussion below in Asset/Liability Management under Managements discussion and Analysis.   18     Risk-Based Capital  Under the NAIC's risk-based capital formula, insurance companies must calculate and report information under a risk-based capital formula.  The standards require the computation of a risk-based capital amount, which then is compared to a companys actual total adjusted capital.  The computation involves applying factors to various financial data to address four primary risks: asset default, adverse insurance experience, disintermediation and external events.  This information is intended to permit insurance regulators to identify and require remedial action for inadequately capitalized insurance companies, but is not designed to rank adequately capitalized companies.  The NAIC formula provides for four levels of potential involvement by state regulators for inadequately capitalized insurance companies, ranging from a requirement for an insurance company to submit a plan to improve its capital (Company Action Level) to regulatory control of the insurance company (Mandatory Control Level).  At December 31, 2006, the Insurance Companys Company Action Level was $89.9 million and the Mandatory Control Level was $31.5 million. The Insurance Companys adjusted capital at December 31, 2006 was $380.3 million, which exceeds all four action levels.  Agency Ratings  Ratings are an important factor in establishing the competitive position in the insurance and financial services marketplace.  There can be no assurance that the Corporations or the Insurance Companys ratings will continue for any given period of time or that they will not be changed.  In the event the ratings are downgraded, the level of revenues or the persistency of the Insurance Companys business may be adversely impacted.  In February 2007, A.M. Best Company reaffirmed the Insurance Companys rating at B+ (Good).  Publications of A.M. Best indicate that the B+ rating is assigned to those companies that, in A.M. Best's opinion, have achieved a very good overall performance when compared to the norms of the insurance industry and that generally have demonstrated a good ability to meet their respective policyholder and other contractual obligations over a long period of time.  The B+ rating is within A.M Bests Secure classification, along with A++, A+, A, A-, and B++ ratings.  In 2007, A.M. Best Company changed the Financial Strength Rating Descriptor for B+ and B++ ratings on insurance companies from Very Good to Good.  The change was made to make the Rating Descriptor consistent with the existing Rating definition and did not, in any way, represent a change in A.M. Bests opinion of the Company.  In evaluating a company's statutory financial and operating performance, A.M. Best reviews the company's profitability, leverage and liquidity, as well as the company's book of business, the adequacy and soundness of its reinsurance, the quality and estimated market value of its assets, the adequacy of its reserves and the experience and competency of its management.  A.M. Best's rating is based on factors which primarily are relevant to policyholders, agents and intermediaries and is not directed towards the protection of investors, nor is it intended to allow investors to rely on such a rating in evaluating the financial condition of the Insurance Company.  In May 2007, Moody's Investor Services (Moody's) reaffirmed the Insurance Company's insurance financial strength at Ba2 (Questionable financial security) with a stable outlook, and its rating on the Corporations Senior Notes at B2 (Poor financial security), with a stable outlook.  In March 2007, Standard & Poor's Corporation (Standard & Poor's) raised the Insurance Company's insurance financial strength rating from a BB- which is defined as a vulnerability to the broad array of risks that are embedded in its investment and operational profile to a BB, which is defined as marginal financial security with positive attributes, but adverse business conditions could lead to insufficient ability to meet financial commitments.  In March 2007, Standard & Poors raised the credit rating of the Senior Notes from a B- (weak financial security, adverse business conditions will likely impair its ability to meet financial commitments) to a B (weak financial security, adverse business conditions will likely impair its ability to meet financial commitments) with a stable outlook.  In July 2007, Fitch Ratings assigned the Insurance Company an Aq rating, Strong, - possessing strong capacity to meet policyholder and contract obligations based solely on the Companys stand-alone financial statement characteristics.  Risk factors are moderate, and the impact of any adverse business and economic factors is expected to be small.   19    Results of Operations  Comparison of the six months ended June 30, 2007 with the same period in 2006 and a comparison of significant items for the three months ended June 30, 2007 with the same period in 2006.  Revenues  Annuity Considerations and Life Insurance Premiums  Total annuity considerations and life insurance premiums decreased to approximately $20.8 million for the six months ended June 30, 2007 from approximately $21.4 million for the six months ended June 30, 2006.  Of this amount, annuity considerations were approximately $14.1 million for the six months ended June 30, 2007 as compared to approximately $15.4 million for the six months ended June 30, 2006.  In accordance with GAAP, sales of single premium deferred annuities and single premium immediate income annuities without life contingencies are not reported as insurance revenues, but rather as additions to policyholder account balances.  Based on statutory accounting, revenue from sales of single premium annuities were approximately $72.7 million and approximately $71.8 million during the six months ended June 30, 2007 and June 30, 2006, respectively.  The increase is primarily attributable to stronger sales of our single premium deferred annuity product.  Premiums increased approximately $.7 million due to an increase in sales of our graded benefit life insurance.  Policy Fee Income  Universal life and investment type policy fee income was approximately $1.2 million for the six-month period ended June 30, 2007 and approximately $1.6 million for the six-month period ended June 30, 2006.  Net Investment Income  Net investment income totaled approximately $149.5 million during the first six months of 2007, as compared to approximately $151.4 million during the first six months of 2006.  This represents a decrease of approximately $1.9 million.  This decrease is due principally to a decrease in income from fixed maturities partially offset by an increase in income from the limited partnerships and short term investments.  Income from fixed maturities decreased by approximately $15.7 million and was partially offset by an increase in investment income from short-term investments of approximately $7.3 million and limited partnerships of approximately $6.7 million.  The decrease in income from fixed maturities was primarily due to the Companys duration shortening program, which involved the sale of higher yielding long-term investments and the investment into lower yielding short-term investments.  (See discussion on the Asset/Liability Management in the Management Discussion and Analysis of Financial Condition and Results of Operations).  Income from limited partnerships increased by approximately $6.7 million.  This increase reflects the inherent volatility in the amount and timing of the distributions of realized capital gains and income from the Companys limited partnership investments.  The Company's ratios of net investment income to average cash and invested assets  (based on book value) less net investment income for the six month periods ended June 30, 2007 and June 30, 2006 were 7.29% and 7.00%, respectively.  Net Realized Investment Gains and Losses  Realized investment gains amounted to approximately $32.6 million during the first six months of 2007, as compared to approximately $24.9 million during the first six months of 2006.  An increase in realized gains on fixed maturities of approximately $17.9 million was partially offset by a decrease in realized gains on common stock of approximately $4.3 million and a decrease in the fair value of payor swaptions of approximately $5.8 million.  Realized investment gains from fixed maturities were primarily due to calls on the Companys trust preferred securities.  Realized investment gains and losses for the six months ended June 30, 2006 include realized investment losses or write downs of $3.0 million attributable to other than temporary impairments in the value of certain securities contained in the Company's investment portfolio.  The Company had approximately $52,000 in write-downs attributable to other than temporary impairments in common stock for the six months ended June 30, 2007.  In 2006, the Company limited its new investments to primarily high-grade commercial paper (predominately rated A1/P1) with maturities of less than 30 days.  During the 1st quarter of 2007, the Company reinvested a substantial portion of this short-term commercial paper in investment grade corporate bonds with a weighted average maturity of approximately 2.5 years.  Realized gains were $19.0 million for the three months ended June 30, 2007 and $14.0 million for the three months ended June 30, 2006.  The variance of approximately $5.0 million is primarily due to an increase in the gain on derivative instruments of approximately $3.0 million and an increase in realized gains of fixed maturities of approximately $2.3 million.  See Item 2. Investments.  20   When impairments are determined to be other than temporary, the Company adjusts the book value to reflect the fair value, as appropriate, on a quarterly basis and the amount of the impairments are recorded as realized investment losses in the income statement.  Realized investment gains (losses) also result from sales of certain equities and convertible securities, and calls and sales of fixed maturity investments in the Company's investment portfolio.  Total Benefits and Expenses  Total benefits and expenses for the six months ended June 30, 2007 aggregated approximately $136.0 million, as compared to approximately $142.1 million for the six months ended June 30, 2006.  This represents a decrease of approximately $6.1 million from the first six months of 2006.  Total benefits and expenses for the three months ended June 30, 2007 aggregated approximately $66.9 million, as compared to approximately $70.8 million for the three months ended June 30, 2006.  This represents a decrease of approximately $3.9 million from the second quarter of 2006.  The reasons for this decrease are discussed in the following paragraphs.  Interest Credited and Benefits to Policyholders  Interest credited and other benefits to policyholders amounted to approximately $111.3 million for the six months ended June 30, 2007, as compared to approximately $120.9 million for the six months ended June 30, 2006. This represents a decrease of $9.6 million.  Interest credited and other benefits to policyholders were approximately $55.2 million and $60.1 million for the three-month periods ended June 30, 2007 and June 30, 2006, respectively.  These decreases are primarily due to increased surrenders on deferred annuities that exceeded new premiums.  The Insurance Companys average credited rate for reserves and account balances for the six months ended June 30, 2007 and 2006 was less than the Companys ratio of net investment income to mean assets (based on book value) for the same period as noted above under Net Investment Income. Although management does not currently expect material declines in the spread between the Company's average credited rate for reserves and account balances and the Company's ratio of net investment income to book value mean assets  (the "Spread"), there can be no assurance that the Spread will not decline in future periods or that such decline will not have a material adverse effect on the Company's financial condition and results of operations.  Depending, in part, upon competitive factors affecting the industry in general, and the Company, in particular, the Company may, from time to time, change the average credited rates on certain of its products.  There can be no assurance that the Company will be able to reduce such rates or that any such reductions will broaden the Spread.  The actual spread, excluding capital gains, for the six months ended June 30, 2007 was 2.00% compared to 1.59% for the same period in 2006.  The increase is due to both a reduction in the credited rate and an increase in the earned rate.  Interest Expense on Notes Payable  The interest expense on the Company's notes payable amounted to approximately $5.1 million for the six months ended June 30, 2007, and approximately $5.0 million for the six months ended June 30, 2006.  General Expenses, Taxes and Commissions  General expenses, taxes and commissions to agents totaled approximately $13.6 million for the six months ended June 30, 2007, as compared to approximately $11.5 million for the six months ended June 30, 2006.  This represents an increase of approximately $2.1 million.  The increase was primarily due to increased consulting fees as well as increased costs associated with higher commissions and selling expenses associated with the higher level of sales of single premium annuities.  General expenses, taxes and commissions to agents totaled approximately $6.8 million for the three months ended June 30, 2007, as compared to approximately $6.4 million for the three months ended June 30, 2006.   Deferred Policy Acquisition Costs (DAC)  The change in the net DAC for the six months ended June 30, 2007 resulted in a charge of approximately $6.0 million, as compared to a charge of approximately $4.8 million for the six months ended June 30, 2006. The change in net DAC is attributable to the costs associated with product sales, which have been deferred, (accounting for a credit of approximately $5.3 million in the first six months of 2007 and $4.4 million in the first six months of 2006).  Another portion of such change is due to amortization of the DAC of deferred annuity business.  Such changes accounted for a charge of approximately $8.7 million in the first six months of 2007 as compared to a charge of approximately $6.4 million in the first six months of 2006.  The balance of the change in net DAC is due to the amortization of the DAC for the remainder of the business including traditional and universal life as well as immediate and variable annuities (accounting for a charge of approximately $2.7 million for the first six months of both 2007 and 2006). The change in the net DAC for the three months ended June 30, 2007 resulted in a charge of approximately $2.2 million, as compared to a charge of approximately $1.6 million for the three months ended June 30, 2006.   21    Income Before Income Taxes  For the reasons discussed above, income before income taxes amounted to approximately $68.8 million for the six months ended June 30, 2007, as compared to approximately $58.0 million for the six months ended June 30, 2006.  Income before income taxes amounted to approximately $36.6 million for the three months ended June 30, 2007, as compared to approximately $26.8 million for the three months ended June 30, 2006.  Income Taxes  Income tax expense was approximately $23.7 million for the first six months of 2007 as compared to approximately $20.0 million for the first six months of 2006.  The income tax expense was approximately $12.6 million and approximately $9.2 million for the three-month periods ended June 30, 2007 and June 30, 2006, respectively.  The increase is attributable to higher income before income taxes.  Net Income  For the reasons discussed above, the Company had net income of approximately $45.1 million during the six months ended June 30, 2007 and a net income of approximately $38.0 million during the six months ended June 30, 2006.  The net income was approximately $24.0 million for the three-month period ended June 30, 2007 and approximately $17.6 million for the three-month period ended June 30, 2006.  Liquidity and Capital Resources  The Company is an insurance holding company and its primary uses of cash are debt service obligations, operating expenses and dividend payments.  The Company's principal sources of cash are interest on its investments, dividends from the Insurance Company, and. rent from its real estate.  During the first half of 2007, the Company's Board of Directors declared quarterly cash dividends of $.125 per share payable on April 2, 2007 and July 2, 2007.  During the first six months of 2007 the Company did not purchase or retire any shares of common stock.  The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances, which it may make to the Company without obtaining prior regulatory approval. Under the New York Insurance Law, the Insurance Company is permitted, without prior insurance regulatory clearance, to pay a stockholder dividend to the Company as long as the aggregate amount of all such dividends in any calendar year does not exceed the lesser of (i) 10% of its surplus as of the immediately preceding calendar year or (ii) its net gain from operations for the immediately preceding calendar year (excluding realized capital gains and losses).  The Insurance Company will be permitted to pay a stockholder dividend to the Company in excess of the lesser of such two amounts only if it files notice of its intention to declare such a dividend and the amount thereof with the Superintendent and the Superintendent does not disapprove the distribution.  Under the New York Insurance Law, the Superintendent has broad discretion in determining whether the financial condition of a stock life insurance company would support the payment of such dividends to its stockholders.  The New York State Insurance Department has established informal guidelines for such determinations. The guidelines, among other things, focus on the insurer's overall financial condition and profitability under statutory accounting practices.  Management of the Company cannot provide assurance that the Insurance Company will have statutory earnings to support payment of dividends to the Company in an amount sufficient to fund its cash requirements and pay cash dividends or that the Superintendent will not disapprove any dividends that the Insurance Company must submit for the Superintendent's consideration.  In 2006 the Insurance Company made a $20 million dividend payment to the Company.  The Insurance Company paid $10 million in dividends to the Company on April 2, 2007.  22   The key need for liquidity in the Insurance Company is the need to fund policy benefit payments on surrendered or expired annuities.  Approximately 47.4% of the deferred annuities held by the Company have provisions that allow the purchaser to surrender the policy in exchange for the payment of a surrender fee.  In an environment of flat or falling interest rates, surrender activity is generally low, as annuitants prefer to lock in the higher rates obtained.  In an environment of rising interest rates, or even in an environment where interest rates are decreasing at the same time surrender charges are expiring, surrender activity would be expected to increase, as investors seek to place their money in higher interest rate instruments.  Due to increased competition, and an increasing amount of policies with expiring surrender changes, we experienced an increase in surrenders on our annuity products in 2006 and 2007.  Policyholder account balance surrenders totaled approximately $227.1 million and $192.9 million for the six-month periods ending June 30, 2007 and 2006, respectively. In 2007, approximately 22% of account values have expiring surrender charges.  This allows the annuitant to terminate or withdraw funds from his or her annuity contract without incurring substantial penalties in the form of surrender charges.  The existing surrender charges act as a disincentive to surrender, as the annuitant must take into account the cost of surrender in calculating the likelihood of higher post-surrender returns, although, if interest rates climb sufficiently, such fees may not have a significant deterrent effect.  Also, the Companys ability to increase the interest rate on certain of these policies can act as a disincentive to surrender.  On the other hand, a significant reduction in the credited rates at the same time the surrender charge is expiring can result in an increase in surrenders.  The Company has operated in the annuity business throughout rising and falling interest rate periods and has consistently managed this business regardless of the rate trends.  The Company's ratio of surrenders to average reserves on its deferred annuity business for the first six months of 2007 is approximately 16.8% on an annualized basis.  We expect the surrender rate to remain at a relatively high level for approximately the next three quarters, as large blocks of business come off of surrender charges during this time period.  The Company conducts testing of its cash flow needs based on varying interest rate scenarios.  These tests are conducted pursuant to the New York State Insurance Department requirements and are filed with that Department. Recent testing indicates that in a moderately increasing interest rate environment, annuity surrenders would not materially alter the Company's liquidity needs.   This is partially due to the fact that the Company's average annuity credited rate is somewhat higher than the market average.  The Company's blend of deferred and immediate annuities and its payor swaption investments have operated as a buffer to the Company against the impact of interest sensitive surrenders in a rising interest rate environment.  The Company's life and health insurance liabilities are actuarially calculated on a regular basis and the Company is capable of meeting such liabilities.  Reserves for such business are carefully monitored and regulated by the New York State Insurance Department.  Because life and health insurance products represent a relatively small percentage of the Company's product mix and because the business is heavily reinsured, it is not anticipated that any spike in life insurance claims would have a material impact on the Company's liquidity.  The Company's asset/liability management process is designed to limit the duration mismatch of its assets and liabilities.  To achieve yield objectives in the current environment (i.e. a relatively flat or inverted yield curve with the expectation of possible further federal reserve rate increases), investments have been largely short-term in an effort to mitigate interest rate risk in the event that a substantial call on liabilities required the Company to liquidate some investments.  In such event, the Company would experience a decline in overall investment income due to the sale of higher yielding invested assets.  The Company would attempt to minimize the loss of income by the selection for sale of those shorter-term assets, which would produce the highest possible price.  Moreover, the mix of the Company's products between deferred and immediate annuities provides the Company with some protection against excessive calls on liabilities.  The Company does not currently rely on credit facilities to fund its liquidity needs for the payment of policyholder withdrawals or claims and does not anticipate such a need in the coming year. Moreover, based on projected trends within the Company and in the economy as whole and on the Company's financial condition, the Company does not anticipate the need to liquidate a material amount of its investment portfolio to meet surrender and policy claim liabilities in the coming year.  Principal sources of funds at the Insurance Company are premiums and other considerations paid, contract charges earned, net investment income received and proceeds from investments called, redeemed or sold.  The principal uses of these funds are the payment of benefits on life insurance policies and annuity contracts, operating expenses and the purchase of investments.  Net cash provided by the Company's operating activities (reflecting principally: (i) premiums and contract charges collected less (ii) benefits paid on life insurance and annuity products plus (iii) income collected on invested assets, less (iv) commissions and other general expenses paid) was approximately $0.3 million and $27.8 million during the six months ended June 30, 2007 and 2006, respectively.  Net cash provided by the Company's investing activities (principally reflecting investments purchased less investments called, redeemed or sold) was approximately $158.4 million, and $99.0 million during the six months ended June 30, 2007 and 2006, respectively.  For purposes of the Company's condensed consolidated statements of cash flows, financing activities relate primarily to sales and surrenders of the Company's universal life insurance and annuity products.  The payment of dividends by the Company is also considered to be a financing activity.  Net cash used in the Company's financing activities amounted to approximately $(173.6) million and $(126.1) million during the six months ended June 30, 2007 and 2006, respectively.  Under GAAP, consideration from single premium annuity contracts without life contingencies, universal life insurance products and deferred annuities are not reported as premium revenues, but are reported as additions to policyholder account balances, which are liabilities on the Corporations consolidated balance sheet.  23    The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Insurance Company. In the event the Company violates such covenants as defined in the indenture, the Company may be obligated to offer to repurchase the entire outstanding principal amount of such notes.  The Company believes that it is in compliance with all of the covenants.  Given the Insurance Company's historic cash flow and current financial results, management believes that, for the next twelve months and for the reasonably foreseeable future, the Insurance Company's cash flow from investments and operating activities will provide sufficient liquidity for the operations of the Insurance Company, as well as provide sufficient funds to the Company, so that the Company will be able to make dividend payments, satisfy its debt service obligations and pay its other operating expenses.  To meet its anticipated liquidity requirements, the Company purchases investments taking into account the anticipated future cash flow requirements of its underlying liabilities.  In managing the relationship between assets and liabilities, the Company analyzes the cash flows necessary to correspond with the expected cash needs on the underlying liabilities under various interest rate scenarios.  In addition, the Company invests a portion of its total assets in short-term investments (approximately 12.7% and 18.2% as of June 30, 2007 and December 31, 2006, respectively).  The effective duration of the Company's debt portfolio was approximately 4.9 years as of June 30, 2007 (as compared to 6.0 years as of June 30, 2006), reflecting in part the impact of the portfolio rebalancing activities during 2005 and 2006.  The Company's fixed maturity investments are all classified as available for sale and may be sold in response to, among other things, changes in market interest rates, changes in the security's prepayment risk, the Company's need for liquidity and various other economic conditions.  Fixed maturity investments are carried at estimated market value and unrealized gains and losses, net of the shadow DAC effect and deferred federal income taxes, are charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary in which event the Company recognizes a loss.  Equity securities, including common stocks and non-redeemable preferred stocks, are carried at market and unrealized gains and losses, net of federal income taxes and shadow DAC effect, if any, are charged directly to shareholders' equity, unless a decline in market value is considered to be other than temporary, in which event, the Company recognizes a loss.  The Insurance Company is subject to Regulation 130 adopted and promulgated by the New York State Insurance Department ("NYSID").  Under this Regulation, the Insurance Company's ownership of below investment grade debt securities is limited to 20.0% of total admitted assets, as calculated under statutory accounting practices.  As of both June 30, 2007 and December 31, 2006, approximately 4.9% of the Insurance Company's total admitted assets were invested in below investment grade debt securities.  The Companys portfolio includes below investment grade fixed maturity debt securities, of which approximately 88% were originally purchased as investment grade and approximately 12% were purchased to achieve a more favorable investment yield. All of these are classified as available for sale and reported at fair value. As of June 30, 2007 and December 31, 2006, the carrying value of these securities was approximately $253.2 million and $274.9 million, respectively, (representing approximately 5.8% and 6.2% of the Company's investment portfolio, respectively).  Investments in below investment grade securities have different risks than investments in corporate debt securities rated investment grade.  Risk of loss upon default by the borrower is significantly greater with respect to below investment grade securities than with other corporate debt securities because below investment grade securities generally are unsecured and often are subordinated to other creditors of the issuer.  Also, issuers of below investment grade securities usually have high levels of indebtedness and often are more sensitive to adverse economic conditions, such as recession or increasing interest rates, than are investment grade issuers.  Typically, there is only a thinly traded market for such securities and recent market quotations may not be available for some of these securities.  Market quotes generally are available only from a limited number of dealers and may not represent firm bids of such dealers or prices for actual sales.  The Company attempts to reduce the overall risk in its below investment grade portfolio, as in all of its investments, through careful credit analysis, investment policy limitations, and diversification by company and by industry.  Below investment grade debt investments, as well as other investments, are being monitored on an ongoing basis.  As of June 30, 2007, the carrying value of the Companys limited partnerships was approximately $308.8 million or 7.1% of the Company's total invested assets.  Pursuant to NYSID regulations, the Company's investments in equity securities, including limited partnership interests, may not exceed 20% of the Company's total invested assets.  At June 30, 2007, the Companys investments in equity securities, including limited partnership interests, were approximately 8.4% of the Companys total invested assets. Such investments are included in the Company's consolidated balance sheet under the heading "Other long-term investments."  The Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $172.2 million of additional capital to certain of these limited partnerships.  However, management does not expect the entire amount to be drawn down, as certain of these limited partnerships are nearing the end of the period during which investors are required to make contributions. $14.2 million in commitments will expire in 2007, $10.0 million in 2008, $5.0 million in 2009, $11.4 million in 2010, $53.1 million in 2011 and $78.6 million in 2012.  The commitment expirations are estimates based upon the commitment periods of each of the partnerships.  Certain partnerships provide, however, that in the event capital from the investments are returned to the limited partners prior to the end of the commitment period (generally 3-5 years) the capital may be recalled.  The Company may make selective investments in additional limited partnerships as opportunities arise.  In general, risks associated with such limited partnerships include those related to their underlying investments (i.e.,  24   equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Company to typically take quarterly distributions (to the extent that distributions are available) of partnership earnings, except for hedge fund limited partnerships.  There can be no assurance that the Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically or that the Company will achieve any returns on such investments at all.  Further, there can be no assurance that the Company will receive a return of all or any portion of its current or future capital investments in limited partnerships.  The failure of the Company to receive the return of a material portion of its capital investments in limited partnerships, or to achieve historic levels of return on such investments, could have a material adverse effect on the Company's financial condition and results of operations.  All 50 states of the United States, the District of Columbia and Puerto Rico have insurance guaranty fund laws requiring all life insurance companies doing business within the jurisdiction to participate in guaranty associations that are organized to pay contractual obligations under insurance policies (and certificates issued under group insurance policies) issued by impaired or insolvent life insurance companies.  These associations levy assessments (up to prescribed limits) on all member insurers in a particular state on the basis of the proportionate share of the premiums written by member insurers in the lines of business in which the impaired or insolvent insurer is engaged.  Some states permit member insurers to recover assessments paid through full or partial premium tax offsets.  These assessments may be deferred or forgiven under most guaranty laws if they would threaten an insurer's solvency.  The amount of these assessments in prior years has not been material.  However, the amount and timing of any future assessment on the Insurance Company under these laws cannot be reasonably estimated and are beyond the control of the Company and the Insurance Company.  Recent failures of substantially larger insurance companies could result in future assessments in material amounts.  Market Risk  Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates, and other relevant market rate or price changes.  Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded.  The following is a discussion of the Company's primary market risk exposures and how those exposures are currently managed as of June 30, 2007.  We believe that a portfolio composed principally of fixed-rate investments that generate predictable rates of return should back our fixed-rate liabilities.  We do not have a specific target rate of return.  Instead, our rates of return vary over time depending on the current interest rate environment, the slope of the yield curve, the spread at which fixed-rate investments are priced over the yield curve, and general economic conditions. Our portfolio strategy is designed to achieve adequate risk-adjusted returns consistent with our investment objectives of effective asset-liability matching, liquidity and safety.  The market value of the Company's fixed maturity portfolio changes as interest rates change.  In general, rate decreases cause asset prices to rise, while rate increases cause asset prices to fall.  Asset/Liability Management  A persistent concern of the Insurance Companys management is maintaining the appropriate balance between the duration of its invested assets and the duration of its contractual liabilities to its annuity holders and credit suppliers.  During 2003 and 2004, the Insurance Company had permitted the duration gap between its assets and liabilities to rise during a period in which it expected relatively stable interest rates and, most importantly, in which its liabilities were largely protected by significant annuity surrender charges.  This strategy benefited the Company by allowing it to realize enhanced yield from longer duration assets.  At the end of 2004, the Insurance Company determined that the prospect of rising rates and declining surrender charges, as well as increased management of extension risk in its investment portfolio, necessitated a reduction in the duration mismatch.  The Company developed a duration reduction strategy, which involved the sale of certain longer duration assets that were purchased at prices below current market prices and reinvestment in shorter duration assets.  Since December 31, 2004, the Company has completed in excess of $1,238.9 million of asset repositioning.  The Companys ALM strategy has also included the purchase of a series of Payor Swaptions.  In July 2005, the Insurance Company entered into a series of Payor Swaptions designed to protect the Company against an instantaneous rise in interest rates of 300 basis points, as required by the New York State Insurance Department (Regulation 126).  Six contracts laddered over a 3-year period were purchased from one dealer and three banks at a total cost of $19,430,625. As these contracts each approach their option expiration, it has been the Companys intention to roll forward the position(s) by selling the expiring position(s) and purchasing new contract(s) in an amount and with such other terms and conditions sufficient to provide the Company with profits to offset any anticipated portfolio losses arising from an instantaneous 300 basis point rise in interest rates.  During the 3rd quarter of 2006, the Insurance Company sold the 2006 Payor Swaption set to expire, realizing a capital gain of $3,186,000. The proceeds were reinvested into a new Payor Swaption that expires on July 13, 2009. During the 2nd quarter of 2007, the Insurance Company sold 2 of the Swaptions set to expire in July 2007 realizing a capital loss of $1,396,875. These proceeds were reinvested into a new Payor Swaption that expires on June 21, 2010.  The Company has established ISDA Credit Support Agreements with the three counterparties that have sold the 5 Swaptions currently held by Presidential Life. All of these counterparties are major money center banks that carry credit ratings equal to or higher than Aa3 by Moody's and AA- by S&P. The ISDA Credit Support Agreement requires that counterparties must post collateral if the bank credit rating falls below A3 by Moodys and A- by S&P. These contracts expire in July 2008, July 2009 and June 2010 at varying strike rates based on the 10-year swap rate. The Company has determined that the Payor Swaptions represent a "non-qualified hedge" and has adopted  25   accounting procedures consistent with the provisions of FAS 133. The aggregate market value of the Payor Swaptions as of June 30, 2007 was $19,494,086. A variety of factors affect the value of the Payor Swaptions. These include overall Treasury interest rate levels, SWAP spreads, overall market volatility and the length of time remaining before the expiration of a Payor Swaption. These investments are classified on the balance sheet as "Derivative Instruments". Under FAS 133, the value of the Payor Swaptions is recognized at "fair value" (market value), with the resulting change in fair value reflected in the statement of income as a realized loss or gain. The change in market value during the 2nd Quarter of 2007 was a gain of $12,334,773.  The Company has determined that the average fair value, based upon weekly market values for the period (December 31, 2006 to June 30, 2007), was $9,642,094.  The Insurance Company conducts periodic cash flow tests assuming different interest rates scenarios in order to demonstrate the reserve adequacy.  If a test reveals a potential deficiency, the Insurance Company may be required to increase its reserves to satisfy its statutory accounting requirements. Based on testing as of December 31, 2006, the Insurance Company added an additional reserve of $51 million partially offset by an $18 million deferred tax asset, on a statutory basis, to address these contingencies.  Off-Balance Sheet Arrangements  The Company has not entered into any off-balance sheet financing arrangements and has made no financial commitments or guarantees with any unconsolidated subsidiary or special purpose entity.  All of the Companys subsidiaries are wholly owned and their results are included in the accompanying consolidated financial statements.  Contractual Obligations  The accompanying Notes to Consolidated Financial Statements contain information regarding payments required under existing long-term borrowing arrangements.  The following presents a summary of the Companys significant contractual obligations.  CONTRACTUAL OBLIGATIONS TABLE  Payment Due By Period (in thousands)Contractual ObligationsLess than
1 Year1-3 Years4-5 YearsAfter 5 YearsTotalLong Term Debt Obligations$               -$   100,000$               -$                   -$      100,000Interest on Long-Term Debt    Obligations$       7,875$       7,875$               -$                   -$        15,750Policy Liabilities (1)$   690,705$   916,462$   754,603$    2,861,855$   5,223,625  (1) The difference between the recorded liability on the balance sheet of $3,537.5 million, and the total contractual obligation amount of $5,223.6 million is $1,686.1 million and is comprised of (i) future interest to be credited; (ii) the effect of mortality discount for those payments that are life contingent; and (iii) the impact of surrender charges on those contracts that have such charges.  Of the total contractual obligation of $5,223.6 million, $3,451.7 million, or 66.1%, is from the Companys deferred annuity, life, and accident and health business. Determining the timing of these payments involves significant uncertainties, including mortality, morbidity, persistency, investment returns, and the timing of policyholder surrender.  Notwithstanding these uncertainties, the table reflects an estimate of the timing of such payments.  Long-term debt obligations consist of $100 million, 7 7/8% senior notes due February 15, 2009.  See Note 3 in Notes to the Unaudited Condensed Consolidated Financials Statements for additional discussion concerning both long-term and short-term obligations.  Effects of Inflation and Interest Rate Changes  In a rising interest rate environment, the Company's average cost of funds would be expected to increase over time as it prices its new and renewing annuities to maintain a generally competitive market rate. In addition, the market value of the Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity.  Concurrently, the Company would attempt to place new funds in investments that were matched in duration to, and higher yielding than, the liabilities associated with such annuities.  Management believes that the liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, and the Company's cash reserves or from the sale of short-term investments.  In a declining interest rate environment, the Company's cost of funds would be expected to decrease over time, reflecting lower interest crediting rates on its fixed annuities.  Should increased liquidity be required for withdrawals in such an interest rate environment, management believes that the portion of the Company's investments which are designated as available for sale in the Company's consolidated balance sheet could be sold without materially adverse consequences in light of the general strengthening in market prices which would be expected in the fixed maturity security market.  26     Interest rate changes also may have temporary effects on the sale and profitability of our universal life and annuity products.  For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Company's products until the Company increases the rates credited to holders of its universal life and annuity products.  In contrast, as interest rates fall, we would attempt to lower our credited rates to compensate for the corresponding decline in net investment income.  As a result, changes in interest rates could materially adversely affect the financial condition and results of operations of the Company depending on the attractiveness of alternative investments available to the Company's customers.  In that regard, in the current interest rate environment, the Company has attempted to maintain its credited rates at competitive levels designed to discourage surrenders and also to be considered attractive to purchasers of new annuity products.  Because the level of prevailing interest rates impacts the Companys competitors in the same fashion, management does not believe that the current interest rate environment will materially affect the Company's competitive position vis a vis other life insurance companies that emphasize the sale of annuity products.  Notwithstanding the foregoing, if interest rates continue at current levels or decline, there can be no assurance that this segment of the life insurance industry would not experience increased levels of surrenders and reduced sales and thereby be materially adversely affected. Conversely, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Companys competitors, certificates of deposit, mutual funds and similar investments) may become more attractive to potential purchasers of the Companys products until the Company increases its credited rates.  CRITICAL ACCOUNTING ESTIMATES  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (2GAAP2) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the consolidated financial statements.  In applying these accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain.  Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Insurance Companys business operations.  Except for income taxes, there have been no material changes to the critical accounting policies previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006.  The methodology applied to managements estimate for income taxes has changed due to the implementation of a new accounting pronouncement as described below.  In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48), which became effective for us beginning in fiscal 2007.  FIN 48 addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. For additional information regarding the adoption of FIN 48, see Note 7 of Notes to Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q.  New Accounting Pronouncements  See Note 1 of the condensed consolidated financial statements for a full description of the new accounting pronouncements including the respective dates of adoption and the effects on the results of operations and financial condition.  27    Item 3.   Quantitative and Qualitative Disclosures About Market Risk.  For a discussion of market risks, refer to the Liquidity and Capital Resources section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 in our Annual Report on Form 10-K for the fiscal year ended December 31, 2006. During the first six months of 2007, there were no material changes or developments that would materially alter the market risk assessment performed as of December 31, 2006.  Item 4.  Controls and Procedures  Disclosure Controls and Procedures  Management of the Company is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) of the Securities Exchange Act of 1934.  As of June 30, 2007, the Company, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of such disclosure controls and procedures. Based on such evaluation, the Corporations Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and that such information is accumulated and communicated to the Companys management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  During or subsequent to the six month period ended June 30, 2007, there were no changes in our internal controls that have materially affected or are reasonably likely to materially affect, internal controls over financial reporting.   28    PART II - OTHER INFORMATION  Item 1.  Legal Proceedings  From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business.  As of June 30, 2007, the Company is not a party to any legal proceedings, the adverse outcome of which, in management's opinion, individually or in the aggregate, would have a material adverse effect on the Company's financial condition or results of operations.  Item 1A.  Risk Factors  The Companys business is subject to certain risks and events that, if they occur, could adversely affect the financial condition and results of operations and the trading price of our common stock.  For a discussion of these risks, please refer to the Risk Factors section of the Companys Annual Report of Form 10-K for the fiscal year ended December 31, 2006.  In connection with its preparation of this quarterly report, management has reviewed and considered these risk factors and has determined that there have been no material changes to the Companys risk factors since the date of filing the Annual Report.  The Company has adopted Enterprise Risk Management (ERM) as a methodology for managing risks.  The Company has engaged Tillinghast, a division of Towers Perrin, to assist in the process of implementing ERM.  Management is currently developing an Economic Capital framework as a key metric to support decision making at all levels across the Company.  In addition, management has developed a roadmap in order to improve its identification of key risks to strategic objectives, clarify governance structure, and identify potential gaps that may exist in current risk management.  By creating a more structured framework, enhancing investment decision-making and improving the identification of major risks, management believes that ERM will play a fundamental role in the Companys efforts to create and preserve shareholder value.  Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds  None  Item 3.  Defaults Upon Senior Securities  None  Item 4.  Submission of Matters to a Vote of Security Holders  None  Item 5.  Other Information  None  Item 6.  Exhibits and Reports on Form 8-K  a) Exhibits  31.1 Certification of Chief Executive Officer 31.2 Certification of Chief Financial Officer 32.1 Certification of Chief Executive Officer 32.2 Certification of Chief Financial Officer  b) Reports on Form 8-K  None  29    PRESIDENTIAL LIFE CORPORATION August 7, 2007    SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.    Presidential Life Corporation (Registrant)   Date:   August 7, 2007 /s/ Herbert Kurz Herbert Kurz, President and Duly Authorized Officer of the Registrant   Date:   August 7, 2007 /s/ Charles J. Snyder Charles J. Snyder, Chief Financial Officer of the Registrant                               30     PRESIDENTIAL LIFE CORPORATION August 7, 2007    SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.    Presidential Life Corporation (Registrant)   Date:  August 7, 2007 /s/Herbert Kurz  ---------------------- Herbert Kurz, President and Duly Authorized Officer of the Registrant   Date:  August 7, 2007  /s/ Charles Snyder   ---------------------- Charles J. Snyder, Chief Financial Officer of the Registrant                               31    Exhibit 31.1  Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-15f  I, Herbert Kurz, Chief Executive Officer of Presidential Life Corporation certify that:  1. I have reviewed this quarterly report on Form 10-Q of Presidential Life Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and 5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.  Date: August 7, 2007 /s/Herbert Kurz --------------------- Herbert Kurz Chief Executive Officer           32     Exhibit 31.2  Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-15f  I, Charles Snyder, Chief Financial Officer and Treasurer of Presidential Life Corporation certify that:  1.    I have reviewed this quarterly report on Form 10-Q of Presidential Life Corporation, 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; 4. The company's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting; and 5. The company's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company's auditors and the audit committee of the company's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal control over financial reporting.  Date: August 7, 2007 /s/Charles Snyder ---------------------- Charles Snyder  Treasurer and Chief Financial Officer           33     Exhibit 32.1    CERTIFICATION PURSUANT TO  18 U.S.C SECTION 1350,  AS ADOPTED PURSUANT TO  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  In connection with the Quarterly Report of Presidential Life Corporation (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Herbert Kurz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:   (1) Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.   /s/Herbert Kurz ------------------ Herbert Kurz Chief Executive Officer August 7, 2007                            34     Exhibit 32.2    CERTIFICATION PURSUANT TO  18 U.S.C SECTION 1350,  AS ADOPTED PURSUANT TO  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002  In connection with the Quarterly Report of Presidential Life Corporation (the "Company") on Form 10-Q for the period ending June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Charles Snyder, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:  (1) Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and  (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.   /s/Charles Snyder ------------------- Charles Snyder Treasurer and Chief Financial Officer August 7, 2007                               35